How to Tax Gifts received by ‘Mayawati ‘ – Politician : Explained by ITAT

By | March 26, 2018
(Last Updated On: March 26, 2018)

[2010] 42 SOT 59 (DELHI)

IN THE ITAT DELHI BENCH ‘E’

Deputy Commissioner of Income-tax, Central Circle-11, New Delhi

v.

Mayawati

R.P. TOLANI, JUDICIAL MEMBER AND SHAMIM YAHYA, ACCOUNTANT MEMBER

IT APPEAL NOS. 4259/DELHI/2007 AND 2078 & 2079/DELHI/2009

AUGUST 27, 2010

S.D. Kapila and R.R. Maurya for the Appellant. Dr. Rakesh Gupta, Dr. R.K. Agarwal, Ashwani Taneja and Tarun Kumar for the Respondent.

ORDER

R.P. Tolani, Judicial Member. – These are three appeals by the revenue for assessment years 2004-05, 2005-06 and 2006-07.

  1. Brief facts of these appeals are : The assessee is a prominent political figure of Indian politics, now holding the chair of Hon’ble Chief Minister, U.P.; at the relevant time Member of Parliament & National President of Bahujan Samaj Party (BSP). As in the past, assessee has received huge amounts of gifts of movable properties from number of persons in these years which have become subject-matter of dispute.

2.1 In assessment year 2004-05 the Assessing Officer held that gifts of Rs. 8,31,25,107 were not genuine and added them as unexplained income of assessee. Aggrieved, assessee preferred first appeal agitating various grounds. CIT(A) quashed the assessment and on merits also held that the gifts were genuine as assessee had discharged her onus in proving the same by following main observations :—

(i)The mandatory notice under section 143(2) was not served on the assessee within the period of 12 months from the end of the month in which return of income was filed as prescribed by law for framing a valid assessment under section 143(3) and quashed the assessment;

(ii)On merits also, the CIT(A) held that out of gifts of Rs. 8,31,25,107, an amount of Rs. 8,29,25,107 was proved by the assessee to be valid gifts.

On both the issues, the revenue is in appeal before us, raising various grounds.

2.2 In the meanwhile, Legislature in order to tackle the menace of the moneys received by assessees without consideration, including gifts, amended Income-tax Act as section 56(2)(v) was inserted by Finance (No. 2) Act, 2004 with effect from 1-4-2005, i.e., from assessment year 2005-06, prescribing as under :—

“56(2) In particular, and without prejudice to the generality of the provisions of sub-section (1), the following incomes, shall be chargeable to income-tax under the head “Income from other sources”, namely :—

(v )where any sum of money exceeding twenty-five thousand rupees is received without consideration by an individual or a Hindu undivided family from any person on or after the 1st day of September, 2004, the whole of such sum :

Provided that where any sum of money exceeding twenty-five thousand rupees is received without consideration by an individual or a Hindu undivided family from any specified person (relative) on or after 1-9-2004 implying thereby gifts also, such receipts will be deemed to be income from other sources in the hands of the assessee.”

2.3 In assessment years 2005-06 and 2006-07 assessee received huge amounts of gifts which were offered in returns of income by dividing into two categories, as per this amendment :—

(i)gifts above Rs. 25,000, which were offered by assessee herself in the return of income as taxable under section 56(2)(v); and

(ii)gifts up to Rs. 25,000 which were claimed to be not taxable under section 56(2)(v).

2.3.1 Assessing Officer in both the assessment years accepted these gifts offered under category (i) as taxable, as returned by assessee. He however held that gifts in category (ii) were taxable under section 28, under the head “income from business or profession”, being income from vocation of politics and made the additions, accordingly.

2.3.2 Aggrieved, assessee preferred first appeals, claiming that the gifts were given on the occasion of her birthday, were only personal in nature. They were declared in consonance with section 56(2)(v). Assessing Officer erred in treating category (ii) gifts upto Rs. 25,000 which though were personal in nature as assessees vocational income under section 28. It was against the mandate of amended law, which prescribed taxation of gifts received without consideration as Income from other sources. CIT(A) held that assessee has established these gifts to be valid personal gifts received on occasion of Birth Day and it cannot be treated as income of the assessee from vocation or profession as from the evidence filed it was proved that these were personal in nature. Besides, gifts up to Rs. 25,000 also were to be covered under the head “income from other sources” similar to gifts above Rs. 25,000 and were non-taxable. Assessing Officer was not correct in splitting the similar type of personal gifts under two different heads of income, i.e.,one under section 56(2)(v) as “income from other sources” and the other under section 28, as vocational income. Based on various observations, CIT(A) deleted the additions. Aggrieved, revenue is in appeal before us accordingly for assessment years 2005-06 and 2006-07.

2.4 It shall be pertinent here to mention that the facts in respect of gifts for assessment year 2004-05 are similar to assessment year 2003-04. Genuineness of gifts were a matter of dispute between department and assessee in earlier years up to assessment year 2003-04. ITAT in assessee’s own case for assessment year 2003-04 vide order dated 30-11-2007 in ITA Nos. 279 and 422/Delhi/07 examined the issues and held them to be genuine gifts by following observations :—

“18.3 Genuineness of the transaction of gifts.—Once the identity of the donor is established and his capacity is also proved then the only question to be seen is as to whether the transactions of gift was genuine or not. For examining this aspect, the conduct of parties, that is the donor and the donee, and the appreciation of attending circumstances becomes necessary. The conduct can be seen from various angles. If the donee makes his or her own investments for arranging the gift or purchasing the gift or directly or indirectly manages such gifts then such conduct will definitely render the transactions as a colourable one or of dubious nature. Similarly, if the donor makes a gift in lieu of some valuable consideration or for any tangible benefit or for past or future consideration, in terms of money or monies worth, then such gift may not be treated to be genuine. Likewise, if the circumstances under which the gift is being made show that the gift was made to cover up or conceal other transactions or to convert black money into white money by taking recourse to such mode then the transaction of gift may be treated to be non-genuine. There may be several other circumstances to create suspicion to the genuineness of the gift. The financial position of donor or that of donee may also be relevant factors to judge the genuineness of the gift. However, such conduct of the donor or the donee, or such circumstances which create doubt in the genuineness of the transaction of the gift have to be brought on record. Mere guesswork will not be sufficient. Similarly the mere fact that the gift was made of huge amount or of valuable property in absence of any other material to doubt the genuineness of the gift, will not be sufficient to treat the gift as non-genuine. Lack of blood relationship or family relationship or absence of occasion for making gift are again not the only considerations for treating the gift as non-genuine. Although these may, at times, be relevant corroborative considerations to establish the non-genuineness of the transactions, but by itself none of such factors can be sufficient considerations for treating the gift as non-genuine.

18.3.1 In the instant case there is no evidence on record to show that the assessee had in any way at any time financially or otherwise helped the donors to gain in any manner by misusing her position as a public servant. There is no proof that the donee made any investment in the property gifted to her before the same was gifted. Smt. Veena Jain and Sh. Ashok Jain borrowed funds for purchasing the property gifted to the donee. There is no evidence that the donee had made arrangement of the loan or paid any part of them or interest thereon either prior to the purchase of the property or subsequently. In all the three gifts in question the entire investment made was from the source of donors and not from the donee.

18.3.2 The Assessing Officer has not collected any evidence to disprove the genuineness of the gift by bringing material on record to show that the gifts were arranged by the assessee from her resources or that donors made gift in lieu of some tangible benefit derived by them from the assessee by misusing her office of public servant. On the contrary the assessee adduced sufficient evidence to show that the gifts were made voluntarily by the donors without any consideration and out of natural love and affection. All the three donors have repeatedly confirmed the fact that the properties were gifted by them to the donee out of natural love and affection. The aspect of voluntarily giving of gifts has been fully proved in all the three cases. The delivery of possession was given at the time of making gift. The gifts of immovable property in the instant case prove the genuineness of the transactions beyond any shadow of doubt because of the procedure adopted for transferring such properties by way of gift through registered deeds.

18.3.3 It is not uncommon that people give donations and charities to persons in whom they place faith or for whom they have limitless regards. Similarly gifts are also made of invaluable properties for furtherance of noble objects executed by personages of high eminence. As stated by the donors in their statements recorded by the Assessing Officer, the donee is a public and political figure who was working for the welfare of the downtrodden in a missionary manner and on account of this social work, the donors decided to part away with their properties by giving the same as gift to her. The element of reverence, veneration or personal esteem and faith all depend upon personal feelings and desire. No probe can easily be made into such aspects of human psychology and the best persons to explain such feelings and desires are those who advance and execute the same.

18.3.4 In this regard reference may be made to the case of CIT v. Abdul Gani Gurdeji of Rajasthan High Court reported in ITR 213 at page 798. The brief facts of the case were that the assessee was Khadim at the Dargah of Khwaja Moinuddin Chisti, Ajmer, and derived income by exercise of such profession. He received a sum of Rs. 1,05,000 on June 19, 1978, from a non-resident pilgrim called Abu Sufian, who was coming to the Dargah for a number of years. The Assessing Officer treated this gift to be a genuine gift made on account of love and affection towards the donee, while the CIT reversed the order holding that the payment was camouflaged as a gift. On appeal the Tribunal set aside order of CIT and confirmed the order of Assessing Officer. This order was challenged by CIT by making a reference under section 256(1). In the reference the High Court upheld the decisions of the Tribunal and held as follows :—

“The finding which the Tribunal has recorded in this case is that it is not a case where the donor was benefited from any preaching or discourse or any special service of the assessee, but it is a case where the donor on his own noticed some supernatural power in the assessee and being influenced by that he decided to earmark the pounds equivalent to the amount for making the payment to the assessee. It was observed that it is a clear case of voluntary payment made to the assessee for his personal qualities or as a mark of the high esteem and regard in which the assessee was held by the donor. There is not an iota of evidence to link the impugned payment with the routine and ordinary services rendered by the assessee as Khadim to the donor. The finding which has been recorded is one of fact and has not been challenged. It was open to the revenue even to challenge the finding which has been recorded by the Tribunal on any ground including that they are perverse. No such steps were taken to challenge the finding of fact recorded by the Tribunal. It has nowhere been established that the gift had any relation with the service rendered. It may be the basis of acquaintance but cannot be considered as having any link or reference, traceable to the vocation which the assessee was performing as Khadim.

In these circumstances, we are of the view that the Tribunal was justified in holding that the sum of Rs. 1,05,000 received by the assessee from Abu Sufian under gift deed dated June 22, 1978, was not taxable as the assessee’s income from his profession/vocation.

The reference is answered in favour of the assessee and against the revenue. No order as to costs.”

18.3.5 In the instant case the department has not brought any material to question such feelings and desires of the donees and therefore the Assessing Officer was not justified in holding that the gifts were not genuine.

  1. Keeping in view of the totality of the facts and circumstances of the case and after considering the entire material available on record we are of the opinion that all the three gifts are not only genuine but also the identity and capacity of the donor to make the gift stands duly and fully established. Hence we uphold the findings of the Ld. CIT (Appeals) in holding that the assessee has fully discharged not only her onus but also the burden cast on her by proving the identity of the donors and their creditworthiness, as well as the genuineness of the gift. Accordingly we uphold the findings of the Ld. CIT (Appeals) deleting the additions made on account of the said gifts by the Assessing Officer.”

2.5 In this factual backdrop, now we proceed to examine various grounds of appeal, as raised by revenue in different years, on these issues :—

2004-05 :

“1. On the facts and in the circumstances of the case, the Ld. Commissioner of Income-tax (Appeals) has erred in quashing the assessment on the ground that the notice under section 143(2) of Income-tax Act, 1961 was not served within the period of 12 months from the date of filing of return by ignoring the fact that the notice under section 143(2) of the Income-tax Act, 1961 was issued on 23-3-2005 and sent by registered post which is well within the statutory period provided in the Income-tax Act, 1961.

  1. On the facts and in the circumstances of the case, the Ld. CIT(A) has ignored the submission of the Assessing Officer given in the remand report that the proof of service of first notice under section 143(2) of Income-tax Act, 1961 for assessment year 2004-05 was pasted in the file for assessment year 1998-99 and thus a valid notice under section 143(2) of the Income-tax Act, 1961 for assessment year 2004-05 was issued on 23-3-2005 which was sent by registered post together with notice under section 148 for the assessment year 1998-99 and the notices were not received back un-served implying thereby that they were duly served.
  2. Reliance is placed on the decision of CITv. Gyan Prakash Gupta[1987] 165 ITR 501 (Raj.), Shakti Products v. ITO [1984] 9 ITD 630 (All. – Trib.) and Sant Baba Mohan Singh v. CIT[1973] 90 ITR 197 (All.) in which it was held that assessments completed even without service of notice under section 143(2) are not void ab initio and not liable to be annulled. At best, they could be set aside for removal of the defects.
  3. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs. 8,29,25,107 out of total addition of Rs. 8,31,25,107 made by the Assessing Officer on account of unexplained gifts.
  4. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in holding the gifts of Rs. 8,29,25,107 received by the assessee from various persons/parties as genuine.
  5. That the order of Ld. CIT(A) is erroneous and contrary to facts and law.
  6. 7. The appellant craves right to alter/modify/add/delete/delete any or all grounds of appeal.”

2005-06 :

“1. The order of the Ld. CIT (Appeals) is not correct in law and facts.

