TaxTMI 
TaxTMI 
2002 (1) TMI 268
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....sp; Rs. Long Term Capital Gains 31,69,231 Sale of Newspaper/ Publications 1,19,798 ------------- 32,89,029 Less: Expenses 92,44,686 ------------ Loss: &nb....
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....ls) has erred in holding that the assessee's activity of the publication division is not a business activity and the losses therefrom cannot be adjusted against income under other heads. He has failed to appreciate that the activity of a political party cannot be compared with that of a joint stock company carrying on a business. The Learned Commissioner of Income Tax(Appeals) further failed to appreciate that in case of a Body of individuals, it is not necessary that the said group of persons should carry a particular activity of business. The Learned Commissioner of Income Tax(Appeals) has erred in not following the judgment of even the Supreme Court. He has thus erred in confirming the order of the Assessing Officer. Without prejudice to above: 2. The Learned Commissioner of Income Tax (Appeals) has erred in not treating the accumulated accretion received by the assessee on redemption of Canstar, as "Income from other sources" and failed to appreciate that the perquisites for attracting the provisions of section 45 of the Income Tax Act, were not satisfied in the present case. The assessee prays that the income from sale of publications by the assessee be held as its busin....
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....t was held that the word "business" connotes some real, substantial and systematic or organised course of activity or conduct with a set purpose. No general principle could be laid down which would be applicable to all cases. Each case must be decided on its own circumstances according to the ordinary commonsense principles. (2) Mazagaon Dock Ltd. v. CIT [1958] 34 ITR 368(SC)-In this case assessee carried on business of marine engineers and shop repairers. Two non-resident British companies engaged in the business of plying ships beneficially owned entire capital of the assessee-company. The assessee-company repaired their ships at cost and charged no profits. The question before the apex court was that whether tax can be charged on the profits which assessee-company would ordinarily have made out of this business activity. Hon'ble Supreme Court held that the activities of British companies in sending three ships for repairs to the assessee-company under an agreement that the repairs should be done at the cost were trading activities. These were organised and continuous in character. The fact that British companies carried on their business in such a manner that no profits could....
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....ng that the legislature enacted it not knowing what it was saying. Where the expression is used by the legislature, the court must assume that the legislature deliberately used that expression and that it intended to convey some meaning thereby. The assessee was not a company whose business consisted mainly in dealing in or holding of investments. (5) Addl. CIT v. Ram Kripal Tripathi [1980] 125 ITR 408(1)(All.)-In that case it was held that the mere fact that the teaching of Vedanta was a matter of religion would not mean that the assessee was not carrying on a vocation. Though the assessee was giving discourses without any motive or intention of making a profit out of such activity, yet the giving of discourses was a vocation and raising of the contributions for purchasing a car for the assessee by his disciples was in consideration of the teaching imparted by him. The giving of the discourses by the assessee was a causa causans for the raising of the contributions by his disciples and the purchase of the car by him. 12. Shri Sathe further contended that the loss could at best be described as negative income. Assessee was having a separate publication department. Publication....
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....along with its own machinery against fire. The insurance policy contained a reinstatement clause requiring the insurer to pay the cost of machinery as on the date of the fire, in case of destruction of loss. A fire broke out in the premises of JM. It caused extensive damage to the machinery including the machinery hired from the assessee. Machinery belonging to the assessee became useless on account of the damage. On settlement of the insurance claim JM received a certain amount, out of which it paid to the assessee on account of the destruction of the machinery. Assessing Officer brought to tax the difference between the insurance amount received by the assessee for its machinery and the original cost thereof as capital gains. Tribunal held that insurance amount was not received by the assessee on the transfer of capital asset but on account of the damage to its machinery and that section 45 was not attracted. High Court reversed the decision of the Tribunal. On appeal apex court reversed the decision of the High Court and held that capital gains was attracted under section 45 by transfer and not merely by extinguishment of rights howsoever brought about. Whatever the mode by whic....
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....his should be treated as income from other sources and not a capital gain, as there is neither any transfer nor any surplus as contemplated in section 45. A copy of the offer letter as issued by the CANSTAR was produced before us. It was further stated that the provisions of section 45 supports the proposition that the assured income accretion to the units of the mutual fund will not come within the purview of section 45. Section 45(6) was introduced so as to bring to tax the persons who availed the benefit of section 80CCB. 17. Shri B.B. Ahuja, ld. standing counsel for the Department, vehemently supported the order of the CIT(A) on both the counts. It was submitted that the political parties are not formed with the objective of making profit. Besides, there was absolutely nothing in the Memorandum of the assessee party, enabling it to carry the business. Assessee was competent to carry out its objects specified in the Memorandum. It cannot travel beyond the objects. Reliance was placed on the decision of the apex court rendered in the case of Dr. A. Lakshmanaswami Mudaliar v. LIC [1963] 33 Comp. Cas. 420(SC). 18. Ld. standing counsel invited our attention on the objects for ....
