The Commissioner of Income-Tax, Punjab
Vs. Shri Thakur Das Bhargava, Advocate, Hissar [1960] INSC 113 (27 July 1960)
DAS, S.K.
HIDAYATULLAH, M.
SHAH, J.C.
CITATION: 1960 AIR 1219
CITATOR INFO :
E 1977 SC1343 (6)
ACT:
Income Tax--Professional income--Lawyer
accepting case on condition of clients' Paying money for charity--Money Paid to
lawyer and charitable trust created--Whether amount received is Professional
income.
HEADNOTE:
The assessee, an advocate, accepted a case on
condition that the clients would provide him with Rs. 40,000 for charitable
purposes and that he would create a public charitable trust with the money. The
clients gave the assessee Rs. 32,500 and he created a trust therewith. The
assessee claimed that the said amount of Rs. 32,500 was not his professional
income as the amount had been given to him in trust for charity.
Held, that the said amount was the
professional income of the assessee and was liable to income-tax. At the time
when this money was paid to the assessee no trust or obligation in the nature
of trust was created. The clients who paid the money did not create any trust
nor imposed any legally enforceable obligation on the assessee. The money when
it was received by the assessee was his professional income though he had
expressed a desire earlier to create a charitable trust out of the money when
received. The assessee's own voluntary desire to create a trust out of the fees
paid to him did not create a trust or a legally enforceable obligation.
Raja Bejoy Singh Dudhuria v. Commissioner of
Income Tax, Bengal, [1933] 1 I.T.R. 135, referred to.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 236 of 1955.
Appeal from the judgment and order dated
August 3, 1953, of the Punjab High Court in Civil Reference No. 7/1952.
M. C. Setalvad, Attorney-General for India,
K. N. Rajagopal Sastri and D. Gupta, for the appellant.
N. C. Chatterjee and S. K. Sekhri, for the
respondent.
1960. July 27. The Judgment of the Court was
delivered by 76 S. K. DAS J.-This is an appeal on a certificate of fitness
granted under the provisions of sub-s. 2 of s. 66A of the Indian Income-tax
Act, 1922, by the High Court of Judicature for the State of Punjab then sitting
at Simla. The certificate is dated December 28, 1953, and was granted on an
application made by the Commissioner of Income-tax, Punjab, appellant herein
The relevant facts are shortly stated below.
For the assesment year 1946-47, one Pandit
Thakurdas Bhargava, an advocate of Hissar and respondent before us, was assessed
to income tax on a total assessable income of Rs. 58,475/in the account year
1945-46. This sum included the amount of Rs. 32,500/stated to have been
received by the respondent in July, 1945 for defending the accused persons in a
case known as the Farrukbnagar case. The assessee claimed that the said amount
of Rs. 32,500/was not a part of his professional income, because the amount was
given to him in trust for charity. This claim of the assessee was not accepted
by the Income-tax Officer, nor by the Appellate Assistant Commissioner who
heard the appeal from the order of the Income-tax Officer. Both these officers
held that the assessee had received the amount of Rs. 32,500/as his
professional income and the trust which the assessee later created by a deed of
Trust dated August 6, 1945, did not change the nature or character of the
receipt as professional income of the assessee; they further held that the
persons who paid the money to the assessee did not create any trust nor impose
any obligation in the nature of a trust binding on the assessee, and in fact
and law the trust was created by the assessee himself out of his professional
income ; therefore, the amount attracted tax as soon as it was received by the
assessee as his professional income, and its future destination or application
was irrelevant for taxing purposes. From the order of the Appellate Assistant
Commissioner a further appeal was carried to the Income-tax Appellate Tribunal,
Delhi Branch.
