SPRINGFIELD HOTELS P. LTD, MUMBAI V. ITO 9(3)(2), MUMBAI

ITA 252/MUM/2010

• Counselvise Citation: 25219914 RSA 2010
• Duration Of Justice: 2 year(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-01-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 21-12-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 11-01-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PARTHA SARATHI NAIK
• Assessee Lawyers: Y P TRIVEDI AW MRS USH A DALAL
• Keywords: Business income; Depreciation; Unabsorbed depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE SHRI B.R. MITTAL, JUDICIAL MEMBER AND SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER ITA NO. 252/MUM./2010 (ASSESSMENT YEAR : 2006-07 ) SPRINGFIED HOTELS P. LTD. NATASHA, 52, HILL ROAD BANDRA (W), MUMBAI 400 050 PAN AAACS8562L .. APPELLANT V/S INCOME TAX OFFICER WARD-9(3)(2), MUMBAI .... RESPONDENT ASSESSEE BY : MR. Y.P. TRIVEDI A/W MRS. USHA DALAL REVENUE BY : MR. PARTHASARATHI NAIK DATE OF HEARING 21.12.2011 DATE OF ORDER 13.01.2012 O R D E R PER J. SUDHAKAR REDDY, A.M. THIS APPEAL PREFERRED BY THE ASSESSEE, IS DIRECTED AGAINST THE IMPUGNED ORDER DATED 27 TH NOVEMBER 2009, PASSED BY THE COMMISSIONER (APPEALS)-XX, MUMBAI, FOR ASSESSMENT YEAR 2006-07. FACTS IN BRIEF :- 2. THE ASSESSEE-COMPANY IS INCORPORATED ON 14 TH DECEMBER 1989. IT OWNS A PROPERTY SITUATED IN SANTACRUZ, MUMBAI. THE PREMISES WAS LET OUT TO SPRINGFIED HOTELS P. LTD. ITA NO.252/MUM./2010 2 M/S. PATEL ON BOARD COURIERS LTD., ON ANNUAL RENT O F ` 48,00,000. THE ASSESSEE HAS ALSO SHOWN A SALE OF ` 1,33,270, AND CLAIMED THAT IT IS IN THE BUSINESS OF TRADING. IT HAS ALSO EARNED INTEREST OF ` 88,600 ON FD. THE ASSESSEE COMPANY DISCLOSED THE INCOME FROM RENT UND ER THE HEAD INCOME FROM BUSINESS . THE ASSESSING OFFICER ASSESSED THE SAME UNDER THE HEAD INCOME FROM HOUSE PROPERTY . HE REJECTED THE CONTENTIONS OF THE ASSESSEE THAT IT DISCLOSED THE SAID INCOME UNDER THE HEAD INCOME FROM BUSINESS SINCE THE DATE OF ITS INCEPTION AND THE REVENUE HAS NOT DISTURBED THE SAME. HE ALSO REJECTED THE OTHER CONTENTIONS THAT INCOME IN QUESTION IS TO BE ASSESSED UNDER THE HEAD BUSINESS INCOME . THE CLAIM OF THE ASSESSEE FOR DEPRECIATION ON THIS BUILDING WAS REJECTED. 3. BEFORE THE COMMISSIONER (APPEALS), THE ASSESSEE REI TERATED THE CONTENTIONS RAISED BEFORE THE ASSESSING OFFICER. IN ADDITION TO THIS, IT WAS ARGUED THAT UNABSORBED DEPRECIATION OF EARLIER YEAR S WOULD BECOME CURRENT DEPRECIATION AND IT WOULD BE ENTITLED TO SET-OFF AG AINST OTHER HEADS OF INCOME DURING THE YEAR. THE COMMISSIONER (APPEALS) REJECTE D THE CONTENTIONS MADE BY THE ASSESSEE BY OBSERVING AS FOLLOWS:- 5.2 I AM OF THE VIEW THAT THESE GROUNDS ARE CONSEQU ENTIAL IN NATURE. AS GROUNDS 1 & 2 HAVE BEEN