SYNTHO RIFA PRIVATE LTD., MUMBAI V. ITO-4(3)(4), MUMBAI

ITA 3271/MUM/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 4031 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-07-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 15-07-2013
• Assessment Year: 2004-2005
• Appeal Filed On: 25-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: VISHWAS MEHANDALE
• Keywords: Business income
• Section: 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUM BAI .. , ! , '# ' $ BEFORE SHRI I. P. BANSAL, JM AND SHRI SANJAY ARORA , AM ./ I.T.A. NO.3271/MUM/2011 ( & ' (' & ' (' & ' (' & ' (' / / / / ASSESSMENT YEAR: 2004-05) SYNTHO RIFA PVT. LTD. B/39, MANGALDAS BLDG. NO.1, 2 ND FLOOR, S. G. ROAD, MUMBAI-400 002 & & & & / VS. ITO-4(3)(4), MUMBAI ) '# ./ * ./ PAN/GIR NO. AAACS 5491 G ( )+ / APPELLANT ) : ( ,-)+ / RESPONDENT ) )+ . ' / APPELLANT BY : SHRI VISHWAS MEHANDALE ,-)+ / . ' / RESPONDENT BY : SHRI AARSI PRASAD & / 01# / // / DATE OF HEARING : 15.07.2013 2 ( / 01# / DATE OF PRONOUNCEMENT : 26.07.2013 '3 / 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)-8, MUMBAI (CIT(A) FOR SHO RT) DATED 02.02.2011, NOT ALLOWING THE ASSESSEES APPEAL CONTESTING ITS ASSESSMENT U/S .143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR THE ASSESSMENT YEAR (A. Y.) 2004-05 VIDE ORDER DATED 30.11.2006. 2 ITA NO. 3271/MUM/2011 (A.Y. 2004-05) SYNTHO RIFA PRIVATE LTD. VS. ITO 2.1 EXPLAINING THE BACKGROUND FACTS OF THE CASE, IT WAS SUBMITTED BY THE LD. AR, THE ASSESSEES COUNSEL, THAT THE ASSESSEE, A COMPANY IN CORPORATED UNDER THE COMPANIES ACT, 1956, LET OUT ITS FACTORY ON AS IS BASIS TO M/S. NOVARTIS ENTERPRISES P. LTD. (SANDOZ P. LTD.); THE SAME INCLUDING PLANT AND MACHINERY, FURN ITURE AND FIXTURE, POWER AND OTHER INFRASTRUCTURE, AT A MONTHLY RENT OF RS.1 LAC. IN A DDITION, THE ASSESSEE WAS TO PROVIDE FACILITIES, AS TOWARDS STAFF AND SECURITY, REPAIRS AND MAINTENANCE, ETC., FOR WHICH IT WAS TO BE REIMBURSED ON ACTUALS. THE AMOUNT OF REIMBURSEME NT FOR THE YEAR AMOUNTED TO RS.18,22,886/-. THE ASSESSING OFFICER (A.O.) HAS, F OLLOWING THE DECISION IN THE CASE OF CIT VS. NATIONAL STORAGE PRIVATE LTD. [1963] 48 ITR 577 (BOM), SINCE CONFIRMED BY THE APEX COURT IN [1967] 66 ITR 596 (SC), BROUGHT THE E NTIRE RECEIPT OF RS.30.23 LACS FOR THE YEAR TO TAX AS INCOME FROM HOUSE PROPERTY, I.E., AS AGAINST BUSINESS INCOME RETURNED BY THE ASSESSEE. THIS IS THE SOLE DISPUTE ARISING IN T HE INSTANT CASE. THE ASSESSMENT HAVING BEEN SINCE CONFIRMED BY THE FIRST APPELLATE AUTHORI TY, THE ASSESSEE IS IN SECOND APPEAL. BOTH THE AUTHORITIES BELOW HAVE, HE CONTINUED, FAI LED TO APPRECIATE THE FACT THAT THE LEASE AGREEMENT IS FOR THE COMPOSITE FACTORY, INVOL VING LETTING OF PLANT AND MACHINERY, FURNITURE AND FIXTURE AND OTHER UTILITIES. WOULD, HE VENTURED, THE LEASE BE OFFERED TO THE ASSESSEE IF THE FACILITIES WERE NOT