M/S. WINDWELL SECURITIES P. LTD, MUMBAI V. THE DCIT C.C.22, MUMBAI

ITA 3546/MUM/2008

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 8863 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 7 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-01-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 22-12-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 22-05-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A K NAYAK
• Keywords: Business income; Rule of consistency; Question of law
• Section: 27

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, G, MUMBAI BEFORE SHRI J SUDHAKAR REDDY, ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER ITA NO. 3546 AND 3545/MUM/2008 (ASSESSMENT YEARS: 2004-05 AND 2005-06) WINDWELL SECUSRITIES P LTD, QUEENS MANSION, 44, A K NAYAK MARG, FORT, MUMBAI-400001 PAN:AAACW0928M APPELLANT VS DCIT CC 22, AAYAKAR BHAVAN AAYAKAR BHAVAN, MUMBAI-400020 RESPONDENT APPELLANT BY : SHRI VIJAY MEHTA RESPONDENT BY : SHRI A K NAYAK O R D E R PER VIJAY PAL RAO,JM THESE APPEALS BY THE ASSESSEE ARE DIRECTED AGAINS T TWO ORDERS OF THE CIT(A) BOTH DATED 28.3.2008 FOR THE ASSESSMENT YEARS 2004-05 AND 2005-06. IN BOTH THE A PPEALS GROUNDS TAKEN BY THE ASSESSEE ARE COMMON, THEREFORE FOR THE SAKE OF CONVENIENCE, GROUNDS OF APPEAL TAKEN FOR TH E ASSESSMENT YEAR 2005-06 ARE REPRODUCED BELOW. ITA NO. 3546 AND 3545/MUM/2008 (ASSESSMENT YEARS: 2004-05 AND 2005-06) 2 1.01 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEANER CIT(A() ERRED IN TREATING THE APPELLANT AS THE OWNER/ DEEMED OWNER IGNORING THE MONTH TO MONTH LEASE IN FAVOUR OF THE APPELLANT. T HE APPELLANT BEING ONLY A MONTHLY TENANT IS NOT THE OW NER AND INCOME CANNOT BE CHARGED AS INCOME FROM HOUSE PROPERTY; 1.02 WITHOUT PREJUDICE TO THE ABOVE, ANNUAL VALUE DETERMINED AT RS.25,500/- PER MONTH FOR PREMISES ADMEASURING 300 SQ. FT COMPARING THE 4 TH FLOOR PROPERTY WITH THE GROUND FLOOR PROPERTY AND BOTH SITUATED AT DIFFERENT LOCATIONS BEING BAD IN LAW TH E SAME NEEDS TO BE CANCELED. 2. GROUNDS OF APPEAL NO.1, REGARDING RENTAL INCOME FROM SUB-LETTING OF THE PROPERTY TREATED AS INCOME FROM HOUSE PROPERTY INSTEAD OF BUSINESS INCOME. THE ASSESSE E IS A COMPANY DERIVES RENTAL INCOME FROM PROPERTY AT NA TWAR CHAMBER BUILDING SUB-LETTED TO M/S MOTILAL OSWAL SECURITIES LTD, THE SISTER CONCERN OF THE ASSESSEE-COMPANY T HE ASSESSEE HAS SHOWN THE RENTAL RECEIPT OF RS.9000/- FROM MOTILAL SECURITY LIMITED TOWARDS THE SUBLETTING OF THE PROPERTY AS BUSINESS INCOME AND SET OFF THE ADMINISTRATIVE E XPENSES AGAINST THE RENTAL INCOME. THE AO HAS QUESTIONED T HE TREATMENT OF THE RENTAL INCOME BY CALING UPON THE A SSESSEE TO SHOW CAUSE AS TO WHY THE RENTAL INCOME SHOULD NOT BE TAXED UNDER THE HEAD INCOME FROM HOUSE PROPERTY AS AGAI NST BUSINESS INCOME THE ASSESSEE HAS SUBMITTED BEFOR E THE AO THAT THE PROPERTY WAS ON LEASE FROM M/S NATW ARLAL SHYAMALDAS AND CO. AND THIS PROPERTY WAS GIVEN ON SUB-LEASE ITA NO. 3546 AND 3545/MUM/2008 (ASSESSMENT YEARS: 2004-05 AND 2005-06) 3 TO MR. MOTILAL OSWAL SECURITIES LTD. THE ASSESSE E FILED A COPY OF THE AGREEMENT WITH M/S NATWARLAL SHYAMALDAS AND CO. IN SUPPORT OF ITS CLAIM AND SUBMITTED THAT THE ASS ETS IS NOT OWNED BY THE ASSESSEE, THEREFORE, THE LEASE RENT I S OFFERED AS BUSINESS INCOME INSTEAD OF INCOME FROM HOUSE PRO PERTY. THE AO DID NOT ACCEPT THE