TMI Blog1974 (12) TMI 18X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessee, viz., Mehboob Productions Private Ltd. is, as its name indicates, a private limited company which, at all relevant times, was doing business in production of films. We are concerned in this reference with the assessment year 1959-60, the corresponding previous year being the year ended 30th September, 1958. Sometime in 1957, the assessee-company completed the production of a film entitled Mother India. In that very year, i.e., in 1957, it was awarded a certificate of merit (presumably by the Government of India), and the assessee-company preferred a claim before the State Government that the picture should be declared as " exempt from entertainment duty " and that as producer of that picture it was entitled to that portion of the proceeds of the exhibition of the film which represented entertainment duty. The claim of the assessee was accepted by the then Government of Bombay on 25th October, 1957, and in pursuance of that decision the assessee-company recovered from the various exhibitors and theatres in the then State of Bombay the aggregate amount of Rs. 10,67,212 being the amount these exhibitors and theatre-owners had collected by way of entertainment duty in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st May, 1958, has been annexed as annexure " E " to the statement of the case. The assessee-company accordingly claimed the whole of the expenditure of Rs. 33,667 as a proper deduction in determining its profits for the assessment year. The Income-tax Officer rejected both the claims made by the assessee-company. He included the amount of Rs. 10,67,212 in the assessee's total income and rejected its claim for the deduction of Rs. 33,667 invoking the provisions of section 10(4A) of the Act. According to the Income-tax Officer, the amount of Rs 10,67,212 constituted receipts on account of the assessee's venture of film production which was their normal business, and accordingly the said amount had to be treated as trading receipts in the hands of the assessee. According to him, further, the assessee was getting regular receipts out of the proceeds of the picture and since receipts were being received as part of the assessee-company's business, the same were neither casual nor non-recurring. Accordingly, the assessee-company's claim to exemption under the provisions of section 4(3)(vii) of the Act was also rejected. The Income-tax Officer further held that the amount spent for the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amount received by the assessee-company from its trading activity. According to the Tribunal, this was not a case where the amount was received without any reference to the business, profession or vocation of a person. The amount was " related to a picture which was essentially a commercial commodity produced in a commercial manner. It has, therefore, no aspect of a personal testimonial which could be linked to personal qualities which had nothing to do with business, profession or vocation ". According to the Tribunal, " to all intents and purposes, the amount seem to us to be in the nature of production bonus, the emphasis in this case being not on the production of quantity but production of quality ". In the view that it took, viz., that the amount was related to the company's business of producing films, which, in the view of the Tribunal, would include production of good films, the assessee was not entitled to claim exemption in respect of the said amount under the provisions of section 4(3)(vii) of the Act. Thus, the Tribunal was of the view that the amount was rightly included in the assessee's total taxable income. As regards the medical expenses, the Tribunal accep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e department itself which are to the effect that Mehboob Khan was the driving force of the company and that there was nothing unbusinesslike or abnormal in the company bearing the expenses of medical treatment of a person who meant so much to the company. Now, the question which we have to consider is whether with these findings there was any justification for disallowing 1/3rd of the expenses of the director on the footing or on the basis that the Tribunal has chosen to adopt. In my opinion, once having accepted that it was on the principle of commercial expediency that the company had resolved to reimburse such expenses to the director who was admittedly the driving force of the company, it would not be open to the Tribunal to disallow a portion of such expenses on the footing that it has done. It must be noted in connection with this point that it was not the revenue's case that any part of the expenses claimed was not satisfactorily proved or that the 1/3rd which was disallowed was such amount found to be excessive or unreasonably incurred. We must proceed upon the footing that the entire amount which had been agreed to be reimbursed represented the expenses which in fact had b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would seem to be that in view of the facts and conclusions arrived at by the Tribunal regarding the basis on which the resolution (annexure " E " to the statement of case) was passed by the assessee-company, the entire amount of medical expenses occasioned by Mehboob Khan's illness which were borne by the assessee-company pursuant to this resolution, is liable to be allowed on the footing that the decision to reimburse was taken on the principle of commercial expediency and that no part of such expenses was held to be not proved or arbitrarily excessive or unreasonable. This brings us to a consideration of question No. 1. Two points arise for