Commissioner of Income Tax, Assam
Andnagal Vs. Shri G. Hyatt [1971] INSC 24 (21 January 1971)
HEGDE, K.S.
HEGDE, K.S.
SHAH, J.C. (CJ) GROVER, A.N.
CITATION: 1971 AIR 725 1971 SCR (3) 438 1971
SCC (1) 466
CITATOR INFO :
R 1972 SC 149 (227)
ACT:
Income-tax Act 1961, ss. 17 and
560-Contribution to unrecognised provident fund-Interest thereon-Whether
taxable under s. 56.
HEADNOTE:
On the question whether an amount
representing the interest on the amount of the assessee's own contributions to
an unrecognised provident fund was assessable under the residuary s. 56 of the
Income-tax Act, 1961, HELD : The amount was liable to be assessed.
The receipt of an interest of any investment
is a gain made by the investor and therefore the same is 'income'.
In view of s. 17 ( 1) (iv), all receipts of
profits in lieu of salary have to be considered as salary. In defining the
expression 'profits in lieu of salary', the legislature excluded from the scope
of that expression any payments received by the assessee from a provident fund,
his own contribution,; to the fund or any interest on such contributions.
Therefore this receipt cannot be considered as salary, though undoubtedly that
is an income. As the income in question is not salary and the same cannot be
said to be either interest on the securities; income from house property,
profits and gains of business of profession or capital gains, it has to be
considered as 'income from other sources' and brought to tax under s. 56.
Section 56(1) provides that income of every kind which is not to be excluded
from the total income under the Act shall be chargeable to Incometax under any
of the heads specified in s.; 14 item "A" to "E". [43 9
C-G]
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 1174 of 1967.
Appeal from the judgment and order dated
August 22, 1966 of the Assam & Nagaland High Court in income-tax Reference
No. 3 of 1966.
Jagadish Swarup, Solicitor-General, G. C.
Sharma, R. N. Sachthey and B. D. Sharma, for the appellant.
T. A. Ramachandran, for the respondent.
The Judgment of the Court was delivered by
Hegde, J. The Commissioner of Income-tax, Assam and Nagaland has brought these
appeal by certificate. The assessment with which we are concerned in this
appeal is for the assessment year 1963-64, the relevant accounting year is the
financial year 1962-63. The assessee was the manager of a Tea Estate under the
managing agency of M/s. Gillanders Arbuthnot & Co. Ltd. The said Co. had a
Provident Fund scheme for its employees. But that provident fund was not a
recognised one. The assessee retired during the previous year relevant to
assessment year 1963-64 and received out of this provident fund an 439 amount
of Rs. 27,948/which represented the interest on the amount of his own
contribution to the fund. The Income-tax Officer assessed this amount as the
assessee's income from other sources. That order was confirmed in appeal by the
Appellate Assistant Commissioner. But on further appeal to the tribunal 'by the
assessee, the tribunal came to the conclusion that the receipt in question
being profits 'in lieu of salary', the same was his salary as defined in s. 17
of the Income-tax Act, 1961 (to be hereinafter referred to as the Act); the
same having not been assessed as his salary, the assessment order relating to
that item of receipt was not legal. At the instance of the-Commissioner, the
tribunal referred the following question of law to the High Court of Assam and
Nagaland for its opinion:
"Whether on the facts and circumstances
of the case and having regard to the provisions of section 17 (3) (ii) of the
Income-tax Act, 1961 the amount Rs. 27,948/representing the interest on the
amount of the assessee's own contributions to an unrecognised provident fund
was assessable under the residuary section 56 of the said Act?" The High
Court answered that question in the negative and in favour of the assessee.
While it came to the conclusion that the, receipt in question cannot be
considered as salary as defined in s. 17, in its view the same was exempt from
payment of tax in view of s. 17(3) (ii). The Commissioner is challenging the
above conclusion.
The receipt of Rs. 27,948/is undoubtedly an
income as defined by s. 2(24). The receipt of an interest on any investment is
a gain made by the investor and therefore the same is "income". The
next question is whether the said income is exempt from tax or if it is not
exempt under what head the same has to be brought to tax? Section 14 of the Act
gives the heads of income. They are (A) Salaries; (B) Interest on securities;
(C) Income from house property; (D) Profits and gains of business or
profession; (E) Capital gains and (F) Income from other sources.
The salaries are 'brought to tax under s. 15
and "the income from other sources" is brought to tax under s. 56. In
this appeal we are not concerned with the other heads of income The salary is
defined in s. 17 as including any "profits in lieu of or in addition to
any salary or wages" [s.17(1)(iv)]. Subsection (3) of s. 17 says :
profits in lieu of salary" includes.440
(ii) any payment........ due to or received by an assessee from an employer or
a former employer or from a provident or other fund (not being an approved
superannuation fund) to the extent to which it does not consist of contribution
by the assessee or interest on such contributions." The contributions to
recognised provident funds are dealt with by other provisions of the Act.
Herein we are concerned with the contribution to an unrecognised provident
fund. The learned judges of the High Court opined that the receipt by the assessee
with which we are concerned is exempt from the payment of tax in view of s. 17
(3) (ii).
In our opinion they were clearly in error in
arriving at that conclusion. Deductions from salaries are dealt with by s. 16.
In view of s. 17 ( I ) (iv), all receipts of profits in lieu of salary have to
be considered as salary. But then the question is what is meant by
"profits in lieu of salary". In defining the expression "Profits
in lieu of salary", the legislature excluded from the scope of that
expression any payments received by the assessee from a provident fund, his own
contributions to the fund or any interest on such contributions. From that it
follows that the receipt of Rs. 27,948/by the assessee in the relevant
accounting year cannot be considered as salary though undoubtedly that is an
income. Section 17 has nothing to do either with deductions or with exemptions.
It is merely a provision defining the expression "salary". As the
income in question is not salary and the same cannot be said to be either
interest on the securities; income from house property; profits and gains of
business or profession or capital gains. it has to be considered as
"income from other sources" and brought to tax under s. 56. Section
56 (I) provides that income of every kind which is not to be excluded from the
total income under the Act shall be chargeable to income-tax under the head
income "from other sources" if it is not chargeable to income-tax
under any of the heads specified in S. 1.4 items 'A' to 'E'.
In our opinion the meaning of s. 17(3) (ii)
is plain and unambiguous. Hence there is no need to call into aid any of the
rules of construction as was sought to be done by the High Court.
The respondent was not represented before
this Court. We are obliged to Mr. T. A. Ramachandran for acceding to our
request to appear on his behalf an amicus curiae and assist us at the time of
hearing of the appeal.
441 For the reasons mentioned above we allow
this appeal, discharge the answer given by the High Court and answer the question
referred to the High Court in the affirmative and infavour of the Department.
Under the circumstances of the case we make no order as to costs.
Y.P.
Appeal allowed..
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