posed before this Court was what does the expression “salary” signify. Would it also include any payment received from the employer relatable to or out of the profits or could it be understood as any pecuniary gain or advantage? This Court held:- “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 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 a wide inclusive definition to the word “income”. Similarly, for levying tax on salary income, an exhaustive definition is given under Section 17, which includes perquisites and profits in lieu of salary. The only exclusion provided under subsection (3) is any payment referable to clause (10), clause (10-A), clause (10-B), clause (11), clause (12), clause (13) or clause (13-A) 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 connection 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. Applying the aforesaid general meaning of the word “profits” and considering the dictionary (sic statutory) meaning given to it under Sections 17(1)(iv) and (3)(ii), it can be said that “advantage” in terms of payment of money received by the JUDGMENT 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 the legislature might have avoided giving an 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. clause (10), (10-A), (10-B), (11), (12), (13) or (13-A) of Section 10. However, it is for the legislature to decide the same. This would not mean that by giving an 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, 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 a gain or advantage to the assessee. Hence, it is not possible to accept the contention of the learned counsel for the employee 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 a taxable one.
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, JUDGMENT tuition fee, leave encashment linked with leave travel concession, running allowance etc. we do not pass any order with regard to those allowances.” [at paras 23, 25 and 28]
25.All that was held by this Court in the aforesaid decision is that even if an amount is received by an employee which has no connection with the profits of the employer, it may yet be salary as any advantage or gain by receipt of such payment would be included in the expression “profits in lieu of salary”. Hence, this court did not accede to the contention of learned counsel for the assessee that as the CCA amount is paid to meet additional expenditure as contemplated by statutory service rules, it cannot be said to be “profit”. This Court finally held that CCA and HRA would be taxable income in the hands of the employee.
26.It is well settled that a case is an authority, for what it decides, and not for what logically follows from it. This case in no manner supports Shri Kaul’s submission on Section 17(3) (ii) that the moment any amount is received from an employer by an employee, without more, such amount becomes a profit in lieu of salary. In the Karamchari Union judgment, CCA and JUDGMENT HRA arose directly from the employer – employee relationship. The question the Court had to answer was whether a pecuniary advantage in the form of CCA and HRA would be covered by Section 17, which the Court answered in the affirmative. This Court’s decision cannot be understood to mean that even de hors the employer – employee relationship, any amount received from the employer by an employee would become ‘salary’ under Section 17. We are, therefore, unable to subscribe to the High Court’s view in understanding this decision to mean that so long as the employer pays an amount to an employee, even in a fiduciary capacity and de hors the employer – employee relationship, the amount so paid would come within the head “salary”.
27.Shri Kaul also relied upon two English judgments and one Australian judgment to buttress his submission.
28.Before adverting to the English judgments, it is necessary first to set out the statutory scheme contained in Schedule E of the English Income Tax Act, 1918.
JUDGMENT“SCHEDULE E
Tax under Schedule E shall be charged in respect or every public office or employment of profit and in respect of every annuity, pension, or stipend payable by the Crown or out of the public revenue of the United Kingdom, other than annuities charged under Schedule C, for every twenty shillings of the annual amount thereof.”
“1. Tax under this Schedule shall be annually charged on every person having or exercising an office or employment of profit mentioned in this Schedule, or to whom any annuity, pension, or stipend, as described in this Schedule, is payable, in respect of all salaries, fees, wages, perquisites or profits whatsoever therefrom for the year of assessment, except as otherwise provided, after deducting the amount of duties or other sums payable or chargeable on the same by virtue of any Act of Parliament, where the same have been really and bona fide paid and borne by the party to be charged.”
29.The difference in language between the U.K. Act and Sections 15 and 17 of the Income Tax Act, 1961 is obvious. There need not be an employer employee relationship under Schedule E read with Rule 1 to attract the aforesaid provision. Since this is the case, it is clear that amounts that are received by any person chargeable under the said Schedule and Rule become taxable even if the said amount is paid by a third person. Keeping this vital difference in view, let us analyse the JUDGMENTtwo English judgments relied upon by Shri Kaul.
30.In Calvert (Inspector of Taxes) v. Wainwright, [1947] 1 KB 526, the question posed before the King’s Bench was: Are tips received by taxi drivers from their customers assessable to income tax in their hands? The King’s Bench Division held that such tips are assessable under Schedule E read with Rule 1 of the Income tax Act, 1918. In so holding, the King’s Bench held that though persons like taxi drivers have no vested right to ask for tips, they would yet be covered. This is for the reason that Rule 1 indicates that emoluments may be received either from the employer or from a third party as a reward for services rendered in the course of employment. This case is obviously distinguishable, first, on the ground that an emolument received from a third party is not covered by Sections 15 and 17 of the Indian Income Tax Act unless such emolument is on behalf of an employer. Secondly, the case dealt with whether such emoluments may be taxable in the hands of the taxi driver. It is nobody’s case that the amount of tips received by the employees in the present cases are not taxable in their hands – indeed learned counsel for the assessees have stated that they are so taxable as income from other sources. The question that we have to determine is somewhat different – whether the person responsible for paying salary income to his employee is liable to deduct the tax of the employee and pay it over on an estimated basis under Section 192 of the Income Tax Act. For both the aforesaid reasons, this judgment therefore does not take Shri Kaul’s case any further.
