TMI Blog1985 (9) TMI 63X X X X Extracts X X X X X X X X Extracts X X X X ..... is Beldih Club. In the three assessment years 1964-65, 1965-66 and 1966-67, the Income-tax Officer held that the assessee-club is not governed by the principle of mutuality and, therefore, the income arising to it will not be exempt from taxation. He, therefore, taxed various incomes of the assessee. He also held that the entrance fees of Rs. 15,000, Rs. 23,900 and Rs. 17,800 are revenue receipts in the hands of the assessee. The Appellate Assistant Commissioner passed a consolidated order for the assessment years 1964-65 to 1966-67. The Appellate Assistant Commissioner also agreed with the Income-tax Officer that the income of the club was not covered by the principle of mutuality. As regards the e Instance fee, he held that the entrance fees were not liable to tax and so he excluded the amount of entrance fees from the assessment for the three assessment years. The Tribunal disposed of the appeals filed by the Department by consolidated order for all the three assessment years in question. The Tribunal held that the entrance fees received were all of capital nature and it was also shown as capital receipt in the accounts of the assessee. The Tribunal held that these receipts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mr. J . R. D. Tata, accompanied by Mr. J. J. Bhaba. We are grateful to the President who is taking a keen interest in the club activities. He has promised all help for the much needed major repairs and renovations for which he was kind enough to sanction a handsome donation of Rs. 50,000 from the Tata Iron and Steel Co. Ltd." The Appellate Assistant Commissioner took the view that such donation cannot become income of the club as it is purely an ex gratia and ad hoc payment, entirely dependent on the sweet will of the donor and cannot be treated as income. The Appellate Assistant Commissioner also held that it was a capital receipt and also a casual receipt. The Tribunal also agreed with the view of the Appellate Assistant Commissioner. Now let us consider whether the findings of the Appellate Assistant Commissioner and the Tribunal are correct and can be upheld. It cannot be doubted that the assessee has business income and the income of the assessee is not exempt on the ground of mutuality. In such circumstances, if the amount of Rs. 50,000 is held to be a revenue receipt, then the amount will be taxable in the hands of the assessee-club. Mr. B. P Rajgarhia relied on the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been held in this decision that the words " non-recurring nature " in section 4(3)(vii) mean not that the payments have as a matter of fact not recurred but that they are not bound to recur. This is a decision of the Allahabad High Court and the facts of the case were entirely different from the present case before us and so this decision will not be applicable to the case of the assessee. Mr. B. P. Rajgarhia has relied on the case of P. Krishna Menon v. CIT [1959] 35 ITR 48. This is a decision by their Lordships of the Supreme Court of India. In this case, after his retirement from Government service, the appellant was spending his time in studying and teaching Vedanta philosophy. L, who was one of his disciples, used to come from England at regular intervals to Trivandrum where the appellant resided, and stay there for a few months at a time and attend his discourses, and so received instructions in Vedanta and had the benefit of his teachings. L transferred the entire balance standing to his credit in his own account at Bombay, amounting to more than 2 lakhs, to the account of the appellant opened in the latter's name in the same bank at Bombay. Thereafter, from time to time, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eseen and anticipated cannot be regarded as casual even if it is not likely to recur again. In this decision, it was also held that the interest granted under the decree of a court and calculated upon the footing that it accrued de die in diem has the essential quality of recurrence which is sufficient to bring it within the scope of the 1922 Act and so it was held that the amount of interest received by the assessee was in the nature of a revenue receipt and that the receipt was not of a casual and non-recurring nature and was, therefore, not exempt from tax under section 4(3)(vii) of the Act. Of course, this is a decision of the Supreme Court but the facts of this case are entirely different from the facts of the present case before us and it will not be applicable to the case of the assessee-club. Mr. B. P. Rajgarhia has also relied on the case of CIT v. Dr . K. George Thomas [1974] 97 ITR 111, which is a decision of the Kerala High Court. In this case, the assessee was in the United States from 1953 to 1957, during which time he took his Ph.D. Degree. He returned to India by the end of 1957 and started a newspaper Kerala Dhwani in August, 1959. According to the assessee, duri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see had stated that he was incurring a huge loss from the newspaper and press and he represented to the Indian Gospel Mission in the United States that be could not carry on the newspaper and suggested that they take over the newspaper and they agreed and sent him further money. It was in those circumstances that it was held that the connection between the activity of the assessee and the donations was thus intimate and the payments were made because of the activity in which the assessee was engaged. This decision is based on the decision of their Lordships of the Supreme Court reported in P. Krishna Menon v. CIT [1959] 35 ITR 48. Mr. K. D. Chatterjee, on behalf of the assessee, relied on various decisions to support the view that the donation of Rs. 50,000 was a capital receipt and it was given to the assessee for the specific purpose of major repairs and renovation to the building which would be a capital expenditure and so, if the expenditure was of a capital nature, the receipts should also be treated as a capital receipt. Mr. K. D. Chatterjee relied for this purpose on the case of Monghyr Electric Supply Co. Ltd. v. CIT [1954] 26 ITR 15 (Pat). It appears that in this case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... joint venture and the total receipts being capital receipts, the fact that in the installation of the capital only a certain amount was immediately expended, the balance remaining in hand cannot be regarded as profit in the nature of trading receipt. Their Lordships of the Supreme Court also held that the High Court was in error in holding that the excess of the receipts over the amount expended for installation of service lines of the assessee was trading receipt. Mr. K. D. Chatterjee has also relied on the case of CIT v. Poona Electric Supply Co. Ltd. [1946] 14 ITR 622 (Bom). In this case, it was held that the company would not have constructed new lines and given the supply of electricity to the Government unless they received Government contribution towards capital expenditure to be incurred by the company in laying these new lines and that this contribution is not in the nature of recurring income or receipt, and that it is not as if the company is charging the Government anything more for supplying electricity to them, but what the company tells Government is We are not in a position and we do not propose to incur capital expenditure to supply electricity to you unless you ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ighter look to the magazine by improving its format and layout and also help the contributors and that the organisation should create bulk subscriptions for the magazine. The organisation contributed a sum of Rs. 28,342 to the assessee but expressed its inability to follow up the suggestion of the assessee of either creating bulk subscriptions or increasing the amount of donation but hoped that the contribution would help in increasing the circulation and would put the magazine on a more economical footing. In those circumstances, it was held that even voluntary payments made continuously over a long period of time without consideration and without any source of income depending entirely on the whim of the donor are not income and that the receipt was a casual receipt and depended on the sweet will of the donor and, if not paid, could not be forced against the donor and that the payment was non-recurring in nature because the payee had no right of expectation. It was also held in this decision that though the foreign organisation had been formed for the promotion of literary and educational facilities and though the assessee also requested the organisation for financial assistance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . CIT [1971] 79 ITR 83 (Raj), on the merger of the Dholpur State, the question arose whether the " Dholpur House " should be treated as private property of the ruler or the property of the State of Rajasthan. By letter dated October 30, 1951, the Government of India informed the Maharaja of Dholpur that the said house would be considered to be the property of the Rajasthan State, but 1/3rd of the rental value would be paid to His Highness as a purely ex gratia arrangement, and in the event of the sale of the house, His Highness would be entitled to 1/3rd of the sale price minus the share of the Government of India in the form of 75 per cent. of the incremental value. The fact that the payment to the Raja was only an ex gratia payment was emphasised by the Government in subsequent correspondence also. One-third of the rent was continued to be paid to His Highness Maharaja Udai Bhan Singhji till his death and, thereafter, to Her Highness Malvinder Kaur, and then to His Highness Maharaja Hemant Singhji, who was recognised as the Ruler of the Dholpur State. The payments ceased when the said property was sold. The Income-tax Officer taxed the income from the property and, in those circu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is treated as capital, the amounts received will also have to be treated as capital receipts. The Tribunal has pointed out that the amount of Rs. 50,000 was paid by Mr. J. R. D. Tata who was the President of the club at that time and that that amount was paid ex gratia from the fund of the TISCO for the benefit of the club as the club was catering to the employees of the TISCO and such amounts were not paid regularly and that it was only in special circumstances that this amount was paid for carrying on some major repairs and renovations in the club. It also cannot be doubted that the major repairs of the club may be termed as capital expenditure and the amount received has to be treated as capital receipt. From the case in Hoshiarpur Electric Supply Co. v. CIT [1961] 41 ITR 608 (SC), it is evident that if the expenditure is treated as capital expenditure, then the receipt for that expenditure will be treated as a capital receipt. The Supreme Court in this decision has also clearly laid down that the receipts though related to the business of the assessee were not incidental to nor in the course of the carrying on of the assessee's business and they were receipts for bringing into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h effect from April 1, 1972, that casual and non-recurring receipts were also made taxable when exceeding Rs. 1,000. However, in the assessment year 1966-67, the entire amount has to be treated as casual and non-recurring because it was only once in that year that Mr. J.R.D. Tata had made the gift of Rs. 50,000 to the assessee-club. There is no evidence to show that donations were made regularly by the TISCO to the assessee-club and so it has to be held that the donation was made only once for major repairs and renovations in the club and so it has to be treated as a casual receipt of non-recurring nature and so it is not to be treated as income for the purpose of taxation. Before I conclude, I may point out that Mr. B. P. Rajgarhia relied on the judgment of this court dated April 1, 1985, in Taxation Cases Nos. 123 to 126 of 1975 (since reported in Jamshedpur Co-operative Stores Ltd. v. CIT [1986] 157 ITR 127 (Pat)]. In that case, question No. 2 related to the subsidy and on the facts, it was found that from the very inception of the assessee, TISCO and its other subsidy companies had been regularly contributing to the society for the benefit of their employees who are the main ..... X X X X Extracts X X X X X X X X Extracts X X X X
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