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2015 (4) TMI 229 - DELHI HIGH COURT

2015 (4) TMI 229 - DELHI HIGH COURT - [2015] 375 ITR 188 (Del) - Receipt of an award from B. D. Goenka Foundation - whether was taxable as assessee's income as the said institution was not covered by section 10(17A)? - Held that:- The causa causans in the present case is not directly relatable to the carrying on of vocation as a journalist or as a publisher. It is directly connected and linked with the personal achievements and personality of the person i.e. the appellant. Further, it is to be n .....

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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.

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 Se .....

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nnotation 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 (4) TMI 9 - SUPREME Court), the Supreme Court has made an observation that when a particular “income” or “receipt” is exempt to a limit .....

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on- exempt part is taxable.

₹ 1 lakh received by the appellant- assessee as an award from B.D. Goenka Trust for Excellence in Journalism would be a capital receipt and hence not income taxable under the Act, i.e. Income Tax Act, 1961. - Decided in favour of assessee. - ITA 232/2002 - Dated:- 27-3-2015 - Sanjiv Khanna And V.Kameswar Rao JJ. For the Appellant : Mr. Prakash Kumar, Advocate For the Respondent : Mr. Kamal Sawhney, Sr. Standing Counsel with Mr. Sanjay Kumar, V.KAMESWA .....

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f assessment with which we are concerned in this appeal is 1991-92. 2. The following substantial questions of law fall for our consideration in this appeal:- 1. Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in holding that the receipt of ₹ 1 lakh by the appellant as an award given to him by B. D. Goenka Foundation for his excellence in journalism was in the nature of income liable to tax in the hands of the assessee. 2. Whether on th .....

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ed 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 .....

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n by an institution of eminence of a person in the field of Journalism. The assessee relied upon the following judgments in support of his case: (i) (1978) 114 ITR 253 (Mad.), S. A. Ramakrishnan vs. CIT, (ii) (1986) 160 ITR 534 (Mad.), C.P. Chitrarasu vs. CIT (iii) (1988) 171 ITR 447 (Mad.), CIT vs. M. Balamuralikrishna (iv) (1984) 148 ITR 333 (Mad.), CIT vs. Dr.B.M. Sundaravadanan 4. The Assessing Officer was of the view that the award given to the assessee was not covered by the exemption prov .....

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y B. D. Goenka Foundation, an independent entity, and there is nothing on record to show that for getting the award there has been any rendering of services by the appellant to the Foundation. It also cannot be inferred that the appellant was having an expectation of the award, much less to say that any regularity in receipt from the Foundation was even remotely probable. It is not every receipt that can be held chargeable to tax but in order to be so chargeable it must fall within the expressio .....

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same is accordingly deleted from the total income as computed in the impugned order. The appellant will accordingly be entitled to a consequential relief of ₹ 1 lakh. 6. On an appeal by the Revenue, the Tribunal vide a detailed order, allowed the same by holding that the initial onus is 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 inco .....

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pto ₹ 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 Foundation was .....

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the aforesaid amount cannot be treated as income. There is no question of claiming exemption under Section 10(17A) of the Act. Moreover, Section 10(3) of the Act is also not applicable on the facts of the instant case to put a ceiling of ₹ 5,000/-. He would further submit that the assumption of Assessing Officer/Tribunal that since the award is not recognised as per provisions of Section 10(17A) of the Act, the assessee is not entitled to exemption and the receipt of the amount constituted .....

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On the other hand, learned Sr. Standing Counsel for the Revenue would support the judgment of the Tribunal inasmuch as the provisions of Section 10(17A) exempting certain categories of awards/rewards itself provides that those awards/rewards not fulfilling the conditions laid down in Section 10(17A) will be income liable for tax. He would submit that the Supreme Court in the case CIT Vs. Karthikeyan (G.R.), (1993) 201 ITR 0866 (SC) has held that income defined in Section 2(24) is an inclusive de .....

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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 wa .....

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ies that the award has been instituted in public interest by the Central Government or by the State Government. It is also not the case of the parties that it has been instituted by any other body approved by the Central Government. It is to be seen whether the Award having been given by B. D. Goenka Foundation for excellence in Journalism was in the nature of income liable to be taxed. 10. Sub-section (24) to Section 2 of the Act seeks to define the term income‟ but does not expressly and .....

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rstood in law. The word income‟ has widest and broadest connotation and means what would constitute income in law and otherwise declared as income in the different clauses of the subsection (24) to Section 2 of the Act. 11. For the purpose of the present appeal, we would like to refer to some of the clauses to sub- section (24) to Section 2 of the Act. Clause (i) states that profits and gains would be income; Clause (iii) stipulates value of any perquisite or profit in lieu of salary taxab .....

