COMMISSIONER OF INCOME-TAX VS PARK HOTEL (P.) LTD.
1997 P T D 658
[218 I T R 221]
[Supreme Court of India
Present: B.P. Jeevan Reddy and S.B. Majmudar, JJ
COMMISSIONER OF INCOME TAX
Versus
PARK HOTEL (P.) LTD.
Civil Appeal No. 195 of 1996, decided on 05/01/1996.
(Appeal by special leave from the judgment and order, dated September 18, 1986, of the Calcutta High Court in Income-tax Reference No. 88 of 1986).
(a) Income-tax---
Appeal to Supreme Court---Income from house property---Business income ---Assessee holding leasehold rights granting sub-lease---Rental income received by sub-lessee---Not clear whether assess ability of income in hands of assessee had to be determined or whether head of income had to be decided---High Court not dealing with main issue regarding registration of sub-lease---Matter remanded to High Court---Indian Income Tax Act, 1961.
Under a deed of assignment, dated September 3, 1966, the assessee obtained the leasehold interest, for the un-expired period of lease, in respect of certain premises in Calcutta. In the accounting year relevant to the assessment year 1971-72, the assessee executed a sub-lease in respect of a portion of its leasehold interest in favour of S, another limited company associated with the assessee. The deed of sub-lease was, however, not registered. For the assessment years 1975-76 to 1979-80, the Income Tax Officer included the rental income received by S in the assessment of the assessee. On appeal, the Commissioner of Income-tax (Appeals) held that the income from the leasehold property was assessable as income from business but did not give directions as to the quantum. The Income Tax Officer thereupon included the income received by S from the sub-leased property in the assessee's income from business. The Commissioner, on appeal, held that the income received by S from the properties sub-leased to it was not to be included in the assessee's income. On further appeal, the Tribunal held that in the absence of registered deed of sub-lease, the assessee continued to be liable to tax on the income received from the said property. It rejected the contention of the assessee that the said income was only a notional one and not actual or real income. The Tribunal directed that (i) the income from leasehold property should be assessed as income from business and (ii) that the income which had to be assessed as income from business from leasehold interest, should be the income as received by S. On a reference of the question whether the Tribunal was right in holding that the income as received by S be assessed as the income of the assessee from business from leasehold interest, the High Court answered the reference in favour of the assessee. On appeal to the Supreme Court:
Held, that it was not clear whether the question referred pertained only to one issue, namely, whether the income received by S should be included in the total income of the assessee or it also comprehended the other issue, namely, whether the said income should be assessed under the head "Income from house property" or under the head "Profits and gains of business or profession". The question as framed was capable of being construed both ways. Moreover, the High Court had not addressed itself to the main issue upon which the Tribunal had allowed the Revenue's appeal, namely, that inasmuch as the sub-lease was not effected under a registered document, interest in the property did not pass and, therefore, the income in question continued to be the income of the assessee. It had also not dealt with the reasoning of the Tribunal that by accepting the assessee's plea, the income in question would go untaxed altogether inasmuch as the said income had been held not taxable in the hands of S.
(b) Income-tax---
----Reference---Powers of High Court---New facts cannot be introduced by High Court---Indian Income Tax Act, 1961, S.256.
In a reference under section 256(1) of the Income Tax Act, 1961, no new facts can be introduced by the High Court.
Bengal Jute Mills Co. Ltd. v. CIT (1949) 17 ITR 308 (Cal.), S.G. Mercantile Corporation (P.) Ltd. v. CIT (1972) 83 ITR 700 (SC); Sakarchand Chhaganlal v. CED (1969) 73 ITR 555 (Guj.) and Sri Ganesh Properties Ltd. v. CIT (1962) 44 ITR 606 (Cal.) ref.
J. Ramamurthy, Senior Advocate (B.S. Ahuja and S.N. Terdol, Advocates with him) for Appellant.
A.K. Roy Chowdhury, Ms. Aruna Banerjee, R. Chaterjee and G.S. Chatterjee for Respondent.
JUDGMENT
B.P. JEEVAN REDDY, J.---Leave granted. Heard counsel for both the parties.
The Commissioner of Income-tax, Calcutta, has preferred this appeal against the judgment of the Calcutta High Court (see (1987) 167 ITR 60), in Income Tax Reference No. 88 of 1986, answering the question referred at the instance of the assessee in favour of the assessee. The question referred under section 256(1) of the Income Tax Act, 1961, is (at page 64): "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the income as received by Messrs Surrendra Overseas Limited, be assessed as the income of the assessee from business from lease hold interest?"
Under a deed of assignment, dated September 3, 1966, the assessee obtained the leasehold interest, for the un-expired period of lease, in respect of premises Nos. 3, 5, 7, 9, 11, 13 and 15, Park Street, Calcutta from Credit Transactors. In the accounting year relevant to the assessment year 1971-72, the assessee executed a sub-lease in respect of a portion of its leasehold interest in favour of Messrs Surrendra Overseas Limited, another limited company "associated with the assessee". The deed of sub-lease was, however, not registered though it is said that Messrs Surrendra Overseas Limited, paid a premium of Rs.63,13,000 and was also paying a rent of Rs.15,000 per annum in consideration of the said sub-lease/Messrs Surrendra Overseas Limited was receiving the rental income from the property sub?leased to it. The income so received by Messrs Surrendra Overseas Limited was sought to be taxed in its hands as "income from house property", to which Surrendra Overseas objected. The matter was carried to the Tribunal, which held in I.T.A. No. 519/(Cal.) of 1976-77, that since Messrs Surrendra Overseas Limited, is not the owner of the said house property, the income from that house property cannot be taxed in its hands. An application for making a reference under section 256(1) of the Act filed by the Revenue was rejected by the Tribunal.
For the assessment years in question i.e., 1975-76 to 1979-80, the Income Tax Officer sought to include the rental income received by Messrs Surrendra Overseas Ltd. in the assessment of the assessee. The assessee objected to the same contending that inasmuch as it has transferred a portion of its leasehold interest in favour of Messrs Surrendra Overseas Ltd., the income received from the properties so transferred to Messrs Surrendra Overseas Ltd. cannot be included in its total income. The Income Tax Officer rejected the objection relying upon Sri Ganesh Properties Ltd. v. CIT (1962) 44 ITR 606 (Cal.); Sakarchand Chhaganlal v. CED (1969) 73 ITR 555 (Guj.) and Bengal Jute Mills Co. Ltd. v. CIT (1949) 17 ITR 308 (Cal.).
The assessee appealed to the Commissioner of Income-tax (Appeals) who recorded a finding that "the income from the leasehold property should be assessed under the head "business". He did not give any specific direction with' respect to the quantum of income. Pursuant to the appellate order, the Income Tax Officer passed an order under section 251 of the Act giving effect to the appellate order. He assessed the income from leasehold property as income from business.
Against the order of the Commissioner of Income-tax (Appeals) aforesaid (dated October 5, 1982), the Revenue filed an appeal before the Tribunal contending that the Commissioner (Appeals) was not justified in directing the income from leasehold property to be assessed as income from business. According to the Revenue, it was liable to be assessed as income from house property. The Tribunal dismissed this appeal.
The assessee preferred an appeal against the aforesaid orders of the Income Tax Officer passed under section 251 of the Act. The Commissioner of Income-tax (Appeals), while affirming his earlier order that the said income should be assessed as income from business, held that the income received by Messrs Surrendra Overseas Limited from the properties sub?leased to it, should not be included in the total income of the assessee. Against this order, the Revenue preferred an appeal to the Tribunal. The Tribunal referred to its aforementioned orders in the appeal preferred by Messrs Surrendra Overseas Limited and held that in the absence of a registered deed of sub-lease, the assessee continued to be liable to tax on the income received from the said property. It rejected the contention of the assessee that the said income was only a notional one and not actual or real income. The Tribunal directed that (i) the income from leasehold property should be assessed as income from business, and (ii) that the income which has to be assessed as income from business from leasehold interest, should be the income as received by Messrs Surrendra Overseas Limited. The assessee thereupon applied for and obtained the reference of the above question for the opinion of the High Court.
We must pause here and mention a fact to clear the ground. While setting out the facts in its judgment, the High Court has stated a new fact which we are not able to find either in the order of the Tribunal or in the order of the Commissioner of Income-tax (Appeals). The High Court has observed that "a multi-storeyed building had been constructed in the said portion under sub-lease and Surrendra Overseas Limited, had let out the same to various tenants and has been collecting rent from such tenants". In the context in which the said observation occurs, it gives an impression as if the High Court was saying that the multi-storeyed building was constructed by Surrendra Overseas Limited in the premises sub-leased to it, though not so stated specifically. We are, however, of the opinion that in the absence of any specific statement to that effect, it would not be proper to read the said observation as stating that the multi-storeyed complex was constructed by Surrendra Overseas. None of the orders of the authorities under the Act say that Surrendra Overseas had constructed a multi-storeyed structure in the premises sub-leased to it by the assessee. We shall, therefore, proceed on the footing that the multi-storeyed building referred to by the High Court was constructed by the assessee itself and that the sub-lease in favour of Surrendra Overseas Limited was of certain premises including the said multi?-storeyed building. We are saying so also because in a reference under section 256(1), no new facts can be introduced by the High Court.
Now, coming to the merits, we are of the opinion that the matter must go back to the High Court for more, than one reason. Firstly, it is not clear to us whether the question referred pertains only to one issue, viz., whether the income received by Surrendra Overseas should be included in, the total income of the assessee or does it also comprehend the other issue, viz., whether the said income should be assessed under the head "Income from house property" or under the head "Profits and gains of business or profession". The question, as framed, is capable of being construed both ways. In this connection, a fact to be noted is that, on an earlier occasion the Tribunal had opined that the said income should be assessed as income from business. Whether that issue got concluded then itself or was it also in issue in the present proceedings? If it was not in issue in the present proceedings, then why did the High Court refer to the decision in S.G. Mercantile Corporation (P.) Ltd. v. CIT (1972) 83 ITR 700 (SC), which deals with this issue only? This matter requires to be clarified.
Secondly, we find that the High Court has not addressed itself to the main issue upon which the Tribunal had allowed the Revenue's appeal, viz., inasmuch as the sub-lease was not effected under a registered document, interest in the property does not pass and. therefore, the income in question continues to be the income of the assessee. It has also not dealt with the reasoning of the Tribunal that by accepting the assessee's plea, the income in question would go untaxed altogether inasmuch as the said income has been held not taxable in the hands of Surrendra Overseas Limited.
For these reasons, the appeal is allowed, the judgment of the High Court is set aside and the matter is remitted to the High Court for a fresh disposal of the reference in accordance with law and in the light of the observations made herein.
M.B.A./1117/FC???????????????????????????????????????????????????????????????????????????????? Appeal allowed