2002-VIL-182-ITAT-DEL
Equivalent Citation: ITD 080, 089, TTJ 075, 209,
Income Tax Appellate Tribunal DELHI
Date: 11.01.2002
BHARATIYA JANATA PARTY.
Vs
DEPUTY COMMISSIONER OF INCOME-TAX.
BENCH
Member(s) : R. M. MEHTA., V. DONGZATHANG., M. K. CHATURVEDI., JORDAN KACHCHAP.
JUDGMENT
Per Chaturvedi, Vice-President-This appeal by the assessee is directed against the order of CIT(A)XVII,New Delhi and pertains to asstt. year 1995-96.
2. Briefly the facts: The assessee is a political party. It is registered as a National Party with the Election Commission of India. A notice under section 142(1) of the Income-tax Act, 1961 (hereinafter called the "Act") and a letter bearing No. 363 dated30-11-1995were issued on the assessee. Details required in the said letter were furnished along with the return on28-12-1995. In the said return assessee reflected a loss of Rs. 59,55,660, as under:
-----------------------------------------------
Rs.
Long Term Capital Gains 31,69,231
Sale of Newspaper/
Publications 1,19,798
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32,89,029
Less: Expenses 92,44,686
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Loss: 59,55,660
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3. Return was processed under section 143(1)(a). Capital gain was said to be received on the repurchase of CANSTAR which was matured in August, 1990. During the proceedings under section 143(1)(a), the claim as to the expenditure, was disallowed on the ground, that the expenditure laid out was not within the meaning of section 48 of the Act. Resultantly, tax was found to be payable on the long term capital gains.
4. Being aggrieved, assessee filed appeal before the CIT(A). In the said appeal CIT(A) held that the adjustment so made by the Assessing Officer was not within the ambit of section 143(1)(a) of the Act. Assessing Officer thereafter issued notice under section 143(2) of the Act and the case was completed under section 143(3) of the Act. Exemption claimed by the assessee under section 13A of the Act was accorded to it by the Assessing Officer, in respect of income from voluntary contributions and income from other sources. However, the claim of the assessee in respect of capital gains and business loss was not allowed. It was found to be beyond the ken of section 13A. The alleged capital gains of Rs. 31,69,231 was made exigible to tax. Loss on publication alleged to be business loss was not allowed. Assessment was completed on an income of Rs. 31,69,231.
5. Before the CIT(A), assessee claimed that the loss on publication be allowed as a business loss and the maturity value of CANSTAR should not be treated as capital gains. It should be taken as "income from other sources", eligible for the benefit of section 13A. Alternatively, it should be treated as capital receipt not exigible to tax.
6. CIT(A) held that the loss arising on account of sale of journals and publications cannot be treated as a business loss, as such setting it off, against any other head of income, is not possible. CIT(A) treated the surplus of the maturity value of CANSTAR as capital gains.
7. Assessee challenged the order of the CIT(A) on the following two grounds:-
"1. The Learned Commissioner of Income Tax(Appeals) has erred in holding that the assessee's activity of the publication division is not a business activity and the losses therefrom cannot be adjusted against income under other heads. He has failed to appreciate that the activity of a political party cannot be compared with that of a joint stock company carrying on a business. The Learned Commissioner of Income Tax(Appeals) further failed to appreciate that in case of a Body of individuals, it is not necessary that the said group of persons should carry a particular activity of business. The Learned Commissioner of Income Tax(Appeals) has erred in not following the judgment of even the Supreme Court. He has thus erred in confirming the order of the Assessing Officer.
Without prejudice to above:
2. The Learned Commissioner of Income Tax (Appeals) has erred in not treating the accumulated accretion received by the assessee on redemption of Canstar, as "Income from other sources" and failed to appreciate that the perquisites for attracting the provisions of section 45 of the Income Tax Act, were not satisfied in the present case. The assessee prays that the income from sale of publications by the assessee be held as its business activity and the income from repurchase of Canstar be held assessable as income from other sources and not as capital gains."
8. Shri Arun Sathe, Sr. Advocate appeared along with Mrs. Veni Thapar, CA on behalf of the assessee. Revenue was represented by Shri B.B. Ahuja, standing counsel for the Department. Necessary documents and papers were filed.
9. 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 activity was carried out with proper resolution of the National Executive.
10. Relying on the prescription of section 13A Shri Sathe submitted that the mandate of the section does not put any bar, on carrying on the business by a political party. It was stated that exemption under section 13A is not available in respect of business income. But, it is nowhere laid down that a political party cannot carry on business.
11. Next it was argued that in order to ascertain that whether the activity bears the character of business, it should be seen that the activity must be continuous, systematic and organised. It must be for producing income/profits. Earning of profit is not a, sine qua non. It was stated that profit motive is not an essential ingredient for the purpose of business. An unintended activity can turn out to be a business activity which may be without any profit motive. To support this proposition reliance was placed on the following precedents:
(1) Narain Swadeshi Weaving Mills v. CEPT [1954] 26 ITR 765(SC)-In this case it was held that the word "business" connotes some real, substantial and systematic or organised course of activity or conduct with a set purpose. No general principle could be laid down which would be applicable to all cases. Each case must be decided on its own circumstances according to the ordinary commonsense principles.
(2) Mazagaon Dock Ltd. v. CIT [1958] 34 ITR 368(SC)-In this case assessee carried on business of marine engineers and shop repairers. Two non-resident British companies engaged in the business of plying ships beneficially owned entire capital of the assessee-company. The assessee-company repaired their ships at cost and charged no profits. The question before the apex court was that whether tax can be charged on the profits which assessee-company would ordinarily have made out of this business activity. Hon'ble Supreme Court held that the activities of British companies in sending three ships for repairs to the assessee-company under an agreement that the repairs should be done at the cost were trading activities. These were organised and continuous in character. The fact that British companies carried on their business in such a manner that no profits could accrue to them was irrelevant. The income of the assessee-company was therefore, chargeable to tax.
(3) P. Krishna Menon v. CIT [1959] 35 ITR 48 (SC)-In this case assessee after his retirement from Government service, was spending his time in studying and teaching Vedanta philosophy. One of his disciples used to come fromEnglandat regular intervals toTrivandrumwhere 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 atBombayamounting to more than Rs. 2 lakhs to the account of the assessee in assessee's name in the same bank atBombay. Further amounts were also deposited to the assessee's account inBombay. The question was whether the receipts from the disciple constituted the assessee's income. Hon'ble 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 whether the act done by him was the carrying on of a business, profession or vocation. If any business, profession or vocation, in fact, produced an income, that was taxable income, and was nonetheless so because it was carried on without the motive of producing an income. The teaching of Vedanta by the assessee was the carrying on of a vocation by him. The imparting of the teaching was the CAUSA CAUSANS (the immediate cause) of making of gifts by the disciple. Therefore, it cannot be said that the payment to the assessee had not been made in consideration of the teaching imparted by him. Accordingly the payments were income arising from the vocation of the assessee.
(4) CIT v. Distributors(Baroda)(P.) Ltd. [1972] 83 ITR 377(SC)-In this case it was held that when the legislature speaks of business of "holding of investments" it refers to real, substantial or systematic or organised course of activity of investment carried on by an assessee for a set purpose such as the earning of profits. No part of a provision of a statute can be just ignored by saying that the legislature enacted it not knowing what it was saying. Where the expression is used by the legislature, the court must assume that the legislature deliberately used that expression and that it intended to convey some meaning thereby. The assessee was not a company whose business consisted mainly in dealing in or holding of investments.
(5) Addl. CIT v. Ram Kripal Tripathi [1980] 125 ITR 408(1)(All.)-In that case it was held that the mere fact that the teaching of Vedanta was a matter of religion would not mean that the assessee was not carrying on a vocation. Though the assessee was giving discourses without any motive or intention of making a profit out of such activity, yet the giving of discourses was a vocation and raising of the contributions for purchasing a car for the assessee by his disciples was in consideration of the teaching imparted by him. The giving of the discourses by the assessee was a causa causans for the raising of the contributions by his disciples and the purchase of the car by him.
12. Shri Sathe further contended that the loss could at best be described as negative income. Assessee was having a separate publication department. Publications were sold at a price. That was an organised and continuous activity. As such it should be termed as business. It was further stated 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.
13. 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% every year. It was to be ploughed back for investment purpose. Assessee received Rs. 17.40 paise per unit as a repurchase value. This was an assured repurchase value as per the offer document. The amount received was less than the NAV of CANSTAR for the year. Assessee received surplus amount of Rs. 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 annual dividend invested every year, as per the agreed terms with the CANSTAR, along with the original amount of Rs. 10 per unit which was initially invested.
14. Adverting to our attention on the prescription of section 45, Shri Sathe submitted that to attract capital gain there has to be a capital asset within the meaning of section 2(14), there has to be a transfer within the meaning of section 2(47) and there must be surplus arising out of the transfer of capital asset. It was argued that in the present case even though the CANSTAR is, a capital asset, there is neither a transfer nor a surplus as required under section 45.
15. Stating the provision of Section 2(47) Shri Sathe submitted that the extinguishment of right must be on account of transfer. To support this contention, ld. counsel relied on the following two decisions:-
(1) Vania Silk Mills (P.) Ltd. v. CIT [1991] 191 ITR 647(2)(SC)-In this case assessee carried on the business of manufacture and sale of art silk cloth. Assessee gave on hire to JM, its machinery on annual rent. JM insured the machinery along with its own machinery against fire. The insurance policy contained a reinstatement clause requiring the insurer to pay the cost of machinery as on the date of the fire, in case of destruction of loss. A fire broke out in the premises of JM. It caused extensive damage to the machinery including the machinery hired from the assessee. Machinery belonging to the assessee became useless on account of the damage. On settlement of the insurance claim JM received a certain amount, out of which it paid to the assessee on account of the destruction of the machinery. Assessing Officer brought to tax the difference between the insurance amount received by the assessee for its machinery and the original cost thereof as capital gains. Tribunal held that insurance amount was not received by the assessee on the transfer of capital asset but on account of the damage to its machinery and that section 45 was not attracted. High Court reversed the decision of the Tribunal. On appeal apex court reversed the decision of the High Court and held that capital gains was attracted under section 45 by transfer and not merely by extinguishment of rights howsoever brought about. Whatever the mode by which the transfer brought about, the existence of the asset during the process of transfer was a pre-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.
(2) Bharat Forge Co. Ltd. v. CIT [1994] 205 ITR 339(3)(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 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 our otherwise than on account of transfer. The cost of machinery purchased from abroad met by loan from Exim Bank which was repayable in instalments. There was a contract for purchase of dollars by assessee through its bank in anticipation of devaluation of Indian rupee. There was breach of contract in relation to the purchase of dollars. Dispute was settled and amount was paid by bank to the assessee for the breach of contract. Hon'ble High Court held that the amount paid by the bank was not deductible in computing the actual cost. There was no transfer of capital assets.
16. Shri Sathe further contended that CANSTAR cannot be equated with a preference share or a debenture. In this case there was extinguishment of right of the original investment, coupled with the assured income which took place not because of the transfer to any third party but because of the CANSTAR scheme itself. The assessee received his own money. That was his original investment. On that assessee received only assured income which was ploughed back from time to time. As such, actually no surplus arose from the said transaction. The difference from the original investment and the amount received was only assured income as per the offer document and the rules and regulations of CANSTAR. Therefore, this should be treated as income from other sources and not a capital gain, as there is neither any transfer nor any surplus as contemplated in section 45. A copy of the offer letter as issued by the CANSTAR was produced before us. It was further stated that the provisions of section 45 supports the proposition that the assured income accretion to the units of the mutual fund will not come within the purview of section 45. Section 45(6) was introduced so as to bring to tax the persons who availed the benefit of section 80CCB.
