[2000] 109 Taxman 1 (SC)

Supreme Court of India

Karamchari Union

v.

Union of India

D.P. WADHWA AND M.B. SHAH, JJ.

CIVIL APPEAL NO. 1843 OF 1989

CIVIL APPEAL NOS. 1784-86 OF 1988,

6054 OF 1994, C.A. NOS. 1853-1856 OF 2000,

SLP (C) NOS. 15477-80 OF 1988

AND C.A. NO. 6058 OF 1994

FEBRUARY 29, 2000

Section 17  of the Income-tax Act, 1961 - Salary - Profits in lieu of salary -  Whether receipts on account of CCA, HRA and DA are in nature of income forming part and parcel of salary entailing tax liability - Held, yes

Facts

The question that arose for consideration was whether the re­ceipts on account of CCA, HRA and DA are in the nature of income entailing tax liability.

Held

In view of the amendment of clause (24) of section 2, it was conceded that the amount received as CCA or HRA would be covered by the inclusive definition of the word ‘income’. Thus, the only question that would survive is - whether it is taxable under the head ‘Salary’.

The Act is a self-contained Code and the taxability of the receipt of any amount or allowance is to be determined on the basis of meaning given to the words or phrases in the Act. Section 2(24) gives wide inclusive definition to the word ‘income’. Similarly, for levying tax on salary in­come, exhaustive definition is given under section 17, which includes perquisites and profits in lieu of salary. Only exclu­sion provided under clause (3) of section 17 is “any payment referable to in clause (10), clause (10A), clause (10B), clause (11), clause (12), clause (13) or clause (13A) of section 10”. In view of this spe­cific inclusion and exclusion in the meaning of the words ‘income’ and ‘salary’, it is rightly submitted that payment received by the assessee has no connection with the profits of the employer. The word ‘profits’ is used only to convey any ‘advantage’ or ‘gain’ by receipt of any payment by the employee.

Applying the general meaning of the word ‘profit’, as given in Webster’s Comprehensive Dictionary and considering the dictionary meaning given to it under section 17(1)(iv) and 17(3)(ii), it can be said that ‘advantage’ in terms of payment of money received by the employee from the employer in relation to or in addition to any salary or wages would be covered by the inclu­sive definition of the word ‘salary’. Because of the inclusive meaning given to the phrase ‘profits in lieu of salary’ it would include ‘any payment’ due to or received by an assessee from an employer, even though it has no connection with the profits of the employer. It is true that the Legislature might have avoided giving inclusive meaning to the word ‘salary’ by stating that any payment received by the employee from an employer would be considered to be salary except the payments which are excluded by section 17(3)(ii), i.e., clauses (10), (10A), (10B), (11), (12), (13) or (13A) of section 10. However, it is for the Legislature to decide the same. This would not mean that by giving exhaustive and inclusive meaning, the word ‘profits’ can be given a meaning only when it pertains to sharing of profits by the employer. For the assessee, the receipt of such amount would be a profit, gain or advantage in addition to salary, even though it is not named as salary. Therefore, the word ‘profits’ in the context is re­quired to be understood as gain or advantage to the assessee. Hence, it is not possible to accept the contention of the employ­ees that as the CCA amount is paid to meet the additional expend­iture as contemplated by the statutory Service Rules, it cannot be said to be profit, gain or additional salary. Under the Act, such receipt of the amount as conceded is covered by the defini­tion of the word ‘income’ and as provided it would be in addition to salary. Hence, it would be part and parcel of income by way of salary, which would be taxable one. May be, that it is true to the extent that Government or statutory corporations do pay something less than what is required to be reimbursed and the receipt of CCA cannot be termed as ‘profit’ in common parlance. However, for ‘income’, ‘salary’ and its taxability under the Act, the dictionary meaning given by the Legislature is to be taken into consideration as for that purpose, it is a complete code. Income-tax is attracted at the point when the income is earned. Taxation of income is not dependent upon its destination or the manner of its utilisation. Therefore, there is no question of referring to the Fundamental Rules framed by the Central Govern­ment or by the statutory authorities for payment of CCA, HRA or other such allowance for reimbursing the expenditure incurred by the employees. Further, equity or hardship would hardly be rele­vant ground for interpretation of tax law. It is for the Govern­ment or the statutory bodies to do the needful. However, equita­ble it may be that CCA cannot be held to be ‘profit’ in the hands of the assessee or it is not share out of profit, yet it cannot be helped in view of inclusive and exclusive meaning given under the Act.

