MOUNT VIEW CLUB & RESORTS P. LTD, NAVI MUMBAI V. ITO 10(3)(4), MUMBAI

ITA 5451/MUM/2009

• Counselvise Citation: [2010] 119 COUNSELVISE.COM (IT) 6350 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-11-2010
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 26-10-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 01-10-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: P PEERYA
• Keywords: Business income; Question of law

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, F, MUMBAI BEFORE SHRI S V MEHROTRA, ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER ITA NO. 5451/MUM/2009 (ASSESSMENT YEAR 2005-06) MOUNT VIEW CLUB AND RESORTS P LTD, 27, MAHAVIR CENTRE, SECTOR-17, VASHI NAVI MUMBA-400705, PAN: AACCM5353M . APPELLANT VS INCOME TAX OFFICER 10(3)(4), AYAKAR BHAVAN M K ROAD, MUMBAI-400020 RESPONDENT APPELLANT BY : SHRI PRAKASH PANDIT RESPONDENT BY : SHRI P PEERYA O R D E R PER VIJAY PAL RAO,JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 24.07.2009 OF THE LEARNED CIT(A)-X FOR THE ASSESSMENT YEAR 2005-06. 2. THE ASSESSEE HAS RAISED VARIOUS GROUNDS IN THIS APPEAL, HOWEVER, THE ONLY ISSUE ARISES FOR OUR CONSIDERATI ON AND ADJUDICATION IS WHETHER THE LEARNED CIT(A) IS JUST IFIED IN CONFIRMING THE RENT RECEIVED BY THE ASSESSEE FOR L EASING OUT ITA NO. 5451/MUM/2009 (ASSESSMENT YEAR 2005-06) 2 THE PART OF THE CLUB PREMISES AS THE INCOME FROM H OUSE PROPERTY OR BUSINESS INCOME. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS ACTIVITIES OF CLUB HOUSE AND RESORT AND PROVIDES RECREATION FACILITIES OF SWIMMING POOL, IN DOOR GAMES, JOYRIDE AND ENTERTAINMENTS. THE ASSESSEES RESOR T IS LOCATED IN MUMBAI PUNE HIGH WAY AT VILLAGE VINEIGAON, TALU KA, KHALAPUR, DIST. RAIGAD. THE ASSESSEE TOOK OVER TH E MANAGEMENT OF THE EXISTING COMPANY. DURING THE RE LEVANT YEAR TO THE ASSESSMENT YEAR UNDER CONSIDERATION, TH E DEVELOPMENT ACTIVITIES OF THE BUILDING WERE ALSO IN PROGRESS. THE ASSESSEE LEASED OUT THE CLUB ROOMS AND OTHER INFRASTRUCTURES IN THE BUILDING TO MMTI EDUCATIONAL RESEARCH TRUST, VEERA DESAI ROAD, ANDHERI (W), MUMBAI FOR A SUM OF RS.20,52,000/- THE ASSESSEE ADMITTED THE RENTAL I NCOME AS BUSINESS INCOME. THE AO QUESTIONED THE NATURE OF T HE INCOME AND ASKED THE ASSESSEE TO EXPLAIN THE NATURE OF REN T. THE ASSESSEE HAS STATED BEFORE THE AO AS THE DEVELOP MENT ACTIVITIES OF THE CLUBROOMS AND OTHER WORK WAS IN P ROGRESS, THE ASSESSEE THOUGHT IT FIT TO COMMERCIALLY EXPLOIT LET TING OF THE SAID PROPERTY TEMPORARILY FOR A PERIOD OF THREE YE ARS BY ENTERING INTO AGREEMENT WITH THE SAID MMTI. TH E MAIN CONTENTION OF THE ASSESSEE BEFORE THE AO WAS TH AT THE ASSESSEE HAS EXPLOITED THE BUSINESS