ACIT, CHENNAI V. M/s. NDR Warehousing Pvt Ltd., CHENNAI

ITA 1041/CHNY/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64484 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 4 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 17-10-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 06-06-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: J SREE VIDYA
• Keywords: Business income; Deemed dividend

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI BEFORE SHRI ABRAHAM P.GEORGE, ACCOUNTANT ME MBER AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER ITA NO.1039 TO 1041/MDS/2011 (ASSESSMENT YEAR: 2004-05, 2005-06 & 2007-08 ) ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-IV(4), AAYAKAR BHAVAN, IV FLOOR, 121, M.G.ROAD, CHENNAI-600 034. VS. M/S. NDR WAREHOUSING PVT.LTD., OLD NO.5, NEW NO.9, ERRABALU CHETTY STREET, CHENNAI-600 001. PAN: AAACN2816J (APPELLANT) (RESPONDENT) APPELLANT BY : MR. GURU BASHYAM, JCIT RESPONDENT BY : MS. J.SREE VIDYA, ADVOCATE DATE OF HEARING : 17 TH OCTOBER, 2012 DATE OF PRONOUNCEMENT : 31 ST OCTOBER, 2012 O R D E R PER VIKAS AWASTHY, JM: THE PRESENT SET OF THREE APPEALS HAVE BEEN FILED BY THE REVENUE IMPUGNING THE COMMON ORDER OF THE CIT(A) DA TED 18.2.2011. THE CIT(A) HAS ALLOWED ALL THE THREE AP PEALS OF THE ASSESSEE RELEVANT TO THE ASSESSMENT YEARS 2004- 05, 2005-06 AND 2007-08 VIDE SINGLE IMPUGNED ORDER. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COMPANY REGISTERED UNDER THE PROVISIONS OF COMPANIE S ACT, 1956 AND IS ENGAGED IN THE BUSINESS OF WAREHOUSING, ITA NO.1039 TO 1041/MDS/2011 2 HANDLING AND TRANSPORT BUSINESS. THE ASSESSEE HAD FILED RETURN OF ITS INCOME FOR THE RELEVANT ASSESSMENT YE ARS SHOWING INCOME FROM LETTING OUT OF BUILDING AND GOD OWN SPACE AS INCOME FROM BUSINESS. THE ASSESSING OFF ICER REJECTED THE VIEW OF THE ASSESSEE FOR TREATING THE INCOME FROM LETTING OUT OF BUILDING AND GODOWN AS BUSINES S INCOME AND ASSESSED THE SAME AS INCOME FROM HOUSE PROPER TY. AGGRIEVED AGAINST THE ASSESSMENT ORDER FOR ALL THE THREE RELEVANT ASSESSMENT YEARS, THE ASSESSEE PREFERRED A PPEALS BEFORE THE CIT(A). THE CIT(A) VIDE IMPUGNED ORDER A LLOWED ALL THE THREE APPEALS OF THE ASSESSEE, HOLDING THE INCOME FROM WAREHOUSING AND LETTING OUT OF GODOWN AND BUIL DINGS AS INCOME FROM BUSINESS. 4. THE REVENUE AGGRIEVED AGAINST THE ORDER OF THE C IT(A) HAS COME IN SECOND APPEAL BEFORE THE TRIBUNAL ASSAI LING THE ORDER OF THE CIT(A). FOR THE ASSESSMENT YEAR 2005-0 6, THE REVENUE HAS TAKEN ADDITIONAL GROUND WITH REGARD TO DEEMED DIVIDED TO THE DIRECTORS OF THE COMPANY UNDER SECTI ON 2(22)(E) OF THE ACT. ITA NO.1039 TO 1041/MDS/2011 3 5. SHRI GURU BASHYAM APPEARING ON BEHALF OF THE REVENUE SUBMITTED THAT THE ASSESSEE HAS WRONGLY SHO WN THE INCOME FROM LETTING OUT OF BUILDINGS AND WAREHOUSES AS INCOME FROM