Full Judgment Text
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PETITIONER:
EMIL WEBBER
Vs.
RESPONDENT:
COMMISSIONER OF INCOME TAX, V AND M, NAGPUR
DATE OF JUDGMENT19/02/1993
BENCH:
JEEVAN REDDY, B.P. (J)
BENCH:
JEEVAN REDDY, B.P. (J)
VENKATACHALA N. (J)
CITATION:
1993 AIR 1466 1993 SCR (2) 27
1993 SCC (2) 453 JT 1993 (2) 555
1993 SCALE (1)659
ACT:
Income Tax Act 1961 : Sections 2(24), 14, 17, 56, 195-
’Income’ Meaning of-Amount paid by way of tax on the salary
amount of assessee on his behalf-Whether assessee’s Income-
Whether taxable under the heading "other sources".
HEADNOTE:
Ballarpur, a public limited company undertook to set up a
caustic soda/chlorine manufacturing plant. It entered into
an agreement with a French concern for purchase of certain
machinery and equipment.
In another agreement with Ballarpur, the French concern
agreed to provide services of certain personnel and
Ballarpur agreed to pay salaries and other emoluments free
of any Indian tax or duty to the personnel.
The French concern entered into an arrangement with a Swiss
concern for supply of certain machinery and to make
available services of certain personnel.
The assessee-appellant was one such person. He came to
India and started working in connection with the setting up
of the plant.
In addition to daily allowances and other facilities, the
assessee-appellant was paid Rs. 3,82, 481 and Rs. 67,200 for
the assessment years, 1974-75 and 1975-76, respectively.
Before the Income Tax Officer, the assessee contended that
he was not liable to pay tax. The I.T.O. did not agree.
Ballarpur paid the tax amount of Rs. 3,23,400 and Rs. 35,546
for the assessment years respectively.
The Income Tax Officer treated the tax amount paid by
Ballarpur as a perquisite and added the same to the salary
amount of the assessee.
The assessee questioned the action of the I.T.O. in appeal
before the A.A.C., which was dismissed.
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The appeal flied before the Tribunal was also dismissed,
whereupon the assessee obtained a reference to be answered
by the High Court.
The High Court answered the reference, "whether on the facts
and in the circumstances of the case the amount of tax paid
by Ballarpur on behalf of the assessee in assessment years
1974- 75 and 1975-76 is income taxable under the heading
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’other sources’," against the assessee.
Hence these appeals by the assessee contending that the
amount paid by way of tax could not be treated as ’Income’
of assessee; that as the assessee did not receive the said
amount from Ballarpur, it could not constitute his income.
Dismissing the appeals, this Court,
HELD: 1.01. The definition of ’Income’ in clause (24) of
Section 2 of the Act is an inclusive definition. It adds
several artificial categories to the concept of income but
on that account the expression ’income’ does not lose its
natural connotation. It is repeatedly said that it is
difficult to define the expression ’income’ in precise
terms. Anything which can properly be described as income
is taxable under the Act unless, of course, it is exempted
under one or the other provision of the Act. [31D]
1.02. The amount paid by Ballarpur by way of tax on the
salary amount received by the assessee can be treated as the
income of the assessee. The said amount is nothing but a
tax upon the salary received by the assessee. By virtue of
the obligation undertaken by Ballarpur to pay tax on the
salary received by the assessee among others, it paid the
said tax. The said payment is, therefore, for and on behalf
of the assessee. It is not a gratuitous payment But for the
said agreement and but for the said payment, the said tax
amount would have been liable to be paid by the assessee
himself. He could not have received the salary which he did
but for the said payment of tax. The obligation placed upon
Ballarpur by virtue of Section 195 of the Income Tax Act
cannot also be ignored in this context. It would be
unrealistic to say that the said payment had no integral
connection with the salary received by the assessee. [31E-G]
1.03. Inasmuch as the assessee is not an employee of
Ballarpur, which made the payment, it cannot be brought
within the purview of Section 17 of the Act. It must
necessarily be placed under sub-section (1)
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of Section 56, ’income from other sources’. According to
the said sub-section, income of every kind which is not to
be excluded from the total income under the Act shall be
chargeable to income tax under the head ’income from other
sources’, if it is not chargeable to income tax under any of
the other heads specified in Section 14, Items A to E. [32A-
B]
N-4. Modi v. S.A.L., Narayana Rao, 61 ITR 428 SC; C.L T.,
Bombay v. Smt. T.P. Sidhwa, 133 ITR 840 and Mrs. Sheela
Kaushish v. C.I. T. Delhi 131 [TR 435 SC, distinguished.
