The employer's contribution to a deferred annuity scheme for an employee is not a perquisite as contemplated by S. 7(1) of the Indian Income-tax Act, 1922, unless the employee has a vested right in the contributions.

Headnote:
INCOME TAX - Salary - Perquisites - Employer's contribution to deferred annuity scheme for employee - Whether perquisite - Interpretation of S. 7(1) of the Indian Income-tax Act, 1922.
Fact of the Case:

The assessee, an employee of the English and Scottish Joint Cooperative Wholesale Society Ltd., was a member of a superannuation scheme established by the Society for the benefit of its male European employees. The Society contributed 1/3 of the premium payable by the assessee towards the insurance policy taken out by the trustees of the scheme to provide a deferred annuity to the assessee on his attaining the age of superannuation. The Income-tax Officer included the amount contributed by the Society in the assessee's taxable income for the year 1956-57 under S. 7(1), Explanation 1, Sub-cl. (v) of the Indian Income-tax Act, 1922.
Finding of the Court:

The High Court held that the employer's contribution under the terms of the trust deed was not a perquisite as contemplated by S. 7(1) of the Act. It also held that the employer's contributions were not allowed to or due to the employee in the accounting year. On the third question, it expressed the opinion that the Legislature not having used the word "deferred" with annuity in S. 7(1) and the statute being a taxing one, the deferred annuity would not be hit by para. (v) of Explanation 1 to S. 7 (1) of the Act.
Issues: 1. Whether the employer's contribution under the terms of a trust deed in respect of a contract for a deferred annuity on the life of the assessee is a "perquisite" as contemplated by S.7(1) of the Indian Income-tax Act? 2. Whether the said contributions were allowed to or due to the applicant by or from the employer in the accounting year? 3. Whether the deferred annuity aforesaid is an annuity hit by section 7(1) and para (v) of Explanation I thereto ?
Ratio Decidendi: 1. The expression "perquisite" in S. 7(1) of the Act includes any sum payable by the employer, whether directly or through a fund, to effect an assurance on the life of the assessee or in respect of a contract for an annuity on the life of the assessee. 2. The expression "allowed" in S. 7(1) of the Act implies that a right is conferred on the employee in respect of those perquisites. 3. The employer's contribution to the deferred annuity scheme for the assessee was not a perquisite as contemplated by S. 7(1) of the Act, as the assessee did not have a vested right in the contributions till he reached the age of superannuation.
Final Decision: The appeal was dismissed.

Judgment

SUBBA RAO, J. : This appeal by special leave preferred against the judgment of the High Court of Kerala at Ernakulam raises the question of the interpretation of S. 7(1) of the Indian Income-tax Act, 1922 (Act No. XI of 1922), hereinafter called the Act.

2. The respondent, L. W. Russet, is an employee of the English and Scottish Joint Cooperative Wholesale Society Ltd., Kozhikode, hereinafter called the Society, which was incorporated in England. The Society established a superannuation scheme for the benefit of the male European members of the Society s staff employed in India, Ceylon and Africa by means of deferred annuities. The terms of such benefits were incorporated in a trust deed dated July 27, 1934. Every European employee of the Society shall become a member of that scheme as a condition of employment. Under the terms of the scheme the trustee has to effect a policy of insurance for the purpose of ensuring an annuity to every member of the Society on his attaining the age of superannuation or on the happening of a specified contingency. The Society contributes 1/3 of the premium payable by such employee. During the year 1956-57 the Society contributed Rs. 3,333/- towards the premium payable by the respondent. The Income-tax Officer, Kozhikode Circle, included the said amount in the taxable income of the respondent for the year 1956-57 under S. 7(1), Explanation 1, Sub-cl. (v) of the Act. The appeal preferred by the respondent against the said inclusion to the Appellate Assistant Commissioner of Income-tax, Kozhikode, was dismissed. The further appeal preferred to the Income-tax Appellate Tribunal received the same fate. The assessee thereupon filed an application under S. 66 (1) of the Act to the Income-tax Appellate Tribunal for stating a case to High Court. By its order dated December 1,1958, the Tribunal submitted a statement of case referring the following three questions of law to the High Court of Kerala at Ernakulam :

(1) Whether the contributions paid by the employer to the assessee under the terms of a trust deed in respect of a contract for a deferred annuity on the life of the assessee is a perquisite as contemplated by S.7(1) of the Indian Income-tax Act?

(2) Whether the said contributions were allowed to or due to the applicant by or from the employer in the accounting year?

3. Whether the deferred annuity aforesaid is an annuity hit by section 7(1) and para (v) of Explanation I thereto ?

On the first question the High Court held that the employer s contribution under the terms of the trust deed was not a perquisite as contemplated by S. 7(1) of the Act. On the second question it came to the conclusion that the employer s contributions were not allowed to or due to the employee in the accounting year. On the third question it expressed the opinion that the Legislature not having used the word "deferred" with annuity in S. 7(1) and the statute being a taxing one, the deferred annuity would not be hit by para. (v) of Explanation 1 to S. 7 (1) of the Act. The Commissioner of Income-tax has preferred the present appeal to this Court questioning the correctness of the said answers.

3. The three questions formulated for the High Court s opinion are interdependent and the answer to them turn upon the true interpretation of the relevant part of S. 7(1) of the Act.

4. Mr. Rajagopal Sastri, learned counsel for the appellant, contends that the amount contributed by the Society under the scheme towards the insurance premium payable by the trustees for arranging a deferred annuity on the respondent s superannuation is a perquisite within the meaning of S. 7(1) of the Act and that the fact that the respondent may not have the benefit of the contributions on the happening of certain contingencies will not make the said contributions anytheless a perquisite. The employer s share of the contributions to the fund earmarked for paying premiums of the insurance policy, the argument proceeds, vests in the respondent as so

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