TMI Blog1993 (7) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... gpur Mills towards purchase of single premium for obtaining the deferred annuity policy did not form part of remuneration payable to the assessee for the calendar year 1972 relevant to the assessment year 1973-74 in question?" Income-tax Reference No. 212 of 1982: " Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal has been right in law in holding that an amount of Rs. 90,000 being the value of life insurance policy taken by Sarangpur Cotton Mfg. Co. Ltd., on the assessee who was its managing director was not exigible to tax in the hands of the assessee ?" Income-tax Reference No. 213 of 1982 : " Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal has been right in law in holding that an amount of Rs. 90,000 being the value of life insurance policy taken by Sarangpur Mfg. Co. Ltd., on the assessee who was its managing director, was not exigible to tax in the hands of the assessee ?" The assessee in Income-tax References Nos. 445 of 1980 and 212 of 1982 is Nandkishore Sakarlal. The assessee in Income-tax Reference No. 213 of 1982 is Navnitlal Sakarlal. Both are brothers and at the relevan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay be, nor shall any of the said managing directors have any right, lien or interest in any of the aforesaid policies until the date of the first payment of annuity and the balance-sheet and profit and loss account of the company for the year 1972 be prepared accordingly." Similar resolution for the remuneration payable for the calendar year 1973 was passed on December 20, 1973. So far as the amount of Rs. 26,221 is concerned, the Income-tax Officer, considering the past practice and construing the resolutions, held that the amount of remuneration which had become due was to be paid to the Life Insurance Corporation for purchasing the deferred annuity policy and, therefore, even though the said amount was not paid to the assessee, it was includible in his total income. The same view was taken with respect to the amount of Rs. 90,000 with which the deferred annuity policy was purchased in the subsequent year. In the appeals filed by the assessee, the Appellate Assistant Commissioner confirmed the finding of the Income-tax Officer that the remuneration did in fact accrue to the assessees and as the remuneration had become due, it became chargeable under section 15 of the Act even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome due to the assessees and, therefore, the said amounts did form part of the total income of the assessees. He submitted that the assessees got a vested right in the benefits, which were to follow from the deferred annuity policies and even though the annuity was to become payable after ten years, the amounts spent for purchasing the policies did become the income of the assessees for the relevant years. In the alternative, he submitted that, in any case, the sums paid by the mills company to effect a contract for any annuity became perquisites and for that reason also those sums were includible in the total income of the assessees. He lastly submitted that, in any case, so far as the assessee, Nandkishore, is concerned, the amount of Rs. 26,221 had already become payable to him for the calendar year 1972. It had become due to him before the passing of the resolution on April 12, 1973 and, therefore, at least for the assessment year 1973-74 it should have been held that the said amount was includible in his total income. Relying upon the decision of the Supreme Court in CIT v. L. W. Russel [1964] 53 ITR 91, he submitted that except in cases where vested interest does not accrue t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Supreme Court has also observed that it cannot apply to contingent payments to which the employee has no right till the contingency occurs. The Supreme Court then observed that in short the employee must have a vested right therein. Whether an employee can be said to have a vested right would depend upon what is meant by a vested right, and upon the nature of the transaction. It was submitted that an interest was created in favour of the assessee even though it was to take effect at a future date, but on the happening of an event, which was bound to happen and, therefore, it did amount to vested interest in terms of section 19 of the Transfer of Property Act. He also referred to the Explanation to section 19, which provides that an intention that an interest shall not be vested is not to be inferred merely from a provision whereby the enjoyment thereof is postponed, or whereby a prior interest in the same property is given or reserved to some other person, or whereby income arising from the property is directed to be accumulated until the time of enjoyment arrives, or from a provision that if a particular event shall happen the interest shall pass to another person. In our opi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the sums in question with which the deferred annuity policies were purchased amounted to "perquisites", as contemplated by section 17(2)(v) of the Act. It was, however, urged by learned counsel for the Revenue that passing the resolutions in that manner and not creating any vested right in favour of the assessees was a device adopted by the mills company and the assessees for the purpose of avoiding payment of tax. We should, therefore, not construe the resolutions as not creating a right in favour of the assessees even though clear words were used in those resolutions for that purpose. In support of this contention, he relied upon the decision of the Supreme Court in McDowell and Co. Ltd. v. Commercial Tax Officer [1985] 154 ITR 148. Therein, the Supreme Court has observed as under : " Tax planning may be legitimate provided it is within the frame-work of the law. Colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to avoid the payment of tax by dubious methods. It is the obligation of every citizen to pay the taxes honestly without resorting to subterfuges. There is behind taxation laws as much moral ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Supreme Court has observed that where the true effect on the construction of the deeds is clear, appeal to discourage tax avoidance is not a relevant consideration. In the present references, on a construction of the resolutions, we have found that the true effect thereof was to deny the income to the assessees and the income, which would have otherwise become due and payable to the assessees was transferred to and vested in some other person. Therefore, these cases cannot be said to be cases where the mill company, or the assessees can be said to have adopted a device with a view to avoid tax liability. It is, therefore, not possible for us to construe the resolutions as contended by learned counsel for the Revenue. As stated earlier, the managing directors' total remuneration was not to exceed ten per cent. of the net profits of the income in view of the provisions of the Companies Act and also the articles of agreement made between the mills company and the three managing directors. Moreover, clause 6(e) of the articles of agreement empowered the directors to resolve that managing directors should not be paid any remuneration mentioned in sub-clause (a) or (b) or the perquis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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