1987 (3) TMI 77 - HC - Income Tax

Summary

Issues Involved:
1. Assessability of commission income in the hands of the assessee.
2. Application of Section 60 of the Income-tax Act, 1961.
3. Validity of the agreement creating an overriding title in favor of the trust.
4. Distinction between diversion of income at source and application of income after accrual.

Issue-wise Detailed Analysis:

1. Assessability of Commission Income in the Hands of the Assessee:
The core issue was whether the entire commission income received from East Bhagatdih Colliery Co. (P.) Ltd. should be assessed in the hands of the assessee or only 1/3rd of it. The Income-tax Officer assessed the entire commission income as the income of the assessee, rejecting the claim that 2/3rds of the income belonged to the Hardeo Das Memorial Trust.

2. Application of Section 60 of the Income-tax Act, 1961:
Section 60 states, "All income arising to any person by virtue of a transfer whether revocable or not and whether effected before or after the commencement of this Act shall, where there is no transfer of assets from which the income arises, be chargeable to income-tax as the income of the transferor and shall be included in his total income." The court emphasized that since there was no transfer of assets from which the income arose, the entire commission income should be assessed as the income of the assessee.

3. Validity of the Agreement Creating an Overriding Title in Favor of the Trust:
The agreement dated July 12, 1965, stipulated that Rs. 1.50 per tonne of coal despatched would be paid as commission, with 0.50 paise per tonne going to the assessee and Re. 1 per tonne to the Hardeo Das Memorial Trust. The Appellate Assistant Commissioner and the Tribunal held that this agreement created an overriding title in favor of the trust, thereby diverting the income at source. However, the High Court found that the trust was not a party to the agreement and had no enforceable right against the colliery company, thereby negating the claim of an overriding title.

4. Distinction Between Diversion of Income at Source and Application of Income After Accrual:
The court distinguished between the diversion of income at source and the application of income after it had accrued. It held that in this case, the income was applied to the trust after it had accrued to the assessee, making it a case of application of income rather than diversion at source. The court referenced the Supreme Court cases of Provat Kumar Mitter v. CIT and K.A. Ramachar v. CIT, which supported the view that income applied after accrual remains the income of the transferor.

Conclusion:
The court concluded that the entire commission income should be assessed in the hands of the assessee, as there was no transfer of assets from which the income arose, and the income was merely applied to the trust after it had accrued. The Tribunal's decision that only 1/3rd of the commission income was assessable in the hands of the assessee was incorrect. The question referred to the court was answered in the negative, against the assessee and in favor of the Revenue.