Calcutta High Court
Park Hotel (P.) Ltd. vs Commissioner Of Income-Tax on 18 September, 1986
Equivalent citations: [1987]167ITR60(CAL)
JUDGMENT Dipak Kumar Sen, J.
1. The material facts and the proceedings leading up to this reference are, inter alia, as follows:
2. M/s. Park Hotel (P.) Ltd., the assessee, obtained by way of assignment the unexpired period of a lease in respect of premises Nos. 3, 5, 7, 9, 11, 13 and 15, Park Street, Calcutta (hereinafter referred to as the said premises), from a firm by the name of Credit Transactors. The assignment was effected by a deed dated September 3, 1966.
3. In the assessment year 1971-72, the relevant accounting period ending on March 31, 1971, the assessee executed a sub-lease in respect of a portion of its leasehold interest in favour of M/s. Surrendra Overseas Ltd., another limited company associated with the assessee. The said sub-lease was effected by a deed which was, however, not registered. M/s. Surrendra Overseas Ltd., paid a premium of Rs. 63,13,000 and has been paying rent of Rs. 15,000 per year in respect of the said sub-lease to the assessee. The portion of the said premises under sub-lease was made over to M/s. Surrendra Overseas Ltd. A multi-storeyed building had been constructed in the said portion under sub-lease and M/s. Surrendra Overseas Ltd. had let out the same to various tenants and has been collecting rent from such tenants.
4. The assessee was assessed to income-tax for the assessment years 1975-76, 1976-77, 1977-78 and 1979-80, the relevant accounting years ending on March 31 of the calendar years 1975, 1976, 1977 and 1979. In making the assessments, the Income-tax Officer not only included the said amount of Rs. 15,000 paid by M/s. Surrendra Overseas Ltd. to the assessee but also the amount of rent realised by M/s. Surrendra Overseas Ltd., from its tenants in the portion of the said premises given under under sub-lease as income from house property in the hands of the assessee. The Income-tax Officer held that the rent realised by M/s. Surrendra Overseas Ltd. was a notional income in the hands of the assessee in respect of the said property inasmuch as by non-registration of the deed of sub-lease, no property in respect of the said portion of the said premises under the sub-lease had passed in favour of M/s. Surrendra Overseas Ltd.
5. Being aggrieved, the assessee preferred two appeals from the said orders of assessment before the Commissioner of Income-tax (Appeals). The Commissioner (Appeals) held on the facts that the assessee was not the owner of the said multi-storeyed building inasmuch as the lease which was assigned to the assessee clearly provided that additions, alterations or reconstruction to the premises would vest in the lessor as and when the same were made or constructed. The Commissioner (Appeals) noted further that in the earlier years, viz., assessment years 1967-68 to 1970-71 and 1972-73 to 1974-75, the income arising from the said premises had been assessed in the hands of the assessee as income from business, as, in terms of the objects set out in its memorandum of association, the assessee had been utilising the leasehold as a commercial asset.
6. It was also urged before the Commissioner (Appeals) that the Income-tax Officer had erred in assessing the income of the leasehold property in the hands of the assessee on a notional basis under the head "Income from house property". The Commissioner (Appeals) held that, as the income should be assessed under the head " Business ", the question of making any assessment on notional basis did not arise.
7. The first order of the Commissioner (Appeals) in respect of the assessment years 1975-76 to 1977-78 was passed on October 5, 1982: Subsequently, in respect of the appeals in respect of the assessment year 1979-80, the Commissioner (Appeals) passed another order on December 13, 1982, on the same terms.
8. The Revenue preferred appeals from the said two orders of the Commissioner (Appeals) before the Income-tax Appellate Tribunal. The Tribunal confirmed the order of the Commissioner (Appeals) holding that as the assessee was not the owner of the leasehold property, the income from the leasehold property in the hands of the assessee should be assessed under the head "Business".
9. The orders of the Tribunal are respectively dated 21st March and 15th June, 1984.
10. Pursuant to the orders of the Commissioner (Appeals) respectively dated October 5 and December 3, 1982, the Income-tax Officer recomputed the income of the assessee. The Income-tax Officer treated the income arising from the leasehold as income of the assessee under the head "Business" but included in the said income the rent which was being realised by M/s. Surrendra Overseas Ltd. from its tenants in the income of the assessee. The recomputation was made by an order dated February 21, 1983, under Section 251 of the Income-tax Act, 1961.
11. The assessee, being aggrieved by the recomputation, preferred further appeal before the Commissioner of Income-tax (Appeals). The Commissioner (Appeals) found that though he had stated in his earlier orders that income from the said leasehold should be assessed in the hands of the assessee under the head "Business" and no income on notional basis could arise, the Income-tax Officer had included the income from the premises earned by Surrendra Overseas Ltd., in the total income of the assessee. The Commissioner (Appeals) held that there was no reason to assess the income of Surrendra Overseas Ltd. in the hands of the assessee and set aside the order of recomputation dated February 21, 1983, and directed the Income-tax Officer to exclude the income of Surrendra Overseas Ltd. from the income of the assessee. The Commissioner (Appeals) found that the rent of sub-lease, viz., Rs. 15,000 per year only, as appearing in the profit and loss account and the balance-sheet of the assessee should be included in its business income.
