Prohibition & Excise Sup dt. A.P.
& Ors Vs. Toddy Tappers Coop. Society, Marredpally & Ors  INSC 224
(24 November 1960)
CITATION: 1961 AIR 728 1961 SCR (2) 634
CITATOR INFO :
R 1961 SC1059 (6,7) F 1967 SC 383 (9,10) R
1969 SC1160 (7) RF 1972 SC 404 (17) F 1976 SC1973 (4) R 1977 SC1343 (5) R 1977
SC1523 (30) RF 1977 SC1657 (8) F 1989 SC1443 (8)
Income-tax--Maintenance payable to wife and
children under decree--Whether deductible from total income.
A consent decree was passed against the
assessee awarding maintenance to his wife and children. The decree did not
create any charge upon the income of the assessee. The assessee claimed in the
assessment of income tax deduction of the amount paid under the decree from his
Held, that the assessee was not entitled to
Where by the obligation income was diverted
by an overriding title before it reached the assessee, it was deductible; but
where the income was required to be applied to discharge an obligation after
such income reached the assessee, it was not deductible. The true test was
whether the amount sought to be deducted, in truth, never reached the assessee
as his income. In the present case, the wife and children of the assessee
received a portion of the income of the assessee, after the assessee had
received the income as his own.
Bejoy Singh Dudhuria v. Commissioner of
Income-tax, (1933) I I.T.R. 135, not applicable.
P. C. Mullick v. Commissioner of Income-tax, Bengal, (1938) 6 I.T.R. 206, applied.
Diwan Kishen Kishore v. Commissioner of
Income-tax, (1933) 11 I.T.R. 143, Seth Motilal Menekchand v. Commissioner of
Income-tax, (1957) 31 I.T.R. 735, Prince Khanderao Gaekway v. Commissioner of
Income-tax, (1948) 16 I.T.R. 294, Commissioner of Income-tax, Bombay v. Makanji
Lalji, (1937) 5 I.T.R. 539, Commissioner of Income-tax, Bombay V. D. R. Naik,
(1939) 7 I.T.R. 362, D. C. Aich, It; re, (1940) 9 I.T.R. 236, Hira Lal, In re,
(1945) 13 I.T.R. 512 and V. M. Raghavalu Naidu & Sons v. Commissioner of
Income-tax, (1950) 18 I.T.R. 787, referred to
CIVIL APPELLATE JURISDICTION: Appeal No. 528,
Appeal from the judgment and order dated
September 20, 1957, of the former Bombay High Court in I.T.R. No. 15 of 1957.
Hardayal Hardy and D. Gupta, for the
R. J. Kolah, S. N. Andley, J. B. Dadachanji,
Rameshwar Nath and P. L. Vohra, for the respondent.
635 1960. November 24. The Judgment of the
Court was delivered by HIDAYATULLAH, J.-The Commissioner of Income-tax, Bombay
City 11, has filed this appeal with a certificate under s. 66A(2) of the
Income-tax Act, against the judgment and order of the High Court of Bombay
dated September 20, 1957, in Income-tax Reference No. 15 of 1957.
The question referred to the High Court for
its opinion by the Income-tax Appellate Tribunal, Bombay was:
"Whether the assessee is entitled to a
deduction of Rs. 1,350 and Rs. 18,000 from his total income of the previous
year relevant to the assessment years, 1953-54, 1954-55?" The assessee,
Sitaldas Tirathdas of Bombay, has many sources of income, chief among them
being property, stocks and shares, bank deposits and share in a firm known as
Sitaldas Tirathdas. He follows the financial
year as his accounting year. For the assessment years 1953-54 and 1954- 55, his
total income was respectively computed at Rs. 50,375 and Rs. 55,160. This
computation was not disputed by him, but he sought to deduct there from a sum
of Rs. 1,350 in the first assessment year and a sum of Rs. 18,000 in the second
assessment year on the ground that under a decree he was required to pay these
sums as maintenance to his wife, Bai Deviben and his children. The suit was
filed in the Bombay High Court (Suit No. 102 of 1951) for maintenance
allowance, separate residence and marriage expenses for the daughters and for
arrears of maintenance, etc. A decree by consent was passed on March 11, 1953,
and maintenance allowance of Rs. 1,500 per month was decreed against him. For
the account year ending March 31, 1953 only one payment was made, and deducting
Rs. 150 per month as the rent for the flat occupied by his wife and children,
the amount paid as maintenance under the decree came to Rs. 1,350. For the
second year, the maintenance at Rs. 1,500 per month came to Rs. 18,000 which
was claimed as a deduction.
