Income Tax Appellate Tribunal - Chandigarh
Justice Kuldip Singh vs Income-Tax Officer on 12 May, 1993
Equivalent citations: [1993]46ITD251(CHD)
ORDER
J. Kathuria, Accountant Member
1. These appeals by the assessee pertain to assessment years 1990-91 and 1991-92 and are directed against a consolidated order dated 10-4-1992 passed by the Commissioner of Income-tax (Appeals), Chandigarh.
2. The assessee is a sitting Judge of Supreme Court of India. Before his elevation to the Supreme Court, the assessee carried on legal profession. For assessment years 1990-91 and 1991-92, the assessee filed returns of income declaring income of Rs. 79,057 and Rs. 90,399 respectively. Along with the returns of income, the assessee appended a note to the effect that professional receipts as an Advocate amounting to Rs, 6,14,400 for assessment year 1990-91 and Rs. 7,34,930 for assessment year 1991-92, which were received after discontinuation of legal profession as an Advocate, were not taxable in view of the judgment of the Calcutta High Court in the case of CIT v. Justice R.M. Datta [1989] 180 ITR 86. The Assessing Officer, however, brought to tax the aforesaid receipts as the assessee's income for assessment years 1990-91 and 1991-92 by invoking the provisions of Section 176(4) of the Act. The ld. CIT(A) confirmed the action of the Assessing Officer and dismissed the assessee's appeals.
3. Before we get down to the brasstacks, we might as well dispose of a preliminary objection raised by Shri R.P. Sawhney, the learned Departmental Standing Counsel. Shri Sawhney drew our attention to common ground No. 2(ii) which reads as under:
That the learned CIT(A) was not justified in not accepting the judgment of Andhra High Court, which had considered the judgment of Calcutta High Court that was followed by the ITO and the CIT(A).
Shri Sawhney's objection was that from this ground it appeared that the assessee had no grievance inasmuch as the ld. CIT(A) had already relied on the Andhra Pradesh High Court decision in the case of V. Parthasarathy v. Addl. CIT [1976] 103 ITR 508.
4. Shri M.L. Garg, the learned counsel for the assessee submitted that the main grievance of the assessee was recorded in common ground No. 2(i) and the ground No. 2(ii) was a mere elaboration of the main grievance of the assessee. It was, however, clarified that while raising ground No. 2(ii) a typographical error had occurred inasmuch as Andhra High Court had been substituted for Calcutta High Court and vice versa.
5. We have carefully considered the submissions made before us. Common ground No. 2(i) is the main ground of the assessee in which he has challenged the confirmation of additions representing arrears of professional fees and the subsequent ground is a mere elaboration thereof. However, while elaborating the ground, there has been a typographical error inasmuch as "Andhra High Court" and "Calcutta High Court" have been mixed up. Nothing, however, hinges on that and the preliminary objection of Shri Sawhney is more sensational than real. If the confusion is sorted out, which we have, then ground No. 2(ii) should read as under :
That the ld. CIT(A) was not justified in not accepting the judgment of Calcutta High Court which had considered the judgment of Andhra High Court that was followed by the ITO and the CIT(A).
The preliminary objection is devoid of merit and need not detain us.
6. Shri M.L. Garg submitted that the assessee was elevated to the Supreme Court of India on 14-12-1988 and that he did not carry on any legal profession during the accounting periods ending on 31-3-1990 and 31-3-1991. It was submitted that the assessee was maintaining books of accounts on cash basis and that these arrears of fees were received when the assessee was not carrying on any profession. Shri Garg submitted that the Calcutta High Court judgment in the case of Justice R.M. Datta (supra) was a direct judgment according to which sums received by the assessee by way of receipts of professional fees for the professional services rendered by the assessee before he was appointed as a Judge of the Supreme Court were not income taxable under Sections 28, 56 or 176(4) of the Act. It was pointed out that where the Legislature wanted to tax certain profits under Section 41(1) and Section 41 (2) of the Act, it had been clearly mentioned in those sections that those profits were chargeable to tax whether the business or profession in respect of which the allowance or deduction had been made was in existence in that year or not. According to Shri Garg, Section 176(4) contemplated only two fictions. It was submitted that the further fiction by which the character of the receipt was to be determined viz., whether it should be deemed to be the profits of the business or profession falling under Section 28 of the Act, was not there in Section 176(4). According to him, Section 28 taxes profits and gains of business or profession which was carried on by business at any time during the previous year. Since the assessee did not carry on any profession during the previous years, relevant to assessment years 1990-91 and 1991-92, the submission was that the assessee had no income which could be taxed under Section 28. Relying on the Supreme Court decision in Nalinikant Ambalal Mody v. S.A.L. Narayan Row, CIT [1966] 61 ITR 428, it was submitted that as the heads of income were mutually exclusive and the receipts could be brought under the fourth head, they could not be brought under the residual head "income from other sources". In other words, the submission was that since the receipts were professional receipts, these could not be assessed under the head "income from other sources" because the heads of income were mutually exclusive.
7. Shri Garg further submitted that though the Legislature may have enacted Section 176(4) so as to bring to tax arrears of professional receipts, if the words of a statute failed, the courts cannot supply the omission of the Legislature. Relying on the Supreme Court decision in CIT v. Elphinstone Spg. & Wvg. Mills Co. Ltd. [1960] 40 ITR 142, it was submitted that the courts cannot, except rarely and in clear cases, help the draftsmen by a favourable construction and if the words of a taxing statute fail, then so must the tax. Relying on the Supreme Court decision in CIT v. Provident Investment Co. Ltd. [1957] 32 ITR 190, it was submitted that in construing fiscal statutes and in determining the liability of a subject to tax, one must have regard to the strict letter of the law and the true legal position arising out of the transaction in question. It was explained that if the case is not covered within the four corners of the provisions of the taxing statute, no tax can be imposed by inference or by analogy or by trying to probe into the intentions of the Legislature and by considering what was the substance of the matter.
8. Another submission made by Shri Garg was that until a contrary decision was given by any other competent High Court, the Tribunal has to proceed on the footing that the law declared by the High Court, though of another State, is the final law of the land. Reliance in this regard was placed on the Bombay High Court decision in CIT v. Godavaridevi Sarqf [1978] 113 ITR 589 It was also submitted that the Andhra Pradesh High Court decision in the case of V. Parthasarathy (supra) was in a different context and was not therefore directly on the point. According to Shri Garg, the decision of the Calcutta High Court, which was by a Division Bench, in the case of Justice R.M. Datta (supra), was a direct authority which had considered the matter comprehensively and come to the finding that in a case like this, arrears of professional fees received after the discontinuance of the profession were not taxable under the Income-tax Act,
9. Finally, Shri, Garg submitted that if a taxing provision is ambiguous and is reasonably capable of more than one interpretation, that interpretation which is beneficial to the subject must be adopted. It Is impermissible to the court to read into a taxing provision any words which are not there or exclude words which are there. Reliance in this regard was placed on the Supreme Court decisions in CIT v. Vegetable Products Ltd. [1973] 88 ITR 192, CIT v. Naga Hills Tea Co. Ltd. [1973] 89 ITR 236, CED v. JR. Kanakasabai [1973] 89 ITR 251 and CIT v. Cellulose Products of lndia Ltd. [1991] 192 ITR 155. In short, the submission of Shri Garg was that the professional receipts of the assessee received after the discontinuance of the profession were not taxable in his hands in the years under consideration under Sections 28, 56 or 176(4) of the Act.
10. Shri Sawhney submitted that Section 176(4) was a complex answer to the issues at hand. According to him, the said section deemed all the fictions which were necessary for bringing to tax the professional income received after discontinuation of the profession. It was vehemently argued that certain defects and lacunae had been noticed under the Indian Income-tax Act, 1922 and the present Income-tax Act of 1961 had sought to plug and remove those defects. It was explained that under the 1922 Act, such arrears of professional income received subsequently could not be brought to tax and precisely for this reason, Section 176(4) was enacted. According to Shri Sawhney, legal fiction had to be taken to its logical conclusion and had to be extended so that such legal fiction should be given full effect to the object for which it was created. Reliance in this regard was placed on the Supreme Court decision in Carribay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84. It was also submitted that there was a difference between the Indian Income-tax Act, 1922 and the Income-tax Act, 1961. In this regard, it was submitted that under Section 14 of the Income-tax Act, 1961, 'income' and not 'heads of income' as under Section 6 of the Indian Income-tax Act, 1922, has been made chargeable to income-tax. If an income cannot be charged to income-tax under any of the heads mentioned in Clauses A to E of Section 14 of the 1961 Act, the same shall be chargeable under the head "income from other sources". Reliance in this regard was placed on the judgment of Calcutta High Court in Mrs. Roma Bosev. HO [1974] 95 ITR 299. It was submitted that a comparison of Section 6 of the Indian Income-tax Act, 1922 with Section 14 of the Income-tax Act, 1961 showed that under Section 14 of the new Act, income and not heads of income has been made chargeable to income-tax and with this material change, the earlier law laid down by the Supreme Court in the case of Nalinikant Ambalal Mody (supra) was no longer good law.
11. Shri Sawhney further submitted that in fact, the assessee had received more professional arrears but showed a lesser amount in both the years and claimed certain expenses. According to him, it was strange that for purposes of deduction of expenses, reliance was placed by the assessee on the provisions of Section 28 but for chargeability to tax, a stand was taken that Section 28 was not applicable.
12. Shri Sawhney further submitted that the Calcutta High Court decision in Mrs. Roma Bose's case (supra) had not been brought to the notice of the High Court when the case of Justice R.M. Datta (supra) was decided. Relying on the ratio of Madras High Court decision in CIT v. Estate of Late A.V. Viswanatha Sastri [1980] 121 ITR 270, it was submitted that a fiction was created by law under Section 176(4) of the Act by which the executor is the recipient of the arrears of the professional income of the deceased and as such the arrears so received are liable to tax in his hands as his "income from other sources" in the year of receipt. It was also submitted that the Rajasthan High Court in CIT v. Foresole Ltd. though on slightly different facts had held that income of discontinued business was taxable. A lot of emphasis was laid on the interpretation of a remedial section. According to Shri Sawhney, Section 176(4) was a remedial section and while interpreting such a section, a construction which would defeat its purpose and, in effect, obliterate it from the statute book should be eschewed. If more than one construction is possible, that which preserves its workability and efficacy is to be preferred to the one which would render it otiose or sterile. Reliance in this regard was placed on the Supreme Court decision in the State of Tamil Nadu v. M.K. Kandaswami [1975] 36 STC 191. It was vehemently argued that if Section 176(4) was interpreted the way the Calcutta High Court had interpreted it, then it would be a dead letter. According to the learned Standing Counsel, every word in the said provision had to be given a meaning otherwise Section 176(4) will stand obliterated.
13. The ld. Standing Counsel also relied on the following observations of the Full Bench of the Patna High Court in CIT v. Sheo Kumari Debi [1986] 157 ITR 13 :
In the commercial world of modern times and, in particular, in India where tax evasion is rampant, the early Victorian approach that the taxing statutes must invariably be titled in favour of the assessee has to be given a go-by. In construing the provisions of the Act of 1961, it must be seen what the state of the law was before the enactment of the Act, the defect for which the law had not provided earlier and the remedies provided thereafter by Parliament. The evil sought to be remedie by Section 149 of the Act of 1961 was the long delayed and studied avoidance of service of notice by assessees, whose income had escaped assessment, which would render the limitation provisions of the old law virtually nugatory.
It was further submitted that if this interpretation was put on the provisions of Section 176(4), then not only those provisions will become nugatory but even the provisions of Section 176(3A) would also be rendered redundant. Referring to the Madhya Pradesh High Court decision in CIT v. Thakurdas [1984] 147 ITR 549, it was submitted that the amounts received by the assessee during assessment year 1975-76, when it had ceased to carry on business, were held to be non-taxable because the provisions of Section 176(3A) were not attracted in that case.
14. Relying on the Mysore High Court in Dr. T.P. Kapadia v. CIT [1973] 87 ITR 511, it was submitted that a decision of a High Court would have binding force in the State in which it has jurisdiction but not outside that State. It was, therefore, argued that the decision of the Calcutta High Court in the case of Justice R.M. Datta (supra) was not binding on the Tribunal at Chandigarh.
15. Referring to the Single Judge decision by the Andhra Pradesh High Court in V. Parthasarathy's case (supra), it was submitted that in that case, Section 176(4) of the Act was in prime focus before the High Court and if there was any lacuna or defect in the section, it would not have gone unnoticed and so by implication, the Andhra Pradesh High Court had upheld the validity of Section 176(4) of the Act. In short, the submission of Shri Sawhney was that Section 176(4), which was a charging section, enabled the authorities to assess the arrears of professional fees received by the assessee after the discontinuation of profession in the year or years of receipt and there was no loophole or defect in the section. Even if there was some loophole, the section had to be interpreted in such a way as to make the section workable and not dead. If professional income could not be taxed under Section 28, then the residuary Section 56 was there to come to the succour of the income-tax authorities.
16. In reply, Shri. Garg submitted that all the arguments which had been advanced by Shri Sawhney had been taken good care of in the Calcutta High Court decision in the case of Justice R.M. Datta (supra). According to him, this was the only direct authority on the issue and there was no other direct judgment. The Tribunal had therefore to respect the decision of the Calcutta High Court. It was also submitted that the earlier decision of Calcutta High Court in the case of Mrs. Roma Bose (supra) was by a Single Judge and the same could not take precedence over a later judgment by a Division Bench in the case of Justice R.M. Datta (supra). As regards the claim of expenses as a deduction, it was submitted that the assessee had received the entire amount of professional fees by way of cheques which included the fees of Juniors and Munshis. It was submitted that only expenses relating to their fees were claimed as a deduction and no other expenses were claimed. According to the learned counsel, the juniors and Munshis had vested right in the professional receipts and the assessee only parted with moneys which belonged to them and on which the assessee had no right.
17. We have carefully considered the rival submissions as also the facts on record. On a superficial reading, it appears that the Division Bench decision of the Calcutta High Court in the case of Justice R.M. Datta (supra) did not consider the earlier judgment by a Single Judge of the Calcutta High Court in the case of Mrs. Roma Bose (supra). However, on a close reading, it is found that the Andhra Pradesh High Court decision in the case of V. Parthasarathy (supra) had been considered by the Division Bench of the Calcutta High Court and the case of Andhra Pradesh High Court had taken into consideration the earlier Single Judge decision of the Calcutta High Court in Mrs. Roma Bose's case (supra). In these circumstances, the earlier decision of the Calcutta High Court in Mrs. Roma Bose's Case (supra) should be deemed to have been considered and overruled by the later judgment of the Calcutta High Court in Justice R.M. Datta's case (supra).
18. We need not get bogged down in the controversy as to whether a decision of another High Court is binding on the Tribunal which is functioning under the control and supervision of another High Court but there is no getting away from the fact that a decision by a High Court, which may not be the jurisdictional High Court, which is the only direct and extant decision has to be given its due weight and respect. We find that the decision of the Calcutta High Court in the case of Justice R.M. Datta [supra) is a comprehensive decision which deals with the issue in its entirety and in all its facets. The other decisions, which were referred to by the ld. Standing Counsel, are not directly on the point. We, therefore, respectfully follow the judgment of the Hon'ble Calcutta High Court in the case of Justice R.M. Datta (supra).
19. Shri Sawhney has submitted that if the provisions of Section 176(4) are interpreted the way the Calcutta High Court has interpreted, then the entire Section would become a dead letter. Reliance has also been placed by him on the decision of the Supreme Court in the case of M.K. Kandaswami (supra) that a fiscal statute has to be interpreted in such a way that the construction does not defeat the purpose and obliterate it from the statute book. It is equally a settled position of law, as observed by the Supreme Court in the case of Elphinstone Spg. & Wvg. Mills Co. Ltd. (supra) that if the words of a taxing statute fail, then so must the tax. The Calcutta High Court has amply shown in its judgment in the case of Justice R.M. Datta (supra) that the words of Section 176(4) do fail inasmuch as all the three fictions necessary for bringing such arrears of professional fees to tax are not there. Section 176(4) gets only two cheers and is deficient in the third one.
20. We also find merit in the submissions of Shri Garg that if a taxing provision is ambiguous and is reasonably capable of more than one interpretation, that interpretation which is beneficial to the subject must be adopted. Even if it is assumed that the interpretation put by the ld. Standing Counsel is a reasonable interpretation, still the matter has to be decided in favour of the assessee because if a provision of the taxing statute can be reasonably interpreted in two ways, that interpretation which is favourable to the assessee has got to be accepted. This proposition of law is now well settled and even Shri Sawhney had no quarrel with this abstract proposition of law.
21 Taking into consideration the entire facts and circumstances of the case, we hold that the revenue authorities were not justified in bringing to tax the arrears of professional receipts of Rs. 6,14,400 and Rs. 7,34,930 in the hands of the assessee for assessment years 1990-91 and 1991-92 respectively after the assessee had discontinued his legal profession when he was elevated to the Supreme Court on 14th December, 1988.
22. In the result, both the appeals are allowed.