[Citation -1985-LL-0903-1]

Citation 1985-LL-0903-1
Court ITAT
Relevant Act Income-tax
Date of Order 03/09/1985
Assessment Year 1974-75, 1976-77, 1977-78
Judgment View Judgment
Keyword Tags co-operative societies act • income from house property • transport corporation • development authority • co-operative society • agricultural produce • agricultural income • industrial company • division of profit • additional ground • unity of interest • state government • fresh assessment • land development • levy of interest • public interest • cross-objection • ejusdem generis • legal existence • local authority • public utility • annual income • town planning • voting right • capital gain • communidades • legal entity • civil suit • land owner
Bot Summary: According to the ITO, the most important point to be noted was that no person other than the members of communidade are entitled to the benefits of income or receipts of the communidade and it is not an entity which can be considered as local authority. The different communidades had different customs and systems of working which were subsequently codified in a formal code in April 1961 which came to be known as the Code of Communidade, 1961. In case the disential of the communidades has taken place followed by the distribution of their lands or estate to the jonoeiros or shareholders, 'the owners of such land or estate shall substitute in everything, the same jonoeriors or shareholders, transferring to these all the duties that befell on the respective communidades'. The rights include the right to intercede, discuss and vote in the meeting of communidade, right to be elected or appointed to any post in the communidade, to make up for the deficit, to urge the president of the administration board to convene the communidade with necessary justification, to urge to the president to hold an extraordinary meeting of the board with the mention of the subject to be discussed and finally to denounce the deviation of the fund of communidade, usurpation of its lands or other illegal acts as well as any irregular procedure or mistake of the employees of the communidade. Since the communidade consisted of a number of jonoeiros and since its management was complicated, the rules had naturally to be framed for the proper management of the communidade. Referring to the separate rules framed by the Government of Goa, the learned representative of the department submitted that since the Government was supervising the activities of communidades, they have notified that the same rules which apply to other Government servants in regard to the service matters will apply to the employees of the communidades. Lastly, referring to Shri Robinson's suggestion that the share of income of the communidade by the jonoeirs is only an additional factor and that if otherwise the communidades satisfy the test laid down by the Supreme Court for a local authority, the share of income will not detract from holding the communidades as local authorities, the learned representative of the department stated that this is begging the question.

These two sets of appeals have been filed by revenue raising mainly common grounds that Commissioner (Appeals), Bangalore, in his order dated 7-3-1981 erred in holding that status of these two assessees is that of local authority and, consequently, that they are eligible for exemption under section 10(20) of Income-tax Act, 1961 ('the Act). Though facts of cases are slightly different from each other, it is convenient for disposal of these appeals to pass common order since learned representatives of both assessees combined their efforts in resisting department's stand in matter. 2. We would first consider relevant facts in case of Communidade d e Mapusa as brought out by Shri Sathe, learned representative of department. For assessment year 1974-75, assessee filed returns in status of AOP as also in status of local authority. In statement accompanying returns, net surplus as per income and expenditure account was shown at Rs. 6,45,860 from which assessee sought deduction of Rs. 61,460 representing income from agriculture and Rs. 5,74,605 in respect of compensation from transfer of agricultural land net income disclosed was Rs. 9,795. income and expenditure account accompanying return shows that receipts of assessee were from lease rent, from paddy fields, cashew trees, lease rent from leased plots some miscellaneous receipts, rent from house and communidade hall, bank interest and compensation received from Government on acquisition of agricultural lands. For assessment year 1976-77, net surplus was shown at Rs. 1,07,126 out of which deduction was sought in respect of agricultural income of Rs. 24,071 and for compensation received on transfer of agricultural lands of Rs. 83,100. For assessment year 1977-78 net surplus was Rs. 26,432 from which deduction for agricultural income of Rs. 2,08,000 was also claimed. For these two years assessee had similarly filed returns both in status of AOP and that of local authority. facts of assessment year 1975-76 do not arise before us for reasons which we shall presently point out. 3. Before ITO it was claimed that assessee communidade is statutory body as it is local authority. This was because functions of communidade are controlled by State Government and, therefore, exempted under article 289 of Constitution. Reliance was placed on Code of Communidade Legislative Diploma No. 2070 of 15-4-1961. ITO did not agree with this contention. He held that assessee could not be considered to be statutory body created for purposes of planning, development or improvement of villages or towns which is object of local authority. It may be fact that assessee might be taking interest in planning and developing its own properties but such interest was limited only to properties owned by communidade which has come out of polling properties from individual members forming present communidade. ITO was of opinion that individual members have come together to form association which is called communidade. It was only for purpose of uniformity of approach that Government had enacted certain laws and rules just as in case of societies or companies. Just as societies or companies are authority but independent group for purposes of income and expenditure. ITO also noted that there is separate Mapusa Municipality for town planning and development which has been considered as local authority where present assessee is situated. According to ITO, most important point to be noted was that no person other than members of communidade are entitled to benefits of income or receipts of communidade and, therefore, it is not entity which can be considered as local authority. Thus observing, ITO proceeded to consider income of assessee from different sources. 4. In respect of compensation of Rs. 5,74,605 received by assessee on acquisition of lands, it was claimed by assessee that lands in question being agricultural lands, capital gains could not be charged. ITO for detailed reasons given held that there was no evidence to show that assessee had cultivated lands under acquisition for agricultural purposes. H e , therefore, proceeded to compute capital gain from compensation received. ITO also brought to tax income from other sources and income from house property. For assessment years 1976-77 and 1977-78 assessment proceeded on identical basis. All three assessments were subject-matter of directions of IAC under section 144B of Act. assessee filed appeals against these three assessments before Commissioner (Appeals). In fact assessment for assessment year 1975- 76 also was made at same time but additions being smaller, appeal was filed before AAC, Panaji. 5. Commissioner (Appeals) decided appeals for assessment years 1974-75, 1976-77 and 1977-78 by his order dated 7-3-1981 which is subject-matter of appeal before us. In this appeal, Commissioner (Appeals) accepted assessee's claim that its proper status was that of local authority and that exemption under section 10(20) was available in respect of income from capital gain, income from house property and income from other sources, etc. Thus, Commissioner (Appeals) exempted entire income of assessee for these three years. We would presently note various reasons given by Commissioner (Appeals) for coming to above conclusion. appeal for assessment year 1975-76 was decided by AAC on 31-3-1982 when decision of Commissioner (Appeals) was already available to him. AAC did not agree with findings of Commissioner (Appeals). According to him, e v e r y communidade including assessee composed of joineries, shareholders, etc. He further found that income of communidade was distributed among various jonoeiros and shareholders. participation by various members in profits and loss of communidade distinguished it from gram panchayat or other local bodies are established. AAC observed that he had not come across any local bodies whose surplus income was distributed in members as it was done by communidades in Goa. So, prima facie, AAC felt that these bodies cannot be considered to be local authorities and exempt under article 289. Section 10(20) also did not apply. AAC, however, further observed that each communidade seems to have private law which constitutes its own bye-laws. According to him, unless they were referred to, it would not be possible to determine as to how part of annual income was distributed by present assessee or whether any such income was distributed at all. AAC, therefore, set aside assessment for fresh scrutiny on examination of material including private law of communidade under appeal. learned representative of department relied on reasoning given by AAC for assessment year 1975-76 but it is found that though order of AAC was passed on 31-3-1982, fresh assessment as per directions of AAC did not see light of day. learned representative was not able to produce before us any such fresh assessment orders. We asked departmental representative whether he wants to rely on any private law as indicated by AAC. learned representative of department expressed his inability to produce any such private law and was content to rest his case on basis of Code of Communidade. learned representatives of both assessee also had no objection to proceed with appeal without reference to private laws of respective communidade. We therefore, proceed to examine rival contentions on basis of Code Communidade which lays down framework of all communidades in Goa. 6. Before proceeding to consider various reasons which Commissioner (Appeals) has considered in his order, certain historical aspects of communidades which were not seriously disputed by both parties may be stated. They have been brought out broadly by Commissioner (Appeals) in his order. These historical aspects can be shortly summed up as under. 