Delhi High Court
Rolex Steels (Lndia) (P) Ltd. vs Asstt. Cit on 14 August, 2003
Equivalent citations: (2004)91TTJ(DEL)138
ORDER
B.R. Jain, A.M.:
All these appeals by the assessed are directed to be disposed of by a composite order.
2. Ground Nos. 1 and 2 in all the appeals have not been pressed. The same are dismissed as not pressed.
3. In ground No. 3 for assessment year 1988-89 and ground No. 6 for assessment year 1989-90 assessed has challenged charging of interest under section 139(8) and section 215/217 of the Act as improper and contrary to provisions of law on the ground that these were reassessment proceedings. assessed's counsel, Sh. Adlakha, contends that for assessment year 1988-89 proceedings were initiated on the assessed by issuance of notice under section 148 on 24-9-1992. Return of income was also filed ad the assessment was completed at Rs. 21.94 lakhs. The learned Commissioner (Appeals) however cancelled the assessment on the ground that notice issued under section 148. did not allow clear time of 30 days for filing return of income. This was not challenged by revenue. The assessing officer, however, issued another notice under section 148 which was served on 27-3-1996. The assessed made a request to treat the earlier returns filed on 15-12-1993, as a valid return in response to notice under section 148. It was contended that the first assessment since had already been completed, this was a case of reassessment pursuant to a fresh notice dated 27-3-1996. Interest under sections 139(8) and 215/217 of the Income Tax Act could not have been charged for the reason that the reassessment so made was not a regular assessment as defined under section 2(40) of the Act.
4. Likewise, there was no justification in levy of interest for assessment year 1989-90 as that was not the first regular assessment. A reliance hag also been placed on the decision of CIT v. Padma Timber Depot (1988) 67 CTR (AP) 109 : (1988) 169 ITR 646 (AP), where meaning of regular assessment has also been assigned by holding that the assessment made under section 143(3) read with section 147 was not a regular assessment and the levy of interest under sections 139(8) and 217 was not valid. It was, therefore, contended that the very levy of interest in these two years is unjust and uncalled for.
5. On the other hand, the learned Departmental Representative contends that assessment made for the first time under section 147 shall be reckoned as a regular assessment. This is so provided under Expln. 2 to section 139(8) of the Act, as also for the purpose of levy of interest under section 215/217 of the Act. The assessment already made and cancelled was no assessment, and the assessed's plea that the assessed has previously been assessed is not tenable.
6. We have heard the parties with reference to material on record and case law relied upon. Returns for both the years for assessment years 1988-89 and 1989-90 were filed pursuant to notice under section 148. The assessment framed on the strength of such notice has been cancelled by the learned Commissioner (Appeals) as the assessing officer did not allow clear time of 30 days for filing of return. Fresh notices under section 148 were issued on 27-6-1996. In reply, the assessed requested the assessing officer to treat the earlier returns as valid returns filed in response to the fresh notice under section 148, dated 27-3-1996, and the assessment were framed.
7. In assessment year 1988-89 the assessing officer has made a specific order for charge of interest under sections 139(8) and 215/217. However, no such order has been made in the order for assessment year 1989-90. Regular assessment has been defined under section 2(40) of the Act as under :
"Regular assessment" means the assessment made under sub-section (3) of section 143 or section 144.
8. Explanation 2 to section 139(8) substituted by the Taxation Laws (Amendment) Act, 1984, with effect from 1-4-1985, reads as under :
"Where, in relation to an assessment year, an assessment is made for the first time under section 147, the assessment so made shall be regarded as a regular assessment for the purposes of this sub-section."
9. Sub-section (6) of section 215 which was also inserted by the Taxation Laws (Amendment) Act, 1984, with effect from 1-4-1985, reads as under
"where, in relation to an assessment year, an assessment is made for the first time under section 147, the assessment so made shall be regarded as a regular assessme nt for the purposes of this section and sections 216, 217 and 273."
10. In CIT v. Padma Timber Depot (supra), the assessed- denied total liability of interest. The assessed did not file a return under section 139(l) nor any notice under section 139(2) was issued. That was also not a return under section 139(4) of the Act. The return filed by the assessed after expiry of limitation period provided under section 139 was non est return in law. The assessing officer took proceedings under section 148 and regularised the assessment proceedings when the assessment was made under section 143(3) read with section 147. Such an assessment was held not to be a regular assessment and the levy of interest under section 139(8) and section 217 was held as invalid for the assessment year 1976-77.
11. In the appellant's case before us the assessment already made stood cancelled. The legal effect of cancellation of such assessment by the learned Commissioner (Appeals) was that as if no assessment had been made on the assessed. The assessing officer is found to have held valid jurisdiction for initiating proceedings under section 148 on 27-3-1996, and assessment was completed under section 143(3) pursuant to such a notice. After the decision of Padma Timber Depot (supra) for assessment year 1976-77 there has been an amendment in the Act. Such an amendment as stated hereinbefore was applicable to the assessed's case for both the years, i.e., assessment years 1988-89 and 1989-90. Section 2(40) of the Act gives a general definition only and it is not the charging section. It is a well-settled principle of construction that a fiscal statute should be construed strictly. This is applicable to taxing provisions such as charging provision and not to those parts of the statute which are general. When the answer to the regular assessment for the purpose of charging of interest is contained in section 139(8) and section 215 itself under which such a levy is made, the general definition given under section 2(40) shall not have any overriding effect thereupon. In this view of the matter, the assessment made for the first time pursuant to notice under section 148/147 of the Act for assessment year 1988-89 was to be regarded as a regular assessment for the purpose of levy of interest under section 139(8) as well as section 216/217 of the Act. We therefore, do not find any legal infirmity in levy of such interest for assessment year 1988-89.
12. The assessment for assessment year 1989-90 cannot be regarded as a regular assessment for the purpose of section 139(8) as well as for section 215/217 of the Act in view of the fact that the first assessment pursuant to such notice was for assessment year 1988-89. Section 2(40) of the Act comes into operation for the purpose of such assessments which are not the first assessments. In that view of the matter the assessing officer having made no specific order for levy of interest under section 139(8) or section 215/217 of the Act for assessment year 1989-90 and in view of the judgment of Padma Timber Depot (supra), no interest was leviable on the assessed for that year. Accordingly, assessed's ground for assessment year .1988-89 stands rejected and that for assessment year 1989-90 stands allowed.
13. assessed's ground 6 in ITA No. 2485, for assessment year 1990-91, relates to charging of interest under sections 234A and 234B of the Act. The assessing officer in the order merely said to charge interest as per law. No specific order for charging of interest was made. assessed's, ground 6 on this account has been dismissed by the learned Commissioner (Appeals) by saying that the same is of general nature and does not call for any comments.
14. We have heard the parties with reference to material on record. The assessing officer did not make any specific order for charge of interest. In the case of CIT & Ors. v. Ranchi Club (2000) 164 CTR (SC) 200: (2001) 247 ITR 209 (SC), it has been held that it is not sufficient to say charge interest, if any. Specific order has to be made. Failure to do so interest cannot be charged. The jurisdictional High Court in the case of CIT v. Insilco Ltd. (2003) 179 CTR (Del) 214 : (2003) 261 ITR 220 (Del) has also held that in view of the authoritative pronouncement in Ranchi Club Ltd. case (supra), no question of law, much less a substantial question of law, arises from the order of Tribunal where interest under section 234B was deleted under the identical circumstances as in the case of present assessed before us. We, therefore, direct the assessing officer to delete the interest so charged under sections 234A and 234B of the Act.
15. In assessment year 1989-90 ground No. 3 has not been pressed. The same is dismissed as not pressed.
16. Ground No. 4 in 1989-90 and 1990-91 relates to charging of notional interest on security received against renting of the property:
17. Briefly, the facts are that the assessed let out its property and received deposits from tenants. The assessing officer added interest on such deposits from tenants in the annual value of the property before allowing statutory deduction under the head "income from house property". The assessed agitated such inclusion of interest as annual value/rental income before the learned Commissioner (Appeals).
18. The assessed's case before the learned Commissioner (Appeals) is that the assessed received deposits in order to ensure timely payment of rent as well as proper upkeep of the premises. On such deposits no interest was payable by the appellant to its tenant, Ws Lupin Laboratories. It was also contended that the assessed had raised certain loans and the money has been utilised for repayment of such loans. The liability of interest towards loans raised for construction, etc., were not equivalent to the interest taken on notional basis and, therefore, there was no question of making any addition. Otherwise also notional interest cannot be taken as the rental income. These pleas of the assessed were not accepted by the learned Commissioner (Appeals). The learned Commissioner (Appeals) observed that the appellant has earned income on security deposits so received and the estimate of notional interest cannot be said as illogical. He further stated that even if the amount of benefit which the appellant has obtained due to such deposit may not be measured correctly yet normal prevalent rate of interest paid by the banks has to be treated as notional income of the appellant and brought to tax. He, therefore, upheld the addition made by the assessing officer.
19. Before us, the learned counsel for the assessed contended that there is no justification in making the addition to annual letting value of premises with respect to any notional interest on deposits made by the tenant. Reliance has been placed on the decisions of the Calcutta High Court in the case of CIT v. Satya Company Ltd. (1994) 75 Taxman 193 (Cal). Reliance has also been placed on the following three decisions
(i) B & A Plantations & Industtes Ltd. v. CIT (2000) 242 ITR 22 (Gau).
(ii) Kesrichand Jaisukhlal v. CIT (2001) 248 ITR 47 (Gau).
(iii) CIT v. J.K. Investors (Bombay) Ltd. (2001) 248 ITR 723 (Bom).
20. On the other hand, the revenue supported the decision taken by the authorities below.
21. We have, heard the parties with reference to material on record and case law relied upon by them. Having regard to the facts of the case and the provisions as contained in section 23 of the Act which make reference to the fair rental value, no further addition can be made therein. The fair rent takes into consideration everything. The notional interest on the deposit is not any actual rent received or receivable. Any notional addition cannot partake annual value as envisaged under section 23 of the Act. We, therefore, do not have any hesitation in accepting the assessed's plea that in the light of decision of Hon'ble High Court in the case of Satya Company Ltd. (supra), addition in the annual letting value on premises with respect to any notional interest on deposit made by tenant could not have been made. Any such addition made by the assessing officer and sustained by the learned Commissioner (Appeals), is directed to be deleted. Their orders stand modified accordingly.
22. In ground 5, in assessment year 1989-90, the assessed has challenged sustenance of addition of Rs. 7,98,597 for the alleged short-term capital gain while in the assessment year 1990-91, in ground 3, sustenance of addition of Rs. 1,76,419 for the similar reason is under challenge.
23. In assessment year 1989-90, the assessing officer observed that the assessed has disclosed deposits against shops received from 6 parties aggregating to Rs. 12,51,000 as per details given in para 11 of his order. During the assessment proceedings the assessed produced memorandum of agreement of understanding entered into with various persons from whom such deposits were received. The assessed company has also handed over physical possession of vacant shops to them with a right to enjoy the same along with the appurtenances. The assessed builder also allowed and conferred upon the depositors an irrevocable right to occupy and use the said shop for any purpose whatsoever without paying any remuneration for use and occupation charges. They were also at liberty to pass over and handover the physical possession of the shop to any person for which consent of the assessed-builder was to be taken, yet he did not have any right to refuse for giving such a consent. The assessing officer had regard to the provision to section 2(47)(v) of the Income Tax Act as well as to section 53 of Transfer of Property Act for treating the transaction as transfer of a capital asset. The income so earned was brought to tax as short-term capital gain. Likewise, in assessment year 1990-91, the deposits received for parting with the possession of space in the building owned by the appellant was treated as a transfer and the amount received as deposit was treated as sale consideration for working out short-term capital gain of Rs. 1,76,419.
24. Before the learned Commissioner (Appeals) the plea of the assessed was that transfer of property shall take place only when the conveyance of the premises has been entered into by way of a registered sale deed. The said plea of the assessed did not find favor with the learned Commissioner (Appeals) in view of the definition of transfer given in clause (v) of sub-section (47) of section 2 of the Act. He was of the view that the appellant after giving possession to the buyer did not have any right whatsoever to refuse the transfer. Since unfettered powers have been given to transfer the shops, the possession of which stood- already given by the appellant-builder, he held that the assessing officer was justified in holding that the transfer of shops has taken place in the year under consideration and the amount received was liable to be assessed as short-term capital gain. He, therefore, confirmed the decision taken by the assessing officer.
25. Before us, the learned counsel for the assessed contends that conveyance deeds were not made and the same were not registered. The sale, therefore, cannot be held to have taken place. The appellant had received deposits only which cannot be construed as sale consideration. The depositors had right to vacate the shop by giving three months' notice to the appellant-owner/builder and claim refund of the entire amount of deposit. It was also contended that the authorities below have not made proper construction of the agreement. The cardinal rule of construction of a document has been ignored. The document has been read in part and interpretation drawn contrary to what the instrument really conveys. Reliance has been placed on two decisions, namely, Digamber Jain v. Sub-Registrar AIR 1970 MP 29 and State of Orissa v. ntager Paper Mills Co. Ltd. AIR 1985 SC 1345, para 117. Extracts of both the judgments are placed on record which read as under
1. Digamber Jain v. Sub-Registrar AIR 1970 MP 26 The cardinal rule of construction is that a document must be read as a whole, each clause being read in relation to the other parts of the document, and an attempt should be made to arrive at an interpretation which will harmonise and give effect to the other clauses thereof. It is not legitimate to pick-put an expression torn from its context and try to interpret the document as a whole in the light of that expression. Such a forced construction on the document in question cannot but defeat the very object which its executants had in view." These principles have to be applied to understand the scope of the agreement.
2. State of Orissa v. Titager Paper Mills Co. Ltd. AIR 1985 SC 1345, para 117.
"It is well-settled rule of interpretation that a document must be construed as a whole, This rule is stated in Halsbury's Laws of England, Fourth Edn., Vol. 12, para 1469, at p. 602, as follows :
'Instrument construed as a whole.
It is a rule of construction applicable to all written instruments that the instrument must be construed as a whole in order to ascertain the true meaning of its several clauses, and the words of each clause must be so interpreted as a to bring them into harmony with the other provisions of the instrument, if that interpretation does no violence to the meaning of which they are naturally susceptible. The best construction of deeds is to make one part of the deed expounded the other and so to make all the parts agree. Effect must, as far as possible, be given to every word and every clause."
26. On the other hand, the learned Departmental Representative accepting the legal principle stated that the authorities below have correctly interpreted the documents and after appreciating the legal provision, treated the amount of deposit as sale consideration and a transfer for bringing to tax the income as short-term capital gain of the respective years under consideration.
27. We have heard the parties with reference to material on record and precedents relied upon. The assessed acquired leasehold right in the plot taken in auction from Delhi Development Authority and constructed shops and offices thereon. The assessed entered into memorandum of understanding with various parties for parting with possession in respect of use of such shops and offices in consideration of which interest-free deposits were taken. The assessed also gave liberty to substitute the depositor on payment of substitution charges from the next occupant. Right was given to an such depositors to vacate the property by giving three months notice to the assessed and the entire amount of deposits was liable to be refunded. The perusal of the documents reveals that the assessed did not transfer any right in the land which he had acquired from Delhi Development Authority. The revenue also did not have any material in its possession to show that DDA has given any such permission to the assessed for transferring the rights vested in him. The deposits were interest-free and were taken in lumpsum payment besides which the assessed was also charging nominal charges as occupation and use charges @ 50 paise per sq. ft. This was in the nature of rent received by him. The learned Commissioner (Appeals) in assessment year 1990-91, vide para 13.2, has recorded a finding that the appellant has let out almost 90 per cent of the space to various tenants and 10 per cent was occupied for its own office purposes. Revenue has not challenged this finding. As far as revenue is concerned, this has become final. Having given right to vacate the shop and assurance to refund the entire deposits without surrendering any right in the land or the property owned by it the learned Commissioner (Appeals) was not justified to come to the conclusion that assessed has surrendered unfettered right in favor of the tenants. -Such a conclusion drawn by the learned Commissioner (Appeals) was erroneous and contrary to facts. The agreement is found to be in the nature of rent agreement and the overall interpretation of the conditions contained therein does not show that the deposit received by the assessed was in consideration of transfer of rights in the property belonging to it. We, therefore, agree with the assessed that the deposit was not a sale consideration but merely an amount which was refundable at the discretion of the depositors by giving three months' notice to the assessed. This was outside the scope of transfer within the meaning of Income Tax Act, 1961, and as such this amount could not have been brought to tax as capital gain in both the years. As a result, addition so made is directed to be deleted.
28. In assessment year 1990-91, ground 5 of the assessed is for not allowing depreciation on the building.
29. We have heard the parties with reference to material. The assessing officer held that major portion of the building is let out/sold and denied depreciation claimed by the assessed for its commercial use. The learned Commissioner (Appeals) accepted that 90 per cent of the space is let out and only 10 per cent is held for business use and allowed proportionate depreciation. This has been so stated without factually ascertaining the disclosure of maintenance charges received from the depositors. We, therefore, restore the issue to the assessing officer with a direction to verify the claim of the assessed afresh. In case it is found that maintenance charges per sq. ft. received from the depositors have been assessed under the head "Income from business", then the space so let out has to be treated as commercial exploitation by the assessed and used for business. Depreciation claim shall be allowed to the assessed after giving proper opportunity and verification of the factual aspect of the matter.
30. In the result assessed's appeal for assessment year 1988-89 stands dismissed and appeal for assessment years 1989-90 and 1990-91 stands partly allowed.