ACIT 20(3), MUMBAI V. ELECTRONIC & ENGINEERING COMPANY, MAHARASHTRA

ITA 4516/MUM/2010

• Counselvise Citation: 451619914 RSA 2010
• Duration Of Justice: 1 year(s) 5 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 14-11-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 01-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V V SHASTRI
• Assessee Lawyers: MAYUR KISNADWALA PER R K
• Keywords: Business income; Rule of consistency
• Section: 143(3); 28

Judgement Text

1 ITA NO.4516/MUM/2010 M/S ELECTRONIC & ENGINEERING COMPANY IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI H BENCH MUMBAI BENCHES, MUMBAI BEFORE SHRI D.K. AGARWAL, JM & SHRI R K PANDA, A M ITA NO. 4516/MUM/2010 (ASST YEAR 2005-06) DCIT 20(3), ROOM NO. 506, PIRAMAL CHAMBERS, PAREL, MUMBAI 400 012. VS M/S ELECTRONIC & ENGINEERING COMPANY, EEC HOUSE, PLOT NO. C-7, DALIA INDUSTRIAL ESTATE, NEW LINK ROAD, ANDHERI (WEST), MUMBAI 400 053. (APPELLANT) (RESPONDENT) PAN NO. AAAFE 0594M APPELLANT BY S HRI V.V. SHASTRI RESPONDENT BY SHR I MAYUR KISNADWALA PER R K PANDA, AM THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER DATED 15.03.2010 OF THE CIT(A)- 31, MUMBAI RELATING TO AS SESSMENT YEAR 2005-06. 2 THE GROUNDS RAISED BY THE REVENUE ARE AS UNDER:- I. THE LEARNED CIT(A) HAS ERRED ON FACTS AND IN LAW AN D IN THE CIRCUMSTANCES OF THE CASE IN DIRECTING THE ASSESSIN G OFFICER TO TREAT THE RENT COMPENSATION AND SERVICE CHARGES AS INCOME FROM BUSINESS INSTEAD OF INCOME FROM HOUSE PROPERTY AS A DOPTED BY THE ASSESSING OFFICER. II. THE LEARNED CIT(A) HAS ERRED ON FACTS AND IN LA W AND IN THE CIRCUMSTANCES OF THE CASE IN NOT APPRECIATING THE F ACT THAT THIS ISSUE HAS BEEN SETTLED BY THE APEX COURT IN FAVOUR OF THE REVENUE IN ITS LANDMARK JUDGMENT RENDERED IN THE CASE OF M/ S SHAMBHU INVESTMENTS PVT. LTD. VS. CIT 263 ITR 143. III. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT (APPEALS) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE AO B E RESTORED. 2 ITA NO.4516/MUM/2010 M/S ELECTRONIC & ENGINEERING COMPANY 3. FACTS OF THE CASE IN BRIEF ARE THAT DURING THE C OURSE OF ASSESSMENT PROCEEDINGS THE A.O. NOTED THAT THE ASSESSEE HAS SH OWN INCOME BY WAY OF RENT UNDER THE HEAD BUSINESS CENTRE RECEIPT. THE ASSESSEE IS A PARTNERSHIP FIRM AND WAS ENGAGED IN THE BUSINESS OF MANUFACTURING OF NON- DESTRUCTIVE EQUIPMENTS AND ALLIED QUALITY CONTROL I NSTRUMENTS IN THE PAST YEARS. THE BUSINESS OF THE ASSESSEE HAS BEEN CLOSE D DOWN AND THE ASSESSEE FIRM HAS LET OUT ITS OFFICE PREMISES TO SISTER CONC ERNS FROM WHOM THE RENT HAS BEEN RECEIVED WHICH IS CREDITED TO THE PROFIT & LOSS ACCOUNT UNDER THE NOMENCLATURE OF COMPENSATION TOTALLING TO RS. 13, 92,500/- AND RS. 4,13,334/- AS SERVICE CHARGES IN RESPECT OF RENTED PROPERTY. THE A.O. ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE RENTAL INCOME RECEIVED ON LET OUT OF THE PROPERTY OF THE ASSESSEE FIRM SHOULD NOT BE TAXED U NDER THE HEAD INCOME FROM HOUSE PROPERTY. 