1963 (4) TMI 61 - SC - Income Tax

Whether the interim maintenance allowances received by the assessee under the Hyderabad (Abolition of Jagirs) Regulation, 1358 Fasli, are income and therefore liable to tax? Held that - Appeal dismissed. Question was answered correctly by the High Court by saying that the interim maintenance allowances received by the assessee which do not form part of the commutation amount are income and are liable to be taxed and that the payments made subsequent to April 1, 1950, towards commutation amount are not income and not liable to be taxed.

Summary

Issues Involved:
1. Whether the interim maintenance allowances received under the Hyderabad (Abolition of Jagirs) Regulation, 1358 Fasli, are income and therefore liable to tax.
2. Distinction between interim maintenance allowances and commutation sum.
3. Nature of interim maintenance allowances as capital or income.

Issue-wise Detailed Analysis:

1. Whether the interim maintenance allowances received under the Hyderabad (Abolition of Jagirs) Regulation, 1358 Fasli, are income and therefore liable to tax:
The appellant, a former Jagirdar, received payments termed as interim maintenance allowances under the Hyderabad (Abolition of Jagirs) Regulation, 1358 Fasli (Abolition Regulation). These payments were taxed under the Income-tax Act, 1922, as income. The appellant contended that these payments were capital and not liable to be taxed. The High Court of Andhra Pradesh held against the appellant, leading to this appeal.

2. Distinction between interim maintenance allowances and commutation sum:
The Abolition Regulation and the Hyderabad Jagirs (Commutation) Regulation, 1359 Fasli (Commutation Regulation) are central to this issue. Under section 6 of the Abolition Regulation, Jagirs were incorporated into the Government, and Jagirdars' rights ceased. Sections 10 and 11 provided for payments to Jagirdars and Hissedars from the Jagir's income. Section 14 deemed these payments as interim maintenance allowances until the commutation terms were determined. The Commutation Regulation, specifically sections 3, 4, and 5, laid out the calculation and distribution of the commutation sum, which was distinct from the interim maintenance allowances. Section 7(2) of the Commutation Regulation emphasized this distinction, stating that any interim maintenance allowance paid after April 1, 1950, would be deducted from the commutation sum.

3. Nature of interim maintenance allowances as capital or income:
The appellant argued that the interim maintenance allowances were compensation for the loss of the Jagir and thus capital. However, the court noted the clear distinction made by the Regulations between interim maintenance allowances and the commutation sum, the latter being acknowledged by both parties as compensation and thus capital. The interim maintenance allowances were recurring payments based on current income, unlike the commutation sum, which was a fixed multiple of annual revenue. The court held that these allowances were not compensation for the loss of the Jagir but were intended to provide maintenance until the commutation terms were determined. These allowances were regular and recurring, characteristics of income, and were enforceable under section 21 of the Abolition Regulation. The court referenced the case of Commissioners of Inland Revenue v. Butterley Co. Ltd., where similar interim payments under the English Coal Industry Nationalisation Act, 1946, were deemed income. The court concluded that the interim maintenance allowances were "income-compensation" and thus taxable as income.

Conclusion:
The court held that the interim maintenance allowances received by the appellant, which did not form part of the commutation amount, were income and liable to be taxed. Payments made after April 1, 1950, towards the commutation amount were not income and not liable to be taxed. The appeal was dismissed with costs.