HIGH COURT OF GUJARAT Commissioner of Income-tax v. S.G. Pgnatale DIVAN, CJ. AND S.B. MAJUMDAR, J. IT REFERENCE NO. 270 OF 1977 FEBRUARY 25, 1980

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1 HIGH COURT OF GUJARAT Commissioner of Income-tax v. S.G. Pgnatale DIVAN, CJ. AND S.B. MAJUMDAR, J. IT REFERENCE NO. 270 OF 1977 FEBRUARY 25, 1980 N.U. Raval and R.P. Bhatt for the Applicant J.M. Thakore and J. P. Shah for the Respondent JUDGMENT Divan, CJ. In this case at the instance of the revenue the following two questions have been referred to us for our opinion: "(1)Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in holding that the living allowance did not constitute perquisite within the meaning of section 17(2) of the Income-tax Act? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the income computable under the head ' Salaries ' had not been earned in India as contemplated under section 9(1)(iii) of the Income-tax Act? " The facts leading to this reference are as follows : We are concerned with the assessment year The assessee is an individual and he is not ordinarily resident in India. The assessment relates to the income under the head "Salaries" and the period from July 31, 1971, to March 31, 1972, is the portion of the previous year which is under consideration. The ITO assessed the income of the assessee at Rs. 39,100 against the declared nil total income of the assessee. The assessee was an employee of a French company who, pursuant to an agreement dated June 23, 1970, entered into by the French company with the Gujarat State Fertilizer Co. Ltd., made available to the Gujarat State Fertilizer Co. Ltd. the services of the assessee. The assessee accordingly worked in India and rendered services in India in the shape of supervisory and advisory assistance to the Gujarat State Fertilizer Co. (hereinafter referred to as "the Gujarat company"). In lieu of the said services the assessee was to be paid outside India by the French company certain fixed emoluments in terms of para. 3 of the French company's letter dated June 30, These emoluments are referred to as retention remuneration in the letter. The letter of June 30, 1971, contains the terms of employment of the assessee during his assignment in India. Besides the retention remuneration the assessee was also to get certain daily allowance according to the scale mentioned in the letter and also in the agreement between the French company and the Gujarat company. Under

2 the terms of the letter of June 30, 1971, the assessee was also to be entitled to other facilities and benefits as admissible to the employees of his rank in France As regards the retention remuneration the contention of the assessee before the ITO and all throughout has been that though the retention remuneration was his salary within the meaning of section 17(1) of the Income-tax Act, the said salary could not be said to have accrued or arisen or deemed to have accrued or arisen in India. The ITO rejected this contention. The ITO's view was that the salary had been earned by the assessee in India as contemplated by section 9(1)(ii) of the Income-tax Act and the said income was to be deemed to have accrued or arisen in India within the meaning of section 5(2)(b ) of the Income-tax Act. As regards living allowance received by the assessee in terms of the letter of June 30, 1971, the ITO held that this allowance formed part of the assessee's salary and also rejected the assessee's claim that the living allowance was exempt under section 10(14) of the Income-tax Act. The ITO further observed that no details had been made available by the assessee to show that any amount had been spent by him for performance of service as contemplated by section 10(14) of the Act. Against this decision of the ITO the assessee went in appeal to the AAC. The appeal was dismissed by the AAC. While dismissing the appeal the AAC followed his own decision in the case of another similar employee, one P.A. Mascagni. Against the decision of the AAC, the assessee took the matter in further appeal to the Income-tax Appellate Tribunal. The Tribunal examined the terms of the letter of June 30, 1971, and came to the conclusion that the retention remuneration was earned by the assessee as his salary but it was not salary earned in India. In this connection, the Tribunal relied on the decision of the House of Lords in McMillan v. Guest [1943] 11 ITR (Suppl) 35. As regards the living allowance the Tribunal examined the provisions of section 17(2) and came to the conclusion that the allowance did not form part of perquisite under section 17(2) and hence did not constitute the assessee's salary. As regards exemption under section 10(14) the Tribunal expressed the view that if the living allowance constituted perquisite, then this exemption provision would not be attracted at all. Thus, the Tribunal held in favour of the assessee both as regards the retention remuneration and as regards the living allowance. The Tribunal further observed that in case this allowance constituted perquisite, the assessee had not produced necessary evidence in this regard and hence it would not be exempt under section 16(5) of the Act. The Tribunal, therefore, allowed the appeal of the assessee and set aside the order of assessment originally passed by the ITO and confirmed by the AAC.