636 No charge on the property was created,
and the matter does not fall to be considered under s. 9(1)(iv) of the Income-
tax Act. The assessee, however, claimed this deduction on the strength of a
ruling of the Privy Council in Bejoy Singh Dudhuria v. Commissioner of
Income-tax (1). This contention of the assesses was disallowed by the
Income-tax Officer, whose decision was affirmed on appeal by the Appellate
Assistant Commissioner. On further appeal, the Tribunal observed:
"This is a case, pure and simple, where
an assessee is compelled to apply a portion of his income for the maintenance
of persons whom he is under a personal and legal obligation to maintain. The
Income-tax Act does not permit of any deduction from the total income in such
circumstances." The Tribunal mentioned in the statement of the case that
counsel for the assessee put his contention in the following words:
"I claim a deduction of this amount from
my total income because my real total income is whatever that is "
computed, which I do not dispute, less the maintenance amount paid under the
decree." The assessee appears to have relied also upon a decision of the
Lahore High Court in Diwan Kishen Kishore v. Commissioner of Income-tax(2). The
Tribunal, however, referred the above question for the opinion of the High
The High Court followed two earlier decisions
of the same Court reported in Seth Motilal Manekchand v. Commissioner of
Income-tax (3) and Prince Khanderao Gaekwar v. Commissioner of Income-tax (4),
and held that, as observed in those two cases, the test was the same, even
though there was no specific charge upon property so long as there was an
obligation upon the assessee to pay, which could be enforced in a Court of law.
In Bejoy Singh Dudhuria's case (1), there was a charge for maintenance created
against the assessee, and the Privy Council had observed that the income must
be deemed to have never reached that assessee, (1) (1933) 1 I.T.R. 135.
(3) (1957) 31 I.T.R. 735.
(2) (1933) 1 I.T.R. 143.
(4) (1948) 16 I.T.R. 294.
637 having been diverted to the
maintenance-holders. In the judgment under appeal, it was held that the income
to the extent of the decree must be taken to have been diverted to the wife and
children, and never became income in the hands of the assessee.
The Commissioner of Income-tax questions the
correctness of this decision and also of the two earlier decisions of the
Bombay High Court. We are of opinion that the contention raised by the
Department is correct.
Before we state the principle on which this
and similar cases are to be decided, we may refer to certain rulings, which
illustrate the aspects the problem takes. The leading case on the subject is
the decision of the Judicial Committee in Bejoy Singh Dudhuria's case(1).
There, the stepmother of the Raja had brought a suit for maintenance and a
compromise decree was passed under which the stepmother was to be paid Rs.
1,100 per month, which amount was declared a charge upon the properties in the
hands of the Raja, by the Court. The Raja sought to deduct this amount from his
assessable income, which was disallowed by the High Court at Calcutta. On
appeal to the Privy Council, Lord Macmillan observed as follows:
"But their Lordships do not agree -with
the learned Chief Justice in his rejection of the view that the sums paid by
the appellant to his step-mother were not 'income' of the appellant at all.
This in their Lordships' opinion is the true view of the matter.
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 stepmother; to that extent what he receives 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 the allocation of a sum out of his revenue before
it becomes income in his hands." (1) (1933) 1 I.T.R. 135.
81 638 Another case of the Privy Council may
well be seen in this connection. That case is reported in P. C. Mullick v. Commissioner
of Income-tax, Bengal (1). There, a testator appointed the appellants as
executors and directed them to pay Rs. 10,000 out of the income on the occasion
of his addya sradh. The executors paid Rs. 5,537 for such expenses, and sought
to deduct the amount from the assessable income. The Judicial Committee
confirmed the decision of the Calcutta High Court disallowing the deduction,
and observed that the payments were made out of the income of the estate coming
to the hands of the executors and in pursuance of an obligation imposed upon
them by the testator. It observed that it was not a case in which a portion of
the income had been diverted by an over- riding title from the person who would
have received it otherwise, and distinguished the case in Bejoy Singh
Dudhuria's case (2).
These cases have been diversely applied in
India, but the facts of some of the cases bring out the distinction clearly. In
Diwan Kishen Kishore v. Commissioner of Income- tax (3), there was an
impartible estate governed by the law of primogeniture, and under the custom
applicable to the family, an allowance was payable to the junior member.
Under an award given by the Deputy
Commissioner acting as arbitrator and according to the will of the father of
the holder of the estate and the junior member, a sum of Rs. 7,200 per year was
payable to the junior member. This amount was sought to be deducted on the
ground that it was a necessary and obligatory payment, and that the assessable
income must, therefore, be taken to be pro tanto diminished.
