Alma Mater Agencies (P) Ltd., New Delhi V. DCIT, New Delhi

ITA 2152/DEL/2009

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 7121 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 4 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2010
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 26-04-2010
• Assessment Year: 1997-1998
• Appeal Filed On: 21-05-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: G S SAHOTA
• Assessee Lawyers: SUNIL GOEL
• Keywords: Business income; Depreciation; Business expenditure; Opportunity of being heard
• Section: 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH `E: NEW DELHI BEFORE SHRI G.E. VEERABHADRAPPA, VICE PRESIDENT AND SHRI C.L. SETHI, JM I.T. A. NO.2152/DEL OF 2009 ASSESSMENT YEAR: 1997-98 M/S ALMA MATER AGENCIES P. LTD. VS INCOME-T AX OFFICER, 12, SHIVJI MARG, VILLAGE RANGPURI DCIT, CO. CIRC LE-11(1), NEW DELHI. NEW DELHI. APPELLANT RESPONDENT APPELLANT BY: SHRI SUNIL GOEL RESPONDENT BY: SHRI G.S. SAHOTA, SR. DR ORDER PER C.L. SETHI, JM: THE ASSESSEE IS IN APPEAL AGAINST THE ORDER DATED 6 .3.2009 OF THE LD. CIT(A) PASSED IN THE MATTER OF AN ASSESSMENT MADE U /S 254/143(3) OF THE INCOME-TAX ACT, 1961 (THE ACT) PERTAINING TO THE AS STT. YEAR 1997-98. 2. THE VARIOUS GROUNDS OF APPEAL RAISED BY THE ASSE SSEE REVOLVE AROUND THE ISSUE AS TO WHETHER THE GROSS RECEIPTS OR RENTS RECEIVED BY THE ASSESSEE FROM OCCUPANTS OF THE BUILDING IS ASSESSABLE UNDER THE HEAD INCOME FROM HOUSE PROPERTY OR INCOME FROM OTHER SOURCES, OR IN THE ALTERNATIVE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSI ON. 2 3. IN THIS CASE, THE ASSESSEE FILED ITS RETURN OF I NCOME ON 15.5.98 DECLARING TOTAL LOSS OF RS.25,69,320/-. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD SHOWN INCOME FROM RENT/SERVICE CHA RGES AMOUNTING TO RS.16 LACS, AGAINST WHICH ASSESSEE CLAIMED EXPENSES TO THE TUNE OF RS.61,90,489/- IN THE ACCOUNTS. IT WAS NOTICED BY THE AO THAT THE ASSESSEE COMPANY WAS INCORPORATED IN MAY, 1993 WITH THE OBJE CTIVE OF CARRYING ON THE BUSINESS OF IMPORT AND EXPORT OF DIFFERENT TYPE OF PRODUCTS. HOWEVER, THE SAID ACTIVITY WAS NOT COMMENCED EITHER IN THE E ARLIER ASSESSMENT YEARS OR EVEN IN THE YEAR UNDER CONSIDERATION. THE ASSESSEE DEBITED SUBSTANTIAL EXPENSES TO THE PROFIT AND LOSS ACCOUNT ON VARIOUS COUNTS. ON EXAMINATION, AO FOUND THAT THESE EXPENSES CLAIMED IN THE PROFIT AND LOSS ACCOUNT WERE INCURRED TOWARDS MAINTENANCE AND UPKEEP OF BASICALL Y A FARM HOUSE WHICH, THOUGH DECLARED AS BUSINESS PREMISES OF THE ASSESSE E COMPANY, WAS PRIMARILY BEING USED AS RESIDENTIAL PREMISES BY THE DIRECTOR. THE ASSESEE HAD SHOWN RS.10 LACS AS RENT/SERVICE CHARGES RECEIVED F ROM M/S INTERNATIONAL BUSINESS CENTRE, AND RS.6 LACS, BEING RENT FROM MR. & MRS. OBEROI, WHO ARE DIRECTORS OF THE COMPANY. IN THE LIGHT OF THE FACT S FOUND BY THE AO, THE AO, IN THE ORIGINAL ASSESSMENT, ALLOWED EXPENSES TO THE TUNE OF 25% OF TOTAL SERVICE CHARGES ON RENT RECEIVED, AND THUS, HE ALLO WED RS.4 LACS AS 3 DEDUCTION. THE AO ALLOWED DEPRECIATION TO THE EXTE NT OF 10% OF THE TOTAL DEPRECIATION. 4. BEING AGGRIEVED, THE ASSESSEE PREFERRED AN APPEA L BEFORE THE LEARNED CIT(A), WHO DIRECTED THE AO TO ALLOW THE ASSESSEES CLAIM OF EXPENSES OF RS.33,24,345/-, AND ALSO TO ALLOW DEPRECIATION OF R S.32,96,610/-. AGAINST CIT(A)S ORDER, THE DEPARTMENT PREFERRED AN APPEAL BEFORE THE TRIBUNAL AND THE TRIBUNAL VIDE ORDER DATED 16.9.2005, RESTORED T HE MATTER TO THE AO WITH THE FOLLOWING OBSERVATIONS AND DIRECTIONS: 7. THE AO HAS ALSO RECORDED A FINDING OF FACT THAT THE EXPENSES CLAIMED IN THE YEAR UNDER CONSIDERATION AS COMPARED TO RECEIPT OF SERVICE CHARGES ARE QUITE HIGH AND THE SAME CANNOT BE CONSIDERED TO BE ATTRIBUTABLE TO THE BUSINESS INCOME FOR ALLOWING FULL DEDUCTION. FROM THE FACTS AS SET OUT IN THE ASSESSMENT ORDER, IT APPEAR S TO US THAT THE INCOME HAS PRIMARILY BEEN RECEIVED FROM LETTING OUT THE PROPERTY TO M/S INTERNATIONAL BUSINESS CENTRE FROM WHOM THE SERVICE CHARGES HAVE BEEN RECEIVED BESIDES BEING USED BY ITS DIRECTOR FOR THEIR PERSONAL RESIDENCE. THE APPELLANT RECEIVED A MEAGER RENT OF RS.6 LAKH ONLY FROM THE DIRECTOR THOUGH THE EXPENDITURE OF HIGH MAGNITUDE OF RS.61,90,489/- WHICH INTER ALIA INCLUDED DEPRECATION OF RS.28.66 LACS WERE INCURRED FOR MAINTENANCE OF FARM HOUSE PREMISES, ITS GARDEN AND SURROUNDING ETC. IN THE PRESENT CASE BEFORE US IN APPEAL NEITHER THE ASSESSING AUTHORITY NOR THE LD. CIT(A) HAS FOUND OUT AS TO WHETHER THE MAIN INTENTION OF THE ASSESSEE IS TO LET OUT THE PROPERTY OR ANY PORTION THEREOF OR THE PRIMARY OBJECT IS TO EXPLOIT THE 4 IMMOVABLE PROPERTY BY WAY OF COMMERCIAL ACTIVITY SO AS TO COME TO THE PROPER CONCLUSION AS TO WHETHER INCOME IS ASSESSABLE UNDER THE HEAD INCOME FROM BUSINESS OR UNDER THE HEAD INCOME FROM HOUSE PROPERTY OR THAT SIT WAS A CASE OF INSEPARABLE LETTING OUT OF THE BUILDING AND ITS ASSETS AND CONSEQUENT THERETO