Prithvi Raj, J.
(1) The assessed, Shri Ram Pershad, was allotted 30 preference shares of the value of Rs. 30,000 for promoting company, United Hotels, New Delhi, (herein called 'the company'). The Income-tax Officer sought to include the value of the said shares as income of the assessed during the course of assessment for the year 1952-53, accounting year ending on 31st March, 1952. The view taken by the Income-tax Officer for including the amount of Rs. 30,000 being the value of 30 shares was that the value of the shares was assessed's remuneration for services rendered and as such was taxable. The assessed's stand was that the value of the shores was a benefit of casual and non-recurring nature, exempt from income-tax under section 4(3)(vii) of the Indian Income-tax Act, 1922 (herein called 'the Act'). The Income-tax Officer by his order dated 13th May, 1956, rejected the contention of the assessed and included the amount of the shares as income of the assessed and assessed the value of the shates to tax. Being aggrieved by the said finding of the Incopie-tax Officer the assessed challenged the same in an appeal before the Appellate Assistant Commissioner, New Delhi. The Appellate Assistant Commissioner by his order, Annexure B, accepted the contention of the assessed and held that the allotment of the preference shares to him was not assessable either as income under the head 'Salaries' or income under the head 'Other Sources', and accordingly allowed the appeal. The Department challenged the correctness of the view taken by the Appellate Assistant Commissioner by filing an appeal before the Income-tax Appellate Tribunal but remained unsuccessful. The Tribunal by its order dated 20th September, 1961, Annexure 'C' held that the decision of the Appellate Assistant Commissioner was not found upon a mis-conception of law as was urged by the department and accordingly dismissed the appeal.
(2) The Department filed a reference application under section 66(1) of the Act requesting that a statement of the case bedrawn and the question of law suggested in para 4 of the application be referred to the High Court. The Tribunal rejected the application. The Department accordingly filed a petition in the then Circuit Bench of the Punjab High Court under section 56(2) of the Act registered as Income-tax Case No. 4-D of 1963, praying .that a direction be issued to the Tribunal to draw up a statement of the case and refer the question of law to this Court stated to arise in the case. On a direction issued by this Court the Tribunal by this Income-tax Reference drew up an agreed statement of the case and has referred the following question of law to this Court for opinion :
'WHETHER,on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in holding that the 30 Preference shares of the United Hotels, New Delhi, allotted to the assessed were in the nature of a gift and its value was thereforee not taxable ?'
'INdrawing up the statement of the case the Tribunal noted that the assessed is the managing director of the Company, a private limited company, incorporated on 7th November, 1950. The Tribunal has further stated that the Board of Directors of the Company on 15th November, 1950, approved a draft agreement in connection with the appointment of the assessed as managing director of the company. The agreement was executed between the assessed and the Company on 20th November, 1950. Clause (h) of the agreement envisaged that 'in consideration of the services rendered in connection with the formation, promotion of the Company and in particular for the effective arrangements made for the conduct of the business of the company incurring heavy personal expenditure and extraordinary devotion brought to bear on the project the Directors shall, soonafter fifty per cent of the capital of the company is allotted, allot thirty fully paid- up preference shares of the face value of Rs. 1,000 each to the (said) Managing Director without any consideration in money.'
(3) In declining to include the sum of Rs. 30,000, being the value of the shares allotted to the assessed, as his income, the Tribunal observed that the whole question was, as to whether the shares in question had been allotted to the assessed by way of remuneration for his services or by way of present or testimonial. On examining the terms of the agreement, the Tribunal found that under subclause (h) of clause I the shares in question were to be allotted to the assessed in consideration of the services rendered in connection with the formation, promotion of the company and in particular for the effective arrangement made for the conduct of the business of the company incurring heavy personal expenditure and extra-ordinary devoton brought to bear on the project. The Tribunal further observed that the assessed became entitled to the shares by the same agreement whereby he was appointed as managing director and that the decision to give the shares had been decided upon prior to the assumption of the charge of the office of the managing director by the assessed. The Tribunal accordingly concluded that the allotment of thirty shares in question, of the face value of Rs. 1,000 each, to the assessed had all the attributes of being a personal gift to 'him and that it did not cease to be a gift merely because the same had been allotted to the assessed in recognition of the services as a promoter of the company. The Tribunal further held that 'the agreement to give reward to the assessed was already there even before the incorporation of the company and it was fulfillled in recognition of his services in promoting the company'.
