TMI Blog2015 (4) TMI 229X X X X Extracts X X X X X X X X Extracts X X X X ..... The correct legal position is that Section 10 exclusively deals with the exempt income not exigible to tax and should not per se be relied upon to ascertain whether the receipt would be a revenue receipt i.e. income chargeable to tax under sub-section (24) to Section 2 read with the charging provisions. The question of exemption under Section 10 would only arise if at the first instance, the receipt is found to be a revenue receipt. It would be incorrect to first examine whether a particular receipt has been exempted and then on the said reasoning and ratio proceed to decipher and hold that the amount/receipt is income for the purposes of the Act i.e. the Income Tax Act. In International Instruments vs. CIT, (1981 (3) TMI 59 - KARNATAKA High Court) it has been held that “A receipt may not be "income" at all within the proper connotation of that term and yet may come within the express exemption in this section, due to the over- anxiety of the draftsman to make the fact of non- taxability clear beyond possibility of doubt.” Just because a certain receipt is not exempt under Section 10, it doesn't follow that it is a revenue receipt and hence income. In G.R. Karthikeyan (1993 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stitution was not covered by section 10(17A) of the I.T. Act. 3. The brief facts are that the appellant at the relevant time was Editor in Chief of the English magazine i.e. India Today. According to him, he derived income from salary, interest, dividend and property. He filed return for the previous year relevant to the assessment year 1991-92 declaring an income of ₹ 5,47,190/-. The return was accompanied by financial statement of accounts. From the assessment order it is observed that while perusing the details given in the return, the Assessing Officer noted, the assessee had claimed an exemption for sum of ₹ 1 lakh received by him as B. D. Goenka Award for excellence in Journalism. During the proceedings, the assessee counsel‟s attention was drawn towards Section 10(17A) of the Act, which provides that if any payment is made in cash or in kind in pursuance to an award instituted in public interest by the Central Government or any State Government or by any other body approved by the Central Government or as a reward by the Central Government or any State Government then such a award/reward is exempted. According to the assessee, the award was not for any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the assessee to show that the particular receipt is exempt from tax. The Tribunal held the amount of ₹ 1 lakh as an income. It was also the argument of the appellant assessee that for being an income there must be expectation and regularity‟. In other words, it was the case of appellant assessee that for a receipt to be an income, criteria is expectation and regularity‟. The said argument was rejected by the Tribunal relying upon Section 10(3) (since repealed) of the Act which stipulated even casual and non-recurring receipts where the aforesaid two criteria namely expectation and regularity‟ were absent, to hold that the law does not stipulate total exemption but only upto ₹ 5,000/- and which was reduced to ₹ 2,500/- where the receipt represents winnings from the races including horse races. The Tribunal reversed the finding of Commissioner of Income Tax (Appeals) and held that the sum of ₹ 1 lakh received by the assessee from B. D. Goenka Foundation was not exempt under Section 10(17A) of the Act and added back the amount. 7. Learned counsel for the appellant assessee would submit that the receipt in question from B. D. Goenka F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... grammatical meaning. He would further submit that this Court in the case Commissioner of Income Tax vs. J. C. Malhotra (1998) 230 ITR 361 (Del.) following the view taken by Patna High Court in CIT vs. S. N. Singh, ITO (1991) 192 ITR 306 (Pat.) held that the reward to the assessee, that was given by the Central Government directly in connection with the Voluntary Disclosure Scheme to an Income Tax Officer was income. A separate approval of the Central Government for the purpose of exemption under Section 10(17B) of the Act was not given. That being the position, protection under Sub-Section (17B) of Section 10 of the Act was not attracted and the reward was not liable to be excluded from the computation of the income. 9. Having heard learned counsel for the parties, insofar as the submission of learned counsel for the appellant assessee on Section 10(3) of the Act is concerned, suffice would it be to state as admitted by him, Section 10(3) of the Act relates to exemption in respect of receipt in the nature of a casual and non-recurring nature. Insofar as Section 10(17A) is concerned, it is not the case of the parties that the award has been instituted in public interest by the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... categories of gifts are treated as income, but all gifts are not treated as income. The non- specified gifts are not income, being capital in nature. 12. Sub-section (24) to Section 2, therefore, adopts a dual approach; income‟ means what would be included and is treated as income, and in addition certain specific/specified categories of receipts or earnings are to be treated or are deemed to be income. Nevertheless all receipts or incomings are not income and aren‟t exigible to tax. A capital receipt is not taxable income. 13. In the facts of the present case, Revenue does not rely upon Clauses (ii) to (xvii) of sub-section (24) to Section 2. What is relied upon is the general scope and ambit of the term income‟ and the term gains‟ used in profits and gains‟ in sub-clause (i). The expression profit and gains‟ finds mention under the heading D in Chapter IV of the Act. The said heading reads as Profits and gains of business or profession‟. Section 28 under the said heading then sets out what would be chargeable to tax under the said head. It includes profits and gains of any business or profession carried out by the assessee at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d extensively studied Vedantic philosophy and excelled in giving discourses on Vedantic thought. He had a number of disciples. On the question, whether the assessed was carrying on a business or a profession (including vocation), the Supreme Court observed that: It is said that in order that an activity may be called a vocation for the purposes of the Act, it has to be shown that it was an organized activity and that it was indulged in with a motive of making profit; that as the appellant's activity in teaching Vedanta was neither organised nor performed with a view to making profit, he could not be said to be carrying on a vocation. It is said that as the word vocation has been used along with the words business and profession and the object of a business and a profession is to make a profit, only such activities can be included in the word vocation the object of which like-wise is to make a profit. We think that these contentions lack substance. We do not appreciate the significance of saying that in order to become a vocation an activity must be organised. If by that a continuous, or as was said, a systematic activity, is meant we have to point out that it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the latter would be. 21. Reference was made to another decision in Blakiston v. Cooper 5 TC 347, wherein it was held that what was paid to the vicar was given to him due to his office and hence formed a part of profits accruing by reason of the office he held. 22. Reverting back to the case in question i.e. Krishna Menon (supra), it was held that imparting of teaching was the causa causans of making the gift and not merely a causa sine qua non. The payments were repeatedly and regularly made at certain intervals. Rejecting the contention of the assessed that payments ought to be treated as casual in nature, it was held that the question of exemption does not arise as the assessed was unequivocally carrying on a vocation. 23. In Divecha (P.H.) vs. CIT, (1963) 48 ITR 222 (SC), it was observed that the motive and intent of the person who pays is not relevant and it is the nature of the receipt in the hands of the person who receives the same, which determines the quality of the receipt. However, for this purpose, one may examine the intent of the person paying/ donee. The quantum of the amount paid may not be decisive. Even the nomenclature given to the payment under consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the payment a recurring income because periodicity may be the result of convenience and not necessarily the result of the establishment of a source expected to be productive over a certain period. XXX Even if it be not regarded as a payment for loss of capital it cannot be regarded payment for any services rendered or likely to be rendered, The services in the past were amply remunerated. The payment does not contemplate that the agreement in the past had not been sufficiently remunerative to the firm. It does not pretended to pay them for past services. The minutes do not show that any services in the future was expected from these appellants. What remained to be done was to wind up the business with regard to the agreement of 1938 itself. For this purpose, the company agreed to give all facilities to the firm in respect of easily saleable articles and to make over those which required a longer duration to sell. The only service, if services it can be called, was that the firm was to hand over to the company a list of customers and the supplies made to them during the past six months. It cannot be said that for this service the payment was made. The payment was thus not re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said payments were periodic or recurring in character. The Court however held that payments which are quite ostensibly gifts would not be taxable, as they were mere testimonials and were made in recognition of the personal qualities of the recipient. 26. The Supreme Court in Parimisetti Seetharamamma vs. CIT, (1965) 57 ITR 532 (SC), dealt with a case where a substantial amount by way of cash and jewellery had been gifted by one of the members of a royal family of Baroda to a maid servant/secretary. The question that arose for the consideration of the Court was whether the said gifts were taxable as income. The Court held that the Act does not make a blanket provision whereby any and every receipt is to be treated as income and thereby made exigible to tax. The Supreme Court in the instant case held that the testimonials and personal gifts do not fall within the ambit of the term income‟. In all cases, the burden lies on the Revenue to prove that the receipt is income within a taxing provision, but where the receipt is in the nature of income, the burden to prove that it is exempt is on the assessee. In the said case, the appeal of the assessee succeeded on the ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n recognition of the personal qualities of the partners. The said test would be applied from the stand point of the recipient and it had to be first ascertained whether it accrued to him by virtue of his office and if it did, it is irrelevant whether it is voluntarily or compulsorily made on the part of the payer. If it was found to have any causal connection with the exercise of a profession or vocation, then it would not be treated as a gift arising out of personal admiration; rather the same would be treated as a payment having a correlation with the office held. In such a case, it would not be treated as one in appreciation of his personality or character. The Court recognized that money is rarely paid without a good reason or some quid pro quo, and it is generally paid in return of property, goods or service or help. Therefore, care and caution has to be exercised when the payment is made not by third parties but by parties who had received any benefit of professional services. 30. At this stage, we would also like to refer to Govindlalji Ranchhodlalji (Maharaj Shri) vs.CIT, [1958] 34 ITR 92 (Bom.). The assessee therein was a direct descendant of the original founder of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gifts are not income. Gifts, it was observed, were the opposite of income as they are wind falls. They are not earned as such. Earned income comes from a definite source and it also possesses the other characteristic of recurrence. 34. Similarly in CIT vs. Sundaravadanam (B.M.)(Dr.), (1984) 148 ITR 333 (Mad.), gifts received by a professional doctor which was not towards his professional fee, were held to be not income. 35. In C.P. Chitrarasu vs. CIT, (1986) 160 ITR 534 (Mad.), gifts received by a member of a political party were not treated as income. 36. Again, there are decisions on the question whether gifts received by a singer etc. are personal in nature and hence exempt; or whether they are receipts in nature of income because the recipient carries on the vocation or occupation. We are not required to decide the question regarding vocation or hobby as such, but would accept that the term income‟ would include payments of a recurring and periodical nature which are made from time to time. When this happens it would be plausible and right to infer that the recipient is carrying on a vocation and the receipts relate and have a causal connection with the said ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eipt concerned herein is also income. May be it is casual in nature but it is income nevertheless. That even the casual income is income‟ is evident from Section 10(3). Section 10 seeks to exempt certain incomes‟ from being included in the total income‟. A casual receipt - which should mean, in the context, casual income - is liable to be included in the total income, if it is in excess of ₹ 1,000/-, by virtue of Clause (3) of Section 10. Even though it is a clause exempting a particular receipt/income to a limited extent, it is yet relevant on the meaning of the expression income. In our respectful opinion, the High Court, having found that the receipt in question does not fall within Sub-clause (ix) of Section 2(24), erred in concluding that it does not constitute income. The High Court has read the several Sub-clauses in Section 2(24) as exhaustive of the definition of income when in fact it is not so. In this connection it is relevant to notice the finding of the Tribunal. It found that the receipt in question was casual in nature hut - it opined - it was nevertheless not an income receipt and fell outside the provision of Section 10(3)of the Act. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e vocation being carried on by the appellant; or by a client of his. The prize money has in the instant case been paid by a third person, who was not concerned with the activities or associated with the vocation of the appellant. It being a payment of a personal nature, it should be treated as capital payment, being akin to or like a gift, which does not have any element of quid pro quo. The aforesaid prize money was paid to the assessee on a voluntary basis and was purely gratis. 42. On the concluding note we would like to deal with the alternative submission of the counsel for the Revenue that all prizes or awards in cash or kind would be income except those specifically covered and exempted under sub- section (17A) to Section 10 of the Act. In view of the pronouncement of the Supreme Court in Divecha (P.H.) (supra), the answer to the above mentioned submission of the Revenue has to be in the negative and accordingly against the Revenue. In the said case, the argument raised on behalf of the Revenue was that the receipt in question was not exempt under sub section (3) to Section 10, and therefore would be taxable income. The Supreme Court in the quoted portion (see paragra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... about the truth of that disclosure, the income-tax authorities are not entitled to raise an inference that the receipt is assessable to income-tax on the ground that the assessee has failed to lead all the evidence in support of his contention that it is not within the taxing provision. 44. In G.R. Karthikeyan (supra), the Supreme Court has made an observation that when a particular income or receipt is exempt to a limited extent, it may be a relevant factor for determining the meaning of the expression income . However, this statement should not be read in isolation, bereft of the context in which it was made. The entire paragraph quoted above (see paragraph 39 above) clearly illustrates that the main thrust there was on highlighting that the term income‟ is of widest amplitude and should be given a natural and grammatical meaning. Casual income‟ is income. Once, it is settled, that the receipt is income, partial exemption would necessarily indicate that the non- exempt part is taxable. 45. In view of the aforesaid discussion, the substantial questions of law mentioned above, are answered in favour of the appellantassessee and against the Revenue. ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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