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Commissioner of Income-tax Vs. Smt. Dipali Goswami - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference No. 355 of 1979
Judge
Reported in(1986)51CTR(Cal)139,[1985]156ITR36(Cal)
ActsIncome Tax Act, 1961 - Sections 15, 16 and 17
AppellantCommissioner of Income-tax
RespondentSmt. Dipali Goswami
Appellant AdvocateB.K. Naha, Adv.
Respondent AdvocateR.N. Bajoria and ;Dilip Dhar, Advs.
Excerpt:
- .....the late gurdas goswami, an i.a.s. officer of west bengal cadre, who had been employed under the united nations organisation. during his service with the united nations organisation, shri goswami had been contributing to the united nations joint staff pension fund (hereinafter referred to as 'the pension fund'). on the death of shri goswami, the assessee became entitled to a pension from the united nations organisation. during the course of the assessment proceeding for the assessment years 1971-72, 1972-73 and 1973-74, it was claimed by the assessee that the pension received by her from the united nations organisation was exempt from tax. in support of this claim, the assessee relied on section 18(b) of the united nations (privileges and immunities) act, 1947.2. the ito rejected this.....
Judgment:

Ajit Kumar Sengupta, J.

1. Smt. Dipali Goswami, the respondent assessee, is the widow of the late Gurdas Goswami, an I.A.S. Officer of West Bengal Cadre, who had been employed under the United Nations Organisation. During his service with the United Nations Organisation, Shri Goswami had been contributing to the United Nations Joint Staff Pension Fund (hereinafter referred to as 'the Pension Fund'). On the death of Shri Goswami, the assessee became entitled to a pension from the United Nations Organisation. During the course of the assessment proceeding for the assessment years 1971-72, 1972-73 and 1973-74, it was claimed by the assessee that the pension received by her from the United Nations Organisation was exempt from tax. In support of this claim, the assessee relied on Section 18(b) of the United Nations (Privileges and Immunities) Act, 1947.

2. The ITO rejected this claim and held that, in terms of Section 17(1)(ii) of the I.T. Act, 1961, the amounts were includible in the assessee's total income inasmuch as the expression ' salary ' included any annuity or pension and, as such, pension received by the assessee from the Pension Fund was a taxable receipt.

3. In appeal, the AAC held that the pension received by the assessee from the United Nations was to be excluded from the assessment. The Revenue, being dissatisfied with the order of the AAC, filed an appeal before the Tribunal and argued that the amount received by the assessee could not be treated as salary or emoluments in her hands and, as such, the assessee was not entitled to the exemption claimed. It was also argued that the exemption Clause is to be construed strictly and since the assessee was not an ' official ' of the UNO, exemption was wrongly allowed to her by the AAC. The Tribunal observed that when salary includes pension and when salary is exempt from taxation in the hands of the officials of the United Nations, a fortiori, it could be held that recompense of the amount received by the beneficiary as a result of the contribution by her husband should not come within the purview of the concept of salary or pension. The Tribunal was of the view that when pension received by an assessee from the United Nations was held to be exempt, a fortiori, it applied to a beneficiary also because two different meanings to a word cannot be given, one for purposes of taxation and the other for purposes of exemption. The Tribunal accordingly confirmed the view taken by the AAC and dismissed the .Departmental appeal.

4. On the aforesaid facts, the following question of law has been referred at the instance of the CIT to this court under Section 256(1) of the I.T. Act, 1961 :

' Whether, on the facts and in the circumstances of the case, and on a correct interpretation of Section 18(b) of the United Nations (Privileges and Immunities) Act, 1947, the pension/benefit received by the assessee, a widow of an ex-employee of the United Nations Organisation, is not taxable under the I.T. Act, 1961 '.

5. The answer to the question referred to us will depend on the interpretation of the relevant provisions of the United Nations (Privileges and Immunities) Act, 1947. The said Act received the assent of the Governor-General on December 20, 1947. The preamble to the said Act reads as follows :

'Whereas it is expedient to give effect to the Convention on the Privileges and Immunities of the United Nations, and to enable similar privileges and immunities to be enjoyed by other international organisa-tions and their representatives and officials.'

6. Section 2 of the said Act reads as follows :

' Conjerment on United Nations and its representatives and officers of certain privileges and immunities.--(1) Notwithstanding anything to the contrary contained in any other law, the provisions set out in the Schedule to this Act of the Convention on the Privileges and Immunities, adopted by the General Assembly of the United Nations on the 13th day of February, 1946, shall have the force of law in India.

