P L D 1966 (W (PLP)

7. The Income-tax Officer, who dealt with the case, based his findings on the ground that Undoubtedly the system of accounts followed by the assessee is cash but the purchase of annuity policies spread over a number of years for the stipulated amounts of fees by his clients at his direction does not entitle him to exemption from income-tax. The moment a policy was purchased the amount which was paid for it became a `receipt' in his hands. The mere fact that he will recover it in 20 installments does not in any way alter its nature. In the circumstances, I hold that these amounts became receipts of the assessee as soon as his clients purchased annuity policies at his direc tion and will accordingly be assessed along with his other income. The Appellate Assistant Commissioner, who confirmed this decision, was of the view that- "I must, therefore, repeat that what Mr. Manzoor Qadir had achieved could easily be regarded first as receipt of professional fee and then any thing else although its present form is that of investment and the same money is locked up in it which is returnable only in a period of twenty years." The Tribunal, on the other hand, reached a contrary conclu sion that- "There was no receipt of income in the relevant year of account and, therefore, no part of the disputed amount was assessable in his (assessee's) hands in the relevant assessment year." The crux of the whole problem, therefore, is as to whether in view of the fact that the clients had paid the fees due to Mr. Manzoor Qadir, to the Prudential Assurance Company Ltd., for the purchase of annuity bonds in favour of the assessee, it could be held that the money had been received by the assessee either in the shape of money or money's worth.

8. It may be made clear here that although the question as framed by the petitioner seemed to treat it as constructive receipt, the argument before us did not proceed on the basis that the assessee be deemed to have received the amount, and rightly so, because it would be too late in the day to advance such an argument as by now it is settled law that income can be deemed to be received only if the provisions of the Act itself require in a particular case that it may be so deemed: (The Com missioner of Income-tax v. Bombay Trust Corporation (AIR 1930 P C 54), and other cases). One of the leading cases on the interpretation of the word received is decided by the Privy Council and reported in The Commissioner of Income-tax, Bihar and Orissa v. Maharajadhiraja Kameshwar Singh of Darbhanga ((1933) 1 I T R 94). Their Lordships held that:- "Where an assessee keeps his books on a cash basis dis closed to the revenue authorities and the officer accepts that basis, it is clear that the calculation must be based on actual receipts in the year of computation . . . . . What the officer is directed to compute is not the assessee's receipts but the assessee's income and in dubio what the assessee himself chooses to treat as income may well be taken to be income and to arise when he so chooses to treat it."

9. Another case decided by the Privy Council is that of Raja Raghunandan Prasad Singh and another v. The Commissioner of Income-tax, Bihar & Orissa ((1933) 1 I T R 113). The appel lants in that case carried on the business of money-lenders and were liable to pay income-tax in respect of profits or gains of their business computed under section 10 of the Income-tax Act. Their Lordships came to the following conclusion- "Their Lordships fully recognize that income may be received in kind as well as in cash and that the receipt of an equivalent of cash may be a receipt of income. In the case of Californian Copper Syndicate v. Harris (1904) 6 F 894; 5 TC 159 a company which dealt in mining properties sold certain property for fully paid shares in another company and was held to be liable to income-tax on the profit made on the transaction although no cash passed, but this was on the ground that the shares taken in exchange were realisable and were thus money's worth and the equivalent of cash in the case of The Royal Insurance Company Ltd. v. Stephen, (1928) 44 T L R 630; 14 T C 22 an insurance company which admitted that any profit which it made on the realization of investments was liable to tax effected an exchange of securities in pursuance of a railway amalgamation scheme. The new stocks received in place of the surrendered stocks had at the date of the exchange a definite market value which was less than the original cost to the company of the surrendered stocks. A claim was made by the company in computing its profits to deduct the difference as a loss sustained by it. For the Crown it was contended that there has been no realization of investments, but merely an exchange of one set of investments for another. The company's claim was upheld by Rowlatt, J., on the ground that it had in substance realized its former holdings and received for them money's worth of a definite amount. The loss was thus a realized loss susceptible of exact estimation in money. The transaction was on `a money basis'. Reference may also be made to the recent case in the House of Lords of Westminster Bank, Ltd. v. Osler (15th November 1932), where the bank surrendered certain holdings of National War Bonds in exchange for other Govern ment securities and the Crown claimed tax on the excess value of the substituted over the original securities. The question was whether these transactions were the equivalent of a realization of the original holdings, and it was held that they were. "The exchange effected in the present case--, said Lord Buckmaster, "was in fact the exact equivalent of what would have taken place had instructions been given to sell the original stock and invest the proceeds in the new security". The bank had thus in effect realized its profit, for it had received it in money's worth of a definitely ascertained amount. From these cases it is plain that the essence of the matter is that there must be an actually realised or realisable profit or loss." Similarly in the course of his speech in Gresham Life Assurance Society Ltd. v. Bishop ((1903) 4 R T C 464), (House of Lords), Lord Lindley observed as follows (page 476):- "First let us consider what is meant by the receipt of a sum of money: My Lords, I agree, with the Court of Appeal that a sum of money may be received in more ways than one e.g., by the transfer of a coin or a negotiable instrument or other document which represents and produces coin, and is treated as such by business men. Even a settlement in account may be equivalent to a receipt of a sum of money, although no money may pass; and I am not myself prepared to say that what amongst business men is equivalent to a receipt of a sum of money is not a receipt within the meaning of a Statute which your Lordships have to interpret. But to constitute a receipt of anything there must be a person to receive and a person from whom he receives and something received by the former from the latter, and in this case that something must be a sum of money. A mere entry in an account which does not represent such a transaction does not prove any receipt, whatever else it may be worth." Another criterion for determining whether a sum of money has been received has been laid down in Maharaja Kamakhya Narain Singh v. Commissioner of Income-tax ((1942) 101 T R 177), wherein it has been held that a person should have complete control over a sum of money before it could be said that it had been received by him.

10. In still another case Alexander Tennant v. Robert Sinclair Smith ((18921 A C 150), where the question was whether the appellant who as agent of a bank resided in part of the bank's business pre mises as a part of his duty without having the power to sublet it and who was under an obligation to quit the premises forthwith on ceasing to hold his office could be assessed to income-tax on an extra sum of 50 per annum as representing the yearly value of his privilege of such residence, it was held that:- "I come to the conclusion that the act refers to money payments made to the person who receives them, though, of course, I do not deny that a substantial thing of money value capable of being turned into money they might for that purpose represent money's worth and be therefore taxable." It is, therefore, not necessary that the thing received by the assessee must be money and so long as the same is capable of being turned into money it could be assessable to income-tax as a receipt. Observations to the same effect are contained in the decision of the House of Lords in Gold Coast Selection Trust Ltd. v. Humphrey ((1949) 17 I T R 19 at p. 24), where Viscount Simon, during the course of his speech, adopted the conclusion of Somervell L. J.'s judgment in the Court of Appeal, (1946) 2 All. E R 742 at page 747. `When there has been, as is now admitted, a realisation of a trading asset and the receipt of another asset, and when that latter asset is marketable in its nature, and not some merely personal advantage which by its nature cannot be turned into money, the profits and gains must be arrived at for the year in which the transaction took place by putting a fair value on the asset received . . . . .' Lord Oaksey during the course of his speech in the same case observed (page 28)- "In the first place it is, I think, important to consider what is meant by an income-tax on annual profits and gains. In my view it is a tax in money on profits in money which arise to the taxpayer in the year of computation. Income must not be confused with the source of the income . . . . . The only true test of the money value of an article at a certain time is what can be got for it in money at that time: if it cannot be sold at that time or exchanged for some thing which can be sold at that time no one can make a profit out of it which can be stated in terms of money at that time."

11. In Commissioner of Income-tax v. Maheshwari Sarang Singh ((1951) 21 I T R 83 at p. 95), the problem was tackled from the same angle in the following words:- "An important factor in considering the question whether it is substitution of security or payment, is whether the bonds were transferable and could, therefore, be deemed to be money's worth. We have already said that these Encumbered Estates Bonds were just as such saleable in the market as any other Government security and the assessee could, therefore, have sold them in the market if he wanted to, of course at the market price. It is not suggested that the market price of these bonds was less than their face value."

12. As a result of what has been stated above, the following conclusions can be formulated:- (a) For assessing the income of an assessee who maintains his account on the cash system the basis of assessment has always to be the actual receipts in a particular year. (b) Receipts can be either in the shape of cash, i.e., money or an equivalent of cash which has been termed as money's worth. (c) For any thing to be called money's worth it is necessary that the same should be capable of being turned into money. (d) Only that much of money's worth received by an assessee in a particular year can be the subject of assessment in that year as is capable of being turned into money to that period of assessment.