CAPABLE OF YIEL DING PRODUCTION OF PHARMACEUTICALS; THE ASSESSEE HAVING BEEN ENGAGED, I.E., PRIOR TO DISLOC ATION OF ITS BUSINESS, IN THE MANUFACTURE OF BULK DRUGS ? ON A QUERY BY THE BENCH AS TO THE PROVISIONS OF T HE LEASE AGREEMENT, WITH REFERENCE TO WHICH THE ISSUE WOULD STAND TO BE SUBSTANTIALLY, IF NOT TOTALLY, DECIDED; THE ORDERS BY THE AUTHORITIES BEL OW CONTAINING NO REFERENCE TO ITS TERMS AND CONDITIONS, AS WELL AS TO ITS DIFFERENT CLAUSES , HE CONCEDED THAT THE SAME WAS NOT PRODUCED BEFORE THE A.O., BUT ONLY FOR THE FIRST TI ME BEFORE THE FIRST APPELLATE AUTHORITY. ON ANOTHER QUERY BY THE BENCH AS TO IF THE ASSESSEE S FACTORY WAS ACTUALLY USED FOR THE PRODUCING THE BULK DRUGS BEING MANUFACTURED AND SOL D BY THE LESSEE DURING THE YEAR, TO WHICH AGAIN THERE IS NO REFERENCE IN THE ORDERS OF THE AUTHORITIES BELOW, HE ANSWERED IN THE AFFIRMATIVE. IT WAS FURTHER EXPLAINED THAT THOU GH THE LEASE AGREEMENT HAD NOT BEEN ADDUCED BEFORE THE A.O., IT WAS DULY SUBMITTED BEFO RE THE FIRST APPELLATE AUTHORITY (AS IT IS 3 ITA NO. 3271/MUM/2011 (A.Y. 2004-05) SYNTHO RIFA PRIVATE LTD. VS. ITO NOW BEFORE THE TRIBUNAL PB PGS.23-32), TAKING US TO THE RELEVANT PART OF HIS ORDER, WHO THOUGH HAS NOT ISSUED ANY FINDING WITH REFERENCE TH ERETO. 2.2 THE LD. DR, ON THE OTHER HAND, WOULD RELY ON TH E ORDERS OF THE AUTHORITIES BELOW, STATING THAT THE ISSUE STANDS DECIDED RELYING ON RU LINGS DELIVERED IN SIMILAR CIRCUMSTANCES, SO THAT THE ORDERS BY THE REVENUE AUTHORITIES ARE W ELL INFORMED AND IN CONSONANCE TO THE LAW AS EXPLAINED BY THE HIGHER COURTS OF THE LAW. 3. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. AS OBSERVED EARLIER, NEITHER THE FACT OF THE USER OF THE ASSESS EES PREMISES AS A FACTORY FOR ITS PRODUCTION BY THE LESSEE NOR THE TERMS OF THE LEASE AGREEMENT, WHICH ARE VITAL IN DECIDING THE ISSUE, HAVE BEEN REFERRED TO BY THE AUTHORITIES BELOW. THE FACT THAT IS RELEVANT, EVEN AS SOUGHT TO BE EMPHASIZED BY THE LD. AR DURING HEARIN G, IS WHETHER THE LETTING ON HIRE OF PLANT AND MACHINERY AND OTHER UTILITIES BY THE ASSE SSEE IS INSEPARABLE FROM THE LETTING OF THE BUILDING OR NOT, WHILE WE FIND THE ORDERS BY BO TH THE AUTHORITIES BELOW TO BE SANS ANY FINDING THEREON. THIS IS AS SECTION 56(2)(III) SPEC IFICALLY PROVIDES FOR SUCH A CONTINGENCY, IN WHICH CASE THE COMPOSITE INCOME WOULD STAND TO B E ASSESSED AS INCOME FROM OTHER SOURCES, I.E., IF NOT CHARGEABLE UNDER THE HEAD P ROFITS AND GAINS OF BUSINESS OR PROFESSION. THE LEADING AUTHORITY IN THE MATTER IS THE DECISION BY THE APEX COURT PER ITS CONSTITUTION BENCH IN SULTAN BROTHERS (P.) LTD. VS. CIT [1964] 51 ITR 353 (SC), WHICH CONTINUES TO HOLD THE FIELD. AND IT IS TOWARD THIS THAT THE QUERY QUA THE LESSEES PRODUCTION USING HIRED MACHINERY AND OTHER UTILITIE S WAS POSED DURING HEARING. AS REGARDS THE ORDERS OF THE REVENUE AUTHORITIES, W E HAVE