3.1 THE ASSESSEE MADE DETAILED SUBMISSION ACCORDING TO WHICH IT WAS IN BUSINESS SINCE LAST 40 YEARS AND ITS MAIN CUSTOMERS DIRECTLY OR INDIRECTLY ARE GOVERNMENT ORGANISATIONS. THE NATURE OF ITS BU SINESS IS HIGHLY TECHNICAL AND THE FIRM IS SUBSTANTIALLY DEPENDENT O N ITS SKILLED WORKERS. DURING THE YEAR 1996 SOME WORKMEN AND THE UNION INS TIGATED TO SLOW DOWN THE PRODUCTION, DISOBEDIENCE OF LAWFUL ORDERS, SABO TAGE AND MANY OTHER UNFAIR LABOUR PRACTICES. CONSEQUENTLY THE PRODUCTI ON GRADUALLY CAME DOWN AND THEREFORE IT BECAME DIFFICULT FOR THE FIRM TO S URVIVE IN THE COMPETITIVE MARKET. THE NON-COOPERATIVE ATTITUDE OF THE WORKMEN AND THE LABOUR PROBLEM RESULTED IN DELAY IN SUPPLY, LOSS OF ORDERS AND HENCE FINALLY LOSS OF BUSINESS. SUCH RECURRING LOSSES ERODED THE CAPITAL AND FINANCIAL CAPACITY OF THE ASSESSEE. DUE TO LOSS OF ORDER MANY WORKERS WE RE RENDERED SURPLUS AND WERE THEREFORE RETRENCHED. THE WORKERS WENT TO THE COURT FOR REINSTATEMENT AND THE DECISION OF THE COURT IS PENDING. SINCE TH E MATTER IS SUB JUDICE AND IT IS NOT POSSIBLE FOR THE ASSESSEE TO CARRY ON THE MANUFACTURING OPERATIONS OPTIMALLY AND ECONOMICALLY ON A LOW SCALE, THE ASSE SSEE DECIDED TO TEMPORARILY SUSPEND ITS MANUFACTURING ACTIVITIES (B UT NOT THE BUSINESS). 3 ITA NO.4516/MUM/2010 M/S ELECTRONIC & ENGINEERING COMPANY HOWEVER, IT CONTINUES TO HOLD ALL THE ASSETS IN THE FORM OF MACHINERIES/EQUIPMENTS ETC. TILL THE FINAL DECISIO N OF THE COURT THE ASSESSEE FIRM HAD DECIDED TO CONTINUE ITS BUSINESS BY COMMER CIALLY EXPLOITING ITS ASSETS. THEREFORE, THE BUSINESS OF THE ASSESSEE CON TINUES AND HAS NOT CEASED. RELYING ON A COUPLE OF DECISIONS, THE ASSE SSEE SUBMITTED THAT THOUGH THE MANUFACTURING BUSINESS OF THE ASSESSEE M AY BE TEMPORARILY/MOMENTARILY DORMANT AS LONG AS THERE IS SOME BUSINESS CARRIED ON THEREFORE, THE INTENTION IS TO CARRY ON THE MANU FACTURING BUSINESS AND THEREFORE THE CLAIM OF EXPENSES CANNOT BE DISALLOWE D. IT WAS FURTHER SUBMITTED THAT THE BUSINESS OF THE ASSESSEE CONTINU ES AND SUCH INTENTION TO CONTINUE THE BUSINESS IS MANIFEST FROM THE FACT THA T IN A.Y. 2004-05 AND 2005-06, THE ASSESSEE DECIDED TO EXPLOIT THE ASSETS I.E. THE OFFICE PREMISES ALONG WITH THE FURNITURES BY TEMPORARY LETTING THEM OUT TILL IT RESTRUCTURED/REORGANISED ITS BUSINESS. IT WAS ARGU ED THAT THERE WAS ONLY A TEMPORARY LULL IN THE BUSINESS BUT NO STOPPAGE OF B USINESS. IT WAS ACCORDINGLY SUBMITTED THAT THE RENTAL INCOME SHOULD BE ASSESSED AS BUSINESS INCOME AND NOT AS INCOME FROM HOUSE PROPER TY. 3.2 HOWEVER, THE A.O. WAS NOT SATISFIED WITH THE EX PLANATION GIVEN BY THE ASSESSEE. HE OBSERVED THAT THE ASSESSEE DURING THE RELEVANT ASSESSMENT YEAR HAS NO OTHER INCOME EXCEPT FROM THE SALE OF RA W MATERIAL AND RENT FROM LEASED PROPERTY. ACCORDING TO HIM THERE IS NO ELEM ENT OF CARRYING ON OF ANY BUSINESS IN TERMS OF PROVISIONS OF SECTION 28 OF TH E ACT WHICH CAN MAKE THE INCOME OF RENT FALL UNDER THE HEAD OF BUSINESS INCO ME. RELYING ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF EA ST INDIA HOUSING AND LAND DEVELOPMENT TRUST V. CIT [1961] 42 ITR 49 AND IN THE CASE OF SHABHU INVESTMENT PVT. LTD. REPORTED IN 263 ITR 143 AND TH E DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. NEW INDIA INDUSTRIES LTD. REPORTED IN 201 ITR 208 THE A.O. TREATED THE BUSINESS CENTRE RECEIPTS AS INCOME FROM HOUSE PROPERTY AS AGAINST BUSINESS INCOME DECLARED BY THE ASSESSEE. 