Case: Commissioner Of Income Tax, Cochin Vs. M/S. Travancore Cochin

2. Few facts need to be mentioned infra to appreciate the short controversy involved in the appeal.The respondent is an assessee under the Income Tax Act. The State Government, in the year 1965, acquired the land measuring 46.79.250 acres in Varapuzha Village (now Eloor Village) of Parur Taluk, District Ernakulum. Out of the acquired land, the State allotted 43.45.250 acres of land to the respondent for setting up of the factory.By order (G.O. Ms. 576/88/RD) dated 25.06.1988,the State Government fixed the lease rent of the demised land payable by the respondent to the State. The respondent felt aggrieved of the fixation of the lease rent made by the State as, according to them, it was on higher side. The respondent, therefore, objected to the fixation made by the State Government vide order dated 25.06.1988 and prayed for its suitable reduction. By order dated 07.11.1991, the State Government rejected the respondents request and maintained the order dated 25.06.1988 which had originally fixed the lease rent.It is with these background facts, the respondent filed their Income Tax Return for the Assessment YearIn the Return, the respondent claimed deduction of accumulated lease rent amounting to Rs.The Assessing Officer by order dated 28.02.1995 while dealing with the claim in question disallowed the deduction claimed by the respondent. In his opinion, such deduction could not be claimed in the Assessment YearThe respondent, felt aggrieved of the disallowance, filed appeal before the Commissioner of Income Tax (Appeals) II, Cochin. In appeal, the contention of the respondent (assessee) was that they claimed the deduction of the lease rent amountin the Assessment Yearbecause, according to them, the lease rent issue was sub judice with the State at the instance of the respondent wherein the order dated 25.06.1988 passed by the State was challenged seekingand reduction in the lease rent. It was contended that the State eventually decided the issue on 07.11.1991 and maintained their earlier order dated 25.06.1988. The respondent, therefore, claimed deduction of the said amountin the Assessment Yearno sooner the issue in relation to fixation of lease rent was finally decided by the State.The CIT (appeal) by order dated 30.06.1995 did not agree with the explanation given by the respondent and accordingly dismissed their appeal and confirmed the order of the Assessing Officer by upholding the disallowance. He also held that the liability to claim deduction was accrued to the respondentin the Assessment Yearitself for two reasons, first, the respondent follows the mercantile system of accountancy and second, the lease rent had been fixed by the State on 25.06.1988. It was accordingly held that since the respondent though was in a position to claim deduction of the lease rentin the Assessment Yearand yet failed to claim, it was not permissible for them to claim in future Assessment YearIt was without any legal basis.The respondent, felt aggrieved, carried the matter in second appeal before the Tribunal. By order dated 13.09.1999, the Tribunal allowed the respondents appeal and set side the orders of assessing authority and CIT (appeal). It was held that since the respondent was following the mercantile system of accountancy and the liability in relation to the rent in question though accrued inwas in dispute before the State Government, the same could be claimed only in that Assessment Year wherein the dispute was settled by the State. It was noted that the dispute was settled by the State Government by rejecting the respondents prayer to revise the rent on 07.11.1991. The deduction in respect of lease rent therefore could be claimedin the Assessment YearThe Tribunal accordingly allowed the deduction claimed by the respondentin the Assessment YearThe Revenue, felt aggrieved, filed appeal before the High Court. By impugned order, the High Court dismissed the Revenues appeal and affirmed the order of the Tribunal, giving rise to filing of the appeal by the Revenue.

Reasoning:
13. Having heard the learned counsel for the parties at length and on perusal of the record of the case, we are of the view that having regard to the nature of issue involved which is a mixed question of law and fact, it would be just and proper to remand the case to the Tribunal for deciding the issue afresh on merits.The need to remand the case to the Tribunal, has occasioned because firstly, the question as to whether the fixation of rent and its payment is statutory or contractual and, if so, its effect while claiming deduction under the Income Tax Act and, if so, in which year of assessment is a mixed question of law and fact. Secondly, it was neither decided by any of the authorities below and nor by the Tribunal and the High Court. It may be that since the Revenue itself did not raise it before the authorities below and raised it for the first time before this Court by simply placing reliance on the provisions of the Act and the two Rules mentioned above, this Court cannot decide the same in this appeal, for the first time for want of factual material and legal issues attached to it.In our considered opinion, in order to decide the issue of deduction, the nature of fixation of rent, its payment, recovery etc. and whether it is statutory or contractual, has some bearing over the question. It is also clear that the respondent did not get any chance to meet this submission before the courts/authorities below. It is for these reasons, we are of the view that the matter needs to be remanded to the Tribunal for its proper adjudication.The Tribunal being the last adjudicatory authority in hierarchy on facts would be in a better position to decide the issue after taking into account the documents filed by the parties in support of their respective contentions. Depending upon the decision of the Tribunal, the parties can carry the matter to the higher Courts.We, therefore, at this stage refrain from expressing any opinion on the merits of the case and nor consider it proper to record any finding on the submissions urged either way except to record the submissions of the parties for appreciating the issues urged and leave it to the Tribunal to decide, its applicability and relevancy in accordance with law.