Full Judgment Text
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PETITIONER:
MAHESH ANANTRAI PATTANI AND ANOTHER
Vs.
RESPONDENT:
THE COMMISSIONER OF INCOME-TAX, BOMBAY NORTH, AHMEDABAD
DATE OF JUDGMENT:
29/11/1960
BENCH:
KAPUR, J.L.
BENCH:
KAPUR, J.L.
HIDAYATULLAH, M.
SHAH, J.C.
CITATION:
1961 AIR 946 1961 SCR (2) 742
CITATOR INFO :
R 1963 SC1343 (13,37,38)
ACT:
Income tax-Gift or Remuneration for Past services--Payment
to retired Dewan of Indian State by Ex-Ruler--Liability to
tax--Indian Income-tax Act, 1922 (11 of 1922), s.7(1),
Explanation (2).
HEADNOTE:
A who was the Dewan of the State of Bhavnagar before
responsible government was introduced in the State, was
granted a monthly pension of Rs. 2,000 by the Maharaja of
the State by an order dated January 15, 1948. On March 1,
1948 the State of Bhavnagar was merged in the United States
of Saurashtra and the Maharajah ceased to be the Ruler of
the State. Subsequently on May 31, 1950, the Maharaja
directed his banker in Bombay to pay A a sum of Rs. 5 lakhs
out of the amount lying to his credit and when he was asked
for instructions as to how that sum was to be entered in the
books of account he passed an order on December 27, 1950, to
the effect that in consideration of A having rendered loyal
and meritorious services the said sum was given to him as a
gift and that the amount should be debited to his personal
expense account. The liability of the above sum for income-
tax was raised during the course of the assessment
proceedings of A for the year 1951-52, and the assessee
produced a letter dated March 10, 1953, written by the
Maharajah at the request of the former, as follows: "I
confirm that in June 1950, I gave you a sum of Rs. 5 lakhs
which was a gift as a token of my affection and regard for
you and your family......... The Income-tax Officer held
that the amount was liable to income-tax under S. 7(1), read
with explanation (2), of the Indian Income-tax Act, 1922.
The Appellate Tribunal took into account the two documents
dated December 27, 1950, and March 10, 1953, written by the
Maharajah and considered that the first which clearly
mentioned why the said sum was paid to the assessee, was
more reliable for the reason that it was contemporaneous,
than the second which was written more than 2 years later
and the correctness of which they were not inclined to
accept. The Tribunal agreed with the Income-tax Officer
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that the amount was a taxable receipt.
Held, (per Kapur and Shah, JJ.; Hidayatullah, J.,
dissenting), that on the facts of the case the sum of Rs. 5
lakhs was given to the assessee not as a payment in
consideration of the services already rendered by him as the
Dewan of the State, but merely as a gift in token of the
Maharajah’s affection and regard for the assessee, and,
therefore, was not liable to be assessed to tax
743
under s. 7(1), explanation (2), of the Indian Income-tax
Act,1922.
The Tribunal was in error in treating the document dated
December 27, 1950,’as a contemporaneous document while as a
matter of fact it was written six months after the fact of
payment, and because of this erroneous approach as a result
of which the second letter had been rejected, the finding
given by the Tribunal could not be treated as binding on the
Court.
P. Krishna Menon v. The Commissioner of Income-tax, Mysore,
Travancore-Cochin and Coorg, Bangalore, [1959] Supp. 1
S.C.R. 133, distinguished.
Per Hidayatullah, J.-The use of the word "contemporaneous"
to describe the order to the banker meant no more than this
that it was earlier in time and very soon after the amount
was given. The word "gift" did not alter the nature of pay-
ment; the Maharaja indeed made a gift, as he had stated over
again, but the order disclosed that it was by way of
remuneration for past services.
The Tribunal was within its rights in accepting one piece of
evidence in preference to another, and the finding on the
evidentiary value of the letter of the Maharaja was a matter
essentially for the Tribunal to decide finally. The
decision in P. Krishna Menon v. The Commissioner of Income-
tax, Mysore, Travancore-Cochin and Coorg, Bangalore, [1959]
Supp. 11 S.C.R. 133, was applicable and concluded the
present case.
