- (1.) THIS is a reference under Section 66 (2) of the Indian Income-tax Act. The assessee is the , and the year of assessment is 1936-37. The assessee belongs to the Board of Foreign Missions of the Presbyterian Church of the United States of American; and so too does his wife. They had at the material time four children, two boys and two girls. The assessee and his wife each receive a separate salary and the house allowance from the Board, and the Board also pays an allowance in respect to each of the four children. Up to and including the year 1935-36 the salaries of the assessee and his wife and the allowances on account of the children were lumped together by income-tax authorities and were assessed jointly to tax. THIS was done, as stated by the Commissioner of Income-tax in the statement of the case, on the assumption that the wifes salary and the allowances for the children were "additional emoluments paid to the assessee to meet the additional cost of married life and education of his children.For the year 1936-37 the assessee returned an income of Rs. 2,318 only, which represented his own salary and house allowance; he claimed that his wife should be separately assessed on her salary and that the allowances for the children were exempt from taxation on the ground that they were personal allowances to the children and were not perquisites within the meaning of Section 7 of the Act either of the assessee or of his wife. The Income-tax Officer repelled the claim and assessed upon a total income of Rs. 7,712, which included the salary and the house allowance of the assessees wife and the allowances for the children.
(2.) AGAINST this assessment an appeal was preferred and the Assistant Commissioner allowed the assessees claim for the exclusion of his wifes salary on the ground that it was the latters own income; but he rejected the claim for exemption in respect to the allowances for the children on the ground that they were paid by the Board to meet the additional cost of maintenance and education of the children and were in the nature of perquisites taxable in the hands of the assessee. Thereafter the assessee preferred an application to the Commissioner of Income-tax for the exercise of his revisionary powers under Section 33 or alternatively for a reference to this Court under Section 66 (2) of the Act. The Commissioner declined to exercise his powers of revision under Section33 of the Act, but he has referred the following question of law to this Court :- "Whether on the facts of the case the sum of Rs. 3,078 paid by the Board for the maintenance and education of the assessees children is the income, profits and gains of the assessee within the meaning of Section 3 of the Act and taxable in his hands? " He Commissioner is of opinion that tHe answer should be in tHe affirmative. In stating his opinion He says :"It will be observed that tHe allowance commences from tHe first day of tHe month in which tHe child is born and it is obvious that it is tHe parent to whom tHe allowance is payable furtHer on He says :"THe childrens allowances become payable only by reason of tHe employment of tHe parent missionary work by tHe Board and it is clearly stated in tHe paragraph quoted"-by this is meant paragraph 144 of tHe Manual of tHe Board of Foreign Missions of tHe Presbyterian Church in tHe U. S. A, revised edition of 1933-"that tHe allowances terminate wHen tHe missionary leaves tHe service of tHe Board. THe payments of tHe allowances is thus entirely dependent of tHe missionarys service with tHe Board, and, tHerefore, in my opinion tHe allowances constitute perquisites or profits to tHe missionary parent within tHe meaning of Section 7 (1) of tHe Act and are as such taxable as salary in tHe hands of tHe parent."
(3.) THEN the Commissioner says; "There is a further question as to whether the allowances should be treated as part of the salary of the father or the mother or of both. This question has only arisen because Mrs. Manry also happens would have been payable even if Mrs. Manry was not so employed and as it is the father who is primarily responsible for the maintenance and education of the children, I am of opinion that the allowances should be treated as part of the salary of the assessee."In our opinion the Commissioners view is correct Perquisite is defined inter alia in Websters Dictionary as a gain or profit incidentally made from employment in addition to regular salary or wages, especially one of a kind expected or promisedIn Murrays English Dictionary it is defined as "any casual emolument, fee or profit attached to an office or position in additional to salary or wages.What we have to consider is whether the allowances which are paid by the Board for the children of the assessee are or are not perquisites or profits in addition to his salary and whether they fall under the head "Salariesunder Sections 6 and 7 (1) of the Income-tax Act. Ramnama Prasad, who has vigorously argued this reference on behalf of the assessee, pleads in the first place that the allowances belong to the children themselves and form no part of the income, profits or gains of either of the parents. Alternatively he contends that if the allowances do from part of such income, profits or gains, the assessee and his wife are equally entitled to these allowance and it is impossed to say that they form part of the income, profits and gains of the one rather than of the other; and in these circumstances the assessee is not liable to be taxed in respect to them.;