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TMI Blog1979 (2) TMI 101X X X X Extracts X X X X X X X X Extracts X X X X ..... 76 was the adopted son of the Maharaja of Porbandar. During each of the relevant previous years relevant to the assessment years under consideration, the assessee received different sums from his adoptive father, the Maharaja of Porbandar. He received ₹ 24,000 in each of the first two years under consideration and ₹ 27,000 in the third year under consideration. These amounts were paid by the Maharaja to his adopted son from the time that the Maharaja started receiving the amounts of privy purse and he continued paying them till the abolition of the privy purse by the Central Government. The amounts varied from year to year and from time to time. The amounts were paid by the Maharaja to his adopted son from the amount of the privy purse that the Maharaja was receiving. Under the terms of the Covenant which was originally entered into by the Rulers of Kathiawar States for the formation of the United State of Kathiawar, which was subsequently known as the State of Saurashtra, the amounts of privy purses for the different rulers were fixed and as shown by the White Paper On Indian States, at page 239, and, schedule to the Covenant, the Maharaja of Porbandar was entitled to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that the fact that the quantum of the amount paid during the various periods was not constant or uniform and varied substantially showed that it entirely depended upon the bounty or discretion of the Ruler. Under the circumstances, the Tribunal held that the amounts could not be regarded as income and, accordingly, were not liable to tax. Thereafter, at the instance of the revenue, the following question has been referred to us for our opinion : Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the payments received by the assessee out of the privy purse paid to the Maharaja of Porbandar was not liable to be taxed in the hands of the assessee as his income ? In Income-tax Reference No. 257 of 1975, the assessee is the wife of the assessee in Income-tax Reference No. 43 of 1976. In her case also, the assessment years under consideration are assessment years 1968-69, 1969-70 and 1970-71. During each of the material previous year relevant to the assessment years in question the assessee received a sum of ₹ 18,000 in the first two years and ₹ 19,500 in the third year from her father-inlaw, the Maha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Rulers of Indian States (Abolition of Privileges) Act, 1972, with effect from April 2, 1973. Thus, prior to the abolition of cl. (19), any amount received by the Maharaja of Porbandar as privy purse was not to be included in the total income of the Maharaja for any previous year. The question then arises whether this amount was taxable when it was paid by the Maharaja to his adopted son, the assessee in Reference No. 43 of 1976, or paid to his daughter-in-law, the wife of the adopted son, who is the assessee in Reference No. 257 of 1975. It is obvious from what has been found by the Tribunal that there was no obligation either because of the directive from the Government of India or because of any document or any custom or usage or any statutory obligation on the Maharaja to pay any amount to his adopted son or to his daughter-in-law. It is true, as Mr. Raval for the CIT in these two references has pointed out, that the amount which was paid to the Maharaja was intended to cover all expenses of the Maharaja and his family including expenses on account of his personal staff, maintenance of residences, marriages and other ceremonies, etc. It is, therefore, clear that it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k ourselves is, whether in the hands of the Maharaja of Porbandar, the entire amount of ₹ 3,80,000 which was the amount of privy purse which he was entitled to receive from the Government of India would have been liable to tax, if the exemption by virtue of the Covenant and art. 291 of the Constitution and the provisions of the I.T. Act, had not been available to him. It is obvious, in the light of the test laid down in Sitaldas Tirathdas' case [1961] 41 ITR 367 (SC) that there was no diversion of any part of the amount of privy purse before it reached the Maharaja and, therefore, if the Maharaja had been liable to pay tax in respect of the privy purse, the entire amount of ₹ 3,80,000 would have been includible in his total income. Payments to different members of the family would be instances of application of the income after it reached the hands of the Maharaja. Therefore, so far as the persons who receive the money from the Maharaja were concerned, the said recipients would not be liable to payment of income-tax for the receipts by them because the money that they would be receiving was merely the instance of the application of the income of the Maharaja. Since ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... real source of his income but depended entirely on the whim of the donor, could not fall in the category of income, so far as recipients were concerned. In CIT v. Shaw Wallace and Co. [1932] 2 Comp Cas 276 ; LR 59 IA 206 ; AIR 1932 PC 138, the Privy Council pointed out the true character of income under the Indian I.T. Act. At page 212 of the (I.A.) report, their Lordships observed (p. 280 of Comp Cas) : The object of the Indian Act is to tax ' income ' a term which it does not define.It is expanded, no doubt, into ' income, profits and gains ', but the expansion is more a matter of words than of substance. Income, their Lordships think, in this Act connotes a periodical monetary return coming in ' with some sort of regularity, or expected regularity, from definite sources. The source is not necessarily one which is expected to be continuously productive, but it must be one whose object is the production of a definite return, excluding anything in the nature of a mere windfall. We may point out that though there is difference between the law of income-tax in England and India, the wordings of what was said by Lord Thankerton in Stedeford (H.M. Inspe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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