2024 (11) TMI 1270 - HC - Income Tax

Correct head of income - receipts of rent collected by the appellant in relation to leased property - business income OR Income from House Property OR Capital gain - HELD THAT - In these appeals we are concerned with an assessee who has been consistently seen as deriving income from letting out house property owned by it. It is on that basis that it has been assessed in all the assessment years prior to, and subsequent to, the assessment years under consideration in these appeals. Merely for the reason that in the said assessment years, the assessee effected a sale of some of its properties, it cannot be seen as having embarked upon a business of buying and selling properties in those years, even if it was authorized to do such business as per its Memorandum of Association. The sale of properties by the assessee in the two years under consideration in these appeals must be seen as merely incidental to the activity of letting out of properties for rent carried out by it in the years prior and subsequent to the said two years. The said sale transactions cannot have the effect of changing the very nature of the income earning activity consistently carried on by the assessee, and accepted by the Department. Thus, we are of the view that the income derived by the assessee, from the sale of properties owned by it, during the two years under consideration in these appeals, can only be assessed under the head of 'capital gains' and not as 'business income'. Period of limitation - jurisdiction of Appellate Tribunal to consider the rectification application belatedly - Appellate Tribunal being a creature of the Statute cannot extend its jurisdiction beyond what is expressly conferred on it under the Statute. we find considerable force in the contention of the learned counsel for the appellant that the Appellate Tribunal did not have the jurisdiction to consider the rectification application belatedly preferred by the Revenue, based on the liberty granted to it by the Tribunal while dismissing the Revenue's appeals in the earlier round of litigation. The time permitted for filing an application under Section 254 (2), for rectifying a mistake in an order passed by the Appellate Tribunal under Section 254 (1) is six months from the end of the month in which the order under Section 254 (1) was passed. In the instant cases, the applications under Section 254 (2) were preferred by the Revenue beyond the said period and it was these applications that the Appellate Tribunal allowed while restoring the appeals to file and passing final orders thereon against the appellant assessee. It is also debatable whether, while restoring the appeals before it and deciding them against the assessee, after having dismissed the appeals earlier citing low tax effect, the Appellate Tribunal was merely exercising its power of rectification of mistakes or whether it was in effect exercising a power of review that it did not have under the Statute. In either event, the exercise by the Appellate Tribunal was without jurisdiction and hence void ab initio . Decided against revenue.

Summary

Issues:
Classification of income under Income Tax Act - Rental receipts and sale of property
Validity of Appellate Tribunal's jurisdiction to consider rectification application beyond limitation period

Analysis:
The judgment pertains to Income Tax Appeals challenging the classification of income under the Income Tax Act for rental receipts and sale of property by an appellant company. The appellant had consistently declared the receipts as Income from House Property, but the Department assessed them as Business Income for the assessment years 2012-13 and 2015-16. The Commissioner of Income Tax (Appeals) directed the rental income to be treated as Income from House Property and sale income as capital gains. The Income Tax Appellate Tribunal initially dismissed the appeals based on low tax effect but later allowed a rectification application by the Revenue, leading to a fresh hearing and a decision in favor of the Revenue.

The appellant raised substantial questions of law, including the jurisdictional issue of the Tribunal considering the application beyond the statutory limitation period. The appellant contended that the Tribunal's order was void due to lack of jurisdiction. The High Court analyzed the facts and legal provisions, emphasizing the importance of consistency in tax assessments. It noted that the appellant's income had always been assessed as Income from House Property, and the sale of properties should not change the nature of the income earning activity. The Court held that the income from the sale of properties should be categorized as capital gains and not as business income.

Regarding the limitation aspect, the Court agreed with the appellant's argument that the Tribunal exceeded its jurisdiction by considering the rectification application filed beyond the prescribed period. Citing legal precedents, the Court established that the Tribunal could not extend its jurisdiction beyond what the statute allowed. The Court concluded that the Tribunal's decision to entertain the rectification applications and pass final orders against the appellant was without jurisdiction and void ab initio.

In the final decision, the High Court allowed the appeals, setting aside the Tribunal's orders and answering the questions of law in favor of the appellant and against the Revenue. The judgment highlighted the importance of adhering to statutory limitations and maintaining consistency in tax assessments to ensure fair treatment for taxpayers.