REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL No.2015 OF 2007

Commissioner of Income Tax Cochin ….Appellant(s)

VERSUS

M/s Travancore Cochin Udyoga Mandal                     …Respondent(s)

J U D G M E N T

Abhay Manohar Sapre, J.

1) This appeal is filed by the Revenue against the

final judgment and order dated 20.05.2005 passed

by  the  High  Court  of  Judicature  of  Kerala  at

Ernakulam  in  ITA  No.  166  of  2000  whereby  the

High  Court  dismissed  the  appeal  filed  by  the

appellant  herein  holding  that  the  claim  for

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deduction  of  lease  rent  made  by  the  respondent

(assessee) in their Income Tax Return is allowable in

that assessment year wherein the dispute relating

to  lease  rent  has  attained finality  and not  in  the

assessment year wherein the lease rent was fixed by

the Government.

2) Few  facts  need  to  be  mentioned  infra to

appreciate  the  short  controversy  involved  in  the

appeal.

3) 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.  

4) By  order  (G.O.  Ms.  576/88/RD)  dated

25.06.1988, (Annexure-P-1), the State Government

fixed the lease rent of the demised land payable by

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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 respondent's request and

maintained the order dated 25.06.1988 which had

originally fixed the lease rent.

5) It  is  with  these  background  facts,  the

respondent  filed  their  Income  Tax  Return  for  the

Assessment  Year  1992-93.  In  the  Return,  the

respondent claimed deduction of accumulated lease

rent  amounting  to  Rs.97,69,077/-.  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

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Year 1992-93 but it  could be claimed only in the

Assessment Year 1989-90.  

6) The  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 amount

(Rs.97,69,077/-)  in  the  Assessment  Year  1992-93

because,  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  seeking

re-fixation and 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  amount  in  the

Assessment  Year  1992-93 no  sooner  the  issue  in

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relation to fixation of lease rent was finally decided

by the State.

7) 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

respondent in the Assessment Year 1989-90 itself

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 rent in the Assessment Year

1989-90  and  yet  failed  to  claim,  it  was  not

permissible for them to claim in future Assessment

Year (1992-93).  It was without any legal basis.

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8) The  respondent,  felt  aggrieved,  carried  the

matter  in  second  appeal  before  the  Tribunal.  By

order  dated 13.09.1999,  the  Tribunal  allowed the

respondent's  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 in

1989-90  was  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

respondent's  prayer  to  revise  the  rent  on

07.11.1991.  The deduction in respect of lease rent

therefore could be claimed in the Assessment Year

1992-93.  The  Tribunal  accordingly  allowed  the

deduction  claimed  by  the  respondent  in  the

Assessment Year 1992-93

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9) The Revenue, felt aggrieved, filed appeal before

the High Court. By impugned order, the High Court

dismissed  the  Revenue's  appeal  and  affirmed  the

order  of  the  Tribunal,  giving  rise  to  filing  of  the

appeal by the Revenue.

10) Heard Mr.  K.  Radhakrishnan,  learned  senior

counsel for the appellant and Mr. Ritin Rai, learned

counsel for the respondent.

11) Mr. K. Radhakrishnan, learned counsel for the

appellant (Revenue) while assailing the legality and

correctness of  the impugned order contended that

the liability in regard to fixation of lease rent by the

respondent to the State was essentially a statutory

liability because according to learned counsel it was

determined,  fixed,  payable  and  lastly  recoverable

under  the   Kerala  Land  Assignment  Act,  1960

(hereinafter referred to as “the Act”) read with two

Rules framed in exercise of powers conferred under

Sections 3 and 7 of the Act called, “The Kerala Land

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Assignment  Rules  1964”  and  “The  Rules  for

Assignment  of  Government  Land  for  Industrial

Purposes” (hereinafter referred to as "the Rules"). It

was,  therefore,  his  submission  that  since  the

liability to determine, fix, pay and recover the lease

rent  is  a  statutory  in  nature  and  secondly,  the

respondent  is  following  mercantile  system  of

accountancy in their business for paying the taxes,

the liability to pay such dues once accrued, which

in  this  case  was  accrued  on  25.06.1988,  the

deduction could be claimed in the same Assessment

Year,  i.e.,  1989-90.  Learned  counsel  urged  that

since the respondent failed to claim the deduction

in the Assessment Year 1989-90, they had no right

to  claim  such  deduction  in  any  subsequent

assessment  year  much  less  in  Assessment  Year

1992-93. Learned counsel then referred extensively

to the provisions of  “The Act”  and “The Rules” to

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show that the fixation of the rent is statutory and

not contractual.   

12) In  reply,  learned  counsel  for  the  respondent

(assessee)  supported  the  impugned  order  and

contended that it does not call for any interference.

It was also his submission that the argument now

being  raised  by  the  learned  counsel  for  the

appellant in the appeal was never raised by them at

any stage of the proceedings in Courts below and

hence  either  it  should  not  be  entertained  or  if

entertained,  the  same  cannot  be  answered  either

way unless the respondent is given an opportunity

to rebut it with reference to documents with a view

to show that the fixation of rent is contractual and

not  statutory  as  contended  by  the  Revenue.

According to the learned counsel, this being a mixed

question of fact and law it can be decided in first

instance either by the CIT or Tribunal.

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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.

14) 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

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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.  

15) 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.

16)  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

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decision of the Tribunal, the parties can carry the

matter to the higher Courts.

17) 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.

18) The appeal thus succeeds and is allowed. The

impugned order and the order of the Tribunal are

set aside.  

19) The  case  is  remanded  to  the  Income  Tax

Appellate  Tribunal,  Cochin  Bench,  Cochin  for

deciding the  appeal  filed by the  respondent being

I.T.A.  No.  673  (Coach)/1995  afresh  on  merits  in

accordance with law. Parties are, however, granted

opportunity to file relevant documents in support of

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their submissions, if  they so desire, to enable the

Tribunal to decide the appeal as directed.

20) Let the appeal  be decided within six months

from  the  date  of  the  appearance  of  the  parties.

Parties  to  appear  before  the  Tribunal  on  18th

September, 2017.      

               ………...................................J.

[R.K. AGRAWAL]             

                        …... ……..................................J.

        [ABHAY MANOHAR SAPRE] New Delhi; August 17, 2017  

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