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TMI Blog1971 (1) TMI 32X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment year 1957-58 the income from the business was fixed at Rs. 2,70,868. The shares of Hameed and Shakoor from this income came to Rs. 1,35,434 each. The question arose whether this income in the hands of the two beneficiaries was to be treated as their earned income. On this point, the Income-tax Officer found against the two assessees. It was held that these sums did not represent their earned income. This view was upheld in appeal by the Appellate Assistant Commissioner. When the two assessees went up in appeal before the Appellate Tribunal, Allahabad, the Judicial Member was of the view that the assessees' appeals should be dismissed. The Accountant Member had some doubts on the point. But, ultimately he decided to agree with the Judicial Member. The result was that the appeals by the assessees were dismissed. At the instance of the two assessees, the Tribunal has referred the following question of law to this court : " Whether, on the facts and in the circumstances of the case, the assessee is entitled to any earned income relief on the share of income received by him from the business which is the subject of the was in is capacity as a beneficiary ?" Mr. P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rani Amrit Kunwar v. Commissioner of Income-tax is a Full Bench decision of the Allahabad High Court. In that case it was observed on page 582 : " If, however, the husband is bound to pay a certain sum periodically under an order of a court or under an agreement, the order or the agreement may be deemed to be the source of the income. In Commissioner of Income-tax v. Lal Suresh Singh, the holder of an impartible estate agreed to pay a certain monthly allowance to his younger brother and his heirs for their maintenance out of the income of the estate, in consideration of the latter giving up all claims to any share in the estate. It was held that the maintenance allowance so paid out of the income of the estate was not agricultural income. It may be pointed out that in the present cases we are concerned with the receipts in the hands of the two assessees in their capacity as beneficiaries. The source of their receipts is a deed of wakf, dated March 14, 1942. The fact that certain business is being conducted on behalf of the wakf has no direct bearing on the nature of the receipts in the hands of the assessees. In my opinion, the income in question falls under section 12 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will not fall under sub-clause (c) either. The receipts in the hands of Abdul Shakoor are not his earned income. I now pass on to consider Abdul Hameed's claim for earned income benefit. Hameed's case is a little more complicated due to the fact that he was a mutawalli as well as a beneficiary. It is necessary to ascertain whether his case can fall either under sub-clause (b) or under sub-clause (c) of clause (6AA) of section 2. Clearly, the items in dispute are not covered by sub-clause (a) of clause (6AA) of section 2. It is true that, as mutawalli, Hameed carried on bidi business. It is possible to look upon the receipts in the hands of the mutawalli as business income. But it is necessary to emphasise that in the instant case we are concerned with the receipts in Hameed's hands as a bereficiary. As explained above, the source of this receipt is not the business, but the deed of wakf. Since the receipts under consideration do not fall under the head "profits and gains of business", Hameed cannot bring his case under sub-clause (b) of clause (6AA) of section 2. It is true that the receipts are Hameed's income from "other sources". Thus, the first condition of sub-clause (c) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... him and his cousin brother, Haji Abdul Shakoor, after meeting the expenses mentioned in the deed. While making the assessment of Haji Abdul Hameed and Haji Abdul Shakoor for the assessment years 1957-58 to 1960-61, one of the questions that arose for consideration was whether in respect of the share income derived by the two assessees from the bidi business which was the subject-matter of the wakf under the deed, dated 14th March, 1942, the two assessees were entitled to the benefit of earned income relief under the Income-tax Act, 1922. The Income-tax Officer did not give the benefit of earned income relief to any of the two assessees. In appeal, the Appellate Assistant Commissioner of Income-tax affirmed the action taken by the Income-tax Officer. The assessees then went up in appeal before the Income-tax Appellate Tribunal. At that stage the two Members constituting the Tribunal delivered separate orders confirming the action taken by the Income-tax Officer. The Judicial Member was clearly of the opinion that the two assessees were not entitled to the benefit claimed by them. The Accountant Member, however, felt doubtful. According to him there was considerable force in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sub-section (2) of section 14 or under a notification issued under section 60." In order to determine whether the income received by the two assessees can be said to be earned income it has to be found whether the income falls under the categories of salaries, profits and gains of business, profession or vocation or is chargeable under the head "other