1. The assessee, a limited company (hereinafter referred to as DBCSIPL), in this appeal the assessee is aggrieved against the orders of the authorities below who had treated the receipt of Rs. 50 lakhs towards repair and renovation of the building 'Darabshaw House' from three of its tenants that were its sister concerns as income from other sources under the Income-tax Act, 1961 (hereinafter referred to as the Act). The appellant-company had adjusted the contribution so received against the capital cost of the building and on the net amount, had claimed depreciation from its income from letting of building and providing of other services.
2. The learned senior advocate Mr. Dastur, described the following as events that transpired from 1974 on and in connection with the said building. The building was initially owned by Darabshaw B. Cursetjee's Sons (Bom.) Pvt. Ltd. (hereinafter referred to as DBCSPL), and between 1974 & 1976 it had spent around Rs. 46.50 lakhs on repairing & renovating the building. On 15th Oct., 1977, a firm by name 'DBC Sons' was formed comprising of nine partners, viz., DBCSPL, the assessee (DBCSIPL) and seven other individuals. DBCSPL introduced the building as its capital contribution to the firm, for which purpose, it was taken at a value of Rs. 55 lakhs. On 4th Nov., 1978, DBC Sons, the firm, was dissolved and the assessee (DBCSIPL) took overall the assets & liabilities of the firm and for the purpose of dissolution & settlement between the partners, the building was got valued by an approved valuer at Rs. 1.03 crores. The amount payable by the assessee to DBSCPL was shown as unsecured loan in its books and in the year 1981, shares of a face value of Rs. 80 lakhs was issued in repayment of the liability.
3. DBCSPL, in its books, had treated the repair & renovation expenses incurred of Rs. 46.50 lakhs as on capital account and had enhanced the cost of the building. This was so pointed out to exhibit that at no point of time, the repair & renovation expenses were ever claimed as revenue expenditure in its account or from the income that was returned was income-tax purposes. Similarly, the expenses on repairs incurred of Rs. 4 lakhs, Rs. 52,000, Rs. 1.68 lakhs, Rs. 7 lakhs, Rs. 3 lakhs, in the years 1982, 1983, 1989, 1990 & 1991 respectively too were added to the cost of the building. It was stated that DBCSPL had always capitalised the amount spent on repair, reconstruction and renovation and the assessee also followed the same system.
4. In the previous year relevant to the assessment year under appeal, the appellant had raised debit notes that read 'share of expenses on repairs, reconstruction & renovation between 1974 & 1976' on three of its sister concerns, DBCSPL, Oceanic Shipping Agency Pvt. Ltd. and Agni Brokers, a unit of Transocean Shipping Agency Pvt. Ltd. of Rs. 40 lakhs, Rs. 5 lakhs & Rs. 7.5 lakhs, respectively. Agni Brokers settled their debit note for Rs. 5 lakhs. The three sister concerns contributed an aggregate of Rs. 50 lakhs, and the receipt was adjusted against the cost of the building, keeping in line with the practice of treating all receipt & expenses as on capital account only. The area that was under the occupation of the three concerns was 60% of the total available space and the balance of 40% was occupied by a nationalised bank and two other limited companies. Of the ten tenants of buildings, seven were tenants from 1970, one each from 1977, 1980 and 1985.
5. The assessee has income from property, the rent from ten tenants was Rs. 6 lakhs and service charges for common areas, that was being assessed as income from business till the assessment year 1988-89 and for the first time, in the present assessment year, the income was assessed under the head 'Income from property'. However, on the direction of the Commissioner of Income-tax (Appeals) [hereinafter referred to as CIT (A)], the rent was assessed under the head 'Income from property' and the service charges as income from other sources.
6. The Assessing Officer had recorded the facts, submissions, etc., of the assessee in connection with the receipt of Rs. 50 lakhs in paragraphs 3 to 6 and he summarised his reasons for rejecting the claim of the appellant-company as on capital account, which are given hereunder : (1) there was no agreement between the landlord and the tenants for sharing the cost of repair, renovation, restoration; (2) there was no agreement of tenancy; (3) there was no dispute between the landlord and the tenant; (4) the expenses on repair, etc., having been incurred by DBCSPL, the claim from the tenants should have been made by it and not by the assessee; (5) the claim as raised on the debit note was not based on a proportion of the area under occupation by the three tenants; (6) there was no claim or correspondence with other occupants of the building calling for their share on the repair expenses; (7) because, the tenants were paying nominal rent and, therefore, had come forward to share the repairs cost, and it therefore represented commuted value of extra service charges; (8) the cumulative expenditure on repairs, restoration of Rs. 46.50 lakhs along with the land value, needs to be adjusted against the receipts, and is on revenue account only; (9) the character of the receipt, is always to be adjudged from the point of view of the recipient and not from the point of view of the payer; and (10) the claim that the contribution was so made by DBCSPL because, at the time of dissolution in 1978, the building was overvalued, was held to be baseless because, the value was adopted as determined by the approved valuer and it was the then prevailing market price.
