CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 22012203 of 1979.
From the Judgment and Order dated 25.7.1978 of the Bombay High Court in I.T. Ref. Nos 121/69, 191/73 and 192 of 1974.
T.A. Ramchandra and A.G. Ratnaparkhi for the appellant.
J. Ramamurthy and Ranbir Chandra for the Respondent.
The Judgment of the Court was delivered by
MOHAN, J. All these appeals, arising out of a judgment of the High Court of Bombay (Nagpur Bench), can be dealt with under a common judgment since they relate to one and same assessee, the appellant before us.
Shrimant Padmaraje R. Kadambande is the assessee and the only child of Late Chhatrapati Raja Ram Maharaj, the ruling Chief of the former State of Kolhapur. Under the Huzur Order dated April 8, 1974 the assessee was granted a cash allowance of Rs. 3,000 per month from April 1, 1947. This order was passed by the successor of Chhatrapati Raja Ram Maharaj. After the merger of Kolhapur State in the then State of Bombay, the allowance was continued for some time upto July 31, 1955. Thereafter is was discontinued. This was because of the provisions of the Bombay Merged Territories Miscellaneous Alienations Abolition Act, 1955 (hereinafter referred to as the Act). It may be stated at this state that the Act was passed to abolish miscellaneous alienations of various kinds prevailing in the merged territories in the State of Bombay.
The District Treasury Officer, Kolhapur, by his letter dated April 14 1956 communicated the discontinuance of the said allowance. Under subsection (1) clause (d) of Section 15 of the Act it was provided that a cash allowance could be paid as a compassionate payment notwithstanding the abolition of all alienations under Section 4 of the Act. The assessee continued to receive cash allowance from August 1, 1956 on modified terms. The sanction of this cash allowance was conveyed to the appellant by the Collector of Kolhapur through his letter dated October 6, 1959. It appears that an amount of Rs. 10 lakhs out of a trust property in the Bank of kolhapur in accordance with the provisions of Indenture of Trust dated October 19, 1947 was misappropriated. The cash allowance that was to be paid to the assessee under order dated October 6, 1959 was to be reduced in the circumstances mentioned therein.
For the assessment year 1963-64 the assessee received a sum of Rs. 36,000. For the assessment year 1964-65 she received a sum of Rs. 33,992. Before the Income Tax officer a question arose whether the amounts received by the assessee were subject to income tax. It was urged on behalf of the assessee that these receipts were of a capital nature and, therefore, would not be subject to income tax. This contention was negatived by the Income Tax Officer who subjected the respective amounts to tax in each of the assessment years.
Being aggrieved by the said assessment orders an appeal was preferred by the assessee before the Appellate Assistant Commissioner. Two alternative contentions were urged on behalf of the assessee:-
(i) the receipts were of a capital nature and, therefore, would be exempt from income tax.
(ii) having regard to the casual and non-recurring nature of this income it would be exempt under section 10(3) of the income Tax Act.
Rejecting these two contentions, the appellate Assistant Commissioner confirmed the orders of the Income Tax Officer.
The appeal to the Tribunal was preferred urging the same contentions but without success. Thereafter a reference was made for determination by the High Court for the assessment years 1963-64 and 1964-65 which reads as under:-
"whether the amounts of Rs.36,000 and Rs.33,992 received by Shrimant Padamraje R. Kadambande of Kolhapur from the Government of Maharashtra during the financial years ended 31.3.1963 and 31.3.1964 are receipts of an income nature and taxable under the provisions of the Indian income-tax Act, 1922 (sic) (1961)?"
The High Court on reference to the statutory provisions of the Act and relying on the case in H.H. Maharani Shri Vijaykuverba Sabeb of Morvi and Anr. v. Commissioner of Income-Tax, Bombay City ii, 49 ITR 594 came to the conclusion that the decision of the taxing authorities and the tribunal that the amounts received by the assesee during the two relevant financial years were income within the meaning of Income Tax Act. They could not be regarded as capital receipts in the hands of the assesee. Accordingly the reference was answered in the affirmative in favour of the revenue. It is under these circumstances, civil appeals arose, special leave petitions having been granted on 10th August, 1979. Civil appeal No.2201 of 1979, directed against the order passed in Income Tax Reference No.192 of 1973, relates to assessment year 1970-71 corresponding to financial year 1969-70.
