1960 (11) TMI 17 - SC - Income Tax

Maintenance payments not deductible as application of income, Supreme Court overturns High Court decision.

Commissioner Of Income-Tax, Bombay City II Versus Sitaldas Tirathdas

The Supreme Court held that the maintenance payments made by the assessee to his wife and children were not deductible from his total income as they were ... Whether the assessee is entitled to a deduction of ₹ 1,350 and ₹ 18,000 from his total income of the previous year relevant to the assessment year 1953-54/1954-55 ? Held that:- The question referred to the High Court ought to have been answered in the negative. We, accordirgly, discharge the answer given by the High Court, and the question will be answered in the negative. The appeal is thus allowed Issues Involved:1. Whether the assessee is entitled to a deduction of Rs. 1,350 and Rs. 18,000 from his total income of the previous year relevant to the assessment year 1953-54/1954-55.Detailed Analysis:1. Entitlement to Deduction of Maintenance Payments:The primary issue referred to the High Court was whether the assessee could deduct Rs. 1,350 and Rs. 18,000 from his total income for the assessment years 1953-54 and 1954-55, respectively. The assessee's income sources included property, stocks and shares, bank deposits, and a share in a firm. He sought to deduct the sums paid as maintenance to his wife and children under a court decree.The High Court had ruled in favor of the assessee, basing its decision on previous judgments, including the Privy Council's ruling in Bejoy Singh Dudhuria v. Commissioner of Income-tax. The High Court opined that the income to the extent of the decree was diverted to the wife and children and never became the assessee's income.2. Nature of the Obligation:The Supreme Court revisited the principles laid down in earlier rulings. The distinction was made between income diverted by an overriding obligation before it reaches the assessee and income applied to discharge an obligation after it reaches the assessee. The case of Bejoy Singh Dudhuria was cited, where a charge for maintenance was created against the assessee, and it was held that the income was diverted before it reached the assessee.3. Relevant Judicial Precedents:The Supreme Court examined several precedents:- Bejoy Singh Dudhuria v. Commissioner of Income-tax: The Privy Council had ruled that income diverted by an overriding charge before it reaches the assessee is not assessable as the assessee's income.- P. C. Mullick v. Commissioner of Income-tax: Distinguished from Bejoy Singh Dudhuria, where payments were made out of income received by the executors and not diverted by an overriding title.- Diwan Kishen Kishore v. Commissioner of Income-tax: Allowed deduction where an allowance was payable to a junior member under a custom, creating a charge on the estate.- Commissioner of Income-tax v. Makanji Lalji: Disallowed deduction for maintenance paid to a widow, distinguishing it from Bejoy Singh Dudhuria.- Commissioner of Income-tax v. D. R. Naik: Allowed deduction where there was a charge for maintenance on the properties.- P. C. Mallick and D. C. Aich, In re: Disallowed deduction where payments were made out of income received by executors.- Hira Lal, In re: Allowed deduction where maintenance payments were subject to an overriding charge.- Prince Khanderao Gaekwar v. Commissioner of Income-tax: Allowed deduction where a valid charge was created by agreement.- V. M. Raghavalu Naidu & Sons v. Commissioner of Income-tax: Disallowed deduction for maintenance allowances paid by executors.4. Application to Present Case:The Supreme Court held that the present case did not involve an overriding charge that diverted the income before it reached the assessee. Instead, the maintenance payments were an application of the assessee's income after it had been received. Therefore, the case fell outside the rule in Bejoy Singh Dudhuria and aligned with the principle in P. C. Mullick.5. Conclusion:The Supreme Court concluded that the High Court's decision was incorrect. The amounts paid as maintenance were not deductible from the assessee's total income. The question referred to the High Court should have been answered in the negative, and the appeal was allowed with costs.Appeal allowed.