determination in order to give our answer to this question. The first is whether the various amounts received by the assessee-company and aggregating to Rs. 10,67,212 should be held to be the income of the assessee as defined in section 2 of the Act ; and the second aspect is whether such income is exempt from taxation on the ground that it falls under section 4(3)(vii) of the Act. However, before considering the statutory provision and the mass of legal authorities pertaining to these statutory provisions, it appears to be worthwhile to re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oes on to say that " such exemption " should be granted to those films : (i) which have won the President's Gold Medal, or (ii) which after a careful scrutiny and to the satisfaction of Government are likely to fulfil some educational or social purpose of a high order, e.g., films devoted wholly or mostly to the cause of eradication of untouchability or of the inculcation of temperance. The intention of the Government in handing over a portion of the proceeds of the exhibition of the film which represented entertainment duty to the producer is also made clear in the said notification, and the intention was " to encourage the production of films which are technically of a sufficiently high quality, and, in addition, serve a high social purpose, by assisting the producer in financing their similar subsequent ventures ". The notification indicates that there was some existing ad hoc procedure, which procedure was required to be modified inasmuch as the said existing procedure entailed considerable lapse of time which resulted in the producers being unable to take advantage of the decision to exempt their films. It appears that on 5th October, 1957, the assessee-company wrote a letter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... standard so that it may be eligible for a possible grant by the Government under the scheme for exempting suitable pictures from entertainment duty was untenable and farfetched. Further, the award was purely voluntary and there was no obligation on the part of the Government of Bombay to grant exemption nor was the assessee-company legally entitled to demand such exemption or, even after the decision was taken, to enforce any rights against the Government. According to the assessee, it was entirely a matter for the discretion of the Government to decide whether a particular film producer should be the recipient of its largess, and it was fully competent to accept any application of a producer or reject it, or even to accept or reject the recommendation of its Films Advisory Committee ; and, according to the assessee, it was equally open to the Government to withdraw the so-called exemption at any time and require payment of entertainment duty to itself. It is clear from a fair perusal of annexures " A " and " A-I " that the so-called exemption was by way of making a grant or an award to deserving producers to give them financial assistance for producing films of high quality and su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncludibility in the total income of the person receiving them of " 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 ". It is well settled that the onus to establish a claim as one falling within this exemption would be on the assessee and it is equally clear that for such purpose it would be necessary for the assessee to establish that these receipts cannot be considered to be receipts arising from its business and further that such receipts are of a casual and non-recurring nature. But, before proceeding with the consideration of the assessee's claim to exemption under section 4(3)(vii) of the Act, it becomes necessary to consider its claim that the amount of Rs. 10,67,212 does not constitute its income. The expression " income " has been considered in several cases and it will now be proper to refer to and discuss some of them. I would first refer to Commissioner of Income-tax v. Shaw Wallace Co. [1932] 2 Comp Cas 276, 280 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anshi Mill's case [1952] 22 ITR 484 (SC) the Supreme Court was considering the case of the assessee-company which had insured its mills with a certain insurance company and had also taken out certain policies known as " consequential loss policies " which insured against loss of profits, standing charges and agency commission. The mills were completely destroyed as a result of fire. The question was whether an amount paid to the assessee by the insurance company which was treated as paid on account of loss of profits was assessable to income-tax. It was held that the amount received by the assessee was income and was so taxable ; and in this connection reference was made to the observations of the Privy Council which pertained to income being a periodical monetary return coming in with some sort of regularity or expected regularity. In the opinion of the Supreme Court even though the payment to the assessee-company before it (Raghuvanshi Mills) had a non-recurring aspect, still it was an item of income in any normal sense of the term ; it was money received by the assessee for loss of profits, as opposed to loss of capital, and it was inseparably connected with the ownership and co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Allahabad High Court was considering certain regular payments received by the assessee from the Ruler of Kalsia State and the Maharaja of Nabha State : she was the wife of the Kalsia Ruler and the sister of the Maharaja of Nabha. It was held ultimately that the allowances received by the assessee from the Kalsia State were remittances from her husband and were