Civil Appeal No.2202 of 1979, directed against the order passed in Income tax Reference No.191 of 197, relates to assessment years 1965-66, 1966-67, 1967-68, 1968-69 and 1969-70 corresponding to financial years 1964-65 to 1968-69.
Civil Appeal No.2203 of 1979, directed against the order passed in Income Tax Reference No.121 of 1969, relates to assessment years 1963-64 and 1964-65 corresponding to financial years 1962-63 and 1963-64.
The learned counsel for the appellant draws our attention to the various provision of the Act particularly to Section 2 wherein the definition of alienation is provided. According to him payment was originally made under Huzur Order which was abolished consequent to the merger of Kolhapur State. Section 4 of the Act makes it very clear that all alienations shall be deemed to have been abolished. The said Section contains a non obstante clause. However, where any cash allowance which is included in the definition of alienation is granted under Section 15(1)(d), the said payment is no compassionate ground. This payment is entirely different from those allowances paid under clauses (i), (ii) and (iii) of the said Section. If that much is clear the High Court is incorrect in holding that it is a receipt of revenue and would not amount to compensation when the statute declares otherwise. The interpretation of Section 15 runs counter to the spirit of the Section.
The revenue relies heavily on the case in Raja Rameshwara Rao v. Commissioner of Income-Tax Hyderabad, 49 IRT S.C. 144. The case referred to therein namely Butterley’s case proceeded on the contention that the payments were of income nature. Then again, Raja rameshwara Rao’s (supra) itself came to deal with maintenance allowance as qualified by statute. As a matter of fact, this is explained in S.R.Y. Sivram Prasad Bahadur v. Commissioner of Income-Tax, Andhra Pradesh, 82 ITR 527 at 537 wherein it was categorically held "shall be deemed to be interim maintenance allowances" and therefore, ware held as revenue receipts
The submission of the learned counsel is that in determining whether payments constitute revenue receipt of not, regard must be had to the statutory provisions. The principle to be applied is found in P.H. Divecha v Commissioner of Income-Tax, Bombay City 1, 48 ITR 222 at 231-32. It is nature and the quality of the payment and not he periodicity where of which constitute income. As a matter of fact, the periodicity was not held to be conclusive.
A case similar to the one on hand is H.H. Maharani Shri Vijaykuverba Saheb of Morvi and Anr. (supra) wherein the High Court held that a voluntary payment without consideration cannot fall in the category of income. The position here is exactly the same. There is no compulsion on the part of the government to give any allowance. It is purely discretionary it cannot be got over by saying that after the order is passed the assesee gets a right. That has nothing to do in determining the question.
In S.R.Y. Sivram Parasad Bahadur (supra), in no uncertain terms it was laid down that it is the quality of the payment that is decisive of the character of the payment and not the method of a payment or its measure which will make it fall within the category of capital or revenue. Undoubtedly, the High Court had not kept these important aspects before rendering the decision whether it is revenue receipt or not. The judgment of the High Court requires to be interfered with.
The learned counsel appearing for the respondent (revenue) after referring to Section 2(24) of the Income-Tax Act, 1961, would submit that if it is not windfall and if there is regularity in payment, that would be enough to constitute income. That is the test adopted as seen in the case of E.D. Sassoon & Co. Ltd. v. Commissioner of Income-tax, 26 ITR 27 at 49. Similar is the case is Raghuvanshi Mills Ltd. v. Commissioner of Income-Tax, 22ITR 484 AT 489. Therefore, if these are applied there is no difficulty in holding that the payments received by the assessee, which do not amount to compensation, are nothing but income. Where it is a case of compensation that would be as down in Commissioner of Income-Tax v. Kamal Behari Lal Singha, 82 ITR 460.
The direct authority which governs the present case is Raja Rameshwara Rao v. Commissioner of Income-Tax, 49 ITR 144 because that was a case of maintenance allowance. Here, as well, the assessee applied to the government in order to maintain herself. It is such an allowance which is talked of under clause (d) of Section 15(1) of the Act. Therefore, where she is paid maintenance allowance periodically it cannot be claimed as compensation. It does not matter on what ground or on what basis the grant is made. That is alien to taxation. Therefore, to say that it is paid as compassionate allowance cannot make the position of assessee any better.
