9911796707
TMI Blog2006 (12) TMI 255X X X X Extracts X X X X X X X X Extracts X X X X ..... pos this issue are that in the relevant assessment year the assessee earned income from the trading of agricultural water pumps, diesel oil engine and allied material. He had also income from house property and other sources. The total rental income of the building was Rs. 9,91,420. The assessee claimed statutory deductions and also interest on borrowed capital amount of Rs. 3,40,937 and declared the income from house property at 24, G.B. Marg, Lucknow at Rs. 3,46,182. The assessee had shown only 1/4th of this total income being Rs. 86,545 as his share and the rest amount had been distributed among other three co-owners Smt. Prem Lata Agarwal (wife), Shri Ashok Kumar Agarwal (son) and Smt. Aditi Agarwal (Daughter-in-law). The Assessing Officer required the assessee to show cause as to why total rent receipt of the property should not be taxed in his hand and also the interest payment of Rs. 3,40,937 should not be disallowed while computing the income from house property. The Assessing Officer has reproduced the notice issued to the assessee. In the notice, the Assessing Officer pointed out the reasons why he was inclined to treat the entire rental receipt in the hands of assessee a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar Cement (P.) Ltd. [1997] 226 ITR 625 , to contend that in the Income-tax Act the owner is a person who is entitled to receive income from property and the requirement of registration of the sale deed in the context of section 22 is not warranted. The Assessing Officer, however, did not accept the assessee's contention for the following reasons : (i )Income from house property can be assessed only in the hands of the owner of the house property. Shri Sri Prakash Agarwal as he is the only person entitled to receive income from house property in his own right. (ii)Purchase deed of the land, municipal taxes assessment of the building, lease agreement with Oriental Bank of Commerce; TDS certificate issued by the bank and the credit of entire TDS taken by the assessee himself constitute clear evidences that the assessee is the only owner of the land and superstructure both (copy of purchase deed and agreement with Oriental Bank of Commerce are made part of this order as Annexures A-3 & A-4). (iii)Loan of Rs. 12,00,000 was sanctioned in the name of the assessee only by the bank for construction of house property (copy of letter from Oriental Bank of Commerce confirming loan in your i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elying on the decision of the Hon'ble Supreme Court in the case of McDowell & Co. Ltd. v. CTO [1985] 154 ITR 148 , held that it was a colourable device and the claim of co-ownership of property and distribution of rental income was not, in any way, legitimate. He, accordingly, held that the entire income from house property at 24, G.B. Marg, should be assessed in the hands of assessee as other co-owners cannot be treated as owner of the property within the meaning of section 22 of the Act. In regard to disallowance in respect of interest on borrowed capital, he observed that assessee himself re-worked out the interest claim of Rs. 57,982 instead of Rs. 3,40,937 which he allowed. The ld. CIT(A) confirmed the order of the Assessing Officer for the following reasons : (i)The assessee had been shown the sole owner of the property (including land and structure) in lease agreement dated 2-11-1999 with tenant bank. The lessee bank was paying rent to the assessee and credit for entire TDS was taken by the assessee in his return. There was nothing about co-ownership and distribution of rent in the lease deed with lessee bank. (ii)The property was assessed to tax by Municipal Corporation f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessment year 1988-89, there was no rental income from this property and only investment was accepted as genuine. In assessment year 1995-96, there was no discussion about joint ownership of the building. Hence, it was clear that there was no clear cut finding on the co-ownership of superstructure which could be cited a precise ground of res judicata. The ld. CIT(A) also placed reliance on the decision of the Hon'ble Allahabad High Court in the case of Asstt. CIT v. Bal Bharti Nursery School [2002] 82 ITD 71, wherein it was held that a Bench or the Court can deviate from its own previous order/decision or the decision of other Bench though of course within the parameter of the concept relating to "Judicial propriety" and "binding nature" if a strong distinguishable case has been made out. The ld. CIT(A) also confirmed the findings of the Assessing Officer in view of the provisions of sections 60, 61, 64(1)(iv), 64(1)(vi ) and section 27 of the Act. 8. The ld. Counsel referred to page 6 of the Paper Book wherein the submissions made before the ld. CIT(A) are contained and pointed out that the loan was sanctioned in the name of Shri Shree Prakash Agarwal only for the reason that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... knowledgement for assessment year 1995-96 is contained and also referred to pages 68 & 69 of the Paper Book wherein the computation chart is contained for assessment year 1995-96 in which assessee had specifically returned 1/4th share in co-ownership