TaxTMI 
TaxTMI 
1996 (3) TMI 165
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....ts attention to the activities of construction of buildings known as Trade Centre, Commerce Centre and IDBI Centre. The related reason was that for the purposes of construction funds were collected from various applicants for space on said building on lease for a period of sixty years in the said buildings even before the start of the construction and during the construction but, before giving of possession, was not a charitable activity. The other related reason for refusal was that, the lessees were permitted to transfer the lease in favour of the another for a larger sum than what was paid by them on payment a transfer fee to the assessee, which indicated that the members made private profit by using the property of the assessee which defeats the purpose of charity. Another reason that weighed in the minds of the authorities was that though, the assessee's primary object was scientific research for which it was established in 1970, the activities carried out by it for two decades was on construction of the abovementioned centres, building infrastructure for various services connected with the building like air-conditioning, common thoroughfares, watch & ward and the like and in ....
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....f the building and the plant & machinery, should have been taken as suggested by the Assessing Officer in his remand report for purposes of set off from the income at Rs. 1491,91,142 (proportionate cost of space of 289405 sq. ft.) in place of Rs. 3977,89,589. The last of the issue is that because the finally assessed income was a loss the CIT(A) should not have directed the Assessing Officer to allow set off of brought forward unabsorbed business loss and unabsorbed depreciation. 2.3 The cross objection of the assessee involves the objection to the conclusion of CIT(A) that, any amount could be charged to tax under the head income from property and in taxing Rs. 2059,79,598 which was advance received from lessees to whom possession was yet to be given. The assessee has raised these very pleas as its additional grounds of appeal. 2.4 In the AY 1990-91, the assessee in addition to the common issues as brought out in para 2 above, has raised the following issues. In the first of such issues, the assessee has challenged the action of CIT(A) in assessing advance lease rent as premium of Rs. 2750,86,477 as short-term capital gains and the assessee is not entitled to any deduction under....
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.... Income-tax Act, 1961, or the corresponding provision of any new law, is hereafter amended, the amendment shall apply to the connotation of 'scientific research' in this clause." The assessee was recognised as a scientific research initially by Central Board of Direct Taxes in 1970, before formation of the appropriate authority, Department of Science & Technology (DST) and this recognition continued till 31-3-1981. 3.1 The Revenue & Forests Department of Govt. of Maharashtra passed a resolution No. LBR 2570/13594-A1 dated 16th October, 1970 issued with the concurrence of the Finance Department on Ref. No. 1180/III dated 29th March 1970, by which sanction was accorded to the lease of about 6 hectares & 96.49 areas (850' X 850') of reclaimed land from Block V, Backbay Reclamation to the assessee subject to the terms & conditions in the memorandum of terms and conditions. On 18th November, 1974, the Revenue and Forests Department of Government of Maharashtra passed a resolution in supersession of the resolution dated 16th October 1970 by means of which the assessee was granted the lease of the land in Block III as brought out above. " In supersession of the orders issued in Governm....
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....ovt. Resolution, dated 18th November, 1974 should be extended up to 2nd May, 1980 should be extended up to 1980 without charging any premium. (e) On the Centre's request to permit construction of a residential Hotel on a portion of the land measuring about 8699 square metres, orders would be issued separately. The terms and conditions as specified in Appendix 'A' of the resolution dated 18th November, 1974 are given below : 1. The lease will be for a period of 99 years from the date of possession renewable for only one term of 99 years on the same terms and conditions but on such ground rent as may be revised by Government. 2. The ground rent will be calculated at 6 1/2% per annum on the value of the land at Rs. 325 per square metre. 3. A rent free period of two years from the date of possession followed by a rebate of 50% in the ground rent for the next two years will be allowed. 4. The Centre shall pay to Govt. in addition to the stipulated rent, 50% of the earnings secured by the Centre after making deductions for and to the extent of the expenses incurred for securing the said earnings such as instalments for repayments of the secured loans interest on loans, mainten....
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....undation and the same will be retained by Government throughout the term of the lease. This deposit or such portion of it as Govt. may finally determine will be liable to be forfeited by the Collector of Bombay, if there is any breach of the lease conditions. In case of such forfeiture the lessees will reinstate the deposit to the extent forfeited within 15 days of their being called upon to do so. This right of forfeiture of the deposit will be in addition to and without prejudice to the other rights & remedies of Govt. against the lessees under the lease. 10. The Centre will submit for the approval of the Architect to Govt. Buildings and Communications Department the layout of the entire area required for construction of the buildings and the roads, and the plans of the buildings within six months from the date of possession of the plot. No construction will be commenced unless the plans, elevation and sections drawn to a scale of not less than 96 cms. to 1 cm. (8 feet = 1 inch) have been approved by the Architect to Government. No additions or alterations to the buildings or structures, the plans of which have been approved will at any time be made except with similar previous ....
