TaxTMI 
TaxTMI 
2007 (8) TMI 382
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....at the learned CIT before making the impugned order has failed to appreciate before passing the impugned order that there was no error in the order of assessment and, further, the show-cause notice given by him was at variance with his order for which the action was initiated, and that before making such an order, no notice was given and as such the impugned order is unsustainable both on facts and in law. 4. That in the circumstances of the case, the learned CIT had erred in disregarding the replies and the details filed by the appellant in response to the aforesaid show-cause notice issued by the learned CIT, particularly in view of the fact that the assessment had been completed by the learned Jt. CIT after due enquiry and after examining all details and records produced by the appellant, and that the impugned notice was not based on any fresh material or evidence which had been found to be concealed by the appellant or misrepresented by the appellant during the assessment proceedings, and that for such reasons the assessment framed by the learned Jt. CIT could not be held to be erroneous in nature and prejudicial to the interest of Revenue, and also that for such reasons the....
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....income from property. 10. That the learned CIT has further, erred, while holding that the income derived from letting the property was not the income assessable under the head income from property in holding that there were certain purported violation of the terms of the lease with the lessor of the land and the lessee of the land and in any case and without prejudice the same alone could not be regarded as a sufficient basis for concluding that the income derived by the assessee from the superstructure constructed on the leased land ceases to be property, the income whereof was only assessable under the head income from property. 11. That in the alternative and without prejudice the adverse findings recorded by the learned CIT, while purportedly setting aside the order, are also erroneous and as such findings recorded by the learned CIT that the income was not liable to be assessed under the head income from property is liable to excluded from the order made under s. 263 of the Act. 12. That the appellant reserves its right to advance such other grounds before or at, the hearing. Which it may consider fit and appropriate, for which it craves leave to amend, alter or other....
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....ould only take place with the prior approval of the DDA and subject to the conditions specified in the lease deed. The agreement between the parties, further, stipulated that without the written consent of the DDA, the lessor i.e. Vaitalik would not be entitled to carry on or permit to be carried on the said land or building thereon any trade or business or use the same or permit the same to be used for any purposes other than the stipulated ones. 6. Subsequently, Vaitalik entered into a contract with the assessee company vide agreement dt. 27th July, 1994 authorising the latter to take the land on sub-lease for carrying out and completing the construction on the land as per the sanctioned plan and out of the constructed portion use area equivalent to 23,883 sq. ft. and pay Vaitalik a lease amount of Rs. 9.50 per sq. ft. per month in respect thereof. Further, by a subsequent agreement dt. 2nd March, 1996 between Vaitalik and the assessee company, it was stipulated over and above the terms already agreed upon that Vaitalik would permit the assessee company to use the premises for its own purpose or let the same out to any party and that Vaitalik would have no objection to the occ....
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....ual right, the assessee company let out the said constructed area and realized Rs. 6,03,08,180 as rent from 6 tenants during the year under consideration, apart from Rs. 50,27,576 as service charges. The rental income has been declared by the assessee company as income from house property on which deduction on account of repairs has been claimed and allowed in the assessment order dt.31st March, 2000passed by the Jt. CIT,SpecialRange,New Delhi. A deduction of Rs. 1,21,92,520 has also been claimed and allowed in the assessment on account of annual charges paid to Vaitalik. Further, the expenditure on providing service and maintenance facilities to tenants is, in terms of the contract between the assessee company and Vaitalik, the liability of Vaitalik and not of the assessee company. In the given background it was considered that real ownership of house property being the fundamental requirement for chargeability of rent realized as income from house property, the determination of the income as one from house property as declared by the assessee company and consequential allowance of deductions resulting is underassessment of tax is thus erroneous insofar as it is prejudicial to the....
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....rt gallery, etc. Any other use could only take place with the prior approval of the lessor. The lessor further bound the lessee to let out (at lessee's option) to any similar institution, and the use of the leased premises for any trade of business or even unstipulated purposes is prohibited. What has finally emerged is a construction that has been regulated by a contract dt.2nd March, 1996between Vaitalik and the assessee company. It has been let out to the following tenants: 1. M/s Northern Telecom Ltd. 2. M/s UOP Asia Ltd. 3. M/s TNT Express WorldwideIndia(P) Ltd. 4. M/s Whirlpool India Holdings Ltd. 5. M/s IKEA TradingHong KongLtd. 6. M/s L'AIR Liquede S.A. These tenants are admittedly using the rented premises for purposes other than the ones allowed by the DDA. That apart, in terms of the agreement dt.2nd March, 1996, Vaitalik has leased 23,883 sq. ft. of constructed area @ 9.50 per sq. ft. per month and the tenure of the agreement has been specified for a period of 5 years, being effective from1st Aug., 1995to31st July, 2000. The terms also provide for extension at the instance of Vaitalik. The agreement between the assessee company and Vaitalik is thus ....
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.... that the income derived from the let out portions was not to be treated as income chargeable to tax under the head "Income from house property" in the hands of the assessee company and accordingly no deduction would be allowed on account of repairs or the other deductions claimed. 12. After having treated the order passed by the AO as erroneous and prejudicial to the interests of Revenue, the CIT set aside the same with directions to the AO to reframe the same but after examining whether the rent realized from the six tenants constituted business income in the hands of the assessee company or "income from other sources". This according to the CIT required detailed examination having regard to the memorandum and articles of association of the assessee company. The CIT also observed in para 8 of his order that since the income was not to be computed under the head "Income from house property", the deductions claimed by the assessee pertaining to the said head would be inadmissible but the AO would allow the assessee an opportunity to adduce requisite claim in respect of any deductions it claimed and decide the admissibility or otherwise thereof in accordance with law. 13. Befo....
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....oses or let out any part or whole of the same, as an owner thereof to any person, body, corporate, association, etc. and recover rent or monies therefrom, for its sole and exclusive use. The lease of areas by VAK to ARCPL shall be for a period of 5 (five) years and 6 (six) months and renewable for one term at the option of ARCPL. Any further, renewals or extensions of the lease shall be subject to mutual consent of the parties hereto. In case VAK terminates or refuses extension of the lease of premises to ARCPL, it shall reimburse to ARCPL the cost incurred.' It is submitted that the learned CIT has ignored that there is absolutely no dispute between the assessee and M/s Vaitalik that the assessee is the owner of the superstructure so constructed and has been agreed to be legally owned by the assessee. Further, it will be seen from the preamble to the agreement, dt.27th July, 1994that it is admitted position that the aforesaid arrangement had been entered into by Vaitalik as it was stated as under: 'And whereas, VAK had obtained few extensions of sanctioned plans from the appropriate authority for completing the construction and it is necessary that in compliance of the co....
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.... out of total constructed area shall be owned and possessed by ARCPL and that ARCPL shall pay a lease amount at the rate of Rs. 9.50 per sq. ft. per month.' It is thus evident that the assessee is the owner of the area constructed on the land aggregating to 23,883 sq. ft. and as has been held by the Hon'ble Supreme Court in the case of CIT vs. Podar Cement (P) Ltd. & Ors. (1997) 141 CTR (SC) 67 : (1997) 226 ITR 625 (SC) and in the case of Mysore Minerals Ltd. vs. CIT (1999) 156 CTR (SC) 1 : (1999) 239 ITR 775 (SC), the assessee is to be regarded as an owner of the building. Smt. Kala Rani vs. CIT (1981) 23 CTR (P&H) 17 : (1981) 130 ITR 321-325 (P&H) It cannot be accepted that before a person can be assessed under s. 22, he must be the owner by virtue of a sale deed in his favour. As a matter of fact, what is being taxed under s. 22 is the income from house property or the annual value from the house property of which the assessee is the owner. The focus of the section is on the receipt of income from house property. If in a given case, it is found as a fact that an assessee is in occupation of a building as an owner for all interest and purposes, except the sale deed in hi....
