Davinder Singh, Patiala V. ITO, Patiala

ITA 504/CHANDI/2015

• Counselvise Citation: 50421514 RSA 2015
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-01-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 11-12-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 08-05-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K MITTAL
• Keywords: Salary income; Opportunity of being heard
• Section: 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES SMC CHANDIGARH BEFORE SHRI H.L.KARWA, HON'BLE VICE PRESIDENT ITA NOS. 503 TO 505/CHD/2015 ASSESSMENT YEARS: 2004-05 TO 2006-07 SH. DAVINDER SINGH, VS. THE ITO, WARD-3, S/O SH. ANOOP SINGH, PATIALA (THROUGH LEGAL HEIR) PATIALA PAN NO. AIIPS8694N (APPELLANT) (RESPONDENT) APPELLANT BY : SH. RAKESH CAJLA RESPONDENT BY : SH. S.K. MITTAL DATE OF HEARING : 01.01.2016 DATE OF PRONOUNCEMENT : 12 .01.2016 ORDER PER H.L.KARWA, VP THESE THREE APPEALS BY THE ASSESSEE RELATING TO ASS ESSMENT YEARS 2004-05, 2005-06 AND 2006-07 ARE DIRECTED AGAINST THE SEPARA TE ORDERS OF CIT(A) PATIALA DATED 30.3.2015 RELATING TO ASSESSMENT YEARS 2004-0 5, 2005-06 AND 2006-07. THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DIS POSED OFF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. THE GROUNDS OF APPEAL ARE COMMON EXCEPT THE AMOU NT OF ADDITION. FOR THE SAKE OF CONVENIENCE, I WILL REPRODUCE THE GROUNDS R AISED BY THE ASSESSEE IN ITA NO. 503/CHD/2015 RELATING TO ASSESSMENT YEAR 2004-0 5, WHICH ARE AS UNDER:- 1. THAT THE ORDER OF THE LD. COMMISSIONER OF INCOM E TAX APPEAL (S) PATIALA IS BAD IN LAW AND AGAINST FACTS OF THE CASE. 2 2. THAT ON FACTS & CIRCUMSTANCES OF THE CASE THE AD DITION OF RS. 1,72,135/- (25% OF THE GROSS RENTAL INCOME) IS ARBI TRARY, AND ON HIGH 3. THAT THE LD. COMMISSIONER OF INCOME TAX (A), PA TIALA IS NOT JUSTIFIED IN MAKING AN ADDITION MERELY ON SUR MISES AND CONJECTURES. 4. THAT THE LD. COMMISSIONER OF INCOME TAX (A), PAT IALA IS NOT JUSTIFIED IN CHARGING THE INTEREST U/S 234B OF THE INCOME TAX ACT, 1961. 3. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT TH E ASSESSEE WAS AN EMPLOYEE WITH MARKET COMMITTEE AT SAMANA AND WAS HAVING SALA RY INCOME. IN THE RETURNS OF INCOME FOR THE YEAR UNDER CONSIDERATION, THE ASS ESSEE HAD DECLARED SALARY INCOME. APART FROM IT, HE WAS THE OWNER OF THE AGRI CULTURAL LAND AT KAMASPUR ROAD, SAMALA WHICH HE HAD LEASED TO AMARDEEP SINGH SANDHU AND OTHERS IN WHICH HIS WIFE SMT. PINDERJIT KAUR IS ONE OF THE CO -OWNER HAVING 24.5% SHARE. ON THE SAID LAND, THE CO-OWNER HAS CONSTRUCTED THE GODOWN AND RENTED