The next authority on which reliance could be placed is S.R.Y. Sivaram Parasad Bahadur (supra) in which also it was held that one must look at the substance of the payment. Therefore, the judgment of the High court is correct.
No doubt, the marginal heading of the Section is compensation but that does not control the operation of the section or the interpretation of Section 15 The general principle that marginal heading cannot control the interpretation, is deducible from Chandroji Rao v. Commissioner of Income-Tax, 77 ITR 743.
We will now proceed to consider the correctness of these submission.Section 2(24) of the Income-Tax Act, 1961 defines in am inclusive manner what "income" is. The word "income" connotes periodical monetary return coming in with some regularity of expected regularity from definite sources. In E.D. Sassoon & Company Ltd. and Ors. (supra) at page 49 this Court cited the Privy Council ruling in Commissioner of Income-Tax v. Shaw Wallace & Co., (1932) ILR 59 Cal. 1343 at p. 1352 wherein it was observed.
"Income, their Lordships think, in the Indian IncomeTax 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."
In Raghuvansh Mills Ltd. (supra) while dealing with a case of the amounts received under an insurance policy it was held that it would constitute income. It is sufficient if we extract the headnote which is as under:
"The assessee company had insured its mills with certain insurance companies and also had taken out certain policies of the type knows as "consequential loss policy" which insured against loss of profit, standing charges and agency commission. The mills were completely destroyed as a result of fire and a certain amount was paid to the assessee by the insurance companies. The question was whether this amount which was treated as paid on account of loss of profits was assessable to Income_Tax:
Held, that the amount received by the assessee was income and so was taxable;
Held further, that the receipt was inseparably connected with the ownership and conduct of the business and arose from it and therefore it was not exempt under Section 4(3)(vii).
The view taken in England in B.C. Fir and Cedar Lumber Co v. The King [1932] A.C. 441 and Commissioners of Inland Revenue v. William’s Executors, [1944] 26 Tax Cas.23, preferred
The remarks of the Judicial Committee in Commissioner of Income Tax v. Shaw Wallace & Co., [1932] 59 I.A. 206 with regard to the meaning of the word "income" must be read with reference to the particular facts of that case."
What is to be carefully observed is at page 489 where it was held as under:
"It is true the Judicial Committee attempted a narrower definition in Commissioner of Income-Tax v. Shaw Wallace & Co., by limiting income to "a periodical monetary return ’coming in’ with but, some sort of regularity, or expected regularity, from definite sources" but, in our opinion, those remarks must be read with reference to the particular facts of that case."
Therefore, the observation of the Privy Council in Commissioner of Income Tax v. Shaw Wallace & Co case (supra) cannot be pressed into service as of general application as is sought to be done by the learned counsel for the revenue. Those observations must be read with reference to the particular facts of the case. The salient facts in this case are:
(1) Under the Huzur order dated April 8, 1947 passed by the Maharaja of Kolhapur. The appellant-assessee was granted a cash allowance of Rs.3,000 per month from April 1, 1947.
(2) After the merger of Kolhapur State the allowance was discontinued from July 31, 1955.
(3) Section 4 of the Act having an overriding effect over the settlement grant order etc. states that all alienations shall be deemed to have been abolished. Clause (ii) of Section 4 says:
"Save as expressly provided by or under this Act all rights legally subsisting on the said date in respect of such alienations and all other incidents of such alienation shall be deemed to have been extinguished."
It cannot be denied and in fact, it is not denied before us that under section 2 of the Act the allowance paid to the assessee would fall within the definition of alienation. In fact, section 2(1)(III) defines "alienation" as follows:
"Section 2(1)(III) - of cash allowance or allowance in kind of any person by whatever name called."
