M/s. Sakthi Properties (CBE) Ltd., CHENNAI V. ACIT, Coimbatore

ITA 335/CHNY/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 2469 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 4 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-06-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 13-06-2013
• Assessment Year: 2005-2006
• Appeal Filed On: 16-02-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S DASGUPTA
• Assessee Lawyers: R VIJAYARAGHAVAN

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI BEFORE SHRI ABRAHAM P.GEORGE, ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ITA NO S . 3 3 3 TO 335 /MDS/201 2 (ASSESSMENT YEARS: 2003-04 TO 2005-06) M/S. SAKTHI PROPERTIES (CBE) LTD. M/S.SUBBARAYA AIYAR PADMANABHAN & RAMAMANI ADVOCATES 75A, DR.RADHAKRISHNAN SALAI, MYLAPORE, CHENNAI-600 004. PAN:AAGCS4966C VS. ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-I(1), COIMBATORE. . (APPELLANT) (RESPONDENT) APPELLANT BY : MR. R.VIJAYARAGHAVAN, ADVO CATE RESPONDENT BY : MR. S.DAS GUPTA, JCIT DATE OF HEARING : 13 TH JUNE, 2013 DATE OF PRONOUNCEMENT : 1 8 TH JUNE, 2013 O R D E R PER CHALLA NAGENDRA PRASAD, JM : ALL THESE THREE APPEALS ARE FILED BY THE ASSESSEE AGAINST THE COMMON ORDER OF THE COMMISSIONER OF INC OME TAX (APPEALS)-I, COIMBATORE DATED 27.12.2011 FOR TH E ASSESSMENT YEARS 2003-04, 2004-05 & 2005-06. 2. THE MAIN ISSUE IN THE GROUNDS OF APPEAL OF THE ASSESSEE IS THAT THE COMMISSIONER OF INCOME TAX (AP PEALS) ITA NO.333 TO 335/MDS/2012 2 ERRED IN CONFIRMING THE ASSESSEES INCOME AS INCOME FROM HOUSE PROPERTY AS AGAINST INCOME FROM BUSINESS AND PROFESSION CLAIMED BY THE APPELLANT. IN THE ALTERNA TIVE, IF THE INCOME IS TO BE TAXED AS INCOME FROM HOUSE PROPERTY , THEN DEDUCTION UNDER SECTION 24 FOR THE INTEREST PAID ON NON- CONVERTIBLE DEBENTURES WHICH WAS UTILIZED IN PURCH ASE OF THE HOUSE PROPERTY SHOULD BE ALLOWED. 3. BRIEF FACTS ARE THAT THE ASSESSEE IS A COMPANY F ILED ITS RETURNS OF INCOME FOR THE ASSESSMENT YEARS 2003-04 TO 2005- 06 DECLARING LOSS OF ` 16,31,385/-, ` 5,13,683/- AND ` 6,07,441/- RESPECTIVELY UNDER THE HEAD BUSINESS. IN THE R ETURNS OF INCOME FILED, THE ASSESSEE CONSIDERED RENTAL INCOME FROM PROPERTY ACQUIRED FROM ITS HOLDING COMPANY AS INCOM E FROM BUSINESS. WHILE COMPLETING THE ASSESSMENTS FOR ALL THESE THREE YEARS, THE ASSESSING OFFICER ASSESSED THE REN TAL INCOME RECEIVED BY THE ASSESSEE UNDER THE HEAD INCOME FR OM HOUSE PROPERTY AS AGAINST INCOME FROM BUSINESS AS CLAIMED BY THE ASSESSEE. ON APPEAL, THE COMMISSION ER OF INCOME TAX (APPEALS) CONFIRMED THE ORDER OF THE ASS ESSING ITA NO.333 TO 335/MDS/2012 3 OFFICER IN HOLDING THAT THE RENTAL INCOME RECEIVED BY THE ASSESSEE IS INCOME FROM HOUSE PROPERTY AND NOT INCO ME FROM BUSINESS. THE COMMISSIONER OF INCOME TAX (APPEALS) WAS OF THE VIEW THAT THE ASSESSEE COMPANY WAS NOT DOING AN Y BUSINESS AS MENTIONED IN THE OBJECTS CLAUSE OF MEMO RANDUM OF ASSOCIATION, THEREFORE, THE RENTAL INCOME RECEIV ED BY THE ASSESSEE HAS TO BE ASSESSED UNDER THE HEAD INCOME FROM HOUSE PROPERTY AND NOT INCOME FROM BUSINESS. AGA INST THIS ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS), THE ASSESSEE CAME UP IN APPEAL BEFORE US. 4. THE COUNSEL FOR THE ASSESSEE REITERATING THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES SUBMI TS THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF REAL EST ATE AND IT HAD ACQUIRED PROPERTY FROM ITS HOLDING COMPANY AND SUCH PROPERTY WAS LEASED OUT. THE RENTAL INCOME RECEIVE D FROM SUCH PROPERTY IS TO BE ASSESSED AS INCOME FROM BUSI NESS AND NOT INCOME FROM HOUSE PROPERTY. THE COUNSEL SUBMITS THAT THE PREDOMINANT OBJECT OF THE COMPANY AS PER MEMORANDUM OF ASSOCIATION IS TO PURCHASE, ACQUIRE, TAKE ON LEASE OR IN ITA NO.333 TO 335/MDS/2012 4 EXCHANGE OR ANY OTHER LAWFUL MANNER ANY AREA, LAND, BUILDINGS, STRUCTURES AND TO TURN THE SAME INTO ACC OUNT DEVELOP THE SAME AND DISPOSE OF OR MAINTAIN THE SAM E AND TO BUILD TOWNSHIP, MARKETS OR OTHER BUILDINGS RESIDENT IAL AND COMMERCIAL OR CONVENIENCE THEREON. 5. THE COUNSEL FOR THE ASSESSEE IN THE ALTERNATIVE SUBMITS THAT IF THE INCOME IS TO BE ASSESSED UNDER THE HEAD INCOME FROM HOUSE PROPERTY, THE DEDUCTION UNDER SECTION 2 4 FOR THE INTEREST PAID ON NON-CONVERTIBLE DEBENTURES WHICH W AS UTILIZED FOR PURCHASE OF HOUSE PROPERTY SHOULD BE A LLOWED. SINCE THE ASSESSING OFFICER WHILE ASSESSING THE INC OME OF THE ASSESSEE UNDER THE HEAD INCOME FROM HOUSE PROPERTY FAILED TO CONSIDER THE DEDUCTION FOR INTEREST ON NON-CONVE RTIBLE DEBENTURES, THEREFORE, HE PLEADS FOR DIRECTION TO T HE ASSESSING OFFICER TO ALLOW SUCH INTEREST AS DEDUCTI ON UNDER SECTION 24 OF THE ACT, IN THE LIGHT OF THE DECISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. PAREKH K OTHI LTD., [26 TAXMAN 675(CAL)]. ITA NO.333 TO 335/MDS/2012 5 6. THE DEPARTMENTAL REPRESENTATIVE RELYING ON THE ORDERS OF LOWER AUTHORITIES SUBMITS THAT THE ASSESSEE HAD NEVER DONE ANY BUSINESS IN REAL ESTATE EVEN THOUGH IT WAS FORM ED FOR DOING REAL ESTATE BUSINESS. THEREFORE, THE ASSESSIN G OFFICER IS JUSTIFIED IN TREATING THE RENTAL INCOME UNDER THE H EAD INCOME FROM HOUSE PROPERTY AS AGAINST INCOME FROM BUSIN ESS CLAIMED BY THE ASSESSEE. 