Kania, J.@mdashThis is a reference u/s 256(1) of the I.T. Act, 1961 (referred to hereinafter as "the said Act"). The assessee was married to the Maharaja of Kotah on 5th December, 1956, On 11th September, 1963, the assessee obtained a decree of nullity of her marriage with the said Maharaja of Kotah in the Bombay City Civil Court at Bombay. The said decree shows that in the petition filed by the assessee in the Bombay City Civil Court, she had claimed monthly alimony as well as a gross sum as permanent alimony and, alternatively, prayed that, in the event a periodic or monthly sum as a permanent alimony was granted, the same be secured by a charge on the immovable property of the said Maharaja of Kotah. The operative part of the said decree, with which we are concerned, runs as follows ;
"THIS COURT by and with such consent DOTH FURTHER ORDER that the respondent do pay to the petitioner a sum of rupees twenty-five thousand as permanent lump sum alimony and pay to her a further sum of rupees seven hundred and fifty per month as and by way of permanent alimony with effect from first day of August one thousand nine hundred and sixty-three till her re-marriage.... "
2. In the previous year relevant to the assessment year 1964-65, the assessee received a sum of Rs. 25,000 on account of permanent lump sum of alimony from the said Maharaja and further received a sum of Rs. 6,000 on account of the monthly alimony of Rs. 750 per month. In each of the previous years relevant to the assessment years 1965-66, 1966-67 and 1967-68, the assessee received Rs. 9,000 as aggregate monthly alimony paid by the said Maharaja under the said decree. In the assessment proceedings, the assessee claimed exemption from tax in respect of the aforesaid amounts. The said claim was rejected by the ITO. The appeals preferred by the assessee to the AAC were dismissed and so also the appeals preferred by the assessee to the Income Tax Appellate Tribunal. From this decision of the Tribunal, the following two questions have been referred to us ;
"(1) Whether, alimony received by the assessee u/s 25 of the Hindu Marriage Act, 1955, on nullity of marriage, is income in her hands and liable to tax ?
(2) Whether, on the facts and in the circumstances of the case, the alimony of Rs. 750 per month received by the assessee from her ex-husband on the nullity of marriage is income in her hands liable to tax ?"
3. We may point out that question No. 1 is admittedly not properly framed. It is common ground that we are not concerned in this reference with deciding the general question whether any alimony received by an assessee u/s 25 of the said Hindu Marriage Act, 1955, is liable to tax and the real controversy which the first question should have brought out is whether, on the facts and in the circumstances of the case, the lump sum alimony of Rs. 25,000 received by the assessee, as aforesaid, was income in her hands and liable to tax. We accordingly reframe the question No. 1 with the consent of both the counsel, as follows:
"Whether, on the facts and in the circumstances of the case, the lump sum alimony of Rs. 25,000 received by the assessee from her ex-husband, u/s 25 of the Hindu Marriage Act, 1955, on the nullity of marriage, is income in her hands and liable to tax ?"
4. We propose to consider first question No. 2, which relates to the monthly alimony of Rs. 750 received by the assessee during the relevant assessment years. In this regard, the submission of Mr. Dastur, the learned counsel for the assessee, is that alimony is an extension of the husband''s obligation under the Hindu law to maintain his wife. Section 25 of the Hindu Marriage Act merely recognizes and enlarges the scope of that obligation. Thus, alimony received on nullity of marriage cannot be said to have any definite source. The right to receive alimony is not alienable but is merely a personal right and is normally liable to alteration. Moreover, it ceases on remarriage. Thus, according to Mr. Dastur, alimony cannot be said to be from any particular source. Nor can it be said to be a return for any past service or any definite consideration. It is merely a personal payment and not income. It was submitted by him that English decisions are not of much value in deciding the question before us, because the charging provisions under the relevant English Income Tax Acts are differently worded and the scheme is different, and, normally, the question in such a case before an English court was whether the payments in question amounted to annual payments.
5. In support of this contention, Mr. Dastur drew our attention to Sch. D of the English I.T. Act, 1952, where the charge of tax was levied in respect of what is referred to as "an annual payment", (See Simon''s Income Tax, 2nd Edn., Vol. IV, p. 114). It was pointed out by him that in the United Kingdom where a husband pays alimony to the wife, generally either the husband gets a deduction in respect of the said amount in the computation of his taxable income and the wife is taxed in respect of it, or the husband is not given any deduction, but the wife is not taxed in respect of the amount received. It was thus pointed out by him that either the deduction was granted to the husband or no tax was levied on the wife in respect of such payments. In support of this, he drew our attention to Simon''s Income Tax, 2nd edn., vol. III, p. 239 para. 402. It was submitted that in the United Kingdom the wife was taxed in respect of the receipt of alimony only where the amount of alimony was diverted at source from the income of the husband, and in that case that amount was not included in the income of the husband.
