Capital gains valuation and employer-funded annuity payments were treated differently: post-1954 bonus shares lost the valuation option.
Section 55(2)(b)(i) permits substitution of the market value as on 1 January 1954 only where the asset had become the assessee's property before that date, so bonus shares acquired after that date were not eligible for that option. An employer's payment to the Life Insurance Corporation for a deferred annuity policy was not includible as salary income on the facts applied, and the amount used for the single premium did not form part of the assessee's remuneration for the relevant year. The reference was therefore answered partly for the Revenue and partly for the assessee.
Issues: (i) Whether the assessee could claim the option of substituting the market value as on 1 January 1954 for bonus shares acquired after that date under section 55(2)(b)(i) of the Income-tax Act, 1961; (ii) whether one-third of the amount paid by the employer to the Life Insurance Corporation of India for purchase of a deferred annuity policy was includible as income under the head "Salaries"; (iii) whether the amount utilised by the employer towards the single premium for obtaining the deferred annuity policy formed part of the assessee's remuneration for the relevant assessment year.
Issue: (i) Whether the assessee could claim the option of substituting the market value as on 1 January 1954 for bonus shares acquired after that date under section 55(2)(b)(i) of the Income-tax Act, 1961.
Analysis: The statutory option was available only if the asset had become the property of the assessee before the relevant date. Bonus shares acquired after 1 January 1954 did not satisfy that condition, and the benefit of the provision could not be invoked.
Conclusion: The question was answered in the negative, against the assessee and in favour of the Revenue.
Issue: (ii) Whether one-third of the amount paid by the employer to the Life Insurance Corporation of India for purchase of a deferred annuity policy was includible as income under the head "Salaries".
Analysis: The issue was covered by an earlier decision of the Court on the same line of facts, which held that the amount in question was not includible as salary income.
Conclusion: The question was answered in the negative, in favour of the assessee and against the Revenue.
Issue: (iii) Whether the amount utilised by the employer towards the single premium for obtaining the deferred annuity policy formed part of the assessee's remuneration for the relevant assessment year.
Analysis: The Court followed its earlier ruling and held that the amount so utilised did not constitute remuneration payable to the assessee for the relevant year.
Conclusion: The question was answered in the affirmative, in favour of the assessee and against the Revenue.
Final Conclusion: The reference was answered partly against the assessee and partly in his favour, with question 1 decided for the Revenue and questions 2 and 3 decided for the assessee.
Ratio Decidendi: The statutory option under section 55(2)(b)(i) is available only when the asset had become the assessee's property before the specified date, and an employer-funded deferred annuity premium does not, on the facts applied, constitute includible salary income or remuneration.