THE COMMISSIONER OF INCOME TAX versus SARDAR ARJUN SINGH AHLUWALIA (DEAD)THROUGH LRS. ETC.

Citation: [1999] SUPP. 4 S.C.R. 135 · Decided: 26-10-1999 · Supreme Court of India · Bench: S.P. BHARUCHA · Disposal: Disposed off

Judgment (excerpt)

.. 
r 
THE COMMISSIONER OF INCOME TAX 
v. 
SARDAR ARJUN SINGH AHLUWALIA (DEAD) 
THROUGH LRS. ETC. 
OCTOBER 26, l 999 
[S.P. BHARUCHA, M. JAGANNADHA RAO AND V.N. KHARE, JJ.] 
A 
B 
Income Tax Act, 1961-Section 15(a); (c)-Salary-Amount due in 
previous years relevant to assessment years 1946-47 and 1947-48 received 
during previous years relevant to assessment years 1966-67 and 1967-68- C 
Held, amount is arrears of salary taxable in assessment years 1966-67 and 
1967-68 . 
Respondent -assessee had to receive certain amounts from a party in 
the erstwhile Holkar State as per agreement entered into in January 1946. D 
There were disputes and the assessee did not receive the amounts due. The 
amounts pertained to the previous years relevant to assessment years 1946-
47 and 1947-48. The assessee filed a suit before the trial court and obtained 
a decree in December 1965. The amounts were received in parts by the 
assessee during the previous years relevant to assessment years 1966-67 
and 1967-68. Income Tax Tribunal held that there was master-servant E 
relationship between the assessee and the party and that the amount was 
exigible to tax under the head 'salary'. High Court while held in favour of the 
Revenue that the income of the assessee is liable to be assessed in the 
assessment years 1966-67 and 1967-68 and not in the assessment years 1946-
47 and 1947-48 as contended by the assessee. However, it held that the income, 
though received pursuant to the decree in December 1965, had accrued to F 
the assessee in the assessment years 1946-47 and 1947-48 itself. Hence these 
cross-appeals by the Revenue and the assessee. 
The assessee contended that the amounts were chargeable to tax under 
section 15(a) of the Act in the assessment years 1946-47 and 1947-48 when G 
they became due; that the amounts received cannot be termed as 'arrears of 
salary' under section 15(c) of the Act. The assessee further contended that 
the Income Tax Act did not extend to the erswhile Holkar State, where the 
amounts were earned by the assessee in the previous years relevant to 
assessment years 1946-47 and 1947-48. 
135 
H 
136 
SUPREME COURT REPORTS (1999] SUPP. 4 S.C.R. 
A 
Revenue contended that since the amounts were not charged to tax in 
the assessment yean 1946"47 and 1947-48, they became liable in the years 
when the! asse5see received the amounts. 
Allowing the appeal of the Revenue, the Court 
B 
HELD : 1. Section 15 of the Income Tax Act 1961 JDUSt be harmoniously 
read. It is clear that the amounts of salary that were payable by the party to 
the assessee in the previous year relevant to the assessment yeal!'s 1946-47 
and 1947-48 could have been brought to tax in those assessment years, 
whether paid or not The amounts were not chargeable to tax in those yean. 
C The amounts were paid to the assessee only in the previous yean relevant to 
the assessment years 1966-67 and 1967-68. There is no justification for 
holding that the amounts were not arrean of salary. The amounts were due 
by the party to the assessee for !he earlier period and they were not paid; 
they were, therefore, arrears ofsalary. Section lS(c) of the Act applies to 
such arrean of salary provided such arrean had not been charged to income 
D tax for any earlier previous year. The amounts were not charged to income 
tax for any previous year prior to the assessment year 1966-67. Therefore 
the amounts do fall within the net created by Section lS(c) of the Act, which 
is intended to catch such salary as has escaped the charge of income tax in 
earlier yean. (139-B-C-D) 
E· 
2. Thus, it is not possible to accept the contention of the assessee that 
Section lS(c) would apply only to arrean ofsalary which could have been 
· charged but were not charged, and since it was earned while he was in the 
entwhile Holkar State where Income Tax Act did not extend. The words used 
in section lS(c) are 'if not charged to income tax', which are wide enough to 
F cover cases where the charge could or could not have been imposed. 
(139-F-G) 
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 1206-07of 
1982 Etc. 
G 
From the Judgment and order dated 25.4.80 of the Madhya Pradesh 
H 
High Court in M.C.C. No. 146 of 1976. 
Dr. V. Gauri Shankar, K.N. Shukla, S.Wasim, A. Qadri, S.K. Dwivedi, 
Anil K. Shanna, S.K. Gambhir, Vivek Gambhir and M.M. Kashyap for the 
appearing parties. 
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C.I.T. v. SARDARARJUN SINGH AHLUWALIA [S.P. BHARUCHA,J.) 137 
The Judgment of the Court was deliv

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