Income arising in India: allowances tied to office accrue in India and are taxable as salary.

Allowance payments from the Colonial Bishopric Fund were held to be income for the purposes of the Income-tax Act; the court accepted the assessee's concession that the payment was an allowance and chargeable as income. The court applied the accrual principle, distinguishing receipt from arising/accruing, and held that the allowance arose or accrued in British India because it sprang from the assessee's holding of the office of Lord Bishop of Lucknow, even though paid in London. The allowance was characterised as a perquisite attached to the office and therefore taxable under the head 'salaries' as perquisites of office; the assessee's claims were rejected.

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Issues: (i) Whether the sums received from the Colonial Bishopric Fund were income within the meaning of Section 3 of the Income-tax Act; (ii) Whether that income arose or accrued in British India within the meaning of Section 4(1) of the Income-tax Act; (iii) Whether the tax on that income was payable under the head "salaries" (Section 7(1)) or under the head "other sources" (Section 12(1)).

Issue (i): Whether the sums received from the Colonial Bishopric Fund constituted income under Section 3 of the Income-tax Act.

Analysis: The assessee conceded that the allowance paid by the Colonial Bishopric Fund is an "allowance" or income for the purposes of Section 3. The Court recorded that concession and treated the sums as income chargeable to tax under the Act.

Conclusion: The sums are income within the meaning of Section 3 of the Income-tax Act in favour of Revenue.

Issue (ii): Whether the income arose or accrued in British India under Section 4(1) of the Income-tax Act.

Analysis: The Court distinguished the concepts of "received", "arising" and "accruing" and held that although the payments were made in London, the allowance "arose" or "accrued" by reason of the assessee's holding the office of Lord Bishop of Lucknow in British India. The income would be lost if the assessee ceased to hold that office or left British India; therefore the right to the allowance springs into being from the position held in India.

Conclusion: The income accrued or arose in British India; therefore it is taxable as income arising in British India (in favour of Revenue).

Issue (iii): Whether the allowance is taxable under the head "salaries" (Section 7(1)) or under "other sources" (Section 12(1)).

Analysis: Section 7(1) includes fees and perquisites received by an assessee in respect of or in addition to salary. The allowance was paid by reason of the assessee's office as Lord Bishop of Lucknow and is attached to that office rather than to the person in his private capacity. The Court treated the allowance as a perquisite of the office.

Conclusion: The allowance is taxable under the head "salaries" as a perquisite within Section 7(1) of the Income-tax Act (in favour of Revenue).

Final Conclusion: The Court answered the reference by holding that the Colonial Bishopric Fund payments are income within Section 3, that such income accrued or arose in British India, and that the sums are taxable under the head "salaries" in terms of Section 7(1); accordingly the assessee's claims were rejected.

Ratio Decidendi: Income which is payable by reason of holding an office in British India accrues or arises in British India even if physically paid outside India, and allowances attached to an office constitute salaries or perquisites under Section 7(1) of the Income-tax Act.

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