MEGA VENTURE DEVELOPERS P.LTD, MUMBAI V. DCIT 5(2), MUMBAI

ITA 2381/MUM/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8502 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: J
• Assessment Year: 2011-2012
• Appeal Filed On: 27-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T A KHAN
• Keywords: Business income; Depreciation; Rule of consistency
• Section: 143(3); 142(1)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL J BENCH, MUMBAI BEFORE SHRI MAHAVIR SINGH , JM AND SHRI RAJESH KUMAR, AM ./ I.T.A. 2381 / MUM/201 5 ( / ASSESSMENT YEAR: 20 11 - 12 ) M/S MEGA VENTU RE DEVELOPERS PVT.LTD., 110,VASHANI CHAMBERS, 47, NEW MARINE LINES, MUMBAI - 400020 / VS. DY.COMMISSIONER OF INCOME TAX - 5(2), MUMBAI. ./ ./ PAN : AA ECM7883L ( / APP LICANT ) : ( / RESPONDENT ) / APP LICANT BY : SHRI PRAKASH JOTWANI /RESPONDENT BY : SHRI T A KHAN / DATE OF HEARING : 2 5 .1 . 2017 / DATE OF PRONOUNCEMENT : 31 .1.2017 / O R D E R PER RAJESH KUMAR, A. M: THIS IS AN APPEAL FILED BY THE ASSESSEE CHALLENGING THE ORDER DATED 19.2.2015 PASSED BY THE LD.CIT(A) - 10 , MUMBAI AGAINST CONFIRM ING THE ORDER OF AO TREAT ING INCOME FROM LEASING OF FURNITURE , FIXTURES , PLANT , MACHINERY AND OTHER S AMOUNTING TO RS.91,01,461/ - AS INCOM E FROM HOUSE PROPERTY INSTEAD OF BUSINESS INCOME AS DECLARED BY THE ASSESSEE AND THEREBY DISALLOWING DEPRECIATION ON THE SAME AMOUNTING TO RS.72,99,113/ - . 2 ITA NO. 2381 /MUM201 5 2. THE FACTS OF THE CASE ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME ON 30.9.2011 DECLARING TOT AL INCOME OF RS.94,86,773 / - . THEREAFTER THE CASE OF THE ASSESSEE WAS SELECTED UNDER CASS AND STATUTORY NOTICES UNDER SECTION 143(2) AND 142(1) WERE ISSUED AND SERVED UPON THE ASSESSEE. THE ASSESSEE WAS CARRYING ON THE BUSINESS OF REAL ESTATE INCLUDING THAT OF LEASING OUT ITS PROPERTIES BESIDES HAVING A CONSULTANCY DIVISION. THE ASSESSEE RECEIVED INCOME FROM HOUSE PROPERTIES TO THE TUNE OF RS.2,22,61,129/ - COMPRISING RENTAL FROM PREMISES, CAR PARKING AND RS. 91,01,461/ - AS INCOME BY WAY OF LEASE FROM AM ENITIES AND INFRASTRUCTURE PROVIDED IN THE PREMISES AND WERE ACCORDINGLY SHOWN AS INCOME FROM HOUSE PROPERTY AND FROM BUSINESS RESP EC TIVELY IN THE RETURN OF INCOME FILED IN CONSONANCE WITH EARLIER YEARS . THE AO VIDE O R DER SHEET ENTRY DATED 15.1.2014 ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE INCOME FROM AMENITIES AND INFRASTRUCTURE SHOULD NOT BE TAXED UNDER THE HEAD INCOME FROM HOUSE PROPERTY IN PLACE OF BUSINESS INCOME WHICH WAS REPLIED BY THE ASSESSEE VIDE LETTER DATED 20.1.2014. THE AO WAS NOT SATISFIED WITH THE EXPLANATION OF THE ASSESSEE AND TREATED THE INCOME FROM AMENITIES AND INFRASTRUCTURE AS INCOME FROM HOUSE PROPERTY BY NOTING THAT THE ASSESSEE MIGHT HAVE ENTERED INTO SEPARATE AGREEMENTS FOR SHOWING RECEIPT OF INCOME FROM PROPERTY AND AM ENITIES SEPARATELY BUT THAT DID