Bombay High Court
Commissioner Of Income-Tax vs Jivanlal Lalloobhai And Co. on 1 October, 1993
Equivalent citations: [1994]206ITR548(BOM)
JUDGMENT
Dr. B.P. Saraf J.
1. By this reference under section 256(1) of the Income-tax Act, 1961, at the instance of the Revenue, the Income-tax Appellate Tribunal has referred the following question of law to this court for opinion :
"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in their finding that the activities of the assessee, a clearing forwarding and shipping agent, constitute a profession within the meaning of Sub-paragraph II of Paragraph C of Part I of the First Schedule of the Finance Act, 1976, and the Finance (No. 2) Act of 1977 ?"
2. The assessee is a registered firm. It is engaged in the business of clearing, forwarding and shipping of goods. The income of the assessee for the assessment year 1976-77 (the corresponding previous year being the accounting year ended on December 31, 1975), was Rs. 1,73,985. The income for the next assessment year 1977-78 (the corresponding previous year being the accounting year ended on December 31, 1976), was Rs. 3,70,659. The assessee claimed before the Income-tax Officer that its activities as clearing and forwarding agents amounted to a "profession" and, therefore, the lower rate of income-tax applicable to registered firms deriving income from "profession" should be applied to it. The Income-tax Officer did not accept the above claim of the assessee and assessed its income at the rates applicable to registered firms other than those deriving income from profession.
3. The assessee appealed to the Commissioner of Income-tax (Appeals) who held that the work of clearing agents was a "profession" and that the income from such work must be treated as income derived from profession carried on by it. He, therefore, directed the Income-tax Officer to revise the computation of income-tax payable by the assessee on the footing that the assessee's income was professional income and not business income. In coming to the above conclusion, the Commissioner relied on the decision of the Allahabad High Court in P. Stanwill and Co. v. CIT [1952] 22 ITR 316, where an auctioneer was held to be engaged in a profession. The decision of the Commissioner was affirmed by the Income-tax Appellate Tribunal. Hence, this reference at the instance of the Revenue.
4. The sole controversy involved in this case is whether the activity of the assessee as clearing, forwarding and shipping agents constitutes a profession. This controversy assumes importance in view of the fact that under the relevant Finance Act of 1976 and Finance (No. 2) Act, 1977, the rate of income-tax was lower for a registered firm whose total income included income derived from profession carried on by it, if the income so included was not less than 51 per cent. of the total income of the firm. The rate of income-tax applicable to income of such firms ranged between 4 per cent. and 22 per cent. as against 5 per cent. and 24 per cent. applicable to other firms.
5. Learned counsel for the Revenue submits that "profession" involves the idea of an occupation requiring purely intellectual skill as distinguished from an occupation which is substantially the production or sale or arrangements for the production of sale of commodities. Reference is made in this connection to the decision in IRC v. Maxse [1919] 12 ITC 41 (CA). According to learned counsel, the activity of a clearing, forwarding and shipping agent is nothing but a business activity which falls within the expression "business". It does not fall within the expression "profession" an understood in common parlance.
6. Learned counsel for the assessee, on the other hand, submits that the work of clearing, forwarding and shipping agents requires a knowledge of the law of customs, ability to deal with the customs officials, port trust authorities and shipping agents and, therefore, it amounts to profession and not business. In support of the above submission, reliance is placed on the decision of the Allahabad High Court in P. Stanwill and Co. v. CIT [1952] 22 ITR 316.
7. We have carefully considered the rival submissions. The controversy relates to the assessee's claim that as clearing, forwarding and shipping agents it carried on a profession as distinguished from business. The meaning of the expression "profession" came up for consideration before the court in the context of the identical provisions of the Finance Acts, 1973 and 1974, in CIT v. Lallubhai Nagardas and Sons [1993] 204 ITR 93 (Bom) (Income-tax Reference No. 311 of 1978) decided on February 3, 1993. On an elaborate discussion on the meaning of the expression "profession", this court observed that "profession" has to be distinguished even from "occupation" which tantamounts to "business". In the above case, this court was called upon to decide whether a sharebroker can be held to be engaged in the practice of a profession. This court held (at page 100) :
"It is clear that a stockbroker cannot be said to be engaged in the practice of a profession. The real job of a stockbroker is to make arrangements for sale of the shares or securities of others. Such activity clearly falls within the expression 'business' and not 'profession'."
8. It was further held (at page 101) :
"The activity of a share broker is nothing but business activity which falls within the expression 'business' as defined in clause (13) of section 2 of the Act. It does not fall within the expression 'profession' even if it is interpreted in the broader sense to include many of the activities which were earlier not included therein. A broker is not held to be engaged in the practice of a profession....."
9. In the above decision, this court also considered the decision of the Allahabad High Court In P. Stanwill and Co. v. CIT [1952] 22 ITR 316, relied upon by the assessee where an auctioneer was held to be engaged in a profession. On a careful consideration of the above judgment, this court did not agree with the reasoning and the conclusion in that case. It was observed (at page 101) :
"In our opinion, an auctioneer cannot be held to be engaged in a profession. His activities clearly amount to carrying on of 'business'. The fact that one of its partners happens to be an engineer will make no difference in deciding whether the activity of an auctioneer can be held to be 'business' or 'profession'."
10. True it is that in course of time the word "profession" has assumed a broader and more comprehensive meaning than what was formerly accorded to it and many activities, viz., accountants, architects, chemists, editors, engineers, etc., which were earlier not known as profession, have now come to be termed as "professions". However, despite the enlarged and extended scope of the term "profession", it does not include brokers, insurance agents, etc. In the instant case, we are concerned with the assessee who was carrying on business as clearing, forwarding and shipping agents. The question that arises for consideration is whether the above activity can be held to be a "profession". We find that the nature of the activity of a clearing and forwarding agent came up for consideration before the Supreme Court in Cochin Shipping Co. v. E.S.I. Corporation, . The appellant in that case was engaged in the business of clearing and forwarding operations. It was also authorised to transact its business at the Cochin Custom House under the terms of section 202 of the Sea Customs Act and the Rules made thereunder. Licence was also issued under the said provision. The question arose whether the establishment of the appellant, who was carrying on the activity of clearing and forwarding operations, was a "shop" for the purpose of application of the Employees' State Insurance Act, 1948. The Supreme Court held as under (at page 258 of AIR 1993 SC) (at page 395 of 81 FJR) :
"The appellant is carrying on stevedoring, clearing and forwarding operations. Clearing the documents, even it be in the customs house, is necessary for the export or import of goods. These services from part of the carrier's job. It cannot be gainsaid that the appellant is rendering service to cater to the needs of exporters and importers and others who want to carry the goods further. Therefore, it is a shop carrying on a systematic economic or a commercial activity."
11. The above decision of the Supreme Court squarely applies to the present case. Following the ratio of the above decision and the decision of this court in CIT v. Lallubhai Nagardas and Sons [1993] 204 ITR 93, we are of the clear opinion that the activities of the assessee as clearing, forwarding and shipping agents did not constitute a profession and, as such, it was not entitled to the benefit of the lower rates of taxes applicable to registered firms depriving income from a profession as provided in Sub-Paragraph II of Paragraph C of Part I of the First Schedule to the Finance Act, 1976, and the Finance (No. 2) Act of 1977.
12. Accordingly, we answer the question referred to us in the negative, that is, in favour of the Revenue and against the assessee.
13. Under the facts and circumstances of the case, there shall be no order as to costs.