1928 (5) TMI 4 - HC - Income Tax

Summary

Issues:
1. Whether a certain sum received by the assessees is exempt from taxation under Section 4, Sub-section 3, Clause 7, Income Tax Act, 1922.

Analysis:
In this case, the Commissioner of Income Tax sought the Court's opinion on the tax exemption of a sum of &8377; 2 1/4 lakhs received by the assessees from the shareholders of a company during its voluntary winding up. The payment was declared as compensation for the loss of office as Managing Agents. The main issue was to determine if this sum qualified as a receipt arising from business under Section 4, Sub-section 3, Clause 7 of the Income Tax Act, 1922. The Court deliberated on whether the payment was of a casual and non-recurring nature and not an addition to an employee's remuneration.

The Court examined the nature of the payment and distinguished it from personal gifts, emphasizing that it was a compensation for the loss of office as Managing Agents of the company. The judges highlighted that the English cases cited were not directly applicable as the Indian Income Tax Act had a different scheme. They emphasized the importance of interpreting Clause 7 of Section 4 independently to determine if the sum was a receipt arising from business, rather than focusing on Section 10 pertaining to profits or gains of a business.

The judges further discussed the English cases related to perquisites of office and clarified that the present case was not about determining if the payment was a perquisite of an office but whether it constituted a receipt arising from business. The Court emphasized that the sum was given as compensation due to the sudden dismissal of one of the managing agencies of the company, making it a receipt arising from business. The judges concluded that the exemption clause under Section 4(3)(7) was not applicable in this scenario, and the Income Tax was rightly assessed. Therefore, the Commissioner's decision was upheld, and the assessees were liable to pay the costs.

In agreement with the primary judgment, the other judges concurred with the decision, reinforcing the view that the sum received by the assessees was not exempt from taxation and was considered income within the meaning of Section 12 of the Income Tax Act, 1922.