Income Tax Appellate Tribunal - Mumbai
Lohtse Co-Op. Housing Society Ltd. vs Seventh Income-Tax Officer on 5 September, 1994
Equivalent citations: [1994]51ITD608(MUM)
ORDER
Pradeep Parikh, Accountant Member
1. The assessee is a co-operative housing society and is in appeal before us against the order of the CIT (Appeals), dated 16 12-1993 for assessment year 1990-91.
2. The first ground of appeal, shortly stated, is that the CIT (Appeals) erred in upholding the action of the ITO of taxing the sum of Rs. 10 lakhs received from Mr. Parmeshwar Mittal as a casual and non-recurring income chargeable to tax under Section 10(3) of the Income-tax Act, 1961.
3. The assessee, who is the purchaser, had signed a Deed for Sale dated 21-2-1968 with M/s. Ram Narayan & Sons Pvt. Ltd., the vendor to buy a piece of land at Juhu, Bombay, wherein one M/s. Bombay Real Estate Corporation was a confirming party. The piece of land sought to be purchased by the assessee was part of a huge land known as Ruia Park belonging to the vendor. One of the covenants mentioned in the aforesaid deed reads as under :
No building or buildings or structure or structures shall be constructed or erected on the portion of land, hereditaments and premises retained by the vendor or any part thereof out of the land hereditaments and premises described in the First Schedule hereunder written exceeding 35 feet in height from the ground level, nor will the existing buildings or structures thereon or any of them be added to or raised over a height of 35 feet from the ground level and in the event of the vendor selling the whole or any part of the said portion so retained by it, then in that case the vendor shall procure from the purchaser or transferee thereof, as the case may be, a covenant in terms similar to this covenant.
4. In November 1985, one Mr. Parmeshwar Mittal informed the assessee-society that he was buying some plots of land located in Ruia Park, opposite the building owned by the society and that he proposed to construct building 60 feet high from the ground level and sought the permission of the society in respect of the height. Further, vide his letter dated 13-1-1986, he indicated that in the event of the society acceding to his request, he was prepared to pay a sum of Rs. 30 lakhs to the Common Amenities Fund of the society as a gesture of goodwill.
5. The society, acting on legal advice, released the said covenant and allowed Mr. Mittal to construct the building to a height of 60 feet from the ground level. As agreed, Mr. Mittal paid to the society a sum of Rs. 30 lakhs on 3-2-1986. Subsequently, Mr. Mittal again approached the society for releasing a further height of 11 feet and offered to contribute an additional sum of Rs. 10 lac to the Society as a gesture of goodwill. In accordance with the resolution of the General Body of the Society, Mr. Mittal was allowed further 11 feet in the height of his building under construction. The Society received Rs. 10 lakhs from Mr. Mittal on 28-10-1989 and it is this sum which has been assessed as taxable by the Assessing Officer as casual and non-recurring income under Section 10(3) for assessment year 1990-91.
6. It may be mentioned here that the sum of Rs. 30 lakhs was also taxed as casual and non-recurring income in assessment year 1987-88 against which the assessee is in appeal before the Tribunal which is yet to be decided. Hence, the scope of the present appeal is restricted to the sum of Rs. 10 lakhs only.
7. It was argued on behalf of the assessee before the Assessing Officer that the said receipt was a capital receipt and hence, not exigible to tax. The Assessing Officer, however, taxed the same on the ground that as there was no capital asset in existence, there is no question of capital receipt and hence it was a revenue receipt, casual and non-recurring in nature and hence exempt only to the extent of Rs. 5,000 under Section 10(3), the balance being taxable.
8. The CIT (Appeals) upheld the action of the Assessing Officer on the ground that the onus of claiming exclusion from the net of taxation for any transaction is on the assessee and the same is not discharged by the assessee. For this, he drew support from the decision of the Supreme Court in the case of CWT v. Abdul Hussain Mulla Muhammad Ali [1988] 172 ITR 614.
9. We have heard the rival submissions at great length and both the parties have been equally vehement in their respective contentions.
10. The sum and substance of the arguments of Sri V.H. Paul, the learned counsel for the assessee, is that the impugned receipt is not an income and that, a section which confers exemption cannot be converted into a charging section.
11. The learned Departmental Representative, on the other hand, contended that the charge is not sought to be created by virtue of Section 10(3) but is by virtue of Section 56. He also relied heavily on the orders of the lower authorities.
12. We have been lavishly treated by both the sides with erudite commentaries and judicial pronouncements on the subject and shall deal with them as we proceed to dissect the rival arguments in the following paragraphs.
13. To start with, it would be pertinent to note as to how the CBDT clarified about the taxability or otherwise of casual and non-recurring receipts in its Circular No. 158, dated 27-12-1974. The following is mentioned at para 2 of the said Circular:
Receipts which are of a casual and non-recurring nature will be liable to income-tax only if they can properly be characterised as 'income' either in its general connotation or within the extended meaning given to the term by the Income-tax Act.
14. Thus, it is obvious from the above clarification that in order to tax a casual receipt as income, the starting point would be to determine whether the receipt can be called income. In order to do that, we shall have to refer to the definition of the term "income" given in Section 2(24) of the Act.
15. Section 2(24) gives an inclusive definition of the word "income". Receipts similar to that with which we are concerned in this appeal are not included in the definition. The receipt in question, therefore, is an income or not, will have to be determined by applying certain tests.
16. In the case of Maharajkumar Gopal Saran Narain Singh v. CIT [1935] 3 ITR 237, the Privy Council observed that:
The word 'income' is not limited by the words 'profits' and 'gains'. Anything which can properly be described as income, is taxable under the Act unless expressly exempted.
17. Justice Braund, J., in the case of Rani Amrit Kunwar v. CIT [1946] 14 ITR 561, observed as follows on behalf of the Full Bench of the Allahabad High Court :
I believe that the true test to be applied under the Indian Income-tax Act, is that which has been prescribed by Lord Russell of Killowen in Gopal Saran Narain Singh v. CIT [1935] 3 ITR 237, in which he says that anything which can properly be described as income is taxable under the Indian Income-tax Act, unless expressly exempted.... Under Indian law, therefore, we come back in my opinion, to the relatively simple test whether in the ordinary parlance of language what the assessee receives is 'income' or not. I should not dream of suggesting that every payment made by one person to another is necessarily the recipient's income since it may, as Viscount Dunedin has said, be merely a casual payment or, as Sir George Lowndas has suggested, a mere windfall. Such a sweeping proposition would be absurd. Many things have to be considered.
In the case of a payment by a parent to a child or by a husband to a wife or by one relation to another obvious questions arise whether in the particular circumstances of each case the payments are made in such a way as to constitute what is paid the money of the recipient at all or whether the payments themselves are not merely a series of casual payments or windfalls. But there seems to me to be another class of cases altogether in which in particular circumstances payments may be made by one person to another which can only be explained on the ground that the giver intends to give and the recipient expects to receive, with regularity or expected regularity and from a source the nature of which is to produce such a payment, an 'income' which is in the income-tax sense his own.... The conclusion, therefore, I have reached is that, in construing the word of 'income' in the Indian Income-tax Act, one has to ask oneself whether, having regard to all the circumstances surrounding the particular payments and receipts in question, what is received is of the character of income according to the ordinary meaning of that word in the English language or whether it is merely a casual receipt or mere windfall.
18. Respectfully, we shall now apply the above test to the receipt in question before us.
19. At the outset, we may look into the intention of the parties to the contract. The assessee, while buying the land, had stipulated a restrictive covenant to which the vendor had agreed. Mr. Parmeshwar Mittal, the purchaser of the adjoining land on which the restrictive covenant was to be enforced, was also aware of the said covenant. Possibly, two courses were open to him, namely, one to straightway build the structure beyond the height of 35 feet in total disregard of the covenant, or, two, to approach the society with a request to relax or waive the covenant. If Mr. Mittal had opted for the former course, it can be presumed that the society would have taken legal action against Mr. Mittal to enforce the covenant. At least the society did have the right to do so. If for some reason, it would not have been possible for the society to strictly enforce the covenant, it would have claimed damages. In this event, would these damages have attracted tax? There is a near unanimity in various judicial pronouncements that damages paid for extinguishment of some right are not of a revenue nature but of a capital nature. On the other hand, Mr. Mittal chose the second course and requested the society to waive the condition. The society agreed to the request by way of a resolution of the general body. The covenant was there for the free movement of air and light which the members of the society sacrificed in waiving the covenant. Mr. Mittal, being overwhelmed by this gesture of the society, made the impugned payment towards the common amenities fund of the society. It was a voluntary payment and by no stretch of imagination can it be called an 'income' ?
20. Secondly, if a receipt has to be taxed as income, it ought to have a source from which such generation can be expected at least with some regularity. This does not mean that income generated from a single transaction cannot be taxed as income, but it would largely depend on the nature of transaction. In the instant case, there is nothing to imply that such a transaction has taken place. Moreover, while placing the said covenant, the society could never have imagined it to be an income generating one which can at all be considered as a source of income.
21. Hence, the impugned receipt fails in both the basic tests to call itself income, viz., as regards the nature of payment made as well as the existence of a source. If this is the case, then as per the Circular of the Board, referred to earlier, it cannot be taxed as casual income also.
22. There is another aspect also as to why the impugned receipt cannot be taxed as a casual income. A receipt, in order to be taxed as casual income, must be accidental or fortuitous. It should not be contractual or out of a stipulation. In the instant case, it has resulted out of a stipulation, the violation of which would have changed the character of the payment and would have been called as damages. Though the agreement does not specify about the consequences of violation, that does not mean it is unenforceable. But the fact remains that the payment has resulted from the stipulation. In fact, payment made in spite of the absence of a stipulation as to the consequences or damages in the event of violation, strengthens the contention of the assessee that it is a voluntary payment as a gesture of goodwill.
23. As the transaction did not involve any 'transfer' - much less, of a capital asset,-the amount is not chargeable to tax even under the head "Income from capital gains".
24. The CIT (Appeals) upheld the action of the Assessing Officer on the ground that the onus for claiming exclusion from the net of taxation was on the assessee. For this contention, he relied on the decision of the Supreme Court in the case of Abdul Hussain Mulla Muhammad Ali (supra). However, we do not agree with the contention of the CIT (Appeals) about the applicability of the said decision in the instant case. In Abdul Hussain Mulla Muhammad All's case (supra), the transaction was of a commercial nature. It was never disputed by the parties to the transaction. However, the assessee claimed exemption on the ground of some obscure personal law applicable to Muslims for which no authoritative text was available and that is why their Lordships had to quote with approval from "Chitty on Contracts" (25th Edition, Volume I, para 123) as follows:
... The onus of proving that there was no such intention is on the party who asserts that no legal effect is intended and the onus is a heavy one....
25. In the instant case, it is not the case of the assessee that no legal obligation was involved in case of breach of stipulation. As mentioned earlier, it was enforceable. But the assessee waived the stipulation and extinguished its right for free air and light. It was a sacrifice on the part of the members of the Society and Mr. Mittal made the payment as a gesture of this goodwill. It was not a commercial transaction and as discussed earlier, it failed the tests to call itself income as understood by general connotation. In fact, under the scheme of the Act, the burden is on the revenue to show that a receipt constitutes income, which the revenue has failed to establish. Only when a receipt constitutes income, the burden is on the assessee to show that it is exempt as held by the Supreme Court in Abdul Hussain Mulla Muhammad Ali's case (supra).
26. Since we hold that the impugned receipt is not an income, we do not go into the merits of revenue's contention that the charge is created under Section 56, that is, to tax the receipt under the head "Income from other sources". We have already held that there is no source at all and hence, the question of taxing the receipt as income from other sources does not arise.
27. We, accordingly, direct that as the receipt of Rs. 10,00,000 by the Society from Mr. Parmeshwar Mittal is not an income, it be deleted from the total income of the assessee.
28. The second ground pertains to the taxability of non-occupancy charges, transfer fee and premium on transfer. All these charges are paid by the members to the Society which in turn utilises these receipts for the benefit of members only. The Society being a mutual concern, these amounts will not be liable to tax. This view has been affirmed by the Calcutta High Court in the case of CIT v. Apsara Co-operative Housing Society Ltd. [1993] 204 ITR 662.
29. We, therefore, direct that receipts on account of non-occupancy charges, transfer fees and premium on transfer be deleted from total income on the principle of mutuality.
30. In the result, the appeal is allowed.