T.A. Ramasubramaniam vs Commissioner of Income Tax

Ramaswami, J.—The assessee was a civil servant under the Government of Tamil Nadu and retired from service on March 28, 1952.

Originally his pension was fixed at Rs. 484.87 per mensem and was being paid at that rate. Later on in the view that the assessee was entitled to

the benefits of the Liberalised Pension Rules, 1950, in Government Order Ms. No. 1877 (Finance) dated November 23, 1956, he was held

entitled to a death-cum-retirement gratuity of Rs. 17,820 and a pension of Rs. 395.19. Accordingly, in lieu of the pension of Rs. 484.87, the

pension was revised as Rs. 395.19 and death-cum-retirement gratuity payable at Rs. 17,820. This order was given retrospective effect from

March 28, 1952, when the officer retired from the service.

It appears that the difference between the sum of Rs. 395.19 which was payable under the revised fixation of the pension and the sum of Rs.

484.87 which was actually paid was adjusted from the death-cum- retirement gratuity of Rs. 17,820 and the pension subsequent to November 23,

1956, was paid at the rate of Rs. 395.19 per month. In pursuance of this Government Order refixing the pension, the assessment order for the

assessment year 1952-53 onwards also was revised. Subsequently, the Government revised the pension payable to the assessee in Government

Order Ms. No. 356 (Finance) dated April 2, 1959. Under that Government Order, in lieu of the pension of Rs. 395.19 per month and the death-

cum-retirement gratuity of Rs. 17,820 sanctioned in Government Order Ms. No. 1877 (Finance) dated November 23, 1956, the Government

granted with effect from March 28, 1952, the superannuation pension of Rs. 526.94 per month. The Government also sanctioned with effect from

March 28, 1952, a special additional pension of Rs. 600 per annum in consideration of certain special services rendered by the assessee when he

was in service. The said Government order also directed that the arrears of pension due to the officer under that order should be adjusted against

the death-cum-retirement gratuity of Rs. 17,820 recoverable from him and the balance of death-cum-retirement gratuity should be recovered in 12

monthly instalments beginning from January, 1959.

In the view that the death-cum-retirement gratuity of Rs. 17,820 paid in 1956 changed its character and became arrears or advance of pension,

the Income Tax Officer initiated proceedings u/s 147 of the Income Tax Act, 1961, in respect of the assessment year 1957-58 and made a revised

assessment including the said sum of Rs. 17,820 in the total income. In an appeal preferred by the assessee, the Appellate Assistant Commissioner

held that the provisions of Section 147 were not applicable as the assessee had fully disclosed the said sum even in the original assessment. In that

view he allowed the appeal and excluded the said sum of Rs. 17,820.

In respect of the assessment year 1960-61, the assessee in his revised return filed on April 9, 1962, admitted the pension of Rs. 6,923 but the

Income Tax Officer considered that the arrears of pension due as per the Government order dated 2nd April, 1959, was also liable to be included

in the taxable income of the assessee in the assessment year 1960-61, and worked out the arrears due at Rs. 16,386 being the difference between

the original pension of Rs. 395.19 and the revised pension of Rs. 526.94 for the period from March 28, 1952, to March 31, 1959. This was in the

view that the entire arrears became due only on April 2, 1959, in the accounting period relevant to the assessment year 1960-61. This assessment

order was made when the appeal by the assessee against the inclusion of Rs. 17,820 in the assessment for the year 1957-58 was pending before

the Appellate Assistant Commissioner. Therefore, the assessment order relating to 1960-61 was really in the nature of a protective assessment.

The department did not file any further appeal against the order of the Appellate Assistant Commissioner in respect of the assessment year 1957-

58 and that had become final. The assessee preferred an appeal against the order of assessment including the arrears of pension to the extent of

Rs. 16,368 in his income in the assessment year 1960-61, but without success. The Tribunal also confirmed the assessment. At the instance of the

assessee the following question has been referred :

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the sum of Rs. 17,820 was

assessable to Income Tax in the year 1960-61 ?