In the result, it has to be held that DA, CCA and HRA would be taxable income.

Case review

    1.  Judgment of the Calcutta High Court in Syndicate Bank Officers’ Association v. Union of India [1988] 41 Taxman 96 (Cal.) reversed.

    2.  Judgment of the Calcutta High Court in CIT v. R.R. Bajoria [1988] 169 ITR 162/[1987] 35 Taxman 83 reversed.

    3.  Judgment of the Allahabad High Court in Karamchari Union v. Union of India affirmed.

Cases referred to

CIT v. D.R. Phatak [1975] 99 ITR 14 (Bom.), Bishambar Dayal v. CIT [1976] 103 ITR 813 (MP), CIT v. S.G. Pgnatale [1980] 124 ITR 391/4 Taxman 79 (Guj.), Syndicate Bank Officer’s Association v. Union of India [1988] 41 Taxman 96 (Cal.), CIT v. R.R. Bajoria [1988] 169 ITR 162/[1987] 35 Taxman 83 (Cal.), Pondicherry Rail­way Co. Ltd. v. CIT AIR 1931 PC 165, Gresham Life Assurance Society v. Styles [1892] AC 309, Regional Director, Employees’ State Insurance Corpn. v. High Land Coffee Works of P.F.X Saldana & Sons AIR 1992 SC 129 and Tuticorin Alkali Chemicals & Fertiliz­ers Ltd. v. CIT [1997] 6 SCC 117.

Judgment

Shah, J. - Leave granted in special leave petitions.

Civil Appeal No. 1843 of 1989 & C.A. No. 1853-1856 of 2000 @ SLP(C) No. 15477-80 of 1988

2. The Appellants, in C.A. No. 1843 of 1989, are all employees of the 509 Army Base Workshop, Agra, working in different offices and governed by the Rules framed by the Government. Apart from their salary and other perquisites they are getting compensatory allowance in the form of City Compensatory Allowance (‘CCA’), Dearness Allowance (‘DA’) and House Rent Allowance (‘HRA’). Appellants filed Civil Misc. Petition No. 470 of 1998 in the Allahabad High Court challenging the inclusion of DA, HRA and CCA paid to them in their income for the purpose of income-tax. Various other petitions raising similar contentions were filed by the Central Government employees, employees of Central Government undertakings, bank employees, State Government employees and general insurance employees. One such petition is before us being Civil Appeal No. 1853-1856 of 2000 @ S.L.P.(C) Nos. 15477-80 of 1988 disputing the taxability of various allowances, namely, DA, CCA, HRA, leave encashment, linked with leave, travel concession, running allowance, night allowance, etc. All the writ petitions were disposed of by common judgment and order dated 12-9-1988 by the High Court of Allahabad.

3. The question for consideration before the High Court was - Whether the receipts on account of CCA, HRA and DA are in the nature of income entailing tax liability? Before deciding the above question, the Court considered the legislative intent behind the passing of relevant section 17 which defines ‘salary’, and the addition of Explanation to clause (14) of section 10 of the Income-tax Act, 1961 (‘the Act’). The High Court dismissed the writ petitions holding, inter alia, that :

   (1)  the Act is a self-contained code to judge the taxabili­ty of a particular receipt and the taxability of DA, HRA and CCA will have to be seen only within the scheme of the Act. That HRA, CCA and DA are not the reimbursements of necessary disbursements. It is only for determination of CCA that the Central Government will take care that grant of compensatory allowance does not become a source of profit to the employees, but it does not mean that the allowances in the nature of HRA, CCA and DA do not amount to an advantage. The allowances are surely in addition to pay.

   (2)  The tuition fee’s reimbursement is fully covered by section 17(3)(ii), and the payment is not covered by any of the clauses of section 10.

   (3)  The leave encashment linked with leave travel conces­sion is taxable, being the ‘profits in lieu of salary’ within the meaning of section 17(3)(ii).

