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Income‑tax Reference No. 18 of 1962, decided on 3rd September 1963.

--Ss. 4 (3) (vi) & 7(2)(iii)--Total income‑‑Salary income‑‑Assessee drawing lump sum salary Including travelling and all other allow ances"‑‑‑'Travelling expenses incurred by such assessee in going to and from place of duty-‑Held, neither exempted under S. 4 (3) (vi) not admissible deduction under S. 7 (i)(iii).

Ritialls v. Colquheun (1925) 10 Tax Cas. 118 ref.

By this application, the assesses requires the appellate Tribunal to refer to the High Court a question of law which is said to arise out of the Tribunal's order in I. T. A. No. 12355 of 1960‑61. Inasmuch as, in our opinion, a question of law does arise out of the aforesaid order bf the Tribunal, we hereby draw up an agreed statement of the case and refer the High Court of Gujarat at Ahmedabad under section 66 (1) of the Indian Income tax Act 1922.

2. The assesses is a chartered accountant. He is a part‑time Professor of accountancy in M. J. College of Commerce, Bhavnagar. In response to an advertisement published in the Saurashtra Government Gazette dated May 25‑1951, the assessee applied for the post of part‑time professor of accountancy. The advertisement so far as it is material with reference to the assessee runs as follows:

"Applications are invited before June 8, 1951, for the following posts in the M. J. College of Commerce, Bhavnagar. All posts except pro fessor of accountancy are permanent and pensionable. Women are eligible. The Saurashtra Government servants are also eligible and no age limit in their case .........

5. Part‑time Professor of accountancy: ‑

Scales of pay up to Rs. 450 per month (including T. A. and all other allowances) Qualifications‑2nd Class B. A., who is a registered accountant with professional standing and experience of three years. He should be practising as a registered accountant. Knowledge of Gujarati preferred. Age limit ordinarily not exceeding 40."

The assessee was the successful applicant for this post. By notification dated 12th July 1961, he was appointed to this post of part‑time Professor of accountancy. The appointment as gazetted runs as follows:

"Shri J. G. Mankad, B. Com., R. A., is appointed as part‑time professor of accountancy M. J College of Commerce, Bhavnagar, on Its. 400 p. m. (including T. A. and all other allowances) with effect from the date he take over."

3. The assesses was, practising as a chartered accountant at Ahmedabad. He had to undertake the necessary trips to Bhavnagar for giving the lectures to students in the said college of commerce and he proceeded to Bhavnagar so as to be there on Tuesday and Wednesday every week. A sum of Rs. 1,434 was the expenditure incurred in the relevant year for the purpose of travelling between Ahmedabad and Bhavnagar. The assessee claimed exemption of this amount under section 4 (3) (vi) or deduction of the same under section 7 (2) (iii). This claim was not allowed in the assessment, and on appeal, the disallowance of the claim was confirmed.

4. On further appeal to the Tribunal, it was contended that the amount was either exempt under section 4 (3) (vi) or was liable to be allowed as a deduction under section 7 (2) (iii). In dealing with the claim under section 4 (3) (vi), the Tribunal observed as follows: ‑

"2. We consider that section 4 (3) (vi) has no application to the facts of this case. That provision requires a special allowance being specifically granted to meet the expenses wholly and necessarily incurred for the performance of the duties to the extent to which such expenses are actually incurred, There is no specific grant here of any such sum which hart to be incurred in the performance of the duties. The asses see s duty lay in giving lectures to the students at Bhavnagar and there was no expenditure incurred in the course of the performance of such duties. Therefore we hold that section 4 (3) (vi) has no application to the facts of case"

In dealing with the claim under section 7 (2) (iii), the Tribunal observed as follows:‑‑

"The order appointing the appellant, in our opinion, is more consistent with its being an all inclusive salary so that the assessee will not be eligible for any further payment on account of T. A. or other allow ances. It is not as if the authorities wanted to make any payment so as to cover the appellant's expenditure for having to make a trip from Ahmedabad to Bhavnagar every week or periodically. As pointed out by the Departmental Representative, it is necessary to see whether the assesses is required to spend any sum out of his remuneration. If the assessee had, for instance, gone to Bhavnagar and set up his practice there or attended to his cases from Bhavnagar, then the sum of Rs. 400 will not at all be reduced. Therefore, the payment of Rs. 400 is not related to any expenditure which the assessee is obliged to incur in the performance of his duties. We have, there fore, to hold that the assessee's claim for deduction of Rs. 1,434 is not allowable."

