Income Tax Appellate Tribunal - Kolkata
Yagyawati Jayswal Family Trust vs Income-Tax Officer on 21 July, 2003
Equivalent citations: [2004]89ITD199(CAL), (2004)83TTJ(CAL)892
ORDER
M.A. Bakshi, Vice President
1. The appeals of the assessee for the assessment years 1991-92 to 1997-98 are directed against the consolidated order dated 11-11-02 of the Commissioner of Income-tax (Appeals)-XVIII, Kolkata. The issue involved being common, a consolidated order is passed for the sake of convenience. Parties have been heard and record perused.
2. The relevant facts, briefly stated, are that one Shri Harishankar Prasad Jayaswal son of Bindeshwari Prasad Jayaswal created a trust styled "YAGYAWANT JAYASWAL FAMILY TRUST" by a deed of settlement dated 13-11-1964. Shri Harishankar Prasad Jayaswal and Shri Ramkishore Jayaswal son of late Sheojagat Prasad Jayaswal, and Shri Kirshna Dutta Pandeya were appointed as Trustees. A sum of Rs. 5,000 was transferred to the Trust for purpose of the Trust. The Trust was mainly created for applying the income for the maintenance, education, engagement, marriage and medical relief of the children of the settlors sister Smt. Yagyawati Jayaswal married to Shri Gulab Singh Jayaswal. The Trust deed was amended by an agreement dated 16-4-81. On 12-1-65 the Trustees of the Trust entered into a lease agreement with /s. Gulab Singh Jayaswal & Ors (HUF) in respect of property situated at P-117 Lake Terace, Kolkata for a period of 21 years commencing from 1st day of January 1965, at a monthly lease rent of Rs. 1,300/- in the terms and conditions contained in the lease deed. The said lease period was renewed for a further period of 15 years at an enhanced rent of rs. 2,500 per month by virtue of a letter dated 1st December, 1985 by the Trustees. The rent received by M/s. Gulab Singh Jayaswal & Ors. (HUF) was offered for taxation under the head 'income from house property'. The assessee-trust had sub-let the property to various tenants and the rent received therefrom was disclosed under the head 'income from other sources' after claiming deduction on account of various expenses. The returns filed by the assessee for several assessment years were accepted and the assessments of income were made under the head 'income from other sources' by the Department.
3. For the assessment years 1991-92 to 1997-98 the assessee continued to disclose the income derived from the property in question under the head 'income from other sources'. The Assessing Officer had issued intimations for the respective assessment years under Section 143(1)(a) of the Income-tax Act, 1961. Subsequently, it was discovered by the AO that Section 27(iii) of the Act had been amended by the Finance Act, 1987 with effect from 1-4-88 and the transactions covered under Section 269UA incorporated with effect from 1-10-86 by the Finance Act, 1986 had been made applicable and that by virtue of the said amended provisions the income of the assessee was to be assessed under the head 'income from house property'. The AO had accordingly issued notices under Section 148 for the respective assessment years on the ground that there had been escapement of income insofar as deductions allowed to the assessee were far in excess of educations permissible under Section 24 of the Act. Except for the assessment years 1996-97 and 1997-98 the date of issue of notice under Section 148 is not indicated in the assessment order. However, for the assessment years 1996-97 and 1997-98 the notice Under Section 148 was issued on 26th July 1999. The assessee had filed a letter dated 30th July, 1999 in protest with a request that the returns originally filed may be treated in response to notice under Section 148. It seems that for other assessment years also notice under section had been issued after 31st March 1999. The AO accordingly framed assessments under Section 147 by assessing the actual rent received by the assessee after allowing statutory deductions.
4. The assessee appealed to the CIT(A) against the action of the AO in reopening the assessments and also in not allowing deductions permissible under the law. However, the CIT(A) dismissed the appeals of the assessee upholding the action of the AO in reopening the assessments under the amended provisions of the Act and bringing to tax the rent received by the assessee in respect of the leasehold property, under the head 'income from house property'.
5. Being aggrieved, the assessee is in appeal before the Tribunal. The ld. counsel for the assessee has reiterated the contentions advanced before the revenue authorities. It is vehemently contended that proceedings initiated under Section 147 are without jurisdiction. He also contended that there was no change in facts right from the year 1965, and the revenue has consistently accepted the assessable source of income under the head 'income from other source'. Accordingly to ld. counsel the AO has changed his opinion about the head under which the income is assessable which is not permissible in the proceedings under Section 147. In this contention reliance has been placed on the decision of the Delhi High Court in the case of CIT v. Kalvinator of India Ltd. (256 ITR 1). Reliance has also been placed on the decision of Calcutta High Court in the case of Supreme Credit Corpn. Ltd. (230 ITR 700) in support of the contention that income from leasehold property is assessable under the head 'income from other sources' unless the lessee has constructed the property on the leasehold land the income from which can be subjected to tax under the head 'income from house property'. It was accordingly pleaded that the reassessments made by the AO may be quashed.
6. The ld. DR, on the other hand, contended that Section 147 has undergone a change with effect from 1-4-89 and by virtue of the amended law, the AO is empowered to reopen an assessment if there has been escapement of income for any reason. Accordingly to the ld. DR, in this case, the assessee had failed to disclose the income under the head 'house property' in view of the amended provisions and due to failure on the part of the assessee to disclose the true income, there has been escapement of income. Accordingly to the ld. DR the assessee had claimed excessive deductions which were not permissible under the head 'Income from house property'. It was accordingly pleaded that the appeals of the assessee may be dismissed.
7. I have given my careful consideration to the rival contentions. It is not disputed that the assessee-trust is a lessee in respect of the immovable house property and the original lease deed was for a period of 21 years. The lease deed was extended for a further period of 15 years at a monthly rent of Rs. 2,500. As per the settled law, the owner, in respect of house property, is liable to tax on the Annual Letting Value of the said property. In the case of sub-letting of the property, the various High Courts have expressed the view that income from sub-letting is assessable to tax under the head 'income from other sources'. It is in the light of the settled law that the income derived by the assessee from sub-letting of the immovable property was assessed under the head 'income from other sources' right from the assessment year 1965-66 onwards. There was, however, an amendment in Section 27(iii) of the Income-tax Act, 1961 by the Finance Act, 1937 with effect from 1-4-88 by virtue of which Clause (iiia) and Clause (iiib) have been inserted. The relevant Section 27(iiib) reads as under:
"27. For the purpose of Sections 22 to 26 -
(i) ***
(ii) ***
(iii) *** (iiia) *** (iiib) a person who acquires any rights (excluding any rights by way of a lease from month to month or for a period not exceeding one year) in or with respect to any building or part thereof, by virtue of any such transaction as is referred to in Clause (f) of Section 269UA, shall be deemed to be the owner of that building or part thereof."
*** Since there is a reference to Section 269UA(f), the same is quoted hereunder for the sake of ready reference:
"269UA. In this Chapter, unless the context otherwise requires,--
***
(f) "transfer",-
(i) in relation to any immovable property referred to in Sub-clause (i) of Clause (d), means transfer or such property by way of sale or exchange or lease for a term of not less than twelve years and includes allowing the possession of such property to be taken or retained in part performance of a contract of the nature referred to in Section 53A of the Transfer of Property Act, 1832 (4 of 1882).
Explanation.- For the purpose of this sub-clause, a lease which provides for the extension of the term thereof by a further term or terms shall be deemed to be a lease for a term of not less than twelve years, if the aggregate of the term for which such lease is to be granted and the further term or terms for which it can be so extended is not less than twelve years.
(ii) in relation to any immovable property of the nature referred to in Sub-clause (ii) of Clause (d), means the doing of anything (whether by way of admitting as a member of or by way of transfer of shares in a co-operative society or company or other association of persons or by way of any agreement or arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, such property."