6. It was, on the other hand, submitted by Mr. Joshi that when a decree provides for the payment of monthly alimony, the alimony paid is a periodic payment made under a legal obligation created by the decree, and it clearly constitutes income. That obligation may be created by a decree or under a contract, but that would make no difference. In the present case, the decree confers on the assessee a right to receive a certain amount per month as alimony. That payment is a regular periodic payment received by the assessee pursuant to a legal right created in her favour by the decree and it has a definite source. Hence, it must be regarded as income and is liable to be taxed as such. It was submitted by him that, under the Hindu law, there was no earlier right in the assessee to get maintenance from her husband on the basis of separate residence and that the right to monthly alimony on nullity of marriage is a right, which is created in her -favour by the decree alone.
7. Before going into a discussion of the arguments, we may notice some of the relevant provisions of the law at this stage. Section 25 of the Hindu Marriage Act, 1955, deals with permanent alimony and maintenance. Sub-section (1) of the said section runs as follows :
"Any court exercising jurisdiction under this Act may, at the time of passing any decree or at any time subsequent thereto, on application made to it for the purpose by either the wife or the husband, as the case may be, order that the respondent shall, while the applicant remains unmarried, pay to the applicant for her or his maintenance and support such gross sum or such monthly or periodical sum for a term not exceeding the life of the applicant as, having regard to the respondent''s own income and other property, if any, the income and other property of the applicant and the conduct of the parties, and other circumstances of the case, it may seem to the court to be just, and any such payment may be secured, if necessary, by a charge on the immovable property of the respondent."
8. Sub-section (2) of the said section provides that on changed circumstances an order made for alimony under Sub-section (1) can be varied, modified or rescinded. Sub-section (3) provides that if the party in whose favour such an order has been made, remarries or is guilty of the conduct set out therein, the court is entitled to rescind the order for alimony. Section 12 of that Act provides for the annulment by a decree of nullity of voidable marriages. We may at this stage point out that, as far as the general right of a wife to maintenance is concerned, no rule of Hindu law has been shown to us that during the subsistence of the marriage a wife is entitled to stay separately from the husband and claim maintenance, except under certain special circumstances which would justify her staying separately from her husband. Clause (24) of Section 2, being the definition section under the said Act, gives an inclusive or extensive definition of the term "income" and provides that it includes, inter alia, profits and gains. At the relevant time, Sub-section (3) of Section 10 of the said Act, read with the opening portion thereof, ran thus:
"10. In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included--......
(3) any receipts which are of a casual and non-recurring nature, unless they are-
(i) capital gains, chargeable under the provisions of Section 4(3) ; or
(ii) receipts arising from business or the exercise of a profession or occupation; or
(iii) receipts by way of addition to the remuneration of an employee."
9. The corresponding provision of the Indian T.T. Act, 1922, was Section 4(3)(vii).
10. It appears that Mr. Dastur is right in contending that the right to receive alimony is a personal right and is not alienable. If an authority were needed for that proposition, reference could be made to Watkins v. Watkins [1896]. 222 (CA), which lays clown that sums of money ordered u/s 1 of the Divorce and Matrimonial Causes Amendment Act, 1866 (29 and 30 Vict. C. 32), to be paid by a husband for the maintenance of his divorced wife, are a purely personal allowance, and so long as the order subsists can neither be alienated nor released. He is also right when he states that in view of the different words of the charging provisions in the English Income Tax Acts, it would not be safe to place complete reliance on English decisions in interpreting the word "income" used under the said Act. The question whether the monthly alimony paid under a decree of nullity, as in the case before us, would be "income" will have to be considered primarily in the light of the provisions of the said Act and the interpretation thereof contained in various decisions. As we have pointed out, the definition of the term "income" contained in the said Act is merely an inclusive definition and it does not throw any direct light on the question whether the payment of monthly alimony under a decree could be regarded as "income " under the said Act. Nor is any clear guidance to be obtained from looking at the scheme of the Act and the other provisions of the said Act. If, therefore, we are to look for light, it is to the decided cases that we must turn.
