State of Karnataka Vs. Puttaraja
[1960] INSC 239 (29 November 1960)
29/11/1960 KAPUR, J.L.
KAPUR, J.L.
HIDAYATULLAH, M.
SHAH, J.C.
CITATION: 1961 AIR 946 1961 SCR (2) 742
CITATOR INFO :
R 1963 SC1343 (13,37,38)
ACT:
Income tax-Gift or Remuneration for Past
services--Payment to retired Dewan of Indian State by Ex-Ruler--Liability to
tax--Indian Income-tax Act, 1922 (11 of 1922), s.7(1), Explanation (2).
HEADNOTE:
A who was the Dewan of the State of Bhavnagar
before responsible government was introduced in the State, was granted a
monthly pension of Rs. 2,000 by the Maharaja of the State by an order dated
January 15, 1948. On March 1, 1948 the State of Bhavnagar was merged in the
United States of Saurashtra and the Maharajah ceased to be the Ruler of the
State. Subsequently on May 31, 1950, the Maharaja directed his banker in Bombay
to pay A a sum of Rs. 5 lakhs out of the amount lying to his credit and when he
was asked for instructions as to how that sum was to be entered in the books of
account he passed an order on December 27, 1950, to the effect that in
consideration of A having rendered loyal and meritorious services the said sum
was given to him as a gift and that the amount should be debited to his
personal expense account. The liability of the above sum for incometax was
raised during the course of the assessment proceedings of A for the year
1951-52, and the assessee produced a letter dated March 10, 1953, written by
the Maharajah at the request of the former, as follows: "I confirm that in
June 1950, I gave you a sum of Rs. 5 lakhs which was a gift as a token of my
affection and regard for you and your family......... The Income-tax Officer
held that the amount was liable to income-tax under S. 7(1), read with
explanation (2), of the Indian Income-tax Act, 1922.
The Appellate Tribunal took into account the
two documents dated December 27, 1950, and March 10, 1953, written by the
Maharajah and considered that the first which clearly mentioned why the said
sum was paid to the assessee, was more reliable for the reason that it was
contemporaneous, than the second which was written more than 2 years later and
the correctness of which they were not inclined to accept. The Tribunal agreed
with the Income-tax Officer that the amount was a taxable receipt.
Held, (per Kapur and Shah, JJ.; Hidayatullah,
J., dissenting), that on the facts of the case the sum of Rs. 5 lakhs was given
to the assessee not as a payment in consideration of the services already
rendered by him as the Dewan of the State, but merely as a gift in token of the
Maharajah's affection and regard for the assessee, and, therefore, was not
liable to be assessed to tax 743 under s. 7(1), explanation (2), of the Indian
Income-tax Act,1922.
The Tribunal was in error in treating the
document dated December 27, 1950,'as a contemporaneous document while as a
matter of fact it was written six months after the fact of payment, and because
of this erroneous approach as a result of which the second letter had been
rejected, the finding given by the Tribunal could not be treated as binding on
the Court.
P. Krishna Menon v. The Commissioner of
Income-tax, Mysore, Travancore-Cochin and Coorg, Bangalore, [1959] Supp. 1
S.C.R. 133, distinguished.
Per Hidayatullah, J.-The use of the word
"contemporaneous" to describe the order to the banker meant no more
than this that it was earlier in time and very soon after the amount was given.
The word "gift" did not alter the nature of payment; the Maharaja
indeed made a gift, as he had stated over again, but the order disclosed that
it was by way of remuneration for past services.
The Tribunal was within its rights in
accepting one piece of evidence in preference to another, and the finding on
the evidentiary value of the letter of the Maharaja was a matter essentially
for the Tribunal to decide finally. The decision in P. Krishna Menon v. The
Commissioner of Incometax, Mysore, Travancore-Cochin and Coorg, Bangalore,
[1959] Supp. 11 S.C.R. 133, was applicable and concluded the present case.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No.232 of 1960.
