DCIT, NEW DELHI vs. M/S. ANJALA EXHIBITORS PVT. LTD., NEW DELHI

ITA No. 6147/Del./2014 Assessment Year: 2010-11 IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH “A” BENCH NEW DELHI) BEFORE AMIT SHUKLA, JUDICIAL MEMBER & SHRI O.P. KANT, ACCOUNTANT MEMBER ITA No. 6147/Del./2014 Assessment Year: 2010-11 DCIT Vs. Anjala Exhibitors Pvt. Ltd. Circle-1 (1), G-80, Lajpat Nagar-1, New Delhi New Delhi (Applicant) (Respondent) (PAN: AAACA0219J)

Revenue by: Shri R.C. Danday, Sr. DR Assessee by: Shri Ranjan Chopra, Advocate Date of hearing 14/09/2017 Date of pronouncement 06/10/2017

ORDER PER AMIT SHUKLA, JUDICIAL MEMBER: The aforesaid appeal has been filed by the Revenue against impugned order dated 14.08.2014, passed by the ld. CIT (Appeals)- IV, New Delhi for the quantum of assessment passed u/s 143(3) for the A.Y. 2010-11. In the grounds of appeal the sole ground raised by the revenue reads as under:- 1. Whether on the facts and in the circumstances of the case the Ld. CIT (A) has erred in law in treating the rent received by the appellant amounting to Rs. 2,03,18,090/- as Income from House Property’ instead of ‘Income from other sources’.

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order dated 31.5.2013 and also the appellate order dated 8.9.2009 allowed the assessee’s claim. The assessee’s contention has been that the income received from PVR was in the nature of rental income which is to be taxed as income from house property. Since there is no change in the facts and circumstances of the case from the earlier years and the year under consideration, therefore, respectfully following the precedence of the earlier years, the receipts have to be taxed as income from house property only. We find that in the A.Y. 2007-08 the Tribunal has dealt and decided this issue after observing and holding as under:- “12. After careful consideration of the above submissions, contentions and citations relied by both the parties in the light of record placed before us at the outset, we observe that although the principle of res-judicata does not apply to the income tax proceedings but the rule of consistency cannot be ignored. If, AO has taken a view in the earlier assessment proceedings for preceding earlier three years concluded u/s 143 (3) of the Act, then the AO may take a different view in the subsequent assessment proceedings but there must be some rational and reasonable cause for doing so. Deviation or change of opinion on the same material and facts in the subsequent assessment proceedings is not permissible until and unless, the AO has brought out any justified or proper reasoning for doing so. In the present case, the AO accepted the claim of the assessee during assessment years 2004-05, 2005-06 and 2006-07 finalized assessment u/s 143 (3) of the Act and held that income, from PVR Ltd. is an income from house property. During the subsequent assessment proceeding for the year under consideration i.e. 2007-08 the AO took a deviated and new view and held that income from PVR Ltd. was actually income from other sources because the agreement dated 18.05.2000 was not a rent agreement but it was an arrangement for running cinema business as per new emerging requirements of the business. The Page 3 of 13

AO has not brought out any new fact or evidence to support this contention and simply held that the income from PVR Ltd. was not an income from house property. 13. During the first appellate proceeding the CIT (A) also considered the issue of consistency and held against the assessee by passing impugned order. The relevant operative parts of the impugned order read as under: "2.6.2 I have considered the rival submissions on the issue of consistency. It is trite law that the principle of res judicata does not apply to income tax proceedings. Moreover, the AO has reported that in the assessment/reassessments for the A. Y.2004-05, 2005-06 as well as 2008-09 the same view as taken in the impugned assessment has been taken by the department and the reassessment for the year 2006-07 is still pending. The appellant have filed copies of the original assessment order for the /I. Y. 2004-05, 2005-06 and 2006-07. It is noticed from these orders that though the assessments have been completed u/s 143(3) of the I 7 Act, in all three years the income as declared by the appellant under the head of Income from house property” has simply been accepted without any discussion in the assessment order, :For the first time, the issue of the character of receipts has been discussed in the impugned assessment order for the instant A. Y. 2007-08 in which in depth analysis of the provisions of the ‘Operation and Management Agreement’ dated 18.05,2000 has been undertaken by the AO and a finding has been given that the impugned income is to be assessed under the head “Income from other sources": On the basis of this finding arrived at by the AO after proper appreciation of facts of the case during the assessment proceedings for the instant A. Y. 2007-08, the AO had initiated reassessment proceedings for the earlier years and also continued with the same view in later assessment years. The appellant has placed reliance on Page 4 of 13

