Gold Star Estates Pvt. Ltd., New Delhi V. ITO, New Delhi

ITA 565/DEL/2011

• Counselvise Citation: [2011] 119 COUNSELVISE.COM (IT) 7032 (ITAT-DELHI)
• Duration Of Justice: 9 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-11-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 22-11-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 02-02-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SALIL MISHRA
• Assessee Lawyers: R B MATHUR
• Keywords: Business income; Avoidance of tax

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL DELHI DELHI DELHI DELHI BENCH C BENCH C BENCH C BENCH C : NEW DELHI : NEW DELHI : NEW DELHI : NEW DELHI BEFORE SHRI G. BEFORE SHRI G. BEFORE SHRI G. BEFORE SHRI G.D.AGRAWAL, D.AGRAWAL, D.AGRAWAL, D.AGRAWAL, VICE PRESIDENT AND VICE PRESIDENT AND VICE PRESIDENT AND VICE PRESIDENT AND SHRI SHRI SHRI SHRI C.L.SETHI C.L.SETHI C.L.SETHI C.L.SETHI, JUDICIAL MEMBER , JUDICIAL MEMBER , JUDICIAL MEMBER , JUDICIAL MEMBER ITA NO. ITA NO. ITA NO. ITA NO.565/DEL/2011 565/DEL/2011 565/DEL/2011 565/DEL/2011 ASSESSMENT YEAR ASSESSMENT YEAR ASSESSMENT YEAR ASSESSMENT YEAR : : : : 2005 2005 2005 2005- -- -06 0606 06 M/S GOLD STAR ESTATES M/S GOLD STAR ESTATES M/S GOLD STAR ESTATES M/S GOLD STAR ESTATES PVT.LTD., PVT.LTD., PVT.LTD., PVT.LTD., K KK K- -- -11, HAUZ KHAS ENCLAVE, 11, HAUZ KHAS ENCLAVE, 11, HAUZ KHAS ENCLAVE, 11, HAUZ KHAS ENCLAVE, NEW D NEW D NEW D NEW DELHI ELHI ELHI ELHI 110 016. 110 016. 110 016. 110 016. PAN : AAACG4618L. PAN : AAACG4618L. PAN : AAACG4618L. PAN : AAACG4618L. VS. VS. VS. VS. INCOME TAX OFFICER, INCOME TAX OFFICER, INCOME TAX OFFICER, INCOME TAX OFFICER, WARD WARD WARD WARD- -- -12(2), 12(2), 12(2), 12(2), NEW DELHI. NEW DELHI. NEW DELHI. NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI R.B.MATHUR, CA. RESPONDENT BY : SHRI SALIL MISHRA, SR.DR. ORDER ORDER ORDER ORDER PER G. PER G. PER G. PER G.D.AGRAWAL, D.AGRAWAL, D.AGRAWAL, D.AGRAWAL, VP VPVP VP : : : : THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE O RDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-XV, NEW DELHI DATED 26 TH NOVEMBER, 2010 FOR THE AY 2005-06. 2. GROUND NOS.1 & 2 OF THE ASSESSEES APPEAL READ A S UNDER:- 1. THAT ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE THE LD.COMMISSIONER OF INCOME TAX (APPEALS) OFFICER WAS NOT JUSTIFIED IN CONFIRMING THAT THE ASSESSEE HAS N OT BEEN CARRYING ON ANY BUSINESS ACTIVITY AND THEREBY TREAT ING THE INCOME FROM SERVICE CHARGES RECEIVED BY THE ASSESSE E AS RENTAL INCOME AND NOT BUSINESS INCOME AS CLAIME D BY THE ASSESSEE. 