(4) The next question would be whether the saving clause would apply to the payment made in favour of the assessee. This takes us to Section 15. It is worthwhile to quote the section in full:
"Section 15(1) In the case of an alienation consisting of a cash allowance or allowance in kind, the alienee shall be paid compensation in respect of allowances in cash or kind:-
(i) seven times the amount of the cash allowance or of the value of the allowance in kind, as the case may be, if the alienation was hereditary without being subjected to deduction or cut at the time of each succession;
(ii) five times the amount of the cash allowance of the value of the allowance in kind, as the case may be, if the alienation was hereditary but subject to a deduction or out at the time of each succession ; or
(iii) three times the amount of cash allowance or the value of the allowance in kind, as the case may be, if the alienation was continuable for he life-time of the alienee:
Provided that if under the terms of a grant any case allowance or allowance in kind(a) is received by a widow for the purpose of maintenance, she shall be paid an amount equal to such allowance for the remainder of her life; (b) is received by an alienee for the purpose of education, he shall be paid an amount equal to such allowance during a like period, and subject to the like conditions, as are contained in the grant; (c) is received by an alienee who is(i) a male minor, he shall be paid an amount equal to the allowance till he attains the age of twenty-one years; (ii) an unmarried female, she shall be paid an amount equal to the allowance till she marries, or the amount calculated in accordance with provisions of this section, whichever is greater; (d) is received by an alienee of whom, upon application made to it, in the manner prescribed, before the first day of August 1958, the State Government is satisfied after such inquiry (if any) as it thinks fit, that he has no other source of income, or that if he has any other source of income it is insufficient for his livelihood, or that on account of old age, mental or physical infirmity or other reason he is incapable of earning a livelihood, or maintaining himself in a reasonable manner, there shall be paid to such alienee as a compassionate payment an amount equal to such allowance during his lifetime, or for such lesser period as the State Government in the circumstances thinks just. (Emphasis supplied) (2) For the purpose of sub_section (1), the amount of cash allowance shall be the amount paid or payable to the alienee for the year immediately preceding the appointed date and the value of the allowance in kind shall be the value of the allowance in kind paid or payable to the alienee for the year immediately preceding the appointed date, such value being determined in the prescribed manner." The marginal heading says compensation.
In our considered view those cases falling under subsection (1) clauses (i), (ii) and (iii) fall under a different category than what is covered under clause (d) of the proviso while clauses (i), (ii) and (iii) provide for statutory payment at different rates of payments for different categories of persons. In the case of a person falling under clause (d) it requires an alienee to make an application.
If such an application had been made in the prescribed from before the first day of August, 1958, the State Government, if satisfied after such enquiry, as it thinks fit, that the applicant has no other source of income, there shall be paid as a compassionate payment, an amount equal to such allowance during his life time or for lesser period, as the State Government may think fit.
(6) This payment is made on account of
(a) old age
(b) mental or physical infirmity or
(c) other reasons that he is engaged in earning his livelihood or maintaining himself in a reasonable manner. If was under Section 15 that an application was made by the assessee to the State Government on 23rd of May, 1958 for compassionate payment.
(7) The decision of the Government was communicated to the assessee by a letter of the collector dated April 6, 1959 wherein the Government stated that "Government is pleased to sanction under clause (d) of the proviso to Section 15(1) of the Act to the making of a compassionate payment of Rs.3,000 per month with effect from August 1, 1956 to the assessee during her life time as compensation for the abolition of the cash allowance held by her subject to certain conditions laid down therein".
In the light of these facts, the only question is whether the amounts received by the assessee during these financial years could be regarded as capital receipts in the hands of the assessee.
Strong reliance is placed on Raja Rameshwara Rao (supra). That case no doubt dealt with interim maintenance allowance. At page 148 the following observations are found: "We have earlier said that is not in dispute that the commutation sum was paid as compensation for the loss of the jagir and was, therefore, capital which was not liable to be taxed. We thus find the Regulation make a clear distinction between the commutation sum or compensation and the interim maintenance allowances. These allowances were obviously not in tended to be compensation.
The question then arises, if these allowances were not paid as compensation for the loss of the Jagir and were not of the nature of capital as such, what was their nature? We think that if we have regard to the provisions of the regulations under which they werw paid, as we must, there is not doubt that they were of the nature of income. No doubt they were not income of any of the kinds that are commonly found, but are, as Lord Radcliffe said in a case to which we shall later refer, sui generis We proceed now to discuss why we think they were income.
These allowances, we notice, were treated by the Regulations as something other than the compensation for the loss of the Jagir. They were, therefore, not treated as capital as representing compensation for the Jagir. If they were treated as capital for the reason that they were not compensation for the loss of the Jagir, we find no ground on which we can say they were capital. It would follow that they must be income and taxable as such. They were certainly not windfall, for a right to them was created by the Abolition Regulation, a right which under section 21 could be enforced in a civil court. Then we find that these allowances were payable with a regularity and were of a recurring nature, both of which are recognized as characteristic of income : see Commissioner of Income-tax v. Shaw Wallaced and Co., [1932] L.R.59 I.A.206; 1932 2 Comp.cas.276. Next, we observe that the Regulation advisedly called the payments "maintenance allowances", a nomenclature peculiarly suited to payments of the nature of income."
Therefore, in this case, the maintenance allowance was qualified by the statute and it was a nomenclature peculiarly suited to payments of the nature of income. The learned counsel for the revenue would state if the payments in this case do not constitute windfall and the right to payment of these cash allowances in the case on hand, could be enforced in civil court, as laid down in this ruling, there is no other way than to hold this to be an income, but, as we have pointed out just now, maintenance allowance is qualified by statute unlike the present case which is purely a discretionary payment. It is no use contending as also observed by the High court that after the order is passed an enforceable right arises. On the contrary the question would be whether the statute gives an enforceable right. We think, in such of those cases falling under clause (d) of the proviso to section 15(1) of the Act, no statutory right is created. This is unlike those cases falling under clauses (i),(ii) and (iii) of sub-section (1) of section 15. These constitute different clauses as has already been pointed out by us. The fact that the assessee has applied for a grant for maintenance nor again, the periodicity of payment, would be conclusive as we will demonstrate a little later.
Now, we come to the observation at page 149:
"We think for all these reasons the interim mainte-
nance allowances were taxable income. If a source
had to be found for them, the Regulation had to be
held the source.
A case very near to the one in hand and a case that
throws a great deal of light on the problem that
faces us is Commissioners of Inland Revenue v.
Butterley Co. Ltd., [1955] 36 Tax Cas.411 we think
a detailed reference to it can be very profitably
made. That case was concerned with the English Coal
industry Nationalisation Act, 1946, which nationa-
lised the collieries and divested all owners of
them and the business concerning them. Under this
Act and the Coal industry (no2) Act. 1949, the
assessee company became entitled to compensation
for the assets transferred to the Government and to
certain payments called "revenue payments" and
"interim income" for the period between what was
called the primary vesting date and the date on
which compensation for the assets taken away was
fully satisfied. The question was with regard to
these payments. The assessee company had contended
in the beginning that the payments were not of
income nature at all in the Court of Appeal however
that contention was abandoned
and it was conceded that the payments were of
income nature. The only dispute was whether they
were income chargeable to profits tax as profits of
a trade or business carried on by the assessee
company. The decision was that the payment were not
income or profit of any trade or business."
(Emphasis supplied)
It is clear from the above extract that Butterley’s case (supra) proceeded on concession that the payments were of income nature. This ruling was explained by this Court in S.R.Y. Sivaram Prasad Bahadur (supra) at pages 537-38 which is extracted as under:
"In order to understand the ratio of that decision,
we must bear in mind the provisions of the two
regulations referred to hereinbefore. The first
regulation provided for the taking over of the
management of the estates and the second regulation
prescribed the mode of determining the communica-
tion sum in respect of each Jagir and for its
payment, the character of the receipt which this
court was called upon to consider was the mainte-
nance allowance paid under section 14 of the first
of the two regulations. Under that regulation, the
administrator of jagir took over the management of
the estates pending the making provision for deter-
mination of the commutation amount. Provision in
that regard was made under second regulation. Till
the payment of the commutation sum, the administra-
tor merely managed the estates on behalf of the
former owners of those estates. This is clear from
sections 5,8,11,12,13 and 14 of the first regula-
tion. Under section 5 thereof the quondam jagirdars
were required to hand over the possession of their
estates to the jagir administrator. Section 8
required the former jagirdars to pay to the Govern-
ment the administration expenses of their estates.
