M/S. Jasmine Commercials Ltd. Vs. Commissioner of Income Tax, West Bengal-iii, Kolkata - Court Judgment

Excerpt:
the respondent, a veterinary surgeon, was in the service of the state government of uttar pradesh. 6. the respondent challenged his termination from service by filing a writ petition (civil miscellaneous writ petition no.47118 of 2003) before the allahabad high court. in view of the omissions on the part of the state government, the high court concluded that the punishment awarded to the respondent was excessive and, consequently, quashed the impugned order of his termination of service dated august 16, 2003. having come to the finding that the charges against the respondent were duly established, the high court ought to have simply dismissed the writ petition. 1. this appeal under section 260a of the income tax act, 1961 is at the instance of an assessee and is directed against an order dated march 5, 2001 passed by the income tax appellate tribunal, b bench, in income tax appeal no.792 (cal) of 1996, relating to the assessment year 1992-93. 2. a division bench of this court by its order dated july 5, 2001 formulated the following questions for determination: a. whether the purported findings of the tribunal that the transaction involved transfer of tenancy right on the part of your petitioner is perverse being based on no material whatsoever and contrary to the terms of the agreements with the consulate general and materials and/or evidences on record? b. whether the amount paid for compensation for occupation of a premises after the expiry of the lease and for repair or damage to the premises by the tenant can be treated as an amount received by way of consideration for transfer of any tenancy right? c. whether the said sum of rs.99,95,929/- on account of compensation for occupation of the said premises for the period involved was in the nature of arrears of rent and could not be assessed in the assessment year involved? d. whether the said sum of rs.99,95,929/- could at all be considered in the hands of the appellant since it related to the period during which dt was the owner of the said premises? e. whether the sum of rs.99,95,929/- on account of compensation for occupation of the said premises for the period after the expiry of the lease and rs.16 lakhs on account of quarterly instalment for repair and damages to the tenanted premises being capital receipts not involving transfer of any capital asset could be assessed under the act? f. whether the tribunal exceeded its jurisdiction in directing assessing officer to consider the entire amount of rs.100 lakhs payable on account of repair or damages during the next five years in the assessment year in question when the dispute before it related to and was confined only for the quarterly instalments to the extent of rs.16 lakhs and further whether the said sum could at all be considered in the hands of the appellant? 3. the facts giving rise to filing of this appeal may be summed up thus: a) on december 14, 1957, the premises no. 31, shakespeare sarani, kolkata, consisting of land and building was leased out by its the then owner to the consulate general of ussr by a registered deed of lease for a period of 23 years commencing from january 15, 1958 at the monthly rental of rs.8,000/- a month. b) the said premises was purchased by dejoo tea company (india) pvt. ltd. on (dt) on november 30, 1977 subject to the said lease dated december 14, 1957 and the lessee, namely, consulate general of ussr, attorned the tenancy to dt and started paying rent to it. c) on january 15, 1981, although the said lease granted in favour of the consulate general of ussr expired, the lessee refused to vacate and handover possession of the said premises to the dt, as a result, dt approached the central government under section 86 of the code of civil procedure for permission to institute legal proceedings against the consulate general. as no such permission was forthcoming, various proceedings in the writ jurisdiction of this court were taken and thereafter, the matter went up to the supreme court for a direction upon the central government to grant permission under section 86 of the code of civil procedure alleging inaction of the central government. d) on march 18, 1985, an assessment was made under section 143(3) of the income tax act, 1961 for the assessment year 1982-83 (financial year 1981-82) assessing rs.96,000/- as income of the said premises under the head-house property although the lease had expired and no rent was received. it was held that the income under the head house property was required to be assessed on the notional income that could be received and the fact that the lease had come to an end and that no rent was received from the lessee was irrelevant. e) an appeal preferred by the assessee against the said order of assessment was dismissed by cit (appeal) holding that the assessment of income under the head-house property made on the basis of notional income at the rate of the rent payable under the lease was justified in law. assessments were also made on similar basis for the subsequent assessment years 1983-84 to 1991-92 assessing the income under the head house property notionally on the basis of rent payable under the expired lease in respect of the said premises. f) after prolonged litigation and at the intervention of the central government, a settlement was arrived at between dt and the consulate general of ussr on april 2, 1991 by which the central government having arranged a plot of land at raja santosh road, kolkata for the said consulate to shift, it was agreed that the consulate would continue in occupation for a maximum period of five years commencing from 15th january, 1991 and would vacate the premises not later than 14th january, 1996. it was also stipulated that such obligation to vacate the premises was an absolute one and was irrespective of construction of the consular complex on the plot of land allotted by the government. the consulate by the said agreement agreed