THE COMMISSIONER OF INCOME TAX VS M/S. SMITH, KLINE & FRENCH OF PAKISTAN LTD., 1991 PTD-SUPREME-COURT 999 (1991)

1991 P T D 999

[Supreme Court of Pakistan]

Present: Zaffar Hussain Mirza, Naimuddin and Sajjad Ali Shah, JJ

THE COMMISSIONER OF INCOME TAX---Appellant

Versus

M/S. SMITH, KLINE & FRENCH OF PAKISTAN LTD. and others---Respondents

Civil Appeals Nos. 119-K of 1985, 32-K & 33-K of 1988, 639-K of 1990, decided on 25/06/1991.

(From the judgment of the High Court of Sindh in ITC No.78 of 1973)

(a) Income-tax Act (XI of 1922)---

----S. 4(3)(vii)---Constitution of Pakistan (1973), Art. 185(3)---Leave to appeal was granted to consider submission that the High Court erred in relying on the case of H.H. Maharani Shri Vigaykuverba Saheb of Morvi and another v. Commissioner of Income Tax Bombay City (1963) 49 I.T.R. 594.

(b) Income-tax Act (XI of 1922)--

----S. 66-A---Reference to High Court---High Court deciding a question on a reference application, which speaks of "on the facts and circumstances of the case" is not entitled to decide the reference on facts and circumstances that may be found by it, on its own examination of material but it means on the facts and circumstances found by the Tribunal.

Civil Appeals No.104-K to 111-K of 1984, decided on 23-5-1991, Karnani Property Ltd. v. Commissioner of Income-tax West Bengal (1971) 82 ITR 547, India Cement Limited v. Commissioner of Income Tax, Madras (1966) 60 ITR 52 and Mrs. Samina Shaukat Ayub Khan v. Commissioner of Income-tax, Rawalpindi PLD 1981 SC 85 ref.

(c) Income-tax Act (XI of 1922)----

----S. 4(3)(vii)---Casual income---Exemption---Burden of proof of the fact that any receipt by a person is an "income" is on the Revenue---If the department establishes that receipt is "income" then the onus that such a receipt is exempt under S. 4(3)(vii) of the Act is on the assessee claiming the exemption.--[Burden of proof].

Mrs. Samina Shaukat Ayub Khan v. Commissioner of Income-tax, Rawalpindi PLD 1981 SC 85, Parimisetti Seetharamamma v. Commissioner of Income-tax, Andhra Pradesh . (1965) 56 ITR (Sh.N) 31, 532, Additional Commissioner of Income-tax v. S. Krishnaswamy Reddiar (1978) 114 ITR 505 ref.

(d) Income-tax,

"Income -Definition and description,

By sections 3 and 4 the Income-tax Act imposes a general liability to tax upon all income. But the Act does not provide that whatever is received by a person must be regarded as income liable to tax. In all cases in which a receipt is sought to be taxed as income, the burden lies upon the department to prove that it is within the taxing provision: Where, however, a receipt is of the nature of income, the burden of proving that it is not taxable because it falls within an exemption provided by the Act lies upon the assessee.

The object of the Act is to tax "income" a term, which it does not define. It is expanded, no doubt, into "income, profits and gains", but the expansion is more a matter of words than of substance. Income in this Act connotes a periodical monetary return "coming in" with some sort of regularity, or expected regularity, from definite sources. The source is not necessarily one which is expected to be continuously productive, but it must be one whose object is the production of a definite return, excluding anything in the nature of the mere windfall. Thus income has been linked pictorially to the fruit of a tree, or the crop of a field. It is essentially the produce of something which is often loosely spoken of as "capital". But capital, though possibly the source in the case of income from securities, is in most cases hardly more than an element in the process of production.

Picturesque similies cannot be used to limit the true character of income in general---Income is not necessarily the recurrent return from a definite source, though it is generally of that character. Income again may consist of a series of separate receipts, as it generally does in the case of professional earnings. The multiplicity of forms which "income" may assume is beyond enumeration. Generally, however, the mere fact that the income flows from some capital assets, of which the simplest illustration is the purchase of an annuity for a lump sum, does not prevent it from being income, though in some analogues case the true view may be that the payments, though spread over a period, are not income, but instalments payable at specified future dates of a purchase price.

It will be seen that the term "income" as used in the Income-tax Act is, indeed, a term of wide significance, and generally and ordinarily it connotes a periodical monetary return, coming in with some sort of regularity, or expected regularity, from a definite source; but the multiplicity of forms which income may assume is beyond enumeration; and income need not necessarily be the recurrent return from a definite source, though it is generally of that character. It may consist of a series of separate receipts, as for instance happens in the case of professional earnings. In the last analysis, the question whether a particular kind of receipt is income or not would depend for its answer on the peculiar facts and circumstances of the case. If the nature of the receipt and its source are not satisfactorily explained by the assessee, facts which are generally within his peculiar knowledge, the Income-tax Officer may legitimately presume that the amount in question is an income of the assessee from an undisclosed source.

Parimisetti Seetharamamma v. Commissioner of Income-tax, Andhra Pradesh (1965) 56 ITR (Sh.N) 31, 532, Additional Commissioner of Income-tax v. S. Krishnaswamy Reddiar (1978) 114 ITR 505, Commissioner of Income-tax, Bengal v. Shaw Wallace and Company AIR 1932 PC 138, Mrs. Samina Shaukat Ayub Khan v. Commissioner of Income-tax, Rawalpindi PLD 1981 SC 85; Raja Bahadur Kamakshya Narain Singh of Ramgarh v. Commissioner of Income-tax, Bihar and Orissa (1943) 11 ITR 513 and Commissioner of Income-tax, Bengal v. Mercantile Bank of India Limited AIR 1936 PC 238 ref.

