1966 (5) TMI 13 - SC - Income Tax

Whether an advocate of the High Court of Bombay is liable to pay income-tax on his receipts? Held that - The receipts were not chargeable to tax either under the head of professional income or under the residuary head. It was not said that the receipts might be brought to tax under any other head. In our opinion, therefore, the receipts were not chargeable to tax at all. Appeal allowed.

Summary

Issues Involved:
1. Whether the professional income received after discontinuance of the profession is assessable to income-tax under Section 10 or Section 12 of the Indian Income-tax Act, 1922.
2. Whether the income falls under the residuary head of "Income from other sources" if it cannot be taxed under the head of "Profits and gains of business, profession or vocation."

Issue-wise Detailed Analysis:

1. Assessability of Professional Income Post-Discontinuance under Section 10:
The primary issue was whether the professional income received after the discontinuance of the profession could be assessed under Section 10 of the Indian Income-tax Act, 1922. The assessee, an advocate, ceased practicing his profession upon his appointment as a judge. His accounts were maintained on a cash basis, and the income in question was received in the years 1958 and 1959 for services rendered before his appointment.

Key Observations:
- Section 10(1) states that tax is payable on "profits and gains of any business, profession or vocation carried on by him."
- The Court noted that for Section 10 to apply, the profession must have been carried on at any time during the previous year. Since the assessee did not practice his profession at any time during 1958 and 1959, the income could not be assessed under Section 10.
- The Court referenced previous judgments, including Commissioner of Income-tax v. Express Newspapers Ltd., which supported the conclusion that income from a profession not carried on during the previous year is not chargeable under Section 10.

2. Inclusion under the Residuary Head of "Income from other sources" (Section 12):
The next issue was whether the income could be taxed under the residuary head of "Income from other sources" if it could not be charged under Section 10.

Key Observations:
- Section 6 of the Income-tax Act, 1922, specifies six heads of income, which are mutually exclusive.
- The Court held that if an income falls under a specific head, it cannot be brought under the residuary head merely because it cannot be taxed under the corresponding computing section.
- The Court rejected the revenue's argument that the income should be taxed under the residuary head if it cannot be taxed under Section 10. The heads of income must be determined by the nature of the income, not by the timing of its receipt.
- The Court emphasized that Section 12 applies only to income not included under any of the preceding heads. Since the income in question was professional income, it could not be brought under Section 12.

Judge Bachawat's Separate Judgment:
- Judge Bachawat concurred with the majority on the principle that the income could not be taxed under Section 10 as the profession was not carried on during the relevant years.
- However, he diverged by concluding that the income should be assessable under Section 12. He argued that Section 12 covers "income, profits and gains of every kind" not included under any of the preceding heads, and since the income was not assessable under Section 10, it must fall under Section 12.
- He referenced various legal precedents and statutory interpretations to support his view that the income received post-discontinuance should be taxed under the residuary head.

Conclusion:
The majority judgment concluded that the professional income received after the discontinuance of the profession was not chargeable to tax under either Section 10 or Section 12. The appeals were allowed with costs. Judge Bachawat, in his separate judgment, opined that such income should be assessable under Section 12, but this view did not prevail. The final order was in accordance with the majority judgment, allowing the appeals with costs.