9911796707
TMI Blog2010 (8) TMI 753X X X X Extracts X X X X X X X X Extracts X X X X ..... ved, assessee preferred first appeal agitating various grounds. CIT(A) quashed the assessment and on merits also held that the gifts were genuine as assessee had discharged her onus in proving the same by following main observations : ( i )The mandatory notice under section 143(2) was not served on the assessee within the period of 12 months from the end of the month in which return of income was filed as prescribed by law for framing a valid assessment under section 143(3) and quashed the assessment; ( ii )On merits also, the CIT(A) held that out of gifts of Rs. 8,31,25,107, an amount of Rs. 8,29,25,107 was proved by the assessee to be valid gifts. On both the issues, the revenue is in appeal before us, raising various grounds. 2.2 In the meanwhile, Legislature in order to tackle the menace of the moneys received by assessees without consideration, including gifts, amended Income-tax Act as section 56(2)( v ) was inserted by Finance (No. 2) Act, 2004 with effect from 1-4-2005, i.e., from assessment year 2005-06, prescribing as under : "56(2) In particular, and without prejudice to the generality of the provisions of sub-section (1), the following incomes, shall be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... similar type of personal gifts under two different heads of income, i.e., one under section 56(2)( v ) as "income from other sources" and the other under section 28, as vocational income. Based on various observations, CIT(A) deleted the additions. Aggrieved, revenue is in appeal before us accordingly for assessment years 2005-06 and 2006-07. 2.4 It shall be pertinent here to mention that the facts in respect of gifts for assessment year 2004-05 are similar to assessment year 2003-04. Genuineness of gifts were a matter of dispute between department and assessee in earlier years up to assessment year 2003-04. ITAT in assessee s own case for assessment year 2003-04 vide order dated 30-11-2007 in ITA Nos. 279 and 422/Delhi/07 examined the issues and held them to be genuine gifts by following observations : "18.3 Genuineness of the transaction of gifts. Once the identity of the donor is established and his capacity is also proved then the only question to be seen is as to whether the transactions of gift was genuine or not. For examining this aspect, the conduct of parties, that is the donor and the donee, and the appreciation of attending circumstances becomes necessary. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y or subsequently. In all the three gifts in question the entire investment made was from the source of donors and not from the donee. 18.3.2 The Assessing Officer has not collected any evidence to disprove the genuineness of the gift by bringing material on record to show that the gifts were arranged by the assessee from her resources or that donors made gift in lieu of some tangible benefit derived by them from the assessee by misusing her office of public servant. On the contrary the assessee adduced sufficient evidence to show that the gifts were made voluntarily by the donors without any consideration and out of natural love and affection. All the three donors have repeatedly confirmed the fact that the properties were gifted by them to the donee out of natural love and affection. The aspect of voluntarily giving of gifts has been fully proved in all the three cases. The delivery of possession was given at the time of making gift. The gifts of immovable property in the instant case prove the genuineness of the transactions beyond any shadow of doubt because of the procedure adopted for transferring such properties by way of gift through registered deeds. 18.3.3 It is not u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iota of evidence to link the impugned payment with the routine and ordinary services rendered by the assessee as Khadim to the donor. The finding which has been recorded is one of fact and has not been challenged. It was open to the revenue even to challenge the finding which has been recorded by the Tribunal on any ground including that they are perverse. No such steps were taken to challenge the finding of fact recorded by the Tribunal. It has nowhere been established that the gift had any relation with the service rendered. It may be the basis of acquaintance but cannot be considered as having any link or reference, traceable to the vocation which the assessee was performing as Khadim. In these circumstances, we are of the view that the Tribunal was justified in holding that the sum of Rs. 1,05,000 received by the assessee from Abu Sufian under gift deed dated June 22, 1978, was not taxable as the assessee s income from his profession/vocation. The reference is answered in favour of the assessee and against the revenue. No order as to costs." 18.3.5 In the instant case the department has not brought any material to question such feelings and desires of the donees and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... service of notice under section 143(2) are not void ab initio and not liable to be annulled. At best, they could be set aside for removal of the defects. 4. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs. 8,29,25,107 out of total addition of Rs. 8,31,25,107 made by the Assessing Officer on account of unexplained gifts. 5. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in holding the gifts of Rs. 8,29,25,107 received by the assessee from various persons/parties as genuine. 6. That the order of Ld. CIT(A) is erroneous and contrary to facts and law. 7. The appellant craves right to alter/modify/add/delete/delete any or all grounds of appeal." 2005-06 : "1. The order of the Ld. CIT (Appeals) is not correct in law and facts. 2. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was justified in holding that the gifts received by the assessee were not on account of her vocation, ignoring the fact that the gifts had been made in response to a call from the assessee s political party, had been generated and collected in a systematic fund raising drive by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tatus of the same? 8. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) is correct in holding that section 56(2)( v ) also confers exemption to "gifts" under Rs. 25,000 and in directing the Assessing Officer to grant relief to the assessee under that section, when the Assessing Officer had come to a categorical finding that such gifts were income related to the vocation of the assessee and taxable as such? 9. The appellant craves leave to add, alter or amend any/all of the grounds of appeal before or during the course of the hearing of the appeal." 2006-07 : "1. The order of the Ld. CIT (Appeals) is not correct in law and facts. 2. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs. 20,33,92,828 made on account of "Income from vocation of politics"? 3. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was justified in holding that the gifts received by the assessee were not on account of her vocation, ignoring the fact that the gifts had been made in response to a call from the assessee s political party, had been generated and collected in a systematic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r to that of Govindlalji Ranchhodlalji, where the Hon ble High Court held that the making of offerings, motivated by the compelling feeling on the part of the follower to make presents to the head of the faith, as it was customary, were presents not received on account of the personal characteristics of the assessee, but due to the office that he held and the same were his income from vocation? 10. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was justified in deleting the addition made under the head, "income from business and profession" only on account of the fact that assessee had herself offered gifts over Rs. 25,000 for tax under the provisions of section 56(2)( v ) and the Assessing Officer had left such gifts undisturbed as his findings did not change the taxable status of the same? 11. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) is correct in holding that section 56(2)( v ) also confers exemption to "gifts" under Rs. 25,000 and in directing the Assessing Officer to grant relief to the assessee under that section, when the Assessing Officer had come to a categorical finding that such gifts were income relat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lained gift under section 68. Merely because there is a change in the opinion of Assessing Officer in subsequent years, will not entitle the revenue to raise this purely factual ground as an additional legal ground. ( ii )Hon ble Supreme Court in the case of MCorp Global (P.) Ltd. v. CIT [2009] 309 ITR 434 has held that the Appellate Tribunal in second appeal has no power to take back benefit conferred by Assessing Officer or enhance assessment or put the assessee in worse position. By admitting the additional ground, the assessee will be put to worse situation as she was neither heard nor any evidence was laid on this issue, while framing the assessment. Assessment proceedings are distinct and separate in each year and merely because the department became wiser in subsequent year in interpreting a legislative amendment, there is no justification for ITAT in admitting this additional ground while hearing the second appeal. ( iii )The additional ground raises essentially questions of facts inasmuch as the learned DR has relied on various facts and evidence which certainly requires investigations into new facts and circumstances, explanation of assessee, statement of donors t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The issue about gifts has been litigated accordingly in earlier years by revenue and assessee. It is too late in the day to accept this additional ground at this stage, which in our view will amount to ( i )admitting a ground which needs examination of fresh facts, documents and record. ( ii )Deciding a second appeal on altogether new issues, which were neither taken up by Assessing Officer nor adjudicated by CIT(A), assessee was never heard or intended to be heard and department has earlier taken same line as adopted by Assessing Officer. ( iii )It will put the assessee in a worse situation as contemplated by the Hon ble Supreme Court in the case of MCorp Global (P.) Ltd. ( supra ). Justifications for admission of additional ground in case of National Thermal Power Co. Ltd. ( supra ) was a special bench judgment and investigation of facts was not required. In this case the amendment was introduced 3 years prior to assessment and 5 years prior to first appeal, Assessing Officer having consciously took a decision, additional ground cannot be accepted because it is more convenient for revenue. ( iv )In case of C.P. Chitrarasu ( supra ), it was a question of law for a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the hearing was fixed for 10-4-2006 the assessee has neither responded nor the Assessing Officer has recorded anything in the order sheet or in the assessment order to this effect. This again points to the facts that no such notice was in fact issued. ( v )It was also submitted that if notice had been allegedly issued on 23-3-2005 and served on the assessee the Assessing Officer could not have processed the case under section 143(1) on 28-3-2006, i.e., more than one year after the date of the issue of the notice. The law on the point is very clear. Further, the departmental instructions are that first all the returns should be accepted under section 143(1) and then only selected for scrutiny. From these facts a clear inference can be drawn that no notice under section 143(2) dated 23-3-2005 was ever issued or served on the assessee. ( vi )It is also submitted that admittedly the said receipt has been pasted on the notice under section 148 pertaining to the assessment year 