(e) Income-tax Act (XI of 1922)---

----S. 4(3)(vii)---Casual income---Exemption---Amounts remitted by foreign share-holders as donation/gift and credited in the assessee's account as miscellaneous income in the profit and loss statement and amounts remitted by foreign company as promotion allowance and credited as such---Foreign shareholders/companies were not obliged to remit such amounts or to make good the losses incurred by the assessees (Pakistani companies) and if the foreign company or share-holders wanted to make good any losses they could contribute these amounts as capital if there was no prohibition in increasing the capital--?Such remittances, therefore, could only be termed as "mere windfall" as these were in each case a single casual receipt not arising from any business and not recurring in nature---Such remittance thus were exempted under S. 4(3)(vii) of the Act.

Commissioner of Income-tax, Bengal v. Shaw Wallace and Company AIR 1932 PC 138; Mrs. Samina Shaukat Ayub Khan v. Commissioner of Income?tax, Rawalpindi PLD 1981 SC 85; Raja Bahadur Kamakshya Narain Singh of Ramgarh v. Commissioner of Income-tax, Bihar and Orissa (1943) 11 ITR 513, Commissioner of Income-tax, Bengal v. Mercantile Bank of India Limited AIR 1936 PC 238 and H.H. Maharani Shri Vijaykuverba Saheb of Morvi and another v. Commission of Income-tax Bombay City-II? (1963) 49 ITR 594 applied.

Muhammadi Steamship Co., Ltd. v. The Commissioner of Income-tax (Central), Karachi PLD 1966 SC 828, Mrs. Samina Shaukat Ayub Khan v. Commissioner of Income-tax, Rawalpindi PLD 1981 SC 85, Susil C. Sen, In re. (1941) 9 ITR 261, Ratna Sugar Mills Co. Ltd. v. Commissioner of Income-tax, U.P. & V.P. Lucknow (1958) 33 ITR 644, Parelkar, Gore and Parpia v. Commissioner of Income-tax, Bombay City I (1958) 34 ITR 312, P. Krishna Menon v. Commissioner of Income-tax, Mysore, Travacore, Cochin and Goorg, Bangalore (1959) 35 ITR 48, Commissioner of Income-tax v. Pfizer Laboratories Limited (1989) PTD 612 and Mazagaon Dock Limited v. Commissioner of Income-tax 1985 ITR 368 distinguished.

(f) Income-tax-

----Income---Receipt by an assessee of voluntary payment, on certain facts and in certain circumstances, may constitute income provided it arises from business or the exercise of a profession, vocation or occupation, in other words, if there is nexus between the receipt and the business or the exercise of profession or vocation or occupation.

(g) Income-tax Act (XI of 1922)---

----S. 4(3)(vii)---Question as to whether certain receipts were income or whether could be claimed as casual income exempt under S. 4(3)(vii)---Answer depends upon facts and circumstances of each case.

Whether the receipts were income or whether could be claimed as casual income exempt under section 4(3)(vii) of the Act, such questions will always depend on the facts and circumstances of each case and one case cannot be relied upon as precedent to decide another case as facts and circumstances of two cases are always different except when on the same facts and circumstances for many cases or many years a question is required to be answered.

(h) Income-tax Act (XI of 1922)---

----S. 4(3)(vii)---Casual income ---Exemption---Where the payments were voluntary, without consideration and were not traceable to any source which a practical man may regard as real source of his income, such income would be a casual income, exempt under S. 4(3)(vii) of the Act---Payments having nexus with the business of the assessee would of course be distinguishable from the casual income and not exempt under S. 4(3)(vii) of the Act.

Shaikh Haider, Advocate Supreme Court and Muzaffar Hassan, Advocate-on-Record for Appellant (In all cases). AA. Shareef, Advocate Supreme Court and A.A. Dastgir, Advocate-on-?Record for Respondent (in CA. 119-K of 1985).

Iqbal Naeem Pasha, Advocate Supreme Court and Faizanul Haq, Advocate-on-Record for Respondent (in CA. 32-K and 33-K of 1988).

Iqbal Naeem Pasha, Advocate Supreme Court and Nizam Ahmed, Advocate-on-Record for Respondent (in CA. 639-K of 1990).

Date of hearing: 10th June, 1991.

JUDGMENT

NAIMUDDIN, J.---All these four appeals are by leave from the judgments of the High Court of Sindh. We propose to dispose of them by this common judgment.

2. Civil Appeal No. 119-K of 1985 is from the judgment of the High Court dated 23-2-1984 passed in I.T.C. No.78 of 1983. In this case following question was referred to the High Court, which was answered in the affirmative:

"Whether on the facts and in the circumstances of the case the Tribunal was justified in holding that the receipt of Rs.1,38,867 was not income in the hands of M/s. Smith Kline and French of Pakistan Limited?"

3. Civil Appeals Nos.32-K and 33-K of 1988 are from the judgment of the High Court dated 3-4-1986 passed in I.T.C. Nos. 34 and 35 of 1987. In these cases the following questions were referred to the High Court:

"(i) Whether on the facts and in the circumstances of the case, the learned Tribunal was justified in deleting the amount received by the assessee and stated as promotion allowance from M/s. Sandoz Limited (Basle) from the total income of the assessee?

(ii) Whether on the facts and in the circumstances of the case, the amount received by the assessee and stated as promotion allowance from M/s. Sandoz Limited (Basle) qualified for exemption under section 4(3)(vii) of the Income Tax Act?

(iii) Whether on the facts and in the circumstances of the case, the amount received as promotion allowance is not liable to tax under the Income Tax Act?"

