Ito 3(1)(2), Mumbai vs Department Of Income Tax

M/s Bombay Sealink Builders The Income Tax Officer-3(1)(2) (P) Ltd, 121, Maker Chamber, Mumbai. VI, Nariman Point, Mumbai - 400 021. PAN/GIR No. AAACB2701Q

Appellant Respondent

Assessee BY Shri Vimal Punmiya Revenue By Shri Pawan Kumar Beerla

Date of hearing 21.05.2015 Date of pronouncement .07.2015

ORDER

Per G.S. Pannu, AM

The captioned appeal by the assessee is directed against the order of the Commissioner of Income Tax (Appeals) [hereinafter referred to as 'the CIT(A)'] dated 19-05-2011, which in-turn has arisen from an order passed by the Assessing Officer u/s 143(3) of the Income Tax Act, 1961(hereinafter referred to as 'the Act') dated 30.11.2009 pertaining to assessment year 2007-

08. 2 ITA NO 6550/Mum/2011 Assessment year: - 2007-08

In this appeal, assessee has raised following three main Grounds of appeal:-

(1) "The Ld. CIT(A) erred in confirming the rent received of Rs. 9,00,000/- by the assessee Co. as Income from house property as against treated by the assessee Co. as Income from Business.

(2) The Ld. CIT(A) erred in confirming & treating the F.D.R interest of Rs.

31,88,524/- as Income from other Sources as against treated by the assessee Co. as Income from Business.

(3) The Ld. CIT(A) erred in confirming the disallowance of following expenses:-

(1) Society Charges Rs. 3,31,534/- (2) Travelling Expenses Rs. 22,97,469/- (3) Depreciation Rs. 9,34,861/-

and thereby alleged that there was no business activity in the aforesaid year by the assessee."

2. The appellant before us is a company incorporated under the provisions of Companies Act, 1956 and for the assessment year 2007-08, it filed a return of income declaring 'Nil' income. In the ensuing assessment finalized u/s 143(3) of the Act, the total income has been assessed at Rs. 93,76,310/- after making certain additions/disallowances. The assessee was not satisfied by partial relief allowed by the CIT(A) and, therefore, the captioned appeal before the Tribunal on the above stated Grounds of appeal.

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3. The first issue in this appeal relates to the assessment of rental income of Rs. 9,00,000/- earned by assessee from letting out a residential property owned by it. In the return of income, assessee treated the rental income as an income assessable under the head "Profits from Business" whereas the Assessing Officer held that such rental income was assessable under the head "Income from House Property". The CIT(A) has also upheld the stand of the Assessing Officer primarily for the reason that in the past assessment years, such income has been held to be assessable under the head income from house property.

4. Before us, the Ld. Representative for the assessee does not dispute that the aforesaid aspect of the controversy has been a subject matter of consideration by the Tribunal in the assessee's own case for the earlier assessment years of 2002-03 to 2006-07, wherein, the stand of the Assessing Officer was upheld. The Tribunal vide a combined order for assessment years 1999-2000, 2001-02 2002-03 and 2006-07 in ITA Nos. 794 & 795/M/2008, 7210/M/2007 and 3552/M/2009, dated 29.04.2011, held that the rental income derived by the assessee from letting-out of a residential flat was an income assessable under the head income from house property.

5. So however, the Ld. Representative contended that in view of the subsequent Judgment of Hon'ble Supreme Court in the case Chennai

Properties & Investments Ltd. Vs. CIT of 56 taxmann.com 456 (SC), the

income from letting-out of the residential flat is liable to be assessed as

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business income on the ground that the objects of the assessee, inter alia, include dealing in property by way of managing, leasing etc.

6. We have considered the aforesaid plea and find that the ratio of the Judgment of Hon'ble Supreme Court in the case of Chennai Properties & Investment Ltd. (supra) does not help the appellant. In the case before the Hon'ble Supreme Court, assessee had rented out certain properties and the rental income received therefrom was shown as income from business in the return filed by the assessee. However, the Assessing Officer refused to tax the same as 'business income' as according to him, income was received from letting-out of the property and thus was in the nature of rental income assessable under the head income from house property. The Hon'ble Supreme Court noted an earlier Judgment in the case of Karanpura Development Co. Ltd. Vs. CIT 44 ITR 362 (SC), wherein, the position of law was summed up in the following words:-

"As has been already pointed out in connection with the other two cases where there is a letting out of premises and collection of rents the assessment on property basis may be correct but not so, where the letting or sub-letting is part of a trading operation. The diving line is difficult to find; but in the case of a company with its professed objects and the manner of its activities and the nature of its dealings with its property, it is possible to say on which side the operations fall and to what head the income is to be assigned."

