M/S.rayala Corporation Pvt. Ltd v. Assistant Commissioner Of Income-Taxcompany Circle V(3),Uthamar Gandhi Salai,Chennai – 600 034

IN THE HIGH COURT OF JUDICATURE AT MADRAS Dated : 04.10.2013 Coram The Honourable Mrs.Justice CHITRA VENKATARAMAN and The Honourable Mr.Justice T.S.SIVAGNANAMTax Case (Appeal) Nos.91, 99 & 212 of 2012,Tax Case (Appeal) Nos.230 & 231 of 2007 --- M/s.Rayala Corporation Pvt. Ltd,144/7, Old Mahabalipuram Road,Kottivakkam, Chennai – 600 034.... Appellant in all Appeals -vs- Assistant Commissioner of Income-TaxCompany Circle V(3),Uthamar Gandhi Salai,Chennai – 600 034. ... Respondent in Appeal Nos. 91, 99 & 212 of 2012 Dy. Commissioner of Income-TaxCompany Circle V(3),Uthamar Gandhi Salai,Chennai – 600 034. ... Respondent in Appeal Nos. 230 & 231 of 2007 Tax Case Appeals filed under Section 260A of the Income Tax Act,1961 against the order of the Income Tax Appellate Tribunal, Chennai'B' 'D' 'A' 'B' Bench dated 26.04.2007, 02.11.2011, 06.02.2012,22.09.2006passedinITA.No.103/MDS/2004-05,ITA.Nos.119,1464/MDS/2011 and ITA.Nos.387 & 388/MDS/2006 and appeal against theorder of the Commissioner of Income Tax (Appeals)in ITA 60/2004-05,ITA No.104/10-11, ITA 73/10-11, ITA No. 134/2005-06 & ITA 133/2005-06dt 29.11.2004, 19/11/2010, 27/7/2011, 12/12/2005 respectively andappeal against the order of the Assistant Commissioner of Income Tax,in P.A.No.AABCR7230D53043-R, dt 29/3/2004 & 25/9/2008 respectivelyand appeal against the order of the Deputy Commissioner of Tax, Dt.31/8/2010 & 21/3/2005 respectively. For appellant: Mr.C.V.Rajan and Mr.R.Venkata Narayanan for M/s.Subbaraya Aiyar For Respondents : Mr.N.V.Balaji and Mr.K.Sureshkumar COMMON JUDGMENT T.S.SIVAGNANAM, J. 1. Tax Case (Appeal) No.91 of 2012, at the instance of theassessee has been admitted on the following substantial questions oflaw: (i)Whether the Income Tax Appellate Tribunal isjustified in upholding the assessment of the incomereceived by the appellant, by a) sub leasing of alreadyleased out property b) maintenance charges and airconditioning hire charges, as Income from House Propertyand not income from business having regard to the fact thatthe Appellant with the view of commercial exploitation,pursuing the main objects of the Company had taken on leasethe premises and thereafter sub leased the premises andalso provided integrated services such as maintenance andair conditioning services? (ii) Whether the income earned by the Appellant bycommercial exploitation of sub leasing leased premises interms of the Memorandum and Articles of Association of theAppellant Company and providing integrated services such asmaintenance and air conditioning services and furtherinvesting the returns in real estate development isassessable as Income from Business under Section 28 orincome from house property under Section 22 ? 2. Tax Case (Appeal) No.99 of 2012, at the instance of theassessee has been admitted on the following substantial questionsof law: (i) Whether on the facts and circumstances of the case theITAT is justified in upholding the assessment of the incomereceived by the Appellant, by way of a) sub leasing ofalready leased out property and b)maintenance charges andair conditioning hire charges, as income from houseproperty and not income from business, having regard to thefact that the Appellant Company is pursuing the main objectof the Company as provided in the Memorandum and Objects? (ii) Whether the income earned by the Appellant bycommercial exploitation of sub leasing leased premises in terms of the Memorandum and Articles of Association of theAppellant Company and providing integrated services such asmaintenance and air conditioning services and furtherinvesting the returns in real estate development isassessable as Income from Business under Section 28 orincome from house property under Section 22 of the IT Act? (ii) Whether the income earned by the Appellant bycommercial exploitation of sub leasing leased premises in terms of the Memorandum and Articles of Association of theAppellant Company and providing integrated services such asmaintenance and air conditioning services and furtherinvesting the returns in real estate development isassessable as Income from Business under Section 28 orincome from house property under Section 22 of the IT Act? 3. Tax Case (Appeal) No.230 of 2007, at the instance of theassessee has been admitted on the following substantial questions oflaw: (i) Whether in the facts and circumstances of the case, theIncome Tax Appellate Tribunal is justified in upholding thereopening of the assessment under Section 147 explanation 2(b) in the appellant's case where the assessment hasalready been completed under Section 143(1) and refund isissued to the appellant and further the assessment madeunder Section 143(1) was rectified under section 154? (ii) Whether the assessment made under Section 147explanation 2(b) of the Income Tax Act is withoutjurisdiction and hence ought to be set aside?(iii) Whether in the facts and circumstances of the case,the Income Tax Appellate Tribunal justified in upholdingthe assessment under Section 147 explanation 2(b) wherethere is no new materials found by the respondents but theassessment is made on a mere change of opinion andreappraisal of the same material on record? (iv) Whether the Income Tax Appellate Tribunal justified inupholding the assessment of the income received by theappellant, by (a) sub leasing of already leased outproperty, (b) maintenance charges and air conditioning hirecharges, as income from house property and not income frombusiness having regard to the fact that the appellant withthe view of commercial exploitation, pursuing the mainobjects of the company had taken on lease the premises andthereafter sub leased the premises and also providedintegrated services such as maintenance and airconditioning services?