Itta/56/2004 Of Sri A. Venkateswara Rao v. The Asst.commisswioner Of Income Tax

*THE HON’BLE SRI JUSTICE L.NARASIMHA REDDY AND THE HON’BLE SRI JUSTICE CHALLA KODANDA RAM + I.T.T.A.No.56 of 2004 %Date: 17.12.2014 A. Venkateswara Rao .. Appellant. and$ The Assistant Commissioner of Income Tax, Central Circle, Visakhapatnam .. Respondent.! Counsel for Appellant: Sri Karthik Ramana^ Counsel for Respondent : Sri S.R. Ashok< GIST:> HEAD NOTE: ? Cases referred THE HON’BLE SRI JUSTICE L.NARASIMHA REDDY AND THE HON’BLE SRI JUSTICE CHALLA KODANDA RAM I.T.T.A.No.56 of 2004 JUDGMENT:(Per the Hon’ble Sri Justice L.Narasimha Reddy) The legal representative of an assessee filed this appeal,feeling aggrieved by the order, dated 25.08.2003 passed by theVisakhapatnam Bench of the Income Tax Appellate Tribunal (forshort ‘the Tribunal’) in I.T.A.No.545/Vizag/98. The facts, in brief, are as under: Smt. A.V.Narsamma was the owner of an item of immovableproperty, bearing No.10-1-32A, Waltair Uplands, Visakhapatnam. The building was given on lease to the Telecom Department, andNarsamma was an assessee under the Income Tax Act, 1961 (forshort ‘the Act’). She was showing the income from house property,in her returns, year after year. She passed away on 16.09.1994. Herlegal representative i.e. the appellant herein, filed returns for theperiod between 01.04.1994 and 16.09.1994 and paid the incometax, on the income from house property. The owner of the house i.e. Narsamma, executed a registeredWill, bequeathing the property in favour of a Trust. The same wasacted upon and the Trust received the rents, and paid income taxthereon, by filing returns for the period subsequent to 17.09.1994. Inrelation to some dispute, as to the quantum of rent, the appellant herein as well as the Trust filed appeals. Another grievance of theappellant was that the Assessing Officer levied tax on the deceased– late Narsamma for the period subsequent to her death also. TheCommissioner of Income Tax (appeals) partly allowed the appeal,on the question of quantum, but did not address the justification forlevy of tax on the deceased - assessee for the period subsequent toher death. I.T.A.No.545/Vizag/1998 filed by the appellant before theTribunal was dismissed. Hence, this further appeal. Sri Karthik Ramana, learned counsel for the appellant,submits that the rent for the building was paid at Rs.13,500/-, in all,per month, and without there being any basis, the Assessing Officerproposed to fix it at Rs.4.50 p., per Square Foot, that too, in theabsence of any specific data as to the exact area. He further submitsthat the Commissioner mistook the contents of a letter, dated20.10.1992, addressed by the Telecom Department and proceededas though the appellant agreed for rent @Rs.2.83 p., per SquareFoot, and on the assumption that the rent is being paid on thoselines, applied that figure. Learned counsel submits that there wasabsolutely no basis for the Assessing Officer to levy tax on theincome from house property, on the deceased – assessee as well asthe Trust for the same period and the Tribunal did not address thisvital issue on technical grounds. Sri S.R.Ashok, learned Senior Counsel for the respondent, onthe other hand, submits that the Assessing Officer entertained aserious doubt as to the accuracy of the rent on which the tax is paid,and by following the prescribed procedure, he levied tax on theenhanced amount. He submits that the Commissioner has taken areasonable and practical view of the matter and the same wasupheld by the Tribunal. As regards the alleged double levy, learnedcounsel submits that the question was not raised before the Commissioner, and obviously for that reason, the Tribunal refused todeal with it. Two aspects arise for consideration. The first is about thequantum of rent; and the second is about the period regarding whichthe appellant is under obligation to pay the tax. Sri S.R.Ashok, learned Senior Counsel for the respondent, onthe other hand, submits that the Assessing Officer entertained aserious doubt as to the accuracy of the rent on which the tax is paid,and by following the prescribed procedure, he levied tax on theenhanced amount. He submits that the Commissioner has taken areasonable and practical view of the matter and the same wasupheld by the Tribunal. As regards the alleged double levy, learnedcounsel submits that the question was not raised before the Commissioner, and obviously for that reason, the Tribunal refused todeal with it. Two aspects arise for consideration. The first is about thequantum of rent; and the second is about the period regarding whichthe appellant is under obligation to pay the tax. It is the specific case of the appellant that the rent for thepremises was being paid at Rs.10,000/-, per month, for the structure,and Rs.3,500/-, per month, for furniture and fittings; and that thesame was being taken into account year after year. It is, no doubt,true that the Assessing Officer has every right to verify the accuracyof the facts and figures furnished by the assessee and if he comes tothe conclusion that the rent for the period is being shown at a lowfigure, he can gather information in respect of neighbouring premisesand determine the income accordingly. Occasions of that naturewould arise, mostly when the premises are leased to privateindividuals. Where, however, the premises, are leased to the Governmentor its organisations, the scope for an assessee to show the rent at alower figure, does not arise. Further, there does not exist anyparticular standard, to fix the rent of any premises. Much woulddepend upon the location and condition of the building, on the onehand, and the demand in the locality, on the other. Where the lesseeis a Government, the transaction is regulated by the fixedparameters. Even if the building has potential to fetch a higher rent,the Government departments are not expected to pay such rent. Incase the owner of the premises is willing to lease them to theGovernment or its agencies, for reasons of safety and security orassured payment of rent, the discretion of the Assessing Officer todetermine the reasonable rent of his choice, gets virtually restricted. He cannot ignore the actual payments and fix an imaginary figure, based upon the alleged information or potential of the building. Things would have been different altogether, had it been acase where the appellant is alleged to have suppressed the correctinformation, and furnished accurate figures. This is a rare case, inwhich the proceedings under Section 271C of the Act were initiated,and on close verification of the matter, they were dropped. Thefigure Rs.2.83 p., per Square Foot, mentioned in the order of theCommissioner was found to be imaginary. The figure was derivedby dividing the rent of Rs.13,500/- with carpet area and not the actualarea of the building. The effort of the Telecom Department inaddressing the letter was to resist the plea of the appellant forenhancement of the rent. Once the penalty proceedings weredropped, the suggested figure virtually loses its significance. Therefore, we hold that the rent for the premises must be taken atRs.13,500/-, unless there was any enhancement by the lessee itself,for any subsequent period. Rs.2.83 p., per Square Foot, mentioned in the order of theCommissioner was found to be imaginary. The figure was derivedby dividing the rent of Rs.13,500/- with carpet area and not the actualarea of the building. The effort of the Telecom Department inaddressing the letter was to resist the plea of the appellant forenhancement of the rent. Once the penalty proceedings weredropped, the suggested figure virtually loses its significance. Therefore, we hold that the rent for the premises must be taken atRs.13,500/-, unless there was any enhancement by the lessee itself,for any subsequent period. The next question is about the levy of tax on two assesseesfor the same premises and for the same period. It has already beenmentioned that the original assessee died on 16.09.1994 and herlegal representative filed returns for the period from 01.04.1994 to16.09.1994. Tax was also paid on the income derived from houseproperty. For the subsequent period, the Trust, which became thelegatee, filed returns and paid the tax. Once that is so, there wasabsolutely no basis for the Assessing Officer to levy tax for the sameperiod on the testator also. The Commissioner did not address thisissue and the Tribunal refused to take that into account, on theground that it was not raised earlier. Being a last authority on facts,the Tribunal was supposed to deal with every aspect, that arises forconsideration, uninhibited by any such restrictions. But for the factthat the Will Deed is not before us, we would have decided the issue here itself. We feel that it is a matter for remand to the AssessingOfficer, on that limited aspect. We accordingly allow the appeal and set aside the orderpassed by the Assessing Officer, as modified by the Commissionerand affirmed by the Tribunal. The matter is remanded to theAssessing Officer for the limited purpose of verifying the Will Deedand the factum of the bequest of the property on the Trust. If itemerges that the Trust became the legatee and started enjoying therights of ownership from 17.09.1994 onwards, there shall not be levyof any tax upon the appellant for that period. Even for the periodfrom 01.04.1994 to 16.09.1994, the rent shall be taken asRs.13,500/-, per month. There shall be no order as to costs. The miscellaneous petitions filed in this appeal shall alsostand disposed of. ____________________ L.NARASIMHA REDDY, J. Date:17.12.2014L.R. copy to be marked.GJ _____________________ CHALLA KODANDA RAM, J.