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PETITIONER: THE COMMISSIONER OF INCOME-TAX, PUNJAB

       Vs.

RESPONDENT: SHRI THAKUR DAS BHARGAVA, ADVOCATE, HISSAR.

DATE OF JUDGMENT: 27/07/1960

BENCH: DAS, S.K. BENCH: DAS, S.K. HIDAYATULLAH, M. SHAH, J.C.

CITATION:  1960 AIR 1219  CITATOR INFO :  E          1977 SC1343  (6)

ACT: Income  Tax--Professional income--Lawyer accepting  case  on condition  of clients’ Paying money for charity--Money  Paid to  lawyer  and  charitable  trust  created--Whether  amount received is Professional income.

HEADNOTE: The assessee, an advocate, accepted a case on condition that the clients would provide him with Rs. 40,000 for charitable purposes and that he would create a public charitable  trust with  the money.  The clients gave the assessee  Rs.  32,500 and he created a trust therewith.  The assessee claimed that the  said  amount  of Rs. 32,500 was  not  his  professional income  as  the amount had been given to him  in  trust  for charity. Held,  that the said amount was the professional  income  of the assessee and was liable to income-tax.  At the time when this  money was paid to the assessee no trust or  obligation in  the nature of trust was created.  The clients  who  paid the  money did not create any trust nor imposed any  legally enforceable  obligation on the assessee.  The money when  it was  received  by the assessee was his  professional  income though  he  had  expressed  a desire  earlier  to  create  a charitable  trust  out  of the  money  when  received.   The assessee’s own voluntary desire to create a trust out of the fees  paid  to  him  did not create a  trust  or  a  legally enforceable obligation. Raja  Bejoy  Singh Dudhuria v. Commissioner of  Income  Tax, Bengal, [1933] 1 I.T.R. 135, referred to.

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 236 of 1955. Appeal from the judgment and order dated August 3, 1953,  of the Punjab High Court in Civil Reference No. 7/1952. M.   C.   Setalvad,  Attorney-General  for  India,   K.   N. Rajagopal Sastri and D. Gupta, for the appellant. N.   C. Chatterjee and S. K. Sekhri, for the respondent.

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1960.  July 27.  The Judgment of the Court was delivered by 76 S.   K. DAS J.-This is an appeal on a certificate of fitness granted  under the provisions of sub-s. 2 of s. 66A  of  the Indian Income-tax Act, 1922, by the High Court of Judicature for  the  State  of  Punjab  then  sitting  at  Simla.   The certificate  is dated December 28, 1953, and was granted  on an  application  made  by the  Commissioner  of  Income-tax, Punjab,  appellant  herein The relevant  facts  are  shortly stated below. For  the  assesment  year  1946-47,  one  Pandit   Thakurdas Bhargava,  an advocate of Hissar and respondent  before  us, was  assessed to income tax on a total assessable income  of Rs. 58,475/- in the account year 1945-46. This sum  included the amount of Rs. 32,500/stated to have been received by the respondent  in July, 1945 for defending the accused  persons in  a  case known as the Farrukbnagar  case.   The  assessee claimed that the said amount of Rs. 32,500/- was not a  part of his professional income, because the amount was given  to him  in trust for charity.  This claim of the  assessee  was not accepted by the Income-tax Officer, nor by the Appellate Assistant  Commissioner who heard the appeal from the  order of  the Income-tax Officer.  Both these officers  held  that the assessee had received the amount of Rs. 32,500/- as  his professional  income and the trust which the assessee  later created  by  a deed of Trust dated August 6, 1945,  did  not change   the   nature  or  character  of  the   receipt   as professional income of the assessee; they further held  that the  persons  who  paid the money to the  assessee  did  not create any trust nor impose any obligation in the nature  of a  trust  binding on the assessee, and in fact and  law  the trust  was  created  by  the assessee  himself  out  of  his professional income ; therefore, the amount attracted tax as soon as it was received by the assessee as his  professional income,  and  its  future  destination  or  application  was irrelevant  for  taxing  purposes.  From the  order  of  the Appellate  Assistant  Commissioner  a  further  appeal   was carried to the Income-tax Appellate Tribunal, Delhi  Branch. We shall presently state the facts which the Tribunal found, but its conclusion drawn from the facts found was  expressed in the  following words:"The income in this case did not at 77 any  stage  arise  to the assessee.   Keeping  in  mind  the express  stipulation made by the assessee when  he  accepted the brief there was a voluntary trust created, which had  to be and was subsequently reduced into writing after the money was subscribed.  The payments received from the accused  and other  persons were received on behalf of the trust and  not by  the assessee in his capacity as an individual.  In  this view,   we  delete  the  sum  of  Rs.  32,500/-   from   the assessment." The appellant then moved the Tribunal for stating a case  to the High Court on the question of law which arose out of the order of the Tribunal.  The Tribunal was of the opinion that a  question  of  law did arise out of its  order,  and  this question it formulated in the following terms: "  Whether the sum of Rs. 32,500/- received by the  assessee in  the  circumstances  set  out in  the  trust  deed  later executed  by  him on August 6, 1945,  was  his  professional income taxable in his hands, or was it money received by him on  behalf  of  a  trust  and not  in  his  capacity  as  an individual." It  appears  that in stating a case the Tribunal  framed  an additional  question as to whether the trust was created  at or  before  the payment of Rs. 32,500/-, but  expressed  the

