Sh. Anil Nagpal, Chandigarh V. DCIT, Chandigarh

CO 8/CHANDI/2010

• Counselvise Citation: [2012] 122 COUNSELVISE.COM (IT) 8096 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 year(s) 9 month(s) 28 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 28-12-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 20-11-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 02-03-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: VINIT KRISHAN
• Keywords: Business income; Depreciation
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH B, CHANDIGARH BEFORE SHRI T.R. SOOD, ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO.131/CHD/2010 (ASSESSMENT YEAR : 2006-07) THE D.C.I.T., VS. SH.ANIL NAGPAL, CIRCLE-5(1), SCO 31, SECTOR 26, CHANDIGARH. CHANDIGARH. PAN: AAHPN4284C AND C.O.NO.8/CHD/2010 ARISING OUT OF ITA NO.131/CHD/2010 (ASSESSMENT YEAR : 2006-07) SH.ANIL NAGPAL, VS. THE D.C.I.T., SCO 31, SECTOR 26, CIRCLE-5(1), CHANDIGARH. CHANDIGARH. PAN: AAHPN4284C (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI VINIT KRISHAN DEPARTMENT BY : SHRI AKHILESH GUPTA, DR DATE OF HEARING : 20.11.2012 DATE OF PRONOUNCEMENT : 28.12.2012 O R D E R PER SUSHMA CHOWLA, J.M, : THE APPEAL FILED BY THE REVENUE IS AGAINST THE ORD ER OF THE COMMISSIONER OF INCOME-TAX(APPEALS), CHANDIGARH DAT ED 09.11.2009 RELATING TO ASSESSMENT YEAR 2006-07 AGAINST THE ORD ER PASSED U/S 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). THE ASSESSEE HAS FILED CROSS OBJECTIONS AGAINST THE APPEAL FILED BY THE RE VENUE. 2 2. THE REVENUE IN ITA NO.131/CHD/2010 HAS RAISED FO LLOWING GROUNDS OF APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) HAS ERRED IN ALLOWING APPEAL OF THE ASSESSEE WITHOUT APPRECIATING THE FACTS OF THE CASE. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN LAW IN DELETING ADDITIONS OF RS.4472053 MADE BY THE A.O. TREATING THE SAME AS LEASING INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES AFTER ALLOWING INTEREST ON BORROWED CAPITAL CLAIMED BY THE ASSESSEE AND NOT AS INCOME FROM HOUSE PROPERTY AS CLAIMED BY THE ASSESSEE. 3. THE EFFECTIVE GROUND OF APPEAL RAISED BY THE ASS ESSEE IN C.O.NO.8/CHD/2010 READS AS UNDER: 2. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE , THE LD. CIT(A), CHD. GRAVELY ERRED IN UPHOLDING THE ACTION OF THE LEARNED ASSESSING OFFICER IN MAKING AN ADDITION OF RS.4,50,000 BY DISALLOWING THE INTEREST ON THE GROUND THAT RS.37,50,000/- WERE GIVEN AS INTEREST FREE LOAN TO SH.ANIL NAGPAL (HUF) IN FACT THE ASSESSEE HAD RETURNED A SUM OF RS.37,50,000/- OUT OF THE TOTAL LOAN OF RS.49,00,615/- OUTSTANDING AGAINST THE ASSESSEE IN THE BOOKS OF M/S R.G.R. PHARMACEUTICALS OF WHICH THE APPELLANT IS THE PROPRIETOR. 