M/s.Tellicherry Medical Foundation Infrastructure Ltd, Thalassery V. DCIT, Kannur

ITA 363/COCH/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 73815 (ITAT-COCHIN)
• Duration Of Justice: 7 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-01-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 19-12-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 03-06-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K K JOHN
• Assessee Lawyers: T M SREEDHARAN
• Keywords: Business income; Depreciation

Judgement Text

ITA NO. 363/ COCH/ 2013 1 IN THE INCOME TAX AP P EL L ATE T R IBUNAL COCHIN BENCH , COCHIN BEFORE S/SH RI N.R.S. GANESAN, JM & B. R. BASKARAN, AM ITA NO. 363/ COCH/ 2013 (ASST YEAR 2007 - 08 ) & ITAT NO.403/COCH/2013 (ASST YEAR 2007 - 08) M/S TELLICHERRY MEDICAL FOUNDATION INFRASTRUCTURE LTD V ENUS CORNER TELLICHERRY 670 101 VS THE DY COMMR OF INCOME TAX CIRCLE 1(1) KANNUR ( APPELLANT /RESPONDENT ) (RESPONDENT /APPELLANT ) PAN NO. AADFT2373E ASSESSEE BY SHRI T M SREEDHARAN REVENUE BY SRI K K JOHN DATE OF HEARING 19 TH DEC 2013 DATE OF PRON OUNCEMENT 10 TH JAN 2014 OR D ER PER B.R. BASKARAN, AM: THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER DATED 13.3.2013 PASSED BY THE LD CIT(A), KOZHIKODE AND THEY RELATE TO THE ASST YEAR 2007 - 08. THE ASSESSEE IS AGGRIEVED BY THE DECISION OF THE LD CIT(A) IN CONFIRMING THE ADDITION OF RS. 10,35,737/ - RELATING TO THE DIFFERENCE IN THE CLOSING BALANCE OF ONE OF THE CREDITORS. THE REVENUE IS AGGRIEVED BY THE DECISION OF THE LD CIT(A) IN HOLD ING THAT THE RENTAL INCOME RECEI VED BY THE ASSESSEE IS ASSESS ABLE UNDER THE HEAD INCOME FROM BUSINESS . 2 THE FACTS RELATING TO THE CASE ARE STATED IN BRIEF: THE ASSESSEE IS A PUBLIC LIMITED COMPANY AND IS ENGAGED IN THE BUSINESS OF CONSTRUCTION OF MULTI STORIED BUILDING S . THE AO NOTICED THAT THE ASSESSEE HAS REC EIVED INCOME FROM SALE PROCEEDS OF SHOPS CONSTRUCTED BY IT. ITA NO. 363/ COCH/ 2013 2 BESIDES THAT, IT HAS ALSO RECEIVED RENTAL INCOME FROM THE SHOPS LET - OUT BY IT . THE ASSESSEE HAD OFFERED THE RENTAL INCOME ALSO UNDER THE HEAD INCOME FROM BUSINESS . ACCORDINGLY , IT HAD CLAIMED DEPRECIATION ON THE BUILDING VALUE. HOWEVER, THE AO TOOK THE VIEW THAT THE RENTAL INCOME IS ASSESSABLE UNDER THE HEAD INCOME FROM HOUSE PROPERTY AND ACCORDINGLY ASSESSED THE SAME . CONSEQUENT THERETO, THE AO DISALLOWED THE DEPRECIATION CLAIMED ON THE B UILDING AND ALSO DISALLOWED A PORTION OF EXPENSES ON ESTIMATED BASIS, AS RELATABLE TO THE EARNING