M/s Abhilash Software & Development Centre, Bangalore V. ITO, Bangalore

ITA 477/BANG/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 8452 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-03-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 18-10-2016
• Assessment Year: 2005-2006
• Appeal Filed On: 17-03-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business income; Depreciation; Opportunity of being heard; Set aside
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER ITA NO.477/BANG/2016 ASSESSMENT YEAR : 2005-06 M/S. ABHILASH SOFTWARE DEVELOPMENT CENTRE, #2/10, 80 FEET ROAD, POOJARI LAYOUT, R. M. V. 2 ND STAGE, BENGALURU-560094. PAN : AAIFM8040N VS. THE INCOME TAX OFFICER, WARD - 8(2), BENGALURU. APPELLANT RESPONDENT ASSESSEE BY : SMT. SHEETAL BORKAR, ADVOCATE REVENUE BY : SHRI. M. K. BIJU, JCIT DATE OF HEARING : 23.2.2017 DATE OF PRONOUNCEMENT : 31.3.2017 O R D E R PER SUNIL KUMAR YADAV, JUDICIAL MEMBER THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST T HE ORDER OF CIT(A), INTERALIA, ON THE FOLLOWING GROUNDS: ITA NO.477/BANG/2016 PAGE 2 OF 8 1. THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEA LS) IS OPPOSED TO LAW AND TO THE PRINCIPLES OF NATURAL JUS TICE IN THAT THE LEARNED CIT(A) HAD FAILED TO CONSIDER ALL THE S UBMISSIONS OF THE APPELLANT AND ALSO THE CITATIONS PROVIDED BY TH E APPELLANT TO SUPPORT ITS CLAIM AND CONSEQUENTLY THE ORDER IS LIABLE TO BE SET ASIDE. 2. ON THE FACTS THE LEARNED COMMISSIONER (A) ERRED IN FOLLOWING HIS PREDECESSOR ORDER WHICH WAS SET ASIDE BY THE APPELLATE TRIBUNAL AND HAVING FAILED TO CONSIDER TH E CASE INDEPENDENTLY ALTER APPLYING HIS MIND WITH REGARD T O THE SUBMISSIONS MADE BY THE APPELLANT, THE ORDER IS OPP OSED TO LAW AND LIABLE TO BE CANCELLED. 3. WITHOUT PREJUDICE, THE LEARNED COMMISSIONER (A) ER RED IN HOLDING THE INCOME OF THE APPELLANT REALIZED OUT OF THE SOF TWARE PARK WAS REQUIRED TO BE ASSESSED UNDER THE HEAD PROPERTY', W ITHOUT APPRECIATING THAT THE ACTIVITY WAS BUSINESS ACTIVIT Y AND THE INCOME REALIZED THEREFROM WAS REQUIRED TO BE ASSESSED UNDE R THE HEAD INCOME FROM BUSINESS' AS CLAIMED BY THE APPELL ANT. 4. THE LEARNED COMMISSIONER (A) ERRED IN FOLLOWING TH E JUDGMENTS OF THE HON'BLE SUPREME COURT WHICH WERE DISTINGUISHABL E AND ON THE OTHER HAND THE SUPREME COURT JUDGMENTS AND ALSO THE JURISDICTIONAL HIGH COURT JUDGMENTS CITED BY THE AP PELLANT FULLY SUPPORT THE CLAIM OF THE APPELLANT AND THEY HAD ALS O BINDING ON THE COMMISSIONER (A) AND ACCORDINGLY HE OUGHT TO HA VE FOLLOWED THE SAME AND ALLOWED THE CLAIM OF THE APPE LLANT. 5. THE LEARNED COMMISSIONER (A) HAVING FAILED TO CONS IDER THE JUDGMENTS OF THE JURISDICTIONAL HIGH COURT WITHOUT ADEQUATE REASON, THE ORDER PASSED BY HIM WAS OPPOSED TO LAW AND LIAB LE TO BE ITA NO.477/BANG/2016 PAGE 3 OF 8 CANCELLED. 