4 ITA NO.4516/MUM/2010 M/S ELECTRONIC & ENGINEERING COMPANY 3.3 BEFORE THE LD. CIT(A) IT WAS SUBMITTED THAT THE A.O. HAS NOT APPRECIATED THE FACTS CORRECTLY WHILE CONCLUDING TH AT THE BUSINESS CENTRE RECEIPTS ARE ITS INCOME FROM HOUSE PROPERTY. IT WAS SUBMITTED THAT THE ASSESSEE HAS NEVER CLOSED DOWN OR CEASED ITS BUSINE SS AS HELD BY THE A.O. ONLY THE MANUFACTURING ACTIVITY OF THE ASSESSEE FIR M WAS TEMPORARILY CLOSED DOWN DUE TO THE INHERENT LABOUR PROBLEMS FACED BY T HE ASSESSEE. IT WAS SUBMITTED THAT THE CIVIL SUIT FILED AGAINST THE ASS ESSEE FIRM BY THE LABOUR UNIONS ARE STILL PENDING WITH THE COURT, THEREFORE, THE ASSESSEE IS NOT IN A POSITION TO RE-START ITS BUSINESS. IT WAS SUBMITTED THAT THE PREMISES WERE FINALLY LET OUT TO ASSOCIATE SISTER CONCERNS WITH A N UNDERSTANDING THAT THEY WOULD VACATE THE PREMISES ON DEMAND ONCE THE COURT CASES ARE RESOLVED SO THAT THE ASSESSEE WOULD BE ABLE TO IMMEDIATELY STAR T ITS BUSINESS ACTIVITY OF MANUFACTURING. IT WAS SUBMITTED THAT SINCE THERE WA S DELAY IN DECISION OF THE COURT CASES, THE ASSESSEE DECIDED TEMPORARILY T O COMMERCIALLY EXPLOIT THE PREMISES AS A BUSINESS CENTRE BY LETTING IT OUT TO JYOTI STRUCTURES ENGINEERING SERVICES PVT. LTD. ON LEAVE AND LICENCE BASIS FOR A PERIOD OF 11 MONTHS RENEWABLE FOR FURTHER TWO TERMS. THE ENTIRE SPACE AVAILABLE IN THEIR FIRST FLOOR AND SECOND FLOOR OF THE BUILDING IS HEL D BY THE ASSESSEE FOR ITS OWN USE. IT WAS FURTHER SUBMITTED THAT IN THE PRECEDIN G ASSESSMENT YEARS 2003- 04 AND 2004-05 THE BUSINESS CENTRE RECEIPTS HAS BEE N ACCEPTED AS INCOME FROM BUSINESS BY THE A.O. 3.4 THE ASSESSEE DISTINGUISHED THE DECISION OF SHAM BHU INVESTMENT PVT. LTD. (SUPRA) RELIED ON BY THE A.O. ON THE GROUND TH AT IN THE SAID CASE THE PRIMARY OBJECTIVE OF ACQUIRING THE PROPERTY WAS TO EXPLOIT IT AND EARN RENTAL INCOME. THE PREMISES HAS NEVER BEEN USED AS A COMM ERCIAL ASSET AND HAD BEEN LET OUT SINCE ITS ACQUISITION. IN THE SAID CA SE THE ENTIRE COST OF ASSET HAS BEEN RECEIVED BY THE ASSESSEE BY WAY OF DEPOSIT S. HOWEVER, IN THE CASE OF THE ASSESSEE THE PREMISES WERE CONSTRUCTED IN TH E YEAR 1973 AND THE SAID PREMISES WERE BEING USED CONTINUOUSLY FOR ITS MANUF ACTURING BUSINESS. THE ASSESSEE HAD TO TEMPORARILY SUSPEND ITS MANUFACTURI NG ACTIVITIES DUE THE 5 ITA NO.4516/MUM/2010 M/S ELECTRONIC & ENGINEERING COMPANY REASONS EXPLAINED ABOVE. THEREFORE, THE TEMPORARY E XPLOITATION OF ITS COMMERCIAL ASSETS BY WAY OF LETTING OUT THE SAME TO ITS SISTER CONCERNS AND EARNING COMPOSITE LEAVE AND LICENCE FEES AND SERVIC E CHARGES CAN NEVER BE CONSIDERED AS ITS HOUSE PROPERTY INCOME. SIMILARL Y, DISTINGUISHING THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF EA ST INDIA HOUSING & LAND DEVELOPMENT TRUST LTD. (SUPRA) IT WAS SUBMITTED THA T IN THAT CASE THE COMPANY ITSELF WAS FORMED FOR LETTING OUT SHOPS AND STALLS AND SUCH ASSETS WERE NEVER USED FOR BUSINESS PURPOSE. SO FAR AS TH E RELIANCE IN THE CASE OF NEW INDIA INDUSTRIES LTD. (SUPRA) IT WAS SUBMITTED THAT THE ASSESSEE IN THAT CASE HAD CEASED TO USE THE BUILDING AS A COMMERCIAL ASSET EITHER HIMSELF OR EVEN THROUGH OTHERS AND UNDER THOSE CIRCUMSTANCES T HE COURT HELD IT TAXABLE UNDER THE HEAD INCOME FROM HOUSE PROPERTY . 