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income-tax Officer Vs. Devchand Chhaganlal Shah. - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Bangalore
Decided On
Reported in(1984)10ITD454(Bang.)
Appellantincome-tax Officer
RespondentDevchand Chhaganlal Shah.
Excerpt:
.....26 and in pursuance of the directions contained in the tribunals order.since earlier to that the share income of the member in the rental income from the property was considered only for rate purposes, what was subsequently done as a result of the tribunals direction, was only to include the share income of the member in the rental income of the co-owned property for substantive assessment as decided in the karnataka high courts decision in d. c. shahs case (supra). it was, therefore, submitted that since originally the share income of the member was not included in the assessment of the individual member, the same was included in the rectificatory order under section 155(2) as per the requirements of the section. it was, therefore, submitted that the commissioner (appeals) was not.....
Judgment:
Per Shri G. R. Raghavan, Accountant Member-This appeal by the revenue relating to the assessment year 1968-69 arises out of the consolidated order of the Commissioner (Appeals) in his IT Appeal Nos. 55 to 58/CC.III/CIT (A)-I of 1980-81 dated 29-9-1982, for the assessment years 1968-69 to 1971-72. In the above mentioned order of the Commissioner (Appeals), the appeals filed by the assessee for the assessment years 1969-70 to 1971-72 were dismissed. The appeal relating to the assessment year 1968-69 was allowed in part, in that the Commissioner (Appeals) held, that the order passed by the ITO under section 155(2) of the Income-tax Act, 1961 (the Act) with a view to including in the assessment the assessees share of income of the property at C-Plot, Shivasagar Estate, Bombay, of which he was one of the co-owners, was not correct in the light of the final order in the case of the BOI wherein, there was no such income from property. The commissioner (Appeals) further substantiated his conclusion by reference to the Tribunals order dated 9-2-1981, which cancelled the reassessment under section 147 of the Act made for this assessment year. The grounds of appeal of the revenue in this behalf are the following : "1. The order of the Commissioner (Appeals) is opposed to law and facts of the case, 2. The Commissioner (Appeals) erred in allowing the assessees appeal by directing the ITO to exclude the income from property of Rs. 46,880 on the ground that the same is no longer correct for the assessment year 1968-69 as in terms of the final orders in the case of the BOI there is no such income from property and that the inclusion of the same in the reassessment in the hands of the assessee stands cancelled by the Appellate Tribunals order dated 9-2-1981.

3. The Commissioner (Appeals) failed to properly appreciate the facts of the case and erred in not upholding the action under section 155(2) taken by the ITO to bring to tax the assessees share in the income from building let out by the BOI.4. The Commissioner (Appeals) failed to consider the fact that the assessees share in the income from building let out was in fact originally included for rate purposes and subsequently due to deletion of the said income from the assessment of the BOI, the assessees revised share from BOI had to be adopted by restoring to the provisions of section 155(2) at which point of time a portion of the share originally adopted for rate purposes required to be considered as part of assessees income itself." 2. The appellant is one of the co-owners of the building at C-Plot, Shivasagar Estate, Bombay. It would appear that in the income-tax returns filed for the assessment years 1968-69 to 1971-72, the appellant had accounted for his share of the lease rent of the building at C-Plot, Shivasagar Estate in his individual capacity as per the provisions of section 26 of the Act. The ITO, however, took the view that the lease rent from this building should be assessed in the hands of the BOI, Shri Devchand Chhaganlal Shah and others, and, accordingly, made an assessment on the BOI for all the four assessment years. The share of income of the assessee from the building was, however, included in his personal assessments for rate purposes. The ITO came to this conclusion on the ground that the lease of the building and the air-conditioning plant was inseparable and, therefore, the entire income received in respect of the lease of the building and the air-conditioning plant should be assessed in the hands of the BOI. The BOI known as D. C. Shah & Others filed an appeal against this order of the ITO to the AAC. The AAC accepted the contention of the BOI, and held that primarily there was a letting of the building and, therefore, assessment should be made in the hands of the individual members of the BOI in respect of their share of income in accordance with the provisions of section 26 insofar as the lease rent from the building was concerned. As regards the income derived in respect of the lease of the air-conditioning plant, the AAC held that the same should be assessed in the hands of the BOI as income from other sources under the provisions of section 56 of the Act. On an appeal being filed there by the revenue to the Tribunal, the latter set aside the order of the AAC.The matter was further taken on reference under section 256 of the Act to the High Court, which held that, there was no lease of the air-conditioning plant along with the building in favour of the lessee; since there was no lease of air-conditioning plant, section 56(2) was not applicable; the rent realised in respect of the lease of the building was assessable in accordance with section 26 and the income realised on account of the lease of the air-conditioning facilities was assessable as income from other sources. In other words, the decision of the Karnataka High Court in D. C. Shah v. CIT [1979] 118 ITR 419 was to the effect that the income from the letting of the building was to be assessed in the hands of individual co-owners under section 26 and the income realised in respect of the provision of the air-conditioning facility was to be assessed in the hands of the BOI as income from other sources. The Tribunal, Banglore Bench in IT Appeal Nos. 57 to 60 (Bang.) of 1974-75 dated 17-7-1979 gave effect to the order of the High Court giving the following directions : "In accordance with the said order, we direct that the income from rent of the property shall be assessed separately in the hands of each co-owners under section 26 of the Income-tax Act so far as the income from letting of air-conditioning machinery is concerned, it shall be assessed in the hands of AOP. As a result, the order of the AAC is confirmed and the appeal is dismissed." The ITO gave effect to this order of the Tribunal in the assessment of the BOI by means of his order dated 6-9-1979. While giving effect to this order in the hands of the BOI, the ITO deleted from the assessment of the BOI, the income realised from the lease of the building as it was directed to be assessed in accordance with the provisions of section 26 in the hands of the co-owners individually as per the High Courts directions. In consonance with this order and in pursuance thereof, the ITO rectified under section 155(2) the assessment of the assessee-co-owner for the assessment year 1968-69 on 27-3-1980 with a view to including therein his share of income realised from the letting of the building. The amount thus included during this year was Rs. 46,880.