6. THE LEARNED COMMISSIONER (A), ON THE FACTS AND IN T HE CIRCUMSTANCES OUGHT TO HAVE ACCEPTED THE EXPLANATIO N OF THE APPELLANT AND HELD THAT THE INCOME FROM SOFTWARE PA RK WAS REQUIRED TO BE ASSESSED ONLY UNDER THE HEAD INCOME FROM BUSINESS'. 7. THE LEARNED COMMISSIONER (A) OUGHT TO HAVE ALLOWED THE CLAIM OF DEPRECIATION AND INTEREST ON THE BORROWED FUNDS UTILIZED FOR THE BUSINESS WERE LIABLE TO BE ALLOWED IN FULL. 8. WITHOUT PREJUDICE, THE ADDITIONS/ DISALLOWANCE ARE EXCESSIVE, ARBITRARY AND UNREASONABLE AND OUGHT TO BE REDUCED SUBSTANTIALLY. 9. THE LEARNED COMMISSIONER (A) ERRED IN SUSTAINING T HE INTEREST U/S.234B & 234D OF THE ACT. 10. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT T HE TIME OF HEARING OF THE APPEAL THE APPELLANT PRAYS THAT THE APPEAL MAY BE ALLOWED. 2. THOUGH VARIOUS GROUNDS ARE RAISED, BUT THEY ALL RELATE TO THE NATURE OF RECEIPT OF INCOME RECEIVED ON ACCOUNT OF LEASING OF PROPERTY. THE ASSESSEE HAS CLAIMED CERTAIN INCOME RECEIVED ON ACC OUNT OF LEASING OF PROPERTY AS AN INCOME FROM HOUSE PROPERTY. THE ASS ESSEE HAS ALSO TREATED CERTAIN INCOME RECEIVED ON ACCOUNT OF PROVI DING CERTAIN SERVICES TO LESSEE AS BUSINESS INCOME. BUT THE AO HAS TREATED THE ENTIRE RECEIPT OF INCOME AS INCOME FROM HOUSE PROPERTY. ITA NO.477/BANG/2016 PAGE 4 OF 8 3. THE ASSESSEE HAS PREFERRED AN APPEAL BEFORE THE CIT(A) WITH THE SUBMISSION THAT TWO SEPARATE AGREEMENTS WERE EXECUT ED FOR LEASING OF IMMOVABLE PROPERTY AND FOR PROVIDING CERTAIN SERVIC ES TO THE LESSEE. HE ALSO PLACED RELIANCE UPON THE JUDGMENT OF JUDICIAL HIGH COURT IN THE CASE OF CIT VS. S. MOHAN KUMAR (HUF) IN INCOME TAX APPEAL NO. 325/2009 DATED 7.2.2011 WITH THE SUBMISSION THAT WHEREVER THE INCOME RECEI VED ON ACCOUNT OF LEASING OF PROPERTY AND PROVIDING OF SER VICE IS SEPARABLE, THE INCOME RECEIVED ON ACCOUNT OF RENDERING OF SERVICES SHALL BE TREATED AS A BUSINESS INCOME. THE CIT(A) WAS NOT CONVINCED WITH THE CONTENTIONS OF THE ASSESSEE AND HE CONFIRMED THE ASSESSMENT ORDER. 4. NOW THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNA L. THE LEARNED COUNSEL FOR THE ASSESSEE HAS INVITED OUR ATTENTION TO THE FACT THAT IN THE FIRST ROUND OF APPEAL, THE ORDER OF THE CIT(A) WAS SET AS IDE AND THE MATTER WAS RESTORED TO HIM TO READJUDICATE THE ISSUE AFTER AFF ORDING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE CIT(A) HAS REITERATED I TS EARLIER ORDER AND MADE THE ADDITIONS. THE LEARNED COUNSEL FOR THE AS SESSEE FURTHER INVITED OUR ATTENTION THAT IN THE SUCCEEDING YEAR I.E., 200 6-07 NO DISALLOWANCE WAS MADE BY THE AO IN THIS REGARD. ONCE THEY HAVE ACCE PTED, THE TREATMENT GIVEN TO THE RECEIPT OF A PARTICULAR INCOME IN ONE YEAR, THEY CANNOT TAKE A CONTRARY VIEW IN DIFFERENT ASSESSMENT YEARS. 