1924 (11) TMI 2 - HC - Income Tax

Summary

Issues Involved:
1. Whether the lump sum payment received by the assessee upon resignation is liable to taxation as salary under Section 7(1) of the Income Tax Act, 1922.
2. Whether the sum received by the assessee can be considered as received in British India for tax purposes.

Issue-wise Detailed Analysis:

1. Taxability of Lump Sum Payment as Salary:

The primary issue was whether the lump sum payment received by the assessee upon resignation from a salaried post is liable to taxation as salary under Section 7(1) of the Income Tax Act, 1922. The assessee argued that the sum paid was not salary within the meaning of Section 7(1) of the Act. Section 7(1) of the Act includes salary, wages, annuity, pension, gratuity, fees, commissions, perquisites, or profits received in lieu of or in addition to any salary or wages paid by or on behalf of the government, a local authority, a company, or any other public body, or association, or by or on behalf of any private employer.

The assessee contended that voluntary payments made in circumstances such as the present did not accrue by reason of his office or employment, citing English cases like Turner v. Cuxon and Cowan v. Seymour. However, the court noted that the wording of Section 7(1) of the Indian Income Tax Act is very wide and includes various forms of payments received in lieu of or in addition to any salary or wages. Despite the complexity of determining whether the payment was a gratuity or merely a testimonial, the court found it unnecessary to decide this point due to the resolution of the second issue.

2. Receipt of Income in British India:

The second issue was whether the sum received by the assessee can be considered as received in British India for tax purposes. The facts revealed that the assessee was offered a salaried post in Hyderabad and resigned before the completion of his term. Upon resignation, an honorarium equal to the salary for the remaining term was directed to be paid to him through the Imperial Bank of India. The payment process involved transferring the money from the Hyderabad branch to the Patna branch and then to the assessee's account in Patna.

The court examined Section 4(1) of the Income Tax Act, which states that the Act applies to all income, profits, or gains received in British India or deemed to be received in British India. The court noted that salaries earned by a British subject outside British India are not ordinarily chargeable under the Indian Income Tax Act. The court also referred to previous judgments, such as Sunder Das v. Crown and Secretary, Board of Revenue v. Ripon Press and Sugar Mills Co., which held that income earned and received outside British India and subsequently brought into British India is not liable to be assessed to Income Tax.

The court determined that the receipt of the income must refer to the first occasion upon which the recipient got the money under his control. In this case, the sum was first credited to the assessee's account at the Hyderabad branch and later transferred to the Patna branch. The court found that the sum in question was received by the assessee at Hyderabad outside British India and that Section 4(1) of the Act did not apply.

Conclusion:

The court concluded that the sum received by the assessee was not taxable as it was not received in British India within the meaning of Section 4(1) of the Income Tax Act, 1922. The answer to the question upon which the court's decision was sought was in the negative with reference to the facts found in the case. The Petitioner was entitled to his costs, including the costs incidental to printing the paper book, with the hearing fee assessed at Rs. 300.

Separate Judgment by B.K. Mullick, J.:

B.K. Mullick, J. concurred with the decision, emphasizing that the income was neither received in British India nor deemed to have been so received. He highlighted that the Indian Act requires that income earned outside British India should be actually received in British India to be taxable. On the evidence, it was clear that the income was not received in British India, nor was there any provision in the Act deeming it to have been received in British India. He also agreed that it was unnecessary to decide whether the income was derived from salaries.