3 In order to appreciate the controversy 'which has arisen between the parties, it is necessary to refer to some of the terms of the contract between the French company and the Gujarat company. A copy of the said contract dated June 23, 1970, as subsequently amended by agreement between the parties, along with addendum has been reproduced at annex. "A" to the statement of the case. In the contract, the Gujarat company has been referred to as the owner and the French company has been referred to as "E.C. ", that is, the European contractor as distinguished from the Indian contractor referred to in the supply contract as " I.C.". The supply contract was in respect of Caprolactam Plant which the Gujarat company had decided to install. The plant was to be of 25,000 tons capacity and the project was to utilise the by-product of the Gujarat company from its plant at Fertilizernagar in Baroda District. Under the terms of the agreement, the European contractor, that is, the French company, had to render certain services in Europe and also to give what was known as back-up service and other assistance in installing and starting the plant and backup services, advisory services, specialist services in connection with installation of the plant in India. The three types of services which the supply contract covered were set out in article 2 of the supply contract and those services were, as we have mentioned earlier, back-up services, advisory services, specialist services during the plant's pre-commissioning and startup and they were also to render any service or supply required and so provided in the coordination procedure in the contract and agreement and these additional services were to be supplied by the French company without any additional cost to the Gujarat company. Payments in respect of services rendered by the French company were to be made in accordance with art. 5 of the said contract. The total price of the said contract was 44,888,400 French francs and the break-up of this aggregate amount has been set out in the different clauses and sub-clauses of art. 5.1, clause (iv), was in respect of lump sum price for all back-up services during engineering to be performed in India and of all advisory services during construction and erection of the plant and of all specialist services of European vendors till the commissioning of the plant and for that the lump sum price was 4,484,400 French francs. Annexure IV to the supply contract provided for accounting procedure and miscellaneous reimbursable costs. As regards lump sum price shown in article 5.1(iv) it was pointed out in annex. IV that this lump sum price included back-up and advisory assistance and E.C. personnel as listed under point 5.1.2, section III, of the co-ordination procedure up to a maximum of 295 man months at the average rate of 80 U.S. dollars per calendar day of absence from home office and the advisory services of vendor's specialists during plant pre-commissioning and start-up for 25 man months. The Gujarat company was to pay living allowance at Rs. 220 per man per calendar day for stay in New Delhi or Bombay and Rs. 150 for stay in Fertilizernagar or Baroda in accordance with the procedure to be mutually

4 agreed upon for the personnel of E.C. or vendor's specialists. It must be pointed out that the French company was not the vendor but was to render different types of services which we have mentioned above. Under clause 8 of annex. IV the Gujarat company had to reimburse travel expenses of the specialists of E.C, that is, the French company, and vendors in India for travel undertaken for performance of their work and approved by the Gujarat company and the living allowance provided in annex. IV was to be paid monthly by the owner to the French company on presentation of invoices. The Gujarat company had to provide pre-paid tickets for travels within India and Europe provided in different clauses of the contract. Thus, so far as the assessee was concerned, the assessee was sent out to India by the French company to render one or the other of the services covered by the supply contract between the French company and the Gujarat company. On June 30, 1971, the French company had addressed a letter which is annex. "B" to the statement of the case, on the subject of the assessee's assignment in India and the letter said : "You are hereby deputed for an assignment for 'caprolactam' project back-up services for the Gujarat State Fertilisers Company Limited in India. The terms and conditions under which you are deputed are as under". Under para. (2) of the terms and conditions, the assessee was informed that he would be stationed in Delhi/or at such other place in India as might be required from time to time up to a maximum period of 13 months, and clause (3) stated : "During the period of your stay in India a retention remuneration at the rate of 32,364 FF per year with a bonus perquisite