TMI Blog2020 (10) TMI 747X X X X Extracts X X X X X X X X Extracts X X X X ..... to be a subsisting issue between the assessee and the Revenue. The law in the matter being clear, the matter stands accordingly set aside, for a decision as per law, delineating the onus cast on either side by law. Our order is, besides the orders by the Revenue authorities, also based on the arguments advanced during hearing. Further, though this may not appear to be the controversy arising, going by the Revenues Gd. 2 before us, our adjudication is with reference to the issue discerned as arising; the AO at para 6.3 of his order clearly stating that the assessee is supposed to recover at least the cost of its activities (the various services being provided), and the loss sustained cannot, thus, be accepted as a genuine business loss. Nature of the receipt - premium or transfer charge on the transfer of tenancy by one tenant (of the assessee) to another - Capital gain or income from other sources - HELD THAT:- We set aside the matter for fresh adjudication in accordance with law to the file of the ld. CIT(A), after affording the parties before him a reasonable opportunity of hearing, within the time frame, if any, stipulated by law. Inasmuch as we are setting aside the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esale/semi wholesale cloth and textile market (by the name Mulji Jetha Market) is operative therefrom. The assessee, as the owner of the said house property, has let out the shops on a monthly rental basis, which income is offered to tax, as in the past, under the head Income from house property , i.e., Chapter IV-C of the Act, comprising sections 22 to 27. The assessee is also charging tenants a sum called service charges , toward various services being provided by it to them. The same is, though, as again in the past, returned as business receipt, claiming the cost of those services as a deductible expenditure there-against, resulting in a business loss, denied by the Revenue, assessing the receipt as income from house property instead, entailing disallowance of business expenses. The third stream of income arising to the assessee is by way of premium on change of tenancies , being also the account head under which this income is credited/accounted for in accounts. The market being an established one, is a thriving market with good business potential. That apart, the rent, being controlled by legislation, i.e., Maharashtra Rent Control Act, is far below the prevailing market ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t pages 7 to 8 in the impugned order, bears reference to its order for AY 1949-50 as well as for AYs. 1965-66 to 1967-68. The Revenue, on the other hand, relies on the change in the law by Finance Act, 2001, w.e.f. 01.04.2002, substituting sections 23 and 24, titled Annual value - how determined and Deductions from income from house property respectively. Section 22 brings to charge the annual value of a property consisting of buildings or lands appurtenant thereto, of which the assessee is the owner, i.e., other than such portion of such property as he may occupy for the purposes of any business or profession carried on by him, the profits of which are chargeable to income-tax. Section 23 (to the extent relevant) and sec.24 read as under: 23. (1) For the purposes of section 22, the annual value of any property shall be deemed to be- ( a ) the sum for which the property might reasonably be expected to let from year to year; or ( b ) where the property or any part of the property is let and the actual rent received or receivable by the owner in respect thereof is in excess of the sum referred to in clause ( a ), the amount so received or receivable; or ( c ) whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [1980] 121 ITR 535 (SC); Orissa State Warehousing Corporation v. CIT [1999] 237 ITR 589 (SC); CIT v. Calcutta Knitwears [2014] 362 ITR 673 (SC)). The law is in fact unambiguous and patent, so that it is the golden rule of interpretation, i.e., of literal interpretation, giving the words their natural, ordinary meaning, as also advocated in the afore-referred decisions, that would suffice. There is in fact no claim by the assessee to the contrary, i.e., as to any ambiguity in law, nor does it plead its case with reference to a different interpretation thereof. Shri Jhaveri, the learned counsel for the assessee, on being queried in the matter, argued that there is no change in law by Finance Act, 2001 (i.e., w.e.f. 01.04.2002, or AY 2002-03 onwards), as the several deductions allowed earlier u/s. 24 are replaced by a composite deduction at the rate of thirty per cent of the annual value . The import of the change per the substituted section, even as explained during hearing, is that the assessee, irrespective of it having incurred, or not so, any expenditure in relation to earning the rental income, is entitled to a statutory deduction from the annual value at a fixed rate th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The watchman salary is even otherwise unrelated to the earning of rent per se . It does not represent a cost which could be said to determine the rental capacity of a house property. The assessee s case is without any factual or legal basis. 