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PETITIONER: EMIL WEBBER

       Vs.

RESPONDENT: COMMISSIONER OF INCOME TAX, V AND M, NAGPUR

DATE OF JUDGMENT19/02/1993

BENCH: JEEVAN REDDY, B.P. (J) BENCH: JEEVAN REDDY, B.P. (J) VENKATACHALA N. (J)

CITATION:  1993 AIR 1466            1993 SCR  (2)  27  1993 SCC  (2) 453        JT 1993 (2)   555  1993 SCALE  (1)659

ACT: Income  Tax  Act  1961 : Sections 2(24), 14,  17,  56,  195- ’Income’ Meaning of-Amount paid by way of tax on the  salary amount of assessee on his behalf-Whether assessee’s  Income- Whether taxable under the heading "other sources".

HEADNOTE: Ballarpur,  a public limited company undertook to set  up  a caustic soda/chlorine manufacturing plant.  It entered  into an  agreement with a French concern for purchase of  certain machinery and equipment. In  another  agreement with Ballarpur,  the  French  concern agreed   to  provide  services  of  certain  personnel   and Ballarpur  agreed to pay salaries and other emoluments  free of any Indian tax or duty to the personnel. The French concern entered into an arrangement with a  Swiss concern  for  supply  of  certain  machinery  and  to   make available services of certain personnel. The  assessee-appellant  was one such person.   He  came  to India and started working in connection with the setting  up of the plant. In  addition to daily allowances and other  facilities,  the assessee-appellant was paid Rs. 3,82, 481 and Rs. 67,200 for the assessment years, 1974-75 and 1975-76, respectively. Before  the Income Tax Officer, the assessee contended  that he  was  not liable to pay tax.  The I.T.O. did  not  agree. Ballarpur paid the tax amount of Rs. 3,23,400 and Rs. 35,546 for the assessment years respectively. The  Income  Tax  Officer treated the  tax  amount  paid  by Ballarpur  as a perquisite and added the same to the  salary amount of the assessee. The  assessee questioned the action of the I.T.O. in  appeal before the A.A.C., which was dismissed. 28 The  appeal  flied before the Tribunal was  also  dismissed, whereupon  the assessee obtained a reference to be  answered by the High Court. The High Court answered the reference, "whether on the facts and in the circumstances of the case the amount of tax  paid by  Ballarpur on behalf of the assessee in assessment  years 1974-  75  and 1975-76 is income taxable under  the  heading

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’other sources’," against the assessee. Hence  these  appeals by the assessee  contending  that  the amount  paid by way of tax could not be treated as  ’Income’ of  assessee; that as the assessee did not receive the  said amount from Ballarpur, it could not constitute his income. Dismissing the appeals, this Court, HELD:     1.01. The definition of ’Income’ in clause (24) of Section  2 of the Act is an inclusive definition.   It  adds several  artificial categories to the concept of income  but on  that account the expression ’income’ does not  lose  its natural  connotation.   It  is repeatedly said  that  it  is difficult  to  define  the expression  ’income’  in  precise terms.   Anything which can properly be described as  income is  taxable under the Act unless, of course, it is  exempted under one or the other provision of the Act. [31D] 1.02.     The amount paid by Ballarpur by way of tax on  the salary amount received by the assessee can be treated as the income  of the assessee.  The said amount is nothing  but  a tax upon the salary received by the assessee.  By virtue  of the  obligation  undertaken by Ballarpur to pay tax  on  the salary  received by the assessee among others, it  paid  the said tax.  The said payment is, therefore, for and on behalf of the assessee.  It is not a gratuitous payment But for the said  agreement and but for the said payment, the  said  tax amount  would  have been liable to be paid by  the  assessee himself.  He could not have received the salary which he did but for the said payment of tax.  The obligation placed upon Ballarpur  by  virtue of Section 195 of the Income  Tax  Act cannot  also  be  ignored  in this  context.   It  would  be unrealistic  to  say that the said payment had  no  integral connection with the salary received by the assessee. [31E-G] 1.03.     Inasmuch  as  the assessee is not an  employee  of Ballarpur,  which  made the payment, it  cannot  be  brought within  the  purview  of Section 17 of  the  Act.   It  must necessarily be placed under sub-section (1) 29 of  Section 56, ’income from other sources’.   According  to the  said sub-section, income of every kind which is not  to be  excluded  from the total income under the Act  shall  be chargeable  to income tax under the head ’income from  other sources’, if it is not chargeable to income tax under any of the other heads specified in Section 14, Items A to E. [32A- B] N-4.   Modi v. S.A.L., Narayana Rao, 61 ITR 428 SC; C.L  T., Bombay  v. Smt.  T.P. Sidhwa, 133 ITR 840 and  Mrs.   Sheela Kaushish v. C.I. T. Delhi 131 [TR 435 SC, distinguished.

JUDGMENT: CIVIL  APPELLATE JURISDICTION: Civil Appeal Nos. 3115-16  of 1980. From  the Judgment and Order dated 15.6.1978 of  the  Bombay High Court in I.T. Ref.  No. 458 of 1976. V.U.  Eradi and Suman J. Khaitan for Khaitan & Co.  for  the Appellant. S. Rajappa for Ms. A. Subhashini for the Respondent. The Judgment of the Court was delivered by B.P.  JEEVAN  REDDY, J. Assessee is the  appellant.   He  is aggrieved by the decision of the Bombay High Court in Income Tax  Reference  No.  458 of  1976  answering  the  following question, which was referred to it at his instance,  against him:  "whether on the facts and in the circumstances of  the case  the amount of tax paid by Ballarpur on behalf  of  the assessee  in assessment years 1974-75 and 1975-76 is  income

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tax ore under the heading ’other sources"’. The   Ballarpur   Paper  and  Straw  Board   Mills   Limited (Ballarpur)  is  a  public limited company  engaged  in  the manufacture  of paper and straw board.  It undertook to  set up   a   caustic  soda/chlorine   manufacturing   plant   at Ballarpur.For  this  purpose, it entered into  an  agreement with  Krebs,  a  French concern,  for  purchase  of  certain machinery  and  equipment.   There was  a  second  agreement between  Ballarpur and Krebs whereunder Krebs  undertook  to provide  services of certain personnel  including  engineers for  setting  up the plant at Ballarpur.   Krebs,  in  turn, entered  into  an arrangement with a Swiss  concern,  Escher Wyas  Eurich,  for supply of certain machinery and  also  to make available services of certain personnel.  The 30 assessee,  Emil Webler, was one such person provided by  the Swiss concern The assessee came to India and worked here  in connection with the setting up of the plant. According  to the agreement between Ballarpur and Krebs  the former  undertook  to pay salaries and other  emoluments  to personnel  provided by Krebs in accordance with the  formula contained  in  the agreement.  Inter alia, it  was  provided that  ’salaries  are understood free of any  Indian  tax  or duty’.   For  the  assessment year  1974-75,  the  assessee- appellant  was  paid  a  sum of Rs.  3,82,481  and  for  the assessment year 1975-76, a sum of Rs. 67,200 in addition  to daily allowances and other facilities. The assessee contended before the Income Tax Officer that he was  not liable to pay tax He also filed  returns  affirming the  said  stand.   The stand taken by  him  was  negatived, whereupon  Ballarpur  paid the tax of Rs. 3,23,400  and  Rs. 35,546  for the said two assessment years respectively.   In his  assessment  orders,  the I.T.O. treated  the  said  tax amount  as  a perquisite and added the same  to  the  salary amount  received  by the assessee.  The  said  addition  was questioned by the assessee in appeal, before the A.A.C.  but without  success.   The  matter  was  then  carried  to  the Tribunal.    The  Tribunal  too  did  not  agree  with   the assessee’s contention and dismissed his appeal whereupon  he obtained the aforesaid reference which, as stated above, has been answered against him by the Bombay High Court. For a proper appreciation of the question arising herein, it is necessary to notice certain factual statements  contained in  the  Statement  of  the Case.   It  is  stated  therein: "according  to  this  agreement,  Ballarpur  were  under  an obligation  to  pay  by the device  of  delegation  invoices opened  with a bank in France certain amount of salaries  at agreed  rates  to Krebs and Cis.  Paris for setting  up  the plant  at  the town of  Ballapur.............  The  Tribunal clarified that there was no dispute between the parties that the amounts of Rs. 3,82,481 and Rs. 67,200 paid by Ballarpur through Krebs to the assessee for services rendered by it in the  two  respective years were taxable  under  the  heading ’Salary’.   It further clarified that there was  no  dispute between  the parties, that the relationship of the  employer and  employee  did  not  exist  between  Ballarpur  and  the assessee.   The  Tribunal held as below: (1)  Ballarpur  was under  a legal obligation to pay the tax if any,  levied  on the assessee; (2) Ballarpur paid the tax by virtue of such a legal obligation ........... 31 The facts found by the Tribunal thus show that the assessee- appellant  was paid certain salary free of tax but that  the tax payable in that behalf was to be and was in fact paid by Ballarpur.   The  assessment  was  made  upon  the  assessee

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directly.   The question is whether the said  tax  component paid by Ballarptir can be included within the income of  the assessee.  The first contention of’ the learned counsel  for the assessee is that the amount paid by Ballarpur by way  of tax  cannot be treated as ’income’ of assessee at all.   His second  contention is that the assessee did not receive  the said amount and, therefore, it cannot constitute his income. Indeed,  the learned counsel sought to argue that  Ballarpur was under no obligation to pay the said tax amount  relating to  the salary amount received by the assessee.  We find  it difficult to agree with the learned counsel. The  definition of ’income’ in clause (24) of Section  2  of the  Act  is  an  inclusive  definition.   It  adds  several artificial  categories to the concept of income but on  that account  the expression ’income’ does not lose  its  natural connotation.   Indeed,  it  is repeatedly said  that  it  is difficult  to  define  the expression  ’income’  in  precise terms.   Anything which can properly be described as  income is  taxable under the Act unless, of course, it is  exempted under one or the other provision of the Act.  It is from the said  angle that we have to examine whether the amount  paid by Ballarpur by way of tax on the salary amount received  by the  assessee can be treated as the income of the  assessee. It cannot be overlooked that the said amount is nothing  but a  tax upon the salary received by the assessee.  By  virtue of the obligation undertaken by Ballarpur to pay tax on  the salary  received by the assessee among others, it  paid  the said tax.  The said payment is, therefore, for and on behalf of  the assessee.  It is not a gratuitous payment.  But  for the  said agreement and but for the said payment,  the  said tax amount would have been liable to be paid by the assessee himself  He could not have received the salary which he  did but for the said payment of tax.  The obligation placed upon Ballarpur  by  virtue of Section 195 of the Income  Tax  Act cannot  also  be  ignored  in this  context.   It  would  be unrealistic  to  say that the said payment had  no  integral connection  with  the salary received by the  assessee.   We are,  therefore, of the opinion that the High Court and  the authorities  under  the Act were right in holding  that  the said  tax amount is liable to be included in the  income  of the assessee during the said two assessment years. The  question then arises under which head of income  should the said 32 income  be  placed.   Inasmuch as the  assessee  is  not  an employee of Ballarpur, which made the payment, it cannot  be brought  within  the purview of Section 17 of the  Act.   It must necessarily be placed under sub-section (1) of  Section 56, ’income from other sources’.  According to the said sub- section,  income of every kind which is not to  be  included from  the total income under the Act shall be chargeable  to income tax under the head ’income from other sources’, if it is not chargeable to income tax under any of the other heads specified in Section 14, Items A to E. It is not the case of the assessee that any provision of the Act exempts the  said income from the liability to tax The  learned counsel for the assessee-appellant relied  upon certain  decisions in support of his contention.  The  first is  the  decision  of  this court in  N.A.  Modi  v.  S.A.L. Narayana Rao, 61 ITR 428 SC.  An advocate was appointed as a Judge.  He received certain income after his appointment  as a Judge in lieu of the professional service rendered by  him before  his appointment.  The question was whether the  said amount is taxable.  It was held that it was not (in view  of the provisions of the Act as it then stood).  The basis  for

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the  said  decision is that the assessee therein  cannot  be said to be carrying on the profession of an advocate at  the time he received the said income.  We are unable to see  how the said decision helps the assessee herein.  Indeed, in the said  decision  this  court  emphasised  that  the  question whether  an income falls under one head or the other has  to be decided according to the common notion of practical  men, inasmuch  as  the Act does not provide any guidance  in  the matter.   It was observed that the heads of income  must  be decided on the nature of income by applying practical common notions and not by reference to the assessee’s treatment  of income.   The  application of said test does  not  certainly help the assessee herein. The  second  decision cited is of the Bombay High  Court  in CLT. Bombay v. Smt.  T.P. Sidhwa, 133 ITR 840.  The question was whether the income from property received by an assessee of  which he is not the owner can be taxed as ’income’  from other  ’sources’.  It was held that it cannot be  so  taxed. We do not see any anology between the facts and principle of that  case  and  those  of this  case.   Here  the  integral connection  between the salary received by the assessee  and the tax payable thereon, paid by Ballarpur in pursuance of a legal  obligation,  cannot be overlooked.   The  third  case cited is in Mrs. Sheela Kaushish v. C.I.T, Delhi, 131 I.T.R. 435 33 S.C. In this case, it was held that determination of  annual value under Section 23 of the Income Tax Act, 1961 should be done by taking the standard rent as the basis even where the assessee  is receiving rent higher than the  standard  rent. Again we must say, we see no relevance of the said principle of this case to the facts of this case. For  the above reasons, the appeals fail and are  dismissed. No costs. V.P.R.                   Appeals dismissed. 34