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Issues Involved:
1. Whether the sum of lb500 or the sum of lb225 fell to be included in the assessee's total income for the year ending 31st March, 1952, for the purpose of assessment for the year 1952-53. Issue-wise Detailed Analysis: 1. Computation of Total Income: The primary issue in this case is whether the sum of lb500 or lb225 should be included in the assessee's total income for the assessment year 1952-53. The assessee, a resident and ordinarily resident, received an annuity from three insurance companies in the UK. The insurance companies paid lb225 to the assessee after deducting lb275 as UK tax, which they were mandated to do under UK income-tax law. The Income-tax Officer included lb500 in the total income, while the assessee contended that only lb225 should be included. 2. Relevant Legal Provisions: The charging section under consideration is section 4(1)(b)(ii) of the Indian Income-tax Act, which includes income accruing or arising outside the taxable territories in the total income. The question was whether the income was lb500, as argued by the Department, or lb225, as contended by the assessee. The UK tax law required the payer of the annuity to deduct tax at the source and pay the net amount to the annuitant, but this did not change the fact that the full annuity amount was the income of the annuitant. 3. Legal Fiction and Substance of Income: The court examined the provisions of the General Rules applicable to Schedules A, B, C, D, and E of the English Income-tax Act, 1918, particularly rule 19. This rule stipulates that the payer of the annuity is liable to deduct tax and the annuitant must give a full discharge for the net amount received. The court concluded that the legal fiction created by the English law, which deemed the annuity as the income of the payer for tax purposes, did not alter the fact that the full annuity amount (lb500) was the income of the assessee. 4. Comparison with Indian Law: The court compared the scheme of deduction under the UK law with section 18 of the Indian Income-tax Act. Under Indian law, the person entitled to the salary remains liable to pay the tax if not deducted at the source. Section 18(4) deems sums deducted at the source as income received by the assessee. The absence of a similar provision in UK law led the court to conclude that the entire annuity amount (lb500) was the income of the assessee, not just the net amount received (lb225). 5. Debt and Income: The court addressed the argument that only the net amount received (lb225) constituted income, while the remaining amount (lb275) was extinguished by statute. It clarified that the debt was discharged in the manner provided by law, and the full annuity amount (lb500) was the income of the assessee. The method of payment (deduction at source) did not change the fact that the entire annuity was the income of the annuitant. 6. Refund of Income-tax: The court also considered the provisions regarding the refund of income-tax. If the annuitant was not liable to pay tax on the total income, they would be entitled to a refund. This reinforced the conclusion that the entire annuity amount was the income of the annuitant, as the refund mechanism would not apply to non-income amounts. 7. Precedent and Conclusion: The court distinguished this case from Commissioner of Income-tax v. Blundell Spence & Co., Ltd., where the issue was the grossing up of dividends received by a non-resident company. The court held that the annuity received by the assessee was not subject to a similar legal fiction and that the entire amount (lb500) was the income of the assessee. Final Judgment: The court concluded that the sum of lb500 fell to be included in the assessee's total income for the year ending 31st March, 1952, for the purpose of assessment for the year 1952-53. The assessee was ordered to pay the costs, and the reference was answered accordingly.
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