Calcutta H.C : The amount of remuneration paid to the trustees as fixed by the Hon’ble High Court constitute deductible expenditure from the income of the Trust as per provisions of section 24(1)(iv) of the Income-tax Act, 1961

High Court Of Calcutta

Estate of Sree Sree Radha Kishan Jew vs. CIT, XIII

Assessment Year : 1997-98

Section : 24

Bhaskar Bhattacharya And Sambuddha Chakrabarti, JJ.

IT Appeal No. 139 Of 2004

March 31, 2011

JUDGMENT

Bhaskar Bhattacharya, J. – This appeal under section 260A of the Income-tax Act, 1961 is at the instance of an assessee and is directed against an order dated 12-11-2003 passed by the Income-tax Appellate Tribunal, “SMC” Bench, Kolkata, in ITA No. 83/K/03 for the assessment year 1997-98 by which the Tribunal affirmed the order of the Commissioner of Income-tax (Appeals) of holding that remuneration payable to Shebaits which is fixed by the founder of the Deed of Settlement does not amount to annual charge on the property and thus, no deduction under section 24 of the Act is permissible.

2. Being dissatisfied, the assessee has come up with the present appeal.

3. The facts giving rise to filing of this appeal may be summed up thus:

(a) By a Will executed on 26-7-1921 one Sri Kali Das Paul, since deceased, created a Trust dedicating the properties mentioned in Schedule-‘Ga’ of the said Will in favour of Sree Sree Iswar Radhakishan Jew which is a regular assessee under the Act.

(b) For the assessment year 1997-98, the appellant filed its return disclosing the total income amounting to Rs. 2,83,210. The appellant is the estate of a deity and has income from house property and also earns interests on fixed deposits assessable as income from other sources under section 56 of the Act. The appellant claimed deduction of an annual charge amounting to Rs. 1,44,000 paid as remuneration to the Shebaits in view of the order passed by this Court dated 5th June, 1978 and 28th March, 1995 in suit No. 1586 of 1946 where the remuneration of the Shebaits was enhanced.

(c) The Assessing Officer made scrutiny and passed an order under section 143(3) of the Act and while making assessment, he disallowed the claim of Rs. 1,44,000 being the expenditure on remuneration paid to the Shebaits which was increased in view of the aforesaid order passed by this Court in Title Suit No. 1586 of 1946.

(d) Being dissatisfied, the appellant preferred an appeal before the CIT (Appeals) and by order dated 21-10-2002, the CIT(Appeals) dismissed the appeal with respect to the aforesaid disallowance of the claim of Rs. 1,44,000 and upheld the order of the Assessing Officer.

(e) Being dissatisfied, the appellant preferred an appeal before the Tribunal below and as indicated above, the Tribunal by the order impugned in this appeal affirmed the order of the CIT (Appeals).

4. At the time of admission of the present appeal, a Division Bench of this Court framed the following substantial question of law :

“Whether in view of the facts and circumstances of the case the ld. Tribunal ought to have held that the amount of remuneration paid to the trustees as fixed by the Hon’ble High Court constitute deductible expenditure from the income of the Trust as per provisions of section 24(1)(iv) of the Income-tax Act, 1961.”

5. Mr. Khaitan, the learned senior Advocate appearing on behalf of the appellant, has strenuously contended before us that by the Deed of Arpannama, the settlor of the debutter property having fixed the remuneration of the Shebaits and such remuneration having been enhanced by this Court in a suit for administration of the Trust, the enhanced amount of remuneration payable to the Shebaits by virtue of the order passed by this Court should be deemed to be a charge on the property owned by the deity and thus, is deductible in terms of section 24(1)(d) of the Act. Mr. Khaitan submits that the learned Tribunal below committed substantial error of law in holding that the remuneration paid to the Shebaits at the rate of Rs. 12,000 as against Rs. 100 per month as authorized by the Will was not in accordance with the Deed of Settlement. Mr. Khaitan contends that the said amount having been enhanced by the Court, the same should be treated to be a legal remuneration payable to the Shebaits in accordance with law. Mr. Khaitan submits that the finding of the Tribunal that the remuneration of Shebaits does not amount to annual charge is not proper.

6. Mr. Chowdhury, the learned Advocate appearing on behalf of the revenue has, on the other hand, supported the order passed by the Tribunal below and has contended that in view of the Division Bench decision of this Court in the case of CIT v. Sri Sri Saradeswar Siva Linga [1983] 140 ITR 953/14 Taxman 34, there is no scope of any argument that the amount spent as remuneration of the Shebaits should come within the expression “annual charge” within the meaning of section 24(1)(iv) of the Act.

