Commissioner Of Income-Tax v. Ideal Garden Complex P. Ltd.

K. Raviraja Pandian, J.:— The Revenue seeks the admission of the tax case for the assessment years 1997-98 and 1998-99 on the following substantial questions of law:

“(i) Whether the Tribunal was right in dismissing the appeal preferred by the Revenue without going into the merits of the case on the ground that the disputed tax exceeds the monetary limit prescribed in the Central Board of Direct Taxes circular dated March 27, 2000?

(ii) Whether the right of appeal conferred under section 254 of the Income-tax Act could be restricted or whittled down by the Central Board of Direct Taxes?

(iii) While the Tribunal took into consideration of the circular issued by the Central Board of Direct Taxes whether it is empowered to neglect exemptions contained in the same and the subsequent clarifying circular issued by the Central Board of Direct Taxes?

(iv) Whether the Tribunal was right in holding that the circular of the Central Board of Direct Taxes restricts the right of appeal conferred under section 254 of the Income-tax Act, even in spite of the judgment of the jurisdictional High Court reported in CIT v. P.S.T.S Thiruvirathnam, [2003] 261 ITR 406 (Mad)?

(v) Whether the Tribunal is right in not considering the issue as one involving the substantial question of law and ought not to have dismissed the appeal without going into the merits of the case ? and

(vi) Whether or not on the admitted facts of the case that the income of the assessee an income from the property in view of the judgment of the jurisdictional High Court reported in CIT v. Indian Metal and Metallurgical Corporation, [1995] 215 ITR 424 ?”

2. The assessee-company owned a commercial complex and received rent of Rs. 14.61 lakhs for the period 1996-97 relating to the assessment year 1998-99. In the income-tax assessment completed under section 143(3)/147, it has been held that the income from letting of commercial complex is assessable as income from house property in terms of sections 22 to 24 of the Income-tax Act as against business income as claimed.

3. Therefore, the value of commercial complex as reduced by debts owned by the assessee as on the valuation date is assessed to wealth-tax. As there was reason to believe that net wealth chargeable to tax has escaped, assessment, proceedings were initiated under section 17 of the Wealth-tax Act. In response to the notice under sections 17 and 16(4) served, the assessee filed a return on June 29, 2000, admitting “nil” value of the net wealth.

4. In the note appended to the statement of wealth, the assessee stated as under:

(i) The building owned by the assessee has constructed on leasehold land. Hence, the value of the building or superstructure alone is included

(ii) Since the building is a business asset. WDV of the building has been admitted as per rule 14 of Schedule III to the Wealth-tax Act.

(iii) Investment representing shares in companies and current assets are not assets within the meaning of section 2(ea) of the Wealth-tax Act.

5. In response to notice under section 16(2) served, the assessee's representative appeared and after hearing the case, the net wealth of the assessee has been computed at Rs. 17,19,535.

6. In respect of income-tax assessment for the assessment year 1992-93, the assessee has filed the returns of income which were processed under section 143(1). During the previous year relevant to assessment year 1992-93, the assessee-company completed construction of commercial complex building at a cost of Rs. 40,65,287 and claimed depreciation.

7. The Revenue is of the view that as the assessee's income is from letting out commercial complex, the same is assessable as income from house property. For escapement of income, proceedings were initiated under section 147 and notice under section 148 was issued with the prior approval of the Joint Commissioner of Income-tax, Salem Range, Salem.

8. The assessee objected to the proposal for reassessment of income under the head “House property” since the proposed action was as a result of objection from audit party relying on the decision of this court in the case reported in CIT v. Indian Metal and Metallurgical Corporation, [1995] 215 ITR 424 and the decision relied on by the audit party was entirely on different facts the proposed reassessment was not justified.

