9911796707
TMI Blog1974 (5) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... was justified in upholding the order of the Appellate Assistant Commissioner in excluding the sum of Rs. 1,50,000 from the total income of the assessee-firm ? " As these two references arise out of the same facts and circumstances, it will be convenient to deal with them together and dispose them of by a common order. The facts giving rise to these references are as under : In July, 1958, Messrs. Tata Iron and Steel Co. Ltd., Jamshedpur (hereinafter referred to as " the Tata Company "), along with a German firm, Messrs. Didier Works A. G., promoted a company by the name of Belpahar Refractories Ltd. (hereinafter referred to as " the company ") which was incorporated on September 6, 1958. According to the pre-incorporation agreement between the promoters of the company, Messrs. Didier Works A. G., Germany, were to take up shares worth Rs. 70 lakhs and the Tata Company and their friends were to take shares worth not less than Rs. 178.50 lakhs, being 51% of the issued capital of the company. Thus a subscription of Rs. 248.50 lakhs was assured by the promoters towards its issued capital. Article 26 of the articles of association of the company authorised it to pay at any time a co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 1959, when it was also approved that the total issued capital of the company should be Rs. 350 lakhs. It was further narrated in this resolution that, if necessary, a third party should be invited to participate in the capital of the company to the extent of at least of Rs. 100 lakhs and that Messrs. Suraj Kamal Enterprises, Kesar Vilas, Bikaner (hereinafter referred to as " the Firm "), was engaged as brokers for this purpose to negotiate with prospective investors on the understanding that the brokerage calculated at 1 1/2% of the issue price of the shares would be paid to them on the capital obtained through them. It was further mentioned in the aforesaid resolution that the capital to the tune of Rs. 100 lakhs subscribed by the Jaipur family was obtained through the services of the firm. It was proposed that an amount of Rs. 1.50 lakhs, being 1 1/2% of the issue price of the aforesaid shares be paid to the firm. As a matter of fact, the amount of Rs. 1,50,000 was thereafter actually paid by the Tata Company by their cheque dated October 8, 1959, to the firm and the company in turn reimbursed the Tata Company for the same by its cheque dated October 23, 1959. The firm was co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rsonal capacity. It was also submitted on behalf of the firm that it never contacted Messrs. Belpahar Refractories Ltd, prior to or at the time of issue of share capital, offering its services to the company as brokers, nor any contract was entered into between the company and the firm for securing the share capital for the company to the tune of Rs. 100 lakhs. It was submitted that the resolution passed by the board of directors of the company on September 2, 1959, did not represent the correct factual position, but the said resolution was passed merely to fulfil the requirements of section 76 of the Indian Companies Act, to enable the company to make payment of Rs. 1,50,000. It was, therefore, submitted that the essential ingredients of payment of the aforesaid sum as brokerage or commission to the firm did not exist an that the said payment was merely a gift or reward to Col. Keshri Singh in his personal capacity. The Income-tax Officer, " A " and " C " Wards, Bikaner, passed two separate orders on October 14, 1965. In one of them, relating to the firm, he held that the amount of Rs. 1,50,000 was not a casual or non-recurring receipt, but was brokerage or commission earned in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ber 2, 1965, written by Col. Keshri Singh to Shri N. K. Desai, secretary of the Tata Company, wherein he averred that the resolution passed by the board of directors of the company on September 2, 1959, was based on some misconception and stated as to how he got interested in the matter without any monetary inducement having been offered to him by anybody and that there was no contract for the engagement of the services of the firm or of Col. Keshri Singh by the company or for payment of any amount by way of brokerage. He further averred that in view of the house of Tata's being a " place of lucrative investment and in view of cordial friendly relations existing between him and Shri J. R. D. Tata and J. D. Choksi, he thought it worthwhile to help the Maharaja of Jaipur to take a decision regarding investment of his funds and that he arranged a meeting between Shri J. R. D. Tata and the Maharaja of Jaipur without any expectation, understanding or promise of remuneration or reward. According to Col. Keshri Singh, he was only rendering " friendly assistance " in bringing together a prospective investor and a prospective entrepreneur, both of whom were his close acquaintances. Accordin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vocation carried on by him nor it was income from other sources in his hands and held that Col. Keshri Singh was, therefore, not liable to payment of tax for the receipt of the aforesaid amount. The Tribunal agreed with the Appellate Assistant Commissioner in coming to the conclusion that the aforesaid amount did not form the income of the firm. In the result, the Tribunal allowed the appeal filed by Col. Keshri Singh while it dismissed the appeal filed by the department. The Commissioner of Income-tax required the Appellate Tribunal to refer the above-mentioned questions of law arising out of its order dated August 29, 1968, to this court for answer and it is in this way that the matter has come before us. We have heard Shri Shrikishan Mal Lodha, learned counsel for the department at great length. The assessees did not appear in both the cases in spite of service of notices upon them. However, Shri Lodha fairly placed before us all the relevant case-law on the subject, both for and against his contentions and we appreciate the assistance rendered by him in doing so. The answer to the question referred to us would depend upon the interpretation of the provisions of section 4( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the subject in England is Cooper v. Blakiston [1908] 5 TC 347, 355, 356 (HL), where the free will offerings made on Easter, collected by the church wardens were received by the Vicar of the Parish personally. It was argued that the said sum was a voluntary gift and was made on a particular occasion and had nothing to do with the discharge of his duties by the Vicar. Lord Loreburn, Lord Chancellor, in his speech in the House of Lords observed : " In my opinion, where a sum of money is given to an incumbent substantially in respect of his services as incumbent, it accrues to him by reason of his office. Here the sum of money was given in respect of those services. Had it been a gift of an exceptional kind, such as a testimonial or a contribution for a specific purpose, as to provide for a holiday, or a subscription peculiarly due to the personal qualities of the particular clergy man, it might not have been a voluntary payment for services, but a mere present. " Lord Ashbourne in that case made the following observations : " But in what character did the appellant receive them ? It was suggested that the offerings were made as personal gifts to the Vicar as marks of esteem and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , where the appellant, after his retirement as a Superintendent of Police, spent his time in studying and teaching Vedanta philosophy and one of his disciples, Levy, who used to come from England at regular intervals for a few months at a time and attend his discourses and so received instructions in Vedanta and had the benefit of his teachings, transferred certain sums amounting to more than Rs. 2,00,000 to the account of his teacher. A question arose as to whether the said receipt was to be treated as income which was not taxable on account of the provisions of section 4(3)(vii) of Act. It was held by the Supreme Court : " We do not appreciate the significance of saying that in order to become a vocation an activity must be organised. If by that a continuous, or as was said, a systematic activity, is meant, we have to point out that it is well-known that a single act may amount to the carrying on of a business or profession. It is unnecessary to discuss this question further as we find no want of system or continuity in the activity of the appellant. He had gathered a large number of disciples around him and was instructing them in Vedanta regularly. Levy came all the way from E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of some shareholders and in consideration of the assessee's handling of the situation. Similarly, in David Mitchell v. Commissioner of Income-tax [1956] 30 ITR 701 (Cal), where a firm of chartered accountants was engaged by a company, which assisted in the floatation of a new company, the assessee, who was a partner of the aforesaid firm of chartered accountants (accountant by profession) attended to this work on behalf of the firm ; the company after the work was done and the firm was paid in full for its services, made an unsolicited gift of 2,500 shares (in the new company) to the assessee " as a token of appreciation for the assistance rendered to it in connection with the floatation of the company. " The questions which arose for consideration in that case were, firstly, whether the payment was connected with the exercise of the assessee's profession or vocation and, secondly, if it was so connected, the said payment was made merely in appreciation of personal qualities of the assessee, displayed in the course of his engagement or was intended to confer a special benefit on him with respect to the services rendered, so as to increase his earnings in the exercise of his profe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... done so once with success, you might be asked by some vendor to do it again. " In Mahesh Anantrai Pattani v. Commissioner of Income-tax [1961] 41 ITR 481 (SC) the assessee was the Dewan of the native State of Bhavnagar until January, 1948, when the Maharaja granted him a monthly pension of Rs. 2,000. On March 1, 1948, the then Bhavnagar State was merged in the United State of Saurashtra and the Maharaja ceased to be the ruler of that State. More than two years later the Maharaja directed a company with whom he had an account to pay by cheque to the assessee a sum of Rs. 5 lakhs out of the amount lying to the credit of his account with the company and later on he directed that the said amount be considered to have been given as gift to the assessee for having rendered loyal and meritorious services. The Supreme Court by a majority held that the sum of Rs. 5 lakhs was paid as a personal gift to the assessee for personal qualities and as a token of personal esteem. The Supreme Court considered the fact that the gift need not cease to be a mere gift because what led to it is a past employment, an employment which has ceased. The earlier judgment of the court in P. Krishna Menon's case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the services of the assessee were utilised by the Tata Company for obtaining the conversion of the aforesaid deposit amount into investment in the company. In order to appreciate as to how the assessee received the amount of Rs. 1.50 lakhs it would be significant to notice that a cheque for the sum of Rs. 1,50,000 was issued by the Tata Company on October 8, 1959, in the name of the firm, which was brought into existence only some time before the aforesaid cheque was issued by the Tata Company with the object of carrying on business of financiers, traders, commission agents and industrialists. If the amount was really paid in appreciation of the personal qualities of the assessee or in token of personal esteem for him and if the assessee intended to receive the amount by way of a present or a testimonial then there was no reason whatsoever as to why Col. Keshri Singh did not receive the amount of Rs. 1.50 lakhs in his own name. It is significant that the petitioner in this matter employed a subterfuge for obtaining the payment of the aforesaid amount in the name of the firm as his benamidar. The constitution of the firm in August, 1959 and, thereafter, the Tata company issuing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in his own name and why should he have employed the contrivance of suggesting to the Tata Company to make payment of the said amount in the name of a newly constituted firm and then obtained the cheque in the name of the firm ? Thus, taking all these facts and circumstances into consideration, there is no doubt that the amount of Rs. 1,50,000 was paid by the company to Col. Keshri Singh in appreciation of the services rendered by him in persuading the Maharaja of Jaipur, who was admittedly his close acquaintance, for converting his deposits with the Tata Company into investment in the company which was newly incorporated--Chief Justice Sir Harold Derbyshire observed in the case of Susil C. Sen [1941] 9 ITR 261 (Cal) that " commercial men rarely pay money without good reason and (they) generally do so in return for property, goods, services or help ". We are in entire agreement with the aforesaid observations and further we are of the opinion that these observations are fully applicable to the facts of the present case. The Tata Company according to the pre-incorporation agreement between the promoters of the company undertook to take up shares worth Rs. 178.50 lakhs by themselves a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or in the practice of an act founded on it (Words and Phrases, Permanent Edition, West Publishing Co., volume 34, at page 381), " Vocation " is one's regular calling or business--the activity on which he spends major portion of his time and out of which he makes his living (Words and Phrases, Permanent Edition, volume 44, at page 523, West Publishing Co.) Thus the activity which produced the aforesaid income of Rs. 1,50,000 to the assessee may not be called his profession or vocation but it would be covered by the generic term " occupation ". However, as held by their Lordships of the Supreme Court in P. Krishna Menon's case [1959] 35 ITR 48, the question is whether the said activity actually produced an income and it did not matter that that activity was called by the name of business, profession or vocation or by any other name. Moreover, although the amount received by the assessee in the present case was, no doubt, a solitary transaction it was not of a casual nature and might be the result of an incidental occupation of the assessee as be was not engaged in any regular business, employment or profession at the relevant time. We, therefore, hold that, in the facts and circumst ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
