1970 (3) TMI 29 - HC - Income Tax

Amount paid to part-time director for expenses on foreign tour - it was a benefit received by the assessee from the company in which he was a director - not fall within the exemption in section 4(3)(vii)

Summary

Issues Involved:

1. Whether the amount of Rs. 29,793 paid to the respondent by the company was income within the meaning of section 2(6C)(iii) of the Income-tax Act, 1922.
2. Whether the amount received by the respondent was exempt from taxation under section 4(3)(vii) of the Income-tax Act, 1922.

Issue-wise Detailed Analysis:

1. Whether the amount of Rs. 29,793 paid to the respondent by the company was income within the meaning of section 2(6C)(iii) of the Income-tax Act, 1922:

The respondent, a director of M/s. Hari Brothers (P.) Ltd., undertook a foreign tour accompanied by his wife, with the expenses amounting to Rs. 29,793 borne by the company. This amount was claimed by the company as a business expenditure but was disallowed. Consequently, the Income-tax Officer initiated action under section 34(1) of the Income-tax Act, 1922, to tax this amount in the hands of the respondent, holding it as his income under section 2(6C)(iii). The respondent's appeal against this assessment was dismissed by the Appellate Assistant Commissioner, and later by the Income-tax Appellate Tribunal, which however allowed the respondent to claim exemption under section 4(3)(vii).

The High Court examined whether the amount paid to the respondent constituted income. Section 2(6C)(iii) includes the value of any benefit or perquisite obtained from a company by a director as income. The court held that the amount paid for the foreign tour was a benefit received by the respondent from the company, thus qualifying as income. The court emphasized that the legislative intent was to include various forms of benefits within the term "income," whether convertible into money or not. The court rejected the argument that the benefit must be explicitly linked to the respondent's role as a director, stating that it is sufficient if the benefit is received by a director from the company.

2. Whether the amount received by the respondent was exempt from taxation under section 4(3)(vii) of the Income-tax Act, 1922:

The respondent contended that the amount was exempt from taxation as it was not derived from the exercise of a profession, vocation, or occupation, and was of a casual and non-recurring nature. The court examined whether being a director could be considered an occupation. Referring to various definitions and judicial interpretations, the court concluded that "occupation" encompasses any activity that engages one's time and effort, whether full-time or part-time. Therefore, the court held that the respondent's role as a director constituted an occupation.

The court further noted that section 4(3)(vii) exempts only casual and non-recurring receipts that are not derived from business, profession, vocation, or occupation. Since the amount received by the respondent was in connection with his occupation as a director, it did not qualify for exemption under section 4(3)(vii).

Conclusion:

The court answered the reference in the affirmative, holding that the amount of Rs. 29,793 was liable to be taxed in the respondent's hands. The parties were directed to bear their own costs.