Wg. Cdr. K.P. Ghoshe vs Commissioner of Income Tax

Ghanshyam Dass, J.—By means of this reference u/s 256(1) of income tax Act, the following questions are being referred for opinion of the court:-- 1. Whether on the facts and circumstances of the case, the receipt of Rs. 30,000 being in the nature of prize for caption writing is taxable in the hand of the assessee or not.

Whether on the facts and circumstances of the case, the observation of the Tribunal that the same receipt is in the nature of income is correct or not.

Whether on the facts and circumstances of the case the said receipt of Rs. 30,000 is covered by the definition u/s 2(24)(ix) of the income tax Act, 1961 or not and whether the same is taxable in the hand of the assessee or not.

The relevant facts in brief may be stated, as follows -

The assessee participated in the contest of Bombay Dyeing & Manufacturing Co. Ltd., Bombay for caption writing by completing a sentence praising Bombay Dyeing Fabrics in a few word and was adjudged for a prize and accordingly he got a prize of Rs. 30,000. The receipt of this amount was treated to be the income by the income tax Officer and as such was included in the income of the assesee. The matter went up in appeal and Appellate Assistant Commissioner held the receipt of Rs. 30,000 as income tax within the meaning of section 2(24)(ix) of the Act and that the assessee was not entitled to the exemption under the Act. The assessee, then, preferred the appeal before the Tribunal against the judgment of Appellate Assistant Commissioner, income tax. The Tribunal dismissed the appeal with the following observations:--

... A very wide meaning should be given to this expression (i.e. income) in order to include almost every kind of receipt or gain and also the notional incomes mentioned in sub-section (24) of section 2 of the income tax Act, 1961. Viewed in this context it is not under dispute that the assessee put in his skill exertion and effort for participating in the Bombay Dyeing Contest and was awarded the prize of Rs. 30,000 for caption writing which was adjudged the best by the Bombay Dyeing authorities. This was therefore, a receipt or gain arising from effort, skill and exertion by the assessee and was therefore of the nature of income.

The appellant then moved application for reference of the matter to the High Court. In this way this reference came up for hearing before this court.

We have heard Sri Vikram Gulati, the learned counsel for the assessee and the Standing Counsel appearing for the department.

The learned counsel for the assessee submitted that the receipt of Rs. 30,000 in question is casual and non-recurring income and hence this is not liable to tax u/s 10(3) of income tax Act. He placed reliance upon the following rulings:--

(i) Commissioner of Income Tax Vs. Magnum Export (P) Ltd.,

(ii) Nalnikant Ambalal Mody Vs. Commissioner of Income Tax, Bombay,

(iii) B. MALICK Vs. COMMISSIONER OF Income Tax, UTTAR PRADESH.,

(iv) Commissioner of Income Tax Vs. J.C. Wahal,

In the first, case of Magnum Export (P.) Ltd. (supra) the court held-

Section 10(3) is an exception exempting specified receipts while computing total income. The receipt, which is casual on non-recurring in nature, can be brought u/s 10(3) provided it does not fall under any other head. If such receipt falls under a particular head, then it has to be charged under that head. While charging it under that head in the process of computation, it has to be considered whether it attracts any of the provisions contained in section 10 for being exempted in computing the total income. If it comes under any of those heads, then it is liable to be exempted to the extent provided. This provision is not a charging section and, therefore, if a receipt cannot be charged under a different head, the aid of this provision cannot be taken for charging the same under the provision of section 10(3). (p. 10)

In the second case of Nalinikant Ambalal Mody (supra) the assessee was an advocate and he had received certain amount on account of fees outstanding for professional work done by him before his elevation and in that case as per majority view the court held-

...the receipts were the outstanding dues of professional work done and were clearly the fruits of the assessee''s professional activity. They were the profits and gains of a profession and they fell under the fourth head, namely; ''Profits and gains of business, profession or vocation''. They were not however chargeable to tax under that head because under the corresponding computing section i.e. section 10 of the income tax Act, 1922, an income received by an assessee, who kept his accounts on the cash basis, in an accounting year in which the profession had not been carried on at all was not chargeable to tax. Not could the receipts be brought to tax u/s 12. As ''Income from other sources''. 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''. (p. 428)

In the third case of B. Malick (supra), the assessee while he was Chief Justice of Allahabad High Court was requested to act as arbitrator in a certain matter though he expressed his unwillingness first but in view of certain intervention from high governmental level, he agreed to act as such for which the fee of Rs. 20,000 was paid to him as a special case. In that eventuality the court held that, the amount of Rs. 20,000 was exempt from tax as being received casual and non-recurring in nature and not arising from exercise of a profession, vocation or occupation within the meaning of section 4(3)(vii) of the income tax Act.

In the last case of J.C. Wahal (supra), the assessee derived income from commission on the basis of contract like cycle, linoleum, jute-matting etc. manufactured by a group concerns and claimed exemption u/s 10(3) of income tax Act on the ground that it was casual and non-recurring receipt. The Appellate Assistant Commissioner had held-

....the commission had been paid to the assessee for having rendered specific services, viz., for sale of shares and for setting up a factory, that the very fact that the assessee agreed to help U in the sale of its shares indicated that the amount received was not a casual receipt or a wind fall and hence the transaction constituted an adventure in the nature of trade and the commission received was, therefore, assessable as income. The Tribunal allowed the appeal of the assessee on the ground that the receipt of Rs. 25,000 by the assessee was a casual and non-recurring receipt as the same did not arise from any business or by the exercise of any profession or occupation, that the assessee''s principal source of income was commission received from the group concerns for the sale of their products, that the assessee was not share broker nor a speculator nor a promoter of U nor engaged in the business of helping industries in the setting up of their factories, that this was the first occasion when the assessee rendered certain services to U, that there was no stipulation or understanding between the assessee and U regarding the payment of the commission, that the assessee had no legal claim against U in regard to the payment of commission which was made entirely ex gratia, based on no more than the grace of U extended to the assessee in recognition of his services rendered for assisting U in the sale of its shares as well as in the setting up of its factory, that the transaction was not an adventure in the nature of trade as no machinery was set up by the assessee for that purpose and that he was helping U single handed under a moral obligation as he was, connected with a number of group concerns in the capacity of a trader.... (p. 636)

On a reference, the court agreed with the view of the tribunal and held it to be exempted from tax being in the nature of casual and non-recurring.

The section 10(3) of income tax Act reads as under:--

(3) any receipts which are of a casual and non-recurring nature, not being winnings from lotteries, to the extent such receipts do not exceed one thousand rupees in the aggregate:

Provided that this clause shall not apply to--

(i) capital gains chargeable under the provisions of section 45; or

(ii) receipts arising from business or the exercise of a profession or occupation; or

(iii) receipts by way of addition to the remuneration of an employee;

The words "casual" and "non-recurring" have not been defined in the Act and they must, therefore, receive their plain and ordinary meaning. In the Oxford Universal Dictionary, the word "casual" has been defined as meaning:

(i) subject to or produced by chance; accidental, Fortuitous;

(ii) coming at uncertain times; not to be calculated on, unsettled....

In the context of the statute, "unsettled" seems to be the aptest meaning to be applied in such cases. Starting from the plain dictionary meaning, judicial decisions have attempted to delineate the true significance and scope of these terms. Each case has, however, ultimately turned on its own facts. But the aspect which has been most stressed as providing an important guiding factor is the absence of any contract, stipulation on understanding obliging, the giver to make the payment.

In the case in hand, considering the aforesaid facts and circumstances of the case, we find ourselves in agreement with the view taken by the Tribunal since the receipt of Rs. 30,000 was a result of winning of caption contest held by Bombay Dyeing & Manufacturing Co. Ltd. being out of efforts and skill of the assessee. There can not be any two opinions about the fact that it was the income within the definition u/s 2(24)(ix) of the Act. We find that the payment of Rs. 30,000 was made to the assessee under the stipulated contract. It was not the payment in absence of any contract or understanding obliging the giver to make the payment. Since the assessee was adjudged as the best, the Bombay Dyeing who held the contest was obliged under the stipulated contract to make the payment of Rs. 30,000 to the winner (assessee). Thus the instant payment cannot be said to be in the nature of casual and non-recurring. We feel that none of the rulings referred to above gives any assistance to the assessee on any of the questions referred to in this reference. The receipt of the amount in question is definitely an income. The assessee is required to show under which head he is entitled to exemption of tax. The learned counsel for the assessee could not show any specific provision under which the assessee could be granted exemption from tax. We, therefore, answer all the three questions in affirmative in favour of the department and against the assessee.