7. The CIT (Appeals), had wondered on the logic of DBCSPL which was the owner till 1977 and had incurred the expenses aggregating Rs. 46.50 lakhs on repairs, etc., between the years 1974 & 1976, paying or contributing a further amount of Rs. 40 lakhs to its successor. The CIT (Appeals) observed that the manner of recording of entries in the books of account are not decisive and conclusive in the determination of the true nature of a transaction. He also echoed the reasons given by the Assessing Officer and, accordingly, upheld the treatment of the receipt as income from other sources.
8. The learned senior advocate Mr. Dastur, had contended that the undisputed fact remained is that neither the predecessor company nor the assessee-company had claimed deduction of repairs, restoration & renovation expenses from its total income in any of the assessment years. He submitted that the department had accepted the fact that all repair, etc., expenses incurred from 1974 onwards had been added to the capital cost of the building and, therefore, the assessee was justified in treating the receipt of contribution for expenses on repairs incurred during 1974 to 1976 as on capital account and bringing down the capital cost of the building. He submitted that section 41(1) of the Act gets attracted only when in any of the earlier assessment years, deduction of any item had been claimed & allowed in computing the income for those assessment years and it was reimbursed or the provision based on which deduction is allowed is written back. He pleaded that because, in none of the earlier assessment years, the expenses on repairs, etc., was allowed in computing the income of the assessee, the department was not justified in the present assessment year to choose to bring to tax the reimbursement or contribution towards such expenses incurred over a decade back. He submitted that this proposition has the sanction of the Calcutta High Court in CIT v.Stewarts & Lloyds of India Ltd. [1987] 165 ITR 416/[1986] 28 Taxman 381, Delhi High Court in Addl. CIT v. Handicrafts & Handloom Export Corpn. [1982] 133 ITR 590/[1981] 7 Taxman 335 and the Patna High Court in CIT v. Beldih Club [1986] 161 ITR 861/29 Taxman 268.
9. The fact in brief are that DBCSPL introduced the building as its capital contribution into the firm in 1977 that stood at a value of nearly Rs. 55 lakhs in its books of account, adopted the said value for the purpose of capital contribution. Towards the close of 1978, the firm was dissolved and for the purposes of dissolution of the firm the value of the building was adopted at Rs. 1.03 crores, which was based on the valuation made by a Government approved valuer. On dissolution, the assessee took over the building at Rs. 1.03 crores and consequently the liability of settling the account of the other partner, namely DBCSPL which was Rs. 80 lakhs and this liability was reflected as unsecured loan. This unsecured loan was got converted into share capital of a like amount by issue of equity shares in the year 1981.
9.1 In the accounting year 1988-89, i.e., after over ten years, the assessee raises three debit notes aggregating Rs. 52.50 lakhs towards the repairs, restoration & renovation expense incurred during 1974 to 1976, on three of its tenants DBCSPL, Oceanic Shipping Agency Pvt.
Ltd., and Agni Brokers. DBCSPL accepts the debit notes and compensates the assessee to the extent of Rs. 40 lakhs and two other sister concerns too accept and settle it for a total of Rs. 10 lakhs. The balance sheet as at 31-3-1982 showed the value of the building at Rs. 1.03 crores and in the balance sheet as at 31-3-1989, the amount received of Rs. 50 lakhs was shown as reduction from the cost and the expenses on repairs of Rs. 1.68 lakhs had been added to it and cost before depreciation was depicted at Rs. 68.88 lakhs.
9.2 The claim of the appellant as advanced by it was that the debit notes has a close link to the repair, restoration, etc., incurred over twelve to fourteen years back and because, in the year or years in which deduction from the income for tax purposes was not claimed by DBCSPL, but, capitalised, the recovery in the previous year relevant to the assessment year under appeal had to be treated as on capital account. It is a case where the building had changed hands twice after the alleged expenditure on repair, etc., were incurred and capitalised.
