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Commissioner of Income-tax, Tamil Nadu-i Vs. B.M. Sundaravadanam - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberTax Case No. 975 of 1977 (Reference No. 669 of 1973)
Judge
Reported in[1984]148ITR333(Mad)
ActsIncome Tax Act, 1961 - Sections 28 and 147
AppellantCommissioner of Income-tax, Tamil Nadu-i
RespondentB.M. Sundaravadanam
Appellant AdvocateJ. Jayaraman, Adv.
Respondent AdvocateS. Swaminathan, Adv.
Cases ReferredSeymour v. Reed
Excerpt:
.....doctor due to his honesty and faithfulness - said gift cannot be treated as granted in lieu of services rendered - held, value of gift does not constitute professional income. - - 54) :it is well established that in case this kind the real question is, as rowlatt j. 12. we are of the view that the facts of this case will clearly fall within the principle laid down by the supreme court in mahesh anantrai pattani v. the tribunal held that the assessee had failed to place before the income-tax authorities all the evidence in support of her contention that the gift from the maharani did not constitute her income and held that the gifts were remuneration for services rendered or to be rendered. the law on the subject has been stated by the supreme court thus (headnote) :where the..........and that he had not done so. the assessee on the other hand contended before the tribunal that the gift in question was made for his personal qualities and consequently it could not said to be connected with the services rendered by the assessee. thus, the main question before the tribunal was whether kanagasabai pillai had gifted the lands in question to the assessee in appreciation of the latter's personal qualities or as a remuneration for the professional services rendered. the tribunal took the view that, on the facts and circumstances of the case, it was for the department to establish that the receipt in question was taxable income and proceeded to hold, after consideration of the recitals in the gift deed and the oral statements made by the donor and the assessee before the ito.....
Judgment:

Ramanujam, J.

1. The assessee is prominent and eminent surgeon running a nursing home at Madras. One G. R. Kanagasabai Pillai of Kariamangalam in Tanjore District underwent treatment in the nursing home of the assessee during the period from November, 1957, to December, 1958, for a chronic ailment. The said Kanagasabai Pillai got completely cured and he had paid to the assessee a sum of Rs. 4,082 as fees for the professional services rendered by him. Kangasabai Pillai owned about 300 acres of lands, both wet and dry. He had no issue. By a deed dated March 9, 1960, he gifted to the assessee 31.56 acres of Nanji lands and 1.82 acres of Punja lands situate in Kariamangalam village specifically mentioning in the gift deed that the assessee has shown him kindness, infused in him self-confidence and gave him a sense of protection which he could never forget, that the assessee's kindness and protection had created a feeling of gratitude in his mind and to translate it into concrete shape, he was making the gift of the lands to the assessee. The gift deed specifically provided that the assessee should not sell the lands gifted to him without obtaining the permission of the donor.

2. Coming to know of his gift deed, the ITO reopened the assessment of the assessee for the assessment year 1960-61 under s. 147(a) of the I.T. Act, 1961, hereinafter referred to as 'the Act'. The assessee objected to the value of the lands gifted being treated as taxable income, his contention being that the gift had been made to him by Kanagasabai Pillai not as remuneration for the professional services rendered by him but only in appreciation of his personal qualities. The ITO did not accept the assessee's contention but proceeded to hold that the gift was made by the donor in consideration of the professional services rendered by the assessee as a doctor and, therefore, the receipt was definitely not of a casual and non-recurring nature. He determined the value of the lands gifted at Rs. 65,000 which was taken as chargeable to tax.

3. Aggrieved by such assessment, the assessee preferred an appeal to the AAC contending, (1) that the reopening of the assessment under s. 147(a) is illegal, and (2) that the gift of lands having been made in appreciation his personal qualities, it is only a casual and non-recurring income not arising out of the profession carried on by him, and, therefore, the same is not chargeable to tax. The AAC rejected that first contention but accepted the second, with the result the sum of Rs. 65,000 which was taken as income from profession was deleted from assessment.

4. Aggrieved by the said decision, the Revenue preferred an appeal to the Income-tax Appellate Tribunal. In the appeal the Revenue did not dispute that the receipt by the assessee was only a casual and non-recurring receipt but it mainly contended that it was for the assessee to show that the receipt in question did not arise from the exercise of his profession and that he had not done so. The assessee on the other hand contended before the Tribunal that the gift in question was made for his personal qualities and consequently it could not said to be connected with the services rendered by the assessee. Thus, the main question before the Tribunal was whether Kanagasabai Pillai had gifted the lands in question to the assessee in appreciation of the latter's personal qualities or as a remuneration for the professional services rendered. The Tribunal took the view that, on the facts and circumstances of the case, it was for the Department to establish that the receipt in question was taxable income and proceeded to hold, after consideration of the recitals in the gift deed and the oral statements made by the donor and the assessee before the ITO and other circumstances such as payment of Rs. 4,082 by the donor to the assessee qualities and not as remuneration for the services rendered. In this view, the Tribunal dismissed the appeal filed by the Revenue. Aggrieved by the decision of the Tribunal, the Revenue has obtained a reference to this court on the following question of law : 'Whether, on the facts and in the circumstances of the case, the sum of Rs. 65,000 covered by the settlement is chargeable to tax as professional income in the hands of the assessee as a doctor ?'

5. From the facts referred to above, it could be seen that the assessee treated Kanagasabai Pillai during the period from November, 1957, to December, 1958, in his nursing home at Madras and Kanagasabai Pillai got completely cured of his illness. For the professional services rendered by the assessee, there was admittedly a payment of Rs. 4,082 then and there. It is not the case of Revenue that after payment of Rs. 4,082 any further amount was outstanding towards the assessee's fees for the professional services rendered by him, and that as the amount remained unpaid till March 9, 1960, the gift deed was executed. When Kanagasabai Pillai had paid admittedly a sum of Rs. 4,082 as and for fees for the professional services rendered by the assessee, the gift in question was made by the donor not in discharge of his liability to pay the fees for the assess's professional service. It is significant to note, as pointed out by the Tribunal, that the professional services rendered by the assessee has not been shown by the Revenue to be of such a nature as to merit a remuneration of Rs. 65,000 plus of Rs. 4,082, which has already been paid as fees.From the order of the Tribunal it is seen that the Revenue did not dispute before it that the receipt by the assessee was only a casual and non-recurring receipt. Therefore, we have to proceed on the basis that the receipt of gift of the value of Rs. 65,000 by the assessee was a causal and non-recurring receipt.

6. Before us the contention of the Revenue is that the onus is on the assessee to show that the receipt of Rs. 65,000 is not a taxable receipt and that, in this case, the assessee has not discharged the said onus. In support of the said contention, reliance is placed on the decision of the Supreme Court in P. Krishna Menon v. CIT : [1959]35ITR48(SC) and of the Calcutta High Court in

7. Amarendra Nath Chakraborty v. CIT : [1971]79ITR342(Cal) . The assessee on the other hand contends that once it is shown that the gift made by the donor is shown to be in appreciation of the assessee's personal qualities, then it cannot be said to be connected with the professional services rendered by the assessee and as such the receipt cannot be taken to be a taxable receipt and it was for the Revenue to establish the contrary. For this purpose, reliance is placed by the assessee on the decisions of the Supreme Court in Mahesh Anantrai Pattani v. CIT : [1961]41ITR481(SC) and Parimesetti Seetharamamma v. CIT : [1965]57ITR532(SC) .

8. In P. Krishand Menon v. CIT : [1959]35ITR48(SC) , one K, after his retirement, from Government service was spending his time in studying and teaching Vedanta

9. Philosophy. L, who was one of his disciples, used to come from England at regular intervals to Trivandrum where K resided and stayed there for a few months at a time and attended K's discourses and also had the benefit of his teachings. L transferred the entire balance standing to his credit in his own account at Bombay amounting to more than Rs. 2 lakhs to the account of opened at the same bank at Bombay. Thereafter, from time to time, L put in further sums into K's account in Bombay. The question was whether the receipts from L constitute K's income taxable under the Travancore Cochin I.T. Act, 1121, which was identical to the Indian I.T. Act, 1922. The Supreme Court considered the said question as comprising two aspects, (1) whether K was carrying on an avocation, and (2) Whether the amounts in question can be treated as profits and gains of the said avocation. On the first aspect, the Supreme Court held that the word 'avocation' would taken in the activity of K in teaching Vedant a in regular and organised manner. On the second aspect, it took the view, after considering a large number of authorities, both Indian and English, that the payments made by L were income arising from an avocation and they were not casual or non-recurring receipts and therefore, the payments are taxable. In that case the Supreme Court observed (p. 54) : 'It is well established that in case this kind the real question is, as Rowlatt J., put it in Reed v. Seymour [1926] 1 KB 588 :' but is it in the nature of a personal gift or is it a remuneration ?', an observation which was quoted with approval by Visount Cave L C., when the case went up to the

10. House of Lords with the addition,' If the latter, it is subject to tax; if the former it is not' : see Seymour v. Reed [1927] AC 554. We find it impossible to hold in this case that the payments to the appellant had not been made in consideration of the teaching imparted by him...... We have no doubt in this case that the imparting of the teaching was the causa causans of the making of the gift; it was not merely a cause since qua non. The payments were repeated and came with the same regularity as Levy's visits to the appellant for receiving instructions in Vedanta.' In Amarendra Nath Chakraborty v. CIT : [1971]79ITR342(Cal) , the assessee was preacher of the Satsang cult and for his work as a preacher he received salary from the institution. While working as a preacher he initiated disciples into the Satsang and received offerings from such disciples. One of the disciples executed a deed of gift relating to a piece of land in the town of Calcutta valued at Rs. 40,000. The question arose as to whether the gift is traceable to the assessee's avocation as a preacher of the Satsang cult and as such a taxable receipt. The Calcutta High Court held that the gift was strictly traceable to the assessee's avocation of a preacher of the Satsang cult and that the value of gift of land was a receipt by the assessee in the carrying on of the assessee's vocation as a religious teacher and as such taxable in his hands. Relying on the said decisions the learned counsel for the Revenue contends that the gift in the present case is traceable only to the assessee's profession as a medical practitioner notwithstanding the fact that he has received the fees for his professional services rendered and that the gift can be traced only to his profession and cannot be treated as one in appreciation of his personal qualities outside his medical profession. The question is

whether the gift in question is tractable to the assessee's profession or to his personal qualities.

11. On the facts of the case in Amarendra Nath Chakraborty v. CIT : [1971]79ITR342(Cal) , the gift found to be in consideration of the benefits which the donor had received from the assessee's preaching and, therefore, it was traced to the assessee's avocation as a preacher. In the case before us, the professional services have sufficiently been compensated at or about the time when the donor got treated by the assessee and, therefore, the gift cannot be traced to the services rendered by the assessee as a medical practitioner, as that has already been compensated. Therefore, it is clear that the professional services rendered by the assessee cannot be the consideration for the execution of the gift deed. Similarly, the decision in P. Krishna Menon v. CIT : [1959]35ITR48(SC) , will not apply to the facts of this case as it was specifically found in that case that the consideration for the gift was only for the benefit of the assessee's teaching in Vedanta and, as already said, in this case, the gift is not a consideration for the professional services rendered, for it has already been duly compensated.

12. We are of the view that the facts of this case will clearly fall within the

principle laid down by the Supreme Court in Mahesh Anantrai Pattani v. CIT : [1961]41ITR481(SC) , the facts which are somewhat similar to the case on hand. In that case the assessee was the Chief Dewan of the Bhavnagar State from December, 1937, to January, 1948, when responsible government was introduced by the Maharaja and the assessee was given a pension. On March 1, 1948, the Bhavnagar State merged in the United State of Saurashtra and the Maharaja ceased to be the ruler of that State. On June 12, 1950, the Maharaja gave a sum of Rs. 5 lakhs from his personal account to the assessee. On these facts the Supreme Court held that the sum of Rs. 5 lakhs was paid to the assessee not in token of appreciation for the services rendered as the Dewan of the Bhavnagar State but as a personal gift for the personal qualities of the assessee and as a token of personal esteem and, as such, the amount was not taxable. The reasoning for the said decision appears to be that the assessee had been fully compensated for the service rendered by him to the Bhavnagar State and the gift by the Maharaja out of his personal account was long after his retirement, and that it has not been shown that the services rendered by the assessee to the Bhavnagar State was the causa causans of making the gift.

13. In Parimisetti Seetharamamma v. CIT : [1965]57ITR532(SC) , a gift had been made by the Maharani of Baroda to one Seetharamamma who claimed that she was the private secretary of the Maharani. The question arose whether the said gift was a taxable receipt. The Tribunal held that the assessee had failed to place before the income-tax authorities all the evidence in support of her contention that the gift from the Maharani did not constitute her income and held that the gifts were remuneration for services rendered or to be rendered.

14. The Supreme Court was of the opinion that the Tribunal had wrongly placed the burden of proof on the assessee, that the facts in the case did not establish that what the Maharani gave to the assessee was remuneration for service rendered or to be rendered and, therefore, the gifts were not assessable to tax. The law on the subject has been stated by the Supreme Court thus (headnote) :

'Where the case of the assessee is that a receipt did not fall within the taxing provision, the source of the receipt is disclosed by the assessee and there is no dispute about the truth of that disclosure, the income-tax authorities are not entitled to raise an inference that the receipt is assessable to income-tax on the ground that the assessee has failed to lead all the evidence in support of his contention that it not within the taxing provision.'

15. In S. A. Ramakrishnan v. CIT : [1978]114ITR253(Mad) , this court has held that where a receipt is sought to be taxed as income, the burden lies on the Department to prove that it is within the taxing provision, and only where the character of the receipt is established as income, the burden of proof that it is not taxable lies on the assessee. In that case the assessee who was an exponent of the epics like Ramayana and Mahabharata was assessed to income-tax on cash presents received by him on the occasion of his Shastiabdapoorti from the public. The AAC and the Tribunal confirmed the assessment. When the matter came before this court, this court held that as the assessee was being remunerated separately for his discourses as and when such discourses were held, there was no material for saying that the cash receipts received on the occasion of his Shastiabdapoorthi was actually remuneration paid in connection with the past performance though the occasion for making the payment was his Shastiabdapoorthi and that in the absence of any such material, the Tribunal's assumption that the said sum was remuneration has no basis whatsoever and that, therefore, the assessment could not be sustained. This court has followed the decision of the Supreme Court in Parimisetti Seetharamamma v. CIT : [1965]57ITR532(SC) , above referred to. In Sewal Singh Ajit Singh v. CIT , the Punjab and Haryana High Court held in similar circumstances that the onus is on the Revenue to show that a particular transaction was not by way of gift but was in the form of payment in lieu of services rendered, relying on the decision of the Supreme Court in Mahesh Anantrai Pattani v. CIT : [1961]41ITR481(SC) . In that case the Nawab of Malerkotla transferred a piece of land to the assessee. The value of the land transferred was treated as the assessee's income on the ground that the land had been conveyed by the Nawab in token of services rendered by the assessee in his capacity as a general attorney for the purpose of selling the lands belonging to the Nawab and that if the assessee had not been appointed as general attorney and worked to the entire satisfaction of the Nawab, the question of gift would never have arisen and, therefore, the gift was primarily a payment in lieu of the services rendered by the assessee to the Nawab as his general attorney. When the matter came to the court, the court held that the contents of the deed of gift clearly mentioned that the assessee in his capacity as general attorney served the donor honestly and faithfully and it was because of the honesty and faithfulness that the donor developed true and natural love and affection towards the assessee and out of his love and affection he gifted the land to the assessee and that the mere fact that the assessee served the Nawab in the capacity of general attorney was no ground for holding that the transaction was not a gift and that there was no contractual or legal obligation on the part of the Nawab to pay any remuneration to the assessee and the assessee had no legal right to receive any remuneration and that, therefore, the transaction was a gift and not a remuneration paid by the Nawab to the assessee for the services rendered by him. In the case on hand there is no obligation on the part of the donor to make any payment for the services already rendered by the assessee which had been compensated for and there is no legal right in the assessee to receive any further payment for the professional services rendered earlier. Therefore, it not possible to hold that merely because the assessee is a medical practitioner, the gift received by him is towards the services rendered especially when the professional services have been suitably compensated earlier.

16. Having regard to the principles laid down by the Supreme Court in Mahesh Anantrai Pattani v. CIT : [1961]41ITR481(SC) and in Parimisetti Seetharamamma v. CIT : [1965]57ITR532(SC) , we are of the view that the services rendered by the assessee is not the causa causans of making the gift by the donor and, therefore, it should be treated only as a gift made out of personal esteem and arising our of the personal qualities of the assessee.

17. The question is, therefore, answered in the negative and against the Revenue. The Revenue will pay the costs of the assessee. Counsel's fee Rs. 500.


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