11. In
"The object of the Indian Act is to tax ''income'', a term which it does not define. It is expanded, no doubt, into ''income, profits and gains'', but the expansion is more a matter of words than of substance. Income, their Lordships think, in this Act connotes a periodical monetary return ''coming in'' with some sort of regularity, or expected regularity, from definite sources. The source is not necessarily one which is expected to be continuously productive, but it must be one whose object is the production of a definite return, excluding anything in the nature of a mere windfall. Thus income has been likened pictorially to the fruit of a tree, of the crop of a field."
12. In Maharajkumar Gopal Saran Narain Singh v. CIT [1935] 3 ITR 237 , the assessee, who owned a nine-annals share in an estate, with the object of discharging his debts and of obtaining for himself an adequate income for his life, conveyed the greater portion of his estate to his son-in-law''s mother who owned the remaining seven-annals share in the estate. The consideration for the transfer was: (i) the payment of the assessee''s debts amounting to Rs. 10,26,937 ; (ii) a cash payment of Rs. 4,73,063 ; and (iii) an annual payment of Rs. 2,40,000 to the assessee for his life. It was held by the Privy Council, inter alia, that this was clearly a case where the owner of an estate (the assessee) had exchanged a capital asset for (inter alia) a life annuity which was income in his hands and not a case in which he had exchanged his estate for a capital sum payable in instalments and that this income was taxable under the I.T. Act, even though the annuity did not constitute or provide a profit or gain to the assessee. After referring to the aforesaid decision of the Privy Council in the case of Shaw Wallace & Co., their Lordships observed as follows (p. 242):
"The word ''income'' is not limited by the words ''profits'' and ''gains''. Anything which can properly be described as income, is taxable under the Act unless expressly exempted. In their Lordships'' view the life annuity in the present case is ''income'' within the words used in the judgment of this Board which was delivered in the. case of
13. It has been plainly held by the Privy Council in this case that although what was parted with by the assessee, namely, his share in the estate was a capital asset, that part of the consideration which was in the form of annual sums, was income in the hands of the assessee, particularly as the document clearly showed that one of the considerations which led to the execution of the document by the assessee was the provision of an adequate income for himself.
14. In the judgment of the Board in the case of Raja Bahadur Kamakshya Narain Singh of Ramgarh v. CIT [1943] 11 ITR 513 , delivered by Lord Russell of Killowen, their Lordships of the Privy Council, after referring to the aforesaid two decisions, have observed as follows (p. 522):
"The word ''income'' is not limited by the words ''profits'' and ''gains''. Anything which can properly be described as income, is taxable under the Act unless expressly exempted.
It is not in their Lordship''s opinion correct to regard as an essential element in any of these or like definitions a reference to the analogy of fruit, or increase or sowing or reaping or periodical harvests."
15. In this case the assessee received large payments by way of royalty under various mining leases, which were for a period of 999 years. In return for these rights the lessees were to pay a sum by way of salami or premium and an annual sum as royalty computed at a certain rate per ton on the amount of coal raised and coke manufactured, subject always to a minimum annual sum. It was held that salami was paid for the acquisition of the right of the lessees to enjoy the benefits granted to them by the lease and that right being a capital asset, the money paid to purchase it was a payment on capital account. But that, as for the annual royalty, including the minimum royalty, it was income flowing from the covenants in the lease and was in no sense a payment on capital account.
16. We come next to the case of
" ... ...in order to be income, it must be something which ''comes in'' (1) periodically, (2) as a return, (3) with some sort of regularity or expected regularity, and (4) from a definite source. It appears to me to be beyond argument that a series of payments may be made periodically and with regularity or with expected regularity, notwithstanding that they do not have their origin in business activity, investment or enforceable obligation. That such a payment is something which ''comes in'' and in that sense may in the proper circumstance be ''income'' in the wide sense in which that expression was explained by Lord Macnaghten in Tennant v. Smith [1892] AC 150 , is, I think, equally beyond doubt. And I should add as a third self-evident proposition that there may be a great deal of practical difference between a payment which is one of a series of payments made with regularity or expected regularity on the one hand and what Viscount Dunedin describes in Bradfield College case [1932] AC 388 , as ''merely a casual payment'' and what Sir George Lowndes describes in
17. In
18. In
"Thus, voluntary and gratuitous payments, which are connected with the office, profession, vocation or occupation may constitute ''income'' although if the payments were not made, the enforcement thereof cannot be insisted upon. These payments constitute ''income'' because they are referable to a definite source, which is the office, profession, vocation or occupation. It could, therefore, be said that such a voluntary payment is taxable as having an origin in the office, profession or vocation of the payee, which constitutes a definite source for the income. What is taxed under the Indian Income Tax Act is income from every source (barring the exceptions provided in the Act itself) and even a voluntary payment, which can be regarded as having an origin, which a practical man can regard as a real source of income, will fall in the category of "income", which is taxable under the Act".
19. In
20. In
21. We come finally to the case of
"The result of all this discussion is that in order to constitute ''income'', the receipt must be one which comes in, (a) as a return, and (2) from a definite source. It must also be of the nature which is of the character of income according to the ordinary meaning of that word in the English language and must not be one of the nature of a windfall ". Mr. Dastur also cited the following (p. 779 of 106 ITR):
"Where the obtaining of a particular advantage or receipt could not be said to be within the ordinary contemplation of the party obtaining or receiving it, then only would it be proper to characterise the advantage or receipt as a windfall. On the other hand, where there was clear expectation, though small, of receiving such advantage or profit, then it cannot be properly regarded as windfall merely because the advantage or receipt is much more than could have been reasonably contemplated.
That the advantage received must be attributable to some conscious process on the part of the assessee also appears to be implicit in the aspect of a ''return''. Now, it must be made clear that when we talk of return in the context of this aspect of the question, we are not considering the return on any outlay or investment made by the assessee in the sense of capital employed. This may be one of the ways of securing a return, but not the only way. But return will involve conscious outlay of resources or of effort or of talent. It is the consciousness of the effort made which invests the receipt with the character of a return and removes it from the category of a windfall."
22. Mr. Dastur also submitted that in the course of his concurring judgment, Vimadalal J. held as follows and that it amounted to a proposition of law (p. 789):
"If one analyses that definition, it is clear that the Privy Council laid down that in order that a receipt by an assessee should constitute income, it must satisfy the following ingredients :
(1) it must be a periodical monetary return which, in my opinion, must mean a return for labour and/or skill and/or capital;
(2) coming in with regularity, or expected regularity ;
(3) from a definite source ;
(4) excluding a receipt "in the nature of a mere windfall", i.e., not a windfall in regard only to the extent or quantum of what is received".
23. He also contended that Vimadalal J. had in his judgment denned "income" as follows (p. 790):
"Income is a monetary return expected by the assessee for the labour and/or skill bestowed, and/or capital invested by him ; coming in from a definite source, which need not be a legal source, in the sense that the failure to pay the same need not be enforceable in a court of law; and excluding a receipt ''in the nature of'' a mere windfall which, as already stated above, must mean a windfall in regard to its very nature and not in regard to its extent or quantum".
24. Mr. Dastur pointed out that in the present ease it could never be said that the assessee entered into the marriage with a view to obtain a decree for nullity and the alimony provided thereudner. There was, therefore, no conscious effort or any return expected by the assessee for the labour or skill bestowed by the assessee and in fact there was no question of any labour or skill being expended by the assessee to obtain alimony and hence the amount of alimony could never be regarded as the "income" of the assessee. In our view, the submission of Mr. Dastur cannot be accepted. It is significant that in this very decision, the learned judges, who decided the case, have cited with approval both the decisions in the case of
25. We will now come to the application of the principles discussed earlier in regard to the facts of the case. We find that it is not possible to contend that the decree is not the source of the payment of alimony. Whatever were the earlier rights of the assessee, her right to obtain a particular amount in lump sum and an amount of Rs. 750 per month as alimony are definitely crystallised in the decree. It cannot be said that the decree is a mere recognition or continuation of an earlier obligation. If the decree were set aside, we fail to see how the assessee could claim the sum of Rs. 750 per month from her ex-husband. If the ex-husband failed to pay the amount, it is the decree which the assessee would have to execute. In our view, it is clear that the decree is the definite source of these receipts. The amount of Rs. 750 per month is what the assessee periodically and regularly gets and is entitled to get under this decree. This amount must, therefore, be looked upon as a return from the said decree which is the definite source thereof. The word "return", in our view, in a case like this, can never be interpreted as meaning only a return for labour or skill employed on capital invested. Such a definition of "return'''' would be too narrow and would exclude the case of voluntary payments, when it is the settled position in law that in some cases even voluntary payments can be regarded as "income". Although it is true that it could never be said that the assessee entered into the marriage with any view to get alimony, on the other hand, it cannot be denied that the assessee consciously obtained the decree and obtaining the decree did involve some effort on the part of the assessee. The monthly alimony being a regular and periodical return from a definite source, being the decree, must be held to be "income" within the meaning of the said term in the said Act.
