1. M/s. Binny and Company owned certain residential properties in Madras which it wanted to dispose of if it could find a purchaser for them. One Kiffin Paterson, a partner in a firm of architects by name Prynee, Abbot & Davis, Madras, was engaged by them for drawing a plan for residential bungalows for senior personnel of the company. In the course of one of the conferences with Paterson for drawing all these plans, the director of Binny and Company mentioned to him that the company wanted to dispose of the Waterton Estate belonging to them and enquired from him if he knew of anyone interested in the purchase of large estates. Patefson said that he could not think of anyone at that moment but would make enquiries with some of his friends and advise the company later. He was accordingly making enquiries. P. N. Nagaraj and P. N. Ethiraj, who will hereafter be referred to as Nagaraj Brothers, who happened to be the friends of Paterson, were informed by Paterson of the proposal of the Binny & Company. Nagaraj Brothers along with some others then formed a partnership under the name of Satyanarayana and Nagaraj and Company with the avowed object of carrying on business as real estate agents. This partnership firm then entered into an agreement on March 16, 1960, with Binny & Co. for the purchase of the estate and ultimately the property was sold for Rs. 19,37,000. On the conclusion of the sale, M/s. Binny & Co. paid a sum of Rs. 37,000 to Paterson in connection with the disposal of the property which Paterson shared with Nagaraj and Ethiraj equally, each thus getting a sum of Rs. 12,333. These three persons included their respective receipt of Rs. 12,333 in Part D of their returns for the assessment year 1961-62 and claimed exemption from assessment in respect of the same under Section 4(3)(vii) of the Indian Income-tax Act, 1922 (hereinafter called "the Act"), on the ground that the amount in question did not arise out of business, profession or vocation and that it was also in the nature of a casual and non-recurring receipt.

2. The assessment proceedings of Nagaraj Brothers was dealt with by one Income-tax Officer and that of Paterson by a different officer. Both these assessing authorities held in their orders that the sum of Rs. 37,000 paid by the company to Paterson was in the nature of remuneration for his professional services in finding suitable purchasers for the property and that similarly the amounts paid by Paterson to Nagaraj Brothers were also by way of remuneration for their services in connection with this transaction and, therefore, they are assessable income of the respective assessees. These orders were confirmed by the Appellate Assistant Commissioner on appeal. The appeal by Paterson to the Tribunal was heard by the Income-tax Appellate Tribunal, Madras Bench. In its order dated October 15, 1966, the Tribunal expressed the view that Binny & Co. did not intend to make a gift of the amount but made payment in appreciation of the service rendered by Paterson which resulted in the sale of the property, that the help or assistance rendered by Paterson was in the nature of service which only a professional man in his position would have rendered and that the receipt of Rs. 37,000 by Paterson was not unconnected with his profession as an architect. In that view, it held that the sum of Rs. 12,333 has been rightly brought to tax as income arising to the assessee in the course of his business, profession or vocation.

3. The appeals preferred by Nagaraj brothers came up for hearing before a different Tribunal. This Tribunal considered that it was necessary to determine the nature of the receipt in the hands of Paterson also in this appeal as it would have a bearing on the nature of the receipt in the hands of Nagaraj brothers. This Tribunal observed that Paterson was a partner in a firm of architects, that purchase and sale of properties was not part of business of that firm, that Paterson himself did not carry on any business apart from the firm of which he was a partner, that there was no understanding between him and Binny and Company, much less an enforceable agreement relating to the payment and that, therefore, the payment was purely in the nature of appreciation of the help rendered by him in the disposal of the properties. Then, referring to the nature of receipt in the hands of Nagaraj brothers, the Tribunal went on to state that on the date when Paterson passed on the information to them regarding the proposed disposal of the properties by Binny & Company, Nagaraj brothers were not engaged in carrying on real estate business, that it was only this information which put the idea into their heads of starting a business in real estate, that the partnership of which Nagaraj brothers were partners had as its object the purchase of the properties of Binny and Company with a view to sell them at a profit and that, therefore, it cannot be said that Nagaraj brothers rendered any service to Paterson for which they received the payment in question from him by way of remuneration. The Tribunal also stated that, probably, Paterson felt morally bound to share the amount with Nagaraj brothers and, therefore, he shared with them. In that view, the Tribunal held that the receipt is exempt from assessment under section 4(3)(vii) of the Act.

