Income tax - Whether sum paid as compensation for occupation of premises after expiry of lease and for repair and damages can be treated as sum received as payment for transfer of tenancy rights - NO, rules Calcutta HC
KOLKATA, FEB 18, 2011: THE issue before the HC is - Whether sum paid as compensation for occupation of a premises after the expiry of the lease and for repair or damage to the premises by the tenant can be treated as an amount received by way of consideration for transfer of any tenancy right. And the HC's answer is NO.
Facts of the case
On December 14, 1957, the premises No. 31, Shakespeare Sarani, Kolkata, consisting of land and building was leased out by its the then owner to the Consulate General of USSR by a registered Deed of Lease for a period of 23 years commencing from January 15, 1958 at the monthly rental of Rs.8,000/- a month. The said premises was purchased by Dejoo Tea Company (India) Pvt. Ltd. on November 30, 1977 subject to the said lease dated December 14, 1957 and the lessee, namely, Consulate General of USSR, attorned the tenancy to DT and started paying rent to it.
On January 15, 1981, although the said lease granted in favour of the Consulate General of USSR expired, the lessee refused to vacate and handover possession of the said premises to the DT, as a result, DT approached the Central Government under Section 86 of the Code of Civil Procedure for permission to institute legal proceedings against the Consulate General. As no such permission was forthcoming, various proceedings in the writ jurisdiction of this Court were taken and thereafter, the matter went up to the Supreme Court for a direction upon the Central Government to grant permission under Section 86 of the Code of Civil Procedure alleging inaction of the Central Government.
On March 18, 1985, an assessment was made under Section 143(3) of the Income Tax Act, 1961 for the assessment year 1982-83 (Financial Year 1981-82) assessing Rs.96,000/- as income of the said premises under the head-House property although the lease had expired and no rent was received. It was held that the income under the Head House property was required to be assessed on the notional income that could be received and the fact that the lease had come to an end and that no rent was received from the lessee was irrelevant.
An appeal preferred by the assessee against the said order of assessment was dismissed by CIT (Appeal) holding that the assessment of income under the head-House property made on the basis of notional income at the rate of the rent payable under the lease was justified in law. Assessments were also made on similar basis for the subsequent assessment years 1983-84 to 1991-92 assessing the income under the Head House property notionally on the basis of rent payable under the expired lease in respect of the said premises.
On April 2, 1991, another agreement was entered into between Consulate General and DT for payment of Rs.100 lac for repair and renovation of the said premises after getting vacant possession. It was further provided that on payment of the said sum, DT would not have any claim as to the condition of the property in which the Consulate might leave while vacating and handing over the possession and it was further recorded that during the period of possession by Consulate the damage and injuries to the properties had been caused and repairs were required and the said sum was to be paid in twelve quarterly instalments commencing from 15th January, 1992 and was meant for providing compensation fund for meeting costs and expenses for repair of the property and its restoration to the original condition after it was vacated by the Consulate.
Pursuant to the said agreement, DT received from the Consulate a sum of Rs.99,95,929/- for occupation during 15th January, 1981 to 31st March, 1991 and a further sum of Rs.33,98,952/- was received on account of occupation of the said premises for the period from 1st April, 1991 till 31st March, 1992. A further sum of Rs.16 lac was received on account of quarterly instalment for damages.
On May 4, 1992, a scheme was sanctioned by this High Court for amalgamation of DT with the present appellant, namely, Jasmine Commercials Ltd., with effect from April 1, 1991 and all the assets and liabilities of DT vested in the appellant with effect from April 1, 1991.
On February 1, 1993 the appellant filed the return of income for assessment year 1992-93 disclosing the receipts of the aforesaid sum of Rs.99,95,929/-, Rs.33,98,952/- and Rs.16 lac, respectively from the Consulate.
On February 28, 1995, pursuant to the return filed on February 1, 1993, the assessment was made under Section 143(3) of the Income Tax Act and in such assessment, the sum of Rs.33,98,952/- for the period April, 1991 to March, 1992 was assessed as rental income under the Head House property for the said premises. The sum of Rs. 99,95,929/- on account of arrears of rent and Rs.16 lac for building repair were assessed as business income.