4.3 The reliance on the orders in the past is, in view of the change in law and non-substantiation of facts, misplaced. In CIT v. British Paints (India) Ltd . [1991] 188 ITR 44 (SC), the Apex Court discountenanced the plea by the assessee of following a method of valuation of stock consistently for the past several years, and accepted as such. The orders by the Tribunal, as for example in Star Gold Pvt. Ltd. v. Dy. CIT (ITA No. 349/Mum/2015, dated 22.06.2016) and Asha Ashar v. ITO [2016] 46 ITR (Trib) 492 (Mum), would be of little assistance to the assessee. All these cases are based on a finding by the Tribunal as to the relevant sum, as society maintenance charges for example, being included in the rent received by the assessee, which formed the basis for allowance of its deduction u/s. 23. Similarly, in Dy. CIT v. Sir Sobha Singh Sons (P.) Ltd . [2015] 153 ITD 157 (Del), the Tribunal upheld the deduction of watchman s s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... man salary has no bearing on the rental income, or its earning, so that it cannot even otherwise be regarded as contemplated u/s. 23, or u/s. 24(a), qua which a gross (lumpsum) allowance is now provided at a fixed rate (sum). In other words, the notion of the assessee obtaining any benefit or advantage on account of the allowance of this sum, against another (business) income, where so, is misconceived, both in law and on facts. 4.5 The issue raised per Ground 1 is, thus, subject to the consideration of the assessee s claim qua watchman salary as business expenditure, decided in the affirmative, i.e., in favour of the Revenue-appellant. The assessee s income from house property shall stand, accordingly, increased by ₹ 32,66,243, i.e., net of standard deduction @ 30% on the claim of salary at ₹ 46.66 lacs, disallowed in computing the annual value u/s. 22 r/w s. 23, or as deduction u/s. 24(a). 5. In respect of the second issue qua service charges income, the assessee s claim is that it charges service charges @ ₹ 500 per month per shop, which income has been, as in the past, returned as income from business or profession u/s. 28 at a loss of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e premise of the various decisions being relied upon by either side, with this being in fact the precise issue decided by the Hon ble jurisdictional High Court in J.K. Investors (Bombay) Ltd . (supra), wherein it held as: 6. We find that there are concurrent findings of fact by the Commissioner of Income Tax (Appeals) as well as the Tribunal that no services are being provided by the respondent to the occupants of its property and that the service charges have to be included as a part of its rental income. The aforesaid finding of the Tribunal is on the basis of the order of this Court in the matter of CIT v. Bhaktavar Construction Pvt. Ltd . (supra). The test to determine whether the service agreement was different from the rent agreement would be whether the service agreement could stand independently of the rent agreement. In this case the service agreement is dependent upon the rent agreement as in the absence of the rent agreement there could be no service agreement. It may also be pointed out that according to the respondent, the services being provided under the service agreement by the respondent assessee are in the nature of staircase of the building, lift, common en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... past history of the case is inapposite. Further, true, the assessee has been allowed its claim of business loss in the past, but we observe no discussion in its respect in the assessment orders nor, consequently, any finding/s qua the same. The law in the matter being trite, it becomes essentially a case of application thereof to the facts of the case, as found, and it is this that prompted us to observe that the assessee cannot be construed as having been, in appeal, allowed any benefit or advantage . The matter being factual, would have to be necessarily decided on clear findings of fact. Reference to the past history of the case is thus largely irrelevant. What are the different services provided for the current year? What are the direct and indirect costs relatable thereto? The latter, which may have to be allocated on some reasonable basis between the two broad categories afore-said, would not stand to be deducted, along with the direct costs, insofar as they relate to the provision of tenancy or occupancy rights, or the enjoyment of vacant possession by the tenants, for which the assessee gets a flat deduction of 30%. The expenses in relation to the assessee s business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riven receipt of the assessee. The two incidents, both admitted, i.e., the market being a well-established one of which the heavy premium (at ₹ 9167 per sq. ft.) being paid by the incoming tenants is a clear indicator, and the continuing losses in huge sums (viz. at ₹ 68.55 lacs, including watchman salary, for the current year) in the business of administration and development of the market, are clearly inconsistent with each other. 