M/s. Savorit Ltd., CHENNAI V. DCIT, CHENNAI

ITA 2238/CHNY/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 73633 (ITAT-CHENNAI)
• Duration Of Justice: 1 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-01-2014
• Appeal Filed By: Assessee
• Bench Allotted: C
• Assessment Year: 2010-2011
• Appeal Filed On: 23-12-2013
• Court: TRIBUNAL
• Department Lawyers: T N BETGERI
• Assessee Lawyers: S SRIDHAR
• Keywords: Business income; Depreciation; Question of law

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI . . . , ! , ' # $ BEFORE DR. O.K. NARAYANAN, VICE PRESIDENT & SHRI VIKAS AWASTHY, JUDICIAL MEMBER ./ I.T.A. NO. 2238/MDS/2013 ( / ASSESSMENT YEAR : 2010-11) M/S. SAVORIT LTD., NEW NO.22, NORTH TERMINUS ROAD, TOLLGATE, CHENNAI 600 081. [PAN: AAACS 9903 R] ( !% /APPELLANT) VS THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-VI(1), CHENNAI ( &'!% /RESPONDENT) / APPELLANT BY : SHRI S. SRIDHAR, ADVOCATE / RESPONDENT BY : SHRI T.N.BETGERI, JCIT /DATE OF HEARING : 09-01-2014 / DATE OF PRONOUNCEMENT : 30-01-2014 #( / O R D E R PER VIKAS AWASTHY, JUDICIAL MEMBER: THE APPEAL HAS BEEN FILED BY THE ASSESSEE IMPUGNIN G THE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS)-VI , CHENNAI DATED 29-11-2013 RELEVANT TO THE ASSESSMENT YEAR (A Y) 2010-11. I.T.A. NO. 2238/MDS/2013 2 2. THE ASSESSEE-COMPANY FILED ITS RETURN OF INCOME FOR THE AY. 2010-11 ON 26-09-2010 DECLARING ITS TOTAL INCOME AS ` 81,26,374/-. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND NOTICE U/S. 143(2) OF THE INCOME TAX ACT, 1961 (HEREIN AFTER RE FERRED TO AS THE ACT) WAS ISSUED TO THE ASSESSEE ON 05-09-2011. IN THE RETURN OF INCOME FILED, THE ASSESSEE HAD DECLARED RENTAL INCO ME OF ` 82,46,688/-. THE ASSESSING OFFICER HELD THAT THE R ENTAL INCOME FROM THE LETTING OF GODOWNS IS TO BE ASSESSED AS B USINESS INCOME. ACCORDINGLY, THE ASSESSING OFFICER MADE A DDITION OF THE INCOME FROM RENTING OF GODOWNS AS BUSINESS INCOME AFTER ALLOWING CERTAIN EXPENSES. AGGRIEVED AGAINST THE ASSESSMENT ORDER DATED 31-01 -2013, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(APP EALS). IN APPEAL, THE CIT(APPEALS) UPHELD THE FINDINGS OF THE ASSESSING OFFICER AND DISMISSED THE APPEAL OF THE ASSESSEE. AGGRIEVED AGAINST THE ORDER OF THE CIT(APPEALS), TH E ASSESSEE HAS COME IN SECOND APPEAL BEFORE THE TRIBU NAL. I.T.A. NO. 2238/MDS/2013 3 3. SHRI S. SRIDHAR, ADVOCATE APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE WAS IN THE BUS INESS OF GRINDING WHEAT AND OTHER ALLIED PRODUCTS. THE GODO WNS WERE CONSTRUCTED WAY BACK IN THE YEAR 1975. HOWEVER, DU E TO FALL IN THE BUSINESS OF THE ASSESSEE, ONE OF THE MILLS WAS CLOS ED IN THE YEAR 2002 AND IN ANOTHER MILL, THE PRODUCTION WAS SUBSTA NTIALLY REDUCED. SINCE, THE GODOWNS WERE LYING VACANT AND THERE WAS NO SCOPE OF REVIVING THE BUSINESS, THE ASSESSEE DECIDED TO LEAS E-OUT THE GODOWNS, FOR WHICH A SEPARATE RENTAL DIVISION WAS E STABLISHED. THE LD.COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED T HAT, EARLIER THE RENTAL INCOME FROM LETTING OF GODOWNS WAS ASSESSED AS BUSINESS INCOME. HOWEVER, AFTER THE FORMATION