Sri Bharathi Ware Housing Corporation, Guntur V. THE CIT(A), Guntur

ITA 383/VIZ/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 6586 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 2 year(s) 6 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-01-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2010-2011
• Appeal Filed On: 09-06-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M NARAYANA RAO
• Keywords: Business income
• Section: 142(1)

Judgement Text

ITA NO.383/VIZAG/2014 SRI BHARATHI WARE HOUSING CORPORATION, GUNTUR 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . , $ BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ./I.T.A.NO.383/VIZAG/2014 ( / ASSESSMENT YEAR: 2010-11) SRI BHARATHI WARE HOUSING CORPORATION GUNTUR VS. CIT(A), GUNTUR [PAN: AAVFS 5390J ] ( % / APPELLANT) ( &'% / RESPONDENT) / APPELLANT BY : SHRI G.V.N. HARI, AR / RESPONDENT BY : SHRI RAJAGOPAL, DR & SHRI M. NARAYANA RAO, DR / DATE OF HEARING : 07.12.2016 / DATE OF PRONOUNCEMENT : 06.01.2017 / O R D E R PER G. MANJUNATHA, ACCOUNTANT MEMBER: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST ORDER OF COMMISSIONER OF INCOME TAX (A), GUNTUR DATED 28.3.2 014 AND IT PERTAINS TO THE ASSESSMENT YEAR 2010-11. ITA NO.383/VIZAG/2014 SRI BHARATHI WARE HOUSING CORPORATION, GUNTUR 2 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF TOBACCO TRADE AND A LSO LET OUT COMMERCIAL PROPERTIES ON RENTAL BASIS. THE ASSESSE E HAS FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2010-11 ON 24.9.2 010 ADMITTING TOTAL INCOME OF ` 1,33,42,850/-. THE CASE WAS SELECTED FOR SCRUTINY AND NOTICES U/S 143(2) & 142(1) OF THE INCOME TAX ACT, 1961 (HEREINAFTER CALLED AS 'THE ACT') WERE ISSUED. IN RESPONSE TO N OTICES, THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE APPEARED AND FURNISH ED THE INFORMATION CALLED FOR. DURING THE COURSE OF ASSESSMENT PROCEE DINGS, THE A.O. NOTICED THAT THE ASSESSEE HAS CONSIDERED INCOME FRO M RENTAL RECEIPTS UNDER THE HEAD INCOME FROM BUSINESS. AFTER CONSI DERING THE DETAILS FURNISHED BY THE ASSESSEE AND ANALYZING THE PROVISI ONS, HELD THAT INCOME FROM LEASE RENTALS RECEIVED BY THE ASSESSEE IS ASSESSABLE UNDER THE HEAD INCOME FROM HOUSE PROPERTY, BUT NOT UNDER THE HEAD INCOME FROM PROFITS AND GAINS OF BUSINESS OR PROFESSION. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). THE CIT(A) FOR THE REASONS RECORDED IN HIS ORDER DA TED 28.3.2014 CONFIRMED ADDITIONS MADE BY THE A.O. BY HOLDING THA T INCOME DERIVED BY AN ASSESSEE BY LETTING OUT FURNISHED PREMISES ON MO NTHLY RENT TO VARIOUS PARTIES IS ASSESSABLE AS INCOME FROM HOUSE PROPERTY AND NOT AS BUSINESS ITA NO.383/VIZAG/2014 SRI BHARATHI WARE HOUSING CORPORATION, GUNTUR 3 INCOME. AGGRIEVED BY THE CIT(A) ORDER, THE ASSESSE E IS IN APPEAL BEFORE US AND RAISED FOLLOWING GROUNDS: 1. THE ORDER DATED 28-3-2014 PASSED BY THE LEARNE D COMMISSIONER OF INCOME TAX, APPEALS, GUNTUR IN APPEA L NO. 130/CIT(A)/GNT/12-13, IS AGAINST THE APPELLANT IN S O FAR AS CONTRARY TO THE LAW, FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE LEARNED CIT(APPEALS),GUNTUR, OUGHT NOT TO HA VE SUSTAINED THE ADDITION MADE BY THE ASSESSING OFFICER TREATING THE INCOME RECEIVED BY APPELLANT FIRM AS 'INCOME FROM HOUSE PROPERTY' INST EAD OF BUSINESS AS CLAIMED BY THE APPELLANT. 3. THE LEARNED CIT(A), OUGHT TO HAVE ACCEPTED THE C ONTENTION OF THE APPELLANT SINCE THE LETTING OUT OF PROPERTIES AT DI FFERENT PLACES TO DIFFERENT ESTABLISHMENTS IS ONLY IN THE NATURE OF BUSINESS AN D ALL SUCH PROPERTIES LEASED OUT ARE COMMERCIAL PROPERTIES AND CAN BE USE D ONLY FOR COMMERCIAL PURPOSES. 4. THE LEARNED CIT(A) ERRED IN CONFIRMING THE ADDIT ION OF RS.78,96,741/- WITHOUT CONSIDERING THE PREAMBLE OF THE PARTNERSHIP DEED SINCE IT IS THE BASIC EDIFICE ON WHICH THE PARTNERS HIP FIRM HAS COME INTO VOGUE. 5. THE LEARNED CIT(A) IS NOT JUSTIFIED IN CONFIRMI NG THE ADDITION WITHOUT CONSIDERING THE APPELLANT'S GROUND THAT ITS MAIN INTENTION OF FLOATING THE FIRM BY ITS PARTNERS IS TO LEASE OUT C OMMERCIAL PROPERTIES STRICTLY IN A COMMERCIAL SENSE AS A PRUDENT BUSINES SMAN YIELDING GOOD AMOUNT OF PROFITS IN SEVERAL OCCASIONS THE COURTS HA VE ALSO FELT THAT WHERE COMPANY OR A FIRM ACQUIRE PROPERTY WHICH IT SELLS O R LEASES IT OUT WITH A VIEW TO BE DEALT WITH IN THE SAME MANNER, THE COMPA NY OR A FIRM IS NOT TREATING THEM AS PROPERTY TO BE ENJOYED IN THE SHAP E OF RENT WHICH THEY YIELD BUT AS A KIND OF CIRCULATING CAPITAL LEADING TO PROFITS OF THE BUSINESS WHICH PROFITS MAY BE EITHER ENJOYED OR PUT BACK INT O THE BUSINESS TO ACQUIRE MORE PROPERTIES FOR FURTHER PROFITABLE EXPL OITATION. 6. IN VIEW OF THE ABOVE GROUNDS AND SUCH OTHER GROUN DS THAT MAY BE URGED AT THE TIME OF HEARING, THE APPELLANT HUMBLY PRAYS FOR THE DELETION OF THE ADDITIONS AND RENDER JUSTICE. 3. THE LD. A.R. FOR THE ASSESSEE, AT THE TIME OF HE ARING SUBMITTED THAT THE ISSUE INVOLVED IN THIS APPEAL I.E. RENT RE CEIPTS FROM LETTING OUT COMMERCIAL PROPERTIES IS ASSESSABLE UNDER THE HEAD INCOME FROM BUSINESS OR PROFESSION OR UNDER THE HEAD INCOME FR OM HOUSE PROPERTY ITA NO.383/VIZAG/2014 SRI BHARATHI WARE HOUSING CORPORATION, GUNTUR 4 HAS BEEN CONSIDERED BY THIS TRIBUNAL, IN ASSESSEES OWN CASE IN ITA NO.275/VIZAG/2012 DATED 19.2.2016 FOR THE ASSESSMEN T YEAR 2008-09, WHEREIN THE COORDINATE BENCH HELD THAT RENTAL INCOM E RECEIVED BY THE ASSESSEE FROM LETTING OUT COMMERCIAL PROPERTIES IS ASSESSABLE UNDER THE HEAD INCOME FROM PROFITS AND GAINS OF BUSINESS OR PROFESSION. ON THE OTHER HAND, THE LD. D.R. STRONGLY SUPPORTED ORDER O F THE CIT(A). 4. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATER IALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. THE FACTUAL MATRIX OF THE CASE WHICH LEADS TO ADDITIONS TOWARDS RENTAL INCOME FROM LETTING OUT OF COMMERCIAL PROPERTIES UN DER THE HEAD INCOME FROM HOUSE PROPERTY IS THAT THE ASSESSEE I S INVOLVED IN THE ACTIVITY OF TAKING LANDS LEASE AND CONSTRUCTION OF COMMERCIAL BUILDINGS AND LET OUT THE SAME ON MONTHLY RENTAL. THE ASSESS EE HAS CONSIDERED RENTAL RECEIPTS UNDER THE HEAD INCOME FROM BUSINES S. THE A.O. ASSESSED RENTAL RECEIPTS UNDER THE HEAD INCOME FROM HOUSE PROPERTY. THE LD. A.R. FOR THE ASSESSEE AT THE TIME OF HEARIN G SUBMITTED THAT THE ISSUE HAS BEEN COVERED BY THE ASSESSEES OWN CASE F OR THE ASSESSMENT YEAR 2008-09 IN ITA NO.275/VIZAG/2012 DATED 19.2.20 16. WE FIND THAT THE COORDINATE BENCH OF THIS TRIBUNAL, UNDER SIMILA R CIRCUMSTANCES HELD THAT RENTAL INCOME FROM LETTING OUT COMMERCIAL PROP ERTIES IS ASSESSABLE UNDER THE HEAD INCOME FROM PROFITS AND GAINS OF BU SINESS OR ITA NO.383/VIZAG/2014 SRI BHARATHI WARE HOUSING CORPORATION, GUNTUR 5 PROFESSION BUT NOT UNDER THE HEAD INCOME FROM HOU SE PROPERTY. THE RELEVANT PORTION OF THE ORDER IS EXTRACTED HEREUNDE R: 10. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MA TERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITI ES BELOW. THE ASSESSEE IS SRI BHARATI WAREHOUSING CORPORATION E XISTED BY VIRTUE OF PARTNERSHIP DEED DATED 21.1.2000. AS PER THE PARTN ERSHIP DEED, THE OBJECT OF THE FIRM IS THE NATURE OF BUSINESS IS TO CONSTRUCT GODOWNS OR RESIDENTIAL OR COMMERCIAL BUILDINGS OR FLATS OR COM MERCIAL SHOPS, ETC. ON LANDS OWNED BY THE FIRM OR BY TAKING LAND ON LONG L EASE BASIS FROM OTHERS, AS MUTUALLY AGREED UPON FROM TIME TO TIME, AND LEAS E OUT THE SAME TO OTHERS. IT IS ALSO MUTUALLY AGREED THAT ANY OTHER BUSINESS ALSO MAY BE CARRIED WITH THE MUTUAL CONSENT OF ALL THE PARTNERS IF DEEMED LUCRATIVE. FROM THE ABOVE, IT IS CLEAR THAT THE INTENTION OF T HE ASSESSEE IS TO ACQUIRE THE LAND BY ITS OWN OR BY LEASE OUT THE LAND FOR A LONGER PERIOD AND THERE AFTER CONSTRUCT A BUILDING AND LEASE OUT THE SAME T O THE THIRD PARTIES. THIS IS THE ACTIVITY OF THE ASSESSEE. IN THE ASSESSMENT ORDER, THE A.O. HAS NOTED THAT THE ASSESSEE HAS LEASED OUT NEAR ABOUT 4 PROPERTIES ONE TO STANDARD CHARTERED BANK, MUMBAI, SECOND TO BATA INDI A LIMITED, CALCUTTA, THIRD TO EDS ELECTRONIC DATA SYSTEMS INDIA (P) LIMI TED AND FOURTH TO FOOD WORLD SUPER MARKET (SPENCER) LIMITED, THOUGH THE N ATURE OF THE BUSINESS OF THE ASSESSEE IS AS PER THE PARTNERSHIP DEED TO CONSTRUCT THE GODOWNS OR RESIDENTIAL OR COMMERCIAL BUILDINGS OR FLATS OR COMMERCIAL SHOPS ON LAND OWNED BY THE FIRM BY TAKING LAND ON LEASE BASIS FRO M OTHERS, LEASED OUT OR SALE TO OTHERS, BESIDES CONDUCTING THE TOBACCO BUSI NESS, CAME TO A CONCLUSION THAT THE INCOME RECEIVED BY THE ASSESSEE IS AN INCOME FROM HOUSE PROPERTY AND NOT A BUSINESS INCOME BY FOLLOWI NG CERTAIN JUDICIAL PRECEDENTS. 