4. At the instance of the Commissioner of Income-tax identical questions have been referred against the Tribunal's orders in T.Cs. Nos. 255 and 256 of 1967 and the question of law referred is :

" Whether, on the facts and in the circumstances of the case, the assessee was entitled to exemption under Section 4(3)(vii) of the Indian Income-tax Act, 1922, in respect of the sum of Rs. 12,333 received by him in the accounting year relevant to the assessment year 1961-62 ?"

5. At the instance of Paterson, the following question of law has been referred in T.C. No. 114 of 1968 :

" Whether, on the facts and in the circumstances of the case, the sum of Rs. 12,333 constituted receipts arising from the exercise of any profession, vocation or occupation by the assessee and as such was rightly included in the assessee's total income for the purpose of the Indian Income-tax Act, 1922, and not exempt under section 4(3)(vii) of the said Act ? "

6. The learned counsel appearing for Paterson contended that Paterson is an architect and a member of the Royal Institute of British Architects, that he was not carrying on or engaged in the profession, of real estate dealer or agent, that at no time whatever during his 16 years of practice as a partner of the firm, M/s. Prynee, Abbot and Davis, Madras, he had been engaged in the sale of properties and that the instant case is the first one of its kind which was outside his professional work as architect. In fact, according to the learned counsel, he could not have carried on such a profession of a real estate dealer or agent as that would be contrary to the code of professional conduct of the Royal Institute of British Architects. There was also no enforceable agreement or contract between him and Binny & Co. in regard to the payment of any remuneration for any services to be rendered in this connection. The enquiry made by the director of Binny & Co. was casual and was not intended to create any rights or obligations among the parties. The payment of the sum of Rs. 37,000 by Binny & Co. was, in the circumstances, voluntary and the receipt was of a casual and non-recurring nature and not arising from the exercise of any profession, occupation or vocation and, therefore, not assessable under section 4(3)(vii) of the Act.

7. In support of this contention the learned counsel for the assessee relied on a passage in Halsbury's Laws of England, third edition, volume 3 and certain other decided cases. On page 399 of Halsbury's Laws of England, third edition, volume 3, " architect" is denned as:

"one who possesses, with due regard to aesthetic as well as practical considerations, adequate skill and knowledge to enable him (1) to originate, (2) to design and plan, (3) to arrange for and supervise the erection of such buildings or other works calling for skill in design and planning as he might, in the course of his business, reasonably be asked to carry out or in respect of which he offers his services as a specialist. Architects profess in varying degrees to have the knowledge necessary to estimate the probable cost of works to be done and the value of works executed, but this knowledge is becoming more and more the province of quantity surveyors."

8. We are unable to agree with the learned counsel that this definition in any way suggests that an architect cannot within the scope of his profession, perform any service to his clients in the matter of real estate dealings.

9. The two relevant rules in the Code of Professional Conduct of the Royal Institute of British Architects relied on by the learned counsel in this connection read as follows :

"4. A member or student may be architectural consultant, adviser, or assistant to building contractors, decorators, manufacturers, house and estate agents, estate development firms or companies, or firms or companies trading in materials used in or whose activities are otherwise connected with the building industry, provided that he is paid by fee, salary or royalty and not by commission on sales or profits and provided that he does not either directly or indirectly solicit orders for the firm or company.

5. (b) A member or student must not be a director of a firm or company carrying on business as auctioneers or house and estate agents or trading in materials used in or whose activities are otherwise connected with the building industry or trading in land or buildings for profit."

10. In our view, Rule 4(a) does not in any way prohibit a member of the institute dealing in real estate. What is prohibited is, having been a consultant or adviser or assistant to any estate agents, estate development firms or companies and receiving commission on sales or profits and soliciting orders for the firm or company to which he was a consultant, etc. It may be that, in the present case, the amount paid amounts to a commission on sales. But it cannot be said that Binny & Co. were building contractors or house and estate agents or firm or company trading in materials used in or whose activities were connected with the building industry. Rule 5(b) also only prevents an architect being a director of a firm or a company carrying on business as estate agents, etc. Therefore, it does -not appear that any of the rules are contravened in this case. We are also not concerned with the question whether this would amount to a professional misconduct or otherwise. If in fact the amount was paid for the services rendered as a professional, the assessability to tax could not be disputed on the ground that the services were rendered contrary to the rules of conduct of the profession.

