Tokyo Shibaura Elect... v. Commissioner Of Inco..., Karnataka High Court, Judgment, Law, casemine.com

Citation Codes

Equivalent Citations

citation codes

Case Number

Income-tax Referred Case No. 6 of 1961

Judges

K.S Hegde
Ahmed Ali Khan, JJ.

Acts

section 1 of the Income Tax (Employments) Act, 1943,
section 66(1) of the Indian Income-tax Act, 1922,
INDIAN INCOME TAX ACT

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Smart Summary

Factual and Procedural Background

This reference arises from a question posed by the Income-tax Appellate Tribunal, Madras Bench, under section 66(1) of the Indian Income-tax Act, 1922, at the instance of the assessee (a non-resident principal company, Tokyo Shibaura Electric Co. Ltd.). The Tribunal asked whether the assessments of royalties received by the assessee for the assessment years 1953-54 to 1957-58, assessed at specified grossed-up sums, were valid.

Key factual matrix disclosed in the statement of case:

On 16 May 1952 an agreement was made between Tokyo Shibaura Electric Co. Ltd. (the principal, the assessee) and Radio Electricals Manufacturing Co. Ltd. (the agent, “Remco”), under which Remco manufactured watthour meters in India using licences, technical information, data and experience of the principal.
Article VII, clause A fixed the royalty payable to the principal as a percentage of net sales billed in rupees by Remco (three per cent, reduced to 2½% for assessment years 1956-57 and 1957-58), with an annual minimum royalty in US dollars.
Article VII, clause D provided that “All payments to be made hereunder shall be made in the City of Tokyo, Japan, in any currency acceptable to the Japanese Government without deductions for taxes or other charges assessed in India, which shall be assumed by Remco.”
Notices were served on Remco as the statutory agent for the non-resident principal for the previous years ending 31 March 1953 to 31 March 1957 (assessment years 1953-54 to 1957-58); the agent declared royalties received for each year as its total income.
The Income-tax Officer grossed up the declared net royalties to higher “grossed up” amounts for assessment, explaining that because the non-resident was to receive the royalty free of all taxes, the officer must compute the gross amount which, after tax, would yield the declared net to the assessee.
The Appellate Assistant Commissioner accepted the assessee’s contention in appeals and modified the assessments, holding that the proper assessable income was the royalty ascertained under the agreement plus the taxes paid or payable by Remco under the Indian Income-tax Act; he rejected the Income-tax Officer’s approach of treating the agreement sum as a net figure to be grossed up by reference to Finance Acts rates.
The department appealed to the Tribunal, which set aside the Appellate Assistant Commissioner’s orders and restored the Income-tax Officer’s assessments. The Tribunal held that where the payer agrees to pay the taxes so that a specified sum is received “without deductions”, the proper income of the recipient is the gross amount that must be computed so that after all tax payments the recipient gets the stipulated net, and that multi-point (tax-on-tax) grossing up is appropriate.
The case was referred to the High Court; the High Court analyzed clauses A and D, relevant authorities, and ultimately agreed with the Tribunal, answering the question in the affirmative in favour of the revenue.

Legal Issues Presented

Whether the assessments of the royalties received by the assessee for assessment years 1953-54 to 1957-58, as grossed up by the Income-tax Officer to specified sums, are valid.
How clauses A and D of the agreement (royalty fixed as a percentage of net sales; payments to be made in Tokyo without deduction for Indian taxes to be assumed by Remco) should be construed for tax assessment purposes — specifically, whether the taxable income is (a) the royalty specified in clause A alone (or clause A plus the tax paid on that amount), or (b) a grossed-up figure such that after all taxes borne by Remco the principal receives the net specified in clause A.
Whether the taxes borne by the resident agent on behalf of the non-resident principal constitute income of the principal for the purpose of computing taxable income, and if so, whether grossing-up must account for multi-point (tax-on-tax) effects.

