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Income Tax Appellate Tribunal - Mumbai

M. Visvesvaraya Industrial Research & ... vs Deputy Commissioner Of Income Tax on 29 November, 2001

Equivalent citations: [2002]83ITD511(MUM), (2003)79TTJ(MUM)93

ORDER

S.C. Tiwari. A.M.

1. These two appeals filed by the assessee on 1st Nov., 1993 and 31st March, 1994, respectively for asst. yrs, 1989-90 and 1990-91 were decided by the order of Tribunal, Mumbai Bench 'B', Mumbai, dt. 29th March, 1996, along with Department's appeal for asst. yr. 1989-90, being ITA No. 1810/Bom/1993, and assessee's cross-objection No. 1035/Bom/1994. Thereafter the assesses filed two miscellaneous applications in relation to the assessee's appeals, being ITA Nos. 6351/Bom/1993 and 1717/Bom/1994. These miscellaneous applications were rejected, whereupon the assessee filed Writ Petn. No. 2490 of 2000 before Hon'ble Bombay High Court. The assessee also moved two reference applications under Section 256(1), being RA Nos. 306 & 307/Mum/1996, whereupon reference was made to Hon'ble Bombay High Court for their esteemed opinion. Hon'ble Bombay High Court have thereafter delivered judgment dt. 15th March, 2001 [reported as M. Visvesvaiaya Industrial Research & Development Centre v. ITAT], on the assessee's Writ Petn. No. 2490 of 2000 and the reference under Section 256(1) made to them, numbered as IT Ref. No. 78 of 1998. As per this judgment, Hon'ble Bombay High Court have remanded the matter back to the Tribunal on certain specified points. Hence this order being passed by us in compliance to the direction given by Hon'ble Bombay High Court as aforesaid.

2. The judgment of Hon'ble Bombay High Court was forwarded to the Tribunal by the assessee as per its letter dt. 12th June, 2001, Thereafter the case was fixed for hearing from time to time and both the learned counsel of the assessee and the learned Departmental Representative were heard. It is seen that during the previous year relevant to asst. yr. 1989-90 the assessee completed construction of Centre-1 and allowed possession of certain built-up space to be taken by various persons or entities, for consideration. During the previous year relevant to asst. yr. 1990-91 the assessee allowed some further built-up space in Centre-1 to be taken by various persons or entities for some further consideration and during this period construction of IDBI Centre was also completed, which was allowed to be taken possession of by IDBI for consideration. In the assessment order for asst. yr. 1989-90 the AO brought to tax what, according to him, constituted profit arising to the assessee. For asst. yr. 1990-91 the AO held that short-term capital gain arose to the assessee on transfer of built-up spaces in Centre-1 and IDBI Centre. On assessee's appeal, the learned CIT(A) for asst. yr. 1989-90 held that the assessee's activity of allowing occupation of built-up spaces did not amount to sale but the consideration received by the assessee from these occupants represented premium or Salami which was taxable under the head 'Business'. For asst. yr. 1990-91 the learned CIT(A) upheld the assessment as short-term capital gain as made by the AO in the assessment order. On assessee's appeals for these two assessment years, the Tribunal by its order dt. 29th March, 1996, held that the transactions in question were sale of lease hold right of use of space with the right to transfer by paying transfer fees to the assessee. On assessee's writ petition, Hon'ble Bombay High Court found merit in the contention advanced on behalf of the assessee that there is no such concept in law. Hon'ble High Court found that the judgment of the Tribunal was not clear in stating the above proposition. In these circumstances Hon'ble High Court has remitted the matter back to the Tribunal with a specific direction to reconsider this point in the light of the contentions of the parties in the assessment proceedings.

3. Secondly, the assessee had filed the returns of income for these two assessment years in Form No. 3A applicable to assessees claiming exemption under Section 11. This claim of exemption was denied after detailed discussion by the AO in the assessment order for asst. yr. 1990-91 and by the learned CIT(A) in his order for asst. yr. 1989-90. In the order passed by the Tribunal on 29th March, 1996, the Tribunal took note of the fact that the assessee had woken up to seek recognition as charitable institution only after the assessee was refused recognition as a scientific research Institution w.e.f. 1st Jan., 1981, whereas the assessee was required to seek registration under Section 12A of the Act within one year from the date of creation of the trust. The Tribunal held that when the application was belated, mere taking on record of that application by the CIT did not mean that the registration had been granted. This aspect of the Tribunal order was challenged by the assessee in the writ petition. The Hon'ble High Court found that the certificate under Section 12A stated that the delay had been condoned and such certificate had been issued by the Competent Authority. At the same time, Hon'ble Bombay High Court in their judgment on assessee's writ petition, following the judgment of Hon'ble Madras High Court in the case of New Life in Christ Evangelistic Association v. CIT (2000) 246 ITR 532 (Mad) held that the issuance of the certificate does not prevent an AO from considering whether in a given assessment year the assessee is entitled to claim benefits under Sections 11 and 12 or, as the case may be, under Section 80G of the Act. As, according to Hon'ble High Court, this aspect had not been gone into by the Tribunal, Their Lordships remanded the matter back to the Tribunal on the second point also, viz., whether the assessee has applied its income for earmarked purposes and whether the assessee is entitled to claim benefits under the aforestated sections during the asst. yrs. 1989-90 and 1990-91. Thereafter, in para 8 of the judgment the Hon'ble Bombay High Court have observed as under :

"8. We are not disposing of the present reference. We are remitting the matter to the Tribunal for its decision only on the above two points. We will consider the reference after we receive the findings from the Tribunal on the above two points. Therefore, the reference is kept pending on the file of this Court, The said reference is adjourned to 3rd Dec., 2001."

4. During the course of hearing before us, the learned counsel for the assessee placed strong reliance on the judgment of Hon'ble Bombay High Court, dt. 2nd Dec., 1992, in In re, Sreeniwas Cotton Mills Ltd. (in Liquidation) Company Appln. No. 27 of 1991 in Company Petn. No. 642 of 1983. In that matter the assessee-company filed an application for directing the Official Liquidator of Sreeniwas Cotton Mills Ltd. to hand over vacant and peaceful possession of the showroom-cum-retail shop situated in the World Trade Centre, Earlier, the assessee-company had entered into an agreement of lease dt. 27th May, 1977 with Sreeniwas Cotton Mills Ltd. for a period of 60 years. In this petition the assessee-company, among other things, argued that the premises taken on lease by the company in liquidation were not required for the purpose of beneficial winding up of the company in liquidation and, therefore, the Official Liquidator should be directed to hand over possession of the said premises to the assessee-company. Hon'ble Bombay High Court noted that it was an admitted position that the execution of the agreement of lease was not a registered document. It was also an admitted position that the lease was required to be registered under the provisions of the Indian Registration Act (IRA). Hon'ble Court, therefore, held that since no lease under a registered document had been created in favour of the company in liquidation, the company in liquidation did not acquire any leasehold interest in the said premises. Hence the Court held the view that the company in liquidation had not acquired any leasehold interest in the said premises and was merely a monthly tenant in respect thereof. The Court, therefore, directed the Official Liquidator to hand over possession of the said premises to the assessee-company. Based on this judgment, the learned counsel for the assessee argued that in the absence of registered deed/agreement, the relationship between the assessee-company and the occupants of building space in Centre-1 and other buildings constructed by the assessee-company was that of a landlord and a monthly tenant. In this view of the matter it was not open to assess the 'advance rent' received by the assessee-company from various occupants during the years under assessment as sale proceeds of the premises or even proceeds arising on transfer of a capital asset. The learned counsel insisted that the issue was clinched by the aforesaid judgment of Hon'ble Bombay High Court and in the assessments in question before us nothing more than rent attributable to the previous year could be charged to tax.

5. Thereafter the learned counsel for the assessee took us through various provisions of the agreements of lease. He referred to Clause 26 as per paper book p. 500 which provided that if the rent or any other monies payable by virtue of the agreement should remain unpaid for 21 days after becoming due and payable or if the lessees should commit breach of any of the stipulations, covenants and conditions contained in the agreement or if the lessees firm should be dissolved/the lessee company go of is taken into liquidation, etc., the lease granted would stand absolutely determined and the assessee-company would be entitled to re-enter the premises. The learned counsel argued that there was no question of 're-entry' in a transaction of sale and, therefore, this Clause 26 proved that there was only a lease. The power of the assessee-company to take back the property could exist only on the footing that the assessee-company continued to be the owner of the premises. Then the learned counsel referred to Clause 28 at paper book p. 502 which provided that on the expiration or sooner determination of the lease or in the case of the lease not being renewed, the lessees should deliver up to the assessee peaceful and vacant possession of the premises. This showed that the assessee had intended to take back the possession of the premises which situation could not arise in the case of a sale. Then the learned counsel pointed to Clause 15 at paper book p. 496 that if the lessee ceased to be a member of the Centre for any reason whatsoever, they would if so required by the Centre either transfer the lease to any other party who is a member of the Centre subject to the approval of the Centre or surrender the lease to the Centre. The learned counsel argued that this clause also militated against the concept of sale. Then the learned counsel pointed out that even in the order of the Tribunal dt. 29th March, 1996, the assessee was treated to be the owner of the property in para 7.37. The assessee was subjected to tax under the head "Income from house property" for both asst.

yrs. 1989-90 and 1990-91 and as far as assessment order for asst. yr. 1990-91 was concerned, it entirely proceeded on the footing that there were lease agreements. In these circumstances it was just not possible to somersault and take the position that the transactions of the assessee were the transactions of sale.

6. On the second issue relating to the assessee's claim of exemption under Section 11 the learned counsel contended that in the judgment dt. 15th March, 2001, on the assessee's writ petition, the Hon'ble High Court have held that the assessee has been registered under Section 12A after condonation of the delay. Registration under Section 12A proved that the CIT had satisfied himself in respect of the objects of the institution being charitable. That being so, that issue is not open to further debate and in the assessment proceedings one can only look into application of income by the institution. The learned counsel relied on the" judgment of Hon'ble Allahabad High Court in Fifth Generation Education Society v. CIT (1990) 185 ITR 634 (All) in this respect. He further submitted that the assessee having been incorporated as a company and granted on 12th June, 1970 licence under Section 25 of the Companies Act, 1956, and that licence not having been revoked and being in continuance, the fact that the assessee was a charitable institution could not be objected to. He took us through the memorandum of association as given at pp. 403 to 414 of the paper book and pointed out that the main object of the Centre was to organize, sponsor, promote, establish, conduct or undertake scientific research. Clause B of the memorandum enumerated 28 objects incidental or ancillary to the attainment of main objects. The assessee was initially recognised as a scientific research Association or Institution within the meaning of Section 35(1) by the prescribed authority which recognition was, however, subsequently removed. At any rate, even if nothing under the main object was done during a particular year(s), as long as there was expenditure on any of the ancillary and other objects, the same would stand the test of application of income for charitable purpose. For and up to asst, yr. 1988-89, the assessments of the assessee had become final and the assessee was treated as a charitable organisation. The learned counsel pointed out to the annual accounts of the Centre for the period relevant to asst. yrs. 1989-90 and 1990-91 as given in the assessee's paper book at pp. 546 to 559 and 574 to 587. He further stated that it was not possible to pinpoint as to what item of expenditure had been applied to which of the objects of the institution. For example, during the financial year 1988-89 a sum of Rs. 25,17,612 was expended on salaries, or another sum of Rs. 82,47,065 was expended on electricity charges. The learned counsel contended that it was not possible to bifurcate these expenses and apportion the same to the different activities of the Centre. However, as long as it is not known that any part of the expenditure was incurred for purposes other than those enumerated in the memorandum of association, it should be held that the income of the institution was applied for its stated objectives. During the previous year, the assessee had incurred an expenditure of Rs. 45,09,068 to hold General Assembly of the World Trade Centres all over the world as the assessee was one of the members of World Trade Centre at New York. As against this expenditure, the assessee's receipts on holding General Assembly, 1988, amounted to Rs. 34,85,448 and the difference was an expenditure incurred by the assessee on holding General Assembly, 1988, which went a long way to promote trade and industry in the country and thus promoted a charitable purpose.

7. At this stage of hearing, we requested the learned counsel for the assessee to furnish us the order of Government revoking the recognition granted to the assessee under Section 35(1) of the Act and also furnish us with the correspondence exchanged between the assessee and the Government in relation thereto. We also requested the assessee to furnish us with a written statement in respect of application of the income of the assessee for asst. yrs. 1989-90 and 1990-91.

8. The learned Departmental Representative argued that the Hon'ble High Court have referred the matter for determination of the correct nature of the transaction and not merely whether it was sale or lease. Under the provisions of IT Act, true nature of the transaction would determine the tax liability of an assessee. Though the agreements which the assessee entered into with flat occupants purported to grant lease for a term of 60 years, the fact remained that ordinarily no lessee would take an asset on lease for 60 years and at the same time pay the entire lease rent for the period of 60 years in advance. In the instant case, there was hardly any difference between the market price of the space and the amounts which were collected by the assessee. For the same amount of money the occupiers of the flat could outright purchase the property. Similarly, on the lessor's part, generally the tendency would be to agree for a period of lease as minimum as possible and one would not be keen to lease out the property for a period of 60 years if the intention is to retain a de facto control and enjoyment of the property. Hence there had to be some other motive between the parties than to give and take the property on lease for a period of 60 years. Referring to the clauses of the lease agreement relied upon by the learned counsel for the assessee, the learned Departmental Representative argued that the same merely related to the lessor's rights on breach of agreement. There was otherwise no right reserved in favour of the lessor to take possession of the property otherwise than when surrendered by the lessees. Thus though the transaction was given the form of lease, it encompassed all the essential attributes of a sale. The lessees were given uninterrupted enjoyment of the property for a period of 60 years including the right of renewal as well as transfer. The lessors received huge amounts upfront with only nominal amounts receivable during the subsistence of lease. The core of the matter was that substantial money changed hands in lieu of possession being handed over. As the assessee set up a multi-storeyed commercial complex, it was necessary to have a mechanism to run the commercial complex smoothly in an organised manner. This required certain conditions to be imposed upon the occupants of the complex. Various clauses of the lease agreement including Clauses 26 and 28 only ensured that the commercial complex was properly administered and the various occupants conducted themselves in accordance therewith. Ordinarily, these functions were discharged by a cooperative housing society in a multi-storeyed building. In the instant case, the Centre itself undertook to organize and render common amenities for which the provisions of monthly contributions from the flat occupants were essential. The monthly outgoings being charged by the Centre from flat occupants did not have any other character or purpose. Merely because these monthly outgoings were collected, it did not alter the basic character of the transaction.

9. The learned Departmental Representative argued that just as there was no right in favour of Centre to recover possession from the occupants, there was no clause for refund of 'advance rent' to the occupants. The amounts collected by way of 'advance rent' were meant to remain with the assessee for ever. Once this aspect was properly appreciated it would be difficult to treat the transaction as a lease simpliciter, Ordinarily, it was only in a sale transaction that the full payment was given. As compared to the 'advance rent' collected, what was payable month to month was minuscule. Thus the transaction was a sale dressed up as a lease. At any rate, even if the idea of sale was rejected, the 'advance rent' collected by the assessee could also be understood as a premium.

10. On second issue whether the assessee was entitled to exemption under Section

11. the learned Departmental Representative argued that the Centre was established as a scientific research institution, memorandum clause in this respect did not refer to anything specific. The clause was very widely worded so as to give a wide leverage to the organizers. Apart from the first clause, there was nothing in the memorandum to clarify as to in what manner scientific research was to be conducted, At any rate, the assessee has not been able to establish the fact of any scientific research having been done or for that matter, any charitable purpose having been carried out. All that the assessee had pointed out was that huge expenditure was incurred on establishment. The expenditure in itself or even the establishment in itself could not be fulfilment of an objective. Material and tangible consequences ought to have flowed from huge expenditure on establishment commensurate with the total amount expended.

11. In his rejoinder, the learned counsel for the assessee opposed the contentions of the learned Departmental Representative that the transaction should be construed as a sale and if it is to be treated as lease then the 'advance rent' should be assessed as premium received by the assessee. He argued that the directions of the Hon'ble High Court to the Tribunal are to choose between sale or lease. No room has been left for going into any third possibility. Entire writ petition of the assessee was that the Tribunal had come with an unknown proposition and that proposition has been turned down by the High Court. The agreement between the assessee and flat occupants provided for fixed rent and fixed period. These two are essential features of lease only. Even Clauses 15, 26 and 28 could never be in the case of an agreement to sell. There could not be any reversionary right for the vendor in a sale. Sale contemplated full transfer of the rights of the transferor. The learned counsel argued that for tax purposes a view different from the position in general law could not be taken. In this view of the matter, the judgment of Hon'ble Bombay High Court in the case of Sreeniwas Cotton Mills Ltd. was binding. There was no force in the contention of the learned Departmental Representative that the assessee camouflaged the true nature of transaction in the disguise of lease. In the case of CWT v. Arvind Narottam (1988) 173 ITR 479 (SC), the Hon'ble apex Court have held that where the language of a deed is clear and admits of no ambiguity, a plea of tax avoidance ought to be discouraged. Even in the order of the Tribunal, the computation of income under the head "Income from house property" has been upheld. In these circumstances, how can there be a sale ?

