Judgment:
1. These three appeals are taken together for the sake of convenience since they relate to the same appellant and interdependent issues are involved. There was a substitution application filed by the assessee in this case which has been allowed since all the legal heirs named should come on record The application for substitution was no doubt opposed by the learned Departmental Representative, but the opposition is not tenable in view of the fact that after the death of Shri Gulu G.Thadani even in the status of karta, the names of the legal heirs should come on record.
2. The learned counsel for the assessee and the learned Departmental Representative were heard and the material placed before us was perused by us. A paper book containing 66 pages is on record. The grounds of appeal for the assessment year 1977-78 are reproduced and for the remaining two years the grounds are identical:-- (1) That the learned lower authorities have not appreciated the matter concerning the rent of Vijaya Bank premises by not going through fully with the evidence available on record.
(2) That the learned Commissioner (Appeals) has taken the letter dated 15th January, 1983As not admissible on the assumption that the Hon'ble Tribunal, by order dated March 3rd, 1984, had not allowed this letter as evidence, whereas the Hon'ble Tribunal, in fact, had accepted this letter as admissible and only on letter dated 2nd May, 1973 the Hon'ble Tribunal had declined, but had left the matter of accepting letter dated May 2nd, 1973 to the discretion of the Commissioner Appeals.
(3) That the learned Commissioner (Appeals) has only picked up a few words in favour of the department and ignored the evidence on record in favour of the appellant, which clearly showed that the rent was Rs. 1,250.
(4) That the learned Commissioner (Appeals) has not gone properly through all the documents allowed as evidence by the Hon'ble Tribunal and thereby has not been able to judge fully the pleas made by the appellant, on rental goodwill to tenant and the plea of deduction from income from house property under Section 24(1)(iv) relating to annual charge defined under Section 27 (iv).
(5) That the learned Commissioner (Appeals) has not realised that the said premises when with M/s. Allied Electric, were fetching only Rs. 187.50 per month as rent and that Vijaya Bank had directly approached the party and negotiated the terms etc.
Because without payment of Rs. 75,000 as goodwill erstwhile tenants, viz., Allied Electric, by Vijaya Bank, the appellant could neither have let out the property to Vijaya Bank nor the alleged rental of Rs. 2,500 per month would have been earned and received.
(6) That the order passed is against the merit, circumstances and legal aspects of the case.
3. Before proceeding to adjudicate upon the issues involved in this case, it will be relevant to recapitulate the sequence of events. The appellant-HUF derives income from house property, share income and income from other sources. The appellant, with effect from May 1973 let out a part of the premises in Thadani Mansion to M/s. Vijaya Bank and declared the rent received at Rs. 15,000 per annum. The Assessing Officer held that the rent receivable was Rs. 2,500 per month. This order was confirmed in appeal by the CIT(A). The appellant, aggrieved with the order of the CIT (A) came before the Tribunal seeking permission to bring on record a number of documents. The Income-tax Appellate Tribunal set aside the order of the CIT(A) for deciding the matter afresh in accordance with law, after giving an opportunity of being heard to the appellant and the department. The CIT(A) decided this appeal by his order dated 25-4-1985 holding that the property was let out for a sum of Rs.2,500 per month and that the Assessing Officer was justified in assessing this amount in the hands of the appellant.
Since one of the documents, namely, a letter dated 15-1-1983 of Vijaya Bank was not taken note of by the CIT (A), even though the Tribunal had directed that document Jo be admitted, the case was remanded to the Ld.
CIT(A) to consider the document dated 15-1-1983And to submit a report.
This remand report dated 19-7-1990 has now been submitted by the Ld.
CIT(A) and it is on record, copy of which was made available to the learned counsel for the assessee on 31-7-1990.