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....ard consulted the Ministry of Law and Justice and have been advised that: (i) the idea of profession arises from a profit motive. In a political party, as in a charitable institution, there is no private profit motive nor a possibility of distribution of income among the members. (ii) having kept such income of political parties, out of the total income, under section 13A of the Act, the same income cannot be brought to tax or penalty under some different provisions, nor a political party can be put to restrictions other than those mentioned in the exemption clause i.e. section 13A of the Act. 3. Thus, the Board are of the view that the income of the political parties are governed by the special provisions i.e. section 13A of the Income-tax Act, 1961, and accordingly the provisions of Chapter IVD which are applicable for profits and gains of business or profession cannot be applied in the cases of political parties. Income of political parties from voluntary contributions cannot be said to be income from profession so as to attract sections 44AB or 271B of the Income-tax Act. 4. However, the political parties will have to fulfil the requirement of maintaining the accoun....
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....trums like "dominant intent", "incidental profits", "real object", as against "ostensible purpose", "entangled", "wrapped in", "intertwined" and the like fail as criteria in critical cases, although they have been liberally used in judicial vocabulary. In this branch of law verbal labels are convenient but not infallible. We have to be careful not to be victimised by adjectives and appellations which mislead, if pressed too far, although they may loosely serve in the ordinary run of cases." 25. Sri Ahuja placed reliance on the decision of jurisdictional High Court rendered in the case of Bharat Development (P.) Ltd. In this case the Hon'ble Delhi High Court has held as under:- "The expression "business" is a word of indefinite import. In taxing statutes, it is used in the sense of an occupation, or profession which occupies the time, attention and labour of a person, normally with the object of making profit. To regard an activity as business there must be a course of dealings, either actually continued or contemplated to be continued with a profit motive, and not for sport or pleasure. Whether a person carries on business in a particular commodity must depend upon the volume....
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....that the two essential requirements for an activity to be considered as 'business' are: (i) it must be a continuous course of activity; and (ii) it must be carried on with a profit motive." 28. Stating the position compendiously in relation to the second issue concerning the taxability of surplus on the maturity value of CANSTAR Shri Ahuja contended that the amount in question was exigible to tax under the head "Capital gains". It was stated that at the outset, assessee itself treated it as "capital gains". It was reflected as such in the return of income. When it was realised that the expenditures claimed in the return were not laid out within the meaning of section 48 of the Act and the Assessing Officer disallowed the claim made on that count, the assessee changed its stand. To avoid the mischief of section 13A assessee claimed it as income from other sources before the CIT(A). This is a fact evidenced by records that the assessee at its own volition opted for the "capital gain scheme." Copy of the application form was placed before us which indicates that the assessee opted for the capital gain scheme. 29. It was stated by Shri Ahuja that the assessee did not reflect the ....
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....l party. It was not formed with the objective of making profit. Its Memorandum does not enable it to carry the business. Admittedly, since inception it suffered huge losses on account of the publication work. The work of publication was carried with the help of other incomes earned by the assessee. The mere fact that publications were not distributed free, but sold for some consideration is not sufficient to establish the profit motive. Justice Joyce in the case of Webster, Pearson said- "There are hospitals where patients pay something according to their means but that does not prevent such a hospital from being a charity in the legal sense; nor do I think that a School would be prevented from being a charity because the boys who received its benefit paid for their education a moderate sum proportionate to their means." It was not placed before us that what was the cost of publication and how the selling price was determined. Whether it was less than the cost of publication or more than the cost of publication. 34. A copy of the resolution was placed before us which reads as under:- "Aagami Shri J.P. Mathur informed that it had been decided to publish Aagami in Hind....
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....ntained. Income is properly deduced. Deductions are claimed in consonance with law. It was also to check the fraudulent practices in business. Section 44AB is not applicable to a political party because it was presumed that in political party there is neither profit motive nor possibility of distribution of income. It cannot go to the advantage of political party. You cannot have cake and eat it. One cannot say that for the purposes of taking tax advantage it is carrying on business and when it comes to abiding the law relating to business-a political party is exempted from the requirement of section 44AB. One cannot be allowed to say one thing at one time and opposite of it at another time. Sir Edward Coke said: "a man's own act or acceptance stoppeth or closeth up his mouth to allege or plead the truth." 38. Section 13A deals with a special provision relating to the income of a political party. This section was inserted by the Finance Laws(Amendment) Act, 1978 w.e.f.1-4-1979for and from assessment year 1979-80. The intent and purpose for enacting section 13A was described in the Taxation Laws (Amendment) Bill, 1978 reported in 113 ITR (Statute) at page 68 as under:- "Politi....
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.... did not reflect the business income at the time of furnishing return as it was harbouring under a belief that the expenditure incurred by the party will be allowed against the long-term capital gain. When it was found that the expenditure laid out was not within the meaning of section 48 of the Act, assessee changed its stand. The claim was made for the first time in regard to the business loss before the CIT(A). This amply demonstrates the motive of the assessee. Publication activity was treated as business apparently for tax advantage. 41. The apex court in the case of Narain Swadeshi Weaving Mills has held that each case must be decided on its own circumstances according to the ordinary commonsense principles. Dean Pound has said that the important thing is not the fixed rule but the understanding with which the rule is applied to an individual case. Each case depends on its own facts. A close similarity between one case and another is not enough, because even a single significant detail may alter the entire aspect. For deciding such cases, one should avoid temptation as said by Cordozo, by matching the colour of one case against the colour of another. 42. In the cases of....
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....nded that profit must, in fact, be earned. Nor does the expression cover a mere desire to make some monetary gain out of a transaction or even a series of transactions. It predicates a motive which pervades the whole series of transactions effected by the person in the course of his activity." 45. We have taken into consideration the entire conspectus of the case. In our opinion, profit motive is a necessary requisite for carrying the business. Not even an iota of evidence was adduced before us to demonstrate that activity of the publication was undertaken with an intent to earn profit. We have examined the motive which pervaded the whole series of transaction. We have perused the impugned order. In our opinion, CIT(A) took a correct view in the matter and his order calls for no interference on this count. 46. Coming now to the next issue apropos the taxability of the maturity value of CANSTAR-we find that the capital gains earned by a political party is exigible to tax. It is not coming within the ambit and purview of the exemption contemplated under section 13A of the Act. Political parties are required to pay tax on the amount of capital gains. The offer of CANSTAR UNIT co....
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.... them. 'Extinguishment of any right therein' will have to be confined to the extinguishment of rights on account of transfer. Similar view was taken in the case of Bharat Forge Co. Ltd. In the present case CANSTAR repurchased the units from the assessee. As such there was a transfer. Right of the assessee in the units of CANSTAR got extinguished on account of such transfer. 50. There is no dispute that the CANSTAR UNITS held by the assessee were transferable in the manner provided under the CANSTAR CAPITAL GAINS SCHEME. Such units were the movable property and capital asset of the assessee party. The apex court in the case of Anarkali Sarabhai, has held that the redemption of preference shares by the company will squarely come within the phrase 'sale, exchange or relinquishment of the asset' as employed in section 2(47) of the Act. The ratio of the apex court applies to the facts of the present case. 51. Having regard to the facts of the case we hold that the maturity value of CANSTAR amounted to capital gains. It is not exonerated from the rigour of tax. It falls beyond the ken of section 13A. The assessee at its own volition opted for the capital gains scheme. The CANSTAR u....
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....s, interest and dividends etc. The assessee also earned a sum of Rs. 3,73,576 on account of sale of publications. It was the claim of the assessee that the publication undertaken by the assessee was in the nature of business and as such, it does not come within the purview of Section 13A of the Act. The Assessing Officer, however, held that this publication was undertaken for political purpose. The party's constitution did not allow running of a business or do any other activities than what was necessary to achieve the goal prescribed in the party's constitution. The publications sold by the assessee are basically political literature of the party to propagate its ideology. The Assessing Officer accordingly deducted the sale proceeds of Rs. 3.37 lacs of the journals and literatures from the expenditure claimed at Rs. 70 lacs. Thereby he rejected the claim that the activity of publication and sale of party's journal and literature was a business activity and the loss arising therefrom could not be set off against income from other sources. This view was upheld by the learned CIT(Appeals). In the appeal before the Tribunal, various arguments were advanced by both the parties which ha....
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....any income by way of voluntary contributions received by a political party from any person. From the above provisions, it is manifest that a political party also requires funds for the political activities and the Parliament itself deem it necessary to exempt the above items of income. It, however, does not prohibit carrying on of the business. In such a case, there will be no exemption under section 13A and the political party has to pay Income-tax on the said profits and gains of the business undertaken by it. Therefore, the provisions of Section 13A does not come in the way of political party conducting a business as an ancillary activity to augment its resources for running the party. The assessee in this case set up a publication department as an independent department and maintains regular books of account. It is a fact that the publications do carry the political ideologies and propaganda to educate the public. However, there should not be any confusion between the ultimate objective and the immediate objective of the publications. The ultimate objective of the party is to build upIndiaas a strong and prosperous nation. To achieve this objective, it has to educate the people....
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....there is no immediate profit, the publications are capable of producing profit and, therefore, the current loss incurred by the assessee during the year should not stand in the way of treating the activity as in the nature of business. This view is quite in order and preferable to other interpretations. Section 13A itself contemplates the total income of a political party of the previous year out of which income from house property or income from other sources or any income by way of voluntary contributions to be excluded. It is, therefore, manifest that a political party can always have a source of income over and above the exempted incomes. Secondly, there is no restrictive clause in Section 13A as in Section 11 of the IT Act. Under section 11, profit and gains of the business will be exempt only if the business is incidental to the attainment of the objective. However, there is no such special condition to be fulfilled by the political party to run a business. Section 13A does not place any condition that any activity, though in the nature of business, will not be treated as such if such business is incidental to the attainment of the objective of the political party. Unless the....
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....rch 16 of each year. In this Scheme the investors get the capital amount alongwith the interest on maturity of the Bond. It is, however, seen that the interest accrued to the investor is the yield on the capital and has not been treated as appreciation of the capital resulting in capital gains. From the above facts, it is seen that there is no appreciation in the intrinsic value of the capital invested. It is only the yield on the investment which was given to the investor in the form of interest and cannot be treated as capital appreciation for the purpose of capital gains. The intrinsic value of the money invested remains the same. Therefore, the capital remains the capital and the yield therefrom has to be treated as revenue receipt whether it is drawn monthly, annually, or after a few years. This can be illustrated by an apple tree. An apple tree will bear fruit every year which is the yield of the apple tree. Even if the apple tree is sold or redeemed the sale proceeds for the apple tree will remain capital receipt and the sale proceeds for the fruit thereon will have to be treated as the fruit of the tree which is in the revenue field. In the light of the above, it is clear t....
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....lue of Rs. 10 each. The interest income therefrom would normally be assessable under sections 18 to 21, deleted by the Finance Act, 1988 w.e.f.1-4-1989. From the assessment year 1989-90, interest on securities is assessable as business income under section 28 where such interest forms part of business profits. In other cases, it is assessable as income from other sources under section 56(2)(i-d) of the Income-tax Act, 1961. With the change in law, the interest received by the assessee under the Scheme has to be processed either under section 28 or section 56 of the Income-tax Act, 1961. It is not the case of any one that the assessee is buying the Canstar as part of the trading asset. Therefore, it cannot form part of business profit as contemplated under section 28. In such a case, the interest income has to be considered under section 56(2)(i-d) and the income has to be assessed in accordance with method of accounting regularly employed by the assessee or in the absence of such method on the accrual basis. The interest received by the assessee on the redemption/repurchase of Canstar has to be assessed as income from other sources. This view also is indirectly supported by the pro....
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....le President under section 255(4) of the Income-tax Act, 1961, on the following points on which there was a difference between the learned Members constituting the division bench:- "1. Whether on the facts and in the circumstances of the case the assessee's activity of the publication department could be construed to be a business activity and losses therefrom could be adjusted against other income? 2. Whether on the facts and in the circumstances of the case the maturity value of CANSTAR is exigible to tax under the head "Capital gains" or "Income from other sources"?" 2. To recapitulate brief facts of the case which have been set out at length in the orders passed by the Hon'ble President and the then learned Vice President, Delhi Zone, who constituted the division bench the assessee is a Political party and registered as a National party with the Election Commission of India. In the return filed with the Assessing Officer a loss of Rs. 59,55,660 was shown which comprised long term capital gains of Rs. 31,69,231; income from sale of newspaper/publications Rs. 1,19,798, the total coming to Rs. 32,89,029 against which expenses were claimed to the tune of Rs. 92,44,686, the....
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.... fact that publishing was undertaken as a business activity. 6. The further submissions of the assessee were to the effect that there was no bar on a political party earning income from profits and gains of business and profession under The Representation of People Act, 1951; The Income-tax Act, 1961; & lastly, The Model Code of Conduct as evolved by the Election Commission of India. According to the assessee all that the Income-tax Act required was that a political party must file a return of income and pay tax on such income, which was not covered under section 13A of the Income-tax Act. 7. The Assessing Officer did not accept the aforesaid submissions of the assessee and referring at length to relevant provisions of the Representation of Peoples' Act as also the party constitution came to the conclusion that any activity undertaken by an entity, which was not enshrined in the memorandum or articles of association of a company registered under the Companies Act, 1956 or a document by which it had come into existence was to be held us ultra vires of the memorandum or articles of association etc. and all acts arising there from were ab initio void. According to the Assessing ....
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....ties are not formed with a view to earning profit from business or profession or any other vocation. Political Party is an organization of association of persons. It has a common ideology for the welfare of the country in accordance with the Constitution of India. Its aim is to implement its ideology, plans and policies on coming to power. If it is already in power, then it implements its ideologies and policies in a way that would allow it to continue to remain in power by accepted democratic methods. For this purpose, the periodical elections are held in all democratic countries in the process of which the Parties to reach the electorate and educate them about their ideologies and objectives to gain control of power for the governance of the country. In order to propagate its ideology, the Political Parties have to hold political rallies, prints, publish and distribute and sell literature, organize rallies and public contact exercise in order to impart their ideology to the electorate. Thus, the publication and distribution of Political Journals, manifestoes and other literature is an essential part of the Political activity of Party in order to win the support of the electorate.....
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....s such. In view of the above, I hold that the Assessing Officer was justified in not treating the loss arising on account of sale of Journals and Publications as business loss and also not setting it off against any other head of income. Accordingly, this decision of the Assessing Officer is upheld and confirmed." 10. On further appeal before the Tribunal the matter was argued at length before the division bench and the main arguments of the assessee's counsels to canvass the view that the loss in the publication be considered and allowed as a business loss were as follows:- "(i) The assessee is having a separate publication department; (ii) BJP Today and Bhajpa Samachar are registered newspapers; (iii) Activity of publication is a continuous, systematic and organised activity; (iv) All newspapers, books, magazines and journals are sold for a fixed price; (v) The newspapers are registered with the Postal Department for concessional rates for dispatch like any other newspaper. These registrations are renewed annually; (vi) The newspapers are registered with the Police Department specifically stating a selling price; (vii) A separate bank account exists which ....
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....preme Court in the case of Dr. A. Lakshmanaswami Mudaliar. 14. The learned standing counsel further referred to the provisions of section 13A contending that a political party was not permitted to carry on business. According to him profit motive was a necessary ingredient for carrying on of business and which the assessee has failed to establish. It was highlighted that the assessee suffered substantial losses on the sale of its publications and no iota of evidence had been adduced to demonstrate that the earning of profit was a motive. The further submission was to the effect that to regard an activity as "business" there must be a course of dealings either actually continued or contemplated to be continued with a profit motive. The plea, in other words, was that the following two essential requirements for an activity to be considered as "business" were absent: (i) It must be a continuous course of activity; & (ii) It must be carried on with a profit motive. 15. In support of the aforesaid arguments, reliance was placed on the following judgments: (i) Bharat Development (P.) Ltd.'s case at 474; (ii) B. Malick's case at 636; (iii) K.S. Venkatasubbiah Reddiar'....
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....here mentioned in the resolution that such activity would be undertaken for the purpose of making the profit; (vi) The assessee maintained a separate publication department and "BJP Today" and "Bhajpa Samachar" were registered newspapers, registered with the Postal Department, with the Police Department, maintaining a separate bank account and these being some of the facts, which indicated that the activity of publication was a continuous, systematic and organized activity, but the fact that this was undertaken with a profit motive could not be ascertained; (vii) Registration of the Newspapers with the requisite authorities was sine qua non, but whether such activity was undertaken for profit or otherwise and similarly maintenance of separate accounts only was not sufficient to demonstrate the fact that the activity was for profit; (viii) Vis-a-vis the Circular of the Board relied upon on behalf of the Revenue there was no private profit motive or the possibility of distribution of income in a political party as in a charitable institution and political parties accordingly were exonerated from the applicability of sections 44AB and 271B; (ix) On the assumption that the ....
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....in exemptions for achieving its objectives and in this direction inserted section 13A with effect from 1-4-1979 exempting certain sources of income from the taxation net, but this section did not contain a specific prohibition that a political party cannot carry on a business; (iii) That in case a political party carried on business, the net effect would be that such income would not enjoy exemption under section 13A; (iv) The assessee had set up an independent publication department and maintained regular books of accounts and it was a fact that the publications did carry the political ideologies and propaganda of the party to educate the public, but to achieve the aforesaid the party had to generate its own resources and if a particular activity was run on business lines the same could not be rejected as non-business merely because the ultimate objective was not for earning the profit; (v) Earning of profit need not be an end in itself and the ultimate objective could be achieved by undertaking certain ancillary activities, which generated income to meet the financial requirements and the ultimate objective was too remote and could not, therefore, be used to judge the na....
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....rustee, Loka Shikshana Trust. 21. Before us both the parties argued at length and we must categorically state that their arguments were quite identical to those tendered before the division bench, but for purposes of disposing of the present reference, we would highlight their main arguments as follows:- On behalf of the assessee: The learned counsel stated that the publication department represented a systematic activity being carried on and which was capable of producing income, which would include loss as well. According to him it had never been stated or admitted before the division bench that provisions of section 44AB were not applicable and the fact was that the turnover of the publication division did not exceed the stipulated limit of Rs. 40 lakhs. The learned counsel also sought to emphasize that the observation of the learned Vice President in para 40 of his order was not correct since the business loss had been claimed in the return itself and any observation to the contrary was not proper. It was submitted that in the year under consideration the Department had rejected the claim for the publication division to be treated as a business because a loss had been ....
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....so a mode for generating such funds. The other arguments of the learned counsel have already been reproduced by us in the earlier part of the present order and we do not propose to reiterate these as of now, but would only like to mention that the learned counsel in support of the assessee's case placed reliance on most of the judgments as had been done while arguing the appeal before the division bench. These decisions are Narain Swadeshi Weaving Mills' case at 773; Mazagaon Dock Ltd.'s case at 369; P. Krishna Menon's case, Distributors (Baroda) (P.) Ltd.'s case ; CET v. P.V.G. Raju [1975] 101 ITR 465 at p. 468 (SC), Ram Kripal Tripathi's case at pp. 409, 411, 412 and 413; Sole Trustee, Loka Shikshana Trust's case, CET v. Mrs. Manorama Sarabhai [1966] 59 ITR 262 (Guj.). The learned counsel also referred to the commentary of the learned authors Kanga & Palkhivala, 8th Edition pages 458 & 459 and in concluding it was vehemently contended that the view taken by the Hon'ble President was the correct one on facts and in law. On behalf of the Revenue 24. The learned standing counsel in his arguments emphasized that the objectives of the assessee were entirely political in nature and ....
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...., the argument of the learned counsel was that this may result in an income, but necessarily not representing a business. The plea, in other words, was that the intention was relevant. It was further emphasised on behalf of the Revenue that the primary intention of the assessee was not to run business, but to propagate the ideology of the party. 27. For the aforesaid submissions, reliance was placed on the following judgments: (i) Bharat Development (P.) Ltd.'s case ; (ii) State ofTamil Naduv. Board of Trustees of thePortofMadras[1999] 114 STC 520 (SC) at 525, 529, 530 & 536; (iii) State ofGujaratv. Raipur Mfg. Co. Ltd. [1967] 19 STC 1(SC); (iv) State of Tamil Nadu v. Thirumagal Mills Ltd./Simpson & Co. Ltd. [1972] 29 STC 290(SC); (v) Tirumala Tirupati Devashthanam v. State ofMadras[1972] 29 STC 266 (Mad.); (vi) Nilambur Rubber Co. Ltd. v. State ofKerala[1999] 112 STC 654 (SC); (vii) Dy. CAIT v. Travancore Rubber & Tea Co. [1967] 20 STC 520 (SC) at 525, 526 & 528; (viii) Dy. Commissioner of Commercial Taxes v. Sri Thirumagal Mills Ltd. [1967] 20 STC 287(Mad.); (ix) Government Medical Store Depot v. Suptd. of Taxes [1985] 60 STC 296 (SC); (x) State o....
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....d counsel contended that if a canteen was run by a political party, then income had to be taxed as business income. Referring once again to provisions of section 44AB the learned counsel reiterated that all that which was argued by him before the division bench was that the said provision did not apply to receipts in the form of voluntary contributions. He once again referred to the situation where the assessee's publication division would earn profit and what would be the stand of the Department? To this submission the learned standing counsel on behalf of the Revenue replied that the matter would be dealt with in accordance with law as and when such a situation arose. 31. We have considered the rival submissions and have also perused the material on record to which our attention was invited during the course of the hearing. The numerous decisions cited at the bar by the parties have also been taken into account and in fact minutely perused by us. 32. At the outset, we would like to observe that the assessee while filing its revised return claimed that its publication division constituted a business and any observation to the contrary in the order of the learned Vice-Preside....
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....the High Court and lastly, the Hon'ble Supreme Court, are extracted from the head notes at pages 610 and 611, as follows:- "The appellant and his brother were partners of a firm. An agreement was entered into between the appellant and his brother onApril 15, 1971. Pursuant to the said agreement, a deed of dissolution of the partnership was executed onNovember 22, 1971, with effect from that date. OnMarch 10, 1972, the appellant and his brother executed a document styled "release deed" pursuant to and consistent with the aforementioned two documents. Originally, the assessment of gift-tax was made onOctober 12, 1972, on a total gift of Rs. 70,000. After allowing exemption of Rs. 5,000, it was determined at Rs. 65,000. Subsequently, the Gift-tax Officer took up proceedings under section 16 of the Act by reopening the assessment already made. He valued the share of the appellant in the partnership assets at Rs. 12,67,015. An amount of Rs. 3,00,000 paid by his brother to the appellant was deducted and thus the value of the property alleged to have been gifted by the appellant to his brother was arrived at Rs. 9,67,015. On appeal by the appellant, the Commissioner of Gift-tax (Appeal....
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....ara Singh [1980] 124 ITR 40(10) where it was held that in the case of a smuggler the value of the gold confiscated by the customs was an allowable deduction. All that we can say is that an activity not authorised by the Rules and Regulations or the Articles and Memorandum of Association or by any other document or charter cannot be placed in a worse situation than an activity, which is illegal and against the law of the land. 41. Both the parties argued at length on the provisions of section 13-A which according to us only refers to certain heads, income arising there from not liable to "be included in the total income...." It must be emphasized that there appears to be no bar or prohibition to earn income under other heads, which are not exempt, but liable to be taxed. No such prohibition was pointed out by the Revenue in any other law applicable to a political party. 42. Coming back to the definition of "business" in section 2(13) which is inclusive not only taking into its fold trade, commerce and manufacture, but also activities which are akin to or having a semblance of these three. For purposes of Sales-tax law it has been specifically provided that accrual of profit is....
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...., no information has been furnished to us by either side as to whether similar publishing activity is being carried on by any other political party in India and if so, what has been the decision in their respective Income-tax assessments. One does wish that we should have been addressed by the parties before us as to what was being done in other countries all over the world i.e., whether political parties in America, England, France as also other advanced and developing nations were carrying on business to fund the parties political programmes. It appears that vis-a-vis the facts of the present case, we have no option, but to hold that the publication department of the assessee is not carrying on any business and the action of the tax authorities in opining otherwise is correct. The claim for loss and its set off against other sources of income, which are taxable would stand rejected. 47. Before we part with this issue, we would like to observe that (i) Circular in para 21 of the order of the learned Vice President speaks of non applicability of provisions of Chapter IV-D to income of a political party specified in 13-A more specifically voluntary contributions; and (ii) In a ye....
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....The assessee itself had shown the amount as capital gains, but on realizing that the benefit of section 13-A was not available it changed its stand and which was not permissible in law; (iii) Vis-a-vis the judgment of the Hon'ble Supreme Court in the case of Vania Silk Mills (P.) Ltd. the transaction came within the inclusive definition of "transfer" given in section 2(47). The judgment of the Hon'ble Bombay High Court in the case of Bharat Forge Co. Ltd. was also relied upon; (iv) In the present case the units were repurchased from the assessee by Canstar and this represented a "transfer" as the right of the assessee in such units got extinguished as a result of the transfer; (v) Canstar units held by the assessee were movable property and a capital asset of the assessee and these were transferable in the manner provided under the Canstar Capital Gains Scheme. Reliance was placed on the judgment of the Hon'ble Supreme Court in the case of Anarkali Sarabhai ; and (vi) The maturity value of Canstar represented capital gains and it was not exonerated from the rigours of tax as it fell beyond the ken of section 13A, more so, when the assessee on its own volition opted for ....
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....ssessment in accordance with the law and advantage could not be taken of the assessee's ignorance. 55. Another point considered by the Hon'ble President was with reference to the argument raised that the assessee had not declared the annual income, which accrued to it from year to year. It was noted as a fact that the assessee was following the cash system of accounting and the income had been declared on receipt basis and, therefore, no irregularity could be found as the assessee was not bound to disclose the income when in fact there had been no disbursal to it. 56. It was also noted that the Canstar issued under the Canstar Scheme 1990 was a redeemable non-debt security of the face value of Rs. 10 each and interest income arising there from would normally be assessable under sections 18 to 21, which were deleted by the Finance Act, 1988 with effect from 1-4-1989 and thereafter i.e., from assessment year 1989-90 onwards interest on securities was assessable as business income under section 28 where such interest formed part of business profits and in other cases it was assessable as "income from other sources". In other words, the Hon'ble President was of the view that with....
