COMMISSIONER OF INCOME TAX Vs. NAGARAJ P N

JUDGEMENT

(1.) 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.) 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: