BLUE CHIP BUSINESS CENTRE P. LTD, MUMBAI V. ITO 1(1)-1, MUMBAI

ITA 3097/MUM/2011

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 72017 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 8 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-12-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 12-11-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 20-04-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S S RANA
• Assessee Lawyers: N M PORWAL
• Keywords: Capital asset; Business income; Business expenditure; Source of fund; Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUM BAI , BEFORE SHRI SANJAY ARORA, AM AND DR. S. T. M. PAVAL AN, JM ! ' I.T.A. NO. 3097/MUM/2011 ( / ASSESSMENT YEAR: 2006-07) BLUE CHIP BUSINESS CENTRE PVT. LTD. GROUND FLOOR, EMPIRE HOUSE, A.K. NAIK MARG, FORT, MUMBAI-400 001 ' VS. ITO-1(1)-1 MUMBAI # '!$! ./PAN/GIR NO. AAACB 2126 R ( #% /APPELLANT ) : ( &'#% / RESPONDENT ) #%( / APPELLANT BY : SHRI N. M. PORWAL &'#% )( / RESPONDENT BY : SHRI S. S. RANA * + ), / DATE OF HEARING : 24.10.2013 - ./ ), / DATE OF PRONOUNCEMENT : 31.12.2013 !0' O R D E R PER SANJAY ARORA, A. M.: THIS IS AN APPEAL BY THE ASSESSEE DIRECTED AGAINST THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-1, MUMBAI (CIT(A) FOR SHO RT) DATED 21.10.2010, PARTLY ALLOWING THE ASSESSEES APPEAL CONTESTING ITS ASSES SMENT U/S.143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR THE ASSESSMEN T YEAR (A.Y.) 2006-07 VIDE ORDER DATED 29.09.2008. 2 ITA NO. 3097/MUM/2011 (A.Y. 2006-07) BLUE CHIP BUSINESS CENTRE PVT. LTD. VS. ITO 2. THE ISSUE ARISING IN THE INSTANT APPEAL CONCERNS THE DEDUCTIBILITY OF A LOSS IN THE SUM OF RS.9 LACS INCURRED BY THE ASSESSEE-COMPANY O N ASSIGNMENT OF A DEBT IN THE COMPUTATION OF ITS BUSINESS INCOME FOR THE RELEVANT PREVIOUS YEAR. THE BRIEF FACTS ARE THAT THE ASSESSEE IS A COMPANY IN THE BUSINESS OF FINANC E AND INVESTMENT. IT MADE A DEPOSIT OF RS.10 LACS WITH M/S. AMERICAN REFRIGERATOR COMPANY LIMITED, KOLKATA (ARCO) TOWARD TRANSFER OF SUB-LEASE OF READY ROAD PREMISES, MUMBA I, OF WHICH ARCO WAS A SUB- TENANT WITH BOMBAY PORT TRUST, TO IT. HOWEVER, THE SAID TRANSFER DID NOT MATERIALIZE, AND NEITHER WAS THE ASSESSEE ABLE TO RECOVER THE ADVANC E OF RS.10 LACS. FINALLY, THE ASSESSEE WAS ABLE TO NEGOTIATE AND DEAL WITH ONE, M/S. NIMES H N. PARIKH, SELLING THE SAID DEBT TO HIM FOR RS.1 LAC, RESULTING IN THE IMPUGNED LOSS OF RS.9 LACS. THE ASSESSEES CLAIM, PRESSED AS A BUSINESS DEDUCTI ON U/S. 36(1)(VII), WAS NOT CONSIDERED VALID BY THE REVENUE AS THE SAME DID NOT ARISE IN THE ORDINARY COURSE OF ITS BUSINESS. THE ADVANCE COULD NOT BE SAID TO BE INCID ENTAL TO THE ASSESSEES TRADING ACTIVITY, RELYING ON THE DECISION IN THE CASE OF A.V. THOMAS AND CO. LTD. VS. CIT [1963] 48 ITR 67 (SC), DISTINGUISHING THE CASES RELIED UPON BY THE A SSESSEE, BEING CIT VS. MYSORE SUGAR CO. LTD. [1962] 46 ITR 649 (SC); A.W. FIGGIS & CO. (P.) LTD. VS. CIT [2002] 254 ITR 63 (CAL); AND CIT VS. ROHTAS INDUSTRIES LTD. [1979] 120 ITR 110 (CAL) ON FACTS. 