DCIT, Ludhiana V. M/s Sona Projects (P) Ltd., Ludhiana

ITA 1035/CHANDI/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 60874 (ITAT-CHANDIGARH)
• Duration Of Justice: 7 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-06-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 12-06-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 27-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Depreciation; Earning of tax free income
• Section: 153A; 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH B CHANDIGARH BEFORE SHRI H.L.KARWA, VICE PRESIDENT AND SHRI T.R.SOOD, ACCOUNTANT MEMBER ITA NO.1035/CHD/2011 ASSESSMENT YEAR: 2007-08 DCIT, CC-1, V M/S SONA PROJECTS (P) LTD., LUDHIANA. G.T.ROAD, NEAR FIRE BRIGADE OFFICE, LUDHIANA (PB.) PAN: AACCS-2709M (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI AKHILESH GUPTA RESPONDENT BY : SHRI ASHWANI KUMAR DATE OF HEARING : 12.06.2012 DATE OF PRONOUNCEMENT : 14.06.2012 ORDER PER T.R.SOOD, AM IN THIS APPEAL, REVENUE HAS RAISED VARIOUS GROUNDS BUT AT THE TIME HEARING, LD. DR SUBMITTED THAT ONLY TWO DISPUTES ARE INVOLVED, NAMELY; (I) ASSESSABILITY OF RENTAL I NCOME UNDER THE HEAD BUSINESS INCOME AND CONSEQUENTIAL DISALL OWANCE OF INTEREST, HOUSE TAX, STATUTORY ALLOWANCE OF 30% AND (II) RELIEF GRANTED BY LD. CIT(A) IN RESPECT OF AGRICULTURE INC OME ASSESSED BY AO AS 'INCOME FROM OTHER SOURCES'. 2. IN THE FIRST ISSUE, AFTER HEARING BOTH THE PARTI ES, WE FIND THAT DURING ASSESSMENT PROCEEDINGS, THE AO NOTED TH AT ASSESSEE HAD RECEIVED ANNUAL RENT OF RS.59,48,571/- OUT OF WHICH A SUM OF RS.7,72,465/- WAS CLAIMED ON ACCOUNT OF HOUSE TAX PAID, RS.133,161/- AS INTEREST ON BORROWE D LOAN AND RS.15,52,832/- AS PER PROVISIONS OF SECTION 24( A) @ 30% 2 OF ANNUAL INCOME. THE ASSESSEE WAS ASKED TO JUSTIF Y THE CLAIM OF DECLARING SUCH INCOME UNDER THE HEAD INCO ME FROM HOUSE PROPERTY. IN RESPONSE, IT WAS STATED VIDE L ETTER DATED 23.11.2009 AS UNDER : 'AS REGARDS YOUR HONOUR'S QUERY RELATING TO ALLOWANCE OF 30% OF REPAIRS OF RENTAL INCOME BE NOT DISALLOWED AND WHY RENTAL INCOME BE NOT TREATED AS BUSINESS INCOME, IT IS SUBMITTED THAT A SEARCH HAS BEEN TOOK PLACE AT THE BUSINESS PREMISES OF THE ASSESSEE COMPANY ON 28.12.05. THE ASSESSMENTS FOR A/YS 2000-01 TO 2006-07 HAVE ALREADY BEEN COMPLETED BY YOUR HONOUR'S PREDECESSORS VIDE ORDER DATED 20.12.2007 U/S 153A READ WITH SECTION 153C AND 143(3). IN THOSE YEARS ALSO THE ASSESSEE COMPANY WAS IN RECEIPT OF RENTAL INCOME FROM ITS COMPLEX KNOWN AS 'SONA COMPLEX'. WHATEVER RENTAL INCOME WAS RECEIVED IN THOSE RESPECTIVE YEARS HAVE DULY BEEN SHOWN AS INCOME FROM HOUSE PROPERTY AND NOT AS BUSINESS