KARAMCHARI UNION, AGRA

UNION OF INDIA AND ORS.

FEBRUARY29, 2000

[D.P. WADHWAAND M.B. SHAH, JJ.]

Income Tax Act, 1961 : Sections 17 and 2(24).

Income Tax-DA, CCA and HRA-Taxability of-Held: DA, CCA and HRA are income under the head 'salary' and hence taxable-Contention that holding such allowances as taxable would result in hardship to honest employees, rejected.

Income Tax-"Profits in lieu of salary "-Night allowance, tuition fee, leave encashment linked with leave travel concession, running allowance etc.-

Taxability of-Question left open.

Income Tax Act-Nature of-Held: Is a self-contained Code-Taxability of an allowance has to be determined on the basis of the meaning given to the words or phrases in the Act.

Interpretation of Statutes :

Taxing Statutes-Equity or hardship-Relevancy of-Held: Not relevant for interpretation of tax law.

Words and Phrases:

"Salary"-Meaning of-Jn the context of S.17( 1) of the Income Tax A.ct, F 1961.

"Profits in lieu of salary "-Meaning of-In the context of S.17( 3) of the Income Tax Act, 1961.

"Income" -Meaning of-In the context of S.2(24) of the Income Tax Act,

G . 1961.

"Profits"-Meaning of

The appellants were paid apart from their salary and other perquisites, allowances in the form of City Compensatory Allowance (CCA), H 33

A Dearness Allowance (DA) and House Rent Allowance (HRA). The appel- ~~

lants filed a writ petition before the High Court challenging the inclusion of these allowances in their income for the purpose of income tax under the Income Tax Act, 1961. The High Court dismissed the petition holding that these allowances were taxable income. Hence these appeals.

On behalf of the appellant-assessees it was contended that CCA and HRA could not be included in the word 'salary' as defined in Section 17 of the Act; that if the Legislature wanted to include any payment received by the employee in its widest sense, there was no necessity to give such an exhaustive definition of the word 'salary' in Section 17 of the Act and to connect it with 'profits in lieu of salary'; that if such a simple definition that 'salary' includes 'any payment' received by the employee from the employer was intended to be given, the legislature would not have given inclusive meaning to the expression 'profits in lieu of salary' and the phrase 'any payment received by the employee' would be sufficient for all the purposes; that the legislature could have easily avoided giving of not only such exhaustive definition but number of amendments and additions to the said Section; that the expression "any payment'' occurring in Section 17(3)(ii) received by the employee was relatable to the profits of the employer and that payment out of profit was considered to be the salary by the inclusive definition thereof, that there was no question of payment of CCA or HRA out of 'profits' earned by the Government or statutory , corporations, receipt of such amount would not be covered by the phrase 'profit in lieu of salary'; that the word 'profit' should be understood under the Act in its natural and proper sense as is evident from Section 28 of the Act; that CCA could not be termed as 'profits' by any standard because the amount was calculated in such a manner that it reimbursed less than extra cost incurred by the employees at a station where they were posted; and that by including these payments as taxable it would cause hardship to the honest employees.

On behalf of the respondent-Revenue it was contended that ''salary" G includes profits in lieu of salary and "profits in lieu of salary" include' any payment' received by the assessee fi:om the employer except which are excluded and, therefore, CCA, DA and HRA were taxable income.

Disposing of the appeals, this Court

H HELD: 1.1. The Income Tax Act, 1961 is a self-contained Code and

KARAMCHARI UNION v. U.O.I. 35

the taxability of the receipt of any amount or allowance is to be determined on the basis of the 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 on salary income, exhaustive definition is given under Section 17, which includes perquisites and profits in lieu of salary. The only exclusion provided under Section 17(3) is any payment referable to clause (lO)[clause (10-A)], [clause lO(B)], clause (11), clause

(12) or [clause (13-A)] of Section 10. In view of the specific inclusion and exclusion in the meaning of the word 'Income' and 'salary', the 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' received by the employee. [48-E-H] C

Webster's Comprehensive Dictionary, Earl Jowitt. "The Dictionary of English Law" and Black's Law Dictionary, referred to.

