Commissioner of Income Tax vs Udayakumar Rajah

V. Ramaswami, J.—One H.D. Rajah, father of the assessee, entered into an agreement with M/s. Essen (P.) Ltd., under which he agreed to

render assistance in the promotion and formation of a cement company known as India Cements Ltd., and canvassed and obtained subscriptions

for shares of the face value of at least Rs. 12 1/2 lakhs. Essen (P.) Ltd. were the managing agents of India Cements Ltd. In consideration of the

assistance to be rendered by the said H. D. Rajah, Essen (P.) Ltd. agreed to give a share of the managing agent''s commission to H. D. Rajah. The

right to receive this commission was assigned on August 11, 1956, by H. D. Rajah in favour of his son, the assessee. During the assessment years

1959-60, 1961-62 and 1962-63, the assessee received Rs. 29,350, Rs. 34,845 and Rs. 20,083, respectively, from the managing agents as per

the agreement entered into by them with H. D. Rajah. The Income Tax Officer treated this as the income of the assessee during the said

assessment years but refused to consider the claim of the assessee that it was an earned income, and, therefore, entitled to relief as an earned

income. On a further appeal, the Appellate Assistant Commissioner was of the view that the amount in the hands of even H. D. Rajah would not

have been earned income, much less in the hands of the assignee, and in that view the appeals also were dismissed. On a further appeal, the

Tribunal held that the income received by the assessee was chargeable to tax under the head ""other sources"" and that in view of the definition of

earned income"" in Section 2(6AA)(c) of the Indian Income Tax Act, 1922, even in the hands of the assessee it would be an earned income. The

Tribunal accordingly accepted the assessee''s contention and treated the disputed amount as earned income. Revenue filed three reference

applications in respect of these assessment years. The Tribunal had referred a consolidated question which reads as follows:

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the share of commission

received by the assessee from Messrs. Essen (P.) Ltd. should be treated as earned income ?

It is stated that the father of the assessee, H. D, Rajah, died even before the assessment years in question.

3.The answer to the question referred mainly depends on the scope of the words ""other allowances"" in Section 2(6AA)(c) of the Act. That

provision reads as follows:

''Earned income'' means any income of an assessee who is an individual, Hindu undivided family, unregistered firm or other association of persons

not being a company, a local authority, a registered firm or a firm assessed under Clause (b) of Sub-section (5) of Section 23-......

(c) which is chargeable under the head ''Other sources'' if it is immediately derived from personal exertion or represents a pension or

superannuation or other allowance given to the assessee in respect of his past services or the past services of any deceased person..,...

The definition is in two parts. The first part deals with income from ""other sources"" immediately derived from personal exertion. The latter

portion deals with income arising under the head ""other sources"" representing pension or superannuation or other allowance given to the assessee

in respect of his past services or the past services of any deceased person.

In this case, we are concerned with the latter portion. The learned counsel for the revenue contended that the words ""other allowances"" is to be

read ejusdem generis and refers to ""allowance"" in the nature of pension or superannuation allowance. If this argument were to be accepted, we

cannot give full meaning to the words in the section itself. For instance, if we take the case of pension alone and read the provision, it would read

as pension given to the assesses in respect of his past services and pension in respect of the past services of any deceased person could not be

comprehended. The word ""pension"" itself presupposes that the payment is to a person who is alive. If in respect of the past services of any

deceased person any periodical payment is made it could not be called pension and it might be termed ""allowance"". Similarly, superannuation

allowance also only refers to payment to a. person who is alive. Any payment made subsequent to the death to an assessee in respect of the past

services of any deceased person would, therefore, be an ""allowance"" Thus, the words ""other allowances"" only refer to any periodical payment

made to an assessee and not of payment in the nature of pension or superannuation allowance. Certainly, payments made under the agreement

dated April 8, 1946, is in respect of past services rendered by H.D. Rajah to M/s. Essen (P.) Ltd. Clearly, therefore, the sum in question will

come u/s 2(6AA)(c). We are, accordingly, of the view that the Tribunal was right in holding that the petitioner was entitled to treat the income as

earned income"".

It may be mentioned that Section 2(6AA)(c) was the provision applicable for the assessment year 1959-60, but in respect of 1961-62 and

1962-63 years also the Finance Act of 1961 and the Finance Act of 1962 had made similar provision and, therefore, the assessee was entitled to

consider this income as earned income in his returns. For all the assessment years in question we, accordingly, answer the reference in the

affirmative and against the revenue. The assessee will be entitled to his costs. Counsel''s fee Rs. 250.