22 April 1992
Supreme Court


Bench: MOHAN,S. (J)
Case number: C.A. No.-002201-002203 / 1979
Diary number: 62256 / 1979
Advocates: Vs A. SUBHASHINI








CITATION:  1992 AIR 1495            1992 SCR  (2) 705  1992 SCC  (3) 432        JT 1992 (3)     1  1992 SCALE  (1)890

ACT:                    INCOME TAX ACT, 1961:      Section  2(24)-Assessee  in  receipt  of  compassionate payment  in lieu of cash allowance abolished-Payment  purely compassionate,  discretionary and voluntary, at the  request of the assessee-Assessee having no right to demand  payment- Absence  of any foundation for source of any  income-Whether payment  constituted capital receipt and hence not  taxable- Whether  payment  was capital receipt or income  depends  on nature  and quality of payment and source of income and  not its  nomenclature or periodicity. Bombay Merged  Territories Miscellaneous Alienations Abolition Act, 1955: Section 15(1)     Interpretation of Statutes-Internal aids-Marginal  Head- ing  of  a section-whether can control meaning  of  Section, when it is clear and unambiguous.

HEADNOTE:             : The appellant-assessee, the descendant of  the late  ruler of Kolhapur State was sanctioned a monthly  cash allowance  by  the successor to the late  ruler.  After  the merger of the princely State with the then state of  Bombay, the  cash allowance was discontinued, in view of the  provi- sions of the Bombay Merged Territories Miscellaneous Aliena- tions  Abolition  Act,1955  which  abolished   miscellaneous alienations  of  various  kinds prevailings  in  the  merged territories. However, in view of sub-section (1) clause  (d) of  section 15 of the Act which provided that a cash  allow- ance could be paid as a compassionate payment  notwithstand- ing  the abolition of all alienations under section  of  the act, the assesses continued to receive the cash allowance on modified terms. This amount was also reduced subsequently on account  of misappropriation of  a part of the trust  amount deposited in a Bank.     For  the  assessment  years  1963-64  and  1964-65   the assessee received Rs.36,000 and Rs.33,992 respectively.  The contention  of  the assessee that these receipts were  of  a capital nature and, therefore, would not be subject                                                        706 to income tax, was negatived by the Income Tax Officer,  and the  amounts were assessed to tax in each of the  assessment years.



    The assesse’s appeals against the Income Tax  Officer’s order  were rejected by the Appellate Commissioner, as  well as the Appellate Tribunal.      On  a reference made to it, the High Court  upheld  the decision of the taxing authorities and the Tribunal that the amounts  received  by the assesee during  the  two  relevant financial years were income within the meaning of Income Tax Act and that they could not be regarded as capital  receipts in the hands of the assessee.      Hence  the  assesee filed appeals,  by  special  leave, before  this  Court  not only in respect  of  the  aforesaid assessment  years,  but also in respect  of  the  assessment years 1965-66 to 1969-70.     On  behalf  of the appellant-assessee it  was  contended that  where  any cash allowance, which was included  in  the definition of alienation was granted under Section  15(1)(d) of   the Bombay Merged Territories Miscellaneous  Alienation Act,  the said payment was on compassionate ground  and  was entirely different from those allowances paid under  clauses (i),(ii)  and (iii) of the Section, and therefore, the  High Court  was not correct in holding that it was a  receipt  of revenue and would not amount to compensation when the  stat- ute  declares  otherwise,  and that  the  interpretation  of Section 15 ran counter to the spirit of the Section.      On  behalf of the respondent-Revenue, it was  contended that  if it was not windfall and if there was regularity  in payment,  that  would be enough to constitute  income;  that where  the assessee was paid maintenance allowance  periodi- cally  it  could not be claimed as compensation ;  and  that though the marginal heading of the Section was  compensation that  did  not control the operation of the SEction  or  the interpretation of Section 15.      Allowing the appeals, this Court,      HELD: 1.1 The amounts received by the assessee in  lieu of  cash  allowance  abolished by Section 4  of  the  Bombay Merged Territories Miscellaneous Alienations Act 1955 during the  financial years in question are capital  receipts  and, therefore,  are  not income within the  meaning  of  Section 2(24) of the Income Tax Act, 1961. [725 G].                                                         707      1.2 Neither the nomenclature not the periodicity of the payment would be the determinative factors as to whether the amounts received ware capital in nature. Regard must be  had only to the nature and quality of payment. [722 G]      1.3  The  compassionate payment was sanctioned  by  the Government  under clause (d) of proviso to Section 15(1)  of the   Bombay  Merged  Territories/Miscellaneous   Alienation Abolition  Act, 1955. Those cases falling under  sub-section (1),  clauses (i),(ii) and (iii) of Section 15 fall under  a different category than what is covered under clause (d)  of the  proviso. while clauses (i), (ii) and (iii) provide  for statutory payment at different rates of payments for differ- ent  categories of persons, in the case of a person  falling under clause (d), it require and  alienee to make  an appli- cation.  If such an application had been in  the  prescribed form before the first day of August, 1958, the State Govern- ment, if satisfied after such enquiry as it thinks fit, that applicant  has  no other source of income,  a  compassionate payment, equal to such allowance during his life time or for lesser period, as the State Government may deem fit. [717 A- C]      1.4 In such of those cases falling under clause (d)  of the proviso to Section 15(1) of the Act, no statutory  right is created, unlike those falling under clauses (i), (ii) and (iii) which constitute different clauses. [719 B]



