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Fr. Ephrem v. Commissioner Of Income Tax
Concise Analytical Summary of the Opinion
Factual and Procedural Background
These two references arise from the same applicant, an assessee who was a priest at St. Joseph's Monastery, Mannanam, and the respondent is the Revenue. The references relate to assessment years 1974-75 and 1975-76. During the relevant accounting periods the assessee received substantial foreign remittances which he admitted were mass stipends. He distributed part of those remittances to other priests to have masses said; however, a surplus remained at the end of each accounting year—Rs. 69,519 for 1974-75 and Rs. 55,162 for 1975-76. The Income-tax authorities (Appellate Assistant Commissioner and the Income Tax Appellate Tribunal) held that the surplus was the assessee's income. At the assessee's motion the Income Tax Appellate Tribunal referred the question of law to this Court under S. 256(1) of the Income Tax Act for decision.
Before the Appellate Tribunal the assessee pleaded that the surplus did not belong to him but was held under legal obligation to carry out the remitter's instructions and that the receipts were charitable collections. The Tribunal rejected these pleas, noting among other things that the assessee was not under an arrangement to pay the amounts to others and that there was material showing the assessee placed the surplus in fixed deposits—indications that the amounts were intended to remain with him.
Legal Issues Presented
- Whether, on the facts and circumstances of the case, the sum of Rs. 69,519 being the surplus remaining with the assessee out of the mass stipends of Rs. 2,13,617 received by the assessee during the previous year for the assessment year 1974-75 is the income of the assessee for that assessment year (1974-75)?
- Whether, on the facts and circumstances of the case, the sum of Rs. 55,162 being the balance of undisbursed amount remaining with the assessee out of the mass stipends of Rs. 1,21,706 received by the assessee during the previous year for the assessment year 1975-76 is the income of the assessee for that assessment year (1975-76)?
Arguments of the Parties
Appellant's (Assessee's) Arguments
- The remittances received were voluntary and casual in nature (charitable collections) and could be received by any person for disbursement as mass stipends.
- The surplus that remained at the end of the accounting year did not belong to the assessee; he held it under a legal obligation to carry out the remitter's instructions (i.e., to have the mass said), so the surplus could not be treated as his income.
- Mere fact that the assessee was a priest does not create a presumption that such remittances or the surplus constitute his income.
Respondent's (Revenue's) Position as Reflected in the Tribunal/Authorities
- The Appellate Assistant Commissioner and the Income Tax Appellate Tribunal held that receipts by a clergyman in his capacity as a clergyman constitute taxable income.
- The Tribunal found that the assessee received the amounts to say masses or to have masses said by others but was not bound under any arrangement to pay the amount to others; there was no overriding title in others when the amounts were received.
- The Tribunal relied on factual material indicating the assessee put surplus amounts into fixed deposits—an indication the amounts were not required to be distributed and would remain with the assessee—and therefore treated the surplus as his income.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Rer. Father Prior, Sacred Heart's Monastery v. Income Tax Officer (30 ITR 451) | Explains the nature of a "mass stipend": that it is a donation to the individual priest who says the Mass, given for the maintenance of the priest, and that the priest is under an obligation to offer Mass for the donor's intention. | Used to support the characterization of the remittances as payments to the priest personally linked to his vocation, reinforcing that such receipts are referable to his office and thus can constitute income. |
| P. Krishna Menon v. Commissioner of Income-tax (35 ITR 48) | Holds that donations/receipts which arise out of and are connected to a person's vocation or avocation are income. | Cited to establish that receipts arising from the assessee's vocation (preaching/ministerial work or, here, saying masses) are income; relied upon to conclude the surplus arose from the assessee's vocation and so constituted income. |
| Dr. George Thomas v. Commissioner of Income-tax (cases cited: 156 ITR 412 and 159 ITR 851) | Affirms that receipts which arise out of the carrying on of a vocation and continue so long as the vocation is carried on are income of the recipient. | Applied to show the close and intimate link between the payments received and the assessee's vocation as a priest, supporting inclusion of the surplus in his income. |
| David Mitchell v. Commissioner of Income-tax (30 ITR 701) | Discusses tests to be applied when considering whether casual and voluntary payments may nonetheless be treated as "income". | The Court referred to this authority for the tests and stated that the approach adopted in the present case is in accord with the principles set out in that decision. |
| Dillip Kumar Roy v. Commissioner of Income-tax (94 ITR 1) | Another authority setting out tests and principles on when voluntary payments/donations are to be considered income. | The Court noted that its tests and conclusions accord with the Bombay High Court decision and relied on it as part of the body of case law supporting the conclusion that the receipts were income. |
Court's Reasoning and Analysis
The Court began with statutory definitions and exclusions: S. 2(24) of the Income-tax Act gives an inclusive definition of "income," and S. 10(3) provides exclusion for receipts of a casual and non-recurring nature subject to provisos. The Court emphasized that the inclusionary language of S. 2(24) and the proviso to S. 10(3) make clear that receipts which arise from the exercise of a profession or occupation are to be included in total income even if they are casual or non-recurring in nature.
