COMMISSIONER OF INCOME TAX, ASSAM AND. NAGALAND ETC. vs. SHRI G. HYATT

CIVIL APPEAL No. 1174/1967Supreme Court[1971] 3 S.C.R. 43821 January 1971Bench: 3 JudgesAuthor: J.C. SHAH, K.S. HEGDE, A.N. GROVER COMMISSIONER OF4 pages
AI SummaryAllowed

What did the Supreme Court hold?

The Supreme Court held that the amount of Rs. 27,948/- representing interest on the assessee's own contributions to an unrecognised provident fund was assessable under Section 56 of the Income-tax Act, 1961. The Court reasoned that while the receipt was undoubtedly income, it could not be considered 'salary' as defined in Section 17. Specifically, Section 17(1)(iv) includes 'profits in lieu of salary' as salary, but the definition of 'profits in lieu of salary' in Section 17(3)(ii) explicitly excludes payments from a provident fund, including interest on the assessee's own contributions. Therefore, this receipt did not fall under the head 'Salaries'. As the income was not salary, nor interest on securities, income from house property, profits and gains of business or profession, or capital gains, it had to be taxed under the residuary head 'Income from other sources' as per Section 56. The High Court's interpretation of Section 17(3)(ii) as providing an exemption was found to be erroneous. The appeal was allowed, and the High Court's answer was discharged.

What were the facts?

The assessee, a manager of a Tea Estate, retired and received Rs. 27,948/- from an unrecognised provident fund. This amount represented the interest on his own contributions to the fund. The Income-tax Officer assessed this as income from other sources, which was upheld by the Appellate Assistant Commissioner. However, the Income-tax Appellate Tribunal held that the receipt was 'profits in lieu of salary' and thus taxable as salary under Section 17 of the Income-tax Act, 1961. The Tribunal's order was challenged by the Commissioner of Income-tax. The High Court, on reference, ruled in favour of the assessee, holding the amount was exempt from tax under Section 17(3)(ii). The Commissioner appealed this decision to the Supreme Court.

What were the issues?

1. Whether the amount of Rs. 27,948/-, representing interest on the assessee's own contributions to an unrecognised provident fund, was assessable under the residuary Section 56 of the Income-tax Act, 1961, having regard to the provisions of Section 17(3)(ii) of the Act? Assessee's contention (as per High Court's interpretation): The receipt was exempt from tax in view of Section 17(3)(ii) of the Act, as it was not salary. Revenue's contention (as per Supreme Court's decision): The receipt was income from other sources and taxable under Section 56, as it did not fall under the definition of salary or any other specified head of income, and Section 17(3)(ii) did not provide an exemption in this context.

Which sections of the Income-tax Act were involved?

Section 17,Section 56,Section 14,Section 2(24),Section 15,Section 17(1)(iv),Section 17(3)(ii)

AI-generated summary — verify with the full judgment below

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''. B c 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 con- tributions 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 t

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