TMI Blog2013 (9) TMI 238X X X X Extracts X X X X X X X X Extracts X X X X ..... authority after examining records and material and after recording facts come to conclusion or taken a particular view on the issue by a speaking order in accordance with law only such view is to be followed on account of principle of consistency. A blind order, not taking any view, not examining records and material, such order is not required to be followed on principle of consistency. If anything was going wrong in the past that wrong thing need not to be followed in subsequent year. The wrong thing has to be corrected on notice of the same - partner of the assessee firm clearly admitted that the property taken on lease for the purpose of giving rent to GAIL - Revenue authorities are correct in not following the order of the A.O. for A.Y. 2005-2006. Nature of income - intention of the assessee was to let out the property to earn the rent. The assessee has claimed that income is assessable under the head "income from business" but the assessee has failed to discharge the onus by furnishing evidence and material that the assessee was doing business. No systematic set up has been established for doing business activities. The assessee has failed to point out the volume, frequen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m "income from business" to "house property" or "other sources". 5. Because the appellant denies levy of interest U/s 234B of the Income Tax Act. 6. Because the order appealed against is contrary to the facts, law and principals of natural justice." ITA No. 292/Agra/2012 by the Assessee for A.Y. 2008-09:- "1. BECAUSE, on due consideration of the facts and in the circumstances of the case 'CIT(A)' before deciding appeal against the 'appellant' ought to have allowed further opportunity of hearing to the 'appellant' as Notice if, at all issued fixing the date of hearing did not reach the 'appellant'. 2. (a)BECAUSE, on due consideration of the facts and in the circumstances of the case authorities below were not justified in rejecting the claim of the 'appellant' that income derived by 'appellant' Firm is business income. (b) Because, while doing so the learned authorities below were unjustified in ignoring the decision of learned Additional Commissioner of Income Tax, Range-4, Agra who in the year of inspection of the activities A.Y. 2005-2006 after enquiry approved the claim of the 'appellant' and held the receipts to be assessable under the head 'Business income'. (c) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case the learned 'AO' was not justified in disallowing the claim of interest on partners capital account amounting to Rs.11,57,542/-. 8. Because, after having made assessment under section 143(3) in the status of Firm, as claimed by the assessee the authorities below were not justified in making the change in the heads of income as there can be no valid partnership to share either 'House Property Income' or 'Income from Other Sources'. 9. Because, while making the assessment the learned authorities below made various observations/conclusions which are contrary to facts available on records. Cases has been referred and relied without showing as to how it applies to the facts of the case in hands. While making the addition submission made and evidences filed have been rejected arbitrarily. 10. Because, the appellant denies levy of interest under section 234B of the 'Act'. 11. Because, the order appealed against is contrary to the facts, law and principles of natural justice. The appellant reserves his right to add, delete, modify, alter or substitute any or all the grounds of appeal." 3. The ld. Authorized Representative submitted that grounds of appeal in both the appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hree separate agreements with the same person. All the three agreements, their terms and conditions, their receipts, their rights and obligations can be easily separated. At the very outset, it is clarified that it is not the case of composite rent, where rent is received on account of letting out the property and the service charges for various facilities along with the properties like lift, electricity, water, gas, air conditioner etc. In the case of composite rent, the rent is divided and the portion of rent attributable to letting of the premises shall be assessable in one head. The other portion of the composite rent received for rendering services shall be assessable under different head. The A.O. was of the view that this is the case where agreements are separate and their treatment should also be separate. This is also not the case where letting out is subservient of any business activity. It is a clear-cut case where three agreements are separate and income arisen from them should be treated separately. The A.O. vide order sheet entry dated 25.08.2008 asked the assessee to justify its claim as a business income, why this income should not be treated as income from other so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come i.e. whether it is to be taxed under the head "Income from Business Profession" or income from "house property" is "the prime object or the intention of the assessee". The A.O. to ascertain the intention of the assessee, statement of partner Shri Prakhar Garg was recorded on 10.09.2008. 6. The A.O. found that it is unequivocally clear that the prime object of the assessee was to let out the property. The A.O. noted that the treatment of assets is to be seen while deciding the head to which any income falls. In the instant case, the assessee has taken land, building, furniture, fixture, Air Conditioner as capital assets and not at current assets and claimed the depreciation thereon, meaning thereby, assessee has taken land, building, furniture fixture in fixed assets and not in inventories or closing stock as in case of current assets. The treatment of the assets as capital assets also strengthens the view that income should be taxed under the head income from House Property. The A.O. further noted that it is also to be seen, why did GAIL enter in to three separate agreements instead of one composite agreement. First Second agreement once executed cannot be changed; the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssion by the assessee firm. The second agreement was in fact consequence of first agreement and was executed after 14 days of first agreement. To examine how this income fall under the head income from business profession, the books of account were examined by the A.O. and the statement of partner Shri Prakhar Garg was also recorded on 10.09.2008. 9. The books of accounts were examined by the A.O. with a view that any day- to-day services were provided by the assessee and any expenses were incurred by the assessee. From perusal of books of account, the A.O. found that it is clear that no expenses in this head were incurred by the assessee. The agreement was also perused by the A.O. The A.O. noticed that it is clearly mentioned that "the major repair in the said furniture etc. provided by the first party to the second party if requires to be done by the first party." 