1.2. Applying the general meaning given under Section 17(1)(iv) and 3(ii), it can be said that 'advantage' in terms of payment of money received D 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'.

Since the inclusive meaning given to the phrase 'profits in lieu of salarv'

would include 'any payment' due to or received by an assessee from a~. employer, even though it has no connection with the profits of the em- E ployer. It is true that Legislature might have avoided giving of inclusive meaning 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). 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 F 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. Hence, it is to possible to accept the contention of the employees that as the City Compensatory Allowance (CCA) amount is paid to meet the additional expenditure as G contemplated by the statutory Service Rules, it cannot be said to be profit, gain or additional salary. Hence, it would be part and parcel of income by way of salary, which would be a taxable one. [49-C-H]

2. It is true to the extent that Government or statutory corporations do pay something less than what is required to be reimbursed and the H

receipt of CCA cannot 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. Tuxation of income is not dependent upon its destination or the manner of its utilisation. [50-E-F]

TuticorinAlkali Chemicals & Fertilizers Ltd. v. CIT, (1997) 6SCC117, relied on.

CIT v. R.R. Bajoria, (1998) 169 ITR 162 (Cal.); CIT v. D.R. Pathak, (1975)99 ITR 14 (Born.) and Syndicate Bank Officers' Association v. Union . of India, (1989) 176 ITR 223 (Cal.), overruled.

Bishambar Dayal v. CIT, 103 ITR 813 (MP); CITv. S. G. Pgnotale, 124 ITR 391; Pondicherry Railway Co. Ltd. v. CIT, AIR (1931) PC 165; U.S. v.

Mintzes, D.C. MD., 304 F. Supp. 1305, 1312 and Regional Director, ES/ v.

High Land Coffee Works of P.F.X. Saldanha & Sons, AIR (1992) SC 129, referred to.

3. Thus, DA, CCA and HRA would be taxable income. However, it is not necessary to pass any order with regard to other allowances like night allowance, tuition fee, leave encashment linked with leave travel conces- E sion, running allowance etc. since no arguments were advanced on these issues. [51-A-B]

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1843of1989.

From the Judgment and Order dated 12.9.88 of the Allahabad High F Court in C.M.W.P. No. 470 of 1988.

With

Civil Appeal Nos. 1784-86/88, 6054/94, 1853-56/2000 and 6058/94

From the Judgment and Orders dated 24.7.87, 21.3.88, 12.9.88, 21.3.88 of the Calcutta, Allahabad and Calcutta in I.T.R. No. 97/77, Matter No. Nil/ 88, C.M.W.P. Nos. 328, 366, 400 and 1295/88 and Matter No. Nil/88.

K.N. Shukla, Shanti Bhushan, 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. Parameshwaran,

K.R. Nambiar, Buddy A. Ranganadhan, A. V. Rangam. P.I. Jose, Jenis Francis, A B.K. Prasad, V.J. Francis, Ms. A. Subhashini and A.V. Ranganadhan for the appearing parties.

The Judgment of the Court was delivered by

SHAH, J. Leave granted in special leave petitions.

Civil Appeal No.1843 of 1989 & C.A. Nos. 1853-1856 Of 2000 @SLP(C) Nos. 15477-80 of 1988:

The Appellants, in C.A.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. Petition No.470/98 in the Allahabad High Court challenging the inclusion of DA, HRA & CCA paid to them in their income for the purpose of Income Tax. Various 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 Nos. 1853-56 of 2000 @ S.L.P. (C) Nos.15477-

80 of 1988 disputing the taxability of various allowances, namely, D.A., CCA, HRA, Leave encashment, linked with leave, travel concession, running allowance, night allowance, etc. All the writ petitions. were disposed of by common judgment and order dated 12.9.1988 by the High Court of Allahabad.