WHETHER THE EXPENSES SO CLAIMED COULD BE ALLOWED IN FULL AS CLAIMED BY THE ASSESSEE OR THAT THERE WAS SOME PERSONAL ELEMENT INVOLVED THEREIN. NONE OF THE PARTIES WERE ABLE TO ENLIGHTEN US AS TO WHETHER THE REVENUE HAS PREFERRED ANY APPEAL AGAINST THE ORDER OF LD. CIT(A) FOR ASSTT. YEAR 1996-97. SINCE THIS CASE REQUIRED PROPER INVESTIGATION ON FACTS, WE SET ASIDE THE DECISION TAKEN BY THE LD. CIT(A) AND DIRECT THE ASSESSING AUTHORITY TO TAKE A DECISION AFRESH. THE AO AFTER ANALYZING THE AGREEMENT AND THE FACTS OF THIS CASE SHALL FIND OUT AS TO WHETHER THE INCOME DERIVED BY THE ASSESSEE IS FROM LETTING OUT THE PROPERTY OR BY EXPLOITING THE IMMOVABLE PROPERTY BY WAY OF COMMERCIAL ACTIVITY. HE SHALL ALSO PASS A SPEAKING ORDER AS T O WHETHER THE INCOME SO DERIVED IS FROM THE DOMINANT USE OF BUILDING AND THAT THE PLANT AND MACHINERY AND THE FARM BUILDING CAME TO BE LET OUT AS AN INCIDENCE OF LETTING OUT OF SUCH MACHINERY INSEPARABLY. THE AO SHALL THEREFORE PASS A REASONED ORDER HAVING REGARD TO THE DECISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS SHAMBU INVESTMENTS P. LTD., 249 ITR 47 (CAL) WHICH WAS LATER AFFIRMED BY THE APEX COURT IN THE JUDGMENT REPORTED IN SHAMBHU INVESTMENT P. LTD. VS CIT REPORTED IN 265 ITR 143 AND ALSO THE AVAILABLE LAW ON THE SUBJECT. A REASONABLE OPPORTUNITY OF BEING HEARD SHALL BE GIVEN TO THE ASSESSEE. 5. IN THE LIGHT OF THE TRIBUNALS ORDER RESTORING T HE MATTER BACK TO THE FILE OF AO, THE AO HAS TAKEN UP THE ASSESSMENT AFRESH AN D HEARD THE ASSESSEE 5 AND EXAMINED THE FACTS AND CIRCUMSTANCES OF THE CAS E. DURING THE COURSE OF FRESH ASSESSMENT PROCEEDINGS, THE ASSESSEE COMPANY WAS REQUESTED BY THE AO TO FILE A COPY OF THE AGREEMENT WITH THE PARTY F ROM WHOM SERVICE CHARGES WERE CLAIMED TO HAVE BEEN RECEIVED DURING T HE RELEVANT YEAR, DETAILS OF ITEMS OF PLANT AND MACHINERY AND OFFICE EQUIPMEN T AT THE BEGINNING OF THE YEAR AND THE NATURE OF SUPPORT AND OTHER FACILITIES PROVIDED TO M/S INTERNATIONAL BUSINESS CENTRE. IN REPLY THERETO, T HE ASSESSEE FILED ITS SUBMISSIONS ON 18.12.2006. THE ASSESSEE FURNISHED A PHOTOCOPY OF LETTER DATED 1 ST APRIL, 1996 OF ASSESSEE COMPANY TO M/S INTERNATION AL BUSINESS CENTRE AND PHOTOCOPY OF A LETTER DATED 28 TH JULY, 1995 OF M/S INTERNATIONAL BUSINESS CENTRE STATED THAT THEY HAD TAKEN THE PREM ISES FOR HOLDING BUSINESS MEETINGS OF THEIR COMPANY, ENTERTAINING EXISTING AN D FUTURE GUESTS, BOTH INDIAN AND FOREIGN, AND FOR BUSINESS PROMOTION PURP OSES INCLUDING MEETINGS OF THE DIRECTORS OF THE COMPANY. THEY ALSO STATED T HAT USE OF SPACE WAS NOT CONFIRMED TO A SPECIFIC PLACE IN THE PREMISES I.E., IT WAS FLOATING AND SUBJECT TO AVAILABILITY DURING THE RELEVANT PERIOD. THE CO NTENTS OF THE LETTERS WERE THEN DISCUSSED BY THE AO IN THE ASSESSMENT ORDER AN D ALL THE DETAILS OF EXPENSES WERE EXAMINED BY THE AO. THE AO THEN TAKE N A VIEW THAT INCOME DERIVED FROM THE ASSESSEE COMPANY WAS FROM THE DOMI NANT USE OF THE PROPERTY, THE PLANT AND MACHINERY WAS USED FOR UPKE EP OF FARM HOUSE 6 BUILDING AND THE INCOME HAS NOT BEEN DERIVED BY THE ASSESSEE COMPANY FROM LETTING OUT OF ITS PLANT AND MACHINERY. THE AO HAS ALSO TAKEN A VIEW THAT THE FARM HOUSE BUILDING HAD NOT LET OUT AS AN INCIDENCE OF LETTING OUT SUCH MACHINERY INSEPARABLY. THE AO RELIED UPON THE DECIS ION OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS SHAMBHU INVESTMENT P. LTD., 249 ITR 437 (CAL), WHICH WAS LATER AFFIRMED BY THE HONBLE SUPR EME COURT IN THE JUDGMENT REPORTED IN 265 ITR 143 (SC). THE AO, THE REFORE, BROUGHT THE RENTAL INCOME OF RS.16 LACS UNDER THE HEAD INCOME FROM HOUSE PROPERTY, AND ALLOWED THE ASSESSEE A DEDUCTION U/S 24 TO THE EXTENT OF 1/4 TH OF THE RENTAL VALUE AND DETERMINED THE NET INCOME AT RS.12 LACS. 6. BEING AGGRIEVED, THE ASSESSEE PREFERRED AN APPEA L BEFORE THE LEARNED CIT(A). AFTER CONSIDERING THE ASSESSEES SUBMISSIO N AND THE AOS ORDER, THE CIT(A) CONFIRMED THE AOS ORDER FOR THE REASONS GIVEN BELOW: (A) NO BUSINESS ACTIVITY HAS BEEN CARRIED OUT AT ANY PO INT OF TIME BY THE ASSESSEE TILL DATE THOUGH THE COMPANY WAS INCOR PORATED IN MAY, 1993 WITH THE OBJECT OF CARRYING ON THE BUSINE SS OF IMPORT AND EXPORT OF DIFFERENT TYPES OF PRODUCTS. (B) THE SHAREHOLDERS OF THIS COMPANY ARE MR. OBEROI AND HIS FAMILY MEMBERS ONLY. 7 (C) INSTEAD OF CARRYING OUT ANY BUSINESS ACTIVITY AS ST ATED IN THE OBJECTIVES OF THE COMPANY, THE COMPANYS FUNDS WERE UTILIZED FOR CONSTRUCTING LUXURIOUS FARM HOUSE WITH ALL MODERN F ACILITIES, WHICH IS PRIMARILY USED BY THE DIRECTORS FOR THEIR RESIDENTIAL PREMISES, AND A TOKEN RENT OF RS.50,000/- P.M. WAS BEING SHOWN A PAID BY DIRECTORS TO THE COMPANY IN LIEU OF USING O F THE PREMISES. THE COMPANY HAD ENTERED INTO AN AGREEMENT WITH M/S INTERNATIONAL BUSINESS CENTRE FOR LETTING OUT THIS PREMISE ON RENT OR SERVICE CHARGES AT ANNUAL AMOUNT OF RS.10 LACS. (D) THE PREMISE WAS NOT SPECIFICALLY USED FOR ANY COMME RCIAL PURPOSE BY THE COMPANY, BUT ONLY A COLOUR OF COMMERCIAL ACT IVITY WAS GIVEN TO THE AGREEMENT BETWEEN ASSESSEE AND M/S IBC . (E) THE AO HAS RIGHTLY POINTED OUT IN THE ASSESSMENT OR DER THAT PLANT AND MACHINERY APPEARING IN THE BALANCE SHEET OF THE COMPANY WERE BASICALLY FOR UPKEEP AND MAINTENANCE OF THE FARM HO USE AND THEY WERE NOT SOME PLANT AND MACHINERY, WHICH WERE CAPAB LE OF BEING USED FOR ANY OTHER PURPOSE OTHER THAN THE UPKEEP AN D MAINTENANCE OF THE FARM HOUSE. (F) IT WAS, THUS, NOT A CASE OF INSEPARABLE LETTING OUT BUILDING AND OF PLANT AND MACHINERY. 8 (G) THE AO HAS BROUGHT OUT ALL THE FACTS VERY CAREFULLY TO ESTABLISH THAT IT IS PRIMARILY A CASE OF LETTING OUT OF THE B UILDING. (H) EVEN HONBLE ITAT WHILE DECIDING THE APPEAL IN FIRS T ROUND HAS VERY CLEARLY OBSERVED THAT IT APPEARS A SIMPLE CASE OF LETTING OUT OF THE PROPERTY TO M/S IBC FROM WHOM SERVICE CHARGES H AVE BEEN RAISED. (I) THE INCOME DERIVED BY THE ASSESSEE WAS FROM LETTING OUT OF THE PROPERTY, AND NOT BY EXPLOITING THE IMMOVABLE PROPE RTY BY WAY OF ANY COMMERCIAL ACTIVITY. THUS, THE ENTIRE RECEIPT IS ASSESSABLE AS INCOME FR OM HOUSE PROPERTY. 7. THE LEARNED CIT(A) ALSO RELIED UPON THE DECISION OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS SHAMBHU INVESTMENT CO. (SUPRA), AS AFFIRMED BY THE HONBLE APEX COURT. 8. AN ALTERNATIVE GROUND WAS ALSO TAKEN BY THE ASSE SSEE BEFORE THE CIT(A) THAT EVEN THE INCOME IS ASSESSED UNDER THE H EAD HOUSE PROPERTY, THE ASSESSEE SHOULD BE ALLOWED VARIOUS EXPENSES TOW ARDS SERVICES AND FACILITIES PROVIDED TO THE OCCUPIER TO ARRIVE AT TH E ANNUAL VALUE U/S 23 OF THE ACT. 9 9. THIS ALTERNATIVE SUBMISSION HAS BEEN REJECTED BY THE LEARNED CIT(A) BY OBSERVING AND HOLDING AS UNDER: 5.2. I HAVE CONSIDERED THIS ALTERNATE SUBMISSION OF THE APPELLANT VERY CAREFULLY. THE CASE LAWS HAVE ALSO BEEN GONE THROUGH. IN THE CASE OF REALTY FINANCE & LEASING (P) LTD. VS ITO, IT HAS BEEN HELD BY HONBLE ITAT THAT SOCIETY CHARGES PAID BY THE ASSESSEE IN RESPECT OF ITS LET OUT PROPERTY WERE ALLOWABLE WHILE COMPUTING THE ANNUAL VALUE. IN THE INSTANT CASE OBVIOUSLY IT IS NOT A CASE OF SOCIETY CHARGES AND, THEREFORE, THIS DECISION IS NOT APPLICABLE. IN THE CASE OF SHARMLIA TAGORE VS JCIT AGAINST EH ISSUE WAS DEDUCTION OF MAINTENANCE CHARGES PAID TO HOUSING SOCIETY FROM THE RENT RECEIVED TO ARRIVE AT ANNUAL LETTING VALUE. APPARENTLY, THIS IS ALSO NOT A CASE OF THE APPELLANT. SIMILAR ARE THE FACTS OF OTHER CASES ALSO AND THEY ARE NOT BEING DISCUSSED AS ALL ARE DISTINGUISHABLE ON FACTS. 5.2.1. AS PER PROVISION OF SECTION 23, THE ANNUAL VALUE OF ANY PROPERTY SHALL BE DEEMED TO BE :- (A) THE SUM FOR WHICH THE PROPERTY MIGHT REASONABLE BE EXPECTED TO LET FROM YEAR TO YEAR OR (B) WHERE THE PROPERTY OR ANY PART OF THE PROPERTY IS LET AND THE ACTUAL RENT RECEIVED OR RECEIVABLE B Y THE OWNER IN RESPECT THEREOF IS IN EXCESS OF THE SUM REFERRED TO IN CLAUSE (A) THE AMOUNT SO RECEIVED OR RECEIVABLE OR (C) PROVIDED THAT THE TAXES LEVIED BY ANY LOCAL AUTHORITY IN RESPECT OF THE PROPERTY SHALL BE DEDUCTED (IRRESPECTIVE OF THE PREVIOUS YEAR IN WHICH THE LIABILITY TO PAY SUCH TAXES WAS INCURRED 10 BY THE OWNER ACCORDING TO THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY HIM) IN DETERMINING THE ANNUAL VALUE OF THE PROPERTY OF THAT PREVIOUS YEAR IN WHICH SUCH TAXES ARE ACTUALLY PAID BY HIM. 5.2.2. THE DECISION OF VARIOUS TRIBUNAL FOR ALLOWING THE SOCIETY CHARGES PAID OR MAINTENANCE CHARGES PAID ARE ONLY AS A NATURAL COROLLARY OF ALLOWANCE OF MUNICIPAL TAXES FROM THE RENT AS PROVIDED IN THIS PROVISO. FOR READY REFERENCE THE RELEVANT PARA OF THE DECISION OF HONBLE ITAT G BENCH MUMBAI IN THE CASE ON REALITY FINANCE & LEASING (P) LTD. VS ITO UPON WHICH THE APPELLANT HAS RELIED IS REPRODUCED AS UNDER:- WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND THAT THERE IS NO DISPUTE THAT THE CHARGES PAID TO THE SOCIETY ARE NOT COVERED IN THE ALLOWABLE DEDUCTIONS AS ENUMERATED UNDER SECTION 24 OF THE IT ACT. THE CLAIM OF THE ASSESSEE IS THAT THE SAID SOCIETY CHARGES ARE TO BE ALLOWED AS DEDUCTION FROM ANNUAL LETTING VALUE (ALV) AS IN THE CASE OF MUNICIPAL TAXES. IN THE CASE OF PRAVEEN KUMAR (SUPRA), THE EXPENDITURE INCURRED TOWARDS SERVICE CHARGES AND LEGAL EXPENSES WERE ALLOWED AS DEDUCTION WHILE COMPUTING THE ANNUAL LETTING VALUE UNDER SECTION 23 OF THE IT ACT. IT IS AN ADMITTED FACT THAT THE GROSS RENT RECEIPT BY THE ASSESSEE ALSO INCLUDE THE SOCIETY CHARGES WHICH ARE TO BE PAID BY THE ASSESSEE. IN OUR VIEW WHILE COMPUTING THE ANNUAL VALUE THE AMOUNT OF RENT WHICH ACTUALLY GOES TO THE HANDS OF THE OWNER IN RESPECT OF LEASED PROPERTY SHOULD BE TAKEN INTO CONSIDERATION. AS PER THE 11 PROVISIONS OF S.23 THE ANNUAL VALUE OF ANY PROPERTY IS TO BE DETERMINED ON THE BASIS OF ACTUAL RENT RECEIVED BY THE OWNER. 