INCOME AND THE CONTENTION OF THE ASSESSEE COMPANY HAS DULY BEEN ACCEPTED/ASSESSED BY YOUR HONOUR'S PREDECESSORS FOR THE YEARS MENTIONED ABOVE. THE POSITION IS THE SAME IN THE YEAR UNDER CONSIDERATION. COPY OF THE ASSESSMENT ORDER AND COMPUTATION FOR A/Y 2006-07 ARE ENCLOSED. THE ASSESSEE COMPANY HAS ALSO TAKEN VARIOUS LOANS FROM PARTIES FOR CONSTRUCTION O F THIS COMPLEX BUILDING IN THE PAST, DETAIL OF WHICH HAS ALREADY BEEN FILED. WHATEVER INTEREST HAS BEEN PAID, HAS BEEN CLAIMED AGAINST THE RENTAL INCOME IN THE PAST. LIKEWISE, IN THE YEAR UNDER CONSIDERATION , INTEREST PAID ON THESE LOANS HAS BEEN CLAIMED AS EXPENDITURE OUT OF RENTAL INCOME. 3. THE AO WAS NOT SATISFIED WITH THE ABOVE REPLY AN D NOTED THAT AS PER MEMORANDUM OF ASSOCIATION OF THE COMPANY, THE MAIN OBJECTS WERE TO INVEST IN LAND AN D 3 BUILDING PROPERTIES, TO ACQUIRE BY PURCHASE, LEASE, EXCHANGE, CONSTRUCTION OR OTHERWISE, BUILDINGS, OFFICE, SHOW- ROOMS ETC. TO CONSTRUCT, PURCHASE, ACQUIRE, DWELL THE PROPERTI ES. ACCORDING TO HIM, FROM THESE OBJECTS, IT WAS CLEAR THAT MAIN OBJECT WAS TO DEAL WITH THE REAL ESTATE. THEREFORE , ASSESSEE WAS NOT A SIMPLISTER OWNER OF A PROPERTY, WHICH HAS BEEN GIVEN ON RENT. HE ALSO NOTED THAT ASSESSEE HAS CLA IMED AN EXPENDITURE OF RS.72,796/- ON ACCOUNT OF LEASE DEED CHARGES, WHICH CLEARLY INDICATE THAT MAIN ACTIVITY WAS BUSINESS ACTIVITY AND ACCORDINGLY, THE RENTAL INCOM E WAS HELD TO BE ASSESSABLE UNDER THE HEAD INCOME FROM B USINESS OR PROFESSION. CONSEQUENTLY DEDUCTION U/S 24(1) @ 30% AMOUNTING TO RS.15,52,832/- WAS DENIED. INTEREST AMOUNTING TO RS.1,33,161/- ON BORROWED CAPITAL WAS ALSO DISALLOWED BECAUSE ONLY SUCH INTEREST WAS PAID IN E ARLIER YEAR. PAYMENT NO HOUSE TAX AMOUNTING TO RS.7,72,46 5/- WAS ALSO DISALLOWED BECAUSE INCOME WAS ASSESSED AS BUSINESS INCOME. 4. ON APPEAL, IT WAS MAINLY SUBMITTED BEFORE LD. CI T(A) THAT THERE WAS A SEARCH IN THE PREMISES OF ASSESSEE AND STILL RENTAL INCOME WAS ASSESSED AS INCOME FROM HOUSE PRO PERTY ONLY. THEREFORE, FOLLOWING THE PRINCIPLE OF CONSIS TENCY, THE INCOME SHOULD HAVE BEEN ASSESSED ON RENTAL INCOME. MOREOVER, NO DEPRECIATION IS BEING CLAIMED, WHICH C LEARLY SHOWS THAT INCOME IS FROM HOUSE PROPERTY ONLY. IT WAS FURTHER SUBMITTED THAT IN EARLIER YEARS, CERTAIN LO ANS WERE TAKEN WHICH WERE PARTLY USED FOR PURCHASE OF PROPER TY AS WELL AS REPAYMENT OF LOANS AND THE EXPENSES WERE AL LOWED 4 ACCORDINGLY. THIS YEAR, NO LOAN HAS BEEN USED FOR R EPAYMENT OF LOANS, THEREFORE, INTEREST WAS CLAIMED AGAINST T HE INCOME FROM HOUSE PROPERTY. LD. CIT(A), AFTER EXAMINING T HE SUBMISSIONS FOUND FORCE IN THE SAME AND OBSERVED TH AT ONCE ASSESSEE