Sachindra Mohan Ghosh vs Commissioner of Income Tax

Courtney-Terrell, C.J.—The facts which have given rise to the present reference may be simply stated. The assessee is the receiver and manager appointed by the High Court of Calcutta to take charge of and manage the property known as the Jheria Raj estate. He was appointed in proceedings in which the widows of the late proprietor sued the present proprietor and he was appointed at a'' alary of Rs. 1,000 a month. The property of the Raj consists to the extent of an annual income of about 6 lakhs, of mining royalties and to the extent of about Rs. 60,000 of agricultural income which of course is not taxable under the Income Tax Act. The assessee claimed u/s 12 (2) of the Act to deduct his salary as an allowance for expenditure incurred solely for the purpose of making or earning the income of the estate. The Income Tax Officer allowed as a deduction one half of the salary.

The matter went on appeal before the Assistant Commissioner and he disallowed the salary altogether as a deduction on the ground, as stated by him, that the purpose of the appointment of the receiver was merely that he might look after the interests of the parties to the litigation and that he was not appointed for the purpose of earning the income of the estate. This view of the matter has been upheld by the Commissioner on appeal and the case reaches us for final decision.

First, it may be said that, so far as the assessee''s position as a manager is concerned the mere fact that he was appointed by the Court by reason of litigation to my mind makes no difference at all. He is in exactly the same position as though he were a manager appointed on behalf of a minor or a sick person who could not personally manage the estate and was forced to have somebody appointed for that purpose. His functions are twofold. He has to manage that part of the estate of which the income is not assessable, that is to say, the agricultural part of the estate, and he also has to manage that part of the estate of which the income is taxable, that is to say the property which produces the mining royalties. Sub-section (2), Section 12, Income Tax Act is as follows:

Such income, profits and gains shall be computed after making allowance for any expenditure (not being in the nature of capital expenditure) incurred solely for the purpose of making or arning such income, profits or gains, provided that no allowance shall be made on account of any personal expenses of the assessee.

Now it is contended on behalf of the department that the true construction of this section is that if any part of the salary paid to the manager is to be attributed to some function other than that of making or earning of the taxable income no part of the aggregate salary may be split off and treated as attributable to the making or earning of the income. But in my opinion Sub-section (2) does not require that the whole of the receiver''s salary should be incurred solely for the purpose of earning income before any part of it can be deducted eves if such part may represent no more than the receiver''s services in earning the income.

The most cogent illustration of the position was that, I think, offered in the course of the argument by my brother Dhavle who put the case in this way: Suppose that there had formerly been two managers, one to manage the agricultural part of the estate and the other to manage the royalty part, and suppose the former was paid Rs. 200 a month and the latter Rs. 800 a month. In such circumstances it could not be doubted that the salary paid at the rate of Rs. 800 a month could be deducted as being incurred solely for the purpose of making or earning the royalty income. But if it was found as a matter of convenience better to appoint a single manager at Rs. 1,000 a month to carry on both such functions, if that course were taken, could it be argued that no part of the salary of such a manager could be attributed to the earning of the royalty income?

In my opinion the answer to the question propounded, that is to say, is any portion of the salary of the receiver allowable as expenditure under Sub-section (2), Section 12, should be in the affirmative. We are not called upon to state what the proportion attributable to the tax-paying part of the estate is or what amount should be deducted. That will be for the proper tribunal when the question arises. The assessee having succeeded in his contention should, in my opinion, receive Rs. 200 as his costs.

Dhavle, J.

I agree.