TMI Blog2012 (11) TMI 235X X X X Extracts X X X X X X X X Extracts X X X X ..... business of the assessee. The income therefore, was entirely from the assessee's business unrelated to any charitable purposes whatsoever. An assessee that engages itself only or predominantly in activities relating to its ancillary or incidental objects which do not relate to any charitable purpose and does not carry on any activity relating to its main object which pertains to a charitable purpose is not entitled to an exemption under Section 11. The assessee's claim for exemption fails the first test viz. in establishing that its income was derived from the property held under trust wholly for the alleged charitable purposes. The assessee's claim for exemption under section 11 also fails the second test under section 11(1)(a). It has not been able to establish that such income was applied to such purposes viz. charitable or religious purposes. The assessee's claim is also not maintainable as it has not been established that the work in connection with the assessee's business is mainly carried on by the beneficiaries of the institution - against assessee. Whether only 1/60th of the advance can be assessed as its income for the year as the tribunal had rightly held it as tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... drew up a statement of case and referred the following eight questions and an additional question for the year 1990 91 for the opinion of this Court :- "(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in its conclusion that the assessee was not entitled to exemption under section 11 of the Income Tax Act, 1961 ? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in its conclusion concerning clauses 2, 4, 5, 6, 7, 20 and 24 of the Memorandum of Association of the assessee are not objects of general public utility and thereby do not fall within the meaning of section 11 of the Income-Tax Act, 1961 ? (3) Whether, on the facts and in the circumstances of the case, the Tribunal was right in its conclusion that the construction activity of World Trade Center, Centre 1 and IDBI Centre were activities of business ? (4) Whether, on the facts and in the circumstances of the case, the Tribunal was right in its conclusion that the establishing of the World Trade Center cannot be object of public utility so as to be covered by the provisions of section 11 of the Income-Tax Act, 1961 ? (5) Whether, on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred to this court require a reference to the facts in some detail. 5. The All India Manufacturers Organisation and Industrial Foundation conceived the idea of establishing a World Trade Center in Mumbai. They convened a meeting of prominent industrialists in Mumbai on 14th April, 1969 under the presidentship of the then Finance Minister of the Government of Maharashtra. This led to the formation of the assessee as a company under section 25 of the Companies Act, 1956. The Department of Company affairs granted the assessee a license under section 25 of the Companies Act on 12th June, 1970 and the certificate of incorporation was issued on 26th June, 1970. 6(A). The objects of the assessee are set out in Part III of its Memorandum of Association. (i) The main object of the assessee as set out in clause A of Part III is as under :- " III. A. THE MAIN OBJECTS OF THE CENTRE TO BE PURSUED BY THE CENTRE ON ITS INCORPORATION ARE : 1. To organise, sponsor, promote, establish, conduct or undertake scientific research in any way or by any means whatsoever and in any area or field. "Scientific research" in the above clause shall mean any activities for the extension of know ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e sub-committees for any specific purpose with such powers as it may delegate. 7. The Department of Revenue on 6th April 1970 notified the assessee as a Council of Scientific and Industrial Research for the purposes of section 35 (1) (ii) of the Act. The assessee had therefore been recognised as a scientific research institution by the CBDT from its inception. This recognition was however discontinued with effect from 31st March, 1981 in circumstances we will mention later. 8(A). By a resolution dated the 16th October, 1970 the Government of Maharashtra accorded sanction to lease an area of about 6 hectare and 96.49 ares of land to the assessee subject to the terms and conditions mentioned in an accompanying memorandum of terms and conditions. It is not necessary to set out the terms and conditions of this resolution as it was superseded by a resolution dated 18th November, 1974. (B) However pursuant to this resolution the assessee was put in possession of the said land on 2nd May, 1972. 9. The Government of Maharashtra by a resolution dated 18th November, 1974 superseded the earlier resolution dated 16th October, 1970. By this resolution sanction was accorded to the grant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te in favour of the assessee under section 12A. 13. The assessee filed its return of income for the year 1989-90 showing a business loss of Rs. 9 14.42 lakhs. 