AI Drafter 
TaxTMI 
TaxTMI 
1966 (5) TMI 13
X X X X Extracts X X X X
X X X X Extracts X X X X
....ether he is liable to pay income-tax on these receipts. We shall first make a few general observations. Section 6 of the Income-tax Act, 1922, specifies six sources or heads of income which are chargeable to tax. In order to be chargeable, an income has to be brought under one of these six heads. Section 6 also provides that the chargeability to tax shall be in the manner provided in sections 7 to 12B of the Act. Each of these sections lays down the rules for computing income for the purpose of chargeability to tax under one or other of the heads mentioned in section 6. An income falling under any head can only be charged to tax if it is so chargeable under the corresponding computing section. The fourth head of income in section 6 is " Profits and gains of business, profession or vocation " and the fifth head, " Income from other sources ". The fifth head is the residuary head embracing all sources of income other than those specifically mentioned in the section under the other heads. Then we observe that the several heads of income mentioned in section 6 are mutually exclusive ; a particular income can come only under one of them: United Commercial Bank v. Commissioner of Inco....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... in which the profession was being carried on, but it would take a different character and fall under the residuary head if received in a year in which the profession was not being carried on. We are unable to agree that this is a natural reading of the provisions regarding the heads of income in the Act. Whether an income falls under one head or another has to be decided according to the common notions of practical men for the Act does not provide any guidance in the matter. The question under which head an income comes cannot depend on when it was received. If it was the fruit of professional activity, it has always to be brought under the fourth head irrespective of the time when it was received. There is neither authority nor principle for the proposition that an income arising from a particular head ceases to arise from that head because it is received at a certain time. The time of the receipt of the income has nothing to do with the question under which particular head of income it should be assessed. It is then said that the receipts had to be included in the total income stated in section 4 and since they do not fall under the exceptions mentioned in that section, they ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ection 6, namely, " Income from property ". The corresponding computing section is section 9 which says that tax shall be payable on income under this head in respect of bona fide annual value of property. It is conceivable that income actually received from the property in a year may exceed the notional figure. The excess would certainly be liable to be included in total income under section 4. It however cannot be brought to tax as income under the head " other sources ": see Salisbury House Estate Ltd. v. Fry. It is an income which cannot be taxed at all though it is included in total income as defined in section 4. In Probhat Chandra Barua v. King Emperor it was no doubt said that section 12, which is the computing section in respect of the residuary head of income, was clear and emphatic and expressly framed so as to make the head of " Other sources " describe a true residuary group embracing within it all sources of income, profits and gains, provided the Act applies to them, that is, provided they are liable to be included in total income under section 4 which deals with income to which the Act applies. We are in full agreement with that observation but we do not think th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....fore, found no difficulty in holding that the zamindari income was income from the residuary source. We find no support in this case for the view that an income which is admittedly under a specific head can be brought to tax under the residuary head if it cannot be so brought under the computing section corresponding to that head. That case only held that zamindari income was not income which fell under the head " Income from property " and that it could never so fall. It provides no warranty for the contention that an income from one source may, in certain circumstances, be treated as income from a different source, which is the contention of the revenue in the present case. We think it right also to observe that if the receipts in the present case could be treated as income from the residuary source, the position would be most anomalous. We have earlier said that if that were so, the placing of an income under this head would depend on the act of the assessee, it would depend on the time when the assessee chose to receive it. That we conceive is not a situation which the Act contemplates. But there is another and stronger reason to show that the Act did not contemplate it. Sup....
X X X X Extracts X X X X
X X X X Extracts X X X X
....annot be brought to tax under section 10 may be so brought under section 12. For these reasons we have come to the conclusion that the receipts were not chargeable to tax either under the head of professional income or under the residuary head. It was not said that the receipts might be brought to tax under any other head. In our opinion, therefore, the receipts were not chargeable to tax at all. We accordingly allow these appeals with costs. BACHAWAT J.---These appeals raise the question whether the professional income of an assessee whose accounts are kept on a cash basis, received by him during his lifetime after the discontinuance of the profession and after the close of the accounting year in which the profession is discontinued, is assessable to income-tax either under section 10 or under section 12 of the Indian Income-tax Act, 1922. The assessee was practising as an advocate in the High Court of Bombay till March 1, 1957, when he was appointed a judge of the High Court at Bombay. His method of accounting was cash, and his accounting year was the calendar year. The relevant orders of the Income-tax Officer suggest that his accounting year was the financial year e....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... during the previous year. " To attract section 10(1), it is not essential that the assessee should have carried on the profession throughout the entire previous year or at the time when he realised the outstanding professional fees ; it is sufficient that he carried on the profession at any time during the accounting year in which he realised his fees ; see In re Kamdar. On the other hand, the section does not apply to the profits and gains of any profession which was not carried on by the assessee at any time during the previous year. Our attention was drawn to several decisions of this court dealing with section 10(2)(vii) and the second proviso to section 10(2)(vii). In Commissioner of Income-tax v. Express Newspapers Ltd. and Commissioner of Income-tax v. Ajax Products Ltd., this court held that one of the essential conditions of the applicability of the second proviso to section 10(2)(vii) is that during the entire previous year or a part of it the business shall have been carried on by the assessee. In Express Newspapers Ltd. case, at page 259, Subba Rao J. said : "Under section 10(1), as we have already pointed out, the necessary condition for the application of the s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ection 10, continued to fall under the head covered by section 10 and the residuary head under section 12 was not attracted, (2) section 10 covers residual heads and not residual receipts, and (3) that if section 12 were applied to this income, the assessee would suffer injustice because the deductions properly allowable under section 10 in respect of the income could not be allowed. On the other hand, Mr. Sarjoo Prasad appearing on behalf of the revenue submitted that the receipts in question were part of the total income of the assessee for the relevant accounting years chargeable under section 3 read with sections 2(15) and 4, and as the income was not exempt from tax and as it did not fall under section 10 or any other head, it must be assessed to tax under section 12. In support of his contention, Mr. Sarjoo Prasad relied upon the opinion of Chagla J. in In re Kamdar, at page 58. By, section 3 read with sections 2(15) and 4, income-tax is charged for every year in accordance with and subject to the provisions of the Act in respect of the total income of any previous year of the assessee computed in the manner laid down in the Act, including all income, profits and gains fro....
X X X X Extracts X X X X
X X X X Extracts X X X X
...." in section 12, Lord Russell said in Gopal Saran Narain Singh v. Income-tax Commissioner : " The word ' income ' is not limited by the words ' profits ' and 'gains'. Anything which can properly be described as income is taxable under the Act unless expressly exempted." And Sarkar J. said in Sultan Brothers Private Ltd. v. Commissioner of Income-tax : "Section 12 is the residuary section covering income, profits and gains of every kind not assessable under any of the heads specified earlier." Section 6 gives the short label of each head, but the actual contents of the several heads are to be found in sections 7, 8, 9, 10 and 12. Take the head " (iii) Income from property " in section 6. Section 9 shows that only income from buildings or lands appurtenant thereto, of which the assessee is the owner, falls under this head. Income from other properties, e.g., land not appurtenant to a building is outside the purview of this head and falls under section 12. Again, take the head " (iv) Profits and gains of business, profession or vocation." Section 10 on its proper construction applies only to the profits and gains of a business, profession or vocation carried on by the asse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ection 10 or under any other specific head, and it must, therefore, be taxed under section 12. This is not a case where the revenue has taxed or can tax the income under section 10 and again seeks to tax the income under section 12. Mr. Palkhivala next referred us to several English decisions in support of his contention that the receipts of the professional income after the discontinuance of the profession are not assessable to income-tax. Rowlatt J. in Bennett v. Ogston said : "When a trader or a follower of a profession or vocation dies or goes out of business---because Mr. Needham is quite right in saying the same observations apply here---and there remain to be collected sums owing for goods supplied during the existence of the business or for services rendered by the professional man during the course of his life or his business, there is no question of assessing those receipts to income-tax ; they are the receipts of the business while it lasted, they are arrears of that business, they represent money which was earned during the life of the business and are taken to be covered by the assessment made during the life of the business, whether that assessment was made on t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....all receipts of outstanding professional fees after the retirement of the assessee from profession escape taxation. Beyond doubt, the receipt of the professional fees in the accounting year during which the assessee carried on the profession is assessable under section 10, though at the time of the receipt he has retired from the profession. The decision in Commissioner of Income-tax v. Amarchand N. Shroff is entirely distinguishable. In that case, this court held that the income of a deceased solicitor received by his heirs subsequent to the previous year in which he died was not liable to be assesed to income-tax under section 24B as his income in the hands of his heirs, and, apart from section 24B, no assessment can be made in respect of a person after his death. In the instant case, the assessee is alive, and no question of assessment under section 24B arises. Neither side relied on section 25(1), and, in my opinion, rightly. That sub-section gives an option to the revenue to make an assessment in the year of the discontinuance of the business or profession on the basis of the income of the period between the end of the previous year and the date of the discontinuance in ....