KABHA BUILDERS P. LTD, MUMBAI V. ITO 9(2) (2),

ITA 4294/MUM/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 78914 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-05-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC
• Next Hearing Date: 28-11-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 26-05-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: B P K
• Keywords: Depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'SMC' BENCH, MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT ITA NO. 4294/MUM/2010 (ASSESSMENT YEAR: 2005-06) M/S. KABHA BUILDERS PVT. LTD. INCOME TAX OFFICER - 9(2)(2) 1ST JAIN CHAMBERS 577, S.V. ROAD, BANDRA (W) MUMBAI 400050 VS. MUMBAI PAN - AABCK5641D APPELLANT RESPONDENT APPELLANT BY: SHRI BHUPENDRA SHAH RESPONDENT BY: SHRI B.P.K. PANDA DATE OF HEARING: 27.05.2014 DATE OF PRONOUNCEMENT: 27.05.2014 O R D E R PER D. MANMOHAN, V.P. THIS APPEAL BY THE ASSESSEE COMPANY IS DIRECTED AGA INST THE ORDER PASSED BY THE CIT(A)-20, MUMBAI AND IT PERTAINS TO A.Y. 2005-6. 2. FACTS NECESSARY FOR DISPOSAL OF THE ONLY ISSUE IN D ISPUTE ARE STATED IN BRIEF. THE ASSESSEE IS ADMITTEDLY ENGAGED IN THE BU SINESS OF CONSTRUCTION. THOUGH THE MEMORANDUM OF ASSOCIATION OF M/S. KABHA BUILDERS PVT. LTD. LISTED OUT VARIOUS ACTIVITIES AS ITS MAIN OBJECTIVE S SUCH AS BUYING, PURCHASING, SELLING, LEASING, ACQUIRING LANDS, BUIL DINGS AND DEVELOPING LAND, CONSTRUCTION OF FLATS, HOUSES AND FACTORIES, ETC. I N THE YEAR UNDER CONSIDERATION IT HAD NOT DONE ANY ACTIVITY OTHER TH AN LETTING OUT PROPERTY. THE ONLY SOURCE OF INCOME IS RECEIPT FROM PROPERTY GIVEN ON RENT, SITUATED AT DIAMOND ESTATE, NEAR MAHA AUTO, KALINA, SANTACRUZ ( E), MUMBAI. THE ASSESSEE HAS NO OTHER INCOME. HOWEVER, THE RENTAL I NCOME WAS TREATED AS INCOME FROM BUSINESS AND DEBITED ADMINISTRATIVE EXP ENSES AND DEPRECIATION AND CLAIMED DEDUCTION AGAINST RENTAL INCOME. 3. THE AO CALLED UPON THE ASSESSEE TO EXPLAIN AS TO WH Y THE INCOME DERIVED FROM THE PROPERTY SHOULD NOT BE TREATED AS INCOME FROM PROPERTY. IN ITA NO. 4294/MUM/2010 M/S. KABHA BUILDERS PVT. LTD. 2 RESPONSE THERETO IT WAS STATED THAT THE IMPUGNED PR OPERTY IS AN INTEGRAL PART OF THE COMPANYS BUSINESS VENTURE, THOUGH THE BUILD ING IS OWNED BY THE ASSESSEE. THE PROPERTY IS A COMMERCIAL PREMISES AND USED BY THE LESSEE FOR COMMERCIAL PURPOSES AND, THEREFORE, THE INCOME EARN ED THEREON BE TREATED AS INCOME FROM BUSINESS. IT WAS ALSO SUBMITTED THAT AS PER THE MEMORANDUM OF ASSOCIATION ONE OF THE MAIN OBJECTIVE S OF THE ASSESSEE COMPANY IS LETTING OUT OF PREMISES NOT WITH AN INTE NTION TO EARN RENT BUT TO MAKE PROFIT BY SELLING THE SAME AT THE APPROPRIATE TIME. 4. THE AO OBSERVED THAT IN ORDER TO DETERMINE AS TO WH ETHER