The Commissioner of Income Tax vs Smt. M. Ramaiakshmi Redby

Balasubrahmanyan, J.—In this reference made by the income tax Appellate Tribunal, Madras, at the instance of the Commissioner of income tax, Madras, u/s 256(1) of the income tax Act, the following question of law has been referred for our opinion:

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the sum of Rs. 37,770 received by the Assessee from the two concerns for sale of water is casual and non-recurring receipt and did not arise from business or exercise of a profession or occupation by the Assessee and, therefore, exempt from taxation u/s 10(3) of the income tax Act?

The Tribunal in their stated case have given us a vivid account of the circumstances in which the receipt in question came about. The Assessee in the case is Mrs. Ramalakshmi Reddy. She was the owner of a nine ground plot of land in Kodambakkam, Madras, She applied to the Corporation of Madras, for approval of her plan to construct a residential building in her plot. With the plan sanctioned, she started construction work. Almost the first thing she did at the site was to find a spot and dig a well. For there was no municipal water-supply in that locality, and she needed water, initially, for building operations, and, thereafter, to serve as a source of water-supply for domestic consumption and gardening. By sheer good fortune, she happened to strike perennial spring at the spot where she dug for the well.

The water was good. It was also plentiful. This was just about the time when the rest of Madras found itself in the throes of an acute water famine. Scarcity of water was not only a practical problem, but was apparently the main topic of conversation among city dwellers. In May, 1969, when the drought was at its worst, the Assessee''s husband had been to a Rotary Meeting at Hotel Connemara. There he changed to meet the Secretary of Spenear and Company Ltd., Madras. Spencers had an aerated water factory in the city. They were experiencing production problems on account of depletion of their usual sources of water supply. When the Assessee''s husband heard about their difficulties he made a sporting offer to the Secretary then and there. He said that Spencers might unreservedly help themselves from his wife''s well to help their factory out of their shortages. Spencers fell in with the suggestion, and later found that the Assessee''s well could meet all their demands with ease. Thus began a steady boiling out of lorry loads of water by Spencers from the Assessee''s domestic well. The whole thing happened just like that, in this casual off-hand way. There was no thought in anyone mind about payment for the water. Later, however, Spencers did not and could not, grudge paying the Assessee at the rate of Rs. 50 a lorry, considering that they made quite a profit out of processing it in their aerated water factory. A neighbour of Spencers at Mount Road, the First National City Bank of New York. also had a water problem of their own. They needed potable water to keep their air conditioning plant going. They too approached the Assessee and obtained a like facility from her paying for their lorry-loads at the same rate of Rs. 50 a load. In this way, by the end of the year the Assessee had received as much as Rs. 37,770 from both these concerns.

The income tax Officer assessed this amount in its entirety as constituting the Assessee''s taxable income. He did not explain under what head of taxable income he was bringing the amount to charge. He simply described the amount in his assessment order as profit from sale of water arid levied tax on it.

The Assessee appealed against this assessment, saying that the receipts were casual receipts and they cannot be treated as income chargeable to income tax. The Appellate Assistant Commissioner accepted this contention and deleted the amount from the assessment. He said that the money which the Assessee got was the out come entirely of fortuitous circumstance?. He said that the Assessee was but a house wife and the receipt was purely casual in her hands.

.5. The income tax Department appealed against this order, to the Tribunal contending that the receipt was not casual in nature exempt as such from income tax u/s 10(3) of the Act, but was assessable as income. The Tribunal negatived this contention. They pointed out that the receipt of money by the Assessee was rendered possible by the drought conditions which then prevailed in the city and although recurrence of a similar situation was not altogether beyond the realms of possibility, the receipts as such in the hands of the Assessee must be regarded as casual and non-recurring. The Tribunal pointed out that the Assessee was only a house-wife and the receipts from sale of well water did not arise in the course of any business which might be said to have been carried on by her.

In this reference Mr. J. Jayaraman, learned Counsel for the Revenue, challenged the Tribunal''s conclusion as based on a misconception. He said that much was made by the Tribunal of the circumstance that the Assessee was a mere house-wife and had no previous business dealings to her credit. We do not however, think that the Tribunal was wrong in drawing attention to the life style of the Assessee. We regard it is a fact of the utmost importance to this case that the Assessee was a marriej woman, who was intent upon building a family residence and running her family in it and who had no thought of running business of any sort of her own.

Mr. J. Jayaraman then urged that the Tribunal was wrong in thinking that the receipts in question were casual receipts. He said that receipts cannot properly be regarded as casual when they are known, foreseen, anticipated and provided for, as had happened in this case. He pointed out that what the Assessee got was so much per lorry-load of water, and this was nothing, but a commercial price mutually agreed between the parties for the quantity sold. Receipts from a series of such sales, Mr. J. Jayaraman said, cannot be regarded as casual or fortuitous.

Learned Counsel''s line of argument cannot be accepted in this case. The taxing enactment does not say that receipts obtained by a person must be absolutely unforeseen, or unimaginable in order that they may be regarded as non-taxable receipts. It is often said, and quite correctly, that windfall is not income. But, this does not mean that only manna from Heaven is exempt from income tax. What the Courts have laid down is that a receipt cannot be treated as income where no characteristic of income can be detected in it. Where a person gets some receipt for money where he does not angle for it. or where it is not the product of an organized seeking after emoluments, or where it is merely a chance encounter with a venture, which while enriching him, does not form part of any scheme of profit-making, the idea of income is absent. The real basis for this conception of non-taxable casual receipt is that the transaction in question, which produces it does not constitute any trade or an adventure in the nature of trade. As has been well said by R.O. WLATT J. where you have an isolated transaction which results in some gain or other to the tax payer, either it is a casual receipt and is exempt as such, or it is a profit from an adventure in the nature of trade and taxable as such. There can be no middle course open to the Revenue to catch the receipt within the net of taxation by viewing it in any other manner.

The income tax Act, 1961 has been recently amended to include within the concept of taxable income certain kinds of windfall receipts such, for instance as winnings from lotteries, winnings from horse races, prizes from cross-word puzzles, takings from card-games of any sort and receipts from betting and gambling. Nevertheless, the Act even now continues to exclude from taxable income all other receipts of a casual or non-recurring nature other than capital gains, other than additions to an employee''s remuneration and other than those which arise from an adventure in the nature of trade. See Section 10(3) of the Act. The real question in this case, therefore, is that given the fact that the Assessee in this case was a house-wife with no known commercial proclivities of her own, can she yet be regarded as having indulged in an adventure in the nature of trade when she sold her well-water to two concerns in Mount Road at a time of acute water scarcity, after they made overtures in that regard.

What a trade is, and what a business is, it is difficult to say in a nutshell, or within the framework of a formula. Even more difficult is the answer to the question what an adventure in the nature of trade is. But faced with questions of this kind to decide, what the Courts and Tribunals can do is to look fairly at the facts of the given case before them, examine all their different aspects and, determine whether the given transaction is an adventure or concern in the nature of trade. The conclusion to be reached by this manner of inquiry is thus one of mixed fact and law. It is quite permissible for the Courts in the process to draw upon their judicial expertise to seek to arrive at a proper conclusion in law, on the facts disclosed by the case before them. In the very nature of an inquiry of this kind the value of precedents is, and is recognised on all hands to be very minimal. And yet it is a part of the tradition of tax cases to find in judgment after judgment considerable citation of previous case law. In this case too, learned Counsel on both sides cited a few reported decisions at the hearing. Mr. J. Jayraman particularly relied on Commissioner of Income Tax Vs. V.P. Rao (Deceased) and Others, . That was a case of a retired High Court Judge taking up an assignment as arbitrator to decide a dispute which had arisen between two District Boards in the Province. For acting as arbitrator the Government paid him Rs. 3,000. This remuneration had been agreed upon at the time, he was appointed arbitrator. It was found that the amount was fixed on the basis of the emoluments of a High Court Judge.

The question before the Division Bench was, whether this receipt of Rs. 3,000 as fee for arbitration could be assessed as part of the taxable income of the retired Judge. It was held that there was no casual or non-recurring quality in the payment and even though the Assessee had retired from the office of Judge he must be regarded as carrying on a vacation, for he could by no means be said to have taken up the task of arbitration as a mere hobby. Nor could the arbitration be regarded, in the opinion of the learned Judges, as a purely voluntary service rendered by the Assessee when actually it had been the subject of a precedent contract for remuneration for services to be rendered.

