1985 (9) TMI 1 - SC - Income Tax

Income derived by the two assessees as beneficiaries under the deed of wakf executed by their grandfather in 1942 ; the subject-matter of the wakf was bidi business - In the hands of the assessee, who is a mutawalli, the income is to be assessed under other sources as business belongs to the wakf - Since it is only after distribution from the wakf, that the assessee receives the income as a beneficiary, he is not entitled to earned income relief u/s 2(6AA).

Summary

Issues:
Earned income relief under s. 2(6AA)(b) or (c) of the Indian I.T. Act, 1922 denied to assessees. Assessment under s. 41(2) instead of s. 41(1). Interpretation of income source under "Profits and gains of business" and "Income from other sources." Discrepancy in judgments between different assessment years.

Analysis:
The Supreme Court dismissed the appeals of two assessees who were denied earned income relief by the taxing authorities, Tribunal, and High Court. The dispute revolved around income derived by the assessees as beneficiaries under a wakf deed related to bidi business. The income was earned by one beneficiary as a mutawalli and then distributed between the two brothers. The assessment proceeded under s. 41(2), and earned income relief was claimed under s. 2(6AA)(b) or (c) of the Act.

Regarding one of the assessees, since he did not carry on the business or derive income from personal exertions, he was not entitled to earned income relief under either clause (b) or (c). The High Court correctly declined relief for him. The High Court also denied relief for the other assessee under clause (b) as the income was not assessable under "Profits and gains of business" but under "Income from other sources" due to the wakf deed's source. Additionally, under clause (c), the direct connection between personal exertions and income receipt was lacking, as the income was earned as a mutawalli and received as a beneficiary.

The Court noted that if the assessment had proceeded under s. 41(1) instead of s. 41(2), the position might have been different. However, since the assessment was under s. 41(2), no relief was available to the assessees. The assessees relied on a subsequent High Court decision granting relief for a different assessment year, but the Supreme Court found discrepancies in that judgment's analysis and dismissed the appeals, emphasizing that relief could not be granted under clause (b) if income arose due to the intervention of a wakf deed.