Shri. Ramesh Babu Bonthala, Bangalore V. Income Tax Officer, Bangalore

ITA 1330/BANG/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 5357 (ITAT-BANGALORE)
• Duration Of Justice: 10 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-05-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 18-07-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SWAPNA DAS
• Assessee Lawyers: DR VISHNU BHARATH
• Keywords: Business income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC-C BENCH : BANGALORE BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER ITA NO.1330/BANG/2016 ASSESSMENT YEAR : 2012-13 SHRI. RAMESH BABU BONTHALA, NO. 7/8, 2 ND FLOOR, SHOUKATH BUILDING, SJP ROAD, BENGALURU-560002. PAN : AAQHR4623C VS. THE INCOME TAX OFFICER, WARD-5(2)(2), BENGALURU, APPELLANT RESPONDENT ASSESSEE BY : DR. VISHNU BHARATH, CA REVENUE BY : SMT. SWAPNA DAS, JCIT DATE OF HEARING : 15.5.2017 DATE OF PRONOUNCEMENT : 19.5.2017 O R D E R PER SUNIL KUMAR YADAV, JUDICIAL MEMBER THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST T HE ORDER OF CIT(A), INTERALIA, ON THE FOLLOWING GROUNDS: ITA NO. 1330/BANG/2016 PAGE 2 OF 7 1. THE ORDERS OF THE AUTHORITIES BELOW IN SO FAR AS TH EY ARE AGAINST THE APPELLANT ARE OPPOSED TO LAW, EQUITY, WEIGHT OF EVIDENCE, PROBABILITIES, FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE FINDING OF THE AUTHORITIES BELOW IS PERVERSE AN D IS CONTRARY TO THE EVIDENCE ON RECORD AND THUS IS VITIATED. 3. THE ORDER OF THE LEARNED CIT (A) IS ERRONEOUS; A S THE INTENTION OF THE APPELLANT IS NOT CONSIDERED AND THE COMMERCIAL CONT RACT ENTERED WHICH IS PURELY OF BUSINESS NATURE IS WRONGLY INTERRUPTED. 4. THE CIT APPEALS HAS NOT CONSIDERED THE CLAUSE AP PLICABLE FOR THE YEAR OF THE APPEAL AND LOOKING INTO WHAT COULD BE APPLICABLE IN FUTURE IF SUCH EVENT HAPPENS WHICH IS ONLY PROBABILITY. 5. THE LEARNED CIT APPEALS FAILED TO APPRECIATE THE FACTS BROUGHT IN THE CASE OF CHENNAI PROPERTIES, WHERE MORE EMPHASIS IS GIVEN TO THE INTENTION AND OBJECTS OF THE APPELLANT. 6. THE LEARNED CIT APPEALS HAS OBSERVED THAT THE FIRST YEAR OF THE LEASE AGREEMENT, (IT IS NOT LEASE AGREEMENT AND IT WAS CO NTRACTUAL AGREEMENT) THERE WAS REVENUE SHARING IN RATION OF 6 0 AND 40 AND HAS COME TO CONCLUSION THAT IT CANNOT BE STATED AS PARTNERSHIP IN THE BUSINESS. 7. THE INCOME TAX OFFICER & THE COMMISSIONER APPEALS H AVE FAILED TO APPRECIATE THAT THE BUSINESS COULD BE DONE BY THE A PPELLANT OR HIS REPRESENTATIVE IN THE PRESENT CASE THE COMPANY WHOM IT IS ENTRUSTED TO THE BUSINESS. 8. FOR THE ABOVE AND OTHER GROUNDS THAT MAY BE URGED A T THE TIME OF THE HEARING OF THE APPEAL, YOUR APPELLANT HUMBLY PRAYS THAT THE APPEAL MAY BE ALLOWED AND JUSTICE RENDERED AND THE APPELLANT MAY BE AWARDED COSTS IN PROSECUTING THE APPEAL AND ALSO ORDER FOR THE REFUN D OF THE INSTITUTION FEES AS PART OF THE COSTS. 2. THOUGH VARIOUS GROUNDS ARE RAISED BY THE ASSESSE E BUT THEY ALL RELATE TO THE NATURE OF INCOME RECEIVED FROM TH E PROPERTY. THE FACTS IN BRIEFS BORNE OUT FROM THE RECORD ARE THAT THE RETURN OF INCOME WAS FILED DECLARING LOSS OF RS.8,64,317/- FOR THE F IRST TIME FOR THE ITA NO. 1330/BANG/2016 PAGE 3 OF 7 ASSESSMENT YEAR 2012-13. THE BUILDING SITE WAS ACQ UIRED OUT OF HUF FUNDS IN THE YEAR 1997 AND LATER ON 16 APARTMEN TS OF 2/3 BED ROOM WERE BUILT AND FURNISHED BY THE APPELLANT. HE LATER ON ENTERED INTO OPERATION & MANAGEMENT AGREEMENT WITH M/S. PRA THIBHA HOUSING AND FINANCE (PVT) LTD., TO MANAGE THE BUSIN ESS WITH SHARING RATIO OF 60% FOR THE APPELLANT AND 40% FOR THE COMP ANY WHO MANAGE THE BUSINESS. THE PROCEEDS RECEIVED WAS TREATED AS BUSINESS INCOME BY THE ASSESSEE AND OFFERED TO TAX, WHICH IS DISPUTED BY THE LEARNED INCOME TAX OFFICER AND HE TREATED IT TO BE THE INCOME FROM HOUSE PROPERTY. 3. AGGRIEVED, THE ASSESSEE HAS PREFERRED AN APPEAL BEFORE THE CIT(A) WITH THE SUBMISSION THAT THE ASSESSEE HAS EN TERED INTO AN AGREEMENT FOR DOING BUSINESS WITH M/S. PRATHIBHA HO USING AND FINANCE (PVT) LTD. THEREFORE, THE INCOME EARNED ON SHARING BASIS SHOULD BE TREATED AS BUSINESS INCOME AND NOT THE IN COME FROM HOUSE PROPERTY. THE CIT(A) RE-EXAMINED THE CLAIM O F THE ASSESSEE BUT WAS NOT CONVINCED WITH IT AND HE CONFIRMED THE ORDER OF THE AO. THE RELEVANT OBSERVATION OF CIT(A) IS EXTRACTED HER EUNDER FOR THE SAKE OF REFERENCE: I HAVE CONSIDERED THE ABOVE GROUNDS OF APPEAL AND ORAL SUBMISSIONS MADE BY AR OF THE APPELLANT AND AL SO GONE THROUGH THE ASSESSMENT ORDER PASSED BY THE ASSESSIN G OFFICER. THE COPY OF THE LEASE AGREEMENT FURNISHED BEFORE ITA NO. 1330/BANG/2016 PAGE 4 OF 7 ME HAS BEEN PERUSED. THE RELEVANT CLAUSES OF THE AGREEMENT ARE GIVEN AS UNDER: THE LESSOR AND THE LESSEE SHALL, AFTER DEDUCTION OF ALL EXPENSES, SHARE THE NET REVENUE IN THE RATIO OF 60 AND 40 RESPECTIVELY CALCULATED ON A MONTHLY BASIS AND THE LESSEE SHALL DEPOSIT THE LESSORS SHARE. ON THE COMPLETIO N OF THE FIRST YEAR, THE LESSOR HAS A CHOICE OF CONTINUING T HE EXISTING REVENUE SHARE ARRANGEMENT WHEREIN THE LESSOR AND TH E LESSEE WOULD SHARE THE NET REVENUE IN THE RATIO OF 65 AND 35 RESPECTIVELY. ALTERNATIVELY, THE LESSOR COULD SWIT CH TO A LEASE OPTION IN THE SECOND YEAR WHEREIN THE LESSEE WOULD PAY A LEASE RENT OF RS.1,05,000/- PER MONTH AND THE LESSOR WOULD FORFEIT HIS RIGHT TO RECEIVE ANY SHARE ON THE REVENUES RECEIVED BY THE LESSEE IN RUNNING THE BUSINESS. FU