4. BOTH THE APPEAL OF THE REVENUE AND THE CROSS OBJ ECTIONS FILED BY THE ASSESSEE WERE HEARD TOGETHER AND ARE BEING DISP OSED OFF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 5. THE ISSUE RAISED BY THE REVENUE IS IN RELATION T O THE ASSESSABILITY OF LEASE INCOME RECEIVED BY THE ASSESSEE. 6. THE BRIEF FACTS OF THE CASE ARE THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAD DECLARED LEASE INCOM E OF RS.61,87,500/-. THE ASSESSEE HAD LEASED OUT ITS ASSETS I.E. PROPERT Y NO.30-31-32, EPIP, JHARMAJRI, BADDI TO M/S JOHNSON & JOHNSON DIVISION. THE ASSESSEE HAD DECLARED THE SAID INCOME UNDER THE HEAD INCOME FRO M PROPERTY. THE 3 ASSESSING OFFICER REQUISITIONED THE ASSESSEE TO EXP LAIN WHY THE INCOME FROM THE LEASING OF ASSETS SHOULD NOT BE TREATED AS INCOME FROM BUSINESS INSTEAD OF INCOME FROM PROPERTY CLAIMED BY THE ASSE SSEE. THE EXPLANATION OF THE ASSESSEE WAS THAT THE SAID BUILD ING WAS CONSTRUCTED AND DESIGNED AS PER THE REQUIREMENTS OF THE TENANT I.E. M/S JOHNSON & JOHNSON. IT WAS FURTHER CLAIMED BY THE ASSESSEE TH AT THE INTENTION WAS TO EARN RENT FROM THE SAID ASSET AND THE BUILDING ALON GWITH FIXTURES WAS DESIGNED AND CONSTRUCTED ACCORDING TO THE REQUIREME NTS OF THE TENANTS AND WAS LEASED AS SUCH. THE ASSESSING OFFICER TREA TED THE SAID LEASE INCOME AS INCOME FROM OTHER SOURCES, AGAINST WHICH INTEREST PAID ON BORROWALS CLAIMED AT RS.17,15,447/- WAS ALLOWED AS A DEDUCTION AND THE BALANCE INCOME OF RS.44,72,053/- WAS TREATED AS INC OME FROM OTHER SOURCES. THE CIT (APPEALS) DIRECTED THE ASSESSING OFFICER TO TREAT THE SAID INCOME AS INCOME FROM PROPERTY IN VIEW OF THE RATIO LAID DOWN IN THE FOLLOWING JUDGMENTS: 1) CHENNAI PROPERTIES & INVESTMENT LTD. 266 ITR 685 (MAD) 2) S.G. MERCANTILE CORP.(P) LTD. 83 ITR 700 (SC) 3) SHAMBHU INVESTMENT (P) LTD. 129 TAXMAN 70 (SC) 4) CIT VS. SARABHAI PVT. LTD. 263 ITR 197 (GUJ) 7. THE CIT (APPEALS) ALSO ACCEPTED THE SECOND PLEA OF THE ASSESSEE THAT THERE WAS DOUBLE ADDITION MADE BY THE ASSESSIN G OFFICER ON ACCOUNT OF FIRST ACCEPTING THE RETURN OF INCOME AND THEREAF TER MAKING THE ADDITION OF RS.44,72,053/-. 8. THE LEARNED D.R. FOR THE REVENUE PLACING RELIANC E ON THE ORDER OF THE ASSESSING OFFICER POINTED OUT THAT AS PER THE L EASE AGREEMENT PLACED AT PAGES 1 ONWARDS OF THE PAPER BOOK FILED BY THE A SSESSEE, THE SAID 4 BUILDING WAS CONSTRUCTED AS PER THE SPECIFICATION O F THE LESSEE AND IT ALONGWITH PLANT & MACHINERY, EQUIPMENT AND FACILITI ES WAS PROVIDED TO THE LESSEE ON LEASE. OUR ATTENTION WAS DRAWN TO TH E ANNEXURE PLACED AT PAGES 15 AND 16 OF THE PAPER BOOK IN WHICH THE LIST OF MACHINERY IS ENLISTED. 9. THE LEARNED A.R. FOR THE ASSESSEE POINTED OUT TH AT THE ASSESSEE HAD CONSTRUCTED AN AIR-CONDITIONED BUILDING FOR THE SPE CIFIC REQUIREMENTS OF THE LESSEE AND THE BUILDING ALONGWITH THE SAID AIR- CONDITIONING AND OTHER FACILITIES WAS PROVIDED FOR THE USE OF THE LESSEE. FURTHER THE WATER & EFFLUENT TREATMENT SYSTEM WAS PART AND PARCEL OF TH E BUILDING AS NO PERMISSION TO CONSTRUCT AND OCCUPY THE COMMERCIAL B UILDING WOULD BE SANCTIONED WITHOUT THE GENERATOR SET AND WATER EFFL UENT PLANT. THE AIR CONDITIONER PROVIDED IN THE BUILDING IN ANY CASE CO ULD NOT RUN WITHOUT GENERATOR SET. IT WAS FURTHER POINTED OUT BY THE L EARNED A.R. FOR THE ASSESSEE THAT SIMILAR INCOME DECLARED BY THE ASSESS EE IN THE SUCCEEDING YEAR/S HAD BEEN ACCEPTED BY THE ASSESSING OFFICER U NDER THE HEAD INCOME FROM PROPERTY VIDE ORDER PASSED UNDER SECT ION 143(3) OF THE ACT, RELATING TO ASSESSMENT YEAR 2009-10. IT WAS F URTHER POINTED OUT BY THE LEARNED A.R. FOR THE ASSESSEE THAT IN CASE THE INCOME IS TO BE ASSESSED UNDER ANY OTHER HEAD EXCEPT INCOME FROM PR OPERTY, THE ASSESSEE IS ENTITLED TO THE DEPRECIATION ON THE ASSETS INCLU DING THE BUILDING. THE LEARNED A.R. FOR THE ASSESSEE FURTHER SUBMITTED THA T THE INCOME FROM PROPERTY HAS BEEN ADDED TWICE IN THE HANDS OF THE A SSESSEE I.E. FIRST BY WAY OF PART AND PARCEL OF THE RETURNED INCOME AND THEREAFTER ON ACCOUNT OF ADDITION MADE UNDER THE HEAD PROPERTY INCOME. 10. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE ARISING IN THE PRESENT APPEAL IS IN RELATION TO THE ASSESSABILITY OF LEASE INCOME RECEIVED BY THE ASSESSEE. THE ASSESSE E HAD BOUGHT LAND 5 AND CONSTRUCTED THE BUILDING AS PER THE SPECIFICATI ON AND DESIGN OF THE LESSEE M/S JOHNSON & JOHNSON. THE SAID BUILDING CO NSTRUCTED BY THE ASSESSEE WAS FULLY AIR-CONDITIONED AND IN ADDITION TO THE LAND AND BUILDING BEING LEASED TO THE LESSEE, CERTAIN ASSETS AS ENLISTED UNDER ANNEXURE-2 ANNEXED TO THE LEASE AGREEMENT DATED 11. 