Yoshio Kubo v. Commissioner Of Income Tax

* IN THE HIGH COURT OF DELHI AT NEW DELHI Reserved on: 08.07.2013 Decided on: 31.07.2013 + ITA 441/2003 YOSHIO KUBO ..... Appellant versus COMMISSIONER OF INCOME TAX ..... Respondent + ITA 379/2007 THE COMMISSIONER OF INCOME TAX XVI ....Appellant versus SH. SASHI MUKUNDAN ..... Respondent + ITA 387/2008THE COMMISSIONER OF INCOME TAX XVI ...Appellant versus MR. SHORT DONALD ..... Respondent + ITA 212/2009 THE COMMISSIONER OF INCOME TAX …...Appellantversus MR. FUMIO GOTO ..... Respondent + ITA 15/2010 THE COMMISSIONER OF INCOME TAX-XIV .....Appellant versus MR. DUNCAN ETHERINGTION ..... Respondent + ITA 351/2010THE COMMISSIONER OF INCOME TAX-XVI ..... Appellant versus SH. YASHIMITSU ZAUTSU ..... Respondent + ITA 408/2010 THE COMMISSIONER OF INCOME TAX-XVI ..... Appellant versus ITA 441/2003 and connected cases Page 1 SH. IKUJU YABUKI ..... Respondent + ITA 450/2010THE COMMISSIONER OF INCOME TAX-XVI ..... Appellant versus SHRI TOSHIHORU SUNAHARA ..... Respondent + ITA 534/2010THE COMMISSIONER OF INCOME TAX-XVI ..... Appellant versus SOJITZ CORPORATION AS AGENT ..... Respondent + ITA 635/2010THE COMMISSIONER OF INCOME TAX-XVI ..... Appellant versus SH. YASHIMITSU ZAUTSU ..... Respondent + ITA 1354/2010THE COMMISSIONER OF INCOME TAX-XVI ..... Appellant versus SH. JASWINDER SINGH ..... Respondent + ITA 1556/2010THE COMMISSIONER OF INCOME TAX-XVI ..... Appellant versus MR. MOHAMMAD RAUFF NABI BAX ..... Respondent + ITA 1561/2010THE COMMISSIONER OF INCOME TAX-XVI ..... Appellant versus MR. MOHAMMAD RAUFF NABI BAX ..... Respondent + ITA 370/2011THE COMMISSIONER OF INCOME TAX-XVI ..... Appellant versus GORAM WESTERBERG ..... Respondent + ITA 1557/2010 + + + + + + + THE COMMISSIONER OF INCOME TAX-XVI ..... Appellant versus MR. JOHN TRIPLETT ..... Respondent REV. PET. 708/2011 IN ITA 1369/2010THE COMMISSIONER OF INCOME TAX-XVI ..... Appellant versus SH. FUMIO GOTO ..... Respondent ITA 761/2005THE COMMISSIONER OF INCOME TAX-XVI ..... Appellant versus MR. K.P.HOSTELLEY ..... Respondent ITA 798/2005THE COMMISSIONER OF INCOME TAX-XVI ..... Appellant versus MR. YOSHIO KUBO ..... Respondent ITA 800/2005THE COMMISSIONER OF INCOME TAX-XVI ..... Appellant versus MR. YOSHIO KUBO ..... Respondent ITA 680/2007THE COMMISSIONER OF INCOME TAX-XVI ..... Appellant versus SH. MOHAN RAI ..... Respondent ITA 681/2007THE COMMISSIONER OF INCOME TAX XVI ..... Appellant versus SH. MOHAN RAI ..... Respondent ITA 1215/2008COMMISSIONER OF INCOME TAX DELHI XIV ..... Appellant versus MR. GHORAYEB EMILE, C/O AIR FRANCE ..... Respondent + ITA 494/2010THE COMMISSIONER OF INCOME TAX-XVI ..... Appellant versus SH. HIROYASU KITADA ..... Respondent + ITA 508/2010THE COMMISSIONER OF INCOME TAX-XVI ..... Appellant versus SH. HIROYASU KITADA ..... Respondent + ITA 577/2010THE COMMISSIONER OF INCOME TAX-XVI ..... Appellant versus MR. SCOTT R BAYMAN ..... Respondent + ITA 631/2010THE COMMISSIONER OF INCOME TAX-XVI ..... Appellant versus SH. VENKAT RAO SHRIDHAR ..... Respondent + ITA 699/2010THE COMMISSIONER OF INCOME TAX-XVI ..... Appellant versus MR. JEROME SUDAN ..... Respondent + ITA 1912/2010THE COMMISSIONER OF INCOME TAX-XVI ..... Appellant versus SH. PANKAJ SHAH ..... Respondent + ITA 528/2011THE COMMISSIONER OF INCOME TAX-XVI ..... Appellant versus SH. MARCH FRANCOIS JEAN SOULACROUP ..... Respondent ITA 441/2003 and connected cases Page 4 …..Appearance Through: Mr. Rajiv Tyagi with Mr. Ajay Kumar, Mr. Gyanendra Sharma and Ms. Renu Narula, Advocates, for respondent in ITA 379/07. Mr. Pawan Sharma with Ms. Madhavi Swaroop, Advocates, in ITA 15/2010. Mr. Piyush Kaushik, Advocate, in ITA 450/10 & ITA 534/10. Ms. Amita Kalkal Chaudhary, Proxy for Mr. Naresh Kaushik, Advocate, in ITA 1354/10. Kaushik, Advocate, in ITA 1354/10. Mr. S. Ganesh, Sr. Advocate with Mr. Pawan Sharma, Ms. Madhavi Swaroop, Ms. Roohina Dua and Ms. Preeti Goel, Advocates, in ITA 577/10. Mr. Satyen Sethi with Mr. Arta Trana Panda, Advocates, in ITA 1912/10. Ms. Shreya Verma, Advocate, for Respondent in ITA 681/07 & ITA 1215/08. Mr. Salil Kapoor, Mr. Vikas Jain, Mr. Manomeet Dalal and Ms. Preity Goel, Advocates, for Respondents in ITA 212/09, ITA 1556/10, 1561/10, 1369/10, 370/11, 494/10, 508/10 and ITA 631/10. CORAM: HON'BLE MR. JUSTICE S. RAVINDRA BHAT HON'BLE MR. JUSTICE R.V. EASWAR MR. JUSTICE S. RAVINDRA BHAT % 1. This common judgment disposes a bunch of appeals in which the court had framed several questions of law. The important questions pertain to the applicability of Section 10 (10CC) of the Income Tax Act; others are whether mandatory social security and medical insurance or benefits paid in the country of the assessee, are taxable. Apart from these, other questions too require consideration and answer. Question No. 1: Are amounts paid towards income tax by the employer on behalf of the assessee non-monetary perquisites, and do they consequently fall within the scope of Section 10 (10CC) of the Act. The present issue arises for consideration in ITA Nos. 1990/2010; 450/2012, 534/2010; 1556/2010; 1557/2010; 494/2010; 508/2010; 577/2010; 631/2010; 1912/2010; 528/2011; 212/2009; 15/2010; 408/2010; 528/2011; 351/2010; 635/2010; 1354/2010; 1561/2010; 1912/2010. Contentions of the revenue 2. This question arises in the above appeals preferred by the Revenue. The assessee in all the cases were recipients or beneficiaries of what can be termed as ―tax-free‖ or ―tax paid income‖, i.e. the tax arising out of the income earned by them from their non-resident but taxable employers, was borne by the latter. 