to pay for further occupation from 15th january, 1991 till 14th january, 1996 @ rs. 2,83,246/- a month. the consulate further agreed to pay compensation for remaining in occupation after the expiry of the lease from the period 15th january, 1981 till 14th january, 1991 a sum of rs.90 lac calculated @ rs.9 lac per annum. the agreement further recorded that the same would not be construed to create a monthly tenancy in favour of the consulate after 14th january, 1996 and that the agreement was made for providing the requisite time to the consulate to vacate the said premises. it was further agreed that the said terms would be filed in the pending proceeding before the supreme court for disposal of the matter on that basis. g) on april 2, 1991, another agreement was entered into between consulate general and dt for payment of rs.100 lac for repair and renovation of the said premises after getting vacant possession. it was further provided that on payment of the said sum, dt would not have any claim as to the condition of the property in which the consulate might leave while vacating and handing over the possession and it was further recorded that during the period of possession by consulate the damage and injuries to the properties had been caused and repairs were required and the said sum was to be paid in twelve quarterly instalments commencing from 15th january, 1992 and was meant for providing compensation fund for meeting costs and expenses for repair of the property and its restoration to the original condition after it was vacated by the consulate. h) pursuant to the said agreement, dt received from the consulate a sum of rs.99,95,929/- for occupation during 15th january, 1981 to 31st march, 1991 and a further sum of rs.33,98,952/- was received on account of occupation of the said premises for the period from 1st april, 1991 till 31st march, 1992. a further sum of rs.16 lac was received on account of quarterly instalment for damages. i) on may 4, 1992, a scheme was sanctioned by this high court for amalgamation of dt with the present appellant before us, namely, jasmine commercials ltd., with effect from april 1, 1991 and all the assets and liabilities of dt vested in the appellant with effect from april 1, 1991. j) on february 1, 1993 the appellant filed the return of income for assessment year 1992-93 disclosing the receipts of the aforesaid sum of rs.99,95,929/-, rs.33,98,952/- and rs.16 lac, respectively from the consulate. k) on february 28, 1995, pursuant to the return filed on february 1, 1993, the assessment was made under section 143(3) of the income tax act and in such assessment, the sum of rs.33,98,952/- for the period april, 1991 to march, 1992 was assessed as rental income under the head house property for the said premises. the sum of rs. 99,95,929/- on account of arrears of rent and rs.16 lac for building repair were assessed as business income. l) on an appeal being preferred by the assessee against such order passed, the cit (appeal) held that the sum of rs.99,95,929/- which admittedly represented arrears of rent could not be assessed to tax in view of the various judicial decisions and it was held that the sum of rs.16 lac also could not be assessed as it was for damage to the house property which was a capital asset and was a capital receipt. m) the department filed an appeal before the income tax tribunal, kolkata, against the aforesaid order of cit (appeal) deleting from assessment the sum of rs. 99,95,929/- on account of arrears rent and rs.16 lac for damages to the property and by order impugned herein, the tribunal disposed of the appeal by holding that sum of rs.90 lac received for occupation by way of compensation from the consulate was not arrears of rent but was compensation for the tenancy right during post-lease-period of 10 years. the tribunal further held that the further sum of rs.1 crore on account of damages to the property was also on account of further occupation of the property for a maximum period of five years and both the sum of rs.90 lac and rs.1 crore were for transfer of the right of tenancy which was a capital asset and was liable to be assessed as capital gains by taking the cost of acquisition as nil. the tribunal accordingly directed that the sum of rs.90 lac should be assessed as capital gain and further directed that the sum of rs.1 crore should also be assessed as capital gains even though only rs.16 lac was assessed as business income and the matter was sent to the assessing officer for re-determination of such capital gains. it was further recorded that these two sums were not assessable under the head business income. 4. mr. r.n. bajoria, the learned senior counsel appearing on behalf of the appellant, has, at the first instance, contended before us that the learned tribunal below acted without jurisdiction in enhancing the scope of the appeal by directing the assessing officer to consider the entire amount of rs.100 lac payable on account of repair or damages during the next five years in the assessment year in question when the dispute before the tribunal was confined only for the quarterly instalments to the extent of rs.16 lac and further whether the said sum could not at all be considered in the hands of the appellant. according to the mr. bajoria, the revenue did not raise the other points by either taking any ground in the memorandum of appeal or additional ground by amending the memorandum of appeal and as such, the tribunal acted without jurisdiction in entering into the aforesaid question. mr. bajoria drew our attention to the paragraph 7 of the judgment passed by the tribunal wherein the tribunal itself recorded that it was called upon to decide the following two points: i) whether the amount of rs.90 lacs for the period that there was no lease can be assessed in this year, and if so in what head. it may be mentioned that the new rent agreement has been made effective from 15th january, 1991 and, therefore, the rent for the period of 2.5 months for mid january, 1991 to march, 