P L D 1962 (W (PLP)

S. A. MAHMOOD, J.-By this reference under section 66 (1) of the Income-tax Act, made to us by the Appellate Tribunal at the instance of the Commissioner of Income-tax, we are required to answer the following question :- "Whether, in the facts and circumstances of the case, the Tribunal was right in coming to the conclusion that the `special allowance' covered by the agreement dated 29th January 1953, fell within the purview of section 4 (3) (vi) of the Income-tax Act so as to be excluded from the assessee's total income ?". The above reference relates to two months, of February and March 1953, of assessment year 1953-54, and the assessment years 1954-55, 1955-56 and 1956-57 in the case of Mr. Brij Lal Jajoo, Secretary of the Sutlej Cotton Mills, Ltd., Okara. 2. On the 29th day of January 1953, an agreement was entered into between Sutlej Cotton Mills Ltd., Okara, acting through its managing agents, Birla Brothers Limited, on the one hand and Mr. Brji Lal Jajoo on the other, that as it was deemed necessary to authorise the Secretary to spend out of the special allowance, certain sums of money on religious occasions and social functions connected with the different classes and castes of employees, the object of which was to promote harmonious relations amongst them to keep them contented and to contribute to the greater efficiency and upkeep of the Mills, the former agreed to grant the latter a special allowance of Rs. 1,500 per mensem to meet such expenses as were `wholly and necessarily incurred in the performance of his duties of office' as Secretary which are words borrowed from section 4 (3) (vi) of the Income -tax Act. The agreement further provided that the Secretary shall not be required to keep any account or to prove that the sum of money placed at his disposal was actually spent, that he shall be precluded from disclosing the nature of the expenditure, that his declaration that the sum has been spent for the purposes above-mentioned shall be final and conclusive, and that the payment made to him shall be deemed to be a special allowance intended to be and shall be treated as expenditure incurred wholly and solely for the purpose of the business of the company. Mr. Jajoo, claimed before the Income-tax Officer for the relevant assessment years that the special allowance of Rs. 1,500 per mensem stipulated in the agreement was exempt from the imposition of income-tax under section 4 (3) (vi) of the Income- tax Act. His claim was disallowed by the Income-tax Officer and the sum of Rs. 18,000 was included in his assessable income. Before the Appellate Assistant Commissioner, on appeal, it was contended on behalf of the assessee that the allowance attracted the exemption under section 4 (3) (vi) of the Act inasmuch as he, as General Manager of the Mills, was staying at Okara alone, his family being in India during the relevant period, and that he received the said allowance "to compensate him for the extra cost of living and hardship involved in staying in Pakistan." The Appellate Assistant Commissioner came to the conclusion that as there was no contract entered into between the assessee and his employee which could definitely go to prove that the special allowance was granted to him specifically to be incurred in the performance of his duties at Okara, the special allowance did not attract section 4 (3) (vi), but was a perquisite allowed to the assessee in the performance of his duties and was part of his emoluments received by him as General Manager of the Mills and as such it fell to be assessed under section 7. 3. Mr. Jajoo then appealed to the Appellate Tribunal and relied on two decisions reported as Tejaji Parasram Kharawalla v. Commissioner of Income-tax ((1948) 16 I T R 260) and Ciba Dyes Ltd., Bombay v.. The Commissioner of Income-tax, Bombay City ((1954) 25 I T R 102). The Tribunal came to the conclusion that having regard to the terms of the agreement it could not be gainsaid that the special allowance paid to the assessee was covered by section 4 (3) (vi) of the Act, and it was not permissible to proceed further and make an enquiry whether such Emount was in fact expended by the assessee. As the agreement governed two months relevant to the assessment year 1953-54 and the subsequent years relevant to the charge years, 1954-55, 1955-56 and 1956-57, the Tribunal ordered that the special allowance paid to the assessee during this period be excluded from his total assess ment. 4. The Commissioner, Income-tax moved the Tribunal to prefer the case to this Court on the grounds that the Tribunal did not examine whether the agreement disclosed a genuine state of affairs, that the ground that the allowance was granted exclusively for the purpose of meeting expenses which the assessee had to incur wholly and necessarily in the performance of duties of his office was neither taken before the Income-tax officer, nor before the Appellate Assistant Commissioner, and lastly, that even if it be conceded for the sake of argument that the purpose of the allowance was the one stated in th. . agreement, the allowance was still not covered by section 4 (3) (vi) of the Act, as it was not necessarily required to be expended in the performance of the duties of the office of the Secretary of the Mill, but was in the nature of expenditure on religious and social functions. 