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Commissioner Of Income-Tax v. K.L Puri (Huf)
Structured Summary of the Opinion (R.C. Lahoti, J.)
Factual and Procedural Background
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. The Revenue sought a mandamus directing the Income-Tax Appellate Tribunal to draw up a statement of case and refer specified questions of law to the High Court. The petition framed four questions of law, of which this Court by an order dated May 9, 1995 limited notice and hearing to questions Nos. 1, 3 and 4. The hearing was confined to those three questions.
The background facts relevant to the dispute, as set out in the opinion, include:
- Earlier assessments for the property for assessment years 1982-83 up to 1988-89 had recorded the property as assessed in the hands of the Hindu undivided family (HUF).
- For assessment year 1989-90 the Assessing Officer treated the property as belonging to an individual member (Ms. Indu Puri) and assessed income accordingly; the Tribunal found the earlier treatment (in HUF hands) to bar reassessment of status by principles of res judicata and estoppel.
- With respect to taxation head, the Assessing Officer had treated both rent from the house property and rent for furniture and fixtures as “income from property”. On appeal the Deputy Commissioner held that furniture and fixtures were separable and not permanent/fixed and should be taxed under “income from other sources”; the Tribunal upheld that finding.
Legal Issues Presented
- Whether, on the facts and circumstances of the case, the Income-Tax Appellate Tribunal was correct in deciding that the Department could not question the status in the year under consideration when that point had been accepted in earlier years, and whether the principles of estoppel and res judicata are applicable?
- Whether, on the facts and circumstances of the case, the income from house property should be clubbed in the hands of Ms. Indu Puri by virtue of section 64(2) of the Income-Tax Act?
- Whether, on the facts and circumstances of the case, the Tribunal was correct in deciding that 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 an integral part of the house property?
Arguments of the Parties
Revenue's Arguments
- The questions Nos. 1, 3 and 4 arise as questions of law from the order of the Tribunal and, accordingly, a mandamus under section 256(2) ought to issue directing the Tribunal to draw up a statement of case and refer those questions to the High Court.
- Assessments for the earlier years were made summarily under section 143(1) and were not made after scrutiny; therefore the Assessing Officer for 1989-90 was not debarred from conducting scrutiny and arriving at a conclusion different from earlier years.
- With regard to question No. 4, if the assessee let out the house and also let out furniture and fixtures to the same tenant, then although evidenced by two documents the transactions may be in essence one, and rent under both documents should be clubbed and treated as “income from house property”. The Revenue placed reliance on decisions of the Delhi High Court to support this position.
Assessee's Arguments
- The questions do not arise as questions of law and therefore the Revenue's application under section 256(2) should be rejected.
- Even if the earlier assessments were summarily made under section 143(1), those assessments are deemed to have been made after due application of mind and, accordingly, the principles of res judicata and estoppel would be attracted.
- With respect to the tax head for rent of furniture and fixtures, the Deputy Commissioner and Tribunal have found as a fact that the furniture and fixtures were separable (provided under a separate agreement) and not permanently fixed; that finding of fact supports assessment under “income from other sources”.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Radhasoami Satsang v. CIT, (1992) 193 ITR 321; (1992) 1 SCC 659; AIR 1992 SC 377 | Principle that res judicata does not apply to Income-Tax proceedings; each assessment year is a separate unit, but if a fundamental factual position permeates years and parties have allowed it to stand by not challenging earlier orders, it is inappropriate to permit change in a subsequent year. | The Court relied on this authority to illustrate the limited circumstances in which earlier treatment may preclude change: it supports examining whether the earlier position was allowed to be sustained and whether a fundamental factual finding should prevent change in a later year. |
| Income Tax Officer v. Atchaiah, (1996) 218 ITR 239 | Principle that the Assessing Officer must tax the "right person"; taxing a "wrong person" earlier does not preclude the AO from taxing the right person later. | The Court noted this authority in the context of the Revenue's contention that earlier summary assessments do not prevent the AO from taxing the correct person in the later year. |
| Inder Vijay Singh v. NDMC, (1995) 1 AD (Delhi) 1389 | Decision on municipal assessment context where two concurrent agreements (one for premises and one for fittings/fixtures) were treated as interconnected; the rents under both deeds were held to be taken together for determining annual value under the municipal statute. | The Court described the decision and noted that it was relied upon by the Revenue; however, the Court held that this Delhi High Court decision did not advance the Revenue's submission in the present case. |
| Surjit Singh v. Shri J.N. Pahilai, [1996] (V) AD 482 | Held that amounts payable for fittings and fixtures, as well as monthly rent for premises, were liable to be deposited month by month pendente lite under relevant CPC provisions in a landlord-tenant suit. | The Court recorded this decision as one relied upon by Revenue; it observed the decision but concluded that these authorities did not support the Revenue's case on the facts found by the Tribunal. |
| Kamani Properties Ltd. v. Miss Augustine, AIR 1957 SC 309 | Supreme Court authority referenced by the Delhi High Court cases regarding inclusion of furniture and fittings within the definition of premises under a rent control statute. | The Court noted that the two Delhi High Court decisions referred to and followed the law as laid down in Kamani Properties. The present Court nonetheless found those authorities inapplicable to disturb the Tribunal's factual finding in this case. |
Court's Reasoning and Analysis
The Court framed the immediate procedural parameters for consideration: when entertaining an application under section 256(2) the Court must confine itself to two questions — (i) whether the proposed questions are questions of law; and (ii) whether those questions arise from the order of the Tribunal. The ultimate merits of how the questions should be answered are not relevant at the stage of admitting a petition under section 256(2).