1991 being rent for that period may be assessable under the head of h.p. in the preceding year i.e. a.y. 1991-92. that there are some difference in the amount of this rent for the said period of 2.5 months as has already been pointed out above. ii) whether the said damage compensation is assessable under this year and if so, under what head. it may be pointed out here that a.o. has wrongly taken amount of the damage compensation at rs.16 lacs going by the amount of the receipt thereof during this year. it may be pointed out that the a.o. was not correct in going by the amount of receipt because the said agreement dated 2.4.1991 resulting in the amount of the compensation was entered into during this year. therefore, the amount for consideration should be rs.1 crore and not r.16 lacs. 5. in support of the aforesaid contention, mr. bajoria referred to the following three decisions: 1) s.p. kochhar vs. i.t.o., reported in (1984) 145 itr 255 (all); 2) state of kerala vs. vijaya stores, reported in (1979) 116 irt 15 (sc); 3) mcrop global (p) ltd. vs. cit, reported in (2009) 309 itr 434 (sc). 6. mr. bajoria next contends that the receipts by the owner of a house property can only be assessed under the head-house property and the tribunal below erred in law in assessing the same under the head-capital gain for that year with cost of acquisition being nil. according to mr. bajoria, the damages paid for occupation of property by a tenant after the expiry of tenancy is capital receipt and as such, is not taxable and in support of such contention, he relies upon the decision in the case of cit vs. smt. lila ghosh, reported in (1994) 205 itr 9. 7. mr. bajoria further contends that if the income following under a head is not assessable thereunder, it cannot be assessed under the residuary headincome from other sources and in support of such contention, mr. bajoria has referred to the decision of the supreme court in the case of nalinikant ambalal mody vs. s. a. l. narayan row, cit bombay reported in (1966) 61 itr 428 (sc) and the division bench decision of this court in the case of hamilton & co. (p) ltd. v. cit reported in (1992) 194 itr 391 (cal). 8. mr. bajoria, therefore, prays for setting aside the order passed by the tribunal below. 9. mr. md. nizamuddin, the leaned advocate appearing on behalf of the respondent, has, on the other hand, supported the order passed by the tribunal below and has relied upon the observation of chinnappa reddy, j. at paragraph 17 in the decision of the supreme court in the case of m/s. mcdowell and company limited, appellant v. commercial tax officer reported in air 1986 sc 649 =154 itr page 145 contending that in the case before us, the tribunal below rightly assessed the amount as capital gain. he, therefore, prays for dismissal of the appeal. 10. therefore, the first question that falls for determination in this appeal is whether the appellate tribunal exceeded its jurisdiction having regard to the scope of the appeal as it stood before it. 11. in order to appreciate the said question, it will be profitable to refer to the provisions contained in section 254(1) of the income tax act as it stood at the relevant time which is quoted below: 254. orders of appellate tribunal.(1) the appellate tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit. 12. after hearing the learned counsel for the parties and after taking into consideration the provision of section 254 of the income tax act, we find that an appellate tribunal may after giving both the parties to the appeal an opportunity of being heard pass such order thereon as it thinks fit. the word thereon, mr. bajoria continues, is significant inasmuch as it restricts the jurisdiction of the tribunal to the subject matter of the appeal. in other words, according to mr. bajoria, the original grounds of appeal and such additional ground, as may by raised by the appellant by the leave of the tribunal, constitute the extent of jurisdiction of the tribunal and it can adjudicate upon only those grounds and not beyond them. we are quite conscious of the position of law that even if a particular ground is not taken in the memorandum of appeal, an appellant may by taking leave of the appellate authority add grounds. in the case before us, however, neither in the memorandum of appeal any ground was taken in respect of the aforesaid rs.100 lac nor was any amendment sought for including such ground and the learned tribunal below even in its judgment itself while considering the questions before it, referred to only those two points excluding the question of involvement of rs.100 lac. 13. therefore, the tribunal below acted without jurisdiction in enhancing the scope of the appeal although the appellant did not raise any such point. on that ground alone, the portion of the order passed by the tribunal below relating to the reassessment of rs.100 lac should be set aside. 14. we, however, also find substance in the contention of mr. bajoria on merit and propose to enter into the same. 15. in the case before us, even after the expiry of the lease in the year 1981 when the property fetched no actual income, the assessing authority assessed rs.96,000/- per annum as income from the said premises under the head-house property and compelled the assessee to pay tax thereon and it was specifically held that the notional income at the rate of rent payable under the expired lease is the appropriate income from the said premises. such being the position, we find substance in the contention of mr. bajoria that there was no justification of treating the amount received from the erstwhile lessee by virtue of the said agreement as the income received by the assessee from the selfsame house property during the occupation of the erstwhile tenant. when the appellant received no income from the selfsame property from the year 1981 on the expiry of the lease, it went on paying income tax on the basis of notional income and as such, the actual income arising there from subsequently, even though higher than the