KISHOR LAXMIDAS THAKKAR v. INCOME TAX OFFICER
[Citation -2005-LL-1028-12]

Citation 2005-LL-1028-12
Appellant Name KISHOR LAXMIDAS THAKKAR
Respondent Name INCOME TAX OFFICER
Court ITAT
Relevant Act Income-tax
Date of Order 28/10/2005
Assessment Year 2000-01
Judgment View Judgment
Keyword Tags clearing and forwarding agent • business or profession • income from profession • commercial expediency • professional service • income from business • revenue authorities • interior decoration • capital expenditure • business activity • technical service • source of income • legal obligation • original return • sole proprietor • music director
Bot Summary: The assessee is engaged in the business of carrying out as agent for octroi collections. The parties, with whom the assessee is dealing, have treated the duties of the assessee as that of a professional. The assessee does not need that high qualification but assessee needs experience. Custom house agent is required to pass a special examination , whereas person like assessee acting as octroi refund agent does not require to pass any particular exam. One of the reasonings of the Revenue authorities, treating assessee s activity is of business is that the services rendered by the assessee, first assessee has to get a registration and assessee represents the claims before the CIT. Rule 25 of Octroi Rules, 1965 reads as under: Transaction of business by a clerk or servant of the exporter or by a licensed Dalal. Another reason given by the Revenue authorities to treat the assessee as a professional is that the assessee has not made any investment in terms of money, but mainly depends on assessee s personal skill like an advocate or a chartered accountant. Coming to the second effective ground directed against the order of the learned CIT(A) in not accepting assessee s plea that the commission paid to assessee s son Shri Krishna Thakkar was a genuine payment and out of commercial expediency and business necessity and in discharge of legal obligation on the part of the assessee to pay the same under the agreement dt.


This appeal by assessee is for asst. yr. 2000-01. Though assessee has urged as many as six grounds, in fact it is divided into two. Ground Nos. 1 to 3 are directed against order of learned CIT(A) in holding that business activity of assessee is that of profession and hence it is strictly income from profession and not from business. Facts leading to dispute, briefly, are that assessee filed return of income for year under consideration on 8th Sept., 2000, declaring taxable income of Rs. 2,96,770. Subsequently, assessee filed revised return on account of discrepancy in claim of rebate under s. 88 of IT Act. case was selected for scrutiny. assessee is engaged in business of carrying out (activity) as agent for octroi collections. In original return as well as in revised return, assessee s source of income has been declared under head Income from business or profession . During course of assessment, assessee filed letter stating that notice under ss. 143(2) and 142(1) issued by AO were based on non est return filed by assessee on 28th Feb., 2001. AO rejected above claim. AO was of opinion that assessee was carrying out activity as agent for collection of octroi duty and activity of assessee is rather professional than commercial. He held that assessee s activity comes within ambit of s. 2(13) as defined in IT Act. He held that assessee has not disputed fact that assessee was chargeable to tax under head Business . AO held collection of octroi duty needs specialized knowledge and skill in that particular line and, therefore, it can easily be characterized as professional income. assessee is not doing any manufacturing, trading or has carried out any other activity, which under any stretch of imagination can be characterized as adventure in nature of trade, commerce or manufacture. He held that assessee s activity is purely professional one. Aggrieved by above order, assessee approached first appellate authority. Before learned CIT(A) it was contended that assessee s income is treated as income from business and not from profession. Referring to ss. 2(36) and 44AA of Act, which have defined profession , assessee argued that it is not correct to conclude that he is professional. Octroi agent is in nature of clearing and forwarding business and clearing and forwarding business has to be considered as business and not profession. Further, he submitted that he is like travel agent or stock or share broker. learned CIT(A) did not agree with above contention. He held that issue is, whether acting as Authorised Representative appearing before municipal authorities for fulfilling requirement for getting octroi refund is profession or business. Firstly learned CIT(A) noted that assessee has claimed credit for payment of TDS and for that act certificates from so many parties have been attached with return. This tax has been deducted in accordance with s. 194J, wherein only professional service or for fees for technical service is involved. parties, with whom assessee is dealing, have treated duties of assessee as that of professional. assessee also never objected that he was not liable for TDS. He held that assessee s duty is similar to that of qualified chartered accountant. Relying upon definition of s. 2(36) of Act, learned CIT(A) held that this i s inclusive definition, one which defines that profession also includes vocation. Vocation has been defined as "a k feeling that one ought to pursue particular career or occupation". He further held that profession is employment, not mechanical and requiring some degree or learning act showing certain skills . He relied on decision of Hon ble Allahabad High Court in case of Addl. CIT vs. Ram Kripal Tripathi (1980) 17 CTR (All) 79: (1980) 125 ITR 408 (All), wherein Hon ble Court held that teaching of Vedanta or giving regular discourses on Vedantic philosophy amounted to carrying on profession. He held that only those businesses are professions, profits of which are dependent mainly upon personal qualifications and in which no capital expenditure is required and this definition is strictly applicable to facts of assessee s case. assessee is acting only as Authorised Representative of various business groups/parties for pleading their cases before municipal authorities for getting their refunds on account of excess octroi paid is nothing but profession discharging duties. He held, whether assessee is illiterate or qualified does not matter. assessee is doing work of similar nature of advocate or chartered accountant, of course without under notification or registration with body. assessee does not need that high qualification but assessee needs experience. According to Board Circular No. S.O. 17(E), dt. 12th Jan., 1977 [1977 CTR (Jour) 68], Authorised Representatives are also professionals. Authorized Representative means person who represents any other person, on payment of any fees or remuneration, before Tribunal or any authority constituted or appointed by or under any law for time being in force. authorised agents of various businessmen who represent them before municipal authorities for collecting refunds on excess octroi will also fall under this category also. He held that assessee is assigned with job of representing business houses before municipal authorities and gets remuneration from them. octroi agents as per Octroi Rules have to be registered as authorised Dalals. As per Octroi Rules they are authorised by parties to appear before municipal authorities and only after being so authorised they will get licence from Commr. of Octroi. They have to pay annual fees as prescribed by Commissioner prior to granting of such licence. They also have to demonstrate certain professional conducts. They are bound to renew their authority after every year. Thus, learned CIT(A) held, assessee is not in field of business but profession. He confirmed order of AO. Aggrieved by above order, assessee is in appeal before Tribunal. learned counsel for assessee reiterated submissions made before Revenue authorities. He further brought our attention to paper book, p. 1, which is license issued by Municipal Corporation of Greater Bombay, dt. 20th March, 1974 to assessee which reads as under: "Under rule of the.... in respect of payment of refund of octroi framed under s. 195(2) of Bombay Municipal Corporation Act, as amended b y Bombay Municipal Corporation and Amendment Act, 1964, Shri Kishor Laxmidas Thakkar, sole proprietor, M/s Thakkar Desai & Co., is hereby licensed to act as Octroi Refund Dalals, under name and style of M/s Thakkar Desai & Co., at 61,63,65 Issaji Street, Bombay 3, for transacting business relating to & Co., at 61,63,65 Issaji Street, Bombay 3, for transacting business relating to claiming of refunds of octroi, subject to provisions of cls. (1), (3), (4), (5), (6), (7) and (8) of aforesaid r. 25, as per copy thereof enclosed herewith." learned counsel further submitted that this is like certificate for conducting business, particularly he stressed portion reading as under: "For transacting business relating to claiming of refunds of octroi, subject to provisions of cls. (1), (3), (4), (5), (6), (7) and (8) of aforesaid r. 25." He made written submissions, detailing nature of activity of custom house agents, which reads as under: "Details of nature of activity of custom house agents: nature of work of custom house agent is very similar to that of Clearing and forwarding agent. apex Court, in case of Cochin Shipping Co. vs. ESI Corporation AIR 1993 SC 252 has held that "The activity of shipping and clearing agent is shop' for purpose of Shop and Establishment Act. This is because activity carried on by shipping, clearing and forwarding agency is commercial activity. assistance rendered by clearing and shipping agent is those who import or export, by attending to documentation and ensuring clearance of goods cannot be regarded as profession based on intellectual attainments or personal service rendered on account of possession of specialized skill and knowledge based on higher learning and intellectual. appellant is engaged in similar activities to that of custom house agents but like custom house agents, they are not required to attain any qualification to practice as octroi refund agents. Therefore, one of most important characteristic that distinguishes businessman and professional, is that of qualification, which is not compulsion in case of octroi refund agent. Every custom house agent has to enroll himself as member of Custom House Agent Association registered with custom house and recognized by t h e Commissioner. Regulation 25 confers power on Commissioner to fix rates (i.e., per cent of claim), which may be charged to customer for services rendered by CHA. This is done in consultation with recognized association of CHAs. CHAs are required to strictly adhere to these rates. It is very interesting to note that one of activities as that of custom house agent is pertaining to custom drawback claims and octroi refund claims whereby their service charges are prescribed as per cent of amount realized per claim." He further submitted comparative analysis of custom house agents and octroi refund agents, which is as under: "Comparative analysis of custom house agents and octroi refund agents Particulars Customs house agent Octroi refund agent Nature of activity Customs house agent (CHA) is person who is licensed to act as agent for transaction of any business relating to entry or departure of conveyances or import or export of goods at any customs station. It involves highly technical nature of work to be done in connection with clearance of imports into and exports out of country. Octroi refund agent is person who is licensed to act as agent for getting octroi refund claim sanctioned for importer of goods. It involves very routine kind of work which does not require any expertise or skill but simple knowledge of documents to be processed. Qualification custom house agents are also required to pass special examination to qualify as custom house agent. person who is graduate from recognized university and who passes examination under regn. 9(5) can apply for independent custom house agent license. octroi refund agents are not required to qualify as octroi refund agent. They are just required to fulfil certain conditions like business should not be conducted in name of any company, etc. Regulations governing their activity work of agents is governed by Customs House Agents Licensing Regulations, 1984 framed under this section r/w s. 157. octroi agents are also governed by rules and regulations like these customs house agents. From above, learned counsel submitted that it is clear that nature of work and activities performed by custom house agent and octroi refund agent are similar in nature. Custom house agent is required to pass special examination , whereas person like assessee acting as octroi refund agent does not require to pass any particular exam. On other hand, learned Departmental Representative supported orders of Revenue authorities. Considering rival submissions and going through orders of Revenue authorities, we are of view that view canvassed by learned counsel is to be accepted. assessee is to get registered under Octroi Rules. We are of view that services rendered by assessee are similar to services rendered by clearing house agents. One of reasonings of Revenue authorities, treating assessee s activity is of business is that services rendered by assessee, first assessee has to get registration and assessee represents claims before CIT. Rule 25 of Octroi Rules, 1965 reads as under: "Transaction of business by clerk or servant of exporter or by licensed Dalal. (1) Any exporter not desiring to transact in person, business relating to claiming of refund, may employ for purpose (a) His own clerk or servant, or (b) Any person or any firm consisting of two or more persons working together in partnership under common style, duly licensed by Commissioner to transact such business under denomination of octroi refund Dalal or firm of octroi refund Dalals. (2) Dy. Assessor and Collector (Octroi) may refuse to recognize such clerk or servant unless exporter identifies such clerk or servant to said officer as empowered to transact such business and deposits with said officer authority in writing duly signed by exporter authorizing such clerk or servant to transact such business on his behalf. (3) Upon application being made in writing to Commissioner by any person or persons for license to act as octroi refund Dalal or as firm of such Dalals Commissioner may in his discretion grant licence in Form L, annexed hereto on recovery of such annual fees as may, be prescribed by Commissioner. Prior to granting of such licence bond in Form M, annexed hereto shall be executed by Dalal or firm of Dalals together with one surety for such sum not exceeding rupees five thousand as Commissioner may determine, for his or their faithful behaviour as regards these rules and all officers engaged in carrying out provisions of these rules. Such surety as aforesaid shall be approved by Commissioner and shall be owner of landed property in Greater Mumbai of value not less than double amount of security to be determined as aforesaid. No person or persons shall without such licence as aforesaid transact as Dalal or firm of Dalals any business relating to claiming of refunds of octroi. Revenue authorities, getting clue from Board vide its Notification No. S.O. 17(E) dt. 12th Jan., 1977, held that duties performed by assessee are that of Authorised Representative is also professional. Professional services are explained below s. 194J for purpose of section, which reads as under: "(a) Professional services means services rendered by person in course of carrying on legal, medical, engineering