Professional Fee--Business Income or IFOS?

JP Bhajji,

You said "the company GRATUITOUSLY makes some payment after
deducting TDS u/s 194J".

Now let's see what Section 194J opens with:

[Any person, not being an individual or a Hindu undivided family,
who is RESPONSIBLE for paying to a resident]

So if the company was RESPONSIBLE for paying that sum to a
professional, it can't at the same time argue that it'd made that
payment gratuitously, can it? And the word "responsible" in Section
194J is clearly used in the sense of being a commercial obligation,
and not merely something dictated by social etiquette.

Now Section 28(i) charges to tax "the profits and gains of any
business or profession which was CARRIED ON by the assessee at any
time during the previous year".

So here the question you raised makes sense—the assessee is engaged
in a full-time employment; he merely gives an advice to a (since you
used the indefinite article, I believe the advice is given to a
company other than the one that employs him full time). The company
benefits from it, and pleased with the assessee, honours him with a
token fee. Can it be taxed under the B/P head in light of the fact
that he's not carrying on any business or profession? The answer is:
No--but only theoretically!

I think the deduction of TDS matters a lot in grasping the true
nature of this transaction. Once the payee agrees to the deduction
of TDS u/s 194J, it'd be very difficult for him to contend later
that the income was not from B/P.

I think your query was general in nature and did not have much to do
with my reply to Vineet's query. Because I can't fathom a
professional earning a fee of Rs 70 lacs from a casual advice given
to a client. In Vineet's case it was all pre-meditated and hence it
was professional receipt pure and simple, taxable under the head B/P
and also liable to Service Tax.

My point is: Once a professional, always a professional.
Professionals like us have intellectual skills; our minds are kind
of mobile offices that we carry with ourselves wherever we go, don't
we? A casual piece of advice to a fellow passenger in a railway
coach may do a world of good to him in terms of saving taxes, etc.
And if that co-passenger is large-hearted and businesslike enough,
he would certainly reward the professional with a suitable financial
incentive. Whether or not this reward is taxed under the head B/P
would depend a great deal on the quantum. A very nominal amount of a
few thousand rupees may be taxed under the head IFOS, but I don't
think this would be an appropriate head if the amount is substantial
and the professional has also established a relationship with his co-
passenger (which in all likelihood will happen). This was my point
about it being theoretically possible to argue to tax such income
under the IFOS head. But practically, no company worth its salt
benefiting from the advice of a professional would let go of that
guy so easily. They'd be coming back to him again and again.

The fact that a CA or a Doctor doesn't have an office and is engaged
in a full-time job, doesn't mean he is not carrying on a profession.
May be in the case of a doctor, he needs great many tools of trade
to set up a practice. But what does a CA need? Nothing! It's all in
the head as far as a CA or other akin professional is concerned.

If you recall, before its omission by the FA 2002, section 10(3)
exempted Casual and Non-recurring receipts up to Rs 5000. Clause
(ii) of the second proviso to that Section read thus:

[Provided further that this clause shall not apply to---

(i) receipts arising from business or the exercise of a profession
or occupation.]

What did that mean? How could the legislature have talked
about "Casual" and "Business & Professional" receipts in the same
breath? How could an assessee even think of considering income from
his routine profession as casual in nature? Obviously, the
legislature, as it stood then, wanted to close the door of exemption
of Rs 5000 to even a very nominal and non-recurring receipt if it
arose from the exercise of the assessee's profession, no matter how
infrequently he engaged in it and whether he was into it full-time
or not.

So to reiterate—Once a professional, always a professional.

Shukriya,

CA Sanjeev Bedi

--- In ICAI_CIRC_MEERUT_ CA@yahoogroups. com, "CA J P Agarwal"
wrote:
>
> Dear Friends,
>
> Suppose a professsional person in whole time employment and
without an
> intention to carry on any business/profession gives an advice to a
company
> which results in profits to it and the company gratutiously make
some
> payment after deducting TDS u/s 194J (it may be a professional
receipt or
> not as contemplated u/s 194J), whether this reecipt would be taxed
under the
> head Business or Income from Other source.
>
> To my mind if the receipts are not received in the carrying of any
business
> or profession, the same may not be taxed as Business Income.
>
> I would seek opinion of learned members.
>
> CA J P AGARWAL