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....e in the possession of ARCPL. Under the aforesaid agreement, it will be seen that the possession of the property (i.e. of land leased) had been handed over by M/s Vaitalik to ARCPL which was merely a vacant plot of land on which, a boundary wall had merely been raised by Vaitalik. 3.1 Clause 2 of the aforesaid agreement stated that ARCPL, would complete construction over the property with its own funds, and that in consideration M/s Vaitalik agreed that the area of 23,883 sq. ft. out of the total constructed area, shall be owned and possessed by M/s ARCPL and that M/s ARCPL shall pay a lease amount of Rs. 9.50 per sq. ft. per month. (This was the lease rent of the land however the calculation of lease rent was based on the area constructed which was to be owned by the lessee i.e. the assessee company). 3.2 It may be stated here that, from the aforesaid stipulation, it cannot be understood as if what was leased out to the assessee was, in fact a constructed area because no construction had been raised by the aforesaid date, (which was yet to be raised by the assessee from its own funds) and a sum of Rs. 9.50 sq. ft. per month was the amount of lease which was payable by the as....
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...., would have been claimed and would have been allowed. It may kindly be noticed that no action under s. 263 of the IT Act had been taken in the case of M/s Vaitalik and such an assessment made on M/s Vaitalik has attained finality. It was thus on the basis of the judgment of the Hon'ble Supreme Court in the case of Rampyari Devi Sarogi vs. CIT (1968) 67 ITR 84 (SC) contended that the instant assessment was not erroneous. It is submitted there has to be owner of a building. In such circumstances it was submitted that otherwise too the appellant could alone be regarded as the owner. 5. It is further, submitted that after the termination of the agreement on31st March, 1999, it is evident that the assessee did not remain the owner of the superstructure, nor it has so claimed. It is, therefore, contended that the assessee was the owner of the superstructure of 23,883 sq. ft. of land which had been taken on lease by M/s Vaitalik and on which, the assessee had constructed 35,773 sq. ft. of superstructure. It is not a case of the assessee that the assessee was the owner of 35,773 sq. ft. as under the aforesaid agreement as it was clearly understood between the parties that the assessee ....
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....in law, further, leased out to the assessee and as such, the assessee cannot be said to be the owner in law even of the superstructure so far as the Transfer of Property Act is concerned. It is respectfully submitted that though, such an assumption is not a correct preposition in law yet, even assuming it be so then too, having regard to the provisions of the IT Act, there can be no dispute that the instant income earned by the assessee by letting out the superstructure owned by it to different tenants who are the tenants of the assessee and to whom the assessee has provided the premises as its tenants is arising from the superstructure built by it on the land taken by it and as such, under the IT Act, as has now been held by the Hon'ble Supreme Court in the case of Poddar Cement's, the assessee has to be regarded as an owner of the said superstructure, the income of which is taxable under the head 'Income from property'." 14. The learned counsel in view of the aforesaid written synopsis/submissions placed reliance on two judgments of the Hon'ble Supreme Court, the first being Charandas Haridas & Anr. vs. CIT & Anr. (1960) 39 ITR 202 (SC) at p. 208 and the second being Malabar I....
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.... Supreme Court in the case of Poddar Cements was on a different footing and, therefore, not applicable to the facts of the assessee's case. (iii) Under s. 27(iiib), the assessee was not the owner of either the land or the superstructure and the income arising from the said superstructure could not be taxed under the head "Income from house property". (iv) The question of conflicting views being available did not arise since in the present case, the assessee was not the owner of the property and there could be no second view possible. Further, the view of the AO was unsustainable in law. (v) The agreement between the parties was not registered and s. 91 of the Evidence Act was applicable. (vi) As per the relevant provisions of s. 25 of the Contract Act as also those of the Registration Act, the agreement was required to be registered. (vii) The title of the property was always with Vaitalik and there was no intention to part with it and therefore the decisions in the case of Poddar Cements and Mysore Minerals did not apply. The only intention was to enjoy the property for a period of five years and odd and to return back the same to Vaitalik after the expiry of the sa....
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....sentative could raise this now before the Tribunal, the argument was that since the parties had acted upon the documents it was immaterial whether these were registered or not. The learned counsel also took exception to the filing of the calculation by the learned Departmental Representative highlighting the revenue effect and, further, submitted that the subsequent deed of cancellation was not relevant to the point at issue. As regards the payment of Rs. 9.50 per sq. ft. to Vaitalik and which according to the learned counsel was the lease amount for the property, the stand taken by the learned counsel was that the said amount became payable only on completion of the construction and not earlier and, further, the parties had to act as per the agreement and not otherwise. The further, submission was to the effect that out of the total area constructed i.e. 35,000 sq. ft. and odd, the area of 12,000 sq. ft. given to M/s Vaitalik was to be treated as "consideration". 20. Coming to the various decisions relied upon by the learned Departmental Representative, the submission of the learned counsel was that these were distinguishable on facts and not applicable. A specific reference wa....
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....only for the area of 23,883 sq. ft. in its possession and not the whole i.e. 35,773 sq. ft. (v) That the assessee has taken out an insurance policy covering the property in question along with movable assets such as furniture and fittings, sanitary, and electrical fittings. 24. In proceeding further from the aforesaid accepted facts, we would at the outset like to emphasise that an agreement/contract between parties must be read as a whole to determine the intentions of the parties and one must not venture to pick up separate clauses/lines/observations to form an opinion. These propositions apply in full force to the "contract for construction services" entered into between the parties and copy thereof being placed at p. 69 onwards of the paper book. The following facts emerge: (i) The assessee has taken the land on lease for carrying out the construction. (ii) The entire cost of construction for the total area of 35,773 sq. ft. has been met by the assessee and it is agreed between the parties that area to the extent of 23,833 sq. ft. will be "owned and possessed" by the assessee company. (iii) The assessee is authorized to use the premises for its own purposes or le....
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.... subjected to tax. The issue before the Court was whether the income from the property in question was assessable to tax in the hands of the assessee under s. 9 of the IT Act, 1922. Their Lordships decided the issue in favour of the assessee and against the Revenue by opining that the assessee could not be said to be the owner of the building and the income from the property was not assessable in its hands. The Court recognized the factual position inIndiawhere land may belong to one person and the building to the another unlike the position prevailing inEnglandand observed as follows: "It appears to me that, in the absence of anything else, the person at whose cost or on whose behalf a building is constructed on land belonging to another would initially be the owner thereof and that person need not necessarily be the builder who constructs that building, even though he may happen to be the licences of the land on which he builds." In the case before us the land admittedly belongs to Vaitalik and the entire superstructure has been constructed by the assessee at its own cost. CIT vs. Podar Cement (P) Ltd. & Ors.- The facts of the case were that the assessee owned four fl....