2. THAT ON THE FACTS AND THE CIRCUMSTANCES OF THE C ASE THE LD.COMMISSIONER OF INCOME TAX APPEALS INCOME TA X OFFICER WAS NOT JUSTIFIED IN CONFIRMING THAT THE SE RVICE CHARGES OF RS.3,72,000/- RECEIVED BY THE ASSESSEE A RE LIABLE TO BE ASSESSED UNDER INCOME FROM HOUSE PROP ERTY AND NOT UNDER BUSINESS INCOME. ITA-565/DEL/2011 2 3. AT THE TIME OF HEARING BEFORE US, IT IS STATED B Y THE LEARNED COUNSEL THAT THE ASSESSEE COMPANY HAS LET OUT SOME OF THE ASSETS FROM WHICH RENT WAS RECEIVED AND, THE SAME WAS OFFE RED TO TAX AS INCOME UNDER THE HEAD INCOME FROM HOUSE PROPERTY. IN ADDITION TO LETTING OUT OF THE PROPERTY, THE ASSESSEE ALSO PROV IDED SERVICE BY WAY OF SUPPLY OF ELECTRICITY, SECURITY GUARD, GENERATOR AND USE OF PARKING FACILITY FOR WHICH SERVICE CHARGES WERE RECEIVED. THAT FOR SUPPLY OF SUCH SERVICES, THERE WAS A SEPARATE AGREEMENT WHICH WAS INDEPENDENT OF AGREEMENT FOR LETTING OUT OF THE HOUSE PROPERTY; THAT, THE INCOME FROM PROVIDING THE SERVICES HAS BEEN OFFERED UNDER THE HEAD INCOME FROM BUSINESS; THAT, THE ASSESSING OFFICER CLUBBED THE RENTAL INCOME AND INCOME FROM PROVIDING SERVICES AND ASSESSED THE SAME UNDER THE HEAD INCOME FROM HOUSE PROPERTY; THAT THE ASSESSE E IS PROVIDING SERVICES TO THE TENANTS SINCE AY 2002-03 AND IN ALL THE PRECEDING YEARS I.E. AY 2002-03, 2003-04 AND 2004-05, THE SAME WAS ASSESSED UNDER THE HEAD INCOME FROM BUSINESS. SIMILARLY, IN THE SUBSEQUENT YEAR, NAMELY, AY 2006-07 AS WELL AS AY 2007-08, THE CLAIM OF THE ASSESSEE THAT THE SERVICE CHARGES ARE ASSESSABLE UNDER THE H EAD INCOME FROM BUSINESS IS ACCEPTED. IT IS ONLY THE IN BETWEEN Y EAR I.E. AY 2005-06 IN WHICH THE INCOME FROM SERVICE CHARGES IS ASSESSED A S INCOME FROM HOUSE PROPERTY; THAT, THE ASSESSING OFFICER, WHILE ASSESSING THE INCOME FROM SERVICE CHARGES UNDER THE HEAD HOUSE P ROPERTY, HAS RELIED UPON THE DECISION OF HONBLE APEX COURT IN T HE CASE OF SHAMBHU INVESTMENT PVT.LTD. VS. CIT 263 ITR 143; THAT, TH E FACTS IN THE CASE OF SHAMBHU INVESTMENT PVT.LTD. (SUPRA) WERE ALTOGETHER DIFFERENT THAN THE FACTS IN THE CASE OF THE ASSESSEE BECAUSE IN TH E CASE OF SHAMBHU INVESTMENT PVT.LTD., THERE WAS ONLY ONE COMPOSITE A GREEMENT WHILE IN THE CASE OF THE ASSESSEE, THERE ARE SEPARATE AND IN DEPENDENT AGREEMENTS FOR LETTING OUT OF THE PROPERTY AND FOR PROVIDING SERVICES; THAT, PROVIDING OF SERVICES IN THE CASE OF THE ASSE SSEE IS QUITE INDEPENDENT OF THE LETTING OUT OF THE PROPERTY. HE ALSO REFERRED TO THE DECISION OF CIT VS. SHAMBU INVESTMENT (P) LTD. 24 9 ITR 47 DELIVERED ITA-565/DEL/2011 3 BY HONBLE CALCUTTA HIGH COURT WHICH WAS ULTIMATELY UPHELD BY THE HONBLE APEX COURT WHEREIN THE HONBLE CALCUTTA HIG H COURT HAS HELD THAT WHAT IS TO BE SEEN IS THE PRIMARY OBJECT OF TH E ASSESSEE WHILE EXPLOITING THE PROPERTY. WHEN IT IS FOUND THAT THE MAIN INTENTION IS THE LETTING OUT THE PROPERTY, THEN IT IS TO BE ASSESSED AS INCOME FROM HOUSE PROPERTY BUT, WHEN IT IS FOUND THAT THE MAIN INTENTION IS TO EXPLOIT THE IMMOVABLE PROPERTY BY WAY OF COMPLEX CO MMERCIAL ACTIVITIES, THEN IT MUST BE HELD AS BUSINESS INCOM E. THAT IN THE CASE OF THE ASSESSEE, THE INTENTION OF THE ASSESSEE IS E VIDENT THAT IT HAS LET OUT THE PROPERTY SEPARATELY AND INCOME FROM EXPLOIT ATION OF THE PROPERTY IS OFFERED