4. Civil Appeal No. 639-K of 1990 is from the judgment of the High Court dated 25-1-1989 passed in I.T.C. No.6 of 1981. In this case also the same questions came up for consideration as in Civil Appeals No.32-K and 33-K of 1988.

5. Now, we propose to call the first mentioned appeal as the "First Appeal" and second and third mentioned appeals jointly as "Second. Appeal" and the fourth mentioned appeal as the "Third Appeal".

6. Leave to appeal was granted to consider the submission that the High Court erred in relying on the case of H.H. Maharani Shri Vigaykuverba Saheb of Morvi and another v. Commissioner of Income Tax, Bombay City II (1963) 49 I.T.R. 594.

7. In the Second Appeal leave to appeal was granted to consider the same question as is involved in the First Appeal.

8. In the Third Appeal leave to appeal was granted because of leave granted in the Second Appeal.

9. The facts giving rise to the First Appeal, as stated in the statement of facts, are that the respondent company was incorporated in December, 1949 under the name of Pharma Company Limited. However, in June, 1964 the name of the Company was changed to the present one. The respondent's paid-up capital upto 30-11-1963 was Rs.1,00,000 and was wholly owned by M/s. Smith Kline USA Laboratories.

10. On 30-11-1963 the respondent had a net accumulated loss of Rs.78,776 and was mostly dealing in foreign goods which were indented. At this point of time the respondent decided to start manufacturing activities with foreign participant. The capital of the company was, therefore, raised to Rs.16,00,000, of which shares worth Rs.11,75,000 were to be issued to the foreign participants while those amounting to Rs.4,25,000 were to be allotted to local shareholders. It was also decided that as the company was running into losses the accumulated losses upto 29-2-1964 may be absorbed by the foreign shareholders. After working the loss upto 29-2-1964, the losses to be borne by the foreign shareholders were determined by the auditors at Rs.1,38,867. The foreign participants, therefore, remitted amounts to this extent to the respondent and the same were duly shown in the accounts drawn up. This amount was credited in the respondent's account as miscellaneous income in the profit and loss statement.

11. After realising the implication of this credit entry the respondent contended before the Income-tax Officer that this amount received from the foreign participants was not income at all, and if it was income, it was of a casual nature and as such exempt from the provisions of section 4(3)(vii) of the Income Tax Act, 1922. The Income-tax Officer, however, rejected both these contentions and taxed the amount of Rs.1,38,867 as income in the hands of the respondent.

12. The respondent preferred an appeal before the Income Tax Appellate Tribunal which was allowed by the judgment dated 18-10-1972. The appellant submitted a reference to the High Court, which was also decided in favour of the respondent by the judgment now impugned in this appeal.

13. The facts of the second appeal, as taken from the statement of facts, are that the respondent is a private limited company, 75% of whose share-capital is held by M/s. Sandoz Limited, (Basle) and the balance by the general public. During the assessment year 1970-71 the respondent received a sum of Rs.16,00,000 from M/s. Sandoz Limited (Basle) as promotion allowance. The respondent excluded this amount from the total income claiming that it was `not income' and even if it was income, it was of casual and non-recurring nature and hence exempt under section 4(3)(vii) of the Income-tax Act, 1922. The Income?tax Officer did not accept the respondent's contention and included the amount in the total income of the respondent. The Income-tax Appellate Tribunal has, however, deleted the said amount from the total income of the respondent.

14. It may be stated that the facts of Civil Appeals Nos.32-K and 33-K of 1988 are common except that Civil Appeal No.32-K of 1988 relates to the assessment year 1970-71 and Civil Appeal 33-K of 1988 relates to assessment year 1969-70. It may be further added that for assessment year 1968-69 also same proceedings were taken and same questions were referred to the High Court and same judgment was delivered by the High Court but the Department chose not to file any petition against the judgment relating to assessment year 1968-69.

15. The facts of the third appeal, as taken from the statement of facts, are that the respondent is a subsidiary non-resident company. Its majority shares are held by the non-resident parent company. During the assessment year 1975-76 the respondent received a sum of Rs.12,42,000 from M/s. Ciba Geigy Limited as promotion allowance. The respondent excluded this amount from the total income claiming that it was not income and even if it was, it was of a casual and non-recurring nature and was, therefore, exempted under section 4(3)(vii) of the Income-tax Act, 1922. The Income-tax Officer, however, did not accept the respondent's contention and included the amount in the total income of the respondent. On appeal, the Income Tax Appellate Tribunal, however, deleted the amount from the total income of the respondent. Thereafter, the questions mentioned in paragraph 3 of this judgment were referred to the High Court which were all answered in the affirmative giving rise to this appeal.

16. We have heard Mr. Shaikh Haider, learned counsel for the appellant in all the appeals, Mr. A.A. Shareef, learned counsel for the respondent in the first appeal and Mr. lqbal Naim Pasha, learned counsel for the respondents in second and third appeals.

17. Mr. Shaikh Haider, learned counsel for the appellant, submitted that: (i) the finding by the Tribunal that "From the letter of Sandoz (Bazle) to the Management, Sandoz (Pakistan) Limited, which was also produced before the Income-tax Officer, it is clearly borne out that the said company had made these payments voluntarily considering the circumstances of the assessee-company" is erroneous as there were no such letters written by the foreign promotors. The letters were written by the Pakistani counter-part, (ii) the High Court erred in treating the receipts as casual receipts in view of business dealings between the parties and the High Court further erred in not considering that the onus to prove that the income through the receipts was casual, was on the respondent and that there was no material before the Tribunal or the High Court on the basis of which the Tribunal and the High Court could come to the conclusion that they were voluntary payments by the foreign companies, (iii) the High Court failed to notice in second appeal that the receipts were of recurring nature as for all the three years payments were received from the foreign company. For the assessment year 1968-69 a sum of Rs.8,00,000 was received. For the assessment year 1969-70 a sum of Rs.50,000 was received. In the assessment year 1970-71 a sum of Rs.16,00,000 was received, (vi) the High Court erred in holding that it has never been even alleged by the Commissioner of Income-tax that the imports which had been made by the Pakistan Company were not paid for by the Switzerland company or that there had been any over payment by Pakistani Company for the goods imported by them from the Switzerland Company and that there was no evidence to that effect. The learned counsel submitted that the High Court missed the point that what was shown to the High Court was that there were business dealings between the Switzerland company and the Pakistan company in second appeal and these payments were received because of these business dealings, (v) the High Court erred in the first appeal in relying on the case of H.H. Maharani Shri Vigaykuverba Saheb of Morvi and another (Supra) in which it was held that a voluntary payment which 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 cannot fall in the category of income, and (vi) the High Court unduly held that the cases cited before them, namely, Pakistan International Airlines Corporation v. Commissioner of Income-tax PLD 1975 Kar. 924, and Raja Bahadur Kamakshya Narain-Singh of Ramgarh v. Commissioner of Income Tax, Bihar and Orissa (1943) 11 ITR 513, were distinguishable.

18. The learned counsel in support of his submissions relied on a large number of cases, namely, (i) The Commissioner of Taxation of the Commonwealth of Australia v. The Squatting Investment Company Limited (PLD 1954 PC 114), (ii) Muhammadi Steamship Co., Ltd. v. The Commissioner of Income-tax (Central), Karachi (PLD 1966 SC 828), (iii) Mrs. Samina Shaukat Ayub Khan v. Commissioner of Income-tax, Rawalpindi (PLD 1981 SC 85), (iv) Susil C. Scn, In re. (1941) 9 ITR' 261, (v) Ratna Sugar Mills Co. Ltd. v. Commissioner of Income-tax, U.P. & V.P. Lucknow (1958) 33 ITR 644, (vi) Parelkar, Gore and Parpia v. Commissioner of Income-tax, Bombay City 1 (1958) 34 ITR 312, (vii) P. Krishna Menon v. Commissioner of Income-tax, Mysore, Travancore, Cochin and Goorg, Banglore (1959) 35 ITR 48, (viii) A. Cajapathi Naidu v. Commissioner of Income-tax, Madras (1960) 40 ITR 282, (ix) Dr. K. George Thomas v. Commissioner of Income-tax, Kerala (1985) 156 ITR 412, (x) Pakistan International Airlines Corporation v. Commissioner of Income-tax PLD 1975 Kar. 924 and (xi) Commissioner of Income-tax v. Pfizer Laboratories Limited 1989 PTD 612.

19. Now, taking up the first submission it may be stated that no such question has been raised either by way of an application under section 35 of the Income Tax Act, 1922 or before the High Court that such a finding is erroneous and is based on no evidence. The proper course for the appellant was either to raise such a question before the High Court so that the High Court could go into it. We have to take the facts as stated by the Tribunal. It is now a well-settled proposition that the High Court deciding a question on a reference/application, which speaks of "on the facts and in the circumstances of the case" is not entitled E to decide the reference on facts and circumstance that may be found by it, on its own examination of material but it means on the facts and circumstances found by the Tribunal. Reliance is placed on an unreported decision of this Court in Civil Appeals Nos.104-K to 111-K of 1984, decided on 23-5-1991, reliance in this appeal was placed on an Indian Supreme Court decision in the case of Karnani Property Ltd. v. Commissioner of Income-tax West Bengal (1971) 82 ITR 547, wherein it was held as follows:

"Neither the High Court nor this Court has jurisdiction to go behind or to question the statements of fact made by the Tribunal. The statement of the case is binding on the parties and they are not entitled to go behind the facts found by the Tribunal in the statement."

And it was further held in the unreported judgment of this Court as under;

"The reason that prevailed with the learned Judges was simply that the question as to the correctness of the facts found by the Tribunal was not before the High Court nor before the Supreme Court as it was not within the province of the Court to re-appreciate the evidence on record:"

Reference may also be made to a judgment from Indian Jurisdiction in the case of India Cement Limited v. Commissioner of Income Tax, Madras (1966) 60 ITR 52, wherein on page 64 of the Report it was observed as follows:

"Before we conclude, we must deal with the point raised by Mr. Sastri that the High Court erred in law in preferring the findings of the Income-tax Officer to that of the Appellate Tribunal. It is not necessary to decide this question but it seems to us that, in a reference, the High 'Court must accept the findings of fact made by the Appellate Tribunal and it is for the person who has applied for a reference to challenge those findings first by an application under section 66(1). If he has failed to rile an application under section 66(1) expressly raising the question about the validity of the findings of fact, he is not entitled to urge before the High Court that the findings are vitiated for one reason or the other."

21. Before we consider the other submissions, we may set out the relevant provisions of section 4(1) and section 4(3)(vii) of the Act. Section 4(1) of the Act reads as follows:

"4 -- (1) Subject to the provisions of this Act, total income of any previous year of any person includes all income, profits and gains from whatever source derived which-

(a) are received or are deemed to be received in Pakistan in such year by or on behalf of such person; or

(b) if such person is resident in Pakistan during such year, -

(i) accrue or arise or are deemed to accrue or arise to him in Pakistan during such year, or

(ii) accrue or arise to him without Pakistan during such year, or

(c) if such person is not resident in Pakistan during such year, accrue or arise or are deemed to accrue or arise to him in Pakistan during such year

???????????

