1994 P T D 427

[202 ITR 370]

[Calcutta High Court (India)]

Before Ajit K Sengupta and Bhagabati Prasad Banerjee, JJ

ORIENTAL COTTON CORPORATION AND MILLS LTD

Versus

COMMISSIONER OF INCOME-TAX

Income-tax Reference No.280 of 1987, decided 30th October, 1990.

Income-tax---

---Rectification of mistakes---Mistake should be apparent from the record -- Assessee leasing land, machinery and building in which machinery installed-- Lease rent assessed as "income from property"---Assessee contending that the land was leased for 90 years and so rent from land was to be assessed under head "Other sources" and rental income from machines and building to be assessed under head "Business income"---Whether rental income should be treated as business income depends on existence of certain facts---Whether letting of assets is exploitation of commercial assets in course of carrying on business depends on facts and circumstances of each case---Issue is a debatable one ---Rectification not permissible---Indian Income-tax Act, 1961, S.154.

The power under section 154 of the Income-tax Act, 1961, can be exercised by the Income-tax Officer to correct obvious errors of law and those mistakes, which are apparent from the record. A decision on a debatable point of fact and the failure to apply the law to a set of facts, which remain to be investigated cannot be corrected by way of rectification.

The assessee had leased its land and calender and sizing machines alongwith the building. The assessee showed a receipt of rent of Rs.6,000 from land and of Rs.60,069 from the calender and sizing machines and the building in which they were fixed. The said income was assessed by the Income-tax Officer under the head "Income from house property" for the assessment year 1975-76. The assessee thereafter filed an application before the Income -tax Officer for rectification of mistakes in the assessment order on the grounds that the land was not appurtenant to the building of the assessee and was not used for its business but was given on lease for 90 years and hence the income by way of rent from the land could not be assessed under the head "Income from property" but was to be assessed under the head "Income from other sources". The assessee further contended that the rental income of Rs.60,069 comprised rent for sheds with plant and machinery for calendering and sizing and other sheds in the factory including the godown and, therefore, the Income from those assets could not be assessed under the head "Income from property" but should be assessed under the head "Business". The assessee also contended that depreciation was allowed on the machinery and plant and buildings and they were being used as business assets. The Income-tax Officer held that there was no mistake apparent from the record. The Commissioner (Appeals) held that the question as to whether the "Income from the assets was to be assessed as "Income from property" or as "Income from business" or under "Other sources" was a debatable one and affirmed the order of the Income-tax Officer. The Tribunal affirmed the findings of the Commissioner (Appeals). On a reference:--

Held, that for the assessment years 1973-74 to 1978-79, the Income-tax Officer did not treat the rental income as business income and for the assessment years 1973-74 and 1974-75, the assessee did not assail the order of the Income-tax Officer on the point in appeal.- Since the Income-tax Officer had been assessing the rental income from the assessment year 1973-74 onwards under the head "Income from property", he had proceeded on the assumption that there was cessation of business and, as such, rental Income was not business income. The answer to the question whether rental income should be treated as business income depended on the existence of certain facts, and whether letting of the assets was exploitation of commercial assets in the course of carrying on of business has to be decided in the light of the facts and circumstances of each case, and each case had to be looked at from a businessman's point of view to find out whether the letting was the carrying on of a business or the exploitation of his property by an owner. For doing se, the Income-tax Officer would be required to investigate the facts and then apply the law to those facts. The power under section 154 could not be exercised by the Income-tax Officer in such a situation. Therefore, the Tribunal was justified in holding that the assessment of rental income of Rs.6,000 from land and Rs.60,069 from plant and machinery and building in which the said plant and machinery had been fixed, under the head Income from house property was not a mistake apparent from the record and as such not capable of rectification under section 154 of the Act.

JUDGMENT

AJIT K. SENGUPTA, J: --This reference relates to the assessment year 1975-76. The question is whether there was any mistake apparent from the record, which could be rectified under section 154 of the Income-tax Act.

Shortly stated the facts are that the Income-tax Officer framed the assessment for- the assessment year 1975-76, in the case of the assessee company on January 2, 1976. The assessee had leased out its land and also calender machines and sizing machines alongwith the building. It showed receipt of rent of Rs.6,000 from the land and of Rs.60,069 from the calender machines and sizing machines and the building in which they were fitted. The said income of Rs.66,069 (Rs.6,000 plus Rs.60,069) was assessed by the income-tax Officer under the head "House property". The assessee thereafter filed an application, dated April 16, 1977, before the Income-tax Officer for rectification of a mistake in the assessment order. The contention of the assessee in the said application was that the land was not appurtenant to any building of the company not used for its business and was given on lease for 90 years and, therefore, the income of rent from the land could not be treated as house property income. According to the assessee it was to be assessed under the head "Other sources".

The further contention of the assessee was that the rental income of Rs.60,069 comprised rent for sheds with plant and machinery for calendering and sizing and other sheds in the factory including a godown. It was thus contended that the income from those assets could not be treated as income from "House property" and should be assessed under the head "Business". It was also the contention of the assessee in the said application that depreciation was allowed on the said machinery and plant and buildings and they were being used as business assets.

The Income-tax Officer by letter, dated May 21, 1977, informed the assessee, inter alia, that there was no mistake in the computation of income.

`The appeal of the assessee against the order of the Income-tax Officer failed before the Commissioner of Income-tax (Appeals). He held that the question as to whether the income from such assets was to be assessed as income from "house property" or as income from business or other sources was a debatable one.

The assessee then came in second appeal before the Tribunal. The Tribunal endorsed the findings of the Commissioner of Income-tax (Appeals) and, as such, dismissed the appeal.

On the above facts, the following question of law has been referred as below:--

"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessment of rental income of Rs.6,000 from land and Rs.60,069 from plant and machinery and building in which the said plant and machinery had been fitted under the head "House property" was not a mistake apparent from the record and as such not capable of rectification under section 154 of the Income-tax Act, 1961?

Be it recorded that at the time of hearing no one appeared in support of this reference.

It is well-settled that section 154 has a very limited application. It enables rectification of a mistake, which is apparent from the record. The power under section 154 can be exercised by the Income-tax Officer to correct obvious errors of law and those mistakes, which are apparent from the record. A decision on a debatable point of fact and the failure to apply the law to a set of facts which remain to be investigated, cannot be corrected by way of rectification. True, in the instant case, for the assessment years 1967-68 to 1972-73, rental income was accepted as business income. It will, however, appear that from the assessment year 1973-74 to the assessment year 1978-79. the Income-tax Officer did not treat the rental income as business income. For the assessment years 1973-74 and 1974-75, the assessee did not assail the order of the Income-tax Officer on the point in appeal. The assessee, however, agitated the issue in appeal for the assessment years 1976-77, 1977-7 3 and 1979-80. It appears that income from letting out of the factory unit was held taxable under the head "Business" and income arising from the leasing out of the land was held taxable under the head "Other sources".

It will be evident that from the assessment year 1973-74 onwards the income-tax Officer has been assessing the rental income under the head "Income from house property". It, therefore, appears, as has also been found by the Commissioner of Income-tax (Appeals), that the Income-tax Officer has proceeded with conscious mind on the assumption that, there is cessation of business and as such, rental income is not business income. The answer to the question whether rental income in the instant case should be treated as business income depends on the existence of certain facts, whether letting of the assets is exploitation of commercial assets in the course of carrying on of business has to be decided in the light of the facts and circumstances of each case, and each case has to be looked at from a businessman's point of view to find out whether the letting was the doing of a business or the exploitation of his property by an owner. For doing so, the income-tax Officer would be required to investigate the facts and then apply the law to those facts. In our opinion, the power under section 154 cannot be exercised by the Income-tax Officer in such a situation. The question is a debatable one.

For the foregoing reasons, we are of the view that on the facts of this case the mistake that was sought to be rectified was not a mistake apparent from the record and the Tribunal was justified in confirming the orders of the authorities below.

We, therefore, answer the question in this reference in the affirmative and in favour of the Revenue and against the assessee.

There will be no order as to costs.

BHAGABATI PRASAD BANERJEE, J.--- I agree.

M.BA./32/T.F.Reference answered.