TMI Blog1975 (1) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... rting not later than three months from 10th May, 1957, the following among other staff, one directing engineer, one mechanical engineer and one mining engineer. The P.D.T.S. had to make available to N.L.C. as and when necessary the services of their whole Organisation in U.K. and had to arrange for additional engineer to visit India when necessary. In clause 8, it was provided that P.D.T.S. had to ensure that their staff at the mine was available when required to attend meetings with or convened by N.L.C. Under clause 9, N.L.C. had to take all necessary steps to ensure that its employees at the mine co-operated with the consultants and their staff to the extent necessary and to enable the consultants to carry out their duties. N.L.C. undertook under clause 11 to provide free of charge to the consultants, i.e., P. D. T. S. office accommodation at Neyveli and under clause 12, free residential accommodation, suitable for Europeans for each member of the site staff of the consultants, with basic furniture and free power for lights and fans and free supply of water. The site staff were to be given the necessary transport facilities as contemplated by clause 13. The remuneration of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company towards the cost of providing such accommodation. The appointment letters in the case of the two other employees are not annexed to the statement of the case. The case proceeded, however, on the basis that the appointment letters in the other two cases were identical except for any variation in the salary as such. Under section 4(3)(xiv) of the Indian Income-tax Act of 1922, exemption was available to the income chargeable under the head Salaries " for a period of 36 months in the case of " foreign technicians the contracts with whom were approved by the Government of India. In the present case the period of exemption with reference to these technicians came to be closed on 23rd June, 1960. The salary became thereafter taxable. We are concerned in the present case with the assessment year 1961-62. During the preceding financial year, Mr. J. J. Thomas rendered services up to 9th November, 1960, and the other two technicians through. out the relevant previous year. The question that arose in the respective assessments was whether the subsistence allowance payable under clause 23(c) of the agreement between P. D. T. S. and N. L. C. and paragraph 4 of the appointment let ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... confined only to question No. 2. Mr. Jayaraman, the learned counsel for the Commissioner of Income-tax, submitted that even on the first question as framed, the argument that the subsistence allowance was assessable under section 7(1) was open to him and that, in any event, the question could be refrained so as to bring out the real issues between the parties, as the Tribunal could not have intended to place before the court a mere academic question or a question the answer to which was self-evident. After carefully considering the respective submissions, we think it proper to reframe the question No. 1 as follows : " Whether, on the facts and the circumstances of the case, the subsistence allowance falls under the head ' Salaries ' within the meaning of section 7(1) of the Indian Income-tax Act, 1922 ? " We have reframed the question substantially on the language used by the Tribunal itself. We have only omitted the reference to Explanation 2. Both on purposes of appreciating the reasons for reframing the question as above and for considering the issues involved in this case, it is necessary to make a brief reference to the provisions of sections 7 and 4(3)(vi) of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4: " Where a special allowance is specifically granted to meet expenses wholly and necessarily incurred in the performance of the duties of an office or employment of profit, such allowance, to the extent to which it is actually spent, is covered by section 4(3)(vi). If on the other hand no special allowance is granted, but the assessee is required by the conditions of his service to meet such expenses out of his remuneration, the sum so expended is deductible from his assessable income under section 7(2)(iii). But in both cases the expenses must be expenses which are wholly and necessarily incurred in the performance of the duties of the office." Bearing in mind the distinction pointed out above we should approach the problem before us. As indicated earlier, the primary investigation has to be whether any particular receipt has to be brought within the scope of section 7(1) of the Act. If the receipt is found as not satisfying the primary meaning of the expressions " perquisites " or " profits in lieu of salary ", then alone we have to go to the Explanations. Both sides are, however, agreed before us that in the present case Explanation 2 to which reference has been made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provided for the holder of an office or employment under a company may be a profit of that office or employment, although provided by the shareholders and not by the company itself, which was the natural paymaster. A slightly different note appears to have been struck by a decision of the Calcutta High Court in David Mitchell v. Commissioner of Income-tax. In that case the assessee was a chartered accountant by profession and he was a partner in a leading firm of chartered accountants. The promoters of the company engaged the services of the chartered accountant firm to assist them in the floatation of the company. The assessee attended to this work as partner of the firm. As a token of appreciation for the assistance rendered by him, he was given 2,500 shares in the company which was an unsolicited gift in his favour. The point for consideration was whether the value of these shares was liable to be taxed. At page 714, the learned judges observed as follows : " The contract of employment in connection with which he had rendered services to the promoters was a contract between them and Messrs. Lovelock and Lewes. The assessee was not an employee of the promoters under that co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y