At the outset it may be pointed out that though the Income Tax Officer has included in his assessment only a sum of Rs. 16,368 as representing

the difference between the pension of Rs. 395.19 as originally fixed in Government Order Ms. No. 1877 (Finance) dated November 23, 1956,

and the revised pension of Rs. 526.94 fixed under Government Order Ms. No. 356 (Finance) dated 2nd April, 1959, in the appellate order and

the Tribunal order the question was considered as if whether the sum of Rs. 17,820 paid to the assessee as death-cum-retirement gratuity is

includible in the assessment year 1960-61 as if the gratuity amount has changed its character to arrears and advance of pension consequent on the

Government order dated April 2, 1959.

It is seen from the facts set out above, that the confusion had arisen because of the original view held under the Government Order Ms. No.

1877 (Finance), dated November 23, 1956, that the assessee was entitled to the death-cum-retirement gratuity of Rs. 17,820 and a pension of

Rs. 395.19 only. In view of the later Government order dated April 2, 1959, which was given retrospective effect from March 28, 1952, the

interposition of the Government order dated November 23, 1956, will have to be completely ignored and the facts will have to be ascertained and

understood only with reference to the later Government order. The result, therefore, would be as follows : The assessee was paid a sum of Rs.

484.87 per month up to November 23, 1956, and a sum of Rs. 395.19 thereafter, though he was entitled to a pension of Rs. 526.94 from March

28, 1952, onwards. Thus, the difference between Rs. 526.94 and Rs. 395.19 for the period subsequent to November 23, 1956, and the

difference between Rs. 526.94 and Rs. 484.87 for the period prior to November 23, 1956, became arrears due only by virtue of the Government

order dated April 2, 1959. Thus, the entire arrears as calculated above became due and payable to the assessee on April 2, 1959, which is in the

assessment year 1960-61.

u/s 7 of the Indian Income Tax Act, 1922, the income is chargeable in the year in which such arrears became due. u/s 15(a) of the Income Tax

Act, 1961, also the arrears became chargeable in the previous year in which it became due whether it was paid or not. It cannot be seriously

contended that the arrears in this case become due prior to April 2, 1959. It is by virtue of the Government order refixing the pension on April 2,

1959, the assessee became entitled to the difference between the pension originally paid and the sum of Rs. 526.94 refluxed by the Government.

Therefore, there could be no answer for inclusion of his arrears of pension in the assessment year 1960-61. But it is contended by the learned

counsel for the revenue that the arrears of pension will have to be calculated on the difference between Rs. 526.94 and the sum of Rs. 395.19 for

the entire period and it is not possible to split up the period and calculate the arrears as stated above. According to the learned counsel the

difference between Rs. 484.87 and Rs. 395.19 had already been adjusted by the Government order dated November 23, 1956, and that,

therefore, he shall be deemed to have been paid only Rs. 395.19 right from March 28, 1952, and the entire difference became due only on April

2, 1959. We are unable to agree with this contention of the learned counsel. The pension was paid at the rate of Rs. 484.87 till November 23,

1956. The difference between Rs. 395.19 and Rs. 484.87 which was adjusted against the death-cum-retirement gratuity was also paid to the

assessee only as a pension and merely because that was once adjusted and now it has been found not adjustable it would not change its character

and convert the amount payable as pension into that of gratuity. Therefore, only the difference between Rs. 526.94 and Rs. 484.87 could be

included as arrears of pension payable in respect of the period prior to November 23, 1956. The Tribunal will have to, therefore, recalculate or get

it recalculated by the Income Tax Officer as to the exact amount of arrears of pension which became due on April 2, 1959, for the purpose of

including the same in the assessment year 1960-61.

It is stated that the legal representative of the assessee had filed an application u/s 89(1) of the Income Tax Act, 1961. The Tribunal has found

that he would be entitled to the benefit of the provision. We have no doubt that the Income Tax Officers would give him the benefit available u/s

89(1).

For the foregoing reasons we answer the reference as follows : The difference between Rs. 526.94 and Rs. 484.87 for the period prior to

November 23, 1956, and the difference between Rs. 526.94 and Rs. 395.19 for the period subsequent to November 23, 1956, would be

assessable for the assessment year 1960-61 as pension which became due on April 2, 1959. As the assessee has substantially succeeded, he will

be entitled to his costs. Counsel''s fee Rs. 250.