Provided ???????????????????????????????????????????? ------Not relevant-----

Provided further ?????????????????????????????????? ?------Not relevant-----

Explanation?????????????????????????????? ?????????? ------Not relevant-----

Section 4(3)(vii) of the Act reads as follows:

"4(3)(vii) Any receipts not being capital gains chargeable according to the provisions of section 12B and not being receipts arising from business or the exercise of a profession, vocation or occupation which are of a casual and non-recurring nature or are not by way of addition to the remuneration of an employee:"

22. However, before proceeding further, we may state that the burden of proof of the fact that any receipt by a person is an `income' is on the Revenue. But, if the Department establishes that it is `income' then the onus that such a receipt is exempt under section 4(3)(vii) of the Act is on the assessee claiming exemption: Mrs. Samina Shaukat Ayub Khan v. Commissioner of Income-tax, Rawalpindi PLD 1981 SC 85. We may note here that Mr. AA. Shareef, appearing in first appeal also relied on (i) Parimiselti Seetharamamma v. Commissioner of Income-tax, Andhra Pradesh (1965) 56 ITR (Sh.N) 31, 532, and (ii) Additional Commissioner of Income-tax v. S. Krishnaswamy Reddiar (1978) 114 ITR 505. In the first case it was observed as follows:

"By sections 3 and 4 the Act imposes a general liability to tax upon all income. But the Act does not provide that whatever is received by a person must be regarded as income liable to tax. In all cases in which a receipt is sought to be taxed as income, the burden lies upon the department to prove that it is within the taxing provision. Where, however, a receipt is of the nature of income, the burden of proving that it is not taxable because it falls within an exemption provided by the Act lies upon the assessee. The appellant admitted that she had received jewellery and diverse sums of money from Sita Devi and she claimed that these were gifts made out of love and affection. The case of the appellant was that the receipts did not fall within the taxing provision: it was not her case that being income the receipts were exempt from taxation because of a statutory provision. It was therefore for the department to establish that these receipts were chargeable to tax."

23. However, a question does arise what is `income'? The term `income' is not precisely defined in the Act. However, it came up for consideration in the well-known case of Commissioner of Income-tax, Bengal v. Shaw Wallace and Company (AIR 1932 PC 1.38), wherein at page 140 of the Report it was held as follows:

"The object of the Indian Act is to tax "income", a term which it does not define. It is expanded, no doubt, into "income, profits and gains", but the expansion is more a matter of words than of substance. Income, their lordships think, in this Act connotes a periodical monetary return coming in" with some sort of regularity, or expected regularity, from definite sources. The source is not necessarily one which is expected to be continuously productive, but it must be one whose object is the production of a definite return, excluding anything in the nature of a mere windfall. Thus income has been likened pictorially to the fruit of a tree, or the crop of a field. It is essentially the produce of something which is often loosely spoken of as "capital". But capital, though possibly the source in the case of income from securities, is in most cases hardly more than an element in the process of production."

24. The term `income' as defined in the above cited case was followed by this Court in the case of Mrs. Samina Shaukat Ayub Khan v. Commissioner of Income-tax, Rawalpindi (PLD 1981 SC 85), with a reference to two cases of Privy Council, namely, Raja Bahadur Kamakshya Narain Singh of Ramgarh v. Commissioner of Income-tax, Bihar and Orissa (1943) 11 ITR 51.3 and Commissioner of Income-tax, Bengal v. Mercantile Bank of India Limited AIR 1936 PC 238, and it was observed as follows:

"This view was reaffirmed by the Privy Council in the subsequent case of Commissioner of Income-tax, Bengal v. Mercantile Bank of India Limited AIR 1936 PC -238 and it was held that where a company by resolution capitalises accumulated profits by issue of fully paid-up shares to share-holders pro rata, the transaction does not amount to dividends or income, gains or profits.

?Again in Raja Bahadur Kamakshya Narain Singh of Ramgarh v. Commissioner of Income-tax, Bihar and Orissa (1943) ITR 513, the Privy Council referred with approval to this definition of the term `income', but added that "Picturesque similies cannot be used to limit the true character of income in general---Income is not necessarily the recurrent return from a definite source, though it is generally of that character. Income again may consist of a series of separate receipts, as it generally does in the case of professional earnings. The multiplicity of forms which "income" may assume is beyond enumeration. Generally, however, the mere fact that the income flows from some capital assets, of which the simplest illustration is the purchase of an annuity for a lump sum, does not prevent it from being income, though in some analogues case the true view may be that the payments, though spread over a period, are not income, but instalments payable at specified future dates of a purchase price---------"

And finally it was concluded at page 91 of the report as follows:

"It will be seen that the term "income" as used in the Income-tax Act is indeed, a term of wide significance, and generally and ordinarily it connotes a periodical monetary return coming in with some sort of regularity, or expected regularity, from a definite source; but as observed by the Privy Council, the multiplicity of forms which income may assume is beyond enumeration; and income need not necessarily be the recurrent return from a definite source, though it is generally of that character. It may consist of a series of separate receipts, as for instance happens in the case of professional earnings. In the last analysis, the question whether a particular kind of receipt is income or not would depend for its answer on the peculiar facts and circumstances of the case. If the nature of the receipt and its source are not satisfactorily explained by the assessee, facts which are generally within his peculiar knowledge, the Income-tax Officer may legitimately presume that the amount in question is an income of the assessee from an undisclosed source:'

25. Examined in the light of the above definition or description of the term `income', we find that the amount of Rs.1,38,867 remitted by foreign share?holders as donation/gift in first appeal and credited in the respondent's account as miscellaneous income in the profit and loss statement the two amounts of Rs.50,000 and Rs.16,00,000 remitted by foreign company as promotion allowance in the two assessment years under appeal in second appeal and the amount of Rs.12,40,000 remitted by the foreign company as promotion allowance in third appeal, do not, in our opinion, satisfy the test as laid down in the above-mentioned cases, as they could be termed as mere windfall, for, the foreign shareholders/companies were under no obligation to remit these amounts or to make good the losses incurred by the Pakistani companies and for the further reason that they could contribute these amounts as capital if there was no prohibition in increasing the capital. Even if we assume that these receipts satisfied some of the aspects which could approximate to the definition or description of the term `income', still the receipts in the first and the third appeals were exempt under section 4(3)(vii) of the Act, for, they were, in each of these cases, a single casual receipt not recurring in nature.

