TMI Blog2002 (1) TMI 1298X X X X Extracts X X X X X X X X Extracts X X X X ..... ken in the financial year 1992-93 and cancelled during the very financial year 27,60,463 14,28,08,788 Less : 3,03,19,957 (2) Calculation error by Citibank discovering that more of it was paid by mistake and accepted by the assessee 18,39,092 11,06,49,739 The treatment of the aforesaid gains received as well as the roll over charges paid as per the books of account is as under : (i) ₹ 11,06,49,739 received, on account of cancellation of contract for forward cover attributed to proposed repayment of principal amount of loans, were credited to the plant and machinery account (P M account) thereby reducing the cost of the asset by like amount ; (ii) ₹ 3,03,19,957 received on cancellation of contract for forward cover attributed to the proposed payment of interest on the foreign loans, were credited to the profit and loss account (P L account) ; (iii) ₹ 2,30,67,615 being roll over charges paid for extending the contracts for forward cover relatable to repayment of princ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessee prays that the income from sale of publications by the assessee be held as its business activity and the income from repurchase of Canstar be held assessable as income from other sources and not as capital gains. Shri Arun Sathe, the senior advocate appeared along with Mrs. Veni Thapar, the chartered accountant on behalf of the assessee. The revenue was represented by Shri B. B. Ahuja, standing counsel for the Department. Necessary documents and papers were filed. At the outset Shri Sathe submitted that the loss in the publication be allowed as a business loss and it should be set off against the other heads of income. To buttress this argument, Shri Sathe laid emphasis on the following facts : (i) The assessee is having a separate publication department. (ii) BJP Today and Bhajpa Samachar are registered newspapers. (iii) Activity of publication is a continuous, systematic and organised activity. (iv) All newspapers, books, magazines and journals are sold for a fixed price. (v) The newspapers are registered with the postal department for concessional rates for despatch like any other newspaper. These registrations are renewed annually. (vi) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ganised and continuous in character. The fact that British companies carried on their business in such a manner that no profits could accrue to them was irrelevant. The income of the assessee-company was therefore, chargeable to tax. P. Krishna Menon v. CIT [1959] 35 ITR 48 (SC) : In this case the assessee after his retirement from Government service, was spending his time in studying and teaching Vedanta philosophy. One of his disciples used to come from England at regular intervals to Trivandrum where the assessee was residing. His disciple stayed with the assessee for few months at a time and attended his discourses. He also received instructions in Vedanta and had the benefit of his teachings. He transferred the entire balance standing to his credit in his account at Bombay amounting to more than ₹ 2 lakhs to the account of the assessee in the assessee's name in the same bank at Bombay. Further amounts were also deposited to the assessee's account in Bombay. The question was whether the receipts from the disciple constituted the assessee's income. The Supreme Court has held that the teaching was a vocation. The teaching of Vedanta was just as much teaching ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shri Sathe further contended that the loss could at best be described as negative income. The assessee was having a separate publication department. Publications were sold at a price. That was an organised and continuous activity. As such it should be termed as business. It was further stated that the memorandum of the assessee party did not forbid the carrying on of business activity. There is no such restriction under the Representation of People Act or under the Income-tax Act on carrying on a business activity by a political party. Funds can be raised through various means. Carrying on business is one of the means for raising the fund. Coming to the next ground that whether the surplus on the maturity value of Canstar could be construed as capital gains, Shri Sathe submitted that the assessee invested the money in Canstar in 1990. The offer letter and the rules and regulations of Canstar assured a minimum annual income of not less than 12.5 per cent. every year. It was to be ploughed back for investment purpose. The assessee received ₹ 17.40 per unit as a repurchase value. This was an assured repurchase value as per the offer document. The amount received was less th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... versed the decision of the High Court and held that capital gains was attracted under section 45 by transfer and not merely by extinguishment of rights howsoever brought about. Whatever the mode by which the transfer was brought about, the existence of the asset during the process of transfer was a pre-condition ; unless the asset existed in fact, there could not be a transfer of it. The extinguishment of right or rights should, in any case, be on account of its or their transfer in order to attract the provisions of section 45. If it was not, and was on account of the destruction or loss of the asset, it was not a transfer and did not attract the provisions of section 45 which related to transfer and not to mere extinguishment of a right. Hence, an extinguishment of right not brought about by transfer was outside the purview of section 45. Bharat Forge Co. Ltd. v. CIT [1994] 205 ITR 339 (Bom) : In this case it was held that the phrase extinguishment of rights takes colour from the associated words and expressions and will have to be restricted to the sense analogous to them. Hence, the expression extinguishment of any rights therein will have to be confined to the extinguis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot travel beyond the objects. Reliance was placed on the decision of the apex court rendered in the case of