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1989 DIGILAW 158 (PAT)

Brooke Bond Employees Union v. Union Of India

1989-04-20

S.C.MOOKHERJI, UDAY SINHA

body1989
Judgment 1. This application has been heard in full. We are, therefore, disposing of this application finally at the admission stage itself. 2. The petitioner is a union of the employees of Brooke Bond Company through its general secretary. Respondent No. 1 is the Union of India and respondent No. 2 is the Commissioner of Income-tax, Patna. Respondents Nos. 3 and 4 are the Brooke Bond India Ltd. and its Regional Accounts Officer, Patna. The Union has moved this court for a direction to the respondents to refrain from adding dearness allowance paid to the members of the union to the salary received by them for the purpose of assessment under the Income-tax Act and for a direction to the Commissioner of Income-tax to refund the income-tax already deducted from their salary on account of the income-tax payable by the members of the union. 3. The stand of the petitioner-Union is that dearness allowance paid or payable to the members of the Union cannot be included in the total income of the assessee members and, therefore, the deduction in that behalf was illegal. The stand of the petitioner is that the dearness allowance is not income and, therefore, it cannot form part of the taxable income because dearness allowance is paid only to offset erosion in wages. It is, therefore, not salary. Not being salary, it is not income taxable to income-tax. 4. The stand of the petitioner is entirely untenable. Sec. 4 of the Income-tax Act, 1961, lays down the charge of income-tax and it lays down that income-tax shall be charged for any assessment year at the rate or rates for the year in accordance with the provisions of the Act in respect of the total income of the previous year of every person. Sec.2(24) lays down what is included in the expression "income". Sub-clause (iii) of Sec.2(24) lays down that income includes the value of any perquisites or profit in lieu of salary taxable under Clauses (2) and (3) of Sec.17. Sec.14 of the Act provides six heads of income. The first category is "salaries". Sec.17 of the Act deals with salary, perquisites and profits in lieu of salary. Salary includes wages, any annuity, gratuity, advance salary, any fees, commissions, perquisites or profits in lieu of or in addition to any salary or wages. Sec.14 of the Act provides six heads of income. The first category is "salaries". Sec.17 of the Act deals with salary, perquisites and profits in lieu of salary. Salary includes wages, any annuity, gratuity, advance salary, any fees, commissions, perquisites or profits in lieu of or in addition to any salary or wages. Sub-clause (ii) of Sec.17(3) provides that profits, in lieu of salary includes (so far as is relevant) a payment due to or received by an assessee from an employer to the extent to which it does not consist of contributions by the assessee or interest on such contributions. The conjoint effect of Sec.2(24), Sub-clause (iii) and Sections 14, 15 and 17 obviously is that dearness allowance is part of salary. Whether dearness allowance is paid to offset the rise in prices or gratis, it is income. That being so, there should be no escape from the situation that it is income liable to taxation under the Income-tax Act. It is, therefore, liable to be added to the total taxable income of an assessee. The income is not taxable as such only if it falls within any of the provisions relating to exemptions. It is not in controversy that there is no exemption in regard to dearness allowance. In that view of the matter, the submission that the dearness allowance is paid only to offset the erosion in wages and, therefore, it is not income, is absolutely fallacious. Wages are raised from time to time primarily to offset the erosion in wages. If the principles enunciated on behalf of the petitioner are to be accepted, every person receiving income would be liable to be assessed only on the salary that he was receiving in 1922 or 1961. It is elementary that whatever the purpose of wage/salary fixation may be, the sum received is income. Being income, it must be taxable, especially, when it is not affected by any exemption. We have not the least doubt, therefore, that dearness allowance is taxable as income. The submission urged on behalf of the petitioner has only got to be stated to be rejected. The Act is concerned only with the income that he receives. The real value of the money coming into the hands of an assessee is entirely irrelevant for the purpose of taxation. 5. The submission urged on behalf of the petitioner has only got to be stated to be rejected. The Act is concerned only with the income that he receives. The real value of the money coming into the hands of an assessee is entirely irrelevant for the purpose of taxation. 5. The question agitated before this court was once urged before a Division Bench of the Karnataka High Court in Addl. CIT V/s. P. Krishna Kamat [1975] 99 ITR 74, and what the Division Bench had to say at page 77 is as follows : "The character of the dearness allowance differs in no respect from the character of pay, except in its temporary nature, as an addition to pay which may be decreased or increased, according to circumstances, or abolished altogether... I am, therefore, clearly of opinion that dearness allowance will be part of a mans salary like acting allowance, when a man is discharging the duties of a higher office for the prescribed period under the rules and is entitled to it. Names may differ, but the character of the payment is the same. Dearness allowance fulfils the very same function as basic pay, and must, therefore, be deemed to be part of the salary, unlike travelling allowance, housing allowance, etc., which are meant for particular purposes and are confined to particular occasions, and sometimes to particular areas." 6. The Karnataka High Court gave its decision following a decision of the Madras High Court in V. Srinivasan V/s. Padmasini Ammal, AIR 1957 Mad 622 . We humbly join in the views expressed by their Lordships of the Karnataka High Court. 7. If there was any scope for doubting whether dearness allowance is salary or not, the doubt has clearly been set at rest by Parliament by enacting the Direct Tax Laws (Amendment) Act, 1989, which received the assent of the President on March 15, 1989. It amended Sec.2(24) of the Amendment Act. So far as is relevant, it reads as follows : "In Sec.2 of the Income-tax, 1961 (43 of 1961) (hereafter in this Chapter referred to as the Income-tax Act)--... (ii) after Sub-clause (iii), the following sub-clauses shall be inserted and shall be deemed to have been inserted with effect from the 1st day of April, 1962, namely :- -... So far as is relevant, it reads as follows : "In Sec.2 of the Income-tax, 1961 (43 of 1961) (hereafter in this Chapter referred to as the Income-tax Act)--... (ii) after Sub-clause (iii), the following sub-clauses shall be inserted and shall be deemed to have been inserted with effect from the 1st day of April, 1962, namely :- -... (iiib) any allowance granted to the assessee either to meet his 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." 8. There should be no difficulty in appreciating that the dearness allowance is also liable to income-tax, That must be so unless it is exempted by any statutory provision. Learned counsel for the petitioner urged that the Madras High Court has admitted a similar application and, therefore, the matter requires a considered judgment For that very reason, we have heard the matter at length and have rendered this judgment. 9. Learned counsel for the petitioner also brought to our notice that, on the same point, a Division Bench of this court has issued rule in C. W. J. C. No. 1868 of 1989. This order was passed on February 24, 1989. We would have refrained from disposing of this application but for the amendment in the law by the enactment of the Direct Tax Laws (Amendment) Act, 1989, which received the assent of the President on March 15, 1989. We have not considered it expedient to admit the application and stay the realisation of the tax the dearness allowance. 10. In regard to refund of income-tax already deducted, there is no case for it. Even if there was a case, that relief could not be granted in a writ application. The process would be by the provisions of the Income-tax Act. 11. For the reasons stated above, we do not see any merit in this application. It is dismissed accordingly. There shall, however, be no order as to costs.