1989 (7) TMI 59 - HC - Income Tax

Summary

Issues Involved:
1. Applicability of Section 176(4) of the Income-tax Act, 1961.
2. Taxability of professional receipts received after discontinuance of profession.
3. Interpretation of legal fictions and their scope.

Summary:

1. Applicability of Section 176(4) of the Income-tax Act, 1961:

The primary issue was whether the assessee's professional receipts were assessable u/s 176(4) of the Income-tax Act, 1961, for the assessment years 1968-69 and 1969-70. The Tribunal held that the sums received by the assessee as arrears of professional fees were not taxable under section 176(4) of the Act. The Tribunal reasoned that section 176(4) creates a fiction by which sums received after the discontinuance of the profession are deemed to be income, but it does not further deem such income to be from the profession. This interpretation was supported by the Supreme Court's decision in Nalinikant Ambalal Mody v. S. A. L. Narayan Row, CIT [1966] 61 ITR 428.

2. Taxability of Professional Receipts Received After Discontinuance of Profession:

The assessee, who had retired as a judge, received arrears of professional fees for services rendered before his elevation to the Bench. The Income-tax Officer charged these sums to tax u/s 176(4), but the Appellate Assistant Commissioner and the Tribunal held in favor of the assessee, stating that section 176(4) did not apply. The Supreme Court's decision in Nalinikant Ambalal Mody was cited, which held that professional receipts received after discontinuance of the profession were not chargeable to tax under the head "Profits and gains of business or profession" or "Income from other sources."

3. Interpretation of Legal Fictions and Their Scope:

The court emphasized that the fiction created by section 176(4) is limited and cannot be extended to deem such receipts as income from the profession carried on during the relevant year. The court referred to the Supreme Court's caution against stretching legal fictions beyond their intended purpose, as seen in CIT v. Ajax Products Ltd. [1965] 55 ITR 741 and CIT v. Amarchand N. Shroff [1963] 48 ITR (SC) 59. The court concluded that section 176(4) does not introduce a further fiction to treat the receipts as income from the profession for the relevant year, and thus, such receipts cannot be taxed under section 28 or section 56 of the Act.

Conclusion:

The court answered the reference in the affirmative and in favor of the assessee, holding that the professional receipts received after discontinuance of the profession were not taxable under section 176(4) of the Income-tax Act, 1961. There was no order as to costs.