Dr. A. Lakshmanaswami Mudaliar v. Life Insurance Corporation of India [1963] 33 Comp Cas 420 (SC). Learned standing counsel invited our attention on the objects for enacting the provisions of section 13A. ([1978] 113 ITR (St.) 67 ) was referred. It was contended that the political party coming within the ambit of section 13A was not permitted to carry the business. It was further stated that the assessee failed to establish the profit motive, which is a necessary ingredient for carrying on the business. It was stated that from, ab initio, the assessee suffered losses on the sales of publication. No iota of evidence was adduced to demonstrate that the motive was to earn profit. Once it is established that motive of the assessee was to earn profit, thereafter it is not relevant that whether the assessee earns profit or incurs loss in carrying on the business. In the present case there is absolutely nothing to indicate that the activity of publication was undertaken with a view to earn profit. To regard an activity as business , there must be a course of dealings, eit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er IV-D which are applicable for profits and gains of business or profession cannot be applied in the cases of political parties. Income of political parties from voluntary contributions cannot be said to be income from profession so as to attract section 44AB or 271B of the Income-tax Act. 4. However, the political parties will have to fulfil the requirement of maintaining the accounts and getting them audited by an accountant, as provided in section 13A of the Act to claim the benefit of exemption. 5. This may kindly be brought to the knowledge of all officers under your region. Yours faithfully, (Sd.) Kamlesh C. Varshney, Under Secretary to the Govt. of India. Shri Ahuja vehemently contended that profit making must be the end to which the activity concerned was directed. The predominant object of the activity must be the making of profit. Where an activity is not pervaded by profit motive but is carried on primarily for serving the political parties, it would not be correct to describe it as an activity for profit. It was stated that the memorandum of the assessee party was silent on this aspect. There was no express provision that the party shall d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxing statutes, it is used in the sense of an occupation, or profession which occupies the time, attention and labour of a person, normally with the object of making profit. To regard an activity as business there must be a course of dealings, either actually continued or contemplated to be continued with a profit motive, and not for sport or pleasure. Whether a person carries on business in a particular commodity must depend upon the volume, frequency, continuity and regularity of transactions of purchase and sale in a class of goods and the transactions must ordinarily be entered into with a profit motive. Reliance was further placed on the decision of B. Malick v. CIT [1968] 67 ITR 616 (All). In this case the assessee, the Chief Justice of the Allahabad High Court, was requested to act as an arbitrator in a certain matter. A fee of ₹ 20,000 was paid to the assessee. Whether such fee was revenue income liable to tax was the question before the High Court. It was decided as under (headnote) : An activity of the assessee, before the assessee has actually acquired a profession, vocation, or occupation, either by a habitual pursuit of the activity or by engaging in i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the meaning of section 48 of the Act and the Assessing Officer disallowed the claim made on that count, the assessee changed its stand. To avoid the mischief of section 13A the assessee claimed it as income from other sources before the Commissioner of Income-tax (Appeals). This is a fact evidenced by records that the assessee at its own volition opted for the capital gain scheme. Copy of the application form was placed before us which indicates that the assessee opted for the capital gain scheme. It was stated by Shri Ahuja that the assessee did not reflect the earning from the Canstar unit in the return on year to year basis as per the 80L scheme. The assessee was holding an asset which was of capital nature. The terms in regard to the repurchase of the unit were stipulated in the instrument of offer. The amount was given over to the assessee on the extinguishment of its right in relation to the Canstar unit. The extinguishment of right was on account of the transfer of units from the assessee to the Canstar. Shri Ahuja further stated that the provisions of sub-section (6) of section 45 are in relation to the section 80CCB. It is apparent from the perusal of records that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a hospital from being a charity in the legal sense ; nor do I think that a school would be prevented from being a charity because the boys who received its benefit paid for their education a moderate sum proportionate to their means. It was not placed before us that what was the cost of publication and how the selling price was determined. Whether it was less than the cost of publication or more than the cost of publication. A copy of the resolution was placed before us which reads as under : Aagami : Shri J. P. Mathur informed that it had been decided to publish Aagami in Hindi as the party organ. The President wanted the publication of the Hindi and the English organs to be taken up simultaneously soon after the elections to the State Assemblies. From this resolution it comes out that Aagami magazine will be published in Hindi. This is the party organ. It is nowhere mentioned that such activity will be undertaken for the purpose of making profit. The assessee maintains a separate publication department. BJP Today and Bhajapa Samachar are registered newspapers. These are registered with the postal department and police department and separate bank account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the requirement of section 44AB. One cannot be allowed to say one thing at one time and opposite of