1998-99, and, therefore, it follows that it pertains to the service of notice under section 148 for assessment year 1998-99. Apart from the above, legal submissions were also made in this regard and it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to show that notice under section 143(2) was issued on the assessee on the basis of record, which is complied with. ( ii )There is no presumption that departmental record is untrue. ( iii )Order-sheet is a record of minutes of proceedings, for which no proforma is prescribed and its writing depend on officer to officer, therefore, mere non-mentioning of words on 23-3-2005 "issue notice under section 143(2) and hearing fixed for 10-4-2006", will not make assessment invalid as notice exists on the record. In this case since 148 proceedings were also taken up against assessee for assessment year 1998-99, instead of sending two separate envelopes to same assessee, one envelope containing these 2 notices, i.e., notice under section 148 for assessment year 1998-99 and notice dated 23-3-2005 under section 143(2) for assessment year 2004-05 were sent to assessee on 24-3-2005 by registered post as mentioned by Assessing Officer. Therefore, as far as department is concerned, the notice has been properly issued on assessee by RPAD. ( iv )During the course of remand proceedings, Assessing Officer vide letter dated 3-8-2007 mentioned as under : "To The Commissioner of Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee that she was not heard during the course of assessment proceedings. The deficiency, if any, amounts to irregularity in notice and not a fatality so as to quash the assessment. Reliance was placed on the decisions in the cases of CIT v. Yamu Industries Ltd. [2008] 306 ITR 309 (Delhi); and Sant Baba Mohan Singh v. CIT [1973] 90 ITR 197 (All.) and other case laws cited in the grounds, for the proposition that such mistake amounts to irregularity and is not fatal to the proceedings. ( vi )It was further pleaded that Assessing Officer assumes jurisdiction of assessment on filing of return, which is applicable to case of the assessee. Merely because there is some irregularity in the process of dispatch of notice and assessee was otherwise fully heard and participated in assessment, this irregularity will not quash the assessment proceedings. Reliance in this behalf is placed on the decisions in the cases of CIT v. Gyan Prakash Gupta [1987] 165 ITR 501 (Raj.); and Intercraft India v. CIT [1985] 154 ITR 662 (Delhi). 7.1 It was pleaded that existence of notice under section 143(2) on record demonstrates compliance of provisions, alternatively the issue becomes on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 143(2) was issued on her vide notice dated 8-6-2006 fixing the hearing on 19-6-2006 which is duly recorded by Assessing Officer on order sheet, this is clearly time barred. Notice dated 23-3-2005 as alleged by the Assessing Officer is never received by assessee and is not recorded by Assessing Officer in his proceeding sheet. On receipt of this first notice under section 143(2) dated 8-6-2006, assessee filed an objection before Assessing Officer vide letter dated 1-7-2006 challenging that notice dated 8-6-2006 was barred by limitation. ( ii )Assessing Officer neither replied to this objection nor contradicted assessee s version and proceeded to frame assessment by asking various explanations, record and calling for the donors. The order-sheet entry is a vital record of any income-tax proceedings as Assessing Officer has to record all the proceedings, issuance of statutory notices including compliances on this sheet. In the order-sheet produced by the department, there is no mention of issuance of any notice under section 143(2) dated 23-3-2005 fixing date of hearing after an unbelievable gap of 13 months on 10-4-2006. On the contrary order sheet has a clear entr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2003-2004. Assessee never received notice under section 143(2) dated 23-3-2005. Assessing Officer will never issue two notices of different proceedings for different assessment years in one envelope. This explanation is concocted on improbable assumptions to cover the lapses of department. ( e )If notice dated 23-3-2005 was sent fixing the date of 10-4-2006 and Assessing Officer forgot to record entry, in that case at least an entry of 10-4-2006, i.e., date of hearing should have been made in the order-sheet, which cannot be omitted from recording. Its absence clearly suggests that neither such notice was issued on 23-3-2005 nor any hearing was fixed on 10-4-2006. ( f )Notice dated 23-3-2005 was neither issued nor dispatched and in any case not served on assessee inasmuch as no evidence of service of notice under section 143(2) has been brought on record and assessee s affidavit stands uncontroverted. Except a make believe story that notice might have been sent along with notice under section 148 for assessment year 1998-99, no other record has been shown to support department s shaky explanation. ( g )The Assessing Officer s use of word, might in remand report itself ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Following authorities have held that if notice under section 143(2) is not served in time, the assessment is bad in law as it violates statutory mandate of section 143(2). Following case laws are relied on for mandatory service of notice under section 143(2) within prescribed time : (1) Asstt. CIT v. Hotel Blue Moon [2010] 188 Taxman 113. (2) CIT v. Pawan Gupta [2009] 318 ITR 322 (Delhi) (3) CIT v. Vardhman Estate (P.) Ltd. [2006] 287 ITR 368 (Delhi). (4) CIT v. Bhan Textiles (P.) Ltd. [2006] 287 ITR 370 (Delhi). (5) Dy. CIT v. Mahi Valley Hotels Resorts [2006] 287 ITR 360 (Guj.) (6) CIT v. M. Chellappan [2006] 281 ITR 444 (Mad.) (7) CIT v. Cebon India Ltd. [2009] 184 Taxman 290 (Punj. Har.). 