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PETITIONER: COMMISSIONER OF INCOME TAX,CALCUTTA

       Vs.

RESPONDENT: M/S. PARK HOTEL (P) LTD.,15, PARK STREET, CALCUTTA-16.

DATE OF JUDGMENT05/01/1995

BENCH: B.P. JEEVAN REDDY, S.B. MAJMUDAR

ACT:

HEADNOTE:

JUDGMENT:                       J U D G M E N T B.P. JEEVAN REDDY J. 1. Leave granted. Heard the counsel for both the parties. 2. The  Commissioner of  Income Tax, Calcutta, has preferred this appeal  against the judgment of the Calcutta High Court in Income  Tax Reference  No.88/1986, answering the question referred at  the instance  of the assessee, in favour of the assessee. The  question referred under Section 256(1) of the Income  Tax  Act  is  "Whether  on  the  facts  and  in  the circumstances of the case, the Tribunal was justified in law in holding  that the  income as  received by  M/s. Surrendra Overseas Limited,  be assessed as the income of the assessee from business from lease-hold interest?" 3. Under  a deed  of assignment,  dated 3rd September, 1966, the  assessee  obtained  the  leasehold  interest,  for  the unexpired  period   of  lease,   in  respect   of   premises Nos.3,5,7,9,11,13 &  15, Park  Street, Calcutta, from Credit Transactors.  In   the  accounting   year  relevant  to  the Assessment Year  1971-72, the  assessee executed a sub-lease in respect  of a portion of its leasehold interest in favour of M/s.Surrendra  Overseas Limited,  another limited company "associated with  the assessee".  The deed of sub-lease was, however,  not   registered  though  it  is  said  that  M/s. Surrendra Overseas Limited, paid a premium of Rs.63,13,000/- and  was   also  paying   a  rent  of  Rs.15,000/-  p.a.  in consideration of the said sub-lease. M/s. Surrendra Overseas Limited, was  receiving the  rental income from the property subleased to  it. The  income so  received by M/s. Surrendra Overseas Limited  was sought  to be  taxed in  its hands  as ‘income from  house property’,  to which  Surrendra Overseas objected. The matter was carried to the Tribunal, which held in I.T.A.  No.519(Cal.)/1976-77, that  since M/s.  Surrendra Overseas Limited,  is  not  the  owner  of  the  said  house property, the  income from  that house  property  cannot  be taxed in  its hands.  An application  for making a reference under Section  256(1) of  the Act  filed by  the Revenue was rejected by the Tribunal.      For the  assessment years  in question i.e., 1975-76 to 1979-80, the Income Tax Officer sought to include the rental income received by M/s. Surrendra Overseas in the assessment