RTHER, THE LESSEE WOULD ALSO GIVE AN INTEREST FREE SECURITY DE POSIT OF RS.10,50,000/- TO THE LESSOR AT THE COMMENCEMENT OF THE LEASE OPTION. ON COMPLETION OF EVERY YEAR AFTER THE SECOND YEAR, SHOULD THE LESSOR OPT FOR THE FIXED MONTHLY RENTAL, THERE WOULD BE AN ANNUAL INCREMENT WOULD BE 5% ON PREVIOU S RENT PAID. HOWEVER, AFTER COMPLETION OF 5 YEARS THE INC REMENT OF THE 6TH YEAR WOULD BE 10% ON THE PREVIOUS RENT PAID . THE INCREMENT FOR THE 7TH YEAR, 8TH YEAR, 9TH YEAR AND 10TH YEAR WOULD CONTINUE TO BE 5% ITSELF. FURTHER, IN CASE T HE LESSEES OCCUPANCY IN THE SCHEDULED PREMISES ON AN AVERAGE I S ABOVE 70% OF THE 5TH YEAR, THEN THE INCREMENT FOR T HE 6TH YEAR WOULD BE 15% INSTEAD OF THE ABOVE STATED 10% O N PREVIOUS RENT PAID. INCREMENT FOR ALL THE OTHER YE ARS WOULD REMAIN AT 5% AS STATED SUPRA. FROM THE ABOVE CLAUSES OF LEASE AGREEMENT IT IS VER Y CLEAR THAT THE LEASE AGREEMENT BETWEEN LESSOR AND L ESSEE FOR THE PURPOSE OF RUNNING A HOME STAY IN THE PREMI SES. THOUGH IN THE FIRST YEAR OF THE LEASE AGREEMENT THE RE WAS A REVENUE SHARING RATIO OF 60 AND 40 IT CANNOT BE STA TED AS PARTNERSHIP IN THE BUSINESS, AS THE ENTIRE BUSINESS ACTIVITY WAS CARRIED OUT BY THE LESSEE AND THERE WAS NO PART NERSHIP DEEP AND THE LESSOR HAS SIMPLY HANDED OVER THE PROP ERTY OWNED BY HIM FOR THE PURPOSE OF RUNNING A HOME STAY IN THE PREMISES AND FROM SUBSEQUENT YEAR IT WAS LIKE ANY O THER RENTAL AGREEMENT. FURTHER THE APPELLANT BEING NRI WHO HAS NOT OBTAINED ANY LICENSE FOR DOING ANY BUSINESS IN INDIA THE INCOME RECEIVED CANNOT BE TREATED AS BUSINESS INCOM E AND THEREFORE THE ASSESSING OFFICERS ACTION IN TREATIN G AS HOUSE PROPERTY INCOME IS HEREBY UPHELD. ITA NO. 1330/BANG/2016 PAGE 5 OF 7 4. NOW THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNA L AND REITERATED HIS CONTENTIONS THAT HE HAS NOT LEASED O UT THE PROPERTY TO M/S. PRATHIBHA HOUSING AND FINANCE (PVT) LTD., RATH ER HE WAS DOING BUSINESS WITH THEM IN A PROFIT SHARING RATIO OF 60% FOR THE ASSESSEE AND 40% FOR THE COMPANY. HE HAS ALSO INVITED OUR AT TENTION TO THE LEASE DEED THROUGH WHICH HE HAS ENTERED INTO AN AGR EEMENT WITH THE LESSEE TO RUN THE BUSINESS OF PROVIDING ACCOMMODATI ONS. 5. THE LEARNED DR BESIDES PLACING RELIANCE UPON TH E ORDER OF THE CIT(A) INVITED OUR ATTENTION TO THE TERMS OF LEASE DEED EXECUTED BETWEEN THE ASSESSEE AND M/S. PRATHIBHA HOUSING AND FINANCE (PVT) LTD. THE LEARNED DR HAS SUBMITTED THAT THE PREMISE S WAS GIVEN TO THE LESSEE TO RUN ITS BUSINESS AND IN THE FIRST YEA R THE ASSESSEE HAS RECEIVED 60% OF THE PROFIT AS ANNUAL RENT OF THE PR OPERTY AND IN THE SUCCEEDING YEAR THE LEASE RENT WAS STIPULATED. THE ENTIRE BUSINESS OF RENTING