Jajodia Parivar Nidhi (Trust) vs Income-Tax Officer

1. The assessee-trust purchased a flat in the building known as "Premier Chambers" on payment of full consideration of Rs. 3,65,000 in pursuance of an agreement dated 10-10-1976 and obtained possession of the said flat on7-ll-1979in pursuance of said agreement. Soon thereafter the said flat was given on rent and rental income came to Rs. 1,23,600 in the accounting year ended on 30-6-1982 which was relevant to asst. year 1983-84. No registered conveyance deed had been executed in favour of assessee. The assessee claimed that the said rental income was assessable under the head "Income from house property" and deductions permissible in the computation under said head were allowable. The ITO rejected the said plea and held that the said income was assessable under the head "Income from other sources" and assessed the income under the said head.

2. The assessee filed appeal before the CIT(Appeals) and in the statement of facts submitted before him along with the memo of appeal it was submitted that in view of provisions of Section 21'(iii) of the IT Act, 1961 the assessee should be regarded as lawful owner of the flat in question and that the rental income was assessable as income from house property and not as income from other sources. The CIT( Appeals) observed that the point in controversy had been decided against the assessee by the Appellate Tribunal in the appeal for assessment year 1981-82. He accordingly held that the said income was assessable as income from other sources and not income from house property.

3. An additional ground had been raised before the CIT(Appeals) by the assessee which was to the effect that the rental income was not at all assessable under any of the heads and was not liable to tax. This plea was based on the decision of the Bombay High Court in the case of CIT v. Smt. T.P. Sidhwa [1982] 133 ITR 840 and the decision of the Andhra Pradesh High Court in the case of CIT v. Trustees of H.E.H. the Nizam's Miscellaneous Trust [1986] 160 ITR 253. It was submitted on behalf of the assessee that the additional ground could not be raised at the earlier stage because the assessee was not aware of the fact that the said income was not assessable at all and that he came to know about this when the decision of the Bombay High Court referred to above came to his notice. He requested the CIT(Appeals) to entertain the additional ground and record a finding that the rental income was not at all assessable under any of the heads.

4. The CIT(Appeals) observed that the decision of the Bombay High Court had been reported in 1981 and the appeal for assessment year 1983-84 had been filed in December 1985 and as such it could not be said that at the time of filing of the appeal the assessee was not aware of the decision of the Bombay High Court. The CIT(Appeals) did not admit the additional ground sought to be raised on behalf of the assessee. In the alternative the CIT(Appeals) observed that a contrary view had been taken by the Delhi High Court in the case of Sushil Ansal v. CIT [ 1986] 160ITR3081. The CIT(Appeals) confirmed the order of the ITO holding that the assessee was assessable under the head "Income from other sources". The assessee is now in appeal before the Tribunal.

5. Two grounds have been raised in the appeal by the assessee and those grounds are to the effect that the income in question was not assessable at all under the provisions of the Income-tax Act, 1961 and that the said finding should have been recorded by the CIT(Appeals)on the basis of decisions of Bombay High Court arid Andhra Pradesh High Court referred to above.

6. At the time of hearing of the appeal the assessee has not appeared. The assessee has sent written submissions. In the written submissions it is stated that the CIT(Appeals) ought to have admitted the additional ground and should have decided the additional ground in favour of assessee. It is submitted that it should have been held that the rental income was not assessable under any of the heads under the Income-tax Act, 1961.

