TMI Blog1984 (9) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee and against the Revenue in CIT v. Trustees of H. E. H. the Nizam's Miscellaneous Trust, R. C. No. 126 of 1976, disposed of on April 9, 1980 . Following the said decision, the question is answered in the negative and against the Revenue. Also at the instance of the assessee, the Income-tax Appellate Tribunal referred the following two questions to this court for its opinion under section 256(1) of the Income-tax Act, 1961: " (1) Whether, on the facts and in the circumstances of the case, the rent received by the assessee by letting out the property known as 'Parade Villa ' to the H.E.H. the Nizam's Charitable Trust could be assessed under the head ' Other sources ' ? (2) Whether, on the facts and in the circumstances of the case, the remuneration of Rs. 39,000 paid to the trustees under the terms of the trust deed and the sum of Rs. 1,28,910 incurred by the assessee in the administration of the trust were liable to be excluded from the income assessable in the hands of the assessee or in the alternative whether the said sums could be considered as deductible expenditure for purposes of computing the income assessable in the hands of the assessee ? " At the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x Officer, the assessee contended that since the Nizam was the legal owner of the building till February 28, 1972, no income from the said property could be assessed in the hands of the assessee under the head 'Income from house property'. Reliance was placed upon the decision of the Andhra Pradesh High Court rendered in CIT v. Nawab Mir Barkat Ali Khan [1974] Tax LR 90 (R. C. No. 20 of 1971-January 30, 1973). While upholding the contention of the assessee, the Appellate Assistant Commissioner held that only a month's income from the building could be included for the assessment year 1972-73. He, however, held that any rent received by the assessee from the building prior to February 28, 1972, could be assessed under the head " Income from other sources ". The Appellate Assistant Commissioner also confirmed the decision of the Income-tax Officer disallowing the administrative expenses claimed by the assessee except to the extent of relief granted by him. The assessee thereupon preferred appeals to the Appellate Tribunal. The Revenue also preferred appeals to the Tribunal assailing that part of the decision of the Appellate Assistant Commissioner directing the deletion from the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... harge of income-tax and computation of total income, be classified under the following beads of income: A. Salaries. B. Interest on securities. C. Income from house property. D. Profits and gains of business or profession. E. Capital gains. F. Income from other sources. Section 22. Income from house Property.-The annual value of property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner, other than such portions of such property as he may occupy for the purposes of any business or profession carried on by him the profits of which are chargeable to income-tax, shall be chargeable to income-tax under the head 'Income from house property'. Section 56. Income from other sources.-(1) Income of every kind which is not to be excluded from the total income under this Act shall be chargeable to income-tax under the head 'Income from other sources', if it is not chargeable to income-tax under any of the heads specified in section 14, items A to E. (2) In particular, and without prejudice to the generality of the provisions of sub-section (1), the following incomes shall be chargeable to income-tax under the head 'Income fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... served, that several heads of income mentioned in section 6 are mutually exclusive; a particular income can come only under one of them." Adverting to the facts of the case, their Lordships added (at p. 431): " The receipts in the present case are the outstanding dues of professional work done. They were clearly the fruits of the assessee's professional activity. They were the profits and gains of a profession. They would fall under the fourth head, viz., 'Profits and gains of business, profession or vocation." They were not however chargeable to tax under that head because under the corresponding computing section, that is, section 10, an income received by an assessee who kept his accounts on the cash basis in an accounting year in which the profession had not been carried on at all is not chargeable and the income in the present case was so received. This is reasonably clear and not in dispute ". Dealing with the correctness of the decision of the Commissioner of Income-tax, their Lordships proceeded to state (at pp. 431 and 432): " As to the general principles, we first observe that as the heads of income are mutually exclusive, if the receipts can be brought under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er is included in total income under section 4 must be liable to tax. We find no warranty for this assumption. Section 4 does not say that whatever is included in total income must be brought to tax. It does not refer at all to chargeability to tax. Section 3 states that 'Tax... shall be charged... in accordance with, and subject to the provisions of, this Act in respect of the total income'. This section does not, in our opinion, provide that the entire total income shall be chargeable to tax. It says that the chargeability of an income to tax has to be in accordance with and subject to the provisions of the Act. The income has therefore to be brought under one of the heads in section 6 and can be charged to tax only if it is so chargeable under the computing section corresponding to that head. Income which comes under the fourth head, that is, professional income, can be brought to tax only if it can be so done under the rules of computation laid down in section 10. If it cannot be so brought to tax, it will escape taxation even if it be included in total income under section 4. Furthermore, the expression 'total income' in section 3 has to be understood as it is defined in secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Their Lordships also approved the principle laid down in Nalinikant Ambalal Moody v. Narayan Row [1966] 61 ITR 428 (SC) " whether an income falls under one head or another has to be decided according to the common notions of practical men, for the Act does not provide any guidance in the matter ". In CIT v. Smt. T. P. Sidhwa [1982] 133 ITR 840 (Bom), the question that arose before the Income-tax Officer was whether the income derived by the assessee as rent of the property for the period from April 1, 1959, to February, 1963, when he was not the legal owner of the property was chargeable to tax under the head " Income from other sources " under