L G Foundations Private Ltd., CHENNAI V. CIT, CHENNAI

ITA 3320/CHNY/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 7604 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-03-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 08-12-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: C. ANANDA KUMAR
• Keywords: Set aside
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 92

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C (SMC) BENCH : CHENNAI . , ! [BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT M EMBER ] ./I.T.A. NO.3320/MDS/2016 / ASSESSMENT YEAR : 2012-2013 LG FOUNDATIONS PRIVATE LIMITED, NO.57, OUTER CIRCULAR ROAD, KILPAUK, CHENNAI 600 010. [PAN AAACL 5038J] VS THE INCOME TAX OFFICER, CORPORATE WARD 4(4) CHENNAI, ( '# / APPELLANT) ( $%'# /RESPONDENT) / APPELLANT BY : SHRI. C. ANANDA KUMAR, C.A. /RESPONDENT BY : SHRI. R. CLEMENT RAMESH KUMAR, JCIT. /DATE OF HEARING : 01-03-2017 ! /DATE OF PRONOUNCEMENT : 07-03-2017 & / O R D E R IN THIS APPEAL FILED BY THE ASSESSEE, ITS GRIEVANC E IS THAT ITS INCOME FROM LETTING OUT PROPERTY WAS CONSIDERED UND ER THE HEAD INCOME FROM HOUSE PROPERTY THOUGH IT HAD RETURN ED SUCH INCOME UNDER THE HEAD PROFIT OF BUSINESS/PROFESSION, DISREGARDING OBJECT CLAUSE NUMBER 8 OF ITS MEMORANDUM OF ASSOCIATION (M OA). ITA NO.3320/MDS/2016. :- 2 -: 2. LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT ASSESSEE HAD CONSTRUCTED A BUILDING AT COCHIN FOR THE PURPOSE OF RUNNING A HOTEL. AS PER LD. AUTHORISED REPRESENTATIVE THE HOTEL BUSI NESS COULD NOT BE COMMENCED AND THE BUILDING WAS IN THE MEANTIME LET OUT TO VARIOUS TENANTS, INCLUDING RELIANCE WEB STORE LIMITED, POP ULAR FINANCIERS, CHANNEL FOODS AND JOHNEY ARAKKAL ULAHANNAN. AS P ER LD. AUTHORISED REPRESENTATIVE, UNION BANK OF INDIA MENTIONED AS T ENANT, WAS ACTUALLY NOT A TENANT AND THE INCOME FROM M/S. UNIO N BANK OF INDIA WAS INTEREST AND NOT RENTALS. SUBMISSION OF THE LD. AUTHORISED REPRESENTATIVE WAS THAT THE RECEIPTS WERE CORRECTL Y OFFERED UNDER THE HEAD PROFITS AND GAINS FROM BUSINESS/PROFESSION , SINCE INTENTION OF THE ASSESSEE WAS TO RUN A HOTEL AND THIS WAS ONLY A INTERIM ARRANGEMENT. AS PER LD. AUTHORISED REPRESENTATIVE, ASSESSING OFFICER HAD ERRONEOUSLY RELIED ON THE JUDGMENT OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS . CHENNAI PROPERTIES AND INVESTMENTS LTD 266 ITR 685 FOR HOLDING THAT SUCH INCOME WAS TO BE ASSESSED ON LY UNDER THE HEAD INCOME FROM HOUSE PROPERTY. FURT HER, AS PER LD. AUTHORISED REPRESENTATIVE, LD. COMMISSIONER OF INC OME TAX (APPEALS) ERRED IN CONFIRMING THE CHANGE OF HEAD, DESPITE PO INTING OUT THAT HONBLE APEX COURT HAD REVERSED THE JUDGMENT OF HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CHENNAI PR OPERTIES AND INVESTMENTS LTD (SUPRA). AS PER LD. AUTHORISED REPR ESENTATIVE THERE ITA NO.3320/MDS/2016. :- 3 -: WAS A SPECIFIC OBJECT CLAUSE IN ITS MOA WHICH ALL OWED IT TO DO ANY OTHER BUSINESS IN CONNECTION WITH RUNNING A HOTEL. IN ANY CASE, ACCORDING TO LD. AUTHORISED REPRESENTATIVE, PART O F THE INCOME WAS FROM PROVIDING AMENITIES TO THE TENANTS AND NOT DUE TO TENANCY. AS PER LD. AUTHORISED REPRESENTATIVE THERE WERE COMMON FACILITIES LIKE GARDEN WHICH WAS MAINTAINED BY THE ASSESSEE. THUS , ACCORDING TO HIM, SHIFTING OF RENTAL INCOME FROM THE HEAD OF BUS INESS TO HOUSE PROPERTY WAS INCORRECTLY DONE. 3. PER CONTRA, LD. AUTHORISED REPRESENTATIVE STRONGLY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 4. I HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE ORDE RS OF THE LOWER AUTHORITIES. IT IS NOT DISPUTED THAT ASSESSE E HAD DERIVED INCOME ON ACCOUNT OF TENANCY. ASSESSEE HAD CONSTRUCTED A BUILDING AND LET OUT TO VARIOUS PARTIES. THOUGH THE BUILDING MIGHT H AVE BEEN CONSTRUCTED WITH THE INTENTION TO RUN A HOTEL, THE FACT IS THAT INCOME OF THE ASSESSEE CAME FROM TENANCY OF THE SAID BUILD ING TO VARIOUS PERSONS. WHAT WAS HELD BY THE HONBLE APEX COURT IN THE CASE OF CHENNAI PROPERTIES AND INVESTMENTS LTD (SUPRA ) HAS BEEN REPRODUCED BY LD. COMMISSIONER OF INCOME TAX (APPEALS) IN HIS ORDER. FOR BREVITY IT IS ONCE AGAIN PRINTED HEREUNDER:- ITA NO.3320/MDS/2016. :- 4 -: NO DOUBT IN SULTAN BROTHERS (P) LTD. 'S CASE, CONSTITUTION BENCH JUDGMENT OF THIS COURT HAS CLARIFIED THAT MERELY AN ENTRY IN THE OBJECT CLAUSE SHOWING A PARTICULAR OBJECT WOULD NOT BE THE DETERMINATIVE FACTOR TO ARRIVE AT AN CONCLUSION WHETHER THE INCOME IS TO BE TREATED AS INCOME FROM BUSINESS AND SUCH A QUESTION WOULD DEPEND UPON THE CIRCUMSTANCES OF EACH CASE, VIZ., WHETHER A PARTICULAR BUSINESS IS LETTING OR NOT. THIS IS SO STATED IN THE FOLLOWING WORDS :- WE THINK EACH CASE HAS TO BE LOOKED AT FROM A BUSINESSMAN'S POINT OF VIEW TO FIND' OUT WHETHER THE LETTING WAS THE DOING OF A BUSINESS OR THE EXPLOITATION OF HIS PROPERTY BY AN OWNER. WE DO NOT FURTHER THINK THAT A THING CAN BY ITS VERY NATU RE BE A COMMERCIAL ASSET. A COMMERCIAL ASSET IS ONLY AN ASSET USED IN A BUSINESS AND NOTHING ELSE, AND BUSINESS MAY BE CARRIED ON WITH PRACTICALLY ALL THINGS. THEREFORE, IT IS NOT POSSIBLE TO SAY THAT A PARTICULAR ACTIVITY IS BUSINESS BECAUSE IT IS CONCERNED WITH AN ASSET WITH WHICH TRADE IS COMMONLY CARRIED ON. WE FIND NOTHING IN THE CASES REFERRED, TO SUPPORT THE PROPOSITION THAT CERTAIN ASSETS ARE COMMERCIAL ASSETS IN THEIR VERY NATURE.' WE ARE CONSCIOUS OF THE AFORESAID DICTA LAID DOWN I N THE CONSTITUTION BENCH JUDGMENT. IT IS FOR THIS REASON, WE HAVE, AT THE BEGINNING OF THIS JUDGMENT, STATED THE CIRCUMSTANCES OF THE PRESENT CASE FROM WHICH WE ARRIVE AT IRRESISTIBLE CONCLUSION THAT IN T HIS CASE, LETTING OF THE PROPERTIES IS IN FACT IS THE BUSINESS OF THE ASSESSEE. IN OUR OPINION, LD. COMMISSIONER OF INCOME TAX (APP EALS), AFTER REPRODUCING THE ABOVE VITAL PART OF THE JUDGMENT OF HONBE APEX COURT, HOWEVER FAILED TO VERIFY THE FACTS OF THE CASE, TO JUDGE WHETHER ASSESSEES CASE CAME WITHIN A FOUR CORNERS OF THE LAW LAID DOWN BY THE APEX COURT. FURTHER, ONE OF THE CONTEN TION OF THE ASSESSEE IS THAT UNION BANK OF INDIA WAS NOT A TENA NT AT ALL AND A PART OF THE INCOME WAS FROM LETTING OUT FACILITIES. CONS IDERING ALL THESE, I ITA NO.3320/MDS/2016. :- 5 -: AM OF THE OPINION THAT THE MATTER REQUIRES A FRESH LOOK BY THE LD. ASSESSING OFFICER HIMSELF. I SET ASIDE THE ORDERS O F THE LOWER AUTHORITIES AND REMIT THE QUESTION WHETHER RENTAL I NCOME DERIVED BY THE ASSESSEE NEEDS TO BE CONSIDERED UNDER THE HEAD PROFITS AND GAIN FROM BUSINESS OR PROFESSION INCOME FROM HOUSE P ROPERTY BACK TO THE FILE OF THE LD. ASSESSING OFFICER FOR CONSIDERA TION AFRESH IN ACCORDANCE WITH LAW. 5. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED F OR STATISTICAL PURPOSE. ORDER PRONOUNCED ON TUESDAY, THE 7TH DAY OF M ARCH , 2017, AT CHENNAI. SD/- ( . ) (ABRAHAM P. GEORGE) / ACCOUNTANT MEMBER '# / CHENNAI $% / DATED: 7TH MARCH, 2017 KV %& '()( / COPY TO: 1 . / APPELLANT 3. *+, / CIT(A) 5. (-. / / DR 2. / RESPONDENT 4. * / CIT 6. .01 / GF