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Raja Shiva Prasad Singh v. Commissioner Of Income-Tax, Bihar And Orissa
Structured Summary of the Opinion — M.J.C. 69 & 78 of 1940 (Raja of Jharia)
Factual and Procedural Background
The Commissioner of Income-tax, Bihar & Orissa, stated a case under Section 66(3) of the Indian Income-tax Act raising two questions concerning whether sums paid by the assessee (the Raja of Jharia) as maintenance allowances to two widows (the Ranis) were assessable income and, if so, whether they could be assessed under Section 34. The assessee, owner of an impartible estate, had been assessed for 1937–38 on a total that allowed a deduction of Rs. 19,587, representing payments to the Ranis. Following earlier proceedings (in which one Rani's assessment was set aside by the Commissioner), the Income-tax Officer treated the Rs. 19,587 as income that had escaped assessment and made a fresh assessment under Section 34 by adding the sum to the previously assessed income. An appeal to the Appellate Assistant Commissioner was dismissed and relief under Section 33 was refused. The assessee's request for a reference to the High Court under Section 66(2) was rejected by the Commissioner, and the matter was brought to this Court by the assessee; the Court directed a case to be stated on the two questions. The facts found by the Commissioner (as set out in the stated case) include a protracted civil litigation over succession: the Ranis claimed the estate on one theory and the assessee contended he succeeded by survivorship and the custom of lineal primogeniture. The courts (trial, High Court and Privy Council) accepted the assessee's succession claim, but the civil courts held that the Ranis, being members of a Hindu undivided family, were entitled to maintenance, later fixed at Rs. 750 per month each, and that the maintenance and arrears were a charge upon the estate; additional sums (e.g., proportions of jewellery and movables) were also decreed to the Ranis and have been partly paid and partly being paid by instalments.
Legal Issues Presented
- Whether the amount of Rs. 19,587 paid as maintenance allowance to the two widows (the Ranis) is, in the circumstances of this case, assessable income under the Income-tax Act.
- If the answer to question (1) is in the affirmative, whether such sum could be assessed in this case by proceedings taken under Section 34 of the Income-tax Act.
Arguments of the Parties
Assessee's Arguments
- The sum of Rs. 19,587 paid to the Ranis in the year of assessment was not part of his income; rather it was money received by him for and on account of the Ranis, and therefore an admissible deduction such that no tax was payable by him on that amount.
Revenue's / Commissioner's Position
- The Income-tax Officer, following a prior decision of this Court (Maharajadhiraja Kumar Visheswar Singh), treated the allowance as income of the assessee regardless of whether the payment was made under family obligation or by court decree, and therefore added Rs. 19,587 back to the previously assessed income and made a fresh assessment under Section 34. The Commissioner (Mr. Wall) reasoned that because the final result of the litigation was that the family was held to be an undivided family, the maintenance allowance was received by the Rani in that capacity and was therefore exempt under Section 14(1); he also relied on Patna and Madras High Court decisions (Raja Jyoti Prasad Singh and Raja of Bobbili) and a Patna High Court decision in Maharajadhiraja Kumar Visheswar Singh to support treating such allowances as excluded from assessment in the recipient's hands.
- Subsequently, it was argued (by unnamed parties appearing for the Revenue) that the Commissioner's view might be incorrect in view of later Privy Council authority (Commissioner of Income-tax, Punjab v. Dewan Bahadur Dewan Krishna Kishore and its approval in Raja Velugoti ... v. Raja Rajesioara Rao), but the Court considered that it was unnecessary to resolve that conflict for the present reference.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court (as stated in the opinion) |
|---|---|---|
| Maharajadhiraja Kumar Visheswar Singh (reported in 8 Income-tax Cases, 295) | Held (as applied by the Income-tax Officer) that it is immaterial whether a payment is made in accordance with family obligation or pursuant to a court decree; the character of the allowance and the capacity in which it is paid are not altered by the motivating circumstance. | The Income-tax Officer followed this decision to justify adding back Rs. 19,587 as escaped income; the Court records that this was the basis for the Officer's Section 34 assessment (but the Court ultimately did not accept the Officer's view in the present case). |
| Raja Bijoy Singh Dudhuria (Judicial Committee of the Privy Council) | Where a court decree charges the whole resources of an individual with a specific payment to another, that decree diverts the income before it reaches the individual and, to that extent, the sum received for the other is not the individual's income. | The High Court relied on the dictum of Lord Macmillan in this case to hold that the payments to the Ranis were diverted from the assessee before becoming his income and therefore were not assessable in his hands; the Court stated this precedent was "exactly the situation in the present case." |
| Commissioner of Income-tax, Punjab v. Dewan Bahadur Dewan Krishna Kishore (1941) 9 I.T.R. 695 | Identified by the opinion as a decision that, according to the Revenue, undermines the Commissioner's earlier view; the opinion does not set out the rule in detail, only that it was relied on to argue the Commissioner's view was wrong. | The point was raised by counsel for the Revenue to suggest a conflicting line of authority, but the Court declined to decide the correctness of that later authority for purposes of the present reference. |
| Raja Velugoti Sarvagna Kumara Krishna Yachendra Bahadur Varu v. Raja Rajesioara Rao (Privy Council Appeal No. 38 of 1940; reported 55 L.W. 65) | Reported as approving the Dewan Krishna Kishore decision; the opinion notes its existence but does not detail the principle beyond that it supports the Dewan decision. | The Court noted these later Privy Council decisions had been invoked to criticise the Commissioner's approach, but again observed it was unnecessary to resolve that dispute in the present case. |
| Raja Jyoti Prasad Singh and The Raja of Bobbili (Patna and Madras High Courts) | These High Court decisions were cited for the proposition that the income of an impartible estate is the income of the individual who holds the estate and the income of the Hindu undivided family of which he is the Head (supporting an argument about applicability of Section 14(1)). | The Commissioner (Mr. Wall) mentioned these decisions to explain the line of reasoning that might support taxing or exempting such allowances; the Court recorded that these cases were referred to by the Commissioner but did not adopt them as determinative for the present question. |
Court's Reasoning and Analysis
The Court's analysis proceeded from the established facts (civil decrees determining maintenance entitlements of the Ranis and making those allowances a charge on the estate) and focused on whether the amounts paid by the assessee ever constituted his assessable income.
- The Court accepted the factual finding that the civil courts decreed regular maintenance for the Ranis (and charged it on the estate), and that the assessee was paying sums in fulfilment of that decree and charge.
- The Court considered authority from the Judicial Committee (Raja Bijoy Singh Dudhuria) where Lord Macmillan explained that when a court decree charges an individual's resources with a specific payment to another, the decree diverts that portion of revenue away from the individual before it becomes income in his hands. The Court regarded that principle as directly applicable to the present facts.
- The Court contrasted this conclusion with the approach adopted by the Income-tax Officer and the Commissioner in earlier proceedings: the Revenue had followed a decision (Maharajadhiraja Kumar Visheswar Singh) that, in effect, treated such payments as remaining the payer's income notwithstanding the manner of payment. The Court recorded the Commissioner's reasoning (including reliance on Section 14(1) and certain High Court decisions) but found the Bijoy Singh Dudhuria principle more directly applicable.
- The Court expressly stated it was unnecessary to resolve whether later Privy Council authority cited by the Revenue (Dewan Krishna Kishore and Raja Velugoti) affected the wider rule about whether a Rani could be assessed; the narrower question for determination was whether the assessee had to pay tax on sums which, by the decree and allocation, never became his income.
- Applying the Bijoy Singh Dudhuria principle to the facts, the Court concluded that the maintenance payments were diverted to the Ranis before becoming the assessee's income; consequently, the amounts paid were not assessable income of the assessee.
- On the second question (assessability under Section 34), the Court noted that the assessee's counsel withdrew that question and the Court therefore refrained from deciding it.
Holding and Implications
Holding: The Court answered the principal question by holding that the amount of Rs. 19,587 paid as maintenance allowance to the two widows was not assessable income of the assessee. In the related Miscellaneous Judicial Case No. 78 of 1940 (same facts), the Court similarly answered that Rs. 21,000 and a portion of Rs. 2,00,000 paid as maintenance allowances were not assessable income.
Implications and immediate effects:
- Direct effect on the parties: The assessee is not liable to pay income-tax on the sums in question because those sums never became his income; the assessee is entitled to costs. In M.J.C. 69/1940 the hearing fee was fixed at Rs. 250 and the assessee may withdraw Rs. 100 deposited with the Commissioner as the fee for making a reference to the High Court. In M.J.C. 78/1940 the assessee may withdraw Rs. 100 deposited, but was not given a separate hearing fee in the circumstances.
- On precedent and broader law: The Court expressly declined to resolve the broader conflict suggested by later Privy Council authorities about taxation of recipients (e.g., whether a Rani is liable), and therefore did not lay down any new general rule on that wider point. The judgment is confined to the narrower conclusion that, in these circumstances (court decree charging the estate and diverting funds to the Ranis), the payer (the Raja) did not have assessable income in respect of those sums.
Note: The Court refrained from deciding the separate procedural question concerning assessment by Section 34 because the assessee withdrew that question; no decision was given on it in this opinion.
