AMBIENCE ADVERTISING P. LTD ( NOW KNOWN AS AMBIENCE BUSINESS SERVICES P. LTD), MUMBAI V. ITO 6(1)-3, MUMBAI

ITA 1195/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 2128 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-05-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 15-04-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 20-02-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VIKRAM GAUR
• Assessee Lawyers: RAJA B SINGH
• Keywords: Business income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A, MUMBAI. BEFORE SHRI R.V. EASWAR, SENIOR VICE-PRESIDENT AND SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER. I.T.A. 1195 /MUM/2009. ASSESSMENT YEAR : 2005-06. M/S AMBIENCE ADVERTISING PVT.LTD., THE INCOME TAX OFFICER, (NOW KNOWN AS AMBIENCE BUSINESS VS. 6(1)-3, MUMBAI. SERVICES PVT. LTD.), C/O R.K. KHANNA & ASSOCIATES, 402, REGENT CHAMBERS, NARIMAN POINT, MUMBAI 400 021. PAN AAACA9528L APPELLANT RESPONDENT APPELLANT BY : SHRI RAJA B. SINGH. RESPONDENT BY : SHRI VIKRAM GAUR. O R D E R PER J. SUDHAKAR REDDY, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE DIRECTED AGAINST THE ORDER OF THE CIT(APPEALS)-VI, MUMBAI DATED 22-12-20 08 FOR THE ASSESSMENT YEAR 2005-06. 2. FACTS IN BRIEF: THE ASSESSEE IS A PRIVATE LIMITED COMPANY AND WAS ENGAGED IN THE BUSINESS AS AN ADVERTISING AGENCY SINCE ITS FORMATION IN THE YEAR 1987. IN APRIL, 1999 THE ASSESSEE ENTERED INTO A BU SINESS TRANSFER AGREEMENT, WHEREBY THE BUSINESS OF ADVERTISING WAS SOLD TO M/S AMBIENCE DARCY ADVERTISING PVT. LTD. THE ASSESSEE CLAIMS THAT FROM THE PREVIOUS YEAR 2000-01, THE ASSESSEES BUSINESS IS RESTRICTED TO 2 BUSINESS OF RENDERING CONSULTANCY AND MARKET RESEAR CH SERVICES. IT ALSO CLAIMS THAT IT HAS INCOME FROM THE BUSINESS OF LETT ING ON HIRE ITS FACILITIES. FOR THE IMPUGNED ASSESSMENT YEAR THE ASSESSEE HAD I NCOME FROM HIRE OF FACILITIES AND INCOME FROM CONSULTANCY. THE AO OBSE RVED THAT THE INCOME RECEIVED BY THE ASSESSEE AMOUNTING TO RS.54,44,500/ - UNDER THE HEAD INCOME FROM FACILITIES, IS NOTHING BUT IN THE NAT URE OF RENT. HE ALSO NOTED THAT THE ASSESSEE HAS FURNISHED TDS CERTIFICA TES EVIDENCING DEDUCTION U/S 194I ON RENTAL INCOME OF RS.38,05,500 /-. AS REGARDS THE BALANCE PAYMENT OF RS.12,78,000/- IT WAS SEEN FROM THE TDS CERTIFICATES THAT THESE PAYMENTS WERE MENTIONED AS CONTRACT PAY MENTS. THE ASSESSEE WAS PUT TO NOTICE, BY THE AO, AS TO WHY THE AMOUNT IN QUESTION SHOULD NOT BE TAXED UNDER THE HEAD INCOME FROM HOUSE PROPERTY AND AS TO WHY THE RATIO OF THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. M/S SHAMBU INVESTMENT P. LTD. REPORTED IN 263 ITR 1 43 CANNOT BE APPLIED IN THIS CASE. IT WAS ALSO NOTICED THAT FOR THE ASSESSMENT YEAR 2008- 09 THE ASSESSEE HAD TREATED SUCH RECEIPT OF LETTING OUT PROPERTY AS INCOME FROM HOUSE PROPERTY. THE REPLY