COMMISSIONER OF INCOME-TAX, KERALA AND COIMBATORE vs. L. W. RUSSEL

CIVIL APPEAL No. 220/1963Supreme Court[1964] 7 S.C.R. 56901 April 1964Bench: 3 JudgesAuthor: K. SUBBA RAO, J.C. SHAH, S.M. SIKRI S.C.R SUPREME COURT REPORTS18 pages
AI SummaryDismissed

What did the Supreme Court hold?

The Supreme Court held that the High Court's answers to the questions of law were correct. The Court reasoned that unless a vested interest in the sum accrues to an employee, it is not taxable. In this case, no interest in the employer's contribution vested in the employee; it was merely a contingent interest dependent on reaching the age of superannuation. Therefore, it was not a perquisite allowed to or due from the employer within the meaning of Section 7(1). A perquisite, according to the Court, is an amount of money allowed to, due from, or paid to the employee to effect an insurance on their life. The Court referred to Smyth v. Stretton and Edwards v. Roberts. The appeal was dismissed.

What were the facts?

The assessee, L.W. Russel, an employee of English and Scottish Joint Co-operative Wholesale Society Ltd., was covered by a superannuation scheme. Under this scheme, the employer contributed one-third of the premium for a deferred annuity policy to ensure an annuity upon the employee's superannuation or a specified contingency. For the assessment year 1956-57, the employer contributed Rs. 3,333/- towards the respondent's premium. The Income-tax Officer included this amount in the assessee's taxable income under Section 7(1), Explanation 1, sub-clause (v) of the Indian Income-tax Act, 1922. Appeals to the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal were dismissed. The Tribunal referred three questions of law to the High Court.

What were the issues?

The Tribunal had to decide the following questions of law: 1. Whether the employer's contribution to a deferred annuity policy for the assessee is a 'perquisite' as contemplated by Section 7(1) of the Indian Income-tax Act, 1922? 2. Whether the said contributions were allowed to, or due to the assessee from the employer in the accounting year? 3. Whether the deferred annuity is an annuity hit by Section 7(1) and paragraph (v) of Explanation 1 thereto? The assessee (revenue in this context, as it is the Commissioner appealing) argued that the employer's contribution vested in the respondent as soon as it was paid to the trustee, and any contingency only served to defeat a vested right, thus making it a perquisite. The assessee relied on the principle that a perquisite is an amount allowed to or due from the employer. The respondent did not appear to present arguments.

Which sections of the Income-tax Act were involved?

Section 7(1)

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7 S.C.R SUPREME COURT REPORTS 569 COMMISSIONER OF INCOME-TAX, KERALA AND COIMBATORE v. L. W. RUSSEL IK. SUBBA RAO, J. c. SHAH AND s. M. SIKRI, JJ.] Income Tax-Scheme to effect a-policy of i.nsura.nce for the purpose of ensuring annuity to every employee on his attaini:ng age of superannuation or on happening of a spec~fied contin- gency·-Contribution's to be made both by employer and em- ployee-Whether amount paid b11 the employer towards pre- mium payable by employee taxable under s. 7(1)-Meamng of perquisite-Indian Income-tax Act. 1922 (11 of 1922), s. 7(1), The respondent is an employee of the English and Scottish Joint Co-operative Wholesale Society Ltd. incorporated in England. The Society established a superannuation scheme for the benefit of the male European members of its staff employed in India by means of deferred rnnuities. Under the terms of the scheme, the trustee has to effect a policy of insurance for the purpose of ensuring an annuity to every member of the Society on his attaining the age of superannuation or on the happening of a specific contingency. The Society contributed one-third of the premium payable by each empioyee. During the year

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