M/s Famous Commercial Complex, Udupi V. ITO, Udupi

ITA 1181/BANG/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 8456 (ITAT-BANGALORE)
• Duration Of Justice: 3 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-03-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 17-03-2010
• Assessment Year: misc
• Appeal Filed On: 14-12-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JACINTA ZIMIK VASHAI; JASON P BOA
• Assessee Lawyers: DINESH
• Keywords: Set aside
• Section: 234B; 260A

Judgement Text

PAGE 1 OF 7 ITA NOS.1181 TO 1191/BANG/2009 1 IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH A BEFORE DR. O K NARAYANAN, VICE PRESIDENT AND SHRI GEORGE GEORGE K., J.M. ITA NOS.1181 TO 1191/BANG/2009 (ASST. YEARS 1987-88 TO 1997-98) M/S FAMOUS COMMERCIAL COMPLEX, NEAR CITY BUS STAND, UDUPI. - APPELLANT VS THE INCOME TAX OFFICER, WARD-1, UDUPI. - RESPONDENT APPELLANT BY : SHRI DINESH, ADVOCATE RESPONDENT BY : SMT. JACINTA ZIMIK VASHAI, ADDL. CIT AND SHRI JASON P BOAZ, CIT-I. O R D E R PER BENCH : THESE APPEALS FILED BY THE ASSESSEE ARISE OUT OF THE CONSOLIDATED ORDER OF THE CIT(A),MANGALORE DATED 12 .10.2009. THE ASSESSMENT YEARS CONCERNED ARE 1987-88 TO 1997- 98. 2. SINCE THESE APPEALS RELATE TO COMMON ISSUES, TH E APPEALS ARE DISPOSED OF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY. 3. THE GROUNDS RAISED IN THESE APPEALS ARE IDENTI CAL. THE ASSESSEE HAS RAISED SIX EXHAUSTIVE GROUNDS. THE F IRST AND THE SIXTH PAGE 2 OF 7 ITA NOS.1181 TO 1191/BANG/2009 2 GROUNDS ARE GENERAL IN NATURE AND NO SPECIFIC ISSUE IS INVOLVED, HENCE, THE SAME ARE DISMISSED. 4. IN GROUND NO.5, THE ASSESSEE CHALLENGES THE LEV Y OF INTEREST U/S 139(8), 217, 220(2), 234A AND 234B RES PECTIVELY. 4.1 THE LEVY OF INTEREST UNDER THE ABOVE MENTIONED PROVISIONS ARE ONLY CONSEQUENTIAL IN NATURE SUBJECT TO ANY WAIVER PETITION. MOREOVER, NO ARGUMENTS ARE RAISED BY T HE ASSESSEE IN THE COURSE OF HEARING WITH REFERENCE TO LEVY OF INTERES T. HENCE, GROUND NO.5 RAISED IS DISMISSED. 5. THE REMAINING EFFECTIVE GROUNDS, NAMELY, GROUND NO.2, 3 AND 4, THE ESSENCE AND CRUX OF THE ISSUE IS WHETH ER THE ASSESSMENT IS POSSIBLE ON THE ASSESSEE-FIRM AND THE RENTAL INC OME IS REQUIRED TO BE ASSESSED IN THE HANDS OF THE CO-OWNERS OF THE PR OPERTY BY APPLYING THE PROVISIONS OF SECTION 26 OF THE ACT. 6. THE NARRATION OF THE FACTS PERTAINING TO ONE AS ST. YEAR WOULD SUFFICE FOR UNDERSTANDING THE ISSUE IN QUESTI ON. HENCE, THE FACTS RELATING TO ASST. YEAR 1987-88 IS DISCUSSED H EREIN BELOW:- 6.1 THE ASSESSEE ORIGINALLY FILED THE RETURN OF IN COME ON 15.3.1993 IN THE STATUS OF FIRM URF ADMITTING AN IN COME OF RS.22,865/- UNDER THE HEAD 'BUSINESS' AFTER CLAIMIN G VARIOUS EXPENSES OUT OF RENTAL INCOME FROM THE COMMERCIAL C OMPLEX OWNED BY IT. THE ASSESSING AUTHORITY ASSESSED THE SAME A S 'INCOME FROM PAGE 3 OF 7 ITA NOS.1181 TO 1191/BANG/2009 3 HOUSE PROPERTY'. ON APPEAL, THE COMMISSIONER (A) C ONFIRMED INCOME FROM HOUSE PROPERTY. 6.2 THEREAFTER, THE ASSESSEE FILED APPEAL BEFORE T HE APPELLATE TRIBUNAL WHEREIN IT WAS SUBMITTED THAT WH EN THE ACTIVITY OF THE ASSESSEE CANNOT BE HELD THAT OF THE BUSINESS , THEN THERE BEING NO BUSINESS, THERE IS NO FIRM IN EXISTENCE AND THE SO-CALLED PARTNERS OF THE FIRM ARE CO-OWNERS OF THE PROPERTY AND THE I NCOME IS REQUIRED TO BE ASSESSED IN THE HANDS OF THE EACH CO-OWNERS T O THE EXTENT OF THEIR RESPECTIVE SHARES BY APPLYING THE PROVISIONS OF SEC.26 OF THE ACT. RELIANCE WAS MADE ON THE JUDGEMENT OF THE JUR ISDICTION AND THE HIGH COURT IN THE CASE OF CIT V POORNIMA ENTERP RISES IN 17RC NO. 26-29 OF 1991 DT.19.6.1992. THE TRIBUNAL ACCOR DINGLY DIRECTED THE ASSESSING AUTHORITY TO ASSESS THE INCOME IN THE HANDS OF THE PARTNERS/OWNERS TO THE EXTENT OF THEIR RESPECTIVE S HARES. 6.3 ON APPEAL BY THE REVENUE BEFORE THE HON'BLE HI GH COURT OF KARNATAKA U/S 260A OF THE ACT, THE HON'BLE COURT SET ASIDE THE ORDERS OF THE AUTHORITIES AND DIRECTED THE ASSE SSING AUTHORITY TO ASCERTAIN AS TO WHETHER THE FIRM IS IN EXISTENCE BE FORE DECIDING THE ISSUE OR WHETHER THE INCOME IS BEING ENJOYED BY THE PARTIES AS CO- OWNERS IN RESPECT OF EACH ONE'S SHARE AND THEREAFTE R TO DECIDE THE ASSESSMENT. 6.4 BEFORE THE ASSESSING AUTHORITY, AFTER THE SET- ASIDE, IT WAS CONTENDED THAT THERE WAS NO BUSINESS ACTIVITY T O EARN PROFIT WHICH IS ESSENTIAL CONDITION PRECEDENT TO ASCERTAIN THE EXISTENCE OF PAGE 4 OF 7 ITA NOS.1181 TO 1191/BANG/2009 4 THE FIRM AND THIS CONDITION NOT BEING SATISFIED THE ASSESSEE CANNOT BE ASSESSED IN THE STATUS OF FIRM AND CONSEQUENTLY THE RENTAL INCOME CAN BE ASSESSED ONLY IN THE HANDS OF THE CO-OWNERS BY APPLYING THE PROVISIONS OF SEC.26 OF THE ACT. THE REFERENCE WAS ALSO MADE TO THE JURISDICTIONAL HIGH COURT JUDGEMENT IN THE CASE REF ERRED TO SUPRA. THE ASSESSING AUTHORITY HOWEVER DECLINED TO ACCEPT THE SUBMISSIONS OF THE ASSESSEE AND HELD THAT THE FIRM WAS IN EXIST ENCE SINCE IT WAS REGISTERED WITH THE REGISTRAR OF FIRMS AND HELD THA T VARIOUS CITATIONS GIVEN BY THE ASSESSEE WERE NOT APPLICABLE . FURTHER, THE ASSESSING OFFICER HAD ALSO RELIED UPON CERTAIN JUDI CIAL PRONOUNCEMENTS TO CONCLUDE THAT THE FIRM WAS IN EXI STENCE AND ACCORDINGLY, BROUGHT TO TAX THE INCOME IN THE STATU S OF URF/FIRM AND DENIED THE BENEFITS U/S 26 OF THE ACT. ACCORDI NGLY, THE INCOME WAS ASSESSED AND THE TAX WAS LEVIED. INTEREST U/S 139(8), 217 AND 220(2) HAD ALSO BEEN LEVIED. 7. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER , IT WAS CONTENDED BEFORE THE CIT(A) THAT THE ASSESSING AUTH ORITY OUGHT TO HAVE ACCEPTED THE EXPLANATION OF THE ASSESSEE BY FO LLOWING THE JURISDICTIONAL HIGH COURT JUDGEMENT IN THE CASE OF POORNIMA ENTERPRISES REFERRED TO SUPRA. IT WAS SUBMITTED TH AT THE ASSESSING OFFICER OUGHT TO HAVE APPLIED THE PROVISIONS OF SEC .26 OF THE ACT TO ASSESS THE INDIVIDUAL CO-OWNERS IN RESPECT OF THEIR RESPECTIVE SHARES AND OUGHT TO HAVE REFRAINED FROM ASSESSING THE ASSE SSEE IN THE STATUS OF URF/FIRM. IT WAS FURTHER SUBMITTED THAT CONSTRU CTION OF COMMERCIAL