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TMI Blog1973 (7) TMI 36X X X X Extracts X X X X X X X X Extracts X X X X ..... to be the friends of Paterson, were informed by Paterson of the proposal of the Binny Company. Nagaraj Brothers along with some others then formed a partnership under the name of Satyanarayana and Nagaraj and Company with the avowed object of carrying on business as real estate agents. This partnership firm then entered into an agreement on March 16, 1960, with Binny Co. for the purchase of the estate and ultimately the property was sold for Rs. 19,37,000. On the conclusion of the sale, M/s. Binny Co. paid a sum of Rs. 37,000 to Paterson in connection with the disposal of the property which Paterson shared with Nagaraj and Ethiraj equally, each thus getting a sum of Rs. 12,333. These three persons included their respective receipt of Rs. 12,333 in Part D of their returns for the assessment year 1961-62 and claimed exemption from assessment in respect of the same under section 4(3)(vii) of the Indian Income-tax Act, 1922 (hereinafter called "the Act"), on the ground that the amount in question did not arise out of business, profession or vocation and that it was also in the nature of a casual and nonrecurring receipt. The assessment proceedings of Nagaraj Brothers was deal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sal of the properties by Binny Company, Nagaraj brothers were not engaged in carrying on real estate business, that it was only this information which put the idea into their heads of starting a business in real estate, that the partnership of which Nagaraj brothers were partners had as its object the purchase of the properties of Binny and Company with a view to sell them at a profit and that, therefore, it cannot be said that Nagaraj brothers rendered any service to Paterson for which they received the payment in question from him by way of remuneration. The Tribunal also stated that, probably, Paterson felt morally bound to share the amount with Nagaraj brothers and, therefore, he shared with them. In that view, the Tribunal held that the receipt is exempt from assessment under section 4(3)(vii) of the Act. At the instance of the Commissioner of Income-tax identical questions have been referred against the Tribunal's orders in T.Cs. Nos. 255 and 256 of 1967 and the question of law referred is : "Whether, on the facts and in the circumstances of the case, the assessee was entitled to exemption under section 4(3)(vii) of the Indian Income-tax Act, 1922, in respect of the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection of such buildings or other works calling for skill in design and planning as he might, in the course of his business, reasonably be asked to carry out or in respect of which he offers his services as a specialist. Architects Profess in varying degrees to have the knowledge necessary to estimate the probable cost of works to be done and the value of works executed, but this knowledge is becoming more and more the province of quantity surveyors." We are unable to agree with the learned counsel that this definition in any way suggests that an architect cannot within the scope of his profession, perform any service to his clients in the matter of real estate dealings. The two relevant rules in the Code of Professional Conduct of the Royal Institute of British Architects relied on by the learned counsel in this connection read as follows : "4. A member or student may be architectural consultant, adviser, or assistant to building contractors, decorators, manufacturers, house and estate agents, estate development firms or companies, or firms or companies trading in materials used in or whose activities are otherwise connected with the building industry, provided that he is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operty. Neither at the time when this meeting was arranged nor at any time prior thereto was there any agreement on the part of his client to remunerate the assessee. A few days later, the assessee entered into an agreement with his client to render all help to dispose of the estate and negotiate with the parties concerned and the parties agreed that the assessee shall be paid a honorarium when the estate was sold at one-third of the net profits. When the estate was finally sold the assessee was paid a sum of pound 4,740 as and by way of his share of profits. While overruling the contention of the revenue that this amount was paid to the assessee as commission for introducing his client to the original owner of the estate, Finlay J. observed. : "That contention, I think, would not do, and for this very elementary reason : there was no agreement at all that the appellant, in respect of this introduction arising out of some meeting on a social occasion, was to receive remuneration, and I think it is perfectly well settled that, in those circumstances, anything that might be given to him would be a perfectly voluntary payment and would not be income ; it would be merely a present. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not definite in its nature. He may have been actuated by a desire merely to assist his employer in disposing of the factory hoping thereby to secure his employer's goodwill and gratitude. We do not think that the applicant's activities can be described as business which is stated in the Act to include any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture. We think that business must be some activity which has for its object the acquirement of some profit which can be claimed as of legal right. The receipt of the shares in this case was certainly in the nature of a windfall. The receipt was certainly casual in its nature. There was no expectation of returns which would come in with any sort of regularity." As seen from the question of law referred in that case, the court was asked to express an opinion on the applicability of section 4(3)(vii) on the basis of a finding that the payment was voluntary and without any previous agreement or understanding. The observations, therefore, will have to be understood with reference to these facts. The other decision relied on by the learned counsel for the assessee is Major A. U. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntary payment is taxable as having an origin in the office, profession or vocation of the payee, which constitutes a definite source for the income. What is taxed under the Indian Income-tax Act is income from every source (barring the exceptions provided in Act itself) and even a voluntary payment, which can be regarded as having an orgin, which a practical man can regard as a real source of income, will fall in the category of 'income', which is taxable under the Act. Where, however, a voluntary payment is made entirely without consideration and is not traceable to any source, which a practical man may regard as a real source of his income, but depends entirely on the whim of the donor, it cannot fall in the category of 'income'..." The Supreme Court in P. Krishna Menon v. Commissioner of Income-tax, at page 53, quoted with approval the following passage of Collins M.R. in Herbert v. Mcquade referring to In re Strong : "Now that judgment, whether or not the particular facts justified it, is certainly an affirmation of a principle of law that a payment may be liable to income-tax although it is voluntary on the part of the persons who made it, and that the test is whether, f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered. The payment was made, it is stated, after a resolution had been passed by the company to that effect. The proceedings of the company had not been produced but it is obvious that the director of the company did not intend to get, any free service from the assessee. If it were otherwise, there was no occasion or necessity for the company to consider that question and vote the payment. The absence of any stipulation or agreement in regard to payment or the absence of any expectation of reward on the part of the assessee, even if true, would not by itself show that the payment was not for services rendered in exercise of his profession as an architect. We are also not satisfied that this service rendered by the assessee was in any way out of the way of the ordinary professional work of the assessee. The Rules of the Code of Conduct of the Royal Institute of British Architects produced also contemplate the architects rendering such services though they, could not procure or get commission but could contribute (sic) for a fee, salary or royalty. Even these restrictions will apply only when the architect deals with building contractors or estate agents or companies trading in buildi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essmen and were partners of some reputed firms like Harrison Co. and Nammalwar Naidu and Sons, thus having vast business experience. Paterson also requisitioned the services of these assessees for the sale of the land. For the help rendered to Paterson, these assessees were paid a share. It is true, the assessees were not doing any real estate business before this particular transaction in question. But it is for the purpose of transacting this particular business of sale they organised the partnership firm, Satyanarayana and Nagaraj and Company. In this connection we may also refer to the decision in Commissioner of Income-tax v. V. P. Rao. It was held therein that there is nothing in the words "exercise of" occurring in section 4(3)(vii) of the Act for holding that the person exercising the occupation should be of the said occupation already, and that receipts got as remuneration by a person, who is not already having the occupation of arbitrator, on being appointed as an arbitrator will be receipts arising from the exercise of the occupation of an arbitrator even though it had been exercised only once. In that case the assessee, a retired judge of the High Court, agreed to ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther and thereby earned a commission, you would, in our opinion, be carrying out a transaction which, although casual in fact, would not be of a non-recurring nature, because having done so once with success, you might be asked by some vendor to do it again." Therefore, the learned judges held that the transaction was a "business" transaction. In the present case, the fact that Paterson shared the commission with Nagaraj brothers shows that there was a conjoint effort in bringing about the sale and the part played by Nagaraj brothers was considerable and effective. The Tribunal considered that the assessees themselves were, as partners of Satyanarayana and Nagaraj Company, the purchasers of the property, and, therefore, it cannot be said that the assessee rendered any service to Paterson for which they received the amount. Though in the eye of law the partnership is not a legal entity, for the purpose of assessment to income-tax it is a separate legal entity apart from its partners and there is nothing wrong in a partner having business of his own. The assessees as individuals brought the purchasers, the partnership firm, and Binny Co., together to enter into a sale and p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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