The Cardboard Material & Printing Co. Pvt. Ltd., Kolkata V. ITO, WD-11(2), KOLKATA, Kolkata

ITA 1101/KOL/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 4881 (ITAT-KOLKATA)
• Duration Of Justice: 7 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-03-2016
• Appeal Filed By: Assessee
• Bench Allotted: C
• Assessment Year: 2006-2007
• Appeal Filed On: 14-08-2015
• Court: TRIBUNAL
• Department Lawyers: DINABANDHU NASKAR
• Assessee Lawyers: P J BHIDE
• Keywords: Business income; Period of limitation
• Section: 27

Judgement Text

I.T.A. NO. 1101/KOL./2015 ASSESSMENT YEAR: 2006-2007 PAGE 1 OF 7 IN THE INCOME TAX APPELLATE TRIBUNAL, KOLKATA SMC BENCH, KOLKATA BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER I.T.A. NO. 1101/KOL/ 2015 ASSESSMENT YEAR: 2006-2007 THE CARDBOARD MATERIAL & PRINTING CO. PRIVATE LIMIT ED,.........APPELLANT 7, CONVENT ROAD, KOLKATA-700 014 [PAN : AABCT 2274 P] -VS.- INCOME TAX OFFICER,................................ ..................................RESPONDENT WARD-11(2), KOLKATA, P-7, CHOWRINGHEE SQUARE, KOLKATA-700 069 APPEARANCES BY: SHRI P.J. BHIDE, FCA, FOR THE ASSESSEE SHRI DINABANDHU NASKAR, ADDL. CIT, FOR THE DEPARTME NT DATE OF CONCLUDING THE HEARING : FEBRUARY 11, 2016 DATE OF PRONOUNCING THE ORDER : MARCH 18, 2016 O R D E R THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-II, KOLKAT A DATED 11.06.2015 AND THE SOLITARY ISSUE ARISING OUT OF THE SAME RELA TES TO THE DETERMINATION OF THE HEAD OF INCOME UNDER WHICH THE RENTAL INCOME RECEIVED BY THE ASSESSEE IS CHARGEABLE TO TAX. 2. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY. D URING THE YEAR UNDER CONSIDERATION, IT HAD RECEIVED RENTAL INCOME OF RS.96,000/- AND AFTER DECLARING THE SAME AS ITS BUSINESS INCOME AND CLAIMING VARIOUS EXPENSES AGGREGATING TO RS.48,783/- UNDER THE SAID HEAD, TOTAL INCOME OF RS.48,217/- WAS DECLARED BY THE ASSESSEE IN THE RET URN OF INCOME FILED FOR THE YEAR UNDER CONSIDERATION ON 25.11.2006. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS CALLED UPO N BY THE ASSESSING OFFICER TO EXPLAIN AS TO WHY THE RENTAL INCOME SHOU LD NOT BE ASSESSED I.T.A. NO. 1101/KOL./2015 ASSESSMENT YEAR: 2006-2007 PAGE 2 OF 7 UNDER THE HEAD INCOME FROM HOUSE PROPERTY. IN REP LY, IT WAS SUBMITTED BY THE ASSESSEE-COMPANY THAT IT HAD TAKEN THE HOUSE PROPERTY ON LEASE FROM M/S. MARTIN BURNS LIMITED FOR A PERIOD OF 40 Y EARS AND SINCE THE SAID LEASE PERIOD HAD ALREADY EXPIRED AND THERE WAS A DISPUTE ABOUT THE EXTENSION OF LEASE PERIOD, RENT WAS BEING DEPOSITED WITH THE RENT CONTROLLER. IT WAS CONTENDED THAT THE ASSESSEE-COMP ANY THUS WAS NOT THE LEGAL OWNER OF THE HOUSE PROPERTY AND THE RENTAL IN COME COULD NOT BE ASSESSED IN ITS HAND UNDER THE HEAD INCOME FROM HO USE PROPERTY. THIS STAND OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE BY T HE ASSESSING OFFICER. ACCORDING TO HIM, THE ASSESSEE WAS THE OWNER OF THE PROPERTY IN VIEW