1964 (4) TMI 4 - SC - Income Tax

Interpretation of section 7(1) of the Indian Income-tax Act, 1922 questioned Held that - As no interest in the sum contributed by the employer under the scheme vested in the employee, as it was only a contingent interest depending upon his reaching the age of super-annuation. It is not a perquisite allowed to him by the employer or an amount due to him from the employer within the meaning of section 7(1) of the Act. We, therefore, hold that the High Court has given correct answers to the questions of law submitted to it by the Income-tax Appellate Tribunal that the employer's contribution under the terms of the trust deed was not a perquisite as contemplated by section 7(1) of the Act. The employer's contributions were not allowed to or due to the employee in the accounting year. And the Legislature not having used the word deferred with annuity in section 7(1) and the statute being a taxing one, the deferred annuity would not be hit by paragraph (v) of Explanation 1 to section 7(1) of the Act. Appeal dismissed

Summary

Issues Involved:
1. Interpretation of section 7(1) of the Indian Income-tax Act, 1922.
2. Whether employer contributions to a deferred annuity are considered a "perquisite" under section 7(1).
3. Whether the contributions were "allowed to" or "due to" the employee in the accounting year.
4. Whether the deferred annuity is hit by section 7(1) and paragraph (v) of Explanation 1.

Detailed Analysis:

1. Interpretation of section 7(1) of the Indian Income-tax Act, 1922:
The judgment focuses on the interpretation of section 7(1) of the Indian Income-tax Act, 1922, specifically regarding the inclusion of employer contributions to a deferred annuity as taxable income. The court analyzed the substantive part of section 7(1) and clause (v) of Explanation 1 to determine whether such contributions qualify as a "perquisite" and are therefore taxable.

2. Whether employer contributions to a deferred annuity are considered a "perquisite" under section 7(1):
The court examined the scheme under which the employer, the English and Scottish Joint Co-operative Wholesale Society Ltd., contributed to a deferred annuity for its employees. It was argued that these contributions should be considered a "perquisite" under section 7(1). The court noted that the term "perquisite" includes any sum payable by the employer to effect an assurance on the life of the employee or in respect of a contract of annuity on the life of the employee.

3. Whether the contributions were "allowed to" or "due to" the employee in the accounting year:
The court analyzed whether the contributions made by the employer were "allowed to" or "due to" the employee in the accounting year. It was determined that the contributions did not vest in the employee until the age of superannuation was reached. Until that point, the contributions remained with the trustees and were contingent upon the employee reaching the age of superannuation or other specified contingencies.

4. Whether the deferred annuity is hit by section 7(1) and paragraph (v) of Explanation 1:
The court concluded that the deferred annuity contributions were not hit by section 7(1) and paragraph (v) of Explanation 1 because the employee did not have a vested right in the contributions until the age of superannuation. The court emphasized that the employee's right to the contributions was contingent and not vested, and therefore, the contributions could not be considered a perquisite allowed to or due to the employee in the accounting year.

Conclusion:
The court held that the High Court correctly answered the questions of law submitted to it by the Income-tax Appellate Tribunal. The contributions made by the employer towards the deferred annuity did not constitute a perquisite under section 7(1) of the Act as they were contingent and not vested in the employee. Consequently, the appeal was dismissed.