Garikapati Raghuram Rep. by GPA Smt. Prameela Devi, Hyderabad, Hyderabad V. DCIT-2, International Taxation, Hyderabad, Hyderabad

ITA 315/HYD/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 1250 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-03-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB-A
• Next Hearing Date: 17-01-2019
• Assessment Year: 2010-2011
• Appeal Filed On: 23-02-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business income; Business expenditure
• Section: 148

Judgement Text

` IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A ', HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN , ACCOUNTANT MEMBER ITA NO S . 314 & 315 / HYD/201 7 ASSESSMENT YEAR S : 20 07 - 08 & 2010 - 11 G. RAGHURAM, REP. BY GPA SMT. PRAMEELA DEVI, HYDERABAD. PAN A HXPG 7433 R VS. DY. COMMISSIONER OF INCOME - TAX, INTERNATIONAL TAXATION, HYDERABAD. APPELLANT RESPONDENT ASSESSEE BY: S HRI V. RAGHAVENDRA RAO REVENUE BY: SHRI K. MOHAN REDDY DATE OF HEARING: 17 / 0 1 / 201 9 DATE OF PRONOUNCEMENT: 20 / 0 3 /201 9 O R D E R PER S. RIFAUR RAHMAN , AM: BOTH T H E S E APPEAL S FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER S OF CIT(A) 10, HYDERABAD, FOR AYS 2007 - 08 AND 2010 - 11. AS IDENTICAL ISSUES ARE INVOLVED IN BOTH THESE APPEALS, THEY WERE CLUBBED AND HEARD TOGETHER AND THEREFORE, A COMMON ORDER IS PASSED FOR THE SAKE OF CONVENIENCE. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL AND ADDITIONAL GROUNDS OF APPEAL, WHICH ARE COMMON IN BOTH THE APPEALS UNDER CONSIDERATION: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) - 10, HYDERABAD OUGHT NOT TO HAVE DISMISSED THE APPEAL. 2. THE LEARNED CIT(A) OUGHT TO HAVE HELD THAT THE RE - ASSESSMENT PROCEEDINGS INITIATED BY THE ASSESSING OFFICER ARE NOT VALID IN THE EYE OF LAW FOR THE REASONS THAT: I.T.A. NO S . 314 & 315 /HYD/1 7 G. RAGHURAM, HYD. 2 (A) THERE ARE NO REASONS TO BELIEVE THAT THE INCOME GOT ESCAPED ASSESSMENT FROM TAX; (B) FOR THE REASON THAT THE ASSESSING OFFICER HAD FAILED TO FURNISH THE REASONS RECORDED FOR ISSUANCE OF THE NOTICE UNDER SECTION 148 OF THE ACT, DESPITE THE REQUEST MADE BY THE APPELLANT. 3. WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED CIT(A) OUGHT TO HAVE HELD THAT THE INCOME FROM THE PROPERTY DERIVED FROM THE PROVISION OF AMENITIES TO THE TENANTS OF THE PROPERTY IS ASSESSABLE UNDER THE HEAD 'INCOME FROM BUSINESS'. ADDITIONAL GROUND: 3(B) THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THAT THE INTEREST EXPENDITURE INCURRED ON THE AMOUNTS BORROWED FOR THE PROVISION OF AMENITIES IS ALLOWABLE AS AN EXPENDITURE. 4. FOR THESE OR ANY OTHER GROU ND OR GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING, IT IS PRAYED THAT THE HON. TRIBUNAL MAY BE PLEASED TO ALLOW THE APPEAL. 3. THE ASSESSEE HAS RAISED 3 GROUNDS AND SEVERAL GROUNDS AS ADDITIONAL GROUND S. AT THE TIME OF HEARING, ASSESSEE HAS PRESSED ONLY GROUND NO. 3(B) OF ADDITIONAL GROUNDS AND ACCORDINGLY, OTHER ADDITIONAL GROUNDS ARE DISMISSED AS NOT PRESSED. THE ASSESSEE HAS RA ISED ORIGINAL 3 GROUNDS AND AT THE TIME OF HEARING, NOT PRESSED GROUND NO. 2, ACCORDINGLY DISMISSED THE SAME AS NOT PRESSED. 