ROMA BUILDERS P. LTD, MUMBAI V. JT CIT (OSD) RG 3(3), MUMBAI

ITA 4118/MUM/2008

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 8308 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 9 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-03-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 25-03-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 09-06-2008

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES D, MUMBAI BEFORE SHRI R.S. SYAL (A.M.) AND SHRI D.K. AGARWAL (J.M.) ITA NO. 4118/MUM/2008 ASSESSMENT YEAR : 2003-04 ROMA BUILDERS PVT. LTD., 514, DALAMAL TOWERS, 211, F.P.J. MARG, NARIMAN POINT, MUMBAI 400 021. PAN :AAACR7605K VS. JT. CIT (OSD), RG 3(3), AAYAKAR BHAWAN, M.K. ROAD, MUMBAI- 400 020. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI CHETAN A. KARIA RESPONDENT BY : SHRI JITENDRA YADAV O R D E R PER D.K. AGARWAL, J.M. THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 21.04.2006 PASSED BY THE LD. CIT (A) FOR THE A.Y. 2003-04. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE AS SESSEE COMPANY IS ENGAGED IN CONSTRUCTION OF RESIDENTIAL UNITS AND DE VELOPMENT ACTIVITY, FILED RETURN OF INCOME DECLARING TOTAL INCOME AT ` 5,51,27,850/-. DURING THE COURSE OF ASSESSMENT PROCEEDING, THE A.O. ON PE RUSAL OF P&L ACCOUNT OBSERVED THAT THE ASSESSEE COMPANY HAS EARNED INCOM E FROM LEASING ACTIVITY. THE ASSESSEE COMPANY WAS ASKED TO SUBMIT THE DETAILS OF THE SAME INCLUDING THE INTEREST FREE DEPOSITS RECEIVED ON THE PROPERTY LEASED ITA NO. 4118/MUM/2008 M/S ROM A BUILDERS PVT. LTD. 2 ALONG WITH COPY OF LEASE AGREEMENTS. THE ASSESSEE COMPANY WAS ALSO ASKED TO SHOW CAUSE AS TO WHY THE RENT/LEASE RENT R ECEIVED BY THE ASSESSEE COMPANY AS WELL AS THE NOTIONAL INTEREST O N THE INTEREST FREE DEPOSITS RECEIVED SHOULD NOT BE TREATED AS INCOME F ROM HOUSE PROPERTY. IN REPLY, THE ASSESSEE FURNISHED THE FOLLOWING SUBM ISSIONS:- - ROMA BUILDERS PVT. LTD. IS A REGISTERED COMPANY E NGAGED IN THE BUSINESS OF CONSTRUCTION AND DEVELOPMENT OF PRO PERTY SINCE INCEPTION. THE COMPANY CONSTRUCTS BUILDINGS AND SELLS UNITS IN THE SAID BUILDINGS. - SINCE ITS INCEPTION THE COMPANY HAS DEVELOPED NUM BER OF PROPERTIES AND DEALT WITH IMMOVABLE PROPERTIES ONLY . - DURING THE YEAR THE COMPANY HAS GIVEN SOME COMMER CIAL UNITS ON LEASE AND HAS EARNED LEASE/LICENSE FEES FR OM THE SAME. LEASING OF UNITS IS ALSO ONE MANNER OF COMME RCIAL UTILISATION OF IMMOVABLE PROPERTY AND HENCE FORMS P ART AND PARCEL OF BUSINESS OF COMPANY. IN SUPPORT, THE ASSESSEE ALSO RELIED ON THE FOLLOWI NG JUDICIAL DECISIONS:- (1) CIT V. NEW INDIA INDUSTRIES LTD. [1993] 201 ITR 208 (2) KARNANI PROPERTIES LTD. V. CIT [1971] 82 ITR 547 (S C) (3) UNIVERSAL PLAST V. CIT [1999] 237 ITR 454(SC) (4) CIT V. V.S. THIAGARAJA MUDALIAR 226 ITR 155 (5) IN THE COMMENTARY AT PAGE 461 OF KANGA AND PALKHIVA LA. THE LAW AND PRACTICE OF INCOME TAX, EIGHTH EDITION, VOL UME 