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No.232 of 1960.
Appeal from the Judgment and Order dated October 6, 1958, of
the Bombay High Court in Income Tax Reference No. 10 of
1958.
R. J. Kolah, Dwaraka Das, S. N. Andley, Rameshwar Nath, J.
B. Dadachanji and P. L. Vohra for the Appellants.
Hardyal Hardy and D. Gupta for the Respondent.
1960. November 29. The Judgment of J. L. Kapur and J. C.
Shah, JJ., was delivered by Kapur, J. M. Hidayatullah, J.,
delivered a separate Judgment.
KAPUR, J.-This is an appeal pursuant to a certificate of the
High Court of Bombay against the judgment and order of that
Court in Income-tax Reference No. 10 of 1958, answering the
question referred to it against the assesses whose legal
representatives are
744
the appellants before, us, the respondent being the
Commissioner of Income-tax.
The facts which have given rise to the appeal are that the
late Mr. Annantrai P. Pattani, hereinafter called the
assessee was, by Hazur Order dated December 10, 1937,
appointed the Chief Dewan of Bhavnagar State. On January
15, 1948, the Maharaja of Bhavnagar introduced responsible
Government in his State and appointed the assessee as the
Chairman of the Bhavnagar Durbar Bank but he received no
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salary for that post. On the same date by another Hazur
Order the Maharaja granted a monthly pension of Rs. 2,000 to
the assessee. The order was in the following terms:
"He looked after us well in our childhood and rendered
valuable services sincerely and with single-minded loyalty
to us and our State during extremely difficult period of the
last war and thereafter, which has enhanced the prestige and
prosperity of the State and given the State and the people a
place of pride in India. In appreciation of this, it is
(hereby) decided to grant him a monthly pension of Rs. 2,000
two thousand which is the monthly salary he is drawing at
present. Date 22-1-1948."
On May 31, 1950, the Maharaja directed Messrs. Premchand
Roychand & Sons, Bombay, with whom he had an account "to pay
by cheque to Mr. A.P. Pattani Rs. 5 lacs out of the amount
lying to the credit of my account with you." This sum was
paid to the assessee on June 12, 1950. It is stated that
the accountant of the Maharaja asked for instructions as to
how that amount of Rs. 5 lacs was to be adjusted in the
accounts and on December 27, 1950, the Maharaja
made the following order:-
"In consideration of Shri Annantrai P. Pattani the Ex-Diwan
of our Bhavnagar State having rendered loyal and meritorious
services Rs. 5,00,000 (Rupees Five Lacs) are given to him as
gift. Therefore, it is ordered that the said amount should
be debited to our Personal Expense Account."
On March 1, 1948, Bhavnagar State was merged in the United
States of Saurashtra and the Maharaja ceased to be the ruler
of the said State as from that
745
date. The assessability of this sum of Rs. 5 lacs was
raised in the course of the assessment proceedings for the
assessment year 1951-52 and at the request of the’ assessee
which is stated to be oral the Maharaja wrote on March 10,
1953, the following:
"I confirm that in June 1950, 1 gave you a sum of rupees
five lacs (Rs. 5,00,000) which wag a gift as a token of my
affection and regard for you and your family. This amount
was paid to you by Premchand Roychand & Sons according to my
letter of 31st May, 1950, from moneys in my account with
them."
On these facts the Income-tax Officer held that Rs. 5,00,000
received on June 12, 1950, was liable to income-tax under s.
7(1) read with explanation (2) of that section as it stood
before the amendment by the Finance Act, 1955. The assessee
took an appeal to the Appellate Assistant -Commissioner
which was dismissed. Against that order an appeal was taken
to the Income-tax Appellate Tribunal but the Tribunal also
dismissed the appeal. The Tribunal held that looking to the
circumstances they would attach more importance to the
"contemporaneous document, i.e., the order of the 27th
December, 1950"; which clearly mentioned why the sum of Rs.