(v) Whether the income earned by the appellant bycommercial exploitation of sub leasing leased premises interms of the Memorandum and Articles of Association of theappellant Company and providing integrated services such asmaintenance and air conditioning services and furtherinvesting the returns in real estate development,assessable as income from business under Section 28 orincome from house property under Section 22?(vi) Whether in the facts and circumstances of the case,the Appellate Tribunal was right in upholding thereassessment made by the respondent when the AssessingOfficer after applying his mind had rectified theassessment order to rectify mistakes apparent on record? (vii)Whether in the facts and circumstances of the case,the Appellate Tribunal was right in upholding theassessment made by the respondent under Section 147explanation 2(b), when the period for completing theassessment under Section 143(3) (Assessment year 2002-2003)had expired on 31.03.2004 and thereby rendering theprovision of Section 153 for completing the assessmentotiose? 4. Tax Case (Appeal) No.231 of 2007, at the instance of theassessee has been admitted on the following substantial questions oflaw: (i) Whether the Income Tax Appellate Tribunal justified inupholding the assessment of the income received by theappellant, by (a) sub leasing of already leased outproperty, (b) maintenance charges and air conditioninghire charges, as income from house property and not incomefrom business having regard to the fact that the appellantwith the view of commercial exploitation, pursuing themain objects of the company had taken on lease thepremises and thereafter sub leased the premises and alsoprovided integrated services such as maintenance and airconditioning services? 4. Tax Case (Appeal) No.231 of 2007, at the instance of theassessee has been admitted on the following substantial questions oflaw: (i) Whether the Income Tax Appellate Tribunal justified inupholding the assessment of the income received by theappellant, by (a) sub leasing of already leased outproperty, (b) maintenance charges and air conditioninghire charges, as income from house property and not incomefrom business having regard to the fact that the appellantwith the view of commercial exploitation, pursuing themain objects of the company had taken on lease thepremises and thereafter sub leased the premises and alsoprovided integrated services such as maintenance and airconditioning services? (ii) Whether the income earned by the appellant bycommercial exploitation of sub leasing leased premises interms of the Memorandum and Articles of Association of theappellant Company and providing integrated services such asmaintenance and air conditioning services and furtherinvesting the returns in real estate development,assessable as income from business under Section 28 orincome from house property under Section 22? 5. The Tax Case (Appeal) No.212 of 2012 is admitted on thefollowing substantial questions of law :- (i) Whether on the facts and circumstances of the casethe ITAT is justified in upholding the assessment of theincome received by the Appellant, by way of a) sub leasingof already leased out property and b)maintenance charges andair conditioning hire charges, as income from house propertyand not income from business, having regard to the fact thatthe Appellant Company is pursuing the main object of theCompany as provided in the Memorandum and Objects? (ii) Whether the income earned by the Appellant bycommercial exploitation of sub leasing leased premises interms of the Memorandum and Articles of Association of theAppellant Company and providing integrated services such asmaintenance and air conditioning services and further investing the returns in real estate development isassessable as Income from Business under Section 28 orIncome from house property under Section 22 of the IT Act? 6. These Tax Case Appeals filed by the assessee are directedagainst the orders passed by Income Tax Appellate Tribunal(Tribunal), Chennai. As the appeals have been filed by the sameassessee against the orders passed by the Tribunal for differentassessment years and as the questions involved are identical, theseappeals were heard together and are disposed of by this common order. T.C.(A).No.231 of 2007, T.C.(A).Nos.91, 99 & 212 of 2012:-7. These appeals are directed against the order passed by theTribunal in ITA.No.388 of 2006 relating to the assessment year 2003-04, ITA No.103 of 2005 relating to the assessment year 2004-05,ITA.No.119 of 2011 for the assessment year 2006-07 and ITA No.1464 of2011 for the assessment year 2008-09 respectively, raising thesubstantial questions of law referred above. 8. The Tribunal by relying upon the decision of the DivisionBench of this Court in the case of CIT vs. Chennai Properties andInvestments Ltd., [2008] 303 ITR 33 (Mad) assessed the income underthe head "income from house property" and answered the question infavour of the Revenue. The order passed by the Tribunal dated22.09.2006 in ITA.No.388 of 2006 for the assessment year 2003-04 wasfollowed by the Tribunal in ITA.No.119 of 2011, dated 02.11.2011 forthe assessment year 2006-07, in ITA No.103 of 2005, dated 26.04.2007for the assessment year 2004-05 and I.T.A.No.1464 of 2011, dated06.02.2012 for the assessment year 2008-09. Aggrieved by suchorders, the assessee is on appeal before this Court. 