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TMI Blog2008 (6) TMI 240X X X X Extracts X X X X X X X X Extracts X X X X ..... s claimed to be provided to the tenants. The said income was declared by it in the return of income filed for the year under consideration under the head "Income from house property" and deduction under section 24(1) was claimed by it against the said income under section 24(1) at Rs. 1,16,35,875. The deduction so claimed was allowed by the Assessing Officer in the assessment completed originally under section 143(3). Similarly, the claim of the assessee for deduction of Rs. 1,71,34,812 on account of annual charge paid was also allowed by the Assessing Officer in the said assessment. Subsequently, the assessment record in the assessee's case came to be examined by the learned CIT and on such examination, he was of the view that the assessee having held the concerned property as lessee and not as owner thereof, the rental income derived therefrom was not chargeable to tax under the head "Income from house property" and consequently, its claim for deduction under section 24(1) was wrongly allowed by the Assessing Officer. He was also of the opinion that the claim of the assessee for deduction on account of annual charge in respect of the said property was also wrongly allowed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unal and since difference of opinion arose between the two Members of the Division Bench of the Tribunal who heard the said appeal, the matter was referred to the Third Member under section 255(4) to resolve the following points:- "(1) Whether on facts and in law could the assessee be treated as the owner of the "Katwaria Sarai" property as is the view expressed by the V.P. or was it the lessee of the property as held by the J.M. (2) Whether on the construction of the agreement between the assessee and Vaitalik could it be held that it was the case of lease of land to the assessee and a part of the structure on the said land was owned by the assessee (entire cost expended by the assessee) as is the view of the V.P. or there was no lease of land and the structure was not owned by the assessee as is the view of the J.M. (3) Whether in the light of construction agreement dated 27-7-1994 and lease deed dated 1-8-1995 could the assessee be said to be owner of property within the meaning of section 22 of the Income-tax Act. (4) Whether on facts and in law was the income from the property in question taxable under the hea61 "Income from house property" as is the view of the V.P. o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act for construction services with Vaitalik (Cultural Association) on 27-7-1994 in its then name M/s. Anant Raj Clay Products Ltd. (ARCPL). As per the said contract, the assessee-company was to carry out and complete construction of 35,773 sft. at its own cost On a plot of land in Katwaria Sarai, New Delhi (plot area 2420 sq. yds.) which had been leased out to Vaitalik by the Delhi Development Authority (DDA) on 17-12-1986. In return, the assessee-company was to get 23,883 sft. of constructed space on lease from Vaitalik for 5 1/2 years, renewable for one term at the option of assessee-company and renewable further on mutual consent of both the parties. In case of Vaitalik terminating or refusing extension of lease to the assessee-company, Vaitalik was to reimburse to the assessee-company the cost incurred for construction. The lease rent for this constructed space which was to be paid by the assessee company to Vaitalik was to be Rs. 9.50 per sft. per month. The contract provided that the assessee-company could use the premises for its own purposes or could let out any part or whole of the same, as an owner thereof. The contract further provided that Vaitalik was to provide normal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e was chargeable to tax under the head "Income from house property". 10. In the first assessment under section 143(3) for assessment years 1996-97 and 1997-98 and under section 143(1) for assessment year 1999-2000, the Assessing Officer accepted the assessee's claim. Thereafter, the Assessing Officer reopened the assessments for assessment years 1996-97 and 1999-2000 on 21-6-2001 under section 148 of the Income-tax Act. In the reasons recorded for reopening the assessments, the Assessing Officer referred to the Madras High Court decision in case of CIT v. Lakshmi CO. [1982J 133 ITR 904 and Calcutta High Court decision in case of Gooptu Estates Ltd. v. CIT [1929] 4 ITC 146 wherein it had been held that income derived by sub-letting of entire or portion of house taken on lease is assessable as "income from other sources". The Assessing Officer, therefore, held that the statutory deduction under section 24(1)(i) for repairs, etc., which is admissible only when the income is chargeable under the head "Income from house property" had wrongly been allowed to the assessee. The assessments for assessment years 1997-98 and 1998-99 were also set aside by the ld. CIT-I, Delhi under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax under the head "Income from other sources" and not "Income from house property". He also held that the assessee-company consequently was not entitled to any deduction under section 24(1)(i) or 24(1)(iv). 12. Aggrieved by the aforesaid assessments completed by the Assessing Officer in the reopened/set aside proceedings for all the four years under consideration bringing to tax the rental income received by it under the head "Income from other sources" and consequently disallowing its claim for deductions under sections 24(1)(i) and 24(1)(iv), the assessee-company preferred appeals before the learned CIT(A). It was contended on behalf of the assessee-company before the learned CIT(A), inter alia, that it was the "deemed owner" of the subject property in terms of section 27(iiib) and the rental income received from the said property by it thus was chargeable to tax under the head "Income from house property". This contention of the assessee was found acceptable by the learned CIT(A) on the basis of following observations recorded by him in paragraph Nos. 4.2 to 4.4 of his appellate order for assessment year 1996-97 which are identical for the remaining three years also:- "4.