ORDER
T.N. Chopra, Accountant Member
1. The assessee is a retired Judge of the Allahabad High Court. The only question which falls for determination in the present appeal filed by the assessee is whether dearness relief of Rs. 53,640/- received by the assessee in addition to the pension forms part of salary for assessment year 1998-99 and hence liable to Income-tax.
2. Government employees are entitled to receive dearness allowance to compensate them for rise in cost of living. Similarly, in the case of retired employees of the Government, the existing practice is that dearness relief is being sanctioned to pensioners/family pensioners from time to time as and when there is eight point rise in the average consumer price index. Specific rates were prescribed by the Ministry of Personnel, Public Grievances and Pension for the guidance of pension disbursing authorities from time to time. Retired Judges of Supreme Court and High Courts/family pensioners of such Judges are also entitled to such dearness relief on pension/family pension at the prescribed rates as per separate orders issued by Ministry of Law and Justice, Government of India. The assessee in the present appeal contends that dearness relief is a form of social insurance and is not covered under Section 17 of the Income-tax Act and is exempt from Income-tax.
3. Before answering the question, the relevant statutory provisions of Income-tax Act, 1961 may be set out. Section 2(24)(iii) of the Income-tax Act defines income as under:
“2(24). ‘income’ includes -…
(iii) the value of any perquisite or profit in lieu of salary taxable under Clauses (2) and (3) of Section 17.”
Section 17 defines “salary” which is chargeable to Income-tax as per Section 15.
“17. For the purposes of Section 15 and 16 and of this section, –
(1) “salary” includes -…
(iv) any fees, commissions, perquisites or profits in lieu of or in addition to any salary or wages; …
Sub-section (3) of Section 17 gives inclusive definition of “profits in lieu of salary” as extracted below.
(3) ‘profits in lieu of salary’ includes –
(i) the amount of any compensation due to or received by an assessee from his employer or former employer at or in connection with the termination of his employment or the modification of the terms and conditions relating thereto;
(ii) any payment other than any payment referred to in Clause (10), Clause (10A), Clause (10B), Clause (11), Clause (12) or Clause (13A) of Section 10, due to or received by an assessee from an employer or a former employer or from a provident or other fund not being an approved superannuation fund, to the extent to which it does not consist of contributions by the assessee or interest on such contributions.”
4. Certain principles which will be guiding factors in construing the statutory provisions in the I.T. Act and in particular, the expression “salary” as defined in various sections of the said Act and which are fairly settled, may be borne in mind before adjudicating the point involved herein.
(1) The expression “salary” is defined in various sections of the I.T. Act and the Rules, viz., Explanation to Section 10(10), Section 17, Explanation 2(a) to Section 40A(5), Rule 2(h) of Part-A of Schedule IV, Explanation 1 to Section 36(1)(iia) and Explanation 1 to Rule 3, in various ways. But, for the purpose of computing income for charging purposes, only the definition of Section 17 has to be looked into. (2) The chargeability of a receipt has to be judged with reference to Section 17 and de hors Section 10 which directs certain receipts to be excluded from the computation of income.
(3) If Section 17 is not attracted, it is unnecessary to examine Section 10 as it cannot be decided with reference to the said section.
5. The contention of the revenue is that dearness relief comes within the expression “profits in lieu of salary” as defined in Section 17(3) of the Act. It would be necessary to consider the scope and ambit of the expression “profits in lieu of salary”. “Salary”, according to the Shorter Oxford English Dictionary, means – “to recompense, reward; to pay for something done”. In Jowitt’s Dictionary of English Law (1959 edition) “salary” is explained as – “a recompense or consideration generally periodically made to a person for his service in another person’s business; also wages, stipend, or annual allowance”. In Stroud’s Judicial Dictionary (4th edition) the expression “salary” is explained as – “where the engagement is for a period, is permanent or substantially permanent in character, and is for other than manual or relatively unskilled labour, the remuneration is generally called “salary”.
