TMI Blog2006 (12) TMI 255X X X X Extracts X X X X X X X X Extracts X X X X ..... are that in the relevant assessment year the assessee earned income from the trading of agricultural water pumps, diesel oil engine and allied material. He had also income from house property and other sources. The total rental income of the building was Rs. 9,91,420. The assessee claimed statutory deductions and also interest on borrowed capital amount of Rs. 3,40,937 and declared the income from house property at 24, G.B. Marg, Lucknow at Rs. 3,46,182. The assessee had shown only 1/4th of this total income being Rs. 86,545 as his share and the rest amount had been distributed among other three co-owners Smt. Prem Lata Agarwal (wife), Shri Ashok Kumar Agarwal (son) and Smt. Aditi Agarwal (Daughter-in-law). The Assessing Officer required the assessee to show cause as to why total rent receipt of the property should not be taxed in his hand and also the interest payment of Rs. 3,40,937 should not be disallowed while computing the income from house property. The Assessing Officer has reproduced the notice issued to the assessee. In the notice, the Assessing Officer pointed out the reasons why he was inclined to treat the entire rental receipt in the hands of assessee and also why the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Podar Cement (P.) Ltd. [1997] 226 ITR 625 , to contend that in the Income-tax Act the owner is a person who is entitled to receive income from property and the requirement of registration of the sale deed in the context of section 22 is not warranted. The Assessing Officer, however, did not accept the assessee s contention for the following reasons : ( i )Income from house property can be assessed only in the hands of the owner of the house property. Shri Sri Prakash Agarwal as he is the only person entitled to receive income from house property in his own right. ( ii )Purchase deed of the land, municipal taxes assessment of the building, lease agreement with Oriental Bank of Commerce; TDS certificate issued by the bank and the credit of entire TDS taken by the assessee himself constitute clear evidences that the assessee is the only owner of the land and superstructure both (copy of purchase deed and agreement with Oriental Bank of Commerce are made part of this order as Annexures A-3 A-4). ( iii )Loan of Rs. 12,00,000 was sanctioned in the name of the assessee only by the bank for construction of house property (copy of letter from Oriental Bank of Commerce confirmin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on." 5. The Assessing Officer, relying on the decision of the Hon ble Supreme Court in the case of McDowell Co. Ltd. v. CTO [1985] 154 ITR 148 , held that it was a colourable device and the claim of co-ownership of property and distribution of rental income was not, in any way, legitimate. He, accordingly, held that the entire income from house property at 24, G.B. Marg, should be assessed in the hands of assessee as other co-owners cannot be treated as owner of the property within the meaning of section 22 of the Act. In regard to disallowance in respect of interest on borrowed capital, he observed that assessee himself re-worked out the interest claim of Rs. 57,982 instead of Rs. 3,40,937 which he allowed. The ld. CIT(A) confirmed the order of the Assessing Officer for the following reasons : ( i )The assessee had been shown the sole owner of the property (including land and structure) in lease agreement dated 2-11-1999 with tenant bank. The lessee bank was paying rent to the assessee and credit for entire TDS was taken by the assessee in his return. There was nothing about co-ownership and distribution of rent in the lease deed with lessee bank. ( ii )The property ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a v. CIT [1962] 44 ITR 529 (SC). 7. The ld. CIT(A) further observed that in the assessment year 1988-89, there was no rental income from this property and only investment was accepted as genuine. In assessment year 1995-96, there was no discussion about joint ownership of the building. Hence, it was clear that there was no clear cut finding on the co-ownership of superstructure which could be cited a precise ground of res judicata . The ld. CIT(A) also placed reliance on the decision of the Hon ble Allahabad High Court in the case of Asstt. CIT v. Bal Bharti Nursery School [2002] 82 ITD 71, wherein it was held that a Bench or the Court can deviate from its own previous order/decision or the decision of other Bench though of course within the parameter of the concept relating to "Judicial propriety" and "binding nature" if a strong distinguishable case has been made out. The ld. CIT(A) also confirmed the findings of the Assessing Officer in view of the provisions of sections 60, 61, 64(1)( iv ), 64(1)( vi ) and section 27 of the Act. 8. The ld. Counsel referred to page 6 of the Paper Book wherein the submissions made before the ld. CIT(A) are contained and pointed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contained at page 34 of the Paper Book. He, thereafter referred to page 67 of the Paper Book wherein the acknowledgement for assessment year 1995-96 is contained and also referred to pages 68 69 of the Paper Book wherein the computation chart is contained for assessment year 1995-96 in which assessee had specifically returned 1/4th share in co-ownership property at 24, G.B. Marg, Lucknow. The ld. Counsel referred to assessment order for assessment year 1995-96 as contained at pages 24 to 26 of the Paper Book and pointed out that income from house property was assessed as shown in the computation chart. The ld. Counsel further pointed out that from assessment year 1988-89, the assessee is regularly getting rent from Oriental Bank of Commerce and filing his return showing 1/4th share in the rental income. The ld. Counsel further referred to pages 35 to 86 of the Paper Book wherein acknowledgements for filing return for different assessment years are contained in order to demonstrate that the income has regularly been assessed as returned by the assessee. The ld. Counsel further referred to pages 87 to 136 of the Paper Book wherein the acknowledgement and computation of income in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d only Rs. 71,703 which is against the human probabilities. In regard to the reliance placed by the assessee on the decision of the Hon ble Supreme Court in the case of Radhasoami Satsang v. CIT [1992] 193 ITR 321 the ld. DR referred to para 3.7 of the ld. CIT(A) s order and pointed out that the facts in the said case was entirely different. She further referred to the following observations of the Hon ble Supreme Court, noted by the ld. CIT(A) in his order : "Counsel for the revenue had told us that the facts of this case being very special, nothing should be said in a manner which would have general application. We are inclined to accept this submission and would like to state in clear terms that the decision is confined to the facts of the case and may not be treated as an authority on aspects which have been decided for general application". 11. The ld. DR also relied on various decisions referred to by the ld. CIT(A) in support of his contention that principles of res judicata are not applicable in income-tax proceedings. She further pointed out that in assessment year 1988-89 no finding on ownership of superstructure has been given. 12. In the rejoinder, the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... certain immovable property in February, 1962. The assessee paid the entire consideration and was in actual physical possession of the entire properties contracted to be sold. The assessee was empowered by the vendor to use the properties in whatsoever manner. The assessee was to receive and enjoy the entire usufructs thereof with the only reservation that a formal deed of conveyance with registration in conformity with the Indian Registration Act would follow at the request of the assessee and once that request was made, it was incumbent upon the transferor to execute such a deed of conveyance and to get it registered. Under these circumstances, it was held that the assessee must be deemed to be the owner of the property within the meaning of section 22. It was held that the focus of section 22 of the Income-tax Act, 1961 is on the receipt of income. 17. In the case of Saifuddin ( supra ), before the Hon ble Rajasthan High Court, the facts were that the assessee purchased a plot of land. A hotel was constructed on the land and the expenses of construction were borne by the assessee and two of his brothers. There was no written agreement regarding the construction and no muta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... struction) in equal proportion to the partners of the firm, viz. , assessee-Saiffuddin, Allah Bux and Abid Ali. In these circumstances, there was no basis for the Tribunal to hold that the amount of the cost of construction of Park View Hotel was spent by the assessee. It is established that the amount for the construction of the house property, viz. , Park View Hotel was spent by the firm in the first instance and it paid the amount of construction from time to time to the contractor, Noor Mohd. . . . From the foregoing discussion, it is clear that the plot was the property of the assessee and thus, he is the owner. So far as the construction on the plot is concerned, viz. , superstructure, it belongs to the assessee Saiffuddin and his two brothers, Allah Bux and Abid Ali." 19. The issue of ownership has also been considered in the context of lessor and lessee and it has been held by the Hon ble Madras High Court in the case of CIT v. Madras Cricket Club [1934] 2 ITR 209 , that lessee is to be assessed under section 22 as owner. In this case the facts were that the assessee had taken a long lease of land from the Government and erected buildings thereon and was entitl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the society and the said building was accordingly transferred by the society in 1951 in the names of the two sons. On the application of the deceased the society passed a resolution on 27th May, 1951, transferring the plots as reconstituted by the deceased to the sons of the deceased and necessary entries to that effect were made in the register of the society. The shares held by the deceased were also transferred to the name of one of the sons and the other son subscribed for new shares of the society. Since then the sons of the deceased remained in possession and enjoyment of