DCIT, Circle - 7(1), Kolkata, Kolkata V. M/s. Dhanuka Ventures Pvt. Ltd., Kolkata

ITA 1413/KOL/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 6246 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-07-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 12-06-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A BHATTACHARJEE
• Keywords: Business income; Depreciation; Business expenditure; Cost of acquisition
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH : KOLKATA [BEFORE HONBLE SHRI S.S. GODARA, JM & SHRI M.BAL AGANESH, AM ] I.T.A NO. 1413/KOL/20 17 ASSESSMENT YEAR : 2012-1 3 DCIT, CIRCLE-7(1), KOLKATA -VS- M/S DHANUKA VENTURES PVT. LTD. [PAN: AABCM 7883 K] (APPELLANT) (RESPOND ENT) FOR THE APPELLANT : SHRI A. BHATTACHAR JEE, ADDL. CIT FOR THE RESPONDENT : SHRI RAVI TULSIYAN, FCA DATE OF HEARING : 13.06.2018 DATE OF PRONOUNCEMENT : 04.07.2018 ORDER PER M.BALAGANESH, AM 1. THIS APPEAL BY THE REVENUE ARISES OUT OF THE O RDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-16, KOLKATA [IN SHORT THE LD CI T(A)] IN APPEAL NO. 849/CIT(A)- 16/KOL/2015-16/C-7(1) DATED 23.02.2017 AGAINST THE ORDER PASSED BY THE DCIT, CIRCLE- 7(1), KOLKATA [ IN SHORT THE LD AO] UNDER SECTION 1 43(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) DATED 30.03.2015 FOR THE ASS ESSMENT YEAR 2012-13. 2. AT THE OUTSET, THERE IS A DELAY IN FILING OF APP EAL BY 45 DAYS BY THE REVENUE. WE HAVE GONE THROUGH THE REASONS STATED FOR THE DELAY AND W E ARE INCLINED TO CONDONE THE DELAY OF THE REVENUE AND ADMIT THE APPEAL FOR ADJUDICATIO N. 2 ITA NO.1413KOL/2017 M/S DHANUKA VENTURES PVT. LTD. A.YR. 2012-13 2 3. THE ONLY ISSUE TO BE DECIDED IN THIS APPEAL IS A S TO WHETHER THE LD CITA WAS JUSTIFIED IN DIRECTING THE LD AO TO TREAT THE RECEIPT FROM M/ S PANTALOON RETAIL (INDIA) LTD AS BUSINESS INCOME , IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 4. THE BRIEF FACTS OF THIS ISSUE ARE THAT THE ASSES SEE IS A NON-BANKING FINANCIAL COMPANY (NBFC) REGISTERED WITH RESERVE BANK OF INDIA (RBI) CARRYING ON FINANCING BUSINESS APART FROM ENGAGING IN THE AGENCY / VENTURE BUSINES S AT THE PREMISES OWNED BY IT. THE RETURN OF INCOME FOR THE ASST YEAR 2012-13 WAS FILE D ON 26.9.2012 DECLARING TOTAL INCOME OF RS 1,58,81,810/-. THE ASSESSEE SHOWED AG ENCY COMMISSION INCOME OF RS 3,57,08,634/- VIDE AGREEMENT DATED 14.9.2011 , THE QUANTUM OF WHICH IS DEPENDENT ON THE SALE PERCENTAGE AT THE PREMISES OWNED BY THE CO MPANY AT 49/1, LEELA ROY SARANI, KOLKATA - 700019 IN RESPECT OF PROPERTY OWNED BY T HE COMPANY AND LET OUT TO M/S PANTALOON RETAIL (INDIA) LTD. IT WAS SUBMITTED THA T M/S PANTALOOAN RETAIL (INDIA) LTD USED THE PREMISES AT 49/1, LEELA ROY SARANI, KOLKA TA - 700019 AS A RETAIL OUTLET OF RUNNING A SHOWROOM SITUATED AT GROUND