NOT CHANGE THE CHARACTER OF THESE RECEIPTS. ACCORDINGLY TO T HE AO THERE WAS NO BUSINESS EXPLOITATION IN PROVIDING AMENITIES AND INFRASTRUCTURE AND CONSEQUENTLY DISALLOWED THE CLAIM OF DEPRECIATION BY FRAMING ASSESSMENT UNDER SECTION 3 ITA NO. 2381 /MUM201 5 143(3) OF THE ACT ASSESSING THE TOTAL INCOME AT RS.143,08,570/ - . IN ARRIVING AT THIS CONCLUSION THE ASSESSING OFFICER PLACED RELIANCE ON THE DECISION OF HONBLE APEX COURT IN THE CASE OF SHAMBHU INVESTMENT LTD V/S CIT REPORTED IN 273 ITR 143(SC). 3. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD.CIT(A), WHO AFTER CONSIDERING THE RELEVANT CONTENTIONS AND ON PERUSAL OF THE RECORD AVAILABLE BEFORE HIM UPHELD THE ACTION OF THE AO BY OBSERVING AND HOLDING AS UNDER (PARA 5.1): 5.1 I HAVE CAREFULLY CONSIDERED THE FACTS AND CIRCUMSTANCES OF THE CASE, STATEMENT OF FACTS, RELEVANT ASSESSMENT ORDER, WRITTEN SUBMISSION, RELIED UPON CASE LAWS AND THE ARGUMENTS MADE BY THE LAR BEFORE THE UNDERSIGNED. THE ONLY SUBST ANTIVE ISSUE IN THIS APPEAL IS REGARDING THE TREATMENT OF INCOME OF RENT FROM THE PROPERTY OF THE APPELLANT COMPANY. THE AO HAS TREATED THE SAME AS INCOME FROM HOUSE PROPERTY ON THE GROUND THA T DURING THE YEAR UNDER CONSIDERATION THE APPELLANT HAS EARNED I NCOME ONLY FROM LETTING OUT ITS PROPERTY TO OTHER PERSONS, THEREFORE, THE INCOME EARNED BY IT IS TAXABLE UNDER THE HEAD INCOME FROM HOUSE PROPERTY. ON THE OTHER HAND, IT I S THE CLAIM OF THE APPELLANT THAT THE INCOME FROM THE AMENITIES AN INFRASTRUCTURE ETC . SHOULD BE HELD AS BUSINESS INCOME. AFTER CONSIDERING T HE RIVAL SUBMISSION, I DO NOT AGREE WITH THE CONTENTION OF THE APPELLANT, PRIMAR ILY BECAUSE THE FACTS OF THE CASE UNDER CONSIDERATION SHOWS THAT THE INCO ME EARNED BY THE APPELLANT FROM THE PROPERTY DURING THE YEAR UNDER CONSIDERATION HAVE COME PRIMARILY FROM EXPLOITATION OF THE PROPERTY OF THE APPELLANT , WHICH CANNOT BE HELD AS BUSINESS INCOME OF THE APPELLANT, IN VIEW OF THE DECISIONS OF THE HONBLE APEX COURT IN THE CASE OF NATIONAL STORAGE 66 ITR 596 (SC) AS WELL AS IN THE CASE OF M/S SHAMBHU INVESTMENT PVT LTD 116 TAXMANN 795 (CAL), WHEREIN IT WAS HELD THAT WHEN THE PRIMARY OBJECT OF THE ASSESSEE IS EXPLOITATION OF THE PROPERTY BY LETTING IT OUT TO OTHERS, THEN INCOME EARNED WILL BE TAXABLE AS INCOME FROM HOUSE PROPERTY. INCOME FROM LETTING OUT OF THE PROPERTY CAN ONLY BE HELD AS BUSINESS INCOME IF THE IMMOVABLE PROPERTY IS EXPLOITED BY WAY OF COMPLEX COMMERCIAL ACTIVITIES. IF WE APPLY THE AFORESAID TEST LAID DOWN BY THE HORI'BLE SUPREME COU RT IN THE INSTANT CASE, IT IS NOTED 4 ITA NO. 2381 /MUM201 5 THAT DURING THE YEAR THE APPELLANT HAS SIMPLY LET OUT THE PROPERTY ALONGWITH SOME FURNITURE AND FIXTURES ETC. TO OTHER PARTIES WITHOUT INVOLVING HIMSELF IN ANY COMPLEX COMMERCIAL ACTIVITIES, THEREFORE, UNDER THESE CIRCUM STANCES, THE AO HAS CORRECTLY TAXED THE ENTIRE INCOME UNDER THE HEAD HOUSE PROPERTY. 