M/s.T.R.Mills Pvt. Ltd., Bangalore V. Income Tax Officer, Bangalore

ITA 373/BANG/2017

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 5407 (ITAT-BANGALORE)
• Duration Of Justice: 2 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-04-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2006-2007
• Appeal Filed On: 20-02-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: P DINESH
• Keywords: Business income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH - SMC C BEFORE SHRI VIJAY PAL RAO , JUDICIAL MEMBER I.T.A. NO. 373 /BANG/201 7 (ASSESSMENT YEAR : 20 06 - 07 ) M/S. T.R. MILLS PVT. LTD., 5 TH MAIN ROAD, CHAMARAJPET, BENGALURU - 560 018 PAN AABCT 8832B VS. INCOME TAX OFFICER, WARD 12(2), BENGALURU. APPELLANT RESPONDENT. APPELLANT BY : SHRI P. DINESH, ADVOCATE. RESPONDENT BY : SHRI AR.V.SREENIVASAN, JCIT (D.R) DATE OF H EARING : 23.03.2017. DATE OF P RONOUNCEMENT : 28. 04. 201 7 . O R D E R PER SHRI VIJAY P AL RAO, J. M. : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DT. 25.06.2014 OF COMMISSIONER OF IN COME TAX (APPEALS) - III, BANGALORE FOR THE ASSESSMENT YEAR 200 6 - 07 . 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS : 2 ITA NO. 373 /BANG/ 2017 3. THE ONLY DISPUTE RAISED IN THIS APPEAL IS REGARDING THE RENTAL INCOME FROM LEASING OF PROPERTY OWNED BY THE ASSESSEE WAS ASS ESSED BY THE ASSESSING OFFICER AS INCOME FROM HOUSE PROPERTY AS AGAINST THE INCOME FROM BUSINESS CLAIMED BY THE ASSESSEE. THE ASSESSEE DISCONTINUED THE BUSINESS OF TEXTILE MILLS AND LEASED OUT THE FACTORY PREMISES. THE INCOME FROM LEAS ING OUT OF THE 3 ITA NO. 373 /BANG/ 2017 FACT ORY PREMISES WAS OFFERED BY THE ASSESSEE AS BUSINESS INCOME. HOWEVER THE ASSESSING OFFICER HAS ASSESSED THE RENTAL INCOME AS INCOME FROM HOUSE PROPERTY. THE ASSESSEE CHALLENGED THE ACTION OF THE ASSESSING OFFICER BEFORE THE CIT (APPEALS) AND SUBMITTED T HAT THE OBJECT OF THE ASSESSEE IN THE MEMORANDUM OF ASSOCIATION IN CLUDES LEASED OUT OF PROPERTY AND THEREFORE THE INCOME ARISES WOULD BE BUSINESS INCOME. THE CIT (APPEALS) DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AND CONFIRMED THE ACTION OF THE ASSES SING OFFICER IN ASSESSING THE SAID INCOME AS INCOME FROM HOUSE PROPERTY. 4. BEFORE THE TRIBUNAL, THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE HAS LEASED OUT ITS BUSINESS ASSET BEING FACTORY PREMISES DUE TO THE RE ASON THAT THE TEXTILE BUSINESS OF THE ASSESSEE WAS DISCONTINUED. HE HAS FURTHER CONTENDED THAT DUE TO THE RECESSION IN THE BUSINESS THE ASSESSEE DISCONTINUED THE BUSINESS OF TEXTILE MILL AND LET OUT THE FACTORY BUILDING. HE HAS FURTHER SUBMITTED THAT TH E LEASING OUT OF THE PLANT AND MACHINERY AND BUILDING IS PROVIDED AS BUSINESS ACTIVITY OF THE ASSESSEE AS PER ARTICLE OF ASSOCIATION AND MEMORANDUM OF ASSOCIATION . HE HAS REFERRED TO CLAUSES 14 TO 17, 37 TO 39 OF MEMORANDUM OF ASSOCIATION AND SUBMITTED T HAT IN ACCORDANCE WITH THE CLAUSES OF MEMORANDUM OF ASSOCIATION LEASING OUT THE 4 ITA NO. 373 /BANG/ 2017 PLANT, FURNITURE, ETC TO COMMERCIAL UNDERTAKING IS A BUSINESS ACTIVITY OF THE ASSESSEE. THUS THE LEASE RENTAL OF COMMERCIALLY LEASED OUT THE PREMISES IS BUSINESS INCOME OF TH E ASSESSEE. IN SUPPORT OF HIS CONTENTION, HE HAS RELIED UPON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CHENNAI PROPERTIES & INVESTMENTS LTD. VS. CIT 373 ITR 673 AND SUBMITTED THAT HON'BLE SUPREME COURT AFTER CONSIDERING THE MEMORANDUM OF ASSO CIATIO N OF THE SAID COMPANY CONTAINING MAIN OBJECTS AS WELL AS INCIDENTAL OR ANCILLARY OBJECTIONS HELD THAT LETTING OF PROPERTY IS BUSINESS OF THE ASSESSEE AND THEREFORE IT WAS RIGHTLY DISCLOSED THE INCOME UNDER THE HEAD INCOME FROM BUSINESS . 5. ON TH E OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE ONLY SOURCE OF INCOME RETURNED BY THE ASSESSEE IS RENTAL INCOME AND THERE IS NO OTHER BUSINESS ACTIVITY OF THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. THEREFORE ONCE THE ASSESSEE HAS CLOSED HIS BUSINESS ACTIVITY THEN THE RENTAL INCOME OF THE FACTORY BUILDING CANNOT BE TREATED AS BUSINESS INCOME. HE HAS FURTHER SUBMITTED THAT THE LETTING OUT OF THE PROPERTY AND MACHINERY IS NOT THE MAIN BUSINESS OBJECT OF THE ASSESSEE AS IN THE CASE OF CHENNAI PROPERTIES & 5 ITA NO. 373 /BANG/ 2017 INVESTMENTS LTD. VS. CIT (SUPRA) THEREFORE THE HON'BLE SUPREME COURT DECISION IS NOT APPLICABLE IN THIS CASE. 6. I HAVE CONSIDERED THE RIVAL SUBMISSIONS A S WELL AS THE MATERIAL AVAILABLE ON RECORD. THERE IS NO DISPUTE THAT THE ASSESSEE DISCONTINUED ITS BUSINESS OF TEXTILE MILL AND LET OUT THE FACTORY PREMISES TO THE FOLLOWING PERSONS : I) PROFESSIONAL MARKETING GROUP. II) FRONTLINE MARKETING. III) INDRAS AGENCY. IT IS ALSO NOT DISPUTED THAT LEASING OF PLANT AND MACHINERY, GODOWN, AND BUILDING IS ONE OF THE BUSINESS OBJECTS OF THE ASSESSEE COMPANY AS PER THE ARTICLE OF ASSOCIATION AND MEMORANDUM OF ASSOCIATION. IT IS NOT THE CASE OF THE ASSESSEE T HAT IT HAS TEMPO RARILY CLOSE D THE BUSINESS ACTIVITY DUE TO SOME LUL L , BUT THE BUSINESS OF TEXTILE MILL HAS BEEN PERMANENTLY DISCONTINUED. THEREFORE THE BUSINESS ASSET OF THE ASSESSEE COMPANY WERE LET OUT TO DIFFERENT PERSONS. SINCE THE ASSESSEE HAS RECEIVED THE RENTALS FROM LETTING OUT OF NOT THE BUILDING STRUCTURE ON L Y BUT IT IS A FACTORY PREMISES INCLUDING ALL FITTINGS AND FIXTURES . THEREFORE IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WHEN THE BUSINESS ASSET OF THE ASSESSEE IS LET OUT BUT AFTER DISCONTINUING THE BUS INESS ACTIVITY OF THE TEXTILE MILL THEN THE RENTAL INCOME CANNOT BE TREATED AS INCOME FROM HOUSE 6 ITA NO. 373 /BANG/ 2017 PROPERTY HOWEVER THE SAME WOULD BE ASSESSED AS INCOME FROM OTHER SOURCES. SINCE THE FACTORY BUILDING WAS NEITHER ACQUIRED NOR HELD BY THE ASSESSEE FOR THE PUR POSE OF LETTING OUT BUT IT WAS HELD BY THE ASSESSEE FOR ITS TEXTILE BUSINESS WHICH WAS DISCONTINUED THEN FOR THE CLAIM OF BUSINESS INCOME CANNOT BE ACCEPTED . ACCORDINGLY, IN VIEW OF THE ABOVE DISCUSSION , THE ASSESSING OFFICER IS DIRECTED TO ASSESS THE RE NTAL INCOME AS INCOME FROM OTHER SOURCES AND ALLOW THE DEDUCTION S AS PER SECTION 57 OF THE ACT AS WELL AS THE EXPENDITURE ON MAINTENANCE OF THE COMPANY IN EXISTENCE. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUN CED IN THE OPEN COURT ON 28 TH APRIL, 201 7 . SD/ - (VIJAY PAL RAO) JUDICIAL MEMBER BANGALORE, DT. 28 .04 .2017. *REDDY GP