# Commissioner of Income Tax v. Express Newspapers Ltd., 53

- **Citation:** [1966] Supp. 1 S.C.R. 295
- **Court:** Supreme Court of India
- **Decided:** 1963-01-29
- **Bench:** A. K. Sarkar. C.J, J. R. Mudholkar, R. S. Bachawat
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/commissioner-of-income-tax-v-express-newspapers-ltd-53-3855
- **Pages:** 16

## Headnote

Indian Income-tax Act 1922, ss. 46, 10, 12-0utstanding
fees
from legal profession received after cessatwn of practtce-cash sy.stem of accounting-Recetpts whether can be taxed under s. J.2
income from 'other sources'.
The appellant an advocate who maintained his accounts on the
cash system gave up practice when he was elevated to the Bench in
1957. Certain outstandmg professional dues were however received
by him in the accounting years 1958 and 1959. These receipts were
shown by him as income in his return for the assessment years
1959-60 and 1!160-61 and were assessed by the Income-tax Officer. The
appellant then went in revision to the Commissioner of Income-tax
contending that the said receipts were not income and had been
wrong'.iy taxed. The Commissioner having decided against him the
D
appe!J.ant came to this Court under Art. 136 of the Constitution.
B
G
B
HELD: (i) The rec~ipts in the present case were clearly the
fruits of the assessee's professional actlvity and fell under the
fourth head of s. 6 of the Indian Income-tax Act 1922. They were
however not chargeable to tax under that head because under the
corresponding computing section that is. s. 10, an income received
by the assessee who kept his accounts on the cash basis in an accoun~
ting year in which the profession had not been earned on at all is
not chargeable. [297 D-F]
Commissioner of Income Tax v. Express Newspapers Ltd., 53
I.T.R. 250, relied on.
(ii) The income could not be taxed under s. 12 either. Section
12 deals with income which is not included under any other preceding heads covered by ss. 7 to 10. If the income is so included, it falls
outside s. 12. It follows that if, as in the present case, the income is
profits and gains of profession it cannot come under s. 12. [301 E]
The heads of income in s. 6 are mutually exclusive and it would
bet:incorrect to say that as the receipts could not be brought to tax
under the fourth head they could not fall under that head and must
therefore fall under the residuary head 'other sources'. There is no
justification for the assumption that an income falling under one
head has to be put under another head if it escapes taxation under
the computing section corresponding to the former head. [298 A;
300 E-F]
The character of the income cannot change merely because the
assessee received it at a certain time or adopted a certain system of
accounting. [301 B]
Section 4 does not say that whatever is included in total income must be brought to tax. The income has to be brought under
one of the heads mentioned is s. 6 and can be charged to tax only
if it is so chargeable under the computing section corresponding to
LJS5SCI
.
8UPRBW:E OOURT REPORTS
(1966] 8UPP. 8.C.R.
that head. Income which falls under the fourth head can be brought
A
to tax only if it can be so dona under the rules of computation laid
down in s. 10. l298 G-299 B] .
In re: B. M. Kamdar, 14 I.T.R. ~0. not approved.
The United Commercia[ Bank v. The Commissioner of Income
Tax, [1958] S.C.R. 79, Suhsbu111 House Estate Ltd., v. FTy, 15 Tax
Cases 266 and Commissioner of Income-tax v.
Cocanada
Pad~
~ami Bank Ltd., 57 l.T.R. 306. relied on.
Probhat Chandra Barua v. King Emperor. a7 l.A. 228, distin·
auished.
Per Bachawat J. {dissentin.o)-
The receipts in question were chargeable under B. 12.
B
Any income chargeable under a specific head can be charged only
C
under that head, and no part of that income can be charged again
under s. 12. But any part of the total income of the assessee not asse~
sable under a specific head is assessable under the residuary head
:overed by s. 12. [305 C]
The income in question was not exempt under s. 4(3). The receipts
~-
were liable to be included in total income under s. 4. 'This income
tould not be incJuded under s. 10 owing to the method of accountini
D
adopted by the assessee. Nor did it fall under any other head. It fol-
!owed that the income must fall unacr the residuary head specified
in s. 12. This was not a case where tnc

## Text

_Characters 0–39,889 of 44,753. This is a partial read: ask again with offset=39889 for what follows._

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NALNIKANT AMBALAL KODY
~
COMMISSIONER OF INCOME-TAX, BOMBAY
May 4~ 1966
295
[A. K. SARKAR. C.J., J. R. MUDHOLKAR AND R. S. BACHAWAT, JJ.]
