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I.T.A. No. 47(PB) of 1981-82, decided on 18th March, 1987.

--S.4(3)(vi)--Sumptuary Allowance paid to the Ministers and other dignitories--Word "sumptuous"--Meaning sumptuary allowance having no nexus with performance of the duties of a Minister, etc. provisions of S.4(3)(vi), cannot be claimed to be attracted to sumptuary allowance for S.4(3)(vi) applies in only those cases where any allowance, benefit or perquisite was specifically granted to meet expenses wholly and necessarily incurred in the performance of the duties of an office or employment of profit--Allowance paid for regulating costly living, therefore, cannot be considered as a necessary expense in the performance of the duties of a representative office.

Income-tax, Bombay City v. D.R. Phatak (1975) 99 I T R 14; Chamber's Twentieth Century Dictionary and Oxford Dictionary ref.

Commissioner of Income-tax, Bombay City v. D. R. Phatak (1975) 99 I T R 14 distinguished.

---Ss. 18-A & 18--Penalty--Assessee's only source of income being salary, tax therefrom was deducted at Source in accordance with provisions of S.18-A(2)--Provisions of S.18-A, therefore, were not applicable where tax was deducted at source under S.18--Assessee was thus, not required to pay any advance tax under S.18-A--Levy -of penalty being unjustified, was ordered to be deleted by the Tribunal.

Amir Alam Khan, F.C.A. for Appellant.

Maqbool Hussain Shah, D.R. for Respondent.

Date of hearing: 8th March, 1987.

--This appeal has brought against the order of the Commissioner of Income-tax (Appeals), Rawalpindi, dated the 3rd May, 1981, by virtue of which he had affirmed the taxation of sumptuary allowance and certain other perquisites available to the assessee during the assessment year 1977-78.

2. During the assessment year 1977-78, the assessee-appellant (General (Retd.) Tika Khan) had held the Offices of the Special Assistant to the Prime Minister for National Security, Senator and Minister of State for Defence and National Security. It was claimed that the post of Special Assistant to the Prime Minister carried all the facilities and perquisites available to a Federal Minister and accordingly the appellant received a sum of Rs.11,050 as sumptury allowance during that year at the rate of Rs.1,000 per mensem. The Income-tax Officer treated this allowance as entertainment allowance which was liable to tax under Notification No.450(I)/72, dated the 1st July, 1972, read with Circular No.10 of 1972, dated the 28th November 1972. Similarly, the appellant was entitled to free use of electricity, gas and water. No details in that respect were, however, submitted by the appellant regarding payments made by the Government towards consumption charges of these facilities. Hence, the Income-tax Officer estimated the total charges for such facilities at Rs.6,000 and included this amount in the taxable income under item 11 of Schedule to rule 39(1) of the Income-tax Rules. A sum of Rs.2,400 was also added under item 4(b) of the said Schedule on account of free conveyance provided by the Government to the appellant. Likewise, a sum of Rs.2,400 as added towards free use of telephone on account of private calls made by the appellant. The Income-tax Officer further added a sum of Rs.7,149 being 15% of the total salary and sumptuary allowance towards the provision of free furnished accommodation maintained at Government expense. Initially, by order of the Income-tax officer, dated the 31st March, 1980, the taxable income of the appellant was assessed at Rs.67, 707 which was subsequently on an application moved by the appellant under section 156 of the income-tax Ordinance, 1979, read with section 35 of the repealed Income-tax Act, 1922, claiming that the sumptuary allowance had been computed twice, was reduced to Rs.55, 299. The addition on account of provision of free maintained furnished accommodation was also reduced to Rs.5,791 because of certain miscalculation of salary.

3. On appeal, the learned Commissioner of Income-tax (Appeals) deleted the amount of Rs.6,000 added on account of provision of free use of electricity, gas and water considering the same to be part of the free furnished accommodation. On the same ground the addition of Rs.2,400 made on account of telephone was also deleted. The learned Commissioner of income-tax (Appeals) also deleted the addition of Rs.2,400 on account of provision of car to the appellant at Government expense for the reason that it was used for the official business. The learned Commissioner of Income-tax (appeals), however, upheld the finding of the Income-tax Officer in respect of taxability of sumptuary allowance on the ground that the exemption from taxability of this allowance was not given to the Federal Ministers as was available to the Governors, Commander-in-Chiefs of the armed forces, etc., by virtue of Notification No.SRO-1815(K)'69, dated the 10th September, 1969. But he did not give any finding as regard to the addition made on account of provision of free furnished accommodation. The appellant has, therefore, preferred the present appeal challenging the findings of the learned Commissioner of Income-tax (Appeals) on the issue regarding taxability of sumptuary allowance and provision of free furnished accommodation. He has also challenged the levy of penal interest amounting to Rs.2,400 made under section 18-A of the repealed Income-tax Act 1922. ,

