JUDGMENT
Smt. Sujata Manohar, J.
1. A common question of law arises in these IT Reference. For the sake of convenience, we are setting out the facts of IT Ref. No. 64 of 1978.
2. The assessee is a co-operative society registered under the Bombay Co-operative Societies Act, 1925. The society took on lease certain lands in Juhu-Vile Parle from the Bombay Housing Board constituted under the Bombay Act 49 of 1948 for the purpose of building houses for its members. The Housing Board originally acquired lands admeasuring 426 acres and 23 gunthas for the purpose of building residential houses. It developed the land and laid out roads and provided other amenities. Instead of directly allotting the plots to various individuals for the purpose of constructing houses, the Housing Board gave permanent leases in favour of 14 co-operative housing societies formed for the purpose of allotment of house sites to their members. The assessment-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.
3. The co-operative housing society, 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 IT Ref. No. 521 of 1978.
There is a similar clauses in the lease deeds executed by the members of all other co-operative housing society which are before us in this group. It is to the following effect :
“Not to assign, underlet or part with the possession of the demised plot and premises at any time during the said term hereby granted without the written consent of the Lessor for that purpose previously had and obtained such consent not to be withheld in the case of a responsible and respectable tenant being a registered member of the society provided always and it is hereby agreed that on every permitted disposition or devolution of or dealing with the demised plot and premises and shall also pay to the Lessor half the extra amount received by the Lessee from the purchaser transferee or under lessee over and above the capital cost with interest thereon at 6-1/4 per cent per annum upto a limit of one-third of the capital cost.”
4. Accordingly, whenever there was a transfer of a plot by a member in favour of another person, half the amount of premium or excess so determined, received by the member was paid to the society while transferring the plot. Thus, each of these societies received during the assessment year in question certain amounts in this fashion. In the case of the assessee-society in IT Ref. No. 64 of 1978, a sum of Rs. 66,209 was so received in the asst. yr. 1971-72. The amounts so received vary from society to society, but they are substantial. It also appears from the facts disclosed in these reference that such amounts are being received by the societies every year. It is not necessary to go into the various order passed in respect of each of the societies by the Department authorities. The Tribunal, however, has ultimately held in the case of each of the housing societies that the amount so received by the housing societies is a capital receipt and cannot be considered as income of the society. In view of this conclusion arrived at by the Tribunal, the following question is referred to us at the instance of the Revenue under s. 256(1) of the IT Act, 1961. For the sake of convenience, we are setting out the question as framed in IT Ref. No. 64 of 1978 :
“Whether, on the facts and in the circumstances of the case, the amounts received by the assessee society in terms of cl. 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.
5. 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 transfer 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 upto a limit of 1/3rd 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 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 payment for parting with any of its rights in the land or building concerned. It received the amount on a transfer of the assessee’s rights under the terms of the lease deed which it has entered into with the member concerned. We have to examine whether this is a capital receipt or whether it constitutes income of the society.
6. The term “income” under the IT Act is very wide and varied in its import. It is an expression of elastic ambit and the Courts, when describing income, have always clarified that any definition is not exhaustive. Basically, in order to decide whether the receipt is capital or income, the receipt has to be examined from a commercial point of view. Secondly, what has to be examined is the character of the receipt in the hands of the receiver. A capital receipt in the hands of one may be income in the hands of another. Therefore, we must see in the present case whether in the hands of the society, the receipt of this extra amount can be considered as a capital receipt or as income. Why does the society for the transfer of any of its capital assets. Nor is it an amount received by the society for the creation of any new rights in the capital assets which it possesses. The rights of the society in its capital assets are not affected in any manner by the transfer in question. Hence, it cannot be viewed as a capital receipt. If at all it is to be viewed as a capital receipt, it is more in the nature of circulating capital, where the housing society makes a profit on the turnover of its leased out property when it changes hands. In other words, basically it is an amount which the society receives by exploitation of its capital. It is not an amount received by the society for the purpose of creating any rights in its capital or for lacking its capital in any manner or for transferring it in any manner. In this sense, the amount which is received by the society is somewhat different in character from the premium which an owner may receive for creating a lease.
7. The assessees have strongly relied upon a number of cases in which the Courts have considered a premium or “salami” paid for creating a lease as a capital receipt and not as income. In the case of Durga Das Khanna vs. CIT , the lessees paid to the lessor a sum of Rs. 55,200 towards 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 a 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 the settlement of the demised property and recurring payments made during the period of the settlement of the demised property and recurring payments made during the period of its enjoyment by the lessee 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.
8. In the above case the Supreme Court cited with approval the definition of ‘income’ given by the Privy Council in the case of CIT vs. Shaw Wallace & Co. (59 Indian Appeals 206) to the effect that income in the Indian IT Act connotes a periodical monetary return, coming in with some sort of regularity or expected regularity from definite sources. The premium or salami which was paid once for all and is not a recurring payment, hardly satisfied this test. The Supreme Court, therefore, held such a premium to be a capital receipt. But it does not follow that a payment which is not received with any periodic regularity necessarily ceases to be income. The definition of income given in the above case of Shaw Wallace & Co. has been considerably whittled down in later decisions, although it continues to serve as a pointer to some of the factors which may be considered in deciding whether a receipt is to be considered as revenue or not. We will come to this a little later.
9. In the case of National Cement Mines Industries vs. CIT , the assessee-company was carrying on the business of manufacturing cement and lime, sale of limestone and of acquiring the rights and concessions of one K. Co. The assessee-company conveyed to another company its rights and concessions pertaining to limestone and bauxite deposits for a present consideration and further payments. There was a covenant for certain minimum annual payments. The purchaser company undertook to pay all rents, royalties, etc., due under the rights and concessions. In the accounting year in question, the assessee-company received Rs. 77,820 under the covenant providing for the payment of 12 annas per ton of cement manufactured by the purchaser company. The question was whether that amount was taxable income. The Supreme Court held that the transaction was substantially a commercial transaction for sharing the profits of the commercial activities of the purchaser company and, hence, the amount was of the nature of income and not capital. In deciding the question the Supreme Court has observed, “In assessing the true character of a receipt for the purpose of the IT Act, inability to ascribe to the transaction which is the source of the receipt, a definite category is of little consequence. It is not the nature of the receipt under the general law but in commerce that is material. It is often difficult to distinguish whether an agreement is for payment of a debt by instalments or for making annual payments in the nature of income. The Court has, on an appraisal of all 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”.
10. In the present case, the payment is certainly not in repayment of capital on account of parting with of 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.
11. The other cases which have been cited in this connection are CIT vs. Port Canning & Land Improvement Co. Ltd. reported in (1966) 62 ITR 87 (Bom), Ukhara Estate Zamindaries P. Ltd. vs. CIT , CIT vs. Bombay Burmah Trading Corpn. and Board of Agrl. IT vs. Sindhurani Chaudhurani reported in (1957) 32 ITR 169 (SC). We are not referring to these 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 somewhat similar to the facts of the cases which are before us.
12. We may, however, refer to the case of Shree Nirmal Commercial Ltd. vs. CIT (1992) 193 ITR 694 (Bom). In the above case the company had obtained a lease of a piece of land belonging to the Government of Maharashtra with an intention of constructing a building which could be used as commercial premises. In order to raise finances for the construction, the company devised a scheme. Under the scheme, the shareholders of the company were to enter into a standard form of agreement which would confer on the shareholders the right of occupation of specified floor space in the building. As against this, the shareholders were required to pay what was styled as compensation at such rates as the directors might, from time to time, determine. In the asst. yr. 1970-71 the assessee received non-refundable deposits totalling Rs. 5,99,861 which were held by the Tribunal to be in the nature of business receipts and considered as income. The Court said that having regard to the manner in which the non-refundable deposits were taken from the shareholders and having regard to the fact that the shareholders were entitled to assign the floor space to others on payment of compensation and to transfer their occupancy rights by selling shares, the whole transaction was, in reality, a sale of floor space by the assessee-company to its shareholders. After parting with the right of occupancy of the floor area to every member, what remained with the assessee was merely ownership in the technical sense of the word. The Court held that the deposits had to be treated as trading receipts. In the present case, the assessee society while granting a lease to each of its members has inserted a clause in the lease whereby it has retained a right to share in the excess amount which the members may receive while transferring his rights. This also, to out mind, appears to be in the nature of an income receipt rather than a capital receipt.
13. It was, however, urged by the assessee that the excess amount in the hands of the member was in the nature of a premium or a profit arising out of the sale of his interest in an immovable property and would be capital gains in the hands of the member. A portion of this amount when transferred to the society would, 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 gives to the society this benefit.
14. 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 certainly. 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 fluctuation and can be considered as more akin to a windfall rather than as in income. This submission does not appeal to us. In the first place, the receipt of this amount by the society can never be considered as akin to a windfall because the receipt of this amount by the society is under the terms of the contract which has been entered into by the society with its members. Therefore, whenever there is any excess receipt by a member on transfer of this interest, the society is entitled to half of this excess. It is true that there is no regularity about the receipt of such an amount. It depends on the member transferring his interest. But this by itself is not sufficient, in our view, to take away from the receipt the character of income. Even a payment which may be received occasionally can be income. For example, a professional may receive fees only occasionally as and when he gets work. It nevertheless is his income. There is no certainly about the receipt of this amount. Whenever such amount is received by a member, the society is bound to get half the portion.
15. The Department also drew our attention to a decision of the Supreme Court in the case of CIT vs. Ram Kirpal Tripathi reported in (1987) 163 ITR 176 (All) in support of its argument that even an occasional and voluntary offering can be considered as income. This decision, however, does not have any bearing on the question which is before us.
16. Out attention was drawn to a decision in the case of CWT vs. P. N. Sikand . The Supreme Court in this case was required to consider the value of the leasehold interest of the respondent in the land for the purpose of assessment to wealth-tax. The lease contained a clause to the effect that the lessee would have to pay to the lessor 50% of the excess amount whenever he transfers his leasehold interest to another. The Supreme Court said that such a clause had the effect of depressing the value which the leasehold interest would fetch if it were free from the burden or disadvantage. Therefore, the leasehold interest in the land had to be valued by taking into account this burden or disadvantage.
17. Although the clause which is considered in this case is similar to the clause which is before us, it has been considered from a totally different point of view by the Supreme Court for the purpose of valuing the leasehold interest in the property for the purpose of wealth-tax. The ratio of this decision would have no bearing on the question which we have to decide.
18. Looked 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 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 undersirable 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 undersirable. Therefore, in our view, the purpose for inserting the clause is to ensure an income to the society whenever there is a transfer of the member’s interest in favour of a third party.
19. All these cases emphasise the fact that the concept of income is very wide and it can cover within its ambit various types of receipts which are not capital receipts. We are not going into the question whether the income received by the housing society is business income or not. Undoubtedly, the by-laws of some of the societies do provide that the object of the society shall be to carry on the business of building and of buying, selling hiring letting and developing land and accordance with co-operative principles alongwith other objectives such as carrying on social, recreative and educational work in connection with its tenants. The question which is referred to us does not require us to consider whether this is a business income of the society or whether it is income from other sources. Hence, this is a question which the Tribunal will have to decide when the matter goes back to the Tribunal.
20. Accordingly, the question which is referred to us is answered as follows :
The amounts received by the assessee-society were not capital receipts but were assessable to tax as income of the society.
21. The questions in all these four references are answered accordingly.
No order as to costs.