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Moti Lal Chhadami Lal JaIn Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAllahabad High Court
Decided On
Case NumberIncome-tax Reference No. 456 of 1968
Judge
Reported in[1977]106ITR909(All)
AppellantMoti Lal Chhadami Lal Jain
RespondentCommissioner of Income-tax
Appellant AdvocateJ. Sarup and ;V. Sarup, Advs.
Respondent AdvocateR.R. Misra, Adv.
Excerpt:
- - the assessment in dispute pertains to the assessment year 1962-63, for which the corresponding previous year ended on july 12, 1961. during the year under consideration, the assessee enjoyed income from property, hire rent, commission, etc......the income of rs. 14,100 from properties purported to have been transferred to seth chhadami lal jain trust was not assessable in the hands of the assessee family ?' 2. so far as the second question is concerned, the tribunal while discussing this question placed reliance on its decision in income-tax appeal no. 17157 of 1963-64 and income-tax appeal no. 11774 of 1964-65. it did not give any separate reasons for the present assessment year for holding that the income could not be included in the assessment of the assessee. a reference in respect of certain questions, arising out of the decision of the tribunal in respect of those years was made to this court, and has been decided by us [being i.t.r. no. 72 of 1969--commissioner of income-tax v. chhadami lal jain trust :.....
Judgment:

C.S.P. Singh, J.

1. Two questions have been referred to us by the Income-tax Appellate Tribunal, Delhi Bench 'A', the same being ;

'(1) Whether, on a proper construction of the lease deeds dated May 3, I960, and May 5, 1962, and accompanying facts and circumstances of the case, the sum of Rs. 10,000 is the income of the assessee and not that of Chhadami Lal Jain Degree College ?

(2) Whether, on the facts and circumstances of the case, the income of Rs. 14,100 from properties purported to have been transferred to Seth Chhadami Lal Jain Trust was not assessable in the hands of the assessee family ?'

2. So far as the second question is concerned, the Tribunal while discussing this question placed reliance on its decision in Income-tax Appeal No. 17157 of 1963-64 and Income-tax Appeal No. 11774 of 1964-65. It did not give any separate reasons for the present assessment year for holding that the income could not be included in the assessment of the assessee. A reference in respect of certain questions, arising out of the decision of the Tribunal in respect of those years was made to this court, and has been decided by us [being I.T.R. No. 72 of 1969--Commissioner of Income-tax v. Chhadami Lal Jain Trust : [1977]106ITR179(All) ] and we have held that the trust did not purport to create a trust in respect of the properties. That being so, the income which the assessee received from those properties were liable to be included as taxable income. We, therefore, hold that the income of Rs. 14,100 was assessable in the hands of the assessee.

3. The facts relevant for the decision of the first question may now be set out. The assessee, Messrs. Motilal Chhadami Lal Jain, Firozabad, District Agra, is a Hindu undivided family. The assessment in dispute pertains to the assessment year 1962-63, for which the corresponding previous year ended on July 12, 1961. During the year under consideration, the assessee enjoyed income from property, hire rent, commission, etc. It also owned buildings, furnaces and lands attached thereto on which Messrs. Jain Glass Works (P.) Ltd. has a factory for the manufacture of glassware. On 3rd May, 1960, the Hindu undivided family gave a perpetual lease of the said premises to the said company on an annual rental of Rs. 21,000 plus 1% of the total sales. By Clause (3) of this lease deed, it was provided as follows :

'It is further mutually agreed that the lessee shall make payment of annual rent of Rs. 21,000 in the following manner :

(a) Rs. 10,000 to Shri Chhadami Lal Jain Trust Degree College, Firozabad.

(b) Rs. 11,000 direct to the lessor, Messrs. Motilal Chhadami Lal, Hindu undivided family, the payment shall be made quarterly (every three months) or as mutually agreed upon.'

4. By another document dated 5th May, 1962, executed between the lessee, Sri Chhadami Lal Jain Trust, and Shri Chhadami Lal Jain Degree College, it was, inter alia, agreed as follows:

'...... Therefore, the parties agreed upon the following terms and conditions regarding document and all the parties will abide by the conditions :

(1) That we the party No. 1 (Chhadami Lal, son of Lala Motilal, and Bimal Kumar, adopted son of Chhadami Lal) has leased out the following properties on May 3, 1960, to party No. 2 (Jain Glass Works Pvt. Ltd.) for carrying on business of party No. 2 on an annual rent of Rs. 21,000 for ever and party No. 2 has taken over in the capacity of the director of the company.

