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

2. Shrimant Padmaraje R. Kadambande is the assessee and the only child of Late Chhatrapati Raja Ram Maharaj, the ruling Chief of the former State of Kolhapur, 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 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 ofThe 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 cash allowance from August 1, 1956 on modified terms. The sanction of this cash allowance was conveyed to the appellant by the Collector of Kolhapur through his letter dated October 6, 1959. It appears that an amount of Rs. 10 lakhs out of a trust property in the Bank Of Kolhapur in accordance with the provisions of Indenture of Trust dated October 19, 1947 was misappropriated. The cash allowance that was to be paid to the assessee under order dated October 6, 1959 was to be reduced in the circumstances mentionedFor the assessment year 1963-64 the assessee received a sum of Rs. 36, 000. For the assessment year 1964-65 she received a sum of Rs. 33, 992. Before the Income Tax Officer a question arose whether the amounts received by the assessee were subject to income tax. It was urged on behalf of the assessee that these receipts were of a capital nature and, therefore, would not be subject to income tax. This contention was negatived by the Income Tax Officer who subjected the respective amounts to tax in each of the assessmentBeing aggrieved by the said assessment orders an appeal was preferred by the assessee before the Appellate Assistant Commissioner. Two alternative contentions were urged on behalf of the assesseethe receipt were of a capital nature and, therefore, would be exempt from income tax;(ii) having regard to the casual and non-recurring nature of this income it would be exempt under Section 10(3) of the Income TaxRejecting these two contentions, the Appellate Assistant Commissioner confirmed the orders of the Income Tax Officer7. The appeal to the Tribunal was preferred urging the same contention but without success. Thereafter a reference was made for determination by the High Court for the assessment year 1963-64 and 1964-65 which reads as underWhether the amount of Rs. 36, 000 and Rs. 33, 992 received by Shrimant Padamraje R. Kadambande of Kolhapur from the Government of Maharashtra during the financial years ended March 31, 1963 and March 31, 1964 and receipts of an income nature and taxable under the provisions of the Income Tax Act, 1922 (sic) (1961)The High Court on reference to the statutory provisions of the Act and relying on the case in H. H. Maharani Shri Vijaykuverba Saheb of Morvi v. CIT ( 1963 (49) ITR 594 (Bom)) came to the conclusion that the decision of the taxing authorities and the Tribunal that the amounts received by the assessee during the two relevant financial years were income within the meaning of Income Tax Act (sic was correct). They could not be regarded as capital receipt in the hands of the assessee. Accordingly the reference was answered in the affirmative in favour of the Revenue. It is under these circumstances, civil appeals arose, special leave petitions having been granted on August 10, 19799. Civil Appeal No. 2201 of 1979, directed against the order passed in Income Tax Reference No. 192 of 1974, relates to assessment year 1970-71 corresponding to financial year 1969-7010. 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 financial years 1964-65 to 1968-6911. Civil Appeal No. 2203 of 1979 directed against the order passed in Income Tax Reference No. 121 of 1969, relates to assessment year 1963-64 and 1964-195 corresponding to financial years 1962-63 and 1963-64

Court's reasoning:
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