DCIT, Central Circle - XXVIII, Kolkata, Kolkata V. M/s. Merlin Developers, Kolkata

ITA 1717/KOL/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3148 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 6 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-06-2013
• Appeal Filed By: Department
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 15-12-2011
• Court: TRIBUNAL
• Department Lawyers: AJIT KR KHAN
• Assessee Lawyers: CROSS OBJECTOR SHRI B C JAIN
• Keywords: Business income
• Section: 143(3)

Judgement Text

, B , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: KOL KATA () BEFORE . . . . . . . . , ! /AND ''# $ $ $ $, , , , ) [BEFORE SHRI N. S. SAINI, AM & SHRI GEORGE MATHAN, JM] !% !% !% !% / I.T.A NO. 1717/KOL/2011 &' () &' () &' () &' ()/ // / ASSESSMENT YEAR: 2009-10 DEPUTY COMMISSIONER OF INCOME-TAX, VS. M/S. MERLI N DEVELOPERS C.C. XXVIII, KOLKATA. (PAN: AAKFM9600L) ($+ /APPELLANT ) (,-$+/ RESPONDENT ) & C.O. NO.158/KOL/2012 IN !% !% !% !% / I.T.A NO. 1717/KOL/2011 &' () &' () &' () &' ()/ // / ASSESSMENT YEAR: 2009-10 M/S. MERLIN DEVELOPERS VS. DEPUTY COMMISSIONER OF INCOME-TAX, C.C. XXVIII, KOLKATA. (CROSS OBJECTOR) (RESPONDENT) DATE OF HEARING: 17.06.2013 DATE OF PRONOUNCEMENT: 19.06.2013 FOR THE APPELLANT: SHRI AJIT KR. KHAN, JCIT, SR. DR FOR THE CROSS OBJECTOR : SHRI B. C. JAIN, FCA . / ORDER PER BENCH: THE APPEAL FILED BY THE REVENUE AND THE CROSS OBJEC TION FILED BY ASSESSEE ARE AGAINST THE ORDER PASSED U/S. 143(3) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) BY THE CIT(A), CENTRAL-1, KOLKATA IN APPEAL NO. 214/CC -XXVIII/CIT(A),C-10-11 DATED 21.10.2011 FOR ASSESSMENT YEAR 2009-10. 2. SHRI AJIT KR. KHAN APPEARED ON BEHALF OF REVENUE AND SHRI B. C. JAIN APPEARED ON BEHALF OF ASSESSEE. 3. THE CROSS OBJECTION FILED BY THE ASSESSEE IS DEL AYED BY 132 DAYS FOR WHICH THE ASSESSEE HAS FILED NECESSARY AFFIDAVIT REQUESTING FOR CONDON ATION OF DELAY AND EXPLAINING THE REASONS FOR THE DELAY. THE REVENUE HAS NOT OBJECTED TO THE CON DONATION OF DELAY. CONSEQUENTLY, THE DELAY IN FILING THE CROSS OBJECTION STANDS CONDONED. 2 ITA NO.1717/K/2011 & CO. NO. 158/K/2012 MERLIN DEVELOPERS , AY 2009-10 4. IN REVENUES APPEAL THE REVENUE HAS RAISED THE F OLLOWING GROUND: 1.WHETHER ON THE FACTS AND THE CIRCUMSTANCES OF TH E CASE THE LD. CIT(A), C-1, KOLKATA HAS ERRED IN BOTH LAW AND FACTS IN OBSERVING THAT T HE RECEIPT FROM M/S. ODYSSEY INDIA LIMITED IS TO BE TREATED AS INCOME FROM HOUSE PROP ERTY INSTEAD OF INCOME FROM OTHER SOURCE OR INCOME FROM BUSINESS? 5. IN THIS APPEAL REVENUE HAS CHALLENGED THE ACTION OF THE CIT(A) IN DIRECTING THE AO TO TREAT THE RENTAL INCOME DERIVED BY THE ASSESSEE IN RESPECT OF THE PROPERTY COMPRISING OF COMMERCIAL PORTION IN THE GROUND FLOOR, FIRST FLOOR AND SECOND FLOOR OF THE BUILT UP AREA OF APPROXIMATELY 21205 SFT AND SUPER BUILT UP AREA OF ABOUT 28286 SFT OF THE BUILDING OWNED BY THE ASSESSEE AS INCOME FROM HOUSE PROPERTY AS AGAIN ST INCOME FROM OTHER SOURCES AS ASSESSED BY THE AO. IN THE CROSS OBJECTION OF THE ASSESSEE, THE ASSESSEE HAS CHALLENGED THE ACTION OF THE CIT(A) IN DIRECTING THE AO TO ASSESSEE THE SERVICE CHARGES RECEIVED BY THE ASSESSEE ON ACCOUNT OF SERVICE AGREEMENT AS INCOME FROM OTHER SOURCES A S AGAINST INCOME FROM HOUSE PROPERTY AS CLAIMED BY THE ASSESSEE. IT WAS SUBMITTED BY THE L D. DR THAT THE ASSESSEE HAD LEASED OUT A PORTION OF THE PROPERTY DEVELOPED BY THE ASSESSEE. IT WAS THE SUBMISSION THAT IT IS THE BUSINESS PREMISES OF THE ASSESSEE THAT HAD BEEN LEASED OUT. IT WAS THE FURTHER SUBMISSION THAT THE ASSESSEE IS IN THE BUSINESS OF CONSTRUCTION AND REN TING OUT OF ITS PREMISES. IT WAS THE SUBMISSION THAT THE AO HAD TREATED THE INCOME FROM RENTING OUT OF THE PREMISES AS INCOME FROM OTHER SOURCES AND THE LD. CIT(A) HAD HELD THAT A P ORTION OF THE LEASED AMOUNT RECEIVED WAS LIABLE TO BE TREATED AS INCOME FROM HOUSE PROPERTY. IT WAS THE SUBMISSION THAT AS THE PROPERTY RENTED OUT WAS A BUSINESS PREMISES THE INCOME THERE FROM WAS LIABLE TO BE TREATED ONLY AS BUSINESS INCOME. 6. IN REPLY, THE LD. AR SUBMITTED THAT THE INCOME W AS FROM THE TENANTING OUT OF THE PREMISES AND CONSEQUENTLY, THE SAME WAS LIABLE TO B E TREATED AS INCOME FROM HOUSE PROPERTY. IT WAS THE FURTHER SUBMISSION THAT TDS HAD ALSO BEEN D EDUCTED U/S. 194I OF THE ACT. IT WAS THE FURTHER SUBMISSION THAT THOUGH THERE WERE THREE AGR EEMENTS BY WHICH THE PROPERTY WAS LEASED NONE OF THE AGREEMENTS COULD STAND ON ITS OWN OTHER THAN THE TENANCY AGREEMENT AND CONSEQUENTLY, THE TOTAL RECEIPTS OF THE ASSESEE FRO M THE LEASING OUT OF THE PREMISES WAS LIABLE TO BE ASSESSED ONLY UNDER THE HEAD INCOME FROM HOUSE P ROPERTY. IT WAS THE SUBMISSION THAT EVEN THE SERVICE CHARGES WHICH HAD BEEN TREATED BY THE L D. CIT(A) AS INCOME FROM OTHER SOURCES WAS LIABLE TO BE ASSESED ONLY AS INCOME FROM HOUSE PROPERTY. 3 ITA NO.1717/K/2011 & CO. NO. 158/K/2012 MERLIN DEVELOPERS , AY 2009-10 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. A PER USAL OF THE FACTS IN THE PRESENT CASE CLEARLY SHOWS THAT ORIGINALLY A TENANCY AGREEMENT H AD BEEN ENTERED INTO BY THE ASSESEE WITH M/S. ODYSSEY INDIA LTD. ON 30 TH JUNE, 2007. SUBSEQUENTLY, ON 20 TH AUGUST, 2007, THE ASSESEE ENTERED INTO THREE DIFFERENT AGREEMENTS WITH M/S. O DYSSEY INDIA LTD. (OIL), ONE WAS CALLED THE SERVICE AGREEMENT, SECOND WAS A LEASE AGREEMENT AND THIRD WAS A MODIFICATION AND ADDITIONAL FACILITY AGREEMENT. BOTH THE SERVICE AGREEMENT AN D THE MODIFICATION AND ADDITIONAL FACILITY AGREEMENT WAS CONCURRENT, CO-EXISTENT AND COTERMINU S WITH THE LEASE AGREEMENT. ON A SPECIFIC QUERY FROM THE BENCH AS TO WHY THREE DIFFERENT AGRE EMENTS HAVE ENTERED INTO, WHEN THE ASSESSEE IS CLAIMING THAT ITS RECEIPTS ON ACCOUNT OF ALL THE THREE AGREEMENTS WERE ONLY RENTAL INCOME LIABLE FOR ASSESSMENT UNDER THE HEAD INCOME FROM HO USE PROPERTY, IT WAS THE SUBMISSION THAT FOR VARIOUS REASONS THE ASSESSEE HAS ENTERED INTO MULTI PLE AGREEMENTS BUT NO SPECIFIC REASONS WERE FORTHCOMING. A PERUSAL OF THE LEASE AGREEMENT CLEA RLY SHOWS THAT THE ASSESSEE HAS LEASED OUT THE SAID PREMISES FOR FIFTEEN YEARS. IN THE SAID L EASE AGREEMENT THE SCHEDULE REFERS TO THE BUILT UP AREA OF 21215 SFT. AND SUPER BUILT UP AREA OF AP PROXIMATELY 28286 SFT. COMPRISING THE GROUND, FIRST AND SECOND FLOORS, FACING THE FRONT R OAD OF THE BUILDING NAMED MERLIN RESIDENCY AT NO. 22, PRINCE ANWAR SHAH ROAD, KOLKATA-33. A PERU SAL OF THE SERVICE AGREEMENT SHOWS THAT THE SAID AGREEMENT SPECIFIES THAT A CONSOLIDATED SE RVICE CHARGES IS TO BE PAID. THE NATURE OF THE SERVICE IS MENTIONED IN PARA 3 OF THE SAID AGREEMEN T AND IT IS IN THE NATURE OF PROVIDING MAINTENANCE AND OTHER SERVICES LIKE CLEANING ETC. A PERUSAL OF THE MODIFICATION AND ADDITIONAL FACILITY AGREEMENT SAYS THAT IT IS A CHARGE FOR THE STRUCTURAL MODIFICATIONS WHICH THE LESSOR IS TO CARRY OUT IN RESPECT OF THE BUSINESS PREMISES FOLLO WED BY THE FACILITY THAT IS TO BE PROVIDED FOR THE USE OF THE LESSEE. FURTHER, THE MODIFICATION A ND ADDITIONAL FACILITY AGREEMENT PERMITS THE LESSOR TO SECURITIZES THE CHARGES AND FOR THE PURPO SE CREATE CHARGE OF MORTGAGE ON THE PREMISES. IT IS FOR THIS STRUCTURAL MODIFICATION AND FOR THE SECURITIZES OF THE ABOVE SAID CHARGES AS ALSO FOR THE PERMISSION TO CREATE A CHARGE OF MORTGAGE ON TH E SAID PREMISES, THE LESSEE PAYS THE MODIFICATION AND ADDITIONAL FACILITY CHARGES. THUS , WHAT IS NOTICED IS THAT ON ACCOUNT OF THE SAID PROPERTY LET OUT, THE ASSESSEE RECEIVES A RENT AL INCOME OF RS.7,07,150/- PER MONTH AS RENT, ANOTHER AMOUNT OF RS.7,07,150/- PER MONTH AS MODIFI CATION AND ADDITIONAL FACILITY CHARGES AND AN AMOUNT OF RS.4,24,290/- PER MONTH AS SERVICE CHA RGES. ADMITTEDLY, THE SERVICE CHARGE AGREEMENT AND THE MODIFICATION AND ADDITIONAL FACIL ITY CHARGES ARE COTERMINUS WITH THE LEASE AGREEMENT. HOWEVER, AS HAS BEEN RIGHTLY POINTED OU T BY THE LD. CIT(A) THE SERVICE CHARGES RECEIVED BY THE ASSESSEE WOULD HAVE TO BE TREATED A S INCOME FROM OTHER SOURCES AS THE SAID SERVICE CHARGE AGREEMENT THOUGH IT IS COTERMINUS WI TH THE LEASE AGREEMENT IS NOT THE BUSINESS OF THE ASSESSEE INSOFAR AS THE ASSESEE IS NOT IN TH E BUSINESS OF PROVIDING SERVICE BUT IS IN THE 4 ITA NO.1717/K/2011 & CO. NO. 158/K/2012 MERLIN DEVELOPERS , AY 2009-10 BUSINESS OF TENANTING OUT ITS PROPERTIES AS ALSO CO NSTRUCTION. HOWEVER, A PERUSAL OF THE MODIFICATION AND ADDITIONAL FACILITY AGREEMENT CLEA RLY SHOWS THAT THOUGH IT HAS BEEN LINKED TO THE LEASE AGREEMENT THE NATURE OF THE RECEIPT IN TH E HANDS OF THE ASSESEE IS MORE LIKE A GUARANTEED REPAYMENT IN RESPECT OF THE MODIFICATION S DONE TO THE BUILDING AS ALSO THE CHARGES FOR PERMITTING THE LESSEE TO HAVE THE MODIFICATIONS TO THE BUILDING AS DESIRED BY THE LESSEE. IN SHORT, THE CHARGES UNDER THE MODIFICATION AND ADDIT IONAL FACILITY AGREEMENT ARE MORE IN THE NATURE OF REIMBURSEMENT OF THE COST INCURRED BY THE ASSESSEE FOR THE STRUCTURAL MODIFICATIONS AS HAS BEEN DESIRED BY THE LESSEE IN PARA 6 OF THE SAI D AGREEMENT. THIS IN NO WHERE CAN BE TREATED AS A RENTAL INCOME OF THE ASSESSEE. THE STRUCUTURA L MODIFICATIONS HAVING BEEN DONE AT THE DESIRE OF THE LESSEE THE RECOVERY OF THE SAID COST FROM TH E LESSEE BY THE LESSOR IS IN THE NATURE OF A BUSINESS TRANSACTION AND THE SAME WOULD HAVE TO BE TREATED AS ITS BUSINESS INCOME. IN REGARD TO THE LEASE AGREEMENT, CLEARLY THE SCHEDULE TO THE SA ID AGREEMENT SPECIFIES THAT A PROPERTY HAS BEEN LEASED OUT AND THE TERMS ALSO CLEARLY SHOW THA T THE INCOME THEREFROM IS LEASE RENTAL. UNDER THESE CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE INCOME DERIVED BY THE ASSESSEE ON ACCOUNT OF THE LEASE AGREEMENT DATED 20 TH AUGUST, 2007 IS LIABLE TO BE ASSESSED UNDER THE HE AD INCOME FROM HOUSE PROPERTY. THE INCOME DERIVED BY THE ASSESSEE ON ACCOUNT OF THE SERVICE AGREEMENT DATED 20 TH AUGUST, 2007 IS LIABLE TO BE TREATED AS INCOME FRO M OTHER SOURCES AND THE INCOME DERIVED BY THE ASSESEE ON ACCOUNT OF MODIFIC ATION AND ADDITIONAL FACILITY AGREEMENT DT. 20.08.2007 IS LIABLE TO BE TREATED AS INCOME FROM B USINESS IN THE HANDS OF THE ASSESSEE. THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED AND C ROSS OBJECTION FILED BY THE ASSESSEE IS DISMISSED. 8. IN THE RESULT, APPEAL OF REVENUE IS PARTLY ALLOW ED AND CROSS OBJECTION OF ASSESSEE IS DISMISSED. 9. ORDER PRONOUNCED IN THE OPEN COURT ON 19.06.2013 . SD/- SD/- . . . . . . . . , ''# $ $ $ $ , (N. S. SAINI) (GEORGE MATHAN) ACCOUNTANT MEMBER JUDICIAL MEMBER ( / / / /) )) ) DATED : 19TH JUNE, 2013 01 &2' &3 JD.(SR.P.S.) 5 ITA NO.1717/K/2011 & CO. NO. 158/K/2012 MERLIN DEVELOPERS , AY 2009-10 . 4 ,&&5 65(7- COPY OF THE ORDER FORWARDED TO: 1 . $+ / APPELLANT DCIT, CC-XXVIII, KOLKATA 2 3. ,-$+ / RESPONDENT M/S. MERLIN DEVELOPERS, 79, SHAMBHUN ATH PANDIT STREET, KOLKATA-20. &. ()/ THE CIT(A), KOLKATA 4 . &. / CIT KOLKATA 5. 5 ;&< ,& / DR, KOLKATA BENCHES, KOLKATA -5 ,&/ TRUE COPY, .=/ BY ORDER, > !' /ASSTT. REGISTRAR .