Back
1981 Supreme(Del) 291
High Court Of Delhi
ADDITIONAL COMMISSIONER OF INCOME TAX - Appellant
Versus
KANTA BAHEN DH OF LATESH.L.D.DESAI - Respondent
I.T.R. 185 of 1972
Decided On : 09/30/1981
E.D.HELMA, G.C.Sharma, MADAN LOKUR, R.S.Sharma, VAZIR SINGH
The Income-tax Officer was justified in rectifying the assessment orders under Section 154 of the Income-tax Act, 1961 and the orders passed by the Commissioner of Income-tax under Section 263 of the Act were erroneous and prejudicial to the interests of the Revenue.
Headnote:
INCOME TAX - Rectification of assessment - Whether the Income-tax Officer was justified in rectifying the assessment orders under Section 154 of the Income-tax Act, 1961 - Whether the orders passed by the Commissioner of Income-tax under Section 263 of the Act were erroneous and prejudicial to the interests of the Revenue.
Fact of the Case:
The assessee, Late Mr. L. D. Desai, purchased a cinema on 6th July 1948 at a public auction. This cinema known as "new Chitra Talkies" was located at Amritlal The price paid was Rs. 3,75,000. Immediately thereafter Mr. Desai leased out this cinema to M/s. Better Theatres Ltd. , Delhi on a monthly rental of Rs. 3. ,000. The lease agreement was to be effective from 1-4-1949.
Finding of the Court:
The Tribunal held that the Income-tax Officer had not acted suo moto, in fact, the endorsement by the Income-tax Officer on the order-sheet before proceeding to rectify the assessments clearly indicated that action was being taken in view of an audit objection. The Tribunal was, therefore, of the opinion that the Income-tax Officer had not taken the initiative to rectify -the assessments suo moto. but was stirred into action on the basis of good authority.
Issues: 1. Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the orders passed by the Income-tax Officer under Sec. 154 were valid, and within the time prescribed, and the Commissioner of Income-tax was not justified in cancelling them under section 263 on the ground of limitation. 2. Whether on the facts and in the circumstances of the case, the Tribunal was correct in law in vacating the orders passed by the Commissioner of Income-tax under section 263 of the Income-tax Act, 1961, on the ground that the orders passed by the Income-tax Officer were not erroneous or prejudicial to the interests of Revenue.
Ratio Decidendi: The Tribunal was correct in law in holding that the orders passed by the Income-tax Officer under Sec. 154 were valid, and within the time prescribed, and the Commissioner of Income-tax was not justified in cancelling them under section 263 on the ground of limitation. The Tribunal was also correct in law in vacating the orders passed by the Commissioner of Income-tax under section 263 of the Income-tax Act, 1961, on the ground that the orders passed by the Income-tax Officer were not erroneous or prejudicial to the interests of Revenue.
Final Decision: Both the questions have to be answered in the affirmative and in favour of the assessee.
( 1 ) THESE seven references at the instance of the Addl. commssioner of Income-tax pertain to assessment years 1955-56 to 1959-60, 1961-62 and 1962-63.
( 2 ) LATE Mr. L. D. Desai, the husband of the assessee, purchased a cinema on 6th July 1948 at a public auction. This cinema known as "new Chitra Talkies" was located at Amritlal The price paid was Rs. 3,75,000. Immediately thereafter Mr. Desai leased out this cinema to M/s. Better Theatres Ltd. , Delhi on a monthly rental of Rs. 3. ,000. The lease agreement was to be effective from 1-4-1949.
( 3 ) FOR the assessment year 1950-51, Mr. Desai had filed a return wherein he had disclosed, inter alia, his income from the cinema. The ifncome, therefore, was computed at Rs. 5885 and indicated under the head property income. Statutory deduction for repairs at Rs. 6116 as also depreciation on machinery and furniture were claimed.
( 4 ) THE Income-tax Officer did not agree with this computation of income as he felt that a claim both for repairs and depreciation was not justified. Since a composite sum of Rs. 3,75,000 had been paid for the building, machinery and furniture of the cinema the Income-tax Officer allocated Rs. 3,40. 000 Rs. 15. 000 and Rs. 20,000 towards the value of the building, machinery and furniture respectively. As the rental recovered was again a composite sum of Rs. 3,000 per months equalling Rs. 36,000 per year, he apportioned this income allocating Rs. 24,600 towards rent of the building and Rs. 11,400 as hire charges of the machinery and furniture. From the rental income of the building he allowed deductions for repairs and other charges such as interest, thereby assuming at a net income of Rs. 6786 on this sum. With regard to the sums received as hire charges for machinery and furniture he permitted a deduction for deprteciation, resulting in this income being computed at Rs. 7,200.
( 5 ) THE assessee accepted this basis of allocation of property income and other sources for all the subsequent years including the assessment years under consideration and. filed his returns accordingly. The Income-tax Officer completed the assessments for all the subsequent years inclusive of assessment year 1963-64 on this basis.
( 6 ) SUBSEQUENTLY, the Income-tax Officer noticed that the lease agreement provided tor all the necessary repairs of the building to be made by the lessee at its own costs. He, therefore, was of opinion that the deduction "already allowed for repairs was uncalled for. As such he proceeded so correct his mistake by initiating action under Sec. 147 of the Income-tax Act, 1961. By this time assessments upto the assessment year 1954-55 had become time barred. However, he rejected a" the assessments for the subsequent years except assessment year 1960-61. the assessee agreed to the-withdrawal of the allowance for repairs and filed returns of income in response to the notice under Sec. 147 of the Act accordingly. Thereafter, assessments were made and the deduction already allowed for repairs was withdrawn.
( 7 ) SONIC lime thereafter the Income-tax Officer, inpursuance of an audit objection, discovered that depreciation was allowable , on the cinema building, hut had, in fact, not been allowed at the time of the original assessment. Treating this as a mistake apparent from the records he initiaied proceedings under Sec. 154 and rectified all the assessments by allowing depreciation on the value of the cinema hall building. In. the common order passed under Section 154 the Income-tax Officer observed :
"from the perusal of the assessment records it lias been noticed that depreciation on the cinema building was not allowed at the time of original assessment. As the mistake was apparent from records the same was rectified under Section 154 of the Income-tax Act, 1961. Prepare revised a. ssessment form and issue refund vouchers. "
( 8 ) THE Commissioner of income-tax felt that the orders of rectification were erroneous and prejudicial. to
