MUMBAI CONSTRUCTION & DEVELOPERS P. LTD, MUMBAI V. ITO 3(2)(2), MUMBAI

ITA 4739/MUM/2009

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 3446 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-12-2010
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 05-10-2010
• Assessment Year: 2001-2002
• Appeal Filed On: 13-08-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SUM EET KUMAR
• Keywords: Business income; Depreciation

Judgement Text

I.T.A NO.4739/ MUM/2009 ASSESSMENT YEAR: 2001-02 I.T.A. NO.6660/MUM/2009 ASSESSMENT YEAR: 2001-02 1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI J BENCH, MUMBAI BEFORE SHRI D K AGARWAL ( JUDICIAL MEMBER) AND SHRI PRAMOD KUMAR (ACCOUNTANT MEMBER) ITA NO. 4739 /MUM/09 ASSESSMENT YEAR 2001-02 MUMBAI CONSTRUCTIONS & DEVELOPERS PVT LTD .A PPELLANT 101-B, MITTAL COURT, 10 TH FLOOR, NARIMAN POINT, MUMBAI. PAN : AAACM 7291 A VS. INCOME TAX OFFICER WARD 3(2)(2), MUMBAI . RESPONDENT APPELLANT BY : SHRI J P BAIRAGRA RESPONDENT BY : SHRI SUMEET KUMAR O R D E R PER PRAMOD KUMAR: 1. BY WAY OF THIS APPEAL, THE ASSESSEE HAS CALLED INTO QUESTION CORRECTNESS OF CIT(A)S ORDER DATED 6 TH MAY, 2009, FOR THE ASSESSMENT YEAR 2001-02, ON THE FOLLOWING GROUNDS: 1. THE LEARNED CIT (A) ERRED IN DISMISSING THE APPE AL AND CONFIRMING ORDER OF ASSESSING OFFICER ASSESSING INC OME AS INCOME FROM HOUSE PROPERTY INSTEAD OF INCOME FROM B USINESS. I.T.A NO.4739/ MUM/2009 ASSESSMENT YEAR: 2001-02 I.T.A. NO.6660/MUM/2009 ASSESSMENT YEAR: 2001-02 2 2. THE LEARNED CIT (A) FURTHER ERRED IN DISALLOWING THE DEPRECIATION AND ESTABLISHMENT & ADMINISTRATIVE EXP ENSES. 2. THE GRIEVANCES SO RAISED ARE SET OUT IN A RATHE R NARROW COMPASS OF MATERIAL FACTS. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS DISCL OSED THE NATURE OF ITS BUSINESS AS CONSTRUCTION AND LEASING, AND THAT IN THE PROFIT AND LOSS ACCOUNT FILED BY THE ASSESSEE THE ASSESSEE HAS DISC LOSED RENT RECEIPT AGAINST WHICH ALL SUCH DEDUCTIONS, AS ADMISSIBLE IN COMPUTATION OF BUSINESS INCOME, ARE CLAIMED. AS AGAINST RENT RECEI PT OF RS 8,18,750, THE NET PROFIT WAS DISCLOSED AT RS 1,82,826. WHEN ASSE SSING OFFICER REQUIRED THE ASSESSEE TO SHOW CAUSE AS TO WHY THIS RENTAL IN COME OF RS 8,18,750 NOT BE TREATED AS INCOME FROM HOUSE PROPERTY, AS AGAINST BUSINESS INCOME CLAIMED BY THE ASSESSEE, IT WAS SUBMITTED BY THE ASSESSEE (A) THAT, AS EVIDENT FROM OBJECT CLAUSE OF ASSESSEES M EMORANDUM OF ASSOCIATION, THE ASSESSEE IS ENGAGED, INTER ALIA, I N THE BUSINESS OF ACQUIRING OFFICES, FLATS, BANGALOWS, LAND AND BUILD ING ETC AND DEVELOPING IT AND DECORATING AND FURNISHING THE SAME FOR LEASE, L ET OUT, CONDUCTING BUSINESS BY PROVIDING SERVICES; (B) THAT THE COMPEN SATION RECEIVED BY THE ASSESSEE IS TOWARDS SERVICE CHARGES OF SO PROVIDING THE USER PLACE FOR BUSINESS AND ASSOCIATED SERVICES; (C) THAT, AS EVID ENT FROM CONDUCTING AGREEMENT WITH BARD INTERNATIONAL INC, THE COMPENSA TION RECEIVED BY THE ASSESSEE IS TOWARDS THE SERVICES AND USE OF PREMISE S BY THE CLIENT IS INCIDENTAL TO THE MAIN BUSINESS OF THE ASSESSEE; AN D (D) THAT, FOR ALL THESE REASONS, THE COMPENSATION RECEIVED BY THE ASSESSEE IS TAXABLE AS BUSINESS INCOME AND NOT AS INCOME FROM HOUSE PROPERTY. NON E OF THESE SUBMISSIONS, HOWEVER, IMPRESSED THE ASSESSING OFFIC ER. HE ANALYZED THE CONDUCTING AGREEMENT ENTERED INTO BETWEEN THE ASS ESSEE AND BARD INTERNATIONAL INC AND NOTED THAT IT IS A DE FACTO R ENTING ARRANGEMENT AND THE WHOLE EFFORT IN CAREFULLY DRAFTING THE CONDUCTI NG AGREEMENT IS TO GIVE COLOUR OF CREDIBILITY TO NOMENCLATURE OF AGREEMENT. RELYING UPON HONBLE I.T.A NO.4739/ MUM/2009 ASSESSMENT YEAR: 2001-02 I.T.A. NO.6660/MUM/2009 ASSESSMENT YEAR: 2001-02 3 SUPREME COURTS JUDGMENT IN THE CASE OF CIT VS DURG A PRASAD MORE (82 ITR 540), HE DISREGARDED THE FORM OF THE AGREEMENT AND CONCLUDED THAT, IN SUBSTANCE, IT IS A RENTING AGREEMENT. ACCORDINGLY, HE PROCEEDED TO TAX THE INCOME AS INCOME FROM HOUSE PROPERTY AND DECLINED T HE DEDUCTIONS IN COMPUTATION OF BUSINESS INCOME. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BUT WITHOUT ANY SUCCESS. THE ASSESSEE IS NOT SATISFIED AND IS IN SECOND APPEAL BEFORE US. 3. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTUAL MATRIX OF THE CA SE AS ALSO THE APPLICABLE LEGAL POSITION. 4. WE FIND THAT HONBLE CALCUTTA HIGH COURT, IN THE CASE OF SHAMBHU INVESTMENTS PVT LTD VS CIT (249 ITR 47), HAVE OBSE RVED THAT WHILE EXAMINING THE NATURE OF AGREEMENT IN SUCH CASES, WHAT HAS TO BE SEEN IS WHAT IS THE PRIMARY OBJECT OF THE ASSESSEE WHILE EX PLOITING THE PROPERTY AND THAT WHILE IF IT IS FOUND APPLYING SUCH TEST T HAT THE MAIN INTENTION IS FOR LETTING OUT THE PROPERTY OR ANY PORTION THEREOF , THE SAME MUST BE CONSIDERED AS RENTAL INCOME OR INCOME FROM PROPERTY , WHEREAS IN CASE IT IS FOUND THAT THE MAIN INTENTION IS TO EXPLOIT T HE IMMOVABLE PROPERTY BY WAY OF COMPLEX COMMERCIAL ACTIVITIES, IN THAT EV ENT IT MUST BE HELD AS BUSINESS INCOME. THESE VIEWS OF HONBLE CALCUTTA HIGH COURT WERE APPROVED BY HONBLE SUPREME COURT IN THE CASE REPOR TED AS OF SHAMBHU INVESTMENTS PVT LTD VS CIT (263 ITR 143). IT IS TH EREFORE CLEAR THAT MERELY BECAUSE CERTAIN FACILITIES HAVE ALSO BEEN PR OVIDED, BUT THE MAIN INTENTION REMAINS LETTING OUT OF THE PROPERTY, IT C ANNOT BE SAID THAT THE INCOME FROM RENTING IS TO BE TREATED AS BUSINESS IN COME. A PLAIN READING OF THE CONDUCTING AGREEMENT, WHICH IS PLACED BEFORE US AT PAGES 34-48 OF THE PAPER BOOK, SHOWS THAT THE ESSENCE OF THE AGREE MENT IS RENTING OUT THE PREMISES. THE ASSESSEE HAS ALSO GIVEN CERTAIN A SSETS, ON HIRE BASIS, TO THE PERSON OCCUPYING THE PREMISES, BUT, AS APPROVED BY HONBLE SUPREME COURT IN SHMABU INVESTMENTS CASE (SUPRA), THE MAIN OBJECT OF THE I.T.A NO.4739/ MUM/2009 ASSESSMENT YEAR: 2001-02 I.T.A. NO.6660/MUM/2009 ASSESSMENT YEAR: 2001-02 4 AGREEMENT BEING RENTING OUT OF PROPERTY, THE INCOME FROM RENTING OUT, WHICH IS DESCRIBED AS SERVICE CHARGES ON THE FACTS OF THIS CASE, IS TAXABLE AS INCOME FROM HOUSE PROPERTY. IT IS NOT A CASE O F EXPLOITING THE IMMOVABLE PROPERTY BY WAY OF COMPLEX COMMERCIAL ACT IVITIES, AND, THEREFORE, THE INCOME FROM IMMOVEABLE PROPERTY CANN OT BE TAXED AS BUSINESS INCOME. JUST BECAUSE THE PERSON BEING GIVE N THE PROPERTY IS ALSO GIVEN SOME FURNITURE AND OTHER INCIDENTAL ASSETS ON LEASE DOES NOT MAKE THE ACTIVITY OF LETTING OUT A COMPLEX COMMERCIAL A CTIVITY SUCH AS, FOR EXAMPLE, IN THE CASE OF BUSINESS CENTERS IN WHICH I T IS NOT A LETTING OUT IN ESSENCE. IN THIS VIEW OF THE MATTER, AND BASED ON O UR UNDERSTANDING OF THE TRUE IMPORT AND SCOPE OF CONDUCTING AGREEMENT, WE CONFIRM THE FINDINGS OF THE AUTHORITIES BELOW AND DECLINE TO IN TERFERE IN THE MATTER. 5. IN THE RESULT, THE APPEAL IS DISMISSED. PRONOUNC ED IN THE OPEN COURT TODAY ON 23 RD DAY OF DECEMBER, 2010. SD/- SD/- ( D K AGARWAL) (PRAMOD KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI; 23 RD _ DAY OF DECEMBER, 2010. COPY FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 3 , MUMBAI 4. THE COMMISSIONER (APPEALS) III , MUMBAI 5. DEPARTMENTAL REPRESENTATIVE - J BENCH, MUMBA I 6. GUARD FILE TRUE COPY BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, MUMBAI