5.2.3 FROM THE PERUSAL OF THIS OBSERVATION OF THE HONBLE ITAT, IT IS VERY CLEAR THAT THE EXPENSES WHICH APPELLANT HAS CLAIMED TO BE REDUCED FROM THE RENT RECEIVED COULD NOT BE CONSIDERED AS ALLOWABLE TO BE DEDUCTED FROM THE ACTUAL RENT RECEIVED FOR THE PURPOSES TO ARRIVE AT ANNUAL LETTING VALUE FOR THE PURPOSE OF SECTION 23 AS THEY ARE OF TOTALLY DIFFERENT NATURE AS COMPARED TO MUNICIPAL TAX, OR SOCIETY MAINTENANCE CHARGES ETC. THEREFORE, THIS ALTERNATE CLAIM OF THE APPELLANT IS ALSO REJECTED. 10. THE ASSESSEE HAD ALSO TAKEN ONE MORE ALTERNATIV E GROUND THAT NET VALUE OF THE PROPERTY WAS ONLY RS.5,95,880/-, AND, THEREFORE, ONLY RS.5,95,880/- SHOULD BE TAKEN AS LETTING ANNUAL VAL UE AND NOT THE FULL RENT RECEIVED. THIS ALTERNATIVE GROUND HAS BEEN CONSIDE RED AND REJECTED BY THE LEARNED CIT(A) BY OBSERVING AS UNDER: 5.3 THE APPELLANT HAS TAKEN ONE MORE ALTERNATE GROUND THAT IN ANY CASE, THE NET VALUE OF PROPERTY IS RS.5,95,880/- AS IS EVIDENCED BY THE RECORDS OF MCD AND THEREFORE, ONLY RS.5,95,880/- SHOULD BE TAKEN AS ANNUAL LETTING VALUE AND NOT THE FULL RENT RECEIVED. THIS SUBMISSION OF THE APPELLANT IS ALSO NOT CORRECT IN VIEW OF THE PROVISIONS OF SECTION 23(1), AS PER WHICH IF THE RENT RECEIVED OR RECEIVABLE IS HIGHER THAN THE SUM FOR WHICH THE PROPERTY MIGHT REASONABLY BE EXPECTED TO LET FROM YEAR TO YEAR THEN HIGHER AMOUNT HAS TO BE TAKEN. OBVIOUSLY IN THE INSTANT CASE THE RENT RECEIVED IS 12 HIGHER THAN THE VALUE FOR WHICH IT HAS BEEN ASSESSED BY THE MCD. THEREFORE, ANNUAL LETTING VALUE FOR THE PURPOSE OF SECTION 23 IS ACTUAL RENT RECEIVED. THEREFORE, THIS ARGUMENT OF THE APPELLANT IS ALSO REJECTED. 11. BEING AGGRIEVED WITH THE ORDER OF LEARNED CIT(A ), THE ASSESSEE HAS PREFERRED THIS APPEAL BEFORE US. 12. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE PAYMENT MADE BY ITS CLIENTS TO THE ASSESSEE COMPANY WERE LUMPSUM IN NATURE AND INCLUDED NOT ONLY CHARGES FOR USE OF PREMISES BUT ALSO FOR V ARIOUS OTHER SERVICES PROVIDED BY ASSESSEE COMPANY AND FOR EXPENSES INCUR RED BY ASSESSEE COMPANY FOR AND ON BEHALF OF THE CLIENT. IN OTHER WORDS, HE EXPLAINED THAT THE ASSESSEE COMPANY PROVIDED SERVICES SIMILAR BY A HOTEL TO ITS CLIENTS, WHO WOULD COME AND UTILIZE THE SERVICES. HE, THEREFORE , SUBMITTED THAT THE AMOUNT RECEIVED FROM OCCUPANTS/CLIENTS WERE A COMPO SITE CHARGE NOT ONLY FOR USE OF PROPERTY BUT ALSO FOR PROVISION OF VARIO US FACILITIES OR SERVICES. AT THIS STAGE, HE RELIED UPON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS NATIONAL STORAGE P. LTD. (1967) 66 ITR 59 6 (SC). 13. WITHOUT PREJUDICE TO THE MAIN CONTENTION THAT T HE ASSESSEES INCOME SHOULD BE ASSESSED UNDER THE HEAD BUSINESS, AND A LL EXPENSES SHOULD BE ALLOWED AS ADMISSIBLE EXPENSES, THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER CONTENDED THAT, IN THE ALTERNATIVE, THE COMPOSITE A MOUNT RECEIVED BY THE 13 ASSESSEE FROM HIS CLIENTS SHOULD BE TREATED AS INC OME FROM OTHER SOURCES AS THE BUILDING LET OUT TO OCCUPANTS ALONG WITH FURNIT URE AND FIXTURE, PLANT AND MACHINERY ETC. WERE INSEPARABLE. IN THIS RESPECT, THE LEARNED COUNSEL FOR THE ASSESSEE RELIED UPON THE DECISION OF HONBLE SUPREM E COURT IN THE CASE OF SULTAN BROTHERS (P) LTD. (1964) 51 ITR 353 (SC). F URTHER, ALTERNATIVE CONTENTION WAS ADVANCED BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT IF IT IS HELD THAT A PORTION OF THE RECEIPT SHOULD ALSO BE A SSESSED UNDER THE HEAD HOUSE PROPERTY, THE AMOUNT RECEIVED IS COMPOSITE AMOUNT PARTLY FOR USE OF PREMISES AND PARTLY FOR SERVICES RENDERED OR TOWARD S REIMBURSEMENT OF EXPENSES INCURRED AND THUS, THE RECEIPTS RECEIVED F ROM SERVICES RENDERED AND FOR REIMBURSEMENT OF EXPENSES INCURRED SHOULD BE AS SESSED SEPARATELY AFTER ALLOWING ALL THE EXPENSES INCURRED IN RELATION THER ETO. 14. HE FURTHER CONTENDED THAT THE INCOME UNDER THE HEAD HOUSE PROPERTY SHOULD BE RESTRICTED TO THE ANNUAL LETTING VALUE, W HICH IS AT RS.5,95,880/- AND NOT THE ACTUAL RENT RECEIVED BY THE ASSESSEE FROM T HE OCCUPANTS. 15. ALL THE ABOVE CONTENTIONS HAVE BEEN NARRATED BY THE ASSESSEE IN THE WRITTEN SUBMISSIONS PLACED AT PAGE NOS. 1 TO 7 OF T HE PAPER BOOK FILED BY THE ASSESSEE. THEREAFTER, THE ASSESSEE ALSO FILED ONE ADDENDUM TO WRITTEN SUBMISSIONS FILED EARLIER AND SUBMITTED THAT THE RE VENUE AUTHORITIES HAVE BEEN TAKING DIFFERENT VIEWS IN DIFFERENT ASSESSMENT YEARS AND AT DIFFERENT 14 STAGES OF THE SAME YEAR WITH REGARD TO TREATMENT OF INCOME FROM THE PREMISES OWNED BY THE ASSESSEE COMPANY AT 12, SHIVJ I MARG, RANGPURI, DELHI-37. IN THIS RESPECT, HE POINTED OUT THAT IN THE ASSESSMENT YEAR 1996- 97, WHILE PASSING THE ORIGINAL ASSESSMENT ORDER, TH E AO DISALLOWED PART DEPRECIATION AND PART EXPENSES AND TREATED THE INCO ME UNDER THE HEAD INCOME FROM BUSINESS AND PROFESSION. THEREAFTER, IN AN APPEAL AGAINST THE SAID ORDER, THE LEARNED CIT(A) HELD THAT ASSESSEES CASE IS THAT OF INSEPARABLE LETTING OUT OF BUILDINGS AND ASSETS, AND, THEREFORE , INCOME IS TAXABLE UNDER THE HEAD OTHER SOURCES, AND ALL EXPENDITURE AND D EPRECIATION WERE ALLOWABLE AND THE DEPARTMENT HAS NOT GONE INTO APPE AL AGAINST THE ABOVE ORDER PASSED BY THE CIT(A) IN ASSTT. YEARS 1996-97. HE, THEREFORE, SUBMITTED THAT THE ORDERS PASSED BY THE LEARNED CIT (A) HAD BECOME FINAL AND THE INCOME HAS BEEN ASSESSED UNDER THE HEAD OTHER SOURCES AND ALL EXPENSES INCURRED IN CONNECTION WITH RUNNING OF BUS INESS AS WELL AS DEPRECIATION OF ASSETS IS FULLY ALLOWED. HE, THERE AFTER, POINTED OUT THAT IN THE ASSTT. YEAR UNDER CONSIDERATION, THIS IS SECOND ROU ND OF APPEAL, WHERE THE AO HAS TREATED THE INCOME AS INCOME FROM HOUSE PRO PERTY THOUGH THE INCOME FROM THE PROPERTY WAS ORIGINALLY ASSESSED UN DER THE HEAD PROFITS AND GAINS FROM THE BUSINESS, AND PART EXPENSES AND PART DEPRECIATION WAS 15 ALLOWED, AND THE LEARNED CIT(A) IN THE FIRST ROUND HAD FOLLOWED HIS ORDER FOR ASSTT. YEAR 1996-97. 16. HE FURTHER SUBMITTED THAT THE DECISION OF THE H ONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS SHAMBHU INVESTMENTS P. LTD. (SUPRA) IS NOT APPLICABLE TO THE PRESENT CASE SO AS TO ASSESS THE INCOME OF THE ASSESSEE UNDER THE HEAD INCOME FROM HOUSE PROPERTY AND THE ASSESSEES CASE IS ACTUALLY COVERED BY THE DECISION IN THE CASE OF SUL TAN BROS. (P) LTD. (SUPRA), AND VARIOUS OTHER DECISIONS ON SIMILAR LINES AS PO INTED OUT BY THE LEARNED COUNSEL FOR THE ASSESSEE. 17. THE LEARNED DR, ON THE OTHER HAND, REITERATED T HE VARIOUS REASONS AND CONTENTIONS GIVEN BY THE LEARNED CIT(A) IN CONFIRMI NG THE AOS ORDER IN ASSESSING THE RENTAL INCOME RECEIVED BY THE ASSESSE E FROM HOUSE PROPERTY UNDER THE HEAD INCOME FROM HOUSE PROPERTY TO CONT END THAT IT IS A CASE OF MERE LETTING OUT THE HOUSE PROPERTY. 18. WE HAVE HEARD BOTH THE PARTIES AND HAVE GONE TH ROUGH THE MATERIAL ON RECORD. 19. THIS IS THE SECOND ROUND OF APPEAL ARISING FROM ASSESSMENT ORDER PASSED BY THE AO IN PURSUANCE TO THE ORDER PASSED B Y THIS TRIBUNAL IN THE FIRST ROUND. THE TRIBUNAL IN THE FIRST ROUND HAD RESTORED THE MATTER BACK TO 16 THE FILE OF AO TO DECIDE THE MATTER AFRESH AFTER AN ALYZING THE AGREEMENT AND THE FACTS OF THE CASE. THE TRIBUNAL FURTHER OBSERV ED THAT THE AO WAS TO FIND OUT AS TO WHETHER INCOME DERIVED BY THE ASSESSEE IS FROM LETTING OUT THE PROPERTY OR BY EXPLOITING THE IMMOVABLE PROPERTY BY WAY OF COMMERCIAL ACTIVITY. THE TRIBUNAL FURTHER OBSERVED THAT THE A O SHALL ALSO PASS A SPEAKING ORDER AS TO WHETHER THE INCOME IS FROM T HE DOMINANT USE OF THE BUILDING, AND THAT THE PLANT AND MACHINERY AND THE FARM BUILDING CAME TO BE LET OUT AS AN INCIDENCE OF LETTING OUT OF SUCH MACH INERY INSEPARABLY. THE AO WAS FURTHER DIRECTED TO PASS A REASONED ORDER HAVIN G REGARD TO THE DECISION OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS S HAMBHU INVESTMENTS P. LTD. (SUPRA), WHICH WAS LATER AFFIRMED BY THE APEX COURT IN THE JUDGMENT REPORTED IN THE CASE OF SHAMBHU INVESTMENTS P. LTD. VS CIT, 265 ITR 143, AND ALSO THE AVAILABLE LAW ON THE SUBJECT. IN THE LIGHT OF THE DIRECTION GIVEN BY THE TRIBUNAL, THE AO WAS THUS SUPPOSED TO FIND O UT AS TO WHETHER THE MAIN INTENTION OF THE ASSESSEE WAS TO LET OUT THE P ROPERTY OR ANY PORTION THEREOF, OR WHETHER THE PRIMARY OBJECT WAS TO EXPLO IT THE IMMOVABLE PROPERTY BY WAY OF COMPLEX COMMERCIAL ACTIVITIES. THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS SHAMBHU INVESTMENT S P. LTD. (SUPRA) HAS HELD THAT IF THE MAIN INTENTION OF THE ASSESSEE IS TO LET OUT THE PROPERTY OR ANY PORTION THEREOF, THE INCOME MUST BE CONSIDERED AS R ENTAL INCOME OR INCOME 17 FROM PROPERTY WHEREAS IF THE PRIME OBJECT IS TO EXP LOIT THE IMMOVABLE PROPERTY BY WAY OF COMPLEX COMMERCIAL ACTIVITY, IN THAT EVENT, IT MUST BE HELD AS BUSINESS INCOME. IN ORDER TO DETERMINE THE INTENTION OF THE ASSESSEE IN THE PRESENT CASE, WE HAVE TO EXAMINE THE TERMS O F THE AGREEMENT ENTERED INTO BY THE ASSESSEE WITH THE TENANTS. 20. WE SHALL FIRST CONSIDER THE AGREEMENT ENTERED I NTO BY THE ASSESSEE WITH ITS DIRECTOR MR. S.S. OBEROI. THE COPY OF AGREEMEN T IS PLACED AT PAGE 49 TO 50 OF THE PAPER BOOK FILED BY THE ASSESSEE. THE AG REEMENT IS DATED 5 TH APRIL, 1996 RELEVANT TO THE ASSTT. YEAR 1997-98 UNDER CONS IDERATION. IN THE AGREEMENT, IT IS MENTIONED THAT THE ASSESSEE WAS A N EXCLUSIVE OWNER OF THE LAND AND BUILDING SITUATED AT 12, SHIVJI MARG, VILL AGE RANGPURI, NEW DELHI, AND, MR. OBEROI IS AGREED TO USE PART OF THE SAID L AND AND BUILDING UPON THE TERMS AND CONDITIONS MENTIONED IN THE AGREEMENT. T HE CONSIDERATION WAS FIXED AT A MONTHLY FEE OF RS.50,000/- P.M. FOR ENTI TLING THE OBEROI TO USE FULLY FURNISHED AIR CONDITIONED SPACE COMPRISING PA RT OF BUILDING AT 12, SHIVJI MARG, RANGPURI, NEW DELHI. IT IS ALSO MENTI ONED THAT MR. OBEROI AND HIS FAMILY MEMBERS WERE ENTITLED TO USE THE VARIOUS FACILITIES AVAILABLE AT THE PREMISES INCLUDING FURNITURE AND FIXTURES, VARIOUS EQUIPMENTS, MACHINERIES AND RECREATION FACILITIES. IN THE AGREEMENT, IT IS FURTHER PROVIDED