COMMISSIONER OF INCOME-TAX VS GOVINDASWAMINATHAN, 2000 PTD-MADRAS-HIGH-COURT-INDIA 966 (1998)

Income-tax---

----Professional income or salary---Advocate-General of a State---No employer---Employee relationship between State Government and Advocate General----Relationship is that of an Advocate and client---Salary paid to Advocate-General by State is only a retainer fee for services rendered as a professional Advocate---Is to be assessed as professional income under head "Profits. and gains of business or profession" and not under head "Salary"-- Indian Income Tax Act, 1961, Ss. 15 & 28.

The fact that a person may hold an Office and that he should receive a remuneration by virtue of that office does not necessarily bring about a relationship of master and servant or an employer and employee between him and the person who paid him the remuneration.

The assessee was appointed as Advocate-General of the State of Tamil Nadu. The Government Standing Order relating to his appointment and the terms and conditions relating to his tenure as Advocate-General stated that the Advocate-General is the principal law officer and legal adviser -to the Government and his appointment is made under Article 165 of the Constitution of India to hold the office during the pleasure of the Governor of the State. The Advocate-General is debarred from advising or holding briefs against the. Government defending accused persons and giving advice to (Private) parties in which he is likely to be called upon to advise the Government. The assessee was paid monthly salary of Rs.1,500 and he was also paid fees for his appearance on behalf of the Government in various Courts of law. For the assessment years 1971-72, 1972-73, 1976-77 and 1977-78, the Income-tax Officer held that the salary paid to the assessee by the State Government was only a "retainer fee" to retain the services of the assessee as an Advocate-General of the State and the same should be assessed under the head "Income from business or profession". The effect of assessing the salary as professional income was that the standard deduction available under section 16(1) of the Income Tax Act, 1961, was not granted in respect of the salary income of the assessee. On appeal, the Appellate Assistant Commissioner found that the salary was paid every month in respect of the office held by the assessee during the pleasure of the Governor and the salary was to be assessed under section 15 of the Act and, consequently, the assessee was entitled to standard deduction under section 16(1) in respect of the salary received. On further appeal, the Tribunal affirmed the order of the Appellate Assistant Commissioner. On a reference:

Held, reversing the decision of the Appellate Tribunal, that the relationship between the assessee (Advocate-General) and the State Government is not that of a master and servant relationship or employer -employee relationship and the relationship is purely that of an advocate and a client. The assessee was not holding the post under the State. The amount was paid to the assessee only as a retainer fee by the State. Government to retain the services of the assessee in the discharge of his multifarious duties of the Advocate-General of the State. The assessee was not given the post for any particular service but the amount was paid only for services to be rendered as a professional Advocate. The assessee had not, any point of his professional career, exchanged his profession for his service and he continued to be a professional person. He received his salary in the capacity of a professional person. Therefore, the retainer fee received by the assessee had to be assessed under the head "Profits and gains of business or profession" under section 28 of the Act and was not to be assessed under the head "Salaries" under section 15 of the Act.

CIT v. Lady Navajbai R. J. Tata (1947) 15 ITR 8 (Bom.) applied.

Joginder Singh Wasu v. State of Punjab (1994) 1 SCC 184 and Union of India v. Pratibha Bonnerjea AIR 1996 SC 693:(1995) 6 SCC 765 fol.

C. V. Rajan for the Commissioner.

P.P.S. Janarthana Raja for the Assessee.

JUDGMENT

N. V. BALASUBRAMANIAN, J.----The assessee was an Advocate-General of the State of Tamil Nadu. The assessee is a Barrister and he was appointed as Advocate-General in the State of Tamil Nadu in G. O. Ms. No. 1285, Public (General-F), dated July 9, 1969. The standing order relating to the Advocate-General had been revised and the terms and conditions for his tenure as Advocate-General are found in the appendix to the G. O. Ms. No. 262, dated February 1, 1955. It is stated that the Advocate-General is the principal law officer and legal adviser to the Government and his appointment is made under Article 165 of the Constitution of India to hold the office during the pleasure of the Governor. The Advocate-General is debarred from advising or holding briefs against the Government, defending accused persons and giving advice to (Private) parties in which he is likely to be called on to advise the Government. The assessee was paid a monthly salary of Rs.1,500, and he was also paid fees for his appearance on behalf of the Government in various Courts of law. The question in the tax case reference pertains to the head of income under which the monthly salary is to be taxed, and there is no dispute that the professional fees were taxed under the head "Income from business and profession". The Income-tax Officer for the assessment years 1971-72, 1972-73, 1976-77 and 1977-78 held that the salary paid by the Government of Tamil Nadu was only a "retainer fee" to retain the services of the assessee as an Advocate-General of the State and the same should be considered under the head "Income from business and profession". He accordingly added, the salary with other professional fees of the assessee for all the assessment years and completed the assessment. The effect of treating the salary as professional income was that the standard deduction available under section 16(I) of the Income Tax Act, 1961 (hereinafter referred to as "the Act"), was not granted in respect of the salary income.

The assessee preferred appeals to the Commissioner of Income-tax (Appeals) who found that the salary was paid every month in respect of the office held by him during the pleasure of the Governor and the salary was to be assessed under the head "Salary" and, consequently, the assessee was entitled to deduction under section 16(1) of the Act in respect of the salary received. The Revenue carried the matter in appeal before the Income-tax Appellate Tribunal. The Tribunal held that the remuneration paid, for holding the post of, the Advocate-General has been described as salary and the fees were paid for actual appearance in the Courts of law in exercise of the profession carried on by him. The Tribunal held that the authority-paid as "salary" should be treated as salary for the purpose of assessment under section 16 of the Act. The Tribunal also held that the salaries paid to the Judges, Accountant-General, Governors, Vice-President of India, who held Constitutional posts, have been assessed under the head "Salary" only and there is no reason to depart from the accepted assessment of income of the Advocate-General as salary in the case of remuneration paid for holding the post. The Tribunal, in this view of the matter, dismissed the appeal preferred by the Revenue.