   (4)  The running allowance and night allowance come to the employees as an advantage by virtue of their employment. They are, therefore, ‘perquisite’ within the meaning of section 17(1)(iv) read with section 17(2) and, hence, are taxable under the head ‘Salaries’ under section 14, read with section 17 of the Act.

4. The Court held that any type of reimbursement is fully covered by section 17(3)(ii) inasmuch as the payment is not covered by any of the clauses of section 10 as mentioned in parenthetical clause of section 17(3)(ii). The Court, therefore, held that CCA, HRA and DA would be taxable income.

Civil Appeal Nos. 1784-86 of 1988

5. These appeals are filed by the Commissioner, West Bengal-II, Calcutta against the judgment and order dated 24-7-1987 of the High Court of Calcutta passed in Income-tax Reference No. 97 of 1977 holding that the CCA paid to the assessee did not have the character of income within the meaning and scheme of the Act. Following three questions were referred to the High Court by the Tribunal for decision :

“1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that CCA cannot come within the charging sections and/or within the meaning of income of a Government servant in accordance with section 2(24) of the Income-tax Act, 1961, read with the Fundamental Rules and cannot come within the ambit of meaning of total income as contained in section 2(45) of the Act ?

2. Whether, on the facts and in the circumstances of the case, when the assessee’s case cannot come within the provisions of sections 15 and 17 of the Act, the Tribunal was right in not considering the applicability of the provisions of section 16(v) of the Act ?

3. Whether, on the facts and in the circumstances of the case, upto the assessment year 1974-75 because of the deletion of section 16(v) of the Act with effect from 1st April, 1975 C.C.A. could be allowed as an admissible deduction under section 16(v) of the Act.”

It was contended before the High Court that the amount received by way of CCA cannot be included in the total income of the assessee inasmuch as the same was receivable by him by virtue of the Fundamental Rules which govern the terms and conditions of service of a Government employee. The Fundamental Rules indicate that CCA is given not as a source of profit or gain. In support of this submission the counsel relied upon the decisions in CIT v. D.R. Phatak [1975] 99 ITR 14 (Bom.); Bishambar Dayal v. CIT [1976] 103 ITR 813 (MP) and CIT v. S.G. Pgnatale [1980] 124 ITR 391/4 Taxman 79 (Guj.). It was also contended that the assessee is entitled to claim exemption in respect of CCA under section 10(14) and in any case, CCA cannot come either within the scope of salary or within the definition of special allowance or per­quisite. Hence, it cannot be termed as ‘income’ and cannot be included within the total income and cannot be assessed to tax as per sections 4 and 5 of the Act.

6. After a careful consideration of the facts, the High Court held that CCA paid to the assessee was neither as ‘emolument’ nor a ‘fee’ nor a ‘profit’ nor ‘perquisite’ but was only a payment for part reimbursement of the extra expenses incurred by the assessee as of necessity by reason of his posting. The said allowance does not have the character of income within the mean­ing and scheme of Act. This is not an allowance granted to the assessee specifically to meet his personal expenses, but it is an allowance meant for part reimbursement of the extra expenditure necessarily to be incurred by him as a result of his being posted in a city. Amount paid to the assessee on account of this allow­ance does not come within the definition of ‘income’ or total income nor within the purview of the computation or charging sections under the Act. The High Court answered question Nos. 1 and 2 in the affirmative and in favour of the assessee. In view of answers to the said questions, the High Court did not consider it necessary to answer question No. 3.

C.A. Nos. 6054 and 6058 of 1994

7. Respondents-employees of the LIC and GIC filed petitions under article 226 of the Constitution before the High Court of Calcutta in Matter No. nil of 1988 praying inter alia for issue of a writ or order directing the appellants herein not to treat CCA paid and payable to the employees of the appellants-companies as their taxable income and not to deduct income-tax at source on CCA paid to them. The High Court by order dated 21-3-1988 following an earlier decision given by it on 17-3-1988 in Syndicate Bank Officer’s Association v. Union of India [1988] 41 Taxman 96 (Cal.) allowed the writ petitions and passed an order restraining the appellants-companies and other insurance companies from deducting any tax on CCA or any allowance in the nature of CCA in computing taxable income of the employees for the year 1987-88 onwards. Hence, these appeals by special leave are filed by the corporations.