Indian Income-tax Act 1922, ss. 46, 10, 12-0utstanding
fees
from legal profession received after cessatwn of practtce-cash sy.stem of accounting-Recetpts whether can be taxed under s. J.2
income from 'other sources'.
The appellant an advocate who maintained his accounts on the
cash system gave up practice when he was elevated to the Bench in
1957. Certain outstandmg professional dues were however received
by him in the accounting years 1958 and 1959. These receipts were
shown by him as income in his return for the assessment years
1959-60 and 1!160-61 and were assessed by the Income-tax Officer. The
appellant then went in revision to the Commissioner of Income-tax
contending that the said receipts were not income and had been
wrong'.iy taxed. The Commissioner having decided against him the
D
appe!J.ant came to this Court under Art. 136 of the Constitution.
B
G
B
HELD: (i) The rec~ipts in the present case were clearly the
fruits of the assessee's professional actlvity and fell under the
fourth head of s. 6 of the Indian Income-tax Act 1922. They were
however not chargeable to tax under that head because under the
corresponding computing section that is. s. 10, an income received
by the assessee who kept his accounts on the cash basis in an accoun~
ting year in which the profession had not been earned on at all is
not chargeable. [297 D-F]
Commissioner of Income Tax v. Express Newspapers Ltd., 53
I.T.R. 250, relied on.
(ii) The income could not be taxed under s. 12 either. Section
12 deals with income which is not included under any other preceding heads covered by ss. 7 to 10. If the income is so included, it falls
outside s. 12. It follows that if, as in the present case, the income is
profits and gains of profession it cannot come under s. 12. [301 E]
The heads of income in s. 6 are mutually exclusive and it would
bet:incorrect to say that as the receipts could not be brought to tax
under the fourth head they could not fall under that head and must
therefore fall under the residuary head 'other sources'. There is no
justification for the assumption that an income falling under one
head has to be put under another head if it escapes taxation under
the computing section corresponding to the former head. [298 A;
300 E-F]
The character of the income cannot change merely because the
assessee received it at a certain time or adopted a certain system of
accounting. [301 B]
Section 4 does not say that whatever is included in total income must be brought to tax. The income has to be brought under
one of the heads mentioned is s. 6 and can be charged to tax only
if it is so chargeable under the computing section corresponding to
LJS5SCI
.
8UPRBW:E OOURT REPORTS
(1966] 8UPP. 8.C.R.
that head. Income which falls under the fourth head can be brought
A
to tax only if it can be so dona under the rules of computation laid
down in s. 10. l298 G-299 B] .
In re: B. M. Kamdar, 14 I.T.R. ~0. not approved.
The United Commercia[ Bank v. The Commissioner of Income
Tax, [1958] S.C.R. 79, Suhsbu111 House Estate Ltd., v. FTy, 15 Tax
Cases 266 and Commissioner of Income-tax v.
Cocanada
Pad~
~ami Bank Ltd., 57 l.T.R. 306. relied on.
Probhat Chandra Barua v. King Emperor. a7 l.A. 228, distin·
auished.
Per Bachawat J. {dissentin.o)-
The receipts in question were chargeable under B. 12.
B
Any income chargeable under a specific head can be charged only
C
under that head, and no part of that income can be charged again
under s. 12. But any part of the total income of the assessee not asse~
sable under a specific head is assessable under the residuary head
:overed by s. 12. [305 C]
The income in question was not exempt under s. 4(3). The receipts
~-
were liable to be included in total income under s. 4. 'This income
tould not be incJuded under s. 10 owing to the method of accountini
D
adopted by the assessee. Nor did it fall under any other head. It fol-
!owed that the income must fall unacr the residuary head specified
in s. 12. This was not a case where tnc Revenue had taxed or could
tax the income under s. 10 and again sought to tax the income
Wlder s. 12. [306 C, G-H]
avtL APPELLATE JURJSDlCTlO!'oi: Civil Appeab Nos. 731-73~
of 1964.
Appeals by special leave from the order dated January 29,
1963 of the Commissioner of Income-tax, Bombay City·l, in
No. 1/RP/BBY/40 and 41 of 1961.
