Unless & until gift is connected with profession/avocation, it cannot be taxed

Unless and until gift is connected with profession or avocation, it cannot be taxed

In the absence of link or connection between the gift made by the devotees and the profession or avocation carried on by the assessee, a religions head, the personal gift cannot be termed as income taxable under the Act

[2010] 6 taxmann.com 87 (Mad.)

HIGH COURT OF MADRAS

CIT v. Gopala Naicker Bangaru TAX CASE APPEAL NO. 308 OF 2009 JULY 21, 2010

FACTS

As per the profile submitted by the Respondent/Assessee, he was born on 3-3-1941 at Melmaruvathur Village, Kanchipuram District and during his childhood, Goddess Adhiparasakthi frequented in his dreams to make it known that she wanted him to build a temple and use it to alleviate the sufferings of humanity. The devotees are believing that the Assessee is believed to be an Avatar and incarnation of Goddess Adiparasakthi. The Assessee's Oracles and Miracles attract millions of devotees from all over the world who come to Melmaruvathur to seek his blessings. The devotees calling him as `Amma' and he is rendering tireless serves to the mankind irrespective of caste, creed, colour, religion, economic status and integrity.

The devotees of the Assessee come and make their offerings for contribution voluntarily to him at the time of his birthday and the same has been accounted as capital receipts and receipts have also been issued. Thus, the Assessee is performing religious practice for the benefit of mankind.

According to the Revenue, the Assessee filed his Return of Income for the assessment year 2004-05 declaring taxable income of Rs.5,23,680/- and the same was accepted under section 143(1) of the Income-tax Act. On scrutiny of the Balance-sheet, it has been revealed that an amount of Rs.1,75,70,347/- was received as gifts during that year and was shown as capital receipts.

The Assessing Officer during the course of assessment, treated the gifts as having nexus to his profession as a religious head and hence, brought the entire income within the net of tax and vide assessment order dated 5-11-2007 under section 143(3) r/w section 147 of the Income-tax Act, 1961 and credited the above said gift as professional income and held that the Assessee is liable to pay a sum of Rs.75,56,439/- as Income-tax. It is also indicated in the said order that penalty proceedings under Section 271(1)(c) are being initiated separately.

HELD

The Respondent/Assessee as a religious head, is not involving himself in any profession or avocation and also not performing any religious rituals/poojas for his devotees for some consideration or other. In fact the Respondent/Assessee is doing charitable work and spiritualization and made his devotees to follow the same for the benefit of mankind.

The devotees out of natural love and affection and veneration used to assemble in large numbers on the birthdays of the Assessee and voluntarily made gift, and at any stretch of imagination it cannot be said that the amount received by the Respondent by way of gift would amount to vocation or profession. It is not the case of the department that the devotees were compelled to make gift on the occasion of the birthday of the Respondent/Assessee. The facts of the present case would disclose that the amount/gift received by the Respondent/Assessee cannot said to have any direct nexus with any of his activities as a religious person/Head.

The Commissioner of Income-tax(Appeals) as well as the Income-tax Appellate Tribunal held that simply because the Respondent/Assessee practicing ritualism while leading normal family life, cannot said to be carrying on any profession or vocation and that no link has been established between the receipt received on the occasion of the birthday and so called vocation carried on by the Assessee.

The decisions reported in 171 ITR 447 (Mad.), Commissioner of Income-tax vs. Mr.Balamuralikrishnan, 160 ITR 534 C.P.Chitrarasu vs. Commissioner Income-tax, Madras, 231 ITR 632 Commissioner Income-tax vs. Sri Vanamamalai Ramanuja Jeer Swamigal, the facts of which have been discussed in detail by this Court in the earlier paragraphs, are squarely applicable to the facts of this case, for the reason that the gifts made by the followers are voluntary in nature which are neither income nor capital in the hands of the Assessee. It has been further held in those decisions that unless and until the gift is connected with the profession or avocation, it cannot be taxed and in the absence of link or connection between the gift made by the devotees and the profession or avocation carried on by the Assessee, the personal gift cannot be termed as income taxable under the Act. It is pertinent to point out at this juncture, in the Respondent / Assessee's own case in Assessment year 1988-89, the Department has accepted the position that gifts received by him on birthdays and other occasions were not taxable. In the decision reported in 193 ITR 321 (SC) Radhasoami Satsang vs. Commissioner of Income-Tax, it has been held that -

"Where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent years."

Since, there is no change in facts and law in the present case, the reasons assigned by the Income-tax Appellate Tribunal are correct and this Court finds no infirmity or error apparent on the face of record in the impugned order.

________JUDGMENT__________

M.SATHYANARAYANAN, J

The Revenue has preferred this Appeal under Section 260-A of the Income-tax Act, 1961 challenging the vires of the order dated 17.10.2008 passed by the Income-tax Appellate Tribunal `C' Bench, Chennai, made in I.T.A 588/Mds./2005.

2. This appeal was admitted on the following substantial questions of law:-

1. Whether on the facts and circumstances of the case, the Income-tax Appellate Tribunal was right in law in holding that the gifts received on Assessee's birthday of Rs.1,75,70,347/- as Capital Receipt and having no nexus with his profession as vocation of religious practice is valid?

2. Whether on the facts and circumstances of the case, the Income-tax Appellate Tribunal was right in saying that the reopening under Section 147 of the Income-tax Act, on mere surmise, even though the assessment was reopened within 4 years with valid reasons from the end of the assessment year and hence no proviso to Section 147 will apply to the facts of this case?:

3. The facts leading to the filing of this appeal are as follows:-

As per the profile submitted by the Respondent/Assessee, he was born on 03.03.1941 at Melmaruvathur Village, Kanchipuram District and during his childhood, Goddess Adhiparasakthi frequented in his dreams to make it known that she wanted him to build a temple and use it to alleviate the sufferings of humanity. The devotees are believing that the Assessee is believed to be an Avatar and incarnation of Goddess Adiparasakthi. The Assessee's Oracles and Miracles attract millions of devotees from all over the world who come to Mel Maruvathur to seek his blessings. The devotees calling him as `Amma' and he is rendering tireless serves to the mankind irrespective of caste, creed, colour, religion, economic status and integrity.

4. The devotees of the Assessee come and make their offerings for contribution voluntarily to him at the time of his birthday and the same has been accounted as capital receipts and receipts have also been issued. Thus, the Assessee is performing religious practice for the benefit of mankind.

5. According to the Revenue, the Assessee filed his Return of Income for the assessment year 2004-2005 declaring taxable income of Rs.5,23,680/- and the same was accepted under Section 143(1) of the Income-tax Act. On scrutiny of the Balance-sheet, it has been revealed that an amount of Rs.1,75,70,347/- was received as gifts during that year and was shown as capital receipts.

6. The Assessing Officer during the course of assessment, treated the gifts as having nexus to his profession as a religious head and hence, brought the entire income within the net of tax and vide assessment order dated 5.11.2007 under Section 143(3) r/w Section 147 of the Income-tax Act, 1961 and credited the above said gift as professional income and held that the Assessee is liable to pay a sum of Rs.75,56,439/- as Income-tax. It is also indicated in the said order that penalty proceedings under Section 271(1)(c) are being initiated separately.

7. The Assessee/Respondent herein aggrieved by the Assessment Order passed by the Assistant Commissioner of Income-tax Circle I, Tambaram, Chennai-45, has preferred appeal before the Commissioner of Income-tax (Appeals), Chennai in I.T.A No.97/07-08. The Commissioner of Income-tax (Appeals) vide order dated 9.1.2008, has set aside the order passed by the Assistant Commissioner of Income-tax Circle-I, on the ground that the amounts received by the Assessee are gifts and they are not consideration for profession/vocation. The Commissioner of Income-tax (Appeals) has also considered the decision reported in 231 ITR page 632 (Mad.) Commissioner of Income Tax vs. Sri.Vanamamalai Ramanuja Jeer Swamigal for arriving at such a finding and allowed the appeal filed by the Assessee.

8. The Department/Revenue aggrieved by the order passed by the Commissioner of Income Tax (Appeals), had preferred further appeal before the Income Tax Appellate Tribunal `C' Bench, Chennai in I.T.A.No.588/Mds./2005 for the assessment year 2004-2005.

