| SooperKanoon Citation | sooperkanoon.com/71384 |
| Court | Income Tax Appellate Tribunal ITAT Delhi |
| Decided On | Dec-29-2000 |
| Judge | R Bahadur, R Syal |
| Appellant | Sita Steel Tubes (P.) Ltd. |
| Respondent | Assessing Officer |
2. The learned counsel for the assessee assailed the impugned order from various angles. It was submitted that the assessee was not the owner of the property as the shed (hereinafter called the property) was built on a lease hold land which was acquired only for 10 years.
Referring to the clause 5 of the lease deed, the learned counsel stated that at the expiry of the said term the assessee was bound to return the said premises alongwith all the buildings constructed thereon to the landlord without removing any of these structures or shed building etc. constructed on the premises. Since the property was not an asset of the assessee, the learned counsel claimed that the provisions of section 22 could not be invoked because this section refers to the properties of which the assessee is owner. That apart, the learned counsel contended that what was let out by the assessee, was only a shed and in no way the provisions of section 22 could be invoked for the reason that this shed had no letting value at all.
3. It was further submitted by the learned counsel that temporary giving of the said property on rent was only commercial exploitation of that property and it was so done to overcome the financial burden which the company was facing. Instead of using the property for assessee's own business.the learned counsel contended that it was commercially exploited by giving the same on rent to some outside party.
4. As regards, the objection of the learned CIT (Appeals) as to the effect that giving of the properties on rent was not the main object of the assessee as envisaged in its memorandum and articles of association, the learned counsel pointed out that a resolution was passed to this effect in a meeting of its members on 27-3-1984 to carry on the business in immovable property also. It was further stated by referring to the clauses of memorandum of association that the activity to carry on business of immovable property was mentioned in clause 14 [Sub-clause III(c)]. As a resolution to this effect was passed, the learned counsel submitted that the company adopted carrying on the business of immovable properties as its one of the main objects.
5. The learned Counsel invited our attention towards assessment framed by the department under section 143 (1)(a) and 143 (3) in respect of assessment years 1990-91 to 1998-99 wherein the income from the said property was offered and taxed as "business income". Relying on the judgment of the Hon'ble Delhi High Court in the case of CIT v. Neo Poly Pack (P.) Ltd. [2000] 245 ITR 492, the learned counsel submitted that the principles of consistency should be followed by the department and since the income from the said property had been accepted in subsequent assessment years as "business income", the same should also be taxed under the head "business income" for the relevant assessment year.
6. The learned counsel further placed reliance on the judgment of the Apex Court in the case of Universal Plast Ltd. v. CIT [1999] 237 ITR 454. Placing reliance on the fourth proposition laid by the Hon'ble Supreme Court at page 461, the learned counsel contended that the revenue authorities had erred in treating the income from the property under the head "income from house property".
7. On the other hand, the learned DR forcefully supported the order passed by the first appellate authority. Referring to the relevant portion of the order of the first appellate authority, the learned DR pleaded that there was no case for taxing the income from the property in question under the head "business income" and the learned CIT (Appeals) was justified in taxing it under the head "income from house property".
8. We have considered the rival submissions in the light of the material placed before us and precedents relied upon. The only question, which falls for our consideration in relation to this issue is that whether the income earned from the let out of the property in question is to be taxed under the head "business income" or "Income from house property". In order to appreciate the controversy at hand, it is relevant to take note of the provisions of section 22 of the Act which reads as under : "The annual value of property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner, other than such portions of such property as he may occupy for the purposes of any business or profession carried on by him the profits of which are chargeable to Income-tax, shall be chargeable to Income-tax under the head "Income from house property".
9. A bare perusal of this section reveals that if any income has to be taxed under the head "Income from house property", the conditions as stipulated in section 22 must be complied with. First condition, being the annual value of property consisting of building or land appurtenant thereto is a basic condition. If any asset is let out, which is not a building or land appurtenant thereto, that cannot be put to tax under section 22, It has been contended that since the 'shed' was let out. It could not be characterised as 'building'. We fail to understand as to how a brick built shed covered with GC sheets is not a part of building. There cannot be two opinions over this issue because it is well-settled that even the roads within the premises also constitute a part of building. The shed under consideration, being a brick built shed, covered with GC sheets cannot be characterised as anything but 'building'.