SEPARATELY UNDER THE HEAD INCO ME FROM HOUSE PROPERTY. THE PROVIDING OF THE SERVICES WAS AN IN DEPENDENT COMMERCIAL ACTIVITY AND, THEREFORE, WAS ASSESSABLE UNDER THE HEAD INCOME FROM BUSINESS. HE, THEREFORE, SUBMITTED T HAT THE INCOME FROM SERVICE CHARGES SHOULD BE DIRECTED TO BE ASSESSED U NDER THE HEAD INCOME FROM BUSINESS. HE FURTHER SUBMITTED THAT THE ASSESSING OFFICER, WHILE ASSESSING THE SERVICE CHARGES AS IN COME FROM HOUSE PROPERTY, HAS NOT ALLOWED ANY DEDUCTION FOR THE EX PENDITURE INCURRED BY THE ASSESSEE IN PROVIDING THE SERVICES. THAT MA JOR INCOME RECEIVED BY THE ASSESSEE IN PROVIDING SERVICES WAS FROM PROV IDING ELECTRICITY AND SECURITY. THE ASSESSEE MADE THE PAYMENT OF ELE CTRICITY EXPENSES AND ALSO TO THE SECURITY SERVICES. NO DEDUCTION IS ALLOWED BY THE ASSESSING OFFICER IN RESPECT OF ELECTRICITY AND SEC URITY EXPENSES INCURRED BY THE ASSESSEE. THUS, IN EFFECT, THE GRO SS RECEIPT BY WAY OF SERVICE CHARGES RECEIVED BY THE ASSESSEE HAS BEEN A SSESSED. HE, THEREFORE, ALTERNATIVELY SUBMITTED THAT IN WHATEVER HEAD THE INCOME IS ASSESSED, THE EXPENDITURE INCURRED BY THE ASSESSEE FOR PROVIDING SERVICES SHOULD BE ALLOWED AS A DEDUCTION. THE LEA RNED COUNSEL ALSO RELIED UPON THE DECISION OF ITAT JAIPUR BENCH IN TH E CASE OF VIKRAM GOLECHA VS. DCIT (2010) 123 ITD 438 (JP.) AND POI NTED OUT THAT IN THE ABOVE CASE, THE ITAT, AFTER CONSIDERING THE DECISIO N OF HONBLE APEX COURT IN THE CASE OF SHAMBHU INVESTMENT PVT.LTD. (S UPRA), HELD THAT ITA-565/DEL/2011 4 THE INCOME FROM SERVICE CHARGES IS TO BE ASSESSED A S BUSINESS INCOME. 4. THE LEARNED DR, ON THE OTHER HAND, RELIED UPON T HE ORDERS OF THE AUTHORITIES BELOW. HE STATED THAT THE ASSESSEE HAS LET OUT THE PROPERTY TO THE DIRECTOR OF THE ASSESSEE COMPANY AND, THEREF ORE, THE AGREEMENT IS FOR AVOIDANCE OF TAX. CONSIDERING THE FACTS OF THE CASE, THE ASSESSING OFFICER RIGHTLY HELD THAT THE SERVICE CHA RGES ARE AN INTEGRAL PART OF THE LETTING OUT OF THE PROPERTY AND, THEREF ORE, THE ENTIRE INCOME, WHETHER RECEIVED AS A RENT OR SERVICE CHARGES, IS T O BE ASSESSED UNDER THE HEAD INCOME FROM HOUSE PROPERTY. HE ALSO STA TED THAT THE DECISION OF SHAMBHU INVESTMENT PVT.LTD. (SUPRA) WOU LD BE SQUARELY APPLICABLE TO THE FACTS OF THE ASSESSEES CASE. 5. WE HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF BO TH THE SIDES AND PERUSED THE MATERIAL PLACED BEFORE US. IN THIS CASE, ADMITTEDLY, THERE ARE SEPARATE AGREEMENTS FOR LETTING OUT OF TH E PROPERTY AND FOR RENDERING OF SERVICES. THOUGH THE AGREEMENT IS WIT H THE BUSINESS ENTITIES IN WHICH THE DIRECTOR OF ASSESSEE COMPANY IS PROPRIETOR OR PARTNER, NEVERTHELESS, THE GENUINENESS OF THE AGREE MENT IS NOT IN DISPUTE AND THE INCOME HAS BEEN ASSESSED AS DISCLOS ED IN THE AGREEMENTS ITSELF. THEREFORE, THE REAL QUESTION IS WHETHER INCOME FROM SERVICE CHARGES IS TO BE ASSESSED AS BUSINESS INCO ME OR AS INCOME FROM HOUSE PROPERTY. THE REVENUE HAS