PREMISES/ASSET S ITA NO. 5451/MUM/2009 (ASSESSMENT YEAR 2005-06) 3 COMMERCIALLY AND THE INCOME ARISEN THERE FROM IS NOTHING BUT INCOME FROM BUSINESS. THE AO DID NOT ACCEPT THE EX PLANATION OF THE ASSESSEE. THE AO NOTED THAT THE TDS HAS B EEN DEDUCTED FROM THE INCOME WHICH SHOWN AS RENT RECEI VED FROM MMTI EDUCATIONAL. RESEARCH TRUST. ACCORDINGLY THE AO HELD THAT THE INCOME RECEIVED UNDER THE HEAD CLUB RENT I S NOTHING BUT THE INCOME FROM HOUSE PROPERTY. CONS EQUENTLY, THE AO ALSO DISALLOWED THE CLAIM OF THE EXPENSES. THE AO HAS RELIED UPON THE DECISION OF THE HON. SUPREME CO URT IN THE CASE OF M/S SHAMBHU INVESTMENTS PRIVATE LIMITED V /S CIT (263ITR 143). 4. ON APPEAL, THE LEARNED CIT(A) HAS CONFIRMED THE DISALLOWANCE MADE BY THE AO BY HOLDING AS UNDER : 2.4 NOW, IN THE INSTANT CASE, I HAVE ALREADY HELD THAT THE APPELLANT HAS NOT STARTED THE BUSINESS ACT IVITY AS PER ITS OWN OBJECTIVES, AS GIVEN IN THE MEMORANDUM OF ASSOCIATION. HENCE, THE AO HAS RIGHTLY HELD THAT THIS IS NOT A CASE OF EXPLOITING THE BUSINESS ASSETS. THE PROPERTY HAS BEEN LEASED OUT TO AN EDUCATIONAL INSTITUTION AS OWNER OF THE PROPE RTY. HENCE THE INCOME IS TAXABLE UNDER THE HEAD INCOME FROM HOUSE PROPERTY. THIS GROUND OF APPEAL IS DISMISSED 5. BEFORE US, THE LEARNED AR OF THE ASSESSEE HAS SU BMITTED THAT THE PART OF THE BUSINESS PREMISES WAS LET OUT TO MMTI EDUCATIONAL. RESEARCH TRUST FOR A PERIOD OF THREE Y EARS. THE ASSESSEE SURRENDERED THE CLUB AND RESORT BUSINESS A ND THE ITA NO. 5451/MUM/2009 (ASSESSMENT YEAR 2005-06) 4 PART OF ITS PREMISES WAS LET OUT FOR A TEMPORARY PE RIOD IN ORDER TO EXPLOIT THE BUSINESS PREMISES TILL THE DEVELOPM ENT AND CONSTRUCTION WORK IS COMPLETED. THEREFORE, THE AS SESSEE WAS EXPLOITED THE BUSINESS ASSET FOR MAKING THE PROFIT IN THAT BUSINESS. THE ASSESSEE HAS BEEN DOING BUSINESS FR OM THE OTHER PART OF THE BUSINESS PREMISES. HE HAS RELIED UPON THE DECISION OF THE HON.SUPREME COURT IN THE CASE OF UN IVERSAL PLAST LTD. V. COMMISSIONER OF INCOME-TAX REPORTED IN [1999] 237 ITR 454 (SC) AS WELL AS THE DECISION OF THE HON . JURISDICTIONAL HIGH COURT IN THE CASE OF COMMISS IONER OF INCOME TAX VS MOHIDDIN HOTELS PVT. LTD. AND ANR. R EPORTED IN 200 CTR 329. 6. ON THE OTHER HAND, THE LEARNED DR HAS SUBMITTED THAT THE ASSESSEE HAD NOT STARTED THE BUSINESS ACTIVITIE S AS PER ITS OWN OBJECTIVE AS GIVEN IN THE MEMORANDUM OF ASSOC IATION. THE PORTION OF THE PREMISES WAS LET OUT FOR THE PUR POSES OF EARNING THE INCOME TO THE MMTI EDUCATIONAL. RESEARC H TRUST FOR HOLDING THE CLASSES AND THEREFORE EVEN THE PREM ISES WAS LET OUT FOR CARRYING OUT ANY BUSINESS OF RESORT OR HOTELS AS PER THE BUSINESS OBJECT OF THE ASSESSEE. THEREFORE, IT IS THE CASE OF EARNING THE INCOME BY LETTING OUT THE BUSINESS P REMISES AND NOT EXPLOITING THE BUSINESS ASSET. HE HAS RELIED U PON THE ITA NO. 5451/MUM/2009 (ASSESSMENT YEAR 2005-06) 5 DECISION OF THE HON. SUPREME COURT IN THE CASE OF M /S SHAMBHU INVESTMENTS PRIVATE LIMITED V/S CIT (263IT R 143). 7. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND REL EVANT RECORD. IT IS UNDISPUTED FACT THAT THE ASSESSEE H AD NOT COMPLETED ITS CONSTRUCTION WORK OF THE PREMISES FOR RUNNING THE BUSINESS OF CLUB AND RESORT. THE PART OF THE P REMISES WAS LEASED OUT TO MMTI EDUCATIONAL. RESEARCH TRUST FO R A PERIOD OF THREE YEARS AS PER THE LEASE AGREEMENT. SINCE T HE DEVELOPMENT WORK OF THE BUSINESS PREMISES WAS IN P ROGRESS, THEREFORE, THE PORTION WHICH WAS LEASED OUT BY THE ASSESSEE WAS NEVER UTILIZED BY THE ASSESSEE FOR ITS BUSINESS ACTIVITIES. IT IS NOT THE CASE OF LETTING OUT THE BUSINESS ASS ET WHICH IS READY FOR RUNNING THE BUSINESS OF RESORT OR CLUB BU T THE ASSESSEE HAS SIMPLY LET OUT THE PREMISES TO AN EDUC ATIONAL INSTITUTION FOR CONDUCTING THE EDUCATION CLASSES W HICH HAS NO CONNECTION WITH THE BUSINESS ACTIVITIES OF THE ASSE SSEE. THEREFORE, IT IS NOT A CASE OF LETTING OUT OF PREMI SES ALONGWITH THE MACHINERY, FURNITURE, FIXTURES AND ELECTRICAL F ITTINGS WHICH ARE NECESSARY FOR CONDUCTING THE BUSINESS ACTIVITY FOR THE ASSESSEES BUSINESS. BUT THIS IS A CASE OF SIMPLE LETTING OUT THE BUILDING PREMISES. THEREFORE, THE ASSESSEE HAS NOT MADE OUT THE CASE OF EXPLOITATION OF THE BUSINESS ASSET FOR MAKING THE PROFIT IN RESPECT OF USING THE SAME FOR ITS OW N BUSINESS. ITA NO. 5451/MUM/2009 (ASSESSMENT YEAR 2005-06) 6 IN THE CASE OF IN UNIVERSAL PLAST LTD. V. COMMISSIO NER OF INCOME TAX, THE HON. SUPREME COURT HAS DECIDED THE ISSUE IN HE FACTS WHERE THE ASSESSEE LEASED OUT THE FACTORY NOT FOR RUNNING OUT OF THE BUSINESS BUT IT WAS JUST A MAKE -SHIFT TRANSIENT ALTERNATIVE MEANS OF COMMERCIAL EXPLOITAT ION OF THE COMMERCIAL ASSETS WHEN THE ASSESSEE SUFFERED LOSS FOR CONSECUTIVE TWO YEARS. THEREFORE, THE SAID DECISI ON IS NOT APPLICABLE TO THE PRESENT CASE WHERE THE ASSESSEE HAS NOT ALL UTILIZED THE PREMISES IN QUESTION FOR ITS OWN BUSIN ESS. MOREOVER, THE HON. SUPREME COURT HAS SUMMARIZED THE PROPOSITION AT PAGE 461 OF THE REPORTER AS UNDER : (1) NO PRECISE TEST CAN BE LAID DOWN TO ASCERTAIN WHETHER INCOME (REFERRED TO BY WHATEVER NOMENCLATURE, LEASE, AMOUNT, RENTS, LICENCE FEE) RECEIVED BY AN ASSESSEE FROM LEASING OR LETTING OUT OF ASSETS WOULD FALL UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION'; (2) IT IS A MIXED QUESTION OF LAW AND FACT AND HAS TO BE DETERMINED FROM THE POINT OF VIEW OF A