COMMISSIONER OF INCOME-TAX VS J.N. VAS
2001 P T D 3039
[240 I T R 101]
[Bombay High Court (India)]
Before Dr. B. P. Saraf and Mrs. Ranjana Desai, JJ
COMMISSIONER OF INCOME‑TAX
Versus
J.N. VAS
Income‑tax Reference No.600 of 1987, decided on 20/07/1999.
Income‑tax‑‑‑
‑‑‑‑Salary‑‑‑Perquisite‑‑‑Retired employee appointed as technical, consultant for a Company‑‑‑Employer purchasing from LIC single premium annuity policy‑‑‑Premium paid to LIC not includible in salary income‑‑‑Indian Income Tax Act, 1961, S.15.
The assessee retired from employment but pursuant to an agreement was appointed as a technical consultant in the same company in consideration of the annuity of Rs.50,000 to be taken out by the company in addition to the monthly consultation fee of Rs. 600 for the accounting years ending March 31, 1977 and March 31, 1978. In accordance with the agreement, the company purchased from the LIC a single premium annuity policy by paying a sum of Rs.24,000 on March 1, 1977, and the second policy on March 22, 1979. The Income‑tax Officer included the premiums paid by the company in the salary income of the assessee. The Tribunal held that it was not taxable. On a reference:
Held, that as per the single premium annuity policy, dated March 1, 1977, the annuity was to vest in the assessee on March 1, 1981, and it was to cease on the expiry of five years from the date on which the annuity vested in the assessee. As per the second policy, dated March 22, 1979, the annuity was to vest in the assessee on October 23, 1983. Therefore, in the previous years ending March 31, 1977 and March 31, 1978, the amount of premiums paid towards single premium insurance policy did not vest in the assessee. Accordingly, these amounts could not be included in the salary income.
CIT v. L.W. Russel (1964) 53,ITR 91 (SC) and Doshi (J.H.) v. CIT (1995) 212 ITR 211 (Bom.) ref.
R.V. Desai with P.S. Jetley for the Commissioner.
Nemo for the Assessee.
JUDGMENT
MRS. RANJANA DESAI, J.‑‑‑By this reference under sec tion 256(1) of the Income Tax Act, 1961, the Income‑tax Appellate Tribunal has referred the following question of law to this Court for opinion at the instance of the Revenue:
"Whether, on the facts and in the circumstances of the case the Appellate Tribunal was justified in holding that the amount of Rs.24,000 paid by the employer. Radiant Electric Machinery Co., for the purchase of single premium annuity policy on the life of the assessee cannot be regarded as a perquisite within the meaning of section 17(2) of the Income Tax Act, 1961, and consequently cannot be included in the assessee's income under‑the head 'Salaries'?"
The facts which are relevant for the purposes of this reference may be summed up as follows: The assessee was an employee of Radiant Electric Machinery Co. He retired from the employment of the said company from March 31, 1976. On April 1, 1976, the assesssee entered into an agreement with the said company under. which he was appointed as a technical consultant to the said company. Under the said agreement, the assessee was to act as consultant in consideration of the annuity of Rs.50,000 to be taken out by the said company in favour of the assesssee. He was also entitled to monthly consultation fee of Rs.600. The relevant paragraphs of the said agreement read as under:
"Now, therefore, this agreement witnesses that in consideration of the annuity of Rs.50,000 (rupees fifty thousand only) to be taken out by the firm in favour of the said technical consultant and further payment of Rs.600 as consultation fee per month and the technical consultant agreement to act as consultant to the said firm on the conditions hereinafter appearing:
(1)That the firm shall take out the annuity of Rs.50,000 (rupees fifty thousand only) and pay the premium for taking the annuity to be made pay4ble to the consultant from April 1, 1979, and also pay monthly consultation fee of Rs.600 (Rupees six hundred only)."
For the two accounting years first ending on March 31, 1977, and the second on March 31, 1978, the assessee acted as a technical consultant to the said company. In accordance with the agreement, dated April 1, 1976, the said company purchased from the Life Insurance Corporation of India a single premium annuity policy on March 1, 1977. Under this policy, the single premium of amount of Rs.24,000 was paid by the said company. The annuity was to vest in the assessee on March 1, 1981, and it was to cease on, the expiry of five years from the date on which the annuity vested in the assessee.
It was specially provided that the policy would not be surrendered at any time and further annuity payments would not be commuted for realisation. There was a special provision to the effect that in case the annuitant dies before the date on which the annuity vested in him the amounts due under the policy would be payable if any, to the annuitant's wife. Smt. Maria Vaz. It was also provided that if before the date of vesting the annuitant swife predeceases him and the annuitant dies before the date of annuity, the amount was payable to the executors or administrators Or other legal representatives of the annuitant.
On March 22, 1979, the said company took another policy which was to vest in the assessee on October 28, 1983. Under this Policy also a single premium of Rs.24,000 was payable. The conditions of this policy were similar to the earlier policy.
