REPORTABLE IN SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL No.2015 OF 2007 Commissioner of Income Tax Cochin .Appellant(s) VERSUS M/s Travancore Cochin Udyoga Mandal Respondent(s) JUDGMENT Abhay Manohar Sapre, J. 1) This appeal is filed by Revenue against final judgment and order dated 20.05.2005 passed by High Court of Judicature of Kerala at Ernakulam in ITA No. 166 of 2000 whereby High Court dismissed appeal filed by Signature Not Verified Digitally signed by ANITA MALHOTRA Date: 2017.08.21 appellant herein holding that claim for 17:05:13 IST Reason: 1 deduction of lease rent made by respondent (assessee) in their Income Tax Return is allowable in that assessment year wherein dispute relating to lease rent has attained finality and not in assessment year wherein lease rent was fixed by Government. 2) Few facts need to be mentioned infra to appreciate short controversy involved in appeal. 3) respondent is assessee under Income Tax Act. State Government, in year 1965, acquired land measuring 46.79.250 acres in Varapuzha Village (now Eloor Village) of Parur Taluk, District Ernakulum. Out of acquired land, State allotted 43.45.250 acres of land to respondent for setting up of factory. 4) By order (G.O. Ms. 576/88/RD) dated 25.06.1988, (Annexure-P-1), State Government fixed lease rent of demised land payable by 2 respondent to State. respondent felt aggrieved of fixation of lease rent made by State as, according to them, it was on higher side. respondent, therefore, objected to fixation made by State Government vide order dated 25.06.1988 and prayed for its suitable reduction. By order dated 07.11.1991, State Government rejected respondent's request and maintained order dated 25.06.1988 which had originally fixed lease rent. 5) It is with these background facts, respondent filed their Income Tax Return for Assessment Year 1992-93. In Return, respondent claimed deduction of accumulated lease rent amounting to Rs.97,69,077/-. Assessing Officer by order dated 28.02.1995 while dealing with claim in question disallowed deduction claimed by respondent. In his opinion, such deduction could not be claimed in Assessment 3 Year 1992-93 but it could be claimed only in Assessment Year 1989-90. 6) respondent, felt aggrieved of disallowance, filed appeal before Commissioner of Income Tax (Appeals) II, Cochin. In appeal, contention of respondent (assessee) was that they claimed deduction of lease rent amount (Rs.97,69,077/-) in Assessment Year 1992-93 because, according to them, lease rent issue was sub judice with State at instance of respondent wherein order dated 25.06.1988 passed by State was challenged seeking re-fixation and reduction in lease rent. It was contended that State eventually decided issue on 07.11.1991 and maintained their earlier order dated 25.06.1988. respondent, therefore, claimed deduction of said amount in Assessment Year 1992-93 no sooner issue in 4 relation to fixation of lease rent was finally decided by State. 7) CIT (appeal) by order dated 30.06.1995 did not agree with explanation given by respondent and accordingly dismissed their appeal and confirmed order of Assessing Officer by upholding disallowance. He also held that liability to claim deduction was accrued to respondent in Assessment Year 1989-90 itself for two reasons, first, respondent follows mercantile system of accountancy and second, lease rent had been fixed by State on 25.06.1988. It was accordingly held that since respondent though was in position to claim deduction of lease rent in Assessment Year 1989-90 and yet failed to claim, it was not permissible for them to claim in future Assessment Year (1992-93). It was without any legal basis. 5 8) respondent, felt aggrieved, carried matter in second appeal before Tribunal. By order dated 13.09.1999, Tribunal allowed respondent's appeal and set side orders of assessing authority and CIT (appeal). It was held that since respondent was following mercantile system of accountancy and liability in relation to rent in question though accrued in 1989-90 was in dispute before State Government, same could be claimed only in that Assessment Year wherein dispute was settled by State. It was noted that dispute was settled by State Government by rejecting respondent's prayer to revise rent on 07.11.1991. deduction in respect of lease rent therefore could be claimed in Assessment Year 1992-93. Tribunal accordingly allowed deduction claimed by respondent in Assessment Year 1992-93 6 9) Revenue, felt aggrieved, filed appeal before High Court. By impugned order, High Court dismissed Revenue's appeal and affirmed order of Tribunal, giving rise to filing of appeal by Revenue. 10) Heard Mr. K. Radhakrishnan, learned senior counsel for appellant and Mr. Ritin Rai, learned counsel for respondent. 