Appeal from the Judgment and Order dated
October 6, 1958, of the Bombay High Court in Income Tax Reference No. 10 of
1958.
R. J. Kolah, Dwaraka Das, S. N. Andley,
Rameshwar Nath, J.
B. Dadachanji and P. L. Vohra for the
Appellants.
Hardyal Hardy and D. Gupta for the
Respondent.
1960. November 29. The Judgment of J. L.
Kapur and J. C. Shah, JJ., was delivered by Kapur, J. M. Hidayatullah, J.,
delivered a separate Judgment.
KAPUR, J.-This is an appeal pursuant to a
certificate of the High Court of Bombay against the judgment and order of that
Court in Income-tax Reference No. 10 of 1958, answering the question referred
to it against the assesses whose legal representatives are 744 the appellants
before, us, the respondent being the Commissioner of Income-tax.
The facts which have given rise to the appeal
are that the late Mr. Annantrai P. Pattani, hereinafter called the assessee
was, by Hazur Order dated December 10, 1937, appointed the Chief Dewan of
Bhavnagar State. On January 15, 1948, the Maharaja of Bhavnagar introduced
responsible Government in his State and appointed the assessee as the Chairman
of the Bhavnagar Durbar Bank but he received no salary for that post. On the
same date by another Hazur Order the Maharaja granted a monthly pension of Rs.
2,000 to the assessee. The order was in the following terms:
"He looked after us well in our
childhood and rendered valuable services sincerely and with single-minded
loyalty to us and our State during extremely difficult period of the last war
and thereafter, which has enhanced the prestige and prosperity of the State and
given the State and the people a place of pride in India. In appreciation of
this, it is (hereby) decided to grant him a monthly pension of Rs. 2,000 two
thousand which is the monthly salary he is drawing at present. Date
22-1-1948." On May 31, 1950, the Maharaja directed Messrs. Premchand
Roychand & Sons, Bombay, with whom he had an account "to pay by cheque
to Mr. A.P. Pattani Rs. 5 lacs out of the amount lying to the credit of my
account with you." This sum was paid to the assessee on June 12, 1950. It
is stated that the accountant of the Maharaja asked for instructions as to how
that amount of Rs. 5 lacs was to be adjusted in the accounts and on December
27, 1950, the Maharaja made the following order:"In consideration of Shri
Annantrai P. Pattani the Ex-Diwan of our Bhavnagar State having rendered loyal
and meritorious services Rs. 5,00,000 (Rupees Five Lacs) are given to him as
gift. Therefore, it is ordered that the said amount should be debited to our
Personal Expense Account." On March 1, 1948, Bhavnagar State was merged in
the United States of Saurashtra and the Maharaja ceased to be the ruler of the
said State as from that 745 date. The assessability of this sum of Rs. 5 lacs
was raised in the course of the assessment proceedings for the assessment year
1951-52 and at the request of the' assessee which is stated to be oral the
Maharaja wrote on March 10, 1953, the following:
"I confirm that in June 1950, 1 gave you
a sum of rupees five lacs (Rs. 5,00,000) which wag a gift as a token of my
affection and regard for you and your family. This amount was paid to you by
Premchand Roychand & Sons according to my letter of 31st May, 1950, from
moneys in my account with them." On these facts the Income-tax Officer
held that Rs. 5,00,000 received on June 12, 1950, was liable to income-tax
under s.
7(1) read with explanation (2) of that
section as it stood before the amendment by the Finance Act, 1955. The assessee
took an appeal to the Appellate Assistant -Commissioner which was dismissed.
Against that order an appeal was taken to the Income-tax Appellate Tribunal but
the Tribunal also dismissed the appeal. The Tribunal held that looking to the circumstances
they would attach more importance to the "contemporaneous document, i.e.,
the order of the 27th December, 1950"; which clearly mentioned why the sum
of Rs. 5,00,000 was paid to the assessee. The Tribunal was not inclined to
"believe in the contents of that letter and would leave the matter at
that." The reference is to the letter of the Maharaja dated March 10,
1953. The Tribunal further held that there was no distinction between the Maharaja
and the State and "assuming for a moment that this view of ours is not
found to be correct, still it is clear from the Huzur Order No. 13 dated
22-1-1948 (vide para 2 above) that the assessee rendered services not only to
the State, if it is distinct from. the Maharaja but to the Maharaja as well;
for that Huzur Order clearly refers to assessee rendering "valuable
services sincerely and conscientiously to us and our State".
