1978 (6) TMI 50 - HC - Income Tax

Court rules tax paid by Ballarpur for assessee as taxable income, not under 'Salaries' - assessable income definition.

The court ruled in favor of the revenue, determining that the tax paid by Ballarpur on behalf of the assessee is taxable as income from other sources. The ... Income from other sources - Inclusive definition of 'income' under section 2(24) - Perquisite or benefit conferred by payment on behalf of assessee - Discharge of assessee's legal liability by third party - Distinction from 'salary' and employer-employee relationshipPerquisite or benefit conferred by payment on behalf of assessee - Inclusive definition of 'income' under section 2(24) - Income from other sources - Amount of tax paid by Ballarpur on behalf of the assessee is taxable as income under the head 'Income from other sources' for the assessment years 1974-75 and 1975-76. - HELD THAT: - Ballarpur, pursuant to contractual obligations arising from its arrangement with the foreign employers, discharged the assessee's legal liability to pay income-tax for the two assessment years. The Court held that payment by a third party which effects discharge of the taxpayer's legal obligation operates as a benefit or accession to the taxpayer and may constitute 'income'. The definition of 'income' in section 2(24) is inclusive and not exhaustive; the fact that certain benefits or perquisites are specifically made taxable under sections dealing with salaries or profits and gains does not exclude other benefits from being assessable under a different head where they fairly constitute income. The payment directly to the revenue does not alter the character of the benefit received by the assessee. It was unnecessary to characterise the receipt as salary (and there was no employer-employee relationship between Ballarpur and the assessee), and therefore the proper head for assessment was the residual head 'Income from other sources' rather than 'Salaries'.Payment of the assessee's tax by Ballarpur amounts to assessable income of the assessee and is taxable under 'Income from other sources' for the years 1974-75 and 1975-76.Final Conclusion: Reference answered in the affirmative in favour of the revenue; the tax paid by Ballarpur on the assessee's behalf is assessable as the assessee's income under the head 'Income from other sources' for AY 1974-75 and AY 1975-76; assessee to pay costs. Issues involved: The issue involves determining whether the tax paid by Ballarpur on behalf of the assessee in the assessment years 1974-75 and 1975-76 is taxable as income under the heading 'Other sources'.Summary:The matter pertains to the assessment of the assessee for the two assessment years 1974-75 and 1975-76. Ballarpur entered into agreements with Krebs and Escher Wyas Zurich for setting up a Caustic Soda/Chlorine manufacturing plant, under which the assessee provided services. Ballarpur made payments to the assessee as per the agreements. The Income-tax Officer considered the tax paid by Ballarpur as a perquisite added to the salary of the assessee. The Appellate Assistant Commissioner disagreed, stating that the tax paid by Ballarpur was to be treated as the assessee's income from other sources.The matter was taken to the Income-tax Appellate Tribunal, which observed that Ballarpur was under a legal obligation to pay the tax on behalf of the assessee. The Tribunal concluded that the tax paid by Ballarpur was taxable under the heading 'Income from other sources'. The assessee challenged this conclusion.The assessee argued that the payment by Ballarpur should not be considered as income under the head 'Income from other sources' as it did not fall under the specific provisions of the Income-tax Act. However, the court held that the definition of 'income' is inclusive and not exhaustive, and the benefit received by the assessee from Ballarpur constituted income assessable and taxable. The court rejected the argument that the benefit should be considered under the head 'Salaries' due to the absence of an employer-employee relationship between Ballarpur and the assessee.In conclusion, the court answered the question in the affirmative and in favor of the revenue, ruling that the tax paid by Ballarpur on behalf of the assessee is taxable as income from other sources. The assessee was directed to pay the costs of the reference to the revenue.