11) Mr. K. Radhakrishnan, learned counsel for appellant (Revenue) while assailing legality and correctness of impugned order contended that liability in regard to fixation of lease rent by respondent to State was essentially statutory liability because according to learned counsel it was determined, fixed, payable and lastly recoverable under Kerala Land Assignment Act, 1960 (hereinafter referred to as Act ) read with two Rules framed in exercise of powers conferred under Sections 3 and 7 of Act called, Kerala Land 7 Assignment Rules 1964 and Rules for Assignment of Government Land for Industrial Purposes (hereinafter referred to as "the Rules"). It was, therefore, his submission that since liability to determine, fix, pay and recover lease rent is statutory in nature and secondly, respondent is following mercantile system of accountancy in their business for paying taxes, liability to pay such dues once accrued, which in this case was accrued on 25.06.1988, deduction could be claimed in same Assessment Year, i.e., 1989-90. Learned counsel urged that since respondent failed to claim deduction in Assessment Year 1989-90, they had no right to claim such deduction in any subsequent assessment year much less in Assessment Year 1992-93. Learned counsel then referred extensively to provisions of Act and Rules to 8 show that fixation of rent is statutory and not contractual. 12) In reply, learned counsel for respondent (assessee) supported impugned order and contended that it does not call for any interference. It was also his submission that argument now being raised by learned counsel for appellant in appeal was never raised by them at any stage of proceedings in Courts below and hence either it should not be entertained or if entertained, same cannot be answered either way unless respondent is given opportunity to rebut it with reference to documents with view to show that fixation of rent is contractual and not statutory as contended by Revenue. According to learned counsel, this being mixed question of fact and law it can be decided in first instance either by CIT or Tribunal. 9 13) Having heard learned counsel for parties at length and on perusal of record of case, we are of view that having regard to nature of issue involved which is mixed question of law and fact, it would be just and proper to remand case to Tribunal for deciding issue afresh on merits. 14) need to remand case to Tribunal, has occasioned because firstly, question as to whether fixation of rent and its payment is statutory or contractual and, if so, its effect while claiming deduction under Income Tax Act and, if so, in which year of assessment is mixed question of law and fact. Secondly, it was neither decided by any of authorities below and nor by Tribunal and High Court. It may be that since Revenue itself did not raise it before authorities below and raised it for first time before this Court by simply placing reliance on provisions 10 of Act and two Rules mentioned above, this Court cannot decide same in this appeal, for first time for want of factual material and legal issues attached to it. 15) In our considered opinion, in order to decide issue of deduction, nature of fixation of rent, its payment, recovery etc. and whether it is statutory or contractual, has some bearing over question. It is also clear that respondent did not get any chance to meet this submission before courts/authorities below. It is for these reasons, we are of view that matter needs to be remanded to Tribunal for its proper adjudication. 16) Tribunal being last adjudicatory authority in hierarchy on facts would be in better position to decide issue after taking into account documents filed by parties in support of their respective contentions. Depending upon 11 decision of Tribunal, parties can carry matter to higher Courts. 17) We, therefore, at this stage refrain from expressing any opinion on merits of case and nor consider it proper to record any finding on submissions urged either way except to record submissions of parties for appreciating issues urged and leave it to Tribunal to decide, its applicability and relevancy in accordance with law. 18) appeal thus succeeds and is allowed. impugned order and order of Tribunal are set aside. 19) case is remanded to Income Tax Appellate Tribunal, Cochin Bench, Cochin for deciding appeal filed by respondent being I.T.A. No. 673 (Coach)/1995 afresh on merits in accordance with law. Parties are, however, granted opportunity to file relevant documents in support of 12 their submissions, if they so desire, to enable Tribunal to decide appeal as directed. 20) Let appeal be decided within six months from date of appearance of parties. Parties to appear before Tribunal on 18 th September, 2017. ...................................J. [R.K. AGRAWAL] ... ..................................J. [ABHAY MANOHAR SAPRE] New Delhi; August 17, 2017 13 Commissioner of Income-tax, Cochin v. Travancore Cochin Udyoga Mandal