Commissioner of Income Tax vs K.R. Honnappa (Indl.)

Rajendra Babu, J.—This is a reference u/s 256(1) of the income tax Act, 1961 (''the Act''). The question of law referred for our opinion is as follows:

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that value of the car gifted to the assessee by the people of his constituency is not taxable as income under income tax Act, 1961?

The assessee was a member of the Karnataka Legislative Assembly during the accounting year relevant to the assessment year 1976-77. For that year, the ITO included a sum of Rs. 37,500 to his income, which amount was the contribution collected by the admirers of the assessee and handed over to him for the purchase of a car. It was found by him that this payment was made on account of the admiration that the contributors had towards him for the services he rendered to the people of his constituency. The ITO held that as this amount was in token of the gratitude for the services done by the assessee to the people of his constituency the same could not be treated as gratuitous payment without any consideration and was, therefore, includible in the total income of the assessee.

The assessee appealed unsuccessfully. The appellate authority held, while confirming the order of the ITO, that it was because of his services to the people of the constituency in the capacity as a member of the Legislative Assembly that the assessee was remunerated by way of a car and it constituted income within the meaning of section 2(24)(va) of the Act. On further appeal to the Tribunal, it was held that the car presented to the assessee amounted to a personal gift for his personal qualities and esteem and could not be subject to tax. The Tribunal also held that at best it could only be treated as gift and not as income of the assessee.

At the instance of the revenue, the question of law set forth above has been referred to us u/s 256(1), with a statement of the case.

On behalf of the revenue it is contended that the car was presented to the assessee by the people of his constituency for the services rendered by him and there was nexus between the services rendered by the assessee to the people of his constituency and the gift of car made by the people of his constituency to him. Strong reliance has been placed on two decisions, one of which is a Supreme Court decision, in P. Krishna Menon Vs. The Commissioner of Income Tax, Mysore, Travancore-Cochin and Coorg, Bangalore, and another of the Allahabad High Court in Addl. Commissioner of Income Tax Vs. Ram Kripal Tripathi, .

It was also submitted for the revenue that activities of the assessee in politics by itself could be a vocation and placed reliance on the decision of the Supreme Court in Commissioner of Expenditure Tax, Andhra Pradesh Vs. P.V.G. Raju, wherein it was held that politics could be a profession or occupation within the meaning of section 5(a) of the Expenditure Tax Act, 1958. It was, therefore, submitted that the assessee in this case carried on political activity and as such carried on a profession or calling. At any rate, his activity as an MLA must be treated as a vocation. It was further submitted, relying upon section 28(iv) of the Act that even a casual or non-recurring income such as a presentation made to the assessee of a car would constitute an income if there is nexus between the profession carried on by him and the presentation made.

The two tests for determining whether a casual or non-recurring receipt of the kind with which we are concerned here, is a mere gift or windfall and not an income from the profession, are:

(i) Whether, the payment is connected with the exercise of the assessee''s profession; or

(ii) Is it merely in appreciation of personal qualities possessed by the assessee shown in the course of his activities or is it intended to confer a special benefit on him with respect to the services rendered so as to increase his earnings in the exercise of his profession.

In the present case, the Tribunal has held that the presentation of the car to the assessee was in token of his personal qualities in rendering services to the people of his constituency and as a token of his personal esteem. The assessee having been elected as a member of the Legislature from a constituency might have afforded him an opportunity to render services in the constituency to the people in general and earn their esteem. But payment on account of such esteem or affection does not necessarily arise from the exercise of a profession or avocation merely because the profession or avocation affords an opportunity for earning the receipt. It is unnecessary for us in this case to decide whether the activities carried on by the assessee as an MLA amount to a profession or not, but proceed on the basis that such activity is a profession for the purpose of the Act. Even so, as stated earlier, the presentation made to the assessee of the car was not by way of quid pro quo to the services rendered by him to the contributors, but on account of his qualities or personal character in rendering services to the constituency in general and on account of the esteem in which he was held that such a presentation was made. Therefore, we are of the view that the presentation to the assessee cannot be linked with the activities carried on by the assessee as an MLA or as a politician. The amount presented to the assessee is for the purpose of purchasing a car which merely testifies the appreciation of the personal qualities of the assessee and is no remuneration for the services rendered by the assessee in his capacity as an MLA. Undoubtedly he happened to be a member of the Legislative Assembly and that might have facilitated him to render services to the people of the constituency and also to the general public. It is, therefore, to be concluded that the donors certainly intended to make a gift for the personal qualities of the assessee, thus, satisfying the two tests as stated above.

The decision in P. Krishna Menon''s case (supra) turned on the question whether the payments made to the assessee were in consideration of the teaching imparted by him. The Supreme Court held that imparting of teaching was a causa causans of the making of the gift though not a causa sine qua non. The payments were made with repeated regularity and were in consideration of the imparting of teaching of Vedanta that such payments were made. Therefore, the revenue cannot rely upon the said decision to advance its case. In Ram Kripal Tripathi''s case (supra) the facts were identical with the facts in P. Krishna Menon''s case (supra) and the Allahabad High Court held that raising of contribution for purchasing a car for the assessee by his disciples was in consideration of the teachings imparted by him. It was also held therein that giving discourses by the assessee was the causa causans for raising contributions by his disciples and the purchase of the car by them for him. That is not the case here at all. The link between the activity carried on by the assessee as a politician and the presentation of the car to him could not be treated by way of consideration nor could the same be held to be causa causans. Hence, it is futile on the part of the revenue to rely upon the two decisions referred to above.

We are fortified in our view by two decisions: one in Commissioner of Income Tax, Tamil Nadu-V Vs. S.A. Rajamanickam, and the other in Dilip Kumar Roy Vs. Commissioner of Income Tax, Poona, In Dilip Kumar Roy''s case (supra) the assessee who was a disciple of Aurobindo carried on the activity of singing bhajans and recording them and writing books of philosophic nature. The royalties received on recorded bhajans and books were assessed to income tax. The amounts received from various persons were held to have been sent as a mark of esteem and veneration and the Bombay High Court held in that case that such amounts could not be held to be income; but were only in the nature of a windfall.

In S.A. Rajamanickam''s case (supra) the Madras High Court took the view that when certain sums of money were given to the assessee who was a politician for purchasing a house for a sum of Rs. 72,000, the amount could only be treated as a gift or windfall received by the assessee for his personal qualities since, it was held, there was no evidence to substantiate the contention that the amount was paid to the assessee as remuneration for his services to any particular individual or to the political party. In the present case also the payments made to the assessee for the purchase of car were not by way of remuneration for services to any particular individual or to a group of individuals but only for his quality of rendering services to the people of his constituency and out of personal esteem. Consequently, we are of the view that the said sum given to the assessee was not taxable as the assessee''s income.

In the result, we answer the question referred to us in the affirmative and against the revenue.