P L D 1975 Lahore 437 (PLP)

MUHAMMAD AKRAM, J.-In accordance with section 66 (1) of the Income tax Act the Income-tax Appellate Tribunal, Pakistan, Lahore has referred the following question of law said to arise out of its order dated 14-9-1966 passed in I. T. A. No. 248 of 1963-64 in respect of the assessment year 1962-63, to the High Court for its opinion :- "Whether on the facts and in the circumstances of the case the Appellate Tribunal was right in holding that in computing the assessable income the assessee was not entitled to deduction of Rs. 12,000, set apart. from his salary for discharging his obligation under Courts decree?"

2. The facts leading to this reference are that the assessee, Mr. H. M. Hogg was a Director of British Metal Corporation (Pakistan) Ltd. during the assessment year 1962-63. In that year he received Rs. 65,527 on account of his salary and other remunerations etc., from the Company. Out of this income he was required to pay Rs. 12,000 to his divorced wife, Sophia Hogg. under a maintenance decree passed against him by the High Court of Judica ture, Probate, Divorce and Admirality Division, Great Britain on 27-10-1959. In that connection the assessee is stated to have given some sort of standing; Instructions to his bankers, the National & Grindlays Bank, Ltd.. Lahore for the remittance of the monthly allowance due to her by debiting his account.

3. In these circumstances, in the course of the assessment proceedings, before the Income-tax Officer it was contended on behalf of the assessee that this sum of Rs. 12,000 paid to his former wife must be considered as having been diverted at source and should not be reckoned as forming part of the, real income of the assessee assessable to tax in his hands. In support of this contention the representative of the assessee relied on the reported case of" Seth Moil Lal Manak Chand v. C. I. T., Bombay North ((1957) 311 T R 735). But the Income tax Officer, Companies Ward-I, Lahore repelled the contention and completed the assessment against the petitioner on the 15th of November, 1962. He was of the opinion that the amount of Rs. 12,000 formed a part of the income of the assessee and included it in his total income for the purpose of the tax.

4. The assessee went up in appeal against the order which was dismissed: by the Appellate Assistant Commissioner of Income-tax, B-Range, Lahore on the 18th of June 1963. Before him, on behalf of the assessee it was contend ed that it was an involuntary payment that the assessee was made to pay under the compulsion of the decree of a Court. As such to the extent of the maintenance allowance the income of the assessee stood diverted at the source and did not reach him to form part of his real income assessable to tax. In, support of his contention in that behalf the assessee relied on Raja Bejoy Singh Dudhuria v. C. I. T. Bengal ((1933) 11 T R 135). But the Appellate Assistant Commissioner repelled the contentions and remarked that :- "By no stretch of imagination could it be said that the salary income earned by the appellant would cease to be his income and became the income of the ex-wife merely because a monthly allowance had to be paid to the ex-wife on the basis of a Court decree. The income from salary had been admittedly earned by the appellant and the moment it was earned it attracted tax in his hand. In fact the maintenance allowance bad to be paid out of the income earned by the appellant which clearly meant that earning of income preceded the payment of the maintenance allowance. The income having been earned first must suffer tax before it is apportioned."

5. The petitioner-assessee then filed a further appeal (I. T. A. No. 248 of 1963-64) against the order. In that connection before the Income-tax Appel late Tribunal' Pakistan, reliance was placed on the ratio laid down In re: Hira Lal ((1945) 13 1 T R 319), to the effect that if the payment was voluntary, it must be includ ed in the income of the assessee, but if the charge was obligatory (that is, -subject to an over-riding charge, such as a decree) the sum so charged must be excluded from the income of the payer. The assessee also relied on Sitaldas Tirathdas v. Commissioner of Income-tax Bombay City ((1936) 33 1 T R 390) and Prince Khande rao Gookwar v. Commissioner of Income-tax ((1948) 16 1 T R 294), to contend that he was entitled to deduct the amount of the maintenance allowance involuntarily paid .by him to his wife under the compulsion of the decree of the Court and .constituted a legally enforceable claim against him. But the Tribunal repelled these contentions. In its opinion the decree of the High Court of Justice in England in the instant case did not create a charge for the payment of the maintenance allowance on the income of the assessee. On the other hand on behalf of the Department reliance was placed on the reported case of the Supreme Court of India in Commissioner of Income-tax, Bombay v. Sitaldas Tirathdas (1961 P T D 705), in opposition to this deduction claimed by the assessee. In that connection the Tribunal was of the opinion that the assessee was obliged to pay out of his income the maintenance allowance under the maintenance decree and that it was not a case where the nature of obligation arising under the decree was such as to admit of diversion of the income before it reached him. The Tribunal, therefore. refused to subscribe to the view that in the ,,circumstances of the case the disputed amount was received by the assessee, .not as his income, but as that of his former wife.

