1937 (2) TMI 9 - Other - Income Tax

Summary

Issues:
Interpretation of income under the Income-tax Act, Taxability of annuity as income, Application of Section 7 of the Income-tax Act, Exemptions under Section 4(3) of the Act.

Interpretation of Income under the Income-tax Act:
The case involved a reference under Section 66 Clause (2) of the Income-tax Act concerning the taxability of an annuity received by the assessee. The agreement between the parties provided for a monthly allowance to be paid to the assessee for services rendered. The judgment referred to the definition of income as per the Act, stating that anything properly described as income is taxable unless expressly exempted. The court emphasized that income connotes a periodical monetary return from definite sources, likening it to the produce of a tree or crop of a field. The annuity in question was deemed as income assessable under the Act, falling within the purview of taxable income.

Taxability of Annuity as Income:
The court analyzed the nature of the annuity received by the assessee, emphasizing that it was a gratuity for services rendered in building up the employer's business. The court compared the situation to watering a tree that had grown and borne fruits, allowing the assessee to enjoy part of the fruits as income. The judgment highlighted that the annuity was part of the produce of the tree, assessable as income. The court differentiated between a capital sum and a periodical income, asserting that the annuity in this case was a definite return from a specific source, making it taxable income.

Application of Section 7 of the Income-tax Act:
The court delved into the provisions of Section 7 of the Income-tax Act, which defines salary to include various forms of payments, including annuities, pensions, or gratuities received by the assessee. The agreement to pay a periodical sum during the lifetime of the assessee and to his son in case of his death fell within the purview of Section 7, making it taxable income unless exempted under Section 4(3) of the Act. The court noted that the fixed sum received by the assessee for life was subject to assessment under the Act, emphasizing that the annuity was liable to income tax.

Exemptions under Section 4(3) of the Act:
The judgment highlighted the importance of exemptions under Section 4(3) of the Income-tax Act in determining the taxability of certain income. It was mentioned that if the assessee could bring the case within one of the exemptions provided in the Act, the income might not be taxable. However, in this case, the court concluded that the annuity received by the assessee did not qualify for any exemptions and was thus subject to income tax. The court ruled in favor of the Commissioner of Income Tax, holding that the monthly allowance was indeed liable to income tax based on the provisions of the Act and the nature of the payment received by the assessee.