5.2004 WERE ALSO LEASED TO THE LESSEE. THE LIST OF ASSETS INCLUDE A IR HANDLING UNIT, WATER & EFFLUENT PLANT TREATMENT SYSTEM, GENERATOR SET, F IRE FIGHTING EQUIPMENT, HAND DRYER AND CPU I.E. CABLING, SWITCHE S AND PORTS. AS PER CONVEYANCE OF LEASE AGREEMENT DATED 11.5.2004, COPY OF WHICH IS PLACED AT PAGES 1 TO 16 OF THE PAPER BOOK, THE ASSESSEE EN TERED INTO AN AGREEMENT WITH M/S JOHN & JOHNSON, UNDER WHICH IT I S PROVIDED AS UNDER: A. THE LESSEE IS ENGAGED IN MANUFACTURE AND SALE O F VARIOUS MEDICAL PRODUCTS, HOSPITAL/SURGEONS, REQUISITES, AND DISINFECTANTS. B. WITH THIS OBJECTIVE, THE LESSEE HAS APPROACHED THE LESSOR TO ACQUIRE LAND AND BUILD A FACTORY ACCORDING TO THE STANDARDS AND SPECIFICATIONS OF THE LESSEE EXCLUSIVELY FOR THE BENEFIT OF THE LESSEE. C. THE LESSEE HAS ACCORDINGLY IDENTIFIED FOR THE LESSOR THE LOCATION AND PLOT OF THE LAND FOR THE PURPOSE OF CONSTRUCTION OF A FACTORY BUILDING THEREON BY THE LESSOR IN CONFORMITY WITH THE LAYOUT APPROVED AND SPECIFIED BY THE LESSEE. D. THE LESSEE HAS THROUGH ITS OFFICERS REGULARLY INSPECTED AND SUPERVISED THE CONSTRUCTION OF THE FACTORY BUILDING TO ENSURE THAT IT MEASURES UPTO THE STANDARDS AND SPECIFICATIONS OF THE LESSEE. E. THE LESSEE HAS SATISFIED ITSELF AS TO THE COMPLIANCE BY THE LESSOR WITH THE LAYOUT/SPECIFICATIONS APPROVED BY THE LESSEE. F. THE LESSEE IS DESIROUS OF UTILIZING THE FACTORY BUILDING, EXCLUSIVELY FOR THE MANUFACTURE OF HOSPITAL, SURGICAL AND MEDICAL PRODUCTS AND HAS REQUESTED THE LESSOR TO PLACE FACTORY BUILDING EXCLUSIVELY AT ITS DISPOSAL ALONG WITH THE REQUISITE PLANT AND MACHINERY AND OTHER INFRASTRUCTURE AND FACILITIES REQUIRED FOR THE MANUFACTURE OF THE PRODUCTS. 6 G. THE LESSOR HAS AGREED TO PROVIDE FACTORY BUILDING AND PURCHASE ALL REQUIRED PLANT & MACHINERY, EQUIPMENT/S AND FACILITIES (UNDERTAKING) AND PROVIDE THE SAME TO THE LESSEE ON LEASE, UPON THE TERMS & CONDITIONS HEREINAFTER MENTIONED. H. IT IS EXPRESSLY UNDERSTOOD BETWEEN THE PARTIES THAT THE INFRASTRUCTURE AND OTHER FACILITIES PROVIDED BY THE LESSOR, BEING OF A SPECIFIC NATURE AND FOR A PARTICULAR PURPOSE, ARE FOR THE SOLE AND EXCLUSIVE COMMERCIAL UTILIZATION BY THE LESSEE. 11. IN VIEW OF THE STANDARD AND SPECIFICATION FIXED BY THE LESSEE THE LAND WAS PURCHASED BY THE ASSESSEE AT BADDI, HIMACH AL PRADESH AND FACTORY BUILDING WAS CONSTRUCTED MEASURING 33000 SQ .MTR. COMPRISING GROUND AND 1 ST FLOOR. THE PERIOD OF LEASE FIXED BETWEEN THE PART IES WAS 10 YEARS AND THE LEASE RENTAL IN THE FIRST YEAR WAS RS.63 LACS AND SECOND YEAR WAS RS.62 LACS AND SO ON THEREAFTER. THE PER USAL OF THE