Law:

Section:

Section 15 of the Income-tax Act, 1961 – Salaries – Chargeable as – Assessment years 1963-64 and 1964-65 – Assessee who was employee of a company received tax-free salary from company – While determining salary of assessee, ITO added amounts payable by employer as tax on aforesaid amounts – Whether no credit of tax could be given to assessee for difference between salary income taken for purposes of assessment and net tax-free salary received by assessee from his employer – Held, yes FACTS The assessee who was an employee of the company received salary from the company and the company issued certificates showing that his salary was tax-free. The ITO added the amounts payable as tax on the aforesaid amounts and after allowing certain deductions determined his salary. The appeals filed by the assessee were dismissed by both the AAC and the Tribunal. On reference, the assessee contended that the company had no power to agree to pay the tax-free salary to the assessee in view of section 200 of the Companies Act, 1956, and, therefore, it was an illegal agreement. He also agreed that his salary could not be treated as a tax-free salary in view of the illegality of the said agreement HELD The income-tax law is not concerned with illegality, if any tainted with the earning of any income. The Tribunal was justified in holding that the salary received by the assessee was rightly grossed up and that no credit of tax could be given to the assessee for the difference between the salary income taken for the purposes of assessment and the net tax-free salary received by the assessee from his employer. Note : The case was decided against the assessee. CASES REFERRED TO R.B.D.D. Datar v. CIT [1952] 21 ITR 558 (Nag.), Tokyo Shibaura Electric Co. Ltd. v. CIT [1964] 52 ITR 283 (Mys.), North British Railway Co. v. Scott [1923] AC 37 ; 8 TC 332 (HL), Hartland v. Diggines [1926] AC 289 ; 10 TC 247 (HL), CIT v. C.W. Steel (No.1)[1972] 86 ITR 817 (Ker.) and CIT v. I.G. Mackintosh [1975] 99 ITR 419 (Mad.). JUDGMENT Deb, J.—This is a reference under s. 256(1) of the I.T. Act, 1961. The statement of the case relates to the assessment years 1963-64 and 1964-65. The assessee is an…

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