sources". If the income comes within the head "salaries" the assessee will be entitled to get it classed as earned income without anything more. If it is chargeable under the head "profits and gains of business, profession or vocation" the assessee, before he can get it classed as earned income, will have to show that the profession or vocation was carried on by him. If, however, the income derived by the assessee is covered under the head "other sources" the assessee will have to show that the income was immediately derived from his personal exertion. At this stage, it may be noticed that in its statement of case, the Tribunal has made the following observation : " The case proceeded before the Tribunal on the footing that Hameed and Shakoor were each entitled to a half share in the income covered by the wakf deed. The order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, however, argued that as a matter of fact the amount received by the two assessees as beneficiaries under the wakf deed cannot be considered to be their income which is liable to be taxed under the Income-tax Act, 1922. He urged that the amount that was being received by the two assessees was in the nature of gift from the original donor. He also advanced an alternative argument and contended that the amount was being received by the two assessees as annuity, in which case it would be covered under the head "salary" as enumerated in section 7 of the Indian Income-tax Act, 1922, and, therefore, in any case both the assessees are entitled to classify it as earned income under section 2(6AA)(a) of the Act. In my opinion, neither the counsel for the department nor the counsel for the assessee is entitled to ask this court to give its opinion on the question referred, on any basis other than that the income chargeable in the hands of the two assessees was one which fell under the head "profits and gains of business, profession and vocation". As mentioned earlier the Tribunal decided the case on the footing that the income in the hands of the two assessees was the income which coul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s earned income as defined in section 2(6AA)(b) and section 2(6AA)(c). According to section 3 of the Indian Income-tax Act, 1922, subject to the provisions of the Act, income-tax is chargeable in respect of the total income of the previous year of every individual, Hindu undivided family, company and local authority and of every firm and other association of persons or partners of the firm or the members of the association individually. It will thus be seen that the units of assessment for the purpose of income-tax contemplated by the Act are : (1) Individual ; (2) Hindu undivided family ; (3) Company and local authority ; (4) Firm and other association of persons or the partners of the firm or the members of the association individually. According to section 2(15) the expression "total income" means the total amount of income, profits and gains referred to in sub-section (1) of section 4 computed in the manner laid down in the Act and it includes all income, profits and gains wherever accruing or arising except income to which, under the provisions of sub-section (3) of section 4, the Income-tax Act does not apply and except any capital gain which is not includible i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cide the case on the footing that the income is chargeable under this head. The only question that remains to be determined is whether the business was being carried on by the two assessees or not. In case it is held that the business is being carried on by a particular assessee he would be entitled to get the income received by him classed as earned income within the meaning of section 2(6AA)(b). As stated earlier, the two assessees in these cases are two individuals, Abdul Hameed and Abdul Shakoor. It is not disputed that Abdul Hameed carried on the business from which the income was earned. What was argued on behalf of the department was that, even though Abdul Hameed might have carried on the business, but he did so in his capacity as a mutawalli which is different from his capacity as a beneficiary in which he was being taxed. As explained above an individual is one class of assessee contemplated by the Indian Income-tax Act. The Act does not further sub-divide this unit of assessment into sub-units in accordance with the capacity in which the individual earns income. It may be that where an individual earns income in two different capacities, the Act may provide for a speci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that the tax payable by the assessee should be computed under the provisions of section 10(1) of the Act as an individual. The order implied that the whole income derived by the assessee from the trust property was to be taxed as one unit, ignoring the provisions of section 41 of the Income-tax Act. The Tribunal endorsed the decision arrived at by the Commissioner. The Calcutta High Court came to the conclusion that section 41 of the Indian Income-tax Act was fully applicable, to the facts of the case and that the tax should have been determined in accordance with the provisions of that section. This case is no authority for the proposition that if the very same individual happens to be a trustee as also a beneficiary, he has two different legal personalities and he becomes two different assessees. Reliance was also placed on