reason of his office ......... it seems to me that once we have reached the conclusion that this money allowance is part of the salary or wages, perquisites, profits or other emoluments which are derived from his office, we must hold that it is assessable to income-tax...... " The question as to whether the assessee could get deduction for the purchases actually made was left for consideration of the taxing authorities. In Corry v. Robinson the facts were as follows : The assessee, a civil servant, was the deputy cashier of the naval base at Singapore working for the British company. He received the salary appropriate to his rank and in addition a " colonial allowance " to meet the increased cost of living abroad. The question was whether the " colonial allowance " was liable to be taxed. Finlay J. held that the amount paid for extra cost of living was assessable to tax. The case went up to the Court of Appeal. But the question of assessability was disputed on other grounds, which are not material for our present purpose. Recently the House of Lords had to go into this point in Owen v. Pook (Inspector of Taxes) . The assessee in this case was a medical practitioner. He h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... He held that it was not an income. Lord Donovan observed at page 160 as follows : " On the footing that the travelling expenses paid to Dr. Owen simply reimbursed what he had spent (or part of what he had spent) on travelling in performance of his duties, I do not think they should be regarded as emoluments of his employment within the meaning of Schedule E. I think the case is distinguishable from Fergusson v. Noble where a cash allowance was paid to the employee which, although he may have been required to spend it on buying a civilian suit, yielded a benefit or advantage to him. Lord Wilberforce did not specifically decide this issue except saying at page 164 as follows : "........ I should have difficulty in seeing how the appellant could succeed, on his alternative point, in establishing that reimbursement of a non-deductible expense is something other than an emolument. " Lord Pearson took the view that the amount received as travelling allowance was an emolument. Applying the majority view of the House of Lords, we would have to examine the character of the amount received by the assessee as and by way,of reimbursement of any actual expenditure,while on dut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion (1) of section 7; and (3) it must have been specifically granted to meet expenses wholly and necessarily incurred in the performance of the duties of an office or employment of profit. If all these three conditions are satisfied, then the exemption is available to the extent to which such expenses were actually incurred for that purpose. The exemption was restricted to the actual expenditure incurred by an amendment made by the Finance Act of 1955. Before this amendment the Bombay High Court had taken the view in Tejaji Farasram Kharawalla v. Commissioner of Income-tax that once it was established that the grant was for a particular purpose it was no longer necessary for the assessee to prove that in fact he expended the grant for the purpose for which it was given. It was also held that the assessee might have spent more or less, but qua that grant, he was entitled to the exemption. The validity of this view of the Bombay High Court was canvassed before the Supreme Court in Commissioner of Income-tax v. Tejaji Farasram Kharawalla Ltd. In that case the assessee was a distributor of dyes and dye stuffs manufactured by Ciba. Ciba agreed to pay a commission at the rate of 12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have come in for consideration in Nolder v. Walters . That was a case of an aeroplane pilot who was employed by a limited company and who claimed deduction of expenses on telephone, etc., in the assessment of his remuneration to income-tax under Schedule E of the U.K. Act. At page 387 Rowlatt J. said as follows : In the performance of the duties' means in doing the work of the office, in doing the things which it is his duty to do while doing the work of the office. A man who holds an office or employment has, equally necessarily, to do other things incidentally, and spend money incidentally because he has the office. He has to get to the place of employment, for one thing......... but it is not in doing the work of the office, which begins when he arrives, and sets to work to perform his duties." Similarly, in 1. G. Mankad v. Commissioner of Income-tax the Gujarat High Court had to deal with a case where a chartered accountant practising in Ahmedabad was employed as a part-time professor of accountancy in Bhavnagar on a salary of Rs. 400 per month including travelling allowances and all other allowances. He claimed exemption under section 4(3)(vi) of the Indian Income-tax A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no effect on the problem under consideration. As pointed out in Corry v. Robinson , in the case of a person engaging in for work at Singapore and receiving a " colonial allowance " the amount received is liable to be taxed as income. The claim for exemption could be sustained only if it is proved that the subsistence allowance was received specifically for meeting the expenses wholly and necessarily incurred in the performance of the duties. There is no evidence on this point. Merely because a person is employed and therefore, he receives the amount the exemption does not follow. The fact of his employment coupled with the receipt would render the amount taxable as observed earlier. The exemption can be claimed only if the conditions of section 4(3)(vi) of the Act are satisfied. Though the amount is described as the subsistence allowance and can in that sense be considered to be a special allowance, it would not be eligible for exemption, because it is not shown to have been granted to meet the expenses wholly and necessarily incurred in the performance of the duties. The learned counsel for the Commissioner of Income-tax submitted that if a particular amount was liable to be treat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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