INCOME TAX OFFICER v. DEVCHAND CHHAGANLAL SHAH
[Citation -1984-LL-0630-3]

Citation 1984-LL-0630-3
Appellant Name INCOME TAX OFFICER
Respondent Name DEVCHAND CHHAGANLAL SHAH
Court ITAT
Relevant Act Income-tax
Date of Order 30/06/1984
Assessment Year 1968-69
Judgment View Judgment
Keyword Tags provisional assessment • rectification order • individual capacity • regular assessment • air-conditioning • registered firm • rental income • lease income • share income • time barred • lease rent • co-owned • plant
Bot Summary: The appeal relating to the assessment year 1968-69 was allowed in part, in that the Commissioner held, that the order passed by the ITO under section 155(2) of the Income-tax Act, 1961 with a view to including in the assessment the assessee's 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 failed to consider the fact that the assessee's 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 assessee's revised share from BOI had to be adopted by resorting 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 assessee's income itself. 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 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. 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 Tribunal's 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 Tribunal's 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 Court's decision in D.C. Shah's case. 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. These conditions are the following: if the share of the member in the income of the BOI has not been included originally, the same can be included; if the same has been originally included in the member's 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. Shah's case 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.


This appeal by revenue relating to assessment year 1968-69 arises out of consolidated order of Commissioner (Appeals) in his IT Appeal Nos. 55 to 58/CC. III/CIT (A)-I of 1980-81 dated 29-9-1982, for assessment years 1968-69 to 1971-72. In above mentioned order of Commissioner (Appeals), appeals filed by assessee for assessment years 1969-70 to 1971-72 were dismissed. appeal relating to assessment year 1968-69 was allowed in part, in that Commissioner (Appeals) held, that order passed by ITO under section 155(2) of Income-tax Act, 1961 ('the Act') with view to including in assessment assessee's share of income of property at C-Plot, Shivasagar Estate, Bombay, of which he was one of co- owners, was not correct in light of final order in case of BOI wherein, there was no such income from property. Commissioner (Appeals) further substantiated his conclusion by reference to Tribunal's order dated 9- 2-1981, which cancelled reassessment under section 147 of Act made for this assessment year. grounds of appeal of revenue in this behalf are following: " 1. order of Commissioner (Appeals) is opposed to law and facts of case. 2. Commissioner (Appeals) erred in allowing assessee's appeal by directing ITO to exclude income from property of Rs. 46,880 on ground that some is no longer correct for assessment year 1968-69 as in terms of final orders in case of BOI there is no such income from property and that inclusion of same in reassessment in hands of assessee stands cancelled by Appellate Tribunal's order dated 9-2-1981. 3. Commissioner (Appeals) failed to properly appreciate facts of case and erred in not upholding action under section 155(2) taken by ITO to bring to tax assessee's share in income from building let out by BOI. 4. Commissioner (Appeals) failed to consider fact that assessee's share in income from building let out was in fact originally included for rate purposes and subsequently due to deletion of said income from assessment of BOI, assessee's revised share from BOI had to be adopted by resorting to provisions of section 155(2) at which point of time portion of share originally adopted for rate purposes required to be considered as part of assessee's income itself. " facts relating to this issue may be briefly summarised hereunder. 2. appellant is one of co-owners of building at C-Plot, Shivasagar Estate, Bombay. It would appear that in income-tax returns filed for assessment years 1968-69 to 1971-72, appellant had accounted for his share of lease rent of building at C-Plot, Shivasagar Estate in his individual capacity as per provisions of section 26 of Act. ITO, however, took view that lease rent from this building should be assessed in hands of BOI, Shri Devchand Chhaganlal Shah and others, and, accordingly, made assessment on BOI for all four assessment years. share of income of assessee from building was, however, included in his personal assessments for rate purposes. ITO came to this conclusion on ground that lease of building and air-conditioning plant was inseparable and, therefore, entire income received in respect of lease of building and air-conditioning plant should be assessed in hands of BOI. BOI known as 'D.C. Shah & Others' filed appeal against this order of ITO to AAC. AAC accepted contention of BOI, and held that primarily there was letting of building and, therefore, assessment should be made in hands of individual members of BOI in respect of their share of income in accordance with provisions of section 26 insofar as lease rent from building was concerned. As regards income derived in respect of lease of air-conditioning plant, AAC held that same should be assessed in hands of BOI as income from other sources under provisions of