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PETITIONER: THE COMMISSIONER OF INCOME-TAX, BOMBAY CITY II

       Vs.

RESPONDENT: SHRI SITALDAS TIRATHDAS

DATE OF JUDGMENT: 24/11/1960

BENCH: HIDAYATULLAH, M. BENCH: HIDAYATULLAH, M. KAPUR, J.L. SHAH, J.C.

CITATION:  1961 AIR  728            1961 SCR  (2) 634  CITATOR INFO :  R          1961 SC1059  (6,7)  F          1967 SC 383  (9,10)  R          1969 SC1160  (7)  RF         1972 SC 404  (17)  F          1976 SC1973  (4)  R          1977 SC1343  (5)  R          1977 SC1523  (30)  RF         1977 SC1657  (8)  F          1989 SC1443  (8)

ACT: Income-tax--Maintenance payable to wife and children under decree--Whether deductible from total income.

HEADNOTE: A  consent decree was passed against the  assessee  awarding maintenance  to his wife and children.  The decree  did  not create  any  charge upon the income of  the  assessee.   The assessee  claimed in the assessment of income tax  deduction of the amount paid under the decree from his total income. Held,  that the assessee was not entitled to the  deduction. Where by the obligation income was diverted by an overriding title before it reached the assessee, it was deductible; but where the income was required to be applied to discharge  an obligation  after such income reached the assessee,  it  was not deductible.  The true test was whether the amount sought to be deducted, in truth, never reached the assessee as  his income.   In the present case, the wife and children of  the assessee  received a portion of the income of the  assessee, after the assessee had received the income as his own. Bejoy Singh Dudhuria v. Commissioner of Income-tax, (1933) I I.T.R. 135, not applicable. P. C. Mullick v. Commissioner of Income-tax, Bengal,  (1938) 6 I.T.R. 206, applied. Diwan  Kishen Kishore v. Commissioner of Income-tax,  (1933) 11  I.T.R. 143, Seth Motilal Menekchand v.  Commissioner  of Income-tax,  (1957) 31 I.T.R. 735, Prince Khanderao  Gaekway v.  Commissioner  of  Income-tax,  (1948)  16  I.T.R.   294, Commissioner of Income-tax, Bombay v. Makanji Lalji,  (1937) 5  I.T.R. 539, Commissioner of Income-tax, Bombay V.  D.  R. Naik,  (1939)  7 I.T.R. 362, D. C. Aich, It;  re,  (1940)  9

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I.T.R. 236, Hira Lal, In re, (1945) 13 I.T.R. 512 and V.  M. Raghavalu Naidu & Sons v. Commissioner of Income-tax, (1950) 18 I.T.R. 787, referred to