the respective reconstituted plots gifted to them by the deceased as their own properties. The Hon ble Gujarat High Court has considered this issue and has observed as under : "The argument of the revenue was that, since the superstructure was immovable property, it could not be transferred by the deceased to Sakarchand and Ramanlal except by a registered instrument and, in the absence of a registered instrument, the ownership of the superstructure continued to remain in the deceased. Now, it can hardly be disputed that the superstructure, being embedded in the earth, was immovable property and it is el ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ight to remove the superstructure. . . . This principle also finds recognition in section 108( h ) of the Transfer of Property Act, 1892. That section provides that, in the absence of a contract to the contrary, the lessee may, even after the determination of the lease, remove at any time whilst he is in possession of the property leased, but not afterwards, all things which he has attached to the earth; provided he leaves the property in the State in which he received it. If the lessee has constructed a building on the land leased to him, he is entitled to remove the building, on termination of the lease, at any time before he quits possession. It must therefore be held in accordance with this principle that since the deceased being lawfully in possession had constructed on the land belonging to the society, the only right which the deceased had in regard to the superstructure was to remove it, if for any reason his possession of the land came to an end." 22. In sum and substance, the ratio laid down by the Hon ble Madras High Court in the case of Madras Cricket Club ( supra ) and the Hon ble Gujarat High Court in the case of Sakarchand Chaganlal ( supra ) is that the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly covenanted and agreed upon as under : (1)That it is mutually agreed between the parties to jointly raise a Commercial Complex to be owned by them as equal co-owners (25% for each of them) on the land below the existing building, which is to be demolished. (2)That the First Party has already applied for passing the plan on 19-3-1984, for the commercial Complex in his name as land belongs to him and because it had not been possible for him to get the plan passed single handedly, the second party and the Fourth Party have agreed to put their joint efforts also in getting plan passed and to get the same properly executed at the earliest. (3)** ** ** (4)That the initial investment of First Party and Second Party is to be a sum of Rs. 75,000 each and that the Third and Fourth Parties is to be Rs. 1,00,000 each. The entire responsibility to pay back the loan with interest will rest equally on all parties to this deed. (5)** ** ** (6)That as stated in Para 2, land belongs to 1st Party, shall remain his property and the structure thereupon shall be the joint property of all the four co-owners equally, i.e., 1/4th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the other persons. Moreover in the income-tax proceedings the concept of ownership takes its colour from the point of actual recipient of income who has beneficial interest in the property. In our opinion, the decision of the Hon ble Rajasthan High Court in the case of Saifuddin ( supra ) is squarely applicable to the facts of the case and was wrongly distinguished by the ld. CIT(A) as noted earlier. 26. Now we will consider the next limb of argument of ld. Counsel for the assessee that there should be consistency in framing the assessments over various years in relation to same issue. In this regard, we find that the parties have acted upon as per agreement and assessments have been made since long in the hands of various persons. It is true as referred to in various case laws noted by the ld. CIT(A) that the principles of res judicata are not applicable to the income-tax proceedings, but it is well settled law that rule of consistency as propounded by the Hon ble Supreme Court in the case of Radhasoami Satsang ( supra ), has to be adhered to. The settled issues should not normally be disturbed unless there are compelling reasons for the same else it shakes the very con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowance only for the reason that inadvertently or incorrectly the appellants had disclosed income in the return without making a claim of vacancy allowance as the tenant had not paid any rent after August 2001 in the present case. 8. On the facts and in the peculiar circumstances of the present case specifically keeping in view CBDT circular on the issue that if a statutory deduction permissible on facts it should be allowed, the lower authorities erred on facts and in law in not allowing the appellant the said deduction which was statutorily allowable and assessing the appellant to the entire rental income earned from 11 Station Road, Lucknow." 31. The Assessing Officer noticed that the total income from house property at 11, Station Road, Lucknow, was Rs. 20,000 per month (Rs. 2,40,000). However, assessee had shown an amount of Rs. 1,20,000 as his own income and another 1,20,000 was treated as the income of his wife Smt. Prem Lata Agarwal for providing amenities and electrical fittings to the tenants. This bifurcation was made on the basis of the agreements between tenant Smt. Yasmeen Siddiqui and assessee. But assessing Officer did not accept the agreement and after the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry of the unpaid rent or to satisfy the Assessing Officer that legal proceedings would be useless are not fulfilled. She further pointed out that the premises were vacated by the tenant in May 2003. 34. We have considered the rival submissions and have perused the record of the case. The fundamental principle of taxation is that only the real income should be taxed. In case of income from house property, it is the annual letting value of the property which is to be taxed. Section 23 prescribes the mode of determination of annual value. As per section 23(1)( a ), the annual value of any property is deemed to be the sum for which the property might reasonably be expected to be from year to year. However, as per clause ( b ), if the property or any part of the property is let and the actual rent received or receivable by the owner in respect thereof is in excess of the sum referred to in clause ( a ), then the amount received or receivable is deemed to be the annual letting value of the property. In the present case, there is no dispute that annual letting value of the property is determined on the basis of rental income. The only dispute is regarding allowability of vacancy allow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent years under consideration, the Assessing Officer issued notice under section 148 on the basis of assessment completed for assessment year 2002-03 taking note of the fact that the assessee was wrongly dividing his income from house property in alleged four co-owners viz., Sri Shree Prakash Agarwal, Smt. Prem Lata Agarwal, Sri Ashok Kumar Agarwal and Smt. Aditi Agarwal. For both the assessment years he recorded the following reasons : "During the course of assessment proceedings for the assessment year 2002-03, it was seen from the lease agreement of the building at 24 G.B. Marg, that the assessee is receiving rent of Rs. 68,200 p.m. from Oriental Bank of Commerce w.e.f 17-5-1997. The building has been let out to M/s. Oriental Bank of Commerce w.e.f. Financial Year 1987-88. The assessee Shri Shri Prakash Agarwal is the owner of the building, but the rental income from the building is divided and taxed in the hands of four alleged co-owners viz., (1) Shri Shri Prakash Agarwal, (2) Smt. Prem Lata Agarwal (3) Shri Ashok Kumar Agarwal, and (4) Smt. Aditi Agarwal. This distribution of rental income in the hands of above mentioned four co-owners is not proper and the total rental ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out to Rs. 52,55,141 (17,55,141 + Rs. 35,00,000 cost of land) This analysis clearly proves that Smt. Prem Lata Agarwal, Shri Ashok Kumar Agarwal and Smt. Aditi Agarwal are the co-owners for the name sake only and that too, on the basis of alleged agreement if it exists at all. Further sections 27, 60, 61 64 of the I.T. Act, 1961 contains sufficient and adequate provisions that in such type of agreements the income is to be assessed in the hands of the transferor (assessee in the instant case). I have mentioned a number of sections only because in the absence of contents of the agreement, I am not in a position to pinpoint the exact section. The assessee has claimed the deduction on account of interest on borrowed capital, which also includes interest on accumulated interest. This is not allowable. With a view to clarify the issue it may be expressed in the manner that the assessee has charged interest on capital borrowed + interest due, for earlier years on borrowed capital. Only the interest on borrowed capital is allowable and the rest amount is not allowable. Thus, I have reasons to believe that the income chargeable to tax exceeding Rs. 1,00,000 has escaped assessment a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ped assessment. The words reason to believe cannot mean that the Assessing Officer should have finally ascertained the facts by legal evidence. Unless the ground or material on which his belief is based, is found to be so irrational as not to be worthy of being called a reason by any honest man, his conclusion that it constitutes a sufficient reason, cannot be overridden. If the Assessing Officer honestly comes to a conclusion that a mistake has been made, it matters nothing so far is his jurisdiction to initiate the proceedings under section 147 is concerned, that he may have come to an erroneous conclusion whether on law or on facts. The court will not in exercise of its extraordinary jurisdiction under the Constitution, examine the sufficiency of the reason which led the Assessing Officer to believe that the income had escaped assessment." 42. In the present case, the Assessing Officer, in view of his findings for assessment year 2002-03 had reason to believe that income had escaped assessment for the assessment years under consideration. We, accordingly, uphold the findings of the ld. CIT(A) on this issue. The ground is dismissed. 43. Ground Nos. 2 to 7 is that the ld ..... X X X X Extracts X X X X X X X X Extracts X X X X
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