N. A. Palkhivala. T. A. Ramachandran, S. P. Mehta and
0. C. Mathur, for the appellant.
•
Sarjoo Prasad, R. Ganapathy lyer and R. N. Sachthey, for
r
the respondent.
•
The Judgment of SARKAR., C.J. and MUDHOLKAR, J. was de!ivered by SA~KAR, C.J. BACHAWAT,
J. delivered a dissenting
Opinion.
Sarkar, C.J. The assessee was an advocate of the High Court
of Bombay and was practising his profession there till March l.
G
1957 when he was elevated to th~ Bench of that Court. He then
'>.
ceased to carry on his profession and has not resumed it since. As
an advocate he had been assessed to income-tax on his professional
income, his accounting years for the assessmentc; being the calendar
years. When he was raised to the Bench. various fees for professional work done by him were outstanding. In the years 1958
B
and 1959 during no part of wllich he had carried on any profession.
he received certain mnneys on account of these outstanding f~.
A
B
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B
.A.MBAI.AL MOD"'r L
C. I. T. (Sa.r!t-at, C. J .)
297
His accounts had always been kept on the cash basis. The question
is. whether 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. S. 6 also provides
that the chargeability to tax shall be in the manner provided in
ss. 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 s. 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 s. 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 s. 6 are mutually exclusive; a particular income can come
only under one of them: The United Commercial Bank v.
The
Commissioner of Income Tax(
1).
We now turn to the present case. The receipts in the present
case are the outstanding rlues of professional work done.
They
were clearly the fruits of the assessee's professional activity.
They were the profits and gains of a
profession. They
would fall under the fourth head. viz., "Profits and gains of business. profession or vocation". They were not. however. chargeable
to tax under that head because under the corresponding computing
section. that is. s. 10, an income recdved by an assessee who kept
his accounts on the cash basis in an accounting year in which the
profession had not been carried on at all is not chargeable and the
income in the present case was so received. This is reasonably clear
and not in dispute: see Commissioner of Income Tax v. Express
Newspapers Ltd.e).
Can the receipts then be income falling under the residuary
head of income and charged to tax as such? The Commissioner of
Income-tax from whose decision the present appeal has been taken
by the assessee, held that it was chargeable under that head. He
came to that conclusion on what he thought were the general
principles and also on the authority of a certain observation of
Chagla. J. in Re. B. M. Kamdare). The observation of Chagla. J.
does not seem to us to be of much assistance for the decision in
that case was not based on it nor is it supported by reasons. We
find ourselves unable to agree with the learned Judge. We may
add that apart from the observation in Kamdar's case e),
there
does not appear to be any direct authority supporting the view of
the Commissioner.
(') rt958] S.C.R. 79.
(I) fl9134] 53 I.T.R. 250: [1964] 8 S.C.R. 1H9.
(') 14 J,T.R. 10.
l.!S3SCI-2l(il)
SUPREME OOURT REPORTS J . (l966)~SUPP, S.C.R.
. . :, ..
As to the general principles, we first observe that as the heads
of income are mutually exclusive, if the receipts can be brought
under the fourth head, they cannot be brought under the residuary
head. It is said by the Revenue that as the receipts cannot be
brought to tax under the fourth head they cannot fall under that
head and must therefore fall under the residuary head. This argument assumes. in our view, without justification, that an income
falling under one head has to be put under another head if it is
not chargeable under the computing section corresponding to the
former head. If the contention of the revenue is right. the position
would appear to be that professional income of an assessee who
keeps his account on the cash basis would fall under the fourth
head if it was received in a year in which the profession was being
carried on. but it wouJd 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 thaL 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 shouJd be
assessed.
It is then said that the receipts had to be included in the
total income stated in s. 4 and since they do not fall under the
exceptions mentioned in that section, they must be liable to tax
and, therefore, they must be considered as income under the residuary head as they could no~ otherwise be brought to tax. This
contention seems to us to be iU-founded. \Vhile it is true that under
s. 4 the receipts are liable to be includ.d in the total income and
they do not come under any-:ot the exceptions, the contention is
based on the assumption that whatever is included in total iucome
under s. 4 must be liable to tax. We find no warranty for this
assumption. Section 4 docs not say that whatever is included in
total income must be brought to tax. It does not refer at all to
chargeability to tax. Section 3 states that "Tax .... .. shall be charged
...... in accordance with. and subject to the provisions. of this
Act in respect of the total income". This section does not, in our
opinion, provide that the entire total income shall be chargeable
to tax. It says that the chargeability of an income to tax has to
be in accordance with. and subject to the provisions of the Act.
The income has therefore to be brought under one of the heads
fn s. 6 and can be charged to tax only if it is so chargeable under
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AMB.ALAL MODY v. C. I. T. (Sarkar~ 0. J.)
299
the computing section corresponding to that head. Income which
comes under the fourth head, that is~ professional income, can be
brought to tax only if it can be so done under the rules of co~put.a~
tion laid down in s. 10. If it cannot be so brought to tax~ 1t will
escape taxation even if it be included in total income under s. 4.
Furthennore, the expression "total income" in s. 3 has to be
understood as it is defined in s. 205). Under that definition. total
income means "total amount of income, profits and gains referred
to in sub-s. ( l) of s. 4 computed in the manner laid down in this
Act'\ that is, computed for the purpose of chargeability under one
of the sections from s. 7 to s. 12-B. The receipts in the present
case, as we have shown, can only be computed for chargeability to
tax, if at all, under s. 10 as income under the fourth head. If they
cannot be brought to tax by computation under that section. they
would not be included in "total income" as that word is understood
in the Act for the purpose of chargeability. That all income included in total income is not chargeable to tax may be illustrated
by referring to income from the SO'!JfCe mentioned in the third head
in s. 6, namely, "Income from property". The corresponding computing section iss. 9 which says that tax shall be payable on income
under this head in respect of bona fide annual value of property.
Jt 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 s. 4. It however, cannot be brought to tax as income under the head "other
sources", see Salisbury House Estate, Ltd. v. FryC). It is an income
which cannot be taxed at all though it is included in total income
as defined in s. 4.
In Probhat Chandra Barua v. King Emperor(2) it was no doubt
said that s. 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 s. 4 which deals
with income to which the Act applies. We are in full agreement
with that observation but we do not think tijat it affords any support
to the contention that all income liable to be included within total
income under s. 4 must be brought to tax. The observation must be
read keeping in mind the undisputed principle that a source of
income cannot be brought under the residuary head if it comes under
any of the specific heads, for the Judicial Committee could not
have overlooked that principle. If we do that, it will be clear that
all that the Judicial Committee said was that all sources of income
which do not come under any of the other heads of income can be
brought under the residuary head. The words used are "embracing ...
all sources of income" and not aii income. It did not say that an
(1) 15 T.C. 266.
(S) 57 I.,A. 228.
soo
~UPRP!II~ OOURT 1\P.P<'>~TS
f1966J 8UPP. 8.C.B.
income liable to b~ included in the total income is chargeable to tnx
as income under the residuary head if it is not chargeable under
a specific head under which it normally falls. In Probhat Chandra
Barva's case(') the Judicial Committee was· not concerned with
that aspect of the matter; the only question before it was, whether
zamindari and certain other income fel1 under the third head of
income from property, as the word 'property' was understood in
the Act.
Another aspect of Probhat Chandra Barua's cascn requires
a mention. The question that there arose, as we have just now said,
was, whether the Income--tax Act did not impose a tax on the income of a zamindar derived from his zamindari and certain other
properties. It was said on behalf of the assessee that the zamindari
and the other income being income from property fel1 under the
third head and could be brought to tax only under the correspond·
ing computing section, s. 9. It was pointed out that the income could
not be chnrged to tax under that section because it dealt only with
income from house property which the income concerned was not.
It was then said that the income could not be ta,;cd under the
residuary head because it was really income from property and could
be taxed only as such. The Judicial Committee did not accept this
contention. It took the view that the word 'property' in the third
head "Income from property .. had to be interpreted as restricted
only to that kind of property which is described in the computing
section, s. 9 and as that section deals only with house property the
income from zamindari and other properties did not fall under the
head .. Income from property". It, therefore. found no difficulty in
holding that the 7amindari 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 bead 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 fe11 under the head
••rncome from property•• and that it could never so fall. It provide~
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 receipt'\ 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 wouh!