(2) That the party No. 2 shall be paying Rs. 10,000 per annum out of the rental of Rs. 21,000 to party No. 4 in four equal instalments, i.e., Rs. 2,500 quarterly, and similarly balance money of Rs. 11,000 per annum to party No. 1 in four equal instalments of Rs. 2,750 every quarter.

(3) That in case party No. 2 makes default in quarterly payment or violates any terms and conditions, the party No. 4 will be authorised to realise rent of Rs. 11,000 per annum through court of law in any manner whatsoever and will have first charge on the under-mentioned property of Rs. 11,000 per annum including expenses and damages from party No. 2 for which party No. 2, Kayam Mukaman, will have no objection.'

5. In the assessment proceedings, the assessee showed an income of only Rs. 11,000 as lease rent received from Messrs. Jain Glass Works and claimed that Rs. 10,000 was the income of the trust and hence not includible in the total income of the assessee. The contention of the assessee was that by an overriding title, the sum of Rs. 10,000 became the income of the college. It was explained that the university granting affiliation imposed a condition that security be given for the running expenses of the college. This security was given by creating a charge of Rs. 10,000 in favour of the college on the immovable property of the joint family. Thereafter, the college was granted Rs. 26,916 as aid per year from the University of Agra. This claim of the assessee has been negatived by the Income-tax Officer, the Appellate Assistant Commissioner and also the Income-tax Appellate Tribunal, The Tribunal held that Rs. 21,000 was the rental income from the properties given on lease to Messrs. Jain Glass Works Ltd., and that the latter has been directed to pay Rs. 10,000 only directly to Chhadami Lal Jain Trust Degree College, Firozabad, and that this itself indicates that Rs. 21,000 was rental income of the assessee from the property in question, and that it was only a case of application of income, and the income had not been diverted before it accrued to the assessee.

6. Counsel for the assessee has urged that on a fair interpretation of the lease deed, it is clear that an overriding title was created in favour of the trust in respect of the amount of Rs. 10,000 and that being so, the amount could not be included in the income of the assessee. Considering Sub-clause (3) of the deed dated 5th May, 1962, we are unable to agree with the contention advanced on behalf of the assessee. The lease deed whereby an amount of Rs. 10,000 was to be paid by the lessee in discharge of the lease money was only a mode of payment of the lease rent as agreed to between the lessor and the lessee. This stipulation by itself cannot be interpreted to create an overriding title or charge in favour of the trust so as to bring the case within the principles laid down in Raja Bejoy Singh Dadhuria's case [1933] 1 ITR 135 or in the case of Commissioner of Income-tax v. Sitaldas Tirathdas : [1961]41ITR367(SC) . The deed as it stood on 5th May, 1962, cannot be interpreted so as to create an overriding title or charge in favour of the trust. The stipulation that the trust would have the first charge on the arrears of rent was engrafted in the deed by a document of the 5th May, 1962. This also, however, does not alter the situation. Clause (3) which has already been quoted comes into play only in case the lessee makes a default in payment of rent, and it is only when such a default has been committed that Clause (3) permits the trust to file a suit for the recovery of that amount and creates a first charge on the property for an amount of Rs. 11,000. It is not the assessee's case that such situation has arisen and that being so, it is not necessary to express any opinion as to whether this clause creates an overriding title in favour of the trust, in the event of a default being committed by the lessee in making payment of the lease money. We are of the opinion that the Tribunal was right, and that the amount in question constituted the income of the assessee.

7. To sum up, our conclusions in answer to the questions referred are as below.

Question No. 1 :--The amount of Rs. 10,000 is the income of the assessee and not that of Chhadami Lal Jain Degree College.

Question No. 2:--The amount of Rs. 14,100 which was income from properties purported to have been transferred to the trust was assessable in the hands of the assessee-family.

8. We answer the questions accordingly. The department is entitled to its costs which we assess at Rs. 200, Counsel's fee is assessed at the same figure.


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