OUT THE APARTMENTS WAS EXCLUSIVELY DONE BY M/S. PRATHIBHA HOUSING AND FINANCE (PVT) LTD. THERE WAS NO INVOLV EMENT OF THE ASSESSEE IN THE DAY TO DAY AFFAIRS OF BUSINESS OF P ROVIDING APARTMENTS TO THE GUESTS ON RENT. THE LEARNED DR FURTHER INVITED OUR ATTENTION TO CLAUSE 10 OF THE LEASE DEED THAT THE L ESSEE HAS LEASE RIGHT FOR THE ENTIRE PORTION OF THE SCHEDULED PREMI SES AND THE LESSEE CAN SUBLEASE ANY PORTION OF PREMISE TO TENANT FOR A PERIOD DURING THE ITA NO. 1330/BANG/2016 PAGE 6 OF 7 LEASE AGREEMENT PERIOD. THEREFORE, THE ASSESSEE HA S NO CONTROL OVER THE DAY TO DAY AFFAIRS OF THE ACTIVITIES OF TH E LESSEE WITH REGARD TO THE SCHEDULED PREMISES. THUS, THE ASSESSEE HAS SIM PLY LEASED OUT THE PREMISES TO M/S. PRATHIBHA HOUSING AND FINANCE (PVT) LTD., AND THE RENTAL INCOME RECEIVED IS TO BE CHARGED AS INCO ME FROM HOUSE PROPERTY. 6. HAVING CAREFULLY EXAMINED THE ORDERS OF THE AUTH ORITIES BELOW AND DOCUMENTS PLACED ON RECORD, WE FIND THAT THROUG H LEASE DEED, THE ASSESSEE HAS LEASED OUT THE ENTIRE PROPERTY TO M/S. PRATHIBHA HOUSING AND FINANCE (PVT) LTD., VIDE LEASE DEED DAT ED 31.01.2011. THROUGH THIS LEASE DEED, THE POSSESSION OF THE PROP ERTY WAS GIVEN TO THE LESSEE AND THE LESSEE HAS EXCLUSIVE RIGHT OVER THE ENTIRE PROPERTY FOR ITS USE AND ALSO TO SUBLEASE ANY PORTION OF PRE MISES TO THE TENANT FOR A PERIOD WITHIN THE LEASE AGREEMENT PERIOD. DA Y TO DAY MAINTENANCE OF LEASED PREMISES SHALL ALSO BE THE RE SPONSIBILITY OF THE LESSEE. 7. WE HAVE CAREFULLY PERUSED THE OTHER TERMS OF THE LEASE DEED AND WE FIND THAT THE ASSESSEE HAS SIMPLY LEASED OUT ITS PROPERTY TO M/S. PRATHIBHA HOUSING AND FINANCE (PVT) LTD. DUR ING THE FIRST YEAR OF LEASE HE HAS AGREED TO RECEIVE THE 60% PROFIT OF THE BUSINESS AS ANNUAL RENTAL INCOME BUT SUBSEQUENTLY THE ANNUAL RE NT HAS BEEN ITA NO. 1330/BANG/2016 PAGE 7 OF 7 PRESCRIBED IN CLAUSE 3 OF THE LEASE DEED. THEREFOR E, BY ANY STRETCH OF IMAGINATION IT CANNOT BE SAID THAT THE ASSESSEE WAS DOING BUSINESS WITH M/S. PRATHIBHA HOUSING AND FINANCE (PVT) LTD., ON PROFIT SHARING BASIS. IT WAS SIMPLY A CASE OF LEASING OUT OF PROP ERTY TO M/S. PRATHIBHA HOUSING AND FINANCE (PVT) LTD. THEREFORE THE LEASED RENT RECEIVED BY THE ASSESSEE IS CHARGEABLE TO TAX AS IN COME FROM HOUSE PROPERTY. IN THE LIGHT OF THESE FACTS, I FIND NO I NFIRMITY IN THE ORDER OF THE CIT(A) AND I ACCORDINGLY CONFIRM THE SAME.. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE STANDS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 19 TH MAY, 2017. SD/- ( SUNIL KUMAR YADAV ) JUDICIAL MEMBER BANGALORE. DATED: 19 TH MAY, 2017. /NSHYLU/* COPY TO: 1. APPELLANTS 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.