Whether CCA, HRA or other such payment to the employee is covered by the word ‘income’ as defined under the Act ?

8. In all these appeals it is conceded that in view of the amend­ment of clause (24) of section 2 of the Act, it would be diffi­cult to say that the amount received as CCA or HRA would not be covered by the inclusive definition of the word ‘income’. Rele­vant clauses of section 2(24) read as under :

“(24) ‘income’ includes—

   (i)  to         (iii)**                                                **                                       **

(iiia)  any special allowance or benefit, other than perquisite included under sub-clause (iii), specifically granted to the assessee to meet expenses wholly, necessarily and exclu­sively for the performance of the duties of an office or employ­ment of profit;

(iiib)  any allowance granted to the assessee either to meet his personal expenses at the place where the duties of his office or employment of profit are ordinarily performed by him or at a place where he ordinarily resides or to compensate him for the increased cost of living.”

The said clauses are added by the Direct Tax Laws (Amendment) Act, 1989, with effect from 1-4-1962. In CIT v. R.R. Bajoria [1988] 169 ITR 162/[1987] 35 Taxman 83, the Calcutta High Court considered this argument in detail and arrived at the conclusion that considering rule 44  of the Fundamental Rules applicable to the Central Government employees, CCA paid to them is neither an emolument nor a fee nor a profit nor even a perquisite but was only a payment for part of the reimbursement of the extra ex­penses incurred by the assessee as of necessity by reason of his posting. The Court observed “the said allowance does not have the character of income within the meaning and scheme of the Income-tax Act, 1961. This is not an allowance granted to the assessee specifically to meet his personal expenses but it is an allowance meant for part reimbursement of the assessee for the extra expenditure necessarily to be incurred by him as a result of his being posted in a city”.

In view of the afore-quoted amendment of the word ‘income’, any special allowance or benefit especially granted to the assessee to meet expenses wholly necessarily and exclusively for the purpose of the duties of an office would be included in the word ‘in­come’. It has also been pointed out that under sub-clause (iiib) of clause (24) any allowance granted to the assessee either to meet his personal expenses at the place where the duties of his office are ordinarily performed by him or a place where he ordi­narily resides or to compensate him for the increased cost of living is also to be included in income. Therefore, it is conced­ed that the payment of HRA or CCA, would be covered by the word ‘income’. Hence, the basis of the decision rendered by the Cal­cutta High Court would not survive.

Whether such amount is taxable ?

9. Once it is conceded that receipt of such amount is income of the assessee, the only question would be whether it is taxable under the head ‘Salaries’. For that purpose, we have to refer to section 17 to find out as to what meaning can be given to the phrase ‘profits in lieu of salary’. For appreciating the conten­tions raised by the learned counsel for the parties, we would straightway refer to the relevant part of section 17, which is as under :

“‘Salary’, ‘perquisite’ and ‘profits in lieu of salary’ defined.—For the purposes of sections 15 and 16 and of this section,—

  (1)  ‘salary’ includes—

    (i)  wages;

   (ii)  any annuity or pension;

  (iii)  any gratuity;

  (iv)  any fees, commissions, perquisites or profits in lieu of or in addition to any salary or wages;

   (v)  any advance of salary;

(va)  any payment received by an employee in respect of any period of leave not availed of by him;

  (vi)  the annual accretion of the balance at the credit of an employee participating in a recognised provident fund, to the extent to which it is chargeable to tax under rule 6 of Part A of the Fourth Schedule; and

(vii)  the aggregate of all sums that are comprised in the transferred balance as referred to in sub-rule (2) of rule 11 of Part A of the Fourth Schedule of an employee participating in a recognised provident fund, to the extent to which it is charge­able to tax under sub-rule (4) thereof;

  (2)  ‘perquisites’ include

         **                                                                                **                                                     **

  (3)  ‘profits in lieu of salary’ includes—

    (i)  the amount of any compensation due to or received by an assessee from his employer or former employer at or in connection with the termination of his employment or the modification of the terms and conditions relating thereto;

   (ii)  any payment (other than any payment referred to in clause (10), clause (10A), clause (10B), clause (11), clause (12), clause (13) or clause (13A) of section 10, due to or re­ceived by an assessee from an employer or a former employer or from a provident or other fund, to the extent to which it does not consist of contributions by the assessee or interest on such contributions or any sum received under a Keyman insurance policy including the sum allocated by way of bonus on such policy.

Explanation. - For the purposes of this sub-clause, the expres­sion ‘Keyman insurance policy’ shall have the meaning assigned to it in clause (10D) of section 10.” [Emphasis supplied]

Reading of clause (1) of section 17 makes it abundantly clear that the word ‘salary’ is given exhaustive meaning as stated in clauses (i) to (vii). The  inclusive definition of the word ‘salary’ given in section 17 provides that apart from salary received by the employee, it includes wages, any annuity or pension, any gratuity, any fees, commissions, perquisites or profits in lieu of or in addition to any salary or wages any advance of salary, any payment received by an employee in respect of any period of leave not availed by him and other payments mentioned in sub-clauses (va), (vi) and (vii). These sub-clauses (i) to (vii) of clause (1) indicate that the Legislature intended to include in salary the specified or named amount paid to the employee in respect of services rendered by him. Sub-clause (iv) of clause (1) provides inclusion of four types of payments in the word ‘salary’ - (i) fees, (ii) commissions, (iii) perquisites and (iv) profits in lieu of or in addition to salary. In common parlance, fees, commissions, perquisites or payments of profits in lieu of salary may not be considered to be salary. But by this inclusive definition, it has been provided so. After giving this exhaustive definition of the word ‘salary’, further inclusive definition is given to the word ‘perquisite’, with which we are not concerned in these appeals. Thereafter, clause (3) provides for inclusive definition of the phrase ‘profits in lieu of sal­ary’. Sub-clause (i) of clause (3), inter alia, includes the amount of any compensation received by an assessee from his employer or former employer at or in connection with the termina­tion of his employment or the modification of the terms and conditions relating thereto. Inclusion of this amount of compen­sation has direct connection with the employment or terms and conditions relating thereto. In the context of the aforesaid clauses (1), (2) and (3), appropriate meaning to the words and phraseography used in sub-clause (ii) is to be given.

10. It has been contended by the learned counsel for the revenue that sub-clause (ii) of clause (3), inter alia, provides that ‘profits in lieu of salary’ includes ‘any payment received by an assessee’ from an employer. He, therefore, submitted that CCA, HRA and DA would be covered by sub-clause (ii) of clause (3). The learned counsel submitted that ‘salary’ includes profits in lieu of salary and ‘profits in lieu of salary’ includes ‘any payment’ received by the assessee from the employer except which are excluded.

11. As against this, the learned counsel for the assessee submit­ted that the contention raised by the revenue is without any substance. If ‘any payment’ de hors the profits was to be includ­ed, then the Legislature would not have given such exhaustive definition of the word ‘salary’ and thereafter would not have given further meanings to the word ‘perquisite’ and the phrase ‘profits in lieu of salary’. The Legislature, without anything more, could have easily provided that ‘salary’ would include any payment due to or received by an assessee from an employer except the payments which are exempted under the Act. The contention is, if the Legislature wanted to include any payment received by the employee in its widest sense, there was no necessity to give such an exhaustive definition of the word “salary” in section 17 and to connect it with ‘profits in lieu of salary’. If such a simple definition that ‘salary’ includes ‘any payment’ received by the employee from the employer was intended to be given, the Legisla­ture would not have given inclusive meaning to the expression ‘profits in lieu of salary’ and the phrase ‘any payment received by the employee’ would be sufficient for all the purposes. Fur­ther, the Legislature could have easily avoided giving not only such exhaustive definition but number of amendments and additions to the said section. The learned counsel for the appellant fur­ther made it clear that for DA, he is not pressing the contention that it is not included in the word ‘salary’. He submitted that CCA and HRA cannot be included in the word ‘salary’ as defined under section 17.

12. Hence, the question would be, what does the expression ‘pro­fits in lieu of salary’ signify? Whether ‘profits in lieu of salary’ would include any payment received from the employer relatable to or out of profits or it has nothing to do with the ‘profits’ as understood in common parlance? Or whether ‘profits’ is to be understood as any gain or advantage in lieu of salary or in addition to salary for which any payment is received by the assessee.

