Income Tax Appellate Tribunal - Mumbai
Ram Agarwal vs Joint Commissioner Of Income Tax on 26 September, 2001
Equivalent citations: [2002]81ITD163(MUM)
ORDER
I.P. Bansal, J.M.
1. This appeal of the assessee is directed against the order of CIT(A), dt. 15th Feb., 2001, for asst. yr. 1995-96. The following grounds of appeal have been raised:
"1. On the facts and in the circumstances of the case and in law the learned CIT (A) erred in confirming the disallowance of deduction under Section 54F of the IT Act claimed by the appellant.
2. The learned CIT(A) erred in law and on the facts of the case in holding that commission earned by the appellant was not "business income" and instead assessing the same as "income from other sources".
3. The learned CIT(A) erred in consequently holding that since commission income was not business income, the due date for filing the return was 30th June, 1995. The appellant submitted that change of head of income would not tantamount to change in due date of filing of return.
4. The learned CIT(A) erred in taw in not disposing the ground No. 3 raised before CIT(A) that the appellant had deposited Rs. 60,00,000 with Punjab National Bank on 30th Aug., 1995 and not on 1st Sept., 1995, leading to denial of benefit under Section 54F of the IT Act.
5. The learned CIT(A) erred in not giving a finding on the material filed before him which showed that the account was opened by the appellant on 30th Aug., 1995 and not on 1st Sept., 1995, as held by the AO.
6. Without prejudice to the above, the learned CIT(A) erred in not granting deduction under Section 54F on account of technical breach of making delayed payment in the capital gain account. The appellant had complied with all other procedures and had also invested in the flat within the time-limit laid down."
One additional ground was also taken, which reads as follows :
"1. On the facts and in the circumstances of the case and in law the learned CIT(A) erred in confirming the reassessment made by the AO under Section 147."
2. At the time of hearing, the learned counsel though argued at length in respect of additional ground, but later on he expressed his desire not to press the same, therefore, additional ground raised by the assessee is dismissed, being not pressed.
3. In the return of income filed for the year under consideration, the assessee had claimed exemption of Rs. 60 lacs under Section 54F out of long-term capital gain, the return of income was filed on 31st Aug., 1995. In the return of income so filed the assessee had shown a business income of Rs. 12,253 apart from income from other sources and long-term capital gain on sale of property. While processing the return of income, the claim of exemption under Section 54F was disallowed on the ground that the assessee was not having any regular business income and thus, the date of filing of return was 30th June, 1995. Since the assessee did not make the requisite deposit in time, which according to the AO, was 30th June, 1995, as the assessee had no regular business income. The requisite deposit to avail exemption under Section 54F was made by the assessee on 1st Sept., 1995. This issue also has been raised in the assessment order by the AO in detail and for that reason also the assessee was held not entitled to claim exemption under Section 54F.
4. Thus, the claim of the assessee under Section 54F was disallowed for two reasons. Firstly, the assessee did not have business income. So the prescribed date for filing the return was 30th June, 1995, instead of 31st Aug., 1995. Secondly, even if the assessee was having business income the deposit was still not made within the prescribed time that was 30th Aug., 1995, and the deposit was made on 1st Sept., 1995.
5. The CIT(A) found that there was a strike in the bank and it was also certified by the concerned bank officials of the PNB in which the deposit was made. So according to the C1T(A), the aspect of deposit being made on 1st Sept., 1995, had no particular relevance. The Revenue is not in appeal in regard to these findings of CIT(A) i.e., there was a bank strike on 31st Aug., 1995, and thus the deposit which could be made only on 1st Sept., 1995.
6. The limited controversy which remains for consideration of Tribunal is in regard to due date for filing the return of income. The due date for filing the return in the case of assessee will be 31st Aug., 1995, if the contention of the assessee, that the income earned by him from commission was income from business is accepted. In case the amount of commission earned is found to be income from other sources, the due date will be 30th June, 1995.
