Nand Gopal Khaitan, Kolkata V. DCIT, C ircle- 35, Kolkata, Kolkata

ITA 2115/KOL/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 54755 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 1 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-12-2011
• Appeal Filed By: Assessee
• Bench Allotted: C
• Assessment Year: 2006-2007
• Appeal Filed On: 24-11-2010
• Court: TRIBUNAL
• Department Lawyers: A K PRAMANICK
• Assessee Lawyers: A K GUPTA
• Section: 143(3); 56(2); 56; 28

Judgement Text

, , , , , ,, , IN THE INCOME-TAX APPELLATE TRIBUNAL, C BENCH: K OLKATA [ . . , ! ! ! ! , ] [BEFORE SHRI S.V. MEHROTR A, AM & SHRI MAHAVIR SINGH, JM] ' ' ' ' / ITA NO. 2115/KOL/2010 !#$ %& !#$ %& !#$ %& !#$ %& / ASSESSMENT YEAR: 2006-08 NAND GOPAL KHAITAN -V- DY. COMMISSIONER OF INCOME TAX KOLKATA. [PAN: AFLPK 3827 K] CIRCLE-35, KOLKATA. [ '( '( '( '( /APPELLANT ] ]] ] [ *+'( *+'( *+'( *+'(/ // / RESPONDENT ] ] ] ] '( '('( '( / FOR THE APPELLANT: SHRI A. K. GUPTA *+'( *+'( *+'( *+'( / FOR THE RESPONDENT: SHRI A. K. PRAMANICK -#. / 0 -#. / 0 -#. / 0 -#. / 0 /DATE OF HEARING: 21.12.2011 1% / 0 1% / 0 1% / 0 1% / 0 /DATE OF PRONOUNCEMENT: 29.12.2011 2 /ORDER ! ! ! ! , ,, , PER MAHAVIR SINGH, J M THIS APPEAL BY ASSESSEE IS ARISING OUT OF ORDER OF CIT(A) IN APPEAL NO.198/CIT(A)-XX/CIR- 35/08-09/KOL DATED 29.09.2010. ASSESSMENT WAS FRAME D BY DCIT, CIRCLE-35, KOLKATA FOR ASSESSMENT YEAR 2006-07 UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) VIDE HIS ORDER DATED 12.12.2008. 2. THE ONLY ISSUE IN THIS APPEAL OF ASSESSEE IS, WH ETHER SERVICE CHARGES RECEIVED IN RESPECT OF LET OUT PROPERTY IS TO BE ASSESSED UNDER THE HEAD INCO ME FROM OTHER SOURCES OR INCOME FROM HOUSE PROPERTY. FOR THIS ASSESSEE HAS RAISED FOLLOWING T HREE GROUNDS:- [ITA NO. 2115/KOL/2010 ] 2 (1) FOR THAT THE COMMISSIONER OF INCOME TAX (APPEAL S) [IN SHORT CIT (APPEALS)] ERRED IN CONFIRMING THE ORDER OF ASSESSMENT AND IN DENYING RELIEF UNDER SECTION 24 OF THE INCOME TAX ACT 1961 (IN SHORT THE ACT). (2) FOR THAT THE CIT (APPEALS) ERRED IN HOLDING TH AT THE SERVICE CHARGES RECEIVED IN RESPECT OF THE PROPERTY ARE TO BE ASSESSED UNDER TH E HEAD INCOME FROM OTHER SOURCES AND NO DEDUCTION IN RESPECT OF THE SAME IS AVAILABLE TO THE APPELLANT UNDER SECTION 24 OF THE ACT. (3) FOR THAT THE CIT (APPEALS) FAILED TO APPRECIATE THAT NO EXPENSES WERE INCURRED BY THE APPELLANT AGAINST THE RECEIPT OF SAID SERVICE C HARGES AND THE SAME WERE IN THE NATURE OF RENT AND SHOULD HAVE BEEN ASSESSED UNDER THE HEAD INCOME FROM HOUSE PROPERTY AND CONSEQUENTLY NECESSARY DEDUCTION UNDE R SECTION 24 OF THE ACT SHOULD HAVE BEEN ALLOWED. 