1968 (9) TMI 43 - HC - Income Tax

Assessee, employee - contributions made to the pension scheme of company - entitled to any exemption u/s 15(1) of the IT Act, 1922

Summary

Issues:
Interpretation of section 15 of the Indian Income-tax Act, 1922 regarding exemption for contributions made by an employee to a pension scheme.

Detailed Analysis:
The judgment concerns a reference under section 66(2) of the Indian Income-tax Act, 1922, initiated by the department regarding the tax treatment of sums contributed by an employee to a pension scheme. The scheme in question involved provisions for cash payment in case of the employee's death before retirement and a pension upon reaching retirement age. The employer and employee both contributed to the scheme. The central issue was whether the sums contributed by the employee would be exempt from taxation under section 15 of the Income-tax Act. The court examined whether the payments made by the employee could be considered as part of a contract for a deferred annuity on the life of the assessee.

The court first addressed whether the sums were actually paid by the assessee, which was confirmed as the employee had made contributions to the pension scheme. Next, the court analyzed whether the contract in question qualified as a contract for a deferred annuity. The court determined that the scheme, providing for annual payments post-retirement, satisfied the definition of an annuity contract. Additionally, the deferred nature of the payments until retirement further supported the classification of the contract as a deferred annuity.

Furthermore, the court considered whether the payments were made "in respect of" a contract for a deferred annuity, as required by section 15. The court clarified that even though the scheme included provisions for a cash payment on death before retirement, the employee's contributions were solely directed towards the deferred annuity aspect of the contract. The court emphasized that the employee did not contribute towards the cash payment liability, which was the exclusive responsibility of the employer.

The court also highlighted a prior decision indicating that a pension grant could be considered a deferred annuity, supporting the interpretation of the scheme in question. It was noted that while English statutes may differ, section 15 of the Indian Income-tax Act did not mandate the contract for a deferred annuity to be with an insurance company. Ultimately, the court concluded that the requirements of section 15 were met in this case, and the employee was entitled to exemption for the contributions made to the pension scheme.

In conclusion, the court answered the reference question affirmatively, ruling in favor of the assessee. Each party was directed to bear their own costs, and both judges concurred with the decision.