2017 (8) TMI 859 - SC - Income Tax

Claim for deduction of lease rent - allowable in assessment year wherein the dispute relating to lease rent has attained finality OR wherein the lease rent was fixed by the Government - Held that - We are of the view that having regard to the nature of issue involved which is a mixed question of law and fact, it would be just and proper to remand the case to the Tribunal for deciding the issue afresh on merits. The need to remand the case to the Tribunal, has occasioned because firstly, the question as to whether the fixation of rent and its payment is statutory or contractual and, if so, its effect while claiming deduction under the Income Tax Act and, if so, in which year of assessment is a mixed question of law and fact. Secondly, it was neither decided by any of the authorities below and nor by the Tribunal and the High Court. It may be that since the Revenue itself did not raise it before the authorities below and raised it for the first time before this Court by simply placing reliance on the provisions of the Act and the two Rules mentioned above, this Court cannot decide the same in this appeal, for the first time for want of factual material and legal issues attached to it. In order to decide the issue of deduction, the nature of fixation of rent, its payment, recovery etc. and whether it is statutory or contractual, has some bearing over the question. It is also clear that the respondent did not get any chance to meet this submission before the courts/authorities below. It is for these reasons, we are of the view that the matter needs to be remanded to the Tribunal for its proper adjudication.

Summary

Issues involved:
Appeal against disallowance of deduction of lease rent in Income Tax Return for specific assessment year based on dispute resolution timing.

Detailed Analysis:

Issue 1: Disallowance of deduction of lease rent
The respondent claimed a deduction of accumulated lease rent in their Income Tax Return for the Assessment Year 1992-93. However, the Assessing Officer disallowed the deduction, stating that it should have been claimed in the Assessment Year 1989-90 when the lease rent was fixed by the State Government. The Commissioner of Income Tax (Appeals) and the assessing authority upheld the disallowance, citing that the liability to claim the deduction had accrued in 1989-90 itself. The Tribunal, on the other hand, allowed the deduction, considering that the liability was in dispute before the State Government until it was resolved in 1991. The High Court affirmed the Tribunal's decision, leading to the appeal by the Revenue.

Issue 2: Nature of liability and timing of deduction
The appellant argued that the liability to determine, fix, pay, and recover the lease rent was statutory in nature under the Kerala Land Assignment Act, and thus, the deduction should have been claimed in the same Assessment Year when the liability accrued. The respondent contended that the fixation of rent could be contractual and not solely statutory, raising a mixed question of fact and law. The Supreme Court found this issue crucial and decided to remand the case to the Tribunal for a fresh adjudication.

Issue 3: Remand to the Tribunal
The Supreme Court remanded the case to the Tribunal as the nature of the fixation of rent, whether it is statutory or contractual, and its impact on claiming deductions under the Income Tax Act needed further examination. Since this aspect was not addressed by any lower authority or the High Court, the Tribunal was deemed better placed to decide after considering all relevant documents. The Court refrained from expressing any opinion on the merits, leaving it to the Tribunal to decide after parties submit relevant documents.

In conclusion, the Supreme Court allowed the appeal, set aside the previous orders, and remanded the case to the Tribunal for a fresh decision on the deduction of lease rent in accordance with the law. The parties were granted an opportunity to present relevant documents, and the Tribunal was directed to decide the appeal within six months from the date of parties' appearance.