5,00,000 was paid to the assessee. The Tribunal was not
inclined to "believe in the contents of that letter and
would leave the matter at that." The reference is to the
letter of the Maharaja dated March 10, 1953. The Tribunal
further held that there was no distinction between the Maha-
raja and the State and
"assuming for a moment that this view of ours is not found
to be correct, still it is clear from the Huzur Order No. 13
dated 22-1-1948 (vide para 2 above) that the assessee
rendered services not only to the State, if it is distinct
from. the Maharaja but to the Maharaja as well; for that
Huzur Order clearly refers to assessee rendering "valuable
services sincerely and conscientiously to us and our State".
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We would, therefore, hold that the amount of Rs. 5 lacs is a
taxable receipt falling under Section 7(1) read with
Explanation 2." At the instance of the assessee the
following question of law was referred to the High Court:
746
"Whether the sum of Rs. 5 lacs has been properly ,brought to
tax in the hands of the assessee for the assessment year
1951-52?"
and a further question as to the applicability of s. 4(3)
(vii) of the Income-tax Act was not referred on the ground
that it did not arise out of the order of the Tribunal.
The High Court, on the findings given by the Tribunal came
to the conclusion that s. 7(1) explanation (2) of the
Income-tax Act applied. It-held that it was not possible to
regard the receipt of this sum of money by the assessee as a
windfall nor as a personal gift of the nature of a
testimonial; that the gift was not made in appreciation of
the personality or character of the assessee nor was it
symbolical of its appreciation of his personal qualities;
that the consideration for the gift was in terms stated to
be past services and therefore it could not be treated as a
mere gift by an employer to an employee when the Court did
not know what motivated the making of that gift. On the
facts of the case the High Court reached the conclusion,
though with some reluctance, that the case fell within the
ambit of s. 7(1), Explanation (2). The High Court also held
that this sum could not be exempted from tax on the ground
that it was merely a casual or nonrecurring receipt because
once connection with the employment was established there
was no question of considering the recurring or the casual
nature of the receipt.
During the pendency of the proceedings in the High Court the
assessee died and his heirs and legal representatives were
brought on the record and hence they are the appellants.
It was argued on behalf of the appellants that the facts
showed that the sum paid cannot fall within s. 7(1),
Explanation (2), of the Income-tax Act. By Hazur Order
dated January 22, 1948, the Maharaja had compensated the
assessee for valuable services rendered and single-minded
loyalty to the Maharaja and to his State during the
difficult period of the war and thereafter, which had added
to the prestige and prosperity of the State and in
appreciation of that the
747
Maharaja had granted to the assessee a monthly pension of
Rs. 2,000, which was paid to the assessee even after the
merger and of the establishment of the.. United States of
Saurashtra from out of the public revenue. At the time when
Rs. 5,00,000 were paid, the State of Bhavnagar as such had
ceased to exist. The Maharaja was no longer a Ruling Chief
but was the Governor of the State of Madras. The order by
which Messrs. Premchand Roychand & Sons, Bombay, were
directed to pay the sum of Rs. 5,00,000 out of the account
of the Maharaja does not mention any reason for payment.
When as is alleged an accountant of the Maharaja asked as to
how that amount of Rs. 5,00,000 was to be adjusted in the
accounts, the Maharaja wrote on December 27, 1950, what is
described as an order and directed that the sum should be
debited to his Personal Expense Account. It also stated,
why it is not clear, that that sum was to be given to the
assessee in consideration of the assessee’s loyal and
meritorious services as a gift. When asked later to clarify
the reasons for making this gift the Maharaja made it clear
that the gift was as a token of affection and regard for the
assessee and his family and that the amount was paid by
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Messrs. Premchand Roychand & Sons from out of the private
monies of the Maharaja with that firm.
The Income-tax Appellate Tribunal took into account the two
documents the first of which has been described as an order
of December 27, 1950, which was treated as a
"contemporaneous document" and the other the letter of March
10, 1953, which was about two years later. The Tribunal did
not accept the correctness of what was stated in the letter
but attached a great deal of importance to the document of
December 27, 1950, which the Tribunal thought was a con-
temporaneous document.
