TaxTMI 
TaxTMI 
2002 (1) TMI 1298
X X X X Extracts X X X X
X X X X Extracts X X X X
....ery financial year 27,60,463 14,28,08,788 Less : 3,03,19,957 (2) Calculation error by Citibank discovering that more of it was paid by mistake and accepted by the assessee 18,39,092 11,06,49,739 The treatment of the aforesaid gains received as well as the roll over charges paid as per the books of account is as under : (i) ₹ 11,06,49,739 received, on account of cancellation of contract for forward cover attributed to proposed repayment of principal amount of loans, were credited to the plant and machinery account (P & M account) thereby reducing the cost of the asset by like amount ; (ii) ₹ 3,03,19,957 received on cancellation of contract for forward cover attributed to the proposed payment of "interest" on the foreign loans, were credited to the profit and loss account (P & L account) ; (iii) ₹ 2,30,67,615 being roll over charges paid for extending the contracts for forward cover relatable to repayment of principal amount were debited to "P & M" thereby increasing the cost of the assets ; and (iv) ₹ 80,07,177 being roll-over charges for contracts relatable to payment of interest were debited to profit and loss account. Treatment in the retur....
X X X X Extracts X X X X
X X X X Extracts X X X X
....te appeared along with Mrs. Veni Thapar, the chartered accountant on behalf of the assessee. The revenue was represented by Shri B. B. Ahuja, standing counsel for the Department. Necessary documents and papers were filed. At the outset Shri Sathe submitted that the loss in the publication be allowed as a business loss and it should be set off against the other heads of income. To buttress this argument, Shri Sathe laid emphasis on the following facts : (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 despatch 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 was opened with an intent to keep the activity independent of the other receipts and payments of the party. (viii) The publication a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....this case the assessee after his retirement from Government service, was spending his time in studying and teaching Vedanta philosophy. One of his disciples used to come from England at regular intervals to Trivandrum where the assessee was residing. His disciple stayed with the assessee for few months at a time and attended his discourses. He also received instructions in Vedanta and had the benefit of his teachings. He transferred the entire balance standing to his credit in his account at Bombay amounting to more than ₹ 2 lakhs to the account of the assessee in the assessee's name in the same bank at Bombay. Further amounts were also deposited to the assessee's account in Bombay. The question was whether the receipts from the disciple constituted the assessee's income. The Supreme Court has held that the teaching was a vocation. The teaching of Vedanta was just as much teaching as any other teaching. In order that an activity might be called a vocation it was not necessary to show that it was an organised activity and that it was indulged in with a motive of making profit. It was well established that it was not the motive of a person doing an act which decided....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d that the memorandum of the assessee party did not forbid the carrying on of business activity. There is no such restriction under the Representation of People Act or under the Income-tax Act on carrying on a business activity by a political party. Funds can be raised through various means. Carrying on business is one of the means for raising the fund. Coming to the next ground that whether the surplus on the maturity value of Canstar could be construed as capital gains, Shri Sathe submitted that the assessee invested the money in Canstar in 1990. The offer letter and the rules and regulations of Canstar assured a minimum annual income of not less than 12.5 per cent. every year. It was to be ploughed back for investment purpose. The assessee received ₹ 17.40 per unit as a repurchase value. This was an assured repurchase value as per the offer document. The amount received was less than the n. a. v. of Canstar for the year. The assessee received surplus amount of ₹ 7.40 on the purchase value of the Canstar. Shri Sathe contended that this should be considered as income from other sources. It was argued that the assessee received his own money, being the accumulated annu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e-condition ; unless the asset existed in fact, there could not be a transfer of it. The extinguishment of right or rights should, in any case, be on account of its or their transfer in order to attract the provisions of section 45. If it was not, and was on account of the destruction or loss of the asset, it was not a transfer and did not attract the provisions of section 45 which related to transfer and not to mere extinguishment of a right. Hence, an extinguishment of right not brought about by transfer was outside the purview of section 45. Bharat Forge Co. Ltd. v. CIT [1994] 205 ITR 339 (Bom) : In this case it was held that the phrase "extinguishment of rights" takes colour from the associated words and expressions and will have to be restricted to the sense analogous to them. Hence, the expression "extinguishment of any rights therein" will have to be confined to the extinguishment of rights on account of transfer and cannot be extended to mean any extinguishment of right independent of or otherwise than on account of transfer. The cost of machinery purchased from abroad was met by loan from Exim Bank which was repayable in instalments. There was a contract for purchase of d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion 13A. ([1978] 113 ITR (St.) 67 ) was referred. It was contended that the political party coming within the ambit of section 13A was not permitted to carry the business. It was further stated that the assessee failed to establish the profit motive, which is a necessary ingredient for carrying on the business. It was stated that from, ab initio, the assessee suffered losses on the sales of publication. No iota of evidence was adduced to demonstrate that the motive was to earn profit. Once it is established that motive of the assessee was to earn profit, thereafter it is not relevant that whether the assessee earns profit or incurs loss in carrying on the business. In the present case there is absolutely nothing to indicate that the activity of publication was undertaken with a view to earn 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. The two essential requirements for an activity to be considered as business are : (i) it must be continuous course of activity ; and (ii) it must be carried on with a profit motive. Reliance was placed on the following precedents : ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....aining the accounts and getting them audited by an accountant, as provided in section 13A of the Act to claim the benefit of exemption. 5. This may kindly be brought to the knowledge of all officers under your region. Yours faithfully, (Sd.) Kamlesh C. Varshney, Under Secretary to the Govt. of India." Shri Ahuja vehemently contended that profit making must be the end to which the activity concerned was directed. The predominant object of the activity must be the making of profit. Where an activity is not pervaded by profit motive but is carried on primarily for serving the political parties, it would not be correct to describe it as an activity for profit. It was stated that the memorandum of the assessee party was silent on this aspect. There was no express provision that the party shall do the publication for earning the profit. The surrounding circumstances clearly indicates that the activity was not propelled by a profit motive. In the case of Loka Shikshana Trust [1975] 101 ITR 234 (SC) at page 244, the Supreme Court has held that "whether a person carries on business in a particular commodity must depend upon the volume, frequency, continuity and regularity of trans....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ular commodity must depend upon the volume, frequency, continuity and regularity of transactions of purchase and sale in a class of goods and the transactions must ordinarily be entered into with a profit motive." Reliance was further placed on the decision of B. Malick v. CIT [1968] 67 ITR 616 (All). In this case the assessee, the Chief Justice of the Allahabad High Court, was requested to act as an arbitrator in a certain matter. A fee of ₹ 20,000 was paid to the assessee. Whether such fee was revenue income liable to tax was the question before the High Court. It was decided as under (headnote) : "An activity of the assessee, before the assessee has actually acquired a profession, vocation, or occupation, either by a habitual pursuit of the activity or by engaging in it as a result of a design to pursue an occupation, cannot be considered the exercise of a profession or occupation. The activity of the assessee, however disorganised or irregular or desultory, must assume or acquire the form of or flow from an 'occupation' before the resulting income becomes taxable under the provisions of section 4(3)(vii) of the Act. Whether it has assumed that character or not will be ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....laced before us which indicates that the assessee opted for the capital gain scheme. It was stated by Shri Ahuja that the assessee did not reflect the earning from the Canstar unit in the return on year to year basis as per the 80L scheme. The assessee was holding an asset which was of capital nature. The terms in regard to the repurchase of the unit were stipulated in the instrument of offer. The amount was given over to the assessee on the extinguishment of its right in relation to the Canstar unit. The extinguishment of right was on account of the transfer of units from the assessee to the Canstar. Shri Ahuja further stated that the provisions of sub-section (6) of section 45 are in relation to the section 80CCB. It is apparent from the perusal of records that the assessee earned capital gains. It was reflected as such. Later on, when it was realised that capital gain was not exempted under section 13A and expenditure cannot be set off against the surplus value of the Canstar unit, the stand was changed. Reference was made to the decision of the apex court rendered in the case of Anarkali Sarabhai v. CIT [1997] 224 ITR 422 wherein it was held that when preference shares are r....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 Hindi as the party organ. The President wanted the publication of the Hindi and the English organs to be taken up simultaneously soon after the elections to the State Assemblies." From this resolution it comes out that Aagami magazine will be published in Hindi. This is the party organ. It is nowhere mentioned that such activity will be undertaken for the purpose of making profit. The assessee maintains a separate publication department. BJP Today and Bhajapa Samachar are registered newspapers. These are registered with the postal department and police department and separate bank account was maintained for publication business, are some of the facts which indicate that the activity of publication was a continuous, systematic and organised activity. But the fact that such an activity was undertaken with profit motive cannot be ascertained with these facts. Because registration of the newspaper with the required authorities is sine qua non-whether that activity be undertaken for profit or otherwise. Similarly maintenance of sep....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the 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 (St.) 67 at page 68, as under : "Political parties are essential in any democratic set-up. The taxation of their income, however, reduces their disposable funds thereby adversely affecting their capacity to finance their activities from legitimate sources of income. It is, therefore, proposed to provide for exemption from income-tax in respect of specified categories of income derived by political parties, namely, income from investments both in movable and immovable properties and income by way of voluntary contributions. The proposed exemption will be available only in the case of political parties which are registered or deemed to be registered with the Election Commission of India under the Election Symbols (Reservation and Allotment) Order, 1968. The exemption will not be allowed unless the political party maintains proper books of account ; records the name and address of every person who has made a voluntary contribution of more than ten thousand rupees at a time ; and the accounts of the political party are audited by....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d 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. In the cases of P.Krishna Menon [1959] 35 ITR 48 (SC) and Ram Kripal Tripathi [1980] 125 ITR 408 (All), it was found that the imparting of the teaching was the causa causans (the immediate cause) of making of gifts by the disciple. This was the minimum and proximate cause. It is a well known dictum of law that causa proxima non remota spectatur (The proximate cause and not the remote one must be regarded). In the present case making profit out of the publication activity was not causa causans. "Causa causans" denotes anything operating to produce an effect. Thus it is said causa causantis causa est causati (the cause of the thing causing is the cause of the thing caused). "Causa causans" is supposed to mean a cause which causes, while "causa sine qua non" means a cause which does not in the sense material to the particular case, cause, but is merely an incident which precedes in the history or narrative of events. As such the ratio laid down in the af....
X X X X Extracts X X X X
X X X X Extracts X X X X
....) took a correct view in the matter and his order calls for no interference on this count. 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 comprised of two schemes, namely, 80L scheme and capital gains scheme. The option was available at the time of purchase of units. The assessee offered for the capital gains scheme. Under the 80L scheme, the holder of unit was required to reflect the earning from Canstar unit on year to year basis. This was not done by the assessee. For that purpose he abided the norms laid for the capital gains unit. Rightly done so, as assessee was holding only capital gains unit. But when the question of taxability came, the assessee realised that capital gains scheme is not advantageous. Benefit of section 13A is not available in respect of capital gains.The assessee, therefore, changed the stand before the Commissioner of Income-tax (Appea....
X X X X Extracts X X X X
X X X X Extracts X X X X
....[1997] 224 ITR 422, 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. 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 unit was the capital asset. The value received on its repurchase was on account of the transfer of the Canstar unit. The extinguishment of right comes within the ambit of the word transfer. We have considered the ratio laid down by the apex court in the case of Anarkali Sarabhai [1997] 224 ITR 422. In our opinion, the act of repurchase tantamounts to transfer which brings transaction within the sweep of section 2(47) of the Act. As such, we uphold the impugned order on this count. In the result, the appeal of the assessee stands dismissed. V. Dongzathang (President)-I have carefully perused the order of my learned Brother. The assess....
X X X X Extracts X X X X
X X X X Extracts X X X X
....assessee are basically political literature of the party to propagate its ideology. The Assessing Officer accordingly deducted the sale proceeds of ₹ 3.37 lakhs of the journals and literatures from the expenditure claimed at ₹ 70 lakhs. 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 Commissioner of Income-tax (Appeals). In the appeal before the Tribunal, various arguments were advanced by both the parties which have been fully recorded and considered by my learned Brother and do not bear repetition here. My learned Brother accordingly upheld the view of the learned Commissioner of Income-tax (Appeals) on the reasoning that the assessee is a political party, the objective of which was not for making profit. Its memorandum does not enable it to carry on the business. Admittedly, it suffered huge losses on account of publication work from its inception. The mere fact that the publications were not distributed free would not be sufficient to establish that there is a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s 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 maintain 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 up India as a strong and prosperous nation. To achieve this objective, it has to educate the people and at the same time generate its own resources to earn income for carrying out the objective. The specific and immediate objective of the publications and the ultimate objective of the assessee should not be confused. If a particular activity is run on a business line, the same cannot be rejected as non-business merely because the ultimate objective is not for earning profit. Earning of profit need not be an end in itself. The ultimate objective can be achieved by....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ty 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 Income-tax Act. Under section 11, profits 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 there is such a condition in the Act, the Assessing Officer cannot enlarge the meaning and scope of the section to deny the claim of the assessee. In the light of the above it is held that the activity undertaken by the publication department is in the nature of business and the loss incurred by it is to be treated as business loss. Coming now to the next issue regarding taxability of the maturity value of Canstar as capi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 that the interest which accrued to the investors from year to year will continue to remain revenue receipt. It will be assessable as such whether it is drawn annually or after a fixed term of three or four years. The scheme by itself cannot override the provisions of the Income-tax Act and, therefore, the assessment has to be made in the light of the provisions of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s. In other cases, it is assessable as income from other sources under section 56(2)(id) 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)(id) and the income has to be assessed in accordance with the 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 provisions of section 45(6) read with section 80CCB(2). Section 45(6) reads as follows : "45. (6) Notwithstanding anything contained in sub-section (1), the difference between the repurchase price of the units referred to in sub-section (2) of section 80CCB and the capital value of such units shall be deem....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n 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' ?" To recapitulate brief facts of the case which have been set out at length in the orders passed by the 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 ₹ 59,55,660 was shown which comprised long term capital gains of ₹ 31,69,231 ; income from sale of newspaper/publications ₹ 1,19,798, the total coming to ₹ 32,89,029 against which expenses were claimed to the tune of ₹ 92,44,686, the resultant figure being a loss of ₹ 59,55,660. In the assessment proceedings the Assessing Officer al....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 the People Act, 1951 ; the Income-tax Act, 1961 ; and 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. The Assessing Officer did not accept the aforesaid submissions of the assessee and referring at length to the relevant provisions of the Representation of the People 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 therefrom were ab initio void. According to the Assessing Officer such ultra vires acts being void could not be set right by subsequent ratification. In support ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e not formed with a view to earning profit from business or profession or any other vocation. Political party is an organisation 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, print, publish and distribute and sell literature, organise 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. Such ef....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nals and literature of a political party is an act of publicity and should be treated as 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." 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 s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ent to carry out those objectives specified in the memorandum and it could not travel beyond. Reliance for the aforesaid submissions was placed on the judgment of the Supreme Court in the case of Dr. A. Lakshmanaswami Mudaliar v. Life Insurance Corporation of India [1963] 33 Comp Cas 420 (SC). 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 ; and (ii) It must be carried on with a pro....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d show what was the cost of the publication and how the selling price was determined whether this was less than the cost of publication or more ; (v) With reference to the resolution pertaining to the publication of Agami magazine in Hindi the learned Vice President observed that this was a party organ and it was nowhere 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 o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ning of the President was as under : (i) Every political party had its own objectives and to achieve such objectives a political party also had to undertake various activities, which could not be run without money ; (ii) Parliament in its wisdom felt that political parties also should enjoy certain exemptions for achieving its objectives and in this direction inserted section 13A with effect from April 1, 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 earnin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ld not be treated as such if such business was incidental to the attainment of the objective of the political party. In reaching the aforesaid conclusions, the President relied on the judgments of the Supreme Court in the case of Bharat Development (P.) Ltd. v. CIT [1982] 133 ITR 470 (Delhi) as also in the case of Sole Trustee, Loka Shikshana Trust v. CIT [1975] 101 ITR 234 (SC). 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 the purposes of disposing of the present reference, we would highlight their main arguments as follows : On behalf of the assessee : 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 ₹ 40 lakhs. Learned counsel also sought to emphasise that the observation of the lear....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... as a business. It was also the submission of learned counsel that the primary object of the party was to make India into a strong nation and if in achieving that objective it carried on business, then nothing wrong/improper was being done since funds were required to run a political party and carrying on a business was also a mode for generating such funds. The other arguments of 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 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 v. CEPT [1954] 26 ITR 765, 773 (SC) ; Mazagaon Dock Ltd. v. CIT and EPT [1958] 34 ITR 368, 369 (SC) ; P. Krishna Menon v. CIT [1959] 35 ITR 48 (SC) ; CIT v. Distributors (Baroda) P. Ltd. [1972] 83 ITR 377 (SC) ; Commissioner of Expenditure Tax v. P. V. G. Raju [1975] 101 ITR 465, 468 (SC) ; Addl. CIT v. Ram Kripal Tripathi [1980] 125 ITR 408, 409-13 (All) ; Sole Trustee, Loka Shikshana Trust v. CIT [1975] 101 ITR 234 (SC)....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... when the selling rates of the publications were very nominal. With reference to the judgment of the Supreme Court in the case of Sole Trustee, Loka Shikshana Trust v. CIT [1975] 101 ITR 234 it was submitted that the relevant facts and figures of that assessee had been perused before coming to a conclusion that a business was being carried on whereas in the assessee's case the figures were negative. With reference to one of the decisions cited during the course of the hearing in which the assessee was running a canteen, the argument of 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. For the aforesaid submissions, reliance was placed on the following judgments : (i) Bharat Development (P.) Ltd. v. CIT [1982] 133 ITR 470 (Delhi) ; (ii) State of Tamil Nadu v. Board of Trustees of the Port of Madras [1999] 114 STC 520, 525, 529, 530, 536 (SC) ; (iii) State of Gujarat v. Raipur Manufacturing Co. Ltd. [1967] 1....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ions relied upon on behalf of the Revenue were in respect of the sales tax law and these would, therefore, not hold good/be applicable to income-tax disputes. It was once again reiterated that vis-a-vis the judgment of the Supreme Court in the case of P. Krishna Menon v. CIT [1959] 35 ITR 48 there need not be any intention to make money/profit and all that was required was a continuous and organised activity where there was a possibility of making money. It was once again reiterated that section 13A did not contain any prohibition for a political party to conduct the business and citing an example learned 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 the provisions of section 44AB 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, learned standing counsel on behalf of the Revenue replied tha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....udgments pertaining to the sales tax laws of other States we found an identical definition under consideration. During the course of the present hearing, we had asked both the parties to check up and let us know whether there was any judgment of a High Court or of the apex court, which had expressed an opinion on applicability of one law/ enactment to another. No decision was brought to our notice, but while dictating the present order, we have come across a judgment of the Supreme Court in the case of Jagatram Ahuja v. CGT [2000] 246 ITR 609, which answers the aforesaid question. The facts of the case as also the decision taken by the tax authorities, the Tribunal, the High Court and lastly, the Supreme Court, are extracted from the headnotes 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 on April 15, 1971. Pursuant to the said agreement, a deed of dissolution of the partnership was executed on November 22, 1971, with effect from that date. On March 10, 1972, the appellant and his brother executed a document styled 'release deed' pursuant to and consistent with the af....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d decide as to whether it would apply to the facts of a case considering its salient features. Much was argued by the parties as to what happens when an entity or an organisation or a body carries on an activity, which is not authorized by the document, which brought that entity, organisation, etc., into existence and there is nothing on record to show that there was any separate approval or authorisation de hors the document. Our answer to this is that if such activity produces income, then under the Income-tax law of the land such income has to be placed under one of the specified heads and dealt with. We recall the judgment of the Supreme Court in the case of CIT v. Piara Singh [1980] 124 ITR 40 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. Both the parties argued at length on the provisions of section 13A which according to us on....
