TMI Blog1981 (4) TMI 59X X X X Extracts X X X X X X X X Extracts X X X X ..... of Shri H. D. Dennis, one of the said assessees, since the question of law relating to the valuation of the rent perquisite in terms of ss. 15 and 17 of the Act read with r. 3 of the I.T. Rules, 1962, as well as that relating to reopening of the assessment proceedings under s. 147(b) of the Act are common. The first question being common to all the 11 cases and the second question as stated earlier being common to all the cases except that of the said Shri Ziegler. Shri Dennis was an expatriate employee of the Caltex (India) Ltd. (hereinafter referred to as the " employer-company "), he being a citizen of the United States of America. In addition to his salary, he was provided rent-free unfurnished residential accommodation by the employer-company, and a portion of his tax liability in India in respect of the salary income from the employer-company was borne by it so as to place him in the same tax position as an individual of like status employed in his home-country. To the extent of the amount of the tax which would work out at the rates prevailing in his home-country on the amount of the remuneration earned in India, the assessee had to pay the tax. The excess of the tax liabili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (iii) allowances which are exempted from payment of tax. The question which cropped up was whether the expression Salary as defined in Explanation (2) to r. 3 as set out above included the amount of tax liability borne by the employer-company on behalf of the employee. In terms of the above provisions, the point which arose for consideration in the present case was whether the value of rent perquisite was to be taken: (1) at 10% of the remuneration of Rs. 1,22,475, or (2) at 10% of such remuneration plus 10% of the tax borne by the employer, i. e., at 10% of Rs. 3,08,729, that is to say, at Rs. 12,247 or at Rs. 30,873. It was common ground between the parties that the amount of tax borne by the employer-company was chargeable under the head " Salaries " under ss. 15 and 17 of the Act. Therefore, the narrow point to be considered was whether the amount of such tax borne by the employer-company, viz., Rs. 1,86,254 in the present case was to be taken to mean " salary " as defined in the said Explanation (2) to r. 3 for the limited purpose of determining the value of rent perquisite. In the original assessment proceedings, the value of rent perquisite was taken at 10% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n terms of s. 15 and s. 17, excluding the payments specified in Explanation (2) to rule 3, and would include fewer items of income than those included in that expression as set out in s. 17(1). (3) On the theory that the more specific excludes the general, if any sum paid by the employer fits into the specific definition of 'perquisites' as provided in s. 17(2)(iv), then it must be understood as perquisites and not as 'profits in addition to any salary' as referred to in s. 17(1)(iv). (4) The amount of tax liability of an employee borne by the employer including tax on tax exactly fits into the definition of 'perquisites' as set out in s. 17(2)(iv) being the sum paid by the employer in respect of any obligation which, but for such payment, would have been payable by the assessee and is, therefore, a 'perquisite' as defined in s. 17(2)(iv), and is not additional salary or 'profit in addition to salary' as referred to in s. 17(1)(iv). (5) Rule 3, Explanation (2), does not seek to create an artificial definition of salary so as to specifically provide that 'Salary' shall include ' perquisites or profits in addition to any salary' or tax benefits. The rule making authorities h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reopening of the assessment under s. 147(b) of the Act. The original assessment in the case of Shri Dennis was made on May 26, 1964, the notice under s. 148 was issued on January 24, 1967, and the reassessment was made on March 22, 1968. Before the Tribunal the assessee contended that the ITO had proceeded merely on the basis of a change of opinion for which he was not entitled to reopen the assessment under s. 147(b) and that the ITO could have acquired jurisdiction under s. 147(b) only if he had reason to believe in consequence of information received subsequent to the completion of the original assessment that the assessee's taxable income had escaped total or partial assessment. On behalf of the revenue, however, it was submitted before the Tribunal that the assessments were reopened under s. 147(a) and not under s. 147(b). In support of this contention, on behalf of the revenue, a copy of the ITO's letter dated August 19, 1966, to his IAC and the IAA's reply to the same on September 6, 1966, were produced before the Tribunal. They are annexs. " G-1 " and " G-2 " on record. It was then submitted before the Tribunal on behalf of the revenue that subsequent to the date of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ), the proceedings should-be deemed to have been reopened under the said s. 147(b). It was also further submitted that the ITO had jurisdiction to proceed under the said s. 147(b) since the inspection note dated May 5, 1965, of the IAC and/or letter dated April 27, 1966, from the CBDT expressing its views on the matter, constituted " information " within the meaning of the said section. It was also argued on their behalf that there was no material to suggest that the ITO who made the original assessment had applied his mind to the point at issue. Assuming that he had done so, that would not still be a bar to his jurisdiction under the said s. 147(b) if in consequence of information, he prima facie came to believe that the assessee's taxable income had escaped partial or total assessment. For the said purpose, it was not necessary that the information should be from an outside source and that the ITO could inform himself on research or re-examination of the facts already on record. As against this, the contention of the assessee was that no action under s. 147(a) of the Act could be initiated by the ITO unless the non-disclosure of the alleged fact was material for the purpose of as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its