Case: Shrimand Padmaraja R. Kadambanda, Dhulia Vs. The Commnr. Of Income Tax, Pune

case ( 1963 (49) ITR 144 : 1967 AIR(SC) 290 : 1964 (2) SCR 847 ) does not seem to be correct in view of what we have pointed out above33. 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 a character of revenue. As to how a marginal heading has to be construed can be gathered from Chandroji Rao case ( 1970 (2) SCC 23 : 1970 (77) ITR 743 ). It is stated therein that the marginal heading to a section cannot control the interpretation of the words of the Section particularly where the meaning of the section is clear and unambiguous34. For a moment, we are not interpreting the words of the section but we are only holding that even a payment under clause (d) is nothing but a compensation because as the facts disclose the amount of Rs. 10 lakhs out of a trust property in a Bank of Kolhapur was misappropriated35. There is no compulsion on the part of the Government to make the payment nor is the Government obliged to make the payment since it is purely discretionary. A case similar to the one on hand is H. H. Maharani Sri Vijaykuverba Saheb of Morvi ( 1963 (49) ITR 594 (Bom)) head-note of which is extractedA Voluntary payment which is made entirely without consideration and is not tractable to any source which a practical man may regard as a real source of his income but depend entirely on the whim of the donor cannot fall in the category of income The ruler of a native State abdicated in favour of his son in January 1948. From April, 1949, onwards his son paid him a monthly allowance. The allowance was not paid under any custom or usage. The allowance could not be regarded as maintenance allowance, as the assessee possessed a large fortune "Held, that as the payments were commenced long after the ruler had abdicated, they were not made under a legal or contractual obligation. As the allowances were not also made under a custom or usage or as a maintenance allowance, they were not assessable." 36. The position is exactly the same. The payment made by the Government is undoubtedly voluntary. However, it has no origin in what might be called the real source of income. No doubt Section 15(1) proviso clause (d) enables the application to seek payment but that is far from saying that it is a source. Therefore, it cannot afford any foundation for such a source. Further, it is a compassionate payment, for such length of period as the Government may, in its discretion, order 37. Lastly, we may refer to Kamal Behari Lal Singha case ( 1971 (3) SCC 540 : 1971 (82) ITR 460 ) which is pressed into service by the Revenue, to support its contention one has to look at the character of the payment in the hand of the receiver and the source from which the payment is made has no bearing on the question. We will extract the head-note (from ITR) 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 receipt 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 assesseeHeld, 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 of 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 assets 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 what it was calledTrustees of the Will of H. K. Brodie v. IRC ( 1933 (17) Tax(Cases) 432 (KB) appliedHeld also that the part of the dividend received by the assessee attributable to land acquisition compensation received by the company after March 31, 1948, was not receipt of dividend within the meaning of Section 2(6-A) of the Income Tax Act, 1922CIT v. Nalin Behari Lall Singha ( 1969 (2) SCC 310 : 1969 (74) ITR 849 ), followedIt is now well settled that in order to find out whether a receipt is a capital receipt or a revenue receipt one has to see what it is in the hands of the receiver and not its nature in the hands of the payer. In other words the nature of the receipt is determined entirely by its character in the hands of the receiver and the source from which the payment is made has no bearing on the question. Where an amount is paid which, so far as the payer is concerned, is paid wholly or partly out or capital, and the receiver receives it as income on his part, the entire receipt is taxable in the hands of the receiver." 38. This is a case of compensation paid under the Land Acquisition Act. It was held that a compensation as such would be capital receipt in the hands of the receiver and the fact that it was distributed as dividends would not change the true nature of the receipt

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]Therefore, if these are applied there is no difficulty in holding that the payment 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 said down in CIT v. Kamal Behari Lal Singha ( 1973 (3) SCC 540 : 1971 (82) ITRThe direct authority which governs the present case is Raja Rameshwara Rao v. CIT ( 1963 (49) ITR 144 : 1967 AIR(SC) 290 : 1964 (2) SCR 847 ) because that was a case of maintenance allowance. Here, as well, the assessee applied to the Government in order to maintain herself. It is such an allowance which is talked of under clause (d) of Section 15(1) of the Act. Therefore, where she is paid maintenance allowance periodically it cannot be claimed as compensation. It does not matter on what ground or on what basis the grant is made. That is alien to taxation. Therefore, to say that it is paid as compassionate allowance cannot make the position of assessee any better.19. The next authority on which reliance could be placed in S. R. Y. Sivaram Prasad Bahadur ( 1971 (3) SCC 726 , 732 : 1971 (82) ITR 527 , 535) in which also it was held that one must look at the substance of the payment. Therefore, the Judgment of the High Court is correct.20. No doubt, the marginal heading of the section is compensation but that does not control the operation of the section or the interpretation of Sectionhave 