    1.5  There  is  no  compulsion  on  the  part  of   the Government to make the payment nor is the Government obliged to  make the payment since it is purely  discretionary.  The payment  made  by the Government is  undoubtedly  voluntary. However,  it has no origin in what might be called the  real source  of income. No doubt, clause (d) of proviso the  Sec- tion 15(1) enables the applicant  to seek payment  but  that is far from saying that it is a source. Therefore it  cannot afford  any  foundation for such a source. Further it  is  a compassionate  payment,  for  such length of  period  as  he Government may, in its discretion, order. [723 d, 724 B]      1.6   The   marginal   heading   of   Section   15   is "compensation".  The fact that under clauses (i),  (ii)  and (iii) of Section 15(1) the compensation is paid as of  right and in cases falling under clause (d) of the proviso, it  is a  discretionary payment would not stamp the payment with  a character of revenue. [723 B]                                                        708      1.7.  In the instant case, the assessee lost her  right to  the allowances.  Thereafter, on an application  made  by her,  the payment is made by way of compassion under  clause (d)  of proviso to Section 15(1).  The mere fact, after  the order  is made it becomes an enforceable right,  is  neither here nor there.  The fact that the assessee has applied  for a  grant for maintenance nor again, the periodicity of  pay- ment, would be conclusive. [722 G-H]      S.R.Y   Sivaram  Prasad  Bahadur  v.  Commissioner   of Income-Tax,  Andhra  Pradesh,  82 ITR 527 at  537  and  P.H. Divacha v. Commissioner of Income Tax, Bombay City I, 48 ITR 222 at 231-32, relied on.      Raja  Rameshwara  Rao  v.  Commissioner  of  Income-tax Hyderabad,  49 ITR SC 144 and Raghuvanshi Mills Ltd v.  Com- missioner of Income Tax, 22 ITR 484 at 489, distinguished.      H.H. Maharani Shri Vijaykuverba Saheb of Morvi and Anr. v.  Commissioner of Income-tax, Bombay City II, 49 ITR  594, approved.      E.D. Sassoon & Co. Ltd. v. Commissioner of  Income-tax, 26  ITR 27 at 49 Commissioner of Income Tax v. Kamal  Behari Lal  Singha,  82 ITR 460, Chandroji Rao v.  Commissioner  of Income  Tax,  77 ITR 743 and Commissioner of Income  Tax  v. Shaw  Wallace  & Co., (1932) ILR 59 Cal. 1343  at  p.  1352, referred to.

JUDGMENT:      CIVIL APPELLATE JURISDICTION : Civil Appeal Nos.  2201- 2203 of 1979.      From  the  Judgment and Order dated  25.7.1978  of  the Bombay High Court in I.T. Ref. Nos 121/69, 191/73 and 192 of 1974.      T.A. Ramchandra and A.G. Ratnaparkhi for the appellant.      J. Ramamurthy and Ranbir Chandra for the Respondent.      The Judgment of the Court was delivered by      MOHAN, J. All these appeals, arising out of a  judgment of  the  High Court of Bombay (Nagpur Bench), can  be  dealt with  under a common judgment since they relate to  one  and same assessee, the appellant before us.                                                        709      Shrimant  Padmaraje R. Kadambande is the  assessee  and the  only  child of Late Chhatrapati Raja Ram  Maharaj,  the ruling  Chief  of the former State of Kolhapur.   Under  the Huzur  Order dated April 8, 1974 the assessee was granted  a cash  allowance of Rs. 3,000 per month from April  1,  1947. This  order was passed by the successor of Chhatrapati  Raja