Arguments of the Parties

Assessee's Arguments (as set out in the opinion)

The assessee contended that the correct assessable income was to be ascertained by grossing up the net amount only with reference to the provisions of the Finance Acts for the relevant assessment years (Appellate Assistant Commissioner accepted a specific formulation).
An alternative contention advanced by the assessee was that taxable income should be the royalty under clause A plus the income-tax paid on that amount by Remco (i.e., gross up only by the one layer of tax on the clause A amount rather than by a multi-point tax calculation favored by the Revenue).
The assessee relied on authorities (notably Jaworski) to argue that where an agreement stipulates a net sum “without deduction” the employer/ payer pays such additional sums as are necessary to leave the stipulated net available, and the taxable figure is computed accordingly—but the assessee framed its computation as clause A plus tax on that amount rather than the revenue’s multi-point approach.

Revenue's Arguments (as set out in the opinion)

The revenue (and the Income-tax Officer) contended that clause D’s stipulation that payments be made “without deductions for taxes … which shall be assumed by Remco” required grossing up the royalty specified in clause A to the sum which, after payment of all applicable taxes (including tax-on-tax), would leave the net amount actually to reach the principal. In other words, the taxable income is the multi-point gross amount such that, after tax liabilities borne by Remco, the principal receives the stipulated net.
The revenue relied on the view that where taxes are paid by another person on behalf of the taxpayer, those payments are in substance income of the taxpayer and must be included when computing taxable income, and that the computation should not be confined to a single-point tax adjustment but must take the multi-point tax effect into account.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Jaworski v. Institution of Polish Engineers in Great Britain Ltd. [1951] 1 K.B. 768	Where an agreement provides for payment “net” and that taxes will be borne by the payer, the payer must pay such additional sums as are necessary so that the payee receives the stipulated net; the remuneration is to be grossed up accordingly.	The court found this authority to be closely in point and used it to support the conclusion that the remuneration fixed by clause A, being payable “without deductions”, must be grossed to the sum which will leave that net available after taxes borne by Remco; this principle supported the view that taxes borne by the payer are effectively additional emoluments to the recipient.
North British Railway Co. v. Scott [1923] A.C. 37	Where an employer contracts to bear the employee's income tax, the gross emoluments of the employee include the tax so paid by the employer (i.e., the salary must be grossed up by the tax borne).	Referenced (via Simon's Income Tax) to illustrate the established principle that taxes paid by another on behalf of the recipient are to be added to the recipient’s gross emoluments; the court relied on this to support grossing-up principles.
Hartland v. Diggines [1926] A.C. 289	Similar principle to North British Railway: where remuneration is paid free of tax or tax is borne by the payer, the gross amount includes the tax borne.	Used alongside North British Railway as authority for the general rule that employer-borne tax is part of the employee's gross emoluments; the court cited these authorities to explain the legal background for grossing up.
Commissioners of Inland Revenue v. Cook (House of Lords)	Where an annuity is payable “free of all deductions including income tax”, the correct method is to compute the annuity by grossing it to the amount which would leave the specified net after income tax (i.e., gross-up to the amount which yields the net after tax).	The court observed that this authority helped the revenue’s case; the House of Lords held that an annuity payable free of tax was to be grossed up at the standard rate so as to determine the correct taxable position.

Court's Reasoning and Analysis

The court's reasoning proceeded from a textual construction of the agreement's relevant clauses (A and D) and application of the principles in the authorities cited.

