KNIGHT RAJ PROPERTIES P.LTD, MUMBAI V. ITO 10(1)(4), MUMBAI

ITA 3326/MUM/2017

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 0337 (ITAT-MUMBAI)
• Duration Of Justice: 9 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-02-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 18-07-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 05-05-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N HEMALATHA
• Keywords: Business income; Business expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES SMC, MUMBAI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER ITA NO.3326/MUM/2017 ASSESSMENT YEAR : 2012-13 KNIGHT RAJ PROPERTIES P LTD., KINGDOM FORMERLY W.I.T. BLDG., 1 ST FLOOR, 2-A, DHARAVI ROAD, MAHIM (E), MUMBAI 400 017 PAN AABCK5296L VS. ITO 1 0 (1)( 4 ) MUMBAI (APPELLANT) RESPONDENT) APPELLANT BY : SHRI K GOPAL RESPONDENT BY : MS N HEMALATHA DATE OF HEARING : 09 . 11 .201 7 DATE OF PRONOUNCEMENT : 05.02 . 201 8 O R D E R THIS IS AN APPEAL BY THE ASSESSEE DIRECTED AGAINST ORDER OF LEARNED CIT(A)- 17, MUMBAI, DATED 20.02.2017 AND PERTAINS TO ASSESS MENT YEAR 2012-13. 2. THE GROUNDS OF APPEAL READ AS UNDER: 1. THE LD. CIT(A) ERRED IN CONFIRMING THE ACT ION OF THE LD.A.O. IN MAKING ADDITION OF RS.12,07,252/- BY TREATING THE C OMPENSATION RECEIVED FROM TERRACE ANTENNA AND HALL BOOKING AS 'INCOME FR OM OTHER SOURCES' INSTEAD OF 'BUSINESS INCOME' WITHOUT APPRECIATING F ACTS AND CIRCUMSTANCES OF THE CASE. THUS, THE ADDITION OF RS .12,07,252/- IS UNJUSTIFIED AND THE SAME MAY BE DELETED. 2. THE LD. CIT (A) FAILED TO APPRECIATE THAT THE COMPENSATION RECEIVED BY THE APPELLANT FOR LETTING OF TERRACE AN D HALL CONSTITUTES THE BUSINESS ACTIVITY OF THE APPELLANT. HENCE, TREATING THE 'BUSINESS INCOME' AMOUNTING TO RS.12,07,252/- AS 'INCOME FROM OTHER S OURCES' IS NOT AT ALL JUSTIFIED AND THE SAME MAY BE DELETED. 3. THE LD. CIT (A) ERRED IN DISALLOWING THE B USINESS EXPENDITURE OF RS. 18,57,571/- WITHOUT APPRECIATING THE FACT THAT THE SAME HAVE BEEN ITA NO.3326//MUM/2017 KNIGHT RAJ PROPERTIES P. LTD 2 INCURRED IN THE NORMAL COURSE OF CARRYING OUT BUSIN ESS ACTIVITY OF THE APPELLANT. THUS, THE DISALLOWANCE OF THE BUSINESS E XPENDITURE IS UNJUSTIFIED AND THE SAME MAY BE DELETED. 4. WITHOUT PREJUDICE TO THE ABOVE THE LD. CIT (A) ERRED IN NOT ALLOWING THE EXPENDITURE OF RS.18,57,572/- UNDER SE CTION 57(III) OF THE ACT AGAINST 'INCOME FROM OTHER SOURCES' WITHOUT APPRECI ATING THE FACT THAT THE SAID EXPENDITURE IS INCURRED FOR EARNING INCOME FROM LETTING OF TERRACE AND HALL ONLY. THUS, THE SAME MAY BE ALLOWED UNDER SECTION 57(III) OF THE ACT. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CO MPANY IS A PRIVATE LIMITED COMPANY AND IS ENGAGED IN THE BUSINESS OF LETTING P REMISES. THE ASSESSEE HAD E- FILED ITS RETURN OF INCOME FOR THE IMPUGNED ASSESSM ENT YEAR ON 30.09.2012, DECLARING TOTAL INCOME OF ` 11,83,411/- THE SAID RETURN WAS PROCESSED U/S. 14 3(1) OF THE ACT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ASSESSING OFF ICER NOTED THAT ASSESSEE IS IN THE RECEIPT OF RENTAL INCOME OF