THE SAME TO PUNJAB STATE WAREHOUSING CORPORATION. SMT. PINDE RJIT KAUR HAD RECEIVED THE RENTAL INCOME OF RS. 6,88,541/-, RS. 5,78,105/- AND RS. 5,77,021/- AS HER SHARE IN THE ASSESSMENT YEARS 2004-05, 2005-06 & 2006-07 RESPECTIVELY. THE ASSESSING OFFICER MADE THE ADDITION OF RENTAL INCOM E IN THE HANDS OF THE ASSESSEE ON SUBSTANTIVE BASIS AS INCOME UNDER THE H EAD OTHER SOURCES RESORTED TO THE PROVISIONS OF SECTION 64(1) OF THE INCOME-TA X ACT, 1961 (IN SHORT 'THE ACT'). ON THE OTHER SIDE, INCOME WAS ASSESSED IN TH E HANDS OF ASSESSEES WIFE SMT. PINDERJIT KAUR ON PROTECTIVE BASIS. 4. ON APPEAL, THE CIT(A) HELD THAT 25% OF THE GROSS RENTAL INCOME ACCRUING TO THE ASSESSEES WIFE MAY BE ADDED IN THE HANDS OF THE ASSESSEE U/S 64(1) OF THE INCOME-TAX ACT, 1961 UNDER THE HEAD OTHER SOUR CES AS A CONSIDERATION FOR THE LAND GIVEN TO HIS WIFE FOR CONSTRUCTION OF GODO WN. 3 5. SHRI RAKESH CAJLA, ADVOCATE WHILE APPEARING FOR THE ASSESSEE SUBMITTED THAT THE AUTHORITIES BELOW WERE NOT JUSTIFIED IN AP PLYING THE PROVISIONS OF SECTION 64(1) OF THE ACT. ACCORDING TO HIM, SECTION 64(1) IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. HE FURTHER SUBMITTED THA T THE LD. CIT(A) PATIALA VIDE HIS OWN ORDER DATED 30.3.2015 IN THE CASE OF SMT. P INDERJIT KAUR W/O SH. DAVINDER SINGH FOR THE ASSESSMENT YEARS 2005-06, 20 06-07 AND 2007-08 AND 2009-10 HAS HELD THAT THE RENTAL INCOME MAY BE ASSE SSED IN THE HANDS OF SMT. PINDERJIT KUAR UNDER THE HEAD HOUSE PROPERTY AND CLAIM U/S 24(A) AND 24(B) BE ALSO ALLOWED. THE LD. CIT(A) FURTHER HELD THAT I NCOME SHOULD BE ADDED ON SUBSTANTIVE BASIS IN THE HANDS OF THE SMT. PINDERJI T KAUR, WIFE OF THE ASSESSEE. THE FINDINGS GIVEN BY THE CIT(A) IN THE CASE OF SM T. PINDERJIT KAUR READ AS UNDER:- 5.0 AS REGARD GROUND NO. 2&3, THE ADMITTED P OSITION AS CONFIRMED BY THE ASSESSING OFFICER ALSO IS THAT THE GODOWN IS CONSTRUCTED BY THE CO-OWNERS INCLUDING THE APPELLANT OUT OF THEIR OWN FUND INCLUDING LOAN. THE GODOWN IS GIVEN ON RENT AND THE APPELLANT HAS S HOWN HER SHARE OF RENTAL INCOME UNDER THE HEAD 'HOUSE PROPERTY' AND C LAIMED DEDUCTION UNDER SECTION 24(0) & 24(B). THE ASSESSING OFFICER DISALLOWED THE CLAIM AND ASSESSED THE INCOME UNDER THE HEAD 'OTHER SOURCES' ONLY ON THE BASIS THAT OWNERSHIP OF THE LAND COULD NOT BE E STABLISHED. HON'BLE SUPREME COURT IN THE CASE OF CIT US. PODDAR CEMENT PUT. LTD. 226 ITR 625 HAS HELD THAT FOR THE PURPOSE OF SECTION 22 OF THE INCOME TAX ACT, 1961, OWNER IS A PERSON WHO IS ENTITLED TO RECEIVE INCOME FROM THE PROPERTY IN HIS OWN RIGHT. IN THE