  1. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was justified in holding that the ‘gifts’ received by the assessee were not on account of her vocation, ignoring the fact that the gifts had been made in response to a call from the assessee’s political party, had been generated and collected in a systematic fund raising drive by the party machinery and had been presented to the assessee on her birthday which was declared as ‘Aarthik Sahyog Diwas’ of her party, only because she was the President of the party?
  2. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was justified in saying that the Assessing Officer had failed to prove quidpro quo,ignoring the assessee’s own submission that the gifts were on account of her work for upliftment of the downtrodden that had brought about admiration and gratitude among her supporters towards her and the Assessing Officer’s finding of the fact that his work was inextricable entwined with her vocation, i.e., politics?
  3. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in seeking to distinguish the assessee’s case from that of Krishna Menon (35 ITR 48), Govindlalji Ranchhodlalji (34 ITR 92 ) & Amrendra Nath Chakraborty 79 ITR 342, all of which held that quid pro quo could be in non-material terms only on the basis of the fact that the assessee pursued a different vocation ?
  4. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) failed to appreciate that the Assessing Officer having brought on record specific instances of party functionaries (who are benefited by the assessee) being responsible for the generation and collection of ‘gifts’, the quidpro quostood established even in material terms?
  5. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) failed to appreciate that, even otherwise, the assessee’s case was similar to that of Govindlalji Ranchhodlalji, where the Hon’ble High Court held that the making of offerings, motivated by the compelling feeling on the part of the follower to make presents to the head of the faith, as it was customary, were presents not received on account of the personal characteristics of the assessee, but due to the office that he held and the same were his income from vocation?
  6. 7. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was justified in deleting the addition made under the head, “income from business and profession” only on account of the fact that ‘assessee’ had herself offered gifts over Rs. 25,000 for tax under the provisions of section 56(2)(v) and the Assessing Officer had left such ‘gifts’ undisturbed as his findings did not change the taxable status of the same?
  7. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) is correct in holding that section 56(2)(v) also confers exemption to “gifts” under Rs. 25,000 and in directing the Assessing Officer to grant relief to the assessee under that section, when the Assessing Officer had come to a categorical finding that such ‘gifts’ were income related to the vocation of the assessee and taxable as such?
  8. The appellant craves leave to add, alter or amend any/all of the grounds of appeal before or during the course of the hearing of the appeal.”

2006-07 :

“1. The order of the Ld. CIT (Appeals) is not correct in law and facts.

  1. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs. 20,33,92,828 made on account of “Income from vocation of politics”?
  2. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was justified in holding that the ‘gifts’ received by the assessee were not on account of her vocation, ignoring the fact that the gifts had been made in response to a call from the assessee’s political party, had been generated and collected in a systematic fund raising drive by the party machinery and had been presented to the assessee on her birthday which was declared as ‘Aarthik Sahyog Diwas’ of her party, only because she was the President of the party?
  3. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was justified in ignoring the fact, that the assessee’s claim, that the contributions received in response to party’s call for financial assistance on her birthday must have been accounted for in the party’s accounts, remained unsubstantiated while her own bank account showed large credits subsequent to her birthday?
  4. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was justified in disregarding specific instances brought on record by Assessing Officer, which demonstrated that even while making gifts to the assessee, the donors believed that they were making gifts to the assessee either on account of her political standing or on the directions of the leadership of the party?
  5. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was justified in saying that the Assessing Officer had failed to prove quidpro quo,ignoring the assessee’s own submission that the gifts were on account of her work for upliftment of the downtrodden that had brought about admiration and gratitude among her supporters towards her and the Assessing Officer’s finding of the fact that his work was inextricable entwined with her vocation i.e., politics?
  6. 7. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in seeking to distinguish the assessee’s case from that of Krishna Menon ( 35 ITR 48), Govindlalji Ranchhodlalji (34 ITR 92) & Amrendra Nath Chakraborty 79 ITR 342, all of which held that quid pro quo could be in non material terms only on the basis of the fact that the assessee pursued a different vocation ?
  7. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) failed to appreciate that the Assessing Officer having brought on record specific instances of party functionaries (who are benefited by the assessee) being responsible for the generation and collection of ‘gifts’, the quidpro quostood established even in material terms?
  8. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) failed to appreciate that, even otherwise, the assessee’s case was similar to that of Govindlalji Ranchhodlalji, where the Hon’ble High Court held that the making of offerings, motivated by the compelling feeling on the part of the follower to make presents to the head of the faith, as it was customary, were presents not received on account of the personal characteristics of the assessee, but due to the office that he held and the same were his income from vocation?
  9. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was justified in deleting the addition made under the head, “income from business and profession” only on account of the fact that ‘assessee’ had herself offered gifts over Rs. 25,000 for tax under the provisions of section 56(2)(v) and the Assessing Officer had left such ‘gifts’ undisturbed as his findings did not change the taxable status of the same?
  10. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) is correct in holding that section 56(2)(v) also confers exemption to “gifts” under Rs. 25,000 and in directing the Assessing Officer to grant relief to the assessee under that section, when the Assessing Officer had come to a categorical finding that such ‘gifts’ were income related to the vocation of the assessee and taxable as such?
  11. The appellant craves leave to add, alter or amend any/all of the grounds of appeal before or during the course of the hearing of the appeal.”

IT A No. 4259/Delhi/07 (assessment year 2004-05) :

  1. Learned DR Shri S.D. Kapila (special counsel for department), at the out-set prayed for admission of revenue’s additional ground, which is as under:—

“Without prejudice to the above, the Ld. CIT (Appeals) should have held that the gifts to the tune of Rs. 8,29,25,107 even if held to be genuine, were taxable as “Income from the profession of politics”, in view of his finding that they were received by the assessee from her supporters on her birthday in her capacity as the head of political party.”

3.1 Learned DR contends that in original assessment, following earlier years, Assessing Officer held that gifts were not genuine and added them as unexplained gifts under section 68, in fact he should have taxed these gifts under the head income from business or profession as “income from profession of politics”. The additional ground is taken to cure this mistake, it is claimed that the additional ground is a legal ground and can be decided by ITAT on the basis of material available on record and arguments, which are being raised for assessment years 2005-06 and 2006-07. It will not require investigation into fresh evidence or facts. Reliance was placed on the decision of Hon’ble Supreme Court in the case of National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383 for the proposition that a legal question can be raised at any stage of appellate proceedings. It is pleaded that in the case of C.P. Citrarasu v. CIT [1986] 160 ITR 5341 (Mad.) it has been held that question of law depends on the facts of each case and in that case a similar question was held to be a question of law.

  1. Learned counsel for the assessee Shri Rakesh Gupta, on the other hand, vehemently opposes the admission of additional ground on following pleas:—

(i)Assessment order is the basis for taxing income under prescribed heads and Assessing Officer is free to choose any of them. If Assessing Officer has chosen to tax income or receipt under a particular head following his order in earlier years by carrying out required investigations. Assessing Officer heard the assessee accordingly and decided to tax it as unexplained gift under section 68. Merely because there is a change in the opinion of Assessing Officer in subsequent years, will not entitle the revenue to raise this purely factual ground as an additional legal ground.

(ii)Hon’ble Supreme Court in the case of MCorp Global (P.) Ltd. v. CIT [2009] 309 ITR 4342 has held that the Appellate Tribunal in second appeal has no power to take back benefit conferred by Assessing Officer or enhance assessment or put the assessee in worse position. By admitting the additional ground, the assessee will be put to worse situation as she was neither heard nor any evidence was laid on this issue, while framing the assessment. Assessment proceedings are distinct and separate in each year and merely because the department became wiser in subsequent year in interpreting a legislative amendment, there is no justification for ITAT in admitting this additional ground while hearing the second appeal.

(iii)The additional ground raises essentially questions of facts inasmuch as the learned DR has relied on various facts and evidence which certainly requires investigations into new facts and circumstances, explanation of assessee, statement of donors to inquire aspect of personal or vocational circumstances, issues about quid pro quo etc. Facts of each and every gift are different in terms of donor, his location, financial capacity and property in gift and mode thereof. The admission of additional ground will amount to putting the clock back at the cost of assessee’s rights, multiplicity of proceeding and harassment to assessee on issues which have become final.

(iv)It changes the entire line of investigation, factual considerations which is the domain of Assessing Officer and thereafter CIT(A) in first appeal, accepting this additional ground at ITAT level will amount to reinvestigating the issues settled by earlier orders which is not the purpose of conferring power to admit additional ground.

  1. We have heard rival contentions and carefully gone through the material available on record. In our view the entire assessment and appellate proceedings were completed on the basis of Assessing Officer’s stand of investigating into the genuineness of gifts only as done in earlier years. After elaborate investigations, consideration of various facts circumstances, deposition and hearings Assessing Officer held them as unexplained gifts and made the addition accordingly, i.e.,under section 68 and did never raised any issue about vocational nature of gifts; in appeal, CIT(A) on the basis of these issues decided the appeal for assessment year 2004-05 as also in earlier years. In the entire length and breadth of assessment proceedings Assessing Officer did not propose to consider these gifts to be vocational or professional receipts in any manner. We may add that Assessing Officer’s action in this year was in conformity with earlier years and if it was not correct, assessment could have been reopened or CIT could have invoked his power under section 263 or the CIT(A) may have taken necessary steps to enhance the assessment or correct the assessment order. Amendment of section 56(2)(v) was inserted by Finance Act (No. 2) of 2004 with effect from 1-4-2005. Assessing Officer has passed assessment order on 31-12-2007, i.e., about 3 years after amendment was brought on statute book. CIT(A) passed his order on 15-4-2009, i.e., after about 5 years of amendment. Assessing Officer could have adopted this view before passing assessment or brought this to the notice of CIT(A) to correctly decide this issue. The issue about gifts has been litigated accordingly in earlier years by revenue and assessee. It is too late in the day to accept this additional ground at this stage, which in our view will amount to—

(i)admitting a ground which needs examination of fresh facts, documents and record.

(ii)Deciding a second appeal on altogether new issues, which were neither taken up by Assessing Officer nor adjudicated by CIT(A), assessee was never heard or intended to be heard and department has earlier taken same line as adopted by Assessing Officer.

(iii)It will put the assessee in a worse situation as contemplated by the Hon’ble Supreme Court in the case of MCorp Global (P.) Ltd. (supra). Justifications for admission of additional ground in case of National Thermal Power Co. Ltd. (supra) was a special bench judgment and investigation of facts was not required. In this case the amendment was introduced 3 years prior to assessment and 5 years prior to first appeal, Assessing Officer having consciously took a decision, additional ground cannot be accepted because it is more convenient for revenue.

(iv)In case of C.P. Chitrarasu (supra), it was a question of law for admission to High Court, whereas the issue before us is admission of an additional ground at instance of revenue, which requires fresh investigation of facts and hearing assessee accordingly.

5.1 In view of these facts, we refrain to admit the additional ground, sought to be raised by the revenue.

  1. Brief facts, apropos first issue raised by revenue regarding quashing of assessment due to non-service of notice under section 143(2) learned CIT(A) by various factual observations held that notice dated 23-3-2005 under section 143(2), as alleged by Assessing Officer, was not served on assessee and therefore assessment deserved to be quashed by following observations :—

“II. Issue of Notice under section 143(2).—The assessee has challenged the assessment made, as bad in law on the ground that no notice under section 143(2) was issued and served on her within the period of twelve months of the filing of the return. To this effect she had also filed an affidavit before me, which was sent to the Assessing Officer. The Assessing Officer pointed out that a notice under section 143(2) dated 23-3-2005 was sent to the assessee by registered post on 24-3-2005 at the last known address of the assessee, and as the same was not received back unserved, it can be presumed that the notice was served. A photocopy of the receipt dated 24-3-2005 was also placed on record.

On receipt of the remand report the comments of the assessee were also obtained and it is the assessee’s case that :—

(i )No notice under section 143(2) dated 23-3-2005 was served on the assessee, and the Assessing Officer has not rebutted this allegation by cross-examining the assessee and pointing out any falsity in the affidavit.

(ii )The notice purportedly issued is dated 23-3-2005 and the date for hearing is fixed for 10-4-2006, i.e., more than one year after the date of issue of notice. This is against the principles of natural justice. It is unreasonable and arbitrary to fix the date of hearing after one year and also unrealistic. It is therefore unbelievable and hence cannot be presumed to have actually taken place.

(iii)The assessee has also pointed out that the registered post receipt to which the Assessing Officer is referring pertains to notice under section 148 for the assessment year 1998-99 which was sent on 24-3-2005 and received by the assessee.

(iv)Even assuming that the hearing was fixed for 10-4-2006 the assessee has neither responded nor the Assessing Officer has recorded anything in the order sheet or in the assessment order to this effect. This again points to the facts that no such notice was in fact issued.

(v)It was also submitted that if notice had been allegedly issued on 23-3-2005 and served on the assessee the Assessing Officer could not have processed the case under section 143(1) on 28-3-2006, i.e., more than one year after the date of the issue of the notice. The law on the point is very clear. Further, the departmental instructions are that first all the returns should be accepted under section 143(1) and then only selected for scrutiny. From these facts a clear inference can be drawn that no notice under section 143(2) dated 23-3-2005 was ever issued or served on the assessee.

(vi)It is also submitted that admittedly the said receipt has been pasted on the notice under section 148 pertaining to the assessment year 1998-99, and, therefore, it follows that it pertains to the service of notice under section 148 for assessment year 1998-99.

Apart from the above, legal submissions were also made in this regard and it was urged that the Assessing Officer is trying to cover up the lapse of non-service of notice under section 143(2) in this way, which is clear and apparent and, therefore, the assessment deserves to be quashed.

II.2 I have examined this issue and I find that the fact of the issue and service of notice under section 143(2) dated 23-3-2005 to the assessee, does not find entry in the order sheet. However, all subsequent notices issued under section 143(2) do find mention in the order sheet. I am unable to comprehend this fact.

(b )I also find that as per this notice the assessee was required to attend on 10-4-2006, i.e., more than one year after the receipt of the notice which does not appear plausible. More so in the light of the fact that as what happened on the date of hearing had not been recorded in the order sheet or assessment order by the Assessing Officer.

