COMMISSIONER OF INCOME-TAX, MADRAS vs. RN. AR. AR. VEERAPPA CHETTIAR

CIVIL APPEAL No. 2315/1966Supreme Court[1970] 3 S.C.R. 30704 December 1969Bench: 2 JudgesAuthor: J.C. SHAH, K.S. HEGDE4 pages
AI SummaryDismissed

What were the facts?

The Revenue authorities in Ceylon levied estate duty on the estates of A and his son. The Judicial Committee of the Privy Council set aside the levy. In 1957, the Government of Ceylon deposited the duty with interest. The joint family estate was partitioned on February 17, 1947, among three widows and their adopted sons. The Income-tax Officer assessed one adopted son (the assessee) on his share of the interest received from the Ceylon Government on the estate duty. The Tribunal reversed this, holding the interest was capital in nature and not taxable. The High Court ruled that interest attributable to the period before February 17, 1947, was not taxable, but interest from that date to payment was taxable. The Commissioner appealed to the Supreme Court.

What did the Supreme Court hold?

The Supreme Court dismissed the appeal, holding that the assessee's share in the joint family property, which included interest on the estate duty that accrued prior to February 17, 1947, was rightly held by the High Court to be of a capital nature and therefore not taxable. The Court reasoned that while the interest accrued as income to the joint family, once received, it merged with the joint family estate and lost its character as income, becoming capital. Upon partition, the assessee received a share of this capital. The Court expressly stated it would not express an opinion on the correctness of the High Court's finding regarding the taxability of interest accrued after February 17, 1947.

What were the issues?

1. Whether the assessee's share of the interest received from the Ceylon Government on the estate duty, attributable to the period prior to the partition of the joint family estate on February 17, 1947, is taxable as income. The assessee contended that this interest, once merged with the joint family estate, lost its character as income and became capital upon partition. The Revenue argued that the character of the receipt, being revenue when received by the joint family, could not be altered upon division among members. The Revenue also cited RM. AR. AR. RM. AR. AR. Ramanathan Chettiar v. Commissioner of Income-tax Madras, 63 I.T.R. 458, to support its claim. 2. (Implicitly, though not explicitly decided by the Supreme Court) Whether the assessee's share of the interest attributable to the period between February 17, 1947, and the date of payment by the Ceylon Government is taxable as income. The High Court held this portion to be taxable.

Which sections of the Income-tax Act were involved?

Section 4(3)(vii),Section 66(1)

AI-generated summary — verify with the full judgment below

A B c D E F G COMMISSIONER OF INCOME·TAX, MADRAS 1'. RN. AR. AR. VEERAPPA CHETTIAR December 4, 1969 [J.C. SHAH AND K. S. HEGDE, JJ.J 307 lnconze Tax-Hindu Undivided Fcunily-Estate duty paid out of joint family estate-Levy of duty held illegal-Refunded wit/1 i"terest--On partition a share in the interest if assel'sahl<! to tc:.t.

The revenue authorities in Ceylon- levied estate <luty in respect of the c•tate of A and his son in the hands of their three widows. The Judicial Committee of the Privy Council set aside the levy and in 1957 the Government of Ceylon deposited in Court the duty which was levied. with interest.

On February 17, 1947, the joint family estate was parti· tioned among the three widows and their adopted sons. The Income-tax Officer brought to l•x one of the adopted son's share of the interest re- ceived from the Ceylon Government on the estate duty.

The Tribunal reversed the assessment order holding that the amount of interest received hy the a5'cssec was of a capital nature and was on that account not liable to tax. On a reference the High Court was of the opinion that the asses- sce's share in the interest attributable to the period e

The order continues below.

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