3. The assessees contended that by virtue of Section 10(10CC), introduced and brought into force in the Statute with effect from 01.04.2002 by the Finance Act, 2003, they were not liable to pay tax on such amounts which constituted the income tax component paid by the employers. It was contended successfully on their behalf before the Income Tax Appellate Tribunal (ITAT) that such amounts fell outside the purview of taxation by virtue of Section 10CC and could not be regarded as ―monetary payment‖ and, therefore, treated as perquisites under Section17(2) of the Act. The Revenue questions the decision and the logic underlying the Tribunal‘s determination on this aspect. 3. The assessees contended that by virtue of Section 10(10CC), introduced and brought into force in the Statute with effect from 01.04.2002 by the Finance Act, 2003, they were not liable to pay tax on such amounts which constituted the income tax component paid by the employers. It was contended successfully on their behalf before the Income Tax Appellate Tribunal (ITAT) that such amounts fell outside the purview of taxation by virtue of Section 10CC and could not be regarded as ―monetary payment‖ and, therefore, treated as perquisites under Section17(2) of the Act. The Revenue questions the decision and the logic underlying the Tribunal‘s determination on this aspect. 4. It is contended on behalf of the Revenue by Ms. Rashmi Chopra that the entire scheme of the Act and the interplay between various provisions have to be taken into consideration rather than an appreciation of Section 10(10CC) alone. Elaborating on this, it was urged that for this purpose, the Court would have to consider the provisions under Section 17(2); Section 40A(5); Section 192(1A), Section 195, Section 195(1A) and Section 198. On an overall consideration of these provisions, it was contended, leave no room for doubt that the taxes brought by the employers are in fact monetary payments, the benefit of which can be claimed by the employee for the purpose of computation of income and payment of tax – as a perquisite. 5. It was emphasized that the definition of perquisite under Section 17(2) is inclusive and extends to diverse manner of concessions or benefits which the employee indirectly enjoys. It was submitted that the Parliament was aware of Section 17(2)(iv), which included all manner of liabilities, such as donations “payable” by the assessee yet it chose to restrict the operation of Section 10(10CC) only to the extent of its overriding Section 200 of the Companies Act. In this context, it was further submitted that the element of income tax is in the nature of personal obligation; it was submitted that such personal obligation would necessarily have to be borne by the employee. By private arrangement in individual cases, it might be borne by the employer. Nevertheless, its character as a perquisite does not get extinguished by the mere introduction of Section 10(10CC). If the intention was otherwise, the Parliament would well have amended Section 17(2)(iv). Learned counsel emphasized that the matter could be looked at from yet another angle. Section 10(10CC) operated in an entirely different field in that it could be said to apply in those cases where the employer receives a benefit not through a monetary payment, but by way of reimbursement of the tax body. In other words, if the tax is actually included in the salary, paid to the employee, that would still amount to a monetary payment. Learned counsel highlighted that under the scheme of the Act, Section 17(2) was placed after Section 10(10CC). It has to be construed along with Sections 15 and 16. Section 15 highlights that whether a salary is paid or not, as long as it bear the character of salary due, it is deemed to be such. The only deductions permissible from this class of income are those provided under Section 16(2)(iii). Section 17(4) inclusively brings within the sweep of ―salary‖ perquisites which is specifically defined under Section 17(2). 6. Learned counsel placed reliance upon the decision reported as Emil Webber v. Commissioner of Income Tax, V&M, Nagpur AIR 1993 SC 1466 (200 ITR 483) and that of Mysore High Court in Tokyo Shibaura Electric Company Ltd. v. Commissioner of Income-Tax, Mysore 1964 (52) ITR 283 (Kar). It was emphasized that wherever such income is paid by the employer on behalf of the employee, it is a mandatory payment in discharge of his obligation which would otherwise have been exclusively borne by him or her and consequently taxable as ―salary‖ by virtue of Section 17(2). 6. Learned counsel placed reliance upon the decision reported as Emil Webber v. Commissioner of Income Tax, V&M, Nagpur AIR 1993 SC 1466 (200 ITR 483) and that of Mysore High Court in Tokyo Shibaura Electric Company Ltd. v. Commissioner of Income-Tax, Mysore 1964 (52) ITR 283 (Kar). It was emphasized that wherever such income is paid by the employer on behalf of the employee, it is a mandatory payment in discharge of his obligation which would otherwise have been exclusively borne by him or her and consequently taxable as ―salary‖ by virtue of Section 17(2). 7. It was submitted that in Emil Webber (supra), the Supreme Court had occasion to deal with the identical question, i.e. whether payment of an amount by the employer in order to discharge the employees‘ incomes‘ obligation was income under the head of ―salary‖ and whether such payment amounted to ―perquisite‖. The Supreme Court had, on that occasion, stated as follows: “7……………………..Anything which can properly be described as income is taxable under the Act unless, of course, it is exempted under one or the other provision of the Act. It is from the said angle that we have to examine whether the amount paid by Ballarpur by way of tax on the salary amount received by the assessee can be treated as the income of the assessee. It cannot be overlooked that the said amount is nothing but a tax upon the salary received by the assessee. By virtue of the obligation undertaken by Ballarpur to pay tax on the salary received by the assessee among others, it paid the said tax. The said payment is, therefore, for and on behalf of the assessee. It is not a gratuitous payment. But for the said agreement and but for the said payment, the said tax amount would have been liable to be paid by the assessee himself. He could not have received the salary which he did but for the said payment of tax. The obligation placed upon Ballarpur by virtue of Section 195 of the Income Tax Act cannot also be ignored in this context. It would be unrealistic to say that the said payment had no integral connection with the salary received by the assessee. We are, therefore, of the opinion that the High Court and the authorities under the Act were right in holding that the said tax amount is liable to be included in the income of the assessee during the said two assessment years.” 8. Similarly, the observations of the High Court in Tokyo Shibaura Electric Company Ltd. (supra) were relied upon: “15. The royalty due to the assessee has to be paid at Tokyo. Further, in view of clause D the same should be paid without deduction for taxes or other charges assessed in India, which shall be assumed by REMCO. To put those words in the language of Somervell L.J. in Jaworski v. Institution of Polish Engineers in Great Britain Ltd. (1951) 1 KB 768, the remuneration is to be "x" plus "whatever sum is necessary to leave that available to me after you have borne the taxes." As under the law, the tax is suffered by deduction, it means such a sum as will after deduction leave "x". 16. Distinction between tax-free income and the "xx" income on which tax should be paid by the employer is well brought out in Simon's Income Tax, second edition, vol. 11, at page 710. This is what is stated therein: "Where remuneration is paid to an employee free of income tax or the employer pays his employee's income tax, the gross emoluments of the employee must be arrived at by adding the amount to the tax paid by the employer to the net payment. This was established by North British Rail Co. v. Scott,[1923] AC 37 where the company had contracted to bear the income tax in question and Hartland v. Diggines,[1926] AC 289 where there was no such contract, the arrangement being simply customary." 16. Distinction between tax-free income and the "xx" income on which tax should be paid by the employer is well brought out in Simon's Income Tax, second edition, vol. 11, at page 710. This is what is stated therein: "Where remuneration is paid to an employee free of income tax or the employer pays his employee's income tax, the gross emoluments of the employee must be arrived at by adding the amount to the tax paid by the employer to the net payment. This was established by North British Rail Co. v. Scott,[1923] AC 37 where the company had contracted to bear the income tax in question and Hartland v. Diggines,[1926] AC 289 where there was no such contract, the arrangement being simply customary." 17. In Jaworski v. Institution of Polish Engineers in Great Britain Ltd.(supra) there was a service agreement to pay the employee a salary of Pounds 20 nett per month "without any deductions and taxes, which will be borne by the association." The employers deducted tax from the salary under section 1 of the Income Tax (Employments) Act, 1943, and the employee brought an action to recover the amounts deducted on the ground that the deductions were in breach of his service agreement. It was held by the Court of Appeal, reversing the decision of Finnemore J. in the court below, that on construction, the agreement was one to pay net remuneration at the stated figure together with such sum as was necessary to leave that figure available to the employee after the association had borne the taxes referable to him, and that, accordingly, the agreement was valid. Though it was not necessary to decide the point the court also expressed the view that the agreement was not void by reason of its infringing the general rule 28(2) since it was doubtful whether salary or other remuneration for services assessable under Schedule E were "annual payments" within the meaning of the rule.” 9. Learned counsel submitted that the definition of ―income‖ is not exhaustive, and all manner of receipts or entitlements are covered within the phrase. It was argued that therefore, as long as ―perquisite‖ is widely defined and in an inclusive manner, with the phraseology adopted under Section 17 (2) (v), the amounts paid towards tax by the employer are included within the term perquisite. Reliance was placed, on the judgment reported as Boeing v Commissioner of Income Tax 250 ITR 667 (Mad) where the court emphasized that “If the amount so received is not an amount which is excluded from the ambit of income under the Act, such receipt would constitute income. The fact that the amount was given to the recipient without any demand for the same by the recipient, or without any legal obligation on the part of the donor to make the payment, would not make any difference.” Counsel also relied on the ruling of the Bombay High Court, in Commissioner of Income Tax v H.D. Dennis 1982 (135) ITR 1 (Bom), where the Court, relying on two English decisions, (North British Railway Company v. Scott [1922] 8 TC 332 (HL) and Hartland v. Diggines [1926] 10 TC 247 (HL), held that: “If the amount so received is not an amount which is excluded from the ambit of income under the Act, such receipt would constitute income. The fact that the amount was given to the recipient without any demand for the same by the recipient, or without any legal obligation on the part of the donor to make the payment, would not make any difference.” Counsel also relied on the ruling of the Bombay High Court, in Commissioner of Income Tax v H.D. Dennis 1982 (135) ITR 1 (Bom), where the Court, relying on two English decisions, (North British Railway Company v. Scott [1922] 8 TC 332 (HL) and Hartland v. Diggines [1926] 10 TC 247 (HL), held that: “It was emphasised in this case that in effect what the employee has received is the money paid into his hands plus the immunity, i.e. the immunity from paying the tax. The substance of the matter was that the salary paid to the employee is not all that he received. He had received, in addition, money's worth to the extent of the sum which was paid in respect of that salary to the revenue. With respect, we are in complete agreement with the view expressed in the said decisions and are of the view that the income-tax paid on behalf of the employee would be a part of the salary of the employee by the mere connotation of the expression "salary". There is also no reason why the tax so paid by the employer would not amount to an allowance even if it is held that it did not form part of his salary, and admittedly the said rule does not exclude from the definition of salary the allowance of the kind paid in the present case. For all these reasons, we are satisfied that Shri Munim is not entitled to succeed in his contention that the definition of the word "salary" contained in r. 3 does not include tax paid by the employer in the present case. We are fortified in the view we are taking by two decisions viz., one of the Kerala High Court in CIT v. C. W. Steel (No. 1) [1972] 86 ITR 817, and the other of the Madras High Court in CIT v. Mackintosh [1975] 99 ITR 419. In both the cases, the very same question fell for consideration, viz., whether the income-tax paid by the employer was salary for the purposes of finding out the value of the rent-free accommodation given to the employee. Both the courts have answered the issue in favour of the revenue and against the assessee. The Madras High Court in its judgment has approved of the ratio of the decision of the Kerala High Court. We are respectfully in agreement with the decisions of both the courts on the said point. We are, therefore, satisfied that the revenue is entitled to succeed on the first question and the answer to the question will have to be given in its favour and against the assessee.” 10. It was argued that Section 192(1A) obliges every employer to deduct, at the time of payment of salary incomes on the amount payable. Section 192(1A) grants relief only to the extent of exclusion of perquisite which is not provided for by way of monetary relief from the burden of obligation under Section 192(1). This is further reinforced by Section 195A which clearly states that tax chargeable on any income is to be borne by the person by whom it is payable for the purpose of deduction of tax by the employer. Assessee’s contentions 11. Learned counsel for the assessee relied on the Memorandum explaining provisions introduced in Finance Bill, 2002 with reference to new Clause 10(10CC) which was to the following effect: “Scheme for taxation of perquisites simplified with employer given option to pay tax on behalf of employees 64.1 Under the existing provisions of Section 192 of the Income-tax Act, 1961, an employer is required to deduct tax at source on income under the head "salaries", inclusive of the value of perquisites. In case, such tax is paid by an employer on behalf of an employee, the same being in the nature of an obligation which, but for such payment, would have been payable by the employee, is considered a perquisite, and is chargeable to tax.” 11. Learned counsel for the assessee relied on the Memorandum explaining provisions introduced in Finance Bill, 2002 with reference to new Clause 10(10CC) which was to the following effect: “Scheme for taxation of perquisites simplified with employer given option to pay tax on behalf of employees 64.1 Under the existing provisions of Section 192 of the Income-tax Act, 1961, an employer is required to deduct tax at source on income under the head "salaries", inclusive of the value of perquisites. In case, such tax is paid by an employer on behalf of an employee, the same being in the nature of an obligation which, but for such payment, would have been payable by the employee, is considered a perquisite, and is chargeable to tax.” 64.2 The Finance Act, 2002 provides for a new scheme of taxation of perquisites, wherein an employer has been given an option to pay tax on the whole or part- value of perquisite (not provided for by way of monetary payments), on behalf of an employee, without making any deduction from the income of the employee. 64.3 To bring into effect this new scheme, a new Clause (10CC) has been inserted in Section 10, to exempt the amount of tax actually paid by an employer, at his option, on the income in the nature of a perquisite, (not provided for by way of monetary payment) on behalf of an employee, from being included in perquisites. 