ORDER
J.P. Bengra, Judicial Member
1. This is an appeal by the assessee against an order of the Commissioner of Income-tax (Appeals) -VI, New Delhi, pertaining to the assessment year 1987-88.
2. The grievance of the assessee in this appeal is against treatment of amount of Rs. 21 lakhs received by the assessee from his employers Shri K.P. Gupta and Shri M.P. Gupta of Indore as compensation in the nature of commission thereby treating the same as income from other sources.
3. The assessee is an individual. His source of income are salary, income from house property, business income from M/s. Ruby Sales Corporation, interest and dividends. The assessment of the assessee was completed under Section 143(1) on 29-9-1987. However, the same was reopened by issuance of notice under Section 148 on 19-3-1990. In response to that notice, the assessee filed return on 24-1-1991 declaring an income of Rs. 1,69,153. During the reassessment proceedings the Assessing Officer noticed that the assessee received a sum of Rs. 21 lakhs as under, from his employers Shri K.P. Gupta and Shri M.P. Gupta, residents of Indore for helping them to get nearly Rs. 2 crores by way of compensation for their land acquired by the Government:–
Amount Date Rs. 1,00,000 8th May, 1986 Rs. 15,00,000 8th August, 1986 Rs. 5,00,000 15th October, 1986. Therefore, a notice was issued calling upon the assessee to explain as to why this income should not be added as income from other sources.
4. It will be pertinent to mention here that the assessee was an employee of Shri K.P. Gupta and Shri M.P. Gupta on a monthly salary of Rs. 500. The assessee undertook to help his employers to get enhanced compensation of their land acquired under the Delhi Reforms and Land Acquisition Act. The employers of the assessee executed General Power of Attorney for the purpose of claiming compensation in favour of the assessee since they were residing at Indore and they could not look after the case proceedings at Delhi personally. The assessee produced documents and other evidence before the Court for claiming enhanced compensation on behalf of his employers and was successful in getting Rs. 187.22 lakhs enhanced compensation as under:–
Award No. Date of receipt of Amount - Rs.
enhanced compensation
1815 25-7-1985 2.43 lakhs
1886 24-12-1985 98.94 lakhs
1337 1-6-1986 72.48 lakhs
1453 22-8-1986 13.37 lakhs
187.22 lakhs
The assessee received a sum of Rs. 21 lakhs from his employers between May 1986 to October 1986 within the period 1-4-1986 to 31-3-1986 relevant to the assessment year under consideration. The case of the assessee was that this amount was gifted to the assessee out of natural love and affection and because of close relationship with the employers from the days of his ancestors. It was also mentioned that his forefather, father and brother were also employees and were rendering services for over six decades to Shri K.P. Gupta & Shri M.P. Gupta. The assessee, his father and his brother have been rendering services to Gupta family for the last 30 years. The gift was given to him by the employers in appreciation of his personal qualities and abilities and as already said, out of natural love and affection apart from close relationship. The assessee had filed gift tax return and paid gift tax on the amount received. However, the Assessing Officer was not satisfied with this explanation. He was of the view that the assessee was an employee of Shri K.P. Gupta and Shri M.P. Gupta and this amount was given as a compensation in the nature of commission approximately @ 5 per cent of the amount collected by the two employers as a result of Court’s order for services rendered by the assessee in order to help Shri K.P. Gupta and Shri M. P. Gupta to get the enhanced compensation. The Assessing Officer also observed that the employers gave this alleged gift to the assessee for the first time. Prior to this, the employers never gave any gifts to his father or his brother even though they had rendered services for more than six decades. The very fact that the alleged gift was given to the assessee during the time when compensation amount was received by the Court order by the employers, goes to establish that this amount had nothing to do with gift but it is in the nature of commission paid to the assessee for getting enhanced compensation. It was also observed that the said amounts were received during May to October 1986 whereas the alleged gift deed was executed on 24-6-1987 which fell even subsequent to the close of the relevant previous year. The Assessing Officer also observed that in order to qualify for a gift, the payment should be voluntarily. But the statement of the assessee recorded under Section 131 on 21-2-1990 by the ITO,Ward-IV(4) shows that this amount was received in consideration of services rendered and it is not a voluntary gift. In view of this, the Assessing Officer concluded that the amount received by the assessee Rs. 21 lakhs was in the nature of commission, thereby an income from other sources. So he added the same as income from other sources.