8. The Tribunal by relying upon the decision of the DivisionBench of this Court in the case of CIT vs. Chennai Properties andInvestments Ltd., [2008] 303 ITR 33 (Mad) assessed the income underthe head "income from house property" and answered the question infavour of the Revenue. The order passed by the Tribunal dated22.09.2006 in ITA.No.388 of 2006 for the assessment year 2003-04 wasfollowed by the Tribunal in ITA.No.119 of 2011, dated 02.11.2011 forthe assessment year 2006-07, in ITA No.103 of 2005, dated 26.04.2007for the assessment year 2004-05 and I.T.A.No.1464 of 2011, dated06.02.2012 for the assessment year 2008-09. Aggrieved by suchorders, the assessee is on appeal before this Court. 9. The assessee herein a company mainly derived income from sublease of rental properties, maintenance charges, interest incomebeing interest on deposits, A.C. service charges and miscellaneousincome. The assessee had shown the receipts from leasing out ofproperty etc, as income from business by claiming expenses towardssalaries, wages, bonus, administrative expenses etc., for therelevant assessment years. The assessment for the assessment years2003-04, 2006-07 and 2008-09 were taken up for scrutiny, theAssessing Officer held that the rental income by way of sub-lease ofproperties located at No.781-785, Anna Salai, Chennai, hereinafterreferred to as "Annasalai property" and No.144/7, Old MahabalipuramRoad, Kottivakkam, Chennai – 41, hereinafter referred to as"Kottivakkam property" were assessable as "income from houseproperty". Consequently, the Assessing Officer disallowed theexpenses claimed and allowed deductions under Section 24 of theIncome Tax Act (I.T. Act) as per permissible under law. Aggrieved bysuch order, the assessee preferred appeals before the Commissioner of Income Tax (Appeals) [CIT (A)]. 10. The CIT (A) held that the income from sub-lease of the spaceallotted in the Anna Salai property and the lease rent in respect offactory premises rented out along with machinery and equipment atKottivakkam are assessable as "income from house property". Asregards the rental income from Anna Salai property, the CIT(A) heldthat it had been taken on lease at a concessional rent from thedeveloper of the building in the capacity of the owner of the landand the lease was for 33 years, renewable once in five years, theassessee was deemed to be the owner of the superstructure taken onlease from the developer and hence the income from property subleasedto various tenants for office premises was assessable as "income fromhouse property". 11. In respect of the Kottivakkam property, the CIT (A) heldthat the factory premises along with machinery and equipment wasleased out from September 1993 and what is leased out, is essentiallya factory building with furniture and fixtures and therefore, thelease rent is assessable as "income from house property". As regardsthe levy of interest under Section 234D I.T. Act on the completion ofassessment under Section 143(3) of the I.T. Act, the CIT (A)confirmed the levy of interest, accordingly, the appeal was dismissedby order dated 12.12.2005. 12. Apart from the above reasons, the CIT (A) relied on thedecision of the Division Bench of this Court in the case of ChennaiProperties and Investments Ltd., (supra), assessed the income for therelevant assessment year under the head of "income from houseproperty". The additions claimed for the properties during therelevant assessment year were rejected. The CIT (A) followed theabove decisions for the assessment year 2008-09 and dismissed theappeal by order dated 27.07.2011. 12. Apart from the above reasons, the CIT (A) relied on thedecision of the Division Bench of this Court in the case of ChennaiProperties and Investments Ltd., (supra), assessed the income for therelevant assessment year under the head of "income from houseproperty". The additions claimed for the properties during therelevant assessment year were rejected. The CIT (A) followed theabove decisions for the assessment year 2008-09 and dismissed theappeal by order dated 27.07.2011. 13. Challenging these orders, the assessee preferred separateappeals before the Tribunal. The Tribunal dismissed the appealsfiled for the assessment year 2003-04, by order dated 22.09.2006following the decision of the Division Bench of this Court in thecase of Chennai Properties and Investments Ltd., (supra). Followingthe said order, the appeals in respect of the assessment years 2004-05, 2006-07 and 2008-09 were dismissed by the Tribunal, by ordersdated 26.04.2007, 02.11.2011 and 06.02.2012. These orders have ledto the filing of these Tax Case Appeals before this Court by theassessee. 