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TMI Blog1985 (9) TMI 153X X X X Extracts X X X X X X X X Extracts X X X X ..... of local authority. In the statement accompanying the returns, net surplus as per income and expenditure account was shown at Rs. 6,45,860 from which the assessee sought deduction of Rs. 61,460 representing income from agriculture and Rs. 5,74,605 in respect of compensation from transfer of agricultural land. The net income disclosed was Rs. 9,795. The income and expenditure account accompanying the return shows that the receipts of the assessee were from lease rent, from paddy fields, cashew trees, lease rent from leased plots, some miscellaneous receipts, rent from house and communidade hall, bank interest and compensation received from the Government on acquisition of agricultural lands. For the assessment year 1976-77, the net surplus was shown at Rs. 1,07,126 out of which deduction was sought in respect of agricultural income of Rs. 24,071 and for compensation received on transfer of agricultural lands of Rs. 83,100. For the assessment year 1977-78, the net surplus was Rs. 26,432 from which deduction for agricultural income of Rs. 40,550 and compensation from transfer of agricultural land of Rs. 2,08,000 was also claimed. For these two years the assessee had similarly filed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee had cultivated the lands under acquisition for the agricultural purposes. He, therefore, proceeded to compute capital gain from the compensation received. The ITO also brought to tax income from other sources and income from house property. For the assessment years 1976-77 and 1977-78 the assessment proceeded on identical basis. All the three assessments were subject-matter of the directions of the IAC under section 144B of the Act. The assessee filed appeals against these three assessments before the Commissioner (Appeals). In fact the assessment for the assessment year 1975-76 also was made at the same time but the additions being smaller, the appeal was filed before the AAC, Panaji. 5. The Commissioner (Appeals) decided the appeals for the assessment years 1974-75, 1976-77 and 1977-78 by his order dated 7-3-1981 which is the subject-matter of appeal before us. In this appeal, the Commissioner (Appeals) accepted the assessee's claim that its proper status was that of local authority and that exemption under section 10(20) was available in respect of income from capital gain, income from house property and income from other sources, etc. Thus, the Commissioner (App ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceed with the appeal without reference to the private laws of the respective communidade. We, therefore, proceed to examine the rival contentions on the basis of the Code of Communidade which lays down the framework of all the communidades in Goa. 6. Before proceeding to consider the various reasons which the Commissioner (Appeals) has considered in his order, certain historical aspects of the communidades which were not seriously disputed by both the parties may be stated. They have been brought out broadly by the Commissioner (Appeals) in his order. These historical aspects can be shortly summed up as under. 7. It appears that some centuries ago before Goa came successively under the domination of Hindu rulers of Kadamba dynasty, Muslim rulers like Malik Hussain and lastly the Portuguese, a large number of families from across the Western Ghats abandoning their original homestead on account of wars, epidemics or famine came over and settled in Goa. Unlike the development and settlement which took place in other parts of the country, the peculiarity of this settlement lies on the fact that these various families who were known at that time as Gaocares reclaimed and brought ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and will affect large number of similar institutions in Goa. It is for this reason that we have given anxious thought to the various arguments raised before us by both the parties. With this background, we would proceed to note down the reasons on the basis of which the Commissioner (Appeals) held the status of the present assessee as that of local authority. 8. It is seen from the order of the Commissioner (Appeals) that he has mostly considered the historical background of the communidades in Goa as have been brought out in the report of the Goa Land Reforms Commission, Chapter IV. After noting these historical aspects which have been summarised by us in paragraph 7 above, the Commissioner (Appeals) proceeded to observe that the Gaocares governed themselves by certain functions dedicated by the ideals of ancient institutions and tempered in the rules of natural justice. Referring to sub-paragraph 6 of the report on page 32, the Commissioner (Appeals) observed that the Code of Communidade made the communidades the absolute owners of the property and they were absolved from the payment of ground rent to the Government with effect from 1961. According to him, the entire land belon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d among the male descendants of the original settlors (Gaocares or jonodires) and at a later date among the Culcharine and shareholders. In some villages the widows and orphans of Gaocares and Culcharine were also entitled to a share. The communidade was an autonomous body and Government did not intervene in its affairs. It provided all civic amenities of the village, was responsible for public education and welfare and for the maintenance of essential common services. In its pristine form it was the embodiment of Mahatma Gandhi's conception of Gram Raj." Thus, after going through the various aspects of the communidades brought out in Rane Commission Report which was submitted in 1977, the Commissioner (Appeals) observed that after going through all these, the only unescapable conclusion was that the system of communidade which is still prevalent in Goa has attributes of a local authority having