1. These are cross appeals by the assessee and the revenue relating to assessment year 1992-93. In the assessee's appeal following grounds have been raised :- 1. On the facts and in the circumstances of the case, the learned CIT(A) has grossly erred in holding that the assessee-company is assessable in relation to the rental income from Scindia House under the head 'Income from Property' and not under the head 'Income from business' as claimed by the assessee which is contrary to the ITAT Order in ITA No. 5151/for the assessment year 1982-83 and ITAT order dated 29-4-1993 for the assessment years 1983-84 to 1987-88.
2. On the facts and in the circumstances of the case, the CIT(A) has erred in holding that the assessee-company is not entitled to the expenses incurred for carrying on the business disallowed by the Assessing Officer as under:- 1/6th for repairs.
Rs. 15,37,907(b) Claim for house tax was not to be allowed as from house property' Rs. 1,00,000(c) Legal charges Rs. 3,38,398(d) Security expenses Rs. 58,226(e) Court fee Rs. 1,793 -------------- 3. On the facts and in the circumstances of the case, the CIT(A) has erred to confirm the disallowance under Section 43B of payment of PF Rs. 10,797 and ESI Rs. 3,369.
2. The assessee declared rental income from Scindia House under the head income from business. The Assessing Officer, however, treated the said rental income as income from house property. He gave several reasons which are reproduced below :- (i) Since specific head of charge is provided for income from ownership of house property, rent or other income from the ownership of the house property cannot be taxed under any other (ii) Assessment under the head 'house property' in such a case is not only proper but obligatory.
(iii) It makes no difference that the property constitutes stock-in-trade of the business and/or that it is assessee's business to let out the house properties or rooms. The rent cannot be taxed under Section 29 as business income.
(iv) The house owned however profitable, is not a trade or business within the meaning of the Act.
(v) Even if the owner is the company incorporated for the very purpose of owning house property is an immaterial fact.
(vi) In no case, does the Act regard income derived from ownership of the building as profits of business.
(vii) The Supreme Court has held in the case of East India Housing & Land Development Trust Ltd. that even a company incorporated with the object of promoting and developing markets was assessable under the head 'income from house property' and not under Section 28 in respect of rental income of market shops stalls owned by it.
(viii) In the case of commercial properties where the assessee-company having its sole object business of acquiring land/building houses and letting out the premises to tenants and its sole assets consisted of house properties. It was held that income from house property was taxable as income from house property and not under Section 28. An opposite conclusion was reached only where the company was not an owner of the property but had taken it on lease, and sublet portions of it as part of its business.
(ix) Whether the subject which is let or given on licence is not a bare tantamount but is complex one, e.g., well equipped theatre, after safe deposit vault or vaults for storing and preserving films including special devices facilities and services or an air-conditioning plant and an auditorium with various facilities or a well-furnished paying guest establishment or sheds with infrastructured facilities, income may not be from mere ownership of house property but may be assessable as income from business.
Similarly, where whole commercial concern is let out e.g., a hotel, jute press or rice factory, including the building, income may be assessed as income from business. Reliance was placed in this regard on the judgment of House of Lords held in the case of Governors of Redundal Hospital v. Ceman and other judgments in the cases of National Building Co. Ltd. (Bombay High Court), Manohar Singh (Punjab & Haryana High Court), Andhra Pradesh Small Scale Industrial Development Corporation (A.P. High Court).
(x) It was not the case of the appellant that it has obtained property on hire and, thereafter sub-leased it and it is also not the case of PART 2 APRIL 9-APRIL 15, 2003 75 the small appellant that it has let out whole commercial complex such as hotels or factories.
3. Accordingly, the Assessing Officer concluded that the building had been let out and the assessee was not doing any business and therefore the rental income was assessable under the head 'income from house property' and not under the head 'income from business' as claimed.