RS.31,30,7367-. HOWEVER, THE SAME HAS BEEN CREDITED IN PROFIT AND LOSS ACCOUNT A ND ALSO ASSESSEE HAS CLAIMED EXPENDITURE OF RS.18,57,572/- AGAINST THE SAME. ASS ESSEE CONTENDED BEFORE THE ASSESSING OFFICER TO CONSIDER THE RENT RECEIVED FRO M TENANTS AS HOUSE PROPERTY INCOME AND ALLOW THE STANDARD DEDUCTION @ 30% U/S.2 4 OF THE ACT. ASSESSEE COMPANY FURTHER CONTENDED TO TREAT THE RECEIPTS OF INCOME FROM THE LET OUT OF TERRACE ANTENNA AND HALL AS BUSINESS INCOME AND ALL OW THE EXPENDITURE AGAINST THE SAME. THE ASSESSING OFFICER DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AND TAXED THE INCOME RECEIVED FROM TERRACE ANTENNA AND HALL BOOKING UNDER THE HEAD 'INCOME FROM OTHER SOURCES'. HE FURTHER DISALLOWED THE EXPENSES CLAIMED BY THE ASSESSEE COMPANY. AGGRIEVED BY THE SAME, ASSESSEE I S IN APPEAL BEFORE ME. 4. UPON ASSESSEES APPEAL LEARNED CIT(A) AFFIRMED T HE ACTION OF THE ASSESSING OFFICER BY HOLDING AS UNDER: I HAVE CAREFULLY CONSIDERED THE ARGUMENTS AND SUBM ISSIONS FILED DURING THE APPELLATE PROCEEDINGS BY THE AR OF THE ASSESSEE COMPANY AND ALSO GONE THROUGH THE ASSESSMENT ORDER. I HAD ALSO GONE THROUGH THE ORDERS OF THE PRECEDING YEARS AND RELEVANT CASE LAWS. FOLL OWING IMPORTANT FACTS EMERGES ON ANALYSIS: ITA NO.3326//MUM/2017 KNIGHT RAJ PROPERTIES P. LTD 3 A) THE ASSESSEE COMPANY HAS PURCHASED THE PROPERTY SUBJECT TO THE TENANCY AND THE SAME WAS IN THE OCCUPATION OF THE T ENANTS AND THE APPELLANT WAS REALIZING THE RENT UNDER THE RENT CON TROL ACT. B) IT IS NOWHERE MENTION IN THE MAIN OBJECTS OR IN THE ANCILLARY OBJECTS OF THE MEMORANDUM OF ASSOCIATION THAT THE ASSESSEE'S N ATURE OF BUSINESS IS OF LETTING OUT THE PROPERTY. C) THE PRECEDING YEAR ASSESSMENT ON IDENTICAL LINES HAS BEEN ACCEPTED BY THE APPELLANT AND THE ASSESSMENT ORDER HAS NOT B EEN CHALLENGED. D) THE FACTS OF THE CHENNAI PROPERTIES & INVESTMENT S LTD. VS. CIT, CENTRAL III, TAMILNADU [2015] 56 TAXMANN.COM 456 (S C) ARE ENTIRELY DIFFERENT FROM THE PRESENT CASE AS IN THE CHENNAI P ROPERTIES & INVESTMENTS LTD. VS. CIT; THE MAIN OBJECT OF THAT C OMPANY WAS TO ACQUIRE AND HOLD THE PROPERTIES KNOWN AS 'CHENNAI H OUSE' AND 'FIRHAVIN ESTATE' BOTH IN CHENNAI AND TO LET OUT THOSE PROPER TIES AS WELL AS MAKE ADVANCES UPON THE SECURITY OF LANDS AND BUILDINGS O R OTHER PROPERTIES OR ANY INTEREST THEREIN. E) ASSESSEE COMPANY HAS ITSELF ADMITTED TO TAX THE RENTAL RECEIPTS UNDER THE HEAD 'INCOME FROM HOUSE PROPERTY'. THE AR OF TH E ASSESSEE COMPANY IS CONTENDING ONLY TO TAX THE COMPENSATION RECEIVED FROM TERRACE ANTENNA AND HALL BOOKING OF RS.12,07,252/- UNDER THE HEAD 'BUSINESS INCOME' INSTEAD OF 'INCOME FROM OTHER SOU RCES' AND ALLOW THE BUSINESS EXPENSES OF RS.18,57,572/- AGAINST THE SAM E. IT IS TO BE NOTED THAT COMPENSATION RECEIVED FROM -LETTING-THE TERRAC E ANTENNA AND HALL BOOKING ARE INCIDENTAL TO THE LETTING OUT THE PROPE RTIES. IT DOES NOT CONTAIN ANY CONTINUOUS/ ORGANIZED ACTIVITY WHICH CA N HAVE ELEMENT OF CARRYING OF BUSINESS. F) THE CLAIM UNDER 'INCOME FROM BUSINESS INCOME' HAS BEEN SURREPTITIOUSLY MADE IN ORDER TO GET THE BENEFIT OF THE