ORDER
K.P.T. Thangal, VP.
This appeal by the assessee is for the assessment year 2000-01.
2. Though the assessee has urged as many as six grounds, in fact it is divided into two. Ground Nos. 1 to 3 are directed against the order of the learned Commissioner (Appeals) in holding that the business activity of the assessee is that of profession and hence it is strictly income from profession and not from the business.
3. Facts leading to the dispute, briefly, is that the assessee filed the return of income for the year under consideration on 8-9-2000, declaring taxable income of Rs. 2,96,770. Subsequently, the assessee filed the revised return on account of discrepancy in claim of rebate under section 88 of the Income Tax Act. The case was selected for scrutiny.
4. The assessee is engaged in the business of carrying out as agent for octroi collections. In the original return as well as in the revised return, the assessee’s source of income has been declared under the head ‘Income from Business or Profession’. During the course of assessment, assessee filed a letter, stating that notice under sections 143(2) and 142(1) issued by the assessing officer were based on a non est return filed by the assessee on 28-2-2001. The assessing officer rejected the above claim.
5. The assessing officer was of the opinion that assessee was carrying out an activity as agent for collection of octroi duty and the activity of the assessee is rather professional than commercial. He held that assessee’s activity comes within the ambit of section 2(13) as defined in the income-tax Act. He held that assessee has not disputed the fact that the assessee was chargeable to tax under the head ‘Business’. The assessing officer held the collection of octroi duty needs a specialized knowledge and skill in that particular line and, therefore, it can easily be characterized as professional income. The assessee is not doing any manufacturing, trading or has carried out any other activity, which under any stretch or imagination can be characterized as an adventure in the nature of trade, commerce or manufacture. He held that the assessee’s activity is purely professional one. Aggrieved by the above order, assessee approached the first appellate authority.
6. Before the learned Commissioner (Appeals) it was contended that the assessee’s income is treated as income from business and not from profession. Referring to sections 2(36) and 44AA of the Act, which have, defines the ‘profession’, the assessee argued that it is not correct to conclude that he is a professional. Octroi agent is in the nature of clearing and forwarding business and clearing and forwarding business has to be considered as business and not profession. Further, he submitted that he is like a travel agent or stock or share broker. The learned Commissioner (Appeals) did not agree with the above contention. He held that the issue is, whether acting as an authorised representative appearing before Municipal authorities for fulfilling the requirement for getting the octroi refund, is a profession or a business. Firstly the learned Commissioner (Appeals) noted that the assessee has claimed credit for payment of tax deducted at source and for that act certificates from so many parties have been attached with the return. This tax has been deducted in accordance with section 194J, wherein only professional service or for fees for technical service is involved. The parties, with whom the assessee is dealing, have treated the duties of the assessee as that of a professional. The assessee also never objected that he was not liable for tax deducted at source. He held that assessee’s duty is similar to that of qualified chartered accountant. Relying upon the definition of section 2(36) of the Act, the learned Commissioner (Appeals) held that this is an inclusive definition one which defines that profession also includes vocation. Vocation has been defined as “a strong feeling that one ought to pursue a particular career or occupation”. He further held that the profession is an employment, not mechanical and requiring some degree or learning an act showing certain skills’.
He relied on the decision of the Hon’ble Allahabad High Court in the case of Addl CIT v. Ram Kripal Tripathi (1980) 125 ITR 408 (All), wherein the Hon’ble court held that teaching of Vedanta or giving regular discourses on Vedantic philosophy amounted to carrying on a profession. He held that only those businesses are professions, the profits of which are dependent mainly upon the personal qualifications and in which no capital expenditure is required and this definition is strictly applicable to the facts of the assessee’s case. The assessee is acting only as an authorised representative of various business groups/parties for pleading their cases before Municipal Authorities for getting their refunds on account of excess octroi paid is nothing but a profession discharging of duties. He held, whether the assessee is illiterate or qualified does not matter. The assessee is doing work of similar nature of an advocate or CA, of course without under notification or registration with a body. The assessee does not need that high qualification but assessee needs experience. According to the Board circular No. SO 18(E) dated 12-1-1977, authorised representatives are also professional. Authorized Representative means a person who represents any other person, on payment of any fees or remuneration, before the Tribunal or any authority constituted or appointed by or under any law for the time being in force. The authorised agents of various businessmen who represent them before Municipal Authorities for collecting refunds on excess octroi will fall under this category also. He held that the assessee is assigned with the job of representing the business houses before the Municipal Authorities and gets the remuneration from them. The octroi agents as per the Octroi Rules have to be registered as authorised dalals. As per the Octroi Rules they are authorised by the parties to appear before the Municipal Authorities and only after being so authorised they will get a licence from the Commissioner of Octroi. They have to pay annual fees as prescribed by the Commissioner prior to granting of such licence. They also have to demonstrate certain professional conduct. They are bound to renew their authority after every year. Thus the learned Commissioner (Appeals) held, the assessee is not in the field of the business but profession. He confirmed the order of the assessing officer. Aggrieved by the above order, assessee is in appeal before the Tribunal.