4 . AGGRIEVED BY THE ORDER OF THE LD.CIT(A) THE ASSESSEE IS IN APPEAL BEFORE THIS TRIBUNAL. BEFORE US THE LD.AR SUBMITTED THAT THE LOWER AUTHORITIES HAVE MISERABLY FAIL ED TO APPRECIATE THE FACTS IN CORRECT PERSPECTIVE AS THE ASSESSEE WAS IN THE BUSINESS OF REAL ESTATE INCLUDING LETTING OUT PROPERT IES AND OTHER ITEMS OF FURNITURE AND PLANT & MACHINERY AND ACCORDINGLY ENTERED INTO SEPARATE AGREEMENT S FOR LETTING OUT OF PRE MISES AS WELL AS LETTING OUT OTHER AMENITIES AND INF RASTRUCTURES . THE INCOME FROM LETTING PROPERTIES WAS SHOWN AS INCOME FROM HOUSE PROPERTY WHEREAS THE INCOME FROM LETTING OUT AMENITIES AND INFRASTRUCTURES WAS SHOWN AS INCOME FROM BUSINESS AFTER CLAIMING THE DEDUCTION OF DEPRECIATION . THE LD. AR SUBMITTED BEFORE US THAT IN THE EARLIER YEARS THE INCOME HAS BEEN ACCEPTED BY THE DEPARTMENT AS RETURNED BY THE ASSESSEE IN VARIANCE TO THE STAND OF THE REVENUE IN THE CURRENT ASSESSMENT YEAR. DURING THE YEAR, THE LD.AR TOOK US THROUGH THE LIST OF AMENITIES AND FACILITIES WHICH INTERALIA INCLUDED CC TV CAMERAS WITH DVR AND RECORDING SYSTEMS , CABIN FURNITURE, WORKSTATION ( TABLES) CONFERENCE TABLE, EPBA BOX AND CONDITION SYSTEM . I N DEFEN S E OF HIS ARGUMENT S , THE LD.A R PLACED RELIANCE IN THE CASE OF CHENNAI PROPERTIES & INVESTMENTS LTD VS. CIT (SUPREME COURT) REPORTED IN [2015] 373 ITR 673 (SC) AND PRAYE D THAT THE ACTIONS OF THE LOWER AUTHORITIES SHOULD BE REVERSED AND THE AO SHOULD BE 5 ITA NO. 2381 /MUM201 5 DIRECTED TO TREAT THE INCOME FRO M AMENITIES AND INFRASTRUCTURES AS BUSINESS INCOME . 5 . ON THE OTHER HAND, THE LD. DR, WHILE OBJECTING THE ARGUMENTS OF THE LD.AR SUBMITTED THAT THE ASSESSEE IN ORDER TO CIRCUMVENT VARIOUS PROVISIONS OF LAW ENTERED INTO TWO SEPARATE AGREEMENTS IN ORDER TO SHOW THE INCOME UNDER DIFFERENT HEADS VIZ INCOME FROM HOUSE PROPERTY AND INCOME FROM FROM BUSINESS. THE DR SUBMITTED THAT THE AO RIGHTLY TREATED THE SAID INCOME AS INCOME FROM PROPERTY AND RIGHTLY CONFIRMED BY FAA. FINALLY HE REQUESTED THE BENCH TO UPHOLD THE ORDERS OF FAA. 6 . WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL PLACED BEFORE US INCLUDING THE ORDERS OF THE AUTHORITIES BELOW AND THE CASE LAW S RELIED UPON BY THE RIVAL PARTIES. WE FIND THAT THE ASSESSEE HAS ENTERED INT O TWO SEPARATE AGREEMENT S. O NE FOR RENTING OUT THE PREMISES AND ANOTHER FOR LEASING THE INFRASTRU CTU RE AND AMENITIES WHICH INCLUDE D THE AIR CONDITIONERS , PLANT AND MACHINERY AND FURNITURE ETC, THE INCOME FROM WHICH WAS SHOWN AS BUSINESS INCOME AFTER CLA IM ING DEPRECIATION ON THE SAID ITEMS AND EXPENSES CONNECTED THEREWITH. THE RELIANCE WAS PLACED BY THE AO IN THE CASE OF M/S SHAMBHU INVESTMENT PVT LTD (SUPRA) FOR SUPPORTING HIS TREATMENT BY REJECTING THE CONTENTION OF THE ASSESSEE AND TREATED THE SAME A S INCOME FROM HOUSE PROPERTY WHICH WAS ALSO UPHELD BY THE FAA WHEREAS