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of <h1>Court exempts Rs. 280 from income tax under Section 16(1)(c) - Irrevocable family arrangement ruling</h1> <h3>D.R. Shahapure Versus Commissioner of Income-tax</h3> D.R. Shahapure Versus Commissioner of Income-tax - [1946] 14 ITR 781 (BOM.) Issues:1. Interpretation of a family arrangement in business books for tax assessment.Analysis:The judgment involves a reference under Section 66(j) of the Indian Income-tax Act regarding the interpretation of an entry in the assessee's business books. The entry pertains to a family arrangement where the assessee made provisions for his fifth wife, including a promise of an estate worth Rs. 20,000 for her benefit until her death. The primary issue is whether the sum of Rs. 280 arising from this arrangement should be deemed as the income of the assessee under Section 16(1)(c) of the Income-tax Act.The Court analyzed the entry and determined it to be irrevocable, constituting a covenant to pay the income of Rs. 20,000 annually. The Court referred to Section 16(1)(c) which deems income from a settlement or disposition as income of the settlor. However, the third proviso exempts income from a settlement that is irrevocable for a specified period and from which the settlor derives no direct or indirect benefit. The Court concluded that the arrangement did not confer any benefit on the assessee and fell within the exemption of the third proviso, thus ruling in favor of the assessee.The judgment also involved a dissenting opinion by another judge, who concurred with the interpretation that the arrangement did not provide any direct or indirect benefit to the assessee. The judge further analyzed the application of the third proviso to Section 16(1)(c) and rejected arguments that the proviso required a transfer of assets or revocability to be applicable. The judge emphasized that the irrevocable nature of the settlement, coupled with the absence of any benefit to the assessee, met the conditions of the third proviso, leading to the same conclusion as the Chief Justice.In conclusion, the judgment delves into the intricate interpretation of tax laws concerning settlements and dispositions, particularly focusing on the concept of revocability and benefits derived by the settlor. The Court's detailed analysis of the provisions of the Income-tax Act and the specific arrangement in question resulted in a ruling that favored the assessee, emphasizing the absence of any direct or indirect benefit to the assessee from the arrangement.
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