This departmental appeal is directed against order of AAC, dated 5- 7-1983, and it relates to assessment year 1980-81. only question involved in this appeal is whether compensatory allowance paid by Royal Bhutan Government to Government of India servants deputed to Bhutan is entitled to exemption under section 10(7) of Income-tax Act, 1961 ('the Act'). 2. facts are few and as far as they are relevant for disposal of this appeal before us, are as follows. assessee is individual and he worked s Senior Deputy Accountant General for part of accounting year relevant to assessment year 1980-81, viz., 1-4-1979 to 8-9-1979. There was bilateral agreement between Government of India and Royal Government of Bhutan, whereunder India, with view to participate in development programme of Bhutan, agreed to depute its officers and technical personnel to Bhutan. Admittedly, deputed Central Government servants would be governed by terms and conditions mentioned in order, dated 8-11-1977, passed by Government of India as far as their service conditions, pay and emoluments during period of deputation to Royal Government of Bhutan is concerned. Copy of said orders passed by Government of India is placed before us and it is made part of record. We have perused said rules and conditions. Under said rules, Bhutan compensatory allowance would be paid to deputed Central and State Government servants categorywise. For instance, for those deputationists employees drawing pay of Rs. 900 and above, compensatory allowance was stated to be 125 per cent of pay subject to minimum of Rs. 1,350 and maximum of Rs. 3,280. 3. assessee, who is individual, was selected by Comptroller and Auditor General of India for deputation to Government of Bhutan in consultation with Ministry of External Affairs, Government of India, and he was deputed to Government of Bhutan in 1979, which year falls in accounting year relevant to assessment year 1980-81. In written arguments submitted by assessee himself, it is stated that Government of India is providing cash budgetary assistance of Rs. 18 crores per year to Government of Bhutan by way of development subsidy and deputationists' pay and allowances were mostly met from out of this sum of assistance granted by Government of India to Government of Bhutan. Government of India used to depute one Chief Accounts Officer to Government of Bhutan since 1969 onwards and assessee claims to be last of such incumbents so deputed for period from 9-9-1979 to 31-3-1980, during which period assessee worked as deputationist under Government of Bhutan and he was paid Bhutan compensatory allowance of Rs. 12,000. It was claimed before ITO that said compensatory allowance was exempt from income-tax under provisions of section 10(7). ITO, however, took view that exemption under said section is allowed only when such allowances and perquisites were paid or allowed by Government of India only. Inasmuch as in case of assessee, compensatory allowance was paid not by Government of India but by Government of Bhutan, according to ITO, exemption under section 10(7) is not available to assessee. Therefore, he refused exemption claimed and added it in gross salary income derived by assessee from Government of Bhutan. Thus, ultimately, he had determined taxable income of assessee for assessment year 1980- 81 at Rs. 27,050. 4. Aggrieved against assessment dated 23-3-1983 completed under section 143(3) of Act, assessee went in appeal before AAC. It is contended on behalf of assessee that interpretation put by ITO on provisions of section 10(7) is erroneous and unjust. It is stated that any allowance or perquisite paid or allowed outside India by Government to citizen of India for rendering services outside India does not imply that such allowance or perquisite should necessarily be paid or allowed only by Government of India. assessee produced clarificatory letter dated 29-11- 1977 given by Commissioner to Mr. Har Mohinder Singh, who worked as technical officer in office of Chief Engineer, PWD, Thimpu, Bhutan, who was similarly deputed from CPWD to Government of Bhutan. Copy of said letter is also furnished to us. In that letter, it is stated as follows: " Since you are working on deputation from CPWD to Royal Government of Bhutan, salary income derived by you will be determined in accordance with provisions contained under section 10(7) of Income-tax Act, 1961, which speaks that any allowance or perquisite paid or allowed as such outside India by speaks that any allowance or perquisite paid or allowed as such outside India by Government to citizen of India for rendering service outside India shall not be included in his total income. " Therefore, as clarification was given from income-tax department in case of one of deputationists to Government of Bhutan, it is claimed that exemption under section 10(7) is available to assessee also. This argument of assessee prevailed upon AAC, who held that ITO's interpretation of section 10(7) is misconceived. He was of view that term 'paid or allowed', as enshrined in provisions of section 10(7) are not specific to imply interpretation that any allowances or perquisites paid only by Government of India are eligible for exemption and said exemption is not allowable if allowance is paid by any foreign Government. He also derived support to his conclusion from clarificatory letter, dated 29-11-1977, referred to above. Therefore, he granted exemption for Rs. 12,000 under section 10(7) to assessee and directed ITO to exclude sum from amount of Rs. 21,600 included by ITO towards gross salary received by assessee from Government of Bhutan in his assessment order. 