the case of Fry (Surveyoy of Taxes) v. Shield's Trustees, wherein it has been held that where a business was being carried on on behalf of two minors who were beneficiaries under a will and the whole of the net profits of the business were annually paid over to or on behalf of the beneficiaries, it was held that the business was not the property of the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e revenue authorities the business which yielded income was being carried on by the assessee. As the business was being carried on by the assessee, the income derived from that business was his earned income. It may be that the expression "business, profession or vocation carried on by him" has been used in section 2(6AA) in the same sense in which it has been used in section 10 of the Act, and that it is not necessary that the assessee should personally carry on the business before it can be said that he is carrying on the business. But, before it can be said that the assessee is carrying on the business, it must be shown that the assessee exercises some sort of control over the conduct of or over the carrying on of the business. Under the wakf deed, apart from the beneficiary who has been authorised to manage the business and who has been termed as a mutawalli, no other beneficiary has been authorised to exercise any control over the conduct of or in running the business. In the circumstances, it cannot be said that the assessee, Haji Abdul Shakoor, was carrying on the business which yielded the income in question. The business from which the income was derived is not owned by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diately derived from personal exertion" merely means that the income is the immediate result of the personal exertion made by the assessee. The section does not contemplate any difference in the capacity in which the assessee makes the personal exertion which yielded the income. I am, therefore, of opinion that the income in the hands of Abdul Hameed will be earned income even under section 2(6AA)(c) of the Indian Income-tax Act. So far as the case of Abdul Shakoor is concerned I find that the income derived by him was not as a result of any personal exertion made by him. Haji Abdul Shakoor did not take any part in carrying on the business and in earning the income. It was distributed to him under the provisions of the wakf deed after it had been earned by the personal exertions of Abdul Hameed. In the circumstances he is not entitled to get the income in his hands treated as earned income within the meaning of section 2(6AA)(c) of the Act. In the result, I hold that, in the facts and circumstances of the case, Haji Abdul Hameed is entitled to earned income relief on the share of income received by him from the business which is the subject of the wakf in his capacity as a bene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... court under section 66(1) of the Indian Income-tax Act, 1922. Upon the hearing of the reference, the learned Chief Justice held that the share of the assessee as a beneficiary from the profits of the business could not be treated as "earned income" under either clause (b) or clause (c) of sub-section (6AA) of section 2. H. N. Seth J. expressed the view that it could be considered under either clause. Before proceeding further, it is desirable, I think, to set out sub-section (6AA) of section 2. It reads : " 'Earned income' means any income of an assessee who is an individual, Hindu undivided family, unregistered firm or other association of persons not being a company, a local authority, a registered firm or a firm assessed under clause (b) of sub-section (5) of section 23-- (a) which is chargeable under the head 'salaries' ; or (b) which is chargeable under the head 'profits and gains of business, profession or vocation' where the business, profession or vocation is carried on by the assessee or, in the case of a firm, where the assessee is a partner actively engaged in the conduct of the business, profession or vocation ; or (c) which is chargeable under the head 'othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iciaries. And a part of those profits were received by the assessee as a beneficiary It is urged on behalf of the assessee that the beneficiary alone could be appointed mutawalli and, therefore, the beneficiary must be considered as running the business. That is not a situation which can be contemplated in law. The circumstance that an individual who is a beneficiary is selected for appointment as mutawalli does not obliterate the distinction between the two capacities. H. N. Seth J. has pointed out that no distinction can be drawn between the assessee as mutawalli and the assessee as a beneficiary when the law contemplates the assessments on the individual without regard to the different capacities in which different receipts have been earned. With great respect, it seems to me that the distinction is relevant when the question is whether the income falls within the scope of section 2(6AA). For the purpose of that provision, the nature and character of the income is material. It is only if it is chargeable under the head "salaries" or " profits and gains of business, profession or vocation" or "other sources" (if the income is derived from personal exertion) that the income can ..... X X X X Extracts X X X X X X X X Extracts X X X X
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