1979 (1) TMI 23 - HC - Income Tax

Summary

Issues Involved:
1. Assessability of income from Worli property in the hands of the assessee for the assessment years 1960-61 to 1963-64.
2. Applicability of sections 16(1)(c) and 16(3)(iii) of the Indian Income-tax Act, 1922, to the assessee's case.

Detailed Analysis:

1. Assessability of Income from Worli Property:
The primary issue was whether the income from the Worli property, which was mortgaged to secure the monthly maintenance payable to the assessee's wife, was assessable to tax in the hands of the assessee for the assessment years 1960-61 to 1963-64. The assessee argued that the payment of maintenance to the wife amounted to a diversion at the source before the income reached the assessee's hands. However, both the Income Tax Officer (ITO) and the Appellate Assistant Commissioner (AAC) rejected this contention, viewing the payment as an application of income after it had reached the assessee.

The Tribunal, while rejecting the diversion at source argument, upheld the assessee's contention under section 9(1)(iv) of the Indian Income-tax Act, 1922. It held that the mortgage deed created a charge to secure an annual liability, allowing the assessee a deduction from the property income to the extent of Rs. 6,000 per year. The Tribunal relied on the precedent set in Prince Khanderao Gaekwar of Baroda v. CIT, where a legally enforceable charge created voluntarily for natural love and affection was deemed an admissible deduction.

The court examined the meaning of "annual charge" and referenced multiple legal precedents, including the House of Lords decision in Moss' Empires Ltd. v. IRC and the Supreme Court's approval in New Piece Goods Bazar Co. Ltd. v. CIT. It concluded that a recurring liability, even if payable monthly, qualifies as an annual charge. Thus, the Tribunal's decision to treat the maintenance payment as an annual charge under section 9(1)(iv) was upheld. The first question was answered in the negative and against the revenue.

2. Applicability of Sections 16(1)(c) and 16(3)(iii):
The second issue was whether the provisions of sections 16(1)(c) and 16(3)(iii) of the Indian Income-tax Act, 1922, applied to the assessee's case. These sections pertain to income settlements and transfers. The Tribunal found that these provisions did not apply because the property was neither settled nor disposed of by the assessee in favor of his wife. Mr. Joshi, representing the revenue, could not argue that there was any settlement as contemplated by these sections. Consequently, the second question was answered in the affirmative and against the revenue.

Conclusion:
The court concluded that the income from the Worli property was not assessable to tax in the hands of the assessee due to the allowance under section 9(1)(iv) for the maintenance payment, which was treated as an annual charge. Additionally, sections 16(1)(c) and 16(3)(iii) did not apply to the assessee's case. The revenue was directed to pay the costs of the reference.