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Kedar Narain Singh v. Commissioner Of Income-Tax, C.P & U.P

Allahabad High Court

Jan 4, 1938

Judgment

Subsequent
References

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Structured Summary of the Opinion (Bajpai, J.)

Factual and Procedural Background

This is a reference under Sec. 66(2) of the Indian Income-Tax Act made by the Commissioner of Income-Tax, Central and United Provinces. The material facts as found by the revenue authorities are:

The Ausanganj Estate is under the superintendence of the Court of Wards, Ghazipur. The proprietor and ward is Mst. Rani Dulhin Ram Kunwar (widow of the last male owner).
The assessee is Babu Kedar Narain Singh, the daughter's son of the Rani, regarded as the prospective heir (a reversioner) of the estate.
The assessee was assessed to Income-Tax for the year ending 31 March 1934 on income that included Rs. 6,498. The inclusion of this sum in the assessee's income is disputed by the assessee.
The Rs. 6,498 was paid to the assessee under Sec. 25 of the Court of Wards Act. The assessee contends it represents personal expenses allowed by the Court of Wards because he is a dependant of the ward.
The Income-Tax Officer, the Assistant Commissioner and the Commissioner held that the assessee was liable to tax on the sum. On the assessee's application the Commissioner referred the question (formulated below) for the Court's opinion.

Legal Issues Presented

Whether, having regard to Sec. 25 of the Court of Wards Act and Sec. 41 of the Income-tax Act, the petitioner (assessee) is liable to be assessed to Income-Tax in respect of the sum of Rs. 6,498 received from the Court of Wards.
If the sum is held to be income of the assessee, whether the assessee can claim any exemption in respect of that sum (including under Sec. 14(1) as a member of a Hindu undivided family or otherwise).

Arguments of the Parties

Assessee's Arguments

The amount of Rs. 6,498 was paid under Sec. 25 of the Court of Wards Act as an allowance to meet the personal expenses of the ward's dependant (the assessee), and therefore should not be treated as the assessee's taxable income for that year.
Before the Income-Tax Officer the assessee had contended that the sum was agricultural income (the point was not pressed before the Court in this reference).
Before the Court the chief contention advanced was that the assessee was entitled to exemption under Sec. 14(1) of the Income-Tax Act because he was purportedly a member of a Hindu undivided family.

Revenue's Arguments

The Income-Tax Officer, Assistant Commissioner and Commissioner of Income-Tax maintained that the Rs. 6,498 must be treated as income of the assessee and be assessed to tax in his hands.
Implicitly, the revenue treated the payment as an allowance or receipt that had the character of income when it came into the assessee's absolute control.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Maharaja Kumar Gopal Saran Narain Singh v. Commissioner of Income-Tax, Bihar and Orissa (Privy Council)	Authority for the broad proposition that "anything which can properly be described as income is taxable under the Act unless expressly exempted".	The court relied on this statement to support the view that the term "income" is elastic and that sums properly described as income fall within the taxing net unless an express exemption applies.
Vedathanni v. Commissioner of Income-Tax, Madras (I.L.R. 56 Mad. p. 1)	Support for the distinction between an undivided Hindu family (broader) and the coparcenary (narrower) in determining who may be a member for exemption purposes.	The court cited this authority (along with the Bombay decision) in considering whether the assessee could be treated as a member of a Hindu undivided family for the purpose of Sec. 14(1).
Commissioner of Income-Tax, Bombay v. Laxminarayan (I.L.R. 59 Bom. p. 618)	Sets out a description (per Rangnekar, J.) of the composition of an undivided Hindu family (including males, females, and poor dependants) and distinguishes the family from the coparcenary.	The court used the description from this decision to analyze whether the assessee fell within a category (e.g., poor dependant) that would make him a member of an undivided Hindu family for Sec. 14(1) exemption purposes, and concluded he did not.

Court's Reasoning and Analysis

The Court proceeded in a stepwise legal analysis, limited to the matters presented in the reference:

Relevance of Sec. 41: The Court observed that Sec. 41 of the Income-tax Act deals with the liability of the Court of Wards where income of the ward comes into its hands and therefore it does not directly decide whether a particular sum paid out by the Court of Wards becomes the income of a third person (the assessee). Thus Sec. 41 had "really no bearing" on the core question.
Definition and breadth of "income": The Court noted that the Act does not define "income" exhaustively and that Sec. 6 and Sec. 12 show the heads and the omnibus "other sources" provision. The Court accepted the Privy Council observation (Maharaja Kumar...) that "anything which can properly be described as income is taxable under the Act unless expressly exempted", underscoring the elastic ambit of the term.
Double taxation concern and character of the payment: Although the estate's entire income is taxed in the hands of the Court of Wards, the Court recognized that amounts previously taxed may be taxed again if they become income of another person when paid out (for example, salaries or allowances). The decisive inquiry was whether the Rs. 6,498 retained the character of a ward's expense throughout, or whether it became the assessee's income in the course of transmission.
Construction of Sec. 25 of the Court of Wards Act: The Court paraphrased Sec. 25 as permitting the Court of Wards to determine allowances of the ward and his family and dependants "in respect to their expenses." If so paraphrased, the sum could be regarded as an allowance paid by the Court of Wards to the assessee, analogous to a salary paid to a tutor.
Control and accountability: The Court emphasized that the allowance (Rs. 6,498) was within the "absolute control" of the assessee and that neither the Rani nor the Court of Wards could require the assessee to render accounts regarding that sum. On that basis the Court concluded the sum had become the assessee's income and was properly taxed by the revenue authorities.
Exemption arguments: The Court considered possible exemptions:
- The agricultural-income contention raised earlier before the Income-Tax Officer was not pursued before the Court and therefore was not decided.
- As to whether the payment could be treated as a gift and thereby fall under Sec. 4(3)(vii) (exemption for isolated gifts): the Court observed that even if treated as a gift, the payment would not qualify because it was not an isolated, casual, non-recurring receipt but a regular periodical allowance.
- The principal exemption contention pressed was under Sec. 14(1) (exemption for members of a Hindu undivided family). The Court examined whether the assessee was a member of such a family. Citing authority, the Court accepted distinctions between the undivided family and the coparcenary, and the descriptions of who comprises an undivided family. It concluded that the assessee was not lineally connected in the male line, not a collateral, nor adopted; at best he could be called a "poor dependant" in everyday terms, but not a "poor dependant" as understood in Hindu law in the sense that would qualify him for Sec. 14(1) exemption.
Conclusion of reasoning: Given that the sum was under the assessee's absolute control and was not received by virtue of membership in a Hindu undivided family (nor shown to be an agricultural income or an isolated gift), the Court held the sum properly constituted taxable income of the assessee and that Sec. 14(1) exemption did not apply.

Holding and Implications

Holding (core ruling):

Question answered in the affirmative. The Court held that, having regard to Sec. 25 of the Court of Wards Act and relevant provisions of the Income-tax Act, the petitioner (assessee) is liable to be assessed to Income-Tax in respect of the sum of Rs. 6,498.

Direct consequences and orders:

The sum of Rs. 6,498 was rightly treated as the assessee's income by the revenue authorities and is assessable to tax in his hands.
The exemption under Sec. 14(1) of the Income-Tax Act was held not to be available to the assessee.
The assessee must pay the costs of the reference.
The Court directed that a copy of the judgment be sent under the seal of the Court and the signature of the Registrar to the learned Commissioner of Income-Tax, Central and United Provinces.
The hearing had lasted a day; the Court allowed six weeks for counsel for the Department to file his certificate and fixed the counsel's fee at Rs. 200.

Broader implications:

The opinion confines itself to the direct legal effect on the parties: the contested allowance paid by the Court of Wards was held to be taxable in the hands of the recipient where it is within his absolute control and not received by virtue of membership in a Hindu undivided family. The opinion does not purport to establish any broader legal rule beyond this application to the facts, and no new precedent beyond the Court's application of existing authorities was announced in the text of this judgment.

Question answered in the affirmative.

Show all summary ...

Bajpai, J.:— This is a reference under Sec. 66(2) of the Indian Income-Tax Act by the Commissioner of Income-Tax, Central and United Provinces. The facts as found by the revenue authorities, may be summarised:—

The Ausanganj Estate is under the superintendence of the Court of Wards, Ghazipur. The proprietor of the estate and the ward is Mst. Rani Dulhin Ram Kunwar, who is the widow of Babu Sri Narain Singh, the last male owner of the estate. The assessee is Babu Kedar Narain Singh, the daughter's son of the Rani and he by virtue of his relationship is regarded as the prospective heir to the estate. He has been assessed to Income-Tax for the year ending the 31st March 1934 on an income of Rs. 6,498 along with other income about which there is no dispute. It is, however, said that the sum mentioned above ought not to have been included in the income of the assessee for the year in dispute. This amount is paid to him under Sec. 25 of the Court of Wards Act. That provision reads as follows:—

“The Court of Wards may from time to time determine what sums shall be allowed in respect of the expenses of any ward and of his family and dependants”

2. And the contention of the assessee is that the alleged income is actually the amount of personal expenses of the petitioner incurred by the Court Wards under Sec. 25 of the Court of Wards Act, as the petitioner is a dependant of the ward.

