ITO, Hubli v. M/s Shakti Farm House, Hubli

ITA 204/BANG/2011 | 1995-1996
Pronouncement Date: 01-11-2011 | Result: Dismissed

Appeal Details

RSA Number 20421114 RSA 2011
Assessee PAN AAPFS2535M
Bench Bangalore
Appeal Number ITA 204/BANG/2011
Duration Of Justice 8 month(s) 1 day(s)
Appellant ITO, Hubli
Respondent M/s Shakti Farm House, Hubli
Appeal Type Income Tax Appeal
Pronouncement Date 01-11-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 01-11-2011
Date Of Final Hearing 01-11-2011
Next Hearing Date 01-11-2011
Assessment Year 1995-1996
Appeal Filed On 28-02-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI N.K. SAINI ACCOUNTANT MEMBER AND SMT. P. MADHAVI DEVI JUDICIAL MEMBER ITA NOS. 204 TO 208/BANG/2011 ASSESSMENT YEARS : 1995-96 TO 1998-99 & 2002-03 THE INCOME TAX OFFICER WARD 1(1) HUBLI. VS. M/S. SHAKTI FARM HOUSE BLOCK-50 AMARGOL HUBLI. PAN: AAPFS 2535M APPELLANT RESPONDENT APPELLANT BY : SMT. SUSAN THOMAS JOSE JT.CIT(DR) RESPONDENT BY : SHRI S. PARTHASARATHI ADVOCATE DATE OF HEARING : 01.11.2011 DATE OF PRONOUNCEMENT : 01.11.2011 O R D E R PER N.K. SAINI ACCOUNTANT MEMBER THESE APPEALS BY THE DEPARTMENT ARE DIRECTED AGAI NST THE COMMON ORDER DATED 26.11.2010 OF THE CIT(APPEALS) HUBLI. COMMON GROUNDS ARE RAISED IN THESE APPEALS WHICH WERE HEARD TOGETHER SO THESE ARE BEING DISPOSED OF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 2. IN ALL THE APPEALS THE FOLLOWING COMMON GROUNDS HAVE BEEN RAISED: ITA NOS. 204 TO 208/BANG/2011 PAGE 2 OF 8 1. THE ORDER OF THE (EARNED CIT(A) HUBLI IS OPPOS ED TO LAW AND FACTS OF THE CASE. 2. THE (EARNED CIT(A) ERRED IN HOLDING THE RENTAL RECEIPTS HAVE TO BE TAXED UNDER CO-OWNERS. 3. THE LEARNED CIT(A) HAS FAILED TO APPRECIATE THE FACT THAT THE DISSOLUTION OF THE FIRM WAS ACTUALLY MADE ON 31-03- 2006 AND FIRM AS EXISTING TILL 31-03-2006. 4. THE LEARNED CIT(A) HAS ERRED IN RELYING ON THE DECISION OF KARNATAKA HIGH COURT IN CIT VS M/S POORNIMA ENTERPR ISES DUE TO THE FACT THAT THE SAME IS NOT APPLICABLE IN THE INSTANT CASE ON ACCOUNT OF THE AMENDMENT TO SECTION 182/183 OF THE INCOME-TAX ACT 1961 W.E.F. 01-04-1993. 5. THE CIT(A) HAS ERRED IN APPRECIATING THE FACT T HAT DUE TO AMENDMENT AS ABOVE THE CONCEPT OF REGISTRATION ETC . OF THE FIRMS HAS BEEN DISCONTINUED AND THE CIT(A) HAS FAIL ED TO DISTINGUISH THE FACTS AND APPLICABILITY OF LAW. 6. THE CIT(A) IN THE EARLIER INSTANCES HAD UPHELD THE ORDER OF AO AND THE SAME WAS CONFIRMED BY ITAT IN ITA NO. 62 9 TO 632/BANG BANGALORE BENCH DATED 06-11-2003. 