11. In support of his contention that in the absence of an enforceable agreement or contract between Paterson and Binny & Co. in regard to payment of any remuneration or commission for selling the estate, the payment is not assessable, the learned counsel relied on the decisions in Brock-lesby v. Merricks, [1934] 18 TC 576 (CA), Mahammad Faruq, In re, (1938) 6 ITR 1 (All) and Major A. U. John, In re, [1938] 6 ITR 434 (All) [FB]. In Brocklesby v. Merricks, the facts were these : The assessee, who was an architect in practice, was also a Fellow of the Royal Institute of British Architects. On a social occasion he was informed by the owner of an estate that he wished to sell his property. The assessee later arranged a meeting between the owner and a client which ultimately resulted in his client purchasing the property. Neither at the time when this meeting was arranged nor at any time prior thereto was there any agreement on the part of his client to remunerate the assessee. A few days later, the assessee entered into an agreement with his client to render all help to dispose of the estate and negotiate with the parties concernad and the parties agreed that the assessee shall be paid a honorarium when the estate was sold at one-third of the net profits. When the estate was finally sold the assessee was paid a sum of 4,740 as and by way of his share of profits. While overruling the contention of the revenue that this amount was paid to the assessee as commission for introducing his client to the original owner of the estate, Finlay J. observed [1934] 18 TC 576. 582 (CA) :

" That contention, I think, would not do, and for this very elementary reason : there was no agreement at all that the appellant, in respect of this introduction arising out of some meeting on a social occasion, was to receive remuneration, and I think it is perfectly well settled that, in those circumstances, anything that might be given to him would be a perfectly voluntary payment and would not be income; it would be merely a present. We are not in the region of cases where tips, or profits of an office or vocation, and matters of that sort, may be part of the profits of, for instance, a waiter. It is, I think, quite clear and quite well settled that if a service of that sort is rendered--rendered with no contract for remuneration at all--then a sum paid afterwards would not be assessable."

12. This passage was relied on by the learned counsel for the assessee. But in that case itself, ultimately it was found that the amount was assessable under Case VI of Schedule D on the ground that the payment made to the assessee was for the services rendered. It was held to be a case in which, induced very probably by the voluntary service, the parties chose to enter into a contract for remuneration in respect of services to be rendered.

13. In Mahammad Faruq, In re, [1938] 6 ITR 1 (All) the assessee was formerly a professor of mathematics. After his retirement he was employed by an individual for the sale of a factory to a limited company and sold the same. The directors of the limited company in recognition of the assessee's services allotted to him shares of the value of Rs. 15,000. It was found by the Commissioner of Income-tax that the payment on the part of the directors was voluntary and without any previous agreement or understanding and that the assessee was not carrying on the vocation of promoter of companies and share-broker. On a reference, the Allahabad High Court observed (at page 7):

" The applicant was not an employee of the Pipraich Sugar Factory Ltd. although it appears from the reference that his employer, Syed Jawal Ali Shah, was one of the shareholders in the company. This payment was not made by the company to one of its employees for services rendered. The applicant was not in any way carrying on the vocation of a promoter of companies or a share-broker or anything of that kind. He did not enter into any contract with the company by which the company promised him remuneration for assisting in the disposal of shares. It may be that the applicant was actuated by a hope that his services if successful would not go unrequited but it is obvious that he had no legal claim against the company and that any hope that he had was based upon the grace and goodwill of the directors. It cannot be said that the applicant's object was the production of any definite return. If he hoped for a return that return was certainly not definite in its nature. He may have been actuated by a desire merely to assist his employer in disposing of the factory hoping thereby to secure his employer's goodwill and gratitude. We do not think that the applicant's activities can be described as business which is stated in the Act to include any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture. We think that business must be some activity which has for its object the acquirement of some profit which can be claimed as of legal right. The receipt of the shares in this case was certainly in the nature of a windfall. The receipt was certainly casual in its nature. There was no expectation of returns which would come in with any sort of regularity."

14. As seen from the question of law referred in that case, the court was asked to express an opinion on the applicability of section 4(3)(vii) on the basis of a finding that the payment was voluntary and without any previous agreement or understanding. The observations, therefore, will have to be understood with reference to these facts.

15. The other decision relied on by the learned counsel for the assessee is Major A. U. John, In re, [1938] 6 ITR 434 (All) [FB]. In that case in execution of a decree for sale of the company obtained by the debenture-holders, one of the debenture-holders was appointed as auctioneer and he was allowed to retain 5 per cent. out of the 6 1/4 per cent. allowed as poundage towards his commission in connection with the sale. While considering the question of assessability of that money, the court held that on the facts of that case it cannot be said that the auctioneer's commission paid was a receipt arising from business or the exercise of a profession, vocation or occupation or that it was not of a casual or non-recurring nature. That was a case where the court has stated in the judgment itself that it considered it to be equitable to relieve the debenture-holders of the payment of auctioneer's commission, the auctioneer being one of the debenture-holders and in the circumstances it would be unreasonable to regard the relief as an income.

16. But as against this, we have a series of cases wherein it has been held that even a voluntary payment or a payment which had no origin in any obligation to pay may be taxable as income in the hands of the recipient. Even in cases where the recipient would have no right of action in case of non-payment it had been held that the income may be taxable if it can be attached to an office or if it can be attached to an employment or vocation. Thus, in H. H. Maharani Shri Vijaykuverba Saheb of Morvi v. Commissioner of Income-tax, [1963] 49 ITR 594 (Bom) at page 604, the Bombay High Court observed :

"There is no doubt that under the Indian Income-tax Act, 1922, even payments, which are voluntarily made may constitute ' income' of the person receiving them. It is not necessary- that in order that the payments may constitute 'income' they must proceed from a legal source; in that if the payments are not made the enforcement of the payments could be sought by the payee in a court of law. It does not, however, mean that every voluntary payment will constitute ' income '. Thus, voluntary and gratuitous payments, which are connected with the office, profession, vocation or occupation may constitute ' income ' although if the payments were not made the enforcement thereof cannot be insisted upon. These payments constitute 'income' because they are referable to a definite source, which is the office, profession, vocation or occupation. It could, therefore, be said that such a voluntary payment is taxable as having an origin in the office, profession or vocation of the payee, which constitutes a definite source for the income. What is taxed under the Indian Income-tax Act is income from every source (barring the exceptions provided in Act itself) and even a voluntary payment, which can be regarded as having an orgin, which a practical man can regard as a real source of income, will fall in the category of 'income', which is taxable under the Act. Where, however, a voluntary payment is made entirely without consideration and is not traceable to any source, which a practical man may regard as a real source of his income, but depends entirely on the whim of the donor, it cannot fall in the category of ' income'.. . "

17. The Supreme Court in P. Krishna Menon v. Commissioner of Income-tax, , quoted with approval the following passage of Collins M.R. in Herbert v. Mcquade, [1902] 2 KB 631 (CA) referring to In re Strong, [1878] 1TC 207 :

" Now that judgment, whether or not the particular facts justified it, is certainly an affirmation of a principle of law that a payment may be liable to income-tax although it is voluntary on the part of the persons who made it, and that the test is whether, from the standpoint of the person who receives it, it accrues to him in virtue of his office ; if it does, it does not matter whether it was voluntary or whether it was compulsory on the part of the persons who paid it. That seems to me to be the test; and if we once get to this--that the money has come to, or accrued to, a person by virtue of his office--it seems to me that the liability to income-tax is not negatived merely by reason of the fact that there was no legal obligation on the part of the persons who contributed the money to pay it"

18. That was a case where a student paid his preceptor of Vedanta philosophy a large sum of money as gifts. The student said that all the sums were paid to the assessee as gifts to mark his esteem and affection for him and for no other reason. The Supreme Court held that the receipt of the money arose from the exercise of the profession of teaching.

19. Text book writers also refer to these as well-established propositions both in England and in India--vide Law and Practice of Income-tax by Kanga, volume I (6th edition), page 232, notes 15 & 16.

20. It is not necessary to cite and deal with for the purpose of this case the other cases cited by the learned counsel for the assessee like Moore v. Griffiths, [1972] 1 WLR 1024, Moorhouse v. Dooland, [1954] 36 TC 1 (CA), Commissioners of Inland Revenue v. Morris, [1967] 44 TC 685 (CSs) and Reed v. Seymour, [1927] 11 TC 625 (HL), where a distinction has been drawn between a payment which is a reward for services and payment which is a testimony or contribution for a specific purpose.

21. In this case, Paterson is an architect and a partner of one of the leading firms of architects. Because of his professional contacts, one expects him to know parties who could invest on large estates. It would not, therefore, be unreasonable to infer that it is the desire or need for Utilising that ability and knowledge of the assessee that should have induced the director of Binny & Co. to mention about the company's intention to sell the estate and request him to inform the company of any possible purchaser. Otherwise one would expect Binny & Co., a public limited company, to advertise the property for sale. It is also the consciousness of this knowledge and ability in himself that should have prompted the assessee to agree to make enquiries with some of his friends and advise the company later. The company could not have paid the amount except as remuneration for services rendered. The payment was made, it is stated, after a resolution had been passed by the company to that effect. The proceedings of the company had not been produced but it is obvious that the director of the company did not intend to get any free service from the assessee. If it were otherwise, there was no occasion or necessity for the company to consider that question and vote the payment. The absence of any stipulation or agreement in regard to payment or the absence of any expectation of reward on the part of the assessee, even if true, would not by itself show that the payment was not for services rendered in exercise of his profession as an architect. We are also not satisfied that this service rendered by the assessee was in any way out of the way of the ordinary professional work of the assessee. The Rules of the Code of Conduct of the Royal Institute of British Architects produced also contemplate the architects rendering such services though they could not procure or get commission but could contribute (sic) for a fee, salary or royalty. Even these restrictions will apply only when the architect deals with building contractors or estate agents or companies trading in building materials. In fact, we find an admirable instance of a service of an architect for commission under a contract in Brocklesby v. Merricks, [1934] 18TC576(CA). We are, therefore, of the view that the services were rendered by the assessee, Paterson, in the exercise of his profession as an architect to his client, Binny & Co.

22. The absence of any definite stipulation and absence of any expectation of reward are also not inconsistent with the taxability of the amount. It is also important to remember that the more important point is not what Binny & Co. thought it was doing but why the assessee received it. We have no doubt that the assessee received it as remuneration for the services rendered by him as a professional. That the assessee in this case had not dealt with a transaction of this type at any time before is of no consequence. The fact that the assessee utilised the services of Nagaraj brothers for finding out purchasers proves his intimate connection in bringing about the sale. It discloses the activity by which all these three persons joined together, made an effort and found a purchaser. Thus, from the company's point of view it was a payment for services rendered. From the point of view of Paterson it was a receipt derived from the exercise of a profession or vocation. We have, therefore, to hold that the receipt of the sum of Rs. 12,333 by Paterson arose from the exercise of his profession and as such was rightly included in his total income.

