Appeal No 266 of 1969
Appeal by special leave from the judgment and order dated August 16 1967 of the Kerala High Court in Income tax Referred Case No 44 of 1966
C K Viswanatha Iyer and K Jayaram for the appellant
V A Seyid Muhammad and A G Pudissery for the respon dent
The Judgment of the Court was delivered by Hegde J
The appellant Venugopala Varma Rajah is the present Rajah of the Vengunad Swaroopan in Palghat District Kerala State
He is the Karnavan of his Tarwad
He will be hereinafter referred to as the assessee
The predecessor of the appellant as the then Kamavan of the family submitted the return for the assessment year 1959 60 under the Kerala Agricultural Income tax Act which will hereinafter be referred to as the Act showing a gross income of Rs 121912 and a net income of Rs 8406560 P
That represented the income from the properties held by him under the family Karar dated May 29 1909
Agricultural Income tax Officer overruling the objection of the assessee included in the income returned the income of the properties which had been put in possession of the junior members of the family under the aforementioned Karar of 1909
The net income so computed was Rs 232957 and a tax of Rs 13067235 P was imposed
In appeal the Appellate Authority excluded from the taxable income the income of the properties allotted to the Rani Group but sustained the addition of the income of the properties allotted for the enjoyment of the male members
Aggrieved by the order of the Appellate Authority the assessee took up the matter in second appeal to the Appellate Tribunal of the Agricultural Income tax
The Tribunal rejected the contention of the assessee and dismissed the appeal
Thereafter at the instance of the assessee it stated a case under section 601 of the Act and submitted to the High Court for its opinion three questions of law namely L119SupCI72 1002 1 Whether the findings of the Tribunal that the family karar of 1909 does not constitute a diversion of family income to the various allottees thereunder is correct  2 Whether the findings of the Tribunal that the provisions of sub section 1 of sec
9 of the Act are applicable only to cases of diversion of income and not otherwise is correct  3 Whether the findings of the Tribunal that the provisions of sub sec
1 of sec
9 of the Act are not applicable to the facts of this case are correct  Questions Nos 2 and 3 in our opinion do not bring out the import of sec
9 1 correctly but it is not necessary to go into that aspect as our decision covers the real point in issue
The Reference originally came up for hearing before a Division Bench but as the questions arising for decision were considered to be of importance the same was referred to a Fun Bench of three judges
The High Court by its judgment dated August 16 1967 answered Question Nos 1 and 2 against the assessee
It did not answer the third question as it was of the view that answer to that question was unnecessary in view of its findings on Questions Nos 1 and 2
Thereafter this appeal was brought by certificate
The assessee in this case is the HUF of which the appellant was the Kamavan at the relevant time
The question for decision is whether the income of the properties put in possession of the male members under the Karar of 1909 continues to be the income of the family
At present we are not concerned with the income of the properties put in possession of the Rani Group in view of the decision of the Appellate Authority which had not began appealed against
If the income in dispute continues to be the income of the family then the revenue is justified in bringing the same to tax under the provisions of the Act
On the other hand if that income has ceased to be the income of the family then the same cannot be brought to tax in the hands of the assessee
Therefore the sole question is whether that income is the income of the family  Section 9 of the Act provides 91 In computing the total agricultural income of an assessee all agricultural income arising to any person by virtue of a settlement or disposition whether revocable or not and whether effected before or after 1003 the commencement of this Act from asset remaining the property of the settlor or disponer shall be deemed to be the agricultural income of the settlor or disponer and all agricultural income arising to any person by virtue of a revocable transfer of asset shall be deemed to be the agricultural income of the transferor Provided that for the purpose of this sub section a settlement disposition or transfer shall be deemed to be revocable if it contains any provision for the transfer directly or indirectly of the agricultural income or asset to the settlor disponer or transferor or in any way gives the settlor disponer or transferor a right to reassume power directly or indirectly over the agricultural income or assets  Provided further that the expression settlement disposition shall for the purposes of the sub section include any disposition trust covenant agreement or
arrangement and the expression settlor or disponer in relation to a settlement or disposition shall include any person by whom the settlement or disposition was made Provided also that this sub section shall not apply to any agricultural income arising to any person by virtue of a settlement or dispo sition which is not revocable for a period exceeding six years or during the life time of the person and from which agricultural income the settlor or disponer derives no direct or indirect benefit but that the settlor shall be liable to be assessed on the said agricultural income as and when the power to revoke arises to him
 A Hindu Undivided Family is a person within the meaning of s2m of the Act
We shall now proceed to examine the nature of the Karar entered into in 1909