14. The Assessing Officer held that the transaction between the assessee and the lessees was/constituted a sale of the premises and not a lease. He treated the difference between the "advance rent" received and the total cost of construction as income from the sale of the buildings under the head "profits and gains from business"; treated the sinking fund as taxable income and also treated the interest income from investments as the assessee's income. He accordingly assessed the income under section 143 (3) at Rs. 10,71,18,176/-. In the appeal before the Commissioner of Income Tax (Appeals) the assessee claimed exemption under section 11 on the ground that its activities constituted general public utility within the meaning of section 2 (15). The assessee challenged the finding that the transaction between itself and the lessees was a sale and not a lease. The CIT (Appeals) held the "advance rent" received by the assessee to be a premium and held it liable to tax as business income. Alternatively he held the "advance re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an application for registration in the prescribed form and in the prescribed manner to the prescribed authority within the specified time and the second condition provides for the keeping of the accounts in a particular manner and further that such accounts were required to be audited. The court held that the section did not show that in order to get registration under Section 12A, there is necessity of first establishing as to how the assessee would be able to claim exemption under Section 11 or Section 12. That there is nothing in the section to suggest that an institution of a religious nature is precluded from getting registration under Section 12A. That, the question of exemptions under Section 11 and Section 12 would come only when the exemptions are claimed at the time when the assessee is assessed to tax. That at the stage of registration to consider whether the said assessee would be entitled to the benefits under Section 11 and Section 12 would be prejudging the issue before the grant of certificate. That, at the stage of grant of certificate under Section 12A the only enquiry which could be made would be whether the society has actually made an application in time and wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... must obtain registration under Section 12A. That, the authority to decide grant of certificate is vested in the Commissioner. That, it is the Commissioner who has to examine whether the application is made in accordance with Section 12A. That, it is for the Commissioner to see whether the objects of the trust are charitable or not. That, at that stage, the Commissioner is not required to examine the application of income. Hence, in the present matter, the Tribunal was certainly entitled to ascertain whether there was a proper application of income for charitable purposes during the assessment years 1989-90 and 1990-91. 7. To sum up, we are of the view that the Tribunal should have considered the miscellaneous application filed by the assessee in the context of the contention raised by the assessee that there is no legal concept propounded by the Tribunal, viz., sale of leasehold rights of the use of space. We are also of the view that, in the present case, the Commissioner did grant registration under Section 12A of the Act. However, such registration will not prevent the Tribunal from ascertaining whether there was proper application of income during the assessment years 1989-9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e head profits and gains of business or profession and claimed deduction by way of depreciation of the building. It was noted that what was offered for tax was the gross rent of Rs. 38,33,206/- under the head business, the amount having been arrived at as a l/60th portion of the primary basic rent plus secondary rent etc. and after accounting for the various expenses as per the profit and loss account. A net profit before depreciation was shown at Rs. 3,40,592/- on which depreciation of Rs. 11,14,37,637/- had been claimed. The AO disallowed the depreciation for the reason that the entire cost of building had been adjusted against the receipt of basic primary rent. 19. It is necessary first to analyze section 11(1)(a) under which the assessee claimed an exemption. Sections 2(15), 11(1)(a), 12, 12A, 13(1)(i)(ii) and 13(3) read as under :- "2(15) "charitable purpose" includes relief of the poor, eduction, medical relief, and the advancement of any other object of general public utility Section 11(1)(a): Income from property held for charitable or religious purposes - (1) Subject to the provisions of Sections 60 to 63, the following income shall not be included ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , whichever is later : Provided that the Chief Commissioner or Commissioner may, in his discretion, admit an application for the registration of any trust or institution after the expiry of the period aforesaid ; (b) where the total income of the trust or institution as computed under this Act without giving effect to the provisions of section 11 and section 12 exceeds twenty-five thousand rupee in any previous year, the accounts of the trust institution for that year have been audited by an accountant as defined in the explanation below sub-section (20) of section 288 and the person in receipt of the income furnishes along with the return of income for the relevant assessment year the report of such audit in the prescribed form duly signed and verified by such accountant and setting for such particulars as may be prescribed. Section 13(1)(c)(ii): Section 11 not to apply in certain cases - (1) Nothing contained in section 11 or section 12 shall operate so as to exclude from the total income of the previous year of the person in receipt thereof - (c) in the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iance with Section 12A bars an assessee from being granted the benefit of Sections 11 and 12. The compliance with the provisions of section 12A only indicates that the assessee is a trust or institution entitled to claim the benefit of sections 11 and 12. That however, is not the end of the matter. It would be entitled to be granted the benefit only if it complies with the other requirements of these sections. An assessee that has complied with the provisions of section 12A must also establish that the conditions of Sections 11 and 12 are satisfied before it is entitled to the exemption under sections 11 and 12. 