TMI Blog1978 (1) TMI 64X X X X Extracts X X X X X X X X Extracts X X X X ..... included the amount of the shares as income of the assessee and assessed the value of the shares to tax. Being aggrieved by the said finding of the Income-tax Officer the assessee challenged the same in an appeal before the Appellate Assistant Commissioner, New Delhi. The Appellate Assistant Commissioner by his order, annexure "B", accepted the contention of the assessee and held that the allotment of the preference shares to him was not assessable either as income under the head "Salaries" or income under the head "Other sources", and accordingly allowed the appeal. The department challenged the correctness of the view taken by the Appellate Assistant Commissioner by filing an appeal before the Income-tax Appellate Tribunal but remained unsuccessful. The Tribunal by its order dated 20th September, 1961, annexure "C", held that the decision of the Appellate Assistant Commissioner was not founded upon a misconception of law as was urged by the department and accordingly dismissed the appeal. The department filed a reference application under section 66(1) of the Act requesting that a statement of the case be drawn up and the question of law suggested in paragraph 4 of the applicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted to the assessee in consideration of the services rendered in connection with the formation, promotion of the company and in particular for the effective arrangements made for the conduct of the business of the company incurring heavy personal expenditure and extraordinary devotion brought to bear on the project. The Tribunal further observed that the assessee became entitled to the shares by the same agreement whereby he was appointed as managing director and that the decision to give the shares had been decided upon prior to the assumption of the charge of the office of the managing director by the assessee. The Tribunal accordingly concluded that the allotment of thirty shares in question, of the face value of Rs. 1,000 each, to the assessee had all the attributes of being a personal gift to him and that it did not cease to be a gift merely because the same had been allotted to the assessee in recognition of his services as a promoter of the company. The Tribunal further held that "the agreement to give reward to the assessee was already there even before the incorporation of the company and it was fulfilled in recognition of his services in promoting the company". The que ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the shares was made by way of remuneration to compensate for, (1) the services rendered by the assessee in connection with the formation and promotion of the company, (2) for the effective management made by the assessee for the conduct of the business of the company, (3) for extraordinary devotion brought to bear by the assessee on the project, and (4) for having incurred heavy personal expenditure. That being so, it was urged, the allotment of shares was not a gift but was income liable to assessment. On the other hand the contention of the assessee is that the allotment of shares was a testimonial for his personal qualities and as such the money value of the shares could not be included as income of the assessee for the assessment year 1952-53. It was further contended on behalf of the assessee that promotion of the company was not the business of the assessee, nor could it be said to be his profession or vocation. The money value of the allotment of shares, goes the argument, in the premises could not be said to be profits and gains of business, profession or vocation. Besides, the learned counsel submitted, promotion of the company as a solitary act could not be brought u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the work of arbitration. In P. Krishna Menon v. Commissioner of Income-tax [1959] 35 ITR 48 (SC), the appellant-assessee was studying Vedanta philosophy and imparted knowledge acquired by him as a result of his studies to others as cared to come and imbibe it. Accordingly, a question arose whether payments made to the assessee were income received from his vocation of imparting Vedanta philosophy. Their Lordships of the Supreme Court held that teaching of Vedanta was the assessee's vocation and the payments received by him were held to be his income derived from his vocation. The occupation and engagement of the assessee's time in the instant case and the attention that he devoted to the formation and promotion of the company during the period he was occupied with the said work undoubtedly would be occupation or vocation of the assessee. The word "income" used in the Act is of wide connotation and its extent and sweep is not controlled or limited by the words "profits and gains". It is true that the word "business" normally connotes some real, substantial and systematic or organised course of activity or conduct with a set purpose but even a single and isolated transaction c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g one. In the instant case before us, the finding of the Tribunal is that "under clause (h) of paragraph 1, the shares in question were to be allotted to the assessee in consideration of the services rendered in connection with the formation, promotion of the company and in particular for the effective arrangements made for the conduct of the business of the company" and for "incurring heavy personal expenditure and extraordinary devotion brought to bear on the project". It is, therefore, evident that the shares in question were not allotted to the assessee for his personal qualities as testimonial but, on the contrary, were allotted in consideration of the services rendered in connection with the formation and promotion of the company and to reimburse the assessee for having incurred heavy personal expenditure during the course of the formation and promotion of the company. According to the agreed statement of the case prepared by the Tribunal: "The agreement to give the reward to the assessee was already there even before the incorporation of the company and it was fulfilled in recognition of his services in promoting the company." It is, therefore, evident that it was not an u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the agreement is clear and unambiguous. The intention of the parties is to be derived from it. The parties thought it was desirable to introduce the element of consideration in order to make the promise legally enforceable. This is vouchsafed in clause (h). The acquisition of the shares under the terms of the agreement was linked up with the services rendered by the assessee and the effect of the agreement cannot be cast aside merely because the result is found to be inconvenient to the assessee. The circumstances of the case do not tend against the conclusion that the shares allotted were in the nature of remuneration; the circumstances on the contrary unequivocally stamp the transaction as such. It is a trite saying that remuneration need not generally be effected by systematic and recurring payments. Considering the antecedent conduct of the parties, there being a prior agreement subsequently reduced into writing, the allotment of shares being in consideration of past services, the money value of the shares would represent the income of the assessee. Merely by describing the allotment of shares as "reward" the motive for conferring the benefit cannot be confounded. Reliance w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iduals which the revenue sought to tax. The plea of the assessee was that the amounts so received were not receipts arising out of a profession or vocation but were given as personal gifts to him out of personal esteem and veneration for him and as such were not income and were not liable to tax. It was also contended that the activities carried on by the assessee did not constitute a vocation within the meaning of section 10 of the Act. The Bombay High Court upheld the contention of the assessee holding that the amounts paid as personal gift for the personal qualities of the assessee and as a token of personal esteem and veneration, were not subject to tax as income arising out of business, profession or vocation. It may bear mention here that the major gifts flowed to the assessee from two American gentlemen. According to them, as stated in their affidavits, a desire arose in their mind to build a temple house for their Guru (assessee) on account of the Guru's spiritual reputation, his valuable contribution to literature, music, religion and various fields of cultural activities. It was on the basis of these affidavits that the court upheld the contention of the assessee holding ..... X X X X Extracts X X X X X X X X Extracts X X X X
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