3. Aggrieved with the same, an appeal was preferred to the Commissioner (Appeals) contending that the provisions of section 155(2) had no application, inasmuch as the requirements of that the ITO could rectify the assessment of a member of an AOP or BOI with a view to including therein his share in the income of the AOP or BOI, if not already included or if not included correctly, for correction of the same; but, however, the same did not extend to the inclusion in his assessment of what has been totally excluded from the assessment of the AOP or BOI.In other words, the argument was that, according to the High Courts decision, the income realised from the lease of the building was excluded from the assessment of the BOI and the same was to be considered in the hands of the individual members with reference to their respective shares therein in accordance with the provisions of section 26. With reference to this direction of the High Court, it was submitted that the income realised from the lease of the building totally went out of the purview of the assessment of the BOI and since there was nothing includible in this behalf in the assessment of the BOI after giving effect to the High Courts order, the requirements of section 155 enabling the ITO to rectify the assessment of a member were totally absent, inasmuch as there was no such income in the hands of the BOI, with reference to which, the members assessment could be rectified either by way of inclusion or by way of correction, if not correctly included. It was, therefore, urged before the Commissioner (Appeals) that the assessees share of income from the lease of the building, namely, Rs. 46,880 included in the rectify order should be deleted. Similar claims were made in respect of the assessment years 1968-69, 1970-71 and 1971-72.

4. The Commissioner (Appeals) held that insofar as similar orders relating to the assessment years 1969-70 to 1970-71 were concerned, they were in order in the light of the Tribunals order dated 27-2-1982 in MP Nos. 74 to 76 (Bang.) of 1981. However, for the assessment year 1968-69, he held that the ITOs rectification order including the share of income of the assessee from the lease of the building was not correct on the ground that the requirements of section 155(2) were not satisfied as to enable the ITO to assume powers under this section. He, accordingly, cancelled the order passed by the ITO under section 155(2) in respect of this assessment year. Aggrieved with the same, the department is in appeal before us.

5. The submissions made on behalf of the department are summarised as follows : As a result of the Karnataka High Courts decision in D. C.Shahs case (supra), the Tribunal amended its earlier order directing the ITO to assess the rental income from the property separately in the hands of each co-owner under section 26. In the same order the Tribunal also directed the ITO to assess the rental income in respect of the air-conditioning plant in the hands of the BOI under the head Income from other sources. While giving effect to this order in the assessment of the BOI, the ITO deleted the rental income from the property from the assessment of the BOI, while, however, including therein the lease income in respect of the air-conditioning machinery. Pursuant thereto the assessment of the individual co-owner was rectified under section 155(2) to include therein, the share of income of the member in the rental income from the property according to the provisions of section 26 and in pursuance of the directions contained in the Tribunals order.

