SIXTH INCOME TAX OFFICER v. INDIAN NATIONAL SHIPOWNERS ASSOCIATION
[Citation -1984-LL-1124-4]

Citation 1984-LL-1124-4
Appellant Name SIXTH INCOME TAX OFFICER
Respondent Name INDIAN NATIONAL SHIPOWNERS ASSOCIATION
Court ITAT
Relevant Act Income-tax
Date of Order 24/11/1984
Assessment Year 1976-77 & 1978-79
Judgment View Judgment
Keyword Tags income from house property • principle of mutuality • income from business • business premises • revenue receipt • capital receipt • capital nature • capital asset • excess amount
Bot Summary: The relevant facts are that the assessee-association has purchased a flat and let it our to Secretary General and claimed before the ITO that the income of Rs. 19,415 as estimated by the ITO is not the income assessable under the head Property income , but that is a business income. The assessee cannot be treated as a mutual association and finally the ITO has taxed the subscription as the income of the assessee following the decision of the Andhra Pradesh High Court in the case of CIT vs. Merchant Navy Club 96 ITR 261. Vs. CIT 26 ITR 15(SC) and 41 ITR 608 and following the ratio in these decisions, the CIT(A) held that contribution has been made specifically for the outlay on the residential flat which is a capital asset and since similarly the contribution for the office building of the association was also a capital receipt. Departmental Representative Sri Raju was that the contributions for the purchase of the flat and the office building were under the resolution passed by the Association. Though the flat has been purchased, the assessee has not purchased the office premises in the relevant year. To the Poona Electric Supply Co. but that and Hoshiarpur Electric Supply Co. but that contribution was under the statute and the assessee was bound to use the contribution for capital assets. The basic thing to be seen is, at the time of receipt, what was the exact nature of receipt, contribution of the subscription was made under the resolution passed by the Association to purchase the flat and the office premises.


These two appeals are by Revenue against order of CIT(A) dt. 15th March, 1982 and 19th Feb., 1982. assessment years involved are 1976-77 and 1978-79. Since common issues are involved, we heard these appeals together and dispose of by this common order for sake of convenience. first common issue for our consideration in these appeals is whether CIT(A) has erred in holding that income from property should be taxed under head Income from business and not under head Income from house property . relevant facts are that assessee-association has purchased flat and let it our to Secretary General and claimed before ITO that income of Rs. 19,415 as estimated by ITO is not income assessable under head Property income , but that is business income. assessee claimed that it is incidental to business. Therefore, it should not be assessed under head Income from property . ITO did not agree with claim of assessee. He estimated income, form property and estimated it at Rs. 19,415 in asst. yr. 1976-77 and Rs. 4,250 in asst. yr. 1978-79. Being aggrieved, assessee carried matter before CIT(A). CIT(A) has followed decisions in case of CIT vs. Delhi Cloth & General Mills Co. Ltd. (1966) 59 ITR 152 (Punj) and held that property let out to employee was subservient and incidental to main business of assessee. Therefore, rent received from flat is assessable under s. 28 of Act. Being aggrieved, Revenue came in appeal before us. submission of ld. Departmental Representative, Sri Raju was that facts relied on by CIT(A) are not similar as facts in present case. case relied on by CIT(A) was different in sense that staff quarters were within business premises while here, flat is not with not business premises. Therefore, it has nothing to do with business and its income should be incidentally assessed as income from house property. On other hand, Sri Dastur submitted that facts are more or less similar, as relied by CIT(A) in case of Delhi Cloths & General Mills (supra). There, quarters were residential and was let out to employee; similarly flat here is purchased by assessee and let out to Secretary General of assessee- association. We heard rival submissions and considered material on record. flat was purchased by assessee-association for its General Secretary in order to provide him accommodation with object that he can function with day-to-day affairs more efficiently and work more for association. object behind purchase of flat was not to earn income from this property and when there is no contrary decision cited by Departmental Representative against decision in CIT vs. Delhi Cloth & General Mills (1966) 59 ITR 152 (Punj) and Hoshiarpur Electric Supply Co. vs. CIT (1961) 41 ITR 