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....ease was to be coterminous with the main lease. Appendix 'C' is an extension for the grant of loan of Rs. 7.95 crores by LIC on the security & mortgage of the leased land indicating the rights of LIC in case the Centre defaults in its repayments. These being not relevant to the issues arising in the case before us in appeal, these are not reproduced. 3.2 The application moved by the assessee under section 35(1)(ii) of the Act for recognition as a scientific research institution received the assent of the Central Board of Direct Taxes on 6-4-1970. In 1977, Department of Science & Technology (DST), the appropriate authority to monitor all scientific research activity and to grant recognition as above, advised the assessee that before allowing extension of the recognition as a scientific research institution that it would be reviewing it. The recognition was extended till 31-3-1981 after considering the representations of the assessee. A three member team from DST visited the assessee and carried out on the spot study. The team advised the assessee that the World Trade Centre (WTC) activity must be kept separate from its research activity by forming another organisation to carry on t....
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....izable surplus to be utilised towards reducing the capital outlay for the Exhibition Centre or, if necessary, serve as a reserve for ensuring the repayment programme in respect of the loan from LIC. Consideration Money for agreement to lease space has been fixed on a raising scale, over a period and applications for space are now being received." Extract from the report for the year ended on 31-3-1973 : --- " lease of space---the principal terms and conditions for leasing space in the Trade Centre have, upon the counsel's advice been modified, although this does not presently involve any change in the financial obligations of the lessees. It is now provided that the initial payment to be obtained from a lessee will be by way of advance rent instead of consideration for agreement to lease as originally proposed The period of lease will not be sixty years, which in law is considered the life of a building but the lessees will have the option to renew it for a further period co-terminus with the 99 years' lease to the Centre from the Govt. of Maharashtra (less 10 days). The renewal will be made on the basis of a nominal payment of Re. 1 per year per shop plus out-of-pocket expenses ....
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.... Rs. 754. 3.7 The common outgoings rent comprised of charges for the following services, viz., maintain & repair the building, common passages, foyers, corridors, courtyards, gardens, terraces, landscapes, lifts, lift halls, escalators, escalator halls, basements marquee, air-conditioning, ventilation, fire fighting, electrical fittings, sewage treatment, watch & ward, etc., which were agreed to be provided by the assessee to the persons who had taken the space on lease on the terms specified in the lease agreement. For the purposes of providing the above-mentioned services & facilities, the assessee had a battery of staff and the administrative expenses (as 4% of all its administrative expenses) had been made part of the common outgoings rent. 3.8 The cost of construction on Commerce Centre which was completed during the financial year relevant to the assessment year 1989-90 aggregated to Rs. 39,77,89,589 (total area of 527,000 sq. ft.). 49 lessees had paid full consideration by 1-10-1988 @ Rs. 475 per sq. ft. (some were charged Rs. 500 & few others paid Rs. 550 per sq. ft.) to whom possession of 461,736 sq. ft. was handed over, and the total collection was Rs. 45,99,84,721 and ....
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.... give on lease a licence or acquire, demise, mortgage, sell, give in exchange or otherwise dispose of the same or any part thereof. Clause 23 permitted to maximise and establish branches or office of the centre .... and to make necessary arrangements for the transactions of the activities of the trust. Clause 24 permitted to construct upon any premises acquired by the centre any building/s for the purpose of the centre and to alter/add/repair/remove such building/s. The articles of association defined the term 'members of the assessee' to mean 'firm, association or body corporate incorporated under any law or regulation for the time being in force interested directly or indirectly any scientific research for the development of Indian Trade & Industry' and placed them into three types, viz., an ordinary or a life or a donor member and that such person is required to pay the prescribed fee. 3.11 The assessee had filed its return of income under the head of income 'profits and gains from business or profession' for the assessment year 1989-90 showing a business loss of Rs. 914.42 lakhs. The claim for exemption under section 11 of the Act was raised for the first time before the CIT(A....
