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TMI Blog1981 (7) TMI 91X X X X Extracts X X X X X X X X Extracts X X X X ..... iness in which such individual is a partner ; (ii) to the spouse of such individual by way of salary, commission, fees or any other form of remuneration whether in cash or in kind from a concern in which such individual has a substantial interest : Provided that nothing in this clause shall apply in relation to any income arising to the spouse where the spouse possesses technical or professional qualifications and the income is solely attributable to the application of his or her technical or professional knowledge and experience ; Explanation 2 : For the purposes of clause (ii), an individual shall be deemed to have a substantial interest in a concern--- (i) in a case where the concern is a company if its shares (not being shares entitled to a fixed rate of dividend whether with or without a further right to participate in profits), carrying not less than twenty per cent of the voting power are, at any time during the previous year, owned beneficially by such person or partly by such person and partly by one or more of his relatives ; (ii) in any other case, if such person is entitled, or such person and one or more of his relatives are entitled in the aggregate, at any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at any rate, the proviso to section 64(1)(ii) would help the assessee out as the job of a receptionist-cum-accountant could be treated as a vocation included in the term ' profession ' under section 2(36) of the Act. It was held by the Tribunal that the word ' concern ' would include a profession, that ' profits ' would cover professional receipts and that the expression ' technical or professional qualifications ' would imply possession of certain standards determined or prescribed by a competent body. It was, therefore, found by the Tribunal that the job of an accountant or of a receptionist did not involve any technical or professional qualifications. It was further held by the Tribunal that the salary earned was not attributable to her technical or professional knowledge and experience. For these reasons, the Tribunal upheld the disallowance made by the lower authorities. 4. Since then much water has flown into the Arabian sea and a number of the Tribunal decisions taking a restricted as well as a liberal view have piled thick and fast upon us. Both sides, therefore, had in their armoury an imposing array of the Tribunal decisions in support of their claims. 5. The case wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness or profession. . . .'. it was then pointed out that section 32A of the Act speaks only of business and not of profession. Section 176(4) of the Act refers to the discontinuance of ' profession ' while section 176(3A) of the Act refers to the discontinuance of ' business '. Shri V.H. Patil contended before us that though the word business as generally understood, would include a ' profession ', a definite distinction between business as contradistinguished from profession has been maintained throughout the Act. Alighting upon the maxim that all businesses are not professions though all professions are businesses. Shri Patil went on to submit that section 64(1)(ii) should not be applied in the case of professional assessee in the same manner as section 64(1)(i). While section 64(1)(i) specifically refers only to business, section 64(1)(ii), no doubt, uses the word ' concern ', but then, the expression ' concern ' would more appropriately be referable to a business or a business organisation than to a professional man or entity. 7. Shri V.H. Patil went on to contend that his client did not have a business establishment or a nursing home, that his was a case where only profe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section was held to apply to proprietary concerns so as to cover professional activities carried on by individuals, the proviso which carves out an exception to section 64(1)(ii) should be construed broadly and liberally. It was emphasised that section 64 deals with artificial income and that the section, as a whole, should be construed strictly so that its rigour does not spill over or entrench upon genuine cases where the salary is paid for actual services attributable to knowledge and experience derived from particular skill obtained in a job. Shri Mehta went on to argue that the expression ' technical or professional qualifications ' did not contemplate academic or educational qualifications and, in this connection, he referred to the discussion of the expression ' technical services ' in the Delhi High Court decision in the case of J. K. (Bombay) Ltd. v. CBDT [1979] 118 ITR 312. He referred to the following passage : " . . . the word 'technical' is given two relevant meanings. The broader meaning is ' belonging or relating to an art or arts ; appropriate or peculiar to, or characteristic of, a particular art, science, profession, or occupation '. But the narrower meaning is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edge and experience. He repeatedly emphasised that academic or educational qualifications were not of the essence and that technical or professional qualifications merely meant one's fitness to do a particular job. Some people have an innate aptitude, it was contended, to do a particular thing and much training would not be necessary in each and every case. He referred to the cases of singers, dancers and other artists, where the native flair for a particular profession would put in the shade cases where years of hard toil and labour have produced only mediocrities. 