We can easily distinguish this case from the present by saying that whereas the retired Judge had not fully rid himself of his vocational aptitudes and preferences on his retirement, the Assessee in the present case had never been known to have run a business in her life, nor exhibited any commercial proclivities at any time before. However, we think, we had better eschew further discussion of this case and also references to other reported decisions cited by Counsel on both sides. For we regard the case before us as not only exceptional but quite unique. Here is a married lady, who dug a well in her backyard. She might have been quite satisfied, if the water had been tolerably good and just adequate for her needs. That it was excellent and almost in exhaustible did not apparently put any ideas into her head. It was a casual talk of her husband in Connemara which brought Spencers to the well. And it was the tremendous potential of the spring that made Spencers ask for the water. There is no evidence that the Assessee had thought of her well as a commercial asset: As a house wife she might even have had qualms about marketing such a thing as well water for a price, least of all at a time of general drought. This must, indeed, have been the reason why in the initial stages Spencers were in a position to help themselves free with the water from the Assessee''s well. Only later did it occur to them to pay for the precious liquid, considering that they were turning it to good account in their soda factory. It is true that the Assessee did not refuse payments of Rs. 50 a lorry load when it was offered to her every time, but the acceptance of this payment does not, in our judgment, make it a business profit, when all the attendant facts and circumstances, considered as a whole, do not unmistakably point to the existence of any trade or trading element whatever. It is not uncommon for womenfolk even in non-trading families to sell milk, buttermilk and other products in excess of their family requirements to neighbours and others. In such cases a Court or Tribunal might well form the opinion that a trade is being carried on by the housewives concerned. In that present case, however, there is no suggestion that the Assessee was a regular dealer in well water, all the while remaining a house wife, and tending her family. Nor does the evidence show that the Assessee jumped at the opportunity of exploiting the resources of her well to make a neat little profit for herself out of the general misery of city dwellers hit by the water famine. If there was adventure of any kind which we can'' discern in this case that occurred when the water divination made a lucky strike, and the spring gushed forth from Mother Earth like an inverse Manna. The element of adventure in this case was by no means an adventure in the nature of trade. For, the potential profit from the well was not commercially foreseen, commercially sought after, and commercially exploited.

In Griffiths v. J.P. Harrison (Waterford) Ltd. (1965) 58 ITR 328 the House of Lords had to consider whether a dividend-stripping operation by a joint stock company was to be regarded as an adventure in the nature of trade. On the facts it was found that the dividend-stripping which the tax-payer company had put forth was avowedly for the purpose of registering losses and not for the purpose of obtaining profits. On this feature of the operation, it was suggested for the tax-prayer that an intention to make losses cannot be regarded as an attribute of trade. It was, however, held by the House of Lords by a majority, that dividend-stripping, in the circumstances of that case, must be regarded as an adventure in the nature of trade and nonetheless so for the fact that a commercial loss was thereby devoutly wished for, and obtained. Lord Denning, while dissenting from the other Law Lords on the particular conclusion they arrived at in that case, debated the question as to what was an adventure in the nature of trade. Posing the hypothetical question whether burglary was in the nature of the trade, Lord Denning made the following observations:

Or nearer still, take a gang of burglars. Are they engaged in trade or an adventure in the nature of trade? They have an organisation. They spend money on equipment. They acquire goods by their efforts. They sell the goods. They make a profit. What detail is lacking in their adventure? You may say it lacks legality, but it has been held that legality is not an essential characteristic of a trade. You cannot point to any detail that it lacks. But still it is not a trade. And how does it help to ask the question: If it is not a trade, what is it? It is burglary, and that is all there is to say about it. So here it is dividend-stripping, and nothing else.

Adopting the phraseology of Lord Denning we may ask the question: Is sale of well-water by a housewife from the copious supply in her back-door well, an adventure in the nature of trade? And answer the question, in the same manner, by saying that it is only a sale of well-water, and that is all there is to say about it.

We are satisfied that the Tribunal came to a correct conclusion when it held that the sum of Rs. 37,770 received by the Assessee by sale of water from her well is exempt from income tax u/s 10(3) of the Act. The question of law referred to us is accordingly answered in favour of the Assessee. The Assessee will have her costs.