Bombay High Court

B.R. Herman & Mohatta (India) (P) ... vs Asstt. Commissioner on 12 August, 2003

Equivalent citations: (2004) 91 TTJ Mumbai 341

ORDER

S.C. Tiwari, A.M.

As there are certain common and inter-related issues involved in these four appeals filed by the assessee and the revenue, they were argued together by the learned Authorised Representative of the assessee and the learned departmental Representative, and are being decided by this consolidated order for convenience.

2. Appeals in ITA Nos. 3373/Bom/1993 and 3374/Bom/1993 have been filed by the assessee on 17-5-1993, against orders under section 263 made by the learned Commissioner(Central-II), Bombay, on 15-3-1993, in the case of the assessee in relation to assessment orders under section 143(3) for assessment years 1988-89 and 1989-90. Appeals in ITA Nos. 6382/Bom/1995 and 6383/Bom/1995 have been filed by the revenue on 3-7-1995, against the orders of the learned Commissioner (Appeals)-Central IV, Bombay, dated 23-3-1995, in the case of the assessee in relation to orders under section 143(3) read with section 263 made by the assessing officer for assessment years 1988-89 and 1989-90.

3. The background facts relating to these four appeals briefly are that the assessee- company had on 19-11-1948, taken plot Nos. 1082 to 1087 at Thane, belonging to Bombay Port Trust on sub-lease from H.H. Sardar Syedna Taher Saifuddin Saheb and another Sub-clause (b) of clause 2 of the deed provided that the sub-lessee would discharge all the existing liabilities as well as future rates, taxes, ground rent payable, etc. to Bombay Port Trust. The assessee- company constructed godowns on these plots of land after obtaining the sanction from Bombay Port Trust and let the godowns out to various tenants. A lease rent of Rs. 2,250 per month was paid by the assessee as well as ground rent to Bombay Port Trust on behalf of the lessors (sic-lessees). However, after lapse of several years Bombay Port Trust increased the ground rent in respect of the plots' in question to Rs. 1,21,171.81 per month. The assessee- company represented that it was bound contractually by the sub-lease agreement dated 19-11-1948, to bear the increased liability of ground rent fastened by the Bombay Port Trust. It appears that the assessee's claim of deduction of the increased ground rent liability against rent received by the assessee-company from its tenants in the godowns in question was considered by assessing officer in earlier assessment years as well. From the order of the learned Commissioner (Appeals), dated 23-3-1995 (supra), it is seen that this issue was examined by the Dy. Commissioner, Special Range 13, in the assessment orders for assessment years 1985-86 to 1987-88.. For assessment years 1988-89 and 1989-90, with which we are concerned in these four appeals, the assessing officer made assessment orders under section 143(3) for the first time on 18-3-1991 and 30-3-1992, respectively.. Following the assessment order of assessment year 1987-88 the learned assessing officer held that as in the course of search under section 132 and post search enquiry in the case of the assessee it had been found that the assessee had issued notices to the tenants increasing the rent payable in view of the additional levy of ground rent demanded by Bombay Port Trust, the annual letting value of the property was required to be enhanced by the additional ground rent demanded by Bombay Port Trust. He, therefore, computed annual letting value of the Thane property in question after including therein the amount of additional rent demanded by Bombay Port Trust. Against such enhanced annual letting value the assessing officer allowed to the assessee deduction of ground rent including increased liability for both the assessment years 1988-89 and 1989-90. Thereafter, the learned Commissioner (Central II Bombay, held the view that as the assessee- company had disputed the enhancement of the ground rent by the Bombay Port Trust and the liability being a contractual obligation had not been ascertained or crystallised and being of contingent in nature should not have been allowed as deduction in the assessment orders for these two years as was done by the assessing officer. He, therefore, initiated proceedings under section 263. In the meantime the assessee had filed an appeal against the assessment orders before the learned Commissioner (Appeals) and the same had already been disposed of by the learned Commissioner (Appeals). Therefore, during the course of hearing before the learned Commissioner under the provisions of section 263 of the Act the assessee argued that the assessment orders had already merged in the appellate orders of the learned Commissioner (Appeals) and as per the Explanation (c) to sub-section 263(l), the power of Commissioner under section 263 was available only to the matters that had not been considered and decided in appeal by the learned Commissioner (Appeals). The assessee pointed out that the issues relating to assessment of income from Thane property were the subject-matter of the appellate orders already passed. The learned Commissioner did not see force in these contentions of the assessee. He held the view that the Commissioner had power under section 263 to revise the assessment order on such matters or issues which had not been specifically adjudicated upon in the appellate order even if other aspects and issues in respect of the same source of income were considered and adjudicated upon. The learned Commissioner held the view that the Commissioner (Appeals) had gone into the question as to whether the burden of enhanced rent could be passed on to the tenants and whether the entire amount of enhanced rent in both the years could be assessed as part of the annual rent actually receivable~ by the assessee- company. However, the learned Commissioner (Appeals) had not gone into the question as to whether the increased liability claimed as deduction by the assessee- company had crystallised and was allowable under the provisions of the Act. The learned Commissioner also took note of the fact that the revenue had filed a miscellaneous application before the learned Commissioner (Appeals) but the same was categorically rejected by the learned Commissioner (Appeals) as not representing any mistake arising from the appellate order that had been passed by the learned Commissioner (Appeals). All that the appellate authority had done was to hold that the tenants being protected under the Bombay Rent Control Act, the enhanced liability could not be passed on to the tenants in the form of enhanced rent. The learned Commissioner, therefore, held that another aspect with which he was concerned was available to him for consideration under section 263. The learned Commissioner made the impugned orders under section 263 on 15-3-1993. He held that the liability of increased ground rent had been disputed by the assessee and the assessee had not made any payments. In this view of the matter as the demand raised by Bombay Port Trust was only in respect of a contract, the liability in relation to enhanced ground rent could not be said to have become ascertained and crystallised. Pending resolution of the dispute raised by the assessee it was only a contingent liability and, therefore, the assessment orders made by the assessing officer for both the assessment years 1988-89 and 1989-90 were erroneous and prejudicial to the interests of the revenue. The learned Commissioner finally held as under :

