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M. George Bros. Chitty Fund Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKerala High Court
Decided On
Case NumberIncome-tax Reference Nos. 187 to 190 and 203 of 1979
Judge
Reported in[1984]150ITR333(Ker)
ActsIncome Tax Act, 1961 - Sections 2(24); Travancore Chitties Act, 1120(M.E.) - Sections 3(2), 3(4) and 3(15)
AppellantM. George Bros. Chitty Fund
RespondentCommissioner of Income-tax
Appellant Advocate G. Sivarajan, Adv.
Respondent Advocate P.K.R. Menon, Adv.
Cases ReferredKottayam v. Kosamattom Chitty Fund and Investments
Excerpt:
.....available under variola for rateable distribution among subscribers at each instalments - discount is rebate and liable to be treated as taxable income - receipt of 'veethapalisa' is inseparably connected with ownership of business - 'veethapalisa' partakes character of income and liable to be taxed in hands of person who received it - question referred answered in affirmative. - - 9. the complexity involved in modern trade, commerce and finance has made it next to impossibility to define the word 'income' precisely......claimed deduction of certain amounts representing 'veethapalisa' which, according to it, is not income liable to be taxed. it is an item of income which is exempt from tax. the assessing authority rejected this contention of the assessee and treated 'veethapalisa' as taxable income while computing the assessable income of the petitioner. aggrieved by the orders of assessments, the assessee filed appeals before the aac, ernakulam, and reiterated before him the same contention that 'veethapalisa' received by it during, the respective years was not taxable income. so far as the years of assessment 1973-74, 1974-75 and 1975-76 are concerned, the assessee had raised an additional ground, namely, that it was not the assessee, but another firm by name m/s. m. george and brothers which was.....
Judgment:

Radhakrishna Menon, J.

1. The assessee in all these cases is a firm. It is carrying on the business in running chitties as defined in Section 3(2) of the Travancore Chitties Act, 1120, for short 'the Chitties Act'. This business of the assessee is controlled by the provisions contained in the Chitties Act.

2. The relevant years are the years of assessment 1970-71, the accounting year ending December 31, 1969, the year of assessment 1973-74, the accounting year ending December 31, 1972, the year of assessment 1974-75, the accounting year ending December 31, 1973, the year of assessment 1975-76, the accounting year ending December 31, 1974, and the year of assessment 1972-73, the accounting year ending December 31, 1971.

3. In all these cases, the only question that arises for consideration is whether 'veethapalisa' as defined in the Chitties Act received by the assessee is income in its hands, liable to be taxed under the I.T. Act, 1961, for short 'the Act'.

4. Facts are few and identical for all these years. They are given hereunder : In the profit and loss statements for these years, the assessee had claimed deduction of certain amounts representing 'veethapalisa' which, according to it, is not income liable to be taxed. It is an item of income which is exempt from tax. The assessing authority rejected this contention of the assessee and treated 'veethapalisa' as taxable income while computing the assessable income of the petitioner. Aggrieved by the orders of assessments, the assessee filed appeals before the AAC, Ernakulam, and reiterated before him the same contention that 'veethapalisa' received by it during, the respective years was not taxable income. So far as the years of assessment 1973-74, 1974-75 and 1975-76 are concerned, the assessee had raised an additional ground, namely, that it was not the assessee, but another firm by name M/s. M. George and Brothers which was the subscriber to the chitties and, hence, the 'veethapalisa' in question must be held to be earned by that firm and as such that firm alone can be made liable for tax on the said inconie if it is found that it is income liable to be taxed. So far as the assessment year 1972-73 is concerned, the ITO did not accept the above contention of the assessee that it was M/s. M. George and Brothers which had subscribed to the chitty and, consequently, added back the 'veethapalisa' in computing the assessable income. The assessee had filed an appeal against the order of assessment before the AAC. The AAC held that 'veethapalisa' is inconie liable to be taxed. The appeal filed against the order of assessment for the assessment year 1970-71 was, consequently, dismissed. He, however, accepted the contention of the assessee that it had not subscribed to the chitties during the years 1972-73, 1973-74, 1974-75, 1975-76 and, hence, the 'veethapalisa' cannot be treated as the taxable income of the assessee.

5. The assessee filed an appeal against the order of the AAC disposing of the appeal relating to the year of assessment 1970-71, while the Department preferred appeals against orders of the AAC for the other four years holding that it was not the assessee, but one M/s. M. George and Brothers who had subscribed to the chitties. The Appellate Tribunal went into the question in detail and held that it was the assessee which had subscribed to the chitties. It also held that 'veethapalisa' is income in the hands of the assessee liable to be taxed. In holding so, the Tribunal has confirmed the order of the AAC which had affirmed the order of the assessing authority holding that 'veethapalisa' is income in the hands of the assessee and, hence, liable to be taxed.

