# M/s Meeraj Estate & Developers v. Commissioner of Income Tax, Agra

- **Citation:** (2019) 3 ILRA 780
- **Court:** High Court of Judicature at Allahabad
- **Decided:** 2019-09-18
- **Case number:** Income Tax Appeal No. 52 of 2014
- **Bench:** Bharati Sapru, Rohit Ranjan Agarwal
- **Source:** https://unisonlegal.in/judgment/allahabad-high-court/m-s-meeraj-estate-developers-v-commissioner-of-income-tax-agra-44797
- **Pages:** 18

## Headnote

A. Income Tax Law- Income Tax Act,
1961: Sections 2(13), 9, 142(1), 143(2),
143(3), 145 - Whether the property
acquired
by
the
assessee
and
subsequently entered into an agreement
with GAIL and receipts at the hand of
assessee pursuant to the agreements is
assessable under the head 'income from
business or income from house property or
income from other sources.' (Para 17)

B. Income Tax Law- Income Tax Act, 1961:
Principal of res-judicata does not apply to
tax matters for different assessment years -
Res - judicata applies to debar courts from
entertaining issues on the same cause of action,
whereas cause of action for each assessment year
is distinct. (Para 18 to 22)

Where a fundamental aspect permeating
through different assessment years has been
found as a fact one way or the other, and
parties have allowed that position to be
sustained by not challenging the order, it
would not be at all appropriate to allow the
position to be changed in subsequent year,
unless there was a material change justifying
the revenue to take different view. In the
present case AO found sufficient materials and
changes. (Para 22, 23)

C. Income Tax Law- Income Tax Act, 1961:
Words & Phrases - "business activity" -
Merely by providing in the object clause to
conduct
activity
with
respect
to
3 All. M/s Meeraj Estate & Developers Vs. Commissioner of Income Tax, Agra
781
acquiring land and building, as well as
furnishing and maintaining it and also by
leasing the same, would not amount to
carrying on such "business activity".
(Para 26)

Mere incorporation of company or firm with an
object or carrying on business of real estate,
letting and sub-letting of property would not
automatically mean that assessee was having
business income from the property let out
through agreement. (Para 28)

D. Income Tax- Income Tax Act, 1961:
Words & Phrases
-'business': Word
'business' is used in the sense of an
occupation, or profession which occupies
time, attention and labour of a person,
normally with the object of making
profit. To record an activity as a business
there must be course of dealing, which is
continued
or
contemplated
to
be
continued with profit motive and not for
sport or pleasure. (Para 29, 30)

To be a business income, volume, frequency,
continuity, regularity and the intention of the
assessee to carry on has to be seen, and
where business itself has not come into
existence, it cannot be considered to be a
business income. (Para 32, 33, 34)

Appeal Dismissed (E-4)

Precedent followed: -

## Text

_Characters 0–39,783 of 60,116. This is a partial read: ask again with offset=39783 for what follows._

780 INDIAN LAW REPORTS ALLAHABAD SERIES
Indian Evidence Act, it has found the
opinion given in report of expert Niranjan
Lal Srivastava P.W.-3 to be correct and
conflicting opinion given in report of
expert Rajeev Ranjan Srivastava D.W.-1
to be incorrect. The lower appellate Court
has not committed any error of law in
reference with following the provisions of
Section 71 of Indian Evidence Act.

36. The two substantial questions of
law framed in this appeal are, therefore,
decided in affirmative against defendantappellant and in favour of plaintiffrespondent. No other substantial question
of law was raised or arises in the appeal.
The appeal is devoid of merits and there
is no sufficient ground for setting aside
the impugned judgment and decree
passed by lower appellate Court or for
restoring the judgment and decree passed
by the trial Court.

37. The appeal is liable to be
dismissed with costs.

38. The appeal is accordingly
dismissed with costs throughout, the
impugned judgment and decree are
affirmed.

39. Let the lower court record be
sent back to the court below along with
copy of this judgment for necessary
compliance after preparation of decree.
----------

(2019)11ILR A780

APPELLATE JURISDICTION
CIVIL SIDE
DATED: ALLAHABAD 18.09.2019

BEFORE
THE HON'BLE BHARATI SAPRU, J.
THE HON'BLE ROHIT RANJAN AGARWAL, J.
Income Tax Appeal No. 52 of 2014
with
Income Tax Appeal No. 55 OF 2014

M/s Meeraj Estate & Developers
 ...Appellant
Versus
Commissioner of Income Tax, Agra
 ...Respondent

Counsel for the Appellant:
Sri Rahul Agarwal

Counsel for the Respondent:
C.S.C.

A. Income Tax Law- Income Tax Act,
1961: Sections 2(13), 9, 142(1), 143(2),
143(3), 145 - Whether the property
acquired
by
the
assessee
and
subsequently entered into an agreement
with GAIL and receipts at the hand of
assessee pursuant to the agreements is
assessable under the head 'income from
business or income from house property or
income from other sources.' (Para 17)

B. Income Tax Law- Income Tax Act, 1961:
Principal of res-judicata does not apply to
tax matters for different assessment years -
Res - judicata applies to debar courts from
entertaining issues on the same cause of action,
whereas cause of action for each assessment year
is distinct. (Para 18 to 22)

Where a fundamental aspect permeating
through different assessment years has been
found as a fact one way or the other, and
parties have allowed that position to be
sustained by not challenging the order, it
would not be at all appropriate to allow the
position to be changed in subsequent year,
unless there was a material change justifying
the revenue to take different view. In the
present case AO found sufficient materials and
changes. (Para 22, 23)

C. Income Tax Law- Income Tax Act, 1961:
Words & Phrases - "business activity" -
Merely by providing in the object clause to
conduct
activity
with
respect
to
3 All. M/s Meeraj Estate & Developers Vs. Commissioner of Income Tax, Agra
781
acquiring land and building, as well as
furnishing and maintaining it and also by
leasing the same, would not amount to
carrying on such "business activity".
(Para 26)

Mere incorporation of company or firm with an
object or carrying on business of real estate,
letting and sub-letting of property would not
automatically mean that assessee was having
business income from the property let out
through agreement. (Para 28)

D. Income Tax- Income Tax Act, 1961:
Words & Phrases
-'business': Word
'business' is used in the sense of an
occupation, or profession which occupies
time, attention and labour of a person,
normally with the object of making
profit. To record an activity as a business
there must be course of dealing, which is
continued
or
contemplated
to
be
continued with profit motive and not for
sport or pleasure. (Para 29, 30)

To be a business income, volume, frequency,
continuity, regularity and the intention of the
assessee to carry on has to be seen, and
where business itself has not come into
existence, it cannot be considered to be a
business income. (Para 32, 33, 34)

Appeal Dismissed (E-4)

Precedent followed: -

1. Bharat Sanchar Nigam Ltd. & anr. Vs U.O.I.
& ors., [2006] 3 SCC 1 (Para 19, 21, 22)

2. C.K. Gangadharan & anr. Vs C.I.T., Cochin
[2008] SCC 739 (Para 20)

3. C.I.T. Vs British Paints India Ltd., (Citation
not given) (Para 21, 22)

4. Radhasaomi Satsang Vs C.I.T., 193 ITR 321
(SC) (Para 3, 20, 21, 22)

5. Sultan Brothers Pvt. Ltd. Vs C.I.T. (1964)
51 ITR 353 (SC) (Para 3, 9, 12, 26, 28, 34)

6. Universal Plast Vs C.I.T., [1999] 237 ITR
454 (SC) (Para 9, 27, 28, 34)
7. C.I.T. Vs Shambhu Investment (Pvt.) Ltd.
[2001] 116 Taxman 795 (Calcutta) (Para 12,
28)

8. Hotel Arti Delux (Pvt.) Ltd. Vs Assistant
C.I.T. [2014] 227 Taxman 119 (All.) (Para 11,
28)

9. St. of Gujarat Vs Raipur Manufacturing Co.
Ltd. [1967] 19 HTC 1 (SC) (Para 30)

10. Sole Trustee, Loka Shikshana Trust Vs
C.I.T. [1975] 101 ITR 234 (Para 30)

11. C.I.T. Vs National Storage Pvt. Ltd. [1963]
48 ITR 577 (Bom.) (Para 31)

12. Mangla Homes Pvt. Ltd. Vs Income Tax
Officer, 325 ITR 281 (Bom.) (Para 35)

13. East India Housing & Land Development
Trust Ltd., Vs CIT, [1961] 42 ITR 49 (SC)
(Para 35)

Precedent cited: -

1. C.I.T. Vs Goel Builders, 331 ITR 344 (All.)
(Para 3, 8)

2. A.C.I.T. Vs D.M. Brothers, (2010) 44 DTR
13 (All.) (Para 3)

3. Karnani Properties Ltd. Vs C.I.T., [1971] 82
ITR 547 (SC) (Para 9)

4. Karanpura Development Co. Ltd. Vs C.I.T.,
[1962] 44 ITR 362 (SC) (Para 9)

5. Chennai Properties and Investment Ltd. Vs
C.I.T., [2015] 373 ITR 673 (SC) (Para 10)

6. Raj Dadarkar and Associates Vs Assistant
C.I.T., [2017] 81 Taxmann.com 193 (SC)
(Para 13)

Appeal against and judgment and order
dated 14.08.2013 passed by ITAT, Agra
Bench, Agra for assessment years 200607 and 2008-09.