13. It is submitted that ‘salary’ includes any payment out of ‘profit’ in lieu of salary. Instead of salary any amount is paid in terms of profits, then the same is included in ‘salary’ as it is ‘profits in lieu of salary’. The basis for payment of such amount is ‘profits’. So the expression ‘any amount’ received by the employee is relatable to the profits of employer and that payment out of profit is considered to be the salary by inclusive definition. Reference is made to Earl Jowitt’s The Dictionary of English Law which mentions profit as - “an arrangement whereby an employer agrees that his employees shall receive a share, fixed before hand, in the profits of the undertaking”. Hence, it is submitted that payment received by the employee should be relata­ble to profits and whatever amount is paid to an employee is paid in lieu of salary out of profits. Instead of paying salary, if a percentage out of the profits is paid by the employer, it would be included in the word ‘salary’ and it would be considered to be ‘profits in lieu of salary’. It may be in addition to the salary or only profits in lieu of salary. It is contended that this would be the natural meaning of the phrase ‘profits in lieu of salary’ and in the present case as there is no question of payment of CCA or HRA out of ‘profits’ earned by the Government or statutory corporations, receipt of such amount would not be covered by the phrase ‘profit in lieu of salary’.

14. For this purpose, it is submitted that the word ‘profits’ is not defined, but section 28 of the Act provides that the income mentioned therein shall be chargeable to income-tax under the head of ‘Profits and gains of business or profession’ and, hence, the word ‘profits’ is to be understood under the Act in its natu­ral and proper sense and as understood since years in commercial terms. Reliance is placed on the following passage referred to by the Privy Council in Pondicherry Railway Co. Ltd. v. CIT AIR 1931 PC 165 dealing with the word ‘profits’ under the Act. The Privy Council relied upon the principle laid down by Lord Chancellor Halsburry in Gresham Life Assurance Society v. Styles [1892] AC 309 by stating that it is of general application unaffected by the specialities of the English tax system, existing as under :

‘The thing to be taxed’, said his Lordship, is the amount of profits or gains. The word ‘profits’ I think is to be understood in its natural and proper sense - in a sense which no commercial man would misunderstand. But when once an individual or a company has in that proper sense ascertained what are the profits of his business or his trade, the destination of those profits or the charge which has been made on those profits by previous agreement or otherwise is perfectly immaterial. The tax is payable upon the profits realized and the meaning to my mind is rendered plain by the words ‘payable out of profits.’ [Emphasis supplied]

Further, the meaning of the word ‘profit’ as given in Black’s Law Dictionary is as under :

“Profit. Most commonly, the gross proceeds of a business transac­tion less the costs of the transaction; i.e. net proceeds. Excess of revenues over expenses for a transaction; sometimes used syn­onymously with net income for the period. Gain realized from business or investment over and above expenditures.

Profit means accession of good, valuable results, useful conse­quences, avail, gain, as an office of profit, excess of returns over expenditures or excess of income over expenditure.—U.S. v. Mintzes, D.C. Md., 304 F.Supp. 1305, 1312.

The benefit, advantage, or pecuniary gain accruing to the owner or occupant of land from its actual use; as in the familiar phrase ‘rents, issues and profits,’ or in the expression “mesne profits.’

Profit-sharing plan. A plan established and maintained by an employer to provide for the participation in the profits of the company by the employees or their beneficiaries. In order to qualify for tax benefits, the plan must provide a definite prede­termined formula for allocating the contributions made to the plan among the participants and for distributing the funds accu­mulated under the plan after a fixed number of years, the attain­ment of a stated age, or upon the prior occurrence of some event such as layoff, illness, disability, retirement, death, or sever­ance of employment. Such plans are regulated by the federal Employee Retirement Income Security Act (ERISA). See also Employ­ee Stock Ownership Plan (ESOP).

Qualified profit sharing plan. An employer-sponsored plan that meets the requirements of I.R.C. 401. If these requirements are met, none of the employer’s contribution to the plan will be taxed to the employee until distributed to him or her (402). The employer will be allowed a deduction in the year the contribu­tions are made.” (404)

15. It is submitted that similar should be the interpretation of section 17(1)(iv), read with clause (3)(ii). This clause is for taxing salary payable out of the profits realized by the employer and the said meaning is rendered plain by the words ‘profits in lieu of salary’. Foundation of any such payment is the ‘profits’. It is, therefore, submitted that the result would be ‘salary’ includes ‘profits in lieu of salary’, which includes ‘any pay­ment’, but such payment should have connection with or referable to profits of the employer.

