1974 (3) TMI 9 - HC - Income Tax

Summary

Issues Involved:
1. Whether 25% of the gross fees received by the assessee from Central Government employees was not the income of the assessee.
2. Interpretation of Rule 197C of the U.P. Medical Manual.
3. Application of the principle of income diversion by overriding title.

Issue-wise Detailed Analysis:

1. Whether 25% of the gross fees received by the assessee from Central Government employees was not the income of the assessee:

In each reference, the assessee, a member of the Medical Service of the State and an authorized medical attendant of Central Government employees, claimed that 25% of the fees received from Central Government employees was not his income and was not taxable in his hands. The Income-tax Officer and the Appellate Assistant Commissioner rejected this claim, bringing the 25% receipts to tax. The Income-tax Appellate Tribunal, however, held that the amount payable to the U.P. Government at the rate of 25% of the fees realized by the authorized medical attendant was an overriding charge, and thus, the actual income of the assessee was only 75%.

2. Interpretation of Rule 197C of the U.P. Medical Manual:

Rule 197C of the U.P. Medical Manual provides the scale of fees for medical attendance on Central Government servants and states that 25% of the fee should be credited to the Government and the balance paid to the officer concerned. The Tribunal observed that the rules for the 25% deduction were obscure and suggested that the paying department would itself deduct 25%. However, the court found that Rule 197C did not create a statutory obligation or charge on the professional service rendered by the assessee. It merely provided for the division of fees after they had accrued as a result of professional service.

3. Application of the principle of income diversion by overriding title:

The court examined several precedents to determine whether the 25% fee was diverted by an overriding title before it reached the assessee. The principle deduced from these cases is that if an obligation is in the nature of a charge upon the source of income, it constitutes a diversion of income at source. However, if the obligation is on the income itself, it is considered an application of income. The court found that the 25% fee did not constitute a diversion of income by an overriding title. Instead, it was a case of application of income, as the fee was earned by the assessee and then divided according to the rule.

Conclusion:

The court concluded that the Tribunal was not right in holding that under the relevant rules of the U.P. Medical Manual, 25% of the fees received from Central Government employees was not the assessee's income. The court emphasized that the 25% fee was an application of income and not a diversion by overriding title. Therefore, the entire fee received by the assessee was taxable, with the 25% paid to the State Government being deductible as an allowable expense.

Costs:

The Commissioner of Income-tax was entitled to costs, assessed at Rs. 200 in each case.