OF THE ASSESSEE DATE D 14-11-2007 AND 13- 12-2007 WAS CONSIDERED. THE SOME AND SUBSTANCE OF T HESE LETTERS ARE THAT, AS PER THE BUSINESS TRANSFER AGREEMENT, THE PURCHAS ER HAS AGREED THAT ONLY THE BUSINESS OF AMBIENCE WOULD BE TAKEN OVER A ND MONETARY ASSETS AND LIABILITIES WERE NEITHER TRANSFERRED OR SOLD TO THE PURCHASER. AS PER THE BUSINESS TRANSFER AGREEMENT, ALL THE CREATIVE AND O THER ADVERTISING WORKS HITHERTO DONE AND CREATED BY AMBIENCE FOR THE PAST 12 YEARS, WERE TO BE TRANSFERRED TO THE PURCHASER. THE ASSESSEE CLAIMED THAT THE CREATIVE WORK, THE INTELLECTUAL PROPERTY DEVELOPED, ADVERTISEMENT S PRODUCED, GRAPHICS FILMS, ART WORK ETC. CAN BE REUSED AND ALL THESE WE RE PURCHASED THROUGH A BUSINESS TRANSFER AGREEMENT AND THAT ALL THESE EXPL OITABLE ASSETS RESIDED IN THE CREATIVE COMPUTER SYSTEM IN THE FILM AND PHO TOGRAPHIC DATA BASES, IN THE MACINTOSH MACHINES AND IN ALL THE EQUIPMENT WHICH HAD HITHERTO 3 BEEN USED BY AMBIENCE. FOR READY REFERENCE, PART O F THESE LETTERS ARE REPRODUCED BELOW : IT WAS CRITICAL FROM DARCYS PERSPECTIVE TO BE A BLE TO IMMEDIATELY COMMENCE EXPLOITATION OF THE CREATIVE I NTELLECTUAL PROPERTIES WHICH IT HAD ACQUIRED FROM AMBIENCE. ALL SUCH PROPERTIES RESIDED AND WERE EMBEDDED IN THE COMPUTE R AND OTHER SYSTEMS WHICH WERE CONTINUED TO BE OWNED BY AMBIENC E. EVEN IF DACRY HAD DECIDED TO SET UP ITS OWN COMPUTER AND OTHER SYSTEMS INFRASTRUCTURE THIS WOULD HAVE ENTAILED A SIGNIFICANT LOSS OF TIME AND A LARGE INVESTMENT. IT IS FOR THESE PUR POSES AND FOR THEIR BUSINESS EXPEDIENCY THAT DARCY INSISTED DURING THE NEGOTIATIONS THAT AMBIENCE WOULD ALLOW THEM THE CONTINUED USE OF ITS COMPUTER AND OTHER SYSTEMS AND OTHER FACILITIES. THIS NEED T O ALLOW A CONTINUATION OF SERVICE TO CLIENTS WAS THE ESSENCE OF THE NEGOTIATIONS RESULTING IN THE BTA. THUS THE ASSESSEE CLAIMS THAT THE PRIMARY OBJECTIVE FOR LETTING OUT THE BUILDING ALONG WITH THE COMPUTERS AND OTHER SYSTEMS , WAS TO FACILITATE PROPER IMPLEMENTATION OF THE BUSINESS TRANSFER AGRE EMENT. HE DISTINGUISHED THE JUDGMENT OF THE HONBLE SUPREME C OURT IN THE CASE OF SHAMBU INVESTMENT P. LTD. (SUPRA) ON THE GROUND THA T THE LETTING OUT OF THE PREMISES IN THIS CASE IS INSEPARABLE. AFTER CON SIDERING THE SUBMISSIONS OF THE ASSESSEE, THE AO REJECTED THE CONTENTIONS AN D AT PAGES 19 AND 20 FOR 11 REASONS GIVEN THEREIN, HELD THAT THE ASSESSE E HAS NOT CARRIED OUT ANY BUSINESS IN THIS REGARD. HE ALSO HELD THAT IN THE I NSTANT CASE IT IS CRYSTAL CLEAR, THAT THE INTENTION OF THE ASSESSEE WAS TO EA RN RENTAL INCOME ON THE PREMISES BY LETTING IT OUT TO THE SAID PARTY AMBIEN CE DARCY ADVERTISING PVT. LTD. HE REJECTED THE CONTENTION OF THE ASSESSE E THAT OBJECT IS RELEVANT IN CONSIDERING THE HEAD OF INCOME UNDER WHICH THE I NCOME CAN BE TAXED. 