The family of the assessee appears to have been one of the premier land holding families in Malabar
It appears to have had agricultural properties in various places
To the Karar in question all the then living members  12 in number of the family were parties
The properties mentioned in A  Sch
to the Karar were set apart for the maintenance education and other expenses of the female and male members residing in Kalari Kovilagom which is otherwise known as Rani Group
Under the Karar Karnavan of the Tarwad was to perform the marriage ceremonies of the female members of the Tarwad in accordance with the prevailing conditions and to meet 1004 the expenses thereof
All other expenses of female and male members residing in Kalari are to be met from the income of the A  Sch properties
The members residing in the Kalari have no right to alienate or encumber the properties allotted to them and all government revenue due in respect of those properties should be paid by them
Party No 2 the second senior most member in the family was to be given 7000 paras of paddy annually for his maintenance and for this purpose paddy lands yielding 3500 paras of paddy shown in B  Sch were made over to his possession and Party No 1 Karnavan of the Tarwad was directed to give to Party No 2 from Malayalam era 1085 onwards 3500 paras of paddy
Further the Karnavan was directed that he should redeem Karukakode Challa Nilam and make over the same to Party No 2 but after making over the same to Party No 2 be was not to pay 3500 paras of paddy referred to earlier
 C Sch properties yielding an income of 4750 paras of paddy were allotted for the enjoyment of Party No 3
He was required to maintain himself from out of their income
Properties shown in D  Sch were set apart for the mainte nance of Party No 4
The land revenue of B C and D Sch
properties was required to be paid by the Karnavan of the tarwad
On the death of Party No 2 or on his becoming Karnavan of the family Party No 3 was to take over the properties allotted for the maintenance of Party No 2 and Party No 4 was to take over the properties for the maintenance of Party No 3
The Karar prohibited the persons who were in possession of the properties allotted for their enjoyment from alienating or encumbering those properties and if in contravention of those terms they alienated any of those properties the Karnavan was entitled to resume the properties treating the alienation as void
Clause 18 of the Karar prohibited the parties in possession of the properties from cutting and selling the kuzhikoors or dismantling the buildings in the properties in their possession
Clause 19 of the Karar prohibited the parties from enhancing the munpattom amounts due to the tenant
Clause 6 of the Karar provided that all the male members living in the Kalari on completing the age of 21 should leave the Kalari and thereafter the Kamavan should make arrangements for their maintenance
Karar does not stipulate what arrangement he should make for their maintenance
Therefore it follows that he may maintain them either in the Tarwad house or give them maintenance allowance either in the shape of paddy or cash
It may also be noted that the Karar does not provide as to what would happen if the number of members in the Tarwad substantially increases
One other thing that has got to 1005 be noted is that the Karar is silent as to what would happen to the properties shown in Schs
B C and D after Parties Nos 2 3 and 4 die all of whom we were told have died
Hence Kamavan can take possession of them on behalf of the family after their death
On an examination of the various clauses in the Karar it is obvious that the joint status of the parties was not disrupted
The arrangement made in the Karar was only an arrangement for providing maintenance
No party was given any absolute right in any portion of the family properties
The properties mentioned in the Karar continued to be the properties of the family
The arrangement made under the Karar cannot even be considered as a permanent arrangement
The properties were not divided on the basis of Thavazies
The liability to maintain the male members aged more than 21 years excepting Parties Nos 2 3 and 4 continued to be that of the Karnavan
The Karar also does not provide for devolution of the properties allotted to Parties 2 to 4
Hence those properties must necessarily go back to the possession of the Karnavan after those Members die
We have earlier seen that the responsibility of performing the marriage ceremonies of the female members continued to be that of the Karnavan
He is also responsible for the payment of land revenue in respect of the family properties excepting properties included in Sch
A to the Karar
Under these circumstances it is not possible to hold that Karar in question embodied an irrevocable settlement
In the very nature of things the arrangement made under that Karar must be held to be one which is revocable if there is any substantial change in the circumstances of the family
For our present purpose it is sufficient if we hold that the properties allotted for the enjoyment of the various members of the family under the Karar continued to be the properties of the family
In view of section 91 of the Act in computing the total agricultural income of the HUF all agricultural income arising from the assets remaining the property of the family should be deemed to be the agricultural income of the family
We have earlier come to the conclusion that the agrrangement made under the Karar is revocable if there is substantial change in the circumstances of the family
That arrangement confers benefit on the family inasmuch as it is absolved of the responsibility to maintain its members which otherwise is its responsibility
Section 9 1 of the Act is similar to section 16 1 c of the Indian Income tax Act 1922