6.3 The matter, accordingly, is restored to the file of the ld. CIT(A) to decide afresh in accordance with law, considering all the relevant aspects, including those stated hereinbefore, issuing definite findings of fact, and after hearing the assessee. He shall, further, do so in a reasonable time/time bound manner, even as he may seek a report from the AO. The assessee shall fully cooperate in the proceedings, providing all the necessary details, explanations, etc. We make it clear that while the onus to prove the incurring of an expenditure and its nexus with it s business, i.e., the stated facts, including qua the business reason for the continuing losses, is on the assessee, the onus to establish any contravention of law, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng that the assessee is supposed to recover at least the cost of its activities (the various services being provided), and the loss sustained cannot, thus, be accepted as a genuine business loss. We decide accordingly. 7. The third and the final issue arising for our adjudication is as to the nature of the receipt (and, thus, income in its respect) by way of premium or, quite simply, transfer charges, on the transfer of tenancy by one tenant (of the assessee) to another. The same stands regarded by the assessee and Revenue as capital gains and income from other sources respectively. The Revenue s case, as clarified per the assessment order, is that inasmuch as the assessee continues to be the owner of the shop (relevant part of the house property), both before and after the transfer of the tenancy by the tenant, the said receipt is not relatable to the assessee s capital asset, which thus remains the same (i.e., unchanged) consequent to the said transfer. Like-wise, it is not relatable to the carrying on of the business of administration and development of the market by it, so as to be regarded as a business receipt, but only arises to it in its capacity as an owner of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o other orders by the Tribunal are for AYs. 2012-13 2013-14, which, again, follow these orders. Per its order dated 17/2/2017, the Tribunal notes (at para 4), on it being relied upon before it by the Revenue, a decision by the Tribunal in Vinod V. Chhapia (supra). The said order is dated 21.11.2012, so that it was in fact available even on 25.5.2016, the date of the first order by the Tribunal in the assessee s case. The Tribunal, however, does not consider the said decision at all in its adjudication, basing the same on its earlier decision in the assessee s case for AY 2009-10. In our view, it was incumbent on the Tribunal to have considered its decision in Vinod V. Chhapia (supra), either distinguishing it or, where not distinguishable, refer the matter for a decision to its larger Bench. This is what propriety and the rule of judicial precedence mandated as, faced with two views by it s coordinate benches, it could not follow one in preference to the other. It could not, in any case, do so without stating reasons for the same. It was in fact all the more incumbent on the Tribunal to do so as its earlier order dated 25.5.2016 was also rendered without noticing an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and quasi-judicial controversies, and that therefore there must be a point of finality, beyond which lapse of time must induce repose, and stale matters not allowed to be reactivated. Clearly, this is not the case in the instant case; the matter being agitated by the Revenue, at least before the Tribunal, continuously since AY 2007-08. The principle of consistency is, thus, on the face of it, not applicable. We shall, nevertheless, also examine the assessments for AYs. 2005-06 AY 2006-07, stated to bind the Revenue. In the facts of the case, there is, on the contrary, no discussion, much less any finding qua this issue in the assessment order for AY 2005-06 by the AO, who merely states that the assessee s representative explained that the premium on the transfer of tenancy rights is chargeable to tax as capital gains, and since it had not incurred any cost for the same, the entire receipt is offered as capital gain, liable to deduction u/s. 54EC, quoting the same verbatim (at pg.5/para 4 of the order/PB pgs. 193-198). There is, clearly, no application of mind by the AO. In the admitted facts of the case, there is no transfer of tenancy rights, surely a capital asset, by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the jurisdictional Tribunal, it is a binding precedent for him (refer, inter alia, CIT v. Ralson Industries Ltd . [2007] 288 ITR 322 (SC); Siapem S.P.A. v. Dy. CIT [2003] 86 ITD 572 (Del)). Chronologically, the next assessment u/s.143(3) in the assessee s case is dated 12/12/2011, for AY 2009-10, where the AO independently takes a view in conformity with that expressed later by the Tribunal in Vinod V. Chhapia (supra), which is for AY 2006-07. Where, then, is the scope for the plea of consistency in the facts and circumstances of the instant case ? Applicability of the decision in Vinod V. Chhapia s case 8.3 The decision by the Tribunal in Vinod V. Chhapia (supra) was not brought to our notice by either party during hearing, and which is, we are afraid to say, unfortunate. The same came to our notice only while perusing the record for finalizing this order. Fair hearing implies not only a fair opportunity of hearing to the parties, but, equally, they bringing forth honestly the facts and circumstances of the case as well as the obtaining legal position the premise being to assist the court to arrive at a correct decision, i.e., as per law, the end to which the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e property a very valuable asset in the hands of the tenant. The same is transferred for a consideration of ₹ 18 lacs, even as a premium of ₹ 21.25 lacs is payable to the assessee-owner, only subject to which it grants a no-objection certificate (NOC) for the transfer of the tenancy per a tripartite agreement dated 19/9/2013 (PB pgs. 125-161). The decision by the Tribunal in Vinod V. Chhapia (supra) is thus squarely applicable to the facts of the present case. The tenancy being in force since long, and the monthly rent being abysmally low, the tenancy rights become a valuable property in the hands of the tenant, who accordingly transfers the same to another, the incoming tenant, for a consideration. The assessee-landlord agrees thereto, partaking a part of the consideration, chargeability to income tax, including the head of income under which it is assessable, was the issue arising for determination. The Tribunal considered all the contentions put forth, including the grant of consent by the assessee-landlord, stated to be a condition precedent for the transfer of tenancy rights by the tenant (in favour of the incoming tenant), which was argued to be the capital asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e s case 8.4 We, next, discuss the adjudication by the Tribunal in the assessee s case. The only decision by it on merits, i.e., for AY 2009-10, is imbued with a legal infirmity. Being rendered without considering the earlier decision by its coordinate bench, i.e., Vinod V. Chhapia (supra), holding otherwise, it cannot hold in law, and is to be regarded as per incuriam . Reference in this context be made to the decisions by the Apex Court in Kondiba Dagadu Kadam v. Savitribai Sopan Gujar Others [1999] 3 SCC 722 [(2) SCR 728]; Sir Chunilal V. Mehta Sons Ltd. v. Century Spng. Mfg. Co. Ltd. [1962] AIR 1962 (SC) 1314 [(1962) SCR 549]. To almost the same effect is the order by the Tribunal in Addl. DIT v. TII Team Telecom International (P.) Ltd . [2011] 12 ITR (Trib) 688 (Mum), whereby, an order by the Tribunal contrary to the earlier decision/s by the coordinate bench/es, looses its binding effect. Further, the order, the relevant part of which is reproduced below, does not specify the capital asset transferred by the assessee-owner, and how, inasmuch as clearly capital gains envisages a capital asset and its transfer, both defined in law: 6. We have gone th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee s case, which, for the reasons afore-stated, cannot be regarded as a valid judicial precedent. Even so, clearly, if the right of consent, to which there is though no reference in the lead, or for that matter, any order by the Tribunal in the assessee s case, is the asset transferred, as held in the appellate order for AY 2009-10, there would be no need to seek its consent on a subsequent change in tenancy, which is not the case. In fact, such a course is stated as impermissible in law (refer para 8.3). The said order/s, in light of the foregoing, is not liable to be followed ( Sri Agasthyar Trust v. CIT [1999] 236 ITR 23 (SC); Raghubir Singh (Decd) v. Union of India [1989] 178 ITR 548 (SC); Distributors (Baroda) (P.) Ltd. v. UoI [1985] 155 ITR 120 (SC); CIT v. Hi-Tech Arai Ltd . [2010] 321 ITR 477. Discussion 8.5 We have already clarified of the detailed arguments and deliberations by the Tribunal in Vinod V. Chhapia (supra), also noting its findings (para 8.3). That being the case, the only course available to us is to decide the issue, regarding the said decision as the only judicial precedent; no other decision by the Tribunal other than those in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ite changes in tenancy, continues to hold this right, exercising it on each change upon receiving what it calls premium or transfer fees . It thereby thus partakes a part of the transfer consideration arising to the outgoing tenant, even though it gets paid direct by the incoming tenant. There is, thus, no transfer of any rights or capital asset by the assessee in favour of the incoming tenant. The incoming tenant substitutes the outgoing tenant, getting all the rights being hitherto enjoyed by the latter, i.e., possessory rights, subject to the payment of a premium/transfer fee to the owner on transfer of tenancy, which is uncertain both in time and frequency and, perhaps, even the premium sum. In other words, the tenancy or other rights being enjoyed by a tenant are not complete, but are subject to certain restriction on their transferability. The payment, though made to the assessee-owner by the incoming tenant, is for and on behalf of outgoing tenant, even as clarified per clause-E of the specimen agreement of transfer of tenancy (dated 19.9.2013). This is perhaps for the reason that the assessee could not legally charge any sum from the incoming tenant, who could be admitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riety, refrain from doing so, as it would, in strict sense, amount to deciding an issue at the assessee s back. Though a decision may bind a court of coordinate jurisdiction, a litigant must get an opportunity to defend its case. Though the assessee has not acted honestly, and the Revenue s been plainly negligent, we cannot but be alive to the need to eschew any prejudice being caused to either side. There is, then, also the issue of head of income under which the income arising is taxable. The rent control legislation is toward regulating tenancies, i.e., protecting them, as well as exercising control over rentals. It is therefore open for the assessee to contend that it is, by partaking a part of the transfer consideration on the transfer of their (tenancy) rights by its tenants, i.e., by way of premium or transfer fee, only compensating itself for the low rent being received by it. It must be borne in mind that it is on account of low rent, coupled with the protection of tenancy, which makes it a valuable asset in the hands of the tenant for the time being, which he realizes on its transfer for a consideration. The assessee, by providing for a share therein for acquiescing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis of the length of time the tenancy or possessory rights were prior to their transfer held by the outgoing tenant, the transferor thereof. There does not seem to any factual or legal basis for the same; the holding period is of the capital asset transferred. The same is to be reckoned with reference to the capital asset transferred by the assessee, i.e., since the date of its acquisition by it. Decision 8.7 With these observations, we, for the reasons afore-stated, set aside the matter for fresh adjudication in accordance with law to the file of the ld. CIT(A), after affording the parties before him a reasonable opportunity of hearing, within the time frame, if any, stipulated by law. Inasmuch as we are setting aside the matter, the first appellate authority shall not be bound by our observations, except have regard to them to the extent they are consistent with or otherwise explain the order by the Tribunal in Vinod V. Chhapia (supra), a valid judicial precedent, and relied upon in the assessee s own case. And decide the matter per a speaking order, issuing definite findings of fact and of law, answering the various aspects of the issue as delineated by us. The twi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re of the considered view that rather than taking a pedantic view of the rule requiring pronouncement of orders within 90 days, disregarding the important fact that the entire country was in lockdown, we should compute the period of 90 days by excluding at least the period during which the lockdown was in force. We must factor ground realities in mind while interpreting the time limit for the pronouncement of the order. Law is not brooding omnipotence in the sky. It is a pragmatic tool of the social order. The tenets of law being enacted on the basis of pragmatism, and that is how the law is required to be interpreted. The interpretation so assigned by us is not only in consonance with the letter and spirit of rule 34(5), but is also a pragmatic approach at a time when a disaster, notified under the Disaster Management Act 2005, is causing unprecedented disruption in the functioning of our justice delivery system. Undoubtedly, in the case of Otters Club v. DIT [2017] 392 ITR 244 (Bom), Hon ble Bombay High Court did not approve an order being passed by the Tribunal beyond a period of 90 days, but then in the present situation Hon ble Bombay High Court itself has, vide judgme ..... X X X X Extracts X X X X X X X X Extracts X X X X
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