ALREADY NOTED THEIR ORDERS TO BE SANS THE FACTUAL FINDINGS WHICH ARE RELEVANT FOR DECIDI NG THE LEGAL ISSUE ARISING IN THE INSTANT CASE. THE LD. CIT(A), THOUGH ADMITTING THE LEASE AGREEMENT IN EVIDENCE, DID NOT REMAND THE MATTER BACK TO THE A.O . FOR HIS VERIFICATION/EXAMINATION AND COMMENTS IN THE MATTER. LIKEWISE, THERE IS NO REFER ENCE TO THE PRODUCTION DURING THE YEAR, IF ANY, BY THE ACTUAL USER OF THE ASSESSEES FACTOR Y, I.E., AS A PRODUCTION UNIT OR WORKS. WITH REGARD TO THE DECISIONS RELIED UPON BY THE LD. CIT(A), THE SAME ARE PRIMARILY WITH 4 ITA NO. 3271/MUM/2011 (A.Y. 2004-05) SYNTHO RIFA PRIVATE LTD. VS. ITO REGARD TO THE HEAD OF INCOME UNDER WHICH THE INCOME FROM HOUSE PROPERTY IS TO BE ASSESSED CONSIDERING THAT THE ASSESSEE CLOSED ITS B USINESS YEARS AGO, AND HAD FAILED TO RESTART ITS CLOSED BUSINESS EVEN AFTER 17 YEARS. TH E SAME, AS APPARENT, IS OFF THE MARK, AS WITHOUT DOUBT IF THE TWO LETTINGS, I.E., OF THE BUI LDING AND OF THE PLANT AND MACHINERY AND OTHER UTILITIES, ARE NOT INSEPARABLE, THE LEASE REN T IN RESPECT OF THE HOUSE PROPERTY WOULD STAND TO BE ASSESSED AS INCOME FROM HOUSE PROPERTY . THIS, HOWEVER, HIGHLIGHTS ANOTHER ASPECT OF THE MATTER, WHICH AGAIN BEING PURELY FACT UAL WOULD NEED TO BE CONSIDERED AND EXAMINED BY THE REVENUE. THAT IS, THE FUNCTIONAL UT ILITY OF THE PLANT AND MACHINERY AND OTHER FACILITIES, CONSIDERING THAT THE ASSESSEES P REMISES IS ADMITTEDLY LYING UNUSED, OR PRACTICALLY SO, FOR THE LAST 17 YEARS AND, FURTHER, HAS BEEN LEASED OUT ON AS IS BASIS. THIS IS PRECISELY THE REASON WHY OUR QUERY WITH REGARD T O THE ACTUAL PRODUCTION BY USING THOSE FACILITIES ASSUMES CRITICAL SIGNIFICANCE AND RELEVANCE. UNDER THE CIRCUMSTANCES, THEREFORE, IT IS ONLY CONS IDERED FIT AND PROPER THAT THE MATTER IS RESTORED BACK TO THE FILE OF THE A.O. FOR A FRESH CONSIDERATION OF ALL THE FACTS AND ISSUES HAVING A BEARING IN THE MATTER, AND ADJUDICA TION AFRESH AFTER ALLOWING PROPER OPPORTUNITY OF HEARING TO THE ASSESSEE. THE AO SHAL L ALSO EXAMINE THE APPLICABILITY OF THE RULINGS RELIED UPON BY THE LD. CIT(A); THE LD. DR C LAIMING THEM TO HAVE BEEN RENDERED UNDER SIMILAR CIRCUMSTANCES. WE DECIDE ACCORDINGLY. 4. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. 4 05 & '40 / 6/ 78'9 ' :0 / 0 ;< ORDER PRONOUNCED IN THE OPEN COURT ON JULY 26, 2013 SD/- SD/- (I. P. BANSAL) (SANJAY ARORA) / JUDICIAL MEMBER '# / ACCOUNTANT MEMBER MUMBAI; =& DATED : 26.07.2013 .&../ ROSHANI , SR. PS 5 ITA NO. 3271/MUM/2011 (A.Y. 2004-05) SYNTHO RIFA PRIVATE LTD. VS. ITO '3 / ,0> ?'>(0 '3 / ,0> ?'>(0 '3 / ,0> ?'>(0 '3 / ,0> ?'>(0/ COPY OF THE ORDER FORWARDED TO : 1. )+ / THE APPELLANT 2. ,-)+ / THE RESPONDENT 3. @ ( ) / THE CIT(A) 4. @ / CIT - CONCERNED 5. >CD ,0& , , / DR, ITAT, MUMBAI 6. DE' F / GUARD FILE '3& '3& '3& '3& / BY ORDER, 7 77 7/ // /; ; ; ; (DY./ASSTT. REGISTRAR) , , , , / ITAT, MUMBAI