TaxTMI 
TaxTMI 
2010 (5) TMI 487
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....f business or profession". 3. Right from the assessment years 1986-87 to 1992-93, the Department accepted the claim of the assessee to the effect that the rental income was taxable under the head "Profits and gains of business or profession". 4. However, in the assessment year 1990-91, an order of assessment was passed under section 143(3) of the Income-tax Act (in short, "the Act"). The order for other years was passed under section 143(1)(a) of the Act treating the income from house property. In the assessment years 1993-94 and 1994-95, the Assessing Officer taxed the income under the head "Income from house property" without looking into the past assessments right from 1986-87. The assessee preferred an appeal and the learned Commissioner of Income-tax (Appeals) accepted the claim of the assessee and directed to assess the income as "business income". The above order of the learned Commissioner of Income-tax (Appeals) for the years 1993-94 and 1994-95 was not challenged by the Revenue before the Tribunal. In the assessment year 1995-96, the Assessing Officer himself passed an order under section 143(3) and assessed the income as "business income". 5. Howev....
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....vance has been made. It has been held by the Tribunal that since the advance was given to the sister concern as per agreement more than 10 years back, it was warranted by business considerations. 9. The other issue before the Tribunal was with regard to the deletion of trading addition of Rs. 64,573. The Commissioner of Income-tax (Appeals) deleted the addition made by the Assessing Officer and the Tribunal has upheld the order of the Commissioner of Income-tax (Appeals). The Tribunal further upheld the depreciation on car with observation that the Commissioner of Income-tax (Appeals) rightly deleted the allowance made by the Assessing Officer since the vehicle in question was a truck which cannot be used for personal purpose. However, all these questions do not call for adjudication since the substantial question of law heard and framed relates to rental income derived from letting out of the property. 10. The Tribunal held that the rental income earned by the assessee is not an income from house property but is a business income and accordingly, disallowances have rightly been made. The Tribunal reiterated the order of the earlier assessment years with the obs....
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....pellant that the appellant is not a colonizer and virtually he is engaged in manufacture and sale of spun pipes and coolers, hence the rental income earned from the premises in question should be treated as "Income from house property." 14. On the other hand, learned counsel for the respondents stated that right from very beginning, i.e. from the time of execution of agreement as well as registered lease agreement and right from the purchase of land for construction of building, the assessee has taken the project to construct a building for rental purpose as a mode of commercial activity. At no stage of time and also there is no evidence on record which may reveal that the land was purchased for dwelling or non-commercial purpose, hence the income may be assessed under the head "Income from commercial property". 15. It has been stated by the respondents' counsel that there is no change of situation right from 1986 till date with regard to the use of premises in question for commercial purpose. The submission is that the income from exclusive commercial activity may not be treated as income from house property, hence the finding of the Tribunal does not suffe....
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....e owner, other than such portions of such property as he may occupy for the purposes of any business or profession, generating profit may be chargeable to income-tax under the head "Income from house property". Section 23 provides how the annual value should be determined. It shall be appropriate to reproduce sections 22 and 23 of the Act. To quote : "22. Income from house property.-The annual value of property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner, other than such portions of such property as he may occupy for the purposes of any business or profession carried on by him the profits of which are chargeable to income-tax, shall be chargeable to income-tax under the head `Income from house property.' 23. Annual value how determined.-(1) For the purposes of section 22, the annual value of any property shall be deemed to be - (a) the sum for which the property might reasonably be expected to let from year to year ; or (b) where the property or any part of the property is let and the actual rent received or receivable by the owner in respect thereof is in e....
