Vildirect: IncomeTax-caselaws-1993-VIL-660-BOM-DT

1993-VIL-660-BOM-DT

Equivalent Citation: [1993] 204 ITR 93, 114 CTR 58

BOMBAY HIGH COURT

Date: 03.02.1993

COMMISSIONER OF INCOME-TAX

LALLUBHAI NAGARDAS AND SONS

BENCH

Judge(s) : U. T. SHAH., DR. B. P. SARAF

JUDGMENT

The judgment of the court was delivered by

DR. B. P. SARAF J.-By this reference under section 256(1) of the Income-tax Act, 1961, made at the instance of the Revenue, the Incometax 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 correct in law in holding that the assessee, a firm of sharebrokers, was carrying on a profession for the purpose of computation of its tax liability ? "

The assessee is a registered partnership firm of sharebrokers. The assessment years involved in this reference are 1975-74, 1974-75 and 1975-76. The controversy relates to the assessee's claim that as a sharebroker, it carried on a profession as distinguished from business. This controversy assumes importance because the rates of surcharge on income-tax or tax are different in the two cases. The rate of surcharge was lower in the case of a registered firm whose total income included income from a profession carried on by it, in the two assessment years 1973-74 and 1974-75, and the rate of income-tax itself was lower in such cases in the assessment year 1975-76. The Income-tax Officer levied surcharge at the normal rate. There is no discussion in the order of the Income-tax Officer in this regard, may be because this point was not urged before him by the assessee. However, in appeal before the Appellate Assistant Commissioner, the assessee specifically took up this issue and claimed that the activities of the assessee as a sharebroker amounted to a profession, and, therefore, the lower rate of surcharge was applicable to it. The Appellate Assistant Commissioner did not accept the contention of the assessee that the activity of the sharebroker amounted to carrying on a profession. The assessee went in further appeal to the Income-tax Appellate Tribunal (for short, "the Tribunal"). The Tribunal accepted the contention of the assessee and reversed the finding of the Appellate Assistant Commissioner and held that the activity of the firm as sharebroker amounted to a profession and directed the Income-tax Officer to treat the assessee as a firm carrying on a profession. Hence, this reference at the instance of the Revenue.

At the outset, it may be mentioned that, in the Finance Act for the relevant assessment years, while prescribing the rates of income-tax applicable to registered firms and surcharge thereon, different rates of surcharge were prescribed for firms whose total income included income derived from profession and other firms. The rate of surcharge was lower for registered firms whose total income includes income derived from profession carried on by it and the income so included is not less than 51 per cent. of the total income of the firm. The relevant provision applicable to the assessment year 1973-74 is Paragraph C of Part I of the First Schedule which specifies the rates of income-tax and surcharge on income-tax applicable to registered firms for the assessment year 1973-74. This paragraph, so far as relevant, is set out below:

"Paragraph 'C'

In the case of every registered firm, Rates of income-tax ................................... Surcharge on income-tax

The amount of income-tax computed at the rate hereinbefore specified shall be increased by the aggregate of surcharges for purposes of the Union calculated as specified hereunder:

(a) in the case of a registered firm whose total income includes income derived from a profession carried on by it and the income so included is not less than fifty-one per cent. of such total income, a surcharge calculated at the rate of ten per cent. of the amount of income tax computed at the rate hereinbefore specified;

(b) in the case of any other registered firm, a surcharge calculated at the rate of twenty per cent. of the amount of income-tax computed at the rate hereinbefore specified ; and

(i) the amount of income-tax computed at the rate hereinbefore specified ; and

(ii) the amount of the surcharge calculated in accordance with clause (a) or, as the case may be, clause (b).

Explanation.-For the purposes of this paragraph, 'registered firm' includes an unregistered firm assessed as a registered firm under clause (b) of section 183 of the Income-tax Act, 1961."

The provisions of the Finance Act, 1974, being identical, it is not necessary to set out the same.

So far as the Finance Act, 1975, is concerned, though there is no difference in the rate of surcharge in the case of two types of firms, the rates of income-tax have been made different for registered firms whose total income includes income derived from a profession carried on by it and other firms. In the former, the rate range is between 4 per cent. and 22 per cent. whereas in the latter it is between 5 per cent. and 24 per cent.

It is in this context that the controversy whether the assessee-registered firm which derived income from its activities as a sharebroker can be said to have derived it from a profession assumes importance. Therefore, what is to be decided is whether the activities of a sharebroker amount to "profession". The expression "profession" has been defined in the Income-tax Act, 1961, in clause (36) of section 2 in contradistinction to "business" which has also been defined in clause (13) of the same section. These two definitions read :

"(13) 'business' includes any trade, commerce or manufacture or Any adventure or concern in the nature of trade, commerce or manufacture ;

(36) 'Profession' includes vocation."

From the above definitions of "business" and "profession", it is clear that though the word "business" is a word of wide import, it would not take in its ambit activities which may constitute "profession". This is because the two expressions "business" and "profession" have been used in the Act in a mutually exclusive sense. That being so, even if the word "business", on a wider interpretation, can include within its scope "profession", for the purpose of the Act, particularly the applicability of rate of tax or surcharge, "profession" has to be understood as distinct and separate from "business". It, therefore, becomes necessary to ascertain the true meaning and import of the expression "profession" in order to determine whether the activities of a sharebroker can be termed as "profession". "Stockbroker" is defined in the Corpus Juris Secundum (volume 12), page 7, as :

(i) one who buys and sells shares in corporation

(ii) one who deals in the stock of moneyed corporations or any other securities ;

(iii) one employed to buy and sell shares or stock

In Black's Law Dictionary (Sixth edition), page 193, "broker" has been defined as follows :

"An agent employed to make bargains and contracts for a compensation. A dealer in securities issued by others. . . . A middleman or negotiator between parties. A person dealing with another for sale of property. A person whose business is to bring buyer and seller together. One who is engaged for others, on a commission, to negotiate contracts relative to property.... An agent of a buyer or a seller who buys or sells stock, bonds, commodities, or services, usually on a commission basis. The term extends to almost every branch of the business, to realty as well as personalty.

Ordinarily, the term is applied to one acting for others but is also applicable to one in business of negotiating purchases or sales for him self." (emphasis supplied).

The expression "broker-dealer" has also been defined. It reads (at page 193):

"Broker-dealer. A securities brokerage firm, usually registered with the S. E. C and with the State in which it does business engaging in the business of buying and selling securities to or for customers." (emphasis supplied).

In the same dictionary, the word "profession" has also been defined in the following terms (at page 1210) :

"Profession. A vocation or occupation requiring special, usually advanced education, knowledge, and skill ; e.g., law or medical profession.

The term originally contemplated only theology, law and medicine, but as applications of science and learning are extended to other departments of affairs, other vocations also receive the name, which implies professed attainments in special knowledge as distinguished from mere skill."

In the Corpus Juris Secundum, there is an elaborate discussion about the word "profession". The following extracts from the discussion in volume 72 (at pages 1215-19) are very illuminating and useful for the purpose of the present controversy:

"Profession. It has been said that it is difficult, if not impossible, to lay down any strict legal definition of the word 'profession' and that the term may, perhaps, be best understood by mention of some prominent or characteristic elements, rather than by an attempted complete definition. The word is vague, and neither static nor rigid, and is used in many different senses and in one sense it means a public declaration respecting something and in a somewhat different sense it means that of which one professes knowledge. However, the word 'profession' is more commonly employed in the sense of vocation, business, calling or occupation .... While the word 'profession' may be broadly defined as meaning vocation, calling, occupation, or employment, literally, the term is applied to a calling or vocation requiring special knowledge of a branch of science or learning and in this somewhat restricted sense the word 'profession' means an employment requiring a learned education, as a profession of arms, the profession of a clergyman, lawyer or physician, the profession of chemistry or physics. 'Profession' is further defined as meaning the occupation which one professes to be skilled in and to follow, the business which one professes to understand and to follow, for subsistence, the occupation, if not mechanical or agricultural, or the like, to which one devotes oneself, any calling or occupation involving special mental and other attainments or special discipline, as editing, acting, engineering, authorship, an occupation which properly involves a liberal education or its equivalent and mental, rather than manual, labour, especially one of three learned professions.

The word 'profession' implies professed attainments in special knowledge as distinguished from mere skill. . . . A profession involves labor, skill, education and special knowledge and implies a vocation requiring higher education and learning, intellectual skill as distinguished from that used in an occupation for the production or sale of commodities. . . .

While a profession is not a money getting business and has no element of commercialism in it, it does involve compensation or profit, and it is of the essence of a profession that the profits should be dependent mainly on the personal qualifications of the person by whom it is carried on.....

Thus, from the above discussion, it is clear that though, originally and historically, the word "profession" was applied only to law, medicine and theology or divinity and these were known as the three "learned professions", and even in modern usage and in a restricted sense, the word "profession" is still sometimes applied only to learned professions and to the persons engaged therein, there has been a growing tendency to enlarge and extend the scope and meaning of this term, and this has resulted in the word "profession" becoming more elastic and its denotation more liberalised so that it has ceased to be connected only with, and restricted exclusively to, the so-called learned professions. The word "profession" now has a broader and more comprehensive meaning than formerly was accorded to it, and its signification now extends far beyond the well-known classical professions of earlier days as the application of science and learning is extended to other department of affairs, other vocations also receive the name. The various other activities which have also now come to be termed professions are enumerated in the Corpus Juris Secundum (volume 72, page 1219). These include, accountants, architects, chemists, editors, engineers, etc. The above enumeration is followed by a list of persons who have been held not to be engaged in the practice of a profession. This list includes beauty culturists, brokers, insurance agents, undertakers and embalmers and various others.

From the aforesaid definitions of "broker", "broker-dealer" and "profession" and the discussion on "profession" in the Corpus Juris Secundum, 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". As observed by Scrutton L. J. in CIR v. Maxse [1919] 12 TC 41, 61 :

"Profession" in the present use of language involves the idea of an occupation requiring either purely intellectual skill, or if any manual skill, as in painting and sculpture, or surgery, skill controlled by the intellectual skill of the operator, as distinguished from an occupation which is substantially the production, or sale, or arrangements for the production or sale of commodities. "

From the above observations also, it is clear that "profession" has to be distinguished even from "occupation" which tantamounts to "business", viz., an occupation which is substantially the arrangement for sale of commodities. There is no dispute that stocks and shares are commodities which are marketable. A person selling his own shares and securities has always been held to be carrying on business and not engaged in the practice of a profession. The distinction between a "dealer" and a "broker" in common parlance is that a dealer sells his own goods whereas a broker sells or arranges the sale of the goods of others though there may be cases where the same person does both the acts, that is, sells his own goods and also arranges for the sale of goods of others. In either event, he is engaged substantially in the sale of goods. The question is whether such a person can be held to be engaged in the practice of a profession. The answer to this question, according to us, in clear terms, is in the negative. The reason is simple. 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 in the English speaking world as is evident from the discussion in the Corpus Juris Secundum (vol. 72, page 1219).

Before we conclude, it may be expedient to deal with some of the decisions on which reliance was placed by learned counsel for the assessee. The first is 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. We have perused the above judgment. It appears that, while arriving at the conclusion, the court was influenced by the fact that, one of the partners of the firm in that case Was a qualified engineer, and it was in that context that it held that the activities of the auctioneer amounted to profession. On a careful consideration of the above judgment, we find it difficult to agree with the reasoning and on the conclusion. In our opinion, an auctioneer cannot be held to be engaged in 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 auctioneer can be held to be "business" or "profession". Reliance was also placed by counsel for the assessee on the Supreme Court decision in CET v. P. V G. Raju [1975] 101 ITR 465, wherein politics was held to be a profession. We have perused the above decision. The reason for the above conclusion is available at page 468 of the Report (income Tax Reports) where Krishna Iyer J., speaking for the court, said :

"It is thus clear, without reference to the wealth of case-law relied on by the High Court, that politics has been a profession and, indeed, under modern conditions in India, perhaps the most popular and uninhibited occupation-with its perils, of course. Law cannot take leave of realities and, therefore, section 5(a) of the Expenditure-tax Act, 1958, must bear the construction that politics is a profession or occupation."

The above case, in our opinion, can have no application to the case of a sharebroker who clearly carries on the activity of selling goods only with the difference that the goods so sold are not his own but of others. Such activity, by no stretch of imagination, can be held to be a "profession".

Reference was also made by counsel for the assessee to the decision of the Supreme Court in P. Krishna Menon v. CIT [1959] 35 ITR 48, where teaching of vedanta was held to be a "vocation". Another decision of the Supreme Court in K. George Thomas v. CIT [1985] 156 ITR 412, where preaching of Christian gospel and helping anti-atheism was held to be vocation, was also relied upon. We have considered the above decisions. We fail to understand how the analogy of a vedanta preacher or a Christian gospel preacher can apply to a sharebroker. In our opinion, there is no comparison between the activities of a vedanta preacher or a Christian gospel preacher and a sharebroker. Evidently, the activities of the former cannot be held to be business activity falling within the expression "business" whereas it is so in the case of the latter. The above decisions, therefore, have no application to the controversy in the present case.

We may now deal with the last submission of learned counsel for the assessee that the question whether the activity of a sharebroker amounted to profession or not is a question of fact and the Tribunal having concluded the same in favour of the assessee, this court should not interfere with it in reference. We do not find force in this submission. There is no factual dispute regarding the activity of the assessee or its nature. The controversy is whether, on the admitted facts, the assessee can be held to be engaged in a "profession". This evidently, is a pure question of law and can always be the subject-matter of a reference under section 256(1 of the Income-tax Act, 1961. In that view of the matter, we find no merit in the last submission also and it is, therefore, rejected.

In view of the foregoing discussion, we hold that the Tribunal was not correct in holding that the assessee, a firm of sharebrokers, was engaged in a profession. It was, therefore, not entitled to the benefit of lower rate of surcharge on income-tax in computation of its tax liability. The question referred to us is, therefore, answered in the negative, that is, in favour of the Revenue and against the assessee. Under the facts and circumstances of the case, we make no order as to costs.

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