Clause-by-clause analysis:
- Clause A specified the royalty as a percentage of net sales (with specified percentage changes for later years) and an annual minimum in US dollars; standing alone it would indicate the royalty amount on which the non-resident earned income.
- Clause D required that “All payments to be made hereunder shall be made in the City of Tokyo, Japan … without deductions for taxes or other charges assessed in India, which shall be assumed by Remco.” The court treated clause D as conferring an additional monetary benefit to the assessee beyond the clause A figure, because it shifts tax liability to the resident agent.
On the legal effect of taxes borne by a third party:
- The court accepted the Appellate Assistant Commissioner’s unassailed proposition that where taxes are borne by a resident agent on behalf of a non-resident, those payments are, in substance, payments on behalf of the non-resident and thus represent income accruing to the non-resident.
- However, that acceptance did not end the issue: the pivotal question was how to compute the relevant taxable amount — whether simply by adding the tax paid by Remco on the clause A royalty, or by grossing up the clause A royalty to the amount which after all taxes borne by Remco would leave the clause A net (i.e., multi-point gross up).
Consideration of authorities and illustration:
- The court referenced Jaworski as closely in point: an obligation to pay a net figure “without deductions” obliges the payer to pay whatever sum is necessary so that the recipient gets the net amount after taxes borne by the payer; the required computation is therefore a grossing-up.
- The court also considered the House of Lords decision in Commissioners v. Cook, which supported the revenue by holding that a tax-free annuity should be grossed up to the sum that leaves the annuitant the net promised after tax; the court treated this as helpful to the revenue’s position.
- Textbook authority (Simon’s Income Tax) and earlier cases (North British Railway and Hartland v. Diggines) were cited to establish the well-known principle that employer-borne tax forms part of the recipient’s gross emoluments.
Conclusion of reasoning:
- The court concluded that under clauses A and D, the true payment to the assessee is not just the clause A figure but that figure plus the benefit conferred by clause D (taxes borne by Remco).
- In determining the taxable income, the correct approach is to compute the gross amount which, after payment of the taxes borne by Remco (including the tax-on-tax effect), would leave the net amount to reach the principal as specified in clause A. Thus the Tribunal’s multi-point grossing-up approach and the Income-tax Officer’s assessments were correct.
Orders flowing from reasoning:
- Having reached this conclusion, the court answered the reference question in the affirmative in favour of the revenue and directed that the assessee pay the costs and an advocate’s fee of Rs. 250.

Holding and Implications

Holding: Question answered in the affirmative in favour of the revenue.

Direct effect on the parties:

The High Court affirmed the Tribunal's restoration of the Income-tax Officer's assessments — i.e., the grossed-up royalty assessments for assessment years 1953-54 to 1957-58 were held valid.
The assessee was ordered to pay costs and an advocate's fee of Rs. 250.

Implications beyond the parties: The court relied on established authorities to interpret an agreement stipulating payment “without deductions” as requiring grossing up so that the recipient receives the stipulated net after taxes borne by a third party. The opinion does not state that it establishes a new legal precedent beyond applying and endorsing existing principles.

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Tokyo Shibaura Electric Co. Ltd. (By Agents Radio & Electricals Mfg. Co. Ltd., Mysore). v. Commissioner Of Income-Tax, Mysore.

1. This is a reference made by the Income-tax Appellate Tribunal, Madras Bench, under section 66(1) of the Indian Income-tax Act, 1922, at the instance of the assessee. The question referred reads thus:

“Whether the assessment of the royalties received by the assessee during the assessment years 1953-54-1954-55. 1955-56, 1956-57 and 1957-58 at the sums of Rs. 21,271, Rs. 87,379, Rs. 1,63,180, Rs. 2,54,827 and Rs. 2,98,901, respectively, is valid?”

