Tax deduction at source cannot be withheld from a judgment debt that is not identifiable as salary.

A decretal amount comprising arrears of salary, compensation for wrongful termination, notice pay and interest could not be treated as salary for tax deduction at source because the claim had merged into a judgment debt and was no longer identifiable as salary. The statutory duty to deduct tax under section 18(2) arose only where the payment was salary as such, and that condition was not met. Section 46(5) also could not be invoked because no tax had been assessed against the recipient at the relevant time. The judgment debtor was therefore not entitled to withhold tax from the decretal amount.

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Issues: Whether the amount payable under a decree for arrears of salary, compensation for wrongful termination, notice pay and interest could be treated as salary so as to attract deduction of income-tax at source by the judgment debtor, and whether the Income-tax Officer could require deduction under section 46(5).

Analysis: The statutory duty to deduct tax under section 18(2) arises only when the amount paid is salary payable as such. The decretal amount in question had merged in a judgment debt and included substantial compensation for wrongful termination and other items, so it could not be identified as salary for the purpose of section 18. No tax had been assessed against the respondent at the relevant time, so section 46(5) could not be invoked. The decree had to be executed according to its tenor, and the Income-tax Act contained no provision authorising the judgment debtor to withhold tax from a judgment debt merely because the original cause of action arose out of employment.

Conclusion: The appellant company was not entitled to deduct income-tax at source from the decretal amount, and the Income-tax Officer's requisition could not be sustained.

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