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TMI Blog1994 (4) TMI 19X X X X Extracts X X X X X X X X Extracts X X X X ..... their own right? (2) Whether, on the facts and in the circumstances of the case and in law, the Tribunal was justified in cancelling the order passed under section 104 of the Income-tax Act, 1961, thereby deleting the additional demand of Rs. 22,242 for the assessment year 1970-71? (3) Whether, on the facts and in the circumstances of the case and in law, the Tribunal was justified in holding that the Income-tax Officer was not entitled to enhance the compensation to the extent of compensation received by the shareholders in their own right? " The following three questions have been referred at the instance of the assessee: " (4) Whether, on the facts and in the circumstances of the case, the sum of Rs. 2,96,285 and Rs. 77,100 received by the applicant during the relevant assessment years 1971-72 and 1972-73, respectively, as 'non- refundable' deposits were income of the applicant? (5) Whether, on the facts and in the circumstances of the case, the claim of the applicant that the amount of Rs. 4,77,393 and Rs. 4,79,176 for the assessment years 1971-72 and 1972-73, respectively, are allowable as deduction either under section 28 or under section 37 of the Act has been righ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he provisions of the Income-tax Act, Transfer of Property Act, Registration Act, etc. The Division Bench, therefore, without expressing any opinion on the merits of the rival contentions of the parties directed that the Hon'ble Chief Justice be moved for forming a Full Bench for the decision of these two references. Accordingly, two references are placed before us after obtaining necessary orders from the Hon'ble Chief Justice. The brief facts giving rise to these two references are as under: By an agreement of lease dated November 28, 1964, the Government of Maharashtra agreed to grant a long-term lease in respect of certain plots of land situate at the Backbay Reclamation, Nariman Point, Bombay, in favour of the assessee. The assessee has constructed a multi-storeyed building on the said plots of land known as "Nirmal". The assessee is the owner of the said building and lessee of the said plots. The assessee collected large amounts from its shareholders during the course of years under the caption "non-refundable deposits". The assessee allotted floor space in the said building to its shareholders and conferred rights on the shareholders-allottees to transfer their occupancy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ove referred judgment of this court since reported in Shree Nirmal Commercial Ltd. v. CIT [1992] 193 ITR 694. The assessee contends that the said judgment was delivered in the assessee's own case and, therefore, is binding and the ratio of the said decision must be followed in this reference. The assessee therefore in short contends that the only question which needs to be considered in the present references is: "whether the assessee is entitled to deduction of interest payable on the amounts of 'non-refundable deposits' despite the so-called deposits themselves having been held by this court as trading receipt/revenue receipts in the hands of the assessee ". The Division Bench of this court which has referred the matter to the Full Bench has expressed that there appears to be some inconsistency in the views expressed by this court earlier in the earlier decisions in CIT v. Union Land and Building Society Pvt. Ltd. [1972] 83 ITR 794 and CIT v. Zorostrian Building Society Ltd. [1976] 102 ITR 499 on one side and Shree Nirmal Commercial Ltd. v. CIT [1992] 193 ITR 694. In the decisions in CIT v. Union Land and Building Society Pvt. Ltd. [1972] 83 ITR 794 (Bom) and CIT v. Zorostrian ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing urged earlier that the income in the earlier assessment years was income from business or trade, it would not be proper to allow the Department to completely turn around and now contend that the income of the assessee is taxable under the head "House property" so as to disallow the deductions claimed by the assessee in respect of interest paid on the non-refundable deposits of the shareholders either under section 28 or section 37 of the Income-tax Act, 1961. The income of the assessee must be treated as income from trade or business. The second limb of the argument of Shri Jetley, learned counsel appearing for the Department, is based on the decisions in CIT v. Union Land and Building Society Pvt. Ltd. [1972] 83 ITR 794 (Bom) and CIT v. Zorostrian Building Society Ltd. [1976] 102 ITR 499 (Bom). Relying on these two decisions, he urged that it is already conclusively held that the non-refundable deposits are sale proceeds and income of the assessee. The third limb of the argument of Shri Jetley is that the property of "Nirmal" building is of the ownership of the assessee as no conveyance is executed and, therefore, the assessee is still the owner and, therefore, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ouse property under section 9 of the Indian Income-tax Act, 1922 (corresponding to section 22 of the Income-tax Act, 1961). The High Court answered the question in the affirmative. It was submitted that the facts in the two decisions cited above and the present case before us turn on their own facts and the peculiar position emerging from the right of occupancy arising from ownership of shares in a company and the principles to be applied in such a case were wholly different from the principles to be applied in the case of agreement to sell classical immovable property in the form of land and structure which was considered by our court in CIT v. Union Land and Building Society Pvt. Ltd. [1972] 83 ITR 794 and CIT v. Zorostrian Building Society Ltd. [1976] 102 ITR 499. Shri Dastur strenuously pointed out that in these two earlier decisions the agreement for sale was entered into but conveyance which was necessary to be executed for vesting title in the transferee had not been executed. He further pointed out that in CIT v. Mahendra J. Shah [1979] 118 ITR 902 (Bom) and CIT v. Shah Construction Co. Ltd. [1983] 142 ITR 696 (Bom) and in the present case, there is nothing which has remain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tur relied upon a decision in Addl. CIT v. Surat Art Silk Cloth Manufacturers' Association [1980] 121 ITR 1, 17 (SC). He also submitted that it is for this very reason that the court observed in R. B. Jodha Mal Kuthiala v. CIT [1971] 82 ITR 570, 575 (SC): " It is, therefore, that equitable considerations are irrelevant in interpreting the tax laws. But those laws, like all other laws, have to be interpreted reasonably and in consonance with justice. " Shri Dastur also submitted that it is necessary to note that in CIT v. Union Land and Building Society Pvt. Ltd. [1972] 83 ITR 794 (Bom), the High Court has noticed that the decision of the Full Bench of the Delhi High Court was contrary to the earlier decisions of the High Court of Bombay in Sir Currimbhoy Ebrahim Baronetcy Trust v. CIT [1963] 48 ITR 507 and D. M. Vakil v. CIT [1946] 14 ITR 298. He, therefore, pointed out that the decision in CIT v. Union Land and Building Society Pvt. Ltd. [1972] 83 ITR 794 (Bom) was based on the earlier decisions of this court in Sir Currimbhoy Ebrahim Baronetcy Trust v. CIT [1963] 48 ITR 507 and D. M. Vakil v. CIT [1946] 14 ITR 298. Shri Dastur, therefore, contended that it is clear from the decis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that a builder had built a building and sold the individual flats to buyers and the conveyance had not been executed. But it was held that individual purchasers of the flats were to be regarded as the owners of the flats holding that the word "owner" appearing in section 22 of the Income-tax Act, 1961, must be construed in the setting of socio-economic development in the concept of ownership and it was also pointed out that there cannot be and should not be a double assessment of the same income, once in the hands of the assessee-firm and again in the hands of the buyers. Shri Dastur also very strenuously pointed out that at page 502 of the said decision, after referring to the decision in Kuthiala's case [1971] 82 ITR 570 (SC), it is stated that the decision in CIT v. Ganga Properties Ltd. [1970] 77 ITR 637 (Cal), should be read and understood in the light of the subsequent decision in Kuthiala's case [1971] 82 ITR 570 (SC) and that Ganga Properties Ltd.'s case [1970] 77 ITR 637 (Cal) did not deal with all aspects of ownership and did not consider the recent development of the concept of multi-storeyed buildings and issues incidental thereto and he also further pointed out that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purposes of tax, their basic nature of being deposits cannot be lost or forgotten, and they continue to be non-refundable deposits on which under contractual obligation the assessee has to pay interest at 6 per cent. as per terms of the contract and hence the same must be allowed as deduction permissible under section 28 of the Income-tax Act. Alternatively, according to Shri Dastur, the interest payable being a payment for business or trade in any case would be required to be allowed as deductible under section 37 of the Income-tax Act. The contention of Shri Dastur needs to be accepted. Shri Dastur has rightly pointed out that the Department has never disputed the terms of the contract and, therefore, the argument of Shri Jetley that by this arrangement the assessee is trying to siphon off the taxable income will have to be negatived. Shri Dastur contended that there is not even a whisper at any point of time from the side of the Department that the agreement for payment of interest was fraudulent. He was at pains to point out that the Department had not even contended so at any point of time and this, according to him, is apparent from the observations made by the Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lakhs for the two years on the ground that the deposits were trading receipts and accordingly the interest would not be payable on what constituted the assessee's trading receipt or income. Shri Dastur contended that the fact that the said receipts were considered as trading receipts did not alter the situation at all. They were part of the arrangement for obtaining funds for carrying its activities under which the assessee-company received the deposits and also collected monthly sums from the occupants. The sums were paid under the contractual liability. The payment was in no way excessive as it was only at the rate of 6 per cent. of the amount deposited, and, as pointed out earlier, the genuineness and bona fides of the arrangement are not under dispute at all and the Tribunal has found that there is no device or scheme in the said arrangement and though the amounts were deposits they partook of the character of trading receipts and have been taken into account in determining the business profit or loss of the assessee-company and what has been held is that the nature of the amount paid by way of deposit was a trading receipt and the High Court had set out how the amount was to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary commercial trading and whether the expenditure was a part of the process of profit making". He also relied upon the observations made in Eastern Investments Ltd. v. CIT [1951] 20 ITR 1, 4 (SC), wherein it is observed that in order to claim a deduction it is enough if it is shown that the money was expended not of necessity but voluntarily and on the ground of commercial expediency and in order to facilitate the carrying on of the business. Reliance was also placed on the observations made in Tata Sons Ltd. v. CIT [1950] 18 ITR 460, 468 (Bom), wherein it was observed "Even a voluntary payment, if for commercial expediency, would still be an expenditure for the purpose of business. " Shri Dastur has also relied upon the observations made in the case of Eastern Investments Ltd. [1951] 20 ITR 1 (SC), cited above to point out that it was observed in the said decision "one is not concerned with the legality or propriety of a transaction or whether the result could have been achieved in another way. What one is concerned with is whether the transaction was done in the ordinary course of business, however mistaken the directors and shareholders may have been", and also the further obse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed merely because the matter was finally not decided. In the view which we have taken, the losses would be required to be carried forward and adjusted against the income of the assessee for the assessment years 1971-72 and 1972-73. In the result, the questions in Income-tax Reference No. 1 of 1982 are answered as under: (1) Whether, on the facts and in the circumstances of the case and in law, the Tribunal was justified in holding that the compensation received from the shareholders was to be taxed as income from business and not as income from property and also in holding that the Income-tax Officer was not entitled to enhance the compensation to the extent of the compensation received by the shareholders in their own right? Answered in the affirmative in favour of the assessee. (2) Whether, on the facts and in the circumstances of the case and in law, the Tribunal was justified in cancelling the order passed under section 104 of the Income-tax Act, 1961, thereby deleting the additional demand of Rs. 22,242 for the assessment year 1970-71? Answered in the affirmative in favour of the assessee. (3) Whether, on the facts and in the circumstances of the case and in law, t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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