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....section 11 of the Act had already been extracted in the initial para while dealing with the controversy as raised by the assessee. 4. The CIT(A) in his order for the assessment year (AY) 1989-90 had noted the following facts with which the assessee has no dispute. The appellant had carried massive advertisement campaign before the start of construction of Trade Centre in 1970-71 and of Commerce Centre in 1979-80 inviting applications for the allotment of leasehold rights for a period of sixty years. In 1970, the assessee issued advertisement calling interested persons to acquire leasehold rights in the building Trade Centre and indicated the amount payable as 'consideration for leasehold rights' in the building which was subsequently modified as 'primary basic rent', payable on application, followed by on instalments depending upon the progress of construction. He noted that the primary basic rent was revised upwards keeping pace with the market rates at the Nariman Point. The construction of Trade Centre was started in 1972. 4.1 He noted the contentions of the assessee in support of their claim that primary basic rent represented rent only as (a) to meet the funds needed for con....
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....he consideration paid by the tenant for being let into possession ". He also referred to the decision of the Supreme Court in Member for the Board of Agrl. Income-tax v. Sindhurani Chaudhurani [1957] 32 ITR 169 where it was held that 'elements of salami are (1) its single non-recurring character and (2) payment prior to the creation of tenancy. It is the consideration paid by the tenant for being let into possession and is neither rent nor revenue but is capital receipts in the hands of the landlord ". He observed that the decision of the Supreme Court in Maharaja Chintamani Saran Nath Sah Deo v. CIT [1961] 41 ITR 506 was idential to the conclusion in Sindhurani Chaudhurani's case. 4.4 He extracted from the remand report of the AO the extracts from the report of the council of management for the year ended 1971 and 1973 where it was stated that the primary basic rent was consideration for leasing out of premises. He observed that the facts showed clearly that payment of primary basic rent was absolutely essential before the lessee could be let into possession under the lease agreement which he concluded as a prior condition before the tenant landlord relationship could be created.....
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....r fee of Rs. 170 per sq. ft. that made it all the more clear that the lessees were not to be refunded their lumpsum payment and therefore, it was a one time and one way receipt though received in instalments. He accordingly concluded that the primary basic rent and the primary car parking rent are receipts that are liable to be taxed. 4.7 He noted that the AO who initially taxed it as business incomes had advanced an alternative argument in the appellate proceedings that it should be taxed as short-term capital gains because of the agitation raised by the appellant that they had not sold off the flats to anyone. He observed that to determine whether the income (receipts of primary basic rent and primary car parking rent) is business or is capital has to be examined with reference to its relation to the fixed capital investments. He referred to the decisions of Supreme Court in Karanpura Development Co. Ltd. v. CIT [1962] 44 ITR 362 and S. G. Mercantile Corpn. (P.) Ltd. v. CIT [1972] 83 ITR 700 to find out the proper course of action to be taken in the instant case. In the former case it was held that as under : " There was no sale of its fixed capital assets at a profit. In acqu....
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..... He noted that because of the amendment which covered any transaction which has the effect of transferring, or enabling the enjoyment of, any immovable property and the term 'immovable property' had been given the same meaning as contained in clause (d) to section 269UA, the case of the assessee is squarely covered by the said amendment. 4.10 He considered the objection of the assessee that to decide whether a case falls into the category of charitable institution, it is to be limited to the examination of the objects and exemption should be allowed even when the trustees fail to pursue the objects. He also considered the arguments advanced that any abuse of power by the trustees, such misuse should be resolved through legal recourse by removing the trustees but, such misuse should not affect the grant of exemption to the assessee. He noted the contention of the assessee that the dominant object of the assessee to engage itself in scientific research which is a general purpose utility and that the other objects which by itself may not be charitable but, in view they being incidental or subservient to the primary or dominant object of scientific research, it should be held as a ch....
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....77, these observations, " the distinction between the objects of the trust and the powers vested in the trustees for carrying out must be borne in mind ". 4.13 He considered the primary object that was stated as carrying on of scientific research in the fields of natural or applied science including agriculture, animal husbandry, fishing and so on and the provision in its memorandum of association that the term 'scientific research' would also cover such fields as may be included in section 43(4)(1) of the Act as it stood at the relevant time and as may be amended from time to time. He also noted that the dominant objects included in addition to carrying on scientific research, setting up of research centre, aiding research institutes on industrial research, prosecuting scientific research for the development of Indian Trade & Industry. He noted that research is a systematic pursuit of knowledge that involved recognition & formulation of a problem, collection of data through observation & experiment, formulation of hypothesis, testing & confirmation of hypothesis. He also noted that though, initially the assessee was granted recognition as a scientific research by the Department o....
