M/s Meeraj Estate & Developers, Agra V. D.C.I.T.-4(1), Agra

ITA 182/AGR/2012

• Counselvise Citation: 18220314 RSA 2012
• Duration Of Justice: 1 year(s) 3 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-08-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 22-07-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 10-05-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S D SHARMA
• Assessee Lawyers: MAHESH AGARWAL
• Keywords: Capital asset; Business income; Depreciation; Opportunity of being heard; Principle of natural justice; Rule of consistency; Source of fund; Question of law; Ignorance of law
• Section: 143(3); 142(1); 234B; 145; 148; 56; 263; 12

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AGRA BENCH, AGRA BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI A.L. GEHLOT, ACCOUNTANT MEMBER ITA NOS. 182 & 292/AGRA/ 2012 ASSESSMENT YEARS: 2006-07 & 2008-09 M/S. MEERAJ ESTATE & DEVELOPERS, VS. D.C.I.T. - 4 (1), B-23, KAMLA NAGAR, AAYKAR BHAWAN, AGRA. AGRA. (PAN AALFM 8035 C) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI MAHESH AGARWAL, C.A. RESPONDENT BY : SHRI S.D.SHARMA, JR. D.R. DATE OF HEARING : 22.07.2013 DATE OF PRONOUNCEMENT : 14.08.2013 ORDER PER A.L. GEHLOT,ACCOUNTANT MEMBER: BOTH THESE APPEALS HAVE BEEN FILED BY THE ASSESSEE AGAINST TWO DIFFERENT ORDERS DATED 23.01.2012 & 27.03.2012 PASSED BY THE LEARNED CIT(A)-II, AGRA FOR A.YS. 2006-07 & 2008-09 RESPECTIVELY. 2. THE EFFECTIVE GROUNDS RAISED IN THESE APPEALS A RE REPRODUCED AS BELOW:- ITA NO. 182/AGRA/2012 BY THE ASSESSEE FOR A.Y. 2006 -07:- 1. BECAUSE UNDER THE FACTS & CIRCUMSTANCES OF THE CASE AND IN LAW, THE AUTHORITIES BELOW HAVE GROSSLY ERRED IN HO LDING THAT APPELLANTS RECEIPTS FROM LEASE CHARGES RS.8,98,512 /- AND FROM FURNISHING CHARGES RS.8,38,619/- WAS TAXABLE UNDER THE HEAD HOUSE PROPERTY AND RECEIPT FROM MAINTENANCE CHARG ES RS.9,81,692/- WAS TAXABLE UNDER THE HEAD OTHER SOU RCES. ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 2 2. BECAUSE UNDER THE FACTS & CIRCUMSTANCES OF THE C ASE AND IN LAW, THE AUTHORITIES BELOW HAVE GROSSLY ERRED IN HO LDING THAT THE INCOME EARNED BY THE APPELLANT FIRM FROM FURNISHING , PROVIDING AND MAINTAINING A COMMERCIAL SPACE, ACCORDING TO TH E REQUIREMENTS OF THE OCCUPIER, IS TO BE ASSESSED AS INCOME FROM HOUSE PROPERTY AND INCOME FROM OTHER SOURCES AN D NOT UNDER THE HEAD INCOME FROM BUSINESS AS CLAIMED BY THE HIM. 3. BECAUSE ONE HAVING DELIBERATED AND CONSCIOUSLY H OLDING, IN THE AY 2005-06, THAT THE AFORESAID INCOME IS TAXABLE UN DER THE HEAD INCOME FROM BUSINESS AND THE FACTS AND CIRCU MSTANCES REMAINING SAME, THE LD. AO WAS PRECLUDED AND HAS ER RED IN LAW IN ASSESSING THE SAID INCOME UNDER THE HEAD HO USE PROPERTY AND OTHER SOURCES. 4. BECAUSE AFTER HAVING MADE THE ASSESSMENT U/S 143 (3) IN THE STATUS OF FIRM, THE AUTHORITIES BELOW WERE NOT JU STIFIED TO CHANGE THE HEAD OF INCOME FROM INCOME FROM BUSINES S TO HOUSE PROPERTY OR OTHER SOURCES. 5. BECAUSE THE APPELLANT DENIES LEVY OF INTEREST U/ S 234B OF THE INCOME TAX ACT. 6. BECAUSE THE ORDER APPEALED AGAINST IS CONTRARY T O THE FACTS, LAW AND PRINCIPALS OF NATURAL JUSTICE. ITA NO. 292/AGRA/2012 BY THE ASSESSEE FOR A.Y. 2008 -09:- 1. BECAUSE, ON DUE CONSIDERATION OF THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE CIT(A) BEFORE DECIDING APPEAL AGAINST THE APPELLANT OUGHT TO HAVE ALLOWED FURT HER OPPORTUNITY OF HEARING TO THE APPELLANT AS NOTICE IF, AT ALL ISSUED FIXING THE DATE OF HEARING DID NOT REACH THE APPELLANT. 2. (A)BECAUSE, ON DUE CONSIDERATION OF THE FACTS A ND IN THE CIRCUMSTANCES OF THE CASE AUTHORITIES BELOW WERE NO T JUSTIFIED IN REJECTING THE CLAIM OF THE APPELLANT THAT INCOME DERIVED BY APPELLANT FIRM IS BUSINESS INCOME. (B) BECAUSE, WHILE DOING SO THE LEARNED AUTHORITIES BELOW WERE UNJUSTIFIED IN IGNORING THE DECISION OF LEARNED ADD ITIONAL COMMISSIONER OF INCOME TAX, RANGE-4, AGRA WHO IN TH E YEAR OF INSPECTION OF THE ACTIVITIES A.Y. 2005-2006 AFTER E NQUIRY ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 3 APPROVED THE CLAIM OF THE APPELLANT AND HELD THE RECEIPTS TO BE ASSESSABLE UNDER THE HEAD BUSINESS INCOME. (C) BECAUSE, PRINCIPLES OF CONSISTENCY REQUIRED THA T WITHOUT SHOWING THAT THERE IS ANY MATERIAL CHANGE IN THE FA CTS, CIRCUMSTANCES OR THE LEGAL POSITION OF THE CASE, TH E ASSESSING AUTHORITIES CANNOT KEEP ON CHANGING THERE FINDINGS IN RESPECT OF THE SAME ASSESSEE ON YEARLY BASIS. 3(A) BECAUSE, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED AUTHORITIES BELOW WERE NOT JUSTIFIED IN TAX ING RECEIPTS FROM LEASE CHARGES OF RS.10,31,052/- AS INCOME FROM HOUSE PROPERTY IGNORING THE FACT THAT APPELLANT FIRM EN JOYS ONLY THE RIGHT OF ENJOYMENT AND NOT RIGHT OF SALE OVER T HE PROPERTY. (B) BECAUSE, WHILED DOING SO, THE LEARNED AUTHORITI ES BELOW HAD NOT APPRECIATED THE INTENTION/PRIME OBJECT OF THE APPE LLANT FIRM WHICH STOOD REDUCED INTO WRITING ON THE INSTRUMENT OF PARTNERSHIP DATED 01.11.2004 WHICH ALSO STOOD BROUG HT ON RECORDS BEFORE THE LEARNED AO. (C) BECAUSE, AFTER HAVING FAIRY HELD THAT IT IS VE RY DIFFICULT TO DEFINE THE BUSINESS THE LEARNED AO COULD NOT HAVE ARBITRARILY HELD THAT RECEIPTS ARE TO TAXED UNDER THE HEAD INCO ME FROM HOUSE PROPERTY MERELY BY AN EXERCISE OF PICK AND CH OOSE OF FEW WORDS FROM THE STATEMENT OF ONE OF THE PARTNER ISOL ATED FROM THE CONTEXT IN WHICH IT WAS GIVEN. 4(A) BECAUSE, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED AUTHORITIES BELOW WERE NOT JUSTIFIED IN TAX ING RECEIPTS FROM FURNISHING OF RS.10,81,248/- AS INCOME FROM HOUSE PROPERTY IGNORING THE FACTS OF THE CASE. (B) BECAUSE, WHILE DOING SO THE LEARNED AUTHORITIES BELOW HAD NOT BEEN ABLE TO ASSIGN ANY SPECIFIC REASON FOR NOT ALL OWING THE CLAIM OF THE APPELLANT. 5(A) BECAUSE, ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED AUTHORITIES BELOW WERE NOT JUSTIFIED IN TAXING REC EIPTS FROM MAINTENANCE CHARGES OF RS.10,04,016/- AS INCOME F ROM OTHER SOURCES IGNORING THE FACTS OF THE CASE. (B) BECAUSE, IN ARRIVING OF THE CONCLUSION THE LEAR NED AUTHORITIES BELOW HAD TAKEN A VERY RIGID AND CONSERVATIVE COMPL ETED UNDER ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 4 SECTION 143(3) COULD NOT HAVE BEEN DENIED IN THE YE AR UNLESS THE OPERATION OF THE ASSESSMENT ORDER IS SUSPENDED/STAY ED. 6. BECAUSE, THE CLAIM OF SET OFF OF BROUGHT FORWARD OF LOSSES AS FOUND ALLOWABLE IN A.Y. 2005-06 IN ASSESSMENT COMPL ETED UNDER SECTION 143(3) COULD NOT HAVE BEEN DENIED IN THE YE AR UNLESS THE OPERATION OF THE ASSESSMENT ORDER IS SUSPENDED/ STAYED. 7. BECAUSE, ON THE FACTS AND CIRCUMSTANCES OF THE C ASE THE LEARNED AO WAS NOT JUSTIFIED IN DISALLOWING THE CLAIM OF INTEREST ON PARTNERS CAPITAL ACCOUNT AMOUNTING TO RS.11,57,542/ -. 8. BECAUSE, AFTER HAVING MADE ASSESSMENT UNDER SECT ION 143(3) IN THE STATUS OF FIRM, AS CLAIMED BY THE ASSESSEE THE AUTHORITIES BELOW WERE NOT JUSTIFIED IN MAKING THE CHANGE IN TH E HEADS OF INCOME AS THERE CAN BE NO VALID PARTNERSHIP TO SHAR E EITHER HOUSE PROPERTY INCOME OR INCOME FROM OTHER SOURC ES. 9. BECAUSE, WHILE MAKING THE ASSESSMENT THE LEARNED AUTHORITIES BELOW MADE VARIOUS OBSERVATIONS/CONCLUSIONS WHICH A RE CONTRARY TO FACTS AVAILABLE ON RECORDS. CASES HAS B EEN REFERRED AND RELIED WITHOUT SHOWING AS TO HOW IT APPLIES TO THE FACTS OF THE CASE IN HANDS. WHILE MAKING THE ADDITION SUBMIS SION MADE AND EVIDENCES FILED HAVE BEEN REJECTED ARBITRARILY. 10. BECAUSE, THE APPELLANT DENIES LEVY OF INTEREST UNDER SECTION 234B OF THE ACT. 11. BECAUSE, THE ORDER APPEALED AGAINST IS CONTRARY TO THE FACTS, LAW AND PRINCIPLES OF NATURAL JUSTICE. THE APPELLANT RESERVES HIS RIGHT TO ADD, DELETE, M ODIFY, ALTER OR SUBSTITUTE ANY OR ALL THE GROUNDS OF APPEAL. 3. THE LD. AUTHORIZED REPRESENTATIVE SUBMITTED THAT GROUNDS OF APPEAL IN BOTH THE APPEALS ARE PERTAINING TO THE SAME ASSESSEE FOR DIFFERENT ASSESSMENT YEARS 2006-07 AND 2008-09. THE LD. AUTHORIZED REPRESENTA TIVE SUBMITTED THAT THE FACTS LEAD TO THE GROUND OF APPEAL IN A.Y. 2006-07. IT IS ALSO SUBMISSIONS THAT GROUNDS OF APPEALS ARE ARGUMENTATIVE BUT EFFECTIVE GROUND OF A PPEAL IS ONLY ON WHETHER ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 5 INCOME IS ASSESSABLE AS INCOME FROM HOUSE PROPERTY OR INCOME FROM BUSINESS. THE LD. AUTHORISED REPRESENTATIVE HAS ARGUED ACCORDINGL Y. 4. THE BRIEF FACTS OF THE CASE ARE THAT RETURN SHOW ING LOSS OF RS.10,95,190/- WAS FILED ON 12.06.2006. THE CASE WAS PICKED UP UN DER COMPULSORY SCRUTINY IN TERMS OF PARA NO.3 OF THE C.B.D.T. INSTRUCTIONS FRO M OBTAINING APPROVAL OF CCIT, KANPUR. THE NOTICE U/S 143(2) WAS ISSUED ON 18.06. 2007 OF THE I.T. ACT, 1961 FOR 25.06.2007 BUT NO COMPLIANCE WAS MADE. AGAIN NOTIC E U/S 143(2) ALONG WITH NOTICE 142(1) WITH QUESTIONNAIRE DATED 08.07.2008 W ERE SENT TO THE ASSESSEE, IN RESPONSE TO WHICH SHRI ANURAG SINHA, ADVOCATE ATTEN DED FROM TIME TO TIME AND FURNISHED REPLIES ON VARIOUS QUERIES. THE CASE HAS BEEN DISCUSSED WITH THEM. THE A.O. NOTICED THAT THE ASSESSEE HAD ENTERED INTO THR EE SEPARATE AGREEMENTS WITH THE GAIL, WHICH IS A GOVERNMENT OF INDIA UNDERTAKING. IN THE FIRST AGREEMENT, THE ASSESSEE (LESSOR) HAS LET OUT THE 6436 SQ. FT. CARP ET AREA (VACANT FLOOR) AT PADAM DEEP TOWER, SANJAY PLACE ON 30.11.2004. THIS AGREEM ENT IS TERMED AS LEASE AGREEMENT AND ANNUAL RECEIPT OF RS.11,58,480/- WERE SHOWN AS LEASE RECEIPT. IN THE SECOND AGREEMENT EXECUTED ON 14.12.2004, WHEREBY LE SSOR, THE ASSESSEE FIRM, WAS AGREED TO FURNISH 3 RD FLOOR AS PER THE REQUIREMENT OF GAIL. THE ASSESSE E FIRM HAS FURNISHED THE SAID FLOOR WITH AIR CONDITION SYSTEM AND OTHER MISCELLANEOUS AMENITIES. THE A.O. NOTICED THAT IN THE SECOND AGRE EMENT WHICH IS IN FACT CONSEQUENCE OF THE FIRST AGREEMENT, THE ENTIRE RECE IPT OF RS.10,81,248/- IS TERMED AS RECEIPTS AGAINST FURNISHING. THE THIRD A GREEMENT EXECUTED ON ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 6 16.12.2004, WHERE ASSESSEE WILL HAVE TO MAINTAIN AN D UPKEEP THE PREMISES TO THE SATISFACTION OF THE GAIL AND THE ENTIRE ANNUAL RECE IPTS OF RS.10,04,016/- WERE TERMED AS MAINTENANCE RECEIPT . THE A.O. NOTICED THAT ALL THESE THREE RECEIPTS WERE CLAIMED AS BUSINESS RECEIPT BY THE ASSESSEE. THE ENTIRE INCOME WAS CLAIMED TO BE TAXED UNDER THE HEAD INCOME FROM BUSINESS & PROFESSION. 5. THE A.O. NOTICED THAT IN FACT THIS IS THE CASE W HERE ASSESSEE ENTERED INTO THE THREE SEPARATE AGREEMENTS WITH THE SAME PERSON. ALL THE THREE AGREEMENTS, THEIR TERMS AND CONDITIONS, THEIR RECEI PTS, THEIR RIGHTS AND OBLIGATIONS CAN BE EASILY SEPARATED. AT THE VERY O UTSET, IT IS CLARIFIED THAT IT IS NOT THE CASE OF COMPOSITE RENT , WHERE RENT IS RECEIVED ON ACCOUNT OF LETTING OUT TH E PROPERTY AND THE SERVICE CHARGES FOR VARIOUS FACILI TIES ALONG WITH THE PROPERTIES LIKE LIFT, ELECTRICITY, WATER, GAS, AIR CONDITIONER ETC. IN THE CASE OF COMPOSITE RENT, THE RENT IS DIVIDED AND THE PORTION OF RENT ATTRIBUTABLE TO LETTING OF THE PREMISES SHALL BE ASSESSABLE IN ONE HEAD. THE OTHER PORTION OF THE COMPOSITE RENT RECEIVED FOR RENDERING SERVICES SHALL BE ASSESSABLE UNDER DIFFERENT HEAD. THE A.O. WAS OF THE VIEW THAT THIS IS THE CASE WHERE AGREEMENTS ARE SEPARATE AND THEIR TREATMENT SHOULD ALSO BE SEPARATE. THIS IS ALSO NOT THE CASE WHERE LETTING OUT IS SUBSERVIENT OF ANY BUSINESS ACTIVITY. IT IS A CLEAR-CUT CASE WHERE THREE AGREEMENTS ARE SEPARATE AND INCOME ARISEN FROM THEM SHOULD BE TREATED SEPARATELY. THE A.O. VIDE ORDER SHEET ENTRY DATED 25.08.2008 ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 7 ASKED THE ASSESSEE TO JUSTIFY ITS CLAIM AS A BUSINE SS INCOME, WHY THIS INCOME SHOULD NOT BE TREATED AS INCOME FROM OTHER SOURCES OR INCOME FROM HOUSE PROPERTY AS AGAINST INCOME FROM BUSINESS & PROFESSI ON CLAIMED BY IT. THE ASSESSEE VIDE ITS REPLY DATED 08.09.2008 STATED THA T THE MAIN OBJECT OF BUSINESS OF THE FIRM IS BUSINESS OF REAL ESTATE AND ALIKE AC TIVITIES LIKE GIVING PROPERTIES ON LEASE OR SUBLEASE PROVIDING ANNUAL MAINTENANCE FOR ANY TYPE OF FACULTIES ETC. THE A.O. WAS OF THE VIEW THAT THE PARTNER MIGHT HAVE CO NSTITUTED WITH THE BUSINESS OBJECTIVE TO LET OUT THE PROPERTIES BUT IT CANNOT D ECIDE THE HEAD OF INCOME TO WHICH IT FALLS AS SPECIFIED IN INCOME TAX ACT. THE A.O. NOTICED FROM THE REPLY OF THE ASSESSEE VIDE PARAGRAPH NO.6 WHEREIN THE ASSESSEE S TATED YOUR HONOUR WOULD APPRECIATE THAT IT REQUIRES CONTINUOUS EFFORTS ON T HE PART OF THE ASSESSEE FIRM TO EARN INCOME. ASSESSEE FIRM, APART FROM PRO VIDING FLOOR AREA TO THEM, IS ALSO PROVIDING SERVICES OF GENERATOR, AIR CONDIT IONER ETC. AND REPAIR & MAINTENANCE OF THE SAME. ASSESSEE IS ALSO REQUIRED TO PROVIDE FURNITURE AND FIXTURES, LIFT MAINTENANCE, ALL UPKEEP AND MAINTENA NCE OF THE PORTION INCLUDING ITS HALF YEARLY PAINTING, FURNISHING AND TO ENSURE THAT THE OFFICE PREMISES IS MAINTAINED AS PER THE REQUIREMENT OF THE GAIL. ALL THESE FACTS TAKEN TOGETHER CONCLUSIVELY ESTABLISH THE ASSESSEE'S CLAIM OF BUSI NESS INCOME. VIDE PARAGRAPH NO.9, THE ASSESSEE STATED THAT THE SAME QUESTION AR OSE IN A. Y. 2005-06 AND WAS ACCEPTED IN THE RELEVANT YEAR. THE A.O. NOTICED TH AT AS REGARDS, PARAGRAPH NOS.5 & 6 OF ITS REPLY, DATED 08.08.2008, IT HAS BEEN ALR EADY CLARIFIED IN THE FOREGOING ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 8 PARAGRAPHS THAT THE INSTANT CASE IS NOT THE CASE OF COMPOSITE RENT, WHERE RENT IS RECEIVED ON ACCOUNT OF LETTING OUT THE PROPERTIES A ND SERVICES PROVIDED TO LESSEE. THIS IS THE CASE WHERE RECEIPTS ARE CLEARL Y IDENTIFIABLE AND ATTRIBUTABLE TO CERTAIN THINGS, SO, THE ISSUE RAISED BY THE LD. COUNSEL VIDE PARAGRAPH NOS. 5 & 6 ARE NOT APPLICABLE IN THIS CASE. AS REGARDS PARAGR APH NO.9, IT IS STATED THAT THE DOCTRINE OF RES-JUDICATA OR ESTOPPELS DOES NOT APPL Y TO THE INCOME-TAX PROCEEDINGS. THEY PROVIDED ONE MORE OPPORTUNITY VID E ORDER SHEET ENTRY DATED 18.09.2008 AND THE LD. COUNSEL STATED THAT RECEIPT S ARE TO BE TREATED AS BUSINESS INCOME AS SUBMITTED IN DETAILS VIDE REPLY DATED 08. 09.2008. THE A.O. NOTED THAT HONBLE SUPREME COURT IN THE CASE OF SHAMBHU INVEST MENT PVT. LTD. VS. C1T (2003) 129 TAXMAN 70 HAS STATED THE YARD STICK TO D ECIDE THE TREATMENT OF INCOME I.E. WHETHER IT IS TO BE TAXED UNDER THE HEA D INCOME FROM BUSINESS & PROFESSION OR INCOME FROM HOUSE PROPERTY IS THE PRIME OBJECT OR THE INTENTION OF THE ASSESSEE. THE A.O. TO ASCERTAIN THE INTENT ION OF THE ASSESSEE, STATEMENT OF PARTNER SHRI PRAKHAR GARG WAS RECORDED ON 10.09.2008. 6. THE A.O. FOUND THAT IT IS UNEQUIVOCALLY CLEAR TH AT THE PRIME OBJECT OF THE ASSESSEE WAS TO LET OUT THE PROPERTY. THE A.O. NOT ED THAT THE TREATMENT OF ASSETS IS TO BE SEEN WHILE DECIDING THE HEAD TO WHICH ANY INC OME FALLS. IN THE INSTANT CASE, THE ASSESSEE HAS TAKEN LAND, BUILDING, FURNIT URE, FIXTURE, AIR CONDITIONER AS CAPITAL ASSETS AND NOT AT CURRENT ASSETS AND CLAIME D THE DEPRECIATION THEREON, ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 9 MEANING THEREBY, ASSESSEE HAS TAKEN LAND, BUILDING, FURNITURE & FIXTURE IN FIXED ASSETS AND NOT IN INVENTORIES OR CLOSING STOC K AS IN CASE OF CURRENT ASSETS. THE TREATMENT OF THE ASSETS AS CAPITAL ASSETS ALSO STRENGTHENS THE VIEW THAT INCOME SHOULD BE TAXED UNDER THE HEAD INCOME FROM H OUSE PROPERTY. THE A.O. FURTHER NOTED THAT IT IS ALSO TO BE SEEN, WHY DID G AIL ENTER IN TO THREE SEPARATE AGREEMENTS INSTEAD OF ONE COMPOSITE AGREEMENT. FIR ST & SECOND AGREEMENT ONCE EXECUTED CANNOT BE CHANGED; THE RELATION OF LESSOR AND LESSEE WILL REMAIN SAME. IN THE CASE OF THIRD AGREEMENT, IF THE LESSEE IS NO T SATISFIED WITH THE SERVICES RENDERED BY THE LESSOR, IT CAN EASILY CHANGE THE LE SSOR AND WORK OF UP- KEEPING AND MAINTENANCE OF BUILDING, FURNITURE CAN BE GIVEN TO SOME BODY ELSE. SO, TREATMENT HAS TO BE SEEN IN THE LIGHT OF AGREEM ENTS, WHICH ARE SACROSANCT, INTENTION OF THE ASSESSEE, FACTS OF THE CASES, ENTR IES MADE IN THE BOOKS OF ACCOUNTS. THE A.O. DISCUSSED EVERY AGREEMENT SEPARATELY AS UN DER:- FIRST AGREEMENT I.E. LEASE AGREEMENT: 7. THE A.O. NOTICED THAT IN THIS AGREEMENT, THE ASS ESSEE HAS LET OUT 6436 SQ. FT. VACANT FLOOR. BARE LETTING OUT THE VACANT FLOOR BY NO STRETCH OF IMAGINATION CAN BE TREATED AS BUSINESS INCOME. HOWEVER, IT IS VERY DIFFICULT TO DEFINE THE BUSINESS BUT IT CAN BE SAFELY STATED THAT BUSINESS IS THE CO NTINUOUS & SYSTEMIC ACTIVITY CARRIED ON BY A PERSON WITH THE VIEW TO EARN PROFIT. IN THI S AGREEMENT, THE ASSESSEE COMPANY HAS LET OUT THE VACANT FLOOR AS PER THE AGR EEMENT AND IT WAS NOT SUPPOSED ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 10 TO PROVIDE ANY DAY-TO-DAY SERVICES OR INCURS AND DA Y-TO-DAY EXPENSES TO RECEIVE THE LEASE RENT RECEIPT. TO ASCERTAIN WHETHER ANY DAY-T O-DAY SERVICES HAVE BEEN PROVIDED OR ANY DAY-TO-DAY EXPENSES HAVE BEEN INCUR RED BY THE ASSESSEE, THE BOOKS OF ACCOUNT WERE ALSO EXAMINED AND THE CASH BO OK OF THE ASSESSEE IS PLACED ON THE FILE. UPON PERUSAL OF THE CASH BOOK, THE A.O. NOTICED THAT IT IS CLEAR THAT ASSESSEE IN THE HEAD OF LEASE RENT RECEIPTS DID NOT INCUR ANY KIND OF EXPENSE AND DID NOT PROVIDE ANY KIND OF SERVICES TO THE LES SEE. THE A.O. AFTER CONSIDERING THE INTENTION/PRIME OBJECT OF THE ASSESSEE, LEGAL P OSITION AS PER THE INCOME TAX ACT AND AS PER THE AGREEMENT AND FINALLY ON EXAMINA TION OF BOOKS OF ACCOUNT FOUND THAT IT IS CLEARLY ESTABLISHED THAT THE RECEIPT UND ER FIRST AGREEMENT I.E. LEASE AGREEMENT RECEIPTS ARE TO BE TAXED UNDER INCOME FRO M HOUSE PROPERTY NOT AS INCOME FROM BUSINESS & PROFESSION CLAIMED BY THE ASSESSEE. SECOND AGREEMENT 8. THE A.O. NOTICED THAT IN THE SECOND AGREEMENT TH E ASSESSEE HAS AGREED TO FURNISH THE SAID THIRD FLOOR OF THE SAID BUILDING A S PER THE REQUIREMENT OF GAIL. THEREBY, THE ASSESSEE HAS FURNISHED AND FINISHED A VACANT FLOOR, INSTALLED AIR CONDITIONER SYSTEM AND CONVERTED IT INTO THE OFFICE . THE RECEIPT AGAINST FURNISHING AND FINISHING OF RS.10,81,248/- WAS TREATED AS INCO ME FROM BUSINESS & PROFESSION BY THE ASSESSEE FIRM. THE SECOND AGREEM ENT WAS IN FACT CONSEQUENCE OF FIRST AGREEMENT AND WAS EXECUTED AFTER 14 DAYS O F FIRST AGREEMENT. TO ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 11 EXAMINE HOW THIS INCOME FALL UNDER THE HEAD INCOME FROM BUSINESS & PROFESSION, THE BOOKS OF ACCOUNT WERE EXAMINED BY THE A.O. AND THE STATEMENT OF PARTNER SHRI PRAKHAR GARG WAS ALSO RECORDED ON 10.09.2008. 9. THE BOOKS OF ACCOUNTS WERE EXAMINED BY THE A.O. WITH A VIEW THAT ANY DAY- TO-DAY SERVICES WERE PROVIDED BY THE ASSESSEE AND A NY EXPENSES WERE INCURRED BY THE ASSESSEE. FROM PERUSAL OF BOOKS OF ACCOUNT, TH E A.O. FOUND THAT IT IS CLEAR THAT NO EXPENSES IN THIS HEAD WERE INCURRED BY THE ASSESSEE. THE AGREEMENT WAS ALSO PERUSED BY THE A.O. THE A.O. NOTICED THAT IT IS CLEARLY MENTIONED THAT THE MAJOR REPAIR IN THE SAID FURNITURE ETC. PROVIDED BY THE FIRST PARTY TO THE SECOND PARTY IF REQUIRES TO BE DONE BY THE FIRST PARTY. 10. THE A.O. FOUND THAT THE ASSESSEE WAS NOT INVOLV ED IN ANY KIND OF RECURRING ACTIVITY TO TREAT THE RECEIPTS AS BUSINES S RECEIPTS. MOREOVER, FURNITURE WAS INSTALLED ONCE AND NOTHING MORE WAS REQUIRED FR OM THE LESSOR. SO, BY NO STRETCH OF IMAGINATION THE RECEIPT UNDER THIS HEAD CAN BE TREATED AS INCOME FROM BUSINESS & PROFESSION. THEREFORE, THE A.O. HE LD THAT IT IS CLEARLY ESTABLISHED THAT THE NET RECEIPT UNDER THIS HEAD SHOULD BE TREA TED AS INCOME FROM HOUSE PROPERTY. THE A.O. ACCORDINGLY RECALCULATED THE TO TAL INCOME AS UNDER:- TOTAL RECEIPT 22,39,728/- (TOTAL RECEIPT FROM 1 ST & 2 ND AGREEMENTS) LESS: RENT & TAXES 16,380/- TOTAL ANNUAL VALUE 22,23,348/- ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 12 DEDUCTION U/S 24 30% OF DEDUCTION 6,67,004/- INTEREST BANK 12,00,349/- INTEREST PAID ON UNSECURED 1,53,769/- 20,21,149/- ------------------------------------------- NET INCOME 2, 02,199/- 11. THE A.O. DID NOT ALLOW THE INTEREST OF PARTNER S CAPITAL AMOUNTING TO RS.6,57,458/-. THE A.O. WAS OF THE VIEW THAT THE PARTNERS AND THE PARTNERSHIP FIRM ARE OF INSEPARABLE AND INCOME UNDER HOUSE PROPERTY U/S. 24(3) TALKS ABOUT THE INTEREST ON BORROWED CAPITAL NOT IN THE INTEREST ON OWN FUNDS. THE ALLOWABILITY OF INTEREST ON PARTNERS CAPITAL FALLS IN SECTION 40(B ), WHICH PERTAINS TO THE HEAD INCOME FROM BUSINESS & PROFESSION NOT AS INCOME FRO M HOUSE PROPERTY. THIRD AGREEMENT: 12. THE A.O. NOTICED THAT THIRD AGREEMENT RELATES T O MAINTENANCE AND UP- KEEPING OF BUILDING, FLOOR, FURNITURE & FIXTURES AN D OTHER EQUIPMENTS INSTALLED IN THE SAID PREMISES. ON PERUSAL OF BOOKS OF ACCOUNT, THE A.O. NOTICED THAT UNDER THIS HEAD, THE ASSESSEE HAS DEPUTED ONLY ONE PERSON TO L OOK AFTER THE PREMISES AND THE SAID INCOME SHOULD BE TREATED AS INCOME UNDER THE H EAD INCOME FROM OTHER SOURCES. THE A.O. IN SUPPORT OF HIS VIEW RELIED UP ON CIT VS. KANAK INVESTMENTS (PVT.) LTD. (1974) 95 ITR 419 (CAL.). THE A.O. COM PUTED THE INCOME FROM OTHER SOURCES AS UNDER:- ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 13 TOTAL RECEIPT 10,04,016/- LESS: ALLOWABLE EXPENDITURE: 1. PRINTING & STATIONERY 530/- 2. BANK CHARGES & COMMI. 5210/- 3. AUDIT FEE 6673/- 4. POSTAGE EXP. 200/- 1/3 RD OF 12,613/- = 4,204/- 5. CONVEYANCE 3,900/- 6. BUILDING UPKEEP/ NIL MAINTENANCE EXP. IS REDUCED TO NIL AS IT IS DEEMED TO HAVE BEEN ALLOWED U/S 24 OF I.T. ACT, 7. SALARY 42,000/- 8. DIESEL EXP. 61,654/- 1,07,554/- 1,11,758/- TOTAL INCOME UNDER BUSINESS HEAD 8,92,258/- INCOME FROM H.P. 2,02,199/- I.E 10,94,457/- ROUNDED OF 10,94,460/- 13. THE ASSESSEES CLAIM OF SET OFF OF BROUGHT FORW ARDED LOSS OF A.Y. 2005-06 AMOUNTING TO RS.20,13,103/- WAS NOT ACCEPTED BY THE A.O. OBSERVING THAT THE SAME ISSUE WAS INVOLVED IN THE A.Y. 2005-06. 