Jastbhav International, Mumbai vs Assessee

ी िवजय पाल राव, याियक सद य, एवं ी डी. क णाकर राव, लेखा सद य के सम । BEFORE SHRI VIJAY PAL RAO , JM AND SHRI D. KARUNAKARA RAO, AM

आयकर अपील सं./I.T.A. No.5776/Mum/2012 ( िनधा रण वष / Assessment Year : 2007-08 )

Jastbhav International बनाम/ बनाम ITO - 16(2)(2) st Kotak Kunj, 1 Floor Vs. Matu Mandir 27, N.S. Parkar Marg Mumbai-400 007. Mumbai-400 007. थायी ले खा सं . /जीआइआर सं . /PAN/GIR No. : AACFJ 7782 N (अपीलाथ /Appellant) ... ( यथ / Respondent)

अपीलाथ ओर से / Appellant by : Shri V.C. Shah-AR यथ क! ओर से/Respondent by : Shri Akhilendra Yadav -DR

सुनवाई क! तारीख / Date of Hearing : 02/02/2015 घोषणा क! तारीख /Date of 11/02/2015 Pronouncement :

आदेश / O R D E R

PER VIJAY PAL RAO, JM:

This appeal by the assessee is directed against the order dated 19/07/12 of CIT(A) for the assessment year 2007-08. The assessee has raised the following grounds:-

"1) On the facts and in the circumstances of the case and in law the learned CIT (A) erred in confirming that the rental income earned amounting to Rs.4,80,000/- from the occupant who was a leasee was assessable as income from other sources and not the income from business though the premises were procured for the purpose of business and were used partially for the business of the appellant and partially given on leave and license for running business.

2 ITA No.5776/M/12 2. On the facts and in the circumstances of the case and in law the learned CIT (A) erred in confirming that the net income of Rs.2,99,9 13/- earned out of borrowing and lending activity of your appellant was assessable as income from other sources as against income from business being earned out of activity of borrowing and lending.

3. On the facts and in the circumstances of the case and in law the learned CIT (A) erred in not giving any decision on the claim of your appellant that entire expenditure of Rs.7,73,533/- was allowable as deduction in computing income from business though the learned Assessing Officer had allowed the deduction of Rs.75,205/- only."

2. Ground No. 1 and 2 regarding 'rental income' as well as 'interest income' offered as business income is assessed as 'income from other sources'. The assessee is a partnership firm and engaged in the business of providing services of various types to the tourists including providing of accommodation and guidance in respect of their tour in India. During the year under consideration the assessee has received dividend income which is exempt under section 10(34) of the Act, interest income of Rs.4,08,747/- and rent income of Rs.41,80,000/-. The AO noted that during the year under consideration the assessee has not done any business activity. Accordingly the AO assessed the interest income and rental income as income from other sources. The assessee objected to the treatment of interest income and rental income as income from other sources when the assessee is engaged in the business of providing services of various types to the tourists, including providing of accommodation, and there was commercial user and commercial exploitation of asset. The intention and activity has always been to conduct business activity besides it is also engaged in financial activity. The assessee firm has borrowed funds for the purpose of business and paid rent from the fund borrowed and was also lent. There was accordingly user of fund borrowed for financing activity. As regards the rental income the assessee submitted that the assessee is not the owner of the property in question but it was taken on lease and given on lease by the assessee. Apart from leasing the property, the assessee provided a peon and lift facility as well as maintenance facility to the lessee. The income from financial activity has increased from Rs.2,96,607/- in the year 2006-07 to Rs.4,08,747/-

3 ITA No.5776/M/12 in assessment year under consideration. Thus the assessee claimed that both the income are from the business activity of the assessee. The AO did not accept the contention of the assessee and treated the interest as well as rental income as income from other sources.

3. On appeal the assessee reiterated the contentions as raised before the AO but could not succeed. Before us, the ld. AR of the assessee has submitted that the rental income as well as interest income of the assessee has been accepted as business income by the AO in the earlier assessment years. It is further contended that the assessee is in the business of providing various services to the tourists including their accommodation. Once the rental income is accepted as business income in the earlier year the AO cannot take a different view in the year under consideration. In support of his contention he has relied upon the judgment of Hon'ble Delhi High Court in the case of CIT vs. Neo Poly Pack (P) Ltd.(245 ITR 492) and submitted that the Hon'ble High Court has held that rental income assessed in earlier year as business income should continue to be so assessed. He has also relied upon the judgment of Hon'ble High Court of Andhra Pradesh in the case of CIT vs. G.V. Rattaiah and Co. (256 ITR 351). As regards the interest income the ld. AR has submitted that the assessee is engaged in the business of lending and borrowing money with the intention of earning profit. The interest income earned from the said activity is in the nature of business profit. Therefore, same shall be treated as income from business. The AO has treated the said income as 'income from other sources' on the basis of partnership deed without considering the actual activity of the assessee . He has relied upon the decision in case of CIT vs. Dhanalaxmi Corporation (46 ITR 1031) and submitted that the partners may do business in a line not mentioned in the partnership deed. Thus, the ld. AR has submitted that the AO is not justified in treating the 'rental income' and 'interest income' as 'income from other sources' when the assessee is in the regular activity of borrowing fund and lending the same for earning the profit.