of 1,148 FF per month shall be payable to you outside India. Besides you will receive Rs. 220 when posted at Delhi or Rs. 150 per calendar day when posted at Baroda of your stay in India to cover the extra cost of living. If you are provided with furnished accommodation for your stay in India and/or free conveyance, the daily allowance shall be paid to you on a reduced scale as may be decided from time to time. " Under clause (4) of this letter the assessee was informed that he would be entitled to other facilities and benefits, such as free medical benefits, to and fro passage to the assessee and his family at the time of joining and leaving his assignment in India and statutory benefits applicable to other employees of the assessee's rank in France. On these facts, the question arose whether in the light of the provisions of the Income-tax Act, 1961, the decision of the Tribunal was correct. Section 4 of the I.T. Act is the charging section and it provides: "Where any Central Act enacts that income-tax shall be charged for any assessment year at any rate or rates, income-tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions of, this Act in respect of the total income of the previous year or previous years, as the case may be, of every person:.. "

5 Under section 5, sub-section (1): "Subject to the provisions of this Act, the total income of any previous year of a person who is a resident includes all income from whatever source derived which (a)is received or is deemed to be received in India in such year by or on behalf of such person ; or (b)accrues or arises or is deemed to accrue or arise to him in India during such year; or (c)accrues or arises to him outside India during such year: " Under the proviso to section 5(1), in the case of a person who is not ordinarily resident in India, the income which accrues or arises to him outside India shall not be included unless it is derived from a business controlled in or a profession set up in India. It may be pointed out that sections 4 to 9, both inclusive, are in Chap. II which deals with "Basis of charge". Section 9 deals with income deemed to accrue or arise in India. Under section 9(1)( ii) the following income shall be deemed to accrue or arise in India income which falls under the head "Salaries" if it is earned in India. Clause (iii), which is also material for the purposes of this judgment, states that income chargeable under the head "Salaries" payable by the Government to a citizen of India for service outside India shall also be deemed to accrue or arise in India. Section 10 deals with incomes which are not to be included in the total income of the previous year of any person and under sub-section (6), clause (vi), subject to certain conditions, the remuneration received by an assessee as an employee of a foreign enterprise for services rendered by him during his stay in India, provided the three conditions ( a), (b) and (c) of clause (vi ) are satisfied, and similarly under clause (vii) is exempted the remuneration due or received by an assessee chargeable under the head "Salaries" for services rendered as a technician in the employment of the Government or of a local authority or of any corporation set up under any special law or in any business carried on in India, if he was not resident in any of the four financial years immediately preceding the financial year in which he arrived in India and the exemption is to the extent mentioned in that clause. The principal question so far as the retention remuneration is concerned is whether within the meaning of section 9(1)(ii) of the Act the retention remuneration can be said to be salary earned in India. Under section 15 the following income shall be chargeable to income-tax under the head "Salaries ( a) any salary due from an employer or a former employer to an assessee in the previous year, whether paid or not ". We are not concerned in the present case with clauses (b) and (c) of section 15. Now, nowhere in the Act has the word "earned" or the phrase "earned in India", been defined and we have to find out from the decided cases as to what is the exact

6 connotation of the word "earned". It is true, as Mr. Raval, learned counsel on behalf of the revenue, has pointed out, that practically all the commentators in India have taken the view that such remuneration as is in dispute before us would be "salaries" chargeable to tax under the head "Salaries". For instance, in Kanga and Palkhivala's The Law and Practice of Income Tax, 7th edn., Vol. I, p. 207, it has been pointed out: "Clause (ii) of sub-section (1) provides an artificial place of accrual for income taxable under the head 'Salaries'. It enacts that income chargeable under the head 'Salaries' (section 15) is deemed to accrue or arise in India if it is earned in India,i.e., if the services under the agreement of employment are or were rendered in India, the place of