PARK HOTEL (P.) LTD. VS COMMISSIONER OF INCOME-TAX, 2002 PTD-CALCUTTA-HIGH-COURT-INDIA 2034 (2000)

Income‑tax‑‑‑

‑‑‑‑Business‑‑‑Income from business ‑‑‑Assessee not owner but a lessee of property‑‑‑Property sub‑leased to one S‑‑‑S putting up further construction on property ‑‑‑Assessee not incurring any expenditure for construction ‑‑‑Assessee not owner of property‑‑‑On 30‑9‑1977 S transferring the property to assessee for consideration‑‑‑Rent received by S from 1‑10‑1977‑‑‑Rental income not taxable in the hands of assessee from 1‑10‑1970 to 30‑9‑1977, that is, till date of retransfer to assessee‑‑ Indian Income Tax Act, 1961.

The Income‑tax Officer held that the income from leasehold property which was sub‑leased to one S was liable to be taxed in the hands of the assessee as income from house property. The Tribunal took the view that the income was liable to be assessed as business income. On a reference, it was held that the assessee was not the owner but only a lessee and, therefore, the income from the leasehold property which was in the possession and occupation of S was the business income of the assessee. On appeal the Supreme Court in CIT v. Park Hotel (P.) Ltd. (1996) 218 ITR 221 set aside the order of the High Court and the matter was remitted to the High Court for fresh disposal. The High Court called for a finding from the Tribunal‑ as to who constructed the building for the purpose of ownership. The Tribunal found as per the balance‑sheet of the assessee‑company for the year ending March 31, 1971, that the entire immovable property stood transferred to S for consideration for the period October 1, 1970, to September 30, 1977, S had put up construction and the assessee did not incur any expenditure for the same. On September 30, 1977, the entire leasehold land alongwith construction stood retransferred to the assessee‑company for consideration.

Held, that since the property was sub‑leased and the possession handed over to S and since S put up the construction of the multi storeyed building and was collecting the rent the income could not be assessed in the hands of the assessee up to the date when the property was retransferred to the assessee. If income has not been taxed in the hands of .A who was liable to pay tax it could not be taxed in the hands of B when under the provisions it was not taxable in the hands of B.

CIT v. Podar Cement (Pvt.) Ltd. (1997) 226 ITR 625 (SC); Park Hotel (P.) Ltd. v. CIT (1987) 167 ITR 60 (Cal.) on appeal (1996) 218 ITR 221 (SC) and S.G. Mercantile Corporation (P.) Ltd. v. CIT (1972) 83 ITR 700 (SC) ref.

Dr. Debi Prosad Pal and A.K. Roy Chowdhury, S.K. Ray, S. Roy Chowdhury and Aniruddha Ray for the Assessee.

P.K. Mullick with J.C. Saha for the Commissioner.

JUDGMENT

On a reference application under section 256(1) of the Income Tax Act, 1961, the Tribunal has referred the following question set out at page 10 of the application for the opinion of this Court (see (1987) 167 ITR 60, 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 Surendra Overseas Limited, be assessed as the income of the assessee from business from leasehold interest?

The fact, in short are that for the assessment years 1975‑76, 1976‑77, 1977‑78 and 1978‑80, the Income‑tax Officer has questioned the assessee why the income from leasehold property, which has been sub‑leased to Surendra Overseas Limited, should not be taxed in the hands of the assessee and also why that income should not be taxed as income from house property.

After hearing the assessee, the gross rent estimated in the aforesaid years was taxed in the hands of the assessee as income from house property. In appeal, the Commissioner of Income‑tax (Appeals) has directed that income from the leasehold property should be assessed under the head "Business".

Being aggrieved, the Revenue carried the matter before the Tribunal and the Tribunal has taken the view that as the income in question has not been assessed in the case of Surendra Overseas Limited, the income should be assessed in the hands of the assessee as income from business. It is also observed that the income which has not been assessed in the hands of Surendra Overseas Limited and it will not be taxed in the hands of the assessee, that income will go untaxed.

On reference to this Court (Park Hotel (P.) Ltd. v. CIT (1987) 167 ITR 60), this Court has considered the issue regarding ownership and held that when the assessee is not the owner of the property but only a lessee thereof, it cannot be held that the income arising from a portion of the leasehold property, which is in the possession ‑and occupation of Surendra Overseas Ltd., and rent was being realised by Surendra Overseas Limited, was the real income of the assessee arising from its business.

