Vijay Infotech Ventures, Secunderabad, Secunderabad V. DCIT, Circle-10(1), Hyderabad, Hyderabad

ITA 393/HYD/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 2454 (ITAT-HYDERABAD)
• Duration Of Justice: 7 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 07-03-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N SWAPNA
• Assessee Lawyers: LAXMINIWAS SHAR MA
• Keywords: Business income; Depreciation; Business expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. 393/HYD/2017 ASSESSMENT YEAR: 2013-14 VIJAY INFOTECH VENTURES, HYDERABAD. PAN AAFFV 6464Q VS. DY. COMMISSIONER OF INCOME- TAX, CIRCLE 10(1), HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI LAXMINIWAS SHARMA REVENUE BY : SMT. N. SWAPNA DATE OF HEARING : 05-10-2017 DATE OF PRONOUNCEMENT : 31-10-2017 O R D E R PER S. RIFAUR RAHMAN, A.M.: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX(A) - 6, H YDERABAD, DATED 23-12-2016 FOR AY 2013-14. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE FIRM FILED ITS RETURN OF INCOME DECLARING A LOSS OF RS. 4,54,56,63 6/-. THE AO MADE AN ASSESSMENT ON A TOTAL LOSS OF RS. (-) 2,36,36,44 9/- BY DETERMINING THE RECEIPTS TOWARDS LEASE RENTALS AS INCOME FROM HOUSE PROPERTY AND DISALLOWING DEPRECIATION AND OTHER BUSINESS EXP ENDITURE. 2 .1 DURING SCRUTINY PROCEEDING THE AO NOTICED THAT THE ASSESSEE- FIRM HAD SHOWN A RECEIPT OF RS.14,40,40,398/- TOWAR DS LEASE RENTALS FROM SOFTWARE TECHNOLOGY PARK, RS.1,14,22,457/- TOW ARDS OPERATIONS AND MAINTENANCE OF THE SAME, BESIDES INTEREST INCOM E OF RS.4,94,47,031/-. IT CLAIMED INTEREST EXPENSES OF R S.15,14,56,425/- 2 ITA NO. 393/H/17 VIJAY INFOTECH VENTURES, SECUNDERABAD ON TERM LOAN, RS.6,21,38,435/- TOWARDS DEPRECIATION , RS.52,27,306/- TOWARDS SECURITY EXPENSES AND RS.49,22,182/- TOWARD S ANNUAL MAINTENANCE CHARGES BESIDES OTHER EXPENSES. THE ASS ESSING OFFICER DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE THAT THE RECEIPT FROM LEASE RENTALS WAS ITS BUSINESS INCOME AND HELD THAT , AS PER THE SCHEDULER SYSTEM OF TAXATION, THE ANNUAL VALUE OF A HOUSE PROPERTY WAS LIABLE TO BE TAXED UNDER THE HEAD 'INCOME FROM HOUSE PROPERTY'. IN DOING THIS, HE FOLLOWED HIS EARLIER ORDER FOR A. Y. 2012-13 WHEREIN RENTAL INCOME WAS ASSESSED UNDER THE HEAD HOUSE PRO PERTY' AND MAINTENANCE CHARGES WERE ASSESSED UNDER THE HEAD 'I NCOME FROM OTHER SOURCES'. HE CHARGED RENTAL INCOME UNDER THE HEAD 'INCOME FROM HOUSE PROPERTY' AND ASSESSED THE RECEIPT OF MA INTENANCE CHARGES OF RS.1,14,22,457 AND INTEREST INCOME OF RS . 