1971 (12) TMI 25 - HC - Central Excise

(1) Whether the receipt of maintenance allowance by the assessee from her husband was rightly held to be exempt u/s 4(3)(vii) of the Indian Income-tax Act 1922 ? - (2) If the answer to question No. (1) be in the negative then whether the entire receipt by the assessee was taxable when the agreement to live apart make provision for maintenance of the respondent as well as her two sons ? - no exemption under s. 4(3)(vii) could be claimed. The receipts were for the maintenance of the assessee and her two children. The fact that she received the entire amount does not make this whole amount taxable in her hand - It was the assessee s obligation to maintain her two minor children. The mere act of receiving money on behalf of the children does not make the entire amount taxable in her hands

Issues Involved:
1. Exemption of maintenance allowance under Section 4(3)(vii) of the Indian Income-tax Act, 1922.
2. Taxability of the entire receipt when the agreement included maintenance for the assessee and her two sons.

Detailed Analysis:

Issue 1: Exemption of Maintenance Allowance under Section 4(3)(vii)
The primary issue is whether the maintenance allowance received by the assessee from her husband is exempt under Section 4(3)(vii) of the Indian Income-tax Act, 1922. The facts reveal that the assessee and her husband entered into a separation agreement due to frequent quarrels, which resulted in the husband paying Rs. 2,000 per month for the maintenance of the assessee and her two children. The Income-tax Officer deemed this income taxable, while the Appellate Tribunal held it to be a non-recurring windfall.

The Tribunal's conclusion was based on the view that the agreement was not enforceable and payments depended on the husband's discretion. The court examined whether the agreement was enforceable under the Indian Contract Act, particularly Section 23, which invalidates agreements opposed to public policy. The court found that under Hindu law, a wife is not entitled to separate residence and maintenance unless treated cruelly, and mere quarrels do not justify such claims. Therefore, the agreement, which allowed the wife to live apart without valid grounds under Hindu law, was deemed opposed to public policy and void under Section 23.

However, the court noted that even if the agreement was void, the payments could still be considered income if they arose from a "source" and were not exempt under Section 4(3)(vii). The court referenced various cases, including Rani Amrit Kunwar v. Commissioner of Income-tax, which held that regular payments could constitute income even without an enforceable obligation. The court concluded that the payments received by the assessee were regular and related to the agreement, thus constituting her income. Consequently, the exemption under Section 4(3)(vii) was not applicable.

Issue 2: Taxability of the Entire Receipt
The second issue concerns whether the entire receipt is taxable when the agreement included maintenance for the assessee and her two sons. The court found that the Rs. 2,000 monthly payment was intended for the maintenance of both the assessee and her children. Therefore, the portion of the amount meant for her children could not be taxed in the hands of the assessee. The court held that the amount representing the maintenance of her two sons was held in trust by the assessee for their benefit and could not be included in her taxable income.

Conclusion:
1. The maintenance allowance received by the assessee is not exempt under Section 4(3)(vii) of the Indian Income-tax Act, 1922. The payments are considered her income, as they are regular and related to an agreement, even if the agreement is void.
2. The entire receipt is not taxable in the hands of the assessee, as it includes the maintenance amount for her two sons. The portion meant for the children is held in trust and cannot be taxed as the assessee's income.

The court directed that the parties bear their own costs, with counsel's fee assessed at Rs. 200.

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