9911796707
TMI Blog1992 (3) TMI 119X X X X Extracts X X X X X X X X Extracts X X X X ..... urn held by Warren Plantation Holdings Ltd. (WTH), a public limited company registered in the United Kingdom. Consequent to the " Indianisation " of the sterling companies in November 1977, a public limited company by name Warren Tea Co. Ltd. (WTC) was formed and registered in India, and the assessee was appointed its managing director from 1-7-1978. The appointment was initially for one year, but thereafter the assessee was reappointed for five years with effect from 1-7-1979. His appointment on the terms and conditions set out in the agreement was duly approved by the Central Government with slight modifications that are not relevant for the purpose of the appeal. 3. In October 1981, the controlling shares in WPH were acquired by Macleod Russel p.l.c. of Vernon place, London, U.K. and became what in commercial parlance is called the " parent company ". It is stated -- and that is not disputed by the Assessing Officer -- that Macleod Rusell p.l.c. (MR) at that point of time assured the employees of WPH and all the subsidiary companies down the line that their career prospects will not be jeopardised by its acquisition of the controlling interest in WPH. This assurance is advert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if any charge of misappropriation of funds is levelled against him within a year of such payment. But that point based on the " gentlemen's agreement " was raised by the assessee before the ITO only in support of his alternative contention that the amount, if at all, could be assessed only in the assessment year 1985-86 when the period of one year would expire on 24-5-1984. But the facts upto the point of the receipt of the money are not disputed and those are the facts from which the nature and character of the receipt have to be judged in order to determine the assessability of the same to income-tax. 9. We have to therefore proceed to a consideration of the true nature of the receipt. Now, the nature of a receipt has to be judged from the point of view of the recipient. The first question to be asked is from whom was the amount received ? Was it from the employer ? The answer is " no ". The assessee quite clearly did not receive the amount from WTC, who was his employer. The provisions of the I.T. Act taxing income by way of salary apply even to amounts received by an assessee from his " former employer " but even this extended application of the provisions cannot take in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r WPH to the employees of the various companies of the group, there is no evidence or material on record, nor was it even suggested, that MR had promised any payment to the employees if their services were to be terminated by the acquisition of the controlling interest. Even if it had, that would be of no avail to the revenue in this case, since we are concerned with the payment made by MR after it had disgorged its holdings in WPH in favour of Derrysel at which time no such assurance is alleged, by either side before us, to have been given. It is not the case of the revenue before us or at any stage before the matter reached us, that MR had, even at the time of acquiring controlling interest in WPH in October, 1981, assured the employees of the group companies, of which the assessee was one, that their career prospects will not be jeopardised even if at a later point of time the controlling interest were to pass from its hands to others. No such assurance is alleged to have been held out. On these facts, we cannot imagine that the payment was referable to some sort of agreement or understanding between the assessee and MR. 11. Correspondingly, it would be proper and logical to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lready found that there is no privity of contract of any nature between the assessee and MR. 13. The letter dated 17-1-1984, written by MR to the office of the DDI, Investigation, Calcutta, confirmed the above factual position. This letter, according to the counsel for the assessee, was filed before the ITO. It is as under : " Mr. Arabinda Ray Thank you for year letter of 2nd January 1984 concerning Mr. Arabinda Ray. You may find it helpful if I first clarify the position that Mr. Ray held within the Macleod Russel Group. Mr. Ray was the Managing Director of Warren Tea Ltd. a company incorporated in India and owned as to approximately 74% by the Macleod Russel Group. As Managing Director, Mr. Ray had a contract of employment with Warren Tea Ltd. but had no contract with Macleod Russel or any of its other subsidiary. When Macleod Russel sold its interest in Warren Tea Ltd. at the end of March 1983, we were informed by the purchasers, Derrysel Ltd., that following the purchase they would be terminating Mr. Ray's contract as they wish to appoint a new Managing Director. Subsequently, Mr. Ray's contract was terminated in April 1983, although he remained a non-executive Directo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s ' a fortiori ' inasmuch as the decisions cited have held that even the payments made by the employer (in the cases before them) would not fall within the provisions of section 17(3)(ii). 15. We would refer to a decision of the Calcutta High Court in David Mitchell v. CIT [1956] 30 ITR 701. Chakravarthi, C.J., was inclined towards the view that if there is no privity of contract between the payer and the payee, the amount cannot be taxed as salary under section 7 of the 1922 Act. The passage at page 714 of the report brings out the distinction between sums received by an assessee from his employer pursuant to a contract of employment and those received from persons other than the employer for the purpose of assessing the receipt as salary. It is as under : " I may say at once that I do not think that the taxing authorities were right in assessing the value of the shares under section 7 of the Act. They could only be described, if they at all came under clause (1) of section 7, as perquisites or profits, but the section requires that even perquisites or profits must be, if they are to be taxed under the section, " in lieu of or in addition to any salary or wages ", which are ..... X X X X Extracts X X X X X X X X Extracts X X X X
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