M/s Punjab State Container and Warehousing Corporation Ltd., Chandigarh V. ACIT, C-2(1), Chandigarh

CO 57/CHANDI/2017

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 6705 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 3 month(s) 15 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 28-02-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 13-11-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: G S PHANI KISHORE
• Keywords: Business income; Tax effect
• Section: 271(1)(c)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH B , CHANDIGARH , !' #$ % & ' ($ , BEFORE: SHRI SANJAY GARG, JUDICIAL MEMBER AND SMT.ANNAPURNA GUPTA, ACCOUNTANT MEMBER C.O. NO.57/CHD/2017 /ASSESSMENT YEAR : 2013-14 M/S PUNJAB STATE CONTAINER & WAREHOUSING CORPORATION LTD., SCO 74-75, SECTOR 17-B, CHANDIGARH THE A.C.I.T., CIRCLE 2(1), CHANDIGARH. ./PAN NO: AAECP0606J /ASSESSEE BY : SHRI T.N. SINGLA, CA / REVENUE BY : SHRI G.S. PHANI KISHORE, CIT DR /DATE OF HEARING : 17.12.2018 !' /DATE OF PRONOUNCEMENT:28.02.2019 /ORDER PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER THE PRESENT CROSS OBJECTION HAS BEEN PREFERRED BY T HE ASSESSEE AGAINST THE ORDER DATED 7.3.2017 OF THE COMMISSIONER OF INCOME TAX (APPEALS)-I, CHANDIGARH [HEREINAFTER REFERRED TO AS CIT(A)].IT WAS POINTED OUT THAT THE APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THE CIT(A),HAD BEEN DISMISSED EARLIER SINCE THE TAX EFFECT INVOLVED IN THE SAME WAS BELOW THAT PRESCRIB ED BY THE CBDT CIRCULAR NO. 3/2018 DATED 11.07.2018 FO R FILING APPEALS BEFORE THE I.T.A.T. THERE WAS A DELAY OF 72 DAYS IN FILING OF THE CROSS OBJECTION. AN APPLICATION FOR CONDONING THE DELAY W AS FILED BEFORE US DATED 27.11.2017 STATING THEREIN THAT THE DELAY C.O.57/CHD/2017 A.Y. 2013-14 2 WAS ON ACCOUNT OF THE OVERSIGHT OF THE COUNSEL FOR ASSESSEE, SHRI T.N. SINGLA, WHO WAS BUSY IN GST, AUDIT AND TA X AUDIT WHEN THE COPY OF THE APPEAL FILED BY THE REVENUE ON 3.8.2017, WAS PROVIDED TO IT AND FURTHER THAT ON 25 .10.2017 SHRI T.N. SINGLA HAD AN ATTACK OF DENGUE AND IT WAS ONLY THEREAFTER WHEN HE STARTED ATTENDING THE OFFICE ON 10.11.2017, THAT THE CROSS OBJECTION WAS FILED ON 13.11.2017. AN AFFIDAVIT OF THE COUNSEL FOR THE ASS ESSEE, SHRI T.N. SINGLA, WAS ALSO PLACED BEFORE US CONCEDING TO HIS MISTAKE AS AFORESTATED IN FILING THE CROSS OBJECTIO N IN TIME. IT WAS, THEREFORE, STATED THAT THE DELAY BE CONDONE D. 3. THE LD. DR OBJECTED TO THE SAME. 4. ON GOING THROUGH THE CONTENTS OF THE APPLICATION , SUPPORTED BY WAY OF AFFIDAVIT FILED BY THE COUNSEL FOR THE ASSESSEE, WE FIND THAT IN THE PECULIAR FACTS AN D CIRCUMSTANCES OF THE CASE, THE DELAY OF 72 DAYS HAS OCCURRED FOR REASONS BEYOND THE CONTROL OF THE ASSESSEE. ACCORDINGLY, BEING SATISFIED WITH THE EXPLANATION OF THE ASSESSEE, WE CONDONE THE DELAY. THE SAID ORDER WAS PRONOUNCED IN THE OPEN COURT IN THE PRESENCE OF BOTH THE PARTIES AND THE PARTIES WERE ACCORDINGLY DIRECTED TO ARGUE THE APPEAL ON MERITS. 