5. When the matter came before the CIT (Appeals), he also concurred with the findings given by the Assessing Officer. The assessee is aggrieved.
6. The learned counsel for the assessee Shri C.S. Aggarwal pointed out that the assessee and his forefathers were loyal to S/Shri K.P. Gupta & M.P. Gupta and their families. They were virtually bonded labourers of these employers. The assessee’s father and brother rendered services to these employers for more than 30 years. The gift was given to the assessee by employers in appreciation of personal qualities and abilities of the assessee and out of natural love and affection apart from the close family relationship with the employers and the fact that his forefathers were loyal to these employers. Father of the assessee died while in service of these persons. Taking into account the above services, the salary paid was ridiculously low judged in terms of price level index. Even at lower salary, services were rendered due to the fact that the entire family of the assessee was engaged to serve the said persons for decades. It was also pointed out that the gifts were made by S/Shri K. P. Gupta and M.P. Gupta, HUFs. In this connection, our attention was invited to the affidavits of these two employers and it was further pointed out that the said amount has been taxed under the Gift-tax Act which is clear from the assessment orders of these employers given at pages 47 to 51 of the Paper Book. Inviting our attention to the General Power of Attorney given in favour of the assessee, it was pointed out that General Power of Attorney was executed in favour of the assessee to help the employers to get enhanced compensation. In the General Power of Attorney it is no where mentioned that this amount is being paid in consideration of services rendered by the assessee. It was further pointed out that the assessee had no obligation to help the employers to get enhanced compensation. There was no contractual or legal liability and the payment was not made for services rendered. Therefore, it cannot be treated as income in the hands of the assessee when the employers have given affidavits showing that the amount was given as a gift. The money given by way of gift could not be treated as income from other sources on mere suspicion, surmises and conjecture disregarding the intention of the donors. Therefore, it cannot be correlated or related with the compensation as the availability of the funds can arise out of any source including compensation. It was further pointed out that the Assessing Officer relied on the statement of the assessee alleged to have been recorded by the ITO, Ward IV(4), on 21-2-1990 under Section 131. It was pointed out that the ITO, Ward IV(4) has no jurisdiction, nor any proceedings were pending before him. It was also submitted that this statement was never supplied to the assessee. The Assessing Officer twisted the statement in a way to support his findings. Therefore, in the interest of justice also, this statement is useless. Reliance was placed on the following decisions:–
(1) Mahesh Anantrai Pattani v. CIT [1961] 41 ITR 481 (SC) ;
(2) Parimisetti Seetharamamma v. CIT [1965] 57 ITR 532 (SC);
(3) H.E.H. Nizam s Religious Endowment Trust v. CIT [1966] 59 ITR 582 (SC);
(4) Sewal Singh Ajit Singh v. CIT [1980] 126 ITR 732 (Pun). & Har.);
(5) Siddhartha Publications (P.) Ltd. v. CIT [1981] 129 ITR 603 (Delhi);
(6) CIT v. Dr. B.M. Sundaravadanam [1984] 148 ITR 333 (Mad.); and
(7) CIT v. Shri Girdharram Hariram Bhagat [1985] 154 ITR 10 (Guj.).