2. The learned judge set out the statement of case which ran as follows:

There was an agreement entered into on 16th May, 1952, copy whereof is annexed hereunto as annexure “A” and forms part of the case between Messrs-. Tokyo Shibaura Electric Co. Ltd. (hereinafter referred to as the “principal company”) and the Radio Electricals Manufacturing Co. Ltd. (hereinafter referred to as the “agent company”) under which the latter undertook in India the manufacture of house service meters with the aid of the licences and technical information, data and experience of the principal company aforesaid on certain terms and conditions embodied therein. The following clauses therein relate to the remuneration payable to the “principal company”:

“Article VII.—A. In addition to the reimbursements and payments elsewhere provided for in this agreement, Remco agrees to pay to Toshiba as consideration for the licences and for the information, data and experience to be furnished hereunder, an amount in any currency acceptable to the Japanese Government equivalent to three per cent. of the net sales billed in rupees by REMCO directly or on its behalf of all watthour meters, as defined herein, manufactured by REMCO with an annual minimum royalty of 9,000 U.S dollars payable in two equal half yearly instalments of 4,500 U.S dollars, each not later than sixty (60) days from the end of March and September of each calendar year…

D. All payments to be made hereunder shall be made in the City of Tokyo, Jar/an, in any currency acceptable to the Japanese Government with-out deductions for taxes or other charges assessed in India, which shall be assumed by Remco.”

3. Notices were served by the Income-tax Officer on the “agent company” aforesaid as the statutory agent of the non-resident principal (the assessee in this case) for the years ended 31st March, 1953, to 31st March, 1957, the “previous years” for assessment years 1953-54 to 1957-58, which were duly complied with declaring the royalties received for each of the years as its total income.

4. The Income-tax Officer, however, grossed up the royalties and assessed the various years as shown below:

Previous year Assessment year Net royalty Grossed up Rs. Rs. 31-3-1953 1953-54 10,702 21,271 31-3-1954 1954-55 43,963 87,379 31-3-1955 1955-56 77,001 1,63,180 31-3-1956 1956-57 96,353 2,54,827 31-3-1957 1957-58 1,15,077 2,98,901

5. The Income-tax Officer s reasons for doing so are as follows:

“…… as the non-resident company has to receive the royalty free of all taxes it is clear that the total income of the assessee company is not merely the net royalty received as declared by their agents, but it is the royalty received plus such sum that, when the tax is levied on the total amount, the net amount left will be the royalty actually received by the assessee company. So I shall gross up the net royalty received and this will be treated as the total income of the assessee company…..”

6. It was contended in the appeals that the assessee filed before the Appellate Assistant Commissioner, that in all the aforesaid years the correct assessable income had to be ascertained only by grossing up the net amount with reference to the provisions of the Finance Acts for the relevant assessment years. Copies of the grounds of appeal are collectively annexed hereunto as annexure “C” and forms part of the case.

7. The Appellate Assistant Commissioner accepted the assessee's contention and modified the assessments holding as follows:

“…… This is a case where the payment of remuneration of royalty is governed by the terms of a written agreement. The quantum of royalty payable to the non-resident company for each year has been specifically fixed and it has also been provided as to where and how the payment has to be made. The only condition imposed in this respect is that the quantum of royalty ascertained in the manner provided for in the agreement should be paid without any deduction for taxes which are to be borne by the resident agent, i.e, Remco. If taxes payable in India are to be borne by the resident agent, it is a payment by the resident on behalf of the non resident in respect of income accrued to the latter in the taxable territories. The fact that the liability to pay taxes was shifted to the resident agent with the consent of the latter does not in any way alter the fact that the payment on account of taxes is a payment on behalf of the non-resident. To the extent the taxes are borne by the resident agent it is income which accrued to the non-resident. I am, therefore, of the opinion that the fact that the taxes on the amount payable according to the agreement are borne by the resident agent is of little significance and that the amount of tax pay able by the resident agent for each year on the amount of royalty ascertained and paid according to the agreement represents income of the non-resident company and that the royalty ascertained and paid according to the agreement should be enhanced by the account (amount) of taxes paid or payable by the resident agent on the stipulated amount of royalty. But this is not what the Income-tax Officer did. He proceeded to ascertain what the gross amount of royalty would be if the amount of royalty specified in the agreement is construed as the net amount of royalty stipulated for by the non-resident company after meeting from out of the remuneration due all tax liabilities in India. It appears to me that the agreement is not susceptible of this interpretation and I accordingly hold that there is no justification for treating the amount specified in the agreements as the gross amount of royalty as reduced by all taxes payable in India and then proceeding to gross up that amount for each year with reference to the rates prescribed by the relevant Finance Acts. The income of the non-resident company is the royalty paid on the sales in the manner provided for in the agreement for each year plus the taxes paid or payable under the Indian Income-tax Act for each year and which are to be borne by the resident agent according to the agreement…..”