1. (6) CEPT V. LAKSHMI SILK MILLS LTD. [1951] 20 ITR 451 (7) CIT VS. VIKRAM COTTON MILLS LTD. (1988) 67 CTR (SC) 169: (1998)169 ITR 597 (SC) (8) CIT VS. AJMERA INDUSTRIES (P) LTD. (1976) 103 ITR 2 45 (CAL.) ITA NO. 4118/MUM/2008 M/S ROM A BUILDERS PVT. LTD. 3 (9) CIT VS. ANAND RUBBER AND PLASTICS (P) LTD. (1989) 7 7 CTR (P&H) 120: (1989) 178 ITR 301 (P&H). (10) CIT VS. KOHINOOR TOBACCO PRODUCTS (P) LTD. (2005) 1 49 TAXMAN 620 (MP). IT WAS, THEREFORE, SUBMITTED THAT CONSIDERING ALL T HE ABOVE FACTS AND CASES THE LEASE INCOME SHOULD BE TREATED AS BUSINES S INCOME AND NOT INCOME FROM HOUSE PROPERTY. HOWEVER, THE A.O. DID NOT ACCEPT THE ASSESSEES SUBMISSIONS. HE OBSERVED THAT THE ASSES SEE COMPANY FAILED TO FURNISH ANY EVIDENCE THAT THE PREMISES GIVEN ON LEASE ARE IN EFFECT THE COMMERCIAL PREMISES OR THE INCOME DERIVED BY THE AS SESSEE IS FROM A COMMERCIAL ASSET. ACCORDING TO THE A.O., ONLY WHEN THE ASSESSEE COMPANY HAS ESTABLISHED THAT THE ASSETS ON WHICH TH EY HAVE EARNED LEASE INCOME IS A COMMERCIAL ASSET, THEN THE JUDGME NT OF HONBLE GUJARAT HIGH COURT IN THE CASE OF NEW INDIA INDUSTR IES LTD. (SUPRA) RELIED ON BY THE ASSESSEE COMPANY WILL APPLY. HE FURTHER OBSERVED THAT THE ASSESSEE COMPANY THEMSELVES HAVE CAPITALISED THE UN SOLD PROPERTIES AS A RESULT OF TRANSFER FROM THE CLOSING STOCK/STOCK IN TRADE. ONCE ASSETS ARE TRANSFERRED FROM THE CLOSING STOCK/STOCK-IN-TRADE A ND IS CONVERTED AS FIXED ASSETS, THEN THE NATURE OF THE ASSET CHANGES ITSELF TO A CAPITAL ASSET. CONSEQUENTLY, THE INCOME EARNED BY THE ASSESSEE FRO M THE SAID ASSETS CANNOT BE ANYTHING OTHER THAN INCOME FROM HOUSE PRO PERTY SINCE THE LEASE ASSETS ARE NOT COMMERCIAL ASSETS AND THE INTE NTION BEHIND THE LEASE OF PROPERTY IS PURELY TO ENJOY THE RENTAL INC OME WHICH IS NO WAY CONNECTED OR INCIDENTAL TO THE BUSINESS ACTIVITY OF THE ASSESSEE COMPANY. ITA NO. 4118/MUM/2008 M/S ROM A BUILDERS PVT. LTD. 4 THE A.O. WHILE DISTINGUISHING THE DECISIONS RELIED ON BY THE ASSESSEE ON THE GROUND THAT THE LEASED ASSETS ARE NOT COMMERCIA L ASSETS BUT PART OF THE FIXED ASSETS AND THE CHARACTER OF THE PROPERTY AS WELL AS THE INTENTION OF THE ASSESSEE TO ENJOY THE RENTAL PROCEEDS PROVES THAT THEY ARE NOT PART OF ANY BUSINESS ACTIVITY HELD THAT THE RENTAL INCOM E RECEIVED BY THE ASSESSEE COMPANY IS CHARGEABLE UNDER THE HEAD INCOM E FROM HOUSE PROPERTY AND ACCORDINGLY HE ASSESSED THE RENTAL INC OME UNDER THE HEAD INCOME FROM HOUSE PROPERTY AT ` 28,77,627/- AS PER COMPUTATION GIVEN AT PAGE 8 OF THE ASSESSMENT ORDER. 