7. It appears that some centuries ago before Goa came successively under t h e domination of Hindu rules of Kadamba dynasty, Muslim rulers like Malik Hussain and lastly Portuguese, large number of families from across Western Ghats abandoning their original homestead on account of wars, epidemics or famine came over and settled in Gao. Unlike development and settlement which took place in other parts of country, peculiarity of this settlement lies on fact that these various families who were known at that time as Gaocares reclaimed and brought under cultivation marshy and other lands lying waste in villages with assistance of their dependents and servants whom they had brought with them. They cultivated lands collectively and divided produce among themselves. It is not possible to know exactly whether originally separate families of Gaocares held land as common property forming family communidade and later these family communidades federated into village communidades or whether village communidades preceded family communidades or in Goa. Historically it is also true that these Gaocares followed community system and governed their affairs in common and also evolved rules for division of surplus income among registered heirs of evolved rules for division of surplus income among registered heirs of deceased members. In course of time, new families migrated into Goa. These new families were allowed to cultivate from them 'foro-de-Cotubana'. Some of new communidades were engaged to work as direct cultivators called Culcharins. Due to subsequent developments in which there were continuous wars between Hindu and Muslim invaders, Gaocares ran into debts and to meet their liabilities issued shares. shares gave holders right to participate in income of communidades but not to intervene in its administration. It appears that after Portuguese established themselves in Goa, they brought institute of communidades under their administrative tutelage. But different communidades had different customs and systems of working which were subsequently codified in formal code in April 1961 which came to be known as Code of Communidade, 1961. Code of Communidade was made by decree of Government General being Legislative Diploma No. 2070 dated 15-4-1961. It must be stated that this Code of Communidade was framed before liberation of Goa and even after liberation, same Code continued to be operative with difference that communidades are under administrative tutelage of Government with highest powers exercised by Lt. Governor of Goa. There are more than 225 such communidades in Goa and it is only these two comunidades which have raised dispute regarding their status. It is not known whether any other communidades have been assessed on similar basis. But fact remains that point involved in these appeals is unique one and will affect large number of similar institutions in Goa. It is for this reason that we have give anxious thought to various arguments raised before us by both parties. With this background, we would proceed to note down reasons on basis of which Commissioner (Appeals) held status of present assessee as that of local authority. 8. It is seen from order of Commissioner (Appeals) that he has mostly considered historical background of communidade in Goa as have been brought out in report of Goa Land Reforms Commission, Chapter IV. After nothing these historical aspects which have been summarised by us in paragraph 7 above, Commissioner (Appeals) proceeded to observe that Gaocares governed themselves by certain functions dedicated by ideals of ancient institutions and tempered in rules of natural justice. Referring to sub-paragraph 6 of report on page 32, Commissioner (Appeals) observed that Code of Communidade made COMMUNIDADES absolute owners of property and they were absolved from payment of ground rent to Government with effect from 1961. According to him, entire land belonged to whole village and not to any individual. individuals had only rights to income being persons who participated in village economy. As per existing law, communidades could seek appropriation for public use, land that they needed for education and protection. From inception, communidade was corporate entity and had corporate status owning property. It was intimately connected with economic, cultural, social and judicial aspects of respective villages. Each village had one communidade and this position continues even today as seen from report. communidades are under administrative tugelage of State. Commissioner (Appeals) then proceeded to note down powers of Government as mentioned in article 153 of Chapter IV of Code of Communidade. Then he referred to article 30 of Code of Commundiade (the Code) which dealt with powers of communidades. As per these powers communidade could elect for period of three years, ordinary attorney and his substitute in manner established in Code, it could appoint special attorneys when necessary or dispense with them according to circumstance and interest of communidade. It could decide over works and extraordinary expenses to be made. It could decide over creation and extension of health centre, extension over period of duration and maintenance of same, it could also decide over introduction of sweet and saline waters in 'Casenas'. As per article 31 of Code, decision of communidade could be implemented only after sanction of Governor General (Now Lt. Governor). Commissioner (Appeals) then noted present position of communidades as given in Rane Commission Report with particular emphasis on following observation: "In its origin communidade was socio-economic entity composed of male descendants of original settlers in village or those who were inducted into it later. It had separate legal personality and owned collectively lands brought under plough. declares are male descendants of original settlor and had only unalienable right to income of commundiade but had no proprietary right in land of communidade. lands were co-operatively managed and net profits of agriculture were distributed among male descendants of original settlors (Gaocares or jonodires) and at later date among Culcharine and shareholders. In some villages widows and orphans of Gaocares and Culcharine were also entitled to share. communidade was autonomous body and Government did not intervene in its affairs. It provided all civic amenities of village, was responsible for public education and welfare and for maintains of essential common service. In its pristine form it was embodiment of Mahatma Gandhi's conception of Gram Raj." Thus, after going through various aspects of communidades brought out in Rane Commission Report which was submitted in 1977, Commissioner (Appeals) observed that after going through all these, only unescapable conclusion was that system of commundiade which is till prevalent in Gao has attributes of local authority having its origin even before Portuguese came to Goa only for purpose of managing village economy, and it had sanction of Government. Commissioner (Appeals) thereafter referred to decision of Supreme Court in case of N. V. Shanmugham & Co. v. CIT [1971] 81 ITR 310 and held that there was no element of profit- motive in organization of communidade and, there is no profit-motive. Referring to observation of ITO that there was separate municipality at Mapusa and, therefore, present assessee could not be considered as local authority, Commissioner (Appeals) observed that whereas communidades were looking after agricultural economy of village, municipalities mainly looked after civic amenities in urban areas. Thus, Commissioner (Appeals) found that assessee communidade clearly fell in category of local authority as defined in section 3(31) of General Clauses Act, 1897. Since section 10(20) of 1961 Act exempts income of local authorities arising from capital gains, house property and from other sources, etc, income assessed under these heads for these three years under appeal was held to be exempt. Commissioner (Appeals) therefore, deleted additions made by ITO under all these heads. In view of his finding that exemption under section 10(20) applied, he did not deal with other grounds raised by he assessee before him particularly those relating to exemption claimed by assessee in respect of capital gains on ground that lands were agricultural lands. There were also other grounds challenging levy of interest under section 139(8) and under section 217 of Act. These grounds were not examined by Commissioner (Appeals) in view of his finding that income was exempt under section 10(20). 