Allahabad High Court
Pr. Commissioner Of Income Tax ... vs M/S Motor Sales Limited 11, M.G.Marg ... on 2 March, 2017
Author: Sudhir Agarwal
Bench: Sudhir Agarwal
HIGH COURT OF JUDICATURE AT ALLAHABAD, LUCKNOW BENCH AFR Court No. - 3 Case :- INCOME TAX APPEAL No. - 34 of 2016 Appellant :- Pr. Commissioner Of Income Tax -Ii,Lucknow Respondent :- M/S Motor Sales Limited 11, M.G.Marg Lucknow Counsel for Appellant :- Manish Misra Counsel for Respondent :- Abhinav Mehrotra Hon'ble Sudhir Agarwal,J.
Hon'ble Ravindra Nath Mishra-II,J.
1. Heard learned counsel for appellant Shri Manish Mishra.
2. This is an appeal by Revenue under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as "Act 1961") arising from the judgment and order dated 06.10.2015 passed by Income Tax Appellate Tribunal, Lucknow Bench, Lucknow (hereinafter referred to as "Tribunal") in ITA No. 870/LKW/2014 relating to the Assessment Year (hereinafter referred to as "A.Y") 2011-12.
3. Though in the memo of appeal four substantial questions of law have been formulated by Revenue but learned counsel for parties agreed that only substantial question of law arising for consideration in this case is "whether rental income received by the Assesses, M/s Motor Sales Limited (hereinafter referred to as "Assesses"), from house property, should be treated as an income from business or income from house property".
4. Assesses is a company dealing in sale and purchase of Tata Passenger Car, and its spares. It is also carrying on cinema exhibition activity. Besides it has let out property at Hazaratganj, Lucknow to M/s Benetton India Pvt. Ltd for annual rent of Rs. 58,31,417. For the A.Y. 2011-12, Assesses filed E-return on 29.09.2011 declaring a total income of Rs. 87,71,930. Notice under Section 143(2) of Act, 1961 was issued on 07.09.2012 and subsequent notices under Section 143(2) and 143A(1) of Act, 1961, were also issued. Assesses claimed "rental income" as income under the Head "House property". Assessing Officer (hereinafter referred to as " A.O"), however, passed assessment order 31.01.2014 treating "rental income" as income from business or profession and not from house property.
5. In the appeal preferred by Assesses before Commissioner of Income Tax (Appeal) - II (hereinafter referred to as "CIT(A)- II"), this finding besides other were challenged. For the purpose of present appeal, we are confining issue only in so for as it relates to "rental income". Assesses contended that property in question was let out first time in 2001 and till A.Y 2007-08, every A.O always has accepted "rental income" as income from house property i.e. under the Head "Property Income". There is no change in the circumstances in A.Y 2011-12. Hence, there was no justification to treat the said income as "business income". CIT(A)-II upheld the contention of Assesses, on this item and directed to treat "rental income" of Rs. 1,15,60,578 under the Head "income from house property" instead of "income from business or profession" and allowed appeal vide appellate order dated 28.08.2014.
6. There against Revenue preferred appeal before Tribunal but confirming findings of CIT(A)-II, Tribunal has also rejected Revenue's appeal. Hence, this appeal by Revenue.
7. Learned counsel for appellant contended that A.O has recorded certain facts to justify aforesaid "rental income" so as to be treated as "business income" in the assessment order which read as under :-
i) Property was let out in 2001 on permanent basis.
ii) Assesses is collecting common area maintenance charges to the tune of Rs. 6,18,240/-.
iii) Assesses paid a brokerage of Rs. 22,62,771 /- to R. Mahendra for assisting assesses to let out one of its property at Hazratganj, Lucknow.
8. He further contended that A.O in the backdrop of a number of judicial precedents, dealing with the question as to when "rental income" shall be treated "income from house property" or "income from business or profession" and has considered the issue in the light of following parameters:-
(a)Whether the entire control and management of the property continues to vest in the owner, i.e., whether keys of the entrance are with the owner?
(b) Whether the premises, furniture, fixtures, stalls, fans, bathrooms, electric & water facility , roads, parking, pumps, generator, loading and unloading facility, packing facility and all other infrastructural facility are owned by the property owner?
(c)Whether entire cleaning and maintenance of common area is taken care of by the owner, including painting, waterproofing, repairs of leakage as well as other repairs, plaster, flooring, paved roads, decorating, planting & gardening and other civil, electrical and plumbing works?
(d) Whether property owner is responsible for security of common areas, cleaning and maintenance of water tanks, both underground and overhead, pest control of the premises including common areas?
(e)The property owner incurs various expenses including municipal bills, water charges, electricity bills, telephone bills, all revenue & service bills and depositing the same with concerned authority;
(f)Whether property owner is taking legal action to prevent any encroachment on the subject property or its immediate environs;
(g)The manager and other staff of property owner renders all necessary services to the users/occupiers and for co-ordinating with all Government agencies/Authorities for all matters related to the smooth functioning of the said property/business;
(h)Owners maintains regular staff consisting of a manger, a watchman, sweeper, and peon and pays to them for services rendered to the licensees, etc.
9. Per contra, learned counsel appearing for respondent contended that the real criteria for determining, whether "rental income" is to be treated as "income from house property" or "profit and gains or profession" is whether letting out of property is part of business activities of Assesses or not. He submitted that this issue has now been finally settled in Chennai Properties and Investment Ltd. V/s CIT [2015] 373 ITR 673 (SC) and M/s Rayala Corporation Pvt. Ltd. v/s Assistant Commissioner of Income Tax (AIR 2016 SC 3796) with Civil Appeal no. 6437 of 2016 decided on 11.08.2016.