Consequently the Assessing Officer held that the assessee was not entitled to deduction of the following claims as business expenses :- 1/6th for repairs was allowable Rs. 15,37,907(b) Claim for house tax was not to be allowed income from house property Rs. 1,00,000(c) Legal charges Rs. 3,38,398(d) Security expenses Rs. 58,226(e) Court fee Rs. 1,793 -------------- 4. Thus the Assessing Officer computed the income from Scindia House as income from house property at Rs. 50,80,692 after allowing the following deductions from the gross rental receipt of Rs. 63,87,603 as under:-(i) House tax Rs. 1,00,000(ii) 1/6th for repairs Rs. 10,35,607(iii) Collection charges Rs. 97,344 5. Aggrieved the assessee preferred first appeal before the learned CIT(A). It was submitted that the rental income from Scindia House was treated as income from business as per ITAT orders in earlier years. It was contended that there was no justification for departing from the orders of the earlier years. Reliance was also placed on Delhi High Court decision reported in 9 Taxman 7 (sic). It was stated that since NDMC had refused permission no construction was started on this property and as such no business was carried on during the previous year relevant to the assessment year in question. To a query by the learned CIT(A) it was replied that no sale of any part of the property had taken place for a period of seven years from 1988 till date and the assessee was earning rental income from Scindia House because L&DO had not given permission of mutation even of property sold in 1988. It was, however, claimed that the property was stock-in-trade and the assessee was hopeful that the L&DO would give permission and the assessee would be able to exploit the property commercially. It was, therefore, contended that the assessee was carrying on business in respect of the said property and hence the rental income from this property was assessable as income from business. To another query of the learned CIT(A) the assessee submitted before him that in view of the refusal of sanction by NDMC for construction of roof of the building, no construction was possible and in fact the assessee had to refund the money received as advance from prospective buyers earlier. It was however contended that the main object of the assessee was to deal in property as trade and not to earn rental income as an owner of the property and hence the rental income from the said property had to be assessed under the head 'income from business'. Reliance was placed on the ITAT decision in the case in earlier years.
6. The learned CIT(A) was not satisfied and convinced with the submission and contentions made before him. He observed that the ITAT went into the issue for the first time in the assessment year 1980-81 vide order dated 20-4-1992 in ITA No. 7214/Delhi/89. The rental income was held not assessable as income from house property because the assessee had not become the owner of the property during the previous year relevant to the assessment year 1980-81. The learned CIT(A) noted that the sale deed was executed on 3-5-1980 i.e. after the previous year relevant to assessment year 1980-81. This fact was recorded in the said order of the ITAT. In the subsequent years, the ITAT order for the assessment year 1980-81 was followed under the inadvertent mistake that there was no change of fact. As mentioned above, the correct position of the case was that there was change of fact after the assessment year 1980-81 inasmuch as, the sale deed was executed on 3-5-1980 and the assessee had become the owner of the property and as such the important requirement of law for assessment of the rental income under the head 'income from house property' stood fulfilled. Hence the rental income was assessable under the head 'income from house property' from the assessment year 1981-82.
7. The learned CIT(A) further observed that the property in question could not be treated as stock-in-trade and there was no possibility of any construction thereon in view of NDMC and L&DO stand in the case.
The assessee had been receiving rental income from the property and there was no activity in respect of the same which could be construed to be the business activity under the law. He further observed that ITAT orders in the assessment year 1980-81 could not be followed because of the change of fact that the assessee became the owner of the property during the previous year relevant to the assessment year 1981-82 and as such the important requirement of law for assessing the rental income under the head 'income from house property' stood fulfilled from the assessment year 1981-82. Again he observed that the principle of res judicata does not apply to income-tax proceeding. In this connection, he relied on the Hon'ble Supreme Court in the case of CIT v. Murlidhar Bhagwandas [1964] 52 ITR 335, 342 and in Jehngir Vakil Milk Co. Ltd. v. CIT [1963] 49 ITR 137 and of Delhi High Court decision in the case of CIT v. M. Chawla [1989] 177 ITR 2991.