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 3115-16 of
1980.
From the Judgment and Order dated 15.6.1978 of the Bombay
High Court in I.T. Ref. No. 458 of 1976.
V.U. Eradi and Suman J. Khaitan for Khaitan & Co. for the
Appellant.
S. Rajappa for Ms. A. Subhashini for the Respondent.
The Judgment of the Court was delivered by
B.P. JEEVAN REDDY, J. Assessee is the appellant. He is
aggrieved by the decision of the Bombay High Court in Income
Tax Reference No. 458 of 1976 answering the following
question, which was referred to it at his instance, against
him: "whether on the facts and in the circumstances of the
case the amount of tax paid by Ballarpur on behalf of the
assessee in assessment years 1974-75 and 1975-76 is income
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tax ore under the heading ’other sources"’.
The Ballarpur Paper and Straw Board Mills Limited
(Ballarpur) is a public limited company engaged in the
manufacture of paper and straw board. It undertook to set
up a caustic soda/chlorine manufacturing plant at
Ballarpur.For this purpose, it entered into an agreement
with Krebs, a French concern, for purchase of certain
machinery and equipment. There was a second agreement
between Ballarpur and Krebs whereunder Krebs undertook to
provide services of certain personnel including engineers
for setting up the plant at Ballarpur. Krebs, in turn,
entered into an arrangement with a Swiss concern, Escher
Wyas Eurich, for supply of certain machinery and also to
make available services of certain personnel. The
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assessee, Emil Webler, was one such person provided by the
Swiss concern The assessee came to India and worked here in
connection with the setting up of the plant.
According to the agreement between Ballarpur and Krebs the
former undertook to pay salaries and other emoluments to
personnel provided by Krebs in accordance with the formula
contained in the agreement. Inter alia, it was provided
that ’salaries are understood free of any Indian tax or
duty’. For the assessment year 1974-75, the assessee-
appellant was paid a sum of Rs. 3,82,481 and for the
assessment year 1975-76, a sum of Rs. 67,200 in addition to
daily allowances and other facilities.
The assessee contended before the Income Tax Officer that he
was not liable to pay tax He also filed returns affirming
the said stand. The stand taken by him was negatived,
whereupon Ballarpur paid the tax of Rs. 3,23,400 and Rs.
35,546 for the said two assessment years respectively. In
his assessment orders, the I.T.O. treated the said tax
amount as a perquisite and added the same to the salary
amount received by the assessee. The said addition was
questioned by the assessee in appeal, before the A.A.C. but
without success. The matter was then carried to the
Tribunal. The Tribunal too did not agree with the
assessee’s contention and dismissed his appeal whereupon he
obtained the aforesaid reference which, as stated above, has
been answered against him by the Bombay High Court.
For a proper appreciation of the question arising herein, it
is necessary to notice certain factual statements contained
in the Statement of the Case. It is stated therein:
"according to this agreement, Ballarpur were under an
obligation to pay by the device of delegation invoices
opened with a bank in France certain amount of salaries at
agreed rates to Krebs and Cis. Paris for setting up the
plant at the town of Ballapur............. The Tribunal
clarified that there was no dispute between the parties that
the amounts of Rs. 3,82,481 and Rs. 67,200 paid by Ballarpur
through Krebs to the assessee for services rendered by it in
the two respective years were taxable under the heading
’Salary’. It further clarified that there was no dispute
between the parties, that the relationship of the employer
and employee did not exist between Ballarpur and the
assessee. The Tribunal held as below: (1) Ballarpur was
under a legal obligation to pay the tax if any, levied on
the assessee; (2) Ballarpur paid the tax by virtue of such a
legal obligation ...........
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The facts found by the Tribunal thus show that the assessee-
appellant was paid certain salary free of tax but that the
tax payable in that behalf was to be and was in fact paid by
Ballarpur. The assessment was made upon the assessee
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directly. The question is whether the said tax component
paid by Ballarptir can be included within the income of the
assessee. The first contention of’ the learned counsel for
the assessee is that the amount paid by Ballarpur by way of
tax cannot be treated as ’income’ of assessee at all. His
second contention is that the assessee did not receive the
said amount and, therefore, it cannot constitute his income.