7. HEARD BOTH SIDES. PERUSED THE ORDERS OF LOWER AUTHORITIES AND THE CASE LAW RELIED ON. THE ASSESS ING OFFICER WHILE COMPLETING THE ASSESSMENT ASSESSED THE RENTAL INCOME RECEIVED BY THE ASSESSEE FROM THE PROPERTY ACQUIRED BY THE ASSESSEE FROM ITS HOLDING COMPANY UNDER THE HEAD I NCOME FROM HOUSE PROPERTY AS AGAINST INCOME FROM BUSIN ESS CLAIMED BY THE ASSESSEE. THIS ACTION OF THE ASSESS ING OFFICER WAS CONFIRMED BY THE COMMISSIONER OF INCOME TAX (AP PEALS) HOLDING THAT THE ASSESSEE DID NOT CARRY ON ANY BUSI NESS AS MENTIONED IN THE OBJECT CLAUSE OF THE MEMORANDUM OF ASSOCIATION, EVEN THOUGH THE ASSESSEE COMPANY WAS BASICALLY FORMED TO DO BUSINESS IN REAL ESTATE ACTI VITY. ITA NO.333 TO 335/MDS/2012 6 THEREFORE, THE COMMISSIONER OF INCOME TAX (APPEALS) HELD THAT THE INCOME FROM LETTING OUT OF PROPERTY HAS T O BE ASSESSED UNDER THE HEAD INCOME FROM HOUSE PROPERTY AND NOT UNDER THE HEAD INCOME FROM BUSINESS. WHILE HO LDING SO, THE COMMISSIONER OF INCOME TAX (APPEALS) OBSERVED A S UNDER:- 6.3 I HAVE GONE THROUGH THE SUBMISSIONS MADE BY THE APPELLANT AND AS SEEN FROM THE DETAILS, THE APPELLANT COMPANY WAS NOT DOING ANY BUSINESS AS MENTIONED IN THE OBJECTS CLAUSE OF THE MEMORANDUM OF ASSOCIATION . THE APPELLANT COMPANY IS BASICALLY WAS TO DO BUSINESS IN R EAL ESTATE ACTIV I TY. HOWEVER, WITHOUT DOING ANY BUSINESS, FOLLOWING THE JUDICIAL PR I NCIPLES OF CONSISTENCY OFFERED ITS INCOME FROM LETTING OUT OF THE PROPERT I ES UNDER THE HEAD 'INCOME FROM BUSINESS' . THE JUDICIAL PRINCIPLES OF CONSISTENCY DEPEND UPON FACTS OF EACH CASE. IN THE CASE OF THE HOLDING COMPANY, MLS SAKTHI FINANCE LIMITED, IT WAS EXPLOITING ITS COMMERCIAL ASSETS DURING THE COURSE OF BUSINESS OF THE COMPANY. HENCE, THE DEPARTMENT HAS ACCEPTED THE INCOME FROM LETTING OUT OF THE PROPERTY AS 'INCOME FROM BUSINESS' . HOWEVER, THE APPELLANT COMPANY WAS NOT INVOLVED IN ANY SORT OF BUSINESS AND ALSO THE APPELLANT COULD NOT PROVE THE NATURE OF ACTIVITIES. ALTHOUGH THE ASSESSEE IS THE OWNER OF THE PROPERTY FOR THE PURPOSES OF THE INCOME TAX ACT , STILL THE POINT FOR DETERMINATION AS TO WHETHER THE RENT RECEIVED BY THE COMPANY SHALL COME WITHIN THE EXPRESSION INCOME FROM BUSINESS OR INCOME FROM HOUSE PROPERTY . THE TERM BUS I NESS HAS BEEN DEFINED UNDER SECTION 2(13) OF THE INCOME ITA NO.333 TO 335/MDS/2012 7 TAX ACT WHICH READS AS FOLLOWS :- ' 13 . THE BUSINESS INCLUDES ANY TRADE, COMMERCE OR MANUFACTURE OR ANY ADVENTURE OR CONCERN IN THE NATURE OF TRADE , COMMERCE OR MANUFACTURE' . THE DEFIN I TION IS OF WIDE AMPLITUDE AND SHALL IMPRESS WITHIN ITSELF DEALING IN REAL PROPERTY AS ALSO THE ACTIVITY OF TAKING PROPERTY ON