4. It is the claim of the appellant that notwithstanding any notification or circular issued by the Central Board of Revenue, sumptuary allowance being out of pocket expenses made available to the Federal Minister was exempt from tax under clause (vi) of subsection (3) of section 4 of the repealed Income-tax act, 1923, ' which is read as under:-

"(vi) Any special allowance, benefit or perquisite specifically granted to meet expenses, wholly and necessarily incurred in the performance of the duties of an office or employment of profit."

5. Mr. Amir Alam Khan, F.C.A., the learned Authorised Representative of the appellant contended that the notifications issued by the Government exempting any category of person regarding exemption of the sumptuary allowance was just a precautionary measure and would not override the provisions of law. In this respect, he also relied upon an Indian decision in Commissioner of Income-tax Bombay City v. D.R. Phatak (1975) 99 1 T R 14, wherein the Bombay High Court had held that compensatory (city) allowance paid to the Government servants was exempt from tax under section 10(14) of the Indian Income-tax Act, 1961. On the other hand, it was contented on behalf of the Department that the sumptuary allowance was in the nature of entertainment allowance and was not exempt from tax by virtue of Circular No.10 of 1972, dated the 28th November, 1973, read with Notification SRO No.450(1)/72, dated the 1st July, 1972, whereby an amendment was made in the Schedule to sub-rule (3) of rule 39 of the Income-tax Rules making the whole amount of entertainment allowance to be taxable.

6. Section 6 of the Federal Ministers and Minister of State (Salary and Allowance) Act, 1975 (LXII of 1975), whereunder sumptuary allowance of Rs.1,000 per mensem was given to the Federal Minister at the relevant time, however, does not specify the purpose of this allowance. Therefore, we had to advert to ordinary dictionary meaning of terms 'sumptuary'. According to Chambers Twentieth Century Dictionary this expression means pertaining to or regulating expense', while 'sumptuous' means 'costly', magnificently luxurious'. Similar meanings of these expressions are contained in the Oxford Dictionary.

7. It, therefore, derives from these dictionary meanings that the sumptuary allowance is a perquisite or an additional renumeration paid to the Ministers or certain other dignitaries to regulate or wipe off burden of their costly living. In other words, the sumptuary allowance has no nexus with the performance of the duties of a Minister, etc. In the circumstances clause (vi) of subsection (3) of section 4 of the repealed Income-tax Act, 1922, cannot be claimed to be attracted to the sumptuary allowance. Because it applies in only those cases where any allowance, benefit or perquisite is specifically granted to meet expenses wholly and necessarily incurred in the performance of the duties of an office or employment of profit.

8. Obviously, an allowance paid for regulating costly living cannot be considered as a necessary expense in the performance of the duties of a representative office. In this respect, the case of Commissioner of Income-tax, Bombay City v. D.R. Phatak (1975) 99 I T R 14 referred to by the learned Authorised Representative of the appellant has no relevancy with the facts of the present case. In that case, compensatory (city) allowance was allowed to the assessee because of his posting at Bombay. The compensatory allowance was defined in rule 9(5) of the Fundamental Rules which for facility of reference is reproduced below:-

"9(5) Compensatory allowance means an allowance granted to meet personal expenditure necessitated by the special circumstance in which duty is performed. It includes a travelling allowance but does not include a sumptuary allowance nor the grant of free passage by sea to or from any place outside India."

9. Therefore, the Court had held this allowance to be exempt under section 14 of the Indian Income-tax Act, 1961, to be exempt as it was specifically granted to meet the expenses wholly, necessarily and exclusively incurred in the performance of the duties and to the extent to which such expenses were actually incur-red. Evidently, in the present case all such requisites are lacking. An identical definition of compensatory allowance is given in rule 9(5) of the Pakistan Fundamental Rules, which exclude the sumptuary allowance from the definition of compensatory allowance. Hence, even on that count the case cited by the learned Authorised Representative does not help the appellant.

10. Another factor which goes against exemption of sumptuary allowance from tax is that the legislature had, right from inception of the repealed Income-tax Act, 1922, was conscious that this allowance was not exempt from tax. In this connection, under subsection (1) of section 60 of that Act first Notification bearing No.878-F (Income-tax) providing exemption from tax to various items was issued by the Finance Department on the 21st March, 1922. Originally, this notification did not contain any exemption from the sumptuary allowance. Later on, items (37-A) and (37-B) were added therein by virtue of Notification NO.SR0.574(K)/61 dated the' 27th May, 1961 whereby free conveyance and sumptuary allowances, etc., admissible to Ministers of the Presidential Cabinet and Governors and Chief of Staffs of the Armed Forces were allowed exemption from the levy of tax. Subsequently, however, by virtue of Notification NO.SR0.1041(K)/61, dated the 31st October, 1961 the principle Notification No.878-F (Income-tax), dated the 21st March, 1922, was cancelled. In turn, with its cancellation, all items added therein at later stage also stood cancelled.

11. Although later on by Notification No. SR0.1815(K)/69 dated the 10th September, 1969, the sumptuary allowance or entertainment allowance admissible to the Governors, Commander-in-Chiefs of the Armed Forces was made exempt from tax, but no such exemption was allowed in the case of Federal Ministers. Hence, it cannot be said that these repeated notifications were issued by the Government as only being over-conscious or as a precautionary measure. These contentions are further negated by including sumptuary allowance in clause (54) of the Second Schedule to the Income-tax Ordinance, 1979. This statutory exemption clearly envisages that the legislature was fully conscious that the sumptuary allowance was taxable unless it is specifically allowed exemption from tax under the relevant provisions of law. Although we are not in complete agreement with the income-tax authorities that the sumptuary allowance was actually an entertainment allowance, because the legislature has always used the term 'entertainment' instead of using any other expression equivalent thereto. However, use of expression 'or' in between sumptuary allowance and entertainment allowance in Notification No. SRO 1815(K)/69 dated the 10th September, 1969, allowing exemption from tax to these allowances to Governors etc., clearly indicates that the sumptuary allowance was considered equivalent to an entertainment allowance. Even on that count, sumptuary allowance cannot be claimed to be exempt from tax as entertainment of the guests is not a wholly and necessary expenditure for the performance of the duties of the office of the Minister. Hence, the Income-tax Officer and the learned Commissioner of Income-tax (Appeals) had rightly held that the provisions of clause (vi), subsection (3) of section 4 of the repealed Income-tax Act, 1922, were not applicable in the instant case and accordingly, the sumptuary allowance was not exempted from the levy of tax.

12. The next objection of the appellant pertains to the taxability of the 15% of the salary and sumptuary allowance. It was contended by the learned Departmental Representative that, since the appellant had not disclosed the value of the rent free furnished accommodation, the Assessing officer had added 15% of the salary plus sumptuary allowance towards the net income under the provisions of item 2 of the Schedule to rule 39 of the Income-tax Rules. But it was claimed on behalf of the appellant that the sumptuary allowance was not a part of the salary, therefore, this amount could not be included while calculating the deemed income. On this objection, no finding has been recorded by the learned Commissioner of Income-tax (Appeals). The learned Authorised Representative on the basis of an affidavit has claimed that objections against the taxability of deemed income on account of rent free accommodation and inclusion of sumptuary allowance for the purpose of calculating the deemed income were specifically raised before the learned appellate authority. Since the appellate record is not present before us we deem it expedient to remit the case to the learned Commissioner of Income-tax (Appeals) on this issue for recording his finding thereon after hearing the view point of the appellant.

13. The Income-tax Officer had also levied a penal interest of Rs.2,400 under section 18-A of the repealed Income-tax Act, 1922, for non-payment of advance tax. Although on this issue as well the learned Commissioner of Income-tax (Appeals) has not given any finding, but, since the law on this issue so very clear, it would not be necessary to remit the case to him for determination.

14. It is an admitted fact that the appellant's only source of income was salary and the tax therefrom was deducted at source in accordance with the provisions of section 18-A(2) of the repealed Income-tax Act, 1922. Obviously, therefore, as provided under subsection (1) of section 18-A of the said Act, the provisions of section 18-A ibid were not applicable where tax is deducted at source under section 18 of the repealed Act, Accordingly, the Appellant was not required to pay any advance tax under section 18-A ibid. This legal proposition has also been admitted by the learned Departmental Representative. Hence, we delete the levy of penal interest amounting torRs.2,400.

15. In the result, the appeal partly succeeds to the extent and in the manner as indicated above.

M. B. A./383/T Appeal partly accepted.

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