COMMISSIONER OF INCOME TAX COCHINversusMIS TRAVANCORE COCHIN UDYOGA MANDAL

                       [2017] 7 S.C.R. 551



         COMMISSIONER OF INCOME TAX COCHIN                             A
                                 v.
        MIS TRAVANCORE COCHIN UDYOGA MANDAL
                   (Civil Appeal No. 2015 of2007)
                         AUGUST 17,2017                                B

   [R.K. AGRAWAL AND ABHAY MANOHAR SAPRE, JJ.(
         Income Tax Act, 1961 - Deduction of lease rent - Claim for -
 In the instant case, by order dated 2 5. 06.1988, State Government
 fixed lease rent of demised land payable by respondent-assessee to C
  the State Government - Respondent objected to the fixation of lease
  rent - By order dated 7.11.1991, State Government rejected the
  respondents objection - Claim for deduction in respect of lease
  rent for assessment year 1992-93 -Entitlement-Held: The questions
  which arose for consideration were as to whether the fixation of
  rent and its payment was statutory or contractual and, !f so, its D
  effect while claiming deduction under the Act and, if so, in which
  year of assessment - These are mixed questions of law and fact - In
  view of nature of issue involved, it is held just and proper to remand
· the case to Tribunal for deciding the issue a.fresh on merits.
       Allowing the appeal, the Court                                  E
        HELD : 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        F
 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           G
  appeal, for the first time for want of factual material and legal
  issues attached to it. 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
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                                 551
552            SUPREME COURT REPORTS                           [2017] 7 S.C.R.


A     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, 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
B
      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. [Paras 14-161
      [555-F-H; 556-A-B]
           CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2015
c     of2007.
            From the Judgment and final Order dated 20-05-2005 passed by
      the High Court of Judicature of Kerala at Ernakulam in ITA No. 166 of
      2000.
D           K. Radhakrishna, Sr. Adv., Rupesh Kumar, Arijit Prasad, Adv.
      (for Ms.AnHKatiyar) for the Appellant.
            Ritin Rai, Jayant Malik, Gautam Jha, Ad vs. for the Respondent.
            The Judgment of the Court was delivered by

 E           ABHAY MANO HAR SAPRE, J. l. 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 deduction of lease rent made
      by the respondent (assessee) in their Income Tax Return is allowable in
 F    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.
 G
             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.
 H
  COMMR. OF INCOME TAX COCHIN v. MIS TRAVANCORE                                 553
 COCHIN UDYOGA MANDAL [ABHAY MANOHAR SAPRE, J.]

         4. By order (G.O. Ms. 576/88/RD) dated 25.06.1988, (Annexure- A
  P-1), 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 B
  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           C
 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 Year 1992-93 but it could be claimed only in the
 Assessment Year 1989-90.                                                       D
         6. The respondent, felt aggrieve~ of the disallowance, filed appeal
  before the Commissioneroflncome 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         E
  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 fease 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 relation         F
  to fixation oflease 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 G
 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 H
554             SUPREME COURT REPORTS                          [2017] 7 S.C.R.



A     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.
             8. The respondent, felt aggrieved, carried the matter in second
      appeal before the Tribunal. By order dated 13.09.1999, the Tribunal
B     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
C     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.
D           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
 E    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 oflease rent by the
      respondent to the State was essentially a statutory liability because
 F    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 Kera la
      Land Assignment Rules 1964" and "The Rules for Assignment of
 G    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
 H
 COMMR. OF INCOME TAX COCHIN v. M/S TRAVANCORE                                   555
COCHIN UDYOGA MANDAL [ABHAY MANOHAR SAPRE, J.]

could be claimed in the same Assessment Year, i.e., 1989-90. Learned             A
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 show that the fixation of the rent is statutory
                                                                                 B
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
                                                                                 c
  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          D
  and law it can be decided in first instance either by the CIT or Tribunal.
       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        E
 for deciding the issue afresh on merits.
         14. The need to remand the case to the Tribunal, has occasioned
 because firstly, the questioJJ 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                  F
 assessment is a mixed question oflaw 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          G
  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 statut01y or contractual, has some bearing over the question.
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556              SUPREME COURT REPORTS                          [2017] 7 S.C.R.



A     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
B     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.
             17. We, therefore, at this stage refrain from expressing any opinion
c     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
D     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 LT.A. No. 673 (Coach)/1995 afresh on merits in accordance with
      law. Parties are, however, granted opportunity to file relevant documents
E     in support oft~ir 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
      l8 1h September, 2017.
F
      Devika Gujral                                                Appeal allowed.