As against this, the learned Departmental Representative Shri S.P. Jain pointed out that these gifts were made by S/Shri K.P. Gupta & M.P. Gupta in their individual capacities which is clear from the assessment orders of Gift-tax mentioned above. Therefore, it is wrong to say that these gifts were made by the HUFs of these persons. It was pointed out that the assessee was in service of S/Shri KP.Gupta & M.P. Gupta. During the employment of these persons, he was entrusted with the job of looking after court cases in respect of eviction of property, collection of rent, receiving compensation from the Government etc. Therefore, this amount was received for the services rendered as an employee to the employers. However, if it is taken that this was not under the service condition even then he has acted as an agent of these persons for looking after Court cases in the matter of receiving compensation relating to land acquisition. Therefore, the amount received by the assessee is in the nature of commission. The Assessing Officer has pointed out that the commission is approximately 5 per cent of the total compensation received by the employers S/Shri K.P. Gupta & M.P. Gupta. Therefore, this is income of the assessee liable to tax. It may not be income from other sources but it is part of salary chargeable to tax under Section 17 of the Income-tax Act.
7. We have considered the rival submissions. The issue before us is whether a sum of Rs. 21 lakhs received by the assessee is a gift from S/Shri K.P. Gupta & M.P. Gupta or the amount can be regarded as a payment in consideration of services rendered by the assessee as an employee or it is in the nature of fee commission or profit in lieu of salary. The revenue authorities have taken a view that the amount received is in the nature of commission of the amount of compensation collected on behalf of S/Shri K.P. Gupta and M.P. Gupta. Therefore, this is an income from other sources. Section 56 of the Income-tax Act reads as under:
56(1) Income of every kind which is not to be excluded from the total income under this Act shall be chargeable to income-tax under the head ‘Income from other sources’, if it is not chargeable to income-tax under any of the heads specified in Section 14, item A to E.
(2) In particular, and without prejudice to the generality of the provisions of Sub-section (1), the following income shall be chargeable to income-tax under the head “Income from other sources”, namely:–
In order to say a particular receipt is an income from other sources, it is essential that it should come within the definition of “Income”. Section 4 of the Income-tax Act imposes income-tax upon a person in respect of his income. In other words, income-tax is a tax of a person in relation to his income. It is true that every income is a receipt but converse to it that every receipt is an income is not true. Income has been defined in Section 2(24) of the Income-tax Act which includes profits and gains, value of perquisite or profit in lieu of salary, special allowances, commission etc. Section 5 is a charging section. It says that the total income of any previous year of a person who is a resident includes all income from whatever source derived, shall be taxable. The Income-tax Act by Sections 3 & 4 of the Act imposes general liability to tax upon all income but the Act does not provide that whatever received by the person must be regarded as income liable to tax. In all cases in which a receipt is sought to be taxed as income. the burden lies upon the department to prove that it is within the taxing provisions. Where however a receipt is of the nature of income, the burden of proving that it is not taxable, because it falls within an exemption provided by the Act, lies upon the assessee. In the case of H.E.H.Nizam’s Religious Endowment Trust (supra), the Hon’ble Supreme Court laid down that it is a settled law that the burden is on the revenue authorities to show that the income is liable to tax under the statute; but the onus of showing that a particular class of income is exempt from taxation lies on the assessee. To earn the exemption, the assessee has to establish that his case clearly and squarely falls within the ambit of the exempting provisions of the Act. In the case of Mahesh Anant Rai Pattani (supra) the facts of which somewhat are similar, to the case in hand, the assessee was the Chief Dewan of the native State of Bhavnagar since December 1937, and continued to hold that office until January 1948, when responsible Government was introduced by the Maharaja and the assessee was given a pension. On 1 -3-1948, Bhavnagar State was merged in the United State of Saurashtra and the Maharaja ceased to be the ruler of the said State as from that date. On 31-5-1950 the Maharaja directed M/s. Premchand Roychand & Sons, Bombay with whom he had an account to pay by cheque to Mr. A.P. Pattani Rs. 5 lakhs out of the amount lying to the credit of his personal account. The amount was paid to the assessee. It was held by the Supreme Court that the sum of Rs. 5 lakhs was paid to the assessee not in token of appreciation for the services rendered as the Dewan of the Bhavnagar State but as a personal gift for the personal qualities of the assessee and as a token of personal esteem. As such, the amount was not taxable. The reasoning for that decision appears to be that the assessee had been fully compensated for the services rendered by him to the Bhavnagar State and the gift by Maharaja from his personal account was long after the retirement and not that it has been shown that the services rendered by the assessee to Bhavnagar State was causa causqns of making the gift. The Hon’ble Supreme Court laid down the following text in the case of Mahesh Anantrai Pattani (supra):–
the test of liability to tax on voluntary payments from the stand point of the person who receives it was that it accrued to him by virtue of his office or employment i.e, by way of remuneration for his services; (2) that if the assessee’s contract of employment entitled him to receive voluntary payments and (3) that the payment was of a periodic and recurring character. On the other hand if a voluntary payment was made in circumstances which showed that it was given by way of a present or a testimonial on grounds personal to the recipient, the proper conclusion was that the payment was not profit accruing to the recipient by virtue of his office or employment but a gift to him as an individual paid and received by reason of his personal needs or by reason of his personal qualities.
