TMI Blog1984 (10) TMI 77X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted. There are as many as eight additional grounds. For the sake of convenience, we will take up the additional grounds first. The counsel for the assessee has grouped the additional grounds into four effective grounds. It is contended that : (i) the order of the assessment made by the ITO under section 143(3)/144B of the Income-tax Act, 1961 ('the Act') is barred by limitation ; (ii) the assessment order is invalid as the ITO had prepared and forwarded two draft assessment orders, which is against law ; (iii) the assessment order is invalid as the ITO had completed the same without complying with the mandatory directions of the IAC under section 144B(4) ; (iv) the assessment order is invalid as the time taken in the proceedings, commencing from the date the ITO forwarded the draft assessment order to the assessee and ending with the receipt of the IAC's directions under section 144B(4) by him, exceeded 180 days. 3. The assessee is a company. The proceedings relate to its assessment for the assessment year 1979-80, for which the previous year is the financial year 1978-79. Ordinarily, as laid down in section 153(1)(a)(iii) of the Act, the assessment could be completed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elhi High Court's decision in the case of Sudhir Sareen v. ITO [1981] 128 ITR 445. Inviting our attention to the draft assessment order, the IAC's directions under section 144B(4) (quoted above) and the final assessment order completed on 27-9-1982, Shri Thakore submits that the ITO has evidently completed the assessment without doing anything in compliance with the IAC's directions, perhaps for want of time. This, according to him, has made the assessment order invalid. 5. Strong reliance has been placed on the order of the Commissioner (Appeals) by Shri Roy Alphonso, the senior departmental representative on behalf of the revenue. According to him, the plain reading of section 153(1)(a)(iii), along with Explanation 1(iv), makes it clear that there is no time limit laid down in that section or in any other section regarding time to be taken from the stage of forwarding the draft assessment order to the assessee and the receipt of the IAC's directions under section 144B(4) by the ITO. The expression within the brackets in the Explanation 'not exceeding 180 days' refers to a ceiling on the maximum time that could be excluded from the ordinary time limit for completion of assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... There is no ceiling for the time to be excluded from the period of limitation in any clause other than clause (iv) and this is, according to us, for good reason. In the other clauses, time to be excluded is referable to some act of omission or commission wholly or partly to the proceedings before agencies over which the income-tax department has no control such as, the Courts, Settlement Commission, auditors. The Legislature's anxiety has been that the ITO assessing officer should have full period of two years for completing the assessments at his disposal. There is a ceiling of 180 days for the time to be excluded under clause (iv), because under this clause time is taken not by an outside agency but by the ITO and the IAC, who are officers of the income-tax department and they cannot be allowed to use this clause to overcome the period of limitation by their own default. In other words, if they take more than 180 days in these proceedings, they will be cutting into the time of ordinary period of limitation of two years available to the assessing officer. If considered in this background, it becomes clear that the time to be excluded under Explanation 1(iv), relevant for the purp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion (5) of section 144B. However, this, to our mind, indicates that either his understanding of the directions is incorrect or that he was running against time and did not comply with the directions. In either event, this lapse on the part of the ITO does not invalidate the assessment. Accordingly, we hold that the order of the assessment is valid. 8. Coming to the main ground on which the appeal has been filed before us, the facts are that the assessee was registered as a company under the Companies Act, 1956, on 11-6-1975. During the accounting period, the assessee's authorised and paid-up share capital was for the amount of Rs. 5,00,000 and Rs. 1,00,200, respectively. The entire share capital was subscribed and paid-up by Byramjee Jeejeebhoy (P.) Ltd. Thus, the assessee was a 100 per cent subsidiary of Byramjee Jeejeebhoy (P.) Ltd. An agreement was entered into between the assessee and the parent company on 1-11-1975 to the effect that some of the assets and liabilities of the parent company were transferred to the assessee at book value, i.e., Rs. 17,630. The parent company held extensive lands in and around the city of Bombay. It had entered into an agreement dated 25-1-1964 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the Parel land, amounting to Rs. 82,91,400 as business income of the assessee as detailed under : Rs. Rs. 1. Compensation received from the Government of Maharashtra in February 1979 in respect of 181 acres of land at Oshiwara, Jogeshwari. 99,16,000 Less : Compensation paid to Oshiwara Land Development Corporation (P.) Ltd. 32,70,000 ------------------ 66,46,000 2. Sale proceeds received from Oshiwara land Development Corporation (P.) Ltd. in respect of 542 acres. 15,61,083 ------------------ 82,07,083 Less : Cost of Oshiwara land to the assessee as shown in the balance sheet. 17,630 81,89,453 3. Compensation received from the Bombay Municipal Corporation in respect of Parel land. 1,89,508 Rs. Less : Cost (a) Land 8,885 (b) Building 62,373 (c) Legal expenses 23,303 ------------ 87,561 1,01,947 ------------------ ----------------- 82,91,400 ----------------- The main reason for taxing this surplus as business income was the finding of the ITO that the transaction by the assessee was clearly in the nature of business. 11. The assessee appealed before the Commissioner (Appeals) against the order of the ITO in this respect. It was the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 181 acres of land at Oshiwara was by the statutory action taken by the Government of Maharashtra under the Land Acquisition Act for some public purposes. Even the acquisition of 3,257 sq. yds. of land at Parel was similarly acquired by the Bombay Municipal Corporation for some public purposes. The entire net receipts of Rs. 82,91,400 had accrued to the assessee during the previous year not as a result of any business activity on the part of the assessee but either as a result of the acquisition proceedings initiated by the Government of Maharashtra and the Bombay Municipal Corporation and the sale proceeds of the part of the asset agreed to be sold by the parent company a decade and a half before the incorporation of the assessee company. It was submitted by the learned representative that the matter had come up earlier before the Tribunal for the assessment year 1976-77 in IT Appeal No. 1352 (Bom.) of 1980 decided by the Tribunal on 14-3-1981, where the question was regarding the ascertainment of the capital gains on the transfer of certain land. The departmental authorities had not treated the transaction for that assessment year as a business venture. But it was treated as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exploit the rights of the assessee in the various assets taken over from the parent company. Therefore, this was a case of business activity and, hence, the income was properly taxed under the head 'Profits and gains of business or profession'. 15. We have carefully considered the facts and circumstances of the case and the arguments on either side. The assessee has been incorporated as a company with effect from 11-6-1975. We are told that the main object of the company was the efficient management of the assets of one branch of the family. It took over the assets and liabilities pertaining to that branch of the family by the agreement dated 1-11-1975. The assets included a large plot of land at Oshiwara and some land at Parel. Out of these lands, 723 acres of land at Oshiwara were agreed to be sold by an agreement dated 25-1-1964 by Byramjee Jeejeebhoy (P.) Ltd., i.e., the parent company, which held the entire shares in the assessee-company too. New Swastik Land Development Corporation, a partnership firm, 12 years prior to the incorporation of the assessee-company. The Government of Maharashtra had sought to acquire 181 acres of land out of the aforesaid 723 acres, that too s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al decisions of the Supreme Court and of the various High Courts to ascertain how these Courts have understood the concept of a business. In the case of IRC v. Marine Steam Turbine Co. Ltd. 12 TC 174, 'business' was defined by the King's Bench as an active occupation continuously carried on. As observed by the learned Judges of the Supreme Court in the case of Narain Swadeshi Wvg. Mills Ltd. v. CEPT [1954] 26 ITR 765, 772 to 774, business or vocation is understood to connote a very real, substantive and systematic course of activity or conduct for a set purpose. In the case of Upper India Chamber of Commerce v. CIT [1947] 15 ITR 263, the learned Judges of the Allahabad High Court have observed that business connotes activities in which a person is engaged with a set purpose. The frequency or the repetition of that activity, though at times a decisive factor, is by no means an infallible test. At the same time, as observed by their Lordships of the Privy Council in the case of CIT v. Shaw Wallace Co. AIR 1932 PC 138 and the learned Judges of the Supreme Court in the case of Liquidators of Pursa Ltd. v. CIT [1954] 25 ITR 265, underlying the expression 'business', is the fundamental ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other activity of public interest. It is notorious that the memoranda and articles of association of companies usually cover a variety of activities, only a few of which are in fact undertaken or intended to be undertaken. That obviates the necessity for applying for amendment of the articles from time to time and helps to rule out a possible challenge on the ground that the company has acted beyond its powers in undertaking a particular form of activity. The only activity in which the respondent is engaged over the years is the conduct of kuries. . . ." [Emphasis supplied] As in the case of Dharmodayam Co., so also in the case before us, may be, the articles of association or the memorandum of association permitted the assessee to carry on business activity. But the question is whether in fact, the assessee carried on any business activity during the year ? The answer is patently in the negative. 19. As to the incidence of profit from these three sources, the Government of Maharashtra, Oshiwara Land Development Corporation Ltd., and the Bombay Municipal Corporation, in our opinion, the voluminous case law relied upon by the learned representative for the assessee provides adequ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its resale were allied to his usual trade or business or incidental to it ; the nature and quantity of the commodity purchased and resold ; any act subsequent to the purchase to improve the quality of the commodity purchased and thereby make it more readily resaleable ; any act prior to the purchase showing a design or purpose, the incidents associated with the purchase and resale, the similarity of the transaction to operations usually associated with trade or business ; the repetition of the transaction ; the element of pride of possession. For deciding the question before us, we have first to answer the question posed by the Supreme Court in the case of Senairam Doongarmall, viz., before holding a receipt to be a profit or gains of business within section 10 of the Act, the question to be asked was whether there was a business at all, out of which it could be said that the income arose. Where an assessee did not carry on business at all, the section could not be made applicable and any compensation for requisitions of assets that he received could not bear the character of profits of a business. The compensation received by the assessee did not partake of the character of the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, therefore, proceeded to tax it as the assessee's income from other sources. On an appeal by the assessee, the Commissioner (Appeals) rejected the assessee's contention that the assessee being an investment company, the income earned from investment was business income. The Commissioner (Appeals) was of the opinion that for determining the head of receipt of income, one had to be guided by the nature of the receipts. Since the ground rent was fixed income and no trading activity was involved in the same, the ITO was justified in treating it as income from other sources. 22. The assessee has filed a further appeal before the Tribunal on the ground that the Commissioner (Appeals) erred in confirming the order of the ITO in this respect. It is submitted that having regard to the facts of the case and the provisions of law and having regard to the fact that in the past, this income has always been treated as business income, the finding of the Commissioner (Appeals) was erroneous and should be set aside. On a perusal of the record, we find that for the assessment years 1976-77 and 1977-78, the income has no doubt been treated as business income. But these are merely ITO's findings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ording to the assessee before the Commissioner (Appeals), the race horse business was also a part of the business activity and did not call for a separate treatment. The Commissioner (Appeals), however, rejected the assessee's plea, as according to him a specific provision had been made under the enactment for treatment of the loss pertaining to horses. The assessee has filed a further appeal before the Tribunal on the ground that the Commissioner (Appeals) erred in treating the loss from race horse breeding as a capital loss and not as a business loss. As one of the objects of the assessee-company was to breed and deal in horses, loss incurred under the said head should have been allowed as a business loss. We have carefully considered the submissions on behalf of the assessee. Merely because in the memorandum and articles of association, the assessee had mentioned breeding and dealing in horses to be one of the business activities, the assessee is not eligible for the claim for allowance of the expenses. Further, when a specific provision has been made under the Act, viz., section 74A and the ITO proposes to act under the same, we are unable to see what grievance the assessee cou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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