10. The A.O. found that the assessee was not involved in any kind of recurring activity to treat the receipts as Business Receipts. Moreover, furniture was installed once and nothing more was required from the lessor. So, by no stretch of imagination the receipt under this head can be treated as income from busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugh the assessment order and the submissions made by the appellant. As regards the first agreement, it is a simple case of renting a vacant property on rent/lease. As per provisions of section 22, the chargeability of income from house property is subject to the following conditions: The property shall consist of any building or land appurtenant thereto; (i) the assessee shall be the owner of the property and (ii) the property shall not be used for business or profession carried on by the owner, the profit. In the assessee's case regarding first two conditions there is no doubt that same are satisfied. Only dispute is with regard to condition no.3 as the appellant is claiming the rental income under the head business. As no other services have been provided like charges for electric current for the use of lifts, for the supply of hot and cold water, watch and ward facilities and no activities were to be carried out continuously in an organized manner, therefore, the lease rentals received cannot partake the character of business income. Even no expenses were incurred as pointed out by the AO to earn the lease rentals. As regards 2nd agreement also the facts are similar as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness of real-estate and alike activities like giving properties on lease or sub-lease, providing annual maintenance contract for any type of facilities, providing generators on hire and providing invertors on hire etc. The ld. Authorised Representatives submitted that assessment for the first assessment year (A.Y.2005-06) of business came to be completed under section 143(3) of the Act by the Additional Commissioner of Income Tax, Range-4, who vide Assessment Order dated 28.12.2007 completed the assessment on loss as was returned by the appellant mentioning full details regarding the business of the appellant and after making due enquiry into the matter regarding assessee's nature of business, examination of partners on oath regarding nature of business, activities carried out and its treatment as business income. Thus, the A.O. framing the assessment was fully alive of the issue and therefore, there is no gainsaying that Assessment Order was passed in ignorance of facts of the case or in ignorance of law over the issue. Even otherwise, the assessment so framed stood final as no action either under section 263 or under section 148 of the Act was found warranted by the superior revi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come assessed under the head business. It is requested that statement of the partners were recorded by the Additional CIT, Range-4, during the course of assessment proceedings for Assessment year 2005-06, those statements are vital for adjudication of the issue under consideration and may kindly be seen. It also needs due consideration that the Commercial Complex as acquired by the assessee and construction expenses incurred thereon were largely met by borrowed funds. This also goes to prove that the transaction was a business transaction. The ld. Authorised Representative in support of his contention relied upon the following orders/judgments:- 1. Vikram Golecha Vs. DCIT 123 ITD 438 (JP), 2. Balaji Enterprises Vs. CIT 225 ITR 471 (Karn) 3. Karnani Properties Ltd Vs. CIT 82 ITR 547 (S.C.) 4. S.G. Mercantile Corporation (P) Ltd. Vs. CIT 83 ITR 700 (S.C.) 5. Commissioner of Income Tax Vs. Mithila Properties Publication Contractor Enterprises (P) Ltd. 192 TAXMAN 401 (Pat) 6. CIT Vs. Goel Builders 331 ITR 344 (All) 7. ITAT Agra bench in the case of M/s. Romsons Scientific Surgical Ind. (P) Ltd. Vs. DCIT 4(1), Agra (ITA No.275/Agra/2009)- order dated 21.04.2011. 8. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es not apply in matters pertaining to tax for different assessment years because res judicata applies to debar Courts from entertaining issues on the same cause of action whereas the cause of action for each assessment year is distinct. The Courts will generally adopt an earlier pronouncement of the law or a conclusion of fact unless there is a new ground urged or a material change in the factual position. The reason why Courts have held parties to the opinion expressed in a decision in one assessment year to the same opinion in a subsequent year is not because of any principle of res judicata but because of the theory of precedent or the precedential value of the earlier pronouncement. Where facts and law in a subsequent assessment year are the same, no authority whether quasi judicial or judicial can generally be permitted to take a different view. This mandate is subject only to the usual gateways of distinguishing the earlier decision or where the earlier decision is per incuriam. However, these are fetters only on a co-ordinate Bench which, failing the possibility of availing of either of these gateways, may yet differ with the view expressed and refer the matter to a bench of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... possible, that even where SLPs are filed by the State against judgments of High Court, such SLPs may not be entertained by this Court in exercise of its discretionary jurisdiction under Art. 136 of the Constitution either because they are considered as individual cases or because they are considered as cases not involving stakes which may adversely affect the interest of the State. Therefore, the circumstance of the non-filing of the appeals by the State in some similar matters or the rejection of some SLPs in limine by this Court in some other similar matters by itself, in our view, cannot be held as a bar against the State in filing an SLP or SLPs in other similar matters where it is considered on behalf of the State that non-filing of such SLP or SLPs and pursuing them is likely to seriously jeopardise the interest of the State or public interest." In Government of West Bengal vs. Tarun K. Roy Ors. (2004) 1 SCC 347 reference was made to the judgment in Digambar case (supra) and State of Bihar Ors. vs. Ramdeo Yadav Ors. (1996) 3 SCC 493. It was noted as follows : "28. In the aforementioned situation, the Division Bench of the Calcutta High Court manifestly erred in ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere not duly appointed as the employees of the taken over institution. Therefore, the High Court cannot issue a mandamus directing the Government to act in violation of law." In CCE vs. Hira Cement (2006) 2 SCC 439 at para 24 the position was reiterated. In Chief Secretary to Government of Andhra Pradesh Anr. vs. V.J. Cornelius Ors. (1981) 2 SCC 347 it was observed that equity is not relevant factor for the purpose of interpretation. It will be relevant to note that in Karamchari Union vs. Union of India Ors. (2000) 159 CTR (SC) 148 : (2000) 243 ITR 143 (SC) and Union of India vs. Kaumudini Narayan Dalal (2001) 168 CTR (SC) 3 : (2001) 249 ITR 219 (SC) this Court observed that without a just cause Revenue cannot file the appeal in one case while deciding not to file appeal in another case. This position was also noted in CIT vs. Shivsagar Estate (2002) 177 