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TMI Blog1960 (11) TMI 22X X X X Extracts X X X X X X X X Extracts X X X X ..... ved no salary for that post. On the same date by another Hazur Order the Maharaja granted a monthly pension of Rs. 2,000 to the assessee. The order was in the following terms : "He looked after us well in our childhood and rendered valuable services sincerely and with single minded loyalty to us and our State during extremely difficult period of the last war and thereafter, which has enhanced the prestige and prosperity of the State and given the State and the people a place of pride in India. In appreciation of this, it is (hereby) decided to grant him a monthly pension of Rs. 2,000 (two thousand) which is the monthly salary he is drawing at present date January 22, 1948." On May 31, 1950, the Maharaja directed Messrs. Premchand Roychand & Sons, Bombay, with whom he had an account " to pay by cheque to Mr. A. P. Pattani Rs. 5 lakhs out of the amount lying to the credit of my account with you." This sum was paid to the assessee on June 12, 1950. It is stated that the accountant of the Maharaja asked for instructions as to how that amount of Rs. 5 lakhs was to be adjusted in the accounts and on December 27, 1950, the Maharaja made the following order : " In consideration of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e amount of Rs. 5 lakhs is a taxable receipt falling under section 7(1) read with explanation 2." At the instance of the assessee the following question of law was referred to the High Court : " Whether the sum of Rs. 5 lakhs has been properly brought to tax in the hands of the assessee for the assessment year 1951-52 ? " and the further question as to the applicability of section 4(3)(vii) of the Income-tax Act was not referred on the ground that it did not arise out of the order of the Tribunal. The High Court, on the findings given by the Tribunal came to the conclusion that section 7(1), Explanation 2, of the Income-tax Act applied. It held that it was not possible to regard the receipt of this sum of money by the assessee as a windfall nor as a personal gift of the nature of a testimonial ; that the gift was not made in appreciation of the personality or character of the assessee, nor was it symbolical of its appreciation of his personal qualities ; that the consideration for the gift was in terms stated to be past services and, therefore, it could not be treated as a mere gift by an employer to an employee when the court did not know what motivated the making of that gift ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with that firm. The Income-tax Appellate Tribunal took into account the two documents the first of which has been described as an order of December 27, 1950, which was treated as a " contemporaneous document " and the other the letter of March 10, 1953, which was about two years later. The Tribunal did not accept the correctness of what was stated in the letter but attached a great deal of importance to the document of December 27, 1950, which the Tribunal thought was a contemporaneous document. It appears to us that the Tribunal was in error in treating the document of December 27, 1950, as a contemporaneous document and because of this erroneous approach the finding that it has given cannot be treated as a finding of fact which should bind the court in its decision. It is obvious that the reason why the Tribunal attached all this importance to the document of December 27, 1950, was that it was contemporaneous. It would be difficult to accept that a document written six months after the fact of payment could be termed as a contemporaneous document particularly when the object of that document was only to instruct an accountant as to how he should make a particular entry. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s sum of Rs. 5 lakhs was a gift in token of affection and regard and not as a payment in consideration of the services already rendered to the State or the Maharaja or both. It will not be inappropriate to mention that in the document dated December 27, 1950, it is stated that Rs. 5,00,000 was paid to the assessee as ex-Dewan of Bhavnagar State in consideration of his having rendered loyal and meritorious services to Bhavnagar State. There is no mention in the document of December, 1950, of any services rendered to the Maharaja and it does not seem to have been considered by the Tribunal as to why the Maharaja should make out of his personal account the gift of such a large amount for something which was not done for the Maharaja specifically, particularly when services to the State and to the Maharaja and his family had already been well compensated. This lends support to the submission of the appellants that the amount was paid merely as a gift in token of Maharaja's affection and regard for the assessee. Mr. Kolah for the appellants relied on several cases in support of his contention that the amount was not liable to tax under section 7. In Beynon v. Thorpe the assessee resig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ah also relied on Reed v. Seymour. In that case a committee of a cricket club granted a benefit match to a professional cricketer in their service. Out of the profits of the benefit match the beneficiary, who was the assessee, purchased a farm and assessment was made on him under Schedule E in respect of the proceeds of the benefit match but this was discharged by the General Commissioner on appeal. The sum was held to be in the nature of a personal gift and not assessable to income-tax. Viscount Cave in his speech posed the question which Mr. Justice Rowlatt put, i,e., " is it in