3.1 BEFORE US, THE ASSESSEE ARGUED ITS CASE ON THE BASIS OF THE ORDER BY THE TRIBUNAL IN ITS OWN CASE FOR A.YS. 1989-90 TO 1991-92 (IN ITA N OS.5609/93, 219/94 & 220/94 DATED 02.09.2002/PB PGS.23-24). THE ISSUE BEFORE THE TRIB UNAL WAS WHETHER THE INCOME DERIVED BY THE ASSESSEE ON SUB-LETTING ITS PREMISES IS ASSE SSABLE AS BUSINESS INCOME OR AS INCOME FROM OTHER SOURCES. THE ASSESSEE, A LEASEE IN RESPECT OF A BUILDING, HAD RENTED OUT A PART THEREOF TO SOME COMPANIES. THE TRIBUNAL FOUND THAT THE ASSESSEE WAS ALSO PROVIDING OFFICE AMENITIES ALONG WITH, CHARGING SER VICE CHARGES. CLAUSES 16 AND 17 OF ITS MEMORANDUM OF ASSOCIATION (MOA) MENTION LEASING AS THE ONE OF ITS OBJECTS. ACCORDINGLY, THE RENTAL INCOME ON THE TEMPORARY REN TING OF THE EXCESS SPACE WAS CONFIRMED BY THE TRIBUNAL AS ASSESSABLE AS BUSINESS INCOME. 3 ITA NO. 3097/MUM/2011 (A.Y. 2006-07) BLUE CHIP BUSINESS CENTRE PVT. LTD. VS. ITO ON THE BENCH DRAWING REFERENCE TO THE DECISIONS BY THE HONBLE APEX COURT IN THE CASE OF HASIMARA INDUSTRIES LTD. V . CIT [1998] 230 ITR 927 (SC) AND HASIMARA INDUSTRIES LTD VS. CIT [1998] 231 ITR 842 (SC) IN THE MATTER, WHEREIN THE LOSS SU STAINED BY THE ASSESSEE ON AN ADVANCE BECOMING BAD WAS HELD NON-DEDUCTIBLE ON ACCOUNT OF BEING A CAPITAL LOSS, THE LD. AUTHORIZED REPRESENTA TIVE (AR) SOUGHT TIME TO REPLY. A COMPILATION OF 51 PAGES, CONTAINING SEVERAL JUDGMEN TS WAS PLACED ON RECORD. PAGES 38-51 THEREOF CONTAIN PGS. 4347 TO 4361 OF THE COMMENTARY FROM SAMPATH IYENGARS LAW OF INCOME-TAX 11 TH EDITION VOLUME III. OUR ATTENTION WAS DRAWN BY HIM TO PARA 156 (AT PG.4359), WHICH READS AS UNDER: 156. FIXED CAPITAL VERSUS CIRCULATING CAPITAL AS ALREADY EXPLAINED FIXED CAPITAL IS WHAT THE OWNER TURNS TO PROFIT BY KEEPING IT IN HIS OWN POSSESSION AND CIRCULATING OR FLOATING CAPITAL IS W HAT HE MAKES PROFITS OF BY PARTING WITH IT AND LETTING IT CHANGE MASTERS. THE FOLLOWING EXCERPT FROM ADAM SMITHS WEALTH OF NATIONS ELOQUENTLY DESCRIBES THE DISTINCTION: HIS CAPITAL IS CONTINUOUSLY GOING FROM HIM IN ONE SHAPE, AND RETURNING TO HIM IN ANOTHER; AND IT IS ONLY BY MEAN S OF SUCH CIRCULATION, OR SUCCESSIVE CHANGES THAT IT CAN YIEL D HIM ANY PROFIT. SUCH CAPITALS, THEREFORE, MAY VERY PROPERLY BE CALL ED CIRCULATING CAPITALS. SECONDLY, IT MAY BE EMPLOYED IN THE IMPR OVEMENT OF LAND, IN THE PURCHASE OF USEFUL MACHINES AND INSTRUMENTS OF TRADE OR IN SUCH LIKE THINGS AS YIELD REVENUE OR PROFIT WITHOUT CHANGING MASTERS OR CIRCULATING ANY FURTHER. SUCH CAPITALS, THEREFOR E, MAY VERY PROPERLY BE CALLED FIXED CAPITALS. CIRCULATING CAPITAL, THEREFORE, IS CAPITAL WHICH IS TURNED OVER AND IN THE PROCESS OF BEING TURNED OVER YIELDS PROFIT OR LOSS. FIXED CAPITAL, ON THE OTHER HAND, IS NOT INVOLVED DIRECTLY IN THAT PROCESS AND REMAINS UNAFFECTED BY IT. INASMUCH AS, THEREFORE, THE LETTING OF A BUILDING (OR PART THEREOF) IS NOT TO ANY ONE PARTY, OR MAY NOT NECESSARILY BE SO, AND COULD BE O VER TIME TO SEVERAL PARTIES, THERE IS A CHANGE OF MASTERS, SO THAT THE ASSESSEES PREMISES BEING LET MUST TO BE REGARDED AS A PART OF HIS CIRCULATING CAPITAL. THIS FACT, IT WAS SUBMI TTED BY THE LD. AR, WOULD ALSO CAUSE TO DISTINGUISH THE ASSESSEES CASE FROM THE DECISIONS IN THE CASE OF HASIMARA INDUSTRIES LTD. (SUPRA). FURTHER, REFERENCE WAS DRAWN BY HIM TO THE DECISION IN THE CASE OF CIT VS. NEW 4 ITA NO. 3097/MUM/2011 (A.Y. 2006-07) BLUE CHIP BUSINESS CENTRE PVT. LTD. VS. ITO DELHI HOTELS