V. Venugopala Varma Rajah Vs.
Commissioner, Agricultural Income Tax, Trivandrum, Kerala  INSC 273 (6
KHANNA, HANS RAJ
CITATION: 1972 AIR 404 1972 SCR (1)1000 1971
SCC (3) 669
Kerala Agricultural Income-tax Act, 1950, s.
9(1)-Property allotted to a member of family-Income utilised for discharging
obligations of assessee-When deemed to be income of family as assessee.
The assessee was a Hindu undivided family of
which the appellant was the Kamavan. It possessed agricultural properties.
There was a family settlement among all the members of the family then living.
The settlement allotted some properties to some of the male members but did not
provide for their devolution. Also the joint status of the members was not
disrupted and the properties allotted for the enjoyment of the various members
of the family continued to be the properties of the family. The liability to
maintain the other male members and the responsibility of performing the
marriages of the female members continued to be that of the Karnavan. He was
also responsible for the payment of land revenue in respect of the family
properties excepting some items.
On the question whether the income of the
properties put in possession of the male members under the settlement continued
to be the income of the family and therefore liable to tax under the Kerala
Agricultural Income-tax Act, 1950, the department, Tribunal and the High Court
on reference, held against the assessee.
Dismissing the appeal to this Court,
HELD : Section 9(1) of the Act is similar to
s. 16(1) (c) of the Income-tax Act, 1922. Under the latter section the test is
that if the income in dispute is considered as having been applied to discharge
an obligation of the assessee, the same is liable to be included in the
assessable income of the assessee, but if on the other hand the same bad been
diverted by an overriding charge then it is not liable to be so included as it
ceases to be the assessee's income. [1006 A-B) In the present case, the
arrangement only provided for maintenance and did not give any absolute right
in any portion of the family properties to anyone. It thus conferred benefit on
the family inasmuch as it was absolved of the responsibility of maintaining its
members. [106-5 GH] Further, it was not even a permanent arrangement and was
revocable if there was any substantial change in the circumstances of the
family. The properties would 'go back to the possession of the Karnavan on the
death of the member to whom the property was allotted. [1005 C, D, E] The
members of the family received the income of the various properties allotted to
them on behalf of the family, and applied the same in discharge of an
obligation of the family. Therefore, the income reached the hands of the family
as soon as it reached the hands of any of its members. [1008 F-H] 1001 Hence,
under s. 9(1) of the Act, the income should be deemed to be that of the
assessee. [1005 F-G] Raja Bejoy Singh Dudhuria v. C.I.T., Bengal, 1 I.T.R. 135
and Mullick v. C.I.T. Bengal, 6 I.T.R. 206, explained and applied.
C.I.T., Bombay City v. Sitaldas Tirathdas, 41
I.T.R. 367, followed.
C.I.T., Bombay v. Makanji Lalji, 5 I.T.R. 539
and C.I.T., Bombay City v. Ratilal Nathalal, 25 l.T.R. 426, referred to.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 266 of 1969.
Appeal by special leave from the judgment and
order dated August 16, 1967 of the Kerala High Court in Income-tax Referred
Case No. 44 of 1966.
C. K. Viswanatha Iyer and K. Jayaram, for the
appellant V. A. Seyid Muhammad and A. G. Pudissery, for the respondent.
The Judgment of the Court was delivered by
Hegde, J. The appellant, Venugopala Varma Rajah is the present Rajah of the
Vengunad Swaroopan in Palghat District, Kerala State. He is the Karnavan of his
Tarwad. He will be hereinafter referred to as the assessee. The predecessor of
the appellant, as the then Kamavan of the family, submitted the return for the
assessment year 1959-60 under the Kerala Agricultural Income-tax Act (which
will hereinafter be referred to as the Act) showing a gross income of Rs.
1,21,912/and a net income of Rs. 84,065/60 P.
That 'represented the income from the properties held by him under the family
Karar dated May 29, 1909. The.