THE INCOME IS DERIVED FROM BUSINESS OR PROPERTY THE BASIC TEST IS THE PRIMARY OBJECT OF THE ASSESSEE WHILE EXPLOITING THE PROPERTY; IF IT IS FOUND THAT THE MAIN INTENTION WAS FOR LETTING OUT THE PROPERTY THE SAME MUST BE CONSIDERED AS RENTAL INCOME. IN THE INSTANT CASE THE ASSESSEE MAI NLY DERIVED INCOME FROM PROPERTY AND HAS NOT CARRIED ON ANY OTHER BUSINESS. THE RENTAL INCOME WAS TREATED AS INCOME FROM HOUSE PROPERTY. CONSEQUENTLY THE AO RESTRICTED THE CLAIM OF DEDUCTION TO 30% OF THE ALV SINCE NO OTHER EXPENDITURE IS ALLOWABLE AGAINST INCOME FROM HOUSE PROPERTY. 5. AGGRIEVED, ASSESSEE CONTENDED BEFORE THE LEARNED CI T(A) THAT LETTING OUT OF PREMISES IS ONE OF THE PRIME OBJECTS AND, TH EREFORE, INCOME THEREFROM IS ASSESSABLE UNDER THE HEAD INCOME FROM BUSINESS . THE LEARNED CIT(A) CONSIDERED THE ISSUE IN THE BACKDROP OF SEVERAL SUP REME COURT JUDGEMENTS AND FINALLY CONCLUDED THAT THE IMPUGNED INCOME IS A SSESSABLE UNDER SECTION 22 OF THE ACT. IN THIS REGARD HE OBSERVED AS UNDER: - 5. I HAVE CONSIDERED THE ISSUE. AS POINTED OUT ABO VE, THE APPELLANTS MAIN OBJECT IS TO SALE PROPERTY AND EAR N PROFIT. ADMITTEDLY, INSTEAD OF SELLING, THE PROPERTY HAS BE EN LET OUT YIELDING REGULAR RENTAL INCOME. THE PROPERTY IS NOT IN OCCUP ATION OF THE APPELLANT AS ITS BUSINESS PREMISES. THE RENT IS REC EIVED FOR USE OF THE PROPERTY OF WHICH THE APPELLANT IS THE OWNER AND SU CH RENT IS THEREFORE CHARGEABLE TO INCOME TAX UNDER THE HEAD I NCOME FROM HOUSE PROPERTY U/S. 22 OF THE ACT. IT IS SETTLED LAW THAT INCOME FROM EXPLOITATION OF PROPERTY IS CHARGEABLE TO TAX UNDER THE HEAD INCOME FROM HOUSE PROPERTY. IT IS ALSO SETTLED LAW THAT IF INCOME IS INCLUDIBLE UNDER ANY ONE OF THE HEADS OF INCOME UNDER THE INCO ME TAX ACT, IT CAN NOT BE BROUGHT TO TAX UNDER ANY OTHER HEAD [SEE UNITED COMMERCIAL BANK V. C.I.T., 32 I.T.R. 688 (S.C.); EA ST INDIA HOUSING ITA NO. 4294/MUM/2010 M/S. KABHA BUILDERS PVT. LTD. 3 AND LAND DEVELOPMENT TRUST LTD. V. C.I.T. 42 I.T.R. 49 (S.C); C.I.T. V. CHUGAN DAS AND CO. 55 I.T.R. 17 (SC) AND D.P. SANDH U BROTHERS CHEMBUR (P) LTD. 273 I.T.R. 1 (S.C.)] THUS, THERE I S NO INFIRMITY IN THE ACTION OF THE A.O. I THEREFORE CONFIRM THE ASSESSME NT. 6. FURTHER AGGRIEVED, ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. THE LEARNED COUNSEL FOR THE ASSESSEE ADVERTED THE ATTEN TION OF THE BENCH TO THE MEMORANDUM AND ARTICLES OF ASSOCIATION TO SUBMIT TH AT LEASING OUT IS ONE OF THE MAIN OBJECTS OF THE ASSESSEE COMPANY. HE ALSO S UBMITTED THAT THE ASSESSEE COMPANY INCURRED CERTAIN ADMINISTRATIVE EX PENDITURE, WHICH IS OTHERWISE ALLOWABLE AS DEDUCTION EVEN IF IT IS TREA TED AS INCOME FROM HOUSE PROPERTY. SCHEDULE 9 SPEAKS ABOUT ADMINISTRATIVE EX PENSES SUCH AS ELECTRICITY