5. THE GROUNDS TAKEN UP BY THE ASSESSEE ARE AS UNDER: 1. THAT THE ORDER OF LEARNED CIT (APPEALS) IS BAD, AGAINST THE FACTS & LAW. C.O.57/CHD/2017 A.Y. 2013-14 3 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS WRONGLY TREATED THE INCOME OF LEASE RENTALS AS 'PROFITS AND GAINS OF BUSINESS AND PROFESSION' INSTEAD OF 'INCOME FROM HOUSE PROPERTY'. 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) H AS WRONGLY DISALLOWED THE DEDUCTION OF 30% U/S 24(A). 4. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) WRONGLY DISALLOWED THE PENALTY/FINE EXPENSE AMOUNTING TO RS. 1,67,620/-. 5. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS WRONGLY INITIATED THE PENALTY U/S 271(1)(C). 6. THAT THE APPELLANT CRAVES LEAVE TO ADD, ALTER, A MEND THE GROUNDS OF APPEAL BEFORE THE APPEAL IS FINAL HE ARD AND DISPOSED OFF. 6. GROUND NOS.1 AND 6 RAISED BY THE ASSESSEE ARE GENERAL IN NATURE AND NEED NO ADJUDICATION. GROUND NO.5 IS AGAINST THE INITIATION OF LEVY OF PENALTY U /S 271(1)(C) OF THE ACT WHICH BEING PREMATURE ALSO NE EDS NO ADJUDICATION. 7. GROUND NO.2 RAISED BY THE ASSESSEE RELATES TO TH E ISSUE OF CHARACTERIZATION OF THE RENTAL INCOME RECE IVED BY THE ASSESSEE, WHETHER IN THE NATURE OF INCOME F ROM HOUSE PROPERTY AS RETURNED BY THE ASSESSEE OR IN T HE NATURE OF INCOME FROM BUSINESS AND PROFESSION AS ASSESSED BY THE ASSESSING OFFICER (A.O.) AND CONFIR MED BY THE CIT(A). IN GROUND NO.3 THE ASSESSEE HAS RAIS ED THE CONSEQUENTIAL GROUND OF DENIAL OF DEDUCTION OF 30% U/S 24(A) ON ACCOUNT OF THE REVENUE AUTHORITIE S NOT TREATING THE RENTAL INCOME AS INCOME FROM HOUSE PROPERTY. SINCE BOTH THE ISSUES ARE LINKED, THEREFO RE, THEY WERE TAKEN UP TOGETHER FOR HEARING. C.O.57/CHD/2017 A.Y. 2013-14 4 8. BRIEF FACTS RELATING TO THE CASE ARE THAT THE ASSESSEE OWNED A BUILDING IN NAVI MUMBAI KNOWN AS CONTAINER FREIGHT STATION (HEREINAFTER REFERRED TO AS 'OPS') WHICH WAS PURCHASED IN F.Y. 1995-96. THE ASSESSEE HAD LEASED THIS FACILITY TO ONE M/S GATEWA Y DISTRIPARKS LTD. (HEREINAFTER REFERRED TO AS 'GDL') UNDER AN OPERATION AND MANAGEMENT AGREEMENT DATED 12.01.2007 AND THE INCOME THUS RECEIVED WAS REFLECTED AS INCOME FROM HOUSE PROPERTY U/S 22 OF THE ACT AND 30% DEDUCTION OF THE SAME WAS CONSEQUENTLY CLAIMED U/S 24 OF THE ACT. THE ASSESSING OFFICER NOTED THAT IN EARLIER YEARS, THE INCOME WAS TREATED AS BUSINESS INCOME. THE ASSESSEE WAS ASKED TO JUSTIFY THE CHANGE IN TREATME NT AND WAS ALSO ASKED TO FILE THE COPY OF THE LEASE AGREEMENT. THE ASSESSEE STATED THAT THEY HAD LEASED OUT BUILT UP COVERED STORAGE SPACE OF 52,500 SQ MTR S ON A LAND MEASURING 27.5 ACRES TO GATEWAY DISTRIPARKS LIMITED FOR 15 YEARS FOR WHICH LEASE RE NT WAS RECEIVED AND THE SAME WAS SHOWN WRONGLY AS BUSINESS INCOME FROM 2007 TO 2013. THAT ON REALIZIN G THIS MISTAKE THEY NOW HAD RECLASSIFIED THEIR INCOME AS INCOME