M/s. Sabari Enterprises, CHENNAI V. ITO, CHENNAI

ITA 2173/CHNY/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 5735 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 4 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-12-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 19-07-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N MADHAVAN ACIT D R
• Assessee Lawyers: G BASKAR
• Keywords: Business income; Depreciation; Condonation of delay

Judgement Text

, B/ , IN THE INCOME TAX APPELLATE TRIBUNAL B/SMC BENCH, CHENNAI . , BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER I.T.A.NO.2173 /MDS./2016 ( ASSESSMENT YEAR : 2007-08 ) M/S.SABARI ENTERPRISES, 22 (OLD NO.45) BISHOP GARDEN GREENWAYS ROAD, MANDAVELI, CHENNAI 600 028. VS. THE INCOME TAX OFFICER , BUSINESS WARD 11(4), CHENNAI. PAN AANFS 2667 Q ( / APPELLANT ) ( / RESPONDENT ) / APPELLANT BY : MR.G.BASKAR,ADVOCATE / RESPONDENT BY : MR.N.MADHAVAN,, ACIT, D.R ! ' / DATE OF HEARING : 15.11.2017 #$%& ! ' /DATE OF PRONOUNCEMENT : 05.12.2017 / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: THIS APPEAL IS FILED BY THE ASSESSEE, AGGRIEVED BY THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(A)-2, CHENNA I DATED 31.03.2016 PERTAINING TO ASSESSMENT YEAR 2007-08. ITA NO.2173 /MDS/2016 2 2. THE ASSESSEE RAISED THE FOLLOWING GROUNDS FOR ADJUDICATION. 1. THE APPELLATE ORDER DATED 31-3-2016 IN ITA NO. 1 0/CIT (A)-2/2009-10 PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) 2, CHENNAL, IS ERRONEOUS, OPPOSED TO LAW AND FACTS OF THE APPELLAN TS CASE. 2. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN CONFIRMING THE FINDING OF THE ASSESSING OFFICER IN THE ASSESSMENT ORDER FOR ASSESSMENT YEAR 2007-08 THAT THE INCOME EARNED BY THE APPELLAN T IS TO BE ASSESSED UNDER THE HEAD INCOME FROM HOUSE PROPERTY AND NOT UNDER THE HEAD BUSINESS. 3. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) FAILED TO NOTE THAT THE RECEIPTS SHOWN UNDER THE HEAD BUSINESS CONSIDERATI ON RECEIVED WAS NOT EXCLUSIVELY THE RENT FOR THE BUILDING, BUT INCLUDED CHARGES FOR SEVERAL OTHER SERVICES WHICH THE APPELLANT WAS PROVIDING TO THE B SS HOSPITAL. 4. THE LEARNED COMMISSIONER (APPEALS) ERRED IN CONF IRMING THE DISALLOWANCE OF EXPENSES MADE BY THE ASSESSING OFFICER OVERLOOKI NG THE FACT THAT SUCH EXPENSES WERE GENUINELY INCURRED OR EARNING THE INC OME WHICH HAD BEEN OFFERED FOR ASSESSMENT. 5. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) FAILED TO NOTE THAT THE OBJECT OF FORMING THE PARTNERSHIP FIRM, AS CAN BE S EEN FROM THE DEED OF PARTNERSHIP, ITSELF WAS TO ESTABLISH AND RUN A HOSP ITAL OR CLINIC PROVIDING COMPREHENSIVE HEALTH CARE IN THE VARIOUS BRANCHES O F MEDICINE, INCLUDING MEDICAL RESEARCH DEALING WITH ALL KINDS OF MEDICINE S, DRUGS, EQUIPMENTS OR OTHER ITEMS OF BUSINESS AS THE PARTNERS MUTUALLY AG REED UPON, AND THE BUILDING IN QUESTION HAD ITSELF BEEN CONSTRUCTED TO SUIT THE REQUIREMENTS OF A HEALTH CARE CENTRE / HOSPITAL. 6. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) THEREFORE ERRED IN HER FINDING THAT THE PURPOSE OF BRINGING INTO EXISTENCE THE PARTNERSHIP FIRM WAS ONLY TO MINIMIZE THE TAX INCIDENCE. ITA NO.2173 /MDS/2016 3 7. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN REFERRING TO THE DECISION OF THE APEX COURT IN MC DOWELL & CO. LTD., VS CTO, 154 ITR 148 (SC), TO DRAW A CONCLUSION THAT THE APPELLANT HAD A TTEMPTED TO AVOID INCOME-TAX BY ADMITTING THE BUSINESS CONSIDERATION RECEIVED AS INCOME UNDER THE HEAD BUSINESS. 3. ON PERUSING THE APPEAL, WE FIND THAT THE ASSESS EE HAD FILED THE APPEAL WITH DELAY OF 46 DAYS. THE ASSESSEE HAS SUBMITTED AN AFFIDAVIT DATED 19.07.2016 SEEKING CONDONATION OF DELAY AND THE ASSESSEE STATED IN HIS PETITION THAT THE DELAY OF 4 6 DAYS IN FILING THE APPEAL BEFORE THIS TRIBUNAL IS ON ACCOUNT OF MIXING UP OF THE ORDER OF LD.CIT(A) IN HIS OFFICE AND IT TOOK TIME TO LOCATE THE SAME AND AS SOON AS HE TRACED THE RECORDS, HE FILED THE APPEAL ON 19 .07.2016. I HAVE HEARD THE LD. REPRESENTATIVE AND THE LD. DR. I FIN D THAT THERE WAS SUFFICIENT CAUSE FOR NOT FILING THE APPEAL WITHIN T HE STIPULATED TIME. THEREFORE, I CONDONE THE DELAY AND ADMIT THE APPEAL . 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE IS A PARTNERSHIP FIRM WITH TWO PARTNERS VIZ. SMT.A.MUTHU LAKSHMI AND DR. HARISH SOMASUNDRAM INCORPORATED VIDE PARTNERSHIP DE ED DATED14.12.1982 FOR THE PURPOSE OF ESTABLISHING AND RUNNING A HOSPITAL OR CLINIC PROVIDING COMPREHENSIVE HEALTH C ARE CENTRE. FOR ITA NO.2173 /MDS/2016 4 THE A.Y. 2007-08, THE ASSESSEE HAD FURNISHED A RETU RN OF INCOME ON 27.07.2007 ADMITTING A TOTAL INCOME OF ` 1,20,060/- UNDER THE HEAD INCOME FROM BUSINESS. FOR ASSESSMENT YEAR 2007-08, THE ASSESSEE HAS OFFERED INCOME EARNED BY LETTING UT OF PROPERTY SITUATED AT 179/200, R.K.MUTT ROAD, CHENNAI-28 TO DR.B.S.AYYAPP AN, PROPRIETOR OF M/S.BSS HOSPITAL, WHO IS HUSBAND OF SMT. A.MUTHU SAKSHMI AND FATHER OF DR.HARISH SOMASUNDARAM. THE ASSESSEE FI RM HAS TAKEN THIS PROPERTY ON LEASE FROM ONE OF ITS PARTNERS, DR .HARISH SOMASUNDARAM, WHO IS THE OWNER OF THE PROPERTY. 4.1 DURING THE ASSESSMENT PROCEEDINGS, THE AO FOUND THAT A SINGLE PROPERTY IS BEING LEASED OUT AND SUB-LEASED WITHIN THE FAMILY MEMBERS CLAIMING EXPENSES OF SIMILAR NATURE IN THEI R INDIVIDUAL HANDS IN RESPECT OF THE LEASED OUT PROPERTY SO AS TO AVOI D PAYMENT OF TAX. FURTHER, THE LD. ASSESSING OFFICER WAS OF THE OPINI ON THAT THE ASSESSEE HAS BEEN IN THE PRACTICE OF ADMITTING THE RENTAL INCOME AS BUSINESS CONSIDERATION AND DEDUCT EXPENSES UNDER VA RIOUS HEAD AT AROUND 90% OF THE INCOME, WHICH RESULTED IN REFUND OF TAX DEDUCTED AT SOURCE. THE LD. ASSESSING OFFICER POINTED OUT TH AT THERE WAS NO NAME BOARD BY THE NAME M/S.SABARI ENTERPRISES AT NO .22/45, BISHOP ITA NO.2173 /MDS/2016 5 GARDEN, GREENWAYS ROAD, MANDAVELI, CHENNAI-28 WHICH IS THE RESIDENCE OF DR.AYYAPPAN