Kamal Enterprises New Life Hospital , Hyderabad V. Asst. Commissioner of Income Tax, Circle-9(1), Hyderabad

ITA 1187/Hyd/2019

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 7994 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 8 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-03-2021
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB-B
• Assessment Year: 2016-2017
• Appeal Filed On: 24-07-2019
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Business income; Depreciation; Revised return; CHAPTER IV
• Section: 143(3); 205; 201; 208; 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B : HYDERABAD (THROUGH VIRTUAL CONFERENCE) BEFORE SHRI SATBEER SINGH GODARA, JUDICIAL MEMBER AND SHRI LAX MI PRASAD SAHU, ACCOUNTANT MEMBER IT A NO . 1187 /H/201 9 ASSESSMENT YEAR: 20 16 - 17 KAMAL ENTERPRISES AND NEW LIFE HOSPITAL, HYDERABAD. PAN AAEFK 2774 M VS. ASST. COMMISSIONER OF INCOME - TAX, CIRCLE 9(1), HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI S. RAMA RAO REVENUE BY : SHRI ROHIT MUJUMDAR DATE OF HEARING: 16 /0 2 /2021 DATE OF PRONOUNCEMENT: 2 4 / 0 3 /2021 O R D E R PER LAXMI PRASAD SAHU, A.M. : TH IS ASSESSEE S APPEAL FOR AY 20 16 - 17 IS DIRECTED AGAINST THE C I T(A) - 7 , HYDERABAD S ORDER , DATED 2 2 / 0 5 /201 9 INVOLVING PROCEEDINGS U/S 143(3) OF THE INCOME TAX ACT, 1961 ; IN SHORT THE ACT , ON THE FOLLOWING GROUNDS OF APPEAL: ITA NO. 1187 /HYD/1 9 KAMAL ENTERPRISES AND NEW LIFE HOSPITAL, HYDERABAD. : - 2 - : 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOME - TAX(APPEALS) IS CONTRARY TO LAW AND FACTS IN THE CIRCUMSTANCES OF THE CASE. 2. THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) ERRED IN HOLDING THAT THE LEASE INCOME FROM PROPERTY LET OUT SHOULD BE ASS ESSED AS BUSINESS INCOME, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE. 3. THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) ERRED IN NOT APPRECIATING THE FACTS, THAT, SINCE THE ENTIRE HOSPITAL BUILDING HAS BEEN LET O UT, THE RENT THEREFROM SHOULD BE ASSESSED AS INCOME FROM HOUSE PROPERTY AND NOT AS INCOME FROM BUSINESS, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE. 4. THE APPELLANT CRAVES LEAVE TO ADD TO, ALTER OR AMEND ANY OF THE AFORESAID GROUNDS AS ADVISED, ON OR BEFORE THE DATE OF HEARING. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A FIRM RUNNING HOSPITAL TILL 31/10/2015 AND THEREAFTER GAVE ITS BUSINESS ASSETS ON LEASE BASIS FOR THE REMAINING PART OF THE YEAR. THE ASSESSEE FILED ITS ORIGINAL RETURN OF INCOME FOR AY 2016 - 17 ON 17/ 10/2016 ADMITTING AN INCOME OF RS. 86,90,973/ - . STATUTORY NOTICES WERE ISSUED CALLING FOR INFORMATION. THE ASSESSEE FILES ITS REVISED RETURN OF INCOME ON 08/11/2017 DECLARING TOTAL INCOME AT RS. 33,64,220/ - . ITA NO. 1187 /HYD/1 9 KAMAL ENTERPRISES AND NEW LIFE HOSPITAL, HYDERABAD. : - 3 - : 2.1 THE AO OBSERVED THAT DURING THE YEAR, THE A SSESSEE WAS RUNNING HOSPITAL TILL 31/10/2015. LATE ON, THE ASSESSEE HAS LEASED OUT TO M/S THUMBAY HOSPITAL. AFTER EXAMINING THE LEASE DEED SUBMITTED BY THE ASSESSEE WITH M/S