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Jai Hind Co-op. Housing Society Vs. Sixth Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Mumbai
Decided On
Judge
Reported in(1983)3ITD625(Mum.)
AppellantJai Hind Co-op. Housing Society
RespondentSixth Income-tax Officer
Excerpt:
.....in his submission article 6a of the regulations does not provide for any consideration for the assessee-society permitting the transfer of a plot by the member. that merely imposes an obligation on the member to share the amount of consideration received for the alienation or sale, with the society. reference was made in this connection, to the decision of the supreme court in cwt v. p.n. sikand [1977] 107 itr 922 at page 923 where it was held that in estimating the value of the property, in that case a house on the plot of land on lease 50 per cent of the unearned increase payable to the lessor under the lease was deductible as it was diverted to the lessor before it reached the hands of the lessee as part of the price.4. it is the submission of the learned counsel for the assessee.....
Judgment:
1. The appellant Jai Hind Cooperative Housing Society Ltd. is said to be one of the 14 co-operative housing societies which were allotted various plots of land by the Housing Board in Juhu-Vile Parle area on lease. The society in its turn gave lease of the plots, excepting one plot reserved for its own use, to members for periods which were short of one year of the period for which the society itself had the lease from the Housing Board. It is also further stated that the society charged from the members the same amount for the lease as itself was charged. The object of the society, as stated in its bye-laws, is to carry on the trade of building and of buying, selling, hiring, letting and developing land in accordance with co-operative principles and to establish and carry on social, recreative and educational work (in connection with its tenants). The regulations of the society relating to lease to be granted by it to members desiring to purchase the houses are set out in pages 23 and 24 of the compilation filed by the assessee. A member making an application for a house under these regulations shall hold not less than five fully paid up shares in the society. Regulation 4 provides the terms of the lease shall be one year less, than the term of interest held by the society but not exceeding 998 years. According to Article 6 of the regulations, a member shall not assign, underlet or part with the possession but Article. 6A provides that on every permitted disposition or devolution of or dealing with the said plot and buildings or any part thereof under or by virtue of the regulations the member shall pay to the society, half the premium received by him from the purchaser member in respect of the said plot and shall also pay to the society, in the case of the said plot and building, half of the amount received by him over and above the capital cost with interest at 5| per cent per annum up to a limit of one-third of the capital cost and such payments received by the society are to belong to the society absolutely.

2. In the previous years relevant to the four assessment years under appeal before us, namely, 1970-71 to 1973-74, the assessee realised from its members on account of the sale of plots by them Rs. 49,291, Rs. 39,360, Rs. 1,16,619 and Rs. 32,762, respectively, which were not included in the returns of income but were assessed by the ITO as the assessee's income for the relevant years rejecting in this connection the assessee's stand that receipts are of capital or casual nature. The ITO found that what was transferred in this connection was only the shares of the society and there was no transfer by the society of any asset of a capital nature. He further found that such transactions and receipts by the appellant-society are a regular feature from year to year. The AAC confirmed the additions of these amounts in the assessee's income. According to the AAC, the amount received by the assessee on the alienation of the plots by the members by virtue of Article 6A is of the same nature as share transfer fee collected by a company and constituted its income.

3. In the appeal before us against the order of the AAC confirming the addition of these amounts realised by the society under Article 6A of the regulations governing the members, it is argued by the assessee's learned counsel that the nature of the receipt in the hands of the assessee is same as the nature of the consideration received by the members for selling or alienating their plots and what the assessee has, by Article 6A of the regulations governing the lease, reserved to itself is a share in the surplus of the receipt by the member as consideration for the permitted transfer over his cost. In his submission Article 6A of the regulations does not provide for any consideration for the assessee-society permitting the transfer of a plot by the member. That merely imposes an obligation on the member to share the amount of consideration received for the alienation or sale, with the society. Reference was made in this connection, to the decision of the Supreme Court in CWT v. P.N. Sikand [1977] 107 ITR 922 at page 923 where it was held that in estimating the value of the property, in that case a house on the plot of land on lease 50 per cent of the unearned increase payable to the lessor under the lease was deductible as it was diverted to the lessor before it reached the hands of the lessee as part of the price.

4. It is the submission of the learned counsel for the assessee that the nature of the receipt in the hands of the assessee-society in regard to the amount of 50 per cent of the premium or consideration for the transfer by the member to outsider being the same and bearing the same character as the nature of the receipt by the member and as in the hands of the member it can only constitute a capital receipt, the amount in the hands of the assessee also constitutes at best capital receipt.

