1. This is a reference under section 256(1) of the Income-tax Act, 1961, made at the instance of the assessee. The assessment year with which we are concerned is the assessment year 1967-68. The question referred to us for our determination is as follows :
'Whether, on the facts and in the circumstances of the case, the income derived by the assessee company from letting out part of the office premises and godown on leave and licence basis was its income chargeable under the head 'Business' ?'
2. The relevant facts are as follows :
The assessee is a private limited company incorporated in 1959 primarily with the object of dealing in mill-made cloth on commission basis. It took certain office premises on hire and also took a godown admeasuring 550 square yards on hire. It put up partitions in the godown and made five godowns out of one big godown. It let out part of the office premises and the godown on leave and licence basis against the payment of compensation. This activity of letting out the premises was carried on by the assessee company since its incorporation. It maintained a composite profit and loss account of its income from cloth business and its income from letting out of its office premises and godowns from 1959 up to the assessment year 1966-67. Up to the assessment year 1966-67, the Income-tax Officer concerned treated the income of the assessee from the both the sources as its business income. The assessee incurred a loss of Rs. 2,549 in the assessment year 1961-62 which was carried forward and the loss was set off against the composite profit of the assessee for the year 1963-64 and what was left over was carried forward and was set off against its composite income of 1964-65. In respect of the assessment year 1967-68, the Income-tax Officer departed from the earlier practice and treated the income derived from letting out or granting on leave and licence basis of a part of the office premises and the godown as the income of the assessee from other sources. The Appellate Assistant Commissioner upheld this decision. The assessee preferred an appeal to the Income-tax Appellate Tribunal. Before the Tribunal, it was pointed out on behalf of the assessee that under clause 8 of the articles of association of the assessee company, it was authorised to carry on the business of warehousing. It was contended on behalf of the assessee that the assessee had taken the godown on lease for carrying on the business of warehousing and had put up partitions in the godown for the same purpose. The assessee had also put up partition in the godown for the same purpose. The assessee has also put up racks in the godown and kept one watchman to guard the godown. There is nothing in the statement of the case or the judgment of the Tribunal to indicate that it was urged on behalf of the assessee that the income-tax authorities were not entitled to change the stand which they had taken for some earlier years to the effect that the compensation income from the godown and the said part of the office premises constituted business income. Although no such contention was made, the Tribunal accepted the principle that consistency and stability must be maintained in income-tax proceedings on conclusion of fact and the Revenue should not shifts its conclusions on questions of fact. The Tribunal, however, pointed out that in the case of the assessee, there was no material to support the assessee's stand that it had taken the godown on lease with the object of carrying on warehousing business. The Tribunal took into account certain factors which, according to the Tribunal, led to the conclusion that the assessee had not taken the godown for carrying on warehousing business therein. Some of the material factors which the Tribunal took into account in this connection are that the godown is of a small size, namely, 550 square yards in area, and it was unlikely that if the assessee intended to carry on the business of warehousing, it would take such a small godown for that purpose. The Tribunal also pointed out that although the assessee was deriving compensation income exceeding Rs. 20,000 per year from the godown for a considerable period of time it had not taken any steps for extending its warehousing business. The Tribunal pointed out that no explanation was offered by the assessee as to why a part of the office premises of the assessee had also been similarly let out or given on leave and licence basis. The Tribunal pointed out that there was nothing in the objects clause of the assessee's memorandum or articles of association to suggest that it intended to carry on the business of sub-letting business premises. In view of these circumstances and relying upon certain decisions to which we shall refer, the Tribunal came to the conclusion that the income derived by the assessee from letting out or granting on leave and licence basis of the aforesaid premises and godown was chargeable under the head 'Other sources'. It is from this decision that the assessee has come by way of the aforesaid reference.
3. The first submission of Mr. Vakil, learned counsel for the assessee, is to the effect that it was not open to the Income-tax Officer to change his stand in the assessment year 1967-68 and come to the conclusion that the income derived by the assessee from sub-letting or granting leave and licences basis in respect of the said godown or part of the office premises was income from other sources and not business income of the assessee. It was urged by him that if such change of stand was allowed to be taken, it would cause prejudice to the assessee. We are afraid it is not open to Mr. Vakil to raise this contention at all. As we have already pointed out, no contention to this effect appears to have been advanced before the Tribunal on behalf of the assessee, although the Tribunal on its own did consider whether it would be unfair to allow the income-tax authorities to change their stand in this case. Apart from this, the question referred does not enable Mr. Vakil to raise any controversy that the income-tax authorities were precluded from changing their stand. A plain reading of the question would indicate that all that we are called upon to decide is whether, on the facts and in the circumstance of the case, the income derived by the assessee as aforesaid is chargeable under the head 'Business'. Even assuming that it was open to Mr. Vakil to raise such a contention, in our opinion, there is no substance in that contention. In H. A. Shah & Co. v. CIT/EPT : 30ITR618(Bom) , a Division Bench of this court comprising Chagla C.J. and Tendolkar J., was called upon to examine the question whether the principle of res judicata was applicable to income-tax authorities. It has been held by the Division Bench that as a general rule, the principle of res judicata is not applicable to decisions of income-tax authorities. An assessment for a particular year is final and conclusive between the parties only in relation to that year and the decision given in an assessment for an earlier year is not binding either on the assessee or the Department in a subsequent year. But this rule is subject to limitations, for there should be a finality and certainly in all litigations including litigation arising out of the Income-tax Act, and an earlier decision on the same question cannot be reopened if that decision is not arbitrary or perverse, if it had been arrived at after due inquiry, if no fresh facts