(Delivered by Hon'ble Rohit Ranjan
Agarwal, J.)
782 INDIAN LAW REPORTS ALLAHABAD SERIES

1. These two appeals filed under
Section 260A of the Income Tax Act,
1961 arise out of judgment and order
dated 14.08.2013 passed by Income Tax
Appellate
Tribunal,
Agra
Bench
(hereinafter called as 'ITAT') in Income
Tax Appeal No. 182 and 292/ Agra/ 2012
for assessment years 2006-07 and 200809.

2. As the issues in question are same
in both the appeals, as such they are being
heard and decided together by a common
order.

3. These appeals were admitted on
25.10.2017 on the following question of
law:-

"(a) Whether in view of the facts
of the case particularly the source of
funding for acquiring the property, the
inter-relationship between the agreements
entered into by the appellant and the
Constitution
Bench
of
the
Hon'ble
Supreme Court in Sultan Brothers Pvt.
Ltd. Vs. C.I.T. (1964) 51 ITR 353 (S.C.)
and the Division Bench judgment of this
Hon'ble Court passed in CIT v. Goel
Builders 331 ITR 344 (All.), the Tribunal
below was justified in holding that the
receipts of the appellant were income
from house property/ other sources and
not business income?

(b) Whether, in view of the
decisions In Radhasaomi Satsang v. CIT
193 ITR 321 (SC) and in ACIT Vs. D.M.
Brothers (2010) 44 DTR 13 (All.), the
decision of the Tribunal below in
discarding the treatment of the receipts of
the appellant as business income for
Assessment Year 2005-06 and in all
subsequent assessment year's till A.Y.
2013-2014 (except assessment year's
under appeals) is legally justified?"

4. The assessee is a partnership firm,
which was constituted w.e.f. 01.07.2004,
while the deed forming partnership is
dated 01.11.2004. According to the deed,
the object of the assessee firm is to
venture into real estate business and allied
activities such as leasing/ sub leasing,
maintaining properties on maintenance
contract etc. It was subsequent to
formation
of
partnership
firm,
that
assessee acquired leasehold rights over a
commercial property measuring 6925
square feet at third floor of Block No.
G10/ 8, Padam Deep Tower, Sanjay
Place, Agra. The said rights were
acquired by the assessee from one M/s
Pee Cee Soap and Chemicals Pvt. Ltd.
through a deed of assigning of lease
executed on 17.11.2004. The money for
acquiring the leasehold right by the
assessee was arranged by taking loan of
Rs.1,31,04,107/- from Indian Overseas
Bank and also loans of Rs.16,94,107/-
from
M/s
Meeraj
Industries
and
Rs.5,03,385 from M/s Accurate Ferro
Casting. Thereafter, the assessee entered
into an agreement with Gas Authority of
India Ltd. (hereinafter called as 'GAIL')
on 30.11.2004 to lease the said property
to GAIL for a period of 10 years. Second
agreement was executed by the assessee
with GAIL on 14.12.2004 for furnishing
of the leased area of 6925 square feet to
ensure the furniture and fitting etc. and
also
to
undertake
major
repairs.
Thereafter,
on
16.12.2004
third
agreement was executed between the
assessee and GAIL for maintaining the
leased out area.

5. The assessee filed a return for
assessment year 2005-06 at a loss of
Rs.20,13.100/-. The said return was
processed under Section 143(3) of the
Income Tax Act (hereinafter called as
3 All. M/s Meeraj Estate & Developers Vs. Commissioner of Income Tax, Agra
783
'Act') and reply filed by the assessee was
accepted by assessing authority, which
passed an order under Section 143(3) of
the Act on 28.12.2007.

6. Return for the assessment year
2006-07 was filed by assessee on
12.06.2006
showing
a
loss
of
Rs.10,95,190/-. The case was picked
under scrutiny, and notice under Section
143(2) of the Act was issued on
18.06.2007. As no compliance was made
by the assessee, again notice under
Section 143(2) along with notice under
Section 142(1) with questionnaires dated
08.07.2008 was sent to the assessee. The
assessee appeared and replied to the
various queries. The AO after considering
the three agreements as well as examining
the statement of one of partners of the
firm found that assessee was not involved
in any kind of recurring activity to treat
the receipt as business receipt and the
income of the assessee was calculated at
Rs.10,94,460/-
as
against
loss
of
Rs.10,95,190/- and the setoff of brought
forward loss of assessment year 2005-06
amounting to Rs.20,13,103/- was rejected
on 14.11.2008. An appeal was filed
before Commissioner of Income Tax
(Appeals) challenging the said order but
the said appeal was rejected by order
dated 23.01.2012 by CIT (A), aggrieved
by the said order a Second Appeal was
preferred before the ITAT which was also
rejected by order dated 14.08.2013, which
is impugned before this Court. Pursuant
to the order of this Court, assessee filed
copies of the partnership deed, as well as
the three agreements executed between
the assessee -appellant and GAIL.