7. In order to appreciate the question involved herein, the provision contained in section 24(1)(iv) of the Act is quoted below :

“24(1) Income chargeable under the head “Income from house property” shall, subject to the provisions of sub-section (2), be computed after making the following deductions, namely :—

(iv)where the property is subject to an annual charge, (not being a charge created by the assessee voluntarily or a capital charge), the amount of such charge;”

8. After hearing the learned counsel for the parties and after going through the aforesaid materials on record, we are of the view that even though by the Will by which the Debutter was created the settlor fixed remuneration of the Shebaits to be Rs. 100 in the year 1926, the enhanced remuneration fixed by Court in the year 1995 should be treated to be the remuneration payable to the Shebaits in accordance with law notwithstanding the fact that the said amount is higher than the one fixed by the settlor as the same was enhanced by virtue of a judicial order in a suit for administration.

9. The next question is whether the amount payable, as lawful remuneration to the Shebaits, should be treated to be “annual charge” within the meaning of section 24(1)(iv) of the Act.

10. After hearing the learned counsel for the parties and after going through the materials on record, we are of the view that any expenditure incurred by an owner on itself or towards any obligation of the owner to incur certain expenditure by itself cannot form part of any annual charge of the property. In this connection, we may profitably refer to the decision of the Supreme Court in the case of CIT v. Sitaldas Tirathdas AIR 1961 SC 718 where the Supreme Court laid down the following test to decide whether a particular expenditure should get the benefit of deduction :

“In our opinion, the true test is whether the amount sought to be deducted, in truth, never reached the assessee as his income. Obligations, no doubt there, are in every case, but it is the nature of the obligation which is the decisive fact. There is a difference between an amount which a person is obligated to apply out of his income and an amount which by the nature of the obligation cannot be said to be a part of the income of the assessee. Where by the obligation income is diverted before it reaches the assessee, it is deductible; but where the income is required to be applied to discharge an obligation after such income reaches the assessee, the same consequence, in law, does not follow. It is the first kind of payment which can truly be excused and not the second. The second payment is merely an obligation to pay another a portion of one’s own income, which has been received and is since applied. The first is a case in which the income never reaches the assessee, who even if he were to collect it, does so, not as part of his income, but for and on behalf of the person to whom it is payable. In our opinion, the present case is one in which the wife and children of the assessee who continued to be members of the family received a portion of the income of the assessee, after the assessee had received the income as his own. The case is one of application of a portion of the income to discharge an obligation and not a case in which by an overriding charge the assessee became only a collector of another’s income. The matter in the present case would have been different, if such an overriding charge had existed either upon the property or upon its income, which is not the case. In our opinion, the case falls outside the rule in Bejoy Singh Dudhuria’s case, [1933] 1 ITR 135 : (AIR 1933 PC 145) and rather falls within the rule stated by the Judicial Committee in P.C. Mullick’s case, [1938] 6 ITR 206 : (AIR 1938 PC 118).”

11. In the case before us, by virtue of a dedication to the deity, the property vested in the deity and managed by its Shebait. The position of a Shebait is a peculiar one as would appear from the following observations of the Supreme Court in the case of Kalipada Chakraborti v. Smt. Palani Bala Devi AIR 1953 SC 125 :

“Whatever might be said about the office of a trustee, when carries no beneficial interest with it, a shebaitship, as is now well settled, combines in it both the elements of office and property. As the shebaiti interest is heritable and follows the line of inheritance from the founder, obviously when the heir is a female she must be deemed to have, what is known as widow’s estate in the shebaiti interest. Ordinarily there are two limitations upon a widow’s estate. In the first place, her rights of alienation are restricted and in the second place, after her death the property goes not to her heirs but to the heirs of the last male owner. It is admitted that the second element is present in the case of succession to the rights of a female shebait. As regards the first, it is quite true that regarding the powers of alienation, a female shebait is restricted in the same manner as the male shebait, but that is because there are certain limitations and restrictions attached to and inherent in the shebaiti right itself which exist irrespective of the fact whether the shebaitship vests in a male or a female heir: Vide Angurbala v. Debabrata [1951] SCR l125 at p. l136.”

12. Thus, a Shebait really acquires a heritable right over the property of the Debutter with some limitations unlike an ordinary owner of a property. The Shebait is authorized by law to collect the rent of the Debutter property and in such a situation, the Shebait first collects the rent on behalf of the deity and then appropriates its own remuneration payable to him if prescribed, under the terms of the Arpannama. But at any rate, a Shebait by virtue of his office as such, does not become a charge-holder over the Debutter property for protecting his remuneration, if any, prescribed by the founder.

13. Therefore, once the assessee/deity itself is vested with the property and is the legal owner of the property, the expenditure incurred as remuneration of its Shebaits must be considered to be the expenditure incurred by the assessee for its own management and thus, would not be construed as incurred in discharge of an obligation of an annual charge on the property.

14. We are, thus, unable to accept the contention of Mr. Khaitan that the remuneration payable to Shebaits should be treated to be “annual charge” within the meaning of section 24(1)(iv) of the Act.

15. We, therefore, find no merit in this appeal and the point formulated by the Division Bench is answered in the negative in favour of the Revenue.

16. The appeal is, thus, dismissed.

In the facts and circumstances, there will be, however, no order as to costs.

[Citation : 347 ITR 299]

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