3.6 THE ASSESSEE SUBMITTED THAT IN CASE OF THE ASSE SSEE, SINCE THE BUSINESS WAS NEVER DISCONTINUED, THE TEMPORARY EXPL OITATION OF ITS COMMERCIAL ASSETS SHOULD BE CONSIDERED AS ITS INCOM E FROM BUSINESS AND ACCORDINGLY THE VARIOUS EXPENSES CLAIMED SHOULD BE ALLOWED. REFERRING THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN TH E CASE OF KARSONDAS RANCHHODDASS REPORTED IN 81 ITR 1 IT WAS SUBMITTED THAT THE COURT IN THE SAID CASE HAS HELD THAT THERE MAY BE A LONG PERIOD OF INACTIVITY AND STILL THE BUSINESS MAY CONTINUE. REFERRING TO THE CASE OF TH E ASSESSEE IT WAS SUBMITTED THAT THE ASSESSEE DURING THE FINANCIAL YE AR 2008-09 HAS STARTED TRADING IN THE SAME LINE OF BUSINESS, THEREFORE, IT WAS A TEMPORARY LULL IN THE BUSINESS ACTIVITY AND IT CANNOT BE HELD THAT THE AS SESSEE HAS DISCONTINUED ITS BUSINESS NEVER TO REVIVE IT AGAIN. IT WAS ACCO RDINGLY SUBMITTED THAT THE BUSINESS CENTRE RECEIPTS SHOULD BE TREATED AS BUSI NESS INCOME. 3.7 BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE AND RELYING ON A COUPLE OF DECISIONS, THE LD. CIT(A) HELD THAT THE B USINESS CENTRE RECEIPTS OF THE ASSESSEE SHOULD BE TREATED AS BUSINESS INCOME. WHILE DOING SO, HE NOTED THAT THE A.O. HAS MISSED CERTAIN VITAL FACTS FOR DECIDING THE ISSUE. HE 6 ITA NO.4516/MUM/2010 M/S ELECTRONIC & ENGINEERING COMPANY OBSERVED THAT DUE TO CERTAIN LABOUR PROBLEMS THE AS SESSEE HAD TO SUSPEND ITS MANUFACTURING ACTIVITIES IN THE YEAR 2002-03. TO REDUCE ITS TRADING LOSS, THE ASSESSEE HAS LEASED OUT PORTION OF ITS FACTORY PREMISES PRIMARILY TO ITS ASSOCIATE CONCERNS FOR RUNNING A BUSINESS CENTRE ON WHICH IT HAS RECEIVED LEAVE AND LICENCE FEES AND SERVICE CHARGES. THESE L EAVE AND LICENCE AGREEMENTS ARE COMPOSITE AGREEMENTS FOR CHARGING OF RENT AND CHARGING OF VARIOUS INFRASTRUCTURE FACILITIES PROVIDED TO THE L ESSEES. SINCE THE CIVIL SUITS FILED AGAINST THE ASSESSEE BY THE LABOUR UNIONS WER E PENDING IN THE COURTS, THE ASSESSEE COULD NOT START ITS MANUFACTURING ACTI VITY. HOWEVER, THE ASSESSEE HAS MAINTAINED ITS ENTIRE BLOCK OF FIXED A SSETS INCLUDING PLANT AND MACHINERY. IT HAS ALSO UNDERTAKEN BUSINESS TRANSACT ION I.E SALE OF ITS OPENING STOCK IN TRADE, MISCELLANEOUS RECEIPTS ON A CCOUNT OF SUNDRY BALANCES WRITTEN OFF, SALE OF SCRAP AND INCURRING O F DAY TO DAY BUSINESS AND ADMINISTRATIVE EXPENSES. ALL THESE FACTS WHICH WER E AVAILABLE ON RECORD PROVE THAT THE ASSESSEE HAS NOT DISCONTINUED ITS BU SINESS. HE NOTED THAT THE A.O. HAS ALLOWED SIMILAR INCOME IN THE CASE OF THE ASSESSEE IN THE PRECEDING 3 TO 4 ASSESSMENT YEARS AS ITS BUSINESS I NCOME IN THE SCRUTINY ASSESSMENTS AS WELL AS UNDER SUMMARY ASSESSMENTS. THE BUSINESS OF MANUFACTURING ACTIVITY SUSPENDED BY THE ASSESSEE WA S FOR A TEMPORARY PERIOD WITH THE EXPECTATION OF ITS REVIVAL ONCE THE COURT CASES ARE AMICABLY SETTLED. HE