TMI Blog2013 (10) TMI 380X X X X Extracts X X X X X X X X Extracts X X X X ..... t case, based on the materials, which include the accounts, the Assessing Officer evidently has not scrutinised earlier, rightly the Assessing Officer invoked the jurisdiction under Section 147 of the I.T. Act. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words "reason to believe" but also inserted the word "opinion" in section 147 of the Act. However, on receipt of representations from the companies against omission of the words "reason to believe", Parliament reintroduced the said expression and deleted the word "opinion" on the ground that it would vest arbitrary powers in the Assessing Officer - Thus, in a case where there is no regular assessment and consequently no inquiry is held, proceedings in this case are initiated rightly so by the Assessing Officer under Section 147(a) of the I.T. Act – Decided in favor of Revenue. - Tax Case (Appeal) Nos.91, 99 & 212 of 2012, Tax Case (Appeal) Nos.230 & 231 of 2007 - - - Dated:- 4-10-2013 - Chitra Venkataraman And T. S. Sivagnanam,JJ. For the Appellant : Mr. C. V. Rajan and Mr. R. Venkata Narayanan for M/s. Subbaraya Aiyar For the Respondents : Mr. N. V. Balaji and Mr. K. Sureshkum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e facts and circumstances of the case, the Income Tax Appellate Tribunal is justified in upholding the reopening of the assessment under Section 147 explanation 2(b) in the appellant's case where the assessment has already been completed under Section 143(1) and refund is issued to the appellant and further the assessment made under Section 143(1) was rectified under section 154? (ii) Whether the assessment made under Section 147 explanation 2(b) of the Income Tax Act is without jurisdiction and hence ought to be set aside? (iii) Whether in the facts and circumstances of the case, the Income Tax Appellate Tribunal justified in upholding the assessment under Section 147 explanation 2(b) where there is no new materials found by the respondents but the assessment is made on a mere change of opinion and reappraisal of the same material on record? (iv) Whether the Income Tax Appellate Tribunal justified in upholding the assessment of the income received by the appellant, by (a) sub leasing of already leased out property, (b) maintenance charges and air conditioning hire charges, as income from house property and not income from business having regard to the fact that the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le as income from business under Section 28 or income from house property under Section 22? 5. The Tax Case (Appeal) No.212 of 2012 is admitted on the following substantial questions of law :- (i) Whether on the facts and circumstances of the case the ITAT is justified in upholding the assessment of the income received by the Appellant, by way of a) sub leasing of already leased out property and b)maintenance charges and air conditioning hire charges, as income from house property and not income from business, having regard to the fact that the Appellant Company is pursuing the main object of the Company as provided in the Memorandum and Objects? (ii) Whether the income earned by the Appellant by commercial exploitation of sub leasing leased premises in terms of the Memorandum and Articles of Association of the Appellant Company and providing integrated services such as maintenance and air conditioning services and further investing the returns in real estate development is assessable as Income from Business under Section 28 or Income from house property under Section 22 of the IT Act? 6. These Tax Case Appeals filed by the assessee are directed against the orders passed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 24 of the Income Tax Act (I.T. Act) as per permissible under law. Aggrieved by such order, the assessee preferred appeals before the Commissioner of Income Tax (Appeals) [CIT (A)]. 10. The CIT (A) held that the income from sub-lease of the space allotted in the Anna Salai property and the lease rent in respect of factory premises rented out along with machinery and equipment at Kottivakkam are assessable as "income from house property". As regards the rental income from Anna Salai property, the CIT(A) held that it had been taken on lease at a concessional rent from the developer of the building in the capacity of the owner of the land and the lease was for 33 years, renewable once in five years, the assessee was deemed to be the owner of the superstructure taken on lease from the developer and hence the income from property subleased to various tenants for office premises was assessable as "income from house property". 11. In respect of the Kottivakkam property, the CIT (A) held that the factory premises along with machinery and equipment was leased out from September 1993 and what is leased out, is essentially a factory building with furniture and fixtures and therefore, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he factory and the premises and the Tribunal ought to have accepted the plea of the assessee and treated the lease rent as "Business Income" and not as "income from house property". The learned counsel produced copies of the Memorandum and Articles of Association of the Company, rental lease agreement, dated 06.05.2002, in respect of a portion of Anna Salai property, lease agreements dated 09.10.1981 and 16.08.2003 in respect of the Kottivakkam property. The learned counsel relied upon the decision of the Division Bench of this Court in the case of Commissioner of Income-Tax vs. Ideal Garden Complex P. Ltd., [2012] 340 ITR 609 (Mad). 15. Mr.N.V.Balaji, learned standing counsel appearing for the Revenue submitted that the assessee company stopped its business in manufacturing typewriters long back and no other business activities were carried on thereafter. That the assessee company parted with the commercial asset and confined solely to receive some income by virtue of ownership of the asset by the lease or otherwise and the act of leasing out was the out come of the assessee's decision to get out of the business. By referring to the assessment order dated 21.03.2005 for the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ures and hence the income from such lease was to be assessed as "income from house property". 19. It is seen that though such finding had been recorded to effect that the lease was in respect of the factory shed, machinery and equipment, we find that no documents were placed before the Assessing Authority to establish this fact. The copy of the lease agreement dated 16.03.2003, alone has been produced before us and from the said document, we find that the property which had been leased, was factory shed and RCC building constructed on the land. Therefore, the finding given by the Assessing Officer for the assessment year 2003-04, that the lease was along with plant and machinery is not supported by any document and there is nothing on record to show that the lease in respect of Kottivakkam property was along with plant and machinery. Therefore, it is the submission of the learned counsel for the assessee that in the absence of any such material, the matter requires to be remitted back to the Assessing Officer to examine this aspect. 20. In the case of CIT vs. Chennai Properties and Investments Ltd., reported in [2008] 303 ITR 33 (Mad), the question of law formulated was whether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Madras) Private Ltd., for development and construction. As per the agreement dated 09.10.1981, the assessee was paid a ground rent of Rs.16.25 lakhs per annum, 91200sq.ft., of office space to be made available by the lessor, which was sublet by the assessee resulting in rental income. The assessee claimed that it is its business activity and therefore, the nature of receipt is different from what is contemplated under Section 22 of the I.T. Act. Further, the assessee claimed that they are not the owners of the building and it belongs to the developer and the assessee is only a lessee of the building and sublease the property taken on lease at higher rent, as its business activity. It is to be noted that the lease entered into by the assessee with the M/s.Vira Properties is for 33 years with option for five times consecutive renewals of the same for similar period with the right to sub-let and sublease. 24. Section 27 (iiib) of I.T. Act defines 'Owner of house property', for the purposes of Sections 22 to 26 of the I.T.Act, as a person, who acquires any rights excluding rights by way of lease from month to month or for a period not exceeding one year in respect of any building or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... question whether there was any exploitation of the property by their owner by giving it away for rent, before assessing such rental income as 'income from house property'. 28. In the case of East India Housing and Land Development Trust Ltd. v. CIT reported in [1961] 42 ITR 49 (SC), when the rental income falls within the specific head of "income from house property", the mere fact of the assessee having business in letting out the property as stated in its memorandum, by itself, will not conclusively point out that the income is nothing but business income. 29. As regards the question on the assessment under proper head of income useful reference could be made to the recent decision of the Division Bench of this Court in Commissioner of Income-Tax vs. Ideal Garden Complex P. Ltd., (supra). The assessee in the said case, a company incorporated with an object of carrying on business in real estate, developing landed properties etc. The assessee claimed the income derived from letting out the properties was "business income" and not to be taxed as "income from house property". While passing the assessment order under Section 143(1)(a) of the I.T. Act, originally the Assessing Of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m house property". We make it clear that in sofar as the 'Kottivakkam Property', it was submitted that the written down value of the machinery was only Rs.6,777/-, however, we have remitted the same to the Assessing Authority to verify the aspect whether the lease was together with machinery and equipments. 31. In the result, the assessment of the income in respect of the Anna Salai property as 'income from house property' is affirmed. Insofar as the income from Kottivakkam property for the assessment year 2003-04, the matter is remanded to the Assessing Authority to consider the entire materials for the purpose of ascertaining as to whether the lease of the Kottivakkam property, was together with plant and machinery. Accordingly, the appeals in T.C.(A).No.231 of 2007 and T.C.(A).Nos.91, 99 212 of 2012 are partly allowed, except that what has been rejected. 32.T.C.(A).No.230 of 2007:- T.C.