8. The department, aggrieved of the aforesaid decision, appealed to the Tribunal for all the five years on grounds of appeal, copies whereof are collectively annexed hereunto as annexure “B” and forms part of the case. The Tribunal set aside the orders of the Appellate Assistant Commissioner and restored all the assessments for the following reasons:

“We think the department's view must be upheld. The words used in paragraph D are clear, that the amount to be calculated in the manner provided in paragraph A is to be paid and received by the principal company ‘without deductions for taxes or other charges assessed in India’. Once, therefore, it is granted and it has not been disputed before us by the learned counsel appearing for the assessee, that taxes are the personal liability of the taxpayer, i.e, the assessee, and that, therefore, if under an agreement such taxes are paid on his behalf by some other person in respect of a payment to be received as income, that also would be the income of the assessee, we fail to see how it is only the single point tax calculated on the basis of multi-point tax. Under the agreement, a certain fixed amount calculated in a certain manner is guaranteed to the principal company. But all liability in respect of that amount by way of tax has been undertaken to be paid on his behalf by the other party to the agreement. It is not as if, as was contended for the assessee before us, that on the analogy of section 18, the payer was entitled to deduct only the single point tax from the payment due to a non-resident as income. Here is a case of an agreement which distinguishes the liability cast on the payer under section 18. Under the agreement here the payer has himself to bear the taxes. He is not entitled to recover the same by deduction or otherwise from the recipient as would be the case if the liability fell under section 18. Therefore, in our opinion, if the amount ultimately to reach the principal company was the amount calculated in the manner laid down in paragraph A of the agreement, then the amount of income of the principal company would be that figure which after payment of due taxes would leave the said net amount in the hands of the principal company and not less. In our opinion, the view taken by the Income-tax Officer on the interpretation of the agreement is correct; it is not the single point tax that alone is to be considered, but the multi-point tax for the purpose of arriving at the income of the principal company liable to tax under the agreement. We, therefore, think that the Appellate Assistant Commissioner fell into an error in taking the view that the liability of the agent company being only to pay the single point tax on behalf of the principal company, the further tax on tax was not the income of the principal company. We would, therefore, allow all the appeals.”

9. [After setting out the statement of the case as above K.S Hegde, J. continued:]

10. The decision in this case rests on the true construction of the relevant clauses in the agreement entered into between the assessee and the Remco on May 16, 1952. The material facts are available from the statement of the case submitted by the Tribunal and set out above. Clauses which are material for our present purpose are clauses A and D in article VII of the agreement referred to earlier. Clause A reads:

“In addition to the reimbursements and payments elsewhere provided for in the agreement, Remco Agrees to pay to Toshiba as consideration for the licences and for the information, data, and experience to be furnished hereunder, an amount in any currency acceptable to the Japanese Government equivalent to three per cent. (2 ½% for the assessment years 1956-57 and 1957-58) of the net sales billed in rupees by Remco directly or on its behalf of all watthour meters, as defined herein, manufactured by Remco with an annual minimum royalty of 9,000 U.S dollars payable in two equal half yearly instalments of 4,500 U.S dollars, each not later than sixty (60) days from the end of March and September of each calendar year.”

