TMI Blog1935 (4) TMI 23X X X X Extracts X X X X X X X X Extracts X X X X ..... es which are before us. The Company allots every half year a certain sum to the credit of this Fund and this sum is invested and accumulated at the discretion of the directors of the Company. The half-yearly allotment is divided amongst the several officers of the Company eligible to the benefits of the Fund in proportion to their salaries and credited half-yearly to accounts maintained in the names of the several officers. Each Officer is given a pass-book in which are entered the amounts so credited to his account with the Fund. The proportionate interest realised on the investments is also credited to this account. No officer admitted to the benefits of the Fund has any claim on the Company in respect of the amount shown at the credit of his account until he shall have previously served the Company continuously and satisfactorily for a prescribed period (six years in the case of the petitioner (sic) and in no case can the amount to the credit of an officer become payable to him until he leaves the service of the Company. The directors of the Company have full discretion to decide which of the officers of the Company shall from time to time be eligible to the benefits of the Fund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en sanctioned by the Government in the cases of successive managers and it was one of the inducements offered to candidates for the office. It was recognised that there was no legal obligation upon the Raj or the Government to make the payment but having regard to the established practice it was nevertheless a matter of reasonable expectation and incentive to accept an onerous office at a comparatively small salary and to perform the duties in an efficient manner. In pursuance of this practice, Mr. Rutherford received a sum of ₹ 75,575 which the Income-tax authorities sought to assess but it was held that the sum was in the nature of commuted pension falling within Section 4(3)(v) of the Act and was exempt from taxation, the contention for the Crown having been that the sum paid was a gratuity and not a pension. The learned Chief Justice says at p. 318: The candidate, therefore, enters upon his office under the Court of Wards with a definite salary and the expectation that he will receive at the end of his service the equivalent of a pension but he knows that he will not after his retirement be given a series of periodical payments but in lieu thereof he will get a lump su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agers in the Rutherford v. Commissioner of Income-tax, Bihar and Orissa (1930) I.L.R. 10 Pat. 315 and it is of course quite clear that the allotment of a bonus is dependent upon the earning of profits by the Company and bonuses may be increased or reduced or may not be allotted at all. There is no evidence that the officer receives a smaller salary by reason of the fact that there is this payment coming to him on his retirement nor under the circumstance of the crediting each half-year of the bonuses can a lump sum payment of the Fund be considered as a payment for past services. It is impossible to avoid the conclusion that the allotment is being made for present services and Mr. Patanjali Sastri contends that this sum is, as it is described in the rules, an accumulation of bonuses. It is conceded that in respect of cash bonuses paid to an officer in addition to salary they are assessable to income-tax under Section 7 as profits received by the officer in addition to his salary. Hence Mr. Patanjali Sastri argues that this is a receipt of accumulated bonuses by the assessee in addition to his salary. It seems to me that there is much force in this argument. It is difficult to see h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , (iii) Property, (iv) Business, (v) Professional earnings and (vi) other sources. 7. Each of these is dealt with in separate sections of the Act. The assessee has always been assessed under Section 7(1). This income clearly does not fall under any of the Clauses (ii), (iii), (iv), (v) and (vi). Section 25(3) was intended to prevent a double assessment. It cannot be intended to apply to a case where income-tax is assessed on salaries in the year in which they are earned. If the section were to apply, it would lead to this very strange and unreasonable result that an assessee who chooses to relinquish his appointment in the eleventh month of the year would escape payment of income-tax on the salary earned by him in these eleven months whereas, if he continued f of one month longer, admittedly he would be assessable on his salary in the whole of the twelve months. Mr. T.M. Krishna-swami Aiyar was quite unable to give any reason why such should be the result. In my view, therefore, as this sum falls to be assessed under Section 7(1) of the Act, Section 25(3) cannot be applied to it. I would, therefore, answer both questions accordingly. In view however of the answers of my learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all make any contribution to the Fund at any particular period. It is a matter which is left entirely to the pleasure of the Company. And the directors of the Company have sole control over the investment of the money in the Fund. 9. The rules provide that no officer shall have any claim, against the Company in respect of any bonus or otherwise as regarding the Fund until he leaves the service of the Company and shall have previously served the Company continuously and satisfactorily for the period required of him by the rules. In the event of his death during his term of service it is provided that the amount then standing to his credit in the Fund shall be paid to his legal representative; but the rules give him no power of nomination over the amount to his credit in the Fund. Then Rule 6 says that in the event of an officer leaving the service of the Company or being dismissed before having completed the term of service required of him, the amount standing to his credit shall be apportioned to the credit of the other officers then in the employ of the Company. And Rule 7 provides that nothing contained in the rules shall in any way be taken to restrict the powers of the Compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... makes it clear that the profits from a profession or vocation mentioned in the first named section mean the professional earnings which are taxable under Section 11(v). An assessee can only have the benefit of Section 25(3) if he has been assessed for tax on professional earnings. I would therefore answer the second question against the assessee. Pandrang Row, J. 13. This is a reference made by the Commissioner of Income-tax, Madras, under Section 66(2) of the Indian Income-tax Act (XI of 1922) at the instance of Mr. J.B. Fletcher, who was an employee in the service of the Buckingham and Carnatic Mills Co., Ltd. for about 24 years till 28th February, 1933 when he retired from service. During the period of his employment the Company was paying him a monthly salary as well as a half yearly cash bonus out of its profits, and income-tax was being collected on these amounts. The Company had constituted an Officers' Retiring Fund and made rules for its management. The Company allotted every half year out of its profits a certain sum to the credit of this Fund and invested the same; the amount together with the interest earned was apportioned between such of its officers as were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to relief under Section 25(3) of the Act on the ground alleged by him, namely, he discontinued his profession in the year of account. 15. The second question does not involve any real difficulty. The words of the Sub-section relied upon are themselves clear, and they show that it applies only where the business, profession or vocation which is discontinued is one on which tax was at any time charged under the provisions of the Income-tax Act, 1918. Even on the assumption that Mr. Fletcher's employment as an officer of the Comany was a profession or vocation, it was never assessed to tax as such under the Act of 1918; the assessment of his income from such employment was under the head of salaries , and not under the head of profits from any profession or vocation followed by him. It is not contended that the employment was a business as denned in the Act. It is moreover, clear that the provisions of this sub-section were meant to apply only to cases in which there had been a double assessment to tax in the year 1922-1923 as a result of the change brought about by the Act of 1922. See Nachiappa Chettiar v. The Commissioner of Income-tax, Madras (1933) 6 I.T.C. 369 (3) at 373 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Mr. Fletcher is correct it follows that the payment made by the Company to Mr. Fletcher was not a payment made by the Company as an employer but a payment made by it as trustee, and cannot therefore be assessed to tax under the head of salaries. See In re The Commissioner of Income-tax, Burma v. The Rangoon Electric Tramway and Supply Co., Ltd. (1933) I.L.R. 11 Rang. 70 and the 2nd sub-paragraph of paragraph 25, Income-tax Manual, p. 169 (5th Edition). In the Rangoon case there was no doubt an actual transfer of the shares which were purchased from the monies allotted as bonuses to the Managing Director of the Company and the employee. But actual transfer of ownership to the trustee is not always necessary to create a trust in relation to moveable property; under Section 5 of the Indian Trusts Act (II of 1882) a declaration of trust is sufficient in such a case, and under Section 3 of that Act an obligation annexed to the ownership of property arising out of a confidence declared and accepted by the owner for the benefit of another is a trust. The Rules of the Fund framed by the Company are a sufficiently clear declaration of a trust in favour of the employees admitted by the Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e transaction. Counsel on both sides in the present case are also agreed that the real nature of the payment must be ascertained for the purpose of deciding the point. 19. There is no doubt in my mind that the payment of ₹ 36,794 to Mr. Fletcher on his retirement from the Company's service was in substance and in truth the payment of a lump sum in lieu of pension, that is, in consideration of his past services. The amount depended in part at least on the length of his service, and it was paid, out of what has always been designated as the Officers' Retiring Fund, under the rules of that Fund. The existence of such a Fund may reasonably be presumed to have been, and to be one of the inducements offered by the Company to those who sought and still seek to be employed in its service, especially in the absence of any other provision after retirement in the shape of pension. The prospect of getting on retirement after long and approved service a pension or its equivalent, by whatever name it may be called, is one of the important factors which attracts candidates for employment; in short, there are three such important factors, namely, pay, promotion and pension; whatev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the Indian Income-tax Act are moreover different from those found in the English Income-tax Act, and this difference recalls to one's mind the following observations of their Lordships of the Judicial Committee in Commissioner of Income-tax, Bengal v. Shaw, Wallace and Co. (1923) 59 I.A. 206 : I.L.R. 59 Cal. 1343 : 63 M.L.J. 124 (P.C.). Their Lordships would discard altogether the case-law which has been so painfully evolved in the construction of the English Income-tax Statutes both the cases upon which the High Court relied and the flood of other decisions which has been let loose in this Board. The Indian Act is not in pari material.... Under such conditions their Lordships think that little can be gained by attempting to reason from one to the other, at all events in the present case in which they think the problem lies very near the surface of the Act and depends mainly on general considerations. 22. The observations which follow the above deal with the general question of what income is, and they are of considerable importance in the present case which raises the general question whether the payment of ₹ 36,794 to Mr. Fletcher is income liable to tax. Thei ..... X X X X Extracts X X X X X X X X Extracts X X X X
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