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TMI Blog1988 (9) TMI 99X X X X Extracts X X X X X X X X Extracts X X X X ..... sustained the order of the Income-tax Officer. 3. Sri M.J. Swamy, learned counsel for the assessee, submitted that the present owners are only co-owners of the mill, or tenants-in-common of the property, which cannot be divided by metes and bounds as it consisted of building and machinery. Therefore, instead of keeping the asset idle, the co-owners executed joint lease deeds, one in relation to the building and another in relation to the plant and machinery. This device of executing single lease deed by several owners cannot by any stretch of imagination be construed as coming together with a common design to produce income. The single lease deed was in the place of several lease deeds by all the co-owners for the sake of convenience. Similarly, as the plant and machinery housed in the mill cannot be divided physically among the several co-owners without injury or jeopardy to the asset, the co-owners executed another lease deed for the sake of convenience and no adverse inference can be drawn against them that they have come together with a design to produce income. In fact, a scrutiny of the lease deed would amply demonstrate that the intention of each of the co-owners of the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses : (1) Ch. Achayya v. ITO [1979] 116 ITR 675 (AP) ; (2) CIT v. Hyderabad Deccan Liquor Syndicate [1974] 95 ITR 130 (AP) ; (3) CIT v. Khalid Mehdi [1987] 165 ITR 685 (AP) ; (4) Lakshmichand Hirjibhai v. CIT [1981] 128 ITR 747 (Guj.) ; and (5) CIT v. V.H. Sheth [1984] 148 ITR 169 (Bom.). 5. Sri Swamy further submitted that though the doctrine of res judicata is not applicable to income-tax proceedings, the rule of consistency is certainly applicable and the department having assessed the individual shares of the co-owners in their respective hands for more than 2 decades and also for the subsequent assessment year 1985-86, consistency demands that the department should not shift its stand on the same set of facts and treat the assessee as an association of persons. Sri P. Radhakrishna Murty, learned departmental representative, submitted that the mill was originally a partnership property but the firm was dissolved several years ago and thus the assets are commercial assets. Since then the mill premises together with the plant and machinery are being leased out from year to year. Thus, there is a common intention to come together with the obvious purpose of producing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut of the mill along with the plant and machinery by means of two separate lease deeds---one for the building and the other for the plant and machinery---jointly executed by the owners, would result in the status of association of persons. 8. We have carefully perused the lease deed in relation to the building (pages 1 to 7 of the paper book filed by the assessee). After the recitable, the lease deed unequivocally declares as follows : "The following are the shares each owner of Sri Suryanarayana Rice Mill constructed on a permanent basis in old 14th ward and new 13th ward of Palakol Municipality and mill machinery more clearly shown in the schedule below : 1. Sri Immidi Suranna 0-2-0 share i.e., 1/8th part 2. Sri Immidi Suranna 0-2-0 share i.e., 1/8th part 3. Cherukuri Narasimharaju 0-2-1 share i.e., 25/192 part 4. Cherukuri Appalanarasaiah 0-1-6 share i.e., 3/32 part 5. Penmastsa Bapiraju 0-1-6 share i.e., 1/16 part 6. Siddireddi Lakshminagaveni 0-1-0 share i.e., 1/16 part 7. Penmatsa Jagannadharaju 0-1-0 share i.e., 1/16 part 8. Bhupathiraju Gopala Krishnamraju 0-1-0 share i.e., 1/16 part 9. Akena Brahmaiah 0-0-6 share i.e., 1/32 part 10. Penmetsa Subbara ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deed in relation to the plant and machinery details the individual share of interest in the property of each of the 16 owners and also stipulates that "all the above 16 owners have decided to receive the rent basing on the shares of each party". Clause 2 of the lease deed specifies that the lessee shall "pay the rent to the 1st party (i.e., the owners) the rent specified above at Rs. 47,500 (Rupees forty seven thousand and five hundred) every 3 months before the expiry of 3 months to all the members of the 1st party as per their shares and obtain from them proper receipts". This is also supported by the account copies of the lessee wherein the rent for the plant and machinery has been paid individually to the owners. During the period of lease, taxes and licences have to be borne only by the lessee. 10. From a perusal of the terms and conditions of the lease deeds relating to the building and the plant and machinery, we are inclined to hold that what was intended was separate enjoyment of the property by securing the payment of rent individually directly from the lessee. When there is separate enjoyment, the concept of association comes to an end. In this view of the matter, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tention to act separately in the exercise of their ownership of the mill." In this view of the matter, their Lordships allowed the claim of the assessee. In the case before us, the only difference in fact is that there was no partition but there was dissolution of the firm several years ago. In our view, this is not a very vital difference so as to render the ratio of the decision of the jurisdictional High Court inapplicable to the facts of the case before us. 12. All along the income has been assessed only in individual hands of the owners for the past several years. As similar set of facts continued to exist for this year also, though the doctrine of res judicata is not applicable to income-tax proceedings, the rule of consistency does apply, as has been held by the Madhya Pradesh High Court in CIT v. Godavari Corpn. Ltd. [1985] 156 ITR 835 at 850. Incidentally it may be mentioned here that for the subsequent assessment year also the share of rental income has been assessed in the individual hands of the co-owners (page 19 of the paper book). It is also pertinent to note that the property in question is incapable of being divided by metes and bounds without injury or jeopard ..... X X X X Extracts X X X X X X X X Extracts X X X X
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