FROM BUSINESS FROM THE IMPUGNED ASSESSMENT YEAR I.E A.Y 2013-14.T HE A.O. EXAMINED THE AGREEMENT SUBMITTED BY THE ASSESSEE AND OBSERVE D THAT AS PER THE AGREEMENT, THE RELATIONSHIP APPEARE D TO BE ONE OF SUBCONTRACTING OF THE OPERATION AND MAINTENANCE OF THE CFS FACILITY,THUS HAVING A C.O.57/CHD/2017 A.Y. 2013-14 5 CHARACTER OF BUSINESS INCOME RATHER THAN OF HOUSE PROPERTY INCOME. HE ACCORDINGLY, TREATED THE INCOME FROM LEASE OF CFS FACILITY AT NAVI MUMBAI AS BUSINE SS INCOME OF THE ASSESSEE AND, CONSEQUENTLY ALSO DENIE D THE CLAIM OF 30% DEDUCTION CLAIMED BY THE ASSESSEE U/S 24(A) OF THE ACT. 9. THE MATTER WAS CARRIED IN APPEAL BEFORE THE LD.CIT(A) WHO UPHELD THE ORDER OF THE A.O. 10. BEFORE US THE LD. COUNSEL FOR ASSESSEE STATED T HAT LETTING OUT OF THE CFS FACILITY WAS NOT BY WAY OF I TS BUSINESS AND THUS COULD NOT BE TREATED AS BUSINESS INCOME OF THE ASSESSEE. RELIANCE WAS PLACED ON THE DECISION OF THE HON'BLE APEX COURT IN THE CASE OF R AJ DADARKAR & ASSOCIATES VS. ACIT, REPORTED IN 394 ITR 592 FOR THE PREPOSITION THAT THE INCOME FROM LETTIN G OUT OF PROPERTY COULD BE TREATED AS BUSINESS INCOME ONLY IF LETTING OUT OF PROPERTY WAS THE OBJECT OF T HE COMPANY. 11. THE LD. DR, ON THE OTHER HAND, POINTED OUT THAT BOTH THE A.O. AND THE CIT(A) HAD REFERRED TO VARIOU S CLAUSES OF THE LEASE AGREEMENT POINTING OUT THEREF ROM THAT IT WAS NOT A SIMPLE LETTING OUT OF BUILDING OR PREMISES BUT RATHER IT WAS IN THE NATURE OF A CONTR ACT FOR OPERATION AND MAINTENANCE OF THE CFS FACILITY A ND, THEREFORE, HAD BEEN RIGHTLY TREATED AS BUSINESS INC OME OF THE ASSESSEE. THE LD. DR DREW OUR ATTENTION TO T HE C.O.57/CHD/2017 A.Y. 2013-14 6 FINDINGS OF THE A.O. AS REPRODUCED AT PARA 4.1 OF T HE CIT(A) AS UNDER: 2.4 I HAVE GONE THROUGH THE SUBMISSIONS OF THE ASS ESSEE BUT THE CLAIM OF THE ASSESSEE IS NOT ACCEPTABLE. ON PERUSAL OF THE AGREEMENT, IT IS NOTICED THAT IT IS AN AGREE MENT FOR SUB-CONTRACTING THE OPERATION AND MAINTENANCE OF CFS FACILITY I.E. FOR THE BUSINESS OF THE ASSESSEE AND N OT FOR LETTING OUT OF HOUSE PROPERTY TO EARN INCOME UNDER T HE HEAD HOUSE PROPERTY AS THE OWNER. 2.5 IN THIS REGARD, THE FOLLOWING OBSERVATIONS AR E MADE:- 1. THE CUSTOMS AUTHORITIES HAD APPOINTED THE ASSESSEE AS THE CUSTODIAN IN RESPECT OF THE CFS FACILITY. 2. THE ASSESSEE WAS INTERESTED IN ENTERING INTO A STRATEGIC ALLIANCE WITH QUALIFIED AND EXPERIENCED ENTITIES OR CONSORTIUM FOR MANAGEMENT AND OPERATION OF ITS CFS. 3. THE ASSESSEE ISSUED A REQUEST FOR PROPOSAL AND ON EVALUATION OF THE BIDS SELECTED M/S GATEWAY DISTRIPARKS LIMITED AS THE OPERATOR GIVING IT THE R IGHT TO OPERATE AND MAINTAIN THE CFS SUBJECT TO CERTAIN TERMS AND CONDITIONS. 