COMMISSIONER OF INCOME TAX, CALCUTTAversusM/S. PARK HOTEL (P) LTD., 15, PARK STREET, CALCUTTA-16

A              COMMISSIONER OF INCOME TAX, CALCUTTA
                                    v.
        M/S. PARK HOTEL (P) LTD., 15, PARK STREET, CALCUTTA-16

                                  JANUARY 5, 1996

B               [B.P. JEEVAN REDDY AND S.B. MAJMUDAR, JJ.J


          Income Tax Act, 1961 :

          Ss. 142, I 43, 256( I Hssessment--Assessee Company subleasing the
    leasehold properties under an unregistered lease deed to another associate
c   co1npany--Rental inco1ne releived from lease hold properties--Assessntent
    of-Tribunal 1naking a referenc;e to High Court-High Court answerilzg the
    reference in .favour of assessee--Held, neither the reference clar~fied the issues
    nor the High Court addressed itse(f to the 111ain issue regarding effect o.f sub-
    lease under an unregistered lease deed--!vlatter re1nitted back to High Court
D   for decision qf reference afresh.

          The assessee, A lessee of certain properties, sub-leased a portion of
    the said properties under an unregistered deed to another company, namely
    'SOL' which was associated with the assessee-company. The rental income
    received from the sub-leased property was sought to be taxed in the hands
E   of'SOL' as 'income from house property', which was objected to by 'SOL'
    on the ground that it was not the owner of the said property. The .matter
    was ultimately decided by the Income Tax Appellate Tribunal in favour of
    'SOL'.

           Later, for the assessment years 1975-76 to 1979'.80, the rental income
F received by 'SOL' from the said sub-leased property was sought to be
    included in the income of the assessee. The assessee objected to it and filed
    an appeal before the Commissioner oflncome Tax (Appeals) who held that
    the income from the lease-hold property should be assessed under the head
    "business" and the in.come received from 'SOL' from the properties
G   subleased to it should not be included in the total income of the assessee.
    The Revenue challenged this Order before the Tribunal, which held that
    the income received from leasehold property should be assessed as income
    from business and the income which has to be assessed as income from
     business from leasehold interest should be the income as received by 'SOL'.

H          At the instance of the assessee, the Tribunal made a reference to the
                                           170
          COMMR. OF LT CALCUTT.A'· PARK HOTEL (P) LTD. [JEEVAN REDDY, l.]     l 71

    High Court for decision of the question: whether the Tribunal was justified      A
    in holding that the income as received by 'SOL' be assessed as income of
    the assessee from lease hold interest? The High Court answered the reference
    in favour of the assessee. Aggrieved, the Revenue filed the present appeal.

           Allowing the appeal and remitting the matter back to the High Court
    for fresh disposal of the reference, this Court                                  B
           HELD : It is not clear whether the question referred pertains only to
    one issue viz., whether the income received by '"SOL' 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         C
    profession". Further, the High Court has not addressed itself to the main
    issue upon which the Tribunal had allowed the appeal of the Revenue, 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       D
,
    reasoning of the Tribunal that by accepting the assessee's plea, the income
    in que.stion \vould go untaxed altogether inasmuch as the said income has
    been held not taxable in the hands of 'SOL'. [174-C-D; F-G]

           Shri Ganesh Properties Ltd. v. Comnzissioner of lncon1e-Tax, West Ben-
    gal, 44 l,T,R. (1962) 606; Sakarchand Chhaganlal v. Controller of Estate Duty    E
    Gujarat, 73 LT,R. (1969) 555; Bengal Jute Mills Co. Ltd. Calcutta v.
    Commissioner of Income- Tax, Central Calcutta, 17 I. T.R. (1949) 308 and S. G.
    Mercantile Corporation Private Limited v. Com1nissioner of Income-Tax,
    Calcutta, 83 I. T.R. (1972) 700, cited.

          CIVIL APPELLATE JURISDICTION : Civil Appeal No. 195 of 1996.               F

           From the Judgement and Order dated 18.9.86 of the Calcutta High Court
    in I.T.R. No. 88 of 1986.