section 56 of Act. On appeal being filed there by revenue to Tribunal, latter set aside order of AAC. matter was further taken on reference under section 256 of Act to High Court, which held that, there was no lease of air-conditioning plant along with building in favour of lessee; since there was no lease of air-conditioning plant, section 56(2) was not applicable; rent realised in respect of lease of building was assessable in accordance with section 26 and income of building was assessable in accordance with section 26 and income realised on account of lease of air-conditioning facilities was assessable as income from other sources. In other words, decision of Karnataka High Court in D.C. Shah v. CIT [1979] 118 ITR 419 was to effect that income from letting of building was to be assessed in hands of individual co-owners under section 26 and income realised in respect of provision of air-conditioning facility was to be assessed in hands of BOI as income from other sources. Tribunal, Bangalore Bench in IT Appeal Nos. 57 to 60 (Bang.) of 1974-75 and 754 (Bang.) of 1975-76 dated 17-7-1979 gave effect to order of High Court giving following directions: " In accordance with said order, we direct that income from rent of property shall be assessed separately in hands of each co-owners under section 26 of Income-tax Act so far as income from letting of air- conditioning machinery is concerned, it shall be assessed in hands of AOP. As result, order of AAC is confirmed and appeal is dismissed. " [Emphasis supplied] ITO gave effect to this order of Tribunal in assessment of BOI by means of his order dated 6-9-1979. While giving effect to this order in hands of BOI, ITO deleted from assessment of BOI, income realised from lease of building as it was directed to be assessed in accordance with provisions of section 26 in hands of co-owners individually as per High Court's directions. In consonance with this order and in pursuance thereof, ITO rectified under section 155(2) assessment of assessee-co-owner for assessment year 1968-69 on 27-3-1980 with view to including therein his share of income realised from letting of building. amount thus included during this year was Rs. 46,880. 3. Aggrieved with same, appeal was preferred to Commissioner (Appeals) contending that provisions of section 155(2) had no application, inasmuch as requirements of that section were not satisfied in present case. It was contended that ITO could rectify assessment of member of AOP or BOI with view to including therein his share in income of AOP or BOI, if not already included or if not included correctly, for correction of same; but, however, same did not extend to inclusion in his assessment of what has been totally excluded from assessment of AOP o r BOI. In other words, argument was that, according to High Court's decision, income realised from lease of building was to be excluded from assessment of BOI and same was to be considered in hands of individual members with reference to their respective shares therein in accordance with provisions of section 26. With reference to this direction of High Court, it was submitted that income realised from lease of building totally went out of purview of assessment of BOI and since there was nothing includible in this behalf in assessment of BOI after giving effect to High Court's order, requirements of section 155 enabling ITO to rectify assessment of member were totally absent, inasmuch as there was no such income in hands of BOI, with reference to which, member's assessment could be rectified either by way of inclusion or by way of correction, if not correctly included. It was, therefore, urged before Commissioner (Appeals) that assessee's share of income from lease of building, namely, Rs. 46,880 included in rectified order should be deleted. Similar claims were made in respect of assessment years 1968-69, 1970-71 and 1971-72. 4. Commissioner (Appeals) held that insofar as similar orders relating to assessment years 1969-70 to 1970-71 were concerned, they were in order in light of Tribunal's order dated 27-2-1982 in MP Nos. 74 to 76 (Bang.) o f 1981. However, for assessment year 1968-69, he held that ITO's rectification order including share of income of assessee from lease of building was not correct on ground that requirements of section 155(2) were not satisfied as to enable ITO to assume powers under this section. He, accordingly, cancelled order passed by ITO under section 155(2) in respect of this assessment year. Aggrieved with same, department is in appeal before us. 5. submissions made on behalf of department are summarised as follows: As result of Karnataka High Court's decision in D.C. Shah's case, Tribunal amended its earlier order directing ITO to assess rental income from property separately in hands of each co-owner under section 26. In same order Tribunal also directed ITO to assess section 26. In same order Tribunal also directed ITO to assess rental income in respect of air-conditioning plant in hands of BOI under head 'Income from other sources'. While giving effect to this order in assessment of BOI, ITO deleted rental income from property from assessment of BOI, while, however, including therein lease income in respect of air-conditioning machinery. Pursuant thereto assessment of individual co-owner was rectified under section 155(2) to include therein, share of income of member in rental income from property according to provisions of section 26 and in pursuance of directions contained in Tribunal's order. Since earlier to that share income of member in rental income from property was considered only for rate purposes, what was subsequently done as result of Tribunal's direction, was only to include share income of member in rental income of co-owned property for substantive assessment as decided in Karnataka High Court's decision in D.C. Shah's case. It was, therefore, submitted that since originally share income of member was not included in assessment of individual member, same was included in rectificatory order under section 155(2) as per requirements of section. It was, therefore, submitted that Commissioner (Appeals) was not justified in cancelling rectification order made by ITO in this behalf. 