LTD. [2012] 345 ITR 1 (DEL) (AT PGS.12 TO 19 OF THE COM PILATION). IN THE FACTS OF THAT CASE THE AMOUNT ADVANCED FOR THE PURCHASE O F PROPERTY BY THE ASSESSEE, IN REAL ESTATE BUSINESS, WAS TREATED AS A DEDUCTIBLE BUSINE SS LOSS. 3.2 THE LD. DEPARTMENTAL REPRESENTATIVE (DR), ON THE OTHER HAND, WOULD RELY ON THE VERY SAME ORDER BY THE TRIBUNAL, I.E., IN THE ASSES SEES OWN CASE FOR A.YS. 1989-90 TO 1991-92 (SUPRA). THE QUESTION ARISING BEFORE THE TR IBUNAL FOR THAT YEAR WAS THE HEAD UNDER WHICH THE ASSESSEES INCOME ON LETTING A LEASED PRO PERTY WAS ASSESSABLE AND, CONSEQUENTLY, IS OF NO CONSEQUENCE IN THE PRESENT C ASE. WHAT IS RELEVANT IS NOT THE NATURE OF THE INCOME, BUT THAT OF THE PROPERTY ACQUIRED OR SOUGHT TO BE BY THE ASSESSEE ON THE PAYMENT OF THE ADVANCE, WHICH STOOD LOST ON ACCOUNT OF BEING IRRECOVERABLE. THE SAID DECISION, THUS, RATHER THAN ASSISTING THE ASSESSEE S CASE, DOES THAT OF THE REVENUE INASMUCH AS WHAT THE ASSESSEE STOOD ACQUIRE WAS ONL Y A CAPITAL ASSET, A SOURCE OF INCOME. 4. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. 4.1 THE ISSUE BEFORE US, AS WE DISCERN, LIES IN A V ERY NARROW COMPASS, I.E., WHETHER THE SUM ADVANCED BY THE ASSESSEE WAS TOWARD A FIXED OR CAPITAL ASSET OF ITS BUSINESS, OR, ON THE CONTRARY, A CURRENT ASSET, AS FOR EXAMPLE STOCK -IN-TRADE, CONSIDERING THAT THE ASSESSEE IS, APART FROM ITS OTHER ACTIVITY/S, ALSO ENGAGED I N LETTING OR LEASING OUT ITS PREMISES. IF AS SUCH, IT IS TOWARD ACQUIRING OR ACQUISITION OF A CA PITAL ASSET, FOR AN ENDURING ADVANTAGE TO THE BUSINESS, THE LOSS WOULD BE ON CAPITAL ACCOUNT, AND IF ON REVENUE ACCOUNT, DEDUCTIBLE AS BUSINESS LOSS U/S.28 OF THE ACT. WE STATE THE CA SE IN TERMS OF A BUSINESS LOSS FOR, AS IS APPARENT, THE ASSESSEES CLAIM QUA THE SAID LOSS U/S.36(1)(VII), I.E., UNDER WHICH PR OVISION IT IS MADE, IS EX FACIE NOT MAINTAINABLE INASMUCH AS THERE IS WITHOUT DOUB T NON- SATISFACTION OF THE ESSENTIAL PRE-CONDITION OF SECT ION 36(2)(I). IT IS NEVERTHELESS INCUMBENT ON THE REVENUE AS WELL AS ON THE APPELLATE AUTHORIT IES, INCLUDING US, TO EXAMINE THE DEDUCTIBILITY OF THE CLAIM IN THE ALTERNATIVE AS A BUSINESS LOSS. RATHER, AS APPARENT FROM THE FOREGOING, ENLISTING THE PROCEEDINGS BEFORE THE REVENUE AUTHORITIES AS WELL AS BEFORE US, THAT IS THE BASIS ON WHICH THE CASE WAS SET UP AND MADE OUT. THAT EXPLAINS OUR 5 ITA NO. 3097/MUM/2011 (A.Y. 2006-07) BLUE CHIP BUSINESS CENTRE PVT. LTD. VS. ITO DELINEATION OF THE ISSUE OF DEDUCTIBILITY IN TERMS OF A REVENUE LOSS OF THE ASSESSEES BUSINESS, I.E., A BUSINESS LOSS. AS EXPLAINED BY TH E APEX COURT IN MYSORE SUGAR CO. LTD. (SUPRA), RELIED UPON BY THE ASSESSEE, AS ALL PAYMEN TS REDUCE CAPITAL IN THE ULTIMATE ANALYSIS, WHAT IS RELEVANT AND IS TO BE SEEN IS THE PURPOSE FOR WHICH THE MONEY HAS BEEN LAID OUT. THAT IS, IS IT TO ACQUIRE AN ASSET OF AN ENDURING NATURE FOR THE BENEFIT OF THE BUSINESS, OR WAS IT AN OUTGOING IN DOING THE BUSINE SS. IF THE MONEY IS LOST IN THE FIRST CIRCUMSTANCE, IT IS A LOSS OF CAPITAL, BUT IF IT IS IN THE SECOND CIRCUMSTANCE, IT IS A REVENUE LOSS. THE FOREGOING WOULD VALIDATE OUR FORMULATION OF THE ISSUE ARISING FOR OUR ADJUDICATION THUS, I.E., IN THE MANNER DONE; THERE BEING NO AMBIGUITY OR VARIATION