(2) The Central Government may, from time to time, by notification in the Official Gazette, amend the Schedule in conformity with any amendments, duly made and adopted, of the provisions of the said Convention set out therein.'

7. Section 2 of the 1947 Act makes the provisions incorporated in the Schedule to the Act as law in India. Section 18, Clause (b) of Article V of the Schedule, is the provision which is relevant to the facts of this case;

' ARTICLE V

Officials

Section 18 : Officials of the United Nations shall:...

(b) be exempt from taxation on the salaries and emoluments paid to them by the United Nations :--......'

8. It is also necessary to refer to Article 35 of the Rules and Regulations of the United Nations Joint Staff Pension Fund. The provisions of Article 35, which are material for our purpose, are as follows :

Article 35

' Widow's benefit,--

(a) A widow's benefit shall, subject to Article 42 and to (b) below, be payable to the surviving female spouse of a participant who was entitled to a retirement, early retirement, deferred retirement or disability benefit at the date of his death, or who died in service, if she was married to him at the date of his death in service or, if he was separated prior to his death, she was married to him at the date of separation, and remained married to him until his death.

(b) A benefit shall nevertheless not be payable if the participant had commuted his widow's prospective benefit under Article 29 or Article 30, or had commuted a deferred retirement benefit under Article 31(c).

(c) The benefit shall, if the participant died in service or during entitlement to a retirement, early retirement or disability benefit, be payable at the standard annual rate of half the retirement or disability benefit which would have been payable to the participant had he become entitled thereto at the date of his death, or of half of his retirement, early retirement or disability benefit including such part thereof as may have been commuted, as the case may be, provided that the rate shall not be less than the smaller of :

(i) 750 dollars ; or

(ii) Twice the standard annual rate above.

(d) The benefit shall, if the participant died after the commencement of a deferred retirement benefit which had not been commuted under Article 31(c), be payable at half the annual rate of such benefit and, if he died before its commencement, at the rate of half the actuarial equivalent at the date of his death of the annual rate of the benefit at age of sixty.

(e) The benefit shall be payable at periodic intervals for life or until remarriage, provided that a benefit payable at an annual rate of less than 200 dollars may be commuted by the widow into a lump sum which is the actuarial equivalent of the benefit at the standard annual rate under (c) above, or the annual rate under (d) above, as the case may be.

(f) The benefit shall, where there is more than one surviving spouse, be divided equally between the spouses, and upon the death or remarriage of each such spouse shall be equally divided among the remainder.

9. The Karnataka High Court in the case of CIT v. Ramaiah : [1980]126ITR340(KAR) considered the effect of Section 18(b) of Article V of the Schedule to the United Nations {Privileges and Immunities) Act, 1947. There the assessee was a former employee of the United Nations Organisation who had been receiving pension from the United Nations. The question was whether such pension was exempt from taxation. The Karnataka High Court held that the amount of pension received is chargeable to tax under the head ' Salary ' and the meaning of the expression ' salary ' given in Section 17 automatically applies to any amount of pension received by a person which is chargeable to tax under the head ' Salary '. The amount of pension received by an employee from the United Nations Organisation falls within the description of the word ' salary ' and the immunity granted under the said Privileges and Immunities Act becomes applicable. Therefore, the pension received by any former employee from the United Nations was exempt from taxation. The Karnataka High Court has accepted the interpretation given by the Tribunal in the case of Dr. P. L. Narula.

10. In the case of Addl. CIT v. Garg [1982] 133 ITR 1, the Delhi High Court was considering the assessability of the amount allowable as a child benefit under Article VIII(1) of the Regulations of the United Nations Joint Staff Pension Fund. The ITO included the said benefit in the hands of the assessee who was a former employee of the World Health Organisation. It was held in that case that the child benefit is the income of the child and not of the participant. The amount of benefit derived by the child did not fall within the provision of Section 17 of the Act.

11. In the case of C1T v. Dr. Narula : [1984]150ITR21(Delhi) , the Delhi High Court held that Section 2 of the United Nations (Privileges and Immunities) Act, 1947, read with Section 18, Clause (b) of Article V of the Schedule thereto, inter alia, grants exemption from taxation in respect of salaries and emoluments paid by the United Nations to its officials. Since under Section 17 of the I.T. Act, 1961, 'salary' has been defined to include pension, the pension received by the officials of the UNO, after retirement, from the United Nations Joint Staff Pension Fund will also be exempt from tax. There, the pension was received by the assessee, a former employee of the United Nations.