7. The learned counsel for the assessee reiterated the submissions made before the revenue authorities. He further brought our attention to the paper book page 1, which is a license issued by the Municipal Corporation of Greater Bombay, dated 20-3-1974 to the assessee which reads as under :
“Under rule of the…. in respect of the payment of the refund of Octroi framed under section 195(2) of the Bombay Municipal Corporation Act, as amended by the Bombay Municipal Corporation and Amendment Act, 1964, Shri Kishor Laxmidas Thakkar, Sole Proprietor, M/s. Thakkar Desai & Co., is hereby licensed to act as Octroi Refund Dalals, under the name and style of M/s. Thakkar Desai & Co., at 61,63,65 Issaji Street, Bombay 3, for transacting business relating to claiming of refunds of Octroi, subject to the provisions of clauses (1), (3), (4), (5), (6), (7) and (8) of the aforesaid rule 25, as per copy thereof enclosed herewith.”
8. The learned counsel further submitted that this is like a certificate for conducting the business, particularly he stressed the portion reading as under :
“For transacting business relating to claiming of refunds of octroi, subject to the provisions of clauses (1), (3), (4), (5), (6), (7) and (8) of the aforesaid rule 25.”
He made the written submissions, detailing the nature of activity of custom house agents, which reads as under :
“Details of nature of activity of custom house agents :
The nature of work of the Custom House Agent is very similar to that of the Clearing and Forwarding Agent. The Apex Court, in the case of Cochin Shipping Co. v. ESI Corporation AIR 1993 252 (SC) has held that “The activity of Shipping and Clearing Agent is a “Shop” for the purpose of Shop and Establishment Act. This is because the activity carried on by a shipping, clearing and forwarding agency is a commercial activity. The assistance rendered by the Clearing and Shipping Agent is those who import or export, by attending to the documentation and ensuring the clearance of goods cannot be regarded as profession based on intellectual attainments or personal service rendered on account of possession of specialized skill and knowledge based on higher learning and intellectual.
The appellant is engaged in the similar activities to that of Custom House Agents but like the Custom House Agents, they are not required to attain any qualification to practice as Octroi Refund Agents. Therefore, one of the most important characteristic that distinguishes a businessman and professional, that of qualification, which is not a compulsion in case of an Octroi Refund Agent.
Every Custom House Agent has to enroll himself as a member of a Custom House Agent Association registered with the Custom House and recognized by the Commissioner. Regulation 25 confers power on the Commissioner to fix rates (i.e. % of the claim), which may be charged to the customer for services rendered by the CHA. This is done in consultation with a recognized association of CHAs. The CHAs are required to strictly adhere to these rates. It is very interesting to note that one of the activities as that of a Custom House Agent is pertaining to Custom Drawback Claims and Octroi Refund Claims whereby their service charges are prescribed as a % of the amount realized per claim.”
He further submitted comparative analysis of custom house agents and octroi refund agents, which is as under:
“Comparative analysis of custom house agents and octroi refund agents
Particulars
Custom House Agent
Octroi Refund Agent
Nature of Activity
Customs House Agent (CHA) is a person who is licensed to act as an agent for transaction of any business relating to the entry or departure of conveyances or the import or export of goods at any Customs station.
