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Commissioner of Income-tax, Tamil Nadu-v Vs. S.A. Rajamanickam - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberTax Case No. 92 of 1978 (Reference No. 65 of 1978)
Judge
Reported in[1984]149ITR85(Mad)
ActsIncome Tax Act, 1961 - Sections 2(36), 28 and 256(1)
AppellantCommissioner of Income-tax, Tamil Nadu-v
RespondentS.A. Rajamanickam
Appellant AdvocateJ. Jayaraman, Adv.
Respondent AdvocateT.V. Balakrishnan, Adv.
Cases ReferredMoorhouse (Inspector of Taxes) v. Dooland
Excerpt:
.....consideration was whether the amount presented to the assessee was no taxable as the assessee's income.;held, the amount was presented to the assessee for the sole purpose of purchasing a house property for the assessee which reflects the appreciation of the personal qualities of the assessee and not the services rendered by the assessee in his capacity as a member of the dravida munnetra kazha kam party. of course, as he happened to be a member of the party, in the capacity of either as a member of the taluk committee or town committee or district committee, it might have facilitated him to render services not only to the development of his party but also the general public. because the employer had appreciated the personal qualities of the employee, he had volunteered to donate rs...........whether casual and non-recurring receipts of this kind are mere gifts or windfalls which are not income or income from the profession or vocation of the assessee, is first, whether the payment is connected with the exercise of the assessee's profession or vocation and secondly, whether if it is so connected, it is made merely in appreciation of the personal qualities of the assessee displayed in the course of his engagement or is intended to confer a special benefit on him with respect to the services rendered so as to increase his earnings in the exercise of his profession."11. admittedly, the amount was presented to the assessee for the sole purpose of purchasing a house property for the assessee, which reflects the appreciation of the personal qualities of the assessee and not the.....
Judgment:
1. The reference has been sought at the instance of the Revenue under s. 256(1) of the I.T. Act, 1961, on the following question :

"Whether, on the facts and in the circumstances of the case, Rs. 51,000 presented to the assessee on January 21, 1970, was not taxable as the assessee's income for the assessment year 1970-71 ?"

2. The assessee was formerly on employee in the firm, M/S. Hasan Mohamed Rowther, on a monthly salary of Rs. 150. In 1943, he become a member of the Dravida Kazhakam and when that party was split he joined the Dravida Munnetra Kazhakam. Between 1949 and 1968, he had held various offices, viz., secretary of the taluk commitee and secrtary of the district committee. Because of increasing activity in the party, he left the job in M/S. Hasan Mohamed Rowther in 1968. He was also a municipal councillor for two terms in the meanwhile. Then he became a Memebr of the Legislative Council on April 21, 1970.

3. Some time in 1970-71 an ad hoc committee was formed by his partymen to present him a purse in order to enable him to purchase a house. A drama also was performed as one of the means of collection of donetions. The partymen and the assessee had collected donations from the members of the party, businessmen and members of the public. The former employer, M/S. Hasan Mohamed Rowther, also donated Rs. 5,000 on January 21, 1970 and the then Chief Minister of Madras presented a purse containing Rs. 56,000 to the assessee. The assessee handed over the said amount to the committee with a request to purchase a house for him with the said fund. Accordingly, a house was purchased for Rs. 72,000 at Coimbatore which gave rise to the assessment proceedings.

4. After receipt of notice from the assessing officer, the assessee filed a return on January 16, 1974, disclosing an income Rs. 15,000 and explained that Rs. 5,000 had been received from his former employer towards gratuity, that Rs. 16,000 represented his own savings during the earlier years and that Rs. 51,000 was the amount given to him by his admirers on January 21, 1970. The assessing officer excluded Rs. 21,000 from the assessable amount and treated Rs. 51,000 as the income received in the course of his vocation as a politician. By order dated February 15, 1974, the assessing officer determined the total income of the assessee as Rs. 68,750.

5. Aggrieved by the assessment order, the assessee filed an appeal before the AAC, Coimbatore, opposing the assessment and contending that Rs. 51,000 was only a donation presented to him in admiration of his personal qualities and not as a remuneration for services rendered. The AAC accepted the contention of the assessee and, treating the amount of Rs. 51,000 as a personal gift, set aside the assessment order of the assessing officer. The appeal preferred by the Revenue against the said order before the Tribunal having failed, this reference has been sought for by the Revenue to this court.

