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K. Ramaswami Gounder Vs. Commissioner of Income Tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberTax Case No. 1583 of 1977
Judge
Reported in(1984)41CTR(Mad)204; [1987]163ITR94(Mad)
ActsIncome Tax Act, 1961 - Sections 2(13), 2(36), 10 and 10(3)
AppellantK. Ramaswami Gounder
RespondentCommissioner of Income Tax
Appellant AdvocateS. Swaminathan, Adv.
Respondent AdvocateJ. Jayaraman, Adv.
Cases ReferredMadras v. V. P. Rao
Excerpt:
.....specialized knowledge of industrial law - had requisite qualification of arbitrator - arbitration work of assessee was his occupation - held, income arising from remuneration as arbitrator liable to be taxed in hands of assessee. - - (2) the qualifications of the assessee, his skill and experience, his availability as an arbitrator and his remuneration were all well-known; that the assessee has been thought of as a suitable and even desirable arbitrator, is clearly made out by the number of arbitrations participated in by him since 1963-64 onwards. a good amount of work was turned out by the arbitrators in that connection and a sum of rs. rao [1950]18itr825(mad) ,was a case of a retired judge of the madras high court, like the assessee, who had accepted to serve as an arbitrator..........has been found by the tribunal and since 1962-63 the assessee has been engaging himself in such work. the assessee, though retired from service, had thus not fully rid himself of the aptitude for industrial adjudications and preference to do work in that field. the assessee had not taken up such arbitration work on a single or solitory occasion. continuity and the regularity in the line of endeavour pursued by the assessee had also been established. having regard to the continuity and regularity in the pursuit of such activities by the assessee since 1962-63 and 1963-64, this would be case where the assessee's time and attention had been occupied by such work. the equipment, experience and the persuasive ability of the assessee have been found by the tribunal to have been availed of.....
Judgment:

V. Ratnam, J.

1. The following question has been referred for the opinion to this court u/s 256(1) of the IT Act, 1961 (hereinafter referred to as the Act) at the instance of the assessee :

'Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the 4 sum of Rs. 28,830 was not exempt u/s 10(3) of the IT Act, 1961?'

2. For the asst. yr. 1970-71 corresponding to the previous year ending on 31-3-1970 the return of the assessee disclosed a total income of Rs. 8576 consisting of pension, interest on securities, etc. In Part IV of the return, the assessee, while admitting a met receipt of Rs. 28,830 towards remuneration as arbitrator, claimed that it was exempt u/s 10(3) of the Act, as receipt of the casual and non-recurring nature. The ITO brought the receipt of Rs. 28,830 to tax, as ever since 1964-65, the assessee had been in receipt of such remuneration for arbitration and that had been assessed to tax, which had been acquiesed in by the assessee. On appeal to the AAC, he took the view that the assessee was not carring on any business or profession, that agriculture was his vocation or occupation and therefore, the appointment of the assessee as arbitrator was casual with no expectation of payment of fee or recurrence thereof and would therefore be exempt u/s 10(3) of the Act. On further appeal to the Tribunal at the instance of the revenue, the Tribunal at the instance of the revenue, the Tribunal found the following facts :

(1) The assessee had specialised knowledge of industrial law and persuasive ability of the high order to settle disputes amicably and was therefore suitable for and sought after as an arbitrator;

(2) The qualifications of the assessee, his skill and experience, his availability as an arbitrator and his remuneration were all well-known;

(3) That ever since the retirement of the assessee from service, he had accepted arbitration work every year from 1962-63 onwards and that the arbitration work was given to the assessee through a firm of solicitors;

(4) That the arbitration work was not done by the assessee gratis even once; nor was such work done by the assessee as a diversion or for pleasure;

(5) That the claim for deductions made by the assessee towards rent for the premises and pay of attendant indicated the permanency of his establishment;

(6) The activity of the assessee in taking up such arbitration work would be an 'occupation', though subsidary to his main occupation, which was agriculture.

In view of these findings, the Tribunal concluded that the receipt of amounts by the assessee for doing arbitration work would be receipts from the exercise of an 'occupation' and would not be exempt u/s 10(3) of the Act. Aggrieved by this order of the Tribunal, the assessee has come up before this court as stated earlier.

3. The ld. counsel for the assessee contended that arbitration work of the nature undertaken by the assessee in respect of which he had also been remunerated, stands on the different footing from other kinds of work, in that it is not necessary that parties to a dispute should resort to arbitration or even if they so resort, the assessee need not be approached for doing such work. It was further submitted that the assessee was not pursuing any business or exercising a profession or occupation and that the receipts are of a casual and non-recurring nature and therefore exempt u/s 10(3) of the Act. Reliance was placed by the ld. counsel for the assessee on the decision in B. Malick v. CIT, Uttar Pradesh (1968) 68 ITR 616 as concluding the question in favour of the assessee. On the other hand, the ld. counsel for the revenue strenuously contended that on the facts found by the Tribunal, arbitration work had been engaging the time and attention of the assessee ever since he retired from service and he had also been remunerated for such services rendered by him. It was further pointed out that the assessee had been found to have been carrying on continuously and systematically arbitration work and that therefore, it is not correct to consider that work as one not resorted to ordinarily or different from occupation, when such work is regularly and systematically accepted and performed. There was nothing casual or nonrecurring about the work undertaken by the assessee or the remuneration paid therefor, according to the ld. counsel for the revenue, who contended that the Tribunal was therefore justified on the facts in concluding that the assessee was exercising an occupation and therefore, the exemption u/s 10(3) of the Act would not be available to the assessee. The decision in B. Malick v. CIT, Uttar Pradesh : [1968]67ITR616(All) relied on by the ld. counsel for the assessee was distinguished on the ground that it was peculiar on its facts and an unusual one relating to the case of a sitting Judge of the High Court who was requested to act as an umpire and that such considerations do not apply to the facts found in this case.

4. We may briefly notice the provisions of s. 10 of the Act for purposes of this case. That provides that in computing the total income of a previous year, any income falling within any of the clauses set out therein shall not be included. Clause (3) refers to receipts which are of a casual and non-recurring nature as a category of income to be excluded, unless they are (1) capital gains (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. Under s. 2(36) of the Act, 'profession' includes 'vocation'. It is thus seen that receipt referable to the normal activities of a person as distinct from a chance pursuit have been included and there is an exclusion of those receipts from the benefit of exemption, if such receipts arise from business or the exercise of a profession or vocation or occupation. Therefore, the principal question is whether these amounts received by the assessee are of casual and non-recurring nature and do not arise from business, or the exercise of a profession including a vocation or occupation, before it could be excluded from the total income u/s 10(3) of the Act. To state it differently, if the receipt arises from a business or the exercise of a profession or occupation or vocation, it is subjected to tax, though it is of a casual or non-recurring nature.

5. We now proceed to a consideration of the activities of the assessee in this reference. The post retirement activities of the assessee consist of looking after agricultural operations in his village and also in bringing about industrial peace by acting as an arbitrator in the resolution of industrial disputes. Those activities cannot be termed as the business of the assessee or even his profession. Under s. 2(13) of the Act, the word 'business' has been defined to include any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture. Applying this definition to the activities pursued by the assessee, it is obvious that the activities of the assessee cannot be characterised as 'business'. Under the Act, there is no definition of the word 'profession' except that in s. 2(36) of the Act, it has been stated, as noticed earlier, that 'profession' includes 'vocation'. The line of activities pursued by the assessee cannot be equated to those in the exercise of a 'profession'. Indeed, as a pensioner, who had retired from service, there is no question of the assessee exercising any 'profession', particularly having regard to the nature of the activities pursued by him. The assessee cannot be considered to be the member of an organised profession withe an enforceable standard of conduct and practising it. Therefore, if at all, the activities of the assessee can fall within the expression 'vocation' or 'occupation'. It is in this connection that it worth while recalling the observations of Braund, J. in Lala Indra Sen, In re : [1940]8ITR187(All) to the following effect :

'..... I should, for myself, be very unwilling to try to lay down any general definition of what a 'business' 'profession' 'vocation' or 'occupation' is, because it is a matter which, to my mind, must necessarily depend in every case upon the circumstances of the assessee, the particular things he does and the degree to which, and the object which, he does them ....... The truth I think is in this, as in so many other cases, that no exhaustive test can be applied, but that all the surrounding circumstances must be considered and commonsense applied. If there is one test which is as I think, more valuable that another, it is to try to see what is the man's own dominant object-whether it was to conduct an enterprise of a commercial character or whether it was primarily to entertain himself. If the latter was his reall objective, I do not think that the circumstance that his hobby might possibly yield him a reward is conclusive of this question whether what he is doing constitutes a 'business', 'profession', 'vocation', or 'occupation' within the meaning of this Act.'

We have already referred to the line of activities pursued by the assessee not being either 'business of professional' activities. Whether they would constitute a 'vocation or occupation' of the assessee, is what remains to be considered. A 'vocation', as normally understood, is a calling, in which a person passes his life. It may even be stated to be a way of living or a sphere of activity for which one had a special fitness, though it is not necessary that the activity should be indulged in for purposes of livelihood. It is not the case of the assessee that arbitration work has been his calling or he has been passing his life in such work and therefore, the line of activity pursued by the assessee in accepting and carrying out arbitration work may not be appropriately termed as 'vocation'. The only other thing that remains for consideration is whether such activities would amount to the exercise of an 'occupation' as stated in s. 10(3) of the Act. Understood in the ordinary sense 'occupation' is something which occupies or engages ones time or attention. That has reference also to the state of being employed or engaged. In consonance with the equipment, experience and ability of the assessee has been by exercising those qualities, devoting his time and attention to the adjudication of industrial disputes. That immediately following his retirement from service and for several years without a break, the assessee has been pursuing this line of activity has been found by the Tribunal and since 1962-63 the assessee has been engaging himself in such work. The assessee, though retired from service, had thus not fully rid himself of the aptitude for industrial adjudications and preference to do work in that field. The assessee had not taken up such arbitration work on a single or solitory occasion. Continuity and the regularity in the line of endeavour pursued by the assessee had also been established. Having regard to the continuity and regularity in the pursuit of such activities by the assessee since 1962-63 and 1963-64, this would be case where the assessee's time and attention had been occupied by such work. The equipment, experience and the persuasive ability of the assessee have been found by the Tribunal to have been availed of by securing the services of the assessee to do arbitration work in restoring industrial peace. That the assessee has been thought of as a suitable and even desirable arbitrator, is clearly made out by the number of arbitrations participated in by him since 1963-64 onwards. Indeed, it appears to us that if need for an arbitrator fir settling industrial disputes should arise in the area where the assessee is living, the obvious choice would be the assessee. Industrial adjudication through experienced arbitrators has come to stay and there is nothing casual or non-recurring about either industrial disputes or their adjudication by arbitration. It can even be stated that the possibility of the assessee being appointed as an arbitrator to resolve such industrial disputes could be expected or anticipated. However, the face remains that in none of the arbitrations, the work was done by the assessee gratis or for pleasure or as a matter of diversion from the routine. The amounts received by the assessee retained the attributes of remuneration and totally lacked the features of a personal gift. The arbitration work in respect of which the assessee's services were sought had all been channelised or routed through a firm of solicitors. This could be only on the basis of the suitability and the availability of the assessee for such work having been widely known pursuant to the continuity and regularity in that line of endeavour pursued by the assessee. The maintenance of an establishment in respect of which a deduction for rent and pay of an attendant was claimed by the assessee had thought of a permanent establishment. Further, in the prior years, such receipts by the assessee had been subjected to tax and the assessee had been subjected to tax and the assessee did not demur. Considering these facts cumulatively, we are of the opinion that the line of activity of the assessee was in the nature of occupation. No doubt, the assessee claimed that agriculture is his principal and ancestral occupation. That may he so But it is not uncommon or unusual for the same person to pursue more than one occupation, as ultimatedly, it would merely be a question of such a person being able to devote his time and attention to the several activities in which he is engaged. Thus, on the facts, the activities pursued by the assessee would be in the nature of an occupation and the receipts therefrom would not therefore qualify for exemption u/s 10(3) of the Act.

6. It only remains to refer to the three direct decisions on this question. In CIT, Madras v. M. Ahmad Badsha Saheb : [1943]11ITR590(Mad) , a merchant, who was a dealer in hides and skins, was chosen as of five arbitrators to resolve a dispute amongst the heirs of a Nawab regarding the division of properties. A good amount of work was turned out by the arbitrators in that connection and a sum of Rs. 87,000 was ordered by court as remuneration and the share of the assessee came to Rs. 17,400. The question of assessability to income-tax of this amount arose and the ITO held that it was liable to income-tax of this amount arose and the ITO held that it was liable to income-tax of this amount arose and the ITO held that it was liable to income-tax. But on appeal to the Tribunal, it was reversed on the ground that the receipt was of a casual and nonrecurring nature. On further, Sir Lionel Leach, C.J., observed that the receipt was not none arising from the exercise of a profession, vocation or occupation, as the assessee was a merchant dealing in hides and skins and not a professional arbitrator and that it was very unlikely that he would be called for purposes of arbitration. Further, it was noticed there was no stipulation regarding remuneration and the receipt of the remuneration ordered by the court was really of a casual and nonrecurring nature. It was emphasised that there can be no rule laid sown with regard to what was of a casual and non-recurring nature, but that each case must be decided on its particular facts. In the case referred to earlier, the assessee was merchant and he had a solitary plunge in the arbitration pool without any stipulation for remuneration. No body including himself expected a second or further plunge. But in this case, the assessee knows what he had been doing and has been sole soaked in the arbitration and so much that he can be said to be almost dripping wet in the arbitral process. The case in CIT, Madras v. V. P. Rao : [1950]18ITR825(Mad) , was a case of a retired Judge of the Madras High Court, like the assessee, who had accepted to serve as an arbitrator for enquiring and reporting about a dispute which had arisen between two districts now in Andhra Pradesh. The government agreed to pay him a lump sum of Rs. 3,000 and travelling allowance as well. The assessee claimed that the sum of Rs. 3,000 received by him was exempt from assessment u/s 4(3)(vii) of the Indian IT Act, 1922. The contention of the assessee was that he had no whole time profession, vocation or occupation having retired and that the receipt was of a non-recurring nature, This court held that acting as an arbitrator was the assessee's occupation, the he had agreed to act as such on account of the promise made by the government to pay a lump sum of Rs. 3,000 and that amount arose from the exercise of the occupation, as an arbitrator and, therefore, the claim for exemption u/s 4(3)(vii) of the Indian IT Act, 1922, will not be available, we are of the opinion that having regard to the facts of this case, the decision in CIT Madras v. V. P. Rao : [1950]18ITR825(Mad) would squarely apply. We now turn to the decision in B. Malick v. CIT, Uttar Pradesh : [1968]67ITR616(All) . In that case, the assessee, while he was the Chief Justice of the Allahabad High Court, was requested to act as an empire in a certain matter. The initial reaction of the assessee was one of unwillingness but owing to intervention from government, he agreed. In respect of that, a sum of Rs. 20,000 was paid to him, by a special order, though there was a prohibition against payment of any honoraria to Judges for taking up and performing other functions. On the question whether the sum of Rs. 20,000 was liable to be taxed as income in the hands of the assessee, it was held that the amount received was exempt as being a receipt of a casual and non-recurring nature, not arising from the exercise of a profession, vocation or occupation within the meaning of s. 4(3)(vii) of the IT Act, 1922. On the facts of that case, the conclusion was correct and unexceptionable, as a sitting judge of any High Court cannot accept any arbitration. Nor can such a judge be stated to exercise any profession or vocation or occupation within the meaning of s. 4(3)(vii) of the IT Act, 1922. There was an embargo on a sitting judge from acting in any arbitration matter and the payment of any honoraria was thus ruled out. It was the intervention of the Home Ministry that was responsible for special exemption for the payment of the amount. In the light of these peculiar facts of the case, the receipt of Rs. 20,000 by a sitting Judge by way of remuneration for having discharged the duties of an umpire, was held to be casual or non-recurring and not referable to the exercise of any business, profession or occupation. The appointment of a sitting judge as an arbitrator or umpire was something totally unanticipated or unforeseen particularly in view of the impediment laid on them in view of the impediment laid on them in the way of accepting and discharging such responsibilities. It was in that view the court held that the remuneration received by the assessee under such circumstances was of casual and non-recurring nature and also not arising from the exercise of any profession, vocation or occupation. That decision cannot therefore be pressed into service by the assessee to claim that on the facts of this case also, the receipts would be exempt u/s 10(3) of the Act. We are therefore, of the opinion that the Tribunal was quite correct in its conclusion that arbitration work was the occupation of the assessee and the receipts arose from the exercise of such occupation within the meaning of s. 10(3) of the Act and therefore, such receipts are taxable, as they are excluded from the purview of s. 10(3) of the Act. We do not think it necessary to go into the question whether the receipts could be casual or non-recurring, for, once the receipts are held to arise from the exercise of 'occupation', they will taxable. We, therefore, answer the question in the affirmative and against the assessee. There will be, however, no order as to costs.


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