Per Shri D. V. Junnarkar, Accountant Member - The assessee was employed as a passenger broker by the British India Steam Navigation Co. Ltd. incorporated in England (the UK Co.) with effect from 13-8-1937 on a remuneration of Rs. 400 per month plus brokerage on all direct bookings introduced by the assessee. From 1-1-1965, his remuneration was increased to Rs. 2000 per month but basically the terms of his employment remained the same. His appointment was terminated by the letter dated 2-2-1976 from Mackinnon Mackenzie & Co. (P.) Ltd., the agents for the UK Co., with effect from the termination of the last voyage of steamship Karanjia in 1976. The assessee by his letter dated 22-6-1976 addressed to Mackinnon Mackenzie & Co. (P.) Ltd. requested for a reasonable pension considering the length of his service and the present prevailing living conditions. Mackinnon Mackenzie & Co. (P.) Ltd. after due consultation with its London principal, agreed to after a lump sum payment of Rs. 1,25,000 instead of a monthly annuity, the payment to be made to him in two installments, the first in April 1977 and the next in April 1978. While conveying the sanction for the payment of this amount, Mackinnon Mackenzie & Co. (P.) Ltd. placed or record its London principals and their own warm appreciation for the assessees long and loyal services to the UK Co.
2. In the assessment proceedings for the assessment year 1978-79, the assessee claimed the first installment of Rs. 62,500 receivable by him in April 1977 as exempt under section 10(10A) of the Income-tax Act, 1961 (the Act). The ITO made some inquiries from Mackinnon Mackenzie & Co. (P.) Ltd. and for the reason mentioned by him in the assessment order, observed that the amount of Rs. 62,500 receivable by the assessee from the UK Co. was not eligible for exemption under section 10 (10A) inasmuch as the assessees relationship with the foreign employer could not be considered as that between an employer and an employee. The assessee had alternatively claimed before the ITO that the receipt of the lump sum being the compensation for the loss of income-earning capacity was a capital receipt and as such was not taxable. The ITO rejected even this plea on behalf of the assessee. He proceeded to tax the entire amount of Rs. 62,500 as professional receipt of the assessee.
3. On an appeal by the assessee before the Commissioner (Appeals), the Commissioner (Appeals) scrutinised the correspondence between the assessee and his employer and arrived at a finding that the relation between the UK Co. and the assessee was that of an employer and an employee. She held that since the assessee had received the lump sum payment as a commutation of pension, the assessee was entitled to the exemption under section 10(10A).
4. The revenue has, therefore, filed an appeal before the Tribunal on the plea that the learned Commissioner (Appeals) had erred in holding that there was an employer-employee relation between the UK Co. and the assessee and in directing the ITO to grant the lump sum payment of Rs. 62,500 received by the assessee as commutation of pension. The learned departmental representative in support of the plea on behalf of the revenue, invited our attention to the first letter of the UK Co. dated 23-8-1937 stating that the assessee was appointed as a passenger broker of the company. Further, according to the letter defining the terms of appointment dated 30-8-1937, the remuneration payable to him was Rs. 400 per month plus brokerage on all direct bookings introduced by him. According to the learned departmental representative, this was clearly a case of the assessee carrying on business of brokerage on behalf of the UK Co. Next the learned departmental representative relied upon the fact that the UK Co. had not deducted tax from the so-called remuneration payable to the assessee. According to him, the UK Co., if it was an employer of the assessee, was under an obligation to deduct tax from any payment paid to the assessee by way of salary. The UK Co. had naturally not deducted the tax because what it was paying was not salary but brokerage for business done on behalf of the UK Co. Further, it was submitted on behalf of the revenue by the learned departmental representative that if what the assessee was doing was rendering services to the UK Co. for which salary was being paid to him, the assessee would have claimed standard deduction under section 16 (1) of the Act. The assessee has not claimed any such standard deduction and no such standard deduction was allowed to him. The assessee had claimed variety of expenses alleged to have been incurred by him for the purpose of earning this income. The learned departmental representative also made a pointed reference to the fact that the assessee was not a regular employee in the ordinary sense and that is why he was not eligible for contributing to the provident fund of the UK Co. The learned departmental representative proceeded to sum up that the payment made to the assessee was in the nature of additional fees for the services in the last 40 years and for the professional services rendered by the assessee.
5. The learned counsel for the assessee has referred to the terms of appointment of the assessee and stated that the employer was a limited company. Its business was being carried on by the employees such as the assessee. Referring to the terms of employment, he stated that the assessee was expected to carry on the business of the UK Co. The description of the assessee as a broker was to describe the nature of the business to be carried on by the assessee on behalf of the UK Co. The terms were absolutely clear. He was being paid a nominal basic salary. The additional remuneration depended upon the amount of passengers booked by him.
