THE COMMISSLBNER OF INCOME-TAX, PUNJAB vs. SHRI THAKUR DAS BHARGAVA, ADVOCATE, HISSAR.

CIVIL APPEAL No. 236/1955Supreme Court[1961] 1 S.C.R. 7527 July 1960Bench: 3 JudgesAuthor: S.K. DAS, M. HIDAYATULLAH, J.C. SHAH8 pages
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What were the facts?

For the assessment year 1946-47, the assessee, an advocate, was assessed to income tax on a total income of Rs. 58,475, which included Rs. 32,500 received in July 1945 for defending clients in the Farrukhnagar case. The assessee claimed this amount was not professional income as it was received in trust for charity. The Income-tax Officer and Appellate Assistant Commissioner rejected this claim, holding it was professional income and the subsequent trust deed did not alter its character. The Income-tax Appellate Tribunal, however, deleted the sum, finding the income never arose to the assessee, a voluntary trust was created, and payments were received on behalf of the trust. The Commissioner appealed to the High Court, which upheld the Tribunal's decision. The Commissioner then obtained a certificate of fitness to appeal to the Supreme Court.

What did the Supreme Court hold?

The Supreme Court held that the sum of Rs. 32,500 was the professional income of the assessee and was liable to income-tax. The Court reasoned that at the time the money was paid to the assessee, no trust or obligation in the nature of a trust was created. The clients who paid the money did not create any trust nor impose any legally enforceable obligation on the assessee. The money, when received by the assessee, was his professional income, even though he had expressed a desire to create a charitable trust out of it. The assessee's voluntary desire to create a trust did not create a trust or a legally enforceable obligation. Therefore, the amount was taxable in the assessee's hands. The appeal was allowed, and the High Court's judgment was set aside.

What were the issues?

1. Whether the sum of Rs. 32,500 received by the assessee was his professional income taxable in his hands, or was it money received by him on behalf of a trust and not in his capacity as an individual, considering the circumstances set out in the trust deed later executed by him on August 6, 1945? (Question of mixed law and fact, turning on the interpretation of the receipt of income and creation of a trust). Assessee's contentions (as inferred from the Tribunal's and High Court's decisions): The amount was received on behalf of a trust and not by the assessee in his individual capacity. A voluntary trust was created, which was later reduced to writing. The income did not arise to the assessee at any stage. Revenue's contentions (as inferred from the Income-tax Officer's and Appellate Assistant Commissioner's decisions and the Supreme Court's reasoning): The amount was received as professional income. The trust deed executed later did not change the nature or character of the receipt. The payers of the money did not create any trust or impose a legally enforceable obligation. The trust was created by the assessee himself out of his professional income. The amount attracted tax as soon as it was received.

Which sections of the Income-tax Act were involved?

Section 66

AI-generated summary — verify with the full judgment below

J ' i 's.C.R. SUPREME COURT REPORTS 75 THE COMMISSlbNER OF INCOME-TAX, PUNJAB v. SHRI THAKUR DAS BHARGAVA, ADVOCATE, I HISSAR. (S. K. DAS, M. HIDAYATULLAH and,J. C. SHAH, JJ.) ' ' t · Income Tax-Professional income-Lawyer accepting case on condition of clients' paying money for charity-Money paid to lawyer and charitable trust created-Whether amount received is professional income. · The assessee, an advocate, accepted a case on condi~ion that the clients would provide him with Rs. 40,000 for chai;itable purpos~s and that he would create a public charitable trust with the money. }he clients gave the assessee Rs. 3z,500 and ·he crea- ted a trust therewith. The assessee claimed that the said amount of Rs. 3z,500 was not his professional income as the amount had been given to him in trust for charity.

Held, that the said amount Was the professional income o'. the assessee and was liable to income-tax.

At the time When this money ,was paid to the assessee no trust or obligation inJhe nature of trust was created. The clients who paid the money did not create any trust nor imposed any legally enforceable obligation on the assessee. 'fhe money when it was re

The order continues below.

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