1. ' SALEEM AKHTAR, J.-- The respondent is a private limited company Its 75% of capital is held by Sandoz Ltd. (Basle) of Switzerland and the remaining 25% by general public. During the assessment year 1971- 2 the respondent received Rs,43,00,000 from Sandoz Ltd. (Basle) as promotion allowance. In its return of income the respondent showed loss of Rs,76,07,640 but did not include the amount of Rs,43,00,000 in the income claiming that it was in the nature of a casual and non- recurring receipt and was exempted under section 4(3)(vii) of the Income-tax Act. The Income Tax Officer rejected the respondent's claim and included it in its total income. The respondent filed appeal before the Appellate Assistant Commissioner which was allowed. The applicant challenged this order before the Income-tax Appellate Tribunal which was dismissed by order, dated 5-8-1978.
2. The applicant, then filed an application under section 66(1) of the Act for reference to the High Court but this application was rejected. The applicant has therefore, filed this application under section 66(2) raising the following questions:-
(1) Whether, on the facts and in the circumstances of the case, the learned Tribunal was justified in deleting the amount received by the assessee as promotion allowance from Messrs Sandoz Ltd.
3. (Basle) out of the total income of the assessee?
(2) Whether, on the facts and in the circumstances of the case, the amount received by the assessee as promotion allowance from Messrs Sandoz (Basle) qualifies for exemption under section 4(3)(vii) of the I.T. Act?
(3) Whether, on the facts and in the circumstances of the case, the amount received as promotion allowance is liable to tax under the Income-tax Act?
4. ' While dealing with the case the Tribunal in its order dated 5-8-1978 referred to its order dated 16- 4-1975 and gave the finding as follows:- "We have given our earnest consideration to the facts of this case as well as the arguments made by the respective representatives of the parties before us and 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 year. From the letters of Sandoz Ltd. (Basle) to the Management of Sandoz Pakistan which were also produced before the Income Tax Officer it is clearly borne out that the said company has made these payment voluntarily considering the circumstances of the assessee. 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 amount in question was not earned by the assessee company during the course of carrying on its business.
5. 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 right to expect the recurrence since the donor company was under no obligation whatsoever to make such payment. It could at the best hope for it. For these reasons the addition was deleted?
6. ' Mr. Shaikh Haider has contended that the receipt was directly related to the business of the respondent arising out of its business. According to the learned counsel it was a trade receipt liable to tax. In this regard he has referred to Gaja Pathi Naider v. Commissioner of Income-tax (1960) 40 I T R 282. In this case the assessee owned a bakery, restaurant and a provision shop. He entered into a contract with the Government for supply of bread to Hospital at certain rates. As the rates were uneconomical and loss was sustained, representations were made to the Government to compensate the loss. The Government agreed to compensate the loss and paid Rs,12,447 to the assessee. He claimed exemption as the receipt was in the nature of windfall. On reference whether the amount was taxable the High Court observed as follows:- "The rust question, which relates to the contention that the receipt was of a casual nature, presents little difficulty. The payment was, no doubt, an act of grace on the part of the Government, but it was directly related to the business of the assessee; the receipt by the assessee would be one arising out of his business. The G.O. Purported to increase the rate originally agreed to, and the excess on the basis of the increased rates was paid to the assessee. Further, the assessee was actually doing the same business in the year of account. The receipt will be a trade receipt, and will be liable to tax."
7. ' This case is distinguishable as the compensation was made at the request of the assessee which was accepted by the Government, creating a legal liability and further that the Government had increased the rate originally agreed thereby making the payment under the agreement. Such payment cannot be a windfall or casual in nature.
8. ' Reliance has been placed on Chhatrasinhji Kesarisinhji Thakore v. Commissioner of Income Tax Bombay City II (1966) 59 I T R 562, where under an agreement the assessee granted a mining lease to Shivrajpur Syndicate Ltd. The Syndicate was to reimburse the assessee for the local fund cess and other taxes paid by him. In discharge of his contracted obligation the Syndicate paid amount to the assessee which was much in excess of the case payable. By the assessee. The question arose whether it was an income liable to tax. The Supreme Court of India observed:- "It is common ground that the rent and royalty under the mining lease are income taxable under the Act, and an amount which is paid under a covenant directly related to the payment of rent royalty would, in our judgment also be taxable as income. The amounts paid have the quality which is, if not identical, closely similar to rents and royalty. It is immaterial that if the true position were appreciated, the syndicate may not have paid the amount. The amounts have in fact been paid by the syndicate and have been received and appropriated by the appellant as if he was entitled to receive them. The difference between the amounts which the appellant received and the amount for which he could under the terms of the lease claim reimbursement, must therefore be regarded as income within the meaning of the Indian Income-tax Act, and unless specially exempted, liable to tax. The appellant did not purport to collect local fund cess on behalf of the State Government: nor did the syndicate pay the amount to him as an agent of the Government.
9. The syndicate merely sought to discharge what it believed was its contractual obligation under the indenture of lease, and in doing so, it made payments which exceeds the local fund cess payable by the appellant."
10. ' In this case also the payment was made under an agreement or purported to be under the agreement for discharge of obligation.