The Court analyzed the factual matrix: the assessee was a priest who received remittances labeled as mass stipends; he was to say masses or have masses said. The Tribunal found there was no arrangement requiring him to pay received amounts to others and observed that the assessee placed surplus amounts in fixed deposits—evidence that the amounts were intended to remain with him rather than being held for third parties.
On the legal analysis, the Court applied the following reasoning:
- Mass stipends, by authority (Rer. Father Prior), are donations given to the individual priest for maintenance and are given because of the priest's obligation to say Mass; thus they are payments referable to the priest's vocation.
- The payments in question have a definite source—the assessee's occupation as a priest—and originate from that vocation; they are not pure gratuitous payments unconnected to the recipient's calling.
- S. 2(24) is inclusive and has wide import; amounts received by virtue of profession, vocation or occupation constitute income. S. 10(3)(ii) excludes casual receipts only to the extent they do not arise from business, profession or occupation; therefore such receipts connected to vocation are includible.
- Even if the remittances were treated as casual or voluntary, the Court held they are still referable to the assessee's vocation and therefore taxable. The Court relied on precedents (P. Krishna Menon; Dr. George Thomas) showing that donations continuing by reason of a vocation are income of the recipient.
- The Court also noted that the factual signposts (absence of obligation to pay to others at receipt, placement of surplus in fixed deposits) support the Tribunal's determination that the surplus was not held on behalf of others but was income of the assessee.
- The Court stated its approach accords with tests and decisions discussed in the Calcutta and Bombay High Court authorities (David Mitchell and Dillip Kumar Roy).
On the basis of the statutory provisions, the findings of fact by the Tribunal, and the established case law, the Court concluded that the surplus amounts were income of the assessee.
Holding and Implications
Holding: The Court answered the questions of law referred to it in the affirmative, against the assessee and in favour of the Revenue—that is, the surplus remaining with the assessee out of the mass stipends received for the years in question constituted the assessee's income.
Implications:
- The direct effect is that the surplus amounts (Rs. 69,519 for 1974-75 and Rs. 55,162 for 1975-76) are to be treated as the assessee's taxable income for the respective assessment years.
- The Court applied established principles and existing precedents to reach this conclusion; the opinion follows and relies upon prior case law to determine when voluntary or casual receipts are nonetheless income because they arise from an occupation or vocation. The judgment directs that a copy be sent to the Income-tax Appellate Tribunal, Cochin Bench.
The opinion does not state that it establishes a new legal principle beyond applying and following existing authorities; it resolves the referred questions against the assessee on the facts and law presented.
The Judgment of the Court was delivered by
Paripoornao, J.:— These two references are at the instance of the same applicant, an assessee to income tax. The respondent is the Revenue. These references relate to the assessment years 1974-75 and 1975-76. The applicant-assessee is a Priest in St. Joseph's Monastery, Mannanam. The sole question that arises for consideration in these cases is whether the surplus that remained with the assessee after disbursement to other Priests in the total funds received for distribution as mass stipend, is income in the hands of the assessee?
2. The questions referred by the Income Tax Appellate Tribunal for the years 1974-75 and 197S-66 are as follows:
“1. Whether, on the facts and circumstances of the case the Income tax Appellate Tribunal was right in holding that the sum of Rs. 69,519/- being the surplus remaining with the assessee out of the mass stipends of Rs. 2,13,617/- received by the assessee during the previous year for the assessment year 1974-75 as the Income of the assessee for this assessment year, namely, 1974-75?
2. Whether, on the facts and circumstances of the case, the Incotnetax Appellate Tribunal was right in holding that the sum of Rs. 55.162/- being the balance of undisbursed amount remaining with the assessee out of the mass stipends of Rs. 1,21,706/- received by the assessee during the previous year for the assessment year 1975-76 (? 1974-75) as the income of the assessee for this assessment year, namely, 1974-75? (?) (1975-76).”
