The Commissioner of Income Tax V. M/s.Elite Engineers

ITTA/62/2001

AI Insights

The case revolves around the classification of rental income by the assessee, M/s. Elite Engineers, from a property leased to M/s. Sunshine Cosmetics Ltd. The primary legal question was whether this rental income should be classified as income from business or income from house property. The Assessing Officer initially classified the income partially as house property and other sources, but this was contested. The Appellate Commissioner and subsequently the Tribunal found that the property was a factory building and the income derived from it should be considered as business income. The Revenue's appeal to the High Court challenged this classification, but the court upheld the Tribunal's decision, agreeing that the property was used for business purposes and thus the income should be classified as such.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 719027 (HC-ANDHRA_PRADESH)
• Appeal Type: Others
• Pronouncement Date: 23-01-2014
• Assessment Year: misc
• Other Referred Cases: Karnani Properties Ltd. V CIT 82 ITR page 547
• Result in Favour of: Respondent
• Court: HIGH COURT
• Department Lawyers: S R ASHOK
• Keywords: Business Asset; Factory building; Income Tax; Property income; Rental income

Judgement Text

"HON'BLE SRI JUSTICE G.CHANDRAIAH & HON’BLE SRI JUSTICE CHALLA KODANDA RAM I.T.T.A. No. 62 of 2001 O R D E R:- (per Hon’ble Sri Justice Challa Kodanda Ram) This Appeal arising out of the order dated 12.09.2000 of the Income Tax Appellate Tribunal in I.T.A.No. 397/Hyd/1995 is at the instance of the Revenue. The following question of law is raised for the opinion of this Court. i) Whether on the facts and in the circumstances of the case, the Appellate Tribunal is justified in holding that the rental income earned by the assessee can be treated as income from business and not from property? Sri S.R. Ashok, learned senior Standing Counsel for Income-tax Department, has urged that the Tribunal has erred in construing the asset as “business asset” and in that view of the matter it had erred in assessing the income of the assessee as “income from business” instead of “income from the house property” as held by the Assessing Officer. We have gone through the order of the Tribunal as well as the order of the Appellate Commissioner. The Appellate Commissioner, in his order dated 28.12.1994, recorded in paragraph No.1.2 as under: “After considering the rival submissions by the learned representative and the A.O. on the issue, I find that the building in question is a factory building. This is evidenced by a copy of the proposed plan submitted before me, which was shown as M/s.Sunshine Cosmetics (P) Ltd. in plot No.5 at Kukatpalli. A memorandum of understanding entered into by Sri P.Veereswara Rao and M/s.Sunshine Cosmetics Ltd. refers to the building as the factory building and the plan of the proposed factory building shall be approved by the lessees i.e. M/s.Sunshine Cosmetics Ltd. before commencement of the production. The memorandum of understanding was executed on 21.10.1989. The letter written by the Branch Manager, Vysya Bank, Patancheru dated 16.10.1990 addressed to M/s.Elite Engineers, the present appellant, refers to the construction of the factory building for the manufacturing unit of Toothpaste. In a letter dated 16.10.1990 written by the Deputy General Manager to the Manager, Vysya Bank, Patancheru, it is clarified that an amount of Rs.25.00 lakhs has been sanctioned as Term Loan for construction of the factory building. All these facts were also brought to the notice of the A.O. at the time of Assessment proceedings. It appears that though the A.O. referred to the building as factory building in his assessment order, yet, in his order, he concentrated more on case laws cited by him to arrive at his conclusion that the building in question is not a factory building. He treated accordingly 60% of the lease amount as income from House property and 40% of the lease amount as income from Other Sources. In so doing, he seems to have carried on by the decision by the Hon’ble Supreme Court in the case of Karnani Properties Ltd. V CIT 82 ITR page 547. The facts quoted above, however points to the conclusion that the building is a factory building, as evidenced from the intention of the parties, from the Bank papers and Memorandum of Understanding executed between the lessor and lessee. The circumstances of the present case including the intention of the parties point to the conclusion that the building in the instant case is a factory building and the A.O. could not bring any material on record to prove the contrary, either in his assessment order or at the time of hearing before me”. Further, in Paragraph No.1.6 of the order, it is recorded as follows: “In the instant case, as discussed above, there is sufficient material including the memorandum of understanding between the lessor and lessee, the bank papers produced before me, the drawing plant and the intention on the part of the parties. All these material were also laid before the Assessing Officer at the time of assessment proceedings. This material along with law as propounded above, points to the conclusion that the building in the present case is a factory building. Accordingly, the Assessing Officer is directed to treat the same as a factory building and to take consequential action.” The Tribunal, having upheld the finding of the Appellate Commissioner, found that it had no reason to interfere with the order of Appellate Commissioner. Inasmuch as the finding of the Tribunal is to the effect that the asset is a business asset and exploitation of the same is for the purpose of the business, and the same being a question of fact, we are not inclined to take a contra view. In that view of the matter, the questions raised are answered in favour of the assessee and against the Revenue. Accordingly, this Appeal is dismissed. No order as to costs. As a sequel to the dismissal of the Appeal, Miscellaneous Petitions, if any pending, shall stand disposed of as infructuous. _________________ G. CHANDRAIAH, J 23.01.2014 ______________________ CHALLA KODANDA RAM,J bcj "