TMI Blog2017 (9) TMI 1240X X X X Extracts X X X X X X X X Extracts X X X X ..... TA. For the above reasons, the Court holds that the ITAT erred in holding by its orders dated 27th December 2004 and 12th January 2005 that the Scindia House property was the Assessee's stock-in-trade and was therefore to be excluded from its net wealth for the purposes of the WTA. Is the amendment to Section 40 (3) retrospective? - Held that:- The additional question for AYs 1984-85 to 1988-89 is answered in favour of the Revenue and against the Assessee by holding that the amendment to Section 40 (3) of the FA 1983 by the FA 1988 is not retrospective and will not apply to a period prior to 1st April 1989. - WTA 16/2005, 17/2005,18/2005, 20/2005, 21/2005, 25/2005, 26/2005, 27/2005, 28/2005 34/2005 35/2005 - - - Dated:- 21-9-2017 - S.Muralidhar And Prathiba M. Singh, JJ. Mr. Raghvendra Singh, Senior standing counsel.for the Appellent Mr. V.P. Gupta with Mr. Arunav Kumar, Advocates. For the Respondent JUDGMENT Dr. S. Muralidhar, 1. These are eleven appeals by the Commissioner of Wealth Tax (hereafter 'Revenue') under Section 27A of the Wealth Tax Act, 1957 ( WTA ), against the orders of the Income Tax Appellate Tribunal (ITAT) for Assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... became the owner of the property. The AO held that the rental income was taxable as 'income from house property'. This was confirmed by the CIT (A) but on appeal, the ITAT relied on its order for AY 1980-81 and held it to be taxable as 'business income'. The said orders were followed by the ITAT for the subsequent AYs holding the rental income to be business income . 6. Against the above decisions of the ITAT for AYs 1981-82 to 1986-87, no appeals were filed or reference sought to this Court by the Revenue. The reference to this Court (ITR No. 6 of 1995) by the Revenue For AY 1987-88 was dismissed by this Court by an order dated 26th April 2011 for low tax effect. No appeal was filed by the Revenue before the ITAT for AY 1988-89. 7. For AYs 1989-90 to 1991-92, the ITAT again held that the rental income of the Assessee was taxable as business income. No appeal was filed by the Revenue in this Court against the decision of the ITAT for AY 1989-90. However, as regards AYs 1990-91 and 1991-92, the Revenue filed ITA Nos. 355 of 2002 and 101 of 2002 respectively in this Court. 8. The ITAT changed its view for AY 1992-93. It held that there was material change in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nements or from letting accompanied by incidental services or facilities. The subject hired out should not be a complex one and the income obtained should not be so much because of the facilities and services rendered than because of their letting of the tenements. If such a situation is found to be obtained, the other aspects such as nature of the property being commercial/business asset, etc. in the hands of the assessee as well as nature of the business of the assessee do not change the character of the income and the rental income does not become income from trade or business. 26. In the present case, the subject property let out by the assessee-company was undisputedly owned by it and it was a case of bare letting of tenement and the subject hired out was not a complex one. It was thus a case of letting out of a property owned by the assessee simpliciter and not a case of exploitation of the property by way of complex commercial activity. The rental income earned from the said property thus was chargeable to tax under the head Income from house property and not under the head Profits and gains of business or profession as claimed by the assessee. As such, considering al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of law framed by the Court in ITA No. 101/2002 against the order dated 13th August 2001 of the ITAT in ITA No. 5769/Del/95 relating to AY 1991-92 was: Whether the Income-tax Appellate Tribunal was correct in law in holding that the rental income received by the assessee from the tenants in occupation of the property known as Scindia House, Connaught Place, New Delhi is to be taxed under the head income from business and not income from house property ? 6. In view of the fact that the Assessee has accepted the decision of the Income Tax Appellate Tribunal for the AYs 1992-93 till 1999-2000 and has expressed no objection to the Revenue s appeals for AYs 1990-91 and 1991- 92 being allowed, the above questions in the Revenue s aforementioned appeals are answered in the negative i.e. favour of the Revenue and against the Assessee. In other words, it is held that even for the said AYs 1990-91 and 1991-92, the rental income received by the Assessee from the tenants in occupation of the property known as Scindia House, Connaught Place, New Delhi shall be taxed as income from house property. Accordingly, the impugned orders dated 31st May 2002 of the ITAT in ITA No. 2543/DEL/19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or land appurtenant thereto, other than building or part thereof used by the Assessee as factory, godown, warehouse, hotel or office for the purposes of its business or as residential accommodation for its employees or as a hospital, cr che, school, canteen, library, recreational centre, shelter, rest-room or lunch room mainly for the welfare of its employees and the land appurtenant to such building or part: Provided that each such employee is an employee whose income (exclusive of the value of all benefits or amenities not provided for by way of monetary payment) chargeable under the head Salaries under the Income Tax Act does not exceed eighteen thousand rupees; (vii) motor-cars; and (viii) any other asset which is acquired or represented by a debt secured on any one or more of the assets referred to in clause (i) to clause (vii). 