6.” Now, the basic question which is required to be considered in the present appeal is whether dearness relief received by the assessee is covered within the purview of “profits in lieu of salary” as defined under Section 17(3) of the Act. Contention of the ld. Counsel is that dearness relief has been unilaterally extended to the retired Government employees in addition to the pension as a gesture of goodwill and such voluntary payments which are ex-gratia in nature cannot be regarded as profits in lieu of salary. Ld. Counsel contended that dearness relief is granted to the retired judges of High Court and Supreme Court by the general order of Ministry of Law and Justice and Company Affairs, Government of India and the said amount is neither chargeable to Consolidated Fund of India nor recoverable from the State Government as is the case with the pension. According to the ld. Counsel, only pension is covered within the meaning of salary as per Section 17(1)(ii).
7. Ld. Counsel next contended that since dearness relief is not a part of the pension, the amount is not covered under Section 17(1)(ii) of the Act. In support of his contention, reliance is placed on the decision of Allahabad High Court in the case of M.C. Desai and Ors. v. Union of India AIR 1988 Allahabad 283. In the said decision, it has been held that dearness relief was granted to the Judges in order to meet the rise in cost of living and such relief cannot be treated as a part of the pension.
8. Emphasising the distinction between the terms allowance and relief, ld. Counsel submitted that whereas dearness allowance is income liable to tax as per the provisions of Section 2(24)(iiib), Dearness relief is unilateral and paid gratuitously as a method of taking care of the unemployed and cannot be brought to tax since the assessee has no vested right therein. In support of his contentions, ld. Counsel placed reliance on the decision of Supreme Court in the case of CIT v. L.W. Rusell 53 ITR 91. He further pressed into service the definition of allowance and relief as given in the Encyclopedia Britanica and argued that dearness relief cannot be treated as part of salary.
9. Ld. Senior DR, on the other hand, supported the impugned order of the ld. CIT (A) and argued that dearness relief and allowance are both identical in nature and character and have been paid by the Government to its employees with a view to compensate them for the rise in cost of living. Ld. DR argued that mere change in nomenclature would not alter the intrinsic character of the payment and since dearness allowance is admitted and accepted as taxable as profit in lieu of salary within the definition contained under Section 17(3)(ii) of the Act, there is no reason for excluding dearness relief from the ambit of the said definition.
10. After careful consideration of the rival submissions and going through the scheme of taxation of salary as contained under the Income-tax Act, I am inclined to hold that dearness relief satisfies all the ingredients as contained under Section 17(3)(ii) of the Income-tax Act and being profits in lieu of salary, dearness relief is liable to be treated as salary under Section 17 of the Income-tax Act. From a bare perusal of Section 17(3), as reproduced hereinbefore, it appears to me that there are three following essential ingredients that are to be satisfied for the purpose of application of the said provision :
(i) That the payment must be relatable to employment;
(ii) That it must not be based on personal or extra employment consideration; and
(iii) That it must not be a payment falling under any of the Clauses of Section 10 specified in parenthetical clause of Section 17(3)(ii).
In my considered opinion, dearness relief, being in the nature of recompense or reward for the services rendered by the employee, is clearly covered under the expression “profits in lieu of salary”. It cannot be regarded as a payment made on personal or extra employment considerations. The words “due to or received” occurring under Section 17(3)(ii) are, in my opinion, all embracing and bring any payment due or received by the ex-employee within its sweep. The legislature has designedly used both the words “due to or received”. They are disjunctive and so they made the intention manifestly clear bringing thereby within the net of taxation the amounts that fall due though not received as well as the amounts that were received without the same being due. It appears to me that the words used by the legislature “any payment – received” in Section 17(3)(ii) clearly reflects the legislative intention that even if the amount is paid voluntarily and not in fulfillment of any contractual or other legal obligation by an employer to an ex-employee, the same would be taxable by virtue of Section 17(3)(ii) of the Act.
11. That apart, dearness relief paid by the Government to a pensioner is also attributable to the legal obligation created under the office memorandum and circular issued by the Government of India, Ministry of Personnel, Public Grievances and Pension from time to time. Such payments made by the Government by way of dearness relief to ex-employees is, therefore, not a voluntary payment and has been paid under the notifications and circulars issued by the Government from time to time. The payment of dearness relief calculated on the basis of pension as per the Government notifications could be said to have been made in fulfillment of legal obligation. This receipt is in the nature of addition to the pension of the retired employee of the Government of India and not a casual nonrecurring receipt which is exempt from tax under Clause (iii) of the proviso to Section 10(3).