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 Regulation make a clear distinction between the commutation sum or compensation and the interim maintenance allowances. These allowances were obviously not intended to bethink that if we have regard to the provisions of the Regulation under which they were paid, as we must, there is no doubt that they were of the nature of income. No doubt they were not income of any of the kinds that are commonly found, but are, as Lord Radcliffe said in a case to which we shall later refer, sui generis. We proceed now to discuss why we think they were incomeThese allowances, we notice were treated by Regulations as something other than the compensation for the loss of the Jagir. They were, therefore, not treated as capital as representing compensation for the Jagir. If they were treated as capital for the reason that they were not compensation for the loss of Jagir, we find no ground on which we can say that they were capital. It would follow that they must be income and taxable as such. They were certainly not windfall for a right to them was created by the Abolition Regulation, a right which under Section 21 could be enforced in a civil court. Then we find that these allowances were payable with a regularity and were of a recurring nature, both of which are recognised as characteristic of income : see CIT v. Shaw Wallace and Co. 1932 (59) ILR(Cal) 1343, 1350 : 1932 AIR(PC) 138 : 59 IA 206) Next, we observe that the Regulation advisedly called the payments maintenance allowance, a nomenclature peculiarly suited to payments of the nature of income.Therefore, in this case, the maintenance allowance was qualified by the statute and it was a nomenclature peculiarly suited to payments of the nature ofas we have pointed out just now, maintenance allowance is qualified by statute unlike the present case which is purely a discretionary payment. It is no use contending as also observed by the High Court that after the order is passed an enforceable right arises. On the contrary the question would be whether the statute gives an enforceable right. We think in such of those cases falling under clause (d) of the proviso to Section 15 (1) of the Act, no statutory right is created. This is unlike those cases falling under clauses (i), (ii) and (iii) of sub-section (1) of Section 15. These constitute different clauses as has already been pointed out by us. The fact that the assessee has applied for a grant for maintenance, nor again, the periodicity of payment, would be conclusive as we will demonstrateTherefore, the observation of the privy Council in CIT v. Shaw Wallace & Co. case 1932 (59) ILR(Cal) 1343, 1350 : 1932 AIR(PC) 138 : 59 IA 206) cannot be pressed into service as of general application as is sought to be done by the learned counsel for the Revenue.Thus it is clear that the observation made by this court in Rameshwara Rao case ( 1963 (49) ITR 144 : 1967 AIR(SC) 290 : 1964 (2) SCR 847 ) must be read in the light of the facts of the case. From the ruling in S. R. Y Sivaram Prasad Bahadur ( 1971 (3) SCC 726 , 732 : 1971 (82) ITR 527 , 535) it is clear that what is decisive of the character is the quality of the payment.This was the reason why we said neither the nomenclature nor the periodicity of the payment would be the determinative factors. Regards must be had only to the nature and quality of 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 those allowances. Thereafter, on an application by way of compassion the payment is made. The mere fact, after the order is made it becomes an enforceable right, is neither here nor there. The reliance on Rameshwara Rao case ( 1963 (49) ITR 144 : 1967 AIR(SC) 290 : 1964 (2) SCR 847 ) does not seem to be correct in view of what we have pointed out above33. 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 a character of revenue. As to how a marginal heading has to be construed can be gathered from Chandroji Rao case ( 1970 (2) SCC 23 : 1970 (77) ITR 743 ). It is stated therein that the marginal heading to a section cannot control the interpretation of the words of the Section particularly where the meaning of the section is clear and unambiguous34. For a moment, we are not interpreting the words of the section but we are only holding that even a payment under clause (d) is nothing but a compensation because as the facts disclose the amount of Rs. 10 lakhs out of a trust property in a Bank of Kolhapur was misappropriated35. There is no compulsion on the part of the Government to make the payment nor is the Government obliged to make the payment since it is purely discretionary.The position is exactly the same. The payment made by the Government is undoubtedly voluntary. However, it has no origin in what might be called the real source of income. No doubt Section 15(1) proviso clause (d) enables the application to seek payment but that is far from saying that it is a source. Therefore, it cannot afford any foundation for such a source. Further, it is a compassionate payment, for such length of period as the Government may, in its discretion,This is a case of compensation paid under the Land Acquisition Act. It was held that a compensation as such would be capital receipt in the hands of the receiver and the fact that it was distributed as dividends would not change the true nature of theA case similar to the one hand is H. H. Maharani Shri Vijaykuverba Saheb of Morvi ( 1963 (49) ITR 594 (Bom)) wherein the High Court held that a voluntary payment without consideration cannot fall in the category of income. The position here is exactly same. There is no compulsion on the part of the Government to give any allowance. It is purely discretionary. It cannot be got over by saying that after the order is passed the assessee gets a right. That has nothing to do in determining the question