the two decisions of Hon. Delhi High Court in which the decision of Hon, Supreme Court in the case of Radha Swami Satsahg Beas (1992) 193 ITR 321 SC has been followed. However, the issue of res judicata Vs. consistency in tax matters was decided in a more recent judgment of the Hon. Supreme Court in the case of Municipal Corporation of City of Thane vs. Vidyut Metallics Ltd. & Anr. (2007) 8 SCC 688 which has been quoted by the Hon. Allahabad High Court in the case of CIT vs. Gael Builders 331 ITR 344 (All) while dealing with the issue of res judicata vis-a- vis principle of consistency in taxation matters. Relevant portion of Hon. High Court \s order is extracted hereunder: 59. In the case of Radha Swami Satsang vs. CIT (Supra), their Lordships of Hon 'ble Supreme Court while dealing with the principle of consistency and principle of res judicata observed that unless there is a material change justifying the Revenue to take different view of the matter, it shall not be proper for the Revenue to reopen and take contrary view. To reproduce relevant portion from the judgment of Radha Swami Satsang (supra), to quote. "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 yea, 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 he sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. On these reasoning in the absence of any material change justifying the Revenue to take a different view of the matter, and if there was not change it was in support of the assesses, we do not think the quest. Ion should have been, reopened and contrary to what had been decided by Page 5 of 13

the CIT in the earlier proceedings, a different and contradictory stand should have been taken. We are, therefore, of the view that these appeals should be allowed and the question should be answered in the affirmative, namely, that the Tribunal was justified in holding that the income derived by the Radhasoami Satsang (supra) was entitled to exemption under ss. 11 and 12 of the IT Act of their Lordships of Hon'ble Supreme Court held that the proposition of law and observation made therein is confined to the said case and may not be treated as authority on the aspects for general application. 60. However, in the case of Municipal Corporation of City of Thane (supra), Hon'ble Supreme Court while holding that the strict rule of res judicata as envisaged by s. 11 CPC has no application, Their Lordships further held that as a general rule, each year's assessment is final for that year and does not govern later years because it determines the tax for a particular year. To reproduce relevant portion, to quote: "14. So far as the proposition of law is concerned, it is well settled and needs no further discussion. In taxation- matters, the strict ride of res judicata as envisaged by s. 11 of the CPC, 1908 has no application. As a general rule, each year's assessment is final only for that year and does not govern later years, because it determines the tax for a particular period. It is, therefore, open to the Revenue/taxing authority to consider the position of the assessee every year for the purpose of determining and computing the liability to pay tax or octroi on 1961 that basis in subsequent years, A decision taken by the authorities in the previous year would not estop or operate as res judicata for subsequent year, (vide Maharan Mills (P) Ltd. vs ITO I959supp (2) SCR 547 : AIR 1959 SC 881 ; Pisheshwar Singh vs. C1T (1961) 3 SCR 287 ; Instalment Supp (P) Ltd. vs. Union of India (1962) 2 SCR 644; New Jehangir Vakil Mills vs, CIT (1964) 2 SCR 971; Page 6 of 13