It appears to us that the Tribunal was in error in treating
the document of December 27, 1950, as a contemporaneous
document and because of this erroneous approach the finding
that it has given cannot be treated as a finding of fact
which should bind the court in its decision. It is obvious
that the reason why the
748
Tribunal attached all this importance to the document of
December 27, 1950, was that it was contemporaneous. It
would be difficult to accept that a document written six
months after the fact of payment could be termed as
contemporaneous document particularly when the object of
that document was only to instruct an accountant as to how
he should make a particular entry. The letter which was
written by the Maharaja on March 10, 1953, was rejected
because of the circumstances of the case one of which was
the contemporaneous document. It does not appear to us that
the Tribunal gave sufficient or any consideration to the
fact that the Maharaja had already passed an order of a
liberal and almost generous grant of a pension of Rs. 2,000
per mensem which was in lieu of the services rendered by the
assessee both to the State as well as to the Maharaja and
his family and that pension was ordered before the merger of
the State and when the employment of the assessee as the
Dewan terminated.
According to what was stated in the letter of the Maharaja
dated March 10, 1953, the sum of Rs. 5,00,000 was given as a
gift in token of Maharaja’s affection and regard for the
assessee and the assessee’s family. There is no reason
shown why the Maharaja should have aided and abetted the
assessee in escaping income-tax. The only reason stated by
the Tribunal is based on a wrong assumption as. to the
nature of the document of December 27, 1950.
The payment of Rs. 5,00,000 was sought to be brought within
the purview of s. 7(1) of the Act read with explanation (2).
This section at the relevant time provided:-
S. 7(1) "The tax shall be payable by an assessee under the
head "Salaries" in respect of any salary or wages, any
annuity, pension or gratuity and any fees, commissions,
perquisites or profits in lieu of, or in addition to, any
salary or wages, which are due to him from; whether paid or
not or are paid by or on behalf of............... any
private employer...........................
Explanation 2: A payment due to or received by
749
an assessee from an employer or former employer or from a
provident or other fund, is to the extent to, which it does
not consist of contributions by the’, assessee or interest
on such contributions a profit received in lieu of salary
for the purpose of this subsection, unless the payment is
made solely as compensation for loss of employment and not
by way of remuneration for past
services;........................
Counsel for the appellants contended that the payment did
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not fall within this section because it was a gift made on
account of personal qualifications and was a testimonial
unconnected with any service rendered. The submission was
that the assessee had already been compensated for his
services to the Maharaja personally and the State and this
sum of Rs. 5 lacs was a gift in token of affection and
regard and not as a payment in consideration of the services
already rendered to the State or the Maharaja or both. It
will not be inappropriate to mention that in the document
dated December 27, 1950, it is stated that Rs. 5,00,000 was
-paid to the assessee as ex-Dewan of Bhavnagar State in
consideration of his having rendered loyal and meritorious
services to Bhavnagar State. There is no mention in the
document of December, 1950, of any services rendered to the
Maharaja and it does not seem to have been considered by the
Tribunal as to why the Maharaja should make out of his
personal account the gift of such a large amount for
something which was not done for the Maharaja specifically,
particularly when the services to the State and to the
Maharaja and his family had already been well compensated.
This lends support to the submission of the appellants that
the amount was paid merely as a gift in token of Maharaja’s
affection and regard for
the assessee.
Mr. Kolah for the appellants relied on several cases in
support of his contention that the amount was not liable to
tax under s. 7. In Beynon v. Thorpe (1) the assessee
resigned his position as a Managing Director of the Company;
did no work for the company; did
(1) [1928] 14 T.C. 1.