12. Payment of clearness relief to retiring High Court judges is governed by Rule 2 of High Court Judges Rules, 1956. By virtue of the said Rule 2, retiring pension and gratuity as provided under Rule 17 of the All India Services (Death-cum-Retirement Benefits) Rules, 1958 would also apply to High Court Judges. Rule 17 of the 1958 Rules deals with retiring pension and gratuity which reads as under :-
“Retiring Pension and gratuity, – (1) A retiring pension and death-cum-retirement gratuity shall be granted to a member of the service who retires or is required to retire under Rule 16.
(2) Notwithstanding anything contained in Sub-rule (1), relief against rise in the cost of living index shall be granted to every such member of the Service at such scale and in such manner as may be prescribed by the Central Government from time to time for officers of the Central Civil Services, Class I.”
A perusal of the said provisions indicate that a retiring pension and death-cum-retirement gratuity is paid to a member of the service belonging to the Indian Administrative Service and Sub-rule (2) lays down that apart from the pension and death-cum-retirement gratuity relief against rise in the cost of living index shall be granted to every such member of the Service at such scale and in such manner as may be prescribed by the Central Government from time to time for officers of the Central Civil Services, Class I. It has already been held earlier that the provisions of 1958 Rules were applicable to the High Court Judges also by virtue of Rule 2 of the Judges Rules 1956. Thus it is abundantly clear that the Judges of the High Court are also entitled to the relief mentioned in Rule 17(2) of the 1958 Rules. The entitlement of retiring judges for dearness relief as per Rule 17(2) extracted above has been upheld by the Allahabad High Court in M.C. Desai’s case (supra) which has been cited by the learned counsel. Thus, payment of dearness relief by the Government is in fulfillment of legal obligation and cannot be treated as gratuitous or voluntary in nature. The argument of the learned counsel is, therefore, entirely misconceived and is rejected.
13. The next contention of the ld. Counsel based on the distinction between the words “allowance” and “relief, in my opinion, does not bear scrutiny. It is the content of the definition of “profits in lieu of salary” and not the appellation used by the Government for the payment made that matters. Once it is accepted that payment of dearness relief is referable to employment and represents the addition to salary and thus attracts the content of the definition, nothing turns upon the nomenclature used by the Government for specifying the payment. In my opinion, dearness relief is clearly covered under Section 17(3)(ii) as “profits in lieu of salary” and hence is liable to be taxed as salary income.
14. Regarding the reliance placed by the learned Counsel on the judgment of Allahabad High Court in the case of M.C. Desai and others (supra), the said decision does not render any assistance whatsoever to the case of the assessee. The finding of the High Court that dearness relief is not a part of pension does not in any manner lends support to the claim of the assessee that such dearness relief is not covered under Section 17(3)(ii) of the Income-tax Act. Learned counsel has next cited the decision of Supreme Court in L.W. Russell’s case. The decision is entirely distinguishable on facts and issues involved and has no relevance to the point in issue involved in the present appeal.
15. To summaries, the following propositions emerge from the discussion made as above which support my finding that dearness relief is covered under the definition of “profits in lieu of salary” as contained under Section 17(3)(ii) of the Act:
(i) Profits in lieu of salary is income as per Section 2(24)(iii) of the Income-tax Act;
(ii) By virtue of Section 17(1)(iv) salary includes profits in lieu of salary; and
(iii) The definition of profits in lieu of salary under Section 17(3)(ii) is all embracive and omnibus and brings within its sweep “any payment due to or received by an assessee from an employer or a former employer”. Dearness relief is clearly covered within the expression any payment received from a former employer by an assessee. In view of wide sweep of the definition, dearness relief is clearly covered under Section 17(3)(ii) of the Act.
(iv) Dearness relief does not fall under any of the clauses of Section 10 specified in the parenthetical clause of Section 17(3)(ii).
16. For the aforesaid reasons, I would, therefore, endorse the conclusion of the ld. CIT (A) regarding taxability of the dearness relief as salary income and dismiss the appeal of the assessee.