COMPLEX AND LETTING OUT CANNOT BE HELD T O BE AN ACTIVITY OF PROFIT AND THE ASSESSING AUTHORITY HAVING HELD T HAT THE INCOME PAGE 5 OF 7 ITA NOS.1181 TO 1191/BANG/2009 5 ITSELF WAS ASSESSABLE ONLY UNDER THE HEAD 'INCOME F ROM PROPERTY' OUGHT TO HAVE APPRECIATED THAT THERE WAS NO ACTIVIT Y OF PROFIT IN EXISTENCE TO JUSTIFY THE ASSESSMENT OF THE ASSESSEE IN THE STATUS OF FIRM. THE CIT(A) DISMISSED THE APPEAL OF THE ASSESS EE FOR A DETAILED REASONING MENTIONED IN PARA 6 TO 14 OF HIS ORDER. 8. THE LEARNED AR REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND THE LEARNED DR REL IED ON THE FINDINGS/CONCLUSIONS OF THE CIT(A). 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS ON RECORD. 9.1 AFTER DISCUSSING THE FACTS OF THE CASE, WE HAV E TO CONCLUDE ON THE MODALITIES, WHICH WOULD BE FOLLOWED TO BRING THE INCOME TO TAX. THE ASSESSEE-FIRM, IF HAVING ONLY THE IMMOVABLE PROPERTY, DERIVING HOUSE PROPERTY INCOME AND NOT EN GAGED IN ANY OTHER BUSINESS, THE RENTAL INCOME CANNOT BE ASSESSE D AS THE INCOME OF THE FIRM FOR THE REASON THAT A FIRM IS ESSENTIAL LY FORMED FOR THE PURPOSE OF CARRYING ON A BUSINESS AND THERE IS NO B USINESS IN EARNING RENTAL INCOME FROM AN IMMOVABLE PROPERTY. 9.2 THE NEXT QUESTION IN THAT SCENARIO IS HOW THE RENTAL INCOME COULD BE ASSESSED IN THE HANDS OF THE INDIVI DUAL CONSTITUENTS OF THE PROPERTY. IN THE PRESENT CASE, THE ASSESSEE -FIRM, IN THE CAPACITY OF THE FIRM, IS EARNING A PORTION IN THE O WNERSHIP OF THE PROPERTY AND THE REMAINING PORTION OF THE OWNERSHIP IS OWNED BY PAGE 6 OF 7 ITA NOS.1181 TO 1191/BANG/2009 6 OTHER PERSON. THEREFORE, THE OWNERS ARE GROUPS AND GROUP WITHIN THE GROUPS. 9.3 IN ORDER THAT SECTION 26 OF THE I T ACT MAY BE APPLICABLE, TWO ESSENTIAL CONDITIONS MUST BE SATISF IED. THE FIRST IS THAT THE PROPERTY MUST BE OWNED BY TWO OR MORE CO-O WNERS AND SECONDLY, THE RESPECTIVE SHARES OF SUCH CO-OWNERS M UST BE DEFINITE AND ASCERTAINABLE. WHERE THE SHARE IS NOT DETERMIN ABLE ON DEFINITE TERMS, SECTION 26 DOES NOT HAVE ANY APPLICATION, AS HELD BY KERALA HIGH COURT IN THE CASE OF S N SYED MOHAMMED SAHEB & BROS. V CIT 68 ITR 791. 9.4 THE NEXT QUESTION TO BE CONSIDERED IS WHAT SHO ULD BE THE STATUS FOR ASSESSMENT? IT IS POSSIBLE TO ASSES S IN THE STATUS OF AN AOP REPRESENTING AN IMPARTIBLE ESTATE. 9.5 THE ASSESSING OFFICER IS ACCORDINGLY DIRECTED TO DETERMINE THE STATUS AND COMPLETE THE ASSESSMENT AN D ALLOCATE THE INCOME, AFTER EXAMINING THE PRESENT FACTS OF THE CA SE AND HEARING THE ASSESSEE IN DETAIL. 10. IN THE RESULT, THE APPEAL FILED BY THE ASSESSE E IS ALLOWED FOR STATISTICAL PURPOSE. THE ORDER IS PRONOUNCED ON 18TH MARCH, 2010. SD/- SD/- (O K NARAYANAN) (GEORGE GEORGE K) VICE PRESIDENT JUDICIAL MEMBE R BANGALORE, DTD.18/3/2010 PAGE 7 OF 7 ITA NOS.1181 TO 1191/BANG/2009 7 COPY TO : 1) THE ASSESSEE (2) THE REVENUE (3) TH E CIT(A) CONCERNED. (4) THE CIT CONCERNED. (5) THE DR (6) GUARD FILE. (7) GUARD FILE, NEW DELHI. MSP/18.3 BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.