Agricultural Income-tax Officer overruling
the objection of the assessee included in the income returned, the income of
the properties which had been put in possession of the junior members of the
family under the aforementioned Karar of 1909. The net income so computed was
Rs. 2,32,957/and a tax of Rs. 1,30,672/35 P. was imposed. In appeal the
Appellate Authority excluded from the taxable income the income of the
properties allotted to the "Rani Group" but sustained the addition of
the income of the properties allotted for the enjoyment of the male members.
Aggrieved by the order of the Appellate Authority, the assessee took up the
matter in second appeal to the Appellate Tribunal of the Agricultural
Income-tax. The Tribunal rejected the contention of the assessee and dismissed
Thereafter at the instance of the assessee,
it stated a case under s. 60(1) of the Act and submitted to the High Court for
its opinion three questions of law namely L119SupCI/72 1002 "(1) Whether
the findings of the Tribunal that the family karar of 1909 does not constitute
a diversion of family income to the various allottees there under is correct ?
(2) Whether the findings of the Tribunal that the provisions of sub-section (1)
of sec. 9 of the Act are applicable only to cases of diversion of income and not
otherwise is correct ? (3) Whether the findings of the Tribunal that the
provisions of sub-sec. (1) of sec. 9 of the Act are not applicable to the facts
of this case are correct ? Questions Nos. 2 and 3, in our opinion, do not bring
out the import of sec. 9 (1) correctly but it is not necessary to go into that
aspect as our decision covers the real point in issue.
The Reference originally came up for hearing
before a Division Bench but as the questions arising for decision were
considered to be of importance, the same was referred to a Fun Bench of three
judges. The High Court by its judgment dated August 16, 1967 answered Question
Nos. 1 and 2 against the assessee. It did not answer the third question as it
was of the view that answer to that question was unnecessary in view of its
findings on Questions Nos. 1 and 2. Thereafter this appeal was brought by
The assessee in this case is the H.U.F. of
which the appellant was the Kamavan at the relevant time. The question for
decision is whether the income of the properties put in possession of the male
members under the Karar of 1909 continues to be the, income of the family. At
present we are not concerned with the income of the properties put in
possession of the "Rani Group" in view of the decision of the
Appellate Authority which had not began appealed against. If the income in
dispute continues to be the income of the family then the revenue is justified
in bringing the same to tax under the provisions of the Act.
On the other hand if that income has ceased
to be the income of the family, then the same cannot be brought to tax in the
hands of the assessee. Therefore, the sole question is whether that income is
the income of the family ? Section 9 of the Act provides "9(1) In
computing the total agricultural income of an assessee all agricultural income
arising to any person by virtue of a settlement or disposition, whether
revocable or not, and whether effected before or after 1003 the commencement of
this Act, from asset remaining the property of the settlor or disponer shall be
deemed to be the agricultural income of the settlor or disponer and all
agricultural income arising to any person by virtue of a revocable transfer of
asset shall be deemed to be the agricultural income of the transferor Provided
that for the purpose of this subsection a settlement, disposition or transfer
shall be deemed to be revocable if it contains any provision for the transfer
directly or indirectly of the agricultural income or asset to the settlor,
disponer or transferor or in any way gives the settlor, disponer or transferor
a right to reassume power directly or indirectly over the agricultural income
or assets :
Provided further that the expression
settlement, disposition shall, for the purposes of the sub-section include any
disposition trust, covenant, agreement or.
arrangement and the expression "settlor
or disponer" in relation to a settlement or disposition shall include any
person by whom the settlement or disposition was made Provided also that this
sub-section shall not apply to any agricultural income arising to any person by
virtue of a settlement or dispo sition which is not revocable for a period
exceeding six years or during the lifetime of the person and from which
agricultural income the settlor or disponer derives no direct or indirect
benefit but that the settlor shall be liable to be, assessed on the said
agricultural income as and when the power to revoke arises to him." A
Hindu Undivided Family is a person within the, meaning of s.2(m) of the Act.
