1999 (5) TMI 2 - SC - Income Tax

Judges' Salaries Taxable as Income under Income-tax Act

The Supreme Court held that judges' salaries are taxable under the Income-tax Act, emphasizing that judges' salaries are considered income and subject to ... Taxability of judges' salaries as income - Head 'Salaries' under Income-tax Act - Constitutional provision for judges' salaries (articles 125 and 221) - Parliament's power to legislate on judges' salaries after amendment (with effect from April 1, 1986)Taxability of judges' salaries as income - Parliament's power to legislate on judges' salaries after amendment (with effect from April 1, 1986) - Whether the salary of a High Court judge and a Supreme Court judge was liable to income-tax prior to April 1, 1986. - HELD THAT: - The Court accepted that Parliament could not, prior to the amendment effective April 1, 1986, legislate on the subject of judges' salaries under articles 125 and 221. However, the Court held that the constitutional protection of the subject matter of judges' salaries did not render those emoluments immune from taxation under the Income-tax Act. The subject of judicial salaries and the subject of tax on income are distinct; a prohibition on Parliament legislating directly to alter the constitutional provision as to judges' emoluments does not imply that such receipts are not income taxable under a general law. Consequently, the salary received by a judge is income and liable to taxation by Act of Parliament in the same manner as income of other citizens.Judges' salaries prior to April 1, 1986 were taxable as income; the constitutional protection of the subject of salaries did not preclude taxation under the Income-tax Act.Head 'Salaries' under Income-tax Act - Constitutional provision for judges' salaries (articles 125 and 221) - Whether the remuneration received by a judge (who has no employer) is not 'salary' within the meaning of the Income-tax Act and therefore not taxable under the head 'Salaries'. - HELD THAT: - The Court rejected the submission that absence of an employer means the payments are not 'salary'. Articles 125 and 221 of the Constitution themselves describe the payments to Supreme Court and High Court judges as 'salaries'. The constitutional character of judges as office-holders does not alter the nature of the receipts; what judges receive is expressly termed 'salaries' and such receipts fall within the head 'Salaries' under the Income-tax Act and are taxable accordingly.Remuneration received by judges is 'salary' and is taxable under the head 'Salaries' despite the absence of an employer.Final Conclusion: The appeal was dismissed: the Court held that judicial salaries are taxable as income and, being expressly salaries under the Constitution, are taxable under the head 'Salaries'; the constitutional protection of judges' emoluments did not preclude their taxation prior to the 1986 amendment. Issues:1. Taxability of salary of High Court and Supreme Court judges under the Income-tax Act, 1961.2. Interpretation of the term 'rupees' in Part D of the Second Schedule in relation to judges' salaries.3. Inclusion of dearness allowance in 'such allowances' payable to judges under the Constitution.4. Taxability of judges' salary under the head 'Salaries' or any other head of income under the Income-tax Act, 1961.Issue 1: Taxability of judges' salary under the Income-tax Act, 1961The appellant, a judge of the Allahabad High Court, contended that his salary was not liable to tax under the Income-tax Act. The argument was based on the premise that Parliament could not legislate on judges' salaries before a specific amendment date, thus making their salaries non-taxable. However, the court held that the salary of a judge is considered income and is taxable under the Income-tax Act, irrespective of Parliament's ability to legislate on the matter. The court emphasized that judges' salaries are subject to tax just like any other citizen's income.Issue 2: Interpretation of the term 'rupees' in Part D of the Second ScheduleOne of the questions referred to the Constitution Bench related to the interpretation of the term 'rupees' in Part D of the Second Schedule, which specifies the sums payable to judges of the Supreme Court and High Courts. However, this question was deemed irrelevant as it was raised on a writ petition that was withdrawn. Hence, the court did not address this issue in the judgment.Issue 3: Inclusion of dearness allowance in 'such allowances' payable to judges under the ConstitutionThe question of whether dearness allowance paid to judges should be considered as part of 'such allowances' under the Constitution was raised but was not answered by the court as it was raised suo moto and deemed unnecessary in the circumstances of the case. Therefore, this issue was not addressed in the judgment.Issue 4: Taxability of judges' salary under the head 'Salaries' or any other head of incomeThe appellant argued that judges, not having an employer, do not receive 'salary' and thus should not be taxed under the head of salary. The court rejected this argument, stating that judges do receive salaries as constitutional functionaries, as explicitly mentioned in the Constitution. Therefore, the court held that judges' salaries are taxable as income under the head of salary under the Income-tax Act. The appeal was dismissed based on this reasoning.In conclusion, the Supreme Court ruled that judges' salaries are taxable under the Income-tax Act, regardless of Parliament's ability to legislate on the matter before a specific amendment date. The court emphasized that judges' salaries are considered income and are subject to tax like any other citizen's income. The judgment dismissed the appellant's appeal on this basis.