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Shyam Burlap Company Ltd. Versus Commissioner of Income Tax, Central-I, Kolkata

2015 (9) TMI 852 - CALCUTTA HIGH COURT

Assessment of the rental income - claim of deduction of amount paid to tenant for vacating the property - earlier assessee was showing the income as house property income - res-judicata - this year the income was shown as business income - whether under the head 'business' or under the head 'house property' - Held that:- Though as noted, in earlier assessment years the appellant had shown rental income as "income from house property", however, in this assessment year it has claimed rental income .....

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ses, payment of compensation - the expenditure - was wholly and exclusively for commercial expediency. it earning and was revenue in nature.

Since compensation was paid by the appellant, the landlord of the premises, to obtain possession from the lessee/tenant so as to earn a higher rental income, it had arisen out of business necessity and commercial expediency. Since there was no question of acquiring a property it cannot be said that the payment made was for having a benefit of en .....

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a decision is reached, it cannot be said that the issue was adjudicated or decided. Keeping these principles of law as formulated by the Courts in mind, the finding by the Assessing Officer and Tribunal that declaring the rental income under the head "income from house property" precludes the appellant from calming deduction cannot be accepted as Memorandum permitted it to carry on business of letting out properties and indisputably it was carrying on business in letting out properties and in c .....

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igher rent which was in tune with the Memorandum – a fact which was not at all considered by the Assessing Officer and the Tribunal, the question no.1 is answered in the negative, against the Revenue and in favour of the Appellant. The question no.2 is answered in the affirmative, against the Revenue and in favour of the Appellant. - ITA No. 163 of 2005 - Dated:- 4-9-2015 - Soumitra Pal And Mir Dara Sheko, JJ. For the Appellant : Mr J P Khaitan, Senior Adv., Mr Sanjoy Bhowmick, Adv. and Mr C S D .....

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hat the appellant could not claim the assessment of the rental income under the head 'business' because the same was all along offered for assessment under the head 'house property'. ii) Whether the rental income earned by the appellant is assessable under the head 'business' and the compensation of ₹ 53,50,000/- paid by it for obtaining possession from lessee/tenant so as to earn a higher income is an admissible revenue deduction and the purported findings of the T .....

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mises") comprising land and buildings. The appellant raised two new constructions on the said premises at a substantial cost after demolishing some of the existing buildings. One of the new constructions was sold to different buyers and the profit and loss arising therefrom was assessed under the head "business". Portions of the second new construction were let out to different tenants. The appellant states that in April 1988, an area of 3310 sft. on the ground floor of the second .....

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th effect from April, 1994 but the said lessee refused to increase the rent on the ground of business difficulties. During 1995, the said lessee introduced NIIT Limited to the appellant who was willing to pay a sum of ₹ 1,65,000/- per month for the area under the said lessee's occupation. The said lessee offered to vacate in favour of NIIT Limited provided the appellant paid adequate compensation. The appellant and the said lessee agreed for determination of the lease and payment of co .....

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rent in the office of the Rent Controller. The said tenant agreed to vacate the portion occupied by him against payment of compensation of ₹ 3,50,000/-. The appellant duly made the said payment and obtained possession. The appellant in its accounts for the financial year ended March 31, 1996 treated the said payments aggregating to ₹ 53,50,000/- as revenue expenditure and claimed the same as deduction. However, the Assessing Officer rejected the said claim and disallowed the said pay .....

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d order the revenue preferred appeal before the Tribunal. The Tribunal by the impugned order dated December 14, 2004 allowed the appeal of the revenue. Mr J.P. Khaitan, learned senior advocate appearing for the appellant submitted that the Tribunal was not justified in law in holding that merely because the appellant had been declaring the rental income under the head "house property", there was no justification for assessing the same under a different head of income. Submission was th .....

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se property". The Tribunal failed to consider that as the appellant had itself shown the rental income under the head "house property", the Assessing Officer simply accepted the head under which the appellant offered the income to be assessed. The Tribunal did not consider that since there was no prior adjudication as regards the head of assessment of the rental income, it was open to the appellant to claim in the assessment year in question that the rental income was assessable u .....