TERMS OF THE AGREEMENT ENTERED INTO BETWEEN THE ASSESSEE AND THE LESSEE REFLECTS THE INTENTION OF THE PARTIES TO LEASE THE FACTORY B UILDING ALONGWITH CERTAIN PLANT & MACHINERY, EQUIPMENT FACILITIES AND INFRASTRUCTURES AS DESCRIBED IN THE SCHEDULE ANNEXED TO THE AGREEMENT FOR THE PURPOSE OF EXPLOITATION THE SAID PROPERTY BY WAY OF EARNING R ENTALS FROM THE SAME THE PROPERTY WAS SPECIFICALLY BUILT BY THE ASSESSEE FOR THE OCCUPATION OF THE LESSEE IN LINE WITH THE SPECIFICATION PROVIDED BY THE LESSEE. THE INTENTION OF THE ASSESSEE IN THE PRESENT CASE THUS STANDS ESTABLISHED THAT THE AGREEMENT WAS ENTERED INTO WITH THE LESSEE FOR THE SOLE PURPOSE OF ENJOYING THE SAID PROPERTY BY WAY OF EARNING LEASE INCOME FROM THE SAME. 12. THE ISSUE ARISING IN THE PRESENT APPEAL IS THAT THE LEASE INCOME EARNED BY THE ASSESSEE IS WHETHER ASSESSABLE AS INC OME FROM PROPERTY OR INCOME FROM OTHER SOURCES AS ASSESSED BY THE ASSESS ING OFFICER. 7 13. THE HON'BLE CALCUTTA HIGH COURT IN CIT VS. SHAM BHU INVESTMENT PVT. LTD.[249 ITR 47 (CAL)] HELD AS UNDER: MERELY BECAUSE INCOME IS ATTACHED TO ANY IMMOVABLE PROPERTY, THAT CANNOT BE THE SOLE FACTOR FOR ASSESS MENT OF SUCH INCOME AS INCOME FROM PROPERTY. IF THE MAIN I NTENTION OF THE ASSESSEE IS TO LET OUT THE PROPERTY OR ANY P ORTION THEREOF THE INCOME MUST BE CONSIDERED AS RENTAL INC OME OR INCOME FROM PROPERTY WHEREAS IF THE PRIMARY OBJECT IS TO EXPLOIT THE IMMOVABLE PROPERTY BY WAY OF COMPLEX COMMERCIAL ACTIVITIES, IN THAT EVENT IT MUST BE HEL D AS BUSINESS INCOME. THE COST OF THE IMMOVABLE PROPERTY OWNED BY THE ASSESSEE WAS RS.5,42,443. A PORTION OF THE PROPERT Y WAS USED BY THE ASSESSEE ITSELF FOR ITS OWN BUSINESS PU RPOSE. THE REST OF THE PROPERTY HAD BEEN LET OUT TO THE VARIOU S OCCUPANTS WITH FURNITURE, FIXTURES, LIGHTS, AIR-CON DITIONERS FOR BEING USED AS TABLE SPACE. UNDER AN AGREEMENT WITH THOSE OCCUPANTS, THE ASSESSEE PROVIDED SERVICE LIKE WATCH AND WARD STAFF, ELECTRICITY, WATER AND OTHER COMMON AMENITIES. THE SERVICES RENDERED TO THE VARIOUS OC CUPANTS ACCORDING TO THE SAID AGREEMENT WAS NOT SEPARATELY CHARGED AND THE MONTHLY RENT PAYABLE WAS INCLUSIVE OF ALL C HARGES TO THE ASSESSEE. THE ASSESSEE HAD RECOVERED A SUM OF RS.4,25,000 AS AND BY WAY OF SECURITY ADVANCE FROM THREE OCCUPANTS. THE INCOME DERIVED BY THE ASSESSEE FROM THE PROPERTY WAS ASSESSED AS BUSINESS INCOME BY THE ASS ESSING OFFICER. THE COMMISSIONER REMANDED THE MATTER TO TH E ASSESSING OFFICER WITH A