17. Shri B.B. Ahuja, ld. standing counsel for the Department, vehemently supported the order of the CIT(A) on both the counts. It was submitted that the political parties are not formed with the objective of making profit. Besides, there was absolutely nothing in the Memorandum of the assessee party, enabling it to carry the business. Assessee was competent to carry out its objects specified in the Memorandum. It cannot travel beyond the objects. Reliance was placed on the decision of the apex court rendered in the case of Dr. A. Lakshmanaswami Mudaliar v. LIC [1963] 33 Comp. Cas. 420(SC).
18. Ld. standing counsel invited our attention on the objects for enacting the provisions of section 13A. 113 ITR 68 (Statute) was referred. It was contended that political party coming within the ambit of section 13A was not permitted to carry the business.
19. It was further stated that assessee failed to establish the profit motive, which is a necessary ingredient for carrying on the business. It was stated that from, ab initio, 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 assessee earns profit or incurs loss in carrying 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:-
(1) Bharat Development (P.) Ltd. v. CIT [1982] 133 ITR 470(4)(Delhi);
(2) B. Malick v. CIT [1968] 67 ITR 616(All.);
(3) CIT v. K.S. Venkatasubbiah Reddiar [1996] 221 ITR 18(5)(Mad.);
(4) Sole Trustee, Loka Shikshana Trust v. CIT [1975] 101 ITR 234(SC).
20. It was further contended that just because some amount is charged it does not make the transaction as business. In order to be business it must have indicia of trade. Reference was made to the decision of Webster Pearson v. Webster 1Ch. 106 and Indian Chamber of Commerce v. CIT [1975] 101 ITR 796(SC).
21. Shri Ahuja relied on the Departmental Circular being F No. 225/128/99/ITA.II (Pt.) dated19-10-2000. This is reproduced here as under:-
"F No. 225/128/99/ITA. II(Pt.)
Government ofIndia
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes
New Delhi,the 19th October, 2000.
To
All CCsIT/DGsIT
Subject: Clarification regarding applicability of Chapter IVD in the case of political parties.
Sir,
The Board have received representation regarding the applicability of sections 44AB and 271B of the Income-tax Act, in the case of political parties.
2. The Board consulted the Ministry of Law and Justice and have been advised that:
(i) the idea of profession arises from a profit motive. In a political party, as in a charitable institution, there is no private profit motive nor a possibility of distribution of income among the members.
(ii) having kept such income of political parties, out of the total income, under section 13A of the Act, the same income cannot be brought to tax or penalty under some different provisions, nor a political party can be put to restrictions other than those mentioned in the exemption clause i.e. section 13A of the Act.
3. Thus, the Board are of the view that the income of the political parties are governed by the special provisions i.e. section 13A of the Income-tax Act, 1961, and accordingly the provisions of Chapter IVD which are applicable for profits and gains of business or profession cannot be applied in the cases of political parties. Income of political parties from voluntary contributions cannot be said to be income from profession so as to attract sections 44AB or 271B of the Income-tax Act.
4. However, the political parties will have to fulfil the requirement of maintaining the 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. ofIndia"
22. 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.
23. In the case of Sole Trustee, Loka Shikshana Trust at page 244, the Hon'ble 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 transactions of purchase and sale in a class of goods and the transactions must ordinarily be entered into with a profit motive.
24. In the case of Indian Chamber of Commerce at page 805, the Hon'ble Supreme Court has held as under:-
"As an antithesis, take a funeral home or an animal welfare organisation or a super bazar run for general public utility by an institution which charges large sums and makes huge profits. Indubitably they render services of general public utility. Their objects are charitable but their activities are for profit. Take the case of a blood bank which collects blood on payment and supplies blood for a higher price thereby making profit. Undoubtedly, the blood bank may be said to be a general public utility but if it advances its public utility by sale of blood as an activity for (making) profit, it is difficult to call its purpose charitable. It is just blood business?
In theUnited States, for instance, there are many funeral homes which make considerable profits. There are super bazars and animal welfare institutions in many countries which may be run on a profit motive. Inevitably, these activities are caught in the meshes of the tax law. Ready-made nostrums like "dominant intent", "incidental profits", "real object", as against "ostensible purpose", "entangled", "wrapped in", "intertwined" and the like fail as criteria in critical cases, although they have been liberally used in judicial vocabulary. In this branch of law verbal labels are convenient but not infallible. We have to be careful not to be victimised by adjectives and appellations which mislead, if pressed too far, although they may loosely serve in the ordinary run of cases."
25. Sri Ahuja placed reliance on the decision of jurisdictional High Court rendered in the case of Bharat Development (P.) Ltd. In this case the Hon'ble Delhi High Court has held as under:-
"The expression "business" is a word of indefinite import. In taxing statutes, it is used in the sense of an occupation, or profession which occupies the time, attention and labour of a person, normally with the object of making profit. To regard an activity as business there must be a course of dealings, either actually continued or contemplated to be continued with a profit motive, and not for sport or pleasure. Whether a person carries on business in a particular commodity must depend upon the volume, 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."
26. Reliance was further placed on the decision of B. Malik. In this case the assessee, Chief Justice of the Allahabad High Court, was requested to act as an arbitrator in a certain matter. A fee of Rs. 20,000 was paid to the assessee. Whether such fee was revenue income liable to tax was the question before the Hon'ble High Court. It was decided as under:-
"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 a question of fact, which could only be determined by taking the intention with which, the number of times on which, and the whole set of attendant circumstances in which an activity, which may produce some monetary gain, is carried on. In every case, however, it is "the exercise of a profession, vocation or occupation" by an assessee which has to be established and not the mere use of the faculties or energies of an assessee which may result in an income."
27. Further, to buttress this proposition reliance was placed on the decision of Hon'ble Madras High Court rendered in the case of K.S. Venkatasubbiah Reddiar Hon'ble High Court in this case taken into consideration the following observation of the apex court rendered in the case of State of Andhra Pradesh v. H. Abdul Bakshi [1964] 15 STC 644:
"The expression 'business' though extensively used is a word of indefinite import. In taxing statutes it is used in the sense of an occupation or profession which occupies the time, attention and labour of a person, normally with the object of making profit. To regard an activity as business, there must be a course of dealings either actually continued or contemplated to be continued with a profit motive, and not for sport or pleasure. It is, therefore, clear that the two essential requirements for an activity to be considered as 'business' are: (i) it must be a continuous course of activity; and (ii) it must be carried on with a profit motive."
28. Stating the position compendiously in relation to the second issue concerning the taxability of surplus on the maturity value of CANSTAR Shri Ahuja contended that the amount in question was exigible to tax under the head "Capital gains". It was stated that at the outset, assessee itself treated it as "capital gains". It was reflected as such in the return of income. When it was realised that the expenditures claimed in the return were not laid out within the meaning of section 48 of the Act and the Assessing Officer disallowed the claim made on that count, the assessee changed its stand. To avoid the mischief of section 13A assessee claimed it as income from other sources before the CIT(A). This is a fact evidenced by records that the assessee at its own volition opted for the "capital gain scheme." Copy of the application form was placed before us which indicates that the assessee opted for the capital gain scheme.
29. It was stated by Shri Ahuja that the assessee did not reflect the earning from the CANSTAR unit in the return on year to year basis as per the 80-I 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 assessee to the CANSTAR.
30. 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 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.
31. Reference was made to the decision of the Apex Court rendered in the case of Anarkali Sarabhai v. CIT [1997] 224 ITR 422(6) wherein it was held that when preference shares are redeemed by the company, the shareholder has to obtain or surrender the shares; in order to get the amount of money in lieu thereof. There is, therefore, also a relinquishment which brings the transaction within the meaning of section 2(47) of the Act.
32. We have heard the rival submissions in the light of material placed before us and precedents relied upon. It is important to ascertain at the outset that what was the intent and motive of the assessee behind the publication activity? Whether, it was to earn profit or to propagate the policies of the party, or something else.. The intent and motive of the assessee must be translated before arriving at any conclusion. Motive is moving power which impels the action for a definite result. Intent is the purpose to use a particular means to effect such results. There are two elements of intention, namely, foresight that certain consequence will follow from an act and the wish for those consequences working as a motive which includes the act. Intent in a comprehensive sense may be divided into immediate and ulterior. Though intention and motive are very close to each other, they are not the same. Motive is called the ulterior intent. It is the purpose or design with which an act is done. Inference as to motive can be drawn from facts and incidents.
33. Assessee is a political party. It was not formed with the objective of making profit. Its Memorandum does not enable it to carry the business. Admittedly, since inception it suffered huge losses on account of the publication work. The work of publication was carried with the help of other incomes earned by the assessee. The mere fact that publications were not distributed free, but sold for some consideration is not sufficient to establish the profit motive. Justice Joyce in the case of Webster, Pearson said-
"There are hospitals where patients pay something according to their means but that does not prevent such a hospital from being a charity in the legal sense; nor do I think that a School would be prevented from being a charity because the boys who received its benefit paid for their education a moderate sum proportionate to their means."
It was not placed before us that what was the cost of publication and how the selling price was determined. Whether it was less than the cost of publication or more than the cost of publication.
34. A copy of the resolution was placed before us which reads as under:-
"Aagami
Shri J.P. Mathur informed that it had been decided to publish Aagami in 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.
35. 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 separate accounts only is not sufficient to demonstrate the intent that the activity was for profit.
36. Coming now to the Circular relied upon by Shri Ahuja, we find that the CBDT appreciated this fact that the idea of profession arises from a profit motive. In a political party, as in any charitable institutions there is no private profit motive nor a possibility of distribution of income among the members as such political parties were exonerated from the applicability of sections 44AB and 271B. It is laid down in the said Circular that the income of political parties from voluntary contributions cannot be said to be income from business so as to attract section 44AB or 271B. It is further laid down in the said Circular that the political parties will fulfil requirement of maintaining the accounts and getting them audited by an accountant as provided in section 13A of the Act to claim the benefit of exemption.
37. Assuming that assessee was carrying on business, it was mandatory on its part to comply the requirements of section 44AB. Nothing was placed before us to show that how such requirements were complied with. It was simply stated that section 44AB is not applicable to political parties. A proper audit for tax purpose as envisaged under section 44AB was to ensure that books of account and other records are properly maintained. Income is properly deduced. Deductions are claimed in consonance with law. It was also to check the fraudulent practices in business. Section 44AB is not applicable to a political party because it was presumed that in political party there is neither profit motive nor possibility of distribution of income. It cannot go to the advantage of political party. You cannot have cake and eat it. One cannot say that for the purposes of taking tax advantage it is carrying on business and when it comes to abiding the law relating to business-a political party is exempted from the requirement of section 44AB. One cannot be allowed to say one thing at one time and opposite of it at another time. Sir Edward Coke said: "a man's own act or acceptance stoppeth or closeth up his mouth to allege or plead the truth."
38. Section 13A deals with a special provision relating to the income of a political party. This section was inserted by the Finance Laws(Amendment) Act, 1978 w.e.f.1-4-1979for and from assessment year 1979-80. The intent and purpose for enacting section 13A was described in the Taxation Laws (Amendment) Bill, 1978 reported in 113 ITR (Statute) at page 68 as under:-
"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 a chartered accountant or other qualified accountant.
2. Payments made for advertisements in souvenirs, brochures and the like published by political parties are not made on considerations of commercial expediency, but are in the nature of donations made with the twin objective of circumventing the ban on company donations and for securing their deduction in the computation of taxable profits. It is, therefore, proposed to provide that expenditure incurred by a taxpayer for purposes of advertisement in any souvenir, brochure and the like published by a political party will not be allowed as a deduction in computing the taxable profits."
39. As per the mandate of this section, to avail the benefit of section 13A, it is sine qua non that the eligible political party must fulfil the requisite conditions contained in the section. Under section 13A, any income of the political party chargeable under the heads "income from house property", "income from other sources" or any income by way of voluntary contribution is exempt from the rigour of income-tax. From this it implies that Legislature in its wisdom did not confer benefit of section 13A in relation to the business income. The reason could be that political parties were supposed to carry the political activities and not the business activity. As such, the business head was not included.
40. In the present case, assessee did not reflect the business income at the time of furnishing return as it was harbouring under a belief that the expenditure incurred by the party will be allowed against the long-term capital gain. When it was found that the expenditure laid out was not within the meaning of section 48 of the Act, assessee changed its stand. The claim was made for the first time in regard to the business loss before the CIT(A). This amply demonstrates the motive of the assessee. Publication activity was treated as business apparently for tax advantage.
41. The apex court in the case of Narain Swadeshi Weaving Mills has held that each case must be decided on its own circumstances according to the ordinary commonsense principles. Dean Pound has said that the important thing is not the fixed rule but the understanding with which the rule is applied to an individual case. Each case depends on its own facts. A close similarity between one case and another is not enough, because even a single significant detail may alter the entire aspect. For deciding such cases, one should avoid temptation as said by Cordozo, by matching the colour of one case against the colour of another.
42. In the cases of P. Krishna Menon and Ram Kripal Tripathi 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 aforesaid cases cannot be applied in the facts of the present case.
43. In the case of Mazagaon Dock Ltd., the question before the apex court was that whether tax can be charged on the profits which assessee company would ordinarily have made out of the ship repair activity. Hon'ble Supreme Court found it to be a trading activity. The facts of this case are not matching with the facts of the present case. Hence it is not relevant for deciding the issue. In the case of Distributors (Baroda) (P.) Ltd., apex court held that business refers to real, substantial, organised cause of activity for earning of profits. As such 'profit motive' is essential requisite for conducting business.
44. Business, without profit is not business, any more than a pickle is candy. Two essential requirements for an activity to be considered as business are: (i) it must be a continuous course of activity; and (ii) it must be carried on with a profit motive. This view was taken by the apex court in the case of H. Abdul Bakshi and in Sole Trustee, Loka Shikshana Trust's case. Similar view was taken by the jurisdictional High Court in the case of Bharat Development (P.) Ltd. Therefore, we do not find any merit in the contention of the ld. counsel that profit motive is not a necessary requisite for carrying the business. The phrase 'profit motive' is described by the apex court in the case of Sole Trustee, Loka Shikshana Trust as under:
"By the use of the expression 'profit motive' it is not intended that profit must, in fact, be earned. Nor does the expression cover a mere desire to make some monetary gain out of a transaction or even a series of transactions. It predicates a motive which pervades the whole series of transactions effected by the person in the course of his activity."
45. We have taken into consideration the entire conspectus of the case. In our opinion, profit motive is a necessary requisite for carrying the business. Not even an iota of evidence was adduced before us to demonstrate that activity of the publication was undertaken with an intent to earn profit. We have examined the motive which pervaded the whole series of transaction. We have perused the impugned order. In our opinion, CIT(A) took a correct view in the matter and his order calls for no interference on this count.
46. Coming now to the next issue apropos the taxability of the maturity value of CANSTAR-we find that the capital gains earned by a political party is exigible to tax. It is not coming within the ambit and purview of the exemption contemplated under section 13A of the Act. Political parties are required to pay tax on the amount of capital gains. The offer of CANSTAR UNIT comprised of two schemes, namely, 80L SCHEME and CAPITAL GAINS SCHEME. The option was available at the time of purchase of units. 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, assessee realised that capital gains scheme is not advantageous. Benefit of section 13A is not available in respect of capital gains. Assessee, therefore, changed the stand before CIT(A).
47. "APPROBATE AND REPROBATE" is a phrase borrowed from the Scots law, where it is used to express the principle embodied in the English doctrine of ELECTION-namely, that no party can blow hot and cold in the same stream.
The equitable doctrine of ELECTION evolved from the rule of common law: Election is the obligation imposed upon a party to choose between two inconsistent, or alternative, rights or claims, in cases where there is a clear intention of the person from whom he derives one that he should not enjoy both. No one is allowed to say one thing at one time and the opposite of it at another time.
48. Assessee resiled from the earlier stand because tax advantage was not available under the capital gains scheme. This fact came to its knowledge after the completion of assessment. The doctrine of CAVEAT EMPTOR, prescribes that let purchaser should take care. If purchaser makes a bad choice, he cannot hold others responsible for the same. To justify the claim, assessee resorted to some arguments and relied on some precedents to buttress those arguments.
49. In the case of Vania Silk Mills (P.) Ltd. apex court ruled that one cannot miss the fact that the inclusive definition of 'transfer' as given in section 2(47), also mentions such transactions as sale, exchange etc. to which the word 'transfer' would properly apply in its popular and natural import. Since these associated words and expressions imply the existence of the asset and of the transferee, according to the rule of NOSCITUR A SOCIIS, the expression 'extinguishment of any right therein' would take colour from the said associated words and expression and will have to be restricted to the sense analogous to them. 'Extinguishment of any right therein' will have to be confined to the extinguishment of rights on account of transfer. Similar view was taken in the case of Bharat Forge Co. Ltd. In the present case CANSTAR repurchased the units from the assessee. As such there was a transfer. Right of the assessee in the units of CANSTAR got extinguished on account of such transfer.
50. There is no dispute that the CANSTAR UNITS held by the assessee were transferable in the manner provided under the CANSTAR CAPITAL GAINS SCHEME. Such units were the movable property and capital asset of the assessee party. The apex court in the case of Anarkali Sarabhai, has held that the redemption of preference shares by the company will squarely come within the phrase 'sale, exchange or relinquishment of the asset' as employed in section 2(47) of the Act. The ratio of the apex court applies to the facts of the present case.
51. Having regard to the facts of the case we hold that the maturity value of CANSTAR amounted to capital gains. It is not exonerated from the rigour of tax. It falls beyond the ken of section 13A. The assessee at its own volition opted for the capital gains scheme. The CANSTAR 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. 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.
52. In the result, appeal of the assessee stands dismissed.
Per V. Dongzathang, President-I have carefully purused the order of my learned Brother. The assessee in this case is a political party registered as a National Party with the Election Commission of India. The application of the provisions of section 13A of the Income-tax Act, 1961 is not disputed. The main issues before the Tribunal are in regard to the question whether the publication of journals/ magazines etc. by the assessee constitute a business and whether the loss can be treated a business loss. The second question is in regard to capital gains assessed by the Assessing Officer in regard to investment in Canstar. The basic facts and the arguments of the parties have been fully recorded and discussed by my learned Brother. I am, however, not persuaded to agree with the conclusion arrived at by him. The assessee, as stated above, is a recognised National Party. The objective of the assessee is enshrined in its Constitution as follows:
"Article II: Objective-The party is pledged to build up India as a strong and prosperous nation, which is modern, progressive and enlighted in outlook and which proudly draws inspiration from India's ancient culture and values and thus is able to emerge as great world power playing an effective role in the comity of Nations for the establishments of world peace and a just international order. The party aims at establishing a democratic state which guarantees to all citizens irrespective of caste, creed or sex, political, social and economic justice, equality of opportunity and liberty of faith and expression. The party shall bear true faith and allegiance to the Constitution of India as by law established and to the principles of socialism, secularism and democracy and would uphold the sovereignty, unity and integrity ofIndia."
The assessee in this case derives income from voluntary contributions, interest and dividends etc. The assessee also earned a sum of Rs. 3,73,576 on account of sale of publications. It was the claim of the assessee that the publication undertaken by the assessee was in the nature of business and as such, it does not come within the purview of Section 13A of the Act. The Assessing Officer, however, held that this publication was undertaken for political purpose. The party's constitution did not allow running of a business or do any other activities than what was necessary to achieve the goal prescribed in the party's constitution. The publications sold by the assessee are basically political literature of the party to propagate its ideology. The Assessing Officer accordingly deducted the sale proceeds of Rs. 3.37 lacs of the journals and literatures from the expenditure claimed at Rs. 70 lacs. Thereby he rejected the claim that the activity of publication and sale of party's journal and literature was a business activity and the loss arising therefrom could not be set off against income from other sources. This view was upheld by the learned CIT(Appeals). In the appeal before the Tribunal, various arguments were advanced by both the parties which 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 CIT(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 publications were not distributed free would not be sufficient to establish that there is a profit motive. Mere charging of subscription fee would not change the character of the publication for which reliance was placed in the case of Webster, Pearson. My learned Brother also examined the Resolution passed by the management and also examined the set up of the publication department and the nature of the publication which was registered as newspaper. However, it was his view that these facts by themselves could not establish the fact that the activity was undertaken with profit motive. It was further noted that the assessee was not making any attempt to comply with the provisions of Section 44AB of the Act. It is also pointed out that by not including business income for exemption under section 13A the legislature in its wisdom did not sanction the carrying on of business by political parties. It was further pointed out by him that the assessee did not reflect the business income at the time of furnishing of the return. Having regard to this and also the various decisions cited before us, he came to the conclusion that the profit motive, which is a necessary requisite for carrying on the business was not present in this case and, therefore, the CIT(Appeals) took a correct view in the matter and his order calls for no interference. The above conclusion in may view is not proper. Every political party has its own objective and manifestoes. To achieve the said objective, the political party also has to undertake various activities required for achieving the objectives. Political parties cannot be run without money. The Parliament in its wisdom felt that political parties also should have certain freedom and enjoy certain exemptions so that the objectives can be achieved. With this intent and purpose, the Parliament inserted Section 13A w.e.f.1-4-1979allowing exemption of income from house property or income from other sources or any income by way of voluntary contributions received by a political party from any person. From the above provisions, it is manifest that a political party also requires funds for the political activities and the Parliament itself deem it necessary to exempt the above items of income. It, however, does not prohibit carrying on of the business. In such a case, there will be no exemption under section 13A and the political party has to pay Income-tax on the said profits and gains of the business undertaken by it. Therefore, the provisions of Section 13A does not come in the way of political party conducting a business as an ancillary activity to augment its resources for running the party. The assessee in this case set up a publication department as an independent department and maintains regular books of account. It is a fact that the publications do carry the political ideologies and propaganda to educate the public. However, there should not be any confusion between the ultimate objective and the immediate objective of the publications. The ultimate objective of the party is to build upIndiaas a strong and prosperous nation. To achieve this objective, it has to educate the people 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 doing certain ancillary activities generating own source of income to meet the financial requirements. The ultimate objective is too remote and therefore, cannot be used to judge the nature of the business. In this case also, one should not confuse the ultimate objective and the immediate objective. Since the immediate objective is to have more subscribers and at the same time derive income from the sale of publications, the assessee fixed a reduced price for the publications. Such practice is prevalent not only in trading but in other Newspapers also where invitation price is fixed at much below the market price so as to attract more subscribers and customers. In such a case, it cannot be said that the activity of publication is not a business activity.Lotof emphasis has been laid on profit motive and the loss incurred by