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Issues: (i) Whether the amounts received by the assessee from the two companies constituted income liable to tax; (ii) whether those amounts were taxable as salary or as income from other sources and whether the 1922 notification applied; (iii) whether the assessee was entitled to earned income relief in respect of those amounts.
Issue (i): Whether the amounts received by the assessee from the two companies constituted income liable to tax.
Analysis: The receipts were periodic, came from identifiable corporate sources, and arose from board resolutions constituting their genesis. Even though no enforceable legal obligation existed and no services were found to have been rendered, voluntary or gratuitous payments may still be income where they have a definite source and a regular, systematic character connected with the assessee's position.
Conclusion: The amounts constituted income liable to income-tax, in favour of the Revenue.
Issue (ii): Whether those amounts were taxable as salary or as income from other sources and whether the 1922 notification applied.
Analysis: The notification required that the sums be received on account of salary or remuneration for services rendered, be paid out of business profits, and be disallowed as a deduction while included in business profits. The Tribunal's findings showed that no services were rendered and that the arrangement was merely a device to transfer profits to a family member. In the absence of an employer-employee relationship and in the absence of salary character, the receipts could not fall under the salary head; they were assessable under the residual head.
Conclusion: The amounts were taxable as income from other sources and not as salary, and the notification did not apply, in favour of the Revenue.
Issue (iii): Whether the assessee was entitled to earned income relief in respect of those amounts.
Analysis: Earned income relief under the Act depended on the income being chargeable as salary or, if under other sources, being immediately derived from personal exertion or falling within the specified allowances. The findings excluded personal exertion, and the receipts were not salary. The statutory conditions for earned income relief were therefore not met.
Conclusion: The assessee was not entitled to earned income relief, in favour of the Revenue.
Final Conclusion: The reference was answered against the assessee on all questions, confirming taxability of the receipts as income from other sources and denying both salary treatment and earned income relief.
Ratio Decidendi: A periodic voluntary payment from a definite and regular source may constitute taxable income even without enforceable obligation or services rendered; where such receipts are not salary and are not derived from personal exertion, they fall under income from other sources and do not attract earned income relief or the notification meant for salary-like remuneration from business profits.
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