TMI Blog1992 (4) TMI 215X X X X Extracts X X X X X X X X Extracts X X X X ..... hapur. Under the Huzur order dated April 8, 1947, the assessee was granted a cash allowance of Rs. 3,000 per month from April 1, 1947. This order was passed by the successor of Chhatrapati Raja Ram Maharaj. After the merger of Kolhapur State in the then State of Bombay, the allowance was continued for some time up to July 31, 1955. Thereafter, it was discontinued. This was because of the provisions of the Bombay Merged Territories Miscellaneous Alienations Abolition Act, 1955 (hereinafter referred to as "the Act"). It may be stated at this stage that the Act was passed to abolish miscellaneous alienations of various kinds prevailing in the merged territories in the State of Bombay. The District Treasury Officer, Kolhapur, by his letter dated April 14, 1956, communicated the discontinuance of the said allowance. Under sub-section (1), clause (d), of section 15 of the Act, it was provided that a cash allowance could be paid as a compassionate payment notwithstanding the abolition of all alienations under section 4 of the Act. The assessee continued to receive the cash allowance from August 1, 1956, on modified terms. The sanction of this cash allowance was conveyed to the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the two relevant financial years were income within the meaning of the Income-tax Act. They could not be regarded as capital receipts in the hands of the assessee. Accordingly, the reference was answered in the affirmative in favour of the Revenue. It is, under these circumstances, the civil appeals arose, special leave petitions having been granted on August 10, 1979. Civil Appeal No. 2201 of 1979, directed against the order passed in Income-tax Reference No. 192 of 1974, relates to the assessment year 1970-71 corresponding to the financial year 1969-70. Civil Appeal No. 2202 of 1979, directed against the order passed in Income-tax Reference No. 191 of 1973, relates to the assessment years 1965-66, 1966-67, 1967-68, 1968-69 and 1969-70 corresponding to the financial years 1964-65 to 1968-69. Civil Appeal No. 2203 of 1979, directed against the order passed in Income-tax Reference No. 121 of 1969, relates to the assessment years 1963-64 and 1964-65 corresponding to the financial years 1962-63 and 1963-64. Learned counsel for the appellant draws our attention to the various provisions of the Act particularly to section 2 wherein the definition of alienation is provided. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bahadur [1971] 82 ITR 527 (SC), in no uncertain terms, it was laid down that it is the quality of the payment that is decisive of the character of the payment and not the method of the payment or its measure which will make it fall within the category of capital or revenue. Undoubtedly, the High Court had not kept these important aspects before rendering the decision whether it is a revenue receipt or not. The judgment of the High Court requires to be interfered with. Learned counsel appearing for the respondent (the Revenue), after referring to section 2(24) of the Income-tax Act, 1961, would submit that if it is not a windfall and if there is regularity in payment, that would be enough to constitute income. That is the test adopted as seen in the case of E. D. Sassoon and Co. Ltd. v. CIT [1954] 26 ITR 27,49 (SC). Similar is the case in Raghuvanshi Mills Ltd. v. CIT [1952] 22 ITR 484, 489 (SC). Therefore, if these are applied, there is no difficulty in holding that the payments received by the assessee which do not amount to compensation are nothing but income. Where it is a case of compensation, that would be as laid down in CIT v. Kamal Behari Lal Singha [1971] 82 ITR 460 (SC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce companies and also had taken out certain policies of the type known as 'consequential loss policy' which insured against loss of profit, standing charges and agency commission. The mills were completely destroyed as a result of fire and a certain amount was paid to the assessee by the insurance companies. The question was whether this amount which was treated as paid on account of loss of profits was assessable to income tax : Held, that the amount received by the assessee was income and so was taxable ; Held further, that the receipt was inseparably connected with the ownership and conduct of the business and arose from it and therefore it was not exempt under section 4(3)(vii). The view taken in England in B. C. Fir and Cedar Lumber Co. v. The King [1932] AC 441 and Commissioner of Inland Revenue v. William's Executors [1944] 26 TC 23 preferred. The remarks of the judicial Committee in CIT v. Shaw Wallace and Co. [1932] 59 I.A. 206 with regard to the meaning of the word 'income' must be read with reference to the particular facts of that case." What is to be carefully observed is at page 489, where it was held as under : "It is true the judicial Committee attempted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case may be, if the alienation was hereditary but subject to a deduction or cut at the time of each succession ; or (iii) three times the amount of cash allowance or the value of the allowance in kind, as the case may be, if the alienation was continuable for the lifetime of the alienee: Provided that if under the terms of a grant any cash allowance or allowance in kind (a) is received by a widow for the purpose of maintenance, she shall be paid an amount equal to such allowance for the remainder of her life ; (b) is received by an alienee for the purpose of education, he shall be paid an amount equal to such allowance during a like period, and subject to the like conditions, as are contained in the grant; (c) is received by an alienee who is (i) a male minor, he shall be paid an amount equal to the allowance till he attains the age of twenty-one years ; (ii) an unmarried female, she shall be paid an amount equal to the allowance till she marries, or the amount calculated in accordance with the provisions of this section, whichever is greater ; (d) is received by an alienee of whom, upon application made to it, in the manner prescribed, before the first day of August, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the