TaxTMI 
TaxTMI 
2017 (9) TMI 1240
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....rty was delivered to the Assessee on the execution of the agreement to sell. At the time, the entire property was tenanted. Under the agreement to sell, the Assessee became entitled to receive the rent from the tenants. A sale deed in respect of the Scindia House property was executed on 31st May 1980 and thereby the Assessee became its owner. 3. According to the Assessee the purpose of acquiring the said property was to construct one floor thereon and sell the property in piecemeal to different persons. According to the Assessee, consistent with its Memorandum of Association ('MoA') it proposed to deal with the said property as a 'trader'. Position under the Income Tax Act 4. For the purposes of the Income Tax Act 1961 (ITA), the Assessee categorised the rental income from the Scindia House property in its return for AY 1980-81 as 'business income'. However, the Assessing Officer (AO) held the rental income to be taxable as 'income from other sources'. After the Commissioner of Income Tax (Appeals) [CIT (A)] agreed with the AO, the Assessee went in appeal before the ITAT. The contention of the Assessee that its investment of Rs. 75 lakhs was not for just earni....
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....the Assessee was taxable as 'income from house property'. Against the order of the ITAT for AY 1992-93, Assessee filed an appeal being ITA No. 162 of 2003 in this Court. 10. For AYs 1993-94 to AYs 1998-99 after the AO and the CIT (A) held against the Assessee, by treating the rental income as 'income from house property' and not 'business income', the Assessee filed appeals before the ITAT. A Special Bench (SB) of the ITAT was constituted to consider the question whether the said decisions of the AO and CIT (A) for the said AYs were contrary to the decisions of the ITAT from AYs 1980-81 till 1987-88 and subsequent AYs. 11. By an order dated 7th April 2006 in Atma Ram Properties (P) Limited v. Joint Commissioner of Income Tax (2006) 102 TTJ (Del) 345, the SB of the ITAT answered the said question in favour of the Revenue by holding that the rental income was 'income from house property'. 12. After discussing the decisions of the Supreme Court in East India Housing and Land Development Trust Limited v. Commissioner of Income Tax (1961) 42 ITR 49 (SC); Karanpura Development Co. Ltd. v. CIT (1962) 44 ITR 362 (SC); Sultan Bros. P. Ltd. v. CIT (1964) 51 I....
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....r of the Revenue and against the assessee." 13. Against the above order of the SB of the ITAT, the Assessee filed ITA Nos. 859, 849, 848, 841, 860, 850, and 836 of 2007 for AYs 1992-93 to 1999-2000 respectively in this Court. 14. The above appeals, i.e. the two appeals by the Revenue for AYs 1990-91 and 1991-92 and the Assessee's eight appeals for AYs 1992-93 to 1999-2000 were disposed of by this Court by its common order dated 4th September 2015. As noted therein, it was stated by counsel for the Assessee that he had instructions to withdraw the Assessee's appeals. It was further stated by him that the Assessee had no objection to the Revenue's appeals for AYs 1990-91 and 1991-92 being allowed. This portion of the Court's order dated 4th September 2015, which is relevant for the present appeals, reads thus: "3A. Mr. Gupta further submits that in view of the fact that the Assessee has accepted the orders of the ITAT for the above AYs and its appeals have been dismissed as withdrawn, the Assessee has no objection to the appeals of the Revenue being ITA Nos.355/2002 and 101/2002 for AYs 1990-91 and 1991-92 respectively being allowed. 4. As far ....
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....s in the Scindia House property was taxable as 'income from house property' and not 'business income' was accepted by the Assessee. Position under the Wealth Tax Act 16. As far as the present WTA appeals of the Revenue are concerned, it is first necessary to understand the background in which the questions that have been framed arose. The Finance Act, 1960 (FA 1960) exempted companies from the levy of wealth tax on their assets. However, the Finance Act 1983 (FA 1983) revived wealth tax in respect of the assets of companies. Section 40 (1) of the FA 1983 stated that notwithstanding anything contained in Section 13 of the FA, 1960, wealth tax was chargeable for every AY commencing on and from the 1st April 1984 in respect of the net wealth on the corresponding valuation date of every company, not being a company in which the public are substantially interested, at the rate of 2% of such net wealth. The net wealth was defined as the amount by which the aggregate value of all the assets, wherever located, belonging to the company on the valuation date was in excess of the aggregate value of all the debts owed by the company on the valuation date which are secured on, or which ha....
