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South Kanara Central Co-operative Wholesale Stores Vs. Commissioner of Income-tax, Karnataka-i - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKarnataka High Court
Decided On
Case NumberIncome-tax Referred No. 13 of 1975
Judge
Reported inILR1978KAR1673; [1978]114ITR298(KAR); [1978]114ITR298(Karn)
ActsIncome Tax Act, 1961 - Sections 6, 45 and 54
AppellantSouth Kanara Central Co-operative Wholesale Stores
RespondentCommissioner of Income-tax, Karnataka-i
Appellant AdvocateS.P. Bhatt, Adv.
Respondent AdvocateRajendra Babu, Adv. for S.R. Rajasekhara Murthy
Excerpt:
.....assessee as well as the one that was purchased subsequently were only used for the purpose of the business of the assessee and the income derived therefrom was not being charged to tax under the head 'income from house property'.this requirement under section 54 is also not satisfied in the instant case......ltd., in re : [1935]3itr105(cal) ). the learned judges observed as follows : 'in my opinion, the word 'residence' in its simple and ordinary meaning signifies the place where a human being eats, drinks and sleeps or where his family and servants eat, drink and sleep, and where there is some permanence or continuance of such eating, drinking and sleeping and the statement of bayley j. in the case of the king v. ihabitants of north curry [1825] 4 c 953 is, in my opinion, an authority for that proposition. in that case, the learned judge said that : 'where there is nothing to show that it is used in a more extensive sense, the word 'residence' denotes the place where an individual eats, drinks and sleeps, or where his family or his servants eat, drink and sleep'. it is true that in.....
Judgment:

Srinivasa Iyengar, J.

1. The Income-tax Appellate Tribunal, Bangalore Bench, has referred the following question for a decision by this court :

'Whether, on the facts and in the circumstances of the case, and on a true interpretation of the provisions of section 54 of the Income-tax Act, 1961, the Tribunal was justified in upholding the taxing of the amount of Rs. 1,86,044 to capital gains tax ?'

2. The assessee is a co-operative society registered under the Co-operative Societies Act. It owned a building in Mission Road, Mangalore. That was sold for a sum of Rs. 6,32,000 on March 30, 1970. The assessee, however, purchased another house within one year from the date of sale and claimed the benefit of section 54 of the Income-tax Act, 1961. The Income-tax Officer did not recognise the claim and, on appeal, the Appellate Assistant Commissioner held that the assessee was not entitled to the benefit under section 54 of the Act of the ground that the said section applied to individual or natural persons and not to a juridical person such as the co-operative society. On further appeal, the Tribunal agreed with the view of the authorities below and dismissed the appeal. Two reasons were given by the Tribunal, namely, that the income was not chargeable under the head 'Income from house property' and could not be said to have been used by the assessee or a parent of his mainly for the purpose of his own or the parents' own residence and further the building that was purchased could not also be said to be a house for the purpose of his own residence or his parents.

3. It is urged by Shri S. P. Bhat, learned counsel for the assessee, that the building was used for the purpose of the business of the co-operative society and so it must be deemed that it was being used for the purpose of its residence. Reliance was sought to be placed on the provisions of section 6 of the Act where the circumstances under which a company could be said to be resident in India in any previous year has been specified.

4. The expression 'residence' is an ambiguous work and may receive different meaning according to the position in which it is found. [per Cotton L.J.in In re Bowie : Ex parte Breull [1880] 16 Ch D 4484 . In Stroud's Judicial dictionary, 4th edition, volume 3, one of the meanings attributed to the expression 'residence' is :

'What is the meaning of the word 'resides' I take it that that word, where there is nothing to show that it is used in a more extensive sense, denotes the place where in individual eats, drinks and sleeps, or where his family or his servants eat, drink and sleep (per Bayley J. in R v. North Curry [1825] 4 B C 959). 'A man's residence is where he habitually sleeps' (per Blackburn J. in Oldham [1869] 1 O H 151).' The above definitions were quoted with approval and depended upon by the High Court of Calcutta in Calcutta Stock Exchange Association Ltd., In re : [1935]3ITR105(Cal) ). The learned judges observed as follows :

'In my opinion, the word 'residence' in its simple and ordinary meaning signifies the place where a human being eats, drinks and sleeps or where his family and servants eat, drink and sleep, and where there is some permanence or continuance of such eating, drinking and sleeping and the statement of Bayley J. in the case of The King v. Ihabitants of North Curry [1825] 4 C 953 is, in my opinion, an authority for that proposition. In that case, the learned judge said that : 'Where there is nothing to show that it is used in a more extensive sense, the word 'residence' denotes the place where an individual eats, drinks and sleeps, or where his family or his servants eat, drink and sleep'. It is true that in certain circumstances and in certain statutes, a more extended meaning certain has been given to the word; for example, it has been held that a limited liability company can 'reside' for the purpose of income-tax legislation. That was decided by Lord Loreburn in the case of De Beers Consolidated Mines Ltd. v. Howe [1906] 5 TC 198, wherein it is stated that : 'A company cannot eat or sleep, but it can keep house and do business. We ought, therefore, to see whether it really keeps house and does business. The decisions of Chief Baron Kelly and Baron Huddleston in Calcutta Jute Mills Co. Ltd. v. Nicholson [1876] 1 TC 83 and Cesena Sulphur Co. Ltd. v. Nicholson [1876] 1 TC 88 , now 30 years ago, involved the principle that a company resides for purposes of income-tax where its real business is carried on.' Moreover, it has been decided, that a company is a person who can reside within the meanings of the word 'reside' as used in the Income-tax Act and other statutes. But, in my opinion, a company can only 'reside' within that extended meaning of the term, when it resides for the purpose of carrying on business and it cannot reside apart from carrying on business. Thus, in both sections 4 and 42 of the Indian Income-tax Act, it is clear that the word 'reside'is only used in connection with the carrying on of a business and not otherwise.' The definition in section 6 of the Act is also to the same effect and the said definition cannot ipso facto be applied so as to confer a benefit under section 54 of the Act, without reference to the context in which the expression 'residence' is found in that section.

5. Section 54, by its very terms, speaks of a residence of an individual or his parent. The expression 'parent' can only be understood in relation to a human being and not in the case of an artificial person or society. Section 45 is the main section under which a person is made liable for capital gains, save as otherwise provided in section 54 and certain other sections. Therefore, a person claiming benefit under section 54 must first establish that he comes under the category of person entitled to that benefit and further that he satisfies the other conditions specified therein. The object of section 54 also appears to be only to relieve the rigour of taxation in respect of residential houses occupied by individuals. The assessee which is a co-operative society cannot claim the status of an individual so as to claim the benefit under section 54.

6. The building that was owned by the assessee as well as the one that was purchased subsequently were only used for the purpose of the business of the assessee and the income derived therefrom was not being charged to tax under the head 'Income from house property'. This requirement under section 54 is also not satisfied in the instant case.

7. For the reasons stated above, the view taken by the Tribunal is correct and the question referred is answered in the affirmative. Parties shall bear their own costs.


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