1985 (4) TMI 40 - HC - Income Tax

Summary

Issues Involved:
1. Taxability of pension received by the widow of a former United Nations employee.
2. Interpretation of Section 18(b) of the United Nations (Privileges and Immunities) Act, 1947.
3. Applicability of Section 17(1)(ii) of the Income Tax Act, 1961.

Detailed Analysis:

1. Taxability of Pension Received by the Widow of a Former United Nations Employee:
The primary issue was whether the pension received by the widow of a former United Nations employee is taxable under the Income Tax Act, 1961. The ITO initially rejected the claim for exemption, arguing that the pension is includible in the assessee's total income under Section 17(1)(ii) of the I.T. Act, 1961, which defines "salary" to include any annuity or pension. However, the AAC and the Tribunal later held that the pension received by the widow should be excluded from the assessment, arguing that the exemption applicable to the salary of United Nations officials should extend to the pension received by their beneficiaries.

2. Interpretation of Section 18(b) of the United Nations (Privileges and Immunities) Act, 1947:
The crux of the judgment hinged on the interpretation of Section 18(b) of the United Nations (Privileges and Immunities) Act, 1947, which exempts "salaries and emoluments paid to them by the United Nations" from taxation. The Tribunal and later the High Court interpreted this provision to mean that if the salary of an official is exempt, then by extension, the pension, which is considered part of the salary under Section 17 of the I.T. Act, should also be exempt. The High Court noted that the pension received by the widow is essentially a continuation of the benefit that would have been received by the deceased employee, thereby warranting the same tax exemption.

3. Applicability of Section 17(1)(ii) of the Income Tax Act, 1961:
Section 17(1)(ii) of the Income Tax Act, 1961, defines "salary" to include any annuity or pension. The High Court observed that the pension received by the widow is intrinsically linked to the employment of her deceased husband with the United Nations. The Court emphasized that the relationship of employer and employee, which existed between the deceased and the United Nations, extends to the benefits received by the widow. The pension is thus considered a deferred payment of salary, and its nature as salary does not change merely because it is received by the widow instead of the employee.

Conclusion:
The High Court concluded that the pension received by the widow of the deceased United Nations employee is exempt from income tax. The Court reasoned that the exemption applicable to the salary of United Nations officials under Section 18(b) of the United Nations (Privileges and Immunities) Act, 1947, extends to the pension received by their beneficiaries. The judgment emphasized that the nature and character of the receipt, rather than the status of the recipient, determine the applicability of the tax exemption. Consequently, the Court answered the referred question in the affirmative, ruling in favor of the assessee.

Order:
The High Court ruled that there would be no order as to costs. The judgment was concurred by both judges involved in the case.