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narily resides or any compensation that he receives, is income. Winnings by way of lotteries, including card games or games of any other sort, entertainment programmes on telephone or electronic mode, in which people compete or any other similar game, is also treated as income in terms of Clause (ix) to sub-section (24) to Section 2. Sums referred to in Clauses (v), (vi), (vii), (viib) and (ix) of sub-section (2) to Section 56 are income. Thus, certain categories of gifts are treated as income, .....

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3. 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 .....

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Incomes which are not taxable under the heads A‟ to D‟ are taxable under the residuary head income from other sources‟ dealt with under the heading F of Chapter IV i.e. Section 56 to Section 59 of the Act. However, they must partake the nature and character of income‟ as understood in law or covered by the express clauses of sub- section 24 to Section 2 of the Act. 16. In the present case, the appellant was an editor of a newspaper and had income by way of salary, interes .....

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Income Tax Act, 1961 has considerably expanded the ambit of the terms salary‟, benefit‟ and perquisites‟. We will be referring to some of the earlier decisions to exposit the scope and four corners of the term income‟, as understood in law. Similarly, it is not the case of the Revenue that any of the Clauses to sub- section 24 to Section 2 are applicable. In the present case, Revenue has not directly submitted and asserted that the appellant was carrying on business or p .....

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ector of Police, had 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 t .....

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ontentions 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 well-known that a single act may amount to the carrying on of a business or profession. It is unnecessary to discuss this question further as we find no want of system or continuity in the activity of the appellant. He had gathered a large number of disc .....

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it was carried on without the motive of producing any income. … 18. Rejecting the contention of the assessed that the payments were made only on account of esteem and affection, the Court remarked that the disciples had the benefit of teachings of Vedanta and the following paragraph from the judgment in Herbert vs. McQuade (1902) 4 TC 489 was quoted: "Now that judgment, whether or not the particular facts justified it is certainly an affirmation of a principle of law that a payment m .....

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ability to income-tax is not negatived merely by reason of the fact that there was no legal obligation on the part of the persons who contributed the money to pay it. " 19. Therefore voluntary payment made because of office or vocation would be taxable, but a voluntary payment made for reasons purely personal and unconnected with his office or vocation would not be taxable. 20. The Court also referred to the judgment delivered by Rowlatt, J. in Reed vs. Seymour (1926) 1 K.B. 588, wherein Ro .....

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parting 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 .....

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to the recurring nature of the payment and not a regular source of payment over a certain period of time. In the said case, the payment was made to the partners by a third party, which earlier had business relationship with the partnership firm. This agreement between the third party and the firm was terminated. This payment to the partners, it was held was not for any service performed or likely to be performed in the future. It was not remuneration, but was made out of regard for qualities of .....

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eproduction:- In determining whether this payment amounts to a return for loss of a capital asset or is income, profits or gains liable to income-tax, one must have regard to the nature and quality of the payment. If the payment was not received to compensate for a loss profits of business, the receipt in the hands of the appellant cannot properly be described as income, profits or gains as commonly understood. To constitute income, profits or gains the must be a source from which the particular .....

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e name by which it has been called may be relevant in determining its true nature, because this gives an indication of how the person who paid the money and the person who received it viewed it in the first instance. The periodicity of the payment does not make 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 a .....

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ement 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 related to any services in the past or .....

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s of the three partners of the firm who were long associated with the company to its profits and who had built up a vast net-work of sales organisation of which the company would have obtained benefit when it entered on the business of selling for itself. This payment need not be given a particular name. ... 24. The question whether the said receipt could be treated as income of casual and non-recurring nature was rejected by the Court, by making the observation that: The receipt may only be des .....

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t is motivated by some sort of gratitude and moral obligation. The Court made an apposite distinction made between a gift simpliciter and payments made for services rendered or to be rendered. In the opinion of the Court, gifts simplicitor would not be taxable, if they are not connected with employment and are purely personal in character. Citing the decision in Moorehouse (Inspector of Taxes) v. Dooland, (1954) 36 TC 1, the Court went on to postulate three tests. Firstly, the litmus test for de .....

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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 t .....

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said case, the appeal of the assessee succeeded on the ground that the Revenue had proceeded on the wrong interpretation of the law that the assessee had failed to discharge the burden of leading evidence that the receipt was not income within the taxing provision. The legal burden was actually on the Revenue to prove that the receipt was income. The decision has covered three aspects: - all receipts are not income; testimonials and personal gifts are not income; and burden was on the Revenue to .....