7. THE CIT(A) HAS ERRED IS NOT GIVING ANY SANCTITY TO THE PARTNERSHIP DISSOLUTION DEED WHICH WAS EXECUTED LAT ER ON AND MAINLY RELIED ON DEED OF DISCONTINUANCE. 8. THE CIT(A) HAS PASSED A COMBINED ORDER FOR ALL THE YEARS WITH-OUT APPRECIATING THE FACTS AND LAW. 9. FROM THESE AND SUCH OTHER REASONS THAT WILL BE ADDUCED AT THE TIME OF HEARING IT IS PRAYED THAT THE ORDER OF THE LEARNED CIT(A) BE CANCELLED AND THAT OF THE AO RESTORED. 10. THE APPELLATE CRAVES LEAVE TO ADD TO ALTER AM END AND/OR DELETE ANY OF GROUNDS ON OR BEFORE THE HEARING OF T HE APPEAL. 3. FROM THE ABOVE GROUNDS IT IS GATHERED THAT THE ONLY GRIEVANCE OF THE DEPARTMENT IN ALL THESE APPEALS RELATES TO THE RENT AL RECEIPTS WHICH ARE DIRECTED BY THE LD. CIT(APPEALS) TO BE TAXED IN THE HANDS OF CO-OWNERS NOT IN THE HANDS OF FIRM AS HAS BEEN HELD BY THE ASSESS ING OFFICER. ITA NOS. 204 TO 208/BANG/2011 PAGE 3 OF 8 4. THE FACTS OF THE CASE IN BRIEF ARE THAT THE ASSE SSEE FILED ITS RETURN OF INCOME IN THE STATUS OF AOP ORIGINALLY ON 21.11.199 7 FOR THE A.Y. 1995-96 DECLARING INCOME FOR RATE PURPOSE AT NIL. THE ASSE SSEE RECEIVED RENTAL INCOME OF RS.8 66 166 FROM PROPERTY WHICH WAS IN TH E HANDS OF MEMBERS OF AOP AND CO-OWNERS. THE CASE WAS SELECTED FOR S CRUTINY AND THE AO CONCLUDED THE ASSESSMENT BY TREATING THE ASSESSEE A S PARTNERSHIP FIRM. THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(APPE ALS) AS WELL AS TO THE ITAT BUT THE APPEAL WAS DISMISSED. THE ASSESSEE F ILED A FURTHER APPEAL BEFORE THE HONBLE KARNATAKA HIGH COURT WHEREIN VID E ORDER DATED 16.01.2008 ALL THE ORDERS PASSED BY THE LOWER AUTHO RITIES WERE QUASHED AND REMANDED BACK TO THE AO FOR FRESH CONSIDERATION . 5. THE AO PASSED AN ORDER DATED 29.12.2008 U/S. 143 (3) R.W.SEC. 260 OF THE INCOME-TAX ACT 1961 [HEREINAFTER REFERRED T O AS THE ACT IN SHORT] AND AGAIN TREATED THE ASSESSEE AS A FIRM ON THE GRO UND THAT THE ASSESSEE HAS NOT DISSOLVED THE FIRM THEREFORE ITS SWITCHOVE R OF STATUS FROM AOP TO FIRM WAS NOT PERMITTED UNDER THE ACT. THE AO ACC ORDINGLY TAXED THE ENTIRE RENTAL INCOME AS INCOME FROM HOUSE PROPERTY OF THE ASSESSEE FIRM AND LEVIED TAX THEREON. 6. BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(APPEALS) WHO DECIDED THE ISSUE IN FAVOUR OF TH E ASSESSEE AND DIRECTED THE AO TO ASSESS THE RENTAL INCOME IN THE HANDS OF THE CO-OWNERS U/S. 26 OF THE ACT. THE RELEVANT OBSERVATIONS HAD BEEN GIVEN BY THE LD. CIT(A) IN PARAS 7 TO 7.4 OF THE IMPUGNED ORDER WHI CH ARE REPRODUCED VERBATIM AS UNDER: ITA NOS. 204 TO 208/BANG/2011 PAGE 4 OF 8 7.0. I HAVE CONSIDERED THE APPELLANTS SUBMISSION S AND ARGUMENTS BEFORE ME ON THE ABOVE ISSUE. THE HONBLE JURISDICTIONAL ITAT HAS CONSIDERED ISSUE BASED ON D ECISION OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF M/S. PO ORNIMA ENTERPRISES BANGALORE VIDE THEIR ORDER DT: 02.02.2 007 FOR A.YS. 2000-01 TO 2001-02 IN APPELLANTS OWN CASE WHICH HO NBLE ITAT. HAS REFERRED BEING A JURISDICTIONAL HIGH COU RT AND DIRECTED AO TO CONSIDER MATTER AFRESH IN THE LIGHT OF DISCUS SION MADE OF REFERENCE TO JURISDICTIONAL HIGH COURT IN ORDER. TH E HONBLE ITAT. HAS DECIDED TO SET ASIDE ISSUE CONSIDERING T HAT CO-OWNERS HAVE ALREADY SUFFERED THE TAX IN RESPECT OF THEIR S HARES AND AGAIN TAXING IN STATUS OF FIRM WOULD AMOUNT TO DOUBLE TAX ATION THEREFORE DIRECTED AO TO CONSIDER ISSUE AFRESH IN LIGHT OF FACTS OF CASE. THUS DECISION IN CASE IS BASED ON SET OF FAC TS AND LEGAL ISSUES DECIDED BY HONBLE KARNATAKA HIGH COURT IN C ASE OF M/S. POORNIMA ENTERPRISES WHICH IS REFERRED BY HONBLE I TAT. WITH CLEAR DIRECTION TO AO TO CONSIDER ISSUE IN LIGHT OF THEIR DISCUSSION HELD IN ORDER. 7.1. IN THE CASE OF PORNIMA ENTERPRISES ISSUES ARE RELATED TO PROPERTY LEASED BY ONE PHILIP DSOUZA TO MR.SHIVASW AMY ON 19.05.1969 WHO IN TURN SUB-LEASED TO M/S. POORNIMA THEATERS PVT. LTD. ON 19.04.1971 AND ON THAT M/S. POORNIMA THEATRE WAS BUILT BY ENTERING INTO A PARTNERSHIP ON 16.11.1979 LATER ON M/S. POORNIMA THEATERS PVT. LTD. RETIRED ON 01.12.1979 AND M/S. POORNIMA ENTERPRISES STARTED REALIZING RENT FROM PR OPERTY LEASED TO KDDC. IN THE INSTANT CASE EXISTING 7 PARTNERS H AVE ENTERED INTO A INSTRUMENT OF PARTNERSHIP ON 01.04.1994 TO A DMIT TWO MORE PARTNERS AND ON SAME DAY EXECUTED DEED OF DISCONTIN UANCE ONLY TO ACCOMMODATE NEWLY ENTERED TWO PARTNERS ON SAME D AY ONLY TO PROVIDE AN OPPORTUNITY TO BECOME SHARES HOLDERS IN M/S. SHAKTI FARM GODOWNS. 7.2. THE AO HAS GIVEN EFFECT TO ORDER OF HONBLE I TAT. FOR A.YS. 2000-01 & 01-02 CONSIDERING STATUS AS AOP WHE REAS FOR THE Y 2002-03 BY PASSING THE ORDER U/S. 143(3)R.W .S.254 TO GIVE EFFECT TO SET ASIDE ORDER BY HONBLE ITAT. A BENCH VIDE THEIR ORDER NO.1303/2005 STATUS IS ADOPTED AS FIRM BY TH E AO HOWEVER IT IS THE CLAIM OF APPELLANT AS PER GROUND NO.2 TO FOLLOW JURISDICTIONAL DECISION OF HONBLE ITAT. AND JURIS DICTIONAL DECISION OF HONBLE KARNATAKA HIGH COURT