THAT ASSESSEE WOULD PROVIDE SECURITY SERVICES, GENERAL U PKEEP OF BUILDING AND 18 OTHER FACILITIES, AND FOR THAT PURPOSE, ASSESSEE WI LL BE ENTITLED TO A REIMBURSEMENT WITHIN AN OVERALL LIMIT OF RS.75,000/ - ON AN ANNUAL AVERAGE BASIS IRRESPECTIVE OF THE PERIOD OF USE. THE TENUR E OF THE AGREEMENT WAS FIXED INITIALLY FOR A PERIOD OF ONE YEAR WITH AN OP TION TO DETERMINE THE AGREEMENT GIVING TWO MONTHS NOTICE IN ADVANCE IN WR ITING. FROM THIS AGREEMENT, IT IS MORE THAN CLEAR THAT THE PRIMARY O BJECT OF THE ASSESSEE WAS NOT TO EXPLOIT THE LAND AND HOUSES BY WAY OF COMPL EX COMMERCIAL ACTIVITIES. IT IS A SIMPLE CASE OF LETTING OUT THE PROPERTY OR ANY PORTION THEREOF ALONG WITH CERTAIN AMENITIES. THE CASE IS, THUS, FULLY C OVERED BY THE FACTS OF THE CASE RENDERED BY HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS SHAMBHU INVESTMENTS P. LTD. WHERE THE PROPERTY WAS LET OUT TO THE VARIOUS OCCUPANTS WITH FURNITURE AND FIXTURE, LIGHTS, AIR C ONDITIONERS FOR BEING USED AS TABLE SPACE AND IN THE LIGHT OF THE FACTS OF THA T CASE, IT WAS OBSERVED BY THE HONBLE HIGH COURT THAT INCOME IS ASSESSABLE AS INC OME FROM PROPERTY, WHICH HAS BEEN UPHELD BY THE HONBLE SUPREME COURT. IT IS NOT THE CASE WHERE THE BUILDING HAS BEEN LET OUT AS AN INCIDENCE OF LETTING OUT OF ANY FURNITURE AND FIXTURE OR MACHINERIES INSEPARABLY. IT IS THE CASE WHERE LAND AND BUILDING HAS BEEN LET OUT AS SUCH ALONG WITH MO DERN AMENITIES, WHICH ARE NOW ESSENTIAL IN DAY TO DAY LIFE. IN THE PRESE NT CASE, NO COMPLEX COMMERCIAL ACTIVITIES WERE INVOLVED, AND, THEREFORE , THE RENTAL INCOME 19 RECEIVED BY THE ASSESSEE FROM MR. OBEROI @ RS.50,00 0/- P.M. SHALL BE ASSESSABLE AS INCOME FROM PROPERTY. WHATEVER AMOUN T HAS BEEN RECEIVED BY THE ASSESSEE ON ACCOUNT OF SERVICES PROVIDED, OVER AND ABOVE THE FIXED MONTHLY RENT OF RS.50,000/-, SHALL BE SET OFF AGAIN ST THE EXPENSES INCURRED BY THE ASSESSEE ON THAT ACCOUNT, AND IF ANY SURPLUS RE MAINING THEREAFTER, SHALL BE ASSESSED AS INCOME FROM OTHER SOURCES. HOWEVER, IN THE PRESENT CASE, NO SURPLUS AS SUCH HAS BEEN SHOWN AND, THEREFORE, THE QUESTION OF ASSESSING THE SEPARATE CHARGES RECEIVED FOR SERVICES UNDER THE HE AD INCOME FROM OTHER SOURCES DOES NOT ARISE. 21. NOW, WE SHALL COME TO THE AGREEMENT ENTERED INT O WITH INTERNATIONAL BUSINESS CENTRE, A COPY OF WHICH IS PLACED AT PAGE 46 TO 47OF THE PAPER BOOK. WE HAVE GONE THROUGH THE TERMS AND CONDITION S OF THE AGREEMENT AND FIND THAT THE PRIMARY INTENTION OF THE ASSESSEE IS TO LET OUT THE PROPERTY ON RENT AND NOT TO EXPLOIT THE SAME BY WAY OF COMPLEX COMMERCIAL ACTIVITIES. THOUGH THE ASSESSEE HAS USED THE NOMENCLATURE MEMB ER CLIENT FOR HIS TENANTS, BUT IF THE AGREEMENT IS READ AS A WHOLE, I T GIVES AN IMPRESSION THAT THE PRIMARY OBJECT OF THE ASSESSEE IS TO LET OUT TH E PROPERTY ON RENT ALONG WITH SOME FACILITIES AS SO WAS IN THE CASE OF CIT VS SHA MBHU INVESTMENTS P. LTD. (SUPRA) BEFORE HONBLE CALCUTTA HIGH COURT. THEREF ORE, THIS CASE IS ALSO FULLY COVERED BY THE DECISION OF HONBLE CALCUTTA H IGH COURT IN THE CASE OF 20 CIT VS SHAMBHU INVESTMENTS P. LTD. (SUPRA), WHICH H AS BEEN AFFIRMED BY THE HONBLE SUPREME COURT AS MENTIONED ABOVE. 22. AT THIS JUNCTURE, IT IS PERTINENT TO NOTE THAT THE ASSESSEE HAS NOT BEEN CARRYING ON ANY BUSINESS EITHER IN EARLIER YEARS OR DURING THE CURRENT YEAR UNDER CONSIDERATION. IN THE ASSESSMENT YEAR 1995-9 6, THE TRIBUNAL HAS CATEGORICALLY STATED THAT ASSESSEE HAS NOT PRODUCED ANY MATERIAL TO SHOW THAT ANY OF THE ESSENTIAL ACTIVITIES FOR SETTING UP OF T HE BUSINESS HAS PRACTICALLY BEEN STARTED, AND, THEREFORE, IT CANNOT BE SAID THA T THE ASSESSEE HAS STATED ITS BUSINESS. IN THE COURSE OF HEARING OF THIS APPEAL, THE LEARNED COUNSEL FOR THE ASSESSEE HAS NOT BEEN ABLE TO POINT OUT ANY MATERIA L OR EVIDENCE INDICATING THAT ANY BUSINESS HAS BEEN SET UP BY THE ASSESSEE D URING THE YEAR UNDER CONSIDERATION. IN OTHER WORDS, THE ASSESSEE HAS NO T YET SET UP ANY BUSINESS SO THAT THE DAY TO DAY EXPENSES INCURRED BY THE ASS ESSEE CANNOT ALSO BE ALLOWED AS A BUSINESS EXPENDITURE AS CLAIMED BY THE ASSESSEE. 23. FURTHER, THE ALLEGED PLANT AND MACHINERY AS SUC H HAS NOT BEEN LET OUT IN THE COURSE OF CARRYING ANY COMPLETE COMMERCIAL A CTIVITIES. THEY ARE USED FOR UPKEEPING OF FARM BUILDING OR HOUSE AND THE REN TAL INCOME RECEIVED BY THE ASSESSEE ARE NOT DERIVED FROM LETTING OUT OF IT S PLANT AND MACHINERY AND IT IS NOT THE CASE WHERE FARM BUILDING HAS BEEN LET OU T AS AN INCIDENCE OF LETTING OUT SUCH PLANT AND MACHINERY INSEPARABLY. 