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TMI Blog2011 (2) TMI 372X X X X Extracts X X X X X X X X Extracts X X X X ..... might be an owner by applying the deeming provision in section 27(iiib), having regard to the nature of activity of the company as mentioned in the object Clause of the Memorandum of Association, to classify appropriately the income fetched in connection with house property. - matter remanded back to AO to come to findings with reference to the object clause of the Memorandum of Association and also the accounts whether this income fetched by way of sublease is part of the business activity or not? On examining closely if it is found that it is part of the business activity obviously the income fetched therefrom should be classified under the heading income from and profit and gains of business, and not from the income from house property. - IT APPEAL NO. 39 OF 2002 - - - Dated:- 23-2-2011 - KALYAN JYOTI SENGUPTA AND KANCHAN CHAKRABORTY, JJ. JUDGMENT Kalyan Jyoti Sengupta, J. The above appeal under section 260A of the Income-tax Act, 1961, (hereinafter referred to Act of 1961) is at the instance of the assessee-appellant against the judgment and order of the Income-tax Appellate Tribunal, "B Bench" Calcutta in ITA No. 2547 (Cal)/1997), dated 9-10-2001, in relation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essary service for proper up keep of such leasehold properties in order to earn income by sub-letting or sub-leasing the said properties. The appellant-company obtained leases of some buildings and properties in Calcutta in between 1967 and 1970. The appellant filed returns of income for the assessment year 1992-93 claiming inter alia, major part of its business income being generated from rental and/or licence fees received from the tenants/occupants of the aforesaid leasehold properties held by the appellant. Accordingly, the said income was shown under the head "income from profits and gains of business and profession". However, the Assessing Officer did not accept this claim and classified the said income as being income from house property. The Assessing Officer held that by virtue of amended provision of section 27(iii)(b) the assessee was held to be deemed owner of the said property. The appellant being aggrieved by the said decision of the Assessing Officer preferred appeal to the Commissioner of Income-tax (Appeals) who on hearing and considering the points raised dismissed the appeal and upheld the findings and order of the Assessing Officer and further maintained the sam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the Budget speech it would be evident that the coverage of transactions as referred to in section 269UA(f) which include a lease for 12 years or more was by way of enlarging the meaning of the expression "owner of the house property" and that such amendment took effect from 1-4-1988. In support of his submission he has relied on number of decisions of the Supreme Court in case of CIT v. Sun Engg. Works (P.) Ltd. [1992] 198 ITR 297 at page 320/64 Taxman 442; in case of Karanpura Development Co. Ltd. v. CIT [1962] 44 ITR 362 and in case of S.G. Mercantile Corpn. (P.) Ltd. v. CIT [1972] 83 ITR 700. 8. In the alternative he submits that if it is held section 27(iii)(b) retrospectively operates and the assessee is treated to be owner, having regard to its object clause in the Memorandum of Association and in view of the judgment of the Hon'ble Supreme Court in Karanpura Development Co. Ltd.'s case (supra) the income from sub-leasing is required to be assessed under the head "business". 9. Learned counsel for the respondent revenue submits that the said amendment in section 27 intends to enlarge the meaning of "owner of building" given in clause (iii) by providing that a person who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sence of expressed provision for retrospective operation of any statutory provision the courts may be called upon to construe the provisions and answer the question whether the legislature had sufficiently expressed intention giving statutes retrospectivity. Hence, decisions of all the authorities that income from sub-lease will certainly be classified as income from house and property as the assessee being lessee is deemed to be the owner of the building. 15. After hearing the respective contention of the learned Counsel in this matter and reading the decisions of all the authorities below it seems to us that pivotal points involved in this case are as follows : "(i) Whether the amendment of section 27(iii), (iib) and (iiic) is clarificatory and/or declaratory in nature or not? (ii) Whether the income derived from this property as being the owner can be treated profit and gains of business or not?" 16. It is settled by several judicial pronouncements that any amendment is made though apparently for prospective operation, intending to clarify and further explain the provision of existing law is always retrospective in its operation. This proposition of law is explained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of clear words indicating that the amending Act is declaratory, it would not be so construed when the amended provision was clear and unambiguous. An amending Act may be purely clarificatory to clear a meaning of a provision of the principal Act which was already implicit. A clarificatory amendment of this nature will have retrospective effect and, therefore, if the principal Act was existing law when the Constitution came into force, the amending Act also will be part of the existing law." 17. In this Judgment the earlier decision of Supreme Court in case Zile Singh v. State of Haryana [2004] 8 SCC 1 has been noted with approval. In that judgment of Zile Singh's case (supra) it was observed as follows : "13. It is a cardinal principle of construction that every statute is prima facie prospective unless it is expressly or by necessary implication made to have a retrospective operation. But the rule in general is applicable where the object of the statute is to affect vested rights or to impose new burdens or to impair existing obligations. Unless there are words in the statute sufficient to show the intention of the legislature to affect existing rights, it is deemed to be pros ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... effect of a repeal, a privilege which did not amount to accrued right. (p. 392)" 18. In the context of the aforesaid exposition of law of interpretation we now need to explain whether in the present case substitution of clause (iii) and addition of clause (iiia) and further (iiib) can be said to be a clarificatory and/or declaratory in nature or not? In order to examine this the previous provision of clause (iii) prior to amendment needs to be read closely. The said clause runs as hereunder : "(iii)a member of a co-operative society, to whom a building or part thereof is allotted or leased under a house building scheme of the society, shall be deemed to be the owner of that building or part thereof." In the amendment the Company or any other association or person have been added and it was not then within the scope of clause (iii). 19. Clause (iiia) provides "a person who is allowed to take or retain possession of any building or part thereof in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882), shall be deemed to be the owner of that building or part thereof;" 20. Clause (iiib) deals with "a person w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... third parties can be assessable under the heading of income from house property or not? 24. We think in case of a company unlike individual, definition and meaning of "owner" has to be applied for the purpose of imposition of tax in two ways. It can be done upon examining the object Clause in the Memorandum of Association and further the way the business is actually carried on. If it is found that the property owned by the company in the manner as mentioned in section 27 of Act 1961, itself is utilized without retaining real control ownership interest therein for the purpose of carrying on business, the income derived therefrom cannot be treated to be income from house property and it shall be treated to be income from business activities. This proposition of law is well explained long time back by Three Judges Bench of the Supreme Court in the case of Karanpura Development Co. Ltd. (supra), Justice Hidyatullah speaking for the Bench explained this distinction as regard dealing of the property by the company at page 377 of the report : "Ownership of property and leasing it out may be done as a part of business, or it may be done as land owner. Whether it is the one or the othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esaid discussion we think it is possible in this case the assessee/appellant though might be an owner by applying the deeming provision in section 27(iiib), having regard to the nature of activity of the company as mentioned in the object Clause of the Memorandum of Association, to classify appropriately the income fetched in connection with house property. In other words whether the income derived from this property is part of the business activity or not? Before us enough material has not been placed to find the nature of the activity of the business of the company in relation to this property. We think that the matter should be restored to the file of the Assessing Officer to come to findings with reference to the object clause of the Memorandum of Association and also the accounts whether this income fetched by way of sublease is part of the business activity or not? On examining closely if it is found that it is part of the business activity obviously the income fetched therefrom should be classified under the heading income from and profit and gains of business, and not from the income from house property. 28. We accordingly direct that this should be completed by the Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X
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