OF RENTAL DI VISION IN THE ASSESSEE-COMPANY, THE INCOME FROM RENTING/LEASING O F GODOWNS IS ASSESSED UNDER THE HEAD INCOME FROM HOUSE PROPERTY . IN ORDER TO SUPPORT HIS SUBMISSIONS, THE LD.COUNSEL PLACED R ELIANCE ON THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT I N THE CASE OF CIT VS. CHENNAI PROPERTIES AND INVESTMENTS LTD. REPORTED AS 266 ITR 685 (MDS) . I.T.A. NO. 2238/MDS/2013 4 4. ON THE OTHER HAND, SHRI T.N.BETGERI, APPEARING O N BEHALF OF THE REVENUE VEHEMENTLY SUPPORTED THE ORDER OF THE C IT(APPEALS) AND PRAYED FOR DISMISSAL OF THE APPEAL OF THE ASSES SEE. 5. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESENTATIVES OF BOTH THE SIDES. WE HAVE ALSO PE RUSED THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE JUDG MENT RELIED ON BY THE LD. COUNSEL FOR THE ASSESSEE. THE CASE OF THE ASSESSEE IS, THAT THERE HAS BEEN SUBSTANTIAL DECLINE IN THE GRIN DING BUSINESS OF THE ASSESSEE. THE GODOWNS WHICH WERE EARLIER USED BY THE ASSESSEE FOR ITS BUSINESS PURPOSE ARE LYING VACANT. SINCE THERE IS NO INTENTION ON THE PART OF ASSESSEE TO REVIVE THE BUSINESS, THE ASSESSEE HAS FORMED A SEPARATE RENTAL DIVISION TO M ANAGE THE RENTING OF GODOWNS AND THE INCOME FROM RENTING/LEAS ING OF GODOWNS IS RETURNED AS INCOME FROM HOUSE PROPERTY . THE CIT(APPEALS) HAS DIS-ALLOWED THE CLAIM OF THE ASSES SEE ON THE GROUND THAT, THE ASSESSEE HAS BEEN RETURNING THE IN COME FROM LETTING OF GODOWN AS ITS BUSINESS INCOME FROM 197 5 TO 31-03-2008 AND THE SAME WAS ACCEPTED BY THE DEPARTM ENT. THE ASSESSEE HAS NOW CHANGED ITS STAND AND CLAIMED THE INCOME FROM LETTING OF GODOWNS AS INCOME FROM HOUSE PROPERTY MERELY TO I.T.A. NO. 2238/MDS/2013 5 CLAIM NOTIONAL DEDUCTION U/S.24(A) OF THE ACT. THE ASSESSEE HAS BEEN CLAIMING DEPRECIATION ON THE GODOWN BUILDINGS SINCE BEGINNING. NOW, THAT THE WRITTEN DOWN VALUE OF THE GODOWNS HAS EXHAUSTED, THE ASSESSEE SHIFTED THE HEAD OF INCOME TO CLAIM DOUBLE DEDUCTION. 6. IT IS AN ADMITTED FACT, THAT EARLIER THE ASSESSE E HAS BEEN CLAIMING DEPRECIATION ON THE GODOWNS AND HAS BEEN R ETURNING THE RENTAL INCOME FROM THE GODOWNS AS INCOME FROM BUSI NESS. IT IS ALSO NOT DISPUTED THAT THERE HAS BEEN RECESSION IN THE GRINDING BUSINESS OF THE ASSESSEE AND ONE OF THE MILLS WAS C LOSED DOWN WAY BACK IN THE YEAR 2002 AND ANOTHER MILL IS WORKI NG AT A REDUCED CAPACITY. THE ASSESSEE IS NOT USING THE GODOWNS FO R HIS BUSINESS PURPOSES ANY MORE. IT IS A WELL SETTLED LAW THAT I F THE PRIMARY OBJECT IS TO LEASE OR LET OUT PROPERTY, THE INCOME DERIVED FROM PROPERTY WOULD BE REGARDED AS INCOME FROM HOUSE PR OPERTY. ON THE OTHER HAND, IF THE INTENTION OF THE ASSESSEE IS TO EXPLOIT A COMMERCIAL ASSET BY CARRYING ON COMMERCIAL ACTIVITY , THE INCOME WOULD HAVE TO BE TREATED AS INCOME FROM BUSINESS. WHAT HAS TO BE SEEN IS WHETHER THE LETTING OUT OF THE PROPERTY CONSTITUTES A DOMINANT ASPECT OF THE TRANSACTION OR WHETHER IT IS SUBSERVIENT TO I.T.A. NO. 2238/MDS/2013 6 THE MAIN BUSINESS OF THE ASSESSEE. THE HONBLE SUP REME COURT OF INDIA IN THE CASE OF UNIVERSAL PLAST LTD., VS. CIT REPORTED AS 237 ITR 454 (SC) HAS LAID DOWN GENERAL