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P. Newcome Vs. Commissioner of Income Tax, KeralA. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKerala High Court
Decided On
Case NumberIncome-tax Referred Case No. 3 of 1960
Reported in[1962]45ITR52(Ker)
AppellantP. Newcome
RespondentCommissioner of Income Tax, KeralA.
Cases ReferredEdwards (H. M. Inspector of Taxes) v. Roberts
Excerpt:
.....to the industrial concern not only from the properties of the industrial concern but also from the properties pledged or mortgaged b y the sureties for the loan advanced by the corporation. section 29 is a complete code by itself. liability of principal-debtor and surety is always joint and co-extensive. [n. narasimhaiah v karnataka state financial corporation, air 2004 kar 46 dissented from]. - the employer had provided for the assessee as well as for other employees old age, by instituting what is called a staff group insurance scheme. the income-tax officer, however, taxed it as a contribution to an unrecognised provident fund and the assessee having failed before the appellate assistant commissioner appealed to the appellate tribunal, which held the amount to be covered by..........was rejected on the ground that as the respondent did not obtain a vested interest in the yearly payments made to the trustees on the dates when they were respectively made, they would not constitute additional remuneration of the year in which they were paid, and would only be such when the assessee got the shares. the principle, on which the aforesaid decision rests, would apply whenever payment is made to trustees, in which the employee would not get immediate vested interest, and for this purpose the relevant parts of the trust deed should be given.'1. the regulations set out in the first schedule hereto, subject to any modifications that may from time to time be made as hereinafter provided, shall be deemed to be incorporated herein, and shall be binding upon the employer,.....
Judgment:

ANSARI C.J. - The assessee in this reference is employed by Messrs. Peirce Leslie & Co. Ltd. and has been charged income-tax on Rs. 2,160 in the following circumstances. The employer had provided for the assessee as well as for other employees old age, by instituting what is called a staff group insurance scheme. It consists in the creation of a trust for effecting insurance on their lives, and for this purpose the employer had to contribute 5% of the employees salary, whereas the employee had to give 10% of the pay. The trust, in turn, had to take out two separate policies on the employees lives, and held them in trust.

Under the above arrangement, the employer had, for the year ending March 31, 1956, that being the previous year to the assessment year 1956-57, paid Rs. 2,160 to the trustee, the aforesaid amount being the annual premium on the assurance taken by the trust on the life of the assessee, who showed it in part 'D' of his return. The Income-tax Officer, however, taxed it as a contribution to an unrecognised provident fund and the assessee having failed before the Appellate Assistant Commissioner appealed to the Appellate Tribunal, which held the amount to be covered by sub-clause (v) of Explanation I to section 7(1) of the Income-tax Act, hereafter referred to as the Act, and, therefore, to be chargeable. Thereafter petition under section 66(1) of the Act was filed, and the following question has been referred to us.

'Whether the aforesaid sum of Rs. 2,160 is assessable as a perquisite under sub-clause (v) of Explanation 1 to section 7(1) of the Income-tax Act ?'

The assessees learned advocate has argued that the Tribunal has erred in treating the payment by the employer to have become vested in the assessee subject to defeasance under certain circumstances, that the assessee is not entitled to the insurance money until the trustees assurance matures, that before such maturing, the money paid by the employer is neither due, nor allowed, nor a payment under clause (v). In support he relies on Russel v. Commissioner of Income-tax, in which we had held that the payment to be chargeable under section 7 of the Act must become vested in the person who is being charged; and, if the benefit arising thereof be dependent on contingencies, the payment would not be one to which section 7 of the Act would apply. To reach that conclusion, we had relied among other cases on Edwards (H. M. Inspector of Taxes) v. Roberts where the respondent was employed by a company under an agreement, which provided, in addition to annual salary, an interest in a 'conditional fund', which the company had to create by payment at the end of each financial year of a sum out of its profits to the trustees of the fund, to be invested by them in the purchase of the companys shares, or debenture stock. The respondent, who was entitled to the income at the expiration of each financial year and to part of the capital of the fund at the expiration of five financial years, resigned from the service, when the trustees transferred to him the shares, which they had purchased out of the payments made to them in the years 1922 to 1927. The Income-tax authorities assessed the respondent with tax for 1927-28 on the amount of the current market value of the shares at the date of transfer, which order was appealed against, the ground taken being that notwithstanding the liability to forfeiture in certain events, immediately a sum was paid by the company to the trustees of the fund, the respondent became invested with a beneficial interest in the payment, which formed part of the emoluments for the year in which it was made, and such a payment would be liable to tax in the year of the payment, and not when the assessee got the amount. That objection was rejected on the ground that as the respondent did not obtain a vested interest in the yearly payments made to the trustees on the dates when they were respectively made, they would not constitute additional remuneration of the year in which they were paid, and would only be such when the assessee got the shares. The principle, on which the aforesaid decision rests, would apply whenever payment is made to trustees, in which the employee would not get immediate vested interest, and for this purpose the relevant parts of the trust deed should be given.