OF RENTAL INCOME . THE AO ALSO EXAMINED THE SUNDRY CREDITORS BALANCE AND NOTICED THAT A SUM OF RS.21,76,470/ - WAS SHOWN AS PAYABLE TO M/S M C LAKSHMAN & CO. THE AO OBTAINED CONTRA ACCOUNT COPY FROM THE ABOVE SAID PERSON AND NOTICED THAT THE BALANCE DUE FROM THE ASSESSEE WAS SHOWN BY THE ABOVE SAID PERSON A S RS. 11,40,733/ - . THUS, THERE WAS A DIFFERENCE OF R S.10,35,737/ - BETWEEN THE ACCOUNT MAINTAINED BY THE ASSESSEE AND THE ABOVE SAID PERSON . THE ASSESSEE SUBMITTED BEFORE THE AO THAT THE ABOVE SAID DIFFERENCE EXISTED IN THE OPENING BALANCE ALSO , I.E., IN THE PRECEDING YEAR ALSO. IT WAS FURTHER SUBMITTED THAT THE ASSESSEE HAS ACCOUNTED FOR THE WORK DONE BY TH E ABOVE SAID PARTY BY 31.3.2006, EVEN THOUGH THE SAME WAS NOT BILLED BY THE ABOVE SAID PERSON. THE AO NOTICED THAT M/S M C LAKSHMAN & CO HAS NOT RAISED ANY BILL FOR THE DIFFERENCE AMOUNT CITED ABOVE, EVEN AFTER 31.3.2006 . HENCE , THE AO TOOK THE VIEW THAT THE AMOUNT OF RS.10,35,737/ - IS NOT PAYABLE BY THE ASSESSEE AND ACCORDINGLY ASSESS ED THE SAME AS THE INCOME OF THE ASSESSEE. 3 IN THE APPELLATE PROCEEDINGS BEFORE LD CIT(A) , THE ASSESSEE PLACED RELIANCE ON THE DECISION OF THE HONBLE SUPREME COURT IN T HE CASE OF KARANPARIA DEVELOPMENT CO LTD (1962) 44 ITR 363,377 , WHEREIN IT WAS CLAIMED TO HAVE BEEN STATED AS UNDER: - . A COMPANY FORMED WITH THE SPECIFIC OBJECT OF SELLING THEM OR TURNING THEM TO ACCOUNT EVEN BY WAY OF LEASING THEM OUT AS AN INTEGRAL PART OF ITS BUSINESS CANNOT BE SAID TREAT THEM AS LAND OWNER BUT AS TRADER. ITA NO. 363/ COCH/ 2013 3 IT WAS FURTHER SUBMITTED THAT THE ABOVE SAID DECISION OF THE HONBLE SUPREME COURT WAS FOLLOWED BY THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIV VS NEHA BUILDERS (2008) 2 96 ITR 661 AND ALSO BY THE COCHIN BENCH OF TRIBUNAL IN THE CASE OF KENTON LEISURE SERVICES (P) L TD VS DCIT( 135 ITD 10 ) . 3.1 THE LD CIT(A) NOTICED THAT THE AO HAS PASSED A NON - SPEAKING ORDER AND FURTHER NOTICED THAT THE AO DID NOT GIVE ANY REASON WHATSOEVER FOR ASSESS ING RENTAL INCOME AS HOUSE PROPERTY INCOME INSTEAD OF BUSINESS INCOME . THE LD CIT(A) FURTHER NOTICED THAT THE ONE OF THE MAIN OBJECT S MENTIONED IN THE OBJECT CLAUSE OF MEMORANDUM OF ASSOCIATION OF THE ASSESSEE WAS TO CONSTRUCT, SE LL AND LET ON HIRE COMMERCIAL BUILDINGS AND COMPLEXES. ACCORDINGLY, THE LD CIT(A) , BY PLACING RELIANCE ON THE OBJECT CLAUSE CITED ABOVE AND ALSO THE DECISION RELIED UPON BY THE ASSESSEE, HELD THAT RENTAL INCOME RECEIVED BY THE ASSESSEE IS ASSESSABLE