HEAVILY RELI ED UPON THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF S HAMBHU INVESTMENT PVT.LTD. 263 ITR 143. IN THIS CASE, THE HONBLE APEX COURT HAS UPHELD THE ORDER OF THE HONBLE CALCUTTA HIGH COURT WITH T HE FOLLOWING FINDING:- WE HAVE LEARNED COUNSEL FOR THE PARTIES. WE SEE NO REASON TO INTERFERE WITH THE CONCLUSION A RRIVED AT BY THE HIGH COURT ON THE QUESTION AS FRAMED UNDE R SECTION 256(2) OF THE INCOME-TAX ACT, 1961. THE CI VIL ITA-565/DEL/2011 5 APPEALS ARE ACCORDINGLY DISMISSED. THERE SHALL BE NO ORDER AS TO COSTS. 6. THUS, WE FIND THAT THE HONBLE APEX COURT HAS NO T GIVEN ANY INDEPENDENT FINDING BUT HAS SIMPLY AFFIRMED THE DEC ISION OF THE HONBLE CALCUTTA HIGH COURT. THEREFORE, IT WOULD B E APPROPRIATE TO SEE THE OBSERVATION OF HONBLE CALCUTTA HIGH COURT WHIC H IS REPORTED IN 249 ITR 47. THEIR LORDSHIPS OF HONBLE CALCUTTA HIGH C OURT HELD AS UNDER:- MERELY BECAUSE INCOME IS ATTACHED TO ANY IMMOVABLE PROPERTY, THAT CANNOT BE THE SOLE FACTOR FOR ASSESS MENT OF SUCH INCOME AS INCOME FROM PROPERTY. IF THE MAIN INTENTION OF THE ASSESSEE IS TO LET OUT THE PROPERT Y OR ANY PORTION THEREOF THE INCOME MUST BE CONSIDERED AS RE NTAL INCOME OR INCOME FROM PROPERTY WHEREAS IF THE PRIMA RY OBJECT IS TO EXPLOIT THE IMMOVABLE PROPERTY BY WAY OF COMPLEX COMMERCIAL ACTIVITIES, IN THAT EVENT IT MUS T BE HELD AS BUSINESS INCOME. 7. THUS, THEIR LORDSHIPS HELD THAT WHETHER THE INCO ME FROM LETTING OUT OF THE PROPERTY IS TO BE ASSESSED UNDER THE HEA D INCOME FROM HOUSE PROPERTY OR UNDER THE HEAD INCOME FROM BUSI NESS WOULD DEPEND UPON THE INTENTION OF THE ASSESSEE WHILE LET TING OUT THE PROPERTY. IF INTENTION IS TO SIMPLY LET OUT PROPER TY, IT WOULD BE ASSESSED UNDER THE HEAD INCOME FROM HOUSE PROPERTY BUT IF INTENTION IS TO EXPLOIT THE IMMOVABLE PROPERTY BY WAY OF COMPLEX CO MMERCIAL ACTIVITY, IT WILL BE ASSESSED UNDER THE HEAD INCOM E FROM BUSINESS. HOWEVER, ON THE FACTS OF THAT CASE, THEIR LORDSHIPS DIRECTED THE INCOME TO BE ASSESSED UNDER THE HEAD INCOME FROM HOUSE PR OPERTY. THE RELEVANT OBSERVATION IN THIS REGARD READS AS UNDER: - THAT IT WAS EVIDENT FROM THE AGREEMENT THAT THE AS SESSEE HAD LET OUT THE FURNISHED OFFICE TO THE OCCUPANTS O N A MONTHLY RENTAL WHICH WAS INCLUSIVE OF ALL CHARGES T O THE ASSESSEE. THE ENTIRE COST OF THE PROPERTY LET OUT TO THE OCCUPANTS HAD BEEN RECOVERED AS AND BY WAY OF INTER EST- FREE ADVANCE BY THE ASSESSEE. THEREFORE, IT COULD NOT BE SAID THAT THE ASSESSEE WAS EXPLOITING THE PROPERTY FOR ITS COMMERCIAL BUSINESS ACTIVITIES. ITA-565/DEL/2011 6 8. FROM THE ABOVE, IT IS EVIDENT THAT IN THE CASE O F SHAMBHU INVESTMENT PVT.LTD. (SUPRA), THE ASSESSEE HAD LET O UT THE FURNISHED ACCOMMODATION AND FURNISHED OFFICE ON A MONTHLY REN TAL INCOME BUT, IN THE CASE OF THE ASSESSEE, THERE ARE INDEPENDENT AGREEMENTS FOR LETTING OUT OF THE PROPERTY AND RENDERING OF SERVIC ES. BOTH THE AGREEMENTS ARE INDEPENDENT. THUS, THE