1982 (6) TMI 74 - AT - Income Tax

Issues Involved:
1. Taxability of the superannuation fund received by the assessee.
2. Classification of the superannuation fund as income or capital receipt.
3. Applicability of Section 17(3)(i) and Section 17(3)(ii) of the Income-tax Act, 1961.
4. Interpretation of Section 2(24) and Section 10(13) of the Income-tax Act, 1961.
5. Implications of Rule 6 of the Fourth Schedule of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Taxability of the superannuation fund received by the assessee:
The assessee received Rs. 25,823 from the superannuation fund upon leaving the company before completing 10 years of service. The ITO taxed this amount, but the AAC deleted the addition, suggesting it should be taxed under the Fourth Schedule, Part B, at the rates specified in Rule 6 of the Income-tax Act, 1961.

2. Classification of the superannuation fund as income or capital receipt:
Shri B.K. Khare argued that the receipt from the superannuation scheme is not income but a capital payment. He contended that it does not fall under the definition of income in Section 2(24) of the Act and is not covered by Section 10(13), which exempts certain superannuation payments. The Tribunal referred to Sampat Iyengar's commentary, which supported the view that such payments are not considered income under the 1961 Act.

3. Applicability of Section 17(3)(i) and Section 17(3)(ii) of the Income-tax Act, 1961:
The Tribunal analyzed Section 17(3)(i), which makes compensation paid in connection with the termination of employment taxable. However, Section 17(3)(ii) provides a special treatment for payments from superannuation funds, making only the employer's contributions and interest thereon taxable, excluding the rest. The Tribunal concluded that Section 17(3)(ii) carves out a portion of terminal compensations for taxation, indicating that the rest is not taxable.

4. Interpretation of Section 2(24) and Section 10(13) of the Income-tax Act, 1961:
The Tribunal noted that Section 2(24) provides an inclusive definition of income but does not explicitly include superannuation fund receipts. Section 10(13) exempts certain payments from superannuation funds, implying that otherwise, they might be taxable. However, the Tribunal concluded that these provisions were included by way of abundant caution to clarify that there is no intention to tax these payments.

5. Implications of Rule 6 of the Fourth Schedule of the Income-tax Act, 1961:
Rule 6 directs tax deduction at source from superannuation fund payments but does not declare them as income. The Tribunal emphasized that the 1961 Act differs from the 1922 Act, where Section 58S provided a deeming charge. Therefore, Rule 6 alone cannot create a charge without statutory backing.

Conclusion:
The Tribunal concluded that the superannuation fund payment does not represent income under general law or the extended definition of 'income' under Section 2(24). Even if considered income, it cannot be taxed as salary since the definition of 'salary' excludes these payments. Consequently, the receipt is not income, and the assessee is entitled to a refund of the tax deducted at source. The departmental appeal was dismissed, and the cross-objection was allowed.

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