4. Even though the facts of the case find mention in the order of the CIT(A) as well as in the order of the Appellate Tribunal, a brief narration is considered necessary for a proper appreciation of the facts found by us. The premises in question were earlier in occupation of M/s. Allied Electric & Radio Corporation on a monthly rent of Rs. 263.50. An arrangement was arrived at between the existing tenant Vijaya Bank and the appellant whereby it was agreed that the tenant would vacate the portion occupied by it in favour of Vijaya Bank for a consideration of Rs. 75,000. Vijaya Bank, however, expressed its inability to pay Rs. 75,000 as it was not possible under their Rules and Regulations to pay "pugree". The appellant agreed that the payment be made by the bank to M/s. Allied Electric & Radio Corporation on getting vacant possession and the payment of Rs. 75,000 be shown as a loan to the appellant. The appellant also agreed that till the sum of Rs. 75,000 was cleared the rent be paid at the rate of Rs. 1,250 per month and after the amount is cleared up, the rent of Rs.2,500 per month will be paid by the Vijaya Bank to the assessee. This commitment of the assessee is contained in a letter dated 10-4-1973Addressed to one Mr. Sadanand Shetty of Vijaya Bank, New Delhi.
5. The assessee's contention is that it was in actual receipt of Rs. 1,250 per month only by way of rent. Therefore, only this amount should be taxed as income from house property and not Rs. 2,500 as determined by the Assessing Officer and confirmed by the Ld. CIT(Appeals).
6. The letter dated 15-1-1983 was perused by the CIT (Appeals). This is a letter by the Divisional Manager, Vijaya Bank, Lucknow almost 10 years after the premises had been taken on rent and is addressed to no one in particular. The contents of the letter are that the bank had negotiated with M/s. Allied Electric & Radio Corporation for the premises in question and an amount of Rs. 75,000 was settled and paid to them as compensation for goodwill, furniture and fixtures etc. The Bank stated that it was "not allowed to pay goodwill or pugree, the amount of Rs. 75,000 was shown as paid to the landlord so as to secure the premises for us". A sum of Rs. 1,250 per month was to be adjusted towards the amount paid as goodwill and Rs. 1,250 were being paid to the landlord as rent.
7. In the written arguments as well as in the oral arguments, the point stressed before us was that since the rent receivable was Rs. l,250permonth, which reached the appellant, only that much should be taxed as property income and there was no justification for the department to adopt and substitute the figure of Rs. 2,500 for the amount of Rs. 1,250. As an alternative plea, it was argued that the property let out to M/s. Vijaya Bank was subject to an annual charge of Rs. 1,250 per month as the appellant "was under a legal obligation to suffer Rs. 1,250 per month in favour of the bank" and that such a sum is allowable as deduction under Section 24(1)(iv) of the Income-tax Act, 1961. The third limb of the assessee arguments was that there was diversion of income at source to the extent of Rs. 1,250 per month, which cannot be said to be the income of the assessee.
8. We have given our anxious thoughts to the papers filed before us and to the arguments advanced before us. Shorn of all embellishments the fact of the matter is that a sum of Rs.75,000 was paid by the assessee to the tenant to get the vacant possession - may be after getting the amount from the bank. Even accepting the version of the assessee, all that can be seen in this case, is that this advance of Rs. 75,000 was being adjusted at the rate of Rs. 1,250 per month. But the entire thrust of the facts on record establishes the real fact that the monthly rent of the premises was Rs.2,500 and not Rs. 1,250. This is borne out from all the papers filed on record. As has rightly been pointed out by the Ld. CIT (A) in the remand report referred to above, the payment of Rs. 75,000 was of the nature of capital payment M/s.
Vijaya Bank agreed to pay Rs. 75,000 to the outgoing tenant and compensate the landlord by an increase of rent from Rs. 263.50 to Rs. 2,500 per month. The payment of lump sum amount to a sitting tenant is not a legal or statutory liability. By whatever nomenclature it might be said the real situation cannot be altered and the real situation is that the assessee paid Rs. 75,000 (through Vijaya Bank) and, in return of this payment, the assessee got the benefit of enhancement of monthly rent to Rs.2,500 per month. This situation emerges after a perusal of all the papers filed on record. Generally speaking, it may be argued by the assessee that the outgoing should be allowed because the earning capacity of the assessee increased. Unfortunately, this is not the position in law. The outgoings under the head "Income from property" are specifically and definitely detailed under the Act. Therefore, there is no question of allowing any amount, vis-a-vis the enhanced rent of Rs. 2,500 per month. It is immaterial whether the assessee paid amount from his own pocket or arranged to make payment through bank.
The Ld. CIT (A) has rightly come to the conclusion that the rent of Rs. 2,500 per month was rightly taxed by the Assessing Officer. The photocopies of the pay orders filed by the appellant show that the amount of rent was Rs. 2,500 out of which recovery of Rs. 1,250 was there and the balance amount of Rs. 1,250 was paid by the bank's pay order. This is a clinching evidence to establish that the rent of the premises was Rs. 2,500 per month out of which recovery of the loan was being made. Therefore, this was a clear case of application of income and no diversion of income at source. The arguments to the contrary advanced by the learned counsel for the assessee are hereby rejected.
There is no question of diversion by overriding title here. The judicial support for this view is contained in CIT v. Smt. Archana R.Dhanwatay [1982] 136 ITR 355 (Bom.). Their Lordships of the Bombay High Court have held in this case that the mere fact that an amount was paid out of the rent, did not mean that there was any overriding title created in respect of amount of rent which was legally recoverable from the tenants by the owners.
9. The alternative plea of the appellant that the property let out to Vijaya Bank was subject to an annual charge of Rs. 15,000 per year and that deduction under Section 24(1 )(iv) should be allowed is also not tenable and is decided against the assessee. The deduction under Section 24(1)(iv) is available where the property is subject to an annual charge (not being a charge created by the assessee voluntarily or a capital charge). The terms "annual charge" and "capital charge" have been defined in Sections 27(iv) and (v) of the Income-tax Act, 1961 respectively. There is no ambiguity about the definition of these terms. In the present case, payment of Rs. 1,250 per month recovered by bank is not a charge but repayment of a loan given to the appellant by the bank. Even if such recovery is to be treated as valid and legal charge, it is a charge created voluntarily by the appellant, who happens to be the landlord in this case. Therefore, it is not a charge created by operation of law or under a decree passed by the court or by some other means, not attributable to the volition of the appellant.
This is clear from the letter dated 10-4-1973Addressed by the appellant to one Mr. Sadanand Shetty of Vijaya Bank, New Delhi, the relevant extract from which is reproduced as under :-- With regard to the goodwill required by them I do not see any reason why the amount of Rs. 75,000 as goodwill etc. be paid by me. Since you have already settled the amount of goodwill, furniture, fixtures etc. with them, the same is payable to you. It is not possible for me to pay goodwill or any pugree. It was on that account that I readily agreed to give you my recommendation on your application to the Rent Controller.
However, I appreciate that as a Banking Institute it is not possible for you to pay any pugree or goodwill. I, therefore, agree to your suggestion of your completing the transaction of payment of these amounts directly with M/s. Allied Electric and getting the possession of the premises from them after due allotment proceedings and later show the payment of Rs. 75,000asloan tome. Till such time as the amount paid as goodwill by you is cleared you pay Rs. 1,250 per month as rent.
10. Thus, it is established that the amount of Rs. 1,250 per month being paid by the assessee towards repayment of the rent is not deductible under Section 24(1)(iv) of the Income-tax Act, 1961. The assessee has not been able to establish that the charge was created involuntarily. Further we find that it is a capital charge within the meaning of Section 27(v) of the Income-tax Act, 1961, because it was a compensation for relinquishment of its tenancy rights in the premises.
The payment made was in the nature of a capital payment not deductible under any of the clauses or sub-clauses for computation of the income from property. We have already held above that there was no diversion of income at source. On the contrary we find that it was an application of income of rent and, therefore, the departmental authorities were justified in holding that the rent of the premises was Rs. 2,500 per month and not Rs. 1,250 as contended by the assessee. In view of the facts and the circumstances mentioned above, we have not considered it necessary to deal with each and every ground raised before us, but we are certain that all the submissions and grounds have been covered by the discussion and by the finding given by us in this order. To reiterate, in view of the papers filed on record, in view of the order of the predecessor Tribunal, in view of the remand report of the Ld.
CIT (A) dated 19-7-1990, we hold that the departmental authorities were justified in assessing the income from rent from the property at the rate of Rs. 2,500 per month instead of Rs. 1,250 per month as contended by the appellant. All the three appeals fail and are dismissed.