ARUNDHATI BALKRISHNA Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE assessee in both these references is the same individual and the only difference is that in IT Ref. No. 7 of 1973, we are concerned with the asst. year 1964 65, where in IT Ref. No. 29 of 1973, the assessment year is 1966 67. Question No. 1 in IT Ref. No. 7 of 1973 and the only question referred to us for our opinion in IT Ref. No. 29 of 1973 stand on the same footing and it is common ground that both these questions are govern by the same principle and, therefore, we will dispose of both these references by this common judgment. The assessee, a lady, derive income from various sources including income from some trusts. One of the trusts is at Ahmedabad and the other is at Bombay. The Ahmedabad trust is known as Smt. Arundhati Balkrishna Trust, Ahmedabad. In respect of asst. year 1964 65, in the books of account of the Ahmedabad trust, a sum of Rs. 10,880 was debited to interest account being interest paid to Harivallabhdas Kalidas Estate Account (hereinafter referred to as "the estate account"). The ITO analysed the withdrawals from the estate account and found that there was substantial debits for expenses like household expenses, advance income tax, income tax, etc., totalling Rs. 2,19,804 and all these withdrawals from the estate account by the Ahmedabad trust were for personal expenses of the assessee. The ITO took into consideration earlier withdrawals from the estate account made by the Ahmedabad trust for investments and made adjustments for deposit in the year and finally concluded that the net withdrawals from the estate account for personal purposes was Rs. 3,10,806. He held that proportionate interest of Rs.6,199 out of the total interest of Rs. 10,880 paid by the Ahmedabad trust to the estate account was referable to withdrawals for personal expenses and for payment of tax, etc., and hence could not be allowed as an admissible deduction in computing the income of the assessee. On this basis the ITO worked out the income of the assessee including income from the Ahmedabad Trust where this item of interest of Rs. 10,880 was claimed but he added Rs.6,199 to the total income of the assessee as inadmissible deduction regarding interest.

(2.) IN IT Ref. No. 29 of 1973, the trust and the estate account are the same and for the year of account relevant for asst. year 1966 67, in the books of account of the Ahmedabad trust a sum of Rs. 25,496 was shown to have been paid as interest to the estate account. As against the claim of interest, namely, Rs. 25,496, on an analysis on the same lines which he made for the assessment year under consideration in IT Ref. No. 7 of 1973, in this case he made the necessary computation and he held that interest to the extent of Rs. 12,833 was referable to payment of interest for non investment purposes and hence could not be allowed as deduction in computing the income of the assessee. He disallowed the claim of interest to the extent of Rs. 12,833. Before the AAC in appeal and also before the Tribunal in further appeal, this question of deduction of the entire amount of interest paid in the respective years was urged but at both these stages, this contention of the assessee in each of the relevant assessment years was rejected. However, in IT Ref. No. 7 of 1973, before the AAC it was urged on behalf of the assessee that the assessee could not claim from the trust the share as determined by the ITO but she could only claim her share in the income as per the books of the trust. This contention was rejected by the AAC. The same contention was also raised before the Tribunal and the Tribunal held that the contention that in the total income of the assessee the Revenue authorities were entitled to include only that income which the trustees passed on to her, was untenable in view of the clear provisions of S. 45. Thereafter, at the instance of the assessee the following questions have been referred to us for our opinion in IT Ref. No. 7 of 1973 :

(3.) WE will now deal with question No. (2). which has been referred to us in IT Ref. No. 7 of 1973. On behalf of the assessee, the first submission which was made by the learned Advocate General was that what should be considered for income tax purposes is the real income which has accrued or which has been received by the assessee and not merely the income which may be shown in the book entries. In CIT vs. Shoorji Vallabhdas & Co., (1962) 46 ITR 144 (SC) the Supreme Court held that income tax is a levy on income. Though the IT Act takes into account two points of time at which the liability to tax is attracted, viz., the accrual of the income or its receipt, yet the substance of the matter is the income. If income does not result at all, there cannot be a tax, even though in book keeping, an entry is made about a "hypothetical income" which does not materialise. Where income has, in fact, been received and is subsequently given up in such circumstances that it remains the income of the recipient, even though given up, the tax may be payable. Where, however, the income can be said not to have resulted at all, there is obviously neither accrual nor receipt of income, even though an entry to that effect might, in certain circumstances, have been made in the books of account. It was pointed out by Hidayatullah J., as he then was, delivering the judgment of the Supreme Court at page 148 :