9911796707
TMI Blog2003 (3) TMI 42X X X X Extracts X X X X X X X X Extracts X X X X ..... ng that the activity of the assessee was business activity and, therefore, its income was liable to be taxed under the head 'Business income'?" In I.T.R. No. 83 of 1989 for the assessment years 1975-76, 1976-77, 1978-79, 1979-80, 1980-81 and 1981-82, I.T.R. No. 35 of 1992 for the assessment years 1977-78, 1982-83 and 1983-84, I.T.R. No. 256 of 1995 for the assessment year 1986-87, I.T.R. No. 52 of 1997 for the assessment years 1987-88 and 1988-89, I.T.R. No. 10 of 1998 for the assessment year 1989-90, I.T.R. No. 32 of 2000 for the assessment years 1990-91 to 1994-95: "Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in coming to the conclusion that the activity of the assessee co-operative society was business activity?" In I.T.R. No. 83 of 1989 for the assessment years 1975-76, 1976-77, 1978-79 and 1979-80, I.T.R. No. 35 of 1992 for the assessment years 1977-78, 1982-83 and 1983-84: "Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the income of the co-operative society should be taxed under the head of 'Business income' and not 'Income from other sources'?" In I.T.R. No. 83 of 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rented to the Post and Telegraphs Department for running a post office. The assessee has also constructed over the land, a residential hotel and a revolving restaurant. The construction was made by the assessee by raising funds by way of loan from the bank and raising share capital. The shops were allotted after the construction by draw of lots. Each member of the assessee was allotted a shop or a godown and no non-member is allotted either a shop or a godown by the assessee. However, as per bye-laws of the society a member could induct another person and such person would be permitted to occupy the premises after becoming a nominal member of the society. The assessee provides services to its members and/or occupants of the shops and godowns in the form of security, sanitation, lifts, electricity in the passage, insurance, packing, etc. The assessee accepts a token rent of Re. 1 from each of the shop or god own holder. It also charges its members/occupiers for the services rendered to the members/occupiers. The assessee has income by way of rents that it charges from the banks, post office and canteens. The assessee has income by way of rent from the residential hotel and the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cilities and amenities for the trade of members. The learned Assessing Officer also observed that the society made considerable efforts for bringing the market in the limelight but concluded that it cannot be said that the society had done business of its own and therefore observed that the rental income would fall under the head income from "other sources" for some assessment years and "income from house property" for some assessment years. The Commissioner of Income-tax (Appeals) confirmed the view of the Assessing Officer after taking into consideration the material produced before him. The Commissioner of Income-tax (Appeals) held that the motive of profit making is not an essential ingredient for business or profession or vocation. However, he concluded that the activity of the assessee cannot be considered as business activity. The Income-tax Appellate Tribunal, after taking into consideration the various aspects and judicial pronouncements, came to a conclusion that for carrying on business activity, earning of profit or profit motive is not the sole criterion. After considering the provisions of the bye-laws, the Tribunal came to the conclusion that the activity of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le trade and the society. It is also the object of the society to carryon social, cultural, recreative and educational work in connection with the members, tenants and persons using or occupying the premises built, acquired or otherwise made available or provided by the society. Learned counsel therefore submitted that the assessee is engaged in providing services, facilities and amenities to its members or occupiers of the shops, godowns, etc., engaged in business or trade of textile. Providing banking facilities, postal facilities is a part of its object. By providing such facilities, the trade of the members is sought to be facilitated and promoted. Learned counsel further submitted that likewise, auditorium is constructed by the assessee to facilitate holding of seminars and other cultural activities of its members and it is used mainly for that purpose. Learned counsel submitted that likewise, a residential hotel and revolving restaurant are constructed to attract customers of the traders and to facilitate entertainment of such customers by the traders. Learned counsel submitted that constructing and hiring out revolving restaurant or hotel or auditorium singularly, in an isol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ach case. Each case has to be looked at from a businessman's point of view to find out whether the letting was the doing of a business or the exploitation of his property by an owner...." In order that the present case can be appreciated in the light of these principles, it has to be firstly observed that the assessee is a co-operative society founded with the objects of carrying on activities of buying, selling, hiring, letting and developing land and construction of building in accordance with the co-operative principles with a view to provide godowns and shops and other amenities for the trade of members and persons engaged or connected with textile trade and the society. The object of the assessee is also to carryon social, cultural, recreative and educational work in connection with their members, tenants and persons using or occupying the premises built, acquired or otherwise made available or provided by the society (assessee). Its further object is to provide for storage of the material of the members in the warehouses of the society, if necessary and thought fit to the members. The society is empowered to do all things it deems necessary or expedient for accomplishment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oyed. It provides internal telephone facilities. Security arrangement is made. The assessee arranges for advertisement of its members for promotion of their business by leaflets, signboards, etc. The assessee also provides insurance services for its members. The assessee also provides special package facility for goods of its members and several other services are rendered by forming of "Suvidha Samiti" to devise more and more facilities for its members. The assessee has obtained land from Surat Municipal Corporation, developed it and has constructed such a huge complex to facilitate and promote trade of its members and only