7. Sri Rahul Agarwal, learned
counsel
appearing
for
the
assessee
submitted that the assessee firm is in the
business of real estate and allied activities
such
as
leasing
and
sub-letting,
maintaining properties on contracts. He
further
submitted
that
the
three
agreements
executed
between
the
appellant and GAIL indicates that they
were supplemental/ incidental to each
other and were part of one composite
transaction and should not be read in
isolation as done by the taxing authorities.
He further submitted that GAIL being a
Government organisation does not enter
into tenancy agreement with private
parties without protracted negotiations
and
usually
does
not
conclude
a
transaction within a space of a week or 10
days, as in the present case the property
was obtained by assessee on 17.11.2004
and was let out on 30.11.2004, which
indicates the fact that the property was
acquired
in
view
of
the
ongoing
discussions with GAIL to fulfill their
office requirements. It was also contended
that the entire receipts received under the
three contracts with GAIL was claimed
under the head 'business income' and
depreciation thereon was claimed and the
assessee for assessment year 2005-06
filed a return of loss of Rs.20,13,100/-
which was accepted by the Additional
Commissioner
of
Income
Tax
on
28.12.2007, as such there was no
occasion for the assessing authority to
treat the entire receipts of the appellantassessee from the three agreements
executed with GAIL as income from
house property and from other sources
and
not
as
business
income
for
assessment year 2006-07.

8. Sri Rahul Agarwal, learned
counsel for the assessee also contended
that even a solitary instance/ transaction
could constitute business so long as it was
established that intention of the assessee
784 INDIAN LAW REPORTS ALLAHABAD SERIES
was to earn profit while undertaking the
transaction and not with an object of
making an investment for keeping the
money
safe
or
earning
from
that
investment. He relied upon a Division
Bench judgment of this Court in Case of
CIT vs. Goel Builders 331 ITR 334
(All.), and which had considered the
distinction between income from house
property and income from business or
profession.

9. It was also contended that assesseeappellant had acquired the asset out of
borrowed funds, which normally would
indicate an intention to carry on business and
not profit from an investment. Counsel for the
assessee relied upon the decision of the
Constitution Bench of the Supreme Court in
case of Sultan Brothers Pvt. Ltd. Vs. CIT
[1964] 51 ITR 353 (SC), and also judgments
of the Apex Court in Universal Plast Ltd. vs.
Commissioner of Income Tax [1999] 237
ITR 454 (SC), Karnani Properties Ltd. vs.
Commissioner of Income Tax [1971] 82 ITR
547 (SC), Karanpura Development Co. Ltd.
vs. Commissioner of Income Tax [1962] 44
ITR 362 (SC).

10. Counsel for the assessee also
relied upon the decision of the Supreme
Court
in
Chennai
Properties
and
Investment Ltd. Vs. CIT [2015] 373 ITR
673 (SC). Relevant Para 11 is extracted
hereasunder:-

"11. We are conscious of the
aforesaid
dicta
laid
down
in
the
Constitution Bench judgment. It is for this
reason, we have, at the beginning of this
judgment, stated the circumstances of the
present case from which we arrive at
irresistible conclusion that in this case,
letting of the properties is in fact is the
business of the assessee. The assessee,
therefore, rightly disclosed the income
under the head "Income from business". It
cannot be treated as "Income from the
house property". We, accordingly, allow
this appeal and set aside the judgment of
the High Court and restore that of the
Income Tax Appellate Tribunal. No
orders as to costs."

11. Reliance has also been placed on
a judgment of the Division Bench of this
Court in case of Hotel Arti Delux (Pvt.)
Ltd. vs. Assistant Commissioner of
Income Tax [2014] 227 Taxman 119
(All.) wherein this Court held as under:-

"15. From the recital of the lease
deed it is evident that only the building was
leased out along with a lift, tubewell and
electrical fittings. These cannot be treated as
plant and machinery but would be treated as
amenities, which are necessary for the use of
any building. We find that the appellant had
not placed any material on record to show
that the building had peculiar amenities with
which the building could be treated as a
"plant" and not a building simplicitor. No
material has been brought on record to
indicate that the building had peculiar
amenities, which could be commercially
exploited such as facilities of sterilization of
surgical instruments and bandages or an
operation theatre. The Tribunal has given a
categorical finding of fact that the building
which was leased out by the appellant was
nothing else but a building simplicitor and
was not a building, which was equipped with
specialized plant and machinery. This being
a finding of fact, we are not inclined to
interfere in such findings, especially when
nothing has been brought on record to
indicate that the said finding was perverse.

16. We also find that the
appellant is not running the business of a
hospital and has only let out the building.
3 All. M/s Meeraj Estate & Developers Vs. Commissioner of Income Tax, Agra
785
We are of the opinion that the income
derived by the appellant was from the
ownership of the building and not from
the personal exertion, which is necessary
to treat the income as a business income."

12.