For the first time, a year following the year in which the repairs, restoration & renovation was effected as capital contribution by adopting the value at Rs. 55 lakhs, and the second time a year following the introduction as capital contribution to the firm, consequent to dissolution of the firm, for which settlement, it was once again valued at Rs. 1.03 crores. On both occasions, the partner's (DBCSPL) capital account stood credited with Rs. 55 lakhs and in satisfaction of Rs. 1.03 crores, by issue of share capital of Rs. 80 lakhs. In our view, the treatment given to expenses by DBCSPL gets watered down from the time, the building got introduced as capital contribution to the firm and further washed off on dissolution of the firm when the assessee took it over after getting it valued from an approved valuer. Therefore, the past repairs are mere historical events and have no relevance whatsoever as far as the assessee is concerned.
Therefore, in our view, in these circumstances of change of ownership to the building, the accounting treatment of DBCSPL of capitalising the repairs is of no consequence and cannot be insisted upon for clothing the receipt as capital in nature.
10. Mr. Dastur, the learned senior advocate, had contended that all receipts of money do not necessarily lead to the conclusion that it has the character of income embedded in it and it is for this reason that the courts had been repeatedly holding that the burden squarely lays upon the person who claims it to be of the nature of income. He pleaded that the recovery of contribution towards repair expenses incurred in 1974 to 1976 has been treated by the department as income without satisfying the heavy burden that was placed upon them. He pleaded that it is not sufficient to treat some receipt as income by merely rejecting the contentions of the assessee but, it becomes the department's primary duty to bring on record sufficient basis and reasons before it can even attempt to treat the receipt as income. He supported his submissions by placing reliance on one of the earliest of the decision of the Supreme Court in Parimisetti Seetharamamma v. CIT [1965] 57 ITR 532 and on the Bombay High Court decisions in Dilip Kumar Roy v. CIT [1974] 94 ITR 1 and in Smt. Panna Devi Chowdhary v. CIT [1994] 208 ITR 849/75 Taxman 507.
10.1 Mr. Dastur submitted that the Supreme Court in CIT v. Lahore Electric Supply Co. Ltd. [1966] 60 ITR 1 had clearly held that it is necessary to examine an aspect from its true perspective. He further contended that all receipts are not necessarily of the nature of income and before any item of receipt could even be classified as casual or non-recurring income, it must first bear the character of income. He pleaded that the argument advanced by him has the sanction of the Supreme Court in CIT v. Madurai Mills Co. Ltd. [1973] 89 ITR 45 and P.H. Divecha v. CIT [1963] 48 ITR 222, 236 and Bombay High Court in Mehboob Productions (P.) Ltd. v. CIT [1977] 106 ITR 758, 771, 776, 784 & 788. He pleaded that the impression carried by the department that it was a device to evade or avoid income-tax is ill-founded because DBCSPL had declared income of Rs. 74 lakhs which was assessed at Rs. 90.35 lakhs.
10.2 The senior advocate was asked whether the decision of the Special Bench of the Tribunal in Cadell Wvg. Mill Co. (P.) Ltd. v. Asstt. CIT [1995] 5 ITD 137 (Bom.) has any effect on the facts of the instant case. He submitted that the reading of the order of the Tribunal did indicate that it had been held that a receipt could be casual income but, before applying the said decision, it is necessary to keep in mind the doctrine of per in curium. He relied for the above submissions on the decision of the Supreme Court reported in [1990] 3 SCC 682, 704, Bombay High Court in CIT v. Modu Timblo (Individual) [1994] 206 ITR 647, 666, Kerala High Court in Mani & Co. v. CIT [1995] 213 ITR 563, 570/79 Taxman 329 and the Tribunal decision in Chandulal Venichand v.ITO [1990] 38 ITD 138 (Ahd.).
11. The contention of the learned departmental representative Mr.
Rinawana supported the orders of the lower authorities and submitted that there was obviously some motive that was involved in connection with the payment stated to be reimbursement towards repairs, etc., that too by that person who had incurred on those repairs when it was the owner between 1974 to 1976. It was further contended that the reason advanced by the assessee that such reimbursement was so made because, when it was so taken over in 1978, it was overvalued is baseless as had been observed by both the lower authorities for the value was adopted as based upon the approved valuer's report. He referred to the following decisions, viz., Supreme Court in Nalinikant Ambalal Mody v.S.A.L. Narayan Row, CIT [1966] 61 ITR 428, CIT v. Cocanada Radhaswami Bank Ltd. [1965] 57 ITR 306, Universal Radiators v. CIT [1993] 201 ITR 800/68 Taxman 45 and CIT v. G.R. Karthikeyan [1993] 201 ITR 866/68 Taxman 145 and on the Bombay High Court in Mehboob Productions (P.) Ltd's. case (supra).
12. The annual rent from the building, considering its location and size that is stated to be quite big, is very low and considering the fact that as many as seven tenants are in the occupation of the building for nearly two decades which is indicative of the fact that rate of rent that was fixed was based on the rate that existed nearly nineteen years back, at which time, availability of space was not so scarce as at present. Therefore, it is quite natural that the landlord may not be in a position to maintain the building with the low rent and the tenants may bear the maintenance expenses, which, if so borne by the tenants, the same is added to the rent for being treated as an addition to the annual letting value within the meaning of section 23 of the Act. The repair that is made part of the annual letting value in section 23 of the Act, is normal or routine repairs that are in the nature of replacement and correction. The repair to restore the life to the building, does not fall within the same category of normal or routine repairs for several reasons though, the landlord may be compelled to ensure the safety of its tenants.
12.1 It has been observed earlier that a receipt towards repairs on an annual basis from the tenant, is normally to be made part of the annual letting value but, such repairs cover only normal repairs and not, substantial renovation, more so when it is demanded of the tenant after a lapse of few years of such expenses. There are rulings of the Courts that arrears of rent received in a later year could not be brought to tax in the year of receipt which is based on the fact that income from property is assessable on the annual letting value and not on the basis of actual receipt of the rent. Therefore, the recovery of repair carried out in the preceding years, could not be brought to tax as income of property.
13. What is intriguing is the reason behind the raising of the debit notes of expenses incurred over twelve to fourteen years back that too on the same person which had incurred those very expenses as an owner at that time There was no compulsion of any sort and there could not be any legal ground for claiming the said amount at least from the same person who had incurred those expenses. The reason advanced before the lower authorities that the low rent was the reason for the tenants accepting to share the expenses on restoration, renovation, etc., does not fit into logic in the circumstances of the case when, the person paying happens to be the same person who had incurred them over twelve to fourteen years back. Further, the payment was so made because, in 1978, the building was overvalued also does not fit into logic because, the other two concerns were not responsible for such overvaluation as they were not partners between 1977 and 1978. Also, the reason advanced of over-valuation in the year 1978, is baseless because, DBCSPL was issued shares for a value of Rs. 80 lakhs in 1981.
14. But, the reason that there appears no logic in the transaction is not sufficient to come to the conclusion that the receipt carries the character of revenue. The Courts had been rather quite emphatic that the burden heavily lies on the department especially when it claims that a particular receipt is revenue in nature, contrary to what is claimed by the assessee based on the evidence that is placed by it. The Courts also have been effectively deducing that it would be improper to place reliance on a particular document partly for coming to a decision.
15. The Supreme Court in Parimisetti Seetharamamma's case (supra) had observed that : "in all cases in which a receipt is sought to be taxed as income, the burden lies upon the department to prove that it is within the taxing provision. Where however a receipt is of the nature of the income, the burden of providing that it is not taxable because it falls within an exemption provided by the Act lies upon the assessee." "In all cases in which a receipt is sought to be taxed as income, the burden lies upon the department to prove that it is within the taxing provision. Where however a receipt is of the nature of income, the burden of proving that it is not taxable, because if falls within an exemption provided by the Act, lies upon the assessee." In Bombay High Court in Smt. Panna Devi Chowdhary's case (supra) had observed : "The Income-tax Act imposes a liability to tax upon income. It does not provide that whatever is received by a person can be regarded as his income liable to tax. In all cases in which a receipt is sought to be taxed as income, the burden lies on the Department to prove that it is within the taxing provision. It is only in a case where the receipt is in the nature of income, that the burden of proving that it is not taxable lies upon the assessee. As observed by the Supreme Court in Parimisetti Seetharamamma v. CIT [1965] 57 ITR 532, where the case of assessee is that a receipt did not fall within the taxing provision, the source of the receipt is disclosed by the assessee and there is no dispute about the truth of that disclosure, the income-tax authorities are not entitled to raise an inference that the receipt is assessable to income-tax on the ground that the assessee has failed to lead all the evidence in support of his contention that it is not within the taxing provision." 16. In the instant case, there appears no other contract between DBCSPL, and the assessee under which the payment of Rs. 40 lakhs was made and likewise, the other two concerns too had no other contract for making the payment. The department did not merely reject the debit notes but, had inferred what the debit notes states is not what was intended to and acted upon by the parties. Now, comes the nature of the receipt of past repairs, restoration and renovation, bearing any character of income. On this proposition, how does it become entitled to claim from the tenants is intriguing more than it raising the debit note on some of its tenants. One other argument that was raised was, that from the time, the assessee became the owner, the expenses on repairs was capitalised or added to the cost of the building and, therefore, the recovery towards past repairs had been properly been credited to the capital cost and had reduced the cost. This was raised for driving the proposition that expenses when not claimed as a deduction in computing the income, the receipt thereof, could not be treated as income.
17. If the receipt is not or could not be brought to tax because, the head of income under which, it could normally be assessed does not permit it being so included, the head of income 'income from other sources' could not be brought into operation. We may observe that the Supreme Court decision in Nalinikant Ambalal Mody's case (supra), had specifically held that the every head of income having been defined to be mutually exclusive, it is not permissible to bring to tax under the residuary head 'Income from other sources' and that either the income could not be brought to tax under a specific head, then, it could not be brought to tax at all.
18. We now come to deal with the concept 'casual and non-recurring income' which was touched upon by the Special Bench in Cadell Wvg.
Mill. Co. (P.) Ltd.'s case (supra). The contention of the appellant was that the receipt must first bear the character of income before being considered as casual income. It was further contended that section 10 of the Act is for providing exemption to certain receipts that have the character of income and is not intended to hint at charging to tax the receipt or income. There is no denial that section 10 of the Act is intended to exempt certain types of receipts that has the character of income. A receipt of casual nature, it has the character of income embedded in it and the quantum of receipt is greater than Rs. 5,000, section 10(3) of the Act exempts out of the above only Rs. 5,000 and the balance amount is taxable.
19. The assessee had been providing certain services for which it had been receiving certain income which income had been directed by the CIT (Appeals) to be assessed under the income under the head 'Income from other sources' against which decision, the appellant-company has no grievance. The debit note though, stated as for recovery of past repairs, could be considered as towards certain services that is being provided to three of its tenants and from that point of view, it could be assessed under the head 'Income from other sources'. This conclusion we have come to on the basis that the three concerns would not have come forward to give a sizable amount without expecting nothing in return and this could be nothing else but, certain services rendered to them. The term 'income' as defined in section 2(24) of the Act is exhaustive and not inclusive and in our opinion that it includes what is received or what comes in by exploiting the property. Further, whether a receipt is liable to be treated as income depends mainly on the facts and circumstances of each case, and inference can be made that a receipt by an assessee is assessable income by taking into the surrounding circumstances as well.
19.1 The Supreme Court in Universal Radiator's case (supra) and G.R.Karthikeyan's case (supra) was considering the expression 'income' as defined in section 2(24) of the Act and had held that it is exhaustive and should be considered as inclusive all such receipts which have the character of income. In Universal Radiators' case (supra) though, the assessee was not a dealer in raw materials but, was using it to produce radiators and selling them, and the compensation that was received was not for loss of raw material but got converted into something other than its stock of raw material, namely, exchange gain. Because, the exchange gain was an off shoot of the raw material that was stock of the assessee, keeping in mind such close connection, it was held to be revenue income. In the instant case, the assessee charging nominal rent from its tenants when claims share of restorations, renovation of the building, it is closely connected to its business of letting of the building and is obviously revenue income.
"Further, even if a receipt does not fall within sub-clause (ix), or for the matter, any of the sub-clauses in section 2(24), it may yet constitute income. To say otherwise would mean reading the several clauses in section 2(24) as exhaustive of the meaning of 'income' when the statute expressly says that it is inclusive. It would be a wrong approach to try to place a given receipt under one or the other sub-clause in section 2(24) and if it does not fall under any of the sub-clause, to say that it does not constitute income. Even if a receipt does not fall within the ambit of any of the sub-clause in section 2(24), it may still be income if it partakes of the nature of the income. The idea behind providing an inclusive definition in section 2(24) is not to limit its meaning but to widen its net. ......... Judging from the above standpoint, the receipt concerned herein is also income. May be it is causal in nature but it is income nevertheless. That even causal income is 'income' is evident from section 10(3). Section 10 seeks to exempt certain 'income' is evident from being included in the 'total income'. A casual receipt - which should mean, in the context, casual income - is liable to be included in the total income, if it is in excess of Rs. 1,000, by virtue of sub-section (3) of section 10. Even though it is a clause exempting a particular receipt/income to a limited extent, it is yet relevant on the meaning of the expression 'income'." 20. On an overall appreciation of all the facts and the surrounding circumstances, we are of the opinion that in the circumstances of the case, the receipt of Rs. 50 lakhs is income for services rendered and is assessable under the head 'Income from other sources'. Accordingly, we uphold the orders of the lower authorities and dismiss the appeal of the appellant-company.