DECIDED AGAINST THE APPE LLANT, THE APPELLANT CANNOT CLAIM THESE SETOFF, SECTION 70 REL IED UPON BY THE APPELLANT PRESCRIBES THAT WHERE THE NET RESULT FOR ANY ASSESSMENT YEAR IN RESPECT OF ANY SOURCE FALLING UNDER ANY HEAD OF INCOME, OTHER THAN *CAPITAL GAINS, IS A LOSS, THE ASSESSEE SHALL BE EN TITLED TO HAVE THE AMOUNT OF SUCH LOSS SET OFF AGAINST HIS INCOME FROM ANY OTHER SOURCE UNDER THE SAME HEAD. THE SECTION THUS ALLOWS SETOFF OF LOSS FROM ANY SOURCE UNDER A HEAD, SAY BUSINESS, AGAINST INCOME F ROM ANY OTHER SOURCE UNDER THE SAME HEAD AND NOT UNDER ANY OTHER HEAD. FURTHER, THE APPELLANT HAS NOT STATED ANYTHING ON THE NATURE OF DEPRECIATION CLAIMED DURING THE CURRENT YEAR NOR THAT OF THE UNA BSORBED DEPRECIATION OF EARLIER YEARS. IF SUCH DEPRECIATION IS IN RELATION TO THE LET OUT PREMISES, NO QUESTION ARISES TO ALLOW THEIR SET OFF AGAINST INCOME FROM HOUSE PROPERTY WHEN THE PREMISES ARE HE LD NOT USED FOR THE PURPOSE OF BUSINESS. IN SUM, BOTH THE GROUNDS A RE DISMISSED . AGGRIEVED, THE ASSESSEE IS IN FURTHER APPEAL BEFORE THE TRIBUNAL. 4. BEFORE US, SR. ADVOCATE, MR. Y.P. TRIVEDI, REPRESEN TING THE ASSESSEE, SUBMITTED THAT THE INCOME FROM HOUSE PROPERTY SHOUL D BE TREATED UNDER THE HEAD BUSINESS INCOME FOR THE REASON THAT NOBODY RESIDES IN THAT PROPERT Y SPRINGFIED HOTELS P. LTD. ITA NO.252/MUM./2010 3 IN QUESTION AND THE SAME IS USED ONLY FOR COMMERCIA L ACTIVITIES. HIS CASE IS THAT IF COMMERCIAL ACTIVITY IS CARRIED ON IN A PROP ERTY, THE INCOME EARNED BY THE OWNER OF THE PROPERTY BY WAY OF LEASE RENT IS T O BE ASSESSED UNDER THE HEAD INCOME FROM BUSINESS AND NOT UNDER THE HEAD INCOME FROM HOUSE PROPERTY . HE FURTHER SUBMITS THAT THE ASSESSEE HAS BEEN OFF ERING THE INCOME IN QUESTION UNDER THE HEAD INCOME FROM BUSINESS FROM THE YEAR 1989 AND THE REVENUE HAS NOT DISTURBED THE SAME TILL DATE AN D, HENCE, ON THE PRINCIPLES OF CONSISTENCY, THE REVENUE SHOULD ASSES S THE LEASE RENTS UNDER THE HEAD INCOME FROM BUSINESS . 5. LEARNED COUNSEL, ON GROUND NO.3, WHICH IS AN ALTERN ATE GROUND, SUBMITTED THAT IN THE EARLIER YEARS, THE ASSESSEE H AD TREATED THE INCOME IN QUESTION AS INCOME FROM BUSINESS AND CLAIMED DEPRECIATION WHICH REMAINED UNABSORBED. HE ARGUED THAT SUCH UNABSORBED DEPRECIATION BECOMES CURRENT YEARS DEPRECIATION AND IS ENTITLED TO SET-OFF AGAINST THE INCOME FROM OTHER HEADS DURING THE YEAR. HE VEHEMEN TLY CONTENDED THAT THE UNABSORBED DEPRECIATION CANNOT BE LEFT IN LIMBO AND HAS TO BE TAKEN TO ITS LOGICAL CONCLUSION. HE SUBMITS THAT THE ASSESSEE HA S INCOME FROM TRADING IN COMMODITIES WHICH IS ASSESSABLE UNDER THE HEAD INCOME FROM BUSINESS DURING THE YEAR. HE RELIED ON THE FOLLOWING CASE LA WS. I) CIT V/S NEO POLY PACK (P) LTD., 245 ITR 492 (DEL.); II) CIT V/S PATESHWARI