3. THE ASSESSEE CARRIED THE MATTER IN APPEAL. THE FIRST APPELLATE AUTHORITY AFTER CONSIDERING THE VARIOUS SUBMISSIONS OF THE ASSESSEE, UPHELD THE FINDINGS OF THE AO. HE HELD THAT IT IS N OT CORRECT TO SAY THAT THE 4 INTENTION OF THE ASSESSEE WAS NOT LETTING OUT THE P ROPERTY OR ANY PORTION THEREOF, BUT WAS TO EXPLOIT THE PROPERTY AS PART OF THE COMMERCIAL ACTIVITY OF LETTING OUT THE COMPUTERS, EQUIPMENTS AND OTHER FACILITIES. HE HELD THAT THE ASSESSEE WAS IN THE BUSINESS OF ADVERTISING AND NOT IN THE BUSINESS OF EXPLOITATION OF THE PROPERTY AS CLAIMED BY IT. HE A LSO HELD THAT IT IS NOT CORRECT TO SAY THAT COMPUTERS AND OTHER EQUIPMENTS CANNOT BE SEPARATED BY THE BUILDING OWNED BY THE ASSESSEE. THE FACT THA T SEPARATING THESE EQUIPMENTS WOULD TAKE TIME IS A SEPARATE MATTER BUT HELD THAT THE EQUIPMENTS ARE SEPARABLE. HE DISMISSED THE APPEAL. AGGRIEVED, THE ASSESSEE HAS FILED THIS APPEAL ON THE FOLLOWING GRO UNDS : 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-VI, MUMBAI, IS BAD IN LAW AND CONTRARY TO THE FACTS OF THE CASE AND EVIDENCE ON RECORD. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ER RED IN FAILING TO APPRECIATE THAT RS.3,13,000/- HAS BEEN RECEIVED BY THE APPELLANT DURING THE PREVIOUS YEAR BY WAY OF FEES FOR CONSULT ANCY SERVICE AND CONSEQUENTLY ERRED IN CONFIRMING THE SAME BEING TAK EN AS PART OF INCOME FROM FACILITIES. 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ER RED IN FAILING TO APPRECIATE THAT IT WAS A THIRD PARTY AND NOT THE OCCUPANT OF THE PREMISES TO WHOM THE CONSULTANCY SERVICES WERE PROV IDED. 4. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ER RED IN FAILING TO APPRECIATE THAT INCOME FROM FACILITIES IN THE SU M OF RS.51,31,500/- RECEIVED BY THE APPELLANT DURING THE PREVIOUS YEAR ALSO INCLUDED INCOME FROM LETTING OF COMPUTERS AND OTHER EQUIPMENTS. 5. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ER RED IN FAILING TO APPRECIATE THAT THE LETTING OF OFFICE SPACE (TO THE EXTENT INCLUDED IN INCOME FROM FACILITIES) WAS, BECAUSE OF THE COMP ELLING BUSINESS NEEDS OF THE OCCUPANT, INSEPARABLE FROM THE LETTING OF THE COMPUTERS & OTHER EQUIPMENTS. 6. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ER RED IN FAILING TO DIRECT THE ASSESSING OFFICER TO ALLOW THE DEDUCT IONS CLAIMED BY THE APPELLANT UNDER SECTIONS 30 TO 43D OF THE INCO ME TAX ACT. 7. WITHOUT PREJUDICE TO GROUND NO. 6, THE LEARNED COMM ISSIONER OF INCOME TAX (APPEALS) ERRED IN FAILING TO DIRECT THE ASSESSING OFFICER 5 TO ALLOW DEDUCTIONS DUE TO THE APPELLANT UNDER SECT ION 57 OF THE INCOME TAX ACT. 4. MR. RAJA B. SINGH, LEARNED COUNSEL FOR THE ASSE SSEE, SUBMITTED THAT THERE IS ONLY ONE BASIC ISSUE AND TH AT IS WHETHER THE INCOME RECEIVED BY THE ASSESSEE FROM FACILITIES ARE ASSESS ABLE UNDER THE HEAD INCOME FROM BUSINESS OR ARE ASSESSABLE UNDER THE HEAD INCOME FROM HOUSE PROPERTY. HE SUBMITTED THAT THE