receipt or actual accrual of the salary being immaterial for this purpose. An exception to this clause is provided by sub-section (2) under which pensions payable outside India to certain categories of Government officers and judges, who reside permanently outside India, are not deemed to accrue in India.. Difficult questions arise regarding the place of accrual of salaries... This clause obviates a part of the difficulty by providing an artificial place of accrual in one case. Since residents are chargeable on income accruing in any part of the world, it cannot make any difference in their case whether income is treated as accruing abroad or is deemed to accrue in India. The main effect of the clause is to charge non-residents and those who are resident but not ordinarily resident on salary or pension earned in India even where it actually accrues abroad and is received abroad. This clause applies even to salary paid by a foreign Government to its employee serving in India, because salary payable by a foreign Government which was not taxable under the head 'Salaries ' in the 1922 Act is taxable under that head (section 15) in this Act. " The other commentators like Iyengar, Chaturvedi, Chopra, Aiyar, Sundaram and Santhanam, have all expressed views on the same lines as those of Kanga and Palkhivala in the passage cited above. It must be pointed out, however, that so far as the meaning of the word "earned" is concerned, there is a specific decision of the Supreme Court dealing precisely with the point as to the connotation of the word "earned". In E.D. Sassoon & Company Ltd. v. CIT [1954] 26 ITR 27 (SC), Bhagwati J., speaking for the majority of the judges who heard the matter in the Supreme Court, observed at page 49: "The word 'earned' has not been used in section 4 of the Income-tax Act. The section talks of 'income, profits and gains' from whatever source derived which (a) are received by or on behalf of the assessee, or (b) accrue or arise to the assessee in the taxable territories during the chargeable accounting period. Neither the word 'income' nor the words 'is received', 'accrues' and 'arises' have been defined in the Act."

7 It must be pointed out that the Supreme Court in that case was dealing with the 1922 Act and at page 51 it has been pointed out: " income may accrue to an assessee without the actual receipt of the same. If the assessee acquires a right to receive the income, the income can be said to have accrued to him though it may be received later on its being ascertained. The basic conception is that he must have acquired a right to receive the income. There must be a debt owed to him by somebody. There must be as is otherwise expressed debitum in praesenti, solvendum in futuro: See W.S. Try Ltd. v.johnson (Inspector of Taxes) [1946] 1 All ER 532 (CA) and Webb v. Stenton [1883] 11 QBD 518 (CA). Unless and until there is created in favour of the assessee a debt due by somebody it cannot be said that he has acquired a right to receive the income or that income has accrued to him. The word 'earned' even though it does not appear in section 4 of the Act has been very often used in the course of the judgments by learned judges both in the High Courts as well as the Supreme Court (vide CIT v. Ahmedbhai Umarbhai & Co. [1950] 18 ITR 472 (SC) and CIT v. K.R. M.T.T. Thiagaraja Chetty & Co. [1953] 24 ITR 525 (SC). It has also been used by the Judicial Committee of the Privy Council in Commissioners of Taxation v. Kirk [1900] AC 588. The concept, however, cannot be divorced from that of income accruing to the assessee. If income has accrued to the assessee it is certainly earned by him in the sense that he has contributed to its production or the parenthood of the income can be traced to him. But in order that the income can be said to have accrued to or earned by the assessee it is not only necessary that the assessee must have contributed to its accruing or arising by rendering services or otherwise but he must have created a debt in his favour. A debt must have come into existence and he must have acquired a right to receive the payment. Unless and until his contribution or parenthood is effective in bringing into existence a debt or a right to receive the payment or in other words a debitum in praesenti, solvendum in futuro it cannot be said that any income has accrued to him. The mere expression 'earned' in the sense of rendering the services, etc., by itself is of no avail. "(Emphasis supplied by us.) Thus, it is clear that according to the Supreme Court in E.D. Sassoon's case [1954] 26 ITR 27 the word "earned" has two meanings. One meaning is the narrower meaning in the sense of rendering of services, etc., and the wider meaning in the sense of equating it with " accrued " and treating only that income as earned by the assessee to which the assessee has contributed to its accruing or arising by rendering services or otherwise but he must have created a debt in his favour. Therefore, unless there is a debt in favour of the assessee by reason of his rendering services, it cannot be said to be "income earned" by the assessee and this is what may be called the wider

8 meaning of the term. It may be pointed out that these two meanings indicated by the Supreme Court in E.D. Sassoon's case [1954] 26 ITR 27 have also been indicated in Corpus Juris Secundum, Vol 28, p. 069, where it has been pointed out that the word " earned " has been construed as meaning entitled to a sum of money under the terms of a contract, implies that wages earned are owing, and may carry the meaning of unpaid, but does not necessarily imply that they are due and payable. The term has been distinguished from "due" and "payable". Thus, the wider meaning of the word "earned" as indicating sometning which is due owing and entitlement to the sum of money consideration for which services have been rendered by an assessee, is a clear concept indicated by Corpus Juris Secundum. We may also indicate that the contract between the language used in clause (ii) and in clause (iii) of section 9(1) supports the distinction between the two meanings which the Supreme Court has pointed out. In clause (ii) the Legislature has referred to income which falls under the head "Salaries" if it is earned in India. In clause (iii) income chargeable under the head "Salaries" payable by the Government to a citizen of India for service outside India has been referred to. Therefore, if the legislature wanted to indicate that the word "earned" in the context of salaries was to have the narrower meaning then it would have specifically said so by referring in clause (ii) to the rendering of services at a particular situs and in cause. (iii) it is specifically said that the salaries covered by clause (iii) would be salaries payable by the Government to a citizen of India for services outside India. If the Legislature wanted that the word "earned" in clause (ii) of section 9(1) should have a narrower meaning, nothing would have been easier than to use the words "services in India" or "services rendered in India", thus clearly indicating that out of the two meanings of the word "earned" it wanted the narrower meaning to be adopted. It is well-settled law that if a word or phrase is capable of two meanings, one in favour of the assessee and the other against the assessee, particularly when the word is used in a charging section of a taxing statute, the meaning which is in favour of the assessee should be given by a process of interpretation [vide [1963] 48 ITR (SC) 1 (sic) ]. It is clear that section 9 which is one of the sections in Chap. II which deals with the basis of charge is one of the group of sections which deals with charge on income so far as income-tax is concerned and, therefore, the words " earned in India " will have to be strictly construed. The Supreme Court itself has indicated that there is a narrower meaning and a wider meaning of the word "earned" (vide E.D. Sassoon's case [1954] 26 ITR 27 (SC)). It may also be pointed out that as in E.D. Sassoon's case the Supreme Court has in CIT v. Ahmedbhai Umarbhai & Co. [1950] 18 ITR 472, at page 486, equated "earnings" with "accrual" or "arising". It has been pointed out that the Privy Council in Kirk's case [1900] AC 588 held that " profits, having been produced by the combined operations of extraction, manufacture and sale, were assessable to tax in the colony either as derived

9 from land by reason of the extraction or as 'arising or accruing', if not from a 'trade', certainly from a 'source', by reason of the manufacture in the colony, and were therefore 'earned ' in the colony, though the profits were received outside the colony". Thus, in Kirk's case [1900] AC 588 (PC) as interpreted by the Supreme Court in CIT v. Ahmedbhai Umarbhai & Co. [1950] 18 ITR 472, the word "earned" was equated with "arising", "accruing" and it is this equation of the word "earned" with "accrual" that has been emphasised by the Supreme Court in E.D. Sassoon's case [1954] 26 ITR 27. In our opinion, in view of the clear indication given by the legislature itself by using a different phraseology in clause (iii) as compared with clause (ii) with which we are concerned in this case and in view of the passage from E.D. Sassoon'scase [1954] 26 ITR 27 (SC), it is clear that the words "earned in India " in section 9(1)(ii) must mean arising or accruing in India. It was urged on behalf of the revenue that section 9(1) itself deals with a fiction and provides for a deeming provision by stating that the following income shall be deemed to accrue or arise in India and if under clause (ii) income which falls under the head "Salaries" accrues or arises in India, then section 9(1) would be either tautologous or otiose; but it seems to us that clause (ii) is meant to provide for a situation which is reflected as a mirror