The Judgment of the Court was delivered by

Ramaswami, J.:— The assessees in these two references are employees of the National & Grindlays Bank, Madras. T.C No. 277/67 relates to the assessment year 1962-63 and T.C No. 280/67 relates to the assessment year 1961-62. In the first case the assessee returned a sum of Rs. 69,517 under the head “salary” which included a sum of Rs. 4,636, being the value of rent-free quarters. The assessee's employer had paid a sum of Rs. 15,119 by way of tax on the salary. The assessee had valued the rent-free accommodation at 121/2 per cent, on the basic pay after excluding the income-tax paid by the employer and the fuel and lighting charges borne by the employer. In the other case (T.C No. 280/67) also the assessee, in calculating the value of the rent-free accommodation, has excluded the income-tax paid by the employer and the fuel and lighting charges borne by the employer. In both these cases the Income-tax Officer considered that the tax borne by the employer of the assessees was a “perquisite”, that it represented a fixed regular payment and that, therefore, it should have been included in the sum in arriving at the value of the rent-free accommodation. Both the assessees filed appeals to the Appellate Assistant Commissioner. It was contended before him that the tax borne by the employer was neither fixed nor regular in nature and that it was in the nature of an ad hoc benefit given to the employees and, therefore, should have been excluded in computing the value of the perquisites in the form of rent free accommodation. Objection was also taken against the inclusion of the cost of fuel and electricity in the amount of salary for the same purpose. The Appellate Assistant Commissioner thought that all these items formed part of the profits derived from the employment and was, therefore, salary. In that view he confirmed the orders of the Income-tax Officer. In the appeal before the Tribunal, the assessees disputed only the inclusion of the income-tax paid by the employer in the salary. The Tribunal held that it would not be proper to include the tax borne by the employer as part of the assessees' salary for the purpose of calculating the value of rent-free accommodation, that the tax borne by the employer was a perquisite and a perquisite could not come under the term “salary” as defined in Explanation 2, rule 3, of the Income-tax Rules, 1962.

2. Identical question has been referred in these two cases and it reads as follows:

“Whether, on the facts and in the circumstances of the case, the amount of income-tax borne by the assessee's employers on behalf of the assessee could be treated as salary within the meaning of clause (2) of the Explanation to rule 3 of the Income-tax Rules, 1962, for the purposes of calculating the value of the rent-free accommodation?”

3. It may be mentioned that for the assessment year 1961-62, the relevant rule is rule 24A of the Indian Income-tax Rules, 1922, and not rule 3 of the Income-tax Rules, 1962. Both in the order of the Tribunal and in the reference, T.C No. 280/67, rule 3 of the Income-tax Rules, 1962, has been referred to instead of rule 24A. But that does not make any difference because so far as the present question is concerned, both rule 24A of the Indian Income-tax Rules, 1922, and rule 3 of the Income-tax Rules, 1962, are identically worded. Since the interpretation and ascertainment of the exact scope of rule 3 is involved, it becomes necessary to extract the relevant portion which reads as follows:

“3. Valuation of perquisites.—For the purpose of computing the income chargeable under the head ‘salaries’ the value of the perquisites (not provided for by way of monetary payment to the assessee) mentioned below shall be determined in accordance with the following clauses, namely:—

(a) The value of rent-free residential accommodation shall ordinarily be estimated at a sum equal to,—

Where the accommodation is not furnished—10 per cent.

Where the accommodation is furnished—12.5 per cent, of the salary due to the assessee……

Explanation.—For the purposes of clauses (a) and (b)—………

(2) ‘salary’ includes the pay, allowances, bonus or commission payable monthly or otherwise, but does not include the following, namely:—

(i) dearness allowance or dearness pay unless it enters into the computation of superannuation or retirement benefits of the employee concerned;

(ii) employer's contributions to the provident fund account of the assessee;

(iii) allowances which are exempted from payment of tax.”

4. Under section 15 of the Income-tax Act, 1961, the income chargeable to tax under the head “salaries” is stated. Section 17 defines “salary” as including wages, any annuity or pension, any gratuity, any fees, commission, perquisites or profits in lieu of or in addition to any salary or wages, any advance of salary, etc. “Perquisite” is defined in section 17(2) as including, among others, the value of rent-free accommodation provided to the assessee by his employer and any sum paid by the employer in respect of any obligation which, but for such payment, would have been payable by the assessee.

5. It was the contention of the learned counsel for the revenue that the definition of “salary” in rule 3 is an inclusive definition and that, therefore, the ordinary and natural meaning of the word “salary” is not restricted but enlarged. Per contra the learned counsel for the assessees contended that the word “includes” in the definition of “salary” in the rule should be understood as “means and includes” and that the definition is exhaustive and that, therefore, there is no scope for taking in anything which will not come under the expression “pay and allowances”.

6. Normally, the word “include” is employed by Parliament and legislatures in defining words for the purpose of enlarging the meaning of the ordinary words or clearing any doubt that might arise in understanding the same. Therefore, the courts generally interpret it as enlarging the meaning of the word and do not restrict the meaning to the particular words that follow in the inclusive part of the definition unless the context otherwise merits. Thus, in Dilworth v. Commissioner for Land & Income-tax [1899] AC 99 PC., Lord Watson observed:

“The word ‘include’ is very generally used in interpretation clauses in order to enlarge the meaning of the 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. But the word ‘include’ is susceptible of another construction, which may become imperative, if the context of the Act is sufficient to show that it was not merely employed for the purpose of adding to the natural significance of the words or expressions defined. It may be equivalent to ‘mean and include’, and in that case it may afford an exhaustive explanation of the meaning which, for the purposes of the Act, must invariably be attached to these words or expressions.”

7. The Supreme Court also in Kantilal Manilal v. Commissioner of Income-tax has considered this question with reference to the definition of “dividend” in section 2(6A) of the Indian Income-tax Act, 1922. That definition also included various items and excluded certain others. With reference to the contention that the word “dividend” should not be given its ordinary meaning, the Supreme Court observed:

“‘Dividend’ is defined in section 2(6A) as inclusive of various items and exclusive of certain others which it is not necessary to set out for the purpose of this appeal. ‘Dividend’ in its ordinary meaning is a distributive share of the profits or income of a company given to its shareholders. When the legislature by section 2(6A) sought to define the expression ‘dividend’ it added to the normal meaning of the expression several other categories of receipts which may not otherwise be included therein. By the definition in section 2(6A), ‘dividend’ means dividend as normally understood and includes in its connotation several other receipts set out in the definition.”

8. This court considered a similar question in Mammad Keyi v. Assistant Controller of Estate Duty [1961] 43 ITR ED 1, 13 Mad. with reference to the interpretation of section 7(1) of the Estate Duty Act, 1953. It was held therein:

“There are several enactments where the definition clause contains the expression ‘to mean and include’, in which event it may be regarded that an exhaustive explanation of the things intended to be caught in the net of the section is specified. But, where the expression is merely ‘including’ it does not seem to us that the expression is used to have a restrictive operation and to confine the scope of the section only to those things specified in the words following. Considering also that this is a taxation measure, which is intended to be quite general in its operation, a more reasonable construction to place upon this expression would to our minds be that it enlarges the meaning of the words or phrases occurring in the section.”

9. The question for consideration in this case is whether there is any thing in the context of the definition of “salary” in rule 3 suggesting any restricted meaning for the word. The word “salary” has been defined in section 17 for the purpose of sections 15 and 16 of the Act. Rule 3 deals with the valuation of perquisites for the purpose of computing the income chargeable under the head “salary” under section 15. Normally, there fore, the definition of the word “salary” in section 17 would have been attracted in interpreting rule 3. The purpose of defining the word “salary” in rule 3 separately appears to be, in our opinion, only to exclude certain items which would otherwise be comprehended within it rather than to restrict its meaning itself. In fact, we doubt very much whether the rule making authority could have given in the rules any meaning different from that given in the Act itself. It seems to us also that “pay, allowances, bonus or commission payable monthly or otherwise” are specifically referred to as included because the items excluded normally come within these expressions and since only certain items which would come within it and not all were to be excluded, the non-excluded items within those expressions are specifically included in the definition. Thus, “dear-ness pay” would come within the meaning of “pay” but that is one of the items to be excluded under the definition. Similarly, “allowances” would include “dearness allowance” which was excluded. “Bonus or commission” may sometimes partake the nature of the items exempted as well. We are, therefore, unable to accept the contention of the assessee that the definition of the word “salary” in rule 3 is exhaustive.

