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Thakur Das Vs. Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Delhi
Decided On
Judge
Reported in(1983)5ITD168(Delhi)
AppellantThakur Das
Respondentincome-tax Officer
Excerpt:
.....the issue involved, we have to consider the scope of section 22. section 22 stands as under : the annual value of property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner, other than such portions of such property as he may occupy for the purposes of any business or profession carried on by him the profits of which are chargeable to income-tax, shall be chargeable to income-tax under the head 'income from house property' a perusal of the above would show that what is chargeable under section 22 is the annual value of the property consisting of any building of which the assessee is the owner. however, portions of such property which an assessee may occupy for the purpose of any business carried on by him is excluded from the chargeable profit.....
Judgment:
1. This appeal by the assessee is directed against the order of the Commissioner relating to the assessment year 1977-78. The Commissioner found that the assessee owned a property at C-109, New Subzi Mandi, Delhi. He was also a partner in the firm of Jashan Mai & Sons. The assessee had let out his independent property to the firm on an annual rent of Rs. 12,000. The amount of Rs. 12,000 was duly credited to the account of the assessee with the firm. The assessee claimed before the ITO that this income of Rs. 12,000 by way of rent was not assessable in his hands as the provisions of Section 22 of the Income-tax Act, 1961 ('the Act'), were not applicable in view of the decision of the Gujarat High Court in the case of CIT v. Rasiklal Balabhai [1979] 119 ITR 303.

The plea of the assessee was accepted by the ITO who did not assess this income either as income from property or under any other head.

2. The Commissioner was of the view that the order of the ITO was erroneous insofar as it was prejudicial to the interests of the revenue. The assessee relied on the decision of the Gujarat High Court and contended that, when a partner allows his property to be used for the business of the firm, it should be deemed that the property is occupied for the purpose of the business carried on by the assessee. In view of this decision, it was contended that the order of the ITO could not be considered to be erroneous. It was submitted that where an ITO follows an order of the High Court, his order cannot be considered to be erroneous. The Commissioner was of the view that the income in question could not be assessed as income from property, but as the assessee was actually deriving income at the rate of Rs. 12,000 per year, such income was assessable under the provisions of Section 2(24) of the Act. He further held that there was no provision to exempt such income on the ground that it was received by a partner of the firm.

According to the Commissioner, this income was assessable as income from other sources. He, therefore, directed that the sum of Rs. 12,000 should be assessed as income from other sources in the hands of the assessee.

3. It is against this order that the assessee is in appeal. The learned counsel for the assessee submitted that the learned Commissioner has agreed that the income in question could not be assessed as income from property. He contended that the Commissioner could not proceed to assess this income under any other head. According to the learned counsel, once a particular income could not be assessed under its proper head, it was not open to the revenue to assess it under another head. He drew our attention to the decision of the Gujarat High Court in the case of Rasiklal Balabhai (supra) and submitted that, in that case the assessee was not receiving any rent though his property had been given to the firm in which he was a partner. The department had assessed the notional income in the hands of the assessee. It was held by the High Court that the annual letting value of the godown could not be included in the total income of the assessee under Section 22 as the property was being used for business carried on by him. It was contended that in this case the fact that the assessee was receiving rent from the firm would not change the position. He further argued that it was not necessary that every receipt constituted income. He gave an example of the rent received over and above the annual letting value and it was pointed out that before the amendment of law such additional receipts would not constitute an income in the hands of the assessee. He also gave an example of the case of Nalinikant Ambalal Mody v. S.A.L. Narayan Row CIT [1966] 61 ITR 428 (SC), where it was held that the professional receipts received after the discontinuance of profession would not be assessed to tax under any head. It was further contended that in the assessment year 1976-77, the income was shown as business income, but the same was assessed as income from property and it was deleted in appeal. The learned counsel further relied on the decision of the Delhi High Court in the case of CIT v.Dr. Rameshwar Lal Pahwa [1980] 123 ITR 681. In this case the assessee had created an annual charge on the property and it was allowed as a deduction, but the same was added separately as the assessee's income under Section 60 of the Act. It was held by the High Court that the assessment of the property income had to be done only in accordance with the provisions of Sections 22 to 26 and as this amount could not be assessed there, it could not be assessed separately under Section 60. A further reliance was placed on the decision of the Supreme Court in the case of CIT v. B.C. Srinivasa Setty [1981] 128 ITR 294, wherein it was held that the charging section and the computation provisions together constituted an integrated code. When there is a case to which the computation provisions cannot apply at all, it is evident that such a case was not intended to fall within the charging section. The learned counsel submitted that there was no error in the order of the ITO who had followed the order of the High Court. In this connection he reiterated the arguments given before the Commissioner. He also referred to the notice given to him under Section 263 of the Act and submitted that the ultimate order of the Commissioner was different from what was stated in the notice, ft was, therefore, submitted that assessment of Rs. 12,000 was unwarranted in the circumstances of the case. The learned departmental representative, on the other hand, submitted that this was a case where an actual income has arisen to the assessee and if such income was excluded from the charge under the head income from property, it could certainly be assessed as income from other sources.

