1976 Supreme(Cal) 166

High Court Of Calcutta
SABYASACHI MUKHERJI
RUSSELL PROPERTIES PVT.LTD. - Appellant
Versus
A.CHOWDHURY, ADDL.COMMISSIONER OF INCOME-TAX - Respondent
Matter 23  Of  1974
Decided On : 05/06/1976

Headnote:

INCOME TAX - Revision of orders - Power of Commissioner - Conditions precedent - Section 263 of the Income-tax Act, 1961 - Whether the Commissioner is competent to issue a notice under Section 263 of the Income-tax Act, 1961, during the pendency of an appeal before the Appellate Assistant Commissioner - Whether the Commissioner had jurisdiction to invoke revisional powers under Section 263 of the Act in the facts and circumstances of the case - Whether the conditions precedent for the issuance of the notice in this case were fulfilled - Whether the proposed exercise of the power under Section 263 of the Income-tax Act is illegal and without jurisdiction.

Fact of the Case:

The petitioner, Russell Properties Pvt. Ltd. acquired premises No. 6, Little Russell Street, Calcutta, comprising an area of about 17 cottahs, together with an incomplete building for commercial purpose as well as for the purpose of having its registered office. The petitioner-company, thereafter, completed the construction of the said building and let it out to various tenants. In or about June, 1964, there was an indenture of lease entered into by and between the petitioner-company and the first tenant of the building, M/s. Siemens Engineering and Manufacturing Co. of India Ltd. Assessments for the assessment years 1965-66 and 1966-67 were completed by the Income-tax Officer on the 29th of March, 1971, and 26th of April, 1971, respectively. The question involved in the said assessments was about the true nature and character of the service and maintenance charges received by the assessee-company from its tenants in the multi-storeyed building at No. 6, Little Russell Street, Calcutta. In the said assessments, the Income-tax Officer included the amounts received on account of service and maintenance charges in the rental income and computed the total income of the assessee on the aforesaid basis. Appeals were preferred against the said orders of the Income-tax Officer for the assessment years 1965-66 and 1966-67. The Appellate Assistant Commissioner in his order for the assessment year 1965-66 dated 25th February, 1972, observed, inter alia, as follows : "at the time of the appeal hearing the appellant took up the plea that income from service charges were taxable under the head 'business'. In this connection the appellant placed reliance on the decision of the Supreme Court in Karnani Properties Ltd. v. Commissioner of Income-tax. In that case their Lordships of the Supreme Court held that if the services rendered by an assessee to its tenants were the result of its activities carried on continuously in an organised manner for a set purpose and with a view to earning profits, those activities were business activities and the income arising therefrom was assessable to tax under the head 'business'." There were similar observations in the order dated 2nd March, 1972, passed by the Appellate Assistant Commissioner for the assessment year 1966-67. Appeals against both the said orders were preferred by the revenue to the Income-tax Appellate Tribunal. Both these appeals came up for hearing before the Income-tax Appellate Tribunal and by an order dated 15th September, 1973, were disposed of by the Tribunal, The Tribunal observed, inter alia, as follows : "(a) We have already given the factual background of the issues involved in this case and have described the various services rendered by the assessee to the tenants. They are practically the same as rendered by M/s. Karnam Properties Ltd. , with one minor difference. (b) Considering the elaborate services undertaken by the assessee in the form of watch and ward and scavenging facilities, maintenance of underground drainage for the benefit of the tenants, maintenance of electric installations and electric pumps, constant supply of filtered and unfiltered water, conversion of electricity from high voltage to low voltage and to supply to the tenants, etc. , we have no doubt in mind that the Appellate Assistant Commissioner of Income-tax was right in his decision that he took. (c) The services rendered by the assessee had to be viewed against time and expense and energy involved expended in these services. They really partake of the nature of an organised business activity conducted in a systematic manner. (d) In the words of the Bombay High Court decision in the case of National Storage Pvt. Ltd. [1963] 48 ITR 577 (Bom) as approved by the Hon'ble Supreme Court (See the services rendered by the assessee are complex and not merely incidental to the ownership of the property. " In the meantime, between 11th February, 1972, and 21st February, 1972, orders of assessment were passed by the Income-tax Officer for the assessment years 1967-68, 1968-69 and 1969-70. The assessee being aggrieved on certain points by the said orders of assessment preferred appeals before the Appellate Assistant Commissioner on or about the 29th March, 1972. In July, 1972, the, petitioner-assessee made an application for expeditious hearing of the appeals before the Appellate Assistant Commissioner. Thereafter, it is stated that diverse dates were fixed for disposal of the appeal in 1972 and 1973, but the appeal was adjourned though the petitioner-company was ready to proceed with the hearing. On March 5, 1973, the petitioner-company made an application before the Commissioner of Income-tax, West Bengal-II, under Section 264 of the Income-tax Act for reduction of interest charged for the assessment years 1967-68, 1968-69 and 1969-70 as the petitioner contended that the petitioner-company was prevented by sufficient cause from filing the returns within the time. On 15th September, 1973, as mentioned hereinbefore, an order was passed by the Income-tax Appellate Tribunal affirming the order of the Income-tax Appellate Assistant Commissioner for the assessment years 1965-66 and 1966-67. Thereafter, on 8th January, 1974, a notice was given of the application under Section 256 (1) of the Income-tax Act for referring certain questions of law to the High Court. ON 11th January, 1974, the petitioner received the impugned notice under Section 263 of the Income-tax Act proposing to rectify the assessment orders for the assessment years 1967-68, 1968-69 and 1969-70.

Finding of the Court:

1. The Commissioner of Income-tax was competent to issue a notice under Section 263 of the Income-tax Act, 1961, during the pendency of an appeal before the Appellate Assistant Commissioner. 2. The Commissioner had jurisdiction to invoke revisional powers under Section 263 of the Act in the facts and circumstances of the case. 3. The conditions precedent for the issuance of the notice in this case were not fulfilled. 4. The proposed exercise of the power under Section 263 of the Income-tax Act is illegal and without jurisdiction.

Issues: 1. Whether the Commissioner of Income-tax was competent to issue a notice under Section 263 of the Income-tax Act, 1961, during the pendency of an appeal before the Appellate Assistant Commissioner? 2. Whether the Commissioner had jurisdiction to invoke revisional powers under Section 263 of the Act in the facts and circumstances of the case? 3. Whether the conditions precedent for the issuance of the notice in this case were fulfilled? 4. Whether the proposed exercise of the power under Section 263 of the Income-tax Act is illegal and without jurisdiction?

Ratio Decidendi: 1. The power of the Commissioner of Income-tax under Section 263 of the Income-tax Act, 1961, to revise orders passed by the Income-tax Officer is not restricted to cases where no appeal has been preferred from the order of the Income-tax Officer. 2. The Commissioner of Income-tax can exercise his revisional powers under Section 263 of the Act even in cases where an appeal has been preferred from the order of the Income-tax Officer. 3. The conditions precedent for the exercise of the power under Section 263 of the Act are that the Commissioner must call for and examine the records of the proceedings under the Act and consider the order passed therein by the Income-tax Officer to be erroneous in so far as it is prejudicial to the interest of the revenue. 4. The Commissioner of Income-tax cannot exercise his revisional powers under Section 263 of the Act unless the conditions precedent for the exercise of the power are fulfilled.

Final Decision: The rule is made absolute to the extent indicated above. There will be no order as to costs. Operation of this order is stayed for eight weeks.