M/S Sri Vinayaka Automobiles Private ... vs Assessee

2. The assessee in the present case is a company which was carrying on the business of trading in automobiles. After the discontinuation of the said business, it gave its premises along with amenities on rent and also agreed to provide maintenance and operation services to the tenant. For the said premises, the assessee company received a rent of Rs. 3 lakhs for the year under consideration and also received Rs.2,40,000 for the amenities provided in the premises. For maintenance and operations, it received a sum of Rs.8,40,000 2 ITA.No.783/Hyd/2013 M/s. Sri Vinayaka Automobiles P. Ltd., Secunderabad.

for the year under consideration. All these receipts were declared by the assessee as its business receipts along with miscellaneous receipts of Rs.1,509 and profit on sale of shares of Rs.1,65,750 and after claiming various expenses including depreciation of Rs.2,52,978 on the premises, total income of Rs.4,41,880 was declared by the assessee in the return of income filed for the year under consideration on 30th October, 2005.

3. During the course of assessment proceedings, it was noticed by the A.O. that assessee has entered into three separate agreements with the tenant for premises, amenities and maintenance and operation services as under :

1. "Rental agreement for premises of ground floor and 1st floor at Survey No.941/A, Nagole Road, Saroornagar, R.R. District on 14.08.03 for the premises admeasuring 15,382 Sft at the rate of Rs.25,000/- per month. thus the total rent per annum derived was Rs.3,00,000/-.

2. The assessee also entered into rental agreement for provision of amenities on 14.08.2003 at the rate of Rs.20,000/- per month. The total rent per annum is Rs.2,40,000/-.

3. The assessee also entered into rental agreement for maintenance and operation on 14.08.2003 at the rate of Rs.70,000/- per month and the annual receipts are at Rs.8,40,000/-."

According to the A.O., the rent received by the assessee for premises as well as for amenities provided in the premises was chargeable to tax in the hands of the assessee under the head "Income from house property". He held that the assessee however entitled for deduction of 30% under section 24 only in respect of rent received from for premises and not for rent received for amenities. Accordingly, allowing such deduction at 3 ITA.No.783/Hyd/2013 M/s. Sri Vinayaka Automobiles P. Ltd., Secunderabad.

Rs.90,000, he determined the income chargeable to tax in the hands of the assessee under the head "Income from house property" at Rs.4,40,000. Consequently, the depreciation claimed by the assessee on building/premises was disallowed by the A.O. On appeal, the Ld. CIT(A) upheld the action of the A.O. on this issue relying inter alia, on the decision of Hon'ble Supreme Court in the case of East India Housing and Land Development Trust vs. CIT 42 ITR 49 and in the case of A.G. Merchantile Corporation vs. CIT 83 ITR 700. Aggrieved by the order of the Ld. CIT(A), the assessee has preferred this appeal before the Tribunal on the following grounds :

1. "The order of the A.O. is contrary to law, facts and circumstances of the case.

2. The A.O. erred in treating an amount of Rs.5,40,000 as "Income from house property" when the assessee had offered the same as "Business Income".

3. The Appellate Commissioner ought not to have confirmed the above action of the A.O. in treating the business income as House property Income.

4. The A.O. erred in disallowing the depreciation of Rs.2,52,978/- consequent to the treating the said property as house property.

5. The Appellate Commissioner ought not to have confirmed the disallowance of the depreciation made by the A.O.

6. Any other grounds which the appellant may urge either before or at the time of hearing."

4. We have heard the arguments of both the sides and also perused the material available on record. Ground Nos. 1 and 6 raised by the assessee in this appeal are general which do not require specific adjudication. The issue involved in Ground Nos. 2 and 3 relates to the Head of Income under 4 ITA.No.783/Hyd/2013 M/s. Sri Vinayaka Automobiles P. Ltd., Secunderabad.

which the rental income of Rs.5,40,000 is chargeable to tax in the hands of the assessee while the issue raised in Ground Nos. 4 and 5 relating to the assessee's claim for depreciation on building is consequential to the issue involved in ground Nos. 2 and 3.

5. The Ld. Counsel for the assessee at the outset has contended that the entire arrangement with the tenant of giving the premises on rent along with amenities provided therein as well as providing maintenance and operation services was a composite arrangement and the authorities below were not justified to consider and accept the same in piecemeal manner. He has contended that they should have accepted this transaction as a whole or rejected the same entirely. We are unable to accept this contention of the Ld. Counsel for the assessee. It is observed that three separate agreements were entered into by the assessee with the tenant for giving the premises on rent, providing the amenities available therein and providing the maintenance and operation services. The assessee company itself thus has treated these transactions as separate transactions and it therefore cannot be accepted that the entire transaction was a one composite transaction as sought to be contended by the Ld. Counsel for the assessee.

5.1. The Ld. Counsel for the assessee has also contended that it is a case of exploitation of commercial assets by the assessee company and therefore, the income earned from such commercial exploitation constitutes the income of the assessee from business. It is however observed that the business of trading in automobile earlier carried on by the assessee company was discontinued in the past and since it 5 ITA.No.783/Hyd/2013 M/s. Sri Vinayaka Automobiles P. Ltd., Secunderabad.

was not a case of any such business carried on by the assessee in the year under consideration and there being no indication or intention of the assessee company to revive the said business, it cannot be said that the property in question given on rent constitutes commercial asset of the assessee company. We, therefore, find it difficult to accept this contention also of the Ld. Counsel for the assessee.

5.2. At the time of hearing before us, the Ld. Counsel for the assessee has relied on the decision of the Hon'ble Supreme Court in the case of Chennai Properties and Investment Ltd., vs. CIT (Civil Appeal No.4494 of 2004 dated 09th April, 2015) in support of assessee's case that the rental income received for premises/building is chargeable to tax as its business income. However, as rightly contended by the learned D.R., this case relied upon by the Ld. Counsel for the assessee is distinguishable on facts inasmuch as the assessee company in the said case was incorporated with the main objective to acquire the property in the City of Madras and to let out those properties and keeping in view that letting of the properties was in fact the business of the assessee company, the rental income was held to be chargeable to tax in the hands of the assessee as business income by the Hon'ble Supreme Court. In the present case, the main objective of the assessee company is not to acquire the properties and to let out those properties and this being the undisputed position, the decision of the Hon'ble Supreme Court in the case of Chennai Properties and Investment Ltd., vs. CIT (supra) cited by the Ld. Counsel for the assessee has no application to the facts of the present case.

6 ITA.No.783/Hyd/2013 M/s. Sri Vinayaka Automobiles P. Ltd., Secunderabad.

5.3. The Ld. Counsel for the assessee has also raised an alternative contention that the rental income received by the assessee for amenities provided in the premises having been held to be chargeable to tax by the A.O. in the hands of the assessee as property income, deduction of 30% as per the provisions of section 24 should be allowed. He has also contended that if the said income is held to be in the nature of income from other sources, deductions as permissible under section 57(iii) may be allowed. We find merit in the second alternate contention raised by the Ld. Counsel for the assessee. In our opinion, the amount received by the assessee for amenities provided in the premises is the income which is chargeable to tax under the head "Income from other sources"

and since this position is not disputed even by the learned D.R., we direct the A.O. to allow deduction under section 57(iii) to the assessee for all the expenses incurred for earning the said income. Accordingly, ground Nos. 2 and 3 of the assessee's appeal are partly allowed while ground Nos. 4 and 5 involving the consequential issue relating to assessee's claim for depreciation on building are dismissed.

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

Order pronounced in the open Court on 08.05.2015.

Sd/- Sd/- (SMT. P. MADHAVI DEVI) (P.M. JAGTAP) JUDICIAL MEMBER ACCOUNTANT MEMBER

Hyderabad, Dated 08th May, 2015.

VBP/- 7 ITA.No.783/Hyd/2013

M/s. Sri Vinayaka Automobiles P. Ltd., Secunderabad.

Copy to

1. M/s. Sri Vinayaka Automobiles P. Ltd., Plot No.12, Phase-II, Bhavana Colony, New Bowenpally, Secunderabad.

2. The Income Tax Officer, Ward 3(1), Hyderabad.

3. CIT(A)-IX, Mumbai (Having jurisdiction over CIT(A)-IV, Hyderabad

4. CIT(A)-IV, Hyderabad.

5. CIT-III, Hyderabad.

6. D.R. I.T.A.T. "A" Bench, Hyderabad.

7. Guard File