          J. Ramamurthy, B.S. Ahuja and S.N. Terdol for the Appellant.

          A. K. Roy Chowdhury, Ms. Aruna Banerjee, R. Chatterjee and G.S.            G
    Chatterjee for the Respondent.

         The Judgment of the Court was delivered by

          B.P. JEEVAN REDDY, J. 1. Leave granted. Heard the counsel for both
    the parties.                                                                     H
    172                        SUPREME COURT REPORTS                   [ 1996] l S.C.R.
A          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 assesee. The question referred under Section 256( l) 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 Mis.
B   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, ll, 13 and 15, Park Street Calcutta, from Credit Trans-
c   actors. 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
    Mis. Surrendra Overseas Limited, another limited company "associated with the
    assessee". The deed of sub-lease was, however, not registered though it is said
    that Mis. 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. Mis.
D    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 hand as incoffie from house property', to which Surrendra
     Overseas objected. The matter was carried to the Tribunal, which held in LT.A.
     No. 519(Cal.)/1976-77, that since Mis. Surrendra Overseas Limited, is not the
E    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 Mis. Surrenc(er a
F    Overseas in the assessment of the asscssee. The assessee objected to the same
     contending that inasmuch as it has transferred a portion of its leasehold interest
     in favour of Mis. Surrendra Overseas, the income received from the properties
     so transferred to Mis. 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 l.T.R. (1962)
G    606, Sakarchand Chhaganlal v. Colllroller of Estate Duty, Gujarat 73. l.T.R.
     (1969) 555 and Bengal Jute Mills Co., Ltd., Calcutta v. Commissioner of
     Income-Tax, Cemral, 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
H    assessed under the head 'business'. He did not give any specific direction with
      COMMR. OF 1.T. CALCIJITA v. PARK HOTEL (P) LTD. [lEEVAN REDDY, J.]     173
respect to the quantum of income. Pursuant to the appellate order, the Income        A
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) afore-
said (Dated 5.10.1982) the Revenue filed an appeal before the Tribunal con-          B
tending 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          c
 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
 Mis. 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
                                                                                     D
Revenue preferred an appeal to the Tribunal. The Tribunal referred to its
aforementioned orders in the appeal preferred by Mis. 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     E
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 Mis. Surrendra Over-
seas Limited. The assessee thereupon applied for and obtained the reference of
the above question for the opinion of the High Court.
                                                                                     F
       5. We mupt 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 Mis. Surrendra Over.seas Limited, has let out the same to various          G
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 Mis. Surrendra
Overseas Limited in the premises sub-leased to it, though not so stated
specifically. We are, however, of the opinion that in the absence of any specific    H
                                                                                             j   l




    174                       SUPREME COURT REPORTS                     [1996] 1 S.C.R.
A   statement to that effect, it would not be proper to read the said observation as
    stating that the multi-storeyed complex was constructed by Mis. Surrendra
    Overseas. None of the orders of the authorities under the Act say that Surrendra
    Overseas had constructed a multi-storcyed 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
B   itself and that the sub-lease in favour of Mis. Surrendra Overseas Limited was
    of certain premises including the said n1ulti-storeycd buildipg. 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
c 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
    incon1e should be assessed under the head "income from house property" or
    under the head "profits and gains of business or profession". The question as
D
    fra1ned is cavable of being construed both ways. In this connection, a fact to be
    noted is lhat on an earlier occasion the Tribunal had opined that the said income
    should be assessed as income from business. Wf!,ether 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
E   in S.G. Mercantile Corporation Private limited v. Com1nissioner of Income
    Tax, Calcutla,. 83 I.T.R. (1972 ) 700 which deals with this issue only? This
    matter requires to be clarified.

            Secondly, we find tlrnt the High Court has not addressed itself to the main
     issue upon which the Tribunal had aliowed to Revenue's Appeal viz., inasmuch
F    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 Mis. Surrendra Overseas Limited.
G
            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 observations made
     herein.

     R.P.                                                              Appeal allowed.