26. As far as the question of casual receipts is concerned, we are of the view that the monthly payments of alimony have their origin in a definite source, viz., the decree, they are regular in nature and the said decree was obtained by some effort on the part of the assessee. Hence these payments can never be regarded as, a series of windfalls or casual payments.
27. Before parting with the question of monthly payments, there is, however, one aspect of the matter, to which we would like to refer. It was rightly pointed out by Mr. Dastur that if such monthly payments are regarded as "income", the result might be that in respect of the said payments if they are made by the husband out of his income, the husband would get no deduction and the wife would be liable to pay Income Tax. He pointed out that even the English I.T. Act of 1952 contains provisions for the avoidance of such double taxation. That is unfortunate. But this is a matter, which is not relevant for us. It is clearly desirable that a suitable amendment should be considered to see that in cases where the payments of alimony are made by a husband from his income and are such that they cannot be claimed as deductions from the income of the husband, in the assessment of his income, they should not be taxed in the hands of the wife. That, however, is not for the courts but for the Legislature to consider.
28. Coming next to the question of the lump sum payment of Rs. 25,000, the submission of Mr. Joshi was that the payment of that sum also has its origin in the decree for nullity and that payment also must be looked upon as a return from that decree. It was contended by him that once this is established, it makes no difference whether the payment under the decree is in the form of a single amount or in the form of periodical amounts. It was urged by Mr. Joshi that this lump sum represents nothing but a corn-mutation of a part of the future alimony payable to the assessee. It was on the other hand, contended by Mr. Dastur that regular monthly payments or periodic payments can never be equated with a lump sum payment or a single payment. It was urged by him that the lump sum payment of Rs. 25,000 under the decree to a certain extent diminished, extinguished or satisfied the right of alimony created under the decree and that such a receipt should be regarded as a capital receipt. It was. urged by him that where a lump sum is paid, which satisfies a right or obligation, it would normally be a capital receipt, unless the payment is in respect of a commercial, business or revenue asset or represents the commutation of an existing right to recurring income receipts in circumstances which show that the lump sum represents the present value of the future income receipts. It was submitted by Mr. Dastur that in the present case the lump sum payment of Rs. 25,000, to a certain extent, diminishes the right of the assessee to obtain alimony which right must be regarded as of a capital nature. It was urged by him that the burden was on the revenue to establish that this receipt is of a revenue nature. It was urged by him that the burden was on the revenue to establish that this receipt is of a revenue nature. It was submitted by him, in the alternative, that the said amount, even if regarded as of an income nature must be regarded as a windfall and it was exempt u/s 10(3) of the said Act, as it stood at the relevant time, as a casual non-recurring receipt. In this regard we must point out that the decision in Maharajkumar Gopal Saran Narain Singh [1935] 3 ITR 237 , discussed earlier by us, shows that a capital asset can be exchanged for receipts which may be in part income receipts and in part capital receipts. In that case, for instance, the nine-annals share in the estate, which was a capital asset, was converted partly into capital receipts and partly into annual payments, which constituted receipts. Reference may also be made here to the decision of the Supreme Court in
"It is well settled that a sum of money paid in commutation of annual sums which are '' income '' for the purposes of the Income Tax Act is chargeable to Income Tax ; just as in the computations of the profits of a business a sum paid in commutation of an annual ''expense'' is allowed as an ''expense''".
29. In our view, from the point of view of taxability, the decree must be regarded as a transaction in which the right of the assessee to get maintenance from her ex-husband was recognized and given effect to that right was undoubtedly a capital asset. By the decree that right has been diminished or partly extinguished by the payment of the lump sum of Rs. 25,000 and balance of that right has been worked out in the shape of monthly payments of alimony of Rs. 750 which, as we have pointed out. could be regarded as income. It is, in our view, beyond doubt that had the amount of Rs. 25,000 not been awarded in a lump sum under the decree to the assessee, a larger monthly sum would have been awarded to her on account of alimony. It is not as if the payment of Rs. 25,000 can be looked upon as a commutation of any future monthly or annual payments because there was no pre-existing right in the assessee to obtain any monthly payment at all. Nor is there anything in the decree to indicate that Rs. 25,000 were paid in commutation of any right to any periodic payment. In these circumstances, in our view, the receipt of that amount must be looked upon as a capital receipt. In view of this, we do not think it necessary to consider whether the said receipt could be regarded as casual receipt or in the nature of a windfall.
30. In the result, we answer the questions, as re-framed by us, as follows :
Question No. 1: In the negative and in favour of the assessee.
Question No. 2 : In the affirmative and against the assessee.
31. In view of the divided success which the parties have achieved in the reference, there will be no order as to costs.