4. UNDER THE AGREEMENT, THE ASSESSEE HAS TO HAND OVER THE CFS FACILITY AND ASSETS TO THE OPERATOR WHO WILL BE RESPONSIBLE FOR MAINTAINING THEM AND HAS TO RETURN THEM AT THE END OF THE AGREEMENT PERIO D. 5. AS PER THE AGREEMENT, THE ASSESSEE HAS TO APPOIN T AN INDEPENDENT CONSULTANT OUT OF A LIST OF 5 CONSULTANTS PROVIDED BY THE OPERATOR. THIS INDEPENDENT CONSULTANT HAS TO REVIEW AND REPORT ON THE MAINTENANCE OF THE CFS FACILITY AND ANY DEFICIENCY INDENTIFIED BY THE INDEPENDENT CONSULTAN T HAS TO BE RECTIFIED BY THE OPERATOR WITHIN 3 MONTHS OR ANY FURTHER TIME ALLOWED BY THE ASSESSEE. [PARA 6 OF THE AGREEMENT] 6. THE OPERATOR HAS TO PROVIDE PERFORMANCE BANK GUARANTEE TO THE ASSESSEE IN ADDITION TO THE UPFRONT FEE AND ANNUAL FEE. IN CASE OF FAILURE TO RECTIFY THE DEFICIENCY AS POINTED OUT BY THE INDEPENDENT CONSULTANT, THE ASSESSEE HAS THE RIGHT TO ENCASH THE PERFORMANCE BANK GUARANTEE. [PARAS 5 AND 6 AGREEMENT] 7. UNDER THE AGREEMENT, THE ASSESSEE WILL PERMIT AN D AUTHORIZE THE OPERATOR TO ENTER INTO APPROPRIATE CONTRACTS FOR CARRYING ON PERMITTED ACTIVITIES AND RECEIVE PAYMENT IN ITS OWN NAME OR ON BEHALF O F C.O.57/CHD/2017 A.Y. 2013-14 7 THE ASSESSEE [PARA 7.2 OF THE AGREEMENT] THE OPERATOR WILL BE RESPONSIBLE FOR PERFORMANCE OF A LL OBLIGATIONS OF THE ASSESSEE UNDER THE SUBSISTING CONTRACTS W.R.T. OPERATION AND MAINTENANCE OF CFS. [PARA 7.3 OF THE AGREEMENT] THE OPERATOR HAS TO SUBMIT A COPY OF ITS UNAUDITE D ACCOUNTS TO THE ASSESSES WITHIN 90 DAYS OF THE CLOSE OF EACH ACCOUNTING QUARTER AND THE DULY AUDITEDACCOUNT S AT THE CLOSE OF EACH FINANCIAL YEAR. FURTHER, ANY MATERIAL CHANGE SUBSEQUENT TO THE DATE OF SUCH ACCOUNTS SHALL BE NOTIFIED TO THE ASSESSES BY THE OPERATOR WITHIN 30 DAYS OF THE OCCURRENCE, [PARA 9.1 OF THE AGREEMENT] 2.7 FROM THE ABOVE OBSERVATIONS, IT IS AMPLY CLEAR THAT THE INCOME RECEIVED IS NOT FOR THE BUILDING AND LAND APPURTENANT THERETO ONLY BUT IS FOR A COMPLEX COMMERCIAL ACTIVITY WHEREIN M/S GATEWAY DISTRIPARKS LIMITED HAS BEEN HANDED OVER THE CFS FACILITY ALONG WITH THE ASSETS OF THE ASSESSES TO LOOK AFTER OPERA TION AND MANAGEMENT FOR A DEFINED PERIOD BUT THE ASSESSE E IS THE ULTIMATE CUSTODIAN OF THE CFS FACILITY. FROM TH E ABOVE, IT IS ALSO SEEN THAT EVEN AFTER THE OPERATION AND MANAGEMENT HAS BEEN HANDED OVER TO M/S GATEWAY DISTRIPARKS LIMITED, THE ASSESSEE RETAINS CONTROL IN THE FORM OF APPOINTMENT OF INDEPENDENT CONSULTANTS, RIG HT TO RECEIVE THE ACCOUNTS OF THE OPERATOR QUARTERLY AND ANNUALLY, ETC. THE ARRANGEMENT BETWEEN THE ASSE SSEE AND THE OPERATOR IS NOT FOR THE MERE USE OF THE PRO PERTY BUT FOR THE USE OF THE PROPERTY ALONG WITH OTHER AS SETS WITH A MANDATE TO OPERATE AND MAINTAIN THE CFS FACI LITY OF THE ASSESSEE. 2.8 MOREOVER, FORM 3CD FURNISHED BY THE ASSESSEE CLEARLY STATES ITS NATURE OF BUSINESS OR PROFESSION AS 'LEASE INCOME FROM DRY PORT'. FINAL ACCOUNTS OF TH E ASSESSEE ALSO SHOW THAT ITS MAIN INCOME IS FROM LEA SE AND THE REMAINING SMALL PART OF ITS INCOME IS EARNE D FROM INTEREST ON FSS. THEREFORE, THE LETTING OUT OF CFS FACILITY WAS FOR DOING BUSINESS AND NOT FOR EXPLOITATION OF THE PROPERTY BY THE OWNER. 