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Dr. J.N. Mokashi Vs. Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Mumbai
Decided On
Judge
Reported in(1983)3ITD774(Mum.)
AppellantDr. J.N. Mokashi
Respondentincome-tax Officer
Excerpt:
1. the scope and ambit of section 64(1)(ii) of the income-tax act ('the act') has furnished a happy hunting ground for litigation as a result of which there were conflicting opinions expressed by the benches of the appellate tribunal leading to the hearing of the above appeal by a special bench constituted for the purpose. some interveners also participated in the aforesaid battle between the two sides, though we would like to confine ourselves only to the facts of the above appeal while laying down what we consider to be the parameter of section 64(1)(ii), along with the proviso, which is reproduced below : 64. income of individual to include income of spouse, minor child, etc.-(1) in computing the total income of any individual, there shall be included all such income as arises.....
Judgment:
1. The scope and ambit of Section 64(1)(ii) of the Income-tax Act ('the Act') has furnished a happy hunting ground for litigation as a result of which there were conflicting opinions expressed by the Benches of the Appellate Tribunal leading to the hearing of the above appeal by a Special Bench constituted for the purpose. Some interveners also participated in the aforesaid battle between the two sides, though we would like to confine ourselves only to the facts of the above appeal while laying down what we consider to be the parameter of Section 64(1)(ii), along with the proviso, which is reproduced below : 64. Income of individual to include income of spouse, minor child, etc.-(1) in computing the total income of any individual, there shall be included all such income as arises directly or indirectly- (i) to the spouse of such individual from the membership of the spouse in a firm carrying on a business 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 time during the previous year, to not less than twenty per cent of the profits of such concern.

2. Before we come to the controversy raging between the department and the assessee and the elaborate arguments advanced on either side, we may briefly present a few facts involved in the present appeal. The assessee before us is one Dr. J.M. Mokashi, who was in Government service from 1955 to 1968. He is a MD of Bombay University and a consulting cardiologist. He started independent practice as a physician and consultant in 1965. In 1967, his wife was employed by him as a receptionist-cum-accountant. The educational qualifications of Smt.

Mokashi are limited toher having passed first year Arts of the Bombay University. The salary paid to her for the various years is given below :Asst. year Acct. year Remuneration Rs. We are now upon the assessment year 1978-79 in respect of which the accounting year ended 31-3-1978 and in respect of which year the amount paid was Rs. 9,100. For the earlier years, the amount paid by way of salary by the assessee to his wife was allowed up to and including the assessment year 1975-76. It may be mentioned here that no day-to-day cash book is maintained by the assessee and from the daily register of receipts the entries are made in the ledger. Thereafter, no balance sheet and no statement of affairs is drawn. The gross receipts from the medical profession were shown at Rs. 97,241 for the assessment; year 1978-79 and an amount of Rs. 9,100 was claimed by the assessee, as stated above, as salary paid to his wife who was working as a receptionist-cum-accountant. The disallowance made in the past for the assessment years 1977-78 and 1976-77 was upheld by the Tribunal.

Therefore, the amount was disallowed this year also.

3. For the assessment years 1976-77 and 1977-78 as stated above, the disallowance was maintained by the ITO and the matter reached the Tribunal, before whom it was argued that the word 'concern', as appearing in Section 64(1)(ii), should be interpreted to mean'a business establish-ment' and that, 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 was opened for the assessee before us by Shri V.H. Patil, who argued at the outset that the provisions of Section 64(1)(ii) did not apply to a professional man and that they applied only to a businessman. The alternative contention was that Mrs. Mokashi possessed professional or technical qualifications and that her salary was attributable to her technical or professional knowledge and experience.