On an appeal being preferred by the assessee against such order passed, the CIT (Appeal) held that the sum of Rs.99,95,929/- which admittedly represented arrears of rent could not be assessed to tax in view of the various judicial decisions and it was held that the sum of Rs.16 lac also could not be assessed as it was for damage to the house property which was a capital asset and was a capital receipt.
The Tribunal disposed of the appeal of the Department by holding that sum of Rs.90 lac received for occupation by way of compensation from the Consulate was not arrears of rent but was compensation for the tenancy right during post-lease-period of 10 years. The Tribunal further held that the further sum of Rs.1 crore on account of damages to the property was also on account of further occupation of the property for a maximum period of five years and both the sum of Rs.90 lac and Rs.1 crore were for transfer of the right of tenancy which was a capital asset and was liable to be assessed as capital gains by taking the cost of acquisition as "nil". The Tribunal accordingly directed that the sum of Rs.90 lac should be assessed as capital gain and further directed that the sum of Rs.1 crore should also be assessed as capital gains even though only Rs.16 lac was assessed as business income and the matter was sent to the assessing officer for re-determination of such capital gains. It was further recorded that these two sums were not assessable under the Head Business income.
The assessee filed an appeal before the High Court contending that the Tribunal acted without jurisdiction in enhancing the scope of the appeal by directing the assessing officer to consider the entire amount of Rs.100 lac payable on account of repair or damages during the next five years in the assessment year in question when the dispute before the Tribunal was confined only for the quarterly instalments to the extent of Rs.16 lac and further whether the said sum could not at all be considered in the hands of the appellant.
The High Court held that –
++ taking into consideration the provision of Section 254 of the Act, an Appellate Tribunal may after giving both the parties to the appeal an opportunity of being heard pass such order thereon as it thinks fit. The word "thereon", is significant inasmuch as it restricts the jurisdiction of the Tribunal to the subject matter of the appeal. In other words, the original grounds of appeal and such additional ground, as may by raised by the Appellant by the leave of the Tribunal, constitute the extent of jurisdiction of the Tribunal and it can adjudicate upon only those grounds and not beyond them. Even if a particular ground is not taken in the Memorandum of Appeal, an appellant may by taking leave of the appellate authority add grounds. In the instant case, however, neither in the Memorandum of Appeal any ground was taken in respect of the aforesaid Rs.100 lac nor was any amendment sought for including such ground and the learned Tribunal below even in its judgment itself while considering the questions before it, referred to only those two points excluding the question of involvement of Rs.100 lac;
++ therefore, the Tribunal below acted without jurisdiction in enhancing the scope of the appeal although the appellant did not raise any such point. On that ground alone, the portion of the order passed by the Tribunal below relating to the reassessment of Rs.100 lac should be set aside;
++ on merits - even after the expiry of the lease in the year 1981 when the property fetched no actual income, the assessing authority assessed Rs.96,000/- per annum as income from the said premises under the head-House property and compelled the assessee to pay tax thereon and it was specifically held that the notional income at the rate of rent payable under the expired lease is the appropriate income from the said premises. Such being the position, there is substance in the contention of the assessee that there was no justification of treating the amount received from the erstwhile lessee by virtue of the said agreement as the income received by the assessee from the selfsame house property during the occupation of the erstwhile tenant. When the appellant received no income from the selfsame property from the year 1981 on the expiry of the lease, it went on paying income tax on the basis of notional income and as such, the actual income arising there from subsequently, even though higher than the notional income assessed as equivalent to the rate of rent, cannot be taken note of for the purpose of assessment;
++ in this case there was no justification of treating the income arising out of the selfsame house property under a different Head after the same has been taxed as income under the head-House property on the basis of notional rent payable by the selfsame occupant;
++ similarly, it is preposterous to describe the receipts as outcome of transfer of tenancy right as the assessee was not a tenant and as such no question of gaining anything by transferring the right of its tenancy arises;
++ in the instant case, we are unable to brand the agreement between the lessor and the former lessee as a device to avoid tax inasmuch as the said agreement was entered into at the intervention of the Central Government. Moreover, having regard to the consistent views of the Supreme Court that an income already taxed under one head cannot at the subsequent period be taxed under a different head, we are left with no other alternative but to set aside the views of the Tribunal. As already pointed out that when for long 10 years no amount was received from the said property in occupation of the same occupant, the lessor was taxed on the basis of notional income; it would be illegal to tax the income from the selfsame property under a different head. Therefore, the Court set aside the order of the Tribunal below by affirming the order of the CIT (Appeal).
