2002 (11) TMI 49 - HC - Income Tax

High Court clarifies Commissioner's revisional power under Income-tax Act for assessment year 1988-89

The High Court of MADRAS addressed discrepancies in questions of law referred by the Income-tax Appellate Tribunal for the assessment year 1988-89. The ... Order under section 263, made by the Commissioner of Income-tax – tribunal cancelled that order - Tribunal has not decided the question whether the income from the building should be assessed as income from house property or income from the business though it observed that the question should be examined from the businessman's point of view and it would depend upon the facts of each case whether the letting was done as businessman or the building was merely exploited as the owner of the house property. The Appellate Tribunal has not given finding on the merits of the case, but cancelled the order of the Commissioner on the ground that the Commissioner has no jurisdiction to revise the order passed under section 143(1)(a) of the Act. We are of the view that the order of the Income-tax Appellate Tribunal holding that the Commissioner has no jurisdiction to revise an order under section 143(1)(a) of the Act is not correct and is not legally sustainable. – In the result, the matter is remitted to the Income-tax Appellate Tribunal Issues:1. Interpretation of the questions of law referred by the Income-tax Appellate Tribunal.2. Validity of the orders passed by the Commissioner of Income-tax under section 263 of the Income-tax Act.3. Jurisdiction of the Commissioner to revise summary assessment orders under section 143(1)(a) of the Act.4. Determination of the nature of income from the building in question.Interpretation of the Questions of Law:The High Court of MADRAS addressed discrepancies in the questions of law referred by the Income-tax Appellate Tribunal in relation to the assessment year 1988-89. The court noted that the Tribunal failed to refer a question directed by the court, leading to the inclusion of two questions for consideration. The first question focused on the correctness of cancelling the Commissioner's order under section 263, while the second pertained to the legality of the Tribunal's cancellation of the same order. The assessment year in question involved two separate orders, leading to two distinct references before the court.Validity of Commissioner's Orders under Section 263:The Commissioner of Income-tax had revised the assessment order, directing the treatment of income from a building as 'Income from house property' instead of 'Business income.' Subsequently, a fresh assessment order was passed by the Income-tax Officer, which was again revised by the Commissioner under section 263. The High Court found that the Commissioner's directive to treat the cost of construction as undisclosed income lacked a legal basis. The court held that the Commissioner's order for a fresh inquiry on the building's construction was unjustified, as it introduced a new source without proper notice or material evidence. Consequently, the Income-tax Appellate Tribunal's decision to cancel the Commissioner's orders was upheld by the court.Jurisdiction to Revise Summary Assessment Orders:The Tribunal had cancelled the Commissioner's order under section 263, citing lack of jurisdiction to revise a summary assessment order under section 143(1)(a) of the Act. The High Court disagreed with this reasoning, emphasizing that section 263 empowers the Commissioner to revise any order deemed prejudicial to the Revenue's interest. The court clarified that the revisional power extends to summary assessment orders as well, rejecting the argument that such orders are exempt from revision. Notably, the court highlighted that the exercise of revisional power is crucial, especially in cases of summary assessments lacking detailed inquiry.Determination of Income Nature from the Building:The Tribunal did not conclusively determine whether the income from the building should be categorized as 'Income from house property' or 'Business income.' While acknowledging the need for a case-specific examination, the Tribunal's decision to cancel the Commissioner's order based on jurisdictional grounds was deemed incorrect by the High Court. The court directed the matter back to the Tribunal for consideration, allowing the Assessing Officer to determine the appropriate income classification based on subsequent assessment years. The court clarified that the Assessing Officer should consider all relevant factors before making a final determination.In conclusion, the High Court's judgment clarified the questions of law, upheld the cancellation of the Commissioner's orders by the Tribunal, affirmed the Commissioner's jurisdiction to revise summary assessment orders, and remitted the matter for a thorough assessment of the income nature from the building in question.