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....la Rani vs. CIT: The facts in this case were that the assessee by an agreement purchased a plot and he undertook the construction of the house and the same was completed. The sale deed between the assessee and the vendor was executed on 11th April, 1969 and it was the stand of the assessee that it had become the owner of the property only during the accounting year 1969-70 relevant to asst. yr. 1970-71 and, therefore, income from self-occupied property was not shown in the returns of income for asst. yrs. 1968-69 and 1969-70. On the matter travelling to the Tribunal, the view taken was that the income from self-occupied property had been rightly included as the assessee's income from house property for asst. yrs. 1968-69 and 1969-70. At the instance of the assessee the matter travelled to the Punjab & Haryana High Court and their Lordships took the view that the assessee kept the house after the execution of the agreement to sell dt.17th March, 1964in her favour and she was in a position to earn income from the property and, therefore, income from self-occupied property was includable in the assessee's income. Their Lordships relied on the judgment of the Hon'ble Supreme Cour....
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.... its own purpose or to let it out. As already stated earlier and reiterated the entire cost of construction of the area which is in possession of the assessee as also the area which is in the possession of Vaitalik has been met by the assessee and over and above it is paying a lease rental for the land on which the superstructure stands no doubt with reference to the area which has come to it as a result of the agreement. We may also mention at this stage that one of the arguments advanced on behalf of the Revenue before us was that the agreement between the parties is not a registered document and, therefore, no rights of ownership come to the assessee. The response of the learned counsel for the assessee was that since the document in question had been acted upon by both the parties and there was no dispute on that score the question of registration may not be relevant. We are in agreement with the stand taken on behalf of the assessee vis-a-vis relevant case law to which we have adverted immediately preceding the present observations. In other words the absence of a registered document on the facts and circumstances of the case does not work as a hurdle against the assessee. &nb....
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.... is conditioned by Vaitalik's volition. A reference to the clause itself shows that in the first instance it is for a period of five years and six months and the first renewal for one term is at the option of the assessee and, further, renewals or extensions are subject to mutual consent of both the parties. In other words, the volition is not only with Vaitalik but with the assessee as well and the further, condition is that in case Vaitalik terminates or refuses the extension then the reimbursement is to be made to the assessee of the cost incurred. Much has been made by the Department of the fact that the agreement between the parties is only one for the construction of the premises and the subsequent lease of a part of the constructed area to the assessee but as already stated earlier and now reiterated in case the agreement is read as a whole along with the intention of the both the parties then it leaves us in no doubt that the ultimate interpretation of the agreement would lead to no conclusion other than the one that the assessee was the owner/deemed owner of constructed area to the extent of 23,000 sq. ft. and odd. The legal position as highlighted by the various decisions....
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....g a view that the income is not one from "house property" whether it would be "business income" or "income from other sources". There cannot be uncertainty in an order passed under s. 263 and the CIT must be duly satisfied as to the action which he takes moreso when in the present case the AO has made necessary enquiries before coming to the conclusion that he did. 30. In the final analysis, we on the facts and circumstances of the case as highlighted before us as also with reference to the case law cited and the decisions which we have relied upon do opine that the action of the CIT under s. 263 was not justified and his order is therefore, quashed. No other arguments were advanced before us by either side vis-a-vis the various deductions allowed by the AO after coming to the conclusion that the income from letting out the premises was taxable under the head "House property". 31. In the result, the appeal is allowed. Y.K. KAPUR, J.M.: December, 2003 I have gone through the order of my learned Brother, considered each and every aspect to the order and given my anxious thought to the same. After going through the order sent to me and after going through the reasoning for....
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.... of the paper book. Under the said construction agreement the assessee was to complete construction over the property aggregating to 35,773 sq. ft, at its own cost. The said construction agreement to which I shall be referring to in the later part of the order in more detail records that the assessee has agreed to take lease on the land for carrying out and completion of construction over the property on the terms and conditions mentioned that the lease amount shall be calculated with reference to the area, which will be in possession of the assessee. The lease amount was also fixed under the said agreement @ Rs. 9.50 per sq. ft. and under the said agreement it is agreed to between the parties that the payment of rent shall begin from the date of obtaining the C and D Forms in respect of the construction, which are given by the municipality on completion of the construction. In the said agreement also, there is a mention of period of lease which is to be 5 years and six months renewable at one time at the option of the assessee and any subsequent renewal/extension has to be with the mutual consent of parties. The agreement also talks of the fact that in case Vaitalik terminates or ....
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....orised the assessee to use the premises for its own purposes or let out any portion or whole of the same to any person, body corporate, association, etc. and recover the rent or money therefrom in its sole and exclusive use. 5. After the construction was completed in accordance with the agreement of27th July, 1994and after the lease agreement dt. 2nd March, 1996 effective from 1st Aug., 1995, was entered into between the parties i.e., the assessee and Vaitalik, the assessee entered into further lease agreements with six parties with respect to certain areas in the building. Though the Vaitalik has leased the area to the assessee at Rs. 9.50 per sq. ft. but the assessee in turn, I must say had rented out the said area to various parties at a rent, which was to the tune of approximately 8-10 times more than the rent which the assessee was paying to Vaitalik. Through the rent received by the assessee, from various tenants, the assessee generated certain income, which income was offered for taxation. Undoubtedly, the income was to be assessed under one of the heads mentioned in s. 14 of IT Act. 6. In the return of income filed, the assessee disclosed income so generated by it thr....
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....ontended before the CIT(A) that the rent has been paid to the lessor in respect of the land, which was leased out and not with respect to the building which assessee constructed. The assessee contended that letting by the assessee is therefore letting of the building as an owner and not as a tenant. According to the assessee the right exercised by him while renting out the property is the right, which an owner of a building can exercise, in his own right, and therefore, since he has exercised the right as on owner and in his own right the income derived by him has to be taken as income from house property. Apart from the objections referred to above raised by the assessee before the CIT(A) it was also contended that the powers under s. 263 cannot be invoked to correct an assessment, which has been framed on the basis of an opinion of an AO when two opinions are possible. Amongst others, contention raised by assessee before CIT, it was also the contention of the assessee, that too in the alternative that when two opinions are possible one of which is in favour of the assessee, it is that opinion which should be adopted and when adopted cannot be subjected to proceedings under s. 263....
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.... passing the order under s. 263 which is the impugned order before us are reproduced here below: "I have carefully considered the submissions made and perused the material on record. The assessee company has raised a two fold plea to support its claim of being the owner of the premises let out to the 6 tenants. The first is that it is the owner of the constructed portion to the extent of the stipulated area of 23,883 sq. ft. as it was competent to use the same in the manner it considered appropriate and the same would be binding on Vaitalik. Its ownership and possession was therefore there to constitute the rent realized therefrom as income from house property. The second plea is that the assessee company is the deemed owner of the said premises in terms of s. 27(iiib) of the IT Act and on that score also the income has rightly been assessed as one from house property. Support in this regard has been drawn from the decision of the Hon'ble Supreme Court in the case of CIT vs. Podar Cement (P) Ltd. Etc Admittedly, the plot of land on which the construction stands is leased to Vaitalik by the DDA under perpetual lease. Vaitalik has entered into a contract for construction services ....