10. The word “salary” in its natural import would comprehend within it taxes paid on behalf of the employee has also been held in some of the decided cases. In North British Railway Company v. Scott, the House of Lords had to consider the question whether the taxes paid by a company under a contract with its employees to pay the salary free of income-tax would come within the words “fees, emoluments or salary” of each of such officer or person. In the words of Lord Atkinson (at page 339):

“………in truth the sum paid by the company is not a sum outside of the officer's salary or independent of it, but is a part of his salary, and if the employer did not set off this sum against the employee's salary, the latter would simply pocket his full salary, his debt to the revenue having been paid by another, not by himself, that is all.”

11. The same view was also expressed by the other learned law Lords in that case. In Hartland v. Diggines, a similar question arose for consideration. In that case there was no specific agreement between the employer and the employee to pay the salary free of income-tax, but in accordance with the custom of the employer-company the income-tax payable by the employee was paid by the company. It was held that that makes no difference and the principle in North British Railway Company v. Scott, would be applicable. The following opinion of the Court of Appeal which was approved by the House of Lords may be quoted here:

“So we come back to this position, that Mr. Hartland is responsible to the revenue to pay the tax in respect of his emoluments and salary and perquisites which he receives; and in effect what he has received he has received as stated in the Ashton case, and in the other cases—he has received a certain amount of money into his hands, and he has received an indemnity against any liability to pay any part of it to the revenue. In effect, therefore, what he has received is the money paid into his hands, plus that immunity; and, as Lord Atkinson puts it, one has to look at the substance of the matter; it cannot be said that by any arrangement, or even by any want of arrangement, the position of the revenue can be prejudicially affected. The substance of the matter is that the salary paid to Mr. Hartland is not all he has received. He has received money's worth to the extent of the sum which has been paid in respect of that salary to the revenue.”

12. Thus the income-tax paid is part of the salary of the assessee.

13. Rule 3 also includes for the purpose of that rule “pay and allowances”. Dictionaries give the meaning of the word “salary” as periodical payments for professional services. Pay is also stated to mean giving money to a person for services. The word “pay” is thus synonymous with the word “salary”. Taxes paid by the employers would also be included in the word “pay” in rule 3. We are, therefore, of opinion that the taxes paid by the employer would also be included in the word “pay” in rule 3.

14. The learned counsel for the revenue also contended that even if it is to be treated as an allowance that would come within that rule. The word “allowance” is not defined either in the Act or the Rules. According to Chambers' (20th Century) Dictionary,“allowance” means “money allotted or granted or allowed to meet expenses or in consideration of special conditions; a fixed sum or quantity allowed”. Thus, tax paid by the employer may amount to a cash allowance also and come within rule 3. Thus, in any view of the matter, the income-tax paid by the employer has to be treated as salary for the purpose of valuing the rent-free residential accommodation under rule 3 of the Income-tax Rules, 1962, and rule 24A of the Indian Income-tax Rules, 1922. Our view also finds support from the two decisions of the Kerala High Court in Commissioner of Income-tax v. C.W Steel (No. 1) and Commissioner of Income-tax v. C.W Steel (No. 2) [1972] 86 ITR 821 Ker.. These two cases were also concerned with the interpretation of rule 24A of the Indian Income-tax Rules, 1922, and rule 3 of the Income-tax Rules, 1962. There also the question for consideration was whether the tax borne by the employer was includible in the total amount of salary for the purpose of computing the rent-free accommodation given to the assessee. It was held that the income-tax paid by the employer is part of the salary and that, in any case, it is part of the pay of the assessee.

15. The references are accordingly answered in the affirmative and in favour of the revenue. Revenue will be entitled to its costs. Counsel's fee Rs. 250 in each.