1999 (10) TMI 4 - SC - Income Tax

Assessee entered into an agreement, to sell to merchants all kinds of waste cotton - amount of salary that were payable by the mills to the assessee in the previous years relevant to the A.Y. 1046-47 & 1947-48 could have been brought to tax in those assessment years, whether paid or not - Tribunal is justified in holding that the relationship between the mills & assessee was that of master & servant & that the said amounts that had been paid to him were taxable under the head salary

Summary

Issues:
Interpretation of Income-tax Act, 1961 - Application of sections 15(a) and 15(c) - Taxability of remuneration received by the assessee - Jurisdiction of Holkar State under Income-tax Act.

Analysis:

The case involved a dispute regarding the taxability of remuneration received by the assessee from a company, with the main issue being the interpretation and application of sections 15(a) and 15(c) of the Income-tax Act, 1961. The disagreement arose between the judges regarding whether the income of the assessee should be assessed in the years 1966-67 and 1967-68 or in the years 1946-47 and 1947-48. The facts of the case revealed that the assessee had entered into an agreement with a company in 1946, which led to a legal battle resulting in the final decree being passed in 1965, and the remuneration being paid to the assessee in subsequent years.

The primary contention was whether the remuneration should be considered as arrears of salary falling under section 15(c) or as salary due from an employer under section 15(a). The Revenue argued that since the amounts were not charged to tax in the earlier years, they became liable to tax in the years they were paid. On the other hand, the assessee's counsel contended that the remuneration was due in the earlier years and should have been taxed then, making section 15(a) applicable.

The court analyzed the provisions of section 15 and concluded that the amounts in question constituted arrears of salary as they were due in the earlier years but remained unpaid. Therefore, they fell within the purview of section 15(c), which aims to tax such income that had escaped taxation in previous years. The court rejected the argument that the Income-tax Act did not extend to the Holkar State, emphasizing that section 15(c) applies irrespective of whether the income could have been taxed earlier.

Consequently, the court answered the first question in favor of the Revenue, dismissing the appeals filed by the assessee. The appeals by the Revenue on the second question were disposed of as they were not deemed necessary. The judgment clarified the application of sections 15(a) and 15(c) in determining the taxability of arrears of salary, providing a comprehensive analysis of the legislative intent and the factual circumstances of the case.