AI Structured Summary
Not yet generated for this judgment
Judgment
Uday Sinha and S.C. Mookherji, JJ.—This application has been heard in full, we are, therefore, disposing of this application finally at the admission stage itself.
The petitioner is a Union of the Employees of Brook Bond Company through its General Secretary, Respondent No. 1 is Union of India and respondent No. 2 is Commissioner of Income Tax, Patna, Respondent Nos. 3 and 4 are the Brook 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 assessment under the Income Tax Act and for a direction to Commissioner, 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.
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 assesses members and, therefore, the deduction in the 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 off-set erosion in wages. It is, therefore, not salary. Not being salary it is not income taxable to income tax.
The stand of the petitioner is entitely untenable. Section 4 of the Income Tax Act, 1961, lays down charge of Income Tax and it lays down that Income Tax shall be charged for any assessment at rate or rates for the year in accordance with the provisions of the Act in respect of the total income of the previous years of every person. Section 2(24) lays down what is included in the expression "Income". Clause 3 of Sub-section (24) lays down that income concludes the value of any perquisite or profit in lieu of salary taxable under Clauses (2) and (3) of Section 17. Section 14 of the Act provides six heads of income. The first category is that of "Salaries". Section 17 of the Act deals with salary. Perquiste and profits in lieu of salary. Salary includes wages, any annuity, gratuity, advance salary, any fees, commission, perquisites or profits in lieu of or in addition to any salary or wages. Clause (2) of Section 17(3) provides that profits in lieu of salary includes (so far as is relevant) any payment due to or received by an assessee from an employer to the extent to which it does not consist of contribution by the assessee or interest of such contribution. The conjoint effect of Section 2(24), Clause (3), Sections 14, 15 and 17 obviously is that dearness allowance is part of salary. Where dearness allowance is paid to off-set the rise in price 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 assesses. 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 off-set the erosion in wages and, therefore, it is not income, is absolutely fallacious. Wages are raised from time to time primarly to off-set the erosion in wages. If the principles enunciated on behalf of the petitioner was to be accepted, every person receiving income would be liable to be assessed only on the salary that he was receiving in 1961 or 1922. 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 received. The real value of the money coming into the hands of an assesses is entirely irrelevant for the purpose of taxation.
The question agitated before this Court was once urged before a Division Bench of a Karnataka High Court in Additional Commissioner of Income Tax, Bangalore Vs. P. Krishna Kamat, 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 I will be part of a man''s 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.
The Karnataka High Court gave its decision following a decision of Madras High Court in V. Srinivasan Vs. Padmasini Ammal, . We humbly join in the views expressed by their Lordships of the Karnataka High Court.
If there was any scope for doubting whether dearness allowance is salary or not, the doubt has clearly been set at rest by the parliament by enacting Direct-tax Laws (Amendment) Act, 1989, which received the assent of the President on 15.3.1989. It amended Section 2(24) of the Amendment Act. So far as is relevant it reads as follows:
In Section 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-clause shall be inserted and shall be deemed to have beau inserted with effect from the Ist. day or April, 1962, namely:
(iii-b). An allowance granted to the assessee either to meet his personal expenses at the place where the duties of 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.
There should be no difficulty in appreciating that dearness allowance is also liable to Income Tax. That mast 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 considered judgment. For that very reason we have heard the matter at length and have rendered this judgment.
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 24.2.1989. We would have refrained from disposing of this application but for the amendment in the law by the amendment of Direct Tax-laws (Amendment) Act, 1989, which received the assent of the President on 15.3.1989, we have not considered it expedient to admit the application and stay the realisation of the dearness allowance.
In regard to refund of Income lax already deducted, there is no case for it. Even if there was a case, that relief could not be granted by a writ application. The process would be by the provisions of the Income Tax Act.
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.