IN THE HIGH COURT OF HIMACHAL PRADESH, SHIMLA ITA No.3 of 2005. Judgment Reserved on:24.06.2011. Decided on: September 07, 2011. M/s.Asia Resorts Ltd. ..Appellant. Versus Commissioner Income Tax(Central) ..Respondent. Coram The Hon’ble Mr. Justice R.B.Misra, Judge. The Hon’ble Mr.Justice Surinder Singh, Judge. Whether approved for reporting?1. Yes. For the Appellant: Mr.K.D.Sood, Advocate with Mr.SanjeevSood & Mr.Sandeep Pandey, Advocates. For the Respondent: Mr.Vinay Kuthiala, Advocate with Mr.Gaurav Sharma, Advocate. Justice R.B.Misra, Judge. The present appeal has been preferred under Section 260A of the Income Tax Act, 1961 (in short ‘IT Act’) against the judgment and order dated 6.4.2004 of the Income Tax Appellate Tribunal, Chandigarh Bench, Chandigarh ( in short ‘ITAT’) passed in Miscellaneous Application 91/Chandi/03 preferred in ITA No.219/CHD/2002 pertaining to the assessment year 1997-98 thereby reviewing its earlier order. 1 Whether the reporters of the local papers may be allowed to see the Judgment? …2… 2. The present appeal, in question, has been admitted for consideration on the following substantial questions of law:- (A) Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified in modifying its earlier order. (B) Whether on the facts and in the circumstances of the case the findings of the Income Tax Appellate Tribunal in accepting the ‘Miscellaneous Petition for rectification’ of the department are wrong and perverse. (C) Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified in holding that there is a mistake apparent from the record committed in its earlier order and thus liable for rectification. (D) Whether on the facts and in the circumstances of the case, the action of Income Tax Appellate Tribunal amounts to review of its earlier order passed after due deliberations to the past history, legal provisions, judicial pronouncements and due application of mind, and thus impermissible under the provisions of the Income Tax Act, 1961. (E) Whether on the facts and in the circumstances of the case, once the ITAT had granted a relief vide order passed under Section 254 (1) of the Income Tax Act, 1961 to the appellant which he was entitled as per law, was it justified in …3… imposing unlawful taxes on appellant by way of rectification on the technical ground that it cannot grant such relief, when there is no dispute as such to the legality, genuineness and correctness of the tax treatment to the receipts under dispute. (F) Whether on the facts and in the circumstances of the case the order of Income Tax Appellate Tribunal was self contradictory vis-à-vis paras 11, 17 and 16 thereof, justifying the alleged review / rectification. 3. In order to adjudicate the above substantial questions of law, it is necessary to give brief history of the case. The appellant is running various Resorts at various places and is offering the occupation of the various huts / flats / suites to the public on ‘time sharing basis’ for different time period, against the payment of different quantum of charges, called fee, payable in lump-sum and once for all. Against such allotment of time sharing the appellant retains the liability to provide the agreed type of accommodation and other services / facilities, as per the written agreement arrived at the time of allotment of such time sharing occupation for whole of the period of the scheme called lease period. During the period relevant to the assessment year under appeal the appellant had received a total fee on account of sale of such time sharing periods of `1,27,81,072/- from 459 members, out of whom only 249 …4… members had paid full amount of the time share amounting to `54,68,088/-. During the course of assessment proceedings the Assessing Officer (in short ‘AO’), after referring to the assessment of another assessee, namely, M/s.Sterling Resorts, carrying the same business like the appellant, came to the conclusion that 45% of the total receipts were attributable to appellant’s liability to provide stay to the members and, therefore, was attributable to the fixed assets such as building and other infrastructure which the appellant had permanently acquired and consequently considered that 45% part of the receipts as capital receipts liable to be adjusted against the cost of such permanent assets. The appellant agreed to this conclusion of the ‘AO’ and consequently 45% of the receipts were considered as capital receipts and were adjusted against the building cost. The balance 55% was considered as revenue receipt, attributable to the appellant’s liability for whole of the period of lease i.e. for 99 years; and, therefore, only 1/99th part of 55% of the receipts was considered as revenue receipt for the assessment year under appeal. 4. The order for the assessment year 1997-98 was passed on 29.2.2000 (Annexure A-2), however, the appellant was served with a notice (Annexure A-3) dated 18.3.2002 under Section 263 of the ‘IT Act’ by the Commissioner of Income Tax (Central) (for short ‘CIT’) who after considering the objections of …5… the appellant vide its order dated 28.3.2000 (Annexure A-4) set aside the assessment order, treating the whole of the receipt taxable in the year when the membership fee was received, thereby treating the verdict of ‘AO’ erroneous and prejudicial to the interest of the revenue and giving direction to ‘AO’ to make it de novo. Being aggrieved, appellant preferred an appeal i.e. ITA No.219/Chandi/2002, which too was disposed of by ‘ITAT’ vide its order dated 11.3.2003 with directions and observations. 