Law:

Section:

section 2(24) of the income-tax act, 1961-income-whether payments received by son and daughter-in-law of maharaja of porbandar from privy purse paid to maharaja was income in the hands of recipients and hence taxable-held, no Facts Under a covenant, the Maharaja of Porbandar was entitled to receive a privy purse of Rs. 3,80,000 every year which was intended to cover all expenses of the ruler and his family including the expenses on account of his personal staff, maintenance of his residence, marriages and other Ceremonies. This amount was to be free from all taxes. From the time the Maharaja started receiving the amounts of privy purse and till the abolition of the same by the Central Government, he was making certain payments to his adopted son and his daughter-in-law from the privy purse. The amount of payment was not consistent or uniform throughout but varied in different periods. The adopted son, the assessee in IT Ref. No. 43 of 1976, received Rs. 24,000 in each of the assessment years 1968-69 and 1969-70 and Rs. 27,000 in the assessment year 1970-71. The daughter-in-law, the assessee in IT Ref. No. 257 of 1975, received Rs. 18,000 in each of the assessment years 1968-69 and 1969-70 and Rs. 19,500 in the assessment year 1970-71. The ITO sought to subject these amounts to tax on the ground that they constituted income in the hands of the assessees. Though the AAC concurred with the ITO, the Tribunal found that the payments were received not by virtue of any custom or usage or any enforceable customary usage or under any statutory obligation and that the fact that the quantum of the amount paid during the various periods was not constant or uniform and varied substantially showed that it entirely depended upon the bounty or discretion of the Maharaja. The Tribunal, therefore, held that the amounts could not be regarded as income and, accordingly, were not liable to tax. On reference: Held Since the payments depended upon the discretion of the Maharaja and were not in the nature of an obligation, the application of the amount of privy purse by the ruler, simply because of personal obligation that he felt himself bound to discharge towards the members of his…

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