The Revenue has challenged the order of the Appellate Tribunal and the Tribunal has stated a case and referred the following common question of law for our consideration:

"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that the retainer fee received by the assessee should be taxed under the head "Salaries" under section 15 of the Income-tax Act and not under head 'Profits and gains of business of profession" under section 28 of the Income tax Act?"

The contention Learned counsel for the Revenue was that there is no employer-employee relationship between the State and the Advocate General and in the absence of any employer-employee relationship, the amount received by the assessee, though styled as "salary" in the relevant Government Order, should be assessed under the head "income from business and profession". On the other hand, the contention of learned counsel for the assessee was that under Article 165 of the Constitution of India, the amount in question was paid for holding the post of Advocate General and, therefore, it was rightly held to be assessable under the head "Salary".

Article 165 of the Constitution of India deals with the appointment of Advocate-General for the State. Under Article 165(1) of the Constitution, the Government of the State shall appoint a person who is qualified to be appointed a Judge of a High Court to be Advocate-General for the. State. The functions of the Advocate are set out in Article 165(2) which runs as under:

It shall be the duty of the Advocate General to give advice to the Government of the state upon such legal matters and to perform such other duties of the legal character as many time to time be referred or assigned to him by the Governor and to discharge the functions conferred on him by or under this Constitution or any other law for the time being in force.

According to learned counsel for the Revenue, the Advocate- General is not a Government servant. We agree with the same. The Supreme Court in the case of Joginder Singh Wasu v. State of Punjab (1994) 1 SCC 184 examined the relationship between the Advocate-General and the State and held that the office of the Advocate-General is an exalted one and he is the supreme law officer of the State and is treated at par with the Minister. In so far as the relationship between the Advocate-General and the State Government is concerned, the Supreme Court held as under (head-note);

"The relationship between the Advocate-General and the State Government is essentially that of an Advocate and a client in relation to his appearance in Court and arguing the case before the Court on behalf of the State."

Mr. P.P.S. Janarthana Raja, learned counsel for the assessee, has not seriously disputed the position that the relationship of the Advocate General with the State is purely a relationship of an advocate and a client, but the contention of learned counsel for the assessee is that the amount was paid to him for holding the post and it is also described in the Government Order as salary. However, we are unable to accept the contention of learned counsel for the assessee. We have seen that there is no employer-employee relationship between the State Government and the assessee and the relationship between the assessee and the State Government is purely that of an advocate and a client.

The Supreme Court in the case of Union of India v. Pratibha Bonrerjea (1995) 6 SCC 765; AIR 1966 SC 693 considered the position of a Judge of the High Court and held that the relationship between the Government and a Judge of the High Court is not of a master and servant and the Judges cannot be said to hold the post under the Union or the State Government. Similarly, the relationship between the Advocate-General and the State Government is not that of a master and servant relationship and he is not holding the post under the State. The amount was paid only as a retainer fee by the State Government to retain the services of the Advocate General. The assessee was not given the post for any particular service, but the amount was paid only for the services to be rendered as a professional Advocate. -The assessee had not, at any point of his professional career, exchanged his profession for service and he continues to be a professional person. He received the salary in his capacity as a professional person and it was properly assessed by the Income-tax Officer under the head "Profession". It cannot be assumed and it is unthinkable that the assessee had changed his hat of a professional Advocate and had the hat of a salaries employee when he received the amount described as "salary" from the Government of Tamil Nadu. The comparison between the Judges and other persons holding that Constitutional posts is not quite apt as the Judges are not carrying on any profession in discharge of their judicial functions as a Judge, The vital distinction between .the Advocate-General and other persons holding the constitutional posts is that in the case of Advocate-General, he continues to be a professional person when he receives the amount though styled as salary, but in other cases, they are not carrying on any profession and the amount is paid for holding the post. That apart, the sum in question paid to the assessee is essentially a retainer fee paid to retain the services of the Advocate-General in the discharge of his multifarious duties of the Advocate-General of the State. In our view, there is absolutely no distinction between professional fees and other amounts styled as salary received by the assessee. They retain the same character; they remain of the same kind and of the same quality as received by a professional Advocate for performing his duties as a professional Advocate.

The Bombay High Court in an earliest decision in the case of CIT v. Lady Navajbai R. J. Tata (1947) 15 ITR 8 held that the fact that a person may hold the office and that he should receive a remuneration by virtue of that office does not necessarily bring about a relationship of master and servant or an employer and employee between him and the person who paid him the remuneration. We are of the opinion that the same principle would equally apply in the case of the receipt of the retainer fees by the assessee. The fact that the amount was paid for, holding the post is an immaterial consideration when the assessee received the amount as a person carrying on the profession of an Advocate. The receipt is purely a professional receipt.. The view of the Appellate Tribunal that the retainer fee received by the assessee should be taxed under the head "Salary" and not under the head "Profits and gains of business or profession" is not sustainable in law. We are of the opinion, it should be and was rightly assessed under the head "Profits and gains of business or profession" by the Assessing Officer.

Accordingly, we answer the common question of law referred to us for various assessment years in the negative and in favour of the Revenue.

There will be no order as to costs.

M.B.A./3335/FC Reference answered.