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TMI Blog1967 (8) TMI 12X X X X Extracts X X X X X X X X Extracts X X X X ..... ax for the year 1959-60, by the Agricultural Income-tax, Officer, Chittoor, by his order dated April 13, 1961. The assessee had contended before the officer that there was a karar in the tarwad executed by all the members of the tarwad in the year 1909 (May 29, 1909), by which the properties of the tarwad have been allotted to what may be called the " Rani group " and the junior members of the tarwad for their maintenance, that the income from the properties allotted is being taken by the " Rani group " and the junior members and that the tarwad should not be assessed to tax in respect of the income so received by them. The Agricultural Income-tax Officer overruled the contention and assessed the tarwad on the entire income. The assessee preferred an appeal before the Appellate Assistant Commissioner. The Appellate Assistant Commissioner held that the income from the properties allotted to the " Rani group " should be excluded in computing the income of the tarwad, but that income from the properties allotted to the junior members should be included in the income of the tarwad. Against this decision, there was a further appeal before the Agricultural Income-tax Appellate Tribunal b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rwad at the time. The surplus income from " A " schedule properties has to be accumulated and properties acquired for the " stree tavazhi ". The managing member of the tavazhi is to keep accounts of the income and expenditure and render account to the female members and to the karnavan for the time being. " A " schedule properties and acquisitions out of the income therefrom would remain as " stree tavazhi " properties of Kalari Kovilagam, and they shall be preserved in accordance with the Marumakkathayam system without division. Party No. 2 has been given 7,000 paras of paddy annually for his maintenance and for this purpose paddy lands yielding 3,500 paras of paddy, shown in " B " schedule, were given possession to him and party No. 1 is directed to give party No. 2, from 1085 onwards, 3,500 paras of paddy. " Karukakode Challa Nilam " should be entrusted by party No. 1 to party No. 2 by a separate document after redeeming it. The above-mentioned 3,500 paras of paddy need be given by party No. 1 only till such entrustment is made. Party No. 2 and his successors-in-office are to enjoy the properties. " C " schedule properties yielding an income of 4,790 paras of paddy were allott ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he tax in respect of the properties allotted to the junior members has to be paid by the karnavan. The members received the income from the properties allotted, in their capacity as members of the tarwad and in discharge of the obligation of the tarwad to maintain them. Even assuming that the karar is a settlement or disposition of the income, we think that this is a case of application of the income of the tarwad and that the income passes through it, even though the assessee has entered into a legal obligation to apply it in that way. In Raja Bejoy Singh Dudhuria v. Commissioner of Income-tax the assessee succeeded to the family ancestral estate on his father's death. Subsequently, his step-mother, who had a legal right to maintenance out of the estate, brought a suit for maintenance against him and a consent decree was passed directing the assessee to pay a fixed monthly sum to his stepmother and declaring that the maintenance was a charge on the ancestral estate. It was conceded that the assessee was liable to be assessed as an individual and that he and his step-mother were not members of an undivided family. The Privy Council said that the sums paid by the assessee to his st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... discharge an obligation and not one in which by an overriding charge the assessee became only a collector of another's income. Hidayatullah J. said : " In our opinion, the true test is whether the amount sought to be deducted, in truth, never reached the assessee as his income. Obligations, no doubt, there are in every case, but it is the nature of the obligation which is the decisive fact. There is a difference between an amount which a person is obliged to apply out of his income and an amount which by the nature of the obligation cannot be said to be a part of the income of the assessee. Where by the obligation income is diverted before it reaches the assessee, it is deductible ; but where the income is required to be applied to discharge an obligation after such income reaches the assessee, the same consequence, in law, does not follow. It is the first kind of payment which can truly be excused and not the second. The second payment is merely an obligation to pay another a portion of one's own income, which has been received and is since applied. The first is a case in which the income never reaches the assessee, who even if he were to collect it, does so, not as part of his i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs over, or interests in, the property or its income. The legislature's counter was to declare that the income of which the taxpayer had thus sought to disembarrass himself should, notwithstanding, be treated as still his income and taxed in his hands accordingly ". (See the observations of Lord Macmillan in Chamberlain v. Commissioners of Inland Revenue). Section 9(1) together with the third proviso reads : " In computing the total agricultural income of an assessee all agricultural income arising to any person by virtue of a settlement or disposition, whether revocable or not, and whether effected before or after the commencement of this Act, from asset remaining the property of the settlor or disponer shall be deemed to be the agricultural income of the settlor or disponer and all agricultural income arising to any person by virtue of a revocable transfer of asset shall be deemed to be the agricultural income of the transferor... : Provided also that this sub-section shall not apply to any agricultural income arising to any person by virtue of a settlement or disposition which is not revocable for a period exceeding six years or during the life time of the person and from whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would enable the revenue to assess the income derived from the trust properties as the income of the joint family. The court held that Hindu undivided family was a unit for the purposes of income-tax, and should be treated as an independent entity, with the result the income which the manager derived as a beneficiary under the trust, could not be treated as the income of the family. In answer to the arguments that, by virtue of the 2nd proviso to section 16(1)(c) of the Indian Income-tax Act, corresponding to the 2nd proviso to section 9(1) of the Act, Ratilal, though only one of the two persons who executed the settlement deed, is the " settlor ", and that the provision in the trust deed that the income was to be enjoyed by Ratilal after the death of Ramjibhai is, in substance, " a provision contained in the trust deed for a retransfer of the income to the settlor it was held that the fallacy of this argument consists in treating the respondent, Ratilal, as one out of the two settlors for the purpose of the second proviso, while treating the family as the settlor for the purpose of the last portion of clause (c) of section 16(1). If the settlor was the Hindu undivided family and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion. " It was contended for the assessee that even if there must be a diversion under an overriding title, for applying section 9(1), that title need not precede the title of the assessee and that it would be enough if the title of the transferee precedes the accrual of the income and that here the title to receive the income by the members preceded the receipt of the income by them, that that would override the title of the assessee and therefore it was under an overriding title that the junior members received the income. We cannot agree. The karar, so far as junior members are concerned, was only a maintenance arrangement, and the title to take the income from the properties allotted to the junior members was a title created by the voluntary act of the assessee, namely, the tarwad, which included these members also. The receipt of the income by them under the karar is in their capacity as junior members. We do not think that receipt of the income by the junior members was under an overriding title, a title de hors the will of the assessee. The matter may be looked at from a different angle to test the correctness of this proposition. Suppose a money decree binding on the tarw ..... X X X X Extracts X X X X X X X X Extracts X X X X
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