2010 (5) TMI 487 - HC - Income Tax

Business income or Income from House Property Right from the assessment years 1986-87 to 1992-93 the Department accepted the claim of the assessee to the effect that the rental income was taxable under the head Profits and gains of business or profession - The order for other years was passed under section 143(1)(a) of the Act treating the income from house property. In the assessment years 1993-94 and 1994-95 the Assessing Officer taxed the income under the head Income from house property without looking into the past assessments right from 1986-87. - Held that - As a general rule each year s assessment is final only for that year and does not govern later years because it determines the tax for a particular period. It is therefore open to the Revenue/taxing authority to consider the position of the assessee every year for the purpose of determining and computing the liability to pay tax or octroi on that basis in subsequent years. A decision taken by the authorities in the previous year would not estop or operate as res judicata for subsequent year. the Revenue cannot act mechanically without applying its mind to earlier facts and circumstances under which a view was taken by the taxman and the facts and circumstances of the assessment year in question calling to depart from earlier view. Where there is a fundamental aspect permeating through different assessment years allowed by the authorities to sustain it would not be appropriate to change the view in a subsequent year except on justifiable grounds like change of circumstances or non-consideration of relevant material or statutory provisions or failure on the part of the assessing or appellate authority to exercise jurisdiction for extraneous reason or small amount of revenue involved or other justifiable ground depending on the facts of each case. The assessee constructed the Goel Complex exclusively as part of its commercial activity to earn income by letting it on rent. Accordingly the income so drawn shall be business income.

Issues Involved:
1. Classification of rental income as "Profits and gains of business or profession" vs. "Income from house property."
2. Deletion of disallowance of Rs. 1,20,000 on interest-free advances to a sister concern.
3. Deletion of trading addition of Rs. 64,573.
4. Depreciation on a vehicle used for business purposes.

Issue-Wise Detailed Analysis:

1. Classification of Rental Income:
The primary issue was whether the rental income derived from the property should be classified under "Profits and gains of business or profession" or "Income from house property." The Tribunal and the Commissioner of Income-tax (Appeals) consistently treated the income as "business income" based on the commercial nature of the property and its use. The Tribunal emphasized the need for consistency in decision-making and noted that the Revenue did not provide any new facts to justify a departure from the earlier stand. The High Court affirmed this view, stating that the property was constructed for commercial purposes, as evidenced by the lease agreement and the continuous treatment of the income as business income over several years. The Court also highlighted that the principle of res judicata does not apply to tax matters, but consistency should be maintained unless substantial material justifies a change.

2. Deletion of Disallowance of Rs. 1,20,000:
The Tribunal upheld the deletion of the disallowance of Rs. 1,20,000 on interest-free advances given to a sister concern, M/s. Goel Construction Company. The Commissioner of Income-tax (Appeals) found that the advance was warranted by business considerations and was part of an agreement dating back more than ten years. The Tribunal agreed, noting that no fresh advances had been made, and the advance was justified by business needs.

3. Deletion of Trading Addition of Rs. 64,573:
The Tribunal upheld the deletion of the trading addition of Rs. 64,573 made by the Assessing Officer. The Commissioner of Income-tax (Appeals) had deleted the addition, and the Tribunal found no reason to overturn this decision.

4. Depreciation on Vehicle:
The Tribunal upheld the depreciation on a vehicle, specifically a truck, used for business purposes. The Commissioner of Income-tax (Appeals) had rightly deleted the allowance made by the Assessing Officer, as the vehicle in question was a truck and could not be used for personal purposes.

Conclusion:
The High Court affirmed the Tribunal's judgment, holding that the rental income from the Goel Complex should be assessed under "Profits and gains of business or profession." The appeals were dismissed, maintaining the classification of the rental income as business income and upholding the Tribunal's decisions on the other issues.

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