it at another time. Sir Edward Coke said : a man's own act or acceptance stoppeth or closeth up his mouth to allege or plead the truth . Section 13A deals with a special provision relating to the income of a political party. This section was inserted by the Taxation Laws (Amendment) Act, 1978, with effect from April 1, 1979, for and from the assessment year 1979-80. The intent and purpose for enacting section 13A was described in the Taxation Laws (Amendment) Bill, 1978, reported in 113 ITR (St.) 67 at page 68, as under : Political parties are essential in any democratic set-up. The taxation of their income, however, reduces their disposable funds thereby adversely affecting their capacity to finance their activities from legitimate sources of income. It is, therefore, proposed to provide for exemption from income-tax in respect of specified categories of income derived by political parties, namely, income from investments both in movable and immovable properties and income by way of voluntary contributions. The proposed exemption will be available only in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... treated as business apparently for tax advantage. The apex court in the case of Narain Swadeshi Weaving Mills [1954] 26 ITR 765 has held that each case must be decided on its own circumstances according to the ordinary common sense principles. Dean Pound has said that the important thing is not the fixed rule but the understanding with which the rule is applied to an individual case. Each case depends on its own facts. A close similarity between one case and another is not enough, because even a single significant detail may alter the entire aspect. For deciding such cases, one should avoid temptation as said by Cordozo, by matching the colour of one case against the colour of another. In the cases of P.Krishna Menon [1959] 35 ITR 48 (SC) and Ram Kripal Tripathi [1980] 125 ITR 408 (All), it was found that the imparting of the teaching was the causa causans (the immediate cause) of making of gifts by the disciple. This was the minimum and proximate cause. It is a well known dictum of law that causa proxima non remota spectatur (The proximate cause and not the remote one must be regarded). In the present case making profit out of the publication activity was not causa causans. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctivity. We have taken into consideration the entire conspectus of the case. In our opinion, profit motive is a necessary requisite for carrying the business. Not even an iota of evidence was adduced before us to demonstrate that activity of the publication was undertaken with an intent to earn profit. We have examined the motive which pervaded the whole series of transaction. We have perused the impugned order. In our opinion, the Commissioner of Income-tax (Appeals) took a correct view in the matter and his order calls for no interference on this count. Coming now to the next issue apropos the taxability of the maturity value of Canstar-we find that the capital gains earned by a political party is exigible to tax. It is not coming within the ambit and purview of the exemption contemplated under section 13A of the Act. Political parties are required to pay tax on the amount of capital gains. The offer of Canstar unit comprised of two schemes, namely, 80L scheme and capital gains scheme. The option was available at the time of purchase of units. The assessee offered for the capital gains scheme. Under the 80L scheme, the holder of unit was required to reflect the earning ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 205 ITR 339 (Bom). In the present case Canstar repurchased the units from the assessee. As such there was a transfer. Right of the assessee in the units of Canstar got extinguished on account of such transfer. There is no dispute that the Canstar units held by the assessee were transferable in the manner provided under the Canstar capital gains scheme. Such units were the movable property and capital asset of the assessee party. The apex court in the case ofAnarkali Sarabhai v. CIT [1997] 224 ITR 422, has held that the redemption of preference shares by the company will squarely come within the phrase sale, exchange or relinquishment of the asset as employed in section 2(47) of the Act. The ratio of the apex court applies to the facts of the present case. Having regard to the facts of the case we hold that the maturity value of Canstar amounted to capital gains. It is not exonerated from the rigour of tax. It falls beyond the ken of section 13A. The assessee at its own volition opted for the capital gains scheme. The Canstar unit was the capital asset. The value received on its repurchase was on account of the transfer of the Canstar unit. The extinguishment of right co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale of publications. It was the claim of the assessee that the publication undertaken by the assessee was in the nature of business and as such, it does not come within the purview of section 13A of the Act. The Assessing Officer, however, held that this publication was undertaken for political purpose. The party's constitution did not allow running of a business or do any other activities than what was necessary to achieve the goal prescribed in the party's constitution. The publications sold by the assessee are basically political literature of the party to propagate its ideology. The Assessing Officer accordingly deducted the sale proceeds of ₹ 3.37 lakhs of the journals and literatures from the expenditure claimed at ₹ 70 lakhs. Thereby he rejected the claim that the activity of publication and sale of party's journal and literature was a business activity and the loss arising therefrom could not be set off against income from other sources. This view was upheld by the learned Commissioner of Income-tax (Appeals). In the appeal before the Tribunal, various arguments were advanced by both the parties which have been fully recorded and considered by m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from house property or income from other sources or any income by way of voluntary