1973 (11) TMI 8 - HC - Income Tax

Assessee is a Hindu undivided family deriving income from property assessable under section 9 of the Act. We are concerned with the assessment year 1958-59. For that year, the Income-tax Officer had determined the property income at Rs. 12,320. It appears that, thereafter, the Commissioner exercising his powers under section 33B of the Act cancelled the said assessment and directed fresh assessment to be made - When vacant land was let out and lessee constructed building which was passed on to the lessor at the end of the term - whether the value of the building can be treated as deferred rent and thus income of the lessor - whether it can be treated as income from dealing in immovable property

Summary

Issues:
Interpretation of the nature of receipt as capital or revenue, Inclusion of the sum in the total income for the relevant year.

Detailed Analysis:
The case involved a Hindu undivided family deriving income from property assessable under section 9 of the Indian Income-tax Act, 1922, for the assessment year 1958-59. The Income-tax Officer initially determined the property income at Rs. 12,320. However, the Commissioner exercised powers under section 33B of the Act, canceled the assessment, and directed a fresh assessment. The fresh assessment included an additional sum of Rs. 62,740 as "income received (in kind)" by the assessee due to possession of six shops leased out by the family. This addition was challenged before the Appellate Assistant Commissioner, who reduced the amount to Rs. 30,000, but rejected the argument that the receipt was of a capital nature.

The assessee appealed to the Income-tax Appellate Tribunal, raising two contentions: whether the receipt was a capital or revenue receipt, and if revenue, whether it should be included in the relevant year's total income. The Tribunal ruled against the assessee on both counts. The High Court was then tasked with considering two questions: whether the Rs. 30,000 should be taxed as rent in kind for the lease period and if so, whether it should be included in the total income for the year ending on March 31, 1958.

The court referred to a previous decision involving a similar scenario where it was held that an amount received due to a structure ceasing to be of the lessee's ownership and becoming the lessor's ownership was exempt from inclusion in total income as a capital receipt. Applying this precedent to the current case, the court found that the original amount paid by the lessee did not represent deferred rent, and there was no evidence to suggest the assessee's business involved dealing with immovable property. Therefore, the court concluded that the sum of Rs. 30,000 should not be treated as a revenue receipt and should not be included in the assessee's total income for the relevant year.

The judgment was unanimous, with both judges concurring. The first question was answered in the negative and in favor of the assessee, rendering the second question moot. The court directed the Commissioner to pay the costs of the reference to the assessee.