IN THEIR O WN CASE. 7.3. IN VIEW OF ABOVE DISCUSSION AND IN VIEW OF TH E DECISION OF THE JURISDICTIONAL HIGH COURT OF KARNATAKA DISCUSSI NG THE ISSUE AT LENGTH IN THEIR ORDER REFERRED ABOVE THERE IS NO D ISPUTE THAT DECISION OF JURISDICTIONAL HIGH COURT IS BINDING AS DECIDED IN CASE OF M/S. POORNIMA ENTERPRISES AND RENTAL INCOME IS TO BE ITA NOS. 204 TO 208/BANG/2011 PAGE 5 OF 8 ASSESSED IN THE HANDS OF CO-OWNERS U/S.26 OF THE AC T. APPELLANT HAS PROVED BEFORE THE HONBLE ITAT THAT RENTAL INC OME HAS BEEN ALREADY TAXED IN HANDS OF CO-OWNERS IN RESPECT OF T HEIR SHARES IN SUCH CASE IT WOULD AMOUNT TO DOUBLE TAXATION. THE R ELEVANT PORTION OF THE ORDER OF THE ITAT IN APPELLANTS OWN CASE IN ITA NO.354 & 355/BANG/2005 DATED 02-02-2007 FOR THE AYS : 2000- 01 & 2001 -02 IS AS UNDER: RELEVANT FINDING RECORDED BY THE HONBLE HIGH COURT ON THIS ISSUE IS QUOTED BELOW:- WHEN THERE IS A SPECIFIC FINDING GIVEN BY THE TRIB UNAL THAT THERE IS NO FIRM QUESTION OF CONSIDERING AS TO WHETHER THERE IS A REGISTERED FIRM OR NOT DOES NOT ARISE. THEREFORE THE PERSON WHO ARE OWNING THE PROPERTY A ND EARNING THE INCOME COULD BE SO ONLY AS CO-OWNERS. I N THE CIRCUMSTANCES THE FIRST QUESTION ACTUALLY DOES NOT REQUIRE FURTHER CONSIDERATION AND THE TRIBUNAL CERT AINLY WAS JUSTIFIED IN HOLDING THE ALLEGED PARTNERS WERE CO OWNERS OF THE PROPERTY. SIMILARLY FOR THE SAME REA SON THE SECOND QUESTION ALSO WILL HAVE TO BE ANSWERED I N THE AFFIRMATIVE AND AGAINST THE REVENUE BECAUSE WHE N THERE IS NO FIRM AT ALL IN EXISTENCE AS NO BUSINES S WAS BEING CARRIED ON QUESTION OF IMPORTING THE STATUS OF A FIRM DOES NOT ARISE. NATURALLY IN THE CIRCUMSTANCE S THE INCOME FROM THE HOUSE PROPERTY WILL HAVE TO BE ASSESSED U/S 26. THE THIRD QUESTION DOES NOT ARISE FOR CONSIDERATION AT ALL. REFERENCE IS ANSWERED ACCORDINGLY. U/S 26 OF THE I T ACT PROPERTY OWNED BY CO-OWNERS WHOSE SHARES ARE DEFINITE AND ASCERTAIBLE SUCH PERSONS S HALL NOT BE ASSESSED AS AOP BUT THEY HAVE TO BE ASSESSED INDIVI DUALLY U/S 22 TO 25 OF THE I T ACT. IN THE GROUNDS OF APPEAL IT HAS BEEN MENTIONED BY THE ASSESSEE THAT RENTAL INCOME HAD AL READY SUFFERED TAX IN THE HANDS OF THE CO-OWNERS TO THE EXTENT OF THEIR RESPECTIVE SHARES AND TAXING THE SAME AGAIN IN THE HANDS OF TH E APPELLANT WOULD AMOUNT TO DOUBLE TAXATION. IT APPEARS THAT WH EN THE DECISION OF THE TRIBUNAL WAS RENDERED ON EARLIER OC CASION THE TRIBUNAL MIGHT NOT HAVE CONSIDERED THIS ASPECT. THE RE IS NO DISPUTE THAT THE DECISION OF JURISDICTIONAL HIGH CO URT IS BINDING ON THE TRIBUNAL. IN VIEW OF THE AFORESAID CIRCUMST ANCES WE ARE OF THE VIEW THAT FOLLOWING THE DECISION OF THE HON BLE HIGH COURT IN THE CASE OF M/S POORNIMA ENTERPRISES RENTAL INC OME IS TO BE ASSESSED IN THE HANDS OF CO-OWNERS U/S 26 OF THE AC T IF THEIR SHARES ARE DEFINITE. WE HAVE NOTICED THAT IN GROUND NO.7 IT HAS BEEN MENTIONED BY THE ASSESSEE THAT RENTAL INCOME H AS ALREADY ITA NOS. 204 TO 208/BANG/2011 PAGE 6 OF 8 BEEN TAXED IN THE HANDS CO-OWNERS IN RESPECT OF THE IR SHARES. IF THAT IS CORRECT NO TAX SHOULD BE LEVIED IN THE HAN DS OF THE PRESENT ASSESSEE. WE ALSO HOLD THAT THE ASSESSEE CANNOT BE TREATED AS FIRM; HENCE THE MATTER IS RESTORED BACK TO THE A SSESSING OFFICER FOR PASSING A FRESH ORDER IN THE LIGHT OF THE DISCU SSION MADE ABOVE. 7.4. UNDER THE CIRCUMSTANCES IN VIEW OF ABOVE DIS CUSSION AND ALSO FOLLOWING THE RATIO OF THE DECISION OF THE HON BLE HIGH COURT OF KARNATAKA REFERRED TO BY THE HONBLE JURISDICTIO NAL ITAT A BENCH IN THE APPELLANTS OWN CASE AS STATED ABOVE I HAVE TO FOLLOW DIRECTIONS OF THE JURISDICTIONAL HONBLE ITA T. A BENCH BANGALORE IN THE CASE OF THE APPELLANT WHERE THE I SSUES ARE SAME AND HAVE BEEN DECIDED IN FAVOUR OF THE APPELLANT. F OLLOWING THE DECISION OF THE HONBLE ITAT IT IS HELD THAT RENTA L INCOME HAS TO BE ASSESSED IN THE HANDS OF THE CO-OWNERS U/S 26 OF THE INCOME TAX ACT. 7. NOW THE DEPARTMENT IS IN APPEAL. THE LD. DR STR ONGLY SUPPORTED THE ORDER OF THE AO AND FURTHER SUBMITTED THAT THE RENT AL INCOME WAS TO BE ASSESSED IN THE HANDS OF THE FIRM FOR THE REASON TH AT THE ASSESSEE HAD NOT DISSOLVED THE FIRM AND AS SUCH SWITCHED-OVER THE S TATUS FROM FIRM TO AOP. SHE FURTHER STATED THAT THE LD. CIT(APPEALS) WAS NO T JUSTIFIED IN DIRECTING THE AO TO ASSESS THE RENTAL INCOME IN THE HANDS OF CO-O WNERS. 8. IN HIS RIVAL SUBMISSIONS THE LD. COUNSEL FOR TH E ASSESSEE STRONGLY SUPPORTED THE IMPUGNED ORDER PASSED BY THE LD. CIT( A) AND FURTHER SUBMITTED THAT THE ASSESSEE WAS NOT CARRYING ON ANY BUSINESS AND HAD FILED A COPY OF DEED OF DISCONTINUANCE OF BUSINESS DATED 1.4.1994. IT WAS FURTHER STATED THAT AS PER THE PROVISIONS OF SECTIO N 26 OF THE ACT WHEN THE PROPERTY IS OWNED BY CO-OWNERS WHOSE SHARES ARE DE FINITE AND ASCERTAINABLE SUCH PERSONS SHALL NOT BE ASSESSED A S AOP BUT THEY HAVE TO BE ASSESSED INDIVIDUALLY UNDER SECTIONS 22 TO 25 OF THE ACT. IT WAS POINTED OUT THAT IN CASE OF THE ASSESSEE THE SHARE S OF