OF THE PROVISIONS OF SECTION 27(IIIB) OF THE ACT AND T HE RENTAL INCOME, THEREFORE, WAS CHARGEABLE TO TAX IN ITS HAND UNDER THE HEAD INCOME FROM HOUSE PROPERTY. ACCORDINGLY, HE BROUGHT TO TAX THE RENTAL INCOME IN THE HANDS OF THE ASSESSEE UNDER THE HEAD INCOME FROM H OUSE PROPERTY AFTER ALLOWING DEDUCTION AT THE RATE OF 30% UNDER SECTION 24(A) OF THE ACT INSTEAD OF THE EXPENSES OF RS.48,783/- CLAIMED BY T HE ASSESSEE UNDER THE HEAD BUSINESS. 3. THE ACTION OF THE ASSESSING OFFICER IN TREATING THE RENTAL INCOME AS INCOME FROM HOUSE PROPERTY INSTEAD OF BUSINESS INCO ME WAS CHALLENGED BY THE ASSESSEE IN AN APPEAL FILED BEFORE THE LD. C IT(APPEALS), WHO UPHELD THE ACTION OF THE ASSESSING OFFICER AFTER DISCUSSIN G ALL THE RELEVANT FACTS OF THE CASE, SUBMISSIONS OF THE ASSESSEE AND THE RE LEVANT LEGAL POSITION, IN HIS IMPUGNED ORDER AS UNDER:- THE FACTS OF THE CASE ARE UNIQUE AND THE PROPERTY IN QUESTION IS NO.7, CONVENT ROAD, KOLKATA - 700 014. THE PROPERTY HAD BELONGED TO ONE PETROS HYRAPICT CRETE WHO APPARENTL Y LEASED THE PROPERTY TO M/S. MARTIN BURNS LTD. FOR THE PERIOD 1 930 TO 1980 WITH THE POWER TO SUB- LEASE THE SAME. DURING THE P ERIOD THE ASSESSEE BECAME A SUB-LESSEE OF M/S. MARTIN BURN LT D. AFTER M/S. MARTIN BURNS LTD'S LEASE EXPIRED ON 31.03.1980 AND WHEN M/S. MARTIN BUM LTD. SOUGHT TO EVICT THE ASSESSEE COMPAN Y FROM THE PREMISES, THEY FAILED DUE TO LAPSE OF THE LEASE WIT H P.H. CRETE. THE SUIT BROUGHT BY M/S. MARTIN BURNS LTD AGAINST T HE ASSESSEE WAS ALSO REJECTED BY THE DIST. JUDGE, ALIPORE. ACCO RDINGLY ON 11.08.1980 THE ASSESSEE QUESTIONED THE AUTHORITY OF M/S. MARTIN BURNS LTD TO SEEK RENT FROM IT. APPARENTLY M/S. MAR TIN BURNS LTD INFORMED THE ASSESSEE ON 09.10.1980 THAT THEY ARE F ILING AN I.T.A. NO. 1101/KOL./2015 ASSESSMENT YEAR: 2006-2007 PAGE 3 OF 7 APPEAL AGAINST THE ORDER OF THE DIST. JUDGE, ALIPOR E AND THEY ARE CLAIMING THE RIGHT AS A STATUTORY TENANT OF P .H. C RETE IN RESPECT OF THE PREMISES IN QUESTION. DURING THE APPELLATE P ROCEEDINGS THE AR HAS NOT BEEN ABLE TO SHOW THAT THE ORDER OF THE DIST. JUDGE, ALIPORE HAS BEEN MODIFIED OR OVERRULED AT AN Y TIME DURING THE PAST THIRTY FIVE YEARS. THE AR HAS NOT BEEN ABL E TO SHOW THAT THE ASSESSEE COMPANY IS PAYING ANY RENT TO M/S. MAR TIN BURNS LTD. THE ASSESSEE THUS IS NEITHER A TENANT NOR A SUB-LES SEE OF THE PROPERTY BUT IS IN OCCUPATION OF THE SAME IN FU LL POSSIBLE VIEW FOR THE PAST FEW DECADES. TECHNICALLY P.H. CRE TE IS NOT THE LANDLORD OF THE ASSESSEE AND M/S. MARTIN BURNS LTD HAS ALREADY LOST ITS STATUS AS A LESSOR AND HAS ALSO LOST ITS C ASE SEEKING EVICTION. NOBODY HAS EVER HEARD ANYTHING FROM P.H. CRETE. THE ASSESSEE HAS ITS OWN ELECTRICITY/WATER CONNECTION A ND IS ENJOYING THE PROPERTY AS ITS OWNER. THE ASSESSEE HAS ALSO LE T OUT THE PART OF THE PROPERTY AND HAS FURTHER DECLARED RENTAL REC EIPTS OF RS.96,000/- IN ITS OWN RIGHT IN THE PREVIOUS YEAR U NDER CONSIDERATION. IN