IN THE PRINCIPLE OR THE PROPOSITION OF LAW INVOLVED. THE QUESTION, THUS, TURNS ESSENTIALLY ON THE FACTS OF THE CASE. TOWARD THIS, IT SHALL BE RELEVAN T TO NOTE THE FACTS AND THE CONCLUSION ARRIVED AT BY THE HONBLE APEX COURT IN SOME OF THE CITED CASES: A) IN MYSORE SUGAR CO. LTD. (SUPRA): IN THE FACTS OF THAT CASE, THE LOSS WAS ON ACCOUNT OF FAILURE OF CROPS OF SUGARCANE GROWERS, TO WHOM MONEY HAD BEEN ADVANCED BY THE ASSESSEE, A SUGARCANE MANUFACTURER, FOR PURCHASE OF SEEDLINGS A ND FERTILIZERS, TO BE ADJUSTED AGAINST THE SUPPLY OF SUGARCANE. THE SUPPLY WAS, AC CORDINGLY, CONFIRMED TO BE ON REVENUE ACCOUNT AND, THUS, DEDUCTIBLE. B) IN A.V. THOMAS & CO. LTD. (SUPRA), THE FACTS AND THE DECISION ARE AS UNDER: THE MEMORANDUM OF ASSOCIATION OF THE ASSESSEE COMP ANY AUTHORISED IT 'TO BE INTERESTED IN, PROMOTE AND TO UNDERTAKE THE FORM ATION AND ESTABLISHMENT OF OTHER COMPANIES', TO MAKE INVESTMENTS AND TO ASSIST ANY COMPANY FINANCIALLY OR OTHERWISE. AT THE MATERIAL TIMES T WAS A COMMON DIR ECTOR OF THE ASSESSEE COMPANY AND ANOTHER PRIVATE COMPANY. THE PRIVATE CO MPANY TOOK UP IN 1948 THE PROMOTION OF A TEXTILE MILL AND T FINANCED THAT PRI VATE COMPANY TO THE EXTENT OF RS.6,05,072. THE BOARD OF DIRECTORS OF THE ASSESSEE COMPANY APPROVED OF THE ACTION TAKEN BY T AND IN SEPTEMBER 1950, PASSED A R ESOLUTION THAT THE AMOUNT OF RS.6,00,000 SHOULD BE SHOWN IN ITS ACCOUNTS AS AN A DVANCE FOR THE PURCHASE OF SHARES IN THE TEXTILE MILL AND THE SUM OF RS. 5,072 AS SUNDRY ADVANCES DUE FROM THE PROMOTERS OF THE TEXTILE MILL. THE PROJECT OF PROMO TING THE TEXTILE MILL FAILED. THE PRIVATE COMPANY PAID BACK TO THE ASSESSEE ON DECEMB ER 7, 1951 THE SUM OF RS.2,00,000. THE ASSESSEE WROTE OFF THE BALANCE ON DECEMBER 31, 1951, WHICH WAS THE DATE ON WHICH ITS ACCOUNTING YEAR ENDED, AN D CLAIMED THE BALANCE AS A BAD DEBT OR ALTERNATIVELY AS A BUSINESS EXPENDITURE FOR THE ASSESSMENT YEAR 1952-53. 6 ITA NO. 3097/MUM/2011 (A.Y. 2006-07) BLUE CHIP BUSINESS CENTRE PVT. LTD. VS. ITO THERE WAS EVIDENCE TO SHOW THAT THE ASSESSEE EXPECT ED TO OBTAIN THE SELLING AGENCY OF THE GOODS TO BE PRODUCED BY THE TEXTILE MILL: HELD, (I) THAT THE ASSESSEE COMPANY, IN MAKING THE LARGE PAYMENTS, INTENDED TO ACQUIRE A CAPITAL ASSET FOR ITSELF. IN ANY EVENT THE AMOUNTS WERE SPENT IN 1948 AND NOT IN THE YEAR OF ACCOUNT ENDING DECEMBER 31, 1951 . THEY COULD NOT, THEREFORE, BE ALLOWED AS BUSINESS EXPENDITURE UNDER SECTION 10(2)(XV) OF THE INCOME-TAX ACT, 1922. (II) THAT AS THE ASSESSEE COMPANY WAS NEITHER A BAN KER NOR A MONEY-LENDER, THE ADVANCES PAID BY THE ASSESSEE COMPANY TO THE PRIVAT E COMPANY TO PURCHASE THE SHARES COULD NOT BE SAID TO BE INCIDENTAL TO THE TR ADING ACTIVITIES OF THE ASSESSEE. A DEBT, FOR THE PURPOSES OF SECTION 10(2)(XI), WAS SO METHING MORE THAN A MERE ADVANCE AND MEANT SOMETHING WHICH WAS RELATED TO TH E BUSINESS OR RESULTED FROM IT. IT WAS AN OUTSTANDING WHICH, IF RECOVERED, WOUL D HAVE SWELLED THE PROFITS, AND NOT MERELY MONEY HANDED OVER TO SOMEONE FOR PURCHAS ING A THING WHICH THAT PERSON FAILED TO RETURN EVEN THOUGH NO PURCHASE WAS MADE. THE AMOUNT DUE FROM THE PRIVATE COMPANY COULD NOT, THEREFORE, BE DESCRI BED AS A DEBT FOR THE PURPOSE OF SECTION 10(2)(XI) AND THE