1961-VIL-88-MAD-DT

Equivalent Citation: [1963] 50 ITR 196 (MAD.)

HIGH COURT OF MADRAS

TAX CASE NO. 38 OF 1959

Dated: 04.12.1961

C. RAJAGOPALACHARIAR

COMMISSIONER OF INCOME-TAX

Bench

Jagadisan And Srinivasan, JJ.

JUDGMENT

Jagadisan,

This is a reference under the Indian Income-tax Act and the question referred for decision is whether on the facts and in the circumstances of this case the sum of Rs 5,605 is taxable. The petitioner claims that this amount is exempt from taxation under section 4(3)(vii) of the Indian Income-tax Act, which reads as follows :

"Any receipts (not being capital gains chargeable according to the provisions of section 12B) and not being receipts arising from business or the exercise of a profession, vocation or occupation, which are of a casual and non-recurring nature, or are not by way of addition to the remuneration of an employee."

The petitioner was a distinguished and successful lawyer and is an active politician. He held high offices in the Government of this country as Governor-General of India, Governor of a State, Minister in the Union Government and Chief Minister of Madras State. He has all along been an author of books and a writer of great repute. His books and writings are widely read not merely in this country but throughout the globe.

In his return of income under the Indian Income-tax Act for the assessment year 1956-57, he showed the following receipts :

		Rs.
Kalki for the year 1953-54-55	…	5000.00
Kannan, Kalaimagal	...	50.00
Hindustan Times, New Delhi	...	75.00
All India Radio	...	480.00
	Total:	5,605.00

In that return he submitted that these receipts were casual and were, therefore, exempt from taxation. The Income-tax Officer held that this sum of Rs 5,605 was a taxable receipt as the petitioner had received it for services rendered in the exercise of his occupation as a writer. The assessee preferred an appeal to the Appellate Assistant Commissioner and was successful. The Appellate Assistant Commissioner held that there was no material for holding that the assessee was a professional writer, that he only took to writing as a hobby, that the writing was not a source of his income, that the receipt was of a casual and non-recurring nature and was exempt under section 4(3)(vii). The income-tax department preferred an appeal to the Tribunal. The Tribunal observed that the assessee has been contributing articles on a variety of topics to a variety of magazines and periodicals, that it may be at the inception there was no intention to ask for payment for these articles, but by reason of later developments created by the appreciation by the public of his contributions they acquired a commercial value. The Tribunal reached the conclusion that this amount was taxable in the hands of the assessee on the following basis :

"We may at once state that we reject the contention of the department that Kalki and others paid the assessee for services rendered to them. "Service", by its very concept, implies that there was an offer and an acceptance and a contract and none of these elements is present in this case. That it has not been a gift has been admitted by the assessee and it is also stated that the payment is for three years, at least in the case of Kalki. It is this 'time' element which, to our minds, has made this receipt a taxable income. It was also conceded that as the assessee began writing even in 1952, it seems to us difficult to hold that the receipt is of a casual nature. We, however, hold that the assessee is not a professional writer."

We may mention even at the very outset that the reasoning adopted by the Tribunal in arriving at the conclusion regarding the taxability of the receipt in the hands of the assessee is faulty and illogical. But the question still remains whether on the admitted facts and circumstances of the case, the receipt is taxable or not.

The language of the enactment already set out above is certainly not abstruse but can be said to be fairly clear. A receipt is non-taxable under that provision, if it satisfies the following conditions : 1. It should not be capital gains chargeable under section 12B of the Act. 2. It should not arise from business or the exercise of a profession, vocation or occupation. 3. It should be of a casual and non-recurring nature. 4. It should not be by way of addition to the remuneration of an employee. Unless all these conditions are satisfied the exemption under that provision cannot be invoked. So far as this case is concerned, there can be no difficulty in holding that the receipt did not arise from any business or profession, that it was not a capital gain under section 12B of the Act, and that it was not by way of addition to the remuneration of an employee. The two crucial questions that have to be determined before the receipt can be held to be taxable or not are whether it arose out of a vocation or occupation, and whether it was of a casual and non-recurring nature.

There are no materials to show that the receipts by the assessee arose out of any contract of employment between him and the Kalki or the Hindustan Times or the All India Radio. But, in our view, that by itself cannot enable the assessee to get out of the clutches of taxation invoking the aid of this special exemption provision.

It seems to us to be clear that writing of books and contribution of articles to periodicals and magazines really constitute the vocation of the assessee. A vocation is only a way of living or a sphere of activity for which one has special fitness. It is not necessary that such activity should be one indulged in for earning a livelihood before it can be called "vocation." Nor can it be said that a person cannot have more than one vocation, A motive for making a profit is not an essential requisite of a vocation. The Supreme Court in the decision in Padmanabhan Krishna Menon v. Commissioner of Income-tax [1959] 35 ITR 48 ; [1959] Supp. 1 SCR 133 elucidated the meaning of the expression in the following words at page 52 :

"It is said that in order that an activity may be called a vocation for the purposes of the Act, it has to be shown that it was an organised activity and that it was indulged in with a motive of making profit; that as the appellant's activity in teaching Vedanta was neither organised nor performed with a view to making profit, he could not be said to be carrying on a vocation. It is said that as the word 'vocation' has been used along with the words 'business and profession' and the object of a business and a profession is to make a profit, only such activities can be included in the word 'vocation' the object of which likewise is to make a profit. We think that these contentions lack substance. We do not appreciate the significance of saying that in order to become a vocation an activity must be organised. If by that a continuous or, as was said, a systematic activity, is meant, we have to point out that it is well known that a single act may amount to the carrying on of a business or profession."

A successful and a prosperous lawyer may spend his leisure hours lucratively in writing books on any subject, Philosophy, Economics, Astronomy or Physical Chemistry. Such earnings by him are certainly taxable as income under the Income-tax Act. A judicial officer with musical attainments may delight the public by giving performances in the All India Radio and obtain payment. It can be said with the utmost propriety that music is a vocation of the officer and he obtained the payment in the exercise of such vocation.

The essential test to be applied to determine the true nature of the receipt in cases of this description is, is it in the nature of a personal gift or is it remuneration ? An apparent gift, if it possesses an element of reward for service or work done, might assume the character of income. There is no doubt a distinction between reward for services and a recognition of service. In the former case the payment is a quid pro quo, but in the latter case it is a mere testimonial and a token of appreciation. Remuneration is something that an employer has arranged or contemplated or at least knows about even though the payment may be contingent on various factors such as availability of funds, generosity of others and other precarious circumstances. Remuneration for services is generally effected by systematic and recurring payments though this is certainly not always so. Remuneration has further the element of reward of payment for some specific services rendered : see Bridges v. Hewitt [1957] 3 All ER 381, 299; [1953] 33 ITR 885. We are of opinion that section 4(3)(vii) of the Act cannot apply to the receipt of Rs 5,605 as it was earned in the course of a "vocation" and as it has not been proved to be of a casual and a non-recurring nature. The sum of Rs 5,000 received from Kalki was the aggregate of payment for three years 1953, 1954 and 1955 as admitted by the assessee himself in his return. It looks as if that payments for the years 1953, 1954 and 1955 were deferred and a lump sum payment was made in the year of account. It is also implicit in the very nature of the return made by the assessee that there was an expectancy of payment for the contribution of the articles made by him to that journal. Even assuming that the assessee did not expect any payment at the time when he actually contributed the articles to the magazine, and assuming further that a lump sum payment of Rs 5,000 was voluntarily made by the proprietor of the magazine in the year of account, so long as the payment was received by the assessee as remuneration for the articles subscribed by him, it cannot be deprived of its character as income by merely calling it a gift. The following observation of Sir Richard Collins M.R. in Herbert v. McQuade [1902] 2 KB 631, 649; 4 Tax Cas. 489 can be quoted :

"Now that judgment, whether or not the particular facts justified it, is certainly an affirmation of a principle of law that 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."

We do not think it necessary to refer to the decided cases on the subject which are quite a legion. A tip received by a taxi driver from a travelling passenger, a payment received by a clergyman from the parishioners and a benefit received by a footballer or a cricketer as a reward after a long and brilliant career become assessable as income despite the voluntary nature of the payment as they enure to the person receiving them only in their capacity of holding the particular employment. In a recent decision of the Court of Appeal in England in Wright v. Boyce [1958] 38 Tax Cas. 160; [1959] 36 ITR 504, the facts were as follows : A huntsman received presents of cash at Christmas time, mostly from persons with whom he was in contact in that capacity. Many of these persons were his personal friends. When he was engaged by the hunts concerned nothing was said about tips or Christmas presents, but it was well known to be a widespread custom in those hunts to give such presents, usually at the Boxing Day meet. When there was no meet on Boxing Day the huntsman did not receive many presents. The Court of Appeal held that the receipts of the huntsman by way of presents accrued to him by virtue of his employment and that they were assessable to income tax. At page 172, Jenkins L. J. observed thus :

"As to the contention that the motives of the contributors of the voluntary payments should be looked at (or the objects, perhaps one should say, that they had in view), I agree that, generally speaking, where there is no definitely determining factor, like a reference in the contract of employment of the person concerned, it is hardly possible to assess the quality of the payment without considering the position both of the payer and of the payee, and it may well be that, where it is sought to tax a man on receipts of this general character, he can repel the claim to tax by proving that the persons who gave him the sums alleged to be taxable gave them to him on some entirely different account. But then I think the first test would still hold good : what was the quality of the payment from the point of view of the recipient ? In the case put, from the point of view of the recipient, the payment would have nothing to do with his employment at all; it would have been made for the wholly extraneous purpose I am postulating."

The true character of the receipt in any given case is really one of fact depending upon the circumstances of that case. We entertain no doubt that the assessee received the payment only as a reward for work done by him by contributing articles to and by writing in the columns of the journal. We agree with the conclusion of the Tribunal, though not with its reasoning, and answer the reference against the assessee. The assessee will pay the costs of the department.