Similar view was taken in the case of S.A. Ramakrishnan v. CIT [1978] 114 ITR 253 (Mad.). In the case of Parimisetti Seetharamamma (supra) a gift was made by the Maharani of Baroda to Seetharamamma who claimed that she was the private Secretary to Maharani. The question arose whether the said receipt was a taxable receipt. The Tribunal has held that all the evidence in support of her contention that the gift from the Maharani did not constitute her income and held that the gifts were remuneration for the services rendered or to be rendered. The Supreme Court was of the opinion that the Tribunal had wrongly placed the burden to prove on the assessee. The facts in the case did not establish that what the Maharani gave to the assessee was remuneration for the services rendered or to be rendered. Therefore, the gift was not taxable. The Hon’ble Supreme Court has observed as under:–
Where the case of the assessee is that a receipt did not fall within the taxing provision, the source of the receipt is disclosed by the assessee and there is no dispute about the truth of that disclosure, the income-tax authorities are not entitled to raise an inference that the receipt is assessable to income-tax on the ground that the assessee has failed to lead all the evidence in support of his contention that it is not within the taxing provision.
In the case of S.A. Ramakrishnan (supra) the assessee was an exponent of the apics like Ramayana and Mahabharata, was assessed to income-tax on amounts collected at the time of his discourses. On the occasion of his Shastiabdapoorthi (sixtieth birthday), celebrations, he received cash presents from the public. The Appellate Asstt. Commissioner and the Tribunal confirmed the assessment. When the matter came before the Madras High Court, it was held that as the assessee was being remunerated separately for his discourses as and when such discourses were held, there was no material for saying that the sum was actually remuneration paid in connection with the past performances though the occasion for making the payment was his Shastiabdapoorthi 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 was not valid. In the case of Sewal Singh Ajit Singh (supra), the Hon’ble Punjab & Haryana High Court held that the Nawab of Malerkotla transferred to the assessee a piece of land valued at Rs. 16,000. The ITO fixed the value of the land at Rs. 20,000 and treated the same as the assessee’s income on the ground that the land had been conveyed by the Nawab in token of service rendered by the assessee in his capacity as a general attorney for the purpose of selling the lands belonging to the Nawab. The AAC allowed the appeal of the assessee on the ground that the land had been gifted to the assessee by the Nawab in token of his love and affection. The Appellate Tribunal found that if the assessee had not appointed as general attorney and worked to the entire satisfaction of the Nawab, the question of gift would never have arisen and held that the so-called gift was primarily a payment in lieu of the services rendered by the assessee to the Nawab as his general attorney. The Hon’ble P&H High Court further observed that to treat a receipt as an income, there must be a contractual or legal obligation on the part of Nawab to pay any remuneration to civil side or there should be any legal right to receive the said remuneration. In the absence of that it was only because of love and affection with Shri Sewal Singh in view of his honest and faithful conduct, that the gift in question was made.
