COLLISTER, J. - Under the provisions of Sec. 66(2) of the Indian Income-tax Act the Commissioner of Income-tax has referred to us the following question of law :-
'Whether the fully paid up shares of Rs. 15,000 allotted to the applicant in service of one of the shareholders only by the Directors of the Pipraich Sugar Factory Ltd., under the circumstances mentioned above, i.e., voluntarily and without any previous agreement or understanding, amount to an income assessable under law or are mere receipts of a casual and non-recurring nature within the meaning of Section 4(3) (vii) and exempt from assessment.'
The applicant was employed by Syed Jawad Ali Shah as the manager of the Mian Sahib of Imambara Estate in the Gorakpur district on a salary of Rs. 400 a month. Syed Jawad Ali Shah established a sugar factory on this estate. He afterwards decided to transfer the factory to a limited company. The Pipraich Sugar Factory Ltd., was established in order to take over the concern. The applicant took a great deal of trouble in disposing of the shares of the company, i.e., in inducing a number of people to invest their capital in the company. After the company had been successfully floated, the Directors, in recognition of the applicants services, allotted to him shares to the value of Rs. 15,000. The applicant had been assessed to income-tax in previous years on his salary. In the year with which we are concerned he was originally assessed upon the same basis, but after the assessment had been made the Income-tax Officer discovered from the Articles of Association of the Pipraich Sugar Factory Ltd., that this allotment of shares to the value of Rs. 15,000 had been made in favour of the applicant. He then issued a notice to the applicant to submit a revised return. The applicant thereupon did submit a return in which he included this sum of Rs. 15,000 as part of his income. It is obvious, however, that he never intended to admit that this sum was income assessable to tax. The Income-tax Officer decided that it was so assessable and made an assessment accordingly. The applicant appealed to the Assistant Commissioner of Income-tax but his appeal was dismissed. He then made an application to the Income-tax Commissioner with the result that we have this reference before us.
In the course of the argument learned Counsel appearing for the Income-tax Department pointed out that the Assistant Commissioner of Income-tax in his order had said that the payment could not be considered as an ex gratia one. The Assistant Commissioner said : 'Even if there was no cut and dried agreement between the employer and the employee regarding the remuneration for services rendered, still the latter must have been well aware that he would be suitably recompensed for his labours, although as to the actual amount he had to trust to the good sense of the directors.' It seems to us that the learned Assistant Commissioner intended to find that there was no definite contract which could be enforced and therefore in that sense the payment was a matter of grace on the part of the directors, but that question is of no importance because we have to deal with the question of law which has been stated and the Income-tax Commissioner has asked for our opinion upon the assumption that the payment on the part of the directors was voluntary and without any previous agreement or understanding.
Learned Counsel for the Income-tax Department has also argued that the reference really raises two independent questions of law, viz., (1) whether this allotment of shares amounts to income within the meaning of the Act and (2) whether, if it amounts to income, it is income which is exempted within the meaning of Sec. 4(3) (vii) of the Act i.e., whether, it was receipt, not being a receipt arising from business or the exercise of a profession, vocation or occupation which is of a casual and non-recurring nature and is not by way of addition to the remuneration of an employee. We do not think that the two questions can be considered as entirely separate and independent.
In the case of the Commissioner of Income-Tax, Bengal v. Shaw Wallace and Company their Lordships of the Privy Council said :-
'Some reliance has been placed in argument upon Sec. 4(3) (v) which appears to suggest that the word income in this Act may have a wider significance than would ordinarily be attributed to it. The sub-section says that the Act shall not apply to the following classes of income and in the category that follows, clause (v) runs :- Any capital sum received in commutation of the whole or a portion of a pension, or in the nature of consolidated compensation for death or injuries, or in payment of any insurance policy, or as the accumulated balance at the credit of subscriber or to any such Provident Fund. Their Lordships do not think that any of those sums, apart from their exemption, could be regarded in any scheme of taxation as income, and they think that the clause must be due to the over-anxiety of the draftsman to make this clear beyond possibility of doubt. They cannot construe it as enlarging the word income so as to include receipts of any kind which are not specially exempted.'
The result is that a receipt may not be income within the proper connotation of that term and yet may come within the exceptions in Sec. 4(3) of the Act. We must decide whether this allotment of shares is income assessable under the Act after considering all the circumstances and applying not only the ordinary meaning of the word income but also the terms of the relevant part of Sec. 4(3) of the Act.
Their Lordships in the case to which we have referred pointed out that the word income was not defined anywhere in the Act. They said :- 'Income, their Lordships think, in this Act connotes a periodical monetary return coming in with some sort of regularity, or expected regularity, from definite sources. The source is not necessarily one which is expected to be continuously productive but it must be one whose object is the production of a definite return, excluding anything in the nature of a mere windfall.'
We have to see whether the allotment of shares is income within the meaning which has been assigned to that term by their Lordships of the Privy Council or whether it can be described as a mere windfall. We do not think there can really be any doubt Pipraich Sugar Factory Limited, although it appears from the reference that his employer, Syed Jawad Ali Shah, was one of the shareholders in the company. This payment was not made by the company to one of its employees for services rendered. The applicant was not in any way carrying on the vocation of a promoter of companies or a share-broker or anything of that kind. He did not enter into any contract with the company by which the company promised him remuneration for assisting in the disposal of shares. It may be that the applicant was actuated by a hope that his services if successful would not go unrequited but it is obvious that he had no legal claim against the company and that any hope that he had was based upon the grace and goodwill of the Directors. It cannot be said that the applicants object was the production of any definite return. If he hoped for a return that return was certainly 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 employers goodwill and gratitude. We do not think that the applicants 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.
We are aware of the decision of this Court in the case of Gaya Prasad Chotey Lal but that was a case which was decided upon its own facts. We must not be understood to say that a single transaction of a business nature, such for instance as a money-lending transaction which resulted in gain, would not justify the assessment of income upon that gain, but a transaction of that kind would clearly come within the meaning of the term business and consequently it would not matter whether it was or was not of a casual and non-recurring nature. The facts of the case before us are entirely different. Applying the meaning assigned by their Lordships of the Privy Council to the term 'income' and applying also the provisions of Sec. 4(3) (vii) of the Act we are satisfied that this receipt of the shares in the company was not income assessable under the Act.
Our answer to the reference is that the allotment of shares did not amount to income assessable under the law and that the receipt was exempt from assessment. The assessees costs shall be paid by the Department. We assess the fee of the Counsel for Income-tax Department at Rs. 150. A certificate shall be filed within six weeks.
Reference answered accordingly.