COMMISSIONER OF INCOME-TAX VS K.L. PURI (HUF), 2000 PTD-DELHI-HIGH-COURT-INDIA 828 (1997)

(a) Income-tax---

----Reference---Powers of High Court---Application for directing reference under S. 256(2)---High Court to confine itself to aspect whether questions as proposed are questions of law and whether they arise from order of Tribunal---Indian Income Tax Act, 1961, S. 256(2).

(b) Income-tax---

----Reference---Question of law---Status of assessee---Tribunal holding that since assessment years 1982-83 up to 1988-89 property assessed in hands of assessee as H.U.F. and assessing same in hands of assessee as individual for assessment year 1989-90 barred by principles of res judicata and estoppel-- Revenue contending that assessments for earlier years summarily made and not made after scrutiny---Assessing officer not debarred from making scrutiny for assessment year in question and coming to conclusion at variance with that arrived at for earlier years---Questions of law arise for reference-- Indian Income Tax Act, 1961, Ss.64(2) & 256 (2).

(c) Income-tax---

----Reference---Question of law---Income from house property and income from other sources ---Assessee letting out house to tenant and deriving rent therefrom---Furniture and fixtures also let out to tenant under separate deed---Tribunal finding that furniture and fixtures not let out to tenant as an amenity attaching to house property---Same provided to tenant at his instance to make his stay at premises comfortable---Rent realised from letting out furniture and fixtures not assessable as "Income from property" but is to be assessed as "Income from other sources"---Rent realised from letting out house to be assessed as "Income from property"---Finding of Tribunal is finding of fact---No question of law arises for reference---Indian Income Tax Act, 1961, S.256(2).

The Tribunal found that ever since the assessment years 1982-83 up to 1988-89, the property in question was assessed in the hands of the assessee as a Hindu Undivided Family and, therefore, in the assessment year 1989-90 the Assessing Officer was precluded from treating the property as belonging to an individual member of the family and hence assessing the same in the hands of the assessee as individual was barred by. the principles of res judicata and estoppel. On an application filed by the Revenue under section 256(2) of the Income Tax Act, 1961, for referring certain questions of law, the Revenue contended that the assessments for the earlier years were made summarily under section 143(1) of the Act and were not made after scrutiny and hence for the assessment year in question the Assessing Officer was not debarred from making a scrutiny and, therefore, coming to a conclusion at variance with that arrived at for the earlier years. The assessee contended in reply that even if the assessments were summarily made, they were deemed to have been made after due application of mind and, therefore, the principles of res judicata and estoppel would be attracted:

Held, that while dealing with an application under section 256 (2) of the Act, the High Court has to confine itself to the questions (i) whether the question as proposed are questions of law; (ii) whether they do arise from the order of Tribunal. Therefore, the questions (i) whether the Tribunal was right in holding that it was no longer open to the Department to question the status of the assessee in the year under consideration when the said point had been accepted in earlier years and whether the principles of estoppel and res judicata are applicable, and (ii) whether the income for the house property should be clubbed in the hands of the individual by virtue of the provisions of section 64(2) of the Act, arose as question of law for reference to the High Court.

The assessee had let out his house to a tenant wherefrom he was deriving rent. The assessee had also let out some furniture to the tenant under a separate deed of rent. The Assessing Officer treated the rent from the property as well as the rent from the furniture as "income from property" and taxed the same accordingly. On appeal, the Deputy Commissioner of Income-tax reversed the order of the Assessing Officer and held that the fixtures and furniture provided by the assessee to the tenant were not permanent fixtures to the building, that they were separable in nature for which a separate agreement had been entered into by the tenant with the landlord and hence he directed the rent from the property to be assessed as "income from property" and rent for furniture and fixtures to be assessed as "income from other sources". On further appeal, the Tribunal upheld the order of the Deputy Commissioner of Income-tax. On a reference under section 256(2) of the Act, the Revenue contended that if the assessee had let out the house property to the tenant and also let out furniture and fixtures to the same tenant then the transaction though evidenced by two separate documents was in essence and substance only one, the two documents being part and parcel of the same transaction, and, therefore, the rent derived by the assessee under the two documents should be clubbed and treated as one and taxed as "income from house property":

Held, that it had been found as a fact by the Tribunal that the transactions of letting out the house and that of letting out the furniture and fixtures to the tenant. were severable transactions. It had not been found as a fact that either the furniture and fixtures were let out to the tenant as an amenity attaching to the house property let out to the tenant or that the two transactions though evidenced by two different documents were in substance part and parcel of the same transaction. Inasmuch as the finding of fact arrived at was that the various fixtures and furniture provided by the assessee to the tenant formed the subject-matter of a separate agreement with the tenant and they were so provided "to the tenant at his instance so as to make his stay in the premises comfortable" the rent realised pursuant to such agreement referable to the fixtures and furniture could not have been treated as "income from property". Therefore, no question of law arose for reference.

