THE COMMISSIONER OF INCOME TAX vs. SARDAR ARJUN SINGH AHLUWALIA (DEAD)THROUGH LRS. ETC.

CIVIL APPEAL No. 1206/1982Supreme Court1999 INSC 48926 October 1999Bench: 3 JudgesAuthor: S.P. BHARUCHA, V.N. KHARE, M. JAGANNADHA RAO6 pages
AI SummaryAllowed

What were the facts?

The assessee, Sardar Arjun Singh Ahluwalia, had an agreement in January 1946 with Kalyanmal Mills Ltd. for selling waste cotton. Disputes arose, and the agreement was terminated in November 1948. The amounts due to the assessee for the previous years relevant to assessment years 1946-47 and 1947-48 were not paid. The assessee filed a suit and obtained a decree in December 1965. The amounts were received in parts during the previous years relevant to assessment years 1966-67 and 1967-68. The Income Tax Tribunal and the High Court held that the relationship was master-servant and the amounts were taxable as salary. The High Court, however, held that the income accrued in 1946-47 and 1947-48, leading to cross-appeals.

What did the Supreme Court hold?

The Supreme Court allowed the Revenue's appeal, holding that Section 15 of the Income Tax Act, 1961, must be read harmoniously. While the salary amounts were payable in assessment years 1946-47 and 1947-48 and could have been taxed then, they were not charged. The amounts were received in assessment years 1966-67 and 1967-68 and were correctly classified as arrears of salary under Section 15(c) as they had not been charged to tax in any earlier year. The Court rejected the assessee's argument that Section 15(c) only applied to arrears that *could* have been charged, stating the words 'if not charged to income tax' were wide enough to cover cases where a charge could not have been imposed. The first question was answered in favour of the Revenue. The second question was rendered consequential and did not require a separate answer. The assessee's appeals were dismissed.

What were the issues?

1. Whether, on the facts and circumstances, the income of the assessee became liable to be assessed in assessment years 1966-67 and 1967-68, and not in assessment years 1946-47 and 1947-48, under Section 15 of the Income Tax Act, 1961. 2. Whether the remuneration received by the assessee in assessment years 1966-67 and 1967-68, pursuant to a decree passed in December 1965, could be held to be income that had accrued in assessment years 1946-47 and 1947-48. Assessee's contentions: The amounts were chargeable to tax under Section 15(a) in assessment years 1946-47 and 1947-48 when they became due. The amounts received could not be termed 'arrears of salary' under Section 15(c). The Income Tax Act did not extend to the erstwhile Holkar State where the amounts were earned. Revenue's contentions: Since the amounts were not charged to tax in assessment years 1946-47 and 1947-48, they became liable in the years they were received.

Which sections of the Income-tax Act were involved?

Section 15,Section 15(a),Section 15(b),Section 15(c),Section 256(1)

AI-generated summary — verify with the full judgment below

.. r THE COMMISSIONER OF INCOME TAX v. SARDAR ARJUN SINGH AHLUWALIA (DEAD) THROUGH LRS. ETC. OCTOBER 26, l 999 [S.P. BHARUCHA, M. JAGANNADHA RAO AND V.N. KHARE, JJ.] A B Income Tax Act, 1961-Section 15(a); (c)-Salary-Amount due in previous years relevant to assessment years 1946-47 and 1947-48 received during previous years relevant to assessment years 1966-67 and 1967-68- C Held, amount is arrears of salary taxable in assessment years 1966-67 and 1967-68 .

Respondent -assessee had to receive certain amounts from a party in the erstwhile Holkar State as per agreement entered into in January 1946. D There were disputes and the assessee did not receive the amounts due. The amounts pertained to the previous years relevant to assessment years 1946- 47 and 1947-48. The assessee filed a suit before the trial court and obtained a decree in December 1965. The amounts were received in parts by the assessee during the previous years relevant to assessment years 1966-67 and 1967-68. Income Tax Tribunal held that there was master-servant E relationship between the assessee and the party and that the amount was exigible to tax under the head 'salary'. High Court while hel

The order continues below.

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