'1. The regulations set out in the first schedule hereto, subject to any modifications that may from time to time be made as hereinafter provided, shall be deemed to be incorporated herein, and shall be binding upon the employer, the trustees and the employees and all persons acting under or in trust for them or any of them respectively.

2. All moneys received by the trustees pursuant to the said regulations shall be held by them in trust for the objects hereinafter defined.'

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'FIRST SCHEDULE REGULATIONS

In these regulations, unless the context otherwise requires, words of the masculine gender shall include the feminine.

The expression trustee mean the trustees for the time being of the trust deed.

The expression society means the Sun Life Assurance Society.

The expression employee means each person included in the third schedule who shall sign an application in the form set out in the second schedule hereto and each further employee of Peirce Leslie and Company Limited whose name shall at any time be notified to the trustees by the employer as a person who is to participate in the benefits of this trust and who shall sign an application in the aforesaid form.'

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'1. The trustee shall forthwith effect with the society an assurance as described in regulation No. 2 on the life of each employee whose name appears in the third schedule hereto and shall on each anniversary of the date of the inauguration of the scheme effect a similar assurance on the life of each further employee whose name shall have been notified to the trustees by the employer during the preceding year in the form described in the second schedule hereto as a person who is to participate in the benefits of this trust, provided always that each employee shall at the same time as the assurance on his life is being effected by the trustees himself effect an assurance on his life as described in regulation No. 3.

2. Each assurance to be effected by the trustee (hereinafter called the trustees assurance) shall be an endowment assurance without participation in profits payable on the employees survival until or on his death before the anniversary of the date of the inauguration of the scheme in the year of age shown in the following table :

Age next birth day of employee at date of joining the scheme.

Year of age in which assurance would mature.

Male employee resident in India at date of joining the scheme

Upto and including

47

52nd

'

48

53rd

'

49

54th

'

50

55th

'

51

56th

'

52

57th

'

53

58th

'

54

59th

'

55

60th

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The date upon which the sum assured would be payable, should the employee so survive, is hereinafter referred to as the date of maturity.

The sum assured under each trustees assurance shall be such an amount as shall be secured by an annual premium equal to five per cent. of the employees annual salary at the date when such assurance shall commence.'

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'II(a). If before the sums assured secured by the assurances shall become payable the employee shall leave the service of the employer of his own accord or shall be dismissed for misconduct or inefficiency, the trustee shall surrender the trustees assurance to the society and pay its cash surrender value to the employee or to his wife or to his next of kin or to the employer, according as the employer may direct.'

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It is obvious that the assessee obtains indefeasible title only when the event of his leaving the service or his dismissal for misconduct or inefficiency is excluded, and the benefit becomes dependent on the direction of the employer, should any such event occur. In such circumstances, the assessee would not be getting any vested interest in the years in which payments may be made in what is paid by the employer for purposes of the trustees assurance, and the principle on which Russels case has been decided would be applicable to the present case.

The learned Government advocate has argued that the payments of are towards life assurance of the employee and covered by sub-clause (v) of Explanation 1 to section 7(1) of the Act. We feel that the aforesaid sub-clause would not cover payments towards life assurance, which is liable to be surrendered, on certain events happening, and the benefit thus got becoming payable at the direction of the employer. The employee gets, in payments towards such an assurance only contingent interest in the years in which they are paid, because the possibility of the benefit being diverted at the employers direction is not then excluded, and we think such payments are not covered by the aforesaid clause.

In such circumstances, we answer the question in the negative, which answer be sent to the Tribunal, and there will be no costs in this case.

Question answered in the negative.


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