31.Similarly, the judgment in Moorhouse (Inspector of Taxes) v. Dooland, [1955] 2 W.L.R. 96, also arose under Schedule E Rule 1. The question posed in that case was whether collections made by a professional cricketer for his own benefit under a contract with a cricket club could be assessed to tax under the aforesaid provisions. The Court of Appeal, in holding that such sum could so be assessed to income tax, held that by an express term in the contract of employment the cricketer was entitled to solicit contributions from spectators. Since this was the actual situation before the Court of Appeal, the Court of Appeal held that from the standpoint of the recipient, such voluntary payments accrued to him by virtue of JUDGMENT his employment by the cricket club. A distinction was made by the Court of Appeal, regard being had to the U.K. statute, between voluntary payments made in circumstances on a ground personal to the recipient as opposed to those which arise from his contract of employment. The Court of Appeal held that given the special facts of the case, being the clause contained in the contract of employment, that the said amounts could not be said to be purely personal to the cricketer but arose from his contract of employment. For the very reasons given in distinguishing the earlier U.K. judgment, we find this judgment also has no application as the U.K. statute is markedly different from Sections 15 and 17 of the Indian Income Tax Act, and that consequently the tests applied by the English Courts, being based upon the language of the U.K. Income Tax Act, would not apply to the situation in India.
32.A judgment cited by the appellants has also to be dealt with in this context. In Hochstrasser (Inspector of Taxes) v. Mayes, [1960] A.C. 376, a certain company employed many persons in numerous factories in different places. The employees were required by their service agreement to be JUDGMENT prepared to serve the employer wherever required. A housing scheme was entered into with the employees under which, whenever the employee had to shift residence, and in so shifting would incur a loss on selling the house in the place from which he was transferred, the Company would compensate such loss. This loss was the subject matter of assessment under Schedule E of the Income Tax Act, 1918. The House of Lords, in this judgment, had to deal with paragraph 2 of Schedule E which reads as follows:- “2. Tax under this Schedule shall also be charged in respect of any office employment or pension, the profits or gains arising or accruing from which would be chargeable to tax under Schedule D but for the proviso to paragraph 1 of that Schedule….”
33.The House of Lords held that it is not enough for the Crown to establish that the employee would not have received the sum on which tax is claimed had he not been an employee at all. The Court must be satisfied that the service agreement was the causa causans and not merely the causa sine qua non of the receipt of the amount.
34.Having held that the judgments cited by Shri Kaul would JUDGMENT have no application to the facts of this case because they deal with the U.K. Act, which is different in material particular from the Indian Act, this case would also be tarnished with the same brush. However, we find that paragraph 2 of Schedule E speaks of profits or gains arising or accruing from any office or employment. This statutory provision, unlike paragraph 1 of the Schedule E, comes somewhat close to Section 15 of the Indian Income Tax Act as construed by us, and consequently the test of proximity with the service agreement, which was applied by the House of Lords, is a test applicable to the facts of the present case. We find, therefore, that the contract of employment in the present cases, not being the proximate cause for the receipt of tips by the employee from a customer, the same would be outside the dragnet of Sections 15 and 17 of the Income Tax Act.
35.Shri Kaul also cited before us the decision of the Supreme Court of Western Australia reported in 85 ATC 4283 (Kelly v. Federal Commissioner of Taxation). Suffice it to say that this very judgment distinguished some of the English judgments on the ground that the Australian Act was not in pari JUDGMENT materia with Schedule E of the English Income Tax Act, 1918. This being the case, and the Australian Act being far removed from the Indian Income Tax Act, we do not feel this judgment throws any further light on the issue at hand.
36.Shri Kaul further argued that in a cross appeal filed by the Commissioner of Income Tax, we should set aside all observations made by the High Court insofar as penalty is concerned. We find on a reading of the assessment order dated 29.3.2007, that penalty proceedings under Section 271C were separately initiated by the Assessing Officer, and consequently form no part of this appeal. Indeed we have been told that by an order dated 19.6.2013, penalty under the said Section has been levied against ITC in Civil Appeals arising from SLP(C) Nos.20822-20824 of 2011. Since the High Court judgment is being set aside in toto, none of the observations on penalty would consequently bind either of the parties.
37.A great deal of argument was made by both sides on the nature of interest contained in Section 201(1A) of the Act. We find it unnecessary to go into this question for the simple reason that as held in Commissioner of Income Tax, New Delhi v. JUDGMENT Eli Lilly and Company (India) Private Limited, (2009) 15 SCC 1 at paragraph 91, interest under section 201(1A) can only be levied when a person is declared as an assessee-in-default. Having found that the appellants in the present cases are outside Section 192 of the Act, the appellants cannot be stated to be assessees-in-default and hence no question of interest therefore arises.
38.In the view we have taken it is unnecessary to go into various other submissions made by counsel on both sides. The appeals filed by the assessees are, therefore, allowed and civil appeals arising out of SLP (Civil) Nos.9587-9589 of 2012 filed by Revenue are dismissed. The judgment of the High Court is set aside with no order as to costs.
(Kurian Joseph) New Delhi; JUDGMENT(R.F. Nariman) April 26, 2016