TaxTMI 
TaxTMI 
2010 (8) TMI 753
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....ssee. Aggrieved, assessee preferred first appeal agitating various grounds. CIT(A) quashed the assessment and on merits also held that the gifts were genuine as assessee had discharged her onus in proving the same by following main observations :- (i)The mandatory notice under section 143(2) was not served on the assessee within the period of 12 months from the end of the month in which return of income was filed as prescribed by law for framing a valid assessment under section 143(3) and quashed the assessment; (ii)On merits also, the CIT(A) held that out of gifts of Rs. 8,31,25,107, an amount of Rs. 8,29,25,107 was proved by the assessee to be valid gifts. On both the issues, the revenue is in appeal before us, raising various grounds. 2.2 In the meanwhile, Legislature in order to tackle the menace of the moneys received by assessees without consideration, including gifts, amended Income-tax Act as section 56(2)(v) was inserted by Finance (No. 2) Act, 2004 with effect from 1-4-2005, i.e., from assessment year 2005-06, prescribing as under :- "56(2) In particular, and without prejudice to the generality of the provisions of sub-section (1), the following incomes, sh....
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.... of personal gifts under two different heads of income, i.e., one under section 56(2)(v) as "income from other sources" and the other under section 28, as vocational income. Based on various observations, CIT(A) deleted the additions. Aggrieved, revenue is in appeal before us accordingly for assessment years 2005-06 and 2006-07. 2.4 It shall be pertinent here to mention that the facts in respect of gifts for assessment year 2004-05 are similar to assessment year 2003-04. Genuineness of gifts were a matter of dispute between department and assessee in earlier years up to assessment year 2003-04. ITAT in assessee's own case for assessment year 2003-04 vide order dated 30-11-2007 in ITA Nos. 279 and 422/Delhi/07 examined the issues and held them to be genuine gifts by following observations :- "18.3 Genuineness of the transaction of gifts.-Once the identity of the donor is established and his capacity is also proved then the only question to be seen is as to whether the transactions of gift was genuine or not. For examining this aspect, the conduct of parties, that is the donor and the donee, and the appreciation of attending circumstances becomes necessary. The conduct can be s....
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....In all the three gifts in question the entire investment made was from the source of donors and not from the donee. 18.3.2 The Assessing Officer has not collected any evidence to disprove the genuineness of the gift by bringing material on record to show that the gifts were arranged by the assessee from her resources or that donors made gift in lieu of some tangible benefit derived by them from the assessee by misusing her office of public servant. On the contrary the assessee adduced sufficient evidence to show that the gifts were made voluntarily by the donors without any consideration and out of natural love and affection. All the three donors have repeatedly confirmed the fact that the properties were gifted by them to the donee out of natural love and affection. The aspect of voluntarily giving of gifts has been fully proved in all the three cases. The delivery of possession was given at the time of making gift. The gifts of immovable property in the instant case prove the genuineness of the transactions beyond any shadow of doubt because of the procedure adopted for transferring such properties by way of gift through registered deeds. 18.3.3 It is not uncommon that peop....
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.... link the impugned payment with the routine and ordinary services rendered by the assessee as Khadim to the donor. The finding which has been recorded is one of fact and has not been challenged. It was open to the revenue even to challenge the finding which has been recorded by the Tribunal on any ground including that they are perverse. No such steps were taken to challenge the finding of fact recorded by the Tribunal. It has nowhere been established that the gift had any relation with the service rendered. It may be the basis of acquaintance but cannot be considered as having any link or reference, traceable to the vocation which the assessee was performing as Khadim. In these circumstances, we are of the view that the Tribunal was justified in holding that the sum of Rs. 1,05,000 received by the assessee from Abu Sufian under gift deed dated June 22, 1978, was not taxable as the assessee's income from his profession/vocation. The reference is answered in favour of the assessee and against the revenue. No order as to costs." 18.3.5 In the instant case the department has not brought any material to question such feelings and desires of the donees and therefore the Assessi....
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....tion 143(2) are not void ab initio and not liable to be annulled. At best, they could be set aside for removal of the defects. 4. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs. 8,29,25,107 out of total addition of Rs. 8,31,25,107 made by the Assessing Officer on account of unexplained gifts. 5. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in holding the gifts of Rs. 8,29,25,107 received by the assessee from various persons/parties as genuine. 6. That the order of Ld. CIT(A) is erroneous and contrary to facts and law. 7. The appellant craves right to alter/modify/add/delete/delete any or all grounds of appeal." 2005-06 : "1. The order of the Ld. CIT (Appeals) is not correct in law and facts. 2. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was justified in holding that the 'gifts' received by the assessee were not on account of her vocation, ignoring the fact that the gifts had been made in response to a call from the assessee's political party, had been generated and collected in a systematic fund raising drive by the party machinery and had b....
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....the facts and in the circumstances of the case, the Ld. CIT(A) is correct in holding that section 56(2)(v) also confers exemption to "gifts" under Rs. 25,000 and in directing the Assessing Officer to grant relief to the assessee under that section, when the Assessing Officer had come to a categorical finding that such 'gifts' were income related to the vocation of the assessee and taxable as such? 9. The appellant craves leave to add, alter or amend any/all of the grounds of appeal before or during the course of the hearing of the appeal." 2006-07 : "1. The order of the Ld. CIT (Appeals) is not correct in law and facts. 2. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs. 20,33,92,828 made on account of "Income from vocation of politics"? 3. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was justified in holding that the 'gifts' received by the assessee were not on account of her vocation, ignoring the fact that the gifts had been made in response to a call from the assessee's political party, had been generated and collected in a systematic fund raising drive by the party ma....
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....ere the Hon'ble High Court held that the making of offerings, motivated by the compelling feeling on the part of the follower to make presents to the head of the faith, as it was customary, were presents not received on account of the personal characteristics of the assessee, but due to the office that he held and the same were his income from vocation? 10. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was justified in deleting the addition made under the head, "income from business and profession" only on account of the fact that 'assessee' had herself offered gifts over Rs. 25,000 for tax under the provisions of section 56(2)(v) and the Assessing Officer had left such 'gifts' undisturbed as his findings did not change the taxable status of the same? 11. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) is correct in holding that section 56(2)(v) also confers exemption to "gifts" under Rs. 25,000 and in directing the Assessing Officer to grant relief to the assessee under that section, when the Assessing Officer had come to a categorical finding that such 'gifts' were income related to the vocation of the assessee and taxab....
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.... change in the opinion of Assessing Officer in subsequent years, will not entitle the revenue to raise this purely factual ground as an additional legal ground. (ii)Hon'ble Supreme Court in the case of MCorp Global (P.) Ltd. v. CIT [2009] 309 ITR 434 has held that the Appellate Tribunal in second appeal has no power to take back benefit conferred by Assessing Officer or enhance assessment or put the assessee in worse position. By admitting the additional ground, the assessee will be put to worse situation as she was neither heard nor any evidence was laid on this issue, while framing the assessment. Assessment proceedings are distinct and separate in each year and merely because the department became wiser in subsequent year in interpreting a legislative amendment, there is no justification for ITAT in admitting this additional ground while hearing the second appeal. (iii)The additional ground raises essentially questions of facts inasmuch as the learned DR has relied on various facts and evidence which certainly requires investigations into new facts and circumstances, explanation of assessee, statement of donors to inquire aspect of personal or vocational circumstances, iss....
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....revenue and assessee. It is too late in the day to accept this additional ground at this stage, which in our view will amount to- (i)admitting a ground which needs examination of fresh facts, documents and record. (ii)Deciding a second appeal on altogether new issues, which were neither taken up by Assessing Officer nor adjudicated by CIT(A), assessee was never heard or intended to be heard and department has earlier taken same line as adopted by Assessing Officer. (iii)It will put the assessee in a worse situation as contemplated by the Hon'ble Supreme Court in the case of MCorp Global (P.) Ltd. (supra). Justifications for admission of additional ground in case of National Thermal Power Co. Ltd. (supra) was a special bench judgment and investigation of facts was not required. In this case the amendment was introduced 3 years prior to assessment and 5 years prior to first appeal, Assessing Officer having consciously took a decision, additional ground cannot be accepted because it is more convenient for revenue. (iv)In case of C.P. Chitrarasu (supra), it was a question of law for admission to High Court, whereas the issue before us is admission of an additional ground at....
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....r has recorded anything in the order sheet or in the assessment order to this effect. This again points to the facts that no such notice was in fact issued. (v)It was also submitted that if notice had been allegedly issued on 23-3-2005 and served on the assessee the Assessing Officer could not have processed the case under section 143(1) on 28-3-2006, i.e., more than one year after the date of the issue of the notice. The law on the point is very clear. Further, the departmental instructions are that first all the returns should be accepted under section 143(1) and then only selected for scrutiny. From these facts a clear inference can be drawn that no notice under section 143(2) dated 23-3-2005 was ever issued or served on the assessee. (vi)It is also submitted that admittedly the said receipt has been pasted on the notice under section 148 pertaining to the assessment year 1998-99, and, therefore, it follows that it pertains to the service of notice under section 148 for assessment year 1998-99. Apart from the above, legal submissions were also made in this regard and it was urged that the Assessing Officer is trying to cover up the lapse of non-service of notice under s....