CONTENTION OF THE ASSESS EE AND HELD THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS O F DEALING SHARES TRANSACTION. AND BY NO STRETCH OF IMAGINATI ON THE RENTAL INCOME WOULD CONSTITUTE THE INCOME FROM PRO FIT AND GAINS OF THE BUSINESS. . ACCORDINGLY, THE ASSESSIN G OFFICER ASSESSED THE RENTAL INCOME UNDER THE HEAD INCOME F ROM HOUSE PROPERTY BY RELYING ON THE FOLLOWING DECISIO NS : 1 42 ITR 49 (SC) EAST INDIA HOUSING AND LAND DEVELOPMENT TRUST LTD V/S CIT 2 44 ITR 362 (SC) KARANPURA DEVELOPMENTS CO.LTD V/S CIT 3 258 ITR 93 (MAD) CIT V/S INDIAN WAREHOUSING INDUSTRIES LTD 4 263 ITR 143 (SC) SHAMBHU INVESTMENTS LTD V/S CIT 2.1. ON APPEAL, THE CIT(A) HAS CONFIRMED THE ACTI ON OF THE AO BY TREATING THE RENTAL INCOME AS INCOME FROM SUB -LETTING PROPERTY AS INCOME FROM HOUSE PROPERTY 2.2 BEFORE US, THE LEARNED AR OF THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE HAD OBTAINED THE PROPE RTIES ITA NO. 3546 AND 3545/MUM/2008 (ASSESSMENT YEARS: 2004-05 AND 2005-06) 4 UNDER CONSIDERATION ON MONTHLY LEASE FROM M/S NATW ARLAL SHYAMALDAS AND CO. FOR ANNUAL RENT O F RS.2044 AND IT WAS SUB-LEASED AT THE RATE OF RS.9000. THIS INCOME WA S OFFERED AS BUSINESS INCOME. THE LEARNED AR SUBMITTED THAT IN ADDITION TO THE RENT RECEIVED AND DECLARED BY THE A SSESSEE, THE SUB-LEASE ALSO BEARS 80% OF THE OTHER CHARGES PAYABLE BY THE ASSESSEE TO THE LESSOR OF THE PROPERTY. THE LE ARNED AR SUBMITTED THAT THE ASSESSEE IS NOT A OWNER OF THE P ROPERTY AND IS A TENANT OF THE SAID PROPERTY. THEREFORE, HE SU BMITTED THAT THE RENTAL INCOME CANNOT BE TAXED AS INCOME FROM HOUSE PROPERTY. HE SUBMITTED THAT SINCE THE ASSESSEE IS NOT A OWNER OF THE PROPERTY, THEREFORE, THE PROVISIONS OF SECTION 22 TO 27 OF THE INCOME TAX ACT, CANNOT BE ATTRACTED I N THIS CASE. THE LD. AR ALSO SUBMITTED THAT THE CASE LAWS RELIED UPON BY THE AO ARE DISTINGUISHABLE AND NOT APPLICABLE IN T HE CASE OF THE ASSESSEE AS ALL THE SAID JUDGMENTS ARE IN RELAT ION TO THE ASSESSEE WHO WERE EITHER OWNERS OF THE PROPERTIES U NDER CONSIDERATION OR HAD TAKEN THE PROPERTIES ON LEASE OF MORE THAN 12 YEARS, THEREFORE, THE FACTS OF THESE CASES AND THE PRESENT CASE ARE DIFFERENT AND NOT APPLICABLE TO TH E PRESENT CASE. HE SUBMITTED THAT THE RENTAL INCOME WAS OFF ERED AS BUSINESS INCOME IN THE ASSESSMENT YEAR 2003-04 A S WELL AS THE AY 2007 -08 WHICH WAS ACCEPTED BY THE REVENUE. HE HAS FURTHER CONTENDED THAT AS PER THE PROVISIONS OF SEC TION 27 ( IIIB ) ITA NO. 3546 AND 3545/MUM/2008 (ASSESSMENT YEARS: 2004-05 AND 2005-06) 5 THE LESSEE CAN BE DEEMED OWNER OF THE BUILDING I F HE ACQUIRES ANY RIGHTS BY WAY OF A LEASE FROM MOTH T O MONTH OR FOR A PERIOD NOT EXCEEDING ONE YEAR. SINCE, THE ASSESSEE IN THE PRESENT IS HAVING THE LEASE FROM MONTHS TO MONT H AND THEREFORE THE ASSESSEE CANNOT BE DEEMED TO A OWNER OF THE PROPERTY UNDER THE PROVISIONS OF SECTION 27 OF THE ACT. HE HAS POINTED OUT THAT THE LEASE AGREEMENT IN RESPEC T OF THE PROPERTY IS FROM MONTH TO MONTH AND THEREFORE, REN T RECEIVED BY SUB-LETTING OF THE PROPERTY CANNOT BE TREATED AS INCOME FROM HOUSE PROPERTY. HE HAS FURTHER SUBMITTED THA T THE ISSUE HAS BEEN CONSIDERED AND DECIDED BY A CO-ORDINATE BE NCH OF THIS TRIBUNAL IN THE CASE OF M/S TEXTILE EXPORT P LTD V/S DCIT IN ITA NO.6789/MUM/07 VIDE ORDER DATED 15.7.2009 AS WELL AS IN THE CASE OF RISHABH SECURITIES P LTD V/S DCI T IN ITA NO.S. 3543 AND 3544/MUM/2008 VIDE ORDER DATED 21. 