9. The appellate Tribunal after taking into consideration the rival submissions and considering the various decisions cited before him, vide order dated 17.10.2008, has dismissed the appeal on the ground that that the gifts received by the Assessee, have no direct nexus with any of his activities and it is squarely covered by the decision cited supra (231 ITR page 632). The Revenue aggrieved by the order of dismissal of the appeal passed by the Income Tax Appellate Tribunal `C' Bench, Chennai, had preferred this appeal.

10. Mr.J.Nareshkumar, learned Senior Standing Counsel appearing for the Income Tax Department/appellant, has submitted that but for the fact the Assessee is a religious leader, and that his profile also states that he is performing Oracles , the devotees would not have made gifts to him.

11. It is further submitted by the learned senior standing counsel appearing for the appellant that the Assessee is admittedly living with his family and keeping the amount in his bank account and it was also shown in his Wealth Tax Returns filed for the Assessment year 2005-2006. It is the further submission of the learned senior standing counsel appearing for the appellant, the Assessee has not offered any proper explanation as to why gifts/donations received from his devotees were deposited in his individual bank account and even though two charitable trusts are run by him, the Assessee has not deposited the donations in the accounts of the trust. Therefore, the learned senior standing counsel appearing for the appellant would submit that in the absence of any supporting material produced by the Assessee that it is a capital receipt, the Assessing Officer on a careful consideration of the materials available on record, has rightly arrived at a finding that it is liable to be taxed and consequently levied tax on the said income with liberty to proceed under Section 271(1)(c) by way of penalty proceedings. It is the further submission of the learned senior standing counsel appearing for the Department that the Commissioner of Income Tax (Appeals) as well as the Tribunal had failed to take into consideration the said vital aspects and by placing reliance upon the decisions which are not applicable to the facts of the case, had upheld the claim of the Assessee and therefore, the impugned order passed by the Tribunal confirming the order passed by the Commissioner of Income Tax (Appeals) is liable to be set aside.

12. Learned senior standing counsel appearing for the appellant in order to buttress his submissions, has placed reliance upon the following decisions:-

i. 35 ITR 48 (SC) - Krishna Menno (P) vs. Commissioner of Income-tax

ii. 34 ITR 92 (Bombay) Govindlalji Ranchhodalalji (Maharaj Shri) vs. Commissioner of Income-tax

iii. 156 ITR 412 (SC) George Thomas (K.) (Dr.) vs. Commissioner of Income-tax

iv. 176 ITR 78 (Kerala) Father Epharam vs. Commissioner of Income-tax

v. Unreported Judgment dated 16.12.2008 in W.P.Nos.15527 to 15537 of 2003

13. In 35 ITR 48 (SC) - Krishna Menon (P) vs. Commissioner of Income-tax, the Assessee after his retirement as a Superintendent of Police, spending his time in studying Vedanta Philosophy and expounding the same to such persons. He soon gathered a number of disciples. One of the disciples had transferred the entire balance outstanding in his account to the credit of the Assessee and the said amount was the subject matter of assessment. The Income-tax Officer had assessed the said income as a taxable income and the Assessee preferred an appeal before the Assistant Commissioner who dismissed the appeal. The Assessee's appeal to Appellate Tribunal has also ended in dismissal and hence further appeal was preferred before the High Court of Bombay which has also ended in dismissal. The Assessee filed appeal before the Hon'ble Supreme Court of India. The Hon'ble Supreme Court on the facts, found that the Assessee was teaching his disciples Vedanta, without any motive or intention of making profit out of such activity and that teaching of Vedanta by the Assessee can properly be called the carrying on of a vocation by him. The Supreme Court held that the importing of the teaching was the cause causans of the making of the gift and that the payments with which were income arising from the vocation of the appellant as a teacher of Vedanta, no question of exemption under Section 4(3)(vii) of the Act arises. The Supreme Court citing the said reasons has dismissed the appeal filed by the Assessee.

14. In 34 ITR 92 (Bombay) Govindlalji Ranchhodalalji (Maharaj Shri) vs. Commissioner of Income-tax, the Assessee is a direct descendant of Shri Vallabhacharyaji who founded the faith known as `Vallabh Sampradaya' Maharaj Shri is not a sanyasi and he has married and has children. He is succeeded by his sons who inherit and divide the properties. The Assessee keeps an idol of Lord Krishna in his house and the offerings are made to the Assessee. The authorities below held that the Assessee therein was carrying on a vocation and the Assessee aggrieved by the same, preferred an appeal to the High Court of Bombay. The Bombay High Court held that even practice of religion can become a vocation and more so, when it brings in a steady income. Therefore, the Bombay High Court upheld the claim of the Department that the Assessee was rightly assessed to tax as income.

15. In 156 ITR 412 (SC) George Thomas (K.) (Dr.) vs. Commissioner of Income-tax, the Assessee was a lecturer in a college and he associated himself wit the Indian Gospel Masson in the USA, which collected money for its working abroad through the Indian Christian Crusade. On returning to India, the Assessee was propagating the ideals of the Indian Christian Crusade and was engaging in a movement for the spread of religion etc., and he also started publishing a daily newspaper. The income of the Assessee was subjected to tax and challenge made by the Assessee before the authorities below had ended in futile before the High Court of Kerala also. Hence, the Assessee preferred an appeal before the Hon'ble Supreme Court of India.

16. The Hon'ble Supreme Court of India in the decision held that there was a link between the activities of the appellant and the payments received by him and the link was close enough and that the appellant got receipts on account of carrying on of his vocation and they were not casual and non-incurring receipts. The Hon'ble Supreme Court of India citing the said reasons, has upheld the case of the Department that the incomes were taxable.

17. In 176 ITR 78 (Kerala) Father Epharam vs. Commissioner of Income-tax, the Assessee was a Priest in a Monastery and he received substantial foreign remittances and the surplus amount that remained after distribution to various other Priests for performing the mass, was treated as the income of the Assessee and was taxed. The Assessee challenged the imposition of tax, and lost before the authorities and hence he preferred further appeal to High Court of Kerala. The High Court of Kerala held that there was a close and intimate link between the occupation or avocation of the Assessee and the payments received by him and based on the said reason, dismissed the appeal filed by the Assessee.

18. Similar view was taken in the unreported judgment dated 16.12.2008 made in W.P.Nos.15527 to 15537 of 2003.

19. The learned senior standing counsel appearing for the appellant/Department by placing strong reliance on the above cited decisions would submit that but for the fact the Assessee/Respondent herein is a religious leader, he would not have received gifts and hence there is a close and intimate link between the activities/avocation of the Assessee and the payments received by him and therefore, it was rightly taxed by the Assessing Officer and it was erroneously reversed by the Commissioner of Income-tax (Appeals) and the Appellate Tribunal and hence the learned standing counsel appearing for the appellant praying for the setting aside of the order passed by the Tribunal and to confirm the order passed by the Assessing Officer.

20. Per contra Mr.V.Ramachandran, learned senior counsel appearing for M/s.P.Sivagnanam and A.S.Balaji, learned counsel appearing for the Respondent / Assessee would submit that the Commissioner of Income-tax (Appeals) as well as the Appellate Tribunal had rendered a clear and categorical finding that there was no nexus between the receipt of the birthday gifts and the exercise of any profession or vocation by the Assessee and that the gifts were voluntarily made by the devotees on account of personal esteem and veneration and therefore, the said finding cannot be disturbed. It is further submitted by the learned senior standing counsel appearing for the appellant that the assessee's own case in Assessment year 1988-89, the Department has accepted his case after due enquiry and that the gifts received by the Respondent herein on birthdays and other occasions were not taxable. The learned senior counsel appearing for the Respondent in support of his submissions, though relied upon number of decisions, it will be useful to refer to the following decisions:-

1. 171 ITR 447 (Mad.) Commissioner of Income-tax vs. Mr.Balamuralikrishna.

2.160 ITR 534 C.P.Chitrarasu vs. Commissioner Income-tax, Madras.

3.231 ITR 632 Commissioner Income-tax vs. Sri Vanamamalai Ramanuja Jeer Swamigal.

In all the said decisions the judgment of the Hon'ble Supreme Court of India reported in 35 ITR 48 Krishna Menon vs. Commissioner of Income-tax has been referred.