Ram Maharaj.  After the merger of Kolhapur State in the then State  of Bombay, the allowance was continued for some  time upto  July 31, 1955.  Thereafter is was discontinued.   This was because of the provisions of the Bombay Merged  Territo- ries Miscellaneous Alienations Abolition Act, 1955  (herein- after  referred  to as the Act).  It may be stated  at  this state  that  the  Act was passed  to  abolish  miscellaneous alienations of various kinds prevailing in the merged terri- tories in the State of Bombay.      The District Treasury Officer, Kolhapur, by his  letter dated  April 14 1956 communicated the discontinuance of  the said allowance.  Under subsection (1) clause (d) of  Section 15 of the Act it was provided that a cash allowance could be paid  as a compassionate payment notwithstanding the  aboli- tion  of  all alienations under Section 4 of the  Act.   The assessee continued to receive cash allowance from August  1, 1956 on modified terms.  The sanction of this cash allowance was  conveyed to the appellant by the Collector of  Kolhapur through  his letter dated October 6, 1959.  It appears  that an  amount  of Rs. 10 lakhs out of a trust property  in  the Bank of kolhapur in accordance with the provisions of Inden- ture  of Trust dated October 19, 1947  was  misappropriated. The cash allowance that was to be paid to the assessee under order dated October 6, 1959 was to be reduced in the circum- stances mentioned therein.      For the assessment year 1963-64 the assessee received a sum  of  Rs. 36,000.  For the assessment  year  1964-65  she received a sum of Rs. 33,992.  Before the Income Tax officer a question arose whether the amounts received by the  asses- see  were subject to income tax. It was urged on  behalf  of the  assessee that these receipts were of a  capital  nature and,  therefore, would not be subject to income  tax.   This contention  was  negatived  by the Income  Tax  Officer  who subjected  the  respective  amounts to tax in  each  of  the assessment years.      Being aggrieved by the said assessment orders an appeal was preferred by the assessee before the Appellate Assistant Commissioner.   Two  alternative contentions were  urged  on behalf of the assessee:-                                                 710      (i)  the  receipts  were  of  a  capital  nature   and, therefore, would be exempt from income tax.     (ii)  having  regard  to the  casual  and  non-recurring nature of this income it would be exempt under section 10(3) of the income Tax Act.      Rejecting   these   two  contentions,   the   appellate Assistant  Commissioner confirmed the orders of  the  Income Tax Officer.      The  appeal  to the Tribunal was preferred  urging  the same contentions but without success. Thereafter a reference was made for determination by the High Court for the assess- ment years 1963-64 and 1964-65 which reads as under:-      "whether  the  amounts of Rs.36,000 and  Rs.33,992  re- ceived by Shrimant Padamraje R. Kadambande of Kolhapur  from the  Government  of Maharashtra during the  financial  years ended  31.3.1963  and 31.3.1964 are receipts  of  an  income nature  and taxable under the provisions of the  Indian  in- come-tax Act, 1922 (sic) (1961)?"      The High Court on reference to the statutory provisions of  the  Act and relying on the case in H.H.  Maharani  Shri Vijaykuverba  Sabeb  of Morvi and Anr.  v.  Commissioner  of Income-Tax,  Bombay City ii, 49 ITR 594 came to the  conclu- sion  that  the decision of the taxing authorities  and  the tribunal that the amounts received by the assesee during the two relevant financial years were income within the  meaning



of  Income  Tax Act. They could not be regarded  as  capital receipts in the hands of the assesee. Accordingly the refer- ence was answered in the affirmative in favour of the  reve- nue.  It is under these circumstances, civil appeals  arose, special leave petitions having been granted on 10th  August, 1979. Civil  appeal  No.2201 of 1979, directed against  the  order passed  in Income Tax Reference No.192 of 1973,  relates  to assessment  year  1970-71 corresponding  to  financial  year 1969-70.     Civil Appeal No.2202 of 1979, directed against the order passed  in  Income tax Reference No.191 of 197,  relates  to assessment  years  1965-66, 1966-67,  1967-68,  1968-69  and 1969-70 corresponding to financial years 1964-65 to 1968-69.                                                   711     Civil Appeal No.2203 of 1979, directed against the order passed  in Income Tax Reference No.121 of 1969,  relates  to assessment years 1963-64 and  1964-65  corresponding to financial years  1962-63  and 1963-64.      The learned counsel for the appellant draws our  atten- tion  to  the various provision of the Act  particularly  to Section 2 wherein the definition of alienation is  provided. According  to  him payment was originally made  under  Huzur Order which was abolished consequent to the merger of Kolha- pur State. Section 4 of the Act makes it very clear that all alienations shall be deemed to have been abolished. The said Section  contains a non obstante clause. However, where  any cash allowance which is included in the definition of alien- ation is granted under Section 15(1)(d), the said payment is no compassionate ground. This payment is entirely  different from those allowances paid under clauses (i), (ii) and (iii) of the said Section. If that much is clear the High Court is incorrect  in  holding that it is a receipt of  revenue  and would  not amount to compensation when the statute  declares otherwise. The interpretation of Section 15 runs counter  to the spirit of the Section.     The   revenue  relies  heavily  on  the  case  in   Raja Rameshwara  Rao v. Commissioner of Income-Tax Hyderabad,  49 IRT   S.C.  144.  The  case  referred  to   therein   namely Butterley’s  case  proceeded  on  the  contention  that  the payments were of income nature. Then again, Raja  rameshwara Rao’s   (supra)  itself  came   to  deal  with   maintenance allowance as qualified by statute. As a matter of fact, this is explained in S.R.Y. Sivram Prasad Bahadur v. Commissioner of Income-Tax, Andhra Pradesh, 82 ITR 527 at 537 wherein  it  was categorically held "shall be deemed  to  be interim maintenance allowances" and therefore, ware held  as revenue receipts      The submission of the learned counsel is that in deter- mining  whether payments constitute revenue receipt of  not, regard must be had to the statutory provisions. The  princi- ple to be applied is found in P.H. Divecha v Commissioner of Income-Tax,  Bombay  City  1, 48 ITR 222 at  231-32.  It  is nature and the quality of the payment and not he periodicity where  of which constitute income. As a matter of fact,  the periodicity was not held to be conclusive.      A case similar to the one on hand is H.H. Maharani Shri Vijaykuverba  Saheb  of Morvi and Anr. (supra)  wherein  the High Court held that a voluntary payment without  considera- tion cannot fall in the category of                                                 712 income.  The position here is exactly the same. There is  no compulsion on the part of the government to give any  allow- ance.  It is purely discretionary it cannot be got  over  by



saying  that  after the order is passed the assesee  gets  a right. That has nothing to do in determining the question.      In S.R.Y. Sivram Parasad Bahadur (supra), in no  uncer- tain  terms it was laid down that it is the quality  of  the payment that is decisive of the character of the payment and not  the method of a payment or its measure which will  make it fall within the category of capital or revenue.  Undoubt- edly,  the High Court had not kept these  important  aspects before rendering the decision whether it is revenue  receipt or not. The judgment of the High Court requires to be inter- fered with.     The learned counsel appearing for the respondent  (reve- nue) after referring to Section 2(24) of the Income-Tax Act, 1961,  would submit that if it is not windfall and if  there is regularity in payment, that would be enough to constitute income. That is the test adopted as seen in the case of E.D. Sassoon & Co. Ltd. v. Commissioner of Income-tax, 26 ITR  27 at  49.  Similar is the case is Raghuvanshi  Mills  Ltd.  v. Commissioner of Income-Tax, 22ITR 484 AT 489. Therefore,  if these are applied there is no difficulty in holding that the payments  received by the assessee, which do not  amount  to compensation, are nothing but income. Where it is a case  of compensation  that would be as down in Commissioner  of  In- come-Tax v. Kamal Behari Lal Singha, 82 ITR 460.      The direct authority which governs the present case  is Raja  Rameshwara Rao v. Commissioner of Income-Tax,  49  ITR 144 because that was a case of maintenance allowance.  Here, as well, the assessee applied to the government in order  to maintain herself. It is such an allowance which is talked of under  clause  (d) of Section 15(1) of the  Act.  Therefore, where  she  is paid maintenance  allowance  periodically  it cannot  be  claimed as compensation. It does not  matter  on what  ground  or on what basis the grant is  made.  That  is alien  to  taxation. Therefore, to say that it  is  paid  as compassionate allowance cannot make the position of assessee any better.      The next authority on which reliance could be placed is S.R.Y. Sivaram Parasad Bahadur (supra) in which also it  was held  that  one must look at the substance of  the  payment. Therefore, the judgment of the High court is correct.                                                  713      No  doubt, the marginal heading of the Section is  com- pensation  but  that does not control the operation  of  the section  or  the interpretation of Section  15  The  general principle that marginal heading cannot control the interpre- tation,  is deducible from Chandroji Rao v. Commissioner  of Income-Tax, 77 ITR 743.      We  will  now proceed to consider  the  correctness  of these  submission.Section 2(24) of the Income-Tax Act,  1961 defines  in am inclusive manner what "income" is.  The  word "income" connotes periodical monetary return coming in  with some   regularity  of  expected  regularity  from   definite sources. In E.D. Sassoon & Company Ltd. and Ors. (supra)  at page 49 this Court cited the Privy Council ruling in Commis- sioner  of Income-Tax v. Shaw Wallace & Co., (1932)  ILR  59 Cal. 1343 at p. 1352 wherein it was observed.      "Income,  their Lordships think, in the Indian  Income- Tax  Act, connotes a periodical monetary return ’coming  in’ with  some sort of regularity, or expected  regularity  from definite sources. The source is not necessarily one which is expected  to be continuously productive, but it must be  one whose object is the production of a definite return, exclud- ing anything in the nature of a mere windfall."       In Raghuvansh Mills Ltd. (supra) while dealing with  a case  of the amounts received under an insurance  policy  it



was  held that it would constitute income. It is  sufficient if we extract the headnote which is as under:      "The  assessee company had insured its mills with  cer- tain  insurance  companies and also had  taken  out  certain policies  of the type knows as "consequential  loss  policy" which  insured against loss of profit, standing charges  and agency commission. The mills were completely destroyed as  a result of fire and a certain amount was paid to the assessee by  the insurance companies. The question was  whether  this amount  which  was  treated as paid on account  of  loss  of profits was assessable to Income_Tax:      Held,  that  the amount received by  the  assessee  was income and so was taxable;                                                 714      Held   further,  that  the  receipt   was   inseparably connected with the ownership and conduct of the business and arose from it and therefore it was not exempt under  Section 4(3)(vii).      The view taken in England in B.C. Fir and Cedar  Lumber Co  v. The King [1932] A.C. 441 and Commissioners of  Inland Revenue  v. William’s Executors, [1944] 26 Tax Cas.23,  pre- ferred      The  remarks of the Judicial Committee in  Commissioner of Income Tax v. Shaw Wallace & Co., [1932] 59 I.A. 206 with regard to the meaning of the word "income" must be read with reference to the particular facts of that case."      What  is to be carefully observed is at page 489  where it was held as under:      "It is true the Judicial Committee attempted a narrower definition  in Commissioner of Income-Tax v. Shaw Wallace  & Co.,  by  limiting income to "a periodical  monetary  return ’coming  in’ with but, some sort of regularity, or  expected regularity,  from  definite sources" but,  in  our  opinion, those remarks must be read with reference to the  particular facts of that case."      Therefore,  the  observation of the  Privy  Council  in Commissioner of Income Tax v. Shaw Wallace & Co case (supra) cannot be pressed into service as of general application  as is sought to be done by the learned counsel for the revenue. Those  observations must be read with reference to the  par- ticular  facts of the case. The salient facts in  this  case are:      (1) Under the Huzur order dated April 8, 1947 passed by the Maharaja of Kolhapur. The appellant-assessee was granted a cash allowance of Rs.3,000 per month from April 1, 1947.      (2)  After the  merger of Kolhapur State the  allowance was discontinued from July 31, 1955.      (3)  Section 4 of the Act having an  overriding  effect over  the  settlement  grant  order  etc.  states  that  all alienations  shall be deemed to have been abolished.  Clause (ii) of Section 4 says:                                                 715      "Save  as expressly provided by or under this  Act  all rights  legally  subsisting on the said date in  respect  of such alienations and all other incidents of such  alienation shall be deemed to have been extinguished."     It cannot be denied and in fact, it is not denied before us  that under section 2 of the Act  the allowance  paid  to the assessee would fall within the definition of alienation. In fact, section 2(1)(III) defines "alienation" as follows:      "Section  2(1)(III) - of cash allowance or allowance in kind of any person by whatever name called."      (4)  The  next  question would be  whether  the  saving clause  would  apply to the payment made in  favour  of  the assessee.  This takes us to Section 15. It is worthwhile  to



quote the section in full:      "Section 15(1) In the case of an alienation  consisting of a cash allowance or allowance in kind, the alienee  shall be  paid  compensation in respect of allowances in  cash  or kind:-      (i) seven times the amount of the cash allowance or  of the  value of the allowance in kind, as the case may be,  if the  alienation  was hereditary without being  subjected  to deduction or cut at the time of each succession;      (ii) five times the amount of the cash allowance of the value  of the allowance in kind, as the case may be, if  the alienation was hereditary but subject to a deduction or  out at the time of each succession ; or      (iii)  three times the amount of cash allowance or  the value  of the allowance in kind, as the case may be, if  the alienation was continuable for he life-time of the alienee:      Provided  that if under the terms of a grant  any  case allowance or allowance in kind-                                                 716 (a)  is received by a widow for the purpose of  maintenance, she shall be paid an amount equal to such allowance for  the remainder of her life; (b) is received by an alienee for the purpose of  education, he shall be paid an amount equal to such allowance during  a like  period,  and subject to the like  conditions,  as  are contained in the grant; (c) is received by an alienee who is- (i)  a male minor, he shall be paid an amount equal  to  the allowance till he attains the age of twenty-one years; (ii) an unmarried female, she shall be paid an amount  equal to the allowance till she marries, or the amount  calculated in accordance with provisions of this section, whichever  is greater; (d) is received by an alienee of whom, upon application made to  it,  in the manner prescribed, before the first  day  of August  1958, the State Government is satisfied  after  such inquiry  (if  any) as it thinks fit, that he  has  no  other source  of  income, or that if he has any  other  source  of income  it  is insufficient for his livelihood, or  that  on account  of old age, mental or physical infirmity  or  other reason he is incapable of earning a livelihood, or maintain- ing  himself in a reasonable manner, there shall be paid  to such  alienee as a compassionate payment an amount equal  to such  allowance  during  his lifetime, or  for  such  lesser period  as the State Government in the circumstances  thinks just. (Emphasis supplied) (2)  For the purpose of sub_section (1), the amount of  cash allowance shall be the amount paid or payable to the alienee for  the year immediately preceding the appointed  date  and the value of the allowance in kind shall be the value of the allowance  in  kind paid or payable to the alienee  for  the year  immediately preceding the appointed date,  such  value being determined in the prescribed manner." The marginal heading says compensation.                                                  717      In  our considered view those cases falling under  sub- section (1) clauses (i), (ii) and (iii) fall under a differ- ent  category than what is covered under clause (d)  of  the proviso while clauses (i), (ii) and (iii) provide for statu- tory  payment at different rates of payments  for  different categories of persons. In the case of a person falling under clause (d) it requires an alienee to make an application.     If  such an application had been made in the  prescribed from  before  the  first  day of  August,  1958,  the  State Government,  if satisfied after such enquiry, as  it  thinks