AND MEZZANINE FLOOR IN THE SAID COMMERCIAL COMPLEX. THE LD AO OBSERVED THAT ASSESSEE HAD RECE IVED ONLY RENT ON LETTING OUT OF THIS PROPERTY TO M/S PANTALOON RETAIL (INDIA) LTD AND HE NCE THE SAME CANNOT BE TREATED AS BUSINESS INCOME OF THE ASSESSEE AND INSTEAD IT HAD TO BE TAXED AS INCOME FROM HOUSE PROPERTY. THE LD AO ALSO DISALLOWED THE DEPRECIAT ION ON THE SAID PROPERTY AMOUNTING TO RS 1,70,159/- AS THE RENTAL INCOME IS TAXED UNDE R THE HEAD INCOME FROM HOUSE PROPERTY. THE LD AO OBSERVED THAT THE ASSESSEE HAD DEBITED A SUM OF RS 1,17,99,120/- IN ITS PROFIT AND LOSS ACCOUNT UNDER THE HEAD OTHE R EXPENSES. OUT OF THIS, HE ALLOWED RS 25,00,298/- AS BUSINESS EXPENDITURE TO BE SET OF F AGAINST OTHER BUSINESS INCOME AND DISALLOWED RS 92,98,822/- AS THE RENTAL INCOME EARN ED BY THE ASSESSEE IS TO BE TAXED ONLY AS INCOME FROM HOUSE PROPERTY AND NOT AS BUSIN ESS INCOME. THE LD AO HOWEVER GRANTED FLAT DEDUCTION OF 30% OF THE RENTAL INCOME WHILE COMPUTING THE INCOME FROM HOUSE PROPERTY. 3 ITA NO.1413KOL/2017 M/S DHANUKA VENTURES PVT. LTD. A.YR. 2012-13 3 5. THE ASSESSEE SUBMITTED THAT IT HAD BEEN EARNING AGENCY COMMISSION FROM M/S PANTALOON RETAIL (INDIA) LTD (PRIL) FOR RENDERING S ERVICES IN CONNECTION WITH STOCK AND DISPLAY, FOR RETAIL SALE, THE PRODUCTS AND GOODS OF PRIL AT ITS PROPERTY LOCATED AT 49/1, LEELA ROY SARANI, (GARIAHAT ROAD), KOLKATA 700019 , WHICH ALSO REPRESENTS RETAIL OUTLET OF PRIL. THE ASSESSEE PURSUANT TO AN AGREEME NT WITH PRIL HAD AGREED FOR COMMERCIAL UTILIZATION OF THE IMMOVABLE PROPERTY OW NED BY IT FOR OPERATING AS A SHOWROOM. THE ASSESSEE PURSUANT TO THE AGREEMENT H AD ALSO AGREED TO PROVIDE VARIOUS SERVICES AND INCUR EXPENSES FOR THE PURPOSE OF MAIN TAINING, MANAGING AND ASSISTING PRIL TO PUT UP AND USE THE SAID PROPERTY AS A SHOWR OOM. AS AGAINST THIS BUSINESS PROPOSAL OF PROVIDING OF THE AFORESAID SERVICES, TH E ASSESSEE EARNS 10% OF THE GROSS SALES FROM THE SHOWROOM AS COMMISSION, WHICH IS OFF ERED TO TAX BY THE ASSESSEE AS INCOME FROM BUSINESS. DURING THE YEAR UNDER CONSIDE RATION, THE ASSESSEE EARNED AGENCY COMMISSION OF RS 3,57,08,634/- AND OFFERED TO TAX A S BUSINESS INCOME IN CONSONANCE WITH THE TREATMENT GIVEN BY IT IN THE EARLIER YEARS , WHICH HAS BEEN ACCEPTED BY THE DEPARTMENT IN ALL THE EARLIER YEARS PRECEDING THE A SST YEAR 2010-11. IT WAS SUBMITTED THAT THE CAREFUL READING OF VARIOUS CLAUSES IN THE AGREEMENT STIPULATES THAT THE ACTIVITIES WERE CARRIED OUT BY THE ASSESSEE WITH A MOTIVE TO E ARN PROFIT AND NOT FOR THE SAKE OF MERE LETTING OUT OF ITS PROPERTY. THE AGREEMENT WI TH PRIL HAD BEEN MADE OPERATIVE FOR A CONSIDERABLE PERIOD OF TIME (I.E 5 YEARS) SIGNIF YING THAT THE SERVICES WERE BEING RENDERED CONTINUOUSLY DURING THE SAID PERIOD. FOR PROVIDING THE VARIOUS