contributions received by a political party from any person. From the above provisions, it is manifest that a political party also requires funds for the political activities and Parliament itself deems it necessary to exempt the above items of income. It, however, does not prohibit carrying on of the business. In such a case, there will be no exemption under section 13A and the political party has to pay income-tax on the said profits and gains of the business undertaken by it. Therefore, the provisions of section 13A does not come in the way of political party conducting a business as an ancillary activity to augment its resources for running the party. The assessee in this case set up a publication department as an independent department and maintain regular books of account. It is a fact that the publications do carry the political ideologies and propaganda to educate the public. However, there should not be any confusion between the ultimate objective and the immediate objective of the publications. The ultimate objective of the party is to build up India as a strong and prosperous nation. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... publications are conducted by the assessee with the objective of generating income. Though there is no immediate profit, the publications are capable of producing profit and, therefore, the current loss incurred by the assessee during the year should not stand in the way of treating the activity as in the nature of business. This view is quite in order and preferable to other interpretations. Section 13A itself contemplates the total income of a political party of the previous year out of which income from house property or income from other sources or any income by way of voluntary contributions to be excluded. It is, therefore, manifest that a political party can always have a source of income over and above the exempted incomes. Secondly, there is no restrictive clause in section 13A as in section 11 of the Income-tax Act. Under section 11, profits and gains of the business will be exempt only if the business is incidental to the attainment of the objective. However, there is no such special condition to be fulfilled by the political party to run a business. Section 13A does not place any condition that any activity, though in the nature of business, will not be treated as s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case investment can be made for 5 to 25 years with the provision that investors will have the option to redeem the Deep Discount Bond before the maturity period on March 16, of each year. In this Scheme the investors get the capital amount along with the interest on maturity of the bond. It is, however, seen that the interest accrued to the investor is the yield on the capital and has not been treated as appreciation of the capital resulting in capital gains. From the above facts, it is seen that there is no appreciation in the intrinsic value of the capital invested. It is only the yield on the investment which was given to the investor in the form of interest and cannot be treated as capital appreciation for the purpose of capital gains. The intrinsic value of the money invested remains the same. Therefore, the capital remains the capital and the yield therefrom has to be treated as revenue receipt whether it is drawn monthly, annually, or after a few years. This can be illustrated by an apple tree. An apple tree will bear fruit every year which is the yield of the apple tree. Even if the apple tree is sold or redeemed the sale proceeds for the apple tree will remain capital r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Canstar as income from other sources. The above view is in line with the overall scheme of the Income-tax Act. The Canstar issued under the Canstar Scheme, 1990 is a redeemable non-debt security of the face value of ₹ 10 each. The interest income therefrom would normally be assessable under sections 18 to 21, deleted by the Finance Act, 1988, with effect from April 1, 1989. From the assessment year 1989-90, interest on securities is assessable as business income under section 28 where such interest forms part of business profits. In other cases, it is assessable as income from other sources under section 56(2)(id) of the Income-tax Act, 1961. With the change in law, the interest received by the assessee under the Scheme has to be processed either under section 28 or section 56 of the Income-tax Act, 1961. It is not the case of any one that the assessee is buying the Canstar as part of the trading asset. Therefore, it cannot form part of business profit as contemplated under section 28. In such a case, the interest income has to be considered under section 56(2)(id) and the income has to be assessed in accordance with the method of accounting regularly employed by the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... circumstances of the case, the maturity value of Canstar is exigible to tax under the head Capital gains or Income from other sources ? [On the reference on a difference of opinion the matter came before R. M. Mehta (Vice-President), Jordan Kachchap (Judicial Member) and Sikander Khan (Accountant Member).] The order of the Tribunal was delivered by R. M. Mehta (Vice-President).-A Third Member reference has been made to us by the President under section 255(4) of the Income-tax Act, 1961, on the following points on which there was a difference between the learned Members constituting the Division Bench : 1. Whether, on the facts and in the circumstances of the case, the assessee's activity of the publication department could be construed to be a business activity and losses therefrom could be adjusted against other income ? 