TaxTMI 
TaxTMI 
2013 (10) TMI 380
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....ereafter sub leased the premises and also provided integrated services such as maintenance and air conditioning services? (ii) Whether the income earned by the Appellant by commercial exploitation of sub leasing leased premises in terms of the Memorandum and Articles of Association of the Appellant Company and providing integrated services such as maintenance and air conditioning services and further investing the returns in real estate development is assessable as Income from Business under Section 28 or income from house property under Section 22 ? 2. Tax Case (Appeal) No.99 of 2012, at the instance of the assessee has been admitted on the following substantial questions of law: (i) Whether on the facts and circumstances of the case the ITAT is justified in upholding the assessment of the income received by the Appellant, by way of a) sub leasing of already leased out property and b)maintenance charges and air conditioning hire charges, as income from house property and not income from business, having regard to the fact that the Appellant Company is pursuing the main object of the Company as provided in the Memorandum and Objects? (ii) Whether the income earned by th....
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....8 or income from house property under Section 22? (vi) Whether in the facts and circumstances of the case, the Appellate Tribunal was right in upholding the reassessment made by the respondent when the Assessing Officer after applying his mind had rectified the assessment order to rectify mistakes apparent on record? (vii) Whether in the facts and circumstances of the case, the Appellate Tribunal was right in upholding the assessment made by the respondent under Section 147 explanation 2(b), when the period for completing the assessment under Section 143(3) (Assessment year 2002-2003) had expired on 31.03.2004 and thereby rendering the provision of Section 153 for completing the assessment otiose? 4. Tax Case (Appeal) No.231 of 2007, at the instance of the assessee has been admitted on the following substantial questions of law: (i) Whether the Income Tax Appellate Tribunal justified in upholding the assessment of the income received by the appellant, by (a) sub leasing of already leased out property, (b) maintenance charges and air conditioning hire charges, as income from house property and not income from business having regard to the fact that the appellant with the....
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.....1464 of 2011 for the assessment year 2008-09 respectively, raising the substantial questions of law referred above. 8. The Tribunal by relying upon the decision of the Division Bench of this Court in the case of CIT vs. Chennai Properties and Investments Ltd., [2008] 303 ITR 33 (Mad) assessed the income under the head "income from house property" and answered the question in favour of the Revenue. The order passed by the Tribunal dated 22.09.2006 in ITA.No.388 of 2006 for the assessment year 2003-04 was followed by the Tribunal in ITA.No.119 of 2011, dated 02.11.2011 for the assessment year 2006-07, in ITA No.103 of 2005, dated 26.04.2007 for the assessment year 2004-05 and I.T.A.No.1464 of 2011, dated 06.02.2012 for the assessment year 2008-09. Aggrieved by such orders, the assessee is on appeal before this Court. 9. The assessee herein a company mainly derived income from sub lease of rental properties, maintenance charges, interest income being interest on deposits, A.C. service charges and miscellaneous income. The assessee had shown the receipts from leasing out of property etc, as income from business by claiming expenses towards salaries, wages, bonus, administrative ....
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....es during the relevant assessment year were rejected. The CIT (A) followed the above decisions for the assessment year 2008-09 and dismissed the appeal by order dated 27.07.2011. 13. Challenging these orders, the assessee preferred separate appeals before the Tribunal. The Tribunal dismissed the appeals filed for the assessment year 2003-04, by order dated 22.09.2006 following the decision of the Division Bench of this Court in the case of Chennai Properties and Investments Ltd., (supra). Following the said order, the appeals in respect of the assessment years 2004-05, 2006-07 and 2008-09 were dismissed by the Tribunal, by orders dated 26.04.2007, 02.11.2011 and 06.02.2012. These orders have led to the filing of these Tax Case Appeals before this Court by the assessee. 14. Mr.C.V.Rajan appearing along with Mr.R.Venkata Narayanan, learned counsel appearing for the appellant/assessee submitted that the Assessing Officer, the CIT (A) and the Tribunal failed to consider that the assessee is in the business of real estate development and Memorandum and Articles of Association of the Company provides for real estate business and with a view of commercial exploitation, the assessee ....