ELECTRICAL AND ASSOCIATED INDUST RIES PVT. LTD., 282 ITR 61 (ALL.); III) ITO V/S TEJMALBHAI & CO., 99 ITD 399 (RAJKOT); IV) ACIT V/S SAPTARSHI SERVICES LTD., 265 ITR 379 (GUJ. ); V) M/S. OMSAGAR ENGINEERING PVT. LTD. V/S ACIT, ITA NO .2989/ MUM./2003, ETC., ORDER DATED 30 TH NOVEMBER 2011; VI) HARVINDARPAL MEHTA (HUF) VS. DCIT, 122 TTJ 163 (MUM .); VII) DINERS BUSINESS SERVICES PVT. LTD. V/S DCIT, MUMBAI , ITA NO.1880/BOM./1990, ORDER DATED 9 TH DECEMBER 1990; VIII) ITO V/S M/S. MALANEY CONSULTANTS PVT. LTD., ITA NO. 431/MUM./ 2004, ORDER DATED 29 TH JULY 2004; SPRINGFIED HOTELS P. LTD. ITA NO.252/MUM./2010 4 IX) MARWAR TEXTILES (AGENCY) LTD. V/S ACIT, ITA NO.2111 /MUM./ 2001, ORDER DATED 15 TH OCTOBER 2001; X) CIT V/S MOHIDDIN HOTELS PVT. LTD., 2005-TIOL-186-GO A-IT, JUDGMENT DATED 13 TH SEPTEMBER 2005; XI) JAI USHIN LTD. V/S DCIT, 305 ITR (AT) 210 (DEL.); XII) ITO V/S GRAHAM FIRTH STEEL PRODUCTS (I) LTD., 24 SO T 106 (MUM.) 6. LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER H AND, OPPOSED THE CONTENTIONS OF THE ASSESSEE AND SUBMITTED THAT THE ASSESSEE WAS THE OWNER OF THE BUILDING AND HAD MERELY LET OUT THE SAME AND EARNED INCOME AND, HENCE, THE SAME IS ASSESSABLE UNDER THE HEAD INCOME FROM BUSINESS ONLY. HE RELIED ON THE ORDER OF THE ASSESSING OFFICER AS WELL AS THE COMMISSIONER (APPEALS) AND SUBMITTED THAT IT IS WELL SETTLED THA T INCOME IN SUCH SITUATIONS SHOULD BE ASSESSED UNDER THE HEAD INCOME FROM BUSINESS . HE RELIED ON THE JUDGMENTS OF HON'BLE SUPREME COURT IN SHAMBHU I NVESTMENT P. LTD. V/S CIT, [2003] 263 ITR 0143, (SC) AND SULTAN BROTHERS PVT. LTD. V/S CIT, [1964] 051 ITR 0353 (SC). 7. ON THE ISSUE OF CONSISTENCY, LEARNED DEPARTMENTAL R EPRESENTATIVE SUBMITTED THAT A MISTAKE DONE CANNOT BE PERPETUATED AND THE CORRECT POSITION OF LAW HAS TO BE FOLLOWED. HE FURTHER SUBM ITTED THAT THE DEPARTMENT HAS NOT ADJUDICATED THIS ISSUE IN THE EARLIER ASSES SMENT YEARS. 8. ON THE ISSUE OF SET-OFF OF UNABSORBED DEPRECIATION, THE LEARNED DEPARTMENTAL REPRESENTATIVE POINTED OUT THAT THE DE PRECIATION WAS NOT CLAIMED IN THE EARLIER ASSESSMENT YEARS. ACCORDING TO LAW, THE RATE AS WELL AS THE METHOD WAS NOT CORRECT. HE RELIED ON THE ORDER OF THE COMMISSIONER (APPEALS). 9. RIVAL CONTENTIONS HEARD. ON A CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND ON A PERUSAL OF THE P APERS ON RECORD, AS WELL AS THE CASE LAWS CITED BEFORE US, WE HOLD AS FOLLOW S:- SPRINGFIED HOTELS P. LTD. ITA NO.252/MUM./2010 5 10. THE ONLY ARGUMENT OF THE LEARNED SR. ADVOCATE, ON T HE ISSUE OF ASSESSING LEASE RENTAL INCOME IS THAT THE BUILDING IN QUESTION IS NOT OCCUPIED FOR RESIDENTIAL PURPOSE AND, HENCE, THE INCOME IN Q UESTION CANNOT BE ASSESSED UNDER THE HEAD INCOME FROM HOUSE PROPERTY . THIS PROPOSITION IS AGAINST LAW. THE HON'BLE SUPREME COURT IN SHAMBHU I NVESTMENT P. LTD. (SUPRA) AS WELL AS SULTAN BROTHERS PVT. LTD., HAD L AID DOWN LAW ON THE ISSUE. IT IS NOT THE CASE OF THE ASSESSEE THAT CERTAIN SER VICES WERE PROVIDED BY THE ASSESSEE TO THE TENANT OF THE PROPERTY. THIS WAS A CASE OF MERE LETTING OUT OF PROPERTY ON RENT. THUS, WE UPHOLD THE FINDINGS OF T HE REVENUE AUTHORITIES ON THIS ISSUE. 11. COMING TO THE ARGUMENT ON CONSISTENCY, WHEN THE PRO POSITIONS LAID DOWN BY THE HON'BLE SUPREME COURT HAS TO BE APPLIED , THE QUESTION OF APPROVING AN ILLEGAL CLAIM ON THE GROUND OF CONSIST ENCY, DOES NOT ARISE. THE CASE LAWS RELIED UPON BY THE LEARNED SR. ADVOCATE, IN THIS REGARD, ARE NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. THE FA CTS IN PATESHWARI ELECTRICAL AND ASSOCIATED INDUSTRIES PVT. LTD. (SUPRA), RELIED ON BY THE LEARNED SR. ADVOCATE, ARE THAT THE ASSESSEE HAD LEASE RENT FROM NOT ONLY THE HOUSE PROPERTY BUT ALSO FROM LETTING OUT A WORK-SHOP, COL D STORAGE, MOTOR GUARAGE, ETC. THE ASSESSEE WAS IN THE PROCESS OF CONVERTING THE PROPERTY INTO A LODGING HOUSE WHEN AN OFFER WAS RECEIVED FROM THE S TATE BANK OF INDIA TO PROVIDE THE PREMISES ON RENT WITH FURNITURE AND FIT TINGS FOR USE OF THEIR TRAINING CENTRE. SIMILARLY, IN TEJMALBHAI & CO. (SU PRA), OTHER SERVICES WERE PROVIDED BY THE ASSESSEE. THUS, FOR ALL THE REASONS STATED ABOVE, WE UPHOLD THE FINDINGS OF THE ASSESSING OFFICER THAT THE INCO ME IN QUESTION SHOULD BE ASSESSED UNDER THE HEAD INCOME FROM HOUSE PROPERTY . GROUNDS NO.1 AND 2, ARE THUS DISMISSED. 12. COMING TO GROUND NO.3, I.E., SET-OFF OF UNABSORBED DEPRECIATION, WHICH WAS CARRIED FORWARD FROM THE EARLIER YEARS, PRIMA-F ACIE, WE FIND THAT THE ASSESSEE HAS CLAIMED DEPRECIATION @ 10% FOR FINANCI AL YEAR 2005-06. THERE IS NO INFORMATION ON THE DEPRECIATION CLAIMED IN TH E EARLIER YEARS AND ALLOWED. AS THE FACTS ARE NOT ON RECORD, WE ARE OF THE CONSIDERED OPINION THAT THE ISSUE SHOULD BE RESTORED TO THE FILE OF ASSESSI NG OFFICER FOR ADJUDICATION SPRINGFIED HOTELS P. LTD. ITA NO.252/MUM./2010 6 AFRESH IN ACCORDANCE WITH LAW. WE ORDER ACCORDINGLY . WE ALSO DO NOT EXPRESS ANY OPINION ON THE LEGAL SUBMISSIONS MADE BY THE LE ARNED SR. ADVOCATE. GROUND NO.3, IS THUS ALLOWED FOR STATISTICAL PURPOS ES. 13. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 13 TH JANUARY 2012 SD/- B.R. MITTAL JUDICIAL MEMBER SD/- J. SUDHAKAR REDDY ACCOUNTANT MEMBER MUMBAI, DATED: 13 TH JANUARY 2012 COPY TO : (1) THE ASSESSEE; (2) THE RESPONDENT; (3) THE CIT(A), MUMBAI, CONCERNED; (4) THE CIT, MUMBAI CITY CONCERNED; (5) THE DR, E BENCH, ITAT, MUMBAI. TRUE COPY BY ORDER PRADEEP J. CHOWDHURY ASSISTANT REGISTRAR SR. PRIVATE SECRETARY ITAT, MUMBAI BENCHES, MUMBAI