the assessee right from the beginning. In this regard, there are number of authorities to support the view that actual profit is not necessary for the activity to be in the nature of business. The learned counsel himself heavily relied on the decision in the case of Bharat Development (P.) Ltd., which in turn relied on the decision in the case of Sole Trustee, Loka Shikshana Trust wherein the Hon'ble Supreme Court itself held that whether a person carries on business in a particular commodity must depend upon the volume, frequency, continuity and regular transactions of purchase and sale in a class of goods and the transaction must ordinarily be entered into with a profit motive. The above decisions in my view rather support the stand taken by the learned counsel of the assessee. The publication division carries on business in publishing magazine and journals on a regular basis. It was a continuous, systematic and organised activity. The activity of printing, publishing and sale of these publications are conducted by the assessee with the objective of generating income. Though there is no immediate profit, the publications are capable of producing profit and, therefore, the current loss incurred by the assessee during the year should not stand in the way of treating the activity as in the nature of business. This view is quite in order and preferable to other interpretations. Section 13A itself contemplates the total income of a political party of the previous year out of which income from house property or income from other sources or any income by way of voluntary contributions to be excluded. It is, therefore, manifest that a political party can always have a source of income over and above the exempted incomes. Secondly, there is no restrictive clause in Section 13A as in Section 11 of the IT Act. Under section 11, profit and gains of the business will be exempt only if the business is incidental to the attainment of the objective. However, there is no such special condition to be fulfilled by the political party to run a business. Section 13A does not place any condition that any activity, though in the nature of business, will not be treated as such if such business is incidental to the attainment of the objective of the political party. Unless there is such 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 capital gains, it is seen that the issue has not been examined in the right perspective. The decision has been based mainly on the scheme and the claim made by the assessee at the initial stages. It is, therefore, necessary to examine the nature of the Canstar Scheme, 1990 floated by Canara Bank through Canbank Mutual Fund. The Scheme offers two types of units namely CG. Canstar and 80L Canstar. Under both the schemes, interest not less than 12.5% accrued each year on both the Canstars. The income so declared, however, was not disbursed but ploughed back for investment purpose. In the case of 80L Canstar holder, a Certificate was given to claim tax deduction at the time of filing of the income tax return. However, in the case of CG. Canstar holders, such Certificate was not granted as the payment was to be made at the termination or at the time of repurchase of the Canstar. The only difference between the two Schemes is that in the case of 80L Canstar, the interest income is declared every year whereas in the case of CG. Canstar, the payment is made at the time of repurchase. The question to be decided by the Assessing Officer is whether by postponement of payment of the annual income, the interest income which accrued to the CG. Canstar holders automatically become appreciation of the capital value for the purpose of capital gains or whether the interest income is a revenue receipt separate from the capital invested by the assessee. Similar Schemes were launched by other banking companies like ICICI and IDBI. In the case of IDBI, it offers for public subscription 4 types of unsecured redeemable bonds. One is IDBI Regular Income Bond in which case interest is payable monthly at 12.25% p.a. or at the option of the investor annually at 13% p.a. It also has IDBI Deep Discount Bond in which case investment can be made for 5 to 25 years with the provision that investors will have the option to redeem the Deep Discount Bond before the maturity period on March 16 of each year. In this Scheme the investors get the capital amount alongwith the interest on maturity of the Bond. It is, however, seen that the interest accrued to the investor is the yield on the capital and has not been treated as appreciation of the capital resulting in capital gains. From the above facts, it is seen that there is no appreciation in the intrinsic value of the capital invested. It is only the yield on the investment which was given to the investor in the form of interest and cannot be treated as capital appreciation for the purpose of capital gains. The intrinsic value of the money invested remains the same. Therefore, the capital remains the capital and the yield therefrom has to be treated as revenue receipt whether it is drawn monthly, annually, or after a few years. This can be illustrated by an apple tree. An apple tree will bear fruit every year which is the yield of the apple tree. Even if the apple tree is sold or redeemed the sale proceeds for the apple tree will remain capital receipt and the sale proceeds for the fruit thereon will have to be treated as the fruit of the tree which is in the revenue field. In the light of the above, it is clear 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 3 or 4 years. The Scheme by itself cannot override the provisions of Income-tax Act and therefore, the assessment has to be made in the light of the provisions of the IT Act and not on the basis of the Scheme put forward by the Canbank Mutual Fund. It is for the Assessing Officer to decide and assess the income in accordance with law. Since the above accretion is in the nature of revenue receipt, it cannot be assessed as capital gains and has to be assessed as income from other sources as the assessee is not doing this investment as its business. Lots of emphasis has been laid on the options exercised by the assessee at the time of investment and even in the original return filed by it. This aspect in my view is irrelevant as the assessment is to be made by the Assessing Officer in accordance with law. The assessee cannot be punished and assessed for its ignorance. It is the duty of the Assessing Officer, to apply the correct law and assess the tax which is due. Just because the assessee claims the exemption, it cannot be allowed unless it is permissible in law. Similarly, if the assessee makes a wrong claim then it will not be binding if that is not in accordance with law. Therefore, the options exercised by the assessee in the light of the scheme has to be ignored and the correct law has to be applied as per the provisions of the Income-tax Act. Another point raised is that the assessee has not declared the annual income which accrued to it from year to year. In this regard, it is seen that the assessee is following cash system and the income has been declared on receipt basis. There should, therefore, be no irregularity in this regard as the assessee was not bound to disclose the income when it was not disbursed to it. The same cannot be assessed on accrual basis as the assessee is not following mercantile system of accounting. There is, therefore, no reason to deny the claim of the assessee to treat the revenue receipt on account of interest received from investment in Canstar as income from other sources. The above view is in line with the overall scheme of the IT Act. The Canstar issued under the Canstar Scheme, 1990 is a redeemable non-debt security of the face value of Rs. 10 each. The interest income therefrom would normally be assessable under sections 18 to 21, deleted by the Finance Act, 1988 w.e.f.1-4-1989. From the assessment year 1989-90, interest on securities is assessable as business income under section 28 where such interest forms part of business profits. In other cases, it is assessable as income from other sources under section 56(2)(i-d) of the Income-tax Act, 1961. With the change in law, the interest received by the assessee under the Scheme has to be processed either under section 28 or section 56 of the Income-tax Act, 1961. It is not the case of any one that the assessee is buying the Canstar as part of the trading asset. Therefore, it cannot form part of business profit as contemplated under section 28. In such a case, the interest income has to be considered under section 56(2)(i-d) and the income has to be assessed in accordance with method of accounting regularly employed by the assessee or in the absence of such method on the accrual basis. The interest received by the assessee on the redemption/repurchase of Canstar has to be assessed as income from other sources. This view also is indirectly supported by the 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 deemed to be the capital gains arising to the assessee in the previous year in which such repurchase takes place or the plan referred to in that section is terminated and shall be taxed accordingly.
Explanation-For the purposes of this sub-section, "capital value of such units" means any amount invested by the assessee in the units referred to in sub-section(2) of Section 80CCB."
From the above difference between the repurchase price of the units referred in sub-section (2) of Section 80CCB and the capital value of such units is deemed to be the capital gains arising to the assessee in the previous year in which such repurchase takes place etc. The deeming provisions of Section 80CCB are applicable to only assessees being an individual or a Hindu undivided family. Therefore, the provisions of Section 80CCB are not applicable to the case of the assessee. In such a case, the interest received by the assessee cannot be assessed under any other head than "income from other sources" as the said section deals with the residuary head of income and sweeps in all such taxable income, profits and gains as fall outside the specific heads. The Assessing Officer is accordingly directed to assess the said income under the head "income from other sources".
REFERENCE UNDER SECTION 255(4) OF THE INCOME-TAX ACT, 1961
We, the Members of the Tribunal-Delhi Bench-C New Delhi, have differed in the order to be passed in IT Appeal No. 1184/Del./99.
The questions on which we have differed are referred to the Hon'ble president under section 255(4) of the Income-tax Act, 1961 as under:-
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"?
THIRD MEMBER ORDER
Per Mehta, V.P.-A third member reference has been made to us by the Hon'ble President under section 255(4) of the Income-tax Act, 1961, on the following points on which there was a difference between the learned Members constituting the division bench:-
"1. Whether on the facts and in the circumstances of the case the assessee's activity of the publication department could be construed to be a business activity and losses therefrom could be adjusted against other income?
2. Whether on the facts and in the circumstances of the case the maturity value of CANSTAR is exigible to tax under the head "Capital gains" or "Income from other sources"?"
2. To recapitulate brief facts of the case which have been set out at length in the orders passed by the Hon'ble President and the then learned Vice President, Delhi Zone, who constituted the division bench the assessee is a Political party and registered as a National party with the Election Commission of India. In the return filed with the Assessing Officer a loss of Rs. 59,55,660 was shown which comprised long term capital gains of Rs. 31,69,231; income from sale of newspaper/publications Rs. 1,19,798, the total coming to Rs. 32,89,029 against which expenses were claimed to the tune of Rs. 92,44,686, the resultant figure being a loss of Rs. 59,55,660.
3. In the assessment proceedings the Assessing Officer allowed exemption under section 13A of the Act in respect of income from voluntary contributions and income from other sources, but the stand taken in respect of the capital gains as also the claim on account of business loss was not accepted as these were found to be beyond the ken of section 13A. The Assessing Officer brought to tax the capital gains of Rs. 31,69,231 and also rejected the business loss claimed completing assessment on an income of Rs. 31,69,231.
4. Coming to the first point of difference the assessee claimed before the Assessing Officer that it was engaged in a business activity inasmuch as it was publishing certain journals, which were sold to subscribers directly or through party outlets. The submission in fact was that this represented a concerted business activity and direct and indirect expenditure relating thereto was allowable as deduction from the sale proceeds of such journals etc. It was noted by the Assessing Officer that the assessee had claimed direct expenditure as also indirect expenditure as deductions being attributable to the purported business activity of publication and sale. It was noticed by the Assessing Officer that the expenditure claimed by the assessee was much more than the sale proceeds and, therefore, the resultant claim on account of loss.
5. In response to the stand of the assessee the Assessing Officer was of the view that the aforesaid activity could not be treated as earning of income from business and profession, more so, when political parties were not formed with the object of making/earning profits. The aforesaid stand of the Revenue was contested by the assessee and by means of a written communication it was submitted that it was publishing two monthly journals, namely. "BJP Today" in English and "Bhajpa Samachar" in Hindi from its central office and various other publications from its State units. It was submitted that such publications were sold from the sales counter in the party's central office and by the State units. It was explained to the Assessing Officer that the party had been publishing books and journals as a business activity, which in turn was an integral part of its political activities. It was further emphasized that the volume of expenditure was sufficient evidence of the fact that publishing was undertaken as a business activity.
6. The further submissions of the assessee were to the effect that there was no bar on a political party earning income from profits and gains of business and profession under The Representation of People Act, 1951; The Income-tax Act, 1961; & lastly, The Model Code of Conduct as evolved by the Election Commission of India. According to the assessee all that the Income-tax Act required was that a political party must file a return of income and pay tax on such income, which was not covered under section 13A of the Income-tax Act.
7. The Assessing Officer did not accept the aforesaid submissions of the assessee and referring at length to relevant provisions of the Representation of Peoples' Act as also the party constitution came to the conclusion that any activity undertaken by an entity, which was not enshrined in the memorandum or articles of association of a company registered under the Companies Act, 1956 or a document by which it had come into existence was to be held us ultra vires of the memorandum or articles of association etc. and all acts arising there from were ab initio void. According to the Assessing Officer such ultra vires acts being void could not be set right by subsequent ratification. In support of the aforesaid view the Assessing Officer placed reliance on the judgment in Dr. A. Lakshmanaswami Mudaliar's case [1985] LR 7 HL 6531, Deonarayan Prasad Bhadani v. Bank of Baroda Ltd. [1957] 27 Comp. Cas. 223 (Bom.) and Delhi Stock Exchange Association Ltd. v. CIT [1997] 225 ITR 235(7)(SC).
