TMI Blog1974 (3) TMI 9X X X X Extracts X X X X X X X X Extracts X X X X ..... taxable in his hands. The Income-tax Officer repelled this contention and brought the 25% receipts also to tax. This view was upheld on appeal. The assessee took the dispute to the Income-tax Appellate Tribunal. The Tribunal held : "....... the rules framed for such a deduction are very much obscure. In fact the rules suggest that the paying department will itself deduct 25%. In any event after going through all these rules we have no hesitation in holding that the amount payable to the U.P. Govt. at the rate of 25% of the fees realised by the authorised medical attendant is embodied in the nature of his employment as such. Under the circumstances the share of the U.P. Govt. is an overriding charge so much so that whenever an assessee receives an amount by way of receipts his actual income would be 75% and he will be holding 25% for and on behalf of the U. P. Government. This being so it is really of no consequence as to how does the assessee maintain his books of account, i.e., either on mercantile basis or cash basis." In the case of Dr. P. N. Awasthi, the Appellate Assistant Commissioner held that the entire receipts of fees were income. The assessee had paid Rs. 540 to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , not as part of his income, but for and on behalf of the person to whom it is payable." In that case the assessee's wife had obtained a decree for maintenance allowance against him. He claimed deduction of the maintenance allowance paid under the decree on the ground that his real income was his total income less the maintenance allowance paid. In support he relied upon the Privy Council decision in Bejoy Singh Dudhuria v. Commissioner of Income-tax. In Dudhuria's case the step-mother of the Raja had brought a suit for maintenance and a compromise decree was passed under which she was to be paid Rs. 1,100 per month, which amount was declared a charge upon the properties in the hands of the Raja, by the court. The Privy Council upheld the claim of the Raja that the maintenance allowance paid by him to his step-mother was not his income at all. The Privy Council observed : When the Act by section 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 step-mother has to that extent diverte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry legatee, subject, however, to certain payments of maintenance to widows, which was a charge upon the properties. The learned judge held : "This case also brings out correctly the principles laid down by the Judicial Committee that if there be an overriding obligation which creates a charge and diverts the income to some one else, a deduction can be made of the amounts so paid." Hidayatullah J. contrasted this with the decision in P. C. Mallick and D. C. Aich, In re . In that case, under a will, certain payments had to be made to the beneficiaries. In the will it was stated that the amounts were to be paid "out of the income of my property". Hidayatullah J. observed that the payments could only be made out of the income received by the executors and trustees from the property, and the sum was assessable to income-tax in the hands of the executors. The case was in line with the decision of the Privy Council in P. C. Mullick v. Commissioner of Income-tax . Reference was also made to Hira Lal, In re An award which was made a rule of the court allowed certain maintenance allowance to the widows. These allowances were made a charge upon the property. It was held that inasm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in the other, was taken in addition to the cost of the goods, they were both held income liable to income-tax because they were an integral part of the commercial transaction of sale. They were a part of the consideration for the sale and, therefore, part of the price of what was sold, In Chowringhee Sales Bureau's case the appellant was held entitled to claim deduction of the amount of sales tax as and when it paid the same to the Government. These cases establish that whatever receipt accrues owing to the business or professional transaction is income. Even though the dealer was under the Sales Tax Act statutorily liable to pay the sales tax realised by him to the State Government, yet it was held that the receipt was a trading receipt liable to income-tax in his hands subject to deduction being claimed as revenue expenditure as and when the payment was made to the State exchequer. The decision of the Supreme Court in Commissioner of Income-lax v. Imperial Chemical Industries India (P.) Ltd. related to payment of compensation for termination of agency. The I.C.I. (Export) Limited terminated the selling agency for explosives in India of four agents with effect from April 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt in Commissioner of Income-tax v. Travancore Sugars and Chemicals Ltd. and Commissioner of Income-tax v. Travancore Sugars and Chemicals Ltd. to which our attention was drawn by the learned counsel for the assessee are not material. In these cases the question for consideration was whether the payment of certain amount to the Travancore Government under an agreement was an allowable expense under section 10 of the Income-tax Act. Learned counsel for the assessee referred to the decision of the Madras High Court in V. Ramaswami Naidu v. Commissioner of Income-tax. In that case the assessee held shares in a foreign company incorporated in Ceylon. At a meeting of the general body of shareholders of that company, certain dividends were declared. From the gross amount of the dividends the company deducted tax in accordance with section 43(1) of the Ceylon Income-tax Ordinance, and paid the assessee only the balance. The question was whether the assessee should be assessee under the Indian Income-tax Act on the gross amount of the dividends including the Ceylon Income-tax that had been deducted. It was held that under the Ceylon Income-tax Ordinance the amounts deducted by the com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of obligation to pay is not enough. The true test is, whether the obligation is in the nature of a charge on the source, that is, the profit earning apparatus of the income. Such a charge obligation may be created by charging the property, or, by making the source of income, the capital asset of another (as in the case of a sub-partnership) ; or by an obligation to pay the price of acquiring a business, or a capital asset from its income. In such cases the source is charged with an overriding title which diverts the income. A mere obligation to pay another is an application of income. From the statement of the case it does not appear that the assessee in any of these references has actually paid the 25% of the fee to the State Government. In any event, nothing will turn upon it because in none of the present cases the assessee claimed deduction of the amount paid by him to the State Government as revenue expense. Their case is that the 25% of the receipts are not the assessee's income at all. The only relevant provision in the U. P. Medical Manual is rule 197-C. It provides : "197-C. The fees for medical attendance on Government servants belonging to the Central Governmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not create any charge on the professional service rendered by the assessee. If at all, it provides for the division of fees, that is to say, of the professional receipt already earned or accrued owing to the assessee having rendered professional service. It appears that the patient is requested to make payment of 25 per cent. of the fees to the Government for and on behalf of the assessee. The fourth note contemplates transfer of 25 per cent. of the fees that has been earned by the assessee and brought into existence. There is no overriding title to the source of the income. The payment by the patient of 25 per cent. of the fees earned by the medical officer to the Government may be a term embodied in the nature of the employment of the medical officer but that, in our opinion, is neither material nor relevant. It is none the less a case of application of income. If the assessee pays 25 per cent. of the fees received by him to the State Government the same will be deductible as an allowable expense as has been done in the case of Dr. Awasthi. We would answer the question by saying that the Tribunal was not right in holding that under the relevant rules to the U. P. Medical Manu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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