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PEIRIS v. COMMISSIONER OF INCOME TAX
NLR38V13
1936 Present :
Macdonell C.J., Dalton S.P.J., and
Poyser J.
PEIRIS v. COMMISSIONER OF INCOME TAX
54-(Inty.) Special.
Income Tax-Retirement of
public officer on pension-Liability to tax of commuted gratuity and pension paid
between date of retirement and end of period of assessment-Commencement of new
employment-Ordinance No. 2 of 1932, s. 11 (3) and (6).
Where a public officer retires on pension the commuted gratuity and the pension
paid to him during the year of assessment is not liable to tax for that year of
assessment as he does not " commence a new employment " on retirement, within
the meaning of section 11 (6) of the Income Tax Ordinance.
THIS
was a case stated by the Board of Review
appointed under the X Income Tax Ordinance, No. 2 of 1932, which was referred by
Dalton S.P.J. and Maartensz J. to a Bench of three Judges.
The facts relating to the appeal are as follows : -The appellant retired from
the Civil Service on February 15, 1935. A notice of assessment under the
Ordinance was served on him for the year 1934-1935. The assessment was based on
his salary and emoluments from April 1, 1934, up to February 15, 1935, and his
pension of Rs. 1,602 from February 16, 1935, to March 31, 1935, and his commuted
gratuity of Rs. 43,750. The commuted gratuity was paid to him after the date of
his retirement but
within the year of assessment
which ended on March 31, 1935. It was stated in support of the assessment that
the assessment was made on the ground that under section 11 of the Ordinance the
appellant ceased his employment as a Civil Servant on February 15, 1935, and
commenced a new employment on February 16, 1935, and that the salary he received
up to the date of his retirement as well as the pension and gratuity payable
after he ceased that employment were taxable.
The appellant, dissatisfied by the assessment, appealed to the Commissioner of
Income Tax, who referred the appeal to the Board of Review. The appellant
contended before the Board that neither the commuted pension paid to him on
retirement nor the pension paid to him for the period after his retirement on
February 15, 1935, was taxable under section 11 (6) (a) of the Ordinance. The
Board of Review dismissed his appeal.
H. V. Perera (with him G. E. Chitty), for appellant.-The question is
whether commuted pension is taxable. Tax is ordinarily assessed on income for
the previous year, section 11 (1). An exception is provided by section 11 (3).
This case is governed by section 11 (6). Income on which tax is payable is only
income up to the date of cessation of employment. Any profits after such
cessation are not caught up by this subsection. Commuted pension is payable
after cessation of employment and was in fact paid afterwards. This may be
caught up in the assessment for the following year. It is not correct to say
that when a person ceases to be employed, e.g., when he retires on pension he
necessarily commences a new employment. The only argument for the Commissioners
is that this is the practice in England. That is not an argument that can
prevail in a Court of law.
M. W. H. de Silva, Acting S.-G. (with him Basnayake, C.C.), for respondent.-Two
questions have to be decided. Is this liable to tax, and is it liable to tax in
the year of assessment. The Court is not bound by the way in which the case has
been stated. It must find whether tax is payable on any basis at all, not
necessarily under section 11 (6). This provision is to meet a case where the
source of income ends during the year of assessment. The tax is assessed on the
income for that year. Income from a source which has ceased to produce income is
taxable under section 11 (1). Pension is a new source of income. Section 11 (3)
provides for that. New employment is governed by section 11 (4). Pension is a
new employment in the English Statute (section 45). Assessee started to get an
income which he had