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....nd the promotion of trade of its members could not be an object of general public utility. He did note that the assessee had never applied its surplus on its primary object of scientific research and he noted that the application of its income on its trade centres could not be treated as applied for charitable purposes because it involved clear profit making as it was carried out in a systematic manner with large number of staff only employed to look after the work of construction, facilities to the occupants on thoroughfares, air-conditioning and so on, facilities for exhibitions, meetings and so on. He held that all these being business activities not permitted by section 11(4A) of the Act, the incomes from these activities are clearly taxable. 4.15 He further noted that the surplus as shown by the assessee in various years were not invested in the specified securities though, the assessee had claimed that re-utilisation of the surplus in its buildings satisfied to requirement of section 11(1A)(b) of the Act. He rejected the contention of the assessee that the capital gains are exempted under section 11(1A)(b) of the Act by referring to the decision of the Bombay High Court in C....
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....n support of its claim for exemption under section 11 of the Act. In para 7 of his order, he observed that the principal object of the assessee as stated in Memorandum of Association being scientific research which being advancement of an object for general public utility, the assessee could be said to have been established for charitable purposes and the property is also held for that purpose. He observed that AO in order to verify the true nature of the property held, he is not bound to confine to the terms of the trust deed but, to take into consideration other factors. 5.1 In para 8 of his order, he had noted that the first annual report of the assessee for the year ending 31st December, 1970 contained the development that led to the formation MVIRDC and its registration under section 25 of the Companies Act then, in para 10 the AO further observed that the intention of the assessee was to set up a permanent trade and exhibition centre as part of an industrial complex. He observed that because of the association of top industrialists, the assessee had the benefit of professional tax advice and the formation of a permanent trade and exhibition centre as its dominant object, was....
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....lic utility but, to establish a permanent trade and exhibition centre that was covered under the mask of charitable purpose. 5.3 He proceeded to examine the dominant object of establishment of World Trade Centre (WTC) in the same lines as that in other countries formed on the guidelines issued by the World Trade Centres Association. He examined the package of facilities and services expected of WTC to members as well as to members of overseas WTC and to visitors of WTC some of them being, (a) meeting facilities ; (b) display & exhibit facilities ; (c) hotel ; (d) trade education services ; (e) World Trade Centre Club ; (f) temporary secretaries ; (g) temporary offices and (h) trade information services. He noted that the facilities listed under (b) to (h) required necessary infrastructure which is contained in the layout that as drawn up in 1970. He noted that the Trade Arcade Centre comprised of a ground, first, second, terrace floor, rooms in six tower blocks and on the terrace floor, whose construction commenced in 1972. It was also noted that the space in WTC was mostly to be utilised by shops to sell consumer goods across the counter. He observed that for the purpose of gener....
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....for exhibitions & display, seminar rooms for holding of conferences, meetings & seminars were hired out to members and outside agencies. It was also noted that assessee had organised number of workshops, training programmes, seminars and exhibitions which was open to all sections of the public. AO considered the services concerning electricity, air-conditioning, lifts, water, maintenance of thoroughfares including staircases, watch and ward covering the whole WTC complex that is charged from every occupant/user of the space as 'Common outgoing rent' at 4% of its (WTC's) administrative expenses. 5.6 AO accordingly grouped the activities of the assessee under three heads : (a) provision of package of facilities & services on an institutionalised basis to any one ; (b) construction of commercial buildings and leasing of space and (c) services concerning the running & maintenance of the building covering all spheres like thoroughfare maintenance, electricity, air-conditioning and so on. He then posed a question to himself as to whether any of the above classified activities could be said to fall within the term 'general public utility' and he noted that the term debars any activity th....
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....t retained by the lessees. 5.8 He referred to the condition based on which space in the Centre was allowed to be leased out according to which a person was required to be a member first. AO viewed this condition as a way of allowing benefit to pass on to the members though, the assessee could not distribute any surplus of dividend to its members and accordingly concluded that the aspect of charity was only illusory. He concluded that the activity of the assessee was like any other commercial concern and therefore, it could not be treated as a charitable institution within the meaning of section 11 of the Act. 5.9 AO referred to the provisions of section 11(4A) of the Act that permitted business to be carried on by a trust wholly for charitable purposes and the work in connected with the business is mainly carried on by the beneficiaries of the institution and that separate books of account are maintained for such business. He referred to the various activities of the assessee like package facilities & services concerning meetings, trade education, club, temporary secretary & offices, translation, etc., on an institutionalised basis with the motive of profit making constituted bus....