??????????? 26. It was, however, vehemently argued by Mr. Shaikh Haider that the receipts in these appeals arose from business but no such finding has been given by the Tribunal. In fact, there were no business dealings in the first and the third appeal but there were dealings only in second appeal but no finding has been given by the Tribunal that these receipts arose from business between the foreign company and the Pakistani company. Indeed, the Income-tax Appellate Tribunal has criticized the findings of the Income-tax Officer and termed them as based on conjecture and surmise in the following words:

We are of the opinion that the Income-tax Officer has committed an error in holding the receipts in question to be the income of the assessee in the respective years ....The Income-tax Officer, in our opinion has proceeded on conjectures and surmises and without having any definite evidence before him, to justify his inference that these receipts had a relation with the business activities of the assessee. We are clearly of the view that the amounts in question were not earned by the assessee company during the course of carrying on its business. So also we do not entertain any doubt that in the instant case the payee, i.e. the assessee company did not and could not have a right to expect the recurrence since the Donor Company was under no obligation whatsoever to make such payments. It could at best hope for it .......

Therefore, in the second appeal also, if for any reason, it could be deemed to be covered by the term `income' it was exempt under section 4(3)(vii) of the Act, as it did not arise from business and was of a casual nature and it could not be termed as recurring because it recurred only once in a year in the particular circumstances of this case. We must not forget that the income is taxed annually on annual returns of income.

It may not be out of place to observe that even a receipt by an assessee of voluntary payment, on certain facts and in certain circumstances, may constitute income provided it arises from business or the exercise of a profession, vocation or occupation, in other words, if there is nexus between the receipt and the business or the exercise of profession or vocation or occupation.

27. We must state that the submission of Mr. Iqbal Naim Pasha was that the respondents in second and third appeals never claimed exemption of the receipts under section 4(3)(vii) of the Act, which is not disputed by the counsel for the appellant. He further submitted that respondents' contention throughout was that it was not income at all. In support he relied on four cases, namely, (i) Parmisitti Seetharamamma v. Commissioner of Income-tax, Andhra Pradesh (1965) 56 ITR (Sh.N) 31, (ii) Commissioner of Income-tax, Patiala v. Groz-Beckert Saboo Ltd. (1979) 116 ITR 125, (iii) Addl. Commissioner of Income-tax, Delhi-II v Handicrafts and Handloom Export Corporation (1982) 133 ITR 590, and (iv) Commissioner of Income-tax. Delhi v. State Trading Corporation of India Ltd, (1973) 92 ITR 294.

28. We have considered these appeals from both the aspects, namely, whether the receipts were income or whether these receipts could be claimed as casual income exempt under section 4(3)(vii) of the Act, and the cases cited at the bar and we think that the answer to such questions will always depend on the K facts and circumstances of each case, and one case cannot be relied upon as precedent to decide another case as facts and circumstances of two cases are always different except when on the same facts and circumstances for many cases or many years a question is required to be answered.

29. Now, remains to be considered the remaining submissions and the cases cited at the bar in the light of the above observations.

30. (i) Taking up the second submission noted in para 17 we may state that we have already dealt with it as in our view the receipts do not constitute income on the facts as stated in the statement of facts. We have also dealt with the question of onus of proof. In any case the finding of the Tribunal and the High Court that the payments by the foreign companies were made voluntarily, is un?exceptionable.

(ii) As regards the third submission mentioned in para 17, we may state that we have also dealt with it hereinbefore and found that the receipts were in any case exempt under section 4(3)(vii) of the Act.

(iii) Dealing with the fourth submission noted in para 17, we may observe that there is no finding in the statement of facts by the income-tax Appellate Tribunal that the receipts in the second appeal arose from business between the foreign company and the Pakistani company.

(iv) Taking up the fifth submission stated in para 17, we may observe that though the facts in the case of H.H. Maharani Shri Vijaykuverba Saheb of Morvi and another (Supra) are not identical to the facts of the present appeals but the principle laid down therein is applicable to all the three appeals, for, in all the three appeals payments were voluntary, without consideration and were not traceable to any source which a practical man 4 may regard as real source of his income. In all these appeals, there is no finding by the Tribunal that these payments were not voluntary or were fur consideration.

31. (i) Taking up the first case mentioned in para 18, we may state that in this case it was found that tile respondents were, in business as wool suppliers at all material times, and the payment was made to them, not because of any personal qualities, but because they, among others, supplied participating wool. They supplied the wool in the course of their trade and the further payment was made to them because they supplied it. Therefore, it will be seen that the payment had nexus with the business and it, indeed, arose from the business dealings, though no doubt that the payments were voluntary, this is the distinguishing aspect of the case.

(ii) Taking up the case of Muhammadi Steamship Company Ltd., it may be observed that in this case the question of law referred to the High Court was:

"Whether in the facts and circumstances of the case, the Tribunal was justified in holding that the amounts covered by the fixed deposits or any part thereof (to the extent of the assessee's alleged commitments) was not `capital employed' in the assessee's industrial undertaking within the meaning of section 15-B of the Income-tax Act, read with rule 7 of the Income-tax (Computation of Capital of Industrial Undertaking) Rules, 1948?