Since earlier to that the share income of the member in the rental income from the property was considered only for rate purposes, what was subsequently done as a result of the Tribunals direction, was only to include the share income of the member in the rental income of the co-owned property for substantive assessment as decided in the Karnataka High Courts decision in D. C. Shahs case (supra). It was, therefore, submitted that since originally the share income of the member was not included in the assessment of the individual member, the same was included in the rectificatory order under section 155(2) as per the requirements of the section. It was, therefore, submitted that the Commissioner (Appeals) was not justified in cancelling the rectification order made by the ITO in this behalf.

6. The submissions made in this behalf by Shri G. Sarangan, the learned advocate for the assessee, are summarised hereunder : The requirements specified in sub-section (2) of section 155 are not satisfied so as to enable the ITO to assume jurisdiction for rectifying the assessment of the co-owner. What is required for the assumption of jurisdiction under this sub-section is that the share of income of the member in the income of the BOI has not been included in the assessment of the member originally, or if included, the same was not correct. He submitted that only under these two specific circumstances the assessment of the member of the BOI can subjected to rectification. He pointed out that in the present case, originally the income realised from the letting of the building was no doubt assessed in the hands of the BOI, but, however, the same was deleted as a result of the direction given by the Karnataka High Court in D. C. Shahs case (supra). In other words, his submission was that what should not have been included in the assessment of the BOI was wrongly included in the first instance and later, as a result of the High Courts decision, the matter was set right, in that the income from the property was directed to be assessed in the individual assessments of the members according to the provisions of section 26. In this view of the matter, he submitted that there was no reduction or enhancement made in the income of the BOI with particular reference to the income realised from the letting of the property so as to give rise to a situation contemplated under this provision. He further submitted that the direction given by the Tribunal in its order in IT Appeal Nos. 57 to 60 (Bang.) of 1974-75 dated 17-7-1979, that the income from rent of the property should be assessed separately in the hands of each co-owner under section 26, while giving effect to the Karnataka High Courts decision in D. C.Shahs case (supra) was in excess of its jurisdiction while passing the order under section 260(1) of the Act, inasmuch as it contravened the provisions of sub-section (2) of section 155. Developing this argument further, Mr. Sarangan submitted that since the income realised from the rent of the building was totally excluded from the assessment in the hands of the BOI as a result of the High Courts order, there was no question of assessing the share of the member in such income in his individual assessment as a result of the order passed under section 260(1) by the Tribunal in the case of the BOI. He invited our attention to the following citations in support of the view advanced by him-Hansraj Dhingra v. Union of India [1975] 98 ITR 397 (Cal.), CIT v.Nem Kumar Jain [1981] 130 ITR 297 (All). and CIT v. Balkishan Bhatia [1972] 86 ITR 452 (Delhi). In Hansraj Dhingras case (supra), no regular assessment under section 143 of the Act was made on the share of income of a partner of a registered firm, However, a provisional assessment under section 141 of the Act was made. On completion of the regular assessment of the firm, the ITO sought to rectify the assessment of the partner under section 155 with a view to including the assessees correct share income in his assessment. The same was resisted by the assessee on the ground that the provisions of section 155 had no application to the facts of the case, inasmuch as no completed assessment under section 143 had been made earlier in that case. The High Court, on a writ petition filed by the assessee, upheld his objections in this regard on the ground that the ITO had failed to make an order under section 143(3) after the provisional assessment was made under section 141 and since there was no completed assessment, the provisions of section 155(1) had no application. In Nem Kumar Jains case (supra), the assessee, who was a partner in a firm, disclosed in the return filed by him that his wife was also a partner in the same firm but, however, failed to include her share income from the firm in his total income. The ITO accepted the return and completed the assessment. Thereafter the assessment was reopened for inclusion of the wifes share income from the firm. The same was struck down by the Tribunal on the ground that there was no escapement of income. In the meantime the assessment of the firm was completed and in consequence of the same, the ITO sought to revise the assessment of the assessee. But even then he did not include the wifes share income in his assessment.

However, much later, he rectified the assessment under section 155 with a view to making good this lapse. It was held that the provisions of section 155(1) will not have any application to the facts of the case, inasmuch as the action under section 154 of the Act was time barred. In Balkishan Bhatias case (supra), in the original assessment the share of income of an assessee from a registered firm was treated as earned income and no special surcharge was levied. On completion of the regular assessment of the firm, the ITO rectified the assessment of the partners under section 155 substituting the correct share of income from the firm and also levied special surcharge on his share of income from the firm in question treating it as unearned income. It was held that the provisions of section 155 had no application to the facts of the case. Mr. Sarangan submitted, with reference to the above cases that the facts in the present case as well are more or less similar to those of the decided cases referred to and, therefore, the Commissioner (Appeals)s order cancelling section 155(2) order should be upheld.7. We have carefully considered the submissions made on either side and also considered the case laws cited on behalf of the assessee. We are unable to agree with Mr. Sarangan that the Tribunal while giving effect to the order of the Karnataka High Court in D. C. Shahs case (supra) exceeded its jurisdiction in directing the ITO to assess the rental income from the property separately in the hands of each co-owner under the provisions of section 26. Following this, we have, therefore, to hold that the Commissioner (Appeals) was not justified in striking down the order of the ITO under section 155(2). For a correct understanding of the import of this section, it is necessary to refer to the actual words used in the same : "(2) Where in respect of any completed assessment of a member of an association of persons or of a body of individuals it is found - (b) on any reduction or enhancement made in the income of the association or body under under this section, section 154, section 250, section 254, section 260, section 262, section 263 or section 264.

that the share of the member in the income of the association or body, as the case may be, has not been included in the assessment of the member or, if included, is not correct, the Income-tax Officer may amend the order of assessment of the member with a view to the inclusion of the share in the assessment or the correction thereof, as the case may be; and the provisions of section 154 shall, so far as may be, apply thereto, the period of four years specified in sub-section (7) of that section being reckoned from the date of the final order passed in the case of the association or body, as the case may be." A reference to the operative part of the section clearly indicates that as a result of an order passed under section 260(1) in the case of an AOP, or BOI, if there is a reduction or enhancement in its income, the assessment of the member of the BOI can be rectified, provided two conditions are satisfied. These conditions are the following : (1) if the share of the member in the income of the BOI has not been included originally, the same can be included; (2) if the same has been originally included in the members assessment, but however wrongly, the same can be corrected following the order under section 260 passed in the case of the BOI. In the present case, the Karnataka High Court in its order in D. C. Shahs case (supra) clearly directed that the rent realised in respect of the lease of the building was assessable in accordance with section 26 and the income realised on account of the provision of the air-conditioning facility was to be assessed as income from other sources. As a result of this order the income realised in respect of the lease of the building which was originally assessed in the hand of the BOI had, therefore, to be deleted therefrom and considered separately in the hands of the co-owners, being members of the BOI, under the provisions of section 26. This is exactly what the Honble Tribunal had done while giving effect to the order of the High Court under section 260(1). They directed that the income from the rent of the property should be excluded from the assessment of the BOI and separately assessed in the hands of the co-owners under section 26. As a result of such an order, there was a reduction in the income of the BOI as contemplated in section 155(2) (b). Since the share in the rental income was not originally included in the assessment of the member, the same becomes includible as a result of the order of the Tribunal under section 260(1) in the case of the BOI giving effect to the High Courts order. The inclusion of the rental income in the assessment of the member is as a result of the reduction effected in the assessment of the BOI while giving effect to the order of the Tribunal under section 260(1). We fail to see how there is any lacuna in this regard as pointed out by Shri Sarangan. His argument that what has been totally excluded from assessment in the hand of the BOI cannot be considered for the purpose of inclusion in the assessment of the member under section 155 is, we are afraid, misconceived and without considering the totality of the circumstances as also the correct legal requirements in this regard. There is no getting away from the fact that there has been a reduction in the assessment of the BOI as a result of the order passed under section 260(1) by the Tribunal while giving effect to the High Courts decision. As a result of this reduction, the income from the property has to be considered in the hands of the individual co-owners of the property. Since it was not originally included in their assessments, it has to be considered for inclusion under section 155(2). We are unable to see any conflict in this regard. The decisions relied upon by Shri Sarangan are with reference to totally different set of facts and circumstances and, therefore, they have no application to the facts in this case. In Hansraj Dhingras case (supra), the ITO had allowed the assessment to be time barred and later sought to make good his lapse by having recourse to section 155. The Calcutta High Court had naturally to hold that the requirement of a completed assessment was absent in that case so as to enable him to have recourse to section 155. In Nem Kumar Jains case (supra), the ITO had repeatedly omitted to assess the wifes share of income in the firm in which she was also a partner. In these circumstances it was held that section 155 was not available to the ITO for rectifying the lapse. In Balkishan Bhatias case (supra), the ITO by means of section 155 sought to rectify his earlier lapse in not treating the assessees share income from a firm as unearned income. It is, therefore, clear that none of these decisions are applicable to the facts of this case. We are satisfied that all the ingredients required for the rectification of the assessment of the member under section 155(2) are present and, therefore, the ITOs assumption of jurisdiction under this section is quite in order. We, accordingly, set aside the order of the Commissioner (Appeals) in this behalf.


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