14. Mr.C.V.Rajan appearing along with Mr.R.Venkata Narayanan,learned counsel appearing for the appellant/assessee submitted thatthe Assessing Officer, the CIT (A) and the Tribunal failed toconsider that the assessee is in the business of real estatedevelopment and Memorandum and Articles of Association of the Company provides for real estate business and with a view of commercialexploitation, the assessee had leased the commercial building afterproviding infrastructure facilities and the income earned from sub-leasing the premises was further deployed in real estate business andthe assessee had incurred considerable expenditure to earn the incomeand the income earned by leasing out of the premises was "businessincome" only. Further, it is submitted that the decision in ChennaiProperties and Investments Ltd., (supra), would not apply to thefacts and circumstances of the case of the assessee. It is contendedthat in respect of the Kottivakkam property, the lease was in respectof the factory and the premises and the Tribunal ought to haveaccepted the plea of the assessee and treated the lease rent as"Business Income" and not as "income from house property". Thelearned counsel produced copies of the Memorandum and Articles ofAssociation of the Company, rental lease agreement, dated 06.05.2002,in respect of a portion of Anna Salai property, lease agreementsdated 09.10.1981 and 16.08.2003 in respect of the Kottivakkamproperty. The learned counsel relied upon the decision of theDivision Bench of this Court in the case of Commissioner of Income-Tax vs. Ideal Garden Complex P. Ltd., [2012] 340 ITR 609 (Mad). 15. Mr.N.V.Balaji, learned standing counsel appearing for theRevenue submitted that the assessee company stopped its business inmanufacturing typewriters long back and no other business activitieswere carried on thereafter. That the assessee company parted withthe commercial asset and confined solely to receive some income byvirtue of ownership of the asset by the lease or otherwise and theact of leasing out was the out come of the assessee's decision to getout of the business. By referring to the assessment order dated21.03.2005 for the assessment year 2002-03, it is submitted that theassessee in response to the notice issued under Section 143 (2) ofthe I.T.Act, appeared before the Assessing Officer through theirauthorized representatives and expressed their no objection fortreating the income under the head "income from house property".Therefore, it is submitted that the finding of fact rendered by theAssessing Authority as confirmed by the Commissioner (Appeals) andthe Tribunal, calls for no interference and no substantial questionsof law arise for consideration in these appeals. 16. We have heard the submissions of the learned counselappearing on either side and carefully perused the materials placedon record. 17. The substantial questions of law framed in these appeals areas to whether the income received by the assessee by way of sub-leaseof the Anna Salai property, collection of maintenance charges, A.C.,hire charges etc., would be income from "business" or “income fromhouse property", similar is the question in respect of Kottivakkamproperty. 18. Before we examine the issue on the facts placed before us,it has to be pointed out that the Assessing Authority in the order ofassessment for the assessment year 2003-04 has made a reference thatinsofar as Kottivakkam property was concerned, the assessee companyhad leased out the factory premises, machinery and equipment toMr.Ranjith Prathap and his associates and receiving lease rental fromthem and concluded that the income has to be treated as "income fromhouse property". This finding was confirmed by CIT (A) and in doingso, the Commissioner (Appeals) referred to an earlier order inI.T.A.No.60 of 2005, dated 29.11.2004. In the said order inparagraph 7.17, it has been observed that the assessee had stoppedits business during 1993 and there is no intention of continuing thesame and the assessee leased out the factory building along withfurniture and fittings, plant and machinery to Mr.Ranjith Prathap andwas receiving rent, since September 1993 and the rent was revisedduring 1996 and subsequently in 1997. Further, it has been observedthat as there was no intention to resume business and the writtendown value (WDV) of the plant and machinery as on 01.04.2000, wasonly Rs.6,777/-, which is insignificant and therefore, he concludedthat what was leased essentially was only the factory building,furniture and fixtures and hence the income from such lease was to beassessed as "income from house property". 19. It is seen that though such finding had been recorded toeffect that the lease was in respect of the factory shed, machineryand equipment, we find that no documents were placed before theAssessing Authority to establish this fact. The copy of the leaseagreement dated 16.03.2003, alone has been produced before us andfrom the said document, we find that the property which had beenleased, was factory shed and RCC building constructed on the land.Therefore, the finding given by the Assessing Officer for theassessment year 2003-04, that the lease was along with plant andmachinery is not supported by any document and there is nothing onrecord to show that the lease in respect of Kottivakkam property wasalong with plant and machinery. Therefore, it is the submission ofthe learned counsel for the assessee that in the absence of any suchmaterial, the matter requires to be remitted back to the AssessingOfficer to examine this aspect. 