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....3, section 24 relates to deductions from income from house property which provides that a sum equivalent to thirty per cent of the annual value and interest paid on borrowed capital shall be deducted from the income of house property. Section 25 further provides that the interest chargeable under the Act may not be deducted on which tax has not been paid or deducted under Chapter XVII-B of the Act with regard to which there is no person in India. 20. While interpreting the provisions contained in section 22 of the Act with regard to the right of the Revenue to impose tax under the head "Income from house property", the provisions contained in sections 22, 23, 24, 25, 25A, 25B, 26 and 27 should be seen collectively. 21. Section 27 of the Act further provides that for the purpose of sections 22 to 26, the words, "owner of house property" and "annual charge" ought to be construed. It shall be appropriate to reproduce section 27 of the Act to quote : "27. "Owner of house property", "annual charge'" etc., defined.-For the purposes of sections 22 to 26- (i) an individual who transfers otherwise than for adequate consideration any ho....
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....ety, company or association, from whom the property is allotted or leased out to a person shall be deemed to be the owner of the building or part thereof. Accordingly, to assess the income under the head "Income from house property", it shall be necessary to find out from the record the aim and object and purpose of the building owner while acquiring or constructing or purchasing the same and used for the rental purpose to earn income. 24. Section 28 deals with profits and gains of business or profession. It provides that the profits and gains of any business or profession which was carried on by the assessee at the time during the previous year may be taxed under the said head. At the face of record, section 28 postulates that the aim and object of acquiring the property should be commercial in nature. Various conditions provided in section 28 reveal that it deals with exclusive situations where the property is acquired and used for business purpose. It shall be appropriate to reproduce section 28 of the Act, to quote : "28. Profits and gains of business or profession.- The following income shall be chargeable to income-tax under the head....
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....rt and import policy formulated and announced under section 5 of the Foreign Trade (Development and Regulation) Act, 1992 (22 of 1992) ; (iv) the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession ; (v) any interest, salary, bonus, commission or remuneration, by whatever name called, due to, or received by, a partner of a firm from such firm : Provided that where any interest, salary, bonus, commission or remuneration, by whatever name called, or any part thereof has not been allowed to be deducted under clause (b) of section 40, the income under this clause shall be adjusted to the extent of the amount not so allowed to be deducted ; (va) any sum, whether received or receivable in cash or kind, under an agreement for- (a) not carrying out any activity in relation to any business ; or (b) not sharing any know-how, patent, copyright, trade-mark, licence, franchise or any other business or commercial right of similar nature or information or technique likely to assist in the manufacture or processing of goods or provisi....
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....titute a business, the business (hereinafter referred to as `speculation business') shall be deemed to be distinct and separate from any other business." Apart from section 28, the provisions contained in sections 29, 30, 31 and 32 abundantly make it clear that for the purpose of assessment under the head "Profit and gains of business or profession", it shall be necessary that the property acquired and used is for commercial purpose under business activity. The owner of the property must have acquired the property with intention to earn profit under commercial activity. 25. In case the submission of the learned counsel for the appellant is accepted, then it shall amount to addition of words in the plain meaning of section 27 or 28 of the Act and also to negate the meaning and purpose of the provisions contained in sections 22 to 27 of the Act. 26. It is no longer res integra that while interpreting statutory provisions, each and every word of the Act, every section and every chapter should be taken into account in reference to context. According to Maxwell any construction which may leave without effect any part of the language of a statute should ....
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....e of West Bengal v. Kesoram Industries Ltd. [2004] 2 RC 298 ; [2004] 10 SCC 201, the hon'ble Supreme Court held that taxing statute should be construed strictly. If a person sought to be taxed comes within the letter of law, he must be taxed. However, in case, he does not fall in taxing category, tax cannot be imposed. There is no room for any intendment. There is no equity about tax. There is no presumption as to tax. Nothing is to be read and nothing is to be implied. 33. In Sneh Enterprises v. Commissioner of Customs [2006] 7 SCC 714 the hon'ble Supreme Court held that in case of dispute or ambiguity, construction has to be made in favour of taxpayer against the Revenue. 34. A Division Bench of the Allahabad High Court in Lipton India Ltd. Gaziabad v. State of U. P. [2009] 22 VST 230 ; [2009] 27 LCD 161, in which one of us (the hon'ble Devi Prasad Singh J.) was a member, after considering various pronouncements of the hon'ble Supreme Court, held that while interpreting the statutory provisions, every section, every word, should be looked into in a reference to tax. 35. In CWT v. Officer-in-charge (Court of Wards), Paigah [1976] 105 ITR 133 ....
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....ed facts and circumstances. It was further held that in case the assessee derives income from a commercial asset which is capable of being used as a commercial asset, then it is income from his business-no matter whether the commercial asset is used by himself or somebody else. The asset would not cease to be a commercial asset simply because it was let out to others. The businessman has got the right to exploit it as a commercial asset to the best of his advantage. It was noticed that if a commercial asset is not capable of being used as such or as a commercial asset, then its being let out to others does not result in accrual of business income. While holding so, the Gujarat High Court has relied upon New India Industries Ltd. v. CIT [1994] 207 ITR 1010. 42. The aforesaid proposition of law has been followed in Narain Swadeshi Weaving Mills v. CEPT [1954] 26 ITR 765 (SC) relied upon by the appellant. However, the case does not seem to be applicable under the facts and circumstances of the present case. In the present case, from the very beginning, the plot purchased and building constructed by the assessee was for commercial use. That is why continuously since....
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.... Gujarat High Court fortifies the views taken by us. 48. The Delhi High Court in the case of Super Fine Cables P. Ltd. [1985] 154 ITR 532 also ruled that it is the nature of arrangement and the reason for that is to be looked into to decide under which head income-tax be imposed. The purpose of determining whether one has let out the property for business purpose or merely for enjoying the rent are relevant factors. The test applied by the Delhi High Court also shows that the building constructed exclusively for commercial use may be taxed under the head "Profits and gains of business or profession" and not under the head "Income from house property". 49. In the case of Karnani Properties Ltd. [1971] 82 ITR 547, the hon'ble Supreme Court has treated the income as income from business where the assessee had let out the building constructing flats and shops. The hon'ble Supreme Court held that the activities carried on in an organised and systematic manner to let out property, flats or shops to tenants is assessable as business income. 50. In the case of S. G. Mercantile Corporation P. Ltd. v. CIT [1972] 83 ITR 700, the hon'ble Supreme Court ....
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....rder in one case, it would normally not be permissible to do so in another case on the logic that the Revenue cannot pick and choose. It is necessary to maintain certainty in law. However, their Lordships of the hon'ble Supreme Court dealt with the exception also and held that where the Revenue does not prefer an appeal for just cause or where the revenue involved is quite small amount may make out a case of departure. It shall be appropriate to reproduce the relevant portion from the judgment, to quote (pages 66-67): "12. If the assessee takes the stand that the Revenue acted mala fide in not preferring appeal in one case and filing the appeal in other case, it has to establish mala fides. As a matter of fact, as rightly contended by the learned counsel for the Revenue, there may be certain cases where because of the small amount of revenue involved, no appeal is filed. Policy decisions have been taken not to prefer appeal where the revenue involved is below a certain amount. Similarly, where the effect of decision is revenue neutral there may not be any need for preferring the appeal. All these certainly provide the foundation for making a departure.....
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....was in support of the assessee-we do not think the question should have been reopened and contrary to what had been decided by the Commissioner of Income-tax in the earlier proceedings, a different and contradictory stand should have been taken. We are, therefore, of the view that these appeals should be allowed and the question should be answered in the affirmative, namely, that the Tribunal was justified in holding that the income derived by the Radhasoami Satsang was entitled to exemption under sections 11 and 12 of the Income-tax Act of 1961." Their Lordships of the hon'ble Supreme Court held that the proposition of law and observation made therein is confined to the said case and may not be treated as authority on the aspects for general application. 60. However, in the case of Municipal Corporation of City of Thane [2009] 20 VST 680 ; [2007] 8 SCC 688 the hon'ble Supreme Court while holding that the strict rule of res judicata as envisaged by section 11 of the Civil Procedure Code has no application, their Lordships further held that as a general rule, each year's assessment is final for that year and does not govern later years because it dete....