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High Court Of Calcutta
SABYASACHI MUKHERJI, SUDHINDRA MOHAN GUHA
S.B.(HOUSE AND LAND) PVT.LTD. - Appellant
Versus
COMMISSIONER OF INCOME-TAX - Respondent
Income-Tax Reference 41 Of 1976
Decided On : 02/21/1978
The assessee, a private limited company, leased a property for 84 years with an option of renewal for a further period of 7 years. The lease agreement allowed the assessee to construct buildings on the leased land, which would become the property of the lessor upon the expiration or sooner determination of the lease. The assessee constructed a two-story structure called "Sashi Sadan" on a portion of the leased land and later transferred it to a third party by way of a "sub-lease", while retaining the leasehold rights to the land. The issue arose as to whether the income from "Sashi Sadan" should be included in the assessee's total income under Section 22 of the Income-tax Act, 1961. The Income Tax Officer (ITO) reopened the assessment under Section 147(b) of the Act, considering that the income from "Sashi Sadan" had escaped assessment. The assessee challenged the reopening of the assessment and the inclusion of the income from "Sashi Sadan" in its total income.
Fact of the Case:
The assessee, a private limited company, leased a property for 84 years with an option of renewal for a further period of 7 years. The lease agreement allowed the assessee to construct buildings on the leased land, which would become the property of the lessor upon the expiration or sooner determination of the lease. The assessee constructed a two-story structure called "Sashi Sadan" on a portion of the leased land and later transferred it to a third party by way of a "sub-lease", while retaining the leasehold rights to the land. The issue arose as to whether the income from "Sashi Sadan" should be included in the assessee's total income under Section 22 of the Income-tax Act, 1961.
Finding of the Court:
The court held that the reopening of the assessment under Section 147(b) of the Act was valid as the ITO had reason to believe that income chargeable to tax had escaped assessment. The court further held that the assessee was the owner of the superstructure known as "Sashi Sadan" and the income therefrom was liable to be included in the assessee's total income under Section 22 of the Act. The court interpreted the lease agreement and the deed of assignment and concluded that the transaction was a sub-lease and not a sale, and that the assessee had not transferred all rights, title, and interest in the property.
Issues: 1. Whether the reopening of the assessment under Section 147(b) of the Income-tax Act, 1961, was valid. 2. Whether the assessee was the owner of the superstructure known as "Sashi Sadan" and the income therefrom was liable to be included in the assessee's total income under Section 22 of the Income-tax Act, 1961.
Ratio Decidendi: 1. The court held that the reopening of the assessment under Section 147(b) of the Act was valid as the ITO had reason to believe that income chargeable to tax had escaped assessment. The court relied on the fact that the ITO had received information, both from internal and external sources, which led him to believe that the income from "Sashi Sadan" had not been included in the assessee's assessment. The court also held that the change of opinion by the ITO was not a "mere change of opinion" but was supported by the information received. 2. The court held that the assessee was the owner of the superstructure known as "Sashi Sadan" and the income therefrom was liable to be included in the assessee's total income under Section 22 of the Act. The court interpreted the lease agreement and the deed of assignment and concluded that the transaction was a sub-lease and not a sale, and that the assessee had not transferred all rights, title, and interest in the property. The court noted that the assessee had retained the right of reversion and the right to receive rent for the land underneath "Sashi Sadan".
Final Decision: The court answered both questions in the affirmative, upholding the reopening of the assessment and the inclusion of the income from "Sashi Sadan" in the assessee's total income.
( 1 ) IN this reference under Section 256 (1) of the I. T. Act, 1961, we are concerned with four assessment years, namely, assessment years 1966-67 to 1969-70 and the relevent accounting years are Diwali years 2022 to 2025 respectively.
( 2 ) THE assessee is a private limited company. By a lease dated the 21st September, 1954, entered into between the assessee and one Maharaja Probirendra Mohau Tagore, the latter gave on lease, "all these messuages, lands, hereditaments and premises No. 26, Prosanna Kumar Tagore Street, commonly known as ' Tagore Castle' in the town of Calcutta" to the assessee for a period of 84 years with an option of renewal for a further period of 7 years. In order to appreciate the contentions urged in this case, it would be necessary to set out in extenso the relevant clauses of the said lease dated the 21st September, 1954. In the recital clause it was stated, inter alia, as follows :"and Whereas the Lessee has agreed to take a lease for the said period of 84 years of the said messuages, tenements or dwelling houses, land, hereditaments and premises No. 26, Prosonno Coomar Tagore Street, commonly known as 'tagore Castle' together with the land thereto belonging, particularly described in Schedule ' A' hereunder written and delineated in the Map or Plan hereunto annexed and therein enclosed by Red lines including the additions and alterations thereto upon rent hereby reserved and upon terms and conditions hereinafter appearing. Now This Indenture Witnesseth that in consideration of the rent hereby reserved and of the covenants herein contained and on the part of the Lessee to be observed and performed the Lessor doth hereby grant a lease unto the Lessee to commence immediately on the execution of these presents all those messuages, lands, hereditaments and premises No. 26, Prosonno Coomar Tagore Street, commonly known as ' Tagore Castle' in the town of Calcutta particularly described in Schedule 'a' hereunder written and delineated in the Map and Plan hereto annexed and therein enclosed by Red lines (hereinafter for the sake of brevity called the demised premises) together with all buildings, structures and appurtenances whatsoever belonging to the Lessor or in any way appertaining thereto provided however during the subsistence of the Lease hereby granted the Lessor shall have the free use of four garages and three small rooms forming part of the stables standing on part of and comprised in the demised premises and more particularly shown and delineated in the Map or Plan hereunto annexed and therein marked with hatched lines and also subject to the free right of ingress and egress thereto and therefrom through the Southern gate of the demised premises from and into Prosonno Coomar Tagore Street which would also include the demised premises as may be altered or added to by the Lessee. To Hold the same unto the Lessee as from the date of execution of these presents for the term of 84 years yielding and paying therefor during the terms hereby created the monthly sum of Rs. 3,000 (Rupees Three thousand) only without any abatement or deduction whatsoever on the 7th (seventh) of each and every Bengali calendar month following the month for which the same shall become due and payable. . . . . . "
( 3 ) THE lessee took upon himself the obligations to pay the rent reserved on the day and in the manner mentioned in the recital irrespective of the fact that the demised premises or the buildings to be erected thereon, as hereinafter mentioned, or any part thereof, might be destroyed or damaged by fire or other irresistible force or act of God. The other clauses of the lessee's obligations to the lessor were as follows :1. To pay the rent reserved on the days and in the manner aforesaid and that notwithstanding that any time or times the demised premises or the buildings to be erected thereon as hereinafter mentioned or any part thereof may be destroyed or damaged by fire or other irresist
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