10. In Chennai Properties and Investment Ltd. Vs. CIT (Supra), court has observed that:-
"where there is a letting out of premises and collection of rents, the assessment on property basis may be correct but not so where the letting or subletting is part of a trading operation. The dividing line is difficult to find; but in the case of a company with its professed objects and the manner of its activities and the nature of its dealings with its property, it is possible to say on which side the operations fall and to what head the income is to be assigned".
11. We are also appraised of an earlier Constitution Bench judgment in Sultan Brothers Pvt. Ltd. V/s CIT 1964 (51) ITR 352 (SC) wherein Court held that "whether a particular letting as business, has to be decided in the circumstances of each case. Each case has to be looked at from the business-man's point of view to find whether the letting was doing of his business. All the exploitation of his property by an owner.
12. The aforesaid observation of Constitution Bench is also in the same light as to what has been observed in Chennai Properties and Investment Ltd. Vs. Commissioner of Income Tax and M/S Rayala Corporation Pvt. Ltd. Vs. Assistant Commissioner of Income Tax (Supra).
13. Learned Counsel for Revenue ,however, submitted that in Para-12 of judgment in Universal Plast Ltd. Etc. Vs. Commissioner of Income Tax (1999) 237 ITR (SC), a three judge Bench of Supreme Court has summarized certain propositions to find out whether "rental income" can be treated to be "income from house property" or from "business or profession" and it reads as under:-
"In the light of the above discussion, the propositions may be summarized as follows:
a. No precise test can be laid down to ascertain whether income (referred to by whatever nomenclature, lease amount, rents, licence fee) received by an assesses from leasing or letting out of assets would fall under the head ''Profits and Gains of business or profession';
b. It is a mixed question of law and fact and has to be determined from the point of view of a businessman in that business on the facts and in the circumstances of each case including true interpretation of the agreement under which the assets are let out;
c. Where all the assets of the business are let out, the period for which the assets are let out is a relevant factor to find out whether the intention of the assesses is to go out of business altogether or to come back and restart the same.
d. If only or a few of the business assets are let out temporarily while the assesses is carrying out his other business activities then it is a case of exploiting the business assets otherwise than employing them for his own use for making profit for that business; but if the business never started or has started but ceased with no intention to be resumed, the assets also will cease to be business assets and the transaction will only be exploitation of property by an owner thereof, but not exploitation of business assets.
(emphasis added)
14. In our view, there is no deviation in what has been said in Universal Plast Ltd. Etc. Vs. Commissioner of Income Tax (1999) 237 ITR (SC) (Supra) and other authorities as discussed above.
15. Cardinal principle is whether letting out of business is part of trading activities of the Assesses or it is the exploitation of property by a prudent owner. In the present case, it has come on record that Assesses shifted its business from Hazratganj to Charbagh and property at Hazratganj, Lucknow, which is a prime commercial area, became vacant. As a prudent owner, this was let out and therefore, letting out of property is not a normal trading activity but exploitation of property by Assesses. Moreover, in the last several years up to 2007-08, the aforesaid "rental income" was always treated as "income from house property". No change in the circumstances has been found and no other reason has been stated by the A.O to take a different view in subsequent A.Y.
16. Learned Counsel for Revenue submitted that in income tax matter, every A.Y is an independent unit, therefore, what has been held earlier would not govern or follow in subsequent A.Y. The proposition in general may not need any dispute but where a fundamental aspect perpetuate in different A.Y has been found as a fact, one or the other way, and parties have allowed that position to be sustained by accepting and not challenging, such reasoning and position would not be allowed to be changed in subsequent year in absence of any material change justifing Revenue to take a different view in the matter.
17. Similar attitude on the part of Revenue has been casticated time and again and one of such judgment is Parishuram Pottery Works Co. Ltd. Vs. Income Tax Officer, Circle 1, Ward A, Rajkot, AIR 1977 SC 429 where the court has said as under:
"At the same time, we have to bear in mind that the policy of law is that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversite as it must in other spheres of human activity." Assessments are certainly quasi-judicial and these observations equally apply".
(emphasis added)
18. The aforesaid view was reiterated in Radhasoami Satsang, Saomi Vs Commissioner of Income Tax AIR 1992 SC 377 wherein Court held that strictly speaking res-judicate does not apply to income tax and each A.Y being unit, what is decided in one year may not apply in the following year. Having said so Court further said in respect to particular aspects based a on certain facts, if a view has been taken in a particular way and that has been accepted by Revenue, in absence of any change in subsequent year, no change in the view should be allowed to Revenue on the ground that change of officers has infused new ideas and views.
19. It has been repeatedly held that there should not be any attempt to continue a litigation on a particular aspect where a point, fundamental to the decision, based on a perpetual fact, take or assumed by one party and traversable by other party, has not been traversed.
20. In the entirety of facts and circumstances and looking into the facts as discussed above, answer of the in aforesaid substantial question of law is returned in favour of Assesses and against Revenue by confirming the view taken by CIT (A) - II as also Tribunal. We hold that "rental income" received by Assesses, in the case in hand, is to be treated as "income from house property" and not as "business income".
21. Appeal is, accordingly, dismissed.
Order Date :- 2.3.2017 Pachhere/-