"Keeping in view the above facts I hold that the assessment orders passed for assessment years 1988-89 and 1989-90 where claim of the assessee- company on account of enhanced rents amounting to Rs. 14,53,813 and Rs. 25,44,172, respectively have been allowed as set off while computing the income from house property are erroneous and prejudicial to the interest of revenue. Hence, both assessments on this issue are set aside with a direction to be looked into afresh. The income from the Thane property shall be recomputed in accordance with law after giving due opportunity of being heard. "

Aggrieved by these two orders of the learned Commissioner under section 263, the assessee is in appeal before us in ITA Nos. 3373/Bom/1993 and 3374/Bom/1993.

4. In pursuance of the orders under section 263 as aforesaid the assessing officer made assessment orders under section 143(3) read with section 263 for both the assessment years 1988-89 and 1989-90 on 29-7-1993. Both these orders are identically worded. In these orders the learned assessing officer has referred to his letter dated 23-3-1993, addressed to the assessee whereby the assessee was informed that in view of the assessee disputing the enhancement of ground rent by the Bombay Port Trust, the liability being a contractual obligation had not been ascertained or crystallised and being of contingent in nature was not allowable as deduction as claimed by the assessee. The assessee by its letters dated 5-4-1993 and 16-7-1993, objected to the disallowance denying the allegation that the enhanced ground rent payable was of contingent nature. Vide para 10 of the letter dated 5-4-1993, the assessee stated, "in our case, there is no refusal to accept the enhancement by the head lessors of the ground rent and, therefore, in terms of clause 2 of the said agreement dated 19-11-1948, we, being the sub-lessees, are bound to honour the liability of the increased ground rent". The assessee also placed reliance on the judgment of Hon'ble Bombay High Court in the case of Commissioner v. Abdul Hussein Essaji Arsiwalla (1968) 69 ITR 38 (Bom) and the judgment of Hon'ble Delhi High Court in the case of Gulabsingh & Sons (P) Ltd. v. Commissioner (1974) 94 ITR 537 (Del), and argued that the allowance in respect of the income of the previous year could be claimed even though the payment had not been made. The learned assessing officer did not accept these contentions of the assessee on the ground that in the earlier years' assessment proceedings the assessee- company had not disclosed that payment had not been made in respect, of increased liability. Moreover, during the search action of the premises of the assessee- company conducted on 29-11-1988, documents stating that there was a dispute on account of enhanced ground rent had been found. The learned assessing officer relied upon the judgment of Hon'ble Allahabad High Court in the case of Swadeshi Cotton Mills v. Commissioner (1980) 125 ITR 33 (All) and the decision of the Tribunal in the case of Steel Industries of Hindustan (P) Ltd. in ITA No. 6926/Bom/1987. According to the assessing officer as it was not a statutory liability and the enhancement had been disputed by the assessee, the liability was clearly contingent one. As to the reliance placed by the assessee on Tribunal decision in the case of Shri N.P. Asher in ITA No. 2411/Bom/1988, the learned assessing officer held that the facts of that case were distinguishable inasmuch as that assessee had not disputed the enhanced rent claimed vide letters of the Bombay Port Trust whereas in the assessee's case it had gone to the High Court as means of legal steps to get the rent fixed. Based on this reasoning the learned assessing officer increased the income as assessed originally by way of withdrawal of the deduction granted to the assessee in respect of enhanced ground rent demanded by Bombay Port Trust.