7. The learned counsel for the assessee stated that the commission of Rs. 12,253 was earned by the assessee from M/s Sawalka & Co., Ludhiana. This was assessee's income from business. The assessee was a partner in M/s Elite Auto Industries. The firm was manufacturing auto parts and electrical goods. This partnership business was carried on for 25 years upto 1988 and the said firm was dissolved due to disputes between the partners. Thereafter the assessee took the agency of Hero Honda Motorcycles. The said business was carried by the assessee in his HUF capacity in partnership with his wife. Subsequently, this agency too was terminated. The assessee had been visiting Ludhiana frequently due to the fact that his in-laws were staying at Ludhiana. The assessee was looking for new avenues in respect of business. In the process, the assessee met Mr. S.C. Sawalka. Assessee agreed to introduce customers to Shri S.C. Sawalka who agreed to give assessee commission @ 2 per cent in respect of business introduced. The assessee introduced NESLE India. Jagrao cooperative Sugar Mills, etc. to Swalka firm and in turn earned commission. Thus, the assessee earned business income and which was also shown as business income in the return of income filed for the year under consideration. While stating these facts, he referred to the submissions made by the assessee before CIT(A) in appellate proceedings.
8. He contended that the AO has wrongly treated the commission income being cash income and thus, assessing the same as income from other sources. He contended that the claim of the assessee regarding income earned as business income was disallowed by the AO on the grounds that the assessee did not conduct any business, failed to furnish any evidence regarding commission income. The base of the buyers as well as seller was in Ludhiana whereas the assessee was staying in Mumbai. The assessee did not incur any expenditure for earning the commission. The assessee did not have any regular business and that the assessee has fradulentty shown commission as business income in order to claim benefit of Section 54F. The commission income is income of cash nature. He contended that it is wrong to say that the assessee did not conduct any business. As stated earlier the assessee was looking for new avenues as the assessee was not having any business. In the process, the assessee explored his connections and earned commission income from M/s Sawalka & Co. It was categorically stated before AO that the partners of M/s Sawalka & Co. were family friends and the clients to whom the assessee introduced to said M/s Sawalka & Co. were also family friends of the assessee. Thus, in noway the commission income can be said to be an income of cash nature. He contended that the amount of Rs. 60 lakhs which was deposited in designated bank had always been available with the assessee. Thus, no motive can be attributed for not making the deposit before 31st Aug., 1995. He, in this regard, referred to the submissions made by the assessee before CIT(A) in which the details of amount having been available with the assessee right from the beginning were furnished. Thus, he contended that there was no fradulent motive with the assessee. He further contended that the commission earned by the assessee was duly intimated by the giving party to the assessee by credit notes. The amount was also credited to the bank account of the assessee before 30th June, 1995. He further contended that the word 'business' is one of the wider merit and in the fiscal statute it must be construed in a broad sense rather than a restricted sense. In support of this contention, he relied on the decision of Honourable Supreme Court in the case of Mazgaon Dock Ltd: v. CIT (1958) 34 ITR 368 (SC). He further contended that even a single and isolated transaction can constitute a business adventure in the nature of trade, provided the transaction bears clear indicia of trade. For this contention be placed reliance on the decision of Honourable Supreme Court in the case of Narain Swadeshi Weaving Mills v. CIT (1954) 26 ITR 765 (SC). Further, he contended that commission received by the assessee in connection with real estate transaction was held to be income from business by Guwahati High Court in the case of CIT v. Assam Hard Board Ltd. (1997) 224 ITR 318 (Gau). Similarly, income from brokerage was held to be income from business or profession by the decision of Honourable Rajasthan High Court in the case of CIT v. Prakash Narain (1995) 213 ITR 182 (Raj). Referring to the decision of Tribunal in the case of Sobhagmal Nemchand & Co. v. ITO (1987) 29 TTJ (Chd) 390 : (1987) 22 ITD 73 (CM), he contended that income from Hundi (dalali activity) was held to be income from business.
9. He further contended that the provisions for granting exemption under the head 'Capital gain' should be liberally construed. Exemption should not be denied to an assessee on technical grounds. The commission income earned by the assessee has been assessed by AO being income of cash nature and from other sources just for the purpose of denying the exemption claimed under Section 54F. In support of his contention that the provision of exemption should be interpreted in a liberal manner, he placed reliance on the decisions in the case of Keshav Ram Pasi v. RBI (1984) 146 ITR 16 (P&H), P. Alikunju. M.A. Nazir Cashew Industries v. CFT (1987) 166 ITR 804 (Ker).
