Madras High Court
C.P. Chitrarasu (By Legal ... vs Commissioner Of Income-Tax on 4 February, 1986
Equivalent citations: [1986]160ITR534(MAD)
JUDGMENT M.N. Chandurkar, C.J.
1. The original assessee, who is now represented by his legal representative, was a member of the DMK Party, but he was not an employee thereof. He was a Member of the Tamil Nadu Legislative Council in 1964 and became its Chairman in April, 1970. The statement of the case in the earlier part states that during the period November, 1969, to June, 1970, the assessee received gifts from many personal friends and contributions by way of donations from others during public meetings connected with his birthday and the total amount of Rs. 48,176 was handed over to him and was utilised for construction of a house by him. In another part of the statement of the case, it is stated that a committee was formed for the celebration of the deceased assessee's 64th birthday and the house was handed over to him at a function got up for the occasion.
2. The Income-tax Officer in the assessment proceedings for the assessment year 1971-72 expressly referred to the fact "that the sum of Rs. 48,176 was collected by the well-wishers of the deceased-assessee and party workers and this was utilised for the construction of the house property at Anna Nagar and a Committee was formed for the celebration of the assessee's 64th birthday and the house was handed over to the assessee at a formal function got up for the occasion. He, however, took the view that the amount collected and paid to the assessee was in consideration of his services as a political worker. This finding was confirmed by the Appellate Assistant Commissioner taking the view that the sum of Rs. 48,176 could not be treated as anything but income in the hands of the assessee as arising out of his exercise of profession or vocation as a politician.
3. The Tribunal extracted a list of the donors and apart from individuals from different places, the list contains the names of business concerns like A.K.M. Textiles, Md. Abdul Khader & Sons and others. Among the donors is also an association known as Skins & Hides Merchants Association. The case of the assessee before the Tribunal was that he was not purely a politician and that he was a man of great wisdom and was respected by people from all walks of life who were influenced by his selfless service to Tamil and Tamil Nadu, his self-respect movement, his oratorial capacity, etc. His case was that these characteristics of the assessee made the people contribute for the birthday celebrations and out of such income, a house was constructed for the assessee at Anna Nagar, Madras. The Tribunal took the view that these contributions were made because the assessee wielded influence in the DMK party and was also a propagandist of the party, and that it was because of the awe and fear of the assessee being a politician that the collections were made. The Tribunal found that it would not be correct to say that the receipts by way of collections had no nexus with the assessee's vocation or occupation as a politician. The finding recorded by the Tribunal was :
"We are satisfied that the receipts were because the assessee occupied a high place in the DMK party and so the collection had nexus to the assessee's occupation as a politician."
4. The persons who collected the funds were found to be influential men in the DMK party and, therefore, according to the Tribunal, it could not be said that the entire collection or even a portion of them came to the assessee not in his pursuit of the vocation as a politician. The receipts were held to be not cash receipts. The assessee had raised contentions that the receipts could not be assessed for the assessment year 1971-72. The Tribunal, however, directed the Income-tax Officer to work out the quantum of income of the assessee for the assessment year 1971-72 and modify the assessment accordingly.
5. Arising out of this order of the Tribunal, the following two questions have been referred to this court for opinion at the instance of the assessee under section 256(2) of the Income-tax Act, 1961.
"1. Whether, on the facts and in the circumstances of the case, the Tribunal is right in its view that the sum of Rs. 48,176 is liable to tax as income arising from vocation or occupation ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal is justified in its view that the receipts by the birthday celebrations committee is not exempt under section 10(3) of the Income-tax Act, 1961 ?"