12. Being aggrieved, the Revenue preferred a further appeal before the Tribunal. It was contended on behalf of the Revenue before the Tribunal that M/s. Surrendra Overseas Ltd. in its assessment to income-tax had objected to the assessability of rental income received from the said premises held under the sub-lease. On appeal, the Tribunal had held that as the said premises had not been legally transferred to M/s. Surrendra Overseas Ltd., the rental income could not be assessed in the hands of the transferee. An application for reference from the said order of the Tribunal was also rejected. In the circumstances, as the Commissioner (Appeals) had directed that the income received from the said leasehold should be assessed in the hands of the assessee as income from business, the income which was being received by Surrendra Overseas Ltd. had also been included in the business income of the assessee. The said income, it was held, was not a notional income but were the amounts actually received by M/s. Surrendra Overseas Ltd. It was submitted before the Tribunal on behalf of the Revenue that the directions given by the Commissioner (Appeals) for the exclusion of the rent collected by M/s, Surrendra Overseas Ltd. from the total income of the assessee should be set aside. Submissions to the contrary were made on behalf of the assessee.
13. The Tribunal found that a part of the leasehold had been transferred by the assessee to M/s. Surrendra Overseas Ltd. The Tribunal found further that the portion of the leasehold transferred to M/s. Surrendra Overseas Ltd. had been let out and income has arisen from the said portion and received by M/s. Surrendra Overseas Ltd. The Tribunal held that such income was not notional income but had been actually received from the leasehold property by M/s. Surrendra Overseas Ltd. and if the same was not assessed as business income in the hands of the assessee, the amount will go untaxed both in the hands of the assessee as also M/s. Surrendra Overseas Ltd. in view of the orders passed in the assessment of the latter. The Tribunal directed that all income from the leasehold property including that received by M/s. Surrendra Overseas Ltd, should be assessed as business income in the hands of the assessee and the directions given by the Commissioner (Appeals) should be modified to the extent as above.
14. On an application by the assessee under Section 256(1) of the Income-tax Act, 1961, the following question has been referred by the Tribunal as a question of law arising out of its order for the opinion of this court :
"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the income as received by M/s. Surrendra Overseas Ltd., be assessed as the income of the assessee from business from leasehold interest ?"
15. At the hearing, learned advocate for the assessee submitted that in view of the facts as found, the income which had been received by M/s. Surrendra Overseas Ltd. from the leasehold can never be the business income of the assessee. The assessee did not receive the said income and the amounts of rent collected by M/s. Surrendra Overseas Ltd. never reached its hands. It should not be held that such income was the real income of the assessee. In support of his contentions, learned advocate for the assessee cited S.G. Mercantile Corporation (P.) Ltd. v. CIT . In this case, the assessee had been incorporated with the object, inter alia, of obtaining by way of leases or otherwise real property and to deal with the same commercially. The assessee took on lease a market for a long term and developed the same. The said market was sub-let thereafter in terms of the lease. The question arose whether the income of the assessee from sub-letting a portion of the market was assessable as business income under Section 10 of the Indian Income-tax Act, 1922, or as income from other sources under Section 12 of the said Act.
16. It was held by the Supreme Court that as the assessee was not the owner of the property, there was no question of making the assessment under Section 9 of the Act of 1922 and treating the income as income from house property. It was held further that the definition of business in the Act was of wide amplitude and would include transactions in real property, developing and letting out the same.
17. The Supreme Court held that the sub-letting of the portions of the market was a part of the business and trading activity of the assessee and the income of the assessee arising therefrom was income from business and assessable under Section 10 of the Act of 1922.
18. Learned advocate for the assessee also cited State Bank of Travancore v. CIT [1986] 158 ITR 102, where the Supreme Court had considered and construed the concept of real income. The Supreme Court observed as follows (at p. 155):
" (1) It is the income which has really accrued or arisen to the assessee that is taxable. Whether the income has really accrued or arisen to the assessee must be judged in the light of the reality of the situation.
(2) The concept of real income would apply where there has been a surrender of income which in theory may have accrued but in the reality of the situation, no income had resulted because the income did not really accrue.........
(5) If there is any diversion of income at source under any statute or by overriding title, then there is no income to the assessee.
(6) The conduct of the parties in treating the income in a particular manner is material evidence of the fact whether income has accrued or not."
19. In view of the findings, learned advocate for the Revenue did not seriously contest the contentions of the assessee. He submitted that directions should be given for assessment of the income, which was being collected by M/s. Surrendra Overseas Ltd., in the hands of M/s. Surrendra Overseas Ltd.
20. In the facts and circumstances, in particular, that a part of the leasehold has been made over to M/s. Surrendra Overseas Ltd., a company which is an entity different from the assessee, that the latter was collecting rent from the tenants in the said portion of the leasehold property and that the rent from the said portion of the property had not been collected or realised by the assessee who had no benefit of the same, the conclusion is obvious. It has been held that the income of the assessee from the said leasehold property would be treated as income from business and not from house property. It is also not in dispute that the assessee is not the owner of the property but only a lessee thereof. In that view, it cannot be held that the income arising from the portion of the leasehold in the possession and occupation of M/s. Surrendra Overseas Ltd., which was being realised by M/s. Surrendra Overseas Ltd., was the real income of the assessee arising from its business. There is no scope of any notional income arising from a business.
21. We are not called upon to decide whether M/s. Surrendra Overseas Ltd, can or should be assessed in respect of the said income. In any event, M/s. Surrendra Overseas Ltd., is not before us and it will not be proper for us to adjudicate on a question concerning M/s. Surrendra Overseas Ltd.
22. For the above reasons, we answer the question referred in the negative and in favour of the assessee. We make it clear that this judgment will not prevent the Revenue from assessing M/s. Surrendra Overseas Ltd., in accordance with law.
23. In the facts and circumstances, there will be no order as to costs.
Monjula Bose, J.
24. I agree.