23. The next question is as to the nature of the receipt in the hands of Nagaraj brothers. The learned counsel for the revenue contended that it is a receipt arising from business and as such liable to be assessed to tax. We are of the opinion that the learned counsel is well founded in this contention. The transaction, in our opinion, is a business transaction, which was in the ordinary line of business of the firm to which Nagaraj brothers were partners. As has been noticed already, acting on the information from Paterson, these assessees organised a partnership in the name of Satya-narayana and Nagaraj and Company. The partnership was formed to carry on and do business as real estate agents. The firm itself was constituted with the object of purchasing the land from Binny & Co. and in fact after purchase, it is stated, the partnership firm realised good profits by dividing and selling it as plots. These assessees were businessmen and were partners of some reputed firms like Harrison Co. and Nammalwar Naidu and Sons, thus having vast business experience. Paterson also requisitioned the services of these assessees for the sale of the land. For the help rendered to Paterson, these assessees were paid a share. It is true, the assessees were not doing any real estate business before this particular transaction in question. But it is for the purpose of transacting this particular business of sale they organised the partnership firm, Satyanarayana and Nagaraj and Company. In this connection we may also refer to the decision in Commissioner of Income-tax v. V. P. Rao, [1950] 18 ITR 825 (Mad). It was held therein that there is nothing in the words "exercise of" occurring in section 4(3)(vii) of the Act for holding that the person exercising the occupation should be of the said occupation already, and that receipts got as remuneration by a person, who is not already having the occupation of arbitrator, on being appointed as an arbitrator will be receipts arising from the exercise of the occupation of an arbitrator even though it had been exercised only once. In that case the assessee, a retired judge of the High Court, agreed to serve as an arbitrator in a dispute between two local boards and he received a lump sum remuneration of Rs. 3,000. The question for consideration was whether this sum of Rs. 3,000 received by the assessee was a receipt exempt under section 4(3)(vii) of the Act. It was held that the receipt was from the exercise of the occupation as arbitrator by the assessee and that it was not a receipt of a casual nature and, therefore, was not exempt from assessment. Thus, in the present case, with reference to the transaction in question, it could be said that it is an adventure in the nature of trade to which the assessees were eminently fitted by reason of the past experience as businessmen.

24. In Chunni Lal Kalyan Das, In re, [1924] 1 ITC 419, 421; AIR 1925 All 469 the assessee who was once in regular business as cloth and grain merchant, which he had given up, received a sum as brokerage for the sale of certain mills and this brokerage transaction was an isolated one in the year of assessment. The question was whether the income was exempt under section 4(3)(vii) of the Act. It was held that the transaction in question comes within the definition of "business" under Section 2(4) of the Act and, therefore, not exempt under section 4(3)(vii) of the Act. In coming to this conclusion the learned judges also pointed out that the adventure of a businessman who is enabled through his business associations to negotiate a large transaction and thereby to earn a heavy commission may undoubtedly be in fact nonrecurring in the sense that so successful an adventure would not be likely to occur again. They further observed :

But on the other hand it is a class of transaction which might occur to any such businessman once only or half a dozen times again during the course of the year. The Government advocate put what may be said to be a decisive illustration of the true meaning of the word 'nature' when he pointed out that if you sold your own house at a profit, although the question would also arise as to whether the result of that transaction was a profit at all but rather only enhanced capital, it would, in any discussion as to whether it was brought within this exemption, undoubtedly be a transaction of a non-recurring nature. You could not do it twice. But, if on the other hand, you engaged in a solitary transaction of bringing two of your friends together and negotiated the sale of the house of one of them to the other and thereby earned a commission, you would, in our opinion, be carrying out a transaction which, although casual in fact, would not be of a non-recurring nature, because having done so once with success, you might be asked by some vendor to do it again.

25. Therefore, the learned judges held that the transaction was a " business " transaction.

26. In the present case, the fact that Paterson shared the Commission with Nagaraj brothers shows that there was a conjoint effort in bringing about the sale and the part played by Nagaraj brothers was considerable and effective. The Tribunal considered that the assessees themselves were, as partners of Satyanarayana and Nagaraj & Company, the purchasers of the property, and, therefore, it cannot be said that the assessee rendered any service to Paterson for which they received the amount. Though in the eye of law the partnership is not a legal entity, for the purpose of assessment to income-tax it is a separate legal entity apart from its partners and there is nothing wrong in a partner having business of his own. The assessees as individuals brought the purchasers, the partnership firm, and Binny & Co., together to enter into a sale and purchase of the property and it is that assistance which was recognised by Paterson when he shared the income. We are, therefore, of the opinion that the assessees were not entitled to exemption under section 4(3)(vii) of the Act in respect of the share received by them from Paterson.

27. We accordingly answer T.Cs. Nos. 255 and 256 of 1967 in the negative and in favour of the revenue and T.C. No. 114 of 1968 in the affirmative and against the assessee, Kiffin Paterson. The revenue will be entitled to its costs in all the three petitions. Counsel's fee Rs. 150 each.