6. In these circumstances the question reproduced above was referred to the High Court for its opinion. Under section 3 of the Income-tax Act it is the "total income" of the assessee which is brought to tax. In our opinion, therefore, the question does not admit of any doubt that the salary earned by the assesssee represented his total income subject to tax. The cases cited on behalf of the assessee before us to the contrary are distinguishable and not in point. In Raja Bejoy Singh Dudhria v. Commissioner of Income-tax, Bengal ((1933) 1 I T R 13 5), the facts were that on the death of the father of the assessee in 1894, he suc ceeded to the ancestral property of the family. His step-mother who survived his father subsequently brought a maintenance suit, which was compromised and a decree by consent was passed directing the assessee to make a monthly payment of Rs. 1,100 to his step-mother. In the circumstances of that case in computing his income the assessee claimed deduction for the payment of the maintenance allowance made to his step-mother under the Court decree. In that connection their Lordships of the Privy Council observed. :- "When the Act by S. 3 of the Income-tax Act subjects to charge "all income" of an individual, it is what reaches the individual, as income which it is intended to charge. In the present case the decree of the Court by charging the appellant's whole resources with a specific payment to his step-mother has to that extent diverted his income from him and has directed it to his step mother ; to that extent what he receives for her is not his income. It is not the case of the application by the appellant of part of his income in a particular way, it is rather the allocation of a sum out of his revenue before it becomes income in his hands." It appears from these remarks that under the decree of the Court the specific payment due to the step-mother was created as a charge on the whole sources of the assessee. In coming to that conclusion their Lordships of the Privy Council relied on the remarks by Lord Davey in the London County Council v. Attorney General (1901 A C 26). In that case the Imperial Income-tax Act of 1842 Lord Davey observed that the real income of an owner of "incumbered" property or of property "charged," say, with an annuity under a will, is the annual income of the property less the interest on the incumbrance or the annuity. In Diwan Kishen Kishore v. Commissioner of Income-tax, Punjab ((1933) l. I T R143), the facts were that a joint Hindu Family estate was impartible to which the rule of primogeniture was applicable. - The younger members of the family were entitled to specific allowance for maintenance and houses for residence. In the circumstances the Lahore High Court held that the allowance payable to the younger members was not a part of the income of the family or of the eldest member but was a sort of a charge on the estate and should, therefore, be deducted in calculating the assessable income of the head of the family.