29. IN THIS REGARD, RELIANCE IS PLACED ON THE RECEN T JUDGMENT OF THE SUPREME COURT IN THE CASE OF M/S CHENNAI PROPERTIES & INVESTMENTS LIMITED VS CIT [TS- 238- SC-2015] WHEREIN IT WAS HELD THAT IF LETTING OUT OF PROPERTIES WAS THE BUSINESS OF THE TAXPAYER, THEN I TS INCOME WOULD BE CHARGEABLE TO TAX UNDER THE HEAD PR OFITS AND GAINS OF BUSINESS OR PROFESSION' AS OPPOSED TO 'IN COME FROM HOUSE PROPERTY. IN ARRIVING AT THE DECISION, THE HO N'BLE APEX COURT ALSO PLACED RELIANCE ON ITS DECISION IN THE CASE OF KARANPUTRA DEVELOPMENT CO. LIMITED [1 962] 44 ITR 3 62 [SC) WHEREIN IT HAD HELD THAT THE DECIDING FACTOR WAS NOT THE OWNERSHIP OF LAND OR LEASES, BUT THE NATURE OF THE ACTIVITY OF THE TAXPAYER AND THE NATURE OF THE OPERATIONS IN RE LATION TO C.O.57/CHD/2017 A.Y. 2013-14 8 THE SAME. THE OBJECTIVES OF THE COMPANY MUST ALSO B E KEPT IN VIEW TO INTERPRET THE ACTIVITIES OF THE COMPANY. 2.10 IN VIEW OF THE ABOVE, INCOME FROM LEASE OF CFS FACILITY AT NAVI MUMBAI IS TREATED AS BUSINESS INCO ME AS WAS SHOWN BY THE ASSESSEE AND ACCEPTED, BY THE DEPARTMENT IN THE EARLIER YEARS (INSTEAD OF INCOME FRO M HOUSE PROPERTY). AND FURTHER TO THE FINDINGS OF THE LD.CIT(A) AT PAR AS 4.4 TO 4.4..2 AS UNDER: 4.4 ON PLAIN READING OF THE LEASE DEED IT BECOMES VERY CLEAR THAT AGREEMENT BETWEEN THE APPELLANT AND THE LESSEE IS NOT A MERE AGREEMENT TO LEASE OUT A BUILDING OR A PREMISES. IT IS RATHER A CONTRACT FOR OPERATION AND MAINTENANCE OF THE CFS FACILITY AS HAS BEEN RIGHTLY OBSERVED BY THE ASSESSING OFFICER. THE AGREEMENT DATED 12.01.2007 IS BETWEEN THE APPELLANT AND GDL, AND THE TITLE OF THE AGREEMENT IS 'OPERATIONS AND MANAGEMENT AGREEMENT'. THE SECOND PARTY TO THE AGREEMENT I.E. GDL, HAS BEEN REFERRED TO AS 'THE OPERATOR'. THE APPELLANT IS IN POSSESSION OF LAND O F 27 ACRES IN NAVI MUMBAI, WHICH IT HAS RECEIVED FROM THE LEASE FROM C-IDCO FOR 60 YEARS. THE APPELLANT HAS DEVELOPED THIS LAND FOR THE PURPOSE OF OPERATING FREIGHT CONTAINER STATION WITH A BUILT UP COVERED CAPACITY OF 52,500 SQ.MTRS. THE CRS IS A ST RATEGICALLY LOCATED AND PROVIDES CONTAINER WAREHOUSING BACK FACILI TY TO JAWAHARLAL NEHRU PORT. THE APPELLANT HAS BEEN APPOIN TED AS THE CUSTODIAN OF THE CFS FACILITY BY THE CUSTOM A UTHORITY FOR OPERATING AND MAINTAINING THE CFS FACILITY. THE A PPELLANT HAS ENTERED INTO A STRATEGIC ALLIANCE WITH THE OPER ATOR FOR 15 YEARS WHEREIN THE LAND AND THE BUILDING HAS BEEN GIVEN TO THE OPERATOR FOR THE OPERATION OF THE FACILITY. IN CL AUSE 3.1 OF THE AGREEMENT THE ACTIVITIES WHICH OPERATOR HAS TO CAR RY OUT HAVE BEEN DEFINED FROM SL.NOS. (I) TO (X), WHICH IN CLUDE AS UNDER:- 1. HANDLING THE IMPORT AND EXPORT OF CAR GO INCLUDING DELIVERY OF CONTAINERS. 2. OPERATION AND MAINTENANCE OF A BUFFER YARD. 3. OPERATE AND MAINTAIN A CONTAINER YARD FOR HANDLING OF EMPTY CONTAINERS AND CARRYING O UT REPAIR FACILITIES INCLUDING REFURBISHING CONTAINERS. 