4 . WE ARE LEFT WITH ONLY TWO GROUNDS TO ADJUDICATE I.E. GROUND NO. 3 OF ORIGINAL GROUND AND GROUND NO. 3(B) OF ADDITIONAL GROUND. 5 . THE BRIEF FACTS OF THE CASE ARE, ASSESSEE IS HAVING COMMERCIAL PROPERTY WHICH IS RENTED TO M/S SATYAM COMPUTER SERVICES LTD. ASSESSEE WAS RECEIVING CONSOLIDATED AMOUNT AS RENT AND HIRE CHARGES OF EQUIPMENT, INTERIORS AND FURNITURE. I.T.A. NO S . 314 & 315 /HYD/1 7 G. RAGHURAM, HYD. 3 ASSESSEE IS DECLARI NG THE ABOVE HIRE CHARGES AN INCOME FROM BUSINESS OR PROFESSION. IT IS ALSO IMPORTANT TO NOTE THAT IN ORDER TO PROVIDE THE EQUIPMENT AND FURNITURE, ASSESSEE HAS TAKEN LOAN FROM BANK AND THE RELEVANT INTEREST WAS CHARGED TO P&L A/C AS BUSINESS EXPENDITURE. IN THE EARLIER ASSESSMENTS, AO HAS REJECTED THE CLAIM OF THE ASSESSEE AND TREATED THE CONSOLIDATED RECEIPT OF RENT AND HIRE CHARGES AS INCOME FROM HOUSE PROPERTY. THE SAME VIEW WAS UPHELD BY THE COORDINATE BENCH. ASSESSEE PREFERRED AN APPEAL BEFORE THE HIG H COURT. 6. SIMILAR ISSUE WAS RAISED BY THE ASSESSEE IN THE APPEAL FOR THE AY UNDER CONSIDERATION. MEANWHILE, ASSESSEE IS DECLARING THE HIRE CHARGES AS BUSINESS INCOME AND CLAIMED THE RELEVANT INTEREST ON LOAN AS BUSINESS EXPENDITURE. SINCE, THE AUTHORIT IES HAVE TREATED THE HIRE CHARGES AS PART OF RENTAL INCOME, THEY ALSO REJECTED THE INTEREST EXPENDITURE AS CLAIMABLE EXPENDITURE, AS IT IS CLAIMED AS BUSINESS EXPENDITURE. 7. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WITH REGAR D TO GROUND NO. 3, THE COORDINATE BENCH HAS DECIDED THE ISSUE IN FAVOUR OF THE REVENUE, THE RELEVANT EXTRACT IS REPRODUCED BELOW: 9. THE ANNUAL RENT IN A CASE WHEN THE PROPERTY IS LET THROUGH OUT THE YEAR IS THE ACTUAL RENT RECEIVED OR RECEIVABLE BY THE OWNER. WHEN THE AMOUNT OF THE ACTUAL RENT RECEIVED OR RECEIVABLE BY THE OWNER, IS KNOWN THAT WOULD CONSTITUTE THE BASIS FOR DETERMIN ING THE ANNUAL VALUE AND IT IS THAT VALUE WHICH WILL HAVE TO FORM THE BASIS FOR DETERMINING THE INCOME FROM HOUSE PROPERTY AND FOR ALLOWING DEDUCTION FROM INCOME FROM HOUSE PROPERTY TO THE EXTENT IS PERMITTED UNDER THE OTHER PROVISIONS OF THE ACT. IN THE P RESENT CASE, THE ASSESSEE MADE TWO AGREEMENTS ONE FOR LET OUT OF THE PROPERTY AND ANOTHER FOR PROVIDING AMENITIES AND THERE IS A DOUBT IN THE MIND OF THE ASSESSING OFFICER REGARDING THE CORRECTNESS OF THE INCOME DECLARED BY THE ASSESSEE AS 'INCOME FROM HOU SE PROPERTY' AND INCOME FROM BUSINESS. HE HAS TREATED THE ENTIRE INCOME I.E. AS 'INCOME FROM HOUSE PROPERTY'. ADMITTEDLY, THE AUTHORITIES HAVE THE I.T.A. NO S . 314 & 315 /HYD/1 7 G. RAGHURAM, HYD. 4 FREEDOM TO GO BEYOND THE DOCUMENTS TO FIND OUT THE REAL INTENTION OF THE PARTIES. IN THIS CASE, THOUGH THERE IS TWO AGREEMENTS THE REAL INTENTION OF THE PARTIES TO A DOCUMENT IS DIFFERENT WHAT APPEARS FROM IT EX FACIE. SINCE THERE IS A DOUBT, THEN THE ASSESSING OFFICER IS JUSTIFIED IN GOING BEYOND THE DOCUMENTS TO FIND OUT REAL INTENTION OF THE PARTIES BY IGNORIN G THE APPARENT HAS TO BE AND HAS ALWAYS BEEN CONCEDED. IN THIS CIRCUMSTANCE, THE