Section 66(1) of the Indian Income-tax Act, 1922

Section 66(1) of the Indian Income-tax Act, 1922 — the law in short

What the courts have decided on section 66(1) of the Indian Income-tax Act, 1922, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• Surjit Lal Chhabda v CIT Supreme CourtHelps department
  I have no son. If I throw my self-acquired property into the family hotchpot, will its income be taxed as the income of a Hindu undivided family of myself, my wife and my daughter?
  No. The Supreme Court held that where property that was never joint family property is thrown into the hotchpot by a man who has no son, the income remains his own for tax. His wife and unmarried daughter are not coparceners: they had a right of maintenance out of the income before, and they have the same right and no more afterwards - neither a right by birth, nor a right to demand partition, nor any power to restrain an alienation. Since his personal law still regards him as the owner and the income as his, it is chargeable as his individual income.
• G. Murugesan & Bros v CIT Supreme CourtCuts both ways
  My brothers and I were gifted shares jointly and the dividends were collected together. The officer is assessing us as an association of persons. Are we one?
  Not on those facts alone. The Supreme Court held that an association of persons is formed only when two or more persons voluntarily combine for a common purpose of producing income, so volition is an essential ingredient. Where the income is dividends, there is no act of management, and the mere facts that shares are jointly owned and dividends jointly received do not show that the holders acted as an association. But for the two years in which the assessees had themselves returned as an association, that admission was important evidence and the assessment stood. For the later four years, in which they said they had ceased, they succeeded.
• Chowringhee Sales Bureau (P) Ltd v CIT Supreme CourtHelps department
  I collected sales tax from buyers and kept it in a separate account because I dispute the liability. Is that collection my income?
  Yes. The Supreme Court held that sales tax received by an auctioneer in its character as auctioneer forms part of its trading or business receipts, with a deduction available as and when the money is paid over to the State Government. Crediting the money to a separate sales tax collection account makes no difference: it is the true nature and quality of the receipt, and not the head under which it is entered in the books, that is decisive. If a receipt is a trading receipt, the fact that it is not shown as such in the accounts does not prevent the assessing authority from treating it as one.
• Ram Pershad v CIT Supreme CourtHelps department
  I am the managing director of my own company. I draw a monthly amount, a car allowance and a percentage of gross profits. Is the percentage salary, or can I show it as my own business income?
  On an agreement of this kind it is salary. The Supreme Court held that ten per cent of gross profits payable to a managing director under his appointment agreement was chargeable under section 7 of the 1922 Act as salary, not under section 10 as business income. There is no single test. A servant acts under the direct control and supervision of his master and an agent does not, but that is only a rough and ready test, and the answer turns on the nature of the business and the nature of the duties. A managing director has a dual capacity - director and employee - and which he is depends on the articles of association and the terms of his employment. Here the company itself carried on the business, he could be dismissed if his work was unsatisfactory, and he exercised his powers within the limits the articles set and subject to the control of the board whose decisions he carried out.
• CIT v George Henderson & Co Ltd Supreme CourtCuts both ways
  I sold shares well below market value. Can the officer compute my capital gain on the market price instead of the price I actually received?
  Not under the general computation provision. The Supreme Court held that the consideration for a transfer is what the transferor receives in lieu of the asset he parts with, so the asset transferred cannot itself be the consideration. Full value of the consideration therefore means the whole price bargained for, without deduction, and has no necessary reference to the market value of the asset or to the adequacy of the price. Market value can be substituted only where a deeming provision says so - here a proviso requiring both a connection between the parties and an object of avoiding liability, conditions the Revenue conceded were not met.
• Gillanders Arbuthnot & Co Ltd v CIT Supreme CourtHelps department
  My principal cancelled one of my many agencies and paid me compensation worked out on the commission I would have earned. Is that a capital receipt?
  No, on these facts. The Supreme Court held the compensation was income. The company held agencies in a great many lines - paints, petroleum, cement, timber, metals, tea, engineering goods and much else - so acquiring agencies was a normal incident of its business and losing one did not impair its trading structure or cost it an enduring asset. The agency was terminable at will, the company had two years' notice, and the compensation was computed as a proportion of the commission on sales in its former territory. It merely lost a trading avenue and was free to carry on the rest of its business.
• CIT v Scindia Steam Navigation Co Ltd Supreme CourtHelps taxpayer
  Can I argue a point in the High Court that was never taken before the Tribunal, if it arises on the facts the Tribunal found?
  Not as a new question, but you may take a new contention within the question referred. The Supreme Court held that only a question raised before or decided by the Tribunal arises out of its order. A question neither raised before nor considered by the Tribunal is not one arising out of its order, even though it arises on the findings. But where the question referred is itself wide enough, a fresh contention within its framework may be advanced. Here the referred question - whether Rs 9,26,532 was properly included in the 1946-47 assessment - covered the argument that the charging proviso was not yet in force.
• Charandas Haridas v. CIT — where an asset admits of no other mode of division, dividing the income divided the asset; and why s.171 would decide the same facts differently today Supreme CourtHelps taxpayerSuperseded by amendment
  The family's only income-producing right is the karta's share in a managing agency, which cannot be split among the members. They divided the commission between themselves. Is that a partition the department must accept?
  In 1960 the Supreme Court said yes, on facts where no other mode of division existed. The Court held that there is nothing in the Indian Income-tax law or the law of Partnership which prevents the members of a Hindu joint family from dividing any asset; that Hindu law does not require the property to be partitioned by metes and bounds in every case if separate enjoyment can otherwise be secured according to the members' shares; that for an asset of this kind there was no other mode of partition open to the parties and the law does not contemplate that a person should do the impossible; and that on a genuine document, not a sham, which effectively divided the income and in the circumstances the assets, there was factually no Hindu undivided family in respect of those assets. The appeal was allowed with costs. READ THE ENTRY'S VALIDITY NOTE BEFORE ACTING ON IT: the assessment years were 1947-48 and 1948-49 under the Indian Income-tax Act, 1922, and the arrangement was a PARTIAL partition.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.