12. In this case, the husband of the assessee, who was an employee of the United Nations, died while he was in service. After the death of the asses-see's husband, the International Labour Office wrote the following letter to the assessee :

' Please accept my sincere sympathy in your bereavement.

You may be aware that I wrote to Mr. Goswami on 4th December last in regard to the benefit (a refund of contributions) which was due to him from the Pension Fund in consequence of the expiration of his contract on 31st December. The recent extension of his contract results in his being a participant in the fund up to the date of his death and the benefit payable by the Pension Fund is not refund of his contribution but a pension payable to you as his widow. For this purpose, I require a copy of the death certificate.

Your pension is regulated by Article 35 of the Regulations of the Fund, a copy of which is enclosed, and will amount to approximately $1,792 per annum. It will be payable with effect from January 15, 1970, for your lifetime, subject, however, to a remarriage Clause.

A child's benefit under Article 37 is also due in respect of your son, Somnath, with effect from January 15, 1970, and will be payable at the rate of $600 per annum, until he reaches the age of twenty-one provided that he remains unmarried. This pension will be payable to you as your son's natural guardian on condition that you assume this responsibility. In connection with the award of this benefit, I require a copy of your son's birth certificate, either the original document or a copy of the same issued by a competent authority. The document will be returned to you subsequently.

Pensions are paid in monthly instalments in advance or, if so requested, in quarterly or half-yearly payments in arrear. They are basically payable in dollars but may, on demand, be paid in other currency, in which case, each instalment is converted at the bank's rate of exchange operating at the time of payment.'

13. The assessee's husband participated in the United Nations Joint Staff Pension Fund. This is a social security benefit scheme of the United Nations. According to the scheme, during the working year, the employee is to pay certain contributions in this scheme and for that purpose the employer had also to pay some contribution. The assessee's husband had been making contributions to the Pension Fund. Out of the said contributions under the relevant Rules, the widow and the child were being paid the benefit. The widow was receiving the benefit under Article 35. It has not been disputed that the benefit received by the assessee under Article 35 of the said Regulations is pension. The ITO disallowed the claim of the assessee .for exemption on the ground that it is the salary of the officials of the United Nations that was exempt from taxation, and what was being paid to the assessee was not refund of her husband's contribution but a pension out of the Pension Fund. It cannot be disputed that salary under Section 17(1)(ii) of the I.T. Act, 1961, includes pension and if the salary is exempt so shall be the pension. Thus, where a former employee receives pension from the said pension fund, it is exempted. The Board, in Circular No. 293*, dated February 10, 1981, accepted the view taken by the Karnataka High Court in Ramaiah's case : [1980]126ITR340(KAR) and decided as follows:

'............Apart from salary received by the employees of the United Nations Organisation or any person covered under the U.N. (Privileges and Immunities) Act, 1947, pension received by them from the U.N. will also be exempt from income-tax.'

14. The question, however, is when the pension is received by the widow of an employee who died in harness, can it be treated as pension exempt from taxation. This pension is not payable to the former employee. The cases which have been relied on by the learned advocates all relate to the pension received by former employees of the U.N. excepting in one decision of the Delhi High Court [1982] 133 ITR 1 where under Article VIII, certain benefits were being received by the child of the former employee. There, the Delhi High Court has held that the child benefit is payable to the child and it is the income of the child and, as such, it cannot be tagged with the income of the assessee in that case, being a former employee. It has been contended by Mr. Naha that the decisions relied on by Mr. Bajoria, learned advocate for the assessee, or the circular of the Board only established that pension received by a former employee is exempt from taxation. Such benefit cannot be extended to the widow of an employee who died in harness. He submits that the amount in question has to be taxed under the head ' Salaries ' as pension received from the Pension Fund.

15. We are, however, unable to accept the contention of Mr. Naha. Under Article 18(b) of the Privileges and Immunities Act, salary payable to officials covered by the said Act is exempt from income-tax. If a person retires, he ceases to be an official of the United Nations. Thus, strictly speaking, the benefit of Article 18(b) could not have been given to a former employee but the courts have liberally construed the said provision and held that if the salary in the hands of an official was exempt, so shall be the pension receivable by him as salary includes pension. In other words, whatever the official receives from the Pension Fund by reason of his employment with the United Nations, will be exempt during his continuance in the service as well as after his retirement.

16. Under the relevant rules of the Pension Fund, when an official of the United Nations dies in harness, his widow is entitled to a pension. The question is whether this pension is exempt from income-tax. Had the employee been alive, the pension payable to him would have been exempt from income-tax. The pension which the widow receives is in effect the pension which was receivable by the husband had he been alive. If the pension received by the former employee of the United Nations is exempt because salary itself is exempt under the provisions of the Privileges and Immunities Act then, on a parity of reasoning, pension receivable by a widow of an employee of the United Nations who died in harness should also be exempt from income-tax.

17. Section 17(1) of the I.T. Act, 1961, defines the expression 'salary 'for the purpose of Sections 15, 16 and 17 by way of an inclusive definition. Salary for tax purposes includes any pension. Section 15 enumerates the income which shall be chargeable to income-tax under the head ' Salaries '. Section 16 provides that income chargeable under the head ' Salaries ' shall be computed after making deductions mentioned in Section 16. Section 17 has nothing to do either with deductions or with exemptions. It is merely a provision defining the expression 'salary' (see CIT v. G. Hyatt : [1971]80ITR177(SC) ). Under Section 15, all payments made to the holder of an office or employment as such by way of remuneration for services would be treated as salary. The sine qua non or prerequisite for chargeability under the head ' Salaries ' is that there must exist relationship of employee and employer between the assessee and the person making the payment. If any payment has to be regarded as salary within the meaning of Sections 15 to 17, the relationship of employer and employee has to be established. In other words, for being taxable as ' salary ', payment must be due from an employer to the assessee. In this case, there is no privity of contract or contractual relationship between the assessee and the United Nations. There is no relationship of employer and employee by and between the assessee and the United Nations. She has not rendered any services in consideration of which any payment can be made to her by the employer of her husband. If one takes the amount paid by the employer of her husband to the widow simpliciter, in that event it would be ex-gratia payment in the nature of gift. In that event, such pension would not be taxable at all in the hands of the widow, far less as salary. In this case, the ITO sought to tax the pension under the head 'Salaries' since, under Section 17, 'Salary' includes any pension. The very fact that the pension received by the widow is sought to be taxed as salary would show that the receipt has nexus with the employment of the husband. Pension is generally paid in consideration of past services. Pension is paid to an employee following his retirement from service due to age or disability or to the surviving dependants of an employee entitled to such pension. It may also represent a portion of employee's retirement income accumulated in the Pension Fund to which the employee had to contribute. Pension is one of the very important terms and conditions of employment which is earned by an employee by rendering requisite period of service and its receipt is one of the incidents of employment. Payment of pension is part of the consideration for the services rendered by the employee. In a sense, the benefits by way of pension and gratuity are in the nature of deferred wages which are paid at the time of retirement or thereafter. The fact that the amount is paid to the widow does not alter the nature of the payment and the widow is merely a recipient as a nominee of her husband. The right to pension either to the employee or to his widow necessarily flows from the past employment of the employee, the assessee's husband. It flows as part of the consideration of the contract of employment and not de hors, or independent of, the contract of employment. Thus, this pension payable to the assessee is referable to the entitlement of the assessee's husband. What is received by the widow is in effect the benefit earned by the assessee's husband as an official of the United Nations. That is the reason why such benefit is assessed under the head 'Salaries' although there is no contractual relationship of employer and employee between the widow and the United Nations. Even if pension is not a deferred payment of salary, since the pension in this case is deemed to be salary under Section 17 and is sought to be taxed under Section 15, it must be held to be exempt under the Privileges and Immunities Act, whether received by the official himself or his heir or nominee. It is the nature and character of the receipt and not the character of the recipient that would determine the question whether the receipt is exempt from taxation. What would have been exempt from the hands of the deceased official would necessarily be exempt in the hands of the widow. We are, therefore, of the opinion that the pension paid to the widow of the deceased employee of the United Nations under Article 35 of the Rules and Regulations of the Pension Fund is exempt from income-tax. In that view of the matter, we answer the question in this reference in the affirmative and in favour of the assessee.

18. There will be no order as to costs.

Dipak Kumar Sen, J.

I agree.


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