Commissioner of Income Tax vs Chandulal J. Patel

B.J. Divan, C.J.—In this case, at the instance of the revenue, the following question has been referred to us for our opinion: Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the assessee was entitled to the deduction on account of expenses incurred on the maintenance and use of the car u/s 16(v) of the Act for the assessment year 1968-69 and u/s 16(v) or u/s 10(14) of the Act for the assessment year 1969-70?

The facts leading to this reference are as follows:

The assessment years under consideration are the assessment years 1968-69 and 1969-70. The assessee is an individual and at the relevant time he was an employee of Calico Mills and was provided with a car by his employer for the two years under reference. During the course of the assessment for the assessment year 1968-69, apart from the provision of car by his employer, no allowance in the nature of conveyance allowance was provided by the employer, whereas, for the assessment year 1969-70, besides providing him with a car for his use, the employer-company also paid to the assessee an amount of conveyance allowance of Rs. 2,400. Against the income chargeable under the head "Salaries" at Rs. 46,356 for the assessment year 1969-70 inclusive of the perquisite value of the car in each year and the conveyance allowance for the assessment year 1969-70, the assessee claimed deduction on account of expenses incurred in the maintenance and use of the car for the purpose of conveyance at Rs. 1,586 for the assessment year 1968-69 and Rs. 1,594 for the assessment year 1969-70. The amount which he claimed represented three-fourths of the total expenditure incurred by him in the maintenance of the car in the respective years and one-fourth of the total expenses was treated by the assessee himself as meant for personal use. The ITO rejected the claim of the assessee for deduction of the expenses claimed by him as incurred wholly, necessarily and exclusively for the purpose of his duties on the ground that the deduction of expenditure incurred on the maintenance of conveyance has been specifically provided for u/s 16(iv) of the Act which requires as the condition precedent the ownership of the vehicle or conveyance by the assessee and as in this case, admittedly, the assessee was not the owner of the car in question which he was using, he was not entitled to the deduction u/s 16(iv) of the Act. The ITO also negatived the assessee''s claim for deduction u/s 16(v) on the ground that this residual clause for allowance of any expenditure incurred by an employee wholly, necessarily and exclusively in the performance of his duties expressly bars a deduction of expenditure on maintenance of conveyance.

The assessee preferred an appeal against the rejection of the claim regarding maintenance of the car to the AAC and the AAC accepted the contention of the assessee and allowed the claim following his order for the earlier assessment years 1962-63 to 1967-68. On appeal by the revenue to the Tribunal, the assessee relied on the order passed for assessment years 1962-63 to 1967-68 in the case of the Tribunal in another case relating to another assessee for the assessment year 1962-63 involving a similar claim. Ultimately, the Tribunal found that the question of expenses having been incurred by the assessee, by the condition of his service wholly, necessarily and exclusively in the performance of his duties was not at all in dispute. The Tribunal also rejected the contention of the revenue that the assessee had himself considered one-fourth of the total expenses as laid out for his personal use which, according to the department, showed that the expenses could not be said to be wholly, necessarily and exclusively in the performance of his duty by the assessee. Ultimately, it was held that the claim for deduction fell u/s 16(v) of the income tax Act 1961. In the alternative, so far as the assessment year 1969-70 was concerned, the Tribunal came to the conclusion that the claim for deduction would in any way fall u/s 10(14) of the Act, but the deduction u/s 10(14) for the assessment year 1969-70 was in the alternative to the deduction u/s 16(v) in case the case of the assessee did not fall u/s 16(v) of the Act.

At the relevant time, that is, in the assessment years 1968-69 and 1969-70, the provisions of section 16 as it then stood were as follows:

The income chargeable under the head ''salaries'' shall be computed after making the following deductions, namely:--

(i) any amount not exceeding five hundred rupees, expended by the assessee on the purchase of books and other publications necessary for the purpose of his duties;

(ii) in respect of any allowance in the nature of an entertainment allowance specifically granted to the assessee by his employer,

(a) in the case of an assessee who is in receipt of a salary from the Government, a sum equal to one-fifth of his salary (exclusive of any allowance, benefit or other perquisite) or five thousand rupees, whichever is less; and

(b) in the case of any other assessee who is in receipt of such entertainment allowance and has been continuously in receipt of such entertainment allowance regularly from his present employer from a date before the 1st day of April, 1955, the amount of such entertainment allowance regularly received by the assessee from his present employer in any previous year ending before the 1st day of April, 1955, or a sum equal to one-fifth of his salary (exclusive of any allowance, benefit or other perquisite) or seven thousand five hundred rupees, whichever is the least:

(iii) any amount paid by the assessee in respect of taxes on professions, trades, callings or employments levied under any State or Provincial Act:

(iv) where the assessee is not in receipt of a conveyance allowance, whether as such or as part of his salary, and owns a conveyance which is used for the purposes of his employment, such sum as the income tax Officer may estimate in respect of such use as representing the expenditure incurred by him in its maintenance and as representing its normal wear and tear;

(v) any amount actually expended by the assessee, not being an amount expended on the purchase of books or other publications, or on entertainment or on the maintenance of a conveyance, which, by the conditions of his service, he is required to spend out of his remuneration wholly, necessarily and exclusively in the performance of his duties.