section 12 of the Indian Income-tax Act, 1922, for the assessment years 1960-61 and 1961-62 and under section 56 of the Income-tax Act, 1961, for the assessment years 1962-63 and 1963-64. The Income-tax Officer took the view that although the assessee might not be the legal owner of the property till February 2, 1963, the assessee was collecting the rental income to the extent of her one-fourth share from the property and, therefore, she could be regarded as the beneficial owner as regards the property income. He held that though such inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch of the Bombay High Court in CIT v. Smt. T. P. Sidhwa [1982] 133 ITR 840, 849 850, summed up the following principles laid down in N. A. Mody's case [1966] 61 ITR 428 (SC). " (i) Several heads of income mentioned in section 6 are mutually exclusive; the particular income can come only under one of them. (ii) If the receipts can be brought under one head of income, i.e., the fourth head of income in section 6, viz., ' Profits and gains of business, profession or vocation ', they cannot be brought under the residuary head as the heads of income are mutually exclusive. (iii) Whether an income falls under one head or the other has to be decided according to the common notion of practical men, for, the Act does not provide any guidance in the matter. In other words, the heads of income must be decided on the nature of the income by applying practical common notions and not by reference to the assessee's treatment of income. (iv) Whether an income is included in any of the heads other than the residuary head would depend on what kind of income it is, and if the income is the profit or gain of profession, it cannot come under section 12, for, section 12 does not say that an in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 9 not being fulfilled, viz., the condition that the assessee must be the owner of the property is not fulfilled. In either of the two cases, the provisions of section 12 will not be attracted. The distinction that is sought to be made by the learned counsel that the Supreme Court dealt with a case of professional income, while we are concerned with case of income from property is, to our mind, no distinction at all on principle. If the contention of the learned counsel that so far as the income from property which cannot be made chargeable to tax under the computing section 9 because the assessee is not the owner becomes chargeable to tax under the residuary head as 'Income from other sources' under section 12 is accepted, on the same reasoning, it must logically follow that if the income of an assessee from profession is not chargeable under the computing section I 0 because he had kept his accounts on the cash basis in the accounting year in which the profession had not been carried on, such income must necessarily come for taxation under the computing section 12 as 'income from other sources'. Such a result would be directly contrary to the ratio laid down in Mody's case [1966 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 9 of the Indian Income-tax Act, 1922, the owner must be the person who could exercise the rights of the owner, not on behalf of the owner but in his own right. In CIT v. Hans Raj Gupta [1982] 137 ITR 195 (Delhi), the assessee was the registered owner of certain immovable properties at S.P.D. and K. A company, R. Ltd., passed a resolution on May 23, 1950, to the effect that the freehold property comprising the land at S be purchased from the assessee for Rs. 2 lakhs and paid that amount to the assessee. H. Ltd., another company, passed a resolution on January 22, 1950, to the effect that the properties at P, D and K be acquired from the assessee, that the company should take over the premises as from July 1, 1950, and that no rent shall be paid thereafter. H. Ltd. also paid the sale consideration. No registered documents were executed. The question was whether the income from these properties after those dates should be taxed in the hands of the assessee or in the hands of the respective companies which were using the properties by virtue of payment of the sale price. It was held by a Division Bench of the Delhi High Court that the assessee was liable to be assessed to tax on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8, 1947, and January 6, 1948. The members of the association contributed varying amounts towards the working capital of the association. Out of the 30 members of the association, 23 were assessed to income-tax and in their individual assessments, their respective shares of the profits earned by the association during that period were included and the tax levied thereon was paid by them. Later, the Income-tax Officer initiated assessment proceedings and assessed the income of the association in its hands and served notices of demand. Ten of the members thereupon applied to the High Court of Allahabad under article 226 of the Constitution of India for relief against the order of assessment on the association. It was held by a Division Bench of the High Court that once the income of the association was charged to incometax in the hands of the members individually and the assessments of the members remained valid assessments, there could be no fresh assessment of the income. Repelling the contention put forward on behalf of the Revenue that there was no bar to tax the income of the association after it had already been charged to tax in the hands of the individual members of that assoc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e High Court on behalf of the Revenue that the assessment of the minor beneficiaries in respect of the income could not stand, in view of the assessment of C. R. Nagappa under section 64(v). In our view, that concession was Tightly made, and we have no doubt that all the assessments made against the minor beneficiaries will be annulled and the tax, if any recovered, will be refunded. " It, therefore, follows that the levy of tax on the rental income from the property earned by the assessee during the assessment years in question cannot also be sustained, the same having suffered tax in the hands of the late Nizam. Question No. 2. -Admittedly, a sum of Rs. 39,000 each was paid to the trustees towards their remuneration in the assessment year 1971-72 and a like sum in the assessment year 1972-73. Clause 2(b) of the deed of trust specifically provides for payment of remuneration to the trustees, not exceeding Rs. 15,000 per annum for the services expected of and rendered by them. The remuneration paid to the trustees, therefore, constitutes an overriding title in respect of that part of the income of the trust. In other words, the income of the trust liable to tax in the hands of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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