2011 (2) TMI 65 - HC - Income Tax

Section 260A Question of law - An appeal preferred by the assessee against the said order of assessment was dismissed by CIT (Appeals) holding that the assessment of income under the head House property made on the basis of notional income at the rate of the rent payable under the lease was justified in law - After the expiry of the lease, the property fetched no actual income, the assessing authority assessed Rs. 96,000 per annum as income from the said premises under the head House property and compelled the assessee to pay tax thereon and it was specifically held that the notional income at the rate of rent payable under the expired lease is the appropriate income from the said premises - when for long 10 years no amount was received from the said property in occupation of the same occupant, the lessor was taxed on the basis of notional income; it would be illegal to tax the income from the selfsame property under a different head - In the facts and circumstances, there will be, however, no order as to costs

Issues Involved:
1. Jurisdiction of the Tribunal in enhancing the scope of the appeal.
2. Nature of the amount received for occupation of premises after lease expiry.
3. Taxability of the compensation received as arrears of rent.
4. Ownership and taxability of the compensation amount.
5. Classification of compensation for repairs and damages.
6. Tribunal's jurisdiction in directing the assessment of the entire compensation amount.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Tribunal in Enhancing the Scope of the Appeal:
The Tribunal exceeded its jurisdiction by directing the Assessing Officer to consider the entire amount of Rs. 100 lakhs payable on account of repair or damages during the next five years when the dispute was confined to the quarterly installments of Rs. 16 lakhs. The Tribunal acted without jurisdiction as the revenue did not raise this point in the memorandum of appeal or by amending it. The Tribunal's jurisdiction is restricted to the subject matter of the appeal, as indicated by the word "thereon" in section 254(1) of the Income-tax Act. Therefore, the Tribunal's decision to reassess Rs. 100 lakhs was set aside.

2. Nature of the Amount Received for Occupation of Premises After Lease Expiry:
The Tribunal erred in assessing the amount received for occupation of the premises after the lease expiry as capital gains. The amount received was compensation for the tenancy right during the post-lease period, not for the transfer of any tenancy right. The assessee was not a tenant, so no question of gaining anything by transferring the right of its tenancy arises.

3. Taxability of the Compensation Received as Arrears of Rent:
The amount of Rs. 99,95,929 received as compensation for the period after the lease expiry was not arrears of rent but compensation for occupation. The Tribunal incorrectly assessed this amount under the head 'Capital gain' instead of 'House property.' The consistent view is that an income arising from a particular head cannot be assessed under a different head merely because it is received at a different time.

4. Ownership and Taxability of the Compensation Amount:
The amount of Rs. 99,95,929 was related to the period during which DT was the owner of the premises. The appellant, Jasmine Commercials Ltd., could not be taxed for this amount as it related to the period before the amalgamation. Therefore, the Tribunal's decision to assess this amount in the hands of the appellant was incorrect.

5. Classification of Compensation for Repairs and Damages:
The sum of Rs. 16 lakhs received for repairs and damages was a capital receipt and not taxable under the Income-tax Act. The Tribunal's decision to assess this amount as capital gains was incorrect. The compensation for damages to the property, a capital asset, should be treated as a capital receipt.

6. Tribunal's Jurisdiction in Directing the Assessment of the Entire Compensation Amount:
The Tribunal exceeded its jurisdiction by directing the assessment of the entire amount of Rs. 100 lakhs for repair or damages during the next five years in the assessment year in question. The Tribunal's scope was limited to the quarterly installments of Rs. 16 lakhs, and it acted without jurisdiction in expanding the scope of the appeal.

Conclusion:
The appeal was allowed, and the order of the Tribunal was set aside. The questions formulated by the Division Bench were answered as follows:
(a) Yes.
(b) No.
(c) No.
(d) Yes.
(e) No.
(f) Yes.
The Tribunal's decision to reassess Rs. 100 lakhs was set aside, and the order of the CIT (Appeals) was affirmed.

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