10. The second necessary condition, which is relevant for our purpose, is that the assessee should be owner. The learned counsel claimed that the assessee is not the owner of the property because the land was taken on lease for 10 years only and after that period, the assessee was bound to return the same building to the lessor without removing anything therefrom. It is seen that what is taken on lease by the assessee is only the land. A sum of more than Rs. 6 lakhs was incurred by the assessee for construction of the said building of which the assessee is owner. As per the terms of the lease deed, the said property vested with the assessee for a period of 10 years and the year under consideration is one of those 10 years for which the lease deed was operative. If the claim of the assessee is accepted that it was not the owner, then the immediately second question arises as to who is the owner of the said property. The lessor who has no control over such building for a period of 10 years and who has not spent anything on that building obviously cannot be the owner. Similarly the persons to whom the said property was let out by the assessee could also not be treated as the owners of the property. In all cases, it is only the assessee who is the owner of the property as is evidenced from the fact that the amount spent on construction has been shown by it in its balance sheet under the head "buildings" and also depreciation under section 32 has been claimed thereon. The other interesting aspect which is seen from the record is that as per the terms of the lease deed, the lease was granted only for a period of 10 years starting from 27-4-1984 and according to clause 5, the assessee tenant was to deliver the said premises alongwith all the buildings constructed thereon to the landlord. It means that this lease deed was effective only upto 26th day of April, 1994. But from the details filed by the assessee in its paper book at index page 3, it is claimed that upto the assessment year 1998-99, the income from the said property is being shown as "business income" and the same is also assessed as "business income". On a specific query raised from the Bench, it was submitted by the learned counsel of the assessee that till today the said property was in occupation of the assessee and it was deriving income from its letting.
We fail to see that if the lease deed was to expire in 1994 and as per terms of clause 5, the assessee was bound to deliver the said premises alongwith the building constructed thereon to the landlord, how the assessee is still retaining the possession and earning income therefrom. The fact, that the assessee had taken the land on lease and spent the amount on its construction and also claimed depreciation thereon by showing the same under the head 'building', leads to the conclusion that the assessee was the owner of the said building in the relevant assessment year.
11. The next contention raised by the assessee is that in view of the resolution passed on 27-3-1984, it became its business to deal in immovable properties. The learned counsel has claimed that since one of the objects mentioned in the memorandum of association was to deal in immovable properties, that leads to interference that it was the business of the assessee to deal in such immovable properties. It is seen that main objects of the company are contained in Clause III(A) of memorandum of association, according to which the assessee is to manufacture, import and export and deal in all kinds of sections, tubes, pipes and pipe fittings, made from ingots. In the second category i.e. clause III (B), there are contained 33 objects incidental or ancillary to the main object and lastly in clause III(c) being other objects, Sub-clause 14 deals with holding land, . building etc. and other interest in the immovable properties. If all the objects as contained in clause IIIA, B and C, are considered, it is noticed that almost any possible work on the earth is contained in all these objects. It does not mean that each and every object contained in any of these three Sub-clauses is the business of the company. The Hon'ble Supreme Court in the case of Ka Icilda Wallang v. V. Lokendra Sviam AIR 1987 SC 2047 has laid down that a few disconnected and isolated transactions would not make a person engaged regularly in money lending business, Similarly, the Apex Court in the case of Sole Trustee, Loka Shikshana Trust v. CIT[1975] 101 ITR 234 has held that whether a person carries on business of a particular commodity must depend upon the volume, frequency, continuity and regularity of the transaction of the purchase and sale in a class of goods. From this judgment, it becomes clear that the person can be said to be engaged in the business of a particular activity only if it is being done in volume and frequency. A single transaction done here or there, cannot constitute a business in itself. It is not the case of the assessee that it was regularly engaged in the business of letting out of the properties. That being the case, the solitary transaction of giving the said property on rent cannot constitute assessee's business and thereby the rent received therefrom cannot constitute its business income.S.G. Mercantile Corpn.
(P.) Ltd v. CIT "The liability to tax under section 9 of the Income-tax Act, 1922 is of the owner of the buildings or land appurtenant thereto. In case the assessee is the owner of the buildings or lands appurtenant thereto, he would be liable to pay tax under section 9 even if the object of the assessee in purchasing the landed property was to promote and develop a market thereon. It would also make no difference if the assessee was a company which had been incorporated with the object of the buying and developing landed properties and promoting and setting up markets thereon." 13. In the like manner, the Apex Court in the case of East India Housing & Land Development Trust Ltd. v. CIT [1961] 42 ITR 49 has laid down as under : "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. The character of that income was not altered because it was received by a company formed with the object of developing and setting up markets." 14. The reliance by the learned counsel on the case of Universal Plast Ltd. (supra) is also misconceived for the reason that in that case, the lease of factory was given after the assessee had closed its business with no intention of reviving it. More specifically, the learned counsel laid reliance on the fourth proposition at page 461 to bring home the point that the case of the assessee was covered in the commercial exploitation of the property. When this fourth proposition as laid down by the Hon'ble Supreme Court is considered, it is found that it comes into operation only if a few of the business assets are let out temporarily. The case of the assessee under consideration is based on altogether different set of facts. In so far as the property was let out on 12-10-1988 and the tenancy is still continuing till today which is evidenced from the fact that the assessee is showing the rental income from the property under consideration in subsequent assessment years also, on the basis of which principle of consistency is being pleaded and further it is the claim of the assessee that till date the said property is under its possession and is let out by it. As such, the ratio laid down in the case of Universal Plast Ltd. (supra) cannot be applied to the facts under consideration.
15. Taking into consideration all the factors and the ratio of various judgments cited and considered above we are of the considered view that the CIT (Appeals) was justified in holding that the rent received by the assessee was taxable under the head "Income from house property." 16. Before parting with this issue, it is necessary to deal with the principle of consistency" pleaded by the learned counsel. It is well laid down by the catena of the decisions rendered by the Hon'ble Supreme Court and other High Courts on the point that the decision of the Assessing Officer given in a particular year does not operate res judicatain subsequent years. The Hon'ble Apex Court in the case of CIT v. Brij Lal Lohia & Mahabir Prasad Khemka [l972] 84ITR 273 ; M.M. Ipoh v. CIT [1968] 67 ITR 106 (SC); New Jehangir Vakil Mills Co. Ltd v. CIT [1963] 49 ITR 137 (SC) and ITO v. Murlidhar Bhagwan Das [1964] 52 ITR 335 (SC) has reiterated that principle of res judicata is not binding.
Even otherwise, it is well settled that there is no estoppel against a statute. The Hon'ble Delhi High Court in the case of CWT v. Meattes (P.) Ltd [1985] 156 ITR 569 has laid down that if wrong view has been taken in one year, the Assessing Officer cannot be estopped from taking a correct view later on.
17. Considering all the facts as stated above, we confirm the action of the first appellate authority on this issue.
18. The asscssee is further aggrieved by the findings of the first appellate authority on the sustenance of the disallowances made on account of various expenses incurred for the purposes of its business.
It is the case of the assessee that some of the expenses incurred by it were relatable to its business activity and were accordingly allowable, more particularly, when the assessee was carrying on other business activities also. It is noted that the CIT (Appeals) has not dealt with the claim of the assessee in elaboration. It is evident from the assessment order that the assessee was also engaged in business of the import and export, which was set up only recently. We are of the considered view that it would be in the interest of justice if the impugned order on this issue is set aside and the matter is restored to the file of the Assessing Officer with direction to decide assessee's claim afresh after granting an apportunity of being heard in relation to expenses vis-a-vis business (non-rental) income of the assessee.
19. In the result, the appeal is partly allowed for statistical purposes.