1. Two questions are referred to us by the Commissioner of Income-tax:
(1) Whether the sum of Rs. 8,256 paid to the assessee by the Government of Madras on March 12, 1930, is income liable to tax, and
(2) Whether the said sum is exempt from tax under Clause (v) or Clause (vii) of Sub-section (3) of Section 4 of the Act.
2. The facts are as follows:--The assessee was an Assistant Engineer in Government service. In 1923, he with other Assistant Engineers was compulsorily retired. His retiring age was 55 and he would have reached that age in 1927. He was thus compulsorily retired from service four years before he should have been. He and the others similarly compulsorily retired presented memorials to the Government of India and the Secretary of State for India setting forth their grievances and this resulted in the issue of the following order by the latter which was published by the Government of Madras on the 8th March, 1930, vis., that the assessee should receive as compensation (1) a lump sum equivalent to two-thirds of the difference between the amount received by him in pension from the date on which he was discharged to the date of attaining 55 years of age and the amount he would have received in pay had he been retained in service1 up to that age, and (2) with effect from his 55th birthday the pension which he would have received had he remained in service up to that day. In 1930 the Income-tax authorities desired to assess the sum of Rs. 8,256 received by the assessee under head (1) of the beforementioned order tb income-tax and the Commissioner of Income-tax to whom the matter was referred by the Income-tax Officer has made this reference to us.
3. It is contended here on the assessee's behalf that the payment of the amount was not one made in respect of any service rendered by the assessee and did not arise out of any business conducted by him or profession carried on by him or from any service performed for Government, and so does not fall under any of the heads of income to be taxed, and furthermore that, even if it does, it is exempt from income-tax under Section 4(3)(v) or (vii). With regard to the first point, our attention was directed to a number of English decisions, but I do not consider them helpful in a consideration of it. As has been pointed out before both by this Court and by the other High Courts in India, the English taxing statute differs in important respects from the Indian as regards the chargeability of income to income-tax. To put it shortly, the distinction between the English taxing statute and the Indian, it seems to me, is that under the former, no income, profit or gain is taxable that is not included in the taxing statute, whereas under the latter Act, every profit, income or gain is taxable that is not excluded. On an examination of two sections of the Indian Income-tax Act this is made clear. Section 4(1) says:
Save as hereinafter provided, this Act shall apply to all income, profits or gains, as described or comprised in Section 6, from whatever source derived, accruing or arising or received in British India, or deemed under the provisions of this Act to accrue, or arise, or to be received in British India.
4. Section 6 deals with the heads of income chargeable to income-tax and reads:
Save as otherwise provided by this Act, the following heads of income, profits and gains, shall be chargeable to income-tax in the manner hereinafter appearing, namely:--(i) Salaries, (it) interest on securities, Ciii) property, (iv) business, (v) professional earnings, and (vi) other sources.
5. It appears to me that the sixth heading is really a residuary heading and that in it the legislature has sought to include every profit or gain which does not come under any of the other headings. Ther other sections may be usefully referred to and they are sections 7 and 10. Section 7 deals with assessment of salaries in respect of the various matters set out in it, and Section 10 deals with the assessability of profits and gains arising from business. Section 12 is also of very great importance in connection with this reference and it is as follows:
(1) The tax shall be payable by an assesses under the head 'other sources' in respect of income, profits and gains of every kind and from every source to which this Act applies (if not included under any of the preceding heads).
6. The contention of Mr. K.V. Krishnaswami Aiyar here is that none of this money paid by Government can be traced to any source to which the Indian Income-tax Act applies. He/ argues that it cannot be traced to a Government service source because Government service had ended; but, in my opinion, Section 12(1) of the Act is sufficiently wide to bring into its-net income, profit or gain which comes from anywhere, if not taxable under the other sections and it is for the person who receives it to show that it is exempt from payment of income-tax. That he can do only by bringing himself within the provisions of Section 4(3) of the Act.