18. Section 87 of the FA 1988 amended Section 40 (3) of the FA 1983 by inserting the following proviso and Explanation after sub-clause (viii): Provided that this section shall not apply to any asset referred to in clause (i), (ii), (iii), (iv), (v) or (vi), which is held by the Assessee as stock-in-trade in a business carried on by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her precious metals, precious and semi-precious stones and utensils made of gold, silver, platinum, buildings and motorcars, if held as stock-in-trade. In the case of gold, silver, platinum or other metals, precious or semi-precious stones and buildings and land appurtenant thereto, on the question as to whether these items are held as investment or stock-in-trade, guidelines by way of general or specific order will be issue by the Board. In issuing such guidelines, the Board will, inter alia, take into account the ration of the yearly turnover to the average value of stock of such assets held from time to time during the year and other relevant factors. (v) Motor cars registered as taxis and used for the business of running of motor cars on hire. The amendment also seeks to provide that in respect of a residential accommodation it will form part of the net wealth, only if it is used (i) as residential accommodation in the nature of guest house or (ii) as residential accommodation of any Director, Manager, Secretary or any employee of the company holding not less than one per cent of the equity shares of the Assessee company or (iii) as residential accommodation of any relati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CWT (A) agreed with the Assessee on this issue. However, the other ground of the Assessee that the amendment to Section 40 (3) of the FA 1983 by the FA 1988 was retrospective was rejected by the CWT (A). ITAT's order dated 27th December 2004 25. The Assessee's further appeals to the ITAT for AYs 1984-85, 1986-87, 1987-88 and 1988-89 were allowed by it by the impugned order dated 27th December 2004. The two questions considered by the ITAT were as under: (i) Is Section 40 of the FA 1983 as subsequently amended procedural in nature and therefore retrospective? (ii) Whether the Scindia House property has been held by the Assessee as stock-in-trade? 26. In its order dated 27th December 2004, the ITAT held as under: (i) The decision of the ITAT under the ITA for AY 1992-93 holding that the rental income earned by the Assessee from the Scindia House property was taxable as 'income from house property' and not 'business income' was distinguishable. (ii) Going by the rule of consistency, and by the decisions of the ITAT for AYs 1980-81, 1982-83 to 1987-88, 1990-91 and 1991-92, it must be held that the rental income from the Scindia House prop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sue afresh. After doing so, the ITAT came to the same conclusion viz., that the said property had rightly been treated as the assessee's stock-in-trade. 32. Further, even on the second issue which was relevant for AY 1985-86, the ITAT held that the amendment to Section 40 (3) of the FA 1983 by the FA 1988 was retrospective and applied to all pending matters . The ITAT noted that the said conclusion found support from the decisions in Commissioner of Income Tax v. Jodhan Real Estate Development Co. P. Ltd. (2003) 259 ITR 79 (Raj), Commissioner of Wealth Tax v. Prakashi Talkies Pvt. Ltd. (1993) 202 ITR 121 (Kar), Commissioner of Wealth Tax v. Devshree Cinema (2002) 258 ITR 425 (MP) and CWT v. Sun Jute Press P Ltd. (1993) 202 ITR 350 (Cal). ITAT's order dated 5th April 2005 33. For AYs 1997-98 and 1998-99, the CWT (A) by a common order dated 5th July 2004 allowed the assessee's appeals and deleted the Scindia House property from the net wealth of the Assessee. The Revenue's appeals against the said order were dismissed by the ITAT by the common order dated 5th April 2005. The ITAT chose to follow its order dated 12th January 2005 in the appeals for AYs 1989-9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stock-in-trade in its balance sheet and P L account will not be determine whether for the WTA it could at all to be considered as stock-in-trade. 39. On the question of retrospective applicability of the amendment to Section 40 (3) of the FA 1983 by the FA 1988, Mr. Singh relied on the decision of the Madras High Court in Commissioner of Wealth Tax v. Varadharaja Theatres (P.) Ltd. (2001) 250 ITR 523 and contended that the legislative intent was clear that it would be prospective. He pointed out that the Madras High Court in aforementioned decision disagreed with the decision of the Karnataka High Court in Commissioner of Wealth Tax v. Prakashi Talkies Pvt. Ltd. (1993) 202 ITR 121 (Kar). 40. Lastly, Mr. Singh submitted that the rule of consistency as explained by the Supreme Court in Radhasoami Satsang v. Commissioner of Income Tax (1991) 193 ITR 321 (SC) and by this Court in Mool Chand Khairati Ram v. DIT (2015) 377 ITR 650 (Del) would also apply to earlier AYs as long as there was no change in the circumstances. According to him, by this yardstick even for AY prior to 1990-91 since there was no change in the circumstances, it should be held that Scindia House property was n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll the AYs in question, which reflects the above position. Is the Scindia House property the Assessee's stock-in-trade? 45. The first question that requires to be addressed is whether the Scindia House property is the Assessee's stock-in-trade for the purposes of the WTA? The case of the Assessee is that it is whereas the case of the Revenue is to the contrary. The reason for this is that if the property is indeed the Assessee's stock-in-trade, then it would not form part of the net wealth of the Assessee for the period from 1st April 1989 onwards. Further if the Assessee is right in its contention that the amendment to Section 40 (3) of the FA 1983 by the FA 1988 is retrospective then even from 1st April 1984 i.e. from AY 1984-85, the Scindia House property, as its stock-in-trade, would not form part of the Assessee's net wealth for the purposes of the WTA. 46. A careful perusal of the assessment orders passed under the WTA, as well the orders of the CWT (A) and the ITAT either affirming or reversing them reveals that the treatment, for the purposes of the ITA, of the rental income from the Scindia House property as 'business income' was the prin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use property, and in view of the fact that the tax effect in each of the year was a small amount , the assessee withdrew its aforementioned appeals for those AYs. However, the fact remains that the Assessee could not have been unaware of the legal consequences of such concession especially without there being any change whatsoever in the circumstances in these AYs when compared to the AYs from 1982-83 onwards. The above concession, which could not have been anticipated when the ITAT passed the impugned orders in the WTA appeals. As a result of the above concession resulting in the order dated 4th September 2015 in the ITA appeals holding the rental income was taxable as income from house property, the Scindia House property cannot possibly be treated as the Assessee's business asset for AYs 1990-91 onwards. 50. What about the position for the AYs earlier to AY 1990-91? For this, it is necessary to examine the main objects of the Assessee as spelt out in its MoA. They read as under: 1. To purchase, sell, deal and traffic in lands, estates, houses or other landed properties of any tenure, whether freehold, leasehold or otherwise, and any interest therein and generally to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rights of the subject property and considering that the liability to tax under the head Income from house property under the relevant provisions is that of the owner of the buildings or lands, appurtenant thereto, Hon'ble Supreme Court proceeded to hold the income derived by the assessee from the property not owned by them as assessable under the head Income from business and not Income from house property . While doing so, the law laid down in the case of East India Housing Land Development Trust Ltd. v. CIT (supra) was held to be inapplicable by the Hon'ble Supreme Court on the ground that the assessee in the said case was owner of the property whereas in the case of S. G. Mercantile Corporation (P) Ltd. (supra) before it, the assessee was a tenant and not the owner. It was, however, observed by the Hon'ble Supreme Court in their judgment rendered in the case of S. G. Mercantile Corporation (supra) that in case the assessee is the owner of the buildings or lands appurtenant thereto, the income derived from rent in respect of the property owned by him would be liable to tax under the head Income from house property even if the object of the assessee in purcha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income realized 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 . While taking note of this position in its judgment rendered in the case of Karanpura Development, Co. Ltd. (supra), Hon'ble Supreme Court held that the only exception to this proposition are cases where the letting of building is inseparable from the letting of the machinery, plant and furniture, etc. where the rental received for the building is to be assessed under the head Income from other sources along with the rental received for other assets such as machinery, plant, furniture, etc. 53. It may be noticed that in its decision in Chennai Properties and Investments Ltd. v. CIT (2015) 373 ITR 673 (SC), the Supreme Court found on facts that the objects of the Assessee company in that case were not only to buy and sell properties but also specifically to let out properties and earn income thereby. It was in those circumstances that it was held that the rental income so earned would be taxable as business income. 54. The position in the case of the Assessee is that it has since AY 1981-82 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l position emanating from the various judicial pronouncements discussed hereinabove, we hold that the rental income received by the Assessee in the year under consideration was assessable to tax under the head Income from house property and not under the head Profits and gains of business . 56. The above observations, in the considered of the Court, far from helping the case of the Assessee, go against its plea that the property in question had to be treated as its stock-in-trade. They underscore the position that as long as the property fetches rental income that was taxable as 'income from house property' it could not be treated as the Assessee's business asset or stock-in-trade. The ITAT was not concerned with the question whether for the purpose of the ITAT, Scindia House property should be treated as stock-in-trade. It was only concerned with the nature of the income. 57. Even in CIT v. Ansal Housing Finance and Leasing Co. Limited (supra), the question that engaged this Court was regarding the nature of the income. The specific question was Question No. 4 namely Whether the Assessee was liable to pay income tax on the annual letting value of the unsold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erty could not be taxable under the head income business and the same was rightly and legally taxable under the head income from house property. The decisions cited by the learned CIT (DR) in this regard are relevant and directly on the issue. The Hon ble Supreme Court in CIT v. Chugandas Co . reported in 55 ITR 17 held that if the securities constitute stock in trade of the business of an Assessee interest received from those securities was taxable under the head interest on securities and not under the head income from business. 60. In both its orders dated 27th December 2004 and 12th January 2005, the ITAT differed from its earlier decision for AY 1992-93 where it held that the rental income was taxable as 'income from house property.' In para 6 of the impugned order dated 12th January 2005, the ITAT observed as under: 6. Even when we examined the question afresh, we find that Scindia House property has rightly been treated as stock in trade. There is no dispute that as per its memorandum of article, the Assessee is entitled to deal with properties. In fulfilment of above objects the property in question, was acquired and right from assessment year 1990-81, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was not the Assessee's business asset. The earning of rental income therefrom was not the business object of the Assessee company. Consequently the decisions relied upon by the Assessee viz., Commissioner of Wealth Tax v. Kumudum Printers P. Limited (supra) and Commissioner of Wealth Tax v. Donatus Victoria Estates and Hotels P. Limited (supra) are of no assistance to the Assessee. In those cases, one of the business objects of the Assessee was the leasing out of properties. 63. The Assessee has accepted that from AY 1990-91 the income earned by it from the Scindia House property is not its business income. Applying the rule of consistency as explained by the Supreme Court in Radhasoami Satsang v. Commissioner of Income Tax (supra), as further explained by this Court in Mool Chand Khairati Ram v. DIT (supra), it must be held that even for AYs 1984-85 onwards till AY 1990-91 the Scindia House property cannot be considered to be the Assessee's stock-in-trade. In other words even for the said AYs, the Scindia House property formed part of the Assessee's net wealth for the purposes of the WTA. 64. For the above reasons, the Court holds that the ITAT erred in h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, therefore, unable to agree with the decisions of the Madhya Pradesh High Court in Commissioner of Wealth Tax v. Devshree Cinema (supra) and the Rajasthan High Court in Commissioner of Income Tax v. Jodhan Real Estate Development Co. P. Ltd . (supra). 70. On the other hand, the Court concurs with the following reasoning and conclusion of the Madras High Court in CWT v. Varadharaja Theatres (P) Ltd . (supra): 2. One possible way of testing as to whether an amendment is merely declaratory or is substantive and therefore prospective is to examine the amended provision with a view to ascertain as to whether that provision without the aid of the amendment is capable of taking within it what was subsequently included after the amendment. Applying that test to the facts of this case it is clear that Section 40(3)(vi) of the said Act as it stood at the relevant time was not capable of being construed as including cinema house when what was regarded as business assets had been exhaustively listed and that list did not include cinema house. 3. Counsel for the Revenue very fairly brought to our notice the decision rendered by the Karnataka High Court in the case of CWT v. Prak ..... X X X X Extracts X X X X X X X X Extracts X X X X
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