Further,
in
case
of
Commissioner
of
Income
Tax
vs.
Shambhu Investment (Pvt.) Ltd. [2001]
116 Taxman 795 (Calcutta) it was held
as under:-

"7.
Let
us
approach
the
problem from another angle by applying
the lest suggested by the five judges'
Bench in the case of Sultan Brothers Pvt.
Ltd. (supra). The three questions framed
by the apex court are applied in the
instant case as follows:

(A) Was it the intention in
making the lease-and it matters not
whether there is one lease or two, i.e.,
separate leases in respect of the furniture
and the building-that the two should be
enjoyed together ?

In the instant case there is
no separate agreement for furniture and
fixtures or for providing security and
other amenities. The only intention, in our
view, was to let out the portion of the
premises to the respective occupants.
Hence, the intention in making such
agreement is to allow the occupants to
enjoy the table space together with the
furniture
and
fixtures.
Hence,
this
question should be answered in the
affirmative.

(B) Was it the intention to
make the letting of the two practically one
letting?
From a plain reading of the agreement it
appears that the intention of the parties to
the
said
agreement
is
clear
and
unambiguous by which the first party has
allowed the second party to enjoy the said
table
space
upon payment
of
the
comprehensive monthly rent. Hence, this
question should be answered in the
affirmative.

(C) Would one have been
let alone, and a lease of it accepted,
without the other ?

As
we
have
discussed
hereinbefore that it is composite table
space let out to various occupants, the
amenities granted to those occupants
including the user of the furniture and
fixtures are attached to such letting out
and the last question, in view of the same,
must be answered in the negative.

Applying the said test we
hold that by the said agreement the
parties have intended that such letting out
would be an inseparable one.

8. Hence, we hold that the
prime object of the assessee under the
said agreement was to let out the portion
of the said property to various occupants
by giving them additional right of using
the furniture and fixtures and other
common facilities for which rent was
being paid month by month in addition to
the security free advance covering the
entire cost of the said immovable
property.

In view of the facts and law
discussed above we hold that the income
derived from the said property is an
income from property and should be
assessed as such."

13. In case of Raj Dadarkar and
Associates Vs. Assistant Commissioner
of Income Tax, [2017] 81 Taxmann.com
193 (SC), the Supreme Court held that
object clause contained in partnership
deed would not be conclusive factor in
determining whether the assessee carried
on business activity, and liable to be
786 INDIAN LAW REPORTS ALLAHABAD SERIES
assessed under the head 'income from
business.

14. Per contra, Sri Gaurav Mahajan,
learned
counsel
appearing
for
the
Department submitted that assessee had
let out vacant floor to GAIL and the
receipts from the same cannot be treated
as business income, as business is a
continuous and systematic activity carried
on by a person with a view to earn profit.
As per the first agreement the assessee
was not required to provide any day-today service or incur any day to day
expenses to receive the leased rent
receipt, which establishes the fact that
receipts are to be taxed income from
'house property' and not as income from
business or profession. Second agreement
was executed between the assessee and
GAIL to furnish the third floor of the
building as per requirement of GAIL,
meaning thereby that vacant floor which
was leased out was furnished and finished
and converted into office by the assessee.
This agreement was consequence of the
first agreement and was executed 14 days
later. The third agreement executed
between assessee and GAIL was in regard
to
maintenance
and
upkeeping
of
building/ floor, furniture and fittings and
other equipments installed and set up in
said premises, and further, only one
person was deputed to look after premises
and the income from the said agreement
should be treated as income under head
'income from other sources'.

15. He further submitted that in
income tax, each year is independent year
and in each year correct income is to be
assessed under the correct head, and any
mistake if committed cannot be allowed
to continue. Sri Mahajan vehemently
argued that mere statement of each of the
deed would not be determinative factor to
arrive at a conclusion that income is to be
treated from business and in present case
as there was no business activity being
carried out by the assessee and having
failed to produce any evidence, the
assessing authority as well as the Tribunal
rightly rejected the claim treating the
income as income from house property
and other sources and not from business
or profession.

16. We have heard learned counsel
for the parties and perused the material on
record.

17. The question which arises for
consideration is whether the property
acquired by the assessee and subsequently
entered into an agreement with GAIL and
the receipts at the hand of assessee
pursuant to the agreements is assessable
under the head 'income from business or
income from house property or income
from other sources'.

18. The contention of the assessee
hinges around two facts, firstly that AO
has already taken a view while making
assessment for the assessment year 200506 that income is assessable under the
head 'income from business' and therefore
maintaining consistency the Assessing
Officer should have not taken a different
view for the subsequent assessment year,
and the second ground of attack being
that the assessee firm is in the business of
real estate and allied activities and the
three
agreements
executed
were
supplemental and incidental to each other
and are part of one composite transaction
and should not be read in isolation,
further the property acquired by the
assessee was for letting, as such the same
being income from business and cannot
3 All. M/s Meeraj Estate & Developers Vs. Commissioner of Income Tax, Agra
787
be assessed under the heading 'income
from house property or income from other
sources'.

