1948 (3) TMI 32 - HC - Income Tax

Family payments deemed valid charge on property under Indian Income-tax Act

The High Court of Bombay held that the annual payment of &8377; 6,000 by the grandsons to their mother constituted a valid charge on their properties, ... - Issues:Interpretation of Section 9(1)(iv) of the Indian Income-tax Act regarding permissible allowances for annual charges; Whether the payment made by the assessees to their mother is a voluntary payment or an enforceable charge; Application of legal principles from previous judgments to determine tax liability.Analysis:The judgment by the High Court of Bombay involved a case where the assessees, grandsons of a Maharaja, agreed to pay a sum of &8377; 6,000 each annually to their mother, creating a charge on their private property. The main issue revolved around whether this payment qualified as a permissible allowance under Section 9(1)(iv) of the Indian Income-tax Act. The assessees argued that the payment was an annual charge, not a capital charge, falling under 'Income from Property.' The Tribunal and the Advocate-General contended that the payment was voluntary and not enforceable, thus not meeting the criteria for the allowance.The Court analyzed the nature of the payment and the legal obligations arising from the agreement. It was established that although the payment initially lacked consideration, it became enforceable through a written and registered agreement based on natural love and affection, meeting the requirements of Section 25(1) of the Indian Contract Act. The Court rejected the argument that the charge must be an overriding charge to qualify for the allowance under Section 9(1)(iv), emphasizing that the income derived from property includes various allowances, and once a valid charge is in place, the assessee is entitled to the allowance.The judgment referenced the decision of the Privy Council in Bejoy Singh Dudhuria v. Commissioner of Income-tax, Calcutta, where the diversion of income to a step-mother through a consent decree was deemed not taxable income. The Court distinguished this case from the current scenario, emphasizing that the assessees' agreement with their mother created a valid charge, entitling them to the allowance. The Court also addressed the decision in Hira Lal, In re, where mandatory payments under an award were excluded from taxation due to an overriding charge, highlighting the distinction between voluntary and obligatory payments.Ultimately, the Court held that the payment of &8377; 6,000 by the assessees to their mother, supported by natural love and affection, constituted a valid charge on their properties, entitling them to the permissible allowance under Section 9(1)(iv). The Tribunal's view that the payment was not allowable was rejected, and the question was answered in the affirmative, shifting the tax liability accordingly. The Commissioner was directed to bear the costs of the reference, concluding the judgment.