8. In the case of Siddhrartha Publications (P.) Ltd. (supra) the facts were that the assessee-company which was publishing an English magazine approached the “World partnership” organization for financial assistance as the magazine run by it suffered from indifferent quality because it was unable to pay adequately to its writers, that the assessee was keen to give a brighter look to the magazine by improving its format and layout and also help the contributors and that the organization should create bulk subscriptions for the magazine. The organization contributed a sum of Rs. 28,342 to the assessee but expressed their inability to follow up the suggestion of the assessee of either creating bulk subscriptions or increasing the amount of donation but hoped that the contribution would help in increasing the circulation and would put the magazine on a more economical footing. In these circumstances, the Delhi High Court treated the amount as donation and observed as under:–
Held, (i) that even voluntary payments made continuously over a long period of time without consideration and without any source of income depending entirely on the whim of the donor are not income.
(ii) That the receipt was a casual receipt and depended on the sweet will of the donor and, if not paid, could not be forced against the donor.
(iii) That the payment was non-recurring in nature because the payee had no right of expectation.
(iv) Though the foreign organization had been formed for the promotion of literary and educational facilities and though the assessee also requested the organization for financial assistance by taking a large number of subscriptions or giving a subsidy, the request was not acceded to by the organization. The letter from the organization to the assessee made it clear that they had decided to give the sum purely as a donation and not for purposes of business.
(v) No services were rendered by the assessee to the foreign organisation nor was there any mutual or commercial arrangement between the donor and the assessee as to the terms for the provision of financial assistance to the assessee. The payment was purely by way of a donation or a gift or a bounty.
Therefore, the Tribunal was not right in holding that the contribution received from he foreign organization was a revenue receipt liable to tax.
9. In nutshell the ratio laid down by the Supreme Court and various High Courts mentioned above is that in order to treat a particular receipt as an income of the assessee, the following test of liability to tax should be judged:–
(1) Whether it accrued to him by virtue of his office or employment i.e., by way of remuneration for his services and there was an expectation to the assessee to receive that amount ?
(2) Whether the assessee is entitled to receive payment under an agreement of employment. The assessee had made efforts to earn that income?
(3) Whether the payment was of a periodic and recurring character?
(4) Whether there was a legal or contractual obligation on the part of the donor to pay this amount or there was any legal right of donee to receive the said amount?
If the voluntary payment was received by the assessee by virtue of his office under a contract of employment, the assessee had put efforts to earn that income and it was of a periodic and recurring character coupled with the fact that it was a legal obligation on the part of the employer to pay the amount and it was also legal right of the assessee to receive- the remuneration then even if it was a voluntary payment, it can be held that it is an income of the assessee. If none of these elements are present, then it cannot be said that the amount received was an income of the assessee.
10. Applying the principle laid down to the facts of the present case, we have to examine whether the impugned receipt can be categorised as an income of the assessee or it is a pure and simple case of gift. From the facts on record and from the assessment order it is clear that the amount was given by S/Shri K.P. Gupta and M.P. Gupta in their individual capacity. This is further clear from the plea of the assessee where he has mentioned that in fact gift was out of personal saving accounts of donors in their individual capacities. Therefore, there is no substance that this amount was given by HUFs. This controversy becomes less important when the department has assessed the individuals for gift-tax vide Gift-lax assessment orders dated 30-3-1989. The fact remains that the assessee received Rs. 21 lakhs from these two employers S/Shri K.P. Gupta & M.P. Gupta in their individual capacities. The department has treated this receipt at the hands of the assessee as an income from other sources despite the fact that they have charged gift-tax from S/Shri K.P. Gupta & M.P. Gupta individually. The onus of proof lies upon the department to prove that it is an income at the hands of the assessee. In our opinion the department has failed to show that there are elements which establish that this is an income of the assessee. The test laid down by the Hon’ble Supreme Court and various High Courts cited above, is not fulfilled to regard this as an income.
11. In this case, the assessee was an employee of S/Shri K.P. Gupta & M.P. Gupta on a monthly salary of Rs. 500. The assessee has alleged that he as well as his forefathers had been rendering services for more than 30 years to the family of S/Shri K.P. Gupta and M.P. Gupta and their ancestors. His father Shri Chander Singh died while serving Gupta family and his brother was also serving these persons. When his father died the assessee was employed on a monthly salary of Rs. 500. It is not in dispute that the entire family of the assessee was engaged from more than 6 decades to serve the family of S/Shri K.P. Gupta and M.P. Gupta and there was family relations for more than six decades between the Gupta family and the assessee’s forefathers. Since a trust was created in assessee and his forefathers family due to long association, Shri M.P. Gupta & K.P. Gupta assigned additional work of looking after court cases and litigations including the cases of land acquisition against the Government, to the assessee. Therefore, the work of looking after was entrusted as an additional work to the assessee besides the normal work of the employee. It was not part of the assessee’s duties to look after court cases. Therefore there was no legal obligation to render this kind of service nor there was an agreement entitling the assessee to receive any payment in consideration of looking after the court cases. A perusal of the General Power of Attorney executed by S/Shri K.P. Gupta and M.P. Gupta for the purpose of assigning the work of looking after court cases, shows that the assessee was not to receive anything in consideration of looking after the court cases. Shri Moti Lal Sharma in his statement has categorically mentioned that the amount received had no connection with the services rendered to get enhanced compensation. It was only a gift given to him subsequent to the receipt of the compensation by these persons. He has further said that he did work sincerely just like a family member in their interest. Therefore, it cannot be assumed that the amount received by the assessee was in consideration of services rendered to get enhanced compensation. Further we find that the assessee had no expectation to receive this income. The assessee certainly put efforts to adduce evidence and other documents to help his masters for expeditious disposal of court cases and to get enhanced compensation. But there was no efforts put by him to earn this amount because there was no agreement which says so. Thus, there was no expectations or efforts on behalf of the assessee to earn this income. In the absence of these two ingredients also the amount received cannot be termed as income at the hands of the assessee. It will be pertinent to mention here that the enhanced compensation received by S/Shri K.P. Gupta & M.P. Gupta between July 1985 to August 1986 whereas the assessee received the impugned amount between May 1986 to October 1986 for which gift deed was drawn subsequently in conformity of giving this amount by way of gift. Thus the amount received by the assessee under these circumstances, cannot be assumed to have accrued to the assessee by virtue of his office or employment nor the assessee was entitled to receive this payment under any agreement. Therefore, no legal right accrued to the assessee to receive this amount. The payment was made for the first time and had never repeated earlier or subsequent to it. Therefore, there is no iota of evidence which could establish nexus between rendering of services as an employee and receiving of payment, much less it could prove that what was given to the assessee was by way of remuneration, fee, commission or profit for the services rendered. Therefore, in our opinion the department failed to prove that whatever was received by the assessee was an income in the hands of the assessee.
12. The gravamen of Shri S.P. Jain’s argument was that Shri Gupta admitted in his statement under Section 131 that the payment was for rendering services. Therefore, it should be treated for rendering services. To our mind there is no substance in the arguments of the learned Departmental Representative. Firstly, because the statement recorded under Section 131 was not available to the assessee. It is established principle of law that if the department wants to rely on certain statement, then in the interest of justice before it could be used against the assessee, it should be made available to him in order to explain the circumstances under which the statement was made. In this case the statement was not supplied to the assessee at all. Therefore, the department cannot make use of it. Secondly, the assessee’s counsel mentioned that the ITO Ward 4(4) had no Jurisdiction to record such statement. The department could not bring anything to show against it. Therefore, on this reason, the statement referred, has no value to conclude that the payment was in relation to services rendered.
13. The facts and circumstances, evidence and preponderance of probabilities show that S/Shri K.P. Gupta and M.P. Gupta gave this amount as a gift in appreciation of personal qualities, abilities and the personal help rendered for receiving enhanced compensation and other court matters out of long association with assessee-family and may be for love and affection besides the close relationship with the employers. Therefore, we are of the opinion that the amount received by the assessee is a gift, it cannot be treated as income of the assessee from other sources. We, therefore, set aside the order of the CIT (Appeals) and direct the assessing officer to delete the same.
14. In the result, the appeal is allowed.