95
750
not attend any Board meetings and received no remuneration
as a Director of the Company. It was, however, a custom of
the company to give to its retiring employees voluntary
pension or allowance and the company voted a pension of
pound 5,000 a year to the assessee but this resolution was
rescinded and by another resolution pound 5,000 was voted to
the assessee" not as or because he is a Director but as a
personal gift". The assessee was assessed under Schedule
’E’ in respect of both the pension and the final payment but
these assessments were discharged on appeal by the Special
Commissioners who decided that the allowances were gifts of
personal nature only. It was hold that the payments were
not income assessable to income-tax in the hands of the
assessee. Rowlatt, J., said at p. 14:
"Now the question is whether this ceases to be a mere gift
because what has led to it is a past employment, an
employment which has ceased. It has been. made abundantly
clear by the Court in Scotland in Duncan’s case(1) that this
sort of sums received by a person cannot possibly be put as
receipts from his office or in respect of his office or
employment, and they said in terms of that kind in a case
like this that these emoluments cannot be taxed under
Schedule ’E’, and I am bound to say I think that goes a very
long way to conclude this case. But it is said that
nevertheless they are in respect of the employment. -Well,
it seems to me that is a complete fallacy. It is nothing
but a gift moved by the remembrance of past services already
efficiently remunerated as services in them. selves; it is
merely a gift moved by that sort of gratitude or that sort
of moral obligation if you please: it is merely a gift of
that kind. In this ease it happens to be very large; in
many cases it is very small, but in all the cases it seems
to me, whether it is large gift like this or whether it is a
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small gift to a humble servant they are exactly on the same
footing as gifts which are made to a child or gifts which
are made to any other person whom the giver thinks he ought
to supply with funds for one reason or another; and as the
(1) [1909] 5 T.C. 417
751
Lord President in Scotland points out it is only a matter of
history that the feeling between the parties which has
generated the gift arises out of an employment."
Mr. Kolah also relied on Reed v. Seymour (1). In that case
a committee of a Cricket Club granted a benefit match to a
professional cricketer in their service. Out of the profits
of the benefit match the beneficiary, who was the assessee
purchased a farm and assessment was made on him under
Schedule’E’ in respect of the proceeds of the benefit match
but this was discharged by the General Commissioner on
appeal. This sum was held to be in the nature of a personal
gift and not assessable *to income-tax. Viscount Cave in
his speech posed the question which Rowlatt, J., put, i.e.,
"is it in the end a personal gift or is it remuneration"; if
the latter it is subject to tax, if the former it is not.
In that case the test applied by Viscount Cave was that the
terms of the assessee’s employment did not en-title him to a
benefit; the purpose for which the amount was paid was to
express gratitude of the employers and of the cricket-loving
public for what he had done and in their appreciation of his
personal qualities. It was also stated that if the benefit
had taken place after Seymour’s retirement no one would have
sought to tax the proceeds as his income and the
circumstance that it was given before but in contemplation
of, retirement does not alter its quality and the whole sum
was a testimonial and not a perquisite and therefore it was
not a remuneration for services but a personal gift.
Counsel also relied on Moorehouse v. Dooland (2). In that
case a cricket professional was employed under a contract in
which it was provided that collections shall be made for any
meritorious performance by him in accordance with the rules
for the time being of the employing Cricket League Club.
The assessee played twenty matches and on eleven occasions
collections were made on his behalf under the rules of the
Club and a total sum of pound 48 15s. was collected. This
was sought to be taxed as fees, wages perquisites or profits
(1) [1927] XI T.C. 625. (2) [1955] 28 I.T.R. 86.
752
arising from his employment. It was held that (1) the test
of liability to tax on voluntary payments from the
standpoint of the person who receives it was that it accrued
to him by virtue of his office or employment, i.e., byway of
remuneration of his services; (2) that if the assessee’s
contract of employment entitled him to receive voluntary
payments and (3) that the payment was of a periodic and
recurring character. On the other hand if a voluntary
payment was made in circumstances which showed that it was
given by way of a present or a testimonial on grounds
personal to the recipient, the proper conclusion was that
the payment was not profit accruing to the recipient by
virtue of his office or employment but a gift to him as an
individual paid and received by reason of his personal needs
or by reason of his personal qualities. Applying these
principles the proceeds were by the terms of the contract of
employment received by way of remuneration and were liable
to tax. In that case the payment was treated as being
subject to tax because it was substantially in respect of
services and accrued to the assessee by reason of his
office. It is quite clear that had the gift been as a
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testimonial or a contribution for specific performance
peculiarly due to the personal qualities of the recipient,
it would have been treated as a mere present.
The next case relied upon was David Mitchell v. Commissioner
of Income-tax (1) where the test laid was whether the
payment was made in appreciation of .the personality and
character of the assessee or in appreciation of the
professional services rendered by him in order to give him
an extra profit over and above the share of profit he might
get from the firm for the services rendered.