3. BRIEF FACTS LEADING TO THE ABOVE ISSUE ARE THAT ASSESSMENT WAS FRAMED UNDER SECTION 143(3) BY THE ASSESSING OFFICER AND HE TREATED THE SERVICE CHARGES AS INCOME FROM OTHER SOURCES INSTEAD OF INCOME DECLARED BY THE ASSESSEE UNDER THE HEAD INCOME FROM HOUSE PROPERTY, THEREBY DENYING DEDUCTION UNDER SECTION 24 OF THE ACT. AGGRIEVED, A SSESSEE PREFERRED APPEAL BEFORE CIT(A), WHO ALSO CONFIRMED THE ACTION OF THE ASSESSING OFFICER. AGGRIEVED, NOW ASSESSEE IS IN APPEAL BEFORE US. 4. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. LD. COUNSEL, SHRI A.K. GUPTA, FIRST OF ALL TAKEN US THR OUGH ASSESSEES PAPER BOOK WHEREIN HE HAS ENCLOSED COPY OF RENT AGREEMENT DATED 24.12.1993 BE TWEEN ASSESSEE AND UNION BANK OF INDIA, THE LESSEE. AS PER THIS RENT AGREEMENT, FROM JANUARY, 1 994 TILL DATE, RENT IS TO BE COMPUTED AS UNDER:- TABLE - A MONTHLY RENT FOR THE GROUND AND FIRST FLOOR AT THE RATE OF RUPEES TWENTY TWO (RUPEES TWENTY TWO) PER SQUARE FOOT ON TOTAL SUPER BUILT UP AREA ADMEASURING 4904 SQ.FT. (FOUR THOUSAND NINE HUNDRED AND FOUR SQUARE FEET). RS.1,07,888/- (RUPEES ONE LAC SEVEN THOUSAND EIGHT HUNDRED AND EIGHTY EIGHT) PER MONTH. MONTHLY RENT FOR THE ROOM ON THE SECOND FLOOR AT THE RATE OF RS.12/- (RUPEES TWELVE) PER SQUARE FOOT ON THE TOTAL SUPER BUILT UP AREA ADMEASURING 251 SQ.FT. (TWO HUNDRED AND FIFTY ONE SUARE FEET). RS.3,012/- (RUPEES THREE THOUSAND AND TWELVE) PER MONTH. TOTAL MONTHLY RENT : RS.1,10,900/- (RUPEES ONE LAC TEN THOUSAND NINE HUNDRED ONLY) [ITA NO. 2115/KOL/2010 ] 3 TABLE - B ENHANCED MONTHLY RENT FROM 1 ST JANUARY, 1999 UPTO 31 ST DECEMBER, 2003. RS.1,38,625/- (RUPEES ONE LAC THIRTY EIGHT THOUSAND SIX HUNDRED TWENTY FIVE ONLY) PER MONTH. ENHANCED MONTHLY RENT FROM 1 ST JANUARY, 2004 UPTO 31 ST DECEMBER, 2008. RS.1,73,281.25 (RUPEES ONE LAC SEVENTY THREE THOUSAND TWO HUNDRED EIGHTY ONE AND PAISE TWENTY FIVE ONLY) PER MONTH. ENHANCED MONTHLY RENT FROM 1 ST JANUARY, 2009 UNTIL EXPIRY OF THE RESERVED TERM OF THE LEASE. RS.2,16,601.56 (RUPEES TWO LACS SIXTEEN THOUSAND SIX HUNDRED ONE AND PAISE FIFTY SIX ONLY) PER MONTH. FROM THE ABOVE, IT IS CLEAR THAT ASSESSEES PROPERT Y I.E. PREMISES NO.1/1, CAMAC STREET, KOLKATA- 700016, WHEREIN BUILDING ALONGWITH FIXTURES AND FIT TINGS WERE LET OUT TO LESSEE AT A FIXED RENT. FURTHER AS PER THIS AGREEMENT CLAUSE II(A), SERVICE CHARGES ARE FIXED AT MONTHLY RENT AND RELEVANT CLAUSE OF THE AGREEMENT READS AS UNDER:- TO PAY PUNCTUALLY AND WITHOUT ANY ABATEMENT OR DED UCTION THE SAID MONTHLY RENT AT THE TIME HEREINBEFORE APPOINTED FOR THE PAYMENT THEREOF ALONGWITH ALSO MONTHLY SERVICE CHARGES AT THE MONTHLY RATE OF RS.51,550/- (RUPEES FIFTY ONE THOUSAND FIVE HUNDRED FIFTY ONLY) PER MONTH CALCULATED AT THE RATE OF RS.10/- ( RUPEES TEN ONLY) PER SQUARE FOOT ON THE TOTAL SUPER BUILT UP AREA ADMEASURING 5155 SQ. FT. (FIVE THOUSAND ONE HUNDRED FIFTY FIVE SQUARE FEET) PAYABLE NOT LATER THAN 15 TH DAY OF EVERY SUCCEEDING MONTH TO BE ENHANCED BY 25% (TWENTY FIVE PERCENT) AFTER