6. submissions made in this behalf by Shri G. Sarangan, learned advocate for assessee, are summarised hereunder: requirements specified in sub-section (2) of section 155 are not satisfied so as to enable ITO to assume jurisdiction for rectifying assessment of co-owner. What is required for assumption of jurisdiction under this sub-section is that share of income of member in income of BOI has not been included in assessment of member originally, or if included, same was not correct. He submitted that only under these two specific circumstances assessment of member of BOI can be subjected to rectification. He pointed out that in present case, originally income realised from letting of building was no doubt assessed in hands of BOI, but, however, same was deleted as result of direction given by Karnataka High Court in D.C. Shah's case. In other words, his submission was that what should not have been included in assessment of BOI was wrongly included in first instance and later, as result of High Court's decision, matter was set right, in that income from property was directed to be assessed in individual assessments of members according to provisions of section 26. In this view of matter, he submitted that there was no reduction or enhancement made in income of BOI with particular reference to income realised from letting of property so as to give rise to situation contemplated under this provision. He further submitted that direction given by Tribunal in its order in IT Appeal Nos. 57 to 60 (Bang.) of 1974-75 dated 17-7-1979, that income from rent of property should be assessed separately in hands of each co-owner under section 26, while giving effect to Karnataka High Court's decision in D.C. Shah's case was in excess of its jurisdiction while passing order under section 260(1) of Act, inasmuch as it contravened provisions of sub-section (2) of section 155. Developing this argument further, Mr. Sarangan submitted that since income realised from rent of building was totally excluded from assessment in hands of BOI as result of High Court's order, there was no question of assessing share of member in such income in his individual assessment as result of order passed under section 260(1) by Tribunal in case of BOI. He invited our attention to following citations in support of 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 Dhingra's case, no regular assessment under section 143 of Act was made on share of income of partner of registered firm. However, provisional assessment under section 141 of Act was made. On completion of regular assessment of firm, ITO sought to rectify assessment of partner under section 155 with view to including assessee's correct share income in his assessment. same was resisted by assessee on ground that provisions of section 155 had no application t o facts of case, inasmuch as no completed assessment under section 143 had been made earlier in that case. High Court, on writ petition filed by assessee, upheld his objections in this regard on ground that ITO h d failed to make order under section 143(3) after provisional assessment was made under section 141 and since there was no 'completed assessment', provisions of section 155(1) had no application. In Nem Kumar Jain's case, assessee, who was partner in firm, disclosed in return filed by him that his wife was also partner in same firm but, however, failed to include her share income from firm in his total income. ITO accepted return and completed assessment. Thereafter assessment was reopened for inclusion of wife's share income from firm. same was struck down by Tribunal on ground that there was no escapement of income. In meantime assessment of firm was completed and in consequence of same, ITO sought to revise assessment of assessee. But even then he did not include wife's share income in his assessment. However, much later, he rectified assessment under section 155 with view to making good this lapse. It was held that provisions of section 155(1) will not have any application to facts of case, inasmuch as action under section 154 of Act was time barred. In Balkishan Bhatia's case, in original assessment share of income of assessee from registered firm was treated as earned income and no special surcharge was levied. On completion of regular assessment of firm, ITO rectified assessment of partners under section 155 substituting correct share of income from firm and also levied special surcharge on his share of income from firm in question treating it as unearned income. It was held that provisions of section 155 had no application to facts of case. Mr. Sarangan submitted with reference to above cases that facts in present case as well are more or less similar to those of decided cases referred to and, therefore, Commissioner (Appeals)'s order cancelling section 155(2) order should be upheld. 