14. THE CIT(A) CONFIRMED THE ORDER OF THE A.O. AS U NDER:- (PAGE NOS. 17 & 18) 2.2 I HAVE GONE THROUGH THE ASSESSMENT ORDER AND TH E SUBMISSIONS MADE BY THE APPELLANT. AS REGARDS THE FIRST AGREEME NT, IT IS A SIMPLE CASE OF RENTING A VACANT PROPERTY ON RENT/LEASE. AS PER PROVISIONS OF SECTION 22, THE CHARGEABILITY OF INCOME FROM HOUSE PROPERTY IS SUBJECT TO THE FOLLOWING CONDITIONS: THE PROPERTY SHALL CONSIST OF ANY BUILDING OR LAND APPURTENANT THERETO; (I) THE ASSESSEE SHALL BE THE OWNER OF THE PROPERTY AND (II) THE PROPERTY SHALL NOT BE USED FOR BUSINESS OR PROFESSION ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 14 CARRIED ON BY THE OWNER, THE PROFIT. IN THE ASSESSEES CASE REGARDING FIRST TWO CONDITIO NS THERE IS NO DOUBT THAT SAME ARE SATISFIED. ONLY DISPUTE IS WITH REGARD TO CONDITION NO.3 AS THE APPELLANT IS CLAIMING THE RENTAL INCOME UNDER THE HEAD BUSINESS. AS NO OTHER SERVICES HAVE BEEN PROVIDED L IKE CHARGES FOR ELECTRIC CURRENT FOR THE USE OF LIFTS, FOR THE SUPP LY OF HOT AND COLD WATER, WATCH AND WARD FACILITIES AND NO ACTIVITIES WERE TO BE CARRIED OUT CONTINUOUSLY IN AN ORGANIZED MANNER, THEREFORE, THE LEASE RENTALS RECEIVED CANNOT PARTAKE THE CHARACTER OF BUSINESS I NCOME. EVEN NO EXPENSES WERE INCURRED AS POINTED OUT BY THE AO TO EARN THE LEASE RENTALS. AS REGARDS 2 ND AGREEMENT ALSO THE FACTS ARE SIMILAR AS THE ASSESSEE HAS GIVEN THIRD FLOOR OF THE BUILDING ON L EASE AFTER FURNISHING AND FINISHING AND INSTALLED AIR-CONDITIONING SYSTEM . AS PER THIS AGREEMENT ALSO NO DAY TODAY OPERATIONS WERE CARRIED OUT BY THE APPELLANT. THEREFORE, INCOME FROM THE 2 ND AGREEMENT ALSO HAS RIGHTLY BEEN ASSESSED BY THE AO UNDER THE HEAD INCOME FROM HOUSE PROPERTY. AS REGARDS THE 3 RD AGREEMENT RELATING TO UPKEEP OF THE PREMISES, IN THIS REGARD ONLY ONE PERSON WAS EMPLOYED BY THE ASS ESSEE THAT ITSELF GOES TO SHOW AS TO WHAT KIND OF ORGANIZED AND CONTI NUOUS ASSESSEE ITSELF GOES TO SHOW AS TO WHAT KIND OF ORGANIZED AN D CONTINUOUS ACTIVITY WAS CARRIED ON BY THE ASSESSEE TO CLAIM TH E RECEIPTS FROM THIRD CIT(A)-II, AGRA AGREEMENT AS BUSINESS RECEIPTS. THE REFORE, I HOLD THAT THE AO HAS RIGHTLY ASSESSED THE SAME UNDER THE HEAD OTHER SOURCES. I WOULD ALSO LIKE TO DEAL WITH THE CONTENTION OF THE LD. AR THAT THE RENTAL INCOME WAS ACCEPTED AS BUSINESS INCOME ON THE PRECE DING ASSESSMENT YEAR HENCE THE AO SHOULD HAVE DONE THE SAME FOR THE YEAR UNDER CONSIDERATION ALSO. IT IS TRITE THAT PRINCIPLE OF R ES-JUDICATA DOES NOT APPLY TO INCOME TAX PROCEEDINGS. AS REGARDS RULE OF CONSISTENCY THE ITAT, MUMBAI IN THE CASE OF MORGAN STANLEY ASSET MA NAGEMENT INC. VS. DCIT (2010) 39 DTR (MUMB) 240 HELD AS UNDER: IF THE ASSESSEE HAS CLAIMED DEDUCTION IN ONE YEAR OR CLAIMED A PARTICULAR TREATMENT TO AN ITEM OF INCOME, WHICH HA S BEEN ACCEPTED, THEN UNLESS THERE IS CHANGE IN FACTUAL OR LEGAL POSITION, ORDINARILY THE REVENUE SHOULD NOT DISTURB SUCH FINDING IN THE SUCCEEDING YEAR. BUT THIS PRINCIPLE CANNOT B E STRETCHED BEYOND THE CONTEXT. IF THE AO HAS DONE SOMETHING PA TENTLY WRONG IN A YEAR, THEN THE PRINCIPLE OF CONSISTENCY CANNOT BE DRAGGED TO COMPEL THE AO TO GO ON REPEATING SUCH PA TENT MISTAKES IN FUTURE ALSO. NO PRINCIPLE OF CONSISTENC Y CAN BIND THE ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 15 ASSESSEE OR THE REVENUE TO GO ON REPEATING MISTAKES , ONCE COMMITTED. 15. THE LD. AUTHORISED REPRESENTATIVE REITERATED TH E SUBMISSIONS MADE BEFORE REVENUE AUTHORITIES AND SUBMITTED THAT ASSESSEE FIR M CAME INTO EXISTENCE VIDE INSTRUMENT OF PARTNERSHIP DATED 01.11.2004 (A.Y. 20 05-2006) BEING INTO BUSINESS AS DEFINED IN PARA-4 OF PARTNERSHIP DEED WHICH IS C LEAR TERMS SPECIFIES THE INTENTION OF THE PARTNERS FORMING THE PARTNERSHIP F IRM AND OBJECT OF FORMATION OF PARTNERSHIP. HE SUBMITTED THAT THE MAIN OBJECT AND THE BUSINESS OF THE FIRM SHALL BE TO VENTURE INTO BUSINESS OF REAL-ESTATE AND ALIK E ACTIVITIES LIKE GIVING PROPERTIES ON LEASE OR SUB-LEASE, PROVIDING ANNUAL MAINTENANCE CONTRACT FOR ANY TYPE OF FACILITIES, PROVIDING GENERATORS ON HIRE AND PROVID ING INVERTORS ON HIRE ETC. THE LD. AUTHORISED REPRESENTATIVES SUBMITTED THAT ASSESSMEN T FOR THE FIRST ASSESSMENT YEAR (A.Y.2005-06) OF BUSINESS CAME TO BE COMPLETED UNDE R SECTION 143(3) OF THE ACT BY THE ADDITIONAL COMMISSIONER OF INCOME TAX, RANGE -4, WHO VIDE ASSESSMENT ORDER DATED 28.12.2007 COMPLETED THE ASSESSMENT ON LOSS AS WAS RETURNED BY THE APPELLANT MENTIONING FULL DETAILS REGARDING THE BUS INESS OF THE APPELLANT AND AFTER MAKING DUE ENQUIRY INTO THE MATTER REGARDING ASSESS EES NATURE OF BUSINESS, EXAMINATION OF PARTNERS ON OATH REGARDING NATURE OF BUSINESS, ACTIVITIES CARRIED OUT AND ITS TREATMENT AS BUSINESS INCOME. THUS, THE A.O . FRAMING THE ASSESSMENT WAS FULLY ALIVE OF THE ISSUE AND THEREFORE, THERE IS NO GAINSAYING THAT ASSESSMENT ORDER WAS PASSED IN IGNORANCE OF FACTS OF THE CASE OR IN IGNORANCE OF LAW OVER THE ISSUE. ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 16 EVEN OTHERWISE, THE ASSESSMENT SO FRAMED STOOD FINA L AS NO ACTION EITHER UNDER SECTION 263 OR UNDER SECTION 148 OF THE ACT WAS FOU ND WARRANTED BY THE SUPERIOR REVIEWING AUTHORITIES. THE LD. AUTHORISED REPRESENT ATIVE SUBMITTED THAT THE A.O. WAS HIGHLY UNJUSTIFIED IN REJECTING THE CLAIM OF TH E APPELLANT THAT THE RECEIPTS CONSTITUTE BUSINESS INCOME IN THE HANDS OF THE ASSE SSEE FIRM. THEREFORE, IN THE YEAR OF INCEPTION ITSELF IT WAS HELD BY THE A.O. TH AT INCOME BEING EARNED BY THE APPELLANT IS ASSESSABLE UNDER THE HEAD BUSINESS WHI CH AT THE COST OF REPETITION BEING SUBMITTED HAS NOT BEEN HELD TO BE PERVERSE OR ERRON EOUS OR EVEN PREJUDICIAL TO THE INTEREST OF REVENUE BY THE SUPERIOR AUTHORITIES REV IEWING THE ASSESSMENT. THEREAFTER, IN SUBSEQUENT YEAR, WITHOUT THERE BEING ANY CHANGE IN THE SET OF FACTS, CIRCUMSTANCES TERMS AND CONDITIONS OF LEASE DEEDS WHICH CONTINUES TO BE THE SAME AS WAS IN EXISTENCE IN THE PRECEDING ASSESSMEN T YEAR. THE A.O. WAS HIGHLY UNJUSTIFIED TO REVIEW THE DECISION OF ADDITIONAL CI T AND HOLDING OTHERWISE. THE LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT IN THE FAC TS AND CIRCUMSTANCES, THE A.O. HAS CHOSEN TO CONVENIENTLY IGNORE THE EFFECT EMANAT ING FROM THE EARLIER ASSESSMENT ORDER ON THE PRETEXT THAT DOCTRINE OF RESJUDICATA O R ESTOPPELS DOES NOT APPLY TO INCOME TAX PROCEEDINGS. 16. THE LD. AUTHORISED REPRESENTATIVE SUBMITTED THA T THE A.O. HAS FALLEN IN ERROR OF FACT AND IN LAW IN HOLDING SO, WITHOUT BEING ALI VE OF THE AUTHORITIES AVAILABLE ON THE ISSUE. THE LD. AUTHORISED REPRESENTATIVE SUBMI TTED THAT THE RULE OF CONSISTENCY ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 17 IS A FACET OF RULE OF RES-JUDICATA BUT BROADER IN C ONCEPT THAN RES-JUDICATA RULE. THE WELL-SETTLED PRINCIPLE OF CONSISTENCY HAS BEEN UNIF ORMLY FOLLOWED BY COURTS IN THE COUNTRY TO HOLD THAT THE VIEW ADOPTED BY THE A.O. O N A PARTICULAR ISSUE BE IT OR EITHER FACT OR THAT BEING ISSUE IN A CASE OR CASES FOR A YEAR OR YEARS SHOULD NOT BE DEVIATED FROM THE SAME CASE OR IN OTHER CASES IN SU BSEQUENT PROCEEDINGS UNLESS THERE IS CHANGE IN THE CIRCUMSTANCES, JUSTIFYING DE PARTURE THERE FROM. THE LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT PARTNERS O F THE ASSESSEE FIRM CAME TOGETHER AND JOINED HANDS TO DO BUSINESS AND THIS I NTENTION OF THE ASSESSEE FINDS DUE MENTION IN THE PARTNERSHIP DEED. THE LD. AUTHO RISED REPRESENTATIVE SUBMITTED THAT ON PERUSAL OF BALANCE SHEET, CAPITAL ACCOUNT A ND PROFIT & LOSS BOOKS OF ACCOUNTS OF THE ASSESSEE MAY REVEAL THAT ASSESSEE H AS UNDERTAKEN THE ACTIVITIES AS A BUSINESS, AND FULFILLS ALL THE CONDITIONS AS ARE RE QUIRED TO BE FULFILLED IN ORDER TO GET THE INCOME ASSESSED UNDER THE HEAD BUSINESS. IT IS REQUESTED THAT STATEMENT OF THE PARTNERS WERE RECORDED BY THE ADDITIONAL CIT, RANGE -4, DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR ASSESSMENT YEAR 2005-06, THOSE STATEMENTS ARE VITAL FOR ADJUDICATION OF THE ISSUE UNDER CONSIDERATION A ND MAY KINDLY BE SEEN. IT ALSO NEEDS DUE CONSIDERATION THAT THE COMMERCIAL COMPLEX AS ACQUIRED BY THE ASSESSEE AND CONSTRUCTION EXPENSES INCURRED THEREON WERE LAR GELY MET BY BORROWED FUNDS. THIS ALSO GOES TO PROVE THAT THE TRANSACTION WAS A BUSINESS TRANSACTION. THE LD. AUTHORISED REPRESENTATIVE IN SUPPORT OF HIS CONTENT ION RELIED UPON THE FOLLOWING ORDERS/JUDGMENTS:- ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 18 1. VIKRAM GOLECHA VS. DCIT 123 ITD 438 (JP), 2. BALAJI ENTERPRISES VS. CIT 225 ITR 471 (KARN) 3. KARNANI PROPERTIES LTD VS. CIT 82 ITR 547 (S.C.) 4. S.G. MERCANTILE CORPORATION (P) LTD. VS. CIT 83 ITR 700 (S.C.) 5. COMMISSIONER OF INCOME TAX VS. MITHILA PROPERTIE S PUBLICATION & CONTRACTOR ENTERPRISES (P) LTD. 192 TAXMAN 401 (PAT ) 6. CIT VS. GOEL BUILDERS 331 ITR 344 (ALL) 7. ITAT AGRA BENCH IN THE CASE OF M/S. ROMSONS SCIE NTIFIC & SURGICAL IND. (P) LTD. VS. DCIT 4(1), AGRA (ITA NO.275/AGRA/ 2009)- ORDER DATED 21.04.2011. 8. ITAT DELHI BENCH IN THE CASE OF DINEX HOTELS (P) LTD (ITA NO. 2499/DEL/2012)ORDER DATED 09.08.2012 9. ARIHANT BUILDERS, DEVELOPERS & INVESTORS (P) LTD . VS. ITAT 277 ITR 239 (MP) 10. PARASHURAM POTTERY WORKS CO. LTD 106 ITR 1 (SC) 11. RADHA SOAMI SATSANG VS. CIT 193 ITR 321 (S.C.) 12 CIT VS. GODAVARI CORPORATION LTD. 156 ITR 835 (M P) 13 A.R.J. SECURITY PRINTERS 264 ITR 276 (DEL)-- (20 04) 266 ITR (ST) 4 14. DCIT VS. SULABH INTERNATIONAL SOCIAL SERVICE OR GANISATION 350 ITR 189 (PATNA) 15. HONBLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. DIVYA INVESTMENT (P) LTD. ORDER DATED 01.12.2009 17. THE LD. DEPARTMENTAL REPRESENTATIVE, ON THE OTH ER HAND, RELIED UPON THE ORDER OF CIT(A) PARTICULARLY PAGE NO.17 OF CIT(A)S ORDER AND SUBMITTED THAT ONLY ONE EMPLOYEE HAS BEEN EMPLOYED, THUS CANNOT BE SAID THAT THE ASSESSEE FIRM WAS RUNNING BUSINESS. THE LD. DEPARTMENTAL REPRESENTATI VE SUBMITTED THAT IN INCOME TAX EACH YEAR IS INDEPENDENT YEAR AND IN EACH YEAR CORRECT INCOME IS TO BE ASSESSED UNDER THE CORRECT HEAD. HE FURTHER SUBMITTED THAT IF MISTAKE IS COMMITTED IN ONE YEAR THAT CANNOT BE ALLOWED TO CONTINUE. ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 19 18. WE HAVE HEARD THE LD. REPRESENTATIVES OF THE PA RTIES, PERUSED THE RECORDS AND GONE THROUGH THE DECISIONS CITED. THE CRUX OF THE MATTER TO BE EXAMINED IN THE CASE UNDER CONSIDERATION WHETHER UNDER THE FACTS AND CIRCUMSTANCES INCOME IS ASSESSABLE UNDER THE HEAD INCOME FROM BUSINESS OR I NCOME FROM HOUSE PROPERTY OR INCOME FROM OTHER SOURCES. THE CONTENTION OF THE ASSESSEE ON THE ISSUE HAS GOT TWO ASPECTS, FIRST ONE IS THAT THE A. O. HAS ALREADY TAKEN A VIEW WHILE COMPLETING ASSESSMENT UNDER SECTION 143(3) FOR A.Y. 2005-2006 THAT INCOME IS ASSESSABLE UNDER THE HEAD INCOME FROM BUSINESS, THE REFORE, TO MAINTAIN CONSISTENCY A DIFFERENT VIEW CANNOT BE TAKEN IN THE YEAR UNDER CONSIDERATION AND SECOND ASPECT OF THE CONTENTION IS MERIT OF THE CASE. SO FAR AS TO EXAMINE FIRST ASPECT OF THE CONTENTION OF THE ASSESSEE I.E. CONSISTENCY, WE W OULD LIKE TO REFER CERTAIN JUDICIAL PRONOUNCEMENTS WHICH ARE AS UNDER:- C.K. GANGADHARAN & ANR. VS. COMMISSIONER OF INCOME TAX (2008) 304 ITR 61 (SC) THE RELEVANT ABSTRACTS OF THE JUDGMENT ARE AS UNDER:- (PAGES 63 TO67) IN BHARAT SANCHAR NIGAM LTD. & ANR. VS. UNION OF INDIA & ORS. (2006) 201 CTR (SC) 346 : (2006) 3 SCC 1, IT WAS NOTED AS FOLLOWS : 20. THE DECISIONS CITED HAVE UNIFORMLY HELD THAT R ES JUDICATA DOES NOT APPLY IN MATTERS PERTAINING TO TAX FOR DIFFEREN T ASSESSMENT YEARS BECAUSE RES JUDICATA APPLIES TO DEBAR COURTS FROM E NTERTAINING ISSUES ON THE SAME CAUSE OF ACTION WHEREAS THE CAUSE OF AC TION FOR EACH ASSESSMENT YEAR IS DISTINCT. THE COURTS WILL GENERA LLY ADOPT AN EARLIER PRONOUNCEMENT OF THE LAW OR A CONCLUSION OF FACT UN LESS THERE IS A NEW GROUND URGED OR A MATERIAL CHANGE IN THE FACTUAL PO SITION. THE REASON WHY COURTS HAVE HELD PARTIES TO THE OPINION EXPRESS ED IN A DECISION IN ONE ASSESSMENT YEAR TO THE SAME OPINION IN A SUBSEQ UENT YEAR IS NOT BECAUSE OF ANY PRINCIPLE OF RES JUDICATA BUT BECAUS E OF THE THEORY OF ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 20 PRECEDENT OR THE PRECEDENTIAL VALUE OF THE EARLIER PRONOUNCEMENT. WHERE FACTS AND LAW IN A SUBSEQUENT ASSESSMENT YEAR ARE THE SAME, NO AUTHORITY WHETHER QUASI JUDICIAL OR JUDICIAL CAN GE NERALLY BE PERMITTED TO TAKE A DIFFERENT VIEW. THIS MANDATE IS SUBJECT ONLY TO THE USUAL GATEWAYS OF DISTINGUISHING THE EARLIER DECISI ON OR WHERE THE EARLIER DECISION IS PER INCURIAM. HOWEVER, THESE AR E FETTERS ONLY ON A CO-ORDINATE BENCH WHICH, FAILING THE POSSIBILITY OF AVAILING OF EITHER OF THESE GATEWAYS, MAY YET DIFFER WITH THE VIEW EXPRES SED AND REFER THE MATTER TO A BENCH OF SUPERIOR STRENGTH OR IN SOME C ASES TO A BENCH OF SUPERIOR JURISDICTION. 22. A DECISION CAN BE SET ASIDE IN THE SAME LIS ON A PRAYER FOR REVIEW OR AN APPLICATION FOR RECALL OR UNDER ART. 3 2 IN THE PECULIAR CIRCUMSTANCES MENTIONED IN HURRA VS. HURRA (2002) 4 SCC 388. AS WE HAVE SAID OVERRULING OF A DECISION TAKES PLACE I N A SUBSEQUENT LIS WHERE THE PRECEDENTIAL VALUE OF THE DECISION IS CAL LED IN QUESTION. NO ONE CAN DISPUTE THAT IN OUR JUDICIAL SYSTEM IT IS O PEN TO A COURT OF SUPERIOR JURISDICTION OR STRENGTH BEFORE WHICH A DE CISION OF A BENCH OF LOWER STRENGTH IS CITED AS AN AUTHORITY, TO OVERRUL E IT. THIS OVERRULING WOULD NOT OPERATE TO UPSET THE BINDING NATURE OF TH E DECISION ON THE PARTIES TO AN EARLIER LIS IN THAT LIS, FOR WHOM THE PRINCIPLE OF RES JUDICATA WOULD CONTINUE TO OPERATE. BUT IN TAX CASE S RELATING TO A SUBSEQUENT YEAR INVOLVING THE SAME ISSUE AS AN EARL IER YEAR, THE COURT CAN DIFFER FROM THE VIEW EXPRESSED IF THE CASE IS D ISTINGUISHABLE OR PER INCURIAM. THE DECISION IN STATE OF U.P. VS. UNION O F INDIA (2004) 190 CTR (SC) 569: (2003) 3 SCC 239 RELATED TO THE YEAR 1988. ADMITTEDLY, THE PRESENT DISPUTE RELATES TO A SUBSEQ UENT PERIOD. HERE A CO-ORDINATE BENCH HAS REFERRED THE MATTER TO A LARG ER BENCH. THIS BENCH BEING OF SUPERIOR STRENGTH, WE CAN, IF WE SO FIND, DECLARE THAT THE EARLIER DECISION DOES NOT REPRESENT THE LAW. NO NE OF THE DECISIONS CITED BY THE STATE OF U.P. ARE AUTHORITIES FOR THE PROPOSITION THAT WE CANNOT, IN THE CIRCUMSTANCES OF THIS CASE, DO SO. T HIS PRELIMINARY OBJECTION OF THE STATE OF U.P. IS THEREFORE REJECTE D. IN STATE OF MAHARASHTRA VS. DIGAMBAR (1995) 4 SCC 6 83, THE POSITION WAS HIGHLIGHTED BY THIS COURT AS FOLLOWS: 16. WE ARE UNABLE TO APPRECIATE THAT OBJECTION RAI SED AGAINST THE PROSECUTION OF THIS APPEAL BY THE APPELLANT OR OTHE R SLPS FILED IN SIMILAR MATTERS. SOMETIMES, AS IT WAS STATED ON BEH ALF OF THE STATE, THE STATE GOVERNMENT MAY NOT CHOOSE TO FILE APPEALS AGA INST CERTAIN ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 21 JUDGMENTS OF THE HIGH COURT RENDERED IN WRIT PETITI ONS WHEN THEY ARE CONSIDERED AS STRAY CASES AND NOT WORTHWHILE INVOKI NG THE DISCRETIONARY JURISDICTION OF THIS COURT UNDER ART 136 OF THE CONSTITUTION, FOR SEEKING REDRESSAL THEREFORE. AT O THER TIMES, IT IS ALSO POSSIBLE FOR THE STATE, NOT TO FILE APPEALS BEFORE THIS COURT IN SOME MATTERS ON ACCOUNT OF IMPROPER ADVICE OR NEGLIGENCE OR IMPROPER CONDUCT OF OFFICERS CONCERNED. IT IS FURTHER POSSIB LE, THAT EVEN WHERE SLPS ARE FILED BY THE STATE AGAINST JUDGMENTS OF HI GH COURT, SUCH SLPS MAY NOT BE ENTERTAINED BY THIS COURT IN EXERCI SE OF ITS DISCRETIONARY JURISDICTION UNDER ART. 136 OF THE CO NSTITUTION EITHER BECAUSE THEY ARE CONSIDERED AS INDIVIDUAL CASES OR BECAUSE THEY ARE CONSIDERED AS CASES NOT INVOLVING STAKES WHICH MAY ADVERSELY AFFECT THE INTEREST OF THE STATE. THEREFORE, THE CIRCUMSTA NCE OF THE NON-FILING OF THE APPEALS BY THE STATE IN SOME SIMILAR MATTERS OR THE REJECTION OF SOME SLPS IN LIMINE BY THIS COURT IN SOME OTHER SIM ILAR MATTERS BY ITSELF, IN OUR VIEW, CANNOT BE HELD AS A BAR AGAINS T THE STATE IN FILING AN SLP OR SLPS IN OTHER SIMILAR MATTERS WHERE IT IS CONSIDERED ON BEHALF OF THE STATE THAT NON-FILING OF SUCH SLP OR SLPS AND PURSUING THEM IS LIKELY TO SERIOUSLY JEOPARDISE THE INTEREST OF THE STATE OR PUBLIC INTEREST. IN GOVERNMENT OF WEST BENGAL VS. TARUN K. ROY & ORS . (2004) 1 SCC 347 REFERENCE WAS MADE TO THE JUDGMENT IN DIG AMBAR CASE (SUPRA) AND STATE OF BIHAR & ORS. VS. RAMDEO YADAV & ORS. (1996) 3 SCC 493. IT WAS NOTED AS FOLLOWS : 28. IN THE AFOREMENTIONED SITUATION, THE DIVISION BENCH OF THE CALCUTTA HIGH COURT MANIFESTLY ERRED IN REFUSING TO CONSIDER THE CONTENTIONS OF THE APPELLANT ON THEIR OWN MERIT, PA RTICULARLY, WHEN THE QUESTION AS REGARD DIFFERENCE IN THE GRANT OF SCALE OF PAY ON THE GROUND OF DIFFERENT EDUCATIONAL QUALIFICATION STAND S CONCLUDED BY A JUDGMENT OF THIS COURT IN DEBDAS KUMAR 1991 SUPP (1 ) SCC 138 (SUPRA). IF THE JUDGMENT OF DEBDAS KUMAR (SUPRA) IS TO BE FOLLOWED AND FINDING OF FACT WAS REQUIRED TO BE ARRIVED AT T HAT THEY ARE SIMILARLY SITUATED TO THE CASE OF DEBDAS KUMAR (SUP RA) WHICH IN TURN WOULD MEAN THAT THEY ARE ALSO HOLDERS OF DIPLOMA IN ENGINEERING. THEY ADMITTEDLY BEING NOT, THE CONTENTION OF THE AP PELLANTS COULD NOT BE REJECTED. NON-FILING OF AN APPEAL, IN ANY EVENT, WOULD NOT BE A GROUND FOR REFUSING TO CONSIDER A MATTER ON ITS OWN MERITS. (SEE STATE OF MAHARASHTRA VS. DIGAMBAR (1995) 4 SCC 683. ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 22 29. IN STATE OF BIHAR & ORS. VS. RAMDEO YADAV & OR S. (1996) 3 SCC 493 WHEREIN THIS COURT NOTICED DEBDAS KUMAR (SU PRA) HOLDING : SHRI B.B. SINGH, THE LEARNED COUNSEL FOR THE APPEL LANT CONTENDED THAT THOUGH AN APPEAL AGAINST THE EARLIER ORDER OF THE HIGH COURT HAS NOT BEEN FILED, SINCE LARGER PUBLIC INTER EST IS INVOLVED IN THE INTERPRETATION GIVEN BY THE HIGH COURT FOLLOWING IT S EARLIER JUDGMENT, THE MATTER REQUIRES CONSIDERATION BY THIS COURT. WE FIND FORCE IN THIS CONTENTION. IN THE SIMILAR CIRCUMSTANCES, THIS COUR T IN STATE OF MAHARASHTRA VS. DIGAMBAR (1995) 4 SCC 633 AND IN ST ATE OF WEST BENGAL VS. DEBDAS KUMAR (1991) SUPPL. SCC 138, HAD HELD THAT THOUGH AN APPEAL WAS NOT FILED AGAINST AN EARLIER O RDER, WHEN PUBLIC INTEREST IS INVOLVED IN INTERPRETATION OF LAW, THE COURT IS ENTITLED TO GO INTO THE QUESTION.' IN RAMDEOS CASE (SUPRA) REFERENCE WAS MADE TO STAT E OF WEST BENGAL VS. DEBDAS KUMAR 1991 SUPPL. (1) SCC 138, WH EREIN IT WAS OBSERVED AT PARA 5 AS FOLLOWS : 5. IT IS THEN CONTENDED THAT SS. 3(2) AND (3) MAK E DISTINCTION BETWEEN THE EMPLOYEES COVERED BY THOSE PROVISIONS A ND THE EMPLOYEES OF THE AIDED SCHOOLS TAKEN OVER UNDER S. 3(2). UNTI L THE TAKING OVER BY OPERATION OF S. 3(4) RECOMMENDATION IS COMPLETE, TH EY DO NOT BECOME THE EMPLOYEES OF THE GOVERNMENT UNDER S. 4 OF THE A CT. THE GOVERNMENT IN EXERCISE OF THE POWER UNDER S. 8 CONS TITUTED A COMMITTEE AND DIRECTED TO ENQUIRE AND RECOMMEND THE FEASIBILITY TO TAKE OVER THE SCHOOLS. ON THE RECOMMENDATION MADE B Y THEM, THE GOVERNMENT HAVE TAKEN DECISION ON 13TH JAN., 1981 B Y WHICH DATE THE RESPONDENTS WERE NOT DULY APPOINTED AS THE EMPLOYEE S OF THE TAKEN OVER INSTITUTION. THEREFORE, THE HIGH COURT CANNOT ISSUE A MANDAMUS DIRECTING THE GOVERNMENT TO ACT IN VIOLATION OF LAW . IN CCE VS. HIRA CEMENT (2006) 2 SCC 439 AT PARA 24 THE POSITION WAS REITERATED. IN CHIEF SECRETARY TO GOVERNMENT OF ANDHRA PRADESH & ANR. VS. V.J. CORNELIUS & ORS. (1981) 2 SCC 347 IT WAS O BSERVED THAT EQUITY IS NOT RELEVANT FACTOR FOR THE PURPOSE OF IN TERPRETATION. IT WILL BE RELEVANT TO NOTE THAT IN KARAMCHARI UNIO N VS. UNION OF INDIA & ORS. (2000) 159 CTR (SC) 148 : (2000) 24 3 ITR 143 (SC) ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 23 AND UNION OF INDIA VS. KAUMUDINI NARAYAN DALAL (200 1) 168 CTR (SC) 3 : (2001) 249 ITR 219 (SC) THIS COURT OBSERVE D THAT WITHOUT A JUST CAUSE REVENUE CANNOT FILE THE APPEAL IN ONE CA SE WHILE DECIDING NOT TO FILE APPEAL IN ANOTHER CASE. THIS POSITION W AS ALSO NOTED IN CIT VS. SHIVSAGAR ESTATE (2002) 177 CTR (SC) 107 : (200 4) 9 SCC 420. THE ORDER OF REFERENCE WOULD GO TO SHOW THAT SAME W AS NECESSARY BECAUSE OF CERTAIN OBSERVATIONS IN BERGER PAINTS INDIA LTD. VS. CIT (2004) 187 CTR (SC) 193 : (2004) 12 SCC 42. THE DECISION IN UNION OF INDIA & ORS. VS. KAUMUDINI NARAYAN DALAL & ANR. (SUPRA) WAS EXPLAINED IN HEMALATHA GARGYA VS. CIT & ANR. (2 003) 182 CTR (SC) 107 : (2003) 9 SCC 510 AT PARA 14. IT HAS BEEN STATED IN THE SAID CASE THAT THE FACT THAT DIFFERENT HIGH COURTS HAVE TAKEN DIFFERENT VIEWS AND SOME OF THE HIGH COURTS ARE IN FAVOUR OF THE RE VENUE CONSTITUTED 'JUST CAUSE' FOR THE REVENUE TO PREFER AN APPEAL. T HIS COURT TOOK THE VIEW THAT HAVING NOT ASSAILED THE CORRECTNESS OF TH E ORDER IN ONE CASE, IT WOULD NORMALLY NOT BE PERMISSIBLE TO DO SO IN AN OTHER CASE ON THE LOGIC THAT THE REVENUE CANNOT PICK AND CHOOSE. THER E IS ALSO ANOTHER ASPECT WHICH IS THE CERTAINTY IN LAW. IF THE ASSESSEE TAKES THE STAND THAT THE REVENUE AC TED 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 O F FACT, AS RIGHTLY CONTENDED BY THE LEARNED COUNSEL FOR THE REVENUE, T HERE MAY BE CERTAIN CASES WHERE BECAUSE OF THE SMALL AMOUNT OF REVENUE INVOLVED, NO APPEAL IS FILED. POLICY DECISIONS HAVE BEEN TAKE N NOT TO PREFER APPEAL WHERE THE REVENUE INVOLVED IS BELOW A CERTAI N AMOUNT. SIMILARLY, WHERE THE EFFECT OF DECISION IS REVENUE NEUTRAL THERE MAY NOT BE ANY NEED FOR PREFERRING THE APPEAL. ALL THES E CERTAINLY PROVIDE THE FOUNDATION FOR MAKING A DEPARTURE. IN ANSWERING THE REFERENCE, WE HOLD THAT MERELY BEC AUSE IN SOME CASES THE REVENUE HAS NOT PREFERRED APPEAL THA T DOES NOT OPERATE AS A BAR FOR THE REVENUE TO PREFER AN APPEA L IN ANOTHER CASE WHERE THERE IS JUST CAUSE FOR DOING SO OR IT IS IN PUBLIC INTEREST TO DO SO OR FOR A PRONOUNCEMENT BY THE HIGHER COURT WHEN DIV ERGENT VIEWS ARE EXPRESSED BY THE TRIBUNALS OR THE HIGH COURTS. ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 24 BHARAT SANCHAR NIGAM LTD. & ANR. VS. UNION OF INDIA & ORS . (2006) 282 ITR 273 (SC) THE RELEVANT ABSTRACTS OF THE JUDGMENT ARE AS UNDER:- (PAGES 282 TO 287 ) THE STATE RESPONDENTS HAVE RAISED A PRELIMINARY OBJECTION AND CONTENDED THAT THE PLEA OF BSNL AND T HE OTHER PETITIONERS INCLUDING THE UNION OF INDIA IS BARRED BY RES JUDICATA BECAUSE THE ISSUE HAS BEEN DECIDED BY THIS COURT IN TER PARTIES IN STATE OF UP VS. UNION OF INDIA (SUPRA). THE PLEA HAS BEEN RESISTED BY THE PETITIONERS ON TH REE GROUNDS, VIZ., (I) THAT THE ISSUE OF THE LEGISLATIVE COMPETE NCE OF STATES TO IMPOSE SALES-TAX UNDER ENTRY 54 OF LIST II ON TRANSACTIONS WHICH ARE PURELY RENDITION OF SERVICES, WAS NOT RAISED IN THAT CASE, (II) THAT THE DECISION WAS WITHOUT JURISDICTION BECAUSE OF ART. 131 OF THE CONSTITUTION, AND (III) THAT EVERY ASSESSMENT YEAR GAVE RISE TO A FRE SH CAUSE OF ACTION. ACCORDING TO THE PETITIONERS IN ANY EVENT THE DECIS ION REQUIRES RECONSIDERATION. IN STATE OF UP VS. UNION OF INDIA & ANR. (SUPRA), T HE TWO LEARNED JUDGES OF THIS COURT HAD CONSTRUED THE DEFI NITION OF BUSINESS, DEALER, GOODS AND SALE UNDER SS. 2(AA), (C), (D) AND (H) OF THE U.P. TRADE TAX ACT, RESPECTIVELY, TO COM E TO THE CONCLUSION THAT THE DOT WAS A DEALER UNDER THE U.P. ACT. THI S COURT ALSO HELD THAT A TELEPHONE COMMUNICATION AND OTHER ACCESSORIE S WHICH GAVE ACCESS TO THE TELEPHONE EXCHANGE WITH OR WITHOUT IN STRUMENTS WERE GOODS AND THAT TRANSFERRING THE RIGHT TO USE THE TELEPHONE INSTRUMENT/APPARATUS AND THE WHOLE SYSTEM FELL WITH IN THE EXTENDED MEANING OF 'SALE' UNDER CL. (H) OF S. 2 OF THE U.P. ACT. A CONSIDERATION OF THE CORRECTNESS OF THIS CONCLUSI ON WOULD ARISE ONLY IF WE REJECT THE PRELIMINARY OBJECTION O F THE STATE OF UP THAT WE ARE PRECLUDED FROM REOPENING THE ISSUES SO CONCL UDED BY REASON OF THE PRINCIPLES OF RES JUDICATA. SEVERAL DECISIONS H AVE BEEN CITED IN SUPPORT OF THEIR CONTENTION. IN AMALGAMATED COALFIELDS LTD. VS. JANAPADA SABHA 1 962 (1) SCR 10 TAX WAS CLAIMED IN RESPECT OF COAL BY THE RE SPONDENTS THEREIN. NOTICES OF DEMAND WERE SENT TO THE APPELLANT. THE V ALIDITY OF THESE NOTICES WAS CHALLENGED BY THE APPELLANT BY FILING A WRIT PETITION BEFORE THIS COURT. THE WRIT PETITION WAS DISMISSED AND IT WAS HELD THAT THE NOTICES SERVED ON THE APPELLANT WERE VALID. NOTICES OF DEMAND WERE ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 25 AGAIN SERVED ON THE APPELLANT IN RESPECT OF A SUBSE QUENT PERIOD. THE APPELLANT FILED ANOTHER WRIT PETITION THIS TIME BEF ORE THE HIGH COURT, CHALLENGING THE VALIDITY OF THESE NOTICES. THE HIGH COURT HELD THAT THE APPELLANTS CLAIMS WERE BARRED BY RES JUDICATA BY R EASON OF THE EARLIER DECISION OF THIS COURT. CHALLENGING THE DEC ISION OF THE HIGH COURT THE APPELLANTS APPROACHED THIS COURT UNDER AR T. 136. IN AMALGAMATED COALFIELDS LTD. VS. JANAPADA SABHA (196 3) SUPP. 1 SCR 172 [REFERRED TO HEREAFTER AS AMALGAMATED COALFIELD S NO. 2], THE ISSUE WAS WHETHER THE DOCTRINE OF RES JUDICATA APPL IED TO WRIT PETITIONS FILED UNDER ART. 226 OR TO PETITIONS UNDER ART. 32. THE COURT NOTED THAT THE JUDICIAL VIEW WAS THAT EVEN PETITIONS FILED UND ER ART. 32 WERE SUBJECT TO THE GENERAL PRINCIPLE OF RES JUDICATA. T HE COURT THEN CONSIDERED WHETHER THE PRINCIPLE WOULD APPLY TO TAX CASES WHEN THE EARLIER DECISION WAS IN RESPECT OF A DIFFERENT PERI OD AND SAID : IN A SENSE, THE LIABILITY TO PAY TAX FROM YEAR-TO- YEAR IS A SEPARATE AND DISTINCT LIABILITY; IT IS BASED ON A D IFFERENT CAUSE OF ACTION FROM YEAR-TO-YEAR, AND IF ANY POINTS OF FACT OR LAW ARE CONSIDERED IN DETERMINING THE LIABILITY FOR A GIVEN YEAR, THEY CAN GENERALLY BE DEEMED TO HAVE BEEN CONSIDERED AND DEC IDED IN A COLLATERAL AND INCIDENTAL WAY. AFTER CONSIDERING VARIOUS EARLIER AUTHORITIES ON TH E ISSUE, IT WAS HELD THAT : IF FOR INSTANCE, THE VALIDITY OF A TAXING STATUTE IS IMPEACHED BY AN ASSESSEE WHO IS CALLED UPON TO PAY A TAX FOR A P ARTICULAR YEAR AND THE MATTER IS TAKEN TO THE HIGH COURT OR BROUGHT BE FORE THIS COURT AND IT IS HELD THAT THE TAXING STATUTE IS VALID, IT MAY NOT BE EASY TO HOLD THAT THE DECISION ON THIS BASIC AND MATERIAL ISSUE WOULD NOT OPERATE AS RES JUDICATA AGAINST THE ASSESSEE FOR A SUBSEQUENT YEAR . THAT, HOWEVER, IS A MATTER ON WHICH IT IS UNNECESSARY FOR US TO PRONO UNCE A DEFINITE OPINION IN THE PRESENT CASE. IN THIS CONNECTION, IT WOULD BE RELEVANT TO ADD THAT EVEN IF A DIRECT DECISION OF THIS COURT ON A POINT OF LAW DOES NOT OPERATE AS RES JUDICATA IN A DISPUTE FOR A SUBS EQUENT YEAR, SUCH A DECISION WOULD, UNDER ART. 141, HAVE A BINDING EFFE CT NOT ONLY ON THE PARTIES TO IT, BUT ALSO ON ALL COURTS IN INDIA AS A PRECEDENT IN WHICH THE LAW IS DECLARED BY THIS COURT. THE QUESTION ABO UT THE APPLICABILITY OF RES JUDICATA TO SUCH A DECISION WOULD THUS BE A MATTER OF MERELY ACADEMIC SIGNIFICANCE. (EMPHASIS, ITALICISED IN PRINT, OURS) ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 26 AFTER REFRAINING FROM EXPRESSING ANY FINAL OPINION ON THE APPLICABILITY OF RES JUDICATA TO ASSESSMENT ORDERS FOR SUCCESSIVE YEARS, THE COURT WAS QUITE UNEQUIVOCAL IN EXPRESSING AN OP INION ON THE APPLICABILITY OF THE PRINCIPLES OF CONSTRUCTIVE RES JUDICATA. IN OUR OPINION, CONSTRUCTIVE RES JUDICATA WHICH IS A SPECIAL AND ARTIFICIAL FORM OF RES JUDICATA ENACTED BY S. 1 1 OF THE CPC SHOULD NOT GENERALLY BE APPLIED TO WRIT PETITIONS FILED UN DER ART. 32 OR ART. 226. WE WOULD BE RELUCTANT TO APPLY THIS PRINCIPLE TO THE PRESENT APPEALS ALL THE MORE BECAUSE WE ARE DEALING WITH CA SES WHERE THE IMPUGNED TAX LIABILITY IS FOR DIFFERENT YEARS. IT WAS HELD THAT IN ANY EVENT : ....... THE APPELLANTS CANNOT BE PRECLUDED FROM RA ISING THE NEW CONTENTIONS ON WHICH THEIR CHALLENGE AGAINST THE VA LIDITY OF THE NOTICES IS BASED. THE QUESTION IN RADHASOAMI SATSANG VS. CIT (1991) 1 00 CTR (SC) 267 : 1992 (1) SCC 659 (ALSO CITED BY THE STAT E OF U.P.) WAS WHETHER THE TRIBUNAL WAS BOUND BY AN EARLIER DECISI ON IN RESPECT OF AN EARLIER ASSESSMENT YEAR THAT THE INCOME DERIVED BY THE RADHASOAMI SATSANG, A RELIGIOUS INSTITUTION, WAS ENTITLED TO E XEMPTION UNDER SS. 11 AND 12 OF THE IT ACT, 1961. THE COURT SAID : WE ARE AWARE OF THE FACT THAT STRICTLY SPEAKING RE S JUDICATA DOES NOT APPLY TO INCOME-TAX PROCEEDINGS. AGAIN, EA CH ASSESSMENT YEAR BEING A UNIT, WHAT IS DECIDED IN ONE YEAR MAY NOT APPLY IN THE FOLLOWING YEAR BUT WHERE A FUNDAMENTAL ASPECT PERME ATING THROUGH THE DIFFERENT ASSESSMENT YEARS HAS BEEN FOUND AS A FACT ONE WAY OR THE OTHER AND PARTIES HAVE ALLOWED THAT POSITION TO BE SUSTAINED BY NOT CHALLENGING THE ORDER, IT WOULD NOT BE AT ALL APPRO PRIATE TO ALLOW THE POSITION TO BE CHANGED IN A SUBSEQUENT YEAR, UNLESS THERE WAS ANY MATERIAL CHANGE JUSTIFYING THE REVENUE TO TAKE A DI FFERENT VIEW OF THE MATTER. AMALGAMATED COALFIELDS CASE NO. 2 (SUPRA) WAS DISTI NGUISHED IN THE CASE OF DEVI LAL MODI VS. STO 1965 (1) SCR 8 6 IN WHICH THE CHALLENGE WAS TO ASSESSMENT PROCEEDINGS UNDER THE M ADHYA BHARAT SALES-TAX ACT, 1950. THE WRIT PETITION WAS DISMISSE D BY THE HIGH ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 27 COURT. THE SPECIAL LEAVE PETITION WAS ALSO DISMISSE D. THE SAME ORDER OF ASSESSMENT WAS CHALLENGED BY FILING A SECOND WRI T PETITION BEFORE THE HIGH COURT. THIS WAS ALSO DISMISSED BY THE HIGH COURT. THE QUESTION, BEFORE THIS COURT WAS WHETHER IT WAS OPEN TO THE APPELLANT TO CHALLENGE THE VALIDITY OF THE SAME ORDER OF ASSE SSMENT TWICE BY TWO CONSECUTIVE WRIT PETITIONS UNDER ART. 226. THE COUR T ACKNOWLEDGED THAT IN REGARD TO THE ORDERS OF ASSESSMENT FOR DIFF ERENT YEARS, THE POSITION MAY BE DIFFERENT AND SAID : EVEN IF THE SAID ORDERS ARE PASSED UNDER THE SAME PROVISIONS OF LAW, IT MAY THEORETICALLY BE OPEN TO THE PARTY T O CONTEND THAT THE LIABILITY BEING RECURRING FROM YEAR-TO-YEAR, THE CA USE OF ACTION IS NOT THE SAME; AND SO, EVEN IF A CITIZENS PETITION CHAL LENGING THE ORDER OF ASSESSMENT PASSED AGAINST HIM FOR ONE YEAR IS REJEC TED, IT MAY BE OPEN TO HIM TO CHALLENGE A SIMILAR ASSESSMENT ORDER PASS ED FOR THE NEXT YEAR. IN THAT CASE, THE COURT MAY ULTIMATELY ADOPT THE SAME VIEW WHICH HAD BEEN ADOPTED ON THE EARLIER OCCASION; BUT IF A NEW GROUND IS URGED, THE COURT MAY HAVE TO CONSIDER IT ON THE MERITS, BECAUSE, STRICTLY SPEAKING THE PRINCIPLE OF RES JUDICATA MAY NOT APPLY TO SUCH A CASE. THAT, IN FACT, IS THE EFFECT OF THE DECISION OF THIS COURT IN THE AMALGAMATED COALFIELDS LTD. & ANR. VS. JANAPADA SAB HA, CHHINDWARA (1963) SUPP. 1 SCR 172.........IN OUR OP INION, THE SAID GENERAL OBSERVATIONS MUST BE READ IN THE LIGHT OF T HE IMPORTANT FACT THAT THE ORDER WHICH WAS CHALLENGED IN THE SECOND W RIT PETITION WAS IN RELATION TO A DIFFERENT PERIOD AND NOT FOR THE SAME PERIOD AS WAS COVERED BY THE EARLIER PETITION. BUT AS FAR AS A CHALLENGE TO THE SAME ASSESSMENT OR DER IS CONCERNED, IT WAS HELD : THAT IF CONSTRUCTIVE RES JUDICATA IS NOT APPLIED T O SUCH PROCEEDINGS A PARTY CAN FILE AS MANY WRIT PETITIONS AS HE LIKES AND TAKE ONE OR TWO POINTS EVERY TIME. THAT CLEARLY IS OPPOSED TO CONSIDERATIONS OF PUBLIC POLICY ON WHICH RES JUDICA TA IS BASED AND WOULD MEAN HARASSMENT AND HARDSHIP TO THE OPPONENT. BESIDES, IF SUCH A COURSE IS ALLOWED TO BE ADOPTED, THE DOCTRIN E OF FINALITY OF JUDGMENTS PRONOUNCED BY THIS COURT WOULD ALSO BE MA TERIALLY AFFECTED. WE ARE, THEREFORE, SATISFIED THAT THE SEC OND WRIT PETITION FILED BY THE APPELLANT IN THE PRESENT CASE IS BARRED BY C ONSTRUCTIVE RES JUDICATA. ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 28 RUPA ASHOK HURRA VS. ASHOK HURRA (2002) 4 SCC 388 CONSIDERED WHETHER THIS COURT CAN SET ASIDE ITS EAR LIER DECISION INTER PARTES UNDER ART. 32. IN PARA 14, THE COURT SAID : ON THE ANALYSIS OF THE RATIO LAID DOWN IN THE AFOR EMENTIONED CASES, WE REAFFIRM OUR CONSIDERED VIEW THAT A FINAL JUDGMENT/ORDER PASSED BY THIS COURT CANNOT BE ASSAILED IN AN APPLI CATION UNDER AR 32 OF THE CONSTITUTION OF INDIA BY AN AGGRIEVED PERSON , WHETHER HE WAS A PARTY TO THE CASE OR NOT. NEVERTHELESS, WE THINK THAT A PETITIONER IS ENTITLE D TO RELIEF EX DEBITO JUSTITIAE IF HE ESTABLISHES (1) VIOLATION OF THE PRINCIPLES OF NATURAL JUSTICE IN THAT HE WAS NOT A PARTY TO THE L IS BUT THE JUDGMENT ADVERSELY AFFECTED HIS INTERESTS OR, IF HE WAS A PA RTY TO THE LIS, HE WAS NOT SERVED WITH NOTICE OF THE PROCEEDINGS AND THE M ATTER PROCEEDED AS IF HE HAD NOTICE, AND (2) WHERE IN THE PROCEEDINGS A LEARNED JUDGE FAILED TO DISCLOSE HIS CONNECTION WITH THE SUBJECT- MATTER OR THE PARTIES GIVING SCOPE FOR AN APPREHENSION OF BIAS AND THE JU DGMENT ADVERSELY AFFECTS THE PETITIONER. TO A SIMILAR EFFECT IS THE CASE OF JUNIOR TELECOM O FFICERS FORUM & ORS. VS. UNION OF INDIA & ORS (1993) SUPP. 4 SCC 693 WHERE THE APPELLANTS HAD INTERVENED IN EARLIER PROCEEDINGS. A FTER THE CONTROVERSY WAS DECIDED IN THOSE PROCEEDINGS THE AP PELLANTS SOUGHT TO REAGITATE THE SAME ISSUES IN RESPECT OF THE SAME MA TTER CONTENDING THAT THEY HAD NO OPPORTUNITY OF BEING HEARD. THE SU BMISSION WAS REJECTED AND IT WAS HELD THAT THE SECOND ROUND WAS IMPERMISSIBLE. THE DECISIONS CITED HAVE UNIFORMLY HELD THAT RES J UDICATA DOES NOT APPLY IN MATTERS PERTAINING TO TAX FOR DIFFEREN T ASSESSMENT YEARS BECAUSE RES JUDICATA APPLIES TO DEBAR COURTS FROM E NTERTAINING ISSUES ON THE SAME CAUSE OF ACTION WHEREAS THE CAUSE OF AC TION FOR EACH ASSESSMENT YEAR IS DISTINCT. THE COURTS WILL GENERA LLY ADOPT AN EARLIER PRONOUNCEMENT OF THE LAW OR A CONCLUSION OF FACT UN LESS THERE IS A NEW GROUND URGED OR A MATERIAL CHANGE IN THE FACTUAL PO SITION. THE REASON WHY COURTS HAVE HELD PARTIES TO THE OPINION EXPRESS ED IN A DECISION IN ONE ASSESSMENT YEAR TO THE SAME OPINION IN A SUBSEQ UENT YEAR IS NOT BECAUSE OF ANY PRINCIPLE OF RES JUDICATA BUT BECAUS E OF THE THEORY OF PRECEDENT OR THE PRECEDENTIAL VALUE OF THE EARLIER PRONOUNCEMENT. WHERE FACTS AND LAW IN A SUBSEQUENT ASSESSMENT YEAR ARE THE SAME, NO AUTHORITY WHETHER QUASI JUDICIAL OR JUDICIAL CAN GE NERALLY BE PERMITTED TO TAKE A DIFFERENT VIEW. THIS MANDATE IS SUBJECT ONLY TO THE ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 29 USUAL GATEWAYS OF DISTINGUISHING THE EARLIER DECISI ON OR WHERE THE EARLIER DECISION IS PER INCURIAM. HOWEVER, THESE AR E FETTERS ONLY ON A CO-ORDINATE BENCH WHICH, FAILING THE POSSIBILITY OF AVAILING OF EITHER OF THESE GATEWAYS, MAY YET DIFFER WITH THE VIEW EXPRES SED AND REFER THE MATTER TO A BENCH OF SUPERIOR STRENGTH OR IN SOME C ASES TO A BENCH OF SUPERIOR JURISDICTION. IN OUR OPINION, THE PRELIMINARY OBJECTION RAISED B Y THE STATE OF UP THEREFORE, RESTS ON A FAULTY PREMISE. THE CONTEN TION OF THE PETITIONERS/APPELLANTS IN THESE MATTERS IS NOT THAT THE DECISION IN STATE OF UP VS. UNION OF INDIA (SUPRA) FOR THAT ASSESSMEN T YEAR SHOULD BE SET ASIDE, BUT THAT IT SHOULD BE OVERRULED AS AN AU THORITY OR PRECEDENT. THEREFORE, THE DECISIONS IN DEVI LAL MODI VS. STO ( SUPRA) AND IN HURRA VS. HURRA (SUPRA) ARE NOT GERMANE. A DECISION CAN BE SET ASIDE IN THE SAME LIS ON A PR AYER FOR REVIEW OR AN APPLICATION FOR RECALL OR UNDER ART. 3 2 IN THE PECULIAR CIRCUMSTANCES MENTIONED IN HURRA VS. HURRA (SUPRA). AS WE HAVE SAID OVERRULING OF A DECISION TAKES PLACE IN A SUBSEQUEN T LIS WHERE THE PRECEDENTIAL VALUE OF THE DECISION IS CALLED IN QUE STION. NO ONE CAN DISPUTE THAT IN OUR JUDICIAL SYSTEM IT IS OPEN TO A COURT OF SUPERIOR JURISDICTION OR STRENGTH BEFORE WHICH A DECISION OF A BENCH OF LOWER STRENGTH IS CITED AS AN AUTHORITY, TO OVERRULE IT. THIS OVERRULING WOULD NOT OPERATE TO UPSET THE BINDING NATURE OF THE DECI SION ON THE PARTIES TO AN EARLIER LIS IN THAT LIS, FOR WHOM THE PRINCIP LE OF RES JUDICATA WOULD CONTINUE TO OPERATE. BUT IN TAX CASES RELATIN G TO A SUBSEQUENT YEAR INVOLVING THE SAME ISSUE AS AN EARLIER YEAR, T HE COURT CAN DIFFER FROM THE VIEW EXPRESSED IF THE CASE IS DISTINGUISHA BLE OR PER INCURIAM. THE DECISION IN STATE OF UP VS. UNION OF INDIA (SUP RA) RELATED TO THE YEAR 1988. ADMITTEDLY, THE PRESENT DISPUTE RELATES TO A SUBSEQUENT PERIOD. HERE A CO-ORDINATE BENCH HAS REFERRED THE M ATTER TO A LARGER BENCH. THIS BENCH BEING OF SUPERIOR STRENGTH, WE CA N, IF WE SO FIND, DECLARE THAT THE EARLIER DECISION DOES NOT REPRESEN T THE LAW. NONE OF THE DECISIONS CITED BY THE STATE OF UP ARE AUTHORIT IES FOR THE PROPOSITION THAT WE CANNOT, IN THE CIRCUMSTANCES OF THIS CASE, DO SO. THIS PRELIMINARY OBJECTION OF THE STATE OF UP IS TH EREFORE REJECTED. RADHASOAMI SATSANG VS. COMMISSIONER OF INCOME TAX ( 1992) 193 ITR 321 (SC) THE RELEVANT ABSTRACTS OF THE JUDGMENT ARE AS UNDER:- ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 30 (PAGES 328 & 329) ONE OF THE CONTENTIONS WHICH L EARNED SENIOR COUNCIL FOR THE ASSESSEE-APPELLANT RAISED AT THE HEARING WAS THAT, IN THE ABSENCE OF ANY CHANGE IN THE CIRCUMSTA NCES, THE REVENUE SHOULD HAVE FELT BOUND BY THE PREVIOUS DECISIONS AN D NO ATTEMPT SHOULD HAVE BEEN MADE TO REOPEN THE QUESTION. HE RE LIED UPON SOME AUTHORITIES IN SUPPORT OF HIS STAND. A FULL BENCH O F THE MADRAS HIGH COURT CONSIDERED THIS QUESTION IN T.M.M. SANKARALIN GA NADAR & BROS. VS. CIT (1929) 4 ITC226. AFTER DEALING WITH T HE CONTENTION, THE FULL BENCH EXPRESSED THE FOLLOWING OPINION: THE PRINCIPLE TO BE DEDUCTED FROM THESE TWO CASES IS THAT WHERE THE QUESTION RELATING TO ASSESSMENT DOES NOT VARY WITH THE INCOME EVERY YEAR BUT DEPENDS ON THE NATURE OF THE PROPERTY OR ANY OTHER QUESTION ON WHICH THE RIGHTS OF THE PARTIES T O BE TAXED ARE BASED, E.G., WHETHER A CERTAIN PROPERTY IS TRUST PROPERTY OR NOT, IT HAS NOTHING TO DO WITH THE FLUCTUATIONS IN THE INCOME; SUCH QUE STIONS, IF DECIDED BY A COURT ON A REFERENCE MADE TO IT WOULD BE RES JUDI CATA IN THAT THE SAME QUESTION CANNOT BE SUBSEQUENTLY AGITATED. ONE OF THE DECISIONS REFERRED TO BY THE FULL BENCH WAS THE CASE OF HOYSTEAD VS. COMMISSIONER OF TAXATION (1926) AC 155 (PC). SPEAKING FOR THE JUDICIAL COMMITTEE, LORD SHAW STAT ED : PARTIES ARE NOT PERMITTED TO BEGIN FRESH LITIGATIO NS BECAUSE OF NEW VIEWS THEY MAY ENTERTAIN OF THE LAW OF THE CASE , OR NEW VERSIONS AS TO WHAT SHOULD BE A PROPER APPREHENSION BY THE C OURT OF THE LEGAL RESULT EITHER OF THE CONSTRUCTION OF THE DOCUMENTS OR THE WEIGHT OF CERTAIN CIRCUMSTANCES. IF THIS WERE PERMITTED LITIG ATION WOULD HAVE NO END, EXCEPT WHEN LEGAL INGENUITY IS EXHAUSTED. IT I S A PRINCIPLE OF LAW THAT THIS CANNOT BE PERMITTED, AND THERE IS ABUNDAN T AUTHORITY REITERATING THAT PRINCIPLE. THIRDLY, THE SAME PRINC IPLENAMELY, THAT OF A SETTING TO REST RIGHTS OF LITIGANTS, APPLIES TO T HE CASE WHERE A POINT, FUNDAMENTAL TO THE DECISION TAKEN OR ASSUMED BY THE PLAINTIFF AND TRAVERSABLE BY THE DEFENDANT, HAS NOT BEEN TRAVERSE D. IN THAT CASE ALSO A DEFENDANT IS BOUND BY THE JUDGMENT, ALTHOUGH IT M AY BE TRUE ENOUGH THAT SUBSEQUENT LIGHT OR INGENUITY MIGHT SUGGEST SO ME TRAVERSE WHICH HAD NOT BEEN TAKEN. THESE OBSERVATIONS WERE MADE IN A CASE WHERE TAXATI ON WAS IN ISSUE. ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 31 THIS COURT IN PARASHURAM POTTERY WORKS CO. LTD. VS. ITO 1977 CTR (SC) 32 : (1977) 106 ITR 1 (SC) STATED :'AT THE SAME TIME, WE HAVE TO BEAR IN MIND THAT THE POLICY OF LAW IS THAT THERE MUST BE A POINT OF FINALITY IN ALL LEGAL PROCEEDINGS, THAT ST ALE ISSUES SHOULD NOT BE REACTIVATED BEYOND A PARTICULAR STAGE AND THAT L APSE OF TIME MUST INDUCE REPOSE IN AND SET AT REST JUDICIAL AND QUASI -JUDICIAL CONTROVERSIES AS IT MUST IN OTHER SPHERES OF HUMAN ACTIVITY.' ASSESSMENTS ARE CERTAINLY QUASI-JUDICIAL AND THESE OBSERVATIONS EQUALLY APPLY. WE ARE AWARE OF THE FACT THAT, STRICTLY SPEAKING, R ES JUDICATA DOES NOT APPLY TO IT PROCEEDINGS. AGAIN, EACH ASSES SMENT YEAR BEING A UNIT, WHAT IS DECIDED IN ONE YEAR MAY NOT APPLY I N THE FOLLOWING YEAR BUT WHERE A FUNDAMENTAL ASPECT PERMEATING THROUGH T HE DIFFERENT ASSESSMENT YEARS HAS BEEN FOUND AS A FACT ONE WAY O R THE OTHER AND PARTIES HAVE ALLOWED THAT POSITION TO BE SUSTAINED BY NOT CHALLENGING THE ORDER, IT WOULD NOT BE AT ALL APPROPRIATE TO AL LOW THE POSITION TO BE CHANGED IN A SUBSEQUENT YEAR. ONE THESE REASONING, IN THE ABSENCE OF ANY MATERIAL CHANGE JUSTIFYING THE REVENUE TO TAKE A DIFFERENT VIEW OF THE MATTERAND, IF THERE WAS NO CHANGE, IT WAS IN SUPPORT OF THE ASSES SEEWE DO NOT THINK THE QUESTION SHOULD HAVE BEEN REOPENED AND CO NTRARY TO WHAT HAD BEEN DECIDED BY THE CIT IN THE EARLIER PROCEEDI NGS, A DIFFERENT AND CONTRADICTORY STAND SHOULD HAVE BEEN TAKEN. WE ARE, THEREFORE, OF THE VIEW THAT THESE APPEALS SHOULD BE ALLOWED AND T HE QUESTION SHOULD BE ANSWERED IN THE AFFIRMATIVE, NAMELY, THAT THE TR IBUNAL WAS JUSTIFIED IN HOLDING THAT THE INCOME DERIVED BY THE RADHASOAM I SATSANG WAS ENTITLED TO EXEMPTION UNDER SS. 11 AND 12 OF THE IT ACT OF 1961. COMMISSIONER OF INCOME-TAX VS. BRITISH PAINTS INDIA LTD. [1991] 188 ITR 0044 (SC) THE RELEVANT ABSTRACTS OF THE JUDGMENT ARE AS UNDER:- THE BRIEF FACTS OF THE CASE ARE THAT THE RESPONDEN T, A COMPANY ENGAGED IN THE MANUFACTURE AND SALE OF PAINTS, HAD, AS A CONSISTENT PRACTICE, VALUED ITS GOODS-IN-PROCESS AND FINISHED PRODUCTS ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 32 EXCLUSIVELY AT COST OF RAW MATERIALS TOTALLY EXCLUD ING OVERHEAD EXPENDITURE. THE JUSTIFICATION FOR THE PRACTICE, AC CORDING TO THE RESPONDENT, WAS THAT THE GOODS BEING PAINTS HAD LIM ITED STORAGE LIFE AND, IF NOT QUICKLY DISPOSED OF, WERE LIABLE TO LOS E THEIR MARKET VALUE. FOR THE ASSESSMENT YEARS 1963-64 AND 1964-65, THE I NCOME-TAX OFFICER HELD THAT THERE WAS NO JUSTIFICATION TO REC OGNISE A PRACTICE OF VALUING STOCK OTHERWISE THAN IN ACCORDANCE WITH THE WELL-RECOGNISED PRINCIPLE OF ACCOUNTING WHICH REQUIRED THE STOCK TO BE VALUED AT COST (VIZ., RAW MATERIAL PLUS EXPENDITURE) OR MARKET PRI CE, WHICHEVER WAS LOWER. HE, THEREFORE, CALCULATED THE VALUE OF THE O PENING AND CLOSING STOCKS BY ADDING THE OVERHEAD EXPENDITURE. THE APPE LLATE ASSISTANT COMMISSIONER CONFIRMED THAT ORDER. ON APPEAL, THE A PPELLATE TRIBUNAL HELD THAT THERE WAS NO EVIDENCE TO SHOW TH AT THE GOODS IN STOCK DETERIORATED IN VALUE AND THAT THERE WAS NO J USTIFICATION FOR EXCLUDING THE OVERHEAD EXPENDITURE IN VALUING THE S TOCK; AND, IF IT WAS IN THE INTEREST OF THE BUSINESS TO VALUE STOCK SOLE LY WITH REFERENCE TO COST OF RAW MATERIALS AND WITHOUT INCLUDING OVERHEA D EXPENDITURE, SUCH VALUATION WAS NOT APPROPRIATE TO THE COMPUTATI ON OF INCOME CHARGEABLE UNDER THE INCOME-TAX ACT. THE HIGH COURT, ON A REFERENCE, REVERSED THE DECISI ON OF THE TRIBUNAL HOLDING THAT, HAVING REGARD TO THE CONSIST ENT PRACTICE OF THE RESPONDENT; THE TRIBUNAL WAS NOT JUSTIFIED IN R EJECTING THE RESPONDENT'S METHOD OF VALUATION OF ITS STOCK-IN-TR ADE.