CTR (SC) 107 : (2004) 9 SCC 420. The order of reference would go to show that same was necessary because of certain observations in Berger Paints India Ltd. vs. CIT (2004) 187 CTR (SC) 193 : (2004) 12 SCC 42. The decision in Union of India Ors. vs. Kaumudini Narayan Dalal Anr. (supra) was explained in Hemalatha G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at every assessment year gave rise to a fresh cause of action. According to the petitioners in any event the decision requires reconsideration. In State of UP vs. Union of India Anr. (supra), the two learned Judges of this Court had construed the definition of 'business', 'dealer', 'goods' and 'sale' under ss. 2(aa), (c), (d) and (h) of the U.P. Trade Tax Act, respectively, to come to the conclusion that the DoT was a 'dealer' under the U.P. Act. This Court also held that a telephone communication and other accessories which gave access to the telephone exchange with or without instruments were 'goods' and that transferring the right to use the telephone instrument/apparatus and the whole system fell within the extended meaning of "sale" under cl. (h) of s. 2 of the U.P. Act. A consideration of the correctness of this conclusion would arise only if we reject the preliminary objection of the State of UP that we are precluded from reopening the issues so concluded by reason of the principles of res judicata. Several decisions have been cited in support of their contention. In Amalgamated Coalfields Ltd. vs. Janapada Sabha 1962 (1) SCR 10 tax was claimed in respect of coal by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cision would, under Art. 141, have a binding effect not only on the parties to it, but also on all Courts in India as a precedent in which the law is declared by this Court. The question about the applicability of res judicata to such a decision would thus be a matter of merely academic significance." (Emphasis, italicised in print, ours) After refraining from expressing any final opinion on the applicability of res judicata to assessment orders for successive years, the Court was quite unequivocal in expressing an opinion on the applicability of the principles of constructive res judicata. "In our opinion, constructive res judicata which is a special and artificial form of res judicata enacted by s. 11 of the CPC should not generally be applied to writ petitions filed under Art. 32 or Art. 226. We would be reluctant to apply this principle to the present appeals all the more because we are dealing with cases where the impugned tax liability is for different years." It was held that in any event : "....... the appellants cannot be precluded from raising the new contentions on which their challenge against the validity of the notices is based." The question in Radhasoami ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cata may not apply to such a case. That, in fact, is the effect of the decision of this Court in the Amalgamated Coalfields Ltd. Anr. vs. Janapada Sabha, Chhindwara (1963) Supp. 1 SCR 172.........In our opinion, the said general observations must be read in the light of the important fact that the order which was challenged in the second writ petition was in relation to a different period and not for the same period as was covered by the earlier petition." But as far as a challenge to the same assessment order is concerned, it was held : "that if constructive res judicata is not applied to such proceedings a party can file as many writ petitions as he likes and take one or two points every time. That clearly is opposed to considerations of public policy on which res judicata is based and would mean harassment and hardship to the opponent. Besides, if such a course is allowed to be adopted, the doctrine of finality of judgments pronounced by this Court would also be materially affected. We are, therefore, satisfied that the second writ petition filed by the appellant in the present case is barred by constructive res judicata." Rupa Ashok Hurra vs. Ashok Hurra (2002) 4 SCC 38 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate is subject only to the usual gateways of distinguishing the earlier decision or where the earlier decision is per incuriam. However, these are fetters only on a co-ordinate Bench which, failing the possibility of availing of either of these gateways, may yet differ with the view expressed and refer the matter to a Bench of superior strength or in some cases to a Bench of superior jurisdiction. In our opinion, the preliminary objection raised by the State of UP therefore, rests on a faulty premise. The contention of the petitioners/appellants in these matters is not that the decision in State of UP vs. Union of India (supra) for that assessment year should be set aside, but that it should be overruled as an authority or precedent. Therefore, the decisions in Devi Lal Modi vs. STO (supra) and in Hurra vs. Hurra (supra) are not germane. A decision can be set aside in the same lis on a prayer for review or an application for recall or under Art. 32 in the peculiar circumstances mentioned in Hurra vs. Hurra (supra). As we have said overruling of a decision takes place in a subsequent lis where the precedential value of the decision is called in question. No one can dispute that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ystead vs. Commissioner of Taxation (1926) AC 155 (PC). Speaking for the Judicial Committee, Lord Shaw stated : "Parties are not permitted to begin fresh litigations because of new views they may entertain of the law of the case, or new versions as to what should be a proper apprehension by the Court of the legal result either of the construction of the documents or the weight of certain circumstances. If this were permitted litigation would have no end, except when legal ingenuity is exhausted. It is a principle of law that this cannot be permitted, and there is abundant authority reiterating that principle. Thirdly, the same principle--namely, that of a setting to rest rights of litigants, applies to the case where a point, fundamental to the decision taken or assumed by the plaintiff and traversable by the defendant, has not been traversed. In that case also a defendant is bound by the judgment, although it may be true enough that subsequent light or ingenuity might suggest some traverse which had not been taken." These observations were made in a case where taxation was in issue. This Court in Parashuram Pottery Works Co. Ltd. vs. ITO 1977 CTR (SC) 32 : (1977) 106 ITR 1 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n accordance with the well-recognised principle of accounting which required the stock to be valued at cost (viz., raw material plus expenditure) or market price, whichever was lower. He, therefore, calculated the value of the opening and closing stocks by adding the overhead expenditure. The Appellate Assistant Commissioner confirmed that order. On appeal, the Appellate Tribunal held that there was no evidence to show that the goods in stock deteriorated in value and that there was no justification for excluding the overhead expenditure in valuing the stock; and, if it was in the interest of the business to value stock solely with reference to cost of raw materials and without including overhead expenditure, such valuation was not appropriate to the computation of income chargeable under the Income-tax Act. The High Court, on a reference, reversed the decision of the Tribunal holding that, having regard to the consistent practice of the respondent; the Tribunal was not justified in rejecting the respondent's method of valuation of its stock-in-trade.