A copy of the order of the Tribunal is annexed hereto as Annexure "A" and forms part of the case.

5. On the above facts, the following question of law arises:

"Whether, on the facts and in the circumstances of the case, the assessee is eligible for the exemption under section 4 (3) (vi) or for deduction under section 7(2)(iii) with reference to the sum of Rs. 1,4347"

M. C. Nanavati for Appellant.

J. M. Thakore, A. G. for Respondent.

. ‑‑This is a reference under section 66 (1) of the Income tax Act at the instance of the assessee. The assessee is a chartered accountant and he resides arid carries on his profession of a chartered accountant in Ahmedabad. On 25th Flay 1'951, the post of a part‑time Professor of accountancy in M. J. College of Commerce, Bhavnagar, was advertised, in the Saurashtra Government Gazette and in response to the advertisement, the assessee applied for the post. The assesses was selected for the post and by a notification dated 12th July 1951, the assessee was appointed to the post on the terms and conditions contained in the noti fication which was in the following‑terms:

"Shari J. G. Mankad, B. Com., It. A., is appointed as part‑time professor of accountancy, M. J. College of Commerce, Bhavnagar, on Rs. 400 per month (including travelling allowance and all other allowances) with effect from the date he takes over."

Since the assessee was residing and practising in Ahmedabad, he had to undertake journeys from Ahmedabad to Bhavnagar for giving lectures to students in the college and he used to go once every week so as to he in Bhav nagar on Tuesday and Wednesday. During the year 1957‑58, being the previous year for the assessment year 1958-59, the assessee incurred expenses amounting to Rs. 1,434 for travelling between Ahmedabad and Bhavnagar. This amount of Rs. 1,434 was claimed by the assessee either as an exemption under section 4 (3) (vi) or as a deduction under section 7 (21 (iii) in his assessment for the assessment year 1958‑59. The claim was rejected by the, revenue authorities and hence the present reference.

There were two grounds on which the assessee contended that the amount of Rs. 1,434 representing the expenses incurred by the assessee for travelling between Ahmedabad and Bhavnagar was liable to be excluded from his assess able income. The first ground was founded on section 4 (3) (vi) while for the second ground which was urged in the alternative reliance was placed on section 7 (2) (iii). In our opinion, neither ground can avail the assessee and the claim made by the assessee for the exclusion of the amount of Rs. 1,434 from his assessable income must fail.

We will first examine the ground based on section 4 (3) (vi). Section 4 (3) (vi) exempts from inclusion in the total income of an assessee any special allowance of benefit, not being in the nature of an entertainment allowance or other perquisite within the meaning of section 7 (1), specifically granted to meet expenses wholly and necessarily incurred in the performance of the duties of an office or employment of profit, to the extent to which such expenses are actually incurred for the purpose. It is clear from a plain reading of section 4 (3) (vi) that an assessee in order to claim the exemption granted by it must show that a special allowance or benefit, not being in the nature of an entertainment allowance or other perquisite within the meaning of section 7 (l), was specifically granted to meet expenses and that such expenses were wholly and necessarily incurred in the performance of the duties of an office or employment of profit, and if these conditions are shown to exist, the special allowances or benefit would be liable to be excluded from the assessable income to the extent to which such expenses are actually incurred for the purpose. Now it is difficult to see how the assessee in the present case can at all rely on section 4 (3) (vi). No special allowance or benefit was specifically granted to the assessee to meet the expenses of travelling from Ahmedabad to Bhavnagar and back. Mr. M. C. Nanavati, learned Advocate appearing on behalf of the assessee, drew our attention to the notification appointing the assessee to the post of par time professor of accountancy and contended that the salary of Rs. 400 which was given to the assessee included travelling allowances and all other allowances and that ' there was, therefore, a special allowance in the shape of travelling allowances which was specifically granted to the assessee to meet the expenses of travelling between Ahmedabad and Bhavnagar. Mr. M. G. Nanavati urged that the advertisement inviting applications for the post required that the applicant must be a practising chartered accountant and that the Government which appointed the assessee, therefore, knew that the assessee would be a practising chartered accountant. The Government also knew, argued Mr. M. C. Nanavati, that the assessee was practising as a chartered accountant Ahmedabad and it was for that reason that it was stated that the salary of Rs. 400 would include travelling allowance and all other allowances. This contention of Mr. M. C. Nanavati has, in our opinion, no substance at all, for it is based on a misreading and misconstruction of the notification appointing the assessee to the post of part‑time professor of accountancy. It is no doubt true that the notification appointing the assessee to the post stated that the salary would be Rs. 400 including travelling allowance and all other allowances, but all that this provision meant was that the salary was inclusive of allowances including travelling allowance and that the asses see shall not be entitled to claim any separate travelling allowance or other allowance. No amount was indicated in the notification by way of travelling allowance or by way of any other allowance end by its very nature it could not be, for what was being given to the assessee was a salary of Rs. 400 per month and not any specific amount by way of travelling or other allowance. From this provision in the notification, it is difficult to conclude that any special allowance or benefit was granted to the assessee much less specifically granted to meet the expenses of travelling between Ahmedabad and Bhavnagar and on this ground alone the assessee must fail in his attempt to invoke the aid of section 4 (3)(vi).