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....secondary rent, the common outgoing rent are indicated to be paid on or before the 5th of each month. He noted the parking space rental as in the nature of primary basic rent. 5.12 He tabulated the primary basic rent as fixed for the years from 1971 onwards revised upwards with the passing of each year starting with Rs. 260 per sq. ft. in 1971 to Rs. 550 per sq. ft. in 1980 to Rs. 1,450 per sq. ft. in 1985 and to Rs. 5000-6000 per sq. ft. in 1990. He noted that the secondary basic rent had been fixed at 20 paise per sq. ft. per month for which bill was raised each month. He noted that the rates of common outings that started from Rs. 2.25 & Rs. 1.25 for air-conditioned and the non-air-conditioned area respectively had been revised upwardly to Rs. 5.15 & Rs. 2.60 in 1989 and to Rs. 5.65 & Rs. 2.75 in 1990. 5.13 He referred to the provisions of sections 54 & 105 of the Transfer of Property Act for the terms 'sale' and 'lease of immovable property'. He referred to the decision of the Full Bench of the Allahabad High Court in Sohan Lal v. Mohan Lal AIR 1928 All. 726 and noted that 'the ownership of a material thing comprises of a bundle of rights constitute a property in itself. Thus....
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....respect of primary basic rent that was adjusted every month in the accounts and the reason he noted as because it did not possess the attributes of rent. He concluded that because the primary basic rent was received in full and in advance of even before the relationship of landlord and the tenant came into being, it should be treated as premium and since, it was received for a transfer of a capital asset, it should be treated as a capital receipt. 5.16 He summarised the facts of space in occupation of the assessee, leased out in the years 1989 and 1990. He had noted that in the previous year relevant to the assessment year 1990-91, possession was handed of 99605 sq. ft. in Centre 1 to 19 lessees for a total consideration of Rs. 20,59,79,589, IDBI Centre was handed over for Rs. 33,84,10,062. He noted that the total construction cost of Centre 1 and IDBI Centre were Rs. 27,67,39,907 and Rs. 21,79,55,810 respectively. He had also noted that assessee retained for its own use in Centre 1 and Trade Centre 65876 sq. ft. and 27753 sq. ft. respectively. He further observed that the capital asset of Centre 1, IDBI Centre acquired on 1-10-1988 and during financial year ending 31-3-1990, resp....
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....e assessee could not been assessed in respect of the building when the lessee is deemed to be the owner by virtue of section 27(iii)(b) of the Act, and that, income from property should not have been based on municipal valuation, was rejected. The claim for deduction for repairs to building under business income was rejected because the income was held as assessable under the head 'Income from house property'. The claim for set off of sinking fund and interest on it was rejected because in an earlier year, Tribunal had rejected such a claim. On the claim for depreciation, the order for the AY 1989-90 was followed. 7. The learned counsel for the assessee Mr. Sonde, submitted that the assessee was incorporated on 26-6-1970 under section 25 of the Indian Companies Act, 1956. He submitted that section 25 of the Indian Companies Act allows formation of companies that have similar objects like the assessee and because, the said section prohibits distribution of dividend to the members, it recognises the true character of the company under that section as non-profit making organisation. Since, the assessee was so formed with no profit motive, it primarily satisfied the condition for bein....
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....d in section 2(15) of the Act and, therefore, the department was in error in holding that the assessee does not satisfy to be a charitable institution. 7.4 He contended that the Government of Maharashtra floated the scheme of leasing its land with a view to provide parallel services as are available across the world concerning commerce, trade and industry and on examination of the objects of the assessee was satisfied that the assessee is the probable instrument in achieving this end which was why they came forward to lease the land, suggested the scheme of financing for the construction of the building including arrangement of loan from LIC. He contended that the Government of Maharashtra considering various aspects including the objects of the assessee had come forward to modify twice in 1974 and 1979 and that the low lease rental of Rs. 325 has been so fixed because of the reason of assisting the assessee in furthering its objective. He submitted that the lease remains to be executed in favour of the assessee though, all other aspects had been completed. He referred to the resolution passed by the Government by which it permitted subleasing of 10000 sq. ft. to LIC for which the....
