The Commissioner of Income Tax, Bombay City v Shri SItaldas Tirathdas Issue: Whether an individual can claim deduction

with respect to payments made towards maintenance of his wife and children that he is required to make under a decree? Held: The Court held in the negative, and stated: The true test is whether the amount sought to be deducted, in truth, never reaches 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 obliged 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 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. Therefore, (1) No overriding of income of husband had happened- he was free to dispose of his income as he wished. (2) Charge was created when under law /contract certain specific interest had been transferred. (3) Diversion- only when title overridden by contract/law Bejoy Singh Dhudhuria v Commissioner, Income Tax Same issue as above. Distinguished, because here the decree of the court ordering payment of maintenance was in the form of a charge on the appellants estate. Baccha F. Guzdar v Commissioner of Income Tax, Bombay Issue: Mrs. Bacha F. Guzdar was a shareholder in two tea companies. Whether the dividends she received from her shareholdings could be exempted as agricultural income? Held: The appellant argued that it was agricultural income because 60% of the profits of the company out of which dividends are payable where derived from the pursuit of agricultural operations. Court said, fuck you, agricultural income within the IT act refers to the revenue received by direct association with the land used for agricultural purposes, and not by indirectly extending it to cases where that revenue or part thereof changes hands. The policy of the Act as gathered from the various sub-clauses of section 2(1) appears to be to exempt agricultural

income from the purview of Income tax Act. The object appears to be not to subject to tax either the actual tiller of the soil or any other person getting land cultivated by others for deriving benefit therefrom, but to say that the benefit intended to be conferred upon this class of persons should extend to those into whosoever hands that revenue falls, however remote the receiver of such revenue may be, is hardly warranted. The dividend of a shareholder is the outcome of his right to participate in the profits of the company arising out of the contractual relation between the company and the shareholder and this right exists independently of any declaration of the dividend though until such declaration the enjoyment of the profits is postponed. Commissioner of Income Tax, West Bengal v Raja Benoy Kumar Sahas Roy-in Module K.J. Joseph and Ors. v Income Tax Officer- Constitutionality of Partial Integration of Agricultural Income with Non-Agricultural Income This petition attacks the constitutional validity of certain sections of the Finance Act which allow the combination of agricultural income with non agricultural icome for the limited purpose of evolving a jigher slab or rate of tax. Challenged on three grounds: (1) the provision for aggregation is violative of the scheme of taxation sanctioned by Section 4 of the I.T. Act and the other sections ; (2) that, if the impugned provisions can be fitted into the framework of the provisions of the I.T. Act, they are beyond the legislative competence of Parliament, as relating directly or indirectly, to agricultural income, which is within the purview of the State legislature and beyond the legislative competence of Parliament ; (3) and finally, that the provisions are discriminatory, in so far as they single out for differential treatment and higher taxation, persons having agricultural income by subjecting them to a higher rate of tax. Court held: (1) Relied upon Khatau Makanji Spinning and Weaving Co. Ltd. v CIT- Section 3 prescribes the subject-matter of the tax and the rate of that tax is to be prescribed by the legislature. But the rate must be such as to relate to the subject-matter of the tax. If it does not relate to the subject-matter of the tax, then the conclusion must be that Parliament is not taxing income but is taxing something else. Therefore, in our opinion, a charge in respect of total income of the previous year of an assessee can only be effective if the rate has relationship to the total income or a part thereof. As we have already pointed out, there is nothing to prevent the legislature from fixing the rate and from permitting the rate to fluctuate in relation to some outside factor, but the rate must be applied to the total

income and the tax that an assessee has got to pay must be at a rate in respect of the total income." Also, here the Finance Act merely creates a legislative competence, which deems agri income to be a part of total income for the limited purpose of working out a rate of tax. (2) (3) The charge of tax is still on non-agricultural income. No part of the agricultural income is subjected to tax. For the purposes of determining the rate at which nonagricultural income is to be taxed, the agricultural income is taken into account. Such taking into account and the differential rates are based on the different sources of income available to the persons concerned. It is only in respect of persons who have agricultural income in addition to non-agricultural income that the mode of computation of the rate of tax as provided by the impugned provisions is adopted. We think the classification is reasonable and based on intelligible differentia. We think too that it is not unconnected with the objects of the taxing statute. We are not satisfied that the impugned provisions are discriminatory. Municipal Corporation of Delhi v Mohd. Yasin Difference between Tax and Fee Issue- Fees for slaughtering animals at slaughter houses enhanced by the Municipal Corporation, eightfold. Legality of the enhancement-Whether the enhanced fee for slaughtering animals was wholly disproportionate to the cost of the services and supervision and therefore, not a fee, but a tax. Held- There is no generic difference between a tax and a fee, though broadly a tax is a
compulsory exaction as part of a common burden, without promise of any special advantages to classes of taxpayers whereas a fee is a payment for services rendered, benefit provided or privilege conferred'. Compulsion is not the hall-mark of the distinction between a tax and a fee. That the money collected does not go into a separate fund but goes into the consolidated fund does not also necessarily make a levy a tax. Though a fee must have relation to the services rendered, or the advantages conferred, such relation need not be direct. A mere causal relation may be enough. Further, neither the incidence of the fee nor the service rendered need be uniform. That others besides those paying the fees are also benefited does not detract from the character of the fee. In fact the special benefit or advantage to the payers of the fees may even be secondary as compared with the primary motive of regulation in the public interest. It is

neither necessary nor expedient to weigh too meticulously the cost of the services rendered etc. against the amount of fees collected so as to evenly balance the two. A broad correlationship is all that is necessary. Quid pro quo in the strict sense is not the one and only true index of a fee; nor is it necessarily absent in a tax. In this case, there had been a substantial rise in the rates of these animals since the original rates were fixed. Moreover, there were many hidden costs of slaughtering, which the appellants did not take into account. Hence, dismissed.

Jindal Stainless Ltd. and another vs. State of Haryana and others Issue: Constitutionality of Entry Tax The concept of compensatory tax is not there in the constitution but is judicially evolved in Automobile Transport case as a part of regulatory charge. Compensatory tax is a compulsory contribution levied broadly in proportion to the special benefits derived to defray the cost of regulation or to meet the outlay incurred for some special advantage to trade, commerce and intercourse. It might incidentally bring in net revenue to the government but that cannot be an essential ingredient of the compensatory tax. Whenever any law is impugned as violative of Article 301 of the Constitution, the courts have to verify whether the impugned enactment facially or patently indicates quantifiable data on which compensatory tax is sought to be levied. The Act must facially indicate quantifiable or measurable benefit. If the provisions are ambiguous/even if the Act does not indicate facially the quantifiable benefit, the burden will be on the State as a service/facility provider to show by placing the material before the Court, that the payment of compensatory tax is a reimbursement/recompense for the quantifiable/measurable benefit provided/to be provided to its payers. Once it is shown that the enactment invades freedom of trade, it is necessary to enquire whether the State has proved that the restrictions imposed by it by way of taxation satisfy the conditions laid down in Article 304(b): o Such restrictions shall be in public interest; o Such restrictions shall be reasonable and o Such enactment shall be subject to the procurement of prior sanction of the president. Union of India v H.S. Dhillon VVRNM Subbayya Chettiar v Commissioner of Income Tax, Madras- test of residence of a hindu undivided family Court- The words used in s. 4A (b) show: (i) that, normally a Hindu undivided family will be taken to be resident, in the taxable territories, but such a presumption will not apply if the case can be brought under the second part of the provision, (ii)the word "affairs" means affairs which are relevant for the purpose of the Income-tax Act and which have some relation to income, (iii) the question whether the case falls within the exception depends on whether the seat of the direction and control of the affairs of the

family is inside or outside British India, and (iv)the onus of proving facts which would bring his case within the exception which is provided by the latter part is on the assessee. (Facts: The karta of a Hindu undivided family lived with his wife and children and carried on business in Ceylon, which had become their place of domicile. [He owned some immove- able property and had a house and investments in British India. In the year of account he visited British India and stayed there for periods amounting in all to 101 days and during his stay started two firms in British India, person- ally attended to a litigation relating to the family lands, and appeared before the Income-tax authorities in proceed- ings relating to assessment of the income of the family) Court dismissed the petition, but said that it is open to the appellant to show through evidence that the seat of control and management was wholly outside India. Therefore, Court did not say that the seat was in India, but said that the onus of proving otherwise was on the appellant, who failed to adduce material evidence in this regard, and the normal presumption must be given effect to. Therefore, the test laid down was: (1) Control and management signifies the controlling and directive power. (2) Mere activity by a company in a place does not create residence. (3) Central management and control of a company may be divided. (4) In case of dual residence, there may be two centres of management. Narottam and Parekh Ltd. v Commissioner of Income Tax- Whether assessee company is resident. It was argued by the appellant that the whole of the business of the company is based in Ceylon, and the wholeo of the income liable to tax has been earned in Ceylon. Held: It is entirely irrelevant where the business is done and where the income has been earned. What is relevant and material is from which place has that business been controlled and managed. "Control and management" referred to in Section 4A(c) is central control and management. The control and management contemplated by this Subsection is not the carrying on of day to day business by servants, employees or agents. The real test to be applied is, where is the controlling and directing power. When we turn to the facts of the case, we see that two managers under two powers-ofattorney look after all the affairs of the assessee company in Ceylon and our attention has been drawn to these two powers-of-attorney, and we agree that the widest possible power and authority has been conferred upon these two managers under these powers-ofattorney. But it is equally clear from the minutes of the meetings of the Board of