the end a personal gift or is it remuneration " ; if the latter it is subject to tax, if the former it is not. In that case the test applied by Viscount Cave was that the terms of the assessee's employment did not entitle him to a benefit ; the purpose for which the amount was paid was to express gratitude of the employers and of the cricket-loving public for what he had done and in their appreciation of his personal qualities. It was also stated that if the benefit had taken place after Seymour's retirement no one would have sought to tax the proceeds as his income and the circumstance that it was given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d above the share of profit he might get from the firm for the services rendered. Counsel for the respondent argued that the gift made by the Maharaja was not in respect of personal qualities of the recipient but was relatable to his office although made by an ex-employer and was, therefore, taxable ; that the gift was voluntary is clear but it is not quite clear how the amount can be said to be relatable to the office held by the recipient. Even according to the case of the respondent the amount was paid about two years after the assessee had ceased to be an employee of the Maharaja or the State and immediately on his ceasing to be the Dewan of Bhavnagar State, the Maharaja had granted him a pension from out of the public funds for his services to the State as Dewan and for services rendered to the Maharaja and his family a handsome and a generous monthly pension of Rs. 2,000 per mensem. Apart from the fact that the Tribunal relied upon a document which was not contemporaneous, it seems to have overlooked the fact that there was a gap of two years before the amount of Rs. 5,00,000 was paid by the Maharaja out of his personal funds. Counsel for the respondent relied upon a judg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he reference is answered against the Commissioner of Income-tax. The appellants will have their costs throughout. HIDAYATULLAH, J.---I have had the advantage of reading the judgment just delivered by my brother, KAPUR, J. I regret very much my inability to agree that the appeal should be allowed and the order of the High Court set aside. In my opinion, the High Court had correctly answered the question referred to it. The facts of the case have been stated in detail in the judgment of my learned brother, and I need not repeat them but refer only to some of them briefly. On June 12, 1950, a sum of Rs. 5 lakhs was given by the Maharaja of Bhavnagar to the predecessor of the appellants, who was an ex-Dewan of the State. This was paid by Messrs. Premchand Roychand & Sons, Bombay, with whom the Maharaja had an account. There is no contemporaneous record to show why this payment was made ; but it appears that when the accountant of the Maharaja enquired how the amount was to be entered in the books of account, the Maharaja issued an order on December 27, 1950, to the following effect : " In consideration of Shri Anantrai P. Pattani the ex-Dewan of our Bhavnagar State having rendere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and would leave the matter at that." This, in my opinion, is a finding upon the evidentiary value of' the letter of the Maharaja, and though the order of the Tribunal is worded mellifluously, the Tribunal's decision is quite clearly that it was not persuaded to accept it. Indeed, of the two documents, greater worth has to be attached to one which was issued before the controversy started and was written not to the assessee but to the Maharaja's accountant who enquired how the account was to be adjusted. The use of the word " contemporaneous " to describe the order to the accountant meant no more than this that it was earlier in time and very soon after the amount was given. The Tribunal did not rely on any extraneous evidence in reaching its conclusion, but on something which had proceeded from the Maharaja himself. The motive of the Maharaja may be irrelevant, because what has to be seen is not why the payment was made but for what the assessee had received it. The Maharaja no doubt had been generous in fixing the pension at Rs. 2,000 per month. But the payment of such a large sum was not just bounty but to reward the past services, which judged from the scale of the pension had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , J., then referred to the dictum of Collins, M. R., in Herbert v. McQuade which may be quoted here : " Now that judgment, whether or not the particular facts justified it, is certainly an affirmation of a principle of law that a payment may be liable to income-tax although it is voluntary on the part of the persons who made it, and that the test is whether, from the standpoint of the person who receives it, it accrues to him in virtue of his office ; if it does, it does not matter whether it was voluntary or whether it was compulsory on the part of the persons who paid it. That seems to me to be the test ; and if we once get to this ---that the money has come to, or accrued to, a person by virtue of his office---it seems to me that the liability to income-tax is not negatived merely by reason of the fact that there was no legal obligation on the part of the persons who contributed the money to pay it." The learned judge also referred to the observations of Rowlatt, J., in Reed v. Seymour and of Viscount Cave, L.C., in Seymour v. Reed and observed that the real question was, is the payment in the nature of a personal gift or is it a remuneration?, and quoted as the reply the wo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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