BUSINESSMAN IN THAT BUSINESS ON THE FACTS AND IN TH E CIRCUMSTANCES OF EACH CASE, INCLUDING TRUE INTERPRETATION OF THE AGREEMENT UNDER WHICH THE ASSETS ARE LET OUT; (3) WHERE ALL THE ASSETS OF THE BUSINESS ARE LET OU T, THE PERIOD FOR WHICH THE ASSETS ARE LET OUT IS A RELEVANT FACTOR TO FIND OUT WHETHER THE INTENTION O F THE ASSESSEE IS TO GO OUT OF BUSINESS ALTOGETHER OR TO COME BACK AND RESTART THE SAME; (4) IF ONLY A FEW OF THE BUSINESS ASSETS ARE LET OU T TEMPORARILY, WHILE THE ASSESSEE IS CARRYING OUT HIS OTHER BUSINESS ACTIVITIES, THEN IT IS A CASE OF EXPLOITING THE BUSINESS ASSETS OTHERWISE THAN EMPLOYING THEM FOR HIS OWN USE FOR MAKING PROFIT FO R THAT BUSINESS; BUT IF THE BUSINESS NEVER STARTED OR HAS ITA NO. 5451/MUM/2009 (ASSESSMENT YEAR 2005-06) 7 STARTED BUT CEASED WITH NO INTENTION TO BE RESUMED, THE ASSETS ALSO WILL CEASE TO BE BUSINESS ASSETS AN D THE TRANSACTION WILL ONLY BE EXPLOITATION OF PROPER TY BY AN OWNER THEREOF, BUT NOT EXPLOITATION OF BUSINESS ASSETS. 8. FROM THE DECISION OF THE HON. SUPREME COURT IT I S CLEAR THAT NO PRESCRIBED TEST CAN BE LAID DOWN TO ASCERT AIN WHETHER THE LEASE/RENT RECEIVED BY THE ASSESSEE WOULD FALL UNDER THE HEAD PROFIT AND GAIN OF BUSINESS OR PROFESSION OR INCOME FROM HOUSE PROPERTY. THE ISSUE HAS TO BE DETERMINE D ON THE BASIS OF THE FACTS AND CIRCUMSTANCES OF THE CASE. IT WAS ALSO HELD THAT IF THE ASSESSEE NEVER STARTED BUSINESS O R HAS STARTED THE BUSINESS BUT CEASED BUT NO INTENTION T O RESUMPTION THEN THE ASSET ALSO WILL CEASED TO BE A BUSINESS ASSET. IN THE CASE OF COMMISSIONER OF INCOME TAX VS MOHIDDIN HOTELS PVT. LTD. AND ANR. (SUPRA) THE LEAS ED OUT PREMISES WAS THE HOTEL ALONG WITH THE BUSINESS. TH EREFORE, IT WAS HELD THAT THE INTENTION WAS TO EXPLOIT THE HOT EL AS BUSINESS ASSET. IN THE CASE IN HAND, IT WAS NOT LE ASED OUT OF PREMISES ALONG WITH THE BUSINESS BUT IT WAS ONLY A PART OF INCOMPLETE PREMISES LEASED OUT FOR THE PURPOSE OF O THER THAN THE BUSINESS ACTIVITIES. THEREFORE, IN VIEW OF THE DECISION OF THE HON. SUPREME COURT IN THE CASE OF SHAMBHU INV ESTMENT (SUPRA), THE RENT RECEIVED BY THE ASSESSEE IS ASSES SABLE AS ITA NO. 5451/MUM/2009 (ASSESSMENT YEAR 2005-06) 8 INCOME FROM HOUSE PROPERTY. ACCORDINGLY, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE IMPUGNED ORDER OF THE CIT(A). 9. THE APPEAL OF THE ASSESSEE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 26.11.2010 SD SD (S V MEHROTRA ) (VIJAY PAL RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 26 TH NOV 2010 SRL:18110 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT CONCERNED 4. CIT(A) CONCERNED 5. DR CONCERNED BENCH BY ORDER TRUE COPY ASSTT. REGISTRAR, ITAT, MUMBAI