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TMI Blog1981 (7) TMI 94X X X X Extracts X X X X X X X X Extracts X X X X ..... ary, 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 case, if such person is entitled or such person and one or more of his relatives are entitled in the aggregate, at any time, during the previous year, to not less than twenty per cent. of the profits of such concern," 2. Bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... argued that the word "concern" as appearing in s. 64(1)(ii) should be interpreted to mean "a business establishment" and that, at any rate, the proviso to s. 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" u/s. 2(36). 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 profession 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 Tribunal decisions taking a restricted as well as a liberal view have piled thick and fast upon us. Both sides, therefore, had in their armour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inted out that s. 32A speaks only of business and not of profession. Sec., 176(4) refers to the discontinuance of 'profession' while s. 176 (3A) 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 business are not professions though all professions are business. Shri Patil went on to submit that s. 64(1)(ii) should not be applied in the case of professional assessee in the same manner as s. 64(1)(i). While s. 64(1)(i) specifically refers only to business, s. 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 professional expertise was put to use as a consultant cardiologist and that the assessee was not expected to even dispense th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d broadly and liberally. It was emphasised that s. 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. vs. Central Board of Direct Taxes Anr. (1979) 118 ITR 312 (Del). He referred to following passage. "........the work "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 'also, of or pertaining to the mechanical arts and applied sciences generally, as in t. education, ITO. school'. In the broader sense, technical services may include manageria ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess 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 s. 64. Starting from s. 64(1)(i) where reference is made to a firm carrying on a business, he stated that s. 64(1)(ii) refers merely to a concern and should be read in continuation of s. 64(1)(i). He argued that s. 64(1)(ii) was but an appendix to s. 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 profession. Coming then to s. 64(1)(iii), he pointed out that the word 'firm' appearing therein stood unqualified which indicated that the narrower interpretation to be put on business in s. 64(1)(i) was to govern the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g himself on the above extract, he stated that while s. 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 asses 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 and should be held to apply to the owner of a concern where the assessee's interest was short of proprietorship. He argued that in the assessee's own case it was always open to the ITO to apply the provisions of ss. 37 and 40A(2) and slash down the assessee's claim for any payment for extra commercial considerations to the spouse. 14. Shri Khare stated that Expln. 2 to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ostly with the meaning attributable to the word "concern" appearing in s. 64(1)(ii). According to him, a 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 propriety 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 Dastur, then alone the provisions of s. 64(1)(ii) could be pressed into service. He argued that the word "substantial" as found in s. 64(1)(ii) and as subsequently defined in Expln. 2, would refer to a proportion of the whole and not the whole interest itself. In this connection, he referred us to "words and Phrases Legally Defined" (2nd Edition) by Saunders. He referred to the principles o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yment 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 ld. standing counsel for the department, traced the genesis of the legislative amendment resulting in the provision of 64(1)(ii) and strongly relied upon the Wanchoo Committee 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 interests. The entire sub-section would be rendered otiose and nugatory if the proprietor were to be let off lightly with reference to specified payments made to the spouse while persons with fractional or lesser interests in concerns making payments to the spouse were trapped by the prohibitory provision. He stated that Expln. 2 to s. 64(1) was meant only to enlarge the scope of the word "substantial" and to rope in cases which would not otherwise attain the character of "controlling interest". As a result of this Explanatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 a high degree of skill or some specialised training leading to specialised knowledge and experience. Technical knowledge would normally relate to specialised knowledge in industrial, practical or mechanical arts and applied sciences. He argued that if we stretched the meaning of "professional or technical qualifications" so as to include ordinary, clerical or administrative jobs, the entire proviso would be rendered meaningless. Though, in a larger sense of vocation, any calling or occupation would be so called, it would be not correct to include vocation in "profession" especially for the purposes of the proviso to s. 64(1)(ii) though the word "profession" may not be confined only to the learned professions. 22. An actress, architect, journalist and a headmaster can be called professional people, but not a film producer, insurance broker or stock broker. He reportedly stated that "profession" calls fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he present case, there was no provision for double taxation as in s. 40(c) or 40A. For this purpose, he referred to the Explanation to s. 40(c) and Expln. 1 to s. 40A. He, therefore, argued that there need be no apprehension as entertained by Shri Dastur that the interpretation as canvassed by the department would laid the assessee into double taxation. Shri Joshi also relied extensively on a number of dictionary meanings of "profession", "vocation", "qualifications", "technical" and "concern". We shall come to these definitions a little later. 24. In reply, Shri V.H. Patil contended that the definition clause of "profession" i.e. s. 2(36) covered all the provisions of the Act and that the word "profession" should be understood in a larger sense as including "vocation". He argued that the Supreme Court decision (1981) 22 CTR (SC) 157: (1981) 129 ITR 295 as relied upon by Shri Joshi dealt with the meaning of "business connection" in section 9 and was not concerned with the interpretation of s. 64 where a clear-out distinction had to maintained between business and profession. He referred to the Supreme Court decision and pointed out a "vocation" need not be an organised activity. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assets directly or indirectly to or for the benefit of his wife or minor children or for the benefit of certain close relatives. Therefore, cls. (i), (iii), (iv), (v), (vi) and (vii) of s. 64(1) deal with cases where the income of specified relatives in certain circumstances is tagged on to the income of the assessee. Sec. 64(1)(ii), however, has been put into the fascicule of s. 64 and, for that reason, it provides a fertile ground for forensic battles. The main plank in the assessee's armoury was that s. 64(1)(ii) did not apply to proprietary interest at all but only to plurality of interests. However, such an interpretation would put the proprietor in a much better position than a person with a lesser or fractional interest and the mischief sought to be curbed by the introduction of this provision would be considerably hamstrung if the word "concern" is put into the straight jacket of "business" as excluding profession or of an organisation or an entity with plurality of interests. Such an interpretation would run counter not only to the purpose for which s. 64(1)(ii) was introduced, though unhappily inserted in s. 64, but also run counter to the meanings which the words can bea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Marine Steam Turbine Co. Ltd. (1920-1 KB 193, 203) that the word "business" is also understood to mean an active occupation or profession continuously carried on. Thus the Supreme Court held that the expression "business connection" in s. 9(1) includes professional connection also. Therefore, in our opinion, "concern" applies to business as well as professions as the Supreme Court decision is equally applicable here. 29. The second contention advanced on behalf of the assessee was that a concern in which the assessee has a substantial interest indicates only plurality of interests and does not take in income of a proprietor. We have already stated that the legislative purpose would be frustrated and the sub-section rendered nugatory if s. 64(1)(ii) is confined only to non-proprietary concerns and not to proprietors. In fact, ss. 37 and s. 40A can be pressed into service by the department not only in the case of proprietors but also in the case of other concerns and the argument, therefore, that the provisions of ss. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... luded" with reference to payment made by the assessee as a proprietor to his spouse. The expression "there shall be included", it was urged, postulates the payment to the spouse by somebody other than the assessee as a proprietor. It was also argued that if the payment to the spouse was disallowed u/s. 37 or s. 40A, partly or wholly, the "inclusion" of the same amount in the hands of the proprietor would amount to double taxation. We have given anxious thought to these arguments as to other and we are of the opinion that the difficulty can be resolved by holding that no double taxation is envisaged by s. 64 in the absence of a specific provision to that effect by the legislature. As pointed out by the Supreme Court in the case of Jain Brothers and Others vs. Union of India and Others (1977) 77 ITR 107 (SC), double taxation is permissible only if there is a specific provision therefor. Therefore, amounts disallowed u/s 37 or s. 40A would not come in for addition or inclusion u/s. 64(1)(ii). The word "included" does not postulate necessarily that there must have been a payment by somebody other than the assessee to the spouse. Sec. 64(1)(ii) merely provides that even where the paymen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ea of an occupation requiring either purely intellectual skill, or if any manual skill controlled by the operators' intellectual skill, as distinguished from an occupation which is substantially a production or sale or arrangement for the production or sale of commodities. The word 'profession' is certainly wider than the old definition of the learned professions in the church, medicine, and law. A company cannot carry on a profession. The following have been held to be carrying on a profession: An actress, an Architect, a Journalist, a Headmaster. The following have been held not be carrying on profession: dance-band leader, a film producer, an Insurance broker, stock-broker, a photographer and Income-tax repayment agent. An optician who tests sight and makes and supplies spectacles carries on both professional and trading activities. 235. Ceasings of vocation: Vocations a very vide meaning, and is analogous to a calling and means a way in which a person passes his life. Thus, a bookmaker carries on vocation, as also does an actress and a jockey, but a film production executive does not carry on a profession or vocation." 34. Similarly, Collon's English Dictionary defines "q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion requiring intellectual skill or requiring manual skill as controlled ultimately by intellectual skill. In this connection, we may refer to the Supreme Court observations in CIT, U.P. vs. Manmohan Das (Deceased) (1966) 59 ITR 699 (SC) at page 710, in the case of Manmohandas, wherein it has been observed that a profession involves occupation requiring purely intellectual or manual skill and it was held in that case that the work of a treasurer cannot be so regarded on the facts of that case. 37. Judged by the above tests, which we have set out for ourselves, we consider it necessary to impart a wide or liberal sense to "technical" or professional qualifications". We would not like, however, to go to the length of saying that a profession means any vocation or occupation by which a person earns his living. However, it involves, in our opinion, the exercise of intellectual skill or of manual skill as controlled by intellectual skill. Obvious cases of Chartered Accountants, doctors, singers, etc. would present no difficulty. There may be cases of carpenters or tailors where also we can clearly see professional activity. In fact, the Supreme Court had occasion to discuss the word ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at would completely alter the meaning of the proviso. The argument cannot, therefore, be accepted. If a qualified spouse were to do a job to which her knowledge and experience are not to be put to any use, the proviso would not be applicable and the assessee will have to pay the penalty for engaging his spouse for doing a job to which the technical expertise or knowledge or professional skill cannot be harnessed. Similarly, the use of the word "experience" cannot be treated as tautologous or a superfluity though a reasonable view should be taken of the length of the experience of the spouse when she is otherwise qualified professionally or technically and experience acquired in the course of acquiring the qualifications may be treated as experience for the purpose of the section. The very purpose of introducing the proviso is to carve out an exception to the rigorous provisions of s. 64(1)(ii) where even genuine cases of bonafide payments made to the spouse for actual services rendered by the spouse may enter the redlight zone of addition. The standards of fairness and reasonableness, which the assessee insisted upon us, as the unfailing guides in interpreting sections dealing with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... knowledge and experience. Apart from this, the ITO has mentioned in the assessment order that no balance-sheet is drawn, that the books of accounts are not closed and that the accounts maintained are sketchy. In these circumstances, we do not know the actual job under taken by Smt. Mokashi and the actual services rendered by her as the receptionist-cum-accountant. For this purpose, we cannot say that the tests laid down by us for determining whether technical or professional qualifications are possessed by her are satisfied. It has not been established whether the payment received by her is attributable to her technical or professional knowledge and experience, if any. It may be that for the last several years she has been doing the work and she has some kind of experience and even knowledge. But then, it has been found whether she has the requisite or necessary "technical or professional" qualifications as understood by us. We, therefore held on the facts of this case and for the year under appeal, that the payment made to Smt. Mokashi cannot be allowed under the proviso to s. 64(1)(ii). Thus the disallowance made for this year is upheld though it would be open to the assessee in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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