Section 11 provided for distribution of the net
income of an estate between the jagirdar and his
hissedars who were entitled to a share in the
income of the estate. Section 12(1) says:
"From the amount payable to any person under sec-
tion 11, there shall be deducted the amount of any
maintenance allowance
which under sub-section (2) is debitable to the
share of that person."
Section 13 required the jagir administrator to
maintain separate accounts in respect of each jagir
and afford the concerned jagirdar and hissedar
reasonable facilities for the inspection of the
same. Section 14 reads:
"The amounts payable to jagirdaras and hissedars
under the regulation shall be deemed to be interim
maintenance allowances payable until such time as
the terms for the commutation of jagirs are deter-
mined."
It is the character of the payments made under
section 14 that came up for consideration before
this court in Rameshwara Rao’s case (1963) 49 ITR
SC 144. Quite clearly the maintenance allowances
paid were revenue receipts. Hence that decision has
no bearing on the question of law under considera-
tion in the present case. The observations made by
this court in that decision must be read in the
light of the facts of that case.
(Emphasis supplied)
Thus it is clear that the observations made by this Court in Rameshwara Rao’s case (supra) must be read in the light of the facts of the case From the ruling in S.R.Y. Sivaram Prasad Bahadur (supra) it is clear that what is decisive of the character is the quality of the payment. The following passage at page 535 is of vital significance:
"It is the quality of the payment that is decisive
of the character of the payment and not the method
of the payment or its measure, and makes it fall
within capital or revenue."
Equally, in P.H. Divecha’s case (supra) at page 231-32 the test applied was as under:
"In determining whether this payment amounts to a
return or loss of a capital asset or is income,
profits or gain liable to income-tax, one must have
regard to the nature and quality of the payment. If
the payment was not received to compensate for a
loss or profits of business, The receipt in the
hands of the
appellant cannot properly be described as income,
profits or gains as commonly understood. To consti-
tute income, profits or gain, there must be a
source from which the particular receipt has ari-
sen, and a connection must exit between the quality
of the receipt and the source. If the payment is by
another person it must be found out why that pay-
ment has been made. It is not the motive of the
person who pays that is relevant. More relevance
attaches to the nature of the receipt in the hands
of the person who receives it though in trying to
find out the quality of the receipt one may have to
examine the motive out of which the payment was
made. It may also be stated as a general rule that
the fact that the amount involved was large or that
it was periodic in character have no decisive
bearing upon the matter. A payment may even be
described as "pay". "remuneration", etc., but that
does not determine its quality, though the name by
which it has been called may be relevant in deter-
mining its true nature, because this gives an
indication of how the person who paid the money and
the person who received it viewed it in the first
instance. The periodicity of the payment does not
make the payment a recurring income because perio-
dicity may be the result of convenience and not
necessarily the result of the establishment of a
source expected to be productive over a certain
period. These general principles have been settled
firmly by this court in large number of cases: see,
for example, Commissioner of Income-Tax v. Vazir
Sultan & Sons, (1959) 36 ITR 175, Godrej & Co v.
Commissioner of Income-Tax v. Jairam Valji,
(1959)35 ITR 148 and Senairam Doongarmall v Commis-
sioner of Income tax (1961) 42 ITR 392."
This was the reason why we said neither the nomenclature nor the periodicity of the payment would be the determinative factors. Regard must be had only to the nature and quality of payment. The High Court took the view that this is not compensation. One thing that is certain is that the assessee lost her right to these allowances. Thereafter, on an application by way of compassion the payment is made. The mere fact, after the order is made it becomes an enforceable right it neither here nor there. The reliance on Rameshwara Rao’s case (supra) does not seem to be correct in view of what we have pointed out above.
It has already been seen that marginal heading of Section 15 is "compensation". The fact that under clauses (i), (ii) and (iii) of Section 15(1) the compensation is paid as of right and in cases falling under clause (d) of the proviso, it is a discretionary payment, would not stamp the payment with a character of revenue. As to how a marginal heading has to be construed can be gathered from Chandroji Rao’s case (supra). It is stated therein about the marginal heading to a section to a section cannot control the interpretation of the words of the section particularly where the meaning of the section is clear and unambiguous.
For a moment, we are not interpreting the words of the section but we are only holding that even a payment under clause (d) is nothing but compensation because as the facts disclose the amount of Rs.10 lakhs out of a trust property in the Bank of Kolhapur was misappropriated.
There is no compulsion on the part of the Government to make the payment nor is the Government obliged to make the payment since it is purely discretionary. A case similar to the one on hand in H.H Maharani Shri vijaykuverba saheb of MORVI (supra), headnote of which is extracted:
" A voluntary payment which is made entirely without
consideration and is not traceable to any source
which a practical man may regard as a real source
of his income but depends entirely on the whim of
the donor cannot fall in the category of income.
The ruler of a native State abdicated in
favour of his son in January, 1948. From April
1949, onwards his son paid him a monthly allowance.
The allowance was not paid under any custom or
usage. The allowance could not be regarded as
maintenance allowance, as the assessee possessed a
large forture.
Held, that as the payments were commenced
long after the ruler had abdicated, they were not
made under a legal or contractual obligation. As
the allowances ware not also made
under a custom or usage or as a maintenance allow-
ance, they were not assessable."
The position is exactly the same. The payment made by the government is undoubtedly voluntary. However, it has no origin in what might be called the real source of income. No doubt section 15(1) proviso clause (d) enables the applicant to seek payment but that is far from saying that it is a source. therefore, it cannot afford any foundation for such a source. Further, it is a compassionate payment, for such length of period as the government may, in its discretion , order.
Lastly, we may refer to Kamal Behari Lal Singha’s case (supra) which is pressed into service by the revenue, to support its contention one has to look at the character of the payment the hands of the receiver and the source from which the payment is made has no bearing on the question. We will extract the head note of this ruling:
"During the accounting period ending April 13,
1950, the assesse, who was a shareholder in a
company, received a dividend of Rs.13,200 from the
company. Out of that amount a sum of Rs.8,829 was
paid out of capital gains received by the company
in the shape of salamis and land acquisition com-
pensation receipts after March 31, 1948. The ques-
tion was whether that part of the dividend at-
tributable to salamis and compensation for land
acquisition was taxable in the hands of the asses-
see:
Held, that the assessee had beneficial interest in
that sum in the hands of the company. Undoubtedly,
the amount received by the company towards salami
and compensation of acquisition of its lands was a
capital receipt in the hands of the company and
when the sum was distributed amongst its sharehold-
ers each of the shareholders took a share of the
capital asset to which they were beneficially
entitled. The receipt of Rs8,829 was capital re-
ceipt in the hands of the assesee. The fact that
the sum was distributed as "dividend"did not change
the true nature of the receipt; a receipt was what
it was and not what it was called
Trustees of the Will of H.K. Brodie v. Commission-
ers of Inland Revenue, [1993] 17 T.C. 423 K.B., ap
plied.
Held also, that that part of the dividend received
by the assessee attributable to land acquisition
compensation received by the company after March
31,1948, was not receipt of "dividend" within the
meaning of section 2(6A) of the Income-tax Act,
1922.
Commissioner of Income-tax v, Nalin Behari Lall
Singham (1969) 74 I.T.R. 849 S.C., Followed.
It is now well-settled that in order to find out
whether a receipt is a capital receipt or a
revenue recepit one has to see what it is in the
hands of the receiver and not its nature in the
hands of the payer. In order words, the nature of
the receiptis determined entirely by its
character in the hands of the receiver and the
source from which the payment is made has no
bearing on the question. Where an amount is paid
which, so far as the payer is concerned, is paid
wholly or partly out of capital, and he receives it
as income on his part, the entire receipt is
taxable in the hands of the receiver."
This is a case of compensation paid under the Land Acquisition Act. It was held that a compensation as such would be capital receipt in the hands of the receiver and the fact that it was distributed as dividends would not change the true nature of the receipt.
As a result of the above discussion, we hold that the amounts received by the asseessee during the financial years in question have to be regarded as capital receipts and, therefore, are not income within the meaning of Section 2(24) of the Income Tax Act. accordingly, we set aside the judgment of the High Court and allow the appeals with no order as to costs. N.P.V. Appeals Allowed.