taxable as income. As the assessee was residing at Dehra Dun in British India, it was further held that the accrual to the assessee was in British India. It was also held that there was no evidence in the case to show that the payments made by the Nabha State were attributable to any custom, usage or traditional obligation and there was consequently no origin for the payments which could amount in its nature to a definite source so as to render such payment " income " and not merely a casual or annual windfall. It was accordingly held that the payments received by the assessee from her brother (Nabha State) were not income and were not assessable to income-tax. After considering certain English authorities ; Braund J. observed as follows [1946] 14 ITR 561, 574 (All) [FB] : " The conclusion, therefore, I have reached ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tention, holding that it could not be said that there was no source for the income. According to that High Court, the payments were being made " by virtue of an arrangement which, as mentioned in the letter dated 15th May, 1963, was of such a nature that the Government of India considered themselves bound to honour and which the assessee expected the Government of India to honour. No doubt, every time the payment that was made was gratuitous payment in the eye of law, but it was expected that such payment was to be made annually ". In this view of the matter, the payments were held to be income liable to taxation unless the assessee was able to show that it fell within one of the exemptions provided under the Act. It may be mentioned that the judgment subsequently goes on to consider the claim of the assessee for exemption under section 4(3)(vii) of the Act, which claim was upheld. That portion of the judgment may be usefully referred to later on since it deals with the second aspect involved in this question. Our attention was drawn by the learned counsel for the revenue to a decision of the Allahabad High Court in Commissioner of Income-tax v. Smt. Shanti Meattle [1973] 90 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e receipt and the true scope and effect of the relevant taxing provision. " Thus, it is clear that all receipts by the assessee would not necessarily be deemed to be income of the assessee and the question as to whether any particular receipt is income or not will have to be determined depending upon the nature of the receipts and the true scope and effect of the relevant taxing provision. This brings me to the consideration of a decision of the Bombay High Court, viz., H. H. Maharani Shri Vijaykuverba Saheb of Morvi v. Commissioner of Income-tax [1963] 49 ITR 594 (Bom). The High Court in that case was considering a monthly allowance jiwai made by the Ruler of a Native State to his father who had earlier abdicated in the son's favour. The allowance was not paid under any custom or usage. It could not also be regarded as maintenance allowance, as the assessee possessed a large fortune. Following Rani Amrit Kunwar's case [1946] 14 ITR 561 (All) [FB] and beating in mind the fact that the payments were commenced long after the Ruler had abdicated and that they were not made under a legal or contractual obligation nor under any custom or usage, it was held that they were not assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee was to be paid Rs. 1,000 per month by one of the companies and 20 per cent. of the profits of another company for services to be rendered by her. The amounts were disallowed as expenditure in the assessments of the two companies. It was found that the assessee in fact rendered no services to the two companies. The assessee contended that inasmuch as the payments had been held to be gratuitous, they did not constitute " income ". This contention was rejected by the Gujarat High Court, which held that although no services had been rendered by the assessee to the companies concerned, the payments were received periodically and arose from a definite source ; the amounts received were, therefore, income. In the other decision, viz., in Princess Ruby Rajiber Kaur's case [1967] 641 ITR 624 (Punj) the assessee was the married daughter of the late Maharaja of Jind and was receiving an annual allowance in lieu of dowry. The payment had been stopped twice by the Pepsu Government but, on representations made to the Government of India, a lesser allowance than originally fixed was directed to be paid together with all arrears. The question was whether this amount was liable to be t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cement can be secured by the payee in a court of law. However, as indicated by Braund J. in Rani Amrit Kunwar's case [1946] 14 ITR 561 (All) [FB], a receipt must be one having the character of income according to the ordinary meaning of that word in the English language and not one which is in the nature of a windfall. The expression " windfall " had also been earlier used by Sir George Lowndes J. in Shaw Wallace Co.'s case [1932] 2 Comp Cas 276 ; AIR 1932 PC 138. The result of all this discussion is that in order to constitute " income ", the receipt must be one which comes in, (a) as a return, and (2) from a definite source. It must also be of the nature which is of the character of income according to the ordinary meaning of that word in the English language and must not be one of the nature of a windfall. At this juncture a few words are necessary in order to appreciate the true nature of what, according to me, would be a " windfall ", having relevance to the question being considered by us. In the Oxford English Dictionary, volume II, the word " windfall " has been given the meaning