TMI Blog1993 (2) TMI 12X X X X Extracts X X X X X X X X Extracts X X X X ..... formed for the purpose of allotment of house sites to their members. The assessee-society and the other societies who are the assessees under the group of references which are before us, were all allottees of portions of this land under permanent leases so given by the housing board in favour of these co-operative housing societies. The lease deeds were executed in October 1956. We are informed that the terms and conditions of the lease deeds in respect of all these societies are similar. The co-operative housing societies, in turn, divided the land so allotted to them into plots and allotted the plots in favour of their members by taking an amount which was, in turn, handed over to the housing board. Each of the members also executed a lease deed in favour of the co-operative housing society. All these lease deeds are similar. We reproduce one of the clauses in the lease deeds executed by each of the members of the co-operative housing society in ITR No. 521 of 1978. There is a similar clause in the lease deeds executed by the members of all the other co-operative housing societies which are before us in this group. It is to the following effect : " Not to assign, underlet or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ause 6A of the regulation relating to lease were capital receipt not assessable to tax under either of the heads'Income from business' or 'Income from other sources' ?" A similar question arises in the other references which are before us. To answer this question, it is necessary to examine the nature of the amount which is received by the housing society. First and foremost, it is an amount which the society is entitled to receive on account of a term in the lease, which each of the members has executed in favour of the society. Under this clause in the lease deed, whenever a member transfers his lease in favour of another person, the member shall pay to the society half of the premium received by him from the purchasing party or shall pay half of the amount received by him over and above the capital cost with interest up to a limit of one-third of the capital cost. The amount paid to the society is therefore not in the nature of a windfall, nor is it a purely voluntary payment. Secondly, when a member transfers his lease to another person, the rights of the society as the lessor are not varied nor are they affected in any manner. The society, therefore, does not receive this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the cost of erecting a cinema house. The rent agreed to be paid was Rs. 2,100 per month. The lease deed did not contain any condition or stipulation from which it could be inferred that the sum of Rs. 55,200 had been paid by way of advance rent. The Supreme Court said that the sum of Rs. 55,200 which was paid to the appellant was in the nature of a premium or salami. It had all the characteristics of capital nature and was not revenue. It said that a payment of this character was in the same class as the payment of a premium on the grant of a lease. It observed that the distinction between a single payment made at the time of settlement of the demised property and recurring payments made during the period of its enjoyment by the lessee was well recognised in law. It, therefore, held the premium to be a capital receipt. This ratio has no application to the present cases because the society has not received any premium for parting with any rights in its capital assets. In the above case, the Supreme Court cited with approval the definition of "income" given by the Privy Council in the case of CIT v. Shaw Wallace and Co. [1932] 59 IA 206, to the effect that income in the Indian In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts, to assess whether a transaction is commercial in character yielding income or is one in consideration of parting with property for repayment of capital in instalments". In the present case, the payment is certainly not in repayment of capital on account of parting with any property of the housing society ; nor is it repayment of capital in instalments. It cannot, therefore, fall in the category of a capital receipt. Looked at from a commercial point of view, the society receives a payment under its contract with the lessee every time the lease changes hands. It is a source of income for the society. The other cases which have been cited in this connection are CIT v. Port Canning and Land Improvement Co. Ltd. [1966] 62 ITR 87 (Bom), Ukhara Estate Zamindaries P. Ltd. v. CIT [1979] 120 ITR 549 (SC), CIT v. Bombay Burmah Trading Corporation [1986] 161 ITR 386 (SC) and Member for the Board of Agricultural Income-tax v. Sindhurani Chaudhurani [1957] 32 ITR 169 (SC). We are not referring to those cases and a number of other cases which are cited before us in any detail because each case turns on its special facts, and we do not find any case where the facts are even somewha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore, continue to be a capital receipt in the hands of the society. We cannot accept this contention. The receipt of an amount in the hands of the member may be a capital receipt but that does not mean that the same character of the receipt continues in the hands of the society also. The society has not received this amount for the transfer of its capital asset. The society has received this amount because of the terms in its contract of lease which give to the society this benefit. It was submitted on behalf of the assessee that this receipt in the hands of the society cannot be considered as income because it is not a receipt which the society receives either regularly or with any certainty. For example, if the member does not transfer his interest to another person, there will be no question of the society receiving any amount. Similarly, a transaction by a member in favour of a third party may not result in any excess in which case the society will not receive any amount. This indicates that the payment which the society receives is uncertain and fluctuating and can be considered as more akin to a windfall rather than as an income. This submission does not appeal to us. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ooked at from a commercial point of view the reason why such a clause was inserted in the lease deed was to enable the society to earn an income. It was submitted before us that this clause was inserted merely as a deterrent to transfer. Looking to the nature of the clause, we do not see how the clause deters any transfer by a member. A member may be required to transfer his interest for various reasons. For example, if he is required to move out of Bombay, he may have to sell his interest in the property. All that the clause provides is that the society will receive half the profits when the member sells his interest. Therefore, it cannot be viewed as a deterrent to transfers. This payment is also not a payment for granting consent. The consent of the society is required because the society may want to ensure that an undesirable person does not become its member. Even in a situation where the society is likely to get money on transfer, the society may decline to give its consent for transfer if it considers the person to whom the member's interest is being transferred as undesirable. Therefore, in our view, the purpose for inserting the clause is to ensure an income to the society ..... X X X X Extracts X X X X X X X X Extracts X X X X
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