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....to in clause (i) (ii), (iii) or (iv) are held by the Assessee as stock-in-trade in a business carried on by it, the question shall be decided in accordance with such directions as the Board may, by general or special order, issue for the guidance of the Assessing Officer, having regard to the ratio which the yearly turnover of a business of trading in such assets bears to the average of the stocks of such assets held from time to time during the year in such business ordinarily and other relevant factors." 19. The rationale for bringing about the above change was set out in para 54 of the Memorandum explaining the provisions of the Finance Bill, 1988 as under: "54. Under the existing provisions of Section 40 of the Finance Act, 1983, wealth tax is levied in respect of the net wealth of all closely- held companies. For the purposes of determining the net wealth of the company, the value of only specified assets like building, land (other than agricultural land), gold, silver, platinum, ornaments or utensils made of gold, silver etc. are taken into account. The rationale underlying the revival of levy of wealth-tax on companies was to curb the tendency of avoidan....
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....ll take effect from 1st April 1989, and will, accordingly, apply in relation to the Assessment Year 1989-90 and subsequent years. (Clause 87)." 20. Thus, by the above change, the stock-in-trade held by a company would not be considered to be part of its assets for the purpose of wealth tax. It was made explicit that the change was to be effective from 1st April 1989. Relevant facts for the WTA assessments 21. The facts relevant for the wealth tax assessments are that for AY 1984-85, the Assessee on 24th June 1988 filed a 'nil' return under the WTA not including the Scindia House property as part of its assets. The Wealth Tax Officer (WTO) referred the issue of valuation of the Scindia House property to the Departmental Valuation Officer (DVO). On the basis of the report submitted by the DVO, the WTO completed the assessment on 28th March 1989 taking the value of the said property at Rs. 1,38,15,000. The wealth tax was determined accordingly. 22. The said assessment order was set aside by the Commissioner of Wealth Tax (CWT) under Section 25 (2) of the WTA. The CWT directed the WTO to make a fresh assessment after making enquiries. The WTO then framed a fresh ass....
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....trade of the Assessee. (iv) The amendment to Section 40 (3) of the FA 1983 by the FA 1988 was retrospective and applied to "all pending matters". Therefore, the property in question was exempt from wealth tax for all the four AYs 1984-85, 1986-87, 1987-88 and 1988-89. 27. As far as AY 1985-86 is concerned, against the order dated 30th March 1990 of the WTO, the Assessee filed an appeal which was dismissed by the CWT (A) by an order dated 9th March 1992, inter alia, rejecting the plea of the Assessee that the Scindia House property being its stock-in-trade could not form part of the assets for the purpose of the WTA. Against the said order, the Assessee filed an appeal before the ITAT. 28. As regards AYs 1989-90 to 1991-92, by the common order dated 30th October 1995, the CWT (A) held that since the rental income from the Scindia House property had been held to be business income, the said property had to be treated as its stock-in-trade and which, with effect from 1st April 1989, was exempt from wealth tax. Against this order the Revenue filed appeals before the ITAT. The Assessee filed cross appeals on some other issues pertaining to the valuation of the Niti Bagh p....
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....he Respondent-Assessee, Atma Ram Properties (P) Limited, is its 'business asset/stock-in-trade' and therefore, cannot form part of its 'wealth' for the purposes of the WTA?" 35. In respect of the appeals for AYs 1984-85 to 1988-89, the additional question that has been framed for consideration is: "Whether the Income Tax Appellate Tribunal (ITAT) was correct in law in holding that the amendment to sub-section 3 of Section 40 by the Finance Act, 1988 (FA 1988) by way of insertion of a proviso to the same is clarificatory and hence retrospective in nature?" Submissions of counsel for the Revenue 36. Mr. Raghvendra Singh, learned Senior standing counsel for the Revenue, first submitted that in view of the order dated 4th September 2015 passed by this Court in the appeals under the ITA, the fact that the rental income received by the Assessee from the Scindia House Property should be treated as 'income from house property' and not 'business income' now stands settled. This position holds good for the AYs 1990-91 upto 1999-00. Mr. Singh submits that if indeed the rental income has to be treated as income from house property and not business income, then the question of....