11. If this clause had stood by itself, there would have been no difficulty whatsoever. The assessee would have been liable to pay taxes on the amount earned by it in accordance with the above provision. But in addition to this clause, we have clause D, which says:

“All payments to be made hereunder shall be made in the City of Tokyo, Japan, in any currency acceptable to the Japanese Government without deductions for taxes or other charges assessed in India, which shall be assumed by Remco …”

12. Hence, the real payment made to the assessee is not merely that provided under clause A, but to that must be added the benefit accrued to it under clause D.

13. It was contended on behalf of the assessee that the assessee is only liable to pay income-tax on the royalty received by it under clause A. The Appellate Assistant Commissioner has rightly remarked that “the fact that the liability to pay taxes was shifted to the resident agent with the con-sent of the latter does not in any way alter the fact that the payment on account of taxes is a payment on behalf of the non-resident. To the extent the taxes are borne by the resident agent it is income which accrued to the non-resident.” This conclusion was not seriously attacked before us nor could it have been properly assailed. Therefore, we have to reject the contention advanced by Sri T.V Viswanatha Iyer, the learned counsel for assessee, that the tax should have been levied only on the income realised by the assessee as per clause A of the agreement.

14. But the above conclusion does not dispose of the reference. The more important contention is the alternative contention advanced on behalf of the assessee, namely, that on a proper interpretation of clauses A and D of the agreement, it will be found that the taxable income of the assessee is the royalty obtained by it under clause A plus the income-tax paid thereon by Remco. On the other hand, the contention of the revenue is that the assessee is entitled to have the royalty mentioned in clause A without the liability to pay any tax. Let us now illustrate these contentions.

15. According to the revenue, the tax-free royalty receivable by the assessee during the assessment year 1953-54 is Rs. 10,702. That means its taxable income should have been Rs. 21,271, Similarly, the royalty received by the assessee in the assessment year 1957-58 is Rs. 1,15,077; therefore, the taxable income of the assessee during that year should have been Rs. 2,98,901. But, according to the assessee, as per clauses A and D the taxable income of the assessee in 1953-54 is Rs. 10,702 plus the tax paid on that amount, viz., Rs. 5,443, i.e, Rs. 16,145. The tax payable on that sum is Rs. 8,211.

16. The royalty due to the assessee has to be paid at Tokyo. Further, in view of clause D the same should be paid without deduction for taxes or other charges assessed in India, which shall be assumed by Remco. To put those words in the language of Somervell L.J in Jaworski v. Institution of Polish Engineers in Great Britain Ltd. [1951] 1 K.B 768, the remuneration is to be “x” plus“whatever sum is necessary to leave that available to me after you have borne the taxes”. As under the law, the tax is suffered by deduction, it means such a sum as will after deduction leave “x”.

17. Distinction between tax-free income and the “xx” income on which tax should be paid by the employer is well brought out in Simon's Income Tax, second edition, vol. 11, at page 710. This is what is stated therein:

“Where remuneration is paid to an employee free of income tax or the employer pays his employee's income-tax, the gross emoluments of the employee must be arrived at by adding the amount to the tax paid by the employer to the net payment. This was established by North British Rail Co. v. Scott [1923] A.C 37, where the company had contracted to bear the income tax in question and Hartland v. Diggines [1926] A.C 289, where there was no such contract, the arrangement being simply customary.”

18. In Jaworski v. Institution of Polish Engineers in Great Britain Ltd. there was a service agreement to pay the employee a salary of £20 nett per month “without any deductions and taxes, which will be borne by the association”. The employers deducted tax from the salary under section 1 of the Income Tax (Employments) Act, 1943, and the employee brought an action to recover the amounts deducted on the ground that the deductions were in breach of his service agreement. It was held by the Court of Appeal, reversing the decision of Finnemore J. in the court below, that on construction, the agreement was one to pay net remuneration at the stated figure together with such sum as was necessary to leave that figure available to the employee after the association had borne the taxes referable to him, and that, accordingly, the agreement was valid. Though it was not necessary to decide the point the court also expressed the view that the agreement was not void by reason of its infringing the general rule 28(2) since it was doubtful whether salary or other remuneration for services assessable under Schedule E were “annual payments” within the meaning of the rule.