4 ITA No.5776/M/12 3.1 On the other hand the ld. DR has relied upon the order of authorities below and submitted that merely because the assessee has taken a property on lease and giving the same on rent does not amount to have involved in business activity. In order to prove the activity as business activity, the assessee has to show that the assessee was carrying out continuous and systematic activity by application of his labour skill and money. Thus, the ld. DR has submitted that authorities below have rightly assessed rental income and interest income from 'other sources'.

4. Having considered the rival submissions as well as relevant material on record we note that the rental income earned by the assessee is from the premises which was taken by the assessee on lease. The activity of taking the premises on lease and further letting it out does not fall in the purview of income from house property which was also accepted by the AO. Since the assessee is engaged in the business of providing various facilities to the tourists including accommodation, other guidance and tourist activity, therefore, the premises in question taken on lease and giving the same on hire with the facility of attendant/peon, lift as well as maintenance of the premises supports the case of the assessee that the assessee is actually involved in the activity of earning the rental income from the premises in question. We further note that for the earlier assessment years the AO accepted rental income as business income of the assessee. Though, the return of income in the earlier assessment year was accepted under section 143(1), however, when there is no change in the facts and circumstances of the case for the earlier assessment year as well as for the assessment year under consideration then without disturbing the claim of the assessee in the earlier assessment year the AO cannot take a different view. Therefore, in view of the decision relied upon by the assessee in the case of Neo Poly Pack (P) Ltd. (supra), as well as G.V. Rattaiah and Co. (supra), rental income accepted as business income of the assessee in earlier assessment year as well as in the subsequent assessment year should continued to be assessed as business income.

5 ITA No.5776/M/12 4.1 As regards the interest income there is no dispute that the assessee has borrowed the money which is used to lend for earning the interest income. The income earned by the assessee is difference between the interest paid by the assessee and interest received by the assessee. Further, the AO has not disputed this fact that borrowing and lending money is a continuous activity of the assessee from the earlier assessment years. The AO has rejected the claim of the assessee on the basis of business activity as stipulated in the partnership deed without considering actual activity carried out by the assessee. It is pertinent to note that even if any activity is not mentioned in the partnership deed but if it is regularly carried out by the assessee in a systematic manner then the nature of activity has to be determined by considering actual fact rather than going through the scope of business provided in the partnership deed. Having regard to the fact that the assessee has been carrying out the activities of borrowing and lending money continuously and in a systematic manner we are of the view that authorities below are not justified in denying claim of the assessee when interest income was accepted as business income in the earlier assessment year. Accordingly ground No.1 and 2 are allowed.

5. Ground No.3 regarding disallowance of expenditure. Disallowance of expenditure is consequential to the treatment of rental and interest income as income from other sources. In view of our finding on the issue of treatment of rental income and business income, ground no.3 of the assessee's appeal becomes infructuous and being consequential to ground no.1 and 2, it is treated as allowed.

6. In the result appeal of the assessee is allowed.

Order pronounced in the open court on 11th February, 2015. .

आदेश क घोषणा खुले यायालय म दनांकः 11-02-2015 को क गई । Sd/- Sd/- (D. Karunakara Rao) (Vijay Pal Rao ) लेखा सद य / ACCOUNTANT MEMBER याियक सद य/ JUDICIAL MEMBER मुंबई Mumbai; दनांक Dated 11 /02 /2015 व िन स . . ./ Jv, Sr. PS 6

ITA No.5776/M/12

आदेश क ितिलिप अ ेिषत/Copy of the Order forwarded to : 1. अपीलाथ# / The Appellant 2. $%यथ# / The Respondent. 3. आयकर आयु'(अपील) / The CIT(A)- 4. आयकर आयु' / CIT

5. िवभागीय $ितिनिध, आयकर अपीलीय अिधकरण, मुंबई / DR, ITAT, Mumbai

6. गाड, फाईल / Guard file.

आदेशानुसार/ BY ORDER, स%यािपत $ित //True Copy// उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपीलीय अिधकरण, अिधकरण मुब ं ई / ITAT, Mumbai.