22. A view to the contrary would lead to the most unusual consequences. A view to the contrary would mean the assessee can by merely complying with the provisions of section 12A claim an exemption under sections 11 and 12 even though the ingredients thereof are not satisfied. The fallacy of such a contention is obvious from the fact that an assessee may well acquire the properties even after it complies with section 12A. Such properties may not be held under trust wholly for charitable purposes. A view to the contrary would entitle the assessee to the benefit of sections ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rch in any way or by any means whatsoever and in any area or field" as stated in the main objects set out earlier. We find this claim to be unfounded as we will now demonstrate. 28. As we mentioned earlier on 6.4.1970, the Department of Revenue notified the assessee as a Council of Scientific and Industrial Research for the purposes of section 35(1)(ii) of the Act. Section 35(1)(ii) reads as under :- "35. Exemption on scientific research (1) In respect of expenditure on scientific research, the following deductions shall be allowed :- .. (ii) an amount equal to one and three fourth times of any sum paid to a research association which has as its object the undertaking of scientific research or to a university, college or other institution to be used for scientific research; Provided that such association, university or college or other institution for the purposes of this clause - (A) is for the time being approved, in accordance with the guidelines, in the manner and subject to such conditions as may be prescribed; and (B) such association, university, college or other institution is specified as such, by notification in the Official Gazette, by the Central ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... negative. 31. For instance, the Department sought and received from the assessee particulars of the expenditure incurred by the assessee towards scientific research. The information was tabulated in the assessment order of the CIT(A), which reads as under :- TABLE Assessment Year (Row 1) Expenditure on Research Development (Row 2) Income (Row 3) Row (2) as % of Row (3) (Row 4) 71-72 Nil 962 Nil 72-73 Nil 1,925 Nil 73-74 Nil 6,520 Nil 74-75 Nil 6,922 Nil 75-76 Nil 96,676 Nil 76-77 Nil 32,651 Nil 77-78 Nil 43,288 Nil 78-79 27,111 28,92,672 0.93 79-80 28,730 8,63,991 3.32 80-81 1,47,975 64,37,766 2.30 81-82 1,11,405 72,55,650 1.53 82-83 1,36,291 72,56,995 1.88 83-84 1,02,736 83,43,320 1.23 84-85 1,60,768 1,02,29,302 1.57 85-86 2,31,256 1,02,02,949 2.27 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ject viz. to organize, sponsor, promote, establish, conduct or undertake the scientific research in any way or by any means whatsoever and in any area or field. Mr. Andhyarujina fairly stated that the lease transactions were the only business of the assessee. The income therefore, was entirely from the assessee's business unrelated to any charitable purposes whatsoever. 34. An assessee that engages itself only or predominantly in activities relating to its ancillary or incidental objects which do not relate to any charitable purpose and does not carry on any activity relating to its main object which pertains to a charitable purpose is not entitled to an exemption under Section 11. A view to the contrary would lead to the most startling results. An assessee could, by the simple devise of framing its main object to indicate a charitable purpose within the meaning of section 2(15), avail the benefit of sections 11 and 12 without engaging itself in any business relating to such charitable purpose by contending that the ancillary or incidental objects permit such activities although they, by themselves, are wholly unrelated to the charitable purpose. For instance, an assessee could f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch income was in fact applied to the charitable purposes. 38. The above facts and in particular the details mentioned in the table, set out above, establish that the assessee's income was not applied to the charitable purposes. In the first eight years, the expenditure towards research and development was nil. We will presume that, that was on account of the income being minimal ranging from Rs. 962/- to Rs. 43,288/-. However, thereafter and till 1992-1993, the income increased enormously ranging from over Rs. 8,63,991/- to over crores of rupees in various years, the maximum being Rs. 9,43,83,443/-. The expenditure on the alleged research and development activities during these years ranged from as little as 0.34% to only 3.32%. In fact, during the period of twenty one years from 1971-1972 to 1992-1993, the average expenditure on research and development was only a little over 1% of the assessee's income. The AO was, therefore, justified in coming to the conclusion that the alleged activities were merely a facade in view of the proposed action of the Department of Science and Technology. 39. Faced with this, Mr. Andhyarujina submitted that an assessee is entitled to the benefit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Naikar [2009] 315 ITR 237 (Mad.), CIT v. Ganga Charity Trust [1986] 162 ITR 612 (Guj.), CIT Exemption v. Span Foundation and CIT v. Market Committee, Pipli [2011] 330 ITR 16 (P H). 40. In the facts of this case, even assuming that the expenses were incurred towards the incidental or ancillary objects, as alleged by the assessee, it would not be entitled to an exemption under section 11. We are unable to accept Mr. Andhyarujina's submission that once it is found that the expenses were incurred towards the objects of the assessee, albeit only towards the incidental or ancillary objects, the provisions of section 11 would ipso facto apply. The submission stated in such broad and absolute terms is ill founded and would lead to the most startling results. 41. The income of an assessee derived from a property held under trust wholly for charitable or religious purposes would qualify for exemption under Section 11 even if it is applied to the incidental and ancillary objects provided there is a nexus between such incidental and ancillary objects and the charitable purposes. Further such incidental or ancillary purposes must be precisely that - incidental or ancillary purposes. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... institution wholly for the charitable purposes. Indeed if we are right in the conclusion that the business carried on by the assessee was not for charitable purposes, there could be no question of there being any beneficiaries. 47. Apart from that, the expression "work in connection with the business" relates not to any business but only to the business carried on by the institution wholly for charitable purposes and work incidental thereto or in connection therewith. This is clear as the words used are "the work in connection with the business" and not "work in connection with the business of the assessee". If we are right in our conclusion that the business carried on by the assessee was not wholly for the charitable purposes, there would be no question of the assessee's work being in connection with the business i.e. the business wholly for the charitable purposes. 48. The assessee's claim is also not maintainable as it has not been established that the work in connection with the assessee's business is mainly carried on by the beneficiaries of the institution. Even assuming that the assessee carried on any activity for "charitable purposes" it has not established that busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly 1/60th of the advance can be assessed as its income for the year as the tribunal had rightly held it as transaction of lease and not of sale ? 56. As stated earlier, one of the questions on which the Division Bench had remanded the matter to the Tribunal pertains to the nature of the transactions. The Tribunal on a reconsideration held the agreements between the assessee and the occupiers to be transactions of lease. The Tribunal held that there are no special modes of assessment prescribed based on whether the transaction is a sale or lease; that Chapter-IV of the Act which relates to the computation of total income does not draw any distinction as such between a sale and a lease and the classification therein is under the heads of income ; that in law, there is no fixed head of income under which the price received on sale of the property should be brought in computation of the total income and that there is no fixed head of income for computation or consideration received on a lease of the property either. The Tribunal held that in this view of the matter, the question is not as to whether the transaction is of sale or a lease, but as to under what heads of income, the inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /- per sq. ft. in consideration of the assessee's permission to it to transfer the leasehold rights to Great Eastern Shipping Company. Thus within less than a month, Khatau Mills made a profit of more than Rs. 2.00 crores. The CIT (A) noted that there are several such instances which established that the primary basic rent received by the assessee was not "advance rent" but premium or salami. Therefore, in respect of the assessment year 1990-1991, the CIT (A) came to the conclusion that the transactions were a lease but that the primary basic rent received by the assessee in advance was premium and not "advance rent". He however, did not decide the question as to whether the premium should be brought to tax as capital receipt or revenue receipt. In respect of the assessment year 1989-1990, the CIT (A) came to the conclusion that the premium received by the assessee was in the nature of a business receipt. It is found that even during this assessment year, about 60% of the original members/lessees earned enormous amounts by transferring the leasehold rights on payment of a comparatively negligible premium to the assessee. Even if in respect of the assessment year 1989-1990, the CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... leased two Tea Estates along with machinery and the buildings owned and held by it to a firm named M/s. Hiralal Ramdas for ten years from 1.1.1950. A sum of Rs. 2,25,000/- was paid as a premium and an annual rent of Rs. 54,000/- was to be paid by the lessee to the lessor. Out of the premium of Rs. 2,25,000/-, Rs. 45,000/-was paid in one lump sum at the time of execution of the lease deed and the balance of Rs. 1,80,000/- was payable in sixteen half yearly installments of Rs. 11,250/- each. The annual rent of Rs. 54,000/- was payable in installments of Rs. 1000/- per month and Rs. 42,000/- was paid on or before 31st December of each year. For the assessment year 1952-1953, the ITO made the assessment treating the installments of Rs. 11,250/- towards the premium as a revenue receipt. The Appellate Assistant Commissioner confirmed the order. The Tribunal held that the premium was really a rent payable under the lease deed and it was therefore, chargeable to income tax. The Tribunal referred the following question to the High Court :- "Whether on the facts and in the circumstances of the case and upon the construction of the terms of the lease, dated 31st March, 1950, the sum of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on for the purpose of creating a new tenancy." Applying that test this Court held in that case that under the said licences there was a grant of a right to a portion of the capital of the licensor in the shape of a general right to the capital asset. 4. In view of these three decisions it is not necessary to multiply citations. 5. Under Section 105 of the Transfer of Property Act, a lease of immovable property is a transfer of a right to enjoy the property made for a price paid time, express or implied or in perpetuity, in consideration of a price paid or promised, or of money, a share of crops, service or any other thing of value, to be rendered periodically or on specified occasions to the transfer by the transferee, who accepts the transfer on such terms. The transferor is called the lessor, the transferee is called the lessee, the price is called the premium, and the money, share, service or other thing to be so rendered is called the rent. The section, therefore, brings out the distinction between a price paid for a transfer of a right to enjoy the property and the rent to be paid periodically to the lessor. When the interest of the lessor is parted with for a price, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the ________ floor in the Centre I building proposed to be constructed by the Centre on the said land which the Centre has agreed to grant on the terms and conditions hereinafter contained. NOW IT IS HEREBY AGREED BY AND BETWEEN THE PARTIES HERETO AS FOLLOWS : (1) The Centre hereby agrees to grant and the Lessees hereby agree to accept Lease of the office premises admeasuring ________ sq. ft. built-up equivalent to ________ sq. metres built up or thereabouts, on the ________ floor of the Centre I (hereinafter referred to as "the said premises") and ________ uncovered parking space/spaces in the open spaces of the Centre I for a term of 60 (sixty) years commencing from the date on which the said premises are ready for occupation. Whereas an entire floor is leased to one lessee built-up area will mean full area of the floor including walls ( inside and outside), columns, lift lobby, air handling unit room, toilets, pantries, staircases, shifts and service shafts. Where a part of the floor is leased to the lessee, the built-up area will include proportionate area of the floor, including walls (inside and outside), columns, lift lobby, air handling unit room, common passage, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing fund shall mean such sum to be determined by the Centre as being payable by each intending lessee to the Centre from month to month to the intent that such sums paid by all the intending lessees in the building shall accumulate with the Centre and shall, together with interest earned at 4% p.a. on appropriate investments of such accumulations, aggregate to the original cost disbursed by the Centre to acquire and/or install the building air-conditioning plant, lift and any other plant or machinery over the period determined by the Centre to be the life of such building, air-conditioning plant, lift or any other plant or machinery. Every determination made by the Centre shall be final and conclusive and shall be binding upon the intending lessees. It is hereby agreed by and between the parties that the contribution to the Sinking Fund intended to be built hereto before for the replacement of each asset being the building, air-conditioning plant, lift and any other plant or machinery as the case may be, shall not be adequate to replace such building, air-conditioning plant, lift or plant or machinery. If the cost of replacement of any such asset shall in any event be more than t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the Municipal Corporation or to the State Government whether prospectively or retrospectively any amount or amounts by way out premium, betterment charges, development tax or any other tax, levy, cess or charge, the lessee shall pay forthwith to the Centre on demand, their proportionate share of such amount or amounts, to be calculated by the Managing Committee of the Centre in the proportion which the area of the demised premises bears to the total area of the Centre I building which the Centre shall decide to lease and the decision of the Managing Committee as to whether or not the lessees are liable to pay a proportionate share of such amount or amounts and the quantum of such