AS BU SINESS INCOME. SINCE THE AO ASSESSED THE RENTAL INCOME UNDER THE HEAD INCOME FROM HOUSE PROPERTY, HE HAD DISALLOWED DEPRECIATION ON BUILDING AND ALSO A PORTION OF EXPENSES AS RELAT ABLE TO EARNING OF RENTAL INCOME. SINCE THE LD CIT(A) HELD THAT THE RENTA L INCOME IS ASSESSABLE AS BUSINESS INCOME, HE DELETED THE ABOVE SAID DISALLOWANCE S. 3 .2 WITH REGARD TO ISSUE RELATING TO THE ASSESSMENT OF DIFFERENCE IN THE CLOSING BALANCE OF M/S M C LAKSHMANAN & CO, THE LD CIT(A) CONFIRMED THE SAME ON THE REASON ING THA T THE ASSESSEE HAS NOT PRODUCED ANY PLAUSIBLE EXPLANATION FOR THE DIFFERENCE IN THE SUNDRY CREDITORS ACCOUNT. AGGRIEVED BY THE ORDER PASSED BY LD CIT(A) , BOTH THE PARTIES HAVE FILED THESE APPEALS BEFORE US ON THE POINTS DECIDED AGAINST EACH OF THEM . 4. THE ISSUE CONTESTED BY THE REVENUE RELATES TO THE NATURE OF RENTAL INCOME RECEIVED BY THE ASSESSEE. THE LD D.R SUBMITTED THAT THE HONBLE SUPREME COURT AND OTHER HIGH COURT HAVE ITA NO. 363/ COCH/ 2013 4 CONSISTENTLY HELD THAT THE RENTAL INCOME IS ASSESSABLE UNDER THE HEAD IN COME FROM HOUSE PROPERTY. THE LD D.R PLACED RELIANCE ON THE FOLLOWING CASE LAW: - (A) SHAMBU INVESTMENTS (P) LTD VS. CIT (263 ITR 143)(SC) (B) MANGALA HOMES (P) LTD VS. ITO (2009)(182 TAXMAN 55)(BOM) (C) CIT VS. HARYANA URBAN DEVELOPMENT AUTHORITY (20 10)(322 ITR 61)(P & H) (D) CIT VS. BHOOPALAM COMMERCIAL COMPLEX & INDUSTRIES P LTD (2003) (130 TAXMAN 338)(KAR) (E) ATTUKAL SHOPPING COMPLEX P LTD VS. CIT (2003)(259 ITR 567)(KER) (F) PALMSHORE HOTELS (P) LTD (ITA NO.249/COCH/2011), ORDER DT. 14.9.12 BY COCHIN BENCH OF TRIBUNAL. (G) ROMA BUILDERS PVT LTD (ITA NO.4118/MUM/2008 ORDER DATED 09 - 03 - 2011. 4.1 ON THE CONTRARY, THE LD A.R SUBMITTED THAT THE ASSESSEE HAS CONSTRUCTED 8772 SQ. MTRS OF COMMERCIAL BUILDING ON AN AREA OF 349 CENTS. HE FURTHER SUBMITTED THAT THE ASSESSEE HAS USED ONLY 69.20 CENTS FOR CONSTRUCTION OF THE BUILDING AND THE REMAINING AREA WAS UTILIZED FOR PROVIDING DIRECT CAR ENTRY RAMPS TO THE FIRST AND SECOND FLOORS, LARGE WALKWAYS ROUND THE B UILDING, PARKING SPACES SEPARATELY FOR 4 WHEELERS AND 2 WHEELERS, GARDENS, WATER FOUNTAINS ETC. HE FURTHER SUBMITTED THAT A LARGE COMMON AREA IS ALSO CONSTRUCTED INSIDE THE COMMERCIAL COMPLEX. HE FURTHER SUBMITTED THAT THE ASSESSEE HAS LET OUT THE SHOPS TEMPORARILY SO THAT THEY ARE NOT KEPT IDLE AND THE SAID DECISION HAS BEEN TAKEN ON COMMERCIAL CONSIDERATIONS, WHICH A PRUDENT BUSINESS MAN WOULD NORMALLY ADOPT. FURTHER THE LD A.R SUBMITTED THAT THE