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.... with. (ii)There is no presumption that departmental record is untrue. (iii)Order-sheet is a record of minutes of proceedings, for which no proforma is prescribed and its writing depend on officer to officer, therefore, mere non-mentioning of words on 23-3-2005 "issue notice under section 143(2) and hearing fixed for 10-4-2006", will not make assessment invalid as notice exists on the record. In this case since 148 proceedings were also taken up against assessee for assessment year 1998-99, instead of sending two separate envelopes to same assessee, one envelope containing these 2 notices, i.e., notice under section 148 for assessment year 1998-99 and notice dated 23-3-2005 under section 143(2) for assessment year 2004-05 were sent to assessee on 24-3-2005 by registered post as mentioned by Assessing Officer. Therefore, as far as department is concerned, the notice has been properly issued on assessee by RPAD. (iv)During the course of remand proceedings, Assessing Officer vide letter dated 3-8-2007 mentioned as under :- "To The Commissioner of Income-tax (Appeals)-I, New Delhi. Sir, Sub : Appeal No. 625/06-07 - Ms. Mayawati - assessment year 2004-05 - reg....
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....nts to irregularity in notice and not a fatality so as to quash the assessment. Reliance was placed on the decisions in the cases of CIT v. Yamu Industries Ltd. [2008] 306 ITR 309 (Delhi); and Sant Baba Mohan Singh v. CIT [1973] 90 ITR 197 (All.) and other case laws cited in the grounds, for the proposition that such mistake amounts to irregularity and is not fatal to the proceedings. (vi)It was further pleaded that Assessing Officer assumes jurisdiction of assessment on filing of return, which is applicable to case of the assessee. Merely because there is some irregularity in the process of dispatch of notice and assessee was otherwise fully heard and participated in assessment, this irregularity will not quash the assessment proceedings. Reliance in this behalf is placed on the decisions in the cases of CIT v. Gyan Prakash Gupta [1987] 165 ITR 501 (Raj.); and Intercraft India v. CIT [1985] 154 ITR 662 (Delhi). 7.1 It was pleaded that existence of notice under section 143(2) on record demonstrates compliance of provisions, alternatively the issue becomes one of curable deficiency, therefore, assessment proceedings be held as valid. 7.2 Coming to the merits of the addition....
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....ceived by assessee and is not recorded by Assessing Officer in his proceeding sheet. On receipt of this first notice under section 143(2) dated 8-6-2006, assessee filed an objection before Assessing Officer vide letter dated 1-7-2006 challenging that notice dated 8-6-2006 was barred by limitation. (ii)Assessing Officer neither replied to this objection nor contradicted assessee's version and proceeded to frame assessment by asking various explanations, record and calling for the donors. The order-sheet entry is a vital record of any income-tax proceedings as Assessing Officer has to record all the proceedings, issuance of statutory notices including compliances on this sheet. In the order-sheet produced by the department, there is no mention of issuance of any notice under section 143(2) dated 23-3-2005 fixing date of hearing after an unbelievable gap of 13 months on 10-4-2006. On the contrary order sheet has a clear entry on 8-6-2006 - "issue notice under section 143(2)/142(1) and questionnaire for hearing on 19-6-2006". It is highly strange on the part of the department to take a plea that it is not necessary to record the issuance of notice under section 143(2), dated 23-3-20....
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....apses of department. (e)If notice dated 23-3-2005 was sent fixing the date of 10-4-2006 and Assessing Officer forgot to record entry, in that case at least an entry of 10-4-2006, i.e., date of hearing should have been made in the order-sheet, which cannot be omitted from recording. Its absence clearly suggests that neither such notice was issued on 23-3-2005 nor any hearing was fixed on 10-4-2006. (f)Notice dated 23-3-2005 was neither issued nor dispatched and in any case not served on assessee inasmuch as no evidence of service of notice under section 143(2) has been brought on record and assessee's affidavit stands uncontroverted. Except a make believe story that notice might have been sent along with notice under section 148 for assessment year 1998-99, no other record has been shown to support department's shaky explanation. (g)The Assessing Officer's use of word, 'might' in remand report itself indicates that it is a weak attempt to legitimize a time-barred notice. (h)The inconsistent circumstances, non-adjudication of assessee's objections, missing order sheet entries and unsatisfactory reply by Assessing Officer clearly indicate that no such notice under section ....