THE EXPIRY OF EVERY FIVE YEARS ON THE THEN ENHANCED SERVICE CHARGES AS HEREINAFTER MENTIONED IN TABLE C WITHOUT ANY DEDUCTION OR ABATEMENT WHATSOEVER FOR ANY REASON WHATSOEVER. TABLE - C ENHANCED MONTHLY SERVICE CHARGES FROM 1 ST JANUARY, 1999 UPTO 31 ST DECEMBER, 2003. RS.64,437.50 (RUPEES SIXTY FOUR THOUSAND FOUR HUNDRED THIRTY SEVEN AND PAISE FIFTY ONLY) PER MONTH. ENHANCED MONTHLY SERVICE CHARGES FROM 1 ST JANUARY, 2004 UPTO 31 ST DECEMBER, 2008 RS.80,546.87 (RUPEES EIGHTY THOUSAND FIVE HUNDRED FORTY SIX AND PAISE EIGHTY SEVEN ONLY) PER MONTH. ENHANCED MONTHLY SERVICE CHARGES FROM 1 ST JANUARY, 2009 UNTIL EXPIRY OF THE RESERVED TERM OF THE LEASE. RS.1,00,683.58 (RUPEES ONE LAC SIX HUNDRED EIGHTY THREE AND PAISE FIFTY EIGHT ONKLY) PER MONTH. 5 LD. COUNSEL FOR THE ASSESSEE, IN VIEW OF THE ABOV E, STATED THAT FACTUALLY ASSESSEE HAS NOT RECEIVED ANY SERVICE CHARGES FOR THE REASONS THAT T HEY HAVE NOT PROVIDED ANY SERVICE O THE LESSEE I.E. UNION BANK OF INDIA. HE REFERRED TO DECISION OF THI S I.T.A.T., HYDERABAD BENCH A IN THE CASE OF DEPUTY DIRECTOR OF INCOME TAX (I.TAX) VS. G. RAGHUR AM [2010] 39 SOT 406 (HYD.). LD COUNSEL [ITA NO. 2115/KOL/2010 ] 4 STATED THAT IN THAT JUDGMENT HYDERABAD BENCH OF THI S TRIBUNAL HAS CONSIDERED THAT THE BUILDING ITSELF WAS THE AMENITY BEING PROVIDED HERE AND THAT WAS WH Y THE AGREEMENT FOR LEASE OF AMENITIES PRESCRIBING LEASE AMOUNT IN TERMS OF SQ.FT WHICH WA S RATE AT WHICH THE PROPERTY LEASE WAS ALSO AGREED UPON. WITHOUT THESE AMENITIES, THE BARE BUIL DING WAS OF NO USE, WHICH WAS A COMMON FEATURE IN ANY PROPERTY. FOR A PROPERTY TO BE USED AS RESIDENTIAL UNITS CERTAIN KINDS OF AMENITIES AND FIXTURES WOULD BE REQUIRED OR ELSE PEOPLE COULD NOT INHABIT IT, SUCH AS, KITCHEN, VENTILATIONS, ELECTRICAL FITTINGS ETC., AND THE SAME GOES FOR A C OMMERCIAL PROPERTY, WITHOUT SOME AMENITIES SUCH AS PROVISION FOR AIR-CONDITIONING AND CABINS, IT CANNO T BE USEFUL FOR ANY PURPOSE. THEREFORE, JUST BECAUSE THERE IS SOMETHING BEYOND THE BARE STRUCTUR E THAT IS BEING PROVIDED, IT CANNOT BE SAID THAT THESE AMENITIES ARE NOT PART OF THE PROPERTY ITSELF HOWEVER, SINCE THESE AMENITIES ARE NOT SEPARATE ASSETS SUCH AS PLANT AND MACHINERY, PROVISIONS OF S ECTION 56(2) DO NOT APPLY HERE. THOUGH THE ASSESSEE ENTERED INTO SEPARATE AGREEMENTS, THESE AG REEMENTS COULD NOT BE ACTED UPON AS FOOLPROOF DOCUMENTS. WHEN APPARENT WAS NOT REAL, IT WAS NECES SARY TO SEE THE ACTUAL BACKGROUND OF THE SITUATION. SECTION 22 DEALS WITH INCOME FROM HOUSE PROPERTY WHICH IS TO BE COMPUTED W.R.T. THE ANNUAL LETTING VALUE (ALV) OF THE PROPERTY: THE MO DE OF DETERMINING THAT ALV IS SET OUT IN SECTION 23. SECTION 23(1)(A) DEEMS ANNUAL VALUE OF THE PROP ERTY TO BE THE SUM FOR WHICH THE PROPERTY MIGHT REASONABLY BE EXPECTED TO BE LET FROM YEAR-TO-YEAR. CLAUSE (B) DEEMS THE ACTUAL RENT RECEIVED OR RECEIVABLE BY THE OWNER TO BE THE ANNUAL VALUE IF T HAT SUM IS IN EXCESS OF THE SUM REFERRED TO IN CLAUSE (A). THE EXPLANATION (1) TO SECTION 23 DEFIN ES ANNUAL RENT FOR THE PURPOSE OF THAT SUB- SECTION. HE FURTHER REFERRED THAT HYDERABAD BENCH H AS EXPLAINED THE PROVISIONS OF SECTION 56(2)(III) AND HELD THAT CONCLUSION REACHED BY THE COMMISSION ER(APPEALS) WAS NOT CORRECT FURTHER, NO PRECISE TEST CAN BE LAID OUT TO ASCERTAIN WHETHER I NCOME REFERRED TO, BY WHATEVER NOMENCLATURE, LEASE AMOUNT, RENT OR LICENCE FEE RECEIVED BY AN ASSESSEE FROM LEASING OR LETTING OUT OF ASSETS WOULD FALL UNDER THE HEAD PROFIT AND GAINS OF BUSINESS OR PRO FESSION AND IT HAS TO BE DETERMINED FROM THE POINT OF VIEW OF A BUSINESSMAN IN THAT BUSINESS DEP ENDING UPON THE FACTS AND CIRCUMSTANCES OF EACH CASE AND THERE IS NO READYMADE STRAITJACKET FORMULA . ONE HAS TO SEE THE INTENTION OF THE ASSESSEE, WHETHER THE LETTING WAS THE DOING OF A BUSINESS OR EXPLOITATION OF PROPERTY BY AN OWNER. THE ASSESSEE WHEN EXPLOITS THE PROPERTY TO DERIVE RENTA L INCOME IT HAS TO BE HELD THAT THE INCOME REALIZED BY HIM BY WAY OF RENTAL INCOME FROM A BUILDING WITH OTHER ASSETS ATTACHED TO THE BUILDING HAS TO BE ASSESSED AS INCOME FROM HOUSE PROPERTY ONLY. THE ONLY EXCEPTIONS ARE CASES WHERE THE LETTING OF THE BUILDING IS INSEPARABLE FROM LETTING OF THE MAC HINERY, PLANT AND FURNITURE. IN SUCH CASES, IT HAS TO BE HELD THAT THE RENTAL INCOME WOULD NOT HAVE BEEN REALIZED BUT FOR THE LETTING OUT OF THE MACHINERY, [ITA NO. 2115/KOL/2010 ] 5 PLANT OR FURNITURE ALONGWITH SUCH BUILDING AND, THE REFORE, RENTAL RECEIVED FOR THE BUILDING IS TO BE ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES . IN THE INSTANT CASE, ON THE FACTS OF THE CASE, IT WAS CLEAR THAT THE ASSESSEE AS THE OWNER OF THE BUI LDING WAS ONLY EXPLOITING THE PROPERTY AS OWNER BY LETTING OUT THE SAME AND REALIZING INCOME BY WAY OF RENT. SUCH RENTAL INCOME WAS LIABLE TO BE ASSESSED UNDER THE HEAD INCOME FROM HOUSE PROPERTY . THE VARIOUS ASSETS LET OUT TO THE TENANTS WERE INCIDENTAL TO LETTING OUT THE BUILDING, BEING INTEGRAL PART OF THE LETTING. ACCORDINGLY, THE ORDE R OF THE COMMISSIONER (APPEALS) WAS TO BE REVERSED AN D THAT OF THE ASSESSING OFFICER WAS TO BE RESTORED. IN VIEW OF THE ABOVE, LD. COUNSEL STATED THAT IN TH E PRESENT CASE ALSO NO SERVICES WERE PROVIDED BY THE ASSESSEE, HENCE, SERVICES CHARGES SHOULD BE ASS ESSED AS INCOME FROM HOUSE PROPERTY. 6. ON THE OTHER HAND, LD. SR. DEPARTMENTAL REPRESEN TATIVE SUPPORTED ORDERS OF LOWER AUTHORITIES AND REFERRED TO THE DECISION OF HONBLE KERALA HIGH COURT IN THE CASE OF 201 ITR 38, BUT WE FIND NO DECISION ON THIS PAGE DELIVERED BY HONB LE KERALA HIGH COURT AND THAT ALSO RELATING TO THIS SUBJECT I.E. INCOME FROM HOUSE PROPERTY. 