Octroi Refund Agent is a person who is licensed to act as an agent for getting the Octroi refund claim sanctioned for the importer of the goods.
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It involves a highly technical nature of the work to be done in connection with clearance of imports into and exports out of country.
It involves a very routine kind of work which does not require any expertise or skill but simple knowledge of the documents to be processed.
Qualification
The Custom House Agents are also required to pass a special examination to qualify as a Custom House Agent. A person who is graduate from a recognized university and who passes an examination under Regulation 9(5) can apply for an independent Custom House Agent License.
The Octroi Refund Agents are not required to qualify as an Octroi Refund Agent. They are just required to fulfil certain conditions like the business should not be conducted in the name of any Company etc.
Regulations governing their activity
The work of the agents is governed by the Customs House Agents Licensing Regulations, 1984 framed under this section read with section 157
The Octroi Agents are also governed by Rules and Regulations like these Custom House Agents.
From the above, the learned counsel submitted that it is clear that the nature of work and activities performed by the Custom House Agent and Octroi Refund Agent are similar in nature. Custom House Agent is required to pass a special examination, whereas person like assessee acting as Octroi Refund Agent does not require to pass any particular exam.
9. On the other hand, the learned Departmental Representative supported the orders of the revenue authorities.
10. Considering the rival submissions and going through the orders of the revenue authorities, we are of the view that the view canvassed by the learned counsel is to be accepted. The assessee is to get registered under Octroi Rules. We are of the view that the services rendered by the assessee is similar to the services rendered by the clearing house agents. One of the reasoning of the revenue authorities, treating assessee’s activity is of business is that the services rendered by the assessee, first assessee has to get a registration and assessee represents the claims before the Commissioner. Rule 25 of Octroi Rules, 1965 reads as under :
“Transaction of business by a clerk or servant of the exporter or by a licensed Dalal.
(1) Any exporter not desiring to transact in person, business relating to the claiming of refund, may employ for the purpose
(a) His own clerk or servant, or
(b) Any person or any firm consisting of two or more persons working together in partnership under a common style, duty licensed by the Commissioner to transact such business under the denomination of ‘Octroi Refund Dalal ‘or’ Firm of Octroi Refund Dalals.’
(2) Deputy Assessor and Collector (Octroi) may refuse to recognize such clerk or servant unless the exporter identifies such clerk or servant to the said officer as empowered to transact such business and deposits with the said officer an authority in writing duty signed by the exporter authorizing such clerk or servant to transact such business on his behalf.
(3) Upon application being made in writing to the Commissioner by any person or persons for a license to act as Octroi Refund Dalal or as a firm of such Dalals the Commissioner may in his discretion grant a licence in form L, annexed hereto on recovery of such annual fees as may, be prescribed by the Commissioner. Prior to the granting of such licence a Bond in form M, annexed hereto shall be executed by the Dalal or Firm of Dalals together with one surety for such sum not exceeding Rupees Five Thousand as the Commissioner may determine, for his or their faithful behaviour as regards these rules and all officers engaged in carrying out the provisions of these rules. Such surety as aforesaid shall be approved by the Commissioner and shall be the owner of landed property in Greater Mumbai of value not less than double the amount of security to be determined as aforesaid.
No person or persons shall without such licence as aforesaid transact as a Dalai or a firm of Dalals any business relating to the claiming of refunds of Octroi.
(4) * * *
(5) * * *
11. Revenue authorities, getting clue from the Board vide its notification SO 18(E) dated 12-1-1977, held that the duties performed by the assessee is that of authorised representative is also a professional. Professional services is explained below section 194J for the purpose of the section, which reads as under:-
“(a) “Professional services” means services rendered by a person in the course of carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or advertising or such other profession as is notified by the Board for the purposes of section 44AA or of this section;
(b) * * * * * * *
(c) * * * * * * *
12. The Board has notified under section 44AA, the following professions for the purpose of section 194J as under :-
(a) Profession of Authorised Representative.
(b) Profession of Film Artists (Cameraman, directors, music director, dance director, editor, singer, lyricist, story or screenplay writer and dress designer).
(c) Profession of company secretary.
(d) Profession of information technology.
It is to be seen that assessee is not falling under the above notified profession. Authorised representative is specifically mentioned. There is no mention at all similar profession. Strictly the assessee is not an authorised representative. Another reason given by the revenue authorities to treat the assessee as a professional is that the assessee has not made any investment in terms of money, but mainly depends on assessee’s personal skill like an advocate or a CA. Not making any investment in kind of cash alone is not the criteria to hold it is a profession. Strictly only it is not notified. Communication skill/public relation capability can also be the only asset of even of a businessman in the beginning.
13. From the comparative chart reproduced hereinabove at para 8, it is clear that assessee’s activities are similar to the activities rendered by clearing and forwarding agent, which is treated as business. In the light of the above discussion and for the reason stated hereinabove this ground by the assessee is allowed.
14. Coming to the second effective ground (ground Nos. 4 to 6) is directed against the order of the learned Commissioner (Appeals) in not accepting assessee’s plea that the commission paid to assessee’s son Shri Krishna Thakkar, was a genuine payment and out of commercial expediency and business necessity and in discharge of legal obligation on the part of the assessee to pay the same under the agreement dated 6-5-1994 which was in force at that point of time.
15. While framing the assessment order, assessing officer noticed that the assessee had paid commission to Shri Krishna Thakkar to the tune of Rs. 9,76,163 who comes within the section 40A(2)(b). It was further noticed, he was an employee of the assessee who was also paid Rs. 48,000 salary and bonus of Rs. 8,000 during the year under consideration. The payment of commission, the assessing officer held, he is only to dilute the taxable income, he thus disallowed Rs. 5,00,000 as excessive commission paid, overlooking legitimate business needs. The assessing officer also noticed, against the receipt of the above commission, Shri Krishna Thakkar also claimed various expenditure like salary to the tune of Rs. 2,28,000, causal wages of Rs. 2,51,765, conveyance of Rs. 77,843 and miscellaneous expenses of Rs. 74,606 etc. and only a sum of Rs. 1,12,581 was shown as net taxable income. Hence, he disallowed estimated amount of Rs. 5,00,000 as excessive commission beyond the legitimate business needs. Aggrieved by the above order, assessee approached the first appellate authority.
16. It was contended before the learned Commissioner (Appeals), payment to Shri Krishna Thakkar, son of the assessee is based on the agreement, which was business requirement. Shri Kishor Thakkar, personally unable to look after the business and to roam around all octroi nakas due to age had entered into an agreement with Shri Krishna Thakkar on 6-5-1994. As per the agreement Shri Thakkar was to look after all the refund claims of all the parties and render various services as well. He is the main person attending to the refund matters and other employees are kept for administrative matters. Commission was paid at the rate of 3.5 per cent only. However, the learned Commissioner (Appeals) held, the payment of commission does not commensurate with the services rendered. Recipient of the commission is son of the assessee who was already getting salary and bonus. Assessee had other employees. Assessee was required to produce the list of employees giving their qualification and date of joining of the service and their salary. No details were given. He held, the mere existence of agreement between the assessee and its selling agents or paid of commission does not entitle them for such benefits, unless it is wholly and exclusively done for the business purposes. The learned Commissioner (Appeals) held, assessing officer was justified in making the disallowances. However, he reduced the disallowance to Rs. 2,00,000 considering the fact that Shri Krishna Thakkar was a partner in the firm holding 40 per cent share in the business. Aggrieved by the above order, assessee is in appeal before us.
17. We heard rival submissions. Considering the rival submissions we find no material-to disturb the order of the first appellate authority as rightly noted by the revenue authorities, assessee has not established well, why the commission was necessitated at all. He is an employee of the assessee and getting salary and also bonus. In these circumstances the learned Commissioner (Appeals) was justified in making disallowance on estimated basis. However, in the absence of any material considering the fact that Shri Krishna Thakkar was 40 per cent shareholder of the business. The learned Commissioner (Appeals) reduced the disallowance to Rs. 2,00,000, it is an estimated deduction. We had no reason to disturb the order of the first appellate authority on the point. Appeal by the assessee on this ground fails and hence, dismissed.
18. In the result, the appeal by the assessee stands allowed in part.