SERVICES AS PER THE AGREEMENT, THE ASSESSEE HAD TO ARRANGE FOR / OB TAIN PERMISSION S/ CLEARANCES/ FACILITATIONS FROM VARIOUS GOVERNMENT BODIES. IT H AD TO MAINTAIN STAFF AND MANAGERS AND TAKE VARIOUS ADMINISTRATIVE MEASURES TO ENSURE SMOOTH RUNNING OF THE RETAIL OUTLET / SHOWROOM PREMISES. ALL THESE ARE CONTINUOUS ORGANIZ ED ACTIVITIES UNDERTAKEN FOR A SET PURPOSE OF CARRYING ON BUSINESS AS MANAGERS AND MAI NTAINERS OF THE RETAIL OUTLET/ SHOWROOM PREMISES . HENCE IT WAS PLEADED THAT THE ASSESSEE HAD TAKEN UP THE VENTURE OF SETTING UP A SHOWROOM AT THE PREMISES OWNED BY I T AND FOR THAT MATTER ALL THE AFOREMENTIONED ACTIVITIES UNDOUBTEDLY CONSTITUTE IN GREDIENTS OF AN ORGANIZED BUSINESS 4 ITA NO.1413KOL/2017 M/S DHANUKA VENTURES PVT. LTD. A.YR. 2012-13 4 VENTURE. THE ASSESSEE PLACED RELIANCE ON THE DECISI ON OF HONBLE SUPREME COURT IN THE CASE OF KARNANI PROPERTIES LTD VS CIT REPORTED IN 8 2 ITR 547 (SC). 5.1. IN ADDITION TO THE ABOVE, IT WAS PLEADED THAT RENTAL INCOME PRE-SUPPOSES EXISTENCE OF AN OWNER TENANT RELATIONSHIP BETWEEN THE RECEI VER AND THE PAYER OF THE RENT. ONE OF THE PRINCIPAL CHARACTERISTICS OF SUCH RELATIONSHIP IS THAT THE TENANT MUST ENJOY TENANCY RIGHTS, WHICH HE ACQUIRES THE MOMENT HE BECOMES A T ENANT. SECTION 55(2)(A) OF THE ACT EVEN SPEAKS OF THE COST OF ACQUISITION OF SUCH TENA NCY RIGHTS FOR THE PURPOSE OF COMPUTATION OF CAPITAL GAINS ON TRANSFER THEREOF. HOWEVER, IN THE AGREEMENT THAT THE ASSESSEE COMPANY ENTERED INTO WITH PRIL, IT HAS BEE N SPECIFICALLY PROVIDED THAT THE USER OF THE SERVICES PROVIDED BY THE OWNER SHALL NOT HAV E ANY TENANCY RIGHTS. 5.2. THE ASSESSEE FURTHER SUBMITTED THAT THE KOLKAT A MUNICIPAL CORPORATION (KMC) HAD REVISED THE VALUATION OF THE AREA IN WHICH THE SHOW ROOM HAS BEEN SET UP BY THE ASSESSEE TOGETHER WITH PRIL, BY ALLEGING THAT THE SAID PREMI SES HAD BEEN LET OUT TO PRIL AND HENCE HAD SOUGHT TO LEVY HIGHER PROPERTY TAX. IN T HIS CONNECTION, THE ASSESSEE FILED A WRIT AGAINST KMC BEFORE THE HONBLE CALCUTTA HIGH C OURT. THE HONBLE CALCUTTA HIGH COURT AFTER EXAMINING THE AGENCY AGREEMENT, VIDE IT S ORDER DATED 15.10.2004 OBSERVED AS UNDER:- I HAVE GONE THROUGH THE AGREEMENT, THEREIN NOWHERE I FIND THAT THE WRIT PETITIONER HAS PARTED WITH THE POSSESSION OF THE PREMISES IN QUEST ION OR HAS GIVEN CONTROL AND DOMAIN OVER THE PROPERTY TO THE PANTALOONS FASHION INDIA L TD.. IT APPEARS THAT IT IS MERELY BUSINESS DEAL. AS A REMUNERATION OF SUCH BUSINESS D EAL THE PAYMENT OF COMMISSIONS HAS BEEN FIXED ACCORDING TO YEARLY TURNOVER. THE PANTAL OON HAS BEEN MADE PARTY TO THE WRIT PETITION THEY HAVE NOT CLAIMED ANY RIGHT OF TE NANCY. THEREFORE, IT IS ABSURD TO GUESS THAT SUBJECT AGREEMENT IS OTHERWISE THAN WHAT IS APPARENT PARTICULARLY WHEN THE ALLEGED TENANT DOES NOT CLAIM SO. IT IS HARD TO BEL IEVE THAT THE TENANT WOULD PAY ANY RENT OR OCCUPATION CHARGES WITHOUT HAVING OCCUPANCY RIGH T. 6. THE LD CITA APPRECIATED THE AFORESAID CONTENTION S OF THE ASSESSEE AND ALSO BY PLACING RELIANCE ON THE FOLLOWING DECISIONS HELD THAT THE A GENCY COMMISSION INCOME DERIVED BY 5 ITA NO.1413KOL/2017 M/S DHANUKA VENTURES PVT. LTD. A.YR. 2012-13 5 THE ASSESSEE FROM PRIL IS TO BE TAXED ONLY AS BUSIN ESS INCOME AND NOT INCOME FROM HOUSE PROPERTY :- A) HONBLE SUPREME COURT IN THE CASE OF CHENNAI PRO PERTIES & INVESTMENTS LTD VS CIT REPORTED IN (2015) 373 ITR 673 (SC). B) CO-ORDINATE BENCH DECISION OF THIS TRIBUNAL IN T HE CASE OF PFH MALL AND RETAIL MANAGEMENT LTD VS ITO REPORTED IN (2008) 298 ITR (A .T.) 371 (ITAT KOLKATA) . THE REVENUES APPEAL BEFORE THE HONBLE CALCUTTA HIGH C OURT AND HONBLE SUPREME COURT AGAINST THIS TRIBUNAL ORDER HAS BEEN DISMISSED. C) HONBLE CALCUTTA HIGH COURT IN THE CASE OF EVERE ST HOTELS LTD VS CIT REPORTED IN (1978) 114 ITR 779 (CAL). D) HONBLE GUJARAT HIGH COURT IN THE CASE OF ACIT V S SAPTARISHI SERVICES LTD REPORTED IN (2004) 265 ITR 379 (GUJ). E) HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS NATIONAL STORAGE P LTD REPORTED IN (1963) 48 ITR 577 (BOM). 7. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. FROM THE FACTS NARRATED ABOVE, WE FIND THAT PRIL (U SER) IS ONLY GRANTED PERMISSIVE USE OF THE SERVICES AND FACILITIES PROVIDED IN THE PREM ISES BY THE ASSESSEE. FURTHER, THE USER WOULD NOT BE VESTED WITH OR ENJOY ANY RIGHT, TITLE OR INTEREST OF ANY KIND OF THE RETAIL OUTLET / SHOWROOM PREMISES. AS PER THE TERMS OF THE AGREEMENT, THE USERS HAD NO RIGHT OF OCCUPANCY. THEY HAVE ONLY LIMITED ACCESS TO USE TH E SPACE FOR THE PURPOSE OF THEIR BUSINESS AND THAT TOO, IN RESPECT OF CERTAIN ACTIVI TIES, DURING THE SPECIFIC HOURS OF THE DAY ONLY. THUS THE USERS DO NOT ENJOY ANY TENANCY RIGH T AS PER THE AGREEMENT. WE ALSO FIND THAT THE ASSESSEE IS RESPONSIBLE FOR PAYMENT OF MAI NTENANCE CHARGES, MUNICIPAL AND OTHER TAXES, RATES AND AS WELL AS OTHER SUCH RELATE D OUTGOINGS. THE VARIOUS CASE LAWS 6 ITA NO.1413KOL/2017 M/S DHANUKA VENTURES PVT. LTD. A.YR. 2012-13 6 RELIED UPON IN THE ORDER OF THE LD CITAS ORDER SQU ARELY SUPPORTS THE CASE OF THE ASSESSEE. WE FIND THAT THE ASSESSEE HAD PROVIDED VARIOUS ARRANGEMENTS ON A DAILY BASIS TO THE USER, TO ENSURE SMOOTH AND EFFICIENT RUNNING OF THE RETAIL OUTLET/ SHOWROOM WHICH REFLECT A CLEAR MANIFESTATION OF AN ORGANIZED ACTI VITY CARRIED OUT BY THE ASSESSEE FOR A SET PURPOSE OF EARNING PROFITS OUT OF COMMERCIAL EXPLOI TATION OF THE PROPERTY OWNED BY IT. IN CONSIDERATION OF RENDERING THE SERVICES AS PER T HE AGREEMENT, THE ASSESSEE IS COMPENSATED IN THE FORM OF COMMISSION CALCULATED AT 10% OF GROSS SALES IN THE SAID RETAIL OUTLET /SHOWROOM. MOREOVER, THE HONBLE CALC UTTA HIGH COURT IN THE CONTEXT OF WRIT PROCEEDINGS ON THE LEVY OF HIGHER PROPERTY TAX FOR THE SUBJECT MENTIONED PROPERTY, HAD HELD SUPRA THAT PRIL DOES NOT POSSESS ANY TENAN CY RIGHTS AND THE AGREEMENT ENTERED INTO BY THE ASSESSEE WITH PRIL IS ONLY A MERE BUSIN ESS ARRANGEMENT. IN THIS BACKGROUND, THERE IS NO NEED TO TAKE A DIFFERENT VI EW ON THE NATURE OF THE AGREEMENT ENTERED INTO BY THE ASSESSEE WITH PRIL. HENCE IT CO ULD BE SAFELY CONCLUDED THAT THE SAID RECEIPT OF AGENCY COMMISSION WOULD SQUARELY FALL UN DER THE KEN OF BUSINESS INCOME AND TO BE ASSESSED ACCORDINGLY. MOREOVER, WE ALSO FIND THAT THE SAID TREATMENT OF ASSESSING THE AGENCY COMMISSION AS BUSINESS INCOME AND ALLOWI NG DEPRECIATION THEREON, HAS BEEN ALLOWED BY THE DEPARTMENT UP TO ASST YEAR 2009-10 A ND OUT OF WHICH, THE ASSESSMENTS FOR THE ASST YEARS 2006-07 , 2008-09 AND 2009-10 WE RE COMPLETED U/S 143(3) OF THE ACT. HENCE THERE IS NO REASON TO TAKE A DIVERGENT VIEW DURING THE YEAR UNDER APPEAL ON THE SAME SET OF FACTS. RELIANCE IN THIS REGARD IS PLACED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF RADHASAOMI SATSANG VS CIT REPORTED IN 193 ITR 321 (SC) ENUNCIATING THE PRINCIPLES OF CONSISTENCY TO BE FOL LOWED BY THE REVENUE, WHEN THERE IS NO CHANGE IN FACTS AND CIRCUMSTANCES OF THE CASE. 8.1. SINCE THE AGENCY COMMISSION HAS BEEN DIRECTED TO BE ASSESSED AS BUSINESS INCOME AS ABOVE, THE ALLOWABILITY OF DEPRECIATION ON THE S UBJECT MENTIONED PROPERTY BECOMES AUTOMATIC . SIMILARLY THERE IS NO NEED TO DISALLOW ANY EXPENSES AS NOT RELATABLE TO BUSINESS AS ADMITTEDLY, THE LD AO HAD NOT STATED TH AT THE SAID EXPENDITURES WHICH WERE 7 ITA NO.1413KOL/2017 M/S DHANUKA VENTURES PVT. LTD. A.YR. 2012-13 7 DISALLOWED ARE NOT MEANT FOR BUSINESS PURPOSES OF T HE ASSESSEE. THE SAME WERE DISALLOWED ONLY ON THE GROUND THAT THE AGENCY COMMI SSION IS ASSESSED AS HOUSE PROPERTY INCOME AGAINST WHICH NO EXPENSES COULD BE ALLOWED E XCEPT ALLOWING FLAT DEDUCTION OF 30% ON NET ANNUAL VALUE. HENCE WE DIRECT THE LD AO TO DELETE THE DISALLOWANCE OF DEPRECIATION AND EXPENSES MADE IN THE ASSESSMENT AS THE AGENCY COMMISSION HAS BEEN DIRECTED TO BE ASSESSED AS INCOME FROM BUSINESS. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE COURT ON 04.07.2018 SD/- SD/- [S.S. GODARA] [ M .BALAGANESH ] JUDICIAL MEMBER ACCOUNTANT MEM BER DATED : 04.07.2018 SB, SR. PS COPY OF THE ORDER FORWARDED TO: 1. DCIT, CIRCLE-7(1), KOLKATA, AAYAKAR BHAWAN, 5 TH FLOOR, P-7, CHOWRINGHEE SQUARE, KOLKATA-700069. 2. M/S DHANUKA VENTURES PVT. LTD., 40, SHAKESPEARE SARANI, KOLKATA-700017. 3..C.I.T.- 4. C.I.T.- KOLKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER SENIOR PRIVAT E SECRETARY HEAD OF OFFICE/D.D.O., ITAT, KOLKATA BENCHE S