19. The first question raised by the
appellant-assessee
regarding
the
maintenance
of
consistency
by
the
assessing authority, the Tribunal had
recorded categorical finding in view of
the judgment of the Apex Court in case of
Bhart Sanchar Nigam Nigam Ltd. and
another vs. Union of India and others
[2006] 3 SCC 1, wherein the Court held
that res-judicata does not apply to tax
matters for different assessment years, the
relevant Paragraphs 20, 21, 22 are
extracted hereasunder:-

"20. The decisions cited have
uniformly held that res judicata does not
apply in matters pertaining to tax for
different assessment years because res
judicata applies to debar courts from
entertaining issues on the same cause of
action whereas the cause of action for
each assessment year is distinct. The
courts will generally adopt an earlier
pronouncement of the law or a conclusion
of fact unless there is a new ground urged
or a material change in the factual
position. The reason whey the courts have
held parties to the opinion expressed in a
decision in one assessment year to the
same opinion in a subsequent year is not
because of any principle of res judicata
but because of the theory of precedent or
the precedential value of the earlier
pronouncement. Where facts and law in a
subsequent assessment year are the same,
no authority whether quasi-judicial or
judicial can generally be permitted to
take a different view. This mandate is
subject only to the usual gateways of
distinguishing the earlier decision or
where
the
earlier
decision
is
per
incuriam. However, these are fetters only
on a coordinate Bench which, failing the
possibility of availing of either of these
gateways, may yet differ with the view
expressed and refer the matter to a Bench
of superior strength or in some cases to a
Bench of superior jurisdiction.

21.
In
our
opinion,
the
preliminary objection raised by the State
of U.P. therefore, rests on a faulty
premise. The contention of the appellantpetitioners in these matters is not that the
decision in State of U.P. v. Union of
India, (2003) 3 SCC 239 for that
assessment year should be set aside, but
that it should be overruled as an authority
or precedent. Therefore, the decisions in
Devilal Modi v. STO, (1965) 1 SCR 686
and in Hurra v. Hurra (2002) 4 SCC 388
are not germane.

22. A decision can be set aside
in the same lis on a prayer for review or
an application for recall or under Article
32
in
the
peculiar
circumstances
mentioned in Hurra v. Hurra. As we have
said, overruling of a decision takes place
in a subsequent lis where the prcedential
value of the decision is called in question.
No one can dispute that in our judicial
system it is open to a court of superior
jurisdiction or strength before which a
decision of a Bench of lower strength is
cited as an authority, to overrule it. This
overruling would not operate to upset the
binding nature of the decision on the
parties to an earlier lis in that lis, for
whom the principle of res judicata would
continue to operate. But in tax cases
relating to a subsequent year involving
the same issue as an earlier year, the
court can differ from the view expressed if
the case is distinguishable or per
incuriam. The decision in State of U.P. v.
Union of India related to the year 1988.
Admittedly, the present dispute relates to
788 INDIAN LAW REPORTS ALLAHABAD SERIES
a subsequent period. Here a coordinate
Bench has referred the matter to a large
Bench. This Bench being of superior
strength, we can, if we so find, declare
that that the earlier decision does not
represent the law. None of the decisions
cited by the State of U.P. are authorities
for the proposition that we cannot, in the
circumstances of this case, do so. This
preliminary objection of the State of U.P.
is therefore rejected."

20. The said decision was followed
by the Apex Court again in case of C.K.
Gangadharan
and
another
vs.
Commissioner of Income Tax, Cochin
[2008] SCC 739, while the counsel for
the appellant placed reliance upon the
decision of the Apex Court in case of
Radhasaomi Satsang vs. Commissioner
of Income Tax [1992] 1 SCC 659.
Relevant Paras 13 and 16 are extracted
hereasunder:-

"13. One of the contentions
which the learned senior counsel for the
assessee-appellant raised at the hearing
was that in the absence of any change in
the circumstances, the Revenue should
have felt bound by the previous decisions
and no attempt should have been made to
reopen the question. He relied upon some
authorities in support of his stand. A full
Bench of the Madras High Court
considered
this
question
in
T.M.M
Sankaralinga Nadar & Bros. & Ors, v.
CIT, 4 ITC 226 (Mad) (FB). After dealing
with the contention the Full Bench
expressed the following opinion:

"The
principle
to
be
deducted from these two cases is that
where the question relating to assessment
does not vary with the income every year
but depends on the nature of the property
or any other question on which the rights
of the parties to be taxed are based, e.g.,
whether a certain property is trust
property or not, it has nothing to do with
the fluctuations in the income; such
questions if decided by a Court on a
reference made to it would be res judicata
in that the same question cannot be
subsequentiy agitated."

