The Hindu Business Line : `Judged' not taxable

Applying the Calcutta High Court decision in CIT v. Justice R. M. Dutta (1989; 180 ITR 86; Cal), the Income-tax Appellate Tribunal B Bench, Kolkata, has decided in Deputy CIT v. Justice D. K. Seth (2006; 98 ITD 241; Kol) that professional receipts of a practising advocate following the cash system of accounting cannot be taxed as income under the charging sections of the Income-Tax Act — 28 or 56 or even under 176(4) — after his elevation as a judge.

Justice Seth received, on receipt basis, certain amount representing outstanding fees for professional services rendered by him before his elevation to the High Court Bench. He included this amount in his return under the head `Income from Other Sources' which was processed and an intimation under Section 143(1)(a) was issued by the Assessing Officer accepting the returned income.

Mr Seth, thereafter, requested the AO to rectify the said intimation under Section 154 in the light of the Calcutta High Court judgment in the Justice R. M. Datta case, wherein it was held that the income received by the assessee before his elevation could not be taxed. The AO rejected the application, observing that the receipt was taxable under Section 56, and anyway he did not have the jurisdiction to rectify such an intimation as there was no mistake on the part of the Department while processing the return.

Issues before Tribunal

There were two issues before the Income-tax Appellate Tribunal B Bench: (i) whether the money received was taxable, and (ii) whether the intimation issued under Section 143(1) could be rectified.

On the issue of taxability, the Tribunal held that the money was not taxable under Sections 28, 56 or 176(4) in view of the Calcutta High Court's decision in the R. M. Dutta case (Supra). The High Court had relied on two Supreme Court decisions. One, the Nalinikant Ambalal Mody case (1966; 61 ITR 428; SC), where in the context of the provisions in the I-T Act 1922, it was held that an income received by an assessee, who kept his accounts on cash basis, in an accounting year in which the profession had not been carried on at all was not chargeable to tax. Nor could the receipts be brought to tax under Section 12 as `Income from Other Sources.' As the heads of income were mutually exclusive and the receipts could be brought under the fourth head, they could not be brought under the residual head `Income from Other Sources'. Two, the D. P. Sandhu Bros Chembur (P) Ltd case (2005; 273 ITR 1; SC) wherein it was held that if a particular income could not be taxed under Section 45 then it could not otherwise be taxed under Section 56 or it could not be taxed at all.

Thus, the Tribunal decided that the professional fees received by Justice Seth could not be taxed even though he had offered them. However, amounts received for professional work done during a previous year in which elevation is made would be taxable as professional receipts under Section 28(1).

As for the issue of rectification, the Tribunal, relying on the decision of the Calcutta High Court in the Bhaskar Mitter case (1994; 73 Taxman 437; Cal), said that the Revenue authorities cannot be heard to say that merely because the assessee has returned a figure which is higher than the annual value determined in accordance with the correct legal principles, such higher amount and not the correct amount should be lawfully assessed.

(The author is a former chairman of CBDT)

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