5. The Tribunal in stating the case observed that it was never agitated before it that the agreement did not disclose a genuine state of affairs and that both the parties had proceeded on the basis that it represented a genuine and bona fide transaction. In this connection it is necessary to state, as is apparent from the order of the Tribunal that the assessee's claim for exemption in respect of special allowance of Rs. 1,300 p. m. under section 4 (3) (vi) for the charge years 1950-51 and 1951-52 and for the first ten months of 1952-53, was rejected by the Income -tax Officer, the Appellate Assistant Commissioner, as well as the Tribunal on the ground that the exact nature of the grant was not known and that the suggestion made in general terms that the grant was made to meet extraordinary expenditure, did not bring the case within the purview of section 4 (3) (vi). Further the assessee's own case before the Appellate Assistant Commis sioner was that the special allowance was allowed to compensate him for the extra cost of living and hardship involved by his staying in Pakistan. The Tribunal also stated in its order that the explanation of the assessee before the Income-tax authorities was that the special allowance was made "to meet the extra ordinary expenditure owing to abnormal circumstances". In this context it has to be decided whether the allowance, granted to compensate the assessee for the extra expenses involved in his staying in Pakistan separate from his family is covered by the exception in section 4 (3) (vi) of the Act. On the statement of the facts of the case in the order of the Income-tax authorities including the Tribunal, it becomes obvious that the assessee's case was not in conformity with the purpose and object of the allowance, as is stated in the agreement. Therefore, the question of the exact purpose for which the allowance was made directly arises. The Tribunal does not appear to have noticed the difference between the assessee's case and the terms of agreement. It has upheld the assessee's claim for exemption on the facts and case as put forward by him before the Income-tax authorities and not as is stated in the agreement. The Tribunal was not right in saying in the referring order that it was never agitated that the agreement did not disclose a genuine state of affairs and that both the parties had proceeded on the common basis that the agreement represented a genuine and bona fide transaction. 6. As the question which has been framed for our opinion is "whether on the facts and the circumstances of the case the special allowance received by the assessee is taxable," we have to find what the precise facts and circumstances of the case are in order to decide whether the special allowance is taxable or not. These facts are that before the relevant period the Income-tax authorities as well as the Tribunal came to the conclusion that the exact nature of the grant was not known and that the suggestion made in general terms that the grant was made to meet extraordinary expenditure, did not bring the case within the purview of section 4 (3) (vi) of the Act. The contention of the assessee before the Appellate Assistant Commissioner was that the special allowance was allowed to the assessee to compensate him for the extra cost of living and hardship involved by his living separately from his family in Pakistan which involved extra expenditure. The Tribunal also adopted it as the explanation of the assessee, 'when it stated that the allowance was made "to meet the extraordinary expenditure owing to abnormal circumstances". The assessee did not contend before the Tribunal that his case was wrongly stated by the Appellate Assistant Commissioner. Therefore, from the facts stated in the order of the Appellate Assistant Commissioner and of the Appellate Tribunal, the facts that emerge are ,that the allowance was given to compensate the assessee for the so-called hardship and the extra expenditure involved by his stay in Pakistan. In the context of these facts, we have to decide whether the special allowance is not taxable under section 4 (3) (vi) of the Income- tax Act, which provides as follows:- "4 (3) Any income, profits or gains falling within the following classes shall not be included in the total income of the person receiving them:- (i) * * * * * * * * * * (ii) * * * * * * * * * * (iii) * * * * * * * * * * (iv) * * * * * * * * * * (v) * * * * * * * * * * (vi) Any special allowance, benefit or perquisite specifically granted to meet expenses wholly and necessarily incurred it the performance of the duties of an office or employment of profit." Along with the above provision is to be seen section 7 of the Act with its first proviso which provided: "The tax shall be payable by an assessee under the head `Salaries' in respect of any salary or wages, any annuity, pension or gratuity, and any fees, commissions, perquisite or profits in lieu of, or in addition to, any salary or wages which are due to him from, whether paid by or not, or are paid by or on behalf of the Government, a local authority, a company, or any other public body or association, or any private employer ; and for the purposes of this subsection advances by way of loan or otherwise of income chargeable under this head, shall be deemed to be salary due on the date when the advance is received Provided that the tax shall not be payable in respect of any sum which the assessee by the condition of his employment is required to spend out of his remuneration wholly necessarily and exclusively in the performance of his duties." 7. The exemption under section 4 (3) (vi) of the Act is permissible in respect of a `special allowance, benefit or perquisite', which is `specifically granted' in order to "meet expenses", "wholly and necessarily incurred" in "the performance of the duties of an office or employment of profit". The exemption is in respect of a grant whether an allowance, benefit or perquisite made to an assessee, which is awarded distinctly for the purpose of meeting expenses, which are in their very nature incurred or their incurrence is necessary as a commercial necessity or expediency, wholly and necessarily" in the performance of the duties of office or of the employment. The grant is exempt if it is made for the purpose of meeting such expenditure, as is "wholly and necessarily" to be incurred or is incurrable in the very nature of the particular business, or of the manner, in which it is carried on, or in the performance of the duties of an office or employment of profit, and not in a private capacity as personal incidence, or in other capacity. In interpreting this subsection its every word must be given full meaning and effect. The essential qualities attaching to the allowance, which is exempt, are that it is (1) "specifically granted" to meet (2) such expenses, as are wholly and necessarily incurred, (3) "in the performance of the duties of an office of employment of profit". At The words "wholly and necessarily" are not idle or unnecessary words. They have been deliberately used for the purpose of emphasizing that the expenses must as a whole be necessarily incurred or be incurrable by the very nature of the duty or of the employment The words are similar to the words used in the first proviso to section 7. While section 7 makes salaries, perquisites, fees, etc. taxable, its first proviso exempts sums which the assessee by the conditions of his employment is required to spend out of his remuneration "wholly, necessarily and exclusively" in the performance of his duties. 