7. Before us the learned counsel for the assessee placed very great reliance on a reported case from the Indian Jurisdiction in Sitaldas Tirathdas. v. Commissioner of Income Tax, Bombay City II, Bombay ((1958) 33 I T R 390). In that case under a consent decree passed by the Court the assessee was liable to pay the maintenance allowance to his wife and children. The decree, however, did not create any charge for the payment on his properties. The Court in the course of the discussion laid down a test applicable to these cases and observed :- "The test would be the same even though there may not be a specific charge so long as there was an obligation upon the assessee to pay which could be enforced in a Court of law." But we find that the judgment in that case was reversed on appeal by the Supreme Court of India in C.I.T., Bombay City II v. Sitaldas Tirathdas. The Court on a review of the case-law observed that the cases have considered the problem from various angles. Some of them had applied the principle correctly and some, not. The Supreme Court then laid down its own test in such cases and observed :- "The true test for the application of the rule of diversion of income by an overriding charge, is whether the amount sought to be deducted, in truth, never reached the assessee as his income. Obligations, no doubt there are in every case, but it is the nature of the obligation which is decisive fact. There is a difference between an amount which a person is obliged to apply out of his income and an income which by the nature of obligation cannot be said to be a part of the income of the assessee. Whereby the obligatory 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 assesse the same consequence, in law, does not follow. It is first kind o payment which can truly be excused and not the second. The second payment is merely an obligation to pay another a porion of one's owns income, which has been received and is since applied." In this connection Halsbury, L. C. in Gresham Life Assurance Society v. Styles (Surveyor of Taxes) (3 Tax Cas. 185) observed :- "The thing to be taxed is the amount of profits and gains. The word `profits' I think is to be understood in its natural and proper sense-in a sense which no commercial man would misunderstand. But when once an individual or a company has in that proper sense ascertained what are the profits of the business or his trade, the destination of those profits, or the charge which has been made on those profits by previous agreement or otherwise is perfectly immaterial." Also see in this connection Executors of the Estate of J. K. Dubash v. Commis sioner of Income-tax, Bombay City ((1951) 19 1 T R 182), The Commissioners of Inland Revenue v. The Forth Conservancy Board (16 Tax Cas. 103), Sowrey (Surveyor of Taxes) v. Harbour Mooring Commissioners of King's Lynn (2 Tax Cas. 201), Nizam's Guaranteed State Railway Co. v. Wyatt (2 Tax Cas. 584) and Paddington Burial Board v. Commissioner of Inland Revenue (2 Tax Cas. 46). In that connection in Perkins' Executor v. The Commissioners of Inland Revenue (13 Tax Cas. 851), Rowlatt, J. observed t "If a person has alienated his income so that it is no longer his income, he is not super taxed upon it, but if he merely applies the income so that it passes through him and goes on to an ulterior purpose, even although he may be obliged to do so, still that remains his income." In Pondicherry Railway Co. Ltd. v. Commissioner of Income-tax, Madras (AIR 1931 P C 165), the Company was bound by a contract to pay half of its net profit to the French Government. In that case the Privy Council held that the Company was liable to be taxed on the amount so paid over to the Government. The thing to be taxed was the amount of the profits and gains. The word `profits' was to be understood in its natural and proper sense-in a sense which no commercial man would misunderstand. But when once an individual or a Company had in that proper sense ascertained what were the profits of his trade, the destination of those profits or the charge which had been made on those profits by previous agreement or otherwise was perfectly immaterial, and the tax was payable on the profits realised. The. Privy Council further observed: "But profits on their coming into existence attract tax at that point and the revenue is not concerned with the subsequent application of the profits." In Smyth v. Stretton (5 Tax Cas. 36), the Court held that salaries were taxable although for some reason or another, the recipient might not have a full right to apply them just as he liked. Also in Parkins v. Warwich (25 Tax Cas, 419), the Court was of the opinion that the fact that the recipient of emoluments had made them over to another person, did not render the emoluments anytheless assessable to Income-tax. Similarly in Hunison v. Gribble (4 Tax Cas. 522), it was held that the sums set apart by a man for the benefit of his family in pursuance of contigencies, or out of a salary of his family under a compulsory provision contained in the agreement of an employee, were still his income, chargeable to tax. But these cases are distinguishable from another category of cases in which on account of a supervening and overriding obligation the income before it reaches the hands of the assessee is diverted and deducted at the source so that truly speaking it cannot be treated as a part of his income at his disposal, Executor of the Estate of Lala Shanker Shah v. Commissioner of Income-tax (1945 1 T R 500); In re : L. Hira Lal (1945 1 T R 512) and P. C. Mullick and another v. Commissioner of Income-tax, Bengal ((1938) 61 T R 206), belong to that category of cases.

8. Generally speaking in this country right to future maintenance sim pliciter creates a personal obligation for the payment as and when the amount fell due. Such right is personal and inalienable and for that reason not liable to attachment under clause (n) to the proviso under section 60 of the Code o Civil Procedure, 1908. Where, therefore, the right of maintenance is not an mere personal right or when it amounts to an interest in property or charge or property, it is not exempt from attachment, and the interest is transferable. It is this basic difference which distinguishes the two categories of the cases discussed above. In this connection it is not without interest to find that under the English Laws (Paras. 1244 and 1251 of Halsbury's Laws of England Vol, 10, 2nd Edition) the Court has to make a provision for payment of main tenance by the husband after a decree of dissolution or nullity of marriage. On such decree the Court may order the husband also to secure, to its satisfac tion, to the wife such gross or annual sum of money. An order to secure is essentially different from an order to pay a regular sum. The wife takes the benefit of the security and must look to it alone; if it fails to yield the expect ed income. She cannot call upon the husband to make up the deficiency. This was merely to highlight the distinction between the two categories of these cases. In this case the maintenance decree by the High Court of Judi cature, Probate, Divorce and Admiralty Division, Great Britain passed against the assessee did not per se secure the payment due to the ex-wife and create any charge on his estate in her favour. The obligation and the liability was personal only. The salary and emoluments earned by the assessee were his income. It was credited to the account of the assesses in his name in the National & Grindlays Bank Ltd. The maintenance allowance was then dis bursed to the wife out of the income thus received by and credited to the account of the assessee. It was thus applied for the purposes of the assesses to meet his obligation towards his wife.

9. In the light of the above discussion we find that in the circumstances of this case the income-tax Appellate Tribunal was justified in holding that in computing the assessable income the assessee was not entitled to deduct Rs. 12,000 set apart from his salary for payment to his ex-wife under the decree of the Court. We have, therefore, no hesitation in returning our answer to the above question in the affirmative. But there shall be no order as to costs in the circumstances of the case. K. B. A. Answer in affirmative.