5.2010. THUS, THE LEARNED AR OF THE ASSESSEE SUBMITTED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISIO NS OF THIS TRIBUNAL IN THE ABOVE MENTIONED CASES. THEREFORE, RULE OF CONSISTENCY DEMANDS THAT THE RENTAL INCOME FROM SUB -LETTING OF THE PROPERTY SHOULD BE ASSESSEE AS INCOME FROM B USINESS. 2.3. ON THE OTHER HAND, THE LEARNED DR HAS SUBMITTE D THAT SINCE THE ASSESSEE HAS OBTAINED THE PROPERTY IN QUE STION ON LEASE IN THE YEAR 1995 AS PER THE LEASE AGREEMENT DATED ITA NO. 3546 AND 3545/MUM/2008 (ASSESSMENT YEARS: 2004-05 AND 2005-06) 6 3.2.1995.. THE ASSESSEE HAS SUB-LETTED THE PROPERTY WITHOUT ANY OBJECTION FROM THE OWNER, THEREFORE, THE ASSESS EE IS OWNER AND THIS CAN BE EXERCISED BY THE OWNER OF THE PROPERTY. THEREFORE, THE ASSESSEE FOR THE PURPOSE OF SECTION S 22 TO 26 IS DEEMED OWNER OF THE HOUSE PROPERTY BY VIRTUE OF SECTON 27(IIIB) RWS 269(UA) OF THE ACT. HE HAS RELIED UPO N THE ORDERS OF THE LOWER AUTHORITIES. 2.4. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND P ERUSED THE RELEVANT RECORD. AS FAR AS THE QUESTION OF DEEM ED OWNER OF THE PROPERTY IN QUESTION TAKEN ON LEASE BY THE ASSE SSEE VIDE AGREEMENT DATED 3.2.1995 IS CONCERNED, THIS ISSUE I S CONSIDERED AND DECIDED BY THIS TRIBUNAL VIDE PARAGR APHS 7 AND 8 IN THE CASE OF RISHABH SECURITIES P LTD (SUPRA) AS UNDER : 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. UNDER SECTION 22 OF THE ACT, THE ANNUAL VALUE OF THE PROP ERTY CONSISTING OF ANY BUILDINGS OR LANDS APPURTENANT TH ERETO OF WHICH THE ASSESSEE IS THE OWNER SHALL BE CHARGEABLE TO TH E INCOME TAX UNDER THE HEAD OF INCOME FROM HOUSE PROPERTY. THU S TO ATTRACT THE PROVISION OF SEC.22 ASSESSEE MUST BE OWNER OF T HE BUILDING. SECT.27 LAYS DOWN CERTAIN SITUATIONS WHERE A PERSON CAN BE DEEMED TO BE THE OWNER OF THE HOUSE PROPERTY. ACC ORDING TO SEC.27, A PERSON WHO ACQUIRES ANY RIGHTS (EXCLUDING ANY RIGHTS BY WAY OF A LEASE FROM MONTH TO MONTH OR FOR A PERI OD NOT EXCEEDING ONE YEAR) IN OR WITH RESPECT TO ANY BUILD ING OR PART THEREOF, BY VIRTUE OF ANY SUCH TRANSACTION AS IS RE FERRED TO IN CLAUSE(F) OF SECTION 269UA, SHALL BE DEEMED TO BE T HE OWNER OF THAT BUILDING OR PART THEREOF. CLAUSE (F) OF SECT ION 269UA DEFINES THE EXPRESSION TRANSFER TO INCLUDE THE TR ANSFER OF PROPERTY BY WAY OF LEASE FOR A TERM OF NOT LESS THA N 12 YEARS. FROM THE PERUSAL OF THE ORDER OF THE LEARNED CIT(A) IT IS SEEN THAT LEARNED CIT(A) HAS CONSIDERED THE ASSESSEE AS OWNER OF THE PROPERTY ON THE GROUND THAT PROPERTY HAD BEEN T AKEN ON ITA NO. 3546 AND 3545/MUM/2008 (ASSESSMENT YEARS: 2004-05 AND 2005-06) 7 LEASE FROM 1987 (THE CORRECT YEAR IS 1992 NOT 1987) AND SINCE THE ASSESSEE WAS IN OCCUPATION OF THE PREMISES FOR MORE THAN 12 YEARS HE HAS TO BE TREATED AS DEEMED OWNER OF TH E PREMISES. IN OUR VIEW, THE CONCLUSION ARRIVED AT BY THE LEARNED CIT(A) ARE ERRONEOUS. THE PERUSAL OF THE LEASE DEED UNDER WHICH THE ASSESSEE BECOME THE TENANT OF THE PREMISE S SHOWS THAT THE TENANCY WAS ONE FROM MONTH TO MONTH. THE LEASE AGREEMENT PROVIDES FOR PAYMENT OF A MONTHLY RENT BY RS.250/- THE AGREEMENT FURTHER PROVIDES THAT THE RENT FOR EA CH MONTH SHALL BE PAYABLE ON OR BEFORE THE 10 TH DAY OF THE SUCCEEDING MONTH ACCORDING TO ENGLISH CALENDAR. THE AGREEMEN T FURTHER PROVIDES THAT ONE MONTH NOTICE SHALL BE GIVEN FOR D ETERMINATION OF LESSEE. ALL THESE TERMS IN THE LEASE AGREEMENT CLEARLY INDICATES THAT THE LEASE IS ONE FROM MONTH TO MONTH . TO ATTRACT THE PROVISION OF SEC.27(IIIB) OF THE ACT, THE ASSES SEE SHOULD HAVE OBTAINED BY WAY OF TRANSFER A LEASE HOLD RIGHT FOR PERIOD OF 12 YEARS OR MORE. GOING BY THE LEASE DEED IN THE P RESENT CASE, IT CANNOT BE SAID THAT THE ASSESSEE OBTAINED LEASE HOLD RIGHT FOR 12 YEARS. THE FACT THAT THE ASSESSEE WAS IN OCCU PATION OF THE PROPERTY FOR MORE THAN 12 YEARS BY ITSELF IS NOT SU FFICIENT TO CONCLUDE THAT ASSESSEE HAD A LEASE HOLD RIGHT FOR 1 2 YEAS. WE ARE THEREFORE, OF THE VIEW THAT CONCLUSION OF THE R EVENUE AUTHORITIES THAT THE ASSESSEE IS THE OWNER OF THE P ROPERTY BY VIRTUE OF THE PROVISION OF SECTION 27(IIIB) OF THE ACT IS ERRONEOUS. IN IDENTICAL CIRCUMSTANCES THIS TRIBUNAL IN THE CAS E OF M/S. TEXTILE EXPORT P. LTD. (SUPRA) HELD AS FOLLOWS: 8. HAVING HEARD BOTH THE PARTIES AND HAVING CONSIDERED THEIR RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT THE TERM DEEMED OWNER IS DEFINED U/S.27(IIIB) OF THE I.T. ACT, AS UNDER: A PERSON WHO ACQUIRES ANY RIGHTS (EXCLUDING ANY RIGHTS BY WAY OF A LEASE FROM MONTH TO MONTH OR FOR A PERIOD NOT EXCEEDING ONE YEAR) IN OR WITH RESPECT TO ANY BUILDING OR PART THEREOF, BY VIRTUE OF ANY SUCH TRANSACTION AS IS REFERRED TO IN CLAUSE(F) OF SECTION 269UA, SHALL BE DEEMED TO BE THE OWNER OF THAT BUILDING OR PART THEREOF. 9. THE FIRST AND FOREMOST QUESTION BEFORE US IS WHETHER THE ASSESSEE IS THE DEEMED OWNER AS DEFINED U/S.27 OF THE INCOME TAX ACT. LET US NOW EXAMINE THE UNDISPUTED FACTS OF THE CASE BEFORE US. THE ASSESSEE HAS TAKEN THE PREMISES ON LEASE FROM M/S. STALLION INVESTMENTS PVT. LTD., AND IS IN POSSESSION OF THE SAME SINCE ITS PURCHASE IN 1987. THERE IS NO WRITTEN ON AGREEMENT BETWEEN THE ITA NO. 3546 AND 3545/MUM/2008 (ASSESSMENT YEARS: 2004-05 AND 2005-06) 8 PARTIES TO SHOW THEIR INTENTION OR PERIOD OF LEASE. IN SUCH A SITUATION WHAT IS THE REASONABLE AND LEGAL PRESUMPTION POSSIBLE? CHAPTER V OF THE TRANSFER OF PROPERTY ACT, 1882 DEALS WITH LEASES OF IMMOVABLE PROPERTY SEC.105 OF THE TRANSFER OF PROPERTY ACT DEFINES LEASE OF IMMOVABLE PROPERTY AS A TRANSFER O F A RIGHT TO ENJOY SUCH PROPERTY, MADE FOR A CERTAIN TIME, EXPRESS OR IMPLIED, OR IN PERPETUITY, IN CONSIDERATION OF A PRICE OR PROMISED, OR OF MONEY, A SHARE OF CROPS, SERVICE OR ANY OTHER THING OF VALUE , TO BE RENDERED PERIODICALLY OR ON SPECIFIED OCCASION T O THE TRANSFEROR BY THE TRANSFEREE, WHO ACCEPTS THE TRANSFER ON SUCH TERMS. THUS, IT CAN BE SEEN THAT THE ESSENTIAL ELEMENTS OF LEASE ARE (A) THE PARTIES ; (B) THE SUBJECT MATTER, OR IMMOVABLE PROPERTY; (C) THE DEMISE, OR PARTIAL TRANSFER; (D) THE TERM, OR PERIO D; AND (E) THE CONSIDERATION, OR RENT. A LEASE CREAT ES A RIGHT OR AN INTEREST IN THE ENJOYMENT OF THE DEMISE D PROPERTY AND A RIGHT OR AN INTEREST IN THE ENJOYMEN T OF THE DEMISED PROPERTY AND A TENANT OR A SUB-TENAN T IS ENTITLED TO REMAIN IN POSSESSION THEREOF UNTIL T HE LEASE IS DULY TERMINATED AND EVICTION TAKES PLACE I N ACCORDANCE WITH LAW. THE COMMENCEMENT OF THE LEASE MUST BE ASCERTAINED IN THE FIRST INSTANCE, OR CAPABLE OF BEING ASCERTAINED WITH CERTAINTY AFTERWARDS SO THAT THE TIME WHEN IT BEGINS AND THE TIME WHEN IT ENDS, IS FIXED. THE WORD CERTAIN U NDER THIS SECTION CANNOT MEAN CERTAIN ON THE DATE