8. If the allowance, benefit or perquisite allowed is below the expenses involved, no difficulty arises, but even if in a particular year it is granted in excess of the actual expenses, but does not far exceed the expenses normally incurrable, it is still exempt. The expense may be more in one year and less in another year, but if the expense is necessary incidence of the duties of office or of employment and is wholly incurrable, the allowance is not chargeable, even though the amount awarded in a year is more than what has actually been spent, and it does not have to be proved that the whole of the amount has been actually spent. The emphasis is not on the word `incurred' but on the word `granted'. We respectfully agree 'with the view expressed by Chagla, C. J. and Tendolkar, J. in Tejaji Parasram v. Commissioner of Income-tax, Bombay ((1948) 16 I T R 260) that it is not necessary for the assessee to prove further that he had expanded the grant for the purpose, for which it was granted. So long as the sum is such as has necessarily to be spent, and wholly relates to the performance of the duties of office or of the employment and not to something else, an allowance made to meet it is exempt and it is not necessary to prove that it has actually been spent wholly. The wording of the subsection make it plain that the allowance, benefit or perquisite must be a genuine transaction relating distinctly to the purpose of meeting expenditure necessarily to be incurred in the performance of duty or of employment, and if the grant is not made for the purpose, it is not exempt. 9. As the allowance was granted to the assessee in this case to compensate him for the extra expenses involved or in other words to meet extraordinary expenditure owing to abnormal circumstances, is it expenditure `wholly and necessarily' incurred in the performance of the duties of an office or employment ? The words in the performance of the duties of an office mean in doing the work of the office or in doing things which it is the duty of the assessee to do while doing the work of the office, and includes duties attaching to the office, held by the assessee, which he may necessarily have to perform in that capacity even outside the office, but do not include such things as his personal and private expenses in maintaining himself or his house in engaging servants, or procuring residential accommodation furnishing it, buying his personal needs like food, clothing etc. It is well settled that expenses incurred in traveling from one's residence to the office or place of employment are not necessarily incurred in the per formance of duties [Nolder v. Walters (15 T C 380), Blackwell v. Mills ((1945) 2 All. E R 655), Rickets v. Colquhoun (10 T C 118 at 124), Revell v. Director of Alworthy Brothers & Company (3 T C 12), Cook v. Knott (2 T C 246)]. The expenses incurred in moving to another place on accepting a new post [Friedson v. Glyn Thomas (8 T C 302)] or expenses of maintaining a motor cycle on being compelled to live away for want of a nearer home [Andrews v. Asthey (8 T C 589)] are not so incurred. Similarly expenses incurred in curing himself of a deceased, such as medical bills, to put himself in a position to perform his duties [Norman v. Golder (1945 Ah. E R 352)] or in maintaining himself while performing his duties or his home while away on his duties by engaging a domestic servant, are not wholly and necessarily incurred in the performance of duties [Bowers v. Harding (3 T G 22)]. The last case bears on the question before us. 10. The extra expense involved to the assessee by his staying in Pakistan and separately from his family is not expense wholly and necessarily incurred in the performance of his duties or his employment. It arises out of his stay in Pakistan, but is not related to his duties or employment and is an incidence of private and personal nature. Whether it arises out of higher cost of living in Pakistan or by his separation from his family, it has no con nection with his official duties or the nature of his employment. We are, therefore, clearly of the view that on the case of the assessee, as raised before the authorities the special allowance is not covered by section 4 (3) (vi) of the Act and is chargeable. 11. We would like to say that if the conclusion can be reached that the allowance was genuinely made for the purposes stated in the agreement, it is covered by the exemption. The authorities have a right in a particular case to be satisfied as to the genuineness of an allowance and of the purpose for which it is granted, that is that it has been granted to meet expenditure, which is necessarily incurred wholly for the purpose of the performance of duty or employment. It is not enough that the allowance has been paid or that it is supported by a deed or an agreement. What is necessary to prove is a genuine allowance made for the express purpose stated in the subsection and if this done the allowance is covered by the exemption. In this con nection it cannot be ignored that the Mills provide beneficient funds to be spent on religious and social functions for providing amenities to its workers to keep them happy and contented. If it be that all the same a particular employee had necessarily to incur expenses incidental to his duties or employment, the allow ance is exempt. Mr. Anwar, who appeared for the assessee based his case on the purpose of the allowance, as stated in the agreement, but we cannot give effect to his contention, as this was not the assessee's case before the authorities, and we are not called upon to decide whether it represents a genuine arrangement, and is not a device to benefit Mr. Jajoo for helping him to avoid the incidence of Income-tax. Our answer, therefore, to the question referred to us for opinion is in the negative. The assessee will pay the costs. K. B. A. Reference answered in the negative.