21. 171 ITR 447 (Mad.) Commissioner of Income-tax vs. Mr.Balamuralikrishnan, the Assessee is a Musician by profession and he claimed a sum of Rs.30,000/- given to him by his fans in appreciation of his completing 30 years of service rendered to Carnatic Music as exempted from tax. The Income Tax Officer treated the said income as professional income and levied tax. The Assessee preferred appeal and the Appellate Authority held that the said payment was received by way of a testimonial or personal gift and not taxable and the said view was also upheld by the Tribunal and hence the Department taken up the matter for further appeal before this Court. A Division Bench of this Court by placing reliance upon 35 ITR page 48 (SC) (Krishna Menon's case), 114 ITR page 253 (Mad) S. A. Ramakrishnan vs. CIT and other decisions, has held that though the Assessee is an artist by profession, there is no direct nexus between this payment and his vocation though it may not be denied that there is an indirect connection between the two. The payment received by the Assessee from his fans, was expression of their good will and hence the said amount cannot be said to have been paid to him by way of remuneration for those services Citing the said reasons, this Court in the said decision, has upheld the claim of the Assessee and dismissed the appeal preferred by the Income-tax Department.

22. In 160 ITR 534 C.P.Chitrarasu vs. Commissioner Income-tax, Madras, the Assessee was an active member of a political party and held various offices. A committee consisting of the party men of that party had collected donations from the members of the party, businessmen and public and also arranged a drama for the purpose of donating a purse and the same was donated to the Assessee. The Income-tax Officer held that a sum of Rs.51,000/- out of the amount given to the Assessee by his admirers, would constitute income received by the Assessee in the course of his vocation as a politician and therefore, it was taxable. The Assessee was successful before the authorities below and hence the Revenue preferred the said appeal before this Court. A Division Bench of this Court after taking into consideration the factual aspects and the decisions cited before it, held that the presentation of Rs.51,000/- to the Assessee amounted to windfalls or gift for his personal qualities, though his profession or vocation as a politician. This Court further held that no materials placed before the lower authorities by the Revenue that the presentation of Rs.51,000/- to the Assessee will amount to a receipt arising from the exercise of a profession or vocation or occupation and therefore, for the said reasons, the appeal preferred by the Revenue was dismissed.

23. In 231 ITR 632 Commissioner Income-tax vs. Shri Vanamamalai Ramanuja Jeer Swamigal, the Assessee namely Shri Vanamamalai Ramanuja Jeer Swamigal, Nanguneri, Tirunelveli District, received amounts by way of Kanikkai and Sambhavanai amounting to a sum of Rs.12,156/-. The question arose was whether the said amount was assessable as income-tax under the Income-tax Act, for the assessment year 1974-75. The Tribunal held that the said presentation was out of personal regard, personal esteem and veneration for Swamigal and did not constitute income from the exercise of any profession or vocation and that there was no evidence to show that Swamiji had been exercising any profession or vocation. The Revenue preferred appeal before this Court and it was contended that any amount brought by his followers would amount to income assessable to tax under the Income-tax Act. A Division Bench of this Court in the said decision, has taken into consideration the Krishna Menon s case reported in 35 ITR 48 (SC) and other decisions, held that Kanikkai and Sambhavanai were paid by the devotees to the Jeer Swamigal out of personal regard, esteem and veneration and that the Swamigal is not exercising any profession or avocation and the voluntary offerings made by the devotees are not on account of any profession or vocation. This Court for the said reasons, has held that the said offerings will not be considered as income under the Income-tax Act and therefore, dismissed the appeal preferred by the Revenue.

24. Learned senior counsel appearing for the Respondent/Assessee would submit that the decision reported in 231 ITR 632 (Mad.) is squarely applicable to the facts of the case and further that the Commissioner of Income-tax (Appeals) as well as the Income-tax Appellate Tribunal had upheld the case of the Respondent by rendering concurrent findings. It is further submitted that no substantial questions of law arose for consideration in this appeal and hence prayed for dismissal of this appeal.

25. This Court has carefully considered the submissions made by the learned senior standing counsel appearing for the appellant and the learned senior counsel appearing for the Respondent and also the decisions relied on by the respective counsel.

26. The Religion is a matter of faith stemming from the depth of the heart and mind and is a belief which binds the spiritual nature of men to super natural being. Devotion is a consecration and denotes an act of worship. Faith, in the strict sense constitutes firm reliance on the truth of religious doctrines in every system of religion and religion, faith or devotion is not easily interchangeable. Religion has reference to one s views of his relations to his Creator, and to the obligations they impose of reverence for his being and character, and of obedience to his will.

27. The profile of the Respondent/Assessee would indicate that Goddess Adhiparasakthi frequented in his dreams to make it known that she wanted to build a temple and use it to alleviate the sufferings of humanity and accordingly the Respondent / Assessee has built a temple which is also known as `Sakthi Peedam'. The devotees on important occasions, used to throng the temple and as per the practice prevails in the temple, the devotees irrespective of their gender, can perform poojas and Abishegams to the presiding deity namely Goddess Parasakthi. The above said practice of devotees performing Abishegams and poojas to the presiding deity is not prevalent in the State and therefore out of love and affection and veneration, they used to assemble in great numbers on the eve of the birthday of the Respondent/Assessee and offer gifts.

28. It is to be pointed out at this juncture that the Respondent/Assessee as a religious head, is not involving himself in any profession or avocation and also not performing any religious rituals/poojas for his devotees for some consideration or other. In fact the Respondent/Assessee is doing charitable work and spiritualization and made his devotees to follow the same for the benefit of man kind.

29. The devotees out of natural love and affection and veneration used to assemble in large numbers on the birthdays of the Assessee and voluntarily made gift, and at any stretch of imagination it cannot be said that the amount received by the Respondent by way of gift would amount to vocation or profession. It is not the case of the department that the devotees were compelled to make gift on the occasion of the birthday of the Respondent/Assessee. The facts of the present case would disclose that the amount/gift received by the Respondent/Assessee cannot said to have any direct nexus with any of his activities as a religious person/Head.

30. The Commissioner of Income-tax (Appeals) as well as the Income-tax Appellate Tribunal held that simply because the Respondent/Assessee practicing ritualism while leading normal family life, cannot said to be carrying on any profession or vocation and that no link has been established between the receipt received on the occasion of the birthday and so called vocation carried on by the Assessee.

31. The decisions relied on by the learned senior standing counsel appearing for the appellant/Department have no application to the facts of the present case as in those cases, Courts held that the activities of the concerned Assessees would amount to vocation and object of which, is to make a profit and also amount to revenue receipt.

32. The decisions reported in 171 ITR 447 (Mad.) Commissioner of Income-tax vs. Mr.Balamuralikrishnan, 160 ITR 534 C.P.Chitrarasu vs. Commissioner Income-tax, Madras, 231 ITR 632 Commissioner Income-tax vs. Sri Vanamamalai Ramanuja Jeer Swamigal, the facts of which have been discussed in detail by this Court in the earlier paragraphs, are squarely applicable to the facts of this case, for the reason that the gifts made by the followers are voluntary in nature which are neither income nor capital in the hands of the Assessee. It has been further held in those decisions that unless and until the gift is connected with the profession or avocation, it cannot be taxed and in the absence of link or connection between the gift made by the devotees and the profession or avocation carried on by the Assessee, the personal gift cannot be termed as income taxable under the Act. It is pertinent to point out at this juncture, in the Respondent / Assessee's own case in Assessment year 1988-89, the Department has accepted the position that gifts received by him on birthdays and other occasions were not taxable. In the decision reported in 193 ITR 321 (SC) Radhasoami Satsang vs. Commissioner of Income-Tax, it has been held that -

"Where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent years."

Since, there is no change in facts and law in the present case, the reasons assigned by the Income Tax Appellate Tribunal are correct and this Court finds no infirmity or error apparent on the face of record in the impugned order.

33. This Court after taking into consideration the factual as well as the legal aspects is of the considered opinion that the substantial questions of law raised by the Revenue are to be answered in negative against them. Therefore, the appeal is dismissed confirming the order dated 17.10.2008, passed by the Income-tax Appellate Tribunal `C' Bench, Chennai in I.T.A.No.588/Mds/2005. In the circumstances, there will be no order as to costs.

