DIVAN J. - This is a reference made at the instance of the assessee by the Tribunal under section 66 (1) of the Indian Income-tax Act, 1922 (hereinafter referred to as the Act). The assessee is an individual and the assessment years in question are 1955-56, 1956-57, 1957-58 and 1958-59, the corresponding previous years being years ending March 31, 1955, March 31, 1956, March 31, 1957 and March 31, 1958. The following three question have been referred to us by the Tribunal :
'(1) Whether on the facts and in the circumstances of the case, the amounts received by the assessee from the Alembic Glass Industries Ltd. and Uday Ltd. could be treated as income and liable to income-tax as such for the assessment years 1955-56 to 1958-59 (both inclusive) ?
(2) If the answer to question No. 1 is in the affirmative, whether on the facts and in the circumstances of the case, the said amounts could be treated as income from other sources chargeable under section 12 of the Act, or income chargeable under the head 'salaries' under section 7 of the Act ?
(3) Whether, on the facts and in the circumstances of the case, the assessee was entitled to 'earned income relief' in respect of the said amounts for any of the four assessment years ?'
The facts leading to this reference are as follows : The assessee belongs to Amin family, which has a substantial interest in the Alembic Chemical Works Ltd. at Baroda and allied concerns. One of this group of concerns is a public limited company known as Alembic Glass Industries Ltd. and there is another limited company called Uday Ltd. Uday Ltd. are the managing agents of Alembic Glass Industries Ltd. On March 21, 1954, the Alembic Glass Industries Ltd. the managed company, passed a resolution of the board of directors appointing the assessee as Industrial Relations Officer (Social) of the managed company. Under the resolution, she was to be paid Rs. 1,000 per month. As regards the other limited company, Uday, Ltd. by a resolution, dated February 4, 1955, of the board of directors of that company, it was resolved that the assessee paid 20% of the profits as her remuneration for the year 1954 and onwards for the services that she would be rendering to the company and the profits were to be computed for this purpose before charging the said remuneration. In the income-tax assessment of Alembic Glass Industries Ltd. and Uday Ltd., the amounts paid to the assessee were claimed as deduction, but in the case of each of these two companies, these payments were disallowed by the Income-tax Officer concerned for the assessment years in relation to which the present reference has arisen. In the case of Alembic Glass Industries Ltd. it was found by the Income-tax Officer that the payments made to the assessee by the company and styled as 'salary' were nothing but gratuitous payments made to her because of the position which her family enjoyed with that company. In the case of Uday Ltd., the Income-tax Officer found that the payments were merely gratuitous made to a member of Amin family by virtue of the controlling power which the family exercised over the managed and the managing companies.
During the assessment proceedings relating to the income of the assessee she did not object to the amounts, which she received from Alembic Glass Industries Ltd. and Uday Ltd., being included in her income; but she claimed earned income relief in respect of the said amounts but no such relief was allowed to her for any of four years. Various contentions were urged before the Income-tax Officer and, inter alia, it was contended that the benefit of the Notification No. 878-F, dated March 21, 1922, should be given to her but that benefit was also not given to her; and all the contentions urged on behalf of the assessee were rejected by the Income-tax Officer. On appeal to the Appellate Assistant Commissioner, the aforesaid contentions were rejected by the Appellate Assistant Commissioner also and be dismissed the appeals for the four different years in question. There was a further appeal to the Tribunal and the Tribunal also rejected the different contentions urged on behalf of the assessee and dismissed her appeals. Thereafter, at the instance of the assessee the above three question have been referred to the High Court.
On behalf of the respondent, the learned Advocate-General has urged before us a preliminary objection regarding question Nos. 1 and 2 out of the three question referred to us. In this connection, the learned Advocate General has pointed out to us that the Tribunal pronounced its order on appeal before it on July 17, 1964, and the orders passed by the Tribunal were received by the assessee on October 9, 1964. Within the period of 60 days counting from October 9, 1964, applications for reference under section 66 (1) of the Act were preferred to the Tribunal on December 5, 1964, and in each of these four application only one question was asked for, viz : Whether the assessee was entitled to earned income relief on the salary and remuneration received by her from Alembic Glass Industries Ltd. and Uday Ltd. and which were assessed under the head 'salary' Question No. 3 which has been referred to us is substantially the same question which the assessee asked the Tribunal to refer to the High Court by her four applications, each for the different year of assessment. The applications for the reference were preferred in the Form R(T), which is the prescribed form for preferring a reference application under section 66 (1) of the Act. On February 5, 1965, the Tribunal prepared a draft statement of the case and that was naturally in connection with the question which was sought to be referred to the High Court till that stage. The four applications were thereafter fixed for hearing before the Tribunal on March 19, 1965, and April 9, 1965. But from the record it does not become clear as to what transpired on those two dates. Most probably the matters were not taken up on those two dates. Some time between April 9, 1965, and April 23, 1965, the assessee preferred an application praying that two more questions should be referred to the High Court along with the original question for which the reference was asked for on December 5, 1964. There were further hearings of all the application and thereafter, on October 11, 1965, the statement of the case was drawn up by the Tribunal and was sent to the High Court on November 8, 1965. On these facts, the learned Advocate-General, on behalf of the Commissioner, has contended that the assessee, who was the losing party before the Tribunal and hence was entitled to get a reference made under section 66(1) of the Act, should have applied for a reference of all the questions that the wanted to get referred to the High Court and it saws not open to the losing party to go on adding the questions to the original question set out in the first application. The learned Advocate-General in this connection relied upon the fact that in the prescribed form for preferring reference application under section 66(1) of the Act, column 4 sets out that the questions of law arising out of the order of the Tribunal are required to be set out at different serial numbers. In this connection reliance was placed on behalf of the respondent on a decision of the Madhya Pradesh High Court in Miscellaneous Civil Case No. 195 of 1964, decided by that High Court on May 3, 1966. In that case also what happened was that an application was preferred to the Tribunal under section 66 (1) of the Act by the Commissioner to state the case and refer a question to the High Court. Only one question, which was the first of the two questions, was referred to the High Court by the Tribunal. In the course of the proceedings initiated upon that application, the assessee in its reply wanted the Tribunal to refer the second of the two questions and the Tribunal relying upon a decision of the Bombay High court in Girdhardas & Co. Ltd. v. Commissioner of Income-tax, referred both the questions to the High Court taking the view that the questions arose out of its order and the question which the assessee wanted to be referred to the High Court was also one of law. The Madhya Pradesh High Court was unable to agree with the opinion of the Bombay High Court in the case of Giridhardas Co. Ltd.; and it held that the second question could not have been referred to the High Court without an application under section 66(1) duly made by the assessee and hence the High Court declined to answer the second question. The High Court also came to the conclusion that in the case before them they were not concerned with a winning party, which could never apply for a reference but the assessee had lost on the question which the assessee wanted the Tribunal to refer to the High Court and, therefore, under section 66(1) of the 1922 Act, the assessee before the Madhya Pradesh High Court was the losing party.
In Girdhardas Co. Ltd.s case a Division Bench of the Bombay High Court consisting of Chagla C.J. and Tendolkar J. held that where a party which has lost the case before the Tribunal applies for a reference, and a reference is determined upon, the party which has won may apply for reference of others questions of law which arise from the order of the Tribunal. At page 90 of the report, Chagla C.J. has dealt with this aspect of the matter. It was urged before the High Court that one of the questions which was submitted by the Tribunal to the High Court had been raised by the Commissioner and a preliminary objection was urged before the High Court to the raising of the question. The objection was that the application for a reference was made by the assessee and it was on that application that a question of law had been submitted to the High Court. As the Commissioner had made no application for reference it was not open to the Commissioner on his application to ask for a reference on a question of law, which according to him arose from the order of the Tribunal. Relying on an earlier unreported judgment of the Bombay High Court in Commissioner of Income-tax v. Banthia Bank Ltd. Chagla C.J. held as follows :
'Whoever may be the party who ask for a reference, once a reference is determined upon, all questions of law which arise out of the order of the Tribunal can be referred to the High Court for its determination questions may be suggested either by the party which wants a reference or by the party which is content with the decision of the Tribunal. Once the decision of the Tribunal is assailed and is to come before the High Court there is no reason why the party that loses should be given the sole right of suggesting questions of law that arises from the order of the Tribunal.'
The principle on which Chagla C.J. placed reliance was that all questions of law which arise out of the order of the Tribunal can be referred to the High Court for its determination once a reference has been determined upon. Applying that principle, it is clear that in the instant case, if the decision of the Bombay High Court is to be followed, questions Nos. 1 and 2, which arise out of the order of the Tribunal and which are also questions of law can be considered by us and have to be decided by us. We are bound by this decision of the Bombay High Court, which was delivered prior the bifurcation of the State of Bombay in 1960; and following the decision in Girdhardas & Co. Ltd.s case we hold that the questions Nos. 1 and 2 were properly referred to the High court and that we have to deal with those questions in the course of this judgment.
Coming now to question No. 1, it was urged on behalf of the assessee before us that in the assessment proceedings regarding Alembic Glass Industries Ltd. & Uday Ltd., it was held that these payments made by these two companies to the assessee were gratuitous payments made by each of these two companies; and it was further held that those payments were gratuitous payments in the sense that they were not for any services rendered. It was urged on behalf of the assessee that inasmuch as the payments by these two companies were gratuitous, they were gifts or payments without consideration and that since there was no obligation on either of these two companies to pay the amounts to the assessee, though these payments were made periodically from year to year, such payments did not amount to income.
In H. H. Maharani Shri Vijaykuverba Saheb of Morvi v. Commissioner of Income-tax the question as to when a voluntary payment made without consideration can amount to income was considered by a Division Bench of the Bombay High Court, and at page 604 of the report it was observed as follows :
'There is no doubt that under the Indian Income-tax Act even payments, which are voluntarily made may constitute income of the person receiving them. It is not necessary that in order that the payments may constitute income, they must proceed from a legal source : in that if the payments are not made the enforcement of the payments could be sought by the payee in a court of law. It does not, however, mean that every voluntary payments will constitute income. Thus, voluntary and gratuitous payments, which are connected with the office, profession, vocation or occupation, may constitute income although, if the payments were not made, the enforcement thereof cannot be insisted upon. These payments constitute income because they are referable to a definite source, which is the office, profession, vocation or occupation. It could, therefore, be said that such a voluntary payments is taxable as having an origin in the office, profession or vocation of the payee, which constitutes a definite source for the income. What is taxed under the Indian Income-tax Act is income from every source (barring the exceptions provided in the Act itself) and even a voluntary payments, which can be regarded as having an origin, which a practical man can regard as real source of income, will fall in the category of income, which is taxable under the Act.'
The view which the Bombay High Court took in this particular case is supported by an earlier decision of the Full Bench of the Allahabad High Court in Rani Amrit Kunwar v. Commissioner of Income-tax. We are in agreement with the observations of the High Court in the passage that we have cited above.
When one turns to the decision of the Allahabad High Court in Rani Amrit Kunwars case, one finds that after considering the different decisions of the Privy Council, the Full Bench of the Allahabad High Court held as follows :
'The principle emphasis, however, is laid on the word return and definite source used by Sir George Lowndes. But these in my views present no difficulty. A regular payment or a payment expected to be regular may, I think, in principle be as much income when it is received from a giver who makes it systematically and for a known and rational reason (and a fortiori when it is received in accordance with custom), as it is if it is made in pursuance of some binding obligation whether arising out of business dealings, out of an investment or out of some other enforceable obligation. And if the word return had been used by Sir George Lowndes in the strict sense that nothing could be income in India which was not the result of some outlay, it would be difficult to see how anything could be taxable which was not the produce of some valuable consideration given by the recipient however binding might be the actual obligation under which it was paid.'
In the instant case, though no services were rendered by the assessee, as has been found as a matter of fact both by the Tribunal and by the revenue authorities, it is clear that the payments from the two companies were received by the assessee periodically and that these payments were received from definite sources. The resolutions passed by the two companies respectively were the genesis of these payments to the assessee and it was from a definite source that the assessee received these periodical payments and the systematic return, viz., these payments from the said two companies could be expected with regularity. Under these circumstances, applying the principles laid down by the Allahabad High Court and the Bombay High Court in the cases cited above, with which we respectfully agree, it is clear that the amounts received by the assessee from Alembic Glass Industries and Uday Ltd. could be treated as income which was liable to Income-tax for the assessments years in question.
So far as question No. 2 is concerned, it was contended before us that the benefit of Notification No. 878-F issued by the Government of India on March 21, 1922, should be given to the assessee. Under that Notification, the classes of income set out in that Notification are to be exempt from the tax payable under the Act but are to be taken into account in determining the total income of assessee for the purposes of the said Act, viz., sums received by the assessee on account of bonus, commission or other remuneration for the services rendered or in lieu of interest on money advanced to a person for the purposes of his business, where such sums have been paid out of, or determined with reference to, the profits of such business and by reason of such mode of payments or determination, have not been allowed as a deduction but have been included in the profits of the business on which income-tax has been assessed and charged under the head 'business'. It is thus clear that under the notification of 1922, three conditions are required to be satisfied before the benefit of that Notification can be given to the assessee, viz. :
(1) The sum must have been received on account of salary for services rendered, etc.;
(2) the sum must have been paid out of the profits of the business; and
(3) by reason of such mode of payment or determination the sum paid has not been allowed as a deduction but has been included in the profits of the business.
In the instant case, conditions Nos. 2 and 3 are satisfied inasmuch as the sums paid to the assessee were paid out of the profits of Alembic Glass Industries Ltd. & Uday Ltd. But on the findings of facts arrived at by the Tribunal, it is clear that these sums from the two companies were not received by the assessee on account of salary for services rendered by her. It has been found as a matter of fact that the assessee had not rendered any services to the company. It has been further found as a matter of fact by the Tribunal that the entire arrangement recorded in these two resolutions was a camouflage which the paying companies appear to have put round the arrangement and the payments were nothing but transfer of profits to a person who was a member of the family controlling the companies. Under these circumstances, it cannot be said that the payments of these amounts were received by the assessee as salary. Under these circumstances, the Appellate Assistant Commissioner and the Tribunal were right in coming to the conclusion that the benefit of the Notification of 1922 could not be given to the assessee. Since the amount was not chargeable under the head 'salaries' under section 7 of the Act, it can only be treated as income from other sources chargeable under section 12 of the Act. We may mention at this stage that, so far as the benefit of the Notification issued in 1922 was concerned, it could only have been given to the assessee for the assessment years 1955-56 and 1956-57 because the Notification had been repealed with effect from the commencement of assessment year 1957-58.
The third question is in connection with the earned income relief in respect of the amounts received by the assessee from these two companies for the assessment years in question. Under section 2(6AA) of the Act, 'earned income' means, any income of an assessee who is an individual which is chargeable under the head 'salaries'; or which is chargeable under the head 'other sources' if it is immediately derived from personal exertion or represents a pension or superannuation or other allowance given to the assessee in respect of his past services or the past services of any deceased person. It is clear on the findings of fact recorded by the Tribunal that the assessee had not derived income from these two companies from her personal exertion and hence clause (c) of section 2(6AA) of the Act would not apply to the case of the assessee. Clause (b) of section 2(6AA) cannot apply to the facts of the present case. The only contention urged before us in connection with question No. 3 was that these amounts were salaries. It was contended before us that the Income-tax Officer had charged these amounts which the assessee received from the two companies as salaries, at least as regards payments made by Alembic Glass Industries Ltd. was concerned. It was contended that there was a relationship of employer and employee and hence the amounts which she received from the two companies was salary in her hands, though the payments may not have been allowed as deduction to the two companies. In para. 12 of its order, the Tribunal has observed that, inasmuch as there was no relationship of employer and employee between either of the two companies and the assessee, it would not be correct to say that the payments received by the assessee from the two companies can be said to be taxable under section 7 and could be classified as income from other sources. In the course of its order, in para. 9, the Tribunal has recorded its conclusion that the entire arrangement was to transfer profits of the two companies to a person who was a member of the family controlling the company and hence in the light of that conclusion, the Tribunal was justified in coming to the conclusion that there was no relationship of employer and employee between either of the two companies and the assessee. The fact that the payments were made to the assessee as a result of the resolutions passed by the boards of directors of the two companies cannot covert the payment made by the two companies to the assessee into salaries. For the purpose of deciding whether the payments made to the assessee by these two companies were chargeable under section 7 of the Act, what is required to be looked into is not merely the resolution alone but all the attendant circumstances and after looking at all the attendant circumstances, it was held by the Tribunal that the payments made to the assessee were not chargeable under the head 'salaries' and hence the earned income relief could not be given to the assessee. In view of the conclusions regarding the earned income relief was correct and under these circumstances we hold that the assessee was not entitled to earned income relief in respect of the amounts received by her from the two companies.
In the light of what has been stated above, we answer question No. 1 in the affirmative; Question No. 2 : chargeable as income from other sources under section 12 of the Act and not as salaries under section 7 of the Act; and question No. 3 in the negative. Since the assessee has failed on all the three question, she will pay costs of this reference to the Commissioner.