8. In the light of the aforesaid facts, the Assessing Officer held that the party's constitution did not allow it to do any activity other than what was necessary to achieve the goals prescribed in the said constitution. According to him "business" was not a part of the activity prescribed in the constitution of the party and nor did any case law support the assessee's stand. According to the Assessing Officer the party carried on an activity which was beyond the powers given to it by its document of incorporation and which was consequentially void ab initio. In the final analysis, the Assessing Officer rejected the claim of the appellant on account of publication and sale of its journals and literature as a business proposition. He, however, held that the expenses were incurred for carrying on political activities and the receipts from the sale of publications could be considered as voluntary contributions. The Assessing Officer in fact observed that the publications sold comprised political literature of the party and it was noted as a fact that whereas the sale proceeds were to the tune of Rs. 3.37 lakhs, the expenditure claimed was to the tune of Rs. 70 lakhs.
9. On further appeal the Commissioner of Income-tax(Appeals) confirmed the view taken by the Assessing Officer, observing in the process, as under:-
"Coming to the appellant's claim of loss on account of publication and sale of its Journals and Publications is concerned, the ld. counsels of the appellant have contended that since in the R.P. Act, 1951 and I.T. Act, 1961 or Model Code of Conduct evolved by E.C.I. there is no ban on a Political Party to carry on business activity, therefore, the publication and sale of Party's Journals and Literature should be treated as appellant's business activity and loss arising out of such activity should be treated as such and allowed to be set off against other income-this plea of the appellant is unacceptable. The appellant is a Political Party. Political Parties are not formed with a view to earning profit from business or profession or any other vocation. Political Party is an organization of association of persons. It has a common ideology for the welfare of the country in accordance with the Constitution of India. Its aim is to implement its ideology, plans and policies on coming to power. If it is already in power, then it implements its ideologies and policies in a way that would allow it to continue to remain in power by accepted democratic methods. For this purpose, the periodical elections are held in all democratic countries in the process of which the Parties to reach the electorate and educate them about their ideologies and objectives to gain control of power for the governance of the country. In order to propagate its ideology, the Political Parties have to hold political rallies, prints, publish and distribute and sell literature, organize rallies and public contact exercise in order to impart their ideology to the electorate. Thus, the publication and distribution of Political Journals, manifestoes and other literature is an essential part of the Political activity of Party in order to win the support of the electorate. Such effort does not constitute an exercise of earning profits from business or profession. Earning income from business and profession has a very narrow implication then the overall political activity of a Party. In fact, it is only a part of the overall strategy of a Party to come to power by publication and distribution of its Journals and publication and other such efforts approved by R.P. Act, Model Code of Conduct under the overall spirit of the Constitution of India that political party spreads its message to the electorate. Thus, the political parties have to undertake a number of exercises to achieve their objective by coming to power and then to implement its ideology. Publication of literature as already stated is a means to an end and not a separate and independent end in itself resulting in earning of income for incurring loss by carrying on business activity. In the case of Bharat Development (P.) Ltd., it has been held that to regard an activity as business, there must be cause of dealings continue or contemplated to be continued with a profit motive and not for support or pleasure. Obviously, activities of political party are not motivated by desire to earn profit. In the case of IRC v. Marine Steam Turbine Co. Ltd. [1920] IKB 192, it has been held that business was an active occupation continuously carried on. It means, some real substantive and systematic course of activity or conduct with a set purpose. This observation was made by Supreme Court in the case of Narain Swadeshi Weaving Mills'. In the case of Upper India Chamber of Commerce v. CIT [1947] 15 ITR 263 it had been held by Allahabad High Court that in common parlance business connotes activities in which a person is engaged with a set purpose and the frequency or the repetition of the activity, though at times a decisive factor is by no means infallible test. It connotes the idea of buying and selling. Obviously, the substantive and systematic course of Political Party's activity is to win the confidence of the electorate without profit motive. Therefore, loss arising on account of Publication and sale of its Journals and Literature cannot constitute a business activity and such loss cannot be allowed either as deduction or set off against any other head of income. In short, publication of Journals 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."
10. On further appeal before the Tribunal the matter was argued at length before the division bench and the main arguments of the assessee's counsels to canvass the view that the loss in the publication be considered and allowed as a business loss were as follows:-
"(i) The assessee is having a separate publication department;
(ii) BJP Today and Bhajpa Samachar are registered newspapers;
(iii) Activity of publication is a continuous, systematic and organised activity;
(iv) All newspapers, books, magazines and journals are sold for a fixed price;
(v) The newspapers are registered with the Postal Department for concessional rates for dispatch like any other newspaper. These registrations are renewed annually;
(vi) The newspapers are registered with the Police Department specifically stating a selling price;
(vii) A separate bank account exists which was opened with an intent to keep the activity independent of the other receipts; and payments of the party;
(viii) The publication activity was carried out with proper resolution of a National Executive."
11. The further plea on the part of the assessee was that section 13A did not place any bar on carrying on of a business by a political party and although exemption under the said section was not available it was nowhere laid down that a political party could not carry on business. According to the learned counsel for the appellant earning of profit was not a sine qua non and all that had to be seen was that the activity must be continuous, systematic and organised. An unintended activity, according to the learned counsel, could also turn out to be a business activity, which may be without any profit motive. To support the aforesaid arguments, reliance was placed on the following judgments:
(i) Narain Swadeshi Weaving Mills' case;
(ii) Mazagaon Dock Ltd's case;
(iii) P. Krishna Menon's case;
(iv) Distributors (Baroda)(P.) Ltd's case; and
(v) Ram Kripal Tripathi's case.
12. In concluding it was urged by the learned counsel for the appellant that the loss at best be described as negative income and further there was a separate and independent publication department in which an organized and continuous activity was being carried on and the publications were sold at a price. It was also sought to be emphasized that the memorandum of the party did not forbid the carrying on of the business activity and further no restriction had been placed by the Representation of the Peoples Act or under the Income-tax Act on the carrying on of business activity by a political party. The plea in fact was that a political party could raise funds by various means and carrying on of business was one such mean.
13. The learned standing counsel for the Revenue, on the other hand, supported the order of the Commissioner of Income-tax (Appeals) contending that political parties were not formed with the object of making profit or carrying on business and besides there was nothing in the memorandum of the party enabling it to carry on business. According to him the assessee was competent 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 Hon'ble Supreme Court in the case of Dr. A. Lakshmanaswami Mudaliar.
14. The learned standing counsel further referred to the provisions of section 13A contending that a political party was not permitted to carry on business. According to him profit motive was a necessary ingredient for carrying on of business and which the assessee has failed to establish. It was highlighted that the assessee suffered substantial losses on the sale of its publications and no iota of evidence had been adduced to demonstrate that the earning of profit was a motive. The further submission was to the effect that to regard an activity as "business" there must be a course of dealings either actually continued or contemplated to be continued with a profit motive. The plea, in other words, was that the following two essential requirements for an activity to be considered as "business" were absent:
(i) It must be a continuous course of activity; &
(ii) It must be carried on with a profit motive.
15. In support of the aforesaid arguments, reliance was placed on the following judgments:
(i) Bharat Development (P.) Ltd.'s case at 474;
(ii) B. Malick's case at 636;
(iii) K.S. Venkatasubbiah Reddiar's case at 21; &
(iv) Sole Trustees Loka Shikshana Trust's case at 243-244.
In making further submissions the learned standing counsel urged that merely because some amount had been charged for the publications it did not make the transactions as a business inasmuch as in order to be business there must be a semblance of trade. A reference was made to the judgment of the Hon'ble Supreme Court in the case of Indian Chamber of Commerce. The learned standing counsel also relied on a Departmental Circular dated19-10-2000, according to which provisions of section 44AB read with section 271B were held not to be applicable.
16. It was further submitted on behalf of the Revenue that profit making must be the end to which the activity concerned was directed and that the predominant object of the activity must be the making of profit. The plea, in other words, was that where an activity was not pervaded by profit making but was carried on primarily for serving a political party it would not be correct to describe it as an activity for profit. It was pointed out that the memorandum of the party was silent on this aspect and further there was no express provision that the party will undertake publication for earning profit. It was submitted that the surrounding circumstances clearly indicated that the publishing activity of the assessee was not propelled by a profit motive.
17. The learned Vice President, who passed the initial order confirmed the view taken by the Commissioner of Income-tax (Appeals) on the following main grounds:-
(i) The assessee was a political party not formed with the object of making profit and its memorandum did not enable it to carry on business;
(ii) Since the inception the party suffered huge losses on account of the publication work which in turn was carried on with the help of other income earned;
(iii) The mere fact that the publications were not distributed free, but sold for some consideration was not sufficient to establish a profit motive;
(iv) No material was placed before the Tribunal which would 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 of the Board relied upon on behalf of the Revenue there was no private profit motive or the possibility of distribution of income in a political party as in a charitable institution and political parties accordingly were exonerated from the applicability of sections 44AB and 271B;
(ix) On the assumption that the assessee was carrying on business it was mandatory on its part to comply with the requirement of section 44AB and nothing was brought on record to show that such compliance had been made;
(x) Section 44AB was not applicable to a political party because it was presumed that in a political party there was neither profit motive nor possibility of distribution of income;
(xi) Section 13A contained a special provision relating to the income of a political party and as per the mandate of this section it was sine qua non to avail the requisite benefit that the eligible political party must fulfil the requisite conditions contained in the section; &
(xii) That under the said section any income of a political party chargeable under the heads "Income from house property", "Income from other sources" or "any income by way of voluntary contributions" was exempt from the rigour of Income-tax and it implied that the legislature in its wisdom did not confer benefit of section 13A in relation to business income the reason probably being that political parties were supposed to carry on political activities and not business activities.
18. By a further detailed discussion with reference to facts of each of the cases cited before the bench the learned Vice President took the view that those pressed forth on behalf of the assessee were not applicable whereas certain others supported the Revenue's view-point. It was held that a "profit motive" was an essential requisite for conducting business and, therefore, there was no merit in the contention of the assessee's counsel that profit motive was not a necessary requisite for carrying on of a business.
19. The Hon'ble President did not subscribe to the view taken by the learned Vice President and by means of a separate dissenting order he accepted the arguments advanced on behalf of the assessee to ultimately conclude that the activity undertaken by the publication department was in the nature of a business and the loss incurred by the publication activities was to be treated as a business loss. The main reasoning of the Hon'ble 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) The 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 1-4-1979 exempting certain sources of income from the taxation net, but this section did not contain a specific prohibition that a political party cannot carry on a business;
(iii) That in case a political party carried on business, the net effect would be that such income would not enjoy exemption under section 13A;
(iv) The assessee had set up an independent publication department and maintained regular books of accounts and it was a fact that the publications did carry the political ideologies and propaganda of the party to educate the public, but to achieve the aforesaid the party had to generate its own resources and if a particular activity was run on business lines the same could not be rejected as non-business merely because the ultimate objective was not for earning the profit;
(v) Earning of profit need not be an end in itself and the ultimate objective could be achieved by undertaking certain ancillary activities, which generated income to meet the financial requirements and the ultimate objective was too remote and could not, therefore, be used to judge the nature of the business;
(vi) There could not be confusion between the ultimate objective of the assessee and the immediate objective since the latter was to have more subscribers and at the same time derive income from the sale of publications;
(vii) The assessee had fixed a reduced price for the publication and such practice was prevalent not only in trading, but in other newspapers as well where the invitation price was fixed at a figure below the market price so as to attract more subscribers and customers. Under these circumstances it could not be said that the activity of publication was not a business activity;
(viii) Much emphasis had been laid by the Revenue on profit motive and the loss incurred by the assessee right from the beginning whereas there were number of authorities to support the view that actual profit was not necessary for the activity to be in the nature of business;
(ix) The publication division carried on business in publishing magazines and journals on a regular basis and it was in fact a continuous, systematic and organized activity and although there was no immediate profit the publications were capable of producing such profit and, therefore, the current loss incurred by the assessee during the assessment year under consideration should not stand in the way in treating the activity as in the nature of business;
(x) That section 13A itself contemplated the total income of a political party from various sources and it could not be held that a political party could not have a source of income over and above the exempted incomes specified in section 13A;
(xi) There was no restrictive clause in section 13A as there was in section 11 of the Income-tax Act, 1961 since under the latter profits and gains of business would be exempt only if the business was incidental to the attainment of the various objectives, but there was no such special condition to be fulfilled by a political party in case it ran a business; &
(xii) Section 13A did not lay down any condition that an activity though in the nature of business would not be treated as such if such business was incidental to the attainment of the objective of the political party.
20. In reaching the aforesaid conclusions the Hon'ble President relied on the judgments of the Hon'ble Supreme Court in the case of Bharat Development (P.) Ltd. as also in the case of Sole Trustee, Loka Shikshana Trust.
21. Before us both the parties argued at length and we must categorically state that their arguments were quite identical to those tendered before the division bench, but for purposes of disposing of the present reference, we would highlight their main arguments as follows:-
On behalf of the assessee:
The learned counsel stated that the publication department represented a systematic activity being carried on and which was capable of producing income, which would include loss as well. According to him it had never been stated or admitted before the division bench that provisions of section 44AB were not applicable and the fact was that the turnover of the publication division did not exceed the stipulated limit of Rs. 40 lakhs. The learned counsel also sought to emphasize that the observation of the learned Vice President in para 40 of his order was not correct since the business loss had been claimed in the return itself and any observation to the contrary was not proper. It was submitted that in the year under consideration the Department had rejected the claim for the publication division to be treated as a business because a loss had been claimed, but what would be the stand of the Revenue when there would be a profit would be quite relevant. Further submission was to the effect that the circular of the Board relied upon by the Revenue was in the context of voluntary contributions and nothing could be read therein which would lead to the conclusion that a political party could not engage itself in business. Taking us to section 13A the learned counsel submitted that there was no specific prohibition for carrying on business in the said section and if that would have been the intention of the legislature then the wording of the section itself would have been quite different. The learned counsel referred to a situation where there were continued losses for years together in an activity which was in the nature of business or akin thereto and a view could not be taken that till the losses were converted into gains it would be treated as a non-business activity.
22. The further submissions of the learned counsel were that separate accounts had been maintained for the publication department and the various publications were not only registered with the Registrar of Newspapers, but with all other Government authorities as was required in the case of newspapers. It was also submitted that the National Executive was the highest authority within the party and the various activities pertaining to the publication department had been set out by the document by means of which the party was constituted/came into existence. It was also emphasized by the learned counsel that the various publications were sold for a price and it was in the nature of a regular, organized and systematic activity. He in fact went on to state that there may be no intention for an assessee to carry on business or a motive to earn any income, but in a given situation, the income arising from an activity could still be treated as income from a vocation or a business. His plea in fact was that "profit motive" as was harped upon by the Revenue was not an essential ingredient for an activity to be treated as a business.
23. It was also the submission of the 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 the learned counsel have already been reproduced by us in the earlier part of the present order and we do not propose to reiterate these as of now, but would only like to mention that the learned counsel in support of the assessee's case placed reliance on most of the judgments as had been done while arguing the appeal before the division bench. These decisions are Narain Swadeshi Weaving Mills' case at 773; Mazagaon Dock Ltd.'s case at 369; P. Krishna Menon's case, Distributors (Baroda) (P.) Ltd.'s case ; CET v. P.V.G. Raju [1975] 101 ITR 465 at p. 468 (SC), Ram Kripal Tripathi's case at pp. 409, 411, 412 and 413; Sole Trustee, Loka Shikshana Trust's case, CET v. Mrs. Manorama Sarabhai [1966] 59 ITR 262 (Guj.). The learned counsel also referred to the commentary of the learned authors Kanga & Palkhivala, 8th Edition pages 458 & 459 and in concluding it was vehemently contended that the view taken by the Hon'ble President was the correct one on facts and in law. On behalf of the Revenue
24. The learned standing counsel in his arguments emphasized that the objectives of the assessee were entirely political in nature and the main purpose was to come to power, remain in power and to propagate the party's ideology through its publications. According to him, registration with the Registrar of Newspapers & other authorities was a formality to be adhered to and this by itself could not be a factor for deciding whether a business was being carried on or not. It was submitted by the learned standing counsel that there was no resolution by the National Council of the party to support "business of printing" and every political party was to adhere to its constitution in a strict manner. According to him it was inconceivable that a political party would venture into business although there was no provision in any law debarring a political party from carrying on business. Referring to section 13A it was pointed out that only three sources of income had been contemplated for exemption and referring to the CBDT Circular set out at pages 17 & 18 of the order of the learned Vice President, it was the submission that provisions of section 44AB had not been made applicable to a political party and this by itself was an indicator that a political party could not engage in business.
25. By referring to the assessee's own facts the learned standing counsel further submitted that over a period of 12 years expenditure to the tune of Rs. 4 to 5 crores had been incurred in the publication department and compared to this the income was negligible. According to him intention to make profit was a necessary requisite for carrying on a business and the facts of the present case clearly showed that there was no such intention since no proper accounts had been kept of the publication department and the expenditure had been claimed on a rough estimate. It was further submitted on behalf of the Revenue that the assessee did not seek advertisements and under these conditions there could never be a profit when the selling rates of the publications were very nominal. With reference to the judgment of the Hon'ble Supreme Court in the case of Sole Trustee Loka Shikshana Trust 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.
26. 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 the learned counsel was that this may result in an income, but necessarily not representing a business. The plea, in other words, was that the intention was relevant. It was further emphasised on behalf of the Revenue that the primary intention of the assessee was not to run business, but to propagate the ideology of the party.
27. For the aforesaid submissions, reliance was placed on the following judgments:
(i) Bharat Development (P.) Ltd.'s case ;
(ii) State ofTamil Naduv. Board of Trustees of thePortofMadras[1999] 114 STC 520 (SC) at 525, 529, 530 & 536;
(iii) State ofGujaratv. Raipur Mfg. Co. Ltd. [1967] 19 STC 1(SC);
(iv) State of Tamil Nadu v. Thirumagal Mills Ltd./Simpson & Co. Ltd. [1972] 29 STC 290(SC);
(v) Tirumala Tirupati Devashthanam v. State ofMadras[1972] 29 STC 266 (Mad.);
(vi) Nilambur Rubber Co. Ltd. v. State ofKerala[1999] 112 STC 654 (SC);
(vii) Dy. CAIT v. Travancore Rubber & Tea Co. [1967] 20 STC 520 (SC) at 525, 526 & 528;
(viii) Dy. Commissioner of Commercial Taxes v. Sri Thirumagal Mills Ltd. [1967] 20 STC 287(Mad.);
(ix) Government Medical Store Depot v. Suptd. of Taxes [1985] 60 STC 296 (SC);
(x) State ofPunjabv. Assessing Authority [1991] 80 STC 396 (SC);
(xi) State ofGujaratv. Vivekanand Mills [1967] 19 STC 103 (SC); &
(xii) State ofGujaratv. Ambica Mills Ltd. [1967] 19 STC 12 (SC).
28. The further plea of the learned standing counsel was that one had to consider the volume and frequency before it could be held that a business was being carried on and in the assessee's case being that of a political party the dominant purpose was politics and nothing else. According to him even a collection of Rs. 100 per person would not make it a business.
29. Coming to the decisions relied upon by the assessee's counsel the learned standing counsel referred at length to each of these and during the numerous hearings before the Tribunal he referred to relevant portions thereof contending that none of these advanced the assessee's case for having the publication department being treated as a business activity. It was also sought to be emphasized that business, profession and vocation were not the same and these were not inter-changeable. The further plea of the learned standing counsel was that before arriving at a decision whether a business was being carried on in any case one had to see the facts and surrounding circumstances. With reference to the aforesaid arguments the learned standing counsel referred to the case of CIT v. Durga Prasad More [1971] 82 ITR 540 (SC) at 545 and the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. v. CIT [1997] 227 ITR 172(8)(SC). A reference was also made to at page 21 in the case of K.S. Venkatasubbiah Reddiar ; and in the case of CIT v. K. Ramakrishnan [1993] 202 ITR 997 at page 1002 (Ker.) with reference to the question of a precedent.
30. In reply the learned counsel for the appellant at the outset stated that most of the decisions 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 Hon'ble Supreme Court in the case of P. Krishna Menon there need not be any intention to make money/profit and all that was required was a continuous and organized 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 business and citing an example the 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 provisions of section 44AB the learned counsel reiterated that all that which was argued by him before the division bench was that the said provision did not apply to receipts in the form of voluntary contributions. He once again referred to the situation where the assessee's publication division would earn profit and what would be the stand of the Department? To this submission the learned standing counsel on behalf of the Revenue replied that the matter would be dealt with in accordance with law as and when such a situation arose.
31. We have considered the rival submissions and have also perused the material on record to which our attention was invited during the course of the hearing. The numerous decisions cited at the bar by the parties have also been taken into account and in fact minutely perused by us.
32. At the outset, we would like to observe that the assessee while filing its revised return claimed that its publication division constituted a business and any observation to the contrary in the order of the learned Vice-President would, therefore, stand modified.
33. Before we give our decision on the point at issue, we would like to deal with certain other propositions put forth by either side. There was an argument by the assessee's counsel that the numerous decisions relied upon by the Revenue pertained to the Sales-tax law and, therefore, would not be applicable. This may appear to be a plausible argument, but one would like to further deliberate on the matter before saying anything one way or the other. Let us first go to the definition of the term "business" in section 2(13) of the Income-tax Act, 1961, as follows:-
"'business' includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture;"
34. Although not specifically brought to our notice by either party as to what is the definition of "business" in Sales-tax laws, we while perusing the decision of the Madras High Court in Sri Thirumagal Mills Ltd.'s case notice that the definition reads as follows:
"Any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture whether or not such trade, commerce, manufacture, adventure or concern is carried on which a motive to make gain or profit and whether or not any profit accrues from such trade, commerce, manufacture, adventure or concern;" [underlined by us] The words beginning with whether and ending with concern are not part of the Income-tax definition of business, but the rest is identical.
35. This decision in Sri Thirumagal Mills Ltd.'s case was confirmed by the Hon'ble Supreme Court in Thirumagal Mills Ltd./Simpson & Co. Ltd.'s case. Even in some of the other judgments pertaining to the Sales-tax laws of other States we found an identical definition under consideration.
36. 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 Hon'ble High Court or of theHon'ble 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 Hon'ble Supreme Court in the case of Jagatram Ahuja v. CGT [2000] 246 ITR 609(9), 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 Hon'ble Supreme Court, are extracted from the head notes at pages 610 and 611, as follows:-
"The appellant and his brother were partners of a firm. An agreement was entered into between the appellant and his brother onApril 15, 1971. Pursuant to the said agreement, a deed of dissolution of the partnership was executed onNovember 22, 1971, with effect from that date. OnMarch 10, 1972, the appellant and his brother executed a document styled "release deed" pursuant to and consistent with the aforementioned two documents. Originally, the assessment of gift-tax was made onOctober 12, 1972, on a total gift of Rs. 70,000. After allowing exemption of Rs. 5,000, it was determined at Rs. 65,000. Subsequently, the Gift-tax Officer took up proceedings under section 16 of the Act by reopening the assessment already made. He valued the share of the appellant in the partnership assets at Rs. 12,67,015. An amount of Rs. 3,00,000 paid by his brother to the appellant was deducted and thus the value of the property alleged to have been gifted by the appellant to his brother was arrived at Rs. 9,67,015. On appeal by the appellant, the Commissioner of Gift-tax (Appeals) confirmed the order of the Gift-tax Officer. However, he reduced the total value of the gift by Rs. 3,77,000. The appellant took up the matter in further appeal before the Tribunal. The Tribunal accepted the appeal holding that the distribution of assets between partners on the dissolution of the firm, even though unequal, did not amount to "transfer of property" within the meaning of section 2(xxiv) and, therefore, did not amount to "gift" as determined in section 2(xii). However, the High Court held in favour of the Revenue. On appeal to the Supreme Court:
Held, reversing the decision of the High Court, that the Tribunal was right in holding that the release by the assessee who was one of the partners in the firm, of his rights in the assets of the firm for a consideration of Rs. 3,00,000 when the market value of the assets of the firm in proportion to his share was in excess thereof, did not amount to a gift within the meaning of the Gift-tax Act."
37. The observations of Their Lordships, which are a guide to us in the present appeal, are as follows:
"The words and expressions defined in one statute as judicially interpreted do not afford a guide to the construction of the same words or expressions in another statute unless both the statutes are pari materia legislations or it is specifically provided in one statute to give the same meaning to the words as defined in another statute. The aim and object of the two legislations, namely, the Gift Tax Act and the Estate duty Act, are not similar."
38. In the light of the aforesaid it is for the court to cull out the ratio of any decision rendered by a superior court or a court of co-ordinate jurisdiction and decide as to whether it would apply to the facts of a case considering its salient features.
39. Much was argued by the parties as to what happens when an entity or an organization or a body carries on an activity, which is not authorized by the document, which brought that entity, organization etc., into existence and there is nothing on record to show that there was any separate approval or authorization 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.
40. We recall the judgment of the Hon'ble Supreme Court in the case of CIT v. Piara Singh [1980] 124 ITR 40(10) where it was held that in the case of a smuggler the value of the gold confiscated by the customs was an allowable deduction. All that we can say is that an activity not authorised by the Rules and Regulations or the Articles and Memorandum of Association or by any other document or charter cannot be placed in a worse situation than an activity, which is illegal and against the law of the land.
41. Both the parties argued at length on the provisions of section 13-A which according to us only refers to certain heads, income arising there from not liable to "be included in the total income...." It must be emphasized that there appears to be no bar or prohibition to earn income under other heads, which are not exempt, but liable to be taxed. No such prohibition was pointed out by the Revenue in any other law applicable to a political party.
42. Coming back to the definition of "business" in section 2(13) which is inclusive not only taking into its fold trade, commerce and manufacture, but also activities which are akin to or having a semblance of these three. For purposes of Sales-tax law it has been specifically provided that accrual of profit is not a relevant factor and in the present reference the parties have argued at length the assessee's counsel contending that profit motive is not a relevant factor and the Revenue arguing otherwise.
43. Coming to the various decisions cited before us whether under the Income-tax law or the Sales-tax law one thing is clear that "business" connotes some real, substantial and systematic or organized course of activity or conduct with a set purpose and a profit motive but which in fact may not arise or be earned. After all business cannot include activities, which are gratis to one party i.e., to the buyer and the seller should continue to show losses for years altogether. An activity to be treated as "business" should have a semblance of trade, an attribute of commercial activity and an expectation to earn income over a reasonable period.
44. In the present case, a chart has been filed before us by the assessee pertaining to the assessment years 1986-87 to 1998-99 [Annexure "A"] which shows that for a good period of 13 years the assessee has been carrying on the activity of publication and although it may be a systematic and organized activity the profit motive is absent. The total sales are to the tune of Rs. 37,22,568 for these years and the cost of publications is shown at Rs. 4,37,08,043. Which prudent businessman would do such a business. In case these facts and figures are taken to an entity whose name ended with the words "(P) Ltd." or "Limited" i.e., a joint stock company, then probably such entity would not have continued beyond a few years unless the intention or motive was different.
45. It is further seen for the year under reference that whereas the receipts from sale of publications are accurate 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 Rs. 3,73,576 and expenditure claimed is Rs. 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.
46. 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 political programmes. It appears that vis-a-vis the facts of the present case, we have no option, but to hold that the publication department of the assessee is not carrying on any business and the action of the tax authorities in opining otherwise is correct. The claim for loss and its set off against other sources of income, which are taxable would stand rejected.
47. Before we part with this issue, we would like to observe that (i) Circular in para 21 of the order of the learned Vice President speaks of non applicability of provisions of Chapter IV-D to income of a political party specified in 13-A more specifically voluntary contributions; and (ii) In a year in which there is a surplus in the publication department, then it is for the Revenue to take an appropriate view as we on the basis of the facts before us have held that the activity of the publication department of the party is not "business".
48. Taking up the second point of difference, both the learned Members of the division bench have set out in their separate orders relevant facts of the case, but to summarise these the Canara Bank floated through Can Star Mutual Fund the Canstar Scheme, 1990 which offered two types of units, namely, CG Canstar and 80-L Canstar. Under both the schemes interest not less than 12.5 per cent accrued each year, but there was no disbursal as the income so declared was ploughed back for investment purposes. In the case of 80-L Canstar holders a certificate was given for purposes of filing the Income-tax return, but in the case of CG Canstar holders, such a certificate was not given as the payment was to be made on the termination or at the time of re-purchase of the Canstar. In other words, the only difference between the two schemes was that in the case of 80-L Canstar the interest income was declared every year whereas in the case of CG Canstar the payment was made at the time of the repurchase.
49. On the aforesaid facts the issue was whether the interest income, which accrued to the CG Canstar holders, but postponed for payment became an accretion to the capital value of the investment for purposes of capital gains or whether the same was a revenue receipt distinct and separate from the capital invested by the assessee. The assessee in its return of income had shown long term capital gains of Rs. 31,69,231 which came to be assessed as such without any discussion and 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 13-A 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.
50. 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 realizing that the benefit of section 13-A was not available it changed its stand and which was not permissible in law;
(iii) Vis-a-vis the judgment of the Hon'ble Supreme Court in the case of Vania Silk Mills (P.) Ltd. the transaction came within the inclusive definition of "transfer" given in section 2(47). The judgment of the Hon'ble Bombay High Court in the case of Bharat Forge Co. Ltd. was also relied upon;
(iv) In the present case the units were repurchased from the assessee by Canstar and this represented a "transfer" as the right of the assessee in such units got extinguished as a result of the transfer;
(v) Canstar units held by the assessee were movable property and a capital asset of the assessee and these were transferable in the manner provided under the Canstar Capital Gains Scheme. Reliance was placed on the judgment of the Hon'ble Supreme Court in the case of Anarkali Sarabhai ; and
(vi) The maturity value of Canstar represented capital gains and it was not exonerated from the rigours of tax as it fell beyond the ken of section 13A, more so, when the assessee on its own volition opted for the Capital Gains Scheme.
51. The Hon'ble President, however, did not concur with the view taken by the learned Vice President. He noted as a fact that similar schemes were launched by ICICI and IDBI and in the case of the latter, four types of unsecured redeemable bonds were offered for public subscription and one of them was the Regular Income Bond in which interest was payable monthly @ 12.25 per cent per annum or at the option of the investor 13 per cent per annum on a yearly basis. Another category was the IDBI Deemed Discount Bond in which investment could be made for 5 to 25 years with the provision that the investor will have the option to redeem such a bond before the maturity period of March 16th of each year and in case this was done then the investor would be paid the capital amount along with the interest on maturity of the bond. It was noted as a fact by the Hon'ble President that the interest, which accrued to the investor was the yield on the capital invested and the same had not been treated as appreciation of the capital result in capital gains.
52. According to the Hon'ble President, there was no appreciation in the value of the amount invested and it was only the yield on the investment, which was given to the investor in the form of interest and the same could not be treated as capital appreciation for the purpose of capital gains. It was the further observation that capital remained the capital and the yield there from was to be treated as a revenue receipt whether drawn monthly, annually or after a few years.
53. The Hon'ble President was further of the view that the scheme could not over ride the provisions of the Income-tax Act and assessment, therefore, had to be made in the light 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.
54. The Hon'ble 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 80-L Canstar Scheme and in the original return filed it offered to tax capital gains. According to the Hon'ble President, these fact 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.
55. Another point considered by the Hon'ble President was with reference to the argument raised that the assessee had not declared the annual income, which accrued to it from year to year. It was noted as a fact that the assessee was following the cash system of accounting and the income had been declared on receipt basis and, therefore, no irregularity could be found as the assessee was not bound to disclose the income when in fact there had been no disbursal to it.
56. It was also noted that the Canstar issued under the Canstar Scheme 1990 was a redeemable non-debt security of the face value of Rs. 10 each and interest income arising there from would normally be assessable under sections 18 to 21, which were deleted by the Finance Act, 1988 with effect from 1-4-1989 and thereafter i.e., from assessment year 1989-90 onwards interest on securities was assessable as business income under section 28 where such interest formed part of business profits and in other cases it was assessable as "income from other sources". In other words, the Hon'ble President was of the view that with the change in law the interest received by the assessee under the Scheme was to be processed either under section 28 or section 56 and since it was not anybody's case that the assessee was buying the Canstar as part of a trading asset, it could not form part of business profits as contemplated under section 28. In other words, the income was to be assessed in accordance with the method of accounting regularly employed by the assessee or in the absence of any such method on accrual basis and in the final analysis, it was held that the interest earned by the assessee on the redemption/repurchase of Canstar had to be assessed as "income from other sources".
57. In order to support the aforesaid view the Hon'ble President referred to the provisions of section 45(6) read with section 80-CCB(2) as also the explanation to the earlier section. It was thereafter concluded that the difference between the repurchase price of the units referred to in sub-section(2) of section 80-CCB and the capital value of such units was deemed to be the capital gains arising to the assessee in the previous year in which such repurchase took place, but the said deeming provision was applicable to only those assessees, who were individuals or HUFs and in the case of the present assessee it was a different status altogether. In concluding the Hon'ble President directed the Assessing Officer to assess the income in question under the head "income from other sources".
58. The learned counsel for the appellant, at the outset, relied on the order of the Hon'ble President, which had held that the surplus arising on the Canstar was in the nature of "income from other sources". His main submissions can be highlighted as follows:-
(i) Money was handed over to the Trustees of the scheme to look after it;
(ii) Both the CG Scheme and the 80-L 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 Rs. 17.40p per unit as against a face value of Rs. 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's case relied upon by the Revenue this pertained to redemption of preferences shares and the Canstar could not be equated to a preference share or a debenture;
(ix) That deeming provision of section 45(6) read with section 80-CCB did not apply as this pertained to an individual or HUF.
59. In support of the aforesaid arguments the learned counsel relied on the judgment of the Hon'ble Supreme Court in the case of Vania Silk Mills (P.) Ltd. and that of the Hon'ble Bombay High Court in the case of Bharat Forge Co. Ltd.
60. The learned standing counsel on behalf of the Revenue, on the other hand, vehemently supported the order passed by the learned Vice President. As in the case of the assessee's counsel, we summarise his arguments as under:-
(i) Mutual funds were floated for small investors to invest in savings schemes and vis-a-vis Canstar Capital Gains Scheme, this was beneficial whereas 80-L Canstar Scheme provided a restricted exemption;
(ii) It was not disputed between the parties that the investment in Canstar represented a capital asset and the three ingredients stipulated by section 45 stood attracted as per Revenue;
(iii) Any investment in units and other similar schemes entitled an assessee to get a specified minimum stipulated amount after a stipulated period plus something more on the basis of NAV;
(iv) That redemption/repurchase tantamounted to extinguishment of a right attracting capital gains;
(v) The assessee had opted for the capital gains scheme as opposed to the 80-L scheme and it could not now be contended that the surplus arising there from should be taxed under the head "income from other sources";
(vi) The investment in the scheme and the subsequent repurchase did not represent two assets, but only one. In other words, one could not split up the investment and the repurchase;
(vii) The various heads of income under the Income-tax Act were mutually exclusive and if a particular receipt fell under section 45 then it could not be covered under any other head; and
(viii) That the amount received by the assessee at Rs. 17.40p per unit as against the face value/investment amount of Rs. 10 per unit represented the "full value of consideration". The term "asset" included a right and the redemption of Canstar represented extinguishment of such right giving rise to capital gains.
61. The other detailed arguments of the learned standing counsel were primarily those tendered before the division bench and the learned standing counsel highlighted various observations in the order of the learned Vice President to ultimately contend that the surplus be taxed under the head capital gains and which was also the head under which the assessee had returned the same. The 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(11)(Guj.);
(ii) Anarkali Sarabhai v. CIT [1997] 224 ITR 422(12)(SC);
(iii) Seth Gwaldas Mathuradas Mohata Trust v. CIT [1987] 165 ITR 620(13)(Bom.) at 622, and approved in Anarkali Sarabhai's case ;
(iv) CIT v. Mrs. Grace Collis [2001] 248 ITR 323(14)(SC);
(v) CIT v. George Henderson & Co. Ltd. [1967] 66 ITR 622 (SC);
(vi) Venkatesh (Minor) v. CIT [2000] 243 ITR 367(15)(Mad.);
(vii) R.M. Arunachalam v. CIT [1997] 227 ITR 222(16)(SC);
(viii) V.S.M.R. Jagadishchandran v. CIT [1997] 227 ITR 240(17)(SC);
(ix) East India Housing & Land Development Trust Ltd. v. CIT [1961] 42 ITR 49 (SC);
(x) United Commercial Bank Ltd. v. CIT [1957] 32 ITR 688 (SC);
(xi) Nalinikant Ambalal Mody v. S.A.L. Narayan Row, CIT [1966]61 ITR 428 (SC);
(xii) Karanpura Development Co. Ltd. v. CIT [1962] 44 ITR 362 (SC);
(xiii) Bharat Forge Co. Ltd.'s case ; and
(xiv) Industrial Credits & Development Syndicate Ltd. v. CIT [2001] 251 ITR 720(18)(Kar.).
62. In reply the learned counsel for the assessee, at the outset, sought to distinguish the numerous decisions relied upon on behalf of the Revenue. He in turn referred to a notification issued by the CBDT pertaining to mutual funds vis-a-vis provisions of section 10(23D) 174 ITR 49 (St.). A reference was also made to 184 ITR 162 (St.) these being the guidelines for mutual funds. According to the learned counsel the Canstar scheme was in the nature of a trust to which the assessee was a contributor and provisions of the Indian Trust Act were applicable to a mutual fund. It was the further plea that under both the schemes a minimum income was assured, but which was not paid on a year to year basis, but after a certain period and during the intervening period the yearly income accruing was ploughed back.
63. The further plea of the learned counsel was that the amount received on repurchase/withdrawal which included the original investment plus something more was in the nature of discharge of a fixed deposit receipt. It was the further submission that since the assessee was getting back its own money, there was no "transfer" involved. According to him, transfer to a third party would have no doubt attracted the relevant provisions of law, but what the assessee had done was to take back its own investment, which cannot be equated with investment in shares or debentures as was the plea on behalf of the Revenue.
64. The learned counsel also referred to provisions of section 45(6) as also section 80-CCB contending that vis-a-vis the latter the amount was to be treated as income from other sources and provisions of section 45 otherwise were not attracted.
65. On the assumption that the investment in Canstar was a capital asset and the repurchase amounted to a transfer, then the value of the consideration would be Rs. 17.40p per unit as against which the assessee's cost was Rs. 10 plus what was ploughed back from year to year and the total of this also came to Rs. 17.40p. The plea, in other words, was that in case the accretion every year was treated as an improvement to the asset and which was allowed as a deduction, then Rs. 17.40p would be squared up resulting in no income at all. The counsel, however, did not dispute the submission on behalf of the Revenue that it was the case of a single transaction and not two of them.
66. The learned counsel vehemently relied on the order of the Hon'ble President at this stage for the submission that any mutual fund scheme could not over ride 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 the learned counsel submitted that provisions of section 80-CCB were not relevant to the assessment year under consideration and we must categorically mention that this was also agreed upon by the Revenue. The learned counsel once again reiterated that there was no transfer involved as the assessee got back its own money and for something to be treated as a transfer there had to be a third party and which in this case was absent, but on the assumption that there was a transfer, the plea was that there was no surplus. He in fact submitted that if the amount accruing every year and which was ploughed back and not paid to the assessee was treated as an improvement and if to this indexing was done, then it may ultimately result in a loss. The learned counsel also sought to point out that if the repurchase was treated as a transfer, then those who had invested in the 80-L scheme would be placed in a difficult situation as and when they redeem the Canstar units on maturity etc. In concluding his arguments, the learned counsel referred to the Special Bench decision of the Tribunal in the case of Sutlej Cotton Mills Ltd. v. Asstt. CIT [1993] 45 ITD 22 (Cal.), highlighting the doctrine of purposive construction further contending that when two views were possible in respect of an issue, which had not been conclusively settled by the Hon'ble Supreme Court, then the view in favour of the assessee should be applied. To this the submission of the learned standing counsel on behalf of the Revenue, was that legally the assessee could press the aforesaid argument, but on the same doctrine and moral ground, this should not be taken into account. The plea, in other words, was that the said doctrine should be applied to the facts of the assessee's case.
67. We have considered the rival submissions and have also perused the material on record to which our attention was invited by the parties. The decisions cited at the bar have also been taken into account.
68. At the outset, we may observe that the point with which we are dealing may be a virgin one having no precedent since no direct authority was cited by the parties and the decisions relied upon were with reference to capital gains on a "transfer" taking place the items being preference shares, debentures etc. Therefore, most of the decisions may not be strictly applicable and one may only seek some guidance on broader legal issues.
69. Both the parties are agreed that section 45 would apply only when three conditions are fulfilled i.e., (i) there must be a capital asset in existence; (ii) there must be a transfer; and (iii) Such transfer must result in a surplus. It is also agreed upon between the parties that the investment in Canstar is a capital asset, but that is about all since the stand of the assessee is that there is no transfer on repurchase/withdrawal and on the assumption that there is a transfer then there is no surplus.
70. In considering the aforesaid arguments, we opine that in the present case, there was no "transfer" within the meaning of section 45 as all that happened was that the assessee withdrew from the scheme and received a sum of Rs. 17.40p per unit as against the face value of Rs. 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 80-L 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.
71. The Hon'ble President appreciated these similarities whereas the learned Vice President went primarily by the fact that the assessee had opted for the C.G. Scheme and it had resiled from its earlier stand before the Commissioner of Income-tax (Appeals) to contend that the surplus was not capital gains, but income from other sources to obtain a tax advantage since the latter was exempt under section 13A, but not the former. In our opinion, ignorance on the part of an assessee cannot be used against him and in the present case wiser counsel was probably available to the assessee at the stage of the CIT (Appeals). If a tax advantage is available why should it not be availed of.
72. Approbate and Reprobate, Election, Caveat Emptor etc., are attractive terms, but one must not forget that there is in tax laws something more important i.e., to bring to tax the correct income of a citizen and the Revenue authorities are not to take advantage of his ignorance of the law. The Hon'ble President was rightly held that the scheme cannot over ride the provisions of the Income-tax Act and the assessment is to be made by the Assessing Officer in accordance with the provisions of law not taking advantage of assessee's ignorance and overlooking the option exercised.
73. It has also been noted by the Hon'ble President that the assessee is following the "cash system" of accounting and it was not obliged to show any income in the earlier years, but in the year under consideration when it came out of the scheme since the accretion of Rs. 7.40 per unit was received along with Rs. 10 per unit invested in the said year. This factual findings is not challenged by the Revenue.
74. The learned Vice President relied on Vania Silk Mills (P.) Ltd.'s case to opine that on repurchase of units by Canstar from the assessee there was a "transfer", but it must be emphasized considering the features of the scheme that what the assessee held was a unit/certificate with Canstar on which interest accrued over the years till withdrawal. What it received back is the principal plus interest, which can be equated to a FDR with a bank. In our opinion, no "rights" got extinguished as held by the learned Vice President.
75. Similarly reliance on the case of Anarkali Sarabhai is not apt as that pertains to redemption of preference shares which carry with them certain rights and privileges. Although subscribing to a preference share entails a sum of money which entitles an assessee to some specified percentage of dividend which may be equated with the yearly interest on the Canstar, but the similarity ends here. As already stated it is the extinguishment of the other rights attached to preference shares, which give rise to an event which is exigible to tax.
76. The judgment of the Hon'ble Supreme Court, in our opinion, is not applicable to the present case as would also be our view in respect of the numerous other decisions cited on behalf of the Revenue. During the present hearing, no material has been brought on record by the Revenue, which would show that any right was attached to a Canstar holder like that of a preference share or a debenture holder except to receive back the principal amount plus interest. This being the situation there is no "transfer" involved on withdrawal from the scheme.
77. An alternative argument was advanced on behalf of the assessee that even if a "transfer" is involved there is no surplus since the annual accretion on account of interest is ploughed back every year and if this is treated as investment/cost of improvement than the amount received at Rs. 17.40p per unit squares up the investment at the same figure. This, in our opinion, is a valid argument and we accept the same going on the assumption that there is a transfer of a capital asset, but there being no surplus no capital gain arises. However, the assessee has not asked for such relief under the head capital gains as all that it contends is that the surplus be treated as "income from other sources".
78. We can go on and on, but in our opinion, the views expressed by us in the preceding paras are sufficient to hold that the accretion to the Canstar does not give rise to capital gains and the same is to be treated as "income from other sources".
79. Before we part with this ground, however, we would like to observe: (i) the decision rendered by us is with reference to the facts of the Canstar Scheme and cannot be laying down the law for all the schemes and mutual funds operating in the country; (ii) the numerous decisions cited by both the parties have been duly considered although not individually discussed; and (iii) nothing on record has been adverted to on behalf of the Revenue to justify their case being endorsed by us and the specific reference would be to the letter obtained by the assessee from the Canstar, but which in our opinion, does not turn on anything.
80. We would in conclusion agree with the view of the Hon'ble President and direct listing of the matter before the division bench, for passing an order in accordance with the majority opinion.
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