Delhi High Court
Additional Commissioner Of Income-Tax vs Sagoon Builders (P.) Ltd. on 18 January, 2001
Equivalent citations: [2001]250ITR868(DELHI), [2001]117TAXMAN203(DELHI)
Author: Arijit Pasayat
Bench: Arijit Pasayat, D.K. Jain
JUDGMENT Arijit Pasayat, C.J.
1. At the instance of the Revenue, the following questions have been referred for the opinion of this court under Section 256(2) of the Income-tax Act, 1961 (in short the "Act"), by the Income-tax Appellate Tribunal (in short, the "Tribunal") :
"Whether, on the facts and in the circumstances of the case, the Tribunal is correct in law in holding that the income of Rs. 2,000 per month earned by the assessed in consideration of the transfer of all its business commitments of Atma Ram Construction Pvt. Ltd. is to be taxed as a business income, though the business activity of the assessed ceased with the transfer and the consideration was in pursuance of only a letting agreement ?
Whether, on the facts and in the circumstances of the case, the Tribunal is correct in allowing a salary of Rs. 1,000 p.m. to Shri R. K. Sawhney employed by the assessed-company by ignoring the material fact that there was no business activity worth its name carried on by the assessed-company after its transfer of activities to Atma Ram Construction (P.) Ltd. and the payment was made for extra business consideration in view of the close relationship of Shri R. K. Sawhney to the managing director of the other company ?"
2. The questions are common to the two cases which relate to the assessment years 1971-72 and 1972-73.
3. The factual position in both the cases is as follows :
The assessed a private limited company was incorporated on September 16, 1961, and was engaged in the business of construction of multi-storeyed flats. In the first year ended on November 30, 1970, the assessed entered into an agreement with Atma Ram Construction (P) Ltd. for the construction of a multi-storeyed building on the plot acquired by the assessed. By this agreement, the assessed transferred its business commitment to Atma Ram Construction (P) Ltd. for which the assessed was paid a sum of Rs. 2,000 per month with effect from August 1, 1970, respectively. The assessed received Rs. 8,000 and Rs. 24,000 in the assessment years 1971-72 and 1972-73. The same was treated by the Income-tax Officer to be taxable under the Act under the head "Other sources." The assessed had not carried out any other business during the aforesaid periods. Rs. 5,400 and Rs. 14,400 were paid by the assessed for the two assessment years in question to Shri R. K. Sawhney, who was son-in-law of the managing director of Atma Ram Construction (P.) Ltd. The payments were disallowed on the ground that the expenditure was not incurred for the purpose of the asses-see's business. The assessed carried the matter in appeal before the Appellate Assistant Commissioner fin short, "the AAC") who upheld the conclusion of the Assessing Officer. In further appeal, the Tribunal held that a sum of Rs. 2,000 per month was to be treated as income from business and not under the head "Other sources". It was held that the amount could not he treated as remuneration to the as.sessee nor was in the nature of hire income. The Tribunal considered that the amount represented share of profits in the business of construction of MIG flats and as such could be taxed as business income. As regards payment to Shri R. K. Sawhney, the Tribunal considered that there were certain aspects of the assessed's business which were to be looked after, and payment of Rs. 1,000 per month would be reasonable.
4. Learned counsel for the Revenue submitted that the agreement has not been considered by the Tribunal in true essence. The Tribunal has given contradictory the findings regarding the business activities or otherwise of the assessed and therefore, the finding of the Tribunal cannot be maintained. There is no appearance on behalf of the respondent.
5. Though essentially the conclusions of the Tribunal are factual, we find that there are certain contradictory observations made by the Tribunal. At one place in its order, it observed that no service was rendered by the assessed to the other company and therefore the amount in question cannot be treated to be in the nature of remuneration. It was at another place observed that it was not to be treated as hire income as the buildings which were to be constructed, were to be given away to buyers. It was also held that the plot of land constituted stock-in-trade of the assessed's business and for the use of the stock-in-trade the other company had made agreement. At the same time it has been observed that the activities of construction continued to be watched by the assessed-company and the amount received by the assessed was in that view for sharing of profits. While considering the case of payment made to Shri R. K. Sawhney, it has been observed that there was no intricate or even ordinary business activity to be looked after by this director. In view of the contradictory conclusion, the findings are perverse. In that background, we feel the best course is to direct the Tribunal to rehear ihe appeal and while doing so the principles laid down by the apex court in Universal Plast Ltd. v. CIT [1999] 237 ITR 454 shall be kept in view.
6. References are accordingly disposed of.