1967 (7) TMI 7 - SC - Income Tax

Assessable agricultural income - Appellant settled certain agricultural land under the deed of settlement - settlement was hit by the provisions of s. 9(1) - Revenue s appeal dismissed

Summary

Issues:
1. Interpretation of settlement deed under the Madras Agricultural Income-tax Act, 1955.
2. Application of section 9(1) of the Act to the settlement deed.
3. Validity of section 9(1) of the Act.
4. Applicability of section 126 of the Transfer of Property Act.
5. Jurisdiction of taxing authorities to determine the validity of taxing provisions.

Analysis:

The case involved an appeal against the Madras High Court's judgment regarding the inclusion of income from settled lands in the assessable agricultural income of the assessee under the Madras Agricultural Income-tax Act, 1955. The settlement deed executed by the assessee in favor of another individual was deemed revocable under section 9(1) of the Act. The deed provided for a life interest for the settlee, with ultimate transfer to the settlor's children, but also reserved the settlor's right to cancel or alter the settlement, allowing reassumption of power over the assets or income. The court upheld the High Court's decision, concluding that the deed constituted a revocable transfer of assets as per the provisions of section 9(1), proviso 1. The court rejected the argument that section 126 of the Transfer of Property Act would render the gift void, emphasizing that the settlor retained the power to revoke the settlement.

Furthermore, the appellant contended that section 9(1) of the Act was void, drawing parallels to a similar provision in the Indian Income-tax Act, 1922. However, the court held that the validity of taxing provisions falls outside the jurisdiction of taxing authorities, as established in previous judgments. The court emphasized that the question of ultra vires could not be raised before income-tax authorities or the courts in a revision or reference. The appellant's reliance on article 142 of the Constitution was deemed insufficient to address the validity of the provision in the current appeal. Consequently, the court dismissed the appeal, stating that the appellant could raise the validity issue in a different proceeding if deemed appropriate.

In conclusion, the Supreme Court upheld the decision of the High Court, ruling that the settlement deed constituted a revocable transfer under section 9(1) of the Madras Agricultural Income-tax Act, 1955. The court also clarified the jurisdictional limitations on challenging the validity of taxing provisions, emphasizing that such issues cannot be raised in revision or reference from income-tax authorities' decisions. The appeal was dismissed, with no order as to costs.