Jayalaxmi Enterprises vs Income Tax Officer

L. Narasimha Reddy, J.—These two appeals arise out of a common order dated 29.4.2002 passed by the Hyderabad Bench of Income Tax Appellate Tribunal (for short, ''the Tribunal'') in I.T.A. Nos. 2082 of 1998 and 709 of 1999. The assessee is the appellant.

The appellant is a firm, which, in turn, is the assessee under the Income Tax Act. Its activity, as evident from the deed of partnership, is to construct or otherwise acquire godowns and other buildings, to lease them to third parties and to undertake other activities. The appellant constructed godowns and leased them to various agencies including Food Corporation of India. It submitted the returns for the first time in the assessment year 1977-78. The income earned in the form of rents from the godowns was shown as income from the business. The same was accepted by the assessing officer and deductions permissible in law were allowed. This pattern continued upto 1993.

In respect of the returns submitted for the assessment year 1993-94 and 1994-95, the assessing officer took the view that the income derived by the appellant from the godowns deserves to be treated as the one from the property. The deductions in relation thereto, as provided under law, were permitted.

The appellant carried the matter in appeal to the Commissioner of Appeals. The appeal was allowed through order dated 12.9.1996. The Commissioner observed that in a similar matter, he has taken the view that income in the form of rents from godowns must be treated as the one from business. The Revenue filed two appeals before the Tribunal in respect of the two assessment years. It was pleaded that the appellant is the owner of the godowns and leasing of the godowns is almost incidental to ownership and thereby, the income deserves to be treated as the one, from property. After hearing both the parties, the Tribunal allowed the appeals and has set aside the order of the Commissioner. Hence, these appeals are filed under Section 260(A) of the Income Tax Act, by the assessee/appellant.

Mr. N.V. Sravan Kumar, learned counsel for the appellant, submits that almost for a period of 1 1/2 decades the income from the godowns was treated as the one from the business and there was absolutely no basis for the assessing officer to change the stand at once. He contends that the question as to whether the lessor of a godown is the owner of the premises or he himself is a lessee, does not make much of difference, in this regard. Learned counsel further submits that in the partnership deed itself, it was clearly mentioned that the principal object of the appellant is to carry on the business of constructing and leasing the godowns and there was no basis for the Tribunal in reversing the order passed by the Commissioner.

Sri J.V. Prasad, learned Standing Counsel for the respondent, on the other hand, submits that whatever be the scope for treating the income derived in the form of lease of a godown, when the assessee himself is a lessee, once the assessee is the owner of the premises, the inescapable conclusion is that the income in the form of rents must be treated as the one from property. He placed reliance upon the judgment of this Court in C.I.T. v Veerabhadra Industries. He further submits that a mistake committed for a considerable period does not make it lawful.

The first contention on behalf of the appellant is about the consistency. That in fact was an important plank of argument before the Commissioner as well as the Tribunal. It may be true that from the inception i.e., from the assessment year 1977-78 till 1994-95, the plea of the appellant that the income in the form of rents for the godowns must be treated as the one from the business, was accepted. However, the same was contrary to law. Consistency or repetition does not add strength to an act, if it is otherwise contrary to law. It is fairly well established that the principles of res judicata or waiver do not have any application vis-�-vis orders of assessment. Each year happens to be an independent unit and the view taken in respect of the returns of an assessee for one assessment year need not be followed in the subsequent assessment years.

On merits the question is whether the rent derived by the appellant from the godowns must be treated as the income from business or income from property. In whatever form it is treated, the income is liable to tax. The only difference is about the nature of deductions. In case it is treated as income from business, the deductions are fairly wide in scope compared to the one which is from property.

The Income Tax Act or the Rules made thereunder do not contain any specific provisions that differentiate a particular item of income on the lines of business or property. The question has to be dealt with on the facts of the case. The safest way to proceed is, to ascertain the jural relation between the assessee, on the one hand, and the property, on the other hand. If he happens to be the owner of the property, any income derived from it must be treated as the one from the property itself. If, on the other hand, the assessee himself is a lessee and he, in turn, sub-leases it to third parties, the income he so derives, has to be treated as the one from business. The reason is that he has no proprietary right over the property. Viewed in this context, the income derived by the appellant from the property in the form of rent needs to be treated as the one from the property itself. In Veerabhadra Industries case (supra), this Court has taken similar view.

In view of the above discussion, we find that the common order passed by the Tribunal accords with law and we do not find any substance in these appeals.

Accordingly, the appeals are dismissed. There shall be no order as to costs. Miscellaneous applications, if any pending in these appeals, shall stand closed.