(c )It also does not appear plausible or legally permissible that the Assessing Officer would have processed the case under section 143(1) on 28-3-2006 when the notice under section 143(2) had already been issued, more than one year earlier, i.e., 23-3-2005.

(d )It is also a fact that a notice under section 148 for assessment year 1998-99 had been issued to the assessee and the said receipt has been posted on the copy of the 148 notice. Therefore it cannot be said that the notice dated 23-3-2005 was sent through this receipt number.

(e )As regards the legal position, once the assessee had filed an affidavit and stated on oath that the notice under section 143(2) dated 23-3-2005 had not been served on her, onus was cast on the Assessing Officer to cross examine the assessee and bring out the falsity of the averments in the affidavit, if any. This has not been done, and it is a pointer to the fact that the averments of the assessee have to be taken as true and correct.

Keeping in view the totality of the facts and circumstances stated above, I am of the opinion that notice under section 143(2) had not been served on the assessee within the period of 12 months from the date of filing of the return. In such facts and circumstances, I am left with no alternative but to quash the assessment as bad in law. The Assessing Officer is directed accordingly.”

  1. 7.Learned DR on this issue reiterated the stand taken by Assessing Officer and contends as under :—

(i)Revenue’s burden is to show that notice under section 143(2) was issued on the assessee on the basis of record, which is complied with.

(ii)There is no presumption that departmental record is untrue.

(iii)Order-sheet is a record of minutes of proceedings, for which no proforma is prescribed and its writing depend on officer to officer, therefore, mere non-mentioning of words on 23-3-2005 “issue notice under section 143(2) and hearing fixed for 10-4-2006”, will not make assessment invalid as notice exists on the record. In this case since 148 proceedings were also taken up against assessee for assessment year 1998-99, instead of sending two separate envelopes to same assessee, one envelope containing these 2 notices, i.e., notice under section 148 for assessment year 1998-99 and notice dated 23-3-2005 under section 143(2) for assessment year 2004-05 were sent to assessee on 24-3-2005 by registered post as mentioned by Assessing Officer. Therefore, as far as department is concerned, the notice has been properly issued on assessee by RPAD.

(iv)During the course of remand proceedings, Assessing Officer vide letter dated 3-8-2007 mentioned as under :—

“To

The Commissioner of Income-tax (Appeals)-I,

New Delhi.

Sir,

Sub : Appeal No. 625/06-07 – Ms. Mayawati –

assessment year 2004-05 – regarding

Kindly refer to your office letter No. 46 dated 27-7-2007 and telephonic discussion held with you on the above cited subject.

You have mentioned that the Assessing Officer has not made any entry for issue of notice under section 143(2) dated 23-3-2005 on the order sheet. In this connection it is submitted that the assessment was completed by my predecessor and it has been noticed that he has not been in the habit of making entries of first notice under section 143(2) on the order sheet. I have gone through certain other files as well as I am completing assessment for the assessment year 2005-06 wherein he has not made any entries regarding issue of notice on the order sheet. You had discussed with me on telephone that receipt of registered post has been pasted on notice under section 148 issued for the assessment year 1998-99. In this connection it is stated that the notice under section 143(2) for assessment year 2004-05 and notice under section 148 for assessment year 1998-99 were issued on 23-3-2005. As the Assessing Officer has made an entry on the notice under section 143(2) that the same has been sent by Registered Post and the receipt is available in the file for the assessment year 1998-99. It seems that both the notices might have been sent in the same envelope under registered post.

The assessee is a public figure and was president of a Mass based party, the letters received by post are not opened by herself but by her staff. Therefore it is possible that both the notices might have been sent in the same envelope. You have also stated that the assessee has stated that they had attended the assessment proceedings under protest. No such letter is available on record or entered in the order sheet. It has also not been mentioned in the assessment order.

As desired, assessment records for assessment year 1998-99 in two volumes are being enclosed herewith for your kind perusal.

Yours faithfully,

Sd

(V.S. Kapoor)

Dy. Commissioner of Income Tax

Central Circle-11, New Delhi.”

It clearly suggests that assessee staff may have misplaced the notice.

(v)The finding of CIT(A) that since there was no mention of notice under section 143(2) in the order-sheet, no such notice was issued, was erroneous. It is not the case of assessee that she was not heard during the course of assessment proceedings. The deficiency, if any, amounts to irregularity in notice and not a fatality so as to quash the assessment. Reliance was placed on the decisions in the cases of CIT v. Yamu Industries Ltd. [2008] 306 ITR 3091 (Delhi); and Sant Baba Mohan Singh v. CIT [1973] 90 ITR 197 (All.) and other case laws cited in the grounds, for the proposition that such mistake amounts to irregularity and is not fatal to the proceedings.

(vi)It was further pleaded that Assessing Officer assumes jurisdiction of assessment on filing of return, which is applicable to case of the assessee. Merely because there is some irregularity in the process of dispatch of notice and assessee was otherwise fully heard and participated in assessment, this irregularity will not quash the assessment proceedings. Reliance in this behalf is placed on the decisions in the cases of CIT v. Gyan Prakash Gupta [1987] 165 ITR 5012 (Raj.); and Intercraft India v. CIT [1985] 154 ITR 662 3 (Delhi).

7.1 It was pleaded that existence of notice under section 143(2) on record demonstrates compliance of provisions, alternatively the issue becomes one of curable deficiency, therefore, assessment proceedings be held as valid.

7.2 Coming to the merits of the additions in this year as non-genuine gifts, learned DR contends that though facts of the assessee’s case are similar to assessment year 2003-04 which have been decided by ITAT holding that the gifts were genuine, however, relied on assessment order holding the gifts to be non-genuine, as held by Assessing Officer earlier.

  1. In reply learned counsel for the assessee Shri Rakesh Gupta adverting to the issue of no service of notice under section 143(2) within time limit contends that copy of order-sheet provided by the department reveals following entries :—

“Office of the Asstt. Commissioner of Income-tax

Central Circle 11, New Delhi

E-2, ARA Centre, Jhandewalan Extn.

Room No. 364, 3rd Floor, New Delhi

Name & address of the assessee:M/s. Mayawati, C-1/11, Hanuman Road, New Delhi
Assessment year:2004-05
21-7-2004Return received-Placed on file
28-3-2006Process under section 143(1) of the Income-tax Act
8-6-2006Issue notice under section 143(2), 142(1) & questionnaire for hearing on 19-6-2006.
19-6-2006Sandeep Nagpal, CA, attends and request adjournment.
4-8-2006Issue notice under section 143(2), 142(1) for hearing on 17-8-2006.
27-11-2006Sh. Sandeep Nagpal CA attends, files copy of bank a/c. Adj. To 5-12-2006.
13-12-2006Sh. Sandeep Nagpal, CA sends the letter through special messenger. Place on file.
15-12-2006Sh. Sandeep Nagpal, CA sends the letter 05.30 PM through special messenger.
22-12-2006Sh. Sandeep Nagpal, CA attends. Files request for photocopies of statement recorded earlier.
26-12-2006Sh. Sandeep Nagpal, CA attends. Files letters dated 23-12-2006 and 26-12-2006.
27-12-2006Sh. Sandeep Nagpal, CA attends. Files letter dated 26-12-2006.”

8.1 On this basis learned counsel contends that :—

(i)Return of income of the assessee was filed on 21-7-2004. For a valid assessment under section 143(3), notice under section 143(2) should be served on the assessee within one year from the end of the month in which the return was filed, i.e., 31-7-2005. According to the assessee’s consistent stand notice under section 143(2) was issued on her vide notice dated 8-6-2006 fixing the hearing on 19-6-2006 which is duly recorded by Assessing Officer on order sheet, this is clearly time barred. Notice dated 23-3-2005 as alleged by the Assessing Officer is never received by assessee and is not recorded by Assessing Officer in his proceeding sheet. On receipt of this first notice under section 143(2) dated 8-6-2006, assessee filed an objection before Assessing Officer vide letter dated 1-7-2006 challenging that notice dated 8-6-2006 was barred by limitation.

(ii)Assessing Officer neither replied to this objection nor contradicted assessee’s version and proceeded to frame assessment by asking various explanations, record and calling for the donors. The order-sheet entry is a vital record of any income-tax proceedings as Assessing Officer has to record all the proceedings, issuance of statutory notices including compliances on this sheet. In the order-sheet produced by the department, there is no mention of issuance of any notice under section 143(2) dated 23-3-2005 fixing date of hearing after an unbelievable gap of 13 months on 10-4-2006. On the contrary order sheet has a clear entry on 8-6-2006 – “issue notice under section 143(2)/142(1) and questionnaire for hearing on 19-6-2006”. It is highly strange on the part of the department to take a plea that it is not necessary to record the issuance of notice under section 143(2), dated 23-3-2005 whereas all other notices including under section 143(2) dated 8-6-2004 are conspicuously mentioned thereon. The alleged notice under section 143(2) is further claimed to be sent to assessee in some envelope along with other notice under section 148 for assessment year 1998-99 which seems unbelievable justification as this is not the practice of the department to send two separate proceedings of different assessment years in one envelope.

(iii)Assessing Officer vide letter dated 3-8-2007 addressed to CIT(A) in respect of enquiry into the truth of issuance & service of this notice and assessee’s affidavit has replied as under :

“It seems that both the notice might have been sent in the same envelope under the registered post.”

This reply itself shows the shaky nature of department’s stand about dispatch of two notices in same envelope.

8.2 The stand of the department on issue and service of notice under section 143(2) dated 23-3-2005 is unbelievable; neither such notice was issued nor served on assessee. Department’s explanation has no legs to stand because of following anomalies :—

(a)If there is no necessity to record issuance of notice under section 143(2) dated 23-3-2005 on the order-sheet, then why Assessing Officer took the trouble of recording issuance of notice under section 143(2) on 8-8-2006.

(b)According to the Assessing Officer, the alleged notice was served on 23-3-2005, fixing a date of 8-2-2006, meaning thereby the Assessing Officer issued notice under section 143(2) fixing the case of the assessee after an unheard gap of about 13 months which is highly improbable.

(c)Assessee’s return was processed under section 143(1) on 28-3- 2006, i.e., after a period of about one year of alleged issuance of notice under section 143(2). Once notice under section 143(2) is issued, return cannot be processed under section 143(1), which also indicates that no such notice under section 143(2) was issued on 23-3-2005.

(d)The registered postal receipt, produced by learned DR is in respect of notice under section 148 for assessment year 1998-99 and not for assessment year 2003-2004. Assessee never received notice under section 143(2) dated 23-3-2005. Assessing Officer will never issue two notices of different proceedings for different assessment years in one envelope. This explanation is concocted on improbable assumptions to cover the lapses of department.

(e)If notice dated 23-3-2005 was sent fixing the date of 10-4-2006 and Assessing Officer forgot to record entry, in that case at least an entry of 10-4-2006, i.e., date of hearing should have been made in the order-sheet, which cannot be omitted from recording. Its absence clearly suggests that neither such notice was issued on 23-3-2005 nor any hearing was fixed on 10-4-2006.

(f)Notice dated 23-3-2005 was neither issued nor dispatched and in any case not served on assessee inasmuch as no evidence of service of notice under section 143(2) has been brought on record and assessee’s affidavit stands uncontroverted. Except a make believe story that notice might have been sent along with notice under section 148 for assessment year 1998-99, no other record has been shown to support department’s shaky explanation.

(g)The Assessing Officer’s use of word, ‘might’ in remand report itself indicates that it is a weak attempt to legitimize a time-barred notice.

(h)The inconsistent circumstances, non-adjudication of assessee’s objections, missing order sheet entries and unsatisfactory reply by Assessing Officer clearly indicate that no such notice under section 143(2) dated 23-3-2005 was issued at all by Assessing Officer. In remand proceedings, assessee’s affidavit was duly sent by CIT(A) to Assessing Officer, which is available on record together with assessee’s objection letter. Assessing Officer’s letter dated 3-8-2007 does not represent correct facts. The assessee’s objection was never dealt and was never cross-examined.

(i)Under these circumstances, burden of proof is squarely on the department to demonstrate that alleged notice dated 23-3-2005 under section 143(2) was in fact issued, duly served on the assessee and it was acted upon by Assessing Officer according to usual and normal office procedure. Proof of service of notice is conspicuously missing, relevant entries in proceeding sheet are demonstratively missing, Assessing Officer neither deals with objection filed on her first notice nor controverts the affidavit. As a standard and normal procedure, Assessing Officer would have immediately rejected the assessee’s objection on the ground that notice dated 8-6-2006 was a second notice and earlier notice under section 143(2) dated 23-3-2005 was already issued and served on the assessee which was within time. Assessing Officer’s mysterious silence on all these vital issues, dates and record clearly demonstrate that no notice dated 23-3-2005 was ever issued or in the least served on assessee. What the department has now produced is neither any satisfactory proof of service nor any independent proof of dispatch for assessment year 2004-05. Merely by pasting a photocopy of postal slip for assessment year 1998-99 on alleged ante dated notices for 2004-05, department is proposing an unbelievable and improbable stand. Even if it is assumed that this notice was sent by Assessing Officer, in that case there is neither proof of service on the assessee nor any noting of proceeding on 10-4-2006, i.e., date of hearing after 13 months.

(j)No presumption can be drawn that a notice issued is a notice served.

(k)As per order-sheet, assessment has been framed on the basis of time-barred notice dated 8-6-2006, which is clearly time-barred. Following authorities have held that if notice under section 143(2) is not served in time, the assessment is bad in law as it violates statutory mandate of section 143(2).

Following case laws are relied on for mandatory service of notice under section 143(2) within prescribed time :

(1)Asstt. CIT v. Hotel Blue Moon [2010] 188 Taxman 113.

(2)CIT v. Pawan Gupta [2009] 318 ITR 3221 (Delhi)

(3)CIT v. Vardhman Estate (P.) Ltd. [2006] 287 ITR 368 (Delhi).

(4)CIT v. Bhan Textiles (P.) Ltd. [2006] 287 ITR 370 (Delhi).

(5)Dy. CIT v. Mahi Valley Hotels & Resorts [2006] 287 ITR 360 (Guj.)

(6)CIT v. M. Chellappan [2006] 281 ITR 444 (Mad.)

(7)CIT v. Cebon India Ltd. [2009] 184 Taxman 290 (Punj.&Har.).

8.3 Hon’ble Supreme Court in the case of Hotel Blue Moon (supra), has held as under :

“However, if an assessment is to be completed under section 143(3), read with section 158BC, notice under section 143(2) should be issued within one year from the date of filing of block return. Omission on the part of the assessing authority to issue notice under section 143(2) cannot be a procedural irregularity and the same is not curable and, therefore, the requirement of notice under section 143(2) cannot be dispensed with.”

8.4 Hon’ble Delhi High Court in the case of Pawan Gupta (supra) has clearly held that provision of section 143(2) are mandatory in nature, whether looked from the stand point of regular assessment or from the stand point of block assessment under Chapter XIV-B and issuance of a proper notice is a pre-requisite condition for completing a valid assessment and an assessment order in violation of provision of section 143(2) would be invalid and not merely irregular.

8.5 In view of these judgments, it is a settled proposition that if the notice under section 143(2) is not issued within one year from the end of the month in which return is filed, omission on the part of Assessing Officer to issue notice under section 143(2) cannot be held as procedural irregularity and is not curable. Notice dated 8-6-2006 being clearly time-barred, CIT(A) has rightly quashed the assessment following various judicial precedents.

  1. We have heard rival contentions and perused the material available on record. The main issue which deserves to be decided is whether the first notice issued under section 143(2) was dated 8-6-2006 as contended by assessee or 23-3-2005 as alleged by the Department.

9.1 In our view, the order-sheet constitutes a very important record, assessments are quasi-judicial and appealable proceedings, it is imperative that Assessing Officer, will record proper entries about minutes of proceedings including invoking of any jurisdiction, exercise of any statutory power, issuing notice fixing date of hearing, outcome on date of hearing and attendance etc. We are unable to agree with the learned DR that the recording of entries varies from officer to officer and aspects of non-mentioning of issue of impugned notice under section 143(2) dated 23-3-2005 and fixation of date of hearing after a very long time of 13 months on 10-4-2006 should be ignored. Entries in order-sheet should be ensured to be maintained in a chronological and truthful order of the sequence, events and happenings during the exercise of assessment by Assessing Officer who is a quasi-judicial officer. This is to maintain transparency in proceedings and avoid any subsequent interference or tempering with the record. The plea of the department that because Assessing Officer was contemplating issuance of notice under section 148 for assessment year 1998-99, he had simultaneously issued both notices on 24-3-2005, both were sent by registered post in one envelope, is unusual and surprising. There is no acknowledgement or record suggesting the service of notice for assessment year 2004-05. In our view, if the Assessing Officer issued notice, in that case atleast proceedings of hearing on 10-4-2006 would have been noted on order-sheet as a natural procedure. A quasi-judicial officer will not fix a date of hearing and forget to take up proceedings on that day. Non attendance of statutory notice leads to penalty under section 271(1)(b) and issue of a further registered notice for hearing. All these natural happenings are conspicuously missing from the departmental record.

9.2 We would now like to examine assessee’s explanation who claims that first notice under section 143(2) was received on 8-6-2006 and on receipt thereof, assessee objected that this notice was time-barred. Assessing Officer did not adjudicate the same and assessment proceedings went on as per the events suggested by order-sheet. Assessee has taken this consistent stand throughout including an affidavit which exist on record, same were duly forwarded to Assessing Officer by CIT(A) in remand proceedings. Assessing Officer’s comments are not found to be correct.

9.3 Assessing Officer’s non-maintenance of proper order sheet, seemingly implausible stand that the notice dated 23-3-2005 might have been sent with 148 notice for assessment year 1998-99, fixation of hearing after a lapse of year on 10-4-2006, non-recording of such hearing and follow up action, framing of assessment under section 143(1) after issue of section 143(2) notice and unreliable comments sent to CIT(A), all these inconsistencies and abnormalities cannot be held as coincidences or variation in discretion from officer-to-officer in important quasi-judicial matters, like assessment.

9.4 Consequently, we are unable to take cognizance of notice under section 143(2) dated 23-3-2005 and hold that it was issued and served on the assessee. The notice dated 23-3-2005 is neither satisfactorily established to have been issued nor received by assessee. We hold that notice dated 8-6-2006, was the first notice received by assessee which is received by her after the statutory time-limit under section 143(2) and was duly objected upon. Since this notice under section 143(2) is clearly time-barred, relying on Supreme Court judgment in the case of Hotel Blue Moon (supra) and that of Delhi High Court in the case of Pawan Gupta (supra), we hold that CIT(A) was correct in quashing the assessment as invalid, since we are following Hon’ble Supreme Court and Delhi High Court judgments we will not dwell into other cases cited.

9.5 Coming to merits of the case, the issues about genuineness of gifts are already accepted in favour of the assessee by the earlier order of the ITAT in her own case for assessment year 2003-04. For the impugned assessment year, i.e., assessment year 2004-05, facts and circumstances are claimed to be same as in assessment year 2003-04 by both parties. Under these circumstances, relying on ITAT judgment in assessee’s own case, we uphold the order of CIT(A) on merits also, accepting the gifts received to be genuine. In view thereof, revenue’s various grounds challenging genuineness of the gift are accordingly dismissed.

Assessment years 2005-06 & 2006-07 :

  1. Facts relevant to these years are that assessee received gifts from various donors, out of which, gifts in excess of Rs. 25,000 each were offered to tax in the return of income by the assessee as “income from other source” under section 56(2)(v) of the Income-tax Act. The balance amounts comprising of Rs. 25,000 each or less were taxed by Assessing Officer in both the assessment years in the hands of the assessee as “income from the vocation of politics” under section 28, details whereof are as under :
A.Y.Total giftsOffered by assessee u/s 56(2)(5)Gifts up to Rs. 25,000
2005-063,85,22,1021,20,49,5902,64,72,512
2006-0721,62,91,8441,28,99,01620,33,92,828

10.1 CIT(A) after considering the Assessing Officer’s order, assessee’s explanation, confirmations, affidavits and statements of donees, appreciation of case laws relied on by Assessing Officer and assessee held that the gifts received were personal in nature and not vocational income. Besides gifts received being of similar nature cannot to be split into two different heads of income, i.e., above Rs. 25,000 as Income under the head ‘Income from other source under section 56(2)(v)’ and upto Rs. 25,000 as ‘Income from business or profession under section 28’, relevant observations from CIT(A)’s detailed order (taken from assessment year 2006-07) are as under:

“7. I have gone through the facts of the case, submissions made by the appellant and the comments of the Assessing Officer and counter reply of the appellant. I gave the following findings while deciding the appeal for assessment year 2005-06 in Appeal No. 333/2007-08 :—

“…The Assessing Officer has mentioned in the order that affidavits were filed by virtually all the donors reaffirming the fact of gift, furnished proof of their identity and details regarding source of their income. The Assessing Officer has also observed that no adverse inference is taken in this assessment year regarding the genuineness of the gifts.

The Assessing Officer has dealt the gifts in two parts. The gift below Rs. 25,000 and above Rs. 25,000; The Assessing Officer has addressed a question to himself in para 39 of the order that what happens to the gift over Rs. 25,000, if the gifts below the same are being assessed as income from business and profession? He answered to himself that I believe that since the same have been offered for taxation under a specific provision of the statute, the finding that the gifts are the assessee’s income from vocation of politics will not change the status of the gift offered for taxation under section 56(2)(v).

The Assessing Officer relied on the case of Commissioner of Expenditure Tax v. P.V.G. Raju 101 ITR 465 (1975) for politics to be a profession. AM. mentioned that a perusal of the returns of the assessee is enough to convince us that the assessee is a politician by vocation if not profession. It is also mentioned that she drew salary income as an Hon’ble Member of Parliament. The Assessee is also not known for contribution to any other field of activity.

The Assessing Officer has further mentioned that in the case of P. Krishna Menon v. Commissioner of Income-tax; Mysore, Travancore-Cochin, Coorg. and Bangalore 35 ITR 48, that any gift that accrue to a person by virtue of the office that he holds or the vocation that he pursues should be regarded as his income from vocation or profession.”

Regarding quid pro quo the Assessing Officer relied on the judgment of P. Krishna Menon (supra), Amrendra Nath Chakraborty 79 ITR 342 and Ram Kripal Tripathi 125 ITR 408 . The AM. has mentioned at page 13 of the order as under :

“The gratitude which the assessee refers to is in relation to what her followers perceive she has done for them, i.e., bring about social revolution and change in mindset of society towards the downtrodden. This has obviously brought mental happiness to them and that is why they feel a sense of gratitude to her. The use of the word gratitude by the assessee is indicative of the true position. One does not have a sense of gratitude for the personal qualities of a person. Gratitude only flows from the perception that something good has been done for them. This may be in material terms. It may be intangible. But this perception of the deed done is the quid pro quo which the assessee has done for her political supporters and which makes the gifts to her directly linked to her vocation of politics (which as per her own admission is closely linked to her pursuit of social reform) and her position as head of the Bahujan Samaj Party, The gifts are therefore taxable in her hands as income from the vocation of politics.”

It was argued that the case laws relied upon by the Assessing Officer are not applicable on the facts of the case of the appellant. Further Assessing Officer cannot give two different treatments to the gifts received by the appellant.

In the case of P.V.G. Raju the following two questions were before the Hon’ble Supreme Court :

“(1)Whether, on the facts and in the circumstances of the case, the expenditure of Rs. 38,832 claimed to be the amount incurred by the assessee for the benefit of other candidates for election is excludible from the taxable expenditure either under section 5(a) or under section 5(1) of the Expenditure Tax Act?

(2)Whether, on the facts and in the circumstances of the case, the sum of Rs. 47,867 claimed to be party expenses could be excluded from the taxable expenditure of the assessee either under section 5(a) or under section 5(1) of the Expenditure Tax Act?”

The Hon’ble Supreme Court held as follows as per the Head Note :

“(i )that what the respondent expended for other candidates during the elections was ‘donation’ within the meaning of section 5(j) of the Expenditure Tax Act, 1958.

(ii )that the amounts paid by the respondents to his party were paid purely as gifts and donations and were also exempt under section 5(j) of the Act.

When a person gives money to another without any material return, he donates that sum. An act by which the owner of a thing voluntarily transfers the title and possession of the same from himself to another, without any consideration, is a donation.

The hope of spiritual benefit or political : goodwill, the spontaneous affection that benefaction brings, the popularization of a good cause or the prestige that publicized bounty fetches, these and other myriad consequences or feelings may not mar a donation to make it a grant for a quid pro quo. Wholly motiveless donation is rare, but material return alone negates a gift or donation.”

The Hon’ble court also observed in the order as under :

“The next item relates to sums given to the Socialist Party. It is reasonable to assume that the amounts paid to the office bearers of the party were without any eye on any material return other than royalty or gratitude. They, were outright, gifts. Indeed, many rich people out of diverse motives make donations to political parties. The hope of spiritual benefit or political goodwill, the spontaneous affection that benefaction brings, the popularization of a good cause or the prestige that publicized bounty fetches-these and other myriad consequences or feelings may not mar a donation to make it a grant for a quid pro quo. Wholly motiveless donation is rare, but material return along negates a gift or donation. We need not investigate the propriety of political donations “unlimited” and often invisible. All that we need consider is whether such sums are gifts and donations or are non-gratuitous payments with a tag of return. We have no doubt that on the question as framed, and on the facts and circumstances present, these sums were paid purely as gifts and donations to his party by the respondent. It is not surprising either, because he was the chairman of the said pasty had a long and liberal purse from which to draw and a large circle of support to build up in the long run.”

It can be seen that the Hon’ble Court held that these sums were paid purely as gifts and donations to his party by the respondent. Hon’ble Supreme Court affirmed the view of Hon’ble Andhra Pradesh High Court in P.V.G. Raju v. Commissioner of Expenditure Tax [1971] 79 ITR 430 , Hon. ‘We Andhra Pradesh High Court in the said order meaning as per head note as under :

“Since an ‘occupation’ is that with which a person occupies himself; there is no reason why ‘politics’ cannot be an ‘occupation’ provided it is taken up as a career. Though a profit motive is absent in politics, profit motive is not an essential requisite of ‘occupation’ for a person, well endowed with the goods of the world, may prefer to pursue a profession or occupation without receiving any remuneration for his services.”

The case of P.V.G. Raju was referred by Hon’ble Madras High Court in the case of CIT v. Raja Manickam (S.A.) [1984] 149 ITR 85 . The Head Note mentions as under:—

“A committee consisting of the payment of a political party, of which the assessee was an active member and held various offices, collected donations from the members of the party, businessmen and public and also arranged a drama for the purpose of donating a purse to the assessee. Accordingly a purse containing Rs. 56,000 which included a sum of Rs. 5,000 given by the assessee’s former employer was presented to the assessee who handed over the same to the committee with a request to purchase a house for him with the said fund. Accordingly a house was purchased for Rs. 72,000. The ITO held that the 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. The AAC on appeal accepted the claim of the assessee that this sum of Rs. 51,000 was only in the nature of a personal gift to him by his admirers and accordingly directed the deletion of the amount and this was confirmed by the Tribunal. On a reference :

“Held, that there being no evidence to substantiate the contention that the amount was paid to the assessee as remuneration for his service to any particular individual or to the political party, the amount could only be treated as a gift or a windfall received by the assessee for his personal qualities. There was no quid pro quo in the payment of the donation made by the general public, the former employer and the partymen. Consequently, the Tribunal was right in its view and the sum of Rs. 51,000 was not taxable as the assessee’s income.”

