2000 Supreme(SC) 454

2000(2) Supreme 272
SUPREME COURT OF INDIA
(From Allahabad High Court)
D.P. Wadhwa & M.B. Shah, JJ.
Karamchari Union, Agra -Appellant
versus
Union of India & Ors. -Respondents
Civil Appeal No. 1843 of 1989
With
Civil Appeal Nos. 1784-86/88, 6054/94, 1853-1856/2000 @ SLP (C) Nos. 15477-80/1988 and 6058/94
Decided on 29-2-2000
Counsel for the Parties :
For the Appearing Parties : K.N. Shukla, Shanti Bhushan, Sr. Advocates, Sanjeev Kapoor, N. Verma, Prashant Bhushan, A. Shrivastava, Ms. Renu George, S.K. Dwivedi, S.C. Dhanda, Rajesh Srivastava, Ujjwal Banerjee, S.K. Puri, H.K. Puri, P. Parameswaran, K.R. Nambiar , Buddy A. Ranganadhan, A.V. Rangam, P.I. Jose, Jenis Francis, B.K. Prasad, V.J. Francis, Ms. A. Subhashini, A.V. Ranganadhan, Advocates.

VERY IMPORTANT POINT
Receipts on account of CCA, HRA and DA are in the nature of income entailing tax liability.

Headnote:Income tax Act, 1961-Section 14 r/w Section 17 and Section 2(24)-Salary-Profits in lieu of salary-CCA, HRA and DA, whether profits in lieu of salary forming part of salary income?-Word profits is used only to convey any advantage or gain by receipt of any payment by employee-Advantage in terms of payment of money received by employee from employer in relation to any salary or wages would be covered by inclusive definition of word salary-DA, HRA and CCA would be taxable income.

       Held : In view of the amendment of clause (24) of Section 2 of the Act, it would be difficult to say that the amount received as CCA or HRA would not be covered by the inclusive definition of the word income . In view of the afore-quoted amendment of the word income , any special allowance or benefit specifically granted to the assessee to meet expenses wholly necessarily and exclusively for the purpose of the duties of an office would be included in the word income . It has also been pointed out that under sub-clause (iiib) any allowance granted to the assessee either to meet his personal expenses at the place where the duties of his office are ordinarily peformed by him or a place where he ordinarily resides or to compensate him for the increased cost of living is also to be included in income. Therefore, it is conceded that the payment of HRA or CCA, would be covered by the word income . (Paras 8 & 10)

       Once it is conceded that receipt of such amount is income of the assessee, the only question would be whether it is taxable under the head salary . Reading of sub-section (1) of Section 17 of the Act makes it abundantly clear that the word "salary" is given exhaustive meaning as stated in clause (i) to (vii). The inclusive definition of the word "salary" given in Section 17 provides that apart from salary received by the employee, it includes wages, any annuity or pension, any gratuity, any fees, commissions, perquisites or profits in lieu of or in addition to any salary or wages, any advance of salary, any payment received by an employee in respect of any period of leave not availed by him and other payments mentioned in clauses (va), (vi) and (vii). These clauses (i) to (vii) of sub-section (1) indicate that Legislature intended to include in salary the specified or named amount paid to the employee in respect of services rendered by him. Clause (iv) of sub-section (1) provides inclusion of four types of payments in the word `salary -(i) fees (ii) commissions (iii) perquisites and (iv) profits in lieu of or in addition to salary. In common parlance, fees, commissions, perquisites or payments of profits in lieu of salary may not be considered to be salary. But by this inclusive definition, it has been provided so. After giving this exhaustive definition of the word `salary , further inclusive definition is given to the word `perquisite , with which we are not concerned in these appeals. Thereafter, sub-section (3) provides for inclusive definition of the phrase "profits in lieu of salary". Clause (i) of sub-section (3) inter alia includes the amount of any compensation received by an assessee from his employer or former employer at or in connection with the termination of his employment or the modification of the terms and conditions relating thereto. Inclusion of this amount of compensation has direct connection with the employment or terms and conditions relating thereto. In the context of the aforesaid sub-sections (1), (2) and (3), appropriate meaning to the words and phraseography used in clause (ii) is to be given. (Paras 11 & 12)

       The Income Tax Act is a self-contained Code and the taxability of the receipt of any amount or allowance is to be determined on the basis of meaning given to the words or phrases in the Act. Section 2(24) of the Act gives wide inclusive definition to the word income . Similarly, for levying tax salary income, exhaustive definition is given under Section 17, which includes perquisites and profits in lieu of salary. Only exclusion provides under sub-section (3) is any payment referable to clause (10) [clause (10A)], [clause 10(B)], clause (11), clause (12), clause (13) or [clause (13A)] of Section 10. In view of this specific inclusion and exclusion in the meaning of the word income and salary , it is rightly submitted that payment received by the assessee has no connection with the profits of the employer. The word profits is used only to convey and advantage or gain by receipt of any payment by the employee. (Paras 22)

       Applying the general meaning of the word profits and considering the dictionary meaning given to it under Section (17)(1)(iv) and 3(ii), it can be said that advantage in terms of payment of money received by the employee from the employer in relation or in addition to any salary or wages would be covered by the inclusive definition of the word salary . Because of the inclusive meaning given to the phrase profits in lieu of salary would include any payment due to or received by an assessee from an employer, even though it has no connection with the profits of the employer. It is true that Legislature might have avoided giving of inclusive meaning to the word salary by stating that any payment received by the employee from an employer would be considered to be salary except the payments which are excluded by Section 17(3)(ii) i.e. clauses (10), (10A), (10B), (11), (12), (13) or (13A) of Section 10. However, it is for the Legislature to decide the same. This would not mean that by giving exhaustive and inclusive meaning, the word profits can be given a meaning only when it pertains to sharing of profits by the employer. For the assessee, the receipt of such amount would be a profit, gain or advantage in addition to salary, even though it is not named as salary. Therefore, the word profits in context is required to be understood as gain or advantage to the assessee. Hence, it is not possible to accept the contention of the learned counsel for the employees that as the CCA amount is paid to meet the additional expenditure as contemplated by the statutory Service Rules, it cannot be said to be profit, gain or additional salary. Under the Act, such receipt of the amount as conceded is covered by the definition of the word "income" and as provided it would be in addition to salary. Hence, it would be part and parcel of income by way of salary, which would be taxable one. (Para 24)

       May be that this is true to the extent that Government or statutory corporations do pay something less than what is required to be reimbursed and the receipt of CCA can not be termed as profit in common parlance. However, for income salary and its taxability under the Act, the dictionary meaning given by the Legislature is to be taken into consideration as for that purpose, it is a complete code. Income tax is attracted at the point when the income is earned. Taxation of income is not dependent upon its destination or the manner of its utilisation. Therefore, there is no question of referring to the Fundamental Rules framed by the Central Government or by the statutory authorities for payment of CCA, HRA or other such allowance for reimbursing the expenditure incurred by the employees. Further, equity or hardship would hardly be relevant ground for interpretation of tax law. It is for the Government or the statutory bodies to do the needful. However, equitable it may be that CCA cannot be held to be profit in the hands of the assessee or it is not share out of profit, yet it cannot be helped in view of inclusive and exclusive meaning given under the Act. Therefore, D.A, CCA and HRA would be taxable income. (Paras 26 & 27)