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TMI Blog1988 (4) TMI 109X X X X Extracts X X X X X X X X Extracts X X X X ..... n no services were rendered by the recipient?" In so far as ground No. 2 is concerned, it deals with merits and merits can be gone into only when the assessment was validly re-opened. Therefore, question No. 1 becomes relevant for decision in this matter. 3. The assessee is a limited company. For the assessment year under appeal the original assessment under s. 143(3) of the IT Act was completed on 30th March., 1978 and subsequently the assessment was re-opened under s. 147(b) and the re-assessment was completed on27th June, 1980. At the time of the original assessment, the assessee claimed and obtained a direction on account of commission of Rs. 1,63,908 paid to M/s Orient Investment Pvt. Ltd. in computing the income of the assessee under the head 'from house property' as and by way of collection charges. It was claimed by the Revenue that subsequent to the completion of the assessment certain information was received, which revealed that M/s Orient Investment Pvt. Ltd. did not render any service to the assessee in the matter of collection of rent and the allowance of Rs. 1,63,908 as and by way of collection charges resulting in escapement of income to tax. For that reason the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot render any service to the assessee-company in the matter of collection of rent and, therefore, the allowance made had resulted in under-assessment. He justified the re-opening of assessment under s. 147(a) as valid and proper. On this view the assessment was re-opened and the fresh assessment was made by adding back the sum of Rs. 1,63,908. 4. Against the said issue of the validity and re-opening of the assessment, appeal was filed before the CIT(A). He examined the record and after noticing the chronological events in this case, which he registered in his order, he came to the conclusion that all the primary facts necessary for making a proper assessment were furnished by the assessee to the Assessing Officer at the time of making the assessment and the ITO having failed in his attempt to bring to tax this sum under s. 147(b) should not have resorted to taking action under s. 147(a) when the factual position remained the same. Holding that the action taken by the IT Department under s. 147(a) for the factual context was misconceived, he annulled the assessment. It was against this order of the CIT, that the present appeal was filed before the Tribunal. 5. The learned Departme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 974-75 the information that was in possession of the assessee and that was relevant for making a proper assessment was furnished, the ITO being not satisfied with the information furnished, made further probe into the matter, wrote letters to the assessee, got replies thereto and then only completed the assessment. In fact the claim made by the assessee before the ITO was for the deduction of a sum of Rs. 1,68, 343, which included a sum of Rs. 4,375 only by way of brokerage. The claim originally made was for the deduction from the business income, but later on the claim of the deduction for brokerage was given up and the balance amount was claimed as a deduction under the head "Income from House Property" and it was this claim that was thoroughly examined by the ITO and allowed, not only for this assessment year but also for the earlier year. In these set of facts, it is unjust and unfair to say that the assessee did not furnish the required information and Department obtained information subsequent to the making of the assessment. Since no new information had come to the possession of the ITO and in any case, the point of time, at which it came into the possession of the ITO, was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment for the asst. yr. 1974-75 by disallowing a deduction of Rs. 95,811 under s. 24(1)(viii) was made on24th Sept., 1977. The assessment for the year 1975-76 by the IAC (Assessment) allowing deduction of Rs.1,63,968, which was a similar claim made for the assessee 1974-75 was completed on30th March, 1978. Before completing the assessment for the asst. yr. 1975-76 a letter was written by the IAC Range II calling for details of the commission paid to M/s. Orient Investment Company (during the asst. yr. 1975-76) and on 30th Jan., 1978 the assessee gave a detailed reply. By letter dated 17th Jan., 1978 the information asked for by the IAC Range II, was as under: "Under the head rental income the company has claimed to have paid a sum of Rs. 1,68,343 towards commission and brokerage. The said property was rented in the previous years. The question of commission and Brokerage does not arise in this year. However necessary details regarding to whom the amount has been paid, should be furnished." This shows that the IAC had initially made up his mind tentatively to disallow the commission on the ground that it did not arise in this year of assessment but, yet called for the details. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dering the arguments addressed, both by the Revenue and assessee before him, the learned CIT allowed the assessee's claim with the following observations: "2.6. I have carefully considered the contentions in the light of the facts and circumstances of the case. It is well settled that the real nature of an item of expenditure is to be determined by the predominant object with which the expenditure was incurred by the assessee. From the detailed chronology and sequence of facts and the situation/circumstances surrounding the commission payment, discussed earlier I have no doubt that the real object with which the assessee paid the commissions to Orient Investment was to: (i) Secure tenancies at over Rs. 3.25 per sq. ft. (net) against Rs. 3 per sq. ft. if secured directly. (ii) Obtain the maximum amount of advance rent generally adjustable later over a period, and (iii) Ensure regular, prompt collection/realisation of the rent. It is exactly these type of services that Orient Investment did for the assessee. Such expenditure is certainly "sums spent to collect the rent from the property" within the meaning of. s. 24(1)(viii). The variety and room that collection charges may assu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epartment, was letters written by the tenants stating that they paid the rent directly to the assessee company. This information was already before the ITO at the time of making the assessment not only for the asst. yr. 1974-75 but also for the asst. yr. 1975-76 both while making the original assessment and also while initiating and completing proceedings under s. 147(b). The assessee never said that M/s Orient Investment Company was collecting rents from the tenants and passing it on to the assessee. It always said and maintained that it was only ensuring the collection of rents realisation of rents and for which the collection charges were being paid. While we need not go into the merits at this stage, we do not think it is the requirement of law that in order to qualify for the deduction of the collection charges the agent must actually collect the rent and pass on to the owner. We think, it will be sufficient compliance with the requirement of law, if the agent acted in such a way as to prompt the tenants to make the payment in time to the owner. That would be as much a service charge for collection of rent as actual collection of rents and in case where the amounts are huge an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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