We would, therefore, hold that the amount of
Rs. 5 lacs is a taxable receipt falling under Section 7(1) read with
Explanation 2." At the instance of the assessee the following question of
law was referred to the High Court:
746 "Whether the sum of Rs. 5 lacs has
been properly ,brought to tax in the hands of the assessee for the assessment
year 1951-52?" and a further question as to the applicability of s. 4(3)
(vii) of the Income-tax Act was not referred on the ground that it did not
arise out of the order of the Tribunal.
The High Court, on the findings given by the
Tribunal came to the conclusion that s. 7(1) explanation (2) of the Income-tax
Act applied. It-held that it was not possible to regard the receipt of this sum
of money by the assessee as a windfall nor as a personal gift of the nature of
a testimonial; that the gift was not made in appreciation of the personality or
character of the assessee nor was it symbolical of its appreciation of his
personal qualities;
that the consideration for the gift was in
terms stated to be past services and therefore it could not be treated as a
mere gift by an employer to an employee when the Court did not know what
motivated the making of that gift. On the facts of the case the High Court
reached the conclusion, though with some reluctance, that the case fell within
the ambit of s. 7(1), Explanation (2). The High Court also held that this sum
could not be exempted from tax on the ground that it was merely a casual or
nonrecurring receipt because once connection with the employment was
established there was no question of considering the recurring or the casual
nature of the receipt.
During the pendency of the proceedings in the
High Court the assessee died and his heirs and legal representatives were
brought on the record and hence they are the appellants.
It was argued on behalf of the appellants
that the facts showed that the sum paid cannot fall within s. 7(1), Explanation
(2), of the Income-tax Act. By Hazur Order dated January 22, 1948, the Maharaja
had compensated the assessee for valuable services rendered and single-minded
loyalty to the Maharaja and to his State during the difficult period of the war
and thereafter, which had added to the prestige and prosperity of the State and
in appreciation of that the 747 Maharaja had granted to the assessee a monthly
pension of Rs. 2,000, which was paid to the assessee even after the merger and
of the establishment of the.. United States of Saurashtra from out of the
public revenue. At the time when Rs. 5,00,000 were paid, the State of Bhavnagar
as such had ceased to exist. The Maharaja was no longer a Ruling Chief but was
the Governor of the State of Madras. The order by which Messrs. Premchand
Roychand & Sons, Bombay, were directed to pay the sum of Rs. 5,00,000 out
of the account of the Maharaja does not mention any reason for payment.
When as is alleged an accountant of the
Maharaja asked as to how that amount of Rs. 5,00,000 was to be adjusted in the
accounts, the Maharaja wrote on December 27, 1950, what is described as an
order and directed that the sum should be debited to his Personal Expense
Account. It also stated, why it is not clear, that that sum was to be given to
the assessee in consideration of the assessee's loyal and meritorious services
as a gift. When asked later to clarify the reasons for making this gift the
Maharaja made it clear that the gift was as a token of affection and regard for
the assessee and his family and that the amount was paid by Messrs. Premchand
Roychand & Sons from out of the private monies of the Maharaja with that
firm.
The Income-tax Appellate Tribunal took into
account the two documents the first of which has been described as an order of
December 27, 1950, which was treated as a "contemporaneous document"
and the other the letter of March 10, 1953, which was about two years later.
The Tribunal did not accept the correctness of what was stated in the letter
but attached a great deal of importance to the document of December 27, 1950,
which the Tribunal thought was a contemporaneous document.