7. Hon'ble Supreme Court noticed the aforesaid principle and applied the same to the facts of the case before it, and held that the income earned from letting out of the property was to be assessed as business income. In the case

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of Karanpura Development Co. Ltd. (supra), the Hon'ble Supreme Court noted that the dividing line is difficult to find; but in the case of a company, based on its professed objects, the manner of its activities and the nature of its dealings with its property, it can be evaluated as to what head the rental income has to be assigned. What has been emphasized by the Hon'ble Supreme Court is the professed objects and the manner of activities carried out by an assessee. It has also been pointed out that the nature of dealings with the property would also be factor to determine whether the activities fall for consideration under the head ''business income'' or "house property income". The fact-situation in the present case has already been considered by the Tribunal in the past years under identical circumstances and it has been concluded that that there is "no business of the commercial exploitation of the properties" and, therefore, rental income could not be assessed as business income. The aforesaid finding of the Tribunal in the case of assessee clearly brings out that the manner and nature of its dealings with its property, which does not justify assessment of rental income as business income. The appellant has not shown any change in the fact-situation in the instant year as compared to the past years, therefore, there is no justification for departing from earlier stand of the Tribunal about the assessment of rental income as income under the head "House Property". Thus, insofar as Ground of appeal no. 1 is concerned, assessee fails, having regard to the precedent in assessee's own case.

8. The second Ground of appeal relates to the treatment of interest on FDR of Rs. 31,88,524/- as business income. Assessee company had received an interest free deposit of Rs. 4,25,00,000/- from Tata Motors for letting out its Page 5 of 9 6 ITA NO 6550/Mum/2011 Assessment year: - 2007-08

flat. The aforesaid amount was kept by the assessee in fixed deposit with Sheba Properties Ltd, which earned interest of Rs. 31,88,524/-. Assessee declared the said interest income as business income whereas the Assessing Officer treated the same as income assessable under the head income from other sources. The CIT(A) has also affirmed the order of Assessing Officer.

9. It was a common point between the parties that similar income has been held to be assessable as income from other sources by the Tribunal in assessee's own case vide its order dated 29.04.2011(supra). Following the same, the said Ground is held against the assessee and is accordingly dismissed.

10. In Ground of appeal no. 3, the claim of assessee is for deduction on account of Society Charges Rs - 3,31,534/-; Travelling Expenses Rs - 22,97,469/-; Depreciation Rs - 9,34,861/-.

11. Insofar as the claim for Depreciation and expenses on travelling are concerned, the same are not allowable as there is no business in existence. The rental income has already been held to be assessable as income under the head house property and thus Depreciation is not allowable in respect of the cost of flat on this ground also. Consequently, the aforesaid Ground of appeal of assessee in relation to the claims of Depreciation and Travelling expenses is dismissed.

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12. So however, in relation to the allowability of deduction on account of charges paid by assessee to the maintenance society of the building, it was pointed out that such an issue has been set aside to the file of Assessing Officer by the Tribunal in the past years vide order dated 29.04.2011 (supra). In this context, it is to be noted that section 24(a) of the Act, provides that income chargeable under the head income from house property shall be computed after making deduction of a sum equal to 30% of the annual value. Quite clearly, the deductions u/s 24 are to be given from and calculated on the basis of Annual Value so determined u/s 23 of the Act. In the case of Sharmila Tagore Vs. JCIT 93 TTJ 483, it has been, inter-alia, held that maintenance charges have to be deducted even while arriving at Annual letting value of the property u/s 23 of the Act. In the case of Realty Finance & Leasing Pvt. Ltd. Vs. ITO 5 SOT 283, it has been held that society charges are to be allowed as deduction from Annual letting Value (ALV ) provided that the gross rent received by assessee also includes the society charges, which are to be borne by the assessee. Therefore, in principle, it has to be held that the society charges payable by the assessee in respect of the let out of property are allowable while computing the ALV of the property u/s 23 of the Act, if the same are included in the gross rent received. So however, the Tribunal in its order dated 29.04.2011 (supra) has remanded the matter back to the file of Assessing Officer to ascertain as to whether the rent received by the assessee included charges for the common services provided by the maintenance society of the building. Therefore, in our view, similar directions are exigible in the instant year also and accordingly, we set aside the order of CIT(A) and restore the matter back to the file of Assessing Officer for carrying out Page 7 of 9 8 ITA NO 6550/Mum/2011 Assessment year: - 2007-08

appropriate verification and thereafter passing an order afresh in accordance with law. Needless to say, the Assessing Officer shall allow the assessee a reasonable opportunity of being heard before pass an order afresh on this aspect of the matter. Thus, on this aspect assessee partly succeeds.

13. In the result, appeal of the assessee is partly allowed. Order pronounced in the open court on this 31 day of July 2015.

Sd/- Sd/-

(Sanjay Garg) (G.S. Pannu) (Judicial Member) (Accountant Member) Mumbai dated 31-07-2015 SKS Sr. P.S,

Copy to: The Appellant The Respondent The concerned CIT(A) The concerned CIT The DR, "B"Bench, ITAT, Mumbai By Order

Assistant Registrar Income Tax Appellate Tribunal, Mumbai Benches, MUMBAI

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