9. It was also the case of the assessee that the building, i.e, the superstructure alone is owned by the company and the land belongs to Sri A. Sethu and it has been taken on lease and on which the building has been constructed which is duly reflected in the balance-sheet. In view of various conditions which do not give absolute right over the property and the assessee is not the owner of the land, the income cannot be treated as income from property. Further, it was argued that the main object of the company is to take land on lease and construct building and let it out as commercial complex and accordingly, the income should be assessed under the head “Business income”. In support of the claim, the assessee quoted the case law in the case of Bhoopalam Commercial Complex and Industries P. Ltd. v. CIT, [2000] 72 ITD 262 (Bang.) and Sanmar Holdings Ltd. v. ITO decided by the Madras Bench of the Income-tax Appellate Tribunal. After considering the objection of assessee and by relying on the decision of this court reported in CIT v. Indian Metal and Metallurgical Corporation, [1995] 215 ITR 424, the income has been taken as income from house property. Aggrieved over the same, the assessee preferred an appeal before the Commissioner of Wealth-tax (Appeals).

10. The Commissioner of Wealth-tax (Appeals) allowed the appeal directing the Assessing Officer to treat the income as that of business instead of income from house property placing reliance on rule 14 of Schedule III to the Wealth-tax Act. The Revenue aggrieved over the same, preferred an appeal to the Income-tax Appellate Tribunal.

11. It is seen that at the time of hearing, the assessee's counsel submitted that the tax effect involved in this appeal is less than Rs. 1,00,000 and hence, the Department is precluded from filing appeal against such cases as per the Circular of Central Board of Direct Taxes, dated March 27, 2000. Accepting the plea of the assessee, the Tribunal, in its order dated August 18, 2005, dismissed the Revenue's appeal. In so doing, it followed the decision reported in CIT v. Kodananad Tea Estates Co., [2005] 275 ITR 244 (Mad) and CTT v. Pithwa Engineering Works, [2005] 276 ITR 519 (Bom) wherein it was held that the aforementioned circular is applicable even to old references which are still undecided. Aggrieved by the said order, the Revenue is on appeals before this court seeking admission.

12. It may be noted that this court considered a similar issue in the decision rendered on August 16, 2007, in T.C No. 222 of 2004 (Commissioner Of Income-Tax v. Associated Electrical Agencies, [2007] 295 ITR 496 (Mad)). Based on Instruction 1979 in Circular F. No. 279/126/98 ITJ, dated March 27, 2000, referring to the statutory power under section 119 of the Income-tax Act, 1961 under which the circular was issued, this court held that (page 500)

“10. We are of the considered view that none of the exceptions stated in the circular are applicable to the facts of the present case. The circular was stated to be issued by invoking the statutory power under section 119 of the Income-tax Act. The appeal is filed under section 260A of the Income-tax Act. It is well-settled principle of law that each and every provision of a statute has to be given the same importance. One provision cannot be elevated to a higher pedestal than the other provision, of course, unless or otherwise specifically stated either in the scheme, the Act or in the provision itself that a particular provision is subjected to or qualified by any other provision or the provision can be given effect to notwithstanding anything contained in any other provisions by assigning overriding effect. Hence, the contention that notwithstanding the circular, which was issued under section 119 of the Income-tax Act, the appeal could be filed by the Revenue under section 260A has to be rejected for the reason that if the contention is accepted, one of the sections would become virtually otiose and that cannot be the intention of the law makers.”

13. Thus, following the long line of case law reported in CIT v. Rajasthan Patrika Limited, [2002] 258 ITR 300 (Raj) and CIT v. P.S.T.S Thiru-virathnam, [2003] 261 ITR 406 (Mad) to which one of us is a party (K. Ravi-raja Pandian J.), CIT v. Digvijay, [2007] 292 ITR 314 (MP) and Commissioner Of Income-Tax… v. Camoo Colour Co.…., [2002] 254 ITR 565 (Bom), this court held that the uniform line of judicial opinion is that if the tax effect is less than what is stated in the circular, the Revenue need not agitate the issue on appeal and that the circular is binding on the Revenue.

14. In the light of the said view expressed by this court and on the admitted fact that the tax effect is also negligible and less than Rs. 1,00,000 and the case not falling under any of the stipulations of the circular, we do not find any justification to admit these appeals. Consequently, the same are dismissed.