ALLOWANCE OF BUSINESS EXPENDITURE AND REDUCE THE TAXABLE RECEIPT . G) AS FAR ALTERNATIVE CLAIM OF ALLOWANCE OF EXPEND ITURE AGAINST THE INCOME FROM OTHER SOURCES IS CONCERNED, IT HAS TO B E ALLOWED AS PER THE SECTION 57(III) OF THE ACT. IN OTHER WORDS, THE EXP ENDITURE HAS TO BE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF EARNING SUCH INCOME WHICH IS NOT THE CASE HERE. IN VIEW OF THE ABOVE, I DO NOT FIND ANY REASON TO DEVIATE FROM THE CONCLUSION OF THE AO AND HIS CATEGORIZATION OF COMPENSATION RECEIVED FROM TERRACE ANTENNA AND HALL BOOKING UNDER 'INCOME FROM OTHER SOURCES' IS UPHELD AND GROUNDS RAISED ON THIS ISSUE ARE DISMISSED.' ITA NO.3326//MUM/2017 KNIGHT RAJ PROPERTIES P. LTD 4 AS FAR AS CLAIM OF EXPENDITURE AGAINST INCOME FROM OTHER SOURCES IS CONCERNED, IT IS TO BE KEPT IN MIND THAT STANDARD D EDUCTION OF 30% IS ALREADY ALLOWED AGAINST THE INCOME FROM HOUSE PROPE RTY. NO EXPENDITURE WHICH HAS BEEN CLAIMED, HAS BEEN INCURRED WHOLLY AN D EXCLUSIVELY FOR EARNING OF THE INCIDENTAL INCOME UNDER REFERENCE. H ENCE, THE GROUND RAISED ON THIS ISSUE IS DISMISSED. AGAINST ABOVE ORDER ASSESSEE IS IN APPEAL BEFORE TH E ITAT 5. I HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RE CORDS. LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT ASSESSEE COMPANYS ONLY SOURCE OF INCOME IS FROM LETTING OF THE PROPERTIES AND THE RENTAL INCOME DER IVED FROM THE SAME AND IT SHOULD BE TREATED AS BUSINESS INCOME. IN THIS REGARD, HE R EFERRED TO THE DECISION OF HONBLE SUPREME COURT IN THE CASE RAYALA CORPORATION (P) LT D. VS. ACIT 72 TAXMANN.COM 149 (SC). 6. PER CONTRA LEARNED DEPARTMENTAL REPRESENTATIVE R ELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. HE FURTHER REFERRED TO THE DECIS ION OF HONBLE SUPREME COURT IN THE CASE OF RAJ DADARKAR & ASSOCIATES VS. ACIT 81 T AXMANN.COM 193. 7. ON CAREFUL CONSIDERATION I NOTE THAT IT IS UNDIS PUTED THAT ASSESSEE COMPANY'S ONLY SOURCE OF INCOME IS FROM LETTING OUT OF PROPER TIES. THIS IS DULY SUPPORTED BY THE PROFIT AND LOSS ACCOUNT SUBMITTED BY THE ASSESSEE. EVEN THE ASSESSING OFFICER HAS ACCEPTED THAT THE ENTIRE RECEIPT OF THE ASSESSEE CO NSISTS OF RENTALS FOR LETTING OUT OF PROPERTY. IN THESE CIRCUMSTANCES, I FIND THAT HONB LE APEX COURT DECISION IN THE CASE RAYALA CORPORATION (P) LTD. VS. ACIT (SUPRA) DULY C OVERS THE ISSUE IN FAVOUR OF THE ASSESSEE. IN THE SAID DECISION HONBLE APEX COURT H AS EXPOUNDED AS UNDER 9. UPON HEARING THE LEARNED COUNSEL AND GOING THRO UGH THE JUDGMENTS CITED BY THE LEARNED COUNSEL, WE ARE OF THE VIEW TH AT THE LAW LAID DOWN BY THIS COURT IN THE CASE OF CHENNAI PROPERTIES (SU PRA) SHOWS THE CORRECT POSITION OF LAW AND LOOKING AT THE FACTS OF THE CAS E IN QUESTION, THE CASE ON HAND IS SQUARELY COVERED BY THE SAID JUDGMENT. 