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1989 (8) TMI 2 - SC - Income Tax


Issues: Contempt of court for alleged non-compliance with payment order and withholding of part of the directed sum. Tax implications of the payment made to the petitioner.

Contempt of Court: The Supreme Court directed the payment of Rs. 4 lakhs to the petitioner within two months, following which an application for contempt action was filed alleging that only Rs. 2,80,000 was paid, not within the specified time. The court found that the delay in payment was due to late intimation by the bank, absolving the respondents of serious contempt. A part of the sum, Rs. 1,20,000, was withheld for income tax deduction under the Income-tax Act of 1961. The court held that the withholding was not mala fide and did not violate the court's direction, as the payer had an obligation to deduct tax at source.

Tax Implications: The court clarified that the payment of Rs. 4 lakhs was not for shortening the duration of service or as salary but left the final decision on its taxability to the Income-tax Officer. The petitioner argued that if the payment is not related to salary, it should be considered a capital receipt and not taxable income. The court directed the release of the withheld Rs. 1,20,000 to the petitioner, instructing him to deposit it in a fixed account for at least two years. The petitioner was required to file an income tax return for the assessment year promptly, allowing the Income-tax Officer to assess the tax liability on the Rs. 4 lakhs payment. If assessed, the tax could be collected from the fixed deposit without violating the Income-tax Act.

Conclusion: The court hoped that the resolution of the application would end the petitioner's appearance before the court. The judgment emphasized the unique circumstances of defense personnel and the need for clarity on the tax treatment of the payment made to the petitioner. The court's decision balanced the petitioner's rights with the legal obligations under the Income-tax Act, ensuring compliance with tax laws while addressing the contempt allegations regarding the payment.

 

 

 

 

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