8.3 Hon ble Supreme Court in the case of Hotel Blue Moon ( supra ), has held as under : "However, if an assessment is to be completed under section 143(3), read with section 158BC, notice under section 143(2) should be issued within one year from the date of filing of block return. Omission on the part of the assessing authority to issue notice under section 143(2) cannot be a procedural irregularity and the same is not curable and, therefore, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er section 148 for assessment year 1998-99, he had simultaneously issued both notices on 24-3-2005, both were sent by registered post in one envelope, is unusual and surprising. There is no acknowledgement or record suggesting the service of notice for assessment year 2004-05. In our view, if the Assessing Officer issued notice, in that case atleast proceedings of hearing on 10-4-2006 would have been noted on order-sheet as a natural procedure. A quasi-judicial officer will not fix a date of hearing and forget to take up proceedings on that day. Non attendance of statutory notice leads to penalty under section 271(1)( b ) and issue of a further registered notice for hearing. All these natural happenings are conspicuously missing from the departmental record. 9.2 We would now like to examine assessee s explanation who claims that first notice under section 143(2) was received on 8-6-2006 and on receipt thereof, assessee objected that this notice was time-barred. Assessing Officer did not adjudicate the same and assessment proceedings went on as per the events suggested by order-sheet. Assessee has taken this consistent stand throughout including an affidavit which exist on recor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 each were offered to tax in the return of income by the assessee as "income from other source" under section 56(2)( v ) of the Income-tax Act. The balance amounts comprising of Rs. 25,000 each or less were taxed by Assessing Officer in both the assessment years in the hands of the assessee as "income from the vocation of politics" under section 28, details whereof are as under : A.Y. Total gifts Offered by assessee u/s 56(2)(5) Gifts up to Rs. 25,000 2005-06 3,85,22,102 1,20,49,590 2,64,72,512 2006-07 21,62,91,844 1,28,99,016 20,33,92,828 10.1 CIT(A) after considering the Assessing Officer s order, assessee s explanation, confirmations, affidavits and statements of donees, appreciation of case laws relied on by Assessing Officer and assessee held that the gifts received were personal in nature and not vocational income. Besides gifts received being of similar nature cannot to be split into two different heads of income, i.e., above Rs. 25,000 as Income under the head Income from other source under section 56(2)( v ) and upto Rs. 25,000 as Income from business or professi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 13 of the order as under : "The gratitude which the assessee refers to is in relation to what her followers perceive she has done for them, i.e., bring about social revolution and change in mindset of society towards the downtrodden. This has obviously brought mental happiness to them and that is why they feel a sense of gratitude to her. The use of the word gratitude by the assessee is indicative of the true position. One does not have a sense of gratitude for the personal qualities of a person. Gratitude only flows from the perception that something good has been done for them. This may be in material terms. It may be intangible. But this perception of the deed done is the quid pro quo which the assessee has done for her political supporters and which makes the gifts to her directly linked to her vocation of politics (which as per her own admission is closely linked to her pursuit of social reform) and her position as head of the Bahujan Samaj Party, The gifts are therefore taxable in her hands as income from the vocation of politics." It was argued that the case laws relied upon by the Assessing Officer are not applicable on the facts of the case of the appellant. Furt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d other myriad consequences or feelings may not mar a donation to make it a grant for a quid pro quo . Wholly motiveless donation is rare, but material return along negates a gift or donation. We need not investigate the propriety of political donations "unlimited" and often invisible. All that we need consider is whether such sums are gifts and donations or are non-gratuitous payments with a tag of return. We have no doubt that on the question as framed, and on the facts and circumstances present, these sums were paid purely as gifts and donations to his party by the respondent. It is not surprising either, because he was the chairman of the said pasty had a long and liberal purse from which to draw and a large circle of support to build up in the long run." It can be seen that the Hon ble Court held that these sums were paid purely as gifts and donations to his party by the respondent. Hon ble Supreme Court affirmed the view of Hon ble Andhra Pradesh High Court in P.V.G. Raju v. Commissioner of Expenditure Tax [1971] 79 ITR 430 , Hon. We Andhra Pradesh High Court in the said order meaning as per head note as under : "Since an occupation is that with which a person occ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... donations made or received is only a voluntary gift and not otherwise as a return for such donations. On the analogy of the above case, in the present case also, the amount paid to the assessee is not in return for any specified or general service rendered by the assessee, but only in recognition of his personal qualities. There is no quid pro quo in the payment of donation made by the general public, former employer and the partymen." Further Hon ble High Court stated as under regarding taxability: "At p. 238 in vol. 1 7th Edit. Of Kanga and Palkhivalas, the Law and Practice of Income-tax, the authors have expressed the following view : "But a receipt does not necessarily arise from the exercise of a profession or