2000 (11) TMI 1 - SC - Income Tax

Assessee claimed that the amount of Rs. 26, 221 that had been expended by the mills for the purchase of a deferred annuity policy for him was not includible in his hands as a part of income from salary - Whether the amount being one third of the sum paid to the Life Insurance Corporation by S for purchase of deferred annuity policy is includible in the hands of the assessee as income chargeable under the head Salaries - Held yes

Summary

Issues:
- Inclusion of amount paid for deferred annuity policy in the hands of the assessee as income chargeable under the head 'Salaries'
- Determination of whether the amount utilized for the purchase of annuity policy formed part of remuneration payable to the assessee

Issue 1:
The case involved managing directors of a public limited company who entered into agreements with the company, entitling them to receive remuneration. A resolution was passed by the board of directors directing the amount of commission payable to each managing director to be expended on purchasing single premium deferred annuity policies. The managing directors did not participate in the discussions but did not challenge the resolution, indicating their acquiescence. The Income-tax Officer and the Appellate Assistant Commissioner considered the amount as part of remuneration, while the Income-tax Appellate Tribunal ruled in favor of the assessee, stating that the amount utilized for annuity policies did not accrue to the managing directors. The High Court and Tribunal affirmed this decision, emphasizing that the resolutions did not create any vested rights for the assessees in the policies until the first annuity payment, thus postponing the accrual of income. However, the Supreme Court interpreted the resolutions differently, concluding that the commission accrued to the managing directors and was then spent on annuity policies as per the resolutions, rejecting the argument that the resolutions denied the obligation to pay the particular part of remuneration utilized for policies.

Issue 2:
The Supreme Court analyzed the resolutions passed by the board which directed the commission payable to managing directors to be spent on purchasing annuity policies. The Court emphasized that the resolutions did not mention any diversion of funds or denial of remuneration to the managing directors. The Court rejected the argument that the resolutions utilized clause 6(e) of the agreements to avoid paying the specific part of remuneration used for policies, stating that the commission had accrued to the managing directors and was then spent on annuity policies as per the resolutions. Consequently, the Court set aside the judgments and answered the questions in favor of the Revenue, allowing the civil appeals with costs.