image of clause (iii) occurring in section 9(1) and to deal with a mirror image of the situation dealt with in clause (iii) that this provision was inserted in clause (ii). For the reasons set out hereinabove it is clear to us that the words "earned in India" occurring in clause (ii ) must be interpreted as "arising or accruing in India" and not from "service rendered in India". So long as the liability to pay the amount under the head "Salaries" arises in India, clause (ii) can be invoked. If the liability to pay arises out of India and the amount is payable outside India, clause (ii) cannot be invoked. Mr. Raval for the revenue is right when he contends that the decision of the House of Lords in McMillan v. Guest [1943] 11 ITR (Suppl.) 35 is not directly apposite to the facts and circumstances of this case. Cases like McMillan v. Guest orlakshmipat Singhania v. CIT [1969] 72 ITR 512 (All) and other cases dealing with the remuneration of directors, managing directors, managing agents, etc., are not directly relevant in view of the assistance which we have received from the decisions of the Supreme Court in E.D. Sassoon's case [1954] 26 ITR 27 and the other in Ahmedbhai Umarbhai's case [1950] 18 ITR 472. It is true that different commentators have interpreted these words occurring in section 9(1)(ii) in the manner indicated above but not a single decision has been cited by these commentators in support of their commentaries in this regard and, therefore, the commentators' opinions will not have the same weight as they would have had if their views had been supported by any decision. That takes us to the next question of allowance or what has been referred to as living allowance under the terms of the letter dated June 30, It

10 may be pointed out at this stage once again that under that particular term of condition Rs. 220 were to be paid to the assessee when posted in Delhi or Rs. 150 per day when posted at Baroda and in case furnished accommodation for his stay in India and/or free conveyance was allowed, the daily allowance was to be reduced on a scale as may be decided from time to time. The principle is well recognised in the House of Lords' decision in Owen v. Pook (Inspector of Taxes) [1969] 74 ITR 147, that a perquisite is something which arises by reason of a personal advantage but the word " perquisite " would not apply to a mere reimbursing of necessary disbursement. It is true that in the earlier decision in Corry v. Robinson [1933] 18 TC 411, the Court of Appeal had taken a different view regarding what is referred to as colonial allowance which was to be paid to the assessee in that particular case because of the cost of living at the place where the assessee was required to serve, but the test which has now been finalised by the House of Lords in Owen v.pook [1969] 74 ITR 147 is in our opinion the better test, namely, to decide whether an allowance of this kind was given by way of reimbursement or whether it was given as a personal advantage. The very fact that the allowance was likely to be reduced or increased depending upon the change in the circumstances from place to place and depending upon whether free accommodation or free road transport was allowed or not, goes to indicate that this allowance was being given to the assessee as a reimbursement rather than as a personal advantage given to the assessee. Hence, even in the ordinary meaning of the word "perquisite", this particular allowance would not be embraced. Under section 17(2) the word "perquisite" has been defined by an inclusive definition and it is well-settled law that when there is an inclusive definition the ordinary meaning of the word prevails over and above the ordinary meaning, the words of the inclusive definition would also, for the purpose of that particular statute, be included in that definition. We are, therefore, not concerned in the present case with the definition of "perquisite " as set out in section 17(2) because it is obvious, as the Income-tax Appellate Tribunal has pointed out, that the living allowance paid to the assessee in the instant case is not covered by any of the clauses (i) to (v) of the inclusive definition in section 17(2), It may be said, as was sought to be urged by Mr. Raval, that this was the sum paid by the employer in respect of an obligation which amount, but for the obligation, would have been payable by the assessee. If it is not perquisite even in the ordinary sense of the word, then, it cannot fall under the word "salary" as defined in section 17(1)( iv) because it is neither a fee, commission, perquisite nor profit in lieu of or in addition to any salary or wages. It is true that the money would go to the assessee and would go to the pocket of the assessee but since this is by way of reimbursement, it would not be perquisite, therefore, not salary and, therefore, not chargeable under the head "Salaries" under this Act.

