1924 (11) TMI 2 - HC - Income Tax

Tax Court Rules Lump Sum Payment Not Taxable Outside British India

The court held that the lump sum payment received by the assessee upon resignation was not taxable as it was not received in British India within the ... Received in British India - deemed to be received in British India - profits and gains of a business brought into British India - taxable under the head salariesReceived in British India - deemed to be received in British India - profits and gains of a business brought into British India - Whether the lump-sum honorarium paid to the assessee was received in British India within the meaning of Section 4(1) of the Income Tax Act, 1922. - HELD THAT: - The Court held that the statutory word 'received' in Section 4(1) must be given effect as the first occasion on which the recipient obtained the money under his own control. The facts show the sum was first paid to and credited in the Hyderabad branch of the Imperial Bank (outside British India) and was only subsequently transferred to the Patna branch. Earlier acknowledgments signed by the assessee at Patna were evidentiary but not conclusive of actual receipt there, and no credit entry had been made at Patna at the time of the acknowledgment. The Court rejected the Commissioner's reliance on the employer's intention and on the form of the acknowledgment as determinative of 'receipt' in British India, and adopted the view followed by the Full Bench of the Lahore High Court and the Special Bench of the Madras High Court that income earned and first received outside British India remains outside the scope of Section 4(1) until actually received in British India. Applying these principles to the found facts, the Court concluded the amount was received at Hyderabad (outside British India) and therefore Section 4(1) did not apply. [Paras 10, 11, 14]The honorarium was received by the assessee at Hyderabad outside British India and not in British India within the meaning of Section 4(1); accordingly it is not chargeable under that provision.Final Conclusion: Reference answered in the negative on the facts found: the sum was not received in British India within Section 4(1) and therefore is not chargeable under that provision; the question whether the payment amounted to 'salary' under Section 7(1) was left undecided as unnecessary to decide. Issues Involved:1. Whether the lump sum payment received by the assessee upon resignation is liable to taxation as salary under Section 7(1) of the Income Tax Act, 1922.2. Whether the sum received by the assessee can be considered as received in British India for tax purposes.Issue-wise Detailed Analysis:1. Taxability of Lump Sum Payment as Salary:The primary issue was whether the lump sum payment received by the assessee upon resignation from a salaried post is liable to taxation as salary under Section 7(1) of the Income Tax Act, 1922. The assessee argued that the sum paid was not salary within the meaning of Section 7(1) of the Act. Section 7(1) of the Act includes salary, wages, annuity, pension, gratuity, fees, commissions, perquisites, or profits received in lieu of or in addition to any salary or wages paid by or on behalf of the government, a local authority, a company, or any other public body, or association, or by or on behalf of any private employer.The assessee contended that voluntary payments made in circumstances such as the present did not accrue by reason of his office or employment, citing English cases like Turner v. Cuxon and Cowan v. Seymour. However, the court noted that the wording of Section 7(1) of the Indian Income Tax Act is very wide and includes various forms of payments received in lieu of or in addition to any salary or wages. Despite the complexity of determining whether the payment was a gratuity or merely a testimonial, the court found it unnecessary to decide this point due to the resolution of the second issue.2. Receipt of Income in British India:The second issue was whether the sum received by the assessee can be considered as received in British India for tax purposes. The facts revealed that the assessee was offered a salaried post in Hyderabad and resigned before the completion of his term. Upon resignation, an honorarium equal to the salary for the remaining term was directed to be paid to him through the Imperial Bank of India. The payment process involved transferring the money from the Hyderabad branch to the Patna branch and then to the assessee's account in Patna.The court examined Section 4(1) of the Income Tax Act, which states that the Act applies to all income, profits, or gains received in British India or deemed to be received in British India. The court noted that salaries earned by a British subject outside British India are not ordinarily chargeable under the Indian Income Tax Act. The court also referred to previous judgments, such as Sunder Das v. Crown and Secretary, Board of Revenue v. Ripon Press and Sugar Mills Co., which held that income earned and received outside British India and subsequently brought into British India is not liable to be assessed to Income Tax.The court determined that the receipt of the income must refer to the first occasion upon which the recipient got the money under his control. In this case, the sum was first credited to the assessee's account at the Hyderabad branch and later transferred to the Patna branch. The court found that the sum in question was received by the assessee at Hyderabad outside British India and that Section 4(1) of the Act did not apply.Conclusion:The court concluded that the sum received by the assessee was not taxable as it was not received in British India within the meaning of Section 4(1) of the Income Tax Act, 1922. The answer to the question upon which the court's decision was sought was in the negative with reference to the facts found in the case. The Petitioner was entitled to his costs, including the costs incidental to printing the paper book, with the hearing fee assessed at Rs. 300.Separate Judgment by B.K. Mullick, J.:B.K. Mullick, J. concurred with the decision, emphasizing that the income was neither received in British India nor deemed to have been so received. He highlighted that the Indian Act requires that income earned outside British India should be actually received in British India to be taxable. On the evidence, it was clear that the income was not received in British India, nor was there any provision in the Act deeming it to have been received in British India. He also agreed that it was unnecessary to decide whether the income was derived from salaries.