or architectural profession or profession of accountancy or technical consultancy or interior decoration or advertising or such other profession as is notified by Board for purposes of s. 44AA or of this section; Board has notified under s. 44AA, following professions for purpose of s. 194J as under: (a) Profession of Authorised Representative. (b) Profession of film artists (cameraman, directors, music director, dance director, editor, singer, lyricist, story or screen-play writer and dress designer). (c) Profession of company secretary. (d) Profession of information technology. It is to be seen that assessee is not falling under above-notified profession. Authorised Representative is specifically mentioned. There is no mention at all of similar profession. Strictly assessee is not Authorised Representative. Another reason given by Revenue authorities to treat assessee as professional is that assessee has not made any investment in terms of money, but mainly depends on assessee s personal skill like advocate or chartered accountant. Not making any investment in kind or cash alone is not criterion to hold it on profession. Strictly only it is not notified. Communication skill/public relation capability can also be only asset of even businessman in beginning. From comparative chart reproduced hereinabove at para 8, it is clear that assessee s activities are similar to activities rendered by clearing and forwarding agent, which is treated as business. In light of above discussion and for reason stated hereinabove, this ground by assessee is allowed. Coming to second effective ground (ground Nos. 4 to 6) directed against order of learned CIT(A) in not accepting assessee s plea that commission paid to assessee s son Shri Krishna Thakkar was genuine payment and out of commercial expediency and business necessity and in discharge of legal obligation on part of assessee to pay same under agreement dt. 6th May, 1994 which was in force at that point of time. While framing assessment order, AO noticed that assessee had paid commission to Shri Krishna Thakkar to tune of Rs. 9,76,163 who comes within s. 40A(2)(b). It was further noticed, he was employee of assessee who was also paid Rs. 48,000 salary and bonus of Rs. 8,000 during year under consideration. payment of commission, AO held, is only to dilute taxable income, he thus disallowed Rs. 5,00,000 as excessive commission paid, overlooking legitimate business needs. AO also noticed, against receipt of above commission, Shri Krishna Thakkar also claimed various expenditure like salary to tune of Rs. 2,28,000, causal wages of Rs. 2,51,765, conveyance of Rs. 77,843 and miscellaneous expenses of Rs. 74,606, etc. and only sum of Rs. 1,12,581 was shown as net taxable income. Hence, he disallowed estimated amount of Rs. 5,00,000 as excessive commission beyond legitimate business needs. Aggrieved by above order, assessee approached first appellate authority. It was contended before learned CIT(A), payment to Shri Krishna Thakkar, son of assessee is based on agreement, which was business requirement. Shri Kishor Thakkar, personally unable to look after business and to roam around all octroi Nakas due to age had entered into agreement with Shri Krishna Thakkar on 6th May, 1994. As per agreement Shri Thakkar was to look after all refund claims of all parties and render various services as well. He is main person attending to refund matters and other employees are kept for administrative matters. Commission was paid at rate of 3.5 per cent only. However, learned CIT(A) held, payment of commission does not commensurate with services rendered. Recipient of commission is son of assessee who was already getting salary and bonus. Assessee had other employees. Assessee was required to produce list of employees giving their qualification and date of joining of service and their salary. No details were given. He held, mere existence of agreement between assessee and its selling agents or paid of commission does not entitle them for such benefits, unless it is wholly and exclusively done for entitle them for such benefits, unless it is wholly and exclusively done for business purposes. learned CIT(A) held, AO was justified in making disallowances. However, he reduced disallowance to Rs. 2,00,000 considering fact that Shri Krishna Thakkar was partner in firm holding 40 per cent share in business. Aggrieved by above order, assessee is in appeal before us. We heard rival submissions. Considering rival submissions we find no material to disturb order of first appellate authority as rightly noted by Revenue authorities, assessee has not established well, why commission was necessitated at all. He is employee of assessee and getting salary and also bonus. In these circumstances learned CIT(A) was justified in making disallowance on estimated basis. However, in absence of any material considering fact that Shri Krishna Thakkar was 40 per cent shareholder of business, learned CIT(A) reduced disallowance to Rs. 2,00,000, it is estimated deduction. We had no reason to disturb order of first appellate authority on point. Appeal by assessee on this ground fails and hence, dismissed. In result, appeal by assessee stands allowed in part. *** KISHOR LAXMIDAS THAKKAR v. INCOME TAX OFFICER
Report Error