THE ORDER OF ASSESSMENT, THE A.D. HAS HELD THAT THE ASSESSEE IS TO BE TREATED AS THE OWNER OF THE PROPE RTY IN VIEW OF THE DECISION OF THE SUPREME COURT IN CIT V. PODDAR CEMENT PVT. LTD. (1997) 226 ITR 625 (SC) BECAUSE THE ASESSEE IS ENTITLED TO RECEIVE INCOME FROM THE PROPERTY IN HIS OWN RIGHT. THE AO HAS ALSO INVOKED THE PROVISIONS OF SECTION 27(IIIB) OF THE ACT TO HOLD THAT THE ASSESSEE HAD A LEASE OF OVER 12 YEARS AND THIS RIGHT ENTITLES IT TO BE TERMED AS AN OWNER OF THE PROPERT Y. ACCORDINGLY THE AO BROUGHT THE RENTAL INCOME OF RS.98,000/- TO TAX UNDER THE HEAD 'INCOME FROM HOUSE PROPERTY' AND ALLOWING DEDUCTION THEREON AS PER SECTION 24(A) OF THE ACT. THE A.O. A LSO DISALLOWED THE SUNDRY EXPENSES CLAIMED BY THE ASSESSEE AGAINST THIS INCOME. IN THE APPELLATE PROCEEDING THE ASSESSE IN ITS WRIT TEN SUBMISSION HAS STILL CLAIMED ITSELF TO BE A MONTHLY TENANT CLAIMING THAT IT DEPOSITS THE RENT FOR THE PROPERTY WITH THE RENT CONTROLLER. THE ASSESSEE HAS CLAIMED TO BE UNDER NO LEASE AND THEREFORE IT HAS CLAIMED THAT SECTION 27(IIIB) OF T HE ACT HAS NO APPLICATION. THE ABOVE FACTS CLEARLY INDICATE THAT THE ASSESSEE IS ENJOYING THE PROPERTY AS ITS DEFACTO OWNER FOR THE PAST 40 YEARS. THERE IS NO NEWS OF P.H. CRETE, THE ORIGINAL OWNER OF THE PROPERTY, AND THE ASESSEE HAS ALREADY WON THE SUIT FILED BY M/S. MARTIN BURNS LTD FOR EVICTION. THOUGH THE ASSESSEE CLAIMS TO DEPOSIT RENT WITH THE RENT CONTROLLER, THE FACT REM AINS THAT THE ASSESSEE HAS THE RIGHT OF 'ADVERSE POSSESSION' AGAI NST ALL CLAIMANTS. E.G. P.H. CRETE IS NOT KNOWN TO EXIST, M /S. MARTIN BURNS LTD IS NOT IN POSSESSION OF THE PROPERTY AND THE ASSESSEE DOES NOT ACKNOWLEDGE M/S. MARTIN BURNS LTD AS ITS LANDLORD/LESSOR. THE PERIOD OF 40 ODD YEARS IS ALSO A FACTOR TO BE CONSIDERED DURING WHICH THE ASSESSEE HAS ENJOYED TH E PROPERTY I.T.A. NO. 1101/KOL./2015 ASSESSMENT YEAR: 2006-2007 PAGE 4 OF 7 AS AN OWNER AND HAS ALSO EARNED RENT. IT HAS NOT BE EN SHOWN THAT THE ASSESSEE HAD BEEN ALLOWED TO FURTHER SUB-LEASE THE PROPERTY BY ANY OF THE PREVIOUS OWNER/LESSOR IN THE PAST. TH IS FURTHER STRENGTHENS THE CASE AGAINST THE ASSESSEE. THE ASSE SSEE IS ALSO DEEMED TO BE THE OWNER BY VIRTUE OF ITS 'ADVERSE PO SSESSION' OF THE PROPERTY. EVERY POSSESSION USUALLY STARTS LEGALLY 'I.E, IT WA S PERMISSIVE, UNLESS PROVED TO THE CONTRARY BUT THE L EGAL POSSESSION MAY BECOME ADVERSE POSSESSION DUE TO HAP PENING OF CERTAIN EVENTS. THE CONCEPT OF ADVERSE POSSESSION C ONTEMPLATES A HOSTILE POSSESSION, I.E. A POSSESSION WHICH IS EXPR ESSLY OR IMPLIEDLY IN DENIAL OF THE TRUE OWNER. POSSESSION T O BE ADVERSE IS POSSESSION BY A PERSON WHO DOES NOT ACKNOWLEDGE THE OTHER'S RIGHT AND DENIES THEM. THE ADVERSE POSSESSION IS ON E SENSE IS BASED ON THE THEORY OR PRESUMPTION THAT THE OWNER H AS ABANDONED THE PROPERTY TO THE ADVERSE POSSESSOR ON THE ACQUIESCENCE OF THE OWNER TO THE HOSTILE ACTS AND C LAIMED OF THE PERSON IN POSSESSION. IN THE CASE OF S.M. KARIM V. MST. BIBI SAKINA AIR 1964 SE 1254 THE SUPREME COURT HAS LAID DOWN THAT THE ADVERSE POSSESSION MUST BE ADEQUATE IN CONTINUI TY, IN PUBLICITY AND EXTENT AND A PLEA IS REQUIRED AT THE LEAST TO SHOW WHEN POSSESSION BECOMES ADVERSE. IN THE CASE OF ASSESSEE, THE ASSESSEE DENIES ITS LI ABILITY TO PAY RENT TO ITS LESSOR M/S. MARTIN BURNS LTD FROM 1 1.8.1980. THE LESSOR, BY THAT TIME, HAD LOST ITS CASE FOR EVICTIO N OF THE ASSESSEE AND THERE IS NO PROOF THAT IT IS STILL PURSUING THE CASE. THE ASSESSEE IS OPENLY IN POSSESSION AND HAS ALL THE TR APPINGS OF AN OWNER IN HIS OWN RIGHT. FURTHER UNDER THE INDIAN LI MITATION ACT 1963 THE PERIOD OF LIMITATION FOR FILLING SUIT BY A LANDLORD TO RECOVER POSSESSION FROM A TENANT IS 12 YEARS. THE S ECTION 27 OF THE INDIAN LIMITATION ACT LAYS DOWN THAT AT THE DE TERMINATION OF THE PERIOD HEREBY LIMITED TO ANY PERSON FOR INST ITUTING A SUIT FOR POSSESSION OF ANY PROPERTY SHALL BE EXTINGUISHE D'. THEREFORE THERE IS A LEGAL QUIETUS TO THE DISPUTE ALSO. UNDER THE CIRCUMSTANCES, IT HAS TO BE HELD THAT THE ASSESSEE IS THE 'OWNER' OF THE PROPERTY IN ALL SENSE OF THE TERM AND BOTH U NDER THE INCOME TAX ACT 1961 (SECTION 27(IIIB) AND AS A HOLD ER OF ADVERSE POSSESSION. AGGRIEVED BY THE ORDER OF THE LD. CIT(APPEALS), THE ASSESSEE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL. 4. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE 40 YEARS LEASE PERIOD HAD ALREADY EXPIRED IN 1980 AND THE ASSESSEE , THEREFORE, CANNOT BE TREATED AS A DEEMED OWNER OF THE PROPERTY EVEN AS P ER THE PROVISIONS OF I.T.A. NO. 1101/KOL./2015 ASSESSMENT YEAR: 2006-2007 PAGE 5 OF 7 SECTION 27(IIIB) READ WITH SECTION 269UB(F) WHICH A RE NOT APPLICABLE IN THE CASE OF THE ASSESSEE. 5. THE LD. D.R., ON THE OTHER HAND, SUBMITTED THAT THE ASSESSEE IS FULLY ENJOYING THE POSSESSION OF THE PROPERTY AND HE IS T HE OWNER OF THE SAID PROPERTY AS CLEARLY MADE OUT BY THE LD. CIT(APPEALS ) AFTER DISCUSSING THE RELEVANT FACTS OF THE CASE AS WELL AS THE LEGAL POS ITION. HE CONTENDED THAT SECTION 27(IIIB) READ WITH SECTION 269UA(F) IS CLEA RLY APPLICABLE IN THE CASE OF THE ASSESSEE AND HE HAS BEEN RIGHTLY TREATE D AS A DEEMED OWNER OF THE PROPERTY BY THE AUTHORITIES BELOW. 5. I HAVE CONSIDERED THE RIVAL SUBMISSIONS AND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE TERM OW NER OF HOUSE PROPERTY FOR THE PURPOSES OF SECTION 22 TO 26 IS D EFINED IN SECTION 27 AND AS PER CLAUSE (IIIB) OF THE SAID SECTION, WHICH HAS BEEN INVOKED BY THE AUTHORITIES BELOW IN THE PRESENT CASE, 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 T O ANY BUILDING OR PART THEREOF, BY VIRTUE OF ANY SUCH TRANSACTION AS IS RE FERRED TO IN CLAUSE (F) OF SECTION 269UA, SHALL BE DEEMED TO BE THE OWNER OF T HAT BUILDING OR PART THEREOF. CLAUSE (F) OF SECTION 269UA DEFINES TRANS FER IN RELATION TO ANY IMMOVABLE PROPERTY REFERRED TO IN SUB-CLAUSE (I) OF CLAUSE (D) TO MEAN TRANSFER OF SUCH PROPERTY BY WAY OF SALE OR EXCHANG E OR LEASE FOR A TERM OF NOT LESS THAN TWELVE YEARS, AND INCLUDES ALLOWIN G THE POSSESSION OF SUCH PROPERTY TO BE TAKEN OR RETAINED IN PART PERFO RMANCE OF A CONTRACT OF THE NATURE REFERRED TO IN SECTION 53A OF THE TRANSF ER OF PROPERTY ACT, 1882. 6. AS PER THE RELEVANT FACTS AS NARRATED BY THE LD. CIT(APPEALS) IN HIS IMPUGNED ORDER, THE PROPERTY IN QUESTION BELONGED T O ONE PETROS HYRAPICT CRETE, WHO LEASED THE SAME TO M/S. MARTIN BURNS LIMITED FOR THE PERIOD 1930 TO 1980 WITH THE POWER TO SUB-LEASE THE SAME. THE ASSESSEE BECAME THE SUB-LESSEE OF M/S. MARTIN BURNS LIMITED AND WHEN M/S. I.T.A. NO. 1101/KOL./2015 ASSESSMENT YEAR: 2006-2007 PAGE 6 OF 7 MARTIN BURNS LIMITED SOUGHT TO EVICT THE ASSESSEE-C OMPANY FROM THE PREMISES AFTER THE EXPIRY OF LEASE ON 31.03.1980, T HEY FAILED TO DO THE SAME DUE TO LAPSE OF THE LEASE WITH PETROS HYRAPICT CRETE THE SUIT BROUGHT BY M/S. MARTIN BURNS LIMITED AGAINST THE AS SESSEE WAS ALSO REJECTED BY THE DISTRICT JUDGE, ALIPORE AND ACCORDI NGLY THE ASSESSEE EVEN QUESTIONED THE AUTHORITY OF M/S. MARTIN BURNS LIMIT ED TO SEEK RENT FROM IT. THE ASSESSEE-COMPANY, HOWEVER, CONTINUED TO REM AIN IN POSSESSION OF THE PROPERTY. THE PROVISIONS OF SECTION 116 OF THE TRANSFER OF PROPERTY ACT, 1882 DEAL WITH THE EFFECT OF HOLDING OVER, W HICH MEANS TO RETAIN POSSESSION AS TENANT OF PROPERTY LEASED, AFTER THE END OF THE TERM. A DISTINCTION IS DRAWN BETWEEN A TENANT CONTINUING IN POSSESSION AFTER THE DETERMINATION OF THE LEASE, WITHOUT THE CONSENT OF THE LANDLORD, AND A TENANT DOING SO WITH THE LANDLORDS CONSENT. THE FO RMER SITUATION AS IS OBTAINED IN THE PRESENT CASE IS CALLED A TENANT BY SUFFERANCE, WHO IS NO BETTER THAN A MERE TRESPASSER AND KEEPING IN VIEW T HIS LEGAL POSITION, I AM OF THE VIEW THAT THE ASSESSEE-COMPANY IN THE PRE SENT CASE, WHO IS NO BETTER THAN A MERE TRESPASSER, CAN NOT BE TREATED A S A DEEMED OWNER IN VIEW OF THE PROVISIONS OF SECTION 27(IIIB) READ WIT H SECTION 269UA(F), WHICH ARE CLEARLY NOT APPLICABLE. IN THAT VIEW OF T HE MATTER, I SET ASIDE THE IMPUGNED ORDER OF THE LD. CIT(APPEALS) ON THIS ISSU E AND DIRECT THE ASSESSING OFFICER TO ASSESS THE RENTAL INCOME IN QU ESTION IN THE HANDS OF THE ASSESSEE AS BUSINESS INCOME INSTEAD OF INCOME F ROM HOUSE PROPERTY. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON MARCH 18, 20 16. SD/- (P.M. JAGTAP) ACCOUNTANT MEMBER KOLKATA, THE 18 TH DAY OF MARCH, 2016 COPIES TO : (1) THE CARDBOARD MATERIAL & PRINTING CO. PRIVATE LIM ITED, 7, CONVENT ROAD, KOLKATA-700 014 I.T.A. NO. 1101/KOL./2015 ASSESSMENT YEAR: 2006-2007 PAGE 7 OF 7 (2) INCOME TAX OFFICER, WARD-11(2), KOLKATA, P-7, CHOWRINGHEE SQUARE, KOLKATA-700 069 (3) COMMISSIONER OF INCOME-TAX (APPEALS)-II, KOLKA TA (4) COMMISSIONER OF INCOME TAX, KOLKATA (5) THE DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, KOLKATA BENCHES, KOLKATA LAHA/SR. P.S.