Law: Income Tax Act, 1961

Section: 256(1),104,28,37,22,23,54

Law: Income Tax Act, 1922

Section: 9

(a) Income tax-- ---- Business---Business income or income from property---Company obtaining lease of land and constructing building thereon---Company collecting non-refundable deposits and compensation from shareholders and transferring occupancy rights in building to them---Non-refundable deposits and compensation constituted business income---Higher amount charged by shareholders to third parties for transfer of occupancy rights---Not assessable in the hands of company---Indian Income Tax Act, 1961, Ss. 22 & 28. The assessee was a company. By an agreement of lease, dated November 28, 1964, the Government of Maharashtra agreed to grant a long ­term lease in respect of certain plots of land situate at Bombay in favour of the assessee. The assessee constructed a multi-storeyed building on the land. The assessee was the owner of the building and a lessee of the land. The assessee collected large amounts from its shareholders during the course of years under the caption "non-refundable deposits". The assessee allotted floor space in the said building to its shareholders and conferred rights on the shareholders-allottees to transfer their occupancy rights to third parties. The shareholders-allottees were liable to pay periodical amounts to the assessee labelled as compensation as fixed by the assessee, mainly with the object of covering maintenance charges and liabilities for municipal taxes, etc., payable for the property. The shareholders-allot fees charged the third party occupants higher compensation. A Division Bench of the High Court held with reference to the assessment years 1967-68, 1068-69 and 1969-70 (Shree Nirmal Commercial Ltd. v. CIT (1992) 193 ITR 694 (Bom.)) that the deposits were taxable as business income of the assessee and that the Income Tax Officer could not enhance the compensation to the extent of the compensation received by the shareholders from other parties for occupation of the premises allotted to them by the assessee. On a reference to the Full Bench in respect of the assessment years 1973-74, 1974-75 and 1975-76: Held, that the Department having urged that the income in the earlier assessment years was income from business or…

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