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1933 Supreme(SC) 22
PRIVY COUNCIL [ON APPEAL FROM THEEAST INDIES]
LORD ATKIN, LORD THANKERTON, LORD MACMILLAN, SIR JOHN WALLIS, AND SIR GEORGE LOWNDES.
RAJA BEJOY SINGH DUDHURIA - Appellant
Versus
COMMISSIONER OF INCOME-TAX, CALCUTTA - Respondents
On Appeal from the High Court at Calcutta.
Decided On : March 10, 1933.
Solicitors for appellant :T. L. Wilson & Co. Solicitor for respondent: Solicitor, India Office.
Payments made pursuant to a court decree that creates a charge on an estate divert revenue before it becomes the assessee's income. Such diverted sums are not "income" of the individual and are therefore not assessable under the Income-tax Act.
Headnote:(A) Indian Income-tax Act, 1922 - Section 3 - Assessment of income - Maintenance allowance paid pursuant to a court decree - Whether such payment constitutes "income" of the assessee - Where a decree of a court charges the whole resources of an assessee with a specific payment for maintenance, such payment diverts the income from the assessee and directs it to the recipient - To that extent, what is received for the recipient is not the income of the assessee - It is an allocation of a sum out of revenue before it becomes income in the hands of the assessee, rather than an application of income.
(B) Indian Income-tax Act, 1922 - Interpretation - Comparison with Imperial income-tax legislation - Indian legislation is framed on simpler lines - Omission of provisions for deduction of tax at source suggests an intention to tax only the "real income" of the taxpayer.
Facts of the case:
The appellant succeeded to an ancestral estate and was subsequently directed by a consent decree of the High Court to make monthly maintenance payments to his stepmother. The decree declared the maintenance as a charge on the estate. The income-tax authorities initially allowed a deduction for these payments but later revoked it, treating the payments as maintenance expenses of a member of a Hindu undivided family. The High Court held that the payments were not authorized deductions under the Act.
Findings of Court:
The sums paid under the decree were not "income" of the appellant within the statutory meaning because they were diverted from him by the charge on his resources.
Issues: Whether a maintenance allowance paid pursuant to a court decree, which creates a charge on the estate, should be excluded from the assessable income of the payer.
Ratio Decidendi: When a court decree charges the resources of an individual with a specific payment, it diverts the income before it reaches the individual. Such an allocation of revenue before it becomes income in the hands of the assessee means the sum is not "income" subject to tax under the Act.
Result: Appeal allowed.
Legal Category Hierarchy
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taxation
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income tax
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assessable income
- diversion of income
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assessable income
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income tax
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family law
- maintenance
Judgement
Appeal (No. 70 of 1931) from a judgment of the High Court (August 12, 1929) upon a reference under
s. 66, sub-s. 2, of the Indian Income-tax Act, 1922.
The appeal related to an assessment to income-tax made upon the appellant for the year 1924-5. The question to be determined, shortly stated, was whether any part of a maintenance allowance of Rs. 1100 per month, which the appellant had made to his stepmother pursuant to a decree of the High Court, should be excluded from his assessable income for the year.
The facts appear from the judgment of the Judicial Committee.
The High Court, by a judgment delivered by Rankin C.J. and concurred in by C. C. Ghose and Buckland JJ., held that the payments in question were not a deduction authorized by the Act as to any
Law Rep. 60 Ind. App. 196 ( 1932- 1933) Raja Bejoy Singh Dudhuria v. Commnr. of Income-Tax
of the heads of the assessees income, and that he was therefore entitled to no exemption in respect of them. The judgment is reported at I. L. R. 57 C. 919.
1933. Feb. 17. Pringle for the appellant. The sums paid by the appellant in pursuance of the decree did not form part of his income profits and gains chargeable to tax by s. 3 of the Indian Income-tax Act, 1922. The decree made the maintenance allowance a charge upon the estate, and the appellant was merely the conduit by which the sums in question reached his stepmother. The income taxed by the Indian Income-tax Act is the actual income derived by the assessee from the zamindari Probhat Chandra Barua v. The King-Emperor (( 1930) L. R. 57 I. A. 228, 238, 240.) ; Income-tax Commissioner v. Shaw, Wallace & Co. (( 1932) L. R. 59 I. A. 206, 211, 212.) The system of the Act differs from that of the English Acts in that under the latter the assessee has a right to deduct tax paid by him on payment of a charge. Alternatively, it is submitted that the payments were permissible deductions under the provisions of the Act— namely, s. 9 (iv.), s. 10 (ix.), s. 12, sub-s. 2.
Dunne K.C. and R. P. Hills for the respondent. The payments in question were part of the income profits and gains received by the appellant and were chargeable under s. 3 of the Act. The appellants stepmother was entitled to maintenance before the decree ; the decree made no difference in what was income of the undivided family. Although at the date of the assessment the undivided family consisted only of the appellant, his stepmother was still a member of it and the payments were part of the income of a Hindu undivided family chargeable in terms by s. 3 of the Act. The High Court rightly held that the payments were not deductions allowed by the terms of the Act.
Pringle in reply. When the stepmothers rights were crystallized by the decree there was pro tanto a disruption of the undivided family.
March 10. The judgment of their Lordships was delivered by
LORD MACMILLAN. This appeal relates to the assessment of the taxable income of the appellant for the year 1924-25, under the Indian Income-tax Act, 1922.
On the death of his father in 1894 the appellant succeeded to the family ancestral estate. His stepmother, who had survived his father, subsequently brought a suit for maintenance against him in the High Court at Calcutta. The suit was compromised and a decree was by consent pronounced directing the appellant to make a monthly payment of Rs. 1100 to his stepmother, which he has since regularly done. It is unfortunate that the decree has not been made available to their Lordships. The Chief Justice (Rankin), however, in the judgment now under review states that " it was not disputed that the ladys maintenance was a legal liability of the Raja [the appellant] arising by reason of the fact that the Raja is in possession of his ancestral estate, that it is payable out of such estate and that this Court had declared that the maintenance was a charge thereon in the hands of the Raja."
In computing the income of the appellant for the year 1923-24 in respect of which, und