3. ON APPEAL, THE LD. CIT(A) WHILE DISTINGUISHING T HE DECISIONS RELIED ON BY THE ASSESSEE, FOLLOWED THE DECISION IN THE CA SE OF CIT VS. SHAMBHU INVESTMENTS PVT. LTD. (2003) 263 ITR 143 (SC) WHERE IN THE HONBLE SUPREME COURT HAS AFFIRMED THE DECISION OF HONBLE CALCUTTA HIGH COURT REPORTED IN (2001) 249 ITR 47 (CAL) AND THE DECISIO N IN THE CASE OF CIT VS. CHENNAI PROPERTIES AND INVESTMENTS LTD. (2004) 266 ITR 685 (MAD) AND OTHER DECISIONS, OBSERVED THAT IN THE CASE OF THE A PPELLANT, THERE IS NO SUCH COMPLEX ASSET HIRED OUT OR NO SUCH EXPLOITATIO N OF PROPERTY THROUGH COMPLEX COMMERCIAL OPERATIONS HAS BEEN CARRIED OUT, HELD THAT IN THE CASE OF THE ASSESSEE UNSOLD UNITS HAVE BEEN LET OUT WHICH ARE IN THE FORM OF EXTRA SPACE FLATS AND NO COMPLEXITY IS INVOLVED THEREIN, HENCE, THE RENTAL INCOME CANNOT BE TREATED AS BUSINESS INCOME AND ACCORDINGLY ITA NO. 4118/MUM/2008 M/S ROM A BUILDERS PVT. LTD. 5 UPHELD THE DECISION OF THE A.O. IN TREATING THE REN TAL INCOME AS INCOME FROM HOUSE PROPERTY. 4. AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE AS SESSEE IS IN APPEAL BEFORE US TAKING FOLLOWING GROUNDS OF APPEAL:- 1. A. THE LEARNED CIT(A) ERRED IN CONFIRMING CHARGE OF LEASE RENT OF ` 35,86,485/- AS INCOME FROM HOUSE PROPERTY INSTEAD AS INCOME FROM BUSINESS. B. THE LEARNED CIT(A) FAILED TO APPRECIATE THAT TH E ASSETS LEASED WERE COMMERCIAL ASSETS AND LEASING IS ONE OF THE METHODS OF COMMERCIAL UTILISATION OF IMMOVABLE PROPERTY AND IS CONNECTED WITH AND INCIDENTAL TO THE BUSINESS ACTIVITY OF THE APPELLANT COMPANY. C. THE LEARNED CIT(A) FAILED TO APPRECIATE THAT TH ESE UNITS WERE LET OUT FOR TEMPORARY PERIOD AND AS AND WHEN R IGHT PRICE AVAILABLE THESE UNITS WERE SOLD BY THE APPELLANT. 5. AT THE TIME OF HEARING, THE LD. COUNSEL FOR THE ASS ESSEE SUBMITS THAT THE ASSESSEE COMPANY IS ENGAGED IN CONSTRUCTIO N OF RESIDENTIAL UNITS AND DEVELOPMENT ACTIVITIES. SINCE INCORPORATION TIL L DATE, THE ASSESSEE COMPANY HAS CONSTRUCTED A NUMBER OF BUILDINGS RES IDENTIAL AND COMMERCIAL. THE PRINCIPAL OBJECT OF THE COMPANY IS TO DEVELOP AND SELL THE PREMISES CONSTRUCTED, BUT IN CASE OF CERTAIN PR EMISES WHICH REMAIN UNSOLD, THE ASSESSEE COMPANY CARRIED FORWARD AS STO CKBUSINESS STOCK- SINCE THE ASSESSEE IS PRIMARILY ENGAGED IN DEVELOPM ENT AND SALE OF PROPERTY. THE ASSESSEE COMPANY HAS GIVEN ON LEASE THIS STOCK FOR A TEMPORARY PERIOD TO PERSONS/COMPANIES INTERESTED IN TEMPORARY USE. LEASING IS ALSO ONE OF THE METHODS OF COMMERCIAL UT ILISATION OF ITA NO. 4118/MUM/2008 M/S ROM A BUILDERS PVT. LTD. 6 IMMOVABLE PROPERTY AND HENCE FORMS PART OF THE BUSI NESS OF THE COMPANY. DURING THE YEAR, THE ASSESSEE COMPANY HAS LET OUT FEW UNITS, THE DETAILS OF RENT RECEIVED AND OTHER DETAILS ARE AS UNDER:- S.NO NAME OF PARTY BLDG & UNIT NATURE OF PROPERTY DATE OF LEASE & DURATION OF LEASE COST OF LEASED ASSETS RENT REVD. STATUS AS ON DATE 1A LEAR SEATING PVT. LTD. HAMILTON A GR & IST FLR COMMERCIAL 15/7/01 36 MONTHS 15898000 2657325 STILL ON LEASE 1B LEAR SEATING PVT. LTD. CAVIANA FLAT 15.7.01 11 MONTHS NOTE 1 NOTE 1 SOLD ON 19.12.02 2 LUPIN LTD. STANFORD 103 FLAT 1.3.02 2 MONTHS 1400000 30000 SOLD ON 29.7.02 3 BHARTI CELLULAR LTD. STANFORD ANTENA RENT PUTTING UP ANTENNA 27.4.02 N.A. NIL 225000 HANDED OVER TO SOCIETY 4 MASTEK BPO