1979 (9) TMI 36 - HC - Income Tax

Summary

Issues Involved:
1. Whether the income of the assessee should be assessed in the assessment years 1966-67 and 1967-68 or in the years 1946-47 and 1947-48.
2. Whether the remuneration received by the assessee from Kalyanmal Mills Ltd. in the assessment years 1966-67 and 1967-68, pursuant to the final decree passed on 14th December 1965, could be considered as income accrued in the assessment years 1946-47 and 1947-48.

Issue-wise Detailed Analysis:

Issue 1: Assessment Years for Income
The Tribunal held that the income of the assessee should be assessed in the assessment years 1966-67 and 1967-68, not in the years 1946-47 and 1947-48. This conclusion was based on the interpretation of Section 15(c) of the Income Tax Act, 1961, which allows for the assessment of arrears of salary on a receipt basis if they were not charged to income-tax for any earlier previous year. The Tribunal found that the relationship between the assessee and the mills was that of master and servant, making the remuneration taxable under the head "Salary." The Tribunal also noted that the mills had disputed their liability to pay the remuneration, and the amount became due only after the final decree was passed on 14th December 1965. Therefore, the amounts received in the assessment years 1966-67 and 1967-68 were rightly assessed in those years.

Issue 2: Accrual of Income
The Tribunal's decision on whether the remuneration received in the assessment years 1966-67 and 1967-68 could be considered as income accrued in the assessment years 1946-47 and 1947-48 was contested. The Tribunal held that the remuneration did not accrue until the final decree was passed in 1965. The Tribunal's reasoning was that the mills had disputed the liability, and the amount could not be considered due until the court's decision. This view was supported by the interpretation of Section 15(c) of the Income Tax Act, which allows for the taxation of arrears of salary on a receipt basis if they were not charged to income-tax in any earlier previous year.

Separate Judgments:
- Sohani J.: Agreed with the Tribunal's findings and held that the remuneration became due only after the final decree in 1965. Therefore, the income should be assessed in the assessment years 1966-67 and 1967-68.

- Oza J.: Disagreed with Sohani J. and the Tribunal. Held that the remuneration became due in the years 1946-47 and 1947-48, even though it was not paid or ascertained until the final decree. Oza J. argued that the arrears of salary could not be taxed under Section 15(c) of the Income Tax Act, 1961, because they were due in years when the Indian Income Tax Act did not apply to the Holkar State.

- G.P. Singh C.J.: Agreed with Sohani J. on the first question, holding that Section 15(c) of the Income Tax Act, 1961, applied and the income should be assessed in the assessment years 1966-67 and 1967-68. However, agreed with Oza J. on the second question, holding that the remuneration became due in the years 1946-47 and 1947-48.

Conclusion:
The final judgment was that the income of the assessee should be assessed in the assessment years 1966-67 and 1967-68, as per Section 15(c) of the Income Tax Act, 1961. However, the remuneration was considered to have become due in the years 1946-47 and 1947-48. The case was referred back to the Division Bench for final disposal, with no order as to costs.