Amalgamated Coalfields Ltd. vs. Janapada Sabha 1963 Supp (1) SCR 172 ; Devilal Vs. STO (1965) 1 SCR 686; Udatab Chinubhai vs. CIT (1967 )! SCR 913; M.MIpoh vs. CIT *1968) 1 SCR 65; Kapur Chand vs TRO (1969) 1 SCR 691; CIT vs Durga Prasad AIR 1971 SC 2439; Radhaswami Satsang vs. CIT (1991) 100 CTR (SC) 267 : (1992) I SCC 659: AIR 1992 SC 377; Sciety of Medical Council (1925) All ER 675: (1926) AC 94 : 95 UPC 33; Turner on Res judicata, 2nd Edition, Para 219, P. 193). In the same judgment (Supra), Hon ’ble Supreme Court further proceeded to observe that, to quote: A decision reached in one year would be a cogent factor in the determination of a similar question in .a following year, but ordinarily there is no bar against the investigation by the ITO of the same facts on which a decision in respect of an earlier year was arrived at. Hon’ble Supreme Court further showed its agreement with the principle of law enunciated by Radha Swami Satsang (Supra) (Para 24) 61. Law emerges after considering various pronouncement of Hon ’ble Supreme Court and other High Courts is that the principle of consistency is a rule in general but for cogent reasons or on justifiable ground, the Revenue has got right to depart from its earlier practice and take a different view which shall be determined upon the facts and circumstances of each case. While departing from earlier practice, the Revenue cannot act mechanically without applying its mind to earlier facts and circumstances under which a view was taken by the taxman and the facts and circumstances of the assessment year in question calling to depart from earlier view. Where there is a fundamental aspect permeating through different assessment years allowed by the authorities to sustain, it would not be appropriate to change the view in subsequent year except on justifiable around like change of circumstances or non-consideration Page 7 of 13

of relevant material or statutory provisions, or failure on the part of assessing or appellate authority to exercise jurisdiction for extraneous reason or small amount of revenue involved or other justifiable ground depending on facts of each case, (emphasis supplied)" 2.6.3 From the discussion in the foregoing paragraphs, it is clear that in view of Ion. Supreme Court, on one hand, the strict rule of res judicata as envisaged by s. 11 of the CPC, 1908 has no application and on the other, the principle of consistency Id not be deemed as an immutable principle in matters of taxation. It has to be wed generally but for cogent reasons or on justifiable grounds, Revenue has got to depart from its earlier practice. Non-consideration of the relevant material or statutory provisions or failure on the. part of assessing authority to exercise jurisdiction for extraneous reason have been enumerated as some of the justifiable grounds by the High Court in CIT v, Goel Builders (supra). As noted earlier, provisions of the “operations & Management Agreement" with M/s PVR Ltd. never came to be examined assessment orders for the earlier assessment years for whatever reasons though assessments were scrutinized u/s143(3) by the then Assessing Officers. For the first in the impugned assessment order for A. Y. 2007- OS, the Assessing Officer examined the issue with reference to the various clauses of the Operation & Management Agreement and gave a finding that the consideration received in terms of agreement is to be assessed as "income from Other Sources". The earlier assessments have also been reopened on the basis of the above findings and assessments have already been completed in those cases. Thus, to my mind, keeping in view the principle of consistency as interpreted above by the Hon. Courts, there has been no breach of this principle in the instant case either.

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2.7 In view of the findings and discussion as well as the judicial pronouncement as discussed in the foregoing paragraphs, I hold that in the given circumstances of the case the consideration received by the appellant in terms of operation and management agreement date 18.05.2000 as amended on 20.05.2000 entered into with M/s PVR Ltd. will be taxable under the “Income from other sources” rather than as “Income from House Property” as claimed by the appellant. Ground nos. I and 2 are, therefore, decided against the appellant and are dismissed. 14. From bare reading of above, the-CIT (A) held that rule of res-judicata as envisaged by section 11 of Civil Procedure Code, 1908 has no application in the tax matters and Revenue has got ample right to depart from its earlier practice. The CIT (A) has held that the provisions of operation and management agreement dated 18.05.2000 between the assessee and PVR Ltd. never came to be examined in the assessment proceedings for earlier assessment years for what so ever reasons though the assessments were scrutinized u/s 143 (3) of the Act by the then AO. At the cost of repetition, we observe that we support the view that strict rule of res-judicata has no application to the matters of taxation and Revenue has got right to depart from its earlier practice but at the same time, we also hold that the Revenue must bring out some material evidences or reasonable cause supporting to new facts to take a departure from its earlier practice. In the present case, the AO has only considered the title of the impugned agreement dated 18.05.2000, which reads as “Operation and Management Agreement” and held that it was an agreement to share profits of the cinema business but from careful reading of the above agreement and other documents available on paper book spreaded over 142 pages, we have no hesitation to hold that the intention of the parties while executing and entering in the agreement dated 18.05.2000 was not to share the profits of the cinema business as partners, joint venture or franchise but the intention of the parties was to rent Page 9 of 13