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....ned counsel appearing on either side and carefully perused the materials placed on record. 17. The substantial questions of law framed in these appeals are as to whether the income received by the assessee by way of sub-lease of the Anna Salai property, collection of maintenance charges, A.C., hire charges etc., would be income from "business" or income from house property", similar is the question in respect of Kottivakkam property. 18. Before we examine the issue on the facts placed before us, it has to be pointed out that the Assessing Authority in the order of assessment for the assessment year 2003-04 has made a reference that insofar as Kottivakkam property was concerned, the assessee company had leased out the factory premises, machinery and equipment to Mr.Ranjith Prathap and his associates and receiving lease rental from them and concluded that the income has to be treated as "income from house property". This finding was confirmed by CIT (A) and in doing so, the Commissioner (Appeals) referred to an earlier order in I.T.A.No.60 of 2005, dated 29.11.2004. In the said order in paragraph 7.17, it has been observed that the assessee had stopped its business during 1993 ....
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....y" to the extent permitted under the other provisions of the Income-tax Act. In making such computation, there was no provision to add other amounts received by the owner of the building and held that the Tribunal was right in holding that the receipts from service charges were liable to be assessed as income from other sources and not "income from house property". 21. In the case on hand, the Assessing Authority, Commissioner (Appeals) as well as the Tribunal have recorded a factual finding that the assessee closed down the manufacturing business with no evidence of revival and the income from the land and building has to be treated as "income from house property". 22. In respect of the "Kottivakkam Property" for the assessment year 2003-04, the Assessing Officer recorded a finding that the assessee company has leased out the factory premises and equipments in the "Kottivakkam Property" to Mr.Ranjith Prathap and his associates and is deriving lease rental therefrom. The copy of the rental lease agreement dated 16.08.2003, has been produced before us, from which it is seen that the property which has been leased, is vacant land measuring about 25503sq.ft. No other document ha....
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....espect of the Anna Salai property is for a period of 33 years with option of five times consecutive renewals of the same for the similar period. 25. The Finance Act 1987, which came into effect from 01.04.1988, enlarged the definition of 'owner' so as to include persons, who acquire rights in or with respect of any building or part thereof by virtue of transaction, falling under Section 269UA (f) of the I.T.Act, by doing anything, which has effect of transferring to or enabling their enjoyment of such property by him. The exclusion being month to month lease or lease for less than one year. In the assessee's case the lease is for 33 years with renewals for five consecutive times for the same period and the assessee would squarely fall within the definition of 'deemed to be the owner of house property' as defined under Section 27(iiib) of the I.T. Act. 26. The Hon'ble Supreme Court in the case of CIT v. P. V. S. Beedies Pvt. Ltd. reported in [1999] 237 ITR 13 (SC) among other things held that where all the assets of the business are let out, the period for which the assets are let out is a relevant factor to find out whether the intention of the assessee is to go out of busine....
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....y CIT(A), and the Revenue preferred appeal before the ITAT. The Tribunal rejected the Revenue's appeal and the Revenue filed the Tax Case before this Court. The Division Bench after referring to the decisions on the point rejected the contentions raised by the assessee and held that whether a particular letting was business had to be decided in the circumstances of each case and each case has to be looked at from a businessman's point of view and before invoking Section 22 of the I.T. Act, for the purpose of assessing the rental income as an "income from house property", the Revenue authorities must go into the question whether there was any exploitation of the property by its owner by giving it away for rent. It was further held that the transactions being in the nature of exploitation of the property by the assessee and not by way of exploitation of business asset, the contention of the assessee could not be accepted. Further, mere fact of the assessee having business in letting out the property as stated in the memorandum by itself will not conclusively point out that the income is nothing, but 'business income'. 30. Thus, by applying the decision of this Court in the case of....
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....sources" and in the absence of any income from business, the expenses claimed under various heads relating to business, are not allowable expenditure under the "income from house property" and "other sources" and therefore, proceedings were initiated under Section 147 of the I.T.Act and notice under Section 148 of the I.T. Act, was served on the assessee. The Assessing Officer has recorded in the order of assessment that in response to the notice issued to the assessee, authorized officers appeared and expressed their no objection for treating the income under the head "house property". Nevertheless the assessee contested this finding by preferring appeal and then carried the matter to the Tribunal and now before this Court. 33. While deciding T.C.(A).No.231 of 2007, and T.C.(A).Nos.91, 99 & 212 of 2012, we have held that the finding of the Tribunal that the income from Anna Salai property is "income from house property" is correct. In sofar as the Kottivakkam property for the assessment year 2003-04, the matter has been remanded for the limited extent to ascertain as to whether the lease in respect of Kottivakkam property was together with plant and machinery. Therefore, there ....