DIRECTION TO ASSESS THE IN COME AS INCOME FROM PROPERTY, BUT THE TRIBUNAL RESTORED THE ORDER OF THE ASSESSING OFFICER. ON A REFERENCE HELD, THAT IT WAS EVIDENT FROM THE AGREEMENT THAT T HE ASSESSEE HAD LET OUT THE FURNISHED OFFICE TO THE OC CUPANTS ON A MONTHLY RENTAL WHICH WAS INCLUSIVE OF ALL CHARGES TO THE ASSESSEE. THE ENTIRE COST OF THE PROPERTY LET OUT T O THE OCCUPANTS HAD BEEN RECOVERED AS AND BY WAY OF INTER EST-FREE ADVANCE BY THE ASSESSEE. THEREFORE, IT COULD NOT BE SAID THAT THE ASSESSEE WAS EXPLOITING THE PROPERTY FOR ITS CO MMERCIAL BUSINESS ACTIVITIES. 14. THE HON'BLE SUPREME COURT IN SHAMBHU INVESTMENT P. LTD. VS. CIT [263 ITR 143 (SC)] HAS APPROVED THE DECISION OF HON 'BLE CALCUTTA HIGH COURT IN CIT VS. SHAMBHU INVESTMENT PVT. LTD. [249 ITR 47 (CAL)]. 15. THE HON'BLE MADRAS HIGH COURT IN CIT VS. CHENNA I PROPERTIES & INVESTMENTS LTD. [266 ITR 685 & 686 (MAD)] HELD AS UNDER: 8 IT IS TRUE THAT THERE IS A DIFFERENCE IN THE CLASS IFICATION OF INCOME BETWEEN THE INCOME-TAX ACT, 1922 AND THE 1961 ACT. SECTION 6 OF THE 1922 ACT CLASSIFIES INCOME UNDER THE HEADS SALARIE S, INTEREST ON SECURITIES, INCOME FROM PROPERTY, PROFITS AND GAINS FROM BUSINESS, INCOME FROM OTHER SOURCES AND CAPITAL GAINS. THE 1 961 ACT, WHILE SUBSTANTIALLY RETAINING THOSE HEADS OF INCOME, MODI FIED THE HEAD INCOME FROM PROPERTY WHICH WAS THE DESCRIPTION GIVEN IN T HE 1922 ACT TO INCOME FROM HOUSE PROPERTY. HOWEVER, SECTION 22 O F THE 1961 ACT DOES NOT REFER TO HOUSE PROPERTY DESPITE ITS CAPTION. THE LANGUAGE EMPLOYED IN THE SECTION SHOWS THAT THE INCOME REFERRED TO TH EREIN IS NOT NECESSARILY INCOME FROM HOUSES. IT IS INCOME FROM PROPERTY CON SISTING OF ANY BUILDING OR LANDS APPURTENANT THERETO OF WHICH THE ASSESSEE IS THE OWNER. [PARA 17] THE WORD BUILDING IS NOT CONFINED IN ITS SCOPE ON LY TO DWELLING HOUSES. THE WORD HOUSE IN ASSOCIATION WITH OTHER WORDS AL SO HAS MANY OTHER MEANINGS. BUT, A COMMERCIAL BUILDING IS NOT REGARDE D AS A HOUSE. THAT, HOWEVER, WOULD NOT TAKE THE INCOME FROM SUCH BUILDI NGS OUT OF THE AMBIT OF SECTION 22. THOUGH IT IS NOT CLEAR FROM THE CONT EXT AS TO WHY THE ACT DESCRIBES INCOME FROM PROPERTY AS INCOME FROM HOUSE PROPERTY, THE SUBSTANTIVE PROVISION OF LAW WHICH CREATES THE CHAR GE AND OBLIGATES THE PERSON WHO RECEIVES SUCH INCOME TO HAVE IT ASSESSED UNDER THAT HEAD DOES NOT CONFINE ITS APPLICATION ONLY TO HOUSE PROP ERTY, BUT EXTENDS IT TO ALL BUILDINGS WHETHER SUCH BUILDINGS ARE USED AS DW ELLING