LexMOTILAL CHHADAMI LAL JAIN versus COMMISSIONER OF INCOME TAX, DELHI ETC.
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.. • MOTILAL CHHADAMI LAL JAIN v . COMMISSIONER OF INCOME TAX, DELHI ETC. APRIL 8, 1991 [S. RANGANATHAN, KULDIP SINGH AND N.M. KASLIWAL JJ.] Income Tax Act, 1961: Assessment years 1962-63, 1968-69, 1969- A B 70 and 1973-74--Assessee Hindu undivided family consisting of Appel- lant Chhadamilal Jain as the Karta and his son-Income derived from property as well as hire, rent and commission from the lessee-Jain Gl~s C Works (p) Ltd. Company-Lease Deeds dated 3.5. 1960 and 5.5.62 with the company-Rental income-Out of the annual rent of Rs.21,000, Jessee to pay Rs. 10,000, direct to a College-Whether this amount is includible in the income of the Assessee? Held yes; liable to pay tax on the entire rental income. Section ll( l)(a)/Section 4(3)(i) of the Income Tax Act 1922- lncome from Certain properties transferred to a charitable Trust- D --! Vesting of-Properties in the Trustees-Income accruing from such ·--( properties is income of the Trust and not of the assessee.-Registered Conveyance of the properties to the trustees is necessary but it is not necessary where owner himself is the sole trustee. E For the assessment year 1962-63 the assessee-family returned Rs.11,000 as the rent received from the lessee Company. Regarding the balance of Rs.10,000, it was contended on behalf of the assessee that - _._ this amount being directly payable by the lessee company under the lease deed dated S.S.62 to the Trust College, this ceased to be the F income of the assessee. This contention was negatived by the Depart- ment right upto the Income Tax Appellate Tribunal. The other point of dispute concerned the income accruing from certain properties claimed to have been transferred by the family to a charitable Trust created under a Trust Deed dated 14.11.1947. The O I.T.O. assessed the income from these properties in the hands of the -~ family taking the view that the Trnst deed only purported to transfer income from the properties and not the corpus and therefore, this income was not eligible for exemption under section 4(3)(i) of the Indian Income Tax Act 1922. Assessee's appeal to the Appellate Assistant Commissioner failed but further appeal to the Tribunal succeeded. H 237 238 SUPREME COURT REPORTS [ 1991] 2 S.C.R. A Thus the assessee agrieved on the first contention and the depart- ment on the second contention sought references to the High Court. In respect of assessment year 1962-63 two questions were referred to the High Court on the above two points. A question in respect of the first point was also referred for the assessment years 1968-69 and 1969-70 and two questions on the two points mentioned above were referred to B the High Court in respect of assessment year 1972-73. c As the High Conrt answered these questions against the assessee, it preferred four appeals covering the four assessment years in question. Allowing the appeals in respect of assessment years 1968-69 and 1969-70 and party allowing the other two appeals in respect of assess- ment years 1962-63 and 1973-74, this Court, HELD: (1) The assessee is the owner of the properties in question leased out to the company on an annual rent of Rs.21,000. This is D · Income of the family. The assessee's agreement with the company that Rs.10,000 out of the rent due to it should be paid directly to the College r is only a mode of application of the income by the family which makes r-- no difference in its liability to tax on the entire rent of Rs.21,000 nor does the fact tbat the college has been given a right to sue for and recover this sum directly from the company in case of default, alter this E position. The payment to, or recovery of, Rs.10,000 by the college will only discharge, in part, the liability of the company to pay a rent of Rs.21,000 to the assessee under the lease deed. The creation nf a charge in favour of the college does not make any difference. It only obliges the company to pay a part of the rent to the college on behalf of the assessee . but the existence of a mere obligation is not sufficient to constitute F · diversion of income. Where the obligation flows out of an antecedent and independent title in the former, it effectively slices away a part of the corpus of the right of the latter to receive the entire income '!lld so it would be a case of diversion. On the other hand, where the obligation is self-imposed or gratuitous it is only a case of an application of inco
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