ASSESSEE HAS RECEIVED THE RENTAL INCOME FOR PROVIDING CO MPOSITE FACILITIES AND SERVICES ON COMMERCIAL LINES AND HENCE THE RENTAL INCOME IS ASSESSABLE AS BUSINESS INCOME ONLY. THE LD A.R ALTERNATIVELY SUBMITTED THAT, IF THE RENTAL INCOME IS CONSIDERED AS HOUSE PROPERTY INCOME, THEN THE DEDUCTION U/S 24(A) S HOULD BE GIVEN ON THE AMOUNT RECEIVED FROM TENANTS TOWARDS ELECTICITY, WATER AND MISCELLANEOUS CHARGES AGGREGATING TO RS.22,53,415/ - . 4.2 WE HAVE HEARD RIVAL CONTENTIONS AND CAREFULLY PERUSED THE RECORD. WE HAVE ALREADY NOTICED THAT THE LD CIT(A) HAS MADE A SPECIFIC OBSERVATION THAT THE ASSESSING OFFICER HAS ITA NO. 363/ COCH/ 2013 5 PASSED A NON - SPEAKING ORDER AND ALSO DID NOT GIVE ANY REASON FOR CHANGING THE HEAD OF INCOME FROM BUSINESS TO HOUSE PROPERTY. WE NOTICE THAT THE LD CIT(A) HAS ALSO ALLOWED THE CLAIM OF THE ASSESS EE BY PLACING RELIANCE ON THE CASE LAW RELIED UPON BY THE ASSESSEE AND ALSO ON THE OBJECT CLAUSE, I.E., WITHOUT CONSIDERING THE FACTS SURROUNDING THE ISSUE. BEFORE US, THE LD A.R HAS SUBMITTED ABOUT THE PHYSICAL CHARACTERISTICS OF THE PROPERTY AND ALSO S UBMITTED ABOUT THE PURPOSE OF LETTING OUT THE SHOPS. HE ALSO SUBMITTED THAT THE RENTAL INCOME RECEIVED BY THE ASSESSEE IS FOR COMPOSITE FACILITIES AND SERVICES PROVIDED TO TENANTS ON COMMERCIAL LINES. ON THE OTHER HAND, THE LD D.R ALSO PLACED RELIANCE O N VARIOUS CASE LAWS IN ORDER TO CONTEND THAT THE RENTAL INCOME IS ASSESSABLE UNDER THE HEAD INCOME FROM HOUSE PROPERTY. 4.3 WE NOTICE THAT BOTH THE TAX AUTHORITIES HAVE NOT CONSIDERED THE PRINCIPLES LAID DOWN BY THE HONBLE SUPREME COURT AND HIGH COURTS IN VARIOUS CASE LAWS, FACTS SURROUNDING THE ISSUE, THE NATURE OF ACTIVITIES OF THE ASSESSEE , INTENTION OF THE ASSESSEE ETC., IN DECIDING THIS ISSUE. IT SEEMS THAT THE AO DID NOT CALL FOR ANY EXPLANATIONS FROM THE ASSESSEE IN THIS REGARD. WE ALSO NOTICE THAT THE HONBLE KERALA HIGH COURT, IN THE CASE OF ATTUKAL SHOPPING COMPLEX P LTD VS. CIT (SUPRA), HAS EXTRACTED FOLLOWING OBSERVATIONS MADE BY HONBLE SUPREME COURT IN THE CASE OF KARANPURA DEVELOPMENT CO. LTD (SUPRA) : OWNERSHIP OF PROPERTY AND L EASING IT OUT MAY BE DONE AS A PART OF BUSINESS, OR IT MAY BE DONE AS LAND OWNER. WHETHER IT IS THE ONE OR THE OTHER MUST NECESSARILY DEPEND UPON THE OBJECT WITH WHICH THE ACT IS DONE. IT IS NOT THE NO COMPANY CAN OWN PROPERTY AND ENJOY IT AS PROPERTY, W HETHER BY ITSELF OR BY GIVING THE USE OF IT TO ANOTHER ON RENT. WHERE THIS HAPPENS, THE APPROPRIATE HEAD TO APPLY IS