The question for consideration before the High Court was - whether the receipts on account of CCA, HRA and DA are in the nature of income entailing tax liability? Before deciding the above question, the Court considered the legislative intent behind the passing of relevant section 17 which defines 'salary', and the addition of Explanation to sub-section (14) of Section 10. The High Court dismissed the writ petitions holding inter alia that:

(1) the Income Tax, 1961 is a self contained code to judge the taxability of a particular receipt and the taxability of D.A., H.R.A. and CCA will have to be seen only within the scheme of the Act. That HRA, CCA and DA are not the reimbursements of necessary disbursements. It is only for determina-

A tion of CCA that the Central Govt. will take care that grant of compensatory allowance does not become a source of profit to the employees, but it does not mean that the allowance in the nature of HRA, CCA and DA do not amount to an advantage. The allowances are surely in addition to pay.

(2) The tuition fee's reimbursement is fully covered by S.17(3)(ii), and the payment is not covered by any of the clauses of Section 10.

(3) The leave encashment linked with leave travel concession is taxable, being the 'profits in lieu of salary' within the meaning of Section 17(3)(ii).

(4) The running allowance and night allowance come to th.:: employees as an advantage by virtue of their employment. They are, therefore, 'perquisite' within the meaning of s.17(1)(iv) read with s.17(2) and hence are taxable under the head 'salaries' under s.14, read with s.17.

The Court held that any type of reimbursement is fully covered by Section 17(3)(ii) of the Income Tax Act, 1961 (hereinafter referred to as "the Act") inasmuch as the payment is not covered by any of the clauses of Section 10 as mentioned in parenthetical clause of Section l7(3)(ii). The Court, therefore, held that CCA, HRA and D.A. would be taxable income.

Civil Appeal, Nos.1784-86 of 1988.

These appeals are filed by the Commissioner of Income Tax, West Bengal-II, Calcutta against the judgment and order dated 24th July, 1987 of the High Court of Calcutta passed in Income-tax Reference No.97 of 1977 p holding that the CCA paid to the assessee did not have the character of income within the meaning and scheme of the Income Tax Act, 1961.

Following three questions were referred to the High Court by the Tribunal for decision: -

Whether, on the facts and in the circumstances of the case the Tribunal was right in holding that C.C.A. cannot come within the charging sections and/or within the meaning of income of a Government Servant in accordance with Section 2(24) of the Income Tax Act, 1961 read with the Fundamental Rules and cannot come within the ambit of meaning of total income as contained in Section 2(45) of the Act?

->-,-

Whether on the facts and in the circumstances of the case when A the assessee's case cannot come within the provisions of sections 15 and 17 of the Act, the Tribunal was right in not considering the applicability of the provisions of section 16(v) of the Act?

Whether on the facts and in the circumstances of the case upto the assessment year 1974-75 because of the deletion of section 16(v) of the Act with effect from Ist April, 1975 C.C.A. could be allowed as an admissibie deduction under Section 16(v) of the Act.

It was contended before the High Court that the amount received by way of CCA cannot be included in the total income of the assessee inasmuch as the same was receivable by him by virtue of the Fundamental Rules which govern the terms and conditions of service of a Government employee. The Fundamental Rules indicate that CCA is given not as a source of profit or gain. In support of this submission counsel relied upon the decisions in Commissioner of Income Tax, Bombay City-I v. D.R. Pathak, 99 ITR 14; Bishambar Dayal v. Commissioner of Income Tax, MP, 103 ITR 813 and _Commissioner of Income Tax, Gujarat v. S.G. Pgnotale, 124 ITR 391. It was also contended that the assessee is entitled to claim exemption in respect of CCA under Section 10(14) of the Income Tax Act and in any case, CCA cannot come either within the scope of salary or within the definition of special allowance or perquisite. Hence, it cannot be termed as 'income' and cannot be included within the total income and cannot be assessed to tax as per sections 4 and 5 of the Income Tax Act.