11. WE FIND THAT THE ASSESSEE FIRM HAS UNDERTAKEN A SYSTEMATIC ACTIVITY I.E. TO TAKE A PROPERTY ON LEASE OR PURCHASE AND CO NSTRUCT A BUILDING AND LEASE OUT THE SAME TO A THIRD PARTY ON COMMERCIAL B ASIS. ACCORDING TO THE ASSESSEE, THE ACTIVITY IS A BUSINESS ACTIVITY AND T HEREFORE THE INCOME DERIVED FROM THE BUSINESS ACTIVITY HAS TO BE TREATE D AS A BUSINESS INCOME NOT INCOME FROM HOUSE PROPERTY. IN THIS CONTEXT, T HE HONBLE SUPREME COURT IN THE CASE OF CHENNAI PROPERTIES (SUPRA) HAS OBSERVED THAT THE MEMORANDUM OF ASSOCIATION OF THE ASSESSEE COMPANY, WHICH IS PLACED ON RECORD MENTIONS MAIN OBJECTS AS WELL AS INCIDENTAL OR ANCILLIARY OBJECTS IN CLAUSE III(A) AND (B) RESPECTIVELY. THE MAIN OBJECT OF THE APPELLANT COMPANY IS TO ACQUIRE AND HOLD THE PROPERTIES KNOWN AS CHENNAI HOUSE AND FIRHAVIN ESTATE BOTH IN CHENNAI AND TO LET OU T THOSE PROPERTIES AS WELL AS MAKE ADVANCES UPON THE SECURITY OF LANDS AN D BUILDINGS OR OTHER PROPERTIES OR ANY INTEREST THEREIN. WHAT WE EMPHAS ISE IS THAT HOLDING THE AFORESAID PROPERTIES AND EARNING INCOME BY LETTING OUT THOSE PROPERTIES IS THE MAIN OBJECTIVE OF THE COMPANY. IT MAY FURTHER B E RECORDED THAT IN THE RETURN THAT WAS FILED, THE ENTIRE INCOME WHICH ACCR UED AND WAS ASSESSED THE SAID RETURN WAS FROM LETTING OUT OF THESE PROPE RTIES. IT IS ALSO ITA NO.383/VIZAG/2014 SRI BHARATHI WARE HOUSING CORPORATION, GUNTUR 6 RECORDED AND ACCEPTED BY THE ASSESSING OFFICER HIMS ELF IN HIS ORDER. THE HONBLE SUPREME COURT BY CONSIDERING THE EAST INDIA HOUSING & LAND DEVELOPMENT TRUST LTD. VS. CIT (SUPRA) AND ALSO THE JUDGEMENT OF THE HONBLE SUPREME COURT IN THE CASE OF SULTAN BROTHER S PVT. LTD. (SUPRA) HAS HELD THAT LETTING OUT OF THE PROPERTIES IS IN FACT THE BUSINESS OF THE ASSESSEE, ASSESSEE THEREFORE RIGHTLY DISCLOSED THE INCOME UNDER HEAD INCOME FROM BUSINESS IT CANNOT BE TREATED AS AN INCOME FROM HOUSE PROPERTY AND APPEAL FILED BY THE ASSESSEE IS ALLOW ED. 12. IN THE PRESENT CASE, THE ASSESSEE HAS ACQUIRED T HE LAND ON LEASE BASIS IN VARIOUS PLACES I.E. MUMBAI, KOLKATA, BANGA LORE, CHENNAI AND CONSTRUCTED COMMERCIAL COMPLEXES AND LEASED OUT THE SAME TO THE COMMERCIAL ENTREPRENEURS SUCH AS STANDARD CHARTERED BANK, BATA INDIA LIMITED, EDS ELECTRONIC DATA SYSTEMS INDIA (P) LTD. AND SPENCERS FOR A HIGHER RENTAL AMOUNT. THE INTENTION OF THE ASSESSE E IS VERY CLEAR FROM THE DATE ON WHICH IT IS EXISTED IS TO CARRY OUT THE BUS INESS ACTIVITY SUCH AS TO CONSTRUCT THE GODOWNS OR RESIDENTIAL OR COMMERCIAL BUILDINGS OR COMMERCIAL SHOPS, ETC. THE LANDS OWNED BY FIRM OR BY TAKING LAND ON LONG LEASE FROM OTHERS IS THE ACTIVITY OF THE ASSES SEE. IN OUR OPINION, THE JUDGEMENT OF THE HONBLE SUPREME COURT SQUARELY APP LIES TO THE FACTS OF THE CASE AND WE HOLD THAT THE INCOME EARNED BY THE ASSESSEE IS INCOME FROM BUSINESS AND NOT INCOME FROM HOUSE PROPERTY. 