1949 (9) TMI 27 - HC - Income Tax

Summary

Issues:
Interpretation of Section 41(1) of the Income-tax Act regarding the chargeability of income received under a deed of dedication.

Analysis:
The case involved a reference at the instance of the Income-tax authorities to determine if the income received under a deed of dedication was chargeable at the maximum rate under the first proviso to Section 41(1) of the Income-tax Act. The assessee, a pious Hindu, had dedicated valuable properties to two deities through an Arpannama. The Income-tax Officer assessed the assessee under Section 41(1) and taxed the deities as an association of persons at the maximum rate due to indeterminate shares of the beneficiaries.

The Appellate Assistant Commissioner overturned the assessment, ruling that the shares of the deities were determinate, and the entire income was equally divisible between them based on the Arpannama's provisions. The judgment relied on previous legal precedents, including a Privy Council case and a judgment of the Patna High Court, to support the decision that both deities were equally entitled to the income.

The High Court, following a similar precedent in a related case, held that when there is a gift to two deities without specified shares, both deities are entitled to the corpus and income equally. The Court rejected the argument that the income was indeterminate, emphasizing that the deities were co-owners of the properties and income in equal shares, regardless of discretionary spending by the shebaits for charitable purposes.

The Court dismissed the new argument raised by the Commissioner's counsel, stating that the assessment had proceeded on the basis that the entire income belonged to the deities, and any discretionary spending by the shebaits did not change the ownership or tax liability. The Court concluded that the income received under the deed of dedication was not chargeable at the maximum rate under Section 41(1) of the Income-tax Act.

In a unanimous decision, the reference was answered in the negative, affirming that the income from the deed of dedication was not subject to the maximum tax rate under Section 41(1) of the Income-tax Act. The assessee was awarded costs for the reference.