After a careful consideration of the facts, the High Court held that C.C.A. paid to the assessee was neither an 'emolument' nor a 'fee' nor a 'profit' nor 'perquisite' but was only a payment for part reimbursement of the extra expenses incurred by the assessee as of necessity by reason of his posting. The said allowance does not have the character of income within the meaning and scheme of the Income Tax Act, _1961. This is not an allowance granted to the assessee specifically to meet his personal expenses, but it is an allowance meant for part reimbursement of the extra expenditure necessarily to be incurred by him as a result of his being posted in a city. Amount paid to the assessee on account of this allowance does not come within the

A definition of income or total income nor within the purview of the computation or charging sections under the Income Tax Act, 1961. The High Court answered Question Nos. I and 2 in the affirmative and in favour of the assessee. In view of answers to the said questions, the High Court did not consider it necessary to answer question no.3.

C.A. Nos.6054194 and 6058194.

Respondents-employees of the L.l.C. and G.l.C. filed petitions under Article 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 herein not to treat CCA paid and payable to the employees of the appellants-Companies as their taxable income and not to deduct income tax at source on CCA paid to them. The High Court by order dated 21.3.1988 following an earlier decision given by it on 17.3.1988 in Syndicate Bank Officers' Association and Others v. Union of India and Others allowed the D writ petitions and passed an order restraining the appellants-Companies and other Insurance Companies from deducting any tax on C.C.A. or any allowance in the nature of CCA in computing taxable income of the employees for the year 1987-88 onwards. Hence, these appeals by special leave are filed by the Cor}Jorations.

Whether CCA, HRA or other such payment to the employee is covered by the word 'income' as defined under the Act?

In all these appeals it is conceded that 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': Relevant clauses of Section 2(24) read as under: -

"2(24) "Income includes-

(i) to (iii) ...

(iiia) any special allowance or benefit, other than perquisite included

under sub-clause (iii), specifically granted to the assessee to meet expenses wholly, necessarily and exclusively for the performance of the duties of an office or employment of profit;

(iiib) any allowance granted to the assessee either to meet his A personal expenses at the place where the duties of his office or employment of profit are ordinarily performed by him or at a place where he ordinarily resides or to compensate him for the increased cost of living .. "

The said clauses are added by Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1.4.1962. In C.I.T., Calcutta v. R.R. Bajoria, (1988) 169 ITR 162, the Calcutta High Court considered this argument in detail and arrived at the conclusion that considering Rule 44 of Fundamental Rules applicable to the Central Government employees, CCA paid to them is neither an emolument nor a fee nor a profit nor even a perquisite but was only a payment for part of the reimbursement of the extra expenses incurred by the assessee as of necessity by reason of his posting. The Court observed "the said allowance does not have the character of income within the meaning and scheme of the Income-tax Act, 1961. This is not an allowance granted to the assessee specifically to meet his personal expenses but it is an allowance meant for part reimbursement of the assessee for the extra expenditure necessarily to be incurred by him as a result of his being posted in a city".

In view of the afore-quoted amendment of the word 'income', any special allowance or _penefit 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 (iii b) any allowance granted to the assessee either to meet his person<1:l expenses at the place where the duties of his office are ordinarily performed 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'. Hence, the basis of the decision rendered by the Calcutta High Court would not survive.

Whether such amount is taxable?

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'. For that purpose, we have to refer to Section 17 of the Act to find out as to what meaning can be given to the phrase 'profits in lieu of salary'.

For appreciating the contentions raised by the learned counsel for the parties,

A we would straightway refer to the relevant part of Section 17 of the Act, which is as under: -

"17. For the purposes of sections 15 and 16 and of this section-

(1) "Salary" includes -

(i) wages;.

(ii) any annuity or pension;

(iii) any gratuity;

(iv) any fees, commissions, perquisites or profits in lieu of or in addition to any salary or wages;

(iv) any advance of salary;

[(iva) any payment received by an employee in respect of any period of leave not availed of by him;]

(v) the annual accretion of the balance at the credit of an employee participating in a recognised provident fund, to the extent to which it is chargeable to tax under rule 6 of Part A of the Fourth Schedule; and

(vi) the aggregate of all sums that are comprised in the transferred balance as referred to in sub-rule (2) of Rule 11 of Part A of the Fourth Schedule of an employee F participating in a recognised provident fund, to the extent to which it is chargeable to tax under sub-rule (4) thereof;

(2) Perquisites include ...