7. We have carefully considered submissions made on either side and also considered case laws cited on behalf of assessee. We are unable to agree with Mr. Sarangan that Tribunal while giving effect to order of Karnataka High Court in D.C. Shah's case exceeded its jurisdiction in directing ITO to assess rental income from property separately in hands of each co-owner under provisions of section 26. Following this, we have, therefore, to hold that Commissioner (Appeals) was not justified in striking down order of ITO under section 155(2). For correct understanding of import of this section, it is necessary to refer to actual words used in same: " (2) Where in respect of any completed assessment of member of association of persons or of body of individuals it is found---- (a) on assessment or reassessment of association or body, or (b) on any reduction or enhancement made in income of association or body under this section, section 154, section 250, section 254, section 260, section 262, section 263 or section 264, that share of member in income of association or body, as case may be, has not been included in assessment of member or, if included, is not correct, Income-tax Officer may amend order of assessment of member with view to inclusion of share in assessment or correction thereof, as case may be; and provisions of section 154 shall, so far as may be, apply thereto, period of four years specified in sub-section (7) of that section being reckoned from date of final order passed in case of association or body, as case may be. " [Emphasis supplied] reference to operative part of section clearly indicates that as result of order passed under section 260(1) in case of AOP, or BOI, if there is reduction or enhancement in its income, assessment of member of BOI can be rectified, provided two conditions are satisfied. These conditions are following: (1) if share of member in income of BOI has not been included originally, same can be included; (2) if same has been originally included in member's assessment, but however wrongly, same can be corrected following order under section 260 passed in case of BOI. In present case, Karnataka High Court in its order in D.C. Shah's case clearly directed that rent realised in respect of lease of building was assessable in accordance with section 26 and income realised on account of provision of air-conditioning facility was to be assessed as income from other sources. As result of this order, income realised in respect of lease of building which was originally assessed in hands of BOI had, therefore, to be deleted therefrom and considered separately in hands of co-owners, being members of BOI, under provisions of section 26. This is exactly what Hon'ble Tribunal had done while giving effect to order of High Court under section 260(1). They directed that income from rent of property should be excluded from assessment of BOI and separately assessed in hands of co- owners under section 26. As result of such order, there was reduction in income of BOI as contemplated in section 155(2)(b). Since share in rental income was not originally included in assessment of member, same becomes includible as result of order of Tribunal under section 260(1) in case of BOI giving effect to High Court's order. inclusion of rental income in assessment of member is as result of reduction effected in assessment of BOI while giving effect to order of 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 hands of BOI cannot be considered for purpose of inclusion in assessment of member under section 155 is, we are afraid, misconceived and without considering totality of circumstances as also correct legal requirements in this regard. There is no getting away from fact that there has been reduction in assessment of BOI as result of order passed under section 260(1) by Tribunal while giving effect to High Court's decision. As result of this reduction, income from property has to be considered in hands of individual co- owners of 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. decisions relied upon by Shri Sarangan are with reference to totally different set of facts and circumstances and, therefore, they have no application to facts in this case. In Hansraj Dhingra's case, ITO had allowed assessment to be time barred and later sought to make good his lapse by having recourse to section 155. Calcutta High Court had naturally to hold that requirement of completed assessment was absent in that case so as to enable him to have recourse to section 155. In Nem Kumar Jain's case, ITO had repeatedly omitted to assess wife's share of income in firm in which she was also partner. In these circumstances it was held that section 155 was not available to ITO for rectifying lapse. In Balkishan Bhatia's case, ITO by means of section 155 sought to rectify his earlier lapse in not treating assessee's share income from firm as unearned income. It is, therefore, clear that none of these decisions are applicable to facts of this case. We are satisfied that all ingredients required for rectification of assessment of member under section 155(2) are present and, therefore, ITO's assumption of jurisdiction under this section is quite in order. We, accordingly, set aside order of Commissioner (Appeals) in this behalf. 8. In result, appeal of department is allowed. *** INCOME TAX OFFICER v. DEVCHAND CHHAGANLAL SHAH
Report Error