11. ' In Commissioner of Income Tax Kerala v. Dr. K. George Thomas (1974) 97 I T R 111 referred by Mr. Shaikh Haider, the assessee was engaged in a movement for spread of religion and crusading against forces of aetheism. His friends and sympathisers of the cause were sending him donation and helping the movement and the assessee was running a newspaper to propagate his mission.
12. The assessee claimed that the money received by him was not taxable as it was personal gift or testimonials resulting from personal gift. The Assessing Officer rejected the claim but he succeeded in obtaining relief from the Tribunal. On reference the High Court noticed that the donors were interested in the paper being continued which was at the point of being stopped and that no material was placed by the assessee to prove personal relationship with the donor or personal gift to him. It was held that "teaching religion can be an occupation" and the donors were interested in continuing the paper therefore the connection between the activity of the assessee and the donation was intimate and payments were made because of the activity in which the assessee was engaged" and the receipts arose from the exercise of an occupation by the assessee excluded from the ambit of section 4 (3) (vii). In the present case the Tribunal has given a finding of fact that from the material placed by the respondent it has been proved that Sandoz Ltd.
13. (Basle) have made payments voluntarily considering the circumstances of the assessee. It was not made at the request of the assessee or under any contractual or legal obligation.
14. ' Mr. Shaikh Haider referred to Rana Sarup v. C.I.T. U.P. (1968) 67 I T R 431. In this case assessee and his father representing one group and PD & JK representing the other group were shareholders and directors of a company. Under an agreement the management of the company was to remain with each group for one year by rotation. It was an undertaking between the two groups that in matter of policy the director-in-charge shall consult other directors. In view of the action taken by PD & JK without consulting the assessee's group the company suffered a loss of Rs,52,000. This led to a dispute and under an agreement PD & JK paid Rs,26,000 to the assessee who claimed that it was neither income nor liable to tax. It was held that "receipt in the hands of the assessee being one for the loss of profits in business and not as a gift or as something falling from heaven, it has rightly been held to be a revenue receipt."
15. From these judgments it is clear that the question whether a receipt is an income, entirely depends upon the facts and circumstances of each case. The word 'income' as defined by the Income Tax Act is an inclusive definition. It seems that wide meaning has been attributed to include in it every income which is not exempted. The assessee has claimed exemption under section 4 (3) (vii), which provides as follows:- "4 (3) Subject to the provisions of this Act, any income, profits or gains falling within the following classes shall not to such extent as may be specified in this subsection or prescribed in this behalf, be included in the total income of the person receiving them:
(vii) Any receipts not being capital gains chargeable according to the provisions of section 12-B 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."
16. In order to claim exemption it should be proved by the assessee that the receipt does not arise from business or exercise of profession, vocation or occupation. It has not accrued as a result of business or professional activity. It should be casual and non-recurring. Such qualification can be attached if the receipt is uncertain, and accidental. It is not paid under any agreement or in discharge of contractual and legal obligation related to the business profession or vocation not foreseen or anticipated. It is a gift or voluntary payment without any obligation or understanding and the assessee has no right to claim it. It is unexpected and unforeseen. It will be non-recurring if it is not bound to recur nor can there be any expectancy or right in its recurrence. In the present case the Tribunal has given a finding of fact that the receipt was a voluntary payment by the donors without any string, free from any legal or contractual obligation. Nor there is any material on record to suggest that the assessee can claim it as a matter of right or expect it whenever it suffers a loss. The cases cited by the learned counsel for the applicant cannot be pressed in service as all of them are distinguishable on facts. In those cases payments were made under any agreement arrangement, understanding or at the request of the assessee to enable him to run and sustain the business or profession. All these elements are lacking in the present case.
17. ' Mr. Iqbal Naim Pasha has referred to the Commissioner of Income Tax v. M/s. Smith Kline & French of Pakistan Ltd., 1985 PTD 297. The respondent a subsidiary of M/s. Smith Kline USA Laboratories suffered a loss which was made good by the foreign collaborator by making a donation. In reference relying on H.H. Maharani Shri Vijaykuverba Saheb of Morvi & another v. Commissioner of Income Tax Bombay City II (1963) 49 I T R 594 it was observed:- " it was held by a Division Bench of Bombay High Court 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 entrely on the whim for the donor cannot fall in the category of income. The above case on all fours is applicable to the instant case, as the foreign collaborators were not under any legal obligation to donate the above sum of Rs,1,38,867 but since this was the loss they made it good in order to put the respondent company on sound financial footing?
18. ' The learned counsel for the respondent also referred to Commissioner of Income Tax, Central Zone Karachi v. M/s. Sandoz (Pak) Ltd. 1987 PTD 482. In this case the respondent suffered a loss and Sandoz Ltd. (Basle) made donation voluntarily in order to save its international reputation and was paid as promotion allowance. Such payment was not treated as income.
19. In view of the above discussion in our opinion the amount paid by Sandoz Ltd. (Basle) cannot be treated as income and the learned Tribunal has C rightly excluded the same from computation of the respondent's income.
20. ' We therefore dismiss the reference.