TMI Blog2010 (5) TMI 487X X X X Extracts X X X X X X X X Extracts X X X X ..... Revenue cannot act mechanically without applying its mind to earlier facts and circumstances under which a view was taken by the taxman and the facts and circumstances of the assessment year in question calling to depart from earlier view. Where there is a fundamental aspect permeating through different assessment years allowed by the authorities to sustain, it would not be appropriate to change the view in a subsequent year except on justifiable grounds like change of circumstances or non-consideration of relevant material or statutory provisions, or failure on the part of the assessing or appellate authority to exercise jurisdiction for extraneous reason or small amount of revenue involved or other justifiable ground depending on the facts of each case. The assessee constructed the "Goel Complex" exclusively as part of its commercial activity to earn income by letting it on rent. Accordingly, the income so drawn shall be business income. - ITA Nos. 127 to 131 of 2005 - - - Dated:- 24-5-2010 - DEVI PRASAD SINGH, CHAURASIA S. C., JJ. JUDGMENT Devi Prasad Singh J.- In these appeals, filed under section 260A of the Income-tax Act, 1961 in short, the Act, common qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal was right in law in holding that the rental income derived out of the property was chargeable under the head, `Profits and gains of business or profession' and not under the head, `Income from house property ?" 7. We have heard learned counsel for the appellant and learned counsel for the respondent on the aforesaid substantial question of law and perused the record. 8. It has not been disputed that for certain years in the past (supra), the Assessing Officer while passing order under section 143(3) has taxed the income as "business income" and for some years, the Commissioner of Income-tax (Appeals) has directed to tax the income as "business income" (supra). The finding of the Commissioner of Income-tax (Appeals) was not challenged by the Revenue. For the assessment years in question, the Revenue had challenged the finding of the learned Commissioner of Income-tax (Appeals) which has been affirmed by the Tribunal. The Tribunal observed that the Revenue has not brought any new facts as to why the departure from earlier stand of the Department is warranted. The Tribunal held that the principle of res judicata does not apply in tax matters but at the same time held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lf was purchased for commercial use from the L.D. A. and after constructing the building, it was let out on rent. Accordingly, the amount earned after letting the premises is wholly and exclusively for business purpose and hence, the submission of the respondent's counsel that the rental income so earned is business income carries weight. 12. The Tribunal is the final authority with regard to findings of fact and it has recorded that the entire premises have been constructed and let out on rent to earn profit. However, on the insistence of the appellant's counsel, we have also perused the lease agreement entered into between Nagarpalika, Lucknow and M/s. Goel Construction Limited, Lucknow. The opening words of the agreement show that it was entered into for the commercial purpose. The relevant portion of the agreement is reproduced as under : "Whereas under the rules and orders relating to the disposal of building sites, for commercial purposes, in the said area, the administrator on behalf of the lessor has agreed to demise the land hereinafter described to the lessee in the manner hereinafter appearing." 13. Para 5 of the lease agreement is also relevant. To reproduce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 08 (Guj), Universal Plast Ltd. v. CIT [1999] 237 ITR 454 (SC), Narain Swadeshi Weaving Mills v. CEPT [1954] 26 ITR 765 (SC), CIT v. Chennai Properties and Investments Ltd. [2004] 266 ITR 685 (Mad), Gujarat Ginning and Manufacturing Co. Ltd. v. CIT [1994] 205 ITR 314 (Guj) and CIT v. Super Fine Cables P. Ltd. [1985] 154 ITR 532 (Delhi). 20. On the other hand, Mr. J. N. Mathur, learned senior counsel, assisted by Mr. Mudit Agrawal appearing for the respondent relied upon the cases reported in Karnani Properties Ltd. v. CIT [1971] 82 ITR 547 (SC), S. G. Mercantile Corporation P. Ltd. v. CIT [1972] 83 ITR 700 (SC), Universal Plast Ltd. v. CIT [1999] 237 ITR 454 (SC), New India Industries Ltd. v. CIT [1994] 207 ITR 1010 (Guj), Balaji Enterprises v. CIT [1997] 225 ITR 471 (Karn), Union of India v. Kaumudini Narayan Dalal [2001] 249 ITR 219 (SC) ; [2001] 10 SCC 231, Union of India v. Satish Pannalal Shah [2001] 249 ITR 221 (SC) ; [2002] 1 SCC 605, CCE v. Eureka Forbes Ltd. [2005] 12 SCC 241, Collector of Central Excise and Customs v. P. M. P. Components Limited [2005] 4 RC 814 ; [2005] 12 SCC 242, Commissioner of Central Excise and Customs v. Alsthom T and D Transformers Ltd. [2005] 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m) in determining the annual value of the property of that previous year in which such taxes are actually paid by him. Explanation.-For the purposes of clause (b) or clause (c) of this sub-section, the amount of actual rent received or receivable by the owner shall not include, subject to such rules as may be made in this behalf, the amount of rent which the owner cannot realise. (2) Where the property consists of a house or part of a house which- (a) is in the occupation of the owner for the purposes of his own residence ; or (b) cannot actually be occupied by the owner by reason of the fact that owing to his employment, business or profession carried on at any other place, he has to reside at that other place in a building not belonging to him, the annual value of such house or part of the house shall be taken to be nil. (3) The provisions of sub-section (2) shall not apply if- (a) the house or part of the house is actually let during the whole or any part of the previous year ; or (b) any other benefit therefrom is derived by the owner. (4) Where the property referred to in sub-section (2) consists of more than one house- (a) the provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsfer of Property Act, 1882 (4 of 1882), shall be deemed to be the owner of that building or part thereof ; (iiib) a person who acquires any rights (excluding any rights by way of a lease from month to month or for a period not exceeding one year) in or with respect to any building or part thereof, by virtue of any such transaction as is referred to in clause (f) of section 269UA, shall be deemed to be the owner of that building or part thereof ; . . . (vi) taxes levied by a local authority in respect of any property shall be deemed to include service taxes levied by the local authority in respect of the property." 26. A plain reading of section 27 shows that the owner of house property means a house or building owned by an individual or person as impartible estate. It cumulatively shows the initial acquisition of an estate should be for dwelling or habitation or non-commercial purpose, used to generate income. 27. A plain reading of sections 22 to 27 shows that "house property" means property constructed for dwelling or residential purpose, a portion of which or whole of the property or its appurtenant land is let out on rent to earn profit. It does not include a p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the termination of the agency or the modification of the terms and conditions relating thereto ; (d) any person, for or in connection with the vesting in the Government, or in any corporation owned or controlled by the Government, under any law for the time being in force, of the management of any property or business ; iii) income derived by a trade, professional or similar association from specific services performed for its members ; (iiia) profits on sale of a licence granted under the Imports (Control) Order, 1955, made under the Imports and Exports (Control) Act, 1947 (18 of 1947) ; (iiib) cash assistance (by whatever name called) received or receivable by any person against exports under any scheme of the Government of India ; (iiic) any duty of customs or excise re-paid or re-payable as draw-back to any person against exports under the Customs and Central Excise Duties Drawback Rules, 1971; (iiid) any profit on the transfer of the Duty Entitlement Pass Book Scheme being Duty Remission Scheme, under the export and import policy formulated and announced under section 5 of the Foreign Trade (Development and Regulation) Act, 1992 (22 of 1992) ; (i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccounting, banking, communication, conveying of news or information, advertising, entertainment, amusement, education, financing, insurance, chit funds, real estate, construction, transport, storage, processing, supply of electrical or other energy, boarding and lodging. (vi) any sum received under a Keyman insurance policy including the sum allocated by way of bonus on such policy. Explanation.-For the purposes of this clause, the expression `Key-man insurance policy' shall have the meaning assigned to it in clause (10D) of section 10. (vii) any sum, whether received or receivable, in cash or kind, on account of any capital asset (other than land or goodwill or financial instrument) being demolished, destroyed, discarded or transferred, if the whole of the expenditure on such capital asset has been allowed as a deduction under section 35AD ;'. Explanation 1.-[Omitted by the Direct Tax Laws (Amendment) Act, 1987, with effect from 1st April, 1989.] Explanation 2.-Where speculative transactions carried on by an assessee are of such a nature as to constitute a business, the business (hereinafter referred to as `speculation business') shall be deemed to be distinct and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rst read as a whole then section by section, phrase by phrase and word by word. While discharging statutory obligation with regard to take action against a person in a particular manner that should be done in the same manner. Interpretation of a statute should not depend upon contingency but it should be interpreted from its own words and language used. 38. It is also settled provision of law that the taxing statute should be construed strictly and in case two views are possible, then the one which favours the assessee should be adopted vide State of West Bengal v. Kesoram Industries Ltd. [2004] 2 RC 298 ; [2004] 10 SCC 201, Mathuram Agarwal v. State of M. P., AIR 2000 SC 109 and Mysore Minerals Limited v. CIT [1999] 239 ITR 775 (SC) ; [1999] 7 SCC 106. 39. In K. V. Shivakumar v. Appropriate Authority [2000] 242 ITR 597 (SC) ; [2000] 3 SC 485, the hon'ble Supreme Court has held that equity or hardship are not relevant consideration for interpretation for taxing law. 40. In State of West Bengal v. Kesoram Industries Ltd. [2004] 2 RC 298 ; [2004] 10 SCC 201, the hon'ble Supreme Court held that taxing statute should be construed strictly. If a person sought to be taxed com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statute. 49. In view of the above, the submission of the learned counsel for the appellant does not seem to be sustainable on a combined reading of sections 22 to 27 of the Income-tax Act. It shall be appropriate to consider the cases relied upon by the parties' counsel. 50. In the case of New India Industries Limited [1994] 207 ITR 1010 the Gujarat High Court held that where the manufacturer of silk cloth as a part of its business installed a plant for dyeing silk yarn and the plant could not be used and was idle for some time and was later on let out to a person on a monthly rent, the question was as to whether the rent for five years realised by the assessee was chargeable to excess profits tax as profits of business or was income from other sources. It was held that no general principle could be laid down which may apply to cases and each case should be decided on its own merits and related facts and circumstances. It was further held that in case the assessee derives income from a commercial asset which is capable of being used as a commercial asset, then it is income from his business-no matter whether the commercial asset is used by himself or somebody else. The ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quence shall be business income. 57. In the case of Chennai Properties and Investments Ltd. [2004] 266 ITR 685 (Mad), relied upon by the appellant's counsel, the Madras High Court though held that every building even if not constructed for dwelling house may be taxed under the head "Income from house property". However, it has also been held that the commercial building is not regarded as house and may be taxed as house property. 58. In Gujarat Ginning and Manufacturing Co. Ltd. v. CIT [1994] 205 ITR 314, the Gujarat High Court held that whether a property should be taxed under the head "Profits and gains of business or profession" or "Income from house property", depends upon the intention of the parties while acquiring the property. It is predominantly a matter of intention which may be drawn from the relevant facts. The judgment of the Gujarat High Court fortifies the views taken by us. 59. The Delhi High Court in the case of Super Fine Cables P. Ltd. [1985] 154 ITR 532 also ruled that it is the nature of arrangement and the reason for that is to be looked into to decide under which head income-tax be imposed. The purpose of determining whether one has let out the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res judicata against the Government which has been followed in other cases. However, the hon'ble Supreme Court clarified that there may be variation on just cause. 67. In Union of India v. Satish Pannalal Shah [2001] 249 ITR 221 ; [2002] 1 SCC 605, the hon'ble Supreme Court held that there the judgment of earlier year has not been challenged, it is not open for the Revenue to challenge the correctness of other assessee without just cause. 68. The same view has been reiterated in CCE v. Eureka Forbes Ltd. [2005] 12 SCC 241 and State of A. P. v. Bhooratnam and Co. [2005] 12 SCC 420. 69. In C. K. Gangadharan [2008] 304 ITR 61 (SC), their Lordships of the hon'ble Supreme Court held that where the Revenue has not assailed the correctness of the order in one case, it would normally not be permissible to do so in another case on the logic that the Revenue cannot pick and choose. It is necessary to maintain certainty in law. 70. However, their Lordships of the hon'ble Supreme Court dealt with the exception also and held that where the Revenue does not prefer an appeal for just cause or where the revenue involved is quite small amount may make out a case of departure. It sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e (page 329) : "We are aware of the fact that strictly speaking res judicata does not apply to income-tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and the parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. On these reasonings in the absence of any material change justifying the Revenue to take a different view of the matter and, if there was no change, it was in support of the assessee-we do not think the question should have been reopened and contrary to what had been decided by the Commissioner of Income-tax in the earlier proceedings, a different and contradictory stand should have been taken. We are, therefore, of the view that these appeals should be allowed and the question should be answered in the affirmative, namely, that the Tribunal was justified in holding that the income derived by the Radhasoami Satsang was entitled to exemption under sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; Broken Hill Proprietary Co. Ltd. v. Broken Hill Municipal Council [1925] All ER 672 ; [1926] AC 94 ; 95 LJPC 33 ; Turner on Res Judicata, 2nd Edn., para 219, page 193]. 76. In the same judgment (supra), the hon' ble Supreme Court further proceeded to observe that, to quote (page 696) : " A decision reached in one year would be a cogent factor in the determination of a similar question in a following year, but ordinarily there is no bar against the investigation by the Income-tax Officer of the same facts on which a decision in respect of an earlier year was arrived at." 77. The hon' ble Supreme Court further showed its agreement with the prin-ciple of law enunciated by Radhasoami Satsang [1992] 193 ITR 321. 78. Law that emerges after considering various pronouncements of the hon' ble Supreme Court and other High Courts is that the principle of consistency is a rule in general but for cogent reasons or on justifiable grounds, the Revenue has got the right to depart from its earlier practice and take a different view which shall be determined upon the facts and circumstances of each case. While departing from earlier practice, the Revenue cannot act mechanically witho ..... X X X X Extracts X X X X X X X X Extracts X X X X
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