5. Aggrieved by these assessment orders, the assessee preferred appeal before the learned Commissioner (Appeals). The assessee filed a letter dated 21-1-1995, to the effect that none of the contentions on the basis of which the assessing officer had made the disallowances was correct. The learned Commissioner (Appeals) forwarded the assessee's letter dated 21-1-1995, to the assessing officer for para-wise comments on the assessee's assertion that there was no dispute relating to the payment of the ground rent to the Bombay Port Trust. The assessing officer vide his letter dated 9-3-1995, submitted that he had visited the Bombay Port Trust and had been informed that the original suit filed by the Bombay Port Trust against H.H. Sardar Syedna Taher Saifuddin Saheb & Anv. had been withdrawn and the Bombay Port Trust was proceeding under the PPE Act in this regard. It was also submitted that the enhanced ground rent was being revised and that it would be effected from 1994 only and that for earlier years there would be some revision in the ground rent. The letter issued by the Bombay Port Trust to the officer confirmed that in respect of plot Nos. 1082 to 1087, the suits filed by the Bombay Port Trust were for eviction and the suits had been withdrawn, and action under PPE Act was being taken. The learned Commissioner (Appeals) held that from.the letter of the assessing officer it appeared that there was some action being contemplated by the Bombay Port Trust to revise the ground rent but it was also clear that the demand raised on the assessee as evidenced by the bills which the assessee produced had not been withdrawn by the Bombay Port Trust. The bills raised by the Bombay Port Trust for an aggregate amount of Rs. 14,53,812 for assessment year 1988-89 and Rs. 25,44,172 for assessment year 1989-90 were enforceable. There was no record that the assessee had disputed these liabilities before any court. The assessee had made the same representations before the assessing officer even during the course of assessment proceedings. The learned Commissioner (Appeals) also noted that there was an allegation that during the course of search it was found that the liability was being disputed. It was based on the statement of a manager that Bombay Port Trust had filed a suit against the main lessor (sic-lessee). The assessee specifically denied that there was any document found during the search stating that there was a dispute on account of enhanced ground rent between the assessee and Bombay Port Trust. The monthly bills raised by the Bombay Port Trust in respect of these plots of land confirmed the crystallised liability on the assessee- company. The assessee- company had also in its turn provided for liability on account of increased ground rent in its books of account and credited the account of Bombay Port Trust. Keeping in view these submissions, the learned Commissioner (Appeals) held that the claim of the assessee had been rejected based purely on presumptions. From the facts found it was clear that none of the propositions on which the assessing officer based his case was correct. The liability was definite, ascertained and enforceable. The assessee had not disputed it anywhere. As such the action of the assessing officer could not succeed. The learned Commissioner (Appeals), therefore, directed the assessing officer to allow the assessee increased liability towards ground rent. Aggrieved by these orders, the revenue is in appeal before us.