We shall now proceed to examine the nature of
the Karar entered into in 1909. The family of the assessee appears to have been
one of the premier land holding families in Malabar. It appears to have had
agricultural properties in various places. To the Karar in question all the
then living members ( 12 in number) of the family were parties.
The properties mentioned in 'A' Sch. to the
Karar were set apart for the maintenance, education and other expenses of the
female and male members residing in Kalari Kovilagom which is otherwise known
as "Rani Group". Under the Karar, Karnavan of the Tarwad was to
perform the marriage ceremonies of the female members of the Tarwad in
accordance with the prevailing conditions and to meet 1004 the expenses thereof.
All other expenses of female, and male members residing in Kalari are to be met
from the income of the 'A' Sch. properties. The members residing in the Kalari
have no right to alienate or encumber the properties allotted to them and all
government revenue due in respect of those properties should be paid by them.
Party No. 2, the second senior most member in
the family was to be given 7,000 paras of paddy annually for his maintenance
and for this purpose paddy lands yielding 3,500 paras of paddy shown in 'B' Sch.
were made over to his possession and Party No. 1, Karnavan of the Tarwad was
directed to give toParty No. 2 from Malayalam era 1085 onwards 3,500 paras of
paddy. Further the Karnavan was directed that he should redeem "Karukakode
Challa Nilam" and make over the same to Party No. 2, but after making over
the same to Party No. 2, be was not to pay 3,500 paras of paddy referred to
" C" Sch. properties yielding an
income of 4,750 paras of paddy were allotted for the enjoyment of Party No. 3.
He was required to maintain himself from out of their income.
Properties shown in 'D' Sch. were set apart
for the maintenance of Party No. 4. The land-revenue of B, C and D Sch. properties
was required to be paid by the Karnavan of the tarwad. On the death of Party
No. 2 or on his becoming Karnavan of the family, Party No. 3 was to take over
the properties allotted for the maintenance of Party No. 2 and Party No. 4 was
to take over the properties for the maintenance of Party No. 3. The Karar
prohibited the persons who were in possession of the properties allotted for
their enjoyment from alienating or encumbering those properties, and if in
contravention of those terms, they alienated any of those properties, the
Karnavan was entitled to resume the properties treating the alienation as void.
Clause 18 of the Karar prohibited the parties in possession of the properties
from cutting and selling the kuzhikoors or dismantling the buildings in the
properties in their possession. Clause 19 of the Karar prohibited the parties
from enhancing the munpattom amounts due to the tenant.
Clause 6 of the Karar provided that all the
male members living in the Kalari, on completing the age of 21 should leave the
Kalari and thereafter the Kamavan should make arrangements for their maintenance.
Karar does not stipulate what arrangement he should make for their maintenance.
Therefore it follows that he may maintain them either in the Tarwad house or
give them maintenance allowance either in the shape of paddy or cash. It may
also be noted that the Karar does not provide as to what would happen if the
number of members in the Tarwad substantially increases. One other thing that
has got to 1005 be noted is that the Karar is silent as to what would happen to
the properties shown in Schs. B, C and D after Parties Nos. 2, 3 and 4 die, all
of whom, we were told have died.
Hence Kamavan can take possession of them on
behalf of the family after their death.
On an examination of the various clauses in
the Karar, it is obvious that the joint status of the parties was not
disrupted. The arrangement made in the Karar was only an arrangement for
providing maintenance. No party was given any absolute right in any portion of
the family properties.
The properties mentioned in the Karar
continued to be the properties of the family. The arrangement made under the
Karar cannot even be considered as a permanent arrangement.
The properties were not divided on the basis
The liability to maintain the male members,
aged more than 21 years excepting Parties Nos. 2, 3 and 4 continued to be that
of the Karnavan. The Karar also does not provide for devolution of the
properties allotted to Parties 2 to 4.
Hence those properties must necessarily go
back to the possession of the Karnavan after those Members die. We have earlier
seen that the responsibility of performing the marriage ceremonies of the
female members continued to be that of the Karnavan. He is also responsible for
the payment of land revenue in respect of the family properties excepting properties
included in Sch. (A) to the Karar.