JUDGMENT: CIVIL APPELLATE JURISDICTION: Appeal No.  528, of 1959. Appeal from the judgment and order dated September 20, 1957, of the former Bombay High Court in I.T.R. No. 15 of 1957. Hardayal Hardy  and D. Gupta, for the appellant. R. J. Kolah, S. N. Andley, J. B. Dadachanji, Rameshwar  Nath and P. L. Vohra, for the respondent. 635 1960.  November 24.  The Judgment of the Court was delivered by HIDAYATULLAH, J.-The Commissioner of Income-tax, Bombay City 11, has filed this appeal with a certificate under s. 66A(2) of the Income-tax Act, against the judgment and order of the High Court of Bombay dated September 20, 1957, in Income-tax Reference No. 15 of 1957. The  question referred to the High Court for its opinion  by the Income-tax Appellate Tribunal, Bombay was: "Whether  the  assessee is entitled to a  deduction  of  Rs. 1,350  and Rs. 18,000 from his total income of the  previous year relevant to the assessment years, 1953-54, 1954-55?" The assessee, Sitaldas Tirathdas of Bombay, has many sources of  income,  chief  among them being  property,  stocks  and shares,  bank deposits and share in a firm known as  Messrs. Sitaldas  Tirathdas.  He follows the financial year  as  his accounting year.  For the assessment years 1953-54 and 1954- 55, his total income was respectively computed at Rs. 50,375 and  Rs. 55,160.  This computation was not disputed by  him, but he sought to deduct therefrom a sum of Rs. 1,350 in  the first assessment year and a sum of Rs. 18,000 in the  second assessment  year  on the ground that under a decree  he  was required  to pay these sums as maintenance to his wife,  Bai Deviben and his children.  The suit was filed in the  Bombay High Court (Suit No. 102 of 1951) for maintenance allowance, separate  residence and marriage expenses for the  daughters and  for arrears of maintenance, etc.  A decree  by  consent was  passed on March 11, 1953, and maintenance allowance  of Rs.  1,500  per  month was decreed  against  him.   For  the account  year  ending March 31, 1953 only  one  payment  was made,  and deducting Rs. 150 per month as the rent  for  the flat  occupied by his wife and children, the amount paid  as maintenance  under  the decree came to Rs. 1,350.   For  the second year, the maintenance at Rs. 1,500 per month came  to Rs. 18,000 which was claimed as a deduction. 636 No  charge on the property was created, and the matter  does not  fall to be considered under s. 9(1)(iv) of the  Income- tax  Act.  The assessee, however, claimed this deduction  on the strength of a ruling of the Privy Council in Bejoy Singh Dudhuria v. Commissioner of Income-tax (1).  This contention of  the assesses was disallowed by the  Income-tax  Officer, whose  decision  was  affirmed on appeal  by  the  Appellate Assistant  Commissioner.   On further appeal,  the  Tribunal observed: "This  is  a  case, pure and simple, where  an  assessee  is compelled  to  apply  a  portion  of  his  income  for   the maintenance of persons whom he is under a personal and legal obligation to maintain.  The Income-tax Act does not  permit of   any   deduction   from  the  total   income   in   such circumstances."

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The  Tribunal  mentioned in the statement of the  case  that counsel for the assessee put his contention in the following words: "I  claim  a deduction of this amount from my  total  income because my real total income is whatever that is " computed, which  I  do not dispute, less the maintenance  amount  paid under the decree." The assessee appears to have relied also upon a decision  of the   Lahore   High  Court  in  Diwan  Kishen   Kishore   v. Commissioner  of  Income-tax(2).   The  Tribunal,   however, referred  the  above question for the opinion  of  the  High Court. The  High Court followed two earlier decisions of  the  same Court reported in Seth Motilal Manekchand v. Commissioner of Income-tax (3) and Prince Khanderao Gaekwar v.  Commissioner of  Income-tax (4), and held that, as observed in those  two cases,  the  test  was the same, even though  there  was  no specific  charge  upon  property so long  as  there  was  an obligation upon the assessee to pay, which could be enforeed in  a  Court of law.  In Bejoy Singh  Dudhuria’s  case  (1), there  was  a  charge for maintenance  created  against  the assessee, and the Privy Council had observed that the income must be deemed to have never reached that assessee, (1)  (1933) 1 I.T.R. 135. (3)  (1957) 31 I.T.R. 735. (2)  (1933) 1 I.T.R. 143. (4)  (1948) 16 I.T.R. 294. 637 having  been  diverted to the maintenance-holders.   In  the judgment  under appeal, it was held that the income  to  the extent of the decree must be taken to have been diverted  to the wife and children, and never became income in the  hands of the assessee. The Commissioner of Income-tax questions the correctness  of this  decision and also of the two earlier decisions of  the Bombay  High Court.  We are of opinion that  the  contention raised by the Department is correct. Before  we  state the principle on which  this  and  similar cases  are to be decided, we may refer to  certain  rulings, which illustrate the aspects the problem takes.  The leading case  on  the  subject  is  the  decision  of  the  Judicial Committee  in  Bejoy Singh Dudhuria’s case(1).   There,  the stepmother  of the Raja had brought a suit  for  maintenance and   a  compromise  decree  was  passed  under  which   the stepmother was to be paid Rs. 1,100 per month, which  amount was  declared a charge upon the properties in the  hands  of the  Raja,  by the Court.  The Raja sought  to  deduct  this amount  from his assessable income, which was disallowed  by the High Court at Calcutta.  On appeal to the Privy Council, Lord Macmillan observed as follows: "But  their Lordships do not agree -with the  learned  Chief Justice  in his rejection of the view that the sums paid  by the  appellant to his step-mother were not ’income’  of  the appellant  at all.  This in their Lordships’ opinion is  the true view of the matter. When the Act by Section 3 subjects to charge ’all income’ of an  individual, it is what reaches the individual as  income which  it  is intended to charge.  In the present  case  the decree  of  the  court by  charging  the  appellant’s  whole resources with a specific payment to his step-mother has  to that extent diverted his income from him and has directed it to  his stepmother; to that extent what he receives for  her is  not his income.  It is not a case of the application  by the appellant of part of his income in a particular way,  it is rather the allocation of a sum out of his revenue  before