HOUSES OR FOR OTHER PURPOSES. [PARA 18] IT HAS BEEN HELD BY THE SUPREME COURT UNIFORMLY IN ALL CASES WHERE THE ISSUE WAS THE HEAD UNDER WHICH THE RENTAL INCOME FR OM BUILDINGS IS TO BE ASSESSED, THAT SUCH INCOME IS TO BE ASSESSED UNDER THE HEAD INCOME FROM PROPERTIES/INCOME FROM HOUSE PROPERTIES. [PAR A 19] FROM THE FACTS OF THE INSTANT CASE, IT WAS CLEAR TH AT THE ASSESSEE, AS OWNER OF THE BUILDING, WAS ONLY EXPLOITING THE PROP ERTY AS OWNER BY LEASING OUT THE SAME AND REALISING INCOME BY WAY OF RENT. SUCH RENTAL INCOME WAS LIABLE TO BE ASSESSED UNDER THE HEAD IN COME FROM HOUSE PROPERTY. THE TRIBUNAL WAS IN ERROR IN HOLDING OTH ERWISE. [PARA 22] 16. IN VIEW OF THE SETTLED POSITION OF LAW THE INTE NTION OF THE PARTIES IS TO BE LOOKED INTO WHILE CONSIDERING THE ISSUE OF AS SESSABILITY OF RENTAL INCOME. WHERE MAIN INTENTION OF THE ASSESSEE WAS TO LET OUT THE PROPERTY OR PORTION THEREOF AND PROVIDING OF CERTAIN ANCILLA RY SERVICES IN ORDER TO GET BETTER RETURN, WOULD BE CONSIDERED AS RENTAL IN COME ASSESSABLE AS INCOME FROM PROPERTY. IN THE FACTS OF THE PRESENT CASE WHERE THE ASSESSEE HAD ENTERED INTO AN AGREEMENT WITH M/S JOH NSON & JOHNSON ON 11.5.2004 AND AS PER THE ANNEXURE ATTACHED TO THE S AID AGREEMENT IN ADDITION TO THE AIR-CONDITIONED BUILDING CONSTRUCTE D BY THE ASSESSEE FOR USE OF THE LESSEE M/S JOHNSON & JOHNSON, THE ASSESS EE HAD PROVIDED THE 9 AIR-CONDITIONING SYSTEM ALONGWITH THE GENERATOR AND FIRE FIGHTING EQUIPMENTS, THE LEASE RENTALS RECEIVED BY THE ASSES SEE ARE ASSESSABLE UNDER THE HEAD INCOME FROM PROPERTY. HOWEVER, THE RENTAL RELATABLE TO THE USE OF WATER AND EFFLUENT TREATMENT SYSTEM, PROVIDED BY THE ASSESSEE IS ASSESSABLE AS INCOME FROM OTHER SOURCES , AGAINST WHICH THE ASSESSEE IS ENTITLED TO THE CLAIM OF DEPRECIATION O N THE SAID ASSET. THE NECESSARY DETAILS IN RESPECT OF THE WATER AND EFFLU ENT TREATMENT SYSTEM PROVIDED BY THE ASSESSEE AND ITS COST ARE NOT AVAIL ABLE ON RECORD AND IN ORDER TO ADJUDICATE THE LIMITED ISSUE OF DETERMININ G THE RENTAL RELATABLE TO SUCH SYSTEM, WE REMIT THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER, WHO SHALL COMPUTE THE INCOME FROM OTHER SO URCES IN THE HANDS OF THE ASSESSEE ON ACCOUNT OF RENTAL RELATABLE TO W ATER AND EFFLUENT TREATMENT SYSTEM. REASONABLE OPPORTUNITY OF HGEARI NG SHALL BE AFFORDED TO THE ASSESSEE. ACCORDINGLY, GROUND NO.2 RAISED B Y THE REVENUE IS PARTLY ALLOWED. 