ASSESSEE WAS NOT ENTITLED TO CLAIM ALLOWANCE OF THE BALANCE OF THE ADVANCES AS A BAD DEBT WRITTEN OFF U NDER SECTION 10(2)(XI). [EMPHASIS, BY UNDERLINI NG, OURS] C) IN HASIMARA INDUSTRIES LTD. V . CIT [1998] 230 ITR 927 (SC): IN THIS CASE, THE ASSESSEE DEPOSITED A SUM OF MONE Y WITH ANOTHER COMPANY UNDER A LEAVE AND LICENSE AGREEMENT, FOR SECURING A LICENSE UNDER WHICH THE ASSESSEE COULD WORK THE LICENSORS COTTON MILLS. TH E LICENSOR-COMPANY WENT INTO LIQUIDATION AND THE AMOUNT REMAINED UNPAID. ON ITS WRITE OFF AS IRRECOVERABLE, THE LOSS WAS HELD AS NON-DEDUCTIBLE AS A BUSINESS LOSS, CONFIRMING THE DECISION BY THE HONBLE HIGH COURT; THE PURPOSE OF THE DEPOSIT BEIN G TO ACQUIRE A PROFIT MAKING ASSET, SO THAT THE LOSS SUFFERED WAS ON CAPITAL ACC OUNT. D) IN HASIMARA INDUSTRIES LTD VS. CIT [1998] 231 ITR 842 (SC): IN THE FACTS OF THIS CASE, AGAIN, THE ASSESSEE IN TEA BUSINESS ENTERED INTO A LEAVE AND LICENSE AGREEMENT WITH ANOTHER COMPANY WI TH A VIEW TO ACQUIRE THE OPERATING RIGHTS FOR WORKING THE LATTERS COTTON MI LLS. A SUM OF RS.20 LACS WAS ADVANCED TO THE LESSOR COMPANY FOR MODERNIZING THE MILL. NEITHER WAS THE MILL MODERNIZED, NOR THE SUM REPAID. THE LOSS SUFFERED O N ACCOUNT OF THE INCAPACITY OF THE LESSOR TO REPAY WAS HELD AS A CAPITAL LOSS, BEI NG FOR ACQUIRING A PROFIT MAKING APPARATUS, AND NOT DEDUCTIBLE AS A BUSINESS LOSS. I N AFFIRMING THE DECISION OF THE HONBLE HIGH COURT UNDER CHALLENGE BEFORE IT, SEVER AL JUDGMENTS OF THE APEX COURT ITSELF WERE NOTED AND DISTINGUISHED BY IT. 7 ITA NO. 3097/MUM/2011 (A.Y. 2006-07) BLUE CHIP BUSINESS CENTRE PVT. LTD. VS. ITO 4.2 NEXT, WE MAY CONSIDER THE FACTS OF THE INSTANT CASE. THE ASSESSEE STATES OF HAVING ADVANCED THE SUM OF RS.10 LACS TOWARD TRANSFER OF S UB-LEASE OF A PREMISES TO THE PERSON HOLDING ITS SUB-TENANCY, I.E., THE LESSOR (OR THE S UB-LESSOR), ARCO. THIS WOULD ENABLE THE ASSESSEE TO EITHER USE THE SAID PREMISES FOR ITS BU SINESS OR TO GENERATE REVENUE BY LETTING FURTHER, IN WHICH BUSINESS IT CLAIMS TO BE ALSO ENG AGED IN. EITHER WAY, THE ASSESSEE INTENDED TO ACQUIRE A CAPITAL ASSET, A SOURCE OF IN COME. AS EXPLAINED IN THE CASE OF SETH SHIV PRASAD VS. CIT [1972] 84 ITR 15 (ALL.), WITH REFERENCE TO THE DECI SIONS IN THE CASE OF RHODESIA METALS LTD. (LIQUIDATOR) VS. CIT [1941] 9 ITR (SUPPL.) 45 (PC) AND RANI AMRIT KUNWAR VS. CIT [1946] 14 ITR 56 (ALL.) (FB), A SOURCE OF INCOME MA Y BE DESCRIBED AS A SPRING OR FOUNT FROM WHICH A CLEARLY DEFINED CHANNE L OF INCOME FLOWS. THE SAME IS TO BE CONSIDERED NOT AS A LEGAL CONCEPT, BUT SOMETHING WH ICH A PRACTICAL MAN WOULD REGARD AS A REAL SOURCE OF INCOME. IT IS THEREFORE THAT WHICH B Y ITS VERY NATURE AND INCIDENTS CONSTITUTES A DISTINCT AND SEPARATE ORIGIN OF INCOM E, CAPABLE OF CONSIDERATION AS SUCH IN ISOLATION FROM OTHER SOURCES OF INCOME, INCLUDING T HE ASSESSEES MANNER OF DEALING THEREWITH (AT PG.18). THE SUB-LEASE BEING SOUGHT TO BE ACQUIRED BY THE ASSESSEE, WHICH IT CONTENDS TO BE SO FOR FURTHER LETTING, IS THUS CLEA RLY A SOURCE OF INCOME. FURTHER, CLAUSES 16 & 17 OF THE ASSESSEES MOA (PB PGS.70-109) READ AS UNDER: 16. TO PURCHASE, TAKE ON LEASE OR EXCHANGE, OR OTH ERWISE ACQUIRE IN ANY PART OF THE WORLD ANY LAND, BUILDINGS AND ANY ESTAT E OR INTEREST THEREIN AND ANY RIGHTS OVER OR CONNECTED WITH OR THAT MAY BE DE EMED NECESSARY OR CONVENIENT FOR ANY OF THE PURPOSES OF THE COMPANY A ND TO PURCHASE, ERECT, LEASE, HIRE, EXCHANGE, AND OTHERWISE ACQUIRE, MAINT AIN LET, MORTGAGE, SELL, LEASE AND OTHERWISE DISPOSE OF, FACTORIES, STUDIOS, LABORATORIES, OFFICES, DWELLING HOUSES, STORES, WAREHOUSES, THEATRES, AND CINEMAS AND OTHER PREMISES. 