11 The decision of the Madras High Court in CIT v. J. Jenkin Thomas [1975] 101 ITR 511 also dealt with the question of foreign technicians who were employed in connection with the Neiveli Lignite Corporation. Salaries in that case were payable by the corporation and that is the distinguishing feature so far as the case before us is concerned. It is true that in that case the Madras High Court referred to the decision in Owen v. Pooh [1969] 74 ITR 147 (HL), but it was in the light of the facts of that particular case where the subsistence allowance which was paid was not related to the duties as such but was linked with provision of furnished quarters, that it was held not to be exempted under section 4(3)(vi) and there were no facts to show that the amount was actually of a kind of reimbursement for any expenditure incurred in the performance of duties of the office by the assessee before the court. In our opinion, in view of the facts of the case before us, it is clear that the amount of living allowance paid to the assessee per day in the light of the provisions of the supply contract between the French company and the Gujarat company and emphasised as one of the terms and conditions of deputation to the assignment of work in India in the letter of June 30, 1971, is clearly a reimbursement to the assessee for the money that he would be required to spend for his stay in India. It seems that there was no perquisite involved in this case and hence the French company, the original employer with whom the assessee was working, even when he was not sent out to India on this particular assignment, had assured him that he would be required to pay for his stay either at Delhi or elsewhere. If it was a perquisite one would not find this sliding scale indicated in clause 3 of the letter of June 30, It is true that in J.G. Mankad v. CIT [1965] 55 ITR 448, this High Court had followed the earlier decision of the House of Lords in England in Ricketts v. Colquhoun [1925] 10 TC 118, but that case again depended upon the peculiar facts of the case where a lecturer was claiming the amount spent by him for travelling between Ahmedabad and Bhavnagar. The assessee was a resident of Ahmedabad and was part time professor in accountancy in a commerce college at Bhavnagar and he was claiming deduction in respect of these travelling expenses. The High Court, in the light of the decision of the House of Lords in Ricketts v. Colquhoun [1925] 10 TC 118, decided against the assessee. In Owen's case [1969] 74 ITR 147, the House of Lords has distinguished that earlier case and one of the Law Lords has gone to the extent of calling for reconsideration of the decision in Ricketts' case [1925] 10 TC 118 (HL). Hence, if the decision in Ricketts' case can be distinguighed by the House of Lords itself in England, there is no reason why it should continue to dominate the thinking on this particular subject in India. In any event, once we come to the conclusion that the living allowance was by way of reimbursement to the assessee, the further question does not arise.

12 In view of our conclusions set out above, it is clear that the conclusions reached by the Tribunal in both cases were correct but the reasoning which has appealed to us is different from the reasoning which appealed to the Tribunal. We, therefore, answer question No. 1 in the affirmative, that is, in favour of the assessee and against the revenue. Question No. 2 is answered in the affirmative, that is, in favour of the assessee and against the revenue. The Commissioner will pay the costs of this reference to the assessee.