PADMARAJE R KADAMBANDE Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) SHRIMANT Padmaraje R. Kadambande, the assessee, is the daughter and the only child of late H. H. Chhatrapati Rajaram Maharaj, a ruling chief of the erstwhile Indian State of Kolhapur. Under the Huzur Order dt. April 8, 1947, passed by his successor, H. H. Shahu Chhatrapati Maharaj, the assessee was granted a cash allowance of Rs. 3,000 per month from April 1, 1947. After the merger of the Kolhapur State in the then Bombay State, the allowance was continued for some time up to July 31, 1955. Thereafter, it was discontinued in accordance with the provisions of the Bombay Merged Territories Miscellaneous Alienations Abolition Act, 1955 (hereinafter referred to as "the Act"). The discontinuance of the said allowance was communicated to the assessee by the District Treasury Officer, Kolhapur, by his letter bearing No. WS XXI 53 dt. April 14,1956. The Act provided for a similar cash allowance being paid as per the provisions of S. 15 of the Act. The assessee continued to receive the cash allowance from August 1, 1956, though on modified terms. The sanction of the Government continuing the cash allowance was conveyed to the assessee by the Collector of Kolhapur through his letter No. RB/WTN. 16, dt. October 6, 1959. It appears. that an amount of Rs. 10 lakhs out of a trust property which was invested in the Bank of Kolhapur in accordance with the provisions of the indenture of trust dt. October 19, 1947, was misappropriated. The cash allowance that was to be paid to the assessee under the order dt. October 6, 1959, was to be reduced under the circumstances therein mentioned.

(2.) FOR the asst. year 1963 64, the assessee received Rs. 36,000 and for the asst. year 1964 65 she received Rs. 33,992. Before the ITO, for these two assessment years a question arose whether the amounts received by the assessee during these two years were subject to income tax. It was sought to be contended, on behalf of the assessee, that these receipts were of a capital nature and were not subject to income tax. That contention of the assessee was rejected. The ITO subjected the respective amounts to tax in each of the assessment years. In an appeal by the assessee before the AAC, two alternative contentions were sought to be urged on behalf of the assessee : (1) The receipts in question were receipts of a capital nature and were, therefore, exempt from taxation, and (2) If they were receipts of income nature, they were exempt under S. 10(3) of the IT Act, because they were of a casual and non recurring nature. Both these contentions were rejected by the AAC and he confirmed the orders of the ITO subjecting the amounts to tax. In a further appeal before the Tribunal, the very same contentions that were urged before the AAC were advanced on behalf of the assessee, and the same were rejected. Considering the nature of the claim made by the assessee, as disclosed by the information given to the Government in her application and the various other relevant factors, the Tribunal came to the conclusion that the amounts that were received by her were receipts of income nature and that they were not casual or non recurring receipts. Accordingly, the Tribunal confirmed the order that was passed by the taxing authorities.

(3.) MR . Munim, on behalf of the assessee, submitted that by reason of the provisions of the Act, especially S. 4 thereof, all alienations were abolished and it was by way of compensation for abolition of such alienations that under the provisions of S. 15(d) of the Act the Government passed the order which was communicated to the assessee by the Collector of Kolhapur by his letter dt. October 6, 1959. He submitted that if regard be had to the language of the relevant provisions of the Act as well as of this order which was, inter alia, communicated to the assessee, what was paid to the assessee was mere compensation for abolition of alienation in her favour and what is received by her pursuant to this order is compensation and is a capital receipt. He urged that both under the provisions of the Act as well as the order that was communicated by the Collector by the letter dt. October 6, 1959, the amounts to be paid to her from time to time are described as compensation and that they were accordingly capital receipts by way of compensation for extinction of the rights as a result of abolition of alienation. In short, his submission was that what was received by the assessee pursuant to this order was a capital receipt and cannot be regarded as income, since the receipt is not of a revenue nature. His submission was that both the taxing authorities as well as the Tribunal were in error in subjecting the amounts to tax holding it as income in her hands.