608 (SC). Following ratio in decisions of their Lordships, we confirm view taken by CIT(A). next issue for our consideration in these appeals is whether CIT(A) has erred in deleting addition of Rs. 2,37,100 (asst. yr. 1976-77) and Rs. 7,40,500 (asst. yr. 1978-79) in respect of contribution received towards building fund treating same as capital receipts. relevant facts are that assessee-association has passed resolution for collection of contribution for purchase of residential flat for providing accommodation to secretary- general and they collected Rs. 2,37.10. Subsequently thereafter, they purchased flat No. 41 at Meher-Naz Building, at Cuffe Parade. This collection was made from Members. Similar resolution was passed for collection of money for purchase of office for Association and under that resolution, assessee- association collected from its members Rs. 7,40,500. This amount was received during C.Y. 1977. Before ITO, assessee claimed exemption from subscription received from members. ITO did not agree with claim of assessee. According to him, there is complete ban on subscription; surplus will not go back to members in one from or other; and after receiving subscription, complete identity between contributors and recipients is not established. Therefore, assessee cannot be treated as mutual association and finally ITO has taxed subscription as income of assessee following decision of Andhra Pradesh High Court in case of CIT vs. Merchant Navy Club (1974) 96 ITR 261 (AP). Being aggrieved, assessee carried matter before CIT(A). CIT(A) has allowed claim of assessee it he first appeal matter came of Tribunal. Tribunal had taken view that principle of mutuality may not be applicable to instant case of assessee and Tribunal reversed view taken by CIT(A) and sent matter back to CIT(A) that principle of mutuality is not applicable in sent that matter back to CIT(A) that principle of mutuality is not applicable in case of this assessee. However, it is to be seen that contributions received towards purchase of flat and for office would be of capital nature or not. As CIT(A) has not gone into this question, matter was considered in light, whether contributions received towards purchase of flat and purchase of office building for association, CIT(A) has considered decisions on CIT vs. Poona Electric Supply Co. Ltd. (1946) 14 ITR 622 (Bom), E.D. Sassoon & Co. Ltd. & Ors. vs. CIT (1954) 26 ITR 15(SC) and (1961) 41 ITR 608 (SC) and following ratio in these decisions, CIT(A) held that contribution has been made specifically for outlay on residential flat which is capital asset and since similarly contribution for office building of association was also capital receipt. Therefore, such receipt cannot be treated as revenue receipt and directed ITO to delete addition of Rs. 2,37,100 (asst. yr. 1976-77) and Rs. 7,40,000 (asst. yr. 1978-79). Being aggrieved, Revenue is in appeal before us. submission of ld. Departmental Representative Sri Raju was that contributions for purchase of flat and office building were under resolution passed by Association. Though flat has been purchased, assessee has not purchased office premises in relevant year. excess amount should be treated as income of assessee; and facts in (1946) 14 ITR 622 (Bom) and (1961) 41 ITR 608 (SC) were different. There contribution is by Govt. to Poona Electric Supply Co. but that and Hoshiarpur Electric Supply Co. but that contribution was under statute and assessee was bound to use contribution for capital assets. Here contribution was only under resolution and they can use contribution passing any resolution for other than capital assets and in fact contribution of Rs. 7,40,500 is not used in previous year relevant to asst. yr. 1978-79. Therefore, principles of those case are not applicable. We have heard rival submissions and considered material on record. It is true that facts are not identical as in cases of Hoshiarpur Electric Co. and Pune City Electric Co., as contribution there was under statute. But basic thing to be seen is, at time of receipt, what was exact nature of receipt, contribution of subscription was made under resolution passed by Association to purchase flat and office premises. flat and office premises are capital assets and contribution received towards that should be taken as capital receipt. Therefore, on date of receipt, contribution received towards capital assets, in our view and following their Lordships of aforesaid cases in (1946) 14 ITR 622 (Bom), this is capital receipt and cannot be taxed as revenue receipt. We, therefore, confirm view taken by CIT(A). In result, appeals are dismissed. *** SIXTH INCOME TAX OFFICER v. INDIAN NATIONAL SHIPOWNERS ASSOCIATION
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