10. SUBMISSIONS MADE BY THE LEARNED COUNSEL APPEARI NG FOR THE REVENUE IS TO THE EFFECT THAT THE RENT SHOULD BE THE MAIN S OURCE OF INCOME OR THE ITA NO.3326//MUM/2017 KNIGHT RAJ PROPERTIES P. LTD 5 PURPOSE FOR WHICH THE COMPANY IS INCORPORATED SHOUL D BE TO EARN INCOME FROM RENT, SO AS TO MAKE THE RENTAL INCOME TO BE TH E INCOME TAXABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PR OFESSION'. IT IS AN ADMITTED FACT IN THE INSTANT CASE THAT THE ASSESSEE COMPANY HAS ONLY ONE BUSINESS AND THAT IS OF LEASING ITS PROPERTY AND EA RNING RENT THEREFROM. THUS, EVEN ON THE FACTUAL ASPECT, WE DO NOT FIND AN Y SUBSTANCE IN WHAT HAS BEEN SUBMITTED BY THE LEARNED COUNSEL APPEARING FOR THE REVENUE. 11. THE JUDGMENT RELIED UPON BY THE LEARNED COUNSEL APPEARING FOR THE ASSESSEE SQUARELY COVERS THE FACTS OF THE CASE INVO LVED IN THE APPEALS. THE BUSINESS OF THE COMPANY IS TO LEASE ITS PROPERT Y AND TO EARN RENT AND THEREFORE, THE INCOME SO EARNED SHOULD BE TREATED A S ITS BUSINESS INCOME. 12. IN VIEW OF THE LAW LAID DOWN BY THIS COURT IN T HE CASE OF CHENNAI PROPERTIES (SUPRA) AND LOOKING AT THE FACTS OF THES E APPEALS, IN OUR OPINION, THE HIGH COURT WAS NOT CORRECT WHILE DECID ING THAT THE INCOME OF THE ASSESSEE SHOULD BE TREATED AS INCOME FROM HOUSE PROPERTY. 13. WE, THEREFORE, SET ASIDE THE IMPUGNED JUDGMENT AND ALLOW THESE APPEALS WITH NO ORDER AS TO COSTS. WE DIRECT THAT T HE INCOME OF THE ASSESSEE SHALL BE SUBJECT TO TAX UNDER THE HEAD 'PR OFITS AND GAINS OF BUSINESS OR PROFESSION' 8. THE DECISION RELIED UPON BY THE LEARNED COUNSEL FOR THE DEPARTMENTAL REPRESENTATIVE IN THE CASE OF RAJ DADARKAR & ASSOCI ATES VS. ACIT (SUPRA) HAS BEEN RENDERED ON DIFFERENT SET OF FACTS. IN THE SAID DE CISION THE HONBLE SUPREME COURT HAS HELD AS UNDER: RELIANCE PLACED BY THE APPELLANT ON THE JUDGMENTS OF THIS COURT IN CHENNAI PROPERTIES & INVESTMENTS LTD. (SUPRA) AND R AYALA CORPORATION (P) LTD. (SUPRA) WOULD BE OF NO AVAIL. IN CHENNAI P ROPERTIES & INVESTMENTS LTD. (SUPRA) WHERE ONE OF US (SIKRI J.) WAS A PART OF THE BENCH FOUND THAT THE ENTIRE INCOME OF THE APPELLANT WAS THROUGH LETTING OUT OF THE TWO PROPERTIES IT OWNED AND THERE WAS NO OTHER INCOME OF THE ASSESSEE EXCEPT THE INCOME FROM LETTING OUT OF THE SAID PROPERTIES, WHICH WAS THE BUSINESS OF THE ASSESSEE. ON THOSE FACTS, T HIS COURT CAME TO THE CONCLUSION THAT JUDGMENT OF THIS COURT IN KARANPURA DEVELOPMENT CO. LTD. V. CIT [I962J 44 ITR 362 (SC) WAS APPLICABLE A ND THE JUDGMENT OF THIS COURT IN EAST INDIA HOUSING & LAND DEVELOPMENT TRUST LTD. V. CIT [1961] 42 ITR 49 CSC) WAS HELD TO BE DISTINGUISHABL E 9. IN ACCORDANCE WITH AFORESAID DISCUSSION, HAVING FOUND THE ISSUE TO BE COVERED IN FAVOUR OF THE ASSESSEE BY THE SUPREME CO URT DECISION IN THE CASE RAYALA ITA NO.3326//MUM/2017 KNIGHT RAJ PROPERTIES P. LTD 6 CORPORATION (P) LTD, I SET ASIDE THE ORDERS OF AUTH ORITIES BELOW AND HOLD THAT THE ASSESSEES RECEIPTS SHOULD BE CONSIDERED AS BUSINE SS INCOME AND THE CONSEQUENCES WOULD FOLLOW. 10. IN THE RESULT, THIS APPEAL BY THE ASSESSEE STAN DS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 5 TH FEBRUARY, 2018. SD/- (SHAMIM YAHYA) ACCOUNTANT MEMBER MUMBAI, DATED : 5 TH FEBRUARY, 2018. SA COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE C I T(A), 4. THE C I T 5. THE DR, SMC BENCH BY ORDER //TRUE COPY// (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, MUMBAI