Judgment:
1. The department is aggrieved by the cancellation of penalty by the Commissioner for concealment of income.
2. Briefly, the assessee had leased out his flat on monthly tenancy.
Following are the material parts of the lease agreement in the form of a letter from the assessee to the tenant.
1. You will make good or replace any damages or breakages caused to the said premises by your user.
2. You will keep the said part of the premises in proper repair and in neat, clean and hygienic condition.
3. Originally the assessment was completed under Section 143(3) on 28-11-1984 allowing the assessee's claim for l/6th of the rent for repairs. While making the assessment for the subsequent assessment year, the ITO noticed the above clauses of the agreement and consequently reopened the assessment. After completing the normal procedure, he imposed the said penalty observing that the assessee had not appealed against the reassessment and that the said terms of the lease were within the knowledge of the assessee and so the assessee could not claim the deduction.
4. The Commissioner, following his decision in the quantum appeal for the subsequent assessment years 1984-85 and 1985-86 wherein he held that deduction for l/6th for repairs was admissible, cancelled the penalty. Before us, the learned departmental representative pointed out the following : (a) for the subsequent assessment year 1983-84 the assessee supplied the terms of the lease agreement only when the ITO asked for it and, therefore, the ITO had reopened the assessment for this assessment year 1982-83. The assessee had not disclosed the terms of the agreement in his return even in part III of the form.
(b) for the assessment years 1983-84, 1984-85 and 1985-86 the assessee had accepted the addition though no penalty had been imposed. On this basis, he submitted that the Commissioner was not justified in cancelling the penalty.
He relied upon the decision of the Supreme Court in the case of Sir Shadi Lal & Sons v. CIT (sic) 8] 169 ITR 5101 and referred to Section 23 of the Bombay Tenancy Act, 1974, according to which it was the duty of the landlord to keep the property in good repairs in the absence of contract or agreement. He pointed out that the responsibility for the repairs was not on the landlord. On this basis, he submitted that the Commissioner was not justified in cancelling the penalty. On the other hand, the assessee's Advocate pointed out that although the repairs and maintenance of the internal side of the lease hold premises was the responsibility of the tenant, the repairs and maintenance of the external side was that of the assessee-landlord. The flat leased was a part of a housing society and it had issued a letter to the members including the assessee which showed that major building repairs had been undertaken by that society and each member was required to contribute Rs. 40,000 and requesting payment of Rs. 5,000 at the earliest. Another letter from the society to the Members shows that the building needed urgent repairs to the Chhajas and waterproofing and the first stage of the work was estimated to cost Rs. 12,00,000. The Advocate submitted that the assessee was under bona fide impression, that since the responsibility for repairs of the building was on the lessor-assessee he was entitled to claim 1/6th for repairs under Section 24(1)(i)(a). He therefore, urged that the assessee could not be said to be guilty of concealment of income or of furnishing inaccurate particulars thereof.
5. The learned Departmental Representative rejoined that the obligation of the assessee to the society was separate and he could not claim the contribution in respect thereof from the tenant. He reiterated his argument based on the aforesaid decision of the Supreme Court according to which in these circumstances it was not Clause (a) but Clause (b) of Section 24(1)(i) which was applicable.
6. We are of the view that though the claim of deduction may be disallowed, but this is not the good case for imposition of penalty.
The aforesaid Supreme Court decision which has been relied upon by the learned Departmental Representative was regarding the deduction under Section 24 and not regarding the penalty and it is based on the finding that the tenant had undertaken "substantial repairs" which is not the situation here. Secondly, the assessee in this case could not be expected to be aware of the Supreme Court decision which was pronounced in 1987 while the original assessment was completed three years before that in 1984, much less could he imagine the judicial interpretation of the terms "repairs" given by the Supreme Court relying upon Halsbury's Laws of England and also a fine distinction drawn between the repairs and renewal. Thirdly, in this case, the owner not the tenant is responsible for the repairs of that part of the property outside the fiat which is necessarily connected with the flat because without it the flat cannot be used. Therefore, the portion outside the flat common to the other occupants of the building is necessarily apart of the property which is let out. Thus, it can well be argued that Clause (a) and not (b) of Section 24(1)(j) which is applicable. Lastly, the question of bona fide belief of the assessee cannot be considered merely in the light of the distinction between the agreement with the tenant as per the Income-tax Act and the agreement with the co-operative society. After all, the assessee's case is very simple. He has to share part of expenses incurred by the co-operative society for the repairs outside the flat. The tenant cannot use the flat conveniently without the assessee-landlord undertaking the responsibility for maintenance and repairs to the premises outside the flat. The assessee has given details regarding the expenses incurred by him compared to the claim of 1/6th for repairs as follows :Asst. year Actual expenses 1/6th of ratable value (actual rent received) This, of course does not cover the assessment year in question but it shows the responsibility which the assessee has to undertake. The expenditure is clearly far more than 1/6th amount which has been claimed. Even if the expenditure is very small for any year, the difference between the actual expenses and the 1/6th claim in the three years above is so much that the assessee would be justified, in entertaining a bona fide belief that he would entitled to the claim of 1/6th made by him. Therefore, the Commissioner's order is confirmed.