THUMBAY HOSPITAL PVT. LTD. WITH EFFECT FROM 01/11/2 015, THE AO NOTICED THAT THE ASSESSEE HAS LEASED OUT THE ENTIRE HOSPITAL BUILDING WHICH IS BUSINESS ASSETS OF THE ASSESSEE ALONG WITH THE ALL EQUIPMENTS AND FURNITURE & FIXTURES INSTALLED IN THE SAID BUILDING TO M/S THUMBAY HOSPITAL PVT. LTD. WITH EFFECT F ROM 01/11/2015 FOR A PERIOD OF 10 YEARS FOR MONTHLY RENT OF RS. 37,50,000/ - . FURTHER, THE AO OBSERVED THAT IN ITS ORIGINAL RETURN OF INCOME FILED ON 17/10/2016 THE ASSESSEE CONSIDERED ALL THE LEASE RENT RECEIPT AMOUNTING TO RS. 1,87,50,000/ - AS BUSINESS IN COME AND ALSO CLAIMED THE DEPRECIATION ON FIXED ASSETS OF BUILDING AND EQUIPMENT FOR THE ENTIRE YEAR. HOWEVER, IN ITS REVISED RETURN, THE ASSESSEE HAS CLAIMED THE LEASE RENT RECEIPTS AS INCOME FROM HOUSE PROPERTY AND CLAIMED 30% STANDARD DEDUCTION U/S 24 A ND AS WELL AS DEPRECIATION ON FIXED ASSETS OF BUILDING AND EQUIPMENT FOR THE ENTIRE YEAR. ITA NO. 1187 /HYD/1 9 KAMAL ENTERPRISES AND NEW LIFE HOSPITAL, HYDERABAD. : - 4 - : SINCE THE ASSESSEE HAD CLAIMED THE LEASE RENT RECEIPTS AS INCOME FROM HOUSE PROPERTY, THE AO ASKED THE ASSESSEE TO EXPLAIN THE SAME AND THE ASSESSEE VIDE LETTERS DATE D 19/11/2018 AND 11/12/2018 SUBMITTED ITS REPLY, WHICH WAS EXTRACTED BY THE AO IN HIS ORDER AT PAGES 3 & 4. THE AO REJECTED THE SUBMISSIONS OF THE ASSESSEE AND ASSESSED THE INCOME OF THE ASSESSEE AT RS. 86,90,073/ - AS BUSINESS INCOME INSTEAD INCOME FROM HO USE PROPERTY AS CLAIMED BY THE ASSESSEE. 3. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A), WHO CONFIRMED THE ORDER OF THE AO. 4. STILL AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 5. BEFORE US, THE LD. AR OF THE ASSESSEE SU BMITTED THAT THE MAIN OBJECTS OF THE ASSESSEE WAS NEVER TO LET OUT ITS ASSETS, BUT, DUE TO SLOW DOWN OF BUSINESS ON ACCOUNT OF THE HEALTH OF THE PIVOTAL PARTNER, DR. MOHD. MASOOD ALI KHAN. HE FURTHER SUBMITTED THAT SINCE IT WAS BECOMING DIFFICULT ITA NO. 1187 /HYD/1 9 KAMAL ENTERPRISES AND NEW LIFE HOSPITAL, HYDERABAD. : - 5 - : FOR THE ASSESSEE TO CONTINUE THE HOSPITAL OPERATIONS, IT WAS DECIDED TO LET OUT THE ASSETS OF THE FIRM TO ANOTHER HEALTHCARE FACILITY. HE RELIED ON THE DECISION OF HONBLE APEX COURT IN THE CASE OF CHENNAI PROPERTIES & INVESTMENTS LTD., VS. CIT [(2015) 373 ITR 673 (SC)] . 6. THE LD. CIT - DR, ON THE OTHER HAND, BESIDES RELYING ON THE ORDERS OF REVENUE AUTHORITIES, SUBMITTED THAT THE ASSESSEE IS CLAIMING DEPRECIATION ON ITS BUSINESS AND THE INCOME DERIVED FROM THE SAME MUST BE IN NATURE OF BUSINESS RECEIPT AND NOT FRO M HOUSE PROPERTY. HE, THEREFORE, SUBMITTED THAT THE AO HAS RIGHTLY ASSESSED THE INCOME OF THE ASSESSEE AS BUSINESS INCOME. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSE THE MATERIAL ON RECORD AS WELL AS GONE THROUGH THE ORDERS OF REVENUE AUTHORI TIES. THE ASSESSEE WAS RUNNING A H OSPITAL TILL 31 ST OCTOBER, 2015 AND THEREAFTER IT WAS LET OUT TO M/S THUMBAY HOSPITAL PVT. LTD. FROM 1 ST NOVEMBER, 2015 AT M ONTHLY RENT OF RS. 37,50,000/ - FOR HOSPITAL BUILDING AND ITA NO. 1187 /HYD/1 9 KAMAL ENTERPRISES AND NEW LIFE HOSPITAL, HYDERABAD. : - 6 - : EQUIPMENTS, INCLUDING BUT NOT LIMITED TO ALL REAL PROPERTY, IMPROVEMENTS AND FIXTURES ASSOCIATED THEREWITH, AND ALL FURNITURE, FURNISHINGS AND EQUIPMENT (THEREAFTER REFERRED TO AS THE LEASED PROPERT Y) ON LEASE AND THE PURPOSE OF ITS USE TO RENOVATE AND REBRAND THE HOSPITAL AS THUMBAY NEW LIFE HOSPITAL UNDER THE MANAGEMENT OF THUMBAY HOSPITAL INDIA PVT. LTD. AND AGREED TO THE LEASE PROPOSAL IN ACCORDANCE WITH THE TERMS OF THE AGREEMENT, WHICH IS PLACE D AT PAGES 16 9 TO 205 OF THE PAPER BOOK. IN THE ORIGINAL RETURN OF INCOME FILED BY THE ASSESSEE, IT HAD OFFERED IT AS BUSINESS INCOME. DURING THE SCRUTINY PROCEEDINGS, THE ASSESSEE FILED REVISED RETURN OF INCOME WHEREIN CLAIMED THE RENT RECEIVED AS INCOME FROM HOUSE PROPERTY AND CLAIMED DEPRECIATION AS PER THE ACT FOR THE WHOLE YEAR . ON CAREFUL READING OF THE AGREEMENTS, WHICH ARE PLACED IN ITS PAPER BOOK, WE FIND THAT THE ASSETS LEASED OUT TO THE THUMBAY HOSPITAL INDIA PVT. LTD. WERE USING AS COMMERCIAL ASSETS BEFORE LETTING IT OUT BY THE ASSESSEE. THEREFORE, SUBSEQUENTLY, THE RENT RECEIPTS ON THE SE COMMERCIAL ASSETS IS TO BE TREATED AS BUSINESS INCOME ITA NO. 1187 /HYD/1 9 KAMAL ENTERPRISES AND NEW LIFE HOSPITAL, HYDERABAD. : - 7 - : UNDER CHAPTER IV - D UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION BUT NOT UNDER CHAPTER VI - C UNDER THE HEAD INCOME FROM HOUSE PROPERTY AS CLAIMED BY THE ASSESSEE. THIS VIEW IS SUPPORTED BY THE DECISION OF THE COORDINATE BENCH OF TRIBUNAL, RAJKOT IN THE CASE OF M/S ULTRAVISION ASSOCIATES IN ITA NO. 337/RJT/2013 AND OTHERS, WHER EIN THE COORDINATE BENCH HAS HELD AS UNDER: 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT GROUND IS ABOUT THE HEAD OF TAXABILITY OF THE RENTAL INCOME RECEIVED BY THE ASSESSEE. AS PER THE ASSESSEE, THE INCOME IS TO BE TAXED AS BUSINESS INCOME AND ON THE OTHER HAND, IT IS REVENUES CONTENTION THAT THE INCOME HAS TO BE TAXED AS INCOME FROM HOUSE PROPERTY. 7.1 WE FIND THAT LD. CIT(A), WHILE DECIDING THE ISSUE IN FAVOUR OF ASSESSEE AND AFTER CONSIDERING THE DECISION OF HONBLE ALLAHABAD HIGH COURT CITED THEREIN AND AFTER FOLLOWING THE RATIO LAID DOWN BY HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. NEW IN DIA INDUSTRIES LTD. [1993] 201 ITR 208 (GUJ) HAS GIVEN A FINDING THAT THE PROPERTY LET OUT BY ASSESSEE WAS A COMMERCIAL ASSET WHICH COULD ONLY BE EXPLOITED COMMERCIALLY AND THEREFORE THE INCOME EARNED WAS TREATED AS BUSINESS INCOME. WE ALSO FIND THAT LD. C IT(A) WHILE DECIDING THE ISSUE IN ASSESSEES FAVOUR HAD ALSO RELIED ON VARIOUS DECISIONS CITED IN HIS ORDER. IN THE PRESENT CASE, WE FIND THAT ONE OF THE MAIN OBJECT OF THE ASSESSEE WAS TO RUN CLASSES AND TO DO EDUCATIONAL ACTIVITIES AND THE PROPERTY WHICH HAS BEEN LET OUT BY THE ASSESSEE WAS A COMMERCIAL PROPERTY AND WAS ALSO USED BY THE PERSON TO WHOM IT WAS LEASED, FOR THE PURPOSE OF EDUCATIONAL ACTIVITIES. WE FURTHER FIND THAT HONBLE GUJARAT HIGH COURT IN THE CASE OF NEW INDIA INDUSTRIES (SUPRA) AND AF TER RELYING ON VARIOUS DECISIONS HAS LAID DOWN VARIOUS TESTS TO