1970 (2) TMI 33 - HC - Income Tax

Summary

Issues:
Interpretation of section 4(3)(vii) of the Income-tax Act - Whether sums received were exempt under the mentioned section.

Detailed Analysis:
The case involved a reference under section 66(2) of the Indian Income-tax Act, 1922, regarding the exemption of sums received by the assessee in the assessment years 1957-58 and 1958-59 under section 4(3)(vii) of the Income-tax Act. The dispute arose from a transaction where the assessee acquired an actionable claim from Dandekar against a company and subsequently transferred it to the company, earning Rs. 85,000 in the process. The assessee claimed exemption under section 4(3)(vii) on the grounds that the receipts were non-business, casual, and non-recurring in nature. However, the Income-tax Tribunal, along with other authorities, rejected the contention, deeming the transaction as non-casual and thus not exempt from income tax.

The key argument presented by the assessee was that the receipts were of a casual nature as they were paid by the company ex gratia for his role in settling a dispute between the company and Dandekar, saving the company from potential litigation. The assessee contended that the company voluntarily paid him the amount without any prior obligation, making the income casual in nature. The assessee's counsel emphasized that the transaction was not part of the assessee's business activities and had not arisen out of his profession as a chartered accountant.

To determine the casualness of the receipts, the court referred to precedents, including judgments from the Bombay and Madras High Courts. The court highlighted that for income to be considered casual, it must be unforeseen, accidental, and depend on the caprice or whim of the payer. The court also noted that casual income is akin to an unforeseen windfall, such as finding valuable items or receiving unexpected gifts. The court further examined arguments based on judgments from the Allahabad High Court presented by both parties.

Ultimately, the court held that the receipt of Rs. 85,000 by the assessee was not of a casual nature, despite being non-recurring. The court reasoned that the assessee's acquisition of the claim and subsequent profit was a calculated move made with the intention of making a profit, rather than depending on the caprice of the company. The court emphasized that the assessee took a calculated risk in the transaction, indicating a profit motive rather than a casual receipt.

In conclusion, the court answered the reference question in the negative, ruling against the assessee's claim for exemption under section 4(3)(vii) of the Income-tax Act. The court ordered the assessee to pay the respondent's costs, concluding the judgment on the matter.