ASSESSEES A LTERNATIVE CONTENTION IS THAT THE INCOME IS ASSESSABLE UNDER THE HEAD INCOM E FROM OTHER SOURCES. HE TOOK THIS BENCH THROUGH THE REASONS G IVEN BY THE AO AT PAGES 19, 21 AND 24 OF HIS ORDER AND SUBMITTED THAT THE AO HAS WRONGLY INTERPRETED THE JUDGMENT OF THE HONBLE SUPREME COU RT IN THE CASE OF SHAMBU INVESTMENT. HIS CASE IS THAT THE PRIMARY OBJ ECTIVE OF THE ASSESSEE SHOULD BE LOOKED INTO. HE FILED A COPY OF JUDGMENT OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF SHAMBU INVESTMEN T PVT. LTD. 249 ITR 47 AND SPECIFICALLY REFERRED TO PAGE 49 WHICH GIVES THE FACTS OF THE CASE AND AT PAGE 52 WHERE IT WAS STATED THAT, WHAT HAS T O BE SEEN IS WHAT WAS THE PRIMARY OBJECT OF THE ASSESSEE WHILE EXPLOITING THE PROPERTY. HE ONCE AGAIN REITERATED THAT THE PRIMARY OBJECTIVE OF THE ASSESSEE IN LETTING OUT THE PROPERTY WAS FOR ENABLING BUSINESS TRANSFER CON SEQUENT TO SALE. MR. RAJA B. SINGH FILED A PAPER BOOK RUNNING INTO 68 PA GES AND ALSO FILED AUDITORS REPORT AND ANNUAL ACCOUNTS FOR THE YEAR E NDING 31-03-2006. ON THE COMMENTS OF THE CIT(APPEALS) AT PAGE 4 PARA 4, MR. RAJA B. SINGH POINTED OUT THAT A LETTER DATED 19 TH FEB., 2009 WAS FILED BEFORE THE COMMISSIONER, WHEREIN IT WAS CLEARLY STATED THAT TH E ASSESSEE HAS RECEIVED CONSULTANCY FEES OF RS.3,13,000/- FROM THE THIRD PARTY, WHICH IS NOT AN OCCUPANT OF THE PREMISES AND THAT THE OBSERV ATION WAS WRONG AND THE OBSERVATION THAT THE ASSESSEE HAD NOT CARRIED O N ANY BUSINESS AS UNDERSTOOD IN INCOME TAX ACT U/S 2(13) IS NOT CORRE CT. HE RELIED ON THE JUDGMENT OF THE CALCUTTA BENCH OF THE ITAT IN THE C ASE OF PFH MALL AND 6 RETAIL MANAGEMENT LTD. VS. ITO 298 ITR (AT) 371 (KO LKATA) FOR THE PROPOSITION THAT THE MERE FACT THAT INCOME IS ATTAC HED TO IMMOVABLE PROPERTY, CANNOT BE THE SOLE CRITERIA FOR ASSESSMEN T OF SUCH INCOME AS INCOME FROM HOUSE PROPERTY. HE RELIED ON THE JUDGME NT OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF ORIENT HOSPITAL LT D. VS. DCIT 315 ITR 422 (MAD) FOR THE PROPOSITION THAT LEASE OF HOSPITA L BUILDING WITH EQUIPMENT AND MACHINERY AND CONSEQUENT EARNING OF R ENTAL INCOME IS TO BE ASSESSED AS INCOME FROM OTHER SOURCES U/S 56(2)( III). HE SUBMITTED THAT THE CIT(APPEALS) HAD NOT ADJUDICATED THIS ISSUE DE SPITE THE FACT THAT THE ASSESSEE RAISED A SPECIFIC ARGUMENT. HE FURTHER RE LIED ON THE DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. CH ENNAI PROPERTIES AND INVESTMENTS LTD. REPORTED IN 303 ITR 33 (MAD) F OR THE PROPOSITION THAT THE AMENITY CHARGES RECEIVED, WERE LIABLE TO B E ASSESSED AS INCOME FROM OTHER SOURCES, WHILE SUBMITTING THAT THIS IS A N ALTERNATE CONTENTION WHICH IS RAISED BY THE ASSESSEE, IN CASE THIS PROPO SITION THAT THE INCOME IN QUESTION IS ASSESSABLE UNDER THE HEAD INCOME FROM BUSINESS IS NOT ACCEPTED BY THE REVENUE. HE REFERRED TO THE BUSINES