2. Whether, on the facts and in the circumstances of the case, the maturity value of Canstar is exigible to tax under the head Capital gains or Income from other sources ? To recapitulate brief facts of the case which have been set out at length in the orders passed by the President and the then learned Vice President, Delhi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its central office and various other publications from its State units. It was submitted that such publications were sold from the sales counter in the party's central office and by the State units. It was explained to the Assessing Officer that the party had been publishing books and journals as a business activity, which in turn was an integral part of its political activities. It was further emphasised that the volume of expenditure was sufficient evidence of the fact that publishing was undertaken as a business activity. The further submissions of the assessee were to the effect that there was no bar on a political party earning income from profits and gains of business and profession under the Representation of the People Act, 1951 ; the Income-tax Act, 1961 ; and lastly, the model code of conduct as evolved by the Election Commission of India. According to the assessee all that the Income-tax Act required was that a political party must file a return of income and pay tax on such income, which was not covered under section 13A of the Income-tax Act. The Assessing Officer did not accept the aforesaid submissions of the assessee and referring at length to the relevan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounsel of the appellant have contended that since in the Representation of the People Act, 1951, and Income-tax Act, 1961, or model code of conduct evolved by the Election Commission of India, there is no ban on a political party to carry on business activity, therefore, the publication and sale of party s journals and literature should be treated as appellant s business activity and loss arising out of such activity should be treated as such and allowed to be set off against other income-this plea of the appellant is unacceptable. The appellant is a political party. Political parties are not formed with a view to earning profit from business or profession or any other vocation. Political party is an organisation of association of persons. It has a common ideology for the welfare of the country in accordance with the Constitution of India. Its aim is to implement its ideology, plans and policies on coming to power. If it is already in power, then it implements its ideologies and policies in a way that would allow it to continue to remain in power by accepted democratic methods. For this purpose, the periodical elections are held in all democratic countries in the process of which t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n is engaged with a set purpose and the frequency or the repetition of the activity, though at times a decisive factor is by no means infallible test. It connotes the idea of buying and selling. Obviously, the substantive and systematic course of political party s activity is to win the confidence of the electorate without profit motive. Therefore, loss arising on account of publication and sale of its journals and literature cannot constitute a business activity and such loss cannot be allowed either as deduction or set off against any other head of income. In short, publication of journals and literature of a political party is an act of publicity and should be treated as such. In view of the above, I hold that the Assessing Officer was justified in not treating the loss arising on account of sale of journals and publications as business loss and also not setting it off against any other head of income. Accordingly, this decision of the Assessing Officer is upheld and confirmed. On further appeal before the Tribunal, the matter was argued at length before the Division Bench and the main arguments of the assessee s counsels to canvass the view that the loss in the public ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been placed by the Representation of the People Act or under the Income- tax Act on the carrying on of business activity by a political party. The plea in fact was that a political party could raise funds by various means and carrying on of business was one such mean. Learned standing counsel for the Revenue, on the other hand, supported the order of the Commissioner of Income-tax (Appeals) contending that political parties were not formed with the object of making profit or carrying on business and besides there was nothing in the memorandum of the party enabling it to carry on business. According to him the assessee was competent to carry out those objectives specified in the memorandum and it could not travel beyond. Reliance for the aforesaid submissions was placed on the judgment of the Supreme Court in the case of Dr. A. Lakshmanaswami Mudaliar v. Life Insurance Corporation of India [1963] 33 Comp Cas 420 (SC). Learned standing counsel further referred to the provisions of section 13A contending that a political party was not permitted to carry on business. According to him profit motive was a necessary ingredient for carrying on of business and which the assessee h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice President, who passed the initial order confirmed the view taken by the Commissioner of Income-tax (Appeals) on the following main grounds : (i) The assessee was a political party not formed with the object of making profit and its memorandum did not enable it to carry on business ; (ii) Since the inception the party suffered huge losses on account of the publication work which in turn was carried on with the help of other income earned ; (iii) The mere fact that the publications were not distributed free, but sold for some consideration was not sufficient to establish a profit motive ; (iv) No material was placed before the Tribunal which would show what was the cost of the publication and how the selling price was determined whether this was less than the cost of publication or more ; (v) With reference to the resolution pertaining to the publication of Agami magazine in Hindi the learned Vice President observed that this was a party organ and it was nowhere mentioned in the resolution that such activity would be undertaken for the purpose of making the profit ; (vi) The assessee maintained a separate publication department and BJP Today and Bhajpa Samachar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Revenue s view-point. It was held that a profit motive was an essential requisite for conducting business and, therefore, there was no merit in the contention of the assessee's counsel that profit motive was not a necessary requisite for carrying on of a business. The President did not subscribe to the view taken by the learned VicePresident and by means of a separate dissenting order he accepted the arguments advanced on behalf of the assessee to ultimately conclude that the activity undertaken by the publication department was in the nature of a business and the loss incurred by the publication activities was to be treated as a business loss. The main reasoning of the President was as under : (i) Every political party had its own objectives and to achieve such objectives a political party also had to undertake various activities, which could not be run without money ; (ii) Parliament in its wisdom felt that political parties also should enjoy certain exemptions for achieving its objectives and in this direction inserted section 13A with effect from April 1, 1979, exempting certain sources of income from the taxation net, but this section did not contain a speci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contemplated the total income of a political party from various sources and it could not be held that a political party could not have a source of income over and above the exempted incomes specified in section 13A ; (xi) There was no restrictive clause in section 13A as there was in section 11 of the Income-tax Act, 1961, since under the latter profits and gains of business would be exempt only if the business was incidental to the attainment of the various objectives, but there was no such special condition to be fulfilled by a political party in case it ran a business ; and (xii) Section 13A did not lay down any condition that an activity though in the nature of business would not be treated as such if such business was incidental to the attainment of the objective of the political party. In reaching the aforesaid conclusions, the President relied on the judgments of the Supreme Court in the case of Bharat Development (P.) Ltd. v. CIT [1982] 133 ITR 470 (Delhi) as also in the case of Sole Trustee, Loka Shikshana Trust v. CIT [1975] 101 ITR 234 (SC). Before us both the parties argued at length and we must categorically state that their arguments were quite identical t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies pertaining to the publication department had been set out by the document by means of which the party was constituted/came into existence. It was also emphasised by learned counsel that the various publications were sold for a price and it was in the nature of a regular, organised and systematic activity. He in fact went on to state that there may be no intention for an assessee to carry on business or a motive to earn any income, but in a given situation, the income arising from an activity could still be treated as income from a vocation or a business. His plea in fact was that profit motive as was harped upon by the Revenue was not an essential ingredient for an activity to be treated as a business. It was also the submission of learned counsel that the primary object of the party was to make India into a strong nation and if in achieving that objective it carried on business, then nothing wrong/improper was being done since funds were required to run a political party and carrying on a business was also a mode for generating such funds. The other arguments of learned counsel have already been reproduced by us in the earlier part of the present order and we do not propo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erring to the assessee s own facts learned standing counsel further submitted that over a period of 12 years expenditure to the tune of ₹ 4 to 5 crores had been incurred in the publication department and compared to this the income was negligible. According to him intention to make profit was a necessary requisite for carrying on a business and the facts of the present case clearly showed that there was no such intention since no proper accounts had been kept of the publication department and the expenditure had been claimed on a rough estimate. It was further submitted on behalf of the Revenue that the assessee did not seek advertisements and under these conditions there could never be a profit when the selling rates of the publications were very nominal. With reference to the judgment of the Supreme Court in the case of Sole Trustee, Loka Shikshana Trust v. CIT [1975] 101 ITR 234 it was submitted that the relevant facts and figures of that assessee had been perused before coming to a conclusion that a business was being carried on whereas in the assessee s case the figures were negative. With reference to one of the decisions cited during the course of the hearing in whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counsel was that before arriving at a decision whether a business was being carried on in any case one had to see the facts and surrounding circumstances. With reference to the aforesaid arguments learned standing counsel referred to the case of CIT v. Durga Prasad More [1971] 82 ITR 540, 545 (SC) and the case of Tuticorin Alkali Chemicals and Fertilizers Ltd. v. CIT [1997] 227 ITR 172 (SC). A reference was also made to [1996] 221 ITR 18 (Mad) at page 21, in the case of CIT v. K. S. Venkatasubbiah Reddiar [1996] 221 ITR 18 (Mad) and in the case of CIT v. K. Ramakrishnan [1993] 202 ITR 997, 1002 (Ker) with reference to the question of a precedent. In reply learned counsel for the appellant at the outset stated that most of the decisions relied upon on behalf of the Revenue were in respect of the sales tax law and these would, therefore, not hold good/be applicable to income-tax disputes. It was once again reiterated that vis-a-vis the judgment of the Supreme Court in the case of P. Krishna Menon v. CIT [1959] 35 ITR 48 there need not be any intention to make money/profit and all that was required was a continuous and organised activity where there was a possibility of making mone ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as follows (page 288) : Any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture whether or not such trade, commerce, manufacture, adventure or concern is carried on with a motive to make gain or profit and whether or not any profit accrues from such trade, commerce, manufacture, adventure or concern ; (underlined by us) The words beginning with whether and ending with concern are not part of the income-tax definition of business, but the rest is identical. This decision in Deputy Commr. of Commercial Taxes v. Sri Thirumagal Mills Ltd. [1967] 20 STC 287 (Mad) was confirmed by the Supreme Court in State of Tamil Nadu v. Thirumagal Mills Ltd. [1972] 29 STC 290. Even in some of the other judgments pertaining to the sales tax laws of other States we found an identical definition under consideration. During the course of the present hearing, we had asked both the parties to check up and let us know whether there was any judgment of a High Court or of the apex court, which had expressed an opinion on applicability of one law/ enactment to another. No decision was brought to our notice, but while dictating the present o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t within the meaning of the Gift-tax Act. The observations of their Lordships, which are a guide to us in the present appeal, are as follows (headnote) : The words and expressions defined in one statute as judicially interpreted do not afford a guide to the construction of the same words or expressions in another statute unless both the statutes are pari materia legislations or it is specifically provided in one statute to give the same meaning to the words as defined in another statute. The aim and object of the two legislations, namely, the Gift-tax Act and the Estate Duty Act, are not similar. In the light of the aforesaid it is for the court to cull out the ratio of any decision rendered by a superior court or a court of co-ordinate jurisdiction and decide as to whether it would apply to the facts of a case considering its salient features. Much was argued by the parties as to what happens when an entity or an organisation or a body carries on an activity, which is not authorized by the document, which brought that entity, organisation, etc., into existence and there is nothing on record to show that there was any separate approval or authorisation de hors the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment years 1986-87 to 1998-99 (annexure A) which shows that for a good period of 13 years the assessee has been carrying on the activity of publication and although it may be a systematic and organised activity the profit motive is absent. The total sales are to the tune of ₹ 37,22,568 for these years and the cost of publications is shown at ₹ 4,37,08,043. Which prudent businessman would do such a business. In case these facts and figures are taken to an entity whose name ended with the words (P) Ltd. or Limited , i.e., a joint stock company, then probably such entity would not have continued beyond a few years unless the intention or motive was different. It is further seen for the year under reference that whereas the receipts from sale of publications are accurate the expenditure has been claimed on estimated/ad hoc basis say some percentage of the total expenditure. We cannot appreciate receipts in thousands in some of the assessment years of the chart say 1986-87 to 1990-91 and expenditure claimed in lakhs many times over and that also on estimate. In assessment year 1995-96 presently in reference receipts are shown at ₹ 3,73,576 and expenditure claime ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he payment was to be made on the termination or at the time of re-purchase of the Canstar. In other words, the only difference between the two schemes was that in the case of 80L Canstar the interest income was declared every year whereas in the case of CG Canstar the payment was made at the time of the repurchase. On the aforesaid facts the issue was whether the interest income, which accrued to the CG Canstar holders, but postponed for payment became an accretion to the capital value of the investment for purposes of capital gains or whether the same was a revenue receipt distinct and separate from the capital invested by the assessee. The assessee in its return of income had shown long term capital gains of ₹ 31,69,231 which came to be assessed as such without any discussion and on further appeal the Commissioner of Income-tax (Appeals) upheld the view taken by the Assessing Officer observing that these were not exempt from tax under section 13A of the Income-tax Act since the said section only provided exemption in respect of income from house property, income from other sources or income by way of voluntary contributions received by a political party. The learned V ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the interest, which accrued to the investor was the yield on the capital invested and the same had not been treated as appreciation of the capital resulting in capital gains. According to the President, there was no appreciation in the value of the amount invested and it was only the yield on the investment, which was given to the investor in the form of interest and the same could not be treated as capital appreciation for the purpose of capital gains. It was the further observation that capital remained the capital and the yield therefrom was to be treated as a revenue receipt whether drawn monthly, annually or after a few years. The President was further of the view that the scheme could not override the provisions of the Income-tax Act and assessment, therefore, had to be made in the light of the provisions of the Income-tax Act and not on the basis of the scheme framed by the Canbank Mutual Fund. Further the accretion even in the CG Canstar Scheme represented a revenue receipt and the same could not be assessed as capital gains, but it had to be assessed as income from other sources. The President also referred to the stand taken by the assessee at the time of in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2) of section 80CCB and the capital value of such units was deemed to be the capital gains arising to the assessee in the previous year in which such repurchase took place, but the said deeming provision was applicable to only those assessees, who were individuals or Hindu undivided families and in the case of the present assessee it was a different status altogether. In concluding the President directed the Assessing Officer to assess the income in question under the head Income from other sources . Learned counsel for the appellant, at the outset, relied on the order of the President, which had held that the surplus arising on the Canstar was in the nature of income from other sources . His main submissions can be highlighted as follows : (i) Money was handed over to the trustees of the scheme to look after it ; (ii) Both the CG Scheme and the 80L Scheme had the same benefits attached to them ; (iii) 12.5 per cent. was the minimum assured income under both the schemes ; (iv) The assessee received a sum of ₹ 17.40 per unit as against a face value of ₹ 10 per unit ; (v) For section 45 to apply there should be three ingredients, i.e., (1) existence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vii) The various heads of income under the Income-tax Act were mutually exclusive and if a particular receipt fell under section 45 then it could not be covered under any other head ; and (viii) That the amount received by the assessee at ₹ 17.40 per unit as against the face value/investment amount of ₹ 10 per unit represented the full value of consideration . The term asset included a right and the redemption of Canstar represented extinguishment of such right giving rise to capital gains. The other detailed arguments of learned standing counsel were primarily those tendered before the Division Bench and learned standing counsel highlighted various observations in the order of the learned Vice President to ultimately contend that the surplus be taxed under the head Capital gains and which was also the head under which the assessee had returned the same. Learned counsel further contended that the decisions relied upon by the assessee's counsel in the present hearing were distinguishable and he in turn referred to/relied on the following : (i) Anarkali Sarabhai v. CIT [1982] 138 ITR 437 (Guj) ; (ii) Anarkali Sarabhai v. CIT [1997] 224 ITR 422 (SC) ; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue. Learned counsel also referred to the provisions of section 45(6) as also section 80CCB contending that vis-a-vis the latter the amount was to be treated as income from other sources and the provisions of section 45 otherwise were not attracted. On the assumption that the investment in Canstar was a capital asset and the repurchase amounted to a transfer, then the value of the consideration would be ₹ 17.40 per unit as against which the assessee's cost was ₹ 10 plus what was ploughed back from year to year and the total of this also came to ₹ 17.40. The plea, in other words, was that in case the accretion every year was treated as an improvement to the asset and which was allowed as a deduction, then ₹ 17.40 would be squared up resulting in no income at all. Counsel, however, did not dispute the submission on behalf of the Revenue that it was the case of a single transaction and not two of them. Learned counsel vehemently relied on the order of the President at this stage for the submission that any mutual fund scheme could not override the provisions of the Income-tax Act as any receipt or income had to be taxed under the relevant head a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decisions relied upon were with reference to capital gains on a transfer taking place the items being preference shares, debentures, etc. Therefore, most of the decisions may not be strictly applicable and one may only seek some guidance on broader legal issues. Both the parties are agreed that section 45 would apply only when three conditions are fulfilled, i.e., (i) there must be a capital asset in existence ; (ii) there must be a transfer ; and (iii) Such transfer must result in a surplus. It is also agreed upon between the parties that the investment in Canstar is a capital asset, but that is about all since the stand of the assessee is that there is no transfer on repurchase/withdrawal and on the assumption that there is a transfer then there is no surplus. In considering the aforesaid arguments, we opine that in the present case, there was no transfer within the meaning of section 45 as all that happened was that the assessee withdrew from the scheme and received a sum of ₹ 17.40 per unit as against the face value of ₹ 10 per unit. It was its own money invested in Canstar, which came back with a surplus which represented the accumulated minimum ann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scheme that what the assessee held was a unit/certificate with Canstar on which interest accrued over the years till withdrawal. What it received back is the principal plus interest, which can be equated to a FDR with a bank. In our opinion, no rights got extinguished as held by the learned Vice President. Similarly reliance on the case of Anarkali Sarabhai v. CIT [1997] 224 ITR 422 (SC) is not apt as that pertains to redemption of preference shares which carry with them certain rights and privileges. Although subscribing to a preference share entails a sum of money which entitles an assessee to some specified percentage of dividend which may be equated with the yearly interest on the Canstar, but the similarity ends here. As already stated it is the extinguishment of the other rights attached to preference shares, which give rise to an event which is exigible to tax. The judgment of the Supreme Court, in our opinion, is not applicable to the present case as would also be our view in respect of the numerous other decisions cited on behalf of the Revenue. During the present hearing, no material has been brought on record by the Revenue, which would show that any right was a ..... 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