ACCORDINGLY FOUND CONSIDERABLE MERIT I N THE ARGUMENTS OF THE ASSESSEE THAT THE A.O. WAS NOT JUSTIFIED IN CHANGIN G THE METHOD CONSISTENTLY FOLLOWED IN THE PRECEDING ASSESSMENT YEARS. FOR THE PRINCIPLE OF CONSISTENCY, HE RELIED ON THE DECISION OF THE TRIBUNAL IN THE CA SE OF SHREE GOPAL PUROHIT REPORTED IN 29 SOT 117 (MUM).HE FURTHER NOTED THAT SINCE THE ASSESSEE HAS STARTED ITS TRADING ACTIVITIES IN THE SAME LINE OF BUSINESS I.E. IMPORTING THESE EQUIPMENTS FOR TRADING PURPOSES AND SELLING THE SAM E MOSTLY TO ITS OLD CUSTOMERS DURING FINANCIAL YEAR 2008-09, THEREFORE, IT IS PROVED THAT THE BUSINESS WAS ADMITTEDLY TEMPORARILY SUSPENDED BY TH E ASSESSEE. RELYING ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE O F CIT VS. SRI LAKSHMI SILK MILLS LTD. REPORTED IN 20 ITR 451 (SC) AND THE DECISION OF HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. GOLDEN ENGINEERING 7 ITA NO.4516/MUM/2010 M/S ELECTRONIC & ENGINEERING COMPANY WORKS REPORTED IN 256 ITR 774 (P&H) HE HELD THAT TH E COMPOSITE LETTING OUT INCOME CONSISTING OF THE COMPENSATION RECEIVED OR T HE RENT RECEIVED AND THE SERVICE CHARGES RECEIVED BY THE ASSESSEE ARE IN THE NATURE OF ITS INCOME FROM BUSINESS AND NOT IN THE NATURE OF ITS INCOME FROM H OUSE PROPERTY. AGGRIEVED WITH SUCH ORDER OF THE LD. CIT(A), THE REVENUE IS I N APPEAL BEFORE US. 4. THE LD. D.R. HEAVILY RELIED ON THE DECISION OF T HE HONBLE SUPREME COURT IN THE CASE OF SHAMBHU INVESTMENT PVT. LTD. ( SUPRA). 5. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER H AND, REITERATED THE SAME SUBMISSIONS AS MADE BEFORE THE A.O. AND THE LD . CIT(A). HE SUBMITTED THAT THE PROPERTY IN QUESTION IS PARTLY LET OUT TO ITS SISTER CONCERN FROM A.Y. 2002-03 ONWARDS. DURING THE IMPUGNED ASSESSMENT YE AR, A PART OF THE SAME WAS ALSO LET OUT TO M/S JYOTI STRUCTURES ENGIN EERING SERVICES PVT. LTD. SINCE THE COURT CASES WERE PENDING, THE ASSESSEE TE MPORARILY SUSPENDED ITS BUSINESS ACTIVITY. HOWEVER, FROM ASSESSMENT YEAR 2 008-09, THE ASSESSEE HAS STARTED ITS TRADING ACTIVITY ON THE SAME LINE O F MANUFACTURING ACTIVITY WHICH WAS EARLIER CARRIED OUT, BY IMPORTING THE EQU IPMENTS FOR TRADING PURPOSES AND SELLING THE SAME MOSTLY TO ITS OLD CUS TOMERS. THEREFORE, IT WAS ONLY FOR A TEMPORARY PERIOD THAT THE BUSINESS WAS D ISCONTINUED. FURTHER DURING A.Y. 2004-05, THE A.O. IN SCRUTINY ASSESSMEN T PASSED U/S 143(3) ON 14.11.2006 HAD ACCEPTED THE BUSINESS CENTRE RECEIPT S AS BUSINESS INCOME. IN A.Y. 2002-03 AND 2003-04 THE SAME HAS BEEN ACCEP TED U/S. 143(1) AND NO REMEDIAL MEASURES HAVE BEEN TAKEN BY THE A.O. BY REOPENING THE ASSESSMENT. 5.1 REFERRING TO THE DECISION OF HONBLE MADHYA PRA DESH HIGH COURT IN THE CASE OF CIT VS. KOHINOOR TOBACCO PRODUCTS PVT. LTD. REPORTED IN 283 ITR 162, HE SUBMITTED THAT THE HONBLE MADHYA PRADESH HIGH C OURT AFTER CONSIDERING THE DECISION OF HONBLE SUPREME COURT IN THE CASE O F EAST INDIA HOUSING AND LAND DEVELOPMENT TRUST LTD. (SUPRA) HAS HELD TH AT INCOME FROM 8 ITA NO.4516/MUM/2010 M/S ELECTRONIC & ENGINEERING COMPANY TEMPORARY LETTING OUT OF PROPERTY USED NORMALLY FOR BUSINESS WHEN THERE IS NO INTENTION TO CLOSE DOWN BUSINESS HAS TO BE ASSES SED AS INCOME FROM BUSINESS. 5.2 REFERRING TO THE DECISION OF HONBLE SUPREME CO URT IN THE CASE OF SHAMBHU INVESTMENT PVT. LTD. (SUPRA) THE LD. COUNSE L FOR THE ASSESSEE SUBMITTED THAT THE SAME IS DISTINGUISHABLE ON FACTS AND NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. HE SUBMITTED THAT T HE HONBLE SUPREME COURT HAS UPHELD THE DECISION OF HONBLE CALCUTTA HIGH CO URT IN THE CASE OF CIT VS. SHAMBHU INVESTMENT REPORTED IN 249 ITR 47. REF ERRING TO THE FACTS OF IN THE CASE OF SHAMBHU INVESTMENT (SUPRA) HE DREW THE ATTENTION OF THE BENCH TO THE FULL TEXT OF THE DECISION PLACED AT PAGE NO. 13 TO 20 OF THE PAPER BOOK AND SUBMITTED THAT IN THAT CASE THE COST OF THE PRO PERTY WAS RS. 5,42,443/-. A PORTION OF THE SAID PROPERTY WAS USED BY THE ASSE SSEE ITSELF FOR ITS OWN BUSINESS PURPOSE AND THE REST OF THE PROPERTY WAS L ET OUT TO VARIOUS OCCUPANTS. THE ASSESSEE HAD RECOVERED AN AMOUNT OF RS. 4,25,000/- BY WAY OF INTEREST FREE ADVANCE. UNDER THESE CIRCUMSTA NCES, IT WAS HELD THAT THE ASSESSEE WAS NOT EXPLOITING THE PROPERTY FOR IT S COMMERCIAL/BUSINESS ACTIVITIES. THE HONBLE COURT HELD THAT THE PRIME OBJECTIVE OF THE ASSESSEE UNDER THE SAID AGREEMENT WAS TO LET OUT THE PORTION OF THE SAID PROPERTY TO VARIOUS OCCUPANTS BY GIVING THEM ADDITIONAL RIGHT O F USING THE FURNITURE AND FIXTURES AND OTHER COMMON FACILITIES FOR WHICH RENT WAS BEING PAID MONTH BY MONTH IN ADDITION TO THE SECURITY FREE ADVANCE COVE RING THE ENTIRE COST OF THE SAID IMMOVABLE PROPERTY. HOWEVER, IN THE INSTANT C ASE THERE WAS ONLY TEMPORARY LULL IN THE BUSINESS ACTIVITY AND DURING SUCH TEMPORARY LULL A PART OF THE PREMISES WAS COMMERCIALLY EXPLOITED BY THE A SSESSEE TO MINIMISE ITS LOSSES. THEREFORE, IN VIEW OF THE DECISION OF THE H ONBLE MADHYA PRADESH HIGH COURT IN THE CASE OF KOHINOOR TOBACCO PRODUCTS PVT. LTD. (SUPRA) WHICH IS SIMILAR TO THIS ISSUE, THE BUSINESS CENTRE RECEI PTS OF THE ASSESSEE SHOULD BE TREATED AS BUSINESS INCOME AND NOT AS INCOME FRO M HOUSE PROPERTY. 9 ITA NO.4516/MUM/2010 M/S ELECTRONIC & ENGINEERING COMPANY 5.3 HE FURTHER SUBMITTED THAT SINCE IN THE PRECEDIN G ASSESSMENT YEARS, THE A.O. HAS ACCEPTED THE BUSINESS CENTRE RECEIPT A S BUSINESS INCOME, THEREFORE, IN VIEW OF THE RULE OF CONSISTENCY AS PR OPOUNDED BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. GO PAL PUROHIT REPORTED IN 336 ITR 287 THE BUSINESS CENTRE RECEIPT HAS TO BE T REATED AS BUSINESS INCOME. HE ALSO RELIED ON THE DECISIONS IN CASE OF THE SCIENTIFIC INSTRUMENT CO. LTD. V. CIT VIDE I.T. APPEAL NO. 1 OF 2003 DTD. 12.8.2011, THE DECISION IN THE CASE OF KARSONDAS RANCHHODDASS V. CIT REPORTED IN 83 ITR 1. 6. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES, PURSUED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. FROM THE VARIOUS DETAILS FURNISHED BY THE ASSESSEE IN THE PAPER BOOK WE FIND IT IS THE SUBMISSION OF T HE ASSESSEE THAT DUE TO SOME LABOUR DISPUTE THE ASSESSEE HAS TEMPORARILY LE T OUT A PART OF ITS PREMISES TO ITS SISTER CONCERN AND DURING THE IMPUG NED ASSESSMENT YEAR THE ASSESSEE HAS FURTHER LET OUT A PORTION OF THE PROPE RTY TO ONE M/S JYOTI STRUCTURES ENGINEERING SERVICES PVT. LTD. IT IS THE CASE OF THE ASSESSEE THAT IT HAS EXPLOITED ITS COMMERCIAL ASSET DURING ITS TEMPO RARY LULL IN THE BUSINESS ACTIVITY WHICH IT HAS REVIVED DURING A.Y. 2008-09. FURTHER IT IS ALSO CASE OF THE ASSESSEE THAT DURING A.Y. 2004-05 THE A.O. IN THE SCRUTINY ASSESSMENT HAS ACCEPTED THE CLAIM OF BUSINESS CENTRE RECEIPT A S BUSINESS INCOME AND DURING A.Y. 2002-03 AND 2003-04 THE SAME HAS BEEN A CCEPTED IN SUMMARY ASSESSMENT. IT IS THE CASE OF THE REVENUE THAT IN VIEW OF THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF SHAMBHU INVEST MENT PVT. LTD. SUCH BUSINESS CENTRE RECEIPT HAS TO BE TREATED AS INCOME FROM HOUSE PROPERTY AND NOT AS INCOME FROM BUSINESS CENTRE. 6.1 WE FIND THE CASE OF THE ASSESSEE IS SQUARELY CO VERED BY THE DECISION OF HONBLE MADHYA PRADESH HIGH COURT IN THE CASE OF KO HINOOR TOBACCO PRODUCTS P. LTD. (SUPRA). IN THAT CASE THE ASSESSE E WAS A COMPANY WHICH 10 ITA NO.4516/MUM/2010 M/S ELECTRONIC & ENGINEERING COMPANY CARRIED ON BIDI MANUFACTURING BUSINESS AT THE RELEV ANT TIME. IT ACQUIRED PROPERTY FOR ITS BIDI BUSINESS CONSISTING OF FACTOR Y BUILDING, GO-DOWNS, OFFICER/STAFF QUARTERS ETC. THE PROPERTIES WERE BEI NG USED FOR THE PURPOSE OF ITS BUSINESS. HOWEVER, DUE TO LABOUR PROBLEM AND O THER CIRCUMSTANCES, THE ASSESSEE HAD TO TEMPORARILY REDUCE ITS ACTIVITIES A ND CONSEQUENTLY LET OUT SOME OF THE PROPERTIES WHICH WERE NOT IMMEDIATELY R EQUIRED BY IT FOR THE PURPOSE OF ITS BUSINESS. THE ASSESSEE SHOWED RENTA L INCOME FROM THE PROPERTIES AS BUSINESS INCOME WHICH WAS TREATED AS INCOME FROM HOUSE PROPERTY BY THE A.O. THE TRIBUNAL HELD THE INCOME W AS TO BE TREATED AS BUSINESS INCOME. ON A REFERENCE, THE HONBLE HIGH COURT HELD THAT THE PROPERTIES WERE TEMPORARILY LET OUT TO KEEP THEM IN GOOD CONDITION SO THAT THEY COULD BE USED AND EXPLOITED AGAIN FOR THE PURP OSE OF ASSESSEES BIDI MANUFACTURING BUSINESS AND THE ASSESSEES INTENTION WAS TO INCREASE ITS BUSINESS GRADUALLY AND NOT TO CLOSE DOWN ITS BUSINE SS. ACCORDINGLY RENTAL INCOME WAS HELD TO BE ASSESSABLE AS BUSINESS INCOME . 6.2 NOW COMING TO THE FACTS OF THE CASE WE FIND THE ASSESSEE HAD SUBMITTED BEFORE THE A.O. THAT DUE TO PENDING LABOU R COURT CASES AND THE HUGE RECURRING LOSSES THE ASSESSEE TOOK A COMMERCIA L DECISION TO EXPLOIT ITS BUSINESS ASSETS. DUE TO LOSS OF ORDERS MANY WORKMEN WERE RENDERED SURPLUS AND ACCORDINGLY RETRENCHED. THEY HAVE GONE TO COURT FOR REINSTATEMENT AND THE DECISION OF THE COURT IS AWAI TED. AS THE MATTER IS SUBJUDICE AND IT IS NOT POSSIBLE FOR THE ASSESSEE T O CARRY ON THE MANUFACTURING ON LOWER SCALE, THE ASSESSEE DECIDED TO SUSPEND ITS MANUFACTURING ACTIVITY BUT NOT THE BUSINESS. TILL THE FINAL DECISION OF THE COURT, THE ASSESSEE FIRM HAS DECIDED TO CONTINUE IT S BUSINESS BY COMMERCIAL EXPLOITATION OF ITS BUSINESS ASSETS. FURTHER THE F INDING GIVEN IN THE ORDER OF THE LD. CIT(A) THAT THE ASSESSEE HAS STARTED ITS TR ADING ACTIVITY BY IMPORTING THE EQUIPMENTS WHICH IT WAS MANUFACTURING AND HAD S UPPLIED TO OLD CUSTOMERS COULD