In this return for the assessment year 1977‑78, the assessee disclosed the salary receipt of Rs.7,200. The Income‑tax Officer included the amount of Rs.24,000 paid as premium by, the said company to the Life Insurance . Corporation of India in terms of the single premium policy taken out by the said company in favour of the assessee in the salary income of the assessee. Similarly, for the assessment year 1978‑79, the Income‑tax Officer included the amount of Rs.24,000 in the salary income of the assessee.
Appeals were preferred by the assessee to the Commissioner of Income‑tax (Appeals). The Commissioner of Income‑tax (Appeals) by his order, dated December 15, 1981, confirmed the assessment for the year 1977‑78. So far as the assessment year 1978‑79 is concerned, by order, dated December 31, 1981, the Commissioner of Income‑tax. (Appeals) upheld the Income‑tax Officer's conclusion that the said sum of Rs.24,000 was assessable as income under the head "Salaries". Appeal on that count was not allowed. However, it was partly allowed on some other count with which we are not concerned in this reference.
The matter was carried to the Income‑tax Appellate Tribunal by the assessee. The Tribunal came to a conclusion that in the facts and circumstances of the case the premium of the insurance policy paid by the said company was not salary due from the said company to the assessee nor was it a salary paid or allowed to the assessee in the year under consideration and, therefore, cannot be taxed under section 15 of the Income‑tax Act. It is against this background that the present question of law is referred to this Court for its opinion.
We have heard at length Mr. R.V. Desai, learned counsel for the Revenue. None appeared for the assessee. Our attention is drawn to the decision of this Court in J. H. Doshi v. CIT (1995) 212 ITR 211. In that case the relevant assessment year was 1974‑75, for which the previous year ended on March 31, 1974. The assessee was the managing director of a company. Under the agreement, dated May 11, 1970 between the assessee and the company, the assessee was appointed as the managing director of the company for a period of five years commencing from January 1, 1970, on a salary of Rs.72,000 per annum plus commission at the rate of one per cent. of the net profits subject to a ceiling of 50 per cent. of the approved salary. The terms of the said agreement were modified by mutual consent by supplemental deed, dated April 26, 1971, whereby the salary of the assesse was increased to Rs.90,000 and the limit of maximum commission was raised to Rs.45,000. On September 13, 1973; the company passed two resolutions. By one of the resolutions it was resolved that the assessee was not entitled to commission on net profit in respect of the financial year 1973 and the subsequent financial year. By another resolution it was resolved that in lieu of the commission, tile company would purchase for the financial year 1973 and subsequent financial year deferred annuity policies from the Life Insurance Corporation of India by making payment to the extent of Rs.45,000 by way of single premium towards deferred annuities to be payable to the assessee or his legal representatives after his death and no interest other than contingent interest was created in favour of the assessee until the date of the first payment of annuity, i.e., date of retirement or death. The assessee filed his return on June 20, 1974, and claimed that the sum of Rs.45,000 paid by the company for the purchase of the deferred annuity policy from the Life Insurance Corporation of India on his Life was not includible in the computation of his income. The Income‑tax Officer held that the amount so paid was an item of perquisite to the assessee and was includible in the computation of the assessee's income. On appeal, the Appellate Assistant Commissioner held that the amount paid as premium could not be added to the income of the assessee as a perquisite due to him during the year and ordered its deletion. The Income‑tax Appellate Tribunal reversed the decision of the Appellate Assistant Commissioner and hence a reference was made to the High Court at the instance of the assessee seeking the High Court's opinion whether the Tribunal was justified in holding that the single premium paid by the company was includible in the computation of the assessee's income for the assessment year 1974‑75. It was held that the commission payable to the assessee was to be calculated on the net profits at the end of the relevant previous year which ended on March 31, 1974, and, therefore, it cannot be said that the commission had accrued to the assessee prior to March 31, 1974, or that the assessee became entitled to payment thereof prior to March 31, 1974. No benefit in respect of payment of premium made by the company for deferred annuity policy had accrued and/or become due to the assessee during the relevant previous year and, therefore, the said amount could not have been included in the salary of the assessee during the relevant previous year.
Our attention is also drawn to the judgment of the Supreme Court in CIT v. L.W. Russel (1964) 53 ITR 91 where it is held that the contributions made by an employer to provide deferred annuity benefit to the employees cannot be taxed in the hands of employees unless a vested right therein accrues to the employees.
In the case on, hand, as per the single premium annuity policy, dated March 1, 1977, the annuity was to vest in the assessee on March 1, 1981, and it was to cease on the expiry of five years, from the date on which the annuity vested in the assessee. As per the second policy, dated March 22, 1979, the annuity was to vest in the assessee on October 23, 1983. Therefore, in the previous years ending on March 31, 1977, and March 31, 1978, the amount of premium paid towards single premium insurance policy did not vest in the assessee. At best he had a contingent right therein. In our opinion, the above quoted judgments clearly cover the facts of this case and hence the said amount cannot be included in the salary income of the assessee for the assessment years 1977‑78 and 1978‑79.
In the circumstances, the question referred to us is answered in the affirmative, i.e, in favour of the assessee and against the Revenue. Reference disposed of accordingly.
M.B.A./304/FCReference answered.