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....terminate, and the assessee incidentally making some profits with a view to achieve its objective, the profit so earned could not be treated as a trading activity and accepted the claim by granting it the status of charitable institution. He submitted that the principle enunciated by the Karnataka High Court is to the effect that the meaning to achieve the objective should be evaluated with the end that was achieved. Mr. Sonde pointed out that the assessee had moved for registration under section 12A of the Act on 1-10-1982 and contended that since, the office of the Commissioner of Income-tax had taken the application moved by the assessee for registration on his record on 8-2-1984, it is conclusive of the fact of recognition having been granted to the assessee. Mr. Sonde, the learned advocate insisted that in the city of Bombay there is no system followed by the Income-tax Department of issuing certificate of registration and this is an accepted fact both by the assessee and the department. The copy of the acknowledgement of the application which the assessee is insisting should be treated as equivalent to grant of registration certificate has been placed on our records to which ....
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....ions of the Government. He contended that the Government leased the land to the assessee with the only intention of building all infrastructure similar to the one that is available all Over the World in connection with information on trade, commerce and industry along with various shopping centres, exhibition halls, meeting & seminar halls, secretarial & related services which are all commercial activities because, it directly benefits the owner of the building, members occupying the building though, it might benefit the public too. He submitted that the assessee which is stating that it is an industrial research unit, in fact had never carried out any such research and in the later years when it did carry out the extent of research activity was very minimal. 7.8 He further submitted with reference to clause 12 of the resolution dated 18-11-1974 which substantially is effective insofar as the assessee is concerned, the low lease rental of Rs. 325 does not necessarily mean that the Government of Maharashtra had treated the assessee as a charitable institution or that the Government intended some general public utility to be brought into effect, which is evident from the reading of ....
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....above clause shall mean any activities for the extension of knowledge in the fields of natural or applied science, including agriculture, animal husbandry or fisheries. If the definition of 'scientific research' in section 43(4)(i) of the Income-tax Act, 1961, or the corresponding provision of any new law, is hereafter amended, the amendment shall apply to the connotation of 'scientific research' in this clause. 2. To organise, sponsor, promote or establish and conduct a Research Centre in Bombay, to perpetuate the memory of the late Dr. M. Visvesvaraya as an object of general public utility not involving the carrying on of any activity for profit. 3. To establish, organise, promote or conduct agencies or research institutes, or advisory or consultative services as are calculated to promote the cause of industrial research as objects of general public utility not involving the carrying on of any activity for profit. 4. With a view to prosecuting scientific research for the development of Indian trade or industry and with a view to facilitating the same, to organise, promote, establish or conduct trade and/or industrial museums, arcades, expositions, libraries, bureaus or World T....
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....ty to the general public because, the public can derive no benefit whatsoever except knowing what he was and what were his achievements which are all historical. The third clause talks of promotion of the cause of industrial research on which object the department had not commented upon and therefore, we do not express any opinion on this object. 7.11 The fourth clause is on similar lines as the third clause though little more elaborate and includes establishing of World Trade Centres in Bombay which is a place to bring together all industrialists and the traders, the plain reading of this clause suggests that the Centre is intended to be a meeting place for industrialists to enable them to promote their interests intended to give benefit only to persons who interact with each other but no common benefit accrues even to the community of industrialists or traders and there would be no contribution from the assessee in the promotion of trade, etc., by the assessee. The Supreme Court in CIT v. Andhra Chambers of Commerce [1965] 55 ITR 722 had clearly held that to be called a public utility it should be identifiable by some common quality of a public or impersonal nature. Despite the ....
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....ey on exploring the World for available market. These facilities are open to members only and any person desirous of using these facilities is required to become a member. The above description makes it obvious that WTC is a centre for business activity amongst the particular business concern within the said community comprising of industrialists, etc., and is to benefit the particular concern and not generally any of them. These facilities are similar in nature to the various food grain market places called mandis at various places from where both wholesalers and the Food Corporation of India procure the food grains for which the State Government impose mandi tax. To say that building of a market place for making available goods at that place for the traders for sale by them to the public is a general public utility would be stretching the definition too much because almost all of the items produced by the industrialists, sold through the traders with the assistance of commercial establishments is towards the end of meeting the need of the people and by this proposition every industrialist, trader and commercial person would become an object of general public utility. The law make....
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....table institution. 7.15 The first of the proposition is that the assessee satisfying the tests for being recognised as a charitable institution as defined in section 2(15) of the Act, then all that is required to be seen is that it had not flouted the provisions of sections 11 & 13 of the Act, in either in the manner of investments or holding of property or in the application of its income for the charitable purpose. However, if the assessee fails in the preliminary test for consideration of as established for a charitable purpose and for being treated as an charitable institution within the meaning of section 2(15) of the Act, as a natural corollary it is conclusive that the income of the assessee could not be considered with reference to section 11 of the Act. 7.16 The insistence by the learned counsel that the taking on record of the application under section 12A of the Act moved by the assessee belatedly almost twelve years from the formation of the assessee, is conclusive of registration having been granted, recognising the assessee to be a charitable institution, in our opinion deserves to be rejected. The counsel insisted that in the city of Bombay there is no practice of ....