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..... 263 of the IT Act. 11. The action by the CIT in passing the order under s. 263 of the IT Act has been a cause of agitation to the assessee and this agitation by the assessee has led to the filing of the present appeal before us. 12. The challenge to the order of the CIT(A) has been made by the assessee on the grounds, which are in line with the arguments raised, and part of which has been referred to above. There are as many as 12 grounds taken by the assessee in the appeal a perusal of which would reveal that the sum and substance of all the grounds of challenge made by the assessee before us is to the invocation of the provisions of s. 263 in the facts and circumstances of the present case which according to the assessee in view of various pronouncements relied upon by it was not proper. According to the assessee, the CIT(A) has erred in directing the AO to treat the income realized by the assessee from letting of the premises as business income or income from other sources and not income from house property. 13. I would have reproduced the grounds of appeal in my present order, but as the same have been reproduced in his order by my learned Brother. I am not reproduci....
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....n in support of the submissions to the following lines on internal p. 2 of the agreement dt.27th July, 1994at p. 70 of the paper book which are in the following terms: "ARCPL agreed to take the land on lease for carrying out and completion of construction over the property on the terms and conditions appearing therein." 15. After having drawn our attention to the aforesaid the learned counsel for the assessee drew our attention to internal p. 3 of the said agreement and p. 71 of the paper book wherein under cl. 1, it has been so recorded: "that ARCPL shall take the land on lease for carrying out and completion of construction over the property aggregating 35,773 sq. ft. at its own cost and with funds to be arranged out of its own resources." 16. Advancing his arguments further, the learned counsel for the assessee also referred to the following lines at the bottom of cl. 1 at p. 71 of the paper book which are in the following terms: "lease amount shall be calculated with reference to the area which may be in possession of ARCPL. That the possession of the property has been handed over by VAK to ARCPL for carrying out the above referred construction." 17. Reference....
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....(8) CIT vs. National Storage (P) Ltd. (1967) 66 ITR 596 (SC); (9) Smt. Kala Rani vs. CIT; (10) CIT vs. R.B. Jodhamal Kuthiala (1968) 69 ITR 598 (Del)(FB); (11) R.B. Jodha Mal Kuthiala vs. CIT; (12) CIT vs. Batala TradingCo.(P) Ltd. (1989) 80 CTR (P&H) 80 : (1989) 179 ITR 603 (P&H); (13) Marshall Sons & Co. (I) Ltd. vs. ITO (1992) 42 ITD 581 (Cal); (14) ITO vs. Chokhawala Enterprises (1993) 45 ITD 256 (Ahd); (15) CIT vs. Estate of Omprakash Jhunjhunwala. 20. To the arguments raised by the learned counsel for the assessee, the learned Departmental Representative submitted that the assessee was never the owner of the structure and, therefore, not entitled to claim that the income realized by him from various tenants to whom premises were rented out is to be assessed as income from house property. The learned Departmental Representative contended that at no point of time was the assessee given the lease of the land as claimed by him. According to the learned Departmental Representative, the lease was only for the structure and with respect to the portion, which was under construction agreement and the premises was to be enjoyed by the assessee in accordance with....
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.... future date and to compensate the assessee of the investment made right to sublet the property was given. According to the learned Departmental Representative the lease was granted to assessee to compensate for its investment made is further evident from the fact that against a lease of Rs. 9.50 agreed to be paid by lessee to Vaitalik, the lessee had subletted the property at a rate ranging from 8-10 times more than what was being paid by lessee to Vaitalik. The learned Departmental Representative contended that a perusal of cl. 2 of the agreement of 27th July, 1994 makes the intention of the parties amply clear that at no point of time Vaitalik wanted to confer ownership rights in the structure/building as suggested by the assessee and that is why the language used in the agreement is that the payment of rent shall begin from the date of obtaining Forms C and D in respect of construction to be completed. The learned Departmental Representative contended that when this clause is read in conjunction with the preamble of the construction agreement then there would be no grey area which would even remotely suggest that it was lease of land and not of the structure. According to the l....
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....ents further, the learned Departmental Representative contended that if the total area is taken into account then the total area would turn out to be 21,780. This is arrived at by multiplying total area of the plot, which is 2,420 sq. yds. by 9 whereas what have been leased out are 23,883 sq. ft. out of 35,773 sq. ft. which is the total of the area of the basement ground floor, first floor, second floor and third floor. Not only this, the learned Departmental Representative contended that what is being leased out to the assessee is an area of 23,883 sq. ft. out of the total constructed area which has been mentioned in p. 71 in cl. 1. Advancing his arguments further learned Departmental Representative said there are two words used in the construction agreement on p. 4; one is the word 'premises' and the other is the word 'area'. The learned Departmental Representative contended the word 'premises' is always used in the context of a structure and not in the context of a vacant land. To demonstrate it further, that income was derived by the assessee was from subletting, by making referred again to the construction agreement the learned Departmental Representative contended that under ....
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....or this reason, there is an inherent fallacy in the argument of the counsel for the assessee. The learned Authorised Representative also during the course of hearing referred to the provisions of s. 91 of the Evidence Act and submitted that in view of the fact that the lease deed is registered in accordance with the law, no evidence or arguments can be raised to modify or vary the terms of lease. According to the learned Departmental Representative, s. 91 of the Evidence Act is a complete answer to all the submissions made by the learned Authorised Representative who through his arguments wants to vary the terms of lease deed which argument would be hit by s. 91 of the Evidence Act. Reliance was also placed by learned Departmental Representative to the provisions of s. 92 of the Evidence Act. Sec. 54 of the Transfer of Property Act was also referred to by learned Departmental Representative to show how does a sale takes place under the Transfer of Property Act. Advancing his arguments further, the learned Departmental Representative contended that there is a method for transfer of property. Making concession that there can be one person who is the owner of the land and the other is....
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....dings is: (a) whether any lease of land was given to the assessee agreement as claimed by him, under the agreement of27th July, 1994. (b) if the answer to the aforesaid question is in the affirmative then the next question that would arise for the consideration would be as to whether the assessee was the owner of the structure so built by him. (c) and if answer to question (b) above is in the affirmative, then whether the income so realized by the assessee is to be taxed as the income from house property. 25. To answer these questions one has no option, but to not only read and interpret the agreement of 27th July, 1994 as well as the lease agreement dt.2nd March, 1996effective from1st Aug., 1995placed on the record and which is a registered document, registered as per the requirements of law. For interpreting a document. I feel one must look at the document as a whole starting from the preamble of the document because it is the preamble of the document, which at the threshold gives the first hand information of the true purposes for which a document is executed. When the agreement dt. 27th July, 1994 which called the contract for construction services is examined in th....
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....s, certifying the completion of construction that too by municipality. 27. The learned counsel for the assessee wanted us to hold that the land means land in the basement, ground floor, first floor, second floor and third floor. 28. Here also I am unable to agree with the contention of the assessee because of the reason that land and structure are two things and both are capable of separation whereas it is difficult to separate the basement, ground Door, first floor, second floor, third floor structure from, each other from the land in between and in fact it would be too preposterous to held that there is any land between basement and ground, ground and first floor, first and second and second and third floor. 29. The net result of the discussion above is that, I have no hesitation in observing that the learned counsel for the assessee was wrongly interpreted the construction agreement as an agreement granting lease of land by picking some lines from here and there in the agreement to its advantage contrary to the settled legal position that an agreement or a document has to be read as a whole and then only the intentions shall become clear with regard to what the parties ....
