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TMI Blog1964 (4) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... t. Appeal dismissed - Civil Appeal No. 220 of 1963 - - - Dated:- 1-4-1964 - Judge(s) : K. SUBBA RAO., J. C. SHAH., S. M. SIKRI JUDGMENT The judgment of the court was delivered by SUBBA RAO J.----This appeal by special leave preferred against the judgment of the High Court of Kerala at Ernakulam raises the question of the interpretation of section 7(1) of the Indian Income-tax Act, 1922 (XI of 1922), hereinafter called the Act. The respondent, L. W. Russel, is an employee of the English and Scottish Joint Co-operative Wholesale Society Ltd., Kozhikode, hereinafter called the Society, which was incorporated in England. The Society established a super-annuation scheme for the benefit of the male European members of the Society's staff employed in India, Ceylon and Africa by means of deferred annuities. The terms of such benefits were incorporated in a trust deed dated July 27,1934. Every European employee of the Society shall become a member of that scheme as a condition of employment. Under the terms of the scheme the trustee has to effect a policy of insurance for the purpose of ensuring an annuity to every member of the Society on his attaining the age of supe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act. Mr. Rajagopal Sastri, learned counsel for the appellant, contends that the amount contributed by the Society under the scheme towards the insurance premium payable by the trustees for arranging a deferred annuity on the respondent's super-annuation is a perquisite within the meaning of section 7(1) of the Act and that the fact that the respondent may not have the benefit of the contributions on the happening of certain contingencies will not make the said contributions any the less a perquisite. The employer's share of the contributions to the fund earmarked for paying premiums of the insurance policy, the argument proceeds, vests in the respondent as soon as it is paid to the trustee, and the happening of a contingency only operates as a defeasance of the vested right. The respondent is ex parte and, therefore, the court has not the benefit of the exposition of the contrary view. Before we attempt to construe the scope of section 7(1) of the Act it will be convenient at the outset to notice the provisions of the scheme, for the scope of the respondent's right in the amounts representing the employer's contributions thereunder depends upon it. The trust deed and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e trustees ; the society shall contribute one-third of the premium from time to time payable in respect of the policy securing the deferred annuity in respect of each member as thereinbefore provided and the member shall contribute the remaining two-thirds ; the age at which a member shall normally retire from the service of the Society shall be the age of 55 years and on retirement at such age a member shall be entitled to receive a pension of the amount specified in rule 6 ; a member may also, after following the prescribed procedure, commute the pension to which he is entitled for a payment in cash in accordance with the fourth column of the Table in the Appendix annexed to the Rules ; if a member shall leave or be dismissed from the service of the Society for any reason whatsoever or shall die while in the service of the Society there shall be paid to him or his legal personal representatives the total amount of the portions of the premiums paid by such member and if he shall die whilst in the service of the Society there shall be paid to him or his legal personal representatives the total amount of the portions of the premiums paid by such member and if he shall die whilst in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case may be, will then have to be paid by the trustees to the Society. Under the scheme the employee has not acquired any vested right in the contributions made by the Society. Such a right vests in him only when he attains the age of super-annuation. Till that date that amount vests in the trustees to be administered in accordance with the rules ; that is to say, in case the employee ceases to be a member of the Society by death or otherwise, the amounts contributed by the employer with interest thereon, subject to the discretionary power exercisable by the trustees, become payable to the Society. If he reaches the age of super-annuation, the said contributions irrevocably become fixed as part of the funds yielding the pension. To put it in other words, till a member attains the age of super-annuation the employer's share of the contributions towards the premiums does not vest in the employee. At best he has a contingent right therein. In one contingency the said amount becomes payable to the employer and in another contingency, to the employee. Now let us look at the provisions of section 7(1) of the Act in order to ascertain whether such a contingent right is hit by the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expression " due " followed by the qualifying clause " whether paid or not " shows that there shall be an obligation on the part of the employer to pay that amount and a right on the employee to claim the same. The expression " allowed ", it is said, is of a wider connotation and any credit made in the employer's account is covered thereby. The word " allowed " was introduced in the section by the Finance Act of 1955. The said expression in the legal terminology is equivalent to " fixed, taken into account, set apart, granted ". It takes in perquisites given in cash or in kind or in money or money's worth and also amenities which are not convertible into money. It implies that a right is conferred on the employee in respect of those perquisites. One cannot be said to allow a perquisite to an employee if the employee has no right to the same. It cannot apply to contingent payments to which the employee has no right till the contingency occurs. In short, the employee must have a vested right therein. If that be the interpretation of section 7(1) of the Act, it is not possible to hold that the amounts paid by the society to the trustees to be administered by them in accordance wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons thereof. In the event of any such Assistant Master retiring from ill-health the Governors, in addition to the increase sanctioned by (a), may grant him the further 5 per cent. sanctioned by (c), and the accumulations thereof. In the event of death of any such Assistant Master whilst in the service of the College, the 5 per cent. due by (c) as well as under (a) with the accumulations thereof, shall be paid to his legal representative. " It was contended that the amount payable under clause (c) of paragraph 1 was a contingent one without any vested character and, therefore, could not be described as income in any way. The learned judge construed the provisions of the scheme and rejected the contention. The main reason for his conclusion is stated thus : " The result seems to me to be that I must take that sum as a sum which really has been added to the salary and is taxable, and it is not the less added to the salary because there has been a binding obligation created between the Assistant Masters and Governors of the Schools that they should apply it in a particular way. " No doubt it is possible for another court to come to a different conclusion on the construction of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , in rejecting the contention, observed : " . . . under these circumstances they could not be said to have accrued to this employee a vested interest in these successive sums, placed to his credit, but only that he had a chance of being paid a sum at the end of six years if all went well. That absence has now supervened, and he has got it by reason of the fact of his employment, or by reason of his exercising an employment of profit within Schedule E. " Maugham L.J. said much to the same effect thus : " The true nature of the agreement was that he was to be entitled in the events, and only in the events mentioned in clause 8 of the agreement, to the investments made by the company out of the net profits of the company as provided in clause 6. " The decision of Channell J. in Smyth v. Stretton was strongly relied upon before the appellate court. But the learned judges distinguished that case on the ground that under the scheme which was the subject-matter of that decision the sums taxed were really addition to the salary of the Assistant Master and that, in any view, that decision should be confined to the facts of that case. The principle laid down by the Court of Appea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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