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it becomes income in his hands." (1)  (1933) 1 I.T.R. 135. 81 638 Another  case of the Privy Council may well be seen in  this connection.   That  case  is reported in P.  C.  Mullick  v. Commissioner  of Income-tax, Bengal (1).  There, a  testator appointed  the appellants as executors and directed them  to pay  Rs.  10,000 out of the income on the  occasion  of  his addya  sradh.   The  executors  paid  Rs.  5,537  for   such expenses,   and  sought  to  deduct  the  amount  from   the assessable  income.   The Judicial Committee  confirmed  the decision   of  the  Calcutta  High  Court  disallowing   the deduction,  and observed that the payments were made out  of the  income  of  the  estate coming  to  the  hands  of  the executors  and  in pursuance of an obligation  imposed  upon them by the testator.  It observed that it was not a case in which a portion of the income had been diverted by an  over- riding  title  from the person who would  have  received  it otherwise,  and  distinguished  the  case  in  Bejoy   Singh Dudhuria’s case (2). These  cases have been diversely applied in India,  but  the facts  of  some  of  the cases  bring  out  the  distinction clearly.  In Diwan Kishen Kishore v. Commissioner of Income- tax (3), there was an impartible estate governed by the  law of  primogeniture,  and under the custom applicable  to  the family,  an  allowance  was payable to  the  junior  member. Under  an award given by the Deputy Commissioner  acting  as arbitrator  and according to the will of the father  of  the holder  of  the estate and the junior member, a sum  of  Rs. 7,200  per  year  was payable to the  junior  member.   This amount was sought to be deducted on the ground that it was a necessary  and obligatory payment, and that  the  assessable income must, therefore, be taken to be pro tanto diminished. It  was  held  that the income never became a  part  of  the income of the family or of the eldest member but was a  kind of  a  charge  on the estate.  The allowance  given  to  the junior  member,  it was held, in the case of  an  impartible estate was the separate property of the younger member  upon which  he could be assessed and the rule that  an  allowance given  by the head of a Hindu coparcenary to its members  by way of maintenance was liable to be assessed (1) (1938) 6 I.T.R. 206.        (2) (1933) 1 I.T.R. 135. (3) (1933) 1 I.T.R. 143. 639 as  the  income of the family, had no application.   It  was also  observed  that  if the estate had  been  partible  and partition could have taken place, the payment to the  junior member  out of the coparcenary funds would have stood  on  a different footing.  In that case, the payment to the  junior member  was a kind of a charge which diverted a  portion  of the income from the assessee to the junior member in such  a way  that it could not be said that it became the income  of the assessee. In Commissioner of Income-tax, Bombay v. Makanji Lalji  (1), it  was  stated  that in computing the  income  of  a  Hindu undivided  family  monies paid to the widow  of  a  deceased coparcener  of  the  family  as  maintenance  could  not  be deducted,  even  though the amount of maintenance  had  been decreed  by  the  Court and had been made a  charge  on  the properties  belonging to the family.  This case is  open  to serious  doubt, because it falls within the rule  stated  in Bejoy  Singh Dudhuria’s case (2); and though the High  Court distinguished the case of the Judicial Committee, it appears that  it was distinguished on a ground not  truly  relevant,