12. Regarding the contention of the learned Departmental Representative that 'advance rent1 should be assessed as a premium, the learned counsel argued that the assessee built a conglomerate comprising of Arcade, Centre-1 and IDBI Centre, This conglomerate was known as World Trade Centre. Arcade stood leased out long back for a period of 60 years. There was no dispute between assessee and the Department on taxability of the rent received by the assessee for a period of 60 years in respect of the Arcade. If 1/60th rent is accepted as annual income in that case, the position could not be different in respect of other buildings. Even otherwise, premium received in the case of a lease is always to be assessed as capital receipt. The learned counsel relied upon the judgment of Hon'ble Bombay High Court in the case of Cadell Wvg. Mill Co. (P) Ltd. v. CIT (2001) 249 1TR 265 (Bom) in this respect.

13. Regarding charitable purpose, the learned counsel disputed the contention that the assessee was not a charitable institution. This plea could not be taken after registration under Section 12A was granted. Once the registration was granted the question of the objects of the institution being charitable could no longer be in controversy. The learned counsel relied upon the Tribunal decisions in ITO v. Dwarika Prasad Trust (1989) 34 TTJ (Del)(SB) 381 :. (1989) 30 ITD 84 (Del)(SB) and the decision of Bombay Bench 'C' in the case of Audit Bureau of Circulations v. ADI, being order dt. 28th April, 1995, in (ITA Nos. 285 & 286 (Bom) of 1995). The learned counsel further argued that this aspect has been accepted in the judgment of Hon'ble Bombay High Court itself on the assessee's writ petition. Further, there could not be any doubt about charitable purpose of the assessee. Main clause of the memorandum of association was widely worded as "scientific research in any way or by any means whatsoever and in any area or field". Scientific research in itself was an all-embracing expression. In that sense, even construction of World Trade Centre itself could be treated to be a scientific research activity. The conglomerate built by the assessee was commonly known as "World Trade Centre". The meaning of a World Trade Centre is known all over the world. The very fact that the assessee built and administered World Trade Centre in itself was a charitable activity. The assessee was deeply involved in promotion of trade and business. There was an exhibition centre which was being given on rent and exhibitions were being held on a regular basis. The object of the assessee was to promote trade, industry and commerce. Income generated in itself was not the objective.

14. We have carefully considered the rival submissions. As pointed out earlier, the Tribunal passed an order on 29th March, 1996, on assessee's appeals in question. The assessee took the matter to the Hon'ble High Court by way of writ petition which has been disposed of by the judgment of Hon'ble Bombay High Court dt. 15th March, 2001. As per this judgment, Hon'ble High Court have remanded the matter to the Tribunal for reconsideration and decision afresh on two points, viz., (i) nature of the transaction between the assessee-company and the occupants of space in the building premises constructed by the assessee as carried out during the relevant previous years, and (ii) the claim of assessee that its income is exempt under the provisions of Section 11 of the Act.

Apparently, the matter has been remanded back to the Tribunal so as to arrive at the conclusions afresh on assessee's grounds of appeal in this behalf in the light of discussion in the judgment of Hon'ble High Court. During the course of hearing, from the arguments of the learned counsel of the assessee and the learned Departmental Representative we find that there is hardly any dispute between the parties on the facts of the case. The dispute mainly hinges upon the inferences to be drawn from the facts of the case and applicability of the provisions of IT Act thereupon. As the disputes relate to correct inferences to be drawn, we emphasise, a proper appraisal of the facts of the case in their totality is the crux of the matter. These facts have been painstakingly collected and enumerated at length in the assessment order for asst. yr. 1990-91 and in the order of the learned CIT(A) for asst, yr. 1989-90. For the sake of brevity, we propose to refer to them in this order in a condensed form. Let it suffice to record here that for a proper appreciation of the same it would be prudent and beneficial to peruse the elaborate facts recorded in the orders of the authorities below (supra). Briefly, the facts are that All India Manufacturers' Organisation and Industrial Foundation under its aegis conceived the idea of establishing World Trade Centre in Bombay and for this purpose a meeting of prominent industrialists in Bombay was held on 14th April, 1969, under the presidentship of Shri S.K. Wankhede, Finance Minister, Government of Maharashtra, These people met from time to time and drafted memorandum and articles of association of an institution. This institution was named and styled as "M. Visvesvaraya Industrial Research & Development Centre" (hereinafter referred in this order as "the Centre"). CBDT granted the Centre approval for the purposes of Clause (ii) of Sub-section (1) of Section 35 of the IT Act, 1961, on 6th April, 1970 (S.O. 1416). The Department of Company Affairs, Government of India, granted licence under Section 25 of the Companies Act, 1956, on 12th June, 1970, and Registrar of Companies gave Certificate of Incorporation on 26th June, 1970. As per the memorandum of association, the main object of this company is :

"To organise, sponsor, promote, establish, conduct or undertake scientific research in any way or by any means whatsoever and in any area or field."

This apart, the memorandum enumerates as many as 28 objects incidental or ancillary to the attainment of main objects. Many of these incidental or ancillary clauses do not appear to constitute an object as such but only to promote incidental activity such as to enter into contracts, incur expenses, borrow money, pay remuneration, to organise branches or offices, to insure property etc.

15. The Government of Maharashtra, on being approached by the Centre, by its Resolution dt, 16th Oct., 1970, issued sanction for the lease of about 71,071 sq. mtrs. of reclaimed land situate at what is now known as Cuffe Parade, subject to the terms and conditions mentioned in the accompanying memorandum. The memorandum provided that the lease would be for 99 years on payment of certain ground rent, renewable for another 99 years but on revised ground rent. It was decided that the Centre would be given possession of the land pending execution of the agreement to lease. The Centre would construct on the land necessary buildings and structures. Clause 13 of the memorandum read as under :

"The use-of the land will be restricted to the purpose of an Industrial Foundation and a permanent National Exhibition Scheme, which may include a permanent Museum, International Trade and Industries Fair, Concert Hall, Industrial Research institute and institute of Industrial Economics, residential quarters for the staff and visitors from up-country or abroad, Library, Reading Room and Information Bureau, Conference Hall, Recreational and Cultural Centre, Planetarium, Philatelic Museum, Musical Academy, Art Gallery and Engineering and Medical Section. There should however, be no hotel, amusement park or children's park on the plot. A restaurant or cafeteria may be provided."

Further, the memorandum also provided that the Centre would have no right to transfer or assign the lease of the plot or any part thereof to anybody without the previous consent of the Government. It was also provided that the Centre would pay to Government 50 per cent of its earning after all its expenses and for this purpose the donations and membership subscriptions would not be included in the income.

16. Thereafter, by Resolution dt. 18th Nov., 1974, Government of Maharashtra accorded permission to the Centre to grant a sub-lease of 10,000 sq. mtrs. of land to the LIC of India. Further, the clause relating to the use of land was somewhat modified as under :

"(12) The land shall be used by the lessees only for erecting or constructing thereon buildings or structures to house or accommodate either for its own use or for letting out inter alia scientific research bodies, trade and/or industrial museums, research centre and/or laboratories, libraries, bureaus, shopping arcades exhibitions, a World Trade Centre (inclusive of all the services provided by such a Centre), offices auditoria and/or halls for concerts or conferences or recreational or cultural activities, or residential quarters for the staff and visitors from upcountry or abroad, planetarium and cafeteria and/or restaurants but not a hotel."

Subsequently, by Resolution dt. 16th April, 1979, the permission for the sublease of land to the LIC was withdrawn and the Government accepted the offer of the Centre to surrender to Government an area of about 23,046 sq. mtrs.

17. Pending execution of the lease deed, the Centre was put in possession of land on 2nd May, 1972. Thereafter a building called Trade Centre' or 'Arcade' was constructed which, inter alia, included a shopping mall, conference hall, etc. Subsequently, sometime In 1979-80, the construction of a 35 storeyed building called 'Commerce Centre' was undertaken. This Commerce Centre subsequently came to be known as Centre-1. The assessee also commenced construction of another building called Centre-2 which was subsequently named as IDBI Centre. Thereafter the assessee launched an advertisement campaign for commercial space in the multi-storeyed building called Commerce Centre or Centre-1 inviting applications for allotment of office flats on long-term lease basis. The prospective allottees entered into a standardised lease agreement which stipulated payment for the entire term of 60 years lease in lump sum. This lump sum rent, described in the lease agreement as "primary basic rent", was payable by the lessee, in advance, before being put into possession of the premises, Generally, 30 per cent was paid on or before the execution of the agreement; 60 per cent in instalments during the period of construction of the building and 10 per cent when the premises were ready for occupation. The initial rates of the basic primary rent was gradually revised for the late applicants over the years keeping pace with the rising market prices of the commercial floor areas at Nariman Point and other comparable areas, While the lump sum rent called 'advance rent' was charged in respect of Trade Centre from the lessees at the rates ranging from Rs. 260 to Rs. 275 per sq. ft., the rate charged in respect of Centre-1 upto 30th June, 1980, amounted to Rs. 475 per sq. ft. This rate went up to Rs. 6,000 to Rs. 7,000 per sq. ft. during the period 30th April, 1991, to 31st March, 1992. For the period after 1st April, 1992, the rate went as high as Rs. 9,000 to Rs. 10,000 per sq. ft.

18. Apart from the basic primary rent or 'advance rent', the assessee further stipulated that the prospective allottees shall make monthly payment of the secondary basic rent payable on or before the 5th of every month. Further, it was also agreed upon that the prospective allottees would pay common outgoings rent in respect of their share in the actual expenditure incurred by the Centre in respect of the municipal rates and taxes, water charges, repairs, ground rent, air-conditioning facilities and upkeep of other amenities and facilities, The assessee also charged the parking space rent in the same manner as basic primary rent or 'advance rent' in respect of the main premises. In this manner the assessee-company charged from the prospective allottees lump sum payments for grant of leasehold rights for a period of 60 years. The secondary basic rent was fixed at the rate of 20 paise per sq. ft. per month and it appears that the same was provided for with a view to meet the ground rent payable by the Centre to the Government. The common outgoings were supposed to be charged only on the basis of actual expenditure incurred by the Centre in respect of common facilities and amenities and upkeep and maintenance of the premises. The standardised lease agreements permitted the lessees to transfer, assign, sell, mortgage, charge or encumber the demised premises or any part thereof or to sublet, underlet or allow occupation by any other party only on the permission in writing of the Centre being first obtained, It was further provided that the Centre would be entitled to stipulate payment of such fees/amount and on such terms and conditions as the Centre thought fit.

19. In the books of account, the assessee credited 'advance rent' for Trade Centre as well as for Centres 1 and 2 to the balance sheet as a liability under the head "Unsecured Loans". According to the assessee, only l/60th of this advance rent accrued as income, which was credited to the P&L a/c. For the year ended 31st March, 1989, the assessee credited to P&L a/c a sum of Rs. 72,68,619 as rent and provided for a sum of Rs. 1,84,18,451 by way of depreciation. However, in the return of income the assessee claimed depreciation at Rs. 9,13,98,315 in accordance with the rates as per IT Rules. Accordingly, the assessee filed return of income declaring Nil income and huge unabsorbed depreciation to be carried forward. During the course of assessment proceedings the AO noted that the total cost of construction of Centre-1 amounted to Rs. 39,77,89,859. As against this cost of construction, the assessee had collected 'advance rent' amounting to Rs. 45,99,84,721. As at the end of the year on 31st March, 1989, the assessee had not 'leased out' the entire constructed area. The AO added a sum of Rs. 4,92,62,500 as the value of the stock of unsold area to the aggregate advance rent received by the assessee and reduced therefrom the cost of construction resulting into a surplus of Rs. 11,14,57,637 which the AO assessed as profit made by the assessee on construction of Centre-1 and sale of the major part thereof. Aggrieved by this order the assessee preferred appeal before the learned CIT(A) disputing the computation of total income as made by the AO. Alternatively, the assessee argued that in any case the entire income of the assessee was exempt under Section 11 of the Act. After detailed discussion on the facts of the case and various legal issues involved, the learned CIT(A) accepted that the transactions in question did not amount to a sale. He, however, held that the receipt accounted for by the assessee under the label "primary basic rent" or 'advance rent' should be treated to be premium or Salami and should be charged, on the facts and in the circumstances of the case, to tax under the head "business". He further held that the premium charged by the assessee granting permission to transfer the leasehold rights was also chargeable to tax as business income. The learned CIT(A) also held that in case the 'advance rent' was held to be capital receipt, the same was to be treated as consideration received by the assessee on transfer of a capital asset and the resultant surplus was chargeable to tax as short-term capital gains. The learned CIT(A) also took note of the fact that the assessee had received 'advance rent' from the lessees occupying old and new buildings and had also received secondary monthly rent at the rate' of 20 paise per sq. ft. Though the assessee had offered l/60th of 'advance rent' and secondary monthly rent as income from business and the AO had also assessed both under the same head, the learned CIT(A) gave the finding that all the periodic rent collected by the assessee after charging of initial premium could be taxed only under the head "Income from house property". He therefore directed the AO to compute the rental income thus arising in accordance with the provisions of Section 22 to Section 27 of the IT Act.

20. For asst. yr. 1990-91, the assessee filed return of income in the same manner as for asst. yr. 1989-90. In the balance sheet, 'advance rent' received for Centres 1 and 2 were continued to be treated as "Unsecured Loans" and in the P&L a/c, the assessee accounted for rent at Rs. 1,56,73,543 only including rent in respect of Trade Centre as well: As against this receipt as well as other receipts of the assessee-company including monthly outgoings of Rs. 4,18,43,172, the assessee claimed in the return of income depreciation as per IT Rules at Rs. 10,93,52,057. The assessee filed return declaring total loss of Rs. 17,67,95,316 including unabsorbed depreciation/losses of earlier years amounting to Rs. 9,14,41,774. The assessee also claimed exemption under Section 11. In the lengthy assessment order the AO has examined the facts of the case both in relation to the assessee's receipts and its claim under Section 11 and drawn the conclusion that the Centre through lease agreements transferred the right to enjoy specific units in the multi-storeyed buildings which general right was a capital asset. The 'advance rent' received by the Centre from the lessees was in the nature of premium for transfer of a capital asset. During the previous year relevant to asst. yr. 1990-91 the Centre handed over possession of 99,605 sq. ft. to 19 different lessees for a total consideration of Rs. 20,59,79,589 in respect of Centre-1. In respect of IDBI Centre, the assessee received 'advance rent' amounting to Rs. 33,84,10,062, As against these receipts, the cost of acquisition of the asset to the assessee worked out at Rs. 26,93,03,174. The AO therefore, worked out short-term capital gain amounting to Rs. 27,50,86,477. The AO further noted that apart from 'advance rent', the assessee had also received secondary rent and therefore liable to be assessed under the head "Income from house property", Based on the rateable value fixed by Bombay Municipal Corporation in respect of Trade Centre, Centre-1 and IDBI Centre, the AO determined annual letting value at Rs. 4,05,51,455 and after various deductions computed income from house property at Rs. 3,57,41,449. In respect of monthly outgoings and other receipts, the AO assessed an income of Rs. 2,13,39,640 under the head "profits and gains of business or profession". On assessee's appeal, the learned CIT(A) entirely concurred with the findings of the AO. As a result, while for asst. yr. 1989-90 the learned CIT(A) held advance rent received during that year assessable under the head "business", for asst, yr. 1990-91 further advance rent received by assessee was held assessable under the head "Capital gains".