Under these circumstances, it is not possible
to hold that Karar in question embodied an irrevocable settlement. In the very
nature of things, the arrangement made under that Karar must be held to be one
which is revocable if there is any substantial change in the circumstances of
For our present purpose it is sufficient if
we hold that the properties allotted for the enjoyment of the various members
of the family under the Karar continued to be the properties of the family.
In view of s. 9(1) of the Act in computing
the total agricultural income of the H.U.F., all agricultural income arising
from the assets remaining the property of the family should be deemed to be the
agricultural income of the family. We have earlier come to the conclusion that
the agrrangement made under the Karar is revocable if there is substantial
change in the circumstances of the family. That arrangement confers benefit on
the family inasmuch as it is absolved of the responsibility to maintain its
members which, otherwise is its responsibility.
Section 9 (1) of the Act is similar to s. 16
(1) (c) of the Indian Income-tax Act, 1922. The latter section has come up for
consideration by courts. The courts have laid down the test that if 1006 the
income in dispute is considered as having been applied to discharge an
obligation of the assessee, the same is liable to be included in the assessable
income of the assessee but if on the other hand the same had been diverted by
an overriding charge, then it is not liable to be included in the assessable
income of the assessee as it ceased to be his income. If we apply this test to
the facts of the present case, it is clear that the income in dispute continued
to be the income of the family. It was merely applied to discharge an
obligation of the family namely the obligation to maintain the junior members
of the family.
At first sight some of the decided cases on
the subject appear to speak in conflicting voices. But on a careful
examination, it is possible to find out the dividing line.
The earliest decision on the subject is that
of the Judicial Committee in Raja Bejoy Singh Dudhuria v. Commissioner of
Income-tax, Bengal(1). The, assessee therein succeeded to the family ancestral
estate on the death of his father.
Subsequently his step-mother brought a suit
for maintenance against him in which a consent decree was made directing the
assessee to make a monthly payment of a fixed sum to his step-mother and
declaring that the maintenance was a charge on the ancestral estate in the
hands of the assessee. While computing his income, the assessee claimed that
the amounts paid by him to the step-mother under the decree should be excluded.
That contention was not accepted by the authorities under the Act as well as by
the High Court but the Judicial Committee reversing their decision came to the
conclusion that though assessee's liability under the decree did not fall
within any of the exemptions or allowances conceded in ss. 7 to 12 of the
Indian Income-tax Act, yet the sums paid by the assessee to his stepmother were
not "income" of the assessed at all; the decree of the court by
charging the appellant's whole resources with a specific payment to his
step-mother had to that extent diverted his income from him and had directed it
to his step-mother; to that extent what he received for her was not his income;
it was not a case of the application by the appellant of part of his income in
a particular way; it was rather the allocation of a sum out of his revenue
before it became income in his hands. This decision at the first sight appears
to lend support to the assessee's contention but in understanding the ratio of
the decision, we must bear in mind the fact that in that case the
Advocate-General had abandoned before the High Court the contention that the
assessee and his stepmother were members of undivided family and accepted the
Position that the appellant was liable to be assessed as an individual and in
no other manner. In view of this concession, the payment that had to be made to
the step-mother of the assessee became a (1) 1, I.T.R. 135.
1007 charge on tile estate even before that
estate devolved on him. Therefore what the assessee got was the income of the
property minus what he had to pay to his step-mother.
The above conclusion of ours receives support
from a later decision of the Judicial Committee in P. C. Mullick and anr.
(Executors) v. Commissioner of Income-tax,
Therein a testator had by his will appointed
the appellants his executors and had directed them to pay Rs. 10,000/out of the
income of his property on the occasion of his addya sradh for expenses in
connection therewith to the person who was entitled to perform the sradh. He
had also directed them to pay out of the income of his property the costs of
taking out probate of his will. During the year of account the executors had
paid Rs. 5,537/for expenses in connection with the addya sradh and a sum of Rs.