6. The assessee thereupon filed a petition under Section 256(1) of the Act and sought two questions, said to be questions arising out of the order of the Tribunal, to be referred to this court for our opinion. The AppellateTribunal was of the view that only the following question of law arises out of the order of the Tribunal and, accordingly, referred to the same to us. That is how the assessee is before us :

'Whether Rs. 45,747 being the veethapalisa relating to the assessment year 1970-71, Rs. 47,823.33 being the veethapalisa relating to the assessment year 1973-74, Rs. 51,665 being the veethapalisa relating to the assessment year 1974-75, and Rs. 56,764 being the veethapalisa relating to the assessment year 1975-76 are taxable as income in the hands of the assessee for the respective assessment years ?'

7. It is in regard to the second question which the Tribunal refused to refer to this court, the assessee has moved Original Petitions Nos. 3894, 3895, 3896 and 3897 of 1979 under Section 256(2) of the Act for all order compelling the Tribunal to refer the said question also to us for our opinion. These original petitions will be dealt with and disposed of separately,

8. Before we consider the argument of the counsel for the assessee that 'veethapalisa' received by the assessee is not income in its hands liable to be taxed, we will briefly state the law that is applicable to the case.

9. The complexity involved in modern trade, commerce and finance has made it next to impossibility to define the word 'income' precisely. Even the legislature has not defined 'income' with precision. Instead, it has used the word 'includes' in the interpretation clause, Section 2(24) of the Act (corresponding to Section 4(3)(vii) of the 1922 Act), while defining the word 'income' to indicate that the narrow or restricted meaning given to the word in Shaw Wallace's case, , by Sir George Lowndes, shall not control the very wide meaning the word 'income' has by now acquired. As it is, the meaning Lord Russel of Killowen had given to this word in Maharajkumar Gopal Saran Narain Singh v. CIT [1935] 3 ITR 237, namely :

'Anything which can properly be described as income, is taxable under the Act unless expressly exempted.'

10. must be the meaning that should be given to the word 'income' under the Act. The Supreme Court in Raghuvanshi Mills Ltd, v. CIT 0043/1952 : [1952]22ITR484(SC) , while considering the definition of the word 'income' under the Indian I.T. Act, 1922, has held as follows (p. 488) :

'No attempt has been made in the Act to define 'income' except to say in Section 2(6C) that it includes certain things which would possibly not have been regarded as income but for the special definition. That however does not limit the generality of its natural meaning except as qualified in the section itself. The words which follow, namely, 'from whatever source derived', show how wide the net is spread. So also in Section 6. After setting out thevarious heads of taxable income it brings in the all embracing phrase 'income from other sources'.'

11. It, therefore, follows that all income from whatever source derived must be chargeable to tax unless expressly exempted.

12. What type of income can then escape tax liability. Income falling within any of the sections included in Chapter III of the Act is not tax-able. The section relevant here is Section 10(3). It reads :

'10. In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included--...

(3) any receipts which are of a casual and non-recurring nature, notbeing winnings from lotteries, to the extent such receipts do not exceedone thousand rupees in the aggregate :

Provided that this clause shall not apply to-

(i) capital gains chargeable under the provisions of Section 45 ; or

(ii) receipts arising from business or the exercise of a profession or occupation; or

(iii) receipts by way of addition to the remuneration of an employee. '

13. This section provides that a casual receipt can escape tax provided it 'comes in' without any expectation, calculation or design. It is received either accidentally or fortuitously. It is unanticipated or unseen. It is non-recurring generally. Casual, thus, is the antithesis of regular.

14. The decision of the Supreme Court in Ramanathan Chettiar v. CIT : [1967]63ITR458(SC) , lends support to this view. The Supreme Court has held thus (p. 464):

'It was also contended that the receipt of interest was casual in its character. The expression 'casual' has not been defined in the Act and must, therefore, be construed in its plain and ordinary sense. According to the Shorter Oxford English Dictionary, the word 'casual' is defined to mean : '(i) subject to or produced by chance; accidental, fortuitous, (ii) coming at uncertain times; not to be calculated on, unsettled.' A receipt of interest which is foreseen and anticipated cannot be regarded as casual even if it is not likely to recur again.'

15. This decision has also upheld the contra, viz., that a receipt 'which is foreseen and anticipated cannot be regarded as casual even if it is not likely to recur again.'

16. This court while considering the scope of Section 10(3) of the I.T. Act, 1961, has held in K. Sankaran v. CIT : [1978]115ITR561(Ker) :

'From the section it will be seen that unless the receipt satisfies the dual test of being of a casual and of a non-recurring nature, it will not qualify for exemption from taxation.'

17. It has further'been held that even if a receipt satisfies the two conditions, the exemption claimed will not be granted if it is found that the receipt is derived from business or the exercise of a profession or occupation.

18. It is in this backdrop the question whether 'veethapalisa' received by the assessee is income liable to be taxed, should be considered.

19. It is not in dispute that the business the assessee carries on is governed by the Chitties Act. Section 3(15) of the Chitties Act defines 'veethapalisa' and the definition reads :

''Veethapalisa' is the share of a subscriber in the discount available under the variola for rateable distribution among the subscribers at each instalment of the chitty.'

20. Section 3(4) defines 'discount'. It reads :

''Discount' means the amount of money or quantity of gain which a prize winner has, under the terms of the variola, to forgo for the payment of veethapalisa, foreman's commission/or other expenses.'

21. Discount is nothing but rebate and thus is liable to be treated as taxable income.

22. This court in CIT v. K.N.G. Brothers [1982] 134 ITR 323 considered the same question and held as follows (at p. 327):

'Yet another aspect having an important bearing on the question is whether the kurivaryola itself provides for a guaranteed minimum dividend by way of interest on investments to non-prized subscribers. If there is such a condition, undoubtedly the amount distributed by way of 'veethapalisa' will at least to the extent of such guaranteed dividend be income and not a casual or non-recurring receipt.'

23. This court thus virtually has held that 'veethapalisa' partakes of the character of income and hence the same is liable to be taxed in the hands of the person who receives it. This court also indicated that if the variola of a chitty has provided for a guaranteed minimum discount to non-prized subscribers, then it should be held that 'veethapalisa' is income, not of a casual or non-recurring nature, attracting tax.

24. Here the assessee is a business firm and its aim is to make profits. It is in the course of carrying on the business it has become a subscriber to the chitties. Thus it has made it clear that it is in the habit of adopting other ways also to acquire gain. The way in which the assessee its conducting the business, indicates that the receipt of 'veethapalisa' isinseparably connected with the ownership of the business. The Tribunalin this regard has held thus :

'In other words, by the very terms and nature of the business and the agreement, the foreman has so arranged matters that he can become a subscriber in the chit at his option and that he can get the prize amount without discount but at the same time he is entitled to the 'veethapalisa'. In other words, the scheme of profit making is built into the scheme of the chit and since the chit is a business proposition for him, we are unable to regard the receipts by the foreman by way of 'veethapalisa' as other than in the nature of business receipts.........

It is only the foreman who invariably makes a surplus out of the entire transaction. In respect of every chit to which he is a subscriber, the foreman definitely stands to gain. This is a direct result of the provisions of the chit fund and it is the direct result of a scheme of profit making and an integral part of the business carried on by the foreman.'

25. These findings are not under challenge. The assessee, therefore, cannot contend that the 'veethapalisa' is not income in its hands, attracting tax.

26. The right to claim 'veethapalisa' is vested in every subscriber in terms of the variola as also the provisions of the Chitties Act. As already mentioned, the Chitties Act has recognised 'veethapalisa' as discount a subscriber is entitled to get. Here the subscriber is also the person who carries on the business of conducting chitties and 'veethapalisa' in its hands, therefore, is a trading receipt which attracts tax.

27. Reference in this connection to a ruling of the Supreme Court, viz., Raja Rameshwara Rao v. CIT : [1963]49ITR144(SC) , is relevant (p. 148):

'These allowances, we notice, were treated by the Regulations as something other than the compensation for the loss of the Jagir. They were, therefore, not treated as capital as representing compensation for the Jagir. If they were treated as capital for the reason that they were not compensation for the loss of the Jagir, we find no ground on which we can say they were capital. It would follow that they must be income and taxable as such. They were certainly not windfall, for a right to them was created by the Abolition Regulation, a right which under Section 21 could be enforced in a civil court. Then we find that these allowances were payable with a regularity and were of a recurring nature, both of which are recognised as characteristic of income : see Commissioner of Income-tax v. Shaw Wallace and Co. [1932] LR 59 IA 206 ; [1932] 2 Comp Cas 276. Next we observe that the Regulations advisedly called the payments 'maintenance allowances', a nomenclature peculiarly suited to payments of the nature of income. Lastly, it may be pointed out that the payments were made for the interim period between the time when the income of theJagir began to be collected by the Government through the Jagir administrator on April 1, 1950, when the compensation for the loss of the Jagir first became payable. The payments were, therefore, by way of compensation for the loss of income in the interim period. In the words of Jenkins L.J., as will appear later, they were 'income-compensation' and, therefore, of the income nature,'

28. In the light of what is stated hereinbefore we have no hesitation to hold that 'veethapalisa' received by the assessee is income in its hands liable to be taxed. As stated in Shaw Wallace's case, , the asssssee is getting it ' with some sort of regularity or expected regularity from definite sources,'

29. The Appellate Tribunal relying on the order of the Special Bench ofthe Tribunal in ITA No. 103/Cochin/75-76 dated September 30, 1977, in thecase of ITO, W-Ward, Kottayam v. Kosamattom Chitty Fund and Investments,Kottayam, has held that 'veethapalisa' received by the assessee is incomein its hands, liable to be taxed. The said conclusion of the Tribunalin the light of the principle of law stated hereinbefore is correct.'

30. In the above conclusion of ours, the question referred to us is answered in the affirmative, against the assessee and in favour of the Revenue.

31. A copy of this judgment under the seal of the High Court and the signature of the Registrar shall be forwarded to the Income-tax Appellate Tribunal, Cochin Bench.


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