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....ns of the apex Court I hold that the definition of the land is comprehensive enough to include structure and assuming it was a lease of land the said lease was inclusive of the structure also that was leased out. 33. When I say so, I say so also on the strength that after the construction agreement there is a lease agreement which is on record and placed at pp. 118-128 of the paper book. If it was only the lease of the land, then what was the necessity of the parties to the construction agreement to say that the payment of rent shall begin on the completion of construction and that too on obtaining of the C and D Forms or for the party to say that the security deposit will be refunded to while handing over of the built-up area or what was the necessity of using the expression 'premises' or area in the said construction agreement. When I examine this construction agreement very minutely and examine it from all possible angles, feel all that can be said about this agreement is that apart from the fact that the agreement was a construction agreement it was also an agreement by the Vaitalik with the assessee undertaking to lease out certain portion in the constructed area. This clau....
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....out and say that the right in the building as an owner was granted. I find it very difficult to agree to this kind of an argument. For the reasons aforesaid. I have no hesitation in holding that it was the lease of the building that was granted to the assessee on the terms and conditions and the assessee was to be a tenant in the area which was leased out to him and it is beyond comprehension that the assessee was only the lessee of the land. 35. I have another reason to reject the argument of the counsel for the assessee and the reason is that when I look at the lease deed on p. 4 which is not only signed by both the parties, but also registered under the Registration Act as required by law, it does not talk of land. That apart, in cl. 1 of the agreement at p. 119 of the paper book, it talks of areas on all the floors. Not only this, it talks of period, which commences from1st Aug., 1995to31st July, 2000. That apart, the expression used in the lease deed for the area rented out is "demised premises" which obviously is indicative of area leased out under the agreement and what is rented under the agreement is reflected in the agreement itself and clarified in cl. 1, which means ....
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....ries Ltd. 23,883 sq. ft. of area at Rs. 9.50 per sq. ft. (rupees nine and paise fifty only) per month. The said lease was to begin from the date of completion of the building. The building has been completed on31st July, 1995." 39. A perusal of the aforesaid preamble of the lease agreement leaves no room to doubt that at no point of time Vaitalik ever intended to give lease of land as claimed by assessee or that the parties ever agreed that assessee shall be the owner of the building as claimed by him. 40. I have another reason to reject the argument of the assessee that he was the owner of the building in the light of the agreement of lease placed on the record. 41. In accordance with the s. 91 of the Indian Evidence Act which mandates that when the terms of a contract, or of a grant or of any other disposition of property have been reduced to the form of a document, no evidence shall be given in proof of the terms of such contract, grant or dispositions of the property except the document itself. Under s. 92 it is mandated that when the law requires the document to be reduced to the form of a document and they have been proved according to the requirement of s. 91 of the....
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.... this Act has travelled through. In the Transfer of Property Act, we have s. 108 which talks of the right and liabilities of the lessor and lessee and for our purposes sub-cl. (h) to s. 108 is relevant. "Sec. 108: Rights and liabilities of lessor and lessee-In the absence of a contract or local usage to the contrary, the lessor and the lessee of immovable property, as against one another, respectively, possess the rights and are subject to the liabilities mentioned in the rules next following, or such of them as are applicable to the property leased :...... (h) The lessee may even after the determination of the lease remove, at any time whilst he is in possession of the property leased but not afterwards all things which he has attached to the earth; provided he leaves the property in the state in which he received it." 45. A perusal of s. 108(h) of the Transfer of Property Act makes it abundantly clear the concept of land belonging to someone and the structure belonging to someone else is an acceptable position under the Indian legal jurisprudence. There is absolutely no quarrel on this proposition, nor can there be any. This section was incorporated to give lease of land....
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.... ownership. I reproduce below the cls. 8 to 21 of the lease deed which shall prove beyond doubt that no ownership right was given to assessee: "8 In consideration of the rent herein agreed and all payments as payable to the 'Lessor' being paid by the 'Lessee' regularly and other terms and conditions and covenants as cast on the 'Lessee' being observed the lessee shall peacefully enjoy the demised premises during the said tenure without any interruption by the 'Lessor'. 9. The 'Lessee' will not make any additions or alternations without the written consent of the 'Lessor' provided, however, that the 'Lessor' may erect temporary partitions for making cabins or erect false coiling etc, at their own cost. 'Lessor' would restore the premises back to its original conditions at the time of handing over the possession back of the 'Lessor', fair wear and tear, however, excepted. 10. The 'Lessee' and the 'Lessor' agree that: (a) The 'Lessee' will not make any change in the look or design and position of the door and glazings facing the front or the back side or any side of the elevation of the space agreed to be leased without consulting the 'Lessor'. (b) Before fixing or exhi....
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....s materials including material like petroleum, kerosene, gas spirits, etc. in the space held by the "Lessee". (c) The "Lessee" shall not use the demised premises for any such purposes or permit the same to be used in manner by which the rate of insurance of the building is raised by the insurance companies. In the event of any such event of any such eventuality, the "lessee" would be liable to reimburse such additional premiums or any losses which the "Lessor" may have to bear on account of that reason and would also immediately stop that misuse. 15. The lease is being executed on regular stamp paper. The cost of stamp papers will be home by the "lessee". 16. The "Lessee" shall have no right of use of any common areas other than what are required to be used for ingress or egress from or to the spaces leased to the "Lessee" and which have been specifically allotted for "Lessee" use. However, the "Lessor" will allot parking spaces inside the plot to the "Lessee". 17. The terrace at the top of the block/building shall always remain the property of the "Lessor" who can use the same in any manner as desired including the rights of the "Lessor" to use the external face of the....
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....ation of cls. 8 to 21 of the lease deed belies the claim of the assessee that he is the owner in his own right. If the assessee was the owner of the structure then one fails to understand as to why he agreed to cl. 9 of the lease deed that he shall not make additions or alternations without the consent of lessor. What kind of an ownership can this be when one has to be subjected to the wish of the another for using a property or making any additions or for making change in the look or design. Not only could the assessee touch the building is further apparent from the reading of cl. 10(a) which restricts the assessee not to touch the design or look or position of doors or glazing. Clause 10(b) further, squeezes the rights of the assessee in building with respect to which he claims to be the owner and restricts him from putting name plate or signboards without consultations of the lessor meaning thereby that if the lessor objects to the same, the assessee may even find putting of a name plate difficult. There is a restriction on fixation of grills on the windows as per cl. 10(c). As per cl. 11 the assessee who claims to be the owner cannot use the premises for manufacturing meaning t....
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....hand all major repairs as per cl. 19 immediately on intimation are to be attended by the owner. Why? The obvious answer is that the assessee was never the owner of the building and as the Vaitalik was the owner, the entire burden of repairs was with the owner. Clause 21 talks of the correctness of area, which is being rented out. 48. The entire case of the assessee in view of the aforesaid clauses of the lease deed which have been discussed above leave no room to doubt that at no point of time the ownership of the structure as claimed by the assessee was intended to be vested in it. The status of the assessee in the building was that of a tenant and not of owner as is evident from the various clauses of the lease deed and in view of the fact that the assessee has itself relied upon the lease deed put an end to all the arguments of the assessee that he was the owner of building and the assessee was entitled to claim ownership in its own right and I am afraid that I myself find unable to agree with the submissions of the assessee that he is an owner of building and that too in its own right. 49. The assessee during the course of hearing in support of his proposition has relied ....
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....see in R.B. Jodha Mal Kuthiala vs. CIT but rather my assessee's position is still bad because in R.B. Jodha Mal Kuthiala vs. CIT the assessee was still the registered owner but his rights were suppressed by virtue of an ordinance whereas in my case, he had never acquired any right in the property. 51. Certain judgments apart from the one referred to above were relied upon by the assessee to demonstrate that there is an accepted concept inIndiaabout the land belonging to someone and the structure belonging to other. When the wording of s. 108(h) of the Transfer of Property Act are clear and talks of lease of land on which assessee can build up structure, there cannot be any dispute on this proposition. The help of judgments relied upon by the assessee can be taken only to clear doubts on the concepts of dual ownership, but when the mandate of law/statute is clear, and I agree with the proposition that land and structure can belong to two individuals. I therefore do not propose to refer to the judgments relied upon by the assessee on this issue, at this stage but must say that I have gone through the judgments relied upon and some of them have been discussed in the later part of m....
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....is that mistake which has made the order erroneous and prejudicial to the interest of Revenue which is capable of being subjected to the provision of s. 263 of the IT Act. According to the learned counsel the order passed by the CIT does not satisfy the test laid down in s. 263. 55. In support of the contentions raised, the learned counsel for the assessee relied upon certain legal precedents: (1) Malabar Industrial Co. Ltd. vs. CIT; (2) CIT vs. Jagadhri Electric Supply & Industrial Co. (1981) 25 CTR (P&H) 94 : (1983) 140 ITR 490 (P&H); (3) CIT vs. L.F. D'Silva (1992) 101 CTR (Kar) 152 : (1991) 192 ITR 547 (Kar); (4) CIT vs. Trustees, Anupam Charitable Trust (1987) 65 CTR (Raj) 30 : (1987) 167 ITR 129 (Raj); (5) CIT vs. R.K. Metal Works (1978) 112 ITR 445 (P&H); (6) CIT vs. Kashi Nath & Co. (1987) 64 CTR (All) 177 : (1988) 170 ITR 28 (All); (7) J.P. Srivastava & Sons (Kanpur) Ltd. vs. CIT (1978) 111 ITR 326 (All); (8) CIT vs. Late Sunder Lal Through Bankey Behari Lal (1974) 96 ITR 310 (All); (9) Sanco Trans Ltd. vs. CIT (1997) 58 TTJ (Mad) 619 : (1997) 61 ITD 317 (Mad); (10) Jagjit Industries Ltd. vs. Asstt. CIT (1997) 60 ITD 295 (Del); (11) Andh....
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....his arguments further learned Departmental Representative contended that as the income generated by the assessee was from renting is concerned, it could not by any stretch of imagination be said to be income from house property and as it was not income from house property he contended that it was either business income or income from other sources. The learned Departmental Representative contended that as there was one and only one view possible that the income is not income from house property, what the CIT has done by the impugned order is that he has directed the AO to find out whether it is income from business or income from other sources and how can such an order as passed by the CIT be said to be bad. According to the learned Departmental Representative, that the contention of the learned Authorised Representative that there were two views possible are devoid of any merit and deserves outright rejection. 58. In this back the learned Departmental Representative contended that the action of the AO in treating the income of the assessee from renting out the property as income from house property is erroneous and as the order is erroneous, according to the learned Departmenta....
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....sp; ----------- ----------- Total business income of the 5,06,26,562 assessee from Katwaria Sarai property Total income which was not taxed by 1,67,50,668 the AO in his order under s.143(3)" 60. This income, according to learned Departmental Representative as is reflected in chart reproduced above, has escaped taxation and has thus cause prejudice. The order of the AO, it was submitted is prejudicial to the interest of Revenue and, therefore, 2nd limb of s. 263 in this case the order should be prejudicial to the interest of Revenue also stands satisfied. 61. We have heard the parties on this issue and taken ourselves through the record and legal precedents cited and referred to above which I say, with respect, I have gone through. There is no difference of opinion and the law on this issue is well settled that if two views are poss....
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....artmental Representative in the case of S.C. Mercantile Corporation (P) Ltd. vs. CIT, the apex Court had an occasion to decide an identical question and hold that the income realized by the assessee in that case [1972 CTR (SC) 8 : (1972) 83 ITR 701 (SC)] is to be held as the business income and not as the income from house property as claimed by the assessee in that case. The background in which the apex Court laid down the law on the issue was that the assessee after its incorporation in January, 1955 with one of the objectives specified in its memorandum of association was to take on lease or otherwise acquire and to hold, improve, lease or otherwise dispose of land, houses or other real and personal property and to deal with them commercially. Immediately after incorporation of the company, the assessee company took a lease of market for initial term of 50 years undertaking to spend Rs. 5 lakhs for the purposes of remodelling and repairing the structure on the site and it was also given the right to sublet different portions. During the relevant assessment years the appellant's activity consisted of developing property and letting out portion thereof as shop, stalls, ground spac....
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....ing profits or for co-operation or for mutual assistance with any such person, firm or company and to give or accept by way of consideration for any of the acts or things aforesaid of property acquired by any shares, debentures, debenture stock or securities, that may be agreed upon and to hold, and to retain or sell, mortgage and deal with any shares, debenture stock or securities so received. 2. To acquire, build, construct, alter, maintain, enlarge, pull down, remove or replace and to work, manage and control any buildings, offices, factories, mills, shops, machinery, engine, roadways, tramways, railways, branches or sidings, bridges, reservoirs, water courses, wharves, electric works and other works and conveniences which may seem necessary to advance the interests of the company and to join with any other person or company in doing any of these things." 65A. It was pursuant to this memorandum and articles that the assessee had the right to acquire the property to develop in the manner indicated and when we compare the business of the assessee company, which is reflected through these memorandum and articles and compared the facts of the present case with that of the fact....
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....ing of this provision makes it clear that the prerequisite to the exercise of jurisdiction by the CIT suo motu under it, is that the order of the ITO is erroneous insofar as it is prejudicial to the interests of the Revenue. The CIT has to be satisfied of twin conditions, namely, (i) the order of the AO sought to be revised is erroneous and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent if the order of the ITO is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue recourse cannot be had to s. 263(1) of the Act. There cannot be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the AO, it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. The phrase "prejudicial to the interests of the Revenue" is not....
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....upam Charitable Trust, but this does not advance the case of the assessee. 75. Another judgment to which the assessee placed reliance was the one reported in CIT vs. R.K. Metal Works. In this case the Court was examining the order of the Tribunal which has held the order passed by CIT under s. 263 to be bad as the CIT had not given any reason to justify that the order of the AO to be prejudicial to the interest of Revenue and held that no fault with the order of the Tribunal can be found while in the present case find that the order of CIT under s. 263 does not suffer from any such infirmity and, therefore, this judgment also does not help the assessee. 76. To the other judgment on which reliance as placed by the assessee was the one reported in CIT vs. Kashi Nath & Co. wherein the Court has held that the power of CIT under s. 263 is quasi-juridical in character and he must give reasons in support of his conclusion that the assessment order is erroneous insofar as it is prejudicial to the interest of Revenue and if he does not give reasons, the order is prejudicial. As held by me that the order of the CIT fulfilled the twin conditions required for invoking s. 263 and reasoned....
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....hat are called attributes of ownership of the lessee are only the rights of enjoyment which are common to all lessees under well drawn leases, but the ownership in the land and in the building is in the lessor. It is true that the lessee erected the building at his own cost but he did so for the lessor and on the lessor's land on agreed terms. The fact that the lessee incurred expenses in putting up the building is precisely the consideration for the lessor granting him a lease for 999 years not only of the building but of the land as well at what may, for all we know, be a cheap rent which the lessor may not have otherwise agreed to do. By the agreement the building became the property of the lessor and the lessor demised the land and the building which in the circumstances, in law and in fact belonged to the lessor. The law of fixtures under s. 108 of the Transfer of Property Act may be different from the English law, but s. 108 is subject to any agreement that the parties may choose to make. Here, by the agreement the building became part of the land and the property of the lessor and the lessee took a lease on that footing. The lessee or a person claming title through him canno....
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..... vs. CIT, in which case the apex Court under the identical circumstances held the income derived from the property as income from house property. This judgment of the apex Court was not considered by the Calcutta High Court nor referred to by them. Deriving strength from the judgment of apex Court, I say that assessee cannot be held to be the owner of the structure. 86. The assessee has also relied upon the judgment of the Rajasthan High Court in case reported in Saiffuddin vs. CIT which I must say was on different facts. 87. Next judgment on the issue relied upon by the assessee is the one in the case of Podar Cement and of R.B. Jodha Mal Kuthiala which I have already discussed in the order and have held the same to be not helping the assessee because the assessee by no means in view of the clauses of lease deed be said to be the owner in his own right. 88. The other judgments referred to by the assessee on this issue have been gone through by me also and in view of my discussion to majority of judgments relied upon, I do not propose to deal with them any more because all these judgments are prior to that of apex Court in CIT vs. Podar Cement (P) Ltd. Etc. which I have a....
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.... R.V. EASWAR, VICE PRESIDENT (AS THIRD MEMBER): 16th May, 2007 The appeal has been referred to me under s. 255(4) of the IT Act on a difference of opinion between the Hon'ble Members who heard the appeal. The following points of reference have been referred to me for decision: "(1) Whether on facts and in law could the assessee be treated as the owner of the "Katwaria Sarai" property as is the view expressed by the Vice President or was it the lessee of the property as held by the JM. (2) Whether on the construction of the agreement between the assessee and Vaitalik could it be held that it was the case of lease of land to the assessee and a part of the structure on the said land was owned by the assessee (entire cost expended by the assessee) as is the view of the Vice President or there was no lease of land and the structure was not owned by the assessee as is the view of the JM. (3) Whether in the light of construction agreement dt.27th July, 1994and lease deed dt.1st Aug., 1995could the assessee be said to be owner of property within the meaning of s. 22 of the IT Act. (4) Whether on facts and in law was the income from the property in question taxable under t....
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....1st July, 2000. On31st March, 1999, a cancellation deed was entered into between Vaitalik and the assessee to the effect that the lease agreement dt.2nd March, 1996would stand terminated w.e.f.1st April, 1999and both Vaitalik and the assessee will discharge their respective obligations within a period of six months thereof. 4. During the year ended31st March, 1997, which is the year under appeal, the assessee received rent of Rs. 5,75,85,518 and service charges of Rs. 50,27,576 and declared the same under the head "Income from house property". The assessment was completed under s. 143(3) of the IT Act by order dt.31st March, 2000in which the income was assessed under the head "Income from house property" and deduction of 1/5th thereof was allowed for repairs and collection and for the assessee's share of the rent paid to the lessor as annual charge. The deductions aggregated to Rs. 2,37,09,624 and deducting the same from the rental income of Rs. 5,75,85,518, the balance of Rs. 3,38,75,895 was assessed under the head "Income from house property". 5. The CIT took proceedings under s. 263 of the IT Act on the ground that the assessment so framed was erroneous insofar as it was p....
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....ner and, therefore, he held that the income was not assessable under the head "Income from house property". That is how the matter is before me. 7. I have heard the learned counsel for the assessee and Mr. P.V. Rao, the learned CIT-Departmental Representative at length and I have also carefully perused the several detailed paper books and the synopses filed on behalf of the assessee on various dates of hearing. In my considered opinion, the income received by the assessee cannot be assessed under s. 22 of the Act under the head "Income from house property" as rightly held by the CIT in his order passed under s. 263 of the Act. My reasons are given below. 8. Under s. 22 of the Act, the income derived from the property can be assessed under the head "Income from house property" only if the assessee is the owner of the property. In the present case, in order to determine the question of ownership of the superstructure measuring 23,883 sq. ft., one has to consider the entire documentation as a whole. All the documents entered into by the parties at different, times have to be read together to gather their intention. Firstly, I find that this is a case where DDA had leased out the....
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....ssee shall give interest-free security deposit of Rs. 5 lakhs to Vaitalik. Clause (6) provided that the house tax and other taxes shall be borne by the parties in proportion to their respective shares levied on their respective income from time to time. Clause (7) stated that Vaitalik has given an assurance to the assessee that it has paid all monies due and payable with respect to the property taken on lease to DDA and nothing is due to any other body or authority in relation to the property. Clause (8) provided that the liabilities incurred by Vaitalik in the initial construction of the property shall be its own and the assessee will not be responsible for the same. Clause (9) placed a condition that the construction shall be of first class quality. In cl. (10) Vaitalik assured the assessee that there has been no misrepresentation on its part. 9. The important clauses of the lease agreement dt.2nd March, 1996may now be noticed. The preamble recalled the construction agreement dt. 27th July, 1994 and noted that the lease of the building area of 23,883 sq. ft. to the assessee was to begin from the date of completion of the building and that the building has been completed on31st....
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....ter lines, etc. Under Clause (13), it was the duty of the Vaitalik to keep the exterior and interior of the premises and common areas in tenantable condition and in good repair, to carry out repairs of the water lines, sewers, drains, lavatories, etc. Under cl. 14(c), the assessee was not to use the premises in such a manner as to raise the rate of insurance of the building and in such an eventuality. the assessee shall be liable to reimburse Vaitalik the additional premiums which it may have to bear by reason of the assessee's use. Clause 17 clarified that the terrace at the top of the building shall always remain the property of the Vaitalik who can use the same in any manner including for purposes of publicity, hoarding, neon signs, etc., but, without obstructing the business interests of the assessee. Under cl. 18. Vaitalik always had the right to add, demolish or construct further stories of any structure or make additions or alterations to the building as are found necessary. Under cl. 19, it was the duty of the lessee (the assessee) to keep the leased space and the interior structural walls, sewers, drains, etc., in the good tenantable condition in which it was delivered to ....
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....ership over the property was unsustainable and inasmuch as the AO had accepted the claim and assessed the income under the head "Income from house property" and had also allowed deductions as claimed by the assessee. The assessment, according to the CIT, was erroneous and prejudicial to the interests of the Revenue. 12. It appears to me on a conjoint reading of all the documents entered into between Vaitalik and the assessee, viewed in the background of the inability of Vaitalik to muster the funds required for putting up the construction on the plot taken on lease from DDA, that the arrangement between Vaitalik and the assessee is essentially and in substance one for finance for putting up the construction and a permission to the assessee, as consideration, to exploit the structure measuring 23,883 sq. ft. for a limited period so as to enable the assessee to reimburse itself the cost defrayed on the construction and make a profit, if possible, as remuneration for the use of its funds, by letting out the area. Once the assessee had reimbursed itself of the cost of construction of Rs. 3,13,56,918 and had also made a surplus over and above the sum the arrangement was terminated, t....
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....see that it was for the lease of the land, was in fact for lease of the property because it was provided in the clause that the payment of rent shall begin from the completion of the building which would not have been the case had it been the intention of the parties that the rent was for the lease of the land, in which case it would have been provided that the rent would start from the date the assessee entered possession of the land. Thus, cl. (2) read as a whole is a clear pointer to the fact that the area of 23,883 sq. ft. was not to be owned by the assessee, but, was only to be leased to it at a rent of Rs. 9.50 per sq. ft. per month. It also shows that there was no lease of the land to the assessee but only a permission or licence to enter upon the land for the purpose of carrying out the construction and that the lease was only in respect of the area of 23,883 sq. ft. constructed by the assessee. There is further evidence of such an intention in the very same clause when it provides that Vaitalik authorises the assessee to use the premises for its own purpose or to let out the same fully or partly to any other person and recover rent. If the assessee was the owner of the pre....
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.... in the preamble that the assessee has agreed to take the land on lease but, this is followed by the words "for carrying out and completion of construction over the property on the terms and conditions, hereinafter, appearing" and the reference is thus controlled by the other terms of the contract. To me it appears to be an erroneous description of the right of the assessee (to say that it is the lessee of the land); the right in truth is only to enter upon the land for the purpose of constructing the property; it is inconceivable that the assessee took the land on lease for that purpose. It only required a permission or licence from Vaitalik to the assessee to enter the land. Further, under terms of the lease granted by DDA to Vaitalik, the latter cannot sub-lease the land which would constitute a violation of the terms. In my opinion, by using the expression, albeit erroneously, that the assessee "agreed to take the land on lease" what was meant to be conveyed was only that Vaitalik permitted the assessee to enter upon the land for the purpose of putting up the construction. 14. The lease deed dt.2nd March, 1996also shows that the assessee is only a lessee and not the owner of....
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....e building or portions thereof at any time in future, subject to the rights of the assessee as "lessee" of the demised premises. Contrary to what the learned counsel for the assessee contended, it appears to me that this clause reaffirms the assessee's position as a mere lessee of the demised premises and affirms the right of Vaitalik to build or alter or add to the construction by putting up further, stories. Again, it does not follow therefrom that the assessee is the owner of the demised premises of 23,883 sq. ft. 15. The agreement dt.24th July, 1996providing for renewal of the lease for a further term of 5 years on expiry of the "current term of 5 years" also reaffirms the legal position that the assessee is not the owner of the 23,883 sq. ft. 16. I will now refer to the "memorandum of understanding" entered into between the assessee and Ikea Trading Hongkong Ltd. (IKEA) on 16th March, 1995, on which reliance was placed by the learned counsel for the assessee. The contention was that the MOU shows that the assessee started negotiating for letting out the property even though it was still under construction, which was indicative of the conduct of an owner of the property, ....
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....gument of the learned counsel for the assessee that the words used in the preamble to the agreement dt.8th Jan., 1996should not be given any importance. Not only this, the very same preamble continued to refer to the fact that Vaitalik had granted leasehold rights on all the floors to the assessee for a period of five years and six months in consideration of the assessee erecting a building on the land possessed by Vaitalik. It thus, appears to me that the assessee was not too much worried about Violating the terms of the perpetual lease and in fact would appear to have been quite vocal about it. In this light. I am unable to attach any credence to the assessee's explanation for the preamble in the deed dt.8th Jan., 1996. It reaffirms over again the legal position that the assessee was only a lessee of the constructed area of 23,883 sq. ft. In fact, the preamble goes on to say that the possession of the assessee of the space in the building was as a lessee on the terms and conditions contained in the lease agreement with Vaitalik and the space is being sub-leased by the assessee to UOP Asia Limited. 18. I am, therefore, of the view that the assessee was not the owner of the cons....
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....sult that the rental income would fall to be assessed under s. 22 of the Act. It was submitted that the learned JM has not noticed the argument based on s. 27(iiib) and that the Vice President has taken the correct view of the section. I have carefully considered the provisions of s. 27(iiib). This clause was inserted into the section by the Finance Act, 1987, w.e.f.1st April, 1988. It says that for the purposes of ss. 22 to 26, 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 cl. (f) of s. 269UA, shall be deemed to be the owner of that building or part thereof. Sec. 269UA(f) is placed under Chapter XX-C of the Act which provides for purchase by Central Government of immovable properties in certain cases of transfer. "Transfer" is defined in the clause as follows: "(f) 'transfer',- (i) in relation to any immovable property referred to in sub-cl. (i) of cl. (d), means transfer of such property by way of sale or exchange or lease for a term of not less than twelve years, and includes allowi....
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.... s. 27(iiib) and s. 269UA(f)(i) is that if a lease of a property for a term of not less than 12 years is given it would be a case of transfer and the lessee would be deemed to be the owner of the building. It is thus, contended that in the present case, since Vaitalik has given a lease of the area of 23.883 sq. ft. to the assessee for a period of not less than 12 years, the assessee shall be deemed to be the owner of the area and consequently, the rental income was assessable under s. 22 of the Act as income from house property. Under cl. (2) of the contract for construction services dt.27th July, 1994, the lease was for a period of five years and six months, renewable for one term at the option of the assessee. Further, renewals were to be subject to mutual consent. The lease agreement entered into on2nd March, 1996modified the same to provide that the period of lease was for five years and it shall expire on31st July, 2000. No renewals or extensions were provided for. However, by agreement dt.24th July, 1996, it was provided that the lease shall be renewable for further, terms of five years each on expiry of the first term of five years and any further, terms of five years. But, ....
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....he same. It let out the flats for rent to various persons. The rental income was shown under the head "Income from other sources" on the footing that the assessee was not the legal owner of the flats since the title to the flats had not been formally conveyed and ownership was not transferred in the name of the assessee. The AO however, assessed the income under s. 22 under the head "Income from house property". It was on these basic facts that the Supreme Court held that for the purposes of s. 22, owner is a person who is entitled to receive the income from the property in his own right and, since, the assessee was receiving the income in its own right, the income was assessable as income from house property. This factual position does not obtain in the case before me. Herein, it is a case of a lease of the area of 23,883 sq. ft. by Vaitalik to the assessee for a rent of Rs. 9.50 per sq. ft. per month. It is this area taken on lease which was let out by the assessee for rent. The assessee was not the owner of the area. The question herein is one of intention of the parties which according to me was only to constitute the assessee as the lessee for a period of five years in respect....
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....w is genuinely possible. The CIT has attempted to show how the view taken by the AO that the rental income is assessable under s. 22 of the Act is untenable on the facts of the case and on the basis of the documentation entered into between the parties. I am also of the view, for reasons given earlier, that the view taken by the AO cannot be considered as a plausible view on the facts of the case and on the basis of the documentation. Technically or theoretically on any given set of facts and evidence, more than one view is possible, but, the views should also be plausible and must have a semblance of reason and a factual and/or legal basis. While the CIT has demonstrated in his order that the view taken by him, viz., that the income is not properly assessable under the head "Income from house property" under s. 22, is tenable and is the only view plausible the AO has failed to substantiate his decision to accept the assessee's claim to the contrary. He has failed to show that his decision is a plausible or tenable decision on the very same facts and documentation. The CIT is, therefore, right in initiating proceedings under s. 263. There is nothing in the assessment order to indic....