The Court then analyzed each of the three questions (Nos. 1, 3 and 4) that were before it:
- Questions Nos. 1 and 3 (concerning whether the Department was precluded from questioning the status of the property in 1989-90 given earlier years' treatment and whether income should be clubbed in the hands of Ms. Indu Puri under section 64(2)) were held to arise as questions of law from the Tribunal's order. The Court therefore concluded that these questions warranted a statement of case by the Tribunal and referral to the High Court.
- For Question No. 4 (whether rent from furniture and fixtures should be assessed under “income from house property” because they are integral to the house property), the Court reviewed the factual findings made by the Tribunal and the Deputy Commissioner: the furniture and fixtures were found to be separable, not permanently fixed, and were provided under a separate agreement. The AO had originally assessed both streams of rent under “income from property”; on appeal the Deputy Commissioner reclassified the furniture rent as “income from other sources,” and the Tribunal upheld that factual conclusion.
- The Court addressed the Revenue's argument that the two documents might be part of the same composite transaction and should be clubbed. The Court examined the precedents relied upon by the Revenue (including two Delhi High Court decisions and the Supreme Court authority they followed) and found those decisions did not help the Revenue on the facts adjudicated by the Tribunal.
- The Court emphasized that the Tribunal had made a factual finding that the lettings were severable and that there was no finding that the furniture and fixtures formed an amenity attaching to the house or that the documents, though separate, were in substance one. Because the issue before the Court on question No. 4 turned on the Tribunal's factual findings and not on a question of law arising from its order, question No. 4 did not arise as a question of law for reference.
Based on the foregoing, the Court allowed the application in part — directing the Tribunal to draw up a statement of case and refer questions Nos. 1 and 3 to the High Court — and refused to direct a reference in respect of question No. 4 because it involved the correctness of the Tribunal's factual findings.
Holding and Implications
Holding: The application under section 256(2) is ALLOWED IN PART. The Tribunal is directed to draw up a statement of case and refer questions Nos. 1 and 3 for the opinion of the High Court. Question No. 4 does not arise as a question of law from the Tribunal's order and is not referred.
Implications:
- The direct practical effect is that the Tribunal must prepare and forward a statement of case on questions Nos. 1 and 3 to the High Court for determination.
- Question No. 4 remains unreferenced because the Court treated it as resting on findings of fact (the separability of the furniture/fixtures lettings) which the Revenue did not sufficiently challenge as a question of law arising from the Tribunal's order.
- No broader new precedent was announced by the Court in this opinion; the Court applied and discussed existing authorities (both Supreme Court and High Court decisions) to determine whether the matters before it raised questions of law appropriate for reference under section 256(2).
- The Court made no order as to costs.
Note: This summary is restricted to and derived exclusively from the content of the provided opinion. No information not present in the opinion has been added.
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 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?”
2. 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 questions. 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 the questions 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 in 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.
3. 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.
4. Counsel for the assessee has replied by submitting that even if the assessments were summarily made, they are deemed to have been made after due application of mind and therefore, the principles of res judicata and estoppel will be attracted.
5. In Radhasoami Satsang v. CIT, [1992] 193 ITR 321, (1992) 1 SCC 659 : AIR 1992 SC 377, their Lordships of the Supreme Court have held (headnote of AIR 1992 SC and page 377 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.”
6. Learned counsel for the Revenue has also invited our attention to a decision of the Supreme Court in Income Tax Officer v. 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 person’. 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.”
7. 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 questions 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. 1 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.
8. 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.
9. 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.
10. 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 any 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.
11. In Surjit Singh v. Shri J.N Pahilai, [1996] (V) AD 482, it was a 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.
12. Both the abovesaid cases refer to and follow the law laid down by the Supreme Court in Kamani 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.
13. In the case at 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.
14. In the case at hand, it has 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 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 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 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. 1 and 3 stated hereinabove for the opinion of the court.
15. No order as to costs.
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