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....d also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under Section 147 of the I.T. Act. The proviso stipulates a period of limitation of four years from the end of the relevant assessment year unless any income chargeable to tax has escaped assessment by reason of the failure on the part of the assessee to make a return or in response to a notice issued under Section 142(1) or Section 148 of the I.T. Act, or to disclose fully and truly all material facts necessary for his assessment for that assessment year. Explanation 1 states that production before the Assessing Officer of account books or other evidence from which material evidence could, with due diligence, have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the proviso. The word "reason to believe" suggest that the belief must be that of an honest and reasonable person based upon reasonable grounds and that the Assessing Officer may act on direct or circumstantial evidence, but not on mere suspicion. 37. The Hon'ble Supreme Court in the case of Indian Ideal Corporation vs. ....
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....if any refund is due on the basis of such return, it shall be granted to the assessee and an intimation to this effect shall be sent to the assessee : Provided that except as otherwise provided in this sub-section, the acknowledgment of the return shall be deemed to be intimation under this sub-section where either no sum is payable by the assessee or no refund is due to him : Provided further that no intimation under this sub-section shall be sent after the expiry of one year from the end of the financial year in which the return is made. Provided also that where the return made is in respect of the income first assessable in the assessment year commencing on the 1st day of April, 1999, such intimation may be sent at any time up to the 31st day of March, 2002. (1A) and (1B) Omitted by FA 1999, wef 1-6-1999. (2) Where a return has been furnished under section 139, or in response to a notice under sub-section (1) of section 142, the Assessing Officer shall, (i) where he has reason to believe that any claim of loss, exemption, deduction, allowance or relief made in the return is inadmissible, serve on the assessee a notice specifying particulars of such claim of los....
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.... sub-clause (vi) or any hospital or other medical institution referred to in sub-clause (via) of clause (23C) of section 10, which is required to furnish the return of income under sub-section (4C) of section 139, no order making an assessment of the total income or loss of such scientific research association, news agency, association or institution or fund or trust or university or other educational institution or any hospital or other medical institution, shall be made by the Assessing Officer, without giving effect to the provisions of section 10, unless (i) the Assessing Officer has intimated the Central Government or the prescribed authority the contravention of the provisions of clause (21) or clause (22B) or clause (23A) or clause (23B) or sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10, as the case may be, by such scientific research association, news agency, association or institution or fund or trust or university or other educational institution or any hospital or other medical institution, where in his view such contravention has taken place ; and (ii) the approval granted to such scientific research associat....
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....on 2.--For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely:-- (a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax; (b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return; (c) where an assessment has been made, but-- (i) income chargeable to tax has been under assessed; or (ii) such income has been assessed at too low a rate; or (iii) such income has been made the subject of excessive relief under this Act; or (iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed. 41. As per the scheme introduced in Section 143(1) of the I.T. Act, a provision has been made that where a return is filed under Section 139 o....
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.... clause (i) & (ii) of clause (a) in Section 143(1) of the I.T. Act and in terms of clause (b) tax and interest, if any, is "computed" on the basis of total income computed under clause (a). Thereafter, as per clause (c) of Section 143(1) of the I.T. Act, the sum payable is assessed or amount refunded is determined. This is "intimated" to assessee as per clause (d), if there is refund permitted under clause (c), then it should be granted as per clause (e) of Section 143(1) of the I.T.Act. 46. In terms of sub section (1A) of Section 143 of the I.T. Act, introduced under the Amendment Act, the Board has evolved a scheme, Centralised Processing of Returns Scheme 2011, for centralised processing of returns with a view to expeditiously determine the tax payable/refund due to assessee as required under the said sub section. The scope and effect of the amendment has been explained by the Board in circular No.1, dated 06.04.2011, [(2011) 333 ITR (St.) 7.], stating that the concept of centralised processing of returns is introduced so that all the returns are expeditiously processed and tax payable or refund due to the assessee are determined in a definite time. The processing centre has ....
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....stments only. Thus an assessment under Section 143(3) of the I.T. Act, is based on a different methodology which has to be borne in mind while considering the scope, purpose, ambit and import of Section 147 of the I.T. Act. 49. As held by the Hon'ble Supreme Court, the acknowledgment is not done by any Assessing Officer, but mostly by ministerial staff and it can hardly be said that any assessment is done therein by them. Therefore, as per the scheme under Section 143(1)(a) of the I.T. Act, the same cannot be treated as an order of assessment in the true sense of its term it being a summary procedure. The intimation under section 143(1)(a) of the I.T. Act, is deemed to be a notice of demand under section 156 of the I.T. Act, for the purpose of facilitating the machinery provisions relating to recovery of tax. Thus, the purpose of such intimation is only for recovery of the tax and no other expansive meaning can be given to such deeming provision. Therefore, the Hon'ble Supreme Court held that there being no assessment under section 143(1)(a) of the I.T. Act, the question of change of opinion, as contended, does not arise. 50. The Division Bench of this Court in the cases of W....
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.... Under the substituted section 147 of the I.T. Act, existence of only the first condition namely, that the Assessing Officer must have reason to believe that income, profits or gains chargeable to income tax have escaped assessment would be sufficient. However, both the conditions must be fulfilled if the case falls within the ambit of the proviso to section 147 of the I.T. Act. 54. Thus, if the ingredients of Section 147 of the I.T. Act, are satisfied as indicated above, the Assessing Officer is empowered to initiate proceedings, even though no proceedings were taken under Section 143(3) of the I.T. Act, and the Assessing Officer is empowered to initiate reassessment proceedings even when intimation under Section 143(1) of the I.T. Act, has been issued. 55. Thus going by Section 147, Explanation 2(c), of the I.T. Act in all cases of assessment having become time barred under the regular assessment proceedings under Section 143(2) or (3) of the I.T. Act, as the case may be, proceedings under Section 147 of the I.T. Act, are held to be income escaping assessment. In the decision Panchugurumurthy v. Commissioner of Income-tax reported in [1995] 211 ITR 51, this Court held that ....
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.....T. Act, are satisfied on facts. In the decision reported in [1992] 198 ITR 297, Commissioner of Income-tax v. Sun Engineering Works P. Ltd., the Apex Court pointed out that when the proceedings under Section 147 of the I.T. Act, are initiated, the proceedings are open only qua the item of underassessment. It makes no difference whether the assessment proceedings have become final on account of framing of the assesment under Section 143(3) of the I.T. Act, or on account of non-issue of proceedings under Section 143(2) of the I.T. Act, within the stipulated period. Thus, be it a case of income escaping assessment on account of Section 143(3) of the I.T. Act, proceedings coming to an end even without a proceeding or on account of the assessment proceedings made under Section 143 or 143(3) of the I.T. Act, the fact remains, the Revenue must have materials on hand, which must provide the reasonable nexus to the formation of opinion that income has escaped assessment for the purpose of assumption of jurisdiction under Section 147 of the I.T. Act. This issue is no longer res integra in the background of the decision of the Supreme Court in CIT vs. Kelvinator of India Ltd., (supra), which....
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....eedings. It further pointed out it is nobody's case that an intimation can be subjected to section 147 proceedings. It pointed out that the words reason to believe cannot have two different standards. 59. Thus, on facts the Delhi High Court held that this was an arbitrary exercise of power conferred under Section 147 of the I.T. Act, there being no whisper of any tangible material which came to the possession of the Income Tax Officer subsequent to the issue of intimation. 60. As far as the decision of the Delhi High Court is concerned, we do agree with the decision that irrespective of whether the assessee was subjected to a regular assessment or not, 147 is available wherever there is an escapement of income and the Assessing Officer had materials enough to form a reasonable belief that income has escaped assessment. But a mere acceptance of the return followed by an intimation shows there was no enquiry as such as to the correctness of the return in the manner known to law. That is why in defining what is also an escaped assessment, Explanation 2, includes cases where return has been furnished but no assessment has been made and it is noticed by the Assessing Officer that ....