LEASE , SETTING UP A MARKET THEREON AND LETTING OUT SHOPS AND STALLS IN THE MARKET. IN THE CASE OF THE APPELLANT, THE RENT WAS NOT RECEIVED FOR BUSINESS PURPOSE AND ALSO THE APPELLANT WAS NOT I NVOLVED IN ANY BUSINESS ACTIVITY . IN VIEW OF THIS, I AGREE WITH THE ACTION OF THE ASSESSING OFFICER IN TREATING THE INCOME FROM LETTING OUT OF PROPERTY AS INCOME FROM HOUSE PROPERTY. THESE GROUNDS OF APPEAL ARE DISMISSED. 8. ON GOING THROUGH THE ORDER OF THE COMMISSIONER O F INCOME TAX (APPEALS), WE FIND THAT THE ASSESSEE EVE N THOUGH FORMED FOR THE PURPOSE OF DOING REAL ESTATE BUSINES S DID NOT CARRY ON REAL ESTATE BUSINESS EXCEPT ACQUIRING PROP ERTY FROM ITS HOLDING COMPANY AND SUCH PROPERTY WAS LET OUT O N LEASE AND RECEIVED RENTAL INCOME. THE ASSESSEE COULD NOT REBUT ANY OF THE ABOVE FINDINGS OF THE COMMISSIONER OF IN COME TAX (APPEALS). IN THE CIRCUMSTANCES, WE FIND NO GOOD RE ASON TO INTERFERE WITH THE FINDINGS AND CONCLUSION OF THE C OMMISSIONER ITA NO.333 TO 335/MDS/2012 8 OF INCOME TAX (APPEALS) IN HOLDING THAT THE RENTAL INCOME RECEIVED BY THE ASSESSEE HAS TO BE ASSESSED UNDER T HE HEAD INCOME FROM HOUSE PROPERTY. THE GROUND RAISED BY THE ASSESSEE ON THIS ISSUE IS REJECTED. 9. WITH REGARD TO THE ALTERNATIVE SUBMISSION OF THE ASSESSEE THAT IF THE RENTAL INCOME HAS TO BE ASSESS ED UNDER THE HEAD INCOME FROM HOUSE PROPERTY DEDUCTION UND ER SECTION 24 FOR INTEREST ON NON-CONVERTIBLE DEBENTUR ES WHICH WAS UTILIZED FOR PURCHASE OF HOUSE PROPERTY SHOULD BE ALLOWED AS A DEDUCTION. WE FIND FORCE IN THE SUBMISSION OF THE COUNSEL FOR THE ASSESSEE. THEREFORE, WE RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER TO DECIDE THIS ISSUE IN THE L IGHT OF THE DECISION OF HONBLE HIGH COURT IN THE CASE OF CIT V S. PAREKH KOTHI LTD. (SUPRA). 10. THE ASSESSEE ALSO RAISED ONE MORE GROUND THAT T HE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFI RMING THE DISALLOWANCE OF DEDUCTION OF MUNICIPALITY TAXES PAID BY THE ASSESSEE. WE REMIT THIS ISSUE ALSO TO THE FILE OF THE ITA NO.333 TO 335/MDS/2012 9 ASSESSING OFFICER TO EXAMINE AFRESH IN ACCORDANCE W ITH LAW AND ALLOW DEDUCTION UNDER SECTION 24 WHILE COMPUTIN G THE INCOME FROM HOUSE PROPERTY OF THE ASSESSEE FOR ALL THESE THREE ASSESSMENT YEARS. 11. IN THE RESULT, ALL THE THREE APPEALS OF THE ASS ESSEE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON TUESDAY, TH E 18 TH DAY OF JUNE, 2013, CHENNAI. SD/- SD/- (ABRAHAM P.GEORGE) (CHALLA NAG ENDRA PRASAD) ACCOUNTANT MEMBER J UDICIAL MEMBER CHENNAI, DATED THE 18 TH JUNE, 2013. SOMU COPY TO: (1) APPELLANT (4) CIT (A) (2) RESPONDENT (5) D.R. (3) CIT (6) G.F.