CASE OF CIT VS. E STATE OF OM PARKASH JHUNJHUNWALA 254 ITR 152 (CAL), INCOME AS HELD TO B E ASSESSABLE UNDER HOUSE PROPERTY IN CASE OF BUILDING CONSTRUCTE D ON LEASEHOLD LAND. THEREFORE, LOOKING INTO THE FACTS OF THE CASE, I AM OF THE OPINION THAT THE ACTION OF THE ASSESSING OFFICER IN ASSESSING THE IN COME UNDER THE HEAD 'OTHER SOURCES' IS LEGALLY NOT SUSTAINABLE AND THE INCOME IS TO BE ASSESSED IN THE HANDS OF THE APPELLANT UNDER THE HE AD HOUSE PROPERTY AND CLAIM UNDER SECTION 24(A) & 24(B) IS TO BE ALLO WED. UNDER THE 4 CIRCUMSTANCES, THE INCOME IS TO BE ADDED ON SUBSTAN TIVE BASIS IN THE HANDS OF THE APPELLANT. IN FACT THE ASSESSING OFFI CER HIMSELF HAS ALSO ADDED THE INCOME ON SUBSTANTIVE BASIS IN ASSESSMEN T YEAR 2008-09. FROM THE ABOVE, IT IS CLEAR THAT THE RENTAL INCOME RECEIVED BY SMT. PINDERJIT KAUR HAS BEEN ASSESSED IN HER HANDS UNDER THE HEAD HOUSE PROPERTY ON SUBSTANTIVE BASIS. SHRI RAKESH CAJLA, LD. COUNSEL F OR THE ASSESSEE STATED AT BAR THAT THE ORDER OF CIT(A) PASSED IN THE CASE OF SMT. PINDERJIT KAUR FOR THE ASSESSMENT YEARS 2005-06, 2006-07, 2007-08 AND 2009 -10 HAS BECOME FINAL SINCE NO APPEAL AGAINST THE SAID ORDER HAS BEEN PRE FERRED BY REVENUE OR ASSESSEE. IT IS OBSERVED THAT IN THE INSTANT CASE T HE CIT(A) MADE THE ADDITION TO THE EXTENT OF 25% OF THE GROSS RENTAL INCOME ACCRU ING TO ASSESSEES WIFE IN THE HANDS OF THE ASSESSEE U/S 64(1) OF THE ACT, UNDER THE HEAD OTHER SOURCES AS A CONSIDERATION FOR THE LAND GIVEN TO HIS WIFE FOR CO NSTRUCTION OF GODOWN. AS I HAVE ALREADY OBSERVED HEREIN ABOVE THAT AS PER THE ORDER OF THE CIT(A) IN THE CASE OF SMT. PINDERJIT KAUR, THE RENTAL INCOME HAS BEEN ASSESSED IN HER HAND UNDER THE HEAD INCOME FROM HOUSE PROPERTY ON SUBS TANTIVE BASIS. IN THIS CASE, THE AUTHORITIES BELOW HAVE INVOKED THE PROVISIONS O F SECTION 64(1) OF THE ACT, WHICH READS AS UNDER:- 64 (1) IN COMPUTING THE TOTAL INCOME OF ANY INDIVI DUAL, THERE SHALL BE INCLUDED ALL SUCH INCOME AS ARISES DIRECTLY OR INDI RECTLY (I) [OMITTED BY THE FINANCE ACT, 1992, W.E.F. 1-4- 1993.] (II) TO THE SPOUSE OF SUCH INDIVIDUAL BY WAY OF SAL ARY, COMMISSION, FEES OR ANY OTHER FORM OF REMUNERATION WHETHER IN CASH OR IN KI ND FROM A CONCERN IN WHICH SUCH INDIVIDUAL HAS A SUBSTANTIAL INTEREST : [ PROVIDED THAT NOTHING IN THIS CLAUSE SHALL APPLY IN RELATIO N TO ANY INCOME ARISING TO THE SPOUSE WHERE THE SPOUSE 56 POSSESSES TECHNICAL OR PROFESSIONAL QUALIFICATIONS AND THE INCOME IS SOLEL Y ATTRIBUTABLE TO THE APPLICATION OF HIS OR HER TECHNICAL OR PROFESSIONAL KNOWLEDGE AND EXPERIENCE ;] (III) [OMITTED BY THE FINANCE ACT, 1992, W.E.F. 1- 4-1993.] 5 (IV) SUBJECT TO THE PROVISIONS OF CLAUSE (I) OF SEC TION 27, TO THE SPOUSE OF SUCH INDIVIDUAL FROM ASSETS TRANSFERRED DIRECTLY OR INDI RECTLY TO THE SPOUSE BY SUCH INDIVIDUAL OTHERWISE THAN FOR ADEQUATE CONSIDE RATION OR IN CONNECTION WITH AN AGREEMENT TO LIVE APART ; 6. IT IS APPARENT FROM THE RECORDS THAT THE ASSESSE E LEASED OUT HIS SHARE OF AGRICULTURAL LAND ( SHARE OF 42 KANALS 7 MARLAS) A T SAMANA TO A CO-OWNERSHIP STYLED AS AMARDEEP SINGH SANDHU & OTHERS THROUGH SM T. PINDERJIT KAUR VIDE LEASE DEED DATED 2.1.2001 AT ANNUAL RENT OF RS. 10/ - FOR THE PERIOD OF 33 YEARS I.E. UPTO 20.01.2034. SMT. PINDERJIT KAUR AND OTHER S CONSTRUCTED GODOWNS ON THE SAID TOTAL LAND MEASURING 42 KANAL 7 MARLA AND FOR THIS PURPOSE RAISED A LOAN OF RS. ONE CRORE FROM PUNJAB AND SIND BANK, SAMANA WHI CH WAS SANCTIONED VIDE LETTER DATED 13.3.2002. THE BALANCE AMOUNT WAS SPE NT BY THE CO-OWNERS FROM THEIR OWN SOURCES WHICH WAS SUPPOSED TO BE 80 LACS AS PER TERMS OF THE SANCTION LETTER. AS PER PATTANAMA (LEASE DEED) THE LESSEES W ERE AUTHORIZED TO MAKE CONSTRUCTION OF GODOWNS. GODOWNS WERE CONSTRUCTED AND WERE LET OUT TO PUNJAB STATE WAREHOUSING CORPORATION. HOWEVER, THE CO-OWN ER DECLARED THE RENTAL INCOME OF GODOWNS IN THEIR RESPECTIVE RETURNS UNDER THE HEAD INCOME FROM HOUSE PROPERTY AND WAS ASSESSED ACCORDINGLY. AS I HAVE ALREADY OBSERVED HEREINABOVE THAT THE RENTAL INCOME STANDS ASSESSED IN THE HANDS OF SMT. PINDERJIT KAUR ON SUBSTANTIVE BASIS. AS REGARDS THE APPLICAT ION OF SECTION 64(1) OF THE ACT, IT IS OBSERVED THAT THE LD. CIT(A) HAS ADDED 2 5% OF THE GROSS RENTAL INCOME ACCRUING TO ASSESSEES WIFE AND ADDED THE SAME IN T HE HANDS OF THE ASSESSEE U/S 64(1) OF THE ACT. SHRI RAKESH CAJLA, LD. COUNSEL FO R THE ASSESSEE VEHEMENTLY ARGUED THAT WHEN ENTIRE RENTAL INCOME HAS BEEN ASSE SSED IN THE HANDS OF THE ASSESSEES WIFE ON SUBSTANTIVE BASIS AND THEREFORE, THERE WAS NO JUSTIFICATION IN MAKING THE ADDITION OF 25% OF THE GROSS RENTAL INCO ME AGAIN IN THE HANDS OF THE ASSESSEE. IN MY OPINION, THERE IS A SUBSTANCE IN TH E ABOVE CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE AND I HOLD THAT THE QUESTI ON WHETHER OR NOT THE 6 CONSIDERATION PAID FOR A TRANSFER IS ADEQUATE, IS A QUESTION OF FACT TO BE DECIDED ON THE EVIDENCE AND THE CIRCUMSTANCES. THERE WAS NO JUSTIFICATION IN MAKING THE ADDITION OF 25% OF THE GROSS RENTAL INCOME ACCRUING TO ASSESSEES WIFE IN THE HANDS OF ASSESSEE. ADMITTEDLY, THE LAND IN QUESTIO N WAS LEASED OUT TO THE ASSESSEE WIFE SMT. PINDERJIT KAUR AT ANNUAL RENT OF RS. 10/- FOR THE PERIOD OF 33 YEARS I.E. UPTO 20 TH JANUARY 2034. IT APPEARS THAT THIS FACTS HAS NOT B EEN TAKEN INTO ACCOUNT BY THE CIT(A). ADMITTEDLY, THE ASSESSE E DID NOT TRANSFER THE HOUSE PROPERTY. SECTION 64(1) MERELY TREATS THE INCOME FR OM THE ASSET TRANSFERRED FOR INADEQUATE CONSIDERATION AS TAXABLE IN THE HANDS OF THE ASSESSEE AND NOTHING MORE. IN MY OPINION, THE SCOPE OF SECTION 64 IS LIM ITED TO INCOME WHICH IS DIRECTLY OR INDIRECTLY RECEIVED FROM THE TRANSFERRE D ASSET AND DOES NOT INCLUDE RENTAL RECEIVED FROM THE GODOWNS CONSTRUCTED BY SM T. PINDERJIT KAUR. IN THE INSTANT CASE, THE ASSESSEE HAS LEASED THE AGRICULTU RAL LAND. HOWEVER, THE REVENUE HAS ACCEPTED THIS FACT THAT SMT. PINDERJIT KAUR HAD CONSTRUCTED THE GODOWNS AFTER RAISING LOANS FROM BANK AND OTHERS. AS I HAVE ALREADY OBSERVED HEREINABOVE THAT THE ENTIRE INCOME OF GODOWN HAS AL READY BEEN TAXED IN THE HANDS OF SMT. PINDERJIT KAUR AND, THEREFORE, THERE WAS NOT JUSTIFICATION IN AGAIN TAXING 25% OF THE RENTAL INCOME IN THE HANDS OF THE ASSESSEE U/S 64(1)(IV) OF THE ACT. ADDITIONAL, THE ASSESSEE HAS NOT TRANSFERRED THE GODOWNS BUT HAS LEASED OUT THE VACANT AGRICULTURAL LAND IN FAVOUR OF SMT. PIND ERJIT KAUR. UNDER SECTION 64(1) OF THE ACT, WHAT IS MADE TAXABLE IN THE HANDS OF THE TRANSFEROR ASSESSEE IS THE INCOME FROM THE ASSET TRANSFERRED FOR INADEQ UATE CONSIDERATION AND NOTHING MORE. ADMITTEDLY, THE ASSESSEE HAD LEASED THE LAND IN FAVOUR OF SMT. PINDERJIT KAUR, HIS WIFE. THUS, CONSIDERING THE EN TIRE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, I THINK IT APPROPRIATE TO SET ASI DE THE IMPUGNED ORDERS IN TOTO AND REMAND THE ISSUE TO THE CIT(A) WITH A DIRECTION TO DECIDE THE MATTER AFRESH IN ACCORDANCE WITH LAW AFTER AFFORDING DUE AND REAS ONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE CIT(A) IS DIRECTED TO DE CIDE THE APPEAL PREFERABLY WITHIN FOUR MONTHS FROM THE DATE OF RECEIPT OF COPY OF THIS ORDER. 7 7. VIDE COMMON GROUND NO.4 OF THE APPEALS, THE ASSE SSEE HAS CHALLENGED THE ACTION OF THE CIT(A) IN CHARGING OF INTEREST U/S 23 4B OF THE ACT. SINCE I HAVE RESTORED THE MAIN ISSUE TO THE CIT(A) FOR A FRESH D ECISION, THEREFORE, THIS ISSUE ALSO STANDS REMITTED TO THE CIT(A) WITH A DIRECTION TO DECIDE THE SAME AFRESH IN ACCORDANCE WITH LAW. 8. FOR STATISTICAL PURPOSES, ALL THE APPEALS ARE AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 12.01.2016 SD/- (H.L.KARWA) VICE PRESIDENT DATED : 12 TH JANUARY, 2016 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR