Deferred annuity benefits and salary accrual: employer-set commission diversion was not taxable until employees' right to receive vested.

An employer's valid remuneration arrangement that diverts commission into deferred annuity or life insurance benefits without conferring any present vested right on the employee prevents the amount from accruing as taxable salary or perquisite. The Gujarat High Court noted that the board resolutions and payment structure postponed accrual until the first annuity payment became due, so the sums were neither paid, allowed, nor due to the employees at that stage. It also rejected the argument that the arrangement was a colourable device, treating it as a postponement of income accrual rather than immediate receipt. The diverted amounts were therefore not includible in the employees' total income until the right to receive them vested.

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Issues: Whether amounts diverted from the assessees' commission and used by the employer to purchase deferred annuity policies, or to effect life insurance / annuity benefits, constituted income or perquisites taxable in the assessees' hands.

Analysis: The remuneration arrangements and board resolutions showed that the company intended not to confer any present right, lien, or interest in the policies until the first annuity payment became due. The assessees therefore had no vested right in the sums diverted to the insurer, and the amounts were not paid, allowed, or due to them within the meaning of the salary and perquisite provisions. The court also held that the transaction was not a colourable device to evade tax, but one that postponed accrual of income and transferred the right to receive it to a future date. The contention that the commission had already become due at the end of the accounting year was rejected because payment was subject to the company's resolution and sanction mechanism.

Conclusion: The amounts used for purchasing deferred annuity policies did not form part of the assessees' taxable salary or perquisites and were not includible in their total income.

Ratio Decidendi: Where an employer, by a valid resolution, withholds remuneration and applies it to purchase deferred annuity benefits without conferring any present vested right on the employee, the amount does not accrue as taxable salary or perquisite in the employee's hands until the right to receive it actually vests.

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