7. We have heard the learned D.R. and perused the materials on record. We have called for the record of the Tribunal for assessment year 1981 -82 in IT A No. 2060/Ahd/l 985 decided on 3( -6-1987. In the grounds of appeal before the Tribunal for assessment year 1981-82 it had been submitted on behalf of the assessee that the A.A.C. ought to have held that income was assessable as income from house property and should not have held that income was assessable as income from other sources. An additional ground was sought to be raised before the Tribunal for assessment year 1981 -82 which was to the effect that in view of the decision of the Bombay High Court and the decision of the Andhra Pradesh High Court (referred to above) the rental income should be held as non-taxable under any of the provisions of IT Act, 1961. The Tribunal held that the said additional ground did not arise out of the order of the A.A.C. and as such the assessee was not entitled to raise that ground. The Tribunal recorded a finding that the said rental income was assessable as income from other sources and not as income from house property. As far as assessment year 1983-84 is concerned, the additional ground has been raised before the first appellate authority. The jurisdiction of the first appellate authority is co-extensive with that of the Assessing Officer while the jurisdiction of the Appellate Tribunal in second appeal is confined to the matter arising out of the order of the first appellate authority. We are of the opinion that the CIT( Appeals) ought to have held that the additional ground was entertainable by him. It is not necessary to refer to several decisions relating to jurisdiction of the first appellate authority to entertain additional ground. We proceed to decide the additional ground on the basis that the said ground arises out of the order of the first appellate authority.

8. The point that requires decision is whether the rental income which has admittedly been received by the assessee by letting out the flat in question was not liable to be assessed to tax under any of the provisions of the IT Act, 1961.

9. We have already stated above that in the statement of facts the assessee had pleaded that the assessee-trust was owner of the flat in question in view of provisions of Section 21 (iii) of the Act. However; this point has not been discussed either in the assessment order or in the order of the first appellate authority. On behalf of the assessee no material has been placed on record to indicate that the provisions of Section 27(iii) were attracted on the facts of the case. In fact in the appeal before the Tribunal the assessee wants to raise only one point and that point is that the income in question was not asses able under any of the heads under the IT Act. If the assessee had produced materials to indicate that the provisions of Section 21 (iii) were attracted, the above plea would not have been available to the assessee. Consequently the assessee does not now rely on provisions of Section 21 (iii) of the Act. The assessee wants to proceed on the bisis that the assessee was not the legal owner of the Hat in question in the relevant accounting year. The ITO and the CIT( Appeals) have also proceeded on that basis. The main decision of the Supreme Court on the point in controversy is Nalinikant Ambalal Mody v. S.A.L. Narayan Row, CIT [1966] 61ITR 428. It is this decision which has been made a basis by the Bombay High Court and the Andhra Pradesh High Court in the cases referred to above on which the assessee relied.

10. In the case of Nalinikant Ambalal Mody (supra) the assessee, who was in the earlier years practising as an Advocate, had been maintaining his accounts on cash basis and that he ceased to carry on his profession when he was elevated to the Bench of the High Court of Bombay and thereafter in the subsequent years in which he had not carried on the said profession, he had received certain moneys on account of fees outstanding for professional work done by him while he was a practising Advocate and the question arose as to whether he was liable to pay income-tax on those receipts. The Commissioner of Income-tax had held that the receipts were chargeable to tax under the head "Income from other sources". After enumerating the six sources or heads of income which are chargeable to tax as specified in Section 6 of the IT Act, 1922, (corresponding to Section 14 of the IT Act, 1961) their Lordships observed that "several heads of income mentioned in Section 6 are mutually exclusive and that a particular income can come only under one of them". Adverting to the facts of the case, their Lordships added that the receipts in said case were outstanding dues of professional work done and were clearly the fruits of the assessee's professional activity and were the profits and gains of a profession and as such' would fall under the fourth head viz., Profits and gains of business, profession or vocation but they were not chargeable to tax under the computing section because of the fact that in the relevant accounting year, the provisions had not been relied on by the assessee. Consequently according to their Lordships, the said income could not be assessed under the head "Income from other sources". Their Lordships further observed that:-

If the contention of the Revenue is right, the position would appear to be that professional income of an assessee who keeps his accounts on cash basis would fall under the fourth head if it was received in a year in which the profession was being carried on, but it would take a different character and fall under the residuary head if received in a year in which the profession was not being carried on. We are unable to agree that this is a natural reading of the provisions regarding the heads of income in the Act. Whether an income falls under one head or another has to be decided according to the common notions of practical men, for, the Act does not provide any guidance in the matter. The question under which head an income comes cannot depend on when it was received. If it was the fruit of professional activity, it has always to be brought under the fourth head irrespective of the time when it was received. There is neither authority nor principle for the proposition that an income arising from a particular head ceases to arise from that head because it is received at a certain time. The time of the receipt of the income has nothing to do with the question under which particular head of income it should be assessed.