WHOSE FAMILY MEMBERS ARE T HE PARTNERS IN THE FIRM. FURTHER, IT WAS NOTICED BY LD. ASSESSING OFFICER THAT THE BILLS/VOUCHERS OF TELEPHONE EXPENSES AND EB CHARGES CLAIMED BY THE FIRM WERE IN THE NAME OF DR.AYYAPPAN. THEREFORE, T HE LD. ASSESSING OFFICER PASSED THE ASSESSMENT ORDER U/S.143(3) OF THE ACT ON 30.12.2009, TREATING THE INCOME RECEIVED BY THE ASS ESSEE AS INCOME FROM HOUSE PROPERTY INSTEAD OF INCOME FRO M BUSINESS, THEREBY DISALLOWING SEVERAL ITEMS OF EXPENDITURE. T HE AO RESTRICTED THE DEDUCTION OF EXPENDITURE TO 30% STATUTORY DEDUC TION ( ` 3,27,1761- ) U/S. 24 OF THE INCOME TAX ACT AND CORPORATION TAX ES PAID ( ` 49,412/-) AND COMPLETED THE ASSESSMENT DETERMINING THE TOTAL INCOME AT ` 7,63,412/-. AGGRIEVED BY THE ORDER OF LD. ASSESSIN G OFFICER, THE ASSESSEE CARRIED THE APPEAL BEFORE THE LD.CIT(A). 4.2 ON APPEAL, THE LD.CIT(A) OBSERVED THAT APART F ROM THE MAJOR CONSIDERATION OF MINIMIZING TAX INCIDENCE, NO OTHER CONCRETE PURPOSE SEEMS TO HAVE BEEN SERVED BY BRINGING INTO EXISTENC E, THE PARTNERSHIP I.E. M/S.SABARI ENTERPRISES. THE ONLY A CTIVITYOF SUBSTANCE IS THE RUNNING OF THE BSS HOSPITAL, WHICH IS BEING HANDLED BY ITA NO.2173 /MDS/2016 6 DR.B.S.AYYAPPAN, THE ONLY PROFESSIONAL AMONG ALL TH ESE ENTITIES. ACCORDING TO LD.CIT(A), THE ASSESSEE FIRM IS A NOT A CHARITABLE ENTITY TO OFFER ITS SERVICES FREE OF COST. HENCE, THE LD. CIT(A) OBSERVED THAT INCOME OF ASSESSEE IS CORRECTLY ASSESSED UNDER THE HEAD :INCOME FROM HOUSE PROPERTY, NOT UNDER THE HEAD INCOME FR OM BUSINESS BY THE LD. ASSESSING OFFICER AS THE ONLY INCOME RECEIV ED BY THE FIRM IS THE RENTAL INCOME PAID BY DR.B.S.AYYAPPAN. AGAINST THE ORDER OF LD.CIT(A), NOW THE ASSESSEE IS IN APPEAL BEFORE US. 5. BEFORE US, THE LD.A.R SUBMITTED THAT THE FIRM HA D TAKEN ON LEASE A PIECE OF LAND OWNED BY DR. HARISH SOMASUNDARAM, W HO IS ONE OF THE PARTNERS OF THE FIRM, AND CONSTRUCTED A BUILDIN G THEREON AFTER AVAILING A LOAN FROM THE INDIAN BANK. IN THE YEAR 1 985, THE BUILDING WAS LEASED OUT TO DR. AYYAPPAN, PROPRIETOR OF BSS H OSPITAL, FOR BEING USED BY HIM AS A HOSPITAL. AS PER A MEMORANDUM OF U NDERSTANDING BETWEEN DR. AYYAPPAN AND THE APPELLANT FIRM, THE FI RM WAS TO TAKE CHARGE OF THE MAINTENANCE OF THE HOSPITAL, INCLUDIN G RECRUITMENT AND PROVISION OF STAFF AND PAYMENT OF SALARY TO THEM. T HE APPELLANT WAS PAID BY DR. AYYAPPAN, A CONSOLIDATED AMOUNT TITLED AS BUSINESS ITA NO.2173 /MDS/2016 7 CONSIDERATION TOWARDS THE RENT FOR THE BUILDING AN D TOWARDS PROVISION OF OTHER SERVICES. THE APPELLANT HAS BEEN FILING RE GULAR RETURNS, SUPPORTED BY PROFIT AND LOSS, BALANCE SHEET AND VAR IOUS CONNECTED SCHEDULES. THE NET INCOME FROM THE ABOVE ACTIVITIES WAS ADMITTED AS APPELLANTS INCOME UNDER THE HEAD BUSINESS IN THE R ETURNS FILED YEAR AFTER YEAR AND THE SAID RETURNS HAD BEEN ACCEPTED I N THE PAST. 5.1 FURTHER, LD.A.R SUBMITTED THAT THE ASSESSEE C LAIMED VARIOUS EXPENSES SUCH AS SALARIES & BONUS