COMMISSIONER OF INCOME-TAX VS INTERNATIONAL CLEARING AND SHIPPING AGENCY, 2001 PTD-MADRAS-HIGH-COURT-INDIA 3622 (1998)

Income-tax------

‑‑‑‑Firm‑‑‑Rate of tax‑‑‑Profession‑‑.Meaning of‑‑‑Firm of clearing, forwarding and shipping agents‑‑‑Activity of such agents does not amount to profession‑‑‑Firm not entitled to benefit of lower rate of tax applicable to professional firms‑‑‑Indian Income Tax Act, 1961, S.2‑‑‑Indian Finance Act, 1976 and Finance (No.2) Act, 1977, Sched. I, Part I,.para. C, sub‑para. (II).

The terms "business" and "profession" are defined in the Income Tax Act, 1961, in sections 2(13) and 2(36), respectively. Though the scope of the term "business" is wide, if the activity is properly to be characterised as profession, then that activity cannot also be regarded as business. The distinguishing feature of a profession is the possession by the practitioner of the profession of specialised knowledge involving intellectual skill and higher education and learning. The services rendered by a professional while practising the profession, are services for which he has been trained. The practice of a profession cannot be regarded as a commercial activity though the practice is not without compensation or profit. The compensation earned by the practitioner of a profession is by reason of the personal qualification possessed by him.

The assessee‑firm engaged in the business of shipping and clearing agency claimed that it was carrying on a profession and hence was entitled to the benefit of the lower rate of tax applicable to professional firms provided in the Finance Act, 1979. The Income‑tax Officer disallowed the claim but the Tribunal allowed the claim. On a reference:

Held, that the assistance rendered by the clearing and shipping agent to those who import or export, by attending to the documentation and ensuring the clearance of goods cannot be regarded as a profession based on intellectual attainment or personal service rendered on account of possession of specialised skill and knowledge based on higher learning and intellectual skill. Hence, the lower rate of tax was not applicable to the assessee.

Cochin Shipping Co v. Employees' State Insurance Corporation (1992) 81 FIR 387 (SC) rel.

CIT v. Jivanlal Lalloobhai & Co. (1994) 206 ITR 548 (Bom.); CIT v. Lallubhai Nagardas & Sons (1993) 204 ITR 93 (Bom.) and IRC v. Maxse (1919) 12 TC 41 (CA) ref.

C.V. Rajan for the Commissioner. .

P.P.S. Janarthana Raja for Subbaraya Aiyar, Padmanabhan and Ramamani for the Assessee.

JUDGMENT

R. JAYASIMHA BABU, J.‑‑‑The question referred to us, at the instance of the Revenue, is:

"Whether, on the facts and in the circumstances of the case, the assessee carrying on the business as clearing and shipping agents is entitled to be assessed at the tax rates applicable to a professional firm ?"

The assessment years relating to which this question has arisen are 1978‑79 to 1981‑82. The claim of the assessee, a professional clearing and shipping agency, Madras, was that it is carrying on a profession and should; therefore, be taxed at the lower fate applicable to firms which carry on profession as provided in the Finance Act, 1979. The Commissioner of Income‑tax as also the Tribunal accepted the plea of the assessee on the ground that a similar plea had been accepted in respect of another shipping and clearing agency by the Appellate Tribunal, Bombay Bench‑D.

Learned counsel for the Revenue placed before us the decision of the Bombay High Court which has disapproved the view of the Bombay Bench of the Tribunal, in the case of CIT v. Jivanlal Lalloobhai & Co. (1994) 206 ITR 548. In that case, the Bombay High Court held that the activity of clearing, forwarding and shipping agents does not amount to a profession" and a firm carrying on such activity is not entitled to the benefit of the lower rate of tax applicable to registered firms as provided in subparagraph (II) of paragraph C of Part I of Schedule I to the Finance Act, 1976, and the Finance (No.2), Act, 1977. In so holding the Court relied on an earlier decision rendered by it in CIT v. Lallubhai Nagardas & Sons (1993) 204 ITR 93 (Bom.).

Learned counsel for the assessee fairly submitted that he is unable to support the order of the Tribunal.

The terms "business" and "profession" are defined in the Act in sections 2(13) and 2(36), respectively. Though the scope of the term "business" is wide, if the activity is properly to be characterised as profession, then that activity cannot also be regarded as business. The distinguishing feature of a profession is the possession by the practitioner of the profession of specialised knowledge involving intellectual skill and higher education in learning. The services rendered by a professional while practising the profession, are the service for which he has been trained. The practice of a profession cannot be regarded as a commercial activity though the practice is not without compensation or profit. The compensation earned by the practitioner of a profession is by reason of the personal qualification possessed by him or her.

The observations of Scrutton L. J. in this regard in IRC v. Maxse (1919) 12 TC 41 (CA) are as follows (page 61):‑‑

"Profession" in the present use of language involves the idea of an occupation requiring either purely intellectual skill, or if any manual skill as in, painting and sculpture, or surgery, skill controlled by the intellectual skill of the operator, as distinguished from an occupation which is substantially the production or sale, or arrangements for the production or sale of commodities.

The activity of shipping and clearing agent was considered by the Supreme Court in the case of Cochin Shipping Co. v. E.S.I. Corporation (1992) 81 FIR 387; AIR 1993 SC 252, wherein the Supreme Court held that the activity is a "shop" for the purpose of the Shops and Establishments Act as the activity carried on by a shipping clearing and forwarding agency is a commercial activity. The assistance rendered by the clearing and shipping agent to those who import or export, by attending to the documentation and ensuring the clearance of goods, cannot be regarded as profession based on, intellectual attainments or personal service rendered on account of possession of specialised skill and knowledge based on higher learning and intellectual skill.

The Tribunal, therefore, was in error in holding that the assessee which admittedly carries on the business of clearing and shipping agents is entitled to be taxed at rates admissible to a professional firm.

Our answer to the question referred to us is, therefore, in the negative, in favour of the Revenue and against the assessee. The Revenue is entitled to costs of Rs.1,000.

M.B.A./565/FC

Reference answered.