S TRANSFER AGREEMENT WHICH IS AT PAGES 1 TO 62 OF THE PAPER BOOK AND BROUGHT TO THE ATTENTION OF THE BENCH AT ARTICLE 1.3, 1.4 AS W ELL AS THE SUPPLEMENTAL AGREEMENT DATED 8 TH OCT., 1999 SPECIFICALLY THE FIRST PARAGRAPH THEREI N, FOR DEMONSTRATING AS TO THE NATURE OF ASSET WHICH W AS TRANSFERRED. HE FILED AN AFFIDAVIT FROM MR. ASHOK KURIEN, DIRECTOR OF THE COMPANY, TO EXPLAIN THE FACTS. HE FURTHER POINTED OUT THAT THERE IS A M ISTAKE IN THE ORDER OF THE REVENUE AUTHORITIES, AS, THE BUSINESS INCOME OF RS. 3,13,000/- HAS ALSO BEEN ASSESSED UNDER THE HEAD INCOME FROM HOUSE PRO PERTY. HE EMPHASISED THAT SECTION 56(1) CANNOT BE OVERLOOKED. 5. SHRI VIKRAM GAUR, LEARNED DR, ON THE OTHER HAND , SUBMITTED THAT AS FAR AS CONSULTANCY FEES OF RS.3,13,000/- IS CONCERNED, THE FACTS 7 HAVE TO BE VERIFIED AND IF THERE IS A MISTAKE, THE SAME HAS TO BE RECTIFIED. HE SUBMITTED THAT THE ISSUE MAY BE SET ASIDE TO THE FILE OF THE AO. COMING TO THE ARGUMENT OF THE ASSESSEE, THE LEARNED DR VEHEMENTLY CONTENDED THAT ANY BUSINESS INFORMATION, DATA, ART, DESIGN, ETC IN A COMPUTER, CAN ALWAYS BE COPIED AND TRANSFERRED TO T HE PURCHASING PARTY. HE SUBMITTED THAT THE TECHNOLOGY IS SO ADVANCE THAT EVEN A TRANSFER OF A HARD DISK RESULT IN TRANSFER OF THE REQUIRED INFORM ATION. HE CONTENDED THAT THE SUBMISSION OF THE ASSESSEE THAT THE BUILDING WA S GIVEN ON LEASE, WITH AN INTENTION TO FACILITATE BUSINESS TRANSFER, IS NO T DEMONSTRATED BY THE FACTS AND CIRCUMSTANCES OF THE CASE. HE SUBMITTED THAT TH E COMPUTER NET WORK IS DEFINITELY SEPARABLE FROM THE BUILDING. REFERRIN G TO THE ARGUMENT OF THE ASSESSEE THAT THE COMPUTERS ARE NET WORKED AND HENC E COULD NOT BE TRANSFERRED, HE SUBMITTED THAT IN ALL CASES OF NET WORKING OF COMPUTERS, DATA IS STORED IN A CENTRAL SERVER AND THUS THE AR GUMENT OF THE ASSESSEE IS DEVOID OF MERIT. HE SUBMITTED THAT THIS IS A PLAIN AND SIMPLE CASE WHERE THE ASSESSEE HAS GIVEN HIS BUILDING ON LEASE AND H AS RECEIVED RENTAL INCOME. HE POINTED OUT THAT THE ASSESSEE IS NOT IN THE BUSINESS OF EXPLOITATION OF PROPERTIES. HE TOOK THIS BENCH THRO UGH SECTION 56(2)(III) AND SUBMITTED THAT THE PRESENT CASE DOES NOT FALL W ITHIN THE SAID SUB CLAUSE FOR THE REASONS THAT THE COMPUTERS IN QUESTI ON CANNOT BE SAID TO BE INSEPARABLE. HE DISTINGUISHED THE CASE LAWS RELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE. COMING TO THE SUBSEQUENT YEARS ASSESSMENT ORDERS PASSED U/S 143(3), HE SUBMITTED THAT THERE I S NO DISCUSSION ON THIS ISSUE. SO THE QUESTION OF TAKING A DIFFERENT VIEW D OES NOT ARISE. HE RELIED ON THE ORDER OF THE AO AS WELL AS THE ORDER OF THE CIT(APPEALS) AND SUBMITTED THAT THE SAME MAY BE UPHELD. 6. RIVAL CONTENTIONS HEARD. ON A CAREFUL CONSIDERA TION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND A PERUSAL O F THE PAPERS ON RECORD 8 AND THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE CASE LAWS CITED, WE HOLD AS FOLLOWS. 