PAID, REPAIRS & M AINTENANCE- OTHERS, LEASE RENT PAID, INTEREST PAID, ETC. CLAIME D TO BE INCURRED TOWARDS PROVISION OF THE SERVICE TO BSS HOSPITAL AN D ALSO THE INTEREST PAID ON THE BANK LOAN TOTALING ` 10,19,940/-. IT WAS SUBMITTED THAT THERE WAS A TOTAL NON-APPRECIATION OF THE FACTS OF THE CASE BY THE ASSESSING OFFICER. AT THE OUTSET, THE BUSINESS OF T HE ASSESSEE IS LEASING AND PROVISION OF SERVICES. THE BUILDING HAS BEEN SPECIALLY DESIGNED AND CONSTRUCTED TO SUIT THE CONVENIENCE OF A HOSPITAL. AS ALREADY SUBMITTED ABOVE, THE LAND ON WHICH THE BUIL DING WAS CONSTRUCTED BELONGED TO ONE OF THE PARTNERS, HARISH SOMASUNDRAM, THE BUILDING WAS CONSTRUCTED BY THE APPELLANT FROM FUNDS BORROWED BY IT FROM INDIAN BANK, AND THE BUILDING WAS LET OUT T O DR. AYYAPPAN, WHO ITA NO.2173 /MDS/2016 8 RUNS BSS HOSPITAL, ANOTHER ENTITY. LEGALLY THEREFOR E ALL THE THREE ARE INDEPENDENT TAXABLE ENTITIES WITH TOTALLY DISTINCT AND INDEPENDENT ACTIVITIES. WHILE LEASING OUT THE BUILDING TO DR. A YYAPPAN THERE WAS A CLEAR UNDERSTANDING THAT THE APPELLANT WOULD BE PAI D A CONSOLIDATED AMOUNT TOWARDS THE LEASE AND TOWARDS PROVISION OF O THER SERVICES. THE ASSESSING OFFICER IS IN ERROR IN HER UNDERSTAND ING THAT A SINGLE PROPERTY IS BEING LEASED OUT AND SUB-LEASED WITHIN THE FAMILY MEMBERS CLAIMING EXPENSES OF SIMILAR NATURE IN THEI R INDIVIDUAL HANDS. SHE FAILED TO NOTE THAT THE EXPENSES WHICH A RE CLAIMED IN THE P & L ACCOUNT OF THE APPELLANT ARE THE EXPENSES INC URRED BY THE APPELLANT, WHICH INTER ALIA INCLUDES LEASE RENT FOR THE LAND ON WHICH THE BUILDING WAS CONSTRUCTED, PAID TO HARISH SOMASU NDARAM, AND INTEREST PAID TO INDIAN BANK FOR THE LOAN AVAILED F OR CONSTRUCTION OF THE BUILDING. SHE ALSO WRONGLY PRESUMED THAT THE EXPENS ES CLAIMED BY THE ASSESSEE IN ITS P & L ACCOUNT ARE BEING CLAIME D ALSO BY OTHER PARTIES, WHICH IS NOTHING BUT A TRAVESTY OF TRUTH. 5.2 THE LD.A.R SUBMITTED A COPY OF ASSESSMENT ORD ER IN THE CASE OF DR. B.S. AYYAPPAN, PROP. , M/S B.S.S. HOSPITAL F OR AY 1987-88 WHICH SHOWS THAT WITH RESPECT TO THE CLAIM OF PAYME NT OF RS. ITA NO.2173 /MDS/2016 9 2,50,000/- UNDER THE HEAD BUSINESS CONSIDERATION, WHICH IS NOTHING BUT THE RENT PAID TO M/S SABARI ENTERPRISES, I.E. T HE ASSESSEE, THE ASSESSING OFFICER HAS HELD THAT THE PAYMENT OF RENT IS EXCESSIVE AND HAS DISALLOWED ` 70,000/- OUT OF THE SAID ` 2,50,000/-, U/S. 40A(2B). 5.3 A COPY OF THE ORDER OF THE DEPUTY COMMISSIONER (APPEALS) IN THE CASE OF DR.B.S, AYYAPPAN FOR AX. 1987-88 & 1988 -89 DT. 11.1.1990, HAS ALSO BEEN PRODUCED BEFORE ME BY LD.A .R. IT WAS SUBMITTED THAT THE DISALLOWANCE OF EXCESS RENT PAID UNDER THE HEAD BUSINESS CONSIDERATION MADE BY THE ITO BY INVOKIN G SECTION 40A(2)(B) OF THE ACT FOR THE BOTH THE YEARS IN QUES TION, HAS BEEN DELETED, HOLDING THAT NO SPECIFIC MATERIAL HAS BEEN BROUGHT ON RECORD BY THE ITO, SUCH AS NORMAL RENT PAYABLE FOR SIMILAR TYPES OF BUILDINGS IN THAT AREA AND ALSO REGARDING