1971 (1) TMI 15 - SC - Income Tax

Assessee s contribution to an unrecognized provident fund - interest on the assessee s contribution was not exempt from tax - It does not fall under the head salary because it was not a profit in lieu of salary u/s 17(3)(ii) - It was income falling under the head income from other sources taxable u/s 56 - Revenue s appeal is allowed

Summary

Issues:
1. Assessment of income from an unrecognised provident fund under the Income-tax Act, 1961.
2. Interpretation of sections 17(3)(ii) and 56 of the Income-tax Act, 1961.
3. Exemption of income from tax under different heads of income.

Analysis:

The Supreme Court judgment involved an appeal regarding the assessment of income from an unrecognised provident fund under the Income-tax Act, 1961. The case concerned an assessee who received an amount from a provident fund upon retirement, which the Income-tax Officer assessed as income from other sources. The Tribunal, however, considered the receipt as "profits in lieu of salary" and concluded that it should be assessed as salary under section 17 of the Act. The High Court, on the other hand, ruled in favor of the assessee, stating that the receipt was exempt from tax under section 17(3)(ii).

The Court first established that the receipt of Rs. 27,948 was considered income under section 2(24) of the Act, as the interest on any investment qualifies as "income." The key issue revolved around whether this income was exempt from tax and, if not, under which head it should be taxed. Section 14 of the Act outlines the heads of income, including salaries, interest on securities, income from house property, profits and gains of business or profession, capital gains, and income from other sources.

The Court clarified that salaries are taxed under section 15, while income from other sources falls under section 56. The definition of "salary" in section 17 includes "profits in lieu of or in addition to any salary or wages." The dispute centered on the interpretation of section 17(3)(ii), which deals with payments received from a provident fund. The Court emphasized that section 17 is solely a provision defining "salary" and does not pertain to deductions or exemptions.

The Court disagreed with the High Court's interpretation that the receipt was exempt under section 17(3)(ii), asserting that the income in question did not fall under any specific head mentioned in section 14 and should be considered "income from other sources" under section 56. Section 56(1) specifies that income not excluded from total income under the Act is chargeable to income tax under the head "income from other sources" if not covered by other specified heads.

Ultimately, the Court allowed the appeal, overturned the High Court's decision, and ruled in favor of the department. The judgment clarified the plain and unambiguous meaning of section 17(3)(ii) without the need for additional rules of construction. The respondent was not represented in court, and the appeal was allowed with no order as to costs.