THE LD.AR VEHEMENTLY SUBMITTED THAT THE INCOME HAS BEEN ASSESSED UNDER SEPARATE HEADS IN THE EARLIER YEARS ALSO 6 ITA NO. 2381 /MUM201 5 AND THE STAND OF THE DEPARTMENT IS AGAINST THE PRINCIPLE OF CONSISTENCY . IN OUR OPINION, THE ORDER OF THE LD. CIT(A) IN UPHOLDING THE ASSESSMENT ORDER APPEARS TO BE INCORRECT AS THE ASSESSEES BUSINESS WAS TO LEASE OUT ITS PROPERTIES AND TO DEAL IN REAL ESTATES ASSETS .IN OUR OPINION, THE INCOME FROM IN FRASTRUCTURES WHICH INTE RALIA INCLUDED CC TV CAMERAS WITH DVR AND RECORDING SYSTEMS, CABIN FURNITURE, WORKSTATION (TABLES) CONFERENCE TABLE, EPBA BOX AND CONDITION SYSTEM SHOULD BE TREATED AS INCOME FROM BUSINESS AND NOT FROM PROPERTY. THE CASE OF THE ASSESSEE ALSO FINDS SUPPORT FROM THE DECISION IN T HE CASE OF CHENNAI PROPERTIES & INVESTMENTS LTD VS. CIT(SUPRA), WHEREIN THE HONBLE SUPREME COURT HAS HELD AS UNDER: 11. WE ARE CONSCIOUS OF THE AFORESAID DICTA LAID DOWN IN THE CONSTITUTION BENCH JUDGMENT. IT IS FOR THIS REASON, W E HAVE, AT THE BEGINNING OF THIS JUDGMENT, STATED THE CIRCUMSTANCES OF THE PRESENT CASE FROM WHICH WE ARRIVE AT IRRESISTIBLE CONCLUSION THAT IN THIS CASE, LETTING OF THE PROPERTIES IS IN FACT IS THE BUSINESS OF THE ASSESSEE. THE ASSESSEE THEREFORE, RIGHTLY DISCLOSED THE INCOME UNDER THE HEAD INCOME FROM BUSINESS. IT CANNOT BE TREATED AS 'INCOME FROM THE HOUSE PROPERTY '. WE, ACCORDINGLY, ALLOW THIS APPEAL AND SET ASIDE THE JUDGMENT OF THE HIGH COURT AND RESTORE THAT OF THE INCOME TAX APPELLATE TRIBUNAL. NO O RDERS AS TO COSTS. IN THE CASE OF SHAMBHU INVESTMENT (SUPRA), THE HONBLE SUPREME COURT HAS HELD THAT IF THERE IS NO EXPLOITATION OF PROPERTY BY LETTING IT OUT AND THEN IT IS TAXABLE UNDER THE HEAD INCOME FROM HOUSE PROPERTY. BUT IN THE PRESENT CASE TH E VARIOUS ITEMS OF AMENITIES AND INFRASTRUCTURES AS PRODUCED BY THE ASSESSEE WERE EXPLOITED. 7 . IN OUR OPINION, THE RATIO LAID DOWN IN THE CASE OF SHAMBHU INVESTMENT (SUPRA) IS NOT APPLICABLE TO THE CASE OF THE ASSESSEE AND IS 7 ITA NO. 2381 /MUM201 5 CLEARY DISTINGUISHABLE. WE, T HEREFORE, RESPECTFULLY FOLLOWING THE RATIO LAID DOWN IN THE CASE OF CHENNAI PROPERTIES & INVESTMENTS LTD (SUPRA) WHICH SQUARELY COVER THE INSTANT CASE . WE ARE, THEREFORE, INCLINED TO SET ASIDE THE ORDER OF THE LD CIT(A) AND DIRECT THE AO TO T R EAT THE IN COME FROM AMENITIES AND INFRASTRU CTU RE AS BUSINESS INCOME AND ALLOW THE CONSEQUENTIAL CLAIM S OF DEPRECIATION TO THE ASSESSEE . 8 . IN THE RESULT, THE APPEAL OF THE ASSESSEE STANDS ALLOWED AS INDICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 31 .1.2017 . SD SD ( MAHAVIR SINGH ) ( RAJESH KUMAR) / J UDICIAL MEMBER / A CCOUNTANT MEMBER MUMBAI ; DATED : 31. 1. 201 7 SRL,SR.PS / COPY OF THE ORDER FORWARDED TO : 1. / THE AP PELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F ILE / BY ORDER, TRUE COPY / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI