Father Epharam Vs. Commissioner of Income-tax - Court Judgment

Paripoornan, J.

1. 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 out of 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 1975-76 are as follows :

'1. Whether, on the facts and in the 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 was the income of the assessee for this assessment year, namely, 1974-75 ?

2. Whether, on the facts and circumstances of the case, the Income-tax 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) was 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, he 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 was 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 amounted 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 a clergyman in his capacity as clergyman constitute his taxable income. In second appeal, the Income-tax Appellate Tribunal concurred with the said view. It is thereafter, at the motion of the assessee, that the above question of law was referred by the Income-tax Appellate Tribunal under Section 256(1) of the Income-tax Act, for the decision of this court.

4. 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 does not belong to the assessee, that he held the same under a legal obligation to carry out the instructions of the remitter for the purpose of having the mass said, that the surplus cannot be treated as his income, and that the receipts are only in 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 that in the light of the above premises, it follows that the surplus that remained with the assessee after disbursement to other priests, is his income.

5. 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 received by the assessee or that 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 years.

6. It will be useful to extract the definition of the word 'income' in Section 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 Section 10(3) of the Act Section 2(24) and Section 10(3) read as follows :

'Section 2(24) : 'income' includes -

(i) profits and gains ; (ii) dividend ;

(iia) 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 Clauses (2) and (3) of Section 17 ;

(iv) the value of any benefit or perquisite, whether convertible into money or not, obtained from a company either by a director or by a person who has a substantial interest 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 Section 28 or Section 41 or Section 59 ;

(vi) the value of any benefit or perquisite taxable under Clause (iv) of Section 28 ;

(vi) any capital gains chargeable under Section 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 Section 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 Section 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.'

'Section 10 : Incomes not included in total income. -- In computing the total income of a previous year of any person, any income falling within any of the following Clauses shall not be included-- ...

(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 Section 45 ; or

(ii) receipts arising from business or the exercise of a professionor occupation ; or

(iii) receipts by way of addition to the remuneration of an employee ;'

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 Section 10(3) of the Act that even if the receipts are of a casual and nonrecurring nature, if the receipts arise from business or the exercise of a profession or occupation, the said receipts will be included in 'income'.

7. In Rev. Father Prior, Sacred Heart's Monastery v. ITO , paragraph 34, a Division Bench of the Travancore-Cochin High Court explained what is mass stipend. The Court held :

'It is true that mass stipend is a donation. But it is a donation to the individual priest who says the mass. It is given for the maintenance of the priest. The priest who receives 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 he 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 Section 2(24) of the Income-tax Act, 1961, the word 'income' is an inclusive definition. It is not exhaustive. It has a wide import. It has got a legal concept. The scheme of Section 2(24) of the Act, read with Sections 4 and 10 of the Act, seems to be that, given its ordinary and natural meaning, the word 'income' will take in any monetary return 'coming in'.

10. It will take in voluntary and gratuitous payments which are connected or linked with the office, vocation or occupation. Any amount received by an assesses by virtue of his profession, vocation or occupation will constitute income. Section 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 casual or of a 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 Kanga and Palkhivala, Seventh edn., page 240, it is stated :

'Gratuitous grants or voluntary subscriptions paid by the congregation to ministers of religion employed by the Church are assessable as income arising from the exercise of occupation.'

11. Similarly, in Sampath Iyengar's Law of Income-tax, Seventh 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 nonrecurring nature' by reason merely of the fact that the donations are repeated.'

12. Even treating the various remittances 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 in such source. The assessee, being 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 have the masses said by others was the causa causans of the various payments and remittances to the assessee or the payments were made because the assessee was a priest. They were related and traceable to his vocation or occupation. From the standpoint 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. CIT : [1959]35ITR48(SC) , Dr. K. George Thomas v. CIT : [1985]156ITR412(SC) and Dr. K. George Thomas v. CIT : [1986]159ITR851(SC) are relevant in this context. In Dr. K. George Thomas' case : [1985]156ITR412(SC) , 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 vocation 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 his carrying on and continued so long as he carried on this avocation or vocation. These receipts, therefore, arose out of his vocation. These were, therefore, his income...

In the instant case, there cannot be any doubt that the receipts by the assessee arose out of the avocation of the assessee of propagating views against atheism and preaching Christian Gospel.'

13. As in the Supreme Court case, here also, there was a close and 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 subject, both English and Indian, and the tests to be applied, as to 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. CIT : [1956]30ITR701(Cal) and of the Bombay High Court in Dilip Kumar Roy v. CIT : [1974]94ITR1(Bom) . The tests applied by us in the instant case are in accord with the decisions of the Supreme Court in Krishna Menon's case : [1959]35ITR48(SC) , Dr. K. George Thomas' case : [1985]156ITR412(SC) and Dr. K. George Thomas' case : [1986]159ITR851(SC) 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 assessee out of the mass stipends received by him during the relevant previous years constituted his income.

14. 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.

15. A copy of this judgment under the seal of this court and the signature of the Registrar shall be sent to the Income-tax Appellate Tribunal, Cochin Bench.