TaxTMI 
TaxTMI 
1982 (5) TMI 50
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....isition or by an enactment of the Government or viz., major. The property consisted of old buildings and open land. According to a copy of the lease deed furnished by the assessee, the area of the plot was 22,143 sq. yards. On the very same day, i.e., on 22-4-1974, the assessee-company executed lease agreement with Naveen Mechanised Construction Co. (P.) Ltd. leasing out in perpetuity 1,00,000 sq. feet of the premises on a monthly rent of Rs. 3,000 and payment of a sum of Rs. 10 lakhs also described as deposit returnable to the lessee on the determination of the lease for any reason. On 8-5-1974, the assessee executed another lease agreement with T.N. Krishna Reddy leasing out the remaining portion of the property on monthly rent of Rs. 2,000 and payment of a sum of Rs. 8 lakhs described as a deposit returnable on the determination of the lease. The ITO referred to the lease agreement. He observed that the lease in favour of Naveen Mechanised Construction Co. (P.) Ltd. could be terminated only if the rent was not paid for a continuous period of three years and that too, after the assessee gave one year's notice, a contingency which would never arise. On these grounds be held that i....
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....alone does not convert the transaction into a trading transaction. The burden lay heavily on the revenue to prove that the transaction was in the nature of trade as held by the Supreme Court in Saroj Kumar Mazumdar v. CIT [1959] 37 ITR 242. The ancillary objects relied upon by the authorities below to hold that the transaction was in the nature of trade could not be confused as the main object of the company which was to carry on the business of hoteliers and restauranteurs and the acquisition and disposal of properties by way of lease, mortgage, etc., was only in furtherance of the main objects and they do not supplant or obliterate the main objects. The assessee-company had not given up the main object and in pursuance of that object had also paid consultation fees to Ravi Engineering Services. On these grounds, it was submitted that the order of the Commissioner (Appeals) should be set aside. 4. The learned departmental representative, on the other hand, submitted that what the assessee had done was in pursuance of the objects mentioned in paragraphs 3 and 15 of the memorandum of association. The transactions could not really be considered as leases. They were perpetual leases ....
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....pees five lakhs) paid by the lessee to the lessor by Bank Demand draft in the presence of the Registering Officer at the time of registering this document and the lessors hereby acknowledge receipt of the said sum of Rs. 10 lakhs (Rupees ten lakhs only). This security deposit is to be retained by the lessors free of interest as a deposit for securing the due performance of the terms and conditions herein contained and on the part of the lessees to be observed and performed this sum shall be refundable by the lessors to the lessee in case the lease shall be terminated except by way of compulsory acquisition, by any enactment, State or Central, of the said property or vis major in which event the provisions hereinafter specified shall have effect. (5) The lessees shall he at liberty to sublet assign or alienate their leasehold rights either wholly or in part in the said property and the lessors shall not be entitled to object to the same provided that the lessees shall, notwithstanding any such subletting, assignment or alienation, continue to be liable to pay the rents herein specified and to observe and perform [contd. on page 7, C.F. Angadi, F.C. Angadi, Tukaram S. Pai, P. Dayana....
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....were made relevant of which some are reproduced below : "VIII. The terms and conditions governing lease are as follows : (1) Duration.--The lease is in perpetuity commencing from this date. (2) Rent.--The rent payable by the lessee is Rs. 3,000 (Rupees three thousand) per month. The rent for the portion of the month of April 1974 has been paid this day and the lessor hereby acknowledge receipt of the same. The rents payable for the period commencing from 1-5-1974 shall be paid on or before the fifth day of the month following that for which it is due. (3) Deposit.--As and by way of security for the due performance of the lessee's obligations under this lease, the lessee has paid to the lessor a sum of Rs. 10,00,000 (Rupees ten lakhs only). (9) General provisions.--9.1. Notwithstanding anything herein contained or in the Transfer of Property Act or any other law governing lessees, the lessor shall not be entitled to determine this lease or re-enter upon the leased property except for non-payment of rent as herein provided. In case rents are not paid on the due date by the lessee, the lessor shall be entitled to determine this lease or re-enter upon the leased property except fo....
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....then the whole of the compensation shall be taken by the lessor. The rent shall however get reduced proportionate to the area acquired in relation to the area leased from the date of acquisition." It is obvious from the above terms that the lessee would never allow the lease of such valuable property to be terminated and enough time has been given to the lessee to pay the arrears of rent, if any. Clause 13 in the agreement with T.N. Krishna Reddy is to the effect that the lessee should not use the property for purposes which are prohibited by law, does not suggest that the lease is of such precarious nature as to make the so-called deposit refundable to the lessees. We accordingly agree with the authorities below that the deposits received by the assessee are actually sale proceeds, particularly since the lease is permanent and the lessees have been given proprietary rights over the property. We do not, however, consider the arguments advanced by the revenue that the sum received by the assessee could also be held as rent receipts as such, was never the case of the ITO. 7. Having disposed of the contention of the assessee that the deposits, being refundable to the lessees, could ....
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.... 3. To purchase, or by any other means acquire, any freehold, leasehold or other property for any estate or interest whatsoever, and any buildings, offices, machinery, engines, rolling stocks, vehicles, plant, live and dead stock or any real or personal property or rights whatsoever which may be conveniently used with or may enhance the value of any other property of the company. 15. To improve, manage, cultivate, exchange, let or lease or otherwise mortgage, charge, sell, dispose of, turn to account, grant rights and privileges in respect of, or otherwise deal with all or any part of the property and rights of the company." In our opinion the question whether the company was authorised to deal in property and the profit earned was from authorised objects is wholly irrelevant. If the company trades outside the objects stated in its memorandum of association, the business may be illegal. But the revenue is not concerned with that question. It has right to tax profits from illegal businesses also. What we have to see is whether the activities carried on by the assessee amounted to trade or not. 8. It is seen that the lease agreement with C.F. Angadi was executed on 22-4-1974 and r....