5. THE LEARNED DR PLACED THE RELIANCE UPON THE ORDE R OF THE CIT(A). ITA NO.477/BANG/2016 PAGE 5 OF 8 6. HAVING CAREFULLY EXAMINED THE ORDER OF THE LOWER AUTHORITIES IN THE LIGHT OF THE RIVAL SUBMISSIONS, WE FIND THAT THERE WERE TWO SEPARATE AGREEMENTS EXECUTED VIZ., FOR LEASING OUT THE IMMOV ABLE PROPERTY TO TATA CONSULTANCY SERVICES AND THE OTHER FOR PROVIDING CE RTAIN AMENITIES. IN BOTH THE AGREEMENTS, DIFFERENT CONSIDERATIONS WERE STIPU LATED. THEREFORE THE STIPULATED AMOUNT RECEIVED ON ACCOUNT OF LEASING OU T THE IMMOVABLE PROPERTIES AND ALSO FOR RENDERING CERTAIN SERVICES/ AMENITIES CAN BE SEPARABLE. 7. WE HAVE ALSO CAREFULLY EXAMINED THE JUDGMENT OF JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. S. MOHAN KUMAR (HUF) (SUPRA). WE FIND THAT IN THIS JUDGMENT, THEIR LORDSHIP HAS CATEGORICALLY HELD THAT WHEREVER THE AMOUNT RECEIVED ON ACCOUNT OF LEASING OUT OF THE IM MOVABLE PROPERTIES AND RENDERING OF CERTAIN SERVICES IS NOT SEPARABLE UNDE R BOTH THE HEADS, THE ENTIRE AMOUNT SHALL BE TREATED AS AN INCOME FROM HO USE PROPERTY BUT WHEREVER THE AMOUNT IS SEPARABLE ON ACCOUNT OF EXEC UTION OF TWO AGREEMENTS, THE CONSIDERATION RECEIVED ON ACCOUNT O F RENDERING SERVICES/AMENITIES BE TREATED AS A BUSINESS INCOME. FOR THE SAKE OF REFERENCE, WE EXTRACT THE RELEVANT PORTION OF THE J UDGMENT AS UNDER: ANSWERING THE SAID QUESTION, THEY HELD THE RENT FR OM THE BUILDING WILL BE COMPUTED SEPARATELY FROM THE INCOM E FROM THE FURNITURE AND FIXTURES AND IN THE CASE OF RENT FROM THE BUILDING THE APPELLANT- WILL BE ENTITLED TO THE ALLOWANCES M ENTIONED IN SUB- SECTION (4) OF SECTION 12 AND IN THE CASE OF INCOME FROM THE FURNITURE AND FIXTURES, TO THOSE MENTIONED IN SUB-S ECTION (3), AND THAT NO PART OF THE INCOME CAN BE ASSESSED UNDER SE CTION 9 OR UNDER SECTION 10. THEREFORE, IN SUBSTANCE IT WAS HELD THE INCOME FALLS UNDER THE HEADING OF INCOME FROM OTHER SOURCE S AND NOT INCOME FROM BUSINESS. THEREFORE, THE SUPREME COURT DID NOT GO INTO ITA NO.477/BANG/2016 PAGE 6 OF 8 THE QUESTION WHETHER INCOME FROM THE FURNITURE AND FIXTURES WOULD FALL UNDER THE INCOME FROM HOUSE PROPERTY AT ALL. AS SUCH, THE SAID JUDGMENT HAS NO APPLICATION TO THE FACTS OF TH IS CASE. 16. IN THIS CASE THE QUESTION FOR CONSIDERATION IS WHETHER THE INCOME FROM FURNITURE AND FIXTURES IS TO BE PUT UNDER THE HEAD INCOME FROM HOUSE PROPERTY'. AS BOTH THE LEASES ARE CONTAINED IN VERY SAME DOCUMENT THE SAID JUDGMENTS ARE OF VERY LITTLE ASSISTANCE IN DECIDING THE CASE ON HAND. HOWEVER, THE MADRAS HIGH COURT IN THE CASE OF TARAP ORE AND COMPANY V. COMMISSIONER OF INCOME TAX REPORTED IN (2003) 259 I.T.R. 389 DEALING WITH AN IDENTICAL ISSUE HELD AS UNDER:- THAT THE ACTUAL RENT RECEIVED BY THE OWNER (ASSESSEE) WOULD CONSTITUTE THE BASIS FOR DETERMINI NG THE ANNUAL VALUE AND IT WAS THE VALUE WHICH WOULD HAVE TO FORM THE BASIS FOR DETERMINING THE INCOME F ROM HOUSE PROPERTY AND FOR ALLOWING THE DEDUCTION FROM INCOME FROM HOUSE PROPERTY TO THE EXTENT PERMITTED UNDER THE OTHER PROVISIONS OF THE INCOME-TAX ACT. IN MAKING SUCH COMPUTATION, THERE WAS NO PROVISION TO ADD OTHER AMOUNTS RECEIVED BY THE OWNER OF THE BUILDING AS REPRESENTING THE VALUE OF THE SERVICE CHARGES RENDE RED BY HIM TO HIS TENANTS AS INCOME FROM HOUSE PROPERTY. HENCE, THE TRIBUNAL WAS RIGHT IN HOLDING THAT THE RECEIPTS FROM SERVICE CHARGES WERE LIABLE TO BE ASSESSED AS INCOME FROM OTHER SOURCES AND NOT INCOME FROM HOUSE PROPERTY. 17. THEREFORE, FROM THE AFORESAID STATUTORY PROVISI ONS IT IS CLEAR THAT IF THE INCOME IS TO BE CHARGEABLE UND ER THE HEADING OF 'INCOME FROM HOUSE PROPERTY' IT SHOULD B E THE INCOME WHICH REPRESENTS THE ANNUAL VALUE OF PROPERT Y CONSISTING OF ANY BUILDING OR LANDS APPURTENANT THE RETO OF WHICH THE ASSESSEE IS THE OWNER AND ONLY SUCH INCOM E SHALL BE CHARGEABLE TO INCOME TAX UNDER THE HEAD 'INCOME FROM HOUSE PROPERTY.' WHEN SECTION 56(2)(III) MAKES IT E XPLICITLY CLEAR THAT THE INCOME FROM MACHINERY OR FIXTURE BEL ONGING TO THE ASSESSEE AND LET OUT ON HIRE, IF IS NOT CHARGEA BLE UNDER THE HEADING OF 'PROFITS AND GAINS OF BUSINESS OR PROFES SION', THEN IT- HAS TO BE CHARGED TO INCOME TAX UNDER THE HEADING ' INCOME FROM OTHER SOURCES.' IF THE AFORESAID INCOME IS INS EPARABLE FROM LETTING OUT THE SAID PLANT MACHINERY OTHER THA N THE INCOME OF SUCH LETTING OUT CANNOT IF IT IS NOT CHAR GEABLE TO INCOME TAX UNDER 'PROFITS AND GAINS OR PROFESSION', IS CHARGEABLE UNDER THE HEAD 'INCOME FROM OTHER SOURCE S. THEREFORE UNDER THESE CIRCUMSTANCES, THE INCOME DER IVED FROM LETTING OUT THE FURNITURE AND FIXTURE IS NOT C HARGEABLE UNDER THE HEADING OF 'INCOME FROM HOUSE PROPERTY. ITA NO.477/BANG/2016 PAGE 7 OF 8 8. IT IS ALSO OBVIOUS FROM THE RECORD THAT IN THE S UCCEEDING YEAR, THE REVENUE DID NOT OBJECT THE TREATMENT GIVEN BY THE A SSESSEE TO RECEIPTS ON ACCOUNT OF LEASING OF PROPERTY AND RENDERING OF SER VICES. ONCE THE REVENUE HAS ACCEPTED THE TREATMENT GIVEN BY THE ASSESSEE TO A PARTICULAR RECEIPT, THEY CANNOT TAKE CONTRARY VIEW IN DIFFERENT ASSESSM ENT YEAR. IN THE LIGHT OF THESE FACTS AND THE LEGAL PROPOSITIONS LAID DOWN BY JURISDICTIONAL HIGH COURT, WE ARE OF THE VIEW THAT THE INCOME RECEIVED BY THE ASSESSEE FROM RENDERING SERVICES BY VIRTUE OF SEPARATE AGREEMENT SHALL BE TREATED AS BUSINESS INCOME AND THE RECEIPTS RECEIVED ON ACCOUN T OF LEASING OUT OF PROPERTY SHALL BE TREATED AS INCOME FROM HOUSE PROP ERTY AS SHOWN BY THE ASSESSEE IN THE RETURN OF INCOME. ACCORDINGLY, WE SET ASIDE THE ORDER OF THE CIT(A) AND RESTORE THE MATTER BACK TO THE FILE OF THE AO TO COMPUTE THE INCOME FROM HOUSE PROPERTY AS WELL AS BUSINESS INCO ME IN TERMS INDICATED ABOVE. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THIS 31 ST DAY OF MARCH, 2017. SD/- SD/- (INTURI RAMA RAO) (SUNIL KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE. DATED: 31 ST MARCH, 2017. /NSHYLU/ ITA NO.477/BANG/2016 PAGE 8 OF 8 COPY TO: 1. APPELLANTS 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.