Commissioner of Income Tax vs M. Balamuralikrishna

M.N. Chandurkar, C.J.—The question which has been referred u/s 256(1) of the Income Tax Act, 1961, at the instance of the Revenue,

reads as follows :

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the sum of Rs. 30,000 received by the

assessee on the occasion of the celebration of his completion of 30 years of service rendered to carnatic music was not taxable at the assessee''s

hands ?

The assessee, Sri M. Balamuralikrishna, who is a musician by profession, had in his return for the assessment year 1971-72 disclosed in Part IV

of the return, receipt of a sum of Rs. 30,000 which he claimed was not his income and was, therefore, liable for exemption from Income Tax. This

amount of Rs. 30,000 was given to the assessee by ""Balamuralikrishna Fans"" in appreciation of his completion of 30 years'' service rendered to

carnatic music.

The Income Tax Officer treated this amount as professional income and brought it to tax.

The Appellate Assistant Commissioner held the payment to be by way of a testimonial and personal gift and not taxable. He recorded an

alternative finding that even if it is regarded as income, it would be exempt u/s 10(3) of the Act being casual and non-recurring in nature.

The Revenue filed an appeal before the Tribunal. The Tribunal came to the conclusion that there was not material to suggest any direct nexus

between the receipt of the amount of Rs. 30,000 and any past performance or performances rendered by the assessee and the receipt could not,

therefore, be treated as the assessee''s income. The Tribunal further held that the receipt in question was exempt from tax being casual and non-

recurring. Arising out of this order of the Tribunal, the above question has been referred.

Mr. Jayaraman, appearing on behalf of the Revenue, has contended that since the nature of the receipt has to be looked at only from the point

of view of the recipient and since in this case the amount of Rs. 30,000 has been paid to the assessee for services rendered to carnatic music by

him, the receipt must be treated as income from profession. According to learned counsel, the amount of Rs. 30,000 may not have been paid to

the assessee for any particular performance, but the amount must be treated as payment made only for services rendered. Primarily, reliance was

placed on the decision of the Supreme Court in P. Krishna Menon Vs. The Commissioner of Income Tax, Mysore, Travancore-Cochin and

Coorg, Bangalore, and very heavy reliance was place on the decision of the Court of Appeal in Moorhouse (Inspector of Taxes) v. Dooland

[1958] 28 ITR 86.

Learned counsel for the Revenue has fairly brought to our notice three decisions of this court, to which we shall make reference later, which are

primarily against the Revenue. However, according to him, the question in the instant case has to be decided on the facts of this case. Learned

counsel for the assessee supported the view taken by the Tribunal and, according to him, the Tribunal has referred to the statement made in the

affidavit by one of the disciples of the assessee to the effect that the amount was contributed purely by friends and relatives who had nothing to do

with the assessee as an artist or with his profession and that the payment was made as a token of appreciation of his personal qualities and as a

measure of goodwill and help. This averment, according to the Tribunal, had not been controverted on behalf of the Revenue.

Learned for the assessee also invited our attention to another decision of this court in Commissioner of Income Tax, Tamil Nadu-V Vs. S.A.

Rajamanickam, in which, according to learned counsel, this court had considered the decision in MOORHOUSE (INSPECTOR OF TAXES)

Vs. DOOLAND., .

The approach to be adopted in a case like the present one is now well-settled and the observations made by Viscount Cave L.C. in Seymour v.

Reed [1927] AC 554 have now become almost classical. That was a case in which a professional cricketer in the service of the Kent Country

Cricket Club under the rules of the club, was to be granted a benefit on the express understanding that he allowed the proceeds to be invested in

the name of the trustees of the club during the pleasure of the committee. The invested sum was always, however, eventually handed over to the

professional cricketer when his career as a cricketer was over or when he found an investment which the trustees approved. The assessee in that

case, a professional cricketer in the employment of the club, was granted a benefit, the proceeds from which, together with subscription, after

being held by the trustees on certain securities, were eventually handed over to the cricketer and applied by him in the purchase of a farm. The

question which fell for consideration was whether the amount given to the cricketer was a donation or a gift and was not an employment or profit

arising from the assessee''s employment and was consequently not assessable to Income Tax. The Commissioners took the view that the amount

was a donation or gift. The view of the Commissioners was affirmed by Rowlatt J. but his decision was reversed by the Court of Appeal. Then the

matter was taken to the House of Lords. Viscount Cave L.C. approved of the test which was adopted by Rowlatt J. and the significant

observations made by Viscount Cave L.C. were the following (p. 646 of 11 TC) :

The question to be answered is, as Rowlatt J. put it, ''Is it in the end a personal gift or is it remuneration ?'' If the latter, it is subject to the tax; if the

former, it is not.

Viscount Cave L.C. proceeded to apply this test and took the view that the net process of the benefit match must be regarded as a personal

gift and not as income from the assessee''s employment and observed as follows (at p. 646 of 11 TC) :

.... A benefit is not usually given early in a cricketer''s career, but rather towards its close, and in order to provide an endowment for him on

retirement; and, except in a very special case, it is not granted more than once. Its purpose is not to encourage the cricketer to further exertions,

but to express the gratitude of his employers and of the cricket-loving public for what he has already done and their appreciation of his personal

qualities. It is usually associated, as in this case, with a public subscription; and, just as those subscriptions, which are the spontaneous gift of

members of the public, are plainly not income or taxable as such, so the gate moneys taken at the benefit match, which may be regarded as the

contribution of the club to the subscription list, are (I think) in the same category.... The whole sum-gate money and subscriptions alike-is a

testimonial and not a perquisite. In the end, that is to say, when all the facts have been considered, it is not remuneration for services, but a

personal gift....

We shall presently consider the other cases cited by learned counsel for the Revenue, but it appears to us that the observations made by

Viscount Cave L.C. are apposite for the purposes of the present case.

The amount of Rs. 30,000 was given to the assessee by his fans after his going through a career as a musician for 30 years. Obviously, this

amount was not intended to promote his art further because if members of the public or his friends come out with a subscription for his benefit at

the end of 30 years'' career, he must be assumed to have achieved a stature of his own which was not necessary to be enhanced any more by the

attraction of receiving a sum of Rs. 30,000.

MOORHOUSE (INSPECTOR OF TAXES) Vs. DOOLAND., , on which heavy reliance has been placed by the Revenue, has referred to

Seymour''s case [1927] AC 554 and a bare reading of the decision of the Court of Appeal in Dooland''s case will show that that decision turned

mainly on the fact that the source of the receipt by the cricketer, Dooland, in that case was traced directly to the contract between the club and

Dooland. In that case, in the judgment of the Master of Rolls Lord Evershed, three relevant circumstances which were said to be significant were

cited. The first was that though Dooland qualified for the collections by excellence of performance on his part, they were excellent performances of

his professional duty as a cricketer, and they arose in the ordinary course of his service while playing as cricket professional of the East Lancashire

Club. The second circumstance was that though the performances were exceptional, in the sense of being outstanding, they were not exceptional in

the sense of being very rare and unlikely to be, save very occasionally at the most, repeated. The third circumstance was that it was a term of Mr.

Dooland''s contract of service that on each occasion on which he performed his service with the requisite degree of skill, he should be entitled to

invite subscriptions for himself from bystanders. It was a right capable of enforcement at law, if Mr. Dooland''s employers infringed it by refusing of

permit the taking of a collection when, according to the league rule incorporated in his contract, his performance had reached the qualifying

standard. This right was found to be part of the consideration of the services flowing from his employers. The Master of the Rolls referred to the

test adopted by Viscount Cave L.C. but pointed out that the receipt was directly related to the contract. At page 99 of the decision, it was pointed

out that Seymour case [1927] AC 554 cannot be treated as an authority which would govern the decision in MOORHOUSE (INSPECTOR OF

TAXES) Vs. DOOLAND., and it was observed as follows :

In my judgment, therefore, Seymour''s case [1927] AC 554 cannot be treated as an authority which ought to govern our decision in this case. On

the facts of the latter, and particularly having regard to the three essential characteristics to which I drew attention earlier in this judgment, I

conclude that the proceeds of the collections made in the year 1951 were, from the standpoint of Mr. Dooland, substantially earnings arising from

his employment as cricket professional and taxable as such."" (underlings ours).

Jenkins L. J., who wrote a separate judgment, observed at page 106 as follows :

From the standpoint of Mr. Dooland, the proceeds of the collections were by the very terms of his contract of employment part of what he was to

get under the contract by ways of remuneration or reward for what he was to do under the contract. True it is that the amount of any collection

would depend on the number and goodwill of the spectators present; but the terms of his employment entitled him, as of right, to collect what he

could.

It was then pointed out that the term of the contract giving Mr. Dooland the right to collect, cannot be regarded as nugatory and it gave him a

contractual right to do something which he could hardly have done without the permission of the club, that is to say, to solicit contributions from

spectators on the ground.

It would thus appear from the decision in MOORHOUSE (INSPECTOR OF TAXES) Vs. DOOLAND., that the fact that a right to have

collections made which flowed directly from the contract between Mr. Dooland and the club was considered to be crucial, so as to make the

collections liable to tax as income. The ration of the decision on Dooland''s case cannot, therefore, be invoked by learned counsel for the Revenue

in this case. The test adopted by Viscount Cave L.C. has undoubtedly been accepted by the Supreme Court in P. Krishna Menon Vs. The

Commissioner of Income Tax, Mysore, Travancore-Cochin and Coorg, Bangalore, , but it has to be remembered that the question as to whether a

particular receipt can be treated as income has to be decided on the facts of each case. The conclusion that the amount which was received by the

assessee in P. Krishna Menon Vs. The Commissioner of Income Tax, Mysore, Travancore-Cochin and Coorg, Bangalore, referred to above, was

liable to tax, was reached because it was found that the vocation of the assessee was teaching Vedanta and that vocation was carried on by him

and the imparting of the teaching was the causa causans of the making of the gifts by the donor. On facts, it was found that it was impossible to

hold that the payments to the assessee had not been made in consideration of the teaching imparted by him and, consequently, the payments were

income arising from the vocation of the assessee.

There are at lest four decisions of this court which provide an indication of the approach to be adopted in a case like the present one. The first

decision is in S. A. RAMAKRISHNAN Vs. COMMISSIONER OF Income Tax, MADRAS., . That was a case in which the assessee, who was

an exponent of the epics like Ramayana and Mahabharata, was assessed to Income Tax on amounts collected at the time of his discourses. He

received some cash presents of the value of Rs. 19,700 on the occasion of his sashtiabdapoorthi (sixtieth birthday). The Income Tax Officer

assessed him to tax on Rs. 13,000 excluding a sum of Rs. 6,700 paid to him by his near relations. The contributions were made by a cross section

of the public consisting of groups and individuals numbering nearly 400, ranging between Rs. 5 to Rs. 500 and the contributions came from

different strata of society, castes and individuals. The assessment made by the Income Tax Officer was confirmed by the Appellate Assistant

Commissioner and by the Tribunal. This court held that as the assessee was being remunerated separately for his discourses as and when such

discourses were held there was not material for saying that the sum of Rs. 13,000 was actually remuneration paid in connection with the past

performances though the occasion for making the payment was his sashtiabdapoorthi and in the absence of any such material, the Tribunal''s

assumption that the said sum was remuneration has no basis whatsoever and the assessment of the said sum of Rs. 13,000 was not valid.

The next decision is in Commissioner of Income Tax, Tamil Nadu-I Vs. Paramanand Uttamchand, . In that case, the assessee was a

professional money-lender and on the occasion of the grahapravesam of the house constructed by him for his residence, he received presents from

his relatives, friends and well-wishers amounting to Rs. 19,244. This amount was assessed as income by the Income Tax Officer. The amount was,

however, deleted by the Appellate Assistant Commissioner and the order of the Appellate Assistant Commissioner was confirmed by the Tribunal.

This court on a reference held that the proper approach to the question would be to consider whether taking note of all the facts fairly and

objectively, it could be reasonably concluded that what was received by the assessee in that case on the auspicious occasion of the grahapravesam

was nothing but receipts by him in the course of carrying on of his money-lending business and the answer to such a question would plainly be in

the negative.

The third decision is Commissioner of Income Tax, Tamil Nadu-I Vs. B.M. Sundaravadanam, . That was a case in which a patient was treated

by the assessee-doctor in 1958 and professional charges amounting to Rs. 4,082 were paid by the patient. Two years later, the patient executed a

settlement deed by which he gifted 33.38 acres of land and it was specifically recited in the gift deed that the gift was made in order to show his

feeling of gratitude to the doctor who had shown him kindness. As usual, the Income Tax Officer included a sum of Rs. 65,000 being the value of

the lands gifted as income arising to the doctor-assessee out of his profession. This was deleted by the Appellate Assistant Commissioner and the

deletion was upheld by the Tribunal. This court took the view that the services rendered by the assessee was not the causa causans of making the

gift by the donor and, therefore, it should be treated only as a gift made out of personal esteem and arising out of the personal qualities of the

assessee.

The last decision is in C. P. Chitrarasu v. CIT [1968] 160 ITR 534. That was a case in which the assessee who was a member of political

party but at the same time had distinguished himself as an author in Tamil literature was paid in connection with his birthday celebrations Rs.

48,176 which was used in the construction of a house and which was handed over to him at a function. This amount was treated as income in the

hands of the assessee and the assessment was confirmed by the Appellate Assistant Commissioner and the Tribunal. This court took the view that

merely because a member of a political party received gifts, the amount of the gift would not necessarily become income by way of remuneration

for the services rendered as a member of the party and to hold that merely because the assessee was a member of the DMK party and wielded

influence, the people collected funds was to ignore the positive case of the assessee that his services to Tamil and his performance as an author had

earned him the respect of the people. It was, however, pointed out that a receipt does not necessarily arise from the exercise of a profession or

vocation merely because the profession or vocation affords an opportunity for earning the receipt.

In this state of the law and the well-known test, namely, whether a particular receipt was gift or remuneration, it appears to us difficult to

accept the contention of the Revenue that the amount of Rs. 30,000 paid to the assessee after collecting it by way of donation must be considered

as remuneration for past services.

It is true that the assessee was an artist by profession. But there is no direct nexus between this payment and his vocation though it may not be

denied that there is an indirect connection between the two. The real reason for the payment was the esteem and regard which his admirers and

fans had for him. It was the expression of their goodwill for the assessee which was responsible for his gift. Though it may be that the goodwill and

respect have been earned by the assess as a result of his past performances, the amount cannot be said to have been paid to him by way of

remuneration for those services. On the finding recorded by the Tribunal which appears to be clearly justified. It is clear that the receipt cannot be

treated as an income liable to tax.

The question referred to us is, therefore, answered in the affirmative and in favour of the assessee. The Revenue will pay the costs of this

reference. Costs - Rs. 500.