It appears to us that the Tribunal was in
error in treating the document of December 27, 1950, as a contemporaneous
document and because of this erroneous approach the finding that it has given
cannot be treated as a finding of fact which should bind the court in its
decision. It is obvious that the reason why the 748 Tribunal attached all this
importance to the document of December 27, 1950, was that it was
contemporaneous. It would be difficult to accept that a document written six
months after the fact of payment could be termed as contemporaneous document
particularly when the object of that document was only to instruct an
accountant as to how he should make a particular entry. The letter which was
written by the Maharaja on March 10, 1953, was rejected because of the
circumstances of the case one of which was the contemporaneous document. It
does not appear to us that the Tribunal gave sufficient or any consideration to
the fact that the Maharaja had already passed an order of a liberal and almost
generous grant of a pension of Rs. 2,000 per mensem which was in lieu of the
services rendered by the assessee both to the State as well as to the Maharaja
and his family and that pension was ordered before the merger of the State and
when the employment of the assessee as the Dewan terminated.
According to what was stated in the letter of
the Maharaja dated March 10, 1953, the sum of Rs. 5,00,000 was given as a gift
in token of Maharaja's affection and regard for the assessee and the assessee's
family. There is no reason shown why the Maharaja should have aided and abetted
the assessee in escaping income-tax. The only reason stated by the Tribunal is
based on a wrong assumption as. to the nature of the document of December 27,
1950.
The payment of Rs. 5,00,000 was sought to be
brought within the purview of s. 7(1) of the Act read with explanation (2).
This section at the relevant time provided:S.
7(1) "The tax shall be payable by an assessee under the head
"Salaries" in respect of any salary or wages, any annuity, pension or
gratuity and any fees, commissions, perquisites or profits in lieu of, or in
addition to, any salary or wages, which are due to him from; whether paid or
not or are paid by or on behalf of............... any private
employer...........................
Explanation 2: A payment due to or received
by 749 an assessee from an employer or former employer or from a provident or
other fund, is to the extent to, which it does not consist of contributions by
the', assessee or interest on such contributions a profit received in lieu of
salary for the purpose of this subsection, unless the payment is made solely as
compensation for loss of employment and not by way of remuneration for past
services;........................
Counsel for the appellants contended that the
payment did not fall within this section because it was a gift made on account
of personal qualifications and was a testimonial unconnected with any service
rendered. The submission was that the assessee had already been compensated for
his services to the Maharaja personally and the State and this sum of Rs. 5
lacs was a gift in token of affection and regard and not as a payment in
consideration of the services already rendered to the State or the Maharaja or
both. It will not be inappropriate to mention that in the document dated
December 27, 1950, it is stated that Rs. 5,00,000 was -paid to the assessee as
ex-Dewan of Bhavnagar State in consideration of his having rendered loyal and
meritorious services to Bhavnagar State. There is no mention in the document of
December, 1950, of any services rendered to the Maharaja and it does not seem
to have been considered by the Tribunal as to why the Maharaja should make out
of his personal account the gift of such a large amount for something which was
not done for the Maharaja specifically, particularly when the services to the
State and to the Maharaja and his family had already been well compensated.
This lends support to the submission of the
appellants that the amount was paid merely as a gift in token of Maharaja's
affection and regard for the assessee.
Mr. Kolah for the appellants relied on several
cases in support of his contention that the amount was not liable to tax under
s. 7. In Beynon v. Thorpe (1) the assessee resigned his position as a Managing
Director of the Company;
did no work for the company; did (1) [1928]
14 T.C. 1.
95 750 not attend any Board meetings and
received no remuneration as a Director of the Company. It was, however, a
custom of the company to give to its retiring employees voluntary pension or
allowance and the company voted a pension of pound 5,000 a year to the assessee
but this resolution was rescinded and by another resolution pound 5,000 was
voted to the assessee" not as or because he is a Director but as a
personal gift". The assessee was assessed under Schedule 'E' in respect of
both the pension and the final payment but these assessments were discharged on
appeal by the Special Commissioners who decided that the allowances were gifts
of personal nature only. It was hold that the payments were not income
assessable to income-tax in the hands of the assessee. Rowlatt, J., said at p.
14:
"Now the question is whether this ceases
to be a mere gift because what has led to it is a past employment, an
employment which has ceased. It has been. made abundantly clear by the Court in
Scotland in Duncan's case(1) that this sort of sums received by a person cannot
possibly be put as receipts from his office or in respect of his office or
employment, and they said in terms of that kind in a case like this that these
emoluments cannot be taxed under Schedule 'E', and I am bound to say I think
that goes a very long way to conclude this case. But it is said that
nevertheless they are in respect of the employment. -Well, it seems to me that
is a complete fallacy. It is nothing but a gift moved by the remembrance of
past services already efficiently remunerated as services in them. selves; it
is merely a gift moved by that sort of gratitude or that sort of moral
obligation if you please: it is merely a gift of that kind. In this ease it
happens to be very large; in many cases it is very small, but in all the cases
it seems to me, whether it is large gift like this or whether it is a small
gift to a humble servant they are exactly on the same footing as gifts which
are made to a child or gifts which are made to any other person whom the giver
thinks he ought to supply with funds for one reason or another; and as the (1)
[1909] 5 T.C. 417 751 Lord President in Scotland points out it is only a matter
of history that the feeling between the parties which has generated the gift
arises out of an employment." Mr. Kolah also relied on Reed v. Seymour
(1). In that case a committee of a Cricket Club granted a benefit match to a
professional cricketer in their service. Out of the profits of the benefit
match the beneficiary, who was the assessee purchased a farm and assessment was
made on him under Schedule'E' in respect of the proceeds of the benefit match
but this was discharged by the General Commissioner on appeal. This sum was
held to be in the nature of a personal gift and not assessable *to income-tax.
Viscount Cave in his speech posed the question which Rowlatt, J., put, i.e.,
"is it in the end a personal gift or is it remuneration"; if the
latter it is subject to tax, if the former it is not.
In that case the test applied by Viscount
Cave was that the terms of the assessee's employment did not en-title him to a
benefit; the purpose for which the amount was paid was to express gratitude of
the employers and of the cricket-loving public for what he had done and in
their appreciation of his personal qualities. It was also stated that if the
benefit had taken place after Seymour's retirement no one would have sought to
tax the proceeds as his income and the circumstance that it was given before
but in contemplation of, retirement does not alter its quality and the whole
sum was a testimonial and not a perquisite and therefore it was not a
remuneration for services but a personal gift.
Counsel also relied on Moorehouse v. Dooland
(2). In that case a cricket professional was employed under a contract in which
it was provided that collections shall be made for any meritorious performance
by him in accordance with the rules for the time being of the employing Cricket
League Club.
The assessee played twenty matches and on
eleven occasions collections were made on his behalf under the rules of the
Club and a total sum of pound 48 15s. was collected. This was sought to be
taxed as fees, wages perquisites or profits (1) [1927] XI T.C. 625. (2) [1955]
28 I.T.R. 86.
752 arising from his employment. It was held
that (1) the test of liability to tax on voluntary payments from the standpoint
of the person who receives it was that it accrued to him by virtue of his
office or employment, i.e., by way of remuneration of his services; (2) that if
the assessee's contract of employment entitled him to receive voluntary
payments and (3) that the payment was of a periodic and recurring character. On
the other hand if a voluntary payment was made in circumstances which showed
that it was given by way of a present or a testimonial on grounds personal to
the recipient, the proper conclusion was that the payment was not profit
accruing to the recipient by virtue of his office or employment but a gift to
him as an individual paid and received by reason of his personal needs or by
reason of his personal qualities. Applying these principles the proceeds were
by the terms of the contract of employment received by way of remuneration and
were liable to tax. In that case the payment was treated as being subject to
tax because it was substantially in respect of services and accrued to the
assessee by reason of his office. It is quite clear that had the gift been as a
testimonial or a contribution for specific performance peculiarly due to the
personal qualities of the recipient, it would have been treated as a mere
present.
The next case relied upon was David Mitchell
v. Commissioner of Income-tax (1) where the test laid was whether the payment
was made in appreciation of .the personality and character of the assessee or
in appreciation of the professional services rendered by him in order to give
him an extra profit over and above the share of profit he might get from the
firm for the services rendered.
Counsel for the respondent argued that the
gift made by the Maharaja was not in respect of personal qualities of the
recipient but was relatable to his office although made by an ex-employer and
was therefore taxable; that the gift was voluntary is clear but it is not quite
clear how the amount can be said to be relatable to the office held by the
recipient. Even (1) [1956] 30 I.T.R. 701.
753 according to the case of the respondent
the amount was paid about two years after the assessee had ceased to be an
employee of the Maharaja or the State and immediately on his ceasing to be the
Dewan of Bhavnagar State, the Maharaja had granted him a pension from out of
the public funds for his services to the State as Dewan and for services
rendered to the Maharaja and his family a handsome and a generous monthly
pension of Rs. 2,000 per mensem. Apart from the fact that the Tribunal relied
upon a document which was not contemporaneous, it seems to have overlooked the
fact that there was a gap of two years before the amount of Rs.
5,00,000 was paid by the Maharaja out of his
personal funds.
Counsel for the respondent relied upon a
judgment of this Court in P. Krishna Xenon v. The Commissioner of Income-tax,
Mysore, Travancore-Cochin and Coorg, Bangalore (1). In that case the assessee
was a teacher who taught his disciples Vedanta philosophy without any motive or
intention of making any profit. One of the disciples made gifts of money to him
on several occasions and it was contended by the assessee that he was not
liable to tax on the amounts received from his disciple as he was not carrying
on any vocation. But it was held that in teaching Vedanta philosophy the
assessee was carrying on a vocation and that the payments made by the disciple
were received by the recipient from his vocation.
It was also held that if the voluntary
payments had been made for reasons purely personal to the donee and not
connected with his office or vocation, they would not be taxable but if they
were made because of the office they would be taxable. The question was not
what the donor thought he was doing but why the donee received it. The first
thing to notice about that case is that those gifts were not made by the
disciple as a gift to mark his esteem and affection for his preceptor but as
was stated by the disciple in his affidavit he had paid those amounts because
he had obtained the benefit of the teachings by the preceptor on Vedanta. It
was found in that case and the disciple admitted (1) [1959] Supp. 1 S.C.R. 133.
754 that he had received benefit from the
teaching of his preceptor and that the gifts that he had made, even though as a
mark of esteem and affection, were the result of teaching imparted by the
preceptor and because the amounts were paid to the preceptor as preceptor and
the imparting of the teaching was the causa causans of the making of the gift,;
it was not merely causa sine qua non. The payments were repeated and came with
some regularity as the disciple visited the preceptor for receiving
instructions. It was in these circumstances that this court held the payments
to the preceptor as payments because of the imparting of the teaching and
therefore they were income arising from the vocation of the recipient as a
teacher of Vedanta philosophy.
In our opinion the sum of Rs. 5,00,000 was
not paid to the assessee in token of appreciation for the services rendered as
a Dewan of Bhavnagar State but as a personal gift for the personal qualities of
the assessee and as a token of personal esteem.
The appeal is therefore allowed and the order
of the High Court set aside and the reference is answered against the Commissioner
of Income-tax. The appellants will have their costs throughout.
HIDAYATULLAH, J.-I have had the advantage of
reading the judgment just delivered by my brother, Kapur, J. I regret very much
my inability to agree that the appeal should be allowed and the order of the
High Court set aside. In my opinion, the High Court had correctly answered the
question referred to it.
The facts of the case have been stated in
detail in the judgment of my learned brother, and I need not repeat them but
refer only to some of them briefly. On June 12, 1950, a sum of Rs. 5 lakhs was
given by the Maharaja of Bhavnagar to the predecessor of the appellants, who
was an ex-Dewan of the State. This was paid by Messrs. Premchand Roychand &
Sons, Bombay, with whom the Maharaja had an account. There is no
contemporaneous record to show why this payment was made; but it appears that
when the accountant of the Maharaja enquired how the amount 755 was to be
entered in the books of account, the Maharaja issued an order on December 27,
1950, to the following effect:
"In consideration of Shri Annantrai P.
Pattani the Ex-Diwan of our Bhavnagar State having rendered loyal and
meritorious services Rs. 5,00,000 (Rupees Five lacs) are given to him as gift.
Therefore, it is ordered that the said amount should be debited to our Personal
Expense Account." After the assessment proceedings had commenced in this
case, the original assessee produced a letter written by the Maharaja on March
10, 1953, as follows:
"I confirm that in June, 1950, I gave
you a sum of rupees five lacs (Rs. 5,00,000) which was a gift as a token of my
affection and regard for you and your family. This amount was paid to you by
Premchand Roychand & Sons according to my letter of 31st May, 1950, from
moneys in my account with them." The question in this case was whether s.
7(1) of the Incometax Act read with Explanation 2 to that section as it stood
prior to the amendment in 1955, applied to this payment.
That section, so far as it is material, is as
follows:
"7(1). The tax shall be payable by an
assessee under the head 'Salaries' in respect of any salary or wages, any
annuity, pension or gratuity and any fees, commissions, perquisites or profits
in lieu of, or in addition to, any salary or wages, which are allowed to him by
or are due to him, whether paid or not, from, or are paid by or on behalf of
any private employer;..........................
Explanation 2.-A payment due to or received
by an assessee from an employer or former employer or from a provident or other
fund, is to the extent to which it does not consist of contributions by the
assessee or interest on such contributions a profit received in lieu of salary
for the purpose of this subsection, unless the payment is made solely as
compensation for loss of employment and not by way of remuneration for past
services;.............".
To determine whether the second Explanation
applies 756 to the facts in this case, it has to be found if this payment was
received by the assessee from a former employer by way of remuneration for past
services. The Tribunal did not accept the letter of the Maharaja, and observed
as follows:
"In support of the latter view Mr.
Tricumdas strongly relied upon the letter dated 10-3-1953 addressed by the
Maharaja to the assessee, vide para 2 above. We have already indicated the
circumstances in which that letter came to be written and would merely observe
that we find it difficult to bring ourselves to believe in (sic) the contents
of that letter and would leave the matter at that." This, in my opinion,
is a finding upon the evidentiary .value of the letter of the Maharaja, and
though the order of the Tribunal is worded mellifluously, the Tribunal's
decision is quite clearly that it was not persuaded to accept it. Indeed, of
the two documents, greater worth has to be attached to one which was issued
before the controversy started and was written not to the assessee but to the
Maharaja's accountant who enquired how the account was to be adjusted. The use
of the word 'contemporaneous' to describe the order to the accountant meant no
more than this that it was earlier in time and very soon after the amount was
given. The Tribunal did not rely on any extraneous evidence in reaching its
conclusion, but on something which had proceeded from the Maharaja himself. The
motive of the Maharaja may be irrelevant, because what has to be seen is not
why the payment was made but for what the assessee had received it. The
Maharaja no doubt had been generous in fixing the pension at Rs. 2,000 per month.
But the payment of such a large sum was not just bounty but to reward the past
services, which judged from the scale of the pension had not adequately been
paid for in the -past. In this connection, the words of the Maharaja himself
(and what better evidence can there be?) were that the amount was paid "in
consideration of Shri Annantrai P. Pattani the Ex-Dewan of our Bhavnagar State
having rendered loyal and meritorious services Rs. 5,00,000 are given to him as
gift".
757 The word gift' does not alter the nature
of the payment.
The Maharaja indeed made a gift, as he had
stated over again; but this order quite clearly disclosees that it was by way
of remuneration for past services. The case, therefore, falls within the ruling
of the a Supreme Court reported in P. Krishna Menon v. The Commissioner of
Incometax, Mysore, Travancore-Cochin and Coorg, Bangalore (1), and is
indistinguishable from it. In the earlier case of this Court, the person who
gave the money did not even mention any past services; but this Court found
that because the recipient had taught him Vedanta philosophy, the payment was
really in the nature of remuneration for past services.
The facts in P. Krishna Menon's case (1) were
that the assessee was teaching his disciples Vedanta philosophy without any
motive or intention of making a profit out of such activity. One J. H. Levy who
used to go to Travancore from England at intervals attended his teachings. Levy
had an account with Lloyd's Bank at Bombay, and on December 31, 1944, Levy transferred
the entire amount of Rs. 2,41,103-113 to the credit of an account which Levy
got the assessee to open in his' own name. Levy made further remittances and by
August 19, 1951, had paid about Rs. 4,50,000. It was held by this Court that
the assessee was carrying on a vocation.
In deciding the question whether the amounts
were assessable to tax, this Court observed as follows:"...it seems to us
that the present case is too plain to require any authority. The only point is,
whether the moneys were received by the appellant by virtue of his vocation.
Mr. Sastri contended that the facts showed that the payments were purely
personal gifts. He drew our attention to the affidavit of Levy where it is
stated 'all sums of money paid into his account by me have been gifts to mark
my esteem and affection for him and for no other reason'. But Levy also there
said, 'I have had the benefit of his teachings on Vedanta'. It is important to
remember however that the point is not what the donor (1) [1959] Supp. 1 S.C.R.
133.
96 758 thought he was doing but why the donee
received it".
Sarkar, J., then referred to the dictum of
Collins, M. R., in Herbert v. Mc-Quade (1), which may be quoted here:
"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." The learned Judge also referred to the observations of
Rowlatt, J., in Reed v. Seymour (2) and of Viscount Cave, L.
C., in Seymour v. Reed (3), and observed that
the real question was, is the payment in the nature of a personal gift or is it
a remuneration?, and quoted as the reply the words of the Lord
Chancellor-"If the latter, it is subject to the tax; if the former, it is
not." Sarkar, J., also referred to the observations of Lord Ashbourne in
Blakiston v. Cooper (4), which were:
"It was suggested that the offerings
were made as personal gifts to the Vicar as marks of esteem and respect. Such
reasons no doubt played their part in obtaining and increasing the amount of
the offerings, but I cannot doubt that they were given to the vicar as vicar
and that they formed part of the profits accruing by reason of his
office.", and concluded as follows:
"We have no doubt in this case that the
imparting (1) [1902] 2 K.B. 631.
(3) [1927] A.C. 554.
(2) [1926] 1 K.B. 588.
(4) [1909] A.C. 104.
759 of the teaching was the causa causans of
the making of the gift; it was not merely a causa sine qua non. The payments
were repeated and came with the same regularity as Levy's visits to the
appellant for receiving instructions in Vedanta. We do not feel impressed by
Mr. Sastri's contention that the first payment of Rs. 2,41,103-11-3 was too
large a sum to be paid as consideration. In any case, we are not concerned in
this case with that payment. We are concerned with payments which are of much
smaller amounts and as to which it has not been said that they were too large
to be a consideration for the teaching. And one must not forget that these are
cases of voluntary payments and the question of the appraisement of the value
of the teaching received in terms of money is not very material.
If the first payment was too big to have been
paid for the teaching received, it was too big to have been given purely by way
of gift." In my opinion, the case of this Court concludes the matter, and
the Tribunal was within its rights in accepting one piece of evidence in
preference to another, and the finding on the evidentiary value of the letter
of the Maharaja was a matter essentially for the Tribunal to decide finally. I
thus agree with the High Court in the answer which it gave, in agreement on
facts with the Tribunal, and the reasons for which the answer was given.
I would, therefore, dismiss the appeal with
costs.
BY COURT: In view of the majority judgment of
the Court, the appeal is allowed with costs throughout.
Appeal allowed.
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