• Dec
  • 27
  • 2013

S. (10(13A) ‘Salary’ does not include commission for Calculation of HRA

Rule 2A of the Income-tax Rules, 1962, deals with the limits for the purposes of Section 10(13A) of the Act. The said rule prescribes the limit of exemption permissible under Sub-section (13A) of Section 10 of the Act. The said rule in its Explanation provides that “salary” in the said rule, that is to say, Rule 2A, would have the same meaning assigned to it in Clause (h) of Rule 2 of Part A of the Fourth Schedule to the Income-tax Act, 1961. The Fourth Schedule to the Income-tax Act, 1961, primarily deals with recognised provident funds and Rule 2(h) of the said Part A of the Fourth Schedule defines ” salary ” for the purpose of the said Schedule. It provides that ” salary ” includes dearness allowance, if the terms of the employment so provide, but excludes all other allowances and perquisites. ” Salary ” as such has not been defined. But Section 15 deals with income which will be chargeable to income-tax under the head ” salary”. Section 16 deals with the deduction from “salary” and Section 17 deals with the definition of salary, perquisites and profits in lieu of salary. The said section reads: ” For the purposes of Sections 15 and 16 and of this section…………” and then proceeds to provide the different meanings. We are concerned with the question, whether the commission or allowance, which the assessec had obtained, was entitled to be excluded by virtue of Section 10(13A) of the Income-tax Act, 1961. It appears to us that Rule 2A clearly defines the limits for the purpose of Section 10(13A) of the Act and that rule specifically stipulates that the expression ” salary ” shall have the same meaning assigned to it as given in Clause (h) of Rule 2 of Part A of the Fourth Schedule. Now, we have noticed the meaning of salary in Rule 2 of Part A of the Fourth Schedule. This excludes ” all other allowances and perquisites ” excepting the dearness allowance in the concept of salary. Therefore, this ” all other allowances ” with which we are concerned in this reference is excluded from the meaning of salary under Rule 2(h) of the Fourth Schedule, that is the meaning which is to control the meaning in Section 10(13A) of the Act. The aforesaid rule has been the subject-matter of consideration by this court in the case of Commissioner of Income-tax v, Gestetner Duplicators Pvt. Ltd. . There, the Division Bench held that the ordinary meaning of the word “salary” was different from the meaning of the word ” commission “. The Division Bench further observed that the word ” contribution ” in Rule 2(c) of Part A of the Fourth Schedule to the Income-tax Act, 1961, must be read and understood in its own context. The word ” salary ” had been used in that provision and, therefore, the contribution to be made to the provident fund must be the proportionate amount of salary paid to the employees. Salary was a fixed monthly payment whereas the commission was not a fixed payment and could not be included within the scope and ambit of the term ” salary “.

 Calcutta High Court

Commissioner Of Income-Tax

vs

H.V. Yazdi

IT REFERENCE NO. 131 OF 1971

Date of Order – 31 January, 1978

Equivalent citations: 1978 114 ITR 14 Cal

JUDGMENT

Sabyasachi Mukharji, J.

1. We are concerned in this case with the question arising in connection with the assessment years 1966-67 and 1967-68 for which the relevant accounting years ended on the 31st March, 1966, and the 31st March, 1967, respectively. The assesses is an individual. He was, in the relevant years, a branch manager of Messrs. Iran Tea Trading Co. Private Ltd. During the two years under consideration the assessee had received commission in lieu of salary and, therefore, according to the Income-tax Officer, the assessee was not entitled to any exemption under Section 10(13A) of the Income-tax Act, 1961, in respect of the house-rent allowance received by him from Messrs. Iran Tea Trading Co. Private Ltd. The assessee had received house-rent allowance of Rs. 6,600 in each of the two years under consideration. The Income-tax Officer included the same in the respective assessments for the two years. There were appeals before the Appellate Assistant Commissioner. It appears that before the Appellate Assistant Commissioner it was not disputed that there was the relationship of employer and employee as between the assessee and Messrs. Iran Tea Trading Co. Private Ltd. It was, therefore, considered necessary that the amount received as commission by the assessee was to be assessed under the head ” Salary “. It was found by the Appellate Assistant Commissioner that the assessee was appointed on the 1st of February, 1963, on a monthly salary of Rs. 1,100 all inclusive and the terms of appointment were changed by an agreement dated the 24th March, 1965. By virtue of the said subsequent agreement, the assessee was to receive remuneration of a sum styled as commission equal to 10% of the net profits of the income in lieu of fixed salary and the assessee was also entitled to a house-rent allowance of Rs. 550 per month with effect from the 1st of April, 1965. The Appellate Assistant Commissioner found that the rules prescribed in the Act denned the term “salary” and, therefore, the definition of “salary” under Section 17 did not hold the field. Accordingly, he held that Rule 2A of the Income-tax Rules, 1962, would be applicable. The Appellate Assistant Commissioner also considered the dictionary meaning of the term “salary”. According to him, the term “salary” did not include any sum in the nature of commission, which could be determined only after the accounting year of the employer. The Appellate Assistant Commissioner further found that the assessee was not entitled under the agreement dated 21st March, 1965, to any minimum commission. Accordingly, he was of the opinion that the assessee was not entitled to any deduction under Section 10(13A) of the Income-tax Act, 1961. He, accordingly, dismissed the appeals.

2. There was a further appeal before the Tribunal. According to the Tribunal, in view of Section 17 of the Act giving a wider definition to the term ” salary “, the same should be read along with the special definition of the term ” salary ” as given in the different rules for the purposes of special exemption. In the view of the Tribunal the meaning of the word ” salary ” could not be restricted merely to periodical payments for services rendered by an employee to his employer. The Tribunal, therefore, accepted the assessee’s contention and held that the assessee was entitled to exemption under Section 10(13A) of the Act.

3. Upon this, under Section 256(1) of the Income-tax Act, 1961, the following question has been referred to this court :

” Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee was entitled to the full relief as claimed by him under Section 10(13A) of the Income-tax Act read with Rule 2A of the Income-tax Rules, 1962, for the assessment years 1966-67 and 1967-68 ?”

4. We have noticed the claim, that is to say, the house rent allowance received by the assessee for the two years. In this connection reference may be made to Section 10(13A) of the Income-tax Act, 1961, so far as it is relevant for our purpose. Section 10 deals with incomes which are not included in the total income. Sub-section (13A) of Section 10 of the Income-tax Act, 1961, at the relevant time, was to the following effect :

“(13A). Any special allowance specifically granted to an assessee by his employer to meet expenditure actually incurred on payment of rent (by whatever name called) in respect of residential accommodation occupied by the assessee, to such extent (not exceeding three hundred rupees per month) as may be prescribed having regard to the area or place in which such accommodation is situated and other relevant considerations.”

5. Rule 2A of the Income-tax Rules, 1962, deals with the limits for the purposes of Section 10(13A) of the Act. The said rule prescribes the limit of exemption permissible under Sub-section (13A) of Section 10 of the Act. The said rule in its Explanation provides that “salary” in the said rule, that is to say, Rule 2A, would have the same meaning assigned to it in Clause (h) of Rule 2 of Part A of the Fourth Schedule to the Income-tax Act, 1961. The Fourth Schedule to the Income-tax Act, 1961, primarily deals with recognised provident funds and Rule 2(h) of the said Part A of the Fourth Schedule defines ” salary ” for the purpose of the said Schedule. It provides that ” salary ” includes dearness allowance, if the terms of the employment so provide, but excludes all other allowances and perquisites. ” Salary ” as such has not been defined. But Section 15 deals with income which will be chargeable to income-tax under the head ” salary”. Section 16 deals with the deduction from “salary” and Section 17 deals with the definition of salary, perquisites and profits in lieu of salary. The said section reads: ” For the purposes of Sections 15 and 16 and of this section…………” and then proceeds to provide the different meanings. We are concerned with the question, whether the commission or allowance, which the assessec had obtained, was entitled to be excluded by virtue of Section 10(13A) of the Income-tax Act, 1961. It appears to us that Rule 2A clearly defines the limits for the purpose of Section 10(13A) of the Act and that rule specifically stipulates that the expression ” salary ” shall have the same meaning assigned to it as given in Clause (h) of Rule 2 of Part A of the Fourth Schedule. Now, we have noticed the meaning of salary in Rule 2 of Part A of the Fourth Schedule. This excludes ” all other allowances and perquisites ” excepting the dearness allowance in the concept of salary. Therefore, this ” all other allowances ” with which we are concerned in this reference is excluded from the meaning of salary under Rule 2(h) of the Fourth Schedule, that is the meaning which is to control the meaning in Section 10(13A) of the Act. The aforesaid rule has been the subject-matter of consideration by this court in the case of Commissioner of Income-tax v, Gestetner Duplicators Pvt. Ltd. . There, the Division Bench held that the ordinary meaning of the word “salary” was different from the meaning of the word ” commission “. The Division Bench further observed that the word ” contribution ” in Rule 2(c) of Part A of the Fourth Schedule to the Income-tax Act, 1961, must be read and understood in its own context. The word ” salary ” had been used in that provision and, therefore, the contribution to be made to the provident fund must be the proportionate amount of salary paid to the employees. Salary was a fixed monthly payment whereas the commission was not a fixed payment and could not be included within the scope and ambit of the term ” salary “. The court observed at page 50 of the report as follows :

” The commission payable to different categories of salesmen by the company is, therefore, not a fixed amount. The amounts also vary from salesman to salesman. Payment of commission also depends on various factors, e.g., the output of the company, sales, if any, made by salesmen, etc. If there is no sale in a particular month, no commission is payable by the company to its salesmen, whereas the ‘ basic salary ‘ is a fixed amount and is paid by the company to each salesman irrespective of sales in terms of the contract between the company and its employees. Therefore, commission payable or paid by the company to its different categories of salesmen cannot be a salary under the above circular.”

6. In that view of the matter, we are unable to accept the conclusion arrived at by the Tribunal, On behalf of the assessee, however, it was urged, firstly, that Rule 2A curtailed the meaning given to the expression ” salary ” by Sections 15 and 16 read with Section 17 of the Act. Therefore, in effect, this Rule 2A of the Income-tax Rules, 1962, for the purpose of relief under Section 10(13A), had the effect of abridging the relief granted to an assessee. Therefore, it was submitted that the said rule was beyond the section and could not abridge or curtail the concept of salary sanctified by the statute. It was submitted that the rule was ultra vires. In this connection reliance was placed on certain observations in the cases of Century Enka Ltd. v. Income-tax Officer and Trailokyanath Mohanty v. Commissioner of Income-tax [1977] 110 ITR 254(Orissa). Weare, however, unable to accept this argument. Firstly, it is very doubtful if any question of invalidity of the rule can at all be agitated in this reference jurisdiction, specially so when this aspect of the matter was not canvassed before the Tribunal. Apart from the same, in our opinion, Rule 2A is in no way in conflict with the concept codified in Section 15, 16 or 17 of the Act. Section 17 specifically provides that the definition given of the salary and other concepts are limited for the purpose of Sections 15 and 16 of the Act. Therefore, we find no substance in the argument that Rule 2A in any way runs counter to any provision of the Act. Our attention was drawn to the observations of the Division Bench of the Karnataka High Court in the case of Additional Commissioner of Income-tax v. P. Krishna Kamat [1975] 99 ITR 74 (Kar). Triere, the Division Bench was examining the concept of special allowance under Section 10 of the Act and the Division Bench was not concerned with whether the Explanation given to Rule 2A of the Income-tax Rules would be applicable to the meaning given to the word “salary” for the purpose of relief under Section 10(13A) of the Act. Reliance was also placed on certain observations of the Delhi High Court in the case of Sant Ram v. Union of India, , where the learned judge had referred to the observations of Judge Learned Hand that it was one of the surest indications of a mature and developed jurisprudence not to make a fortress of the dictionary but to remember that statutes have always some purpose and object to accomplish whose sympathetic arid imaginative discovery was the surest guide to their meaning. Where a rule, as in this case provides its own dictionary, it is not necessary for us to embark into either the dictionary meaning or to the purpose of the Act to find out the meaning of the word ” salary “.

7. In the aforesaid view of the matter, we are unable to accept that the Tribunal was right in its conclusion and, therefore, the question referred to us is answered in the negative and in favour of the revenue.

8. In the facts and circumstances of this case, each party will pay and bear their own costs.

Sudhindra Mohan Guha, J.

9. I agree.


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