11. Shri Khare, appearing as an intervener, strongly relied upon the submissions made by those preceding him. He then referred to the peculiar terminology used in different sub-sections of section 64. Starting from section 64(1)(i) where reference is made to a firm carrying on a business, he stated that section 64(1)(ii) refers merely to a concern and should be read in continuation of section 64(1)(i). He argued that section 64(1)(ii) was but an appendix to section 64(1)(i) as what the Act was trying to hit at was tax avoidance carried on through the stratagem of a firm carrying on a business as distinguished from a p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of any other concern, if such individual either singly or along with his relatives was entitled in the aggregate, at any time during the previous year, to not less than 20 per cent of the profits of such concern. For this purpose, the term 'relative' should have the same meaning as in clause (41) of section 2 of the Income-tax Act, 1961." 13. Basing himself on the above extract, he stated that while section 64(1)(ii) was essentially a measure to check diversion of income, it did not take in cases where the spouse was remunerated for actual services rendered by him or her and where the salary was commensurate with such services. He further pointed out that the word ' concern ' would refer to an establishment and would not be applicable to an individual assessee carrying on a profession as a proprietor. It was stated that the word ' concern ' in which an assessee has a substantial interest would mean only that concern where the assessee has a fractional interest and where it is not wholly and fully owned by the assessee himself. He contended that ' substantial interest ' was not the same as ' wholly owned interest ' and that the word ' concern ' implied a plurality of interests an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... envisages, it was contended, a case where the salary, commission, etc., paid to the spouse has been allowed earlier but is required to be included separately in the assessee's own case. He also contended that the word ' concern ' should be interpreted to mean a commercial concern and not a professional concern. 16. Shri Soli Dastur, appearing as another intervener, dealt mostly with the meaning attributable to the word ' concern ' appearing in section 64(1)(ii). According to him, concern specifies a business activity as contrasted with a professional activity. There is a dichotomy employed by the said section between the assessee on the one hand and the concern on the other hand. Therefore, the word ' concern ' would not apply to a proprietary interest. He then argued that even if the word ' concern ' were to include a professional activity, or for that matter, to include a proprietary concern, it should, in any event, be an organisation run by or presided over by the assessee and which should be able to carry on the activity in the absence of the assessee himself at least for some time. Where there were trappings of such an organisation, it was contended before us by Shri Dastu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee. He argued that this would result in a curious anomaly and that, therefore, it should not be held, to be necessary for the spouse to have experience so long as the income was attributable to technical or professional knowledge. Shri Dastur lastly contended that if the departmental interpretation were to be accepted, viz., that section 64(1)(ii) might operate in the same field as section 37 or section 40A, there would be double taxation or double addition in the hands of the assessee of the payment made to the spouse. 18. Shri V. H. Patil and the interveners referred extensively to the various dictionary meanings of ' profession ', ' concern ', ' technical ' and ' business '. These definitions would be referred to and dealt with later. 19. On the side of the revenue, Shri R. J. Joshi, the learned standing counsel for the department, traced the genesis of the legislative amendment resulting in the provisions of section 64(1)(ii) and strongly relied upon the Wanchoo Committee's recommendations extracted in the earlier part of this order. He argued that the said section was rightly drafted in general terms so as to include cases of individuals as well as of plurality of int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ide import. In the Supreme Court decision it was held that the expression ' business connection ', as used in section 9(1), would include professional connection. Relying strongly upon the aforesaid Supreme Court decision, Shri Joshi, contended that the word ' concern ', as used in section 64(1)(ii), applies to ' business ' as well as ' profession '. 21. Coming then to the proviso to section 64(1)(ii), Shri Joshi contended that professional qualifications would indicate or imply special training in arts and science and that they would not include ' vocation ' or vocational skills. He stated that section 64(1)(ii) applied to all genuine and non-genuine cases and that, therefore, the expression ' technical or professional qualifications ' should be interpreted as it is generally understood. He relied upon a few definitions of the expression. He argued that a profession involves an occupation of purely intellectual or manual skill and that the word ' technical ' would imply a high degree of specialisation or training. He submitted that professional qualifications may not necessarily mean academic or educational qualifications but definitely involve high degree of skill or some speci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... professional knowledge and experience. It may be that a raw chartered accountant or a lawyer may not fit into the proviso and the assessee may not escape the clutches of section 64(1)(ii) at least for the first few years of service of the spouse ; but then the proviso, as it stands in all its rigour, should not be watered down or rewritten so as to thwart the legislative intent and slur over legislative history. He then sought to dispel Shri Dastur's argument that section 64(1)(ii), as interpreted by the department would result in double taxation inasmuch as the salary or payment made to the spouse would call for an addition under section 64(1)(ii) notwithstanding the disallowance made of an identical sum under other relevant provisions of the Act like section 37 or section 40A. He added that there was no warrant for double taxation or double addition in the absence of a specific provision to that effect and that, in the present case, there was no provision for double taxation as in section 40(c) or 40A. For this purpose, he referred to the Explanation to section 40(c) and Explanation 1 to section 40A. He, therefore, argued that there need be no apprehension as entertained by Shri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o businesses rather than professions. He relied upon the dictionary meanings of the various words like ' profession ', ' technical ', ' concern ', ' vocation ', etc. 26. We have heard the rival contentions advanced by both the sides. The battle lines drawn between the two parties often got blurred with the meaning of one word extending into the domain of another. Interpretation is, indeed, an arduous task and though all attempts are normally made to elicit legislative intention, recourse can be had only to the meaning of the words as used by the Legislature and as placed in the context or scheme of the Act. Legislative history, as reflected in the Wanchoo Committee Report, extracted earlier, may be taken into account especially while applying the ' mischief rule ' as the entire section 64 was itself introduced (as its parent section 16 of the 1922 Act) to rope in cases of tax avoidance. Clauses (i), (iii), (iv), (v), (vi) and (vii) of section 64(1) deal with cases of the assessee transferring his assets directly or indirectly to or for the benefit of his wife or minor children or for the benefit of certain close relatives. Therefore, clauses (i), (iii), (iv), (v), (vi) and (vii) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s distinguished from profession. Even though some distinction is maintained by the Legislature between business and profession especially in some section of the Income-tax Act as relied upon by Shri V. H. Patil, the Supreme Court nevertheless held in the case of Barendra Prasad Ray that the expression ' business connection ', as used in section 9(1), does not exclude professional connections. In fact, it was contended before the Supreme Court that the terms ' business ' and ' profession ' have been separately defined and that section 14 speaks of income from ' business or profession '. Some of the sections relied upon by Shri V. H. Patil before us in order to show that a distinction has been maintained between profession and business in the larger scheme of the Income-tax Act, were noticed by the Supreme Court itself in the aforesaid decision and yet it came to the conclusion that for the purpose of section 9, the expression ' business ' includes profession particularly having regard to section 45 of the Partnership Act and also some decisions noticed by it at page 306 of the report. The Supreme Court approved the observations of Rowlatt, J. in the case of IRC v. Marine Steam Turbi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the section has always to provide for and envisage all possible situations. We may, in this connection, refer to the very decisions relied upon by Shri V. H. Patil. We may first refer to the Madhya Pradesh High Court decision in Malwa Knitting Works' case where it was held that even if an advocate, who is not supposed to participate actively in a business, does so, the partnership does not become illegal and that, at the most, the advocate might make himself liable for disciplinary action under the Bar Council Act. So we may consider a case where a chartered accountant or a lawyer actually gives commission and the case may have yet to be decided independently of the professional disabilities under which an assessee might function. We are, therefore, of the opinion, as stated earlier, that section 64(1)(ii) applies to individuals as well as to persons having less than 100 per cent interest in concerns. 31. Some arguments were advanced on the effect of the use of the word ' included ' in section 64(1) and it was strenuously contended by more than one counsel that it would be in apposite to use ' included ' with reference to payment made by the assessee as a proprietor to his spous ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al qualifications ' and also the circumstances in which the proviso would carve out an exception for the benefit of the assessee. In fact, it was contended vigorously on behalf of the assessee and it was in terms conceded very fairly by Shri Joshi that technical or professional qualifications do not necessarily mean academic or educational qualifications. Once we hold that academic or educational qualifications are not necessary, the next thing that we have to decide is where exactly we have to draw the line and whether we have to interpret the expression ' technical or professional ' qualifications broadly and liberally or narrowly. Both parties placed at our disposal a number of definitions and dictionary meanings and we may now refer to these meanings below : 33. Halsbury's Laws of England, 4th edn., Vol. 23, gives the following definitions : "234. Meaning of ' profession '. --- The question whether a person carries on a trade or a profession is one of fact to be determined by the Commissioners. The Income-Tax Acts do not contain any definition of ' profession ', and, although the following definition is not necessarily exhaustive, it may be useful as a guide. A profession ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion ; life work or means of livelihood '. 35. The word ' technical ' implies some practical knowledge of mechanical or scientific subjects or relating to any particular subject. In this connection, Webster's Third New International Dictionary (page 2348) may be seen. The Shorter Oxford English Dictionary (Second edition, p. 2140) refers the expression ' technical ' to a person skilled in or practically conversant with some particular art or subject ; belonging or relating to an art or arts, appropriate or peculiar to, or characteristic of, a particular art, science, profession or occupation. 36. Thus, we see that the term ' technical ' is understood to include certain characteristics of specialisation relatable to a particular subject. The term ' profession ' is sometimes used in a narrow sense so as to mean the learned professions or an occupation requiring a high level of training and proficiency. In a wide sense, it means any calling involving intellectual skill or manual skill ultimately controlled by intellectual skill. In a still wider sense, it means any calling or occupation by which a person habitually earns his living. This is as per the Shorter Oxford English Dictio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsidered as calling for professional skill, even when he works under one employer provided the mode of keeping accounts calls for intellectual skill. Therefore, an indication or a test for finding whether professional skill is involved is to see whether it requires or postulates intellectual skill or manual skill as controlled by intellectual skill and can furnish a source of independent livelihood to the person though that person might accept employment from his or her spouse. If on the other hand, the skill is such that it is not possible, hypothetically or objectively speaking to earn an independent livelihood as in the case of a professional typist or a professional accounts-keeper, it will not be possible to term it as involving professional qualifications. Again ' technical ' would involve specialised training in a mechanical or scientific subject or in any particular subject. Therefore, each case will have to be decided on its own facts. We can only lay down general tests or principles as stated above. 38. The second requirement of the proviso to section 64(1)(ii) is that the payments made to the spouse must be attributable to the application of technical or professional k ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alary does not cease to be the product of professional skill merely because a particular employment is accepted. 5. The term ' technical ' implies specialised knowledge generally of a mechanical or scientific subject or of any particular subject. 6. The word ' and ' appearing twice in the proviso to section 64(1)(ii) means ' and ' and not ' or '. 7. ' Experience ', as appearing in the proviso to section 64(1)(ii), includes experience acquired in the course of acquiring technical or professional qualifications. 40. In the light of our above observations, we have now to see whether the facts of the case before us bring to the assessee the benefit of the proviso or not. As we have stated earlier, we do not consider it necessary to discuss the factual situation in the case of the interveners, whose arguments we have taken into account for the purpose of deciding this appeal. As far as the facts of the case before us go, in our opinion, the materials are not sufficient to enable us to come to a favourable decision especially having regard to the principles, laid down by us. It is stated that Smt. Mokashi is an accountant. The actual work she is doing has not been but should have ..... X X X X Extracts X X X X X X X X Extracts X X X X
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