MAHESH ANANTRAI PATTANI AND ANOTHER vs THE COMMISSIONER OF INCOME-TAX, BOMBAY NORTH, AHMEDABAD

The Supreme Court held that the sum of Rs. 5 lakhs paid to the former Dewan of Bhavnagar was a gift and not taxable under Section 7(1) of the Indian Income-tax Act, 1922. The Court found that the payment was made out of affection and regard, rather than as remuneration for past services. The Tribunal's reliance on a contemporaneous document was deemed erroneous, as it was written six months after the payment, leading to the conclusion that the amount was not liable to tax.