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1967 (12) TMI 27 - SC - Income TaxWhether in computing the taxable expenditure of the assessee Hindu undivided family the sum of ₹ 28,683 being the expenditure incurred by Shri Surendra, the karta of the Hindu undivided family, out of his own self-acquired and separate property was includible in law ? Whether in computing the taxable expenditure of the assessee Hindu undivided family the sum of ₹ 10,321 being the amount spent by trustees was includible in law? Held that - For the reasons already set out in dealing with the assessment year 1958-59, that the expenditure incurred by Surendra out of his personal estate is not liable to be included in the taxable expenditure for the year 1959-60. If the amount expended from out of the trust estate be held, for reasons already set out, to be expended by the trustees, the case falls within the terms of clause (i) if it be held that the expenditure was incurred by or on behalf of the children after the income was received from the trustees it would full within clause (ii). The legislature has by the amended clause (ii) expressly provided that, where the assessee is a Hindu undivided family, any expenditure incurred by any dependant of the assessee, from or out of any income or property transferred directly or indirectly to the dependant by the assessee, is liable to be included. The words are not susceptible of the interpretation that the dependant who incurs the expenditure must be other than the dependant to whom the property is transferred by the assessee. Expenditure incurred for his own purposes by the dependant to whom the property is transferred by the Hindu undivided family clearly falls within section 4(ii) as amended. Modify the order of the High Court. The answer to the first question for each year will be in the negative. The answer to the second question will be in the affirmative.
Issues Involved:
1. Inclusion of expenditure incurred by the karta out of his separate property in the taxable expenditure of the Hindu undivided family. 2. Inclusion of expenditure incurred by trustees from the trust estate in the taxable expenditure of the Hindu undivided family. Issue-wise Detailed Analysis: Issue 1: Inclusion of expenditure incurred by the karta out of his separate property in the taxable expenditure of the Hindu undivided family The primary contention was whether Rs. 28,683, being the expenditure incurred by Surendra, the karta of the Hindu undivided family, out of his own self-acquired and separate property, should be included in computing the taxable expenditure of the Hindu undivided family under the Expenditure-tax Act, 1957. The Court examined the definitions under the Act: - Section 2(g) defines "dependant" and explicitly excludes the karta from being considered a dependant. - Section 4(i) includes in the taxable expenditure any expenditure incurred by a person other than the assessee for the obligations or personal requirements of the assessee or his dependants. The Court concluded that a karta is not a "dependant" within the meaning of Section 2(g)(ii) of the Act. It was noted that the karta of a Hindu undivided family is expressly excluded from being considered a dependant, and thus, expenditure incurred by the karta out of his separate estate for his own purposes is not liable to be included in the taxable expenditure of the family. The Court emphasized that the expenditure must be incurred for the collective obligation of the family or for the personal requirements of the coparceners or other members of the family in their capacity as members of the family to be included under Section 4(i). The Court rejected the revenue's argument that the definition of "dependant" should be interpreted differently in Section 4(i) to include the karta. It was held that the statutory definition must be applied consistently, and no coparcener, including the karta, is a dependant of the family for the purposes of this section. Therefore, the expenditure incurred by Surendra out of his separate property could not be included in the taxable expenditure of the Hindu undivided family. Issue 2: Inclusion of expenditure incurred by trustees from the trust estate in the taxable expenditure of the Hindu undivided family The second issue was whether Rs. 10,321, being the amount spent by trustees from the trust estate of the children of Surendra, should be included in computing the taxable expenditure of the Hindu undivided family. The Court analyzed the relevant provisions: - Section 4(ii) includes in the taxable expenditure any expenditure incurred by any dependant of the assessee out of any gift, donation, or settlement on trust made by the assessee. The Court noted that the amount of Rs. 10,321 consisted of expenditure incurred from the trust estate of the children and their personal estate. It was not clear whether the expenditure was incurred directly by the children or by the trustees on their behalf. However, the Court held that in either case, the expenditure would fall within the terms of Section 4(ii). If the trustees incurred the expenditure for the benefit of the children, it would be deemed to be incurred by a person other than the assessee for the dependants, thus falling under Section 4(i). If the expenditure was incurred by the children after receiving the income from the trustees, it would fall within Section 4(ii) as the trusts were created by Surendra out of the family fund, and the children were dependants within the meaning of Section 2(g). The Court disagreed with the High Court's interpretation that the expenditure under Section 4(ii) must enure for the benefit of a person other than the one who incurs it. The Court clarified that expenditure incurred by a dependant for his own benefit out of a trust created by the Hindu undivided family falls within Section 4(ii). Conclusion: The Court modified the High Court's order: - The answer to the first question (regarding the expenditure by the karta) was in the negative, meaning it should not be included in the taxable expenditure of the Hindu undivided family. - The answer to the second question (regarding the expenditure by the trustees) was in the affirmative, meaning it should be included in the taxable expenditure of the Hindu undivided family. The Tribunal was directed to make appropriate adjustments in declaring the liability of the assessee to pay tax in respect of the expenditure incurred from the trust estate by the trustees, after making permissible deductions under Sections 5 and 6 of the Act. There was no order as to costs in this court and in the High Court due to the partial success of the appeal.
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