its origin even before Portuguese came to Goa only for the purpose of managing village economy, and it had the sanction of the Government. The Commissioner (Appeals) thereafter referred to the decision of the Supreme Court in the case of N.V. Shanmugham Co. v. CIT [1971] 81 ITR 310 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sily, brings out the essential substance of the original Code. The first few pages of the Code give in brief the reasons of the present codification. The learned representative of the department relied on the following observation made therein: "The ground rents that the communidades used to pay to the revenue office have been abolished. Historical truth, focussed by Cunha Revera, was thereby restored by recognising that the land belonging to the communidades belong to them as perfect (sic) property and the ground rents not necessarily correspond to their division into produce and property, the former belonging to the communidades and later to the State." We now proceed to note down the important clauses that were brought to our notice. Article 3 of the Code provides that each communidade is composed of (a) jonoeiros, (b) shareholders, (c) jonoeiros and shareholders, (d) shares. The part of the annual income to be claimed by the jonoeiro is called jono and that of the shareholder is called dividends. In case the disentail of the communidades has taken place followed by the distribution of their lands or estate to the jonoeiros or shareholders, 'the owners of such land or estate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de and those mentioned in the clauses of contract or auction will be recovered according to the terms contained in title V when not paid voluntarily and shall be credited to pensioner's savings bank. Under article 20 of the Code, the components of the communidades are the following persons: (1) Those who can claim the jonos either per capita or per stripes and their male descendants through male line. (2) Those who possess in the communidade registered shares in their own name. (3) Those who can claim a part of the net income of the communidade, whatever the nature and the name of the claim since it is registered in respective book of communidade on application addressed to the administrator with the document of transaction attached. Under article 21 of the Code, the right to jono of the components to which item (1) of article 20 refers is personal, intransmissible and imprescriptible and it takes place only after registration, except when registration takes place after the judgment of the appeal. Under article 22 of the Code, the rights given to the shareholders under item (2) of article 20 start with the registration of respective shares. Article 23 of the Code states that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Article 153 is devoted to the powers of the Governor General. Chapter V containing article 154 of the Code refers to the powers of administrative tribunal. Articles 182, 183, 184 and 185 of the Code mainly deal with the registration of jonoeiros. This has prescribed inscription of jonoeiros which is to be made in the month of May each year. The purpose of these provisions appear to be to ascertain in each year the persons who can be recognised as jonoeiros and in case of death, the legal heirs. Article 193 of the Code is regarding admission of jonoeiros. Unless the jonoeiro is admitted, he cannot claim jonos. Articles 199 to 201 of the Code deal with inscription of shareholders. Article 410 of the Code states that the shares are transferable and the form of transfer is the 'portence' (belonging to) written at the back of the respective shares. In Table 8 of the Schedule of the Code, the rules relating to the distribution of jono as applicable to the different communidades, including these two Mapusa and Nerul, the present assessees are elaborated. 10. After taking us through the Code of Communidade, the learned representative of the department stated that there are three main po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s history clearly shows that their common cultivation is more in the nature of agricultural co-operative societies. Just as a co-operative society owns a land, distributes it or allots it to various members for cultivation and earns income thereby which is distributed by way of dividend, similarly, in the case of communidades, the land absolutely belongs to the communidades and the produce that is collectively grown is distributed amongst the jonoeiros. But as the time has passed, most of the lands have been leased out and instead of direct cultivation, the communidades are earning income from lease rent which has now remained its main source of income. This peculiar development of the communidade has to be contrasted with development that took place in other parts of the country which successively were under the rulership of different native rulers or under the British Government. Under the system prevailing in other parts of the country, though ideally the Government owns all the land, for practical purposes, every land owner owns his piece of land. The municipal body or the gram panchayat does not own the respective lands owned by the private farmers. The function of municipal b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the communidade, the Chapter dealing with the possession of the land and the Chapter dealing with division of the surplus amongst the Gaocares and shareholders. 