DETERMINE THE HEAD OF INCOME UNDER WHICH THE RENTAL INCOME IS TO BE ASSESSED. THE TESTS INTERALIA LAYS DOWN THE PRINCIPLE THAT WHEN AN ASSESSEE DERIVES INCOME FROM A COMMERCIAL ASSET WHICH IS CAPABLE OF BEING ITA NO. 1187 /HYD/1 9 KAMAL ENTERPRISES AND NEW LIFE HOSPITAL, HYDERABAD. : - 8 - : USED AS A COMMERCIAL ASSET AND THE ASSET WOULD NOT CEASE TO BE COMMERCIAL ASSET SIMPLY BECAUSE TEMPORARILY IT NOT PUT TO USE OR WAS LET OUT TO OTHER PERSON FOR HIS USE, THE INCOME DERIVED WOULD BE BUSINESS INCOME IRRESPECTIVE OF THE MANNER IN WHICH IT IS EXPLOITED BY THE OWNER OF BUSINESS. IN THE PRESENT CASE THE FINDING OF LD. CIT(A) THAT ASSET IS A COMMERCIAL ASSET HAS NOT BEEN CONTROVERTED BY REVENUE. IN SUCH A SITUATION, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LD. CIT(A) AND FOR WH ICH WE ALSO FIND SUPPORT BY THE RECENT DECISION OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF SHYAM BURLAP CO. LTD. VS. CIT REPORTED IN (2016) 380 ITR 151 (CAL), WHEREIN THE HONBLE HIGH COURT AFTER TAKING INTO CONSIDERATION THAT WHEN THE OBJECT IN THE ME MORANDUM PERMITTED THE ASSESSEE TO CARRY ON BUSINESS IN LETTING OUT PROPERTIES AND WHEN 85% OF THE INCOME WAS BY WAY OF DERIVING RENT AND LEASE, THE INCOME FROM LETTING WAS CONSIDERED AS BUSINESS INCOME OF THE ASSESSEE. IN VIEW OF THE AFORESAID FACTS AND R ELYING ON THE AFORESAID DECISIONS OF HIGH COURTS, WE FIND NO REASON TO INTERFERE WITH THE ORDER OF LD. CIT(A) AND THUS THE GROUND OF REVENUE IS DISMISSED. 7.1 IN THE AFORESAID CASE, THERE WAS A DISPUTE BETWEEN THE ASSESSEE AND THE AO, AS THE AO TREATED THE INCOME OF THE ASSESSEE AS INCOME FROM HOUSE PROPERTY WHEREAS THE ASSESSEE HAD OFFERED IT AS BUSINESS INCOME. ON APPEAL, BEFORE THE ITAT, THE COORDINATE BE NCH HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE THAT LETTING OUT OF COMMERCIAL ASSETS IS TO BE TREATED AS BUSINES INCOME. THEREFORE RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINATE BENCH OF RAJKOT, ITAT (SUPRA), WE UPHOLD THE ORDER OF THE CIT(A) I N TREATING THE RENTAL RECEIPTS FROM THE LEASED OUT ITA NO. 1187 /HYD/1 9 KAMAL ENTERPRISES AND NEW LIFE HOSPITAL, HYDERABAD. : - 9 - : COMMERCIAL ASSETS OF THE ASSESSEE AS BUSINESS INCOME AND DISMISS THE GROUNDS RAISED BY THE ASSESSEE ON THIS ISSUE. 7.2 THE CASE AW RELIED UPON BY THE LD. AR OF THE ASSESSEE ARE DISTINGUISHABLE ON FACTS TO THE FACTS OF THE CASE OF THE ASSESSEE AND THEREFORE, THE SAME ARE NOT OF ANY HELP TO THE CASE OF THE ASSESSEE. THE AUTHORITIES BELOW HAVE RIGHTLY TAXED THE RENTAL INCOME AS BUSINESS INCOME. 8 . IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMISSED. PRONOUN CED IN THE OPEN COURT ON 24 TH MARCH , 2021 . SD/ - SD/ - ( S.S. GODARA ) (L . P . SAHU) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDE RABAD, DATED : 24 TH MARCH , 20 2 1 . K V C OPY TO : 1 KAMAL ENTERPRISES AND NEW LIFE HOSPITAL, 16 - 6 - 104 TO 109, CHADERGHAT, HYDERABAD 500 024. 2 ITO, WARD 9(1),IT TOWERS, AC GUARDS, MASAB TANK, HYDERABAD 3 C I T(A) - V , HYDERABAD 4 CIT - IV HYDERABAD 5 ITAT, DR, HYDERABAD. 6 GUARD FILE.