5. The learned departmental representative supported the case of the department for taxing the concerned receipts by the society either as assessable under the head 'Income from other sources' or alternatively, as chargeable to income-tax under the head 'Profits and gains of business or profes--sion' under Section 28(3) as income derived by the society from specific services performed for its members. In the course of hearing he referred to the decisions in Lakshminarayan Ram Gopal & Son Ltd. v. Government of Hyderabad [1954] 25 ITR 449 at page 459 wherein the question as to what activities constitute carrying on business had been discussed CIT v. Maharani, Shri Kesarkunwerba Saheb of M orvi [1958] 33 ITR 349, wherein it is observed that the definition of 'business' in Section 2(4) of the 1922 Act, is not an exhaustive definition, S.G. Mercantile Corporation (P.) Ltd. v. CIT [1972] 83 ITR 700, wherein it was held that the definition of 'business' in Section 2(4) was of wide amplitude and it could embrace in itself various activities, Calcutta Stock Exchange Association Ltd v. CIT [1956] 29 ITR 687, wherein the expression 'performing specific services' was held to be a stronger and more definite than 'rendering services' and by conferring a benefit on another by some act or omission or by even merely maintaining a particular attitude, it could be said that the services were rendered thereby. He argued that an activity in order to constitute a vocation or business giving rise to income need not involve any organised activity or involve a motive of making profit for which contention he relied on the decisions of the Supreme Court in P.Krishna Menon v. CIT [1959] 35 ITR 48 and in CIT v. Vyas & Dhotiwala [1959] 35 ITR 55. He also referred to the Commentary on Income-tax by Shri A.C. Sampat Iyengar, Sixth Edition 1972, page 779, where the subject of a mutual association earning income from any of its members for specific services rendered to him is discussed. It was further contended by the learned departmental representative, relying on the Supreme Court decision in R.H. Shah v. H.J. Joshi AIR 1975 SC 1470, that the leasehold rights of the tenants of the assessee-society are transferable or saleable and that Rule 6A does not and cannot in any way affect such legal rights or prohibit such transfer or sale but only stipulates that in the event of sale the tenants will pay a share of receipt to the assessee-society. The learned departmental representative finally referred to and relied on the decision of the Bombay High Court in Ismailia Grain Merchants Association Ltd. v. CIT [1957] 31 ITR 433 and contended that the assessment even if it is wrongly made under one head, can be supported as falling under another which actually govern it.

6. The learned counsel for the assessee submitted in reply that the cases relied on by the departmental representative are distinguishable on facts and do not govern the question involved in these appeals. As regards the claim that the amount is assessable under the head 'Profits and gains of business or profession', it is contended that there is no evidence of any business being carried on by the assessee-society. He also referred in this connection to the observations as to the nature of leasehold interest in the decision of the Supreme Court in P.N.Sikand (supra).

7. Having carefully considered the contentions of the rival parties on the dispute raised before us in these appeals, we find ourselves unable to accept or appreciate the submission of the learned counsel for the assessee that the amounts concerned cannot be treated as a revenue receipt in the hands of the assessee. He did not reiterate the claim of the assessee before us which was advanced before the departmental authorities that the receipts are of a casual nature. All that he submitted was that the receipts bear the same character or nature as the receipts by the tenants or members from the transferees as it arose to the assessee under an agreement to share the surplus receipts and since the receipts in the hands of the member could only be a capital receipt at best amounting to capital gains not taxable as it did not involve transfer of an asset which had a cost in the hands of the assessee, it cannot bear the character of revenue receipt in the appellant's hands. In our view, this contention proceeds on a misconception of the correct position in law and arises out of the confusion that the source of receipts by the member and the appellant-society in respect of the amount is one and the same. The receipt by the member in respect of the transfer of the property by way of the leasehold rights in the mode achieved according to the regulations of the society, whether it is by a transfer of the shares held by the member or by assignment of the lease, is referable to such transfer of property owned by such member. It may be a capital receipt in his hands or it may not be depending upon the facts in the case of each such member, such as, whether such a transaction is part of an organised activity or transaction carried on as a business by such member or not. The receipt by the society, however, is from a different source, namely, the stipulation contained in the regulations governing permitted disposition or devolution by a member which forms part of the agreement between the appellant-society and the members. It has no reference to the property of the member which consists of the leasehold interests or rights therein. Merely because the appellant-society has, under the regulations concerned, a right to share in this particular receipt arising to a member from a transfer of his property by way of leasehold or other right, it does not follow in law that the nature of the receipt is the same as it is in the hands of the members. The nature and character of the receipt of the amount by the appellant is, therefore, according to us, to be determined independently and without regard to the nature of the receipts in the hands of the members.

8. If we examine the character and nature of the receipts independently of the character of the receipts in the hands of the members, it is clear to us that the receipts by the appellant-society from its members under the regulation representing a share of the surplus or profit charged by them from the transferees is a revenue receipt and there is nothing casual or capital about it. It is true that in the instant case it cannot be said that the appellant-society is carrying on any business and that the receipts in question arise to it as profits and gains of such business but it is not necessary that a receipt in order to be of the nature of income must arise from a business carried on.

The concept of income for the purpose of income-tax is very wide and according to its definition in Section 2(24) it is an inclusive definition and not an exhaustive one. It includes not only those things which the clause declares that it shall include but also such things, as the word signifies according to its natural import. The word 'income' has baffled an exact and clear-cut definition thereof and in spite of several attempts in a large number of decisions in laying down such a definition, they have not closed the controversy. After referring to some of these cases in this connection and noting an important amplification to the definition stated in CIT v. Shaw Wallace & Co. 6 ITC 178 (PC), followed in Maharj Kumar Gopal Saran Narain Singh v. CIT [1953] 3 ITR 237 (PC), added by Lord Russell of Killowen "that anything which can properly be described as income, is taxable under the Act unless expressly exempted", the learned authors Kanga and Palkhivala on page 90 of their Commentary on Income-tax, 7th Edn., Vol.

1, sum up the position thus : The categories of income are never closed. It would be impossible to define income precisely without excluding some species of it. The effect of the definition of income' given by the Privy Council in Shaw Wallace's case has been whittled down to a very large extent by the subsequent pronouncements of the same tribunal. The definition given in that case should be taken in conjunction with the facts of that case. Income is not necessarily a recurrent return from a definite source,-in fact it may never recur at all and the source may never yield a periodic return. An isolated adventure may constitute business. Even a casual and non-recurring receipt may be income, though it is partly exempt from taxation in certain circumstances under Section 10(5). Anything which can properly be described as income taxable under the Act unless expressly exempted.

That perhaps is the best definition of taxable income, from the practical, though not from the logical, point of view.

By stipulating in its bye-laws and the regulations governing grant of leases to members that in every permitted disposition or devolution or of dealing with the plot or buildings, half of the premium and excess of capital cost received by a member in the manner prescribed shall be paid to it, the appellant-society had clearly secured to itself a source of income. The fact that every year there have been such receipts found by the ITO has not been disputed and it shows that there is a regularity of the source producing such income. It is true that the appellant-society gets its share of 50 per cent only when a member transfers his rights of property but not otherwise but that does not make it a casual or capital receipt nor does it detract from the fact that the receipt flows to it from a definite and regular source under a contract with the members. It may be further noted that the appellant-society is entitled under its regulations to share in the surplus arising not only to the persons who became its first members but also from every successive member.

9. In an earlier order relied on by the departmental representative in IT Appeal No. 1169 (Bom.) of 1976-77 of Bombay Bench 'D' of the Tribunal dated 27-6-1977, the Tribunal, after discussing the concept of income for the purpose of income-tax on the lines as discussed above, stated as under: 'So what we have to see in the present case is whether the payments made to the assessee, pursuant to the lease agreements, by its members on sale of their plots to others, could be regarded as having an origin in what might be called the real source of income.

On the facts found in the present case, we have no hesitation in coming to the conclusion that the payments are referable to the real source of income. The payments in this case were not voluntary or ex gratia payments and did not depend on the whims and caprices of the members and the assessee could legally enforce its right to get 50 per cent of the premium from its members on transfer of their plots.

It is, therefore, not necessary that the assessee should have carried on any activity which constituted business in order to bring to tax these amounts.

We are in respectful agreement with this observation of the earlier Bench.

10. It is unnecessary for us to examine elaborately the decisions cited by the parties. The case of the Supreme Court in P.N. Sikand (supra) referred to by the learned counsel for the assessee, merely dealt with the case of an overriding title to the 50 per cent of the unearned increase payable to the lessor under the lease which was held to be diverted at source. It is not relevant for the purpose of deciding the question before us nor is it an authority for the proposition canvassed before us that the nature of the receipt by the assessee is the same as the nature of the receipt of 50 per cent of the surplus arising from transfer by a member of the plot in the hands of the member. The decisions cited by the departmental representative which deal with the question as to what activity constitutes business are not relevant as we are satisfied that no business activity could be said to be carried on by the assessee. Section 28(3), referred to by the departmental representative, is also, in our view, inapplicable to the facts of this case as the receipts in question cannot be attributed to any specific services performed by the assessee to its members. The decision of the Supreme Court in H.J. Joshi's case (supra), referred to by the learned departmental representative, shows that the rights of the members of the appellant-society in the property are transferable or saleable. The obligation of the member to pay to the appellant-society the share of the surplus realised from the transfer is a contractual obligation as a member of the society and no specific services are contemplated to be rendered by the assessee in regard to, these transfers which is entirely the member's own look out. The other decisions cited by the learned departmental representative support the principles already discussed earlier that an organised activity or a motive of making profit is not necessary or essential to constitute a receipt in the nature of income.

11. For the reasons set out above, we agree with the revenue that the various amounts received by the assessee in these years, already referred to, are liable to inclusion in the assessee's hands as part of its income and reject the contention of the assessee in this respect.


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