notional income assessed as equivalent to the rate of rent, cannot be taken note of for the purpose of assessment. as pointed out by the supreme court in the case of nalinikant ambalal mody vs. commissioner of income tax, bombay city, reported in (1992) 61 itr 428, the question under which head an income comes? cannot depend on the reference as to the time when it was received. there is neither authority nor principle for the proposition, the supreme court held, that an income arising from a particular head ceases to arrive from that head because it is received at a certain time. in the said case, the question was whether the outstanding dues received for the professional activity done for a year by the assessee was taxable if the same was received at a time when he was elevated to a bench of a high court. in that context, it was held that an income received by an assessee who kept his account on the cash basis in an accounting year in which the provision had not been carried on at all was not chargeable nor could the receipt be brought to tax under section 12 of the old act as income from other sources. 16. a division bench of this court in the case of hamilton and co. (p) ltd. (supra), has taken the same view. relying upon the aforesaid principle, we are of the view that in this case there was no justification of treating the income arising out of the selfsame house property under a different head after the same has been taxed as income under the head-house property on the basis of notional rent payable by the selfsame occupant. 17. similarly, it is preposterous to describe the receipts as outcome of transfer of tenancy right as the assessee was not a tenant and as such no question of gaining anything by transferring the right of its tenancy arises. we now propose to deal with the decision in the case of m/s. mcdowell and company limited v. commercial tax officer (supra), relied upon by mr. nizamuddin, the learned counsel for the revenue. paragraph 17 of the judgment relied upon by mr. nizamuddin is quoted below: 17. we think that time has come for us to depart from the westminster principle as emphatically as the british courts have done and to dissociate ourselves from the observations of shah, j. and similar observations made elsewhere. the evil consequences of tax avoidance are manifold. first there is substantial loss of much needed public revenue, particularly in a welfare state like ours. next there is the serious disturbance caused to the economy of the country by the piling up of mountains of black money, directly causing inflation. then there is "the large hidden loss" to the community (as pointed out by master sheatcroft in 18 modem law review 209) by some of the best brains in the country being involved in the perpetual war waged. between the tax-avoider and his expert team of advisers, lawyers and accountants on one side and the tax-gatherer ,and his perhaps not so skillful advisers on the other side. then again there is the 'sense of injustice and inequality which tax avoidance arouses in the breasts of those who are unwilling or unable to profit by it'. last but not the least is the ethics (to be precise, the lack of it) of transferring the burden of tax liability to the shoulders of the guileless good citizens from those of the 'artful dodgers'. it may, indeed, be difficult for lesser mortals to attain the state of mind of mr. justice holmes, who said, "taxes are what we pay for civilized society. i like to pay taxes. with them i buy civilization." but, surely, it is high time for the judiciary in india too to part its ways from the principle of westminster and the alluring logic of tax avoidance, we now live in a welfare state whose financial needs, if backed by the law, have to be respected and met. we must recognise that there is behind taxation laws as much moral sanction as behind any other welfare legislation and it is a pretence to say that avoidance of taxation is not unethical and that. it stands on no less moral plane than honest payment of taxation. in our view, the proper way to construe a taxing statute, while considering a device to avoid tax, is not to ask whether the provisions should be construed literally or liberally, nor whether the transaction is not unreal and not prohibited by the statute, but whether the transaction is a device to avoid tax, and whether the transaction is such that the judicial process may accord its approval to it. a hint of this approach is to be found in the judgment of desai, j. in wood polymer ltd. and bengal hotels limited, (1977) 47 com cas 597 (guj) where the learned judge refused to accord sanction to the amalgamation of companies as it would lead to avoidance of tax. 18. in the case before us, we are unable to brand the agreement between the lessor and the former lessee as a device to avoid tax inasmuch as the said agreement was entered into at the intervention of the central government. moreover, having regard to the consistent views of the supreme court that an income already taxed under one head cannot at the subsequent period be taxed under a different head, we are left with no other alternative but to set aside the views of the tribunal. we have already pointed out that when for long 10 years no amount was received from the said property in occupation of the same occupant, the lessor was taxed on the basis of notional income; it would be illegal to tax the income from the selfsame property under a different head. we, thus, find that the said observation of reddy j is of no avail to the revenue. we, therefore, find merit in this appeal and consequently set aside the order of the tribunal below by affirming the order of the cit (appeal) and answering the questions formulated by the bench respectively in the following way: a) yes. b) no. c) no. d) yes. e) no. f) yes. 19. in the facts and circumstances, there will be, however, no order as to costs. 20. let photostat certified copy of this judgment be given to the parties within a week from the date of making of such application

