1934 (1) TMI 22 - HC - Income Tax

Summary

Issues Involved:
1. Whether the sum of Rs. 1,20,000 received annually by the assessee is exempt from Income Tax under Section 14(1) of the Income Tax Act.
2. Whether the sum is exempt as agricultural income under Section 4(3)(viii) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Exemption under Section 14(1) of the Income Tax Act:
The primary question was whether the Rs. 1,20,000 received annually by the assessee from the Vizianagaram Raj is exempt from Income Tax under Section 14(1) of the Income Tax Act. Section 14(1) states, "The tax shall not be payable by an assessee in respect of any sum which he received as a member of a Hindu undivided family."

The assessee argued that he and the Maharaja are members of an undivided Hindu family, and the allowance received by him is paid as a member of that family. The Commissioner of Income Tax contended that the assessee cannot be considered a member of a joint Hindu family because he is separate in food and residence, and the Vizianagaram estate is an impartible estate descending on a single heir, the present Maharaja.

The court noted that Section 14(1) applies only if the assessee is a member of a Hindu undivided family and the sum is received as such. The relationship of cause and effect must exist between the position of the assessee as a member of a Hindu undivided family and the receipt of the sum. The court held that the fact that the assessee and the Maharaja live separately does not necessarily mean they are not members of an undivided Hindu family. The Vizianagaram Raj is an impartible estate, which descends upon a single heir, but it is also an ancestral estate, indicating joint family property characteristics.

The court referred to the Privy Council case Shibaprasad Singh v. Prayagkumari Debee, which discussed the rights of junior members in an impartible estate. The junior members remain members of an undivided family, and the custom does not supersede the general law regarding their status. The court concluded that the assessee must be considered a member of a Hindu undivided family, and the allowance received is in satisfaction of his right to maintenance from the estate.

2. Exemption as Agricultural Income under Section 4(3)(viii):
The second issue was whether the sum is exempt from taxation as agricultural income under Section 4(3)(viii) of the Income Tax Act. The court held that if the allowance is not received by the assessee as a member of an undivided Hindu family, his source is not the original source through which the Vizianagaram estate received the money. The immediate source is the bounty or gift by the estate, which cannot be considered agricultural income and thus cannot be exempt from Income Tax under Section 4(3)(viii).

Conclusion:
The court answered the first part of the question by stating that the Rs. 1,20,000 received annually by the assessee from the Vizianagaram Raj is not liable to Income Tax and supertax unless it is shown by the Income Tax department that the assessee was not entitled by custom to any maintenance out of the income of the Raj. The court reserved the liberty for the Income Tax department to prove the absence of such a custom.

For the second part, the court answered in the negative, stating that the allowance received by the assessee is not exempt under Section 4(3)(viii) as agricultural income. The court awarded costs to the assessee and fixed counsel's fee on each side at Rs. 500.