Salary Cannot be taxed as Income from other sources without proving absence of master and servant relationship
COMMISSIONER OF INCOME TAX, NEW DELHI Versus UK. BOSE (Delhi High Court)
In the returns the assessee had claimed deduction under Section 10(13A) on the basis of the rent paid by him which has been debited from his salary directly. This Section exempts any special allowances specifically granted to an assessee by his employer to meet expenditure actually incurred on payment of rent for residential accommodation occupied by the assessee, to such extent as may be prescribed, having regard to the area in which the accommodation is situated and other relevant considerations. Rule 2A of the Income Tax Rules prescribes the quantum of exemption available. The reason why the assessing officer disallowed the claim for exemption is that he considered the salary received from M/s Sahara India Mass Communication not under the head “salary”but under the head “income from other sources”. The reasoning of the assessing Officer as contained in the assessment order for the assessment year 2001-02 is as under:-
“8 The assessee has disclosed income from salary received from M/s. Sahara India Mass Communication amounting to 35,16,000/-. The assessee has claimed deduction u/s 10(13A) at 3, 84,000/- on the basis of rent paid by him which has been debited from his salary directly.
8.1 It is noted that the promoters (Sri Subrato Roy, the assessee and Sri O.P. Srivasata) have devised a system by which they are drawing salary from some concern, perquisite from another, etc. The whole system works in a fashion that their personal/ family needs are being taken care of by the various concerns without their showing the value as income (partly or wholly) and paying tax on it. It is evident that this privileged treatment is received by them by virtue of their overall position in the group and particular position in the respective firms/ companies in which they are partners/ directors. Here it is also to point out that last year his employer has given him a gross salary of `1 6,89,000/- but during the year under consideration the salary of the assessee has increased more than double without any special reason, or gain to company. This also proves that the assessee is enjoying the benefit of his position in the group and drawing the salary what he want. In view of the aforesaid, the income of `35, 16,000/- disclosed by the assessee from salary is being treated as income within the meaning of section 2 (24) (iv) and assessed under the head „income from other sources‟. The claim of exemption u/s 10(13A) is, accordingly, not being allowed.”
On appeal the CIT (Appeals) following his earlier orders directed the assessing officer to allow the exemption. The revenue carried the matter in appeal to the Tribunal. The Tribunal following its order for the assessment year 1999-2000 affirmed the decision of the CIT (Appeals).
We have considered the issue in the light of the rival contentions. The ground on which the claim for exemption under Section 10(13A) was rejected by the assessing officer was that the salary receipts by the assessee from M/s Sahara India Mass Communication cannot be assessed under the head “salary”, but should be assessed under the head “income from other sources”. The assessing officer has however not brought any material to show that the relationship between the M/s Sahara India Mass Communication and the assessee was not that of a master and servant. He has referred to some extraneous material to hold that the salary receipt should be assessed as income from other sources. Unless there is material to show that there was no employer-employee relationship, the proper head of income to be applied is that of “salary”. Since this is not the case of the assessing officer, we are of the view that the Tribunal was right in holding that the assessee was entitled to the exemption under Section 10(13A). In this view of the matter, we answer the second substantial question of law in these two appeals in the affirmative, in favour of the assessee and against the revenue.