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PETITIONER: COMMISSIONER OF INCOME TAX, ASSAM ANDNAGALAND ETC.

       Vs.

RESPONDENT: SHRI G. HYATT

DATE OF JUDGMENT21/01/1971

BENCH: HEGDE, K.S. BENCH: HEGDE, K.S. SHAH, J.C. (CJ) GROVER, A.N.

CITATION:  1971 AIR  725            1971 SCR  (3) 438  1971 SCC  (1) 466  CITATOR INFO :  R          1972 SC 149  (227)

ACT: Income-tax   Act  1961,  ss.  17  and  560-Contribution   to unrecognised provident fund-Interest thereon-Whether taxable under s. 56.

HEADNOTE:  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  under   the  residuary s. 56 of the Income-tax Act, 1961,  HELD : The amount was liable to be assessed.  The receipt of an interest of any investment is a gain  made  by the investor and therefore the same is ’income’.  In view of s. 17 ( 1) (iv), all receipts of profits in  lieu  of salary have to be considered as salary.  In defining  the  expression  ’profits  in lieu of  salary’,  the  legislature  excluded  from  the scope of that  expression  any  payments  received by the assessee from a provident fund, his own con-  tribution,;   to   the  fund  or  any   interest   on   such  contributions.  Therefore 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  to  be either interest on the securities; income from  house  property,  profits  and gains of business of  profession  or  capital gains, it has to be considered as ’income from other  sources’  and  brought to tax under s.  56.   Section  56(1)  provides  that income of every kind which is not to  be  ex-  cluded  from  the  total  income  under  the  Act  shall  be  chargeable to Incometax under any of the heads specified  in  s.; 14 item "A" to "E". [43 9 C-G]

JUDGMENT:  CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1174 of 1967.  Appeal from the judgment and order dated August 22, 1966  of  the Assam & Nagaland High Court in income-tax Reference  No.  3 of 1966.  Jagadish  Swarup,  Solicitor-General, G. C.  Sharma,  R.  N.

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Sachthey and B. D. Sharma, for the appellant.  T. A. Ramachandran, for the respondent.  The Judgment of the Court was delivered by  Hegde, J. The Commissioner of Income-tax, Assam and Nagaland  has  brought  these appeal by certificate.   The  assessment  with  which  we  are concerned in this  appeal  is  for  the  assessment year 1963-64, the relevant accounting year is the  financial  year 1962-63.  The assessee was the manager of  a  Tea  Estate  under the managing agency of  M/s.   Gillanders  Arbuthnot  &  Co. Ltd.  The said Co. had  a  Provident  Fund  scheme for its employees.  But that provident fund was not a  recognised  one.  The assessee retired during  the  previous  year relevant to assessment year 1963-64 and received out of  this provident fund an  439  amount of Rs. 27,948/- which represented the interest on the  amount of his own contribution to the fund.  The  Income-tax  Officer  assessed this amount as the assessee’s income  from  other  sources.  That order was confirmed in appeal  by  the  Appellate Assistant Commissioner.  But on further appeal  to  the  tribunal  ’by the assessee, the tribunal  came  to  the  conclusion  that the receipt in question being  profits  ’in  lieu of salary’, the same was his salary as defined in s. 17  of  the Income-tax Act, 1961 (to be hereinafter referred  to  as  the  Act);  the same having not  been  assessed  as  his  salary,  the  assessment  order relating  to  that  item  of  receipt was not legal.  At the instance of the-Commissioner,  the  tribunal referred the following question of law to  the  High Court of Assam and Nagaland for its opinion:  "Whether  on  the facts and circumstances of  the  case  and  having  regard to the provisions of section 17 (3)  (ii)  of  the   Income-tax   Act,  1961  the   amount   Rs.   27,948/-  representing  the interest on the amount of  the  assessee’s  own  contributions  to an unrecognised  provident  fund  was  assessable under the residuary section 56 of the said Act?"  The High Court answered that question in the negative and in  favour  of  the assessee.  While it came to  the  conclusion  that the, receipt in question cannot be considered as salary  as  defined in s. 17, in its view the same was  exempt  from  payment  of tax in view of s. 17(3) (ii).  The  Commissioner  is challenging the above conclusion.  The  receipt  of Rs. 27,948/- is undoubtedly  an  income  as  defined  by  s. 2(24).  The receipt of an  interest  on  any  investment is a gain made by the investor and therefore  the  same  is  "income".  The next question is whether  the  said  income is exempt from tax or if it is not exempt under  what  head the same has to be brought to tax?  Section  14 of the Act gives the heads of income.  They  are  (A)  Salaries; (B) Interest on securities; (C)  Income  from  house  property;  (D)  Profits  and  gains  of  business  or  profession; (E)     Capital gains and (F) Income from  other  sources.  The salaries are ’brought to tax under s. 15 and "the income  from other sources" is brought to tax under s. 56.  In  this  appeal  we are not concerned with the other heads of  income  The salary is defined in s. 17 as including any "profits  in  lieu  of  or  in  addition  to  any  salary  or  wages"  [s.  17(1)(iv)].  Subsection (3) of s. 17 says :  profits in lieu of salary" includes.-  440  (ii)  any payment........ due to or received by an  assessee  from an employer or a former employer or from a provident or  other  fund (not being an approved superannuation  fund)  to  the  extent to which it does not consist of contribution  by  the assessee or interest on such contributions."

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The  contributions to recognised provident funds  are  dealt  with  by  other  provisions  of  the  Act.   Herein  we  are  concerned with the contribution to an unrecognised provident  fund.  The learned judges of the High Court opined that  the  receipt  by  the  assessee with which we  are  concerned  is  exempt  from the payment of tax in view of s. 17  (3)  (ii).  In  our  opinion they were clearly in error in  arriving  at  that conclusion.  Deductions from salaries are dealt with by  s. 16.  In view of s. 17 ( I ) (iv), all receipts of profits  in lieu of salary have to be considered as salary.  But then  the  question  is  what  is meant by  "profits  in  lieu  of  salary".   In  defining the expression "Profits in  lieu  of  salary",  the  legislature excluded from the scope  of  that  expression  any  payments received by the  assessee  from  a  provident  fund,  his own contributions to the fund  or  any  interest on such contributions.  From that it follows  that  the receipt of Rs. 27,948/- by the assessee in the  relevant  accounting  year  cannot  be  considered  as  salary  though  undoubtedly that is an income.  Section 17 has nothing to do  either  with deductions or with exemptions.  It is merely  a  provision  defining the expression "salary".  As the  income  in question is not salary and the same cannot be said to  be  either  interest on the securities; income from  house  pro-  perty;  profits  and  gains of  business  or  profession  or  capital gains. it has to be considered as "income from other  sources"  and  brought to tax under s. 56.  Section  56  (I)  provides  that  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 heads specified in S. 1.4 items ’A’ to ’E’.  In  our  opinion the meaning of s. 17(3) (ii) is  plain  and  unambiguous.  Hence there is no need to call into aid any of  the  rules of construction as was sought to be done  by  the  High Court.  The  respondent was not represented before this  Court.   We  are  obliged to Mr. T. A. Ramachandran for acceding  to  our  request to appear on his behalf an amicus curiae and  assist  us at the time of hearing of the appeal.  441  For  the reasons mentioned above we allow this appeal,  dis-  charge  the  answer given by the High Court and  answer  the  question  referred to the High Court in the affirmative  and  in-  favour of the Department.  Under the  circumstances  of  the case we make  no order as to costs.  Y.P.  Appeal allowed..  442