20. In the case of CIT vs. Chennai Properties and InvestmentsLtd., reported in [2008] 303 ITR 33 (Mad), the question of lawformulated was whether the Tribunal was right in holding that theamenity charges received in respect of let out property should betreated as "income from other sources". The Division Bench of thisCourt while dismissing the appeal took note of the decision in thecase of Tarapore and Co. v. CIT reported in [2003] 259 ITR 389 (Mad)wherein it was held that the actual rent received by the assesseewould constitute the basis for determining the annual value and itwas that value which would have to form the basis for determiningincome from "house property" and for allowing the deduction from income from "house property" to the extent permitted under the otherprovisions of the Income-tax Act. In making such computation, therewas no provision to add other amounts received by the owner of thebuilding and held that the Tribunal was right in holding that thereceipts from service charges were liable to be assessed as incomefrom other sources and not "income from house property". income from "house property" to the extent permitted under the otherprovisions of the Income-tax Act. In making such computation, therewas no provision to add other amounts received by the owner of thebuilding and held that the Tribunal was right in holding that thereceipts from service charges were liable to be assessed as incomefrom other sources and not "income from house property". 21. In the case on hand, the Assessing Authority, Commissioner(Appeals) as well as the Tribunal have recorded a factual findingthat the assessee closed down the manufacturing business with noevidence of revival and the income from the land and building has tobe treated as "income from house property". 22. In respect of the "Kottivakkam Property" for the assessmentyear 2003-04, the Assessing Officer recorded a finding that theassessee company has leased out the factory premises and equipmentsin the "Kottivakkam Property" to Mr.Ranjith Prathap and hisassociates and is deriving lease rental therefrom. The copy of therental lease agreement dated 16.08.2003, has been produced before us,from which it is seen that the property which has been leased, isvacant land measuring about 25503sq.ft. No other document has beenproduced to show that the lease was in respect of the factorybuilding, machinery and equipment. Therefore, to this extent, wehold that the Assessing Authority has to examine to ascertain as towhether the lease was together with building, machinery andequipment. In respect of the other findings of the Tribunal, theassessee has not made out a case for interference. 23. Coming to the next issue regarding the Anna Salai property,the undisputed facts are that the assessee was the owner of the landand entered into agreements dated 09.10.1981 and 21.06.2000 withM/s.Vira Properties (Madras) Private Ltd., for development andconstruction. As per the agreement dated 09.10.1981, the assesseewas paid a ground rent of Rs.16.25 lakhs per annum, 91200sq.ft., ofoffice space to be made available by the lessor, which was sublet bythe assessee resulting in rental income. The assessee claimed thatit is its business activity and therefore, the nature of receipt isdifferent from what is contemplated under Section 22 of the I.T. Act.Further, the assessee claimed that they are not the owners of thebuilding and it belongs to the developer and the assessee is only alessee of the building and sublease the property taken on lease athigher rent, as its business activity. It is to be noted that thelease entered into by the assessee with the M/s.Vira Properties isfor 33 years with option for five times consecutive renewals of thesame for similar period with the right to sub-let and sublease. 24. Section 27 (iiib) of I.T. Act defines 'Owner of houseproperty', for the purposes of Sections 22 to 26 of the I.T.Act, as aperson, who acquires any rights excluding rights by way of lease frommonth to month or for a period not exceeding one year in respect of any building or part thereof, by virtue of any transaction asreferred in clause (f) of Section 269UA of the I.T. Act [whichdefines transfer in the relation to any immovable property to meantransfer of such property by way of lease for a term of not less than12 years], shall be deemed to be the owner of that building or partthereof. The rental lease agreement dated 06.05.2002, has beenproduced which is a sublease agreement between the assessee andM/s.J&B Software India Pvt., Ltd., from which it is seen that thelease deed dated 09.10.1981, entered into between the assessee andM/s.Vira Properties in respect of the Anna Salai property is for aperiod of 33 years with option of five times consecutive renewals ofthe same for the similar period. any building or part thereof, by virtue of any transaction asreferred in clause (f) of Section 269UA of the I.T. Act [whichdefines transfer in the relation to any immovable property to meantransfer of such property by way of lease for a term of not less than12 years], shall be deemed to be the owner of that building or partthereof. The rental lease agreement dated 06.05.2002, has beenproduced which is a sublease agreement between the assessee andM/s.J&B Software India Pvt., Ltd., from which it is seen that thelease deed dated 09.10.1981, entered into between the assessee andM/s.Vira Properties in respect of the Anna Salai property is for aperiod of 33 years with option of five times consecutive renewals ofthe same for the similar period. 