12. Referring to the definition of local authority, the learned representatives of the department relying on the decision of the Calcutta High Court in the case of Calcutta State Transport Corporation v. CIT [1977] 108 ITR 922 submitted that the present assessee before us can by no stretch of imagination be considered to be an authority. According to him, the word 'authority' is a body having a legal right to command and be obeyed. This power has to be exercised over others. Viewed in that light, the present assessee could not be said to have an authority over the outsiders to command and be obeyed. Similarly, the words 'other authority' according to him should be interpreted ejusdem generis with the words preceding, viz., municipal committee, district board, body of Port Commissioner. According to him, the unique feature of the communidades is division of profit or loss amongst the jonoeiros and only jonoeiros having right to vote. There is no parallel to this feature in any of these bodies mentioned in this definit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hority. In other words, what the learned representative of the department implied was that local authorities may render public services like construction of roads or construction of health centres but every entity constructing roads or health centres cannot be considered to be local authority. 13. Referring to the fact that the Lt. Governor of the State is in charge of the affairs of the communidade and the State Government appoint officers for different purposes under the code, the learned representative argued that this was only for the purposes of management and to see that the funds of the communidade were properly managed. The words 'administrative tutelage of the State' in article 5 only mean guardianship of the State. A guardian cannot be, by reason of guardianship, the owner of the property of the person whose guardian he is. 14. Finally, the learned representative of the department once more stressed the fact that sharing of profit or loss arising to the communidade by the jonoeiros as provided under article 4 is a feature which completely goes against the concept of local authority. In the case of Calcutta State Transport Corpn., it was claimed by the State Transport ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 of the Indian Income-tax Act, 1922. It was a case of partnership wherein the matters had reached the Court for dissolution of partnership and for taking of the accounts, the Court had appointed receivers. The receivers had carried on business. They were undoubtedly assessable as the representative assessees. The question arose whether the status of the persons whom they represented or on whose behalf they carried on the business were AOP or not. The learned representative of the department pointed out to the observations of the Supreme Court on p. 315 wherein it was observed that the control and management of the business was in the hands of the receivers who had joined in a common purpose and they acted jointly on behalf of the persons who were the owners of the business. They could not have represented individual interests of various owners of the business. If they had done so, there would have been chaos. The profits were earned on behalf of the persons who had a common interest created by the order of the Court and were on that account an AOP. [Emphasis supplied] According to the learned representative of the department in the case before the Supreme Court, the erstwhile part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evelopment Authority was a local authority or not. Following passages from paragraph 11 and paragraph 2 were heavily relied upon and they are, therefore, extracted below : "... when it is said that one of the attributes of a local authority is the power to raise funds by the method of taxation, taxation is to be understood not in any fine and narrow sense as to include only those compulsory exactions of money imposed for public purpose and requiring no consideration to sustain it, but in a broad generic sense as to also include fees levied essentially for services rendered. It is now well recognised that there is no generic difference between a tax and a fee ; both are compulsory exactions of money by public authority... the Delhi Development Authority is constituted for the sole purpose of the planned development of Delhi and no other purpose and there is a merger, as it were, of specific and general purposes. The statutory situation is such that the distinction between tax and fee has withered away. An authority, in order to be a local authority must be of like nature and character as a Municipal Committee, District Board or Body of Port Commissioners, possessing, therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entres. According to Shri Robinson, the health centre was a subject-matter of the governmental function which has been delegated to the communidade. He then relied on article 30(4)(d) whereunder the communidades had power to decide and determine introduction of sweet and saline water in the Casanas. Elaborating this function, Shri Robinson pointed out that the Casana is a peculiar process by which prawns are cultivated. For this purpose, the paddy fields on the sea-shore are bounded off by introducing either the river or sea water in the bounded area. This was used for cultivation of prawns. According to Shri Robinson, conventionally, this was a revenue function to allow the change of land from agricultural to any other purposes. The fact that the communidade could change the character of the land from that of agriculture to that of fishery indicated that there was a delegation of power by the Government to allow the change over. 22. Shri Robinson then referred to article 64 of the Code which contains the provisions regarding the powers of the administrative board. The administrative board was constituted by elected representatives just like in any other local authority. The pres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd lastly that there was delegation of the governmental functions such as construction of health centres, changing the character of agricultural land, imposing taxation and ordering confiscation. To further support the argument, Shri Robinson made reference to Goa, Daman Diu Employees' (Conditions of Service) Act and pointed out that the very fact that the Government had legislated the Act to control the conditions of its employees was a clear indicator of the facts that the communidade was nothing but a local authority. 