13. SO FAR AS THE ORDER OF THE ITAT IN THE ASSESSEE S OWN CASE (SUPRA) IS CONCERNED, THE TRIBUNAL HAS OBSERVED THAT ASSESS EE HAS CONSTRUCTED ITS PROPERTIES AT VARIOUS PLACES AND LET OUT TO DIFFERE NT TENANTS FOR A LONGER PERIOD, IT CANNOT BE INFERRED THAT THE ACTIVITY OF THE ASSESSEE IS A BUSINESS ACTIVITY. SO FAR AS THE ABOVE OBSERVATION OF THE T RIBUNAL IS CONCERNED, THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. S. PREMALATHA 367 ITR 298 (AP) HAS OBSERVED THAT THE LEASE WAS FOR A FAIRLY LONGER PERIOD DOES NOT BRING ABOUT ANY CHANGE IN THE CHARACTER OF RIGHTS. THE CONSTRUCTION OF THE BUILDING ON THE LAND TAKEN ON LEASE WAS OBVIOUSLY F OR THE PURPOSE OF BUSINESS AND NOT WITH AN INTENTION TO OWN IT. IF TH E INTENTION OF THE RESPONDENT WAS TO OWN THE PROPERTY, THE TRANSACTION WOULD HAVE BEEN DIFFERENT ALTOGETHER. THOUGH THE LEASE WAS ONE OF THE FORMS OF TRANSFER OF PROPERTY, IT DOES NOT LEAD TO CONFERMENT OF RIGHTS OR OWNERSHIP. 14. WE THEREFORE, RESPECTFULLY FOLLOWING THE JUDGEM ENT OF THE HONBLE SUPREME COURT IN THE CASE OF CHENNAI PROPERTIES (SU PRA) THIS APPEAL FILED BY THE REVENUE IS DISMISSED. 5. THE ASSESSEE RELIED UPON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF RAYALA CORPORATION PVT. LTD. VS. ACIT ( 2016) 139 DTR (SC) 265. THE HONBLE SUPREME COURT, HELD THAT ASSESSEE COMPANY BEING ENGAGED SOLELY IN THE BUSINESS OF LEASING PROPERTIE S AND EARNING RENT ITA NO.383/VIZAG/2014 SRI BHARATHI WARE HOUSING CORPORATION, GUNTUR 7 THERE FROM, THE RENTAL INCOME OF THE ASSESSEE IS TA XABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION AND N OT AS INCOME FROM HOUSE PROPERTY. 6. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THIS CASE AND ALSO RESPECTFULLY FOLLOWING THE DECISION OF COORDINATE B ENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2008-09 AND ALSO FOLLOWING THE SUPREME COURT DECISION IN THE CASE OF RAYALA CO RPORATION PVT. LTD. VS. ACIT (SUPRA), WE ARE OF THE VIEW THAT RENTAL RE CEIPTS FROM LETTING OUT COMMERCIAL PROPERTIES IS ASSESSABLE UNDER THE HEAD INCOME FROM PROFITS & GAINS OF BUSINESS OR PROFESSION AND NOT AS INCOME FROM HOUSE PROPERTY. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 6 TH JAN17. SD/- SD/- ( . ) ( . ) (V. DURGA RAO) (G. MANJUNATHA) /JUDICIAL MEMBER /ACCOUNTANT MEMBER # /VISAKHAPATNAM: ' /DATED : 06.01.2017 VG/SPS ITA NO.383/VIZAG/2014 SRI BHARATHI WARE HOUSING CORPORATION, GUNTUR 8 )# *# /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT SRI BHARATHI WARE HOUSING CORPOR ATION, D.NO.8-24-31, MANGALAGIRI ROAD, GUNTUR 2. / THE RESPONDENT THE CIT(A), GUNTUR 3. + / THE CIT, GUNTUR 4. + ( ) / THE CIT (A), GUNTUR 5. # . , . , # / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // 12 . (SR.PRIVATE SECRETARY) . , # / ITAT, VISAKHAPATNAM