6. The assessing officer has accepted the claim of the assessee that out of of Rs. 72,000, with which a house was purchased for him at Coimbatore, Rs. 5,000 had been received from his former employer, M/S. Hasan Mohamed Rowther, Rs. 15,000 was his own savings and Rs. 51,000, which was presented to him by the then Chief Minister of Tamil Nadu, alone formed the subject-matter of the collections from the partymen, general public and person belonging to various other parties. It is not disputed by the Revenue that no portion of the amount in question, viz., Rs. 51,000, was withdrawn from the funds of Dravida Munnetra Kazhakam party in which the assessee was working for its development and that the assessee was not an employee of the said party. It is not further disputed that the assessee was not paid any remuneration by the party office and that the impugned amount of Rs. 51,000 was not paid from the funds of the party as a remuneration for the work rendered by the assessee for the cause of the party. In this background, it is contended on behalf of the assessee by the learned counsel that the onus is upon the Revenue to prove that Rs. 51,000 formed the remuneration for any service rendered by the assessee to the party.

7. According to the assessing officer, as seen from the order of assessment, the assessee is one of the politicians in Coimbatore belonging to the ruling party in the State (then Dravida Munnetra Kazhakam Party). Under s. 28 of the I.T. Act, 1961, profits and gains of any business or profession shall be chargeable to income-tax under s. 2(36) of the Act. "Profession" includes vocation and in the case of P. V. G. Raju v. Commissioner of Expenditure-tax [1971] 79 ITR 430, the Andhra Pradesh High Court has expressed that politics could be one's own profession and any expenditure incurred for his own election as well as the election as well as the election of the candidates set up by such person was "expenditure" incurred wholly and exclusively for the purpose of the occupation carried on by such person. On the above view, he held that the assessee has adopted politics as his career and, therefore, politics is his vacation or occupation that since the assessee has not proved that Rs. 51,000 represents the gate collections for the drama, which was arranged by the assessee to entertain the donors, the above-said money must have been received by viture of his profession as a politician. But the assessing officer has not based his conclusion on any material to indicate that Rs 51,000 was received by the assessee as remuneration or return for the political service rendered by him to the Dravida Munnetra Kazhakam party and has not mentioned the exact source of money that was paid to the assessee. In the Andhra Pradesh High Court case, relied on by the assessing officer, it was the admitted fact that the expenditure was incurred by the assessee for the purpose of his own election and the election of his partymen. But in this proceeding, we are not concerned with any expenditure and the impugned amount did not belong to any specific individual, but the same is the result of the collections from the general public, former employer of the assessee, members of other parties, collections from dramatic performances and from the partymen of the assessee. The learned counsel has cited several judicial decisions in support of his argument that the impugned amount is not the income of the assessee received in the course of his profession or vocation.

8. In Dilip Kumar Roy v. CIT [1974] 94 ITR 1 (Bom) it was held by a Division Bench of the Bombay High Court that as no evidence was produced by the Revenue to show that the amounts in question constituted the income of the assessee and as the varacity of the statements in the affidavits had not been challenged or disproved, the Tribunal was not justified in its conclusion that the amount was income liable to tax in the hands of the assessee and that a conclusion recorded by the Appellate Tribunal by wrongly throwing the burden of proof on the assessee is not binding on the High Court. It was further held the High Court can interfere with a finding of fact by the Tribunal if it appears that the tribunal acted without any evidence or upon a view of the facts which could not reasonably be entertained or the facts found are such that no person acting judicially and properly instructed as to the relevant law would have come to the determination in question.

9. In the above case, the assessee was a disciple of the late Shri Aurobindo and his main activities were singing bhajans and writing books of a philosophic nature and he had received royalties on recorded bhajans and from his books, which were assessed as income from "other sources". Affidavits were filed by two American gentlemen, who contributed a major part of the amount, stating that neither of them had received any instruction from the assessee and had sent the amounts as a mark of esteem and veneration. The Appellate Tribunal did not take into account these affidavits and held that the activities of the assessee constituted a vocation. It is with reference to these facts, the Bombay High Court took the above view. The decision of the Bombay High Court directly applies on all fours to the facts of the present case. In this case, it is admitted by the assessing officer that the impugned amount was paid to the assessee in appreciation of the (services of the) assessee when he was a member of Dravida Munnetra Kazhakam party. The mere circumstance that the assessee is a member of the Dravida Munnetra Kazhakam party cannot lead to the presumption, without any evidence or material, that the impugned amount constituted income from other sources. The assessing officer has not ventured to collect any evidence or material to prove that the impugned amount formed the income of the assessee from other sources.

10. The contention of the assessee is that the amount was paid only as a personal gift and not as remuneration for services rendered by him as a member of the Dravida Munnetra Kazhakam party. The assessee has not only been a member of the Dravida Munnetra Kazhakam, but he subsequently became a Member of the taluk committee, town committee, district committee, etc., in the Coimbatore District and he was also a M. L. C. and a member of the municipal council for two terms. That is why the general public had volunteered to donate for making the gift of Rs. 51,000 to the assessee and the former employer also has donated Rs. 5,000. In Dilip Kumar Roy v. CIT [1974] 94 ITR 1 (Bom) the Bombay High Court has extracted the observations made by the Calcutta High Court in David Mitchell v. CIT [1956] 30 ITR 701, which runs as follows (p. 7 of 94 ITR) :

"The test for determining whether casual and non-recurring receipts of this kind are mere gifts or windfalls which are not income or income from the profession or vocation of the assessee, is first, whether the payment is connected with the exercise of the assessee's profession or vocation and secondly, whether if it is so connected, it is made merely in appreciation of the personal qualities of the assessee displayed in the course of his engagement or is intended to confer a special benefit on him with respect to the services rendered so as to increase his earnings in the exercise of his profession."

11. Admittedly, the amount was presented to the assessee for the sole purpose of purchasing a house property for the assessee, which reflects the appreciation of the personal qualities of the assessee and not the service s rendered by the assessee in his capacity as a member of the Dravida Munnetra Kazhakam party. Of course, as he happened to be a member of the Dravida Munnetra Kazhakam party, in the capacity of either as a member of the taluk committee, or town committee, or district committee, it might have facilitated him to render services not only to the development of his party but also to the general public. Because the employer had appreciated the personal qualities of the employee, he had volunteered to donate Rs. 5,000. There is no material or evidence that the ex-employer belonged to the Dravida Munnetra Kazhakam party. Therefore, it is not possible to dissect as to which portion of the amount was donated by the partymen and which portion of the amount was donated by the general public. Such a situation certainly leads to the inference that the doners had intended to make a gift for the personal qualities of the assessee. Thus, the two tests, propounded by the Calcutta High Court, as extracted above, have been satisfied. It is under these circumstances it was held in Dilip Kumar Roy v. CIT [1974] 94 ITR 1 (Bom) that the onus is upon the Revenue to show that the amount in question constituted the income of the assessee.

12. It is not disputed that the Department has not collect any material or evidence to substantiate the contention that the amount was paid as remuneration for the services rendered by the assessee to the political party to which he was attached or that the amount represented the payment for any services, particular or special, rendered by the assessee to the political party to which he was attached or that the amount represented the payment for any services, particular or special, rendered by the assessee to any political party to which he was attached or that the amount represened the payment for any services, particular or specil, rendered by the assesee to any political party or any other association or individual. It is not as though there is any entry in the accounts of any party regarding the collections made and presentations offered to the assessee to prove any nexus between the alleged services rendered by the assessee and the payment made to the assessee. Thus, the Department has failed to collect any material or evidence to prove that the amount presented to the assessee by the then Chief Minister of Tamil Nadu is not a gift or windfall for the personal qualities of the assessee.

13. Of course, politics had been held to be a profession or vocation by the Supreme Court in Commr. Of Expenditure-tax v. P. V. G. Raju , within the meaning of s. 5(j) of the Expenditure-tax Act, 1958. In that case, the Supreme Court has held that the amounts expended by the assessee for other candidates during the elections was donation within the meaning of s. 5(j) of the Expenditure-tax Act, 1958, and the amounts so spent by him were exempt from expenditure-tax and that the amounts paid by the assessee to his party were paid purely as gifts and donations and were exempt under s. 5(J) of the Act. At p. 469, we find the following observations made by the Supreme Court :

"Political donations are not only common, but are assuming deleterious dimensions in the public life of our country. It is, therefore, clear that when this Raja, assessee, gave money to the candidates of his party, for them to meet their election expenses, he made donations. Even if he met their election expenditure, it was money gratuitously given on their behalf and, therefore, amounted to donation. Without straining the language, we reach the natural conclusion that what the respondent expended for the other candidates during the elections was donation in the language of the low. There is no suggestion nor evidence that any material return was in contemplation when he spent these sums. Being a politically important man with plenty of money and vitally interested in boosting his party's standing in the State, he donated liberally for candidates set up by the party."

14. Therefore, we cannot adopt two standards, one for the expenditure and the other for the receipt of donations made or received by the politicians, when the Supreme Court is of the view that such donations made or received is only a voluntary gift and otherwise as a return for such donations. On the analogy of the above case, in the present case also, the amount paid to the assessee is not in return for any specified or general service rendered by the assessee, but only in recognition of his personal qualities. There is no quid pro quo in the payment of donation made by the general public, former employer and the partymen.

15. In Moorhouse (Inspector of Taxes) v. Dooland [1952] 2 WLR 96; [1955] 28 ITR 86 (CA), the same view was expressed with reference to the collections made and presented to a professional cricketer for his meritorious performance with bat or ball in certain matches. At p. 109, the following observations have been made :

"It does appear to a great anomaly that a famous cricket may receive a benefit running into many thousands of pounds tax free, whilst a professional cricketer in Lancashire playing for a few brief seasons, and receiving small sums by way of collections, should be liable to tax."

16. In the penultimate paragraph, the following observations have been made (p. 109) :

"... to say that the collections were voluntary payments made by the cricketing public on grounds which were purely personal to Mr. Dooland because he was well liked and because of his cricketing skill, and were not a profit accruing to him by virtue of his employment. In my opinion, however, this case is concluded by the special facts, the chief and decisive fact being the contract of employment which had provided for these very collections to be made to him in the circumstances which arose in this case."

17. It is in the above case that five tests have been prescribed for ascertaining whether the voluntary presents made to an assessee will amount to gift or only a remuneration for service.

18. Thus, in the above case, because of some special facts, the chief and decisive fact being the contract of employment which had provided for the very collections to be made and presented to Mr. Dooland, the professional cricket in Lancashire playing for a few brief seasons, the receiving of small sums by way of collections were held liable to tax, whereas the famous cricketer may receive benefits running into many thousands of pounds tax free. The assessee herein partakes the character of a famous cricketer and not that of the professional cricketer, since the amounts gifted to the assessee cannot partake the character of profit on account of any contract of service, or on any other implication. Therefore, the assessing officer is not correct in placing reliance upon the case Moorhouse (Inspector of Taxes) v. Dooland [1955] 2 WLR 96; [1955] 28 ITR 86 (CA), for taking a view against the assessee.

19. In Mahesh Anantrai Pattani v. CIT , the Maharaja of Bhavnagar directed Premchand Roychand & Sons, with whom he had an account, on May 31, 1950, to pay a cheque for Rs. 5 lakhs to the assessee, who had acted as the Chief Dewan of the erstwhile State since December, 1937 till January, 1948 when responsible government was introduced by the Maharaja. The Revenue proceeded to tax the said amount of Rs. 5 lakhs in the hands of the ex-Chief Dewan, who obtained a letter on December 27, 1950, to the effect that the Maharaja had made a gift of Rs. 5 lakhs as a token of his affection and regard. The income-tax authorities as well as the Appellate Tribunal relied on the letter and treating the same as a contemporaneous document held that the amount was a taxable receipt in the hands of the assessee. But the Supreme Court negatived the view of the assessing authorities and the Appellate Tribunal and held that the amount was paid to the assessee not in token of appreciation for the services rendered but as a personal gift for the personal qualities of the assessee and as a token of personal esteem, on the finding that the letter dated December 27, 1950, is not a contemporaneous document. In the present case also, it is only in appreciation of the personal qualities of the assessee and as a token of personal esteem that the amount was made as a personal gift. The revenue sought to rely on the dissenting judgment of a single judge with which we are not in agreement.

20. In C. Rajagopalachariar v. CIT [1963] 50 ITR 196 (Mad), the famous Rajaji was assessed to tax and it was held therein that even though the amounts were not received in pursuance of any contract of employment between the assessee and the journals or the All India Radio, the writing of books and contributing articles to periodicals and magazines constituted a vocation and as the amounts arose from a vocation they were not exempt under s. 4(3)(vii). But that is not the subject-matter in the present case, since the payment has been made only in appreciation of the personal qualities of the assessee. The assessee has not written any article or any such thing to any magazine or rendered any service in return for any remuneration so far as the amount of Rs. 51,000 is concerned. Therefore, that case can be clearly distinguished from the case before us.

21. At p. 238 in vol. I, 7th Edn. of Kanga and Palkhivala's, the Law and Practice of Income-tax, the authors have expressed the following view :

"But a receipt does not necessarily arise from the exercise of a profession or vocation merely because the profession or vocation affords the opportunity for earning the receipt. A golden handshake given as a gift by a company to its auditors whose appointment was not renewed was held to be a professional receipt."

22. As against such preponderant materials and circumstances in favour of the assessee that the present of Rs. 51,000 to the assessee amounted to a windfall or gift for his personal qualities, though his profession or vocation as a politician has also contributed or afforded an opportunity for earning such a present, there is absolutely no material whatsoever on the side of the Revenue placed either before the lower authorities or before the Tribunal to decide that the said pre sent will amount to a receipt arising from the exercise of a profession or vocation or occupation, which is exigible to income-tax.

23. In the above view which we are holding, we answer the question of law referred in the affirmative, holding Rs. 51,000 as not taxable as the assessee's income, and against the Revenue. The assessee will get his costs of Rs. 500 from the Revenue.


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