4,94,47,031/- UNDER THE HEAD 'INCOME FROM OTHER SOURCES'. FROM DE PRECIATION OF RS.10,79,574/- CLAIMED ON VEHICLES AND RS.91,647/- CLAIMED UNDER THE HEAD VEHICLE REPAIRS AND MAINTENANCE, HE RESTRI CTED THE ALLOWANCE TO 50% OF THE CLAIM AT RS.5,85,608/- AS A CCORDING TO HIM, PERSONAL USE OF THE SAME COULD NOT BE RULED OUT. 3. AGGRIEVED AGAINST THIS ACTION OF THE ASSESSING OFFICER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) AND SUBMITTED THAT THE ISSUE WAS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2009-10 AND 2010-11. 4. THE CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, RELYING ON HIS DECISION IN ASSESSEES OWN CASE FOR AYS 2011-12 AND 2012-13, TREATED THE RENTAL RECEIPTS UNDER THE HEAD INCOME FROM HOUSE PROPERTY AS DONE BY THE AO AND THE MAINTENAN CE CHARGES WERE TREATED AS BUSINESS INCOME. HE RESTRICTED THE DISALLOWANCE OF DEPRECIATION AND REPAIRS AND MAINTENANCE OF VEHICLE S TO 15% AS AGAINST 50% BY THE AO. 3 ITA NO. 393/H/17 VIJAY INFOTECH VENTURES, SECUNDERABAD 5. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSESS EE IS IN APPEAL BEFORE US RAISING THE FOLLOWING GROUNDS OF APPEAL: 1. THE LEARNED CIT (A) - 6 ERRED IN FACTS AND LAW W HILE PASSING ORDER. 2. THE LEARNED CIT (A) - 6 ERRED IN CONFIRMING THE ASSESSING OFFICER'S ACTION OF ASSESSING INCOME UNDER HEAD 'IN COME FROM HOUSE PROPERTY' WHEN THE INCOME IS FROM BUSINESS AN D DEPRECIATION & OTHER EXPENDITURE ARE ALLOWABLE. 3. THE LEARNED CIT (A) - 6 ERRED IN IGNORING THE OR DER PASSED BY HONORABLE ITAT ON SIMILAR ISSUES IN ASSESSES OWN CA SE FOR AY 08-09, 09-10 & 10-11 ON THE GROUNDS THAT THIS DECIS ION OF THE ITAT IS NOT APPLICABLE ANYMORE DUE TO THE FACT THAT 80-IA DEDUCTION HAS BEEN WITHDRAWN. 4. THE LEARNED CIT(A) - 6 ERRED IN IGNORING THE FAC T THAT INCOME OF ASSESSEE FROM LETTING OUT OF SOFTWARE PARK IS CO NSISTENTLY ASSESSED UNDER THE HEAD 'INCOME FROM BUSINESS' SINC E AY 06- 07, FURTHER FOR THE A.Y 2011-12 AND A.Y 2012-13 ALS O INCOME WAS ALLOWED UNDER THE HEAD 'BUSINESS' EVEN AFTER DE DUCTION UL S 80-IA BEING WITHDRAWN. 5. THE LEARNED CIT (A) - 6 ERRED IN SEPARATING THE RECEIPTS FROM OPERATION AND MAINTENANCE OF THE INFRASTRUCTURE PRO JECT WITHOUT TAKING INTO CONSIDERATION THAT THESE SERVICES ARE R ENDERED ONLY IN CONNECTION WITH THE BUSINESS OF LETTING OUT. 6. THE LEARNED CIT (A) - 6 ERRED IN NOT CONSIDERING THE MAIN OBJECT OF THE ASSESSEE IS TO LEASE OUT THE PROPERTY TO EARN RENTAL INCOME AS STATED IN ITS PARTNERSHIP DEED. Z, FOR THESE & OTHER GROUND WHICH MAY BE RAISED DUR ING OR BEFORE THE APPEAL IS HEARD. IT IS PRAYED THAT THE R ELIEF BE GRANTED. 6. BEFORE US, THE LD. AR OF THE ASSESSEE SUBMITTED THAT THE ISSUE IN DISPUTE IS SQUARELY COVERED BY THE DECISION OF T HE TRIBUNAL IN ASSESSEES OWN CASES IN EARLIER YEARS FROM 2008-09 TO 2012-13 AND THE COPIES OF THE SAME WERE PLACED ON RECORD. 