S. Balachander vs Commissioner of Income Tax

The assessee owned a house in his own right, threw that property into a hotchpot, regarded it as a joint family property consisting of himself, the

other members of the family being his wife and son, proceeded to effect a partition between the father and son under a deed of partition dated

October 31, 1977. Under that partition one floor of the building, which comprises two floors was divided and allotted to the share of the son, the

other floor being retained by the father. The son was obligated under the terms of the deed to pay a sum of Rs. 1,250 to the assessee''s wife and

that payment was secured by a charge on the portion allotted to the son.

Section 64(2) of the Income Tax Act, which is a special provision providing for clubbing the income of the spouse and minor child with that of

the individual in certain cases, in Clause (c) of Sub-section (2), as it stood during these assessment years, viz., assessment years 1978-79 to 1981-

82, reads thus :

(2)(c) Where the converted property has been the subject-matter of a partition (whether partial or total) amongst the members of the family,

the income derived from such converted property as is received by the spouse or minor child on partition shall be deemed to arise to the spouse or

minor child from assets transferred indirectly by the individual to the spouse or minor child and the provisions of Sub-section (1), shall, so far as

may be, apply accordingly.

The assessing authority, the appellate authority and the Tribunal uniformly took the view that that provision was attracted to the sum of Rs.

1,250 to be paid by the son to his mother. The only material on the basis of which that view was taken was the deed of partition.

Section 64(2)(c) requires that the ""income derived from such converted property"" be regarded as income of the assessee, if such income is

received by his spouse or minor child on partition. What is therefore essential for being demonstrated before this provision can be applied is it must

first be found that the income which is sought to be added to the income of the assessee is income ""derived from such converted property"". A thing

is derived only when the source from which it is derived is the immediate cause for the coming into existence of that which is derived.

The fact that the son was a major and was entitled to receive the income if any from the property after the partition, does not render the

payments made by the son to his mother as monies which the mother has derived by way of income from the property. The income if any from the

property in respect of the share allotted to the son is derived from the property while it is in the hands of the son. Payments made by the son,

whether or not out of that fund or other funds cannot, in the hands of the recipient, be regarded as monies derived from the property. The

immediate source of the payment for such recipient, is the person who pays. The fact that in the event of default of payment the mother was entitled

to enforce a charge against the property does not also render the payment made by the son to the mother an amount which is derived from the

property. The son being a major and capable of earning an income of his own can very well make the payments from any other source of income

that he may have. There was nothing in the partition which required the son to set apart the income if any, derived from the property allotted to his

share for being paid over to his mother. Moreover, the liability created under the deed was for the life time of the mother as also the son. The son

was bound to earn a larger income than what he may have had at the time of partition, by using his talents in some one or other walk of life and

payments made by him to his mother cannot possibly be regarded for their life time as amounts which were paid to the mother from and out of the

income derived from the property allotted to the share of the son.

The provision contained in Section 64 for clubbing the income of the minor or spouse in certain circumstances is a special provision and is

required to be given effect to, to the extent the plain language of the section requires. It is wholly impermissible to extend its application, and allow

it to take within its fold, the amounts which were not required, by the language of the section to be regarded as income which is clubbable with that

of the assessee. The fact that the husband has a duty to maintain the wife does not on that score imply that the son cannot be obligated to provide

for the maintenance of his mother when he receives a property which had been possessed by his father absolutely but which by reason of the

unilateral act of the father was impressed with the character of the joint family property. The amount so paid to the mother when paid by a son who

was a major would not become income derived from the property allotted to the son, unless such derivation is established as a matter of fact. No

such evidence exists in this case.

The only link with the property here is the charge created in favour of the wife for the purpose of securing the payment of the monies which the

son is obligated to pay to his mother. The creation of a charge does not result in making the amount for which the charge is created an income from

the property on which such charge is created. When a company borrows money from a bank and creates a charge on its assets in favour of the

lender, it cannot possibly be said that the amount borrowed is an amount which was derived as income by the borrower from the assets owned by

it and on which a charge is created. The occasion for enforcing a charge arises only when default is committed and the existence or otherwise of

the charge would be immaterial during the period when there is no default. This is not a case where the mother had recovered arrears of the

maintenance which the son was required to pay in terms of the partition by enforcing a charge and receiving the amount from the sale proceeds of

that property.

The Tribunal therefore was in error in taking the view that it did. The question referred"" to us, viz.,

Whether, on the facts and circumstances of the case, the Tribunal was right in holding that income received by the assessee''s wife for maintenance

is includible in the assessee''s total income u/s 64(2)(c) read with Section 64(l)(iv) of the Act ?

is, therefore, answered in favour of the assessee and against the Revenue.