THE VALUATION OF TH E BUILDING, TO SUPPORT THE ITOS ESTIMATE OF THE RENT OF ` 2/- PER SQ.FT. IN RESPECT OF THIS BUILDING I.E. THE HOSPITAL BUILDING. HENCE, T HE LD.A.R PLEADED THAT THE RECEIPTS SHOWN UNDER THE HEAD BUSINESS CONSIDERATION RECEIVED WAS NOT EXCLUSIVELY THE RENT FOR THE BUILDING, BUT INCL UDED CHARGES FOR SEVERAL OTHER SERVICES WHICH THE ASSESSEE WAS PROV IDING TO THE BSS HOSPITAL. ITA NO.2173 /MDS/2016 10 6. ON THE OTHER HAND, LD.D.R SUBMITTED THAT DR. B .S. AYYAPPAN HAS BEEN CLAIMING THE PAYMENT MADE TOWARDS RENT FOR THE HOSPITAL PREMISES, UNDER THE HEAD BUSINESS CONSIDERATION. SIMILARLY, THE APPELLANT, M/S SABARI ENTERPRISES ALSO OFFERED THE INCOME, WHICH IS NOTHING BUT RENTAL INCOME, UNDER THE HEAD INCOME FR OM BUSINESS, TERMING IT AS BUSINESS CONSIDERATION RECEIVED AND HAS CLAIMED DEDUCTION/SET OFF OF NUMEROUS ITEMS OF EXPENDITURE TOTALING TO ` 10,19,940/-. LD.D.R SUBMITTED THAT AS SEEN FROM TH E COPY OF THE PARTNERSHIP DEED DT. 14.12.1982, CONSTITUTING THE F IRM SABARI ENTERPRISES., IT IS SEEN THAT ORIGINALLY, THE FOLLO WING FOUR PERSONS WERE THE PARTNERS: I. SHRI B.S. SOMASUNDARAM, FATHER OF DR. B.S. AYYAP PAN II. SMT. THANGAMMAL, W/O SHRI B.S. SOMASUNDARAM III. MRS. MIRLANI MUTHULAKSHMI, W/O SHRI B.S. AYYAP PAN IV. MINOR HARISH SOMASUNDRAM, SB SHRI B.S. AYYAPPAN , THEN AGED ABOUT 8 YEARS, REPRESENTED BY HIS MOTHER AS NATURAL GUARD IAN. 6.1. AS PER CLAUSE 5 OF THE PARTNERSHIP DEED, THE M AIN BUSINESS OF THE PARTNERSHIP SHALL BE TO ESTABLISH AND RUN A HOS PITAL OR CLINIC PROVIDING COMPREHENSIVE HEALTH CARE IN VARIOUS BRAN CHES OF MEDICINE, INCLUDING MEDICAL RESEARCH, DEALING WITH ALL KINDS OF ITA NO.2173 /MDS/2016 11 MEDICINES, DRUGS, EQUIPMENTS OR OTHER ITEMS OF BUSI NESS, AS THE PARTNERS MUTUALLY AGREED UPON. 6.2 AS PER CLAUSE 6, THE CAPITAL OF THE FIRM SHAL L BE EQUALLY CONTRIBUTED BY ALL THE FOUR PARTNERS OF ` 2500/- EACH. AS PER CLAUSE 7, THE NET PROFIT OF THE BUSINESS SHALL BE DIVIDED BET WEEN THE PARTIES EQUALLY AND LOSS OF THE BUSINESS SHALL BE DIVIDED B ETWEEN THE FIRST, SECOND AND THIRD PARTIES ONLY, SINCE THE FOURTH PAR TY (MINOR HARISH SOMASUNDARAM) IS MINOR, AND THEREFORE HE IS NOT LIA BLE FOR THE LOSSES. 6.3 THE NEXT FEW CLAUSES VEST ALL THE POWERS SUCH AS OPERATING BANK ACCOUNTS, INSPECTING BOOKS OF ACCOUNTS, REPRES ENTING BEFORE AUTHORITIES, ETC. IN THE FIRST PARTY VIZ. SHRI B.S. SOMASUNDRAM, FATHER OF DR.B.S. AYYAPPAN. HENCE, THE LD.DR SUBMITTED THA T AS SEEN ON THE DATE OF FORMATION OF PARTNERSHIP DEED, ONE OF T HE PRESENT FULL- FLEDGED PARTNERS, VIZ. HARISH A. SOMASUNDARAM WAS O NLY ABOUT EIGHT YEARS OLD AND HENCE WAS HARDLY IN A POSITION TO TAK E ANY CONSCIOUS DECISION REGARDING SETTING UP OF THE FIRM, ITS OBJE CTS ETC. BEING A MINOR, HE WAS ALSO NOT IN A POSITION OF CONTRIBUTIN G THE CAPITAL OF ` ITA NO.2173 /MDS/2016 12 2500/-. APPARENTLY ALL DECISIONS ON HIS BEHALF WERE TAKEN BY HIS MOTHER SMT. MRINALINI MUTHULAKSHMI. 