INCOME FROM PROPERTY (SECTION 9) EVEN THOUGH THE COMPANY MAY BE DOING EXTENSIVE BUSINESS OTHERWISE. BUT A COMPANY FORMED WITH THE SPECI FIC OBJECT OF ACQUIRING PROPERTIES NOT WITH THE VIEW TO LEASING THEM AS PROPERTY BUT TO SELLING THEM OR TURNING THEM TO ACCOUNT EVEN BY WAY OF LEASING THEM OUT AS AN INTEGRAL PART OF ITS BUSINESS, CANNOT BE SAID TO TREAT THEM AS LANDOWNER BUT AS A TRADER. IN DECIDING WHETHER A COMPANY DEALT WITH ITS PROPERTIES AS OWNER, ONE MUST SEE NOT TO THE FORM WHICH IT GAVE TO THE TRANSACTION BUT TO THE SUBSTANCE OF THE MATTER. ITA NO. 363/ COCH/ 2013 6 HENCE, IN OUR VIEW, THIS ISSUE REQUIRES FRESH EXAMINATION AT THE END OF THE AO IN THE LIG HT OF PRINCIPLES LAID DOWN BY THE HONBLE SUPREME COURT AND HIGH COURTS . ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO THE FILE OF THE AO WITH THE DIRECTION TO EXAMINE THIS ISSUE AFRESH BY DULY CONSIDERING THE EXPL ANATIONS AND INFORMATION THAT MAY BE FURNISHED BY THE ASSESSEE AND ALSO BY CONSIDERING VARIOUS CASE LAWS RELIED UPON BY THE ASSESSEE AS WELL AS THE DEPARTMENT AND TAKE APPROPRIATE DECISION IN ACCORDANCE WITH THE LAW. 5. THE NEXT ISSUE RELATES TO THE ASSES SMENT OF DIFFERENCE IN THE BALANCE OF A SUNDRY CREDITOR. ACCORDING TO LD A.R, THE OUTSTANDING BALANCE HAS BEEN SETTLED IN THE SUBSEQUENT YEARS. EVEN OTHERWISE, WE NOTICE THAT THE DIFFERENCE OCCURRED IN THE PRECEDING ACCOUNTING YEAR. ACCORDING TO LD A.R, THE ACCOUNT BALANCE HAS BEEN RECONCILED BEFORE SETTLING THE AMOUNT. IF THE ASSESSEE HAS RECONCILED THE BALANCE, IN OUR VIEW, NO ADDITION IS CALLED FOR ON THIS ACCOUNT. HOWEVER, THE CLAIM OF THE ASSESSEE REQUIRES VERIFICATION AT THE END OF THE AO. ACCO RDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO THE FILE OF THE AO WITH THE DIRECTION TO EXAMINE THIS ISSUE AFRESH BY DULY CONSIDERING THE EXPLANATIONS AND INFORMATION THAT MAY BE FURNISHED BY THE ASSESSEE AND TAKE APPROP RIATE DECISION IN ACCORDANCE WITH THE LAW. 6. IN THE RESULT, THE APPEALS FILED BY THE ASSESSEE AND THE REVENUE ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 10 TH DAY OF JAN 2014 . (N.R.S. GANESAN) ( B.R. BASKARAN ) JUDICIAL MEMBER ACCOUNTANT MEMBER COCHIN: DATED 10 TH JAN 201 4 RAJ* ITA NO. 363/ COCH/ 2013 7 COPY TO: 1. APPELLANT TELLICHERRY MEDICAL FOUNDATION INFRASTRUCTURE LTD VENUES CORNER, TELLICHERRY 670 101 2. RESPONDENT - THE DY COMMR OF INCOME TAX, CIRCLE 1(1), KANNUR 3. CIT( A) 4. CIT , KOZHIKODE 5. DR 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR ITAT, COCHIN