5. The respondent / revenue, being aggrieved, filed an appeal before this Court, namely, ITA No.40 of 2003 which is pending adjudication. The respondent / CIT (Central) preferred a miscellaneous petition under Section 254 (2) of ‘IT Act’ before ‘ITAT’ for rectification of its earlier order dated 11.3.2003. The said application of Commissioner / revenue was allowed by ‘ITAT’ vide impugned order dated 6.4.2004, reviewing / rectifying its earlier order. 6. The ‘CIT’ in Para-3 of his notice dated 18.3.2002 / (Annexure A-3) has mentioned as below:- “Even otherwise the non-refundable fees received from the member is constituted of 2 parts – one is towards the free stay in the hotel and the other is for other facilities agreed to be provided. As regards the stay, the infrastructure is already in existence and on which the assessee is claiming depreciation. The fee towards this, which of course is to be estimated and in this case has been estimated at 45% has accrued for good and against which there is no recurring liability. As regards the second part, which again is a …6… revenue receipt but is fasten with a recurring liability the same can be regarded as belonging to the entire period.” 7. The ‘CIT’ in its order dated 28.3.2002 / (Annexure A-4) discussed in brief about the treatment of 45% of the receipts treated by ‘AO’ to be of capital in nature and held the same to be of revenue in nature (as originally treated by assessee in his return) but in addition thereto held that the same should be treated as taxable fully in the year of receipt. While concluding his order, the ‘CIT’ considered the whole receipt as taxable in the year of receipt and directed the ‘AO’ accordingly. As such, ‘CIT’ has not only travelled against his own notice rather contradicted his opinion as indicated in his notice regarding rest of 55% receipt which he in his notice agreed to be fastened with a recurring liability and pertaining to whole period of membership. 8. ‘ITAT’ in its order dated 11.3.2003 / (Annexure A-6) dealt with all the issues. The relevant extract is given as below:- “(A) Regarding 45% share: (‘AO’ treated such share as capital receipt and reduced the same from ‘Block of Assets’ but ‘CIT’ treated it as revenue taxable wholly in the year of receipt). (i) ‘ITAT’ has analyzed the issue in Paragraph-10 of its order and observed in Paragraph-11 as below: - “11. After having considered the rival submission and the facts and circumstances of the case and various decisions, …7… we are of the opinion that so far as ‘AO’s reliance on the assessment order of M/s.Sterling Resorts for attributing 45% of the receipts towards fixed assets and considering the sum as of capital nature is concerned, the assessment order of M/s.Sterling Resorts is really silent on this point. We have no option but to accept the submission of Ld. Departmental Representative that the actions of ‘AO’ considering 45% of the receipts as of capital nature by relying on assessment order in case of M/s.Sterling Resorts was misplaced and had rendered the assessment order to that extent erroneous in nature. Further, this erroneousness having resulted in loss to the revenue, the assessment to that extent was erroneous so as to be prejudicial to the interest of the revenue. We, therefore, uphold the validity of order u/s 263 to that extent, though subject to our further findings on the issue.” (Emphasis by appellant). (ii) In Paragraph-16 of its order, ‘ITAT’ further indicated in continuation to his observations made in Paragraph-11 (above). The contents of Paragraph-16 read as under:- “16. Coming to the 45% part of the receipts, which has been considered by the Commissioner not only as revenue nature but also as income in the current year alone, we, so far as the revenue nature is concerned, have already upheld the order of Commissioner (Para 10), but so far as the period to which the receipts relate is concerned, we are, in view of the revenue’s own stand in assessee’s own case for assessment year 1996-97 and the fact that there is no provision of law to support the Commissioner’s stand that 45% of the receipts were relatable to ‘stay part’ of the agreement and assessee has no recurring liability on that account nor such a presumption of the Commissioner is sustainable on facts because even if it is made relatable to the ‘stay part’ of the agreement then also the assessee is bound to have recurring liability in future such as …8… repair, maintenance, renovation, replacement and safety of the infrastructure for 99 years, are of the opinion that there is no justification for segregating the receipts being relatable and part of a composite agreement applicable to the whole of the period of lease and assessee’s liability being to fulfill the terms and conditions of the agreement throughout the period of lease, such an opinion of the Commissioner which is otherwise also is not supported by facts or in law cannot be sustained.” (iii) In Paragraph-17 of its order, ‘ITAT’ has observed as under:- “17. In view of the above discussion, we are unable to uphold the view expressed by Commissioner on this point and therefore, we modify his directions to the effect that the 45% of the receipts are relatable to the whole of the period of lease which may be 33 years or 49 years or 99 years as the case may be and therefore the 45% part of the whole receipts may also be dealt with in the same manner (taxed) by the ‘AO’ as the balance 55% of the receipts has been dealt with (taxed).” (B) Regarding 55% share: To appreciate the tax treatment given to balance 55% of the receipts, following aspects need attention:- (a) ‘A.O.’ in his order has accepted the treatment of spreading the receipts over the years of membership tenure. (b) ‘CIT’ sought to tax it fully in the year of receipt. (c) ‘ITAT’, in Para-13 of its order set aside the order of ‘CIT’ and has observed in Paragraph-13.2 as under:- “Following the decision of the Hon’ble High Court, we are of the opinion that Commissioner’s decision to consider the 55% portion of the receipts as income of the current year, instead of considering the same as for 99 years is …9… contrary to his intention with which he initiated the proceedings u/s 263 of the Act and therefore, the same is bad in law and liable to be struck down. Respectfully following the decision of the Hon’ble High Court of Punjab & Haryana and in the facts and circumstances of the case we strike that portion of the order u/ s 263 of the Act, i.e. the findings of the Commissioner, relating to consideration of 55% of the receipts as income for current year are set aside / deleted.” 9. The modification / rectification sought by revenue in the order dated 11.3.2003 (Annexure A-6) of ‘ITAT’ by way of MA No.91/Chandi/03 (Annexure A-5) are mainly on the grounds given as follows:- (i) The order of ‘ITAT’ is self contradictory: As in Para-11 of its order ‘ITAT’ is contradictory to Para-17, whereas, in Para-11, ‘ITAT’ has confirmed the order of ‘CIT’ in treating the 45% portion as revenue but in Para-17 it has directed that the same should not be taxed fully in the year of receipt as contended by Commissioner but be taxable proportionately over the period of lease / agreement. (ii) ‘ITAT’ cannot grant relief more than that claimed for: As the appellant during assessment had agreed to treat 45% portion of receipts from time sharing scheme as capital and deductible from Block of Assets, but ‘ITAT’ in its initial order held that the same should be treated as taxable proportionately over the years of lease / agreement, by which …10… means the appellant got more relief than that agreed to in assessment. (iii) ‘ITAT’ cannot comment on years not under appeal: In Para-19, ‘ITAT’ has given its opinion even for the tax treatment of future years which is not in its domain. 10. In order to appreciate the true controversy, it is necessary to give the extract of the provisions of relevant Sections of ‘IT Act’:- Section 254: Orders of Appellate Tribunal. (1) The Appellate Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit. (2) The Appellate Tribunal may, at any time within four years from the date of the order, with a view to rectifying any mistake apparent from the record, amend any order passed by it under sub-section (1) and shall make such amendment if the mistake is brought to its notice by the assessee or the Assessing Officer: Provided that an amendment which has the effect of enhancing an assessment or reducing a refund or otherwise increasing the liability of the assessee, shall not be made under this sub-section unless the Appellate Tribunal has given notice to the assessee of its intention to do so and has allowed the assessee a reasonable opportunity of being heard : Provided further that any application filed by the assessee in this sub-section on or after the 1st day of …11… October, 1998, shall be accompanied by a fee of fifty rupees. (2A) In every appeal, the Appellate Tribunal, where it is possible, may hear and decide such appeal within a period of four years from the end of the financial year in which such appeal is filed under sub- section (1) of section 253. Provided that the Appellate Tribunal may, after considering the merits of the application made by the assessee, pass an order of stay in any proceedings relating to an appeal filed under sub-section (1) of Section 253, for a period not exceeding one hundred and eighty days from the date of such order and the Appellate Tribunal shall dispose of the appeal within the said period of stay specified in that order: Provided further that where such appeal is not so disposed of within the said period of stay as specified in the order of stay, the Appellate Tribunal may, on an application made in this behalf by the assessee and on being satisfied that the delay in disposing of the appeal is not attributable to the assessee, extend the period of stay, or pass an order of stay for a further period or periods as it thinks fit; so, however, that the aggregate of the period originally allowed and the period or periods so extended or allowed shall not, in any case, exceed three hundred and sixty five days and the Appellate Tribunal shall dispose of the appeal within the period or periods of stay so extended or allowed: Provided also that if such appeal is not so disposed of within the period allowed under the first proviso or the period or periods extended or allowed under the second proviso, which shall not, in any case, exceed three hundred and sixty five days, the order of stay shall stand vacated after the expiry of such period or periods, even if the delay in disposing of the appeal is not attributable to the assessee. …12… (2B) The cost of any appeal to the Appellate Tribunal shall be at the discretion of that Tribunal. (3) The Appellate Tribunal shall send a copy of any orders passed under this section to the assessee and to the Commissioner. (4) Save as provided in section 256 or section 260A, orders passed by the Appellate Tribunal on appeal shall be final.” Section 260A of the ‘IT Act’ reads as below:- “(1) An appeal shall lie to the High Court from every order passed in appeal by the Appellate Tribunal, if the High Court is satisfied that the case involves a substantial