M.J.C 69 of 1940.
Manohar Lall, J.:— This is a case stated by the Commissioner of Income-tax,. Bihar & Orissa, under Section 66(3) of the Indian Income-tax Act upon the following questions: (1) Whether the amount of Rs. 19,587 paid as maintenance allowance to the two widows is in the circumstances of this case, assessable income under the Income-tax Act; and (2) if the answer to question (1) be in the affirmative, could such sum be assessed in this case by proceedings taken under Section 34, Indian Income-tax Act?
2. The assessee is the Raja of Jharia, the owner of an impartible estate, and was assessed for the year 1937-38 upon a sum of Rs. 4,42,142 on account of his income from various assessable sources after allowing a deduction for Rs. 19,587 which he paid in that year as maintenance allowance to the Ranis of Jharia, but as the result of an order passed by the Commissioner of Income-tax on the 12th September, 1938, by which he sets aside the assessment of one of the Ranis with regard to the maintenance which she had received from the Raja, the Income-tax Officer started proceedings under Section 35 of the Indian Income-tax Act against the Raja, the income escaped being said to be Rs. 19,587 for which he had been allowed a deduction in the original assessment. The Income-tax Officer following the decision of this Court reported in 8 Income-tax Cases, 295 (Maharajadhiraja Kumar Visheswar Singh1), held: “It is immaterial whether the payment made by the assessee is in accordance with the obligation of the head of an undivided family or in pursuance of a Court decree. Whatever be the impelling force for making the payment neither the character of the allowances nor the capacity in which they are paid is altered”, He accordingly added the sum of Rs. 19,587 to the sum of Rs. 4,42,142 on which the assessee had been assessed previously and made a fresh assessment under Section 34 of the Indian Income-tax Act on a total income of Rs. 4,62,929 by an order dated the 31st July 1939. An appeal against this decision was dismissed by the Appellate Assistant Commissioner on the 11th December, 1939. The Commissioner also refused to grant any relief to the assessee under Section 33 of the Indian Income-tax Act. The assessee's application to the Commissioner for referring the case to the High Court under Section 66(2) of the Indian Income-tax Act was also rejected by the Commissioner on the 28th March, 1940. Against that order he moved this Court who directed the Commissioner by an order dated the 3rd of October 1940, to state a case upon the questions already stated in the beginning of the judgment. The Commissioner has sent up a statement of the case for our decision. The facts found are that the assessee succeeded to the Jharia estate on the death of his predecessor, the late Raja Durga Prasad Singh, as a result of a protracted Civil Court litigation between the assessee on the one hand and the widows of Raji Durga Prasad Singh called the Ranis, on the other hand. The Ranis claimed the entire properties of the late Raja Durga Prasad Singh on the ground that the assessee was not a member of, the joint family with their deceased husband and there was no male member in the joint family. The assessee on the other hand contended that he was a member of the Hindu undivided family of the deceased Raja Durga Prasad Singh and that he was, therefore, entitled to the properties by the rule of survivorship and by the custom of lineal primogeniture, which governed succession to the ancestral estate of the family. The contention of the assessed was allowed by the trial Court and confirmed by the High Court and the Privy Council. In the litigation it was decided: “the two Ranis, being members of a Hindu undivided family with the assessee, were entitled to maintenance, the amount of which was subsequently determined, after getting enquiries made through the High Court, at Rs. 750 per month to each of the two Ranis. It was also ordered that the maintenance allowance, together with the arrears of such allowances, should constitute a charge upon the estate. It was also decreed by the Court that the assessee was to pay to the Ranis, in addition to the above sums, certain other amounts, being certain proportion of values of jewellery and of other movable properties left by the deceased Raja Durga Prasad Singh. A portion of the dues of the Ranis so determined was satisfied by adjustment and the balance is being paid by the assessee by instalments”;
3. On these facts the assessee contended that a sum of Rs. 19,587 which he paid to the Ranis in the year of assessment was not a part of his income but was the amount received by him for and on account of the Ranis, and, therefore, was an admissible deduction and no tax was payable by him on that amount.
4. In my opinion the contention of the assessee is correct and ought to have been accepted. Their Lordships of the Judicial Committee in the case of Raja Bijoy Singh Dudhuria, had to consider a similar situation. In that case under a decree of the Court the entire estate comprising all assessable and non-assessable source of income of the assessee was charged with payment of maintenance annually to his step-mother. Lord Macmillan in delivering the judgment of their Lordships in the appeal preferred by the assessee against the decision of the Calcutta High Court which had refused the contentions of the assessee, observed as follows: “When the Act by Section 3 subjects to charge ‘all income’ of an individual, it is what reaches the individual as income which it is intended to charge. In the present case the decree of the Court by charging the appellant's whole resources with a specific payment to his step-mother has to that extent diverted his income from him and has directed it to his step-mother; to that extent what he received for her is not his income. It is not a case of the application by the appellant of part of his income in a particular way; it is rather an allocation of a sum out of his revenue before it becomes income in his hands.” This is exactly the situation in the present case.