Assessee's appeal allowed
KOLKATA, FEB 18, 2011: THE issue before the HC is - Whether sum paid as compensation for occupation of a premises after the expiry of the lease and for repair or damage to the premises by the tenant can be treated as an amount received by way of consideration for transfer of any tenancy right. And the HC's answer is NO.
Facts of the case
On December 14, 1957, the premises No. 31, Shakespeare Sarani, Kolkata, consisting of land and building was leased out by its the then owner to the Consulate General of USSR by a registered Deed of Lease for a period of 23 years commencing from January 15, 1958 at the monthly rental of Rs.8,000/- a month. The said premises was purchased by Dejoo Tea Company (India) Pvt. Ltd. on November 30, 1977 subject to the said lease dated December 14, 1957 and the lessee, namely, Consulate General of USSR, attorned the tenancy to DT and started paying rent to it.
On January 15, 1981, although the said lease granted in favour of the Consulate General of USSR expired, the lessee refused to vacate and handover possession of the said premises to the DT, as a result, DT approached the Central Government under Section 86 of the Code of Civil Procedure for permission to institute legal proceedings against the Consulate General. As no such permission was forthcoming, various proceedings in the writ jurisdiction of this Court were taken and thereafter, the matter went up to the Supreme Court for a direction upon the Central Government to grant permission under Section 86 of the Code of Civil Procedure alleging inaction of the Central Government.
On March 18, 1985, an assessment was made under Section 143(3) of the Income Tax Act, 1961 for the assessment year 1982-83 (Financial Year 1981-82) assessing Rs.96,000/- as income of the said premises under the head-House property although the lease had expired and no rent was received. It was held that the income under the Head House property was required to be assessed on the notional income that could be received and the fact that the lease had come to an end and that no rent was received from the lessee was irrelevant.
An appeal preferred by the assessee against the said order of assessment was dismissed by CIT (Appeal) holding that the assessment of income under the head-House property made on the basis of notional income at the rate of the rent payable under the lease was justified in law. Assessments were also made on similar basis for the subsequent assessment years 1983-84 to 1991-92 assessing the income under the Head House property notionally on the basis of rent payable under the expired lease in respect of the said premises.
On April 2, 1991, another agreement was entered into between Consulate General and DT for payment of Rs.100 lac for repair and renovation of the said premises after getting vacant possession. It was further provided that on payment of the said sum, DT would not have any claim as to the condition of the property in which the Consulate might leave while vacating and handing over the possession and it was further recorded that during the period of possession by Consulate the damage and injuries to the properties had been caused and repairs were required and the said sum was to be paid in twelve quarterly instalments commencing from 15th January, 1992 and was meant for providing compensation fund for meeting costs and expenses for repair of the property and its restoration to the original condition after it was vacated by the Consulate.
Pursuant to the said agreement, DT received from the Consulate a sum of Rs.99,95,929/- for occupation during 15th January, 1981 to 31st March, 1991 and a further sum of Rs.33,98,952/- was received on account of occupation of the said premises for the period from 1st April, 1991 till 31st March, 1992. A further sum of Rs.16 lac was received on account of quarterly instalment for damages.
On May 4, 1992, a scheme was sanctioned by this High Court for amalgamation of DT with the present appellant, namely, Jasmine Commercials Ltd., with effect from April 1, 1991 and all the assets and liabilities of DT vested in the appellant with effect from April 1, 1991.
On February 1, 1993 the appellant filed the return of income for assessment year 1992-93 disclosing the receipts of the aforesaid sum of Rs.99,95,929/-, Rs.33,98,952/- and Rs.16 lac, respectively from the Consulate.
On February 28, 1995, pursuant to the return filed on February 1, 1993, the assessment was made under Section 143(3) of the Income Tax Act and in such assessment, the sum of Rs.33,98,952/- for the period April, 1991 to March, 1992 was assessed as rental income under the Head House property for the said premises. The sum of Rs. 99,95,929/- on account of arrears of rent and Rs.16 lac for building repair were assessed as business income.
On an appeal being preferred by the assessee against such order passed, the CIT (Appeal) held that the sum of Rs.99,95,929/- which admittedly represented arrears of rent could not be assessed to tax in view of the various judicial decisions and it was held that the sum of Rs.16 lac also could not be assessed as it was for damage to the house property which was a capital asset and was a capital receipt.
The Tribunal disposed of the appeal of the Department by holding that sum of Rs.90 lac received for occupation by way of compensation from the Consulate was not arrears of rent but was compensation for the tenancy right during post-lease-period of 10 years. The Tribunal further held that the further sum of Rs.1 crore on account of damages to the property was also on account of further occupation of the property for a maximum period of five years and both the sum of Rs.90 lac and Rs.1 crore were for transfer of the right of tenancy which was a capital asset and was liable to be assessed as capital gains by taking the cost of acquisition as "nil". The Tribunal accordingly directed that the sum of Rs.90 lac should be assessed as capital gain and further directed that the sum of Rs.1 crore should also be assessed as capital gains even though only Rs.16 lac was assessed as business income and the matter was sent to the assessing officer for re-determination of such capital gains. It was further recorded that these two sums were not assessable under the Head Business income.
The assessee filed an appeal before the High Court contending that the Tribunal acted without jurisdiction in enhancing the scope of the appeal by directing the assessing officer to consider the entire amount of Rs.100 lac payable on account of repair or damages during the next five years in the assessment year in question when the dispute before the Tribunal was confined only for the quarterly instalments to the extent of Rs.16 lac and further whether the said sum could not at all be considered in the hands of the appellant.
The High Court held that –
++ taking into consideration the provision of Section 254 of the Act, an Appellate Tribunal may after giving both the parties to the appeal an opportunity of being heard pass such order thereon as it thinks fit. The word "thereon", is significant inasmuch as it restricts the jurisdiction of the Tribunal to the subject matter of the appeal. In other words, the original grounds of appeal and such additional ground, as may by raised by the Appellant by the leave of the Tribunal, constitute the extent of jurisdiction of the Tribunal and it can adjudicate upon only those grounds and not beyond them. Even if a particular ground is not taken in the Memorandum of Appeal, an appellant may by taking leave of the appellate authority add grounds. In the instant case, however, neither in the Memorandum of Appeal any ground was taken in respect of the aforesaid Rs.100 lac nor was any amendment sought for including such ground and the learned Tribunal below even in its judgment itself while considering the questions before it, referred to only those two points excluding the question of involvement of Rs.100 lac;
++ therefore, the Tribunal below acted without jurisdiction in enhancing the scope of the appeal although the appellant did not raise any such point. On that ground alone, the portion of the order passed by the Tribunal below relating to the reassessment of Rs.100 lac should be set aside;
++ on merits - even after the expiry of the lease in the year 1981 when the property fetched no actual income, the assessing authority assessed Rs.96,000/- per annum as income from the said premises under the head-House property and compelled the assessee to pay tax thereon and it was specifically held that the notional income at the rate of rent payable under the expired lease is the appropriate income from the said premises. Such being the position, there is substance in the contention of the assessee that there was no justification of treating the amount received from the erstwhile lessee by virtue of the said agreement as the income received by the assessee from the selfsame house property during the occupation of the erstwhile tenant. When the appellant received no income from the selfsame property from the year 1981 on the expiry of the lease, it went on paying income tax on the basis of notional income and as such, the actual income arising there from subsequently, even though higher than the notional income assessed as equivalent to the rate of rent, cannot be taken note of for the purpose of assessment;
++ in this case there was no justification of treating the income arising out of the selfsame house property under a different Head after the same has been taxed as income under the head-House property on the basis of notional rent payable by the selfsame occupant;
++ similarly, it is preposterous to describe the receipts as outcome of transfer of tenancy right as the assessee was not a tenant and as such no question of gaining anything by transferring the right of its tenancy arises;
++ in the instant case, we are unable to brand the agreement between the lessor and the former lessee as a device to avoid tax inasmuch as the said agreement was entered into at the intervention of the Central Government. Moreover, having regard to the consistent views of the Supreme Court that an income already taxed under one head cannot at the subsequent period be taxed under a different head, we are left with no other alternative but to set aside the views of the Tribunal. As already pointed out that when for long 10 years no amount was received from the said property in occupation of the same occupant, the lessor was taxed on the basis of notional income; it would be illegal to tax the income from the selfsame property under a different head. Therefore, the Court set aside the order of the Tribunal below by affirming the order of the CIT (Appeal).
Assessee's appeal allowed
