Madras High Court
Boeing vs Commissioner Of Income-Tax on 6 December, 2000
Equivalent citations: [2001]250ITR667(MAD)
Author: R. Jayasimha Babu
Bench: R. Jayasimha Babu
JUDGMENT R. Jayasimha Babi, J.
1. The assessee contends that the value of an ambassador car received by it as a gift under a gift scheme formulated by the Bombay Dyeing and Manufacturing Company Limited in the centenary year of that company the gift scheme providing for such gifts to those dealers who purchased more than Rs. 8 lakhs worth of goods from the company-is not income which is exigible to tax under the Income-tax Act, 1961. The assessment year is 1980-81.
2. The scheme that had been formulated by that company in its centenary year was one, which was directed at increasing the sales of its manufactured goods through its dealers, and to achieve that object provided incentives to dealers who exceeded the targets fixed under the scheme. The relevant part of the scheme addressed to the dealers stated :
"... to enable you to stock and sell more of these fabulous suitings, we offer-Bombay Dyeing Retailers a host of incentive . . ."
3. The communication addressed to the dealers also stated :
"We want you to put in a little extra effort, to try and sell Bombay Dyeing suitings, and now, to make it worth your while we offer you gifts galore. Naturally the more Bombay Dyeing suiting you stock and sell, the more attractive the gifts you'll get."
4. For purchase of polyester suitings worth more than Rs. 8 lakhs in the course of the centenary year, the gift provided to the dealer was, "35 days' package tour of the USA and Europe (for 2) or ambassador car or cash register, plus Fedders-Lloyd 3-ton air conditioner or various other items like refrigerator, typewriter, etc. etc., . .".- The assessee having purchased suitings worth more than Rs. 8 lakhs from the company through its wholesaler, it opted to receive the incentive by way of the cash equivalent of the value of the ambassador car. The sum so received was Rs. 50,000.
5. The claim of the assessee that this receipt is not income, but is a gift, and that the receipt is of a casual and non-recurring nature having been rejected uniformly from the Income-tax Officer to the Tribunal, the correctness of the order of the Tribunal holding that this sum was taxable in the assessment year 1980-81 has been referred to us at the instance of the assessee.
6. The meaning of the term "income" has not been exhaustively stated in the Income-tax Act. The definition of "income" in Section 2(24) of the Income-tax Act is an inclusive definition. Section 10 of the Act enumerates incomes which are not to be included in the computation of the total income of the assessee. The Supreme Court in the case of CIT v. G. R. Kar-thikeyan , made the following observation with regard to the scope of the term "income" for the purposes of the Act (page 871) : "It is not easy to define income. The definition in the Act is an inclusive one. As said by Lord Wright in Raja Bahadur Kamakshya Narain Singh of Ramgarh v. CIT [1943] 11 ITR 513, 521 (PC), 'income ... is a word difficult and perhaps impossible to define in any precise general formula. It is a word of the broadest connotation'. In Maharajkumar Gopal Saran Narain Singh v. CIT [1935] 3 ITR 237, 242 (PC), the Privy Council pointed out that 'anything which can properly be described as income, is taxable under the Act unless expressly exempted'."
7. The court, in the case of G. R. Karthiheyan , reiterated the observations that had been made by the apex court in the case of Navinchandra Mafatlal v. CIT [1954] 26 ITR 758, at page 764, that (p. 871) : " 'What, then, is the ordinary, natural and grammatical meaning of the word "income" ? According to the dictionary it means "a thing that comes in." (see Oxford Dictionary, Volume V, page 162 ; Stroud, Volume II, pages 14-16 ). In the United States of America and in Australia both of which also are English speaking countries the word "income" is understood in a wide sense so as to include a capital gain. Reference may be made to Eismr v. Macomber [1919] 252 US 189 ; Merchants' Loan and Trust Co. v. Smietanka [1920] 255 US 509 and United States of America v. Stewart (1940] 311 US 60 and Resch v. Federal Commissioner of Taxation [1943] 66 CLR 198. In each of these cases a very wide meaning was ascribed to the word "income" as its natural meaning. The relevant observations of the learned judges deciding those cases which have been quoted in the judgment of Tendolkar J., quite clearly indicate that such wide meaning was put upon the word "income" not because of any particular legislative practice either in the United States or in the Commonwealth of Australia but because such was the normal concept and connotation of the ordinary English word "income". Its natural meaning embraces any profit or gain which is actually received. This is in consonance with the observations of Lord Wright to which reference has already been made.... The argument founded on an assumed legislative practice being thus out of the way, there can be no difficulty in applying its natural and grammatical meaning to the ordinary English word "income". As already observed, the word should be given its widest connotation in view of the fact that it occurs in a legislative head conferring legislative power'."
8. The apex court, in the case of G. R. Karthikeyan (1993) 201 ITR 866 went on to hold that (page 872) :
"Since the definition of 'income1 in Section 2(24) is an inclusive one, its ambit, in our opinion, should be the same as that of the word income occurring in entry 82 of List I of the Seventh Schedule to the Constitution (corresponding to entry 54 of List I of the Seventh Schedule to the Government of India Act)."
9. In the case of P. Krishna Menon v. CIT [1959] 35 ITR 48, the Supreme Court observed thus :
"... in the case of a voluntary payment, no tax can be levied on it if it had been made for reasons purely personal to the donee and unconnected with his office or vocation, while it will be taxable if it was made because of the office or vocation of the donee."
10. The court observed that that principle was "well settled". The court also held in that case that in determining whether a receipt is income or not, what the donor was doing was not relevant, and that what was relevant was as to why the donee was receiving. The court affirmed the statement of law made by Collins M.R. in Herbert v. McQuade [1902] 2 K.B. 631, 639, that it was a principle of law that (page 53) "a payment may be liable to income tax although it is voluntary on the part of the persons who made it, and that the test is whether, from the standpoint of the person who receives it, it accrues to him in virtue of his office ; if it does it does not matter whether it was voluntary or whether it was compulsory on the part of the persons who paid it. That seems to me to be the test; and if we once get to this--that the money has come to, or accrued to, a person by virtue of his office-it seems to me that the liability to income-tax is not negatived merely by reason of the fact that there was no legal obligation on the part of the persons who contributed the money to pay it-"
11. In the case of Krishna Menon . the court held that the monies received by the assessee, who had been giving lectures on Vedanta, from a foreign disciple, constituted income in the hands of the assessee, as, though the payment was voluntary and had not been sought by the assessee, the monies were received by the assessee only by reason of the fact that he had been teaching the donor, and while so teaching he was practising a vocation. The court observed (page 54) : "it is plain to us that it was because of the teaching that the gift had been made".
12. The apex court in the case of Dr. K. George Thomas v. CIT [1985] 156 ITR 412, held that the burden is on the Revenue to establish that the particular receipt is of a revenue character. The court held that the monies received by a preacher who was spreading in India the ideals of the Indian Christian Crusade, U.S.A. constituted income in his hands which were exigible to tax. The court observed that (page 417) : "Teaching and propagating religion could be an occupation. It was not necessary that its object should be to earn a livelihood. Anything in which a person was engaged systematically could be an occupation or vocation." The court also held that there was link between the activity of the assessee before it, and payments made to him by those who have views similar to those of the assessee, and who were very much interested in the propagation and the acceptance of those views by the general public, the connection between the assessee and the donations being thus intimate, such receipt arose out of the practice of the vocation or the occupation carried on by the assessee and the amounts received by the assessee were liable to tax.
13. It is thus clear that the term "income" is a word of the widest amplitude connoting as it does that which comes in emphasising thereby the point at which, or the person by whom the amount is received. If the amount so received is not an amount which is excluded from the ambit of income under the Act, such receipt would constitute income. The fact that the amount was given to the recipient without any demand for the same by the recipient, or without any legal obligation on the part of the donor to make the payment, would not make any difference. The fact that the person who makes the payment regards it as a donation or a gift also does not on that account render the payment as one falling outside the ambit of income for the purposes of the Act.
14. The Act does not provide that monies paid to an assessee in appreciation of his personal qualities does not constitute income. Even casual and non-recurring receipts beyond the specified limit are expressly regarded as income. The courts have, however, while construing the scope of the Act, held that voluntary payments made for reasons purely personal to the donee and unconnected with the office or vocation would not be taxable.
15. Learned counsel for the assessee invited our attention to the case of C. P. Chitrarasu v. CIT [1986] 160 ITR 534 (Mad), wherein, it was held that the gift of a house to a politician on the occasion of his birthday could not be regarded as a receipt by the politician-assessee arising from the exercise of his profession or vocation as a politician. The court accepted the plea of the assessee that the services rendered by him to the language of the State and his performance as an author, had earned him respect of the people, and that the gift made to him was in appreciation of his personal qualities, and not because of the fact that he was a prominent politician who wielded considerable influence. The law as it stood prior to the year 1972 exempted the whole of the amount received as a casual and non-recurring receipt from the scope of income, the gift received by the politician-asses-
see was held by the court to be of a casual and non-recurring nature, and thus exempt from the scope of income. The decision of the court in that case rested on the fact that the law as it then stood excluded from the scope of taxable income casual and non-recurring receipt without any ceiling. The law has been subsequently amended, and as the law now stands, the exclusion of casual and non-recurring income is subject to a ceiling of Rs. 5,000.
16. The assessee in this case admittedly carries on business. The profits and gains of business are subject to tax. The amount of Rs. 50,000 received by it from the manufacturer whose goods it sold as a retailer, was by reason of the fact that it had achieved the target, for achieving which, incentives by way of gifts had been promised by the manufacturer. The receipt clearly was a trading receipt. There would have been no occasion for the assessee to receive this amount had it not been a dealer for the manufacturer, and had it not put in the additional efforts for which the incentive scheme had been drawn up by the manufacturer. The fact that the scheme was formulated as part of the observance of the centenary of the manufacturer makes no difference whatsoever to the character of the receipt in the hands of the assessee. The very object of the scheme was to promote the sales of the product, and to achieve those higher targets, incentives were offered. The assessee having met those targets became entitled to the incentive. The incentive so received is not very different from what a workman in a manufacturing concern would receive by way of production bonus for achieving higher production, or the amount that a preacher would receive from those who wish to support his preaching by making payments to him for practising that profession.
17. Moreover, Section 28 of the Act in Clause (iv) provides that the value of any benefit or perquisite, whether convertible into money or not, arising from the business or the exercise of a profession shall be treated as income chargeable to income-tax under the head "Profits and gains of business or profession". The amount received by the assessee in this case was clearly a benefit which was convertible into money arising from his business and clearly constituted the profits and gains of the business.
18. We, therefore, answer the question referred to us in favour of the Revenue, and against the assessee. The assessee shall be liable to pay to the Revenue costs in the sum of Rs. 2,000.