7. ON THE OTHER HAND, THE LD. DR BESIDES RELYING ON THE ORDERS OF THE REVENUE AUTHORITIES, RELIED ON THE DECISION OF THE HONBLE SUPREME 4 ITA NO. 393/H/17 VIJAY INFOTECH VENTURES, SECUNDERABAD COURT IN THE CASE OF RAJ DADARKAR & ASSOCIATES VS. ACIT, 81 TAXMANN.COM 193 (SC). 8. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL FACTS ON RECORD. WE FIND THAT SIMILAR ISSUE CAME UP FOR C ONSIDERATION BEFORE THE TRIBUNAL IN ASSESSEES OWN CASES FOR EARLIER YE ARS. IN AY 2011-12 AND 2012-13, THE TRIBUNAL HAS HELD AS UNDER: 10. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED T HE MATERIAL FACTS ON RECORD. THE ASSESSEE WAS RECEIVING LEASE R ENTALS FROM SOFTWARE TECHNOLOGY PARK AND INCOME FROM OPERATIONS AND MAINTENANCE OF SOFTWARE PARK. APART FROM RENT, IT H AS RECEIVED MAINTENANCE AND INTEREST INCOME. ASSESSEE HAD TREAT ED THE RENTAL INCOME AND MAINTENANCE CHARGES AS BUSINESS I NCOME. AO TREATED THE RENTAL INCOME AS INCOME FROM HOUSE P ROPERTY AS THE SAME WAS CHARGED TO TAX BY FOLLOWING THE SCHED ULER SYSTEM OF TAXATION SPECIFIED IN THE INCOME TAX ACT. AO TRE ATED THE OTHER INCOME AS INCOME FROM OTHERS SOURCES. LD. CIT(A) CO NFIRMED THE SCHEDULER SYSTEM OF TAXATION BY OBSERVING THAT THE ASSESSEE WAS GETTING BENEFIT U/S 80IA IN THE EARLIE R YEARS AND SUBSEQUENT TO RESCINDMENT OF APPROVAL TO CLAIM DEDU CTION U/S 80IA, HE CONSIDERED THAT THE ASSESSEE LOOSES TO BE ELIGIBLE UNDERTAKING. THE INCOME WAS TREATED AS PROFIT FROM BUSINESS BECAUSE THE UNDERTAKING WAS APPROVED BY COMPETENT A UTHORITY FOR THE PURPOSE OF DEDUCTION U/S 80IA. SUBSEQUENT T O RESCINDMENT OF APPROVAL, THE UNDERTAKING DOES NOT H OLD TO BE CARRYING ON ELIGIBLE BUSINESS. 10.1 THE MUTE QUESTION BEFORE US IS WHETHER THE ACT IVITIES CARRIED ON BY THE ASSESSEE IS ELIGIBLE BUSINESS FOR THE PURPOSE OF TREATING THE PROFIT AS BUSINESS PROFIT OR NOT. THE ASSESSEE WAS CARRYING THE SAME ACTIVITIES OF LEASING THE BUI LDING FOR SOFTWARE TECHNOLOGY AND EARNING MAINTENANCE CHARGES BEFORE RESCINDMENT OF APPROVAL FOR DEDUCTION U/S 80IA AND LATER YEARS. THERE IS NO CHANGE IN THE ACTIVITIES DURING THE YEA R OF DEDUCTION U/S 80IA AND LATER YEARS. MERELY, BECAUSE THE DEDUC TION U/S 80IA WITHDRAWN, WHETHER THE ACTIVITIES CAN BE REGAR DED AS DIFFERENT (?). LD. AR BROUGHT TO OUR NOTICE THE PAR TNERSHIP DEED, AS PER WHICH, THE MAIN OBJECT OF RUNNING THE BUSINE SS IS TO VENTURE IN SOFTWARE TECHNOLOGY PARKS, ALL NATURE OF REAL ESTATE BUSINESS. IT IS EVIDENT FROM THE FINANCIAL STATEMEN T OF THE ASSESSEE THAT THE MAIN INCOME IS FROM LEASING OUT O F THE PROPERTY AND RELATED INCOME FROM MAINTENANCE OF THE PROPERTY. IN CASE, THE MAIN OBJECT OF THE ASSESSEE IS TO LEAS E OUT THE PROPERTY, THEN, IT CAN BE REGARDED AS THE BUSINESS INCOME. THIS 5 ITA NO. 393/H/17 VIJAY INFOTECH VENTURES, SECUNDERABAD IS INFERRED FROM THE JUDGMENT OF THE HONBLE