21 24. IN THE LIGHT OF VIEW WE HAVE TAKEN ABOVE, WE AR E IN FULL AGREEMENT WITH THE ORDER OF THE CIT(A), WHICH RUNS AS UNDER: 5. I HAVE CONSIDERED THE SUBMISSION OF THE APPELLANT VERY CAREFULLY. THE FACTS OF THE CASE HAVE ALSO BEEN GONE THROUGH. ON A CAREFUL PERUSAL OF THE FACTS IT IS CLEAR THAT WHAT IS APPARENT IS NOT REAL. IT IS A CASE OF PRIVATE LIMI TED COMPANY INCORPORATED IN MAY, 93 WITH THE OBJECT OF CARRYING ON THE BUSINESS OF IMPORT AND EXPORT OF DIFFERENT TYPE OF PRODUCT. NO SUCH BUSINESS ACTIVITY HAS BEEN CARRIED OUT TILL DATE. THE SHAREHOLDERS OF THESE COMPANIES ARE MR. OBEROI AND HIS FAMILY MEMBERS. INSTEAD OF CARRYING OUT BUSINESS AS STATED IN THE OBJECTIVES, THE FUNDS OF THE COMPANY HAS BEEN USED FOR CONSTRUCTING LUXURIOUS FARM HOUSE WITH ALL MODERN FACILITIES WHICH IS PRIMARILY USED BY THE DIRECTORS FOR THEIR OWN RESIDENTIAL PURPOSES AND A TOKEN RENT OF RS.50,000/- P.M. IS BEING SHOWN AS PAID BY THEM TO THE COMPANY IN LIEU OF USER OF THIS PREMISES. TO APPEAR THE LETTING OUT OF THIS FARM HOUSE BY THE COMPANY AS COMMERCIAL ACTIVITY, THE COMPANY HAS BEEN SHOWN AS ENTERED INTO AN AGREEMENT WITH M/S IBC FOR LETTING OUT THIS PREMISES ON RENT/SERVICE CHARGES OF RS.10 LACS. FROM THE PERUSAL OF THE AGREEMENT, IT IS VERY CLEAR THAT THE USE OF SPACE IS NOT CONFIRMED TO A SPECIFIC PLACE IN THE PREMISES. IN OTHER WORDS, THE SAME IS FLOATING AND SUBJECT TO AVAILABILITY DURING THE PERIOD. IF THERE WAS ANY INTENTION TO USE THIS PREMISE FOR COMMERCIAL PURPOSE BY THE COMPANY THEN THERE WOULD HAVE BEEN SOME OTHER INCIDENCE OF SUCH LETTING OUT ALSO. BUT SO FAR NO SUCH LETTING OUT HAS BEEN DONE. THUS, IT IS VERY CLEAR THAT ONLY TO GIVE IT A COLOUR OF COMMERCIAL ACTIVITY, THIS AGREEMENT HAS BEEN ENTERED INTO AND SERVICE CHARGES RECEIPT HAS BEEN SHOWN. 22 BASICALLY THE FARM HOUSE IS IN POSSESSION OF DIRECTORS FOR THEIR RESIDENTIAL PURPOSES. THE AO HAS RIGHTLY POINTED OUT IN THE ASSESSMENT ORDER THAT PLANT AND MACHINERIES APPEARING IN THE BALANCE SHEET OF THE COMPANY ARE BASICALLY FOR UP KEEP AND MAINTENANCE OF THE FARM HOUSE AND THEY ARE NOT SOME PLANT OR MACHINERY WHICH ARE CAPABLE OF BEING USED FOR ANY OTHER PURPOSE OTHER THAN THE UPKEEP AND MAINTENANCE OF THE FARM HOUSE. THEREFORE, IT IS NOT A CASE OF INSEPARABLE LETTING OUT OF BUILDING AND PLANT AND MACHINERY ALSO. THE AO HAS BROUGHT OUT ALL THE FACTS ON RECORD VERY CAREFULLY TO ESTABLISH THAT PRIMARILY I T IS A CASE OF LETTING OUT OF THE BUILDING. EVEN HONBLE ITAT WHILE DECIDING THE ORIGINAL APPEAL HAS VERY CLEARLY OBSERVED THAT IT APPEARS A SIMPLE CASE OF LETTING OUT OF THE PROPERTY TO M/S IBC FROM WHOM SERVICE CHARGES HAVE BEEN RECEIVED. THUS I FULLY AGREE WITH THE FINDING OF THE AO THAT THE INCOME DERIVED BY THE ASSESSEE IS FROM LETTING OUT THE PROPERTY AND NOT BY EXPLOITING THE IMMOVEABLE PROPERTY BY WAY OF COMMERCIAL ACTIVITY. I ALSO AGREE WITH THE FINDINGS OF THE AO THAT THE INCOME SO DERIVED IS FROM DOMINANT USE OF BUILDING AND THAT THE PLANT AND MACHINERY ARE USED FOR UPKEEP OF FARM BUILDING AND THE INCOME HAS NOT BEEN DERIVED BY THE ASSESSEE FROM LETTING OUT OF ITS PLANT AND MACHINERY AND THE FARM BUILDING AS AN INCIDENCE OF LETTING OUT OF SUCH MACHINERY INSEPARABLY. THIS IS A CLEAR CUT CASE OF LETTING OUT HOUSE PROPERTY BY THE COMPANY TO ITS DIRECTORS AS WELL AS TO M/S IBC. THUS, ENTIRE RECEIPT IS ASSESSABLE UNDER HEAD INCOME FROM HOUSE PROPERTY. THE ABOVE FINDING IS IN CONSONANCE WITH THE DECISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS SHAMBHU INVESTMENT P. LTD., 249 ITR 47 (CAL) WHICH WAS LATER AFFIRMED BY THE APEX COURT IN THE JUDGMENT REPORTED IN SHAMBHU INVESTEMNTS P. LTD. VS CIT REPORTED IN 265 ITR 143, A CASE 23 REFERRED BY HONBLE ITAT ALSO IN APPEAL AGAINST ORIGINAL ORDER. ON THE OTHER HAND, THE CASE LAWS UPON WHICH THE APPELLANT HAS RELIED ARE NOT BEING DISCUSSED AS THE FACTS ARE CLEARLY DISTINGUISHABLE. THUS, THE ACTION OF AO IS UPHELD TO THAT EXTENT. ONCE INCOME IS ASSESSED UNDER HOUSE PROPERTY THEN ONLY SUCH EXPENSES WHICH ARE ENUMERATED IN SECTION 24 OF THE ACT CAN BE ALLOWED. AS THERE IS NO PROVISION U/S 24 TO ALLOW EXPENSES LIKE DEPRECIATION, ELECTRICITY CHARGES, TELEPHONE CHARGES ETC AS CLAIMED BY THE APPELLANT, THE AO HAS RIGHTLY NOT ALLOWED DEPRECIATION AND OTHER EXPENSES. 5.1 THE APPELLANT HAS RAISED AN ALTERNATE GROUND THAT EVEN IF INCOME IS ASSESSED UNDER HEAD HOUSE PROPERTY THEN ALSO THE AO SHOULD HAVE ALLOWED VARIOUS EXPENSES TOWARDS SERVICES AND FACILITIES PROVIDED TO ARRIVE AT THE ANNUAL VALUE U/S 23 OF THE I.T. ACT, 1961 AND FOR THIS SUBMISSION THE APPELLANT HAS RELIED UPON THE FOLLOWING CASE LAWS: REALITY FINANCE & LEASING (P)LTD. VS ITO (2006) 5 SOT 348 (MUMBAI); SHARMILA TAGORE VS JCIT (2005) 93 TTJ (MUM) 483; BOMBAY OIL INDUSTRIES LTD. VS DCIT (2004) 88 TTJ (MUM)248 : (2002) 82 ITD 626 (MUM); ITO VS MRS. NIROBEN D. CHOKSEY (1988) 1 SOT 608; R.K. RAMACHANDRAN VS SECOND ITO DATED 21 ST NOVEMBER, 1983; VARMA FAMILY TRUST VS ITO (1984) 7 ITD(BOM) 392; GOVIND S. SINGHANIA VS ITO, ITA NO. 4581/MUM/2006. 24 5.2. I HAVE CONSIDERED THIS ALTERNATE SUBMISSION OF THE APPELLANT VERY CAREFULLY. THE CASE LAWS HAVE ALSO BEEN GONE THROUGH. IN THE CASE OF REALTY FINANCE & LEASING (P) LTD. VS ITO, IT HAS BEEN HELD BY HONBLE ITAT THAT SOCIETY CHARGES PAID BY THE ASSESSEE IN RESPECT OF ITS LET OUT PROPERTY WERE ALLOWABLE WHILE COMPUTING THE ANNUAL VALUE. IN THE INSTANT CASE OBVIOUSLY IT IS NOT A CASE OF SOCIETY CHARGES AND, THEREFORE, THIS DECISION IS NOT APPLICABLE. IN THE CASE OF SHARMLIA TAGORE VS JCIT AGAINST EH ISSUE WAS DEDUCTION OF MAINTENANCE CHARGES PAID TO HOUSING SOCIETY FROM THE RENT RECEIVED TO ARRIVE AT ANNUAL LETTING VALUE. APPARENTLY, THIS IS ALSO NOT A CASE OF THE APPELLANT. SIMILAR ARE THE FACTS OF OTHER CASES ALSO AND THEY ARE NOT BEING DISCUSSED AS ALL ARE DISTINGUISHABLE ON FACTS. 5.2.1. AS PER PROVISION OF SECTION 23, THE ANNUAL VALUE OF ANY PROPERTY SHALL BE DEEMED TO BE :- (A) THE SUM FOR WHICH THE PROPERTY MIGHT REASONABLE BE EXPECTED TO LET FROM YEAR TO YEAR OR (B) WHERE THE PROPERTY OR ANY PART OF THE PROPERTY IS LET AND THE ACTUAL RENT RECEIVED OR RECEIVABLE B Y THE OWNER IN RESPECT THEREOF IS IN EXCESS OF THE SUM REFERRED TO IN CLAUSE (A) THE AMOUNT SO RECEIVED OR RECEIVABLE OR (C) PROVIDED THAT THE TAXES LEVIED BY ANY LOCAL AUTHORITY IN RESPECT OF THE PROPERTY SHALL BE DEDUCTED (IRRESPECTIVE OF THE PREVIOUS YEAR IN WHICH THE LIABILITY TO PAY SUCH TAXES WAS INCURRED BY THE OWNER ACCORDING TO THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY HIM) IN DETERMINING THE ANNUAL VALUE OF THE PROPERTY OF 25 THAT PREVIOUS YEAR IN WHICH SUCH TAXES ARE ACTUALLY PAID BY HIM. 5.2.2. THE DECISION OF VARIOUS TRIBUNAL FOR ALLOWING THE SOCIETY CHARGES PAID OR MAINTENANCE CHARGES PAID ARE ONLY AS A NATURAL COROLLARY OF ALLOWANCE OF MUNICIPAL TAXES FROM THE RENT AS PROVIDED IN THIS PROVISO. FOR READY REFERENCE THE RELEVANT PARA OF THE DECISION OF HONBLE ITAT G BENCH MUMBAI IN THE CASE ON REALITY FINANCE & LEASING (P) LTD. VS ITO UPON WHICH THE APPELLANT HAS RELIED IS REPRODUCED AS UNDER:- WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND THAT THERE IS NO DISPUTE THAT THE CHARGES PAID TO THE SOCIETY ARE NOT COVERED IN THE ALLOWABLE DEDUCTIONS AS ENUMERATED UNDER SECTION 24 OF THE IT ACT. THE CLAIM OF THE ASSESSEE IS THAT THE SAID SOCIETY CHARGES ARE TO BE ALLOWED AS DEDUCTION FROM ANNUAL LETTING VALUE (ALV) AS IN THE CASE OF MUNICIPAL TAXES. IN THE CASE OF PRAVEEN KUMAR (SUPRA), THE EXPENDITURE INCURRED TOWARDS SERVICE CHARGES AND LEGAL EXPENSES WERE ALLOWED AS DEDUCTION WHILE COMPUTING THE ANNUAL LETTING VALUE UNDER SECTION 23 OF THE IT ACT. IT IS AN ADMITTED FACT THAT THE GROSS RENT RECEIPT BY THE ASSESSEE ALSO INCLUDE THE SOCIETY CHARGES WHICH ARE TO BE PAID BY THE ASSESSEE. IN OUR VIEW WHILE COMPUTING THE ANNUAL VALUE THE AMOUNT OF RENT WHICH ACTUALLY GOES TO THE HANDS OF THE OWNER IN RESPECT OF LE3ASED PROPERTY SHOULD BE TAKEN INTO CONSIDERATION. AS PER THE PROVISIONS OF S.23 THE ANNUAL VALUE OF ANY PROPERTY IS TO BE DETERMINED ON THE BASIS OF ACTUAL RENT RECEIVED BY THE OWNER. 26 5.2.3 FROM THE PERUSAL OF THIS OBSERVATION OF THE HONBLE ITAT, IT IS VERY CLEAR THAT THE EXPENSES WHICH APPELLANT HAS CLAIMED TO BE REDUCED FROM THE RENT RECEIVED COULD NOT BE CONSIDERED AS ALLOWABLE TO BE DEDUCTED FROM THE ACTUAL RENT RECEIVED FOR THE PURPOSES TO ARRIVE AT ANNUAL LETTING VALUE FOR THE PURPOSE OF SECTION 23 AS THEY ARE OF TOTALLY DIFFERENT NATURE AS COMPARED TO MUNICIPAL TAX, OR SOCIETY MAINTENANCE CHARGES ETC. THEREFORE, THIS ALTERNATE CLAIM OF THE APPELLANT IS ALSO REJECTED. 5.3 THE APPELLANT HAS TAKEN ONE MORE ALTERNATE GROUND THAT IN ANY CASE, THE NET VALUE OF PROPERTY IS RS.5,95,880/- AS IS EVIDENCED BY THE RECORDS OF MCD AND THEREFORE, ONLY RS.5,95,880/- SHOULD BE TAKEN AS ANNUAL LETTING VALUE AND NOT THE FULL RENT RECEIVED. THIS SUBMISSION OF THE APPELLANT IS ALSO NOT CORRECT IN VIEW OF THE PROVISIONS OF SECTION 23(1), AS PER WHICH IF THE RENT RECEIVED OR RECEIVABLE IS HIGHER THAN THE SUM FOR WHICH THE PROPERTY MIGHT REASONABLY BE EXPECTED TO LET FROM YEAR TO YEAR THEN HIGHER AMOUNT HAS TO BE TAKEN. OBVIOUSLY IN THE INSTANT CASE THE RENT RECEIVED IS HIGHER THAN THE VALUE FOR WHICH IT HAS BEEN ASSESSED BY THE MCD. THEREFORE, ANNUAL LETTING VALUE FOR THE PURPOSE OF SECTION 23 IS ACTUAL RENT RECEIVED. THEREFORE, THIS ARGUMENT OF THE APPELLANT IS ALSO REJECTED. 25. FURTHER, WE HOLD THAT THE CIT(A)S ORDER FOR AS STT. YEAR 1996-97 WOULD NOT BE BINDING UPON US WHEN IT IS CLEAR TO US THAT THE CASE IS FULLY COVERED BY THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF SHAMBHU INVESTMENTS P. LTD. (SUPRA), WHICH HAS BEEN CONSIDE RED IN THE LIGHT OF DIRECTIONS GIVEN BY TRIBUNAL IN FIRST ROUND OF APPE AL. THUS, THE CONTENTIONS OF THE ASSESSEE IN THIS RESPECT IS REJECTED. 27 26. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS DISMISSED. 27. THIS DECISION WAS PRONOUNCED IN THE OPEN COURT ON 30 TH SEPTEMBER, 2010. SD/- SD/- (G.E. VEERABHADRAPPA) (C.L. SETH I) VICE PRESIDENT JUDICIAL MEMBER DATED: 30 TH SEPTEMBER, 2010 VIJAY COPY TO: 1. APPELLANT. 2. RESPONDENT. 3. CIT 4. CIT(A)-IV, NEW DELHI. 5. DR ASSISTANT REGISTRAR