A perusal of Sections 27(iii)(b) and 269UA(f) quoted above does not leave rom for any doubt that where the period of lease is more than 12 years the lessee is deemed to be the owner of the property for the purpose of assessment under the provisions of the Income-tax Act. It is by virtue of the amended provisions of the Act that the assessee was required to disclose the income derived from sub-letting of the house property under the head 'income from house property'. The assessee has ignored the amendment in the provisions of the Act and continued to file returns disclosing the income from sub-letting under the head 'income from other sources', as in the past. The returns of income had been processed under Section 143(1)(a). It is well-settled law that the jurisdiction of the AO Under Section 143(1)(a) is restricted to making prima facie adjustments that are apparent from record. The fact that the term of the lease with the owner of the building was for more than 12 years was not indicated in the returns of income. The lease deed was not also on record for the assessment years 1991-92 to 1997-98. the assessee not having disclosed the income from house property under the head "Income from house property" in view of the amended provisions of law, there was a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessments for the years 1991-92 to 1997-98.
8. In the light of the afore-mentioned facts, let me proceed to consider as to whether the AO was justified in initiating proceedings under Section 147 in the case of the assessee for the respective assessment years. Section 147 as applicable upto assessment year 1988-89 is reproduced hereunder:
"If-
(a) the Assessing Officer has reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under Section 139 for any assessment year to the Assessing Officer or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year, or
(b) notwithstanding that there has been no omission or failure as mentioned in Clause (a) on the part of the assessee, the Assessing Officer has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Sections 148 to 153, assess or reassess such income or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned (hereinafter in Sections 148 to 153) referred to as the relevant assessment year).
Explanation 1. For the purpose of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely-
(a) where income chargeable to tax has been under-assessed; or
(b) where such income has been assessed at too low a rate; or
(c) where such income has been made the subject of excessive relief under this Act or under the Indian Income-tax Act, 1922 (11 of 1922); or
(d) where excessive loss or depreciation allowed has been computed Explanation 2. - Production before the Assessing Officer of account books or other evidences from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of this section."
Section 147 as applicable from the assessment year 1989-90 is also reproduced hereunder:
"147. If the Assessing officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and Sections 148 to 153) referred to as the relevant assessment year):
Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year.
Explanation 1. - Production before the Assessing officer of account books or other evidence from which material evidence could with due diligence have been discovered by the assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing provisio.
Explanation 2. For the purpose of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely :-
(a) Where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeding the maximum amount which is not chargeable to income-tax;
(b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return;
(c) where an assessment has been made, but-
(i) income chargeable to tax has been under-assessed; or
(ii) such income has been assessed at too low a rate; or
(iii) such income has been made the subject of excessive relief under this Act; or
(iv) excessive loss or deprediation allowance or any other allowance under this Act has been computed."
It is evident from the language of Section 147, as applicable to assessment year 1989-90 onwards in comparison with Section 147 before its amendment that there is substantial change in the language of the provisions. Before amendment, the AO was empowered to reopen an assessment if in consequence of any information he had reason to believe that income of the assessee chargeable to tax had escaped assessment. The AO was also empowered to reopen an assessment if the income of the assessee had escaped assessment by reason of the assessee's failure to disclose, fully and truly all material facts necessary for the assessment in respect of relevant assessment year. After the amendment, the AO has been empowered to reopen an assessment for the purpose of assessing or reassessing the income which had escaped assessment, if the AO has reason to believe that any income chargeable to tax had escaped assessment. The condition for forming an opinion on the basis of information received by the AO after the assessment has been done away with being omission of words "in consequence of information". The AO under the amended provisions of Section 147 is empowered to initiate proceedings if he has reason to believe that income has escaped assessment. Such action can be taken within a period of four years from the end of the assessment year unless the income has escaped assessment for such assessment year by the reason of failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for the assessment for that assessment year. Thus, it is clear that although the AO can take such actin on being satisfied that income chargeable to tax has escaped assessment by any reason within a period of four years, he is precluded from taking such action after the expiry of four years, unless the escapement of income is as a result of failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment or to make a return under the aforesaid provisions of the Act. It is also observed from Explanation 1 to Section 147 that production before the AO of account books or other evidence from which material evidence could with diligence have been discovered by the AO will not necessarily amount to disclosure within the meaning of Section 147. It is also noticed from Section 147 that where the AO has granted excessive relief, income will be deemed to have escaped assessment. In this case the assessee was, as a result of amendment to Section 27(iiib) read with Section 269UA(f), required to disclose the income from sub-letting of the house property under the head 'income from house property' and the deductions were to be restricted in accordance with the relevant provisions of the Act relating to the said Head. The assessee failed to do so; and as such there was a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. This view is supported by the decision of the Delhi High Court in the case of Rakesh Agarwal v. ACIT (221 ITR 492). Their Lordships have considered various decisions of the Supreme Court, as indicated below, for arriving at such conclusion:
(1) Calcutta Discount Co. Ltd. (41 ITR 191) (2) Lakhmani Mewal Das (103 ITR 437) (3) Madnani Engg. Works Ltd. (117 ITR 1) (4) Mewalal Dwaraka Prasad (176 ITR 529) (5) Indian Oil Corporation (159 ITR 956) (6) Ando-Aden Salt Mfg. Trading Co. P. Ltd. (159 ITR 624) In this case, on the basis of the amendment in Section 27(iiib), the AO formed a reasonable belief that income of the assessee has escaped assessment. In the case of Ganga Saran & Sons P. Ltd. (130 ITR 1, SC), the Hon'ble Supreme Court held as under:
"The important words in Section 147(a) are 'has reason to believe' and these words are stronger than the words 'is satisfied'. The belief entertained by the ITO must not be arbitrary or irrational. It must be reasonable or in other words it must be based on reasons which are relevant and material. The court, of course, cannot investigate into the adequacy or sufficiency of the reasons which have weighed with the ITO in coming to the belief, but the court can certainly examine whether the reasons are relevant and have a bearing on the matters in regard to which he is required to entertain the belief before he can issue notice under Section 147(a). If there is no rational and intelligible nexus between the reasons and the belief, so that, on such reasons, no one properly instructed on fact and law could reasonably entertain the belief, the conclusion would be in-escapable that the ITO could not have reason to believe that any part of income of the assessee had escaped assessment and such escapement was by reason of the omission or failure of the part of the assessee to disclose fully and truly all material facts and the notice issued by him would be liable to be struck down as invalid."
9. The contention advanced on behalf of the assessee in support of the argument that the assessee had been filing its returns right from the asst. year 1965-66 onwards disclosing income under the head 'income from other sources' and that the revenue had also been assessing the said income under the same head, in the light of amendment in Sections 27(iiib) and 269UA(f), are of no consequence. The decisions in regard to pre-amended law are also of no help. The earlier assessments had been made by the revenue authorities on the basis of the law prevailing in the assessment years 1965-66 to 1988-89. In the subsequent years, there has not been any enquiry by the AO. The change in law has not been noticed by the AO as the material facts about the length of lease and applicability of the relevant provisions of the Act were not on record for such assessment years and no assessment was made under Section 143(3). For the assessment years 1991-92 to 1997-98 the returns filed by the assessee had been processed under Section 143(1)(a) and the AO had no jurisdiction to make enquiry. The contention on behalf of the assessee that the AO is not permitted to change his opinion on same set of facts is also of no consequence in this case insofar as the AO had not taken any view while processing the returns under Section 143(1)(a) for the respective assessment years. The AO on consideration of the record and the amended law has formed an opinion for the first time that the income derived by the assessee is assessable under the head 'income from house property'. Hence, there is no change of opinion in this case. It is in the light of the above-mentioned facts and law, particular the amended provisions of Section 147 and Section 27(iiib) I am of the opinion that the action under Section 147 was justified in this case for the respective assessment years under consideration.
10. However, it is also important to note that proceedings under Section 147 are made subject to the condition of issue of notice under Section 148. In this case, the AO has undoubtedly issued notices under Section 148 for all the respective assessment years. However, Section 149 provides limitation for issue of notice under Section 148. The limitation provided in the said section is four years from the end of the relevant assessment year unless the income chargeable to tax which has escaped amounts to or is likely to amount to rupees one lakh or more for that year. In the assessment years 1991-92 to 1997-98 the income originally assessed and re-assessed are indicated below:
Asst. Year Income originally Income re-assessed
assessed
Rs. Rs.
1991-92 36,780 50,700
1992-93 66,360 72,030
1993-94 90,190 1,02,250
1994-95 88,160 1,15,580
1995-96 97,050 1,33,000
1996-97 98,400 1,27,910
1997-98 87,320 1,46,100
It is evident from the above data that income of the assessment years the escaped income exceeded Rs. 1 lakh. As such, the limitation of four years is applicable in respect of all the assessment years for issue of notice under Section 148. The notice under Section 148 for all the assessment years have been issued after 31st March, 1999. Since the period of four years was available to the AO for issuance of notice under Section 148 for the respective assessment years, the notices issued for the assessment years 1991-92 to 1994-95 are beyond the period of four years limitation provided in Section 149. It is well-settled principle of law that issuance of a valid notice under Section 148, for reopening an assessment, is a condition precedent for validity of re-assessment. In the case of CIT v. Kurban Hussain Ibrahmiji Mithiborwala (82 ITR 821), it was held by the Hon'ble Supreme Court that:
"It is well-settled that the Income-tax Officer's jurisdiction to reopen an assessment under Section 34 of the Income-tax Act, 1922, depends upon the issuance of a valid notice. If the notice issued by him is invalid for any reason the entire proceedings taken by him would become void for want of jurisdiction."
For the assessment years 1991-92 to 1994-95 the notices under Section 148 having been issued after the expiry of four years, there is a material defect in the initiation of proceedings under Section 147 for the said assessment years. Thus, the proceedings under Section 147 for these assessment years are bad in law. The reassessments made for the assessment years 1991-92 to 1994-95 are accordingly quashed.
11. For the assessment years 1995-96 to 1997-98 the notices under Section 148 have been issued within the period of four years prescribed under Section 149. Thus, the proceedings for the assessment years 1995-96 to 1997-98 have been validly initiated.
12. As pointed out earlier, as per the amended provisions of Section 147, the AO was empowered to initiate proceedings within four years from the end of the assessment year if there had been escapement of income notwithstanding the fact that there was no non-disclosure of the material facts by the assessee. I have elsewhere in this order held that in this case there was even non-disclosure of material facts by the assessee in not disclosing the income from sub-letting under the head 'income from house property' and in claiming excess deduction not permissible under the statute as the income was computed and declared under the head 'income from other sources'.
13. I, therefore, uphold the action of the AO for reopening the assessments for the years 1995-96 to 1997-98. I would, however, in fairness to the assessee, point out that the assessee has been persistent with the claim that its income is assessable under the head 'income from other sources'. The assessee, therefore, did not get any change to claim deduction permissible under the statute against the income assessable under the head 'income from house property'. I, therefore, restore this issue to the file of the AO for the assessment years 1995-96 to 1997-98 for assessment of income under the head 'income from house property' after giving proper opportunity of being heard to the assessee for the purpose of claiming permissible deductions under the said head of income. I direct accordingly.
14. In the result, the appeals of the assessee for the assessment years 1991-92 to 1994-95 are allowed while the appeals for the assessment years 1995-96 to 1997-98 are partly allowed.