The latter section has come up for consideration by courts
The courts have laid down the test that if 1006 the income in dispute is considered as having been applied to discharge an obligation of the assessee the same is liable to be included in the assessable income of the assessee but if on the other hand the same had been diverted by an overriding charge then it is not liable to be included in the assessable income of the assessee as it ceased to be his income
If we apply this test to the facts of the present case it is clear that the income in dispute continued to be the income of the family
It was merely applied to discharge an obligation of the family namely the obligation to maintain the junior members of the family
At first sight some of the decided cases on the subject appear to speak in conflicting voices
But on a careful examination it is possible to find out the dividing line
The earliest decision on the subject is that of the Judicial Committee in Raja Bejoy Singh Dudhuria vs Commissioner of Income tax Bengal1
The assessee therein succeeded to the family ancestral estate on the death of his father
Subsequently his step mother brought a suit for maintenance against him in which a consent decree was made directing the assessee to make a monthly payment of a fixed sum to his step mother and declaring that the maintenance was a charge on the ancestral estate in the hands of the assessee
While computing his income the assessee claimed that the amounts paid by him to the step mother under the decree should be excluded
That contention was not accepted by the authorities under the Act as well as by the High Court but the Judicial Committee reversing their decision came to the conclusion that though assessee s liability under the decree did not fall within any of the exemptions or allowances conceded in sections 7 to 12 of the Indian Income tax Act yet the sums paid by the assessee to his stepmother were not income of the assessed at all the decree of the court by charging the appellant s whole resources with a specific payment to his step mother had to that extent diverted his income from him and had directed it to his step mother to that extent what he received for her was not his income it was not a case of the application by the appellant of part of his income in a particular way it was rather the allocation of a sum out of his revenue before it became income in his hands
This decision at the first sight appears to lend support to the assessee s contention but in understanding the ratio of the decision we must bear in mind the fact that in that case the Advocate General had abandoned before the High Court the contention that the assessee and his stepmother were members of undivided family and accepted the Position that the appellant was liable to be assessed as an individual and in no other manner
In view of this concession the payment that had to be made to the step mother of the assessee became a 1 1007 charge on tile estate even before that estate devolved on him
Therefore what the assessee got was the income of the property minus what he had to pay to his step mother
The above conclusion of ours receives support from a later decision of the Judicial Committee in P C Mullick and anr
Executors vs Commissioner of Income tax Bengal1
Therein a testator had by his will appointed the appellants his executors and had directed them to pay Rs 10000 out of the income of his property on the occasion of his addya sradh for expenses in connection therewith to the person who was entitled to perform the sradh
He had also directed them to pay out of the income of his property the costs of taking out probate of his will
During the year of account the executors had paid Rs 5537 for expenses in connection with the addya sradh and a sum of Rs 125000 for probate duty
The question arose whether those payments were deductible in computing the chargeable income
The Judicial Committee held affirming the judgment of the Calcutta High Court that the payments made for the sradh expenses and the costs of probate could not be excluded in computing the chargeable income
Those were payments made out of the income of the estate coming to the hands of the appellants as executors and in pursuance of obligation imposed by the testator
Their Lordships were of opinion that it was not a case in which a portion of the income was by an overriding title diverted from the person who would otherwise have received it as in Bejoy Singh Dudhuria s 2 case but a case in which the executors having received the whole income apply a portion of it in a particular way
From this judgment of the Judicial Committee it is dear that the true test is that if the income in question is an income of the assessee the application of the same being not relevant for determining its assessability it is assessable in his hands but if it is not his income then it cannot form part of his assessable income
The scope of section 16 1 c of the Indian Income tax Act 1922 came up for consideration by this Court in Commissioner of Income tax Bombay City vs Sitaldas Tirathdas 3 
Therein the assessee Sitaldas Tirathdas of Bombay had many sources of income chief among them being property stocks and shares bank deposits and share in a firm known as Ms Sitaldas Tirathdas
He followed the financial year as his accounting year
For the assessment years 1953 54 and 1954 55 his total income was respectively computed at Rs 30375 and Rs 55160 
This computation was not disputed by him but he sought to deduct Rs 1350 in the first assessment year and a sum of Rs 18000 1 3 2 1008 in the second assessment year on the ground that under a decree he was required to pay these sums as maintenance to his wife and his children
In support of his claim he relied on the decision of the Judicial Committee in Bejoy Singh Dudhuria s case supra
This Court rejected that contention observing at pp
374 and 375 of the Report In our opinion the true test is whether the amount sought to be deducted in truth never reached the assessee as his income
Obligations no doubt there are in every case but it is the nature of the obligation which is the decisive fact
There is a difference between an amount which a person is obliged to apply out of his income and amount which by the nature of the obligation cannot be said to be a part of the income of the assessee
Where by the obligation income is diverted before it reaches the assessee it is deductible but where the income is required to be applied to discharge an obligation after such income reaches the assessee the same consequence in law does not follow
It is the first kind of payment which can truly be excused and not the second
The second payment is merely an obligation to pay another a portion of one s own income which has been received and is since applied
The first is the case in which the income never reaches the assessee who even if he were to collect it does so not as part of his income but for and on behalf of the person to whom it is payable
 Counsel for the assessee tried to lay stress on the observation of this Court that the income should reach the hands of the assessee before it can be considered as his income
According to him in the case before us the income in dispute never reached the hands of the assessee
We are unable to accept this contention as correct
The income is the income of the family
It reached the hands of the family as soon as it reached the hands of any of the members of the family who were entitled to receive it on behalf of the family
The members of the family received that income on behalf of the family and applied the same in discharge of an obligation of the family
When this Court spoke of the income reaching the hands of the assessee it did not refer to any physical act
It was dealing with a legal concept a receipt in law
Viewed that way it is quite clear that the income with which we are concerned in this case was received by the family
One other decision on the point in issue which we would like to refer is the decision of the Bombay High Court in Commis 1 1009 sioner of Income tax Bombay vs Makanji Lalji1 wherein Beaumont CJ speaking for the court held that in computing the income of the HUF for purposes of income tax moneys paid to the widow of a deceased coparcener of the family as maintenance and residence allowance cannot be deducted even though the amount of such allowance has been fixed by a decree of the Court and has be en made a charge on properties belonging to the family
It is not necessary to refer to cases which deal with the diversion of the income of the assessee
The test to be applied for finding out whether there is diversion of income or not is set out by this Court in Commissioner of Income Tax Bombay City V Ratilal Nathalal1
For the reasons mentioned above this appeal fails and the same is dismissed with costs
VPS Appeal dismissed


Summary:
The assessee was a Hindu undivided family of which the appellant was the Kamavan
It possessed agricultural properties
There was a family settlement among all the members of the family then living
The settlement allotted some properties to some of the male members but did not provide for their devolution
Also the joint status of the members was not disrupted and the properties allotted for the enjoyment of the various members of the family continued to be the properties of the family
The liability to maintain the other male members and the responsibility of performing the marriages of the female members continued to be that of the Karnavan
He was also responsible for the payment of land revenue in respect of the family properties excepting some items
On the question whether the income of the properties put in possession of the male members under the settlement continued to be the income of the family and therefore liable to tax under the Kerala Agricultural Income tax Act 1950 the department Tribunal and the High Court on reference held against the assessee
Dismissing the appeal to this Court HELD  Section 91 of the Act is similar to section 161 c of the Income tax Act 1922
Under the latter section the test is that if the income in dispute is considered as having been applied to discharge an obligation of the assessee the same is liable to be included in the assessable income of the assessee but if on the other hand the same bad been diverted by an overriding charge then it is not liable to be so included as it ceases to be the assessee s income
1006 A B In the present case the arrangement only provided for maintenance and did not give any absolute right in any portion of the family properties to any one
It thus conferred benefit on the family inasmuch as it was absolved of the responsibility of maintaining its members
106 5 G H Further it was not even a permanent arrangement and was revocable if there was any substantial change in the circumstances of the family
The properties would go back to the possession of the Karnavan on the death of the member to whom the property was allotted
1005 C D E The members of the family received the income of the various properties allotted to them on behalf of the family and applied the same in discharge of an obligation of the family
Therefore the income reached the hands of the family as soon as it reached the hands of any of its members
1008 F H 1001 Hence under section 91 of the Act the income should be deemed to be that of the assessee
1005 F G Raja Bejoy Singh Dudhuria vs CIT Bengal and Mullick vs CIT Bengal  explained and applied
CIT Bombay City vs Sitaldas Tirathdas  followed
CIT Bombay vs Makanji Lalji and CIT Bombay City vs Ratilal Nathalal 25 l
TR 426 referred to