7. A case very nearly in point is In re Turner Morrison and Co., Ltd.1 There a large sum of money had been paid to Messrs. Turner Morrison and Co. as compensation for their sudden dismissal because without notice to them in the middle of the year one of their managing agencies was brought to a close. Rankin, C.J., in his judgment points out the distinction between the English cases and the Indian Act dealing with the taxability of lump sum payments made to persons and says:
They (the English cases) go upon the question whether a certain receipt is a perquisite of an office. If it is not a perquisite of an office-or a profit of business or trade, then it is not taxable. Consequently, the class of cases known as the 'Easter offering' cases, e.g., Herbert v. McQuade (1902) 2 K.B. 631 and Turner v. Cuxon (1888) 22 Q.B.D. 150 are not, in the least, in point. In one case it was held that the parson got the money because he was the parson; therefore it was a perquisite of the office. In the other case, it was held that, although the curate would not have got the money unless he had been the curate of the parish, still he got it as a testimonial for his work and not because he was curate. In the same way, in the case of Cowan v. Seymour (1888) 22 Q.B.D. 150 the question was whether or not the voluntary payment accrued to the person by reason of his office. That was the case of a person who had acted as the Secretary of a company. He was given what was called a testimonial. In view of the fact that it was a testimonial, it was held that it was not a perquisite ofthe office which had come to an end. Similar considerations' were canvassed in the Crickter's case, Seymour v. Reed5 and in the Jockey's case, Wing v. O'Connell. (1927) 1 Irish Rep 84.
8. Then dealing with the case before him he says:
In my judgment, it is impossible to say that the receipt is not a receipt arising from business and that is the statutory test which in this: country has to be applied.
9. Further on he says:
There is no doubt upon the Indian Act that the payment in the present case is income within the meaning of Section 12 unless it is saved by Section 4(3) (vii).
10. In the case before us of course the money received by the assessee would not fall to be taxed as a profit or gain derived from a business since the assessee was not carrying on a business but had been in receipt of a salary in respect of his Government service; and if it is not taxable under Section 6, then it may be taxable under Section 10. In my view, it is taxable under the former.
11. Another contention put forward here was that different considerations should apply when payment is made before the termination of a person's service to those which would apply when payment is made after the service has been determined. I cannot agree with that distinction particularly when it is sought to be applied to the facts of this case. I cannot myself see that there is any distinction between a payment, describe it how you will, that is made by an employer to his servant before he is dismissed to compensate him for his premature dismissal and a payment made immediately afterwards for the same reason. It may be that the payment is made because a threat of a civil suit has been made against the employer; but both payments have been made with the same object in view; and it seems to me that one cannot draw any distinction which, with regard to the time when the payment is made, can be any useful guide. In such cases as this, Courts ought not to lay down any hard and fast rules. Each case must depend upon its own facts and possibly may depend upon the consideration which caused the payment, and what it was intended to effect, and the basis of its calculation. In this case it is perfectly clear that this payment was made for the purpose of putting the assessee back in exactly the same position he would have occupied had he not been prejmaturely retired. How is the sum made up? What, is the basis of its calculation? It is calculated on the salary the assessee would have earned if he had not been retired from 'Government service. As he was not retained in t Government service and drew a pension instead of salary the difference between the pension he drew and the salary he would have earned had he not been so retired was taken and because he did not actually perform services under Government a third was deducted from the amount so arrived at. It Seems to me to be perfectly clear that the assessee was treated as if he had remained in Government service and was being remunerated for his service. If that is so, it is perfectly obvious that the amount paid was taxable, as salary under Section 6. This case cannot be brought within the provisions of Section 4(3) (v) as capital received in commutation of the whole or a portion of the pension or as being in the nature of consolidated compensation for death or injuries. It is argued that this was compensation for injuries and that that clause refers not only to personal injuries but to injuries a person suffers through his premature dismissal. With that contention I cannot agree. It seems to me to be perfectly clear that that clause applies to personal injuries and none other and that the word 'injuries' is used in that sense only. Then an attempt was made to bring this cas2 within Clause (vii) as being a receipt of money arising from business or the exercise of a profession, vocation or occupation which is of a casual and non-recurring nature. That clause, to my mind, clearly does not apply. Under these circumstances, in my view, the first question referred to us must be answered in the affirmative and the second question in the negative.