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or which the lease is granted and for which it can be so extended, is to be taken for counting the period of 12 years. In the instant case, the lease deed dated 2-3-1996 read with the agreement dated 24-7-1996 provided that the lease was initially for 5 years but was to be renewable for further term(s) of 5 years each on expiry of current term of 5 years and any further term of 5 years. Therefore, the lease was for a term of not less than 12 years. Though ultimately the parties mutually agreed in March, 1999 to terminate the lease agreement of 2-3-1996 with effect from 1-4-1999 but that fact is extraneous to the language of Explanation to section 269UA(f)(i). Lastly, the lease is covered by section 27(iiib) and, therefore, the appellant lessee is 'deemed owner' of the leased property (i.e., 23,883 sft. of constructed space) for the purpose of section 22 of the Income-tax Act. Since appellant is 'deemed owner' of the property, the rental income from the same is chargeable under the head 'Income from house property'. Consequently, the appellant is entitled to deduction under section 24(1)(i) for repairs and maintenance. The decisions relied upon by the Assessing Officer i.e., Madras ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed against an order passed by the learned CIT under section 263 also shows that the said aspect of the matter was neither considered nor discussed by them. He contended that the observations recorded by the Third Member on the said aspect taking a view against the assessee thus were out of context and the same at best could be regarded as obiterdictum which cannot have a binding effect. He contended that this issue thus needs to be considered by this Division Bench independently while disposing of the present appeals filed by the department. 16. After considering the rival submissions and perusing the relevant material on record, we find it difficult to agree with the contention of the learned counsel for the assessee. It is observed that the submissions made on behalf of the assessee-company before the learned CIT during the course of proceedings under section 263 for assessment year 1997-98 were summarized by the Hon'ble Vice President (AM) who wrote the leading order in paragraph No. 9 as under:- "9. The main plea of the assessee before the CIT was that it had financed the cost of construction and such cost had been capitalized in its accounts and further the constructed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act, 1987, with effect from 1-4-1988. It says that for the purposes of sections 22 to 26, a person who acquires any rights (excluding any rights by way of a lease from month to month or for a period not exceeding one year) in or with respect to any building or part thereof, by virtue of any such transaction as is referred to in clause (f) of section 269UA, shall be deemed to be the owner of that building or part thereof. Section 269UA(f) is placed under Chapter XX-C of the Act which provides for purchase by Central Government of immovable properties in certain cases of transfer. "Transfer" is defined in the clause as follows:- "(f) 'transfer',- (i) in relation to any immovable property referred to in sub-clause (i) of clause (d), means transfer of such property by way of sale or exchange or lease for a term of not less than twelve years, and includes allowing the possession of such property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1883 (4 of 1882). Explanation.-For the purposes of this sub-clause, a lease which provides for the extension of the term thereof by a further term of terms ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Vaitalik has given a lease of the area of 23,883 sq.ft. to the assessee for a period of not less than 12 years, the assessee shall be deemed to be the owner of the area and consequently, the rental income was assessable under section 22 of the Act as income from house property. Under clause (2) of the contract for construction services dated 27-7-1994, the lease was for a period of five years and six months, renewable for one term at the option of the assessee. Further renewals were to be subject to mutual consent. The lease agreement entered into on 2-3-1996 modified the same to provide that the period of lease was for five years and it shall expire on 31-7-2000. No renewals or extensions were provided for. However, by agreement dated 24-7-1996, it was provided that the lease shall be renewable for further terms of five years each on expiry of the first term of five years and any further terms of five years. But on 31-3-1999, a deed of cancellation was entered into under which the lease was terminated with effect from 1-4-1999. The deed of cancellation has been taken into consideration by the CIT before whom it was filed at his instance. I agree with the CIT that though the cancel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, was duly taken into consideration by the Third Member and after taking into consideration all the facts of the case in the light of the said provisions, the said argument was found to be not acceptable by him by passing a well-discussed order. 20. Keeping in view all the aforesaid aspects of the matter as clearly evident from the order of the Tribunal passed in assessee's own case for assessment year 1997-98, we find it difficult to agree with the contention of the learned counsel for the assessee that the observations recorded by the Third Member on the issue of "deemed ownership" within the meaning of section 27(iiib) constituted only the obiter dictum which has no binding effect. In our opinion, it was a well-considered decision rendered by the Third Member on the issue directly involved before him in the case and the same therefore is binding on this Division Bench. We, therefore, respectfully follow the same and hold that the learned CIT(A) was not justified in holding that the assessee was a "deemed owner" of the property in question under section 27(iiib) and that the rental income derived by it from the said property was chargeable to tax under the head "Income from