BUSINESS, WHEREAS IT SHOULD HAVE BEEN I NCOME FROM HOUSE PROPERTY. THE DR SUPPORTING THE ASSESSME NT ORDER AND SUBMITTED THAT THE ASSESSEE ENTERED INTO AN AGREEMENT WITH M/S. HINDUSTAN LEVER LTD., M/S. INDV E LOGISTICS PVT.LTD. AND M/S. BAX GLOBAL (INDIA) PVT .LTD. AND VARIOUS OTHER COMPANIES FOR LETTING OUT ITS WAREHOU SES. HE SUBMITTED THAT AS PER THE AGREEMENT BETWEEN THE ASS ESSEE AND THE LESSEES IT WAS EVIDENT THAT BUILDINGS/WAREH OUSES WERE LEASED TO THE COMPANIES ON MONTHLY RENTALS AN D FURTHER THE LESSEES WERE ENTITLED TO MAKE ALTERATIONS WITH THE APPROVAL OF THE LESSOR. THE ASSESSEE HAD AGREED TO PROVIDE WATER SUPPLY AND ELECTRICITY AND NO SEPARATE CHARGE S WERE BEING COLLECTED FOR PROVIDING SUCH AMENITIES. HE SU BMITTED THAT THIS CLEARLY SHOWS THAT THE INCOME OF THE ASSE SSEE IS LIABLE TO BE TAXED UNDER THE HEAD INCOME FROM HOUS E PROPERTY AND NOT UNDER THE HEAD INCOME FROM BUSIN ESS. THE DR IN SUPPORT OF HIS CONTENTIONS HAS RELIED ON THE ITA NO.1039 TO 1041/MDS/2011 4 JUDGEMENT OF JURISDICTIONAL HIGH COURT IN THE CASE OF KEYARAM HOTELS (P) LTD. VS. ACIT., REPORTED AS 173 TAXMAN 2 62 (MAD) AND CIT VS. CHENNAI PROPERTIES & INVESTMENTS LTD., REPORTED AS 136 TAXMANN 202(MAD). 6. THE D.R. SUBMITTED THAT FOR THE ASSESSMENT YEAR 2005- 06 ANOTHER ISSUE WHICH HAS CROPPED UP FOR ADJUDICAT ION IS WITH REGARD TO ADVANCE PAID TO SHRI N.AMRUTESH REDD Y, ONE OF THE DIRECTORS. THE DR SUBMITTED THAT THE ASSESSE E IS A COMPANY IN WHICH PUBLIC ARE NOT SUBSTANTIALLY INTER ESTED AND MR. AMRUTESH REDDY IS A DIRECTOR AS WELL AS SHAREHO LDER HOLDING 78% SHARES IN ASSESSEE COMPANY. DURING TH E RELEVANT PERIOD, THE ASSESSEE HAD ADVANCED LOAN TO MR. AMRUTESH REDDY ON VARIOUS DATES BETWEEN 22.4.2004 AND 20.1.2005. THE SAID LOAN ADVANCED IS NOTHING BUT DE EMED DIVIDEND UNDER THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT. THE ASSESSEE WAS SUPPOSED TO DEDUCT TAX AT SOURCE, BUT THE ASSESSEE HAS FAILED TO COMPLY WITH THE PROVISIONS O F TDS. 7. ON THE OTHER HAND, MS.SREE VIDYA APPEARING ON BE HALF OF THE ASSESSEE SUBMITTED THAT ASSESSEE COMPANY WAS INCORPORATED WITH THE MAIN OBJECT TO ESTABLISH WARE HOUSES, ITA NO.1039 TO 1041/MDS/2011 5 STORAGE ROOMS, GODOWNS ETC. AND TO CARRY ON THE BUS INESS OF WAREHOUSEMEN. THEREFORE, THE ASSESSEE IS IN THE BUS INESS OF LETTING GODOWNS AND BUILDINGS TO OTHER COMPANIES O N LEASE. THUS THE INCOME EARNED BY THE ASSESSEE BY LETTING O UT OF BUILDINGS AND WAREHOUSES IS INCOME FROM BUSINESS AND NOT INCOME FROM HOUSE PROPERTY. THE COUNSEL SUPPORT ING THE ORDER OF THE CIT(A) SUBMITTED THAT THE ORDER IS WE LL-REASONED AND DETAILED ORDER. THE COUNSEL FOR THE ASSESSEE FU RTHER SUBMITTED THAT THE DEPARTMENT HAS ALREADY ADMITTED THIS FACTUAL POSITION IN EARLIER ASSESSMENT YEARS. THE ASSESSEE COMPANY WAS INCORPORATED WAY BACK IN THE YEAR 1986 