(emphasizes by us) On appeal to the Supreme Court held reversing the decision of the High Court, (i) that even if the assessee ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the correct income can be deduced therefrom. It is incorrect to say that the Officer is bound to accept the system of accounting regularly employed by the assessee the correctness of which had not been questioned in the past. There is no estoppel in these matters and the Officer is not bound by the method followed in the earlier years. It is a well-recognised principle of commercial accounting to enter in the profit and loss account the value of the stock-in-trade at the beginning and at the end of the accounting year at cost or market price, whichever is the lower. Where the market value has fallen before the date of valuation and, at that date, the market value of the article is less than its actual cost, the assessee is entitled to value the articles at market value and thus anticipate the loss which he will probably incur at the time of the sale of the goods. Valuation of the stock-in-trade at cost or market value, whichever is the lower, is a matter entirely within the discretion of the assessee. But whichever method he adopts, it should disclose a true picture of his profits and gains. If, on the other hand, he adopts a system which does not disclose the true state o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness venturing into real estate and alike activities like giving properties on lease or sub-lease providing annual maintenance contract for any type of facilities, providing generators on hire and providing invertors on hire etc. 5. During the year the assessee has acquired (taken on long lease) a property G10/8 Padam Deep Tower Sanay Place Agra admeasuring 6925 sq. feet which it has leased to M/s Gas Authority of India Ltd., Agra for a monthly sum of Rs.96,540 per month. 6. Partners of the firm produced necessary documents in support of their returned financial statements. After considering the facts and circumstances of the case and details/explanations submitted by the assessee, total loss returned at Rs.20,13,103/- is accepted. 7. Assessed accordingly u/s 143(3) of the IT Act, 1961 on total loss of Rs.20,13,100/-. Issue notice of demand and Chillan." 18.3 On perusal of the order of the A.O. for A.Y. 2005-2006, we find that the A.O. has accepted claim of the assessee without examining the relevant records and without recording facts of the issue. The order of the A.O. for A.Y. 2005-2006 is not in accordance with law. Merely accepting assessee's clam without examining re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... found as a fact one way or the other and 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, unless there was any material change justifying the Revenue to take a different view of the matter. If we consider the facts of the case under consideration in the light of above judgment, we find that there were sufficient materials and changes before the A.O. for the year under consideration to decide the issue. The A.O. examined the relevant agreements and noted relevant clauses of the agreements which are as under:- 18.5 Lease agreement dated 30.11.2004, copy which has been placed in Paper Book page nos.50 to 55. (Page no.51 Paper Book) "C. The lessor hereby confirms and declares that the said premises is free from all encumbrances and the lessee shall be entitled to use the said premises without any let and hindrance and without there being any interference from any person/persons in any manner whatsoever. Pursuant to the offer submitted by the lessor and same being considered and approved by the lessee. The Lessee hereby agrees to take on Lease the said Prem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich copy has been placed at page nos.12 to 18, are reproduced as below:- (Page No.14 Paper Book) "4. That main object and the business of the firm shall be to venture into business of real estate and alike activities like giving properties on lease or sub lease, providing annual maintenance contract for any type of facilities, etc. However, all the partners shall have the liberty to step into new line of activities as may be mutually decided by all the three partners. Meaning thereby, the nature of business may be altered/amended with the mutual consent of all the parties to this deed." 18.8 Not only that the A.O. noted above material facts but it has also been noted by the A.O. that the partner of the assessee firm clearly admitted that the property taken on lease for the purpose of giving rent to GAIL. "Q.4 why did you purchase the property in question? Ans. This property of at Padam Deep Tower was purchased for the project of GAIL. The property was completed as required by the GAIL i.e. putting AG, DG set, different plant machineries, furniture and fixtures. The above property was purchased to let out on rent to the GAIL" Vide question no. 9 10 of the statement re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scheme of the Act is that income is to tax under appropriate heads of income as provided in the Act. The Apex Court in the case Commissioner of Income Tax vs. V. MR. P. Firm [1965] 56 ITR 67 (SC) had pointed out that the doctrine of "approbate and reprobate" is only a species of estoppel; it applies only to the conduct of parties. As in the case of estoppel, it cannot operate against the provisions of a statute. If a particular income is not taxable under the Income-tax Act, it cannot be taxed on the basis of estoppel or any other equitable doctrine. Equity is out of place in tax law; a particular income is either exigible to tax under the taxing statute or it is not. If it is not, the Income-tax Officer has no power to impose tax on the said income. Income-tax is undoubtedly levied on the total taxable income of the taxpayer and the tax levied is a single tax on the aggregate taxable receipts from all the sources; it is not a collection of taxes separately levied on distinct heads of income. But the distinct heads specified in the Act indicating the sources are mutually exclusive and income derived from different sources falling under specific heads has to be computed for the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lease was taxable as business income or income from property, or income from other sources more specifically under sub-section (4) of section 12 of the Income-tax Act, 1922, which dealt with composite income in the case of letting out of furniture with building. The Court held that lease was a composite one and therefore, income so collected was to be dealt with under section 12(4). While so holding the Court observed that : "Because of the composite character of the income it becomes a new kind of income not covered by section 9, i.e., income not from ownership of the building alone, but, income which though arising from building would not have been arising if the plant and machinery and