16. We are aware of the fact
that strictly speaking res judicata does
not apply to income-tax proceedings.
Again, each assessment year being a unit,
what is decided in one year may not apply
in the following year but where a
fundamental aspect permeating through
the different assessment years has been
found as a fact one way or the other and
parties have allowed that position to be
sustained by not challenging the order, it
would not be at all appropriate to allow
the position to be changed in a
subsequent year."

21. From the reading of the
judgment of the Apex Court, it is clear
that the judgment relied by the assessee in
case of Radhasaomi Satsang (supra) was
dealt by the Apex Court in the case of
BSNL (supra) and Supreme Court held
that principal of res-judicata does not
apply in matter pertaining to tax for
different assessment years, because resjudicata applies to debar courts from
entertaining issues on the same cause of
action, whereas cause of action for each
assessment year is distinct. In the case in
hand, the AO for assessment year 200506 had accepted claim of the assessee
without examining relevant records, as
well as without recording any finding on
the
issue
in
question.
Thus,
for
subsequent year, the claim of assessee
cannot be accepted without examining
records and material, and AO after
examining the records came to conclusion
3 All. M/s Meeraj Estate & Developers Vs. Commissioner of Income Tax, Agra
789
and took a view that receipts at the hand
of assessee was to be assessed under
income from house property and income
from other sources and not business
income. In Commissioner of Income Tax
vs. British Paints India Ltd., Supreme
Court while interpreting Section 145 of
the Act held that even if the assessee had
adopted a regular system of accounting, it
was the duty of the Assessing Officer to
consider whether correct profits and gains
would be deduced from the account so
maintained.
Relevant
portion
are
extracted hereasunder:-

"Section 145 of the Income Tax
Act, 1961 confers sufficient power upon
the officer-nay it imposes a duty upon
him-to make such computation in such
manner as he determines for deducing the
correct profits and gains. This means that
where accounts are prepared without
disclosing the real cost of the stock-intrade, albeit on sound expert advice in the
interest of efficient administration of the
company, it is the duty of the Income Tax
Officer to determine the taxable income
by making such computation as he thinks
fit.

Any system of accounting which
excludes, for the valuation of the stock-intrade, all costs other than the cost of raw
materials for the goods-in-process and
finished products, is likely to result in a
distorted picture of the true state of the
business for the purpose of computing the
chargeable income. Such a system may
produce a comparatively lower valuation
of the opening stock and the closing stock,
thus
showing
a
comparatively
low
difference between the two. In a period of
rising turnover and rising prices, the
system adopted by the assessee, as found
by the Tribunal, is apt to diminish the
assessment of the taxable profit of a year.
The profit of one year is likely to be
shifted to another year which is an
incorrect method of computing profits
and gains for the purpose of assessment.
Each year being a self-contained unit,
and the taxes of a particular year being
payable with reference to the income of
that year, as computed in terms of the Act,
the method adopted by the assessee has
been found to be such that the income
cannot properly be deduced therefrom. It
is, therefore, not only the right but the
duty of the Assessing Officer to act in
exercise of his statutory power, as he has
done in the instant case, for determining
what, in his opinion, is the correct taxable
income."

22. Thus, a conspicuous glance of
judgments of the Apex Court in case of
Radhasaomi Satsang (supra), BSNL
(supra) as well as British Paints India
Ltd. (supra) it has been constant view that
question of res-judicata does not apply in
tax proceedings, while each assessment
year being a unit, what is decided in one
year may not apply in following years,
but
where
a
fundamental
aspect
permeating through different assessment
years has been found as a fact one way or
the other, and parties have allowed that
position
to
be
sustained
by
not
challenging the order, it would not be at
all appropriate to allow the position to be
changed in subsequent year, unless there
was a material change justifying the
revenue to take different view.

23. In the present case, the AO
found sufficient materials and changes in
the year under consideration, as he after
examining
the
relevant
clauses
of
agreements formed an opinion that the
property was taken on lease for giving it
on rent to GAIL. Further, Section 2(13)
790 INDIAN LAW REPORTS ALLAHABAD SERIES
defines business, which includes any
trade, commerce or manufacture or
adventure or concerned in the nature of
trade, commerce or manufacture. In the
present case no business activity was
being carried out by the assessee as
business is a continuous and systematic
activity carried on with a view to earn
profit.

24. Further, the records of the
assessee revealed that only one person
was employed, which cannot go on to
establish the fact that any business
activity was being carried out by the
appellant, and the premises was only let
out to GAIL pursuant to the agreement
and was thus rightly assessed by the
Assessing Officer under the heading
'income from house property and income
from other sources'.

25. Now adverting to the second
question, whether the assessing authority
was justified in treating the receipt of the
appellant-assessee as income from house
property and income from other sources
other than income from business on the
basis of partnership deed which defines
object of the firm as to the business
activity of real estate, letting and subletting of the properties and further, upon
the agreement so entered by it with GAIL.