proportionate share shall be final and binding on the lessees. The primary basic rent and the parking space rent shall become due on 1st day of every month. Entire primary basic rent and the parking space rent payable during the lease term of 60 years shall be paid by the lessees to the Centre in advance before the execution of the Lease in instalments as under: Primary Basic Rent: (a) 30% on or before the execution of this agreement to be accounted, for on commencement of the lease ; (b) 60% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayment to be obtained from a lessee will be by way of advance rent instead of consideration for agreement to lease as originally proposed. The period of lease will not be 60 years, which is considered in law the life of a building but the lessees will have given the option to renew it for a further period co-terminus with the 99 years' lease to the Centre from the Govt. of Maharashtra (less 10 days). The renewal will be made on the basis of a nominal payment of Rs. 1/- per year per shop plus out-of-pocket expenses proportionately shared among the lessees. These expenses are payable throughout the period of the lease and its renewal. The initial payment by way of advance rent is based upon the present value of a part of the rent capitalised over a period of 60 years, the amounts now payable for the ground and the mezzannine floor area, being offered on a concessional basis. The Centre reserves the right to raise these rates upto the permissible levels at the appropriate time." (emphasis supplied) 68. The importance of the Council of Management of the assessee is apparent from its Articles of Association, the relevant parts whereof were set out earlier. 69. The report of the Coun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties also indicate that the "advance rent" was nothing but a premium for being let into possession of the lease premises. Even if each of these factors by themselves do not establish the same, taken together, they certainly do. The doubt if any, is set at rest when these factors are added to the report of the assessee's Council of Management. For instance, the report indicates that the period of the leases would not be for sixty years, as originally provided but that the lessees would have an option to renew the lease for a further period co-terminus with the 99 years' lease to the assessee from the government of Maharashtra (less 10 days). It is significant that the consideration for renewal would be a nominal payment of Re. 1/- per year per shop plus out-of-pocket expenses proportionately shared among the lessees. Thus the consideration for the extended period was only Re. 1/-. This itself would indicate that the advance payments were made not by way of rent per month but by way of a premium for being let into possession. If the payments were genuinely monthly rentals and no more such payments would have continued during the relevant period. That the lease agreements subsequent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (f) of the Act is also well founded. These sections read as under :- "2(47) "transfer", in relation to a capital asset, includes - (i), (ii) and (iii)** ** ** (vi) any transaction (whether by way of becoming a member of, or acquiring shares in a cooperative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, any immovable property. Explanation : For the purposes of sub-clauses (v) and (vi), "immovable property" shall have the same meaning as in clause (d) of section 269UA. 269-UA. Definitions. In this Chapter, unless the context otherwise requires, (a), (b) and (c)** ** ** (d) "immovable property" means (i) any land or any building or part of a building, and includes, where any land or any building or part of a building is to be transferred together with any machinery, plant, furniture, fittings or other things, such machinery, plant, furniture, fittings or other things also. Explanation. For the purposes of this sub-clause, "land, buildi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lding or part of a building and the explanation thereto provides that the land, building, part of a building include any right therein. Section 269UA(f)(i) further provides that the transfer in relation to any immovable property referred to in sub-clause (i) of clause (d) means transfer of such properties inter-alia by way of a lease for a term of not less than twelve years. Admittedly, the leases were for a period of not less than twelve years. 77. The Tribunal observed that in the lease agreements there was no legal obligation on the part of the assessee to refund any part of the "advance rent" and that the word "refund" has not been used anywhere in the lease agreements. The Tribunal held that, the same indicated that the "advance rent" constituted the business receipt of the assessee of the year in which they were received. 78. This finding is doubtful. Merely because the lease agreements do not use the word "refund", it would make no difference. Nor will it make any difference that the lease agreements do not stipulate a legal obligation on the assessee's part to refund any part of the "advance rent". If indeed there was a breach on the part of the assessee, it could well ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in favour of the company and that the company had not acquired any leasehold interest in the said premises. It was further held that the agreement of lease did not amount to unqualified or unconditional demise in presenti in respect of the premises in favour of the company and it only entitled the company to claim execution of the lease from the applicant which also had not been done. Accordingly, the learned Judge held that the company had not acquired any lease-hold interest in the premises and was merely a monthly tenant in respect thereof. Finally, it was held that the Official Liquidator did not require the premises for the purpose of beneficial winding up of the company and, therefore, directed him to hand over possession thereof to the assessee. (B) Mr. Andhyarujina also relied upon similar orders passed by the Gujarat High Court in O.L. of Rustam Mills Industries Ltd. v. Visvesvaraya Industrial Research Development Centre dated 8th September, 2004 in O.J. Appeal No. 9 of 2004 in Company Application No. 184 of 2002 with Civil Application No.18 of 2004. The Division Bench held that the learned Single Judge had rightly rejected the Official Liquidator's contention that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing out "to .". Thus the assessee was not even entitled to sell the construction to be put up on the land. 86. Clause 16 of the lease agreements provide that the lease shall contain the terms and conditions inter-alia specified in Annexure-A thereto. The terms and conditions of the lease agreements admittedly did not contain any provision for the sale of the land or the construction thereon by the assessee to the lessees. The terms and conditions stipulated in Annexure-A militate against the same. For instance, under clause 1, the lessees are not entitled to use the premises except as office premises for their own business. If it was a sale, the vendor after the sale would not be concerned regarding the nature of the use. Clause 3 prohibits the lessees from allowing their employees or servants to stay in the premises beyond the hours stipulated therein. Clause 4 requires the lessees to keep the premises in good condition. Clause 5 requires the lessees not to make any changes without the previous consent in writing of the lessor. Even assuming that these clauses are also consistent with the lease in certain circumstances in the facts of this case, they are not. Clause 12 prohibi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... favour of the department. Re : Question No.7 :- (7) Whether, on the facts and in the circumstances of the case, the Tribunal was right in its conclusion that the primary basic rent and the parking rent were assessable as income from profits and gains of business or profession ? 89. Mr. Andhyarujina fairly stated that so far as the assessee is concerned, the nature of income is not in dispute. It is income from profits and gains of business. The only disputed question is as regards the quantum that is liable to be brought to tax viz. the entire "advance rent" or only 1/60th thereof per annum. 90. Question No.7 is answered in the affirmative. Re : Question No.8 :- Whether, on the facts and in the circumstances of the case, the Tribunal was right in its conclusion that the amount appropriated towards a sinking fund was part of the rent received by the assessee and was in the nature of revenue receipt ? 91. The provision in the lease agreement relating to a sinking fund is part of clause 2 set out earlier. It would be convenient however, to set out again the following portion thereof relied upon by Mr. Andhyarujina :- "The common outgoings on account of contributions to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the earlier year. He therefore, upheld the order of the AO and added back Rs. 92,88,867/- and interest thereon of Rs. 16,58,947/- by treating the same as the assessee's income. The Tribunal upheld the decision also on the same basis. Neither the assessee nor the Department furnished a copy of the decision of the Tribunal for the earlier year during the hearing. They stated their inability to do so even before we pronounced this judgment. 94. Mr.Andhyarujina submitted that the authorities were in error in following the decision of the Tribunal dated 6.5.1991 for the assessment year 1983-1984 rejecting the assessee's claim with respect to Arcade building, which was the only functioning building at that time. The decision was, according to him, in view of the agreement to lease in those cases not elaborately dealing with the purposes of the sinking fund. The present agreements to lease specify the purposes of sinking fund and the manner in which the monies lying in the fund are to be utilized. 95. We will presume that the decision of the Tribunal for the earlier year was in the context of a clause relating to a sinking fund which was entirely different from the clauses relating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a case in which by an overriding charge the assessee became only a collector of another's income. The matter in the present case would have been different, if such an overriding charge had existed either upon the property or upon its income, which is not the case. In our opinion, the case falls outside the rule in Bejoy Singh Dudhuria case [1933] 1 ITR 135, and rather falls within the rule stated by the Judicial Committee in P.C. Mullick case [1938] 6 ITR 206." 98. Mr. Andhyarujina also relied upon the judgment of a Division Bench of this Court in CIT v. Shri Chhatrapati Sahakah Sakhar Karkhana Ltd. [2000] (9) LJSOFT 19 = 218 ITR 195. The Division Bench held as under :- "(B) Deductions from the cane price in respect of Area Development Fund, Hutment Fund, Cane Development Fund: It is contended on behalf of Karkhana that funds under above heads are collected by way of deductions to enable the sugar Karkhana to spend within their area of operation expenditure on amenities such as running of schools, colleges, maintenance of roads, irrigation, supply of fertilizers and to provide huts to homeless families. It is urged that the assessee acts as an agent on behalf of the Governme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o deal with the said collections. The Department did not accept the claim of the assessee. The matter came by way of reference to the High Court which took the view that obligations are there in every case but it is the nature of the obligation which is the decisive fact. Where by the obligation, income is diverted before it reaches the assessee, it is deductible but where the income is required to be applied to discharge an obligation, after such income reaches the assessee, then, it is taxable. On facts, looking to the nature of the obligations, the Madras High Court came to the conclusion that the collections for charitable purpose effected during three days under instructions of the Government were not taxable as it was a case of diversion of income by overriding title. Therefore the real question in all the above matters is: whether the income has accrued to the assessee and whether the profits on the scheme form the income of the assessee. Applying the above test to the facts of this case, we hold that the deductions i.e. deposits made by the Karkhana on account of Area Development Fund, Cane Development Fund and Hutment Fund do not constitute trading receipt. We are of the v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall consist of such proportion of the actual expenditure incurred by the Centre in respect of the Centre I building with its environments on charges for maintenance and upkeep of . lifts, lift hall escalators .. air-conditioning plant and plant rooms, ventilation plant and plant rooms and fire fighting plants and plant rooms, all equipments or machines, sewage treatment plant and plant rooms (12) The electrical fittings will be provided in the said premises by the Centre. Any changes in the electrical fittings so provided will be carried out by the lessees at their cost with the permission of the Centre. The Centre will also reserve the right to require the lessees to restore the fittings in which changes are made by the lessees to their original state at the lessees' cost. (16) The Lease shall contain the terms and conditions, among others, specified in Annexure "A" hereto. Annexure "A" (2) The Centre I building is centrally air-conditioned. The air-conditioning plant will function for about eight hours on all weeks days during such hours as may be decided by the Centre except on Sundays and holidays as approved by the Centre unless there is a failure or im ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e sinking fund is required/agreed to be created under the lease agreement. The amounts accumulated in the sinking fund are to be used in respect of these very securities and for the purchase of the plant and machinery referred to in clause 2 insofar as it relates to sinking fund. Thus, the amount lying in the sinking fund is to be used for discharging the assessee's obligations under the lease agreements. The assessee had complete control over these funds. It was entitled to determine the quantum thereof although the basis is provided under the agreement. The funds were, in fact used and, in any event, are admittedly to be used in respect of the said facilities and plant and machinery. Mr. Andhyarujina fairly admitted that the assessee had claimed and was granted depreciation in respect of the plant and machinery and the equipment in respect of the said facilities originally installed as well as any replacement in respect thereof. 102. In the circumstances, there is no question of diversion of the amounts collected by the assessee towards the sinking fund. Nor is there any question of the lessee having an overriding title in respect of the said fund. The fact that depreciation ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after, this Court by the remand order (251 ITR 852), remanded the matter to the Tribunal for its decision on two points, including as regards the nature of the transactions. The Tribunal filed the said remand report. It must, therefore, be presumed that what is held in the remand report overrides what is stated in the original order, pursuant to which the reference was made. 108. The remand report is clear on this issue as is evident from paragraphs 35 to 41. The report expressly holds that there does not appear to be much dispute on the point that the correct head of income is "profits and gains of business or profession". In fact, in paragraph 38, the Tribunal holds: "On the facts of the case we have no difficulty or hesitation in arriving at the conclusion that leasing of space by the assessee both in Centre 1 and IDBI Centre was essentially the business carried on by the assessee." In paragraph 39, the Tribunal held that the amounts received have to be treated not in the shape of rents, but profits of a business. In paragraph 40, after analysing the fact and the judgments, the Tribunal held : "We therefore, hold that the consideration received by the assessee on its transacti ..... 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