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TMI Blog1967 (1) TMI 28X X X X Extracts X X X X X X X X Extracts X X X X ..... ld on the 1st April, 1947, decided to request the assessee to act as an umpire in the event of there being a difference of opinion between them. The offer was conveyed in a letter dated the 3/5th of April, 1947, and was signed by Sri Shiv Charan Singh for self and on behalf of Sarat Chandra Bose co-arbitrator. The letter concluded : " We, arbitrators, shall feel most grateful if you will kindly intimate your acceptance of this appointment. I am to add that by accepting this appointment you will be rendering a great public service as it is a difficult problem to find suitable umpires and I am sure the parties and the arbitrators will all have confidence in your judgment, should it become necessary to refer the matter to you. " The assessee at that time was a puisne judge of the Allahabad High Court and after taking the permission of the then Chief Justice, he replied, vide letter dated the 12th April, 1947. This reads : " I am in receipt of your registered letter No. OSD(C)/160, dated the 23rd/5th April, 1947, and beg to inform you that I have no objection to acting as umpire in the case mentioned by you. " There was neither mention of any payment nor was there any question at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as an umpire. The assessee, thereupon, submitted his bill, but the Deputy Accountant-General, vide his letter dated the 16th June, 1950, informed the assessee that his claim was under consideration. This was because of certain orders which had recently been issued by the Government. It was on the 12th July, 1950, that the assessee was informed that the bill drawn by him had been passed. The recent order which the Deputy Accountant-General (Industry and Supply) had in mind was the confidential letter dated the 6th of May, 1950, from the Deputy Secretary, Government of India, Ministry of Home Affairs, to all Chief Secretaries on the question of the grant of honorarium to High Court judges. The relevant portion thereof reads : " The Government of India have reviewed the position and have decided that the payment of honoraria or other remuneration to judges of High Court for performing additional non-judicial functions should be prohibited. Any non-judicial work which a High Court judge might reasonably be asked to perform should be performed by him with the consent of the President and without any additional remuneration. " This was a general order applying to all work performed out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 20,000 as arbitration fee and claimed that the amount was exempt from tax under section 4(3)(vii) of the Income-tax Act. Along with the return the assessee submitted the opinion which his counsel had given him. The assessee, when asked to explain the reason for claiming the exemption, wrote that the Government had issued orders prohibiting the payment of any additional remuneration to judges and copies of the relevant Government orders were enclosed therewith. The assessee also furnished his statement in writing on the 3rd March, 1955. The Income-tax Officer, however, held that the amount of Rs. 20,000 was income liable to tax and was not exempt under section 4(3)(vii) of the Act. On appeal, the Appellate Assistant Commissioner reversed the finding relying upon Ahmad Badsha Saheb's case, and held that the assessee had not stipulated for the payment of fees and as there was no possibility of its recurrence, the sum of Rs. 20,000 was not income liable to tax under the Indian Income-tax Act. He, accordingly, directed the sum of Rs. 20,000 to be deleted from the total income of the assessee. Against the order of the Appellate Assistant Commissioner the Income-tax Officer preferred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of, this Act in respect of the total income of the previous year of every individual ... Section 2. (15) 'total income' means total amount of income, profits and gains referred to in sub-section (1) of section 4 computed in the manner laid down in this Act ... Section 4. (1) Subject to the provisions of this Act, the total income of any previous year of any person includes all income, profits and gains from whatever source derived ........" Section 4. (3) Any income, profits or gains falling within the following classes shall not be included in the total income of the person receiving them ...... (vii) Any receipts not being capital gains chargeable according to the provisions of section 12B and not being receipts arising from business or the exercise of a profession, vocation or occupation, which are of a casual and non-recurring nature or are not by way of addition to the remuneration of an employee. Section 2. (4) 'business' includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture. " It may be noticed that there is no similar definition of "profession", "vocation" or "occupation" in the Act, and one of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of" in section 4(3)(vii) which precede the words "profession, vocation or occupation" must not be lost sight of. What then is the meaning to be given to these words in the context of the facts of the present case ? The conditions of appointment of a judge of the High Court are given in the Constitution itself and there is a restriction placed upon practice after retirement in the particular High Court and therefore there cannot be any question of a sitting High Court judge, simultaneously exercising a profession or a vocation. According to the Manual of Law Terms and Phrases by Aiyar a "judge" is empowered by law to give in any legal proceeding, civil or criminal, a definite judgment or a judgment which if not appealed against would be definitive." A sitting judge, therefore, cannot have a "profession". In this connection the observation of Scrutton L.J. in Commissioners of Inland Revenue v. Maxse may be reproduced with advantage : " The next question is, what is a 'profession'.... it seems to me as at present advised, that a 'profession' in the present use of language involves the idea of an occupation requiring either purely intellectual skill, or if any manual skill, as in p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion. Corpus Juris goes on to say: " There is nothing ambiguous about the word 'occupation' as it is used in the sense of employing one's time. It is a relative term, in common use with a well understood meaning, and very broad in its scope and significance. It is described as a generic and very comprehensive term, which includes every species of the genus, and compasses the incidental, as well as the main, requirements of one's vocation, calling, or business. The word 'occupation' is variously defined as meaning the principal business of one's life ; the principal or usual business in which a man engages; that which principally takes one's time, thought and energies ; that which occupies or engages the time and attention; ... that activity in which a person,..... is engaged with the element of a degree of permanency attached.... The word 'occupation' is frequently defined as meaning the business in which one principally engages in order to procure a living or obtain wealth ; . . . The word 'occupation' has reference to the principal or regular business of one's life... The word particularly refers to the vocation, profession, trade or calling in which a person is engaged for hir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enture in the nature of trade". The same meaning of the word "exercise" as given in Stroud's Judicial Dictionary is also to be found in Corpus Juris Secundum, volume 35. That is one side of the picture as painted laboriously and painstakingly by Mr. Jagdish Swarup, the learned counsel for the assessee, on the basis of the meanings given to the word profession, vocation and occupation in law lexicons and dictionaries, and, on the other side, are the observations of the Supreme Court, albeit obiter, in P. Krishna Menon v. Commissioner of Income-tax and the decision of the Madras High Court in the case of a retired judge acting as an arbitrator in Commissioner of Income-tax v. V. P. Rao. Before dealing with the Supreme Court case, it is perhaps best at this stage to clear the decks by referring to the other cases cited at the Bar. An analysis of the authorities cited shows that there are only two cases which relate directly to the taxable nature of the fee received by an arbitrator. They are both Madras cases. The first one is Commissioner of Income-tax v. Ahmad Badsha Saheb. In that case the merchant was a dealer in hides and was carrying on his business in the city of Madras. In t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re. It was held that acting as an arbitrator was his "occupation", that he had agreed to this arbitration work between the two local boards because of the promise by the Government to pay a lump sum of Rs. 3,000 besides travelling allowance on the scale admissible to High Court Judges ........ that Rs. 3,000 in question in this case arose from the exercise of the occupation of an arbitrator by Mr. V. P. Rao and that therefore the assessee cannot claim exemption under section 4(3)(vii) of the Act, and the sum will be taxable. The earlier case in Ahmad Badsha Saheb's case was distinguished on the ground that the arbitrator in that case had not stipulated or been promised or had even expected any remuneration. He had occupied himself with the work of arbitration as a friend of the family. As regards the words "from the exercise of" in section 4(3)(vii) it was observed: " Very few people speak of receipts arising from the exercise of a business, and only speak of receipts arising from business ; whereas the usual phrase for receipts from a profession, vocation or occupation is 'receipts arising from the exercise of a profession, vocation or occupation.' If the argument of the Income-t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t necessarily depend in every case upon the circumstances of the assessee, the particular things he does, and the degree to which, and the object with which, he does them..... in my opinion, neither the assessee's activities on the race course itself nor his betting can, on the facts of this case,...... be held to constitute a 'business'. They certainly do not, in my opinion, constitute a 'profession' or a 'vocation' and, though in a sense they engage part of their owner's time, they equally do not constitute his 'occupation' . . . in its context used in this Act. " (Underlining is mine). On the question of casual and non-recurring, the learned judge held that betting transactions had nothing of a recurring nature about them. "It was not its nature to recur. If it did in fact recur with great frequency it might on that account become a 'business'. It may be true that, in fact, these bets did recur. But that was not the result of the 'nature' of the transaction but of the mere spasmodic volition of the assessee. They were not, to my mind, of a recurring 'nature'...... I think also, upon this line of reasoning, that they were 'casual'---'casual' in the sense that they were merely ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce at a meeting of a company, was able to secure a substantial issue of new shares for the public, and a firm of stock-brokers who were benefited by what that lawyer had achieved, though not at their request, nor directly on their behalf, gifted Rs. 10,000, and it was held that the income arose from the exercise of his profession as a lawyer (vide In re Susil C. Sen). Similarly, in David Mitchell v. Commissioner of Income-tax, the Calcutta High Court, following Susil Sen's case, held, that a partner in a firm of chartered accountants who had received an unsolicited gift from the promoter of the company was a receipt which was assessable as it was in the ultimate analysis by way of an appreciation of the professional services rendered by such accountant. On the other side of the line is Shiner v. Lindblom. It was pointed out by Danckwerts J. that merely because the profession or calling affords the opportunity of earning the receipt does not necessarily make such receipt one arising from the exercise of that profession or occupation. In this connection it was observed : " It seems to me that it may well be that his position as an actor in this case enabled him to dispose of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hen a view in favour of the assessee can reasonably be taken. It is quite conceivable that, under conditions in which the rates of taxation rise steeply as the amount of income goes up, an assessee may not consider it at all worth his while to make or accept a casual assignment if he knew that the receipt therefrom will all but be swallowed up in the shape of tax. The legislature, on the other hand, is expected to make its intention clear in its enactments, so that citizens governed by the law enacted may know the law with reasonable certainty and adjust their affairs accordingly. The provisions of section 4(3)(vii) of the Income-tax Act, 1922, are certainly so worded that anyone would, on a cursory reading of the provisions, conclude that, unless a casual, solitary, and non-recurring receipt is referable to the exercise of a profession, vocation, or occupation, an item of income falling under the head of casual and non-recurring receipt is exempt from income-tax. I have already indicated that, upon the peculiar facts of this case, I consider that the receipt of Rs. 20,000 by the assessee was an item of a casual and non-recurring income. For the reasons given above, I would answer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10(3) of the Act of 1961, section 4(3)(vii) of the Act exempts from the purview of total income "any receipts which are of a casual or non-recurring nature". The characteristic which appears to be necessary for obtaining an exemption is that the receipt should be of a casual and non-recurring nature, unless of course it is shown by the department that the receipt is taxable for other reasons notwithstanding its casual and non-recurring nature. In other words, the burden of bringing the receipt within an exception to the exemption, which the receipt obtains by proof of its casual and non-recurring character, is on the department. The primary condition for obtaining the exemption is that the assessee should prove its casual and non-recurring character. After that, the department must, on the evidence on the record, prove the receipt to result from the exercise of a profession, vocation or occupation. The question of burden of proof is of importance only if evidence is meagre or if there is some uncertainty about facts because evidence on the two sides is equi-balanced. In the case before us, there is no dispute about facts which are quite clear. If, however, after examining the admit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pressure and the claim of public interest which was placed before him in order to induce him to accept the arbitration. The resulting financial gain, in such a case, does not appear to me to stand on a footing other than that of a casual receipt. Whatever doubts I had on this question have certainly been cleared by the judgment of my learned brother, Manchanda, which I have had the advantage of going through. I, very respectfully, concur with the view he has taken on this question and consider that the more correct of two possible opinions is that the receipt in this case was of a casual and non-recurring nature. As already indicated, the main question argued before us was whether the assessee could be said to be exercising a profession, vocation, or occupation in acting as an arbitrator in the circumstances set out very fully in the judgment of my learned brother. No decision was cited before us which could completely cover the case of the assessee. Learned counsel for the department, however, placed great reliance on Commissioner of Income-tax v. V. P. Rao. That was a case of a retired High Court judge. It was stated, at the outset of the judgment in the case, that the retired ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h great respect for the view taken by the Madras High Court, we find it difficult to understand why the legislature took the trouble of laying down that it was a receipt arising only from "the exercise of profession, vocation or occupation" which was not covered by the exemption clause, if it intended to take away the character of an exemption from all receipts resulting from the use of human skill, intellectual effort, or activity of any kind. The Income-tax Act contains technical concepts in words which have special legal connotations. If no such connotation was intended, the most obvious way of expressing the