6. During the course of hearing before us, the learned departmental Representative argued that the contention of the assessee that it had not disputed the liability before any court was meaningless. The contract was between the Bombay Port Trust and their lessee and that lessee only had the right to dispute the increased ground rent being demanded by the Bombay Port Trust. Secondly, it was the liability of H.H. Sardar Syedna Taher Saifuddin Saheb and another and not of the assessee who was only a sublessee. Defending the order under section 263 the learned departmental Representative argued that if an order was made on wrong appreciation of law and facts the same cold be subjected to revision under section 263. The learned departmental Representative referred to the judgment in Indian Molasses Co. Ltd. v. Commissioner (1959) 37 ITR 66 (SC) and argued that if an inherent issue is not examined such an order would be erroneous and prejudicial to the interests of the revenue. The learned Authorised Representative argued that from 1948 agreement it was quite clear that increased ground rent was the liability of the assessee. Further, it had been explained at all stages that neither the assessee nor the original lessee had ever disputed the increased liability. The assessing officer had gone into the question of increased liability in the earlier assessment years and allowed the deduction to the assessee after being satisfied about the correctness of the same. In the assessment orders for assessment years 1988-89 and 1989-90 the assessing officer had followed the orders for the earlier years. The learned Authorised Representative argued that Commissioner passed the impugned orders under section 263 on totally wrong premises. The same mistake was perpetuated in the assessment orders made by the assessing officer to give effect to the orders under section 263 of the learned Commissioner.

7. We have carefully considered the rival submissions. It is seen that the impression that the assessee had not accepted the increased ground rent liability and the assessee was disputing the same is the main basis for the impugned orders under section 263. In the assessment orders made in compliance to the impugned orders under section 263, the learned assessing officer has passed the orders on the basis that the increased liability was being disputed and, therefore, it had not become ascertained or crystallised liability which the assessee could claim. In the proceedings before the learned Commissioner (Appeals) as well as in the proceedings before us, the assessee has categorically denied that it has ever disputed the increased liability. From the enquiries made by the assessing officer it transpired that it was Bombay Port Trust who had filed a suit against the original lessee and that suit was for eviction. Secondly, Bombay Port Trust withdrew the suit against the original lessee as it was contemplating an action under the PPE Act. The enquiries made by the assessing officer with the Bombay Port Trust confirmed that the liabilities were very much there. Merely because there was some possibility of Bombay Port Trust modifying its demand, it cannot be said that as on the dates when original assessments were made the liabilities claimed by the assessee were merely contingent. During the course of hearing before the learned Commissioner (Appeals), the assessing officer has not been able to produce any material to the contrary. Before us also no particular material has been relied upon by the revenue to support its case. In these circumstances we hold that the impugned orders under section 263 as well as fresh assessment orders made by the assessing officer thereafter have no legs to stand. We, therefore, cancel the orders under section 263 made by the learned Commissioner and allow the assessee's appeals in ITA Nos. 3373/Bom/1993 and 3374/Bom/1993. As to the revenue's appeals, the same have been rendered academic as we have quashed order under section 263 itself. Even otherwise, we find that on merits the learned Commissioner (Appeals) has passed the right order.

8. In the result, while both the appeals filed by the assessee are allowed, the revenue's appeals for both the assessment years are dismissed.