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....on the other hand first submitted that merely because for the purpose of the ITA, the Assessee did not question the treatment of the rental income received by it as income from house property did not mean that the property ceased to be its stock-in-trade. According to him, the stand taken by the Assessee in the appeals under the ITA would not affect its case under the WTA. 42. Mr. Gupta submitted that for the purpose of exigibility to tax under the WTA, the taxability of the rental income as income from house property under the ITA would not be relevant. The said issue had to be decided independent of the ITA. He referred to the observations of the SB of the ITAT in Atma Ram Properties (P) Limited v. Joint Commissioner of Income Tax (supra) and the decision of this Court in CIT v. Ansal Housing Finance and Leasing Co. Ltd. (supra) and submitted that notwithstanding that the rental income may be treated as income from house property the Scindia House property would remain its stock-in-trade. Reliance was placed on the decisions of the Madras High Court in Commissioner of Wealth Tax v. Kumudum Printers P. Limited (2012) 341 ITR 514 (Mad) and Commissioner of Wealth Tax v. Donatus V....
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....hese matters. 47. In the order dated 27th December 2004, for AYs 1984-85,1986-87 to 1988-89, the ITAT observed in para 23 as under: "23....we are of the opinion that the rental income from Scindia House being taxable as income from business, the Scindia House is to be held a business asset i. e. stock-in-trade in the hands of the assessee company and since the assessee has been selling the flats constructed in this building and the Tribunal has given specific in assessment year 1980-81 that this building had been purchased for carrying on the sale and purchase business of flats to be constructed thereupon, we are of the opinion that the same has been held by the assessee as stock-in-trade." 48. If indeed the Scindia House property was taken to be the Assessee's stock-in-trade since the rental income earned therefrom was taxable as its business income, then the converse position must hold good too viz., if the rental income were not to be taxable as business income then the property too cannot be treated as the Assessee's business asset i.e. its stock-in-trade. The order dated 4th September 2015 of this Court in the Revenue's appeals under the ITA for AYs ....
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....uildings, flats, garages, offices, hotels and theatres. 2. To carry on the business of land, real estate and property agents, brokers, representatives, and dealers and to render services of hiring, renting, leasing, sale or purchase of buildings, lands and real estate on a commission, fee or brokerage basis." 51. It is significant that while the Assessee was formed for purchasing and selling properties, earning of income by letting out the properties owned by it was not one of its business objects. The general object of 'dealing' with the properties had to be read ejusdem generis the main object. This did not include renting out the properties for income. 52. This crucial distinction in the purpose for which the Scindia House property was purchased by the Assessee determined the nature of the rental income earned by it. This was what led the SB of the ITAT to hold in its decision in Atma Ram Properties (P) Limited v. Joint Commissioner of Income Tax (supra) for AYs 1993-94 to 1998-99 that the rental income earned from the said property was taxable as 'income from house property' and not 'business income.' It was pointed out by the SB of the ITAT in the....
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....corporated with the object of buying and developing landed properties and promoting and setting up markets thereon. 18. It is thus clear that the facts involved in the case of S. G. Mercantile Corporation (P) Ltd. (supra) and Karanpura Development Co. Ltd. (supra) cited by the learned Counsel for the assessee were materially different and the decisions came to be rendered in the light of such different facts. Similar is the position as regards the other cases cited by the learned Counsel for the assessee. On the other hand, a careful reading of all these decisions relied upon by the learned Counsel for the assessee reveals that the ratio laid down therein is in consonance with the proposition propounded by the Hon'ble Supreme Court in its earlier decisions in the cases of East India House & Land Development Trust Ltd. (supra) and Karnani Properties Ltd. (supra). The learned Counsel for the assessee, however, has attempted to pick out and rely on some sentences from the said judgments in support of the assessee's case. It is a first and foremost principle of reviewing the binding nature of precedents that the precedent is an authority for what it actually decides an....
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....ls placed before the Court by the Assessee it is seen that the Assessee sold some flats in 1986 and 1987 but none at all thereafter till January 1996. Again from May 1996 till January 2000 it did not sell any portion of the property. After January 2000 it sold two portions in 2004. However, that warranted a different treatment only to that extent and in those years as was noted by the SB of the ITAT in para 24 of its decision in Atma Ram Properties (P) Limited v. Joint Commissioner of Income Tax (supra) as under: "Even if the said property was held by the Assessee-company as stock- in-trade in its capacity as a trader going by the nature of its business activities, the rental income was not earned by it from the tenants in its capacity as a trader. On the other hand, when the vacant possession of the tenements was obtained by the Assessee-company and the vacant tenements were sold to the different parties from time to time, the Assessee-company acted as a trader in the said transactions and the income arising out of such transaction was rightly assessed to tax under the head "Profits and gains of business or profession". However, when it comes to the rental income, the sai....
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.... assessee is engaged in building activities. It argues that flats are held as part of its inventory of stock in trade, and are not let out. The further argument is that unlike in the other instances, where such builders let out flats, here there is no letting out and that deemed income - which is the basis for assessment under the ALV method, should not be attributed. This Court is of the opinion that the argument, though attractive, cannot be accepted. As repeatedly held, in East India, Sultan, and Karanpura, the levy of income tax in the case of one holding house property is premised not on whether the Assessee carries on business, as landlord, but on the ownership. The incidence of charge is because of the fact of ownership. xx xx xx xx xx While there can be no quarrel with the proposition that "occupation" can be synonymous with physical possession, in law, when Parliament intended a property occupied by one who is carrying on business, to be exempted from the levy of income tax was that such property should be used for the purpose of business. The intention of the lawmakers, in other words, was that occupation of one's own property, in the course of busin....
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....ery beginning Assessee tried to construct the flats on roof available to the Assessee and when it did not succeed in above objection, it has been selling part of the property in different years. The consideration realized has all along been assessed as business receipt. Even the rental income was assessed under the head 'business'. Only assessment year in which a contrary view was taken under the Income Tax Act was assessment year 1992- 93. The relevant extract of aforesaid order has also been reproduced above. In the order question of stock in trade is not discussed. However, on the basis of ratio of decisions of Supreme Court in the case of CIT v. Chugandas & Co. 55 ITR 17, and in the case of S.G. Mercantile Corpn. P. Ltd. v.CIT 83 ITR 700, it held that income realized even when building was stock in trade was to be assessed under the head 'house property income'. The aforesaid finding in no way affects the claim of the Assessee that Scindia House property is stock in trade in the hands of the Assessee. If it is stock in trade, then it has to be treated as exempt under the Wealth Tax Act. We hold accordingly." (emphasis supplied) 61. The above premise of the order of the IT....
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....uded from its net wealth for the purposes of the WTA. Is the amendment to Section 40 (3) retrospective? 65. The question whether the amendment to Section 40 (3) of the FA 1983 by the FA 1988 is retrospective is rendered academic in view of the above conclusion that the Scindia House property cannot be considered to be the Assessee's stock-in-trade either for the period after AY 1989-90 or earlier from AY 1984-85 onwards. Nevertheless, the Court proceeds to answer the question inasmuch as it has been framed for the appeals concerning AYs 1984-85 to 1989. 66. The Assessee has relied on the decision of the Karnataka High Court in Commissioner of Wealth Tax v. Prakashi Talkies Pvt. Ltd. (supra) which has been followed by the Rajasthan High Court in Commissioner of Income Tax v. Jodhan Real Estate Development Co. P. Ltd (supra) and Madhya Pradesh High Court in Commissioner of Wealth Tax v. Devshree Cinema (supra). 67. In CWA v. Prakashi Talkies Pvt. Ltd. (supra) the question that arises for consideration was whether retrospective effect could be given to the aforementioned amendment. What weighed with the Court was the speech of the Finance Minister which explained that ....