1926 (12) TMI 3 - HC - Income Tax

Court rules remuneration received by Mr. Eggar as taxable income despite charitable trust intention

The court held that the remuneration received by Mr. Eggar for his services should be included in his personal income for income-tax assessment. Despite ... - Issues Involved:1. Whether the sum of Rs. 7,299 stated in the assessment to be allowances as Professor of Law and Law Lecturer should be included in the personal income of the assessee or treated as the separate income of a trust.Issue-wise Detailed Analysis:1. Validity of the Trust:- The Commissioner of Income-tax argued that the money came into Mr. Eggar's hands in propria persona and was not paid to the trust because Mr. Eggar had not executed a deed embodying the terms of the proposed trust.- Section 5 of the Indian Trusts Act, 1882, requires either the execution of a deed and its registration or, in the case of a verbal trust, the handing over of the property to the trustee for a valid trust of moveable property.- Mr. Eggar did not execute a formal trust deed but submitted a draft to the Vice-Chancellor, which was not examined. Despite this, Mr. Eggar declared his intention to create a trust and carried out that intention by paying the amounts into a separate account for the University Boat Club.2. Exemption under the Indian Income-tax Act:- The income in question cannot be considered as income derived from property held under trust or other legal obligation wholly for religious or charitable purposes as per clause 1 of sub-section 3 of section 4 of the Income-tax Act.- The Allahabad High Court in a similar case (In the matter of Messrs Lachman Das, Narain Das) held that the portion of profits allocated to charitable purposes could not be treated as income derived from property held under trust or legal obligation.3. Nature of the Income:- The remuneration in question was taxable as salaries under section 6 of the Income-tax Act because the income was not derived from property held under trust for charitable purposes.- Mr. Eggar's altruistic offer and subsequent actions did not change the nature of the income received as salary for services rendered.- The Commissioner of Income-tax and the Deputy Commissioner both concluded that Mr. Eggar received the allowances as remuneration for services rendered, and no valid trust was formally constituted.4. Equitable Principles and Executory Trust:- Mr. Eggar contended that his intention should be given effect based on the equitable principle from Holroyd v. Marshall, which states that the beneficial interest in property is passed to the transferee if a contract to transfer property is one that a Court of Chancery would decree specific performance.- However, the principle laid down in Holroyd v. Marshall could not be applied in this case as it typically applies to cases involving default or fraud.- The transaction was regarded as an executory trust, which is common in the UK and involves directions to create a trust usually found in wills and marriage settlements.5. Charitable Trust Exemption:- The arrangement entered into by Mr. Eggar was considered a charitable executory trust within the definition laid down by Lord MacNaughton in Pemsel's case.- Despite this, the charitable executory trust did not qualify for exemption under the Indian Income-tax Act of 1922 because the income was not derived from property held on trust for charitable purposes.6. Conclusion:- The remuneration received by Mr. Eggar for his services as Senior Law Lecturer and Professor of Law should be included in his personal income for purposes of assessment to income-tax.- Mr. Eggar's acceptance of the office under the condition to dispose of his salary for the benefit of the University did not change the nature of the income as his salary.- The reference was answered in the terms that the sum of Rs. 7,299 should be included in the personal income of the assessee, with no order as to costs.