1988 PLP (Trib (PTD)

Salary Rs.27,98,702 30% of the salary Rs. 8,39,610 Perquisites Rs.38,57,180 Excess Perquisites Rs.30,17,578

3. Being aggrieved with the above treatment the respondent referred first appeal before the learned Commissioner of Income Tax (Appeals) assailing the addition on account of deemed interest income under Explanation 8 of section 4(1) and addition made under section 10(4)(d). The levy of surcharge was also objected to.

4. The learned Commissioner of Income Tax (Appeals) deleted the addition of Rs.25,30,850 on account of notional interest income under Explanation 8 of section 4(1) of the Repealed Act for the reason that the amount related to the period prior to 1st July, 1976, by placing reliance on the order of this Tribunal in I . T.N. No. 718/ KB of 1979-80, dated 30-5-1980 and her own decision in this regard. 5, So far the addition on account of excess perquisite was concerned, the learned Commissioner of Income Tax (Appeals) held that the claim as made by the respondent was justified that the bonus, overtime pay and leave salary should be included with the basic pay for the purpose of computing salary and calculation of perquisites. The learned Commissioner of Income Tax (Appeals) observed as under:- "If this is done then the total salary would come toRs.47,62,867 and not Rs.27,98,

702. For argument's sake if this figure is taken and cash allowances are treated as perquisites then the total would be Rs.10,26,409 and this total is less than 30% of salary as computed above. Therefore, on this account no addition can be made. Over and above this it is also correct and proper that the house rent allowance, medical allowance and conveyance allowance were not treated as perquisites within the meaning of section 24(1) of Income Tax Ordinance vide Appeal No. 532iZC/C/79-80, dated 22-11-1980."

6. For the above reason the learned Commissioner of Income Tax (Appeals) came to the conclusion that the allowances would not form part of perquisites and, therefore, no addition can be made on this point. She, therefore, deleted the addition made by the Income Tax officer under section 10(4)(d) amounting to Rs.30,17,538. 7 After a careful perusal of the Explanation I (supra) and giving our anxious consideration to the contentions of the learned' representatives for the parties, we are of the opinion that the interpretation placed by Mr. Tanauli appears to be more reasonable and in consonance with the intention of Legislature. The plea taken A by Mr, Muhammad Farid, does not appear to be tenable because the provision that, 'any other sum which does not enter into the computation for pensionary or retirement benefit' shall apply to those sums only which are not otherwise covered by the expressed and specific allowances enumerated in the explanation. The provision relied upon by Mr. Mohammad Farid, is in the nature of general and residuary, provision and shall come into play in the absence of special and specific provision only. It is to be examined, therefore, if the over-time and leave encashment salary is covered under the specific provision of Explanation I (supra) or not? Mr. Tanauli has submitted that the overtime is continuation of the services rendered by an employee and the amount paid for such extra services would be deemed to be remuneration for services rendered and likewise leave encashment salary is compensation for services rendered and thus both the items are to be included in the expression 'salary'. The terms remuneration 3rd compensation are not defined in the Repealed Income Tax Act or Ordinance and, therefore, we have to fall back on the dictionary meaning of these terms. The word remunerate is defined in the Concise oxford Dictionary as, 'reward, pay for service rendered; serve as or provide recompense for (toil etc.). In Stroud's Judicial Dictionary (1974) Edition 'Remuneration' is defined as under: "(1) 'Remuneration' is a wider term than 'salary'. 'Remuneration' means a quid pro quo. Whatever consideration a person gets for giving his services, seems to me a 'remuneration' for them. Consequently, if a person was in receipt of a payment or of a percentage, or any kind of payment which would not be an actual money payment, the amount he would receive annually in respect of this would be 'remuneration'. (2) 'Remuneration' (Contracts of Employment act, 1963 (c.49), Sched. 2, para. 3(2) includes all that is quantifiable in money and paid to the employee for his work including, in this case, a weekly payment of a specified sum 'for expenses in connection with the use of his own motorcar."