vocation merely because the profession or vocation affords the opportunity for earning the receipt. A golden handshake given as gift by a company to its auditors whose appointment was not renewed was held not to be a professional receipt. As against such preponderant materials and circumstances in favour of the assessee that the present of Rs. 51,000 to the assessee amounted to a windfall or gift for his personal qualities, though his profession or vocatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een made in consideration of the teaching imparted by him, and that therefore, the payments were income arising from the vocation of the appellant. ( iv ) That as the payments made by L were income arising from a vocation they were not casual or non-recurring receipts and no question of exemption under section 4(3)( vii ) of the Indian Income-tax Act arose. In order that a payment may be exempted under section 4(3)( vii ) of the Indian Income-tax Act, as a casual and non-recurring receipt, it has to be shown that it did not arise from the exercise of a vocation." In the case of Govindlalji Ranchhodlal (Maharaja Shri) v. CIT [1958] 34 ITR 92 Hon ble Bombay High Court held as under: " Held -that the income from these gifts was taxable under the Income-tax Act as ( i ) it was found by the Tribunal that although there was no legal obligation upon the followers of the faith to make the gifts, the making of the offerings was motivated by the compelling feeling on the part of the followers of a faith to make presents to the head of the faith, which was customary; ( ii ) the gifts were made to the assessee not because of his personal characteristic but because he was the head ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... im and the entire value of the benefit would be taxable in the hands of the assessee." It can be seen that the appellant is neither a teacher nor a religious leader. She is a Political Leader and was a Member of Parliament during the relevant period. The quid pro quo which is the essential ingredient for taxability is absent in the form of material return. The Assessing Officer has derived the hypothetical concept of the mental happiness in the form of quid pro quo by equating the applicant as a vedantic teacher or a religious preacher or an author and reformer. Tue case referred: by Assessing Officer for quid pro quo inter alia contains some sort of direct discourses for enlightment leading to so called mental happiness. In the case of Raja Manickam which case of P.V.G. Raju is referred the Hon ble High Court clearly stated that there was no quid pro quo in the payment of the donation made by the general public, the former employer and the partymen. Consequently the Tribunal was right in its view and the sum of Rs. 51,000 was not taxable as the assessee s income. In the case of Parimisethi Seetharamamma v. CIT [1965] 57 ITR 532(AP) while explaining the ratio of jud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of carrying of vocation. We would further like to add that as far as provisions of Income-tax Act is concerned every receipt is not income though the term income has been defined in an inclusive manner, hence, such receipt must necessarily fall under the specific charging provisions. The Revenue Authorities have applied the provisions of section 28( iv ) of the Act wherein it is provided that any benefit or perquisite arising out of exercise of business or profession would be treated as income. These two words have been used in this provision i.e. benefit or perquisite and other condition, is that such benefit or perquisite should arise out of exercise of business or profession. In the facts of the case, the Revenue has not established conclusively that the amount of gift arose to the assessee as a consequence of exercise of vocation because such gifts have got no element of consideration being paid for services obtained by the followers/disciples. It is also noted that both the words benefit and perquisite refer to specific situations wherein, generally receipt of revenue nature having attributes of income would be covered and such attribute should exist from very beg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or ( c )under a Will or by way of inheritance; or ( d )in contemplation of death of the payer; or ( e )from any local authority as defined in the Explanation to clause ( 20 ) of section 10; or ( f )from any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to in clause ( 23C ) of section 10; or ( g )from any trust or institution registered under section 12AA. Explanation. For the purposes of this clause, "relative" means - ( i )spouse of the individual; ( ii )brother or sister of the individual; ( iii )brother or sister of the spouse of the individual; ( iv )brother or sister of either of the parents of the individual; ( v )any lineal ascendant or descendant of the individual; ( vi )any legal ascendant or descendant of the spouse of the individual; ( vii )spouse of the person referred to in clauses ( ii ) to ( vi ). The section talks about any sum received only. The word gift is nowhere used in this section. Gift is a form of receipt without consideration. Exceptions for not taxing receipt without consideration are provided in the section itself. The appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y namely Bahujan Samaj Party ("BSP" in short). Her identification with BSP is total and inextricable inasmuch as she is held in great esteem as Dalit Masiha. She has been systematically receiving gifts from her party workers, members, office bearers and supporters and has no other vocation except active presence and work in national politics, therefore, it is natural to infer that her vocation is politics. Gifts are being received from these people over a period of time and the regularity of these gifts represents a continuous process and stream of earning. CIT(A) while passing his order for assessment year 2006-07 on page 106, applying Hon ble Supreme Court judgment in the case of Commissioner of Expenditure tax v. P.V.G. Raju [1975] 101 ITR 465, has held that ratio of this judgment is applicable to the extent that politics is a vocation or profession. This being so, any receipt by assessee from this vocation of politics will be chargeable as income under section 28 and not under section 56(2)( v ), Assessing Officer has treated the gifts above Rs. 25,000 as income from other sources by accepting assessee s return showing these receipts under section 56(2)( v ). Taking his arg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the assessee s birth date, besides the proceeds of the gifts have been utilized for investment in properties. ( c )Most of the affidavits from Tamilnadu and Karnataka indicate that the purpose of the gifts was to prevent the assessee s harassment from the CBI, besides they have been collected by members of the assessee s BSP party in her capacity as a political person. 12.2 Ld. DR further contends that : ( i )It has been held by the Hon ble Supreme Court in the case of P.V.G. Raju ( supra ) that politics is very much a profession. The assessee is also not known for contribution to any other field of activity. Even the social reform agenda that she pursues is through the forum of politics. Therefore, there is no doubt that the assessee is primarily a politician and is known, respected and regarded on this account alone. ( ii )It has further been held by the Hon ble Supreme Court in the case of P. Krishna Menon v. CIT [1959] 35 ITR 48 that any gift that accrues to a person by virtue of the office that he holds or the vocation that he pursues should be regarded as his income from vocation or profession. ( iii )Further, in the case of Maharaja Shri Govindlalji ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Chamrajnagar, Mysore and Mandya districts to create awareness among the Bhaujan Samaj about their constitutional rights and ways to implement them. The letter, however, says that in this rally the people of the Bahujan Samaj have contributed little bit as birthday gift to our iron lady. ( vi )Secondly, it has been observed that a number of drafts sent to her from Tamil Nadu and Kerala have been made out in the name of "Mayawati, National President, Bahujan Samaj Party" or "Mayawati, National President BSP". They are accompanied by affidavits that refer to her as the National President of BSP. They are forwarded by a letter from a Mr. Chikanna, a party worker, who says that since they had conducted many programmes of the party in view of the forthcoming elections, they were able to collect only the minimum possible amount. ( vii )These drafts, affidavits and forwarding letters from Karnataka, seal the issue that the gifts sent to the assessee were on account of the office that she held and that the programme of social reform and political mobilization pursued by her are one and the same. On this account it is pertinent to hold that the gifts received by her have been by virtue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of Maharaja Shri Govindlalji Ranchhodlalji ( supra ). The assessee holds birthday celebrations year after year in which it is claimed that her supporters come with gifts of money which are customary among the assessees followers. If that is the case, then following the ratio of the Hon ble Bombay High Court in this case, although there is no legal obligation on the part of her supporters to make a gift, the making of gifts motivated by the compelling feeling on the part of the supporters to make presents to the head of the political party as it was customary, therefore, these gifts are not received on account of the personal characteristics of the assessee but due to the status and office which she hold and which induced her supporters. Consequently they represent her income from vocation and the affidavits filed by the assessee s supporters to the contrary have no meaning as they have been prepared according to a pre decided format which, as admitted by the assessee herself in her submission, has been prepared centrally. 12.3 Coming to the interpretation of applicability of section 56(2)( v ) Ld. DR contends that the Income-tax Act has concept of sources of income and h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of gifts, assessee s political personality and work together with the manner of receiving gifts are inextricably linked with vocation of politics and hence gifts are taxable under the head Income from business and profession . 12.8 Political status and her work in that field are Causa causans for the receipt of gifts, which means - incidences prior to a cause which are material incidences for a particular cause, i.e., receipt of these gifts. 12.9 It was pleaded that implied quid pro quo is involved in all these gifts between donors and assessee which includes motives of serving of an interest or possibility of serving of an interest. Assessee being in an influential position can be of some use in future, these factors constitute a quid pro quo for these gifts. Donors may have admiration but the gifts were paid to a political personality who wanted to be recognized. It was pleaded that the assessee being in the profession of politics and gifts being directly attributable to and in the course of exercise of profession or vocation, gifts upto Rs. 25,000 were rightly taxed as business income of the assessee. 12.10 Section 56 has been inserted only to treat gift ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... service. Her work is dedicated to dalit masses spread across India and not for any particular individual or group of individuals. The work is devoted for nation at large and not for any follower or for any personal benefits of any kind assured or implied to any person. 13.3 There is no quid pro quo between the donors and assessee either express or implied, to reciprocate any favour or consideration for the gift received. The gifts received are purely customary, by description personal, presented by donors ex gratia, out of love and affection for her personal qualities. They cannot be held as vocational receipts and brought to tax by twisting the facts, irrelevant analogies and taking a contradictory stands about the head of income from the same sources of gifts having similar type of confirmations. 13.4 In the decision in Fr. Ephen v. CIT [1989] 176 ITR 78 (Ker.) the Hon ble Court has observed that, in order to constitute the receipt and the service rendered, i.e., rendering of service was causa causans of the receipt. This line of thinking of different courts is further endorsed in Dilip Kumar Roy s case ( supra ), it is held that "Having regard to the provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P. Chitrarasu s case ( supra ); David Mitchell s case ( supra ); CIT v. K.R. Honnappa (Individual) [1989] 180 ITR 660 (Kar.). 13.7 Noted jurist Shri Palkhiwala in his book "Law Practice of Income-tax" volume I, ninth edition, based on numerous judicial decisions, has given a commentary is as under : 1.A gift which has the personal element in essence is not income at all. 2.Gift to the office holder by way of remuneration for the office is taxable. But personal gifts given on personal grounds and as personal testimonial or as a token of personal esteem, respect, regard, veneration or to mark an occasion is not an income. 3.A personal gift does not become income merely because it is repeated year after year. 13.8 Ld. counsel placed reliance on the decisions of : ( i )Hon ble Supreme Court in the case of Mahesh Anantrai Pattani ( supra ) holding that a gift which is personal in the sense that it is given to the person, not as holder of office or employment but as a personal testimonial or token of personal esteem and veneration or to mark an occasion is not income; ( ii )Hon ble Bombay High Court in the case of Dilip Kumar Roy ( supra ) holding that mer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contrary evidence and the affidavits once accepted cannot be disbelieved in the same breath. 13.13 It is further pleaded that the revenue is, adopting a blow hot and blow cold approach to assessee s case. Gifts in excess of Rs. 25,000 are being accepted as gifts by Assessing Officer for deeming them as "income from other sources" under section 56(2)( v ). Gifts upto Rs. 25,000 though of identical nature, are being treated as vocational income. There is no valid justification for Assessing Officer to treat the gifts as representing different character/nature. The option of Assessing Officer in accepting gifts above Rs. 25,000 as "income from other sources" under section 56(2)( v ) puts an estoppel on him to take contradictory stand on the same set of facts. 13.14 Legislature has introduced section 56(2)( v ) with a proper scheme, in as much as the receipts without consideration, which include gifts have been intended to be specifically taxed under the head Income from other sources and further divided into above two categories, smaller gifts have been intended to be non taxable and gifts above 25,000 have been taxed under this head. Assessing Officer has failed to compreh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13.18 Hon ble Delhi High Court after considering the decisions reported in P. Krishna Menon ( supra ), Dr. K. George Thomas v. CIT [1985] 156 ITR 412 (SC) held in the case of Prof. P.G.A. Nath ( supra ) that the goodwill and the respect though was earned by the assessee by dint of his past performance, the amount could not be said to have been paid to him by way of remuneration for any past or present services. 13.19 Referring to Hon ble Rajasthan High Court in the case of Abdul Gani ( supra ), the facts are, the donor claimed that he was not benefited from any preaching or discourse or any special service of the assessee, he noticed some supernatural power in the assessee and being influenced by this impression paid the amount in question to assessee. It was held that, it is a clear case of voluntary payment made to the assessee for his personal qualities or as a mark of the high esteem and regard in which the assessee was held by the donor and therefore not liable to tax. 13.20 Hon ble Rajasthan High Court while rendering this judgment has considered the judicial decision of Krishna Menon. 13.21 Hon ble Madras High Court in the case of Balamurlikris ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and judicial decisions, it is pleaded that the part of gifts received by the assessee cannot be brought to tax as "income from vocation of politics" on selective basis. 13.26 Responding to the DR s proposition that these gifts were received by the assessee not for her personal qualities but for the vocation of politics and that most of the gifts were given by her supporters of the party of which she has been President or Vice-President were and quid pro quo is inbuilt, it is vehemently argued that these findings are contrary to evidence on record which clearly demonstrates that gifts received by the assessee are not in consideration of any quid pro quo and were meant for her personal qualities only. Assessee earned tremendous personal respect and admiration for her unstinted support for the cause of dalits over the years and gifts were received on solemn occasion of her birthday out of love and affection and not for any favour or quid pro quo or of any implied suggestion for any service to be rendered to donors. Evidences furnished by the assessee cannot be dislodged on surmises and particularly in the absence of any contrary evidence. Ld. DR s reliance on facts of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eing a scheme to accumulate money. However ultimately Assessing Officer has held these gifts to be assessee s receipts. Therefore, only relevant dispute is whether the gifts claimed as personal receipts can be treated as vocational receipts by Assessing Officer. 14.2 Ascertainment of the nature of gifts is essentially a question of fact, the applicability of case laws, interpretation and legislative intent for amendments shall follow later. 14.3 The contents of affidavits do not spell out any consideration of any direct or indirect benefit which accrued or was promised to donors, most of them depose that the assessee is a dalit leader who has worked hard for the upliftment of downtrodden masses, gifts are being given as a veneration of her qualities in crusade of social development etc., apparently they do not refer to any quid pro quo . By various arguments revenue has taken a stand That the gifts are induced by the fact of her being an influential political leader and not by her personal qualities. The quid pro quo perceived by donors is to get recognized in her memory for any possible favours which may be derived in future. In the entire length and breadth of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14.6 In our considered view Income-tax Act recognizes dual capacities of any assessee, i.e., to acquire non-taxable personal/capital receipts and taxable receipts, assessee in this case cannot be treated as an exception to this proposition. Revenues emphasis is to the effect that the assessee s persona is inextricably linked with her politics therefore whatever she receives amounts to vocational receipts. In our view this view militates against the basic scheme of the Income-tax Act which prescribes that any person can have non-taxable receipts including gifts. Therefore, merely because assessee is in politics, Member Parliament and President BSP will not deprive her of ordinary treatment under Income-tax law. It cannot be held that her identification with politics or BSP is so total that she can no more have any personal identity. 14.7 Revenue has further argued that the gifts received by assessee are in consideration of quid pro quo influenced by assessees political stature. In donors affidavits there is no reference to any direct, indirect or promised favour extended by assessee. Bulk of gifts, No. of affidavits, bulk issuance of DDs and notorization are treated by re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s made to him were treated as taxable. Bombay High Court held that a religion could become a vocation, offerings were made out of compelling feelings of followers, they were made not for his personal qualities but as a head of sect and the assessee held an office which required him to perform certain duties and discharge certain obligations, that induced the disciples to offer gift which were vocational receipts. Whereas in this case, assessee neither owed any duties nor obligations to be performed towards donors. In the absence of obligation and duties, it cannot be held that donors were compelled to make these gifts. In the case before us, there is no compulsion or obligation on the part of donors for making any gift and depositions do not spell out any benefit received by donors directly or indirectly. Most of the affidavits refer to assessee s personal qualities like upliftment of dalits and raising their status in society. In view of all the facts and circumstances these gifts are to be treated as personal and not vocational or professional gifts. In the case of Dilip Kumar Roy ( supra ) Hon ble Bombay High Court held that the affidavits filed on record by assessee suggest t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... knowledge that a receipt does not necessarily arise from the exercise of a profession or vocation merely because the profession or vocation affords the opportunity for earning the receipt (See Kanga Palkhivala s the Law and Practice of Income-tax, 7th edn. Vol. 1, p. 238). If this principle is applied, then merely because the assessee happened to be a member of the DMK party and was honoured, it would not necessarily follow that whatever amounts lie received were by virtue of being a member of a political party. As we have already pointed out, the order of the Tribunal does not make any reference to the positive case of the assessee that he was more of an author and a reformer than a politician and it is those activities which were sought to be honoured by the people by bringing out his biography and making a collection for a purse to be presented to him on his 64th birthday. The observations made by the Tribunal that the collections were made not out of any personal regard, but were made because the assessee "wielded" influence in the DMK party, appears to us to be an inference without any evidence. As a matter of fact, it does not appear that there is any material placed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns. Legislature in order to deal with this situation inserted section 56(2)( v ) with effect from 1-4-2005, taxing receipt of such moneys without consideration above Rs. 25,000. Perhaps this amendment alone, could not fully deal with the problem, thereafter Legislature again inserted section 56(2)( vii ) with effect from 1-10-2009 in the Income-tax Act, prescribing that aggregate of such receipts (above aggregate of Rs. 50,000) will be taxed in the hands of recipient as Income from other sources . From these Legislative amendments also, it emerges that Legislature intended to tax such receipts under the specific head of "Income from other sources" and not under that head Income from Business or Profession . On this score also the correct provision and head of income for taxing the assessee in the relevant assessment years, i.e., 2005-06 and 2006-07 is contained in section 56(2)( v ). Ld. DR has raised a plea that while taxing gifts above Rs. 25,000 under section 56(2)( v ), Assessing Officer merely accepted the assessee s return, therefore, his proposition regarding theory of difference in source and head of income may be accepted. In our view the plea is too technical and unac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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