1977 (7) TMI 70 - AT - Income Tax

Summary

Issues Involved:
1. Classification of income from paying clinics.
2. Allowance of expenditure claimed by the assessee.
3. Levy of interest under section 217.

Issue-Wise Detailed Analysis:

1. Classification of Income from Paying Clinics:

The primary issue was whether the income derived from the paying clinic should be taxed under the head 'Salary' or 'Profits and gains of profession'. The Revenue argued that the income should be classified as 'Salary', contending that the assessee, a professor of medicine, remained an employee of the government even while working in the paying clinic and thus, the income earned was akin to salary. The Revenue cited the case of CIT vs. Mrs. Durga Khote to support their argument that the assessee had exchanged his profession for service.

Conversely, the assessee contended that the income from the paying clinic was derived from the exercise of his profession and not from his employer. The assessee argued that the introduction of the paying clinic scheme merely rationalized private practice and did not alter the nature of the income. The assessee supported this claim by referencing the case of Dr. S.R. Sadana vs. The State of Punjab, which held that the scheme did not take away the right of private practice but only rationalized it.

The Tribunal agreed with the assessee, noting that the income from the paying clinic was not fixed and varied from month to month, and the income was received from the patients, not the government. The Tribunal concluded that the income should be taxed under 'Profits and gains of profession', supported by the precedent set by the Amritsar Bench in ITA No. 228 & C.O. No. 5 of 1975-76.

2. Allowance of Expenditure Claimed by the Assessee:

The second issue was the allowance of the expenditure claimed by the assessee. For the assessment year 1973-74, the assessee claimed an expenditure of Rs. 15,513, and for the assessment year 1974-75, Rs. 14,000. The Income Tax Officer (ITO) allowed Rs. 1,500 for each year, while the Appellate Assistant Commissioner (AAC) allowed additional expenditures of Rs. 6,000 for 1973-74 and Rs. 10,000 for 1974-75.

The Tribunal noted that the expenditures were estimated and no vouchers were produced. Despite this, the Tribunal decided not to interfere with the AAC's orders, indicating that the expenditures claimed were reasonable and necessary for earning the income from the paying clinic.

3. Levy of Interest under Section 217:

The final issue was the levy of interest under section 217. For the assessment year 1973-74, the interest levied was Rs. 493, and for 1974-75, it was Rs. 940. The AAC deleted the interest for 1973-74, admitting the assessee's ground, but did not entertain the appeal for 1974-75, stating no appeal was provided against the levy of interest under section 217.

The Tribunal accepted the Revenue's appeal on this point, holding that no appeal is provided against the levy of interest under section 217, thus reversing the AAC's decision for the assessment year 1973-74.

Conclusion:

In summary, the Tribunal upheld the AAC's decision that the income from the paying clinic should be taxed under 'Profits and gains of profession' and allowed the expenditures claimed by the assessee. However, it reversed the AAC's decision regarding the appealability of the interest levied under section 217.