6.4 THE LD.D.R SUBMITTED THAT THE FIRM LATER WENT ON TO TAKE ON LEASE, A PIECE OF LAND OWNED BY DR.HARISH SOMASUNDA RAM AND CONSTRUCTED THE BSS HOSPITAL, AFTER AVAILING LOAN F ROM INDIAN BANK. AS MENTIONED EARLIER, DR. AYYAPPAN HAS CLAIMED THE REN T PAID TO THE APPELLANT, M/S SABARI ENTERPRISES, UNDER THE HEAD BUSINESS CONSIDERATION. IT IS THEREFORE OBVIOUS THAT AS AGA INST THE INCOME FROM THE HOSPITAL, WHICH MUST HAVE BEEN REFLECTED IN THE CREDIT SIDE OF THE P & L ACCOUNT AS BUSINESS INCOME, DR. AYYAPPAN MU ST HAVE CLAIMED VARIOUS EXPENSES RELATING TO RUNNING OF THE HOSPITAL, SUCH AS SALARIES, STAFF WELFARE EXPENSES, REPAIRS & MAINTEN ANCE, ELECTRICITY CHARGES, DEPRECIATION ETC. IN SUCH A SCENARIO, IT I S NOT AT ALL CLEAR, AS TO HOW THE FIRM M/S SABARI ENTERPRISES, COULD ALSO CLAIM VARIOUS ITEMS OF EXPENSES TOTALING ` 10,19,940/-, CLAIMED TO BE INCURRED MAINLY TOWARDS PROVISION OF SERVICES TO BSS HOSPITAL, AND SET OFF THE SAME AGAINST THE RENTAL INCOME, WHICH IT HAS TERMED AS BUSINESS CONSIDERATION RECEIVED. ITA NO.2173 /MDS/2016 13 6.5 ACCORDING TO LD.D.R, THIS BRINGS US TO THE QU ESTION OF THE INTENTION BEHIND FORMING THE PARTNERSHIP FIRM I.E. THE APPELLANT M/S SABARI ENTERPRISES IN 1982, IN THE FIRST PLACE. IT IS NOT DIFFICULT TO COMPREHEND THAT ONE OF THE MAIN CONSIDERATIONS WHIL E FORMING THE FIRM, MUST HAVE BEEN, TO PLAN THE AFFAIRS IN SUCH A WAY AS TO MINIMIZE THE TAX INCIDENCE IN THE HANDS OF THE VARIOUS PARTI ES VIZ, THE FIRM M/S SABARI ENTERPRISES, BSS HOSPITAL HEADED BY DR. B.S. AYYAPPAN, WHO IS NONE OTHER THAN THE HUSBAND/FATHER OF SMT. A. MU THULAKSHMI/DR. HARISH SOMASUNDRAM, THE TWO PARTNERS OF THE APPELLA NT- FIRM RESPECTIVELY, AS WELL AS TO MINIMIZE THE TAX INCIDE NCE IN THE INDIVIDUAL HANDS OF THE TWO PARTNERS. IN FACT, APART FROM THIS MAJOR CONSIDERATION OF MINIMIZING TAX INCIDENCE, NO OTHER CONCRETE PURP OSE SEEMS TO HAVE BEEN SERVED BY BRINGING INTO EXISTENCE, THE PA RTNERSHIP I.E. MIS SABARI ENTERPRISES. THE ONLY ACTIVITY OF SUBSTANCE IS THE RUNNING OF THE BSS HOSPITAL, WHICH IS BEING HANDLED BY DR. B.S . AYYAPPAN, THE ONLY PROFESSIONAL AMONG ALL THESE ENTITIES. 6.6 FURTHER, LD.D.R SUBMITTED THAT THE ASSESSEE-FI RM M/S SABARI ENTERPRISES HAS NOT OFFERED ANY INCOME WHATSOEVER, FROM THE RENDERING OF VARIOUS SERVICES SUCH AS RECRUITMENT O F STAFF ETC. FOR BSS ITA NO.2173 /MDS/2016 14 HOSPITAL. THE LD.D.R SUBMITTED THAT THAT THE ASSE SSEE IS NOT A CHARITABLE ENTITY TO OFFER ITS SERVICES FREE OF COS T. IN FACT, AS MENTIONED EARLIER, THE ONLY INCOME RECEIVED BY THE FIRM IS TH E RENTAL INCOME PAID BY DR. B.S. AYYAPPAN. 