(3) "Profits in lieu of salary" includes -

(i) the amount of any compensation due to or 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 Ii thereto;

(ii) any payment (other than any payment referred to in clause A

(10) [clause (lOA)], [clause lO(B)], clause (11), [clause 12)] [clause (13) or clause (13A] of section 10), due to or received by an assessee from an employer or a former employer or from a provident or other fund, to the extent to which it does not consist of contributions by the assessee or [interest on such contributions or any sum received under the Keyman insurance policy including the sum allocated by way of bonus on such policy

Explanation. -For the purposes of this sub-clause, the expression "Keyman insurance policy" shall have the C meaning assigned to it in clause (lOD) of section 10.]"

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 clauses

(i) to (vii). The inclusive definition of the word "salary" givenin 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 (iva), (vi) and (vii).

These clauses (i) to (vii) of subsection (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 subsections (1), (2) and (3),

SUPREME COURT ~.EPORTS

[2000] 2 S.C.R.

A appropriate meaning to the words and phraseography used in clause (ii) is to be given.

It has been contended by the learned counsel for the Revenue that clause (ii) of sub-section (3), inter alia, provides that "profits in lieu of salary" includes "any payment received by an assessee" from an employer. He, B therefore, submitted that City Compensatory Allowance (CCA), House Rent Allowance (HRA) and Dearness Allowance (DA) would be covered by clause

(ii) of sub-section (3). Learned counsel submitted that "salary" includes profits in lieu of salary and "profits in lieu of salary" includes 'any payment' received by the assessee from the employer except which are excluded. c

As against this, the learned counsel for the assessee submitted that the contention raised by the Revenue is without any substance. If 'any payment' de hors the profits was to be included then Legislature would not have given such exhaustive definition of the word 'salary' and thereafter would not have given further meanings to the word "perquisite" and the phrase "profits in lieu of salary". Legislature, without anything more, could have easily provided that 'salary' would include any payment due to or received by an assessee from an employer except the payments which are exempted under the Act.

The contention is, if the Legislature wanted to include any payment received by the employee in its widest sense, there was no necessity to give such an exhaustive definition of the word "salary" in Section 17 of the Act and to connect it with 'profits in lieu of salary'. If such a simple definition that 'salary' includes 'any payment' received by the employee from the employer was intended to be given; the legislature would not have given inclusive meaning to the expression 'profits in lieu of salary' and the phrase 'any payment received by the employee' would be sufficient for all the purposes.

Further the legislature could have easily avoided giving of not only such exhaustive definition but number of amendments and additions to the said section. The learned counsel for the appellant further made it clear that for D.A., he is not pressing the contention that it is not included in the word 'salary'. He submitted that C.C.A. and H.R.A. cannot be included in the word G 'salary' as defined under Section 17 of the Act.

Hence, the question would be, what does the expression 'profits in lieu of salary' signify? Whether 'profits in lieu of salary' would includ, e any payment received from the employer relatable to or out of profits or it has nothing to do with the 'profits' as understood in common parlance?

H Or whether 'profits' is to be understood as y gain or advantage in lieu of

I -""'

.... '-

salary or in addition to salary for which any payment is received by the A assessee.

It is submitted that 'salaiy' includes any payment out of 'profit' in lieu of salary. Instead of salary any acloUnt i$ paid in terms of profits, then the same is included in 'salary' as it is 'profits in lieu of salary'. The basis for payment of such amount is 'profits'. So the expression 'any amount' received by the employee is relatable to the profits of employer and that payment out of profit is considered to be the salary by inclusive definition. Reference is made to Earl Jowitt's "The Didionary of English Law" which mentions profit as- "an arrangement whereby an employer agrees that his employees shall receive a share, fixed before hand, in the profits of the undertaking"~ Hence, it is submitted that payment received by the employee should be relatable to profits and whatever amount is paid to an employee - is paid in lieu of salary out of profits. Instead of paying salary, if percentage out of the profits is paid by the employer, it would be incJuded in the word 'salary' and it would be considered to be 'profits in lieu of salary'. It may be in addition to the salary or only profits in lieu of salary. It is contended that this would be the natural meaning of the phrase 'profits in lieu of salary' and in the present case as there is no question of payment of C.C.A. or H.R.A. out of 'profits' earned by the Government or statutory corporations, receipt of such amount would not be covered by the phrase 'profit in lieu of salary'.