25. The Finance Act 1987, which came into effect from01.04.1988, enlarged the definition of 'owner' so as to includepersons, who acquire rights in or with respect of any building orpart thereof by virtue of transaction, falling under Section 269UA(f) of the I.T.Act, by doing anything, which has effect oftransferring to or enabling their enjoyment of such property by him.The exclusion being month to month lease or lease for less than oneyear. In the assessee's case the lease is for 33 years with renewalsfor five consecutive times for the same period and the assessee wouldsquarely fall within the definition of 'deemed to be the owner ofhouse property' as defined under Section 27(iiib) of the I.T. Act. 26. The Hon'ble Supreme Court in the case of CIT v. P. V. S.Beedies Pvt. Ltd. reported in [1999] 237 ITR 13 (SC) among otherthings held that where all the assets of the business are let out,the period for which the assets are let out is a relevant factor tofind out whether the intention of the assessee is to go out ofbusiness altogether or to come back or to restart the same and ifthe business never started or has started but ceased with nointention to be resumed, the assets also will cease to be businessassets and the transaction will only be exploitation of property byan owner thereof, but not exploitation of business assets. 27. In case of Sultan Brothers P. Ltd. v. CIT reported in [1964]51 ITR 353 (SC), the Hon'ble Supreme Court held that before invokingSection 22 of the I.T. Act, for the purpose of assessing the rentalincome as "income from the house property", the Revenue authoritiesmust go into the question whether there was any exploitation of theproperty by their owner by giving it away for rent, before assessingsuch rental income as 'income from house property'. 28. In the case of East India Housing and Land Development TrustLtd. v. CIT reported in [1961] 42 ITR 49 (SC), when the rental incomefalls within the specific head of "income from house property", themere fact of the assessee having business in letting out the propertyas stated in its memorandum, by itself, will not conclusively pointout that the income is nothing but business income. 28. In the case of East India Housing and Land Development TrustLtd. v. CIT reported in [1961] 42 ITR 49 (SC), when the rental incomefalls within the specific head of "income from house property", themere fact of the assessee having business in letting out the propertyas stated in its memorandum, by itself, will not conclusively pointout that the income is nothing but business income. 29. As regards the question on the assessment under proper headof income useful reference could be made to the recent decision ofthe Division Bench of this Court in Commissioner of Income-Tax vs.Ideal Garden Complex P. Ltd., (supra). The assessee in the saidcase, a company incorporated with an object of carrying on businessin real estate, developing landed properties etc. The assesseeclaimed the income derived from letting out the properties was"business income" and not to be taxed as "income from houseproperty". While passing the assessment order under Section 143(1)(a) of the I.T. Act, originally the Assessing Officer accepted theclaim of the assessee, however proceedings under Section 147 of theI.T.Act was invoked on the basis of decision of this Court in thecase of Commissioner of Income-tax v. Indian Metal and MetallurgicalCorporation reported in [1995] 215 ITR 424. The assessees raisedtheir objections, which were rejected by the Assessing Authorityholding that the transaction being one of exploitation of theproperty as an owner and not by way of exploitation of businessasset, the rental receipts have to be assessed under the head "incomefrom house property". The appeal was allowed by CIT(A), and theRevenue preferred appeal before the ITAT. The Tribunal rejected theRevenue's appeal and the Revenue filed the Tax Case before thisCourt. The Division Bench after referring to the decisions on thepoint rejected the contentions raised by the assessee and held thatwhether a particular letting was business had to be decided in thecircumstances of each case and each case has to be looked at from abusinessman's point of view and before invoking Section 22 of theI.T. Act, for the purpose of assessing the rental income as an"income from house property", the Revenue authorities must go intothe question whether there was any exploitation of the property byits owner by giving it away for rent. It was further held that thetransactions being in the nature of exploitation of the property bythe assessee and not by way of exploitation of business asset, thecontention of the assessee could not be accepted. Further, mere factof the assessee having business in letting out the property as statedin the memorandum by itself will not conclusively point out that theincome is nothing, but 'business income'. 30. Thus, by applying the decision of this Court in the case ofCIT vs. Ideal Garden Complex (supra), to the facts as found by theAssessing Officer that the assessee company has stopped its businessactivities long back and is not carrying out any other businessactivity and the assessee has parted with the commercial assets andconfined solely to receive some income by virtue of ownership thereofby lease or otherwise and the act of leasing was the out come of theassessee's decision to get out of the business, we accept the case ofthe Revenue that the income receipt from letting out of the propertywas rightly assessed by the Assessing Officer as "income from houseproperty". We make it clear that in sofar as the 'KottivakkamProperty', it was submitted that the written down value of the machinery was only Rs.6,777/-, however, we have remitted the same tothe Assessing Authority to verify the aspect whether the lease wastogether with machinery and equipments. machinery was only Rs.6,777/-, however, we have remitted the same tothe Assessing Authority to verify the aspect whether the lease wastogether with machinery and equipments. 