EMIL WEBBER VS COMMISSIONER OF INCOME-TAX, 1993 PTD-SUPREME-COURT-INDIA 1002 (1993)

(Appeal from the judgment and order, dated June 15, 1978, of the Bombay High Court in Income-tax Reference No.458 of 1976).

Income-tax---

----Income---Income from other sources ---Assessee one of foreign personnel whose services were provided for setting up plant in India for Indian concern-- Assessee not employee of Indian concern---Agreement that salary paid to assessee shall be free of tax---Tax assessed on assessee---Paid by Indian concern pursuant to agreement with foreign concern---Is income of assessee-- Is taxable under head "Income from other sources"---India income Tax Act, 1961, Ss. 14, 17 & 56(1).

Ballarpur, an Indian company engaged in the manufacture of paper and strawboard, entered into an agreement with a foreign concern for purchase and setting up of a caustic soda/chlorine manufacturing plant. Under a second agreement, the foreign concern undertook to provide services of certain foreign personnel for setting up the plant in India and Ballarpur undertook to pay the salaries and other emoluments to those personnel. It was understood that salaries were to be free from any Indian tax or duty. The appellant was one of such personnel who came to India and worked in connection with the setting up of the plant. For the assessment years 1974-75 and 1975-76, the appellant was paid Rs.3,82,481 and Rs.67,200 which the Income-tax Officer assessed to income-tax in the appellant's hands respectively for those two years. Thereupon Ballarpur paid the tax of Rs.3,23,400 and Rs.35,546. The Appellate Tribunal found (i) that Ballarpur was under a legal obligation to pay the tax and had done so and (ii) that the relationship of employer and employee did not exist between Ballarpur and the appellant and held that the tax assessed on the appellant and paid by Ballarpur was income of the appellant and assessable under the head "Income from other sources". On a reference, the High Court affirmed the decision of the Tribunal. On appeal to the Supreme Court:

Held, affirming the decision of the High Court, (i) that the amount paid by Ballarpur was nothing but a tax upon the salary received by the appellant. It was paid by virtue of the obligation undertaken by Ballarpur and, therefore, the payment was not a gratuitous payment but was for and on behalf of the appellant. It would be unrealistic to say that the payment had no integral connection with the salary received by the appellant. Therefore, the tax paid by Ballarpur was liable to be included in the income of the appellant.

(ii) That inasmuch as the appellant was not an employee of Ballarpur, the amount could not be brought under the head "salary" within the purview of section 17 of the Income Tax Act, 1961, and had necessarily to be placed under section 56(1), viz., under the head "Income from other sources".

The definition of "income" in section 2(24) 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. Anything which can be properly described as income is taxable under the Act unless it is exempted under one or the other provisions of the Act.

Emil Webber v. CIT (1978) 114 ITR 515 (Bom.) affirmed.

CIT v. Sidhwa (T.P.) (Smt.) (1982) 133 ITR 840 (Bom.); Nalinikant Ambalal Mody v. SA.L. Narayan Row, CIT (1966) 61 ITR 428 (SC) and Sheila Kaushish (Mrs.) v. CIT (1981) 131 ITR 435 (SC) ref.

V.U. Eradi, Advocate (for Khaitan & Co.) for Appellant.

S. Rajappa and P. Parameswaran, Advocates for Respondent.

JUDGMENT

B.P. JEEVAN REDDY, J.---The assessee is the appellant. He is aggrieved by the decision of the Bombay High Court in Income-tax Reference No.458 of 1976 (see (1978) 114 ITR 515) answering the following question which was referred to it at his instance, against him: "Whether, on the facts arid in the circumstances of the case, the amount of tax paid by Ballarpur on behalf of the assessee in the assessment years 1974-75 and 1975-76, is income taxable under the heading `Other sources'? -

The Ballarpur Paper and Straw Board Mills Ltd. (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 had 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 Zurich, for the supply of certain machinery and also to make available the services of certain personnel. The assessee, Emil Webber, 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 Income-tax officer 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 Appellate Assistant Commissioner 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 Cie, Paris for setting up the plant at the town of Ballarpur .....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 .

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 the fact paid by Ballarpur. The assessment was made upon the assessee directly. The question is whether the said tax component paid by Ballarpur can be included within the income of the assessee. The first contention of learned counsel for the assessee is that the amount paid by Ballarpur by way of tax cannot be treated as "income" of the assessee at all. His second contention is that the assessee did not receive the said amount and,therefore, it cannot constitute his income. Indeed, 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 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 provisions 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 i 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 as to under which head of income the said income should 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 subsection (1) of section 56, "Income from other sources". According to the said subsection, 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 speed 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.

Learned counsel for the assessee-appellant relied upon certain decisions in support of his contention. The first is the decision of this Court in Nalinikant Ambalal Mody v. SA.L. Narayan Row, CIT (1966) 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 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 the said test does not certainly help the assessee herein.

The second decision cited is of the Bombay High Court in CIT v. Smt, T.P. Sidhwa (1982) .133 ITR 840. The question was whether the income from property received by an assessee of which she 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 analogy between the facts and principles 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 Mrs. Sheila Kaushish v. CIT (1981) 131 ITR 435 (SC). 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.

M.BA./2295/TAppeals dismissed.