1961 (1) TMI 90 - HC - Income Tax

Court rules employer contributions to deferred annuity not 'perquisites' under Income-tax Act.

L.W. Russel Versus Commissioner of Income-tax

L.W. Russel Versus Commissioner of Income-tax - [1962] 44 ITR 816 (KER.) Issues Involved:1. Whether the contributions paid by the employer to the assessee under the terms of a trust deed in respect of a contract for a deferred annuity on the life of the assessee is a 'perquisite' as contemplated by section 7(1) of the Indian Income-tax Act.2. Whether the said contributions were allowed to or due to the applicant by or from the employer in the accounting year.3. Whether the deferred annuity aforesaid is an annuity hit by section 7(1) and paragraph (v) of explanation I thereto.Issue-wise Detailed Analysis:Issue 1: Whether the contributions paid by the employer to the assessee under the terms of a trust deed in respect of a contract for a deferred annuity on the life of the assessee is a 'perquisite' as contemplated by section 7(1) of the Indian Income-tax Act.The court examined the nature of the contributions made by the employer under the trust deed and the rules governing the trust. It was noted that the contributions by the employer were not immediately vested in the employees but were contingent on certain conditions such as the employee reaching the age of 55 or completing ten years of service. The court referenced several cases to support the argument that mere expectancy of benefit does not amount to acquisition of a right, and therefore, such contingent benefits do not qualify as 'perquisites' under section 7(1) of the Indian Income-tax Act. The court concluded that the employer's contributions under the terms of a trust deed are not perquisites as contemplated by section 7(1).Issue 2: Whether the said contributions were allowed to or due to the applicant by or from the employer in the accounting year.The court analyzed whether the contributions made by the employer in the accounting year conferred any immediate benefit to the employees. It was observed that the employees did not receive any vested rights in the contributions during the first ten years of their employment, and the benefits were contingent on future events such as reaching the retirement age or termination due to ill-health. The court held that the employer's contributions were not allowed or due to the employees in the accounting year as they conferred no immediate benefit on the employees in that year.Issue 3: Whether the deferred annuity aforesaid is an annuity hit by section 7(1) and paragraph (v) of explanation I thereto.The court considered the interpretation of the term 'annuity' under section 7(1) and paragraph (v) of explanation I. It was argued that the term 'annuity' should be interpreted to include only those annuities that are received periodically and not deferred annuities payable only on retirement. The court noted that the legislature did not use the word 'deferred' with annuity in section 7(1) and, being a taxing statute, the interpretation should be strict. Consequently, the court concluded that deferred annuities would not be hit by paragraph (v) of explanation I to section 7(1).Conclusion:The court answered the questions as follows:1. The employer's contribution under the terms of a trust deed are not perquisites as contemplated by section 7(1) of the Income-tax Act.2. The employer's contributions were not allowed or due to the employees in the account year as they conferred no immediate benefit on the employees in that year.3. The legislature not having used the word 'deferred' with annuity in section 7(1) and this being a taxing statute, deferred annuity would not be hit by paragraph (v).The judgment governed both the cases and awarded costs of Rs. 100 in each reference.