31. In the result, the assessment of the income in respect ofthe Anna Salai property as 'income from house property' is affirmed.Insofar as the income from Kottivakkam property for the assessmentyear 2003-04, the matter is remanded to the Assessing Authority toconsider the entire materials for the purpose of ascertaining as towhether the lease of the Kottivakkam property, was together withplant and machinery. Accordingly, the appeals in T.C.(A).No.231 of2007 and T.C.(A).Nos.91, 99 & 212 of 2012 are partly allowed, exceptthat what has been rejected. 32.T.C.(A).No.230 of 2007:-T.C.(A) No.230 of 2007 relates to the assessment year 2002-03.This appeal is dealt with separately, as it is a case of reopening ofassessment, after the return was processed under Section 143(1)I.T.Act and intimation issued to the assessee. The AssessingAuthority observed that perusal of records showed that the assesseecompany mainly derived income from lease rentals of properties,maintenance charges, interest, income on interest receipts anddeposits, A.C., service charges and miscellaneous income. For theassessment year 2002-03, the assessee company admitted total receiptsof Rs.1,71,60,691/- from the above sources as "business income" andclaimed expenses under various heads like salary, wages, bonus etc.,to the tune of Rs.1,48,49,883/-. The Assessing Authority opined thatthe source of income are of the nature of "house property income" and"income from other sources" and in the absence of any income frombusiness, the expenses claimed under various heads relating tobusiness, are not allowable expenditure under the "income from houseproperty" and "other sources" and therefore, proceedings wereinitiated under Section 147 of the I.T.Act and notice under Section148 of the I.T. Act, was served on the assessee. The AssessingOfficer has recorded in the order of assessment that in response tothe notice issued to the assessee, authorized officers appeared andexpressed their no objection for treating the income under the head"house property". Nevertheless the assessee contested this findingby preferring appeal and then carried the matter to the Tribunal andnow before this Court. 33. While deciding T.C.(A).No.231 of 2007, and T.C.(A).Nos.91,99 & 212 of 2012, we have held that the finding of the Tribunal thatthe income from Anna Salai property is "income from house property"is correct. In sofar as the Kottivakkam property for the assessmentyear 2003-04, the matter has been remanded for the limited extent toascertain as to whether the lease in respect of Kottivakkam propertywas together with plant and machinery. Therefore, there is nonecessity to dwell further on this aspect and the finding rendered inT.C.(A).No.231 of 2007, T.C.(A).Nos.91, 99 & 212 of 2012 answers the issue on this aspect and T.C.(A).No.230 of 2007, is also partlyallowed insofar as the matter pertaining to the Kottivakkam Property.Having held so, we now proceed to consider the contention of theassessee that the reopening of assessment under Section 147 of theI.T.Act, is without jurisdiction and illegal. issue on this aspect and T.C.(A).No.230 of 2007, is also partlyallowed insofar as the matter pertaining to the Kottivakkam Property.Having held so, we now proceed to consider the contention of theassessee that the reopening of assessment under Section 147 of theI.T.Act, is without jurisdiction and illegal. 34. Mr.C.V.Rajan, learned counsel appearing for the appellant,while conceding to the fact that the notice issued under Section 148of the I.T.Act, was within the statutory period of limitation wouldnevertheless contend that the reassessment by the Assessing Officerunder Section 147 read with Explanation 2(b) of the I.T. Act iswithout jurisdiction, as there is no new material found by theAssessing Officer and the reassessment is done due to mere change ofopinion. It is further contended that the reassessment is due to thereappraisal of the same material and the assessee had disclosed allthe materials in the file at the time filing the return. TheAssessing Officer specifically did not refer to any tangible materialwarranting invocation of power under Section 147 of the I.T. Act.The learned counsel placed reliance on the decision of the DivisionBench of the Delhi High Court in the case of Commissioner of IncomeTax vs. Orient Craft Ltd., reported in [2013] 354 ITR 536 (Delhi),and submitted that the Delhi High Court dismissed the appeal filed bythe Revenue in a case where the Assessing Officer reached the beliefthat there was escapement of income on going through the return filedby the assessee after he accepted the return under Section 143(1) ofthe I.T. Act without scrutiny, amounts to a review of the earlierproceedings and abuse of power, which has been deprecated by theHon'ble Supreme Court in CIT vs. Kelvinator of India Ltd., reportedin [2010] 320 ITR 561 (SC). 35. We have heard the learned standing counsel appearing for theRevenue on the above submissions. 