Indeed, the learned counsel sought to argue that Ballarpur
was under no obligation to pay the said tax amount relating
to the salary amount received by the assessee. We find it
difficult to agree with the learned counsel.
The definition of ’income’ in clause (24) of Section 2 of
the Act is an inclusive definition. It adds several
artificial categories to the concept of income but on that
account the expression ’income’ does not lose its natural
connotation. Indeed, it is repeatedly said that it is
difficult to define the expression ’income’ in precise
terms. Anything which can properly be described as income
is taxable under the Act unless, of course, it is exempted
under one or the other provision of the Act. It is from the
said angle that we have to examine whether the amount paid
by Ballarpur by way of tax on the salary amount received by
the assessee can be treated as the income of the assessee.
It cannot be overlooked that the said amount is nothing but
a tax upon the salary received by the assessee. By virtue
of the obligation undertaken by Ballarpur to pay tax on the
salary received by the assessee among others, it paid the
said tax. The said payment is, therefore, for and on behalf
of the assessee. It is not a gratuitous payment. But for
the said agreement and but for the said payment, the said
tax amount would have been liable to be paid by the assessee
himself He could not have received the salary which he did
but for the said payment of tax. The obligation placed upon
Ballarpur by virtue of Section 195 of the Income Tax Act
cannot also be ignored in this context. It would be
unrealistic to say that the said payment had no integral
connection with the salary received by the assessee. We
are, therefore, of the opinion that the High Court and the
authorities under the Act were right in holding that the
said tax amount is liable to be included in the income of
the assessee during the said two assessment years.
The question then arises under which head of income should
the said
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income be placed. Inasmuch as the assessee is not an
employee of Ballarpur, which made the payment, it cannot be
brought within the purview of Section 17 of the Act. It
must necessarily be placed under sub-section (1) of Section
56, ’income from other sources’. According to the said sub-
section, income of every kind which is not to be included
from the total income under the Act shall be chargeable to
income tax under the head ’income from other sources’, if it
is not chargeable to income tax under any of the other heads
specified in Section 14, Items A to E. It is not the case of
the assessee that any provision of the Act exempts the said
income from the liability to tax
The learned counsel for the assessee-appellant relied upon
certain decisions in support of his contention. The first
is the decision of this court in N.A. Modi v. S.A.L.
Narayana Rao, 61 ITR 428 SC. An advocate was appointed as a
Judge. He received certain income after his appointment as
a Judge in lieu of the professional service rendered by him
before his appointment. The question was whether the said
amount is taxable. It was held that it was not (in view of
the provisions of the Act as it then stood). The basis for
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the said decision is that the assessee therein cannot be
said to be carrying on the profession of an advocate at the
time he received the said income. We are unable to see how
the said decision helps the assessee herein. Indeed, in the
said decision this court emphasised that the question
whether an income falls under one head or the other has to
be decided according to the common notion of practical men,
inasmuch as the Act does not provide any guidance in the
matter. It was observed that the heads of income must be
decided on the nature of income by applying practical common
notions and not by reference to the assessee’s treatment of
income. The application of said test does not certainly
help the assessee herein.
The second decision cited is of the Bombay High Court in
CLT. Bombay v. Smt. T.P. Sidhwa, 133 ITR 840. The question
was whether the income from property received by an assessee
of which he is not the owner can be taxed as ’income’ from
other ’sources’. It was held that it cannot be so taxed.
We do not see any anology between the facts and principle of
that case and those of this case. Here the integral
connection between the salary received by the assessee and
the tax payable thereon, paid by Ballarpur in pursuance of a
legal obligation, cannot be overlooked. The third case
cited is in Mrs. Sheela Kaushish v. C.I.T, Delhi, 131 I.T.R.
435
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S.C. In this case, it was held that determination of annual
value under Section 23 of the Income Tax Act, 1961 should be
done by taking the standard rent as the basis even where the
assessee is receiving rent higher than the standard rent.
Again we must say, we see no relevance of the said principle
of this case to the facts of this case.
For the above reasons, the appeals fail and are dismissed.
No costs.
V.P.R. Appeals dismissed.
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