furniture had also not been let along with it." Prior to the decision of the Constitution Bench, but, subsequent to the decision in East India Housing Land Development Trust Ltd.'s case (supra) a three-Judge Bench of the Supreme Court in the case of Karanpura Development Co. Ltd. v. CIT [1962] 44 ITR 362 considered the case of an assessee which held a mining lease for coal and received rental income from sub-lessees to whom portions of the leased area had been sub-leased. The principal objec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aw laid down in the case of Karnani Properties Ltd. (supra) thus, was that rent derived from letting would be assessable as income from property. That decision is clearly in accordance with the decision of the Constitution Bench in the case of Sultan Bros. (P.) Ltd. (supra) which had approved the decision of the three Judge Bench in the case of East India Housing Land Development Trust Ltd. (supra). S.G. Mercantile Corpn. (P.) Ltd. v. CIT [1972] 83 ITR 700 (SC) was a case of an assessee-company which had obtained a market place on lease and sublet portions of the same to different tenants, decided by a four Judge Bench. The Court did not regard the law laid down in East India Housing Land Development Trust Ltd.'s case (supra ) as being applicable to the case of the assessee before it in that case, who was a tenant and not the owner. The observations made in that decision, therefore, are not to be regarded as having laid down the law with regard to the manner in which the rental income derived by the owner from letting out of the building owned by it is to be treated whether as income from business, or income from property. In the case of Universal Plast Ltd. v. CIT [1999] 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the facts of that case was not as owner of the property. In the case of Anaikar Traders Estates (P.) Ltd. v. CIT [1990] 186 ITR 1752 this Court, after referring to the decision of the Apex Court in East India Housing Land Development Trust Ltd.'s case (supra) as also the case of Lakshmi Silk Mills Ltd. (supra) and United Commercial Bank Ltd. v. CIT [1957] 32 ITR 688 held that the income derived from the letting out of buildings owned by the assessee whose object was acquisition and possession of property with the incidental object of selling or leasing the same was not income from business but income from property. Similar view has been taken by this Court, in the case of CIT v. Smt. P. Andal Ammal [2000] 243 ITR 715, Indian Overseas Bank Ltd. v. CIT [2000] 246 ITR 206 (Mad.) and CIT v. Indian Warehousing Industries Ltd. [2002] 258 ITR 93 (Mad.). Learned counsel for the Revenue invited our attention to two decisions one rendered by Andhra Pradesh High Court and another by Kerala High Court. In the case of CIT v. George Oommen Co. [2001] 247 ITR 5743 (Ker.) it was held that earning from letting out property and receiving income from investments do not amount to carrying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vision of law which creates the charge and obligates the person who receives such income to have it assessed under that head does not confine its application only to house property, but extends to all buildings whether such buildings is used as dwelling house or for other purposes. It has been held by the Supreme Court uniformly in all cases where the issue was the head under which the rental income from buildings is to be assessed, that such income is to be assessed under the head 'Income from properties/Income from house properties'. The earliest of these decisions is in the case of East India Housing Land Development Trust Ltd. (supra), which received the approval of the Constitution Bench in the case of Sultan Bros. (P.) Ltd. (supra). Though the decision rendered by the Bench in the case of S.G. Mercantile Corpn. (P.) Ltd. (supra) appears to strike a different note, the judgment itself clarifies that the law declared in East India Housing Land Development Trust Ltd.'s case (supra) was in no way altered by that ruling. The case of East India Housing Land Development Trust Ltd. (supra) was distinguished on the ground that that case pertained to a owner of a building while ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ultan Bros. (P.) Ltd. (supra) that whether a particular letting is business has to be decided in the circumstances of each case and that each case has to be looked at from a businessman's point of view to find out whether the letting was the doing of a business or the exploitation of his property by an owner, in all the cases which have come before the Court involving commercial or residential buildings owned by the assessee it has been held that the income realised by such owners by way of rental income from a building, whether commercial building or residential house, is assessable under the head 'Income from house property'. The only exceptions are cases where the letting of building is inseparable from the letting of the machinery, plant and furniture. In such cases, it has been held that the rental would not have been realised but for the letting out of the machinery, plant or furniture along with such building and, therefore, the rental received for the building is to be assessed under the head 'Income from other sources'. On the facts of this case, it is clear that the assessee, as owner of the building, was only exploiting the property as owner by leasing out the same and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this Court as well as by various High Courts and it would be useful to refer to the judgments of this Court bearing on the issue. 7. In CEPT v. Shri Lakshmi Silk Mills Ltd. [1951] 20 ITR 451 (SC), the assessee-company was carrying on the business of manufacturing silk cloth and dyeing silk yarn. Due to lack of supply of silk yarn during the relevant period while keeping idle other plant and machinery, it let out dyeing plant for five months. The question which came up for consideration before this Court was whether the rent received from letting out the dyeing plant would fall under the head 'Income from business' or 'Income from other sources'. If it was 'Income from business', it would have been chargeable to excess profits tax; if not, the liability would not arise. Mahajan, J., speaking for the Court, observed that no general principle could be laid down which was applicable to all cases and each case had to be decided on its own circumstances. It was held that it was part of the normal activities of the assessee's business to earn money by making use of its machinery by either employing it in its own manufacturing concern or temporarily letting it to others for making profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom the tenants of the building was the business income of the company. The majority opinion was that realisation of rental income of the assessee was in the course of its business being in prosecution of one of its objects in its memorandum and was liable to be included in its business profits and was assessable to excess profits tax. That conclusion was reached on the premise that the term 'business' as defined in that Act was wider than the definition of that term under the Act. The minority, however, took a contrary view. 10. In Sultan Bros. (P.) Ltd. v. CIT [1964] 51 ITR 353 (SC), the assessee constructed a building, fitted it up with furniture and fixtures and let it out on lease fully equipped and furnished for the purpose of running a hotel. The lease amount provided separately for running of the building and hire charges for furniture and fixtures. The question that fell for consideration was whether the rent income was business income taxable under the Indian Income-tax Act, 1922. It was held that as the assessee never carried on any business of a hotel in the premises let out or otherwise at all and there was nothing to show that it intended to carry on a hotel busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt assessment years as business income ? The findings of the Tribunal were that on account of financial crisis, the company found it advantageous to let out the machinery on hire for a temporary period and the company was able to liquidate its liability at the end of the lease period and regained possession of its assets; the company did not sell or otherwise dispose of its assets; there was nothing on record to show that the company was formed to let out plant and machinery on hire. The Tribunal came to the conclusion that the maintenance of the assets meant that the company had an intention to re-start the business and that the intention of the company in letting out its assets was to exploit the commercial assets for the purpose of its business and, therefore, the rental income was assessable as business income. On reference, that conclusion was upheld by the High Court. On appeal to this Court, while affirming the decision of the High Court, it was noted that all relevant facts were correctly considered from the standpoint of an ordinary prudent businessman by the Tribunal and it was also pointed out that the stoppage of the business by the company was a temporary suspension of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resumed that at the time the licence agreement was entered into, the intention of the ultimate outright sell out was already there. The assessee was already committed to the licensee for such a sell-out at licensee's pleasure and there is no means of the assessee falling back from that commitment. Therefore, it can very reasonably be inferred that the assessee in the case decided to go out of business as far as this particular factory was concerned. . . . The lease agreement is in fact a veiled agreement for lease-cum- sale . . . . We are of the opinion that the licensing is not meant to be a temporary stop gap exploitation of commercial assets. It could not be in the contemplation of the assessee at the time it entered into the licence agreement to retain the assets any more as a commercial asset." It was contended by Mr. Verma that the High Court did not consider clauses 2(ii), 3(v ), 4, 7, 15 and 16 of the agreement. The clauses read thus: "2(ii) The 25 per cent of the net profit, if any, within 60 days of the accounts of licensee being adopted and passed by the shareholders. 3. The licensee hereby agrees and covenants : (v) to permit the licensor on reasonable previou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... licensor's right in the UPL factory and in the building, plant, machinery and equipment therein may be prejudiced or put in jeopardy, the licensor may without any notice determine this agreement and the licence and it shall thereupon be lawful for the licensor to enter upon and retake possession of the UPL factory." From a plain reading of the clauses noted above, what is clear is that they deal with a situation arising out of the breach of the terms of the agreement, entitling the licensor to terminate the agreement on the expiry of the period of one month from the service of the notice to the licensee. Clause 16 deals with a situation of the licensee being wound up in which situation, the licensor reserved his right to determine the agreement and retake the possession of the factory. These clauses do not whittle down the conclusion arrived at by the High Court with reference to the rights of the assessee-lessor coming to an end on the exercise of option by the lessee under clause 19 of the agreement. Applying the aforementioned tests, we are clear in our mind that the High Court has reached the correct conclusion which does not warrant interference. 14. So far as Guntur Merc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come derived by the assessee from the said office premises was offered for taxation as business income and the same was assessed, accordingly, by the Assessing Officer. Subsequently, the Commissioner, invoking section 263, passed the assessment order and after giving hearing to the assessee, held that the same was erroneous and prejudicial to the interest of revenue and, therefore, remanded the matter to the Assessing Officer with a direction to assess the said income as property income. Aggrieved by the said order, the assessee preferred an appeal before the Tribunal and the Tribunal held that the order of the Assessing Officer was not erroneous and prejudicial to the interest of the revenue and, therefore, cancelled the impugned order. The questions before the court were-. "1. Whether, on the facts and in the circumstances of the case, the finding of the Tribunal that there was no relationship of landlord and tenant between the assessee and the persons who hired office accommodation from the assessee is based on any relevant evidence or arbitrary ? 2. Whether, the finding of the Tribunal that considering the services and facilities offered by the assessee to the hirers of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espective vault-holders. However, the key to the main gate was in the exclusive possession of the assessee. The fire alarm charges and other maintenance were paid by the assessee. While deciding the case, the Apex Court held that although it is a case of letting out such letting out was a 'complex one' and the return received by the assessee was not an income derived from exercise of the property rights only but was income received from carrying on an adventure or concern in the nature of trade and as such, such income is a business income. (iii) Admiralty Flats Motel's case (supra) : Here income of a partnership firm carrying on business of 'lodging house keepers' has been directed to be assessed as business income by the Division Bench of the Madras High Court. (iv) Associated Building Co. Ltd.'s case (supra) : In this case, the assessee being the owner of the building was carrying on similar nature of business by providing office accommodation to various persons like the present case up to a certain period and allowed its income to be assessed under the head 'Income from other sources'. Subsequently, an auditorium was constructed in the basement of a building and the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement produced before us it appears that the assessee has let out the furnished office at monthly rent payable month by month by the respective occupants. Services rendered to the various occupants according to the said agreement are not separately charged and the monthly rent payable is inclusive of all charges to the assessee. To decide this issue we cannot overlook the fact that the cost of the property was Rs. 5,42,443. A portion of the said property is used by the assessee himself for his own business purpose. The rest of the said property has been let out to the various occupiers as stated hereinbefore. It further appears that the assessee had already been recovered a sum of Rs. 4,25,000 as and by way of security free advance from three occupants. Hence, the entire cost of the property let out to those occupiers has already been recovered as and by way of interest free advance by the assessee. Hence, it cannot be said that the assessee is exploiting the property for its commercial business activities and such business activities are primary motto and letting out the property is a secondary one. 7. Let us approach the problem from another angle by applying the test sug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and against the assessee. In fact there was a relationship of landlord and tenant between assessee and persons who hired office accommodation. 10. We answer question No. 2 also in the negative, i.e., in favour of the revenue and against the assessee. 11. Question No. 3 also, we answer in negative, that is, in favour of the revenue and against the assessee." 18.12 Hon'ble Delhi High Court in the case of R. Dalmia vs. CIT (1982) 137 ITR 665 (Del.) held that to determine the nature of transaction the dominant intention of the assessee has to be seen. If the intention is to embark or venture in nature of trade as distinguish from capital investment it would make no difference even if the transaction is single or isolated one. In this regard, we may refer a judgment of Hon'ble Supreme Court in the case of Rajputana Textiles (Agencies) Ltd. vs. CIT (1961) 42 ITR 743 (SC.). 18.13 Hon'ble Allahabad High Court in the case of RTO Vs. Rani Ratnesh Kumari (1980) 123 ITR 343 (All.) held that the dominant or even sole intention to resell is a relevant factor and arises a strong presumption, but by itself is not a conclusive proof. The initial intention in conjunction with the subsequen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es or manufactured articles, which are normally the subject of trading are only very exceptionally the subject of investment. Again property which does not yield to its owner an income or personal enjoyment merely by virtue of its ownership is more likely to have been acquired with the object of a deal than property that does. (2) The length of the period of ownership, Generally speaking, property meant to be dealt in is realized within a short time after acquisition. But there are many exceptions to this as a universal rule. (3) The frequency or number of similar transactions by the same person. If realizations of the same sort of property occur in succession over a period of years or there are several such realizations at about the same date, a presumption arises that there has been dealing in respect of each. (4) Supplementary work on or in connection with the property realized. If the property is worked up in any way during the ownership so as to bring it into a more marketable condition; or if any special exertions are made to find or attract purchasers, such as the opening of an office or large-scale advertising, there is some evidence of dealing. For, when there is an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that a person desires to carry on the business may be raised. This decision, which was rendered in the context of the sales tax law, was relied upon and referred to in the context of the income-tax law in a judgment of the Supreme Court in Sole Trustee, Loka Shikshana Trust vs. Commissioner of Income-tax [1975] 101 ITR 234, 243-244. 18.16 Where the subject of letting out is the tenements, etc., as tenements, the income derived is from house property and is assessable under section 22. But if the subject matter of hiring out is a complex one, being not mere tenements as tenements but added with certain other articles, rights, asserts, etc., the question arises whether the income derived is from house property, business or other sources. After an exhaustive review of authorities on the subject, the following conclusions were arrived at by the Hon'ble Bombay High Court in the case of CIT vs. National Storage Pr. Ltd. (1963) 48 ITR 577, 593 (Bom), the case having been later, affirmed in (1967) 66 ITR 596 (SC). "1. Income-tax is a single tax levied on the total income classified and chargeable under the various heads and not an aggregate of the distinct taxes levied separately on e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be of the nature of business or trading operations and the income derived may be income not from exercise of property rights properly so called so as to fall under section 9 but income from operations of a trading nature falling under section 10 of the Act; and 7. In cases where the letting is only incidental and subservient to the main business of the assessee, the income derived from the letting will not be the income from property falling under section 9 and the exception to section 9 may also come into operation in such cases" 18.17 Hon'ble Allahabad High Court in the case of Rampur Industries Ltd. vs. CIT (1971) 82 ITR 23 (All), rental income from certain unused godowns derived by a company doing rice-milling business has been held to be income from property. 18.18 House owning and letting out property do not normally constitute business, and income from such property is taxable as income from house property. Hon'ble Patna High Court in the case of S.C. Mazumdar vs. CIT, (1947) 15 ITR 484, 493 (Pat), Hon'ble Calcutta High Court in the case of Bengal Jute Mills Co. Ltd. vs. CIT (1949) 17 ITR 308 (Cal), East India Prospecting Syndicate Vs. CIT, (1951) 19 ITR 571 (Cal). Al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the opinion that the transaction of leasing out one building only to a third party was in no way connected with or ancillary to the business activity of the assessee. The assessee never wanted to exploit the asset as commercial asset for any commercial gain. It acted like a prudent owner of the property. On closure of the business, instead of permitting the building to lie idle, it leased out the same with a view to earning rental income. The Tribunal was, therefore, right in holding that the rental income was "Income from house property'. 18.20 The question whether the amount earned by an assessee by leasing out the assets of the business would be income from business carried on by it, has been the subject-matter of consideration by the Supreme Court as well as by various High Courts and it would be useful to refer to the judgment of the Apex court bearing on the issue. The Hon'ble Supreme Court, after considering various judgments, laid down certain guidelines. The relevant discussion and guidelines laid down in Universal Plast Ltd. vs. Commissioner of Income-Tax, 237 ITR 454 (SC) are as under :- "In CEPT vs. Shri Lakshmi Silk Mills Limited [1951] 20 ITR 451 (SC), the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the business irrespective of the manner in which that asset was exploited by the company. Noticing the facts in the case before the court that the assessee had already sold the land and building to the company ; it was not having any manufacturing, trading or commercial activity ; and let out the plant and machinery on an annual rent of rupees forty thousand and applying the common sense principle to the facts, this court found that the transaction of lease was quite apart from the ordinary business activity of the company, so it was impossible to hold that the letting out of the plant and machinery, etc., was at all a business operation when its normal business activity had come to a close. In CIT vs. Calcutta National Bank Limited [1959] 37 ITR 171 (SC), the case arose under the Excess Profits Tax Act. The assessee was a banking company. It owned a six-storeyed building of which only a part was under its occupation and the rest was let out to tenants. The question was whether the rent received from the tenants of the building was the business income of the company. The majority opinion was that realisation of rental income of the assessee was in the course of its business bei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arning rental income and not to treat the factory and the machinery as a commercial asset during the subsistence of the lease; the intention of the appellant was found to go out of the business altogether, therefore, the income was not assessable as business income. CIT vs. Vikram Cotton Mills Ltd. [1988] 169 ITR 597 (SC), is again a case arising under the Indian Income-tax Act, 1922. One of the creditors filed a petition in the High Court for winding up. The Industrial Finance Corporation took possession of the fixed assets under an English mortgage of those assets. The assessee-company had gone into losses and had stopped its manufacturing activity. Under the scheme evolved by the High Court under the Companies Act, the business assets were let out for ten years with an option for renewal for another ten years. The management of the company was transferred to a board of trustees approved by the High Court. The question which fell for determination was whether the rental income was assessable in the relevant assessment years as business income ? The findings of the Tribunal were that on account of financial crisis, the company found it advantageous to let out the machinery on hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s started but ceased with no intention to be resumed, the assets also will cease to be business assets and the transaction will only be exploitation of property by an owner thereof, but not exploitation of business assets." 18.21 In the light of above discussions, if we consider the facts of the case under consideration, we notice that the admitted facts of the case are that the assessee is the owner of the property. The partner of the assessee firm admitted that the property was purchased to let out on rent to GAIL. These admitted facts have been noted from question nos.4, 9 10 of the statement recorded on 10.09.2008 of which abstract has been reproduced in this order in Para no18.8. The relevant clauses of different agreements of which abstract have been reproduced above in this order in Para no18.5 to 18.7. We notice that the intention of the assessee was to let out the property to earn the rent. The assessee has claimed that income is assessable under the head "income from business" but the assessee has failed to discharge the onus by furnishing evidence and material that the assessee was doing business. No systematic set up has been established for doing business activitie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all forms of movable or immovable properties and assets including buildings, godowns, warehouses and real estate of any kind. The assessee purchased flats for trading purposes at the cost of Rs.4 crores. At the time of purchase the building needed major repairs and according to the assessee as it expected that the prices of flats would go up after completion of repairs, it made the purchases. It is then claimed by the assessee that the flat could not be sold because of recession in the market and hence it let out the flats on license basis for temporary period and earned monthly rental income as license fees. The assessee treated the said rental income as income from the business. The authorities below have concurrently found in favour of the revenue that the rental income cannot be treated as income from business and treated it as "income from house property" under section 22 of the Income-tax Act. 18.25 The question thus raised is as to whether the Tribunal is right in concluding that the rental income is an income from house property. While reaching the said conclusion the Tribunal has relied on a judgment in the case of East India Housing Land Development Trust Ltd. vs. CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er income from sub-letting is a business income or otherwise. While holding that the income earned from the property is a business income it noted the reasons for the same. The principal reason was that since the appellant-company was not owner of the property or any part thereof there was no question of making the assessment under section 9 of the Act. It was held that the liability of tax under section 9 of the Income-tax Act of 1922 would be of the owner of the building or land appurtenant thereto. It is also held that in case the assessee is the owner of the building or land appurtenant thereto he would be liable to be taxed under section 9 even if the object of the assessee in purchasing the landed property was to promote and develop the market estate. Thus it can be seen even from the judgment relied upon by the appellant that distinguishing feature in the case of S.G. Mercantile Corpn. (P.) Ltd. (supra) was that the assessee was not the owner of the property in question. In the case in hand it is an admitted position that the assessee is owner of the property. The next judgment relied upon by the assessee is in the case of CEPT v. Shri Laxmi Silk Mills Ltd. [1951] 20 ITR 451 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under consideration. The CIT (A) found that the material on record itself goes to show so as to what kind of organisation and continuous activity was carried on by the assessee to claim the receipt as business receipt. The CIT (A) has also rejected assessee's contention to follow the order of A.O. for earlier year on the ground that if the A.O. committed a patent mistake, no principle of consistency can bind the assessee or Revenue to go on repeating the same mistake once committed. The assessee has failed to furnish any material to controvert the facts noted by the revenue authorities. After considering totality of the facts of the case and orders of the Revenue Authorities and contention of the assessee, we find that the CIT(A) has rightly confirmed the action of the A.O in treating rental income assessable as income from house property and services receipts as income from other sources. Order of CIT (A) is confirmed on the issue. The AO is directed to give consequential effects and calculate total taxable income in accordance with law. 19. The other effective ground raised in the appeal is in respect of charging of interest under section 234B of the Act which is mandatory and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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