AND SINCE THEN IT HAS BEEN FILING RETURN OF ITS INCOME BY TREATING THE INCOME AS INCOME FROM BUSINESS. IN ORDER TO SUPPOR T HER CONTENTIONS, THE COUNSEL FOR THE ASSESSEE PLACED ON RECORD CERTIFICATE OF INCORPORATION AND MEMORANDUM OF ASSO CIATION OF THE COMPANY WHICH ARE AT PAGE 1 AND 2 RESPECTIVE LY OF THE PAPER BOOK FILED BY THE ASSESSEE. THE COUNSEL FURT HER SUBMITTED THAT ASSESSEES MAIN SOURCE OF INCOME IS FROM LEASING OUT OF GODOWNS AND WAREHOUSES IS EVIDENT F ROM THE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE COMPANY. T HE ITA NO.1039 TO 1041/MDS/2011 6 ASSESSEE HAS PLACED ON RECORD PROFIT AND LOSS ACCOU NT FOR THE YEAR ENDED ON 31.03.2004, 31.03.2005 AND 31.03.2007 WHICH ARE AT PAGE 17, 22 AND 27 RESPECTIVELY OF THE PA PER BOOK. THE COUNSEL FOR THE ASSESSEE ALSO DREW OUR ATTENTIO N TO PAGE 32 OF THE PAPER BOOK WHEREIN THE FACILITIES PROVIDE D TO THE WAREHOUSING COMPANIES ARE MENTIONED. THE COUNSEL ST RONGLY SUPPORTED THE ORDER OF THE CIT(A) AND SUBMITTED THA T IN VIEW OF THE DOCUMENTS ON RECORD, IT IS CLEARLY EVIDENT T HAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF LETTING OUT / LEASING OF GODOWNS AND WAREHOUSES. IN ORDER TO FORTIFY THE SUBMISSIONS, THE COUNSEL FOR THE ASSESSEE RELIED ON THE JUDGEMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF NUTAN WAREHOUSING COMPANY P.LTD., VS. DCIT., REPORT ED AS 326 ITR 94(BOM) AND THE ORDER OF THE CO-ORDINATE BE NCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. POPAT JAMAL & SONS REPORTED AS 121 TTJ 265, ITO VS. TEJMALBHAI & CO., REPORTED AS 282 ITR (AT) 224 AND ACIT VS. SARDAR DAVINDER S INGH KOHLI REPORTED AS 85 ITD 544. 8. AS REGARDS ISSUE NO.2, RELATING TO ADVANCE TO ONE OF THE DIRECTORS OF THE COMPANY, THE LEARNED COUNSEL STRONGLY ITA NO.1039 TO 1041/MDS/2011 7 SUPPORTED THE FINDINGS OF THE CIT(A) ON THE ISSUE. THE COUNSEL FOR THE ASSESSEE SUBMITTED THAT EVEN OTHERW ISE THE ALLEGED DEEMED DIVIDEND CANNOT BE ASSESSED IN THE HANDS OF THE COMPANY. 9. WE HAVE HEARD THE SUBMISSIONS MADE BY BOTH THE PARTIES. WE HAVE ALSO GONE THROUGH THE ORDERS OF TH E AUTHORITIES BELOW AND THE JUDGEMENTS/ORDERS RELIED ON BY THE RESPECTIVE PARTIES. THE LEARNED COUNSEL FOR THE ASSESSEE HAS PLACED ON RECORD MEMORANDUM OF ASSOCIATION OF THE COMPANY. A PERUSAL OF THE OBJECT CLAUSE OF THE COMP ANY SHOWS THAT THE COMPANY WAS INCORPORATED WITH THE FO LLOWING MAIN OBJECTS: (I) TO ESTABLISH WAREHOUSES, STORAGE ROOMS, BINS, GODOWNS AND COLD STORAGES, TO CARRY ON THE BUSINESS OF WAREHOUSEMEN, STORES CUSTODIANS AND TO PROVIDE FACILITIES FOR STORAGE OF COMMODITIES, ARTICLES, THINGS OF ALL KINDS AND DESCRIPTION WHATSOEVER. (II) TO CARRY ON THE BUSINESS OF CLEARING AND FORWARDING AGENTS, CARRIERS, TRANSPORTATION AND ITA NO.1039 TO 1041/MDS/2011 8 DISTRIBUTION OF ALL KINDS OF GOOD, ARTICLES, COMMODITIES, ARTICLES, THINGS OF ALL KINDS AND DESCRIPTION WHATSOEVER; (III) TO PROVIDE FINANCE TO CONSTRUCTION BUILDINGS, SHEDS, GODOWNS, WAREHOUSES, STORAGE ROOMS AND BINS AND/OR ACQUIRE ON LEASE OR OTHERWISE, BUILDINGS, SHEDS, GODOWNS AND WAREHOUSES. THIS CLEARLY SHOWS THAT THE MAIN OBJECTS OF THE COM PANY IS TO EARN BUSINESS PROFITS BY PURSUING THE BUSINESS OF WAREHOUSING, COLD STORAGE, GODOWNS ETC. A FURTHER PERUSAL OF THE PROFIT AND LOSS ACCOUNT FOR THE FINANCIAL YEAR ENDED ON 31.03.2004 , 31.03.2005 AND 31.03.2007 SHOWS THAT T HE MAIN SOURCE OF INCOME OF THE ASSESSEE WAS STORAGES CHARG ES AND MAINTENANCE CHARGES/USER CHARGES. THIS MAKES IT AMP LY CLEAR THAT THE PRIMARY SOURCE OF INCOME OF THE ASSESSEE W AS LETTING OUT OF GODOWNS AND WAREHOUSES TO THE MANUFACTURERS, TRADERS AND OTHER COMPANIES CARRYING ON WAREHOUSIN G BUSINESS. THE LEARNED COUNSEL FOR THE ASSESSEE HA D MADE A STATEMENT AT THE BAR THAT SINCE THE TIME OF INCORPO RATION IN THE YEAR 1986, THE ASSESSEE HAS BEEN FILING ITS RETURN OF THE ITA NO.1039 TO 1041/MDS/2011 9 INCOME BY TREATING THE INCOME EARNED FROM LETTING O F WAREHOUSES AND GODOWNS UNDER THE HEAD INCOME FROM BUSINESS AND THE SAME HAS BEEN ACCEPTED BY THE DEPARTMENT. IT WAS ONLY IN THE THREE ASSESSMENT YEA RS I.E. 2004-05 AND 2005-06 AND 2007-08 THAT THE REVENUE HA S CHALLENGED THE HEAD OF INCOME. 10. THE D.R. HAS RELIED ON THE JUDGEMENT OF THE HO NBLE MADRAS HIGH COURT IN THE CASE OF KEYARAM HOTELS (P) LTD., (SUPRA) AND CHENNAI PROPERTIES AND INVESTMENTS LTD. (SUPRA) TO BUTTRESS HIS ARGUMENT THAT WHERE ASSESSEE LEASED OUT BUILDINGS AND REALIZED INCOME BY WAY OF RENT, SUCH RENTAL INCOME IS LIABLE TO BE ASSESSED UNDER HEAD INCOM E FROM HOUSE PROPERTY AND NOT UNDER HEAD INCOME FROM BUS INESS. THE FACTS OF THE CASES RELIED ON BY THE DR ARE ENTI RELY DIFFERENT FROM THE FACTS OF THE PRESENT CASE. THERE FORE, THE LAW LAID DOWN BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE ABOVE MENTIONED CASES CANNOT BE APPLIED IN THE FACT S AND CIRCUMSTANCES OF THE PRESENT CASE. ON THE OTHER HAN D, THE COUNSEL FOR THE ASSESSEE HAS RELIED ON THE JUDGEMEN T OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF NUTAN ITA NO.1039 TO 1041/MDS/2011 10 WAREHOUSING COMPANY P. LTD (SUPRA). THE QUESTION B EFORE THE HONBLE BOMBAY HIGH COURT FOR ADJUDICATION WAS WHETHER THE INCOME WHICH WAS RECEIVED BY THE ASSESSEE FROM THE TRANSACTION WHICH HAS BEEN ENTERED INTO IN RESPECT OF THE IMMOVABLE PROPERTY IN QUESTION SHOULD BE TREATED AS INCOME FROM HOUSE PROPERTY OR AS INCOME FROM BUSINESS. THE HONBLE HIGH COURT HELD THAT WHAT IS MATERIAL IN S UCH CASE IS THE PRIMARY OBJECT OF THE ASSESSEE WHILE EXPLOITING THE PROPERTY. IF THE PRIMARY OR THE DOMINANT OBJECT IS TO LEASE OR LET OUT PROPERTY, THE INCOME WHICH IS DERIVED FROM THE PROPERTY WOULD HAVE TO BE REGARDED AS