CHARGES, LEGAL AND PROFESSIONAL FEES, R OC FEES, RENT AND COMPENSATION, ETC. THE MAIN CONTENTION IS THAT THE INCOME HAS TO BE TREATED AS INCOME FROM BUSINESS AND EVEN OTHERWISE THE EXPE NDITURE HAS TO BE ALLOWED AS DEDUCTION. FINALLY HE SUBMITTED THAT IN THE EARLIER AND SUBSEQUENT YEARS THE AO HAS ACCEPTED THE RENTAL INC OME AS INCOME FROM BUSINESS, THOUGH UNDER SECTION 143(1), AND HENCE RU LE OF CONSISTENCY HAS TO BE APPLIED. 7. ON THE OTHER HAND, THE LEARNED D.R. SUBMITTED THAT IT IS A CASE OF LEASING OF PROPERTY SIMPLICITOR AND IN SUCH SITUATI ON, WHETHER IT IS A COMMERCIAL PROPERTY OR NOT, INCOME EARNED THEREON I S ASSESSABLE TO TAX ONLY UNDER THE HEAD PROPERTY INCOME. HE RELIED UPON TH E DECISION OF THE APEX COURT IN THE CASE OF EAST INDIA HOUSING AND LAND DE VELOPMENT TRUST LTD. VS. CIT 42 ITR 49, WHICH IN TURN WAS REFERRED TO BY THE LEARNED CIT(A). HE ALSO SUBMITTED THAT THE ASSESSEE COMPANY HAS NOT CA RRIED OUT ANY OTHER BUSINESS AND THE QUESTION OF CLAIMING DEDUCTION OF EXPENDITURE IN THE FORM OF CONVEYANCE, ETC. DOES NOT ARISE AND IN FACT NO S UCH SPECIFIC PLEA WAS RAISED BEFORE THE TAX AUTHORITIES IN THAT REGARD. 8. I HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS A ND PERUSED THE RECORD. IN THE INSTANT CASE THERE IS NO EVIDENCE OF ANY COMMERCIAL ACTIVITY CARRIED ON BY THE ASSESSEE; THE COMPANY MERELY RECE IVED RENT IN ITS CAPACITY AS OWNER OF THE PROPERTY. THEREFORE, IT CANNOT BE S AID THAT LETTING OUT WOULD AMOUNT TO COMMERCIAL EXPLOITATION OF THE PROPERTY. UNDER THESE ITA NO. 4294/MUM/2010 M/S. KABHA BUILDERS PVT. LTD. 4 CIRCUMSTANCES I AM OF THE VIEW THAT THE INCOME RECE IVED BY THE ASSESSEE IS ASSESSABLE UNDER THE HEAD PROPERTY INCOME. THEREF ORE, I DO NOT FIND ANY INFIRMITY IN THE ORDER PASSED BY THE CIT(A) WITH RE GARD TO TREATMENT OF THE INCOME. 9. AS REGARDS THE CLAIM OF EXPENDITURE, THE LEARNED CO UNSEL SUBMITTED THAT SO LONG AS A COMPANY IS IN EXISTENCE SOME BASI C EXPENDITURE IS NECESSARY SUCH AS AUDIT FEES, ROC FEES, ETC. AND TH E SAME HAS TO BE CONSIDERED AS EXPENDITURE IN THE P & L ACCOUNT. HOW EVER, THE FACT REMAINS THAT THERE IS NO OTHER ACTIVITY CARRIED ON BY THE A SSESSEE AND NO INTENTION IS SHOWN BY THE ASSESSEE TO CARRY ON ANY BUSINESS. UND ER THESE CIRCUMSTANCES THE FRESH CLAIM DOES NOT DESERVE ANY FAVOURABLE CON SIDERATION. I, THEREFORE, AFFIRM THE ORDER PASSED BY THE CIT(A) AND DISMISS T HE APPEAL FILED BY THE ASSESSEE COMPANY. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH MAY, 2014. SD/- (D. MANMOHAN) VICE PRESIDENT MUMBAI, DATED: 27 TH MAY, 2014 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 20, MUMBAI 4. THE CIT 9, MUMBAI CITY 5. THE DR, SMC BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.