1943 (10) TMI 17 - HC - Income Tax

Arbitration Remuneration Not Taxable as Income: High Court Decision

COMMISSIONER OF INCOME-TAX, MADRAS Versus M. AHMAD BADSHA SAHEB

The High Court held that the sum of Rs. 7,000 received by the assessee as remuneration for arbitration was not assessable as income. The Court found that ... - Issues Involved:1. Whether the sum of Rs. 7,000 received by the assessee as remuneration for arbitration is assessable as income.2. Whether the sum is exempt under Section 4(3)(vii) of the Indian Income-tax Act as a receipt not arising from business or the exercise of a profession, vocation, or occupation and being of a casual and non-recurring nature.Issue-wise Detailed Analysis:1. Assessability of Rs. 7,000 as Income:The primary question was whether the Rs. 7,000 received by the assessee as his share of the remuneration for arbitration is assessable as income. The Income-tax Officer and the Appellate Assistant Commissioner initially assessed this amount as taxable income. However, the Income-tax Appellate Tribunal reversed this decision, concluding that the payment represented a receipt of a casual and non-recurring nature, and thus, was not taxable.The Tribunal noted that the assessee, a merchant dealing in hides, was chosen as an arbitrator due to his influence and experience, not as a professional arbitrator. The remuneration was awarded by the High Court due to the extensive work done by the arbitrators, which was not anticipated at the time of their appointment. The Tribunal emphasized that the payment was a windfall and not a regular source of income.2. Exemption under Section 4(3)(vii):The second issue was whether the sum of Rs. 7,000 is exempt under Section 4(3)(vii) of the Indian Income-tax Act. This section exempts 'any receipts not being receipts arising from business or the exercise of a profession, vocation or occupation, which are of a casual and non-recurring nature.'The Tribunal and the High Court both agreed that the Rs. 7,000 did not arise from the assessee's business or any profession, vocation, or occupation. The High Court noted that the assessee's agreement to act as an arbitrator was entirely separate from his business activities. The remuneration was not stipulated in advance and was awarded by the High Court due to the unforeseen extensive work involved.The High Court also addressed the argument that the assessee might act as an arbitrator again, stating that he is not a professional arbitrator and it is unlikely he will be called upon in a similar capacity in the future. The Court concluded that each case must be decided on its particular facts, and in this instance, the receipt was indeed casual and non-recurring.Conclusion:The High Court affirmed the Tribunal's view that the Rs. 7,000 received by the assessee was not assessable as income. The amount was considered a casual and non-recurring receipt, falling under the exemption provided by Section 4(3)(vii) of the Indian Income-tax Act. The Court emphasized that the remuneration was awarded for services rendered in an exceptional case and did not constitute a regular or expected source of income.Judgment:The High Court answered the referred question in favor of the assessee, stating that the Rs. 7,000 was not assessable as income. The assessee was entitled to costs of Rs. 250. The reference was answered accordingly.