COMMR OF INCOME TAX Vs. KAMESHWAR SINGH

JUDGEMENT

(1.) In this case the Income-tax Appellate Tribunal has formulated the following question of law lor the determination of the High Court :

(2.) On behalf of the Commissioner of Income-tax, learned Standing Counsel stressed the argument that the view taken by the Income Tax Appellate Tribunal is erroneous, that on a proper construction of Section 16(1)(c), Income-tax Act the amount of interest which had accrued for the two assessment years on the amount of securities which had been purchased by the Maharaja was taxable in his hands. It was contended that no trust was created with respect to the securities purchased by the Maharaja but there was a mere promise made by the Maharaja to pay donation of the interest received from the securities to the Viceroy's war purposes Fund. To put it differently, the argument is that there was no legally enforceable agreement between the Maharaja of Darbhanga on the one hand and the Viceroy or Vicerene of India on the other hand to the effect that the assessee would pay the amount of interest accrued on the Government securities for the period of the duration of the war. It was further argued that the third proviso to Section 16(1)(c) does not contemplate a settlement or disposition in favour of an artificial entity like the Voceroy's war purposes Fund. It was (submitted the assessee could claim exemption under the third proviso only in a case where settlement or disposition is made in favour of a living person and not in a case where an artificial entity either incorporated or unincorporated is a beneficiary under the transaction. The question at issue depends upon the proper construction of Section 16(1)(c) which states as follows :

(3.) In this Court Mr. S. K. Majumdar who ably argued the case on behalf of the assessee attemp-ed to support the view of the Tribunal that a urust was created. It is obviously impossible to accept this argument. Learned counsel further contended that there was an agreement on the part of the Maharaja that he would pay the amount of interest accrued on the Government securities year alter year so long the war lasted. Learned counsel in fact submitted his argument in the alternative. In the first place, learned counsel said that there was a legally enforceable obligation on the part of the Maharaja of Darbhanga and the Income-tax authorities have rightly exempted levy of tax on the interest which had been paid to the Viceroy's War Purposes Fund. In the alternative learned counsel submitted that even if there was a mere promise, not legally enforceable on the part of the Maharaja, the third proviso to Section 16 (1) (c) would operate and the Maharaja would be entitled to claim exemption of income-tax on the amount of interest accrued on securities for the two assessment years, As regards the first alternative argument presented by Mr. Majumdar I am of opinion that upon the facts disclosed in the statement of the case, the so-called agreement of the Maharaja to pay interest on the securities as donation to the Veceroy's War Purposes Fund, is not a legally enforceable promise. There is nothing to show that there was a contract or agreement in the legal sense between the Maharaja & the Vicerene of India or any one else representing the Viceroy's War Purposes Fund. There is nothing to suggest that there was any consideration of any sort or description for the Maharaja's promise to pay the interest. The Maharaja no doubt paid the amount of interest to the war purposes Fund not because there was any legal obligation to pay or there was any legal contract. It was a mere promise of donation and it is entirely voluntary on the part of the Maharaja and voluntary also on the part of the Vicerene. There was no intention of the parties in entering into the agreement that any legal obligation should be created. Unless there was an intention on the part of the Maharaja that any legal obligation should be created I do not think that there was a contract in the legal sense and there was any binding legal obligation on the part of the Maharaja to pay the amount of donation he had promised to the Vicerene. The principle has been stated beyond any possibility of doubt by Lord Atkin in -- 'Balfour v. Balfour', (1919) 2 KB 571 (A) :