NOT BE CONTROVERTED BY THE LD. D.R. WE, THEREFORE FIND MERIT IN THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESS EE THAT THE ASSET HAS BEEN 11 ITA NO.4516/MUM/2010 M/S ELECTRONIC & ENGINEERING COMPANY COMMERCIALLY EXPLOITED BY THE ASSESSEE FIRM DURING ITS TEMPORARY SUSPENSION OF BUSINESS ACTIVITY. THEREFORE IN VIEW OF THE DECISION OF THE HONBLE M.P. HIGH COURT IN THE CASE OF KOHINOOR TOB ACCO PRODUCTS P. LTD. (SUPRA) SUCH RENTAL INCOME, IN OUR OPINION, HAS TO BE TREATED AS BUSINESS INCOME. 6.3 THE DECISION IN THE CASE OF SHAMBHU INVESTMENT PVT. LTD. (SUPRA), IN OUR OPINION, DOES NOT APPLY TO THE FACTS OF THE PRE SENT CASE. IN THAT CASE THE PROPERTY WHICH WAS PURCHASED FOR A CONSIDERATION OF RS. 5,42,443/- WAS PARTLY UTILISED BY THE ASSESSEE FOR ITS OWN BUSINES S AND THE BALANCE PORTION WAS LET OUT TO VARIOUS OCCUPIERS BY ACCEPTING INTER EST FREE SECURITY DEPOSIT OF RS. 4,25,000/-. UNDER THESE CIRCUMSTANCES, THE HON BLE CALCUTTA HIGH COURT CAME TO THE CONCLUSION THAT THE ENTIRE COST O F THE PROPERTY LET OUT TO THOSE OCCUPIERS HAS ALREADY BEEN RECOVERED BY WAY O F INTEREST FREE ADVANCE BY THE ASSESSEE. HENCE, IT CANNOT BE SAID THAT THE ASSESSEE IS EXPLOITING ITS PROPERTY FOR ITS COMMERCIAL BUSINESS ACTIVITIES AND SUCH BUSINESS ACTIVITIES ARE PRIME MOTIVE AND LETTING OUT THE PROPERTY IS SE CONDARY ONE. THIS DECISION OF THE HONBLE CALCUTTA HIGH COURT HAS BEEN UPHELD BY THE HONBLE SUPREME COURT. HOWEVER, IN THE INSTANT CASE THE PROPERTY H AS BEEN LET OUT DURING THE PERIOD OF TEMPORARY SUSPENSION OF THE BUSINESS ACTI VITY AND THE COMPANY HAS STARTED ITS BUSINESS ACTIVITY FROM A.Y. 2008-09 ONWARDS. THEREFORE, THIS DECISION, IN OUR OPINION, IS DISTINGUISHABLE ON FAC TS AND NOT APPLICABLE TO THE FACTS OF THE CASE OF THE ASSESSEE. 6.4 SO FAR AS THE DECISION RELIED ON BY THE A.O. IN THE CASE OF EAST INDIA HOUSING AND LAND DEVELOPMENT TRUST LTD. (SUPRA) WE FIND THE SAME HAS ALREADY BEEN CONSIDERED BY THE HONBLE MADHYA PRADE SH HIGH COURT IN THE CASE OF KOHINOOR TOBACCO PRODUCTS P LTD. (SUPRA). SIMILARLY IN THE CASE OF CIT V. NEW INDIA INDUSTRIES LTD. REPORTED IN 201 IT R 208 RELIED ON BY THE A.O., THE ASSESSEE IN THAT CASE HAD CEASED TO USE I T AS A COMMERCIAL ASSET EITHER HIMSELF OR THROUGH OTHERS AND UNDER THOSE CI RCUMSTANCES THE HONBLE 12 ITA NO.4516/MUM/2010 M/S ELECTRONIC & ENGINEERING COMPANY COURT HELD THE RENTAL INCOME UNDER THE HEAD INCOME FROM HOUSE PROPERTY. IN VIEW OF THE ABOVE AND IN VIEW OF THE DETAILED RE ASONS GIVEN BY THE LD. CIT(A) WHILE TREATING THE BUSINESS CENTRE RECEIPT A S BUSINESS INCOME, WE DO NOT FIND ANY INFIRMITY IN THE SAME. WE ACCORDINGLY UPHOLD THE ORDER OF THE LD. CIT(A) ON THIS ISSUE. THE GROUNDS RAISED BY TH E REVENUE ARE ACCORDINGLY DISMISSED. 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 30.11.2011. SD/- SD/- ( D K AGARWAL ) JUDICIAL MEMBER ( R K PANDA ) ACCOUNTANT MEMBER PLACE: MUMBAI : DATED: 30.11.2011. RK COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT, CITY -XI, MUMBAI 4 CIT(A) -31, MUMBAI 5 DR BENCH H 6 MASTER FILE /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI