Commissioner of Income Tax, Tamil Nadu-I vs Paramanand Uttamchand

Balasurahmanyan, J.—The respondent before us in an individual called Paramanand Uttamchand. He is a married man with a family. He

purchased a two-ground plot in Kilpauk Garden and constructed a building on it for his family residence. Before moving in, he performed a

Grahapravesam. He received, on that occasion, a number of presents from relations, friends and well wishers. The case now before us is about

those presents. For all but a few of the presents came to be charged to Income Tax as income. The respondent questioned the assessment in

appeal. He complained that he was being taxed, not only any income which was taxable under the I.T. Act, but on gifts received by him which

were outside the concern of that Act. The AAC agreed with this position and deleted the amount assessee. The Department did not accept this

order as correct. They appealed to the Tribunal for restoration of the assessment. But the Tribunal dismissed the departmental appeal. On being

moved by the Department, however, the Tribunal stated a case referring the following question of law for our decision :

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding and had valid materials to hold that

the presents amounting to Rs. 19,244 received from the constituents of the assessee would not constitute income liable to tax ?

Before us, the Department''s endeavour was to sustain their stand that the presents which were received at the Grahapravesam were taxable

income in the assessee''s hands.

Quite plainly, the basis of the assessment in this case is to regard present and gifts of money as receipts of an income character in the hands of

the assessee. To those who view income as something earned (and, often, as something hard-earned with the sweat of one''s brow), gifts are the

very opposite of income. For gifts are mere windfalls. Even ""unearned"" income, despite the snide remark, bears no resemblance to a gift. On the

contrary, unearned income, in much the same way as earned income, comes to the owner as a receipt from a definite source, and it also possesses

another characteristic of income, namely, recurrence. The recipient of a gift, on the contrary, is not the owner of the source of the gift, nor is

recurrence an essential attribute of the gift. And yet, in the long history of taxation, a parctice has developed of bringing gifts into the vortex of

Income Tax by treating them as receipts of income under certain circumstances. We now have in our tax system a pucca gift-tax which is directly

imposed on the fit as taxable event per se. We no longer have to proceed in a roundabout fashion to treat gifts as ""income"" receipts in the hands of

the recipient for bringing them to tax. Income Tax authorities, however, still persist in looking every gift transaction in the mouth to see if it is an

income receipt. This shows that habits die hard, even in the realm of taxation.

Theories about gifts as taxable income have been evolved over a period of years. They apparently gained ground first with the Inland Revenue

officials in England. Engish judges sitting in tax cases gave the ideas respectability. Although we are found of saying that conditions in our country

are different, we tend to follow English mental attitudes somewhat too readily in the tax treatment of gifts. For the purpose of foisting Income Tax

on the recipients of gifts, concessions were made in the juristic conception of gift. Under the general law of gifts, a voluntary or gratuitous payment

is a gift. Absence of quid pro quo is regarded as an essential element of gift. For purposes of taxation on income, however, it was said that these

characteristics of gifts were to be regarded as indecisive and treated with indifference. It was said that the receipt of gifts should be considered

from the point of view of the recipient, more especially in the context of the recipient''s walk of life. If the recipient, it was argued, receives the so-

called gift by virtue of his employment or by virtue of his vocation, profession, or calling, then the gift, it was said, must be seen in a totally different

light. In such cases, it was said, the receipts cannot escape being regarded as income, even though the person who made the persons did so

voluntarily and intended it to be taken as a mere bounty.

English judges had, in their days, decided a goods number of cases about the tax treatment of gifts and voluntary payments. Some of them are

now regarded as classics in this genre. Vicars of the Church of England, for instance, were held taxable on the offerings which they received form

the faithful during Easter. Taxi drivers were held liable to pay Income Tax on what they received as tips from passengers, although payment by they

of their regular fares had to be accounted or to the vehicle owners. So too were the cases of huntsmen or gamekeepers who received occasional

presents form their patrons. Professional cricketers to were not spared. Collections in their honour from testimonial matches were regarded, not as

presents from an admiring crowd, but as part of their taxable earnings.

These English examples produced significant decisions in our own country. A Vedantin, who was not the head of any religious order, was held

properly charged to Income Tax when an expatriate Londoner made handsome cash presents to him. It was said in justification that this generous

soul from the Occident was known to have sat at the feet of the master. In another reported case, a lawyer who got a proxy and made a speech at

a company meeting, in an all too rare appearance before a corporate audience, was regarded as having earned a fee for rendering forensic

services, when a stock broker firm who had never briefed the lawyer in his time, paid a tribute to the speech with a money gift.

Mr. Jayaraman, learned standing counsel for the Department, read a thread of principle as runing right though all these cases. He submitted that

the inquiry in a matter of this kind is to search for an answer as between two alternatives : Is it a receipt from the business ? or, is it a gift ? If it is

the one, it cannot be the other. He cited a relevant passage from a judgment of the English Court of Appeal in the well-known professional

cricketer''s case of MOORHOUSE (INSPECTOR OF TAXES) Vs. DOOLAND., . Learned counsel submitted that s. 10(ii) of our I.T. Act,

1961, directs pretty much the same inquiry. The section, he said, excepts from the charge to Income Tax casual receipts of a taxpayer only where

such receipts do not arise from the taxpayer''s employment, calling, profession, vocation or trading. This express provision in the statute, it was

said, is in line with the principles decided in the reported cases.

We quite see the point that in the case where the recipient of a gift is carrying on business, there is no third course open : either it is a gift pure

and simple and hence outside the purview of Income Tax, or it is a business receipt properly regarded as party of the recipient''s trading profits.

This distinction, however, is based on the broad differentiation between business transactions and non-business transactions. There is a similar rule

of exclusive on the expenditure side, according to which expenditure which is purely personal to the taxpayer is not deductible on the ground that it

is non-business expenditure. We are, however, not prepared to accept the extension of the principle of the reported decisions or of s. 10(iii) so as

to bring to charge all gifts received by a businessman merely because he happens to be a businessman, not matter what character the receipts bear.

Income, by connotation, is that which comes in. But all that comes in is not income; in the same way as all that glitters is not gold. If the recipient of

a gift is a businessman, that fact does not alter the character of the thing given. In order that a payment, with a gift element or an element of bounty,

may be treated as part of the taxable income of a businessman, it must be shown that that gift had been received in the course of, or as a necessary

incident of, the recipient''s business. Whether this is so or not in any given case would depend upon even so many considerations, such, for

instance, as the nature of the business, the relationship between the giver of the gift and the recipient, and various other attendant circumstances. A

man may remain in business either out of choice or by compulsion of circumstances. Being in business, he may accept a gift under variety of

impulses. It is not enough, therefore, that the hand that receives the gift is the hand of a person who bears the character of a businessman.

The recorded instances in which courts have persuaded themselves to hold that voluntary payments are taxable in the recipient''s hands as

income are cases where the learned judges were struck by the presence of one or other of the factors which, in their opinion, showed a nexus

between the taxpayer''s business or profession and the gifts in questions. In some cases the courts assigned importance to the recurrence or the

possibility of recurrence of the transaction. In some cases, they paid regard to the nature of the assessee''s calling. In some other cases, they went

not the particular terms under which the profession or vocation was being exercised. In some cases, the courts were even astute in discerning

something like a consideration moving from the taxpayer to the giver of the gift. The proper approach to the present case would, therefore, be to

ask the question whether considering all the facts fairly and objectively we can come to a reasonable conclusion that what the assessee received on

the auspicious occasion of his Grahapravesam were nothing but receipts by him in the carrying on of his money-lending business. To the question

so posed, the answer seems to us to be too plain to brook any doubt or further discussion.

Mr. Jayaraman referred to the list of persons who had given cash presents to the assessee at the Grahapravesam. He said that even a cursory

look at that list showed that the most generous of the assessee''s well-wishers were also those who had been his biggest borrowers. Learned

counsel said that the list speaks for itself and indicates not only the real motivations of those who gave the presents but also the real nature of the

presents as receipts in the hands of the assessee. A reference to the record, however, does not bear out this contention urged for the Department.

For the list shows a few instances of small borrowers making presents of higher value proportionately, than larger borrowers. We must, therefore,

rule out the existence of an unwritten notice of demand by the assessee calling upon the borrowers to offer their presents according to a schedule

of graduated rates.

Weddings and house-warming ceremonies are special occasions in our special milieu. Offer of presents on such occasions by the invitees are

largely a matter of social status. Purely economic considerations like the viability of the invitee''s purse are seldom determinative of the size of the

gifts or presents made on such occassions. The social compulsions in this regard cut quite across the business groupings and stratifications. In these

circumstances, the nature of the presents cannot be gauged either from the size of their present borrowing or from the previous condition of their

indebtedness.

Now was it proper for the Department to have imputed the presents during Grahapravesam, the character of business receipts merely because

the assessee happened to be a money-lender. It was suggested that for a money-lender, money, and money alone, constitutes his stock-in-trade.

This may be so. But even in the case of a Marwari money-lender or a Multani banker, it would be a rationalisation of our pure prejudice against

that class of people to assume that they are incapable of handing money otherwise than as stock-in-trade in the way of pawn-broking, money-

lending and the like. We should not be forget that the money-lender has a family, the same way as we have, and as Shakespeare reminded as

through his character, Shylock, ""even a money-lender will bleed if you prick him"". A money-lender is not incapable of handling money in ways

other than stock-in-trade as when he might give pin-money to his wife, or pocket money to his school-going children, or drop a few coins or a

wad of currency notes to a temple charity. We have no doubt whatever a money-lender is not constitutionally incapable of receiving a gift of

money are graciously as it is given and well as any of us in any other walk of life can do. We must protest against the bad habit of baiting a money

lender or any other kind of businessman or treating him as a second class citizen and taxpayer.

The Tribunal in their order dealt with these aspects, but in their own manner, mildly and not boldly. They observed that there was an indication

that all those who made presents at the assessee''s Grahapravesam did so because they have had the advantage of borrowing money from their

earlier. The Tribunal also pointed out that even those who had made payments were not found to have been shown any concession in business but

were shown to have paid, at the assessee''s demand, only the usual rates of interest charged in every case. We do not, however, see why there

should at all be any special pleadings of this kind on the Tribunal''s part when there is nothing whatever in the record to show that the assessee had

received the money given as presents as part of his money-lending business.

The AAC, who, it must be observed, is a departmental authority, emerges from him order as one who is entirely free from prejudice against

this class of people; for, he had put the matter on the broad basis that gifts during Grahapravesam could hardly be regarded as business receipts.

He observed that they were made in this case ""out of personal regard"" and cannot be ""linked"" to the business.

The assessment order in this case, however, reflects a deep-seated prejudice against businessmen in general and money-lenders in particular.

There is no dearth of scholarship in the assessment order, but it is a biassed document. The officer had taken pains to discuss many decided cases

at length. But his own judgment of the present case is clearely warped. Here are a few illustrations of the notions which this officer has expressed in

the order of assessment and which truly reflect his attitudes. ""In the case of business, whether a man is good or bad, the question of love and

regard does not arise"". ""Commercial mean rarely pay ments without goods reason"". ""Any payment made by the businessman to the banker is only

by way of compensation to the banker for the business service"". No wonder the officer further observed that ""the amounts were received he is a

banker"". These sentiments are unbecoming of a revenue official charged by Parliament with the responsibility of administerting the tax code without

prejudice and without bias.

For the reasons we have earlier stated, we do not think that in this case the inquiry leads us to any result excepting the one at which the

Tribunal had arrived. We, therefore, answer the reference in the affirmative and against the Department. The Department will pay the costs of this

reference to the assessee. Counsel''s fee Rs. 500.