17. TO SELL, EXCHANGE, LEASE, SUB-LEASE OR OTHERWIS E DISPOSE OF ABSOLUTELY, CONDITIONALLY OR FOR ANY LIMITED INTERE ST AND TO GRANT ANY LEASE OR LICENSE IN RESPECT OF ALL OR ANY OF THE LANDS, BUIL DINGS, FACTORIES, WAREHOUSES, THEATRES, OFFICES BUILDINGS AND THE PRO PERTY RIGHTS OR PRIVILEGES OF THE COMPANY THEREIN. 8 ITA NO. 3097/MUM/2011 (A.Y. 2006-07) BLUE CHIP BUSINESS CENTRE PVT. LTD. VS. ITO THE SAID CLAUSES FALL UNDER PART III-B THEREOF, TIT LED ANCILLARY OBJECTS. AS SUCH, THE SAID OBJECTS ARE PRINCIPALLY BY WAY OF ENABLING PROVISIONS, I.E., TO FACILITATE THE ACCOMPLISHMENT OF THE MAIN OBJECTS FOR WHICH THE CO MPANY IS FORMED, I.E., TO DISTRIBUTE AND DEAL IN CONSUMER PRODUCTS, CONSUMER DURABLES, T EXTILES, CHEMICAL, ENGINEERING, ELECTRICAL, ELECTRONIC AND MECHANICAL GOODS. EVEN I F CONSTRUED AS INDEPENDENT OBJECTS, AS WE HAVE SEEN, IT BECOMES IMMATERIAL IN THE FACTS OF THE CASE AS TO WHETHER THE SUB-LEASE WAS SOUGHT TO BE ACQUIRED FOR ITS MAIN OBJECTS AFOR E-STATED, OR FOR FINANCE AND INVESTMENT, I.E., THE BUSINESS IN WHICH THE COMPANY IS ENGAGED IN FOR THE TIME BEING, OR FOR FURTHER LETTING. ACCORDINGLY, THE IMPUGNED LOSS IS A CAPITAL LOSS AN D, THEREFORE, NOT DEDUCTIBLE AS A BUSINESS EXPENDITURE OR BUSINESS LOSS. IN FACT, AS WOULD BE SEEN, THE FACTS IN THE CASE OF A.V. THOMAS AND CO. LTD. (SUPRA); HASIMARA INDUSTRIES LTD. (SUPRA) ARE STRIKINGLY SIMILAR TO THE FACTS OF THE ASSESSEES CASE. LIKE-WISE IS T HE DECISION IN THE CASE OF CIT VS. MOTIRAM NANDRAM [1940] 8 ITR 132 (PC). IN ANY CASE, THE SAID DECIS IONS SQUARELY APPLY IN RATIO TO THE FACTS OF THE INSTANT CASE. 4.3 THE ASSESSEE STATES OF, IN DISTINGUISHING THE D ECISION IN THE CASE OF HASIMARA INDUSTRIES LTD. (SUPRA), WHICH WE HAVE FOUND TO BE PARA MATERIA WITH THE DECISION IN A.V. THOMAS & CO. LTD. (SUPRA), THAT INASMUCH AS THE PURPOSE IS TO LET, TH E SAME REPRESENTS THE ASSESSEES CIRCULATING CAPITAL. WE COULD NOT DISAGR EE MORE. LETTING WOULD ONLY INVOLVE PLACING THE PROPERTY IN POSSESSION OF ANOTHER FOR A DEFINED (SPECIFIED) PERIOD AND USER FOR A CHARGE, AND NOTHING MORE. TO EVEN SUGGEST THAT IN GIVING A PROPERTY ON RENT, THERE IS A CHANGE OF ITS MASTERS, OR THAT, THEREFORE, THE SAID PROPERTY BECOMES A CIRCULATING CAPITAL OF ITS OWNER, AND NO LONGER A CAPITAL ASSET, IS LUDICR OUS. GOING BY THE SAID ARGUMENT, ALL BUILDINGS OF LANDLORDS, WHERE LET; ALL HOTEL ROOMS WHERE GIVEN ON LICENSE; ALL VEHICLES OF TAXI AND TOUR OPERATORS GIVEN ON HIRE OR FOR RENT, WOULD BE NO LONGER THEIR CAPITAL ASSETS BUT PART OF THE CIRCULATING CAPITAL. IT MAY BE RELE VANT TO NOTE THAT THE HONBLE JURISDICTIONAL HIGH COURT IN CIT VS. KHIMLINE PUMPS LTD. [2002] 258 ITR 459 (BOM) HELD THE PAYMENT OF LEASE PREMIUM AS TOWARD THE CAPITAL COST THEREOF , I.E., A CAPITAL EXPENDITURE. 