AJMAL MIAN, J.-These two references arc interconnected and, there--fore, can be disposed of by this common judgment. In I. T. R. No. 101/ 74 the following two questions are framed, whereas in I. T.
R. No. 109/74 only the following one question has been framed: I. T. R. 101 of 1974
(1) Whether on the facts and in the circumstances of the case the Tribunal was justified in deleting the additions of Rs. 3,735 on the ground that section 10 (4) (a) did not apply to the perquisites?
(2) Whether on the facts and in the circumstances of the case the Appellate Tribunal was justified in deleting the addition of Rs. 20,411 on the ground that it was a. Revenue expenditure?
I. T. R. 109 of 1974 Whether on the facts and in the circumstances of the case, the Tribunal was justified in deleting the additions of Rs. 4,487 on the ground the section 10 (4) (a) did not apply to the perquisites?
The brief facts leading to the filing of the above references are I. T. R. 101 of 1974 The Income-tax Officer while making assessment of the assessment year 1968-69 by his order dated 30-12-1972 disallowed the two amounts referred to in the above quoted questions. The respondent assessee being aggrieved by the above order- filed appeal, namely, I. T. A. No. 686 (K.
B.) of 1972-73 which was allowed by the Income-tax Appellate Tribunal by its order dated 20-7- 1973. The applicant department has, therefore, sought the opinion of this Court on the above two quoted questions.
I. T. R. 109 of 1974 The relevant facts leading to the filing of the above reference are that the' Income-tax Officer while making assessm ent of the assessm ent year 1969-70 by his order dated nil disallowed the amount mentioned in the above--quoted question, namely, Rs. 4,487. The respondent assessee being aggrieved by the above order filed appeal, namely, I T A No. 2265 (K. B.) of 1972-73 which was allowed by the income-tax Appellate Tribunal by its order dated 20-7-1973. The applicant department has therefore, filed the above reference and has sought opinion of this Court on the above quoted question.
2. In support of the above two references, Mr. Shaikh Haider learned counsel for the applicant department has contended as follows:-
(i) That since the perquisites are to be included under section 7 (1) of the income-tax Act (hereinafter referred to as the Act), the respon--dent assessee was obliged to deduct income-tax amount under section I8 of the Act and since no deduction was made the above amount was rightly disallowed by the Income-tax Officer by virtue of section 10 (4) (a) of the Act.
(ii) That payment on account of royalties is capital expenditure and, therefore, could not haven been allowed as revenue expenditure for the purpose of computing tax liability of the respondent assessee.
On the other hand Mr. A. A. Sharif learned counsel for the respondent---assessee has contended as follows:-
(i) That since the amount of residential telephone bill was a perquisite and as it is not the case of the department that the limit provided for under section 10 (4) (d) of the Act was exceeded to there was no question of deducting any income-tax on account of the above amount as it was not taxable item.
(ii) That payment for royalties cannot be construed as capital expenditure.
It may be observed that in both the references question No. 1 is common except that amount differs as the same relates to two different assessment years.
3. Adverting to the first contention of the learned counsel for the parties, it may be observed that Mr. Shaikh Haider learned counsel for the respondent-department has referred to subsection (1) of section 7 of the Act which provides that the tax shall be payable by an assessee under the head "Salaries" in respect of any salary or wages, any annuity, pension or gratuity, and any fees, commissions, perquisites, or profits in lieu of, or in addition to, any salary or wages, which are due to him from, whether paid or not, or are paid by or on behalf of the Government, a local authority, a company, or any other public body or association or any private employer. It further provides that for the purposes of the above subsection advances by way of loan or otherwise of income chargeable under this head shall be deemed to be salary due on the date when the advance is received. In this regard it may also be pertinent to refer to section 10 (4) (a) and 10 (4) (d) which read as follows: -
(a) any allowance iii respect of a payment which is chargeable under the bead "Salaries" if the tax has not been paid thereon nor deducted therefrom under section 18 ;
(d) any allowance in respect of so much of the expenditure incurred by a company on the provision of perquisites or other benefits to a director or employee as exceeds seventy-five per cent of his salary on thirty thousand rupees, whichever is the less.
It may be noticed that under above quoted clause (a) an employer can--not claim the adjustment of any allowance in respect of a payment which is chargeable under the head "Salaries" if tax has not been paid thereon or deducted therefrom under section 18 of the Act whereas above quoted clause (d) provides the limit of the perquisites which a company can provide to its employee, namely 75 % of his salary or Rs. 30,000 whichever is less. In other words the company is liable to pay income-tax on any amount spent by it on perquisite of its any employee beyond the limit prescribed under the above quoted clause (d) but if perquisites do not exceed tile limit provided for in the above clause (d) the company is entitled to claim the same as revenue expenditure. The Income-tax Officer as well as the Income--tax Appellate Tribunal have proceeded on the assumption that the inclusion of the above telephone residential bills for the two assessm ent years in ques--tion would not exceed the limit provided in above clause (d) of subsec--tion (4) of section 10 of the Act. In this view of the matter, the above two amounts could have been claimed by the respondent-assessee as revenue expenditure and were not subject to the levy of any income-tax. In our view section 7 speaks of the liability of an employee to pay tax whereas section 10 provides for the ability of an employer. The above sections are to be read in conjunction in order to give a reasonable meaning to the two provisions. Since the residential telephone bill is a perquisite provided for by the respondent-Company on which no tax was payable in view of clause (d) of subsection (4) of section 10 in our view no tax was deductible from the above amount as rightly held by the Income-tax Appellate Tribunal. We may also mention that it is impracticable to deduct a telephone bill from the salary of the relevant month as it is a matter of common knowledge that telephone bills are received after one or two weeks in the following month and therefore, it is not even otherwise practicable to deduct income-tax from the salary of an employee on account of residential telephone bill from the salary of the mouth preceding to the month in which bill is received.
4. As regards the second question in I. T. R. No. 101 /73 it may be observed that Mr. A. A. Sharif has pointed out that though the Income--tax Appellate Tribunal has allowed payment made on account of royalties as revenue expenditure even in the assessment year 1969-70 which is covered by I. T. R. 109/74, the department has not sought the opinion of this Court on the above question in the above reference. In our view, it is not relevant for the purpose of deciding the point in issue. It is the option of the department which would not constitute estoppel against the department. The question in issue is whether payment on account of royalties paid by the respondent-assessee for cite publication of the various books can he considered as a revenues expenditure as held by the Income-tax Appellate Tribunal or is it capital expenditure. We may observe that Mr. Sheikh Haider has invited our Attention to the case of Hira Lal Phoolchand v. Commissioner of Income-tax, C. P., U.
P. Do Behar(1947) 5 I T R 205 in which a Division Bench of the Allahabad High Court has pointed out the distinction between payment on account of purchase of copyright of a book and the payment made towards the royalty for publishing a book. It has been held the former would be a capital expenditure whereas the latter would be revenue expenditure. In the present case the respondent- assessee had no d purchased the copyright but had published certain books with the permission of the owner of the copyrights, they had paid certain amount as royalties to the owner of the copyrights and therefore, the payment can be claimed as, revenue expenditure and in our view Income-tax Appellate Tribunal has rightly held so.
5. For the aforesaid reasons our answers to Questions Nos. 1 and 2 are in the affirmative. There will be no order as to costs.