PVT. LTD. HAMILTON B 6 TH FLOOR COMMERCIAL 1.3.02 3 YEARS 8174430 121440 SOLD ON 18.11.03 5 MIND AXIS (1) SOL PVT. LTD. HAMILTON A 203 COMMERCIAL 15.4.02 33 MONTHS 814000 186480 SOLD ON 21.6.05 6 VARUN POLYCLINIC HAMILTON A 204 COMMERCIAL 15.8.02 33 MONTHS 814000 179760 SOLD ON 26.7.04 7 VISTA INTERNATIO NAL PVT. LTD. HAMILTON A 201 COMMERCIAL MAR-02 36 MONTHS 814000 186480 SOLD ON 16.1.08 NOTE: COST OF LEASE & RENT RECEIVED IN CASE OF LEAR SEATING HAS BEEN AGGREGATED. WITH REGARD TO THE A.O.S FINDING THAT THE ASSESSE E HAS TRANSFERRED THE FLATS FROM FIXED ASSETS AND IN TREATING THE RENTAL INCOME AS INCOME FROM HOUSE PROPERTY, THE LD. COUNSEL FOR THE ASSESSEE SU BMITS THAT AS PER ITA NO. 4118/MUM/2008 M/S ROM A BUILDERS PVT. LTD. 7 POINT 39 OF AS-19 APPEARING AT PAGE 15 OF AS-19 APP EARING AT PAGE 7 TO 17 OF THE ASSESSEES PAPER BOOK WHEREIN IT HAS BEEN PROVIDED THAT THE LESSER SHOULD PRESENT AN ASSET GIVEN UNDER OPERATIN G LEASE IN ITS BALANCE SHEET UNDER FIXED ASSETS, THE ASSESSEE WAS REQUIRE D TO PRESENT AN ASSETS GIVEN UNDER OPERATING LEASE SEPARATELY IN BALANCE S HEET UNDER FIXED ASSETS, THEREFORE, MERE PRESENTATION OF IMPUGNED FL ATS UNDER THE HEAD FIXED ASSETS DOES NOT EFFECT THE TRUE NATURE OF THE PROPERTY. HE FURTHER SUBMITS THAT THE PERCENTAGE OF COST OF PREMISES LEA SED TO TOTAL INVESTMENT IN LAND, WIP AND STOCK-IN-TRADE COMES TO 4.11% ONLY. HE FURTHER SUBMITS THAT SINCE THE PROPERTY WAS LET OUT FOR EXPLOITATION OF BUSINESS ASSETS, THEREFORE, THE INCOME DERIVED FROM THE SAID PROPERTY SHOULD BE ASSESSED UNDER THE HEAD INCOME FROM BUSIN ESS. THE LD. COUNSEL FOR THE ASSESSEE WHILE DISTINGUISHING THE D ECISION IN THE CASE OF S.G. MERCANTILE CORPORATION (P) LTD. VS. CIT (1972) 83 ITR 700 (SC) AND THE DECISION IN THE CASE OF ATMA RAM PROPERTIES (P) LTD. VS. JT. CIT (2006) 102 TTJ (DEL) (SB) 345, STRONGLY RELIED ON T HE DECISION OF THE CO- ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF HIRAN ANDANI DEVELOPERS P. LTD. VS. JCIT IN ITA NO. 4117/MUM/2008 FOR A.Y. 200 3-04 DATED 30 TH OCTOBER, 2009 WHEREIN ON THE SIMILAR FACTS, IT HAS BEEN HELD THAT THE INCOME DERIVED FROM THE PROPERTY IS ASSESSABLE AS B USINESS INCOME. HE, THEREFORE, SUBMITS THAT THE INCOME DERIVED FROM THE LETTING OUT OF THE PROPERTY SHOULD BE ASSESSED AS BUSINESS INCOME AND THE A.O. AND THE LD. ITA NO. 4118/MUM/2008 M/S ROM A BUILDERS PVT. LTD. 8 CIT(A) WERE NOT JUSTIFIED IN ASSESSING THE RENTAL I NCOME UNDER THE HEAD INCOME FROM HOUSE PROPERTY. 6. ON THE OTHER HAND, THE LD. D.R. WHILE RELYING ON THE ORDER OF THE A.O. AND THE LD. CIT(A) FURTHER SUBMITS THAT IN THE ABSENCE OF ANY EVIDENCE THAT THE PREMISES GIVEN ON LEASE ARE IN EF FECT THE COMMERCIAL PREMISES OR THE INCOME DERIVED BY THE ASSESSEE IS F ROM A COMMERCIAL ASSET, THE A.O. AND THE LD. CIT(A) HAVE RIGHTLY ASS ESSED THE INCOME FROM PROPERTY UNDER THE HEAD INCOME FROM HOUSE PROPERTY. THE LD. D.R. WHILE DISTINGUISHING THE DECISIONS RELIED ON BY THE LD. C OUNSEL FOR THE ASSESSEE, STRONGLY RELIED ON THE DECISIONS IN THE CASE OF CIT VS. SHAMBHU INVESTMENTS PVT. LTD. (SUPRA) AND EAST INDIA HOUSIN G AND LAND DEVELOPMENT TRUST LIMITED VS. CIT (1961) 42 ITR 49 (SC) AND SUBMITS THAT IN VIEW OF THE RATIO LAID DOWN THEREIN, THE OR DER PASSED BY THE A.O. TREATING THE RENTAL INCOME AS INCOME FROM HOUSE PRO PERTY BE UPHELD. 7. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FI ND THAT THERE IS NO DISPUTE THAT PRINCIPAL OBJECT OF THE ASSESSEE COMPA NY IS TO DEVELOP AND SELL THE PREMISES CONSTRUCTED. THERE IS NO MATERIAL ON RECORD TO SHOW THAT THE PRINCIPLE OBJECT OF THE ASSESSEE COMPANY I NCLUDES TO LEASE ITS STOCK I.E. CERTAIN PREMISES FOR A TEMPORARY PERIOD TO PERSONS/COMPANIES INTERESTED FOR TEMPORARY USE. IN THE CASE BEFORE U S, THE ASSESSEE ITA NO. 4118/MUM/2008 M/S ROM A BUILDERS PVT. LTD. 9 COMPANY HAS GIVEN ON LEASE TEMPORARILY CERTAIN UNIT S TO THE AFORESAID LESSEES FOR A PERIOD OF 2 MONTHS TO 36 MONTHS AND R ECEIVED RENT THEREFROM. ACCORDING TO THE ASSESSEE, LEASING IS ON E OF THE METHODS OF COMMERCIAL UTILISATION OF IMMOVABLE PROPERTY FORMIN G PART OF THE BUSINESS OF THE ASSESSEE COMPANY, THEREFORE, THE IN COME DERIVED THEREFROM SHOULD BE ASSESSED AS INCOME FROM BUSINES S. PER CONTRA, THE CASE OF THE REVENUE IS THAT NO COMMERCIAL ACTIVITY IS INVOLVED, THE ASSESSEE HAS RECEIVED SIMPLE RENT FROM THE FLATS/UN ITS, THEREFORE, THE ASSESSEE BEING THE OWNER OF THE FLAT/PROPERTY, THE INCOME DERIVED THEREFROM SHOULD BE ASSESSED AS INCOME FROM HOUSE P ROPERTY. 8. IN THE CASE OF CIT VS. SHAMBHU INVESTMENT PVT. L TD. (2001) 249 ITR 47 (CAL) AFFIRMED BY THE HONBLE SUPREME COURT IN SHAMBHU INVESTMENT PVT. LTD. VS. CIT (2003) 263 ITR 143(SC) THE ASSESSEE IS THE OWNER OF BUILDING AT RAHEJA CHAMBERS, NARIMAN POINT , MUMBAI. THE SAID PREMISES HAVE BEEN FURNISHED BY THE ASSESSEE A ND HAVE BEEN LET OUT TO VARIOUS PERSONS AND/OR FIRMS AND/OR ORGANISATION S WITH ALL FURNITURE, FIXTURES, LIGHT, AIR CONDITIONERS FOR BEING USED AS TABLE SPACE. THE SAID ASSESSEE UNDER THE AGREEMENT WITH THOSE OCCUPIERS I S TO PROVIDE SERVICES LIKE WATCH AND WARD STAFF, ELECTRICITY, WATER AND O THER COMMON AMENITIES. THE INCOME DERIVED BY THE ASSESSEE FROM THE SAID OF FICE PREMISES WAS OFFERED FOR TAXATION AS BUSINESS INCOME AND THE SAM E WAS ASSESSED ACCORDINGLY BY THE A.O. THE COMMISSIONER OF INCOME TAX IN EXERCISE OF ITA NO. 4118/MUM/2008 M/S ROM A BUILDERS PVT. LTD. 10 HIS POWER U/S 263 OF THE ACT WAS OF THE VIEW THAT THE INCOME DERIVED FROM THE SAID PROPERTY WAS ACTUALLY RENT RECEIVED F ROM THE OCCUPIERS AND NOT TO BE REGARDED AS SERVICE CHARGES AND MAINTENAN CE AND CANNOT BE TERMED AS BUSINESS INCOME. ACCORDINGLY, THE CIT AFT ER GIVING HEARING TO THE ASSESSEE REMANDED THE MATTER BACK TO THE A.O. WITH A DIRECTION TO ASSESS THE SAID INCOME AS PROPERTY INCOME. ON APPE AL