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....guishment of a right did not result in capital gains unless there was a transfer to a third party; (vii) Investment in Canstar was like a FDR which an assessee got back with interest; (viii) With reference to Anarkali Sarabhai's case relied upon by the Revenue this pertained to redemption of preferences shares and the Canstar could not be equated to a preference share or a debenture; (ix) That deeming provision of section 45(6) read with section 80-CCB did not apply as this pertained to an individual or HUF. 59. In support of the aforesaid arguments the learned counsel relied on the judgment of the Hon'ble Supreme Court in the case of Vania Silk Mills (P.) Ltd. and that of the Hon'ble Bombay High Court in the case of Bharat Forge Co. Ltd. 60. The learned standing counsel on behalf of the Revenue, on the other hand, vehemently supported the order passed by the learned Vice President. As in the case of the assessee's counsel, we summarise his arguments as under:- (i) Mutual funds were floated for small investors to invest in savings schemes and vis-a-vis Canstar Capital Gains Scheme, this was beneficial whereas 80-L Canstar Scheme provided a restricted exemption; ....
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....3 ITR 367(15)(Mad.); (vii) R.M. Arunachalam v. CIT [1997] 227 ITR 222(16)(SC); (viii) V.S.M.R. Jagadishchandran v. CIT [1997] 227 ITR 240(17)(SC); (ix) East India Housing & Land Development Trust Ltd. v. CIT [1961] 42 ITR 49 (SC); (x) United Commercial Bank Ltd. v. CIT [1957] 32 ITR 688 (SC); (xi) Nalinikant Ambalal Mody v. S.A.L. Narayan Row, CIT [1966]61 ITR 428 (SC); (xii) Karanpura Development Co. Ltd. v. CIT [1962] 44 ITR 362 (SC); (xiii) Bharat Forge Co. Ltd.'s case ; and (xiv) Industrial Credits & Development Syndicate Ltd. v. CIT [2001] 251 ITR 720(18)(Kar.). 62. In reply the learned counsel for the assessee, at the outset, sought to distinguish the numerous decisions relied upon on behalf of the Revenue. He in turn referred to a notification issued by the CBDT pertaining to mutual funds vis-a-vis provisions of section 10(23D) 174 ITR 49 (St.). A reference was also made to 184 ITR 162 (St.) these being the guidelines for mutual funds. According to the learned counsel the Canstar scheme was in the nature of a trust to which the assessee was a contributor and provisions of the Indian Trust Act were applicable to a mutual fund. It was the further ple....
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....ssessment year under consideration and we must categorically mention that this was also agreed upon by the Revenue. The learned counsel once again reiterated that there was no transfer involved as the assessee got back its own money and for something to be treated as a transfer there had to be a third party and which in this case was absent, but on the assumption that there was a transfer, the plea was that there was no surplus. He in fact submitted that if the amount accruing every year and which was ploughed back and not paid to the assessee was treated as an improvement and if to this indexing was done, then it may ultimately result in a loss. The learned counsel also sought to point out that if the repurchase was treated as a transfer, then those who had invested in the 80-L scheme would be placed in a difficult situation as and when they redeem the Canstar units on maturity etc. In concluding his arguments, the learned counsel referred to the Special Bench decision of the Tribunal in the case of Sutlej Cotton Mills Ltd. v. Asstt. CIT [1993] 45 ITD 22 (Cal.), highlighting the doctrine of purposive construction further contending that when two views were possible in respect of a....
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....under this scheme like the capital gain scheme there was no disbursal and annual accretion was ploughed back as investment. 71. The Hon'ble President appreciated these similarities whereas the learned Vice President went primarily by the fact that the assessee had opted for the C.G. Scheme and it had resiled from its earlier stand before the Commissioner of Income-tax (Appeals) to contend that the surplus was not capital gains, but income from other sources to obtain a tax advantage since the latter was exempt under section 13A, but not the former. In our opinion, ignorance on the part of an assessee cannot be used against him and in the present case wiser counsel was probably available to the assessee at the stage of the CIT (Appeals). If a tax advantage is available why should it not be availed of. 72. Approbate and Reprobate, Election, Caveat Emptor etc., are attractive terms, but one must not forget that there is in tax laws something more important i.e., to bring to tax the correct income of a citizen and the Revenue authorities are not to take advantage of his ignorance of the law. The Hon'ble President was rightly held that the scheme cannot over ride the provisions of....