The Hon’ble High Court also observed for receipt and donations as under:

“Therefore, we cannot adopt two standards, one for the expenditure and the other for the receipt of donations made or received by the politicians, when the Supreme Court is of the view that such donations made or received is only a voluntary gift and not otherwise as a return for such donations. On the analogy of the above case, in the present case also, the amount paid to the assessee is not in return for any specified or general service rendered by the assessee, but only in recognition of his personal qualities. There is no quid pro quo in the payment of donation made by the general public, former employer and the partymen.”

Further Hon’ble High Court stated as under regarding taxability:—

“At p. 238 in vol. 1 7th Edit. Of Kanga and Palkhivalas, the Law and Practice of Income-tax, the authors have expressed the following view :—

“But a receipt does not necessarily arise from the exercise of a profession or vocation merely because the profession or vocation affords the opportunity for earning the receipt. A golden handshake given as gift by a company to its auditors whose appointment was not renewed was held not to be a professional receipt.

As against such preponderant materials and circumstances in favour of the assessee that the present of Rs. 51,000 to the assessee amounted to a windfall or gift for his personal qualities, though his profession or vocation as a politician has also contributed or afforded an opportunity for earning such a present there is absolutely no material whatsoever on the side of the Revenue placed either before the lower authorities or before the Tribunal to decide that the said present will amount to a receipt arising from the exercise of a profession or vocation or occupation, which is exigible to Income-tax.”

In the case of Chitrarasu (CP) v. Commissioner of Income-tax [1986] 160 ITR 534 Hon’ble Madras High Court held as under :—

Held-that merely because a member of a political party received gifts, the amount of the gift would not necessarily become income by way of remuneration for the services rendered as a member of the party to hold that merely because the assessee was the member of the DMK party and wielded influence, the people collected funds was to ignore the positive case of the assessee that his services to Tamil and his performance as an author had earned him the respect of the people. A receipt does not necessarily arise from the exercise of a profession or vocation : The Tribunal was, therefore, not right in its conclusion that the sum of Rs. 48,176 was liable to tax as income arising from vocation or occupation of the assessee CIT v. Raja Manickam [1984] 149 ITR 85 (Mad.) followed.”

In the case of Krishna Menon (P.) v. CIT [1959] 35 ITR 48 Hon’ble Supreme Court held as under:—

Held – (i) that teaching was a vocation, if not a profession, and teaching Vedanta was just as much teaching as any other teaching, and therefore a vocation;

(ii) that in order that an activity might be called a vocation, it was not necessary to show that it was an organized activity and that it was indulged in with a motive or making profit; it was well-established that it was not the motive of a person doing an act which decided whether the act done by him was the carrying on of a business, profession or vocation; and if any business, profession or vocation in fact produced an income, that was taxable income, and was nonetheless so because it was carried on without the motive of producing an income.

(iii) That the teaching of Vedanta by the appellant was the carrying on a vocation by him and that the imparting, of the teaching was the causa causans of the making of the gifts by L, that it was impossible to hold that the payments to the appellant had not been made in consideration of the teaching imparted by him, and that therefore, the payments were income arising from the vocation of the appellant.

(iv) That as the payments made by L were income arising from a vocation they were not casual or non-recurring receipts and no question of exemption under section 4(3)(vii) of the Indian Income-tax Act arose.

In order that a payment may be exempted under section 4(3)(vii) of the Indian Income-tax Act, as a casual and non-recurring receipt, it has to be shown that it did not arise from the exercise of a vocation.”

In the case of Govindlalji Ranchhodlal (Maharaja Shri) v. CIT [1958] 34 ITR 92 Hon‘ble Bombay High Court held as under:—

Held-that the income from these gifts was taxable under the Income-tax Act as (i) it was found by the Tribunal that although there was no legal obligation upon the followers of the faith to make the gifts, the making of the offerings was motivated by the compelling feeling on the part of the followers of a faith to make presents to the head of the faith, which was customary; (ii) the gifts were made to the assessee not because of his personal characteristic but because he was the head of the religious sect; and (iii) the assessee held an office, and it was only that office that induced his disciplines to make the gifts.

Held also (i) it was not necessary to decide whether the income fell under section 10 or section 12 of the Act, (ii) even a practice of religion could become a vocation and more so, when it brought in a steady income, it is not necessary that the holder of an office should receive presents by virtue of a contract in order to constitute those receipts taxable income, if he receives them because he is holding an office and no personal gifts, even in the absence of a legal and binding contract, the receipts would be taxable income. An office may not depend upon any law, or any contract, or any mandate from the State or any authority. An office means a position which requires the person holding it to perform certain duties and discharge certain obligations.”

In the case of Ram Kripal Tripathi v. Addl. CIT [1980] 125 ITR 408 , Hon’ble Allahabad High Court held as under :

Held-( i) that the mere fact that the teaching of Vedanta was a matter of religion would not mean that the assessee was not carrying on a vocation. Though the assessee was giving the discourses without any motive or intention of making a profit out of such activity, yet the giving of discourses was a vocation and the raising of the contributions for purchasing a car for the assessee by his disciples was in consideration of the teaching imparted by him. The giving of the discourses by the assessee was a causa causans for the raising of the contributions by his disciples and the purchase of the car by them for him.

(ii) Since the word “profession” includes vocation and the teaching of Vedanta or giving regular discourses on vedantic philosophy amounted to carrying on a profession, the benefit accruing to the assessee during the course, and as a result, of that activity would not be in the nature of the granting of a mere relief. The benefit was of a material thing and the value thereof would be deemed to be income under clause (va) of section 2(24) of the Income-tax Act, 1961, and as such, that value would be liable to be treated as income from vocation under section 28(iv).

(iii) Therefore, the assessee was carrying on a profession within the meaning of section 28(iv) and the receipt of the car was a benefit accruing to him and the entire value of the benefit would be taxable in the hands of the assessee.”

It can be seen that the appellant is neither a teacher nor a religious leader. She is a Political Leader and was a Member of Parliament during the relevant period.

The quid pro quo which is the essential ingredient for taxability is absent in the form of material return. The Assessing Officer has derived the hypothetical concept of the mental happiness in the form of quid pro quo by equating the applicant as a vedantic teacher or a religious preacher or an author and reformer. Tue case referred: by Assessing Officer for quid pro quo inter alia contains some sort of direct discourses for enlightment leading to so called mental happiness. In the case of Raja Manickam which case of P.V.G. Raju is referred the Hon’ble High Court clearly stated that there was no quid pro quo in the payment of the donation made by the general public, the former employer and the partymen. Consequently the Tribunal was right in its view and the sum of Rs. 51,000 was not taxable as the assessee’s income. In the case of Parimisethi Seetharamamma v. CIT[1965] 57 ITR 532(AP) while explaining the ratio of judgment of Hon’ble Supreme Court in the case of A. Govindaraju Mgsdaliar v. CIT [1958] 34 ITR 807, Hon’ble Andhra Pradesh High Court observed as under :

“The observation relied upon does not lay down a proposition that it may be inferred that a receipt is taxable as income because the assessee fails to lead all evidence in support of the case pleaded by him that the receipt is not within the taxing provision: Whether a receipt is liable to be treated as income depends very largely upon the facts and circumstances of each case: it is open to the Income-tax authorities to raise an inference that a receipt by an assessee is assessable income whether he fails to disclose satisfactorily the source and the nature of the receipt. But in this case the source of the income was disclosed by the appellant, and there was no dispute about the truth of that disclosure.”

In the case of Nirmala F. Attavale v. ITO-16(3) In IT Appeal No. 1084 (Mum. of 2005) vide order dated 20-2-2008 (2008) 22 SOT 197 (Mum.) Hon’ble ITAT Mumbai Bench “A” Hon’ble ITAT observed that the provisions of section 28(iv) relating to social reformer and philosopher for voluntary gifts received as under :

“We have considered the submissions made by both sides, material on record and orders of authorities below. It is noted that the assessee is a social reformer who established a movement called “Swadhyaya” for the up- liftment of masses which was joined by great number of followers. It is also noted that the assessee has devoted his whole life to the cause of this movement. It is also noted that assessee has never charged any fee or remuneration from his followers or the persons who attended his lectures at any point of time. In this background, we find sufficient force in the contention of the assessee that it was movement or campaign and not a vocation. Having stated so, however, even if it is treated as vocation then, having regard to the fact that assessee never charged any fee or remuneration for his imparting of knowledge and practising of values based on “Shrunad Bhagawet Glitz” and also the fact that the assessee did not have any vested right to receive any kind of payment for these activities from his disciples/followers, hence, the gift made by the followers; without being under any contractual or legal or customary obligations, cannot be treated as a consideration arising out of carrying of vocation. We would further like to add that as far as provisions of Income-tax Act is concerned every receipt is not income though the term ‘income’ has been defined in an inclusive manner, hence, such receipt must necessarily fall under the specific charging provisions. The Revenue Authorities have applied the provisions of section 28(iv) of the Act wherein it is provided that any benefit or perquisite arising out of exercise of business or profession would be treated as income. These two words have been used in this provision i.e. ‘benefit’ or ‘perquisite’ and other condition, is that such benefit or perquisite should arise out of exercise of business or profession. In the facts of the case, the Revenue has not established conclusively that the amount of gift arose to the assessee as a consequence of exercise of vocation because such gifts have got no element of consideration being paid for services obtained by the followers/disciples. It is also noted that both the words ‘benefit’ and ‘perquisite’ refer to specific situations wherein, generally receipt of revenue nature having attributes of income would be covered and such attribute should exist from very beginning. To illustrate this aspect, we state that where a gift is made in lieu of paying consideration for services obtained and this fact is established, then such amount of gift can fall within the provisions of section 28(iv) of the Act.

In view of all the facts and case laws discussed above, the Assessing Officer, could not prove quid pro quo in the case of the appellant. If the logic of Assessing Officer is accepted, then every Hon’ble Member of Parliament can be taxed for every receipt of below twenty five thousand as income from vocation whether it may be a gift or otherwise. It would amount to that the provisions of section 56(2)(v) is not applicable on the Hon’ble Members of Parliament or Legislative Assembly. Every politician has some following whether less or large it does not matter. The Assessing Officer has simply taxed the gifts below twenty five thousand a income from profession by importing the concept of vocation relating to politicians from the case of P.V.G. Raju and further imported the hypothetical concept in this case as mental happiness to be quid pro quo without differentiating the facts. Assessing Officer has thoroughly confused himself in correlating the definitions of politicians, vocation, quid pro quo and material return. He has also mixed up the professions of teachers, religious leaders, authors, reformers and politicians. The ratio laid down by Hon’ble Supreme Court in the case of P.V.G. Raju is applicable to the extent that politics is a vocation or profession. Regarding taxability of gift as income from vocation the ratio of various judgments cited above are also to be examined from the facts of the case. Gift is a form of receipt and every receipt is not taxable, it is a well settled law.

Further Assessing Officer has also confused himself in interpreting the provisions of section 56(2)(v) of the Income-tax Act.

The section 56(2)(v) as applicable for this assessment year reads as under :—

Where any sum of money exceeding twenty five thousand rupees is received without consideration by an individual or a Hindu undivided family from any person on or after the day of September, 2004 (but before the 1st day of April, 2006), the whole of such sum:

Provided that this clause shall not apply to any sum of money received—

(a)from any relative; or

(b)on the occasion of the marriage of the individual; or

(c)under a Will or by way of inheritance; or

(d)in contemplation of death of the payer; or

(e)from any local authority as defined in the Explanation to clause (20) of section 10; or

(f)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 clause (23C) of section 10; or

(g)from any trust or institution registered under section 12AA.

Explanation.—For the purposes of this clause, “relative” means –

(i)spouse of the individual;

(ii)brother or sister of the individual;

(iii)brother or sister of the spouse of the individual;

(iv)brother or sister of either of the parents of the individual;

(v)any lineal ascendant or descendant of the individual;

(vi)any legal ascendant or descendant of the spouse of the individual;

(vii)spouse of the person referred to in clauses (ii) to (vi).

The section talks about any sum received only. The word ‘gift’ is nowhere used in this section. Gift is a form of receipt without consideration. Exceptions for not taxing receipt without consideration are provided in the section itself. The appellant does not fall in site exception category.

The whole receipt in the form of gift has been divided into two parts by the Assessing Officer. A portion above Rs. 25,000 has been accepted as gift quoting the provisions of section 569(ffv,) and other portion below Rs. 25,000 has been taxed as income from vocation. The genuineness of receipt as gift has not been doubted by the Assessing Officer.

Splitting of same nature of receipt which in this case is in the form of gift and taxing them into two different heads of income under two different provision of the Act is beyond the legal domain. The provisions of section 56(2)(v) is to be applied as a whole. Assessing Officer is not free to apply the taxability part and not to apply the non-taxability part which is implicit that receipt below Rs. 25,000 is not to be taxed.

The definition of vocation or profession relating to politicians in the absence of material return as embedded in the concept of quid pro quo cannot become the basis for splitting the receipts which in this case is gift.

  1. In view of the facts of the case and above discussions, the Assessing Officer is directed to apply the provisions of section 56(2)(v) as a whole and not to divert the gifts (receipt) below 25,000 to tax under different provisions of the Act.
  2. As the issue involved remains the same as was in the assessment year 2005-06, so the Assessing Officer is directed to follow the direction given by me in the appellate order for assessment year 2005-06 as mentioned above in this year also, i.e.,for assessment year 2006.”

10.2 Aggrieved, revenue is before us, represented by Shri S.D. Kapila, Advocate.

  1. Both the parties agreed that the genuineness of the gifts received remains undisputed. The main issues for consideration in both years are whether the gifts received are personal in nature or during the course of carrying on vocation of politics and whether the gifts up to Rs. 25,000 can be assessed in the hand of the assessee as “income from the vocation of politics”, more so when the gifts above Rs. 25,000 has been taxed by Assessing Officer as “Income from other sources”.
  2. Learned DR contends as under :

12.1 Ms. Mayawati is a renowned figure of national politics who succeeded to the legacy of reversed dalit leader late Shri Kanshi Ram. She is a Charishma and has total impact on the political party namely Bahujan Samaj Party (“BSP” in short). Her identification with BSP is total and inextricable inasmuch as she is held in great esteem as Dalit Masiha. She has been systematically receiving gifts from her party workers, members, office bearers and supporters and has no other vocation except active presence and work in national politics, therefore, it is natural to infer that her vocation is politics. Gifts are being received from these people over a period of time and the regularity of these gifts represents a continuous process and stream of earning. CIT(A) while passing his order for assessment year 2006-07 on page 106, applying Hon’ble Supreme Court judgment in the case of Commissioner of Expenditure tax v. P.V.G. Raju [1975] 101 ITR 465, has held that ratio of this judgment is applicable to the extent that politics is a vocation or profession. This being so, any receipt by assessee from this vocation of politics will be chargeable as income under section 28 and not under section 56(2)(v), Assessing Officer has treated the gifts above Rs. 25,000 as income from other sources by accepting assessee’s return showing these receipts under section 56(2)(v). Taking his arguments further Ld. DR pleads that gifts received by the assessee are vocational/professional receipt because of following factors :

(i)Assessee has been receiving numerous gifts on regular basis over a long period of time;

(ii)Assessee has been holding the office as Member of Parliament; is a political leader specially for dalit masses; and BSP party president popularly regarded as its Supremo for a long time.

(iii)Her identification with a political party i.e., BSP is total and she is regarded as political heir of late Shri Kanshi Ram.

(iv)The nature of receipt is to be seen from the stand point of recipient and not the donor. The nomenclature adopted by donor is not material for taxability as nature of receipt in the hands of donee is relevant for deciding the head of taxation. Gifts have been given by donors on account of her political persona as a dalit political leader; BSP party president; to help in CBI cases etc., though the words mentioned by donees may be couched in the language of personal love and affection, the gifts have been given to receive recognition and regards of an influential political leader with a motive to derive some possible benefits.

(v)The donors have been steadily rising and her birthday on 15th January is celebrated as “Aarthik Sahyog Diwas” which has become a land mark political event every year in India. Systematic stream of receipts over a period of time constitutes income in the course of profession/vocation.

(vi)The political stature and activity of the assessee is ‘causa causans’ for these gifts, i.e., events which precedes the actual happening of a cause.

(vii)Learned DR contends that the stream of bank drafts show that they were purchased in a methodical manner which does not indicate that they were purchased by donors in a benign manner as :

(a)DDs were purchased from various places. Number of them are in same denominations. Numbers are in seriatum, mostly notarized by same notary, affidavits are in the same proforma and have been notarized on the same day. This pattern was followed in several districts for a period about three and half months. This clearly suggest that donors were instructed to proceed in a particular manner. Most of the affidavits are in English whereas the donors lack proficiency in English, but have signed in Hindi.

(b)The dates of affidavits do not concide with the assessee’s birth date, besides the proceeds of the gifts have been utilized for investment in properties.

(c)Most of the affidavits from Tamilnadu and Karnataka indicate that the purpose of the gifts was to prevent the assessee’s harassment from the CBI, besides they have been collected by members of the assessee’s BSP party in her capacity as a political person.

12.2 Ld. DR further contends that :

(i)It has been held by the Hon’ble Supreme Court in the case of P.V.G. Raju (supra) that politics is very much a profession. The assessee is also not known for contribution to any other field of activity. Even the social reform agenda that she pursues is through the forum of politics. Therefore, there is no doubt that the assessee is primarily a politician and is known, respected and regarded on this account alone.

(ii)It has further been held by the Hon’ble Supreme Court in the case of P. Krishna Menon v. CIT [1959] 35 ITR 48 that any gift that accrues to a person by virtue of the office that he holds or the vocation that he pursues should be regarded as his income from vocation or profession.

(iii)Further, in the case of Maharaja Shri Govindlalji Ranchhodlalji v. CIT [1958] 34 ITR 92 , the Hon’ble Bombay High Court has held that although there is no legal obligation on the part of a follower to make an offering, the making of offerings motivated by the compelling feeling on the part of the follower to make presents to the head of the faith as it was customary were presents not received on account of the personal characteristics of the assessee but due to the office that he held that induced his disciples to make the gift and the same were his income from vocation.

(iv)The real question is really to consider how the facts of the assessee’s case fits in with the propositions laid down by the Hon’ble Courts and whether on the facts and circumstances of her case, gifts received by her though claimed to be out of love and affection on the occasion of birthday in fact are gifts to her political personality and political work. Facts of assessee’s case are different from that of C.P. Chitrarasu (supra). In the first place, while the contributions that the assessee has made to the upliftment of the downtrodden are not denied, it is submitted that the method adopted by the assessee for social reform are important to our case. Unlike Shri Chitrarasu who besides being a Member of the DMK, was a leader of the self respect movement and an established author and who had given speeches and written books to promote the self respect movement. The assessee has chosen to pursue the path of politics to bring about social change and social reform and her contribution to upliftment of the downtrodden was to give them political voice and political representation. Indeed upliftment of the status of the Bahujan Samaj, through capture of political power is and has been the professed ideology of the political formation that she heads. So what is being asserted is that the politics of the assessee and the social reform agenda pursued by the assessee are inextricably entwined and there is no difference between the two. So if a gift is given to her on account of the respect that she commands as a social reformer, that in effect means her work as a politician.

(v)On page 36 of bundle of affidavits and drafts from Karnataka filed by the assessee is a letter from one N. Mahesh who is the zonal secretary of the BSP, Chamrajnagar, Mysore which states that on the 26th and 27th of January they had conducted a jeep rally in Chamrajnagar, Mysore and Mandya districts to create awareness among the Bhaujan Samaj about their constitutional rights and ways to implement them. The letter, however, says that in this rally the people of the Bahujan Samaj have contributed little bit as birthday gift to our iron lady.

(vi)Secondly, it has been observed that a number of drafts sent to her from Tamil Nadu and Kerala have been made out in the name of “Mayawati, National President, Bahujan Samaj Party” or “Mayawati, National President BSP”. They are accompanied by affidavits that refer to her as the National President of BSP. They are forwarded by a letter from a Mr. Chikanna, a party worker, who says that since they had conducted many programmes of the party in view of the forthcoming elections, they were able to collect only the minimum possible amount.

(vii)These drafts, affidavits and forwarding letters from Karnataka, seal the issue that the gifts sent to the assessee were on account of the office that she held and that the programme of social reform and political mobilization pursued by her are one and the same. On this account it is pertinent to hold that the gifts received by her have been by virtue of her political standing and not any other account.

(viii)It is not that this state of affairs is confined to Karnataka. Enquiries conducted at various banks in UP also revealed that the drafts were purchased in many cases by Bahujan Samaj Party functionaries. For instance examination of drafts purchased from Allahabad Bank, Azamgarh between 10-1-2005 and 12-1-2005 reveal that they have all been purchased by one Dayaram Bhaskar, who is the district Chairman of the Azamgarh, Bahujan Samaj Party. In the Bulanshahar region enquiries revealed that many of the donors were workers of the Bahujan Samaj Party and that the amounts donated by them represented sum total of small amounts collected by them from different persons. The pattern of draft purchase and swearing of affidavits do not point to a spontaneous outpouring of affection for the assessee but are indicative of a systematic fund raising drive. The fact that evidences have emerged to indicate the involvement of party workers in such activity give a political colour to these gifts, it confirms that the gifts are for her on account of her position as the head of the party arranged through the party machinery. The systematic pattern of purchase of drafts and swearing of affidavits brings out minds to the observations on the Supreme Court in the case of Sumati Dayal v. CIT [1995] 214 ITR 801 1 that while looking at the assessee’s claim the entire surrounding circumstances have to be looked into which indicate that there has been effort on the part of the assessee to secure the gifts, which would take it out of the ambit of being a windfall and more in the nature of income. Assessee’s claim of gifts being for her birthday, is not correct as they are spread over three and a half months. The assessee’s explanation that her supporters being preparing for her birthday well in advance and therefore the preparations of drafts and affidavits have begun from the month of December, is unreliable claim some gifts from U.P. came later because she refused to take cash and her supporters went back to their native places and sent drafts is highly implausible as there is no place in UP that is so remote that it would take people nearly two months to go back, visit the bank and get a draft prepared.

(ix)Even if it is held that these gifts are made on the occasion of her birthday, assessee’s case is still hit by the case of Maharaja Shri Govindlalji Ranchhodlalji (supra). The assessee holds birthday celebrations year after year in which it is claimed that her supporters come with gifts of money which are customary among the assessees followers. If that is the case, then following the ratio of the Hon’ble Bombay High Court in this case, although there is no legal obligation on the part of her supporters to make a gift, the making of gifts motivated by the compelling feeling on the part of the supporters to make presents to the head of the political party as it was customary, therefore, these gifts are not received on account of the personal characteristics of the assessee but due to the status and office which she hold and which induced her supporters. Consequently they represent her income from vocation and the affidavits filed by the assessee’s supporters to the contrary have no meaning as they have been prepared according to a pre decided format which, as admitted by the assessee herself in her submission, has been prepared centrally.

12.3 Coming to the interpretation of applicability of section 56(2)(v) Ld. DR contends that the Income-tax Act has concept of sources of income and heads of income. Assessing Officer divided the receipt of moneys without consideration from non relatives into two sources, one source represents gifts above Rs. 25,000 which is taxable under the head ‘Income from other sources’ under section 56(2)(v) and the other sources comprises of gifts upto Rs. 25,000 for which Assessing Officer has applied the head of ‘Income from Business and Profession’. Assessing Officer has specifically noted in his order that assessee has offered the former under a specific head therefore the return of income was accordingly accepted and this will not be detrimental to stand that gifts upto Rs. 25,000 are taxed as income from vocation of politics. Assessing Officer principally held that gifts in assessee’s case were income from vocation and merely because a part offered by assessee in return is accordingly accepted, is permissible in view of following case laws :

(aCIT v. Ahmuty & Co. Ltd. [1955] 27 ITR 63 (Bom.).

(bUnited Commercial Bank Ltd. v. CIT [1957] 32 ITR 688 (SC);

(cCIT v. Shrikishan Chandmal [1966] 60 ITR 303 (M.P.).

12.4 It is pleaded that Assessing Officer taxed a source under the head offered by the assessee, will not mean that the other head of income for gifts up to Rs. 25,000 cannot be taxed as vocational income.

12.5 Reliance was placed on various case laws which are mostly relied on by Assessing Officer in his order.

12.6 Distinguishing the case laws relied on by CIT(A), Ld. DR contendes that:

(i)In the case of CIT v. S.A. Rajamanickam [1984] 149 ITR 85 1, there was no continuity of gifts and only one time collection of purse was given, whereas in the case of the assessee there is a marked regularity of receipts of gifts.

(ii)In the case of C.P. Chitrarasu (supra) also it was a case of solitary gift and he was only a member of DMK party and his performance as author led the Hon’ble Madras High Court to hold that it was not from vocation or profession.

(iii)In the case of Dilip Kumar Roy v. CIT [1974] 94 ITR 1 (Bom.), department did not invoke section 28(iv).

(iv)Cases of Mahesh Anantrai Pattani v. CIT [1961] 41 ITR 481 (SC), CIT v. Abdul Gani [1995] 213 ITR 798 2 (Raj.) and David Mitchell v. CIT [1956] 30 ITR 701 (Cal.), all these cases are of solitary gifts.

12.7 According to Ld. DR the regularity and length of time of receipts of gifts, assessee’s political personality and work together with the manner of receiving gifts are inextricably linked with vocation of politics and hence gifts are taxable under the head ‘Income from business and profession’.

12.8 Political status and her work in that field are ‘Causa causans’ for the receipt of gifts, which means – incidences prior to a cause which are material incidences for a particular cause, i.e., receipt of these gifts.

12.9 It was pleaded that implied quid pro quo is involved in all these gifts between donors and assessee which includes motives of serving of an interest or possibility of serving of an interest. Assessee being in an influential position can be of some use in future, these factors constitute a quid pro quo for these gifts. Donors may have admiration but the gifts were paid to a political personality who wanted to be recognized. It was pleaded that the assessee being in the profession of politics and gifts being directly attributable to and in the course of exercise of profession or vocation, gifts upto Rs. 25,000 were rightly taxed as business income of the assessee.

12.10 Section 56 has been inserted only to treat gifts above Rs. 25,000 as “income from other sources” and it does not mean that other gifts are allowed by this section as tax free, proper head exists under section 28 to tax gifts upto Rs. 25,000 as income from business or profession. The order of Assessing Officer was relied on.

  1. Learned counsel for assessee Dr. Rakesh Gupta, Advocate vehemently contends that it is a settled proposition under the income-tax law that a person can have capital receipts which are not regarded as income along with taxable income. Merely because assessee is in politics every receipt cannot be held to be vocational income. In order to tax personal gifts received by assessee on her birthday it is essential to examine the nature of voluminous evidence and documents filed by her.

13.1 All the gifts received by the assessee were collected and presented by the donors to celebrate the occasion of her birthday, they were given by her personal friends, admirers and well wishers, out of their love and affection for the assessee and are customary in nature. She is head of a major political party working for the upliftment of the downtrodden and suppressed section of the society, her own personal honesty, integrity, dynamism and success in bringing about a social revolution and change in the mindset of the society towards acceptance of the backward classes. These personal qualities have won her many admirers, fans and well wishers belonging to all walks of life spread all over India. Many of them out of feelings of appreciation and gratitude for these personal qualities have voluntarily made gifts to the assessee on the occasion of her birthday exhibiting their love and affection. These gifts are offered by the donors for personal qualities and not for politics or political party. Many well wishers offered with cash gifts, which were politely declined by assessee to avoid controversies related to cash. The donors then sent demand drafts with gift deeds; as a result some demand drafts bear date after birth day, an affidavit by the assessee confirming these facts is on record.

13.2 The assessee’s work for upliftment of the downtrodden and suppressed section of the society does not fall in the purview of ‘business or profession’ of politics. Assessee neither charges any fee for services, rendered to the community at large nor expects any return in any form for her selfless social service. Her work is dedicated to dalit masses spread across India and not for any particular individual or group of individuals. The work is devoted for nation at large and not for any follower or for any personal benefits of any kind assured or implied to any person.

13.3 There is no quid pro quo between the donors and assessee either express or implied, to reciprocate any favour or consideration for the gift received. The gifts received are purely customary, by description personal, presented by donors ex gratia, out of love and affection for her personal qualities. They cannot be held as vocational receipts and brought to tax by twisting the facts, irrelevant analogies and taking a contradictory stands about the head of income from the same sources of gifts having similar type of confirmations.

13.4 In the decision in Fr. Ephen v. CIT [1989] 176 ITR 78 1 (Ker.) the Hon’ble Court has observed that, in order to constitute the receipt and the service rendered, i.e.,rendering of service was causa causans of the receipt. This line of thinking of different courts is further endorsed in Dilip Kumar Roy’s case (supra), it is held that “Having regard to the provisions of section 10 of the Act it cannot be disputed that it is only the receipts arising out of profits or gains of business, profession or vocation that can be subjected to tax under that section, but it is a professional gift for personal qualities of the assessee and as a token of personal esteem it cannot be subjected to tax. It is well-settled by sections 3 and 4 of the Act that the Act imposes a general liability to tax upon all income, but it does not provide that whatever is received by a person must be regarded as income liable to tax. In all cases where a receipt is sought to be taxed as income, the burden lies upon the department to prove that it is within the taxing provision. If the gift is offered for the personal qualities of the donee as a token of personal esteem and veneration it cannot be subjected to tax as income arising out of business, profession or vocation under section 10 of the Act.

13.5 It is further contended by Ld. counsel that in the case of David Mitchell (supra), Hon’ble Calcutta High Court held that, “The test to be applied in such cases has been clearly stated in the well known case of Cooper Surveyor of Taxes v. Blakiston (1909) 5 TC 347 (HL), which is popularly known as the Easter Offerings case and which is registered as the root authority on the subject. Lord Loreburn, L.C. made the following statement of the law :

“Where a sum of money is given to an incumbent substantially in respect of his services as incumbent, it accrues to him by reason of his office….Had it been a gift of an exceptional kind, such as a testimonial, or a contribution for a specific purpose, as to provide for a holiday, or a subscription peculiarly due to the personal qualifies of the particular clergyman, it might not have been a voluntary payment or services, but a mere present.

The gifts given by her personal friends and admirers was out of their love and affection due to her contribution for a social cause and is peculiarly due her personal qualities.”

13.6 Ld. counsel further relied on : Mahesh Anantrai Pattani’s case (supra); Parimisetti Seetharamamma v. CIT [1965] 57 ITR 532 (SC); Dilip Kumar Roy’s case (supra); CIT v. Prof. P.G.A. Nath [1998] 234 ITR 854 2 (Delhi); Abdul Gani’s case (supra); CIT v. M. Balamuralikrishna [1988] 171 ITR 4473 (Mad.); Rajamanickam’s case (supra) also followed in C.P. Chitrarasu’s case (supra); David Mitchell’s case (supra); CIT v. K.R. Honnappa (Individual) [1989] 180 ITR 660 1 (Kar.).

13.7 Noted jurist Shri Palkhiwala in his book “Law & Practice of Income-tax” volume I, ninth edition, based on numerous judicial decisions, has given a commentary is as under :

1.A gift which has the personal element in essence is not income at all.

2.Gift to the office holder by way of remuneration for the office is taxable. But personal gifts given on personal grounds and as personal testimonial or as a token of personal esteem, respect, regard, veneration or to mark an occasion is not an income.

3.A personal gift does not become income merely because it is repeated year after year.

13.8 Ld. counsel placed reliance on the decisions of :

(i)Hon’ble Supreme Court in the case of Mahesh Anantrai Pattani (supra) holding that a gift which is personal in the sense that it is given to the person, not as holder of office or employment but as a personal testimonial or token of personal esteem and veneration or to mark an occasion is not income;

(ii)Hon’ble Bombay High Court in the case of Dilip Kumar Roy (supra) holding that merely because an assessee carries on a vocation, there is no presumption under the law that any amount received by him is income subject to tax. Test is as to whether amount is paid to him for the services rendered.

13.9 The issue whether a gift is for personal esteem or for the services rendered as holder of an office is essentially a question of fact to be decided in the light of the evidences and there can be no blanket proposition of law that gift would always be received by a person for personal qualities or gift would be received by a holder of an office as consideration for the office only.

13.10 Ld. Counsel then referred to some of the affidavits given by the donors which are filed in the paper book which demonstrate that these gifts were given by the donors out of love, affection, respect, admiration and veneration of the personal qualities of the assessee on the occasion of birthday of the assessee as personal testimonials. The contents of the affidavits have not been disproved by any contrary evidence. Only some objections are raised about same proforma, bank serial Nos. of DDs. To celeberate her birth day donors among themselves decide to have common proformas cannot be held against the assessee. These affidavits have been otherwise accepted by Assessing Officer which is evident from his observations in Para 8 of the Assessment Order for assessment year 2005-06 to the effect that “no adverse inference is taken in this assessment year regarding the genuineness of the gifts”.

13.11 There is no justification on the part of Assessing Officer to rely on one part and reject other parts of affidavits which in clear terms depose that these gifts were given out of love and affection for personal qualities. There was no basis or justification on the part of Assessing Officer to assume without controverting the evidence on record that gifts were received by the assessee in the exercise of her vocation as politician of backward masses.

13.12 Hon’ble Supreme Court in the case of Gouri Prasad Bagaria v. CIT [1961] 42 ITR 112 held that once contents of the affidavits were accepted, there is no scope for surmises. Further reference is made to the decisions reported at Prof. P.G.A. Nath’s case (supra) and Dilip Kumar Roy’s case (supra) for the proposition that legal effect of the documentary evidence cannot be ignored without there being contrary evidence and the affidavits once accepted cannot be disbelieved in the same breath.

13.13 It is further pleaded that the revenue is, adopting a blow hot and blow cold approach to assessee’s case. Gifts in excess of Rs. 25,000 are being accepted as gifts by Assessing Officer for deeming them as “income from other sources” under section 56(2)(v). Gifts upto Rs. 25,000 though of identical nature, are being treated as vocational income. There is no valid justification for Assessing Officer to treat the gifts as representing different character/nature. The option of Assessing Officer in accepting gifts above Rs. 25,000 as “income from other sources” under section 56(2)(v) puts an estoppel on him to take contradictory stand on the same set of facts.

13.14 Legislature has introduced section 56(2)(v) with a proper scheme, in as much as the receipts without consideration, which include gifts have been intended to be specifically taxed under the head ‘Income from other sources’ and further divided into above two categories, smaller gifts have been intended to be non taxable and gifts above 25,000 have been taxed under this head. Assessing Officer has failed to comprehend this clear scheme of the Income-tax Act intended by Legislature and the receipts of same nature and source have been given different treatment without any justification and in violation of this scheme. If the gifts were vocational income there was no question of taxing gifts up to Rs. 25,000 as part of the “income from the vocation of politics” when he has held the other gifts following legislative mandate under the head ‘Income from other sources’.

13.15 Hon’ble Karnataka High Court in the case of K.R. Honnappa (Individual) (supra) have held that being MLA might have afforded him an opportunity to render service in the constituency to the people in general and earn their esteem but payment on account of such esteem or affection does not mean that it arises from the exercise of the profession or vocation merely because vocation affords an opportunity for earning this receipt. Hon’ble High Court further held that gift was not by way of quid pro quo for the services rendered by him to the contributors but it was on account of his qualities or personal character in rendering services to the constitu- ency in general and on account of the esteem in which he was held. Hon’ble High Court went further to hold that he being MLA might have facilitated him to render services to the people of the constituency and also to general public but for that reason alone, it cannot be assumed that gifts were for any specific service to any specific contributor.

13.16 It is contended that Hon’ble High Court in this decision considered the case laws reported in the cases of Addl. CIT v. Ram Kripal Tripathi [1980] 125 ITR 4081 (All.), PVG Raju (supra), P. Krishna Menon (supra) and distinguished them and followed the decisions of S.A. Rajamanickam’s case (supra) and Dilip Kumar Roy’s case (supra).

13.17 Hon’ble Madras High Court in the case of S.A. Rajamanickam (supra) held that being a politician might have facilitated the assessee to render services not only to the development of his party and to general public but receipt of donation cannot be said to be receipt in the exercise of the profession or vocation. Hon’ble High Court further held that there was no quid pro quo in the payment of the donations made by the general public and the partymen. Hon’ble High Court considered the decision reported in the case of PVG Raju (supra).

13.18 Hon’ble Delhi High Court after considering the decisions reported in P. Krishna Menon (supra ), Dr. K. George Thomas v. CIT [1985] 156 ITR 412 2 (SC) held in the case of Prof. P.G.A. Nath (supra) that the goodwill and the respect though was earned by the assessee by dint of his past performance, the amount could not be said to have been paid to him by way of remuneration for any past or present services.

13.19 Referring to Hon’ble Rajasthan High Court in the case of Abdul Gani (supra), the facts are, the donor claimed that he was not benefited from any preaching or discourse or any special service of the assessee, he noticed some supernatural power in the assessee and being influenced by this impression paid the amount in question to assessee. It was held that, it is a clear case of voluntary payment made to the assessee for his personal qualities or as a mark of the high esteem and regard in which the assessee was held by the donor and therefore not liable to tax.

13.20 Hon’ble Rajasthan High Court while rendering this judgment has considered the judicial decision of Krishna Menon.

13.21 Hon’ble Madras High Court in the case of Balamurlikrishna supra) after considering the decision of Krishna Menon, held that there is no direct nexus between gifts and his vocation though it may not be denied that there is an indirect connection between the two. The real reason for the payment was the esteem and regards which his admirers and fans had for him. It was the expression of their goodwill for the assessee which was responsible for this gift. Though it may be that the goodwill and respect have been earned by the assessee as a result of his past performances, the amount cannot be said to have been paid to him by way of remuneration for those services.

13.22 Hon’ble Madras High Court in the case of CIT v. Dr. B.M. Sunderavadanam [1984] 148 ITR 3331 held in the case of doctor who was compensated earlier for the medical service provided by him was given gift by the same patient after two years, such gift was not treated as professional income in the hands of the assessee-doctor on the ground of the same having been given due to personal esteem and regard.

13.23 Mumbai Bench of the ITAT in the case of Nirmala P. Athavale v. ITO [2009] 118 ITD 373 considered the cases of Dilip Kumar Roy (supra) and P. Krishna Menon (supra) and held that in the background of the facts where assessee never charged any fee or remuneration from the followers or the persons who attended the lectures, there was no quid pro quo, assessee did not have any vested right to receive any kind of payment and that where there was no legal, contractual or customary obligations to offer gifts, such gifts received by assessee were held as non taxable.

13.24 Ld. counsel contends that in all these cases gifts have not been given on the birthday whereas in assessee’s case the gifts have been specifically received on the solemn occasion of birthday which is celebrated by the public at large including followers and party workers. Looking at the contents of affidavits, the occasion of birthday and other factors leading to these gifts, it cannot be assumed that the donors wanted or anticipated favours or they presumed that their names will be registered in assessees memory therefore, there is implied quid pro quo. The revenue has devised a long winding hypothetical theory based on purely guess work, which cannot be a basis for levying tax on a part of gifts.

13.25 In the background of these facts, arguments and judicial decisions, it is pleaded that the part of gifts received by the assessee cannot be brought to tax as “income from vocation of politics” on selective basis.

13.26 Responding to the DR’s proposition that these gifts were received by the assessee not for her personal qualities but for the vocation of politics and that most of the gifts were given by her supporters of the party of which she has been President or Vice-President were and quid pro quo is inbuilt, it is vehemently argued that these findings are contrary to evidence on record which clearly demonstrates that gifts received by the assessee are not in consideration of any quid pro quo and were meant for her personal qualities only. Assessee earned tremendous personal respect and admiration for her unstinted support for the cause of dalits over the years and gifts were received on solemn occasion of her birthday out of love and affection and not for any favour or quid pro quo or of any implied suggestion for any service to be rendered to donors. Evidences furnished by the assessee cannot be dislodged on surmises and particularly in the absence of any contrary evidence. Ld. DR’s reliance on facts of growth of donors/donations and thus to show more and more following & followers, amounts to political vocation, is misplaced in as much as if more and more persons came forward due to admirations of the personal qualities of the assessee, it does not convert personal qualities into vocation of politics. The gifts received on a solemn birthday occasion for natural love and affection acquired out of personal qualities, esteem and veneration for assessee cannot be held as professional or vocational receipts merely because assessee happens to be a politician.