intention was to lay down that only receipts which are not the result of expenditure of appreciable time and effort are exempt from the purview of taxable income. We, however, find that the legislature has taken care to exempt receipts which are casual and non-recurring in nature unless they are shown to be related to or resulting from "the exercise of a profession, vocation or occupation". The terms "profession" and "vocation" are definitely used in law for a calling or the principal occupation on which one generally depends for one's livelihood. Even if the term "occupati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heir Lordships, however, came to the conclusion that there was neither any want of system, nor of continuity in the activities of the assessee. After that, they observed that the name by which such activity was called was immaterial and that the real question to be decided was whether the gain which the activity had brought to the assessee was income or not. It was held there that the fact that the receipt was related to and resulted from the vocation adopted and carried on by the assessee was enough to make the receipt part of taxable income. I find it difficult to apply this case, the facts of which are so very different, to the case of the assessee before us. If, on the facts of the case stated, we are unable to hold that the assessee was carrying on the profession of an arbitrator or pursuing a vocation or occupation which may be described as that of an arbitrator, the above-mentioned Supreme Court decision could not help the department. It was contended that P. Krishna Menon's case should enable us to hold that the assessee in the present case had the occupation of an arbitrator. I do not think that the reasoning of P. Krishna Menon's case could apply to the case of a High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... effect of making it quite unnecessary to prove either any system or continuity or organisation or the intention with which an activity was carried on. Speaking for myself, I have no doubt whatsoever in my mind that the Supreme Court did not mean to lay down any such proposition as a principle to be deduced from its decision. The ratio decidendi of that case was simply that, upon the facts proved there, the assessee was actually carrying on the profession, vocation or occupation which produced the income to be taxed. I may point out that, immediately after the observation quoted above, relied upon so much on behalf of the department, occurs the following passage ending with the conclusion towards which all the observations of their Lordships of the Supreme Court were directed in the particular paragraph of the judgment in P. Krishna Menon's case : " The observation of Rowlatt J. in Stedeford v. Beloe to which we were referred by Mr. Sastri, that there could be no tax on pension granted to a retired headmaster as 'there is no background of business in it', was clearly not intended to lay down that without a profit motive there can be no business, profession or vocation. The pension ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tration. The line of reasoning adopted by the Tribunal overlooks the distinction, rightly borne in mind by the Assistant Appellate Commissioner, between the assessee's functions as a High Court judge and the work of arbitration. The Appellate Assistant Commissioner had, quite correctly, pointed out that the Income-tax Officer had erred in holding that the award was given by the assessee "as Chief Justice working in a judicial capacity". It is surprising that the Appellate Tribunal should have repeated a very obvious error of the Income-tax Officer, albeit, in an attenuated form. The Income-tax Officer seems to have thought that it was part of the judicial functions of the Chief Justice to arbitrate generally, but the Tribunal apparently held the view that arbitration was inextricably "connected" with the judicial functions of the assessee. The mere fact that arbitration is work of a judicial character, for which a lawyer and judge may be specially qualified and suited, could not either make it part of the duties of the holder of a judicial office or fuse or integrate one with the other. In fact, arbitration is undertaken by persons who function completely outside the course of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eholder. It may be that the payment was made without a stipulation or contract for it. Nevertheless, the payment was, in fact, held to constitute a reward for services of a member of the legal profession acting in exercise of his vocation or occupation. The work done by Mr. Sen was assimilated with and held to constitute a part of his professional activities. It was not a case in which the very existence of the profession, vocation or occupation, which resulted in some income, was a matter of doubt or uncertainty at all. Another case cited was : Rajagopalachariar v. Commissioner of Income-tax. Here, the number of occasions on which the assessee had given talks on the All India Radio was held to be sufficient to convert the activity into a vocation. It was also held there that the assessee could have more than one vocation within the meaning of section 4(3)(vii) of the Act. Nevertheless, the acquisition of the profession, vocation or occupation which gives rise to the particular item of income sought to be taxed has to be proved. Just as, to quote a proverb, "one swallow does not make a summer". I do not think that "a single plunge into the waters of profession", as my learned brot ..... 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