(4) The question for consideration accordingly is whether the allotment of shares to the assessed is by way of an award or bounty wholly removed from the sphere of remuneration as was sought to be contended by the learned counsel for the assessed or whether the allotment of shares has the attributes of remuneration lacking the feature of a personal gift as urged by the Revenue.
(5) Section 3 of the Act is the charging section envisaging that where any central Act enacts that income tax shall be charged for any year or at any rate or rates, tax at that rate or those rates shall be charged for that year in accordance with and subject to the provisions of the Act in respect of the total income of the previous year of the persons enumerated in the said section. The word 'income' has been defined in section 2(6-C) of the Act. A perusal of the definition of the word 'income' leaves no manner of doubt that a receipt in order to be an income need not necessarily be of a recurring nature. In a given circumstance, a single receipt may be income. Heads of income chargeable to income-tax are enumerated in section 6 of the Act and, among others, include profits and gains of business, profession or vocation and income from other sources.
(6) The company, as noted earlier, was incorporated on 7th November, 1950. On 15th November, 1950, a draft of the agreement eventually executed between the assessed and the company, was approved by the board of directors of the company. On 16th November, 1950, the board of directors passed a resolution to execute the agreement with the assesses on behalf, of the company. The agreement was executed between the parties, i.e., the assessed and the company on 20th November, 1950. The assessed was allotted 30 shares in question of the value of Rs. 30,000 on 23rd November, 1951, as enumerated in clause (h) of para 1, of the agreement dated 20th November, 1951, 'in consideration of the services rendered' by him 'in connection with the formation, promotion of the company and in particular for the effective management made for the conduct of the business of the company incurring personal expenditure and extra-ordinary devotion brought to bear on the project'. The assessed, it may bear mention here, was the promoter of the company and by the above-said agreement was appointed as the managing director of the company.
(7) The case of the revenue is that the allotment of the shares was made by way of remuneration to compensate for (1) the services rendered by the assessed in connection with the formation and promotion of the company, (2) for the effective management made by the assessed for the conduct of the business of the company, (3) for extraordinary devotion brought to bear by the assessed on the project and (4) for having incurred heavy personal expenditure. That being so, it was urged, the allotment of shares was not a gift but was income liable to assessment. On the other hand the contention of the assessed is that the allotment of shares was a testimonial for his personal qualities and as such the money value of the shares could not- be included as income of the assessed for the assessment year 1952-53. It was further contended on behalf of the assessed that promotion of company was not the business of the assessed, nor could it be said to be Ins profession or vocation. The money value of the allotment of shares, goes the 'argument, in the premises could not be said to be profits and gains of business, profession or vocation. Besides, the learned counsel submitted, promotion of the company as a solitary act could not be brought under the head 'any adventure or concern in the nature of trade, commerce or manufacture'.
(8) It was also urged that promoting the company could not be said to be the occupation of the assessed, as the term 'occupation' necessarily connotes the principal business of one's life; vocation, calling or trade which a man follows to procure a living or obtaining wealth, which occupies or engages one's time or attention.
(9) The contention appears to be spacious but is without merit. Vocation is a sphere of activity for which one has special fitness. It is not necessary that such activity should be one indulged in for earning a livelihood before it can be called vocation. A motive for making a profit is not an essential requisite of a vocation. (See C. Rajagopalachariar v. Commissioner of Income-tax, Madras : 50ITR196(Mad) .
(10) In Commissioner of Expenditure Tax, Gujarat I v. Ambalal Sarabhai (deceased) : 73ITR78(Guj) , the question under consideration was whether a certain amount expended by the assessed's wife for the purpose of attending meetings of four institutions of social welfare was exempt from expenditure tax under the provisions of the Expenditure Tax Act, 1957, in that attending of meetings was not the vocation ' or occupation of the assessed's wife, besides there was no motive or intent to earn income from attending such meetings. Negativing the contention the Gujarat High Court observed that the absence of profit making motive or intent did not take an activity out of the category of vocation or occupation and that the activity of the assessed's wife could not be denied the character of vocation or occupation merely because she was carrying on that activity without any motive or intent to earning income. In commissioner of Income Tax, Madras, v. V. P. Rao : 18ITR825(Mad) , the respondent who was a retired Judge of Madras High Court was appointed arbitrator in a case. He was paid Rs. 3,000 as his fee for the work done as an Arbitrator. The respondent showed this amount of his return but claimed that it was not subject to tax on the ground that arbitration was not the assessed's occupation or vocation and that the receipt was of a casual and non-recurring nature. The contention was rejected, the amount in question was held o be assessed's income from his occupation as the arbitration proceedings occupied and engaged his time and attention for those months he took the work of arbitration.
(11) In P. Krishna Menon, v. Commissioner of Income-Tax, Mysore, Travancore-Cochin, and Coorag, Bangalore : 35ITR48(SC) , the appellant assessed was studying Vedanta philosophy and imparted knowledge acquired by him as a result of his studies to others as cared lo come and imbibe it. Accordingly a question arose whether payments made to the assessed were income received from his vocation of imparting Vedanta philosophy. Their Lordships of the Supreme Court held that teaching of Vedanta was assessed's vocation and the payments received by him were held to be his income derived from his vocation.
(12) The occupation and engagement of the assessed's time in the instant case and the attention that he devoted to the formation and promotion of the company during the period he was occupied with the said work undoubtedly would be occupation or vocation of the assessed.
(13) The word 'income' used in the Act is of wide connotation and its extent and sweep is nt controlled or limited by the words 'profits and gains'. It is true that the word 'business' normally connotes some real, substantial and systematic or organized course of activity or conduct with a set purpose but even a single and isolated transaction can be held to fall within the definition of business provided the transaction bears clear indication of trade. (See Narain Swadeshi Weaving Mills v. Commissioner of Excess Profits Tax : 26ITR765(SC) . The contention urged on behalf of the assessed that promotion of companies was not the ssessee's business is of no consequence if allotment of shares in question posit assessed's remuneration for promoting the company. Modes in which promoters of the company obtain their remuneration vary considerable. One of such ways is the allotment of shares to the promoters. An apparent gift, if it possesses an element of reward for services or work done, assumes the character of an income.
(14) In David Mitchell v. Commissioner of Income-tax, West Bengal 30 1.T.R. 701 , the shares allotted to the appellant, who had rendered valuable assistance to the promoters of the Company in the course of rendering professional service, were considered as extra amount paid to the appellant as his profits. The value of the shares was held as income in the hands of the appellant.
(15) Case Mahesh Anantrai Pattani and another v. Commissioner of Income-tax, Bombay North : 41ITR481(SC) , proceeded on its own facts. In that case the amount of Rupees five lacs was given to the assessed as gift for .the personal qualities of the assessed. It wts on that count that the Supreme Court held that the said amount was not liable to tax.
(16) Case B. Malik v. Commissioner of Income-tax, U.P. : 67ITR616(All) is also of no assistance to the assessed. In that case at the time Shri B. Malik who was a sitting Judge of the High Court was requested to act as an Umpire and at the time when he accepted to act as such there was neither mention of any payment nor was there any question at that time of any payment of fee for acting as an Umpire. On this ground the fee received by the assessed as an arbirator was held to be exempt under section 4(3) (vii) as the assessed had not stipulated for it and also that there was no possibility of its recurrence. Since the assessed at the time he acted as an Umpire was a sitting Judge of the High Court and had undertaken the assignment at the request of the Home Minister of the Government of India, it was held that the amount received by the assessed was not a receipt from his profession, vocation or occupation. The receipt in the circumstances was held to be of a casual nature and a non-recurring one.
(17) In the instant' case before us, the finding of the Tribunal (page 3 of the paper book) is that 'under sub-clause (h) of clause 1, the shares in question were to be allotted to the assessed in consideration of the services rendered in connection with the formation, promotion of the company and in particular for the effective arrangements made for the conduct of the business of the company' and for 'incurriag heavy personal expenditure and extra-ordinary devotion brought to bear on the project.'. It is, thereforee, evident that the shares in question were not allotted to the assessed for his personal qualities as testimonial but on the contrary were allotted in consideration of the services rendered in connection with the formation and promotion of the company and to reimburse the assessed for having incurred heavy personal expenditure during the course of the formation and promotion of the company. According to the agreed statement of the case prepared by the Tribunal (page 4 of the paper book) 'The agreement to give the reward to the assessed was already there even before the incorporation of the company and it was fulfillled in recognition of his services in promoting the company'. It is, thereforee, evident that it was not an unsolicited gift but the assessed even before the incorporation of the company had stipulated for and in fact had been promised remuneration for services rendered in promoting and forming the company and the promised remuneration was allowed to him in recognition of his services 'in promoting the company' and not for his personal qualities as a testimonial. The allotment of the shares in the premises was not in the nature of the unforeseen windfall; on the contrary the assessed had bargained for it as noted by the Tribunal in the statement of the case. The dominant object of the assessed in promoting and forming the company was an enterprise of a commercial character. The assessed did not pursue the activity primarily to entertain himself. In promoting the company there was not only the expectancy of the payment for the contribution made by the assessed but he had bargained for it as there was already an agreement to give reward to the assessed even before the incorporation of the company.
(18) The use of the word 'reward' would not alter the nature of the payment which in the instant case without doubt was by way of remuperation for services rendered by the assessed, for which payment on the findings of the Tribunal even before the incorporation of the Company the assessed had bargained for, which agreement 'was fulfillled in recognition of his services in promoting the Company'. The question under consideration is not why the payment was made but for what the assessed has received it In other words, what was the quality of payment from the point of view of the recepient The assessed had bargained for the allotment of the shares to him for being compensated for the services rendered by him and as found by the Tribunal 'the agreement to give reward' was already there 'even before the incorporation of the company', the money value of the shares in the circumstances of the case cannot be deprived of its character as taxable income by merely calling it 'reward', negativing the liability to pay income-tax on it.
(19) There is intrinsic evidence on the record to show that the shares were not allotted for the personal qualities of the assessed but by way of remuneration to compensate for the services rendered in promoting and forming the company, the prior arrangement, as found by the Tribunal was put in the form of written agreement. Sub-clause (h) of clause 1 of the agreement is clear and unambiguous. The intention of the parties is to be derived from it. The parties thought it was desirable to introduce the element of consideration in order to make the promise legally enforceable. This is vouchsaved in sub-clause (h). The acquisition of the shares under the terms of the agreement was linked up with the services rendered by the assessed, the effect of the agreement cannot be cast aside merely because the result is found to be inconvenient to t6e assessed. The circumstances of the case do not tend against the conclusion that the shares allotted were in the nature of remuneration; the circumstances on the contrary unequivocally stamp the transaction as such. It is tritesaying that remuneration need not generally be effected by systematic and recurring payments. Considering the antecedent conduct of the parties, there being a prior agreement subsequently reduced into writing, the allotment of shares being in consideration of past services, the money value of the shares would represent the income of the assessed. Merely by describing the allotment of shares as 'reward' the motive for conferring the benefit cannot be confounded.
(20) Reliance was placed by the learned counsel for the assessed on P. H. Divecha (deceased) and another v. Commissioner of Income-tax Bombay City : 48ITR222(SC) ; Dilip Kumar Roy v. Commissioner of Income-tax, Poona : 94ITR1(Bom) ; and Nalini Kant Ambalal Mody v. S. A. L. Narayan Raw, Commissioner of Income-tax, Bombay City I, : 61ITR428(SC) . The said cases are of no assistance to. the assessed.
(21) In case P. H. Divecha, Precious Electric Company entered into an agreement with M/s. Phillips Electrical Company (India) Ltd. for the sale of electric bulbs. The arrangement under the agreement continued for 16 years and thereafter it was ended. However, some arrangement was entered into between parties under which M/s. Phillips Electrical Company, as a gesture of goodwill undertook to pay to each of the three partners of Precious Electric Company, Rs. 40,000 annually for three years to ensure a smooth winding up of their business. The Income-tax Officer sought to tax this amount. The contention of the assessed was that the amount was ex grotia payment made by way of testimonial-
(22) The Supreme Court taking note of the respective contentions of the party, on examining the agreement executed between Precious Electric Company and Phillips Electrical Company, observed that the agreement, did not state that on its termination in the way provided, compensation was payable to M/s. Phillips Electrical Company. Accord- ingly it was held that the payment on the terms of the agreement could not be connected with loss of estimated profits. That being so, their Lordships held, the payment received could not be related to profits or income from other sources. Further, the payment was held to be not related to any service in the past or in the future as services rendered by the assessed in the past were amply remunerated and that record did not show that any service in future was expected from the assessed. In the premises it was held that the payment was made out of regard for the qualities of the three partners of the firm in token of appreciation out of gratitude. Accordingly the payment was held not to bear the character of income, profits and gains.
(23) In Dalip Kumar Roy's case the facts were like this. The asses- see utilized his talents for doing service to the Divine Cause. His two main activities were singing Bhajans and writing books. He was paid some amounts from time to time by some individuals which the revenue 'sought to tax. The plea of the assessed was that the amounts so received were not receipts arising out of a profession or vocation but were given as personal gifts to him out of personal esteem and veneration for him and as such were not income and were not liable to tax. It was also contended that the activities carried on by the assessed did not constitute a vocation within the meaning of section 10 of the Act. The Bombay High Court upheld the contention of the assessed holding that amount paid as personal gift for the personal qualities of the assessed and as a token of personal esteem and veneration were not subject to tax as income arising out of business, profession or vocation. It may bear mention here that the major gifts flowed to the assessed from two American Gentlemen- According to them as stated in their affidavits a desire arose in their mind to build a temple house for their Guru (assessed) on account of the Gum's spiritual reputation, his valuable contribution to literature, music, religion and various fields of cultural activities. It was on the basis of these affidavits that the Court upheld the contention of the assessed holding that the amounts paid were for personal qualities and not by way of payment for the services and further that none of the two Americans had received any instructions from the assessed or ever heard him before making the payment. In the premises, it was held that the amounts paid by these Americans could not be regarded as receipts by the assessed in exercise of his vocation.
(24) The above-noted cases were decided on their own facts and have no bearing on the case under consideration by us.
(25) In Nalini Kant Ambalal's case, the assessed who was practicing as an Advocate was elevated to the Bench. After his elevation he received certain monies on account of his outstanding fees. The assessed's accounts were kept on the cash basis. A question accordingly arose in that case whether the assessed was liable to pay income-tax on the receipts of money which he received after elevation. Dealing with the contentions their Lordships of the Supreme Court by majority observed that the receipts of the amount in question were the fruits of the assessed's professional activities. They were the profits and gains of profession. They would fall under the bead 'Profits and gains of business, profession or vocation'. It was, however, held that they were not chargeable to tax under that head because under the corresponding computing section, i.e., section 10 an income received by an assessed, who kept his accounts on the cash basis, in an accounting year in which the profession had not been carried on at all was not chargeable to tax and that income in that case was so received. It was further observed that the receipts would not be income falling under the head 'residuary head of income', charged to tax as such. Summing up the position their Lordships on the facts of that case observed that they found no support for the view that an income which was admittedly under a specific head could be brought to, tax under the residuary head if it could not be so brought under the computing section corresponding to that head. The ratio of this case has no bearing on the instant case.
(26) We also find no merit in the contention of the assessed that the money value of the shares was exempt from tax in terms of section 4(3)(vii) being receipt of casual and non-recurring nature.
(27) In view of our' discussion above we answer the reference in the negative. The' Income-tax Appellate Tribunal on the facts and in the circumstances of the case was not right in holding that the thirty preference shares of the company were allotted to the assessed in the nature of a gift. In the circumstances of the case the parties are, however, left to bear their respective costs.