4. CARRY OUT PRE-TRIP CONSTRUCTIONS OF REEFER CONTA INERS AND STORAGE OF REEFER CONTAINERS. 5. PROVIDE WAREHOUSING FACILITIES. 6. PROVIDE THIRD PARTY LOGISTICS. 7. PROVIDE-BONDED-WAREHOUSE FACILITIES. C.O.57/CHD/2017 A.Y. 2013-14 9 8. SURVEY AND INSPECTION OF CONTAINERS. 9. REPAIR YARD FOR EQUIPMENTS AND OTHER RELATED EQUIPMENT. 10. ANY OTHER CONTAINER HANDLING AND TRANSPORTATIONS SERVICE. 4.4.1 FURTHER IN PARA 6.1 OF THE AGREEMENT THE OPERATOR IS ALSO REQUIRED TO KEEP AN ASSET REGISTER REGARDING ALL THE ASSETS HANDED OVER TO THE OPERATOR AND MAINTAIN THE SE ASSETS. THE OPERATOR WOULD ALSO REQUIRE TO ENGAGE SE RVICES OF STAFF ON ANNUAL CONTRACTS AND PAYING SALARY TO SUCH STAFF FOR DURATION OF SUCH ENGAGEMENT. 4.4.2 IT HAS FURTHER BEEN NOTICED THAT THE LESSEE N AMELY GDL IS A PROFESSIONAL COMPANY IN THE BUSINES S OF OPERATING CONTAINER FREIGHT STATION IN MAJOR IN DIAN PORTS AND THE SERVICES IT PROVIDE INCLUDES PROVIDING CONTAINE R YARDS WAREHOUSING, HANDLING AND TRACKING CONTAINERS. IT HA S BEEN DEDICATED FLEET OF TRAILERS ETC. 12. THE LD. DR ALSO DREW OUR ATTENTION TO VARIOUS DECISIONS RELIED UPON BY THE LD.CIT(A) FOR HOLDING THAT IN ORDER TO DETERMINE THE NATURE OF INCOME WHETHER FROM HOUSE PROPERTY OR FROM BUSINESS, THE FACTS OF EACH CASE HAVE TO BE SEEN AND WHERE SUBJECT OF LETT ING OUT IS AN APARTMENT ONLY PREDOMINANTLY WITH THE ROOMS FOR RENT, THE INCOME WOULD BE IN THE NATURE O F INCOME FROM HOUSE PROPERTY. BUT IF THE SUBJECT MATT ER OF HIRING WAS A COMPLEX ONE THE INCOME WOULD BE TREATED AS DERIVED FROM THE BUSINESS. OUR ATTENTION WAS DRAWN TO THE DECISION REFERRED TO BY THE CIT(A) IN THE CASE OF NATIONAL STORAGE PVT. LTD., 66 ITR 596, ASSOCIATED BUILDING COMPANY LTD., 137 ITR 339, MUKHERJI ESTATE PVT. LTD., 244 ITR 1 AND RUSSEL PROPERTIES PVT. LTD., 137 ITR 473. THE LD. DR, THEREFORE, STATED THAT THE LD.CIT(A) HAD RIGHTLY UP HELD THE INCOME FROM BUSINESS AND PROFESSION. C.O.57/CHD/2017 A.Y. 2013-14 10 13. WE HAVE HEARD THE RIVAL CONTENTIONS AND HAVE GONE THROUGH THE ORDER OF THE LD.CIT(A). WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD.CIT(A). T HE ISSUE BEFORE US, RELATING TO CHARACTERIZATION OF RE NTAL INCOME RECEIVED, WHETHER IN THE NATURE OF INCOME FR OM HOUSE PROPERTY OR INCOME FROM BUSINESS AND PROFESSION, THE PROPOSITION OF LAW IN THIS REGARD DISTINGUISHING THE SAME IS CLEAR THAT WHERE THE INC OME IS RECEIVED FROM BARE LETTING OUT OF TENEMENT IT WO ULD BE IN THE NATURE OF INCOME FROM HOUSE PROPERTY BUT WHERE THE SUBJECT HIRED OUT IS A COMPLEX ONE AND TH E INCOME OBTAINED IS NOT SO MUCH BECAUSE OF THE BARE LETTING OF THE TENEMENT BUT BECAUSE OF THE FACILITI ES AND SERVICE RENDERED, THE OPERATIONS INVOLVED IN SU CH LETTING MAY BE IN THE NATURE OF BUSINESS OR TRADING OPERATIONS AND INCOME DERIVED IS NOT FROM EXERCISE OF PROPERTY RIGHTS BUT INCOME FROM OPERATIONS, TO BE TREATED AS BUSINESS INCOME OF THE ASSESSEE. IF THE MAIN INTENTION FOR EXPLOITING THE PROPERTY IS MERE LETTING OUT THE PROPERTY THEN IT IS IN THE NATURE O F INCOME FROM HOUSE PROPERTY BUT IF THE MAIN INTENTIO N IS TO EXPLOIT THE IMMOVABLE PROPERTY BY WAY OF COMP LEX COMMERCIAL ACTIVITIES THEN IT IS TO BE TREATED AS BUSINESS INCOME. 