13.27 Responding to some affidavits relied on by learned DR, the ld. Counsel of the assessee contends that pages 36, 38, 41 are in favour of the assessee as these are the depositions to the effect that the gifts have been given for love and affection to the assessee. Page 16 is of no use as no gift was received by the assessee from this person. Page 11 is from one Mr. Upendra whose gift has been accepted as personal by Assessing Officer in assessment order of assessment year 2004-05. Pages 1, 48 shows the respect of the donors for assessee and personal gifts and in any case these gifts relate to assessment year 2004-05.

13.28 Responding D.R.’s contention that the public call was made to donate to party to celebrate her birthday as arthik sahyog divas of the party, it is contended that it was for the donors to choose the donee, beside revenue has not questioned the gifts and has differed on taxability as the vocational income. This argument has no bearing on the issue inasmuch as the receipts of gifts have been accepted albeit as vocational income against the assessee claim of personal gifts.

13.29 In P. Krishna Menon’s case (supra), the donor Mr. levy accepted that “I have had the benefit of his teachings on vedenta” which shows that there was quid pro quo whereas in this case, donors have not accepted that they were benefited in any manner.

  1. We have heard the rival submission, material available on record and case laws. The first and foremost question to be decided is whether the gifts are received by the assessee during the pursuance of her profession or vocation of politics or they are received in personal capacity.

14.1 Although Assessing Officer, here and there, raised certain issues about the bulk affidavits, notorisation, bank drafts which have common features and gifts being a scheme to accumulate money. However ultimately Assessing Officer has held these gifts to be assessee’s receipts. Therefore, only relevant dispute is whether the gifts claimed as personal receipts can be treated as vocational receipts by Assessing Officer.

14.2 Ascertainment of the nature of gifts is essentially a question of fact, the applicability of case laws, interpretation and legislative intent for amendments shall follow later.

14.3 The contents of affidavits do not spell out any consideration of any direct or indirect benefit which accrued or was promised to donors, most of them depose that the assessee is a dalit leader who has worked hard for the upliftment of downtrodden masses, gifts are being given as a veneration of her qualities in crusade of social development etc., apparently they do not refer to any quid pro quo. By various arguments revenue has taken a stand—That the gifts are induced by the fact of her being an influential political leader and not by her personal qualities. The quid pro quo perceived by donors is to get recognized in her memory for any possible favours which may be derived in future. In the entire length and breadth of the arguments, Assessing Officer has not pointed out any donor who has stated to have received any direct or indirect favour. Revenue on the basis of various case laws and arguments has stressed that donee’s expectation about possible benefits was a compelling factor for making gifts, therefore the nature of these gifts in the hands of assessee is of vocational receipts. It has been pleaded that the assessee’s identification as an influential political leader and with BSP is total, therefore, gifts are inextricably linked to her vocation as a politician. Provisions of section 28 of Income-tax Act are clearly applicable taxing such receipts. A pertinent argument has been raised that the receipt is taxable by its nature in the hands of donee/assessee and not how donor intended it to be. Revenue relies on the case of PVG Raju (supra) that politics is a vocation and assessee has not disputed it. Revenue has relied on various judgments which have been considered, in our view, cases of P. Krishna Menon, Dr. K. George Thomas, Ram Kripal Tripathi, Maharaja Shri Govindlalji Ranchhodlalji (supra), who were all prominent religious preachers have been strongly relied by the revenue which are being critically discussed.

14.4 Assessee’s firm stand is to the effect that genuineness of the gifts given on the occasion of her birthday has not been questioned by the Assessing Officer, affidavits and their depositions have not been controverted, therefore, the evidence on record stands accepted. Question about nature of receipt is clear from depositions which demonstrate of donors that the gifts were made for her personal qualities and not for her political vocation. Assessee may be an important figure in BSP party, however it is a cadre based party with a democratic constitution having a big organizational setup. Before her becoming President she worked in different posts under the stewardship of late Shri Kanshiram. There is no significance of words coined as Supremo, she is popularly known as “Bahenji”. Therefore, it is a misnomer to propose that her identification with BSP is total and he has no personal individuality.

14.5 No personal benefit has been promised or given to any donor, many of them are even not known to her, revenues claim about quid pro quo or possibility thereof or assessee having influenced them to think so are all farfetched assumptions.

14.6 In our considered view Income-tax Act recognizes dual capacities of any assessee, i.e., to acquire non-taxable personal/capital receipts and taxable receipts, assessee in this case cannot be treated as an exception to this proposition. Revenues emphasis is to the effect that the assessee’s persona is inextricably linked with her politics therefore whatever she receives amounts to vocational receipts. In our view this view militates against the basic scheme of the Income-tax Act which prescribes that any person can have non-taxable receipts including gifts. Therefore, merely because assessee is in politics, Member Parliament and President BSP will not deprive her of ordinary treatment under Income-tax law. It cannot be held that her identification with politics or BSP is so total that she can no more have any personal identity.

14.7 Revenue has further argued that the gifts received by assessee are in consideration of quid pro quo influenced by assessees political stature. In donors affidavits there is no reference to any direct, indirect or promised favour extended by assessee. Bulk of gifts, No. of affidavits, bulk issuance of DDs and notorization are treated by revenue to be adverse surrounding circumstances to hold that donors were influenced or induced to offer gifts to assessee by her political vocation. In our view ascertainment of quid pro quo is a sine qua non to hold that gifts were vocational receipts of the assessee. In P. Krishna Menon’s case (supra), donor/disciple Mr. levy stated that he was personally benefited from his Vedanta teachings, therefore, the quid pro quo was established. In the case of Dr. K. George Thomas (supra) Hon’ble Supreme Court affirmed the order of High Court holding that there was no evidence that gift was given for personal qualities. In Ram Kripal Tripathi’s case (supra), disciples were supposed to bear assessee’s travelling expenses in lieu thereof they gave the money to purchase the car. There was understanding to defray expenses, clearly suggests existence of quid pro quo.

14.8 The issues about the gifts being offered on party’s call or its name on demand drafts, are not relevant inasmuch as Assessing Officer has ultimately held these gifts as assessee’s receipts and the dispute is in respect of head of income and personal versus professional receipt.

14.9 In our view no demonstrative evidence is brought on record by Assessing Officer, to contraven the affidavits or cross examination of donors that gifts carried any perceptible or intended quid pro quo. From the reading of affidavits it emerges that the donors offered their gifts as token for appreciation of her reformative work of upliftment of dalits. In these facts and circumstances we are unable to notice any potential evidence or inference against the claim of assessee that these gifts were offered in consideration of personal qualities, veneration, love and affection. Assessing Officers inference towards quid pro quo cannot be accepted on mere reliance on some assumptions. As already held nature of gifts essentially depend on facts of each case, in our view the cases cited by revenue including P. Krishna Menon (supra) and Ram Kripal Tripathi (supra) are distinguishable as quid pro quo in those cases was established and more or less accepted by the donors.

14.10 Case of Maharaja Shri Govindlalji Ranchhodlalji (supra) also has peculiar facts, assessee was direct descendent of an established religious sect ‘Vallabh Sampraday’ which had a dedicated following offerings made to him were treated as taxable. Bombay High Court held that a religion could become a vocation, offerings were made out of compelling feelings of followers, they were made not for his personal qualities but as a head of sect and the assessee held an office which required him to perform certain duties and discharge certain obligations, that induced the disciples to offer gift which were vocational receipts. Whereas in this case, assessee neither owed any duties nor obligations to be performed towards donors. In the absence of obligation and duties, it cannot be held that donors were compelled to make these gifts. In the case before us, there is no compulsion or obligation on the part of donors for making any gift and depositions do not spell out any benefit received by donors directly or indirectly. Most of the affidavits refer to assessee’s personal qualities like upliftment of dalits and raising their status in society. In view of all the facts and circumstances these gifts are to be treated as personal and not vocational or professional gifts. In the case of Dilip Kumar Roy (supra) Hon’ble Bombay High Court held that the affidavits filed on record by assessee suggest that gifts were for personal veneration and esteem, same cannot be added as vocational income. From similar stand point Mumbai ITAT in the case of Nirmala Athavale (supra) has rightly held that there being no obligation or duty to render services on her part, gifts offered by disciples cannot be treated as professional receipts.

14.11 Case laws cited by both parties are on vocation/profession receipts of religious preachers, heads of sects, musician, actress and politicians, in our view each case will have its own finer aspects and factual nuances. It will be better to consider case laws of politician, i.e., S.A. Rajamanickam & Chitrarasu (supra). In the case of S.A. Rajamanickam(supra), he was an active politician, MLC and held various political offices including D.M.K. party, the amount of Rs 51,000 collected by his well wishers and presenting to him as a purse for construction of house, it was held as vocational receipt by Assessing Officer and taxed. Hon’ble Madras High Court held that such receipts cannot be taxed as vocational receipts by following observations :

“Held, that there being no evidence to substantiate the contention that such amount was paid to the assessee as remuneration for his service to any particular individual or to the political party, the amount could only be treated as a gift or a windfall received by the assessee for his personal qualities. There was no quid pro quo in the payment of the donation made by the general public, the former employer and the partymen. Consequently, the Tribunal was right in its view and the sum of Rs. 51,000 was not taxable as the assessee’s income.”

14.12 Similarly in C.P. Chitrarasu’s case (supra) Hon’ble Madras High Court deleted similar addition by holding as under :

“It is well settled that the burden is on the revenue to establish that a particular receipt is of a revenue character, if any authority is needed, it is to be found in the latest decision of the Supreme Court in Dr. K. George Thomas v. CIT [1985] 156 ITR 412 , 420. Now, undoubtedly, the assessee was a member of the DMK party. But to hold merely on that account that the people collected the funds only because he was a member of the DMK party is to ignore the positive case of the assessee that his service to Tamil and his performance as an author had earned him the respect of the people. It is common knowledge that a receipt does not necessarily arise from the exercise of a profession or vocation merely because the profession or vocation affords the opportunity for earning the receipt (See Kanga & Palkhivala’s the Law and Practice of Income-tax, 7th edn. Vol. 1, p. 238). If this principle is applied, then merely because the assessee happened to be a member of the DMK party and was honoured, it would not necessarily follow that whatever amounts lie received were by virtue of being a member of a political party. As we have already pointed out, the order of the Tribunal does not make any reference to the positive case of the assessee that he was more of an author and a reformer than a politician and it is those activities which were sought to be honoured by the people by bringing out his biography and making a collection for a purse to be presented to him on his 64th birthday. The observations made by the Tribunal that the collections were made not out of any personal regard, but were made because the assessee “wielded” influence in the DMK party, appears to us to be an inference without any evidence. As a matter of fact, it does not appear that there is any material placed by the revenue to disprove the case of the assessee that he was more a reformer, in the sense he understood the term and writer in Tamil, than a politician. There is also no evidence to show that the contributions were made only by the members of the DMK party. As we have already indicated, there are some associations which have also contributed to the purse to be presented to the assessee. The revenue in this case has, in our opinion, miserably failed to establish that the receipt arose out of his profession as a politician or that the receipt of the amount presented to the assessee was in the nature of an income as a politician. The positive case of the assessee has not been rejected by any of the authorities and indeed, it could not have been so rejected unless there is evidence to the contrary.

We have already pointed out that the question as to whether a particular receipt amounts to “income” or not will depend upon the facts of each case. The decision of the question depends on the inference which is to be drawn on the basis of the facts established. The decisions to which our attention has been drawn by the learned counsel for the revenue all represented the different types of cases where the inference is drawn on the facts proved in those cases. In the decision in Chelladurai’s case [1984] 145 ITR 139 (Mad.), there is a positive finding recorded by this court at page 150 on the facts established in that case. This court held that on the materials on record, the position was clear beyond doubt that the assessee as a social worker was nevertheless engaged in an occupation.”

In the absence of any quid pro quo and any duties or obligations on the part of assessee to render any services political or otherwise, such gifts cannot be held from vocation of politics.

14.13 We may further add that gifts were given by all sorts of people, dalits, upper caste people, muslims from all walks of life. As already mentioned there were no obligations on the assessee to perform any duty toward donors and there was no quid pro quo, clinches the issue that gifts were received for personal qualities of the assessee and not from political vocation.

14.14 We may hasten to add that the menace of exchange of money camouflaged in the form of gifts in India was assuming alarming proportions since a long time; various Hon’ble Courts have expressed their concerns. Legislature in order to deal with this situation inserted section 56(2)(v) with effect from 1-4-2005, taxing receipt of such moneys without consideration above Rs. 25,000. Perhaps this amendment alone, could not fully deal with the problem, thereafter Legislature again inserted section 56(2)(vii) with effect from 1-10-2009 in the Income-tax Act, prescribing that aggregate of such receipts (above aggregate of Rs. 50,000) will be taxed in the hands of recipient as ‘Income from other sources’. From these Legislative amendments also, it emerges that Legislature intended to tax such receipts under the specific head of “Income from other sources” and not under that head ‘Income from Business or Profession’. On this score also the correct provision and head of income for taxing the assessee in the relevant assessment years, i.e., 2005-06 and 2006-07 is contained in section 56(2)(v). Ld. DR has raised a plea that while taxing gifts above Rs. 25,000 under section 56(2)(v), Assessing Officer merely accepted the assessee’s return, therefore, his proposition regarding theory of difference in source and head of income may be accepted. In our view the plea is too technical and unacceptable in these facts. If the gifts were receipts of profession, Assessing Officer should have straightaway applied section 28 for all the gifts, instead of adopting a curious way of splitting the same source of income into two different heads. In view of aforementioned facts and observations the gifts in question are to be considered under section 56(2)(v) including upto and above Rs. 25,000, as held by CIT(A), we uphold his order on the grounds raised in this behalf.

  1. In consideration of foregoings, revenue appeals for assessment years 2004-05, 2005-06 and 2006-07 are dismissed.

 

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