Counsel for the respondent argued that the gift made by the
Maharaja was not in respect of personal qualities of the
recipient but was relatable to his office although made by
an ex-employer and was therefore taxable; that the gift was
voluntary is clear but it is not quite clear how the amount
can be said to be relatable to the office held by the
recipient. Even
(1) [1956] 30 I.T.R. 701.
753
according to the case of the respondent the amount was paid
about two years after the assessee had ceased to be an
employee of the Maharaja or the State and immediately on his
ceasing to be the Dewan of Bhavnagar State, the Maharaja had
granted him a pension from out of the public funds for his
services to the State as Dewan and for services rendered to
the Maharaja and his family a handsome and a generous
monthly pension of Rs. 2,000 per mensem. Apart from the
fact that the Tribunal relied upon a document which was not
contemporaneous, it seems to have overlooked the fact that
there was a gap of two years before the amount of Rs.
5,00,000 was paid by the Maharaja out of his personal funds.
Counsel for the respondent relied upon a judgment of this
Court in P. Krishna Xenon v. The Commissioner of Income-tax,
Mysore, Travancore-Cochin and Coorg, Bangalore (1). In that
case the assessee was a teacher who taught his disciples
Vedanta philosophy without any motive or intention of making
any profit. One of the disciples made gifts of money to him
on several occasions and it was contended by the assessee
that he was not liable to tax on the amounts received from
his disciple as he was not carrying on any vocation. But it
was held that in teaching Vedanta philosophy the assessee
was carrying on a vocation and that the payments made by the
disciple were received by the recipient from his vocation.
It was also held that if the voluntary payments had been
made for reasons purely personal to the donee and not
connected with his office or vocation, they would not be
taxable but if they were made because of the office they
would be taxable. The question was not what the donor
thought he was doing but why the donee received it. The
first thing to notice about that case is that those gifts
were not made by the disciple as a gift to mark his esteem
and affection for his preceptor but as was stated by the
disciple in his affidavit he had paid those amounts because
he had obtained the benefit of the teachings by the
preceptor on Vedanta. It was found in that case and the
disciple admitted
(1) [1959] Supp. 1 S.C.R. 133.
754
that he had received benefit from the teaching of his
preceptor and that the gifts that he had made, even though
as a mark of esteem and affection, were the result of
teaching imparted by the preceptor and because the amounts
were paid to the preceptor as preceptor and the imparting of
the teaching was the causa causans of the making of the
gift,; it was not merely causa sine qua non. The payments
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were repeated and came with some regularity as the disciple
visited the preceptor for receiving instructions. It was in
these circumstances that this court held the payments to the
preceptor as payments because of the imparting of the
teaching and therefore they were income arising from the
vocation of the recipient as a teacher of Vedanta
philosophy.
In our opinion the sum of Rs. 5,00,000 was not paid to the
assessee in token of appreciation for the services rendered
as a Dewan of Bhavnagar- State but as a personal gift for
the personal qualities of the assessee and as a token of
personal esteem.
The appeal is therefore allowed and the order of the High
Court set aside and the reference is answered against the
Commissioner of Income-tax. The appellants will have their
costs throughout.
HIDAYATULLAH, J.-I have had the advantage of reading the
judgment just delivered by my brother, Kapur, J. I regret
very much my inability to agree that the appeal should be
allowed and the order of the High Court set aside. In my
opinion, the High Court had correctly answered the question
referred to it.
The facts of the case have been stated in detail in the
judgment of my learned brother, and I need not repeat them
but refer only to some of them briefly. On June 12, 1950, a
sum of Rs. 5 lakhs was given by the Maharaja of Bhavnagar to
the predecessor of the appellants, who was an ex-Dewan of
the State. This was paid by Messrs. Premchand Roychand &
Sons, Bombay, with whom the Maharaja had an account. There
is no contemporaneous record to show why this payment was
made; but it appears that when the accountant of the
Maharaja enquired how the amount
755
was to be entered in the books of account, the Maharaja
issued an order on December 27, 1950, to the following
effect:
"In consideration of Shri Annantrai P. Pattani the Ex-Diwan
of our Bhavnagar State having rendered loyal and meritorious
services Rs. 5,00,000 (Rupees Five lacs) are given to him as
gift. Therefore, it is ordered that the said amount should
be debited to our Personal Expense Account."