X X X X Extracts X X X X
X X X X Extracts X X X X
....urate the expenditure has been claimed on estimated/ad hoc basis say some percentage of the total expenditure. We cannot appreciate receipts in thousands in some of the assessment years of the chart say 1986-87 to 1990-91 and expenditure claimed in lakhs many times over and that also on estimate. In assessment year 1995-96 presently in reference receipts are shown at ₹ 3,73,576 and expenditure claimed is ₹ 70,34,010, which by no stretch of imagination can be termed as a commercial proposition depicting a desire/motive to earn profit or convert a loss making activity into a profit earning one as of now. During the course of the present hearing, 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 politic....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nd on further appeal the Commissioner of Income-tax (Appeals) upheld the view taken by the Assessing Officer observing that these were not exempt from tax under section 13A of the Income-tax Act since the said section only provided exemption in respect of income from house property, income from other sources or income by way of voluntary contributions received by a political party. The learned Vice-President, who wrote the initial order agreed with the view taken by the tax authorities, on the following main grounds : (i) The assessee was holding capital gains units and the amount in question had been rightly taxed as capital gains ; (ii) The assessee itself had shown the amount as capital gains, but on realising that the benefit of section 13A was not available it changed its stand and which was not permissible in law ; (iii) Vis-a-vis the judgment of the Supreme Court in the case of Vania Silk Mills P. Ltd. v. CIT [1991] 191 ITR 647 the transaction came within the inclusive definition of "transfer" given in section 2(47). The judgment of the Bombay High Court in the case of Bharat Forge Co. Ltd. [1994] 205 ITR 339, was also relied upon ; (iv) In the present case the unit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ht of the provisions of the Income-tax Act and not on the basis of the scheme framed by the Canbank Mutual Fund. Further the accretion even in the CG Canstar Scheme represented a revenue receipt and the same could not be assessed as capital gains, but it had to be assessed as income from other sources. The President also referred to the stand taken by the assessee at the time of investment when it opted for the CG Canstar Scheme as against 80L Canstar Scheme and in the original return filed it offered to tax capital gains. According to the President, these facts were not relevant as the Assessing Officer was bound to make the assessment in accordance with the law and advantage could not be taken of the assessee's ignorance. Another point considered by the 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. It ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... after it ; (ii) Both the CG Scheme and the 80L Scheme had the same benefits attached to them ; (iii) 12.5 per cent. was the minimum assured income under both the schemes ; (iv) The assessee received a sum of ₹ 17.40 per unit as against a face value of ₹ 10 per unit ; (v) For section 45 to apply there should be three ingredients, i.e., (1) existence of a capital asset ; (2) transfer of a capital asset ; and (3) arising of a surplus on transfer and although the investment represented a capital asset there was no transfer and if there was a transfer then there was no surplus ; (vi) Extinguishment 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 [1997] 224 ITR 422 (SC) 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 80CCB did not apply as this pertained to an individual or Hindu undivided family. In support of the aforesaid....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r which the assessee had returned the same. Learned counsel further contended that the decisions relied upon by the assessee's counsel in the present hearing were distinguishable and he in turn referred to/relied on the following : (i) Anarkali Sarabhai v. CIT [1982] 138 ITR 437 (Guj) ; (ii) Anarkali Sarabhai v. CIT [1997] 224 ITR 422 (SC) ; (iii) Sath Gwaldas Mathuradas Mohata Trust v. CIT [1987] 165 ITR 620, 622 (Bom) and approved in Anarkali Sarabhai v. CIT [1997] 224 ITR 422 (SC) ; (iv) CIT v. Mrs. Grace Collis [2001] 248 ITR 323 (SC) ; (v) CIT v. George Henderson and Co. Ltd. [1967] 66 ITR 622 (SC) ; (vi) Venkatesh (Minor) v. CIT [2000] 243 ITR 367 (Mad) ; (vii) RM. Arunachalam v. CIT [1997] 227 ITR 222 (SC) ; (viii) V. S. M. R. Jagadishchandran v. CIT [1997] 227 ITR 240 (SC) ; (ix) East India Housing and 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. v. CIT [1994] 205 ITR 339 (Bom) ; and (xiv) Industrial C....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e that it was the case of a single transaction and not two of them. Learned counsel vehemently relied on the order of the President at this stage for the submission that any mutual fund scheme could not override the provisions of the Income-tax Act as any receipt or income had to be taxed under the relevant head and in case the assessee had erroneously shown something in the return due to whatever reason whether ignorance or otherwise, then the Assessing Officer and subsequently the appellate authorities were obliged in law to place such income/receipt under the proper head. Further learned counsel submitted that provisions of section 80CCB were not relevant to the assessment year under consideration and we must categorically mention that this was also agreed upon by the Revenue. 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....meaning of section 45 as all that happened was that the assessee withdrew from the scheme and received a sum of ₹ 17.40 per unit as against the face value of ₹ 10 per unit. It was its own money invested in Canstar, which came back with a surplus which represented the accumulated minimum annual income at 12.5 per cent. per annum. It is not the case of the Revenue that the assessee who had opted for the 80L Scheme got anything more or less and the only distinction between the two schemes was that under the 80-L scheme a certificate of income which accrued every year was provided for purposes of filing the income-tax return although under this scheme like the capital gain scheme there was no disbursal and annual accretion was ploughed back as investment. The 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....