This question was considered with reference to section 15-B(i), (iii) of the Act and it was held as follows:

"That the admitted position is that the fixed deposits were not earmarked for any purpose and were indeed not utilised for any purpose during the relevant accounting years and, capital employed in the undertaking within the meaning of purposes of exemption under this section must be one which is actively employed."

It will be seen from the above question and finding that this case has no relevancy to the facts and the question under consideration.

(iii) Referring to the case of Mrs. Samina Shaukat Ayub Khan mentioned in para 18, we may state that this case has been dealt with by us earlier in connection with the meaning of the term `income'. In this case leave was granted to consider the following questions:

(a) That the High Court having held that the assessee had at the time of her marriage no source of income, it was wrong in its approach to the questions posed before it, as it should have first considered as to whether in the circumstances the amounts involved could be income at all before considering as to whether they were exempt under the Income-tax Act.

(b) That the liability purporting to have been imposed on the assessee under subsections (2-A) and (2-B), introduced in section 4 of the Income-tax Act in 1965 could not have been applied retrospectively to income which had arisen before that date; and

(c) That similarly subsection (2-D), which was added to section 4 of the Income-tax Act only in 1972, could not have been applied in the case of the appellant."

The claim for exemption of the income was refused because the source of income was not disclosed. Following observations from the judgment may be quoted, which reveal that the case is quite distinguishable on facts. The observations are as follows:

"It does not need much reasoning to see that if the source of income is not disclosed or satisfactorily explained, then it is not possible to hold that the income was not from the business or from the exercise of a profession, vocation or occupation; or that it was of a casual and non-recurring nature. All these factors and attributes can be ascertained only if the assessee placed all the relevant facts before the Income-taxi authorities, for otherwise the nature of the income and its source is clearly left in the realm of speculation. Not a single case was cited at the Bar to show that the exemption granted by clause (vii) of subsection (3) of section 4 of the Act would be available in the case of income from an undisclosed source. The stringent requirements spelt out in this clause can only be satisfied by the disclosure of all the relevant facts, and not otherwise. In the circumstances, the High Court appears to us to be right in taking the view that the appellant- had failed to make out a case for the grant of exemption under this clause."

(iv) Taking up the case of In re Susil C. Seri it may be stated that in this case, the facts as taken from the head-notes were that an assessee, an Attorney and Advocate, acting for K, who wag a shareholder in a company, interviewed the Managing Agents of the company, attended a meeting of the shareholders under a proxy from K, made a speech at the meeting and secured a substantial issue of new shares to the public. X, a firm of stock brokers also benefited by the issue of new shares, paid a sum of Rs.10,000 to the assessee, even though he had not acted for them and they were not legally bound to pay anything to the assessee. On a reference by the Commissioner it was held by the Calcutta High Court that assuming the receipt was of a casual and non-recurring nature, it arose from the exercise by the assessee of his profession as a lawyer and Advocate and it was part of the assessee's income which was not exempt from tax under section 4(3)(vii) of the Indian Income-tax Act. It will be seen that in this case the receipts had a nexus with the profession of the assessee, while in all the three appeals there was no nexus between the receipts and the business.

(v) In the case of Ratna Sugar Mills Co. Ltd. the payment of subsidy out of excise duty on sugar made by the Government of India with the object of compensating the assesee for the loss of profit arising to it from being compelled to pay additional wages to the workers by the order of U.P. Government, was held to be trading receipt. Again, it will be seen that the payment had nexus with the business of the assessee.

(vi) The case of Parelkar, Gore and Parpia (Supra) is similar to that of Susil Co. Seri (Supra). The amount of Rs.10,000 received by the assessees who were practising architects had a nexus with the professional duty of the assessees. Chagla, C.J. of Bombay High Court, dealing with the question observed as follows:

"Section 4(3)(vii) exempts from tax casual and non-recurring income; but in order that section 4(3)(vii) should apply, the receipt must not be a receipt arising from business or the exercise of a profession, and if we are satisfied that this is a receipt from the exercise of a profession then no further questions arise. It is difficult to understand how it can possibly be contended that the receipt obtained by the assessee was not the result of the exercise of their profession of buildings. Any client of theirs who wants to put up a building may ask them to submit a plan, and if the client is satisfied, the client may ask them to construct the building. It was precisely under those circumstances that they applied to the All-India Medical Institute and submitted their plans for the construction of the building. We take it that their object was not to win the third prize but the first prize, and the first prize carried with it the additional advantage-- an all-powerful advantage-- of their getting this important work. In submitting their plan they exercised their professional skill; they acted as architects. Their intention in submitting the plan was not merely to win a prize, but to get the work, and, therefore, it was a result of their professional skill that they ultimately succeeded in getting the prize of Rs.10,000. It is true, as the authorities show, that if the receipt is not directly connected with assessee's profession but is only incidentally connected, then the receipt will not go out of the ambit of section 4(3)(vii). Can it possibly be said in this case that the receipt was not directly connected with the profession of the assessee, but only incidental to it? The work which the assessees did and which ultimately resulted in the coming in of this receipt was the ordinary work which they do as architects. It was directly the exercise of their profession and it was the result of their professional activity which made it possible for them to earn this receipt."

The case is distinguishable for the reason that in the present appeal receipts did not .arise from any business between the respondents and the foreign share?holders or foreign company.

(vii) In the cases of P. Krishna Menon, A. Cajapathi Naidu and Dr. K. George Thomas, noted in para 18, also the receipts were held to have arisen from the exercise of the profession or from the business.

