43·8

COMMISSIONER OF INCOME TAX, ASSAM AND.

NAGALAND ETC. v.

SHRI G. HYATT January 21, 1971

[J. C. SHAH, C.J., K. S. HEGDE AND A. N. GROVER, JI]

Inaome-tax Act 1961, ss. 17 and 56-Contribution to unrecognised provident fund-Interest thereon-Whether caxab/e under s. 56.

On the question whether an amount representing the interest on the amount of the assessee's own contributions to an unrecognised provident fund was assessable µnder the -residuary s. 56 of the Income-tax Act, 1~61.,

HELD : The arlii; mnt was liable to be assessed.

The receipt of aninterest of any investment is a gain made by the investor and there'fore the same is

1income''.

In view of s. 17(1)(iv), all receipts•bf profits in.lieu of salary have to be considered as salary.

In defining the expression 'profits in lieu of salary','ithe legislature exclucieclfrom the scope of that expression any D payments received by the assessee' from a provident fund, his own contributions to the fund or any interest on such contributions.

TherE1iore this receipt cannot be considered as salary, though undoubtedly that is an income.

As the income in question is not salary and the same cannot be said to be either interest on the securities; income from house property, profits and gains of business of profession or capital gains, it IJlas to be considered as 'income from other sources' and brought to tax un\ler s. 56.

Section 56( I) provides that income of every kind which is not to be excluded from the total income under the Act shall be chargeable to incometax' under any of the heads specified in s. 14 item "A" to "E". [439 C-GJ CIVIL APPELLATE JuR1smcT10N : Civil Appeal No. 1174 of 1967. .

Appeal from the judgment and order dated August 22, 1966 of the Assam & Nagaland High Court in Income-tax Reference No. 3 of 1966.

Jagadish Swarup, Solicitor-General, G. C. Sharma, R. N.

Sachthe, v and B. D. Sharma, for the appellant,

T. A. Ramachandran, for the respondent.

The Judgment of the Court was delivered by Hegde, J.

The Commissioner of Income-tax, Assam and Nagaland has brought these appeal by certificate.

The assessment with which we are concerned in this appeal is for the assessment year 1'963-64, the relevant accounting year Tu the financial year 1962-63.

The assessee was the manager of a Tea Estate under the managing agency of Ml s. Gilla, nders Arbuthnot & Co. Ltd.

The said Co. had a Provident Fund scheme for its employees.

But that provident fund was not a recognised one.

The assessee retired during the previous year relevant to assessment year 1963-64 and received out of this provident fund an

A amount of Rs. 27 ,948/- which represented the interest on the amount of his own contribution to the fund, The Income-tax Officer assessed this amount as the assessee's income from other sources. That order was confirmed appeal by the Appellate Assistant Commissioner.

But on further appeal to the tribunal by the assessee, the tribunal came to the conclusion that the re- B ceipt in question being profits 'in lieu of salary', the same was his salary as defined in s. 17 of the Income-tax Act, 1961 (to be hereinafter referred to as the Act) ; the SaJ!le having not been assessed as his salary, the assessment order relating to that item of receipt WJIS not legal.

At the instance of the Commissioner, the tribunal referred the following question of law to the High C Court of Assam and Nagaland for its opinion :

"Whether on the facts and circumstllillces of the case and having regard to the provisions of section 17(3)(ii) of the Income-tax Act, 1961 the amount Rs. 27,948/- representing the interest on the amount of the assessee's own contpbutions to an unrecognised B provident fund was assessable under the residuary section 56 of the said Act?"

The High Court answered that question in the negative and in favour of the assessee. While'it came• to the conclusion that the receipt in question cannot be considered as salary as defined in s. 17, in its view the same was exempt from payment of tax E in view of s. 17 ( 3 )(ii). The Commiss10ner is challenging the above conclusion.

The receipt of Rs. 27,948/- is undoubtedly an income as defined by s. 2(24). The receipt of an interest on any investment is a gain made. by the investor and therefore the same is

11 "income". The next question is whether the said income is exempt from tax or if it is not exempt under what head the same has to be brought to tax ?

Section. 14 of the Act gives the heads of income. They are : <A) Salanes; (B) Interest on securities; (C) Income from house prperty;. (D) Profits and gains of business or profession; G (E) Capital gams and (F) Income from other sources. ·

The salaries are brought to tax under s. 15 and "the income from. other sources" is brought to tax under s. 56.

In this appeal we re not. co?cerned with the other heads of income The slary 1~. defined m s. 17 as including any "profits in lieu of o_r m add1t10n to any salary or wages" [s. 17(1) (iv)].

Sub- H section ( 3) of s. 17 say:; :

"profits in lieu of salary" includes.- * •

SUPREME COURT REPORTS

[1971 ]3 S.C.R

(ii) any payment. . . . . . . . . . due to or received by an assessee from an employer or a former employer or from a provident or other fund (not being an approved superannuation fund) to the extent to which it does not consis~ of contribution by the assessee or interest on such contributions." (emphasis supplied)

The contributions to recognised provident funds are dealt with by other provisions of the Act. Herein we are concerned with the contribution to an unrecognised provident fund.

The learned judkes of the High Court opined that the receipt by he assessee with which we are c0111cemed is exempt from. the payment of tax in view of s. 17(3}(ii). In our opinion they were clearly in error in arriving at that conclusion. Deductions from salaries are dealt with by s. 16. In view of s. 17 (1 )(iv), all receipts of profits in lieu of salary have to be considered as salary. ; But then the question is what is meaint by "profits in lieu of salary". In defining the expression "profits in lieu of salary",

the legislature excluded from the scope of that expression any payments received by the assessee from a provident fund, his own contributions to the fund or any interest on such contributions.

From that it follows that 'the receipt of Rs. Z7 ,948/- by the assessee in the relevant accounting year cannot be considered as salary though undoubtedly that is an income.

Section 17 has nothing to do either with deductions or with exemptions. It is merely a provision defining the expression "salary".

As the ihcome in question is not salary and the same cannot be said to be either_ interest on the securities; income from house property; profits. and gains of business or profession or capital gains. it' has to be considered as "income from other sources" and brought to tax under s.

56. Section 56 ( 1) provides.,. that 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 nof chargeable to income-tax under any of the heads specified in s. 14 items 'A' to 'E'. -

In our opinion the meaning of s. 17 ( 3 )(ii) is plain and unambiguous.

Hence there is no need to call into aid any. of the rules of CQDStruction as was sought to be done by the High Court.

The respondent was not represented before this Court.

We are obliged to Mr. T. A. Ramachandran for cceding t~ our reqiiest to appear on his behalf an amicus curiae and assist us at the time of hearing of the appeal.

For the reaso$ mentioned above we allow this appeal, discharge the answer give11 by the High Court and answer the question referred to the High Court in the affirmative and in favour of the Department. Under the circumstances of the case we make no order as to costs.

Y.P.

Appeal al/owed.