6. The learned counsel appearing on behalf of the assessee's legal representative has contended that the first question is really concluded by a decision of this court on similar facts in CIT v. S. A. Rajamanickam [1984] 149 ITR 85. In this decision, a Division Bench of this court has held in the case of an assessee who was an active member of a political party that donations made by various persons for giving a purse to the assessee was not income of the assessee. The learned counsel appearing on behalf of the Revenue has, however, contended that it is not open to the assessee to challenge in this reference the finding that the amount of Rs. 48,176 was not the income of the assessee arising from a vocation or an occupation. The contention appears to be that the finding that the amount in question was the income arising from vocational occupation is a finding of fact and the argument is that the question referred is not that there is no material to support the finding. A reference was made to the decision of the Supreme Court in CIT v. Imperial Chemical Industries (India) (P.) Ltd. [1969] 74 ITR 17, in which the Supreme Court, with reference to the finding given by the Appellate Tribunal in that case, held that there was no proof of the agreement between the assessee and the ICI (Export) Ltd., and that if there was one such agreement, that was not acted upon, was a finding on a question of fact and the High Court was not entitled to interfere with this finding. The Supreme Court had pointed out that it is well established that the High Court is not a court of appeal in a reference under section 66(1) of the Indian Income-tax Act, 1922, and it was not open to the High Court in such a reference to embark upon a re-appraisal of the evidence and to arrive at findings of fact contrary to those of the Appellate Tribunal. It was further contended by the learned counsel for the Revenue that the contributions made to the deceased-assessee clearly arose out of a vocation or profession and since it is now established that politics is a profession, the learned counsel relying on the decision of the Supreme Court in Dr. K. George Thomas v. CIT [1985] 156 ITR 412, contended that a finding recorded by the Tribunal that the amount received by the deceased represented income from profession must be sustained. A reference has also been made to the decision of this court in CIT v. P. S. Chelladurai [1984] 145 ITR 139, in which this court on the facts of that case held that in the case of a social worker, the money which was necessary for social work and which came from a foreign missionary was the income for the purpose of income-tax even though the social worker did not receive any salary or remuneration.
7. Now, it is difficult to appreciate the argument that the finding that the amount of Rs. 48,176 in question was income which arose from the vocational occupation of the assessee must be accepted as a finding of fact. It appears to us that the finding with regard to the nature of the income cannot become a pure finding of fact. The nature and character of an income is essentially a question dependent on the inference to be drawn from the facts as they appear on the record. The inference is not an inference of fact but an inference of law and where on facts found, the tax authorities come to the conclusion that an income arises from vocation or occupation, such an inference must be treated as an inference of law. That is how this court must have thought it necessary to direct the Tribunal to refer the question as to whether the sum of Rs. 48,176 was liable to tax as income arising from vocation or occupation. While it cannot be disputed that a finding of fact relied on by the Tribunal must be accepted by this court as binding for purposes of the reference under section 66 of the Indian Income-tax Act, 1922, or section 256 of the Income-tax Act, 1961, in so far as the present case is concerned, on the question as to whether the amount in question can be treated as income arising from vocation or occupation being dependent upon a legal inference to be drawn on established facts, we must hold that the assessee is entitled to canvass the question as directed by this court to be referred for the opinion of this court.
8. For the purpose of this case, we must proceed on the terms in which question No. 1 has been framed. Though it appears to us that it was the positive case of the assessee that the amount given to him was expressly for the purpose of construction of a house, which itself was presented to him by the birthday celebration committee, the Appellate Assistant Commissioner has referred in his order to the assessee's letter dated July 8, 1975, in which he has clearly stated that the house in question was constructed by the 64th Birthday Celebration Committee from 1969 to May, 1970, and that the house was handed over to the appellant on May 17, 1970. The Tribunal has also observed that out of such collections, the committee constructed a house for the assessee in Anna Nagar. There is, however, no firm finding given by the Tribunal as to whether the house was constructed by the assessee or by the Celebration Committee. This was an important fact which the Tribunal should have really decided because if the house itself was gifted to the assessee, then the question of the value of the house being income of the assessee would really not have arisen and the house would have been considered as a gift by the Celebration Committee. The assessee, however, has not raised any dispute and we must, therefore, proceed on the footing that the amount itself was given to the assessee.
9. Now, when we proceed to consider the order of the Tribunal, it appears to us that what seems to have weighed heavily with the Tribunal was that the assessee was a member of a political party known as the DMK party, and this was the only circumstance which made the Tribunal direct its further enquiry into the nature of the income of the assessee. It has not been seriously disputed before us that the assessee was a politician. But, merely on that account coupled with the fact that the people honoured him, an inference would not necessarily follow that the receipt of every amount by him would be by virtue of his being a politician, specially when there were other circumstances which had to be considered and which were, in fact, put forth by the assessee before the Appellate Assistant Commissioner. The Appellate Assistant Commissioner and the Tribunal have, however, not even considered the effect of those circumstances. The order of the Appellate Assistant Commissioner shows that a note was given by the assessee on February 18, 1976, in which the assessee has stated that a large number of people of the Muslim community were admirers and patrons of the assessee by virtue of his knowledge in Quran Nabi and Islamic religion though personally the assessee did not have any faith in any religion. The assessee's case was that the special love and affection that those persons had towards the assessee had prompted them to contribute their mite to the Celebration Committee. The assessee has further stated that besides being a politician, he was more known and honoured for his vast knowledge and principles he followed and that he was responsible for what was then known as self-respect movement in which the DMK party did evince a keen interest. It was also stated that he was the author of a number of books and that he had delivered speeches within the country and abroad to spread the self-respect movement. It is this selfless service, according to the assessee, and the principles he followed ultimately enabled his biography to be written in poetic verse form by one V. Kabilan, a Tamil poet, in 1970 which was published in May, 1970 under the name of "C.P.C. ULA" which in simple translation would mean "in praise of the assessee". According to the assessee, these were sufficient indications of the high respect and regard in which some people held him. His contribution, according to him, to the Tamil literature was more than to politics. These circumstances were highlighted by the assessee to show to the tax authorities that he was not purely a politician and that he was a man of wisdom, respected by people of all walks of life who were influenced by his service to Tamil and the State of Tamil Nadu. Now apparently, none of these circumstances seems to have been considered by the Appellate Assistant Commissioner or by the Tribunal. The Appellate Assistant Commissioner, however, had given undue importance to the fact that the assessee being a politician was the reason for the people making contributions. He further observed that apart from giving a list of the literary works executed by the appellant, no clinching evidence was placed before me to accept the plea that the amount contributed by the various parties were wholly and solely in recognition of the appellant's scholarship or other personal qualities and were not connected in any way whatsoever with his role as a politician. The Tribunal remained satisfied itself by merely making an observation that the collections cannot be stated to be due to any personal regard for the assessee and that they were made because the assessee wielded influence in the DMK party and was a propagandist of the party. Observations were made by the Tribunal to the effect :
"As rightly pointed out by the Appellate Assistant Commissioner, it is because of the awe and fear of the assessee being a politician that the collections were made."
10. We have carefully gone through the order of the Appellate Assistant Commissioner, but there was no reference anywhere in his order to "awe and fear of the assessee".
11. It is well-settled that the burden is on the Revenue to establish that a particular receipt is of a revenue character. If any authority is needed, it is to be found in the latest decision of the Supreme Court in Dr. K. George Thomas v. CIT [1985] 156 ITR 412, 420. Now, undoubtedly, the assessee was a member of the DMK party. But to hold merely on that account that the people collected the funds only because he was a member of the DMK party is to ignore the positive case of the assessee that his service to Tamil and his performance as an author had earned him the respect of the people. It is common knowledge that 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 (See Kanga & Palkhivala's the Law and Practice of Income Tax, 7th edn., vol. 1, p. 238). If this principle is applied, then merely because the assessee happened to be a member of the DMK party and was honoured, it would not necessarily follow that whatever amounts he received were by virtue of being a member of a political party. As we have already pointed out, the order of the Tribunal does not make any reference to the positive case of the assessee that he was more of an author and a reformer than a politician and it is those activities which were sought to be honoured by the people by bringing out his biography and making a collection for a purse to be presented to him on his 64th birthday. The observations made by the Tribunal that the collections were made not out of any personal regard, but were made because the assessee "wielded" influence in the DMK party, appears to us to be an inference without any evidence. As a matter of fact, it does not appear that there is any material placed by the Revenue to disprove the case of the assessee that he was more a reformer, in the sense he understood the term and a writer in Tamil, than a politician. These is also no evidence to show that the contributions were made only by the members of the DMK party. As we have already indicated, there are some associations which have also contributed to the purse to be presented to the assessee. The Revenue in this case has, in our opinion, miserably failed to establish that the receipt arose out of his profession as a politician or that the receipt of the amount presented to the assessee was in the nature of an income as a politician. The positive case of the assessee has not been rejected by any of the authorities and indeed, it could not have been so rejected unless there is evidence to the contrary.
12. We have already pointed out that the question as to whether a particular receipt amounts to "income" or not will depend upon the facts of each case. The decision of the question depends on the inference which is to be drawn on the basis of the facts established. The decisions to which our attention has been drawn by the learned counsel for the Revenue all represented the different types of cases where the inference is drawn on the facts proved in those cases. In the decision in Chelladurai's case [1984] 145 ITR 139 (Mad), there is a positive finding recorded by this court at page 150 on the facts established in that case. This court held that on the materials on record, the position was clear beyond doubt that the assessee as a social worker was nevertheless engaged in an occupation. It was then observed as follows (p. 150) :
"Given this factual position and given the further materials on record which show that there was a regular inflow of money into the assessee's hands in the very manner of the exercise of his occupation, a part of which he had systematically appropriated to his own use, the opinion we have expressed is the only legitimate conclusion in this case."
13. The finding that the receipts by the social worker in the above case constituted his income as the funds were received in the exercise of his occupation would make it a decision on the facts of that case. In the case of Dr. K. George Thomas v. CIT [1985] 156 ITR 412, the Supreme Court, on the facts of that case, held that the assessee carried on a vocation of preaching against atheism and in the course of such vocation and for the purpose of the same, he received the amounts in question as donations for the furtherance of the objects of his vocation and that there was a link between the activities of the assessee and the payments received by him and the link was close enough. It was positively found that the receipts arose to the assessee from the carrying on of his vocation and they were not casual and non-recurring receipts and were taxable. In the decision in P. Krishna Menon v. CIT [1959] 35 ITR 48, the Supreme Court quoted with approval the observations of Rowlatt J. in Reed v. Seymour [1926] 1 KB 588, in which the learned judge posed a question "But is it in the nature of a personal gift or is it a remuneration ?" and the further observation which was quoted with approval by Viscount Cave L.C. when the case went up to the House of Lords where an addition was made to the above observations : "If the latter, it is subject to the tax; if the former, it is not." The question in each case, therefore, has to be whether the receipt which is sought to be taxed as income is in the nature of a personal gift or is it a remuneration and on the facts found in the above case, P. Krishna Menon v. CIT [1959] 35 ITR 48, the Supreme Court held that the teaching of vedanta philosophy by the appellant was the carrying on of a vocation and that the amounts received by him were in consideration of the teaching imparted by him and that, therefore, the payments were income arising from the vocation of the appellant therein. No two cases can really be alike and while the principal material for determining as to whether a particular receipt amounts to income or not may be well established, the application of this principle will depend on the facts of each case.
14. There is, however, a case which comes very close to the case of the assessee which came to be decided by this court in CIT v. Rajamanickam [1984] 149 ITR 85. The assessee in that case became an active member of the DMK political party, after he resigned from his private employment in a firm. Donations were collected from the members of the party, businessmen and public and a drama was also staged to raise funds for a purse. Accordingly, a purse containing Rs. 56,000 which included Rs. 5,000 given by the assessee's former employer was presented to the assessee who handed over the same to the Committee with a request to purchase a house for him with the same fund. A house was accordingly purchased for Rs. 72,000. A sum of Rs. 51,000 out of the amount of Rs. 56,000 in the purse was sought to be taxed as income by the Income-tax Officer. In appeal, the assessee claimed that Rs. 51,000 was only in the nature of a personal gift to him by his admirers and this claim was accepted by the Appellate Assistant Commissioner, Coimbatore. An appeal by the Revenue was dismissed by the Tribunal. When the matter came to this court in reference, this court held that there was no substance in the contention that the amount was paid for the services rendered by the assessee to any particular individual or to the political party and that the amount was paid as mere gifts or windfalls for his personal qualities. It was further held that there was no quid pro quo in the payment of donation made by the general public, the former employer and the partymen. The learned judges found that the amount was admittedly paid to the assessee in appreciation of the services of the assessee when he was a member of the DMK party. The test laid down by the Calcutta High Court in David Mitchell v. CIT [1956] 30 ITR 701 was adopted by this court. The test was as follows (p. 89 of 149 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, firstly, 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."
15. This court found that the amount was presented to the assessee for the sole purpose of purchasing a house property for the assessee which reflected 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 DMK party. It is important to point out that this court further observed that as he happened to be member of the DMK, it might have facilitated him to render services not only to the development of his party but also to the general public and that there was no material or evidence that the ex-employer belonged to the DMK party and it was 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, according to this court, led to the inference that the donors had intended to make a gift for the personal qualities of the assessee. This decision is an authority for the proposition that merely because a member of a political party receives any gifts, the amount of that gift will not necessarily become income by way of remuneration for the services rendered as a member of the party. This decision is sought to be distinguished by the learned counsel for the Revenue on the ground that in that case, some members of the general public had also contributed to the funds. That, in our view, is a distinction without any difference. Even in the instant case, the assessee had laid out a positive case that some persons belonging to the Muslim community had also contributed because the assessee was well versed in Quran. There is no evidence to show that these members of the Muslim community belonged to the DMK party. Having considered the circumstances brought on record by the assessee which have been wholly ignored by the Tribunal, we are of the view that the finding recorded by the Tribunal that the amount in question constitutes income from a vocation or an occupation cannot be sustained. Accordingly, we hold that the Tribunal was not right in its view that the sum of Rs. 48,176 is liable to tax as income arising from a vocation or an occupation. Question No. 1 has, therefore, to be answered in the negative and in favour of the assessee.
16. Having regard to the view which we have taken on question No. 1, question No. 2 is not necessary to be answered.
17. Accordingly, we answer the above questions as follows :
Question No. 1 : In the negative and in favour of the assessee; and Question No. 2 : Not necessary to be answered.
18. The Revenue to pay the costs of this case. Counsel's fee Rs. 500.