6. Referring to the non-deduction of tax at source from the salary payable to the assessee, the learned counsel explained that there were two modes of tax payable by salaried employee. One was the deduction of tax at source by the employer and the other was after direct assessment on the employee by the ITO. In the case of the assessee, the employer, being a UK Co., did not find it convenient to comply with the municipal laws of India. For the lapse on the part of the employer, the assessee should not be made to suffer. The assessee was aware of his obligations under the Indian Tax Act and was filing the returns of income on the income earned by him and paying the tax direct year after year. As regards the argument on behalf of the revenue that the assessee had not claimed any relief under section 16(1) in respect of the payment received by him from the UK Co., the learned counsel has referred to the provisions of section 7 of the Indian Income-tax Act, 1922 (the 1922 Act), whereunder the assessee was eligible for claiming all sorts of deductions enumerated in section 7(2) such as Rs. 500 for purchase of books and publications necessary for the purpose of the assessees duties, entertainment allowance, conveyance expenses and finally, any amount actually expended by the assessee which he, by the condition of the service, was required to spend out of his remuneration wholly, exclusively and necessarily for the purposes of his duties. It was argued by the learned counsel for the assessee that all the expenses claimed by the assessee were only of such nature which were expended by him wholly, necessarily and exclusively for the performance of his duties. The learned counsel proceeded to explain that on the enactment of the 1961 Act, section 16(1) was placed on the statute book which was in pari materia with section 7(2) of the 1922 Act. Gradually this allowance came to be modified and it took the final shape of the standard deduction under section 16(1) as now admissible. As to the nature of the receipts received by the assessee, the learned counsel has proceeded to argue that what the assessee has received is the commuted pension as stated by Mackinnon Mackenzie & Co. (P.) Ltd. for his long and loyal service to the UK Co. In this connection, the learned counsel stated that even the ITO himself has accepted the position that what was being received by the assessee was salary and not professional receipt. He pointed out to the fact that the ITO has assessed the assessees income year after year under the head Salaries. As to the argument on the basis of the non-entitlement of the assessee to the UK Co.s provident fund scheme, it was submitted that by the very nature of his duties, the assessees employment was annual. Therefore, an agreement of employment was being made year after year. Therefore, the assessee was not eligible to contribute to the provident fund, which was available for permanent employees of the UK Co.
7. We have carefully considered the facts and circumstances of the case and the arguments on either side. The facts of the case are as stated in paragraph 2 above. The question for consideration is whether the assessee was an employee of the UK Co. or was he an independent broker carrying on the business with the UK Co. A supplementary question, which will have to be considered, is whether the payment received by the assessee from the UK Co. was commuted pension governed by section 10(10A) or additional professional fees as argued on behalf of the revenue We find that the initial letter of appointment of the assessee dated 23-8-1937 offered the post of a passenger broker for the UK Co. which was initially for a period of one year and which was subject to renewal from year after year. The remuneration was also fixed initially at the rate of Rs. 400 per month and later at the rate of Rs. 2,000 per month. The incentive bonus was depended on the passengers booked by him. As to the payment now in dispute before us, the assessee claimed pension considering his length of service, the nature of service and the present living conditions. Instead of a monthly annuity, the employer has considered it advisable to commute it and made payable in two annual instalments.
8. As to the objections on behalf of the revenue, in our opinion, the learned counsel for the assessee has adequately met them as detailed in the previous paragraphs. In the first place, referring to the ITOs Co. (P.) Ltd., it has to be observed that the assessee was not an employee of Mackinnon Mackenzie & Co. (P.) Ltd. He was an employee of the UK Co. No wonder Mackinnon Mackenzie & Co. (P.) Ltd. denied that he was their employee. As regards the objection on behalf of the revenue that no tax was deducted at source from his salary by the employer, If at all, this fact would affect the taxation liability of the employer. The assessees tax liability is not affected. He has arranged to file the returns of income and has paid the tax as levied by the ITO on this income as if it was from salaries. Regarding the relief under section 16(1) the assessee has not claimed the relief at standard rates but on the basis of actuals, in keeping with his part practice and according to the law in force till the system of standard deduction was introduced in the Act, irrespective of the actual expenses incurred by an assessee. As regards the maintenance of a separate establishment, the very nature of the assessees duties required some extra help to the assessee, which he was meeting through the extra remuneration being received by him. In our opinion, the Commissioner (Appeals) was fully justified in holding that the assessee was an employee of UK Co.
9. As to the nature of the payment received by the assessee, the assessee was claiming pension from the employer, viz., the UK Co. Being a foreign registered company, the employer considered it expedient to make a payment of a lump sum once and for all, as clarified in the letter of Mackinnon Mackenzie & Co. (P.) Ltd. dated 25-11-1976. The very nature of the correspondence between the assessee and Mackinnon Mackenzie & Co. (P.) Ltd. shows that what the assessee received was the commuted value of the pension. In the circumstances, the order of the Commissioner (Appeals) is unexceptionable and calls for no interference.
10. The assessee has filed a cross-objection on the ground that during the course of the assessment proceedings, the assessee had alternatively contended that the amount of Rs. 62,500 was not taxable as income as it was on account of termination of service and discontinuance of the contractual obligation. This plea is an alternate plea. Since we have held in the appeal filed by the revenue that the relation of the assessee with the UK Co. was that of an employee and employer and the amount received by the assessee was a commuted value of the pension, the assessees cross-objection on this ground does not survive 11. In the result, both the appeals as well as the cross-objections are hereby dismissed.