BY THE ASSESSEE BEFORE THE TRIBUNAL, THE TRIBUNAL CANCELLED THE ORD ER PASSED BY THE CIT U/S 263. ON REFERENCE BEFORE THE HONBLE CALCUTTA HIGH COURT, THE MOOT QUESTION INVOLVED WAS WHETHER THE INCOME DERIVED FR OM THE SAID PREMISES IS RENTAL INCOME OR BUSINESS INCOME. THEI R LORDSHIPS, AFTER ELABORATE REVIEW OF THE CASE LAW LAID DOWN THE FOLL OWING PRINCIPLES:- ................WHAT HAS TO BE SEEN IS WHAT WAS TH E PRIMARY OBJECT OF THE ASSESSEE WHILE EXPLOITING THE PROPERTY. IF IT I S FOUND APPLYING SUCH TEST THAT THE MAIN INTENTION IS FOR LETTING OU T THE PROPERTY OR ANY PORTION THEREOF THE SAME MUST BE CONSIDERED AS RENTAL INCOME OR INCOME FROM PROPERTY. IN CASE IT IS FOUND THAT T HE MAIN INTENTION IS TO EXPLOIT THE IMMOVABLE PROPERTY BY WAY OF COMP LEX COMMERCIAL ACTIVITIES IN THAT EVENT IT MUST BE HELD AS BUSINES S INCOME. AND OBSERVED AND HELD THAT THE AGREEMENT WAS ONE OF TENANCY AND THAT THE ASSESSMENT OF THE INCOME AS BUSINESS INCOME WAS NOT CORRECT ON THE BASIS OF THE FINDING THAT THE PRIMARY INTENTION TO LET OUT THE PREMISES WAS TO GET RENT. 9. IN ATMA RAM PROPERTIES (P) LTD. VS. JCIT (2006) 102 TTJ (DEL) (SB) 345 IT HAS BEEN HELD THAT RENTAL INCOME DERIVED BY THE ASSESSEE COMPANY ITA NO. 4118/MUM/2008 M/S ROM A BUILDERS PVT. LTD. 11 BY LETTING OUT A PROPERTY SIMPLICITOR WAS CHARGEABL E TO TAX UNDER THE HEAD INCOME FROM HOUSE PROPERTY AND NOT AS BUSINE SS INCOME IRRESPECTIVE OF THE FACT THAT ASSESSEE COMPANY WAS DOING BUSINESS OF ACQUIRING, DEVELOPING AND SELLING OF PROPERTIES AND THE RENTAL INCOME WAS RECEIVED BY IT BECAUSE OF OWNERSHIP AND NOT BY EXPLOITATION OF THE PROPERTY BY WAY OF COMPLEX COMMERCIAL ACTIVITY. 10. IN CIT VS. CHENNAI PROPERTIES AND INVESTMENTS L TD. (2004) 266 ITR 685 (MAD.) IT HAS BEEN HELD THAT THE ASSESSEE WAS O NLY EXPLOITING THE PROPERTY AS OWNER BY LEASING OUT THE SAME AND REALI SING THE INCOME BY WAY OF A RENT. SUCH RENTAL INCOME WAS LIABLE TO BE ASSESSED UNDER THE HEAD INCOME FROM HOUSE PROPERTY. 11. IN EAST INDIA HOUSING AND LAND DEVELOPMENT TRUS T LTD. V. CIT (SUPRA) IT HAS BEEN HELD (PAGE 51): .....................INCOME-TAX IS UNDOUBTEDLY LE VIED ON THE TOTAL TAXABLE INCOME OF THE TAXPAYER AND THE TAX LEVIED I S A SINGLE TAX ON THE AGGREGATE TAXABLE RECEIPTS FROM ALL THE SOURCES ; IT IS NOT A COLLECTION OF TAXES SEPARATELY LEVIED ON DISTINCT H EADS OF INCOME. BUT THE DISTINCT HEADS SPECIFIED IN SECTION 6 INDIC ATING THE SOURCES ARE MUTUALLY EXCLUSIVE AND INCOME DERIVED FROM DIFF ERENT SOURCES FALLING UNDER SPECIFIC HEADS HAS TO BE COMPUTED FOR THE PURPOSE OF TAXATION IN THE MANNER PROVIDED BY THE APPROPRIATE SECTION. IF THE INCOME FROM A SOURCE FALLS WITHIN A SPECIFIC HEAD S ET OUT IN SECTION 6, THE FACT THAT IT MAY INDIRECTLY BE COVERED BY AN OTHER HEAD WILL NOT MAKE THE INCOME TAXABLE UNDER THE LATTER HEAD. THE INCOME DERIVED BY THE COMPANY FROM SHOPS AND ST ALLS IS INCOME RECEIVED FROM PROPERTY AND FALLS UNDER THE S PECIFIC HEAD DESCRIBED IN SECTION 9. THE CHARACTER OF THAT INCO ME IS NOT ALTERED ITA NO. 4118/MUM/2008 M/S ROM A BUILDERS PVT. LTD. 12 BECAUSE IT IS RECEIVED BY A COMPANY FORMED WITH THE OBJECT OF DEVELOPING AND SETTING UP MARKETS.................. ..... 12. IN THE CASE OF HIRANANDANI DEVELOPERS P. LTD. V S. JCIT (OSD) SINCE REPORTED IN (2010) 35 SOT 430 (MUM), RELIED ON BY T HE LD. COUNSEL FOR THE ASSESSEE, THE TRIBUNAL WHILE LAYING DOWN THE BASIC PRINCIPLE THAT IF THE DOMINANT OBJECT IS TO SELL THE FLATS AND IN ORDER T O ACHIEVE THE SAID OBJECT, THE ASSESSEE HAD TEMPORARILY LET OUT THE PROPERTY T HEN INCOME FROM LETTING IS TO BE ASSESSED AS INCOME FROM BUSINESS, HELD THAT IN THE CASE OF RAJINDER HIRALAL GROVER AS PER AGREEMENT THE WHOLE TRANSACTION WAS PART OF COMPOSITE COMMERCIAL ACTIVITY AND, THEREFORE, TH E INCOME DERIVED FROM THE SAID TRANSACTION HAS TO BE TREATED AS INCOME FR OM BUSINESS AND IN RESPECT OF OTHER PROPERTY LET OUT, THE ISSUE WAS RE STORED TO THE FILE OF THE A.O. 13. WHEREAS THE CASE BEFORE US THE PRINCIPLE OBJECT OF THE ASSESSEE COMPANY IS TO DEVELOP AND SELL THE PREMISES CONSTRU CTED AND THERE IS NO MATERIAL ON RECORD TO SHOW THAT THE SAID PRINCIPLE OBJECT OF THE COMPANY INCLUDES LEASING OF THE STOCK I.E. PROPERTY FOR A T EMPORARY PERIOD TO PERSONS/COMPANIES INTERESTED IN TEMPORARY USE, THER EFORE, THE DECISION RELIED ON BY THE LD. COUNSEL FOR THE ASSESSEE IS DI STINGUISHABLE AND NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. ITA NO. 4118/MUM/2008 M/S ROM A BUILDERS PVT. LTD. 13 14. APPLYING THE ABOVE TEST AS MENTIONED IN PARA 8 TO 11 OF THIS ORDER TO THE FACTS OF THE PRESENT CASE, WE FIND THAT THE PRINCIPAL OBJECT OF THE ASSESSEE COMPANY IS TO DEVELOP AND SELL THE PREMISE S CONSTRUCTED AND THERE IS NO MATERIAL ON RECORD TO SHOW THAT THE SAI D PRINCIPAL OBJECT OF THE ASSESSEE COMPANY INCLUDES THAT LEASING IS ALSO ONE OF THE PRINCIPLE OBJECTS OF THE ASSESSEE COMPANY. WE FURTHER FIND T HAT THE ASSESSEE AFTER TAKING INTEREST FREE SECURITY DEPOSITS HAS GIVEN IT S PORTION OF THE BUILDING ON LEASE AND RECEIVED LEASE RENT FROM THE SAID PROP ERTY AND THERE IS NO MATERIAL ON RECORD TO SHOW THAT THE SAID LEASE RENT RECEIVED BY THE ASSESSEE IS FROM EXPLOITATION OF THE PROPERTY BY WA Y OF COMPLEX COMMERCIAL ACTIVITIES AS PRIME OBJECT. THIS BEING S O, WE ARE OF THE VIEW THAT THE RENTAL INCOME DERIVED BY THE ASSESSEE AS A N OWNER OF THE PROPERTY IS LIABLE TO BE ASSESSED UNDER THE HEAD I NCOME FROM HOUSE PROPERTY FOR THE PURPOSE OF SECTION 22 OF THE ACT. 15. AS REGARDS THE RENTAL INCOME FROM TERRACE GIVEN TO BHARTI CELLULAR LTD., WE OBSERVE THAT TERRACE IS NOT LIKE AN OPEN S PACE OF LAND, BUT IS AN INTEGRAL PART OF THE BUILDING WHEREIN THE LESSEE WA S ALSO ENTITLED TO PUT UP TEMPORARY STRUCTURE ON THE TERRACE FOR PROPER US E AND OCCUPATION THEREOF. THE INCOME FROM SUCH TERRACE