fit, that the applicant has no other source of income, there shall be paid as a compassionate payment, an amount equal to such allowance during his life time or for lesser period, as the State Government may think fit.      (6) This payment is made on account of      (a) old age      (b) mental or physical infirmity or      (c)  other  reasons that he is engaged in  earning  his livelihood or maintaining himself in a reasonable manner. If was  under  Section 15 that an application was made  by  the assessee  to the State Government on 23rd of May,  1958  for compassionate payment.      (7) The decision of the Government was communicated  to the  assessee  by a letter of the collector dated  April  6, 1959  wherein  the  Government stated  that  "Government  is pleased  to  sanction  under clause (d) of  the  proviso  to Section  15(1) of the Act to the making of  a  compassionate payment  of  Rs.3,000 per month with effect from  August  1, 1956  to the assessee during her life time  as  compensation for the abolition of the cash allowance held by her  subject to certain conditions laid down therein".      In  the  light  of these facts, the  only  question  is whether  the amounts received by the assessee  during  these financial years could be regarded as capital receipts in the hands of the assessee.      Strong  reliance  is  placed  on  Raja  Rameshwara  Rao (supra).  That case no doubt dealt with interim  maintenance allowance. At page 148 the following observations are found:                                                  718 "We have earlier said that is not in dispute that the commu- tation  sum  was paid as compensation for the  loss  of  the jagir and was, therefore, capital which was not liable to be taxed. We thus find the Regulation make a clear  distinction between the commutation sum or compensation and the  interim maintenance allowances. These allowances were obviously  not in tended to be compensation.      The question then arises, if these allowances were  not paid as compensation for the loss of the Jagir and were  not of the nature of capital as such, what was their nature?  We think that if we have regard to the provisions of the  regu- lations under which they werw paid, as we must, there is not doubt that they  were of the nature of income. No doubt they were not income of any of the kinds that are commonly found, but are, as Lord Radcliffe said in a case to which we  shall later  refer, sui generis We proceed now to discuss  why  we think they were income.      These allowances, we notice, were treated by the  Regu- lations  as  something other than the compensation  for  the loss  of  the Jagir. They were, therefore,  not  treated  as capital as representing compensation for the Jagir. If  they were  treated as capital for the reason that they  were  not compensation for the loss of the Jagir, we find no ground on which  we  can say they were capital. It would  follow  that they must be income and taxable as such. They were certainly not windfall, for a right to them was created by the  Aboli- tion  Regulation,  a right which under section 21  could  be enforced  in a civil court. Then we find that  these  allow- ances were payable with a regularity and were of a recurring nature,  both of which are recognized as  characteristic  of income : see Commissioner of Income-tax v. Shaw Wallaced and Co.,  [1932] L.R.59 I.A.206; 1932 2 Comp.cas.276.  Next,  we observe  that the Regulation advisedly called  the  payments "maintenance  allowances", a nomenclature peculiarly  suited to payments of the nature of income."     Therefore,  in this case, the maintenance allowance  was



qualified  by the statute and it was a  nomenclature  pecul- iarly  suited  to  payments of the  nature  of  income.  The learned counsel for the revenue would state if the                                                     719 payments  in  this case do not constitute windfall  and  the right  to  payment of these cash allowances in the  case  on hand, could be enforced in civil court, as laid down in this ruling,  there  is no other way than to hold this to  be  an income,  but, as we have pointed out just  now,  maintenance allowance  is qualified by statute unlike the  present  case which  is purely a discretionary payment. It is no use  con- tending  as also observed by the High court that  after  the order is passed an enforceable right arises. On the contrary the question would be whether the statute gives an  enforce- able  right. We think, in such of those cases falling  under clause  (d) of the proviso to section 15(1) of the  Act,  no statutory  right  is  created. This is  unlike  those  cases falling under clauses (i),(ii) and (iii) of sub-section  (1) of  section  15. These constitute different clauses  as  has already  been pointed out by us. The fact that the  assessee has  applied  for  a grant for maintenance  nor  again,  the periodicity  of  payment,  would be conclusive  as  we  will demonstrate a little later.      Now, we come to the observation at page 149:          "We think for all these reasons the interim mainte-          nance  allowances were taxable income. If a  source          had to be found for them, the Regulation had to  be          held the source.          A case very near to the one in hand and a case that          throws  a great deal of light on the  problem  that          faces  us  is Commissioners of  Inland  Revenue  v.          Butterley Co. Ltd., [1955] 36 Tax Cas.411 we  think          a  detailed reference to it can be very  profitably          made. That case was concerned with the English Coal          industry Nationalisation Act, 1946, which  nationa-          lised  the  collieries and divested all  owners  of          them  and the business concerning them. Under  this          Act  and  the Coal industry (no2)  Act.  1949,  the          assessee  company became entitled  to  compensation          for the assets transferred to the Government and to          certain  payments  called  "revenue  payments"  and          "interim  income" for the period between  what  was          called  the  primary vesting date and the  date  on          which  compensation for the assets taken  away  was          fully  satisfied. The question was with  regard  to          these payments. The assessee company had  contended          in  the  beginning that the payments  were  not  of          income nature at all in the Court of Appeal however          that contention was abandoned                                                    720          and  it  was  conceded that the  payments  were  of          income  nature. The only dispute was  whether  they          were income chargeable to profits tax as profits of          a  trade  or business carried on  by  the  assessee          company. The decision was that the payment were not          income or profit of any trade  or business."          (Emphasis supplied)      It  is  clear from the above extract  that  Butterley’s case (supra) proceeded on concession  that the payments were of income nature. This ruling was explained by this Court in S.R.Y. Sivaram Prasad Bahadur (supra) at pages 537-38  which is extracted as under:          "In order to understand the ratio of that decision,          we  must  bear in mind the provisions  of  the  two          regulations  referred  to hereinbefore.  The  first