8. A perusal of the above definition shows that the 'remuneration' connotes the payment to employee, quantifiable in money for his work. There can be no cavil to the proposition that the overtime is always paid for extra ' work done by an employee in addition to his normal duties and as such we are convinced without any shadow of doubt that the sum paid for overtime is included in the expression salary us defined in Explanation I (supra). Now coming to the contention that leave encashment may be treated as salary or not? It is to be examined whether it is compensation for services rendered. The word 'compensate' is defined in C9ncise Oxford Dictionary, to mean counter balance; recompense, make amends (for thing, to person). The word 'compensation' is defined in Black's Law Dictionary (Fifth Edition) as under:- "Compensation.-- Indemnification; payment of damages; making amends; making whole; giving an equivalent or substitute of equal value. That which is necessary to restore an injured party to his former position. Remuneration for services rendered, whether in salary, fees, or commissions. Considera tion or price of a privilege purchased. Equivalent in money for a loss sustained; equivalent given for property taken or for an injury done to another; giving back an equivalent in either money which is but the measure of value, or in actual value otherwise conferred; recompense in value; recompense or reward for some loss, injury, or service, especially when it is given by statute; remuneration for the injury directly and proximately caused by a breach of contract or duty, remuneration or satisfaction for injury or damage of every description." The leave encashment/leave salary is given in lieu of foregoing the entitlement of leave by an employee and for performing the duties during the period in which he would have been entitled for enjoying leave. By paying leave salary, an employer purchases the privilege of an employee and the amount paid is consideration of price of said privilege. Thus, the leave salary comes under the purview of the terms 'compensation' as defined above and, therefore, it would be deemed to be compensation for the services rendered.

9. As a result of our discussion we hold that the overtime and leave salary both are included in the expression salary as defined in the Explanation I (supra). As a result of this finding it is held that the learned Commissioner of Income Tax (Appeals) rightly deleted, the addition made by the Income Tax Officer and no interference is! called for. The finding of learned Commissioner of Income Tax's (Appeals) on this point is hereby confirmed.

10. Consequent to the above finding the departmental appeal is partly allowed to the extent and in the manner indicated above.

11. FARHAT ALI KHAN (CHAIRMAN).--I have carefully gone through the order proposed by my learned brother, the Judicial Member. I agree with all his conclusions. Nevertheless I think that I should add few words of my own regarding the issue pertaining to leave salary and overtime allowances.

12. The arguments of Mr. Mohammad Farid, the learned D.R. was that all those sums which were not taken into consideration at the time of computation of pensionary or retirement benefits were to be excluded from the fold of the expression 'salary'. According to him the overtime and leave salary were not included in the salary paid to an, employee in order to compute his pensionary or retirement benefits, therefore, they were not to be treated as part of the salary. My learned brother has repelled the contention of Mr. Muhammad Farid for the reason that overtime and leave salary were falling within the definition of 'remuneration' and 'compensation' respectively hence the last part of the Explanation did not apply to them. However, I think that the argument of Mr. Muhammad Farid can be met very effectively and convincingly by some more reasons.

