1992 (4) TMI 215 - SC - Income Tax

Whether the amounts received from the Government of Maharashtra during the financial years ended March 31, 1963, and March 31, 1964, are receipts of an income nature and taxable under the provisions of the Indian Income-tax Act, 1922 (sic) (1961) - nature of the receipt is determined entirely by its character in the hands of the receiver - hold that the amounts received by the assessee have to be regarded as capital receipts and, therefore, are not income u/s 2(24)

Issues Involved:
1. Nature of the cash allowance received by the assessee.
2. Applicability of income-tax to the cash allowance.
3. Interpretation of statutory provisions related to the allowance.
4. Determination of whether the payments constitute capital or revenue receipts.

Detailed Analysis:

1. Nature of the Cash Allowance Received by the Assessee:
The assessee, the only child of the late Chhatrapati Raja Ram Maharaj, was granted a cash allowance of Rs. 3,000 per month under a Huzur order dated April 8, 1947. This allowance continued until July 31, 1955, when it was discontinued due to the Bombay Merged Territories Miscellaneous Alienations Abolition Act, 1955. The District Treasury Officer communicated the discontinuance of the allowance on April 14, 1956. However, under section 15(1)(d) of the Act, the assessee continued to receive a modified cash allowance as a compassionate payment from August 1, 1956.

2. Applicability of Income-Tax to the Cash Allowance:
For the assessment years 1963-64 and 1964-65, the assessee received Rs. 36,000 and Rs. 33,992, respectively. The Income-tax Officer subjected these amounts to tax, considering them as income. The assessee contended that these receipts were of a capital nature and exempt from income-tax. Alternatively, it was argued that the income was casual and non-recurring, thus exempt under section 10(3) of the Income-tax Act. Both contentions were rejected by the Appellate Assistant Commissioner and the Tribunal. The High Court also affirmed that these amounts were income within the meaning of the Income-tax Act.

3. Interpretation of Statutory Provisions Related to the Allowance:
The assessee argued that the payments under section 15(1)(d) of the Act were compassionate and different from allowances under clauses (i), (ii), and (iii) of the same section. The Revenue relied on precedents like Raja Rameshwara Rao v. CIT and S. R. Y. Sivaram Prasad Bahadur v. CIT to argue that the payments were income. The Supreme Court examined the statutory provisions and the nature of the payments, emphasizing that the quality and nature of the payment, rather than its periodicity, determine its classification as income or capital.

4. Determination of Whether the Payments Constitute Capital or Revenue Receipts:
The Supreme Court scrutinized the facts and legal precedents to determine the nature of the payments. It was noted that the payments were made on compassionate grounds, without any legal obligation or enforceable right created by the statute. The Court distinguished this case from Raja Rameshwara Rao, where the payments were statutory maintenance allowances. The Court concluded that the payments to the assessee were voluntary and discretionary, lacking a real source of income, and thus should be considered capital receipts.

Conclusion:
The Supreme Court held that the amounts received by the assessee during the relevant financial years were capital receipts and not income within the meaning of section 2(24) of the Income-tax Act. Consequently, the judgment of the High Court was set aside, and the appeals were allowed with no order as to costs.

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