It was held that the income never became a
part of the income of the family or of the eldest member but was a kind of a
charge on the estate. The allowance given to the junior member, it was held, in
the case of an impartible estate was the separate property of the younger
member upon which he could be assessed and the rule that an allowance given by
the head of a Hindu coparcenary to its members by way of maintenance was liable
to be assessed (1) (1938) 6 I.T.R. 206. (2) (1933) 1 I.T.R. 135.
(3) (1933) 1 I.T.R. 143.
639 as the income of the family, had no
application. It was also observed that if the estate had been partible and
partition could have taken place, the payment to the junior member out of the
coparcenary funds would have stood on a different footing. In that case, the
payment to the junior member was a kind of a charge which diverted a portion of
the income from the assessee to the junior member in such a way that it could
not be said that it became the income of the assessee.
In Commissioner of Income-tax, Bombay v.
Makanji Lalji (1), it was stated that in computing the income of a Hindu
undivided family monies paid to the widow of a deceased coparcener of the
family as maintenance could not be deducted, even though the amount of
maintenance had been decreed by the Court and had been made a charge on the
properties belonging to the family. This case is open to serious doubt, because
it falls within the rule stated in Bejoy Singh Dudhuria's case (2); and though
the High Court distinguished the case of the Judicial Committee, it appears
that it was distinguished on a ground not truly relevant, namely, that in Bejoy
Singh Dudhuria's case (2) the Advocate General had abandoned the plea that the
stepmother was still a member of the undivided Hindu family. It was also
pointed out that this was a case of assessment as an individual and not an
assessment of a Hindu undivided family.
In Commissioner of Income-tax, Bombay v. D.
R. Naik (3), the assessee was the sole surviving member of a Hindu undivided
family. There was a decree of Court by which the assessee was entitled to
receive properties as a residuary legatee, subject, however, to certain
payments of maintenance to widows. The widows continued to be members of the
It was held that though s. 9 of the
Income-tax Act did not apply, the assessee's assessable income was only the
balance left after payment of the maintenance charges. It appears from the
facts of the case, however, that there was a charge for the maintenance (1) (1937)
5 I.T.R. 539. (2) (1933) 1 I.T.R. 135.
(3) (1939) 7 I.T.R. 362.
640 upon the properties of the assessee. This
case also brings out correctly the principles laid down by the Judicial
Committee that if there be an overriding obligation which creates a charge and
diverts the income to some one else, a deduction can be made of the amounts so
The last case may be contrasted with the case
reported in P. C. Mullick and D. C. Aich, In re(1). There, under a will certain
payments had to be made to the beneficiaries. These payments were to be made
gradually together with certain other annuities. It was held that the payments
could only be made out of the income received by the executors and trustees
from the property, and the sum was assessable to income-tax in the hands of the
executors. It was pointed out that under the wilt it was stated that the
amounts were to be paid "out of the income of my property", and thus,
what had been charged was the income of the assessees, the executors. The case
is in line with the decision of the Privy Council in P. C. Mullick v.
Commissioner of Income- tax, Bengal(2). In Hira Lal, In re,(3) there was a
joint Hindu family, and under two awards made by arbitrators which were made
into a rule of the Court, certain maintenance allowances were payable to the
widows. These payments were also made a charge upon the property. It was held
that inasmuch as the payments were obligatory and subject to an overriding
charge they must be excluded. Here too, the amount payable to the widows was
diverted from the family to them by an overriding obligation in the nature of a
charge, and the income could not be said to accrue to the joint Hindu family at
In Prince Khanderao Gaekwar v. Commissioner
of Income-tax (4), there was a family trust out of which two grandsons of the
settlor had to be paid a portion of the income. It was provided that if their
mother lived separately, then the trustees were to pay her Rs. 18,000 per year.
The mother lived separately, and two deeds were executed by which the two
grandsons agreed to pay Rs. 15,000 per year to the mother, (1) (1940) 8 I.T.R.
(3) (1945) 13 I.T.R. 512.
(2) (1938) 6 I.T.R. 206.
(4) (1948) 16 I.T.R. 294.
641 and created a charge on the property. The
sons having paid Rs. 6,000 in excess of their obligations, sought to deduct the
amount from their assessable income, and it was allowed by the Bombay High
Court, observing that though the payment was a voluntary payment, it was
subject to a valid and legal charge which could be enforced in a Court of law
and the amount was thus deductible under s. 9(1)(iv). There is Do distinction
between a charge created by a decree of Court and one created by agreement of
parties, provided that by that charge the income from property can be said to
be diverted so as to bring the matter within s. 9(1)(iv) of the Act. The case
was one of application of the particular section of the Act and not one of an
obligation created by a money decree, whether income accrued or not. The case
is, therefore, distinguishable from the present, and we need not consider
whether in the special circumstances of that case it was correctly decided.
In V. M. Raghavalu Naidu & Sons v.
Commissioner of Income- tax (1), the assessees were the executors and trustees
of a will, who were required to pay maintenance allowances to the mother and
widow of the testator. The amount of these allowances was sought to be
deducted, but the claim was disallowed. Satyanarayana Rao and Viswanatha
distinguished the case from that of the Privy
Council in Bejoy Singh Dudhuria (2). Viswanatha Sastri, J. observed that the
testator was under a personal obligation under the Hindu law to maintain his
wife and mother, and if he had spent a portion of his income on such
maintenance, he could not have deducted the amount from his assessable income,
and that the position of the executor was no better.
Satyanarayana Rao, J. added that the amount
was not an allowance which was charged upon the estate by a decree of Court or
otherwise and which the testator himself had no right or title to receive. The
income which was received by the executors included the amount paid as
maintenance, and a portion of it was thus applied in discharging the
(1) (1950) 18 I.T.R. 787.
(2) (1933) 1 I.T.R. 131.
642 The last cited case is again of the
Bombay High Court, which seems to have influenced the decision in the instant
That is reported in Seth Motilal Manekchand
v. Commissioner of Income-tax(1). In that case, there was a managing agency, which
belonged to a Hindu joint family consisting of A, his son B and A's wife. A
partition took place, and it was agreed that the managing agency should be
divided, A and B taking a moiety each of the managing agency remuneration but
each of them paying A's wife 2 as. 8 pies out of their respective 8 as. share
in the managing agency remuneration. Chagla, C. J. and Tendolkar, J. held that
under the deed of partition A and B had really intended that they were to
receive only a portion of the managing agency commission and that the amount
paid to A's wife was diverted before it became the income of A and B and could
be deducted. The learned Judge observed at p. 741 as follows:
"We are inclined to accept the
submission of Mr. Kolah that it does constitute a charge, but in our opinion,
it is unnecessary to decide this question because this question can only have
relevance and significance if we were considering a claim made for deduction
under section 9(1)(iv) of the Income-tax Act where a claim is made in respect
of immovable property where the immovable property is charged or mortgaged to
pay a certain amount. It is sufficient for the purpose of this reference if we
come to the conclusion that Bhagirathibai had a legal enforceable right against
the partner in respect of her 2 annas and 8 pies share and that the partner was
under a legal obligation to pay that amount." These are the cases which
have considered the problem from various angles. Some of them appear to have
applied the principle correctly and some, not. But we do Dot propose to examine
the correctness of the decisions in the light of the facts in them. In our
opinion, the true test is whether the amount sought to be deducted, in truth,
never reaches the assessee as his income. Obligations, no doubt, there are in
every case, but it is the nature of the obligation which is the (1) (1957) 31
643 decisive fact. There is a difference
between an amount which a person is obliged to apply out of his income and an
amount which by the nature of the obligation cannot be said to be a part of the
income of the assessee. Where by the obligation income is diverted before it
reaches the assessee, it is deductible; but where the income is required to be
applied to discharge an obligation after such income reaches the assessee, the
same consequence, in law, does not follow. It is the first kind of payment
which can truly be excused and not the second. The second payment is merely an
obligation to pay another a portion of one's own income, which has been received
and is since applied. The first is a case in which the income never reaches the
assessee, who even if he were to collect it, does so, not as part of his
income, but for and on behalf of the person to whom it is payable. In our
opinion, the present case is one in which the wife and children of the assessee
who continued to be members of the family received a portion of the income of
the assessee, after the assessee had received the income as his own.The case is
one of application of a portion of the income to discharge an obligation and
not a case in which by an overriding charge the assessee became only a
collector of another's income. The matter in the present case would have been
different, if such an overriding charge had existed either upon the property or
upon its income, which is not the case. In our opinion, the case falls outside
the rule in Bejoy Singh-Dudhuria's case and rather falls within the rule stated
by the Judicial Committee in P. C. Mullick's case For these reasons, we hold
that the question referred to the High Court ought to have been answered in the
negative. We, accordingly, discharge the answer given by the High Court, -and
the question will be answered in the negative. The appeal is thus allowed with
costs here and in the High Court.
(1) (1933) 1 I.T.R. 135. (2) (1938) 6 I.T. R.