5. Aggrieved by impugned order of AAC dated 5-7-1983, department came up in second appeal before this Tribunal. According to it, exemption under section 10(7) would be available only if allowances are paid only by Indian Government. If such allowances are paid by any foreign Government, according to revenue, exemption under section 10(7) would not be available to assessee. Therefore, according to it, impugned order of AAC excluding Rs. 12,000 from gross salary received by assessee from Government of Bhutan is illegal and liable to be reversed at our hands. 6. We have heard Shri V. Raghavendra Rao, learned departmental representative, and none appeared for assessee. But assessee himself sent written arguments received in this office on 18-2-1984. He sought excuse of this Tribunal for his not presenting personally and he only requested to consider his submissions on facts and in circumstances stated in his written arguments. written arguments are made part of record. 7. We have duly considered arguments of learned departmental representative and written arguments sent by assessee to office of this Tribunal. In written arguments, it is stated that Government of India used to provide cash allowance of Rs. 18 crores year by way of development subsidy to Royal Government of Bhutan and mostly pay and allowances of deputationists used to be drawn from said amount of subsidy. Therefore, it is found argued in written arguments that pay and allowances under above circumstances should be deemed to have been p i d indirectly by Government of India itself and, therefore, assuming, without admitting, that word 'Government' used in section 10(7) should be taken only as Government of India, said requirement should be deemed to have been fulfilled. We feel difficult to appreciate this argument without further clinching evidence brought on record. For present, state of record does not justify acceptance of said argument. Section 10(7) is as follows: " 10. In computing total income of previous year of any person, any income falling within any of following clauses shall not be included-- (7) any allowances or perquisites paid or allowed as such outside India by Government to citizen of India for rendering service outside India; " word 'Government' no doubt was not defined under Act but it was defined in General Clauses Act, 1897, in section 3(23) and definitions given to 'Government' or 'the Government' are as follows: " 3. In this Act, and in all Central Acts and Regulations made after commencement of this Act, unless there is anything repugnant in subject or context,-- (23) 'Government' or 'the Government' shall include both Central Government and any State Government: " In above categorical definition given to word 'Government', argument of learned departmental representative that word 'Government' under section 10(7) should be taken to be Government of India appears to be correct. However, that interpretation by itself is not sufficient for disposing of this appeal. According to us, allowances and perquisites which were either paid or allowed by Government of India, are entitled to exemption under section 10(7). Government of India already passed its order by dated 8- 11-1977, copy of which is filed before us by revenue. It allowed Bhutan compensatory allowance at different slabs of pay. For instance, for employees drawing Indian pay of Rs. 900 and below, Bhutan compensatory allowance would be 150 per cent of pay subject to maximum of Rs. 850. For employees drawing over and above Rs. 900 of Indian pay, Bhutan compensatory, allowance would be 125 per cent of pay subject to minimum of Rs. 1,350 and maximum of Rs. 3,280. subject of notification dated 8-11-1977 reads "Terms for officers of Central and State Governments of India during service on deputation with Government of Bhutan". In our opinion, though payment was made by Government of Bhutan, if payment is allowed by Government of India then said allowance is entitled to exemption under section 10(7). So, words 'paid or allowed' used in section 10(7) would clearly show that they are disjunctive. Paying and allowing need not be by same authority. If payment is made by one Government and if such payment is allowed by Government of India, then also requirement of section 10(7) is met with. Now, in this case payment is made by Royal Government of Bhutan whereas such payment was allowed by Government of India by terms and conditions laid down governing service, pay and emoluments, while Central Government and State Governments employees are deputed to Royal Government of Bhutan by their orders, dated 8-11-1977. Inasmuch as payment of Bhutan compensatory allowance is approved by Government of India or allowed by Government of India to be received by deputationists Central Government employees by dint of such allowance in terms of notification dated 8-11-1977, exemption under section 10(7) is allowable to such deputationists Government employees. clarificatory letter dated 29-11-1977 addressed by Commissioner to one of deputationists in Bhutan, text of which is already extracted above, according to us, would represent correct exposition of purport of section 10(7). 8. In result, we fail to see any merit in revenue's appeal and, hence, it is dismissed. *** INCOME TAX OFFICER v. G.R. SRINIVASAN