(A) No.230 of 2007 relates to the assessment year 2002-03. This appeal is dealt with separately, as it is a case of reopening of assessment, after the return was processed under Section 143(1) I.T.Act and intimation issued to the assessee. The Assessing Authority observed that perusal of r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... within the statutory period of limitation would nevertheless contend that the reassessment by the Assessing Officer under Section 147 read with Explanation 2(b) of the I.T. Act is without jurisdiction, as there is no new material found by the Assessing Officer and the reassessment is done due to mere change of opinion. It is further contended that the reassessment is due to the reappraisal of the same material and the assessee had disclosed all the materials in the file at the time filing the return. The Assessing Officer specifically did not refer to any tangible material warranting invocation of power under Section 147 of the I.T. Act. The learned counsel placed reliance on the decision of the Division Bench of the Delhi High Court in the case of Commissioner of Income Tax vs. Orient Craft Ltd., reported in [2013] 354 ITR 536 (Delhi), and submitted that the Delhi High Court dismissed the appeal filed by the Revenue in a case where the Assessing Officer reached the belief that there was escapement of income on going through the return filed by the assessee after he accepted the return under Section 143(1) of the I.T. Act without scrutiny, amounts to a review of the earlier proceed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re should be a rational connection, direct nexus or live link between the material and the belief. 39. The learned counsel appearing for the assessee rests his case on the decision of the Delhi High Court in the case of Commissioner of Income Tax vs. Orient Craft Ltd., (supra) and submitted that the Assessing Officer has accepted the return under Section 143(1) of the I.T. Act and the action initiated under Section 147 of the I.T. Act, is nothing, but a review of the earlier proceedings, which procedure was strongly deprecated by the Hon'ble Supreme Court in CIT vs. Kelvinator of India Ltd., (supra), and the reason recorded by the Assessing Officer does not disclose any tangible material, which came to the possession of the Assessing Officer subsequent to the issue of intimation under Section 143(1) of the I.T. Act, consequently, the exercise of power conferred under Section 147 of the I.T. Act, is arbitrary. 40. In order to appreciate and consider the rival submissions, it is necessary to take note of Sections 143 147 of the I.T. Act relevant to this case. The provisions read as follows:- [Assessment. 143.(1) Where a return has been made under section 139, or in response ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there, any evidence on which the assessee may rely in support of the return : Provided that no notice under this sub-section shall be served on the assessee after the expiry of twelve months from the end of the month in which the return is furnished. (3) On the day specified in the notice, (i) issued under clause (i) of sub-section (2), or as soon afterwards as may be, after hearing such evidence and after taking into account such particulars as the assessee may produce, the Assessing Officer shall, by an order in writing, allow or reject the claim or claims specified in such notice and make an assessment determining the total income or loss accordingly, and determine the sum payable by the assessee on the basis of such assessment ; (ii) issued under clause (ii) of sub-section (2), or as soon afterwards as may be, after hearing such evidence as the assessee may produce and such other evidence as the Assessing Officer may require on specified points, and after taking into account all relevant material which he has gathered, the Assessing Officer shall, by an order in writing, make an assessment of the total income or loss of the assessee, and determine the sum payable by hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e or the excess amount so refunded shall be deemed to be tax payable by the assessee and the provisions of this Act shall apply accordingly. (5) Omitted by FA 1999, wef 1-6-1999. Income escaping assessment.-- 147. If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year): Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the fai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l errors in the return, accounts and documents accompanying it were to be rectified ; (b) any loss carried forward, deduction, allowance or relief which on the basis of the information available in such return, accounts or documents, was prima facie admissible, but which was not claimed in the return was to be allowed; (c) any loss carried forward, relief claimed in the return which on the basis of the information as available in such return accounts or documents was prima facie inadmissible was to be disallowed. 43. Therefore, under Section 143(1)(a) of the I.T. Act, the permissible adjustments are, (a) only apparent arithmetical errors in the return, accounts or documents accompanying the return, (b) loss carried forward, deduction, allowance or relief, which was prima facie admissible on the basis of information available in the return but not claimed in the return and similarly (c) those claims which were on the basis of the information available in the return, prima facie inadmissible, were to be rectified/allowed/ disallowed. 44. The corrections which were allowed, are errors apparent on the basis of the documents accompanying the return. It is clear from the statutor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer to proceed under Section 143(2) of the I.T. Act. It is to be noted that the word Assessing Officeris conspicuously absent in Section 143(1) of the I.T.Act. The resultant position is made clear, when we read Section 143(3) of the I.T. Act. Thus the process of assessment in the real sense of the term commences only when notice is issued under Section 143(2) of the I.T. Act. Here too notice has to be served on the Assessee within the period of one year from the end of the month, in which the return is furnished. Thus, if no notice is served within the stipulated period of twelve months, the assessment proceedings under section 143 of the I.T. Act come to an end. Thus, though technically there is no assessment framed in such a case, yet the proceedings as far as section 143 of the I.T.Act is concerned, the same stand terminated. Though the procedure of centralised processing under sub section 1A of Section 143(1) of the I.T. Act finds place under the heading "Assessment" under section 143 of the I.T. Act, there appears to be a clear distinction and dichotomy in procedure. Between April 1, 1998, and May 31, 1999, sending of an intimation under section 143(1)(a) of the I.T. Act, wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt concepts emerged. 51. Section 147 of the I.T. Act, authorises and permits the Assessing Officer to assess or reassess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. As held by the Hon'ble Supreme Court in the case of CIT vs. Kelvinator of India Ltd., reported in [2010] 320 ITR 561 (SC), the word reason in the phrase reason to believe would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. The function of the Assessing Officer is to administer the statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers. 52. The requisite conditions for initiation of action under section 147(a) of the I.T. Act (as the provision stood prior to the substitution by Direct Tax Laws (Amendment Act 1987)) are :- (a) the Assessing Officer must have reason to believe that income, profits or gains ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer to reopen assessments on the basis of "mere change of opinion", which cannot be per se reason to reopen. We must also keep in mind the conceptual difference between power to review and power to reassess. The Assessing Officer has no power to review ; he has the power to reassess. But reassessment has to be based on fulfilment of certain preconditions and if the concept of "change of opinion" is removed, as contended on behalf of the Department, then, in the garb of reopening the assessment, review would take place. One must treat the concept of "change of opinion" as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1st April, 1989, the Assessing Officer has power to reopen, provided there is "tangible material" to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words "reason to believe" but also inserted the word "opinion" in section 147 of the Act. However, on receipt of representati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessment on the ground that income chargeable to tax had escaped assessment. While recording the reason for reopening the assessment, the Assessing Officer stated that on going through the return of the income, it revealed that while deducting 90% of other income from the profit of business, premium on sale of quota included in the sales, was not considered and in view of these facts, there is reason to believe that the income chargeable to tax has escaped assessment. While considering whether such reason assigned by the Assessing Officer would satisfy the requirements for reopening the assessment under Section 147 of the I.T.Act, the Division Bench of the Delhi High Court after referring to the decisions in the cases of CIT vs. Kelvinator of India Ltd., (supra); A. N. Lakshman Shenoy v. ITO [1958] 34 ITR 275 (SC); ITO vs. Lakhmani Mewal Das [1976] 103 ITR 437 (SC); Asst. CIT vs. Rajesh Jhaveri Stock Brokers P. Ltd. [2007] 291 ITR 500 (SC); held that the reason disclosed by the Assessing Officer stating "on going through the return of income" does not satisfy the expression "reason to believe". The Revenue contended that so long as the ingredients of Section 147 of the I.T. Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d., reported in [2010] 320 ITR 561 (SC), which has been referred to in the Delhi High Court decision, we hold that the proceedings under Section 147 are rightly initiated. 62. For all the above reasons, we hold that the proceedings initiated under Section 147 of the I.T. Act is valid. Accordingly, the appeal on this ground fails and the question is answered in favour of the Revenue and T.C.(A).No.230 of 2007, stands rejected. 63. In the result, (i) the assessment of the income in respect of the Anna Salai property as ''income from house property" is affirmed. (ii) Insofar as the Income from Kottivakkam property for the assessment year 2003-04, the matter is remanded to the Assessing Authority to consider the entire materials for the purpose of ascertaining as to whether the lease of the Kottivakkam property, was together with plant, machinery and equipment. (iii) Accordingly, the appeals in T.C.(A).No.231 of 2007 and T.C.(A).Nos.91, 99 212 of 2012 are partly allowed except that what has been rejected. (iv) The substantial questions of law framed in T.C.(A).N.230 of 2007 is answered in favour of the Revenue and the appeal is dismissed. No costs. - - TaxTMI - TMITax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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