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2024 Supreme(Ker) 1210
IN THE HIGH COURT OF KERALA AT ERNAKULAM
A.K. JAYASANKARAN NAMBIAR, K.V. JAYAKUMAR, JJ.
M/s Knowell Realtors (India) Pvt. Ltd. - Appellant
Versus
Assistant Commissioner of Income-Tax, Corporate Circle 1(2), Cochin - Respondent
I.T.A. No. 38 of 2023, I.T.A. No. 39 of 2023
Decided On : 19-11-2024
For the Appellant : Smt. Mitha Sudhindran, Sri. Souradh C. Valson, Smt. Angelina Joy, Sri. Riji Rajendran.
For the Respondent: Sri. Jose Joseph, SC, Income Tax Department.
IMPORTANT POINT
The Appellate Tribunal exceeded its jurisdiction by allowing a rectification application filed beyond the statutory period, necessitating the classification of rental income as 'Income from House Property' and property sales as 'capital gains'.
Headnote:
(A) Income Tax Act - Sections 254(2) - Classification of income - The appellant's rental receipts were consistently assessed as 'Income from House Property', but the Revenue reclassified them as 'Business Income' for the assessment years 2012-13 and 2015-16, which was contested. The Tribunal's rectification of its earlier dismissal of appeals was found to be beyond statutory limitation, rendering the order void. (Paras 4, 7, 8, 9)
(B) Jurisdiction - The Appellate Tribunal cannot extend its jurisdiction beyond what is conferred by statute, and any rectification application filed beyond the statutory period is void. (Paras 8, 9)
Facts of the case:
The appellant, a company, contested the classification of its rental income and the treatment of property sales for tax purposes, arguing for consistency in assessment.
Findings of Court:
The court ruled that the income from property sales should be classified as 'capital gains' and not 'business income', affirming the appellant's consistent classification.
Issues: The main issues included the jurisdiction of the Tribunal regarding the rectification application and the classification of income.
Ratio Decidendi: The court emphasized the need for consistency in tax assessments and ruled that the Tribunal's actions were beyond its jurisdiction.
Result: Appeals allowed.
JUDGMENT :
A.K. Jayasankaran Nambiar, J.
These I.T. Appeals impugn the common order dated 25.09.2023 in I.T.A.Nos.192/Coch/2017 and 193/Coch/2019 pertaining to assessment years 2012-13 and 2015-16.
2. The brief facts necessary for disposal of these I.T. Appeals are as follows:
The appellant is a company incorporated on 27.09.1996. The issue involved in these appeals is regarding the head of income under which the receipts of rent collected by the appellant in relation to leased property should be classified for the purposes of the Income Tax Act [hereinafter referred to as the “I.T. Act”]. The said classification has a bearing on the treatment to be accorded to the receipts obtained by the appellant consequent to the sale of some of the said properties. The appellant had been declaring the receipts as Income from House Property during the various assessment years, and the returns so filed by the appellants were accepted by the Department in the past. For the assessment years 2012-13 and 2015-16 however, the Department took a different stand and assessed the rental receipts under the head 'Business Income'. Consequently, the amounts received by the appellant on the sale of the property also came to be assessed as business income and not as capital gains as declared by the appellant.
3. Aggrieved by the assessment orders, the appellant preferred appeals before the First Appellate Authority. The Commissioner of Income Tax (Appeals) allowed the appeals and directed the Assessing Authority to treat the rental income under the head 'Income from House Property' and the income from the sale of house property during the previous year relevant to the assessment year as 'capital gains'. The Revenue, therefore, carried the matter in further appeals before the Income Tax Appellate Tribunal. The Tribunal initially dismissed the appeals after finding that the amount involved in the appeals was less than the threshold amount prescribed under the Central Board Direct Taxes Circulars [CBDT Circulars] for pursuing litigation. While dismissing the appeals, the Appellate Tribunal, in its order dated 29.08.2019, also reserved the liberty of the Department to approach the Tribunal for a recall of its order if it was found that the appellant's case fell within one of the exceptional situations envisaged under the CBDT Circulars for the pursuit of the appeals.
4. Acting on the liberty so reserved to it, the Revenue moved a rectification application on 10.03.2020, pointing out that the assessment of the appellant for the assessment years in question was based on an audit objection and, therefore, an exceptional circumstance as envisaged in the CBDT Circulars. This contention was accepted by the Tribunal, which allowed the rectification application by an order dated 16.09.2022 and restored the appeals to its file. The Revenue's appeals were thereafter heard by the Appellate Tribunal, and by a common order dated 25.09.2023, the Tribunal allowed the appeals. It is against the said order of the Tribunal that the appellant/assessee is before us through these I.T. Appeals raising the following substantial questions of law :
i. Whether the Hon'ble ITAT erred in considering the application u/s 254(2) of the Act, beyond the period of statutory limitation?
ii. Whether the act of recalling its own order transgresses the ambit of rectification bestowed upon the Hon'ble ITAT u/s 254(2) of the Act and amounts to review?
iii. Whether the Hon'ble ITAT, when considering an appeal u/s 253 of the Act, can rely solely on the Memorandum of Association of the Assessee company to determine the nature of its operation, while ignoring other pertinent factors?
iv. Whether the Departmental acceptance of categorization of income from similar sources during previous assessment years creates a legitimate expectation that such categorization is appropriate?
v. Whether the Hon'ble ITAT was right in holding that the income from the sale of a property held as a capital-asset should be categorized