21. During the course of hearing, the learned counsel of the assessee has placed heavy reliance on the judgment of Hon'ble Bombay High Court in the case of Sreeniwas Cotton Mills Ltd. (in Liquidation) (supra). He argued that Hon'ble jurisdictional High Court held in that case that the assessee's agreement of lease not being a registered document, the allottee-company had not acquired any leasehold interest in the premises in question and was merely a monthly tenant, in the absence of registered lease agreements in all other cases it should be treated that 'advance rent' received by the assessee was collection from monthly tenants of the amount payable by them for a period of 60 years. In these circumstances there was no question of assessment of any profits and gains arising in respect of the entire 'advance rent'. As the learned counsel has argued "that this judgment is entirely binding on us in the appeals before us and clinches the issue, we would like to deal with this argument first and foremost, In our humble and considered opinion, the judgment in that case has been delivered by the Hon'ble High Court in an altogether different proceeding and in an altogether different context, hardly having any relationship with the chargeability to tax of the assessee's receipts in question. The case was decided in a rare situation of one of the occupants of the office premises having gone into liquidation. The Hon'ble Court was seized with the question of rights and obligations of the assessee on the one hand and that of the company being wound up. It is settled legal position that the findings given in the context of one statute cannot be automatically imported or applied in relation to the operation of another Statute. In a recent judgment in the case of Jagatram Ahuja v. CGT (2000) 246 ITR 609 (SC), the Hon'ble Supreme Court have affirmed that 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 pan materia legislations or it is specifically provided in one statute to give the same meaning to the words as defined in' another statute. In the case of Sreeniwas Cotton Mills Ltd. (in Liquidation)(supra) their Lordships were concerned with the effect of non-registration of a deed purporting to record a transfer of immovable property. The effect of non-registration of such agreements and deeds in IT proceedings have come to be closely examined and considered by Hon'ble Supreme Court in the case of CIT v. Podar Cement (P) Ltd. (1997) 226 ITR 625 (SC) and in the case of Mysore Minerals Ltd. v. CIT (1999) 239 ITR 775 (SC). In the case of Podar Cement (P) Ltd. (supra), the question which came up for consideration before Hon'ble apex Court was whether the rental income from the house property which had come to vest in the assessee, but as to which the assessee was not legal owner for want of deed of title, was liable to be assessed as "owner" or otherwise. The Hon'ble Court, having regard to the ground realities and further having regard to the object of the IT Act, viz., 'to tax the income', held that for the purpose of Section 22, 'owner' is a person who is entitled to receive income from the property in his own right, In the case of Mysore Minerals Ltd. (supra), once again the Hon'ble apex Court dealt with a situation in which the assessee had not become owner for want of deed of conveyance. The Hon'ble Court took note of the fact that though the document of title was not executed by the Housing Board in favour of the assessee, the houses were allotted to the assessee by the Housing Board, part-payment received and possession delivered so as to confer dominion over the property on the assessee. In this view of the matter, Hon'ble Court held that the assessee was entitled to depreciation in respect of the seven houses in question. In the case before us also, we find that the assessee had received stipulated payment in full and delivered possession to the flat occupants and conferred dominion over the property on the occupants of the flat. In our opinion, we should decide the issue before us not on the basis of absence of registration of lease but having regard to the ground realities and further having regard to the object of the IT Act as held by the Hon'ble Supreme Court in the case of Podar Cement (P) Ltd. (supra). Before parting, we would also like to refer to the judgment of Hon'ble Bombay High Court in the case of CIT v. Indo Oceanic Shipping. Co. Ltd. (2001) 247 ITR 247 (Bom) and in the case of CIT v. Buhari Sons (P) Ltd. (1983) 144 ITR 12 (Mad). In the former case, Hon'ble Bombay High Court held that the provisions of the Merchant Shipping Act not being pan materia with the provisions of the IT Act, the same were not applicable to an income-tax proceeding. The Hon'ble High Court took note of the fact that Merchant Shipping Act is not even a fiscal legislation. In the case of Buhari Sons (P) Ltd. (supra), Hon'ble Madras High Court similarly, held that the concepts in the Factories Act, 1948, could not be relied upon for interpretation of the terms contained in the Finance Act, 1966. We therefore hold, with respect, that the controversy before us is not at all resolved by the judgment of Hon'ble Bombay High Court in the dispute between the assessee and Sieeniwas Cotton Mills Ltd's case (supra).

22. We shall refer to the assessee's claim of exemption under Section 11 in the later part of this order. Leaving that aside for the time being, we find that the controversy for asst, yr. 1989-90 is narrower inasmuch as both the assessee and the learned CIT(A) have assessed 'advance rent' as business income. The assessee, however, recognised only l/60th of the 'advance rent' as income of the year, whereas the learned CIT(A) treated the 'advance rent' as premium or salami, assessable in its entirety in the year of receipt itself. Further, while the assessee has claimed depreciation allowance, it appears to us from the order of the learned CIT(A) that his finding about the profits arising to the assessee on turning the leases into accounts by way of premium implies that deduction should be given in respect of cost of acquisition itself. On assessee's appeals, in the earlier order the Tribunal found that the facts clearly went to show that the assessee had carried out the construction of Centre-1 and IDBI Centre as a business proposition. Therefore, the head of income in regard to the 'advance rent' or the "primary basic rent" which represented price paid for acquiring space or leasehold right of use of space was "Profits and gains of business or profession". The parking rent collected in lump sum also fell in the same category.

23. Hon'ble High Court have found merit in the contention of the assessee that there was no such concept in law as sale of leasehold rights of the use of space. Hon'ble High Court have found that the order of the Tribunal is not clear in stating the above proposition and remanded the matter back to us with a specific direction to reconsider this point in the light of the contentions of the parties in the assessment proceedings and to decide the matter on this point. On reconsideration, we find that "sale" and "lease" are two separate categories of transfer of property. The distinction between them is well settled and demarcated, "sale" involves transfer of ownership, while "lease" involves transfer of right to enjoy property. In a lease, unlike sale, ownership in property is not transferred and only a right to enjoy the property is transferred. Having regard to this primary distinction, the transaction between the assessee-company and prospective occupiers of office space in Centre-1 or Centre-2 are to be viewed as transactions of lease. The assessee has retained with itself the right of ownership as well as the reversionary right of possession of the premises on determination of lease. However, under the IT Act, there are no special modes of assessment prescribed based on whether the transaction is a sale or a lease. Income-tax is an annual levy of tax in respect of the total income of the previous year to be computed in accordance with the provisions of the Act. Chapter IV of the Act, which deals with "Computation of total income", does not draw any distinction as such between sale and lease and the classification thereunder is under the "Heads of income". In law, there is no fixed head of income under which price received on sale of property should be brought in computation of total income. There is no fixed head of income for computation of consideration received on a lease of property either. In this view of the matter, the problem in these appeals before us is not as to whether the transaction is a sale or a lease but as to under what heads of income the "income received by the assessee on the transactions in question should be assessed and, further, as to in what manner such income should be computed. The problem to which we have to address in these proceedings is basically the problem of head of income and manner of computation of such income.

24. The two appeals before us relate to asst. yrs. 1989-90 and 1990-91. During the previous year relevant to asst. yr. 1989-90 the assessee completed construction of Centre-1 which was a tall multi-storeyed building comprising of commercial space of 5,27,000 sq. ft. sub-divided into a large number of office units, etc. A large portion of this space was given possession of by the assessee to its lessees for a period of 60 years on lump sum payment, During asst. yr. 1990-91 the construction of IDBI Centre was.also completed and during the previous year the assessee gave further possession of large areas in Centre-1 and possession of IDBI Centre to IDBI. While completing assessment order for asst. yr. 1989-90 the AO found that the 'advance rent' corresponded and related more to the market price at which properties in prime locations were bought and sold. The lease period was of 60 years during which the lessees were at liberty to enjoy the use of property in whatsoever manner they liked. They could make certain changes or alterations in the units they possessed and could even sub-lease them in the remaining part of the lease period. The AO noted that technically the life of building is treated to be normally of 60 years and the assessee had collected the entire consideration of lease rentals of 60 years at one go. The case of the assessee was not different from that of an ordinary society which retained the rights over the land and sold the flats constructed thereon on ownership basis. The learned AO therefore held that the transactions of the assessee amounted to sale of the property and proceeded to compute profit arising to the assessee on such sale. However, while completing the assessment for asst. yr. 1990-91 the AO held that in law sale and lease were two different concepts and the transactions of the assessee could be characterised as lease and not as sale. After analysing a number of judgments on the subject the AO however rejected the contention of the assessee that the lump sum payment received was advance rent and held it to be premium or salami received by the assessee. The AO took note of the report of the Council of Management of the Centre for the year ending 1971 where it referred to "consideration money for agreement to lease space". However, subsequently, the phraseology, "consideration money for agreement to lease space" was substituted by the new nomenclature "advance rent", though in substance it remained the same. For this purpose the AO referred to the following extract from the report of the Council of Management on the affairs of the Centre for the year ending 1973 :

"Lease of space.--The principal terms and conditions for leasing space in the Trade Centre have, upon counsel's advice been modified, although this does not presently involve any change in the financial obligations of the lessees. It is now provided that the initial payment to be obtained from a lessee will be by way of advance rent instead of consideration for agreement to lease as originally proposed. The period of lease will not be 60 years, which is considered in law the life of a building but the lessees will have given the option to renew it for a further period co-terminous with the 99 years, lease to the Centre from the Government of Maharashtra (less 10 days). The renewal will be made on the basis of a nominal payment of Rs. 1 per year per shop plus out-of-pocket expenses proportionately shared among the lessees. These expenses are payable throughout the period of the lease and its renewal. The initial payment by way of advance rent is based upon the present value of a part of the rent capitalised over a period of 60 years, the amounts now payable for the ground and the mezzanine floor area, being offered on a concessional basis. The Centre reserves the right to raise these rates upto the permissible levels at the appropriate time."

[Emphasis, italicised in print, supplied] The AO further found that the assessee strictly adhered to the policy of handing over possession when entire amount agreed upon as 'advance rent' was paid by the prospective space occupier. As a result, as on 31st March, 1989, a sum of Rs. 7,29,88,941 was outstanding advance rent from 19 parties with whom the lease agreements had been made but possession not given in the absence of full payment. The AO further found that while the lease agreement made such elaborate and strict arrangements for payment of 'advance rent' there was no corresponding provision in the lease agreement empowering the lessee to put an end to the lease at any time before the expiry of the lease period or for refund of the advance rent under any circumstances. In the absence of any right of refund of primary basic rent by the lessees, in the opinion of the AO, the deposit in effect was an unenforceable and unilateral obligation on the assessee Centre. He therefore held that the 'advance rent' was an appropriation, in full and complete, towards consideration money for agreement to lease space. The AO also took note of the fact that irrespective of the date of possession, for the purpose of computing the primary basic rent, the period of tenancy was taken by the assessee to be 60 years for all lessees reckoned from 1st Oct., 1988. For example in the case of the lessee--Indian Banks Association--Although the lease was allotted on 21st Aug., 1990, the total amount of primary basic rent was charged for the entire period of 60 years reckoned from 1st Oct., 1988. The AO also found that in practice the assessee did not make any monthly appropriation from the primary basic rent account/advance rent account to the monthly rent account. In the case of Centre-1, while the assessee raised monthly bills for common outgoings rent and secondary basic rent and issued necessary receipts for payment thereof, no monthly receipt in respect of primary basic rent was given. It was for the simple reason that the primary basic rent did not possess the attributes of rent. The AO therefore held that based on the construction of the terms of the lease, the conduct of the assessee Centre and other attending circumstances, contrary to its nomenclature, the primary basic rent was a consideration paid by the assessee at the beginning for being let into possession with the object of obtaining a tenancy. The covenants of the lease showed that there was a transfer or parting with of the assessee's rights under the lease. The primary basic rent was also payable/paid prior to the creation of the tenancy and not after the relationship of the landlord and tenant had come into existence. The AO, therefore, in the assessment order for asst. yr. 1990-91, held that the 'advance rent' was a premium and not rent.

25. The AO further held that the premium received by the assessee constituted a capital receipt arising to the assessee on transfer of a capital asset. The transaction between the assessee and the occupants of the building was a lease which by its very definition was a transfer of a right to enjoy. Relying upon the enlarged provisions of Section 2(47), the AO held that the transactions resulted into transfer of a capital asset within the meaning of Section 45 and the profits and gains from such transfer to the assessee were assessable as capital gains. Since the capital asset was acquired by the assessee on 1st Oct., 1988, and transferred on 1st Oct., 1988, it was a short-term capital asset. The AO therefore assessed short-term capital gain, being the difference between the 'advance rent' received and corresponding cost of acquisition of the asset.

26. The assessee appealed against both the assessment orders for asst. yrs. 1989-90 and 1990-91. The learned CIT(A), however, took up the assessee's appeal against the assessment order for asst. yr. 1989-90 first. It was argued that 'advance rent' was received in three lump sum instalments prior to handing over of the leasehold space because the assessee did not have any funds to construct the building and, therefore, construction of buildings had to be done on self-financing basis. Merely because the payments had been taken in three lump sum instalments, the amounts received by the assessee did not partake the character of premium or Salami. The assessee was a high profile body. Its Council of Management had representatives of the Government and various semi-Government bodies. There could not be any question of "device" or "manipulation". In lieu of 'advance rent' received, the assessee was obliged to keep the lessees in possession for the entire lease period of 60 years. The assessee did not charge apart from the primary basic rent as 'advance rent' any other significant amounts, secondary basic rent was very nominal, being charged on monthly basis at the rate of 20 paise per sq. ft. Thus the assessee had taken the real rent in advance. As far as common outgoings rent was concerned, the same only represented reimbursement of actual expenses incurred. The assessee also relied upon the judgment of Andhra Pradesh High Court in the case of Rajahmanyam Meenakshamma v. CIT (1956) 30 ITR 286 (AP) and argued that the amounts in question were receipt in advance of the rent and there was no element of premium embedded in this respect.

27. The learned CIT(A) considered the plea of the assessee and found that the judgment in the case of Rajahmanyam Meenakshamma (supra) was of no assistance to the assessee. The learned CIT(A) referred to the judgments of Hon'ble Supreme Court in the cases of CIT v. Panbari Tea Co. Ltd. (1965) 57 ITR 422 (SC); Member for the Board of Agrl IT v. Sindhurani Chaudhurani (1975) 32 ITR 169 (SC) and Maharaja Chintamani Sarangnath Sahdev v. CIT (1961) 41 ITR 506 (SC). The learned CIT(A) found that the tests laid down in these judgments of Hon'ble Supreme Court are :

"1. The payment of salami is consideration for creation of new tenancy;

2. The salami is paid and received before the legal relationship of landlord-tenant or lessor-lessee comes into existence; and

3. Salami is the price and its payment is pre requisite condition for handing over of the possession of the demised premises."

The learned CIT(A) found that, on the facts and in the circumstances of the case, the amounts received by the assessee as 'advance rent' had to be characterised as premium or Salami. All the lease agreements entered into by the assessee-company followed a standardised format. The lease agreements envisaged four kinds of rent out of which primary basic rent and primary space rent were collected in full before the lessees could take possession. The lease agreement envisaged elaborate arrangement for notice to be given to the prospective lessees, of the premises being ready for occupation, the prospective lessees entering upon the premises and inspecting the state and condition thereof, certificates to be obtained by the assessee for declaring the premises ready for occupation, the time-limit within which the notification regarding the premises being ready for occupation to be given by the assessee and the intending lessees were required to take possession of the premises allotted to them by way of lease within a period of 30 days from the date of receipt of the notice after paying the balance of the 'advance rent' including arrears, if any, with interest. These terms brought out clearly the distinction drawn in the agreements between the primary basic rent and parking space rent collected as 'advance rent' on the one hand and secondary basic rent and common outgoings rent on the other. While the former was in the nature of premium or Salami, the other two were in the nature of monthly rents. The learned CIT(A) took note of the fact that in the 1971 report, the Council of Management had described the primary basic rent as "a consideration for agreement to lease space". It was only in 1973, on being given legal advice, the nomenclature was changed to "advance rent". He also took note of the fact that as on 31st March, 1989, a sum of Rs. 7,29,88,941 was outstanding advances and these parties were not given possession of the premises, which was taken only subsequently after full payment of the agreed primary basic rent. This could only lead to one conclusion, that the payment of primary basic rent was absolutely essential before the lessor could be let into the possession of the premises under the lease agreement. Thus no landlord-tenant or lessor-lessee relationship was permitted to be created prior to the receipt of the full payment of the whole amount of the primary basic rent by the lessors. Lease deeds were executed only upon payment of the primary basic rent. These facts satisfied the tests laid down by the Hon'ble Supreme Court for the ascertainment of the character of payment as a premium.

28. The learned CIT(A) also did not find merit in the argument of the assessee that simply because secondary rent was low amount, at the rate of 20 paise per sq. ft., primary basic rent should be treated as rent and not as premium. There was also merit in the argument taken by the AO that where the possession was handed over on a particular date, the primary basic rent could be charged only from that date and not from a date anterior to it when there was no lessor-lessee relationship. This also showed that what was charged as primary basic rent was not rent in advance but premium.

29. The learned CIT(A) found that in actual practice followed by the assessee as well as the lessees they assumed primary basic rent to be a "Premium" and not "advance rent". To take an example, only in the year relevant to asst. yr. 1989-90, one of the lessees, viz., Khatau Makhanji Spinning & Weaving Mills Ltd., had been allotted a flat of 8,296 sq. ft. on 1st Oct., 1988, for the primary basic rent of Rs. 45,62,937 calculated at the rate of Rs. 550 per sq. ft. On 28th Oct., 1988, Khatau Makhanji obtained assessee's permission to sell the lease hold rights to Great Eastern Shipping Co. for a sum of Rs. 2,73,77,625 and the assessee granted its approval on the condition that the lessee, i.e., Khatau Makhanji, paid a further sum of Rs. 14,10,362 at the rate of Rs. 170 per sq. ft. to the assessee, which it did. This premium at the rate of Rs. 170 per sq. ft. was charged as a price for allowing the transfer of the lease. The agreement between Khatau Makhanji and Great Eastern Shipping Co. showed that primary basic rent paid by the former was not to be deducted from the consideration price of Rs. 2,73,77,627. In other words, no part of the primary basic rent was refunded to Khatau Makhanji and on the contrary it paid to -the Centre a further premium of Rs. 14,10,362 and it separately recovered consideration of about Rs. 2.74 crores from Great Eastern Shipping Co. whose name was substituted in place of Khatau Makhanji. Had Khatau Makhanji been legally entitled to refund of the so-called 'advance rent' for the unexpired period of lease, this amount would have been refunded to Khatau Makhanji and Great Eastern Shipping Co. and the assessee would have fixed fresh terms of premium and lease rent, etc. Nothing of that sort was done. A new tenancy was created simply by the act of charging of premium of Rs. 170 per sq. ft. ignoring the prevalent market price of about Rs. 3,300 per sq. ft. Similar practice had been adopted in all other cases of transfer of leases by the original lessees. The learned CIT(A) found that within a couple of weeks of obtaining the possession of the flat, Khatau Makhanji paid just an additional premium of about Rs. 14 lakhs to the Centre and making killing of more than Rs. 2 crores was not a solitary instance. There were, in fact, a large number of such instances which the learned CIT(A) has further detailed in para 47 of his order. In view of these reasons, the learned CIT(A) held that primary basic rent received by the assessee was not "advance rent" but receipt of "premium/salami".