64.4 Such tax paid by the employer shall not be treated as an allowable expenditure in the hands of the employer under Section 40 of the Income-tax Act, 1961. 64.5 The amendments will take effect from Ist April, 2003 and will, accordingly, apply in relation to the assessment year 2003-04 and subsequent years. 64.6 Necessary changes in various provisions of Chapter-XVII relating to collection and recovery of taxes have been made to give effect to the new scheme. Amendment in Section 192 has also been made, so as to provide that an employer shall have an option to pay tax on behalf of an employee, without making any deduction from his income, on the income in the nature of perquisites, (not provided for by way of monetary payment). The employer shall, also continue to have the option to deduct the tax on whole or part of such income.” 12. Learned Senior counsel for the assessee, Shri S. Ganesh, and other counsel, i.e Shri Rakesh Gupta, and Shri Salil Kapoor emphasized the phraseology of Section 10(10CC) and argued that the expressions calling for interpretation are "a perquisite, not provided for by way of monetary payment". Likewise, what are "provided for by way of” has to be construed by the Court. Payment of tax by employer -on behalf of the employee is a perquisite. However, the precise controversy is whether it is in the shape of monetary payment to the employee. Counsel submit that the term "provided for" means to keep something ready, in order to perform or do it. Under Section 10(10CC) the monetary payment should be providedfor the employee. It should be employee who is provided for by way of monetary payment within the meaning of Clause (2) of Section 17. In other words, payment of actual money to the employee (and not the equivalent of that, or the money's worth) is what the legislature contemplated by provision of by way of monetary payment. If some benefit is directly or indirectly received by the assessee which has money's worth, it is not a ―monetary payment‖. 13. It was further submitted that the distinction between a provision by way of monetary payment on the one hand, and provision not by way of monetary payment, on the other cannot be overlooked. The provision under consideration only excludes from exemption "perquisites" involving payment of money directly to the employees for a specific amenity or benefit. The Legislature wanted to exempt non-monetary perquisites allowed to the employee by the employer under the provision. 13. It was further submitted that the distinction between a provision by way of monetary payment on the one hand, and provision not by way of monetary payment, on the other cannot be overlooked. The provision under consideration only excludes from exemption "perquisites" involving payment of money directly to the employees for a specific amenity or benefit. The Legislature wanted to exempt non-monetary perquisites allowed to the employee by the employer under the provision. 14. Assessee‘s Counsel further submit that Section 10(10CC) when read other provisions to which simultaneous amendments were made by the Legislature, i.e Section 40 (1) (c) (v) clarify that the revenue‘s position is incorrect. It was argued that the value of perquisites, otherwise deductible in the hands of the employer (subject to conditions) has been restricted, to the extent of payment of tax. 15. It was highlighted by counsel that the interpretation pressed upon by the revenue cannot be accepted, as it would amount to rendering Section 10 (10CC) meaningless. It was argued that each perquisite, paid for by the employer (even if not paid by the employee) would become a monetary perquisite. Thus, residential house belonging to the employer and provided to the employee -for his residence, - would be treated as a monetary perquisite. This would render Section 10 (10CC) a surplus age. That consequence cannot be adopted by the Court which should strive to give meaning to each provision. 16. It was submitted that the legislative history of Section 17 (2) (iv) read with Section 40A (5) and Section 40 (1) (a) (v) has to be taken into consideration in totality. Counsel submitted that what were excluded from deduction were payments made by the employer, but not the cash actually paid to the employee, which fell within the definition of ―perquisite‖ and was therefore taxed in his hands, subjects to specified limits. However, such payments did not suffer taxation and were deductible as business expenditure. On the other hand if payments were made directly by the employer-assessee, those were non-deductible and were subject to taxation. This pattern was taken into consideration, by the corresponding change to Section 40 (a) (v) which rendered amounts paid by the employer towards income tax obligation (and covered under Section 10 (10CC)) non-deductible in the hands of the employer. Counsel relied on the decision reported as Commissioner of Income Tax v Mafatlal Gangabai 219 (ITR) 643 (SC). The provisions 17. As is apparent from the above discussion, the question which squarely falls for consideration is whether the income tax paid (to discharge the tax obligation of the employee, on his behalf) is a monetary perquisite or not. The question arises because of the –interplay between Section 10 (10CC) newly introduced by the amendment of 2002, and Section 17 (2) (c) (iv). For a proper appreciation of the controversy which calls for decision, the relevant provisions