9 ITA NO. 3097/MUM/2011 (A.Y. 2006-07) BLUE CHIP BUSINESS CENTRE PVT. LTD. VS. ITO FURTHER, IT MAY BE ARGUED THAT THE LOSS ARISES IN THE INSTANT CASE NOT ON ITS WRITE OFF AS IRRECOVERABLE, BUT ON ITS TRANSFER TO ANOTHER. T HE ARGUMENT WOULD BE TO NO EFFECT AS IT WOULD NOT ALTER THE CHARACTER OF THE LOSS INCURRED, WHICH WOULD CONTINUE TO BE IN THE CAPITAL FIELD. IN FACT, IT IS NOT KNOWN IF THE ORIG INAL AGREEMENT CONTAINS A RIGHT TO TRANSFER THE SUB-LEASE, WHICH WOULD NEED CONSENT OF THE PRIN CIPAL LEASEHOLDER AS WELL, AND FOR ALL WE KNOW THE ARRANGEMENT SOUGHT TO BE ENTERED INTO M AY HAVE FAILED FOR THAT REASON. WE SAY SO AS SUCH ARRANGEMENTS ARE GENERALLY TRIPARTIT E ARRANGEMENTS, INVOLVING THE PRINCIPAL LESSOR AS WELL. THERE IS ALSO NO ASSIGNMENT DEED, B EARING REFERENCE TO THE RELEVANT CLAUSE OF THE AGREEMENT (OR THE PROPOSED AGREEMENT), I.E., WHERE-UNDER THE ADVANCE WAS MADE. SO HOWEVER, AS FAR AS THE ASSESSEE IS CONCERNED, TH E ADVANCE WAS MADE TO ACQUIRE A CAPITAL ASSET. IF ANYTHING, IT PUTS THE ASSESSEES CLAIM OF THE LOSS AS A REVENUE LOSS ON AN EVEN WEAKER FOOTING. WE, THEREFORE, FIND NO INFIRMITY IN THE REVENUES A CTION IN DISALLOWING THE IMPUGNED LOSS AS A CAPITAL LOSS, AND NOT A LOSS ARI SING TO THE ASSESSEE IN THE ORDINARY COURSE OF AND IN CARRYING OUT ITS BUSINESS, AS SOUG HT TO BE EMPHASIZED BEFORE US. 4.4 WE MAY NEXT CONSIDER THE ASSESSEES RELIANCE ON THE TRIBUNALS ORDER IN ITS OWN CASE FOR EARLIER YEARS (SUPRA), HOLDING THE RENT RE CEIPT AS ARISING TO IT BEING ASSESSABLE AS BUSINESS INCOME. WE FIND NO CORRESPONDENCE BETWEEN THE TWO, OR OF ANY ASSISTANCE BEING ABLE TO BE DERIVED BY THE ASSESSEE FROM THE SAID OR DER. FIRSTLY, THE FACTS RELIED UPON BY THE TRIBUNAL IN THAT CASE WAS OF TEMPORARY LETTING OF A BUILDING, I.E., THE PART BEING CONSIDERED AS SURPLUS BY THE ASSESSEE FOR THE TIME BEING AND, FURTHER, OF BEING ACCOMPANIED BY PROVISION OF OFFICE AMENITIES FOR A SERVICE CHARGE. THIS GUIDED THE TRIBUNALS DECISION ON THE HEAD OF INCOME UNDER WHI CH THE RENTAL INCOME BEING DERIVED WAS ASSESSABLE. THE SAID FACTS ARE NOT KNOWN AS EXI STING FOR THE CURRENT YEAR, FOR THE SAID DECISION TO APPLY. TWO, EQUAL IMPORTANTLY, EVEN SO, THE SAID DECISION ONLY ASSISTS THE CASE OF THE REVENUE. IT IS THE LEASE RIGHTS, A SOURCE OF INCOME (BY WAY OF RENT, IF NOT ALSO SERVICE CHARGES) WHICH THE ASSESSEE SEEKS TO SECURE BY ACQUIRING A SUB-LEASE, THE ASSESS- ABILITY OF INCOME FROM WHICH (OR LIKE SOURCE) WAS U NDER QUESTION BEFORE THE TRIBUNAL . IN 10 ITA NO. 3097/MUM/2011 (A.Y. 2006-07) BLUE CHIP BUSINESS CENTRE PVT. LTD. VS. ITO FACT, AS SHALL BE APPARENT, IN THE CONTEXT OF THE I NSTANT CASE, THE HEAD UNDER WHICH THE LEASE RENTAL WOULD STAND TO BE ASSESSED IS IMMATERI AL OR OF NO CONSEQUENCE. 4.5 THE ASSESSEE HAS THROUGH A COMPILATION PLACED O N RECORD CASE LAWS, TO SOME OF WHICH NO REFERENCE WAS MADE BY THE LD. AR DURING HE ARING. WE HAVE ALREADY DISCUSSED THE CASE LAWS REFERRED TO BY HIM, AND AS ALSO THAT BY THE A.O., I.E., IN RESPECT OF THE REVENUES CASE. WE SHALL, HOWEVER, DISCUSS THE SAID UN-REFERRED CASES AS WELL: I. IN INVESTMENT LTD. VS. CIT [1970] 77 ITR 533 (SC) (PGS.1-5 OF THE COMPILATION), THE LOSS ON SALE OF SECURITIES BEING HELD AS STOCK-IN-TRADE AND CARRIED OVER IN BOOKS WAS HELD AS ALLOWABLE AS A RE VENUE LOSS; THE DESCRIPTION OF THE SAME IN THE BALANCE-SHEET AS INVESTMENT BEIN G NOT DECISIVE OF THEIR NATURE. II. IN CIT VS. KARAM CHAND THAPAR & BROS. PVT. LTD. [1989] 176 ITR 535 (SC) (PGS. 6-11 OF THE COMPILATION), THE APEX COURT CLAR IFIED THAT THE QUESTION WHETHER THE CAPITAL LOSS WAS A TRADING LOSS OR A CA PITAL LOSS IS TO BE DETERMINED ON APPRECIATION OF FACTS. IT FURTHER FOUND THAT THE LOSS ON SALE OF SHARES WAS BASED ON THE CUMULATIVE EFFECT OF THE CIRCUMSTANCES , AND NOT PERVERSE. UNLESS IT IS SO, OR BASED ON IRRELEVANT MATERIAL, OR BY FAILI NG TO TAKE INTO CONSIDERATION RELEVANT MATERIAL, NO INTERFERENCE COULD BE MADE. III. IN CIT VS. NEW DELHI HOTELS LTD. (SUPRA) (PGS.12-19 OF THE COMPILATION), AS AFORE-NOTED, THE AMOUNT WAS ADVANCED FOR PURCHASE O F PROPERTY, WHICH DID NOT MATERIALIZE AND NEITHER WAS THE AMOUNT REPAID. THE SAME WAS EXPLAINED TO BE A BUSINESS LOSS INASMUCH AS THE SAME WAS TOWARD ACQUI SITION OF STOCK-IN-TRADE OF HIS BUSINESS BY THE ASSESSEE, BEING IN REAL ESTATE BUSINESS. IV. IN MADNANI DEVELOPMENT CORPN. (P) LTD. VS. CIT [1986] 161 ITR 165 (SC) (PGS.35-37), THE ASSESSEE, A CONTRACTOR, ACQUIRED L AND FOR THE PURPOSE OF OBTAINING READY SUPPLY OF EARTH IN ORDER TO FULFILL A CONTRACT WITH THE RAILWAYS. THE LAND WAS NOT ITS STOCK-IN-TRADE AND, BESIDES, S HOWN AS A FIXED ASSET OF ITS BUSINESS BY THE ASSESSEE IN ITS BALANCE-SHEET. UNDE R THE CIRCUMSTANCES, THE LOSS ARISING ON THE SALE OF LAND WAS HELD TO BE A CAPITA L LOSS. WE ARE CLEARLY UNABLE TO SEE AS TO HOW THE SAID DEC ISIONS ARE OF ANY ASSISTANCE TO THE ASSESSEE; THE DECISION IN EACH CASE BEING BASED ON THE FINDING, ON AN APPRECIATION OF THE FACTS OF THE CASE, AS TO THE NATURE OF THE EXPE NDITURE, BASED ON THE PURPOSE FOR WHICH THE MONEY STOOD LAID OUT OR EXPENDED AND/OR THE NAT URE OF THE ADVANTAGE OR BENEFIT 11 ITA NO. 3097/MUM/2011 (A.Y. 2006-07) BLUE CHIP BUSINESS CENTRE PVT. LTD. VS. ITO EXPECTED TO BE DERIVED THEREFROM, WITH THERE BEING NO DISPUTE OR QUARREL AS REGARDS THE PRINCIPLE INVOLVED. THE DISTINCTION BETWEEN CAPITAL AND REVENUE EXPENDITURE, IT IS MAY BE APPRECIATED, IS, BY ITS NATURE, A COMMERCIAL DISTIN CTION. WHAT IS, THEREFORE, REQUIRED TO BE SEEN IS THE NATURE OF THE CONCERN; THE ORDINARY COU RSE OF BUSINESS BEING ADOPTED; AS WELL AS THE OBJECT WITH WHICH THE EXPENSE IS INCURRED. A ND THIS IS WHAT WE HAVE SOUGHT TO DO. 5. IN VIEW OF THE FOREGOING, WE HOLD THE IMPUGNED L OSS AS ONLY ON CAPITAL ACCOUNT AND, CONSEQUENTLY, NOT ON REVENUE ACCOUNT AND, THUS , RIGHTLY DISALLOWED IN COMPUTING THE ASSESSEES BUSINESS INCOME U/S.28 OF THE ACT. WE DE CIDE ACCORDINGLY. 6. IN THE RESULT, THE ASSESSEES APPEAL IS DISMISSE D. 1/ ,23 41, ) 1 ) ,567 ORDER PRONOUNCED IN THE OPEN COURT ON DECEMBER 31, 2013 SD/- SD/- (DR. S. T. M. PAVALAN) (SANJAY ARORA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER * + MUMBAI; 8 DATED : 31.12.2013 ' ROSHANI , SR. PS ! ' #$%& ' &$ ' COPY OF THE ORDER FORWARDED TO : 1. #% / THE APPELLANT 2. &'#% / THE RESPONDENT 3. ! ! * 9, : ; / THE CIT(A) 4. ! ! * 9, / CIT - CONCERNED 5. <= >&,?3 ! ?3 / * + / DR, ITAT, MUMBAI 6. > 4@ + ' GUARD FILE ! ( / BY ORDER, )/(* + (DY./ASSTT. REGISTRAR) , * + / ITAT, MUMBAI