INCOME FROM HOUSE PRO PERTY. CONVERSELY, IF THE DOMINATE INTENTION OF THE ASSESS EE IS TO EXPLOIT A COMMERCIAL ASSET BY CARRYING ON A COMMERC IAL ACTIVITY, THE INCOME THAT IS RECEIVED WOULD HAVE TO BE TREATED AS INCOME FROM BUSINESS. WHAT HAS TO BE DEDUCED IS WHETHER THE LETTING OUT OF THE PROPERTY CONSTITUTES A DOMI NANT ASPECT OF THE TRANSACTION OR WHETHER IT WAS SUBSERVIENT TO THE MAIN BUSINESS OF THE ASSESSEE OF CARRYING OUT WAREHOUSIN G ACTIVITIES. THE HONBLE HIGH COURT REMANDED THE MAT TER BACK TO THE TRIBUNAL TO CONSIDER THIS ASPECT OF THE CASE . ITA NO.1039 TO 1041/MDS/2011 11 IN THE INSTANT CASE, A PERUSAL OF THE PROFIT AND LO SS ACCOUNT OF THE ASSESSEE COMPANY AND THE OBJECT CLAU SE OF THE MEMORANDUM OF ASSOCIATION OF THE COMPANY CLEARL Y SHOW THAT THE ASSESSEE COMPANY WAS INCORPORATED WITH AN OBJECT OF CARRYING ON THE BUSINESS OF WAREHOUSING AND LETT ING/RENTING OF GODOWNS AND PROVIDING FACILITIES FOR STORAGE OF ARTICLES OR THINGS AND DESCRIPTIONS WHATSOEVER. THE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE COMPANY SHOWS THAT ITS MAIN SOURCE OF INCOME IS STORAGE CHARGES AND MAINTENANCE OR USE R CHARGES. EVEN SUBSTANTIAL PART OF THE EXPENSES ALSO RELATE TO THE SALARIES OF THE EMPLOYEES ENGAGED IN THE MAINTE NANCE AND UPKEEP OF THE GODOWNS AND WAREHOUSES. THEREFOR E, IN OUR CONSIDERED OPINION, THE INCOME OF THE ASSESSEE FROM LETTING OUT OF WAREHOUSES AND GODOWNS IS CHARGEABLE UNDER THE HEAD BUSINESS INCOME AND NOT INCOME FROM HOU SE PROPERTY. ACCORDINGLY, WE UPHOLD THE FINDINGS OF T HE CIT(A) AND DISMISS THIS GROUND OF APPEAL OF THE REVENUE. 11. THE SECOND GROUND OF APPEAL IN ITA NO.1040/MDS/ 2011 RELEVANT TO THE ASSESSMENT YEAR 2005-06 IS REGARDIN G AMOUNT ADVANCED TO THE DIRECTOR OF THE COMPANY TO B E ITA NO.1039 TO 1041/MDS/2011 12 TREATED AS DEEMED DIVIDEND UNDER THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT. A PERUSAL OF THE DOCUMENTS ON RECORD SHOW THAT SHRI N.AMRUTESH REDDY ONE OF THE DIRECTO RS OF THE ASSESSEE COMPANY HAD ADVANCED HUGE FUNDS TO THE ASSESSEE WITHOUT CHARGING INTEREST THEREON. THE ASS ESSEE HAS BEEN UTILIZING THE AMOUNT ADVANCED BY THE DIREC TOR FROM TIME TO TIME. THE CIT(A) HAS GIVEN CATEGORIC FINDIN G ON THIS ISSUE. THE LEARNED DR HAS NOT BEEN ABLE TO CONTROV ERT THE FINDINGS OF THE CIT(A) ON THIS ISSUE. THEREFORE, WE CONFIRM THE FINDINGS OF THE CIT(A) ON THIS ISSUE AND DISMISS TH E GROUND RAISED BY THE REVENUE IN ITS APPEAL. 12. ACCORDINGLY, ALL THE THREE APPEALS OF THE REVEN UE ARE DISMISSED BEING DEVOID OF MERIT. ORDER PRONOUNCED IN THE OPEN COURT ON WEDNESDAY , T HE 31 ST DAY OF OCTOBER, 2012 AT CHENNAI. SD/- SD/- (ABRAHAM P.GEORGE) ( VIKAS AWASTHY) ACCOUNTANT MEMBER JUDICIAL MEMBER CHENNAI, DATED THE 31 ST OCTOBER, 2012. SOMU COPY TO: (1) APPELLANT (4) CIT(A) (2) RESPONDENT (5) D.R. (3) CIT (6) G.F.