question of law. (2) The Chief Commissioner or the Commissioner or an assessee aggrieved by any order passed by the Appellate Tribunal may file an appeal to the High Court and such appeal under this sub - section shall be - (a) filed within one hundred and twenty days from the date on which the order appealed against is received by the assessee or the Chief Commissioner or Commissioner. (b) xx xxx xxx (c) In the form of a memorandum of appeal precisely stating therein the substantial question of law involved. (2A) The High Court may admit an appeal after the expiry of the period of one hundred and twenty days referred to in clause (a) of sub-section (2), if it is satisfied that there was sufficient cause for not filing the same within that period. (3) Where the High Court is satisfied that a substantial question of law is involved in any case, it shall formulate that question. …13… (4) The appeal shall be heard only on the question so formulated, and the respondents shall at the hearing of the appeal, be allowed to argue that the case does not involve such question : Provided that nothing in this sub-section shall be deemed to take away or abridge the power of the Court to hear, for reasons to be recorded, the appeal on any other substantial question of law not formulated by it, if it is satisfied that the case involves such question. (5) The High Court shall decide the question of law so formulated and deliver such judgment thereon containing the grounds on which such decision is founded and may award such cost as it deems fit. (6) The High Court may determine any issue which – (a) Has not been determined by the Appellate Tribunal : or (b) Has been wrongly determined by the Appellate Tribunal, by reason of a decision on such question of law as is referred to in sub-section (1) (7) Save as otherwise provided in this Act, the provisions of the Code of Civil Procedure, 1908 (5 of 1908), relating to appeals to the High Court shall, as far as may be, apply in the case of appeals under this section.” Section 263 of the ‘IT Act’ reads as below: “(1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interest of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying …14… the assessment, or cancelling the assessment and directing a fresh assessment. Explanation : For the removal of doubts, it is hereby declared that, for the purposes of this sub-section, - (a) An order passed on or before or after the 1st day of June, 1988 by the Assessing Officer shall include – (i) An order of assessment made by the Assistant Commissioner or Joint Commissioner or the Income-tax Officer on the basis of the directions issued by the Deputy Commissioner under section 144A; (ii) An order made by the Joint Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer conferred on, or assigned to, him under the orders or directions issued by the Board or by the Chief Commissioner or Director General or Commissioner authorised by the Board in this behalf under section 120; (b) "Record" shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the Commissioner; (c) Where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the Commissioner under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal. (2) No order shall be made under sub-section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed. (3) Notwithstanding anything contained in sub-section (2), an order in revision under this section may be passed at any time in the case of an order which has been passed in …15… consequence of, or to give effect to, any finding or direction contained in an order of the Appellate Tribunal, the High Court or the Supreme Court. Explanation : In computing the period of limitation for the purposes of sub-section (2), the time taken in giving an opportunity to the assessee to be reheard under the proviso of section 129 and any period during which any proceeding under this section is stayed by an order or injunction of any court shall be excluded.” 11. The following submissions have been made on behalf of the appellant:- (i) ‘ITAT’ has erred in reviewing / rectifying in its order in the garb of error apparent on the record, moreso, when earlier order was passed by ‘ITAT’ after due deliberation and elaboration over the subject matter; (ii) ‘ITAT’ has erred in carrying out rectification in its order on the misconception regarding its power to comment upon ‘future tax implications’ of the ‘receipts of year under appeal’, confusing it with the power to comment upon ‘tax implications’ of the ‘receipts of future years’, meaning thereby the revenue receipt of 55% was to be spread over as income as per the scheme/agreement with each customer i.e. 33, 49 or 99 years as the case may be, so much so, it was imperative to mention that the remaining part of 55% pertaining to future years would be taxed proportionately in such future years. Whereas, there was no recommendation about the taxability of the receipts of subsequent years and same was wrongly understood by the revenue, and thus to this extent the filing of Miscellaneous Petition was …16… misconceived as such the orders passed in pursuance thereof is erroneous; (iii) ‘ITAT’ has passed its initial order after a long discussion and thorough analysis of the subject matter and thus has erred in carrying out review of a debatable issue in the garb of rectification, which is impermissible as per observations of Hon’ble Supreme Court made in T.S. Balaram, I.T.O Company Circle IV versus Volkart Brothers &others (1971) 82 ITR 50 (SC). 12. In support of the above contentions, following submissions have also been advanced:-