Against the decision of this Court (see (1987) 167 ITR 60), the matter was carried before the Supreme Court and the Supreme Court (CIT v. Park Hotel (P.) Ltd. (1996) 218 ITR 221) has considered various aspects including the fact that when none of the orders of the authorities under the Act say that Surendra Overseas Limited, had constructed a multi‑storeyed structure in the premises sub‑leased to it by the assessee, therefore, their Lordships proceeded on the footing that the multi storeyed building referred to by the High Court was 'constructed by the assessee itself and that sub‑lease in favour of Surendra Overseas Limited was on certain terms. Their Lordships further observed that no new facts can be introduced by the High Court. Their Lordships further observed that the High Court has not addressed itself to the main issue upon which the Tribunal had allowed the Revenue's appeal inasmuch as the sub‑lease was not effected under a registered document, the interest in the property does not pass and, therefore, the income in question continues to be the income of the assessee.

Their Lordships further observed that the High Court has also not dealt with the question on the finding of the Tribunal that if income is not taxed in the hands of the assessee, it can go untaxed. For these reasons, the judgment of the High Court was set aside and the matter was remitted back to this Court for a fresh disposal.

The matter was first taken up on January 15, 1998. On January 15, 1998, it was argued that there is no specific finding of the Tribunal regarding the ownership of the multi‑storeyed building and also as to who constructed it. Therefore, before going into the other questions, this Court deemed it proper to get the finding of the Tribunal, as to who constructed the building for the purpose of ownership and the Tribunal was directed to give the finding to this effect.

In pursuance of our direction, the Tribunal has given the finding and filed the supplementary paper book to this effect. The relevant finding of the Tribunal reads as under:

"(a) That Park Hotel (P.) Ltd., the assessee‑company transferred its leasehold interest in the property bearing premises Nos.3,5,7,9,11 and 15, Park Street, Calcutta, to Surendra Overseas Limited, on 30th November, 1970, for the consideration of Rs.63.13 lakhs (Rs.25.69 lakhs for lease‑hold land and Rs.37.44 lakhs for the building under construction). As per the balance‑sheet of the assessee‑company for the year ended March 31, 1971, the entire immovable property stood transferred to Surendra Overseas Limited, during the accounting year. There was no immovable property in the books of account of the assessee‑company or addition thereto from 1st October, 1970 to 30th September, 1977.

(b) Surendra Overseas Limited, made further' construction on the property it took over from the assessee‑company and spent an additional sum of Rs.73,43,613, from 30th November, 1970, till 30th September, 1977. During this period, the assessee‑company did not incur any expenditure for construction of the property.

(c) It is specifically stated by the Assistant Commissioner of income‑tax that the assessee‑company did not incur any expenditure for construction of the superstructure on the lease hold land during the period from 1st October, 1970, to 30th September, 1977. This was confirmed by the Assessing Officer while passing the order under section 254 of the Act in respect of the assessee‑company for the assessment years 1975‑76, 1976‑77 and 1977‑78. This finding of the Assessing Officer was also confirmed by the Commissioner of Income‑tax (Appeals), Central‑1, Calcutta, vide his order, dated September 23, 1986, in Appeal No.232/CIT(A) C‑1 of 1985‑86:

(d) On 30th September, 1977, the entire lease‑hold land alongwith the construction on the aforesaid property was transferred to the assessee‑company at a total consideration of Rs.1,36,00,613."

The Tribunal gave the finding of fact that the building in question has been constructed by Surendra Overseas Limited.

As per direction of the apex Court, we have to consider the issue whether for ownership, registration of the sale‑deed/lease deed is necessary and if it is not necessary, then income should be assessed in the hands of the assessee or in the hands of Surendra Overseas Limited and if income was not assessed in the hands of Surendra Overseas Limited by mistake can it be assessed in the hands of the assessee, if no provision permits to do so?

Mr. P.K. Mullick, learned counsel appearing for the Revenue, heavily relied on the decision of the apex Court in the case of S.G. Mercantile Corporation (P.) Ltd. v. CIT (1972) 83 ITR 700, and submits that the registration is necessary, without that the transfer is not effected. Therefore, when the deed was not registered, the income should be assessed in the hands of the assessee.

Dr: Pal, learned counsel appearing for the assessee, submits that after the property was sub‑leased to Surendra Overseas Limited, Surendra Overseas Limited was taken over the possession of the property and received the rent from that multi‑storeyed building, which has been constructed by Surendra Overseas Limited. That income cannot be taxed in the hands of the assessee. He placed reliance on the decision of the apex Court in the case of CIT v. Podar Cement ("1Pvt.) Ltd. (1997) 226 ITR 625.

Now, the facts are not in dispute that the property in question has been sub‑leased by the assessee to Surendra Overseas Limited. The possession has been taken over by Surendra Overseas Limited. The rent has been received after that sub‑lease by Surendra Overseas Limited, of that property from October 1, 1972 (sic) to September 30, 1977, which includes the previous years relevant to the years under consideration.

We have gone through the decision of the apex Court in the case of S.G. Mercantile Corporation (P.) Ltd. (1972) 83 ITR 700. In fact, there was no dispute before the apex. Court in that case regarding the ownership. The dispute was whether the income from that property should be taxed as income from business or not? At page 705, their Lordships categorically observed that "there was no finding in the present case that the appellant‑company is the owner of the property in question. "Even both the parties agreed to this fact and when the assessee‑company was not the owner of the property, the income from that property cannot be assessed in the hands of the assessee‑company. The relevant portion of the observation of their Lordships at page 705 reads as under:

"There is no finding in the present case that the appellant company is the owner of the property in question or any part thereof. As such; no reference was made to section 9 of the Act in the assessment proceedings. The learned counsel for both the parties agree, and in our opinion rightly, that the question of making the assessment against the appellant, in the circumstances, under section 9 of the Act does not arise."

After the assessment of this case by the apex Court, their Lordships had occasion to consider the issue regarding ownership for the purpose of the Income‑tax Act in Poddar Cement (Pvt.) Ltd.'s case (1997) 226 ITR 625 (SC). Their Lordships had considered the definition of ownership under section 27 and their Lordships observed at page 653 as under:

"We are conscious of the settled position that under the common law, `owner' means a person who has got valid title legally conveyed to him after complying with the requirements of law such as the Transfer of Property Act, Registration Act, etc. But, in the context of section 22 of the Income‑tax Act, having regard to the ground realities and further having regard to the object of the Income‑tax Act, namely, `to tax the income', we are of the view, `owner' is a person who is entitled to receive income from the property in his own right."

Their Lordships made it clear that they are conscious of the settled position that under the common law, "owner" means "a person who has got valid title legally conveyed to him after complying with the provisions of the Transfer of Property Act and the Registration Act, but for the purpose of the Income‑tax Act, for taxing the income, the assessment should be made with the object of the Income‑tax Act, i.e., to tax the income".

Their Lordships also clarified that though the amendment relating to section 27(iii), (iiia) and (iiib) was made by, the Finance Bill, 1987, but, considering the object and background behind the amendment, the provisions are retrospective in operation and, therefore, their Lordships upheld the view taken by the High Courts of Patna, Rajasthan and Calcutta and held that, the contrary view taken by the Delhi, Bombay and Andhra Pradesh is not good law.

Respectfully following the view of the apex Court in their latest decision on the issue, we hold that once the property was sub‑leased, the possession has been handed over to Surendra Overseas Limited and Surendra Overseas Limited is collecting the rent of that property, which Surendra has constructed the multi‑storeyed building. There is no question of taxing that income in the hands of the assessee up to the date when the property was retransferred to the assessee by Surendra Overseas Limited.

Their Lordships also observed that the Tribunal has given one of the reasons to tax this income in the hands of the assessee, as that has not been taxed in the hands of Surendra Overseas. We put a query to Mr. Mullick, learned counsel for the Revenue, to show us any provision in the Income‑tax Act which authorised the Assessing Officer that when the income is not taxed in the hands of the assessee who is liable to pay tax under the Act, can that be taxed in the hands of any other person, only by the ground that the income has not been taxed in the hands who is liable to pay tax under the Act, 1961?

He failed to show any provision to this effect. Considering this factual position and the provision of the law, we found no substance in the view taken by the Tribunal and if income has not been taxed in the hands of "A" who is liable to pay tax under the Act, that can be taxed in the hands of "B", when under the provisions, that is not taxable m the hands of "B".

In the result, we answer the question in the negative, i.e., in favour of the assessee and against the Revenue for the period uptil September 30, 1977, and thereafter it be taxed in the hands of the assessee.

The application is accordingly disposed of.

All parties are to act on a Xeroxed signed copy of this dictated order on the usual undertaking.

M.B.A./798/FCOrder accordingly.