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....er section 12A of the Act within one year from the date of creation of the trust or its establishment whichever date is later. The proviso to the said section states that " Chief Commissioner (CC) or Commissioner (C) may, is his discretion, admit an application for the registration of any trust or institution after the expiry of the period aforesaid ". This indicates that the assessee is required to explain the reasons for delay in applying for the application for registration which would have to be examined by CC or C and if he finds the reasons acceptable then he may admit the belated application, which is possible only on conscious application of mind. The reasons if any for delay in submitting of the application for registration by over 12 years is obviously could have never been adequate or reasonable. Further sub-clause (b) of section 12A requires filing of audited accounts for the year on the basis that the application is moved within a year of formation. Since, the application is belated by twelve years, it is obvious that the audited accounts for all of the years from the formation, are required to be filed. It is not the case of the assessee that it had furnished all the ....
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....is a planned and orderly activity. In our view, the claim of assessee is a very far fetched proposition because, the assessee had no funds even to carry on its scientific research activity and it was venturing into something that required still larger funds. The assessee had prescribed for entrance fee and membership fee under different categories but, had not claimed contributions from amongst them or from the public for setting up of infrastructure for scientific & industrial research while, it claimed that its members were from industry, trade & commerce. An association of a community comprising of industrialists, traders & commercial institutions for promoting their common interests or improving them as a lot could be an object of general public utility but, the assessee is no such institution mooted by the common effort of the community of industrialists or traders but, a concern floated with the objective of scientific research in mind and other objectives some of which was considered earlier. The facts as are on record indicate that the effort of the assessee in the direction of its primary objective which is carrying on of scientific research was minimal or negligible as is....
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....e Court decisions in Andhra Chamber of Commerce's case, CIT v. Federation of Indian Chambers of Commerce & Industry [1981] 130 ITR 186/6 Taxman 7 and the High Court decisions in Addl. CIT v. South India Hire Purchase Association [1979] 116 ITR 793 (Mad.), CIT v. Ganesh Ram Laxminarayan Goel [1984] 147 ITR 468/[1983] 14 Taxman 1 (MP), Satya Vijay Patel Hindu Dharamshala Trust v. CIT [1972] 86 ITR 683 (Guj.), Southern India Mill Owners' Association v. CIT [1977] 110 ITR 871 (Mad.) and the two Tribunal decisions in SOS Children's Village of India v. ITO [1990] 34 ITD 476 (Mad.) and National Engg. Coordination Committee v. Asstt. CIT [1992] 43 ITD 612 (Pune). He submitted that the charitable trust satisfying the condition of general public utility was examined by the Andhra Pradesh High Court in Hyderabad Stock Exchange Ltd v. CIT [1967] 66 ITR 195, the Supreme Court in CIT v. Bar Council of Maharashtra [1981] 130 ITR 28/6 Taxman 1 Bombay High Court in CIT v. Western India Chamber of Commerce Ltd. [1982] 136 ITR 67 at page 78/8 Taxman 81. Mr. Sonde submitted that the Bombay High Court in Western India Chamber of Commerce Ltd.'s case had considered the clause which provided for distribu....
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....-90 had brought out. Further, the lease is for a long period indicating that no person other than the occupant of the space in the building could ever enter it which establishes beyond doubt that the construction followed by giving of space has no involvement of public utility and not even remote connection to its primary objective of research. The other services connected with the building like maintenance, air-conditioning also fall in the same category of non-charitable object. The other activities such as providing of secretarial, meeting, conference, exhibition, information by connection with various parts of the world are business ventures. These are services specific to a member, facilitating him to have connection with his customer/s or supplier/s and do not serve any common purpose because, exports are governed by the rules made by the Govt. and most of them channelised and similarly imports of items are also channelised and the claim of the assessee that it is a public utility is clearly false. The activities of the assessee is identical to a business where all these services are made available to any person for a fee and such commercial activity with the intention of mak....