6.7 AS AGAINST THE RENTAL INCOME, BY SETTING OFF N UMEROUS EXPENSES, THE FIRM HAS SUCCESSFULLY BROUGHT DOWN IT S TAXABLE/TOTAL INCOME FROM ` 11,40,000/- TO ` 1,20,060/-. LD.D.R PLACED RELIANCE IN THE JUDGEMENT OF THE SUPREME COURT IN THE CASE OF M C DOWELL & CO., LTD VS., CTO, 154 ITR 148 (SC),WHEREIN HELD THAT SO FAR AS THE CONTENTION THAT IT IS OPEN TO EVERY ONE TO SO ARRAN GE HIS AFFAIRS TO REDUCE THE BRUNT OF TAXATION TO THE MINIMUM WAS CON CERNED, THE TAX PLANNING MAY BE LEGITIMATE PROVIDED IT IS WITHIN TH E FRAMEWORK OF LAWN COLOURABLE DEVICES CANNOT BE PART OF TAX PLANNING A ND IT IS WRONG TO ENCOURAGE OR ENTERTAIN THE BELIEF THAT IT IS TO AVO ID THE PAYMENT OF TAX BY RESORTING TO DUBIOUS METHODS. IT IS THE OBLIGATI ON OF EVERY CITIZEN TO PAY THE TAX HONESTLY WITHOUT RESORTED TO SUBTERFUGE S 6.8 FINALLY, THE LD.D.R SUBMITTED THAT THE ASSESSI NG OFFICER HAS RIGHTLY DISALLOWED THE EXPENSES UNDER VARIOUS HEADS CLAIMED BY THE ASSESSEE , REJECTING THE CLAIM THAT THE INCOME FROM RENT IS TAXABLE AS ITA NO.2173 /MDS/2016 15 BUSINESS INCOME, AND BRINGING TO TAX THE SAME UNDER THE HEAD INCOME FROM HOUSE PROPERTY AND RELIED ON THE ORDER OF LD.CIT(A). 7. I HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL ON RECORD. IN THE PRESENT CASE, THE ASSESSEE HAS BE EN ASSESSED TO TAX FROM THE ASSESSMENT YEAR 1987-88 AND IT IS ALSO BRO UGHT ON RECORD BY THE ASSESSEE THAT IN THE ASSESSMENT YEAR 1987-88, T HE INCOME OF ASSESSEE FROM THE SAME PROPERTY HAS BEEN ASSESSED B Y THE DEPARTMENT UNDER THE HEAD INCOME FROM BUSINESS AND THERE WAS NO SCRUTINY OF THE RETURN AND THERE IS NO CHANGE IN TH E HEAD OF INCOME. IT IS AN ADMITTED FACT THAT THE ASSESSEE HAS TAKEN ON LEASE A PIECE OF LAND OWNED BY DR.HARISH SOMASUNDARAM, WHO IS ONE OF THE PARTNERS OF THE FIRM AND CONSTRUCTED A BUILDING THEREON AFTE R AVAILING A LOAN FROM THE INDIAN BANK. THE BUILDING WAS CONSTRUCTED FOR THE PURPOSE OF RUNNING THE HOSPITAL WHERE THE ASSESSEE PROVIDED FACILITIES AS REQUIRED FOR THE PURPOSE OF RUNNING HOSPITAL AND LE ASED TO ONE DR.AYYAPPAN, PROPRIETOR OF BSS HOSPITAL. THERE WAS A MEMORANDUM OF UNDERSTANDING BETWEEN DR.AYYAPPAN AND THE ASSESS EE FIRM HAS NOT ONLY JUST LETTING OUT THE PROPERTY, BUT ALSO UN DERTAKEN THE ITA NO.2173 /MDS/2016 16 MAINTENANCE OF THE HOSPITALS, WHICH IS SEEN FROM TH E VARIOUS EXPENDITURE CLAIMED BY ASSESSEE IN ITS P&L A/C PLAC ED AT PAGE 60 OF THE PAPER BOOK. THE ASSESSEE HAS INCURRED EXPENDIT URE LIKE STAFF WELFARE, REPAIRS & MAINTENANCE, TELEPHONE CHARGES, LEASE RENT PAID, INTEREST PAID, LICENSES, RATES AND TAXES AND CONVEY ANCE ALLOWANCE TO STAFF, ETC. IN OTHER WORDS, THE ASSESSEE EXPLOITED THE BUILDING AS A BUSINESS ASSET AND EARNED INCOME FROM IT. THIS HA S BEEN FOLLOWED BY THE ASSESSEE FROM ASSESSMENT YEAR 1987-88 AND T HE DEPARTMENT HAS ALSO ACCEPTED THE SAME IN SUBSEQUENT ASSESSMENT YEARS 2008- 09, 2009-10 & 2010-11. THERE WAS NO CHANGE OF HEAD OF INCOME BY THE DEPARTMENT. IN MY OPINION, AS SEEN FROM THE F ACTS OF THE CASE, IF THERE IS LETTING OUT PROPERTIES AND EARNING INCOME WAS MAIN OBJECT OF THE ASSESSEE, THE INCOME DERIVED FROM SUCH PROPERTY IS TO BE TREATED AS BUSINESS INCOME. THIS VIEW OF THE BENCH IS FORT IFIED BY THE JUDGEMNET OF SUPREME COURT IN THE CASE OF CHENNAI