7. THE ENTIRE THRUST OF THE ASSESSEES ARGUMENT IS THAT THERE HAS BEEN A BUSINESS TRANSFER AGREEMENT, WHEREBY THE ASS ESSEE HAD TRANSFERRED HIS BUSINESS OF ADVERTISING AND THAT ALL THE DATA C ONNECTED WITH SUCH BUSINESS, IS LYING IN THE COMPUTER NET WORK OF THE ASSESSEE COMPANY AND THAT THIS COMPUTER NET WORK IS INSEPARABLE FROM THE BUILDING AND HENCE THE INCOME FROM LEASE OF THIS BUILDING ALONG WITH T HE COMPUTERS HOLDING THE DATA CONNECTED WITH THE BUSINESS WHICH IS TRANS FERRED, IS BUSINESS INCOME AS THE PRIMARY OBJECTIVE AND THE MAIN INTENT ION IN THIS CASE IS EXPLOITATION OF THE PROPERTY FOR A COMMERCIAL PURPO SE I.E. TRANSFERRING THE BUSINESS PROPERLY AND THAT THE MAIN INTENTION IS N OT TO, SIMPLY LET OUT THE PROPERTY. WE ARE UNABLE TO AGREE WITH THESE SUBMISS IONS OF THE LEARNED COUNSEL FOR THE ASSESSEE, AS THE FACTS OF THE CASE, IN OUR CONSIDERED OPINION DO NOT PERMIT SUCH A CONCLUSION. THE IMPUGN ED FINANCIAL YEAR IS 2004-05. THE BUSINESS TRANSFER AGREEMENT HAS TAKEN PLACE IN OCT., 1999. MORE THAN 4 YEARS HAS LAPSED SINCE THE TRANSFER. TH E CLAIM OF THE ASSESSEE THAT THE DATE WHICH IS TO BE TRANSFERRED UNDER THE BUSINESS TRANSFER AGREEMENT IS EMBEDDED IN THE COMPUTERS OF THE ASSES SEE COMPANY AND CANNOT BE TRANSFERRED, WITHOUT THE RISK OF DAMAGE, DOES NOT APPEAR TO BE TRUE. AS SUBMITTED BY THE LEARNED DR, ALL TYPES OF DATA, ESPECIALLY IN A PLACE WHERE COMPUTERS ARE NET WORK ARE STORED IN A SERVER AND AS A SECURITY MEASURE, NORMALLY BACK UPS ARE MAINTAINED FOR SUCH DATA. WE ARE UNABLE TO ACCEPT THE ARGUMENT OF THE ASSESSEE THAT THE DATA CANNOT BE TRANSFERRED FOR SUCH A LONG TIME AND THE AND THE BU ILDING SHOULD CONTINUE TO BE LET OUT, ALONG WITH COMPUTERS TO ENABLE TRANS FER OF DATA. IN OUR OPINION THIS IS NOT A CASE WHERE THE BUILDING IS LE T OUT FOR ENABLING 9 TRANSFER OF DATA AS SUCH A PROCESS CANNOT BY ANY ST RETCH OF IMAGINATION CONTINUE FOR ABOUT 5 YEARS OR MORE. IT IS A SINGLE LETTING OUT OF PROPERTY 8. FURTHER, SECTION 56(2)(III) READS AS FOLLOWS : (2) IN PARTICULAR, AND WITHOUT PREJUDICE TO THE GE NERALITY OF THE PROVISIONS OF SUB-SECTION (1), THE FOLLOWING INCOM ES, SHALL BE CHARGEABLE TO INCOME-TAX UNDER THE HEAD INCOME FRO M OTHER SOURCES, NAMELY:- ------------------ - ----------------- (III) WHERE AS ASSESSEE LETS ON HIRE MACHINERY, PL ANT OR FURNITURE BELONGING TO HIM AND ALSO BUILDINGS, AND THE LETTIN G OF THE BUILDINGS IS INSEPARABLE FROM THE LETTING OF THE SA ID MACHINERY, PLANT OR FURNITURE, THE INCOME FROM SUCH LETTING, I F IT IS NOT CHARGEABLE TO INCOME-TAX UNDER THE HEAD PROFITS AN D GINS OF BUSINESS OR PROFESSION. 