1998 (4) TMI 3 - HC - Income Tax

Summary

Issues:
Taxability of income received as pension from the British Government for assessment years 1978-79 to 1981-82.

Analysis:
The judgment of the court addressed the question of law regarding the taxability of the assessee's income received as pension from the British Government for the assessment years 1978-79 to 1981-82. The assessee had worked as an employee for the Somali and Aden Governments under the colonial rule of the British Government. After the independence of Somaliland and Aden, the obligation of paying salaries and pensions to the employees devolved on the respective local Governments. An agreement was reached between the Somali Government and the British Government for the payment of pensions to retired employees. However, when the Somali Republic broke off diplomatic relations with the British Government, the British Government continued to pay pensions to the pensioners directly. The pensioners were assured continuous payment of pensions, and any amounts received were considered as advances against arrears of pension. The court noted that the payments were made by the British Government, and the pensioners received full amounts due to them as the Somali Government had abdicated its responsibility. The court agreed with the Tribunal's decision to treat the pension amounts as salary for tax purposes and allowed standard deductions on the pension received by the assessee.

The court emphasized that the pension received by the assessee was to be regarded as salary for tax purposes. The source of funds for paying the pension was always the British Government, even after the independence of Somaliland. The court highlighted that the real character of the payment received by the assessee was pension for services rendered to the British Government over a long period. Despite being described as advances against pension, the payments were made directly by the British Government to the pensioners, indicating the British Government's continuous responsibility for the pensions. The court affirmed the Tribunal's decision and answered the question of taxability in favor of the Revenue and against the assessee.

In conclusion, the court held that the amounts received by the assessee as pension from the British Government were taxable as salary income. The court agreed with the Tribunal's decision to treat the pension amounts as salary for tax purposes, considering the continuous payment of pensions by the British Government and the real character of the payments as pension for services rendered to the British Government. The judgment favored the Revenue and rejected the assessee's contention that no income tax was payable on the pension amounts received.