13. Let us now apply these tests to the case in hand. There is no denial of the fact that the amount of money due to the assessee was not paid to him directly in that year and that the same was turned over to the Prudential Assurance Company for the purchase of annuities. It can, therefore, not be said that the money had been received directly by the assessee. It was, however, argued that the Assurance Company received the amounts as the agent of the assessee. Section 182 of the Contract Act defines "agent" as- "An " agent " is a person employed to do any act for another or to represent another in dealings with third persons. The person for whom such act is done, or who is so represented, is called the "principal." An Agent is also defined in Article 2 in the 12th Edition of Bowstead on Agency, at page 1, where it is recited that- "Agency is the relationship that exists between two persons one of whom, the principal, expressly or implied consents that the other, the agent, similarly consenting should represent him or act on his behalf." This may be read in the light of the following extract from paragraph 350 of Halsbury's Laws of England, Vol. I, Third Edition, page 145- "An agent is to be distinguished on the one hand from a servant and on the other from an independent contractor . .an independent contractor . . . . . is entirely independent of any control or interference, and merely undertakes to produce a specified result, employing his own means to produce that result." The essence of agency is that the person styled as the agent should act on behalf of the other who is known as a principal. The peculiar relationship between an Insurance Company and the insured or annuitant does not by any stretch of imagination or law convert the Company into an agent of the insured. The Company is at best an independent con tractor who enters into a contract with the purchaser of the policy, in this case the client, to make certain payments to the assured, in this case the assessee, on the happening of specified events or on the lapse of a particular period of time. The payment of the money to the Assurance Company could therefore, not have the effect of payment to the assessee in so far as the Assurance Company did not receive the money as the agent of the assessee.

14. The next question would be whether the contract of assurance whereby the company undertook to pay a certain sum of money to the assessee by way of annuities can be said to be money's worth so as to make the entire sum covered by the policy taxable in the year in dispute. The statement of the case clearly lays down that the annuity bonds in dispute- "are not negotiable or redeemable or saleable and are irrevocable; they are not refundable as they have no surrender value and they cannot be used for raising any loan and cannot be subjected to any commercial transactions." In other words the bonds are not capable of being turned into money. The only amount that the assessee is entitled to in any year is the amount of the annuity and it would, i therefore, not be incorrect to say that the money's worth of the bonds in any particular year is equivalent to the amount payable as annuity in that year.

15. The statement of the case made by the Tribunal contains a reference to a letter written by Mr. Manzoor Qadir to the Central Board of Revenue on the 9th of June 1959 attaching with it a copy of a letter, dated the 31st of December 1958, from the Prudential Assurance Company to him stating that- `Further to our letter of the 25th November 1958 sent to your Lahore address, we have pleasure in informing you that we are prepared to return 95 % of the purchase money paid by you m respect of your annuities. Of course from this amount the annuity payments already made to your bankers will have to be deducted. We enclose herewith a list showing the amount refundable to you and we shall be glad if you will let us know at your earliest convenience your final decision in the matter.' This information was not before the Tribunal when it decided the case and could naturally, therefore, not be considered by it. The Tribunal has in the statement of the case said that- "these letters are made a part of the paper-book and they will be duly considered by their Lordships." I do not agree with the learned members of the Tribunal in this respect because I am firmly of the view that this Court cannot take into consideration facts which were not before the Tribunal when it passed the appellate order. A similar view has been expressed in the case Industrial Development and Investment Company Ltd. v. C. E. P. T. Bombay ((1957) 31 I T R 688). At page 696 of that book Chagla, C. J. (as he then was) observed that- "Now only those facts can help us judicially to decide a question in issue which were before the Tribunal. We must shut our eyes, as indeed, the Tribunal should to any facts or any materials or any evidence which were not before the Tribunal at the time when the appeal was heard. The record is complete as soon as the appeal is disposed of; anything outside the record should not be looked at by the Tribunal nor can we ourselves look." I, therefore, have ignored this development in the case but I may add that even if I had to take it into consider ation it would not alter the conclusions because the determination has to be based on the terms and conditions of the annuity bonds, and surely the offer made did not flow from the stipulation contained in the bonds, and not any ex gratia offer made by the Assurance Company to the assessee, pre sumably because by that time he had become a Minister in the Central Government of Pakistan.

16. In the facts and circumstances of the case the amounts covered by the annuity bonds and any part thereof were not assessable to tax in the hands of the assessee in the assessment year 1958-59 because the assessee who maintained his accounts on the cash system did not receive any money or money's worth out of the sum assured by these bonds in that year. The reference is answered in the negative. MUHAMMAD YAQUB ALI, J.-I had the advantage of seeing the opinion of my learned brother and respectfully concur with him that the reference be answered in the negative. At the same time, it appears necessary to emphasize that the answer given by us is confined to the particular facts of the case and no generalised conclusions can be drawn from it. Indeed, I would have found it a little difficult to arrive at the conclusion that the amounts paid by the clients of the assessee to the Insurance Company for purchasing annuities for him was not money's worth but for the statement in the appellate order of the Tribunal at page 31 of the printed book that in the event of the Liquidation of the Company the unpaid amounts will be refunded to the purchasers and will not pass on to the annuitant. In other words, the purchasers of the annuities had not completely parted with dominion over the amounts paid by them to the Insurance Company. S. Q. Reference answered in the negative.