Directors which are also before us that the central management and control has been kept in Bombay and has been exercised by the directors in Bombay. The minutes deal with various matters which are delegated to these two managers and yet the directors from a proper sense of responsibility to the company have retained complete control over these matters and have from time to time given directions to the managers as to how things should be done and managed. The real fallacy underlying Mr. Kolah's argument is to confuse the doing of business with the central control and management of that business. It is perfectly true that these two managers do all the business of the company in Ceylon and in doing that business naturally a large amount of discretion is given to them and a considerable amount of authority. But the mere doing of business does not constitute these managers the controlling and directing power, Their power-of-attorney can be cancelled at any moment, they must carry out any orders given to them from Bombay, they must submit to Bombay an explanation of what they have been doing, and throughout the time that they are working in Ceylon a vigilant eye is kept over their work from the directors' board room in Bombay. Ishikawajima Harima Heavy Industries v DIT \ Supreme Court held that all income arising out of contract would not be assessable in India only because the assessee has a permanent establishment ( "PE) in India and incase of fees for technical services, whatever was payable to a non-resident would not always come within the purview of Section 9(1)(vii)(c) of the Act and there must be sufficient territorial nexus with India so as to furnish a basis for taxation. Thus, for a non-resident to be taxed on income for services, such a service needs to be rendered within India, and has to be a part of a business or profession carried on by such person in India. While dealing with taxability of offshore services, Supreme Court applied the following principles: In order attract taxability in India, services should be both rendered and utilized in India. Sufficient territorial nexus between rendition of services and the territorial limits of India is necessary to make the income taxable. The location of source of income within India would not render sufficient nexus to tax the income from that source. Territorial nexus for the purpose of determining the tax liability is an internationally accepted principle. There must be direct live link between the services rendered and India.

Jindal Thermal Power Corporation Ltd. V CIT Explanation 2 in its present form, does not do away with the requirement of rendering of services in India for any income to be deemed to accrue or arise to a non-resident under section 9. It has been held that on a plain reading of the Explanation, the criteria of rendering services in India and the utilization of the service in India laid down by the Supreme Court in itsjudgement in the case of Ishikawajima-Harima Heavy Industries Ltd remains untouched and unaffected by the Explanation. CIT v R.D. Aggarwal and CIT v Barendra Prasad Roy- Mansis notes Justice Deoki Nandan Aggarwal v Union of India Issue- Whether salary of a judge is taxable, and if so, then whether it is taxable as salary or as income from other sources? Held: The Supreme Court observed that the Supreme Court Judges and High Court Judges, although, they have no employer but this itself will not mean that they do not receive salary. They are constitutional functionaries. Articles 125 and 221 of the Constitution deal with the salaries of Supreme Court and High Court Judges respectively and expressly state that what the Judges receive are salaries. It is not possible to hold, therefore, that what judges receive are not salaries or that such salaries are not taxable as income under the head of salary. Lalu Prasad Yadav v CIT Issue- Salary received by Chief Minister- can it be filed under Income from Other sources, or is it Salary? Held: Salary. From a plain reading of Article 164(1) of the Constitution, it is evident that the Chief Minister is to be appointed by the Governor and he holds office during his pleasure. Article 164 (5) of the Constitution provides for salaries and allowances of the Ministers to be determined by the Legislature of the State. Gestetner Duplicators Pvt. Ltd. v CIT Issue: Does meaning of Salary include Commission? Held: If under the terms of employment, remuneration or recompense for the services rendered by the employee is determined at a fixed percentage of turnover achieved by

him, then such remuneration or recompense will partake of the character of salary, the percentage basis being the measure of the salary. Therefore, such remuneration or recompense must fall within the expression "salary" as defined in r. 2(h). (also in Mansis notes) CIT v Poddar Cement Issue: Who is owner of a house? In the context of section 22 of the I.T. Act - an owner of House property is the person who is entitled to receive the income in his own right (and not on behalf of others).