were placed before the Tribunal giving the later decision and if the Tribunal giving the earlier decision has taken into consideration all material evidence. There is also a further limitation, namely, that the effect of revising a decision in a subsequent year should not lead to injustice and the court must always be anxious to avoid injustice to the assessee. In the present case, we have to bear in mind that the authority which changed its stand was not the Income-tax Appellate Tribunal but the Income-tax Officer. Quite apart from this, in the present case, the Tribunal took the view that the earlier view taken by the income-tax authorities appeared to be patently unwarranted on the facts. In fact, as the Tribunal has pointed out in paragraph 6 of its order, the facts established by the assessee were so scanty and so much against the assessee that the Tribunal was left with no option but to hold that the action of the income-tax authorities was correct. Again, the assessee did not take up this contention before the Tribunal, as we have already pointed out, with the result that there was nothing to indicate to the Tribunal as to what was the material which was taken into account by the income-tax authorities in the earlier years and whether it was different from the material which was produced by the assessee in the assessment year with which we are concerned. The judgment of the Tribunal, moreover, shows that in the present case, no prejudice was likely to be caused to the assessee by the income-tax authorities changing their stand. We must make it clear that in order to preclude the income-tax authorities from changing their stand, the prejudice likely to be caused thereby should be such that an advantage which the assessee could have got, if the income-tax authorities had taken the stand taken in the relevant assessment year right from the beginning, should be lost to the assessee. In the present case, it is clear that there is no such prejudice caused to the assessee and hence even if it was open to the assessee to take up the contention as set out above, that contention must be rejected.
4. Coming to the question which is directly referred, the facts found clearly show that the only business which the assessee had been carrying on was dealing in mill-made cloth on commission basis. It appears that as far as the godown leased by the assessee on monthly rent is concerned, it was divided into compartments by partitions and sublet or given on leave and licence basis to different parties to earn rent or compensation light from the beginning. A part of the office premises was similarly given out on leave and licence basis. This activity, in our opinion, cannot be said to be a business activity of the assessee but merely a way of exploiting the property of the assessee, namely, the leasehold right in the said godown and part of the office premises to derive income therefrom. Although it is one of the objects of the incorporation of the assessee company to carry on the business of warehousing, there is nothing to show that any such business was carried on by the assessee at all and the subletting or giving on licence of the said godown as aforesaid could by no means be said to be a warehousing activity carried on by the assessee. That the assessee kept a watchman is of no importance because even to guard its own premises, the assessee would have to keep a watchman. The income derived by the assessee from the said godown and the said portion of the office premises given on leave and licence basis to others was not business income. We find considerable support to the view which we are taking from the judgment of a Division Bench of this court in Parekh Traders v. CIT : 150ITR310(Bom) . In that case, the assessee-firm which carried on business in the manufacture and sale of manure mixtures in the City of Poona constructed a godown outside the limits of the Poona Municipality. From July, 1968, till the middle of November, 1968, it used the godown for storing its raw materials. Thereafter, the godown was let out up to January, 1971. In the assessment year 1970-71, the assessee had in its return disclosed a sum of Rs. 80,092 as 'Income from house property' against the godown rent of Rs. 1,08,300. The Income-tax Officer held that the rent received from the letting out of the godown had to be assessed as 'Income from other sources'. The Appellate Assistant Commissioner held that the rent had to be assessed as income from house property and that the annual value of the godown was Rs. 1,08,300. The Tribunal held that the income derived by the assessee by letting out the godown was to be assessed under the head 'Income from house property '. It has been pointed out by the Division Bench that the heads of income enumerated in section 14 of the Income-tax Act, 1961, are mutually exclusive and each specific head covers items of income arising from the specific source. Income derived as rent from property must be computed under the specific head regardless of the fact that that property had at one time been utilised by the assessee for business purposes. Such property cannot be treated as a business asset and the rent thereof as income from business. The Division Bench took the view that although the godown at one time had been used for business purposes by the assessee, since in the relevant previous year the godown had been let out for purposes other than business, it could not be held that the income from (letting) the godown was business income. It was really income from house property. In coming to this conclusion, the Division Bench has placed reliance on the decision of the Supreme Court in East India Housing and Land Development Trust Ltd. v. CIT : 42ITR49(SC) . In that case, the Supreme Court has taken a view that if the income from a source falls within a specific head set out in section 6 of the Indian Income-tax Act, 1922, the fact that it may indirectly be covered by another head will not make the income taxable under the latter head. On the question referred, we are not called upon to consider whether the income in question was income from house property but only whether it was income from business. For the reasons set out earlier, we are of the view that it cannot be regarded as business income.
5. Mr. Vakil drew our attention to several authorities where a view has been taken that income derived from exploitation of business assets is to be treated as business income and, on the basis of these authorities, it was submitted by him that in the present case also the income earned by the assessee from the said godown and the portion of the office premises should be treated as business income. In our view, the contention of Mr. Vakil really amounts to begging the question. The only question which we have to decide is whether, on the facts of this case, the income earned for the previous year relevant to the assessment year from the said godown and the portion of the office premises subject as aforesaid could be regarded as business income. In our view, for the reasons which we have already stated, the said godown and the said portion of the office premises cannot be treated as business assets and hence the authorities which lay down that income from business assets must be regarded as business income are of no assistance in this case.
6. In the result, the question is answered in the negative and against the assessee. The assessee to pay the costs of the reference.