1959 (11) TMI 55 - HC - Income Tax

Summary

Issues Involved:

1. Whether the sum of lb350 paid to the respondent under the housing agreement is assessable to income tax under Schedule E of the Income Tax Act, 1952.
2. Whether the payment constitutes a profit arising from the respondent's employment.

Issue-Wise Detailed Analysis:

1. Assessability of the lb350 Under Schedule E:

The primary issue is whether the lb350 paid to the respondent under the housing agreement is assessable to income tax under Schedule E of the Income Tax Act, 1952. According to section 156 of the Income Tax Act, 1952, Schedule E is charged in respect of every public office or employment of profit. Rule 1 of Schedule IX further clarifies that tax under Schedule E shall be annually charged on every person having or exercising an office or employment of profit in respect of all salaries, fees, wages, perquisites, or profits whatsoever therefrom for the year of assessment.

The facts reveal that the respondent was employed by Imperial Chemical Industries Ltd. (I.C.I.) and had entered into a housing agreement with I.C.I. to assist in purchasing a house. Upon being transferred, the respondent sold the house at a loss, and I.C.I. paid him lb350 under the housing agreement to cover this loss. The Crown contended that this sum was a profit arising from the respondent's employment and thus taxable under Schedule E.

2. Nature of the Payment:

The second issue revolves around whether the payment of lb350 constitutes a profit arising from the respondent's employment. The Crown argued that the payment was a profit arising from the respondent's employment, being received as a reward for his services and for nothing else. They contended that every sum of money received by an employee as such is a profit of his employment except in return for full consideration in money or money's worth other than his services.

The respondent's counsel argued that the sum credited to the respondent pursuant to the housing agreement was not a salary, fee, wage, perquisite, or profit of his employment. The payment was made to the respondent not as an employee but as a party to the housing agreement about a particular house. The consideration moving from the respondent for the sum received was a consideration other than services rendered or to be rendered.

Judgment Analysis:

The judgment delivered by Viscount Simonds emphasized that the authorities show it is a question to be answered in the light of the particular facts of every case whether or not a particular payment is a profit arising from the employment. The payment must be made in reference to the services the employee renders by virtue of his office and must be something in the nature of a reward for services past, present, or future.

The Court of Appeal (Jenkins and Pearce L.JJ.) agreed with this view, stating that while the employee's employment by I.C.I. was a causa sine qua non of his entering into the housing agreement, the causa causans was the distinct contractual relationship under the housing agreement. Parker L.J. dissented, finding that there was no substantial consideration apart from services for the indemnity against loss.

Viscount Simonds concluded that the Crown failed to establish that the payment was a reward for the employee's services. The housing agreement was not colorable, and the salary earned by the employee compared favorably with salaries paid by other employers not operating a housing scheme. The payment was made to the respondent in respect of his personal situation as a house-owner and not as a reward for his services. Therefore, the sum of lb350 was not a profit arising from the employment.

Lord Radcliffe concurred, emphasizing that the payment was not made in return for acting as or being an employee but in respect of the respondent's personal situation as a house-owner. Lord Cohen agreed, stating that the housing agreement constituted a genuine bargain advantageous to both the respondent and I.C.I. Lord Keith of Avonholm and Lord Denning also agreed, with Lord Denning adding that the payment was compensation for a loss incurred in consequence of the respondent's employment and not a profit from his employment.

Conclusion:

The appeal was dismissed, and it was held that the sum of lb350 paid to the respondent under the housing agreement was not assessable to income tax under Schedule E as it was not a profit arising from his employment. The payment was compensation for a loss incurred due to the respondent's employment and not a reward for his services.