1965 (7) TMI 2 - HC - Income Tax

Income from various sources including salary for the services rendered by him - special allowance received by the assessee from the Sanghi Bros in the year of account, in accordance with the resolution dated October 10, 1951, of the board of directors of Sanghi Bros. Limited, - taxability as salary income

Summary

Issues:
1. Taxability of special allowance received by the assessee from Sanghi Bros. Pvt. Ltd.
2. Taxability of a sum received by the assessee under an agreement from Shri Jagannath Dhand.

Analysis:
1. The first issue pertains to the taxability of a special allowance of Rs. 8,400 received by the assessee from Sanghi Bros. Pvt. Ltd. The allowance was granted for paying commission to secure business for the company. The Income-tax Officer included this amount in the assessee's total income as he failed to prove actual expenditure for the specified purpose. The Tribunal referred the question of taxability to the High Court. The court analyzed the relevant provisions of the Income-tax Act, emphasizing that such allowances are taxable unless the employee proves actual expenditure for the specified purpose. As the assessee failed to provide evidence of expenditure, the court upheld the inclusion of the amount in his total income.

2. The court distinguished a previous judgment of the Madhya Pradesh High Court related to the same employer, Sanghi Bros. Ltd., where a deduction was allowed for a similar payment. However, the court clarified that the purpose for which the employer pays an amount to the employee is not sufficient to claim a deduction unless the employee proves actual expenditure. In this case, the court found no evidence that the assessee had expended the allowance for the specified purpose. Therefore, the court answered the first question in favor of the tax authorities, affirming the taxability of the special allowance in the hands of the assessee.

3. The second issue regarding a sum received under an agreement from Shri Jagannath Dhand was not pressed by the assessee's counsel, and hence, the court did not address this question. Consequently, the court ordered the assessee to pay the costs of the Commissioner. The judgment provides a detailed analysis of the tax treatment of special allowances and the burden of proof on the employee to establish actual expenditure for the specified purpose to avoid tax liability on such allowances.