19. The computation of the gross amount of the remuneration varies according to the agreement or arrangement between the employer and the employee; this will differ widely in detail. The simplest form would be one by which the employer paid the tax at the standard rate upon the net salary, in which case the employee would still be liable to tax on this additional emolument.

“EXAMPLE: Salary … 1,000 Tax thereon at 9s. 6d. … 475 Gross emoluments … 1,475 Tax at 9s. 6d. on 1,475 … 700-12-6 Less tax paid by employer … 475-0-0 Tax to be paid by employee subject to personal allowances) … 225-12-6 Tax on 475 at 9s. 6d.

Alternatively the employer might contract to pay such sum as after deduction of tax at the standard rate of 9s. 6d. in the £ would leave a net tax free salary of £1,000, i.e, gross emoluments of £1,000 × 40/21 = £1,905. Tax being £1,905 at 9s. 6d. in the £ being £905 the sum of £1,000 nett would be left after payment of tax on the gross emoluments including the sum paid in tax by the employer. In both these cases, the full benefits of personal and other allowances would accrue to the employee.”

20. From clauses A and D in the agreement, it appears that the assessee is entitled to the royalty mentioned in clause A free of all taxes.

21. It was urged on behalf of the revenue that this case falls within the rule laid down by the House of Lords in Commissioners of Inland Revenue v. Cook. The facts of that case are summarised in the head-note to that report, which reads as follows:

“The respondent was entitled under the will of her aunt who died in 1937 to an annuity at the rate of £100 per annum payable ‘free of all deductions including income tax and Government duty’. The annuity was paid wholly out of income which had been brought into charge to income tax. The annuity was the respondent's sole income and she received repayment of income-tax for the years prior to 1939-40 on the basis that she was entitled to £100 grossed at the standard rate. She claimed repayment of income tax for the year 1939-40 on a similar basis, but the Inspector of Taxes, having discovered that she had been required to pay over to the trustees the amount of tax repaid for the previous years, objected to the claim, contending (inter alia) that her annuity was not an annuity of such a sum as after deduction of income tax left £100, but an annuity of £100 plus the tax (if any) liable to be ultimately borne by her in respect thereof, and that, as she was not liable to income tax (her income being under the exemption limit of £125), her annuity for the purposes of the repayment claim was £100 and no more.

22. On appeal the General Commissioners held by a majority that she was entitled to repayment on the basis that her income was £100 grossed at the standard rate. The House of Lords held that the decision of the majority of the General Commissioners was correct.”

23. This decision undoubtedly helps the revenue. The only distinguishing feature, which, in our opinion, is not material—is that in the will left by the aunt of the assessee it was specifically mentioned that the assessee was entitled to annuity at the rate of £100 free of tax. The House of Lords held that the correct method of computing her annuity was by grossing the same to that sum which would leave her a tax-free annuity of £100.

24. The decision of the King's Bench in Jaworski v. Institution of Polish Engineers in Great Britain Ltd. is more in point. In January, 1943, the plaintiff, a Polish subject, entered into the service of the defendant—an official body under the Polish Government in London. The oral agreement of service, as evidenced by a letter from the plaintiff to the defendants was that “my remuneration will amount to £201 net per month payable in advance… without any deductions which will be borne by the association”. Interpreting this agreement the court held that in order to find out the real remuneration of the plaintiff, the remuneration fixed should be grossed to that sum which would leave the plaintiff the stipulated remuneration, tax-free.

25. From the foregoing, it follows that the decision of the Tribunal is correct. That being so, our answer to the question referred is in the affirmative and in favour of the revenue. The assessee to pay the costs. Advocate's fee Rs. 250.

26. Question answered in the affirmative.

Tokyo Shibaura Elect... v. Commissioner Of Inco...