3. The Income-Tax Officer, the Assistant Commissioner of Income-Tax and the Commissioner of Income-Tax are of the opinion that the assessee is liable to be taxed on the above income, but on the application of the assessee the following question has been formulated by the Commissioner of Income-Tax and referred to us for opinion:—

“Whether under all the circumstances of this case taken together and with due regard to the provisions of Sec. 25 of the Court of Wards Act and Sec. 41 of the Income-tax Act the petitioner is liable to be assessed to Income-Tax under the Indian Income-Tax Act, 1922”.

4. Section 41 of the Act simply says that “in the case of income, profits or gains chargeable under this Act which are received by the Court of Wards……………………. the tax shall be levied upon and recoverable from such Court of Wards…………………. in the like manner and to the same amounts as it would be leviable upon and recoverable from any person on whose behalf such income, profits or gains are received, and all the provisions of this Act shall apply accordingly”. This section has really no bearing on the point that has got to be determined; it deals only with the liability of the Court of Wards in respect to the income of the ward which comes into its hands. There are really two questions that arise in connection with this reference. The first is whether the sum of Rs. 6,498 can be regarded as the income of the assessee, and if this question is answered in the affirmative, the next question is whether the asssessee, can claim any exemption. Now, an attempt to define the word ‘income’ has baffled the Legislature and Judges. The Act itself does not define it, and in Sec. 6 the best that has been done in this respect is to say what heads of income, profits and gains shall be chargeable to Income-Tax, and under these heads we find the following sub-heads—

(i) Salaries.

(ii) Interest on securities.

(iii) Property.

(iv) Business.

(v) Professsional earnings.

(vi) Other sources.

5. Although in the succeeding provisions an attempt has been made to describe the first five sub-heads', Sec. 12 deals with the omnibus sub-heading of ‘other sources’, and all that could be said, there was that ‘other sources’ included “income, profits and gains of every kind and from every source to which this Act applies”. It is, therefore, clear that the word ‘income’ is an expression of elastic ambit, and courts when considering whether any particular sum can be said to be the income of an assessee have attempted either to bring it in, or to exclude it from, a certain description which they have chosen to give to the word ‘income’ but they have always qualified the said description by saying that it is not exhaustive. It is, however, clear that the words “income profits and gains” used in the Act are used in a disjunctive sense, and the word ‘income’ is not limited by the words “profits and gains”. As observed by their Lordships of the Privy Council in the case of Maharaja Kumar Gopal Saran Narain Singh v. Commissioner of Income-Tax, Bihar and Orissa, “anything which can properly be described as income is taxable under the Act unless expressly exempted”. That perhaps is the best definition, although it may be said to be tautologous.

6. There can be no doubt that the entire income of the Ausanganj Estate is taxed in the hands of the Court of Wards, and in one sense it may be said that any sum paid to the assessee in respect of his expenses as a dependant of the ward has been taxed, but the main question is whether the Income-tax Department is offending against the rule of double taxation in the true sense of the term for it must be conceded that an income which has been taxed may again be taxed, when it is spent by the original assessee in the shape of salaries and allowances paid by the assessee to its servants or dependants. The real point is whether the sum of Rs. 6,498 represents only the expenses of the ward and retains that character all along or whether at some stage it becomes the income of the assessee in the course of transmission. The marginal note to Sec. 25 is “allowances for ward and his family,” and although the marginal note may not be taken into account in order to interpret the section itself, there can be no doubt that the section may be paraphrased as follows:

“The Court of Wards may from time to time determine the allowances of the ward and of his family and dependants in respect to their expenses.”

7. If this paraphrasing is not violent in any respect, then the sum can be treated as an allowance paid by the Court of Wards to the assessee and would stand on the same footing as, for instance, the salary paid to the tutor of a ward. The discretion of the Court of Wards may not be questioned in any civil court, (Vide Sec. 53 of the Act), and it may not be possible for anybody to say that the Court of Wards was wrong in treating the assessee as a dependant of the ward or in fixing for him an allowance of Rs. 6,498 a year, but it is not possible to say that this sum is only an expense of the ward and does not become an income of the assessee. This sum is within the absolute control of the assessee and neither the Rani nor the Court of Wards can call upon him to render account in respect thereto. We are, therefore, of the opinion that this sum was rightly treated as income by the revenue authorities.

8. The next question is whether the assessee is entitled to claim exemption in respect of this sum. Before the Income-tax Officers it was contended that the sum received by him was agricultural income, but this contention was not advanced before us. The assessee is only a reversioner of the estate and not the owner thereof during the lifetime of the present incumbent, and the allowance having been paid out of the agricultural and taxed income of the estate may be taxed again when it passes from the owner of the estate to the assessee, for in his hands the character of the income has been changed. If it is treated as a gift, it would be liable to tax and would not be exempted under Sec. 4(3)(vii) because it is not an isolated gift and is not an income of a casual and non-recurring nature, but is a gift of a periodical and regular kind, even if it be said to be made to the assessee by the ward out of considerations of love and relationship.

9. The chief contention that is advanced before us is that the assessee can claim exemption under Sec. 14(1) of the Act which says that the tax shall not be payable by an assessee in respect of any sum which he receives as a member of a Hindu undivided family. In this connection we have to consider whether the assessee can be treated as a member of a Hindu undivided family. Ordinarily, a married daughter is not a member of the family of her father or mother, nor can the daughter's son be said to be such a member, but it is said that the expression ‘undivided Hindu family’ used in Sec. 14 differs from what is called a Hindu coparcenary body which is a much narrower body and which includes those male members who take by birth an interest in the coparcenary property. This may be conceded and is indeed supported by authority, see the case of Vedathanni v. Commissioner of Income-Tax, Madras, (I.L.R 56 Mad. page 1) and the case of the Commissioner of Income-Tax, Bombay v. Laxminarayan, (I.L.R 59 Bom. p. 618). In the latter case Rangnekar, J., observed that under the Hindu Law an undivided family is composed of (a) males and (b) females. The males are (1) those that are lineally connected in the male line (2) collaterals (3) relations by adoption and (4) poor dependants, and the learned Judges referred to Mayne's Hindu Law at page 344, where the learned author speaks of it as “the whole body of such a family consisting of males and females……… some of the members of which are coparceners, that is persons who on birth would be entitled to demand a share, while others are only entitled to maintenance” and to what has been said in the same book at page 347 that “now it is at this point that we see one of the most important distinctions between the coparcenary and the general body”, and then finally a reference was made to the description of a Hindu undivided family as given by Dinshaw Mulla in his Principles of Hindu Law, 7th Edition at page 230, in these words: “A joint Hindu family consists of all persons lineally descended from a common ancestor and includes their wives and unmarried daughters”. Accepting all that was said by the learned Judge, it is clear that the assessee is neither lineally connected in the male line, nor collateral nor a relation by adoption, and the best that can be said is that he is a poor dependant, and it is in that category that the assessee is brought by learned counsel for the assessee, and reliance once again is placed on the fact that under Sec. 25 of the Court of Wards Act the assessee is receiving something for his allowance and the allowance is paid to him because he is a dependant of the ward. It is difficult to consider the assessee as a poor dependant in the sense in which that expression is used in the judgment of the learned Judge of the Bombay High Court, and the learned Commissioner says that the assessee “is regarded as the prospective heir to the estate” and it is in that capacity that the allowance is paid to him so that he may live up to the standards of the future owner of a big property. The assessee cannot at all be regarded as a poor dependant in the sense in which that term is understood in Hindu Law, and the expression ‘dependants’ used in Sec. 25 of the Court of Wards Act is a wholly different expression. Only those members of a Hindu undivided family can claim exemption under Sec. 14(1) of the Act who either on partition would be entitled to demand a share or are entitled to maintenance under the Hindu Law and who therefore might be said to have an interest in the joint income of the family. The assessee is entitled neither to claim partition nor to claim maintenance as of right nor has the sum in question been received by him by virtue of his position as a member of the Hindu undivided family and, therefore, the exemption provided in Sec. 14(1) is not available to him.

10. Our answer, therefore, to the question formulated by the Commissioner mentioned in an earlier protion of our judgment is in the affirmative, and we direct that a copy of our judgment shall be sent under the seal of the Court and the signature of the Registrar to the learned Commissioner of Income-Tax, Central and United Provinces. The assessee must pay the costs of the reference. The hearing of the case lasted for a day, and we allow six weeks' time to counsel for the Department to file his certificate. We fix the fee for the counsel for the Department at Rs. 200.