(EMPHASIZES BY US) ON APPEAL TO THE SUPREME COURT HELD REVERSING THE D ECISION OF THE HIGH COURT , (I ) THAT EVEN IF THE ASSESSEE HAD ADOPTED A REGULAR SYSTEM OF ACCOUNTING, IT WAS THE DUTY OF THE ASSESS ING OFFICER UNDER SECTION 145 OF THE INCOME-TAX ACT, 1961, TO CONSIDE R WHETHER THE CORRECT PROFITS AND GAINS COULD BE DEDUCED FROM THE ACCOUNTS SO MAINTAINED. IF HE WAS OF THE OPINION THAT THE CORRE CT PROFITS COULD NOT BE DEDUCED FROM THE ACCOUNTS, HE WAS OBLIGED TO HAV E RECOURSE TO THE PROVISO TO SECTION 145 OF THE INCOME-TAX ACT, 1961. (II) THAT ANY SYSTEM OF ACCOUNTING WHICH EXCLUDED, FOR THE VALUATION OF STOCK-IN-TRADE, ALL COSTS OTHER THAN THE COST OF RA W MATERIALS FOR THE GOODS-IN-PROCESS AND FINISHED PRODUCTS, WAS LIKELY TO RESULT IN A DISTORTED PICTURE OF THE TRUE STATE OF THE BUSINESS FOR THE PURPOSE OF COMPUTING THE CHARGEABLE INCOME. SUCH A SYSTEM MIGH T PRODUCE A COMPARATIVELY LOWER VALUATION OF THE OPENING STOCK AND THE CLOSING ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 33 STOCK, THUS SHOWING A COMPARATIVELY LOW DIFFERENCE BETWEEN THE TWO. IN A PERIOD OF RISING TURNOVER AND RISING PRICES, S UCH A SYSTEM WAS APT TO DIMINISH THE ASSESSMENT OF TAXABLE PROFIT OF A Y EAR. THE PROFIT OF ONE YEAR WAS LIKELY TO BE SHIFTED TO ANOTHER YEAR W HICH WOULD BE AN INCORRECT METHOD OF COMPUTING PROFITS. EACH YEAR BE ING A SELF- CONTAINED UNIT, AND THE TAXES OF A PARTICULAR YEAR BEING PAYABLE WITH REFERENCE TO THE INCOME OF THAT YEAR, AS COMPUTED I N TERMS OF THE ACT, THE METHOD ADOPTED BY THE RESPONDENT WAS FOUND TO B E SUCH THAT INCOME COULD NOT PROPERLY BE DEDUCED THERE FROM. IT WAS, THEREFORE, NOT ONLY THE RIGHT BUT THE DUTY OF THE INCOME-TAX O FFICER TO ACT IN EXERCISE OF HIS STATUTORY POWER FOR DETERMINING WHA T, IN HIS OPINION, WOULD BE THE CORRECT INCOME. THE QUESTION TO BE DETERMINED BY THE ASSESSING OFFI CER IN EXERCISE OF HIS POWER UNDER SECTION 145 IS WHETHER OR NOT INCOM E CAN PROPERLY BE DEDUCED FROM THE ACCOUNTS MAINTAINED BY THE ASSESSE E, EVEN IF THE ACCOUNTS ARE CORRECT AND COMPLETE TO THE SATISFACTI ON OF THE OFFICER AND THE INCOME HAS BEEN COMPUTED IN ACCORDANCE WITH THE METHOD REGULARLY EMPLOYED BY THE ASSESSEE. WHAT IS TO BE D ETERMINED BY THE OFFICER IS A QUESTION OF FACT, I.E., WHETHER OR NOT INCOME CHARGEABLE UNDER THE ACT CAN PROPERLY BE DEDUCED FROM THE BOOK S OF ACCOUNT, AND HE MUST DECIDE THE QUESTION WITH REFERENCE TO THE R ELEVANT MATERIAL AND IN ACCORDANCE WITH THE CORRECT PRINCIPLES. IT I S NOT ONLY THE RIGHT, BUT THE DUTY OF THE ASSESSING OFFICER TO CONSIDER W HETHER OR NOT THE BOOKS DISCLOSE THE TRUE STATE OF ACCOUNTS AND THE C ORRECT INCOME CAN BE DEDUCED THEREFROM. IT IS INCORRECT TO SAY THAT T HE OFFICER IS BOUND TO ACCEPT THE SYSTEM OF ACCOUNTING REGULARLY EMPLOY ED BY THE ASSESSEE THE CORRECTNESS OF WHICH HAD NOT BEEN QUESTIONED IN THE PAST. THERE IS NO ESTOPPEL IN THESE MATTERS AND THE OFFICER IS NOT BOUND BY THE METHOD FOLLOWED IN THE EARLIER YEARS. IT IS A WELL-RECOGNISED PRINCIPLE OF COMMERCIAL ACC OUNTING TO ENTER IN THE PROFIT AND LOSS ACCOUNT THE VALUE OF THE STOCK- IN-TRADE AT THE BEGINNING AND AT THE END OF THE ACCOUNTING YEAR AT COST OR MARKET PRICE, WHICHEVER IS THE LOWER. WHERE THE MARKET VALUE HAS FALLEN BEFORE THE DATE O F VALUATION AND, AT THAT DATE, THE MARKET VALUE OF THE ARTICLE IS LESS THAN ITS ACTUAL COST, THE ASSESSEE IS ENTITLED TO VALUE THE ARTICLES AT MARKE T VALUE AND THUS ANTICIPATE THE LOSS WHICH HE WILL PROBABLY INCUR AT THE TIME OF THE SALE OF THE GOODS. VALUATION OF THE STOCK-IN-TRADE AT CO ST OR MARKET VALUE, ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 34 WHICHEVER IS THE LOWER, IS A MATTER ENTIRELY WITHIN THE DISCRETION OF THE ASSESSEE. BUT WHICHEVER METHOD HE ADOPTS, IT SHOULD DISCLOSE A TRUE PICTURE OF HIS PROFITS AND GAINS. IF, ON THE OTHER HAND, HE ADOPTS A SYSTEM WHICH DOES NOT DISCLOSE THE TRUE STATE OF AF FAIRS FOR THE DETERMINATION OF TAX, EVEN IF IT IS IDEALLY SUITED FOR OTHER PURPOSES OF HIS BUSINESS, SUCH AS THE CREATION OF A RESERVE, DE CLARATION OF DIVIDENDS, PLANNING AND THE LIKE, IT IS THE DUTY OF THE ASSESSING OFFICER TO ADOPT SUCH METHOD OF COMPUTATION AS HE DEEMS APP ROPRIATE FOR PROPER DETERMINATION OF THE TRUE INCOME OF THE ASSE SSEE. SECTION 145 CONFERS SUFFICIENT POWER UPON THE ASSES SING OFFICER--NAY, IT IMPOSES A DUTY UPON HIM--TO MAKE SUCH COMPUTATIO N IN SUCH MANNER AS HE DETERMINES FOR DEDUCING THE CORRECT PR OFITS AND GAINS. THIS MEANS THAT WHERE ACCOUNTS ARE PREPARED WITHOUT DISCLOSING THE REAL COST OF THE STOCK-IN-TRADE, ALBEIT ON SOUND EX PERT ADVICE IN THE INTEREST OF EFFICIENT ADMINISTRATION OF THE BUSINES S, IT IS THE DUTY OF THE ASSESSING OFFICER TO DETERMINE THE TAXABLE INCOME B Y MAKING SUCH COMPUTATION AS HE THINKS FIT. WHAT IS THE PROFIT OF A TRADE OR BUSINESS IS A QUES TION OF FACT AND IT MUST BE ASCERTAINED, AS ALL FACTS MUST BE ASCERTAIN ED, WITH REFERENCE TO THE RELEVANT EVIDENCE, AND NOT ON DOCTRINES OR T HEORIES. 18.1 FROM ABOVE JUDICIAL PRONOUNCEMENTS, WE FIND THAT IT IS WELL SETTLED THAT THE PRINCIPLE OF RESJUDICATA OR ESTOPPEL, WHICH APPLIES TO DECISION OF CIVIL COURTS, HAS NO APPLICATION TO DECISIONS OF INCOME-TAX AUTHORITIES SO AS TO PRECLUDE THE DETERMINATION OF A QUESTION IN A PREVIOUS ASSESSMEN T ORDER FROM BEING REOPENED IN PROCEEDINGS RELATING TO A SUBSEQUENT ASSESSMENT. T HE REASONS ARE THAT THE PURPOSE AND THE SUBJECT-MATTER OF THE PROCEEDINGS IN A SUBS EQUENT YEAR ARE NOT THE SAME AS THOSE IN A PREVIOUS YEAR. BECAUSE AS A GENERAL RUL E THE PRINCIPLE OF RES JUDICATA IS NOT APPLICABLE TO DECISIONS OF INCOME-TAX AUTHORITI ES, AN ASSESSMENT FOR A PARTICULAR YEAR IS FINAL AND CONCLUSIVE BETWEEN THE PARTIES ON LY IN RELATION TO THAT YEAR. ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 35 DECISIONS GIVEN IN AN ASSESSMENT FOR AN EARLIER YEA R ARE NOT BINDING EITHER ON THE ASSESSEE OR THE DEPARTMENT IN A SUBSEQUENT YEAR. 18.2 IN THE CASE UNDER CONSIDERATION, LET US SEE WHAT THE ORDER OF A.O. IS FOR A.Y. 2005-2006 ON WHICH THE ASSESSEE RELIED UPON TO FOLLOW BY REVENUE ON PRINCIPLE OF CONSISTENCY. TO APPRECIATE THE FACTS, WE REPRODUCE RELEVANT ABSTRACT OF THE A.O.S ORDER FOR A.Y. 2005-2006 AS UNDER:- 4. THIS IS THE FIRST YEAR OF BUSINESS OF THE ASSES SEE FIRM WHICH WAS CONSTITUTED THROUGH PARTNERSHIP DEED DATED 01.11.20 04. THE ASSESSEE FIRM STATED IT IS ENGAGED IN THE BUSINESS VENTURING INTO REAL ESTATE AND ALIKE ACTIVITIES LIKE GIVING PROPERTIES ON LEASE OR SUB-LEASE PROVIDING ANNUAL MAINTENANCE CONTRACT FOR ANY TYPE OF FACILIT IES, PROVIDING GENERATORS ON HIRE AND PROVIDING INVERTORS ON HIRE ETC. 5. DURING THE YEAR THE ASSESSEE HAS ACQUIRED (TAKEN ON LONG LEASE) A PROPERTY G10/8 PADAM DEEP TOWER SANAY PLACE AGRA ADMEASURING 6925 SQ. FEET WHICH IT HAS LEASED TO M/ S GAS AUTHORITY OF INDIA LTD., AGRA FOR A MONTHLY SUM OF RS.96,540 PER MONTH. 6. PARTNERS OF THE FIRM PRODUCED NECESSARY DOCUMENT S IN SUPPORT OF THEIR RETURNED FINANCIAL STATEMENTS. AFTER CONS IDERING THE FACTS AND CIRCUMSTANCES OF THE CASE AND DETAILS/EXPLANATIONS SUBMITTED BY THE ASSESSEE, TOTAL LOSS RETURNED AT RS.20,13,103/- IS ACCEPTED. 7. ASSESSED ACCORDINGLY U/S 143(3) OF THE IT ACT, 1961 ON TOTAL LOSS OF RS.20,13,100/-. ISSUE NOTICE OF DEMAND AND CHILLAN. 18.3 ON PERUSAL OF THE ORDER OF THE A.O. FOR A.Y. 2005-2006, WE FIND THAT THE A.O. HAS ACCEPTED CLAIM OF THE ASSESSEE WITHOUT EXA MINING THE RELEVANT RECORDS AND WITHOUT RECORDING FACTS OF THE ISSUE. THE ORDE R OF THE A.O. FOR A.Y. 2005-2006 ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 36 IS NOT IN ACCORDANCE WITH LAW. MERELY ACCEPTING A SSESSEES CLAM WITHOUT EXAMINING RECORDS AND MATERIAL, IT CANNOT BE SAID T HAT THE ORDER OF THE A.O. TO BE FOLLOWED IN SUBSEQUENT YEAR. THE PRINCIPLE OF CONS ISTENCY SUGGESTS THAT IF ANY AUTHORITY AFTER EXAMINING RECORDS AND MATERIAL AND AFTER RECORDING FACTS COME TO CONCLUSION OR TAKEN A PARTICULAR VIEW ON THE ISSUE BY A SPEAKING ORDER IN ACCORDANCE WITH LAW ONLY SUCH VIEW IS TO BE FOLLOWE D ON ACCOUNT OF PRINCIPLE OF CONSISTENCY. A BLIND ORDER, NOT TAKING ANY VIEW, N OT EXAMINING RECORDS AND MATERIAL, SUCH ORDER IS NOT REQUIRED TO BE FOLLOWED ON PRINCIPLE OF CONSISTENCY. IF ANYTHING WAS GOING WRONG IN THE PAST THAT WRONG THI NG NEED NOT TO BE FOLLOWED IN SUBSEQUENT YEAR. THE WRONG THING HAS TO BE CORRECT ED ON NOTICE OF THE SAME. THE LAW LAID DOWN BY THE APEX COURT IN THE CASE OF COM MISSIONER OF INCOME-TAX VS. BRITISH PAINTS INDIA LTD. [1991] 188 ITR 0044 (SC) IS CLEARLY APPLICABLE TO THE FACTS OF THE CASE UNDER CONSIDERATION. IN THAT CASE THE ASSESSEE, BRITISH PAINTS INDIA LTD., WAS FOLLOWING A WRONG METHOD OF VALUATION OF STOCK IN THE PAST. THE HIGH COURT, ON A REFERENCE, REVERSED THE DECISION OF THE TRIBUN AL HOLDING THAT, HAVING REGARD TO THE CONSISTENT PRACTICE OF THE RESPONDENT; THE TRIBUNAL WAS NOT JUSTIFIED IN REJECTING THE RESPONDENT'S METHOD OF VALUATION OF I TS STOCK-IN-TRADE. ON APPEAL TO THE SUPREME COURT REVERSING THE DECISION OF THE HIG H COURT, HELD THAT EVEN IF THE ASSESSEE HAD ADOPTED A REGULAR SYSTEM OF ACCOUNTING , IT WAS THE DUTY OF THE ASSESSING OFFICER UNDER SECTION 145 OF THE INCOME-T AX ACT, 1961, TO CONSIDER WHETHER THE CORRECT PROFITS AND GAINS COULD BE DEDU CED FROM THE ACCOUNTS SO ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 37 MAINTAINED. IF HE WAS OF THE OPINION THAT THE CORR ECT PROFITS COULD NOT BE DEDUCED FROM THE ACCOUNTS, HE WAS OBLIGED TO HAVE RECOURSE TO THE PROVISO TO SECTION 145 OF THE INCOME-TAX ACT, 1961. 18.4 THE QUESTION IN RADHASOAMI SATSANG VS. CIT (S UPRA) WAS WHETHER THE TRIBUNAL WAS BOUND BY AN EARLIER DECISION IN RESPEC T OF AN EARLIER ASSESSMENT YEAR THAT THE INCOME DERIVED BY THE RADHASOAMI SATSANG, A RELIGIOUS INSTITUTION, WAS ENTITLED TO EXEMPTION UNDER SECTIONS 11 & 12 OF THE ACT. THE COURT HELD THAT THEY ARE AWARE OF THE FACT THAT STRICTLY SPEAKING RES-JU DICATA DOES NOT APPLY TO INCOME- TAX PROCEEDINGS. AGAIN, EACH ASSESSMENT YEAR BEING A UNIT, WHAT IS DECIDED IN ONE YEAR MAY NOT APPLY IN THE FOLLOWING YEAR BUT WHERE A FUNDAMENTAL ASPECT PERMEATING THROUGH THE DIFFERENT ASSESSMENT YEARS H AS BEEN FOUND AS A FACT ONE WAY OR THE OTHER AND PARTIES HAVE ALLOWED THAT POSI TION TO BE SUSTAINED BY NOT CHALLENGING THE ORDER, IT WOULD NOT BE AT ALL APPRO PRIATE TO ALLOW THE POSITION TO BE CHANGED IN A SUBSEQUENT YEAR, UNLESS THERE WAS ANY MATERIAL CHANGE JUSTIFYING THE REVENUE TO TAKE A DIFFERENT VIEW OF THE MATTER. IF WE CONSIDER THE FACTS OF THE CASE UNDER CONSIDERATION IN THE LIGHT OF ABOVE JUDG MENT, WE FIND THAT THERE WERE SUFFICIENT MATERIALS AND CHANGES BEFORE THE A.O. FO R THE YEAR UNDER CONSIDERATION TO DECIDE THE ISSUE. THE A.O. EXAMINED THE RELEVANT AG REEMENTS AND NOTED RELEVANT CLAUSES OF THE AGREEMENTS WHICH ARE AS UNDER:- ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 38 18.5 LEASE AGREEMENT DATED 30.11.2004, COPY WHICH HAS BEEN PLACED IN PAPER BOOK PAGE NOS.50 TO 55. (PAGE NO.51 PAPER BOOK) C. THE LESSOR HEREBY CONFIRMS AND DECLARES THAT TH E SAID PREMISES IS FREE FROM ALL ENCUMBRANCES AND THE LESSEE SHALL BE ENTITLED TO USE THE SAID PREMISES WITHOUT ANY LET AND HINDRANCE AND WITHOUT THERE BEING ANY INTERFERENCE FROM ANY PERSON/PERSONS IN A NY MANNER WHATSOEVER. PURSUANT TO THE OFFER SUBMITTED BY THE LESSOR AND SAME BEING CONSIDERED AND APPROVED BY THE LESSEE. THE LESSEE HEREBY AGREES TO TAKE ON LEASE THE SAID PREMISES ENABLING IT TO RUN AND OPERATE ITS BUSINESS FOR GAIL (INDIA) LIMITED ON THE FOLLOWING MUTUALLY AGREED TERMS AND CONDITIONS, WHICH THE PARTIES DESIRE TO R ECORD. 2. THE PERIOD OF THIS AGREEMENT IS 10 (TEN) YEARS WITH EFFECT FROM THE DATE OF ACTUAL POSSESSION OF THE LESSEE. THERE SHALL BE A LOCK IN PERIOD OF 72 MONTHS, COMMENCING FROM THE DATE OF SI GNING OF THIS AGREEMENT OR DATE OF OCCUPANCY OF THE PREMISES WHIC HEVER IS LATER. DURING THE LOCK IN PERIOD NEITHER THE LESSOR CAN GE T THE PREMISES VACATED NOR CAN THE LESSEE VACATE THE PREMISES, UNL ESS MUTUALLY AGREED IN WRITING FOR TERMINATION. THE LEASE CAN H OWEVER BE EXTENDED FOR FURTHER PERIOD AFTER 10 YEARS ON MUTUA LLY AGREED TERMS & CONDITIONS. PAGE NO.52 PAPER BOOK 6. II) THE LESSEE SHALL PAY TO THE LESSOR ON OR B EFORE THE 15 TH OF THE NEXT MONTH, THE LEASE RENT OF RS.96,540/- (RUPEES N INETY SIX THOUSAND FIVE HUNDRED FORTY ONLY). THE RENTAL SHALL BE SUBJ ECT TO AN ESCALATION OF 20% EVERY AFTER 48 MONTHS. III) PAYMENTS OF MONTHLY RENTAL TO BE MADE UNDER TH IS AGREEMENT SHALL BE MADE BY CHEQUE ON A MONTHLY BASIS AND SHAL L BE SUBJECT TO APPLICABLE TAX DEDUCTION. 18.6 SIMILAR RELEVANT CLAUSE OF AGREEMENT DATED 14 .12.2004, COPY WHICH HAS BEEN PLACED AT PAGE NOS.56 TO 58 OF THE ASSESSEES PAPER BOOK. THE RELEVANT CLAUSE OF THE SAID AGREEMENT ARE REPRODUCED AS BELOW :- ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 39 PAGE NO.57 PAPER BOOK (2) THE PERIOD OF THIS AGREEMENT IS 10 (TEN) YEARS WITH EFFECT FROM THE DATE OF ACTUAL POSSESSION OF THE FURNITURE ETC. BY THE SECOND PARTY. THERE SHALL BE A LOCK IN PERIOD OF 72 MONTHS, COMME NCING FROM THE DATE OF SIGNING OF THIS AGREEMENT OR DATE OF POSSES SION OF THE FURNITURE ETC. WHICHEVER IS LATER. DURING THE LOCK IN PERIOD NONE OF THE PARTIES CAN TERMINATE THE AGREEMENT UNLESS MUTUALLY AGREED IN WRITING FOR TERMINATION. THE AGREEMENT CAN HOWEVER BE EXTENDED FOR FURTHER PERIOD AFTER 10 YEARS ON MUTUALLY AGREED TERMS & CO NDITIONS. (4) THAT THE SECOND PARTY WILL PAY TO THE FIRST PAR TY A SUM OF RS.90,104/- (RUPEES NINETY THOUSAND ONE HUNDRED FOU R ONLY) PER MONTH AS HIRING CHARGES OF FURNITURE ETC. WHICH SHA LL BE PAYABLE LATEST BY 15 TH OF NEXT MONTH. THE CHARGES SHALL BE SUBJECT TO AN ESCALATION OF 20% EVERY AFTER 48 MONTHS. PAYMENT OF MONTHLY CHAR GES SHALL BE MADE BY CHEQUE AND SHALL BE SUBJECT TO APPLICABLE T AX DEDUCTION. 18.7 THE RELEVANT CLAUSE OF PARTNERSHIP, OF WHICH COPY HAS BEEN PLACED AT PAGE NOS.12 TO 18, ARE REPRODUCED AS BELOW:- (PAGE NO.14 PAPER BOOK) 4. THAT MAIN OBJECT AND THE BUSINESS OF THE FIRM S HALL BE TO VENTURE INTO BUSINESS OF REAL ESTATE AND ALIKE ACTI VITIES LIKE GIVING PROPERTIES ON LEASE OR SUB LEASE, PROVIDING ANNUAL MAINTENANCE CONTRACT FOR ANY TYPE OF FACILITIES, ETC. HOWEVER, ALL THE PARTNERS SHALL HAVE THE LIBERTY TO STEP INTO NEW LINE OF ACTIVITIE S AS MAY BE MUTUALLY DECIDED BY ALL THE THREE PARTNERS. MEANING THEREBY, THE NATURE OF BUSINESS MAY BE ALTERED/AMENDED WITH THE MUTUAL CON SENT OF ALL THE PARTIES TO THIS DEED. 18.8 NOT ONLY THAT THE A.O. NOTED ABOVE MATERIAL F ACTS BUT IT HAS ALSO BEEN NOTED BY THE A.O. THAT THE PARTNER OF THE ASSESSEE FIRM C LEARLY ADMITTED THAT THE PROPERTY TAKEN ON LEASE FOR THE PURPOSE OF GIVING RENT TO GA IL. Q.4 WHY DID YOU PURCHASE THE PROPERTY IN QUESTION? ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 40 ANS. THIS PROPERTY OF AT PADAM DEEP TOWER WAS PURCH ASED FOR THE PROJECT OF GAIL. THE PROPERTY WAS COMPLETED AS REQUIRED BY THE GAIL I.E. PUTTING AG, DG SET, DIFFERENT PLAN T & MACHINERIES, FURNITURE AND FIXTURES. THE ABOVE PROP ERTY WAS PURCHASED TO LET OUT ON RENT TO THE GAIL' VIDE QUESTION NO. 9 & 10 OF THE STATEMENT RECORDED ON 10.09.2008, IT WAS SPECIFICALLY ASKED- 'Q.9 WHAT IS THIS RECEIPTS AGAINST FURNISHING & FIN ISHING? ANS. THE SCOPE OF WORK WAS LAID OUT BY THE GAIL SUC H AS FITTINGS. FIXTURES & PARTITIONS WHICH WERE PROVIDED BY US. Q.10 DO YOU PROVIDE DAY-TO-DAY SERVICES IN THIS HE AD AND AS YOU INCUR ANY EXPENDITURE ON DAILY BASIS ? ANS. YES, WE PROVIDE DAY TO DAY SERVICES IN THIS HE AD BUT IT IS VERY HARD TO DECIDE THAT SERVICES ARE A PART OF AGR EEMENT. I WILL GIVE THE DETAILS OF INCURRING EXPENDITURE ON DAILY BASIS AFTER CONSULTING THE BOOKS OF ACCOUNTS.' 18.9 IN THE LIGHT OF ABOVE MATERIAL ,CHANGES IN FA CTS AND UNDER THE FACTS AND CIRCUMSTANCES, WE ARE OF THE CONSIDERED VIEW THAT R EVENUE AUTHORITIES ARE CORRECT IN NOT FOLLOWING THE ORDER OF THE A.O. FOR A.Y. 200 5-2006. EVEN OTHERWISE ALSO WE ARE NOT BINDING BY THE ORDER OF AO FOR A.Y. 2005-06 . IN OUR INDEPENDENT VIEW THE ORDERS REVENUE AUTHORITIES UNDER YEAR CONSIDERATION ARE IN ACCORDANCE WITH LAW. 18.10 NOW WE ARE COMING TO SECOND ASPECT OF THE MATTER, MERIT OF THE CASE. TO EXAMINE THIS ASPECT OF THE MATTER, WE WOULD LIKE TO HAVE DISCUSSIONS REGARDING THE SCHEME OF THE ACT. FOR THE PURPOSE OF CALCULATION OF TAX ON INCOME IT IS NECESSARY TO DECIDE THE HEAD UNDER WHICH THE INCOME IS ASSESS ABLE. INCOME FROM PROFITS AND ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 41 GAINS OF BUSINESS OR PROFESSION IS ASSESSABLE UNDER CHAPTER IV-D. SECTION 28 PROVIDES THAT THE PROFITS AND GAINS OF ANY BUSINESS OR PROFESSION WHICH WAS CARRIED ON BY THE ASSESSEE AT ANY TIME DURING THE PREVIOUS YEAR ARE ASSESSABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. INCOME FROM HOUSE PROPERTY IS ASSESSABLE UNDER CHAPTER IV-C. SECTION 22 PROVIDES THAT THE ANNUAL VALUE OF PROPERTY CONSISTING OF ANY BUILDINGS OR LAND APPURT ENANT THERETO OF WHICH THE ASSESSEE IS THE OWNER, OTHER THAN SUCH PORTION OF S UCH PROPERTY AS HE MAY OCCUPY FOR THE PURPOSE OF ANY BUSINESS OR PURPOSE CARRIED ON BY HIM THE PROFITS OF WHICH ARE CHARGEABLE TO INCOME TAX, SHALL BE CHARGEABLE T O INCOME TAX UNDER THE HEAD INCOME FROM HOUSE PROPERTY. INCOME FROM OTHER SO URCES PROVIDES UNDER CHAPTER IV-F. SECTION 56 PROVIDES THAT INCOME OF EVERY KIN D WHICH IS NOT TO BE EXCLUDED FROM THE TOTAL INCOME UNDER THIS ACT SHALL BE CHARG EABLE TO INCOME TAX UNDER THE HEAD INCOME FROM OTHER SOURCES, IF IT IS NOT CHAR GEABLE TO INCOME TAX UNDER ANY OF THE HEADS SPECIFIED IN SECTION 14 ITEMS A TO E. WE FIND THAT THE SCHEME OF THE ACT IS THAT INCOME IS TO TAX UNDER APPROPRIATE HEAD S OF INCOME AS PROVIDED IN THE ACT. THE APEX COURT IN THE CASE COMMISSIONER OF IN COME TAX VS. V. MR. P. FIRM [1965] 56 ITR 67 (SC) HAD POINTED OUT THAT THE DOCT RINE OF APPROBATE AND REPROBATE IS ONLY A SPECIES OF ESTOPPEL; IT APPLIE S ONLY TO THE CONDUCT OF PARTIES. AS IN THE CASE OF ESTOPPEL, IT CANNOT OPERATE AGAIN ST THE PROVISIONS OF A STATUTE. IF A PARTICULAR INCOME IS NOT TAXABLE UNDER THE INCOME-T AX ACT, IT CANNOT BE TAXED ON THE BASIS OF ESTOPPEL OR ANY OTHER EQUITABLE DOCTRINE. EQUITY IS OUT OF PLACE IN TAX LAW; ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 42 A PARTICULAR INCOME IS EITHER EXIGIBLE TO TAX UNDER THE TAXING STATUTE OR IT IS NOT. IF IT IS NOT, THE INCOME-TAX OFFICER HAS NO POWER TO IMPO SE TAX ON THE SAID INCOME. INCOME-TAX IS UNDOUBTEDLY LEVIED ON THE TOTAL TAXAB LE INCOME OF THE TAXPAYER AND THE TAX LEVIED IS A SINGLE TAX ON THE AGGREGATE TAX ABLE RECEIPTS FROM ALL THE SOURCES; IT IS NOT A COLLECTION OF TAXES SEPARATELY LEVIED O N DISTINCT HEADS OF INCOME. BUT THE DISTINCT HEADS SPECIFIED IN THE ACT INDICATING THE SOURCES ARE MUTUALLY EXCLUSIVE AND INCOME DERIVED FROM DIFFERENT SOURCES FALLING U NDER SPECIFIC HEADS HAS TO BE COMPUTED FOR THE PURPOSE OF TAXATION IN THE MANNER PROVIDED BY THE APPROPRIATE SECTION. IF THE INCOME FROM A SOURCE FALLS WITHIN A SPECIFIC HEAD SET OUT IN SECTION, THE FACT THAT IT MAY INDIRECTLY BE COVERED BY ANOTH ER HEAD WILL NOT MAKE THE INCOME TAXABLE UNDER THE LATTER HEAD. 18.11 TO APPRECIATE THE ISSUE, WE WOULD LIKE TO R EFER CERTAIN JUDICIAL PRONOUNCEMENTS WHICH ARE AS UNDER:- COMMISSIONER OF INCOME-TAX VS. CHENNAI PROPERTIE S & INVESTMENTS LTD., 266 ITR 685 [2004]/136 TAXMAN 202 (MAD.) THE RELEVANT FACTS OF THE CASE AND FINDING OF THE C OURT ARE AS UNDER:- 4. THE TRIBUNAL, RELYING ON THOSE OBJECTS, HELD TH AT LETTING OUT SPACE IN THE BUILDING OWNED BY THE ASSESSEE IS THE BUSINE SS OF THE ASSESSEE AND, THEREFORE, THE INCOME DERIVED FROM SUCH LETTIN G IS BUSINESS INCOME IN RESPECT OF WHICH EXPENSES INCURRED BY IT FOR THE PURPOSE OF LETTING ARE DEDUCTIBLE. ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 43 LEARNED SENIOR COUNSEL FOR THE REVENUE SUBMITTED TH AT THE VIEW TAKEN BY THE TRIBUNAL IS UNSUSTAINABLE HAVING REGARD TO T HE LAW LAID DOWN BY THE APEX COURT AND THIS COURT. A CONSTITUTION BENCH OF THE SUPREME COURT, IN THE CASE OF SULTAN BROS. (P.) LTD. V. CIT [1964] 51 ITR 353 WHILE APPROVING THE DECISION RENDERED BY THE THREE-JUDGE BENCH IN THE CASE OF EA ST INDIA HOUSING & LAND DEVELOPMENT TRUST LTD. V. CIT [1961] 42 ITR 49 HAS HELD THUS : THE OBJECT OF THE APPELLANT-COMPANY NO DOUBT WAS T O ACQUIRE LAND AND BUILDINGS AND TO TURN THE SAME INTO ACCOUN T BY CONSTRUCTION AND RECONSTRUCTION, DECORATION, FURNIS HING AND MAINTENANCE OF THEM AND BY LEASING AND SELLING THE SAME. THE ACTIVITY CONTEMPLATED IN THE AFORESAID OBJECT OF TH E COMPANY, ASSUMING IT TO BE A BUSINESS ACTIVITY, WOULD NOT BE ITSELF TURN THE LEASE IN THE PRESENT CASE INTO A BUSINESS DEAL. THA T WOULD FOLLOW FROM THE DECISION OF THIS COURT IN EAST INDIA HOUSI NG & LAND DEVELOPMENT TRUST LTD. V. CIT [1961] 42 ITR 49 (SC) WHERE IT WAS OBSERVED THAT THE INCOME DERIVED BY THE COMPAN Y FROM SHOPS AND STALLS IS INCOME RECEIVED FROM PROPERTY AND FAL LS UNDER THE SPECIFIC HEAD DESCRIBED IN SECTION 9. THE CHARACTER OF THAT INCOME IS NOT ALTERED BECAUSE IT IS RECEIVED BY THE COMPAN Y FORMED WITH THE OBJECT OF DEVELOPING AND SETTING UP MARKETS. (P. 358) IN THE CASE OF SULTAN BROS. (P.) LTD. (SUPRA), THE ASSESSEE HAD LEASED OUT THE BUILDING FULLY EQUIPPED AND FURNISHED TO BE USED AS A HOTEL, AND THE MATTER IN ISSUE WAS AS TO WHETHER THE INCOM E DERIVED UNDER THAT LEASE WAS TAXABLE AS BUSINESS INCOME OR INCOME FROM PROPERTY, OR INCOME FROM OTHER SOURCES MORE SPECIFICALLY UNDER S UB-SECTION (4) OF SECTION 12 OF THE INCOME-TAX ACT, 1922, WHICH DEALT WITH COMPOSITE INCOME IN THE CASE OF LETTING OUT OF FURNITURE WITH BUILDING. THE COURT HELD THAT LEASE WAS A COMPOSITE ONE AND THEREFORE, INCOME SO COLLECTED WAS TO BE DEALT WITH UNDER SECTION 12(4). WHILE SO HOLDING THE COURT OBSERVED THAT : BECAUSE OF THE COMPOSITE CHARACTER OF THE INCOME I T BECOMES A NEW KIND OF INCOME NOT COVERED BY SECTION 9, I.E., INCOME NOT FROM OWNERSHIP OF THE BUILDING ALONE, BUT, INCOME WHICH THOUGH ARISING FROM BUILDING WOULD NOT HAVE BEEN ARISING IF THE PL ANT AND MACHINERY AND FURNITURE HAD ALSO NOT BEEN LET ALONG WITH IT. ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 44 PRIOR TO THE DECISION OF THE CONSTITUTION BENCH, B UT, SUBSEQUENT TO THE DECISION IN EAST INDIA HOUSING & LAND DEVELOPMENT T RUST LTD.S CASE (SUPRA) A THREE-JUDGE BENCH OF THE SUPREME COURT IN THE CASE OF KARANPURA DEVELOPMENT CO. LTD. V. CIT [1962] 44 IT R 362 CONSIDERED THE CASE OF AN ASSESSEE WHICH HELD A MIN ING LEASE FOR COAL AND RECEIVED RENTAL INCOME FROM SUB-LESSEES TO WHOM PORTIONS OF THE LEASED AREA HAD BEEN SUB-LEASED. THE PRINCIPAL OBJE CT OF THAT ASSESSEE WAS TO ACQUIRE MINING LEASES FOR COAL, DEVELOP THEM AS COALFIELDS AND THEN SUB-LEASE THE SAME TO COLLIERIES AND OTHER COM PANIES. IN THE CONTEXT OF THE FACTS OF THAT CASE, THE COURT HELD T HAT : WHERE A COMPANY ACQUIRES PROPERTIES WHICH IT SELLS OR LEASES OUT WITH A VIEW TO ACQUIRING OTHER PROPERTIES TO BE DEA LT WITH IN THE SAME MANNER, THE COMPANY IS NOT TREATING THEM AS PR OPERTIES TO BE ENJOYED IN THE SHAPE OF RENTS WHICH THEY YIELD BUT AS A KIND OF CIRCULATING CAPITAL LEADING TO PROFITS OF BUSINESS WHICH PROFITS MAY BE EITHER ENJOYED OR PUT BACK INTO THE BUSINESS TO ACQUIRE MORE PROPERTIES FOR FURTHER PROFITABLE EXPLOITATION. (P . 363) THE CONSTITUTION BENCH IN THE CASE OF SULTAN BROS. (P.) LTD. (SUPRA) DID NOT REFER TO THE CASE OF KARANPURA DEVELOPMENT CO. LTD. (SUPRA), BUT, SPECIFICALLY REFERRED TO AND APPROVED THE REAS ONING IN THE CASE OF EAST INDIA HOUSING & LAND DEVELOPMENT TRUST LTD. (S UPRA ). THE LAW LAID DOWN IN EAST INDIA HOUSING & LAND DEVELOPMENT TRUST LTD.S CASE (SUPRA) IS, THEREFORE, REQUIRED TO BE REGARDED AS BEING ENTITLED TO THE SAME WEIGHT AS THAT OF DECISION OF CONSTITUTION BENCH. IT IS OF THE INTEREST TO NOTE THAT HIDAYATHULLA, J., AS HE THEN WAS, A MEMBER OF THE BENCH IN ALL THE THREE CASES. IN THE CASE OF KARNANI PROPERTIES LTD. V. CIT [197 1] 82 ITR 547 A TWO-JUDGE BENCH OF THE SUPREME COURT CONSIDERED THE QUESTION AS TO WHETHER RENDERING OF SERVICE TO TENANTS BY THE COMP ANY WHICH OWNED A BUILDING AND WHOSE OBJECT WAS TO OWN AND LET OUT BUILDING, BY SUPPLYING ELECTRIC CURRENT, HOT AND COLD WATER, MAI NTAINING LIFTS AND PROVIDING OTHER AMENITIES WOULD CONSTITUTE BUSINESS ACTIVITY OF THE ASSESSEE AND, THEREFORE, ASSESSABLE UNDER SECTION 1 0 OF THE INCOME-TAX ACT, 1922. THE BUILDING OWNED BY THE ASSESSEE IN TH AT CASE WAS SITUATED ON PARK STREET, CALCUTTA, AND CONSISTED OF NUMEROUS RESIDENTIAL FLATS AND OVER A DOZEN SHOPS. THOSE TEN ANTS IN ADDITION TO PAYING RENTS, HAD TO MAKE SEPARATE PAYMENTS WHICH I NCLUDED CHARGES FOR ELECTRIC CURRENT, FOR USE OF LIFTS, FOR SUPPLY OF HOT AND COLD WATER, FOR ARRANGEMENT FOR SCAVENGING, FOR PROVIDING WATCH AND WARD AND ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 45 OTHER AMENITIES. THE APEX COURT PROCEEDED ON THE BA SIS THAT THE ASSESSEE HAD TWO SOURCES OF INCOME, ONE BY WAY OF R ENTAL INCOME AND THE OTHER FROM SERVICE CHARGES. THE SERVICE CHARGES COLLECTED BY THE ASSESSEE WAS HELD BY THE COURT TO BE INCOME FROM BU SINESS. THE LAW LAID DOWN IN THE CASE OF KARNANI PROPERTIE S LTD. (SUPRA) THUS, WAS THAT RENT DERIVED FROM LETTING WOULD BE A SSESSABLE AS INCOME FROM PROPERTY. THAT DECISION IS CLEARLY IN ACCORDAN CE WITH THE DECISION OF THE CONSTITUTION BENCH IN THE CASE OF S ULTAN BROS. (P.) LTD. (SUPRA) WHICH HAD APPROVED THE DECISION OF THE THRE E JUDGE BENCH IN THE CASE OF EAST INDIA HOUSING & LAND DEVELOPMENT T RUST LTD. (SUPRA). S.G. MERCANTILE CORPN. (P.) LTD. V. CIT [1972] 83 ITR 700 (SC) WAS A CASE OF AN ASSESSEE-COMPANY WHICH HAD OBTAINED A MARKET PLACE ON LEASE AND SUBLET PORTIONS OF THE SAME TO DIFFERENT TENANTS, DECIDED BY A FOUR JUDGE BENCH. THE COURT DID NOT REGARD THE LAW LAID DOWN IN EAST INDIA HOUSING & LAND DEVELOPMENT TRUST LTD.S CASE (SUPRA ) AS BEING APPLICABLE TO THE CASE OF THE ASSESSEE BEFORE IT IN THAT CASE, WHO WAS A TENANT AND NOT THE OWNER. THE OBSERVATIONS MA DE IN THAT DECISION, THEREFORE, ARE NOT TO BE REGARDED AS HAVI NG LAID DOWN THE LAW WITH REGARD TO THE MANNER IN WHICH THE RENTAL I NCOME DERIVED BY THE OWNER FROM LETTING OUT OF THE BUILDING OWNED BY IT IS TO BE TREATED WHETHER AS INCOME FROM BUSINESS, OR INCOME FROM PRO PERTY. IN THE CASE OF UNIVERSAL PLAST LTD. V. CIT [1999] 237 ITR 454 1 (SC), A THREE JUDGE BENCH CONSIDERED THE QUESTION AS TO W HETHER INCOME RECEIVED BY THE OWNER OF A FACTORY BY LETTING OUT T HE FACTORY WAS ASSESSABLE AS INCOME FROM BUSINESS. THE COURT, AFTE R REFERRING TO THE CASES IN SULTAN BROS. (P.) LTD. CASE (SUPRA), CIT V . VIKRAM COTTON MILLS LTD. [1988] 169 ITR 597 2 (SC), CEPT V. LAKSHMI SILK MILLS LTD. [1951] 20 ITR 451 (SC), CIT V. CALCUTTA NATIONAL BANK LTD. [1959] 37 ITR 171 (SC) AND NARAIN SWADESHI WVG. MILLS V. CEPT [1954 ] 26 ITR 765 (SC) CULLED OUT THE FOLLOWING PROPOSITION : . . . (1) NO PRECISE TEST CAN BE LAID DOWN TO ASCE RTAIN WHETHER INCOME (REFERRED TO BY WHATEVER NOMENCLATURE, LEASE AMOUNT, RENT OR LICENCE FEE) RECEIVED BY AN ASSESSEE FROM LEASIN G OR LETTING OUT OF ASSETS WOULD FALL UNDER THE HEAD PROFITS AND GA INS OF BUSINESS OR PROFESSION; (2) IT IS A MIXED QUESTION OF LAW A ND FACT AND HAS TO BE DETERMINED FROM THE POINT OF VIEW OF A BUSINESSM AN IN THAT BUSINESS ON THE FACTS AND IN THE CIRCUMSTANCES OF E ACH CASE, INCLUDING TRUE INTERPRETATION OF THE AGREEMENT UNDE R WHICH THE ASSETS ARE LET OUT; (3) WHERE ALL THE ASSETS OF THE BUSINESS ARE LET ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 46 OUT, THE PERIOD FOR WHICH THE ASSETS ARE LET OUT IS A RELEVANT FACTOR TO FIND OUT WHETHER THE INTENTION OF THE ASSESSEE I S TO GO OUT OF BUSINESS ALTOGETHER OR TO COME BACK AND RESTART THE SAME; (4) IF ONLY A FEW OF THE BUSINESS ASSETS ARE LET OUT TEMPO RARILY, WHILE THE ASSESSEE IS CARRYING ON HIS OTHER BUSINESS ACTIVITI ES, THEN IT IS A CASE OF EXPLOITING THE BUSINESS ASSET OTHERWISE THA N EMPLOYING THEM FOR HIS OWN USE FOR MAKING PROFIT FOR THAT BUS INESS; BUT IF THE BUSINESS NEVER STARTED OR HAS STARTED BUT CEASED WI TH NO INTENTION TO BE RESUMED, THE ASSETS ALSO WILL CEASE TO BE BUS INESS ASSETS AND THE TRANSACTION WILL ONLY BE EXPLOITATION OF PROPER TY BY AN OWNER THEREOF, BUT NOT EXPLOITATION OF BUSINESS ASSETS. (P. 454) ON THE FACTS OF THE CASE BEFORE IT, THE COURT AFF IRMED THE FINDINGS OF THE HIGH COURT THAT INCOME RECEIVED BY THE ASSESSEE FROM THE PROPERTIES WAS NOT BUSINESS INCOME. THIS COURT IN THE CASE OF CIT V. V. SHANMUGHAM [1 984] 147 ITR 692 1 ON THE FACTS OF THE CASE BEFORE IT AND WITHOUT REF ERENCE TO ANY OF THE DECISIONS OF THE APEX COURT OR THIS COURT HELD THAT INCOME DERIVED BY WAY OF CHARGES RECEIVED FROM THE CHANGING BODY O F OCCUPANTS IN LODGING HOUSES WAS TO BE ASSESSED AS BUSINESS INCOM E. IT WAS HELD THAT RUNNING OF LODGING HOUSE, ON THE FACTS OF THAT CASE WAS NOT AS OWNER OF THE PROPERTY. IN THE CASE OF ANAIKAR TRADERS & ESTATES (P.) LTD. V. CIT [1990] 186 ITR 175 2 THIS COURT, AFTER REFERRING TO THE DECISION OF THE APEX COURT IN EAST INDIA HOUSING & LAND DEVELOPMENT TRUST LTD. S CASE (SUPRA) AS ALSO THE CASE OF LAKSHMI SILK MILLS LTD. (SUPRA) AND UNITED COMMERCIAL BANK LTD. V. CIT [1957] 32 ITR 688 HELD THAT THE INCOME DERIVED FROM THE LETTING OUT OF BUILDINGS OWNED BY THE ASSESSEE WHOSE OBJECT WAS ACQUISITION AND POSSESSION OF PROPERTY W ITH THE INCIDENTAL OBJECT OF SELLING OR LEASING THE SAME WAS NOT INCOM E FROM BUSINESS BUT INCOME FROM PROPERTY. SIMILAR VIEW HAS BEEN TAKEN B Y THIS COURT, IN THE CASE OF CIT V. SMT. P. ANDAL AMMAL [2000] 243 ITR 715 , INDIAN OVERSEAS BANK LTD. V. CIT [2000] 246 ITR 206 (MAD.) AND CIT V. INDIAN WAREHOUSING INDUSTRIES LTD. [2002] 258 ITR 9 3 (MAD.). LEARNED COUNSEL FOR THE REVENUE INVITED OUR ATTENT ION TO TWO DECISIONS ONE RENDERED BY ANDHRA PRADESH HIGH COURT AND ANOTHER BY KERALA HIGH COURT. IN THE CASE OF CIT V. GEORGE OOMMEN & CO. ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 47 [2001] 247 ITR 574 3 (KER.) IT WAS HELD THAT EARNING FROM LETTING OUT PROPERTY AND RECEIVING INCOME FROM INVESTMENTS DO N OT AMOUNT TO CARRYING ON BUSINESS. IN THE CASE OF CIT V. VEERABH ADRA INDUSTRIES [1999] 240 ITR 5 4 (AP) IT WAS HELD THAT THE SINGLE ACT OF CONSTRUCT ING GODOWN AND LETTING OUT DOES NOT CONSTITUTE BUSINESS . THESE TWO DECISIONS WERE RENDERED IN THE CONTEXT OF REGISTRAT ION OF FIRMS AND DO NOT REALLY ANSWER THE QUESTION AS TO HOW INCOME FRO M BUILDING OWNED BY THE COMPANY WHOSE OBJECT IS TO ACQUIRE AND HOLD BUILDINGS IS TO BE ASSESSED. LEARNED COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT THE VERY HEAD UNDER WHICH THIS INCOME IS SOUGHT TO BE ASSESSED DO ES NOT PERMIT THE INCOME BEING TREATED AS INCOME OF THAT NATURE. IN T HE INCOME-TAX ACT, 1961, CLASSIFICATION OF INCOME IS UNDER DIFFERENT H EADS. SECTION 14 REFERS TO 'INCOME FROM HOUSE PROPERTY'. IT IS ALSO THE CAPTION OF PART C, CHAPTER IV OF THE ACT AS ALSO OF SECTION 22 OF T HE ACT. FURTHER SECTION 24 ALSO REFERS TO DEDUCTIONS FROM INCOME FR OM HOUSE PROPERTY. IT IS TRUE THAT THERE IS A DIFFERENCE IN THE CLASS IFICATION OF INCOME BETWEEN THE 1922 ACT AND 1961 ACT. SECTION 6 OF THE 1922 ACT CLASSIFIES INCOME UNDER THE HEADS SALARIES, INTERE ST ON SECURITIES, INCOME FROM PROPERTY, PROFITS AND GAINS FROM BUSINE SS, INCOME FROM OTHER SOURCES AND CAPITAL GAINS. THE 1961 ACT, WHI LE SUBSTANTIALLY RETAINING THOSE HEADS OF INCOME, MODIFIED THE HEAD INCOME FROM PROPERTY WHICH WAS THE DESCRIPTION GIVEN IN THE 19 22 ACT TO 'INCOME FROM HOUSE PROPERTY. HOWEVER, SECTION 22 OF THE AC T DOES NOT REFER TO HOUSE PROPERTY DESPITE ITS CAPTION. THE LANGU AGE EMPLOYED IN THE SECTION SHOWS THAT THE INCOME REFERRED TO THERE IN IS NOT NECESSARILY INCOME FROM HOUSES. IT IS INCOME FROM PROPERTY CON SISTING OF ANY BUILDING OR HANDS APPURTENANT THERETO OF WHICH THE ASSESSEE IS THE OWNER. THE WORD BUILDING IS NOT CONFINED IN ITS SCOPE O NLY TO DWELLING HOUSES. HOUSE IS DEFINED IN THE OXFORD DICTIONARY OF ENGLISH 10TH EDITION AS : A BUILDING FOR HUMAN HABITATION ESPECI ALLY ONE THAT IS LIVED IN BY A FAMILY OR BY A SMALL GROUP OF PEOPLE CONSISTING OF GROUND FLOOR AND ONE OR MORE NUMBER OF STOREYS. THE WORD HOUSE IN ASSOCIATION WITH OTHER WORDS ALSO HAS MANY OTHER ME ANINGS. BUT, A COMMERCIAL BUILDING IS NOT REGARDED AS A HOUSE. THA T, HOWEVER, ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 48 WOULD NOT TAKE THE INCOME FROM SUCH BUILDINGS OUT O F THE AMBIT OF SECTION 22. THOUGH IT IS NOT CLEAR FROM THE CONTEXT AS TO WHY THE ACT DESCRIBES INCOME FROM PROPERTY AS INCOME FROM HOUSE PROPERTY, THE SUBSTANTIVE PROVISION OF LAW WHICH CREATES THE CHAR GE AND OBLIGATES THE PERSON WHO RECEIVES SUCH INCOME TO HAVE IT ASSE SSED UNDER THAT HEAD DOES NOT CONFINE ITS APPLICATION ONLY TO HOUSE PROPERTY, BUT EXTENDS TO ALL BUILDINGS WHETHER SUCH BUILDINGS IS USED AS DWELLING HOUSE OR FOR OTHER PURPOSES. IT HAS BEEN HELD BY THE SUPREME COURT UNIFORMLY IN ALL CASES WHERE THE ISSUE WAS THE HEAD UNDER WHICH THE RENTAL INCOM E FROM BUILDINGS IS TO BE ASSESSED, THAT SUCH INCOME IS TO BE ASSESS ED UNDER THE HEAD INCOME FROM PROPERTIES/INCOME FROM HOUSE PROPERTIE S. THE EARLIEST OF THESE DECISIONS IS IN THE CASE OF EAST INDIA HOU SING & LAND DEVELOPMENT TRUST LTD. (SUPRA), WHICH RECEIVED THE APPROVAL OF THE CONSTITUTION BENCH IN THE CASE OF SULTAN BROS. (P.) LTD. (SUPRA). THOUGH THE DECISION RENDERED BY THE BENCH IN THE CA SE OF S.G. MERCANTILE CORPN. (P.) LTD. (SUPRA) APPEARS TO STRI KE A DIFFERENT NOTE, THE JUDGMENT ITSELF CLARIFIES THAT THE LAW DECLARED IN EAST INDIA HOUSING & LAND DEVELOPMENT TRUST LTD.S CASE (SUPRA ) WAS IN NO WAY ALTERED BY THAT RULING. THE CASE OF EAST INDIA HOUSING & LAND DEVELOPMENT TRUST LTD. (SUPRA) WAS DISTINGUISHED ON THE GROUND THAT THAT CASE PERTAINED TO A OWNER OF A BUILDING WHILE THE ASSESSEE S.G. MERCANTILE CORPORATION WAS NOT THE OWNER BUT WAS TH E LESSEE OF THE BUILDING. IN THAT CASE, THE COURT MADE THE FOLLOWIN G OBSERVATION WITH REFERENCE TO THE PROVISIONS OF THE INCOME-TAX ACT, 1922 : SECTION 9 OF THE ACT DEALS WITH INCOME FROM PROPER TY. ACCORDING TO THAT SECTION, THE TAX SHALL BE PAYABLE BY AN ASS ESSEE UNDER THE HEAD INCOME FROM PROPERTY IN RESPECT OF THE BONA FIDE ANNUAL VALUE OF PROPERTY CONSISTING OF ANY BUILDINGS OR LA NDS APPURTENANT THERETO OF WHICH HE IS THE OWNER, OTHER THAN SUCH P ORTIONS OF SUCH PROPERTY AS HE MAY OCCUPY FOR THE PURPOSES OF ANY B USINESS, PROFESSION OR VOCATION CARRIED ON BY HIM THE PROFIT S OF WHICH ARE ASSESSABLE TO TAX, SUBJECT TO CERTAIN ALLOWANCES WH ICH ARE MENTIONED IN THAT SECTION BUT WITH WHICH WE ARE NOT CONCERNED. IT IS NOTEWORTHY THAT THE LIABILITY TO TAX UNDER SECTI ON 9 OF THE ACT IS THE OWNER OF THE BUILDINGS OR LANDS APPURTENANT THE RETO. IN CASE THE ASSESSEE IS THE OWNER OF THE BUILDINGS OR LANDS APP URTENANT THERETO, HE WOULD BE LIABLE TO PAY TAX UNDER THE ABOVE PROVI SION EVEN IF THE OBJECT OF THE ASSESSEE IN PURCHASING THE LANDED PRO PERTY WAS TO ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 49 PROMOTE AND DEVELOP MARKET THEREON. IT WOULD ALSO M AKE NO DIFFERENCE IF THE ASSESSEE WAS A COMPANY WHICH HAD BEEN INCORPORATED WITH THE OBJECT OF BUYING AND DEVELOPI NG LANDED PROPERTIES AND PROMOTING AND SETTING UP MARKETS THE REON. THE INCOME DERIVED BY SUCH A COMPANY FROM THE TENANTS O F THE SHOPS AND STALLS CONSTRUCTED ON THE LAND FOR THE PURPOSES OF SETTING UP MARKET WOULD NOT BE TAXED AS BUSINESS INCOME UNDE R SECTION 10 OF THE ACT, TO WHICH A MORE DETAILED REFERENCE WOUL D BE MADE HEREAFTER, BUT UNDER SECTION 9 OF THE ACT. A CONCRE TE INSTANCE OF THIS TYPE IS AFFORDED BY THE CASE EASTINDIA HOUSING AND LAND DEVELOPMENT TRUST LTD. V. CIT [1961] 42 ITR 49 (SC). . . . (P. 704) AFTER REFERRING TO THE CASE OF KARANPURA DEVELOPME NT CO. LTD. (SUPRA), WHICH WAS A CASE OF A LESSEE RECEIVING REN TAL INCOME FROM ITS SUB-LESSEE, THE LEASE AND SUB-LEASE BEING COAL MINI NG LEASES, THE COURT OBSERVED THUS : SO FAR AS SUCH ASSESSEES ARE CONCERNED, WHO AS PAR T OF THEIR ESSENTIAL TRADING ACTIVITY TAKE LEASE OF PROPERTY A ND SUBLET PARTS THEREOF WITH A VIEW TO MAKE PROFITS, THE DICTUM LAI D DOWN ABOVE, IN OUR OPINION, WOULD HOLD GOOD AND THE PROFITS WOULD HAVE TO BE TREATED AS BUSINESS INCOME. ALTHOUGH IT WAS HELD BY THE CONSTITUTION BENCH IN THE CASE OF SULTAN BROS. (P.) LTD. (SUPRA) THAT WHETHER A PARTICULAR L ETTING IS BUSINESS HAS TO BE DECIDED IN THE CIRCUMSTANCES OF EACH CASE AND THAT EACH CASE HAS TO BE LOOKED AT FROM A BUSINESSMANS POINT OF V IEW TO FIND OUT WHETHER THE LETTING WAS THE DOING OF A BUSINESS OR THE EXPLOITATION OF HIS PROPERTY BY AN OWNER, IN ALL THE CASES WHICH HA VE COME BEFORE THE COURT INVOLVING COMMERCIAL OR RESIDENTIAL BUILDINGS OWNED BY THE ASSESSEE IT HAS BEEN HELD THAT THE INCOME REALISED BY SUCH OWNERS BY WAY OF RENTAL INCOME FROM A BUILDING, WHETHER COMME RCIAL BUILDING OR RESIDENTIAL HOUSE, IS ASSESSABLE UNDER THE HEAD INCOME FROM HOUSE PROPERTY. THE ONLY EXCEPTIONS ARE CASES WHERE THE LETTING OF BUILDING IS INSEPARABLE FROM THE LETTING OF THE MACHINERY, P LANT AND FURNITURE. IN SUCH CASES, IT HAS BEEN HELD THAT THE RENTAL WOU LD NOT HAVE BEEN REALISED BUT FOR THE LETTING OUT OF THE MACHINERY, PLANT OR FURNITURE ALONG WITH SUCH BUILDING AND, THEREFORE, THE RENTAL RECEIVED FOR THE BUILDING IS TO BE ASSESSED UNDER THE HEAD INCOME F ROM OTHER SOURCES. ON THE FACTS OF THIS CASE, IT IS CLEAR THAT THE AS SESSEE, AS OWNER OF THE BUILDING, WAS ONLY EXPLOITING THE PROPERTY AS OWNER BY LEASING OUT THE ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 50 SAME AND REALISING INCOME BY WAY OF RENT. SUCH RENT AL INCOME IS LIABLE TO BE ASSESSED UNDER THE HEAD INCOME FROM H OUSE PROPERTY. THE TRIBUNAL WAS IN ERROR IN HOLDING OTHERWISE. THE FIRST QUESTION REFERRED TO US IS, THEREFORE, A NSWERED IN FAVOUR OF THE REVENUE. HAVING REGARD TO THAT ANSWER THE SECON D QUESTION IS ALSO REQUIRED TO BE AND IS ANSWERED IN FAVOUR OF THE REV ENUE. UNIVERSAL PLAST LTD. VS. COMMISSIONER OF INCOME-TAX , 237 ITR 454 [1999]/103 TAXMAN 493 (SC). THE FACTS OF THE CASE AND FINDING OF THE COURT ARE AS UNDER:- IN THIS CASE DUE TO LOSS FOR TWO YEARS, THE ASSESS EE-COMPANY ENTERED INTO A LEAVE AND LICENCE AGREEMENT WITH O NE L FOR A PERIOD OF 7 YEARS. THE LICENSEE L WAS TO PAY LICENCE FEE OF RS. 24 LAKHS AND TWENTY PER CENT OF THE NET PROFIT OF FACTORY. FOR T HE FIRST THREE MONTHS FOR THE ASSESSMENT YEAR 1977-78, THE ASSESSEE RECEI VED ONLY LICENCE FEE OF RS. 6 LAKHS AS NO PROFIT WAS EARNED BY THE L ICENSEE. THE ASSESSEE SHOWED THE SAID AMOUNT AS PART OF THE BUSINESS INCO ME WHICH WAS NEGATIVED BY THE ASSESSING OFFICER. HOWEVER, THE AP PELLATE AUTHORITY AS WELL AS THE TRIBUNAL UPHELD THE CLAIM OF THE ASS ESSEE. ON REFERENCE, THE HIGH COURT REFERRED TO THE VARIOUS CLAUSES OF T HE AGREEMENT AND HELD THAT IT COULD VERY WELL BE PRESUMED THAT AT TH E TIME THE LICENCE AGREEMENT WAS ENTERED INTO THE INTENTION OF THE ULT IMATE OUTRIGHT SELL- OUT WAS ALREADY THERE. THE ASSESSEE WAS ALREADY COM MITTED TO THE LICENSEE FOR SUCH A SELL-OUT AT THE LICENSEES PLEA SURE AND THERE WAS NO MEANS OF THE ASSESSEE FALLING BACK FROM THAT COMMIT MENT. THEREFORE, IT COULD VERY REASONABLY BE INFERRED THAT THE ASSESSEE IN THE CASE DECIDED TO GO OUT OF BUSINESS AS FAR AS THIS PARTIC ULAR FACTORY WAS CONCERNED. . . . THE LEASE AGREEMENT WAS IN FACT A VEILED AGREEMENT FOR LEASE- CUM- SALE. . . . THE LICENSING NOT MEANT TO BE A TE MPORARY STOP GAP EXPLOITATION OF COMMERCIAL ASSETS. IT COULD NOT BE IN THE CONTEMPLATION OF THE ASSESSEE AT THE TIME IT ENTERED INTO THE LIC ENCE AGREEMENT TO RETAIN THE ASSETS ANY MORE AS A COMMERCIAL ASSET. T HEREFORE, THE HIGH COURT HELD THAT THE LICENCE FEE COULD NOT BE ASSESS ED AS BUSINESS INCOME. ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 51 ON APPEAL TO THE SUPREME COURT, IT W\S HELD AS UNDE R:- 6. THE QUESTION WHETHER THE AMOUNT EARNED BY AN AS SESSEE BY LEASING OUT THE ASSETS OF THE BUSINESS WOULD BE AN INCOME FROM BUSINESS CARRIED ON BY IT, HAS BEEN THE SUBJECT-MAT TER OF CONSIDERATION BY THIS COURT AS WELL AS BY VARIOUS HIGH COURTS AND IT WOULD BE USEFUL TO REFER TO THE JUDGMENTS OF THIS COURT BEARING ON THE ISSUE. 7. IN CEPT V. SHRI LAKSHMI SILK MILLS LTD. [1951] 2 0 ITR 451 (SC), THE ASSESSEE-COMPANY WAS CARRYING ON THE BUSINESS O F MANUFACTURING SILK CLOTH AND DYEING SILK YARN. DUE TO LACK OF SUP PLY OF SILK YARN DURING THE RELEVANT PERIOD WHILE KEEPING IDLE OTHER PLANT AND MACHINERY, IT LET OUT DYEING PLANT FOR FIVE MONTHS. THE QUESTION WHICH CAME UP FOR CONSIDERATION BEFORE THIS COURT WAS WHE THER THE RENT RECEIVED FROM LETTING OUT THE DYEING PLANT WOULD FA LL UNDER THE HEAD INCOME FROM BUSINESS OR INCOME FROM OTHER SOURCE S. IF IT WAS INCOME FROM BUSINESS, IT WOULD HAVE BEEN CHARGEAB LE TO EXCESS PROFITS TAX; IF NOT, THE LIABILITY WOULD NOT ARISE. MAHAJAN, J., SPEAKING FOR THE COURT, OBSERVED THAT NO GENERAL PRINCIPLE C OULD BE LAID DOWN WHICH WAS APPLICABLE TO ALL CASES AND EACH CASE HAD TO BE DECIDED ON ITS OWN CIRCUMSTANCES. IT WAS HELD THAT IT WAS PART OF THE NORMAL ACTIVITIES OF THE ASSESSEES BUSINESS TO EARN MONEY BY MAKING USE OF ITS MACHINERY BY EITHER EMPLOYING IT IN ITS OWN MANUFAC TURING CONCERN OR TEMPORARILY LETTING IT TO OTHERS FOR MAKING PROFIT FOR THAT BUSINESS WHEN FOR THE TIME BEING IT COULD NOT ITSELF RUN IT AND FOR THAT REASON, THE DYEING PLANT HAD NOT CEASED TO BE A COMMERCIAL ASSET OF THE ASSESSEE, SO THE SUM REPRESENTING THE RENT FOR FIVE MONTHS RECEIVED FROM THE LESSEE BY THE ASSESSEE WAS INCOME FROM BUS INESS AND WAS CHARGEABLE TO EXCESS PROFITS TAX. 8. IN NARAIN SWADESHI WVG. MILLS V. CEPT [1954] 26 ITR 765, A CONSTITUTION BENCH OF THIS COURT CONSIDERED A SIMIL AR QUESTION WHICH ALSO AROSE UNDER THE EXCESS PROFITS TAX ACT, 1940. IN THAT CASE, THE ASSESSEE-FIRM WAS CARRYING ON MANUFACTURING BUSINES S. A PUBLIC LIMITED COMPANY WAS INCORPORATED TO TAKEOVER THE BU SINESS FROM THE ASSESSEE-FIRM. THE COMPANY PURCHASED THE BUILDING O F THE ASSESSEE- FIRM AND TOOK OVER FROM IT THE PLANT AND MACHINERY ON LEASE AT AN ANNUAL RENT. ONE OF THE QUESTIONS THAT FELL FOR CON SIDERATION THERE WAS WHETHER THE LEASE MONEY OBTAINED BY THE ASSESSEE FR OM THE COMPANY COULD BE LEGALLY TREATED AS BUSINESS PROFIT LIABLE TO EXCESS PROFITS TAX. DISTINGUISHING - SHRI LAKSHMI SILK MILLS CASE (SUP RA), IT WAS POINTED ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 52 OUT THAT ONLY A PART OF THE BUSINESS OF THE ASSESSE E THEREIN, NAMELY, DYEING SILK YARN, WAS TEMPORARILY STOPPED OWING TO DIFFICULTY IN OBTAINING SILK YARN ON ACCOUNT OF WAR SO THAT PART OF THE ASSETS DID NOT CEASE TO BE COMMERCIAL ASSETS OF THAT BUSINESS AND, ACCORDINGLY, THE INCOME FROM THE ASSETS WOULD BE THE PROFIT OF THE B USINESS IRRESPECTIVE OF THE MANNER IN WHICH THAT ASSET WAS EXPLOITED BY THE COMPANY. NOTICING THE FACTS IN THE CASE BEFORE THE COURT THA T THE ASSESSEE HAD ALREADY SOLD LAND AND BUILDING TO THE COMPANY; IT W AS NOT HAVING ANY MANUFACTURING, TRADING OR COMMERCIAL ACTIVITY; AND LET OUT THE PLANT AND MACHINERY ON AN ANNUAL RENT OF RUPEES FORTY THO USAND AND APPLYING THE COMMON SENSE PRINCIPLE TO THE FACTS, T HIS COURT FOUND THAT THE TRANSACTION OF LEASE WAS QUITE APART FROM THE ORDINARY BUSINESS ACTIVITY OF THE COMPANY, SO IT WAS IMPOSSI BLE TO HOLD THAT THE LETTING OUT OF THE PLANT AND MACHINERY, ETC., WAS A T ALL A BUSINESS OPERATION WHEN ITS NORMAL BUSINESS ACTIVITY HAD COM E TO A CLOSE. 9. IN CIT V. CALCUTTA NATIONAL BANK LTD. [1959] 37 ITR 171 (SC), THE CASE AROSE UNDER THE EXCESS PROFITS TAX ACT. THE AS SESSEE WAS A BANKING COMPANY. IT OWNED A SIX-STOREYED BUILDING O F WHICH ONLY A PART WAS UNDER ITS OCCUPATION AND THE REST WAS LET OUT TO TENANTS. THE QUESTION WAS WHETHER THE RENT RECEIVED FROM THE TEN ANTS OF THE BUILDING WAS THE BUSINESS INCOME OF THE COMPANY. TH E MAJORITY OPINION WAS THAT REALISATION OF RENTAL INCOME OF TH E ASSESSEE WAS IN THE COURSE OF ITS BUSINESS BEING IN PROSECUTION OF ONE OF ITS OBJECTS IN ITS MEMORANDUM AND WAS LIABLE TO BE INCLUDED IN ITS BUSINESS PROFITS AND WAS ASSESSABLE TO EXCESS PROFITS TAX. THAT CONC LUSION WAS REACHED ON THE PREMISE THAT THE TERM BUSINESS AS DEFINED IN THAT ACT WAS WIDER THAN THE DEFINITION OF THAT TERM UNDER THE AC T. THE MINORITY, HOWEVER, TOOK A CONTRARY VIEW. 10. IN SULTAN BROS. (P.) LTD. V. CIT [1964] 51 ITR 353 (SC), THE ASSESSEE CONSTRUCTED A BUILDING, FITTED IT UP WITH FURNITURE AND FIXTURES AND LET IT OUT ON LEASE FULLY EQUIPPED AND FURNISHE D FOR THE PURPOSE OF RUNNING A HOTEL. THE LEASE AMOUNT PROVIDED SEPARATE LY FOR RUNNING OF THE BUILDING AND HIRE CHARGES FOR FURNITURE AND FIX TURES. THE QUESTION THAT FELL FOR CONSIDERATION WAS WHETHER THE RENT IN COME WAS BUSINESS INCOME TAXABLE UNDER THE INDIAN INCOME-TAX ACT, 192 2. IT WAS HELD THAT AS THE ASSESSEE NEVER CARRIED ON ANY BUSINESS OF A HOTEL IN THE PREMISES LET OUT OR OTHERWISE AT ALL AND THERE WAS NOTHING TO SHOW THAT IT INTENDED TO CARRY ON A HOTEL BUSINESS ITSELF IN THE SAME BUILDING, THE ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 53 LETTING OF THE BUILDING DID NOT AMOUNT TO THE CARRY ING ON OF A BUSINESS, SO THE INCOME UNDER THE LEASE COULD NOT BE ASSESSED AS INCOME FROM BUSINESS. THE CONSTITUTION BENCH FORMULATED THE PRI NCIPLE, THUS : WHETHER A PARTICULAR LETTING IS BUSINESS HAS TO BE DECIDED IN THE CIRCUMSTANCES OF EACH CASE. EACH CASE HAS TO BE LOO KED AT FROM THE BUSINESSMANS POINT OF VIEW TO FIND OUT WHETHER THE LETTING WAS THE DOING OF A BUSINESS OR THE EXPLOITATION OF HIS PROP ERTY BY AN OWNER. . . . (P. 354) 11. IN NEW SAVAN SUGAR & GUR REFINING CO. LTD. V. C IT [1969] 74 ITR 7 (SC), THE APPELLANT-COMPANY WAS CARRYING ON BUSINESS OF CRUSHING SUGARCANE AND GUR REFINING. THE BUILDING, MACHINERY AND PLANT OF THE FACTORY MILL WERE LEASED OUT INITIALLY FOR A PERIOD OF FIVE YEARS WITH THREE OPTIONS TO RENEW FOR SIMILAR PERIO DS ON THE PART OF THE LESSEE. THE ASSESSEE HAD, HOWEVER, THE OPTION TO TE RMINATE THE LEASE AFTER FIRST TWO YEARS WHICH OPTION WAS NOT EXERCISE D. THE QUESTION WAS WHETHER THE INCOME WHICH AROSE TO THE ASSESSEE FOR THE ASSESSMENT YEAR 1955-56 FROM THE LEASE WAS ASSESSABLE AS INCOM E FROM BUSINESS OR INCOME FROM OTHER SOURCES ? IT WAS HELD, ON INTE RPRETATION OF THE TERMS OF THE LEASE DEED, THAT THE INTENTION OF THE APPELLANT-ASSESSEE WAS TO PART WITH THE MACHINERY OF THE FACTORY AND T HE PREMISES WITH THE OBVIOUS PURPOSE OF EARNING RENTAL INCOME AND NO T TO TREAT THE FACTORY AND THE MACHINERY AS COMMERCIAL ASSET DURIN G THE SUBSISTENCE OF THE LEASE; THE INTENTION OF THE APPELLANT WAS FO UND TO GO OUT OF BUSINESS ALTOGETHER, THEREFORE, THE INCOME WAS NOT ASSESSABLE AS BUSINESS INCOME. 12. CIT V. VIKRAM COTTON MILLS LTD. [1988] 169 ITR 597/ 36 TAXMAN 1 (SC) IS AGAIN A CASE ARISING UNDER THE INDIAN IN COME-TAX ACT, 1922. ONE OF THE CREDITORS FILED A PETITION IN THE HIGH C OURT FOR WINDING UP. THE INDUSTRIAL FINANCIAL CORPN., TOOK POSSESSION OF FIXED ASSETS UNDER AN ENGLISH MORTGAGE OF THOSE ASSETS. THE ASSESSEE-C OMPANY HAD GONE INTO LOSSES AND HAD STOPPED ITS MANUFACTURING ACTIV ITY. UNDER THE SCHEME EVOLVED BY THE HIGH COURT UNDER THE COMPANIE S ACT, THE BUSINESS ASSETS WERE LET OUT FOR TEN YEARS WITH AN OPTION FOR RENEWAL FOR ANOTHER TEN YEARS. THE MANAGEMENT OF THE COMPAN Y WAS TRANSFERRED TO A BOARD OF TRUSTEES APPROVED BY THE HIGH COURT. THE QUESTION WHICH FELL FOR DETERMINATION WAS WHETHER T HE RENTAL INCOME ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 54 WAS ASSESSABLE IN THE RELEVANT ASSESSMENT YEARS AS BUSINESS INCOME ? THE FINDINGS OF THE TRIBUNAL WERE THAT ON ACCOUNT O F FINANCIAL CRISIS, THE COMPANY FOUND IT ADVANTAGEOUS TO LET OUT THE MA CHINERY ON HIRE FOR A TEMPORARY PERIOD AND THE COMPANY WAS ABLE TO LIQUIDATE ITS LIABILITY AT THE END OF THE LEASE PERIOD AND REGAIN ED POSSESSION OF ITS ASSETS; THE COMPANY DID NOT SELL OR OTHERWISE DISPO SE OF ITS ASSETS; THERE WAS NOTHING ON RECORD TO SHOW THAT THE COMPAN Y WAS FORMED TO LET OUT PLANT AND MACHINERY ON HIRE. THE TRIBUNAL C AME TO THE CONCLUSION THAT THE MAINTENANCE OF THE ASSETS MEANT THAT THE COMPANY HAD AN INTENTION TO RE-START THE BUSINESS AND THAT THE INTENTION OF THE COMPANY IN LETTING OUT ITS ASSETS WAS TO EXPLOIT TH E COMMERCIAL ASSETS FOR THE PURPOSE OF ITS BUSINESS AND, THEREFORE, THE RENTAL INCOME WAS ASSESSABLE AS BUSINESS INCOME. ON REFERENCE, THAT C ONCLUSION WAS UPHELD BY THE HIGH COURT. ON APPEAL TO THIS COURT, WHILE AFFIRMING THE DECISION OF THE HIGH COURT, IT WAS NOTED THAT A LL RELEVANT FACTS WERE CORRECTLY CONSIDERED FROM THE STANDPOINT OF AN ORDINARY PRUDENT BUSINESSMAN BY THE TRIBUNAL AND IT WAS ALSO POINTED OUT THAT THE STOPPAGE OF THE BUSINESS BY THE COMPANY WAS A TEMPO RARY SUSPENSION OF BUSINESS FOR A TEMPORARY PERIOD WITH THE OBJECT OF TIDING OVER THE CRISIS CONDITION AND THERE WAS NEVER ANY ACT INDICA TING THAT THE COMPANY INTENDED TO CARRY ON THE BUSINESS IN FUTURE . IN THE LIGHT OF THE ABOVE DISCUSSION, THE PROPOSITI ONS MAY BE SUMMARISED AS FOLLOWS : (1)NO PRECISE TEST CAN BE LAID DOWN TO ASCERTAIN WH ETHER INCOME (REFERRED TO BY WHATEVER NOMENCLATURE, LEASE AMOUNT , RENTS, LICENCE FEE) RECEIVED BY AN ASSESSEE FROM LEASING O R LETTING OUT OF ASSETS WOULD FALL UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION; (2)IT IS A MIXED QUESTION OF LAW AND FACT AND HAS T O BE DETERMINED FROM THE POINT OF VIEW OF A BUSINESSMAN IN THAT BUS INESS ON THE FACTS AND IN THE CIRCUMSTANCES OF EACH CASE, INCLUD ING TRUE INTERPRETATION OF THE AGREEMENT UNDER WHICH THE ASS ETS ARE LET OUT; (3)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 BUSINESS ALTOGETHER OR TO COME BACK AND RESTART THE SAME; (4)IF ONLY OR A FEW OF THE BUSINESS ASSETS ARE LET OUT TEMPORARILY WHILE THE ASSESSEE IS CARRYING OUT HIS OTHER BUSINESS ACT IVITIES, THEN IT IS A CASE OF EXPLOITING THE BUSINESS ASSETS OTHERWISE THAN EMPLOYING ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 55 THEM FOR HIS OWN USE FOR MAKING PROFIT FOR THAT BUS INESS; BUT IF THE BUSINESS NEVER STARTED OR HAS STARTED BUT CEASED WI TH NO INTENTION TO BE RESUMED, THE ASSETS ALSO WILL CEASE TO BE BUS INESS ASSETS AND THE TRANSACTION WILL ONLY BE EXPLOITATION OF PROPER TY BY AN OWNER THEREOF, BUT NOT EXPLOITATION OF BUSINESS ASSETS. 13. NOW ADVERTING TO THE FACTS OF UPL CASE, THE HIG H COURT REFERRED TO THE FINDINGS OF THE TRIBUNAL THAT THE LEASING OU T OF THE FACTORY WAS NOT A SEQUEL TO THE ASSESSEES DECISION TO GO OUT O F THE BUSINESS IN RESPECT OF THE SUBJECT FACTORY AND THAT IT WAS JUST A MAKE-SHIFT TRANSIENT ALTERNATIVE MEANS OF COMMERCIAL EXPLOITAT ION OF THE COMMERCIAL ASSETS, SO INCOME FROM SUCH LETTING COUL D NOT BE TREATED AS THE FRUITS OF OWNERSHIP SIMPLICITOR OF THE ASSET . THE HIGH COURT ALSO REFERRED TO VARIOUS CLAUSES IN THE AGREEMENT, PARTI CULARLY CLAUSES 1, 2, 4, 7, 19, 20, 21 AND 22 AND CONCLUDED THAT LICENSE E EXERCISING ITS VESTED RIGHT OF OPTION TO PURCHASE THE LICENCED PRE MISES, THE ASSESSEE STANDS COMPLETELY OUT IN THE COLD. THE HIGH COURT RECORDED THE FOLLOWING FINDINGS : THEREFORE, IT CAN VERY WELL BE PRESUMED THAT AT TH E TIME THE LICENCE AGREEMENT WAS ENTERED INTO, THE INTENTION O F THE ULTIMATE OUTRIGHT SELL OUT WAS ALREADY THERE. THE ASSESSEE W AS ALREADY COMMITTED TO THE LICENSEE FOR SUCH A SELL-OUT AT LI CENSEES PLEASURE AND THERE IS NO MEANS OF THE ASSESSEE FALLING BACK FROM THAT COMMITMENT. THEREFORE, IT CAN VERY REASONABLY BE IN FERRED THAT THE ASSESSEE IN THE CASE DECIDED TO GO OUT OF BUSINESS AS FAR AS THIS PARTICULAR FACTORY WAS CONCERNED. . . . THE LEASE AGREEMENT IS IN FACT A VEILED AGREEMENT F OR LEASE-CUM- SALE . . . . WE ARE OF THE OPINION THAT THE LICENSI NG IS NOT MEANT TO BE A TEMPORARY STOP GAP EXPLOITATION OF COMMERCIAL ASS ETS. IT COULD NOT BE IN THE CONTEMPLATION OF THE ASSESSEE AT THE TIME IT ENTERED INTO THE LICENCE AGREEMENT TO RETAIN THE ASSETS ANY MORE AS A COMMERCIAL ASSET. IT WAS CONTENDED BY MR. VERMA THAT THE HIGH COURT D ID NOT CONSIDER CLAUSES 2(II), 3(V ), 4, 7, 15 AND 16 OF THE AGREEM ENT. THE CLAUSES READ THUS: 2(II) THE 25 PER CENT OF THE NET PROFIT, IF ANY, W ITHIN 60 DAYS OF THE ACCOUNTS OF LICENSEE BEING ADOPTED AND PASSED BY TH E SHAREHOLDERS. ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 56 3. THE LICENSEE HEREBY AGREES AND COVENANTS : (V) TO PERMIT THE LICENSOR ON REASONABLE PREVIOUS N OTICE IN WRITING TO ENTER THE UPL FACTORY PREMISES AND INSPECT THE P REMISES, PLANTS, MACHINERY, ETC., WITH OR WITHOUT THEIR AGENT, INSPE CTOR, ENGINEER AND OTHER PERSONNEL AND PROVIDE ALL NECESSARY FACIL ITIES TO THEM; 4. THE LICENSEE SHALL USE THE SAID UPL FACTORY FOR THE PURPOSE OF BUSINESS OF MANUFACTURING; PROVIDED ALWAYS THAT THE LICENSOR SHALL NOT IN ANY WAY BE RESPONSIBLE FOR ANY DEBT OR RESPO NSIBILITY INCURRED BY THE LICENSEE DURING THE SUBSISTENCE OF THIS AGREEMENT INCLUDING THAT IN RESPECT OF EXPENSES, SUCH AS WORK ING EXPENSES, RATES AND TAXES IN RESPECT OF PROPERTY, EXCEPT OF C APITAL NATURE INSURANCE PREMIA, INTEREST ON ALL ADVANCES, DEPRECI ATION ON NEWLY ACQUIRED ASSETS, BONUS AND GRATUITY TO EMPLOYEES NO R FOR ANY LIABILITY IN RESPECT OF SALES TAX OR TAX ON INCOMES , PROFITS AND GAINS MADE BY THE LICENSEE SO FAR AS THEY RELATE TO THE LICENSEES PART OF THE INCOME FROM THE UPL FACTORY AND THE LIC ENSEE HEREBY INDEMNIFIED THE LICENSOR AGAINST ALL SUCH DEBTS, LI ABILITIES, COSTS, CHARGES AND EXPENSES IN RESPECT THEREOF. 7. THE LICENSEE SHALL BE LIABLE FOR PAYMENT OF RETRENCHMENT/RETIREMENT COMPENSATION, IF ANY, TO TH E WORKMEN IN CASE SUCH WORKMEN ARE RETRENCHED OR RETIRED BY THE LICENSEE. HOWEVER, THE LICENSOR SHALL BE LIABLE FOR PAYMENT O F RETRENCHMENT/RETIREMENT COMPENSATION, IF ANY, IN CA SE OF WORKMEN RETRENCHED OR RETIRED AFTER THE TERMINATION OF THE LICENCE : PROVIDED, HOWEVER, THAT ON THE TERMINATION OF THE L ICENCE, THE LICENSEE SHALL BE LIABLE FOR ANY RETRENCHMENT COMPE NSATION PAYABLE TO WORKMEN ON ACCOUNT OF REMOVAL BY THEM OF ANY PLA NT AND MACHINERY ACQUIRED AND INSTALLED BY THE LICENSEE. 15. IN THE EVENT OF THE LICENSEE COMMITTING A BREAC H OF ANY OF THE TERMS OF THIS AGREEMENT OR MAKING DEFAULT IN PAYMEN T AS PROVIDED IN CLAUSE 2(II) OF ANY TWO QUARTERLY INSTALMENTS, T HE LICENSOR SHALL BE ENTITLED TO TERMINATE THIS AGREEMENT UPON THE EX PIRY OF THE PERIOD OF ONE MONTH FROM THE SERVICE OF NOTICE IN W RITING BY THE LICENSOR TO THE LICENSEE TO REMOVE THE BREACH OR TO MAKE PAYMENT, ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 57 AS THE CASE MAY BE,M IF THE LICENSEE FAIL TO REMOVE THE BREACH OR TO MAKE PAYMENT, AS THE CASE MAY BE, WITHIN THE SAID P ERIOD. 16. IF THE LICENSEE PASS A RESOLUTION FOR WINDING U P OR ARE ORDERED TO BE WOUND UP (EXCEPT FOR THE PURPOSE OF AMALGAMAT ION OR RECONSTRUCTION) OR IF THE LICENSEE SHALL DO OR CAUS E TO BE DONE OR PERMIT OR SUFFER ANY ACT OR THING WHEREBY THE LICEN SORS RIGHT IN THE UPL FACTORY AND IN THE BUILDING, PLANT, MACHINERY A ND EQUIPMENT THEREIN MAY BE PREJUDICED OR PUT IN JEOPARDY, THE L ICENSOR MAY WITHOUT ANY NOTICE DETERMINE THIS AGREEMENT AND THE LICENCE AND IT SHALL THEREUPON BE LAWFUL FOR THE LICENSOR TO ENTER UPON AND RETAKE POSSESSION OF THE UPL FACTORY. FROM A PLAIN READING OF THE CLAUSES NOTED ABOVE, WH AT IS CLEAR IS THAT THEY DEAL WITH A SITUATION ARISING OUT OF THE BREACH OF THE TERMS OF THE AGREEMENT, ENTITLING THE LICENSOR TO TERMINATE THE AGREEMENT ON THE EXPIRY OF THE PERIOD OF ONE MONTH FROM THE SERVICE OF THE NOTICE TO THE LICENSEE. CLAUSE 16 DEALS WITH A SITUATION OF THE L ICENSEE BEING WOUND UP IN WHICH SITUATION, THE LICENSOR RESERVED HIS RI GHT TO DETERMINE THE AGREEMENT AND RETAKE THE POSSESSION OF THE FACTORY. THESE CLAUSES DO NOT WHITTLE DOWN THE CONCLUSION ARRIVED AT BY THE H IGH COURT WITH REFERENCE TO THE RIGHTS OF THE ASSESSEE-LESSOR COMI NG TO AN END ON THE EXERCISE OF OPTION BY THE LESSEE UNDER CLAUSE 19 OF THE AGREEMENT. APPLYING THE AFOREMENTIONED TESTS, WE ARE CLEAR IN OUR MIND THAT THE HIGH COURT HAS REACHED THE CORRECT CONCLUSION WHICH DOES NOT WARRANT INTERFERENCE. 14. SO FAR AS GUNTUR MERCHANTS COTTON PRESS CO. LTD .S CASE (SUPRA) ISCONCERNED, THE AGREEMENT OF LEASE IS NOT PLACED O N RECORD AND THERE IS NO CHALLENGE THAT IN RECORDING ITS FINDINGS THE TRIBUNAL AND IN ANSWERING THE QUESTION THE HIGH COURT HAS IGNORED A NY VITAL CLAUSE OF THE AGREEMENT. THE TRIBUNAL RECORDED THE FINDINGS A S FOLLOWS : THE ASSESSEE STOPPED ITS BUSINESS OF GINNING COTTO N IN 1964 FOR THE SOLE REASON OF NON-AVAILABILITY OF COTTON AND T HAT IT DID NOT START THE SAME EVEN IN 1977; THERE WAS NOTHING TO SHOW TH AT THE NON- AVAILABILITY OF COTTON CONTINUED OR COULD CONTINUE FOR SUCH A LONG PERIOD; THE GODOWNS OF THE ASSESSEE WERE LET OUT TO A TOBACCO MERCHANT AND THE ASSESSEE COULD NOT BE SAID TO BE C ARRYING ON THE ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 58 BUSINESS OF COTTON WITH GODOWNS SO LET OUT; THE ASS ESSEE COULD BE SAID TO HAVE ONLY EXERCISED HIS RIGHT AS AN OWNER O F THE PROPERTY IN THE LEASING OUT ITS PROPERTIES; THE MACHINERY REMAI NED IDLE FOR A VERY LONG PERIOD AND THE ASSESSEE HAD SEPARATED THE MACHINERY FROM THE GODOWN AND LET OUT THE PRESSING FACTORY TO A METAL PRESSING FACTORY; THE ASSESSEE DID NOT CONTINUE ITS BUSINESS FOR AN UNUSUAL LONG TIME AND GIVE OUT ITS GODOWN TO DIFFER ENT BUSINESS THAN THE ONE WHICH THE ASSESSEE WAS CARRYING ON; TH E CONDUCT OF THE ASSESSEE DID NOT SUPPORT THAT IT WAS USING THE GODOWN AND MACHINERY AS BUSINESS ASSET AND NOT AS THE OWNER OF THE PROPERTY. 15. ON CONSIDERING THESE FINDINGS, THE HIGH COURT A NSWERED THE QUESTION REFERRED TO IT IN FAVOUR OF THE REVENUE. O N THE FACE OF THESE FINDINGS, IT CANNOT BUT BE CONCLUDED THAT THE ASSES SEE HAD DISMANTLED ITS BUSINESS NEVER TO RETURN BACK TO IT. APPLYING T HE AFORESAID PRINCIPLES, IT HAS TO BE HELD THAT THE ANSWER RECOR DED BY THE HIGH COURT TO THE QUESTION REFERRED TO IT IS CORRECT IN LAW. 16. IN THE RESULT, WE HOLD THAT BOTH THE HIGH COURT S WERE RIGHT IN ANSWERING THE QUESTIONS REFERRED TO THEM, IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE. THESE APPEALS ARE, THEREFORE, DISMISSED WITH COSTS. COMMISSIONER OF INCOME-TAX VS. SHAMBHU INVESTMENT ( P.) LTD. 249 ITR 47 [2001]/116 TAXMAN 795 (CAL.) THE FACTS OF THE CASE AND FINDING OF THE COURT ARE AS UNDER:- IN THIS CASE THE ASSESSEE, OWNER OF CERTAIN FURNIS HED PREMISES, LET OUT THE SAME TO VARIOUS PERSONS OR FIRMS OR ORG ANISATIONS. UNDER THE AGREEMENT, THE ASSESSEE WAS TO PROVIDE SERVICES LIKE WATCH AND WARD STAFF, ELECTRICITY, WATER AND OTHER COMMON AME NITIES. THE INCOME DERIVED BY THE ASSESSEE FROM THE SAID OFFICE PREMIS ES WAS OFFERED FOR TAXATION AS BUSINESS INCOME AND THE SAME WAS ASSESS ED, ACCORDINGLY, BY THE ASSESSING OFFICER. SUBSEQUENTLY, THE COMMISS IONER, INVOKING SECTION 263, PASSED THE ASSESSMENT ORDER AND AFTER GIVING HEARING TO THE ASSESSEE, HELD THAT THE SAME WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE AND, THEREFORE, REMANDED THE MA TTER TO THE ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 59 ASSESSING OFFICER WITH A DIRECTION TO ASSESS THE SA ID INCOME AS PROPERTY INCOME. AGGRIEVED BY THE SAID ORDER, THE A SSESSEE PREFERRED AN APPEAL BEFORE THE TRIBUNAL AND THE TRIBUNAL HELD THAT THE ORDER OF THE ASSESSING OFFICER WAS NOT ERRONEOUS AND PREJUDI CIAL TO THE INTEREST OF THE REVENUE AND, THEREFORE, CANCELLED THE IMPUGN ED ORDER. THE QUESTIONS BEFORE THE COURT WERE-. 1. WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE FINDING OF THE TRIBUNAL THAT THERE WAS NO RELATIONS HIP OF LANDLORD AND TENANT BETWEEN THE ASSESSEE AND THE PERSONS WHO HIR ED OFFICE ACCOMMODATION FROM THE ASSESSEE IS BASED ON ANY REL EVANT EVIDENCE OR ARBITRARY ? 2. WHETHER, THE FINDING OF THE TRIBUNAL THAT CONSID ERING THE SERVICES AND FACILITIES OFFERED BY THE ASSESSEE TO THE HIRER S OF THE OFFICE SPACE THE INCOME SHOULD BE ASSESSED AS BUSINESS INCOME IS BASED ON ANY RELEVANT EVIDENCE OR ARBITRARY ? 3. WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE TRIBUNAL WAS JUSTIFIED IN LAW IN HOLDING THAT THE A SSESSMENT MADE BY THE INCOME-TAX OFFICER WAS NOT ERRONEOUS AND PREJUD ICIAL TO THE INTEREST OF THE REVENUE AND THEREBY CANCELLING THE ORDER UNDER SECTION 263 OF THE INCOME-TAX ACT, 1961 PASSED BY THE COMMI SSIONER ? ON REFERENCE THE COURT HELD AS UNDER: BEFORE TAKING A DECISION ON THE ISSUE LET US FIRST DEAL WITH THE DECISIONS CITED BY MR. MURARKA. (I ) SULTAN BROS. (P.) LTD.S CASE (SUPRA) : 5 JUDG ES BENCH OF THE APEX COURT HEREIN HAS CONSIDERED A CASE WHEREIN THE ASSESSEE CONSTRUCTED A BUILDING AND FILLED IT UP WITH FURNIT URE AND FIXTURES AND LET IT OUT ON LEASE FULLY EQUIPPED AND FURNISHE D FOR THE PURPOSE OF RUNNING A HOTEL. THE LEASE PROVIDED FOR A MONTHLY RENT FOR THE BUILDING AND A HIRE CHARGE FOR THE FUR NITURE AND FIXTURES. DEALING WITH THE SAID CASE, THE APEX COURT HELD THA T THE LETTING OUT OF THE SAID BUILDING DID NOT AMOUNT TO CARRYING ON OF A ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 60 BUSINESS AND THE INCOME UNDER THE LEASE WOULD NOT, THEREFORE, BE ASSESSED AS INCOME FROM BUSINESS. THE APEX COURT DI RECTED THE SAID INCOME TO BE ASSESSED ACCORDINGLY. TO DECIDE SUCH AN ISSUE THE APEX COURT GAVE A GUIDE LINE THAT TO COME TO A CONCLUSION ONE HAS TO FIND OUT ANSWER ON THREE ISSUES, NAMELY; (A) WAS IT THE INTENTION IN MAKING THE LEAS E - AND IT MATTERS NOT WHETHER THERE IS ONE LEASE OR TWO, I.E. , SEPARATE LEASES IN RESPECT OF FURNITURE AND THE BUILDING - T HAT THE TWO SHOULD BE ENJOYED TOGETHER? (B) WAS IT THE INTENTIO N TO MAKE THE LETTING OF THE TWO PRACTICALLY ONE LETTING ? (C) WO ULD ONE HAVE BEEN LET ALONE, AND A LEASE OF IT ACCEPTED WITHOUT THE OTHER ? IF THE ANSWERS TO THE FIRST TWO QUESTIONS ARE IN TH E AFFIRMATIVE AND LAST IN THE NEGATIVE, THEN IT HAS TO BE HELD TH AT THE LETTINGS WOULD BE INSEPARABLE. (II) NATIONAL STORAGE (P.) LTD.S CASE (SUPRA) : TH REE JUDGES BENCH OF THE APEX COURT HEREIN DECIDED A CASE WHERE THE A SSESSEE HAD SET UP A FILM LABORATORY WHEREIN THE FIRST FLOOR HA D SEVERAL VAULTS WHICH WERE LICENSED TO VARIOUS FILM DISTRIBUTORS FO R KEEPING THE FILM NEGATIVES. THE GROUND FLOOR OF THE SAME BUILDI NG WOULD BE USED ONLY FOR THE PURPOSE OF EXAMINATION, CLEANING, WASHING AND REWINDING OF THE FILMS. THE KEY OF EACH VAULT WAS R ETAINED BY THE RESPECTIVE VAULT-HOLDERS. HOWEVER, THE KEY TO THE M AIN GATE WAS IN THE EXCLUSIVE POSSESSION OF THE ASSESSEE. THE FI RE ALARM CHARGES AND OTHER MAINTENANCE WERE PAID BY THE ASSE SSEE. WHILE DECIDING THE CASE, THE APEX COURT HELD THAT A LTHOUGH IT IS A CASE OF LETTING OUT SUCH LETTING OUT WAS A COMPL EX ONE AND THE RETURN RECEIVED BY THE ASSESSEE WAS NOT AN INCOME D ERIVED FROM EXERCISE OF THE PROPERTY RIGHTS ONLY BUT WAS INCOME RECEIVED FROM CARRYING ON AN ADVENTURE OR CONCERN IN THE NAT URE OF TRADE AND AS SUCH, SUCH INCOME IS A BUSINESS INCOME. (III) ADMIRALTY FLATS MOTELS CASE (SUPRA) : HERE I NCOME OF A PARTNERSHIP FIRM CARRYING ON BUSINESS OF LODGING H OUSE KEEPERS HAS BEEN DIRECTED TO BE ASSESSED AS BUSINESS INCOME BY THE DIVISION BENCH OF THE MADRAS HIGH COURT. ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 61 (IV) ASSOCIATED BUILDING CO. LTD.S CASE (SUPRA) : IN THIS CASE, THE ASSESSEE BEING THE OWNER OF THE BUILDING WAS CARRYI NG ON SIMILAR NATURE OF BUSINESS BY PROVIDING OFFICE ACCOMMODATIO N TO VARIOUS PERSONS LIKE THE PRESENT CASE UP TO A CERTAIN PERIO D AND ALLOWED ITS INCOME TO BE ASSESSED UNDER THE HEAD INCOME FR OM OTHER SOURCES. SUBSEQUENTLY, AN AUDITORIUM WAS CONSTRUCT ED IN THE BASEMENT OF A BUILDING AND THE ASSESSEE HAD SET UP AIR CONDITION PLANT NOT ONLY FOR PROVIDING COOL AIR TO THE AUDITI ORUM BUT ALSO TO THE ENTIRE OFFICE PREMISES. THERE HAD BEEN OTHER FACILITIES GIVEN BY THE ASSESSEE ATTACHED TO SUCH OFFICE ACCOM MODATION AND OTHER PORTIONS OF THE BUILDING. THE BOMBAY HIGH COURT DECIDING THIS CASE HELD THAT THE NATURE OF BUSINESS SUBSEQUENT TO SETTING UP OF THE AIR CON DITION PLANT AND CONSTRUCTION OF AUDITORIUM BECAME AN ACTIVITY O F A COMPLEX NATURE AND HELD THAT THOSE ACTIVITIES AMOUNT TO BUS INESS AND INCOME SHOULD BE ASSESSED ACCORDINGLY. (V) K.L. PURI (HUF)S CASE (SUPRA) : IN THE INSTANT CASE, THERE HAD BEEN TWO SEPARATE AGREEMENTS ONE FOR RENT FOR ACCOM MODATION AND THE OTHER FOR HIRE CHARGES OF THE FURNITURE AND FIXTURES. THE DIVISION BENCH OF THE DELHI HIGH COURT HELD THAT SI NCE THE AGREEMENT FOR PROVIDING FURNITURE AND FIXTURES DONE BY A SEPARATE AGREEMENT, THE RENT REALIZED PURSUANT TO S UCH AGREEMENT REFERABLE TO FURNITURE AND FIXTURES SHOUL D NOT BE TREATED AS INCOME FROM PROPERTY. (VI) SASWAD MALI SUGAR FACTORY LTD.S CASE (SUPRA) : IN THIS CASE, THE BOMBAY HIGH COURT HAS HELD THAT THE INCOME FROM STU DENT HOSTEL SHOULD BE TAXED AS BUSINESS INCOME. (VII) HALAI NEMON ASSOCIATIONS CASE (SUPRA) : A BU ILDING COMPLETELY FURNISHED INCLUDING MICROPHONE FITTINGS, FIXTURES, ETC., AND LETTING OUT FOR LIMITED PERIOD FOR MARRIAGE CEREMON Y AND OTHER SOCIAL FUNCTIONS HAS BEEN CONSIDERED BY THE MADRAS HIGH COURT AS BUSINESS AND NOT LETTING OUT. (VIII) MUKHERJEE ESTATE (P.) LTD.S CASE (SUPRA) : IN THIS CASE, THE COURT HAS DIRECTED ASSESSMENT OF INCOME FROM DISPLA Y OF SIGNBOARDS AS INCOME FROM OTHER SOURCES. TAKING A SUM TOTAL OF THE AFORESAID DECISIONS IT CL EARLY APPEARS THAT MERELY BECAUSE INCOME IS ATTACHED TO ANY IMMOV ABLE PROPERTY ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 62 CANNOT BE THE SOLE FACTOR FOR ASSESSMENT OF SUCH IN COME AS INCOME FROM PROPERTY. WHAT HAS TO BE SEEN IS WHAT IS THE P RIMARY OBJECT OF THE ASSESSEE WHILE EXPLOITING THE PROPERTY. IF IT IS FO UND APPLYING SUCH TEST THAT THE MAIN INTENTION IS FOR LETTING OUT THE PROP ERTY OR ANY PORTION THEREOF, THE SAME MUST BE CONSIDERED AS RENTAL INCO ME OR INCOME FROM PROPERTY. IN CASE IT IS FOUND THAT THE MAIN INTENTI ON IS TO EXPLOIT THE IMMOVABLE PROPERTY BY WAY OF COMPLEX COMMERCIAL ACT IVITIES, IN THAT EVENT IT MUST BE HELD AS BUSINESS INCOME. IN THE LIGHT OF THE ABOVE, LET US NOW APPLY SUCH TE ST IN THE PRESENT CASE. FROM THE COPY OF THE AGREEMENT PRODUCED BEFORE US I T APPEARS THAT THE ASSESSEE HAS LET OUT THE FURNISHED OFFICE AT MO NTHLY RENT PAYABLE MONTH BY MONTH BY THE RESPECTIVE OCCUPANTS. SERVICE S RENDERED TO THE VARIOUS OCCUPANTS ACCORDING TO THE SAID AGREEMENT A RE NOT SEPARATELY CHARGED AND THE MONTHLY RENT PAYABLE IS INCLUSIVE O F ALL CHARGES TO THE ASSESSEE. TO DECIDE THIS ISSUE WE CANNOT OVERLOOK THE FACT TH AT THE COST OF THE PROPERTY WAS RS. 5,42,443. A PORTION OF THE SAI D PROPERTY IS USED BY THE ASSESSEE HIMSELF FOR HIS OWN BUSINESS PURPOS E. THE REST OF THE SAID PROPERTY HAS BEEN LET OUT TO THE VARIOUS OCCUP IERS AS STATED HEREINBEFORE. IT FURTHER APPEARS THAT THE ASSESSEE HAD ALREADY BEEN RECOVERED A SUM OF RS. 4,25,000 AS AND BY WAY OF SE CURITY FREE ADVANCE FROM THREE OCCUPANTS. HENCE, THE ENTIRE COS T OF THE PROPERTY LET OUT TO THOSE OCCUPIERS HAS ALREADY BEEN RECOVER ED AS AND BY WAY OF INTEREST FREE ADVANCE BY THE ASSESSEE. HENCE, IT CANNOT BE SAID THAT THE ASSESSEE IS EXPLOITING THE PROPERTY FOR ITS COM MERCIAL BUSINESS ACTIVITIES AND SUCH BUSINESS ACTIVITIES ARE PRIMARY MOTTO AND LETTING OUT THE PROPERTY IS A SECONDARY ONE. 7. LET US APPROACH THE PROBLEM FROM ANOTHER ANGLE B Y APPLYING THE TEST SUGGESTED BY THE 5 JUDGES BENCH IN THE CASE O F SULTAN BROS. (P.) LTD. (SUPRA). THE THREE QUESTIONS FRAMED BY THE APE X COURT ARE APPLIED IN THE INSTANT CASE AS FOLLOWS : (A) WAS IT THE INTENTION IN MAKING THE LEASE - AND IT MATTERS NOT WHETHER THERE IS ONE LEASE OR TWO, I.E., SEPARATE L EASES IN RESPECT OF FURNITURE AND THE BUILDING - THAT THE TWO SHOULD BE ENJOYED TOGETHER ? ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 63 IN THE INSTANT CASE, THERE IS NO SEPARATE AGREEMENT FOR FURNITURE AND FIXTURES OR FOR PROVIDING SECURITY AND OTHER AM ENITIES. THE ONLY INTENTION, IN OUR VIEW, WAS TO LET OUT THE POR TION OF THE PREMISES TO THE RESPECTIVE OCCUPANTS. HENCE, THE IN TENTION IN MAKING SUCH AGREEMENT IS TO ALLOW THE OCCUPANTS TO ENJOY THE TABLE SPACE TOGETHER WITH THE FURNITURE AND FIXTURE S. HENCE, THIS QUESTION SHOULD BE ANSWERED IN AFFIRMATIVE. (B) WAS IT THE INTENTION TO MAKE THE LETTING OF THE TWO PRACTICALLY ONE LETTING ? FROM A PLAIN READING OF THE AGREEMENT IT APPEARS TH AT THE INTENTIONS OF THE PARTIES TO THE SAID AGREEMENT ARE CLEAR AND UNAMBIGUOUS BY WHICH THE FIRST PARTY HAS ALLOWED TH E SECOND PARTY TO ENJOY THE SAID TABLE SPACE UPON PAYMENT OF THE COMPREHENSIVE MONTHLY RENT. HENCE, THIS QUESTION SH OULD BE ANSWERED IN THE AFFIRMATIVE. (C )WOULD ONE HAVE BEEN LET ALONE AND A LEASE OF IT ACCEPTED, WITHOUT THE OTHER ? AS WE HAVE DISCUSSED HEREINBEFORE THAT IT IS COMPOS ITE TABLE SPACE LET OUT TO VARIOUS OCCUPANTS, THE AMENITIES GRANTED TO THOSE OCCUPANTS INCLUDING THE USER OF THE FURNITURE AND F IXTURES ARE ATTACHED TO SUCH LETTING OUT AND THE LAST QUESTION, IN VIEW OF THE SAME, MUST BE ANSWERED IN THE NEGATIVE. APPLYING THE SAID TEST WE HOLD THAT BY THE SAID AGR EEMENT THE PARTIES HAVE INTENDED THAT SUCH LETTING OUT WOULD B E AN INSEPARABLE ONE. 8. HENCE, WE HOLD THAT THE PRIME OBJECT OF THE ASSE SSEE UNDER THE SAID AGREEMENT WAS TO LET OUT THE PORTION OF THE SAID PR OPERTY TO VARIOUS OCCUPANTS BY GIVING THEM ADDITIONAL RIGHT OF USING THE FURNITURE AND FIXTURES AND OTHER COMMON FACILITIES FOR WHICH RENT WAS BEING PAID MONTH BY MONTH IN ADDITION TO THE SECURITY FREE ADV ANCE COVERING THE ENTIRE COST OF THE SAID IMMOVABLE PROPERTY. IN VIEW OF THE FACTS AND LAW DISCUSSED ABOVE WE HOL D THAT THE INCOME DERIVED FROM THE SAID PROPERTY IS AN INCOME FROM PR OPERTY AND SHOULD BE ASSESSED AS SUCH. 9. IN THE LIGHT OF OUR AFORESAID DISCUSSION WE ANSW ER QUESTION NO. 1 IN NEGATIVE, I.E., IN FAVOUR OF THE REVENUE AND AGAINS T THE ASSESSEE. IN ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 64 FACT THERE WAS A RELATIONSHIP OF LANDLORD AND TENAN T BETWEEN ASSESSEE AND PERSONS WHO HIRED OFFICE ACCOMMODATION. 10. WE ANSWER QUESTION NO. 2 ALSO IN THE NEGATIVE, I.E., IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE. 11. QUESTION NO. 3 ALSO, WE ANSWER IN NEGATIVE, THA T IS, IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE. 18.12 HONBLE DELHI HIGH COURT IN THE CASE OF R . DALMIA VS. CIT (1982) 137 ITR 665 (DEL.) HELD THAT TO DETERMINE THE NATURE OF TRANSACTION THE DOMINANT INTENTION OF THE ASSESSEE HAS TO BE SEEN. IF THE INTENTION I S TO EMBARK OR VENTURE IN NATURE OF TRADE AS DISTINGUISH FROM CAPITAL INVESTM ENT IT WOULD MAKE NO DIFFERENCE EVEN IF THE TRANSACTION IS SINGLE OR ISOLATED ONE. IN THIS REGARD, WE MAY REFER A JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF RA JPUTANA TEXTILES (AGENCIES) LTD. VS. CIT (1961) 42 ITR 743 (SC.). 18.13 HONBLE ALLAHABAD HIGH COURT IN THE CASE OF RTO VS. RANI RATNESH KUMARI (1980) 123 ITR 343 (ALL.) HELD THAT THE DOMI NANT OR EVEN SOLE INTENTION TO RESELL IS A RELEVANT FACTOR AND ARISES A STRONG PRE SUMPTION, BUT BY ITSELF IS NOT A CONCLUSIVE PROOF. THE INITIAL INTENTION IN CONJUNCT ION WITH THE SUBSEQUENT CONDUCT OF THE ASSESSEE AND OTHER CIRCUMSTANCES SHOULD ALL BE LOOKED INTO WITH A VIEW TO DETERMINE THE REAL CHARACTER OF THE TRANSACTION. ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 65 18.14 IN THE CASE UNDER CONSIDERATION THE CASE O F THE ASSESSEE IS THAT THE RECEIPTS IS BUSINESS RECEIPTS AND, THEREFORE, ASSESSABLE UND ER THE HEAD INCOME FROM BUSINESS. NOW QUESTION IS WHAT IS BUSINESS? MEANI NG OF BUSINESS DEFINES IN SECTION 2(13), BUSINESS INCLUDES ANY TRADE, COMME RCE OR MANUFACTURE OR ANY ADVENTURE OR CONCERN IN THE NATURE OF TRADE, COMMER CE OR MANUFACTURE. THE WORD BUSINESS POSTULATES THE EXISTENCE OF CERTAIN ELEM ENTS IN THE ACTIVITY OF AN ASSESSEE WHICH WOULD INVEST IT WITH THE CHARACTER O F BUSINESS. IN EACH CASE THE QUESTION WHETHER OR NOT THE ASSESSEE CARRIED ON BUS INESS MUST NECESSARILY BE APPROACHED IN THE LIGHT OF INTENTION OF THE ASSESSE E, HAVING REGARD TO THE LEGAL REQUIREMENTS WHICH ARE ASSOCIATED WITH THE CONCEPT OF BUSINESS. IN TAXING STATUTES, THE WORD BUSINESS IS USED IN THE SENSE OF AN OCCU PATION, OR PROFESSION WHICH OCCUPIES THE TIME, ATTENTION AND LABOUR OF A PERSON , NORMALLY WITH THE OBJECT OF MAKING PROFIT. TO REGARD AN ACTIVITY AS BUSINESS T HERE MUST BE A COURSE OF DEALINGS, EITHER ACTUALLY CONTINUED OR CONTEMPLATED TO BE CON TINUED WITH A PROFIT MOTIVE, AND NOT FOR SPORT OR PLEASURE. WHETHER OR NOT A PERSON CARRIES ON BUSINESS IN A PARTICULAR COMMODITY MUST DEPEND UPON THE VOLUME, FREQUENCY, C ONTINUITY AND REGULARITY OF TRANSACTIONS OF PURCHASE AND SALE IN A CLASS OF GOO DS AND THE TRANSACTION MUST ORDINARILY BE ENTERED INTO WITH A PROFIT MOTIVE. SU CH MOTIVE MUST PERVADE THE WHOLE SERIES OF TRANSACTIONS EFFECTED BY THE PERSON IN THE COURSE OF HIS ACTIVITY. TO INFER FROM A COURSE OF TRANSACTIONS THAT IT IS INTE NDED THEREBY TO CARRY ON BUSINESS ORDINARILY THE CHARACTERISTICS OF VOLUME, FREQUENCY , CONTINUITY AND REGULARITY ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 66 INDICATING AN INTENTION TO CONTINUE THE ACTIVITY OF CARRYING ON THE TRANSACTIONS MUST EXIST. BUT NO TEST IS DECISIVE OF THE INTENTION TO CARRY ON THE BUSINESS. IN SUCH CASES GENERAL LINE OF ENQUIRY IS TO SEE WHETHER A T RANSACTION THAT IS SAID TO HAVE GIVEN RISE TO A TAXABLE PROFIT BEARS ANY OF THE BA DGES OF TRADE. THE ROYAL COMMISSION SOUGHT TO IDENTIFY THESE BADGES OF TRAD E AS FOLLOWS (160 ITR PAGE 77) (1) THE SUBJECT-MATTER OF THE REALIZATION. WHILE A LMOST ANY FORM OF PROPERTY CAN BE ACQUIRED TO BE DEALT IN, THOSE FORM S OF PROPERTY SUCH AS COMMODITIES OR MANUFACTURED ARTICLES, WHICH ARE NOR MALLY THE SUBJECT OF TRADING ARE ONLY VERY EXCEPTIONALLY THE SUBJECT OF INVESTMENT. AGAIN PROPERTY WHICH DOES NOT YIELD TO ITS OWNER AN INCOME OR PERS ONAL ENJOYMENT MERELY BY VIRTUE OF ITS OWNERSHIP IS MORE LIKELY TO HAVE B EEN ACQUIRED WITH THE OBJECT OF A DEAL THAN PROPERTY THAT DOES. (2) THE LENGTH OF THE PERIOD OF OWNERSHIP, GENERALL Y SPEAKING, PROPERTY MEANT TO BE DEALT IN IS REALIZED WITHIN A SHORT TIM E AFTER ACQUISITION. BUT THERE ARE MANY EXCEPTIONS TO THIS AS A UNIVERSAL RU LE. (3) THE FREQUENCY OR NUMBER OF SIMILAR TRANSACTIONS BY THE SAME PERSON. IF REALIZATIONS OF THE SAME SORT OF PROPERTY OCCUR IN SUCCESSION OVER A PERIOD OF YEARS OR THERE ARE SEVERAL SUCH REALIZATIONS AT ABO UT THE SAME DATE, A PRESUMPTION ARISES THAT THERE HAS BEEN DEALING IN R ESPECT OF EACH. (4) SUPPLEMENTARY WORK ON OR IN CONNECTION WITH THE PROPERTY REALIZED. IF THE PROPERTY IS WORKED UP IN ANY WAY DURING THE OWN ERSHIP SO AS TO BRING IT INTO A MORE MARKETABLE CONDITION; OR IF ANY SPECIAL EXERTIONS ARE MADE TO FIND OR ATTRACT PURCHASERS, SUCH AS THE OPENING OF AN OFFICE OR LARGE-SCALE ADVERTISING, THERE IS SOME EVIDENCE OF DEALING. FOR , WHEN THERE IS AN OGANISED EFFORT TO OBTAIN PROFIT, THERE IS A SOURCE OF TAXABLE INCOME. BUT IF NOTHING AT ALL IS DONE, THE SUGGESTION TENDS THE OT HER WAY. (5) THE CIRCUMSTANCES THAT WERE RESPONSIBLE FOR THE REALIZATION. THERE MAY BE SOME EXPLANATION, SUCH AS A SUDDEN EMERGENCY OR OPPORTUNITY CALLING FOR READY MONEY, THAT NEGATIVES THE IDEA THAT ANY PLAN OF DEALING PROMPTED THE ORIGINAL PURCHASE. ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 67 (6) MOTIVE. THERE ARE CASES IN WHICH THE PURPOSE OF THE TRANSACTION OF PURCHASE AND SALE IS CLEARLY DISCERNIBLE. MOTIVE IS NEVER IRRELEVANT IN ANY OF THESE CASES. WHAT IS DESIRABLE IS THAT IT SHOULD BE REALIZED CLEARLY THAT IT CAN BE INFERRED FROM SURROUNDING CIRCUMSTANCES IN THE A BSENCE OF DIRECT EVIDENCE OF THE SELLERS INTENTIONS AND EVEN, IF NE CESSARY, IN THE FACE OF HIS OWN EVIDENCE. 18.15 THE WORD BUSINESS POSTULATES THE EXISTE NCE OF CERTAIN ELEMENTS IN THE ACTIVITY OF AN ASSESSEE WHICH WOULD INVEST IT WITH THE CHARACTER OF BUSINESS. IN EACH CASE THE QUESTION WHETHER OR NOT THE ASSESSEE CARRIED ON BUSINESS MUST NECESSARILY BE APPROACHED IN THE LIGHT OF THE INTEN TION OF THE ASSESSEE, HAVING REGARD TO THE LEGAL REQUIREMENTS WHICH ARE ASSOCIAT ED WITH THE CONCEPT OF BUSINESS. AS OBSERVED IN STATE OF GUJARAT V. RAIPUR MANUFACTU RING CO. LTD. [1967] 19 STC 1 (SC), IN TAXING STATUTES, THE WORD BUSINESS IS US ED IN THE SENSE OF AN OCCUPATION, OR PROFESSION WHICH OCCUPIES THE TIME, ATTENTION AN D LABOUR OF A PERSON, NORMALLY WITH THE OBJECT OF MAKING PROFIT. TO REGARD AN ACTI VITY AS BUSINESS THERE MUST BE A COURSE OF DEALINGS, EITHER ACTUALLY CONTINUED OR CO NTEMPLATED TO BE CONTINUED WITH A PROFIT MOTIVE, AND NOT FOR SPORT OR PLEASURE. WH ETHER OR NOT A PERSON CARRIES ON BUSINESS IN A PARTICULAR COMMODITY MUST DEPEND UPON THE VOLUME, FREQUENCY, CONTINUITY AND REGULARITY OF TRANSACTIONS OF PURCHA SE AND SALE IN A CLASS OF GOODS AND THE TRANSACTION MUST ORDINARILY BE ENTERED INTO WITH A PROFIT MOTIVE. SUCH MOTIVE MUST PERVADE THE WHOLE SERIES OF TRANSACTION S EFFECTED BY THE PERSON IN THE COURSE OF HIS ACTIVITY. TO INFER FROM A COURSE OF TRANSACTIONS THAT IT IS I NTENDED ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 68 THEREBY TO CARRY ON BUSINESS ORDINARILY THE CHARACT ERISTICS OF VOLUME, FREQUENCY, CONTINUITY AND REGULARITY INDICATING AN INTENTION TO CONTINUE THE ACTIVITY OF CARRYING ON THE TRANSACTIONS MUST EXIST . BUT NO TEST IS DECISIVE OF THE INTENTION TO CARRY ON THE BUSINESS. IN THE LIGHT O F ALL THE CIRCUMSTANCES AND INFERENCE THAT A PERSON DESIRES TO CARRY ON THE BUS INESS MAY BE RAISED. THIS DECISION, WHICH WAS RENDERED IN THE CONTEXT OF THE SALES TAX LAW, WAS RELIED UPON AND REFERRED TO IN THE CONTEXT OF THE INCOME-TAX LA W IN A JUDGMENT OF THE SUPREME COURT IN SOLE TRUSTEE, LOKA SHIKSHANA TRUST VS. COM MISSIONER OF INCOME-TAX [1975] 101 ITR 234, 243-244. 18.16 WHERE THE SUBJECT OF LETTING OUT IS THE T ENEMENTS, ETC., AS TENEMENTS, THE INCOME DERIVED IS FROM HOUSE PROPERTY AND IS ASSESS ABLE UNDER SECTION 22. BUT IF THE SUBJECT MATTER OF HIRING OUT IS A COMPLEX ONE, BEING NOT MERE TENEMENTS AS TENEMENTS BUT ADDED WITH CERTAIN OTHER ARTICLES, RI GHTS, ASSERTS, ETC., THE QUESTION ARISES WHETHER THE INCOME DERIVED IS FROM HOUSE PRO PERTY, BUSINESS OR OTHER SOURCES. AFTER AN EXHAUSTIVE REVIEW OF AUTHORITIES ON THE SUBJECT, THE FOLLOWING CONCLUSIONS WERE ARRIVED AT BY THE HONBLE BOMBAY H IGH COURT IN THE CASE OF CIT VS. NATIONAL STORAGE PR. LTD. (1963) 48 ITR 577, 59 3 (BOM), THE CASE HAVING BEEN LATER, AFFIRMED IN (1967) 66 ITR 596 (SC). 1. INCOME-TAX IS A SINGLE TAX LEVIED ON THE TOTAL INCOME CLASSIFIED AND CHARGEABLE UNDER THE VARIOUS HEADS AND NOT AN AGGRE GATE OF THE DISTINCT TAXES LEVIED SEPARATELY ON EACH HEAD OF INCOME. ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 69 2. THAT THE HEADS OF INCOME IN SECTION 6 OF THE ACT ARE SPECIFIC HEADS, WHICH ARE EXCLUSIVE AND EXHAUSTIVE. 3. THE INCOME WHICH FALLS UNDER ANY OF THESE SPECIF IC HEADS HAS GOT TO BE COMPUTED UNDER THAT HEAD ONLY IN THE MANNER SPECIFI ED IN THE FOLLOWING SECTIONS 7 TO 12. 4. IF THE INCOME FALLS UNDER THE HEAD 'INCOME FROM PROPERTY', WHICH IS CHARGEABLE UNDER SECTION 9, IT HAS TO BE TAXED UNDE R SECTION 9 ONLY AND CANNOT BE TAKEN TO SECTION 10 ON THE GROUND THAT TH E BUSINESS OF THE ASSESSEE WAS TO EXPLOIT PROPERTY AND EARN INCOME OR BECAUSE THE INCOME WAS OBTAINED BY A TRADING CONCERN IN THE COURSE OF ITS BUSINESS. 5. HOUSE-OWNING, HOWEVER PROFITABLE, CANNOT BE A BU SINESS OR TRADE UNDER THE INCOME-TAX ACT. WHERE INCOME IS DERIVED FROM HOUSE PROPERTY BY THE EXERCISE OF PROPERTY RIGHTS PROPERLY SO CALLED, THE INCOME FALLS UNDER THE HEAD 'INCOME FROM PROPERTY' CHARGEABLE UNDER SECTIO N 9. IT IS THE NATURE OF THE OPERATIONS AND NOT THE CAPACITY OF THE OWNER TH AT MUST DETERMINE WHETHER THE INCOME IS FROM PROPERTY OR FROM TRADE. WHERE THE OPERATIONS INVOLVED IN THE ACTIVITY OF EARNING INCOME FROM HOU SE PROPERTY ARE NOT DIFFERENT FROM THOSE OF AN ORDINARY HOUSE-OWNER TUR NING TO PROFITABLE ACCOUNT THE PROPERTY OF WHICH HE IS THE OWNER, THE INCOME DERIVED IS INCOME FROM PROPERTY CHARGEABLE UNDER SECTION 9 IRRESPECTI VE OF WHETHER THE OPERATIONS ARE CARRIED ON BY A COMPANY ONE OF WHOSE OBJECTS OR EVEN THE SOLE OBJECT IS TO INDULGE IN THE ACTIVITY OF EARNIN G INCOME FROM HOUSE PROPERTY. THUS, WHERE HOUSE PROPERTY IS GIVEN ON LE ASE OR LICENCE BASIS FOR EARNING INCOME THEREFROM, THE TRUE CHARACTER OF THE INCOME DERIVED IS INCOME FROM PROPERTY FALLING UNDER SECTION 9. THE S AID CHARACTER IS NOT CHANGED AND THE INCOME DOES NOT BECOME INCOME FROM TRADE OR BUSINESS IF THE HIRING IS INCLUSIVE OF CERTAIN ADDITIONAL SERVI CES SUCH AS HEATING, CLEANING, LIGHTING OR SANITATION, WHICH ARE RELATIV ELY INSIGNIFICANT AND ONLY INCIDENTAL TO THE USE AND OCCUPATION OF THE TENEMEN TS. 6. IN CASES WHERE THE INCOME RECEIVED IS NOT FROM T HE BARE LETTING OF THE TENEMENT OR FROM THE LETTING ACCOMPANIED BY INCIDEN TAL SERVICES OR FACILITIES, BUT THE SUBJECT HIRED OUT IS A COMPLEX ONE AND THE INCOME OBTAINED IS NOT SO MUCH BECAUSE OF THE BARE LETTING OF THE TENEMENT BU T BECAUSE OF THE FACILITIES AND SERVICES RENDERED, THE OPERATIONS INVOLVED IN S UCH LETTING OF THE PROPERTY MAY BE OF THE NATURE OF BUSINESS OR TRADING OPERATI ONS AND THE INCOME DERIVED MAY BE INCOME NOT FROM EXERCISE OF PROPERTY RIGHTS PROPERLY SO ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 70 CALLED SO AS TO FALL UNDER SECTION 9 BUT INCOME FRO M OPERATIONS OF A TRADING NATURE FALLING UNDER SECTION 10 OF THE ACT; AND 7. IN CASES WHERE THE LETTING IS ONLY INCIDENTAL AN D SUBSERVIENT TO THE MAIN BUSINESS OF THE ASSESSEE, THE INCOME DERIVED FROM T HE LETTING WILL NOT BE THE INCOME FROM PROPERTY FALLING UNDER SECTION 9 AND TH E EXCEPTION TO SECTION 9 MAY ALSO COME INTO OPERATION IN SUCH CASES 18.17 HONBLE ALLAHABAD HIGH COURT IN THE CASE OF RAMPUR INDUSTRIES LTD. VS. CIT (1971) 82 ITR 23 (ALL), RENTAL INCOME FROM CERT AIN UNUSED GODOWNS DERIVED BY A COMPANY DOING RICE-MILLING BUSINESS HAS BEEN H ELD TO BE INCOME FROM PROPERTY. 18.18 HOUSE OWNING AND LETTING OUT PROPERTY DO NOT NORMALLY CONSTITUTE BUSINESS, AND INCOME FROM SUCH PROPERTY IS TAXABLE AS INCOME FROM HOUSE PROPERTY. HONBLE PATNA HIGH COURT IN THE CASE OF S.C. MAZUMDAR VS. CIT, (1947) 15 ITR 484, 493 (PAT), HONBLE CALCUTTA HIGH COURT IN THE CASE OF BENGAL JUTE MILLS CO. LTD. VS. CIT (1949) 17 ITR 308 (CAL), EAS T INDIA PROSPECTING SYNDICATE VS. CIT, (1951) 19 ITR 571 (CAL). ALSO SEE, EZRA PR OPRIETARY ESTATES LTD. VS. CIT, (1950) 18 ITR 762 (CAL.). WHERE A COMPANY WAS FORME D FOR THE PURCHASE AND SALE OF LAND AND BUILDINGS AND CONSTRUCTING HOUSES AND L ETTING THEM OUT, ETC., IT WAS HELD THAT THE RENTAL INCOME WAS ASSESSABLE AS INCOME FR OM HOUSE PROPERTY AND, THEREFORE, NO QUESTION OF ALLOWING DEPRECIATION, ET C., IN RESPECT THEREOF COULD ARISE. HONBLE CALCUTTA HIGH COURT IN THE CASE OF INDIAN C ITY PROPERTIES LTD. VS. CIT, ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 71 (1965) 55 ITR 262 (CAL), HONBLE MADRAS HIGH COURT IN THE CASE OF PARRY & CO. LTD. VS. CIT (1951) 20 ITR 504 (MAD) AND HONBLE AN DHRA PRADESH HIGH COURT IN THE CASE OF TRIPURASUNDARI COTTON PRESS CO. LTD. V S. CIT, (1966) 62 ITR 193 (AP).IN THE FACTS OF GUPTA BROS. VS. CIT (1994) 76 TAXMAN 129, 131 (CAL), THE TRIBUNAL WAS HELD JUSTIFIED IN HOLDING THAT THE ASS ESSEE WAS NOT CARRYING ON ANY BUSINESS AS THE ASSESSEES ONLY ACTIVITY WAS TO COL LECT RENT. 18.19 FOR THE PURPOSE OF INCOME TO BE OF REVENU E NATURE IT MUST ARISE FROM THE VARIOUS SOURCES WHICH HAVE BEEN GIVEN UNDER THE ACT . ONE OF SUCH SOURCES IS BUSINESS INCOME, THERE MAY BE OTHER SOURCES OF INCO ME LIKE SALARY, OTHER SOURCES, ETC., BUT THE VOLUME, FREQUENCY, CONTINUITY, REGULA RITY AND THE INTENTION OF THE ASSESSEE TO CARRY ON BUSINESS INCOME. WHEN THE BUSI NESS ITSELF HAS NOT COME INTO EXISTENCE, IT CANNOT BE CONSIDERED TO BE A BUSINESS INCOME AND, THEREFORE, CANNOT BE A REVENUE RECEIPT. HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. OFFICIAL LIQUIDATOR, GOLECHA PROPERTY, (1994) 207 ITR 576, 5 78 (RAJ). IN THAT CASE, THE ASSESSEE-COMPANY TOOK ON LEASE A PROPERTY FOR CONST RUCTION OF A CINEMA THEATRE. WITHOUT COMPLETING THE WORK OF CONSTRUCTION OF THE CINEMA THEATRE, THE ASSESSEE- COMPANY WENT INTO LIQUIDATION DUE TO FINANCIAL DIFF ICULTIES. THE OFFICIAL LIQUIDATOR WAS PRESSED BY THE CREDITORS OF THE COMPANY TO SURR ENDER THE PLOT OF LAND ALONG WITH THE INCOMPLETE STRUCTURE TO THE LESSOR. APART FROM OTHER PAYMENTS, THE ASSESSEE RECEIVED TO A CERTAIN SUM FOR LOSS IN RESP ECT OF SURRENDER OF THE LEASE RIGHT ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 72 OF THE ASSESSEE TO EXHIBIT THE FILMS. THE TRIBUNAL HELD THAT, SINCE THE BUSINESS ITSELF HAD NOT COME INTO EXISTENCE, THE SAID SUM RECEIVED BY THE ASSESSEE COULD NOT BE ASSESSED AS REVENUE RECEIPT. THE TRIBUNALS VIEW W AS UPHELD BY THE HIGH COURT. APPLYING THE AFORESAID PRINCIPLES TO THE FACTS OF T HAT CASE (201 ITR 208, 248 (GUJ), THE GUJARAT HIGH COURT WAS OF THE OPINION THAT THE TRANSACTION OF LEASING OUT ONE BUILDING ONLY TO A THIRD PARTY WAS IN NO WAY CONNEC TED WITH OR ANCILLARY TO THE BUSINESS ACTIVITY OF THE ASSESSEE. THE ASSESSEE NEV ER WANTED TO EXPLOIT THE ASSET AS COMMERCIAL ASSET FOR ANY COMMERCIAL GAIN. IT ACTED LIKE A PRUDENT OWNER OF THE PROPERTY. ON CLOSURE OF THE BUSINESS, INSTEAD OF PE RMITTING THE BUILDING TO LIE IDLE, IT LEASED OUT THE SAME WITH A VIEW TO EARNING RENTAL I NCOME. THE TRIBUNAL WAS, THEREFORE, RIGHT IN HOLDING THAT THE RENTAL INCOME WAS INCOME FROM HOUSE PROPERTY. 18.20 THE QUESTION WHETHER THE AMOUNT EARNED BY AN ASSESSEE BY LEASING OUT THE ASSETS OF THE BUSINESS WOULD BE INCOME FROM BUSINES S CARRIED ON BY IT, HAS BEEN THE SUBJECT-MATTER OF CONSIDERATION BY THE SUPREME COUR T AS WELL AS BY VARIOUS HIGH COURTS AND IT WOULD BE USEFUL TO REFER TO THE JUDGM ENT OF THE APEX COURT BEARING ON THE ISSUE. THE HONBLE SUPREME COURT, AFTER CONSIDE RING VARIOUS JUDGMENTS, LAID DOWN CERTAIN GUIDELINES. THE RELEVANT DISCUSSION AN D GUIDELINES LAID DOWN IN UNIVERSAL PLAST LTD. VS. COMMISSIONER OF INCOME-TAX , 237 ITR 454 (SC) ARE AS UNDER :- ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 73 IN CEPT VS. SHRI LAKSHMI SILK MILLS LIMITED [1951] 20 ITR 451 (SC), THE ASSESSEE COMPANY WAS CARRYING ON THE BUSINESS OF MA NUFACTURING SILK CLOTH AND DYEING SILK YARN. DUE TO LACK OF SUPPLY OF SILK YARN DURING THE RELEVANT PERIOD WHILE KEEPING IDLE OTHER PLANT AND MACHINERY , IT LET OUT THE DYEING PLANT FOR FIVE MONTHS. THE QUESTION WHICH CAME UP F OR CONSIDERATION BEFORE THIS COURT WAS WHETHER THE RENT RECEIVED FROM LETTI NG OUT THE DYEING PLANT WOULD FALL UNDER THE HEAD 'INCOME FROM BUSINESS' OR 'INCOME FROM OTHER SOURCES'. IF IT WAS 'INCOME FROM BUSINESS', IT WOUL D HAVE BEEN CHARGEABLE TO EXCESS PROFITS TAX; IF NOT, THE LIABILITY WOULD NOT ARISE. MAHAJAN J., SPEAKING FOR THE COURT, OBSERVED THAT NO GENERAL PRINCIPLE C OULD BE LAID DOWN WHICH WAS APPLICABLE TO ALL CASES AND EACH CASE HAD TO BE DECIDED ON ITS OWN CIRCUMSTANCES. IT WAS HELD THAT IT WAS A PART OF TH E NORMAL ACTIVITIES OF THE ASSESSEE'S BUSINESS TO EARN MONEY BY MAKING USE OF ITS MACHINERY BY EITHER EMPLOYING IT IN ITS OWN MANUFACTURING CONCERN OR TE MPORARILY LETTING IT TO OTHERS FOR MAKING PROFIT FOR THAT BUSINESS WHEN FOR THE TIME BEING IT COULD NOT ITSELF RUN IT AND FOR THAT REASON THE DYEING PL ANT HAD NOT CEASED TO BE A COMMERCIAL ASSET OF THE ASSESSEE, SO THE SUM REPRES ENTING THE RENT FOR FIVE MONTHS RECEIVED FROM THE LESSEE BY THE ASSESSEE WAS INCOME FROM BUSINESS AND WAS CHARGEABLE TO EXCESS PROFITS TAX. IN NARAIN SWADESHI WEAVING MILLS VS. CEPT [1954] 26 ITR 765, A CONSTITUTION BENCH OF THIS COURT CONSIDERED A SIMIL AR QUESTION WHICH ALSO AROSE UNDER THE EXCESS PROFITS TAX ACT, 1940. IN TH AT CASE, THE ASSESSEE-FIRM WAS CARRYING ON MANUFACTURING BUSINESS. A PUBLIC LI MITED COMPANY WAS INCORPORATED TO TAKE OVER THE BUSINESS FROM THE ASS ESSEE-FIRM. THE COMPANY PURCHASED THE BUILDING OF THE ASSESSEE-FIRM AND TOO K OVER FROM IT THE PLANT AND MACHINERY ON LEASE AT AN ANNUAL RENT. ONE OF TH E QUESTIONS THAT FELL FOR CONSIDERATION THERE WAS WHETHER THE LEASE MONEY OBT AINED BY THE ASSESSEE FROM THE COMPANY COULD BE LEGALLY TREATED AS BUSINE SS PROFIT LIABLE TO EXCESS PROFIT TAX, DISTINGUISHING SHRI LAKSHMI SILK MILLS' CASE [1951] 20 ITR 451 (SC), IT WAS POINTED OUT THAT ONLY A PART OF THE BU SINESS OF THE ASSESSEE THEREIN, NAMELY, DYEING SILK YARN, WAS TEMPORARILY STOPPED OWING TO DIFFICULTY IN OBTAINING SILK YARN ON ACCOUNT OF WAR SO THAT PART OF THE ASSETS DID NOT CEASE TO BE COMMERCIAL ASSETS OF THAT BUSIN ESS AND ACCORDINGLY, THE INCOME FROM THE ASSETS WOULD BE THE PROFIT OF THE B USINESS IRRESPECTIVE OF THE MANNER IN WHICH THAT ASSET WAS EXPLOITED BY THE COM PANY. NOTICING THE FACTS IN THE CASE BEFORE THE COURT THAT THE ASSESSEE HAD ALREADY SOLD THE LAND AND BUILDING TO THE COMPANY ; IT WAS NOT HAVING ANY MAN UFACTURING, TRADING OR COMMERCIAL ACTIVITY ; AND LET OUT THE PLANT AND MAC HINERY ON AN ANNUAL RENT OF RUPEES FORTY THOUSAND AND APPLYING THE COMMON SE NSE PRINCIPLE TO THE FACTS, THIS COURT FOUND THAT THE TRANSACTION OF LEA SE WAS QUITE APART FROM THE ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 74 ORDINARY BUSINESS ACTIVITY OF THE COMPANY, SO IT WA S IMPOSSIBLE TO HOLD THAT THE LETTING OUT OF THE PLANT AND MACHINERY, ETC., W AS AT ALL A BUSINESS OPERATION WHEN ITS NORMAL BUSINESS ACTIVITY HAD COM E TO A CLOSE. IN CIT VS. CALCUTTA NATIONAL BANK LIMITED [1959] 37 ITR 171 (SC), THE CASE AROSE UNDER THE EXCESS PROFITS TAX ACT. THE ASSESSE E WAS A BANKING COMPANY. IT OWNED A SIX-STOREYED BUILDING OF WHICH ONLY A PART WAS UNDER ITS OCCUPATION AND THE REST WAS LET OUT TO TENANTS. THE QUESTION WAS WHETHER THE RENT RECEIVED FROM THE TENANTS OF THE BUILDING WAS THE BUSINESS INCOME OF THE COMPANY. THE MAJORITY OPINION WAS THAT REALISAT ION OF RENTAL INCOME OF THE ASSESSEE WAS IN THE COURSE OF ITS BUSINESS BEIN G IN PROSECUTION OF ONE OF ITS OBJECTS IN ITS MEMORANDUM AND WAS LIABLE TO BE INCLUDED IN ITS BUSINESS PROFITS AND WAS ASSESSABLE TO EXCESS PROFITS TAX. T HAT CONCLUSION WAS REACHED ON THE PREMISE THAT THE TERM 'BUSINESS' AS DEFINED IN THAT ACT WAS WIDER THAN THE DEFINITION OF THAT TERM UNDER THE IN COME-TAX ACT. THE MINORITY, HOWEVER, TOOK A CONTRARY VIEW. IN SULTAN BROTHERS PRIVATE LTD. VS. CIT [1964] 51 I TR 353 (SC), THE ASSESSEE CONSTRUCTED A BUILDING, FITTED IT UP WITH FURNITURE AND FIXTURES AND LET IT OUT ON LEASE FULLY EQUIPPED AND FURNISHED FOR THE PURPO SE OF RUNNING A HOTEL. THE LEASE AMOUNT PROVIDED SEPARATELY FOR RUNNING OF THE BUILDING AND HIRE CHARGES FOR FURNITURE AND FIXTURES. THE QUESTION TH AT FELL FOR CONSIDERATION WAS WHETHER THE RENT INCOME WAS BUSINESS INCOME TAX ABLE UNDER THE INDIAN INCOME-TAX ACT, 1922 ? IT WAS HELD THAT AS THE ASSE SSEE NEVER CARRIED ON ANY BUSINESS OF A HOTEL IN THE PREMISES LET OUT, OR OTH ERWISE AT ALL, AND THERE WAS NOTHING TO SHOW THAT IT INTENDED TO CARRY ON A HOTE L BUSINESS ITSELF IN THE SAME BUILDING, THE LETTING OF THE BUILDING DID NOT AMOUNT TO THE CARRYING ON OF A BUSINESS, SO THE INCOME UNDER THE LEASE COULD NOT BE ASSESSED AS INCOME FROM BUSINESS. THE CONSTITUTION BENCH FORMULATED T HE PRINCIPLE THUS WHETHER A PARTICULAR LETTING IS BUSINESS, HAS TO B E DECIDED IN THE CIRCUMSTANCES OF EACH CASE. EACH CASE HAS TO BE LOO KED AT FROM THE BUSINESSMAN'S POINT OF VIEW TO FIND OUT WHETHER THE LETTING WAS THE DOING OF A BUSINESS OR THE EXPLOITATION OF HIS PROPERTY BY AN OWNER...'. IN NEW SAVAN SUGAR AND GUR REFINING CO. LTD. V. CIT [1969] 74 IT R 7 (SC), THE APPELLANT- COMPANY WAS CARRYING ON THE BUSINESS OF CRUSHING SU GARCANE AND GUR REFINING. THE BUILDING, MACHINERY AND PLANT OF THE FACTORY MILL WERE LEASED OUT INITIALLY FOR A PERIOD OF FIVE YEARS WITH THREE OPTIONS TO RENEW FOR SIMILAR PERIODS ON THE PART OF THE LESSEE. THE ASSESSEE HAD , HOWEVER, THE OPTION TO TERMINATE THE LEASE AFTER THE FIRST TWO YEARS WHICH OPTION WAS NOT EXERCISED. THE QUESTION WAS WHETHER THE INCOME WHICH AROSE TO THE ASSESSEE FOR THE ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 75 ASSESSMENT YEAR 1955-56 FROM THE LEASE WAS ASSESSAB LE AS INCOME FROM BUSINESS OR INCOME FROM OTHER SOURCES ? IT WAS HELD , ON AN INTERPRETATION OF THE TERMS OF THE LEASE DEED, THAT THE INTENTION OF THE APPELLANT-ASSESSEE WAS TO PART WITH THE MACHINERY OF THE FACTORY AND THE P REMISES WITH THE OBVIOUS PURPOSE OF EARNING RENTAL INCOME AND NOT TO TREAT T HE FACTORY AND THE MACHINERY AS A COMMERCIAL ASSET DURING THE SUBSISTE NCE OF THE LEASE; THE INTENTION OF THE APPELLANT WAS FOUND TO GO OUT OF T HE BUSINESS ALTOGETHER, THEREFORE, THE INCOME WAS NOT ASSESSABLE AS BUSINES S INCOME. CIT VS. VIKRAM COTTON MILLS LTD. [1988] 169 ITR 597 (SC), IS AGAIN A CASE ARISING UNDER THE INDIAN INCOME-TAX ACT, 1922. ONE OF THE CREDITORS FILED A PETITION IN THE HIGH COURT FOR WINDING UP. THE INDU STRIAL FINANCE CORPORATION TOOK POSSESSION OF THE FIXED ASSETS UND ER AN ENGLISH MORTGAGE OF THOSE ASSETS. THE ASSESSEE-COMPANY HAD GONE INTO LOSSES AND HAD STOPPED ITS MANUFACTURING ACTIVITY. UNDER THE SCHEME EVOLVE D BY THE HIGH COURT UNDER THE COMPANIES ACT, THE BUSINESS ASSETS WERE L ET OUT FOR TEN YEARS WITH AN OPTION FOR RENEWAL FOR ANOTHER TEN YEARS. THE MA NAGEMENT OF THE COMPANY WAS TRANSFERRED TO A BOARD OF TRUSTEES APPR OVED BY THE HIGH COURT. THE QUESTION WHICH FELL FOR DETERMINATION WAS WHETH ER THE RENTAL INCOME WAS ASSESSABLE IN THE RELEVANT ASSESSMENT YEARS AS BUSINESS INCOME ? THE FINDINGS OF THE TRIBUNAL WERE THAT ON ACCOUNT OF FI NANCIAL CRISIS, THE COMPANY FOUND IT ADVANTAGEOUS TO LET OUT THE MACHIN ERY ON HIRE FOR A TEMPORARY PERIOD AND THE COMPANY WAS ABLE TO LIQUID ATE ITS LIABILITY AT THE END OF THE LEASE PERIOD AND REGAINED POSSESSION OF ITS ASSETS ; THE COMPANY DID NOT SELL OR OTHERWISE DISPOSE OF ITS ASSETS ; T HERE WAS NOTHING ON RECORD TO SHOW THAT THE COMPANY WAS FORMED TO LET OUT PLAN T AND MACHINERY ON HIRE. THE TRIBUNAL CAME TO THE CONCLUSION THAT THE MAINTE NANCE OF THE ASSETS MEANT THAT THE COMPANY HAD AN INTENTION TO RESTART THE BUSINESS AND THAT THE INTENTION OF THE COMPANY IN LETTING OUT ITS ASSETS WAS TO EXPLOIT THE COMMERCIAL ASSETS FOR THE PURPOSE OF ITS BUSINESS A ND, THEREFORE, THE RENTAL INCOME WAS ASSESSABLE AS BUSINESS INCOME. ON A REFE RENCE, THAT CONCLUSION WAS UPHELD BY THE HIGH COURT. ON APPEAL TO THE COUR T, WHILE AFFIRMING THE DECISION OF THE HIGH COURT, IT WAS NOTED THAT ALL R ELEVANT FACTS WERE CORRECTLY CONSIDERED FROM THE STANDPOINT OF AN ORDINARY PRUDE NT BUSINESSMAN BY THE TRIBUNAL AND IT WAS ALSO POINTED OUT THAT THE STOPP AGE OF THE BUSINESS BY THE COMPANY WAS A TEMPORARY SUSPENSION OF BUSINESS FOR A TEMPORARY PERIOD WITH THE OBJECT OF TIDING OVER THE CRISIS CONDITION AND THERE WAS NEVER ANY ACT INDICATING THAT THE COMPANY NEVER INTENDED TO C ARRY ON THE BUSINESS IN FUTURE. ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 76 IN THE LIGHT OF THE ABOVE DISCUSSION, THE PROPOSITI ONS MAY BE SUMMARISED AS FOLLOWS: (1) NO PRECISE TEST CAN BE LAID DOWN TO ASCERTAIN W HETHER INCOME (REFERRED TO BY WHATEVER NOMENCLATURE, LEASE, AMOUN T, RENTS, LICENCE FEE) RECEIVED BY AN ASSESSEE FROM LEASING OR LETTING OUT OF ASSETS WOULD FALL UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSI ON' ; (2) IT IS A MIXED QUESTION OF LAW AND FACT AND HAS TO BE DETERMINED FROM THE POINT OF VIEW OF A BUSINESSMAN IN THAT BUSINESS ON THE FACTS AND IN THE CIRCUMSTANCES OF EACH CASE, INCLUDING TRUE INTERPRE TATION OF THE AGREEMENT UNDER WHICH THE ASSETS ARE LET OUT ; (3) WHERE ALL THE ASSETS OF THE BUSINESS ARE LET O UT, 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 BUSINESS ALTOGETHER OR TO COME BACK AND RESTART THE SAME ; (4) IF ONLY A FEW OF THE BUSINESS ASSETS ARE LET O UT TEMPORARILY, WHILE THE ASSESSEE IS CARRYING OUT HIS OTHER BUSINESS ACTIVIT IES, THEN IT IS A CASE OF EXPLOITING THE BUSINESS ASSETS OTHERWISE THAN EMPLO YING THEM FOR HIS OWN USE FOR MAKING PROFIT FOR THAT BUSINESS,; BUT IF TH E BUSINESS NEVER STARTED OR HAS STARTED BUT CEASED WITH NO INTENTION TO BE RESU MED, THE ASSETS ALSO WILL CEASE TO BE BUSINESS ASSETS AND THE TRANSACTION WIL L ONLY BE EXPLOITATION OF PROPERTY BY AN OWNER THEREOF, BUT NOT EXPLOITATION OF BUSINESS ASSETS. 18.21 IN THE LIGHT OF ABOVE DISCUSSIONS, IF WE CONSIDER THE FACTS OF THE CASE UNDER CONSIDERATION, WE NOTICE THAT THE ADMITTED FACTS OF THE CASE ARE THAT THE ASSESSEE IS THE OWNER OF THE PROPERTY. THE PARTNER OF THE ASSE SSEE FIRM ADMITTED THAT THE PROPERTY WAS PURCHASED TO LET OUT ON RENT TO GAIL. THESE ADMITTED FACTS HAVE BEEN NOTED FROM QUESTION NOS.4, 9 & 10 OF THE STATEMENT RECORDED ON 10.09.2008 OF WHICH ABSTRACT HAS BEEN REPRODUCED IN THIS ORDER IN PARA NO18.8. THE RELEVANT CLAUSES OF DIFFERENT AGREEMENTS OF WHICH ABSTRACT H AVE BEEN REPRODUCED ABOVE IN THIS ORDER IN PARA NO18.5 TO 18.7. WE NOTICE THAT THE INTENTION OF THE ASSESSEE WAS ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 77 TO LET OUT THE PROPERTY TO EARN THE RENT . THE ASSESSEE HAS CLAIMED THAT INCOME IS ASSESSABLE UNDER THE HEAD INCOME FROM BUSINESS BU T THE ASSESSEE HAS FAILED TO DISCHARGE THE ONUS BY FURNISHING EVIDENCE AND MATER IAL THAT THE ASSESSEE WAS DOING BUSINESS. NO SYSTEMATIC SET UP HAS BEEN ESTABLISHE D FOR DOING BUSINESS ACTIVITIES. THE ASSESSEE HAS FAILED TO POINT OUT THE VOLUME, FR EQUENCY, CONTINUITY AND REGULARITY OF THE TRANSACTIONS OF PURCHASE AND SALE IN CLAUSE OF GOODS. ON PERUSAL OF INCOME AND EXPENDITURE ACCOUNT FOR THE YEAR ENDE D 31.03.2006 OF WHICH COPY HAS BEEN REPRODUCED BELOW, WE ARE NOT SATISFIED ABO UT THE CLAIM OF THE ASSESSEE THAT THE ASSESSEE WAS DOING ANY ACTIVITIES OF WHICH INCOME IS ASSESSABLE UNDER THE HEAD INCOME FROM BUSINESS. THE LD. AUTHORISED RE PRESENTATIVE SUBMITTED THAT THE ASSESSEE HAS EMPLOYED ONLY ONE PERSON. FROM TH E INCOME & EXPENDITURE ACCOUNT, WE NOTICE THAT THE ASSESSEE HAS CLAIMED EX PENDITURE UNDER SALARY HEAD ONLY RS.42,000/-. INCOME AND EXPENDITURE ACCOUNT FOR THE PERIOD ENDE D 31 ST MARCH, 2006 --------------------------------------------------- --------------------------------------------------- ----------------- PARTICULAR AMOUNT RS. PARTICULARS AMOUNT. RS. --------------------------------------------------- --------------------------------------------------- ----------------- EXPENDITURE INCOME PRINTING & STATIONARY 530.00 LEASE CH ARGES RECEIPTS (NET) 898,512.00 CONVEYANCE EXPENSES 3,900.00 MAINTENANCE CHARGES RECEIPTS (NET) 981,652.00 BANK CHARGES/COMMISSION 5,210.18 RECEIPTS AGAINST FURNISHINGS (NET) 838,619. 00 BUILDING UPKEEP/MAINTENANCE 124,649.50 (+) TD S ON ALL RECEIPTS 529,992.00 BANK INTEREST PAID 1,200,349.00 INSURANCE EXPENSES 26,716.00 NET LOSS CARR IED OVER TO BALANCE 1,095,188.80 LATE POSSESSION FEE 64,875.00 SHEET DIESEL EXPENSES 61,654.00 AUDIT FEE 6,673.00 ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 78 INTEREST PAID ON UNSECURED LOANS 1,53,796.00 SALARIES PAID 42,000.00 POSTAGE EXPENSES 200.00 RATS & TAXES 16,380.00 INTEREST ON PARTNERS CAPITAL 657,458. 00 DEPRECIATION WRITTEN OFF 1,979,573. 00 ------------------ ---------------- TOTAL RS. 4,343,963.80 TOTAL RS. 4,343,96 3.80 ----------------- ----------- ----- 18.22 FURTHER WE NOTICE THAT THE ASSESSEE HAS C LAIMED DEPRECIATION OF RS.19,79,573/- OUT OF WHICH DEPRECIATION OF RS.7,33 ,425/- WAS ON ACCOUNT OF LAND AND BUILDING. THE RELEVANT DEPRECIATION CHART IS R EPRODUCED AS UNDER :- DESCRIPTION OF ASSETS W.D.V. DESCRIPTION W.D.V. AS AT 01.04.2005 ADDITIONS DURING YEAR DISPOSAL DURING YEAR TOTAL AS AT 31.03.2006 RATE % FOR THE YEAR AS AT 31.03.2006 LAND & BUILDING LEASEHOLD BUILDING FURNITURE & FIXTURES GENERATOR AIR CONDITIONING & JIGS FURNITURE & FIXTURES FITTINGS, FIXTURES & JIGS 7,329,250.00 393,750.00 3,815,463.75 6,131,406.54 5,000.00 --- --- 16,254.00 -- --- --- --- 7,334,250.00 393,750.00 3,815,463.75 6,147,660.54 10.00% 15.00% 15.00% 10.00% 733,425.00 59,062.50 572,319.56 614,766.05 6,600,825.00 334,687.50 3,243,144.19 5,532,894.49 TOTAL RS. 17,669, 870.29 21,254.00 -- 17,691,124.29 1,979,573.12 15,711,551.17 ON PERUSAL OF FINANCIAL STATEMENTS WE FIND THAT THE ASSESSEE HAS CLAIMED THE RENT RECEIVED AS INCOME FROM BUSINESS TO GET THE BENEFIT OF DEPRECATION WHEREAS IN ACCORDANCE WITH LAW THE ASSESSEE IS NOT ENTITLE BEC AUSE INCOME IS ASSESSABLE AS INCOME FROM HOUSE PROPERTY. ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 79 18.23 FROM THE FOLLOWING BIFURCATION OF THE REN T, WE FIND THAT THE DOMINANT INTENTION OF THE ASSESSEE WAS TO EARN THE RENT OF PROPERTY A ND NOT TO EARN PROFIT BY RUNNING A BUSINESS. (A) LEASE RECEIPTS 90104/- PER MONTH RS.10,81,2 48/- (B) MAINTENANCE RECEIPTS 96540/- PER MONTH RS.11, 58,480/- (C) FURNISHING RECEIPTS 83668/- PER MONTH RS.10,0 4,016/- RS.32,43,744/- PLUS RS. 5,031 TDS ON DIESEL RS.32,48,775/- AS SHOWN 18.24 THE FACTS OF THE CASE UNDER CONSIDERATION ARE IDENTICAL TO THE FACTS OF THE JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE O F MANGLA HOMES (P) LTD. VS. INCOME TAX OFFICER, 325 ITR 281 (BOM.). THE FA CTS OF MANGLA HOMES (P) LTD. VS. INCOME TAX OFFICER, 325 ITR 281 (BOM.) ARE THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY INCORPORATED WITH THE OBJECT OF DEA LING IN PROPERTIES. THE MAIN OBJECT OF THE COMPANY AS CONTAINED IN THE MEMORANDU M OF ASSOCIATION WAS TO CARRY ON BUSINESS OF DEALING AND INVESTMENT IN PROPERTIES , FLATS, WAREHOUSES, SHOPS, COMMERCIAL AND RESIDENTIAL HOUSES. THE ANCILLARY O BJECT WAS TO CARRY ON BUSINESS OF LEASING, HIRE PURCHASE, RENTING, SELLING, RE-SEL LING OR OTHERWISE DISPOSE OF ALL FORMS OF MOVABLE OR IMMOVABLE PROPERTIES AND ASSETS INCLUDING BUILDINGS, GODOWNS, WAREHOUSES AND REAL ESTATE OF ANY KIND. T HE ASSESSEE PURCHASED FLATS FOR TRADING PURPOSES AT THE COST OF RS.4 CRORES. AT TH E TIME OF PURCHASE THE BUILDING NEEDED MAJOR REPAIRS AND ACCORDING TO THE ASSESSEE AS IT EXPECTED THAT THE PRICES OF FLATS WOULD GO UP AFTER COMPLETION OF REPAIRS, IT M ADE THE PURCHASES. IT IS THEN ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 80 CLAIMED BY THE ASSESSEE THAT THE FLAT COULD NOT BE SOLD BECAUSE OF RECESSION IN THE MARKET AND HENCE IT LET OUT THE FLATS ON LICENSE BA SIS FOR TEMPORARY PERIOD AND EARNED MONTHLY RENTAL INCOME AS LICENSE FEES. THE A SSESSEE TREATED THE SAID RENTAL INCOME AS INCOME FROM THE BUSINESS. THE AUTHORITIES BELOW HAVE CONCURRENTLY FOUND IN FAVOUR OF THE REVENUE THAT THE RENTAL INCO ME CANNOT BE TREATED AS INCOME FROM BUSINESS AND TREATED IT AS INCOME FROM HOUSE PROPERTY UNDER SECTION 22 OF THE INCOME-TAX ACT. 18.25 THE QUESTION THUS RAISED IS AS TO WHETHER THE TRIBUNAL IS RIGHT IN CONCLUDING THAT THE RENTAL INCOME IS AN INCOME FROM HOUSE PROPERTY. WHILE REACHING THE SAID CONCLUSION THE TRIBUNAL HAS RELIE D ON A JUDGMENT IN THE CASE OF EAST INDIA HOUSING & LAND DEVELOPMENT TRUST LTD. VS . CIT [1961] 42 ITR 49 (SC). HONBLE BOMBAY HIGH COURT HELD THAT IN THE SAID JUDGMENT IN AN IDENTICAL SET OF FACTS WITH THE ASSESSEE-COMPANY HAVING OBJEC TS AMONGST OTHERS WAS (I) TO BUY AND DEVELOP LANDED PROPERTIES AND (II) TO PROMO TE AND DEVELOP MARKETS THE SUPREME COURT HELD THAT THE INCOME DERIVED BY THE C OMPANY FROM SHOPS AND STALLS IS INCOME RECEIVED FROM PROPERTY AND FALLS UNDER TH E SPECIFIC HEAD DESCRIBED IN SECTION 9 BEING INCOME FROM THE PROPERTY UNDER THE INCOME-TAX ACT, 1922. WHILE REACHING THE SAID CONCLUSION THE SUPREME COURT HAS RELIED UPON ITS EARLIER JUDGMENT IN THE CASE OF UNITED COMMERCIAL BANK LTD. V. CIT [1957] 32 ITR 688 WHEREIN THE APEX COURT HAD EXPLAINED AFTER EXHAUSTI VE REVIEW OF AUTHORITIES THAT ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 81 UNDER THE SCHEME OF INCOME-TAX ACT THE HEADS OF INC OME, PROFITS AND GAINS ENUMERATED IN THE DIFFERENT CLAUSES ARE MUTUALLY EX CLUSIVE AND EACH SPECIFIC HEAD COVERING ITEMS OF INCOME ARISING FROM A PARTICULAR SOURCE. RELIANCE WAS THEN PLACED ON A JUDGMENT IN THE CASE OF COMMERCIAL PROP ERTIES LTD. V. CIT ILR 55 CAL. 1057 WHEREIN IT WAS HELD THAT INCOME DERIVED FROM R ENTALS BY A COMPANY WHOSE SOLE OBJECT WAS TO ACQUIRE LANDS, BUILT HOUSES AND LET THEM TO TENANTS AND WHOSE SOLE BUSINESS WAS MANAGEMENT AND COLLECTION OF RENT S FROM THE SAID PROPERTIES, WAS HELD ASSESSABLE UNDER SECTION 9 AND NOT UNDER SECTI ON 10 OF THE INCOME-TAX ACT, 1922. IT WAS OBSERVED IN THAT CASE THAT MERELY BECA USE THE OWNER OF THE PROPERTY WAS A COMPANY INCORPORATED WITH THE OBJECT OF OWNIN G PROPERTY, THE INCIDENCE OF INCOME DERIVED FROM THE PROPERTY OWNED COULD NOT BE REGARDED AS ALTERED, THE INCOME CAME FROM DIRECTLY AND SPECIFICALLY UNDER TH E HEAD 'PROPERTY' THAN INCOME FROM BUSINESS. RELYING UPON THE SAID JUDGMENTS THE AUTHORITIES BELOW HAVE FOUND THAT THE INCOME RECEIVED BY THE APPELLANT-ASSESSEE FROM THE SHOP IS INDISPUTABLY AN INCOME FROM PROPERTY AND HENCE CONCLUDED THAT CHARA CTER OF THE INCOME IS NOT ALTERED MERELY BECAUSE THE FLAT IS TEMPORARILY LEAS ED OUT. THE OBJECT OF THE COMPANY WOULD NOT BE RELEVANT WHILE DETERMINING THE LEVY OF TAXES. THE LEARNED COUNSEL FOR THE APPELLANT HAS QUESTIONED THE CORREC TNESS OF THE SAID FINDING BY PLACING RELIANCE ON A JUDGMENT IN THE CASE OF S.G. MERCANTILE CORPN. (P.) LTD. V. CIT [1972] 83 ITR 700 (SC) WHEREIN ASSESSEE COMPANY WAS DEALING IN PROPERTY DEVELOPMENT AND SUB-LETTING OF SHOPS AND STALLS AND THE QUESTION AROSE AS TO ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 82 WHETHER INCOME FROM SUB-LETTING IS A BUSINESS INCOM E OR OTHERWISE. WHILE HOLDING THAT THE INCOME EARNED FROM THE PROPERTY IS A BUSIN ESS INCOME IT NOTED THE REASONS FOR THE SAME. THE PRINCIPAL REASON WAS THAT SINCE T HE APPELLANT-COMPANY WAS NOT OWNER OF THE PROPERTY OR ANY PART THEREOF THERE WAS NO QUESTION OF MAKING THE ASSESSMENT UNDER SECTION 9 OF THE ACT. IT WAS HELD THAT THE LIABILITY OF TAX UNDER SECTION 9 OF THE INCOME-TAX ACT OF 1922 WOULD BE OF THE OWNER OF THE BUILDING OR LAND APPURTENANT THERETO. IT IS ALSO HELD THAT IN C ASE THE ASSESSEE IS THE OWNER OF THE BUILDING OR LAND APPURTENANT THERETO HE WOULD BE LI ABLE TO BE TAXED UNDER SECTION 9 EVEN IF THE OBJECT OF THE ASSESSEE IN PURCHASING TH E LANDED PROPERTY WAS TO PROMOTE AND DEVELOP THE MARKET ESTATE. THUS IT CAN BE SEEN EVEN FROM THE JUDGMENT RELIED UPON BY THE APPELLANT THAT DISTINGUISHING FEATURE I N THE CASE OF S.G. MERCANTILE CORPN. (P.) LTD. (SUPRA) WAS THAT THE ASSESSEE WAS NOT THE OWNER OF THE PROPERTY IN QUESTION. IN THE CASE IN HAND IT IS AN ADMITTED POS ITION THAT THE ASSESSEE IS OWNER OF THE PROPERTY. THE NEXT JUDGMENT RELIED UPON BY THE ASSESSEE IS IN THE CASE OF CEPT V. SHRI LAXMI SILK MILLS LTD. [1951] 20 ITR 451 (S C). IN THE SAID CASE THE ASSESSEE WHO WAS ENGAGED IN MANUFACTURE OF SILK CLO TH AND DYEING SILK YARN WAS UNABLE TO OPERATE THE DYEING PLANT ON ACCOUNT OF DI FFICULTY IN OBTAINING SILK YARN AND HENCE HAD LET OUT THE DYEING PLANT TEMPORARILY. IT WAS FOUND THAT SUCH LETTING OUT IS PART OF USUAL ACTIVITY OF THE BUSINESS. IN T HE FACTS OF THE SAID CASE THE SUPREME COURT HELD THAT THE PLANT DOES NOT CEASE TO BE COMMERCIAL ASSET WHEN LET OUT TEMPORARILY AND THE INCOME EARNED FROM SUCH LET TING OUT IS BUSINESS INCOME. IT ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 83 IS THUS CLEAR THAT WHAT WAS LET OUT WAS A COMMERCIA L ASSET AND THE SAME WAS USED FOR THE SAME BUSINESS PURPOSE. IT IS HELD THAT THE YIELD OF INCOME BY COMMERCIAL ASSET IS PROFIT OF THE BUSINESS. IT WAS ALSO HELD T HAT THE INCOME EARNED WAS FROM THE NORMAL ACTIVITY OF THE ASSESSEES BUSINESS. HENCE T HIS JUDGMENT DOES NOT ADVANCE THE CASE OF THE APPELLANT ANY FURTHER. HONBLE BOMB AY HIGH COURT WAS OF THE VIEW THAT THE ASSESSEES CASE IS SQUARELY COVERED BY THE JUDGMENT IN THE CASE OF EAST INDIA HOUSING & LAND DEVELOPMENT TRUST LTD [1961] 4 2 ITR 49 (SC) ON WHICH RELIANCE HAS BEEN RIGHTLY PLACED BY THE AUTHORITIES BELOW IN REACHING THE CONCLUSION THAT THE RENTAL INCOME EARNED BY THE ASSESSEE WAS A N INCOME FROM THE HOUSE PROPERTY. HONBLE BOMBAY HIGH COURT HELD THAT THERE BEING NO MERIT IN THE APPEAL SAME STANDS DISMISSED. 18.26 IN THE CASE UNDER CONSIDERATION THE A.O. HAS EXAMINED ALL THE AGREEMENTS AND FOUND THAT THE FIRST AGREEMENT I.E. LEASE AGREE MENT CLEARLY SHOWS THAT THE PROPERTY WAS OBTAINED TO GIVE ON RENT. ON EXAMINAT ION OF THE SECOND AGREEMENT, THE A.O. NOTICED THAT THIS SECOND AGREEMENT WAS IN FACT CONSEQUENCE OF THE FIRST AGREEMENT AND WAS EXECUTED AFTER 14 DAYS OF FIRST A GREEMENT. ON PERUSAL OF BOOKS OF ACCOUNT, THE A.O. NOTICED THAT THE ASSESSEE DID NOT PROVIDE DAY-TO-DAY SERVICES AS NO SUCH EXPENSES HAVE BEEN FOUND INCURRED BY THE ASSESSEE. THE A.O. FOUND THAT THE ASSESSEE DID NOT INVOLVE IN ANY KIND OF RE CURRING, SYSTEMATIC AND IN ORGANIZED MANNER BUSINESS ACTIVITIES. FROM THE THI RD AGREEMENT, THE A.O. NOTICED ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 84 THAT THIS AGREEMENT WAS IN RESPECT OF MAINTENANCE A ND UP-KEEPING OF THE BUILDING, FLOOR, FURNITURE & FIXTURES FOR WHICH THE ASSESSEE HAS DEPUTED ONLY ONE PERSON TO LOOK AFTER THE PREMISES. WE NOTICE THAT THE CIT (A ) HAS ALSO EXAMINED THE RELEVANT PROVISIONS OF SECTION 22 OF THE ACT AND THEIR CONDI TIONS CONSIDERING FACTS OF THE CASE UNDER CONSIDERATION. THE CIT (A) FOUND THAT T HE MATERIAL ON RECORD ITSELF GOES TO SHOW SO AS TO WHAT KIND OF ORGANISATION AND CONT INUOUS ACTIVITY WAS CARRIED ON BY THE ASSESSEE TO CLAIM THE RECEIPT AS BUSINESS RE CEIPT. THE CIT (A) HAS ALSO REJECTED ASSESSEES CONTENTION TO FOLLOW THE ORDER OF A.O. FOR EARLIER YEAR ON THE GROUND THAT IF THE A.O. COMMITTED A PATENT MISTAKE, NO PRINCIPLE OF CONSISTENCY CAN BIND THE ASSESSEE OR REVENUE TO GO ON REPEATING THE SAME MISTAKE ONCE COMMITTED. THE ASSESSEE HAS FAILED TO FURNISH ANY MATERIAL TO CONTROVERT THE FACTS NOTED BY THE REVENUE AUTHORITIES. AFTER CONSIDERING TOTALITY OF THE FACTS OF THE CASE AND ORDERS OF THE REVENUE AUTHORITIES AND CONTENTION OF THE ASSES SEE, WE FIND THAT THE CIT(A) HAS RIGHTLY CONFIRMED THE ACTION OF THE A.O IN TREA TING RENTAL INCOME ASSESSABLE AS INCOME FROM HOUSE PROPERTY AND SERVICES RECEIPTS AS INCOME FROM OTHER SOURCES. ORDER OF CIT (A) IS CONFIRMED ON THE ISSUE. THE AO IS DIRECTED TO GIVE CONSEQUENTIAL EFFECTS AND CALCULATE TOTAL TAXABLE I NCOME IN ACCORDANCE WITH LAW. 19. THE OTHER EFFECTIVE GROUND RAISED IN THE APPEAL IS IN RESPECT OF CHARGING OF INTEREST UNDER SECTION 234B OF THE ACT WHICH IS MAN DATORY AND CONSEQUENTIAL IN NATURE. THE A.O. IS DIRECTED ACCORDINGLY. ITA NOS.182 & 292/AGRA/2012 A.YS. 2006-07 & 2008-09 85 20. AS REGARDS THE ITA NO.292/AGRA/2012 APPEAL FILE D BY THE ASSESSEE FOR A.Y. 2008-09, THE LD. REPRESENTATIVES OF THE PARTIES SUB MITTED THAT THE FACTS OF THE CASE FOR A.Y. 2008-09 ARE IDENTICAL TO THE FACTS OF THE CASE FOR A.Y. 2006-07. FOLLOWING THE DETAILED DISCUSSIONS MADE IN A.Y. 2006-07, WE D ISMISS THE GROUNDS RAISED BY THE ASSESSEE IN THIS YEAR ALSO I.E. 2008-09. 21. IN THE RESULT, BOTH THE APPEALS FILED BY THE AS SESSEE ARE DISMISSED. (ORDER PRONOUNCED IN THE OPEN COURT) SD/- SD/- (BHAVNESH SAINI) (A.L. GEHLOT) JUDICIAL MEMBER ACCOUNTANT MEMBER AMIT/ COPY OF THE ORDER FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. CIT (APPEALS) CONCERNED 4. CIT CONCERNED 5. D.R., ITAT, AGRA BENCH, AGRA 6. GUARD FILE. BY ORDER SR. PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL, AGRA TRUE COPY