1985 (8) TMI 57 - HC - Income Tax

Summary

Issues Involved:
1. Taxability of the "Hath Kharch Allowance" received by the deceased-assessee.
2. Applicability of exemptions under sections 10(19) and 10(2) of the Income-tax Act, 1961.
3. Interpretation of the Covenant of Merger and its impact on tax liability.
4. Consideration of custom and usage in the royal family of Mewar for maintenance allowance.
5. Definition and scope of "income" under the Income-tax Act.

Detailed Analysis:

1. Taxability of the "Hath Kharch Allowance" received by the deceased-assessee:
The Income-tax Officer added Rs. 36,000 to the total income of the deceased-assessee for each of the years under consideration, observing that the said amount was assessable in her hands. The Tribunal upheld this decision, concluding that the allowance was a periodical receipt and thus constituted "income" under section 2(24) of the Income-tax Act, 1961.

2. Applicability of exemptions under sections 10(19) and 10(2) of the Income-tax Act, 1961:
The Tribunal found that the deceased-assessee was not entitled to exemptions under sections 10(19) and 10(2) of the Act. The Tribunal concluded that the allowance was not received by or on behalf of the Ruler as privy purse or as a result of any financial agreement with the Government, and thus, the exemption under section 10(19) was not available.

3. Interpretation of the Covenant of Merger and its impact on tax liability:
The Tribunal interpreted the Covenant of Merger, specifically article XI, which detailed the privy purse arrangement. The Tribunal held that there was no charge on the privy purse amount for the payment of maintenance allowance to the Maharanis. The High Court agreed that the Covenant did not create an overriding charge for maintenance payments, meaning the payments were an application of income after it reached the Maharana.

4. Consideration of custom and usage in the royal family of Mewar for maintenance allowance:
The Tribunal and Appellate Assistant Commissioner noted the existence of a custom in the royal family of Mewar to grant maintenance allowances to the Maharanis. However, the High Court found that this custom did not override the stipulations of the Covenant. The custom was deemed irrelevant in determining whether the allowance constituted income.

5. Definition and scope of "income" under the Income-tax Act:
The High Court examined the definition of "income" under section 2(24) of the Act and various judicial interpretations. The Court emphasized that "income" is a term of wide import, including periodical receipts. However, it concluded that the allowance paid to the deceased-assessee was an application of the Maharana's income, not an independent income source for the assessee.

Conclusion:
The High Court concluded that the amounts received by the deceased-assessee as "Hath Kharch" from the privy purse paid to Maharana Bhagwat Singh were not liable to be taxed as her income. The Tribunal's decision was overturned, and the question was answered in favor of the petitioner, representing the deceased-assessee, and against the Revenue. The High Court emphasized that the payments were an application of the Maharana's income and not subject to tax in the hands of the deceased-assessee.