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ot; assessable as such. Further the Tribunal was not justified in law in upholding the finding of the Assessing Officer that the payment of compensation was for acquiring any benefit of enduring nature or was a capital expenditure or that the appellant was not engaged in business of letting out of property on hire. It was also submitted that the rental income earned by the appellant is assessable under the head 'business' and the compensation of ₹ 53,50,000/- paid by it for obtaini .....

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f commercial expediency and was revenue in nature. This apart, the Tribunal was not justified in law in upholding the finding of the Assessing Officer that the payment of compensation was for acquiring any benefit of an enduring nature or was a capital expenditure or that the appellant was not engaged in the business of letting out of property on hire. Moreover, the Tribunal failed to consider that the Assessing Officer had himself made a computation under the head "business" after exc .....

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n Ltd.: 131 ITR 154, 6) Radhasoami Satsang v. CIT: 193 ITR 321 (SC), 7) CIT v. Auto Distributors: 210 ITR 222 (Cal), 8) CIT v. Oberoi Hotels P. Ltd: (2011) 334 ITR 293 (Cal), 9) Airports Authority of India v. CIT (Delhi): (2012) 340 ITR (Delhi (FB), 10) Chennai Properties and Investments Ltd. v. Commissioner of Income- Tax: (2015) 373 ITR 673 (SC) and 11) CIT v. Bhaskar Mitter: 73 Taxman 437 (Cal), Mr. M.P. Agarwal, learned advocate for the respondent submitted that since there is a clear findin .....

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ncome, the main source, was from house property, it cannot be contended that income was not from house property. Though in a Income Tax proceeding res judicata is not applicable, as the appellant had consistently declared the rental income as income from "house property", in view of principle of consistency the appellant is bound by it and is estopped from pleading otherwise. Mr. Agarwal had referred to several judgments in support of his submission which are as follows:- 1) Sultan Bro .....

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v. Commissioner of Income-Tax: 257 ITR 253, 10) in CIT v. ARJ Security Printers: 264 ITR 276 (Del), 11) ICAI v. Director General of IT (Delhi): 347 ITR 99 (Del), 12) Azimganj Estate Pvt Ltd v. CIT: (2013) 352 ITR 82 (Cal), 13) CIT v. Excel Industries Ltd.: (2013) 358 ITR 295(SC) and 14) Rajasthan Rajya Sahakari Spinning and Ginning Mills Federation Ltd v. Deputy Commissioner of Income-Tax: (2014) 363 ITR 564 (SC). In order of appreciate the issue, it is appropriate to refer to Clause 4 of the M .....

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les and vehicles of every kind and description, computers, office equipments of every kind and description, air conditioning plants, electrical and electronic equipment of all kind and description and to render leasing, consultancy and advisory service to clients in the field of equipment leasing. To acquire by purchase lease, tenancy, hire, exchange or otherwise and develop, promote, pulldown, rebuild enlarge and extend repairs and renovate houses, buildings, land, factories, bungalows, godowns .....

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,000 paid as compensation an admissible deduction under the head "business expenditure". The Assessing Officer found that the appellant had made payment of the said sum to two tenants for securing vacant possession of the space occupied by them. The Assessing Officer rejected that contention of the appellant by holding that as it had shown the rental income as "Income from house property" , only deductions as laid down in section 24 of the Act would be allowed and since the p .....

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l income under a different head of income other than "Income from House Property". It is to be noted that the CIT (A) had allowed the appeal of the appellant from the order passed by the Assessing Officer by holding, inter alia, as under:- "I have examined the facts of the case and considered the appellant's submission. On examining the Memorandum of Association placed on record, the appellant's contention is found to be correct on facts. I find that 85% of the income of t .....

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The mere fact that the appellant had shown its rental income in the income-tax return separately under the head 'Income from House Property' could not be held against the appellant. Any assessee is within its rights to avail of such statutory deductions as are provided in law. Accordingly, the action of the assessee in claiming deductions u/s. 24 in respect of its rental income does not constitute an admission that the appellant was not engaged in the business of letting out properties. .....

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mpensation was capital in nature. Enquiry was also caused into the income-tax records of the principal recipient of the impugned compensation namely, M/s. Yogi Industries Pvt. Ltd. which was paid a sum of ₹ 50 lakhs. From the asstt. records of M/s. Yogi Industries Pvt. Ltd. I find that the sum of ₹ 50 lakhs received by way of compensation has been declared as a revenue receipt chargeable to tax. Hence, considering all materials facts, I hold the compensation of ₹ 53,50,000/- as .....