property at 24, G.B. Marg, Lucknow. The ld. Counsel referred to assessment order for assessment year 1995-96 as contained at pages 24 to 26 of the Paper Book and pointed out that income from house property was assessed as shown in the computation chart. The ld. Counsel further pointed out that from assessment year 1988-89, the assessee is regularly getting rent from Oriental Bank of Commerce and filing his return showing 1/4th share in the rental income. The ld. Counsel further referred to pages 35 to 86 of the Paper Book wherein acknowledgements for filing return for different assessment years are contained in order to demonstrate that the income has regularly been assessed as returned by the assessee. The ld. Counsel further referred to pages 87 to 136 of the Paper Book wherein the acknowledgement and computation of income in the case of Shri Ashok Kumar Agarwal are contained to demonstrate that in his case also, 1/4th share in joint ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the decision of the Hon'ble Supreme Court in the case of Radhasoami Satsang v. CIT [1992] 193 ITR 321 the ld. DR referred to para 3.7 of the ld. CIT(A)'s order and pointed out that the facts in the said case was entirely different. She further referred to the following observations of the Hon'ble Supreme Court, noted by the ld. CIT(A) in his order : "Counsel for the revenue had told us that the facts of this case being very special, nothing should be said in a manner which would have general application. We are inclined to accept this submission and would like to state in clear terms that the decision is confined to the facts of the case and may not be treated as an authority on aspects which have been decided for general application". 11. The ld. DR also relied on various decisions referred to by the ld. CIT(A) in support of his contention that principles of res judicata are not applicable in income-tax proceedings. She further pointed out that in assessment year 1988-89 no finding on ownership of superstructure has been given. 12. In the rejoinder, the ld. Counsel submitted that it is not a case of transfer but of co-ownership of superstructure for sharing the rent. 13. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contracted to be sold. The assessee was empowered by the vendor to use the properties in whatsoever manner. The assessee was to receive and enjoy the entire usufructs thereof with the only reservation that a formal deed of conveyance with registration in conformity with the Indian Registration Act would follow at the request of the assessee and once that request was made, it was incumbent upon the transferor to execute such a deed of conveyance and to get it registered. Under these circumstances, it was held that the assessee must be deemed to be the owner of the property within the meaning of section 22. It was held that the focus of section 22 of the Income-tax Act, 1961 is on the receipt of income. 17. In the case of Saifuddin (supra), before the Hon'ble Rajasthan High Court, the facts were that the assessee purchased a plot of land. A hotel was constructed on the land and the expenses of construction were borne by the assessee and two of his brothers. There was no written agreement regarding the construction and no mutation was made nor no sale deed was executed by the assessee in favour of his brothers. The Assessing Officer assessed the entire income from the property in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l to hold that the amount of the cost of construction of Park View Hotel was spent by the assessee. It is established that the amount for the construction of the house property, viz., Park View Hotel was spent by the firm in the first instance and it paid the amount of construction from time to time to the contractor, Noor Mohd. . . . From the foregoing discussion, it is clear that the plot was the property of the assessee and thus, he is the owner. So far as the construction on the plot is concerned, viz., superstructure, it belongs to the assessee Saiffuddin and his two brothers, Allah Bux and Abid Ali." 19. The issue of ownership has also been considered in the context of lessor and lessee and it has been held by the Hon'ble Madras High Court in the case of CIT v. Madras Cricket Club [1934] 2 ITR 209 , that lessee is to be assessed under section 22 as owner. In this case the facts were that the assessee had taken a long lease of land from the Government and erected buildings thereon and was entitled under the terms of the said lease to remove the buildings within a stipulated period on the termination of the said lease. It was held that assessee was assessable in respect of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1951, transferring the plots as reconstituted by the deceased to the sons of the deceased and necessary entries to that effect were made in the register of the society. The shares held by the deceased were also transferred to the name of one of the sons and the other son subscribed for new shares of the society. Since then the sons of the deceased remained in possession and enjoyment of the respective reconstituted plots gifted to them by the deceased as their own properties. The Hon'ble Gujarat High Court has considered this issue and has observed as under : "The argument of the revenue was that, since the superstructure was immovable property, it could not be transferred by the deceased to Sakarchand and Ramanlal except by a registered instrument and, in the absence of a registered instrument, the ownership of the superstructure continued to remain in the deceased. Now, it can hardly be disputed that the superstructure, being embedded in the earth, was immovable property and it is elementary that a transfer of an immovable property by one person to another can be effected only by a registered instrument. But there was in this case no transfer of the superstructure by the deceas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... even after the determination of the lease, remove at any time whilst he is in possession of the property leased, but not afterwards, all things which he has attached to the earth; provided he leaves the property in the State in which he received it. If the lessee has constructed a building on the land leased to him, he is entitled to remove the building, on termination of the lease, at any time before he quits possession. It must therefore be held in accordance with this principle that since the deceased being lawfully in possession had constructed on the land belonging to the society, the only right which the deceased had in regard to the superstructure was to remove it, if for any reason his possession of the land came to an end." 22. In sum and substance, the ratio laid down by the Hon'ble Madras High Court in the case of Madras Cricket Club (supra) and the Hon'ble Gujarat High Court in the case of Sakarchand Chaganlal (supra) is that the person who builds the superstructure upon the land of another remains the owner of superstructure and since the tax is on the owner of the property he would be assessable under this section. 23. Now coming to the facts of the case. It is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2)That the First Party has already applied for passing the plan on 19-3-1984, for the commercial Complex in his name as land belongs to him and because it had not been possible for him to get the plan passed single handedly, the second party and the Fourth Party have agreed to put their joint efforts also in getting plan passed and to get the same properly executed at the earliest. (3)** ** ** (4)That the initial investment of First Party and Second Party is to be a sum of Rs. 75,000 each and that the Third and Fourth Parties is to be Rs. 1,00,000 each. The entire responsibility to pay back the loan with interest will rest equally on all parties to this deed. (5)** ** ** (6)That as stated in Para 2, land belongs to 1st Party, shall remain his property and the structure thereupon shall be the joint property of all the four co-owners equally, i.e., 1/4th each. (7)That in case of sale of whole or any part of the completed super- structure, the proceeds shall be shared equally amongst all the four co-owners. (8)That in case of letting of any part of the building, the rental income shall also be shared equally amongst all the four co-sharers. (9)** ** ** (10)That in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the ld. CIT(A) as noted earlier. 26. Now we will consider the next limb of argument of ld. Counsel for the assessee that there should be consistency in framing the assessments over various years in relation to same issue. In this regard, we find that the parties have acted upon as per agreement and assessments have been made since long in the hands of various persons. It is true as referred to in various case laws noted by the ld. CIT(A) that the principles of res judicata are not applicable to the income-tax proceedings, but it is well settled law that rule of consistency as propounded by the Hon'ble Supreme Court in the case of Radhasoami Satsang (supra), has to be adhered to. The settled issues should not normally be disturbed unless there are compelling reasons for the same else it shakes the very confidence of assessee in the system itself. In assessment year 1988-89 it is true that the issue regarding ownership was not specifically considered by the Assessing Officer, but when the cost of investment was considered the due credit was given for the contributions made by various persons, thereby legally treating all the contributories as the co-owners, a different stand i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... permissible on facts it should be allowed, the lower authorities erred on facts and in law in not allowing the appellant the said deduction which was statutorily allowable and assessing the appellant to the entire rental income earned from 11 Station Road, Lucknow." 