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of  the   assessee.  The   assessee  objected  to  the  same contending that  inasmuch as it has transferred a portion of its leasehold interest in favour of M/s. Surrendra Overseas, the income  received from  the properties  so transferred to M/s. Surrendra  Overseas Limited  cannot be  included in its total income.  The Income Tax Officer rejected the objection relying upon  Sri Ganesh  Properties Ltd. v. Commissioner of Income-Tax, West  Bengal (44  I.T.R. (1962) 606), Sakarchand Chhaganlal v.  Controller of Estate Duty, Gujarat (73 I.T.R. (1969) 555)  and Bengal  Jute Mills  Co., Ltd.,  Calcutta v. Commissioner of  Income-Tax, Central,  Calcutta  (17  I.T.R. (1949) 308). 4. The  assessee appealed  to the Commissioner of Income Tax (Appeals) who  recorded a  finding that "the income from the leasehold  property   should  be  assessed  under  the  head ‘business’". He  did not  give any  specific direction  with respect to  the quantum of income. Pursuant to the appellate order, the  Income Tax Officer passed an order under Section 251 of  the Act  giving effect  to the  appellate order.  He assessed the  income from  leasehold property as income from business.      Against the  order of  the Commissioner  of Income  Tax (Appeals) aforesaid  (dated 5.10.1982)  the Revenue filed an appeal before  the Tribunal contending that the Commissioner (Appeals) was  not justified  in directing  the income  from leasehold property  to be  assessed as income from business. According to Revenue, it was liable to be assessed as income from house property. The Tribunal dismissed this appeal.      The assessee  preferred an appeal against the aforesaid orders of the Income Tax Officer passed under Section 251 of the Act.  The Commissioner  of Income  Tax  (Appeals)  while affirming his  earlier order  that the said income should be assessed as  income from  business,  held  that  the  income received  by   M/s.  Surrendra  Overseas  Limited  from  the properties sub-leased  to it,  should not be included in the total income  of  the  assessee.  Against  this  order,  the Revenue preferred  an appeal  to the  Tribunal. The Tribunal referred  to   its  aforementioned   orders  in  the  appeal preferred by  M/s. Surrendra  Overseas Limited and held that in the  absence of  a  registered  deed  of  sub-lease,  the assessee continued  to  be  liable  to  tax  on  the  income received from  the said property. It rejected the contention of the assessee that the said income was only a notional one and not  actual or  real income.  The Tribunal directed that (i) the income from leasehold property should be assessed as income from  business and  (ii) that the income which has to be assessed as income from business from leasehold interest, should be  the income as received by M/s. Surrendra Overseas Limited. The assessee thereupon applied for and obtained the reference of  the above question for the opinion of the High Court. 5. We  must pause  here and  mention a  fact  to  clear  the ground. While  setting out  the facts  in its  judgment, the High Court  has stated  a new  fact which we are not able to find either  in the order of the Tribunal or in the order of the Commissioner of Income Tax (Appeals). The High Court has observed  that   "a   multi-storeyed   building   had   been constructed in  the said  portion under  sub-lease and  M/s. Surrendra Overseas  Limited, had let out the same to various tenants and  has been collecting rent from such tenants". In the context  in which  the said observation occurs, it gives an impression  as if  the High  Court was  saying  that  the multi-storeyed building  was constructed  by M/s.  Surrendra Overseas Limited  in the  premises sub-leased  to it, though not so  stated specifically. We are, however, of the opinion

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that in  the absence  of  any  specific  statement  to  that effect, it  would not be proper to read the said observation as stating  that the  multi-storeyed complex was constructed by M/s.  Surrendra Overseas.  None  of  the  orders  of  the authorities under  the Act  say that  Surrendra Overseas had constructed  a  multi-storeyed  structure  in  the  premises subleased to it by the assessee. We shall, therefore proceed on the  footing that the multi-storeyed building referred to by the High Court was constructed by the assessee itself and that the  sub-lease in  favour of  M/s.  Surrendra  Overseas Limited was  of certain  premises including  the said multi- storeyed building.  We are  saying  so  also  because  in  a reference  under   Section  256(1),  no  new  facts  can  be introduced by the High Court.      Now coming  to the  merits, we  are of the opinion that the matter  must go back to the High Court for more than one reason. Firstly,  it is not clear to us whether the question referred pertains only to one issue viz., whether the income received by  Surrendra Overseas  should be  included in  the total income  of the assessee or does it also comprehend the other issue viz., whether the said income should be assessed under the  head "income  from house  property" or  under the head "profits  and gains  of business  or  profession".  The question as  framed is capable of being construed both ways. In this connection, a fact to be noted is that on an earlier occasion the Tribunal had opined that the said income should be assessed  as income from business. Whether that issue got concluded then itself or was it also in issue in the present proceedings?  If   it  was  not  in  issue  in  the  present proceedings, then  why did  the  High  Court  refer  to  the decision in  S.G. Mercantile  Corporation Private Limited v. Commissioner of  Income-Tax, Calcutta  (83 I.T.R. 91972) 700 )which deals  with this  issue only? This matter requires to be clarified.      Secondly, we find that the High Court has not addressed itself to the main issue upon which the Tribunal had allowed the Revenue’s Appeal viz., inasmuch as the sub-lease was not effected  under  a  registered  document,  interest  in  the property  does  not  pass  and,  therefore,  the  income  in question continues  to be the income of the assessee. It has also not  dealt with  the reasoning  of the Tribunal that by accepting the  assessee’s plea, the income in question would go untaxed  altogether inasmuch  as the said income has been held not  taxable in  the hands  of M/s.  Surrendra Overseas Limited.      For these  reasons, the  appeal is allowed the judgment of the High Court is set aside and the matter is remitted to the High  Court for  a fresh  disposal of  the reference  in accordance with law and in the light of the observation made herein.