3. At the relevant time the assessee was a Priest at St. Joseph's Monastery, Mannanam. During the relevant accounting periods be received substantial foreign remittances. The assessee claimed that these remittances are mass stipends received from a number of parties abroad and that he distributes the same to various other priests for performing the mass. For both the years a portion of the remittances were found to have been distributed for the same. The surplus that remained after such distribution was treated as the income of the assessee for both the years. It amouoted to Rs. 69,519/- for the year 1974-75 and Rs. 55.162/- for the year 1975-76. In appeal the Appellate Assistant Commissioner held that receipts by clergyman in bis capacity as clergyman constitute taxable income. In second appeal the Income Tax Appellate Tribunal concurred with the said view. It is thereafter at the motion of the assessee the above question of law was referred by the Income Tax Appellate Tribunal under S. 256(1) of the Income Tax Act, for the decision of this Court. As stated., the assessee was a priest at St. Joseph's Monastery. He received large remittances from abroad. He admitted that the receipts are mass stipends. Before the Appellate Tribunal the assessee pleaded that the surplus that remained at the end of the accounting year do not belong to the assessee, that he held the same under legal obligation to carry out the in structions of the remitter for the purpose of having the mass said, and so the surplus cannot be treated as bis income. The receipts-are only io the nature of charity collections. The Appellate Tribunal negatived the above pleas. It was held that the’ receipts were admittedly mass stipends, that the assessee received the amounts to say the masses, or to have the masses said by others, that the assessee was not required under the arrangement to pay the amount to others, that there was no question of any overriding title at the time when the amounts were received by the assessee., that there was material to show that the assessee put the surplus amount in fixed deposit, which is a significant step to indicate that the said amounts were not required to be distributed and will remain with the assessee and in the light of the above premises, it follows that the surplus that remained with the assessee after disbursements to other priests, is his incoroe.
4. Before us the only plea highlighted by the assessee's counsel was that the remittances received by the assessee were voluntary and casual in nature. The foreign remittances could be received by any person for disbursement by way of mass stipends. Merely because the assessee is a priest, there is no presumption that such remittances recieved by the assessee or the surplus in the remittances constitutes his income. The Income Tax Appellate Tribunal was in error in treating the surplus that remained with the assessee out of the remittances received for disbursement of mass stipends as income of the assessee for the two assessment yeara.
5. It will be useful to extract the definition of the word ‘income’ in S. 2(24) of the Income-tax Act as also the exclusion or non-inclusion of receipts which are of a casual and non-recurring nature as provided in S. 10(3) of the Act. S. 2(24) and S. 10(3) read as follows:
“S. 2(24): “income” includes—
(i) profits and gains;
(ii) dividend;
(ii-a) voluntary contributions received by a trust created wholly or partly for charitable or religious purposes or by an institution established wholly or partly for such purposes, not being contributions made with a specific direction that they shall form part of the corpus of the trust or institution;
Explanation.— For the purposes of this sub-clause, “trust” includes any other legal obligation;
(iii) the value of any perquisite or profit in lieu of salary taxable under under clauses (2) and (3) of S. 17;
(iv) the value of any benefit or perquisite, whether convertible into money or not, obtained from a company eitber by a director or by a person who has a substantial inrerest in the company, or by a relative of the director or such person, and any sum paid by any such company in respect of any obligation which, but for such payment, would have been payable by the director or other person aforesaid;
(v) any sum chargeable to income-tax under clauses (ii) and (iii) of S. 28 or S. 41 or S. 59;
(v-a) the value of any benefit or perquisite taxable under clause (iv) of S. 28;
(vi) any capital gains chargeable under S; 45;
(vii) the profits and gains of any business of insurance carried on by a mutual insurance company or by a co-operative society, computed in accordance with S. 44 or any surplus taken to be such profits and gains by virtue of provisions contained in the First Schedule:
(viii) any annuity due, or commuted value of any annuity paid, under the provisions of S. 280D;
(ix) any winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or from gambling or betting of any form or nature whatsoever.
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Incomes not in-S 10, In computing the total income of previous year of any per-. cluded in total son, any income falling within any of the following clauses shall not be income Inlcuded—
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(3) any receipts which are of a casual and non-recurring nature, not being winnings from lotteries, to the extent such receipts do not exceed one thousand rupees in the aggregate;
Provided that this clause shall not apply to —
(i) capital gains chargeable under the provisions of S. 45; or
(ii) receipts arisiog from business or the exercise of a profession or occupation; or
(iii) receipts by way of addition to the remuneration of an employee;”
6. It will be evident from the above that the definition of the word “income” is an inclusive one. It is also evident from the proviso to S. 10(3) of the Act that even if the receipts are of a casual and non-recurring nature, if the receipts arise from business or the exercise of a profession or occupation, the said receipts will be included in the “income”.
7. In Rer. Father Prior, Sacred Heart's Monastery v. Income Tax Officer (30 ITR 451) at page 478 paragraph 34, a Division Bench of the Travancore-Cochin High Court explaioed what is mass stipend. The Court held:
“It is true that Mass stipend is a donation; Bat it is a donation to the individual priest who says the Mass. It is given for the maintenance of the priest. The priest who teceives the Mass stipend is under an obligation to offer Mass for the intention of the donor. In no sense can Mass stipend be said to be a donation made to the Monastery.”
8. The Income Tax Appellate Tribunal found that the assessee was not required under the arrangement by which be received the remittances to pay the amount to others. What was required was that the assessee was to say the masses or to have the masses said by others. The assessee was admittedly a priest at St. Joseph's Monastery. The remittances are payments to him, which are referable to a definite source—the occupation or vocation of the assessee. The payments have their origin to such source. It is not a case where the assessee received payments entirely without consideration and not traceable to his vocation or occupation and the payment depended entirely on the will of the donor.
9. As per S. 2(24) of the Income Tax Act, 1961 the word “income” is an inclusive definition. It is not exhaustive. It bas a wide import. It has got a legal coocept. The scheme of S. 2(24) of the Act, read with Ss. 4 and 10 of the Act, seems to be that given its ordinary natural meaning the word “income” will take in any moaetary return “coming in”. It will take in voluntary and gratuitous payments which are connected or linked with the office, vocation or occupation. Any amount received by an assessee by virtue of his profession vocation or occupation will constitute inootne. S. 10(3)(ii) of the Act takes within its fold any receipts arising from the exercise of a profession or occupation in the total income. The receipts may be a casual or non-recurring nature. The word “occupation” generally means the trade or calling by which a person seeks to get his livelihood. The word ‘vocation’ also means the same thing. In the law and Practice of Income Tax by Kaoga and Palkbivala, 7th Edn. page 240, it is stated:
“Gratuitous grants or voluntary subscriptions paid by the congregation to ministers of religion employed by the Cburch are assessable as income arising from the exercise of occupation.”
10. Similarly in Sam path Iyengar's Law of Income Tax. 7th Edn. at page 735, it is stated as follows:
“Donations made to a monastery by charitably disposed persons to construct college buildings or to an individual priest of the monastery for mass stipends would be voluntary gifts depending entirely upon the goodwill of the donors and would not cease to be of a ‘casual and non-recurring nature* by reason merely of the fact that the donations are repeated”.
11. Even treating the various remitances as casual receipts, we are of the view that the receipts are referable to the occupation or vocation of the assessee. The payments have their origin to such source. The assessee beiog a priest was required to say the masses or to have the masses said by others. The fact that the assessee was a priest and that he should say the masses or to have the masses said by others was the causa causans of the various pay ments and remittances, to assessees, or payments were made because the assessee was a priest. They were related and traceable to his vocation or occupation. From the stand-point of the person receiving the payments, it accrues to him by virtue of his office or position though there was no legal obligation on the part of the persons remitting or paying the money to do so. The decisions of the Supreme Court in P. Krishna Menon v. Commissioner of Income-tax (35 ITR 48), Dr. George Thomas v. Commissioner of Income-tax (156 ITR 412), and Dr. K. George Thomas v. Commissioner of Income-tax (159 ITR 851) are relevant in this context, to Dr. K. George Thomas case (1986 ITR 412) at pages 420 and 421 the court observed as follows:
“It has been established that the assessee was carrying on a vocation, the vocation of preaching of Christian Gospel and helping anti-atheism was the vooation of his life. He was running a newspaper in aid of that. The donations received from America were to help him for the said purpose. They arose ‘out of bis carrying on and continued so long as be carried on this avocation or vocation. These receipts, therefore, arose out of his vocation These were, therefore, bis income.
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In the instant case, there cannot be any doubt the receipts by the assessee arose out of the avocation of the assessee of proparating views against atheism and preaching Christian Gospel”.
12. As in the Supreme Court case, here also, there was a close aod intimate link between the occupation or avocation of the assessee and the payments received by him. In this context, we should state that the entire case law on the subect, both English and Indian, and the tests to be applied, when a casual and voluntary payment can be considered to be “income”, is adverted to in the Division Bench decision of the Calcutta High Court in David Mitchell v. Commissioner of Income-tax (30 ITR 701) and of the Bombay High Conrt in Dillp Kumar Roy v. Commissioner of Income-tax (94 ITR 1). The tests applied by us in the instant case are in accord with the decisions of the Supreme Court Krishna Menon's case (35 ITR. 48), Dr. George Thomas case (159 ITR 412) aod Dr. R. Georgp Thomas case (159 ITR. 851) and the aforesaid Calcutta and Bombay decisions. In the light of the principle discernible from the aforesaid decisions and in the light of the facts disclosed in these two cases there is absolutely no doubt in our mind that the surplus remaining with the asssssee out of the mass stipends received by him during the relevant previous years constituted his income.
13. We answer the question of law referred to us in both the cases in the affirmative, against the assessee and in favour of the Revenue. A copy of this judgment under the seal of this Court aod the signature of the Registrar shall be sent to the Income-tax Appellate Tribunal Cochin Bench.
14. Allowed
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