After the assessment proceedings had commenced in this case,
the original assessee produced a letter written by the
Maharaja on March 10, 1953, as follows:
"I confirm that in June, 1950, I gave you a sum of rupees
five lacs (Rs. 5,00,000) which was a gift as a token of my
affection and regard for you and your family. This amount
was paid to you by Premchand Roychand & Sons according to my
letter of 31st May, 1950, from moneys in my account with
them."
The question in this case was whether s. 7(1) of the Income-
tax Act read with Explanation 2 to that section as it stood
prior to the amendment in 1955, applied to this payment.
That section, so far as it is material, is as follows:
"7(1). The tax shall be payable by an assessee under the
head ’Salaries’ in respect of any salary or wages, any
annuity, pension or gratuity and any fees, commissions,
perquisites or profits in lieu of, or in addition to, any
salary or wages, which are allowed to him by or are due to
him, whether paid or not, from, or are paid by or on behalf
of any private employer;..........................
Explanation 2.-A payment due to or received by an assessee
from an employer or former employer or from a provident or
other fund, is to the extent to which it does not consist of
contributions by the assessee or interest on such
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contributions a profit received in lieu of salary for the
purpose of this subsection, unless the payment is made
solely as compensation for loss of employment and not by way
of remuneration for past services;.............".
To determine whether the second Explanation applies
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to the facts in this case, it has to be found if this pay-
ment was received by the assessee from a former employer by
way of remuneration for past services. The Tribunal did not
accept the letter of the Maharaja, and observed as follows:
"In support of the latter view Mr. Tricumdas strongly relied
upon the letter dated 10-3-1953 addressed by the Maharaja to
the assessee, vide para 2 above. We have already indicated
the circumstances in which that letter came to be written
and would merely observe that we find it difficult to bring
ourselves to believe in (sic) the contents of that letter
and would leave the matter at that."
This, in my opinion, is a finding upon the
evidentiary .value of the letter of the Maharaja, and though
the order of the Tribunal is worded mellifluously, the
Tribunal’s decision is quite clearly that it was not per-
suaded to accept it. Indeed, of the two documents, greater
worth has to be attached to one which was issued before the
controversy started and was written not to the assessee but
to the Maharaja’s accountant who enquired how the account
was to be adjusted. The use of the word ’contemporaneous’
to describe the order to the accountant meant no more than
this that it was earlier in time and very soon after the
amount was given. The Tribunal did not rely on any extra-
neous evidence in reaching its conclusion, but on something
which had proceeded from the Maharaja himself. The motive
of the Maharaja may be irrelevant, because what has to be
seen is not why the payment was made but for what the
assessee had received it. The Maharaja no doubt had been
generous in fixing the pension at Rs. 2,000 per month. But
the payment of such a large sum was not just bounty but to
reward the past services, which judged from the scale of the
pension had not adequately been paid for in the -past. In
this connection, the words of the Maharaja himself (and what
better evidence can there be?) were that the amount was paid
"in consideration of Shri Annantrai P. Pattani the Ex-Dewan
of our Bhavnagar State having rendered loyal and meritorious
services Rs. 5,00,000 are given to him as gift".
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The word gift’ does not alter the nature of the payment.
The Maharaja indeed made a gift, as he had stated over
again; but this order quite clearly disclosees that it was
by way of remuneration for past services. The case,
therefore, falls within the ruling of the a Supreme Court
reported in P. Krishna Menon v. The Commissioner of Income-
tax, Mysore, Travancore-Cochin and Coorg, Bangalore (1), and
is indistinguishable from it. In the earlier case of this
Court, the person who gave the money did not even mention
any past services; but this Court found that because the
recipient had taught him Vedanta philosophy, the payment was
really in the nature of remuneration for past services.