There was a change in clause (iv) with effect from April 1, 1968, but for the purposes of this judgment the main requirements were, "where the assessee is not in receipt of a conveyance allowance, whether as such or as part of his salary, and owns a conveyance which is used for the purposes of his employment, a sum representing the expenditure incurred by him in its maintenance and as representing its normal wear and tear, calculated in respect of each calendar month or part thereof for which the conveyance has been so used during the previous year, on the basis provided hereunder ". The rest of clause (iv) is not material for the purpose of this judgment.

It is thus clear that in order that the case for deduction for maintenance of the car may fall under clause (iv) as it stood at the relevant time, one of the requirements was that the car in question should be owned by the assessee who was being assessed under the head "Salaries". The ITO and the department were, therefore, right when they held that the case for deduction of maintenance allowance claimed by the assessee in the instant case would not fall under the specific provisions of clause (iv) of section 16 for either of the two assessment years.

However, the question is whether the case would fall u/s 16(v) of the Act. Section 16 itself provides for deductions under various heads and under clause (v), what has been provided for are three specific types of expenditures mentioned as not being available for deduction because of the wording of clause (v) of set 16. Examining the scheme of section 16 as a whole and considering all the provisions together, it is obvious that what has been taken out of the operation of clause (v) are the specific instances covered by clause (i), (ii) and (iv) of section 16, as it stood at the relevant time. It is true that there is no reference to clauses (i), (ii) and (iv) when the instance of expenditures not available for deduction are set out in clause (v) of section 16 but when one examines the relevant phraseology of clause (v) of section 16, namely, "not being an amount expended on the purchase of books or other publications, or on entertainment or on the maintenance of a conveyance", the words are, in our opinion, referable to the specific types of expenses which are dealt with as expenditure available for deduction under the three clauses (i), (ii) and (iv). Clause (i), as can be seen from the provisions of clause (i) set out hereinabove, refers to the amount expended by an assessee on the purchase of books and other publications, though there are other conditions for eligibility for deduction under clause (i). Similarly, clause (ii) deals with a case of allowance in the nature of entertainment allowance but the deductibility under this head depends upon the specific conditions set out in clause (ii). Similarly, clause (iv) deals with expenditure for maintenance of a conveyance but there are other conditions laid down in clause (iv) before the expenditure incurred by an assessee for maintenance of a conveyance can be available for deduction under clause (iv). By using a sort of short-hand, what the Legislature has taken out of the operation of clause (v) are the specific types of expenditure covered by clauses (i), (ii) and (iv) of section 16. It is, therefore, clear that if the claim for deduction in respect of maintenance of a conveyance does not fall within the terms of clause (iv), it may not be available for deduction as expenditure for the maintenance of a conveyance falling within section 16(iv). However, if that amount is actually expended by the assessee and he was, by the conditions of his service, required to spend that amount out of his remuneration as wholly, necessarily and exclusively in the performance of his duties, then the expenditure which falls out and is not covered by section 16(iv) may still amount to expenditure falling within section 16(v). That is the only way the section can be interpreted so as to harmonise all the different clauses and so as to provide for a complete logical picture of deductions available to an assessee when he is being assessed under the head "Salaries" so far as the provisions of section 16 are concerned. The clause is in the nature of a residuary clause and, therefore, those cases which are not specifically falling within the three clauses (i), (ii) and (iv) of section 16 would fall within clause (v) if the other conditions required by clause (v) of section 16 are satisfied. By interpreting this clause (v) in this manner, no violence is -done to the language and the full purpose of the residuary clause is being served. Instead of referring specifically to clauses (i), (ii) and (iv), what the Legislature has done is to use a short-hand for referring to the types of expenditure which are deductible under clauses (i), (ii) and (iv) of section 16 when the Legislature used the words "not being an amount expended on the purchase of books or other publications, or on entertainment or on the maintenance of a conveyance " in clause (v) of section 16.

On the facts found by the Tribunal, it is clear that in each of these two years the amount claimed by way of maintenance of a conveyance was actually spent by the assessee and that by the conditions of his service, the assessee was required to spend these amounts out of his remuneration wholly, necessarily and exclusively in the performance of his duties. In view of this finding of fact, it is clear that in each of these two years under consideration, the amount claimed for the respective year by way of deduction for maintenance of conveyance was rightly allowable because all the conditions of clause (v) of section 16 were satisfied in respect of each of these two assessment years.

Since this is the conclusion that we have arrived at, it is not necessary for us to go into the provisions of section 10(14) so far as the assessment year 1969-70 is concerned because, as pointed out earlier, in the course of that year an amount of Rs. 2,400 was paid to the assessee by his employer as conveyance allowance over and above the use of the car which was placed at his disposal. Since we have arrived at the conclusion that even for the assessment year 1969-70 the case of the assessee would fall u/s 16(v) so far as expenses incurred by him for the maintenance of his car were concerned, it is not necessary to go into the question of section 10(14). Under these circumstances, the Tribunal was right in coming to the conclusion that the assessee was entitled to deduction on account of expenses incurred on the maintenance and use of the car u/s 16(v) of the Act for the assessment year 1968-69 and also for the assessment year 1969-70. We answer the question accordingly, in the affirmative, at least so far as the provisions of section 16(v) for each of the two years are concerned. The Commissioner will pay the costs of this reference to the assessee.