Income Tax Appellate Tribunal - Mumbai
Income-Tax Officer vs Clothing Export Processing Zone Ind. ... on 16 January, 2001
Equivalent citations: [2002]82ITD222(MUM)
ORDER
M.A. Bakshi, Vice President
1. I find it convenient to dispose of the appeal of the revenue and the cross objection of the assessee for assessment year 1994-95 by this consolidated order. Rival contentions have, been heard and record perused.
2. I first take up the appeal of the revenue.
3. The first ground of appeal is against the decision of the CIT(A) in treating the receipt of Rs. 9, 61,020 by the assessee on account of providing accommodation on leave & license basis to be assessed under the head "Income from other sources" as against under the head "Income from house property" assessed by the Assessing Officer.
4. The relevant facts in this case are that the assessee is Cooperative Housing Society registered under Maharashtra Cooperative Societies Act. It had given one floor of administrative building of the society to Punjab National Bank on leave & license basis in consideration of Rs. 80, 085 per month. The assessee had claimed a deduction of Rs. 12,45, 471. Since the expenditure claimed by the assessee was in excess of the income, the assessee had filed the return for assessment year 1994-95 on 31-10-1994 declaring Nil income. The Assessing Officer was of the view that the taxable income of the assessee had escaped assessment, notice under Section 148 was issued on 24-1-1997 which was served upon the assessee on 6-2-1997. In response to the notice the assessee filed the return declaring Nil income. During the course of re-assessment proceedings the assessee had objected to the re-opening of the assessment on the ground that the assessee having filed the return which was pending and not having been processed under Section 143(1)(a), notice under Section 148 was illegal. The Assessing Officer did not accept the objection of the assessee and accordingly proceeded to frame the assessment.
5. The main dispute raised by the assessee before the CIT(A) was relating to the validity of the proceedings initiated under Section 147 read with Section 148 of the Act. The CIT(A) however has not accepted the objection of the assessee regarding the initiation of proceedings under Section 147/ 148. Another issue raised by the assessee was relating to assessment of income from house property. As already pointed out the assessee had provided first floor of the administrative block of the building to Punjab National Bank at the rate of Rs. 80, 085 per month. Against the annual income of Rs. 9, 61,020 the assessee had claimed an expenditure of Rs. 12,45, 471. The total expenditure claimed by the assessee including the expenditure relating to property was Rs. 15, 98, 332. The income from property was offered by the assessee for assessment under the head "Income from other sources" and since the expenditure was more than the income, Nil income was filed. The Assessing Officer assessed the income under the head "Income from other sources" and restricted the deduction against the income from house property to 1/5th as permissible under Section 24 of the Act. This has resulted in the assessment of total income of Rs. 49, 635.
6. Though the CIT(A) did not accept the objection of the assessee relating to re-opening of the assessment, the contention on behalf of the assessee that the income should be assessed under the head "Income from other sources" was accepted. The revenue is aggrieved.
7. It was contended by the learned Departmental Representative that the assessee has derived income from property and as per the terms of the agreement it is evident that what has been received by the assessee is rent for exploitation of the house property. The income, according to the learned DR, was accordingly assessable under the head "Income from house property".
8. The learned counsel for the assessee on the other hand relied upon the decision of the CIT(A). Besides, reliance was placed on the decision of the Supreme Court in the case of Sultan Bros. (P.) Ltd v. CIT [1964] 51 ITR 353, the decision of the Bombay High Court in the case of CIT v. Khandelwal Mining & Ores. (P.) Ltd. [1983] 140 ITR 701' and the decision of the Calcutta High Court in the case of CIT v. Model Mfg. Co. (P.) Ltd. [1989] 175 ITR 374. It was contended by the learned counsel for the assessee that since the assessee had provided the facilities of service of lifts, supply of water, maintenance of stair case, watch and ward facility, the income was rightly held by the CIT(A) to be assessable under the head "Income from other sources".
9. I have given my careful consideration to the rival contentions. Section 14 of the Income-tax Act, 1961 provides various heads of income under which income is assessable. One of the heads of income is "Income from house property". The income from other sources is also one of the heads of income under which income is assessable to tax. Their Lordships of the Supreme Court in the case of Sultan Bros. (P.) Ltd. (supra) held that the several heads of income mentioned in the Income-tax Act are mutually exclusive, each being specific to cover the income arising from a particular source. It was further held that if income is taxable under Section 9 of the old Act, then it cannot be taxed under Section 12. Section 22 of the Income-tax Act, 1961 provides for assessment of income under the head "Income from house property". It is not disputed that the Society is the owner of the house property. If the property is not used for assessee's own residence or its business, the annual letting value of the property is assessable to tax. In this case the property in question was not used by the assessee for its business but was provided to the Punjab National Bank on leave & license basis. Their Lordships of the Supreme Court in the case of Sultan Bros. (P.) Ltd. (supra) considered the issue relating to assessment of income from house property in a case of composite letting out of the house property with machinery, plant and furniture. Their Lordships of the Supreme Court held that since the assessee had intended to use the building and fixtures & furniture for running a hotel all together and not one separately from the other, the income was assessable under Section 12 and not under Section 9 of the Act. In the case of Model Mfg. Co. (P.) Ltd. (supra) the issue before their Lordships of the Calcutta High Court was as to whether the income received by the assessee on account of electricity, use of lifts, supply of water, maintenance of stair case, watch and ward facilities to tenants were assessable as part of letting out of the house property as incidental to it or separately assessable as income from other sources. Their Lordships of the Calcutta High Court held that the income from the aforementioned facilities was assessable as income from other sources and that the said income would not be said to be incidental to the income derived from letting out of the property. Their Lordships accordingly directed the allowance of depreciation on lifts and transformers under Section 57 of the Act. In the case of Khandelwal Mining & Ores (P.) Ltd. (supra) the issue was totally different and is distinguishable on facts.
10. On the analysis of the decisions relied upon by the assessee the following principles emerge: -
11. The source of income under which income is assessable is to be determined with reference to the intention of the parties. If the intention is exploitation of the property, the income derived therefrom will be assessable under the head "Income from house property". But if the object of the assessee is composite of providing plant and machinery and other facilities along with the building and the income derived therefrom is indivisible, such income will be assessable under the head "Income from business" or "Income from the others sources" as the case may be. Similarly if the assessee has given property on lease or leave & License, the income therefrom is assessable as "Income from house property". On the other hand the income derived from providing certain facilities such as electricity, lift, watch and ward facilities etc. would be assessable under the head "Income from other sources". The CIT(A) in Para No. 21 of his order has pointed out that the Bank had been provided the facility of service of lifts, supply of water, maintenance of stair case and watch & ward facility. He has accordingly held that in view of the composite service provided by the assessee the income is assessable under the head "Income from other sources". I have perused the copy of the agreement executed by the assessee with the Punjab National Bank and I am of the firm view that the monthly compensation of Rs. 80, 085 was exclusively for the use of the premises.
12. Clause 7 of the agreement being relevant is reproduced hereunder: -
7. The licensors shall, during the period of licence, shall pay taxes and outgoings in respect of the said premises however provided that the licensees shall reimburse to the licensors all such taxes including Municipal Taxes, Ground Rent, Cesses, duties and other outgoings together with increase if any levied thereto by B. M. C., State or Central Government from time to time within seven days from the date of receipt of necessary vouchers thereof from the licensors. The licensees do hereby agree to bear and pay all the electricity charges for the electricity consumed by the licensees in the said premises as per respective meter reading thereof and also all water charges for water consumed by the licensees in course of their occupation of the said premises. The licensees shall take steps to obtain at their costs and charges, if permissible under the rules of concerned authorities, submeters for electricity and water and the licensors shall sign necessary applications etc. within seven days from the date of / submission thereof by the licensees to the licensors.
13. Clause 7 of the agreement clearly provides that the licensees shall reimburse to the licensors all such taxes including Municipal tax, ground rent, cesses, duties and other outgoings together with increase if any levied thereto by BMC, State or Central Government from time to time. It has also provided that the licensees agree to bear and pay all the electricity charges for the electricity consumed by the licensees in the said premises as per respective meter reading thereto. It also provides that the licensees shall bear all water charges for water consumed by the licensees during the course of occupation of said premises.
14. Thus the finding of the CIT(A) in para No. 21 of his order is contrary to the agreement between the parties. Therefore the decisions relied upon by the CIT(A) in support of his decision that the income is assessable under the head "Income from other sources" is misplaced. In the case of CIT v. British India Corpn. 2 SCR 114 the Supreme Court held that any payment by the lessees as part of the consideration of the lease is rent. When a lessee provides the tax collection charges in addition to rent, such charges were also held to be really part of the rent. On consideration of the totality of the facts and circumstances of this case, I am of the view that the income derived by the assessee is exclusively from the exploitation of the property and is therefore assessable under the head "Income from house property". The decision of the CIT(A) on this issue is set aside and that of the Assessing Officer restored.
15. The only other ground in the appeal of the revenue is relating to the assessment of Rs. 13, 850 being interest for late payment of maintenance charges. The issue has been decided by the CIT(A) on the ground of mutuality. The view of the CIT(A) in this regard is supported by the decision of the Supreme Court in the case of CIT v. Bankipur Club Ltd. [1997] 226 ITR 97'. Respectfully following the aforementioned decision of the Supreme Court the ground of appeal by raised the revenue is hereby dismissed.
16. Now I take up the cross objection of the assessee. All the grounds of appeal raised by the assessee in the cross objection are directed against the validity of proceedings initiated under Section 147 of the Act. The claim of the assessee is that the return declaring Nil income having been filed by the assessee it was necessary for the Assessing Officer to complete the assessment under Section 143(3). No assessment having been made by the Assessing Officer, reopening of assessment under Section 147 by issue of notice under Section 148 was unwarranted. In the cross objection it has been pointed out that the processing of the return under Section 143(1)(a) and issue of intimation on 28th of April, 1995 is not an assessment and therefore the return filed by the assessee was considered to be pending. The Assessing Officer had not issued a notice under Section 143(2) within the period of one year from the end of month in which the return was furnished as provided under proviso to Section 143(2). It has further been contended that the assessment for assessment year 1994-95 was barred by limitation under Section 153(1)(a) on 31-3-1997 and hence reassessment made by the Assessing Officer on 15-5-1997 was bad in law. The learned counsel for the assessee relied upon the decision of the Delhi Bench of the Tribunal in the case of Lakshmi Enterprises v. Dy. CIT [1998] 64 ITD 1 in support of the contention that an intimation issued under Section 143(1)(a) is not an assessment. Reliance was also placed on the decision of the Bombay Bench of the Tribunal in the case of Gulabrai L. Vira [IT Appeal Nos. 8513, 8514, 2063 and 2064 (Bom.) of 1991 dated 5-1-1993]. Relying upon the decision of the Madhya Pradesh High Court in the case of Kamal Textiles v. ITO[1991] 189 ITR 339' it was contended that the proper course for the Assessing Officer after issue of intimation is to issue notice under Section 143(2) and not to resort to Section 147 of the Act. Reliance was also placed on the CBDT Circular No. 549 dated 31-10-1989 reported in 182 ITR (Statute) 1 in support of the contention that the intimation under Section 143 (1) is not a regular assessment. It was accordingly contended that the decision of the CIT(A) not accepting the contentions on behalf of the assessee was contrary to law.
17. The learned Departmental Representative on the other hand relied upon the order of the CIT(A) and contended that the law having been amended, the decisions cited on behalf of the assessee are inapplicable.
18. I have given my careful consideration to the rival contentions. The assessee had filed the return of income on 31-10-1994 and the return had been processed under Section 143(1)(a) and intimation issued on 28th of April, 1995. The main thrust of the contentions on behalf of the assessee is that reopening of assessment under Section 147 is not permissible when a return filed by the assessee is pending assessment. This contention on behalf of the assessee is not well founded. Proviso to Section 143(2) provides that no notice under the said section can be issued after the expiry of one year from the month of filing of the return by the assessee. In this case the return had been filed on 31-10-1994 and therefore the notice under Section 143(2) could be issued only before 31st of October, 1995. [The CIT(A) has wrongly mentioned up to 28th of April, 1996]. Since the Assessing Officer had no power to issue a notice under Section 143(2) after 31-10-1995 it cannot be said that the return of income filed by the assessee was pending on the date of issue of notice under Section 148 i. e. on 24th of January, 1997. The decisions cited on behalf of the assessee are in relation to law that existed before the amendment brought about by the Amendment Act of 1989. After the amendment it is not necessary for the Assessing Officer to make a regular assessment. If no notice under Section 143(2) is issued within the specified period the Assessing Officer is not required to take any further action after the issue of intimation under Section 143(1)(a). Thus when the Assessing Officer was not required to take any action for making the assessment under Section 143(3), it cannot be said that the return of income was pending on the date of issue of notice under Section 148. Therefore, the Assessing Officer could issue a notice under Section 148. Section 147 as amended permits reopening of assessment where the assessee had filed a return but no assessment had been made on the ground that the assessee had understated the income or has claimed excessive loss, deduction, allowance or relief in the return.
19. In this case the assessee had filed the return of income on which no regular assessment had been made. However, in view of the provisions of the Act the return having been processed under Section 143(1)(a) the return was not pending with the Assessing Officer. Action under Section 147 read with Explanation 2(b) was thus permissible. I therefore agree with the finding of the CIT(A) that the issue of notice under Section 148 was in order.
20. Another objection raised by the assessee is that the reassessment ought to have been completed by 31st of March, 1997 in view of Section 153(1)(a). This objection is also not well founded. Section 153(1)(a) applies to the assessment made under Section 143 or Section 144. In this case Sub-section (2) to Section 153 is applicable which provides a period of two years for purposes of making the assessment or reassessment under Section 147 after the end of the financial year in which the notice under Section 148 was served. In this case notice under Section 147 was issued on 24th of January, 1997. Therefore the period of limitation for making the assessment/reassessment was up to the end of March 1999. The assessment has been made on 15-5-1997 which is well within the time limit provided under Section 153(2). Thus there is no merit in this ground of appeal raised by the assessee.
21. In the result, whereas the appeal of the revenue is partly allowed, the cross objection of the assessee is hereby dismissed.