26. The constitution Bench of the
Apex Court in case of Sultan Brothers
Pvt. Ltd. vs. CIT, [1964] 51 ITR 353 (SC)
had the occasion to consider whether the
letting of a building fitted with furniture
and fixtures and income derived from
lease, would be income from business or
income from property as well as income
from other sources. The Apex Court held
that merely by providing in the object
clause that any activity was in regard to
acquiring the land and building, as well as
furnishing and maintaining it and also by
leasing the same, would not be assumed
as carrying on business activity. Relevant
portion are extracted hereasunder:-

"A very large number of cases
was referred to in support of this
contention but it does not seem to us that
much assistance can be derived from
them. Whether a particular letting is
business has to be decided in the
circumstances of each case. We do not
think that the cases cited lay down a test
for deciding when a letting amounts to a
business. We think each case has to be
looked at from a businessman's point of
view to find out whether the letting was
the doing of a business or the exploitation
of his property by an owner. We do not
further think that a thing can by its very
nature
be
a
commercial
asset.
A
commercial asset is only an asset used in
a business and nothing else, and business
may be carried on with practically all
things. Therefore it is not possible to say
that a particular activity is business
because it is concerned with an asset with
which trade is commonly carried on. We
find nothing in the cases referred, to
support the proposition that certain assets
are commercial assets in their very
nature.

The object of the appellant
company no doubt was to acquire land
and buildings and to turn the same into
account
by
construction
and
reconstruction,
decoration,
furnishing
and maintenance of them and by leasing
and selling the same. The activity
contemplated in the aforesaid object of
the company, assuming it to be a business
activity, would not by itself turn the lease
in the present case into a business deal.
That would follow from the decision of
3 All. M/s Meeraj Estate & Developers Vs. Commissioner of Income Tax, Agra
791
this Court in East India Housing and
Land
Development
Trust
Ltd.
v.
Commissioner of Income-tax where it was
observed that "the income derived by the
company from shops and stalls is income
received from property and falls under
the specific head described in Section 9.
The character of that income is not
altered because it is received by a
company formed with the object of
developing and setting up markets."

Now the cases on which learned
counsel for the appellant specially relied
were cases of the letting out of plant and
machinery, in some instances along with
the factory buildings in which they had
been housed. In all of them, except one,
which we will presently mention, the
assessee had previously been operating
the factory or mill as a business and had
only temporarily let it out as it was not
convenient for him at the time to carry on
the business of running the mill or
factory. In these circumstances, it was
held that by letting out the plant,
machinery and building the assessee was
still conducting a business though not the
business of running the mill or factory.

Learned
counsel
for
the
appellant also relied on certain clauses in
the
lease
and
a
clause
in
the
memorandum of the appellant company to
show that the lease amounted to the
carrying on of a business. We shall now
turn to these provisions. Clause 3(b) of
the memorandum gave power to the
appellant to manage land, buildings, and
other property and to supply the tenants
and
occupiers
thereof
refreshment,
attendants, messengers, light, waitingroom, reading room, meeting, room,
libraries, laundry convenience, electric
conveniences, lifts, stables and other
advantages. The contention was that this
cause in the memorandum gave the
appellant a power to carry on a business
of the nature of running a hotel. We do
not think, it did. But in any case, by the
lease none of the objects mentioned in
this clause was sought to be achieved. We
find nothing in the lessor's covenants to
some of which we were referred to bring
the matter within clause 3(b) of the
memorandum. None of these clauses
support the contention that by granting
the lease, the appellant did anything like
carrying on the business of running a
hotel. Thus clause (a) is a covenant for
quiet enjoyment. Clause (b) provides for a
renewal of the lease of the demised
premises being granted to the lessee for a
further term of six years at his request.
Clause (c) deals with payment of
municipal bills and similar charges and
ground rent. Clause (d) provides that the
lessor shall during the continuance of the
lease and on its renewal provide various
things which included furniture, pillows,
mattresses, gas-stoves, bottle coolers,
refrigerators, lift, electric fittings and the
like and also paint the outside of the
building with oil once in five years and
keep the building insured. These are
ordinary covenants in a lease of a
furnished building. These do not at all
show that the lessor was rendering any
service in the hotel business carried on by
the lessee or in fact doing any business at
all. On the facts of this case we are
unable to agree that the letting of the
building amounted to the doing of a
business. The income under the lease
cannot, therefore be assessed under
section 10 of the Act as the income of a
business."

27. In case of Universal Plast Ltd.
vs. Commissioner of Income Tax [1999]
237 ITR 454 (SC), the Apex Court
considering the question of leasing out of
792 INDIAN LAW REPORTS ALLAHABAD SERIES
asset of the business would be income
from business or not, the Court held as
under:-