M.HIDAYATULLAH - (1.) THE Commissioner of Income-tax, Bombay City II, has filed this appeal with a certificate under S. 66-A(2) of the Income-tax Act, against the judgment and order of the High Court of Bombay dated 20/09/1957 in Income-tax Reference No. 15 of 1957.
(2.) THE question referred to the High Court for its opinion by the Income-tax, Appellate Tribunal, Bombay was : "Whether the assessee is entitled to a deduction of Rs. 1,350.00 and Rs. 18,000.00 from his total income of the previous year relevant to the assessment years, 1953-54, 1954-55?" The assessee, Sitaldas Tirathdas of Bombay, has many sources of income, chief among them being property, stocks and shares, bank deposits and share in a firm known as Messrs. Sitaladas Tirathdas. He follows the financial year as his accounting year. For the assessment years 1953-54 and 1954-55, his total income was respectively computed at Rs. 50,375.00 and Rs. 55,160.00 This computation was not disputed by him, but he sought to deduct therefrom a sum of Rs. 1350.00 in the first assessment year and a sum of Rs. 18,000.00 in the second assessment year on the ground that under a decree he was required to pay these sums as maintenance to his wife, Bai Deviben and his children. The suit was filed in the Bombay High Court (Suit No. 102 of 1951) for maintenance allowance, separate residence and marriage expenses for the daughters and for arrears of maintenance etc. A decree by consent was passed on 11/03/1953, and maintenance allowance of Rs. 1,500.00 per month was decreed against him. For the account year ending 31/03/1953, only one payment was made, and deducting Rs. 150.00 per month as the rent for the flat occupied by his wife and children, the amount paid as maintenance under decree came to Rs. 1,350.00. For the second year, the maintenance at Rs. 1,500 per month came to Rs. 18,000.00 which was claimed as a deduction. No charge on the property was created, and the matter does not fall to be considered under S. 9(1)(iv) of the Income-tax Act. The assessee, however, claimed this deduction on the strength of a ruling of the Privy council in Bejoy Singh Dudhuria v. Commissioner of Income-tax, Bengal, 1933-1 ITR 135. This contention of the assessee was disallowed by the Income-tax Officer, whose decision was affirmed on appeal by the Appellate Assistant Commissioner. On further appeal, the Tribunal observed: "This is a case, pure and simple, where an assessee is compelled to apply a portion of his income for the maintenance of persons whom he is under a personal and legal obligation to maintain. The Income-tax Act does not permit of any deduction from the total income in such circumstances."The Tribunal mentioned in the statement of the case that counsel for the assessee put his contention in the following words: "I claim a deduction of this amount from my total income because my real total income is whatever that is computed, which I do not dispute, less the maintenance amount paid under the decree." The assessee appears to have relied also upon a decision of the Lahore High Court in Diwan Kishen Kishore v. Commissioner of Income-tax, Punjab, 1933-1 ITR 143. The Tribunal, however, referred the above question for the opinion the High Court. The High Court followed two earlier decisions of the same Court reported in Motilal Manekchand v. Commissioner of Income-tax, 1957-31 ITR 735 and Prince Khanderao Gaekwar v. Commissioner of Income-tax Bombay, 1948-16 ITR 294, and held that, as observed in those two cases, the test was the same, even though there was no specific charge upon property so long as there was an obligation upon the assessee to pay, which could be enforced in a Court of law. In Bejoy Singh Dudhuria's case,1933-1 ITR 135, there was a charge for maintenance created against the assessee, and the Privy Council had observed that the income must be deemed to have never reached that assessee, having been diverted to the maintenance holders. In the judgment under appeal, it was held that the income to the extent of the decree must be taken to have been diverted to the wife and children, and never became income in the hands of the assessee.
(3.) THE Commissioner of Income-tax questions the correctness of this decision and also of the two earlier decisions of the Bombay High Court. We are of opinion that the contention raised by the Department is correct. Before we state the principle on which this and similar cases are to be decided, we may refer to certain rulings, which illustrate the aspects the problem takes. The leading case on the subject is the decision of the Judicial Committee in Bejoy Singh Dudhuria's case, 1933-1 ITR 135. There, the stepmother of the Raja had brought a suit for maintenance and a compromise decree was passed under which the stepmother was to be paid Rs. 1,100 per month, which amount was declared a charge up on the properties in the hands of the Raja, by the Court. The Raja sought to deduct this amount from his assessable income, which was disallowed by the High Court at Calcutta. On appeal to the Privy Council, Lord Macmillan observed as follows: "But their Lordships do not agree with the learned Chief Justice in his rejection of the view that the sums paid by the appellant to his stepmother were not 'income' of the appellant at all. This in their Lordships' opinion is the true view of the matter. When the Act by S. 3 subjects to charge 'all income' of an individual, it is what reaches the individual as income which it is intended to charge. In the present case the decree of the court by charging the appellant's whole resources with a specific payment to his stepmother has to that extent diverted his income from him and has directed it to his step-mother; to that extent what he receives for her is not his income. It is not a case of the application by the appellant of part of his income in a particular way, it is rather the allocation of a sum out of his revenue before it becomes income in his hands.";