OF THE LEASE. IT IS ENOUGH IF IT IS CAPABLE OF BEING MAD E CERTAIN ON A FUTURE DATE. THEREFORE, IT CANNOT BE SAID THAT ON THE DATE OF COMMENCEMENT OF LEASE ITSELF TH E PERIOD MUST BE CERTAIN. IT IS ENOUGH IF THE PERIO D IS CAPABLE OF BEING ASCERTAINED AT A FUTURE DATE AND T HE HAPPENING OF CERTAIN EVENTS. A MERE GENERAL LETTI NG I.E. A LEASE WHICH IS ASSIGNED AS TO THE DURATION O F A TERM, WOULD BE VOID AS A LEASE AS HELD BY THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF SEVAK RAM VS. MEERUT MUNICIPALITY BOARD AIR (1967) ALL.328, THOUGH IT WOULD CREATE A TENANCY AT WILL WHICH WOULD BE CONVERTED BY PAYMENT OF RENT INTO A TENANCY FROM YEAR TO YEAR OR MONTH TO MONTH. A TENANCY AT WILL IS A LEASE WHICH CAN BE TERMINATED BY EITHER OF THE PARTIES AND IT ARRIVES AT IMPLICATION OF LAW IN CASES OF PERMISSIVE OCCUPATION WHEN A PERSON IS IN POSSESSION OF THE PREMISES WITH THE CONSENT OF THE OWNER. IT HAS BEEN HELD BY VARIOUS HIGH COURTS THAT A TENANCY TERMINABLE AT ANY TIME WITH 15 DAYS NOTICE WAS A TENANCY AT WILL. THUS, I T ITA NO. 3546 AND 3545/MUM/2008 (ASSESSMENT YEARS: 2004-05 AND 2005-06) 9 CAN BE SEEN THAT WHERE THE TENANCY HAS AGREED TO VACATE THE PREMISES WHENEVER THE LAND-LORD WOULD DESIRE TO DO SO IT IS A TENANCY AT WILL. IN SUCH CASE NO REGISTERED LEASE IS REQUIRED AND THE RENT NOTE I S ADMISSIBLE IN EVIDENCE AS HELD BY THE RAJASTHAN HIGH COURT IN THE CASE OF UDAIRAM TEJ KARAN REPORTED IN AIR (1975) RAJ.147. THE LEARNED DR HAS ARGUED THAT THIS IS A LEASE OF PERPETUITY. A LEASE OF PERPETUITY IS CREATED EITHER BY AN EXPRESS GRANT OR BY A PRESUMED GRANT. EXPRESS GRANT MEANS THE WORDS USED TO DENOTE PERMANENT LEASE ARE USED IN THE DOCUMENTS AND THEY ARE PRESUMED TO BE PERMANENT UNLESS THERE ARE INTENTIONS TO THE CONTRARY IN THE SURROUNDING CIRCUMSTANCES. THERE IS TYPE OF LEASE PROVIDED THAT THE TENANTS WANT TO CONTINUE IN POSSESSION AS LONG AS IT PAYS RENT, IT IS A TENANCY FOR A LIFE TIME OF THE TENANT AND NOT A PERMANENT TENANCY. PERMANENCY OF A LEASE DOES NOT NECESSARILY IMPLY BOTH FIXITY OF RENT AND FIXIT Y OF OCCUPATION AND THE FACT OF ENHANCEMENT OF RENT DOES NOT NECESSARILY MILITATE THE TENANCY BEING A PERMANENT ONE. BUT IF FOR A LONG TIME THE RENT H AS NOT BEEN ENHANCED IN SPITE OF INCREASE IN THE VALUE OR TENURE, THE INTEREST WILL BE THAT THE RENT IS FI XED. IF THE TENANT HAS BEEN IN A POSSESSION LONG BEFORE THE TRANSFER OF PROPERTY ACT OF 1982 THE CONTRACT OF TH E PARTIES AND CIRCUMSTANCES OF THE CASE MAY SHOW THAT THE TENANCY IS PERMANENT. LONG POSSESSION IS BY ITSELF INSUFFICIENT TO PROVE PERMANENCY AND THE ONLY PRESUMPTION FROM LONG POSSESSION IS A YEARLY TENANCY. IT HAS BEEN HELD BY VARIOUS HIGH COURTS THAT IF THE ORIGIN OF TENANCY IS KNOWN, LONG POSSESSION, EVEN IF IT IS COUPLED WITH PAYMENT OF UNIFORM RENT IS NOT SUFFICIENT UNLESS A CUSTOM TO T HE CONTRARY IS PROVED OR UNLESS OTHER CIRCUMSTANCES SUCH AS THE SALE OF DEALING ON THE LAND BY THE LESS EE AND THE TRANSFER OF THE LAND SEVERAL TIMES BY THE LESSEE SHOW THAT THE LEASE WAS PERPETUAL. BUT IF THE ORIGIN OF THE TENANCY IS NOT KNOWN, THEN THE MAXIM OPTIMUMS REARM INTERPRETS US APPLIES TO LONG POSSESSION COUPLED WITH AN UNIFORMED RENT, RAISES A PRESUMPTION OF PERMANENCY. 10. APPLYING THE ABOVE PRINCIPLES LAID DOWN BY THE VARIOUS HIGH COURTS ON SEC.105 OF TRANSFER OF PROPERTY ACT, IT IS SEEN THAT THE LEASE CANNOT BE A LEASE OF PERPETUITY AS THE ORIGIN OF THE LEASE IS ITA NO. 3546 AND 3545/MUM/2008 (ASSESSMENT YEARS: 2004-05 AND 2005-06) 10 KNOWN AND THE LEASE CONTINUED EVEN DURING THE RELEVANT ASSESSMENT YEAR. 11. THE ASSESSEE HAD RELIED UPON SEC.106 OF THE TRANSFER OF PROPERTY ACT, FOR THE PRESUMPTION T HAT IT IS A MONTH TO MONTH LEASE. APPLYING THE ABOVE PRINCIPLES AS WELL AS THE PROVISIONS OF SESC.106 OF THE TRANSFER OF PROPERTY ACT, WE ARE INCLINED TO AGREE THAT IN THE ABSENCE OF A WRITTEN CONTRACT TO THE CONTRARY, PRESUMPTION U/S.106 HAS TO BE ADOPTED AND THE LEASE IS MONTH TO MONTH LEASE TERMINABLE AT THE OPTION OF EITHER PARTIES WITH A NOTICE OF 15 DA YS. THE DRS ARGUMENT THAT THE LESSOR HAS NOT EXERCISED THIS OPTION ITSELF INDICATES THE PERMANENCY OF THE LEASE IS ALSO NOT CORRECT. 8. IN THE FACTS AND CIRCUMSTANCES OF THE PRESENT CA SE AND IN THE LIGHT OF THE DECISIONS OF THE TRIBUNAL REFER RED TO ABOVE WE HOLD THAT THE ASSESSEE CANNOT BE CONSIDERED AS OWNE R OF THE PROPERTY. THEREFORE, INCOME IN QUESTION CAN NOT BE ASSESSED UNDER THE HEAD INCOME FROM HOUSE PROPERTY. THE SAM E IS DIRECT HAS TO BE ASSESSED UNDER THE HEAD INCOME FROM BUSIN ESS AS SHOWN BY THE ASSESSEE. 2.5. IN VIEW OF THE DECISION OF A CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE CITED ABOVE, THE ASSESSEE CANN OT BE A DEEMED AS OWNER OF THE PROPERTY IN QUESTION AND THE REFORE, THE RENTAL INCOME FROM SUB-LETTING OF THE PROPERTY CANNOT BE ASSESSED AS . INCOME FROM HOUSE PROPERTY. HOWEV ER, IT IS UNDISPUTED FACT THAT THE ASSESSEE IS NOT IN THE BU SINESS OF DEALING IN TAKING AND LEASING OUT OF THE PROPERTY EVEN OTHERWISE THIS IS THE SOLE INSTANCE OF SUB-LETTING OF THE PROPERTY BY THE ASSESSEE. THEREFORE, THE RENTAL I NCOME FROM SUB-LETTING OF THE PROPERTY CANNOT PARTAKE THE CH ARACTERISTIC OF INCOME FROM PROFIT AND GAINS OF THE BUSINESS OF THE ITA NO. 3546 AND 3545/MUM/2008 (ASSESSMENT YEARS: 2004-05 AND 2005-06) 11 ASSESSEE. THE LEASE AGREEMENT DATED 3.2.1995 DOES N OT PERMIT THE SUB-LETTING OF THE PROPERTY. CLAUSE 14 OF THE AGREEMENT SPECIFICALLY BARS THE SUB-LETTING. FOR TH E SAKE OF CONVENIENCE, WE REPRODUCE THE CLAUSE 14 AS UNDER: 14. THE PARTY OF THE SECOND PART SHALL NOT SUB-LET , RELET OR UNDERLET THE SAID PREMISES OR ANY PORTION THEREOF NOR SHALL ALLOW ANY OTHER PERSON OR PERSON TO USE AND OCCUPY THE PREMISES UNDER LEAVE AND LICENCE NOR SHALL BE USE THE PREMISES FOR RUNNING A BOARDI NG HOUSE OR CONVERT IT INTO A GUEST HOUSE NOR SHALL BE USE THE PREMISES FOR RUNNING ANY EDUCATIONAL INSTITUTION OR ANY OTHER SUCH INSTITUTIONS IN THE S AID PREMISES. THUS, WHERE THE ASSESSEE IS NOT ALLOWED TO SUB-LET THE PROPERTY THEN HOW THE SUB-LETTING AGAINST THE TERM OF THE LEASE AGREEMENT CAN BE SAID AS BUSINESS OF THE ASSE SSEE. MERELY BECAUSE, THE RENTAL INCOME OFFERED BY THE ASSESSEE AS BUSINESS INCOME FOR SOME YEARS HAS BEEN ACCEPTED BY THE REVENUE DOES NOT CHANGE THE REAL NATURE OR CHARACTE R OF THE INCOME. THE ACCEPTANCE FOR OTHER YEAR BY THE REVENU E SHALL NOT OPERATE AS PRINCIPLE OF RESJUDICATA IN THE MATT ER OF TAXATION. THE PRINCIPLE OF CONSISTENCY IS NOT UNEXCEPTIONAB LE AS HELD BY THE SPECIAL BENCH OF THIS TRIBUNAL IN THE CASE OF MAHARASHRA STATE CO-OPERATIVE BANK V/S CIT REPORTE D IN 2 ITR 543 (SB) IN PARAGRAPH 6-7 AS UNDER : 6. WE HAVE COGITATED THE RIVAL SUBMISSIONS IN THE LIGHT OF PRECEDENTS RELIED UPON BY BOTH THE SIDES ON THIS PRELIMINARY ISSUE. THE VIEW CANVASSED BY THE LEARNE D ITA NO. 3546 AND 3545/MUM/2008 (ASSESSMENT YEARS: 2004-05 AND 2005-06) 12 AUTHORISED REPRESENTATIVE IS THAT SINCE THE TRIBUNA L IN ASSESSEE'S OWN CASE FOR THE SUCCEEDING YEAR, ON THE SIMILAR FACTS, HAD DECIDED THE ISSUE IN ITS FAVOUR, SO NOW THERE SHOULD BE INHIBITION ON THE DEPARTMENT TO REA RGUE THE MATTER AS THE PRINCIPLE OF CONSISTENCY COMES IN TO PLAY. ON THE OTHER HAND THE LEARNED DEPARTMENTAL REPRESENTATIVE ARGUED THAT THE RULE OF RES JUDICATA DOES NOT APPLY IN THE INCOME-TAX MATTERS AND EACH YEAR I S A SEPARATE AND INDEPENDENT UNIT OF ASSESSMENT. HE ARG UED THAT THE DEPARTMENT WAS ENTITLED TO ARGUE THE MERIT S OF THE CASE SINCE SOME OF THE IMPORTANT ASPECTS OF THE SUBSTANTIAL QUESTION OF LAW INVOLVED IN THIS APPEAL , WERE OMITTED TO BE RAISED AND CONSIDERED BY THE TRIBUNAL IN THE SUCCEEDING YEAR. HE ALSO PRESSED INTO SERVICE THE JUDGMENT OF THE HON'BLE APEX COURT IN O SWAL AGRO MILLS LTD. (SUPRA) IN WHICH IT HAS BEEN HELD THAT T HE 'SUBSTANTIAL QUESTION OF LAW' CANNOT BE DECIDED ON THE BASIS OF THE 'PRINCIPLE OF CONSISTENCY' AND THAT IS WHY THE SUPERIOR COURT REMANDED THE MATTER TO THE HIGH COUR T FOR FRESH DECISION ON MERITS. WE NOTE THAT THIS SPECIAL BENCH HAS BEEN CONSTITUTED SOLELY TO DECIDE THE ISSUE OF THE ALLOWABILITY OR OTHERWISE OF DEDUCTION UNDER S. 80P ON THE AMOUNT OF INTEREST ON INCOME-TAX REFUND. THE ARGUME NT ABOUT THE PRINCIPLE OF CONSISTENCY COULD HAVE BEEN TAKEN BEFORE THE DIVISION BENCH, WHICH IF CONVINCED, COUL D HAVE FOLLOWED THE EARLIER ORDER. HOWEVER THE DIVISION BE NCH, AFTER HEARING THE RIVAL PARTIES AT LENGTH ON THE ME RITS OF THE CASE, DID NOT AGREE WITH THE EARLIER VIEW TAKEN BY THE BENCH AND EXPRESSED RESERVATIONS TO FOLLOW THE SAME BLINDLY. IT WAS IN SUCH CIRCUMSTANCES THAT, AFTER G IVING DETAILED REASONS, THE MEMBERS CONSIDERED IT EXPEDIE NT TO MAKE REFERENCE TO THE HON'BLE PRESIDENT OF THE TRIB UNAL FOR THE CONSTITUTION OF THE SPECIAL BENCH ON THE PO INT. IN OUR CONSIDERED OPINION IT IS NOW TOO LATE IN THE DA Y TO COME OUT WITH THE ARGUMENT THAT APPEAL OF THE ASSES SEE BE ALLOWED BY FOLLOWING THE PRINCIPLE OF CONSISTENC Y. IF THIS PROPOSITION OF THE LEARNED AUTHORISED REPRESENTATIV E IS ACCEPTED THEN THE ENTIRE EXERCISE OF CONSTITUTING T HE PRESENT SPECIAL BENCH WILL BECOME FUTILE. 7. BE THAT AS IT MAY, THE PRINCIPLE OF CONSISTENCY QUA THE JUDICIAL FORUMS IS NOT UNEXCEPTIONABLE. IT IS TRUE THAT ORDINARILY THE ORDER PASSED BY THE EARLIE R BENCH ON THE SAME POINT SHOULD BE RESPECTED AND FOLLOWED. BUT IF THE SUBSEQUENT BENCH FINDS IT DIFF ICULT TO FOLLOW THE EARLIER VIEW DUE TO ANY CONVINCING REASON, SUCH AS CHANGE IN THE FACTUAL OR LEGAL POSI TION ITA NO. 3546 AND 3545/MUM/2008 (ASSESSMENT YEARS: 2004-05 AND 2005-06) 13 OR NON-RAISING OR NON- CONSIDERATION OF AN IMPORTAN T ARGUMENT BY THE EARLIER BENCH HAVING BEARING ON THE ISSUE, THEN THE EARLIER VIEW CANNOT BE THRUST UPON IT. IT IS A SETTLED LEGAL POSITION, HAVING THE SANCTION OF THE HON'BLE SUPREME COURT IN UNION OF INDIA & ANR. VS. PARAS LAMINATES (P) LTD. (1990) 87 CTR (SC) 180 : 1990 (49) ELT 322 (SC), THAT IF A SUBSEQUENT BENCH DIFFERS WITH PREVIOUS BENCH, THEN IT SHOULD NOT ITS ELF VENTURE TO DISAGREE WITH THE EARLIER VIEW BUT A REFERENCE SHOULD BE MADE TO A LARGER BENCH. SIMILAR VIEW HAS BEEN TAKEN BY THE SPECIAL BENCH OF THE TRIBUNAL IN DY. CIT VS. RELIANCE INDUSTRIES LTD. (2 004) 82 TTJ (MUMBAI)(SB) 765 : (2004) 88 ITD 273 (MUMBAI)(SB). SO WHEN A MATTER IS REFERRED TO THE LARGER BENCH, THE VIEW EARLIER TAKEN BY THE DIVISIO N BENCH CEASES TO BE BINDING ON THE SPECIAL BENCH THOUGH IT RETAINS THE PERSUASIVE VALUE. IN VIEW OF THE ABOVE DISCUSSED LEGAL POSITION WE FIND THAT THE ACT ION OF THE DIVISION BENCH IN REFERRING THE MATTER FOR CONSIDERATION BY A SPECIAL BENCH, IS PERFECTLY IN ORDER, AS IT FOUND ITSELF UNABLE TO AGREE WITH THE EARLIER VIEW TAKEN BY ANOTHER DIVISION BENCH OF THE TRIBUNAL IN ASSESSEE'S OWN CASE. THIS PRACTICE OF MAKING REFERENCE FOR THE CONSTITUTION OF THE LARGER BENCH IS NOT CONFINED ONLY TO THE TRIBUNAL BUT IS PREVALENT IN THE HON'BLE SUPREME COURT AND THE HON'BLE HIGH COURTS AS WELL. RECENT EXAMPLE OFMAKING SUCH REFERENCE TO THE LARGER BENCH BY THE HON'BLE SUPREME COURT IS IN THE CASE OF UNION OF INDIA & ORS. VS. DHARAMENDRA TEXTILE PROCESSORS & ORS. (2008) 219 CTR (SC) 617 : (2008) 14 DTR (SC) 114 : (2008) 306 ITR 277 (SC) WHEN THE LATER BENCH DOUBTED THE CORRECTNESS OF VIEW EXPRESSED BY THE EARLIER BENCH, ON THE SAME ISSUE IN DILIP N. SHROFF VS. JT. CIT & ANR. (2007) 210 CTR (SC) 228 : (2007) 291 ITR 519 (SC). WE, THEREFORE, DO NOT FIND ANY INFIRM ITY IN THE ACTION OF THE DIVISION BENCH IN MAKING REFERENCE FOR THE CONSTITUTION OF THE SPECIAL BENCH WHEN IT FOUND IT DIFFICULT TO ACCEPT THE EARLIER VI EW TAKEN IN ASSESSEE'S OWN CASE. UNDER THESE CIRCUMSTANCE WE ARE OF THE CONSIDERED OPINION THAT THE EXCEPTION TO THE APPLICATION OF PRINCIPLE OF CONSISTENCY GETS ATTRACTED AND THE APPEAL NEEDS TO BE DECIDED ON MERITS RATHER THAN FOLLOWING THE EARLIER VIEW TAKEN BY THE TRIBUNAL IN ITS OWN CASE. THE SUBMISSION MADE BY THE LEARNED AUTHORISED REPRESENTATIVE ON THIS ISSUE, THEREFORE, BEING DEVO ID ITA NO. 3546 AND 3545/MUM/2008 (ASSESSMENT YEARS: 2004-05 AND 2005-06) 14 OF ANY MERITS IN THE PRESENT CIRCUMSTANCES, DESERVE S AND IS HEREBY REJECTED. 2.6. WHEN IT IS APPARENT AND MANIFEST FROM THE FAC TS THAT THE RENTAL INCOME FROM SUB-LETTING OF THE PROPERTY WHIC H IS NOT THE BUSINESS OF THE ASSESSEE AND CANNOT BE ASSESSED AS INCOME FROM BUSINESS PARTICULARLY WHEN THERE IS NO SCOPE O F TWO VIEWS ON THE ISSUES THEN THE SAME HAS TO ASSESSED AS INC OME FROM OTHER SOURCES. ACCORDINGLY, WE MODIFY THE ORDER OF THE LOWER AUTHORITIES. TO THIS EXTENT THE ISSUE IS PARTLY A LLOWED. 2.7 GROUNDS OF APPEAL NO.1 IS PARTLY ALLOWED 3. GROUNDS OF APPEAL NO.2 PERTAINS TO THE ANNUAL V ALUE DETERMINED AT RS.25,500/- PER MONTH FOR PREMISES ADMEASURING 300 SQ. FT COMPARING THE 4 TH FLOOR PROPERTY WITH THE GROUND FLOOR PROPERTY. IN VIEW OF OUR ABOVE FIN DINGS ON THE ISSUE OF ASSESSMENT OF THE RENTAL INCOME, THE ISSU E OF DETERMINING THE ALV DOES NOT REQUIRES ANY ADJUDICAT ION. 4. IN THE RESULT, BOTH THE APPEALS ARE PARTLY ALLO WED. ORDER PRONOUNCED IN THE OPEN COURT ON 21.01.2011 SD SD (J.SUDHAKAR REDDY) (V IJAY PAL RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, ON THIS 21ST DAY OF JAN 2011 ITA NO. 3546 AND 3545/MUM/2008 (ASSESSMENT YEARS: 2004-05 AND 2005-06) 15 SRL:14111 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT CONCERNED 4. CIT(A) CONCERNED 5. DR CONCERNED BENCH BY ORDER TRUE COPY ASSTT. REGISTRAR, ITAT, MUMBAI