36. In terms of the Section 147 of the I.T.Act, if the AssessingOfficer has reason to believe (substituted with effect from01.04.1989) that any income chargeable to tax has escaped assessmentfor any assessment year, he may, subject to the provisions of theSection 148 to 153 of the I.T. Act, assess or reassess such incomeand also any other income chargeable to tax which has escapedassessment and which comes to his notice subsequently in the courseof the proceedings under Section 147 of the I.T. Act. The provisostipulates a period of limitation of four years from the end of therelevant assessment year unless any income chargeable to tax hasescaped assessment by reason of the failure on the part of theassessee to make a return or in response to a notice issued underSection 142(1) or Section 148 of the I.T. Act, or to disclose fullyand truly all material facts necessary for his assessment for thatassessment year. Explanation 1 states that production before theAssessing Officer of account books or other evidence from whichmaterial evidence could, with due diligence, have been discovered by the Assessing Officer will not necessarily amount to disclosurewithin the meaning of the proviso. The word "reason to believe"suggest that the belief must be that of an honest and reasonableperson based upon reasonable grounds and that the Assessing Officermay act on direct or circumstantial evidence, but not on meresuspicion. 37. The Hon'ble Supreme Court in the case of Indian IdealCorporation vs. ITO reported in [1986] 159 ITR 956 (SC), held thatreason to believe is not the same thing as reason to suspect.Therefore, the Assessing Officer has to act based on informationsecured by him that there is a case for reopening of assessment underSection 147 of the I.T. Act. the Assessing Officer will not necessarily amount to disclosurewithin the meaning of the proviso. The word "reason to believe"suggest that the belief must be that of an honest and reasonableperson based upon reasonable grounds and that the Assessing Officermay act on direct or circumstantial evidence, but not on meresuspicion. 37. The Hon'ble Supreme Court in the case of Indian IdealCorporation vs. ITO reported in [1986] 159 ITR 956 (SC), held thatreason to believe is not the same thing as reason to suspect.Therefore, the Assessing Officer has to act based on informationsecured by him that there is a case for reopening of assessment underSection 147 of the I.T. Act. 38. It is equally a well settled proposition that change ofopinion does not give jurisdiction to reassess. As laid down by theHon'ble Supreme Court in the case of ITO vs. Lakhmani Mewal Dasreported in [1976] 103 ITR 437 (SC) the material on record should besuch as to lead to the inference that income has escaped assessmentand there should be a rational connection, direct nexus or live linkbetween the material and the belief. 39. The learned counsel appearing for the assessee rests hiscase on the decision of the Delhi High Court in the case ofCommissioner of Income Tax vs. Orient Craft Ltd., (supra) andsubmitted that the Assessing Officer has accepted the return underSection 143(1) of the I.T. Act and the action initiated under Section147 of the I.T. Act, is nothing, but a review of the earlierproceedings, which procedure was strongly deprecated by the Hon'bleSupreme Court in CIT vs. Kelvinator of India Ltd., (supra), and thereason recorded by the Assessing Officer does not disclose anytangible material, which came to the possession of the AssessingOfficer subsequent to the issue of intimation under Section 143(1) ofthe I.T. Act, consequently, the exercise of power conferred underSection 147 of the I.T. Act, is arbitrary. 40. In order to appreciate and consider the rival submissions,it is necessary to take note of Sections 143 & 147 of the I.T. Actrelevant to this case. The provisions read as follows:- [Assessment. 143.(1) Where a return has been made under section139, or in response to a notice under sub-section (1) ofsection 142,-- (i) if any tax or interest is found due on the basisof such return, after adjustment of any tax deducted atsource, any advance tax paid, any tax paid on self-assessment and any amount paid otherwise by way of tax orinterest, then, without prejudice to the provisions of https://hcservices.ecourts.gov.in/hcservices/ sub-section (2), an intimation shall be sent to theassessee specifying the sum so payable, and suchintimation shall be deemed to be a notice of demand issuedunder section 156 and all the provisions of this Act shallapply accordingly ; and (ii) if any refund is due on the basis of suchreturn, it shall be granted to the assessee and anintimation to this effect shall be sent to the assessee : Provided that except as otherwise provided in this sub-section, the acknowledgment of the return shall be deemedto be intimation under this sub-section where either nosum is payable by the assessee or no refund is due tohim : Provided further that no intimation under this sub-sectionshall be sent after the expiry of one year from the end ofthe financial year in which the return is made. Provided also that where the return made is in respect ofthe income first assessable in the assessment yearcommencing on the 1st day of April, 1999, such intimationmay be sent at any time up to the 31st day of March, 2002. (1A) and (1B) Omitted by FA 1999, wef 1-6-1999. (2) Where a return has been furnished under section 139,or in response to a notice under sub-section (1) ofsection 142, the Assessing Officer shall,— Provided further that no intimation under this sub-sectionshall be sent after the expiry of one year from the end ofthe financial year in which the return is made. Provided also that where the return made is in respect ofthe income first assessable in the assessment yearcommencing on the 1st day of April, 1999, such