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....ime : (1)Asstt. CIT v. Hotel Blue Moon [2010] 188 Taxman 113. (2)CIT v. Pawan Gupta [2009] 318 ITR 322 (Delhi) (3)CIT v. Vardhman Estate (P.) Ltd. [2006] 287 ITR 368 (Delhi). (4)CIT v. Bhan Textiles (P.) Ltd. [2006] 287 ITR 370 (Delhi). (5)Dy. CIT v. Mahi Valley Hotels & Resorts [2006] 287 ITR 360 (Guj.) (6)CIT v. M. Chellappan [2006] 281 ITR 444 (Mad.) (7)CIT v. Cebon India Ltd. [2009] 184 Taxman 290 (Punj.&Har.). 8.3 Hon'ble Supreme Court in the case of Hotel Blue Moon (supra), has held as under : "However, if an assessment is to be completed under section 143(3), read with section 158BC, notice under section 143(2) should be issued within one year from the date of filing of block return. Omission on the part of the assessing authority to issue notice under section 143(2) cannot be a procedural irregularity and the same is not curable and, therefore, the requirement of notice under section 143(2) cannot be dispensed with." 8.4 Hon'ble Delhi High Court in the case of Pawan Gupta (supra) has clearly held that provision of section 143(2) are mandatory in nature, whether looked from the stand point of regular assessment or from the stand point of block a....
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....er issued notice, in that case atleast proceedings of hearing on 10-4-2006 would have been noted on order-sheet as a natural procedure. A quasi-judicial officer will not fix a date of hearing and forget to take up proceedings on that day. Non attendance of statutory notice leads to penalty under section 271(1)(b) and issue of a further registered notice for hearing. All these natural happenings are conspicuously missing from the departmental record. 9.2 We would now like to examine assessee's explanation who claims that first notice under section 143(2) was received on 8-6-2006 and on receipt thereof, assessee objected that this notice was time-barred. Assessing Officer did not adjudicate the same and assessment proceedings went on as per the events suggested by order-sheet. Assessee has taken this consistent stand throughout including an affidavit which exist on record, same were duly forwarded to Assessing Officer by CIT(A) in remand proceedings. Assessing Officer's comments are not found to be correct. 9.3 Assessing Officer's non-maintenance of proper order sheet, seemingly implausible stand that the notice dated 23-3-2005 might have been sent with 148 notice for assessmen....
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...." under section 28, details whereof are as under : A.Y. Total gifts Offered by assessee u/s 56(2)(5) Gifts up to Rs. 25,000 2005-06 3,85,22,102 1,20,49,590 2,64,72,512 2006-07 21,62,91,844 1,28,99,016 20,33,92,828 10.1 CIT(A) after considering the Assessing Officer's order, assessee's explanation, confirmations, affidavits and statements of donees, appreciation of case laws relied on by Assessing Officer and assessee held that the gifts received were personal in nature and not vocational income. Besides gifts received being of similar nature cannot to be split into two different heads of income, i.e., above Rs. 25,000 as Income under the head 'Income from other source under section 56(2)(v)' and upto Rs. 25,000 as 'Income from business or profession under section 28', relevant observations from CIT(A)'s detailed order (taken from assessment year 2006-07) are as under: "7. I have gone through the facts of the case, submissions made by the appellant and the comments of the Assessing Officer and counter reply of the appellant. I gave the following findings while deciding the appeal for assessment year 2005-06 in Appeal No. 333/2007-08 :- ".....
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....position. One does not have a sense of gratitude for the personal qualities of a person. Gratitude only flows from the perception that something good has been done for them. This may be in material terms. It may be intangible. But this perception of the deed done is the quid pro quo which the assessee has done for her political supporters and which makes the gifts to her directly linked to her vocation of politics (which as per her own admission is closely linked to her pursuit of social reform) and her position as head of the Bahujan Samaj Party, The gifts are therefore taxable in her hands as income from the vocation of politics." It was argued that the case laws relied upon by the Assessing Officer are not applicable on the facts of the case of the appellant. Further Assessing Officer cannot give two different treatments to the gifts received by the appellant. In the case of P.V.G. Raju the following two questions were before the Hon'ble Supreme Court : "(1)Whether, on the facts and in the circumstances of the case, the expenditure of Rs. 38,832 claimed to be the amount incurred by the assessee for the benefit of other candidates for election is excludible from the taxa....
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....bt that on the question as framed, and on the facts and circumstances present, these sums were paid purely as gifts and donations to his party by the respondent. It is not surprising either, because he was the chairman of the said pasty had a long and liberal purse from which to draw and a large circle of support to build up in the long run." It can be seen that the Hon'ble Court held that these sums were paid purely as gifts and donations to his party by the respondent. Hon'ble Supreme Court affirmed the view of Hon'ble Andhra Pradesh High Court in P.V.G. Raju v. Commissioner of Expenditure Tax [1971] 79 ITR 430 , Hon. 'We Andhra Pradesh High Court in the said order meaning as per head note as under : "Since an 'occupation' is that with which a person occupies himself; there is no reason why 'politics' cannot be an 'occupation' provided it is taken up as a career. Though a profit motive is absent in politics, profit motive is not an essential requisite of 'occupation' for a person, well endowed with the goods of the world, may prefer to pursue a profession or occupation without receiving any remuneration for his services." The case of P.V.G. Raju was referred by Hon'ble M....
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.... partymen." Further Hon'ble High Court stated as under regarding taxability:- "At p. 238 in vol. 1 7th Edit. Of Kanga and Palkhivalas, the Law and Practice of Income-tax, the authors have expressed the following view :- "But a receipt does not necessarily arise from the exercise of a profession or vocation merely because the profession or vocation affords the opportunity for earning the receipt. A golden handshake given as gift by a company to its auditors whose appointment was not renewed was held not to be a professional receipt. As against such preponderant materials and circumstances in favour of the assessee that the present of Rs. 51,000 to the assessee amounted to a windfall or gift for his personal qualities, though his profession or vocation as a politician has also contributed or afforded an opportunity for earning such a present there is absolutely no material whatsoever on the side of the Revenue placed either before the lower authorities or before the Tribunal to decide that the said present will amount to a receipt arising from the exercise of a profession or vocation or occupation, which is exigible to Income-tax." In the case of Chitrarasu (CP) v. Com....
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....tax Act, as a casual and non-recurring receipt, it has to be shown that it did not arise from the exercise of a vocation." In the case of Govindlalji Ranchhodlal (Maharaja Shri) v. CIT [1958] 34 ITR 92 Hon'ble Bombay High Court held as under:- "Held-that the income from these gifts was taxable under the Income-tax Act as (i) it was found by the Tribunal that although there was no legal obligation upon the followers of the faith to make the gifts, the making of the offerings was motivated by the compelling feeling on the part of the followers of a faith to make presents to the head of the faith, which was customary; (ii) the gifts were made to the assessee not because of his personal characteristic but because he was the head of the religious sect; and (iii) the assessee held an office, and it was only that office that induced his disciplines to make the gifts. Held also (i) it was not necessary to decide whether the income fell under section 10 or section 12 of the Act, (ii) even a practice of religion could become a vocation and more so, when it brought in a steady income, it is not necessary that the holder of an office should receive presents by virtue of a contract in ....
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....ing the applicant as a vedantic teacher or a religious preacher or an author and reformer. Tue case referred: by Assessing Officer for quid pro quo inter alia contains some sort of direct discourses for enlightment leading to so called mental happiness. In the case of Raja Manickam which case of P.V.G. Raju is referred the Hon'ble High Court clearly stated that there was no quid pro quo in the payment of the donation made by the general public, the former employer and the partymen. Consequently the Tribunal was right in its view and the sum of Rs. 51,000 was not taxable as the assessee's income. In the case of Parimisethi Seetharamamma v. CIT [1965] 57 ITR 532(AP) while explaining the ratio of judgment of Hon'ble Supreme Court in the case of A. Govindaraju Mgsdaliar v. CIT [1958] 34 ITR 807, Hon'ble Andhra Pradesh High Court observed as under : "The observation relied upon does not lay down a proposition that it may be inferred that a receipt is taxable as income because the assessee fails to lead all evidence in support of the case pleaded by him that the receipt is not within the taxing provision: Whether a receipt is liable to be treated as income depends very largely upon th....
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....ese two words have been used in this provision i.e. 'benefit' or 'perquisite' and other condition, is that such benefit or perquisite should arise out of exercise of business or profession. In the facts of the case, the Revenue has not established conclusively that the amount of gift arose to the assessee as a consequence of exercise of vocation because such gifts have got no element of consideration being paid for services obtained by the followers/disciples. It is also noted that both the words 'benefit' and 'perquisite' refer to specific situations wherein, generally receipt of revenue nature having attributes of income would be covered and such attribute should exist from very beginning. To illustrate this aspect, we state that where a gift is made in lieu of paying consideration for services obtained and this fact is established, then such amount of gift can fall within the provisions of section 28(iv) of the Act. In view of all the facts and case laws discussed above, the Assessing Officer, could not prove quid pro quo in the case of the appellant. If the logic of Assessing Officer is accepted, then every Hon'ble Member of Parliament can be taxed for every receipt of below....
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....ans - (i)spouse of the individual; (ii)brother or sister of the individual; (iii)brother or sister of the spouse of the individual; (iv)brother or sister of either of the parents of the individual; (v)any lineal ascendant or descendant of the individual; (vi)any legal ascendant or descendant of the spouse of the individual; (vii)spouse of the person referred to in clauses (ii) to (vi). The section talks about any sum received only. The word 'gift' is nowhere used in this section. Gift is a form of receipt without consideration. Exceptions for not taxing receipt without consideration are provided in the section itself. The appellant does not fall in site exception category. The whole receipt in the form of gift has been divided into two parts by the Assessing Officer. A portion above Rs. 25,000 has been accepted as gift quoting the provisions of section 569(ffv,) and other portion below Rs. 25,000 has been taxed as income from vocation. The genuineness of receipt as gift has not been doubted by the Assessing Officer. Splitting of same nature of receipt which in this case is in the form of gift and taxing them into two different heads of income under two....
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....am of earning. CIT(A) while passing his order for assessment year 2006-07 on page 106, applying Hon'ble Supreme Court judgment in the case of Commissioner of Expenditure tax v. P.V.G. Raju [1975] 101 ITR 465, has held that ratio of this judgment is applicable to the extent that politics is a vocation or profession. This being so, any receipt by assessee from this vocation of politics will be chargeable as income under section 28 and not under section 56(2)(v), Assessing Officer has treated the gifts above Rs. 25,000 as income from other sources by accepting assessee's return showing these receipts under section 56(2)(v). Taking his arguments further Ld. DR pleads that gifts received by the assessee are vocational/professional receipt because of following factors : (i)Assessee has been receiving numerous gifts on regular basis over a long period of time; (ii)Assessee has been holding the office as Member of Parliament; is a political leader specially for dalit masses; and BSP party president popularly regarded as its Supremo for a long time. (iii)Her identification with a political party i.e., BSP is total and she is regarded as political heir of late Shri Kanshi Ram. (i....
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....nown for contribution to any other field of activity. Even the social reform agenda that she pursues is through the forum of politics. Therefore, there is no doubt that the assessee is primarily a politician and is known, respected and regarded on this account alone. (ii)It has further been held by the Hon'ble Supreme Court in the case of P. Krishna Menon v. CIT [1959] 35 ITR 48 that any gift that accrues to a person by virtue of the office that he holds or the vocation that he pursues should be regarded as his income from vocation or profession. (iii)Further, in the case of Maharaja Shri Govindlalji Ranchhodlalji v. CIT [1958] 34 ITR 92 , the Hon'ble Bombay High Court has held that although there is no legal obligation on the part of a follower to make an offering, the making of offerings motivated by the compelling feeling on the part of the follower to make presents to the head of the faith as it was customary were presents not received on account of the personal characteristics of the assessee but due to the office that he held that induced his disciples to make the gift and the same were his income from vocation. (iv)The real question is really to consider how the fac....
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....f BSP. They are forwarded by a letter from a Mr. Chikanna, a party worker, who says that since they had conducted many programmes of the party in view of the forthcoming elections, they were able to collect only the minimum possible amount. (vii)These drafts, affidavits and forwarding letters from Karnataka, seal the issue that the gifts sent to the assessee were on account of the office that she held and that the programme of social reform and political mobilization pursued by her are one and the same. On this account it is pertinent to hold that the gifts received by her have been by virtue of her political standing and not any other account. (viii)It is not that this state of affairs is confined to Karnataka. Enquiries conducted at various banks in UP also revealed that the drafts were purchased in many cases by Bahujan Samaj Party functionaries. For instance examination of drafts purchased from Allahabad Bank, Azamgarh between 10-1-2005 and 12-1-2005 reveal that they have all been purchased by one Dayaram Bhaskar, who is the district Chairman of the Azamgarh, Bahujan Samaj Party. In the Bulanshahar region enquiries revealed that many of the donors were workers of the Bahu....
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....eived on account of the personal characteristics of the assessee but due to the status and office which she hold and which induced her supporters. Consequently they represent her income from vocation and the affidavits filed by the assessee's supporters to the contrary have no meaning as they have been prepared according to a pre decided format which, as admitted by the assessee herself in her submission, has been prepared centrally. 12.3 Coming to the interpretation of applicability of section 56(2)(v) Ld. DR contends that the Income-tax Act has concept of sources of income and heads of income. Assessing Officer divided the receipt of moneys without consideration from non relatives into two sources, one source represents gifts above Rs. 25,000 which is taxable under the head 'Income from other sources' under section 56(2)(v) and the other sources comprises of gifts upto Rs. 25,000 for which Assessing Officer has applied the head of 'Income from Business and Profession'. Assessing Officer has specifically noted in his order that assessee has offered the former under a specific head therefore the return of income was accordingly accepted and this will not be detrimental to stand ....
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.... being in an influential position can be of some use in future, these factors constitute a quid pro quo for these gifts. Donors may have admiration but the gifts were paid to a political personality who wanted to be recognized. It was pleaded that the assessee being in the profession of politics and gifts being directly attributable to and in the course of exercise of profession or vocation, gifts upto Rs. 25,000 were rightly taxed as business income of the assessee. 12.10 Section 56 has been inserted only to treat gifts above Rs. 25,000 as "income from other sources" and it does not mean that other gifts are allowed by this section as tax free, proper head exists under section 28 to tax gifts upto Rs. 25,000 as income from business or profession. The order of Assessing Officer was relied on. 13. Learned counsel for assessee Dr. Rakesh Gupta, Advocate vehemently contends that it is a settled proposition under the income-tax law that a person can have capital receipts which are not regarded as income along with taxable income. Merely because assessee is in politics every receipt cannot be held to be vocational income. In order to tax personal gifts received by assessee on her ....
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....analogies and taking a contradictory stands about the head of income from the same sources of gifts having similar type of confirmations. 13.4 In the decision in Fr. Ephen v. CIT [1989] 176 ITR 78 (Ker.) the Hon'ble Court has observed that, in order to constitute the receipt and the service rendered, i.e., rendering of service was causa causans of the receipt. This line of thinking of different courts is further endorsed in Dilip Kumar Roy's case (supra), it is held that "Having regard to the provisions of section 10 of the Act it cannot be disputed that it is only the receipts arising out of profits or gains of business, profession or vocation that can be subjected to tax under that section, but it is a professional gift for personal qualities of the assessee and as a token of personal esteem it cannot be subjected to tax. It is well-settled by sections 3 and 4 of the Act that the Act imposes a general liability to tax upon all income, but it does not provide that whatever is received by a person must be regarded as income liable to tax. In all cases where a receipt is sought to be taxed as income, the burden lies upon the department to prove that it is within the taxing provis....
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..... 13.8 Ld. counsel placed reliance on the decisions of : (i)Hon'ble Supreme Court in the case of Mahesh Anantrai Pattani (supra) holding that a gift which is personal in the sense that it is given to the person, not as holder of office or employment but as a personal testimonial or token of personal esteem and veneration or to mark an occasion is not income; (ii)Hon'ble Bombay High Court in the case of Dilip Kumar Roy (supra) holding that merely because an assessee carries on a vocation, there is no presumption under the law that any amount received by him is income subject to tax. Test is as to whether amount is paid to him for the services rendered. 13.9 The issue whether a gift is for personal esteem or for the services rendered as holder of an office is essentially a question of fact to be decided in the light of the evidences and there can be no blanket proposition of law that gift would always be received by a person for personal qualities or gift would be received by a holder of an office as consideration for the office only. 13.10 Ld. Counsel then referred to some of the affidavits given by the donors which are filed in the paper book which demonstrate that t....
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....acts. 13.14 Legislature has introduced section 56(2)(v) with a proper scheme, in as much as the receipts without consideration, which include gifts have been intended to be specifically taxed under the head 'Income from other sources' and further divided into above two categories, smaller gifts have been intended to be non taxable and gifts above 25,000 have been taxed under this head. Assessing Officer has failed to comprehend this clear scheme of the Income-tax Act intended by Legislature and the receipts of same nature and source have been given different treatment without any justification and in violation of this scheme. If the gifts were vocational income there was no question of taxing gifts up to Rs. 25,000 as part of the "income from the vocation of politics" when he has held the other gifts following legislative mandate under the head 'Income from other sources'. 13.15 Hon'ble Karnataka High Court in the case of K.R. Honnappa (Individual) (supra) have held that being MLA might have afforded him an opportunity to render service in the constituency to the people in general and earn their esteem but payment on account of such esteem or affection does not mean that it a....
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....f voluntary payment made to the assessee for his personal qualities or as a mark of the high esteem and regard in which the assessee was held by the donor and therefore not liable to tax. 13.20 Hon'ble Rajasthan High Court while rendering this judgment has considered the judicial decision of Krishna Menon. 13.21 Hon'ble Madras High Court in the case of Balamurlikrishna ( supra) after considering the decision of Krishna Menon, held that there is no direct nexus between gifts and his vocation though it may not be denied that there is an indirect connection between the two. The real reason for the payment was the esteem and regards which his admirers and fans had for him. It was the expression of their goodwill for the assessee which was responsible for this gift. Though it may be that the goodwill and respect have been earned by the assessee as a result of his past performances, the amount cannot be said to have been paid to him by way of remuneration for those services. 13.22 Hon'ble Madras High Court in the case of CIT v. Dr. B.M. Sunderavadanam [1984] 148 ITR 333 held in the case of doctor who was compensated earlier for the medical service provided by him was given gift ....