1,25,000/for probate duty. The question arose whether those payments were
deductible in computing the chargeable income. The Judicial Committee held
affirming the judgment of the Calcutta High Court, that the payments made for
the sradh expenses and the costs of probate could not be excluded in computing
the chargeable income. Those were payments made out of the income of the estate
coming to the hands of the appellants as executors and in pursuance of
obligation imposed by the testator. Their Lordships were of opinion that it was
not a case in which a portion of the income was by an overriding title diverted
from the person who would otherwise have received it as in Bejoy Singh
Dudhuria's (2) case, but a case in which the executors having received the
whole income apply a portion of it in a particular way.
From this judgment of the Judicial Committee,
it is dear that the true test is that if the income in question is an income of
the assessee, the application of the same being not relevant for determining
its assessability, it is assessable in his hands but if it is not his income
then it cannot form part of his assessable income.
The scope of s. 16 (1) (c) of the Indian
Income-tax Act, 1922 came up for consideration by this Court in Commissioner of
Income-tax, Bombay City v. Sitaldas Tirathdas (3) .
Therein the assessee Sitaldas Tirathdas of
Bombay had many sources of income, chief among them being property, stocks and
shares, bank deposits and share in a firm known as M/s.
Sitaldas Tirathdas. He followed the financial
year as his accounting year. For the assessment years 1953-54 and 195455, his
total income was respectively computed at Rs.
30,375/and Rs. 55,160/-. This computation was
not disputed by him but he sought to deduct Rs. 1350/in the first assessment
year and a sum of Rs. 18,000/(1) 1 I.T.R. 135.
(3) 41, I.T.R. 367.
(2) 6 I.T.R. 206.
1008 in the second assessment year on
the-ground that under a decree, he was required to pay these sums as
maintenance to his wife and his children. In support of his claim, he relied on
the decision of the Judicial Committee in Bejoy Singh Dudhuria's case (supra).
This Court rejected that contention observing (at pp. 374 and 375 of the
Report) "In our opinion, the true test is whether the amount sought to be
deducted, in truth, never reached the assessee as his income.
Obligations, no doubt, there are in every
case, but it is the nature of the obligation which is the decisive fact. There
is a difference between an-amount which a person is obliged to apply out of his
income and 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 the 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." Counsel for the assessee tried to lay stress on the observation
of this Court that the income should reach the hands of the assessee before it
can be considered as his income. According to him in the case before us, the
income in dispute never reached the hands of the assessee. We are unable to
accept this contention as correct. The income is the income of the family. It
reached the hands of the family as soon as it reached the hands of any of the
members of the family who were entitled to receive it on behalf of the family.
The members of the family received that income on behalf of the family and
applied the same in discharge of an obligation of the family. When this Court
spoke of the income reaching the hands of the assessee, it did not refer to any
physical act. It was dealing with a legal concept a receipt in law. Viewed that
way, it is quite clear that the income with which we are concerned in this case
was received by the family.
One other decision on the point in issue
which we would like to refer is the decision of the Bombay High Court in Commis(1)
5 I.T.R. 539.
1009 sioner of Income-tax, Bombay v. Makanji
Lalji(1), wherein Beaumont C.J., speaking for the court held that in computing
the income of the H.U.F. for purposes of income-tax, moneys paid to the widow
of a deceased coparcener of thefamily as maintenance and residence allowance
cannot be deducted, even though the amount of such allowance has been fixed by
a decree of the Court and has be en made a charge on properties belonging to
It is not necessary to refer to cases which
deal with the diversion of the income of the assessee. The test to be applied
for finding out whether there is diversion of income or not is set, out by this
Court in Commissioner of Income Tax, Bombay City, V. Ratilal Nathalal(1).
For the reasons mentioned above this appeal
fails and the same is dismissed with costs.
V.P.S. Appeal dismissed.
(1) 25 I.T.R. 426.