Case: Karamchari Union, Agra Vs. Union of India

Civil Appeal No. 1843 of 1989 & CA No.of 2000 @ SLP(C) No.2. The appellants, in CA No. 1843 of 1989, are all employees of the 509 Army Base Workshop, Agra, working in different offices and governed by the rules framed by the Government. Apart from their salary and other perquisites they are getting compensatory allowance in the form of city compensatory allowance (hereinafter referred to as "CCA"), dearness allowance (hereinafter referred to as "DA") and house rent allowance (hereinafter referred to as "HRA"). Appellants filed Civil Misc. Petn. No. 470/1998 in the Allahabad High Court challenging the inclusion of DA, HRA and CCA paid to them in their income for the purpose ofVarious other petitions raising similar contentions were filed by the Central Government employees, employees of Central Government undertakings, bank employees, State Government employees and general insurance employees. One such petition is before us being Civil Appeal No. 1853 of 2000 @ SLP (C) Nos.Nos. 6054/1994 ands of the LIC and GIC filed petitions under Art. 226 of the Constitution before the High Court of Calcutta in Matter No. nil of 1988 praying inter alia, for issue of a writ or order directing the appellants hearin not to treat CCA paid and payable to the employees of theas their taxable income and not to deductat source on CCA paid to them. The High Court by order dt. 21st March, 1988 [reported as All India Insurance Employees Association & Ors. vs. Union of India 1988 CAL 74 (Cal) : TC 5R.261], following an earlier decision given by it on 17th March, 1988, in Syndicate Bank Officers Association & Ors. vs. Union of India & Ors. 1988 CAL 72 (Cal) : TC 38R.341 allowed the writ petitions and passed an order restraining theand other insurance companies from deducting any tax on CCA or any allowance in the nature of CCA. in computing taxable income of the employees for the yearonwards. Hence, these appeals by special leave are filed by the786 of 19883. These appeals are filed by the CIT, West. 6054/1994 ands of the LIC and GIC filed petitions under Art. 226 of the Constitution before the High Court of Calcutta in Matter No. nil of 1988 praying inter alia, for issue of a writ or order directing the appellants hearin not to treat CCA paid and payable to the employees of thes their taxable income and not to deductt source on CCA paid to them. The High Court by order dt. 21st March, 1988 [reported as All India Insurance Employees Association & Ors. vs. Union of India 1988 CAL 74 (Cal) : TC 5R.261], following an earlier decision given by it on 17th March, 1988, in Syndicate Bank Officers Association & Ors. vs. Union of India & Ors. 1988 CAL 72 (Cal) : TC 38R.341 allowed the writ petitions and passed an order restraining theand other insurance companies from deducting any tax on CCA or any allowance in the nature of CCA. in computing taxable income of the employees for the year. Hence, these appeals by special leave are filed by the

Court's reasoning:
11. In our view, even though there is much substance in the contentions raised by the learned counsel for the assessee yet it is to be stated that the Act is aCode 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. Sec.of the Actgives wide inclusive definition to the word income. Similarly, for levying tax on salary income, exhaustive definition is given under s. 17, which includes perquisites and profits in lieu of salary. Only exclusion provided under(3) is any payment referable to cl. (10), cl. (10A), cl. 10(B), cl. (11), cl. (12), cl. (13) or cl. (13A) of s. 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 any advantage or gain by receipt of any payment by the employeeWebsters Comprehensive Dictionary gives meaning of the word profit inter alia, to mean advantage or benefit. It states "ProfitSynonyms : advantage, avail, benefit, emolument, expediency, gain, good, improvement, proceeds, receipts, return, returns, service, utility, value ... Advantage is that which gives one a vantage ground, either for coping with competitors or with difficulties, needs, or demands; as, to have the advantage of a good education; it is frequently used to what one has beyond another or secures at the expense of another, as, to have the advantage in argument, or to take advantage in a bargain." *Applying the aforesaid general meaning of the word profits and considering the dictionary meaning given to it under s. 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 s. 17(3)(ii), i.e. cls. (10), (10A), (10B), (11), (12), (13) or (13A) of s. 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 one12.Learned counsel for the appellant further submitted that assuming for the purpose of profits in lieu of salary, employer is not required to give any share out of the profits, yet even in the hands of the employees, receipt of the amount must be profits. It is his contention that whatever CCA, Government or statutory corporations pay to the employees, cannot be termed as profits by any standard because the amount is calculated in such a manner that it reimburses less than extra cost incurred by them at a station where they are posted. It is further submitted that by including these payments as taxable, it would cause hardship to the honest employees whose source of income is limited and are required to meet extra expenses at the station where they are transferred and posted for which service rules provide for reimbursement of extra cost. He referred to the decision rendered by the Bombay High Court in CIT vs. D. R. Pathak (supra) wherein the Court considered whether CCA was taxable as perquisite as contended by thebe 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 cannot be termed as profit in common parlance. However, for income, salary and its taxability underthe Act, thedictionary meaning given by the legislature is to be taken into consideration as for that purpose, it is a complete Code.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. [Re : Tuticorin Alkali Chemicals & Fertilizers Ltd. Madras vs. CIT 1997 SC 2601 (SC) : TC S38.3460. 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 ActIn the result, we held that DA, CCA and HRA would be taxable income. Since, counsel for the employees did not make any submission with regard to other allowances like, night allowance, tuition fee, leave encashment linked with leave travel concession, running allowance, etc. we do not pass any order with regard to those allowances