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....f which the relevant clause (5) throws some light on the intentions of the assessee, that reads, " the Centre is engaged in a planned and orderly development of the said land by erecting a cluster of buildings to offer services available in a World Trade Centre Complex ". The aspect of the amount paid by various applicants in instalments before the start of the construction, while the construction is in process is governed by the provisions of the conditions spelt out in clause 8 of the agreement. For the sake of facility, we reproduce it below : (1) The Centre hereby agrees to grant and lessees hereby agree to accept a lease of the office premises admeasuring ... sq. ft. built up equivalent to .... sq. mtrs. built up or thereabouts, on the ... floor of the Centre 1 and uncovered parking space/spaces in the open spaces of the Centre 1 for a term of sixty years commencing from the date on which the said premises are ready for occupation. (2) The rent of the premises shall consist of (a) primary basic rent ; (b) secondary basic rent ; (c) common outgoings rent ; and (d) parking space rent, all of which collectively referred to, will be hereinafter called 'rent'. The primary basic r....
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.... demised premises or any part thereof without the permission in writing of the Centre being the first had and obtained and the Centre will be entitled to refuse to give such permission without being bound to give any reason for such refusal but such permission shall not be unreasonably refused ........................ (15) if the lessees shall cease to be a member of the Centre for any reason whatsoever, they shall if so required by the Centre either transfer this lease and all their right title and interest therein to any other party who is a Member of the Centre subject to the approval of the Centre and subject also to the provisions of clause 12 hereof or surrender the lease to the Centre at their own costs. (27) on the expiry of the term hereby created, this lease shall be renewed at the option of the lessees for such further period as may be coterminous with the expiry of the lease of land granted to the Centre by the Govt ..... (31) the stamp duty and registration charges payable on this lease and its duplicate shall be borne and paid by the lessees. [Emphasis supplied] 7.28 The reading of the above indicates that the assessee is engaged in a planned and orderly developme....
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....e the space taken by him, nor does the lease deed lay any emphasis on the assessee to insure against any calamity. 7.30 The department had chosen to follow the second alternative of treating it a sale on the basis that the primary basic rent compares well with the market rate at the various times when the leases were entered into by holding that the primary basic rent is salami or premium. The counsel Mr. Sonde had contested that the Explanation 1 to section 18 of the Bombay Rent Control Act does not allow charging of salami by landlords in support of which be referred to the observations of the learned author Kanga & Palkhiwala in his book on Income-tax Law, 8th edition, Volume 1, page 1195 and the decisions of Bombay, Madras, Kerala High Courts and the Supreme Court in Mrs. Hirabai D. Desai & Sons v. CIT [1936] 4 ITR 95, A. S. Sivan Pillai v. CIT [1958] 34 ITR 328, CAIT v. M.J Cherian [1979] 117 ITR 371 and Lalchand Bhagat Ambica Ram v. CIT [1959] 37 ITR 288 respectively. He filed a certificate from TELCO stating that it had treated in its book the amount paid for space as advance rent and had been adjusting one-sixtieth each year as rental and on the decision of Andhra Pradesh ....
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....ance rent only is based on what is stated in the lease deed. When we consider the totality of the facts from the start of the taking of the lease of land, followed by the invitation to the public to take the space by paying the specified amounts in advance, the intention of the assessee being engaged in a planned & orderly development of the said land by erecting buildings, the assessee constructing the buildings with the funds provided by the various lessees, all go to clearly indicate that there are only two possible view points as observed by us earlier. In fact we are of the view that it is only proper to hold that the transaction is one of sale of leasehold right of use of space and what the assessee retains only is the right to charge monthly rental, right to charge a transfer fee of the right of space leased out. In our view the amount collected towards construction in the name of primary basic rent is price for allowing of leasehold right of use of space for 60 years, which bears the character of income at the time the possession is handing over and there is no question of allowing any deduction of cost of construction because, there is no sale of space. However, because th....
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....assessee is that the income from house property could not be based on municipal valuation. Mr. Sonde, the learned counsel fairly conceded that the assessee had not disputed the levy of house-tax by the municipal authorities but, pleaded that this feature should not come on the way of deciding the income from property owned by the assessee. He insisted that the income from property should be limited to the actual rental realised. The plea of the standing counsel Dr. Balasubramanian and the CIT Mr. Prasad was that the secondary rent is illusory. 7.37 Section 23 of the Act provides two alternatives for what should be taken as the ALV of a let out property, the first being that it is the sum for which the property might be reasonably be expected to be let from year to year and the second is where the property is let and the annual rent received or receivable exceeds to the reasonably expected rent, then such excess amount. The first alternative had been a point of controversy and a series of decisions of the Supreme Court had held that the annual value cannot exceed the standard rent fixed by the municipal authorities. In other words, the ALV of any property let out could not be lower....