WAS OWNER OF THE BUILDING, THE INCOME HAS TO BE ASSESSED AS INCOME FROM HOUSE PROPERTY. IN THIS REG ARD, HE HAS RELIED ON VARIOUS DECISIONS INCLUDING THE DECIS ION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT V NATI ONAL STORAGE PVT. LTD. 48 ITR 577, WHEREIN IT IS OBSERVE D THAT, HOUSE OWNING, HOWEVER PROFITABLE IT MAY BE, CANNOT BE A BUSINESS FOR THE PURPOSE OF INCOME TAX ACT. ACCORDINGLY, HE HELD THAT INCOME WAS ASSESSABLE UNDER THE HEAD INC OME FROM HOUSE PROPERTY CORRESPONDING DEDUCTIONS WERE TO BE ALLOWED. 5. BEFORE US, LD. DR STRONGLY SUPPORTED THE ORDER O F AO. 6. ON THE OTHER HAND, LD. COUNSEL FOR THE ASSESSEE, WHILE SUPPORTING THE ORDER OF CIT(A), SUBMITTED THAT IN A LL EARLIER YEARS, THE IDENTICAL INCOME HAS BEEN ASSESSED AS IN COME FROM HOUSE PROPERTY. EVEN AFTER THE SEARCH, WHEN ASSESSMENTS WERE FRAMED U/S 153A/153C, INCOME WAS ASSESSED AS INCOME FROM HOUSE PROPERTY. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS CAREFULLY AN D FOUND THAT LD. CIT(A) HAS CORRECTLY DECIDED THE ISS UE. ONCE ASSESSEE IS OWNER OF A BUILDING AND HAS EARNED RENT AL INCOME, THE SAME HAS TO BE TREATED AS INCOME FROM H OUSE PROPERTY BECAUSE SPECIFIC HEAD, DEALING WITH INCOME ON HOUSE PROPERTY IS AVAILABLE. AS FAR AS THE DEDUCTI ON ON ACCOUNT OF HOUSE TAX AND INTEREST IS CONCERNED, THE SAME ARE 5 DEDUCTIBLE EVEN UNDER THE HEAD INCOME FROM BUSINES S OR PROFESSION. THEREFORE, WE FIND NOTHING WRONG WITH THE APPELLATE IMPUGNED ORDER AND CONFIRM THE SAME. 8. IN THE SECOND ISSUE, AFTER HEARING BOTH THE PART IES WE FIND THAT DURING ASSESSMENT PROCEEDINGS, AO NOTICED THAT ASSESSEE HAS DECLARED AGRICULTURE INCOME OF RS.4,93 ,350/-. ASSESSEE WAS ASKED TO JUSTIFY THE EXEMPTION. IT WA S STATED VIDE LETTER DATED 23.11.2009 AS UNDER : REGARDING YOUR HONOURS QUERY RELATING AS TO WHY AGRICULTURAL INCOME EARNED BY THE ASSESSEE COMPANY BE NOT TREATED AS NORMAL INCOME AS AGAINST SHOWN BY THE ASSESSEE COMPANY FOR RATE PURPOSES ONLY/CLAIMED AS EXEMPT, IT IS SUBMITTED THAT WHATEVER AGRICULTUR AL INCOME HAS BEEN SHOWN, HAS SHOWN ON THE BASIS OF LEASE AGREEMENT ENTERED INTO BY THE ASSESSEE COMPANY WITH AGRICULTURISTS. THE AGRICULTURAL INCO ME IS EXEMPT FROM TAX AS PER PROVISIONS OF SECTION 10( 1) AND IS ADDED ONLY FOR RATE PURPOSES, IRRESPECTIVE O F THE FACT WHETHER AN ASSESSEE IS ENGAGED IN AGRICULTURE ACTIVITIES OR OTHERWISE. IN VIEW OF TH E ABOVE THE INCOME FROM AGRICULTURE SHOULD BE TREATED AS AN EXEMPT INCOME. IT IS FURTHER SUBMITTED THAT PROVISIONS OF SECTION 14A IS ALSO NOT APPLICABLE IN THE INSTANT CASE AS THERE IS NO EXPENDITURE INCURRED/DEBITED TO P&L A/C WHICH CAN BE SAID TO BE INCURRED FOR THE PURPOSES OF EARNING AN EXEMPTED INCOME I.E. AGRICULTURAL INCOME AS NO EXPENDITURE I S INCURRED IN CONNECTION WITH THE LEASE AGREEMENTS FO R AGRICULTURAL LAND. 9. THE AO WAS NOT SATISFIED WITH THE ABOVE EXPLANAT ION AND OBSERVED THAT LAND WAS BASICALLY PURCHASED FOR REAL ESTATE ACTIVITIES AND WAS GIVEN ON LEASE TO VARIOUS PARTIES. THEREFORE, INCOME COULD NOT BE TREATED AS AGRICULTU RE 6 INCOME. ON APPEAL BEFORE CIT(A), IT WAS MAINLY SUB MITTED THAT EVEN INCOMES RECEIVED FROM AGRICULTURIST OUT O F LEASE CHARGES, WERE TO BE TREATED AS AGRICULTURE INCOME U NDER SECTION 10(1) OF THE INCOME-TAX ACT,1961. LD. CIT( A) WAS SATISFIED WITH THE SUBMISSIONS AND ALLOWED THE CLAI M OF AGRICULTURE INCOME. 10. BEFORE US, LD. DR SUPPORTED THE ORDER OF AO. 11. ON THE OTHER HAND, LD. COUNSEL OF THE ASSESSEE SUPPORTED THE APPELLATE ORDER. 12. AFTER HEARING RIVAL SUBMISSIONS, WE FIND THAT L D. CIT(A) HAS ADJUDICATED THE ISSUE VIDE PARA 6 OF HIS ORDER, WHICH IS AS UNDER: I HAVE CONSIDERED THE BASIS OF ADDITION MADE BY TH E AO AND ARS ARGUMENTS ON THE SAME. IT IS AN UNDISPUTED FACT THAT THE LANDS IN QUESTION HAVE BEE N USED FOR THE PURPOSES OF AGRICULTURAL OPERATIONS AN D THESE LANDS ARE OWNED BY THE ASSESSEE COMPANY. IT IS ALSO A MATTER OF RECORD THAT ASSESSEE IS IN RECE IPT OF LEASE/RENT CHARGES FROM THE PERSONS WHO HAVE CARRIED OUT THE AGRICULTURAL OPERATIONS ON THE LAND . AS SUCH, THE AMOUNTS RECEIVED BY THE ASSESSEE ARE SQUARELY COVERED UNDER THE DEFINITION OF AGRICULTUR AL INCOME AS DEFINED IN S.1(1A)(A). THE SAID AGRICULT URAL INCOME IS EXEMPT IN VIEW OF S.10(1). IN THE CIRCUMSTANCES, THE AOS ACTION IN TREATING THE SAME AS TAXABLE IS AGAINST THE LAW AS DETAILED ABOVE. THEREFORE, THE ADDITION IS DELETED. 13. LD. CIT(A) HAS GIVEN A FINDING THAT ULTIMATELY, LANDS IN QUESTION WERE USED FOR AGRICULTURE PURPOSES AND THI S FACT HAS NOT BEEN DENIED BEFORE US. AS PER THE DEFINITI ON OF AGRICULTURE INCOME U/S 2(1A ) (A), THE AGRICULTURE INCOME 7 MEANS, ANY RENT OR REVENUE DERIVED FROM LAND WHICH IS SITUATED IN INDIA AND IS USED FOR AGRICULTURAL PURP OSES. THUS, EVEN REVENUE RECEIPTS FROM LEASING OUT LAND F OR AGRICULTURE PURPOSES, IS TO BE TREATED AS AGRICULTU RE INCOME. IN THESE CIRCUMSTANCES, WE FIND NOTHING WRONG WITH THE ORDER OF THE CIT(A) AND CONFIRM THE SAME. 14. IN THE RESULT, APPEAL FILED BY THE REVENUE IS D ISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 14 TH JUNE,2012. SD/- SD/- (H.L.KARWA) (T.R.SOOD) VICE PRESIDENT ACCOUNTANT MEMBER DATED: 14 TH JUNE,2012. POONAM COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT(A), THE CIT ,DR ASSISTANT REGISTRAR, ITAT CHANDIGARH