THE ITO 9(1)(2), MUMBAI V. M/S. BEZEL PHARMA PVT. LTD, MUMBAI

ITA 5113/MUM/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 7406 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-03-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 11-03-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 11-08-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S M KESHKAMAT S S RANA
• Assessee Lawyers: V G GINDE
• Keywords: Business income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B: MUMBAI BEFORE SHRI N V VASUDEVAN, JUDICIAL MEMBER AND SHRI RAJENRA SINGH, ACCOUNTANT MEMBER ITA NOS. 5112 AND 5113/MUM/2008 ASSESSMENT YEARS 2004-05 & 2005-06 INCOME TAX OFFICER -9(1)-2, ROOM NO.226, 2ND FLOOR, AAYAKAR BHAVAN, M K ROAD, MUMBAI 400 020 VS M/S BEZEL PHARMA PVT LTD, 99 GOVT INDUSTRIAL ESTATE, KANDIVALI (W), MUMBAI 400 067 PAN: AABCB 3699 L (APPELLANT) (RESPONDENT) FOR APPELLANT : S/SHRI S M KESHKAMAT/ S S RAN A FOR RESPONDENT : SHRI V G GINDE ORDER PER RAJENRA SINGH, AM 1. THESE APPEALS BY THE REVENUE ARE DIRECTED AGAIN ST THE DIFFERENT ORDERS DATED 9.5.2008 OF CIT (A) FOR THE ASSESSMENT YEARS 2004-05 AND 2005-06. AS DISPUTE RAISED IN BOTH THE APPEALS IS IDENTICAL, THESE APPEALS ARE BEING DISPOSED OF BY A SINGLE CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. THE COMMON DISP UTE IS REGARDING NATURE OF INCOME RECEIVED BY THE ASSESSEE AS CONDUC TING CHARGES ON LETTING OUT OF BUILDING / PLANT & MACHINERY. 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY WAS CARRYING ON THE BUSINESS OF MANUFACTURI NG OF PHARMACEUTICALS PRODUCTS FOR THE LAST 15 YEARS. HO WEVER, DUE TO VARIOUS REASONS, THE ASSESSEE WAS FORCED TO STOP TH E BUSINESS ACTIVITY W.E.F. 19.2.1998. THE ASSESSEE THEREAFTER HAD LEAS ED THE FACTORY BUILDING / PLANT & MACHINERY TO M/S ELAN PHARMA (I) PVT LTD (IN SHORT M/S BEZEL PHARMA PVT LTD ITAS 5112 AND 5113/M/2008 2 M/S ELAN) AND IN TERMS OF THE AGREEMENT THE ASSESSE E WAS TO RECEIVE RS 75,000/- PER MONTH FOR USE OF FACTORY BUILDING A ND FURNITURE; RS 75,000/- FOR PLANT & MACHINERY AND RS 25,000/- PER MONTH FOR ELECTRIFICATION AND OTHER FIXED ASSETS. THE ASSESS EE DECLARED ENTIRE INCOME AS BUSINESS INCOME ON THE GROUND THAT FACTOR Y INCLUDING PLANT & MACHINERY HAD BEEN GIVEN TO M/S ELAN ON LEAVE AND LICENSE BASIS AND THE ASSESSEE WAS MAINTAINING FULL INFRASTRUCTUR E AND IT WAS, THEREFORE, COMMERCIAL EXPLOITATION OF THE ASSETS. THE ASSESSING OFFICER DID NOT ACCEPT THE CLAIM AND OBSERVED THAT THE ASSE SSEE HAD DISCONTINUED THE BUSINESS FROM THE SAID DATE I.E. 1 9.2.1998 AND THE MACHINERY AND EQUIPMENTS WERE RUSTING. THE ASSESSE E ALSO TRIED TO DISPOSED OFF THE MACHINERY AND EQUIPMENT BUT COULD NOT DO SO FOR WANT OF BUYERS. THE ASSESSING OFFICER, THUS, CONCL UDED THAT THE ASSESSEE HAD DISCONTINUED THE BUSINESS AND IT HAD E NTERED INTO AN AGREEMENT WITH M/S ELAN AFTER A GAP OF MORE THAN TW O YEARS AS IT COULD NOT DISPOSE OFF THE PROPERTY. THE ASSESSEE N EVER WANTED TO RESTART THE BUSINESS. THE ASSESSING OFFICER, ACCOR DINGLY, ASSESSED RENTAL INCOME FROM THE LEASE OF FACTORY BUILDING AS HOUSE PROPERTY INCOME AND RENTAL INCOME FROM LEASE OF PLANT AND MA CHINERY AND OTHER ASSETS AS INCOME FROM OTHER SOURCES. IN APPEAL, TH E CIT (A) FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2001-02 IN ITA NO.6465/M/04 ALLOWED THE CLAIM OF THE ASSESSEE AND DIRECTED THE ASSESSING OFFICER TO ASSESS THE EN TIRE INCOME AS BUSINESS INCOME. AGGRIEVED BY THE SAID DECISION, T HE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 3. AFTER HEARING BOTH THE PARTIES WE FIND THAT DIS PUTE