h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er sources". As this alternative claim has been made on behalf of the assessee for the first time before the Tribunal and an opportunity is required to be given in the interest of justice to the Assessing Officer to consider and examine the allow ability thereof, we direct the Assessing Officer to consider this alternative claim of the assessee and allow the same in accordance with law. 23. Relying on the decision of Hon'ble Supreme Court in the case of Podar Cement (P.) Ltd., the learned counsel for the assessee has also raised a contention that only the owner of the property can earn income therefrom and, therefore, he alone is liable to pay tax on such income. He has contended that if the assessee-company in the present case is held to be not the owner of the property as per the stand taken by the department, income from that property cannot be taxed in its hands and the same has to be taxed in the hands of Vaitalik only who otherwise is the owner thereof. On a careful perusal of the judgment of the Hon'ble Supreme Court delivered in the case of Podar Cement (P.) Ltd., we, however, find it difficult to accept this contention of the learned counsel for the assessee. It is obser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee, the provisions of Rule 27 of Income-tax (Appellate Tribunal) Rules, 1963 which permit the respondent to support the order appealed against on any of the grounds decided against him by the first appellate authority and the fact that the issues sought to be raised by the assessee are purely legal issues which can be decided on the basis of facts already available on record, we are of the view that the assessee as a respondent is entitled to raise the same before the Tribunal in order to support the impugned orders of the learned CIT(A) for assessment years 1996-97 and 1999-2000. In that view of the matter, we entertain the arguments raised by the assessee on the said issues and now proceed to decide the same after hearing the arguments of the learned DR and perusing the relevant material on record. 26. While challenging the reassessment made by the Assessing Officer for assessment year 1996-97, the learned counsel for the assessee has submitted that the assessment completed by the Assessing Officer originally under section 143(3) for the said year was reopened after recording the reasons on 22-6-2001. He has submitted that the assessment completed for assessment year 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecord, we find no merit in the contention of the learned DR that the matter should go back to the learned CIT(A) for deciding the issue relating to the validity of reassessment made by the Assessing Officer. As already observed, the said issue is purely a legal issue and all the material facts required to decide the same are already available on record. The assessee, therefore, is entitled to raise the same at any time during the course of appellate proceedings before the Tribunal and even Rule 27 of the Income-tax (Appellate Tribunal) Rules, 1963 also permits him as a respondent to raise the same in order to support the order of the learned CIT(A) appealed against. As regards the merits of the issue, it is observed that the proviso to section 147 is very clear on the point and the legal position in this regard is well settled by the various decisions of the different High Courts cited by the learned counsel for the assessee. As held by Hon'ble Gujarat High Court in the case of Patidar Oil Cake Industries, the provisions of section 147 mandate that the Assessing Officer shall be vested with the jurisdiction to initiate the reassessment proceedings only in case there is an omission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the rate Rs. 9.50 per sq.ft. per month. 3. After taking the premises on lease from Vaitalik, the lease, M/s. Anantraj Indst. Ltd. sub-let different portions of the leased building to the following parties:- 1. Ikea Trading Company 27-4-1995 2. Whirlpool of India Ltd. 25-9-1995 3. Northern Telecom Ltd. 26-8-1995 4. Lair Quid 19-1-1996 5. U.P. Asia Ltd. 8-1-1996 6. N.t. Express Ltd. 25-9-1993 4. It is further mentioned in DIT (Recovery's) report that there is a close relationship between Vaitalik and the assessee-company. Thus the agreements made are collusive in nature to avoid taxes. This is so because the Vaitalik gave the above premises to the assessee company on rent of Rs. 27,22,663 for the assessment year 1998-99 and against this, received total rent of Rs. 6,11,24,040 from the sub-tenants. Assessee has declared income from sub-letting as income from house property and the same has been assessed accordingly. DIT (Recovery) has relied upon the case of M/s. Gooptu Estate Ltd. v. CIT 1929 4 ITC 146, Calcutta High Court wherein it has been held that income derived by sub-letting of entire or portion of house taken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee is, therefore, upheld although on a different ground. 32. As regards the issue relating to the validity of reassessment completed by the Assessing Officer for assessment year 1999-000 under section 143(3)/147, the contention raised by the learned counsel for the assessee before us is that there were no fresh facts or material that had come to the possession of the Assessing Officer on the basis of which the assessment completed originally could be validly reopened. He has contended that the notice under section 148 issued on 22-6-2001 reopening the assessment for assessment year 1999-2000 thus was issued only to circumvent the non-issuance of notice under section 143(2) which could have been issued only up to 31-12-2000. We, however, find it difficult to accept this contention of the learned counsel for the assessee. It is observed that the assessment for assessment year 1999-2000 was reopened by the Assessing Officer by recording the similar reasons as recorded for assessment year 1996-97 which have already been extracted in paragraph No. 30 of this order. A perusal of the said reasons shows that fresh material in the form of report of the DIT (Recovery) dated 28/2 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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