ITO v. Ch. Atchaiah (1996) 218 ITR 239 (SC); Inder Vijay Singh v. NDMC (1995) 1 AD 1389 (Delhi); Karnani Properties Ltd. v. Miss Augustine AIR 1957 SC 309; Radhasoami Satsang v. CIT (1992) 193 ITR 321 (SC) and Surijit Singh v. Pahilai (J. N.) (1996) VAD 482 ref.

Sanjiv Khanna with Ms. Prem Lata Barisal for the Commissioner.

Vikram Kapur for the Assessee.

JUDGMENT

R. C. LAHOTI, J.---This is a petition under section 256(2) of the Income Tax Act, 1961, filed by the Revenue arising out of the assessment year 1989-90 seeking a mandamus to the Tribunal for drawing up a statement of case and referring the following questions of law for the opinion of the High Court:

"(1) Whether, on the facts and in the circumstances of the case, the learned Income-tax Appellate Tribunal was correct in deciding that it is no longer open to the Department to question about status in the year under consideration when the said point has been accepted in earlier years. Whether the principle of estoppel and res judicata are applicable?"

(2) Whether the Department is precluded from examining the various legal issues and points of the case when the same was under scrutiny for the first time?

(3) Whether, on the facts and in the circumstances of the case, the income from house property should be clubbed in the hands of Ms. Indu Puri by virtue of the provisions of section 64(2) of the Income tax Act?

(4) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was correct in deciding the income from letting of furniture and fixtures are taxable under the head 'Income from other sources' whereas letting of furniture and, fixtures are taxable under the head 'Income from property' as the same are integral part of the house property?"

Vide order dated May 9, 1995, while admitting this petition for hearing, this Court has directed notice to be issued limited to questions Nos. 1, 3 and 4. We have, therefore, confined the hearing to questions Nos. 1, 3 and 4 only and learned counsel for the parties have addressed the Court on the said question. It was submitted by learned senior standing counsel for the Revenue that questions Nos. 1, 3 and 4 arise as questions of law from the order of the Tribunal and, therefore, a mandamus ought to issue as is sought for. Learned counsel for the respondent-assessee has submitted that question do not arise as questions of law and, therefore, the application filed by the Revenue is liable to be rejected.

So far as questions Nos. 1 and 3 are concerned, the consideration which has prevailed with the Tribunal is that ever since the assessment years 1982-83 up to 1988-89 the property was assessed is the hands of the respondent Hindu Undivided Family, and therefore, in the assessment year 1989-90 the Assessing Officer was precluded from treating the property as belonging to an individual member of family and assessing the same in the hands of Ms. Indu Puri was barred by the principle of res judicata and estoppel.

Learned counsel for the Revenue has submitted that the assessments for the earlier years were made summarily under section 143(1) of the Act and were not made, after scrutiny. He, therefore, submitted that for the assessment year in question the Assessing Officer was not debarred from making a scrutiny and thereafter, coming to a conclusion at variance with the one arrived at for the earlier years.

Counsel for the assessee has replied by submitting that ever if the assessments were summarily made, they are deemed to have been made after due application of mind, and therefore, principles of res judicata and estoppel will be attracted.

In Radhasoami Satsang v. CIT (1992) 193 ITR 321: AIR 1992 SC 377, their Lordships of the Supreme Court have held (headnote of AIR 1992 SC and page 329 of 193 ITR):

"Principles of res judicata do not apply to income-tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. "

Learned counsel for the Revenue has also invited our attention to a decision of the Supreme Court in ITO v. Ch. Atchaiah (1996) 218 ITR 239 wherein their Lordships have held (page 243):

"The Income-tax Officer has no option like the one he had under the 1922 Act. He can, and he must, tax the right person and the right person alone. By 'right person', we mean the person who is liable to be taxed, according to law, with respect to a particular income. The expression 'wrong person' is obviously used as the opposite of the expression 'right persons'. Merely because a wrong person is taxed with respect to a particular income, the Assessing Officer is not precluded from taxing the right person with respect to that income. This is so irrespective of the fact which course is more beneficial to the Revenue."

While dealing with the application under section 256(2) of the Act we have to confine ourselves to the questions (i) whether the questions as proposed are the question of law, and (ii) whether they do arise from the order of the Tribunal '' Which way the questions may ultimately be answered is not the relevant consideration at this stage. In our opinion, questions Nos. l and 3 do arise as questions of law from the order of the Tribunal and, therefore, to that extent, calling for a statement of the case followed by a direction to refer the questions for the opinion of the High Court is justifiably warranted.

As for question No. 4 it appears that the assessee had let out his house wherefrom he was deriving rent. The assessee had also let out some furniture to the tenant under a separate deed of rent. The Assessing Officer treated the rent from the property as well as the rent from furniture as "income from property" and taxed the same accordingly. However, the finding has been reversed in appeal by the Deputy Commissioner of Income-tax who has held that the fixtures and furniture provided by the assessee to the tenant were not of permanent nature fixed to the building; they were separable in nature for which a separate agreement had been entered into by the tenant with the landlord. Accordingly, he directed the rent from the property to be assessed as "income from property" and rent for the furniture and fixtures to be assessed as "income from other sources". This has been upheld by the Tribunal.

Learned counsel for the Revenue has submitted that. if the assessee has let out the house property to the tenant and also let out furniture and fixtures to the same tenant, then the transaction though evidenced by two separate documents is in essence and substance only one, the two documents being part and parcel of the same transaction and, therefore, the rent derived by the assessee under the two documents should be clubbed and treated as one and taxed as "income from house property". He has placed reliance on two decisions of the Delhi High Court which in our opinion do not advance his submission as we would presently demonstrate

Inder Vijay Singh v. NDMC (1995) 1 AD (Delhi) 1389 is a Division Bench decision dealing with determination of rateable value for the purpose of assessment of property tax under section 3 of the Punjab Municipal Act, 1911. By two agreements executed on the same day, the property, fittings and fixtures were let out to the tenant determining two separate. sets of monthly rent. Both the agreements were to run concurrently and the agreement for hire of fittings and fixtures was to stand automatically terminated once the lease agreement for the property was terminated. Section 3(1)(b) of the Punjab Municipal Act, 1911, defined "annual value" in the case of any house or building to mean the gross annual rent which such house or building together with its appurtenances and arty furniture that may be let for enjoyment therewith. The term "rent" was not defined in the Act. The Court took judicial notice of the prevailing practice of the parties entering into such agreements showing a part as rent for the premises and part as rent for furniture" and fixtures with a view to circumvent the law .relating to assessment of house tax. The Court also found the two agreements inter-connected and "on the facts of the case" held the rent appointed by both the deeds taken together available for determining the annual value of the premises.

In Surjit Singh v. Shri J. N. Phailai (1996) (V) AD 482, it wasqa landlord-tenant suit and the Court was called upon to decide how much amount the tenant could be directed to deposit in a Court for payment to the landlord pendente lite by reference to Order 39, rule 10 and Order 12, rule 6 and section 151, of the Civil Procedure Code. The Court held that not only the amount of monthly rent for the premises but also the amount payable on account of charges for the fittings and fixtures was liable to be deposited by the tenant month by month for payment to the landlord.

Both the abovesaid cases refer to and follow the law laid down by the Supreme Court in Karnani Properties Ltd. v. Miss Augustine AIR 1957 SC 309. There the question arising for decision was whether the applicability of the West Bengal Premises Rent Control (Temporary Provisions) Act 1950, was attracted to the premises. Section 2(8) of the Act defined the premises so as to include therein any furniture supplied or any fittings affixed by the landlord for use of the tenant in such building or part of the building.

In the case in hand, we have to concentrate on the definition of "income from house property" and how the annual value shall be determined by reference to sections 22 and 23 of the Act. .

In the case at hand, it has been found as a fact by the Tribunal that the transaction of letting out the house and that of letting out the furniture and fixtures to the tenant were severable transactions. It has not been found as a fact that either the furniture and fixtures were let out to the tenant as an amenity attaching with the house property let out to the tenant or that the two transaction though evidenced by two different documents were in substance part and parcel of the same transaction. Inasmuch as the finding of fact arrived at is that various fixtures and furniture provided by the assessee to the tenant form the subject-matter of a separate agreement with the tenant and they were so provided to the Englishman at his instance so as to make his stay in the premises comfortable, the rent realised pursuant to such agreement referable to fixtures and furniture could not have been treated as "income from property". On the facts as found by the Tribunal, question No.4 suggested by the Revenue does not arise as a question of law from the order of the Tribunal. It may be stated that the question suggested by the Revenue does not challenge the correctness of the finding arrived at by the Tribunal.

For the foregoing reasons the application is allowed in part. The Tribunal is directed to draw up a statement of case and refer questions Nos. l and 3 stated hereinabove for the opinion of the Court.

No order as to costs.

M.B.A./3326/FCApplication partly allowed.