But this is not the only difficulty in the way of the assessee. It is also not possible to say that the expenses which were incurred by the assessee for tra velling between Ahmedabad and Bhavnagar were expenses wholly and necessarily incurred in the performance of the duties of the office or employment of profit held by the assessee. The assessee held the office of part‑time professor of accountancy in M. I. Collage of Commerce at Bhavnagar and the duties of this office consisted of giving lectures to the students at the college. The duties commenced when the assessee started giving lectures to the students at the college and ended for the time being on the completion of the lectures. If the assessee had to incur expenses for travelling between Ahmedabad Bhavnagar, that was because the assessee chose to live and practise his profession in Ahmedabad and he had to travel to Bhavnagar before he could begin to perform his duties as part‑time professor of accountancy and having concluded those duties desired to return to his home in Ahmedabad. The expenses of travelling between Ahmedabad and Bhavnagar could not be said to be expenses incurred by the assessee in the course of performance of the duties of the office of part‑time professor of accountancy. While travelling from Ahmedabad to Bhavnagar and back, the assessee was certainly not performing the duties of the office of part‑time professor of accountancy. The expenses of travelling between Ahmedabad and Bhavnagar were incurred by the assessee partly before beginning to perform his duties as part‑time professor accountancy and partly after the conclusion of his duties as part-time professor of accountancy and such expenses could rot, therefore, be said to have been incurred by him in the performance of the duties of the office of part-time professor of accountancy.

In this view which we take, we are supported by high authority of the decision of the House of Lords in Ricketts v. Colquhoun. (1925) 10 Tax Cas. 118. In this case assessee was a Barrister residing and practising in London, and he held the Recorder ship of Portsmouth. His incurred certain expenses for travelling between London and Portsmouth in order to attend the Quarter Session. These expenses were claimed by him as a deduction from the emolument of his office as Recorder relying ore rule 9 of Schedule E. of the English Act. This rule was in the following terms:

"If the holder of an office or employment of profit is necessarily obliged to incur and defray out of the emoluments thereof the expenses of travelling in the performance of the dirties of the office or employment or of keeping and maintaining a horse to enable him to perform the same, or otherwise to expend money wholly, exclusively and necessarily in the performance of the said duties, there may be deducted from the emoluments to be assessed the expenses so necessarily incurred and defrayed.

The claim was disallowed by Mr. Justice Rowlatt and. on appeal being taken to the Court of Appeal, it was also disallowed by a majority of the Lord Justices constituting the Court of Appeal: The matter was carried further to the House of Lords and the House of Lords also disallowed the claim. Vis count Cave L. C. observed as follows:

"Having given the best consideration that I can to the question, I agree with the Commissioners and with the Courts below in holding that they do not. In order that travelling expenses may be deductible under this rule from an assessment under Schedule E, they must be expenses which the holder of an office is necessarily obliged to incur‑that is to say, obliged by the very fact that he holds the office, and has to perform its duties--and they must be incurred in, that is, in the course of, the performance of those duties. The expenses in question in this case do not appear to me to satisfy either test. They are incurred; not because the appellant holds the office of Recorder of Portsmouth, but because, living and practising away from Portsmouth, he must travel to that place before he can begin to perform his duties as Recorder, and, having concluded those duties, desires to return to his home. They are incurred, not in the course of performing those duties, but partly before he enters upon them, and partly after he has fulfilled them."

These observations, no doubt made in relation to rule 9 of Schedule E of the English Act, considerably help us in arriving at a true meaning of the words "wholly and necessarily incurred in the performance of the duties of an office or employment of profit" in section 4 (3)(vi) and also as we shall point out a little later, the words "wholly, necessarily. . . in the performance of his duties" in section 7 (2)(iii) and clearly show that expenses incurred by an assessee for the purpose of travelling from his place of residence to his place of office and back cannot be said to be expenses wholly and necessarily incurred in the performance of the duties of his office, for when he is travel ling he is not performing the duties of his office and the expenses are actually incurred by him partly before he enters upon the duties of his office and partly after he has fulfilled them. In this view of the matter we are of the opinion that the expenses incurred by the assessee in the present case for travelling between Ahmedabad and Bhavnagar could not be said to be expenses wholly and necessarily incurred in the performance of the duties of the office of part‑time professor of accountancy held by the assessee and section 4(3)(vi) cannot, therefore, be successfully invoked by the assessee in support of his claim for exemption.

The next ground relied upon by the assessee was based on sec tion 7 (3)(ii). We may point out that in so far as any office or employment o profit may be such that its income is assessable under section 7 under the head "salary", section 7 (2)(iii) is a counterpart of section 4 (3)(vi). Where a special allowance is specifically granted to meet expenses wholly and necessarily incurred in the performance of the duties of an office or employment of profit, such allowance, to the extent to which it is actually spent, is covered by section 4 (3)(vi). If on the other hand no special allowance is granted but the assessee is required by the conditions of his service to meet such expenses out of his remuneration, the sum so expended is deductible from his assessable income under section 7 (2)(iii). But in both cases the expenses must be expenses which are wholly and necessarily incurred in the performance of the duties of the office. Of course in section 7 (2)(iii) there

(1) (1961) 41 I T R 191

(2) (15156) 30 I T R 202

(3) (1959) 36 I T R 594

is an additional requirement introduced lax the word "exclusively", but that need not trouble us, for quite irrespective of the question whether this requirement is intended to add anything to what is already covered by the words used or is introduced merely with a view as to heighten the effort of the words used, it is clear that the expenses in order to merit deduction under section 7 (3)(iii) must be expenses of which it can be said at the least that they are wholly and necessarily incurred in the performance of the duties the office. The expenses must also be expenses which the assessee is required by the conditions of his service to incur out of his remuneration. These are the two tests which must be satisfied before any deduction can be claimed under section 7 (2)(iii). The expenses incurred by the assessee in the present case for travelling between Ahmedabad and Bhavnagar do not in our opinion satisfy either test. The first test is obviously not satisfied, because, as we said above while dealing with the ground based on sec tion 4 (3)(vi), the expenses of travelling between Ahmedabad and Bhavnagar could not be said to be expenses incurred by the assessee wholly and neces sarily in the performance of the duties of the office of part‑time professor of accountancy held by the assessee, for they were incurred partly before the assessee commenced to perform such duties and partly after he concluded them. The second test is also not satisfied because it could not be said that the assessee was obliged by the conditions of his service to incur the expen ses of yelling between Ahmedabad and Bhavnagar. The expenses of travelling between Ahmedabad and Bhavnagar were incurred by the assessee not because the assessee held the office of part‑time professor of accoun tancy but because he lived and practised his profession in Ahmedabad which was matter of his own choice. The assessee was not obliged‑ to incur the expenses of travelling between Ahmedabad and Bhavnagar by the very fact that he held the office of part‑time professor of accountancy and had to perform his duties. If the assessee had shifted to Bhavnagar, he would not have had to incur these expenses and it could not, therefore, be said that these expenses were expenses which the assessee was obliged to incur by the conditions of his service. The claim of the assessee to have the amount of Rs. 1,434 deducted under section 7 (2)(iii) must therefore fail.

Our answer to the question referred to us will, therefore, be in the negative. The assessee will pay the cost of the reference to the Commissioner.

Question answered in the negative.

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