PROPERTIES & INVESTMENTS LTD. VS. CIT REPORTED IN 373 ITR 673 WH EREIN HELD THAT:- 10. NO DOUBT IN SULTAN BROTHERS (P.) LTD.'S CASE, A CONSTITUTION BENCH JUDGMENT OF THIS COURT HAS CLARIFIED THAT MERELY AN ENTRY IN THE OBJECTS CLAUSE SHOWING A PARTICULAR OBJECT WOULD NOT BE THE DETERMINATIVE FACTOR TO ARRIVE AT AN CONCLUSION WHETHER THE INCOME IS TO BE TREATED AS INCOME FROM BUSINESS AND SUCH A QUESTION WOULD DEPEND UPON THE CIRCUMSTANCES ITA NO.2173 /MDS/2016 17 OF EACH CASE, VIZ., WHETHER A PARTICULAR BUSINESS I S LETTING OR NOT. THIS IS SO STATED IN THE FOLLOWING WORDS : 'WE THINK EACH CASE HAS TO BE LOOKED AT FROM A BUSI NESSMAN'S POINT OF VIEW TO FIND OUT WHETHER THE LETTING WAS THE DOI NG OF A BUSI NESS OR THE EXPLOITATION OF HIS PROPERTY BY AN OWNER. WE DO NOT FUR THER THINK THAT A THING CAN BY ITS VERY NATURE BE A COMMERCIAL ASSET. A COMMERCIAL ASSET IS ONLY AN ASSET USED IN A BUSINES S AND NOTHING ELSE, AND BUSINESS MAY BE CARRIED ON WITH PRACTICAL LY ALL THINGS. THEREFORE, IT IS NOT POSSIBLE TO SAY THAT A PARTICU LAR ACTIVITY IS BUSINESS BECAUSE IT IS CONCERNED WITH AN ASSET WITH WHICH TR ADE IS COMMONLY CARRIED ON. WE FIND NOTHING IN THE CASES REFERRED T O SUPPORT THE PROPOSITION THAT CERTAIN ASSETS ARE COMMERCIAL ASSE TS IN THEIR VERY NATURE.' 11. IN THIS CASE, LETTING OF THE PROPERTIES IS IN FACT IS THE BUSINESS OF THE ASSESSEE. THE ASSESSEE, THEREFORE, RIGHTLY DISCLOSE D THE INCOME UNDER THE HEAD 'INCOME FROM BUSINESS'. IT CANNOT BE TREATED A S 'INCOME FROM THE HOUSE PROPERTY' 7.1 FURTHER, THE JURISDICTIONAL HIGH COURT IN THE CASE OF M/S.ELNET TECHNOLOGIES LTD., REPORTED IN 89 DTR 442 WHEREIN H ELD THAT WHEN AN ASSESSEE COMPANY TAKES A LOAN WITH AN OBJECT OF CONSTRUCTING IT COMPANY WITH ALL INFRASTRUCTURE FACILITIES AS PER I TS MEMORANDUM OF ASSOCIATION, INCOME FROM THESE RENTALS WOULD BE ASS ESSABLE AS BUSINESS INCOME IN THE HANDS OF THE ASSESSEE. FURTH ER, THE DEPARTMENT HAS ACCEPTED THE INCOME UNDER THE HEAD INCOME FROM BUSINESS: SINCE THE ASSESSMENT YEAR 1987-88, THE DE PARTMENT HAS ITA NO.2173 /MDS/2016 18 PRECLUDED FROM CHANGE OF HEAD AFTER FOLLOWING THE SAME PRINCIPLE IN 20 YEARS. THERE SHOULD BE A CONSISTENCY IN THE INC OME TAX PROCEEDINGS FROM YEAR TO YEAR AS HELD BY THE JURI SDICTIONAL HIGH COURT IN THE CASE OF CIT VS. L. G. RAMAMURTHI REPOR TED IN [1977] 110 ITR 453 (MAD), WHICH WAS SUBSEQUENTLY FOLLOWED IN T HE CASE OF LAKSHMI VILAS BANK LTD. VS. CIT IN [2006] 284 ITR 9 3 (MAD). BEING SO, I AM OF THE OPINION THAT INCOME DECLARED BY THE ASSESSEE TO BE CONSIDERED AS INCOME FROM BUSINESS ONLY, NOT FROM I NCOME FROM HOUSE PROPERTY. 8. IN THE RESULT, THE APPEAL OF ASSESSEE IS ALLOWE D. ORDER PRONOUNCED ON 05 TH DECEMBER, 2017. SD/- ( ) ( CHANDRA POOJARI ) /ACCOUNTANT MEMBER CHENNAI, DATED THE 05 TH DECEMBER, 2017. K S SUNDARAM. ()!*+,+%! / COPY TO: 1 . / APPELLANT 3. -!./ / CIT(A) 5. +0 1)!)23 / DR 2. / RESPONDENT 4. -! / CIT 6. 1 456 / GF