order dated January 28, 1970, on this issue held that the omission to disclose the actual rent payable by the employer-company was not a material fact and its non-disclosure could not confer any jurisdiction on the ITO to initiate reassessment proceedings under s. 147. That the materials placed by the assessee before the Tribunal did not lead to an inference that the ITO who completed the assessment originally had not applied his mind to the point at issue. In the case of an assessment completed under s. 143(3) of the Act (s. 23(3) of the 1922 Act), it was reasonable to presume that the ITO had applied his mind to all questions involved in the assessment to the best of his ability. That the inspection note of the IAC as well as the view endorsed by the Central Board was not judicial decision and would not constitute information with regard to the true and correct state of law so as to confer any jurisdiction on the ITO to initiate reassessment proceedings under the said s. 147(b). Accordingly, the Tribunal held that the assessee could not be charged with omission or failure to disclose fully or truly any material facts necessary for his assessment and the proceedings initiated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , where the accommodation is not furnished-10 per cent. where the accommodation is furnished- 12.5 per cent. of the salary due to the assessee ...... Explanation.-For the purposes of clauses (a) and (b)-... (2) 'salary' includes the pay, allowances, bonus or commission payable monthly or otherwise, but does not include the following, namely: (i) dearness allowance or dearness pay unless it enters into the computation of superannuation or retirement benefits of the employee concerned; (ii) employer's. contributions to the provident fund account of the assessee; (iii) allowances which are exempted from payment of tax. These are the only provisions of the Act and the Rules which are relevant for our discussion. It is obvious from the aforesaid rules, that the definition of " salary " in r. 3 is an inclusive one and, therefore, it is not restricted to what is included in the said definition. The device of inclusive definition is employed by the Legislature with a view to enlarge the meaning of the ordinary words and hence the rule of interpretation of such definition adopted by the courts is to read the word defined so as to enlarge its meaning and not to restrict ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to exclude certain kinds of payments which are otherwise covered by the word " salary ". This is obvious from the fact that the definition of salary given in the said rule excludes from its ambit only certain allowances, viz., dearness allowance or dearness pay, unless it enters into the computation of superannuation or retirement benefits of the employee; employer's contribution to the provident fund account of the assessee and allowances which are exempted from the payment of tax. If the Legislature did not want to exclude the said allowances and contributions, it would not have been necessary to give a separate definition of salary under the said rule. Therefore, it is more than obvious that the said definition given in r. 3 is co-extensive with the definition given in s. 17 of the Act, except so far as there is an express exclusion therefrom of the kind of payments mentioned. Next the definition of salary given in the said r. 3 includes pay. The dictionary meaning of the word " pay " includes all periodical payments for services rendered. Thus, the word " pay " is nothing but salary and it is synonymous with it. Hence, the tax paid by the employer on behalf of the employee woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d paid in the present case. For all these reasons, we are satisfied that Shri Munim is not entitled to succeed in his contention that the definition of the word " salary " contained in r. 3 does not include tax paid by the employer in the present case. We are fortified in the view we are taking by two decisions, viz., one of the Kerala High Court in CIT v. C. W. Steel (No. 1) [1972] 86 ITR 817, and the other of the Madras High Court in CIT v. Mackintosh [1975] 99 ITR 419. In both the cases, the very same question fell for consideration, viz., whether the income-tax paid by the employer was salary for the purposes of finding out the value of the rent-free accommodation given to the employee. Both the courts have answered the issue in favour of the revenue and against the assessee. The Madras High Court in its judgment has approved of the ratio of the decision of the Kerala High Court. We are respectfully in agreement with the decisions of both the courts on the said point. We are, therefore, satisfied that the revenue is entitled to succeed on the first question and the answer to the first question will have to be given in its favour and against the assessee. Turning now to the se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law which constitutes a fresh or subsequent information. In the light of the aforesaid propositions, we may, now refer to the facts in the present case. Admittedly, the ITO had reopened the assessment because of the inspection note dated 5th May, 1965, and the communication dated 4th May, 1966, from the Commissioner containing the extract from the letter dated April 27, 1966, of the CBDT. In the inspection note, the IAC had expressed his opinion that the taxes paid by the company ought to have been included in the computation of the value of rent-free accommodation. This opinion was later on confirmed by the CBDT. The assessment was reopened after this confirmation was received as communicated in the letter dated April 27, 1966. It is not disputed further that there was no other information received for reopening the assessment. There is no controversy before us that the present is not and cannot be a case under s. 147(a) of the Act, inasmuch as there was no omission or failure on the part of the assessee to disclose fully or truly all the material facts necessary for the assessment. Therefore, at the highest, according to the revenue, it was a case where there was an informatio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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