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 u
situation which the Act contemplates. But there is another nnd
stronger reason to show that the Act did not contemplate it. Suppose the assessee had kept his accounts on the mercantile basis.
A
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AMBALAL MODY fl. O. T. T. (Sa.rka.r, C. J.)
301
A
He would then have been charged to tax on these receipts in the
year when the income accrued which must have been a year when
he was carrying on his profession as an advocate. It could not then
have been said that the receipts should be taken under the head
"other sources". If we are tO accept the contention of the Revenue,
we have to hold that the method of book-keeping followed by an
B
assessee would decide under which head a particular income will
go. If the Revenue is right, the income of the assessee would go
under the fourth head if the method of accounting was mercantile
and it would go under the fifth head if the accounting was the
cash basis. We are whollv unable to take the view that such can
be the position under the Act. The heads of income must be decided from the nature of the income by applying practical notions
C
and not by reference to an assessee's treatment of income:
see
Commissioner of Income-tax v. Cocanada Radhaswami Bank
Ltd.(l).
D
E
It now remains to see whether s. 12 justifies a view contrary to
that which we have taken. It lays down the rules for computation
of income under the head "Other sources". It says that tax under
the head "Income from other sources" shall be payable in respect
of income of every kind which may be included in the total income
if not included under any of the preceding heads. It seems to us
dear that the words "if not included under any of the preceding
heads"-which refer to the heads considered in ss. 7 to 10-refer
to income and not to a head of income. S. 12, therefore. deals with
income which is not included under any of the preceding heads.
If the income is so included, it falls outside s. 12. Whether an
income is included under any of the preceding heads would depend
on what kind of income it was. It follows that if the income is
profits and gains of profession. it cannot come under s. 12. Section
12 does not say that an income which escapes taxation under n
preceding head will be computed under it for chargeability to tax.
It only says-and this is most important-that an income shall
be chargeable to tax under the head "other sources" if it does not
come under any other head of income mentioned in the Act.
Section 12 therefore does not assist the contention of the Revenue
thl:lt professional income which cannot be brought to tax under
s. 10 may be so brought under s. 12.
For these reasons we have come to the conc1usion that thr
6
receipts were not chargeable to tax either under the head of pro#
fessional income or under the residuary head. It was not said thal
the receipts might be brought to tax under any other hetJd. In
our opinion. therefore. the receipts were not chargeable to tax at
all.
H
We accordingly allow these appeals with costs.
--------------------------- ..
(1) 57 I.T.R. 306: [196:1] 3 S.C.R. 619.
8'0PlUDO OOURT REPORTS
(1966) BUPP, S.C.R.
Bachwat, 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 life-time 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 s. 10 or under s. 12 of the lndinn Income-tax Act.
1922.
The assessee was practising as an advocate in the High Court
of Bombay till March I, 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-ta~ Officer suggest that his accounting year was the
financial year ending on March 31. but it is now the common case
of both the assessee and the Revenue that the accounting year was
the Calendar year.
In the assessment year, 1958-59, the assessee was assessed to
income-tax in respect of the entire professional income received by
him, during the Calendar year including the income received after
March 1, 1957. It js not disputed that the assessee was liable to pay
tax in respect of the income received by him between March I,
1957 and December 31, 1957.
During the Calendar years, 1958 and 1959, the assessee received the sums of Rs. 30,570 and Rs. 15,240 respectively on
account of professional fees for work done by him before March
l. 1957. In the returns for the assessment years, 1959-60 and 196061, the assessee included the aforesaid two sums as his income
from profession. By his orders dated May 30, J 960 and October
26, 1960, the Income-tax Officer subjected the aforesaid two sums
to tax treating them as receiptc; of fees for professional services
rendered in the earlier years and as part of the total income of the
assessee. On ApriJ 4, 1961, the assessee filed two revision petitions
before the Commissioner of Income-tax, Bombay City I. under
s. 33'-A contending that the aforesaid two sums were no part of his
total income of the relevant accounting years and were included
in his returns through an error and asking for their exclusion from
bis assessable income for the relevant assessment years.
By a
common order dated January 29, 1963, the Commissioner of
Income-tax held that the two sums were assessable on general
principles and also on the authority of the decision in Re. B. M.
Kamdar('). and rejected the revision petitions. From this order.
the assessee now appeals to this Court by special leave.
The first question is whether the two sums were assessable to
ta~ under s. 10 of the Indian Income-ta~ Act, 1922. Section 10(1)
provides:
"The tax shall be payable by an assessee under the
head 'Profits and gains of business. profession or vocation'
in respect of the profits and gains of any business, profession or vocation carried on by him."
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H!lBALAl, MODY V. C. I. T. (Baohawat, J .)
303
Section 10 applies to the profits and gains of any business, profes·
sion or vocation carried on by the assessee. Considering that the
subject-matter of charge is income of the previous year, the expression "carried on by him" must mean "carried on by him at any
time during the previous year." To attract s. 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
prev1ous year.
Our attention was drawn to several decisions of this Court
dea1ing with s. 10(2)(viii) and the second proviso to s. 10(2)(vii). In
Commssioner of Income-tax v. Express Newspapers LtdC) and
Commissioner of Income-tax v. Ajax Products Lttl.(3), this Court
held that one of the essential conditions of the applicability of the
second proviso to s. 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 the Express Newspapers Ltd. casee). 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
section is that the assessee should have carried on the
business for some part of the accounting year.,
These observations support the conclusion that the profits and
gains of a business or profession are not chargeable under s. 10(1),
if the assessee did not carry on the business or profession during
any part of the previous year.
In the instant case, the assessee discontinued his profession
as soon as he became a Judge of the Bombay High Court. He
could not carry on the profession after he became a Judge. It is
not possible to hold that he continued to carry on the profession
merely because he continued to realise his outstanding fees. It
follows that the assessee did not carry on his profession as an
advocate at any time during the Calendar years, 1958 and 1959.
The receipts of the outstanding professional fees during 1958 and
1959 were not profits and gains of a profession carried on by the
assessee during those years, and were not assessable to tax under
s. 10(1).
Section 13 provides that except where the proviso to that
section is applicable. the income for the purposes of s. 10 must be
computed in accordance with the method of accounting regularly
H
employed by the assessee. Section 13 is mandatory. In the instant
(l) [1946] I.T.R. 10.
(1) [1964} 53 I.T.R. 260, [1964]8 S.C.R. 189.
{8) [1965] 55 I.T.R. 74:1: [1965] I S.C.R. 700.
30-1
~L~REKE COURT REPORT~
[1008] 8UPP. 8.0.11..
case, <.ts the assessee employed the cash method of accounting and
A
as the proviso to s. 133 did not apply, his professional income
during 1957 and the previous accounting years had to be computed on the cash basis. The Revenue had no option in the matter.
Had the assessee adopted the mercantile method of accounting. the
entire income of the assessee arising from his profession before
March 1. 1957 would have been included in his assessable income
8
for those years. and no portion of it would have escaped assessmt.!nt under s. J 0. Rut as the assessee adopted the cash method of
accounting. the out~tamling fees could not be included in the
as;,essment for those years. The question is whether this income
now escapes taxati_on altogether. There is no doubt that by the
method of accounting employed by the assessee. he has chosen to
treat th~ receipts in question as income of the accounting years~
C
1958 and 1959.
The Revenue cbims that the income was assessable to tax
Ut'!dcr s. 12. On behalf of the assessee, Mr. Palkhiwala submitted
tlnt (I) the income from the defunct source of profession. though
not assessable under s. J 0, continued to faH under the head covered
by s. I 0 and the residuary head under s. 12 was not attmcted. (2)
D
s. 12 covers residual heads and not residual receipts. and (3) that
if s. 12 were applied to this income. the assessee wollld suffer in~
justice because the deductibns properly allowable under s. 10 in
respect of the income could not be allowed. On the other hnnd,
Mr. Sarjoo Prasad appearing on behalf of the Revenue st1bmitted
that the receipts in question were part of the total income of the
asc;essec for the relevant accounting years chargeable under s. 3
E
read with ss. 2(15) and 4. and as the income was not exempt from
tax and as it did not fall under s. 10 or any other head, it must
be assessed to tax under s. 12. In support of his contention. Mr.
Snrjoo Prasad relied upon the opinion of Chagla. J. in
rl'.
K amdar(
1
) at p. 58.
By s. 3 read with ss. 2( 15) and 4. income-ta1. 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 incoiTle, profits and gains from whatever source derived, which
accrue or arise or are received or are deemed to accrue. arise or
to be received as provided by s. 4~ I) and which are not exempted
under s. 4(3). The crucial words in s. 4 are •'from whntever source
derived". The nature of the source docs not affect the chargeability of the income. Section 6 sets out the heads of income
chargeable to tax. The several heads arc dealt with specifically in
sg. 7, 8. 9. 10 and 12. Income is classified under different heads for
the purpose of computing the net income under each head after
making suitable deductions. Income, profits and gains from wh:\tever source derived. included in the total income falJ under one
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head or the other. If any part of the total income does not fall
under the specific heads under ss. 7. 8, 9 and 10, it must faU
under the residuary head under s. 12. Section 12( 1) provides :
"The tax shall be payable by an assessee under the
bead 'Income from other sources' in respect of income,
profits and gains of every kind which may be included in
his total income (if not included under any of the preceding heads)."
Income, profits and gains of every kind are covered by s. 12. pro·
vided two ccmditions are satisfied, viz., (l) they are not included
under any of the preceding heads and (2) they may be included in
the total income of an assessee. Any income chargeable under a
specific head can be charged only under that head, and no part
of that income can be charged again under s. 12. But any part
of the total income of the assessee not assessable under a specific
head is assessable under the residuary head covered by s. 12.
Referring to similar words in s. 12(1), as it stood before its amend~
ment in 1939, Lord RusseH observed in Probhai Chandra Barua
v. The King Emperor(~):-
"These words appear to their Lordship!S clear and
emphatict and expressly framed so as to make the sixth
head mentioned in s. 6 describe a true residuary group
embracing within it all the sources of inct:>me. profits and
gains provided the Act applies to them i.e., provided that
they accrue or arise or are received in British India or
are deemed to accrue or arise or to be received in British
India, as provided by s. 4, sub-s. (1). and are not exempted
by virtue of s. 4. sub-s. (3)."
Referring to the words "income. profits and gains'' in s. 12, Lord
Russell said in Gopdb Saran Narain Shigh v. Income-tax Commis·
sioner(2):
"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
specially exempted."
And Sarkar, J. said in Sultan Brothers v. Commissioner of Jncometa~t'):
"Section 12 is the residuary section covering income,
profits and gains of every kind not assessable under any of
G
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 ss. 7, 8. 9, I 0
lHld 12. Take the head "(iii) Income from propertyn ·In s. 6.
Section 9 shows that only income from buildings or lands appurtenant thereto, of which the assessee is the owner, falJs under this
R
head. Income from other properties, e.g., land not appurtenant to
(1) fl9301 L.R. 57 LA. 228,239.
(~) [1935} L.R. 62 I.A. 207, .213.
(8) (1964J 51 I.T.R. 35'!, 3:>7: [1964] 5 s.c.R. so:-.
306
~l"PREME COURT REPORTS
[1966] SUPP. S.C.R.
a building is outside the purview of this head and falls under s. 12.
&
Again. take the head ''(iv> Profits and gains of business, profession
or vocation." Section I 0 on its proper construction applies only to
the profits and gains of a business, profession or vocation carried
on by the assessee during any part of the previous year. Profits and
gains of business, profession or vocation of the assessee which was
not carried on by him during any part of the previous year being
B
outside the purview of s. 10 must necessarily fall under s. 12.
Mr. Palkhiwala conceded that the receipts in question were
the income of the assessee. He also admitted that the income was
not exempt from tax under sub-s. (3) of s. 4. The income was
received by the assessee in the taxable territories during the rele~
vant previous years. The receipts are, therefore. liable to be in~
c
eluded in the total income. We have found that this income cannot
be included under s. 10. It is common case that it cannot be included under any other head. It follows that the income must fall
under the residuary head specified in s. 12.
Section 12 dealing with the residuary head is framed in general
terms and in computing the income under this head. requires
deduction of any expenditure (not being in the nature of capital
D
expenditure) incurred solely for the purpose of making or earni.ng
such income. As the income in the present case falls under s. 12,
the allowance for the necessary expenditure must necessarily be
given under this head and not under s. 10. There is no question of
the assessee suffering an injustice by not being given the allowances under s. 10. He cannot be given the allowances under s. 10,
as the income does not fall under that section.