SUPREM E COURT IN THE CASE OF CHENNAI PROPERTIES & INVESTMENTS LTD. ( SUPRA) AND RAYALA CORPORATION PVT. LTD. (SUPRA). THE ABOVE TWO CASES ARE RELATING TO COMPANY, WHEREAS THE CASE IN QUESTION, RELATES TO PARTNERSHIP FIRM. THE OBJECTS OF CREATING THE COMPA NY AND PARTNERSHIP FIRM ARE SIMILAR. HENCE, THE CONCLUSION CAN BE DRAWN THAT BOTH ARE CREATED TO CARRY ON THE BUSINES S OF LEASING OUT THE PROPERTIES TO MAKE PROFIT. IN OUR CONSIDERE D VIEW, THE OBJECT OF RUNNING BUSINESS TO MAKE PROFIT BY LEASIN G OUT THE PROPERTY WILL BE CHARGED TO TAX ONLY UNDER THE HEAD INCOME FROM BUSINESS AND NOT INCOME FROM HOUSE PROPERTY. T HE ASSESSEE HAS ESTABLISHED THE BUSINESS ONLY TO EARN INCOME FROM LEASING OUT THE PROPERTY, HENCE, ASSESSEE IS E LIGIBLE TO TREAT THE RENTAL INCOME AS BUSINESS INCOME AND ELIG IBLE TO CLAIM THE RELATED EXPENDITURE AS BUSINESS EXPENDITURE. AC CORDINGLY, THE GROUNDS RAISED BY THE ASSESSEE IS ALLOWED IN BO TH THE YEARS UNDER CONSIDERATION AND SINCE WE HAVE ADJUDICATED T HE GROUND RAISED BY THE ASSESSEE IN ITS FAVOUR, CONSEQUENT TO THAT THE GROUND RAISED BY REVENUE IN BOTH THE YEARS UNDER CO NSIDERATION IS DISMISSED. AS THE ISSUE UNDER CONSIDERATION IS MATERIALLY IDEN TICAL TO THE EARLIER YEARS, RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINATE BENCH, WE HOLD THAT THE ASSESSEE HAS ESTABLISHED THE BUSINESS ONLY TO EARN INCOME FROM LEASING OUT THE PROPERTY, HENCE, ASSESS EE IS ELIGIBLE TO TREAT THE RENTAL INCOME AS BUSINESS INCOME AND ELIG IBLE TO CLAIM THE RELATED EXPENDITURE AS BUSINESS EXPENDITURE. HOWEVE R, LD. DR RELIED ON THE DECISION IN THE CASE OF RAJ DADARKAR & ASSOC IATES VS. ACIT (SUPRA) . IN THIS CASE, THE ISSUE WAS WHETHER ASSES SEE IS THE OWNER U/S 27(III) OF THE ACT AND WHETHER THE MAIN OBJECT OF RUNNING THE FIRM WAS TO EARN RENTAL INCOME. IT WAS FOUND THAT THE AS SESSEE IS THE DEEMED OWNER AND OBJECTS ARE NOT ONLY TO EARN RENTA L INCOME, BUT, ALSO THE ASSESSEE HAS OTHER OBJECTS. IN THE GIVEN C ASE, IT IS ALREADY ESTABLISHED THAT THE MAIN OBJECT OF THE FIRM IS LE TTING OUT THE PROPERTY, WHICH IS SIMILAR TO THE CASE OF CHENNAI PROPERTIES & INVESTMENTS LTD. (SUPRA). ACCORDINGLY, WE ALLOW THE GROUNDS RAISED B Y THE ASSESSEE. 6 ITA NO. 393/H/17 VIJAY INFOTECH VENTURES, SECUNDERABAD 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . PRONOUNCED IN THE OPEN COURT ON 31 ST OCTOBER, 2017. SD/- SD/- (P. MADHAVI DEVI) (S. RIFAUR RA HMAN) JUDICIAL MEMBER A CCOUNTANT MEMBER HYDERABAD, DATED: 31 ST OCTOBER, 2017. KV COPY TO:- 1) VIJAY INFOTECH VENTURES, 402, GROUND FLOOR, SUR YA TOWERS, S.P. ROAD, SECUNDERABAD 500 003. 2) DCIT, CIRCLE 10(1), HYDERABAD. 3) CIT(A) 6, HYDERABAD 4 PR. CIT 6, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD. 6) GUARD FILE