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TMI Blog2010 (5) TMI 487X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. Right from the assessment years 1986-87 to 1992-93, the Department accepted the claim of the assessee to the effect that the rental income was taxable under the head "Profits and gains of business or profession". 4. However, in the assessment year 1990-91, an order of assessment was passed under section 143(3) of the Income-tax Act (in short, "the Act"). The order for other years was passed under section 143(1)(a) of the Act treating the income from house property. In the assessment years 1993-94 and 1994-95, the Assessing Officer taxed the income under the head "Income from house property" without looking into the past assessments right from 1986-87. The assessee preferred an appeal and the learned Commissioner of Income-tax (Appeals) accepted the claim of the assessee and directed to assess the income as "business income". The above order of the learned Commissioner of Income-tax (Appeals) for the years 1993-94 and 1994-95 was not challenged by the Revenue before the Tribunal. In the assessment year 1995-96, the Assessing Officer himself passed an order under section 143(3) and assessed the income as "business income". 5. However, for the assessment years 1996-97 to 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ince the advance was given to the sister concern as per agreement more than 10 years back, it was warranted by business considerations. 9. The other issue before the Tribunal was with regard to the deletion of trading addition of Rs. 64,573. The Commissioner of Income-tax (Appeals) deleted the addition made by the Assessing Officer and the Tribunal has upheld the order of the Commissioner of Income-tax (Appeals). The Tribunal further upheld the depreciation on car with observation that the Commissioner of Income-tax (Appeals) rightly deleted the allowance made by the Assessing Officer since the vehicle in question was a truck which cannot be used for personal purpose. However, all these questions do not call for adjudication since the substantial question of law heard and framed relates to rental income derived from letting out of the property. 10. The Tribunal held that the rental income earned by the assessee is not an income from house property but is a business income and accordingly, disallowances have rightly been made. The Tribunal reiterated the order of the earlier assessment years with the observation that no new fact has been brought on record and there i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale of spun pipes and coolers, hence the rental income earned from the premises in question should be treated as "Income from house property." 16. On the other hand, learned counsel for the respondents stated that right from very beginning, i.e. from the time of execution of agreement as well as registered lease agreement and right from the purchase of land for construction of building, the assessee has taken the project to construct a building for rental purpose as a mode of commercial activity. At no stage of time and also there is no evidence on record which may reveal that the land was purchased for dwelling or non-commercial purpose, hence the income may be assessed under the head "Income from commercial property". 17. It has been stated by the respondents' counsel that there is no change of situation right from 1986 till date with regard to the use of premises in question for commercial purpose. The submission is that the income from exclusive commercial activity may not be treated as income from house property, hence the finding of the Tribunal does not suffer from any impropriety or illegality. The question framed has already been dealt with by the Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, generating profit may be chargeable to income-tax under the head "Income from house property". 22. Section 23 provides how the annual value should be determined. It shall be appropriate to reproduce sections 22 and 23 of the Act. To quote : "22. Income from house property.-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.' 23. Annual value how determined.-(1) For the purposes of section 22, the annual value of any property shall be deemed to be - (a) the sum for which the property might reasonably be expected to let from year to year ; or (b) where 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), the amount so received or receivable ; or (c) where the property or any part of the property is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. Section 25 further provides that the interest chargeable under the Act may not be deducted on which tax has not been paid or deducted under Chapter XVII-B of the Act with regard to which there is no person in India. 23. While interpreting the provisions contained in section 22 of the Act with regard to the right of the Revenue to impose tax under the head "Income from house property", the provisions contained in sections 22, 23, 24, 25, 25A, 25B, 26 and 27 should be seen collectively. 