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namely,  that  in  Bejoy  Singh  Dudhuria’s  case  (2)   the AdvocateGeneral  had abandoned the plea that the  stepmother was  still a member of the undivided Hindu family.   It  was also  pointed out that this was a case of assessment  as  an individual  and  not  an assessment  of  a  Hindu  undivided family. In Commissioner of Income-tax, Bombay v. D. R. Naik (3), the assessee was the sole surviving member of a Hindu  undivided family.   There was a decree of Court by which the  assessee was  entitled to receive properties as a residuary  legatee, subject,  however,  to certain payments  of  maintenance  to widows.   The widows continued to be members of the  family. It  was held that though s. 9 of the Income-tax Act did  not apply, the assessee’s assessable income was only the balance left  after payment of the maintenance charges.  It  appears from the facts of the case, however, that there was a charge for the maintenance (1) (1937) 5 I.T.R. 539.      (2) (1933) 1 I.T.R. 135. (3) (1939) 7 I.T.R. 362. 640 upon the properties of the assessee.  This case also  brings out  correctly  the  principles laid down  by  the  Judicial Committee  that if there be an overriding  obligation  which creates a charge and diverts the income to some one else,  a deduction can be made of the amounts so paid. The last case may be contrasted with the case reported in P. C.  Mullick and D. C. Aich, In re(1).  There, under  a  will certain payments had to be made to the beneficiaries.  These payments  were  to be made gradually together  with  certain other  annuities.  It was held that the payments could  only be  made  out of the income received by  the  executors  and trustees  from the property, and the sum was  assessable  to income-tax  in the hands of the executors.  It  was  pointed out that under the wilt it was stated that the amounts  were to  be  paid "out of the income of my property",  and  thus, what  had been charged was the income of the assessees,  the executors.   The  case is in line with the decision  of  the Privy Council in P. C.  Mullick v. Commissioner  of  Income- tax,  Bengal(2).  In Hira Lal, In re,(3) there was  a  joint Hindu family, and under two awards made by arbitrators which were  made  into a rule of the  Court,  certain  maintenance allowances were payable to the widows.  These payments  were also  made  a charge upon the property.  It  was  held  that inasmuch  as the payments were obligatory and subject to  an overriding  charge  they must be excluded.   Here  too,  the amount payable to the widows was diverted from the family to them by an overriding obligation in the nature of a  charge, and  the  income could not be said to accrue  to  the  joint Hindu family at all. In  Prince Khanderao Gaekwar v. Commissioner  of  Income-tax (4), there was a family trust out of which two grandsons  of the settlor had to be paid a portion of the income.  It  was provided  that  if their mother lived separately,  then  the trustees  were to pay her Rs. 18,000 per year.   The  mother lived  separately, and two deeds were executed by which  the two  grandsons  agreed  to pay Rs. 15,000 per  year  to  the mother, (1)   (1940) 8 I.T.R. 236. (3)  (1945) 13 I.T.R. 512. (2)  (1938) 6 I.T.R. 206. (4)  (1948) 16 I.T.R. 294. 641 and created a charge on the property.  The sons having  paid Rs.  6,000 in excess of their obligations, sought to  deduct the amount from their assessable income, and it was  allowed

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by the Bombay High Court, observing that though the  payment was a voluntary payment, it was subject to a valid and legal charge  which  could be enforced in a Court of law  and  the amount  was thus deductible under s. 9(1)(iv).  There is  Do distinction  between a charge created by a decree  of  Court and  one created by agreement of parties, provided  that  by that  charge  the  income from property can be  said  to  be diverted so as to bring the matter within s. 9(1)(iv) of the Act.   The  case was one of application  of  the  particular section of the Act and not one of an obligation created by a money  decree, whether income accrued or not.  The case  is, therefore, distinguishable from the present, and we need not consider  whether in the special circumstances of that  case it was correctly decided. In  V. M. Raghavalu Naidu & Sons v. Commissioner of  Income- tax (1), the assessees were the executors and trustees of  a will, who were required to pay maintenance allowances to the mother  and  widow  of the testator.  The  amount  of  these allowances  was  sought to be deducted, but  the  claim  was disallowed.   Satyanarayana Rao and Viswanatha  Sastri,  JJ. distinguished  the  case from that of the Privy  Council  in Bejoy Singh Dudhuria (2).  Viswanatha Sastri, J. observed that the testator was under a personal obligation under  the Hindu  law  to maintain his wife and mother, and if  he  had spent a portion of his income on such maintenance, he  could not have deducted the amount from his assessable income, and that   the   position  of  the  executor  was   no   better. Satyanarayana  Rao,  J.  added that the amount  was  not  an allowance  which was charged upon the estate by a decree  of Court  or  otherwise and which the testator himself  had  no right or title to receive.  The income which was received by the executors included the amount paid as maintenance, and a portion   of  it  was  thus  applied  in   discharging   the obligation. (1) (1950) 18 I.T.R. 787. (2) (1933) 1 I.T.R. 131. 642 The last cited case is again of the Bombay High Court, which seems to have influenced the decision in  the instant  case. That is reported in Seth Motilal Manekchand v.  Commissioner of  Income-tax(1).   In  that case,  there  was  a  managing agency,  which belonged  to a Hindu joint family  consisting of  A, his son B and A’s wife.  A partition took place,  and it was agreed  that the managing agency should be divided, A and   B  taking  a  moiety  each  of  the  managing   agency remuneration  but each of them paying A’s wife 2 as. 8  pies out  of their respective 8 as. share in the managing  agency remuneration.   Chagla,  C. J. and Tendolkar, J.  held  that under the deed of partition A and B had really intended that they  were to receive only a portion of the managing  agency commission and that the amount paid to A’s wife was diverted before  it  became  the  income of A  and  B  and  could  be deducted.  The learned Judge observed at p. 741 as follows: "We are inclined to accept the submission of Mr. Kolah  that it  does  constitute  a charge, but in our  opinion,  it  is unnecessary  to decide this question because  this  question can  only  have  relevance  and  significance  if  we   were considering  a  claim  made  for  deduction  under   section 9(1)(iv)  of  the Income-tax Act where a claim  is  made  in respect  of immovable property where the immovable  property is  charged  or mortgaged to pay a certain  amount.   It  is sufficient  for the purpose of this reference if we come  to the  conclusion that Bhagirathibai had a  legal  enforceable right  against the partner in respect of her 2 annas  and  8 pies share and that the partner was under a legal obligation

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to pay that amount." These  are the cases which have considered the problem  from various  angles.   Some of them appear to have  applied  the principle correctly and some, not.  But we do Dot propose to examine the correctness of the decisions in the light of the facts in them.  In our opinion, the true test is whether the amount  sought to be deducted, in truth, never  reaches  the assessee as his income.  Obligations, no doubt, there are in every case, but it is the nature of the obligation which  is the (1) (1957) 31 I.T.R. 735. 643 decisive  fact.   There is a difference  between  an  amount which a person is obliged to apply out of his income and  an amount which by the nature of the obligation cannot be  said to  be a part of the income of the assessee.  Where  by  the obligation   income  is  diverted  before  it  reaches   the assessee,  it  is  deductible;  but  where  the    income is required to be applied to discharge an obligation after such income  reaches the assessee, the same consequence, in  law, does not follow.  It is the first kind of payment which  can truly be excused and not the second.  The second payment  is merely  an obligation to pay another a portion of one’s  own income,  which has been received and is since applied.   The first  is  a  case in which the  income  never  reaches  the assessee, who even if he were to collect it, does so, not as part  of his income, but for and on behalf of the person  to whom it is payable.  In our opinion, the present case is one in which the wife and children of the assessee who continued to be members of the family received a portion of the income of the assessee, after the assessee had received the  income as  his own.The case is one of application of a  portion  of the  income  to discharge an obligation and not  a  case  in which  by  an overriding charge the assessee became  only  a collector  of another’s income.  The matter in  the  present case would have been different, if such an overriding charge had  existed  either upon the property or upon  its  income, which  is  not  the case.  In our opinion,  the  case  falls outside  the rule in Bejoy Singh-Dudhuria’s case and  rather falls within the rule stated by the Judicial Committee in P. C. Mullick’s case For these reasons, we hold that the question referred to the High Court ought to have been answered in the negative.  We, accordingly,  discharge the answer given by the High  Court, -and  the  question will be answered in the  negative.   The appeal  is  thus  allowed with costs here and  in  the  High Court.                            Appeal allowed. (1) (1933) 1 I.T.R. 135.      (2) (1938) 6 I.T. R. 206. 644