30. The learned CIT(A) thus arrived at the same conclusion as the AO in asst. yr. 1990-91, that the assessee's transactions were lease but primary basic rent received by the assessee was "premium" and not "advance rent". In the assessment order for assessment year 1990-91 the AO did not further examine the question as to whether the premium should be brought to tax as a capital receipt or revenue receipt. In his order for asst. yr. 1989-90 the learned CIT(A) addressed himself to this question and came to the conclusion that the 'premium' received by the assessee was in the nature of business receipt. The assessee argued before him that in the case of any premature termination of lease by any lessor, the assessee would be under legal obligation to refund the unadjusted balance of the primary basic rent. The learned CIT(A) found that there was no clause in the lease agreement which specifically provided for the refund of the unadjusted balance of the primary basic rent on premature termination of the lease. In fact, the lease agreement did not provide for any adjustment of rent on monthly or yearly basis against the amount received by way of primary basic rent. It was true that in the books of accounts of the assessee, primary basic rent had been showed as a liability under the head "Unsecured loans" against which adjustment was being made at the end of the year by way of l/60th primary basic rent. The learned CIT(A) held that mere entries in the books of account could not be said to be decisive of the substance of the transaction for which proposition he placed reliance on the judgment of Hon'ble Supreme Court in the case of Sutiej Cotton Mills v. CIT (1978) 116 ITR 1 (SC). For the purpose of deciding the nature of a particular receipt one had to not only look at the lease agreement, but also the intention of the parties and their conduct in carrying out the transactions. He found that the lease deed did not prescribe adjustment of primary basic rent on periodical basis at all. Even otherwise, the verbal dressage of the lease rent becoming due every month was of no significance as it had been already paid prior to the commencement of the lease. The learned CIT(A) examined Clauses 12,15, 26 and 28 of the lease deed. Clause 12 provided that the Centre will be entitled to refuse to give permission to the lessees to transfer, assign, sell, mortgage, charge or encumber in any manner or otherwise dispose of the demised premises or any part thereof without being bound to give any reason for refusal, but at the same time Clause 12 provided that such permission will not be unreasonably refused and that the Centre shall be entitled to stipulate payment of such fees/amount and such terms and conditions as the Centre deemed fit. Clause 15 provided that if the lessees ceased to be a member of the Centre, they shall either transfer the lease to the Centre or to any other party who is a member of the Centre, subject to the approval of the Centre. Clause 28, which dealt with the expiration or sooner determination of the lease provided the lessees two options, i.e., (1) either to transfer the lease to another member, or (2) to forfeit the lease at his own cost. The learned CIT(A) found that in practice. The Centre charged additional premium at the rate of Rs. 170 per sq. ft. regardless of the extra consideration charged by the lessees from the incoming members. The whole question of surrender of lease by the lessees was academic. No one surrendered, yet 60 per cent of original members/lessees earned huge amounts running into crores by transferring their lease rights on payment of relatively smaller transfer fees to the Centre. The learned CIT(A) therefore reached the following conclusion in para 38 of his order :

"1. 'Primary basic rent' is in the nature of premium/salami charged by the assessee for letting the lessors into the possession of the leased premises.

2. That the premium so charged is in substance a receipt and not a deposit."

The learned CIT(A) agreed that this was not a case of sale of flats but simply because it was not a case of sale it did not mean that income by way of profits for transferring leasehold rights could not be taxed under the head "business". In fact, the assessee himself was declaring l/60th of the primary basic rent under the head "business". For this proposition the learned CIT(A) placed strong reliance on the judgments of Hon'ble Supreme Court in the case of Karanpura Development Co. Ltd. v. CIT (1962) 44 ITR 362 (SC) and in the case of S.G. Mercantile Corporation (P) Ltd. v. CIT (1972) 83 ITR 700 (SC). Based on these two judgments, the learned CIT(A) held that ownership of property and leasing it out or acquiring lease and sub-leasing it may be done as part of business or it may be done as land owner. Whether it is the one or the other must depend upon the object with which the act is done. Where a company is formed with the specific object of acquiring properties not with the view of leasing them as property but to turning them to account even by way of leasing them out as an integral part of its business, it cannot be treated as land owner but as trader. In the instant case, the assessee had done precisely the act of turning the leased property to account by charging premium before giving possession and executing lease deeds. The premium had been charged in the course of an integrated business activity. This activity was continued by charging additional pre--announced premium for granting permission to lessees to transfer or assign their rights to third parties. From the very beginning, the assessee chalked out a very detailed programme for constructing a number of buildings in a planner manner. The assessee had envisaged that the construction programme would have to be so devised that the profits from selling leasehold rights in Trade Centre would help in the construction programme of commerce centre and cumulative profits in constructing more buildings and possibly a hotel. The assessee leased out large number of flats, shops etc. and carried out in a systematic manner business of maintaining such building and providing various services and setting up other profitable activities like business executive centre, conference exhibition halls not only for the use of the members but for the world at large from whom full commercial tariffs were charged. This was a highly organised business activity.

31. The learned CIT(A) further found that the assessee always charged a very high premium on giving leasehold space to late entrants. The flats were leased and not sold for the very simple reason that under the agreements with the State Government, the assessee was not entitled to make outright sale. However, by leasing out flats for a period of 60 years with renewal clause, the assessee got over this difficulty. Only a fraction of the floor area was retained by the assessee for its own use and that too only for running the business of providing various services like central air conditioning, express elevators, conference and exhibition halls for daily hire and the rest of the floor space (which was the fixed capital) had been used for "turning into account" by selling leasehold rights prior to the completion of buildings and handing over of possession. The assessee employed large number of staff which was mainly engaged in maintaining and undertaking these activities. ,

32. The learned CIT(A) noticed that though the occupiers of space both in the Trade Centre Arcade and Commerce Centre had to become members of the Centre, the self-financing scheme executed by the assessee was not merely on cost sharing basis. It was not based on a no profit no loss consideration, the Centre went about charging enormous premium from late entrants for giving the possession of leasehold flats. During the year, the receipts of the assessee on area allotted to the lessees amounted to Rs. 45.99 crores, whereas the same cost the assessee only Rs. 27.67 crores. The assessee was left with substantial unsold area and if that were also taken into account, the net profit earned by the Centre worked out to be more than 100 per cent of the cost and more than 50 per cent of the sale price. It was also evidenced from the fact that while initially the assessee charged primary basic rent at Rs. 475 per sq. ft., the flats booked in the previous year relevant to asst. yr. 1989-90 had the Basic Rent of around Rs. 4,500 per sq. ft. In subsequent years, the primary basic rent was charged as high as Rs. 10,000 per sq. ft. while during the year the primary basic rent increased from the initial rate of Rs. 475 per sq. ft. to Rs. 4,500 per sq. ft., in the cases of re-transfer, the assessee charged additional premium at the rate of Rs. 170. per sq. ft. only. On this basis a large number of initial allottees booked huge profit as per details given by the learned CIT(A) in para 47 of his order. From the chart, he showed that out of 49 lessees who had paid the premium in full and put into possession of their flats on 1st Oct., 1988, as many as 13 promptly sold their leasehold rights. The assessee indiscriminately granted permission. No enquiry was ever made as to whether the new lessees would serve the objects of the trust. Of course, this permission resulted in instant additional profit of Rs. 62,44,662 by way of additional premium. The enquiry into the staffing pattern of the assessee also showed that almost the entire office and the staff was exclusively engaged in the sale and management of the real estate of the assessee. There were very few persons who were responsible for coordinating the publication of in house journal issued to the members of the Centre and for monitoring other activities funded by the Centre. On the basis of facts thus found, the learned CIT(A) held that the case of the assessee was no different from that of any other builder who built flats for profit. The only difference was that instead of outright sale, the. assessee resorted to leasing out the flats on a long-term of 60 years with renewal clause. The learned CIT(A), therefore, further held that initial premium and additional premium charged by the assessee was on the revenue account because the assessee as a owner had been turning the leases into accounts. Secondly, profits from such activity was chargeable to tax under the head "Profits and gains of business or profession".

33. The learned CIT(A) passed the impugned order for asst. yr. 1989-90 on 13th Sept., 1993. The assessee's appeal against the assessment order for asst. yr. 1990-91 was taken up subsequently on 23rd Feb., 1994. In this relatively brief order, the successor CIT(A) has time and again relied upon the order of his predecessor for asst. yr. 1989-90. However, the learned CIT(A) for asst. yr. 1990-91 did not make much of the basic distinction between the approach of the learned CIT(A) for asst. yr. 1989-90 and that of AO in the assessment order for asst. yr. 1990-91. While the learned CIT(A) treated the premium charged by the assessee by way of primary basic rent and by way of permission granted for re-transfers as revenue receipt chargeable to tax under the head "Profits and gains of business or profession", the AO for asst. yr. 1990-91 had made out a case of the same premium chargeable to tax as capital receipts arising to the assessee under the head "Capital gains", albeit, "Short term capital gains". Without going into the niceties and import of this major difference in the approach, the learned CIT(A) for asst. yr. 1990-91 has upheld the computation made by the AO for assessment of short-term capital gains.

34. Aggrieved by these orders of the learned CIT(A), the assessee filed appeals before the Tribunal for both asst. yrs. 1989-90 and 1990-91. According to the assessee, the assessment should have been made on the basis of income limited to 1/60th of primary basic rent and the additional rent for allowing the transfers plus the secondary basic rent. The Revenue in its appeal for asst. yr. 1989-90 objected to the order of the learned CIT(A) for assessment under the head "Profits and gains of business or profession" and insisted that the assessment should have been made under the head "Capital gains", as done by the AO in the assessment order for asst. yr. 1990-91. The learned counsel for the assessee argued that the assessee was incorporated under Section 25 of the Companies Act, 1956. The said section prohibited distribution of dividend to the members and recognised the true character of the company as non-profit making organisation. He further contended that the assessee had to resort to leasing of substantial floor area to various people because otherwise the Centre had very little funds of its own. There was also the need to maintain the buildings and to provide various related facilities which required considerable funds. The Tribunal considered various clauses of the lease agreement and the facts recorded in the orders of the authorities below and held that the assessee was engaged in a planned and orderly development of the land granted by the Government by erecting a cluster of buildings. This activity was carried out in the nature as of any other builder or developer of land, 90 per cent of the primary basic rent was payable well in advance and even balance 10 per cent was payable before the execution of the deed. The lessees were assured of a right to re-transfer, though subject to the sole discretion of the Centre, inasmuch as it was stated that refusal to give permission shall not be unreasonably done. On the facts of the case, there were two possibilities. First, to hold the assessee liable for rental income chargeable on a monthly basis and, second, to treat that the assessee had sold the space to the lessees by holding that the primary basic rent was Salami or premium. The argument of the assessee that the primary basic rent was an 'advance rent' was based only on what was stated in the lease deed. If the totality of the facts were considered, they clearly indicated that the only proper view was to hold that the transaction was one of sale of leasehold right of use of space and what the assessee retained only was the right to charge monthly rental, right to charge transfer fee and the right of space leased out. The Tribunal therefore held the view that the amount collected towards construction in the name of primary basic rent was price for allowing lease hold right of use of space for 60 years which bore the character of income at the time the possession was handed over. As the elucidation of facts clearly went to show that the assessee had carried out the construction as a business proposition, the head of income in regard to the primary basic rent which represented price paid for acquiring space for lease hold right of use of space was "Profits and gains of business or profession". The parking rent also fell into the same category.

35. The Hon'ble Bombay High Court have on assessee's writ petition in their judgment dt. 15th March, 2001, found that the order of the Tribunal as briefly summarised by us in the foregoing paragraphs is not clear in stating the nature of the assessee's transactions. With utmost respect to our learned predecessors who passed the Tribunal order on 29th March, 1996 (supra), we venture to say that there has been a mix-up between sale and lease. It is probably because the assessee's transactions bear considerable verisimilitude to the business of a real estate developer called the builder in the ordinary common parlance in Mumbai. The transactions of the assessee with the space occupiers in the buildings constructed by the assessee have to be categorised as lease within the meaning of Section 105 of Transfer of Property Act. But, as pointed out by us in para 23, there is no particular head of income or manner of computation of consideration received by a lessor on leasing of property. This aspect of the matter is very clear from the judgment of Hon'ble Supreme Court in the case of Karanpura Development Co. Ltd. (supra), which is the leading case law on the subject. At p. 377 of the judgment, the Hon'ble apex Court have stated the law on the subject in the following words :

"Ownership of property and leasing it out may be done as a part of business, or it may be done as land owner. Whether it is the one or other must necessarily depend upon the object with which the act is done. It is not that no company can own property and enjoy it as property, whether by itself or by giving the use of it to another on rent. Where this happens, the appropriate head to apply is "income from property" (Section 9), even though the company may be doing extensive business otherwise. But a company formed with the specific object of acquiring properties is not with the view to leasing them as property but to selling them or turning them to account even by way of leasing them out as an integral part of its business, cannot be said to treat them as landowner but as trader. The cases which have been cited in this case both for and against the assessee-company must be applied with this distinction properly borne in mind. In deciding whether a company dealt with its properties as owner, one must see not to the form which it gave to the transaction but to the substance of the matter."

And again, at p. 378, the Hon'ble apex Court have further laid down as under :

"Where a company acquires properties which it sells or leases out with a view to acquiring other properties to be dealt with in the same manner, the company is not treating them as properties to be enjoyed in the shape of rents which they yield but as a kind of circulating capital leading to profits of business, which profits may be either enjoyed or put back into the business to acquire more properties for further profitable exploitation."

36. The principle laid down by Hon'ble Supreme Court in the case of Karanpura Development Co. Ltd. (supra) have been followed and applied in a plethora of subsequent judgments. In the case of S.G. Mercantile Corporation (P) Ltd. v. CIT (supra), the Hon'ble apex Court once again relied on their earlier judgment of the case of Karanpura Development Co. Ltd. (supra) and held that the definition of "business" in Section 2(4) is of wide amplitude and it could embrace within itself dealing in real property as also the activity of taking a property on lease, setting up a market thereon and letting out shops and stalls in the market. In the case of CIT v. MR Bazaz and Ors. (1993) 200 ITR 131 (On), the assessee constructed a building and let it out on rent. On facts of the case, Hon'ble High Court upheld the finding of the Tribunal that activities carried on by the assessee amounted to business'.

37. From the judgments of Hon'ble Supreme Court in the cases of Karanpura Development Co. Ltd. (supra), S.G. Mercantile Corporation (P) Ltd. (supra) and scores of other judgments, now it is well settled position that income received by an assessee from leasing out house property may be assessable under the head "Income from house property" or "Profits and gains of business or profession" or "Income from other sources". Even otherwise, there should not be any difficulty in recognising that leasing activity can be carried out as an organised business activity. Today there are thousands of firms and companies whose business comprises entirely of leasing activity, particularly plant and machinery or motor vehicles or even ships, aircrafts, etc. Merely because the subject-matter of lease is an immovable property should not make any difference. It therefore follows that there is no particular head of income in respect of consideration received by lessor on leasing of property.

38. The issue therefore arises as to what would be the correct head of income for assessment of income arising to the assessee on the transactions in question which are lease transactions. There does not appear to be much dispute on the point that the correct head of income in the case before us is "Profits and gains of business or profession". The assessee has himself considered so and filed the returns of income for these two assessment years on that basis. Both the AO as well as the learned CIT(A) for asst. yr. 1989-90, after detailed consideration of the facts of the case, as enumerated by us in the foregoing paragraphs, arrived at the conclusion that the transactions in question were by way of a business carried on by the assessee. The learned AO who completed the assessment for asst. yr. 1990-91 also held more or less similar view, but he proceeded on the basis that the transaction being lease and the lump sum payment received as a precondition for grant of lease being premium, the same had to be assessed as a capital receipt in the hands of the assessee arising on transfer of a capital asset. In the order of the Tribunal made on 29th March, 1996, the finding of business has been reached. On the facts of the case we have no difficulty or hesitation in arriving at the conclusion that leasing of space by the assessee both in Centre-1 and IDBI Centre was essentially the business carried on by the assessee. The assessee proceeded to exploit FSI (Floor Space Index) available on the land sanctioned to it by the State Government in the same manner as any other real estate developer or builder in Mumbai would with the only difference that instead of outright sale, the rights conferred on the customers were lease hold rights for a period of 60 years. The space was allotted on first-come-first-served basis at market value so much so that while the primary basic rent charged initially amounted to Rs. 475 per sq. ft., it kept on increasing year after year and went up as high as Rs. 10,000 per sq, ft. The assessee also charged transfer fee when the original allottees assigned their rights to other parties for money. The learned CIT(A) has in the impugned order for asst. yr. 1989-90 held that the entire activity of leasing of space in Centre-1 was conducted as a highly organised business activity and we find ourselves substantially in agreement with his reasoning.