proviso to section 15(1) of the Act to the making of a compassionate payment of Rs. 3,000 per month with effect from August 1, 1956, to the assessee during her lifetime as compensation for the abolition of the cash allowance held by her subject to certain conditions laid down therein". In the light of these facts, the only question is whether the amounts received by the assessee during these financial years could be regarded as capital receipts in the hands of the assessee. Strong reliance is placed on Raja Rameshwara Rao [1963] 49 ITR 144 (SC). That case no doubt dealt with interim maintenance allowance. At page 148, the following observations are found : "We have earlier said that it is not in dispute that the commutation sum was paid as compensation for the loss of the Jagir and was, therefore, capital which was not liable to be taxed. We thus find that the Regulations make a clear distinction between the commutation sum or compensation and the interim maintenance allowances. These allowances were obviously not intended to be compensation. The question then arises, if these allowances were not paid as compensation for the loss of the Jagir and were not of the nature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s is unlike those cases falling under clauses (i), (ii) and (iii) of subsection (1) of section 15. These constitute different classes as has already been pointed out by us. [Neither] the fact that the assessee has applied for a grant for maintenance nor again, the periodicity of payment would be conclusive as we will demonstrate a little later. Now, we come to the observations at page 149 of 49 ITR (SC): "We think for all these reasons the interim maintenance allowances were taxable income. If a source had to be found for them, the Regulations had to be held the source. A case very near to the one in hand and a case that throws a great deal of light on the problem that faces us is Commissioners of Inland Revenue v. Butterley Co. Ltd. [1956] 36 TC 411. We think a detailed reference to it can be very profitably made. That case was concerned with the English Coal Industry Nationalisation Act, 1946, which nationalised the collieries and divested all owners of them and the businesses concerning them. Under this Act and the Coal Industry (No. 2) Act, 1949, the assessee company became entitled to compensation for the assets transferred to the Government and to certain payments calle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount payable to any person under section 11, there shall be deducted the amount of any maintenance allowance which under sub-section (2) is debitable to the share of that person.' Section 13 required the Jagir administrator to maintain separate accounts in respect of each Jagir and afford the concerned jagirdar and hissedar reasonable facilities for the inspection of the same. Section 14 reads: 'The amounts payable to jagirdars and hissedars under the regulation shall be deemed to be interim maintenance allowances payable until such time as the terms for the commutation of jagirs are determined.' It is the character of the payments made under section 14 that came up for consideration before this court in Rameshwara Rao's case [1963] 49 ITR 144 (SC). Quite clearly the maintenance allowances paid were revenue receipts. Hence that decision has no bearing on the question of law under consideration in the present case. The observations made by this court in that decision must be read in the light of the facts of that case." (emphasis supplied) Thus, it is clear that the observations made by this court in Rameshwara Rao's case [1963] 49 ITR 144 (SC) must be read in the light of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 36 ITR 175, Godrej and Co. v. CIT [1959] 37 ITR 381, CIT v. Jairam Valji [1959] 35 ITR 148 and Senairam Doongarmall v. CIT [1961] 42 ITR 392." This was the reason why we said that neither the nomenclature nor the periodicity of the payment would be determinative factors. Regard must be had only to the nature and quality of the payment. The High Court took the view that this is not compensation. One thing that is certain is that the assessee lost her right to these allowances. Thereafter, on an application by way of compassion, the payment is made. The mere fact that, after the order is made, it becomes an enforceable right is neither here nor there. The reliance on Rameshwara Rao's case [1963] 49 ITR 144 (SC), does not seem to be correct in view of what we have pointed out above. It has already been seen that the marginal heading of section 15 is "compensation". The fact that, under clauses (i), (ii) and (iii) of section 15(1), the compensation is paid as of right and in cases falling under clause (d) of the proviso, it is a discretionary payment, would not stamp the payment with the character of revenue. As to how a marginal heading has to be construed can be gathered from Ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de has no bearing on the question. We will extract the headnote of this ruling: "During the accounting period ending April 13, 1950, the assessee, who was a shareholder in a company, received a dividend of Rs. 13,200 from the company. Out of that amount, a sum of Rs. 8,829 was paid out of capital gains received by the company in the shape of salamis and land acquisition compensation receipts after March 31, 1948. The question was whether that part of the dividend attributable to salamis and compensation for land acquisition was taxable in the hands of the assessee : Held, that the assessee had a beneficial interest in that sum in the hands of the company. Undoubtedly, the amount received by the company towards salami and compensation for acquisition of its lands was a capital receipt in the hands of the company and when the sum was distributed amongst its shareholders each of the shareholders took a share of the capital asset to which they were beneficially entitled. The receipt of Rs. 8,829 was a capital receipt in the hands of the assessee. The fact that the sum was distributed as 'dividend' did not change the true nature of the receipt ; a receipt was what it was and not wha ..... 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