Judgment:
1. This appeal under Section 260A of the Income Tax Act, 1961 is at the instance of an assessee and is directed against an order dated March 5, 2001 passed by the Income Tax Appellate Tribunal, B Bench, in Income Tax Appeal No.792 (Cal) of 1996, relating to the assessment year 1992-93.

2. A Division Bench of this Court by its order dated July 5, 2001 formulated the following questions for determination:

A. Whether the purported findings of the Tribunal that the transaction involved transfer of tenancy right on the part of your petitioner is perverse being based on no material whatsoever and contrary to the terms of the agreements with the Consulate General and materials and/or evidences on record?

B. Whether the amount paid for compensation for occupation of a premises after the expiry of the lease and for repair or damage to the premises by the tenant can be treated as an amount received by way of consideration for transfer of any tenancy right?

C. Whether the said sum of Rs.99,95,929/- on account of compensation for occupation of the said premises for the period involved was in the nature of arrears of rent and could not be assessed in the assessment year involved?

D. Whether the said sum of Rs.99,95,929/- could at all be considered in the hands of the appellant since it related to the period during which DT was the owner of the said premises?

E. Whether the sum of Rs.99,95,929/- on account of compensation for occupation of the said premises for the period after the expiry of the lease and Rs.16 lakhs on account of quarterly instalment for repair and damages to the tenanted premises being capital receipts not involving transfer of any capital asset could be assessed under the Act?

F. Whether the Tribunal exceeded its jurisdiction in directing Assessing Officer to consider the entire amount of Rs.100 lakhs payable on account of repair or damages during the next five years in the assessment year in question when the dispute before it related to and was confined only for the quarterly instalments to the extent of Rs.16 lakhs and further whether the said sum could at all be considered in the hands of the Appellant?

3. The facts giving rise to filing of this appeal may be summed up thus:

a) On December 14, 1957, the premises No. 31, Shakespeare Sarani, Kolkata, consisting of land and building was leased out by its the then owner to the Consulate General of USSR by a registered Deed of Lease for a period of 23 years commencing from January 15, 1958 at the monthly rental of Rs.8,000/- a month.

b) The said premises was purchased by Dejoo Tea Company (India) Pvt. Ltd. on (DT) on November 30, 1977 subject to the said lease dated December 14, 1957 and the lessee, namely, Consulate General of USSR, attorned the tenancy to DT and started paying rent to it.

c) On January 15, 1981, although the said lease granted in favour of the Consulate General of USSR expired, the lessee refused to vacate and handover possession of the said premises to the DT, as a result, DT approached the Central Government under Section 86 of the Code of Civil Procedure for permission to institute legal proceedings against the Consulate General. As no such permission was forthcoming, various proceedings in the writ jurisdiction of this Court were taken and thereafter, the matter went up to the Supreme Court for a direction upon the Central Government to grant permission under Section 86 of the Code of Civil Procedure alleging inaction of the Central Government.

d) On March 18, 1985, an assessment was made under Section 143(3) of the Income Tax Act, 1961 for the assessment year 1982-83 (Financial Year 1981-82) assessing Rs.96,000/- as income of the said premises under the head-House property although the lease had expired and no rent was received. It was held that the income under the Head House property was required to be assessed on the notional income that could be received and the fact that the lease had come to an end and that no rent was received from the lessee was irrelevant.

e) An appeal preferred by the assessee against the said order of assessment was dismissed by CIT (Appeal) holding that the assessment of income under the head-House property made on the basis of notional income at the rate of the rent payable under the lease was justified in law. Assessments were also made on similar basis for the subsequent assessment years 1983-84 to 1991-92 assessing the income under the Head House property notionally on the basis of rent payable under the expired lease in respect of the said premises.

f) After prolonged litigation and at the intervention of the Central Government, a settlement was arrived at between DT and the Consulate General of USSR on April 2, 1991 by which the Central Government having arranged a plot of land at Raja Santosh Road, Kolkata for the said Consulate to shift, it was agreed that the Consulate would continue in occupation for a maximum period of five years commencing from 15th January, 1991 and would vacate the premises not later than 14th January, 1996. It was also stipulated that such obligation to vacate the premises was an absolute one and was irrespective of construction of the Consular Complex on the plot of land allotted by the Government. The Consulate by the said agreement agreed to pay for further occupation from 15th January, 1991 till 14th January, 1996 @ Rs. 2,83,246/- a month. The Consulate further agreed to pay compensation for remaining in occupation after the expiry of the lease from the period 15th January, 1981 till 14th January, 1991 a sum of Rs.90 lac calculated @ Rs.9 lac per annum. The agreement further recorded that the same would not be construed to create a monthly tenancy in favour of the Consulate after 14th January, 1996 and that the agreement was made for providing the requisite time to the Consulate to vacate the said premises. It was further agreed that the said terms would be filed in the pending proceeding before the Supreme Court for disposal of the matter on that basis.