FLOOR, THEREF ORE, COULD NOT BE TERMED AS INCOME FROM BUSINESS. IT IS VERY CLEARLY COMING WITHIN THE AMBIT OF THE MEANING OF THE WORD ANNUAL VALUE ENV ISAGED IN SECTION 22. THIS VIEW ALSO FINDS SUPPORT FROM THE DECISION OF T HE TRIBUNAL IN THE CASE ITA NO. 4118/MUM/2008 M/S ROM A BUILDERS PVT. LTD. 14 OF S. SOHAN SINGH VS. ITO (1986) 16 ITD 272 (DEL) W HEREIN IT HAS BEEN HELD THAT LEASE INCOME FROM TERRACE FLOOR RECEIVED WAS TO BE TAXED AS INCOME FROM HOUSE PROPERTY. 16. THAT BEING THE LEGAL POSITION, IRRESPECTIVE OF THE PLEA OF THE ASSESSEE THAT LEASING IS ALSO ONE OF THE METHODS OF COMMERCIAL UTILISATION OF IMMOVABLE PROPERTY, THE INCOME HAS TO BE NECESSA RILY ASSESSED UNDER THE HEAD INCOME FROM HOUSE PROPERTY. THIS VIEW A LSO FINDS SUPPORT FROM THE DECISION IN CIT VS. BHOOPALAM COMMERCIAL C OMPLEX AND INVESTMENTS (P) (2003) 262 ITR 517 (KAR) WHEREIN IT HAS BEEN HELD (PAGE 517 HEAD NOTES (II) THAT IRRESPECTIVE OF THE FACT T HAT ONE OF THE OBJECTS OF THE ASSESSEE COMPANY WAS TO DERIVE INCOME BY LEASIN G SITES AND CONSTRUCTION THEREON, THE INCOME HAD TO BE NECESSAR ILY ASSESSED UNDER THE HEAD INCOME FROM HOUSE PROPERTY. 17. IN THIS VIEW OF THE MATTER, WE ARE INCLINED TO UPHOLD THE FINDING OF THE LD. CIT(A) IN HOLDING THAT THE RENTAL INCOME IS ASSESSABLE UNDER THE HEAD INCOME FROM HOUSE PROPERTY AND NOT PROFIT A ND GAINS FROM BUSINESS OR PROFESSION. THE GROUNDS TAKEN BY THE A SSESSEE ARE, THEREFORE, REJECTED. 18. GROUND NO. 2 IS AGAINST THE SUSTENANCE OF DISAL LOWANCE OF DEPRECIATION. ITA NO. 4118/MUM/2008 M/S ROM A BUILDERS PVT. LTD. 15 19. AT THE TIME OF HEARING, THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT HE DOES NOT WANT TO PRESS THE ABOVE GROUND OF APPEAL WHICH WAS NOT OBJECTED TO BY THE LD. D.R. 20. THAT BEING SO AND IN THE ABSENCE OF ANY SUPPORT ING MATERIAL PLACED ON RECORD BY THE ASSESSEE, THE GROUND TAKEN BY THE ASSESSEE IS, THEREFORE, REJECTED. 21. IN THE RESULT, THE ASSESSEES APPEAL STANDS DIS MISSED. ORDER PRONOUNCED ON THIS 9 TH DAY OF MARCH, 2011. SD/ - (R.S. SYAL) ACCOUNTANT MEMBER SD/ - (D.K. AGARWAL) JUDICIAL MEMBER MUMBAI, DATED 9 TH MARCH, 2011. RK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS)- XXXII, MU MBAI 4. COMMISSIONER OF INCOME TAX 3, MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH D, MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI FIT FOR PUBLICATION ACCOUNTANT MEMBER JUDICIAL MEMBER ITA NO. 4118/MUM/2008 M/S ROM A BUILDERS PVT. LTD. 16 1 DRAFT DICTATED ON 2 2 .2.11 , 25.2.11 SR PS 2 DRAFT PLACED BEFORE AUTHOR ON 25.2.11, 28.2.11 SR PS 3 DRAFT PROPOSED & PLACE BEFORE THE 2 ND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY 2 ND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR PS SR.PS 6 KEPT FOR PRONOUNCEMENT ON SR PS 7 FILE SENT TO THE BENCH CLERK SR PS 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE ON WHICH FILE GOES TO THE AR 10 DA TE OF DESPATCH SR PS