Income Tax Officer, Ward - 2(3), Belgavi, Belgavi V. Shree Bhagyalaxmi Sahakari Sakkare Karkhane Niyamit, Belagavi

ITA 460/PAN/2018

AI Insights

The case involves an appeal by the Income Tax Officer, Ward-2(3), Belagavi against the order of the Commissioner of Income Tax (Appeals), Belagavi, which pertained to the assessment year 2014-15. The primary issue was the classification of lease rental income derived from the leasing of plant and machinery by Shree Bhagyalaxmi Sahakari Sakkare Karkhane Niyamit, which was initially assessed under 'income from other sources' but contested to be 'business income'. The CIT(A) had reclassified this income as 'business income' based on the intention of the assessee to commercially exploit the assets rather than merely earn rental income. The Revenue challenged this reclassification, leading to the current appeal.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 136959 (ITAT-PANAJI)
• Duration Of Justice: 4 year(s) 8 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2023
• Appeal Filed By: Department
• Order Result: PartlyAllowed
• Bench Allotted: WT(D)
• Next Hearing Date: 16-08-2023
• Assessment Year: 2014-2015
• Appeal Filed On: 25-12-2018
• Other Referred Cases: CIT vs. Translam Ltd., Universal Plast Ltd. vs. CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Question of law
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PANAJI BENCH, PANAJI – VIRTUAL COURT BEFORE SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER AND SHRI PARTHA SARATHI CHAUDHURY, JUDICIAL MEMBER आयकर अपील सं. / ITA No.460/PAN/2018 िनधाᭅरण वषᭅ / Assessment Year : 2014-15 ITO, Ward-2(3), Belagavi. Vs. Shree Bhagyalaxmi Sahakari Sakkare Karkhane Niyamit, Kuppatgiri, Khanapur, Belagavi. PAN : AAAAS6744C Appellant Respondent C.O. No.01/PAN/2022 (Arising out of ITA No.460/PAN/2018) िनधाᭅरण वषᭅ / Assessment Year : 2014-15 Shree Bhagyalaxmi Sahakari Sakkare Karkhane Niyamit, Kuppatgiri, Khanapur, Belagavi. PAN : AAAAS6744C Vs. ITO, Ward-2(3), Belagavi. Appellant Respondent आदेश / ORDER PER INTURI RAMA RAO, AM: This is an appeal filed by the Revenue directed against the order of ld. Commissioner of Income Tax (Appeals), Belagavi [‘the Revenue by : Shri Badrinath Yamaji Chavan Assessee by : None Date of hearing : 17.08.2023 Date of pronouncement : 29.08.2023 ITA No.460/PAN/2018 C.O. No.01/PAN/2022 2 CIT(A)’] dated 03.10.2018 for the assessment year 2014-15. The Cross Objection filed by the assessee against the appeal of the Revenue. 2. Briefly, the facts of the case are that the assessee is a Co- operative Society formed with the object of manufacturing and sale of sugar. The Return of Income for the assessment year 2014-15 was filed on 30.07.2014 declaring Rs.Nil income. Against the said return of income, the assessment was completed by the Income Tax Officer, Ward-2(3), Belagavi (‘the Assessing Officer’) vide order dated 16.12.2016 passed u/s 143(3) of the Income Tax Act, 1961 (‘the Act’) at a total income of Rs.5,81,16,740/-. While doing so, the Assessing Officer had denied the set-off of the carried forward business losses of earlier years on the ground that the income derived from leasing of plant & machinery is assessed to tax under head “income from other sources”. 3. On appeal before the ld. CIT(A), the ld. CIT(A) held that though the lease rental income derived from M/s Laila Sugars Pvt. Ltd. shown under the head “income from other sources”. It is actually income under the head “business income”. Since the ITA No.460/PAN/2018 C.O. No.01/PAN/2022 3 intention of the assessee was not to earn the rent on asset, but lease the commercial assets to exploit it commercially to tide over the crises of business etc following the judgement of the Hon’ble Allahabad High Court in the case of CIT vs. Translam Ltd. vide ITA No.195 of 2005 dated 17.09.2014. 4. Being aggrieved, the Revenue is in appeal before us contending that the ratio of the decision of the Hon’ble Allahabad High Court in the case Translam Ltd. (supra) have no application to the facts of the present case, inasmuch as, the assessee itself had shown lease rental income under head “income from other sources”. 5. When the appeal was called on, none appeared on behalf of the assessee despite due service of notice of hearing. Therefore, we proceed to dispose of this matter after hearing the ld. Sr. DR. 6. We heard the ld. Sr. DR and perused the material on record. The issue in the present appeal relates to the question as to under which head of income the lease rental income would fall i.e. under the head “income from business” or “income from other sources”. Admittedly, the assessee society itself had shown lease rental income on plant & machinery with building of Rs.5,81,16,740/- ITA No.460/PAN/2018 C.O. No.01/PAN/2022 4 under the head “income from other sources”. However, the assessee society had claimed the set-off of the carry forward business losses against the income from other sources of Rs.5,81,16,740/-. The ld. CIT(A) was of the opinion that the intention of the assessee was not to earn the rental income, but to leas the commercial assets to exploit it commercially to tide over the crises of business and to regain the same assets after the lease period was over and, therefore, held that the lease rental of plant & machinery should be assessed under the head “income from business” and brought forward business losses should be set-off against the current year income. No precise test can be laid down to ascertain whether the lease rental income received by an assessee from letting out the asset would fall under the head “profit and gains of business and professions”, however, it is mixed question of law and fact and has to be determined from the point of view from the businessmen. However, whether all the assets of the business are let out, the period for which the assets are let out, is relevant factor to find out the intention of the assessee is to go out the business altogether or to come back and restart the same as held by the Hon’ble Supreme ITA No.460/PAN/2018 C.O. No.01/PAN/2022 5 Court in the case of Universal Plast Ltd. vs. CIT, 237 ITR 454 (SC). In the present case, the ld. CIT(A) had not gathered the intention of the assessee from the circumstances under which the plant & machinery was leased out nor found out the period for which the plant & machinery was let out. The findings of the ld. CIT(A) are ipse dixit not based on any material evidence on record and, therefore, the findings of the ld. CIT(A) cannot be sustained in the eyes of law. Therefore, the matter is restored to the file of the ld. CIT(A) to decide the issue in appeal keeping in view the law laid down by the Hon’ble Supreme Court in the case of Universal Plast Ltd. (supra). Accordingly, the matter is remitted to the file of the ld. CIT(A) for de novo adjudication. 7. In the result, the appeal filed by the Revenue stands partly allowed. C. O. No.01/PAN/2022 – By Assessee : 8. The Cross Objection filed by the assessee is dismissed, as the appeal filed by the Revenue is remitted to the file of the ld. CIT(A) for de novo adjudication. Thus, the Cross Objection filed by the assessee stands dismissed. ITA No.460/PAN/2018 C.O. No.01/PAN/2022 6 9. To sum up, the appeal filed by the Revenue stands partly allowed and the Cross Objection filed by the assessee sands dismissed, as above. Order pronounced on this 29 th day of August, 2023. Sd/- Sd/- (PARTHA SARATHI CHAUDHURY) (INTURI RAMA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER पुणे / Pune; ᳰदनांक / Dated : 29 th August, 2023. Sujeet आदेश कᳱ ᮧितिलिप अᮕेिषत / Copy of the Order forwarded to : 1. अपीलाथᱮ / The Appellant. 2. ᮧ᭜यथᱮ / The Respondent. 3. The CIT(A), Belagavi. 4. The Pr. CIT, Belagavi. 5. DR, ITAT, Panaji. 6. गाडᭅ फ़ाइल / Guard File. आदेशानुसार / BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण, पुणे / ITAT, Pune.