4. We have carefully considered the facts of the case and the arguments of the learned counsel for the assessee, who presented the case in a very lucid manner. In order to appreciate the issue involved, we have to consider the scope of Section 22. Section 22 stands as under : The annual value of property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner, other than such portions of such property as he may occupy for the purposes of any business or profession carried on by him the profits of which are chargeable to income-tax, shall be chargeable to income-tax under the head 'Income from house property' A perusal of the above would show that what is chargeable under Section 22 is the annual value of the property consisting of any building of which the assessee is the owner. However, portions of such property which an assessee may occupy for the purpose of any business carried on by him is excluded from the chargeable profit in Section 22. Thus, what is chargeable under the head income from house property is the annual value of properties excluding such properties which are used for the assessee's business. It is now settled law that what is chargeable under Section 22 is the annual letting value of the property as defined in Section 23 of the Act and the income which is chargeable under Section 22 is not the money benefit derivable from property, but the sum for which the property might reasonably be expected to let from year to year. The exception is provided where the actual rent is more than the notional annual value. Any such notional annual value of such properties which are used for the assessee's business are totally excluded from the charge under Section 22. Thus, where the charge is on the basis of ownership alone and what is chargeable is the notional annual value, such a charge cannot be laid on the property occupied for business. Section 56 of the Act provides that income of every kind which is not to be excluded from the total income under the Income-tax Act shall be chargeable to income-tax under the head 'Income from other sources', if it is not chargeable to income under any of the heads specified in Section 14, items A to E. In order to bring any income under Section 56 it is necessary that there should be an income and there should be no exemption in the Act regarding that income. The other requirement is that the income in question is not chargeable to tax under the other heads enumerated in Section 14. If an income is chargeable under any of those heads, it cannot again be assessed to tax as income from other sources. In other words, the residuary head of income can be resorted to if none of the specific heads is applicable to the income in question. In other words, if a certain item of income is taxable under one of the specific heads, the charge under that head exhausts the taxability of the income and no part of such income can be brought to charge again under the residuary head. These principles have been laid down by the Supreme Court in the case of Nalinikant Ambalal (supra).

5. In the present case, there is an actual receipt of income by way of payment made by the firm to the partner in consideration of their occupying the assessee's property for carrying on its business. It is clear that the annual value of the property which is assessable on the basis of ownership cannot be assessed in the hands of the assessee under Section 22. However, once the properties which an assessee may occupy for the purpose of his business are excluded from the charge under Section 22, the provisions of Section 56 of the Act come into play and if there is an income, it becomes chargeable there. This is so, because while laying down the charge under Section 22, such properties which are occupied by the assessee for his business are completely excluded. However, by that very reason they get included in the charge provided in Section 56.

6. At this stage we may consider the decision of the Gujarat High Court which has been relied on by the assessee. That was a case where the assessee was not deriving any actual income from the property occupied by the firm in which he was a partner. It would appear from the above decision that the ITO had fixed a notional annual letting value of the property and had included it in the assessee's income as income from property. The question arose whether the action of the revenue was correct and the Tribunal and the Gujarat High Court held that the annual letting value of the godown could not be assessed in the hands of the assessee under Section 22. Their Lordships were not considering a case, like the one which is before us. Applying the decision of the Gujarat High Court, the only conclusion which can be drawn is that the annual letting value of the property which is occupied by the firm in which the assessee is a partner cannot be assessed under Section 22.

The decision does not further lay down that if there is an income which is not chargeable under Section 22, the same cannot be assessed under Section 56. This is not a case where the annual letting value of a property is being assessed in the hands of the assessee and it is found that the actual income was more than the annual letting value. In such a case, the additional amount could not have been assessed in the hands of the assessee prior to the amendment made in Section 23(1).

7. In view of the above position, we have to consider the facts of the present case. The Commissioner found that the assessee derived an income of Rs. 12,000 which was paid by the firm to the partner for the occupation of his building for the purpose of firm's business. In view of this fact, the Commissioner held that the annual letting value of the property could not be assessed under Section 22, but the same was rightly assessable under Section 56 as income from other sources. In this connection the Commissioner referred to the fact that there was no exemption for such income in the hands of the assessee and he, therefore, directed enhancement of the income by Rs. 12,000 under the head income from other sources.

8. In our opinion, the action of the Commissioner was legally correct and cannot be objected to. The ITO had not charged this income as, according to his understanding, the decision of the Gujarat High Court covered the case of the assessee. The Commissioner found that the decision of the Gujarat High Court did not cover the case of the assessee and was distinguishable on facts. Where an ITO applies a legal proposition or a Court's decision by a'wrong interpretation, his order can certainly be called erroneous. If once the view of the Commissioner in this regard is upheld, it cannot be disputed that the order of the ITO was prejudicial to the interests of the revenue so far as the actual income earned by the assessee had not been brought to tax. The reliance of the assessee on the decision of the Supreme Court in the case of Nalinikant Ambalal (supra) referred to above, does not help the assessee in view of the fact that this income was never chargeable under Section 22 and was always chargeable under Section 56. Neither does the decision of the Delhi High Court in the case of Dr. Rameshwar Lal Pahwa (supra) help the assessee. In that case it was held that what is deducted as an annual charge could not be again brought to tax under Section 60. We are not considering any such case. The learned counsel submitted that the Commissioner had given a notice under Section 263, but in that he did not refer to income from other sources. We find that the notice issued by the Commissioner was in general terms stating that the assessee's income of Rs. 12,000 had not been assessed and he proposed to bring it to tax. In the notice he has not mentioned the head of income under which he was proposing to tax the income of the assessee. After hearing the learned counsel for the assessee, he passed the impugned order which we uphold. We are, therefore, of the view that the Commissioner was justified in passing the order under Section 263 and directing the ITO to assess the income of Rs. 12,000 as income from other sources.


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