For this purpose, it is submitted that the word 'profits' is not defined, but Section 28 of the Act provides that the income mentioned therein shall be chargeable to income tax under the head of "profits and gains of business or profession" and hence, the word 'profits' is to be understood under the Act in its natural and proper sense and as understood since years in commercial terms. Reliance is placed on the foJlowing passage referred to by the Privy Council in Pondicherry Railway Co. Ltd. v. Commissioner of Income-tax, Madras, (Reported in A.I.R. (1931) Privy Council 165) dealing with the word

"profits" under the Income :rax Act. The Privy Council relied upon the principle laid down by Lord ChanceJlor Halsburry in Gresham Life Assurance Society v. Styles by stating that it is of general application unaffected by the specialities of the English tax system, existing as under : -

"The thing to be taxed," said his Lordship, is the amount of profits or gains. The word "profits" I think is to be understood in the natural and proper sense in a sense which no commercial man would

misunderstand. But when once an individual or a company has in that proper sense ascertained, what are the profits of his business or his trade, the destination of those profits or the charge which has been made on those profits by previous agreement or otherwise is perfectly . immaterial. The tax is payable upon the profits realized and the meaning to my mind is rendered plain by the words "payable out of profits."

(emphasis supplied)

Further, the meaning of the word 'profit' as given in Black's Law C Dictionary is as under: -

"Profit. Most commonly, the gross proceeds of a busiRess transaction less the costs of the transaction; i.e. net proceeds. Excess of revenues over expenses for a transaction; sometimes used synonymously with net income for the period. Gain realized from business or investment over and above expenditures.

Profit means accession of good, valuable results, useful consequences, avail, gain, as an office of profit, excess of returns over expenditures or excess of income over expenditure." U.S. v. Mintzes, D.C.Md., 304 F.Supp. 1305, 1312.

The benefit, advantage, or pecuniary gain accruing to the owner or occupant of land from its actual use; as in the familiar phrase "rents, issues and profits," or in the expression "mesne profits."

Profit-sharing plan. plan established and maintained by an employer to provide for the participation in the profits of the company by the employees or their beneficiaries. In order to qualify for tax benefits, the plan must provide a definite predetermined formula for allocating the contributions made to the plan among the participants and for distributing the funds accumulated under the plt1n after a fixed number of years, the attainment of a stated age, or upon the prior occurrence of some event such as layoff, illness, disability, retirement, death, or severance of employment. Such plans are regulated by the federal Employee Retirement Income Security Act (ERISA). See also Employee Stock Ownership Plan (ESOP).

Qualified profit sharing plan. An employer-sponsored plan that meets A the requirements of I.RC. 401. If these requirements are met, none of the employer's contribtion to the plan will be truced to the employee until distributed to him or her (402). The employer will be allowed a deduction in the year the contributions are made. (404)

It is submitted that similar should be the interpretation of Section 17(1)(iv) read with sub-section 3(ii) of the Act. This clause is for trucing salary payable out of the profits realized by the employer and the said meaning is rendered plain by the words 'profits in lieu of salary'. Foundation of any such payment is the 'profits'. It is, therefore, submitted that the result would be 'salary' includes 'profits in lieu of salary', which iricludes 'any payment', but such payment should have connection with or referable to profits of the employer.

The learned counsel for the sse$see further submitted that the Legislature in sub-sections (1), (2) and (3) of s. 17 has used the word "includes" D to give wider meaning than natural meaning which is given to the said word or phrase and, therefore, the definition given by the Legislature is to be accepted as it is without any further enlargement. It is contended that the word 'include' is generally used in interpretation clauses in order to enlarge the meaning of words or phrases occurring in the body of the statute; and when it is so used, these words or phrases must be construed as comprehending, not E only such things as they signify according to their natural import but also those things which the interpretation clause declares that they shall include.

The learned counsel referred to The Regional Director, Employees State Insurance Corporation v. Mis High Land Coffee Works of P.F.X. Saldanha & Sons and another, AIR (1992) SC 129 wherein this Court considered the p inclusive definition of the word "seasonal factory" given under Section 2(12) of the Employees' State Insurance Act, 1948 and held that what is included in the meaning of "seasonal factory" is a 'factory' which is engaged for the purpose mentioned therein. That is to say, it is first a factory and then it would be considered to be a seasonal factory. Relying on the aforesaid observations, learned counsel for the employees submitted that by the inclusive definition of the phrase 'profits in lieu of salary' what is included is 'any payment' which must be out of the profits i.e. sharing of the profits by the employer.

For this purpose, he further referred to the words 'any fee, commission, perquisites or profits' used in clause (17)(l)(iv) and pointed out that in the inclusive definition the Legislature wanted to include fee, commission or

SUPREME COURT REPORTS


A perquisites which normally cannot be included in the word 'salary' by specifically mentioning the same. It is also submitted that similarly what is included in the word 'salary' is only 'profits in lieu of salary'. Therefore, any

payment received by the employee from the employer would have limited meaning and is referable to only payments received out of profi_ts.

As against this, learned counsel for the Revenue submitted that salary includes profits in lieu of salary which in tum includes any payment received by an assessee froin an employer. The word 'profits' is to be given its plain meaning to mean any benefit, advantage or pecuniary gain accruing to the assessee. Therefore any payment received by an assessee from an employer would be profits in lieu of salary or in addition to salary. For the purpose of income tax, even if the payment is made towards the additional expenses incurred by the employee for the purpose of service, yet it is taxable income, unless there is an exemption as provided under different clauses of Section 10.

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 a self-contained Code and the tax.ability 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 on salary income, exhaustive definition is given under Section 17, which includes perquisites and profits in lieu of salary. Only exclusion provided under subsection 3 is any payment referable to clause (10) [clause (lOA], [clause lO(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 conµection 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 employee.

Webster's Comprehensive Dictionary gives meaning of the word 'profit' inter alia to mean advantage or benefit. It states:

"Profit-Synonyms: 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, A or demands; as, to have the advantage of a good education; it s 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 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), (lOA), (lOB), (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, E 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.

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, cinn.ot 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 mployees whose source of income is limited and are required to meet. extra expenses at the station where they aie 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 C.J.T. v. D.R. Pathak, (1975) 99 ITR 14, wherein the Court considered whether CCA was taxable as perquisite as contended by the revenue. The Court negatived it by holding that "payment of taxable allowance under the order of the Government is neither an emolument nor fee nor profit, but it is a reimbursement of personal expenses required by the Government servant to be incurred on accoilnt of expenses of living at a particular place."

May be that this is true to the extent that Government or statutory corj>orations 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. [Re: Tuticorin Alkali Chemicals & Fertilizers Ltd., Madras v. Commissioner of Income Tax, Madras, [1997] 6 SCC 117].

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 hal'dly 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 11rofit, yet it cannot be helped in view of inclusive and exclusive meaning given under the Act.

In the result, we hold 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.

Accordingly, Civil Appeal Nos.1784-86 of 1988, 6054/94 and 6058/94 filed by the Revenue and General Insurance Corporation and others respectively are allowed and Civil Appeal Nos. 1843/89 and C.A. Nos. 1853-1856 of 2000 @ SLP (C) Nos. 15477-80 of 1988 filed by Karamchari Union. Agra

and All India Defence Accounts Association, Poona and others respectively B are dismissed. There shall be no order as to costs.

v.s.s.

Appeals allowed/dismissed.