Coming to the first limb of the argument, Shri V.H. Patil expatiated on the legislative history spanning the four decades of legislative enactments starting with Section 16(3) of the Indian Income-tax Act, 1922 ('the 1922 Act'). It was pointed out that under the 1922 Act, the words 'member-ship of a firm'employed therein included membership of a firm carrying on a profession. Reference was then made to the historic decision of the Supreme Court in CIT v. Sodra Devi [1957] 32 ITR 615, wherein the term 'individual' as appearing in that section was construed to mean only a male assessee and not a female assessee. This lacuna was made good in the Act where the word 'spouse' was introduced in Section 64. Emphasis was laid by Shri V.H. Patil on Section 64(1)(i) which speaks of inclusion in the total income of an individual any income arising from the membership of spouse in a firm carrying on a business (as distinguished from a profession). He stated that there was a clear distinction between a 'business' and a 'profession' under the Act and for this purpose, he relied upon the observations of the learned commentators, Kanga and Palkhivala (Vol. II, p. 97), to the effect that Section 64(1)(i) applies only to firms carrying on a business and not to professional firms.

6. Our attention was drawn by Shri V.H. Patil to Section 2(13) of the Act defining 'business' so as to include any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture and then he juxtaposed it, with Section 2(36) which defines 'pro-fession' and so as to include 'vocation'. Reference was made to Section 14D of the Act where the distinction between 'profession' and 'business' has been maintained as implied in the expression 'profits and gains of business or profession'. He referred to Section 28(i) of the Act where the distinction between business and profession is again noticed as the words used are 'the profits and gains of any business 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)(ii) 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 professional expertise was put to use as a consultant cardiologist and that the assessee was not expected to even dispense the medicine as per the professional code of conduct applicable to consultants.

Referring then to Explanation 2 to Section 64(1), reproduced above, he argued that the expression 'profits' used therein was more indicative of a business than of a profession.

8. Basing himself on the above interpretation of Explanation 2 to Section 64(1), Shri Patil contended that the word 'concern' would indicate a business as the expression 'profits' did not go along well with 'professional income'. It was pointed out that professional people speak of their fruit of labour as 'income' rather than as 'profit'. It was contended that the word 'concern' and the expression 'a concern in which an individual has a substantial interest' as defined in Explanation 2 and as appearing in Section 64(1)(ii) would envisage cases where the assessee is not a proprietor but has only a fractional or partial interest in the concern. It was argued that Section 64(1)(ii) would not apply to the case of proprietors but would only apply to the case of persons like partners or members of an association of persons or shareholders with specified interests in a company. It was argued that the Wanchoo Committee Report, which recommended the insertion of Section 64(1)(i), referred to cases of 'diversion of income' rather than to genuine cases of payment which could be easily proved to have a reasonable nexus with the technical or professional knowledge and experience of the payee. It was emphasised by Shri V.H.Patil that since 'profession' includes 'vocation' fitness to carry on a vocation would also attain the status of 'professional qualifications'.

The Select Committee Report leading to the introduction of Section 64(1)(ii), it was contended, was not of such help as it did not dwell at length on the cases to be covered by Section 64(1)(ii).

9. Shri S.P. Mehta took up the thread of the arguments of Shri V.H.Patil and pointed out that Section 64(1)(ii) 'applies' to cases where the salary is paid to the assessee's wife by a concern which is different from the individual as an entity, be it a firm or an association or a body of persons or a body of individuals or a firm. It was contended that Section 64(1)(ii) does not apply to proprietary concerns. Even if the 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 'also, of or pertaining to the mechanical arts and applied sciences generally, as in t. education, t. school'. In the broader sense, technical services may include managerial services, but in the narrower sense, the word 'technical' would exclude the managerial services. Pursuing the example of technical education given in the dictionary, we find that technical education is concerned with teaching applied sciences, special training in applied sciences, technical procedures and skills required for practice of trade or profession, especially those involving the use of machinery or scientific equipment.

Technical education may also be distinguished from professional education which places major emphasis upon the theories, understanding and principles of a wide body of subject-matter designed to equip the graduate to practise in such fields as medicine, law and engineering (21 Encyclopaedia Britannica 746). It would appear that managerial service may be professional service, like legal or medical service, but they would not be technical services like engineering service.

To sum up, the main reason why the word 'technical' in Section 80-O can-not be given a wider meaning to include 'managerial' or 'commercial' is that the performance of managerial or commercial services by an Indian company for a foreign enterprise would amount to virtually managing or running the foreign company and remuneration obtained by running or managing a foreign company would be in the nature of profits, while Section 80-O deliberately restricts itself to income by way of royalty, commission or fees and excludes other types of remunerations. (p. 318).

10. Mr. Mehta then went on to state that the word 'technical' as explained in the above extract, was held to have two meanings, one liberal and the other narrow and that the Delhi High Court preferred to adopt the narrow meaning as warranted by the facts of the case before it and while interpreting Section 80-O of the Act. He, therefore, contended that the word 'technical' did admit of a liberal meaning and that a liberal view should be adopted while interpreting the proviso to a section which deals with artificial income. It was argued that Section 64(1)(ii) should be construed generally in favour of the assessee so as to not to hit harshly genuine and bona fide payments to spouses for services rendered and attributable to knowledge 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 intervene!", 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(1X0 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 profession. Coming then to Section 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 Section 64(1)(i) was to govern the meaning of 'concern' in Section 64(1)(ii). He argued that just as, in the case of a firm carrying on a business, the income arising to the spouse from the membership of that spouse was includible in the hands of the individual, the salary paid to the spouse in concern in which the individual has a substantial interest should also be confined to cases of business and not extended to profession. He argued that the word 'concern' as appearing in Section 64(1)(ii) should be interpreted to mean only a business concern and not a professional entity.

12. He referred to the Wanchoo Committee Report, an extract from which appears at page 1732 of the Law of Income-tax in India by V.S.Sundaram, 11th Edition, Vol. II and then pointed out that there was an underlying finding by the Wanchoo Committee that diversion of income by remunerating the spouse was to be largely found in business rather than profession. For this purpose, we may refer to the following extract from the Wanchoo Committee Report and its recommendations : Of the various devices to divert income, one that is most frequently resorted to by a taxpayer in business or profession is the practice of remunerating substantially the spouse by having the spouse as an employee, purchasing selling agent, consultant, etc., in respect of business in which he or she has a substantial interest. Remunerating the spouse in this manner is often nothing but an attempt to camouflage one's own income as the income of the spouse. We recommend that it should be provided in law that in computing the total income of an individual there shall be included all such income as arises directly or indirectly to the spouse of such individual by way of salary, commission, fees or any other form of remuneration from a concern in which such individual has substantial interest. For this purpose, an individual may be deemed to have a 'substantial interest' : (a) in the case of a limited company, if its shares carrying riot less than 20 per cent of the voting power were, at any time during the previous year, owned beneficially by such individual either singly or along with his relatives and (b) in the case 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 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 Sections 37 and 40A(2) and slash down the assessee's claim for any payment of extra commercial considerations to the spouse.

14. Shri Khare stated that Explanation 2 to Section 64(1), which refers, inter alia, to cases of incorporation of a concern, would definitely exclude professions like chartered accountants, where incorporation is not permitted by their controlling professional body.

A chartered accountant it. was contended, also cannot pay commission to any body for procuring a. client and, therefore, Section 64(1)(ii) which uses the word 'commission' should be held to apply to only those cases where salary, commission, fees, etc., could all be legally paid by the assessee. ft was contended by him that academic qualifications or educational qualifications were not required before the proviso to Section 64(1)(ii) could be pressed into service on behalf of the assessee. In his own case, he stated that the spouse was looking after the library, carrying on administrative work, looking to the confidential files, etc. and the work was something which could only be attributed to specialised knowledge and experience. He contended that the expression 'technical or professional knowledge' or 'experience' should be understood and interpreted in a wider sense and that where services were rendered bona fide by the spouse for work requiring some specialisation, the assessee's claim should be allowed.

15. Shri Dilip Dwarkadas, another intervener, contended that the terminology used in Section 64 was very significant and should not be lost sight of. He pointed out that in computing the total income of any individual, there shall be included such income as arises directly or in-directly to the spouse of such individual by way of salary, commission, etc. He stated that, in a case where an individual, being a proprietor, was making such payments to his spouse, one does not say that the income of the spouse is to be included in the hands of the assessee. The very word 'include', as employed in Section 64(1), would refer to a case where the individual has fractional interest in a concern which pays salary, commission, etc., to the spouse. Section 64(1)(ii) 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 specifics 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 Dastur, then alone the provisions of Section 64(1)(ii) could be pressed into service. He argued that the word 'substantial' as found in Section 64(1)(ii) and as subsequently defined in Explanation 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 of Statutory Interpretation by Shri G. P. Singh (2nd edition at pages 111-12) and submitted that just as the word 'retrenchment' does not take in every case of termination of service, but covers only those taking place in certain circumstances, the word 'substantial' should be interpreted accordingly and not equated with the 'whole' interest.

17. Shri Dastur then returned to his theme of the concept of organisation and argued that only when a concern is an organisation that Section 64(1)(ii) can be applied. An organisation can carry on business without an assessee whereas in the case of the assessee before us, it cannot be said that there was an organisation and that the profession could be carried on without Dr., Mokashi even for a few days. He referred to Section 288 and argued that where the Legislature intended to refer to educational qualifications it had specifically done so and, for this purpose, he referred us to Section 288(1)(iv). He then submitted that the proviso to Section 64(1)(ii) should be reasonably interpreted and the word 'and' as connecting 'technical and professional qualifications' with 'the income solely attributable to the application. ...' should be interpreted as 'or' and not as 'and'.

It was argued that either where the spouse possesses technical or professional qualifications or where the income is attributable to technical or professional knowledge, the proviso should be held to be applicable. It was further contended that the expression 'professional knowledge and experience' should be interpreted as 'professional knowledge or experience' in order to make it workable. It was submitted by him that there could conceivably be cases where a well qualified person like a chartered accountant or a lawyer starting the career as an employee of his or her spouse, would lack experience and would, on that account, as per the interpretation sought to be pressed upon us by the department, attract addition in the hands of the assessee. 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 interests. The entire sub-section would be rendered otiose and nugatory if the proprietor were to be let of 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 Explanation 2 to Section 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 Explanation, an assessee with less than 50 per cent share could be treated as a person with a substantial interest and the sub-section made applicable. The sub-section is so worded as to embrace the generality of cases and is intended to hit all types of diversion of income though some of the cases might be genuine and hard hit by the stringent provision. A person with a cent per cent interest in the concern could be easily treated as having a substantial interest as Explanation 2 merely enlarges the scope of substantial interest so as to include in it those cases where the interest cannot be otherwise termed, commonly speaking, substantial. Therefore, the Explanation does not provide any ground for reading down Section 64(1)(ii) so as to exclude from its operation proprietors while getting at a person having lesser interest in the concern.

20. Section 64(1)(ii), it was contended by Shri Joshi, was introduced with the purpose of discouraging payments made to the spouse unless the proviso to Section 64(1)(ii) came to the rescue of the assessee. He submitted that whatever be the meaning that can be attributed to 'business' in Section 64(1)(i), there should be no doubt that the word 'concern' in Section 64(1)07) would mean a 'business' as well as a 'profession'. Relying upon the dictionary meanings, he argued that though a 'concern' would normally be an organisation or establishment for 'business' or 'manufacture', the word 'business' itself has to be broadly interpreted so as to include a 'profession'. For this purpose, he relied upon the recent Supreme Court decision in the case of Barendra Prasad Ray v. ITO [1981] 129 ITR 295 wherein it has been held that the expression 'business', as understood under the Income-tax Act includes within its scope professions, vocations and callings and that 'business' is one of wide 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)(i) 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 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 not be correct to include vocation in 'profession' especially for the purposes of the proviso to Section 64(1)(ii) though the word 'profession' may not be confined only to the learned profession.

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 for or requires specialised knowledge and implies long and intensive preparation and training and that it would not be proper to enlarge its scope so as to include in it any calling or occupation by which a person habitually earns his living as the wider meaning thus given to the word 'profession' would reduce the proviso to Section 64(1)(ii) to an absurdity. He then referred to the Gujarat High Court decision in CIT v. R.M. Amin [1971] 82 ITR 194 subsequently affirmed by the Supreme Court in CIT v. R.M. Amin [1977] 106 ITR 368 and stated that the courts should always prefer a construction which would give some meaning and effect to the words used by the Legislature rather than that which will reduce them to futility. A construction which imputes to the Legislature tautology or superfluity in the use of language, must, as far as possible, be avoided, it was argued.

23. Shri Joshi then went on to contend that 'professional' or technical qualifications' would not include 'vocational' qualifications as that would be giving too wide a meaning to the expression. It was submitted further that the proposition, canvassed by Shri Dastur, that the word 'and', used twice in the proviso should read as 'or' would make no sense of that proviso altogether. It would not only be necessary to see that the spouse possesses technical or professional qualifications as explained by him but the payment made to the spouse should be solely attributable to the application of that technical or 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 Dastur that the interpretation as canvassed by the department would land the assessee into double taxation. Shri Joshi also relied extensively on a number of dictionary meanings of 'profession', 'vocation', 'qualifications', 'tenchnical' 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., Section 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 in Barendra Prasad Ray's case (supra) as relied upon by Shri Joshi, dealt with the meaning of 'business connection'in Section 9 and was not concerned with the interpretation of Section 64 where a clear cut distinction had to maintain between business and profession. He referred to the Supreme Court decision and pointed out that a 'vocation' need not be an organised activity. It was argued that the word 'vocation' was liberally and widely interpreted by the Supreme Court and that the same meaning should also be applied here. He submitted that a partnership entered into between a doctor and his two sons who were only medical students was held to be entitled to registration by the Madras High Court in the case of CIT v. Sri Ramakrishna Nursing Home [1976] 105 ITR 86.

25. He further drew our attention to the Madhya Pradesh High Court decision in the case of Malwa Knitting Works v. CIT [1977] 107 ITR 379 wherein it was held that though an advocate cannot be an active partner and that, at any rate, even if the advocate had actively participated in the business, partnership would not have been illegal. He, therefore, contended that when a partner was not educationally or academically qualified, it would be possible to uphold the genuineness of the firm so long as the people have 'professional qualifications' as they are generally understood and as liberally interpreted. It was submitted that the word 'profits' as used in Clause (ii) of Explanation 2 to Section 64(1)(ii), was more indicative of business than profession and, in this connection, he pointed to the general practice of chartered accountant using the term 'income and expenditure account' while displaying their financial results. He, therefore, stated that Section 64(1)(ii) was more appropriately applicable to 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) of Section 64(1) deal with cases where, the income of specified relatives in certain circumstances is tagged on to the income of the assessee.

Section 64(1)(ii), however, has been put into the fascicule of Section 64 and, for that reason, it provides a fertile ground for forensic battles. The main plank in the assessee's armoury was that Section 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 strait-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 Section 64(1)(ii) was introduced, though unhappily inserted in Section 64, but also run counter to the meanings which the words can bear in the context and scheme of the Act.

27. A 'concern', for example, need not be confined to a business or even imply an elaborate organisation and it has been used as a word of general import so as to embrace all entities, in whatever form or garb an individual may choose to carry on business or profession singly or with others. For instance, a doctor's dispensary can be and is referred to as a going concern as and when it has to be transferred to another especially on the retirement or death of the doctor. It generally means an establishment including some furniture, fixtures, employees, etc. It does not necessarily mean that there should be an elaborate organisation or that it should undertake manufacture or only carry on business as excluded from profession. In fact, Webster's Third New International Dictionary defines a 'concern' as an organisation or an establishment for business or manufacture and the word 'business' even, as generally understood, would include all professions, though, as is commonly known, all professions may not be businesses.

28. Then again, establishment as per the Shorter Oxford English Dictionary means more or less a place of business with furniture, fixtures, employees, etc. Therefore, it is not necessary to construe the word 'concern' so as to confine it only to an organised business as 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 (supra) 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 Turbine Co. Ltd. [1920] 1 KB 193 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 Section 9(1) includes professional connection also. Therefore, in our opinion, 'concern' applies to businesses 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 Section 64(1)(ii) is confined only to non-proprietary concerns and not to proprietors. In fact, Section 37 and Section 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 Section 37 and Section 40A take carefully of all the proprietary concerns, as distinguished from non-proprietary concerns, does not cut much ice. 'Mischief rule' enjoins upon us to so interpret the Section as to suppress the mischief and advance the remedy after studying the reasons for the amendment as reflected in the Wanchoo Committee findings. The 'mischief rule 'which we have, therefore employed to interpret Section 64(1)(ii) would impart a meaning to 'concern' which would include both businesses and professions and both proprietary and non-proprietary entities. As pointed out by Shri Joshi, the expression 'substantial interest' has been only artificially enlarged to include certain situations as contemplated by Explanation 2. A deeming definition of substantial interest, as given in Explanation 2 to Section 64(1)(ii), does not exclude from its operation a person, who has cent per cent interest in his concern and would also satisfy the description of an 'individual having a substantial interest'.

30. It may be true that a chartered accountant or a lawyer is not expected or permitted by the respective professional bodies to pay commission for the work procured by him. But then, the mere use of the word 'commission' in Section 64(1)(ii) would not exclude from its operation persons like chartered accountants or lawyers because 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 (supra) 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 inapposite to use 'included' 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 under Section 37 or Section 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 aspect of the matter and we are of the opinion that the difficulty can be resolved by holding that no double taxation is envisaged by Section 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 v. Union of India [1970] 77 ITR 107 double taxation is permissible only if there is a specific provision therefor.

Therefore, amounts disallowed under Section 37 or Section 40A would not come in for addition or inclusion under Section 64(1)07). The word 'included' does not postulate necessarily that there must have been a payment by somebody other than the assessee to the spouse. Section 64(1)(ii) merely provides that even where the payment is allowable under Section 30 to Section 43, it can be 'included' in the total income of the assessee. Lastly, we may counter the argument that genuine cases are not hit by Section 64(1)(ii) by quoting a Supreme Court decision in Balaji v. ITO [1961] 43 ITR 393 dealing with Section 16(3) of the 1922 Act as follows : ...Doubtless some of the said partnerships may be genuine and the wife or minor children may have contributed capital to the business ; but the provisions do not in any way affect their rights and even the liability inter se between the husband and the wife or the minor children, as the case may be, in respect of the tax paid.

...This mode of taxation may be a little hard on a husband or a father in the case of genuine partnership with wife or minor children, but that is offset, to a large extent, by the beneficent results that flow therefrom to the public, namely, the prevention of evasion of income-tax and also by the fact that, by and large, the additional payment of tax made on the income of the wife or the minor children will ultimately be borne by them in the final accounting between them....(p. 404) 32. We have now to deal with the perimeter of the expression 'technical or professional 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 involves the idea of an occupation requiring either purely intellectual skill, or, if any manual skill is involved, as in painting, sculpture, or surgery, skill controlled by the operator's intellectual skill, as distinguished from an occupation which is substantially the 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, 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 and a headmaster. The following have been held not to be carrying on a profession : a dance band leader, a film producer, an insurance broker, a stock broker, a professional photographer and an income tax repayment agent. An optician who tests sight and makes and supplies spectacles carries on both professional and trading activities.

235. Meaning of 'vocation'.-'Vocation'is a word of very wide meaning and is analogous to a calling and means the way in which a person passes his life. Thus a bookmaker carries on a vocation, as also does an actress and a jockey, but a film production executive does not carry on a profession or vocation. (p. 160) 34. Similarly, Collin's English Dictionary defines 'qualifications' to mean an ability or quality that fits a person to perform a particular job or task. The above definitions were placed in our hands by Shri R.J. Joshi. It is now common ground that a profession is not confined to the three learned professions of law, theology and medicine though it is indicative of some training whether involving intellectual skill or involving manual skill as controlled by intellectual skill. Jowitt's Dictionary of English Law (Second edition, p. 1442) defines 'profession', to mean a calling, vocation or known employment.

Webster's Third New International Dictionary (Second edition, p. 1811) defines 'profession' to mean inter alia, an occupation requiring a high level of training and proficiency or participating for gain or livelihood in an activity or field of endeavour often engaged in by an amateur. The Shorter Oxford English Dictionary (Second edition, p.

1993) defines 'profession' to mean 'someone engaged in one of the learned or skilled profession or someone who follows an occupation as his (or her) profession ; 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 Shoner Oxford English Dictionary. Thus, while the narrow meaning of 'profession' implies specialised knowledge and intensive training and preparation preceded by instructions in skills and methods, a reasonably broader or wider meaning given to 'profession' would mean any occupation or vocation 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 the case of CIT v. Manmohan Das [1966] 59 ITR 699. In that case, 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. Obviously, 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 'profession' under the Expenditure Tax Act in the case of a politician and it was held that 'politics' is a 'profession'-CET v. P.V.G. Raju [1975] 101 ITR 465 (SC). On the other side of the fence will fall cases where the work may be merely of a manual type or where the work does not call for any intellectual skill at any stage as in the case of a mere filing clerk. On the other hand, a stenographer's job cannot be said to be a mere mechanical job as some intellectual skill is required. A typist can sit outside an office and earn income from typing for his clients. He can, therefore, independently earn his livelihood by his typing skill. Therefore, the work of a steno-typist or a typist can be considered as a professional activity. Similarly, an accounts-keeper may earn his livelihood by keeping accounts for a half dozen persons and earn his livelihood independently and without accepting any employment as such. Keeping accounts, therefore, can be considered 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 knowledge and experience. In fact, Shri Dastur pressed upon us an argument that the word 'and' at both the places in the proviso to Section 64(1)(ii) should be interpreted to mean 'or'. In our opinion, that 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 Section 64(1)(ii) where even genuine cases of bona fide payments made to the spouse for actual services rendered by the spouse may enter the red light zone of addition. The standards of fairness and reasonableness, which the assessee insisted upon us, as the unfailing guides in interpreting sections dealing with artificial income, would be fully satisfied by our interpretation of the expression 'technical or professional qualifications' as also of the whole proviso. The interpretation which we have put is neither strict nor too liberal and we have only tried to see that the section is rendered workable and not rendered otiose.

1. Section 64(1)(ii) applies to, inter alia, individual assessees, who are proprietors.

3. A concern in which the individual has a substantial interest would include a concern in which the individual has a cent, per cent interest.

4. 'Professional qualifications' means fitness to do a job or undertake an occupation or vocation requiring intellectual skill or requiring manual skill as controlled by intellectual skill and which is such that a person should be able to eke out a living therefrom independently though the salary 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 been brought on record by the assessee. It may be stated here that there is a finding by the Tribunal in the case of this very assessee for an earlier year that there is no evidence to show that the salary which she is drawing is relatable to her knowledge and experience. Apart from this, the ITO has mentioned in the assessment order that no balance sheet is drawn, that the books of account are not closed and that the accounts maintained are sketchy. In these circumstances, we do not know the actual job undertaken 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 not 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 Section 64(1)(ii). Thus, the disallowance made for this year is upheld though it would be open to the assessee in a future year to prove that Smt. Mokashi satisfies the proviso to Section 64(1)(ii) as interpreted by us. As far as the year under appeal is concerned, the assessee, Dr. Mokashi fails.

41. As regards the cases of interveners, they will, no doubt, be decided by the respective Benches on their facts after taking into account the principles laid down by us in the present case. We do not wish to express any opinion on the ultimate decision or conclusion which the other Benches would draw in those cases.


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