textile traders are permitted to occupy shop/s or godown/s, obviously to meet the object for which the society is formed. All these aspects taken collectively indicate that the activity of the society is business activity though may not be aimed at making of profit. This question therefore will have to be answered accordingly. Coming to the question whether the income of the assessee can be considered as business income, it has to be noted that the income of the assessee is not only in the form of the charges for rendering services but it also derives income b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "owner" means a person who has got a valid title legally conveyed to him after complying with the requirements of law such as the Transfer of Property Act, the Registration Act, etc., but in the context of the Income-tax Act the criteria would be, who is the person who would receive income from property in his own right. In our opinion, therefore, the rent charged by the assessee by way of nominal rent from its members/allottees cannot be considered as income from house property. All the same, the token rent from the allottee-members remains an income. Section 14 of the Act provides various heads of income. The said income cannot be considered to fall under any of the categories from clauses A to E and therefore it would fall under clause F, namely, "income from other sources". It is also not in dispute that the assessee charges its members for various services and amenities provided to members/occupants of the shops and god owns to meet its objects. As discussed in the foregoing paragraphs, services rendered by the assessee include internal telephone system, security, sanitation, lighting, lifts, air-conditioning, insurance services, etc. The income derived by the assessee from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... holding of meetings, seminars, conventions, and cultural activities for its members. The revolving restaurant and hotel are constructed to attract more clientele to the traders and to facilitate them to entertain such customers and, therefore, it must be considered to be business income or in the alternative, income from other sources. As observed by the apex court in the cases of Universal Plast Ltd. [1999] 237 ITR 454 and Sultan Brothers Pvt. Ltd. [1964] 51 ITR 353, while considering whether an activity is business activity or not, the businessman's point of view has also to be considered. The assessee is a co-operative society formed with a view to facilitate trade and provide amenities for the trade of its members. Providing services of banks, canteens and post office are amenities for the trade of members and we find it difficult to accept the contention of the Revenue that it was not the business activity of the assessee to let out the premises for such purposes and, therefore, the income derived therefrom would amount to income from house property. To support this argument, it was also contended that a co-operative bank has been started by the assessee itself and, therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar fetched to say that the premises are let to derive profit out of the property, and, therefore, the income derived by the assessee by way of rent from the banks and post office would fall under the head "Business income" and cannot be considered as "income out of house property" or "income from other sources". The canteens are provided and are being run in the complex. It is nobody's case that the canteens are meant to provide luxurious facilities. Where so many people come for business during the day, many of whom may be coming from distant places, the services of a canteen would cater to the basic need of people. It would save them from going to distant places for meals and refreshments. Providing a canteen has to be construed as service planned and provided by the assessee as an amenity to facilitate trade. It is of no consequence whether it is given on rental or contractual basis to be run by others or is run departmentally by the assessee. In either case, the income derived is by fulfilment of the object of the assessee to provide amenity to its members in trading business and has therefore to be construed as business income. So far as the income from auditorium is concern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facility therefore cannot be considered as an act to fulfil the object of the assessee. In our view, there is no nexus between the objects and the said activity (constructing and letting out revolving restaurant and the hotel) of the assessee, more so, when canteens are already provided to cater to the basic needs of members and persons concerned with the society. Luxury can never take the colour of necessity. Even from the businessman's point of view, for that matter from any point of view, a revolving restaurant or a residential hotel cannot be construed to be properties required for fulfilment of the objects of the assessee-society. It has then to be examined whether this income from the revolving restaurant and hotel would fall under the head of income from house property or income from other sources. It is a settled proposition of law that where a separate head of income is provided under section 14, and the income is from such source, it has to fall under that specific head. This income, i.e. income from the revolving restaurant and the hotel, would therefore fall under the head of "income from house property". The Tribunal was therefore not right in holding that the incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xed under the head of 'Business income' and not 'Income from other sources'?" Answer: In the affirmative. The income of the assessee would be "business income", except the income derived by way of rent from the residential hotel and revolving restaurant" Question in I.T.R No. 83 of 1989 for the assessment years 1980-81 and 1981-82: "Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the income of the co-operative society should be taxed under the head of 'Business income' and not 'Income from house property'?". Answer: In the affirmative. The income of the assessee would be "business income", except the income derived by way of rent from the residential hotel and revolving restaurant. The income derived by way of rent from residential hotel and revolving restaurant would be income from house property. Question in I.T.R. No. 256 of 1995 for the assessment year 1986-87, I.T.R. No. 52 of 1997 for the assessment years 1987-88 and 1988-89, I.T.R. No. 10 of 1998 for the assessment year 1989-90, I.T.R. No. 32 of 2000 for the assessment years 1990-91 to 1994-95: "Whether, on the facts and in the circumstances of the case, the Tribunal w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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