8.1 A PLAIN READING OF THE ABOVE PROVISION SHOWS T HAT, IT COMES INTO OPERATION ONLY IN CASES WHERE THE LETTING OUT OF MACHINERY, PLANT ETC. IS INSEPARABLE FROM THE LETTING OUT OF THE BUILDING S. IN THE CASE ON HAND, BY NO STRETCH OF IMAGINATION IT CAN BE SAID THAT TH E COMPUTERS CANNOT BE SEPARATED FROM THE BUILDING. IN FACT, FROM THE BALA NCE SHEET SUBMITTED BY THE ASSESSEE DURING THE COURSE OF APPELLATE PROCEED INGS, IT CAN BE SEEN THAT THE WRITTEN DOWN VALUE OF THE COMPUTERS IN QUE STION AND RELATED EQUIPMENT IS ONLY RS.2,85,024/- AS ON 31-03-2005. 8.2 COMING TO THE ASSESSMENT ORDER PASSED U/S 143( 3) ON 29-8- 2008 FOR THE ASSESSMENT YEAR 2006-07, WE FIND THAT THERE IS NO DISCUSSION WHATSOEVER ON THIS ISSUE IN THAT ORDER. NEVERTHELES S WE FIND FROM THE IMPUGNED ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 2 005-06 THAT THE AO HAS MADE AN OBSERVATION THAT IN THE ASSESSMENT YEAR 2008-09 THE ASSESSEE HAS SUO MOTO SHOW THIS INCOME UNDER THE HEAD INCOM E FROM HOUSE PROPERTY. HENCE THAT ASSESSMENT ORDER IS NOT OF MUC H USE TO THE ASSESSEE. 10 8.3 COMING TO THE CASE LAWS CITED, THE HONBLE SUP REME COURT IN THE CASE OF SHAMBU INVESTMENT PVT. LTD. (SUPRA) HAS UPHELD THE ORDER OF THE HONBLE CALCUTTA HIGH COURT REPORTED IN 249 ITR 47 WHERE THE PROPOSITION LAID DOWN IS AS FOLLOWS : MERELY BECAUSE INCOME IS ATTACHED TO ANY IMMOVAB LE PROPERTY, THAT CANNOT BE THE SOLE FACTOR FOR ASSESS MENT OF SUCH INCOME AS INCOME FROM PROPERTY. IF THE MAIN INTENTI ON OF THE ASSESSEE IS TO LET OUT THE PROPERTY OR ANY PORTION THEREOF THE INCOME MUST BE CONSIDERED AS RENTAL INCOME OR INCOME FROM PROPERTY WHEREAS IF THE PRIMARY OBJECT IS TO EXPLOIT THE IMM OVABLE PROPERTY BY WAY OF COMPLEX COMMERCIAL ACTIVITIES, IN THAT EV ENT IT MUST BE HELD AS BUSINESS INCOME. WHAT HAS TO BE SEEN IS WHETHER THE INCOME IS DERIVE D BY THE ASSESSEE FROM THE EXERCISE OF PROPERTY RIGHTS, OR THE INCOME IN QUESTION WAS RECEIVED FROM CARRYING ON ADVENTURE IN THE NATURE O F TRADE OR A BUSINESS ACTIVITY. IN THE CASE ON HAND, THE ASSESSEE IS NOT CARRYING ON ANY BUSINESS ACTIVITY, WITH THIS ASSET I.E. THE BUILDING. IT IS A SIMPLE CASE OF LETTING OUT OF THE BUILDING ON RENT. HENCE INCOME HAS TO BE ASS ESSED AS INCOME FROM HOUSE PROPERTY. 8.4 IN THE CASE OF ORIENT HOSPITALS LTD. (SUPRA), THE HONBLE MADRAS HIGH COURT WAS CONSIDERING THE CASE OF LETTI NG OUT OF THE HOSPITAL BUILDING WHICH WAS LET OUT FOR RUNNING OF A HOSPITA L ALONG WITH EQUIPMENT AND MACHINERY. IN THAT CASE, THE HONBLE HIGH COURT HAS HELD THAT SECTION 56(2)(III) IS ATTRACTED. IN THE CASE ON HAND, AS A LREADY STATED, IT CANNOT BE HELD THAT THE COMPUTERS IN QUESTION ARE INSEPARABL E FROM THE BUILDING AND HENCE THIS CASE HAS NO APPLICATION. 8.5. IN THE CASE OF CHENNAI PROPERTIES AND INVESTM ENT LTD., THE HONBLE MADRAS HIGH COURT WAS CONSIDERING THE CASE WHERE AMENITY CHARGES WAS RECEIVED BY THE ASSESSEE, IN ADDITION T O INCOME FROM HOUSE 11 PROPERTY. IT WAS HELD THAT RECEIPT OF AMENITY CHAR GES, WAS LIABLE TO BE ASSESSED AS INCOME FROM OTHER SOURCES. THIS CASE LA W ALSO DOES NOT COME TO THE RESCUE OF THE ASSESSEE AS FAR AS INCOME FROM THE BUILDING IS CONCERNED. BUT, AS FAR AS RENTAL INCOME ON COMPUTER IS CONCERNED, THE SAME IS TO BE ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES. 8.6. COMING TO THE ORDER OF THE CALCUTTA BENCH OF THE TRIBUNAL IN THE CASE OF PFH MALL AND RETAIL MANAGEMENT LTD., TH E TRIBUNAL WAS CONSIDERING A CASE WHERE THE ASSESSEE, UNDER AGREEM ENT WITH USERS OF SHOPPING MALL, GRANTED LIMITED RIGHTS TO THE USERS AND IT WAS HELD THAT SUCH ACTIVITY WAS A CONTINUOUS ACTIVITY FOR THE PUR POSE OF EARNING PROFITS. THAT WAS A CASE WHERE THE ASSESSEE WAS RUNNING COMM ERCIAL ACTIVITY BY WAY OF MALL MANAGEMENT AND RUNNING A BUSINESS CENTR E. THE FACTS DO NOT APPLY TO THE CASE ON HAND. 8.7. IN THE CASE ON HAND, THE ASSESSEE, IN OUR CON SIDERED OPINION HAS MERELY LET OUT HIS BUILDING FOR RENT. THE ASSES SEE IS NOT IN THE BUSINESS OF EXPLOITATION OF PROPERTY A PART OF ITS COMMERCIA L ACTIVITY. THE BUSINESS TRANSFER AGREEMENT HAS TAKEN PLACE IN THE YEAR 1999 AND FIVE YEARS LATER IT CANNOT BE SAID THAT THE COMPUTERS ARE HOLDING CE RTAIN DATA WHICH CANNOT BE TRANSFERRED AND HENCE THE LETTING OUT OF PROPERT Y IS NECESSARY FOR EFFECTUATING THE TRANSFER OF THE BUSINESS. THE ASS ESSEE HAD RETAINED THE BUILDING AND EQUIPMENT AND WHAT WAS TRANSFERRED WAS ONLY A BUSINESS OF ADVERTISEMENT. SUCH TRANSFER OF BUSINESS, BY NO STR ETCH OF IMAGINATION, CAN CONTINUE TO BE TRANSFERRED FOR 5 YEARS OR MORE. 9. IN VIEW OF THE ABOVE DISCUSSION, WE ARE OF THE CONSIDERED OPINION THAT THE ORDER OF THE FIRST APPELLATE AUTHO RITY HAS TO BE UPHELD ON THIS ISSUE, WITH THE ONLY MODIFICATION, THAT INCOME IN RESPECT OF LETTING OUT 12 OF COMPUTERS IS TO BE ASSESSED AS INCOME FROM OTHER SOURCES. FOR THIS PURPOSE, WE SET ASIDE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER. 10. COMING TO THE RECEIPT OF AN AMOUNT OF RS.3,13, 000/- AS INCOME FROM CONSULTANCY SERVICES, THE FACT FIND A M ENTION AT PARA 3.2 PAGE 3 OF THE CIT(APPEALS) ORDER. INCOME FROM CONS ULTANCY CANNOT BE TREATED AS EITHER INCOME FROM HOUSE PROPERTY OR IN COME FROM OTHER SOURCES. HENCE TO THIS EXTENT, THE AO IS DIRECTED T O VERIFY THE FACTS AND BRING THE SAME TO TAX UNDER THE HEAD INCOME FROM B USINESS OR PROFESSION. THUS, WE ALLOW THIS APPEAL OF THE ASSE SSEE IN PART. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS A LLOWED IN PART. ORDER PRONOUNCED ON THIS 14 TH DAY OF MAY, 2010. SD/- SD/- (R.V. EASWAR) (J. SUDHAKAR REDDY) SENIOR VICE-PRESIDENT. ACCOUNTANT MEMBER. MUMBAI, DATED : 14 TH MAY, 2010. WAKODE COPY FORWARDED TO : 1. APPELLANT. 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, A-BENCH. (TRUE COPY) BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI BENCHES, MUMBAI.