PRINCIPLES TO DETERMINE WHETHER THE INCOME FROM LETTING OR LEASING OF THE P ROPERTY IS TO BE ASSESSED AS INCOME FROM HOUSE PROPERTY OR BUSINE SS INCOME. THE SAME ARE RE-PRODUCED HEREIN BELOW: (1) NO PRECISE TEST CAN BE LAID DOWN TO ASCERTAIN WHETHER INCOME (REFERRED TO BY WHATEVER NOMENCLATURE, LEASE , AMOUNT, RENTS, LICENCE FEE) RECEIVED BY AN ASSESSEE FROM LE ASING OR LETTING OUT OF ASSETS WOULD FALL UNDER THE HEAD 'PR OFITS AND GAINS OF BUSINESS OR PROFESSION'; (2) IT IS A MIXED QUESTION OF LAW AND FACT AND HAS TO BE DETERMINED FROM THE POINT OF VIEW OF A BUSINESSMAN IN THAT BUSINESS ON THE FACTS AND IN THE CIRCUMSTANCES OF E ACH CASE, INCLUDING TRUE INTERPRETATION OF THE AGREEMENT UNDE R WHICH THE ASSETS ARE LET OUT; (3) WHERE ALL THE ASSETS OF THE BUSINESS ARE LET OU T, THE PERIOD FOR WHICH THE ASSETS ARE LET OUT IS A RELEVANT FACT OR TO FIND OUT WHETHER THE INTENTION OF THE ASSESSEE IS TO GO OUT OF BUSINESS ALTOGETHER OR TO COME BACK AND RESTART THE SAME; (4) IF ONLY A FEW OF THE BUSINESS ASSETS ARE LET OU T TEMPORARILY, WHILE THE ASSESSEE IS CARRYING OUT HIS OTHER BUSINE SS ACTIVITIES, THEN IT IS A CASE OF EXPLOITING THE BUSINESS ASSETS OTHERWISE THAN EMPLOYING THEM FOR HIS OWN USE FOR MAKING PROF IT FOR THAT I.T.A. NO. 2238/MDS/2013 7 BUSINESS; BUT IF THE BUSINESS NEVER STARTED OR HAS STARTED BUT CEASED WITH NO INTENTION TO BE RESUMED, THE ASSETS ALSO WILL CEASE TO BE BUSINESS ASSETS AND THE TRANSACTION WIL L ONLY BE EXPLOITATION OF PROPERTY BY AN OWNER THEREOF, BUT N OT EXPLOITATION OF BUSINESS ASSETS. 7. THE HONBLE APEX COURT IN AN UN-AMBIGUOUS WORDS HAS EXPLAINED THAT IN CASE THE ASSESSEE IS USING ANY AS SET/PROPERTY FOR HIS BUSINESS PURPOSES AND THE BUSINESS CEASES WITH NO INTENTION TO RESUME, THE ASSET CEASES TO BE BUSINESS ASSET AN D THE INCOME ARISING THERE FROM SHALL NOT BE TREATED AS BUSINES S INCOME. 8. IN THE PRESENT CASE, INITIALLY THE ASSESSEE WAS USING GODOWNS FOR HIS BUSINESS PURPOSES. AFTER THE DOWNF ALL OF THE BUSINESS, THE ASSESSEE RENTED THE GODOWNS TO THIRD PARTIES. FINALLY, WHEN THE ASSESSEE HAD NO INTENTION TO REVI VE HIS BUSINESS, IT CREATED A RENTAL DIVISION FOR THE PURPOSE OF REN TING OF THE GODOWNS AND ASSESSED THE INCOME ARISING FROM THE LE TTING OF GODOWNS AS INCOME FROM HOUSE PROPERTY. ONCE THE ASSET CEASES TO BE A BUSINESS/COMMERCIAL ASSET, ANY INCOM E ARISING THERE FROM SHOULD NOT BE REGARDED AS BUSINESS INCO ME. I.T.A. NO. 2238/MDS/2013 8 9. IN VIEW OF OUR ABOVE OBSERVATIONS AND THE LAW LA ID DOWN BY THE HONBLE SUPREME COURT OF INDIA IN THE CASE OF UNIVERSAL PLAST LTD., VS. CIT (SUPRA), WE ARE OF THE CONSIDERED OPINION THAT THE ASSESSEE HAD RIGHTLY TREATED THE INCOME FROM RENTIN G/LEASING OF GODOWNS UNDER THE HEAD INCOME FROM HOUSE PROPERTY . WE ARE NOT IN CONSONANCE WITH THE FINDINGS OF THE CIT(APPE ALS). THE IMPUGNED ORDER IS SET ASIDE AND THE APPEAL OF THE A SSESSEE IS ALLOWED. ORDER PRONOUNCED ON THURSDAY, THE 30 TH JANUARY, 2014 AT CHENNAI. SD/- SD/- (DR. O.K. NARAYANAN) (VIK AS AWASTHY) VICE PRESIDENT JUDICIAL MEMBER DATED: 30 TH JANUARY, 2014 TNMM COPY TO: APPELLANT/RESPONDENT/CIT(A)/CIT/DR