Court rules deferred annuity and life insurance policy funds not part of assesses' income.

The High Court upheld the Tribunal's decision that the amounts in question were not to be included in the total income of the assessees. It was determined that the deferred annuity policy funds and the life insurance policy value did not form part of the remuneration payable to the assessee, as per the resolutions and agreements in place. The court rejected the Revenue's tax avoidance argument, affirming that the transactions were structured to defer income accrual legitimately. Therefore, the court ruled in favor of the assessees, with no cost orders issued.

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Issues Involved:
1. Inclusion of Rs. 26,221 in the assessee's income under the head 'Salaries'.
2. Whether Rs. 26,221 utilized for deferred annuity policy forms part of the assessee's remuneration for the assessment year 1973-74.
3. Taxability of Rs. 90,000 value of life insurance policy taken by Sarangpur Cotton Mfg. Co. Ltd. on the assessee for the assessment year 1974-75.

Detailed Analysis:

Issue 1: Inclusion of Rs. 26,221 in the Assessee's Income under 'Salaries'
The primary question was whether Rs. 26,221, being 1/3rd of Rs. 78,663 paid by Sarangpur Mills for a deferred annuity policy, should be included in the assessee's income under 'Salaries'. The Income-tax Officer and the Appellate Assistant Commissioner both held that the remuneration had accrued to the assessee and thus was chargeable under section 15 of the Income-tax Act, despite being invested in the insurance policy. However, the Tribunal held that the directors had resolved not to pay this portion of the remuneration directly to the assessee and instead used it to purchase deferred annuity policies, thus it did not form part of the remuneration payable to the assessee. The Tribunal's decision was based on the articles of agreement and the resolutions passed by the board of directors, which clearly indicated that no vested right was created in favor of the assessee until the first payment of annuity.

Issue 2: Rs. 26,221 as Part of Remuneration for Assessment Year 1973-74
The second issue was whether the amount of Rs. 26,221 utilized by Sarangpur Mills towards the purchase of a deferred annuity policy formed part of the remuneration payable to the assessee for the assessment year 1973-74. The Tribunal concluded that the amount did not form part of the remuneration payable to the assessee, as the board of directors had resolved to use a portion of the remuneration to purchase deferred annuity policies instead of paying it directly to the managing directors. The Tribunal's decision was influenced by the company's audited accounts and the specific resolutions indicating that no benefit or right was to accrue to the managing directors until the annuity payments commenced.

Issue 3: Taxability of Rs. 90,000 Life Insurance Policy for Assessment Year 1974-75
The third issue concerned the taxability of Rs. 90,000, the value of the life insurance policy taken by Sarangpur Cotton Mfg. Co. Ltd. on the assessee for the assessment year 1974-75. The Tribunal held that the amount spent on purchasing the deferred annuity policies did not form part of the remuneration payable to the assessee and thus was not includible in the total income. The Tribunal's decision was based on the resolutions passed by the board of directors, which clearly stated that no vested right or interest in the policy would accrue to the managing directors until the commencement of annuity payments. The Tribunal also noted that the policies were taken out for the benefit of the managing directors but did not create any present right in their favor, thus the sums in question were not considered "perquisites" under section 17(2)(v) of the Act.

Conclusion:
The High Court upheld the Tribunal's findings, concluding that the sums in question were not includible in the total income of the assessees. The court emphasized that the resolutions passed by the board of directors clearly indicated that no vested right or interest was created in favor of the managing directors until the commencement of annuity payments. The court also rejected the Revenue's contention that the transactions were a device to avoid tax, affirming that the true nature of the transactions was to postpone the accrual and receipt of income. Consequently, the court answered the questions in favor of the assessees and against the Revenue, with no order as to costs.

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