E
Counsel rightly submitted that s. 12 covers residual heads and
not residual receipts. In this connection, he relied upon Salisbury
/louse Estates Ltd. v. FryC). That case decided that the variou~
Schedules of the English Income-tax Act, 1918 are mutually ex~
elusive, Sch. A must be applied to the class of income faiHng
under it and no pay of this income is chargeable under Sch. D.
F
This decision received the approval of this Court in United Com~
mercia/ Bank Ltd. v. The Commissioner oj lnco;;;,•·tax('). On the
principle of this decision. if a particular income is taxable as income from property under s. 9. any residunl receipt from the
property in excess of the annual value assessed under s. 9 cannot
be assessed again as residual income under s. 12. This principle
has no application to the case before us. Th~ relevant professional
G
income of the assessee is not taxable under s. 10 or under any other
specific head, and it must. therefore, be taxed under s. 12. This is
not a case where the revenue has taxed or can tax the incomeunder s. 10 and again seeks to tax the income under s. 12.
Mr. Palkhiwala next referred us to several English decisions
in support of his contention that the receipts of the professional
---~--· ·--·-·--· ---.--
(1) til T.C. 266.
(I) [I9'8) S.C.H. 79.
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J.MBALAL AODY V~ C:. I. 1'. (Bachawat, tf.)
307
income after the discontinuance of the profession are not assessable to income-tax. Rowlatt, J. in Bennett v. Ogston(l) 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 the basis of bookings or on the basis of receipts."
These observations received the approval of the House of Lords
in Purchase v. Stainer's Executors(2) and Carson v. Cheyney's
Executors(3). In the last two cases, the Court held that the pr~
fessional earnings of a deceased individual realised by his executor
were not liable to income-tax either under Case II or under Cases
III and VI of Schedule D of the English Income-tax Act, 1918.
In Cheyney's case(s). the professional earner had died in one of
the assessment years and part of his earnings had been realised by
his executor during the same assessment year. It is remarkable,
however, that in Cheyney's case(3) at p. 265 Lord Reid said:
"In my opinion, the ground of judgment in this House in
Stainer's case was that payments which are the fruit
of professional activity are only taxable under Case II
and cannot be taxed under Case III, even when it is
no longer possible when they fall due to tax them
· under Case II. and when looked at by themselves and
without regard to their source they would fall within
Case III. I am not sure that I fully appreciate the rea·
sons for the decision, but I have no doubt that that is
what was decided, and I am bound by that decision
whether I agree with it or not."
The rule in Stainer's case(!), rests on shaky foundations and has
been subjected to criticism even in England. The rule is subject
to exceptions in England, and as pointed out by Jenkins, L. J. in
Stainer's case(!) is subject to the application of Rule 18 of the
General Rules. The Indian Income-tax Act, 1922 is not pari
materia, the scheme is in many respects different from the scheme
of the English Act, and I think that the rule in Stainer's caseC) is
not applicable to the Indian Act.
In England, the tax is on the
current year's income, the Revenue has the option to assess the
(1) J5 T.C. 374,378.
(1) [1951] 32 T.C. 367.
( 8) [1960] 38 T.C. 240.
SOB
~UP~EME OOURT Rltl'OR1'$
(196~) 8UPP, 8.0.i.
income on the accrual basis, and even if it chooses to make an
asses_sment on the cash basis, the entire accrued income might be
constdered to be covered by the assessment. But under the Indian
law. the tax is on the previous year's income, the Revenue has no
option to assess the income from a business or profession on the
accrual basis if the accounts of the assessee are regularly kept on
the cash basis, and the assessmenl on the cash basis cannot cover
the receipts in the subsequent years.
Moreover, it is impossible
to say under the Indian law that aU receipts of outstanding professional fees after the retirement of the assessee from profession
escape taxation. Beyond doubt, the receipt of the professional fees
in tho accounting year during which the assessee ~ried on the
profession is assessable under s. 10, though at the time of the
receipt he has retired from the profession.
The decision in The Commissioner of Income-tax, Bombay
City I. Bombay v. Amarchand N. ShroOC> 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 Hable to be assessed to income-tax under
s. 24B as his income in the hands of his heirs, and apart from
s. 248. no assessment can be made in respect of a person after his
death. In the instant case. the assessee is alive. and no ques1ion
of assessment under s. 24B arises.
Neither side relied on s. 250>. and. in my opinion.