9. above decision of Commissioner (Appeals) has been challenged before us by department in three appeals. Before proceeding to make his submissions, Shri Sathe, learned representative of department, took us through important provisions of Code. For proper appreciation of rival contentions it is necessary for us to note down certain important provisions of said Code. respondents have been good enough to provide us with English translation of original Code. Neither side has disputed correctness of translation. We, therefore, have proceeded broadly on basis that translation, which though some times made bit clumsily, brings out essential substance of original Code. first few pages of Code give in brief reasons of present codification. learned representative of department relied on following observation made therein: "The ground rents that communidades used to pay to revenue office have been abolished. Historical truth, focused by Cunha Revera was thereby restored by recognising that land belonging to communidades belong to them as perfect (sic) property and ground rents not necessarily correspond to their division into produce and property, former belonging to communidades and later to State." We now proceed to note down important clauses that were brought to our notice. Article 3 of Code provides that each communidade is composed of (a) jonoeiros, (b) shareholders, (c) jonoerious and shareholders, (d) shares. part of annual income to be claimed by jonoeiro is called jono and t h t of shareholder is called dividends. In case disential of communidades has taken place followed by distribution of their lands or estate to jonoeiros or shareholders, 'the owners of such land or estate shall substitute in everything, same jonoeriors or shareholders, transferring to these all duties that befell on respective communidades'. Article 4 of Code provides that only jonoeiros and shareholders can participate in profits and losses of communidades and only they are liable to rights and duties that are guarantied and imposed to components of communidade by this Code. For purpose of this article, orphans of jonoeiros, their widows and maid-daughters who have right to draw income of jonos or life pension according to private law of representative communidades are considered jonoerios. Article 5 of Code provides that communidades are under administrative tutelage of State, according to rules contained in Code and their lands may be given in long lease or transfer in form established in Code. From year 1962, communidades shall not have to pay ground rent to 'Fazenda' (revenue office). Article 8 of Code provides that communidades may seek, according to existing law, expropriation for public utility of land that they need for irrigation and protection. Article 9 of Code prohibits communidades from filing any civil suit without consent of Administrative Tribunal. Article 10 of Code states that communidades shall be represented in courts of law or other public offices by ordinary attorneys effective or substitute on duty or by special attorneys. Article 11 of Code provides that personal summons of communidades shall be made on person of respective administrator or person in charge of administration. Article 13 of Code provides that income by way of jonos on components of communidades and right to future income may only cease from dates of sale to respective communidades. Under article 16 of Code, all services hereditarily rendered by certain families and paid out of produce from certain lands are abolished. Under article 18 of Code, communidades may create health centre after consultation with directorate of health service and application shall be invited by directorate of civil administration in accordance with law in force. Under article 19 of Code, all fines established in Code and those mentioned in clauses of contract or auction will be recovered according t o terms contained in title V when not paid voluntarily and shall be credited to pensioner's savings bank. Under article 20 of Code, components of communidades are following persons: (1) Those who can claim jonos either per capita or per stripes and their male descendants through male line. (2) Those who possess in communidades registered shares in their own name. (3) Those who can claim part of net income of communidade, whatever nature and name of claim since it is registered in respective book of communidade on application addressed to administrator with document of transaction attached. Under article 21 of Code, right to jono of components to which item (1) of article 20 refers is personal, intransmissible and imprescriptible and it takes place only after registration, except when registration takes place after judgment of appeal. Under article 22 of Code, rights given to shareholders under item (2) of article 20 start with registration of respective shares. Article 23 of Code states that jonos to be earned in future are not transferable in any form but under article 24 of Code shares of communidade are transmissible and transferable in accordance with terms contained in Code. Article 26 of Code lists out rights of components of communidade, that is to say, members of communidade. rights include right to intercede, discuss and vote in meeting of communidade, right to be elected or appointed to any post in communidade, to make up for deficit, to urge president of administration board to convene communidade with necessary justification, to urge to president to hold extraordinary meeting of board with mention of subject to be discussed and finally to denounce deviation of fund of communidade, usurpation of its lands or other illegal acts as well as any irregular procedure or mistake of employees of communidade. Article 28 of Code refers to persons who cannot take p r t in decisions of communidade. Amongst them are minors or insolvent, debtors of communidade, those who have institutedsuits against communidade (only as regards matter pertaining to suit), those who have been deprived of right to vote by judgment against which no appeal has been filed and foreigners. Similarly under article 29 of Code, some more categories of persons are mentioned who cannot be elected or appointed to posts existing in communidade. Here also same categories asunder article 28 appear. Article 30 specifies different powers enjoyed by communidade. These have been referred to by Commissioner (Appeals). As mentioned earlier, article 32 of Code provides that for creation of expenses of prominent nature or of any other extraordinary expenses for purposes other than benefit of communidade, matter can be voted only by number of components (members) who represent at least two-third of capital invested. Article 114 of Code prescribes that in normal season of payment of jonos and dividends key keepers usually calculated amount that is necessary for such payments by drawing average of payments made in same season during last three years. Articles 118 and 119 of Code refer to appointment of administrator of communidade. Article 153 is devoted to powers of Governor General. Chapter V containing article 154 of Code refers to powers of administrative tribunal. Articles 182, 183, 184 and 185 of Code mainly deal with registration of jonoeiros. This has prescribed inscription of jonoeiros which is to be made in month of May each year. purpose of these provisions as jonoeiros and in case of death, legal heirs. Article 193 of Code is regarding admission of jonoeiros. Unless jonoeiros is admitted, he cannot claim jonos. Articles 199 to 201 of Code deal with inscription of shareholders. Article 410 of Code states that shares are transferable and form of transfer is 'portence' (belonging to) written at back of respective shares. In Table 8 of Schedule of Code, rules relating to distribution of jono as applicable to different communidades, including these two Mapusa and Nerul, present assessees are elaborated. 10. After taking us through Code of Communidade, learned representative of department stated that there are three main points for consideration: (1) Whether assessee is State and enjoys exemption under article 289? Here, at this stage Shri Inamdar, learned advocate for assessee, intervened and stated that it is not case of assessees that they can claim intervened and stated that it is not case of assessees that they can claim exemption under article 289, Thus, this aspect of matter, though submitted for our consideration by learned representative of department, is not adjudicated upon in view of concession given by representative of respondents. (2) Whether assessee can be considered to be local authority as defined under General Clauses Act? (3) If assessee cannot be assessed as local authority, whether it could be assessed as AOP? Alternatively, it was submitted that if status of AOP cannot be upheld, status of BOI could be substituted and such claim can be made for first time by department before Tribunal. 11, Taking up main contention of department that present assessee cannot be considered to be local authorities, learned departmental representative firstly relied on order of AAC for assessment year 1975-76 wherein AAC observed that in view of peculiar nature of communidade under which every member was entitled to specific share in surplus, communidade could not be considered as local authority. Referring to definition of local authority as contained in section 3(31), Shri Sathe, learned departmental representative, then argued that assessee can neither be considered to be authority and less so, local authority like municipal committees, district board, etc. According to him, there is large difference between local authority like gram panchayat or municipal committee and present assessees. He compared present assessees with limited company or village co-operative society. He stated that historically, original settlers or Caocares established themselves into various communidades in respect of villages and collectively brought under plough land they undertook to cultivate. collective management of vast areas brought under cultivation necessarily required them to provide common facilities like preparing roads, making available irrigation facilities and generally to look after common welfare of members composing different communities. This history clearly shows that their common cultivation is more in nature of agricultural co-operative societies. Just as co-operative society owns land, distributes it or allots it to various members for cultivation and earns income thereby which is distributed by way of dividend, similarly, in case of communidades, land absolutely belongs to communidades and produce that is collectively grown is distributed amongst jonoeiros. But as time has passed, most of lands have been leased out and instead of direct cultivation, communidades are earning income from lease rent which has now remained its main source of income. This peculiar development of he communidade has to be constrasted with development that took place in other parts of country which successively were under rulership of different native rulers or under British Government. Under system prevailing in other parts of country, though ideally Government owns all land, for practical purposes, every land owner owns his piece of land. municipal body or gram panchayat does not own respective lands owned by private farmers. function of municipal body or gram panchayat is to provide common services like roads, drainage, water supply, irrigation to various owners and for maintenance of this common service, representative of different owners elect body which manages it or supervises maintenance of common services. representative manage fund which is popularly known as local fund, for benefit of community. They do not have any personal interest in it whereas in present type of communidades all acts that communidades do are incidental to