We shall presently state the facts which the
Tribunal found, but its conclusion drawn from the facts found was expressed in
the following words:"The income in this case did not at 77 any stage arise
to the assessee. Keeping in mind the express stipulation made by the assessee
when he accepted the brief there was a voluntary trust created, which had to be
and was subsequently reduced into writing after the money was subscribed. The
payments received from the accused and other persons were received on behalf of
the trust and not by the assessee in his capacity as an individual. In this
view, we delete the sum of Rs. 32,500/from the assessment." The appellant
then moved the Tribunal for stating a case to the High Court on the question of
law which arose out of the order of the Tribunal. The Tribunal was of the
opinion that a question of law did arise out of its order, and this question it
formulated in the following terms:
" Whether the sum of Rs. 32,500/received
by the assessee in the circumstances set out in the trust deed later executed
by him on August 6, 1945, was his professional income taxable in his hands, or
was it money received by him on behalf of a trust and not in his capacity as an
individual." It appears that in stating a case the Tribunal framed an
additional question as to whether the trust was created at or before the
payment of Rs. 32,500/-, but expressed the view that this additional question
was implicit in the principal question formulated by it. A case was accordingly
stated to the High Court under s. 66 of the Indian Incometax Act, and the High
Court by its judgment dated August 3, 1953, answered the question in favour of
the assessee, holding that " the sum of Rs. 32,500/received by the
assessee was not received by him as his professional income but was received on
behalf of the trust and not in his capacity as an individual ". The
appellant then moved the High Court and obtained the certificate of fitness
referred to earlier in this judgment.
We shall presently state the facts found by
the Tribunal in connection with the receipt of the sum of Rs. 32,500/by the
assessee, from which the Tribunal drew its inference.
But the question as framed by the Tribunal
and answered by the High Court, was 78 whether in the circumstances set out in
the trust deed dated August 6, 1945, the amount of Rs. 32,500/received by the
assessee was professional income in his hand. It is, therefore, appropriate to
refer first to the recitals in the trust deed. The respondent stated in the
trust deed that he had "decreased" his legal practice for the last
few years and had reserved his professional income accruing after June 1944 for
payment of taxes and charity. He then said: " accordingly, I have been
acting on that. In the FarrukhDagar, district Gurgaon case, Crown v. Chuttan
Lal etc., the relatives and the accused expressed a strong desire to get the
case conducted by me during its trial. At last on their persistence and promise
that they would provide me with Rs.
40,000/for charitable purposes and I would
create a public charitable trust thereof I agreed to conduct the case. The case
is now over. The accused and their relatives have given me Rs. 32,500/for
charity and creating a trust. The said amount has been deposited in the Bank.
If they pay any other amount that will also be included in that. Accordingly, I
create this trust with the following conditions and with the said amount and
any other amount which may be realized afterwards or included in the
trust;". (then followed the name and objects of the trust, etc.). The
Tribunal accepted as correct the statements of the respondent that he was at
first unwilling to accept the brief in the Farrukhnagar case; he was then
persuaded to accept it at the request of some members of the Bar and some
influential local people on the understanding, as the respondent put it, that
the accused persons of that case would-provide Rs. 40,000/for a charitable
trust which the respondent would create. Eventually, the sum of Rs. 32,500/was
paid by or on behalf of the accused persons, and as the Tribunal has put it, a
charitable trust was created by the respondent by the trust deed dated August
6, 1945, the recitals whereof we have q noted above.
The question before us is what is the proper
legal inference from the aforesaid facts found by the Tribunal. Both the
Tribunal and the High Court have drawn the inference that a charitable trust
was created 79 by the persons who paid the money to the assessee, and all that
the assessee did under the deed of trust dated August 6, 1945, was to reduce
the terms of the trust to writing.
The High Court, therefore, applied the
principle laid down by the Privy Council in Raja Bejoy Singh Dudhuria v. Commissioner
of Income-tax, Bengal (1) and observed that by the overriding obligation
imposed on the assessee by the persons who paid the money, the sum of Rs.
32,500/ never became the income of the assessee; and the amount became trust
property as soon as it was paid, there being no question of the application of
part of his income by the assessee.
On behalf of the appellant it has been
contended that the inference which the Tribunal and the High Court drew is not
the proper legal inference which flows from the facts found, and according to
the learned Attorney-General who appeared for the appellant the proper legal inference
is that the amount was received by the assessee as his professional income in
respect of which he later created a trust by the deed of trust dated August 6,
1945. He has submitted that there was no trust nor any legal obligation imposed
on the assessee by the persons who paid the money, at the time when the money
was received, which prevented the amount from becoming the professional income
of the assessee. He has also contended that even the existence of a trust will
make no difference, unless it can be held that the money was diverted to that
trust before it could become professional income in the hands of the assessee.
We think that the question raised in this
case can be decided by a very short answer, and that answer is that from the
facts found by the Tribunal the proper legal inference is that the sum of Rs.
32,500/paid to the assessee was his professional income at the time when it was
paid and no trust or obligation in the nature of a trust was created at that
time, and when the assessee created a trust by the trust deed of August 6,
1945, he applied part of his professional income as trust property. If that is
the true conclusion as we hold it to be, then the principle laid down (1)
[1933] 1 I.T.R. 135.
80 by the Privy Council in Bejoy Singh
Dudhuria's case (1) has no application. It is indeed true, as has been observed
by the High Court, that a trust may be created by any language sufficient to
show the intention and no technical words are necessary. A trust may even be
created by the use of words which are primarily words of condition, but such
words will constitute a trust only " where the requisites of a trust are
present, namely, where there are purposes independent of the donee to which the
subject-matter of the gift is required to be applied and an obligation on the
donee to satisfy those purposes." The findings of the Tribunal show
clearly enough that the persons who paid the sum of Rs. 32,500/did not use any
words of an imperative nature creating a trust or an obligation. They were
anxious to have the services of the assessee in the Farrukhnagar case;
the assessee was at first unwilling to give
his services and later he agreed proposing that he would himself create a
charitable trust out of the money paid to him for defending the accused persons
in the Farrukhnagar case. The position is clarified beyond any doubt by the
statements made in the trust deed of August 6, 1945. The assessee said therein
that he was reserving his professional income as an advocate accruing after
June, 1944 for payments of taxes and charity and, accordingly, when he received
his professional income in the Farrukhnagar case he created a charitable trust
out of the money so received. The clear statement in the trust deed, a
statement accepted as correct by the Tribunal, is that the assessee created a
trust on certain conditions etc.
It is not stated anywhere that the persons
who paid the money created a trust or imposed a legally enforceable obligation
on the assessee. Even in his affidavit the assessee had stated that " it
was agreed that the accused would provide Rs. 40,000/for a charitable trust
which I would create in case I defend them, on an absolutely clear and express
understanding that the money would not be used for any private and personal
purposes." Even in this affidavit there is no suggestion that the persons
who paid the money created the (1) [1933] 1 I.T.R. 135.
81 trust or imposed any obligation on the
assessee. It was the assessee's own voluntary desire that he would create a
trust out of the fees paid to him for defending the accused persons in the
Farrukhnagar case. Such a voluntary desire on the part of the assessee created
no trust, nor did it give rise to any legally enforceable obligation. In the
circumstances the Appellate Assistant Commissioner rightly pointed out that
" if the accused persons had themselves resolved to create a charitable
trust in memory of the professional aid rendered to them by the appellant and
had made the assessee trustee for the money so paid to him for that purpose, it
could, perhaps, be argued that the money paid was earmarked for charity ab
initio but of this there was no indication anywhere". In our opinion the
view taken by the Appellate Assistant Commissioner was the correct view. The
money when it was received by the assessee was his professional income, though
the assessee had expressed a desire earlier to create a charitable trust out of
the money when received by him. Once it is held that the amount was received as
his professional income, the assessee is clearly liable to pay tax thereon. In
our opinion the correct answer to the question referred to the High Court is
that the amount of Rs. 32,500/received by the assessee was professional income
taxable in his hands.
Learned Counsel for the respondent has
referred us to a number of decisions where the principle laid down in Bejoy
Singh Dudhuria's Case (1) was applied, and has contended that where there is an
allocation of a sum out of revenue as a result of an overriding title or
obligation before it becomes income in the hands of the assessee, the
allocation may be the result of a decree of a court, an arbitration award or
even the provisions of a will or deed. In view of the conclusion at which we
have arrived, the decisions relied upon can hardly help and it is unnecessary
to consider them. Our conclusion is that there was no overriding obligation
imposed on the assessee at the time when the sum of Rs. 32,500/was received by
him.
(1) [1933] 1 I.T.R. 135.
82 Accordingly, we allow this appeal and set
aside the judgment and order of the High Court. The answer to the question is
in favour of the appellant, namely, that the sum of Rs.
32,500/received by the assessee was his
professional income taxable in his hands. The appellant will be entitled to his
costs throughout.
Appeal allowed.
Back