        regulation  provided  for the taking  over  of  the          management of the estates and the second regulation          prescribed  the mode of determining the  communica-          tion  sum  in  respect of each Jagir  and  for  its          payment,  the character of the receipt  which  this          court  was called upon to consider was the  mainte-          nance allowance paid under section 14 of the  first          of the two regulations. Under that regulation,  the          administrator of jagir took over the management  of          the estates pending the making provision for deter-          mination  of the commutation amount.  Provision  in          that regard was made under second regulation.  Till          the payment of the commutation sum, the administra-          tor  merely  managed the estates on behalf  of  the          former owners of those estates. This is clear  from          sections  5,8,11,12,13 and 14 of the first  regula-          tion. Under section 5 thereof the quondam jagirdars          were required to hand over the possession of  their          estates  to  the  jagir  administrator.  Section  8          required the former jagirdars to pay to the Govern-          ment the administration expenses of their  estates.          Section  11  provided for distribution of  the  net          income  of an estate between the jagirdar  and  his          hissedars  who  were  entitled to a  share  in  the          income of the estate. Section 12(1) says:          "From  the amount payable to any person under  sec-          tion 11, there shall be deducted the amount of  any          maintenance allowance                                                  721          which  under  sub-section (2) is debitable  to  the          share of that person."          Section  13  required the  jagir  administrator  to          maintain separate accounts in respect of each jagir          and  afford  the concerned  jagirdar  and  hissedar          reasonable  facilities  for the inspection  of  the          same. Section 14 reads:          "The  amounts payable to jagirdaras  and  hissedars          under the regulation shall be deemed to be  interim          maintenance  allowances payable until such time  as          the terms for the commutation of jagirs are  deter-          mined."          It  is  the character of the  payments  made  under          section  14 that came up for  consideration  before          this  court in Rameshwara Rao’s case (1963) 49  ITR          SC  144. Quite clearly the  maintenance  allowances          paid were revenue receipts. Hence that decision has          no bearing on the question of law under  considera-          tion in the present case. The observations made  by          this  court  in that decision must be read  in  the          light of the facts of that case.                                         (Emphasis supplied)      Thus  it  is clear that the observations made  by  this Court  in Rameshwara Rao’s case (supra) must be read in  the light  of  the facts of the case From the ruling  in  S.R.Y. Sivaram  Prasad  Bahadur (supra) it is clear  that  what  is decisive of the character is the quality of the payment. The following passage at page 535 is of vital significance:          "It is the quality of the payment that is  decisive          of the character of the payment and not the  method          of  the payment or its measure, and makes  it  fall          within capital or revenue."      Equally, in P.H. Divecha’s case (supra) at page  231-32 the test applied was as under:          "In  determining whether this payment amounts to  a          return  or  loss of a capital asset or  is  income,



        profits or gain liable to income-tax, one must have          regard to the nature and quality of the payment. If          the  payment was not received to compensate  for  a          loss  or  profits of business, The receipt  in  the          hands of the                                                      722          appellant  cannot properly be described as  income,          profits or gains as commonly understood. To consti-          tute  income,  profits  or gain, there  must  be  a          source  from which the particular receipt has  ari-          sen, and a connection must exit between the quality          of the receipt and the source. If the payment is by          another  person it must be found out why that  pay-          ment  has  been made. It is not the motive  of  the          person  who pays that is relevant.  More  relevance          attaches to the nature of the receipt in the  hands          of  the person who receives it though in trying  to          find out the quality of the receipt one may have to          examine  the  motive out of which the  payment  was          made. It may also be stated as a general rule  that          the fact that the amount involved was large or that          it  was  periodic  in character  have  no  decisive          bearing  upon  the matter. A payment  may  even  be          described as "pay". "remuneration", etc., but  that          does not determine its quality, though the name  by          which it has been called may be relevant in  deter-          mining  its  true  nature, because  this  gives  an          indication of how the person who paid the money and          the  person who received it viewed it in the  first          instance.  The periodicity of the payment does  not          make the payment a recurring income because  perio-          dicity  may  be the result of convenience  and  not          necessarily  the result of the establishment  of  a          source  expected  to be productive over  a  certain          period. These general principles have been  settled          firmly by this court in large number of cases: see,          for  example, Commissioner of Income-Tax  v.  Vazir          Sultan  & Sons, (1959) 36 ITR 175, Godrej &  Co  v.          Commissioner   of  Income-Tax  v.   Jairam   Valji,          (1959)35 ITR 148 and Senairam Doongarmall v Commis-          sioner of Income tax (1961) 42 ITR 392."      This   was   the  reason  why  we  said   neither   the nomenclature nor the periodicity of the payment would be the determinative factors. Regard must be had only to the nature and  quality of payment. The High Court took the  view  that this is not compensation. One thing that is certain is  that the assessee lost her right to these allowances. Thereafter, on an application by way of compassion the payment is  made. The  mere  fact,  after  the order is  made  it  becomes  an enforceable right it neither here nor there.                                                  723 The reliance on Rameshwara Rao’s case (supra) does not  seem to be correct in view of what we have pointed out above.      It  has  already  been seen that  marginal  heading  of Section  15 is "compensation". The fact that  under  clauses (i),  (ii)  and (iii) of Section 15(1) the  compensation  is paid  as of right and in cases falling under clause  (d)  of the proviso, it is a discretionary payment, would not  stamp the payment with a character of revenue. As to how a margin- al  heading has to be construed can be gathered  from  Chan- droji  Rao’s  case (supra). It is stated therein  about  the marginal  heading to a section to a section  cannot  control the interpretation of the words of the section  particularly where the meaning of the section is clear and unambiguous.      For a moment, we are not interpreting the words of  the



section  but we are only holding that even a  payment  under clause (d) is nothing but compensation because as the  facts disclose  the amount of Rs.10 lakhs out of a trust  property in the Bank of Kolhapur was misappropriated.      There is no compulsion on the part of the Government to make  the payment nor is the Government obliged to make  the payment since it is purely discretionary. A case similar  to the one on hand in H.H Maharani Shri vijaykuverba saheb of MORVI (supra), headnote of  which is extracted:      "   A voluntary payment which is made entirely  without          consideration  and is not traceable to  any  source          which  a practical man may regard as a real  source          of  his income but depends entirely on the whim  of          the donor cannot fall in the category of income.                The  ruler  of a native  State  abdicated  in          favour  of  his son in January,  1948.  From  April          1949, onwards his son paid him a monthly allowance.          The  allowance  was not paid under  any  custom  or          usage.  The  allowance  could not  be  regarded  as          maintenance allowance, as the assessee possessed  a          large forture.                Held,  that  as the payments  were  commenced          long  after the ruler had abdicated, they were  not          made  under a legal or contractual  obligation.  As          the allowances ware not also made                                                  724          under a custom or usage or as a maintenance  allow-          ance, they were not assessable."      The  position is exactly the same. The payment made  by the government is undoubtedly voluntary. However, it has  no origin in what might be called the real source of income. No doubt section 15(1) proviso clause (d) enables the applicant to  seek  payment but that is far from saying that it  is  a source. therefore, it cannot afford any foundation for  such a  source. Further, it is a compassionate payment, for  such length of period as the government may, in its discretion  , order.      Lastly, we may refer to Kamal Behari Lal Singha’s  case (supra)  which  is pressed into service by the  revenue,  to support  its contention one has to look at the character  of the  payment the hands of the receiver and the  source  from which the payment is made has no bearing on the question. We will extract the head note of this ruling:           "During  the  accounting period ending  April  13,          1950,  the  assesse,  who was a  shareholder  in  a          company, received a dividend of Rs.13,200 from  the          company.  Out of that amount a sum of Rs.8,829  was          paid  out of capital gains received by the  company          in  the shape of salamis and land acquisition  com-          pensation receipts after March 31, 1948. The  ques-          tion  was  whether that part of  the  dividend  at-          tributable  to  salamis and compensation  for  land          acquisition was taxable in the hands of the  asses-          see:           Held, that the assessee had beneficial interest in          that sum in the hands of the company.  Undoubtedly,          the  amount received by the company towards  salami          and compensation of acquisition of its lands was  a          capital  receipt  in the hands of the  company  and          when the sum was distributed amongst its sharehold-          ers  each of the shareholders took a share  of  the          capital  asset  to  which  they  were  beneficially          entitled.  The receipt of Rs8,829 was  capital  re-          ceipt  in the hands of the assesee. The  fact  that



        the sum was distributed as "dividend"did not change          the true nature of the receipt; a receipt was  what          it was and not what it was called                                                    725           Trustees of the Will of H.K. Brodie v. Commission-          ers of Inland Revenue, [1993] 17 T.C. 423 K.B., ap          plied.           Held also, that that part of the dividend received          by  the assessee attributable to  land  acquisition          compensation  received by the company  after  March          31,1948,  was not receipt of "dividend" within  the          meaning  of  section 2(6A) of the  Income-tax  Act,          1922.           Commissioner  of Income-tax v, Nalin  Behari  Lall          Singham (1969) 74 I.T.R. 849 S.C., Followed.           It  is now well-settled that in order to find  out          whether  a  receipt  is  a  capital  receipt  or  a          revenue  recepit one has to see what it is  in  the          hands  of  the receiver and not its nature  in  the          hands of the payer.  In order words, the nature  of          the   receiptis   determined   entirely   by    its          character  in  the  hands of the receiver  and  the          source  from  which  the  payment is  made  has  no          bearing  on the question.  Where an amount is  paid          which,  so far as the payer is concerned,  is  paid          wholly or partly out of capital, and he receives it          as  income  on  his part,  the  entire  receipt  is          taxable  in the hands of the  receiver."      This  is  a case of compensation paid  under  the  Land Acquisition  Act.  It was held that a compensation  as  such would  be capital receipt in the hands of the  receiver  and the  fact  that it was distributed as  dividends  would  not change the true nature of the receipt.      As a result of the  above discussion, we hold that  the amounts received by the asseessee during the financial years in  question  have to be regarded as capital  receipts  and, therefore,  are  not income within the  meaning  of  Section 2(24)  of the Income Tax Act. accordingly, we set aside  the judgment  of  the High Court and allow the appeals  with  no order as to costs. N.P.V.                                      Appeals Allowed.                                                         726