ownership of vast lands. learned representative of department then stated that there are ownerships created by well known companies, e.g. by Tata Iron & Steel Co. in Jamshedpur or Walchandnagar Industry in Walchand. These towns are mainly composed of employees of company. In large area owned by co-operative society, roads might be constructed or drainage system might be provided but merely because such services are given like any other municipality, it cannot be stated that co- operative societies become local authorities. entire composition of communidade and its code has to be set as machinery for maintaining its own property. There might be superficial similarities in sense that communidades might be maintaining public services or establishing health centers or for proper functioning of its rules sometimes might be imposing fines also. In this behalf learned representative of department took us through some extracts from book Goa Garcari-the Old Village Association, Vol II by Rui Gomes Pereira. He particularly referred to us following passage: "The communities although exercising municipal functions were never municipal bodies since they always cate only to private interests of their members and never to public interest, which is essential feature of municipal corporation. It is erroneously believed that communities also had judicial jurisdiction and according to popular tradition, some sacred places which are found to this day in almost all villages might have been meeting centers of elders for exercising above functions. There is no other evidence in this regard." learned representative also referred to us other Chapters in said book. He particularly referred to Chapters dealing with estate of communidade, Chapter dealing with possession of land and Chapter dealing with division of surplus amongst Gaocares and shareholder. 12. Referring to definition of local authority, learned representatives of department relying on decision of Calcutta High Court in case of Calcutta State Transport Corporation v. CIT (1977) 108 ITR 922 submitted that present assessee before us can by no stretch of imagination be considered to be authority. According to him, word 'authority' is body having legal right to command and be obeyed. This power has to be exercised over others. Viewed in that light, present assessee could not be said to have authority over outsiders to command and be obeyed. Similarly, words 'other authority' according to him should be interpreted ejusdem generis with words preceding, viz., municipal committee, district board, body of Port Commissioner. According to him, unique feature of communidades is division of profit or loss amongst jonoeiros and only jonoeiros having right to vote. There is no parallel to this feature in any of these bodies mentioned in this definition. Moreover, according to him, considering past history of communidades, it cannot be said that any Government has entrusted control or management of municipal or local fund to communidade. communidades have been managing their own funds and there was never any question of any entrusting of it by Government. In this behalf, he referred to written submissions made by assessee before Commissioner (Appeals) at p. 16 of his compilation. In these submissions assessee had stated that assessee could not be anything else than local authority, the entire land of village by itself forms fund of communidades, income from that was incoming flow in hands to be used for purpose of welfare of people and residents of village and other people who had interest in village for maintenance of church, temples for maintenance of amenities and livelihood of people who were rendering service to village communities like barbers, carpenters, poojaries, etc., which had authority of settling judicial issues as is clear even from code. Shri Sathe, learned representative of department, argued that these submissions were absolutely untenable and to call property of communidades as local fund was preposterous. According to him, if communidades were conducting various activities such as maintenance of churches and temples, it was doing so only for its own members. If, for example, in village for benefit of some 100 families temples or churches were buckled or reads were constructed, it was with view to provide services to its own members. Merely because other people in village could inadvertently enjoy benefit not as matter of right but as sort of concession could not elevate activities of communidade to level of local authority. large establishment say like railways do maintain dispensaries and health centers for benefit of its large number of employees. This arises primarily as result of its anxiety to take care of welfare of its employees. In similar manner, communidades were and are undertaking various activities for benefit of its own members. This is not very uncommon in case of large companies or co-operative societies but because of these similarities they cannot be considered to be local authority. In other words, what learned representative of department implied was that local authorities may render public services like construction of roads or construction of health centers but every entity constructing roads or health centre cannot be considered to be local authority. 13. Referring to fact that Lt. Governor of State is in charge of affairs of communidade and State Government appoint officers for different purposes under code, learned representative argued that this was only for purposes of management and to see that funds of communidade were properly managed. words 'administrative tutelage of State' in article 5 only mean guardianship of State. guardian cannot be, by reason of guardianship, owner of property of person whose guardian he is. 14. Finally, learned representative of department once more stressed fact that sharing of profit or loss arising to communidade by jonoeiros as provided under article 4 is feature which completely goes against concept of local authority. In case of Calcutta State Transport Corpn. (supra), it was claimed by State Transport Corporation that it was local authority. Calcutta High Court rejected this contention. In this case also, assessee had claimed that there were various rules framed by State Government by which State Transport Corporation was bound. Under rule 11 o f West Bengal State Road Transport Corporations Rules, 1960, State Transport Corporation fund was to be raised and which was to be notified as local fund under S. R. 439 of Treasury Rules, West Bengal, Vol. I. On strength of aforesaid statutory provision, assessee contended that not only it was authority functioning directly under control and guidance of Government but it was also entitled to control and management of local fund. 15. Calcutta High Court in deciding issue has referred to decision of Andhra Pradesh High Court in Andhra Pradesh State Road Transport Corpn. v. ITO (1963) 47 ITR 101, confirmed on appeal by Supreme Court in Andhra Pradesh State Road Transport Corpn. v. ITO (1964) 52 ITR 524. It also considered decision of Supreme Court in case of Valjibhai Muljibhai Soneji v. State of Bombay AIR 1963 SC 1890. point whether assessee was managing any local fund was not decided because High Court held that assessee before them was not authority and, therefore, it was unnecessary to examine aspect regarding local fund. Calcutta High Court held that assessee before it was, no doubt, judicial person duly incorporated and was having independent legal existence but apart from certain functions which it was permitted to carry out within framework of statute and rules, no authority had been conferred upon it. authority even in respect of its internal matters was in absolute control of State. even in respect of its internal matters was in absolute control of State. learned representative of department drawing analogy from this reasoning submitted that in present case also, assessee could not be considered to be authority. 16. Dealing with consequent point regarding status of AOP, if t h e assessee was not to be considered as local authority, learned representative of department submitted that Commissioner (Appeals) did not correctly appreciate ration of decision of Supreme Court in N. V. Shanmugham & Co.; case (supra). He pointed out that assessee before Supreme Court was assessable under section 41 of Indian Income-tax Act, 1922. It was case of partnership wherein matters had reached Court for dissolution of partnership and for taking of accounts, Court had appointed receivers. receivers had carried on business. They were undoubtedly assessable as representative assessees. question arose whether status of persons whom they represented or on whose behalf they carried on business were AOP or not. learned representative of department pointed out to observations of Supreme Court on p. 315 wherein it was observed that control and management of business was in hands of receivers who had joined in common purpose and they acted jointly on behalf of persons who were owners of business. They could not have represented individual interests of various owners of business. If they had done so, there would have been chaos. profits were earned on behalf of persons who had common interest created by order of Court and whereon that account AOP. According to learned representative of department in case before Supreme Court, erstwhile partners had pocketed profits and because of this acquiescence were held to be AOP. Supreme Court in this very case had referred to its decision in case of CIT v. Buldana District Main Cloth Importers Group (1961) 42 ITR 172. In this case also various persons did not voluntarily join group, they were put together by Dy. Commissioner and were asked to work together which they did. On parity of reasoning representative argued that in present case also historically there was every evidence to show that jonoeiros who were main components of communidades had come together for common cultivation of land with view to earn income jointly therefrom. control and management was unified and because of acquiescence of jonoeiros in accepting share year after year they could constitute AOP. learned representative, therefore, urged that status of assessee was rightly taken as that of AOP. 17. He requested that if status of AOP was not proper in this case, h e may be permitted to urge that status of BOI be adopted. For this purpose, he relied on decision of Madras High Court in case of N. P. Saraswathi Ammal v. CIT (1982) 138 ITR 19 wherein, under similar circumstances, High Court had upheld Tribunal's decision to entertain new plea of department to substitute status of BOI, in place of AOP. On authority of this decision, learned representative of department urged that status of BOI could be taken in present case. 18. various contentions raised by department were replied by Shri Robinson, advocate representative of Communidade de Nerul, and Shri S. N. Inamdar, advocate representative of Communidade de Mapusa. 