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TMI Blog1960 (3) TMI 52X X X X Extracts X X X X X X X X Extracts X X X X ..... Dass. Two months later, he married the assessee. That circumstance, however, is mentioned only to be dismissed as having no bearing on the question of the motive or reason which induced the agreement, whereby the assessee obtained a share in the realisations of the film. The preamble to the document, the relevant portion of which is extracted below, contains a statement of the purpose, for which the gift was made to the assessee. Whereas the party of the second part (assessee) is featured in the chief heroine's role in the picture, and she has acquitted herself in the said role most creditably, and contributed to the unique success of the picture to a very great extent; And whereas in consideration of the whole-hearted help, cooperation and valuable services rendered by the party of the second part, in respect of the production and completion of the picture the party of the first part (Ranganatha Dass) has undertaken to give her from his share of the realisations of the picture a special remuneration in addition to the fixed remuneration paid by the firm for her services as artist in the picture. By virtue of the agreement referred to above, the assessee receive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his services. In the latter case, the amount will not be liable to tax. The case for the assessee is that the agreement dated 5th May, 1951, under which Ranganatha Dass agreed to give the assessee one-fourth share of his income from the picture, was wholly unconnected with any idea of remunerating her services, but was made on account of the former's admiration for her personal qualities as an outstanding actress. There can be no doubt that a gift made on personal grounds cannot amount to a payment for services, although the services might have provided a motive or reason for making the gift. Such gifts are considered as testimonial gifts. The distinction between the two types of cases set out above, and the question to be decided in cases where a voluntary payment is made to an employee, is pointed out by Rowlatt, J., in Reed v. Seymour [1926] 11 Tax Cas 625, 630, 646 : .... whether it is earned in his office or is in the nature of a donation to him personally, perhaps not unconnected with the circumstance that he has served in the office--which, as Lord Justice Younger said (in Cowan v. Seymour [1920] 7 Tax Cas. 372 at 384, is a sine qua non--perhaps arising out of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as employed as a secretary and later, on the liquidation of the company, as the liquidator. The employment in either capacity was without remuneration. On the completion of winding up, a surplus was found after payment to the creditors etc. The shareholders resolved unanimously to pay one half of the surplus to the assessee. It was held that the payment of that sum to the latter was not in respect of his employment, but more in the nature of a testimonial for what he had done in the past, while his office was in existence. In coming to that conclusion, the court of appeal laid emphasis on the fact that the office had terminated at the time of decision to make the payment, that such payment was made not by employer, that is, the company, but by the shareholder, and on the circumstance that the facts existing in the case pointed to only one conclusion, viz., that the receipt was not a remuneration for the services. In Read v. Seymour [1926] 11 Tax Cas. 625, a benefit match was organised, and the proceeds therein were paid to a professional cricketer in the employment of a club. The distinguishing feature in that case was that certain subscriptions were collected from the public for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be expected by the taxi driver and may reflect a beautiful impulse. Yet all the tips received including the specially generous one, must be regarded as being by way of remuneration for services. But on the other hand it seems to me that payment which has the attributes of being a personal gift does not necessarily lose those attributes merely because the gift is in recognition of services, or because the donor agrees to bind himself so as to be compellable at law to make the payment. The transfer of the shares in that case was effected by a document, which recited that the transferor made the transfer to mark his appreciation of the past services of the employee in the employment of the company, and, in consideration of the employee continuing his present engagement for four years from the date of the agreement. It was held that the agreement was not one by way of remuneration for the past services, though the transfer was in appreciation of such services, that it was not also in consideration of his present services, but was merely an implementation of the obligations of the original shareholder, actuated by the personal motive of the transferors of doing what they thought th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpulsory on the part of the persons who paid it. That seems to me to be the test; and if we once get to this--that it has come to him by virtue of his office, accrued to him in virtue of his office--it seems to me that it is not negatived, that is not impossible merely by reason of the fact that there was no legal obligation on the part of the persons who contributed the money to pay it. In Wright v. Boyce [1959] 36 I.T.R. 504 voluntary gifts were made to a huntsman at Christmas time, in accordance with a widespread custom. It was held that the payment received by the huntsman should prima facie be taken as made in pursuance of the custom, of which the huntsman as such by virtue of his office of employment was the object, and to have been received by him in that capacity and, therefore, liable to tax. Nor will it be correct to say that a payment made after the services had terminated could not be one intended as remuneration, but could only be by way of testimonial. That was also the view adopted by this court in Sadasivam v. Commissioner of Income-tax [1955] 28 I.T.R. 435, where certain payment for past services were held to be of revenue nature. It was then contende ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... confining ourselves to the present case, would be this: first, was the payment altogether unconnected with the service rendered by the assessee to the promoters in connection with the floatation of their company? The answer to that primary question has been furnished by the assessee himself. It was not unconnected. Next, though connected with the assistance he had rendered in connection with the floatation of the company as a member of his firm, was it made to him merely out of admiration for his personal qualities displayed in the course of the carrying out of the engagement or was it intended to confer special benefit on him with respect to the services rendered so as to increase his earnings in the exercise of his profession? There is no doubt in the present case that the first of the two tests has been satisfied. On the question whether the second has also been satisfied, the learned counsel for the assessee relied on the decision in Reed v. Seymour [1926] 11 Tax Cax. 625, and contended that the payment in the present case was the outcome of a spontaneous admiration rather than of a calculated act to pay for the services of an artist who had already been paid in full her r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icar of a given parish because he is in straitened circumstances, or a benefit held for a professional cricketer in recognition of his long and successful career in first-class cricket. In such cases the proper conclusion is likely to be that the voluntary payment is not a profit accruing to the recipient by virtue of his office or employment but a gift to him as an individual, paid and received by reason of his personal needs in the former example and by reason of his personal qualities or attainments in the latter example. In Mahesh Anantrai Pattani v. Commissioner of Income-tax [1959] 35 I.T.R. 734 the assessee served a Maharajah as a Diwan. ₹ 5,00,000 were paid over to the assessee, through the Maharaja's bank, the Maharaja indicating in his letter that the money was paid to the assessee as a gift in consideration of the assessee having rendered loyal and meritorious service. About three years later, the Maharaja confirmed that he had given the assessee the sum of ₹ 5,00,000 as a token of his affection. The Bombay High Court held that the payment was liable to tax. It was held that the dominant intention of the Maharajah was to remunerate the assessee for h ..... X X X X Extracts X X X X X X X X Extracts X X X X
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