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TMI Blog1985 (1) TMI 74X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee, the ITO made inquiries and found that two partners out of six partners are qualified for the job. Four partners are not qualified nor they are professional qua the nature of activities of the assessee. They simply contributed the capital of the firm. According to the ITO when majority of the partners are non-qualified, the assessee cannot claim itself as a professional firm. Being aggrieved, the assessee went in appeal before the Commissioner (Appeals). The Commissioner (Appeals) allowed the claim of the assessee. Being aggrieved, the revenue came in appeal before us. 2. The submission of the learned departmental representative, Shri Malik, was that out of six partners, only two partners are qualified. Seven employees who are carrying on the activities of the assessee are also qualified. Therefore, the income is earned mainly by the employees, who are qualified persons and not by the partners. There is a difference between the firm constituted by the professionals earning income and the firm constituted by non-qualified persons employing qualified persons to run the business. In this case, the facts are nearer to the latter one. Therefore, the ITO had rightly di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the value thereof. The department and the Tribunal negatived the claim on the ground that the assessee's running a nursing home was part of his profession and could not be classified is a business. Their Lordships held that carrying on of the nursing home by the assessee as part of his profession was of commercial nature and the combined activities of the assessee constituted business and the assessee was entitled to the development rebate. Further, similar issue was considered by the Gujarat High Court in the case of CIT v. Dr. K.K. Shah [1982] 135 ITR 146. The facts before their Lordships were that the husband and wife are members of the very same partnership firm carrying on business. The income or the two is to be clubbed together. Their Lordships considered the distinction between the business and profession. Their Lordships held as under : ". . . on the facts of the case, that the income of the spouses, who were both qualified medical practitioners, from the professional activities of their firm cannot be clubbed together but if the spouses are also engaged in any distinct business activity such as running a chemist's shop, their income, to that extent, can be clubbed tog ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y qualified, the firm is not entitled to benefit of lower rate of tax. In my opinion, this view is not correct because the statute does not require that for being eligible for the lower rate of income-tax, the firm must have all the partners professionally qualified persons. Take, for instance, a partnership consisting of Mr. A, an individual and ' B ', a body corporate, registered under the Companies Act, 1956. Mr. A is professionally qualified as management consultant. The firm has started the profession of providing management consultancy services. Can it be said that income of this firm will not be entitled to lower rate of tax on registered firm on the basis of that income is earned by firm where only one partner is professionally qualified ? Take another instance of a firm of architects where one of the partners is a medical surgeon who because of his contacts has joined the firm. Other partners may be architects and engineers. Can it be said that all the partners are not professionally qualified ? In such cases, according to the stand of the revenue, the firm shall be entitled to benefit of lower rate in spite of the fact that there is no relevance of educational qualificati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the laboratory is run by the two professionally qualified partners in partnership by themselves or along with the seven professionally qualified employees in partnership, the income from the laboratory would have been income derived from a profession carried on by the partnership firm. Since, however, the laboratory is run by the firm constituted of six partners, four of whom do not have professional qualifications, the ITO has taken the view that the income from the laboratory cannot be treated as income derived from the profession carried on by the assessee-firm. 3. The controversy, it may be stated, has arisen as a result of the provisions contained in sub-paragraph II of paragraph C of Part I of the First Schedule to the Finance (No. 2) Act, 1977, which provide for a lower rate of taxation in the case of registered firm, whose total income includes income derived from a profession carried on by it, etc. The relevant provision read as under : " In the case of every registered firm whose total income includes income derived from a profession carried on by it and the income so included is not less than fifty-one per cent of such total income,". According to the Commissione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing professional qualifications only and not by persons who do not have professional qualifications. If non-professionals carry on professional activities, income from such activities will be considered as income from business in their hands. It is misnomer to say that the assessee's income is from the profession and the dispute has arisen only because the activities are carried on by a firm of which four out of six partners do not have professional qualifications. Such an income, according to the departmental representative, is to be taken as income from the business and not from the profession. In short, Shri Bhattacharya's submission is that there is no theoretical conception of profession as such. It is income from the profession only if the profession is carried on by the individual or all the partners of the firm themselves, as the case may be, and such an activity is dependent mainly on the personal qualifications of persons, who are supposed to carry on the profession. All the three decisions, referred to and relied upon by the learned Judicial Member, in support of his submissions, are strongly relied upon. It is stated that the Madras High Court has taken the same view in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the cases of Dr. P. Vadamalayan and Dr. V.K. Ramachandran, the Allahabad High Court in the case of P. Stanwill Co. and the Gujarat High Court in the case of Dr. K.K. Shah, have no direct bearing on the issue before me. The Allahabad High Court was concerned with the provisions of section 2(5) of the Excess Profits Tax Act, which are materially different from the provisions herein. What has been decided in Dr. P. Vadamalayan's case, is that, a doctor by profession can carry on profession. He can also contemporaneously carry on a trade which is annexed to the exercise of such a profession and that a nursing home run by the doctor, in given circumstances, can constitute business. A similar view has been taken by the Madras High Court in Dr. V.K. Ramachandran's case. In that case the assessee, a medical practitioner, purchased an X-Ray machine. The way in which he was carrying on the X-Ray activity, it was found that it was in no way different from a non-qualified person carrying on a radiological institute. It was held that mere fact that a professional man had, as an adjunct to his professional activities, such an institute, did not disable him from running it as a commercial ..... X X X X Extracts X X X X X X X X Extracts X X X X
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