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view  that  this  additional question was  implicit  in  the principal question formulated by it.  A case was accordingly stated  to the High Court under s. 66 of the Indian  Income- tax Act, and the High Court by its judgment dated August  3, 1953, answered the question in favour of the assessee, hold- ing that " the sum of Rs. 32,500/- received by the  assessee was  not received by him as his professional income but  was received  on behalf of the trust and not in his capacity  as an individual ". The appellant then moved the High Court and obtained  the certificate of fitness referred to earlier  in this judment. We shall presently state the facts found by the Tribunal  in connection  with the receipt of the sum of Rs.  32,500/-  by the  assessee, from which the Tribunal drew  its  inference. But  the question as framed by the Tribunal and answered  by the High Court, was 78 whether in the circumstances set out in the trust deed dated August  6,  1945, the amount of Rs. 32,500/received  by  the assessee  was  professional  income in  his  hand.   It  is, therefore, appropriate to refer first to the recitals in the trust deed.  The respondent stated in the trust deed that he had  "decreased" his legal practice for the last  few  years and had reserved his professional income accruing after June 1944  for  payment of taxes and charity.  He  then  said:  " accordingly,  I have been acting on that.  In  the  Farrukh- Dagar, district Gurgaon case, Crown v. Chuttan Lal etc., the relatives  and the accused expressed a strong desire to  get the case conducted by me during its trial.  At last on their persistence and promise that they would provide me with  Rs. 40,000/- for charitable purposes and I would create a public charitable trust thereof I agreed to conduct the case.   The case  is  now over.  The accused and  their  relatives  have given me Rs. 32,500/- for charity and creating a trust.  The said amount has been deposited in the Bank.  If they pay any other  amount  that will also be included in  that.   Accor- dingly,  I create this trust with the  following  conditions and  with the said amount and any other amount which may  be realized  afterwards  or  included  in  the  trust;".  (then followed  the  name  and objects of the  trust,  etc.).  The Tribunal   accepted  as  correct  the  statements   of   the respondent  that  he was at first unwilling  to  accept  the brief  in  the Farrukhnagar case; he was then  persuaded  to accept it at the request of some members of the Bar and some influential  local  people  on  the  understanding,  as  the respondent  put  it, that the accused persons of  that  case would-provide Rs. 40,000/- for a charitable trust which  the respondent  would  create.   Eventually,  the  sum  of   Rs. 32,500/-  was paid by or on behalf of the  accused  persons, and  as  the  Tribunal has put it, a  charitable  trust  was created by the respondent by the trust deed dated August  6, 1945, the recitals whereof we have q noted above. The question before us is what is the proper legal inference from  the aforesaid facts found by the Tribunal.   Both  the Tribunal and the High Court have drawn the inference that  a charitable trust was created 79 by  the persons who paid the money to the assessee, and  all that  the assessee did under the deed of trust dated  August 6,  1945, was to reduce the terms of the trust  to  writing. The  High Court, therefore, applied the principle laid  down by  the  Privy  Council  in Raja  Bejoy  Singh  Dudhuria  v. Commissioner of Income-tax, Bengal (1) and observed that  by the  overriding  obligation imposed on the assessee  by  the persons  who  paid the money, the sum of Rs.  32,500/  never

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became  the  income of the assessee; and the  amount  became trust property as soon as it was paid, there being no  ques- tion  of  the  application  of part of  his  income  by  the assessee. On  behalf of the appellant it has been contended  that  the inference which the Tribunal and the High Court drew is  not the proper legal inference which flows from the facts found, and  according to the learned Attorney-General who  appeared for  the  appellant the proper legal inference is  that  the amount  was  received by the assessee  as  his  professional income  in respect of which he later created a trust by  the deed  of trust dated August 6, 1945.  He has submitted  that there  was no trust nor any legal obligation imposed on  the assessee by the persons who paid the money, at the time when the  money  was received, which prevented  the  amount  from becoming  the professional income of the assessee.   He  has also contended that even the existence of a trust will  make no  difference,  unless it can be held that  the  money  was diverted  to that trust before it could become  professional income in the hands of the assessee. We  think  that  the question raised in  this  case  can  be decided by a very short answer, and that answer is that from the  facts found by the Tribunal the proper legal  inference is that the sum of Rs. 32,500/- paid to the assessee was his professional  income  at the time when it was  paid  and  no trust or obligation in the nature of a trust was created  at that  time,  and when the assessee created a  trust  by  the trust  deed  of  August  6, 1945, he  applied  part  of  his professional income as trust property.  If that is the  true conclusion as we hold it to be, then the principle laid down (1)  [1933] 1 I.T.R. 135. 80 by the Privy Council in Bejoy Singh Dudhuria’s case (1)  has no application.  It is indeed true, as has been observed  by the High Court, that a trust may be created by any  language sufficient to show the intention and no technical words  are necessary.  A trust may even be created by the use of  words which are primarily words of condition, but such words  will constitute  a trust only " where the requisites of  a  trust are present, namely, where there are purposes independent of the  donee  to  which  the subject-matter  of  the  gift  is required  to  be applied and an obligation on the  donee  to satisfy  those purposes." The findings of the Tribunal  show clearly  enough  that the persons who paid the  sum  of  Rs. 32,500/-  did  not  use any words of  an  imperative  nature creating  a  trust or an obligation.  They were  anxious  to have the services of the assessee in the Farrukhnagar  case; the assessee was at first unwilling to give his services and later  he  agreed proposing that he would himself  create  a charitable trust out of the money paid to him for  defending the accused persons in the Farrukhnagar case.  The  position is clarified beyond any doubt by the statements made in  the trust  deed  of August 6, 1945.  The assessee  said  therein that he was reserving his professional income as an advocate accruing after June, 1944 for payments of taxes and  charity and,  accordingly, when he received his professional  income in  the Farrukhnagar case he created a charitable trust  out of the money so received.  The clear statement in the  trust deed,  a statement accepted as correct by the  Tribunal,  is that the assessee created a trust on certain conditions etc. It  is  not stated anywhere that the persons  who  paid  the money  created  a  trust or imposed  a  legally  enforceable obligation  on  the  assessee.  Even in  his  affidavit  the assessee  had stated that " it was agreed that  the  accused would  provide Rs. 40,000/- for a charitable trust  which  I

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would  create in case I defend them, on an absolutely  clear and  express understanding that the money would not be  used for  any  private  and  personal  purposes."  Even  in  this affidavit  there is no suggestion that the persons who  paid the money created the (1)  [1933] 1 I.T.R. 135. 81 trust or imposed any obligation on the assessee.  It was the assessee’s own voluntary desire that he would create a trust out  of  the  fees paid to him  for  defending  the  accused persons  in the Farrukhnagar case.  Such a voluntary  desire on  the  part of the assessee created no trust, nor  did  it give  rise  to any legally enforceable obligation.   In  the circumstances  the Appellate Assistant Commissioner  rightly pointed  out  that " if the accused persons  had  themselves resolved  to  create  a charitable trust in  memory  of  the professional  aid rendered to them by the appellant and  had made  the assessee trustee for the money so paid to him  for that  purpose, it could, perhaps, be argued that  the  money paid  was earmarked for charity ab initio but of this  there was no indication anywhere".  In our opinion the view  taken by  the  Appellate Assistant Commissioner  was  the  correct view.   The money when it was received by the  assessee  was his professional income, though the assessee had expressed a desire earlier to create a charitable trust out of the money when  received by him.  Once it is held that the amount  was received as his professional income, the assessee is clearly liable  to  pay  tax thereon.  In our  opinion  the  correct answer  to the question referred to the High Court  is  that the  amount  of Rs. 32,500/- received by  the  assessee  was professional income taxable in his hands. Learned  Counsel  for the respondent has referred  us  to  a number  of decisions where the principle laid down in  Bejoy Singh  Dudhuria’s  Case (1) was applied, and  has  contended that where there is an allocation of a sum out of revenue as a  result  of an overriding title or  obligation  before  it becomes income in the hands of the assessee, the  allocation may  be  the result of a decree of a court,  an  arbitration award or even the provisions of a will or deed.  In view  of the  conclusion  at  which we have  arrived,  the  decisions relied  upon  can  hardly  help and  it  is  unnecessary  to consider  them.   Our  conclusion  is  that  there  was   no overriding  obligation imposed on the assessee at  the  time when the sum of Rs. 32,500/- was received by him. (1)  [1933] 1 I.T.R. 135. 82 Accordingly, we allow this appeal and set aside the judgment and order of the High Court.  The answer to the question  is in  favour  of the appellant, namely, that the  sum  of  Rs. 32,500/-  received  by  the assessee  was  his  professional income taxable in his hands.  The appellant will be entitled to his costs throughout.                                      Appeal allowed.