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TMI Blog1988 (3) TMI 97X X X X Extracts X X X X X X X X Extracts X X X X ..... ax. In the proceedings under sec. 144B the Inspecting Assistant Commissioner however accepted the contention of the assessee that two assessments were to be made. He however directed the Income-tax Officer to tax the receipt of gratuity for the period ending 1-9-1980. Assessment was thus finalised by the Income-tax Officer in pursuance of his direction under sec. 144B. The matter was carried in appeal before the Commissioner of Income-tax (Appeals). On perusal of the trust deed, under which the gratuity was paid, the Commissioner of Income-tax (Appeals) observed that the very purpose of creating the fund was to pay the gratuity to all the employees covered by the said Rules as per the scales laid down therein, on retirement, death or discharge of the employee. The scale of the payment is equal to 15 days of basic salary for every one year of uninterrupted service of the employees subject to a maximum thirty half-monthly basic salaries. Gratuity was thus not payable according to him, only after the death of a person because the right of an employee for the gratuity accrued during his lifetime on account of the services rendered to the company. It became payable on the happening of c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... To assess an item we should see the provision which bring the gratuity to charge. 4. The next contention of Sri Sarkari is that chargeability of the gratuity is provided in sec. 15 under which it could be assessed to tax only if it had become due or received by the employee during his lifetime. In this connection, he submitted that the gratuity became payable after the death of the deceased and, therefore, it could not be assessed to tax in the hands of the legal representative as having become due on 1-9-1980 when Sri D.S. Mistry died. Reference to clause 18 of Rules Regulations of M. Dinshaw Co. Pvt. Ltd. Staff Gratuity Fund was invited in this behalf pointing out the fact that gratuity was payable to legal heirs of the employee on his death. Clause 4 of the Rules states the object of the Fund is to provide gratuities on death, retirement or discharge of the Company's employees. Clause 16 provides for the events and scales laid. Sub-clause (1) thereof which is relevant for the purpose reads as under : " (1) On the death or retrenchment or certified unfitness on medical grounds of an employee while in the service of the Company fifteen days' basic salary or wages for each ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was authorised to receive the same. Let us see the scheme of the Act. Sec. 4 is a charging section. It brings for charge to tax the total income of the assessee. Total income is defined in sec. 2(45) of the Act, as the total amount of the income referred in sec. 5 and computed in the manner laid down in the Act. Under sec. 5, total income of a person includes all income from whatever source derived which are received or deemed to have been received by him or on his behalf and also which accrue or arise or are deemed to accrue or arise to him. Computation of income is provided in various sections under 6 heads as mentioned in sec. 14. We are here concerned with the computation of income under the head "Salary" which is provided in secs. 15 to 17. Sec. 15 provides for the charge of the following income under the head 'Salaries' : " (a) any salary due from an employer or former employer to an assessee in the previous year, whether paid or not ; (b) any salary paid or allowed to him in the previous year by or on behalf of an employer or a former employer though not due or before it became due to him ; (c) any arrears of salary paid or allowed to him in the previous year by or on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecame due and payable to the appointee immediately after his death on 1-9-1980. Therefore, we do not find any force in this alternative contention of Sri Sarkari. 9. We may also state here that the assessment of this amount to estate duty of the deceased, which is stated to be a fact by the assessee in his favour, is in fact not very relevant. The fact that the amount has been assessed to estate duty gives an impression that the amount accrued to the deceased. It does not necessarily mean that it was due to the assessee on the date of his death or prior to his death. 10. We may also point out here in this connection the provisions contained in Part 'C' of Schedule IV to the Income-tax Act dealing with the approval of the gratuity fund. By clause 5 therein it is provided that where any gratuity is paid to an employee during his lifetime, the gratuity shall be treated as salary paid to the employee for the purposes of this Act. This gives an indication that it is this gratuity alone which is included in the definition of 'salary' under sec. 17(1)(iii). Any gratuity which is not paid to the employee during his lifetime may, therefore, be not treated as salary for the purposes of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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