(viii) Now, Pakistan International Airlines Corporation's case requires consideration. Facts of this case were that Pakistan International Airlines Corporation, the assessee, was created by Pakistan International Airlines Corporation Ordinance, which wag subsequently replaced by the Pakistan International Airlines Corporation Act. Under section 26 of the said Act, the Central Government undertook to make good any losses sustained by the Corporation during the three years next after 30th September 1963. In the account period relevant to charge years 1956-57 the Central Government paid a sum of Rs.1,05,13,609 in terms of the said section 26 of the Act. The assessee claimed this payment as a replenishment of its capital which according to the assessee, stood reduced to the extent of the amount received by the assessee from the Central Government. This plea of the assessee was rejected by the Income Tax Officer, who treated the receipt of the said amount as revenue amount and brought it to tax. The assessee filed direct appeal before the Tribunal against the decision of the Income Tax Officer and the Tribunal upheld the order of the Income Tax Officer. It was contended by the learned counsel for the Corporation that on a plain reading of this section, the replenishment of the losses could take place only after the loss had actually accrued, and been determined as such, the capital of the assessee by that time had already diminished. According to him, a loss always results in diminishing the capital, and Corporation, while running in business at a loss, could incur expenditure only by utilising its capital. He further contended that making good of a loss was even different from the subsidy, which in the case of the Corporation was also being paid by the Central Government at that time on every ticket from Karachi to Dacca at Rs.50 and from Lahore to Dacca at Rs.75. The whole object of the Government, according to the learned counsel, was expected to run at a loss in the initial state, the object of the section was that the capital of the Corporation should not be diminished and that it should be kept intact, and a guarantee to make good the losses, already accrued, was in effect, to make the payment towards reduction of capital that took place during the three years. In his submission the working expenses of the Corporation were more than the receipts earned, and the Corporation had of necessity to depend on its capital and in effect the Government by making good the losses only supplemented the deficiency in capital. On the other hand learned counsel for the Department contended that the amount in question was paid by the Central Government to the assessee in order to offset the trading losses of the assessee and, thus the receipts are in the nature of revenue receipts and, therefore, liable to be considered for tax purposes. On these facts it was held try this Court that the view canvassed by the learned counsel for the assessee could not be sustained upon consideration of the facts of this case and the interpretation of section 26 of the P.I.A.C. Act and in the result, the amount of Rs.1,05,13,609 paid by the Government to the assessee for making good the loss sustained by the assessee was found to be in the nature of income receipts liable to tax under the Income Tax Act, 1922.

Now, it will be seen from the above facts and findings that a nexus was found between the receipt and the trading of the Corporation while in the present appeals there was no nexus between the payments made by the foreign shareholders/company to the business done by the Pakistani companies. The payment made by the Government under the Statute made or could make no difference.

(ix) The last case relied upon by Mr. Shaikh Haider is that of Commissioner of Income-tax v. Pfizer Laboratories Limited 1989 PTD 612. In this case the facts are that the respondents are subsidiary company of Pfizer Corporation, an international organization with its head office at Panama. They are manufacturers and vendors of pharmaceutical products in Pakistan with status of an ordinary resident. While examining the accounts of the respondents it was noticed by the Assessing Officer that penicillin and sodium, purchased by the respondents from their principal were at a higher rate than the prices of these items in the international market and held that this was a device arranged between the respondents with a non-resident i.e. their principal so as to produce the respondents' profit less than the ordinary profit which might have arisen to them and under section 41(2) of the Income Tax Act, calculated the loss of profit to the extent of Rs.12,01,115 and added the same to the income of the respondents. The respondents filed an appeal before the Appellate Assistant Commissioner who observed that the provisions of section 42, subsection (2) of the Act-could not be invoked because the respondents had made purchases from their non-resident principal and purchases could not produce profits. Therefore; the question of profits being less than the ordinary did not arise. The difference of Rs.12,01,105 was deleted. The Department appealed to the Tribunal which maintained the order of the Appellate Assistant Commissioner. The Department then filed an application under section 66(1) of the Act referring the following question for consideration of the High Court

"Whether on facts and in the circumstances of the case, the Tribunal was justified in holding that subsection (2) of section 42 of Income-Tax Act was not applicable in this case?"

In this case it was held, following the decision in the case of Mazagaon Dock Limited v. Commissioner of Income-Tax (1985) ITR 368 of the Supreme Court of India, that where the real profit is depleted, reduced or made extinct by manipulation and arranged transaction then by fiction of law such profit which would have accrued in normal course in the absence of such manipulation shall be treated as income of the resident assessee. Here the principle of accrual of income as contemplated by the Income-tax Act will not be applicable.

It will be seen that the facts of and the question in this case are quite different from those under consideration in these appeals. No such question a; decided in the case under examination is involved in the appeals before us. There is no finding of the Tribunal that any profits in the cases under appeal were depleted, reduced or made extinct by manipulation or arranged transaction. Indeed, even there is no finding by the Tribunal to that effect in the statement of facts.

32. Since we have taken the view that on the test laid down in the cases cited in paragraph 23 hereof that the receipts were not `income' or in any case these did not arise from business, a point of view which was advocated by Mr. Iqbal Naim Pasha, we do not consider it necessary to examine in detail the cases cited at the Bar by Mr. Pasha and mentioned in paragraph 27 hereof, though we may state that Mr. Shaikh Haider successfully distinguished those cases on facts.

33. In the result, we dismiss all these appeals but leave the parties to bear their own costs in the circumstances of these appeals.

M.B.A./C-89/S??????????????????????????????????????????????????????????????????????? Appeals dismissed