CO-OWNERS ARE ITA NOS. 204 TO 208/BANG/2011 PAGE 7 OF 8 DEFINITE AND ASCERTAINABLE AS PER THE DEED OF PARTN ERSHIP AND THE PARTNERS ARE FILING RETURNS OF THEIR RESPECTIVE SHARES I N THEIR INDIVIDUAL CAPACITY. IT WAS FURTHER SUBMITTED THAT FOR THE SUCCEEDING TW O YEARS I.E. FOR A.YS. 2000-01 AND 2001-02 THE ITAT VIDE ITS ORDER DATED 2.2.2007 IN ITA NOS. 354 AND 355/BANG/2005 HAS HELD ON THE BASIS OF DECI SION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF M/S. POORNIMA E NTERPRISES (IN ITRC NOS.26 TO 29/1991 ORDER DATED 19.6.1992) THAT THE R ENTAL INCOME OF THE ASSESSEE WAS TO BE ASSESSED IN THE HANDS OF CO-OWNE RS U/S. 26 OF THE ACT IF THEIR SHARES ARE DEFINITE. IT WAS POINTED OUT T HAT EFFECT TO ITAT ORDER FOR THE A.YS. 2000-01 AND 2001-02 IN THE STATUS OF AOP WAS GIVEN ON 14.11.2007 AND NO APPEAL WAS FILED AGAINST THE SAID ORDER OF THE ITAT BEFORE THE HONBLE HIGH COURT OF KARNATAKA AS SUCH THE ISSUE ATTAINED FINALITY AND DEPARTMENT HAD ACCEPTED THE DECISION O F THE ITAT. HE THEREFORE SUBMITTED THAT THE LD. CIT(A) WAS FULLY J USTIFIED IN DIRECTING THE AO TO ASSESS THE RENTAL INCOME IN THE HANDS OF CO-OWNE RS AS PER THE PROVISIONS CONTAINED IN SECTION 26 OF THE ACT. 9. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE P ARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON RE CORD. IN THE INSTANT CASE IT IS NOTICED THAT THE LD. CIT(APPEALS) WHILE DECID ING THE ISSUE IN FAVOUR OF THE ASSESSEE HAS FOLLOWED THE DECISION OF ITAT IN ASSESSEES OWN CASE IN ITA NO.354 & 355/BANG/2005 DATED 2.2.2007 FOR THE A .YS. 2000-01 AND 2001-02. AGAINST THE SAID ORDER DATED 02.02.2007 NO APPEAL HAD BEEN FILED BY THE DEPARTMENT THEREFORE THE ISSUE ATTAIN ED FINALITY AND WHEN THE DEPARTMENT HAD ACCEPTED THE SAID DECISION OF THE IT AT FOR THE A.YS. 2000- 01 AND 2001-02 THERE WAS NO REASON TO DEVIATE FROM THE SAID VIEW ITA NOS. 204 TO 208/BANG/2011 PAGE 8 OF 8 PARTICULARLY WHEN THE FACTS ARE IDENTICAL FOR THE Y EARS INVOLVED UNDER CONSIDERATION. IN THAT VIEW OF THE MATTER WE DO N OT SEE ANY MERIT IN THESE APPEALS OF THE DEPARTMENT. 10. IN THE RESULT THE APPEALS ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 1 ST DAY OF NOVEMBER 2011. SD/- SD/- ( SMT. P. MADHAVI DEVI ) ( N.K. SAINI ) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE DATED THE 1 ST NOVEMBER 2011. DS/- COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ITAT BANGALORE. 6. GUARD FILE (1+1) BY ORDER ASSISTANT REGISTRAR ITAT BANGALORE.