High Court Of Madras
Late J.R. Daniel By L.R. Yesumani Grace vs. CIT
Sections 15, 17
Asst. Years 1978-79, 1981-82
R. Jayasimha Babu & N.V. Balasubramanian, JJ.
Tax Case Nos. 308 to 311 of 1989
22nd April, 1998
P.P.S. Janaradhana Raja for Subbaraya Iyer, for the Applicant : C.V. Rajan, for the Respondent
R. JAYASIMHA BABU, J. :
The question of law referred to us at the instance of the assessee is regarding the taxability of assesseeâs income. The question has arisen out of the order of the Tribunal in relation to the assessment made against the assessee under the IT Act for the asst. yrs. 1978-79 to 1981-82. The question referred is as under :
“Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the amounts of Rs. 28,347, Rs. 33,890, Rs. 41,629 and Rs. 45,821 received by the assessee from the British Government for the asst. yrs. 1978-79 to 1981- 82 were taxable in his hands as salary ?”
2. The relevant facts as set out in the statement of the case are :The assessee received from British Government sum of Rs. 28,347, Rs. 33,890, Rs. 41,629 and Rs. 45,281 as pension for the asst. yrs. 1978-79 to 1981-82. He was an employee of Somali Government from 10th April, 1926 until 8th April, 1950. From 9th April, 1950 he was an employee of the Aden Government until his retirement on 24th Aug., 1956. During the time when the assessee was in service, Somaliland and Aden (Yemen) were under the colonial rule of the British Government. During 1963and in 1968 Somaliland and Aden were free from the colonial rule of the British Government and came under the rule of their own independent Governments. The assessee was the employee of the hen British Government and when the above countries became independent the obligation of the British Government to pay salaries and pensions to the employees naturally devolved on the respective local Governments. An agreement is stated to have been reached between Somali Government and Her Majestyâs Government in 1961 to the effect that payment of pensions to the retired employees should be made by the Crown agents on behalf of the Somali Government from a special account set up with them by the Somali Government, and that account would be funded by the payment into it of an appropriate part of the grant-in-aid that her Majestyâs Government had agreed to make to the Somali Government. When the Somali Republic broke off diplomatic relations with British Government and requested that payment of grant-in-aid should cease, Her Majestyâs Government asked them as to what arrangements they proposed to make to meet the pension liability. No reply was received. The Crown Agents, in the meantime had been instructed by the Somali Ministry of Finance not to make any further pension payments from SomaliRepublic Funds and no other arrangements appear to have been made for these payments. In view of this position and in the absence of any other arrangements made for payment of pensions to the erstwhile Government servants of the British Crown, the British Government servants of the British Crown, the British Government considered that the pensioners concerned should continue to receive the sums to which they are entitled to without interruption. For this purpose, they proposed to make ex gratia loan advances recoverable solely from arrears of pension when its arrears are eventually paid. Thus the pensioners were assured of the continuous payment of their pensions as if the Somali authorities had paid the pensions. An undertaking was obtained from those pensioners by the British Government, to the effect that as and when Somali Government makes arrangements to pay the pension, such amounts would be adjusted towards the amount which the British Government had paid to them. It has also understood that if Somali Government does not make any pension payments, nothing is payable by suchpensioners to the British Government. Thus, as far as the pensioners are concerned, they received full amounts due to them from the British Government as the Somali Government had abdicated their responsibility.
The letter of the Crown Agents for Overseas Governments and Administration, London dt. 30th Oct., 1968, addressed to the assessee also indicates that in the case of residents of U.K. these payments were treated as liability to United kingdom, income-tax, which would have been payable if the pensions were being paid in the United Kingdom. From time to time, the pension is being revised by the British Government by issuing revised pension supplements. During these four years under consideration the assessee received certain amounts from the Crown Agents for Overseas Governments & Administration of the British Governments towards his pension which the ITO included in the assesseeâs total income as pension received by the assessee on account of services rendered by him to Somalia and Aden Governments. The assesseeâs contention that no income-tax is payable on the amounts so received has been rejected uniformly by the ITO, the CIT as also by the Tribunal. It is not in dispute that the amounts were received by the assessee in India; that he is resident in India and that the amount received by him were paid to him by the British Government in consideration of the services rendered by him to the British Government when it was the colonial power. The pension was at all times paid by British Government. Even after independence of Somali land the pension was to be paid by Crown Agents of the British Government on behalf of Somali Government and the funds required for such payment was also to come from the British Government. Somali Government in fact had not assumed liability at all for payment of pension as the amount for payment of such pension was to come from the British Government by way of grant-in-aid.
The British Government by continuing to pay the pension and even revising the same upward from time to time, though describing it as an advance against pension, merely put an end to the pretence that the Somali Government was paying the pension. The source of funds required for paying the pension was at all times the British Government. Payment to pensioners continued even after British Government stopped giving grant-in-aid for that purpose to the Somali Government. Payments were made after the refusal of Somali Governmentâs refusal to receive aid, directly by the British Government to the pensioners. The amphemom (sic) of âadvanceâ was adopted but the real character of payment has revealed by stating that such advance would only be recoverable frompension if and when paid by the Somali Governmentâa wholly unlikely event. In the hands of the recipients the amounts received was only towards pension that had become payable for the services rendered by them over a long period to the British Government. The amount received as pension is to be regarded as salary for the purpose of tax. The Tribunal has treated it as such and has directed the ITO to allow the standard deduction on the amount received by the assessee as pension. We are in agreement with the directions so given by the Tribunal. The real character of the payment received by the assessee being pension, the question referred to us for our consideration has necessarily to be and is answered in the affirmative in favour of the Revenue and against the assessee. Having regard to the circumstances of the case, there shall be no order as to costs.
[Citation : 248 ITR 174]