13. The word 'salary' implies relationship of master and servant, which in its turn revolves around the terms and conditions of an employment agreement. It is always a condition of an employment that an employee has to render daily services for a certain period of, time. It may be for 10 hours, 8 hours or 6 hours etc., etc. but ate the same time an employer is entitled to get commitment from his' employee that in case of certain contingencies he would render services beyond the agreed period of time. The employee, on the other hand, is entitled to compel his employer to pay for this extra time work at higher rate than what is paid during the normal hours of work. Such payment is called overtime allowance and, as discussed by my learned brother, falls within the definition of 'remuneration'. Similarly, in every employment agreement there is always a provision for a leave period. Certain rates of leave per month are agreed upon between an employer and employee and in addition to public holidays the agreed leave is also admissible to an employee. However, under certain circumstances the parties may stipulate that in case ad employee gives up his leave entitlement, he would be paid certain amount for it which is called Leave Salary Allowance. My learned brother has rightly included the Leave Salary Allowance within the definition of 'compensation' as given in Explanation I. However, it is to be specifically noted that generally neither Overtime Allowance nor Leave Salary Allowance is kept into consideration while working out the pensionary or retirement benefits. But, so is the case with Dearness, Grain Compensation or Cost of Living Allowances, Bonus and Commission. All these items are also not generally included in the amount of salary much less considered for the purposes of computation of pensionary or retirement benefits. The Legislature has, therefore, specifically included Dearness, Grain Compensation or Cost of Living Allowances and Bonus and Commission within the fold of the concept of 'salary'. But since Overtime and Leave Salary Allowances are falling within the definition of 'remuneration' and 'compensation' respectively, they are, therefore, to be treated as part and parcel of salary but nevertheless all that which is included in salary may be considered for the computation of pensionary or retirement benefits if such a stipulation is made in the service agreement. Thus the argument of Mr. Muhammad Farid that those items which were not kept into consideration for the purposes of computing pensionary or retirement benefits were to be excluded from the concept of 'salary' does not appear to be having any substance. What is taken into consideration for purposes of computing pensionary or retirement benefits wholly depends on the terms and conditions of a service agreement and there was nothing available on record in this case which could show that the Overtime and Leave Salary Allowances were not to be included for such purposes.

14. The second reason which goes against the argument of Mr. r,Iuhammad Farid, appears to be contained in the principle of ejusdem generis which means that 'where general words follow particular and specific words of the same nature, the general words must be confined to the things of the same kind as those' specified'. The classical example of this rule is provided by William's case. In a certain Statute of England, the Members of Parliament were supposed to undertake the contract with 'the Commissioners of His Majesty's' Treasury, or of the Navy or Victualling Office' or 'the Master General or Board of Ordnance' or 'any one or more of such Commissioners' or 'any other person or persons whatsoever'. The question arose as to what was meant, by 'any other person or persons whatsoever' and the Privy Council in the leading case reported as Williams v. Golding, 19 IC 765 (PC) answered the question in the following words:

"All the persons enumerated in the first section of this Act were servants of the Crown in 1782 (the date of the Act) holding offices in the British as contrasted with Irish Government or any other Government of the King's dominions or dependencies beyond the seas. 'They were officers of the British Government, which was also the imperial Government of the King. When, therefore, the first section of the Act of 1782, after enumerating these several office-holders proceeds to add the words 'any other person or persons whatsoever' the doctrine of ejusdem generis applies. Any 'other person' meant 'anyone who held an office in the British Government of a similar kind to those enumerated. In Thames and Mersey Marine Insurance Co. v. Hamilton Fraser & Co., Lord Halsbury, L.C. referred to two rules of construction now firmly established as part of our law. One is that words, however, generally may be limited in respect to the subject-matter in relation to which they are used.-The other is that general words may be restricted to the same genus as the specific words that precede them." Thus, if in the light of discussion made above if the expression 'or any other sum' which finds place in Explanation I, is interpreted, it appears to be ejusdem generis to the' expression 'Provident or Superannuation Fund'. In other words the expression 'or any other sum' means and implies any sum which is like Provident or Superannuation Fund and Employees' Old-Age Benefit Fund may provide such an example.

15. Thirdly it is to be noted that neither Provident Fund nor Superannuation Fund, nor any other Fund is generally taken into consideration while computing the pensionary or retirement benefits. It is, therefore, clear that the words 'which does not enter into computation for pensionary or retirement benefits' relate to and qualify I the expression 'Provident or Superannuation Fund, or any other sum'. It would not be, therefore. permissible under the known Rules of English Language Grammar to hold that the former expression relates to or qualifies the expression 'remuneration' or 'compensation for services' or 'Dearness, Compensation or Cost of Living Allowances, or Bonus or Commission'.

16. In view of discussion made above, I find no force in the submission of Mr. Mohammad Farid, the learned D.R. and support the conclusion arrived at by my learned brother, the Judicial Members. M.B.A./534/T Appeal partly allowed.