RAISED IN THESE APPEAL IS COVERED BY THE DECISION OF THE TRIB UNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2001-02 IN ITA 6465/M/ 04. IN THAT YEAR ALSO THE SAME ISSUE REGARDING THE NATURE OF IN COME RECEIVED FROM M/S ELAN PHARMA (I) PVT LTD WAS BEFORE THE TRIBUNAL . IN THAT YEAR ALSO M/S BEZEL PHARMA PVT LTD ITAS 5112 AND 5113/M/2008 3 THE ASSESSING OFFICER HAD ASSESSED THE INCOME PARTL Y AS HOUSE PROPERTY INCOME AND PARTLY AS INCOME FROM OTHER SOU RCES AGAINST BUSINESS INCOME DECLARED BY THE ASSESSEE CITING THE SAME REASONS. IN THAT YEAR, THE TRIBUNAL NOTED THAT THE ASSESSEE WAS FORCED TO STOP THE MANUFACTURING OPERATIONS DUE TO LABOUR PROBLEMS W.E .F. 19.2.1998. THOUGH THE ASSESSEE INITIALLY INTENDED TO SALE OUT THE FACTORY PREMISES BUT LATER CHANGE ITS MIND AND ENTERED INTO AN AGREE MENT DATED 12.6.2000 WITH M/S ELAN PHARMA (INDIA) PVT LTD FOR CARRYING OUT THE SAME ACTIVITIES THOUGH ON LEAVE AND LICENSE BASIS. THE TRIBUNAL OBSERVED THAT THERE WAS NO MATERIAL TO SHOW AT THE TIME OF ENTERING INTO THE AGREEMENT, THE ASSESSEE INTENDED TO SELL O UT FACTORY PREMISES IN FUTURE AS THE AGREEMENT WAS FOR COMMERCIAL EXPLO ITATION OF THE ASSETS FOR THE TEMPORARY PERIOD OF FIVE YEARS WHICH WAS EXTENDIBLE TO ANOTHER FIVE YEARS, IF THE ASSESSEE AGREED. THE TR IBUNAL ALSO NOTED THAT AS PER CLAUSE 3 OF THE AGREEMENT, THE ASSESSEE WAS TO RENDER TECHNICAL EXPERTISE FOR USE OF MACHINERIES AND EQUI PMENTS AND AS PER CLAUSES 5 & 6 THE ASSESSEE WAS REQUIRED TO PROVIDE TECHNICAL KNOW- HOW AND EXPERTISE FOR MANUFACTURE OF PRODUCTS. FUR THER, AS PER CLAUSE 13, THE ASSESSEE WAS ELIGIBLE FOR 2% OF SALE PROCEE DS OR RS 1,75,000 WHICH WAS HIGHER. THE TRIBUNAL, THEREFORE, CONCLUD ED THAT THE USE OF ENTIRE BUILDING WITH PLANT AND MACHINERY WAS ON ACC OUNT OF COMMERCIAL EXPLOITATION. THE TRIBUNAL, ACCORDINGLY, HELD THAT AMOUNTS RECEIVED AS CONDUCTING CHARGES FROM M/S ELAN PHARMA (INDIA) PVT LTD WERE IN THE NATURE OF THE BUSINESS RECEIPTS. THE TRIBUNAL PLAC ED RELIANCE ON THE JUDGMENT OF HONBLE HIGH COURT OF MUMBAI IN CASE OF NATIONAL MILL CO LTD (34 ITR 155) AND ON THE JUDGMENT OF HONBLE SUP REME COURT IN CASE OF VIKRAM COTTON MILLS LTD (169 ITR 579). THE ISSUE IS THUS COVERED BY THE DECISION OF THE TRIBUNAL FOR THE ASS ESSMENT YEAR 2001- 02 (SUPRA) AS THE FACTS ARE IDENTICAL INVOLVING THE TAXABILITY OF THE SAME CONDUCTING CHARGES RECEIVED FROM M/S ELAN PHAR MACEUTICAL PVT LTD. THE CIT (A) HAS DECIDED THE ISSUE IN FAVOUR O F THE ASSESSEE M/S BEZEL PHARMA PVT LTD ITAS 5112 AND 5113/M/2008 4 FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSMEN T YEAR 2001-02 (SUPRA). WE, THEREFORE, SEE NO INFIRMITY IN THE OR DERS OF THE CIT (A) AND SAME ARE UPHELD. 4. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED ON 12TH DAY OF MARCH 2010. SD/- SD/- (N V VASUDEVAN) (RAJENRA SINGH) JUDICIAL MEMBER A CCOUNTANT MEMBER MUMBAI, DATE: 12TH MARCH, 2010. COPY TO 1. THE APPELLANT. 2. THE RESPONDENT 4. CIT(A)-IX, MUMBAI. 5. CIT -IX, MUMBAI. 6. D R B BENCH, MUMBAI. 7. GUARD FILE. BY ORDER / / TRUE COPY / / ASST. REGISTRAR, ITAT, MUMBAI BENCHES MUMBAI *CHAVAN/- M/S BEZEL PHARMA PVT LTD ITAS 5112 AND 5113/M/2008 5 SNO DATE INITIALS 1 DRAFT DICTATED ON 11-03-2010 SR.P.S 2. DRAFT PLACED BEFORE AUTHOR 12-03-2010 SR.P.S 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER V.P. 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER A.M 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.P.S 6. KEPT FOR PRONOUNCEMENT ON SR.P.S 7. FILE SENT TO THE BENCH CLERK SR.P.S 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER