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2013 (10) TMI 380 - HC - Income TaxClassification of head of Income - Whether the income received by the assessee by way of sub-lease of the Anna Salai property, collection of maintenance charges, A.C., hire charges etc., would be income from business or income from house property Held that - Reliance has been placed upon the judgment in the case of CIT vs. Ideal Garden Complex 2011 (9) TMI 731 - MADRAS HIGH COURT - Assessee company has stopped its business activities long back and is not carrying out any other business activity and the assessee has parted with the commercial assets and confined solely to receive some income by virtue of ownership thereof by lease or otherwise and the act of leasing was the out come of the assessee s decision to get out of the business - Income receipt from letting out of the property was rightly assessed by the Assessing Officer as income from house property Decided in favor of Assessee. Re-opening of assessment u/s 147 of the Income Tax Act Reason to believe for the re-opening Held that - In the present case, based on the materials, which include the accounts, the Assessing Officer evidently has not scrutinised earlier, rightly the Assessing Officer invoked the jurisdiction under Section 147 of the I.T. Act. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words reason to believe but also inserted the word opinion in section 147 of the Act. However, on receipt of representations from the companies against omission of the words reason to believe , Parliament reintroduced the said expression and deleted the word opinion on the ground that it would vest arbitrary powers in the Assessing Officer - Thus, in a case where there is no regular assessment and consequently no inquiry is held, proceedings in this case are initiated rightly so by the Assessing Officer under Section 147(a) of the I.T. Act Decided in favor of Revenue.
Issues Involved:
1. Assessment of income from sub-leasing, maintenance charges, and air conditioning hire charges as "Income from House Property" vs. "Income from Business." 2. Reopening of assessment under Section 147 of the Income Tax Act. 3. Validity of reassessment under Section 147 based on the absence of new materials and alleged change of opinion. Issue-wise Detailed Analysis: 1. Assessment of Income from Sub-leasing, Maintenance Charges, and Air Conditioning Hire Charges: The primary issue was whether the income received by the appellant from sub-leasing properties, maintenance charges, and air conditioning hire charges should be assessed as "Income from House Property" under Section 22 or as "Income from Business" under Section 28 of the Income Tax Act. The Tribunal, relying on the decision in CIT vs. Chennai Properties and Investments Ltd., assessed the income under "Income from House Property." The assessee argued that the income should be considered "business income" because the company was involved in real estate development, and the sub-leasing was part of its commercial exploitation strategy. For the Anna Salai property, the CIT (A) and Tribunal held that the assessee, having taken the property on lease for 33 years with renewable options, was deemed to be the owner under Section 27(iiib) of the IT Act. Thus, the rental income was categorized as "Income from House Property." For the Kottivakkam property, the CIT (A) concluded that the lease was essentially for the factory building, and thus the rental income was "Income from House Property." However, the court noted the absence of documents proving the lease included machinery and equipment, remanding this aspect back to the Assessing Officer for verification. 2. Reopening of Assessment under Section 147: The second issue involved the validity of reopening the assessment under Section 147 of the IT Act. The assessee contended that the reassessment was based on a mere change of opinion without any new material, which is not permissible. The court explained that Section 147 allows the Assessing Officer to reassess income if there is a reason to believe that income has escaped assessment. The court emphasized that the belief must be based on reasonable grounds and not mere suspicion. The court also noted that the term "reason to believe" implies an honest and reasonable belief based on relevant material. The court referred to the Supreme Court's decision in CIT vs. Kelvinator of India Ltd., which held that reassessment must be based on tangible material and not on a mere change of opinion. The court found that the reopening of the assessment in this case was justified as it was based on the Assessing Officer's observation that the income should be assessed under "Income from House Property" rather than "Business Income." 3. Validity of Reassessment Based on Absence of New Materials and Alleged Change of Opinion: The court addressed the argument that the reassessment was invalid due to the absence of new materials and was merely a change of opinion. The court clarified that the intimation under Section 143(1) is not an assessment order and does not preclude the Assessing Officer from initiating reassessment proceedings under Section 147 if there is a reason to believe that income has escaped assessment. The court distinguished the present case from the Delhi High Court's decision in Commissioner of Income Tax vs. Orient Craft Ltd., where the reassessment was deemed arbitrary due to the lack of tangible material. In the present case, the court found that the Assessing Officer had sufficient material to form a reasonable belief that income had escaped assessment, justifying the reassessment proceedings. Conclusion: The court affirmed the assessment of income from the Anna Salai property as "Income from House Property." For the Kottivakkam property, the court remanded the matter to the Assessing Officer to verify whether the lease included machinery and equipment. The court upheld the validity of the reassessment proceedings under Section 147, rejecting the argument that it was based on a mere change of opinion. The court found that the Assessing Officer had reasonable grounds to believe that income had escaped assessment, justifying the reassessment. Outcome: - The appeals in T.C.(A).No.231 of 2007 and T.C.(A).Nos.91, 99 & 212 of 2012 were partly allowed, with the matter remanded for the Kottivakkam property. - The appeal in T.C.(A).No.230 of 2007 was dismissed, with the court affirming the reassessment under Section 147.
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