7. WE FIND FROM THE ABOVE FACTS THAT THE ASSESSEE H AS RECEIVED SERVICE CHARGES AS WELL AS RENT ON ACCOUNT OF LETTING OUT OF PROPERTY OWNED BY THE ASSESSEE. THE ASSESSEE HAS DECLARED THESE TWO INCOMES IN HIS RETURN OF INCOME AND EVEN IN EARLIER YEARS, AS PER THE CONTENTION OF THE ASSESSEES LD. COUNSEL WAS ASSESSED AS INCOME FROM HOUSE PROPERTY AND NOT INCOME FROM OTHER SOURCES. WE ARE ALSO CAUTIOUS ABOUT THE ARGUMENTS OF LD. COUNSE L THAT ASSESSEE HAS NOT PROVIDED ANY SERVICE TO THE LESSEE FOR WHICH IT HAD CHARGED SERVICE CHARGES . WE ARE OF THE VIEW THAT WHERE THE OWNER GETS RENT FROM THE PROPERTY AS WELL AS SERVICES CHARGES FROM THE TENANTS, IN SUCH CASES, THE AMOUNT WHICH IS ATTRIBUTABLE TO THE PROPERTY SHOULD BE ASSESSED UNDER SECTION 22 OF THE ACT AS INCOME FROM HOUSE PROPERTY AND THE AMOUNT WHICH RELATES DIMINUTION O F THE SERVICES ETC., SUCH AS AMENITIES IN THE FACE OF ELECTRICAL FITTINGS, LIFT, SANITATION ETC. ETC. SHOULD BE BROUGHT TO CHARGE UNDER SECTION 56 OF THE ACT. THIS VIEW HAS BEEN HELD BY THE HONBLE CALCUTTA HIG H COURT IN THE CASE OF CIT VS. KANAKA INVESTMENTS (P) LTD. [1974] 95 ITR 419 (CAL.) WHICH WAS SUBSEQUENTLY TAKEN TO HONBLE APEX COURT AND HONBLE APEX COURT HELD THAT SIMILAR SERV ICES RENDERED BY ASSESSEE TO ITS TENANTS, THE RESULTS OF ITS ACTIVITY CARRIED OUT CONTINUOUSLY IN AN ORGANIZED MANNER AND WITH A VIEW TO EARNING PROFITS. HENCE, HONBLE APEX COURT HELD THOSE ACTIV ITIES AS BUSINESS ACTIVITY AND INCOME ARISING THEREOF WERE DIRECTED TO BE ASSED UNDER SECTION 28 OF THE ACT. SIMILARLY, THE SERVICE CHARGES WERE [ITA NO. 2115/KOL/2010 ] 6 ASSESSED AS INCOME FROM OTHER SOURCES IN THE CASE OF INDIAN CITY PROPERTIES LTD. VS. CIT [1978] 111 ITR 19 (CAL.). 8. BUT IN THE PRESENT CASE, AS ARGUED BY LD. COUNSE L, WHETHER SERVICE CHARGES WERE RECEIVED ON ACCOUNT OF SERVICES RENDERED BY ASSESSEE IS NOT CLE AR, WHEREAS OPPOSITE ARGUMENTS WERE MADE THAT NO SERVICES WERE RENDERED. HENCE, THESE ARGUMENTS N EED VERIFICATION AT THE LEVEL OF THE ASSESSING OFFICER AND ACCORDINGLY THIS ISSUE OF THE REVENUES APPEAL IS SENT BACK TO THE FILE OF THE ASSESSING OFFICER FOR DENOVO ADJUDICATION. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALLO WED FOR STATISTICAL PURPOSES. 2 - 2 - 2 - 2 - 3 -# 4 5 3 -# 4 5 3 -# 4 5 3 -# 4 5 ORDER PRONOUNCED IN COURT ON 29.12.2011 SD/- SD/- [ . . , ] [ ! ! ! ! , ] [S. V. MEHROTRA] [MA HAVIR SINGH] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 29TH DECEMBER, 2011. COPY FORWARDED TO THE - 1. SRI NAND GOPAL KHAITAN, C/O. KHAITAN & CO., 1B, OLD POST OFFICE STREET, KOLKAT-700001. 2. DY.COMMISSIONEER OF INCOME TAX, CIRCLE-35, PODDAR C OURT, 3 RD FLOOR, 18, RABINDRA SARANI, KOLKATA-700 001. 3. CIT(A)- (4) CIT- 4. D.R., I.T.A.T., KOLKATA. [TRUE COPY] BY ORDER ASSISTANT REGISTRAR (KKC) I.T.A.T., KOLKATA.