Delhi High Court
T.P.S. Scott And Ors. vs Commissioner Of Income-Tax on 23 January, 1998
Equivalent citations: [1998]232ITR475(DELHI)
Author: R.C. Lahoti
Bench: R.C. Lahoti, Dalveer Bhandari
JUDGMENT R.C. Lahoti, J.
1. This order shall govern the disposal of ITR Nos. 248 of 1980 to 284 of 1980. In all there are 38 references under Section 256(1) of the Income-tax Act, 1961, made by the Tribunal at the instance of the respective assessee referring the following common question of law for the opinion of the High Court :
"On the facts and in the circumstances of the case is the amount of tax paid by the British High Commission to the Indian Government on March 29, 1992, chargeable in the hands of the assessee under Section 15 read with Section 17(2)(iv) of the Income-tax Act, 1961 ?"
2. I.T.Rs. Nos. 247 to 265 of 1980 arise out of R.A. Nos. 155 to 173 of 1977-78 and I.T.Rs. Nos. 266 of 1980 to 284 of 1980 arise out of R.A. Nos. 174 to 192 of 1977-78. The facts are common. All the assessees were employees of the British Council which having functioned till 1992, merged thereafter in the British High Commission with effect from March 10, 1992. The relevant accounting period in respect of these assessees was April 1, 1991, to March 9, 1992. The tax liability of the assessees referable to this period was paid by the British High Commission on March 29, 1992, in India. The contention of the assessees was that the tax was paid by the British High Commission, who was not the employer of the assessees during the relevant accounting period and therefore the said payment made by the British High Commission could not be deemed to be a "perquisite" in terms of Section 17(2)(iv) of the Act and therefore could not be included in the gross salary of the assessees. It was also submitted that the assessees were paid salaries in sterling in the U.K. and therefore there was no obligation on the British Council to deduct tax at source in respect of the salary payment made to these employees during the relevant period. The Tribunal has recorded a finding of fact that services were rendered by these employees in India and the payments made to them outside India under some internal arrangement could not detract from the applicability of the provisions of the Income-tax Act, 1961. It was also found by the Tribunal that the payments made by the British High Commission were a part of the conditions of service and were referable to the holding of the office by the assessees as employees. It was a part of the emoluments. The payments in this year included payment of the amount equal to the tax of the assessees even though this payment was not routed through the assessees and was paid to the revenue directly but on behalf of the assessees. The payments were to be taken as on behalf of the former employer since integrated if not by the continuing and the same employer. The British Council was a part of the integrated whole from March 10, 1992 which integrated whole made the payment.
3. We may refer to the relevant statutory provisions. Section 15 sets out the income which shall be chargeable to income-tax under the head "Salaries". Vide Clause (b) thereof any salary paid or allowed to an employee in the previous year by or on behalf of an employer or a former employer though not due or before it became due to him is an income chargeable to tax under the head "Salaries". For the purpose of Section 15 vide Section 17(1)(iv), perquisites are included in salary. Vide Sub-clause (iv) of Clause (2) of Section 17 any sum paid by the employer in respect of any obligation which, but for such payment, would have been payable by the assessee, is included in "perquisites". The interpretation clause i.e., Section 2 of the Act, vide Sub-clause (iii) of Clause (24) thereof, includes the value of any perquisite or profit in lieu of salary taxable under Clauses (2) and (3) of Section 17, within the meaning of "income".
4. All these statutory provisions make it clear that an amount of tax which would have been payable by an employee-assessee, if paid by the employer on behalf of the assessee, is to be included in the perquisites amounting to salary rendering it liable to tax by being included in income.
5. In the view taken hereinabove, we are fortified by two English decisions i.e, North British Railway Co. v. Scott, [1922] 8 TC 332 (HL) and Hartland v. Diggings, [1926] 10 TC 247 (HL). Both these decisions have been followed by two High Courts in India, i.e., the Bombay High Court in CIT v. H.D. Dennis, [1982] 135 ITR 1 and the Madras High Court in CIT v. I.G. Mackintosh, [1975] 99 ITR 419. Both the High Courts have held that the income-tax paid by the employer on behalf of the employee is a part of the salary of the assessee and the word "salaries" would in its natural import comprehend within it tax paid on behalf of the employee.
6. We find ourselves in respectful agreement with the view taken in the above said decisions.
7. For the foregoing reasons the question referred is answered in the affirmative, i.e, in favour of the Revenue and against the assessee.