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....ived on solemn occasion of her birthday out of love and affection and not for any favour or quid pro quo or of any implied suggestion for any service to be rendered to donors. Evidences furnished by the assessee cannot be dislodged on surmises and particularly in the absence of any contrary evidence. Ld. DR's reliance on facts of growth of donors/donations and thus to show more and more following & followers, amounts to political vocation, is misplaced in as much as if more and more persons came forward due to admirations of the personal qualities of the assessee, it does not convert personal qualities into vocation of politics. The gifts received on a solemn birthday occasion for natural love and affection acquired out of personal qualities, esteem and veneration for assessee cannot be held as professional or vocational receipts merely because assessee happens to be a politician. 13.27 Responding to some affidavits relied on by learned DR, the ld. Counsel of the assessee contends that pages 36, 38, 41 are in favour of the assessee as these are the depositions to the effect that the gifts have been given for love and affection to the assessee. Page 16 is of no use as no gift was....
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....enue has taken a stand-That the gifts are induced by the fact of her being an influential political leader and not by her personal qualities. The quid pro quo perceived by donors is to get recognized in her memory for any possible favours which may be derived in future. In the entire length and breadth of the arguments, Assessing Officer has not pointed out any donor who has stated to have received any direct or indirect favour. Revenue on the basis of various case laws and arguments has stressed that donee's expectation about possible benefits was a compelling factor for making gifts, therefore the nature of these gifts in the hands of assessee is of vocational receipts. It has been pleaded that the assessee's identification as an influential political leader and with BSP is total, therefore, gifts are inextricably linked to her vocation as a politician. Provisions of section 28 of Income-tax Act are clearly applicable taxing such receipts. A pertinent argument has been raised that the receipt is taxable by its nature in the hands of donee/assessee and not how donor intended it to be. Revenue relies on the case of PVG Raju (supra) that politics is a vocation and assessee has not d....
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....d by assessee are in consideration of quid pro quo influenced by assessees political stature. In donors affidavits there is no reference to any direct, indirect or promised favour extended by assessee. Bulk of gifts, No. of affidavits, bulk issuance of DDs and notorization are treated by revenue to be adverse surrounding circumstances to hold that donors were influenced or induced to offer gifts to assessee by her political vocation. In our view ascertainment of quid pro quo is a sine qua non to hold that gifts were vocational receipts of the assessee. In P. Krishna Menon's case (supra), donor/disciple Mr. levy stated that he was personally benefited from his Vedanta teachings, therefore, the quid pro quo was established. In the case of Dr. K. George Thomas (supra) Hon'ble Supreme Court affirmed the order of High Court holding that there was no evidence that gift was given for personal qualities. In Ram Kripal Tripathi's case (supra), disciples were supposed to bear assessee's travelling expenses in lieu thereof they gave the money to purchase the car. There was understanding to defray expenses, clearly suggests existence of quid pro quo. 14.8 The issues about the gifts being of....
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.... facts and circumstances these gifts are to be treated as personal and not vocational or professional gifts. In the case of Dilip Kumar Roy (supra) Hon'ble Bombay High Court held that the affidavits filed on record by assessee suggest that gifts were for personal veneration and esteem, same cannot be added as vocational income. From similar stand point Mumbai ITAT in the case of Nirmala Athavale (supra) has rightly held that there being no obligation or duty to render services on her part, gifts offered by disciples cannot be treated as professional receipts. 14.11 Case laws cited by both parties are on vocation/profession receipts of religious preachers, heads of sects, musician, actress and politicians, in our view each case will have its own finer aspects and factual nuances. It will be better to consider case laws of politician, i.e., S.A. Rajamanickam & Chitrarasu (supra). In the case of S.A. Rajamanickam (supra), he was an active politician, MLC and held various political offices including D.M.K. party, the amount of Rs 51,000 collected by his well wishers and presenting to him as a purse for construction of house, it was held as vocational receipt by Assessing Officer and....
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....rd, but were made because the assessee "wielded" influence in the DMK party, appears to us to be an inference without any evidence. As a matter of fact, it does not appear that there is any material placed by the revenue to disprove the case of the assessee that he was more a reformer, in the sense he understood the term and writer in Tamil, than a politician. There is also no evidence to show that the contributions were made only by the members of the DMK party. As we have already indicated, there are some associations which have also contributed to the purse to be presented to the assessee. The revenue in this case has, in our opinion, miserably failed to establish that the receipt arose out of his profession as a politician or that the receipt of the amount presented to the assessee was in the nature of an income as a politician. The positive case of the assessee has not been rejected by any of the authorities and indeed, it could not have been so rejected unless there is evidence to the contrary. We have already pointed out that the question as to whether a particular receipt amounts to "income" or not will depend upon the facts of each case. The decision of the question dep....