14. IN THE PRESENT CASE, THE FACTUAL FINDINGS OF TH E REVENUE AUTHORITIES FROM THE LEASE AGREEMENT THAT T HE CFS FACILITY WAS LEASED OUT TO M/S GATEWAY C.O.57/CHD/2017 A.Y. 2013-14 11 DISTRIPARKS LTD., THE LESSEE, ALONGWITH THE ASSETS, TO LOOK AFTER THE OPERATION AND MANAGEMENT OF THE CFS FACILITY IS NOT DISPUTED. THEREFORE, CLEARLY, IT WA S NOT A MERE LETTING OUT OF PROPERTY BUT A CONTRACT FOR RUN NING AND OPERATING CFS FACILITY ON BEHALF OF THE ASSESSE E. THE LD.CIT(A) HAS POINTED OUT THE FACTS OF THE CASE THAT THE ASSESSEE, WAS IN POSSESSION OF 27 ACRES OF LAND WHICH IT HAD RECEIVED FROM SIDCO ON LEASE FOR 60 YEARS AND WHICH IT HAD DEVELOPED FOR THE PURPOSE O F OPERATING FREIGHT CONTAINER STATION WITH A BUILT UP COVERED CAPACITY OF 52,500 SQ.MTRS. THAT THE ASSESS EE WAS PROVIDING CONTAINER WAREHOUSING FACILITY TO JAWAHARLAL NEHRU PORT AND HAD BEEN APPOINTED AS THE CUSTODIAN OF CFS FACILITY BY THE CUSTOMS AUTHORITY FOR OPERATING AND MAINTAINING THE FACILITY. THAT THE ASSESSEE HAD IN TURN ENTERED INTO A STRATEGIC ALLIA NCE WITH THE LESSEE OPERATOR FOR 15 YEARS, TITLING THE AGREEMENT AS OPERATION AND MANAGEMENT AGREEMENT, GIVING THE LAND AND BUILDING TO THE OPERATOR FOR CARRYING OUT THE OPERATION OF THE FACILITY. THE LD.CIT(A) HAS LISTED FROM CLAUSE 3.1 OF THE AGREEME NT THE VARIOUS ACTIVITIES TO BE CARRIED OUT BY THE LES SEE OPERATOR WHICH INCLUDED HANDLING IMPORT AND EXPORT OF CARGO, OPERATING AND MAINTAINING BUFFER YARD, OPERATING AND MAINTAINING THE CONTAINER YARD, PROVIDING WAREHOUSING FACILITY, BONDED WAREHOUSING FACILITY, PROVIDING THIRD PARTY LOGISTIC AND SUCH O THER ACTIVITIES. AS PER THE AGREEMENT,(PARA 6) THE ASSES SEE C.O.57/CHD/2017 A.Y. 2013-14 12 HAD TO APPOINT AN INDEPENDENT CONSULTANT, OUT OF TH E LIST PROVIDED BY THE LESSEE, WHO HAD TO REVIEW AND REPORT ON THE MAINTENANCE OF THE FACILITY. THE LESS EE, AS PER THE AGREEMENT(PARA 5&6) HAD TO PROVIDE FOR A PERFORMANCE BANK GUARANTEE WHICH THE ASSESSEE HAS A RIGHT TO REVOKE IN CASE OF FAILURE OF THE LESSEE TO RECTIFY DEFICIENCY POINTED OUT BY THE CONSULTANT.AS PER THE AGREEMENT,(PARA 7.3)THE LESSEE OPERATOR WOULD B E RESPONSIBLE FOR ALL OBLIGATIONS OF THE ASSESSEE UND ER THE SUBSISTING CONTRACT WITH RESPECT TO OPERATION A ND MAINTENANCE OF CFS. THE LD.CIT(A) HAS FURTHER NOTED THAT THE LESSEE, I.E. GDL, WAS A PROFESSIONAL COMP ANY IN THE BUSINESS OF OPERATING CONTAINER FREIGHT STAT ION IN MAJOR PORTS. ALL THE ABOVE FACTS HAVE REMAINED UNCONTROVERTED BEFORE US. 15. IN VIEW OF THE ABOVE, WE HAVE NO HESITATION IN HOLDING THAT THE LD.CIT(A) HAS RIGHTLY CONCLUDED TH AT IT WAS NOT A MERE LETTING OUT OF A BUILDING BUT THE MAIN PURPORT OF THE AGREEMENT WAS TO SUBCONTRACT TH E OPERATIONS OF THE CFS FACILITY TO THE LESSEE AND FO R THE SAID PURPOSE THE CFS FACILITY HAD BEEN LET OUT TO T HE LESSEE. THEREFORE, IN VIEW OF THE UNDISPUTED FACTS AS STATED ABOVE, WE HOLD THAT THE LD.CIT(A) HAD RIGHTL Y HELD THE INCOME EARNED TO BE IN THE NATURE OF INCOM E FROM BUSINESS AND PROFESSION. RELIANCE PLACED BY TH E LD. COUNSEL FOR ASSESSEE ON THE DECISION OF THE HON 'BLE APEX COURT IN THE CASE OF RAJ DADARKAR & ASSOCIATES C.O.57/CHD/2017 A.Y. 2013-14 13 (SUPRA) IS MISPLACED SINCE THE SAME IS DISTINGUISHA BLE. THE ISSUE BEFORE THE HON'BLE APEX COURT IN THAT CAS E WAS NOT WHETHER THE LAND AND BUILDING LET OUT WAS A SIMPLE LETTING OUT OR LETTING OUT OF A COMPLEX STRUCTURE. ON THE CONTRARY, IN THE FACTS OF THE SAI D CASE, THE LETTING OUT WAS OF FLATS/BUILDING SIMPLIC TER AND THE ISSUE TO BE DECIDED WAS WHETHER THE SAME COULD STILL BE HELD TO BE IN THE NATURE OF BUSINESS INCOME TO WHICH THE HON'BLE APEX COURT HAD HELD THA T IT COULD BE SO HELD ONLY IF THE LETTING OUT OF PROP ERTY WAS THE OBJECT FOR WHICH THE ASSESSEE COMPANY WAS S ET UP/FOUND. THEREFORE, THE DECISION IN THE CASE OF RA J DADARKAR & ASSOCIATES (SUPRA), ADDRESSES A TOTALLY DIFFERENT QUESTION AND THUS CANNOT BE APPLIED TO TH E FACTS OF THE PRESENT CASE. IN VIEW OF THE ABOVE, GR OUND NO.2 RAISED BY THE ASSESSEE IS DISMISSED. 16. GROUND NO.3 RELATING TO THE CLAIM OF DEDUCTION U/S 24(A) OF THE ACT ON ASSESSING THE RENTAL INCOME AS INCOME FROM HOUSE PROPERTY, THE SAME IS ALSO DISMISSED SINCE WE HAVE HELD THE INCOME ASSESSABLE AS INCOME FROM BUSINESS AND PROFESSION IN GROUND NO.2 ABOVE. 17. GROUND NO.4 RELATES OF DISALLOWANCE OF FINE/PENALTY AMOUNTING TO RS.1,67,620/-. 18. THE ASSESSEE HAD NOT CLAIMED THIS EXPENDITURE SINCE HE HAD TREATED THE RENTAL INCOME EARNED AS INCOME FROM HOUSE PROPERTY. HOWEVER, THE A.O. TREAT ED C.O.57/CHD/2017 A.Y. 2013-14 14 THE RENTAL INCOME AS INCOME FROM BUSINESS AND PROFESSION AND DISALLOWED THE AMOUNT PAID ON ACCOUN T OF FINE AND PENALTY. 19. BEFORE THE LD.CIT(A) NO SUBMISSIONS ON THIS ACCOUNT WERE MADE BY THE ASSESSEE AND THE DISALLOWANCE, THEREFORE, WAS UPHELD. EVEN BEFORE US NO SUBMISSIONS HAVE BEEN MADE VIS--VIS THIS ISSUE.THE DISALLOWANCE, OF FINE/PENALTY EXPENSES AMOUNTING TO RS.1,67,620/- IS, THEREFORE, UPHELD. THIS GROUND OF APPEAL NO.4 RAISED BY THE ASSESSEE IS DISMISSED. 20. IN THE RESULT, THE CROSS OBJECTION OF THE ASSES SEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- % & ' ($ (SANJAY GARG) (ANNAPURNA GUPTA) /JUDICIAL MEMBER )* /ACCOUNTANT MEMBER ,% /DATED: 28 TH FEBRAURY, 2019 * $ * # $%&'()*' / COPY OF THE ORDER FORWARDED TO : 1. )(+ / THE APPELLANT 2. %,+ / THE RESPONDENT 3. ## - / CIT 4. ## - ( )( )/ THE CIT(A) 5. './%0 , #)( #0 , 123/4 / DR, ITAT, CHANDIGARH 6. /35 / GUARD FILE # $ / BY ORDER, ( / ASSISTANT REGISTRAR