which have to be considered for the purpose of this judgment, are extracted below. Section 10 (10CC) states that: “10. In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included XXXXXX XXXXXX XXXXXX (10CC) in the case of an employee being an individual deriving income in the nature of a perquisite, not provided for by way of monetary payment, within the meaning of Clause (2) of Section 17, the tax on such income actually paid by his employer, at the option of the employer, on behalf of such employee, notwithstanding anything contained in Section 200 of the Companies Act, 1956 (1 of 1956). Section 17(2) defines 'perquisite' in an inclusive manner, setting out different kinds of benefits that are treated as perquisites and added to the salary income of the assessee. Clause (iv), which important and reads as follows: “(iv) any sum paid by the employer in respect of any obligation which but for such payment, would have been payable by the assessee.” XXXXXX XXXXXX XXXXXX (10CC) in the case of an employee being an individual deriving income in the nature of a perquisite, not provided for by way of monetary payment, within the meaning of Clause (2) of Section 17, the tax on such income actually paid by his employer, at the option of the employer, on behalf of such employee, notwithstanding anything contained in Section 200 of the Companies Act, 1956 (1 of 1956). Section 17(2) defines 'perquisite' in an inclusive manner, setting out different kinds of benefits that are treated as perquisites and added to the salary income of the assessee. Clause (iv), which important and reads as follows: “(iv) any sum paid by the employer in respect of any obligation which but for such payment, would have been payable by the assessee.” Section 40, which lists out the deduction disentitlements of an assessee (who would, but for such bar, have possibly claimed them as deductible business expenses) reads, to the extent it is relevant, as follows: “Section 40 - Amounts not deductible Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head –“Profits and gains of business or profession”, –(a) in the case of any assessee [(v) any tax actually paid by an employer referred to in clause (10CC) of section 10:]” Analysis and Findings 18. Till 31-3-1972, Section 40(a) (v) was in force and from 1-4-1972, 40-A (5) came into force in its place. Both provisions were substantially similar. Section 40(a)(v) was preceded by Section 40(c) (iii) which was applicable only to companies. That (Section 40(c)(iii)) was introduced by Finance Act, 1973 with effect from 1-4-1963, read as follows: "40. Amounts not deductible.-Notwithstanding anything to the contrary in Sections 30 to 39, the following amounts shall not be deducted in computing the income chargeable under the head 'profits and gains of business or profession'- (c) in the case of any company- (iii)any expenditure incurred after the 29th day of February, 1964, which results directly or indirectly in the provision of any benefit or amenity or perquisite, whether convertible into money or not, to an employee (including any sum paid by the company in respect of any obligation which but for such payment would have been payable by such employee), to the extent such expenditure exceeds one-fifth of the amount of salary payable to the employee for any period of his employment after the aforesaid date: Provided that in computing the aforesaid expenditure any payment by way of gratuity or the value of any travel concession or assistance referred to in clause (5) of Section 10 or passage moneys or the value of any free or concessional passage referred to in sub-clause (i) or any payment of tax referred to in sub-clause (vii) of clause (6) of that section or any sum referred to in clause (vii) of sub-section (1) of Section 17 or in clause (v) of sub-section (2) of that section or the amount of any compensation referred to in clause (i) or any payment referred to in clause (ii) of sub-section (3) of that section or any payment referred to in clause (iv) or clause (v) or any expenditure referred to in clause (ix) of subsection (1) of Section 36 shall not be taken into account." Through Finance Act, 1968, sub-clause (iii) to Section 40 (c) was deleted; instead, sub-clause (v) was introduced to Section 40 (a). That, as introduced by the said Finance Act, read as follows: "40. Amounts not deductible.-Notwithstanding anything to the contrary in Sections 30 to 39, the following amounts shall not be deducted ,in computing the income chargeable under the head 'profits and gains of business or profession'- (a) in the case of any assessee- Through Finance Act, 1968, sub-clause (iii) to Section 40 (c) was deleted; instead, sub-clause (v) was introduced to Section 40 (a). That, as introduced by the said Finance Act, read as follows: "40. Amounts not deductible.-Notwithstanding anything to the contrary in Sections 30 to 39, the following amounts shall not be deducted ,in computing the income chargeable under the head 'profits and gains of business or profession'- (a) in the case of any assessee- (v)any expenditure which results directly or indirectly in the provision of any benefit or amenity or perquisite, whether convertible into money or not, to an employee (including any sum paid by the assessee in respect of any obligation which, but for such payment, would have been payable by such employee) or any expenditure or allowance in respect of any assets of the assessee used by such employee either wholly or partly for his own purposes or benefit, to the extent such expenditure or allowance exceeds one-fifth of the amount of salary payable to the employee, or an amount calculated at the rate of one thousand rupees for each month or part thereof comprised in the period of his employment during the previous year, whichever is less." This provision applied to all assessees. By virtue of the first proviso, the clause did not apply where the income chargeable under the head 'salaries' of the employee concerned was Rs 7500 or less. Explanation (II) imported the same meaning to 'salary' as was assigned to it in Rule 2(h) of Part A of the IVth Schedule to the Act. 19. From 1-4-1972, Section 40-A(5) was introduced; it substituted Section 40(a)(v). It read as follows: " 40-A. Expenses or payments not deductible in certain circumstances.- (5)(a) Where the assessee- (i) incurs any expenditure which results directly or indirectly in the payment of any salary to an employee or a former employee, or (ii)incurs any expenditure which results directly or indirectly in the provision of any perquisite (whether convertible into money or not) to an employee or incurs directly or indirectly any expenditure or is entitled to any allowance in respect of an asset of the assessee used by an employee either wholly or partly for his own purposes or benefit, then, subject to the provisions of clause (b), so much of such expenditure or allowance as is in excess of the limit specified in respect thereof in clause (c) shall not be allowed as a deduction:” The sub-section was amended later in certain respects and was omitted altogether by Direct Tax Laws (Amendment) Act, 1987 with effect from 1-4- 1989. –20. The real debate here is whether the tax paid on behalf of the employee, by the employer is a perquisite and if it is not, whether it is to be excluded from the definition of income, by virtue of Section 10 (10CC). The latter provision operates, and applies in the following terms: (a) to an individual deriving income (b) in the nature of a perquisite, not provided for by way of monetary payment, (within the meaning of Clause (2) of Section 17) (c) (in respect of) the tax on ―such‖ income actually paidby his employer, employer, (d) at the option of the employer, on behalf of such employee, (e) Notwithstanding anything contained in Section 200 of the Companies Act, 1956 (1 of 1956). Companies Act, 1956 (1 of 1956). A plain reading of the above provision would reveal that if the perquisite that is ―not provided for by way of monetary payment‖ –under Section 17 (2), the tax paid on such income would be excluded from the calculation of income altogether; it would not be deemed a perquisite. (a) to an individual deriving income (b) in the nature of a perquisite, not provided for by way of monetary payment, (within the meaning of Clause (2) of Section 17) (c) (in respect of) the tax on ―such‖ income actually paidby his employer, employer, (d) at the option of the employer, on behalf of such employee, (e) Notwithstanding anything contained in Section 200 of the Companies Act, 1956 (1 of 1956). Companies Act, 1956 (1 of 1956). A plain reading of the above provision would reveal that if the perquisite that is ―not provided for by way of monetary payment‖ –under Section 17 (2), the tax paid on such income would be excluded from the calculation of income altogether; it would not be deemed a perquisite. 21. Section 10 (5B) had earlier granted a somewhat similar exemption in respect of payment of amounts by employers in discharge of their employees‘ income tax liabilities. It enabled an individual who fulfilled the conditions of that provision, to exclude, in the computation of his total income, the tax paid by the employer on the salaries paid to him for a period not exceeding 48 months from the date of his arrival in India. The individual claiming the exemption had to satisfy the following requirements (i) He had to be a technician as defined in the Explanation ; (ii) He had to be in the employment of one of the several entities set out in the clause or in any business carried on in India ; (iii) He should not have been resident in India in any of the four financial years immediately preceding the financial year in which he arrived in India; and (iv) The tax on his salary income should have been paid by the employer. Section 10(5B) had been inserted by the Finance Act, 1993, with effect from April 1, 1994. Yet, this category of exemption had been in the tax statutes all along. In the Indian Income-tax Act, 1922, the exemption was provided by Section 4(3)(xiva) inserted with effect from April 1, 1955, and it was continued in the 1961 Act in Sections 10(6)(vi), (vii), (viia)(I) and (viia)(II). Though the provision underwent several modifications as to the definition of "technician" as well as the quantum and period for which the exemption was available, the basic requirement that the technician must have been employed in a business carried on in India existed right from the beginning. Therefore, the contention of the revenue about the inherent –implausibility of excluding amounts paid towards tax liability which are personal to the employee-assessee, stands negated. There is –nothing abhorrent in excluding such amounts paid on behalf of the employee assessee, from the definition of tax. 22. Section 17 (2) outlines various perquisites, such as: 1) Value of rent-free or concessional rent accommodation provided by the employer. 2) Value of any benefit/amenity granted free or at concessional rate to specified employees, etc. Specified employees are company directors, employees with substantial interest in the company and any other employee whose salary income exclusive of non-monetary benefits and amenities exceeds Rs. 50,000/-. 3) Any sum paid by employer in respect of an obligation, which was actually payable by the assessee. 4) Any sum payable by the employer, directly or through a fund for assurance on life of the employee or to effect contract for an annuity. However, sums payable to recognised provident funds or approved superannuation funds, and certain other specified funds are exempt. 5) Value of any other fringe benefit as prescribed (excluding fringe benefits subjected to the Fringe Benefit Tax). Besides rent-free or concessional rent accommodation, other perquisites taxable in the hands of the employee include provision of services of domestic employees, supply of amenities, for household consumption, free or concessional educational facilities for any member of the employee‘s household, interest free or concessional loan, and benefits resulting from the use of any movable asset. 4) Any sum payable by the employer, directly or through a fund for assurance on life of the employee or to effect contract for an annuity. However, sums payable to recognised provident funds or approved superannuation funds, and certain other specified funds are exempt. 5) Value of any other fringe benefit as prescribed (excluding fringe benefits subjected to the Fringe Benefit Tax). Besides rent-free or concessional rent accommodation, other perquisites taxable in the hands of the employee include provision of services of domestic employees, supply of amenities, for household consumption, free or concessional educational facilities for any member of the employee‘s household, interest free or concessional loan, and benefits resulting from the use of any movable asset. 23. Section 17 (2) has not undergone any substantial change by the amendment of 2002. The only change is in the introduction of Section 10 (10CC) which states that tax actually paid by the employer to discharge an employee‘s obligation ―not amounting to a monetary benefit‖ would not be included as the employees‘ income. If seen from the context of Section 17 (2), and the previous history to that –provision, as well as the pre existing provision of Section 10 (5B) and the interpretation placed on Section 17 (2) read with other provisions which disallow payments made on behalf of the employee, by the employer, so long as the benefit is not expressed in monetary terms in the hands of the employee,in the sense that it is not funded as part of the salary, but paid in discharge of the obligation, of any sort, either contractual (i.e. rent, services, etc availed of by the employee) or legal (tax) directly by the employer, it should not be treated as a monetary benefit. The reason for this is that Section 10 (10CC) is neutral about the kind of benefit availed by the employee. The decisions of the Supreme Court, on Section 40(1) (c) and Section 40A are, in the context of the expressions "any expenditure which results… in the provision of any benefit or amenity or perquisite" read with "whether convertible into money or not.” have received a liberal interpretation. In Mafatlal Gangabai (supra) it was held that: “6. On a consideration of both the points of view, we are inclined to agree with the submission of the learned Counsel for the assessees. The language employed in the sub-clause is not capable of taking within its ambit cash payments made to the employees by the assessee. These cash payments will, of course, be treated as salary paid to the employees and will be subject to the limits/ceiling, if any, in that behalf. But they cannot be brought within the purview of the words "any expenditure which results directly or indirectly in the provision of any benefit or amenity or perquisite" -- more so because of the following words "whether convertible into money or not. 7. Now, coming to Section 40A(5), the position is no different. It would, however, be appropriate to point out the distinction between Section 40(a)(v) and Section 40A(5). We shall refer to the former provision as "sub-clause " and the latter provision as "sub-section ". The sub-section is wider in its scope and application than the sub-clause. Sub-clause (i) of Clause (a) of Sub-section (5) deals with "any expenditure which results directly or indirectly in the payment of any salary to an employee or a former employee". Sub-clause. (i) of Clause (c) of Sub-section (5) deals with "any expenditure which results directly or indirectly in the payment of any salary to an employee or a former employee". Sub-clause (i) of clause (c) of Sub-section (5) sets out the limits/ceilings on such expenditure while Clause (a) of Expln. 2 appended to the sub-section defines the expression "salary " for the purposes of this sub-section. These features were absent in Sub-clause (v) of Section 40(a). Now, coming to Sub- clause (ii) of Clause (a) of Sub-section (5) which corresponds to Section 40(a)(v) it uses only one expression "perquisite " as against Section 40(a) (v) which spoke of "benefit of amenity or perquisite, but this is no real distinction because the definition of "perquisite: in Clause (b) of Expln. (2) to the sub-section takes in both benefits and amenities. The said definition also includes, inter alia, "payment by the assessee of any sum in respect of any obligation which but for such payment, would have been payable by the employee"-words which are found in the main limb of Section 40(a) (v) but which are missing in