FACTS OF THE ASSESSEES CASE ARE ALTOGETHER DIFFERENT. IN THE CASE OF THE ASSES SEE, THE INTENTION OF THE ASSESSEE IS CLEAR. HE HAS PROVIDED THE SERVICE S INDEPENDENT OF THE LETTING OUT OF THE PROPERTY AND, SINCE BEGINNING, I NCOME FROM LETTING OUT OF THE PROPERTY WAS DISCLOSED UNDER THE HEAD I NCOME FROM BUSINESS. IN FACT, IN ALL THE PRECEDING YEARS AND ALSO IN THE SUBSEQUENT YEARS, THE REVENUE HAS ACCEPTED THE ASSE SSEES CLAIM THAT THE INCOME FROM SERVICE CHARGES IS ASSESSABLE UNDER THE HEAD INCOME FROM BUSINESS. CONSIDERING THE TOTALITY OF THE AB OVE FACTS, IN OUR OPINION, THERE WAS NO JUSTIFICATION FOR ASSESSING T HE INCOME FROM SERVICE CHARGES UNDER THE HEAD INCOME FROM HOUSE P ROPERTY IN THE YEAR UNDER APPEAL. WE, THEREFORE, DIRECT THE ASSES SING OFFICER TO ASSESS THE INCOME FROM SERVICE CHARGES UNDER THE HE AD INCOME FROM BUSINESS AND ALLOW THE EXPENDITURE IN ACCORDANCE W ITH LAW. 9. GROUND NO.3 OF THE ASSESSEES APPEAL READS AS UN DER:- THAT ON THE FACTS AND THE CIRCUMSTANCES OF THE LD.COMMISSIONER OF INCOME TAX APPEALS WAS NOT JUSTI FIED IN CONFIRMING THE DISALLOWANCE OF THE ENTIRE EXPENS ES DEBITED TO THE PROFIT & LOSS ACCOUNT OF THE ASSESSE E BY HOLDING THAT THE ASSESSEE IS NOT CARRYING ON ANY BU SINESS ACTIVITY AND THEREBY DENYING THE CLAIM OF LOSS UNDE R THE HEADING OF BUSINESS & PROFESSION AMOUNTING TO RS.7,64,722/-. 10. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL PLACED BEFORE US. GROUND NO.3 IS CONSEQUENTIAL TO THE OUT COME OF GROUND NOS.1 & 2. THE ASSESSING OFFICER HAS DISALLOWED TH E EXPENSES BECAUSE ITA-565/DEL/2011 7 HE HAS ASSESSED THE INCOME FROM SERVICE CHARGES UND ER THE HEAD INCOME FROM HOUSE PROPERTY. WHILE DISPOSING OF G ROUND NOS.1 & 2 ABOVE, WE HAVE HELD THAT THE INCOME FROM SERVICE CH ARGES IS TO BE ASSESSED UNDER THE HEAD INCOME FROM BUSINESS. WE , THEREFORE, SET ASIDE THE ORDER OF THE ASSESSING OFFICER WHEREIN HE HAS DISALLOWED THE EXPENSES CLAIMED IN THE PROFIT & LOSS ACCOUNT AND R ESTORE THE MATTER BACK TO HIS FILE. WE DIRECT HIM TO ALLOW THE EXPEN SES IN ACCORDANCE WITH LAW WHILE ASSESSING THE INCOME FROM SERVICE CH ARGES UNDER THE HEAD INCOME FROM BUSINESS. 11. GROUND NO.4 IS AGAINST CHARGING OF INTEREST UND ER SECTION 234B, 234C & 234D. THIS IS CONSEQUENTIAL. WE DIRECT THE ASSESSING OFFICER TO RECOMPUTE THE INTEREST, IF ANY, IN ACCORDANCE WI TH LAW AFTER RE- DETERMINATION OF INCOME AS PER OUR ORDER. 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS TR EATED AS ALLOWED AS INDICATED ABOVE. DECISION PRONOUNCED IN THE OPEN COURT ON 25 TH NOVEMBER, 2011. SD/- SD/- ( (( (C.L.SETHI C.L.SETHI C.L.SETHI C.L.SETHI) )) ) (G.D.AGRAWAL) (G.D.AGRAWAL) (G.D.AGRAWAL) (G.D.AGRAWAL) JUDICIAL JUDICIAL JUDICIAL JUDICIAL MEMBER MEMBER MEMBER MEMBER VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT DATED : 25.11.2011 VK. COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT ASSISTANT REGISTRAR