25. In the course of his submissions, we asked Shri Robinson how the distribution of profit or loss amongst the joinoeiros could be explained if the authority was a local authority and whether he could point out any authority or decision of the Court wherein in spite of the division of income, the concerned entity was held to be a local authority. Shri Robinson very fairly admitted that there was no such decided case but according to him if all the tests laid down by the Supreme Court regarding local authorities are satisfied and if it was on that basis shown that the assessee was a local authority, an additional factor such as distribution of surplus would not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rity like the Port Commissioner decided to distribute dividend, it cannot go out of the definition of local authority. He submitted that distribution of dividends should be treated as payment of remuneration to jonoeiros for the work they put in for cultivation of lands. Shri Inamdar pointed out that the submission made before the Commissioner (Appeals) that the entire land of the village by itself formed fund of the communidades and the income from that was the incoming flow to be used for the purpose of welfare of the people was not correctly made ; but then the learned Commissioner (Appeals), according to him, had brought out and correctly appreciated the essence of the assessee's arguments. 27. As regards the status of an AOP, Shri Inamdar submitted that the very fact that there was intervention of the Government at every stage would show that there could be no voluntarily coming together of the members of the communidade, which is the very basic requirement of an AOP. He stated that too much has been read by the department in the observations of the Commissioner (Appeals) wherein he held that there was no element of profit-motive. He stated that if we examine the various sou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Communidade should be viewed as a whole and so viewed, all the aspects which have been underlined by the learned representatives of the assessee can be explained away as incidents of ownership of large areas of land by the communidade. Since the communidade consisted of a number of jonoeiros and since its management was complicated, the rules had naturally to be framed for the proper management of the communidade. Merely because a company or a society had its bye-laws, it cannot mean that it is performing a legislative function of a Government. For example, for recovery of dues from its members the communidades might have made different provisions enforcing recovery. Superficially, this may appear to be similar to a Governmental function but if it is viewed as a normal incident of an associate body controlling its transactions with its numerous members, such power of imposing fine or ordering confiscation is easily explained. These fines were imposed not on others but on the members only. Broadly, therefore, he urged that the communidade should be viewed as large village co-operative society. 31. Dealing with specific submissions made by Shri Robinson, he firstly referred to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision of irrigation facilities, creation of health centres can all be incidental to normal working of any big establishment which has very large area of operation. It is not uncommon to see railways and other big establishments opening health centres, co-operative societies having cattle breeding farm, agricultural centres, an industrial company laying down the roads and so on. These works are undertaken by the establishment for facilitating their own working and in the process such activities may benefit other strangers. In the present case also if the communidades are viewed as agricultural cooperative society, their anxiety to build up health centres or provision of facilities for cultivation of prawns as an ancillary agricultural activity, provision of irrigation facilities for the benefit of members, etc., is seen in setting out rules for the same. Only because similar functions are also performed by the Government cannot mean that in the present case, there is any delegation of the Governmental functions. Referring to article 253, the learned representative of the department argued that recovery of any fees from those private parties who benefited from the facilities provided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hority, all its peculiarities have to be taken into account including that of sharing of income or loss. It would be wrong to keep aside this feature or to ignore it altogether and apply the test of local authority and thereafter to brush aside the sharing of income as only an additional factor. 35. Shri Sathe, the learned representative of the department also rebutted various contentions raised by Shri Inamdar, advocate, on behalf of the assessee. He laid particular stress on Shri Inamdar's submission regarding the Government's intervention. He submitted that the Government's intervention or supervision in many private bodies like co-operative societies is not unknown. He illustrated the submission by making reference to the Maharashtra Co-operative Societies Act. Chapter VI of the said Act contains elaborate provisions as to how the co-operative societies are obliged to utilise their profits for specified purposes laid down under the said Act. Reference was also made to sections 79A and 79B of the Maharashtra Co-operative Societies Act which reserve to the Government powers giving directions to the co-operative societies in the public interest and the registrar's power to remov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dealing with the next submission of Shri Inamdar that an organisation which is entirely governed by the Government cannot be considered to be an AOP as there is no voluntarily coming together of the members, Shri Sathe once again referred to the decision of the Supreme Court in the case of N. V. Shanmugham, wherein the decision of Buldana District Main Cloth Importers Group's case was referred. This was a case where Dy. Commissioner of the District had appointed the members constituting the group to import and distribute the cloth and the members of the group did not voluntarily join the group. They were put together by the Commissioner and were asked to act together which they did. In view of the Supreme Court's clear authority, Shri Sathe submitted that it provides complete answer to the submissions of Shri Inamdar. Referring next to section 26, Shri Sathe submitted that the section only states that if the shares are specific, then, only assessment of property income cannot be made in the status of an AOP. According to him an AOP is a status recognised in the Act and like any other taxable entity, an AOP can earn income which is passive in nature such as income from capital gains ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of R.C. Jain wherein the tests for determining whether a particular authority is considered to be local authority have been laid down. We do agree what the assessee has got separate legal existence of its own and that it operates in its specified area also. In this sense we also agree that it has certain jurisdiction but the further tests laid down by the Supreme Court are not satisfied in the present case. We cannot forget the fact that communidades are essentially the bodies or groups of families who have settled down and who have been cultivating properties jointly and share the profit and loss of their joint labour for centuries. The various rules by which they govern themselves may have outward similarity with any democratic organisation such as any local self-Government. But the comparison stops there. The local bodies are representative bodies and they are, so to say, representatives of the State Government operating in a local area. They do not have any private interest in the local fund which they manage. The local fund has not been defined in the Maharashtra Co-operative Societies Act though it is possible to describe it. A local fund can be contrasted with a gen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that it was required to sell its produce at a nominal profit or below market or subsidised price. It is not clear how the Commissioner (Appeals) came to the conclusion that there is no profit-motive. The distribution of income and loss amongst the jonoeiros and shareholders is totally repugnant to the concept of local authority which does not distribute its income to some selected persons to the exclusion of the entire community. 43. We also find considerable force in the submission of the learned departmental representative that the assessee-communidades are not even authorities. As held by the Calcutta High Court in the case of Calcutta State Transport Corpn., we find that no direction can be issued by these assessee on its own as all its decision making is subjected to approval by the Government or State. On consideration of all the relevant facts and the Code, we have no hesitation in coming to the conclusion that the assessee cannot be considered to be local authority. We may mention here that the Supreme Court judgment in R.C. Jain's case itself sounds a word of caution about the danger of borrowing on expression in one enactment for interpreting another. Their Lordships ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat BOI means a conglomeration of individuals who carry on some activity with the object of earning income. In the case of Deccan Wine General Stores v. CIT [1977] 106 ITR 111, the Andhra Pradesh High Court held that the expression BOI should receive a wide interpretation, but not wide enough to include combination of individuals who merely receive income jointly without anything further as in the case of co-heirs inherited shares or securities but certainly wide enough to include a combination of individuals who have a unity of interest but who are not actuated by common design and one or more of whose members produce or help to produce income for the benefit of all. We are, therefore, of the opinion that more appropriate status in the present case would be that of a BOI instead of the status of an AOP as adopted by the ITO, we direct accordingly. 45. Since the Commissioner (Appeals) held that the proper status of the assessee was that of local authority and on that account the income of the assessee was exempt under section 10(20), he did not think it necessary to adjudicate on the other grounds such as taxability of the capital gains, levy of interest under sections 139(8) a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of appeal before us. In this assessment also, the question of status was never raised. The assessment was subjected to proceedings under section 144B of the Act and in these proceedings also, the status was never challenged. The statement of facts and the grounds of appeal before the Commissioner (Appeals) would show that the assessee was never disputing the status. Shri Sathe contended that it was not open to the Commissioner (Appeals) to adjudicate on the status of the assessee. The Commissioner (Appeals) has abruptly referred to the question of status and then referring to his predecessor's order in the case of Communidade de Mapusa held that the proper status of the assessee could not be that of local authority or an AOP. Shri Sathe, therefore, raised before us three additional grounds. The first and second grounds relate to the competency of the Commissioner (Appeals) to entertain the grounds of appeal claiming exemption of the entire income as a local authority. The third additional ground is an alternative ground in which it has been pleaded that even assuming it was open for the Commissioner (Appeals) to admit such ground for the first time, he should have followed the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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