16. The learned counsel for the assessee further submitted that the Legislature in clauses (1), (2) and (3) of section 17 has used the word ‘includes’ to give wider meaning than natural meaning which is given to the said word or phrase and, therefore, the definition given by the Legislature is to be accepted as it is without any further enlargement. It is contended that the word ‘include’ is generally used in interpretation clauses in order to enlarge the meaning of words or phrases occurring in the body of the statute; and when it is so used, these words or phrases must be construed as comprehending, not only such things as they signify according to their natural import but also those things which the interpretation clause declares that they shall include. The learned counsel referred to The Regional Director, Employees’ State Insurance Corpn. v. High Land Coffee Works of P.F.X. Sal­danha & Sons AIR 1992 SC 129 wherein this Court considered the inclusive definition of the words ‘seasonal factory’ given under section 2(12) of the Employees’ State Insurance Act, 1948 and held that what is included in the meaning of ‘seasonal factory’ is a ‘factory’ which is engaged for the purpose mentioned there­in. That is to say, it is first a factory and then it would be considered to be a seasonal factory. Relying on the aforesaid observations, the learned counsel for the employees submitted that by the inclusive definition of the phrase ‘profits in lieu of salary’ what is included is ‘any payment’ which must be out of the profits, i.e., sharing of the profits by the employer. For this purpose, he further referred to the words ‘any fee, commis­sion, perquisites or profits’ used in clause 17(1)(iv) and pointed out that in the inclusive definition the Legislature wanted to include fee, commission or perquisites which normally cannot be included in the word ‘salary’ by specifically mention­ing the same. It is also submitted that similarly what is includ­ed in the word ‘salary’ is only ‘profits in lieu of salary’. Therefore, any payment received by the employee from the employer would have limited meaning and is referable to only payments received out of profits.

17. As against this, the learned counsel for the revenue submit­ted that salary includes profits in lieu of salary which in turn includes any payment received by an assessee from an employer. The word ‘profits’ is to be given its plain meaning to mean any benefit, advantage or pecuniary gain accruing to the assessee. Therefore, any payment received by an assessee from an employer would be profits in lieu of salary or in addition to salary. For the purpose of income-tax, even if the payment is made towards the additional expenses incurred by the employee for the purpose of service, yet it is taxable income, unless there is an exemp­tion as provided under different clauses of section 10.

18. In our view, even though there is much substance in the contentions raised by the learned counsel for the assessee yet it is to be stated that the Act is a self-contained Code and the taxability of the receipt of any amount or allowance is to be determined on the basis of meaning given to the words or phrases in the Act. Section 2(24) gives wide inclusive definition to the word ‘income’. Similarly, for levying tax on salary income, exhaustive definition is given under section 17, which includes perquisites and profits in lieu of salary. Only exclusion provid­ed under clause (3) is “any payment referable to clause (10), clause (10A), clause (10B), clause (11) clause (12), clause (13) or clause (13A) of section 10”. In view of this specific inclusion and exclusion in the meaning of the words ‘income’ and ‘salary’, it is rightly submitted that payment received by the assessee has no connection with the profits of the employer. The word ‘prof­its’ is used only to convey any ‘advantage’ or ‘gain’ by receipt of any payment by the employee.

Webster’s Comprehensive Dictionary gives meaning of the word ‘profit’, inter alia, to mean advantage or benefit. It states :

“Profit - Synonyms : advantage, avail, benefit, emolument, expediency, gain, good, improvement, proceeds, receipts, return, returns, service, utility, value...Advantage is that which gives one a vantage ground, either for coping with competitors or with difficulties, needs, or demands; as, to have the advantage of a good education; it is frequently used to what one has beyond another or secures at the expense of another; as, to have the advantage in argument, or to take advantage in a bargain.”

Applying the aforesaid general meaning of the word ‘profits’ and considering the dictionary meaning given  to it under section 17(1)(iv) and 17(3)(ii), it can be said that ‘advantage’ in terms of payment of money received by the employee from the employer in relation or in addition to any salary or wages would be covered by the inclusive definition of the word ‘salary’. Because of the inclusive meaning given to the phrase ‘profits in lieu of salary’ would include ‘any payment’ due to or received by an assessee from an employer, even though it has no connection with the profits of the employer. It is true that Legislature might have avoided giving inclusive meaning to the word ‘salary’ by stat­ing that any payment received by the employee from an employer would be considered to be salary except the payments which are excluded by section 17(3)(ii), i.e., clause (10), (10A), (10B), (11), (12), (13) or (13A), of section 10. However, it is for the Legislature to decide the same. This would not mean that by giving exhaustive and inclusive meaning, the word ‘profits’ can be given a meaning only when it pertains to sharing of profits by the employer. For the assessee, the receipt of such amount would be a profit, gain or advantage in addition to salary, even though it is not named as salary. Therefore, the word ‘profits’ in context is required to be understood as gain or advantage to the assessee. Hence, it is not possible to accept the contention of the learned counsel for the employees that as the CCA amount is paid to meet the additional expenditure as contemplated by the statutory Service Rules, it cannot be said to be profit, gain or additional salary. Under the Act, such receipt of the amount as conceded is covered by the definition of the word ‘income’ and as provided it would be in addition to salary. Hence, it would be part and parcel of income by way of salary, which would be taxa­ble one.

19. The learned counsel for the appellant further submitted that assuming for the purpose of profits in lieu of salary, employer is not required to give any share out of the profits, yet even in the hands of the employees, receipt of the amount must be ‘prof­its’. It is his contention that whatever CCA, Government or Statutory Corporations pay to the employees, cannot be termed as ‘profits’ by any standard because the amount is calculated in such a manner that it reimburses less than extra cost incurred by them at a station where they are posted. It is further submitted that by including these payments as taxable, it would cause hardship to the honest employees whose source of income is limit­ed and are required to meet extra expenses at the station where they are transferred and posted for which service rules provide for reimbursement of extra cost. He referred to the decision rendered by the Bombay High Court in D.R. Phatak’s case (supra), wherein the Court considered whether CCA was taxable as perqui­site as contended by the revenue. The Court negatived it by hold­ing that “payment of taxable allowance under the order of the Government is neither an emolument nor fee nor profit, but it is a reimbursement of personal expenses required by the Government servant to be incurred on account of expenses of living at a particular place.”

20. May be that this is true to the extent that Government or statutory corporations do pay something less than what is re­quired to be reimbursed and the receipt of CCA cannot be termed as ‘profit’ in common parlance. However, for ‘income’, ‘salary’ and its taxability under the Act, the dictionary meaning given by the Legislature is to be taken into consideration as for that purpose it is a complete code. Income-tax is attracted at the point when the income is earned. Taxation of income is not de­pendent upon its destination or the manner of its utilisation - Tuticorin Alkali Chemicals & Fertilizers Ltd. v. CIT [1997] 6 SCC 117. Therefore, there is no question of referring to the Funda­mental Rules framed by the Central Government or by the statutory authorities for payment of CCA, HRA or other such allowance for reimbursing the expenditure incurred by the employees. Further, equity or hardship would hardly be relevant ground for interpre­tation of tax law. It is for the Government or the statutory bodies to do the needful. However, equitable it may be that CCA cannot be held to be ‘profit’ in the hands of the assessee or it is not share out of profit, yet it cannot be helped in view of inclusive and exclusive meaning given under the Act.

21. In the result, we hold that DA, CCA and HRA would be taxable income. since, the counsel for the employees did not make any submission with regard to other allowances like, night allowance, tuition fee, leave encashment linked with leave travel conces­sion, running allowance, etc., we do not pass any order with regard to those allowances.

22. Accordingly, Civil Appeal Nos. 1784-86 of 1988, 6054 and 6058 of 1994 filed by the revenue and General Insurance Corporation and others, respectively, are allowed and Civil Appeal No. 1843 of 1989 and CA No. 1853-1856 of 2000 @ SLP(C) No. 15477-80 of 1988 filed by Karamchari Union, Agra and All India Defence Accounts Association, Poona and others, respectively, are dismissed. There shall be no order as to costs.