25. Section 27 of the Act further provides that for the purpose of sections 22 to 26, the words, "owner of house property" and "annual charge" ought to be construed. It shall be appropriate to reproduce section 27 of the Act to quote : "27. `Owner of house property', `annual charge', etc., defined.-For the purposes of sections 22 to 26- (i) an individual who transfers otherwise than for adequate consideration any house property to his or her spouse, not being a transfer in connection with an agreement to live apart, or to a minor child not being a married daughter, shall be deemed to be the owner of the house property so transferred ; (ii) the holder of an im ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e aim and object and purpose of the building owner while acquiring or constructing or purchasing the same and used for the rental purpose to earn income. 30. Section 28 deals with profits and gains of business or profession. It provides that the profits and gains of any business or profession which was carried on by the assessee at the time during the previous year may be taxed under the said head. At the face of record, section 28 postulates that the aim and object of acquiring the property should be commercial in nature. 31. Various conditions provided in section 28 reveal that it deals with exclusive situations where the property is acquired and used for business purpose. It shall be appropriate to reproduce section 28 of the Act, to quote : "28. Profits and gains of business or profession.-The following income shall be chargeable to income-tax under the head `Profits and gains of business or profession',- (i) the profits and gains of any business or profession which was carried on by the assessee at any time during the previous year ; (ii) any compensation or other payment due to or received by, - (a) any person, by whatever name ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceived by, a partner of a firm from such firm : Provided that where any interest, salary, bonus, commission or remuneration, by whatever name called, or any part thereof has not been allowed to be deducted under clause (b) of section 40, the income under this clause shall be adjusted to the extent of the amount not so allowed to be deducted ; (va) any sum, whether received or receivable in cash or kind, under an agreement for- (a) not carrying out any activity in relation to any business ; or (b) not sharing any know-how, patent, copyright, trade-mark, licence, franchise or any other business or commercial right of similar nature or information or technique likely to assist in the manufacture or processing of goods or provision for services : Provided that sub-clause (a) shall not apply to- (i) any sum, whether received or receivable, in cash or kind, on account of transfer of the right to manufacture, produce or process any article or thing or right to carry on any business, which is chargeable under the head `Capital gains' ; (ii) any sum received as compensation, from the multilateral fund of the Montreal Protocol on Substances th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er commercial activity. 33. In case the submission of the learned counsel for the appellant is accepted, then it shall amount to addition of words in the plain meaning of section 27 or 28 of the Act and also to negate the meaning and purpose of the provisions contained in sections 22 to 27 of the Act. 34. It is no longer res integra that while interpreting statutory provisions, each and every word of the Act, every section and every chapter should be taken into account in reference to context. According to Maxwell any construction which may leave without effect any part of the language of a statute should ordinarily be rejected. The relevant portion from Maxwell on the Interpretation of Statutes (12th edition page 36) is reproduced as under : "A construction which would leave without effect any part of the language of a statute will normally be rejected. Thus, where an Act plainly gave an appeal from one quarter sessions to another, it was observed that such a provision, through extraordinary and perhaps an oversight, could not be eliminated." 35. In Vemareddy Kumaraswami Reddy v. State of Andhra Pradesh [2006] 2 SCC 670, their Lordships of the hon'b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r ambiguity, construction has to be made in favour of taxpayer against the Revenue. 42. A Division Bench of the Allahabad High Court in Lipton India Ltd. Gaziabad v. State of U. P. [2009] 22 VST 230 ; [2009] 27 LCD 161, in which one of us (the hon'ble Devi Prasad Singh J.) was a member, after considering various pronouncements of the hon'ble Supreme Court, held that while interpreting the statutory provisions, every section, every word, should be looked into in a reference to tax. 43. In CWT v. Officer-in-charge (Court of Wards), Paigah [1976] 105 ITR 133 ; AIR 1977 SC 113, the hon'ble Supreme Court held that the correct rule is that the courts have to endeavour to find out the exact sense in which the words have been used in a particular context. 44. In H. H. Lakshmi Bai v. CWT [1994] 206 ITR 688, the hon'ble Supreme Court held that taxing statutes in particular, have to be strictly construed and there is no equity in taxing provisions. 45. In CIT v. Sakarlal Balabhai [1972] 86 ITR 2, the hon'ble Supreme Court held that in interpreting the taxing provision, one has merely to look to the words of the provision. It is not permissible to construe any provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng so, the Gujarat High Court has relied upon New India Industries Ltd. v. CIT [1994] 207 ITR 1010. 51. The aforesaid proposition of law has been followed in Narain Swadeshi Weaving Mills v. CEPT [1954] 26 ITR 765 (SC) relied upon by the appellant. However, the case does not seem to be applicable under the facts and circumstances of the present case. 52. In the present case, from the very beginning, the plot purchased and building constructed by the assessee was for commercial use. That is why continuously since almost a decade, the rental income was assessed as his "business income" and not as "house property". Nothing has been brought on record to show that the assessee constructed the building as house property for own use. 53. In CIT v. Indian Molasses Co. P. Ltd. [1970] 78 ITR 474, the hon'ble Supreme Court observed that in case the expenditure is laid out or expended wholly or exclusively for the purpose of business, then it shall be business expenditure. It has been further held that the question of law means the question arising on the basis of the finding recorded by the Tribunal. 54. In CIT v. Madras Auto Service P. Ltd. [1998] 233 TR 468 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Karnani Properties Ltd. [1971] 82 ITR 547, the hon'ble Supreme Court has treated the income as income from business where the assessee had let out the building constructing flats and shops. The hon'ble Supreme Court held that the activities carried on in an organised and systematic manner to let out property, flats or shops to tenants is assessable as business income. 61. In the case of S. G. Mercantile Corporation P. Ltd. v. CIT [1972] 83 ITR 700, the hon'ble Supreme Court held that letting out of premises as business activity authorised by the memorandum of association shall be taxable as business income. 62. The Orissa High Court in CIT v. M. P. Bazaz [1993] 200 ITR 131 held that a building constructed and let out on rent to carry out business for profit should be assessed as business income. 63. In Universal Plast Ltd. [1999] 237 ITR 454, the hon'ble Supreme Court has held that grant of lease of factory to exploit a commercial asset is assessable as business income though the lease was for temporary period with no intention to revive it. 64. The Gujarat High Court in CIT v. New India Industries Ltd. [1993] 201 ITR 208 held that whether the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as rightly contended by the learned counsel for the Revenue, there may be certain cases where because of the small amount of revenue involved, no appeal is filed. Policy decisions have been taken not to prefer appeal where the revenue involved is below a certain amount. Similarly, where the effect of decision is revenue neutral there may not be any need for preferring the appeal. All these certainly provide the foundation for making a departure. 13. In answering the reference, we hold that merely because in some cases the Revenue has not preferred appeal that does not operate as a bar for the Revenue to prefer an appeal in another case where there is just cause for doing so or it is in public interest to do so or for a pronouncement by the higher court when divergent views are expressed by the Tribunals or the High Courts." 71. In the case of CWT v. Allied Finance P. Ltd. [2007] 289 ITR 318 (Delhi), the lack of consistency by the Revenue put their action to acid test. The hon'ble Supreme Court held that the principle of res judicata does not apply to income-tax proceedings since each assessment year is a unit by itself. But where there is a fundamental aspect permeating t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 75. However, in the case of Municipal Corporation of City of Thane [2009] 20 VST 680 ; [2007] 8 SCC 688 the hon'ble Supreme Court while holding that the strict rule of res judicata as envisaged by section 11 of the Civil Procedure Code has no application, their Lordships further held that as a general rule, each year's assessment is final for that year and does not govern later years because it determines the tax for a particular year. To reproduce the relevant portion, to quote (page 686 of VST) : 14. So far as the proposition of law is concerned, it is well settled and needs no further discussion. In taxation-matters, the strict rule of res judicata as envisaged by section 11 of the Code of Civil Procedure, 1908 has no application. As a general rule, each year's assessment is final only for that year and does not govern later years, because it determines the tax for a particular period. It is, therefore, open to the Revenue/taxing authority to consider the position of the assessee every year for the purpose of determining and computing the liability to pay tax or octroi on that basis in subsequent years. A decision taken by the authorities in the previous year would not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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