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Issues Involved:
1. Whether 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 the maturity value of Canstar is exigible to tax under the head "Capital gains" or "Income from other sources." Issue 1: Business Activity and Loss Adjustment Arguments by the Assessee: - The assessee, a political party, claimed that its publication activities constituted a business activity. - It maintained a separate publication department, with registered newspapers, systematic and organized activities, and sold publications at fixed prices. - The assessee argued that there was no bar on political parties carrying on business activities under the Representation of People Act, the Income-tax Act, or the Model Code of Conduct by the Election Commission of India. - The assessee emphasized that profit motive was not a sine qua non for an activity to be considered a business. Arguments by the Revenue: - The Revenue contended that the political party was not formed with the objective of making profit and its memorandum did not enable it to carry on business. - The publication activities were considered part of the political activities aimed at propagating the party's ideology, not a profit-making business. - It was argued that profit motive and continuity of activity were essential requirements for an activity to be considered a business. Tribunal's Analysis: - The Tribunal noted that the assessee suffered continuous losses from its publication activities, indicating a lack of profit motive. - The publications were sold for some consideration, but this alone was not sufficient to establish a profit motive. - The Tribunal observed that the activity was continuous, systematic, and organized, but the profit motive could not be ascertained. - The Tribunal referred to the CBDT Circular, which stated that political parties were exempt from sections 44AB and 271B due to the absence of a profit motive. Conclusion: - The Tribunal concluded that the publication activities of the assessee did not constitute a business activity due to the absence of a profit motive. - The losses from the publication activities could not be adjusted against other income. Issue 2: Taxability of Canstar Maturity Value Arguments by the Assessee: - The assessee invested in Canstar units, which assured a minimum annual income ploughed back for investment purposes. - The assessee argued that the maturity value of Canstar should be treated as "income from other sources" and not as capital gains. - It was contended that there was no transfer or surplus as required under section 45 of the Income-tax Act. Arguments by the Revenue: - The Revenue contended that the Canstar units were capital assets, and their repurchase amounted to a transfer, resulting in capital gains. - The assessee had initially treated the maturity value as capital gains in its return and later changed its stand for tax advantage. Tribunal's Analysis: - The Tribunal noted that the Canstar scheme provided a minimum assured income, which was ploughed back annually. - The Tribunal observed that the investment in Canstar was akin to a fixed deposit, where the principal amount along with accumulated interest was received on maturity. - The Tribunal referred to the judgment in Anarkali Sarabhai's case, where the redemption of preference shares was considered a transfer resulting in capital gains. - The Tribunal distinguished the Canstar units from preference shares and debentures, noting that the Canstar units did not carry similar rights and privileges. Conclusion: - The Tribunal concluded that the maturity value of Canstar did not result in capital gains as there was no transfer involved. - The surplus from Canstar units was to be treated as "income from other sources." Final Decision - The Tribunal dismissed the appeal of the assessee concerning the publication activities, holding that they did not constitute a business activity and the losses could not be adjusted against other income. - The Tribunal ruled in favor of the assessee on the Canstar issue, directing that the maturity value be treated as "income from other sources" and not as capital gains.
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