39. Secondly, it is an admitted fact of the case that the assessee constructed first Trade Centre and thereafter Commerce Centre, or Centre-1 and IDBI Centre from out of the funds received from the prospective occupiers of the buildings. From "the passage in the judgment of Hon'ble. Supreme Court in the case of Karanpura Development Co. Ltd. v. CIT (supra) quoted by us at the end of para 35 it would be seen that the monies thus received have to be treated not in the shape of rents but profits of a business. The same view has been taken in the case of S.G. Mercantile Corporation (P) Ltd. (supra) and in the case of Sri Balaji Enterprises v. CIT (1997) 225 ITR 471 (Kar).

40. Thirdly, the assessee did not lease out mere tenements. It also undertook to provide in a systematic manner services like electricity, air-conditioning facilities, use of lifts, supply of water, maintenance of common areas, air-conditioning, watch and ward facilities, etc. All the buildings constructed in the complex, whether Trade Centre Arcade or Centre-1 or IDBI Centre have been envisaged by way of a synergy making handy to the occupants a package of services and facilities like meeting facilities, display and exhibit facilities, trade education services, club facilities, temporary secretarial services and so on. In the case of CIT v. National Storage (P) Ltd. (1963) 48 ITR 577 (Bom), the Hon'ble High Court held that in cases where the income received is not from the bare letting of the tenement or from the letting accompanied by incidental services or facilities, but the subject hired out is a complex one, the operations involved in such letting of the property would be in the nature of business or trading operations. This judgment was subsequently upheld by Hon'ble Supreme Court in CIT v. National Storage (P) Ltd. (1967) 66 ITR 596 (SC). Similarly, in a recent judgment in the case of Saswad Mali Sugar Factory Ltd. v. CIT (1999) 236 ITR 706 (Bom), Hon'ble Bombay High Court found that where the assessee leased hostel to students who were permitted to occupy pursuant to licence, income from lease was assessable as business income. We may also mention here that the fact that assessee charged additional premium or transfer fee on assignment of leasehold rights by the original allottees also lends colour of business to the entire leasing operations of the assessee. It may be noted that Hon'ble jurisdictional High Court by their judgment in the case of CIT v. Presidency Cooperative Housing Society Ltd. (1995) 216 ITR 321 (Bom) treated such receipts to be revenue receipt. We therefore hold that the consideration received by the assessee on its transactions of lease of space in Centre-1 and IDBI Centre are chargeable to tax under the head "Profits and gains of business or profession" for both asst. yrs. 1989-90 and 1990-91.

41. As pointed out by us, the finding given by us in the foregoing paragraphs is precisely what the assessee has himself done in his returns of income for both asst. yrs. 1989-90 and 1990-91. The major area of dispute is whether the entire primary basic rent is chargeable to tax as a premium received by the assessee in the year of receipt itself or whether the plea of the assessee to treat the same as rent chargeable to tax over a period of 60 years should be accepted. The test in this behalf has been laid down by Hon'ble Supreme Court in the case of CIT v. Panbari Tea Co. Ltd. (supra). At p. 425 of the judgment, the Hon'ble Supreme Court, after referring to the provisions of Section 105 of the Transfer of Property Act, observed as under :

"The section, therefore, brings out the distinction between a price paid for a transfer of a right to enjoy the property and the rent to be paid periodically to the lessor. When the interest of the lessor is parted with for a price, the price paid is premium or Salami. But the periodical payments made for the continuous enjoyment of the benefits under the lease are in the nature of rent. The former is a capital income and the latter a revenue receipt. There may be circumstances where the parties may camouflage the real nature of the transaction by using clever phraseology. In some cases, the so-called premium is in fact advance rent and in others rent is deferred price. It is not the form but the substance of the transaction that matters. The nomenclature used may not be decisive or conclusive but it helps the Court, having regard to the other circumstances, to ascertain the intention of the parties."

We are conscious of the fact that in the passage above quoted, there occurs the observation that the premium is a capital income. It appears that for that reason the learned AO while completing the assessment for asst. yr. 1990-91 entertained the belief and proceeded to assess primary basic rent under the head "capital gains" but these observations of Hon'ble Supreme Court in the case of Panbari Tea Co. Ltd. should not be read in isolation but on the facts of that case. From the judgment of Honlble Supreme Court in the case of Karanpura Development Co. Ltd. (supra); S.G. Mercantile Corporation (P) Ltd. v. CIT (supra) and a host of other judgments it is seen that the observations of Hon'ble Supreme Court in the case of Panbari Tea Co. Ltd. (supra) that premium shall be on capital account have been made in the context where the leasing itself is not the business of the assessee. The situation is the same as when many people purchase shares as investment, some others deal in shares as a trader.

42. In the case of Henriksen (Inspector of Taxes) v. Grafton Hotel Ltd. (1943) 11 ITR (Supple) 10 (CA), Lessees of licensed premises, under a covenant in their lease, paid annually certain sums imposed by the licensing justices as instalments of the monopoly value on the grant and renewal of the licence for three-year period. It was contended that those sums were not capital payments, but must be regarded as revenue payments and, as such, deductible for income-tax purposes. It was held that monopoly value payments were imposed for the term of the licence on grant or renewal, though the fact that permission was given to pay by yearly instalments gave a false appearance of periodicity. The Hon'ble Court of appeal observed at p. 15 as follows ;

"It appears to me that there can be no difference in principle between a payment out-and-out for monopoly value and a payment in respect of a term. Each licence granted for a term must stand by itself, since an application for its renewal falls to be treated as an application for a new licence. This is what I mean when I say that there is a false appearance of periodicity about these payments. Whenever a licence is granted for a term, the payment is made as on a purchase of a monopoly for that term. When a licence is granted for a subsequent term, the monopoly value must be paid in respect of that term, and so on. The payments are recurrent if the licence is renewed; they are not periodical, so as to give them the quality of payments which ought to be debited to revenue account. The thing that is paid for is of a permanent quality, although its permanence, being conditioned by the length of the term, is shortlived. A payment of this character appears to me to fall into the same class as the payment of a premium on the grant of a lease which is admittedly not deductible. In the case of such a premium it is nothing to the point to say that the parties, if they had chosen, might have suppressed the premium and made a corresponding increase in the rent. No doubt, they might have done so, but they did not, in. fact, do so. The lessee purchases the term for the premium. There is no revenue quality in a payment made to acquire such an asset as a term of years."

From the above observations, it appears that premium on the grant of a lease and lease rent though inter-related to each other fall in different classes. Though on payment of the premium the lessee acquires the term of years, the premium has a permanent quality.

43. In the case of Aditya Minerals (P) Ltd. v. CIT (1999) 239 ITR 817 (SC), the assessee had obtained a lease deed. Under the terms of the lease agreement, the lessee had to deposit with the lessor by way of guarantee for due performance of this lease deed for 15 years, the amount equal to the rent of lease of land for the full period of lease which would be adjustable against rent of every month. This entire guarantee deposit would not carry any interest payable to the lessee by the lessor. The assessee claimed deduction of rent payment on annualised basis. Hon'ble Supreme Court took note of the fact that the deposit was adjustable against the rent of each month but following the earlier judgment of Supreme Court in the case of Pingle Industries Ltd. v. CIT (1960) 40 ITR 67 (SC), the Hon'ble Supreme Court held that the deposit was not deductible. In other words, where the payment is made in lump sum conferring right upon lessee for the entire term of lease, the same cannot be given the quality of rent payable on month to month basis.

44. In the case of Bharath Earth Movers Ltd. v. CIT (2000) 244 ITR 547 (Kar), the assessee, a public-sector undertaking, took three flats on lease for 99 years on payment of Rs. 26,82,462 inclusive of registration charges of Rs. 4,14,569. The Tribunal held that the assessee was entitled to deduction of the rent payable in respect of the three flats for the year of account and directed the AO to calculate the aggregate of the rent payable to the three landlords at rates mentioned in the documents of lease and allow deduction accordingly. Hon'ble High Court held that although no sale deed was executed and the transaction was clothed as lease, it was nothing but conferring ownership rights on the assessee, Hence the expenditure could not be considered to be revenue expenditure nor could the assessee claim the deduction treating the same amount as an advance rent.

45. From the judgments cited by us in the foregoing paragraphs, it follows that where the term of lease is granted for a price, the price paid is premium or Salami while the periodical payments made for the continuous enjoyment of the benefits under the lease are in the nature of rent. There is a permanent quality about payment of premium and periodical quality about payment of rent. It is therefore to be seen whether in a given case the assessee has granted the entire length of the term on lump sum consideration or merely collected periodical rent in advance. While the lump sum consideration received on grant of lease would constitute capital income in the hands of lessor, where the leasing of property has been undertaken not as a landowner but as trader, the same would constitute business or revenue receipts in the hands of the lessor. For this purpose it is not the form but the substance of the transaction which is required to be examined and the nomenclature used in the agreements between the parties would not be decisive or conclusive. Applying these tests to the facts and circumstances of the case before us, we are of the view that even though in the lease agreements primary basic rent has been described as 'advance rent', the true character of these amounts is not mere collection of rent in advance but turning the property itself to account by way of leasing them out for long-term of 60 years. For one thing, the entire amount has been charged even before the lessees were put into possession. As a matter of fact, the lessees parted with substantial portion of primary basic rent even before the property came into existence, primary basic rent was collected by the assessee 'a priori' the creation of lessor-lessee relationship. Apparently, the amount was charged by way of consideration for conferring leasehold rights upon the lessees. In fact, council of management of the Centre also thought the same and it was only upon counsel's advice that the phraseology "Consideration money for. agreement to lease" was substituted by the new nomenclature "advance rent" (See para 24). There was no question of acquiring physical possession of property unless the entire primary basic rent was paid in full. The payment of primary basic rent was absolutely essential before the lessor could be let into the possession of the premises under the lease agreement. In para 67 of the assessment order for asst. yr. 1990-91 the AO has enlisted the statement of outstanding advance rent as on 31st March, 1989, and found that these persons were not put into possession as late as 31st March, 1989, even though lease agreements had been entered and major part of primary basic rent had been paid by the parties. Further, the assessee operated on the basis of a fixed term of 60 years to be reckoned from 1st Oct., 1988. This was done even in the cases of agreements of lease entered into long after 1st Oct., 1988. This also indicates that primary basic rent was consideration for agreement of lease and not advance collection of periodical rent.

46. Secondly, there is no clause whatsoever for any refund of primary basic rent collected by the assessee. The lease agreement does talk of sooner expiry or determination of lease term but it does not provide for any refund of the rent for the unexpired period. In the case of CIT v. Bazpur Co-operative Sugar Factory Ltd. (1988) 172 ITR 321 (SC), the Hon'ble Supreme Court have laid down that the essence of a deposit is that there must be a liability to return it to the party by whom or on whose behalf it is made on the fulfilment of certain conditions. But in the lease agreements before us, no liability to return has been assumed by the assessee and it is therefore crystal clear that primary basic rent stood appropriated by the assessee on the very date the lessees were put into possession and no part of it awaited any further period to elapse, not to speak of expiry of the entire length of 60 years.

47. As a matter of fact, the lease agreements do not refer to any periodical rent and do not specify for what monthly or annual rent the property was being leased out. The agreement speak of primary basic rent for the entire term of 60 years. This aspect is very interestingly demonstrated in para 8 of the impugned order of the learned CIT(A) for asst. yr. 1989-90. For example, the assessee charged upto 30th June, 1980, 'advance rent' at the rate of Rs. 475 per sq. ft. for the entire period of 60 years. Divided in terms of monthly rent for a period of 60 years, the rent charged works out to 0.59027777 paise per month and so on. Apparently, monthly rent or annual rent was not even in contemplation when primary basic rent was agreed upon between the parties. What was being charged was simply the consideration for lease of the entire period of 60 years.

48. It would not be out of place to mention here that there is a basic fallacy in the contention of the assessee that for each assessment year it was chargeable to tax only 1/60th of primary basic rent or car parking rent. Let us assume that in a given case a lease agreement is entered into for a period of 60 years at a monthly rent of Rs. 100. A lessee should be out of his mind to agree to pay the entire rent of Rs. 72,000 in advance even if alternatively he could pay the lessor the sum of Rs. 100 every month for a period of 60 years. What the lessee would pay at the commencement of lease would be only the present value of the right of the lessor to receive the sum of Rs. 100 every month spread over the vicissitude of 60 years. The amount would be decided on the basis of the following or similar formula:

(1+r)n-1 Net Present Value = _________ r(1+r)n-1 In this formula, 'r' being common ratio and 'n' being number of instalments. If a 12 per cent annual discounting rate is taken, net present value for monthly instalment of Rs. 100 for 720 months would be only Rs. 10,514 and not the value of Rs. 72,000 as per the calculation made in the assessee's return of income. If the discount rate is taken at 8 per cent per annum, such net present value would still be only Rs. 15,622. During the period relevant to asst. yr. 1989-90, primary basic rent collected amounted to Rs. 45,99,84,721. At the conservative discount rate of 8 per cent per annum, the monthly instalment of this amount would work out at Rs. 29,44,468. No such exercise have been done either in the lease agreements between parties nor while accounting for the same in the books of account of the assessee. The reason for that is not far to seek. There was, as a matter of fact, no periodical rent in contemplation, only the lump sum amount to be received for the entire term of 60 years taken together.

49. In view of the discussion in the foregoing paragraphs, we uphold the order of the learned CIT(A) for asst. yr. 1989-90 in this behalf. The assessment made for asst. yr. 1990-91 on a different basis is therefore directed to. be modified accordingly. .

50. We shall now turn to the second aspect for which Hon'ble High Court have directed us to reconsider the earlier order of the Tribunal, i.e., whether for the assessment years before us the assessee is entitled to the benefits of exemption under Section 11 of the Act. As noted earlier, the assessee was earlier approved as a scientific research Association for the purposes of Clause (ii) of Sub-section (1) of Section 35 and as such its income was not chargeable to tax by virtue of the provisions of Section 10(21) of the Act. This approval was however withdrawn w.e.f. 1st Jan., 1981. Thereafter, CIT, Bombay City-IV, Bombay, made an order on 20th June, 1984, under Section 119(3) of the Act for asst. yrs.. 1982-83 and 1983-84. The short issue decided by this order was whether the income derived by the assessee in respect of property owned by it was business income or income from property. The learned CIT noted that the primary object of the assessee was to develop the World Trade Centre at Bombay and to promote India's foreign trade. He further, noted that Commerce Centre (later on known as Centre-1) was in its development stage. In regard to the leasing, which the assessee had already done at that point of time, the learned CIT noted that the leasing of the properties was to achieve the business objective of the assessee to encourage foreign buyers to avail of the various facilities offered under one roof. The assessee had not leased the premises merely to earn income any other landlord of the premises would. The primary object of the assessee was to promote research in world trade, promoting export of India's goods and services and the leasing of the building to various export-interested parties was in furtherance of its primary objective to expand world trade. In this view of the matter, the learned CIT held that the income earned from leasing these properties should be rightly taxed under the head "business". He directed the AO to complete the assessments for asst. yrs. 1982-83 and 1983-84 accordingly. It appears that assessment orders for asst. yrs. 1985-86 to 1988-89 were also similarly dealt with treating the assessee's activity as business activity. The question of exemption or otherwise under the provisions of Section 11 did not come into focus as the assessee claimed losses. For asst. yr. 1989-90 also the assessee filed return of income declaring a loss of Rs. 9,14,41,770. During the course of assessment proceedings for asst. yr. 1989-90 the assessee placed reliance on the order under Section 119(3) and argued that the sole purpose of leasing was to achieve assessee's business objective which was not to construct buildings and sell the same. In the past, the transaction of lease was accepted as a lease and not as a sale. The main debate during the course of assessment proceedings for asst. yr. 1989-90 therefore proceeded on the footing that while the assessee's income was chargeable to tax under the head "Profits and gains of business or profession", the transaction of the assessee should be assessed as lease and not as sale. The assessee implied that as the lease was for a period of 60 years it was only l/60th of the business receipts which were chargeable to tax. The AO, however, held that the case of the assessee was no different from that of an ordinary society or builder which retained rights over the land and sold the flats constructed thereon on ownership basis. He therefore proceeded to assess profits earned by assessee from sale of portions of Centre-1 instead of assessing only the sum of Rs. 38,33,206 worked out by the assessee on l/60th basis.

