2008 (2) TMI 651 - AT - Income Tax

Nature of income - Gifts received on his 80th birthday made by the followers - without being under any contractual or legal or customary obligations - benefit or perquisite arising out of exercise of business or profession u/s 28(iv) - assessee submitted that, prior to this in assessment year 1975-76 similar gifts were received and which were held as exempt by the Department in the hands of the assessee - HELD THAT - In the present case there is no intention of circumvention of income on the part of assessee or receiving income in other forms, hence, provisions of section 28( iv ) of the Act cannot be applied. We would further like to add that the term perquisite as per Blacks Law Dictionary means privilege or benefit given in addition to one salary or regular wages which means that it is an additional benefit and not a complete substitution of one s income. As stated earlier that assessee has never charged any consideration from his followers, hence, on the basis of above meaning it cannot be termed as benefit or perquisite within the meaning of section 28( iv ) of the Act. There is one more reason which we would like to specifically mention i.e., that the assessee has taken gift earlier only once and that too some 25 years back and at that time, the department has not charged the same to tax in completing the assessment proceedings under section 143(3) of the Act and during those assessment proceedings, the then followers who made the gifts clearly stated that those gifts had been given out of personal regard and respect to the qualities of the assessee. In this year also, the same is the position and the Revenue has not brought on record any material to prove otherwise. Thus, we hold that these gifts are not of the nature of any benefit or perquisite as contemplated under section 28( iv ) of the Act. Accordingly, we delete the addition made by the Assessing Officer. In the result, appeal filed by the assessee stands allowed.

Summary

Issues Involved:
1. Classification of gifts received by the assessee as income from business and profession.
2. Applicability of section 28(iv) of the Income-tax Act to the gifts received.

Issue-wise Detailed Analysis:

1. Classification of Gifts as Income from Business and Profession:
The primary issue in this appeal is whether the gifts amounting to Rs. 1,22,70,795 received by the assessee on his 80th birthday should be classified as income from business and profession. The assessee, a well-known social reformer and philosopher, argued that these gifts were voluntary and given by his admirers and well-wishers in recognition of his personal qualities and noble thoughts, and thus should be exempt from tax. The Assessing Officer, however, treated these gifts as income from profession, relying on the decision of the Hon'ble Allahabad High Court in the case of Addl. CIT v. Ram Kripal Tripathi, which held that conducting spiritual discourses amounted to a vocation. The assessee countered this by citing the decision of the Hon'ble Bombay High Court in the case of Dilip Kumar Roy v. CIT and the Hon'ble Supreme Court in Mahesh Anantral Pattani v. CIT, arguing that the gifts were not received in the course of practicing any profession or vocation.

2. Applicability of Section 28(iv) of the Income-tax Act:
The Revenue Authorities applied the provisions of section 28(iv) of the Income-tax Act, which states that any benefit or perquisite arising from the exercise of business or profession would be treated as income. The Assessing Officer compared the facts of this case to those in P. Krishna Menon v. CIT, where teaching Vedanta was considered a vocation and benefits received in that context were taxable. However, the assessee argued that his movement, Swadhyaya, was not a vocation but a lifelong cause for the upliftment of masses, and he never charged any fee or remuneration for his teachings. The Tribunal noted that the gifts were not made under any contractual, legal, or customary obligations and did not constitute consideration for services rendered. Therefore, these gifts could not be treated as income arising out of carrying a vocation.

The Tribunal further elaborated that not every receipt constitutes income under the Income-tax Act, and the gifts in question did not fall under the specific charging provisions of the Act. The Tribunal referred to the case of Helios Food Improvers (P.) Ltd. v. Dy. CIT, explaining that the terms 'benefit' and 'perquisite' used in section 28(iv) refer to specific situations where the receipt inherently has the attributes of income. The gifts received by the assessee did not meet these criteria, as they were not given in lieu of services rendered but out of personal regard and respect.

Additionally, the Tribunal noted that the assessee had received similar gifts 25 years prior, which were not taxed by the department, and the nature of those gifts was established as being out of personal regard. The Tribunal concluded that the gifts received on the assessee's 80th birthday were not in the nature of any benefit or perquisite as contemplated under section 28(iv) of the Act and thus should not be treated as taxable income.

Conclusion:
The Tribunal held that the gifts received by the assessee on his 80th birthday were not taxable as income from business or profession under section 28(iv) of the Income-tax Act. The appeal filed by the assessee was allowed, and the addition made by the Assessing Officer was deleted.