out the property on minimum fixed consideration in one part and second part was related to the amount of sales of tickets. This arrangement cannot be said as partnership, joint venture or franchise in any manner. From the copy of the agreement available on page no. 64 to 78 of paper book and other relevant available paper book page no. 79 to 87, we observe that on the next date of agreement i.e. 19th May, 2000 the PVR Ltd. returned furniture, fittings and other equipments to the assessee with specific foot note to the list that no assets, equipments, furniture, fixture other than building has been retained. by M/s Priya Village Roadshow limited. This recitals and documents specifically show that only cinema building was handed over to PVR Ltd. by the assessee for fixed consideration as mentioned in schedule second of the agreement. We also observe that the DR has not disputed the fact that after taking over vacant possession of cinema building from assessee to the PVR Ltd. converted it into four screens multiplex with all modern fittings, fixtures and furniture therein. From clause 2.11 of the agreement dated 18.05.2000 (Page 69 of paper book) we clearly observe that the overall risk/control of the management, operation and development of the cinema rests with PVR Ltd. and assessee is not bearing any kind of risk under the agreement. The DR has not disputed the point that PVR Ltd. independently obtained the cinema license, entertainment tax registration etc. in its name and started its business from 1st August, 2001. From the orders of the authorities below, we also observe that this fact has not been controverted that the multiplex business is being independently operated by PVR Ltd. at its own and there is no element of joint venture, partnership or franchise with the assessee. 15. Respectfully following the judgment of Hon’ble High Court of Bombay in the case of Parekh Traders vs. CIT (Supra), we hold that income derived as rent from property must be computed under that specific head regardless of the fact that property had at one point of time been utilized by the assessee for business purposes. Such property cannot be treated as a Page 10 of 13

business asset and rent thereof as income from business. In view of above, we further observe that a distinction must be drawn between the out of land or house property on the one hand and of plant and machinery on the other hand. The Hon’ble Bombay High Court has clearly held that plant and machinery are commercial assets and their exploitation even, by means of letting out, yields or bring income from business and per contra, income earned from letting out the building is income from property. In the case in hand the PVR Ltd. taken over only cinema buildings on rent and remains furniture, fixtures and other equipments have been returned by the PVR Ltd. to the assessee, accordingly fixed rental earned there from deserves to be treated as rental income from house property. Resultantly, ground no.2 of the assessee is allowed with a direction to the AO that the receipts from PVR Ltd. by the assessee be treated as income from house property and all consequential benefits and deductions be allowed to the assessee in this regard.” 5. This order has been followed by the Tribunal in the A.Y. 2008- 09 also. Thus consistent with this view taken in the earlier years on similar set of facts which are permeating in this year also and as a matter of judicial precedence, we agree with the assessee’s contention and hold that the income/receipts from PVR Ltd. is to be the assessee under the head ‘income from house property’ and the assessee shall be entitled for all statutory deduction as are permissible under the law including standard deduction of 30%. This ground raised by the assessee is dismissed. Order pronounced in the open court on 06.10.2017. Sd/- Sd/- (O.P. KANT) (AMIT SHUKLA) ACCOUNTANT MEMBER (JUDICIAL MEMBER) Dated:06.10.2017

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Narender