ASSESSING OFFICER HAS TO REMOVE THE FAADE TO EXPOSE THE REAL INTENTION OF THE PARTIES CLEVERLY CLOAKED AND THE ACTUAL AGREEMENT CANNOT BE GIVEN EFFECT. THE ONLY BONA FIDE DOC UMENT TO BE ACTED UPON NOT OTHERWISE. THERE IS A SERIOUS DOUBT AND ALSO IT IS SHOCKING THE CONSCIOUS OF THE BENCH, WHETHER THE ASSESSEE IS GETTING HIRE CHARGES EQUAL TO THE RENTAL AMOUNT FOR PROVIDING AMENITIES. IT CANNOT BE REAL ONE AND ASSESSING OFFICER REQUIRED TO SEE THE ACTUAL RENTAL VALUE OF THE PROPERTY IN THAT PLACE AND BRING THAT AMOUNT INTO TAX UNDER THE HEAD 'INCOME FROM HOUSE PROPERTY. AS SUCH, IN THE PRESENT CASE, THE ASSESSING OFFICER CAME TO THE CORRECT CONCLUSION THAT REAL RENTAL VALUE WAS B IFURCATED INTO TWO SEPARATE INCOME VIZ., ONE IS RENTAL INCOME OF HOUSE PROPERTY AND ANOTHER IS HIRE CHARGES OF THE EQUIPMENT. FURTHER, IN THE CASE OF LETTING OF THE MACHINERY, PLANT OR FURNITURE, SEC.56(2) (III) OF THE ACT IS APPLICABLE, BUT ONLY LETTING O F BUILDING WITH CERTAIN AMENITIES, THIS PROVISION IS NOT APPLICABLE AND IN THAT EVENT, THE INCOME FROM LETTING OUT WAS CHARGEABLE UNDER THE HEAD 'INCOME FROM HOUSE PROPERTY'. THE HIRE CHARGES SAID TO HEVE BEEN COLLECTED FOR THE PURPOSE OF PROVIDING AMENITI ES AND THE RENT FOR THE BUILDING NOT COME UNDER THE PURVIEW OF SEC.56(2)(III) OF THE ACT. THE WORD 'PLANT' CANNOT BE LIBERALLY CONSTRUED SO AS TO INCLUDE ALL ITEMS NOTED IN ANNEXURE I APPEARING ELSEWHERE IN THE ORDER, WITHIN THE AMBIT OF THE WORD 'PLANT'. IT IS NOT POSSIBLE TO GIVE SUCH A WIDE CONSTRUCTION AS SUGGESTED BY THE LEARNED COUNSEL FOR THE AS S ESSEE. IN THE CASE OF SULTAN BROTHERS PVT.LTD. V. CIT 51 ITR 353 (SC) WHAT WAS LET OUT TO THE TENANT WAS A BUILDING FITTED UP WITH THE FURNITURE AND FIXTURES , FOR BEING RUN AS A HOTEL. THEREFORE, THE SUPREME COURT HELD THAT SINCE THE BUILDING WAS LET ALONG WITH THE FURNITURE AND FIXTURES, THE PROVISIONS OF SEC.56(2) (III) WOULD BE APPLICABLE AND THE INCOME FROM BUILDING SHOULD BE ASSESSED UNDER THE HEAD 'OTHER SOURCES'. BUT ACCORDING TO THE FACT ARISING IN THE PRESENT CASE, PLANT AND MACHINERY OR FURNITURE WAS NOT HIRED BY THE ASSESSEE ALONG WITH THE BUILDING. THEREFORE, THE DECISION OF THE APEX COURT IN SULTAN BROS CASE SUPRA, WILL NOT BE APPLICABLE TO THE FAC TS OF THE PRESENT CASE. THUS, ON A PLAIN READING OF SEC.56(2)(III) OF THE ACT, IN THE LIGHT OF THE FACTS OF THE CASE, WE HOLD THAT CONCLUSION REACHED BY THE CIT(A) IS NOT CORRECT. FURTHER, NO PRECISE TEST CAN BE LAID OUT TO ASCERTAIN WHETHER INCOME REFERRE D TO BY WHATEVER NOMENCLATURE, LEASE AMOUNT, RENT OR LICENCE FEE RECEIVED BY AN ASSESSEE FROM LEASING OR I.T.A. NO S . 314 & 315 /HYD/1 7 G. RAGHURAM, HYD. 5 LETTING OUT OF ASSETS WOULD FALL UNDER THE HEAD 'PROFIT AND GAINS OF BUSINESS OR PROFESSION AND IT HAS TO BE DETERMINED FROM THE POINT OF VIEW OF A BUS INESSMAN IN THAT BUSINESS DEPENDING UPON THE FACT AND CIRCUMSTANCES OF EACH CASE AND THERE IS NO READYMADE JACKET FORMULA. THE RATIO LAID DOWN BY ONE CASE CANNOT BE APPLIED OR FIT TO THE FACTS OF THE PRESENT CASE. WE HAVE TO SEE THE INTENTION OF THE ASSESS EE WHETHER THE LETTING WAS THE DOING OF A BUSINESS OR TO EXPLOITATION OF HIS PROPERTY BY AN OWNER. THE ASSESSEE WHEN EXPLOITED THE PROPERTY TO DERIVE RENTAL INCOME IT HAS TO BE HELD THAT THE INCOME REALIZED BY HIM BY WAY OF RENTAL INCOME FROM A BUILDING IF THE PROPERTY WITH OTHER ASSET ATTACHED TO THE BUILDING TO BE ASSESSED AS 'INCOME FROM HOUSE PROPERTY' ONLY. THE ONLY EXCEPTIONS ARE CASES WHERE THE LETTING OF THE BUILDING IS INSEPARABLE FROM LETTING OF THE MACHINERY, PLANT AND FURNITURE. IN SUCH CASES, I T HAS TO BE HELD THAT THE RENTAL WOULD NOT HAVE BEEN REALIZED BUT FOR THE LETTING OUT OF THE MACHINERY, PLANT OR FURNITURE ALONG WITH SUCH BUILDING AND THEREFORE, RENTAL RECEIVED FOR THE BUILDING IS TO BE ASSESSED UNDER THE HEAD 'INCOME FROM OTHER SOURCES' . IN THE PRESENT CASE, ON THE FACTS OF THE CASE, IT IS CLEAR THAT THE ASSESSEE AS THE OWNER OF THE BUILDING WAS ONLY EXPLOITING THE PROPERTY AS OWNER BY LETTING OUT THE SAME AND REALIZING INCOME BY WAY OF RENT. SUCH RENTAL INCOME WAS LIABLE TO BE ASSESSED UNDER THE HEAD 'INCOME FROM HOUSE PROPERTY.' THE VARIOUS ASSETS LET OUT TO THE TENANTS ARE INCIDENTAL TO LETTING OUT THE BUILDING BEING INTEGRAL PART OF THE LETTING. ACCORDINGLY, WE REVERSE THE ORDER OF THE CIT(A) AND RESTORE THAT OF THE ASSESSING OFFICER. THIS GROUND OF THE REVENUE IS ALLOWED. RESPECTFULLY FOLLOWING THE SAME, THE GROUND RAISED BY THE ASSESSEE IS DISMISSED. 8. WITH REGARD TO ADDITIONAL GROUND NO. 3(B), WE NOTICE THAT ASSESSEE HAS AVAILED LOAN TO ARRANGE THE RELEVANT FIXED ASSETS IN THE B UILDING AND INCURRED INTEREST EXPENDITURE. SINCE, THE ASSESSEE WAS CLAIMING THEM AS BUSINESS EXPENDITURE AS THE INCOME WAS DECLARED AS BUSINESS INCOME. AS THE AUTHORITIES HAVE TREATED THE BUSINESS INCOME AS INCOME FROM HOUSE PROPERTY, THE INTEREST EXPENDIT URE IS CONNECTED TO THE EARNING OF INCOME AND HEAD OF INCOME WAS CHANGED DUE TO THE FACTS OF THE CASE, THE RELEVANT EXPENDITURE IS ACCORDINGLY CLAIMABLE U/S 24(B) OF THE ACT. MERELY ACCEPTING THE INCOME AND EXCLUDING I.T.A. NO S . 314 & 315 /HYD/1 7 G. RAGHURAM, HYD. 6 THE RELATED EXPENDITURE IS NOT PROPER. THEREFORE, WE DIRECT THE AO TO ALLOW THE RELEVANT EXPENDITURE, WHICH ASSESSEE HAS INCURRED TO EARN THE RENTAL INCOME. ACCORDINGLY, ADDITIONAL GROUND RAISED BY THE ASSESSEE IS ALLOWED. 9. AS THE FACTS AND GROUNDS IN AY 2010 - 11 ARE MATERIALLY IDENTICAL TO T HAT OF AY 2007 - 08, FOLLOWING THE CONCLUSIONS DRAWN THEREIN, GROUND NO. 3 RAISED IN THE GROUNDS OF APPEAL IS DISMISSED AND ADDITIONAL GROUND NO. 3(B) IS ALLOWED. 10. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED. PRONOUNCED IN THE OP EN COURT ON 20 TH M ARCH , 201 9. SD/ - ( P. MADHAVI DEVI ) JUDICIAL MEMBER SD/ - ( S. RIFAUR RAHMAN ) ACCOUNTANT MEMBER HYDERABAD, DATED 20 TH MARCH , 201 9. KV COPY FORWARDED TO: 1. SHRI G. RAGHURAM, C/O M/S A. MADHUSUDANA & CO., CAS., 101, DOYEN CHAMBERS, 8 - 3 - 319/11, YELLAREDDYGUDA HYDERABAD 500 073. 2 . D C IT 2, INTERNATIONAL TAXATION, AAYAKAR BHAVAN, BASHEERBAGH, HYDERABAD . 3 . CIT (A) - 10 , HYDERABAD 4. CIT (IT & TP) , HYDERABAD 5. THE DR, ITAT, HYDERABAD 6. GUARD FILE