9911796707
TMI Blog1980 (9) TMI 25X X X X Extracts X X X X X X X X Extracts X X X X ..... . Shreeram Chandanmull of Siliguri by a lease agreement dated February 24, 1963. The capital expenditure of Rs. 70,000 per year, which was agreed to be incurred by the lessee, was found by the ITO as payment to the assessee and hence her income. There was an appeal by the assessee to the AAC. According to the AAC, the development work, if carried out, would enure to the benefit of the assessee after the expiry of the contract period. This was found to be either a constructive or indirect receipt by the assessee herself. Thus the finding of the ITO, that the sum of Rs. 70,000 was the income and taxable in the hands of the assessee, was confirmed. There was a further appeal to the Tribunal. It was urged that this amount had never been received by the assessee and was never agreed to be paid to her. It was in the interest of the assessee to see that the tea estates were properly maintained and to ensure that, a condition was embodied in the agreement. The orders under appeal were supported by the department. In the opinion of the Tribunal, the authorities below were wrong in holding that the sum of Rs. 70,000 per year was the assessee's revenue income. The amount was admitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Executors v. IRC [1927] 13 TC 461. In this case, a widow of whose estate the appellants were executors, was entitled under her marriage settlement to the life rent of a house on her husband's death. Under her husband's trust disposition and settlement she was given an option, which was exercised by her, to give up the life rent of that house and to have instead " the free life rent use and enjoyment " of another house, on which all outgoings except tenant's taxes were to be paid by the trustees. Additional assessments to super-tax were made on the amounts expended by the trustees in respect of repairs, insurance, rates, income-tax, etc. It was held that the widow's right in regard to the second house constituted a life rent, and that the additional assessments made to include the outgoings paid by the trustees, had increased by the appropriate addition for income-tax, were properly made. He draws our attention to the passage of a judgment of Lord Sands at page 478, which reads as follows: " The appellants contended further that the lady was not liable to super-tax because the payments here in question were not income received by her. The money did not come into her hands. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k, if they are not income of the debtor whose income are they? Here the lady wanted to help her husband by paying some shares from him. She borrowed from the insurance company some money to buy the shares. She borrowed by giving them the security of, amongst other things, the dividends on the shares, out of which, in the language of cl. 6 of the Scheme, 'So long as any money remains owing on the securities of these presents the dividends on all the said shares shall be received by the estate trustees and applied by them in paying the debt'. The result in any year was that debts of the debtor were discharged to the extent of the dividends the interest for the year, the premium for the year and repayment of part of the principal. Whose income was it that paid those debts ? It seems to me that in any ordinary sense it was the income of the debtor, the lady, which discharged the debts and which she was obliged to allow to be used to discharge the debts by the charge she had given on that income to the creditor. I think the Scotch case, Commissioners of Inland Revenue v. Wemyss [1924] 8 TC 551 says that it does not make it a man's income that somebody else's money pays his debts. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eneficiary is as much a benefit as money paid direct to him." Lastly, Mr. Sen makes a reference to the case of Skinner (Inspector of Taxes) v. Berry Head Lands Ltd. [1971] 1 All ER 222; 46 TC 377, wherein Goff J. makes a reference to the case of Petrotim Securities Ltd. (formerly Gresham Trust Lid.) v. Ayres (Inspector of Taxes) [1963] 41 TC 389. In that case Ungoed-Thomas J. reviewed the facts and said (at p. 384 of 46 TC): " All these transactions were completely out of character with the rest of the company's trading operations and the way in which it conducted its trade. The sales were genuine in the sense that the prices were paid, but the conclusion appears irresistible that each sale was, in the words of Lord Radcliffe in Sharkey v. Wernher, 36 TC 275 at 305; [1955] 3 All ER 493 at 504, 'a dictated sale at a prescribed price'. This company trading normally for profit, as it did, never sold such assets at such prices except at such dictation. It is only the intrusion of another body into its affairs that produces such an odd operation. As I have already said, what I am concerned with in this case is whether this company, as separate entity, is conducting its own trade i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s an income of the beneficiary. Lastly, he characterises the sale in the case of 46 TC 378 as a sham transaction. At the same time he cites the decision in the case of CIT v. A. Raman Co. [1968] 67 ITR 11 (SC). He points out at page 17 of the report wherein the Supreme Court observes that " the law does not oblige a trader to make the maximum profit that he can out of his trading transactions. Income which accrues to a trader is taxable in his hands: income which he could have, but has not earned, is not made taxable as income accrued to him. By adopting a device, if it is made to appear that income which belonged to the assessee had been earned by some other person, that income may be brought to tax in the hands of the assessee, and if the income has escaped tax in a previous assessment, a case for commencing a proceeding for reassessment under s. 147(b) may be made out. Avoidance of tax liability by so arranging commercial affairs that charge of tax is distributed is not prohibited. A taxpayer may resort to device to divert the income before it accrues or arises to him." According to Mr. Roy, the advantage in the lease if it be converted in terms of money did not accrue to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Henriksen (H.M. Inspector of Taxes) v. Grafton Hotel Ltd. [1942] 24 T.C. 453, and specially portion of the judgment of Lord Green M.R., at page 460, which is being quoted here: " A payment of this character appears to me to fall into the same class as the payment of a premium on the grant of a lease, which is admittedly not deductible. In the case of such a premium it is nothing to the point to say that the parties, if they had chosen, might have suppressed the premium and made a corresponding increase in the rent. No doubt they might have done so, but they did not do so in fact. The lessee purchases the term for the premium. There is no revenue quality in a payment made to acquire such an asset as a term of years. Another class of expenditure which is comparable to the payments now in question is expenditure on improvements to the property which Justices may require to be made as a condition of granting a licence. Such expenditure would clearly not be deductible in so far at any rate as the work required went beyond mere repairs." This paragraph Mr. Roy places before us to press his case that expenditure for an improvement of the property, which was embodied in the terms ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
