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TMI Blog1966 (5) TMI 13X X X X Extracts X X X X X X X X Extracts X X X X ..... n he was raised to the Bench, various fees for professional work done by him were outstanding. In the years 1958 and 1959, during no part of which he had carried on any profession, he received certain moneys on account of these outstanding fees. His accounts had always been kept on the cash basis. The question is, whether he is liable to pay income-tax on these receipts. We shall first make a few general observations. Section 6 of the Income-tax Act, 1922, specifies six sources or heads of income which are chargeable to tax. In order to be chargeable, an income has to be brought under one of these six heads. Section 6 also provides that the chargeability to tax shall be in the manner provided in sections 7 to 12B of the Act. Each of these sections lays down the rules for computing income for the purpose of chargeability to tax under one or other of the heads mentioned in section 6. An income falling under any head can only be charged to tax if it is so chargeable under the corresponding computing section. The fourth head of income in section 6 is " Profits and gains of business, profession or vocation " and the fifth head, " Income from other sources ". The fifth head is the res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er another head if it is not chargeable under the computing section corresponding to the former head. If the contention of the revenue is right, the position would appear to be that professional income of an assessee who keeps his account on the cash basis would fall under the fourth head if it was received in a year in which the profession was being carried on, but it would take a different character and fall under the residuary head if received in a year in which the profession was not being carried on. We are unable to agree that this is a natural reading of the provisions regarding the heads of income in the Act. Whether an income falls under one head or another has to be decided according to the common notions of practical men for the Act does not provide any guidance in the matter. The question under which head an income comes cannot depend on when it was received. If it was the fruit of professional activity, it has always to be brought under the fourth head irrespective of the time when it was received. There is neither authority nor principle for the proposition that an income arising from a particular head ceases to arise from that head because it is received at a certain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to tax by computation under that section, they would not be included in " total income " as that word is understood in the Act for the purpose of chargeability. That all income included in total income is not chargeable to tax may be illustrated by referring to income from the source mentioned in the third head in section 6, namely, " Income from property ". The corresponding computing section is section 9 which says that tax shall be payable on income under this head in respect of bona fide annual value of property. It is conceivable that income actually received from the property in a year may exceed the notional figure. The excess would certainly be liable to be included in total income under section 4. It however cannot be brought to tax as income under the head " other sources ": see Salisbury House Estate Ltd. v. Fry. It is an income which cannot be taxed at all though it is included in total income as defined in section 4. In Probhat Chandra Barua v. King Emperor it was no doubt said that section 12, which is the computing section in respect of the residuary head of income, was clear and emphatic and expressly framed so as to make the head of " Other sources " describe a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hird head " Income from property " had to be interpreted as restricted only to that kind of property which is described in the computing section, section 9, and as that section deals only with house property the income from zamindari and other properties did not fall under the head " Income from property ". It, therefore, found no difficulty in holding that the zamindari income was income from the residuary source. We find no support in this case for the view that an income which is admittedly under a specific head can be brought to tax under the residuary head if it cannot be so brought under the computing section corresponding to that head. That case only held that zamindari income was not income which fell under the head " Income from property " and that it could never so fall. It provides no warranty for the contention that an income from one source may, in certain circumstances, be treated as income from a different source, which is the contention of the revenue in the present case. We think it right also to observe that if the receipts in the present case could be treated as income from the residuary source, the position would be most anomalous. We have earlier said that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for chargeability to tax. It only says---and this is most important---that an income shall be chargeable to tax under the head " Other sources " if it does not come under any other head of income mentioned in the Act. Section 12 therefore does not assist the contention of the revenue that professional income which cannot be brought to tax under section 10 may be so brought under section 12. For these reasons we have come to the conclusion that the receipts were not chargeable to tax either under the head of professional income or under the residuary head. It was not said that the receipts might be brought to tax under any other head. In our opinion, therefore, the receipts were not chargeable to tax at all. We accordingly allow these appeals with costs. BACHAWAT J.---These appeals raise the question whether the professional income of an assessee whose accounts are kept on a cash basis, received by him during his lifetime after the discontinuance of the profession and after the close of the accounting year in which the profession is discontinued, is assessable to income-tax either under section 10 or under section 12 of the Indian Income-tax Act, 1922. The assessee was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss, profession or vocation carried on by him." Section 10 applies to the profits and gains of any business, profession or vocation carried on by the assessee. Considering that the subject-matter of charge is income of the previous year, the expression " carried on by him " must mean " carried on by him at any time during the previous year. " To attract section 10(1), it is not essential that the assessee should have carried on the profession throughout the entire previous year or at the time when he realised the outstanding professional fees ; it is sufficient that he carried on the profession at any time during the accounting year in which he realised his fees ; see In re Kamdar. On the other hand, the section does not apply to the profits and gains of any profession which was not carried on by the assessee at any time during the previous year. Our attention was drawn to several decisions of this court dealing with section 10(2)(vii) and the second proviso to section 10(2)(vii). In Commissioner of Income-tax v. Express Newspapers Ltd. and Commissioner of Income-tax v. Ajax Products Ltd., this court held that one of the essential conditions of the applicability of the second ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, he has chosen to treat the receipts in question as income of the accounting years 1958 and 1959. The revenue claims that the income was assessable to tax under section 12. On behalf of the assessee, Mr. Palkhivala submitted that (1) the income from the defunct source of profession, though not assessable under section 10, continued to fall under the head covered by section 10 and the residuary head under section 12 was not attracted, (2) section 10 covers residual heads and not residual receipts, and (3) that if section 12 were applied to this income, the assessee would suffer injustice because the deductions properly allowable under section 10 in respect of the income could not be allowed. On the other hand, Mr. Sarjoo Prasad appearing on behalf of the revenue submitted that the receipts in question were part of the total income of the assessee for the relevant accounting years chargeable under section 3 read with sections 2(15) and 4, and as the income was not exempt from tax and as it did not fall under section 10 or any other head, it must be assessed to tax under section 12. In support of his contention, Mr. Sarjoo Prasad relied upon the opinion of Chagla J. in In re Kamd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plies to them, i.e., provided that they accrue or arise or are received in British India or are deemed to accrue or arise or to be received in British India, as provided by section 4, sub-section (1), and are not exempted by virtue of section 4, sub-section (3)." Referring to the words " income, profits and gains " in section 12, Lord Russell said in Gopal Saran Narain Singh v. Income-tax Commissioner : " The word ' income ' is not limited by the words ' profits ' and 'gains'. Anything which can properly be described as income is taxable under the Act unless expressly exempted." And Sarkar J. said in Sultan Brothers Private Ltd. v. Commissioner of Income-tax : "Section 12 is the residuary section covering income, profits and gains of every kind not assessable under any of the heads specified earlier." Section 6 gives the short label of each head, but the actual contents of the several heads are to be found in sections 7, 8, 9, 10 and 12. Take the head " (iii) Income from property " in section 6. Section 9 shows that only income from buildings or lands appurtenant thereto, of which the assessee is the owner, falls under this head. Income from other properties, e.g., l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me from property under section 9, any residual receipt from the property in excess of the annual value assessed under section 9 cannot be assessed again as residual income under section 12. This principle has no application to the case before us. The relevant professional income of the assessee is not taxable under section 10 or under any other specific head, and it must, therefore, be taxed under section 12. This is not a case where the revenue has taxed or can tax the income under section 10 and again seeks to tax the income under section 12. Mr. Palkhivala next referred us to several English decisions in support of his contention that the receipts of the professional income after the discontinuance of the profession are not assessable to income-tax. Rowlatt J. in Bennett v. Ogston said : "When a trader or a follower of a profession or vocation dies or goes out of business---because Mr. Needham is quite right in saying the same observations apply here---and there remain to be collected sums owing for goods supplied during the existence of the business or for services rendered by the professional man during the course of his life or his business, there is no question of asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the revenue has no option to assess the income from a business or profession on the accrual basis if the accounts of the assessee are regularly kept on the cash basis, and the assessment on the cash basis cannot cover the receipts in the subsequent years. Moreover, it is impossible to say under the Indian law that all receipts of outstanding professional fees after the retirement of the assessee from profession escape taxation. Beyond doubt, the receipt of the professional fees in the accounting year during which the assessee carried on the profession is assessable under section 10, though at the time of the receipt he has retired from the profession. The decision in Commissioner of Income-tax v. Amarchand N. Shroff is entirely distinguishable. In that case, this court held that the income of a deceased solicitor received by his heirs subsequent to the previous year in which he died was not liable to be assesed to income-tax under section 24B as his income in the hands of his heirs, and, apart from section 24B, no assessment can be made in respect of a person after his death. In the instant case, the assessee is alive, and no question of assessment under section 24B arises. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the hands of the legal representative under section 24B. Moreover, the Report is silent on the question of the assessment of the outstanding profits of business realised by a trader after the discontinuance of his business. In this case, we are concerned with the interpretation of the Indian Income-tax Act, 1922, and the question whether we can take into account the provision of the later Act in interpreting the earlier Act. In Craies on Statute Law, 6th edition, page 146, the law is stated thus : "Except as a parliamentary exposition, subsequent Acts are not to be relied on as an aid to the construction of prior unambiguous Acts. A later statute may not be referred to to interpret the clear terms of an earlier Act which the later Act does not amend, even although both Acts are to be construed as one, unless the later Act expressly interprets the earlier Act ; but if the earlier Act is ambiguous, the later Act may throw light on it, as where a particular construction of the earlier Act will render the later incorporated Act ineffectual." This passage is fully supported by the decision of the House of Lords in Kirkness v. John Hudson Co. In Hariprasad Shivshankar Shukla v. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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