Gift under Income Tax Act

An attempt is made to highlight some of the salient features of Taxability of Gifts as Income under sections 56(vii) and (viia) of the Income Tax Act, 1961 (`the Act') i.e., mainly gifts received after 1-10-2009.

1.1 The charging section of the Gift Tax Act, 1957 was suspended w.e.f. 1-10-98 to say that Gifts made after 1-10-98 would not be chargeable to Tax. It is a misnomer to state that the Gift Tax Act has been abolished as it is only the Charging Section which has been kept in abeyance. In short it can be revived if the Legislature deems it fit.

The Law On Taxation Of Gifts

CA K. C. Devdas

Clauses (v) to (viia) of s. 56(2) incorporate the law on taxation of gifts. The author, an eminent Chartered Accountant, has meticulously analyzed the provisions of law and identified numerous problems therein. Using his vast experience in the subject, the author has proposed a number of credible solutions as well.

It is doubtful whether basis of valuation for the purpose of stamp duty has been notified by all the State Governments in respect of all the properties, including agriculture land, etc. In case basis for valuation has not been notified for the purpose of stamp duty, the value taken would only be value as is mentioned in the documents registered or the value as would have been adopted by concerned authorities for the purpose of stamp duty
1.2 In order to augment the sources of revenue and as the charging provisions of Gifts Tax Act have been kept in abeyance, the Legislature in its wisdom introduced section 56(2) (v) of Income tax Act, 1961 with effect from 1-4-2005 to state that Gifts received without consideration by an individual or aHUF from any person after 1.9.2004 would be deemed as Income unless it is received from the exempted persons and categories as stated in the Proviso to section 56(2) (v) of the Act. There were amendments to this sub-clause by way of introduction of 56(2) (VI) of the Act with effect from 1-4-2007. Both the sub-clauses covered only Gifts of any sum of money subject to the stipulations laid down therein. In short gifts in kind were not covered under these sub-clauses.

1.3 In order to extend the taxability of Gifts to properties other than cash, sub-clause (vii) was introduced with effect from 1-10-2009 to cover gifts of immovable properties, shares and securities, jewellery, archaeological collections, drawings, paintings, sculpture, any work of art, and bullion (1-6-2010).

1.4 I t is the paper writer's view that taxability of gifts as income which started on a small scale to include only sums of money seems to have spread its net wide enough to include gifts in kind also. The future enactments would further see a plethora of items being added to the definitions of property so that gifts barring few exceptions would be covered under the Act. The Paper writer is reminded of the levy of service tax where it is started as a levy on 5 or 6 items and gradually got extended to over 100 services. The fate of taxability of gifts as income would also be the same and amendments are not far off to say that all gifts would be income except those specifically exempted. The Government is always contemplating to raise revenues and the taxability of gifts as income is very valuable tool. At the same time there would be a lot of litigation on the principles of valuation on the taxability of gifts under the Act like sections 68, 115JB and other vexatious provisions.

1.5 Be that as it may an attempt is made in this paper to highlight some of the features governing gifts covered by clauses (vii) and (viia) to section 56(2) of the Act. 1.6 Section 56(2) (vii) of the Act. The previous provisions of sub-clause (vi) of section 56 provided that any `sum of money' (in excess of the prescribed limited of rupees fifty thousand) received without consideration by an individual or HUF would be chargeable to income-tax in the hands of the recipient under the head `Income from other Sources'. However, receipts from relatives or on the occasion of marriage or under a will were outside the scope of the provisions of clause (vi) of sub-section (2) of section 56 of the Income-tax Act. Similarly, anything which is received in kind having `money's worth', i.e., property also remained outside the purview of these provisions.

Section 47 governs transactions not regarded as transfer and covers distribution of Assets on total or partial partition, Transfer under Will, etc. These exceptions are not covered under the proviso to Section 56(2) (viia) and therefore could it be considered that such transactions would be caught within the mischief of section 56(2)(viia) of the Act? It may also be noted that the gifts received from exempted categories stipulated u/s 56(2)(vii) would not govern gifts u/s. 56(2)(viia) and therefore are to be strictly interpreted
The above section being an anti-abuse measure, has been amended by inserting a new clause (vii) in sub-section (2) to provide that the value of any property would be included in the computation of total income of the recipient as "income from other sources". Such properties will include immovable property being land or building or both, shares and securities, jewellery, archaeological collections, drawings, paintings, sculptures or any work of art. In a case where an immovable property is received without consideration and the stamp duty value of such property exceeds fifty thousand rupees, the whole of the stamp duty value of such property shall be taxed as the income of the recipient.

If the stamp duty value of immovable property is disputed by the assessee, the Assessing Officer may refer the valuation of such property to a Valuation Officer. In such cases, the provisions of existing section 50C and subsection (15) of section 155 of the Income-tax Act shall, as far as may be, apply, for determining the value of such property.

It has been provided that in a case where movable property is received without consideration and the aggregate fair market value of such property exceeds fifty thousand rupees, the whole of the aggregate fair market value of such property shall be taxed as the income of the recipient. If a movable property is received for a consideration which is less than the aggregate fair market value of the property and the difference between the two exceeds fifty thousand rupees, the difference between the fair market value of such property and such consideration shall be taxed as the income of the recipient.

The method for the determination of fair market value of property other than immovable property has been provided in rules 11U and 11UA of Income-tax Rules, 1961.

Consequential amendment has been made in section 2 by inserting sub-clause (xv) in clause (24) thus expanding the definition of income to include any sum of money or value of property referred to in clause (vii) of sub-section (2) of section 56. Further, section 49 has also been amended by way of inserting a new subsection (4) providing that for the purposes of computing capital gains, if the transaction of receipt of the asset is subject to tax under clause (vii) of sub-section (2) of section 56, then the cost of acquisition of the asset shall be the stamp duty value (for immovable property) or fair market value (for asset being a movable property), as the case may be.

These amendments have been made applicable with effect from 1st October, 2009 and will accordingly apply for transactions undertaken on or after such date.

The Finance Act, 2010 amended the definition of Property u/s. 56(2) (vii) of the Act w.e.f. 1-10-2009 to provide that section 56(2)(vii) will have application to the "Property" which is in the nature of a capital asset of the recipient and therefore would not apply to stock-in-trade, raw material and consumable stores of any business of such recipient.

Further clause (vii) of section 56(2) was amended w.e.f. 1-10-2009 to provide that it would apply only if the Immovable Property is received without any consideration (Underlining mine) and to remove the stipulation regarding transactions involving cases of inadequate consideration in respect of Immovable property.

1.7 The Finance Act of 2010 w.e.f. 1-6-2010 has introduced yet another sub-clause to section 56(2) which is numbered as sub-clause (viia) to tax shares of a company, not being a company in which public are substantially interested, received by a firm or a company (Not being a company in which the public are substantially interested). Thus the Taxable assessee's are closely held companies and firms.

The aggregate value of inadequate consideration or absence of consideration should exceed Rs. 50,000/. When the shares are received without consideration or for Inadequate consideration and the lack of consideration is more than Rs. 50,000/-, then the entire amount of shortfall in consideration would be taxable. In case the aggregate shortfall in consideration is less than Rs. 50,000/- no chargeability arises. The method of ascertaining Fair Market Value (`FMV') of shares has been laid down in Rule 11UA(C) of Income Tax Rules, 1962 (`IT Rules'). However, the proviso to clause (viia) clearly provides that this clause shall not apply to any such property received by way of transaction not regarded as Transfer under Clause (via), (vic), (vicb) (vid) or clause (vii) of section 47.

Accordingly shares received on account of the transactions governed of the aforesaid clauses of Section 47 would not be liable to tax. Section 47 governs transactions not regarded as transfer and covers distribution of Assets on total or partial partition, Transfer under Will, etc. These exceptions are not covered under the proviso to Section 56(2) (viia) and therefore could it be considered that such transactions would be caught within the mischief of section 56(2)(viia) of the Act? It may also be noted that the gifts received from exempted categories stipulated u/s 56(2)(vii) would not govern gifts u/s. 56(2)(viia) and therefore are to be strictly interpreted.

2. Having brought out the salient features of amendment made to Section 56(2) (vii) and introduction of clause (viia) to the Act, I would dwell in a nut shell to the provisions of Section 56(2) governing gifts in general in the concept of gifts, related persons, exempted categories, threshold etc.

2.1 Provisions of Section 56(2)(vii) applicable only if the recipient of sum of money or specified property is an Individual or HUF The provisions of section 56(2) (vii) inserted w.e.f. 1-10-2009 are applicable only if the recipient of sum of money or specified property is an Individual or HUF.

However section 56(2)(viia) has been introduced to cover partnership firms and certain companies if they receive specified shares.

2.2 Provisions not applicable in case the specified properties are received from a relative or in other prescribed circumstances The provisions of section 56(2)(vii) inserted w.e.f. 1-10-2009 are applicable in case the specified properties are received from a relative or in other prescribed circumstances. In the following circumstances the prescribed amounts or the value of the property received are not chargeable to tax u/s 56(2)(vii) of the Act

(i) Any receipt of sum of money or any property from any relative;

(ii) Receipt on occasion of the marriage;

(iii) Receipt under a Will;

(iv) Receipt by way of inheritance;

(v) Receipt in contemplation of death;

(vi) Receipt from a local authority as defined in the Explanation to section 10(20;

(vii) Receipt from any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to in section 10(23C);

(viii) Receipt from any trust or institution registered u/s 12AA.

2.3 Meaning of relative


The provisions of section 56(2)(vii) inserted w.e.f. 1-10-2009 are not applicable in case the specified properties are received from a relative or in other prescribed circumstances.

The term "relative" as defined includes spouse, brother, sister, brother or sister of spouse, brother or sister of either of the parents, any lineal ascendant or descendant of the individual or of the spouse and spouse of any of the persons mentioned above. Following is the list of some persons considered relative of an individual for the purpose of section 56(2)(vii).

2.4 Specified properties covered u/s. 56(2) (vii):

The provisions of section 56(2) (vii) are applicable w.e.f. 1.10.2009 on the receipt of a sum of money and specified properties, as mentioned hereunder.

For this purpose "property" means the following "property" capital assets –

(i) Immovable property being land or building or both;

(ii) Shares and securities;

(iii) jewellery;

(iv) archaeological collections;

(v) drawings ;

(vi) paintings;

(vii) sculptures ;

(viii) any work of art; or

(ix) bullion (w.e.f. 1-6-2010)

These are summarized below–

(a) Sum of money


Where any sum of money exceeding Rs.50,000 in aggregate in any previous year is received by an individual or HUF without any consideration the aggregate sum shall be deemed to be the income of the recipient.

(b) Immovable property transferred without consideration


Where immovable property is received by an individual or HUF without any consideration and the value of such property for stamp duty purpose exceeds Rs. 50,000, the value of the said property for the stamp duty purpose would be taxable as income from other sources.

(c) Transfer of specified properties other than immovable properties without consideration Where a property, specified for this purpose, other than immovable property, is received by an individual or HUF without any consideration and the fair value of the same exceeds Rs.50,000 then the fair market value of the property shall be deemed to be the income of the recipient.

(d) Transfer of specified properties other than immovable properties for a consideration lower than fair market value

Where a property specified for this purpose, other than immovable property is received by an individual or HUF for a consideration and such consideration is less than the fair market value of the property by an amount exceeding Rs. 50,000, the fair market value reduced by the consideration paid, would be taxable as income from other sources.

For the purpose of computing capital gains on subsequent transfer of such property by the recipient, cost of acquisition u/s.49 shall be increased by the amount of value taxed as above under the head `income from other sources'.

3. Threshold limit: (Rs. 50,000)


The threshold limit of Rs. 50,000/- would apply separately for each kind of receipt in the form of cash, immovable property and other property.

4. Stamp Duty Value to be adopted in case of Immovable Property


Stamp duty value as is assessed or assessable by any authority or Central Government or State Government for the purpose of stamp duty is to be adopted. It is doubtful whether basis of valuation for the purpose of stamp duty has been notified by all the State Governments in respect of all the properties, including agriculture land, etc. In case basis for valuation has not been notified for the purpose of stamp duty, the value taken would only be value as is mentioned in the documents registered or the value as would have been adopted by concerned authorities for the purpose of stamp duty. In the cases where documents have not been executed or registered, there are likely to be dispute in determination of assessable value in view of positive or negative aspects of a property.

In respect of immovable properties the A.O. has also been authorized to make reference to Valuation Officer.

5. Fair Market Value/Valuation of Jewellery


As per Rule 11UA(a), The Valuation of Jewellery will be made as per Rule 11(UA)(a) of I.T. Rules 1962.

6. Determining FMV for Archaeological collections, drawings, paintings etc:


Rule 11UA(b) governs the valuation of the above items.

7. Taxable event is Receipt


The Taxable event is receipt of money or immovable property or property other than Immovable property. As regards sum of money, shares, drawings, paintings etc., are concerned, they can be taken as received when they are physically handed over and as regards shares when they are transferred in the name of the recipient.

In the case of immovable property received without consideration, it appears that the receipt would be treated as complete ownership vests on the date of execution of the deed though registered later. Thus ownership relates back to the date of execution of the deed though registered at a later date. The concept of possession of the property coupled with registration or as envisaged in sections 2(47) (v) and (vi) and section 27of the Act can also be enforced to determine the date of receipt.

8. Corresponding provisions in Direct Tax Code (`DTC')


Under DTC section 56(2) which with taxation residuary income includes any income in the nature of gifts under sections 56(2)(h) and (i) of DTC which reads as under:

"(h) the aggregate of any money's and the value of any specified property received, without consideration by an individual or a HUF;

(i) the amount of voluntary contribution received by a person, other than an individual or HUf, from any other person;"

Section 56(3) provides the exceptions for the amount received under 56(2)(h) and is pari materia with section 56(2)(vii) of the Act except that the meaning of the word relative will not include any lineal descendant of a brother or sister of the either the individual or of the spouse of the individual. Likewise the definition of "specified property" under section 56(4) of the DTC is the same as in section 56(2)(vii) except that it does not include Bullion.

Section 56(4)(d) of DTC states that:

"the value of any property by referred to in clause (h) of sub-section(2) shall be:-

(i) the stamp duty value in the case of an immovable property as reduced by the amount of consideration, if any, paid by the assessee; and

(ii) the fair market value in the case of any property as reduced by the amount of consideration, if any, paid by the assessee.

9. Issues for Consideration

• Whether the provisions of sub-clause (viia) of Section 56(2) of the Act would apply to convertible debentures?

• Whether Family Settlements wherein the shares are allotted inter-se amongst family members to avoid disputes would be covered by the aforesaid provisions.

• A firm or a proprietary concern may hold the shares of a closely held company. On conversion into a company all the Assets of Firm/Proprietary concern become the assets of the company. On such conversion, if shares are received by the company at less than the specified value, would the provisions of Section 56(2) (viia) be attracted. Likewise, what would be the position of a partner contributing shares of a closely held company as his capital contribution on becoming partner of a firm?

• What would be the position of shares received through "Will" by a firm or a company?

• How would be the provisions of sub-clause (viia) of Section 56(2) of the Act apply to transfer of right of shares or receipt of bonus shares.

• Company "A" has issued Bonus shares in the ratio of 1:1. Prior to the issue of Bonus the price of each share is Rs.2000/- and Ex. Bonus the price is Rs.1100/-. In such a case the value of two shares (original and Bonus) is Rs.2200 as against cost/pre Bonus of Rs.2000/-. The actual benefit is only Rs.200/. The Assessing Officer suppose contemplates to adopt the FMV of the Bonus shares i.e. Ex. Bonus he may consider income of Rs.1100/- per Bonus Share ignoring the fact that the price of original share has diminished by Rs.900/- per share due to issue of Bonus shares. What would be the position?

10. Conclusion

I have made an attempt to highlight some of the salient features of Gifts being treated as deemed income within the meaning of Sections 56(2)(vi) (vii) & (viia) of the Act and being a complicated subject prone to vexatious litigation.

Unless and until gift is connected with profession or avocation, it cannot be ta

Unless and until gift is connected with profession or avocation, it cannot be taxed

In the absence of link or connection between the gift made by the devotees and the profession or avocation carried on by the assessee, a religions head, the personal gift cannot be termed as income taxable under the Act


[2010] 6 taxmann.com 87 (Mad.)
HIGH COURT OF MADRAS
CIT   v. Gopala Naicker Bangaru
TAX CASE APPEAL NO. 308 OF 2009
JULY 21, 2010

FACTS

As per the profile submitted by the Respondent/Assessee, he was born on 3-3-1941 at Melmaruvathur Village, Kanchipuram District and during his childhood, Goddess Adhiparasakthi frequented in his dreams to make it known that she wanted him to build a temple and use it to alleviate the sufferings of humanity. The devotees are believing that the Assessee is believed to be an Avatar and incarnation of Goddess Adiparasakthi. The Assessee's Oracles and Miracles attract millions of devotees from all over the world who come to Melmaruvathur to seek his blessings. The devotees calling him as `Amma' and he is rendering tireless serves to the mankind irrespective of caste, creed, colour, religion, economic status and integrity.

The devotees of the Assessee come and make their offerings for contribution voluntarily to him at the time of his birthday and the same has been accounted as capital receipts and receipts have also been issued. Thus, the Assessee is performing religious practice for the benefit of mankind.

According to the Revenue, the Assessee filed his Return of Income for the assessment year 2004-05 declaring taxable income of Rs.5,23,680/- and the same was accepted under section 143(1) of the Income-tax Act. On scrutiny of the Balance-sheet, it has been revealed that an amount of Rs.1,75,70,347/- was received as gifts during that year and was shown as capital receipts.

The Assessing Officer during the course of assessment, treated the gifts as having nexus to his profession as a religious head and hence, brought the entire income within the net of tax and vide assessment order dated 5-11-2007 under section 143(3) r/w section 147 of the Income-tax Act, 1961 and credited the above said gift as professional income and held that the Assessee is liable to pay a sum of Rs.75,56,439/- as Income-tax. It is also indicated in the said order that penalty proceedings under Section 271(1)(c) are being initiated separately.

HELD


The Respondent/Assessee as a religious head, is not involving himself in any profession or avocation and also not performing any religious rituals/poojas for his devotees for some consideration or other. In fact the Respondent/Assessee is doing charitable work and spiritualization and made his devotees to follow the same for the benefit of mankind.

The devotees out of natural love and affection and veneration used to assemble in large numbers on the birthdays of the Assessee and voluntarily made gift, and at any stretch of imagination it cannot be said that the amount received by the Respondent by way of gift would amount to vocation or profession. It is not the case of the department that the devotees were compelled to make gift on the occasion of the birthday of the Respondent/Assessee. The facts of the present case would disclose that the amount/gift received by the Respondent/Assessee cannot said to have any direct nexus with any of his activities as a religious person/Head.

The Commissioner of Income-tax(Appeals) as well as the Income-tax Appellate Tribunal held that simply because the Respondent/Assessee practicing ritualism while leading normal family life, cannot said to be carrying on any profession or vocation and that no link has been established between the receipt received on the occasion of the birthday and so called vocation carried on by the Assessee.

The decisions reported in 171 ITR 447 (Mad.), Commissioner of Income-tax vs. Mr.Balamuralikrishnan, 160 ITR 534 C.P.Chitrarasu vs. Commissioner Income-tax, Madras, 231 ITR 632 Commissioner Income-tax vs. Sri Vanamamalai Ramanuja Jeer Swamigal, the facts of which have been discussed in detail by this Court in the earlier paragraphs, are squarely applicable to the facts of this case, for the reason that the gifts made by the followers are voluntary in nature which are neither income nor capital in the hands of the Assessee. It has been further held in those decisions that unless and until the gift is connected with the profession or avocation, it cannot be taxed and in the absence of link or connection between the gift made by the devotees and the profession or avocation carried on by the Assessee, the personal gift cannot be termed as income taxable under the Act. It is pertinent to point out at this juncture, in the Respondent / Assessee's own case in Assessment year 1988-89, the Department has accepted the position that gifts received by him on birthdays and other occasions were not taxable. In the decision reported in 193 ITR 321 (SC) Radhasoami Satsang vs. Commissioner of Income-Tax, it has been held that -

"Where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent years."

Since, there is no change in facts and law in the present case, the reasons assigned by the Income-tax Appellate Tribunal are correct and this Court finds no infirmity or error apparent on the face of record in the impugned order.

________JUDGMENT__________


M.SATHYANARAYANAN, J


The Revenue has preferred this Appeal under Section 260-A of the Income-tax Act, 1961 challenging the vires of the order dated 17.10.2008 passed by the Income-tax Appellate Tribunal `C' Bench, Chennai, made in I.T.A 588/Mds./2005.

2. This appeal was admitted on the following substantial questions of law:-

1. Whether on the facts and circumstances of the case, the Income-tax Appellate Tribunal was right in law in holding that the gifts received on Assessee's birthday of Rs.1,75,70,347/- as Capital Receipt and having no nexus with his profession as vocation of religious practice is valid?

2. Whether on the facts and circumstances of the case, the Income-tax Appellate Tribunal was right in saying that the reopening under Section 147 of the Income-tax Act, on mere surmise, even though the assessment was reopened within 4 years with valid reasons from the end of the assessment year and hence no proviso to Section 147 will apply to the facts of this case?:

3. The facts leading to the filing of this appeal are as follows:-

As per the profile submitted by the Respondent/Assessee, he was born on 03.03.1941 at Melmaruvathur Village, Kanchipuram District and during his childhood, Goddess Adhiparasakthi frequented in his dreams to make it known that she wanted him to build a temple and use it to alleviate the sufferings of humanity. The devotees are believing that the Assessee is believed to be an Avatar and incarnation of Goddess Adiparasakthi. The Assessee's Oracles and Miracles attract millions of devotees from all over the world who come to Mel Maruvathur to seek his blessings. The devotees calling him as `Amma' and he is rendering tireless serves to the mankind irrespective of caste, creed, colour, religion, economic status and integrity.

4. The devotees of the Assessee come and make their offerings for contribution voluntarily to him at the time of his birthday and the same has been accounted as capital receipts and receipts have also been issued. Thus, the Assessee is performing religious practice for the benefit of mankind.

5. According to the Revenue, the Assessee filed his Return of Income for the assessment year 2004-2005 declaring taxable income of Rs.5,23,680/- and the same was accepted under Section 143(1) of the Income-tax Act. On scrutiny of the Balance-sheet, it has been revealed that an amount of Rs.1,75,70,347/- was received as gifts during that year and was shown as capital receipts.

6. The Assessing Officer during the course of assessment, treated the gifts as having nexus to his profession as a religious head and hence, brought the entire income within the net of tax and vide assessment order dated 5.11.2007 under Section 143(3) r/w Section 147 of the Income-tax Act, 1961 and credited the above said gift as professional income and held that the Assessee is liable to pay a sum of Rs.75,56,439/- as Income-tax. It is also indicated in the said order that penalty proceedings under Section 271(1)(c) are being initiated separately.

7. The Assessee/Respondent herein aggrieved by the Assessment Order passed by the Assistant Commissioner of Income-tax Circle I, Tambaram, Chennai-45, has preferred appeal before the Commissioner of Income-tax (Appeals), Chennai in I.T.A No.97/07-08. The Commissioner of Income-tax (Appeals) vide order dated 9.1.2008, has set aside the order passed by the Assistant Commissioner of Income-tax Circle-I, on the ground that the amounts received by the Assessee are gifts and they are not consideration for profession/vocation. The Commissioner of Income-tax (Appeals) has also considered the decision reported in 231 ITR page 632 (Mad.) Commissioner of Income Tax vs. Sri.Vanamamalai Ramanuja Jeer Swamigal for arriving at such a finding and allowed the appeal filed by the Assessee.

8. The Department/Revenue aggrieved by the order passed by the Commissioner of Income Tax (Appeals), had preferred further appeal before the Income Tax Appellate Tribunal `C' Bench, Chennai in I.T.A.No.588/Mds./2005 for the assessment year 2004-2005.

9. The appellate Tribunal after taking into consideration the rival submissions and considering the various decisions cited before him, vide order dated 17.10.2008, has dismissed the appeal on the ground that that the gifts received by the Assessee, have no direct nexus with any of his activities and it is squarely covered by the decision cited supra (231 ITR page 632). The Revenue aggrieved by the order of dismissal of the appeal passed by the Income Tax Appellate Tribunal `C' Bench, Chennai, had preferred this appeal.

10. Mr.J.Nareshkumar, learned Senior Standing Counsel appearing for the Income Tax Department/appellant, has submitted that but for the fact the Assessee is a religious leader, and that his profile also states that he is performing Oracles , the devotees would not have made gifts to him.

11. It is further submitted by the learned senior standing counsel appearing for the appellant that the Assessee is admittedly living with his family and keeping the amount in his bank account and it was also shown in his Wealth Tax Returns filed for the Assessment year 2005-2006. It is the further submission of the learned senior standing counsel appearing for the appellant, the Assessee has not offered any proper explanation as to why gifts/donations received from his devotees were deposited in his individual bank account and even though two charitable trusts are run by him, the Assessee has not deposited the donations in the accounts of the trust. Therefore, the learned senior standing counsel appearing for the appellant would submit that in the absence of any supporting material produced by the Assessee that it is a capital receipt, the Assessing Officer on a careful consideration of the materials available on record, has rightly arrived at a finding that it is liable to be taxed and consequently levied tax on the said income with liberty to proceed under Section 271(1)(c) by way of penalty proceedings. It is the further submission of the learned senior standing counsel appearing for the Department that the Commissioner of Income Tax (Appeals) as well as the Tribunal had failed to take into consideration the said vital aspects and by placing reliance upon the decisions which are not applicable to the facts of the case, had upheld the claim of the Assessee and therefore, the impugned order passed by the Tribunal confirming the order passed by the Commissioner of Income Tax (Appeals) is liable to be set aside.

12. Learned senior standing counsel appearing for the appellant in order to buttress his submissions, has placed reliance upon the following decisions:-

i. 35 ITR 48 (SC) - Krishna Menno (P) vs. Commissioner of Income-tax

ii. 34 ITR 92 (Bombay) Govindlalji Ranchhodalalji (Maharaj Shri) vs. Commissioner of Income-tax

iii. 156 ITR 412 (SC) George Thomas (K.) (Dr.) vs. Commissioner of Income-tax

iv. 176 ITR 78 (Kerala) Father Epharam vs. Commissioner of Income-tax

v. Unreported Judgment dated 16.12.2008 in W.P.Nos.15527 to 15537 of 2003

13. In 35 ITR 48 (SC) - Krishna Menon (P) vs. Commissioner of Income-tax, the Assessee after his retirement as a Superintendent of Police, spending his time in studying Vedanta Philosophy and expounding the same to such persons. He soon gathered a number of disciples. One of the disciples had transferred the entire balance outstanding in his account to the credit of the Assessee and the said amount was the subject matter of assessment. The Income-tax Officer had assessed the said income as a taxable income and the Assessee preferred an appeal before the Assistant Commissioner who dismissed the appeal. The Assessee's appeal to Appellate Tribunal has also ended in dismissal and hence further appeal was preferred before the High Court of Bombay which has also ended in dismissal. The Assessee filed appeal before the Hon'ble Supreme Court of India. The Hon'ble Supreme Court on the facts, found that the Assessee was teaching his disciples Vedanta, without any motive or intention of making profit out of such activity and that teaching of Vedanta by the Assessee can properly be called the carrying on of a vocation by him. The Supreme Court held that the importing of the teaching was the cause causans of the making of the gift and that the payments with which were income arising from the vocation of the appellant as a teacher of Vedanta, no question of exemption under Section 4(3)(vii) of the Act arises. The Supreme Court citing the said reasons has dismissed the appeal filed by the Assessee.

14. In 34 ITR 92 (Bombay) Govindlalji Ranchhodalalji (Maharaj Shri) vs. Commissioner of Income-tax, the Assessee is a direct descendant of Shri Vallabhacharyaji who founded the faith known as `Vallabh Sampradaya' Maharaj Shri is not a sanyasi and he has married and has children. He is succeeded by his sons who inherit and divide the properties. The Assessee keeps an idol of Lord Krishna in his house and the offerings are made to the Assessee. The authorities below held that the Assessee therein was carrying on a vocation and the Assessee aggrieved by the same, preferred an appeal to the High Court of Bombay. The Bombay High Court held that even practice of religion can become a vocation and more so, when it brings in a steady income. Therefore, the Bombay High Court upheld the claim of the Department that the Assessee was rightly assessed to tax as income.

15. In 156 ITR 412 (SC) George Thomas (K.) (Dr.) vs. Commissioner of Income-tax, the Assessee was a lecturer in a college and he associated himself wit the Indian Gospel Masson in the USA, which collected money for its working abroad through the Indian Christian Crusade. On returning to India, the Assessee was propagating the ideals of the Indian Christian Crusade and was engaging in a movement for the spread of religion etc., and he also started publishing a daily newspaper. The income of the Assessee was subjected to tax and challenge made by the Assessee before the authorities below had ended in futile before the High Court of Kerala also. Hence, the Assessee preferred an appeal before the Hon'ble Supreme Court of India.

16. The Hon'ble Supreme Court of India in the decision held that there was a link between the activities of the appellant and the payments received by him and the link was close enough and that the appellant got receipts on account of carrying on of his vocation and they were not casual and non-incurring receipts. The Hon'ble Supreme Court of India citing the said reasons, has upheld the case of the Department that the incomes were taxable.

17. In 176 ITR 78 (Kerala) Father Epharam vs. Commissioner of Income-tax, the Assessee was a Priest in a Monastery and he received substantial foreign remittances and the surplus amount that remained after distribution to various other Priests for performing the mass, was treated as the income of the Assessee and was taxed. The Assessee challenged the imposition of tax, and lost before the authorities and hence he preferred further appeal to High Court of Kerala. The High Court of Kerala held that there was a close and intimate link between the occupation or avocation of the Assessee and the payments received by him and based on the said reason, dismissed the appeal filed by the Assessee.

18. Similar view was taken in the unreported judgment dated 16.12.2008 made in W.P.Nos.15527 to 15537 of 2003.

19. The learned senior standing counsel appearing for the appellant/Department by placing strong reliance on the above cited decisions would submit that but for the fact the Assessee/Respondent herein is a religious leader, he would not have received gifts and hence there is a close and intimate link between the activities/avocation of the Assessee and the payments received by him and therefore, it was rightly taxed by the Assessing Officer and it was erroneously reversed by the Commissioner of Income-tax (Appeals) and the Appellate Tribunal and hence the learned standing counsel appearing for the appellant praying for the setting aside of the order passed by the Tribunal and to confirm the order passed by the Assessing Officer.

20. Per contra Mr.V.Ramachandran, learned senior counsel appearing for M/s.P.Sivagnanam and A.S.Balaji, learned counsel appearing for the Respondent / Assessee would submit that the Commissioner of Income-tax (Appeals) as well as the Appellate Tribunal had rendered a clear and categorical finding that there was no nexus between the receipt of the birthday gifts and the exercise of any profession or vocation by the Assessee and that the gifts were voluntarily made by the devotees on account of personal esteem and veneration and therefore, the said finding cannot be disturbed. It is further submitted by the learned senior standing counsel appearing for the appellant that the assessee's own case in Assessment year 1988-89, the Department has accepted his case after due enquiry and that the gifts received by the Respondent herein on birthdays and other occasions were not taxable. The learned senior counsel appearing for the Respondent in support of his submissions, though relied upon number of decisions, it will be useful to refer to the following decisions:-

1. 171 ITR 447 (Mad.) Commissioner of Income-tax vs. Mr.Balamuralikrishna.

2.160 ITR 534 C.P.Chitrarasu vs. Commissioner Income-tax, Madras.

3.231 ITR 632 Commissioner Income-tax vs. Sri Vanamamalai Ramanuja Jeer Swamigal.

In all the said decisions the judgment of the Hon'ble Supreme Court of India reported in 35 ITR 48 Krishna Menon vs. Commissioner of Income-tax has been referred.

21. 171 ITR 447 (Mad.) Commissioner of Income-tax vs. Mr.Balamuralikrishnan, the Assessee is a Musician by profession and he claimed a sum of Rs.30,000/- given to him by his fans in appreciation of his completing 30 years of service rendered to Carnatic Music as exempted from tax. The Income Tax Officer treated the said income as professional income and levied tax. The Assessee preferred appeal and the Appellate Authority held that the said payment was received by way of a testimonial or personal gift and not taxable and the said view was also upheld by the Tribunal and hence the Department taken up the matter for further appeal before this Court. A Division Bench of this Court by placing reliance upon 35 ITR page 48 (SC) (Krishna Menon's case), 114 ITR page 253 (Mad) S. A. Ramakrishnan vs. CIT and other decisions, has held that though the Assessee is an artist by profession, there is no direct nexus between this payment and his vocation though it may not be denied that there is an indirect connection between the two. The payment received by the Assessee from his fans, was expression of their good will and hence the said amount cannot be said to have been paid to him by way of remuneration for those services Citing the said reasons, this Court in the said decision, has upheld the claim of the Assessee and dismissed the appeal preferred by the Income-tax Department.

22. In 160 ITR 534 C.P.Chitrarasu vs. Commissioner Income-tax, Madras, the Assessee was an active member of a political party and held various offices. A committee consisting of the party men of that party had collected donations from the members of the party, businessmen and public and also arranged a drama for the purpose of donating a purse and the same was donated to the Assessee. The Income-tax Officer held that a sum of Rs.51,000/- out of the amount given to the Assessee by his admirers, would constitute income received by the Assessee in the course of his vocation as a politician and therefore, it was taxable. The Assessee was successful before the authorities below and hence the Revenue preferred the said appeal before this Court. A Division Bench of this Court after taking into consideration the factual aspects and the decisions cited before it, held that the presentation of Rs.51,000/- to the Assessee amounted to windfalls or gift for his personal qualities, though his profession or vocation as a politician. This Court further held that no materials placed before the lower authorities by the Revenue that the presentation of Rs.51,000/- to the Assessee will amount to a receipt arising from the exercise of a profession or vocation or occupation and therefore, for the said reasons, the appeal preferred by the Revenue was dismissed.

23. In 231 ITR 632 Commissioner Income-tax vs. Shri Vanamamalai Ramanuja Jeer Swamigal, the Assessee namely Shri Vanamamalai Ramanuja Jeer Swamigal, Nanguneri, Tirunelveli District, received amounts by way of Kanikkai and Sambhavanai amounting to a sum of Rs.12,156/-. The question arose was whether the said amount was assessable as income-tax under the Income-tax Act, for the assessment year 1974-75. The Tribunal held that the said presentation was out of personal regard, personal esteem and veneration for Swamigal and did not constitute income from the exercise of any profession or vocation and that there was no evidence to show that Swamiji had been exercising any profession or vocation. The Revenue preferred appeal before this Court and it was contended that any amount brought by his followers would amount to income assessable to tax under the Income-tax Act. A Division Bench of this Court in the said decision, has taken into consideration the Krishna Menon s case reported in 35 ITR 48 (SC) and other decisions, held that Kanikkai and Sambhavanai were paid by the devotees to the Jeer Swamigal out of personal regard, esteem and veneration and that the Swamigal is not exercising any profession or avocation and the voluntary offerings made by the devotees are not on account of any profession or vocation. This Court for the said reasons, has held that the said offerings will not be considered as income under the Income-tax Act and therefore, dismissed the appeal preferred by the Revenue.

24. Learned senior counsel appearing for the Respondent/Assessee would submit that the decision reported in 231 ITR 632 (Mad.) is squarely applicable to the facts of the case and further that the Commissioner of Income-tax (Appeals) as well as the Income-tax Appellate Tribunal had upheld the case of the Respondent by rendering concurrent findings. It is further submitted that no substantial questions of law arose for consideration in this appeal and hence prayed for dismissal of this appeal.

25. This Court has carefully considered the submissions made by the learned senior standing counsel appearing for the appellant and the learned senior counsel appearing for the Respondent and also the decisions relied on by the respective counsel.

26. The Religion is a matter of faith stemming from the depth of the heart and mind and is a belief which binds the spiritual nature of men to super natural being. Devotion is a consecration and denotes an act of worship. Faith, in the strict sense constitutes firm reliance on the truth of religious doctrines in every system of religion and religion, faith or devotion is not easily interchangeable. Religion has reference to one s views of his relations to his Creator, and to the obligations they impose of reverence for his being and character, and of obedience to his will.

27. The profile of the Respondent/Assessee would indicate that Goddess Adhiparasakthi frequented in his dreams to make it known that she wanted to build a temple and use it to alleviate the sufferings of humanity and accordingly the Respondent / Assessee has built a temple which is also known as `Sakthi Peedam'. The devotees on important occasions, used to throng the temple and as per the practice prevails in the temple, the devotees irrespective of their gender, can perform poojas and Abishegams to the presiding deity namely Goddess Parasakthi. The above said practice of devotees performing Abishegams and poojas to the presiding deity is not prevalent in the State and therefore out of love and affection and veneration, they used to assemble in great numbers on the eve of the birthday of the Respondent/Assessee and offer gifts.

28. It is to be pointed out at this juncture that the Respondent/Assessee as a religious head, is not involving himself in any profession or avocation and also not performing any religious rituals/poojas for his devotees for some consideration or other. In fact the Respondent/Assessee is doing charitable work and spiritualization and made his devotees to follow the same for the benefit of man kind.

29. The devotees out of natural love and affection and veneration used to assemble in large numbers on the birthdays of the Assessee and voluntarily made gift, and at any stretch of imagination it cannot be said that the amount received by the Respondent by way of gift would amount to vocation or profession. It is not the case of the department that the devotees were compelled to make gift on the occasion of the birthday of the Respondent/Assessee. The facts of the present case would disclose that the amount/gift received by the Respondent/Assessee cannot said to have any direct nexus with any of his activities as a religious person/Head.

30. The Commissioner of Income-tax (Appeals) as well as the Income-tax Appellate Tribunal held that simply because the Respondent/Assessee practicing ritualism while leading normal family life, cannot said to be carrying on any profession or vocation and that no link has been established between the receipt received on the occasion of the birthday and so called vocation carried on by the Assessee.

31. The decisions relied on by the learned senior standing counsel appearing for the appellant/Department have no application to the facts of the present case as in those cases, Courts held that the activities of the concerned Assessees would amount to vocation and object of which, is to make a profit and also amount to revenue receipt.

32. The decisions reported in 171 ITR 447 (Mad.) Commissioner of Income-tax vs. Mr.Balamuralikrishnan, 160 ITR 534 C.P.Chitrarasu vs. Commissioner Income-tax, Madras, 231 ITR 632 Commissioner Income-tax vs. Sri Vanamamalai Ramanuja Jeer Swamigal, the facts of which have been discussed in detail by this Court in the earlier paragraphs, are squarely applicable to the facts of this case, for the reason that the gifts made by the followers are voluntary in nature which are neither income nor capital in the hands of the Assessee. It has been further held in those decisions that unless and until the gift is connected with the profession or avocation, it cannot be taxed and in the absence of link or connection between the gift made by the devotees and the profession or avocation carried on by the Assessee, the personal gift cannot be termed as income taxable under the Act. It is pertinent to point out at this juncture, in the Respondent / Assessee's own case in Assessment year 1988-89, the Department has accepted the position that gifts received by him on birthdays and other occasions were not taxable. In the decision reported in 193 ITR 321 (SC) Radhasoami Satsang vs. Commissioner of Income-Tax, it has been held that -

"Where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent years."

Since, there is no change in facts and law in the present case, the reasons assigned by the Income Tax Appellate Tribunal are correct and this Court finds no infirmity or error apparent on the face of record in the impugned order.

33. This Court after taking into consideration the factual as well as the legal aspects is of the considered opinion that the substantial questions of law raised by the Revenue are to be answered in negative against them. Therefore, the appeal is dismissed confirming the order dated 17.10.2008, passed by the Income-tax Appellate Tribunal `C' Bench, Chennai in I.T.A.No.588/Mds/2005. In the circumstances, there will be no order as to costs.