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nstituted the appellant's business income and had allowed deduction. The question is since the assessee had all along shown the rental income as "income from house property", applying the principle of consistency, whether the Assessing Officer and the Tribunal were justified in holding it as "income from house property" or as contended by the appellant, as there was no prior adjudication or decision as regards the head of assessment of the rental income, it was open to th .....

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ficant that the Assessing Officer and the Tribunal had rejected the contention of the appellant for treating the rental income as income from business as it in the preceding years had throughout declared it as income from house property and there was no change in the facts of the case in this assessment year. Then the issue is whether in the earlier assessment years whether assessee had declared the rental income as business income and was it considered in the light of the Memorandum. The answer .....

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ince in this assessment year the appellant had claimed rental income as business income, and as previously there was no adjudication or decision considering the Memorandum, and as being the owner of the premises, payment of compensation - the expenditure - was wholly and exclusively for commercial expediency. As the judgment in Chennai Properties and Investments Ltd. (supra) had held "that the objects of the company must also be kept in view to interpret the activities. (paragraph 8), the T .....

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for obtaining possession from lessee/tenant, so as to earn a higher income, as an admissible revenue deduction, inspite of Memorandum permitting the appellant to carry on business by letting out properties, the Assessing Officer and the Tribunal ruled otherwise. Since the object in the Memorandum permitted the appellant to carry on business in letting out properties and as 85% of the income of the appellant was by way of deriving rent and lease rentals, in our view the income from rent constitu .....

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rtions vacated to have new tenants with higher rent and thus to have a higher rental income which was a business activity permitted by the Memorandum. The judgement in CIT v. Auto Distributors (supra) wherein the assessee company was engaged in the business of taking properties of lease and letting out for the purpose of earning income by way of rent, supports the case of the appellant as therein the payment made by the assessee was on the ground of commercial expediency and held to be revenue i .....

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Mercantile Corporation P. Ltd. (supra) wherein on facts the Supreme Court held taking property on lease and subletting portion thereof was part of the business and trading activity and the income would fall under business income. Though in the judgment in Radhasoami Satsang (supra) Supreme Court had observed that the said judgment was confined to the facts of the case which were special and may not be treated as an authority on aspects which have been decided for general application, however it .....

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essing Officer has to assess the income of an assessee after considering whether the figure in the return is taxable or not and then to determine the tax in accordance with law. In determining the same, a decision has to be reached on the issue raised. Unless a decision is reached, it cannot be said that the issue was adjudicated or decided. Keeping these principles of law as formulated by the Courts in mind, the finding by the Assessing Officer and Tribunal that declaring the rental income unde .....

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e a ground for denial of the deduction as in the earlier assessment years never an occasion arose for adjudication or decision on the said issue. Thus the conduct of the appellant cannot be called approbate and reprobate since in CIT v. V.MR. P. Firm, Muar (supra) it was held that "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 equitabl .....

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s, issue would have been different had there been an adjudication in the earlier assessment years including on the issue of payment of compensation. Absence of adjudication on the question of payment of compensation takes the matter out of the ambit of the principle of consistency. There is another aspect of the matter. Though the appellant had relied on the Memorandum in support of its contention that it was carrying out business by letting out the property, however, neither the Assessing Offic .....

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Though in Bharat Sanchar Nigam Ltd (supra) it was held that "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" (paragraph 20) and though, as evident from the "order" reported in 263 ITR 143 (SC), the Supreme Court had dismissed the Civil Appeals from the judgment in CIT v. Shambhu Investments Pvt Ltd (supra) wherein it was held that "what has to be .....

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nt as these are cases of acquisition of property where the respective assessees had acquired a right to a property. The judgment in CIT v.Hemraj Mahabir Prosad (P) Ltd. (supra) is inapplicable to the facts of the case in hand as therein assessee was not the owner and the building was taken on sublease. In Azimganj Estate Pvt Ltd. (supra) the subject matter was whether the income derived from letting out the unsold flats was income from house property and not business income which is not the case .....

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