10. On the other hand, the learned Departmental Representative drew our attention towards pp. 3 and 4 of the assessment order and contended that the assessee was not knowing even basic details of the transaction through which the alleged business income was earned by the assessee. He in this regard referred to us the questions and answers reproduced by the AO in the assessment order.
11. He placed reliance on the decision of Honourable Supreme Court in the case of State of Punjab and Anr. v. Bajaj Electrical Ltd. (1968) 70 ITR 730 (SC) to contend that on supply of goods to Punjab Government and certain semi-Government bodies in Punjab in execution of orders received at branch office at Delhi, the assessee was not held carrying on trade within the State of Punjab and thus was not held liable to be assessed under Punjab professions, Trade, Callings and Employment Taxation Act, 1956.
12. Further, he placed reliance on the decision in the case of CIT v. Associated Industrial Dev. Co. Ltd. (1971) 82 ITR 586 (SC) to contend that the details were within the knowledge of the assessee and as the assessee was not able to describe the proper details, the assessee cannot be said to have carried on business.
13. He contended that the decision relied upon by learned counsel on the case of CIT v. Bharat Insurance Co. Ltd. (1983) 142 ITR 342 (Del) refers to frequency or repetition of activity also. So in the present case, the assessee's transaction were not frequent or repeated. Therefore, the assessee cannot be said to have carried on business. He also placed reliance on the following decisions :
(1) CIT v. Distributors Brodways (P) Ltd. (1972) 83 ITR 377 (SC); and (2) Narayan Swadeshi Weaving Mills v. CEPT (supra).
These decisions were relied upon to contend that the business connotes some real, substantial and systematic or organised course of activity or conduct with a set purpose. In the case of Narayan Swadeshi Weaving Mills (supra) it was held that activity of letting out plant, machinery, etc. after cessation of manufacturing operation and sale of land and building do not amount to carrying on business. Thus, the learned Departmental Representative contended that the assessee had not been carrying on any business. The income shown from commission was only an income from other sources. Thus, due date for filing of return by the assessee falls on 30th June, 1995, and as the assessee had not deposited the amount with the bank to avail exemption under Section 54F, the claim of the assessee has rightly been disallowed.
14. In reply the learned counsel of the assessee contended that there is a difference between regular business and business. In the statement it was admitted by the assessee that he was having no regular business. He contended that exact details of items supplied years back cannot be given in a statement. Bills were furnished before AO. The AO could have further enquired about those details which course was not adopted by the AO. He further contended that the case law relied upon by learned Departmental Representative has no relevance to the facts of the case. The assessee was having the requisite amount to deposit even as on the date i.e., 30th June, 1995. So there was no question of any evasion of tax, as assumed by the AO.
15. We have carefully considered the rival submissions in the light of material placed before us. Two facts are undisputed. First is the availability of the funds with the assessee on 30th June, 1995, enable him to claim exemption under Section 54F which was kept in. the banks. Second, the receipt of commission which were deposited in the bank account of the assessee much prior to 30th June, 1995, i.e., 23rd June, 1995. From these two facts it is apparent that there was no intention on the part of the assessee to fradulentty claim the income earned from commission as business income as the assessee could have deposited the requisite amount by 30th June, 1995. It is also undisputed that it is for the first time the assessee had earned the commission income and there is every probability that as per belief of the assessee same would be business income. The claim of the assessee regarding business income has been disregarded by the Revenue simply for the reason that the assessee has claimed exemption under Section 54F on the basis of deposit which was made on 1st Sept., 1995. The question for our consideration is whether the commission earned by the assessee will be a business income or income from other sources as it has been assessed by the Revenue.
16. There can be hardly any doubt that the commission received by the assessee for arranging sale of maintenance parts would fall under the head 'Business income Similar view was taken by Honourable Rajasthan High Court in the case of CIT v. Prakash Narayan (supra). Merely on account of the fact that this is the first year in which the assessee earned commission could not alter the character of receipt from 'business' to 'Other sources'. Admittedly in subsequent years similar income earned by the assessee was assessed to tax under the head 'Profit and gains of business or profession."
17. As regards the issue as to whether an isolated transaction would be treated as business, we find that the circumstances of this case clearly suggests that the assessee intended to earn business income. Similar view was taken by Hon'ble Supreme Court in the case of Narayan Swadeshi (supra).
18. It has been also held by Delhi High Court in the case of CIT v. Bharat Insurance Co. Ltd. (supra) that a business is a term of wide amplitude which includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture. Even though the words are wide, but underlying each of them is the fundamental idea of continued exercised of an activity. The frequency or repetition of activity, though at times a decisive factor, is by no means an unfallible test, and transaction though repeated may not amount to a trade or an adventure in the nature of trade. Conversely, an isolated adventure may fall within the definition of business. Ordinarily business implied a continuous activity in carrying on a particular trade or a vocation, but it may also include an activity which may be called quiescent. It has also been held by Honourable Madras High Court in a recent case namely CIT v. S.P. Balasubramanian (2001) 250 ITR 127 (Mad) that even a single adventure in the nature of trade or business is sufficient to constitute trade or business and it is not necessary that there should be a series of transactions before the activities are characterised as a trade or business.
19. As mentioned earlier, this was the first year in which the assessee had received commission income. This activity was also continued by the assessee in subsequent years and the assessee was also assessed on the said commission income as income from business in the subsequent years. The reference in this regard can be made to the evidence furnished by the assessee in regard to earning of commission in respect of subsequent years, which is placed by the assessee in his paper book from pp. 17 to 21.
20. We have also carefully considered the decision relied upon by learned Departmental Representative but none of them we find applicable to the facts of the case. In the case of State of Punjab and Anr. v. Bajaj Electricals Ltd. (supra) the question in consideration before Hon'ble Supreme Court was regarding trade and in the given circumstances it was held that assessee was not liable to be assessed under the Punjab Professions, Trade, Calling and Employment Taxation Act, 1956.
21. In another decision, which has been relied upon by learned Departmental Representative in the case of CIT v. Associated Industrial Dev. Co. Ltd. (supra) the question was in regard to certain shares which were held to be by way of investment by the Tribunal and it was held by Hon'ble Supreme Court that Tribunal having found the assessee to be dealer in shares, it was not open to High Court to make a new approach and hold part of the shares as investment and sale proceeds therefrom as capital gain. Similarly, the decision in the case of C1T v. Distributois Broadway (P) Ltd. (supra) it was found by the Hon'ble Supreme Court that the object of assessee-company were manifold out of which dealing or holding of investment was only one of them. All the shares held by assessee-company as its investments were the shares of the two managed companies. Thus, it cannot be said that assets of the company used in share dealing are far more than its other assets. Thus, assessee-company was not one whose business was said to be mainly dealing or holding of investment within the meaning of Clause (I) of Explanation to Section 23A. Thus, this decision also has no relevance to the facts of the case.
22. In view of the above discussion, we hold that the commission income earned by the assessee during the year is assessable as income from business. I has wrongly been assessed by the AO as income from other sources.
23. In regard to claim of exemption under Section 54F we may mention that it is found by the learned CIT(A) that the bank was closed on 31st Aug., 1995, on account of strike as certified by the officials of the concerned bank. From the certificates given by bank officials, the assessee had approached the bank officials with the cheque for the amount of deposit oh 30th Aug., 1995. The assessee remained unable to obtain receipt on 31st Aug., 1995, due to bank strike and the cheque was cleared on 31st Sept., 1995. In this view of the situation, it can well be said that the deposit of the assessee was in accordance with the provisions of statute as on the last date i.e. the 31st Aug., 1995, the deposit could not be made due to the reason which was beyond the control of the assessee particularly in view the efforts were made by the assessee a day prior to last date to deposit the requisite amount in the bank to make him entitle for exemption under Section 54F. As mentioned earlier, this position has also been accepted by learned CIT(A). Therefore, we direct the AO to allow the necessary exemption to the assessee.
24. Before parting we may observe that Section 54F is a beneficial provision to encourage assessee to invest in house properties. Keeping in mind the avowed object behind the insertion of Section 54F and considering the fact that the assessee was not at fault in not depositing the amount before 31st Aug., 1995, we hold that the deposit made on 1st Sept., 1995, satisfies the condition laid down in Section 54FoftheAct.
25. In the result, appeal of the assessee is partly allowed.