of a casual or unexpected acquisition or advantage. Now, it has to be made clear that when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee also appears to be implicit in the aspect of a " return ". Now, it must be made clear that when we talk of return in the context of this aspect of the question, we are not considering the return on any outlay or investment made by the assessee in the sense of capital employed. This may be one of the ways of securing a return, but not the only way. But, return will involve conscious outlay of resources or of effort or of talent. It is the consciousness of the effort made which invests the receipt with the character of a return and removes it from the category of a windfall. Mr. Joshi, on behalf of the revenue, urged that the receipts in the present case are receipts arising from business and even if in the nature of a windfall they would still be income and liable to tax unless the assessee can satisfactorily show that the income fell within the exemption. Alternatively it was submitted that even assuming that the receipts cannot be said to directly arise from the business of the assessee, the receipts in the present case are attributable to a definite source, viz., the Government notification, dated 25th October, 1957, and the various orders passed thereunder. Accordingly, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iz., these activities, and, therefore, would satisfy both the requirements as postulated by me. These receipts were in the nature of a return as also from a definite source. In the ordinary parlance these receipts would comprise the assessee's income from racing and betting activities. As indicated above, if these activities had been embarked upon with the hope of earning some money therefrom, the receipts could not be properly regarded as a windfall in the limited sense of the term " windfall " that I have enunciated. There was a definite expectation of an income, and it is irrelevant to consider whether in fact such expectation was based on a sound or unsound foundation. The above decision of the Madras High Court, therefore, really does not help Mr. Joshi. Mr. Joshi also referred us to and relied on the case decided by the Calcutta High Court in In re Susil C. Sen [1941] 9 ITR 261 (Cal). In that case the assessee, an attorney and advocate, acting for a shareholder of a limited company, interviewed the managing agents of the company, attended a meeting of the shareholders of the company as a proxy, made a speech at the meeting and secured a substantial issue of new shares to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the local diocesan council which reserved to itself the entire control over the apportionment and distribution of grants and the right to consider all the circumstances of the cases where applications were made to it for grants from the fund. The assessee had applied for and received the grant from the fund each year since its institution. It was held that the payments received by the assessee were chargeable as they must be deemed to have accrued to him by reason of his office. According to the Master of the Rolls a payment may be liable to income-tax although it is voluntary on the part of the persons who make it, and that the test is whether from the standpoint of the person who receives it, it accrues to him in virtue of his office ; if it does, it does not matter whether it was voluntary or whether it was compulsory on the part of the persons who paid it. That seems to me to be the test ; and if we once get to this---that it has come to him by virtue of his office, accrued to him in virtue of his office---it seems to me that it is not negatived, that is not impossible merely by reason of the fact that there was no legal obligation on the part of the persons who contributed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thout any default on the part of the assessee (see clause 4 of annexure A-1) would not be sufficient to disentitle the receipts from being considered as income. It is true that the object of the subsidy was to assist the producers (as annexure " A " shows) and to encourage future production of films of sufficiently high quality and which served a high social purpose. Bearing the factual position in mind, which has been indicated earlier, in this judgment, I would hold that these receipts do not partake of the element of a return which is necessary for it to constitute income, and further that it was of the nature of a windfall---a windfall as to the factum and not a windfall as to mere quantum. On both the counts, therefore, the answer to the question whether these receipts constitute income of the assessee must be in the negative and in favour of the assessee, viz., that they did not constitute income. To turn again to the test of the ordinary connotation of the word " income ", the proper approach to the question would be to regard the amount received by the assessee as some sort of a subsidy, subvention or grant given to them to encourage them to produce similar good pictures ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exemptions, it would be necessary for them to show that the receipts received by them by way of collection of entertainment duty aggregating to Rs. 10,67,212 were of a casual and non-recurring nature and that they did not arise from their business ; the other three conditions indicated above do not arise for consideration in this case. The Bombay High Court had occasion to consider the applicability of section 4(3)(vii) of the Act to a prize secured by a firm of architects in Parelkar Gore and Parpia v. Commissioner of Income-tax [1958] 34 ITR 312 (Bom). The assessees, who were practising architects, had submitted plans to the All India Medical Institute, Delhi, for the construction of a medical centre. This was pursuant to an advertisement given by the Ministry of Health publicising an architectural competition for the designing of the institute's building, for which three prizes of Rs. 50,000, Rs. 25,000 and Rs. 10,000, respectively, were offered, of which the assessees secured the third prize. It was made clear that the first prize would be merged in the fees of the architects which would be eventually paid to the architects who secure the first prize and who would be entrust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the court was whether the receipts from L constituted the appellant's income taxable under the Travancore Income-tax Act, 1121 (which was identical with the Indian Income-tax Act, 1922). The court held that the teaching was a vocation, if not a profession, and teaching Vedanta was just as much teaching as any other teaching, and, therefore, a vocation. It was observed that in order that an activity might be called a vocation it was not necessary to show that it was an organised activity and that it was indulged in with a motive of making profit. It was held further that imparting of the teaching was the causa causans of the making of the gifts by L, that it was impossible to hold that the payments to the appellant-assessee had not been made in consideration of the teaching imparted by him, and that, therefore, the payments were income arising from the vocation of the appellant-assessee. In this view of the matter it was held that the payments made by L were the assessee's income arising from a vocation, and no question of exemption under section 4(3)(vii) of the Act arose. It is important to note---and that is also a distinction which the learned counsel for the assessee befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... son for the receipt. Even if the scheme of selection is not to be ignored, in a broad sense, the amount is a combined result of the assessee producing the film of a high standard, the film being recommended for exemption by the films advisory committee and the recommendation being accepted by the Government of Bombay. In that sense also the production of a film of an excellent standard by the assessee must be regarded, bearing in mind the decision in P. Krishna Menon's case [1959] 35 ITR 48 (SC), substantially as the causa causans of the giving of the amount. It had been urged by the learned counsel for the revenue that the receipt which is referable to the assessee's business, and in view of the decision in Krishna Menon's case [1959] 35 ITR 48 (SC) it must be held that it is so referable, must be considered to be income in the normal parlance ; and as it does not qualify for exemption under section 4(3)(vii) of the Act, it must be held to be taxable income. As indicated earlier, what is exempt under section 4(3)(vii) of the Act are receipts of a particular nature ; and as explained by the Supreme Court in Dooars Tea Company's case. [1962] 44 ITR 6 (SC), all receipts are not inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the receipt in the case before him could be treated as " casual and he proceeded to set down a definition of the word " casual " to be found in the third edition of Webster's New International Dictionary, which was as follows : " ' Subject or produced as a result of chance ; without design ; not resulting from plan ; without specific motivation, special interest or constant purpose ; without foresight, plan or method ; occurring, encountered, acting, or performed without regularity or at random ; occasional." Beg J., after considering the facts of the case before him, agreed with Manchanda J. that the receipt by the assessee was of a casual and non-recurring nature. It may be mentioned that in H. H. Maharaja Rana Hemant Singhji's case [1971] 79 ITR 83 (Raj), referred to earlier in this judgment, the payments to the Dholpur Ruler were held by the Rajasthan High Court as casual and non-recurring in nature inasmuch as they depended on the goodwill of the Government of India. It is, however, to be noted that in that case it was expressly held that there was no question of the amount of receipts received by the assessee having arisen from business or exercise of a profession, v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , not a windfall in regard only to the extent or quantum of what is received. It has been clarified by the Privy Council in the said case that the words " profits and gains " do not add anything to the amplitude of the concept of " income ". The definition of " income " given by the Privy Council in Shaw Wallace's case [1932] 2 Comp Cas 276 ; AIR 1932 PC 138 has, however, in course of time, undergone some trimming by later decisions. The Supreme Court has in the case of Raghuvanshi Mills Ltd. v. Commissioner of Income-tax [1952] 22 ITR 484, 489 (SC) taken the view that it is not necessary and could not have been intended to be laid down by the Privy Council in Shaw Wallace's case [1932] 2 Comp Cas 276 ; AIR 1932 PC 138 as a general proposition that the return must come in with regularity or expected regularity. The element that the receipt must be something that is expected is, however, implicit in the very concept of a " return ", as well as in the requirement that it must not be something in the nature of a " windfall ", and that, therefore, still remains as one of the ingredients of " income ". This court, in the case of H. H. Maharani Shri Vijaykuvarba Saheb of Morvi v. Comm ..... X X X X Extracts X X X X X X X X Extracts X X X X
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