The facts in P. Krishna Menon’s case (1) were that the
assessee was teaching his disciples Vedanta philosophy
without any motive or intention of making a profit out of
such activity. One J. H. Levy who used to go to Travancore
from England at intervals attended his teachings. Levy had
an account with Lloyd’s Bank at Bombay, and on December 31,
1944, Levy transferred the entire amount of Rs. 2,41,103-11-
3 to the credit of an account which Levy got the assessee to
open in his’ own name. Levy made further remittances and by
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August 19, 1951, had paid about Rs. 4,50,000. It was held
by this Court that the assessee was carrying on a vocation.
In deciding the question whether the amounts were assessable
to tax, this Court observed as follows:-
"...it seems to us that the present case is too plain to
require any authority. The only point is, whether the
moneys were received by the appellant by virtue of his
vocation. Mr. Sastri contended that the facts showed that
the payments were purely personal gifts. He drew our
attention to the affidavit of Levy where it is stated ’all
sums of money paid into his account by me have been gifts to
mark my esteem and affection for him and for no other
reason’. But Levy also there said, ’I have had the benefit
of his teachings on Vedanta’. It is important to remember
however that the point is not what the donor
(1) [1959] Supp. 1 S.C.R. 133.
96
758
thought he was doing but why the donee received it".
Sarkar, J., then referred to the dictum of Collins, M. R.,
in Herbert v. Mc-Quade (1), which may be quoted here:
"Now that judgment, whether or not the particular facts
justified it, is certainly an -affirmation of a principle of
law that a payment may be liable to income-tax although it
is voluntary on the part of the persons who made it, and
that the test is whether, from the standpoint of the person
who receives it, it accrues to him in virtue of his office;
if it does, it does not matter whether it was voluntary or
whether it was compulsory on the part of the persons who
paid it. That seems to me to be the test; and if we once get
to this-that the money has come to or accrued to, a person
by virtue of his office-it seems to me that the liability to
income-tax is not negatived merely by reason of the fact
that there was no legal obligation on the part of the
persons who contributed the money to pay it."
The learned Judge also referred to the observations of
Rowlatt, J., in Reed v. Seymour (2) and of Viscount Cave, L.
C., in Seymour v. Reed (3), and observed that the real
question was, is the payment in the nature of a personal
gift or is it a remuneration?, and quoted as the reply the
words of the Lord Chancellor-"If the latter, it is subject
to the tax; if the former, it is not." Sarkar, J., also
referred to the observations of Lord Ashbourne in Blakiston
v. Cooper (4), which were:
"It was suggested that the offerings were made as personal
gifts to the Vicar as marks of esteem and respect. Such
reasons no doubt played their part in obtaining and
increasing the amount of the offerings, but I cannot doubt
that they were given to the vicar as vicar and that they
formed part of the profits accruing by reason of his
office.", and concluded as follows:
"We have no doubt in this case that the imparting
(1) [1902] 2 K.B. 631.
(3) [1927] A.C. 554.
(2) [1926] 1 K.B. 588.
(4) [1909] A.C. 104.
759
of the teaching was the causa causans of the making of the
gift; it was not merely a causa sine qua non. The payments
were repeated and came with the same regularity as Levy’s
visits to the appellant for receiving instructions in
Vedanta. We do not feel impressed by Mr. Sastri’s
contention that the first payment of Rs. 2,41,103-11-3 was
too large a sum to be paid as consideration. In any case,
we are not concerned in this case with that payment. We are
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concerned with payments which are of much smaller amounts
and as to which it has not been said that they were too
large to be a consideration for the teaching. And one must
not forget that these are cases of voluntary payments and
the question of the appraisement of the value of the
teaching received in terms of money is not very material.
If the first payment was too big to have been paid for the
teaching received, it was too big to have been given purely
by way of gift."
In my opinion, the case of this Court concludes the matter,
and the Tribunal was within its rights in accepting one
piece of evidence in preference to another, and the finding
on the evidentiary value of the letter of the Maharaja was a
matter essentially for the Tribunal to decide finally. I
thus agree with the High Court in the answer which it gave,
in agreement on facts with the Tribunal, and the reasons for
which the answer was given.
I would, therefore, dismiss the appeal with costs.
BY COURT: In view of the majority judgment of the Court, the
appeal is allowed with costs throughout.
Appeal allowed.
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