5. The Income-tax authorities had been following this view in the case of this assessee. In the original assessment which was made in the year in question this sum was allowed as an admissible deduction, but they proceeded to take action under Section 34 upon the assumption that Rs. 19,587 has escaped assessment because the Commissioner took the view that the allowance paid to the Ranis was not taxable by reason” of Section 14(1) of the Indian Income-tax Act. It is convenient to quote here the reasons of Mr. Wall the then Commissioner of Income-tax, Patna;
“As regards maintenance allowance, however, there is some force in the assessee's objection. As already stated, the final result of the litigation was that the family was held to be an undivided family. It follows that the assessee is a member of such family and the maintenance allowance is received by her in that capacity. The allowance is therefore exempt under Section 14(1). It has of course been held by the Patna and Madras High Courts in the cases of Raja Jyoti Prasad Singh and the Raja of Bobbili2, respectively, that the income of an impartible estate is the income of the individual who for the time being holds the estate and the income of the Hindu undivided family of which he is the Head; and as the Raj in this case is an impartible Raj it may be argued from this that the maintenance allowance is not received by the assessee as a member of a Hindu undivided family. This argument, however, is completely disposed of by the decision of the Patna High Court in the case of Maharajadhiraja. Kumar Visheswar Singh of Darbhanga3. There also the Raj was an impartible Raj and an allowance paid to the younger brother of the holder of the Raj was held to be exempt in his hands under Section 14(1). The two cases are indistinguishable in any essential respect and the present case must be held to be governed by the decision in that case. The maintenance allowance received by the assessee cannot therefore be assessed in her hands and must be excluded from the assessments.”
6. It is argued that this view taken by the Commissioner is wrong in view of the recent decision of their Lordships in the case of Commissioner of Income-tax, Punjab v. Dewan Bahadur Dewan Krishna Kishore 1941 9 I.T.R 695., which has been approved of in a still later decision of their Lordships in the case of Raja Velugoti Sarvagna Kumara Krishna Yaohendra Bahadur Varu v. Raja Rajesioara Rao Privy Council Appeal No. 38 of 1940, since reported in 55 L.W 65.. The judgment of their Lordships was delivered by Sir George Rankin (unreported yet). But in my opinion it is unnecessary to consider the correctness of the decision as to whether the Rani is liable under the Income-tax Act to assessment in respect of the payment received by her. The question was left open by their Lordships of the Judicial Committee in Raja Bijoy Singh Dudhuria6 and that question does not fall to be determined in the present case. All that is necessary to determine in the present case is whether the assessee is liable to pay income-tax on this sum which he receives for the Ranis and which never becomes income in his hands.
7. For these reasons, in my opinion, the answer to the first question should be in the negative.
8. Learned Counsel for the assessee withdrew the second question and desired us not to give any decision on that question. Accordingly I refrain from giving any decision on that question.
9. The assessee is entitled to his costs of this reference. Hearing fee is fixed at Rs. 250; The assessee will also be entitled to withdraw the sum of Rs. 100 which was deposited by him before the Commissioner as the fee for making a reference to the High Court.
M.J.C 78 of 1940.
10. In this case also the assessee is the Raja of Jharia and the question which the Commissioner of Income-tax has been called upon to state under Section 66(3) of the Indian Income tax Act is “whether the amount of Rs. 21,000 and a portion of Rs. 2,00,000 paid as maintenance allowance to the two widows is in the circumstances of this case assessable income under the Indian Income-tax Act.”
11. The facts of this case are the same as the facts which govern the decision of Miscellaneous Judicial Case No. 69 of 1940 in which judgment has just been delivered and which was heard along with this case. It was agreed at the bar that the answer to the question in this case must be the same as the answer to the question which we may ultimately decide to give in Miscellaneous Judicial Case No. 69 of 1940. The reasonings which I have given at length in that case need not be repeated here. For these reasons the answer to the question is in the negative. The assessee is entitled to his costs in this case, but not to any hearing fee in the circumstances. The assessee, however, will be entitled to withdraw the sum of Rs. 100 which he has deposited with the Commissioner as the fee prescribed by the Act.
Harries, C.J:— I agree.
12. Reference answered accordingly.
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