51. During the course of assessment proceedings for asst. yr. 1990-91 the AO considered the question of exemption under Section 11 at length. He held that in order to determine whether the property held under trust is only for charitable purposes, the AO was not bound to confine himself to the terms of the trust deed and could look outside the instrument to determine the true character of the income. From the first Annual Report of the Council of Management of the assessee the learned AO noted that the object of the assessee was to set up a permanent Trade Exhibition Centre. However, with a view to obtain tax exemption, this object was camouflaged by stating that the main object was scientific research. The assessee was propelled not by consideration of scientific research but by consideration of tax-free profit. With this view, the assessee obtained approval under Section 35(1)(ii) of the Act. However, there was not even a modicum of activity in the form of scientific research upto the year ending 31st Dec., 1977. As the Department of Science and Technology was contemplating denial of exemption under Section 35, the assessee in the later part of 1977 established Research Department and also initiated steps to undertake publication of quarterly review known as "World Trade Review". However, when the annual reports were analysed they revealed that inasmuch as two decades, scientific research activity was confined to a narrow sphere of some stray activities. The assessee did not develop any research facility in terms of infrastructure nor did it have the requisite manpower on its rolls even after two decades of its existence. The real quantum of scientific research activities performed by the assessee was very little confined to sponsoring a few projects for being carried out by outside agencies and allowing use of its prestigious complex for some stray meetings and discussions. Department of Science and Technology sought to review the approvals granted to the assessee under Section 35(1)(ii) in 1977 itself. However, on the assessee's representations, the approval was extended upto 31st March, 1981. Later, a three member team from the Department of Science and Technology visited the Centre for on the spot assessment of its activity. After reviewing the activities of the Centre, the Department of Science and Technology refused to extend approval beyond 31st March, 1981. In their view, it was necessary to separate the World Trade Centre activity from the research activity under two distinct organisations and to carry out the research activity by itself with laboratory facilities and adequate research staff. This suggestion of the Department of Science & Technology was considered to have the effect of defeating the very object of developing the World Trade Centre and, therefore, their proposal was not accepted. The assessee therefore decided to live without an approval under Section 35(1)(ii). The AO found that the apex body of Government in relation to scientific research in the country, i.e., Department of Science & Technology, did not consider the activities of the Centre as falling in the category of scientific research. There was no change in the nature and composition of the activities of the Centre since 1981 to warrant a review of the decision of the apex body. The AO therefore concluded that scientific research was not the dominant object of the assessee and proceeded to examine what then was underlying dominant objective and whether the same amounted to advancing of an object of general public utility. He found that the underlying dominant object was establishment of a World Trade Centre in Bombay along the lines in other parts of the world, It was expected to provide under a single complex, the package of facilities and services not only to its own members but also the members of other World Trade Centres all over the world and to the visitors of its World Trade Centre. For this purpose, an elaborate layout had been drawn up in 1970 to comprise of the following :

''(i) The Trade Centre, grouped on two levels around two large water-linking courtyards;

(ii) The Commerce Centre, a 30 storey tower block housing a Research Institute, a Library, an Information Centre and offices of the agencies interest in the development of industry and trade, both national and international;

(iii) The Exhibition Centre for holding exhibitions, being a square building consisting of a ground and mezzanine floor, and

(iv) The "service Centre to house all mechanical, electrical, hydromechanical, and other services for all the buildings."

However, this chartered course was not to be followed. Although it was intended that in allotting space, it must ensure that (a) a fairly good cross-section of consumer goods is represented, (b) small-scale industries shall be given due prominence/and (c) due consideration is given to the representations of various regions in India, nevertheless, in the ultimate analysis, space was allotted on a first-come-first-served basis through intensive advertisement campaign. As a consequence, an assortment of lessees came to occupy space in various buildings not by design but incidental. In the initial years, an area of about 10,000 sq. ft. was taken up mostly by the members of the Council of Management. Subsequently, space was sold through hard selling campaign. In fact, as many as 60 per cent of the original lessees transferred the lease thereby implying that the original lessees were holding the lease merely as investment.

52. Apart from the activity of the transfer of the space, the learned AO noted that the Centre provided a number of trade services. The Centre issued a monthly circular known as "Trade Promotion Service" which was "for the benefit of members".

Secondly, the Centre participated in various activities of the World Trade Association but the trade information gathered was forwarded to members only. Besides, the Centre organised exhibition and display facilities on an institutional basis. These facilities, both at the Trade Centre Arcade and the Commerce Centre were hired out from time to time to both the members and outside agencies for holding exhibition. Similarly, the seminar rooms were hired out for holding meetings, seminars and conferences. The Centre also organised a number of workshops, training programmes, seminars and exhibitions. However, all these activities were undertaken on a commercial basis only. Participation in these activities was open only on payment of the requisite fees. The AO noted that the Centre was providing services just like any agency for rendering a host of specialised services on a commercial basis would. In a modem economy, even provision of drinking water could become a well organised commercial activity. Viewed in this light, the services/activities of the Centre fell squarely within the domain of a commercial activity undertaken on considerations of profit-making. The same did promote the cause of trade and industry only in a remote and indirect manner. Thus the welfare of the general public was only incidental. It was true that for passing the test of an object of general public utility, it was not necessary that the object should be to benefit the whole mankind. It was sufficient even if the object was beneficial to a section of the public. However, it was essential that the section of the community sought to be benefited possessed some quality of a public and impersonal nature. The AO therefore proceeded to examine whether the lessees and persons availing the various services of the Centre possessed a common quality of a public and impersonal nature. The common quality of these persons could be said to be the fact that they were engaged in trade and industry. But it could not be said that this common quality possessed the attributes of a public or impersonal nature. The common quality was obviously of a "private" nature, as each one of them was concerned with his own interest and shared nothing in common with the public.

53. The learned AO further held that even if the object of the Centre was advancing of a project of general public utility, it was necessary that such object was invested with the attributes of charity. There must be no element of private profit which, in reference to an institution must mean private profit of the members comprising it. The real motive of the activities of the Centre could be identified in the method of financing of the activities and the manner of distribution of surplus. The method of financing professed to be 'self-financing' did not confine itself to the idea of the entire cost of the project being shared by all the members of the scheme in the ratio of their share in the project. The amounts charged from the occupants of the space was never based on actual cost consideration. The lease rights were transferred at the rates prevailing at the time of booking of space like any other commercial builder. The late entrants were required to pay at the prevailing market price. It was not merely burden of cost escalation which they were required to pay but also additional sums towards profit mark-up. In other words, both the assessee-centre and the lessees secured for themselves all the benefits arising from and exposed themselves to all the risks associated with any normal commercial transaction.

54. As in respect of the method of financing, the element of private profit was not excluded even in the manner of distribution of surplus. Although Clause 5 of the memorandum and articles of association of the Centre laid down that no portion of the income or property shall be paid or transferred, directly or indirectly, to members of the Centre, Clause 12 of the lease agreement with the lessees of the Centre had different operation. The lessees were entitled to transfer, assign, sell, mortgage, charge or encumber the demised premises or any part thereof subject to the permission in writing of the Centre being first obtained. While the Centre reserved with itself the right to refuse permission without assigning any reasons and/or to stipulate such terms and conditions as the Centre in its absolute discretion thought fit, the agreement simultaneously provided that such permission shall not be unreasonably refused. Not only that such permission was granted to all the lessees so much so 60 per cent of the original lessees changed hands, the Centre granted permission at a fixed sum of Rs. 170 per sq. ft. which formed only a small portion of the unearned increase in the value of lease rights, permitting its members to make profits running into crores of Rupees. If charity was the objective, the entire lease arrangement should have been differently motivated. In the absence of any need for the property by the lessee, the same should have rightly been required to be turned over to the Centre after recovering the balance of the 'advance rent' for the unexpired period of lease. However, since the lease of space was always intended to be a commercial transaction driven by considerations of profit-making, the lease agreements were so arranged as to reserve ample scope of profit-making for the lessees who were simultaneously the members of the Centre. The effect of this lease arrangement was distribution of surpluses to the lessees. In this scheme of things, Clause 5 of the memorandum remained only a mask.

55. The learned AO thus held the view that the charitable or public purpose of the Centre gave way to its business or commercial character. Without prejudice, the learned AO also found that the case of the assessee was hit by the provisions of Section 11(4A), which required that the work in connection with the business was mainly carried on by the beneficiaries of the institution and separate books of accounts were maintained by the Centre in respect of the business. The assessee derived income, apart from exploitation of its lease hold rights in land, by providing in a systematic manner variegated services to the dwellers of various buildings in the complex. These services included electricity, air-conditioning facilities, use of lifts, supply of water, maintenance of staircase and other common areas, including lifts, air-conditioning, fire fighting, watch and ward facilities and so on. These elaborate services involved substantial expenditure, time and knowledge of the assessee. A large posse of staff was maintained for rendering these services. The Centre also derived income from other activities such as providing meeting facilities, display and exhibition facilities, trade education services, club facilities, temporary secretarial and office facilities, on an institutionalised basis. All these activities fell to be assessed under the head "Profits and gains of business or profession".

56. The learned AO held that the assessee's case was hit not only by the provisions of Section 11(4A) but also by the provisions of Section 13. A number of the members of the Council of Management acquired private rights in the properties of the Centre in their capacity as the lessees. As substantial profits were embedded in the manner lease agreements were entered into with the lessees, the members of the Council of Management profited by the property of the Centre. Hence, according to the AO, the case of the assessee was also hit by the provisions of Section 13 of the Act.

57. For the reasons as detailed in the foregoing paragraphs, the learned AO for asst. yr. 1990-91 rejected the assessee's claim that the Centre having been established for a wholly charitable purpose, the income of it should be exempt under Section 11.

58. During the course of appeal before the learned CIT(A) for asst. yr. 1989-90, the assessee argued that the approval as scientific research Association was not extended beyond 31st March, 1981, for the reason that Department of Science and Technology required the assessee to separate the World Trade Centre activity from research activity under two distinct organisations. However, construction and establishment of World Trade Centre in itself being an object of general public utility the assessee continued to be covered by the benefits of Section 11. There was a prohibition upto 1983 against any activity for profit. Thereafter these words appearing in Section 2(15) were dropped and, therefore, exemption under Section 11 could not be denied on the ground only that the assessee carried on activities of profit. Relying upon the judgments in the causes of Addl CIT v. Swat Art Silk Cloth Mfrs. Association (1980) 121 ITR 1 (SC), CIT v. Bar Council of Maharashtra (1981) 130 ITR 28 (SC) and CIT v. Western India Chamber of Commerce Ltd. (1982) 136 ITR 67 (Bom), the assessee argued that development of Indian trade or industry by establishing World Trade Centre in Bombay, the assessee fulfilled objects of general public utility. As held by Hon'ble Supreme Court in the case of CIT v. Andhra Chamber of Commerce (1965) 55 ITR 722 (SC), the benefit to the public envisaged in Section 11 did not mean benefit to the whole mankind. It was sufficient if the intention was to benefit a section of the public as distinguished from specified individuals. Viewed in this light, the members of the Centre who carried on trade or industry constituted a section of the public. The assessee also strongly disputed the contention of the AO that lease agreements amounted to diversion of profit to the members of the Centre. The assessee entered into these agreements strictly on commercial basis and, therefore, by no stretch of imagination could it be said that entering into lease agreements amounted to diverting any benefits to the lessees. For the purpose of finding out whether a trust or institution was charitable or not, all that was required was to examine whether the dominant object was charitable or not. Even if some other objects which were merely incidental or subservient to the primary object were not charitable, the trust would still be charitable. That being so, if there was any irregularity in the application of income of trust, the taxing authorities could take recourse only to the provisions of Section 13 of the Act.

59. The learned AO relied upon the judgment of Hon'ble Madras High Court in the case of S.B. Adityan v. ITO (1964) 52 ITR 453 (Mad) and argued that what was decisive was not phraseology of the trust deed but the conduct of the assessee. The fact that in earlier years no objection was taken could not be binding because during the assessment year the AO brought out a large body of factual evidence which had never been brought on record or considered in the earlier assessments. The assessee's primary object of scientific research was only a dead letter. As far as the other objects were concerned, they included construction of office buildings and shopping arcade, etc., which could not be construed to be an object of public utility. Since the trust deed gave full discretion to the Council of Management, regardless of the lack of any nexus with the primary object the trust could not be held charitable. The members of the Centre also did not exhibit any common quality so as to be called a section of public. The learned CIT(A) held that for the purpose of exemption under Section 11, charity must be of a public character and it was necessary to benefit a sufficiently large section of the public as distinguished from body of specified individuals. The dominant purpose of the trust must be charitable and if there were several objects of trust, some of which were charitable and some non-charitable and the trustees in their discretion could apply the income to any of the objects, the whole trust must fail and its income could not be exempted under Section 11. Neither the grant of a licence under Section 25 of the Companies Act nor the recitals in the deed could be conclusive. The learned CIT(A) agreed with the AO that scientific research was merely a pretext. The assessee came into being to implement the decision of the industrial foundation to set up a permanent trade and exhibition centre as part of the industrial complex in Bombay. The memorandum and articles of association were cleverly drafted so as to obtain exemption as scientific research Association. The assessee itself never carried out any scientific research nor created any infrastructure for the same. When the Department of Science and Technology suggested the assessee to do the same, the assessee opted to forgo approval as scientific research Association. There was no scientific research on trade and industry either. The assessee's object No. 4 contemplated establishment of trade/industrial museums and bureaus of World Trade Centre. No such thing however came into existence. The manner in which the assessee proceeded to construct buildings and housed people therein nullified the object of the trust. Merely publication of an in-house journal and a few meetings and seminars could not disguise the basic character of the Centre of being a purely business organisation. The Centre had not made any special bye-laws for admission of its members. No special qualifications were required for members. There was no common quality which could distinguish the members of the Centre as a section of public. The learned CIT(A) therefore concluded that the assessee was not a charitable organisation within the meaning of Section 2(15) of the Act.

60. The learned CIT(A) also found that the assessee was hit by the provisions of Section 11(4A) and Section 13. The assessee was apparently carrying out business and there was nothing to show that exceptions made under Section 11(4A) were fulfilled. The case of the assessee was also hit by the provisions of Section 13. The platform of the assessee was blatantly exploited by the founder members for their private profit. The founding members paid fixed premium of Rs. 475 per sq. ft. by way of primary basic rent. As against this, the cost of construction of the building amounted to Rs. 754 per sq. ft. There was difference between the cost of construction and the premium paid by the founding members amounting to Rs. 279 per sq. ft. which was more than 50 per cent of the amount paid by the founding members. Thus the founding members clearly earned private profit. The same was made good by the Centre on recovery of higher amounts from the late entrants. The diversion of profit did not end here. A low rate of Rs. 170 per sq. ft. was fixed for a member to transfer its leasehold rights. This additional premium at the rate of Rs. 170 per sq. ft., in the case of original members, did not even make up for the cost of construction. This rate was sustained even when the assessee itself was charging premium of Rs. 4,000 to Rs. 6,000 per sq. ft. from the late entrants. Thus the benefit running into tens of crores of Rupees was passed on to the individual members. Thus the case of the assessee was clearly caught by the mischief of the provisions of Section 13. The learned CIT(A) also found that the assessee had not complied with the provisions of Section 11 for application of income. Factually, contention of the assessee was not correct. The annual accounts for the year ended 31st March, 1989, showed that the assessee had investment of Rs. 1,43,02,726; Current assets and loans and advances of Rs. 6,57,60,409 and Rs. 9,73,68,896 respectively. These investments had come out of accumulated surpluses for which no permission was ever sought, nor was there any plan for utilisation of these funds for any of the stated objects of the trust. Relying upon the judgment of Hon'ble Bombay High Court in the case of CIT v. Jamnalal Bajaj Seva Trust (1988) 171 ITR 568 (Bom) (at p. 571), the learned CIT(A) held that the word 'income' in Section 13(4) should be read as inclusive of capital gains. The learned CIT(A) also held that object No. 20 permitting the assessee to carry out business of leasing its buildings for offices and shops was an independent object of the trust which could not be held as charitable. In short, the learned CIT(A) held that the assessee was not entitled to exemption under Section 11 because it had not applied its income for charitable purposes. It carried on business which was hit by the provisions of Section 11(4A) and the assessee also fell in the mischief of provisions of Section 13.

61. On assessee's appeal for asst. yr. 1990-91, the learned CIT(A) following the order of his predecessor for asst. yr. 1989-90 rejected the assessee's ground of appeal that its income was exempt under the provisions of Section 11 of the Act.

62. During the course of hearing before the Tribunal, the learned counsel for the assessee emphasised the fact that the assessee was incorporated under Section 25 of the Companies Act, 1956. This incorporation was possible only when the assessee was a non-profit making organisation. It therefore satisfied the condition for being recognised as a charitable institution. He drew the attention of the Tribunal to the primary object and various other object clauses of the memorandum of association and pointed out that scientific research activity was a general public utility. Government of Maharashtra granted valuable land to the assessee after duly considering various aspects, including objects of the assessee. The assessee accepted the land and the only option thereafter was to carry out construction according to the plan of the Government. For the purpose of meeting construction cost and future costs required to maintain the buildings and provide various related facilities and amenities, the provision for charging the rental in lump sum and also some rent on regular basis was evolved. While allotting land, Government of Maharashtra had insisted on nominating its members to the Council of Management. Though this Council of Management was not directly responsible to the Government, it owed duty and obligation to the Government. Relying on the judgment of Hon'ble Karnataka High Court in Ecumenical Christian Centre v. CIT (1983) 139 ITR 226 (Kar), the learned counsel emphasised that if the objects of the institution amounted to charitable purpose, merely because the object clause was very widely worded or that the assessee incidentally made some profits, exemption under Section 11 could not be denied. The learned counsel also relied on the fact that the assessee had moved registration under Section 12A and CIT had taken the application moved by the assessee on his record on 8th Feb., 1984. This act of the CIT was conclusive of the fact that the assessee was a charitable institution. Once registration under Section 12A having been granted, the authorities concerned with the assessment could not take a different view. For this purpose the learned counsel relied upon the decisions of Tribunal in the case of Dwarika Prasad Trust (supra) and Audit Bureau of Circulations (unreported). The Tribunal considered these contentions of the assessee, It found that Certificate of Incorporation under Section 25 was granted on the basis of objects enumerated in memorandum of association and the argument that for that reason only the assessee should be regarded as a charitable institution was without merits. Further, even if an institution could be said to be covered by Section 2(15) on the basis of its object being wholly charitable in nature, the assessee was required to pass further tests of its income being actually applied for charitable purposes and no part of its income travelling to the management of the institution. The Tribunal went through various clauses in the memorandum of association and found that the plain reading of Clause 3 and Clause 4 suggested that the Centre was intended to be a meeting place for industrialists to enable them to promote their interests. The Centre was intended to give benefit only to the persons who were interconnected with each other but no common benefit accrued even to the community of industrialists or traders. As held by Hon'ble Supreme Court in the case of Andhra Chamber of Commerce (supra), it was necessary that the activity of the assessee had some quality of a public or impersonal nature. In this view of the matter, the intention to construct buildings by. the assessee could not be an object of general public utility. The facilities of the Centre were also open to members only, It was true that these activities resulted into some benefit to trade or commerce, but for that reason only to say that the institution served a general public cause was not correct. By this proposition, every industrialist, trader or commercial person could become an institution of general public utility. There were also many clauses in the memorandum of association which did not serve any public utility at all. The objects of the assessee contained some objects that could be for general public utility and other objects which could not be categorised as of general public utility, Hon'ble Supreme Court in the case of Dharmaposhanam Co. v. CIT (1978) 114 ITR 463 (SO held that whether a trust is for charitable purpose is to be determined by reference to all the objects, though the mere existence of some non-charitable object would not deprive the trust the recognition as charitable institution. The insistence by the assessee that taking on record of the application under Section 12A of the Act was conclusive of the assessee being a charitable institution was not correct. The general practice of the Department was to issue a certificate granting recognition for a specific period after which it is reviewed again and in the cases that were considered by the Tribunal the Department had issued certificate and on that basis the Tribunal held that registration granted by the CIT or Director of Exemptions could not be questioned by assessing authorities. However, this certificate of recognition did not prevent any AO to explore into the activities of a charitable institution, investments made by it and the use to which the properties of the trust were put. If the facts indicated that any of the provisions of Section 11 or 12 or 13 were violated, the AO could deny exemption. In the instant case, the assessee was refused recognition as a scientific research institution w.e.f. 1st Jan., 1981, and it was only then that the assessee had woken up to seek recognition as a charitable institution. The assessee was expected to seek registration under Section 12A of the Act within one year from the date of creation of the trust. The assessee's application for registration was delayed by over 12 years. Further, Sub-clause (b) of Section 12A required filing of audited accounts for the year on the basis that the application was moved within the year of formation. Since the assessee's application was late by 12 years, it was obvious that the audited accounts for all those years were required to be filed, which was not the case of the assessee. As the assessee's application was belated, mere taking it on record did not mean that the registration had been granted, If the CIT had granted recognition, then nothing prevented the assessee to bring to the notice of the CIT that the lower authorities were flouting his order, which was not the fact of the case,

63. As regards the activities of the assessee, the Tribunal held that the plea of the assessee that the Government had taken into consideration the nature of the institution while allotting land had to be evaluated on the basis of the facts of the case. The facts as brought out on record showed that the efforts of the assessee in the direction of its primary objective of carrying on of scientific research were minimal or negligible. As far as the World Trade Centre was concerned, it was a meeting place for its members and it could not be held to be a general public utility. The assessee carried out business of World Trade Centre identical to a builder readying buildings for office use for various flat buyers and earning further substantial income from them on providing various facilities. There was therefore no force in the arguments of the assessee that it was not the method of earning income nor the manner in which it was earned which was important but it was the application of the income for charitable purposes which was the foremost consideration. But the activities of the assessee in themselves did not fulfil any object of general public utility. Besides, the members were given right of transfer of their flats to outsiders instead of surrendering them to the assessee, The lease granted to them was for a very long period of 60 years which indicated that other persons could not even enter the Centre. All these facts indicated that the Centre did not serve any object of public utility.

64. The Tribunal took note of the fact that the words "not involving the carrying on of any activity for profit" were omitted w.e.f. 1st April, 1984. But the same were replaced by the simultaneous introduction of Section 11(4A) of the Act. These provisions required that the work in connection with the business is mainly carried on by the beneficiaries. In the case of the assessee, the activities were carried out by the council of management comprising of members some of whom were in occupation of the space, some continued to be members even after transferring the space allotted by them by making a huge profit. This indicated that conferring of benefit to a special section of the public was never the intention, let alone allowing some of the beneficiaries to carry on the work. The so-called main objective of scientific research activity was nothing more than a make-believe mask. The Tribunal thus rejected the contentions of the assessee relating to exemption under Section 11.

65. Hon'ble High Court have in their judgment dt. 15th March, 2001, not found the arguments relating to the registration under Section 12A of the Act in the order of the Tribunal to be correct. The fact of the matter was that a certificate under Section 12A was issued to the assessee by the competent authority which stated that the delay had been condoned. The said certificate had not been revoked. It was not known on what basis the Tribunal held that normally a certificate granting recognition was issued for a specific period. Hon'ble High Court referred to the judgment of Madras High Court in the case of New Life in Christ Evangelistic Association (supra). In that judgment, Hon'ble Madras High Court had held that two conditions were provided for registration under Section 12A of the Act. First, that the person should have made an application for registration in the prescribed form and in the prescribed manner to the prescribed authority within the specified time and secondly, accounts were kept in a particular manner and such accounts were required to be audited, For the purpose of getting registration under Section 12A it was not necessary to first establish as to how the assessee would be able to claim exemption under Section 11 or Section 12. There was nothing in the section to suggest that an institution of a religious nature was precluded from getting registration under Section 12A. Therefore, the question of exemption under Section 11 and Section 12 would come only when the exemptions are claimed at the time when the assessee is assessed to tax. At the stage of grant of certificate, the only enquiry which could be made would be whether the society had actually made an application in time and whether the accounts of the society were maintained as suggested by Section 12 and beyond that the scope of the enquiry would not go. The only purpose for which registration was required was for establishing its identity as an institution for being able to claim benefits under Section 11 and Section 12. In the instant case, the assessee applied for registration on 1st Oct., 1982, and was issued certificate on 8th Feb., 1984, after condonation of delay. That certificate had not been revoked and actually the Department accepted the tax returns filed by the assessee and made assessments under Section 143 r/w Section 11 up to asst. yr. 1988-89, although exemption under Section 35(1)(ii) had been withdrawn on 31st March, 1981. In these circumstances, it could not be said that the certificate had not been issued to the assessee. However, this certificate did not prevent the AO from considering whether in a given assessment year the assessee was entitled to claim benefits under Sections 11 and 12. As this aspect had not been gone into by the Tribunal, Hon'ble High Court has remanded the matter back to the Tribunal on this point also, viz., whether the assessee has applied its income for earmarked purposes and whether the assessee was entitled to claim benefits under the aforestated sections during the asst. yrs. 1989-90 and 1990-91.

66. During the course of hearing before us, the learned counsel of the assessee pointed out that the assessee was registered under the Companies Act, 1956, and was issued licence under Section 25. The Government of Maharashtra allotted nearly 18 acres of land to the assessee and the Centre became a member of the World Trade Centres' Association, New York, which had a network of more than 300 World Trade Centres as members throughout the World. Construction of the arcade was completed in 1977 and it housed various offices, emporia and Exhibition Centre. The Centre-1 building got completed in 1988 and it housed the offices of the Centre. Exim Bank, UTI, TELCO, Export Promotion Council, etc., and the third building, IDBI Centre, which was completed in 1989, was occupied by IDBI. The Centre had in its occupation four floors in Centre-1 which carried out Trade Information service activity, international trade library, research division, World Trade Institute for educational services, Centre Point, Expo Centre Office, Video Conferencing, Conference Rooms, etc. Though space was generally allotted on a 60 year basis, exceptions were made in the case of nine Export Promotion Councils which occupied nearly 30,000 sq. ft. on a ten years leave and licence starting from 1st April, 1990, on a meagre licence-fee of Rs. 6 per sq. ft. These Export Promotion Councils were bodies set up under the Ministry of Commerce. The Centre was granted a certificate under Section 35(1)(ii) and after its withdrawal in 1981 the Centre has been filing income-tax returns in Form No. 3A offering l/60th of the 'advance rent' as business income. The returns of income filed by the assessee in respect of 'advance rent' of the arcade have been accepted in the assessment orders for asst. yrs. 1980-81 to 1988-89. The same practice was followed in subsequent assessment years as well. General public utility was an expression of wide import and in interpreting this expression the Courts have been very liberal. On this basis, a number of trade associations have been considered to be carrying out objects of general public utility in a host of Court judgments. The activities of the Centre were as follows :

(1) Trade Information Services (2) Setting up and maintaining International Trade Library (3) Providing Computerised Import-Export Databank (unique in India) (4) Providing Computerised On-line International Trading Facility (unique in India) (5) Conducting Post Graduate Diploma Course in Foreign Trade (6) Organising Seminars and Workshops on trade related matters (7) Research and Publications related to trade (8) Organising Buyer-Seller Meets (9) Trade Missions (10) Offering Video-conferencing Facility (11) Exhibition Centre for Trade Promotion (12) Conference & Meeting Room Facility for Trade Promotion (13) Provision for Business Centre etc. These activities were intended to promote trade and trade related matters. Even if a section of public only was benefited, charitable purpose could not be denied. The learned counsel placed reliance on the judgments reported in CIT v. Radhaswami Satsang Sabha (1954) 25 ITR 472 (Ail); Ahmedabad Rana Caste Association v. CIT (1971) 82 ITR 704 (SC) and Girijan Co-operative Corporation Ltd. v. CIT (1989) 178 ITR 359 (AP) for this purpose. It therefore followed that the benefit need not be extended to the entire community. What was antithetical to charity was carrying on activities for private profit. The Centre did not carry on activities for private profit. In the earlier order, the Tribunal held that some of the objects of the Centre were not charitable. It could do so, if some of the objects were viewed in isolation, Even if it were so, there was no case to deny the assessee's claim for charity. For this purpose the learned counsel placed reliance on the judgments in Andhia Chamber of Commerce's case (supra) and 103 ITR 77 (SC) (sic).

67. The learned counsel for the assessee argued that profit-making was not prohibited under the provisions of Section 11. Section 11(4A) r/w Section 11(4) left no doubt that if the business was held under trust or legal obligation, the income from the same was not chargeable. The provisions of Section 11(4A) are not to restrict the scope of charity but to enlarge its scope. The Courts have also held that if the business is carried on and its profits are applied to the objects of the charity, the same would not result in denial of exemption under Section 11.

68. The learned counsel for the assessee emphatically argued that grant of registration under Section 12A concluded the fact that the assessee was a charitable institution. In the case of Ananda Marga Pracharaka Sangha v. CIT (1996) 218 ITR 254 (Cal), the Hon'ble Calcutta High Court have held that registration of charitable institution was not an idle formality. The purpose of this section was to facilitate examination by the CIT of the objects of the institution and its past activities. For this purpose, the learned counsel also relied upon the judgment of Allahabad High Court in Fifth Generation Education Society's case (supra) and Dwarika Prasad Trust's case (supra).

69. The learned counsel also argued that there was no force in the contention that the Centre had violated the provisions of Section 13. The AO forgot his own observations in the assessment order that at the initial stages there were no takers of space because of various parameters which went with the lease of space. In these circumstances no fault could be found if many of the members of Council of Management took office space on lease. They did so as they wanted to persuade others also to take on lease. No concession whatsoever was given to the council members. The lease rent which they were required to pay were the same as paid by others who took office space on lease during the same time.

70. Regarding the activities of the assessee, the learned counsel argued that it was not true that nothing was done on the main clause. Scientific research activity was a very wide clause and practically everything was covered by it. At any rate, even if nothing much was done under the main clause, as long as expenditure was incurred on ancillary and other objects, it still satisfied the test of application on the objects of the institution.

71. During the course of hearing, we requested the learned counsel for the assessee to give us break-up of expenditure incurred by the assessee on its various activities. The learned counsel argued that it was not possible to give such break-up. For example, an expenditure of Rs. 82,47,065 was incurred on electricity charges. Electricity was consumed in all the activities. The same applied to other expenses such as salaries, telephone expenses, travelling expenses, miscellaneous expenses, and so on. However, during the year an expenditure of Rs. 45,09,068 was booked under the head "Research & Development Expenses". This expenditure pertained to holding of General Assembly of World Trade Centres' Association in Mumbai during this year. For this purpose the total receipts of the assesses amounted to Rs. 34,85,448 only. The balance expenditure was borne by the Centre. There was certain expenditure which was directly in relation to various purposes of buildings, such as architects' fees, lease rent, rates and taxes, insurance, contractual services, repairs and maintenance, etc. Besides, a large part of some other expenses such as salaries, contribution to Provident Fund, staff welfare, interest, electricity charges and so on pertained to the buildings. This expenditure was to a large extent compensated by corresponding receipts. Even otherwise, this represented application of income on the objects of the institution because these buildings formed part of the World Trade Centre.

72. The learned Departmental Representative argued that the main clause of the trust was rather vague. Nothing was specifically stated in relation to scientific research activity. Even then the assessee could not pinpoint any specific expenditure on scientific research. Almost entire expenditure was incurred by the assessee on its establishment which was mainly required for the purpose of running and maintenance of various buildings and related services. It could not therefore be said that there was any commensurate expenditure on charity.

73. We have carefully considered the rival submissions. At the outset, the case of the assessee before us is that it obtained registration under Section 12A of the Act, as held by Hon'ble High Court. The assessee was also granted licence under Section 25 of the Companies Act, Government of Maharashtra granted nearly 18 acres of land to the assessee on the assumption that establishment of World Trade Centre in the city was a laudable objective. The Council of Management of the Centre included nominees of the Government of Maharashtra. The assessee was also approved as scientific research Association, even though such approval was withdrawn in 1981. All these facts went to show that the assessee was a charitable institution and this fact was beyond any controversy. The taxing authorities were therefore not entitled to once again go into this aspect and give contrary findings. On consideration of these arguments we hold the view that all these facts are only in the nature of circumstantial evidence which could be relied upon by the assessee but the same could not be said to be conclusive of the fact that the assessee was indeed a public charitable institution. As far as certificate of registration under Section 12A is concerned, the judgment of Hon'ble Bombay High Court itself is quite clear on this aspect, that Hon'ble Madras High Court in the case of New Life in Christ Evangelistic Association v. CIT (supra) have correctly stated the law on this point. At the stage of grant of registration under Section 12A it was not necessary to first establish as to how the assessee would be able to claim exemption under Section 11 or Section 12. Even an institution of a religious nature was not precluded from getting registration under Section 12A. The only purpose for which registration was required was for establishing its identity as an institution for being able to claim the benefits under Section 11 and Section 12. We may point out that similar view has been taken by Hon'ble Kerala High Court in their judgment in the case of Self Employers Service Society v. CIT (2001) 247 ITR 18 (Ker). It is true that some High Courts, e.g., Gujarat High Court in the case of Hiralal Bhagwati v. CIT (2000) 246 ITR 188 (Guj), have taken a different view but as the Hon'ble Jurisdictional High Court have approved the judgment of Hon'ble Madras High Court (supra), this issue stands concluded. We, therefore hold that the assessee cannot argue that with the certificate of registration under Section 12A, the fact that the assessee was a charitable institution stood concluded and the taxing authorities cannot question it. In the assessment order for asst. yr. 1990-91 the learned AO held that in order to determine whether the property held under trust is only for charitable purposes, the AO was not bound to confine himself to the terms of the trust deed and could look outside the instrument to determine the true character of the income. The same view has been taken by the learned CITs(A). We find ourselves substantially in agreement with the position taken by them. The fact whether an institution is a public charitable institution or not is not only a question of the trust deed or memorandum of association, etc., but also how the institution has conducted its activities. The authorities below have found a serious breach in this regard inasmuch as while the main object clause in the memorandum of association is "To organise, sponsor, promote, establish, conduct or undertake scientific research in anyway or by any means whatsoever and in any area or field", the assessee performed very little scientific research activity. The learned counsel for the assessee argued before us that the main clause in this respect was very widely worded and practically everything was covered by it. He also argued that promotion of trade and industry by the Centre amounted to scientific research in these spheres. At the same time, practically nothing has been demonstrated before us to support that the main object clause, in fact, was acted upon. The Centre has been in (sic) operation being for more than two decades and in the process acquired funds running into tens of crores of Rupees. Had the assessee been holding the main object clause dear to itself, the assessee should have been able to give a much better account of itself in this behalf. We are therefore constrained to agree with the findings which have been given all along in the proceedings at different stages that even though the assessee conveniently obtained approval under Section 35(1)(ii) (revoked after 1981) and declared scientific research as the main object in the memorandum of association, it did not pay much heed to scientific research. Hence the assessee's conduct comes under adverse light, though we are not inclined to reject the assessee's claim of exemption under Section 11 entirely for this reason. During the course of proceedings before us the assessee has argued that it brought into existence World Trade Centre and put India on international map in this regard. The objection of the authorities below is that World Trade Centre was envisaged as an exclusive club of a few privileged traders and industrialists and, therefore, it fell short of attaining the stature of a public utility. It is seen by us that by Clause 12 of Government of Maharashtra Resolution dt. 18th Nov., 1974, the use of the land was restricted for erecting or constructing thereon buildings or structures to house or accommodate either for its own use or for letting out inter alia scientific research bodies, trade and/or industrial museums, research centre and/or laboratories, libraries, bureaus, shopping arcades exhibitions, a World Trade Centre, (inclusive of all the services provided by such a centre), offices auditoria and/or halls for concerts or conferences or recreational or cultural activities, or residential quarters for the staff and visitors from upcountry or abroad, planetarium and cafeteria and/or restaurants but not a hotel. Although sprawling buildings were constructed on the land in question, very little has been done in respect of the land use, as envisaged in Clause 12 of the Government Resolution. Further, in the assessment order for asst, yr. 1990-91, the learned AO has noted that although it was intended that in allotting space, the Centre must ensure that (a) a fairly good cross-section of consumer goods is represented, (b) small scale industries given due prominence, and (c) due consideration given to the representations of various regions in India, nevertheless, in the ultimate analysis, space was allotted on a first-come-first-served basis through intensive advertisement campaign. As a consequence, an assortment of lessees came to occupy space in various buildings not by design but incidental. Various other activities of the Centre such as the monthly circular known as "Trade Promotion Service", collection and dissemination of trade information etc., were intended for the purpose of these members only. The Centre organised exhibition and display facilities, workshops and seminars and so on but the same were undertaken on a commercial basis only, The assessee claims that these activities resulted into overall promotion of trade and industry in India. The learned AO has not accepted this argument as, according to him, the promotion of trade and industry was only incidental while the main object was profit-making. We see some force in this contention, For that matter, even a doctor who charges exorbitant fees may claim to be promoting public health and engaged in charitable activity. The distinction between business and charity cannot be blurred.

73A. During the course of hearing before us the learned counsel for the assessee argued that if a section of the public was benefited, the public character of the institution should be accepted. There cannot be any quarrel, in principle, to this proposition. Hon'ble Supreme Court have held in Andhra Chamber of Commerce's case (supra) that to serve as a charitable purpose it is not necessary that the object should be to benefit the whole of mankind or even all persons living in a particular country or province. It is sufficient if the intention is to benefit a section of the public as distinguished from specified individuals. The moot question is whether the Centre has benefited a section of public or community or it has merely benefited a motley group of persons. Though this charge has been levelled against the assessee in so many words in the orders of the authorities below and even Tribunal in its earlier order dt. 29th March, 1996, substantially accepted this position, no material has been brought on record before us to erase these findings. To sum up, while we find that the assessee did serve a public purpose inasmuch as it made the city proud of having a World Trade Centre, in its day-to-day operations and overall execution of its activities it does not appear to have aspired to benefit the public at large.

74. According to the authorities below, the case of the assessee is also hit by the provisions of Section 13. The Centre entered into agreements with its members for lease of flats in its prestigious buildings. These members were entitled to transfer, assign, sell, mortgage etc., the demised premises or any part thereof subject of course to the permission in writing of the Centre being first obtained. While the Centre reserved with itself the right to refuse permission and to stipulate conditions, it was made out in the lease agreement itself that such permission shall not be unreasonably refused. The Centre granted permission at a fixed sum of Rs. 170 per sq. ft. which formed only a small portion of the unearned increase in the value of lease rights, permitting its members to make profits running into crores of rupees. If charity was the objective, in the absence of any need for the property by the lessee, the same should have rightly been required to be turned over to the Centre after recovering the balance of the 'advance rent' for the unexpired period of lease. The learned counsel for the assessee has disputed these findings and argued that it has been admitted in the assessment order itself that at the initial stages there were no takers of space because of various parameters which went with the lease of space. In these circumstances no fault could be found if many of the members of the council of management took office space on lease. On consideration of the matter we are of the view that this charge of violation of the provisions of Section 13 does not stick. On the one hand, the case of Revenue is that the assessee carried on the business of transferring leasehold rights for a lump sum monetary consideration and at the same time it objects to the assessee's customers exercising their right to re-transfer. The fallacy in the argument of the Revenue is that had the assessee not reserved or held out some assurances in respect of re-transfer by the lessees, the lump sum consideration received by the assessee would have been so much the less. In other words, the assessee kept the premium for allowing re-transfers low for the reason that the same had already been factored in the price or lump sum consideration which had been charged in the very first instance. Though technically the assessee entered into lease agreements, by virtue of 60 year term with renewal clauses and the assurance that the permission to re-transfer shall not be unreasonably refused, the assessee minimised from the common man's point of view the distinction between acquisition of ownership right in a sale and the acquisition of leasehold rights only. Therefore, if many of the original members encashed their leasehold rights at an opportune time, there was nothing unusual or untoward about it, The learned CIT(A) has, however, in the impugned order for asst. yr. 1989-90 pointed out something which is far more serious. In para 87 of the order the learned CIT(A) has mentioned that the founding members of the Centre paid fixed premium of Rs. 475 per sq. ft. as against cost of construction of Rs. 754 per sq. ft. The difference between the cost of construction and the premium paid by the founding members was Rs. 279 per sq. ft. which was more than 50 per cent of the premium paid. The Centre recovered this difference from the late entrants by charging increasingly exorbitant premium. This allegation in the order of the learned CIT(A) has not been refuted or displaced before us. We therefore hold that to this extent the diversion of profits of the Centre to the founding members, many of whom were members of the Council of Management, sticks against the assessee.

75. There is yet another major hurdle which comes in the way of the assessee receiving the benefit of exemption under Section 11. Admittedly, the assessee was engaged in the business of real estate. The assessee himself filed the return of income wherein its receipts from the flat occupiers in various buildings constructed by it have been treated as business income. We have, also upheld the impugned order of the learned CIT(A) for asst. yr. 1989-90 in this respect and held that for asst. yr. 1990-91 the assessment as short-term capital gains is not correct and the income is required to be assessed as business income. Finance Act, 1983, inserted w.e.f. 1st April, 1984, Sub-section (4A) to Section 11 which reads as under :

"(4A) Sub-section (1) or Sub-section (2) or Sub-section (3) or Sub-section (3A) shall not apply in relation to any income, being profits and gains of business, unless--

(a) the business is carried on by a trust wholly for public religious purposes and the business consists of printing and publication of books or is of a kind notified by the Central Government in this behalf in the Official Gazette; or

(b) the business is carried on by an institution wholly for charitable purposes and the work in connection with the business is mainly carried on by the beneficiaries of the institution, and separate books of account are maintained by the trust or institution in respect of such business."

The effect of these provisions have been considered in the recent judgments of Hon'ble Supreme Court in the cases of Asstt. CIT v. Thanthi Trust (2001) 247 ITR 785 (SC) and CIT v. Dhaimodayam Co. (2001) 248 ITR 816 (SC). The Hon'ble Supreme Court have held that while the provisions of Clause (a) would be applicable in the case of a trust, Clause (b) would be applicable in the case of an institution. The assessee being an institution and not a trust falls in the mischief of Clause (b) of Sub-section (4A) of Section 11. This clause required that the business carried on by the assessee was wholly for charitable purposes and the work in connection with the business was mainly carried on by the beneficiaries of the institution. Further, both in respect of Clause (a) and Clause (b), the common condition has been laid down that separate books of account are maintained in respect of the business. In the case before us it is difficult to describe the business of real estate having been carried on by the beneficiaries of the Centre. The business was carried on by the Council of Management and not by the flat occupiers as an AOP or a BOI or in any other capacity. Secondly, the assessee has not maintained separate books of accounts in respect of its business. In the accounts maintained by the assessee the receipts and expenditure of business activity and other activities have been so much intermingled that during the course of hearing before us the learned counsel for the assessee expressed inability to give break-up of expenditure incurred by the assessee on each of its activities, The assessee in the instant case is a high profile institution managed by a Council of Management comprising of prominent citizens, many of whom were engaged in trade and industry. The assessee was expected to comply with various requirements of the provisions of the Act, which has not been done. We therefore hold that the assessee's claim of exemption under Section 11 is hit by the provisions of Section 11(4A).

76. We shall now turn to the facts relating to the application of income by the assessee, Under the provisions of Section 11(1) the exemption is in respect of income derived from property held under trust wholly for charitable or religious purposes, to the extent such income is applied to such purposes in India and where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart does not exceed 25 per cent of the income from such property. However, the provisions of Section 11(2) lay down that where 75 per cent of the income referred to in Sub-section (1) r/w the Explanation is not applied or is not deemed to have been applied to charitable or religious purposes in India during the previous year but is accumulated or set apart for application to such purposes in India, such income so accumulated or set apart shall not be included in the total income of the previous year provided such person specifies, by notice in writing given to the AO in the prescribed manner, the purpose for which the income is being accumulated or set apart and the period for which the income is to be accumulated or set apart, not exceeding ten years and the money so accumulated or set apart is invested or deposited in the forms or modes specified in Sub-section (5), The learned CIT(A) has in the impugned order for asst. yr. 1989-90, in para 92 noted that the annual accounts for the year ended 31st March, 1989, showed investments of Rs. 1,43,02,726; current assets and loans and advances of Rs. 6,57,60,409 and of Rs. 9,73,68,896, respectively. These investments came out of the accumulated surpluses for which no permission was ever sought nor was there any plan for utilisation of these funds for any of the stated objects of the trust.

77. The case of the assessee before us is that in its books of accounts only l/60th of primary basic rent and car parking rent collected from the flat occupiers of the arcade, Centre-1 and IDBI Centre has been recognised as income of the year and unadjusted 'advance rent' has been treated as "Unsecured Loans". We have, in the earlier part of this order, on an analysis of the lease agreements found that there was no legal obligation on the part of the Centre to refund any part of 'advance rent'. As a matter of fact, the word "refund" has not been used anywhere in the lease 'agreements. That being so, the entire 'advance rent' constituted business receipts of the assessee of the year in which they were received. Be that as it may, the paramount fact remains that these funds were available to the assessee to the extent not consumed by the corresponding construction of buildings in question. It is well settled legal position that for the purpose of provisions of Section 11(1) and Section 11(2) "income derived from property held under trust" refers to the income arrived at in the normal commercial manner and not the income as per the assessment orders or the books of account of the trust. There are a plethora of judgments in support of this proposition' and to name a few, reference maybe made to the judgments in CIT v. Trustee of H.E.H. Nizam's Supplemental Religious Endowment Trust (1981) 127 ITR 378 (AP), CIT v. Rao Bahadur Calavala Cunnan Chetty Chanties (1982) 135 ITR 485 (Mad), Parsi Zorastrian Anjuman Trust v. CIT (1987) 163 ITR 832 (UP), CIT v. State Bank of India (1988) 169 ITR 298 (Bom), Director of Income-tax (Exemptions) v. Girdharilal Shewnarain Tantia Trust (1993) 199 ITR 215 (Cal) and Hindustan Welfare Trust v. Director of Income-tax (Exemption) 201 ITR 564 (Cal.) etc., we do not see any rationale as to why the large amount of funds were designated "Unsecured Loans". If the assessee had no difficulty in consuming the bulk of 'advance rent' in the construction of buildings, how could there be any problem, in utilisation of balance funds for the activities of the Centre, for the reason only that the term of lease granted was for a period of 60 years. If these funds were being "accumulated", it should have been made out very clear in the report of the Council of Management for both the years ended 31st March, 1989, and 31st March, 1990, respectively. On perusal of these reports, we do not find any statement in this respect. In the case of H.E.H. Nizam's Religious Endowment Trust v. CIT (1966) 59 ITR 582 (SC), the Hon'ble Supreme Court have held that the expression "accumulated for a purpose" involves a conscious act 'in piaesenti' and posits a clear indication on the part of the trustees to set apart the income for that purpose. In the case of CIT v. Nagpur Hotel Owners' Association, the Hon'ble Supreme Court have held that notice for accumulation of income must be given before the completion of assessment by the AO. In the instant case, we are being asked to consider only a small portion of the income derived from the property held under trust while large portions of the same have been excluded on the unsubstantiated ground of being "Unsecured Loans". This resulted into substantial funds not having been either utilised or set apart for the objects of the Centre. We have already extracted the particulars in relation to asst. yr. 1989-90 in the foregoing paragraph. For asst, yr. 1990-91, the assessee held a sum of Rs. 50 lakhs under the head "Investments"; Rs. 2,11,88,391 under the head "Sinking Fund Investments"; Rs. 5,75,56,559 under the head "Current Assets"; Rs. 3,75,43,659 under the head "Loans and Advances" and Rs. 3,09,65,212 under the head "Cash and Bank Balances". .

78. During the course of hearing before us, the learned counsel for the assessee emphasised that the accounting done by the assessee and the returns of income filed based thereon have been accepted in past for and upto asst. yr. 1988-89. On consideration we do not see much force in this argument. Upto the year 1981, the Centre had been approved as a scientific research association under Section 35(1)(ii) and, therefore, its income was exempt under Section 10(27) of the Act. The construction of the arcade and leasing of the same was by and large completed during the period the income of the assessee was altogether exempt under Section 10(21). By the time this approval was withdrawn and the assessee filed returns of income, the basis of accounting followed by the assessee in respect of the arcade was an accomplished fact. Thereafter, construction of Centre-1 was completed during the previous year relevant to asst. yr. 1988-89 and of IDBI Centre during the previous year relevant to asst. yr. 1990-91. When the assessee canvassed the same theory of l/60th alone being the income from Centre-1 and IDBI Centre in these two assessment years the AO rejected them outright, We may at this stage mention the provisions of Section 11(4) which clearly lay down that where "property held under trust" includes a business undertaking so held, the AO shall have the power to determine the income of such undertaking in accordance with the provisions of the Act relating to assessment; and where any income so determined is in excess of the income as shown in the accounts of the undertaking, such excess shall be deemed to be applied to purposes other than charitable or religious purposes.

79. We shall now turn to the application of income as per the claims which have been made by the assesses during the course of hearing before us. It was stated that a major part of expenditure during the years was on buildings-related matters but then there were corresponding collections under the head "Monthly outgoings". The other expenditure was incurred partly on the establishment and mainly on various activities of the Trade Centre as enumerated in para 66 above. When called upon to give the break-up of expenditure incurred on each of these activities, the learned counsel for. the assessee argued that it was not possible to give such break-up. We have enumerated this aspect in para 71 above. On perusal of the accounts for the year ended on 31st March, 1989, it is seen that the gross income, worked out by the assessee is Rs. 4,65,97,060. The collection of "Monthly outgoings" amounting to Rs. 3,20,01,979 constituted the major part of these receipts. However, in the absence of break-up, it is not possible to find out whether there was any profit or loss on the assessee's buildings-related activities which cannot be construed as application of income for charitable purposes. It is also not possible to find out as to how much was the expenditure on establishment and how much was the net expenditure on the other activities of the Centre. For asst. yr. 1990-91 also, the position remains the same.

80. To sum up, we find :

(i) the main object clause of the Centre, i.e., to undertake scientific research, was relegated to an unimportant place by the assessee and for this reason the assessee's conduct comes under adverse light;

(ii) the assessee has failed to displace the findings of the authorities below that the Centre was run predominantly as a commercial proposition which benefited only a motley group of persons and, therefore, it could not be considered to have served any general public utility;

(iii) the assessee's case is hit by the provisions of Section 13 to the extent the founding members were charged primary basic rent at a rate which was far below the cost of construction;

(iv) the assessee's case is clearly hit by the provisions of Section 11(4A);

(v) a large portion of the assessee's income was unreasonably treated to be "unsecured loans" resulting into huge unutilised funds with the assessee for which neither any concrete plan to "accumulate" was made nor the required intimation for the same was given to the AO; and

(vi) the accounts of the assessee have been drawn in such a manner that it is not possible to segregate the expenditure incurred by the assessee for earning income; expenditure incurred by the assessee on establishment and expenditure on various activities of the Centre.

For these reasons we hold that for these assessment years the assessee is not entitled to exemption under Section 11 of the Act and accordingly we uphold the orders of the authorities below for both asst. yrs. 1989-90 and 1990-91 in this respect.