19. Shri Robinson filed compilation of 38 pages. In this compilation, he had extracted firstly Goa, Daman & Diu Communidade Employees' (Conditions of Service) Act, 1981 passed by Government of Goa, Daman & diu on 23-10-1981. Notifications dated 19-3-1982 and 11-1-1982 brought out by Government under section 3 of said Act were next extracted. 20. Shri Robinson then relied extensively on judgment of Supreme Court in case of Union of India C. R. C. Jain AIR 1981 SC 951. In this decision, Supreme Court was concerned under Payment of Bonus Act, 1965 to see whether Delhi Development Authority was local authority or not. Following passages from paragraph 11 and paragraph 2 were heavily relied upon they are, therefore, extracted below: "... when it is said that one of attributes of local authority is power to raise funds by method of taxation, taxation is to be understood not in any fine and narrow sense as to include only those compulsory exactions of money imposed for public purpose and requiring no consideration to sustain it, but in broad generic sense as to also include fees levied essentially for services rendered. It is now well recognised that there is no generic difference between tax and fee; both are compulsory exactions of money by public authority ... Delhi Development Authority is constituted for sole purpose of planned development of Delhi and no other purpose and there is merger, as it were, of specific and general purposes. statutory situation is such that distinction between tax and fee has withered away. (para 11. ) authority, in order to be local authority must be of like nature and character as Municipal Committee, District Board or Body of Port Commissioner, possessing, therefore, many, if not all, of distinctive attributes and characteristics of Municipal Committee, District Board, or Body of Port Commissioners, but, possessing one essential feature, namely, that it is legally entitled to, or entrusted by Government with, control and management of municipal or local fund. authorities must have separate legal existence as corporate bodies. They must not be mere Government agencies but must be legally independent entities. Next, they must function in defined area and must ordinarily, wholly or partly, directly or indirectly, be elected by inhabitants of area. Next, they must enjoy certain degree of autonomy, with freedom to decide for themselves questions of policy affecting area administered by them. autonomy may not be complete and degree of dependence may vary considerable but, appreciable measure of autonomy there must be. Next, they must be entrusted by statute with such governmental functions and duties as are usually entrusted to municipal bodies. Broadly, they may be entrusted with performance of civic duties and functions which would otherwise be Government duties and functions. Finally, they must have power to raise funds for furtherance of their activities and fulfillment of their projects by levying taxes, rates, charges, or fees. This may be in addition to moneys provided by Government or obtained by borrowing or otherwise. What is essential is that control of management of fund must vest in authority. Case law discussed." (para 2) (p. 951) According to Shri Robinson, all tests laid down by Supreme Court regarding local authority are fulfilled in case of communidades. He pointed regarding local authority are fulfilled in case of communidades. He pointed out that assessee had undoubtedly separate identity as legal entity. Secondly, its area of operation was specified as was clear from Schedule I of Code. Thirdly, they were elected by inhabitants of area. Fourthly, they enjoyed certain degree of autonomy with liberty to decide for themselves, question of policy affecting area administered by them. Each communidade operated in each village and could, therefore, be said to have definite territorial jurisdiction. 21. In order to show that there was delegation of governmental functions, Shri Robinson made reference firstly to article 30(4) (c) where under t h e communidades had power to create health centers. According to Shri Robinson, health centre was subject-matter of governmental function which has been delegated to communidade. He then relied on article 30(4) (d) whereunder communidades had power to decide and determine introduction of sweet and saline water in Casanas. Elaborating this function, Shri Robinson pointed out that Casana is peculiar process by which prawns are cultivated. For this purpose, paddy fields on sea-shore are bounded off by introducing either river or sea water in bounded area. This was used for cultivation of prawns. According to Shri Robinson, conventionally, this was revenue function to allow change of land from agricultural to any other purposes. fact that communidade could change character of land from that of agriculture to that of fishery indicated that there was delegation of power by Government to allow change over. 22. Shri Robinson then referred to article 64 of Code which contains t h e provisions regarding powers of administrative board. administrative board was constituted by elected representatives just like in any other local authority. president of board was appointed by Lt. Governor. According to Shri Robinson, function of administrative board was similar to that of local authority. In this context, he also referred to article 39 of Code. Shri Robinson then referred to provisions relating to appointment of attorney and treasurer who could be appointed from amongst components on election. Referring to powers of board once again as laid down in article 64, Shri Robinson referred to article 64(9) underwhich communidades were given powers regarding permission of centers of agricultural laboures, formation of reserve fund for agricultural development and fisheries, formation of reserve fund and investment in foundation of institutions of social assistance and providence for benefit of its components and of agricultural population of respective village. According to Shri Robinson, it was, thus, clear that functions were not only restricted to component members of communidade but also for benefit of agricultural population of entire village where communidade was situated. 23. Shri Robinson then made reference to article 253 of Code where under private parties who owned paddy fields and took advantage of irrigation work done at cost of communidade had to pay sum fixed by managing body. This was, according to Shri Robinson, clear case of raising funds by taxation and by taxation Shri Robinson hastened to add he meant in its broader sense as held by Supreme Court in case of R. C. Jain (supra). 24. Referring to article 298 of Code, Shri Robinson pointed out that communidades had power not only to impose fines if lease rent was not paid but also to enforce confiscation of produce for purpose of recovery of lease. In this behalf, he also referred to article 590 of Code. According to Shri Robinson, he could not conceive of possibility by which any person other than local authority or Government could impose fine or order confiscation. Thus, Shri Robinson built up his arguments based on decision of Supreme Court in case of R. C. Jain (supra). By pointing out that assessee had separate existence, that it had definite jurisdiction over particular area, that it was managed by board which came into being after elective process and lastly that there was delegation of governmental functions such as construction of health centers, changing character of agricultural land, imposing taxation and ordering confiscation. To further support argument, Shri Robinson made reference to Goa, Daman & Diu Employees' (Conditions of Service) Act and pointed that very fact that Government had legislated act to control conditions of its employees was clear indicator of facts that communidade was nothing but local authority. 25. In course of his submissions, we asked Shri Robinson how distribution of profit or loss amongst jonoeiros could be explained if authority was local authority and whether he could point out any authority or decision of Court wherein in spite of division of income, concerned entity was held to be local authority. Shri Robinson very fairly admitted that there was no such decided case but according do them if all tests laid down by Supreme Court regarding local authorities are satisfied and if it was on that basis shown that assessee was local authority, additional factor such as distribution of surplus would not detract from fact that assessee was local authority. 26. Shri Inamdar, advocate, fully supported Shri Robinson. He explained that limited question before us was whether assessee was local authority as defined by section 3(31). Shri Inamdar pointed out that in considering this definition, interpretation should be strict and nothing more should be read or imported in definition. According to him, there was really no similarity between Delhi Development Authority and municipal corporation. In fact, he pointed out that in Delhi there is municipal corporation apart from Delhi Development Authority but that factor did not come in way of Supreme Court in holding that said authority was local authority. essence of communidade, according to him, was it historic development as democratic institution on same lines as Ideal Gram Raj which Mahatma Gandhi envisaged. There is difference between Gram Raj and Gram Panchayat. What is meant by Gram Raj is village governed by democratic process by people, for people and of people. communidade, according to him, satisfied all these requirements of local self-Government. According to him, if assessee was just private body Government could not have been its guardian. Shri Inamdar stated that learned representative of department has attempted to over simplify issue by saying that tutelage was mere guardianship. According to him, State in this case had really delegated it powers and functions to communidades. He also referred to article 125(3) of Code whereunder there was provision for preparation of budget and under article 125(3) for presentation to Governor-General report about fact of administration and suggestions regarding devising of means for increment and improvement of agriculture. development of agriculture, thus, was key note of communidades. Shri Inamdar stated that in ancient times, communidade was empowered even to imprison person. He, of course, hastened to admit that this was no longer in practice. But then power to impose fines and order confiscation were clear indications that assessee was local authority. According to Shri Inamdar, division of surplus amongst jonoeiros was not very unusual. In fact, according to him, if authority like Port Commissioner decided to distribute dividend, it cannot go out of definition of local authority. He submitted that distribution of dividends should be put in for cultivation of lands. Shri Inamdar pointed out that submission made before Commissioner (Appeals) that entire land of village by itself formed fund of communidades and income from that was incoming flow to be used for purpose of welfare of people was not correctly made; but then learned commissioner (Appeals), according to him, had brought out and correctly appreciated essence of assessee's arguments. 27. As regards status of AOP, Shri Inamdar submitted that very fact that there was intervention of Government at every stage would show that there could be no voluntarily coming together of members of communidade, which is very basic requirement of AOP. He stated that too much has been read by department in observations of Commissioner (Appeals) wherein he held that there was no element of profit-motive. He stated that if we examine various sources for which assessee is taxes, there was no question of any association. For example, he pointed out that AOP cannot be assessed in respect of income from house property as is clear from section 26 of Act. As regards income from other sources and capital gains, he pointed out that this is mere passive realization of income and did not require any activity and nobody had come together to earn income from other sources or capital gains. It was, therefore, fallacious to even state that there was any association by anybody to justify status of AOP. ITO not having pointed out any other status and association having taken place o n basis of AOP, Shri Inamdar vehemently opposed admission of any fresh contention for first time, before us to adopt status of BOI. Thus, according to Shri Inamdar, Commissioner (Appeals) decision was wholly justified and required to be upheld. 28. Shri Inamadar further submitted that learned departmental representative was not right in emphasising that nobody has entrusted any local fund to communidades. This, he said, would be ignoring earlier part of definition which is satisfied if concerned entity was legally entitled to any local fund. 29. Shri Inamdar wound up his argument by pointing out that departmental representative reliance on certain commentary by Rui Gomes Pereira in his book Goa Gaokari-The Old Village Association was wrong. After all it was opinion of person and it would hardly have even peruasive value. He thereafter pointed out that report of Rane Commission to which extensive reference has bee made by Commissioner (Appeals) may be considered. He also, for sake of information, brought on record Marathi book by one Shri Khalap on Community System in Goa. At this juncture, learned departmental representative desired to caution that one should not go by comments of different members of Rane Commission as they tend to be coloured by personal idology and political consideration. Thereupon Shri Inamdar clarified that he wanted to rely on report of Commission only insofar as it brought out factual information about system of communidade in Goa. 30. In his rejoinder, learned departmental representative countered arguments of both representative by general proposition that entire Code of Communidade should be viewed as whole and so viewed, all aspects which have been underlined by learned representatives of assessee can be explained away as incidents of ownership of large areas of land by communidade. Since communidade consisted of number of jonoeiros and since its management was complicated, rules had naturally to be framed for proper management of communidade. Merely because company or society had its bye-laws, it cannot mean that it is performing legislative function of Government. For example, for recovery of dues from its members communidades might have made different provisions enforcing recovery. Superficially, this may appear to be similar to Governmental function but if it is viewed as normal incident of associate body controlling its transactions with its numerous members, such power of imposing fine or ordering confiscation is easily explained. These fines were imposed not on others but on members only. Broadly, therefore, he urged that communidade should be viewed as large village co-operative society. 31. Dealing with specific submissions made by Shri Robinson, he firstly referred to decision of Supreme Court in case of R. C. Jain (supra) and submitted that this decision has to be considered to be authority for its own facts. He urged that in deciding whether particular entity is local authority or not, answer will depend on individual composition of particular legal entity as also functions. It would be difficult to match colour of one case with that of another. He proposed that decision should be considered to be authority for what he holds and not far what may logically follow from that decision. He relied, for this purpose, on decision of Supreme Court in case of State of Orrissa v. Sudhansu Sekahar Misra AIR 1968 SC 647 and observation at p. 651. He disputed that tests laid down by Supreme Court in paragraph 2 were satisfied in present case. According to him, present communidades cannot be considered to be of like nature and character as municipal committee, district board, etc.; most distinguish feature being sharing of profits or losses of communidade by jonoeiros as provided under article 4. He next submitted that communidades cannot be said to have jurisdiction like that of municipal committee. Only because communidades are situated in different areas or villages, it cannot be said that they are having any jurisdiction in that area. Whereas local authority should be directly or indirectly elected by inhabitants of area, in present case, inhabitants of village do not have any right to vote in communidade election. It is only jonoeiros who, because of membership in communidade, enjoy that right. In matters of autonomy, communidades do not enjoy freedom to decide questions of policy as such decisions have to be taken in consultation with Government. Similarly, there is no entrustement by statute of any governmental functions nor is there any power to raise funds by levying taxes, rates or fees. 32. Referring to submission of Shri Robinson that there is delegation 32. Referring to submission of Shri Robinson that there is delegation of governmental function to communidades with special reference to articles 30,39,64,253 and 298, learned representative of department submitted his disagreement. He first stated that there is nothing like specific governmental function which is peculiar only to Government, e.g., construction of roads, provisions of irrigation facilities, creation of health centers can all be incidental to normal working of any big establishment which has very large area of operation. It is not uncommon to see railways and other big establishments opening health enters, co-operative societies having cattle breeding farm, agricultural centers, industrial company laying down roads and so on. These works are undertaken by establishment for facilitating their own working and in process such activities may benefit other strangers. In present case also if communidades are viewed as agricultural co- operative society, their anxiety to build up health centers or provision of facilities for cultivation of prawns as ancillary agricultural activity, provision of irrigation facilities for benefit of members, etc., is seen in setting out rules for same. Only because similar functions are also performed by Government cannot mean that in present case, there is any delegation of Governmental functions. Referring to article 253, learned representative of department argued that recovery of any fees from those private parties who benefited from facilities provided by communidades cannot be equated to power of taxation. fees are sums recovered as result of advantage which private parties take with consent of communidades. This is purely liability arising out of contract of providing some facilities to strangers. As regards so-called power to levy fines and order confiscation under article 298, learned representative of department had ready answer. He said that even small library imposes fine if there is delay in returning book. This arises imply because of membership library carries with it consequence of delayed payment. Though such payment might be called fine in essence it is extra fee paid by member. In present case also, fines are imposed if rent is not paid within time limit. Now rent is payable to assessee under contract of lease and nay extra payment that is required to be paid will be as result of contract and such payment cannot be considered to be some extraordinary power similar to Government. confiscation is nothing but exercising lien as creditor over crop and again it cannot be equated with power of Government or local authority. 33. Referring to separate rules framed by Government of Goa, learned representative of department submitted that since Government was supervising activities of communidades, they have notified that same rules which apply to other Government servants in regard to service matters will apply to employees of communidades. That application of rules does not make them Government or semi-Government servants nor for that matter nor do they become public servants. rules under notification should be viewed as simple expedient of adopting Government rules for employees of communidades also. 34. Lastly, referring to Shri Robinson's suggestion that share of income of communidade by jonoeirs is only additional factor and that if otherwise communidades satisfy test laid down by Supreme Court for local authority, share of income will not detract from holding communidades as local authorities, learned representative of department stated that this is begging question. When enquiry is made whether communidades can be considered to be local authority, all its peculiarities have to be taken into account including that of sharing of income or loss. It would be wrong to keep aside this feature or to ignore it altogether and apply test of local authority and thereafter to brush sharing of income as only additional factor. 35. Shri Sathe, learned representative of department also rebutted various contentions raised by Shri Inamdar, advocate, on behalf of assessee. He laid particular stress on Shri Inamdar's submission regarding Government's intervention. He submitted that Government's intervention or supervision in many private bodies like co-operative societies is not unknown. He illustrated submission by making reference to Maharashtra Co- operative Societies Act. Chapter VI of said Act contains elaborate provisions as to how co-operative societies are obliged to utilise their profits for specified purposes laid down under said Act. Reference was also made to sections 79A and 79B of Maharashtra Co-operative Societies Act which reserve to Government powers giving directions to co-operative societies in public interest and registrar's power to remove member for failure to supply agricultural produce to processing society. Reference was made t o section 137 of Maharashtra Co-operative Societies Act under which recovery of loans is made of dues of Land Development Bank as if it is arrears of land revenue. He then questioned whether it would be proper to consider co-operative societies as local authorities merely because Government has entrusted or delegated many obligations on co-operative societies in regard to rural development. In fact, present day co-operative societies have become Government agencies through which Government hopes to pass on it welfare measures to rural public, but no co- operative society has ever tried to masquerade as local authority on that count as it essentially remains as private body existing for its members and dividing its income amongst them. Referring to Government tutelage, Shri Sathe submitted that Government sometimes appointed collector as Court of Wards or as guardian of minor's property, but did not affect minor's property. 36. Shri Sathe then submitted that assessee's learned advocate has relied too much on historical aspects to clarify its democratic set up. But fact remains that this democratic set up electing representatives for management of communidades is no way different from electing board of director or governing body to manage affairs of company or co- operative society. voting rights have specifically been given only to jonoeiros who are members of communidades. In case of local authorities, however, voting rights are given to entire population and concept of conferring voting rights are given to entire population and concept of conferring voting rights are given entire population and concept of conferring voting right only on members is alien to concept of lo c l authority. Gram Raj or Gram Panchayat has no relevance in considering definition of local authority. Referring to Shri Inamdar's submission that dividend paid jonoeiros can be considered to be remuneration to services rendered, Shri Sathe submitted that article 4 provide that jonoeiros and shareholders are to participate not only in profits buyt also losses of communidades. Sharing of loss completely negates submission that it is remuneration for services rendered. 37. In dealing with next submission of Shri Inamdar that organization which is entirely governed by Government cannot be considered to be AOP as there is no voluntarily coming together of members, Shri Sathe once again referred to decision of Supreme Court in case of N. V. Shanmugham (supra), wherein decision of Buldana District Main Cloth Importers Group's case (supra) was referred. This was case where Dy. Commissioner of District had appointed members constituting group to import and distribute cloth and members constituting group to import and distribute cloth and members of group did not voluntarily join group. They were put together by Commissioner and were asked to act together which they did. In view of Supreme Court's clear authority, Shri Sathe submitted that it provides complete answer to submissions of Shri Inamdar. Referring next to section 26 , Shri Sathe submitted that section only states that if shares are specific, then, only assessment of property income cannot be made in status of AOP. According to him AOP is status recognised in Act and like any other taxable entity, AOP can earn income which is passive in nature such as income from capital gains and other sources. 38. In concluding his argument, Shri Sathe once again relied on authorities which he has referred to earlier, particularly, that of Calcutta High Court in case of Calcutta State Transport Corpn. (supra). 39. At this point, we invited attention of Shri Sathe to decision of Bombay High Court in case of CIT v. Associated Cement & Steel Agencies (1984) 147 776 and asked him to explain as to how he would justify his alternate ground requiring us to substitute status of BOI in place of AOP. In reply Shri Sathe submitted that in present case, return was filed in status of AOP and that was exactly status which had been adopted by ITO. Situation would have been different if ITO had wanted to adopt status different from one returned by assessee. In present case, assessee was entitled to raise dispute regarding status as is clear from section 246(1) (c), read with Explanation (c), of Act. This section can have meaning only if appellate authority is allowed to give finding on appropriate correct status to be adopted in case. According to Shri Sathe, it would be erroneous to give finding that assessee is neither local authority nor AOP and to stop there. When question of status is put in issue by assessee by first filing appeal to Commissioner (Appeals) it would be only appropriate for Tribunal to give directions. In this behalf, he referred to us decision of this Bench in Shri Rajesh B. Rathi Tru st v. ITO [1984] 8 ITD 273 where in this bench was pleased to hold, in deciding appeal filed by assessee, to order adoption of status different from one adopted by ITO. Thus, Shri Sathe submitted that it was permissible for us to look into question of status and if we do not agree with finding of lower authorities, to give proper directions for adopting proper status. 40. We have considered and examined various facts and arguments of rival parties and we hold that assessee does not qualify to be classified s local authority. At outset, we may mention that learned Commissioner (Appeals) has proceeded entirely on historic aspects of communidade rather than considering issues in present time frame. 41. We have before us decision of Supreme Court in case of R. C. Jain (supra) wherein tests for determining whether particular authority is considered to be local authority have been laid down. We do agree what assessee has got separate legal existence of its own and that it operates in its specified area also. In this sense we also agree that it has certain jurisdiction but further tests laid down by Supreme Court are not satisfied in present case. We cannot forget fact that communidades are essentially bodies or groups of families who have settled down and who have been cultivating properties jointly and share profit and loss of their joint labour for centuries. various rules by which they govern themselves may have outward similarity with any democratic organisation such as any local self-Government. But comparison stops there. local bodies are representative bodies and they are, so to say, representatives of State Government operating in local area. They do not have any private interest in local fund which they manage. local fund had not been defined in Maharashtra Co-operative Societies local fund had not been defined in Maharashtra Co-operative Societies Act though it is possible to describe it. local fund can be constrasted with general fund. local fund would be available for certain local purposes to be utilised for specified purpose. idea of sharing local fund would be completely alien to local fund. Here we find, under article 4 of communidades, that not only profits but losses also are to be shared by jonoeiros and shareholder. How can such fund which is shared by certain specified individuals be equated with local fund? We are not prepared to accept submission of Shri Robinson that sharing of income is just additional factor. As rightly pointed out by AAC in his appellate order for assessment year 1975-76, we have not come across any local authority which has this peculiar feature. Shri Inamdar's submission that district board or port authority making provision for distribution of dividend is completely inappropriate in our view. port authority is specifically covered under definition of local authority. In that case, it perhaps may not matter but if our answer to question whether particular entity is local authority or not depends on several factors, we cannot help noticing sharing of surplus of loss as factor which completely negates concept of local authority. 42. as rightly pointed out by learned departmental representative, assessee is basically community centre giving benefit of common cultivation, etc., to its components. As it has sufficient resources government is overseeing its activities through legislation which is not materially different from legislation in rest of India regarding companies co-operative societies, etc. Government nominate directors in many companies. It also encourages village co-operatives to take up general welfare activities but this does not make them local authorities. None of articles of code on which reliance is placed helps in acceptance of local authority as defined under section 2(31) of act. civic and general utility function mentioned in code are by and large optional. treatment of employees (long after period covered by these appeals) by giving them benefits and liabilities of government servants does not take away basic character of commanded, viz., that it is institution existing primarily for cultivation of lands on collective basis but on commercial pedestal. There is nothing to show that it was required to sell its produce at nominal profit or below market or subsidised price. It is not clear how Commissioner (Appeals) came to conclusion that there is no profit- motive. distribution of income and loss among jonoeiros and shareholders is totally repugnant to concept of local authority which does not distribute its income to some selected persons to exclusion of entire community. 43. We also find considerable force in submission of learned departmental representative that assessee-communidades are not even authorities. As held by Calcutta high court in case of Calcutta State Transport Corpn. (supra), we find that no direction can be issued by these assessee on its own as all its decision making is subjected to approval by government or state. On consideration of all relevant facts and code, we have no hesitation in coming to conclusion that assessee cannot be considered to be local authority. We may mention here that supreme court judgment in R. C. Jain's case (supra) itself sounds word of caution about danger of borrowing on expression in one enactment for interpreting another. Their lordships observed: ".... It would be new terror in construction of Acts of Parliament if we were required to limit word to unnatural sense because in some Act which is not incorporated or referred to such interpretation is given to it for purposes of that Act alone ..." As explained in judgment relying on Municipal Corporation of Delhi v. Birla Cotton Spg. & Wvg. Mills [1968] 3 SCR 251, we have to take local bodies as subordinate branches of GOvernment only if in fact they are so. issue cannot be judged merely by looking to some of functions, to exclusion of others. On this point, therefore, we reverse finding of Commissioner (Appeals). 44. Next comes question of status. Though there might be some force in contention of department that in view of decision of Supreme Court in N. V. Shanmugham & Co.'s case (supra), it is possible to hold status of AOP, we find it more appropriate to consider alternate contention of Shri Sathe to adopt status of BOI. We have examined question whether we can allow department to raise contention regarding status, for first time. we find that ground raised by department is purely legal ground and does not require any fresh investigation of facts. Moreover, assessment incidence of AOP and BOI, are same. In case before Bombay High Court - Associated Cement & Steel Agencies (supra), two different status of firm and AOP were governed by different assessment incidence. This situation is not prevailing here. We hold that ratio of Madras High Court in case of N. P. Saraswathi Ammal (supra) squarely applies. In view of section 246(1) (c) and Explanation (c), we are clearly of view that correct status can be subject-matter of appeal. On examination of facts and arguments, we find that controversy is set at rest fully by Madras High Court in case of N. P. Saraswathi Ammal (supra). This case not only deals with power of Tribunal to adopt proper status but also about nature of BOI. essential element of BOI is that there should be plurality of individuals and they must have nexus to source of income. test laid down by Gujarat High Court in case of CIT v. Harivadan Tribhovandas [1977] 106 ITR 494 in defining BOI can also be said to be satisfied. Gujarat High Court held that BOI means conglomeration of individuals who carry on some activity with object of earning income. In case of Deccan Wine & General Stores v. CIT [1977] 106 ITR 111, Andhra Pradesh High Court held that expression BOI should receive wide interpretation, but not wide enough to include combination of individuals who merely receive income jointly without anything further as in case of co-heirs inherited shares of securities but certainly wide enough to include combination of individuals who have unity of interest but who are not actuated by common design and one or more of whose members produce or help to produce income for benefit of all. We are, therefore, of opinion that more appropriate status in present case would be that of BOI instead of status of AOP as adopted by ITO, we direct accordingly. 45. Since Commissioner (Appeals) held that proper status of assessee was that of local authority and on that account income of assessee was exempt under section 10(20) , he did not think it necessary to adjudicate on other grounds such as taxability of capital gains, levy of interest under sections 139(8) and 217 , etc. It was advisable, as pointed out by Hon'ble Gujarat High Court in CIT v. Kartikey v. Sarabhai [1981] 131 ITR 43, to adjudicate on all interlocutory matters so as to avoid multiplicity of proceedings and consequent delays. We cannot, however, cut short one stage of appeal by deciding these issues ourselves. We are, therefore, constrained to remit matter back to Commissioner (Appeals) for deciding grounds which he had left out of consideration. 46. In result, three appeals filed by department in base of Communidade de Mapusa are allowed for statistical purposes. I. T. Appeal No. 734 (Pune) of 1981 and C. O. No. 76 (Pune) of 1982: 47. This takes us to facts of appeal in IT Appeals No. 734 (Pune) of 1981 in case of Communidade de Nerul. Shri Sathe brought to our notice that original assessment in this case was made on 6-1-1975. In this order, ITO had assessed income from interest and capital gains on acquisition of land. Income from interest from banks was Rs. 11,188 whereas capital gain computed by ITO was Rs. 4,54,745 subject to deduction under section 80T of Act. ITO had held that capital gains was assessable as land was not cultivated. total income assessed was Rs. 2,58,550. matter was thereafter taken in appeal before AAC. AAC passed his order on 25-3-1975. AAC observed that ITO was wrong in assessing income from capital gain on acquisition of land by Government without going into issue in depth. He felt that several points were required to be gone into before conclusion could be drawn whether land was agricultural or not. After set aside by AAC, present assessment was framed. According to Shri Sathe, neither in original assessment nor in AAC's order there is any mention made about any dispute regarding status of assessee. assessee had filed return on 9-1-1974 in status of AOP and no exemption was claimed on ground of status though capital gain was claimed to be exempt being gain arising from transfer, of agricultural land. According to Shri Sathe, when in original proceedings question of status was not subject-matter of dispute, same cannot arise in making fresh assessment. It is fresh assessment on directions of AAC which is subject-matter of appeal before us. In this assessment also, question of status was never raised. assessment was subjected to proceedings under section 144B of Act and in these proceedings also, status was never challenged. statement of facts and grounds of appeal before Commissioner (Appeals) would show that assessee was never disputing status. Shri Sathe contended that it was not open to Commissioner (Appeals) to adjudicate on status of assessee. Commissioner (Appeals) has abruptly referred to question of status and then referring to his predecessor's order in case of Communidade de Mapusa held that proper status of assessee could not be that of local authority or AOP. Shri Sathe, therefore, raised before us three additional grounds. first and second grounds relate to competency of Commissioner (Appeals) to entertain grounds of appeal claiming exemption of entire income as local authority. third additional ground is alternative ground in which it has been pleaded that even assuming it was open for Commissioner (Appeals) to admit such ground for first time, he should have followed procedure laid down under section 250(5) of Act read with rule 46A of Income-tax Rules, 1962 by giving proper opportunity to ITO. In short, plea is that matter should go back to Commissioner (Appeals) for fresh consideration of issue. Shri Robinson, learned representative of assessee vehemently opposed admission of these additional ground of appeal. 48. On inquiries with Shri Sathe, we found that in grounds before AAC in appeal against original assessment, assessee did challenge status. On this, Shri Sathe's reply was that AAC had impliedly held against assessee when he set aside appeal and proper remedy for assessee was to come in appeal before Tribunal. In view of this, he pleaded that in any case, in set aside assessment, issue of status could not be reopened. 49. We have considered rival submissions. We do not think it necessary to pronounce on technical aspects raised by department in this behalf as we consider it purely academic exercise. We have, on this behalf as we consider it purely academic exercise. We have, on consideration of relevant issues, already decided matter of status in case of Communidade de Mapusa. In fact, when we took up appeal, we allowed Shri Robinson to argue matter on merits also. Sending matter back to Commissioner (Appeals) would be exercise in futility only adding unnecessarily to cost of both parties. In view of circumstances mentioned above, we find that additional grounds raised by department are too technical to be accepted. We, therefore, reject additional grounds raising preliminary objection to jurisdiction of Commissioner (Appeals). As far as merits of question are concerned, we have already held that communidades in general, on consideration of Code cannot be considered to be local authority. assessee, therefore, fails in its contention that exemption under section 10(20) is available to it. We also direct that proper status of assessee would be that of BOI and we reverse order of Commissioner (Appeals) accordingly. 50. In cross-objections filed, assessee has pleaded that learned Commissioner (Appeals) erred in not considering all grounds especially regarding exemption of capital gains on ground that it arose on transfer of agricultural land. We find that ground raised in cross-objection is proper and acceptable. We, therefore, allow cross objection and remit matter back to Commissioner (Appeals) so that he can decided matters raised by assessee before him which were not earlier considered. 51. In result, both appeal by department and cross-objection by assessee are allowed. *** SIXTH INCOME TAX OFFICER v. COMMUNIDADE DE MAPUSA
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