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Thomas vs. Commissioner of Income Tax, Kerala, (1985) 156 ITR 412 (SC), observed that the assessed was carrying on the vocation of preaching against atheism, and during the course of such vocation he had received donations in furtherance of the objects of his vocation. There being a proximate and live link between the activities of the assessed and the payments so received, the receipts were not casual in nature. As the payments partook a recurring character, the Court declared them to be taxab .....

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, it was claimed, had made unsolicited gift of 2500 shares to the assessee. The value of the shares, it was observed, could not be taxed as a perquisite or profits, as they were not a part of salary or wages. It was observed by the Court that the conclusive test to decide whether the shares could be said to be profits and gains arising out of a profession or vocation would be to ascertain, whether the same were a gift in the form of a testimonial in recognition of the personal qualities of the p .....

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on 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 .....

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make gifts. Thirdly, the assessee held an office that induced the disciples to make gifts. Thus, even practice of religion would become a profession when it has the characteristic of a steady income. The gifts or donations in the said case were not personal gifts, but were receipts of recurring nature. Referring to the contention that the donations were voluntary, it was observed that the true test to determine whether a receipt is income or not, has to be perceived from the stand point of the .....

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e. These payments were made keeping in mind the personal esteem and venerated position, a fact which was not denied by the Revenue and accepted by the Court as true. 32. In Lacchmandas vs. CIT, (1980) 124 ITR 532 (Del.), gifts of land made to the assessee out of natural love and affection, as the assessed had served in his capacity as general attorney, was held to be not taxable as it was not in the nature of remuneration paid, but a transaction of gift. 33. The Madras High Court in CIT vs. Para .....

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s, all what comes in is not income and 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 .....

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nd 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 activity. It has ceased to be a mere hobby. Such payments therefore, have periodicity and regularity and they disclose some sort of obligation, which may be even moral, social or customary. It may be unwritten and overtly voluntary, but gifts or payments received as a norm .....

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a service rendered, unless there is an element of quid pro quo. 37. The aforesaid ratios do indicate a distinction drawn between a capital receipt‟ and revenue receipt‟; for income as a taxable term is a revenue receipt. Income by way of capital gain is deemed to be income under Clause (vi), provided it is chargeable under Section 45. Capital receipts which are not chargeable under Section 45 are not incomes. Thus, the capital receipt could be taxable in view of the amendments and s .....

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and often cited decision of the Supreme Court in Commissioner of Income Tax, Madras vs. G.R. Karthikeyan, (1993) 201 ITR 866 (SC), where the assessed had income from various sources including salary and business. Earnings in the nature of prize money etc. for winning were held to be income. It was observed: The idea behind providing inclusive definition in Section 2(24) is not to limit its meaning but to widen its net. This Court has repeatedly said that the word income' is of widest amplit .....

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f 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 .....

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r a match or even gifts received by sportspersons have undergone a change over the period of time. Earlier decisions in the case of Seymour vs. Reed (supra) and Moore vs. Griffiths, (1972) 3 All ER 399 pronounced in 1927 and 1972 respectively, may not be of contemporary relevance and have limited applicability today because sports have now become a profession or occupation and such prizes as well as gifts are now the norm and not just once in a lifetime occasion. Even amateur athletes, who perfo .....

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l relationship exists or even when the payments are not compulsory in nature or legally enforceable. The payments received in such cases are means of livelihood. Whatever be the motive of the payer, the intention of the recipient is to take advantage and cash in on the source i.e. his vocation or occupation. However, mere hobby resulting in a sudden and unexpected testimonial would not be an income. The aforesaid principles should obviously be subject to the specific clauses in Section 2 (24) of .....

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the appellant. Further, it is to be noted that the payment in this case was not of a periodical or repetitive nature. The payment was also not made by an employer; or by a person associated with the 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 .....

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t 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 paragraph 23) has clearly and categorically held that the question of exemption would not arise where the receipt it .....

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ceipt 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 I .....

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also quote Dilip Kumar Roy (supra), wherein it was held: It is well settled that by Sections 3 and 4 of the Act, the Act imposes a general liability to tax upon all income, but the Act does not provide that whatever is received by a person must be regarded as income liable to tax. In all cases in which a receipt is sought to be taxed as income, the burden lies upon the department to prove that it is within the taxing provision. Where however a receipt is of the nature of income, the burden of pr .....

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