It has been specifically observed in said decision that whether an income falls under one head or another has to be decided according to the common notions of practical men because the Act does not provide any guidance in the matter. If a particular income was a fruit of professional activity It could be brought to tax only under the head "Income from profits and gains of business, profession or vocation" and it cannot be brought to tax under any other head. The underlined principle in said decision would not be applicable to the facts of the present case. We have to examine the true scope of the charge of income under the head "Income from house property" as envisaged in Sections 22 to 27 of the Act. The head "Income from house property" covers only cases of property income in the hands of the owner and is not intended to cover the assessment of all income from all house properties. There is no indication that the intention of Sections 22 to 27 was to bring to charge the income from all buildings, in whatever circumstances said income would have arisen. If a person takes on lease a property belonging to the legal owner and subsequently sublets the same, there was no reason why the said person should not be taxed in respect of the income which he actually derived by subletting the property.

The principle laid down in the case of Nalinikant Ambala Mody (supra) would not be applicable in such cases. As far as Sections 22 to 27 were concerned, the charge is on the owner of the house property. If the person is not the owner of the house property he would not be assessable under said provisions. The charge under Sections 22 to 27 is on the owner in respect of income which he actually or notionally derives from the property and the fact that lessee who derived income by subletting the property was being taxed in respect of the amount received by him by subletting, could not be a ground for assessing the owner in respect of the income of property or vice versa. The same principle would apply when the assessee, as in the present case, derives income by way of rent after obtaining possession of the property in pursuance of agreement from the real owner. The income which the assessee was deriving by way of rent was income by virtue of his possession and dominion over the property. After obtaining possession and dominion over the property he had let out the same and had derived income thereby.

An income of this nature would not attract the provisions of Section 22 of the Act. This is not a case where income was assessable under Section 22 but computation of income could not be made because of the not fulfilling certain conditions. This is a case where the provisions of Section 22 were not at all attracted. In the case of Nalinikant Ambalal Mody (supra) the income was professional income and said income could not be brought to tax under any other head. As regards the income with which we are concerned in the present appeal, it cannot be said that it is an income derived solely by virtue of ownership of the premises. In fact, it is an income which has been derived by virtue of possession obtained by the assessee in pursuance of the agreement and by virtue of dominion over the property. The income derived on these facts, would clearly be assessable as income from other sources.

11. The decision of the Bombay High Court in the case of Smt. T.P. Sidhwa (supra) on which strong reliance has been placed on behalf of the assessee, stands slightly on a different footing. In that case, it appears that the assessee had purchased undivided l/4th share in a house property and no conveyance deed was executed in the years under consideration and the real owner collected the rent from the property and paid to the assessee her l/4th share. It was on these facts that the Bombay High Court held that the income was not assessable as income from other sources. It is clear that this was not a case where the assessee had obtained possession of the property purchased and had then derived any income by any activity. What all that had happened was that the owner who had been receiving the rent in the earlier years paid l/4th share to the assessee in respect of the years under consideration. The High Court held that an income of this nature should have been assessed only under the head "Income from house property" and since the assessee was not the legal owner in the years under consideration, said income could not be assessed under any other head. The facts are thus distinguishable. In any case the Delhi High Court in Sushil Ansal's case (supra) has expressly dissented from the said decision of the Bombay High Court. For reasons already given above, we are unable to follow the decision of the Andhra Pradesh High Court in the case of Trustees of H.E.H. The Nizam's Miscellaneous Trust (supra). We would respectfully follow the said decision of the Delhi High Court referred to above and hold that the rental income in the present case was assessable under the head "Income from other sources". We reject the grounds raised by the assessee.

12. The appeal is dismissed.