The assessee was an advocate of a High Court and was practicing his profession\u00a0\u00a0 till 1-3-1957, when he ceased to\u00a0 carry on\u00a0 his\u00a0 profession as\u00a0 he\u00a0 was\u00a0 elevated as\u00a0 a Judge of the High Court at Bombay.\u00a0 His\u00a0 method of\u00a0 accounting was\u00a0 cash and his accounting year was calendar year. During the accounting years relevant to assessment years 1959-60 and 1960-61, he received certain moneys on account of the outstanding fees, though no profession was carried on by him. The assessee included the aforesaid receipts as income from profession. The ITO treated these receipts as fees for professional services rendered in earlier years and as part of total income of the assessee. On an revision application under section 33A of 1922 Act the Commissioner held that it was chargeable under the residuary head and rejected the revision petition. It is from this order that the assessee filed appeal to the Supreme Court by specialleave.<\/p>\n
\u00a0<\/p>\n
Whether an income from business or profession can be taxed under the head \u201cIncome from business or profession\u201d after the assessee has ceased to carry on\u00a0\u00a0\u00a0\u00a0 his business or profession? If such income is not taxable under the head \u201cIncome from business orprofession\u201d, then can it be taxed under the residuary head \u201cIncome from other sources?<\/p>\n
\u00a0<\/p>\n
Taxability\u00a0 under the head \u201cProfit and gains of business or profession\u201d arise only\u00a0\u00a0 in respect of profits and gains of any business or profession\u00a0 which\u00a0 was carried on by the assessee at any time during the previous year.\u00a0 If no business is carried on\u00a0 by the assessee at any time during the previous year, then the charging provision does not get attracted and therefore, one does not enter such head ofincome.<\/p>\n
Further, in order to compute an income, the Act has bifurcated the incomes under Chapter IV of the Act \u2018Computation of the Total Income\u2019 in four specific<\/p>\n
\u00a0<\/p>\n
\u00a0<\/p>\n
heads viz. \u2018Income from Salaries\u2019, \u2018Income from house properties\u2019, \u2018Profits and gains of business and profession\u2019 and lastly \u201cCapital gains\u2019 and a residuary head i.e. \u2018Income from other sources\u2019. The scheme to arrive at the net income chargeable to tax under the various heads broadly differs from each other. Thus,\u00a0 the computation mechanism under the head \u2018Income from house property\u2019 and \u2018Profits and gains of business and profession\u2019 differ. The idea of having separate heads of income was to have separate computation mechanism for different types\u00a0 of income depending upon the nature of income. An income to be taxed has to\u00a0\u00a0\u00a0\u00a0\u00a0 be brought under any one of the heads of income. All the heads of income are mutually exclusive and therefore, a particular item of income can be taxed only under one particular head of income. If the same is not taxable under the said \u00a0\u00a0head of income then the same cannot be charged to tax under the other head of income.<\/p>\n
\u00a0<\/p>\n
The Court held that receipts in the present case were the outstanding dues of professional work done and therefore would fall under the head \u201cProfits and gains of business, profession or vocation\u201d. Further, the Court held that the said receipts were not taxable under the said head as the said receipts were taxed on cash basis and in the year of receipt, no profession at all had been carried on by\u00a0\u00a0 the assessee. In this regard, reliance was placed by the Court on the judgment in case of CIT v. Express Newspapers Ltd. [1964] 53 ITR 250 (SC)<\/em><\/strong>.<\/p>\n The Court also held that heads of income are mutually exclusive, and if the receipts can be brought under the fourth head, they cannot be brought under the residuary head. Section 12 deals with income which is not included under any\u00a0\u00a0\u00a0\u00a0\u00a0 of the preceding heads. If the income is so included, it falls outside section 12\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 of 1922 Act. 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 section 12 of 1922 Act. Section 12 of 1922 Act does not say that an income which escapes taxation under\u00a0\u00a0 \u00a0\u00a0a preceding head will be computed under it for chargeability to tax. It only says that an income shall be chargeable to tax under the head \u201cOther sources\u201d if\u00a0 it\u00a0 does not come under any other head of income mentioned in the Act. Accordingly\u00a0 the Court held that the receipts were not chargeable to tax either under the head\u00a0\u00a0\u00a0 of professional income or under the residuary head.<\/p>\n However, Justice Bachawat had taken the dissenting view and held that the professional income of an assessee, whose accounts were kept on a cash basis, received by him during his lifetime after the discontinuance of the profession and after the close of the accounting year in which the profession was discontinued,\u00a0\u00a0\u00a0\u00a0 is assessable to income-tax under section 12 of the Act. (AY.\u00a0 1958-59, 1959-60)\u00a0\u00a0 (CA Nos. 731 & 732 of 1964 dt. 4-5-1966)<\/p>\n Editorial: <\/em><\/strong>What was contained in section 12 of the 1922 Act in now incorporated in sections 56 to 59 of the Income-tax Act, 1961. The ratio of the judgement is applicable to The Income-tax Act, 1961. Refer CIT v. T. P. Sidhwa (1982) 133 ITR 840 (Bom) (HC). <\/em><\/strong>Further,\u00a0 this ratio has been followed by the Bombay High Court\u00a0\u00a0 in case of Cadell Wvg. Mill Co. (P.) Ltd. v. CIT [2001] 116 Taxman 77 (Bombay)\/ [2001] 249 ITR 265 (Bombay)\/[2001] 166 CTR 7 (Bombay) <\/em><\/strong>which is also been affirmed by Apex Court in [2005] 142 Taxman\u00a0 713 (SC) <\/em><\/strong>and by the Apex Court\u00a0\u00a0\u00a0 in case of CIT v. D. P. Sandu Bros. Chembur (P.) Ltd. [2005] 142 Taxman 713 (SC)\/[2005] 273 ITR 1 (SC)\/[2005] 193 CTR 578 (SC).<\/em><\/strong><\/p>\n In the Income Tax Act, 1961 Section 176(4) was introduced where the professional fees received by assessee from discontinued business was taxable. However, the Hon\u2019ble Calcutta High Court in case of Justice R.M. Datta (1989) 180 ITR 86 has held that in spite of the introduction of section 176(4), in the absence of any deeming provision treating such receipts as income falling under the head \u201cProfits and gains of business, profession or vocation\u201d, as the assessee had not carried on any profession in any part of the relevant previous year, the said income could\u00a0\u00a0\u00a0 not be taxed under section 28 nor could such income be taxed under section 56\u00a0\u00a0\u00a0\u00a0 of the Act as income from other sources. The said income, therefore, could not\u00a0\u00a0\u00a0\u00a0\u00a0 be taxed under section 28, 56 or 176(4).<\/p>\n The same view has also been taken by Hon\u2019ble\u00a0 Gujarat High Court in case of Anil\u00a0\u00a0 \u00a0R Dave [2015] 56 taxmann.com 139 (Guj)(HC) <\/em><\/strong>and Hon\u2019ble Delhi Tribunal in case\u00a0\u00a0 of Justice Rajiv Shakedar [2013] 36 taxmann.com 585 (Delhi) (Trib.)<\/em><\/strong><\/p>\n \u201cIf you want to change the world, start with yourself.\u201d<\/em><\/p>\n – Mahatma Gandhi<\/p>\n \u00a0<\/em><\/strong><\/p>\n \u00a0<\/p>\n","protected":false},"excerpt":{"rendered":" S. 28(i) : Business income -Professional fees – Cash method of accounting – Outstanding fee of professional work done by assessee, who kept his accounts on cash basis, after close of his profession was not taxable either under head of professional income or under residuary head of income- Income which is chargeable under a particular head cannot be taxed under the residuary head [ S. 2 (45) 4, 5 , 14 ,56 ,145 and of the Indian Income- tax Act , 1922, S.2(15), 3, 4, 5, 10, 12 ] <\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[21],"tags":[],"class_list":["post-13300","post","type-post","status-publish","format-standard","hentry","category-income-tax-act"],"acf":[],"jetpack_featured_media_url":"","jetpack_shortlink":"https:\/\/wp.me\/p9S2Rw-3sw","jetpack-related-posts":[],"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/posts\/13300","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/comments?post=13300"}],"version-history":[{"count":1,"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/posts\/13300\/revisions"}],"predecessor-version":[{"id":13301,"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/posts\/13300\/revisions\/13301"}],"wp:attachment":[{"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/media?parent=13300"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/categories?post=13300"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/tags?post=13300"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}