g) On April 2, 1991, another agreement was entered into between Consulate General and DT for payment of Rs.100 lac for repair and renovation of the said premises after getting vacant possession. It was further provided that on payment of the said sum, DT would not have any claim as to the condition of the property in which the Consulate might leave while vacating and handing over the possession and it was further recorded that during the period of possession by Consulate the damage and injuries to the properties had been caused and repairs were required and the said sum was to be paid in twelve quarterly instalments commencing from 15th January, 1992 and was meant for providing compensation fund for meeting costs and expenses for repair of the property and its restoration to the original condition after it was vacated by the Consulate.

h) Pursuant to the said agreement, DT received from the Consulate a sum of Rs.99,95,929/- for occupation during 15th January, 1981 to 31st March, 1991 and a further sum of Rs.33,98,952/- was received on account of occupation of the said premises for the period from 1st April, 1991 till 31st March, 1992. A further sum of Rs.16 lac was received on account of quarterly instalment for damages.

i) On May 4, 1992, a scheme was sanctioned by this High Court for amalgamation of DT with the present appellant before us, namely, Jasmine Commercials Ltd., with effect from April 1, 1991 and all the assets and liabilities of DT vested in the appellant with effect from April 1, 1991.

j) On February 1, 1993 the appellant filed the return of income for assessment year 1992-93 disclosing the receipts of the aforesaid sum of Rs.99,95,929/-, Rs.33,98,952/- and Rs.16 lac, respectively from the Consulate.

k) On February 28, 1995, pursuant to the return filed on February 1, 1993, the assessment was made under Section 143(3) of the Income Tax Act and in such assessment, the sum of Rs.33,98,952/- for the period April, 1991 to March, 1992 was assessed as rental income under the Head House property for the said premises. The sum of Rs. 99,95,929/- on account of arrears of rent and Rs.16 lac for building repair were assessed as business income.

l) On an appeal being preferred by the assessee against such order passed, the CIT (Appeal) held that the sum of Rs.99,95,929/- which admittedly represented arrears of rent could not be assessed to tax in view of the various judicial decisions and it was held that the sum of Rs.16 lac also could not be assessed as it was for damage to the house property which was a capital asset and was a capital receipt.

m) The Department filed an appeal before the Income Tax Tribunal, Kolkata, against the aforesaid order of CIT (Appeal) deleting from assessment the sum of Rs. 99,95,929/- on account of arrears rent and Rs.16 lac for damages to the property and by order impugned herein, the Tribunal disposed of the appeal by holding that sum of Rs.90 lac received for occupation by way of compensation from the Consulate was not arrears of rent but was compensation for the tenancy right during post-lease-period of 10 years. The Tribunal further held that the further sum of Rs.1 crore on account of damages to the property was also on account of further occupation of the property for a maximum period of five years and both the sum of Rs.90 lac and Rs.1 crore were for transfer of the right of tenancy which was a capital asset and was liable to be assessed as capital gains by taking the cost of acquisition as nil. The Tribunal accordingly directed that the sum of Rs.90 lac should be assessed as capital gain and further directed that the sum of Rs.1 crore should also be assessed as capital gains even though only Rs.16 lac was assessed as business income and the matter was sent to the assessing officer for re-determination of such capital gains. It was further recorded that these two sums were not assessable under the Head Business income.

4. Mr. R.N. Bajoria, the learned senior counsel appearing on behalf of the appellant, has, at the first instance, contended before us that the learned Tribunal below acted without jurisdiction in enhancing the scope of the appeal by directing the assessing officer to consider the entire amount of Rs.100 lac payable on account of repair or damages during the next five years in the assessment year in question when the dispute before the Tribunal was confined only for the quarterly instalments to the extent of Rs.16 lac and further whether the said sum could not at all be considered in the hands of the appellant. According to the Mr. Bajoria, the Revenue did not raise the other points by either taking any ground in the memorandum of appeal or additional ground by amending the memorandum of appeal and as such, the Tribunal acted without jurisdiction in entering into the aforesaid question. Mr. Bajoria drew our attention to the paragraph 7 of the judgment passed by the Tribunal wherein the Tribunal itself recorded that it was called upon to decide the following two points:

I) Whether the amount of Rs.90 lacs for the period that there was no lease can be assessed in this year, and if so in what head. It may be mentioned that the new rent agreement has been made effective from 15th January, 1991 and, therefore, the rent for the period of 2.5 months for mid January, 1991 to March, 1991 being rent for that period may be assessable under the head of H.P. in the preceding year i.e. A.Y. 1991-92. That there are some difference in the amount of this rent for the said period of 2.5 months as has already been pointed out above.

ii) Whether the said damage compensation is assessable under this year and if so, under what head. It may be pointed out here that A.O. has wrongly taken amount of the damage compensation at Rs.16 lacs going by the amount of the receipt thereof during this year. It may be pointed out that the A.O. was not correct in going by the amount of receipt because the said agreement dated 2.4.1991 resulting in the amount of the compensation was entered into during this year. Therefore, the amount for consideration should be Rs.1 crore and not R.16 lacs.

5. In support of the aforesaid contention, Mr. Bajoria referred to the following three decisions:

1) S.P. Kochhar vs. I.T.O., reported in (1984) 145 ITR 255 (ALL);

2) State of Kerala vs. Vijaya Stores, reported in (1979) 116 IRT 15 (SC);

3) Mcrop Global (P) Ltd. vs. CIT, reported in (2009) 309 ITR 434 (SC).

6. Mr. Bajoria next contends that the receipts by the owner of a house property can only be assessed under the head-House property and the Tribunal below erred in law in assessing the same under the head-Capital gain for that year with cost of acquisition being nil. According to Mr. Bajoria, the damages paid for occupation of property by a tenant after the expiry of tenancy is capital receipt and as such, is not taxable and in support of such contention, he relies upon the decision in the case of CIT vs. Smt. Lila Ghosh, reported in (1994) 205 ITR 9.

7. Mr. Bajoria further contends that if the income following under a head is not assessable thereunder, it cannot be assessed under the residuary HeadIncome from other sources and in support of such contention, Mr. Bajoria has referred to the decision of the Supreme Court in the case of Nalinikant Ambalal Mody vs. S. A. L. Narayan Row, CIT Bombay reported in (1966) 61 ITR 428 (SC) and the Division Bench decision of this Court in the case of Hamilton & Co. (P) Ltd. v. CIT reported in (1992) 194 ITR 391 (CAL).

8. Mr. Bajoria, therefore, prays for setting aside the order passed by the Tribunal below.

9. Mr. Md. Nizamuddin, the leaned advocate appearing on behalf of the respondent, has, on the other hand, supported the order passed by the Tribunal below and has relied upon the observation of CHINNAPPA REDDY, J. at paragraph 17 in the decision of the Supreme Court in the case of M/s. McDowell and Company Limited, Appellant v. Commercial Tax Officer reported in AIR 1986 SC 649 =154 ITR page 145 contending that in the case before us, the Tribunal below rightly assessed the amount as capital gain. He, therefore, prays for dismissal of the appeal.

10. Therefore, the first question that falls for determination in this appeal is whether the Appellate Tribunal exceeded its jurisdiction having regard to the scope of the appeal as it stood before it.

11. In order to appreciate the said question, it will be profitable to refer to the provisions contained in Section 254(1) of the Income Tax Act as it stood at the relevant time which is quoted below:

254. Orders of Appellate Tribunal.(1) The Appellate Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit.

12. After hearing the learned counsel for the parties and after taking into consideration the provision of Section 254 of the Income Tax Act, we find that an Appellate Tribunal may after giving both the parties to the appeal an opportunity of being heard pass such order thereon as it thinks fit. The word thereon, Mr. Bajoria continues, is significant inasmuch as it restricts the jurisdiction of the Tribunal to the subject matter of the appeal. In other words, according to Mr. Bajoria, the original grounds of appeal and such additional ground, as may by raised by the Appellant by the leave of the Tribunal, constitute the extent of jurisdiction of the Tribunal and it can adjudicate upon only those grounds and not beyond them. We are quite conscious of the position of law that even if a particular ground is not taken in the Memorandum of Appeal, an appellant may by taking leave of the appellate authority add grounds. In the case before us, however, neither in the Memorandum of Appeal any ground was taken in respect of the aforesaid Rs.100 lac nor was any amendment sought for including such ground and the learned Tribunal below even in its judgment itself while considering the questions before it, referred to only those two points excluding the question of involvement of Rs.100 lac.

13. Therefore, the Tribunal below acted without jurisdiction in enhancing the scope of the appeal although the appellant did not raise any such point. On that ground alone, the portion of the order passed by the Tribunal below relating to the reassessment of Rs.100 lac should be set aside.

14. We, however, also find substance in the contention of Mr. Bajoria on merit and propose to enter into the same.

15. In the case before us, even after the expiry of the lease in the year 1981 when the property fetched no actual income, the assessing authority assessed Rs.96,000/- per annum as income from the said premises under the head-House property and compelled the assessee to pay tax thereon and it was specifically held that the notional income at the rate of rent payable under the expired lease is the appropriate income from the said premises. Such being the position, we find substance in the contention of Mr. Bajoria that there was no justification of treating the amount received from the erstwhile lessee by virtue of the said agreement as the income received by the assessee from the selfsame house property during the occupation of the erstwhile tenant. When the appellant received no income from the selfsame property from the year 1981 on the expiry of the lease, it went on paying income tax on the basis of notional income and as such, the actual income arising there from subsequently, even though higher than the notional income assessed as equivalent to the rate of rent, cannot be taken note of for the purpose of assessment. As pointed out by the Supreme Court in the case of Nalinikant Ambalal Mody vs. Commissioner of Income tax, Bombay City, reported in (1992) 61 ITR 428, the question under which Head an income comes? cannot depend on the reference as to the time when it was received. There is neither authority nor principle for the proposition, the Supreme Court held, that an income arising from a particular head ceases to arrive from that Head because it is received at a certain time. In the said case, the question was whether the outstanding dues received for the professional activity done for a year by the assessee was taxable if the same was received at a time when he was elevated to a Bench of a High Court. In that context, it was held that an income received by an assessee who kept his account on the cash basis in an accounting year in which the provision had not been carried on at all was not chargeable nor could the receipt be brought to tax under Section 12 of the old Act as Income from other sources.

16. A Division Bench of this Court in the case of Hamilton and Co. (P) Ltd. (supra), has taken the same view. Relying upon the aforesaid principle, we are of the view that in this case there was no justification of treating the income arising out of the selfsame house property under a different Head after the same has been taxed as income under the head-House property on the basis of notional rent payable by the selfsame occupant.

17. Similarly, it is preposterous to describe the receipts as outcome of transfer of tenancy right as the assessee was not a tenant and as such no question of gaining anything by transferring the right of its tenancy arises. We now propose to deal with the decision in the case of M/s. McDowell and Company Limited v. Commercial Tax Officer (Supra), relied upon by Mr. Nizamuddin, the learned counsel for the Revenue.

Paragraph 17 of the judgment relied upon by Mr. Nizamuddin is quoted below:

17. We think that time has come for us to depart from the Westminster principle as emphatically as the British Courts have done and to dissociate ourselves from the observations of Shah, J. and similar observations made elsewhere. The evil consequences of tax avoidance are manifold. First there is substantial loss of much needed public revenue, particularly in a welfare State like ours. Next there is the serious disturbance caused to the economy of the country by the piling up of mountains of black money, directly causing inflation. Then there is "the large hidden loss" to the community (as pointed out by Master Sheatcroft in 18 Modem Law Review 209) by some of the best brains in the country being involved in the perpetual war waged. between the tax-avoider and his expert team of advisers, lawyers and accountants on one side and the tax-gatherer ,and his perhaps not so skillful advisers on the other side. Then again there is the 'sense of injustice and inequality which tax avoidance arouses in the breasts of those who are unwilling or unable to profit by it'. Last but not the least is the ethics (to be precise, the lack of it) of transferring the burden of tax liability to the shoulders of the guileless good citizens from those of the 'artful dodgers'. It may, indeed, be difficult for lesser mortals to attain the state of mind of Mr. Justice Holmes, who said, "Taxes are what we pay for civilized society. I like to pay taxes. With them I buy civilization." But, surely, it is high time for the judiciary in India too to part its ways from the principle of Westminster and the alluring logic of tax avoidance, we now live in a welfare State whose financial needs, if backed by the law, have to be respected and met. We must recognise that there is behind taxation laws as much moral sanction as behind any other welfare legislation and it is a pretence to say that avoidance of taxation is not unethical and that. it stands on no less moral plane than honest payment of taxation. In our view, the proper way to construe a taxing statute, while considering a device to avoid tax, is not to ask whether the provisions should be construed literally or liberally, nor whether the transaction is not unreal and not prohibited by the statute, but whether the transaction is a device to avoid tax, and whether the transaction is such that the judicial process may accord its approval to it. A hint of this approach is to be found in the judgment of Desai, J. in Wood Polymer Ltd. and Bengal Hotels Limited, (1977) 47 Com Cas 597 (Guj) where the learned Judge refused to accord sanction to the amalgamation of companies as it would lead to avoidance of tax.

18. In the case before us, we are unable to brand the agreement between the lessor and the former lessee as a device to avoid tax inasmuch as the said agreement was entered into at the intervention of the Central Government. Moreover, having regard to the consistent views of the Supreme Court that an income already taxed under one head cannot at the subsequent period be taxed under a different head, we are left with no other alternative but to set aside the views of the Tribunal. We have already pointed out that when for long 10 years no amount was received from the said property in occupation of the same occupant, the lessor was taxed on the basis of notional income; it would be illegal to tax the income from the selfsame property under a different head. We, thus, find that the said observation of Reddy J is of no avail to the Revenue. We, therefore, find merit in this appeal and consequently set aside the order of the Tribunal below by affirming the order of the CIT (Appeal) and answering the questions formulated by the Bench respectively in the following way:

a) Yes.

b) No.

c) No.

d) Yes.

e) No.

f) Yes.

19. In the facts and circumstances, there will be, however, no order as to costs.

20. Let Photostat certified copy of this judgment be given to the parties within a week from the date of making of such application