31. The Assessing Officer noticed that the total income from house property at 11, Station Road, Lucknow, was Rs. 20,000 per month (Rs. 2,40,000). However, assessee had shown an amount of Rs. 1,20,000 as his own income and another 1,20,000 was treated as the income of his wife Smt. Prem Lata Agarwal for providing amenities and electrical fittings to the tenants. This bifurcation was made on the basis of the agreements between tenant Smt. Yasmeen Siddiqui and assessee. But assessing Officer did not accept the agreement and after the notice was issued by the Assessing Officer, the assessee, vide his reply dated 20-1-2004 and 20-2-2004 agreed that he had no objection if the total rent of Rs. 20,000 per month was taxed in the hands of the assessee. However, at the same time, the assessee also stated that the tenant had not paid any rent either to the assessee or to his wife Smt. Prem Lata Agrawal after the month of August ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perty, it is the annual letting value of the property which is to be taxed. Section 23 prescribes the mode of determination of annual value. As per section 23(1)(a), the annual value of any property is deemed to be the sum for which the property might reasonably be expected to be from year to year. However, as per clause (b), if the property or any part of the property is let and the actual rent received or receivable by the owner in respect thereof is in excess of the sum referred to in clause (a), then the amount received or receivable is deemed to be the annual letting value of the property. In the present case, there is no dispute that annual letting value of the property is determined on the basis of rental income. The only dispute is regarding allowability of vacancy allowance in view of clause (c) read with Explanation to section 23(1) according to which where the property is let and was vacant during the whole or any part of the previous year and owing to such vacancy the actual rent received or receivable by the owner in respect thereof was less than the sum referred to in clause (a), the amount received or receivable is treated as the annual letting value of the property ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asons : "During the course of assessment proceedings for the assessment year 2002-03, it was seen from the lease agreement of the building at 24 G.B. Marg, that the assessee is receiving rent of Rs. 68,200 p.m. from Oriental Bank of Commerce w.e.f 17-5-1997. The building has been let out to M/s. Oriental Bank of Commerce w.e.f. Financial Year 1987-88. The assessee Shri Shri Prakash Agarwal is the owner of the building, but the rental income from the building is divided and taxed in the hands of four alleged co-owners viz., (1) Shri Shri Prakash Agarwal, (2) Smt. Prem Lata Agarwal (3) Shri Ashok Kumar Agarwal, and (4) Smt. Aditi Agarwal. This distribution of rental income in the hands of above mentioned four co-owners is not proper and the total rental income has to be assessed in the hands of the assessee alone for the following reasons : (I)Income from house property can be assessed only in the hands of owner of the house property, Shri Shri Prakash Agarwal, he is the only person entitled to receive income from house property in his own right. (II)Purchase deed of the land municipal taxes assessment of the building lease agreement with Oriental Bank of Commerce; TDS certificate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the transferor (assessee in the instant case). I have mentioned a number of sections only because in the absence of contents of the agreement, I am not in a position to pinpoint the exact section. The assessee has claimed the deduction on account of interest on borrowed capital, which also includes interest on accumulated interest. This is not allowable. With a view to clarify the issue it may be expressed in the manner that the assessee has charged interest on capital borrowed + interest due, for earlier years on borrowed capital. Only the interest on borrowed capital is allowable and the rest amount is not allowable. Thus, I have reasons to believe that the income chargeable to tax exceeding Rs. 1,00,000 has escaped assessment as per provisions contained under section 147 of I.T. Act. Issue notice under section 148. Necessary approval of the Additional Commissioner of Income Tax, Range IV, Lucknow, has been obtained for issue of notice under section 148 to assess the escaped income". 38. Before the ld. CIT(A), the initiation of proceedings under section 148 was challenged for both the years and the ld. CIT(A) upheld the action of the Assessing Officer under section 148, inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isdiction to initiate the proceedings under section 147 is concerned, that he may have come to an erroneous conclusion whether on law or on facts. The court will not in exercise of its extraordinary jurisdiction under the Constitution, examine the sufficiency of the reason which led the Assessing Officer to believe that the income had escaped assessment." 42. In the present case, the Assessing Officer, in view of his findings for assessment year 2002-03 had reason to believe that income had escaped assessment for the assessment years under consideration. We, accordingly, uphold the findings of the ld. CIT(A) on this issue. The ground is dismissed. 43. Ground Nos. 2 to 7 is that the ld. CIT(A) erred in confirming the action of the Assessing Officer in applying the provisions of sections 60, 61, 64(1)(iv), 64(1)(vi ) and section 27 of the Act and assessing the entire rental of house property at 24, G.B. Marg, Lucknow as the assessee's income. 44. We have discussed this issue elaborately in assessment year 2002-03 and for the reasons given in our above order, the grounds raised by the assessee are allowed for both the assessment years. 45. In the result, the appeal for assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X
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