8. Finally, the learned CIT(A) concluded the case with the following observations :- As things stand, the appellant is now in possession of Scindia House as aforced investment. The question is, should it get a different treatment from another person holding property and deriving income which is assessed under the head 'Income from House property'. The appellant has no choice of the matter and it cannot get sanction at all for any further activity of construction even if it had intention to develop the property. It has merely receiving rent for years. Therefore, income from the said property needs to be assessed as income from house property as heads of income are mutually exclusive and this principle has been clearly enumerated in the order of the Tribunal itself for the assessment year 1980-81,and is also supported by various authorities. Further whether the appellant had at all any possibility of developing property by further construction on terrace of Scindia House has not been supported as appellant has not produced relevant enactment or byelaw of NDMC to support its contention of being in a position to develop the property. Had the NDMC acted against the law, the appellant was bound to have challenged the action of the NDMC as NDMC's action struck at its very intention to do business after it made the investment. It must be stated that these aspects were not brought on the notice of the Hon'ble ITAT when the matter was before them. Had there aspects been brought to their notice, their decision may well have been different.
In this view of the matter, the appellant's rental income from Scindia House is held as income from house property assessable under Section 22 of the Income-tax Act and consequently the computation of income made by the Assessing Officer, reducing the claim for expenses as provided under the Act for computing the income from house property is upheld.9. Aggrieved the assessee has come up in second appeal before this Tribunal.
10. The learned AR of the assessee reiterated the submissions and contentions made before the learned CIT(A). He submitted that the property was stock-in-trade and therefore the rental income from the property was assessable as income from business. He relied on the Hon'ble Supreme Court decision of May 2002 in the case of Apollo Tyres Ltd. [Civil Appeal Nos. 61Q0 of 1998 and 2518-2519 of 1999]. He also placed reliance on G.S. Mercantile Corporation (P.) Ltd. v. CIT [1972] 83 ITR 700 (SC) and CITv. Bedi Techno Projects (P.) Ltd. [2002] 255 ITR 75 (Punj. & Har.). He further submitted that the issue was covered in favour of the assessee by ITAT order for earlier years. He contended that there was no change of fact, inasmuch as the property continued to be stock-in-trade and it was meant for commercial exploitation.
11. The learned CIT(DR) on the other hand supported the order of the learned CIT(A). She submitted that the ITAT did not consider the rental income as income from house property in the assessment year 1980-81 for the reasons that the assessee was not the owner of the property during the relevant year. However, in the subsequent year, the assessee became the owner of the property inasmuch as, the sale deed was executed on 3-5-1980. She contended that as a result of the assessee becoming the owner of the property during the previous year relevant to the assessment year 1981-82,the reasons for which the IT AT did not treat the rental income as income from house property did not exist and the requirement of law for treating the rental income as income from house property stood fulfilled in the assessment year 1981-82 and in the subsequent years and hence the rental income was legally and correctly assessable as income from house property. But this important change of fact and fulfilment of the legal requirement was missed and the IT AT order for the assessment year 1980-81 was wrongly followed in the subsequent year holding that there was no change of fact and the issue was covered by the IT AT order for assessment year 1980-81.
12. The learned CIT(DR) further submitted that the rental income was assessable as income from house property and not as income from business because there was no organised business activity involved in the letting out of the property and earning the rental income therefrom. She added that even if the rental income is earned from letting out of the property held as stock-in-trade the rental income will be assessable under the head income from house property and not as the income derived from the business transaction of purchase and sale of the stock-in-trade which could be assessable under the head 'income from business'. She relied on the following decisions:- 1. East India Housing & Land Development Trust Ltd. v. CIT [1961] 42 ITR 49 (SC).
13. She further submitted that the Hon'ble Supreme Court decision in the case of Apollo Tyres Ltd. (supra) relied upon by the learned AR of the assessee was not applicable to the present case. She added that in the said decision, the Hon'ble Supreme Court held that the dividend income earned from UTI could be included in computing the profit of the eligible business under Section 32AB of the Act. Thus this finding was given by the Supreme Court for the specific purpose of relief under Section 32AB of the Act.
14. We have considered the rival submissions and the materials on the file. We are of the view that on the facts and in the circumstances of the case, 1. 13 Taxman 32. PART 2 APRIL 9-APRIL 15, 2003 79 the provisions of law and the decision cited by the learned CIT(DR), the rental income from Scindia House property was taxable under the head 'income from house property' and not under the head 'income from business'. It is an admitted fact that in the appeal for assessment year 1980-81,the IT AT held that the rental income was not taxable under the head 'income from house property' because the assessee was not the owner of the property during the previous year relevant to the assessment year 1980-81. As mentioned above, the IT AT in the appellate order noted that the sale deed was executed on 3-5-1980 which fell during the previous year relevant to the assessment year 1981-82. This particular observation of the ITAT in the appeal for assessment year 1980-81 had gone out of the notice in the appeal for the subsequent years and inadvertently it was held in appeals for the subsequent year that the case was covered by the ITAT order for the assessment year 1980-81. After the assessee became the owner of the property, the conditions required for assessment of rental income under the head 'income from house property' were fulfilled and accordingly, the said income was taxable under the head 'income from house property' from the assessment year 1981-82. In this view of the matter, we hold that the issue was not covered in favour of the assessee by the ITAT order in appeal for assessment year 1980-81.
15. We are also of the view that the property in question was not the stock-in-trade of the assessee for the detailed reasons given by the learned CIT(A) and discussed above. We also hold that even if the property in question were stock-in-trade, the rental income from the said property could not be taxable under the head 'income from business' and the same was rightly and legally taxable under the head 'income from house property'. The decisions cited by the learned CIT(DR) in this regard are relevant and directly on the issue. The Hon'ble Supreme Court in Chugandas & Co. 's case (supra) held that if the securities constitute stock-in-trade of the business of an assessee interest received from those securities was taxable under the head 'interest on securities' and not under the head 'income from business'.
The following observations of the Apex Court are directly on the issue and clinch the matter without an iota of doubt or controversy:- It must therefore be held that even if an item of income is earned in the course of carrying on a business, it will not necessarily fall within the head 'profits & gains of business', within the meaning of Section 10 read with section b(iv). If securities constitute stock-in-trade of the business of an assessee interest received from those securities will for the purpose of determining the taxable income be shown under the head 'interest on securities' under Section 8 read with Section 6(ii) of the Act. Similarly dividends from shares will be shown under Section 12(1A) and not under Section 10, If an assessee carries on business of purchasing and selling, binding profits and gains earned by transactions in buildings will be shown under Section 10, but income received from the building so long as they are owned by the assessee will be shown under Section 9 read with Section 6(iii). Income earned by an assessee carrying on business will in each case be broken up and taxable income under the head 'profits & gains of business' will be that amount which is earned in the business and does not fall under any other specific head.
Again the Hon'ble Supreme Court in S.G. Mercantile Corporation (P.) Ltd. 's case (supra) observed that income derived by the company from shops and stalls is income received from property and falls under the specific head described in Section 9 (ie., income from house property under the Old Act). The character of that income is not altered because it is received by a company formed with the object of developing and setting up of markets. However, because the assessee was not the owner of the property in the relevant year it was held not taxable under Section 9 under the head 'income from house property'. The following observations of the Apex Court are noteworthy :- Section 9 of the Act deals with income from property. According to that section, the tax shall be payable by an assessee under the head 'income from property' in respect of the bona fide annual value of property consisting of any buildings or lands appurtenant thereto of which he is the owner, other than such portions of such property as he may occupy for the purpose of any business, profession or vacation carried on by him the profits of which are assessable to tax subject to certain allowances which are mentioned in that section, but with which we are not concerned. It is noteworthy that the liability to tax under Section 9 of the Act is of the owner of the buildings or lands appurtenant thereto. In case the assessee is the owner of the buildings or lands appurtenant thereto, he would be liable to pay the tax under the above provisions even if the object of the assessee in purchasing the landed property was to promote and develop market thereon. It would also make no difference if the assessee was a company which had been incorporated with the object of buying and developing landed properties and promoting and setting up markets thereon. The income derived by such a company from the tenants of the shops and stalls constructed on the land for the purpose of setting up market would not be taxed as 'business income'. Under Section 10 of the Act, to which a more detailed reference would be made hereafter, but under Section 9 of the Act. A concrete instance of this type is afforded by the case of East India Housing & Land Development Trust Ltd. v. Commissioner of Income-tax.
The appellant company in that case had been incorporated with the objects of buying arid developing landed properties and promoting and setting up markets. The company purchased 10 bighas of land in the town of Calcutta and set up a market thereon. The question which arose for determination was whether the income realised from the tenants of shops and stalls was liable to be taxed as business income under Section 10 of the Act or income from property under Section 9. This court held that the income derived by the company from shops and stalls was income received from property and fell under the specific head described in Section 9 it was observed in this connection:- Income-tax is undoubtedly levied on the total taxable income of the taxpayer and the tax levied is a single tax on the aggregate taxable receipts from all the sources, it is not a collection of taxes separately levied on distinct heads of income. But the distinct heads specified in Section 6 indicating the sources are mutually exclusive and income derived from different sources falling under specific heads has to be computed for the purpose of taxation in the manner provided by the appropriate section. If the income from a source falls within a specific head set out in Section 6, the fact that it may indirectly be covered by another head will not make the income taxable under the latter head.
The income derived by the company from shops and stalls is income received from property and falls under the specific head described in Section 9. The character of the income is not because it is received by a company formed with the object of developing and setting up markets.
There is no binding in the present case that the appellant company is the owner of the property in question or any part thereof. As such, no reference was made to Section 9 of the Act in the assessment proceedings. The learned counsel for both the parties agree, and in our opinion, rightly that the question of making the assessment against the appellant, in the circumstances under Section 9 of the Act does not arise. The stand of Mr. Chagla on behalf of the appellant is that the assessment against the appellant in respect of the income from the property in question should be made under Section 10, while according to Mr. Manchanda, the learned Counsel for the respondent, the assessment should be under Section 12 of the Act.
16. The Learned CIT(DR) rightly pointed out that the Hon'ble Supreme Court decision in the case of Apollo Tyres Ltd. (supra) is not applicable to the facts of the present case because that decision was given in view of the provision of Section 32AB of the Act. In that case, the Apex Court held that dividend income earned by the assessee-company from its investment in the UTI should be included in computing the profits of the eligible profit business under Section 32AB of the Act. This finding was given because of the special provision for the computation of eligible profit under Section 32AB which were not applicable to the present case.
17. In view of the above, we uphold the finding of the learned CIT(A) that the rental income was assessable under the head 'income from house property' and the assessee-company was not entitled to the deduction of the expenses as claimed as it was entitled only to the deduction as provided under Sections 23 and 24 of the Act. Accordingly, the deduction allowed by the Assessing Officer and upheld by the learned CIT(A) as mentioned above are confirmed. Thus, Ground Nos. 1 and 2 of the assessee's appeal stand is dismissed.
On the facts and in the circumstances of the case, the Learned CIT(A) has erred to confirm the disallowance under Section 43B of payment of PF Rs. 10,797 and ESI Rs. 3369.
19. We have heard both the sides and considered the materials on the file in respect of the above ground. It is noted that the learned CIT(A) dismissed the assessee's ground in respect of the above claims because the assessee did not press the same before him. The learned CIT(A) in paras 28 and 29 at page 11 noted the facts and gave his finding as under:- The appellant has agitated the disallowance of Rs. 10,797 on account of Provident Fund and tax Rs. 3,389 on account of ESI under Section 43B of the Income-tax Act. According to the Assessing Officer the payment was made on 27-4-1992 which was after the due date prescribed under the respective Acts and, therefore was beyond the due date which was 15th April in respect of Provident Fund and 21st April, in respect of ESI and this claim was not allowable.
Before me the AR fairly stated that the appellant had not made the payments within the due time allowed as per the relevant acts and, therefore, this ground was not being pressed. This ground does not survive for consideration and is therefore dismissed.
We hold that in view of the aforesaid categorical observations and findings of the learned CIT(A), the assessee's ground against the same has no leg to stand and the same has to be dismissed. Accordingly, we dismiss Ground No. 3.
On the facts and in the circumstances of the case, the learned CIT(A) has erred in deleting the addition of Rs. 9,68,148 on account of lease rent paid by the assessee-company to M/s. A.R. Chadha & Co.
(I) Pvt. Ltd. by his earlier year order which has not been accepted by the Deptt.
21. We have heard both the sides and considered the material's on the file. It is noted that the learned CIT(A) deleted the addition of Rs. 9,68,148 on account of disallowance of lease rent to M/s. A.R. Chadha & Co. (I) Pvt. Ltd. for lease of cars, relying on his predecessor's order in appeal for the assessment year 1990-91. The facts noted in paras 35 and 36 and the findings given to in para 37 of the impugned appellate order are reproduced below :- According to the Assessing Officer the appellant was paying lease rent for hiring foreign cars to a sister concern and following the basis of assessment for 1991-92,he disallowed the claim of the appellant for this year also. The appellant's AR explained that M/s.
A.R. Chadha & Co. (I) (Pvt.) Ltd. was at the relevant time running Archana Cinema and was also a dealer in cement. They purchased two foreign cars which were taken on lease by the appellant for which lease rent was paid. The Assessing Officer disallowed ,the claim, as according to him it was a transaction. It was submitted that the CIT(A) had allowed the claim of the appellant for the assessment years 1990-91 and on the ground that the rate of tax would be the same in either case, and therefore, there was no reason to make the disallowance this year also. I have considered the submission. The CIT(A) XXI, Mew Delhi while dealing with this point for the assessment year 1990-91 (Appeal No. 91/ 93-94 dated 10-1-1995) observed :- ...It is seen from the assessment order that the learned AR has not mentioned anything about the genuineness of the agreement. In case genuineness is accepted the transaction itself can be questioned only on the basis of justification of the quantum of payment. It is also not the case of the Assessing Officer that the car has not been used by the appellant company. If the argument is genuine and the user of the car is not in doubt there can be no justification for disallowance of the rent paid unless the same is proved to be excessive. Insofar as the suspicion of the Assessing Officer regarding avoiding of tax is concerned, the same also appears to be unfounded as the instance of taxation in both the cases remain the same. A mere suspicion cannot be made the ground for disallowance of expenditure. In the circumstances the disallowance is deleted.
This issue is therefore clearly covered by the order of my predecessor and I find no reason to differ with the same. The contention of the appellant is therefore upheld and the disallowance made by the Assessing Officer is deleted.
22. The final position in the matter i.e. whether the order of the learned CIT(A) in assessment year 1990-91 which was followed by the learned CIT(A) in the assessment year 1992-93 covered under the present appeal had been challenged in second appeal before the IT AT and with that result was not thereon. We, therefore, set aside the matter and restore the same to the Assessing Officer with the direction that if the matter stood concluded in the assessment years 1990-91 and 1991-92 in favour of the assessee and if there was no change of fact in the assessment year 1992-93 covered under the present appeal, the finding of the learned CIT(A) in the assessment year 1992-93 should be accepted and consequently the addition should be treated as deleted as per his impugned appellate order.