17. THE ONLY EFFECTIVE GROUND OF APPEAL RAISED BY T HE ASSESSEE IN CROSS OBJECTION IS GROUND NO.2. THE PLEA OF THE ASSESSEE IS THAT SUM OF RS.37,50,000/- WAS RE-PAYMENT OF INITIAL LOAN TAKEN BY THE ASSESSEE FROM M/S ANIL NAGPAL (HUF). THE ASSESSEE HAD RECEIVED T OTAL SUM OF RS.49,00,615/- FROM M/S ANIL NAGPAL (HUF) IN ITS SO LE PROPRIETARY CONCERN M/S R.G.R. PHARMACEUTICALS. HOWEVER, THE S AID BUSINESS WAS NOT BEING CARRIED ON BY THE ASSESSEE AND THERE WERE NO FUNDS AVAILABLE WITH THE SAID SOLE PROPRIETARY CONCERN OF THE ASSES SEE, RE-PAYMENT OF RS.37,50,000/- WAS MADE BY THE ASSESSEE FROM ANOTHE R SOLE PROPRIETARY CONCERN M/S ALLIANCE FORMULATION. THE ASSESSING OF FICER HAD INVOKED THE PROVISIONS OF SECTION 36(1)(III) OF THE ACT TO DISALLOW THE PROPORTIONATE EXPENDITURE RELATABLE TO SUCH ADVANCE MENT OF INTEREST FREE LOAN TO M/S ANIL NAGPAL (HUF) AND CONSEQUENTLY DISA LLOWANCE OF 10 RS.4,50,000/- WAS MADE BY THE ASSESSING OFFICER, WH ICH WAS CONFIRMED BY THE CIT (APPEALS). 18. THE LEARNED A.R. FOR THE ASSESSEE HAS TAKEN US THROUGH THE BALANCE SHEET AS ON 31.3.2005 OF M/S R.G.R. PHARMACEUTICALS PLACED AT PAGES 34 TO 36 OF THE PAPER BOOK WHERE SUM OF RS.49,00,615 I S OUTSTANDING AGAINST M/S ANIL NAGPAL (HUF) I.E. THE LOAN OUTSTAN DING. DURING THE YEAR UNDER CONSIDERATION I.E. FINANCIAL YEAR 2005-0 6 SUM OF RS.37,50,000/- WAS SHOWN AS LOANS AND ADVANCES AS O N 31.3.2006 IN THE BALANCE SHEET OF M/S ALIANCE FORMULATION. THE SAID BALANCE SHEET IS PLACED AT PAGES 25 TO 30 OF THE PAPER BOOK. AT PA GES 31 AND 32 OF THE PAPER BOOK IS PLACED BALANCE SHEET OF R.G.R. PHARMA CEUTICALS, IN WHICH LOAN OF M/S ANIL NAGPAL (HUF) IS SHOWN AT RS.38,50, 615/-. IN THE ENTIRETY OF THE FACTS AND CIRCUMSTANCES, WE FIND NO MERIT IN THE AFORESAID DISALLOWANCE OF EXPENDITURE UNDER SECTION 36(1)(III ) OF THE ACT. IN THE PRESENT CIRCUMSTANCES WHERE THE ASSESSEE HAD REPAID AN INITIAL LOAN TAKEN FROM M/S ANIL NAGPAL (HUF) THOUGH THE ENTRIES OF CR EDIT AND DEBIT APPEARED IN DIFFERENT SOLE PROPRIETARY CONCERN/S OF THE ASSESSEE, NO DISALLOWANCE OF INTEREST IS WARRANTED. THE GROUND RAISED BY THE ASSESSEE IN CROSS OBJECTION IS ALLOWED. 19. IN THE RESULT, THE APPEAL OF THE REVENUE THE CR OSS OBJECTIONS FILED BY THE ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH DAY OF DECEMBER, 2012. SD/- SD/- (T.R.SOOD) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 28 TH DECEMBER, 2012 *RATI* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/TH E CIT/THE DR. ASSISTANT REGISTRAR, ITAT, CHANDIGARH 11