Basics IT Solutions Pvt Ltd, New Delhi V. ACIT Circle-4(1), New Delhi

ITA 5764/DEL/2019

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 1168 (ITAT-DELHI)
• Duration Of Justice: 2 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-09-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2015-2016
• Appeal Filed On: 02-07-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Set aside
• Section: 6; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A, NEW DELHI BEFORE SH. N. K. BILLAIYA, ACCOUNTANT MEMBER AND MS. SUCHITRA KAMBLE, JUDICIAL MEMBER ITA NO.5764/DEL/2019 ASSESSMENT YEAR: 2015-16 M/S. BASICS IT SOLUTIONS PVT. LTD. G-2, NIZAMUDDIN WEST, NEW DELHI-110013 PAN NO.AACCB5118K VS ACIT CIRCLE 4 (1) NEW DELHI (APPELLANT) (RESPONDENT) APPELLANT BY SH. RAJIV SAXENA, ADVOCATE SH. SHYAM SUNDER, AR RESPONDENT BY SH. P. S. THUINGALENG, SR. DR DATE OF HEARING: 09/09/2019 DATE OF PRONOUNCEMENT: 13/09/2019 ORDER PER N. K. BILLAIYA, AM: THIS APPEAL BY THE ASSESSEE IS PREFERRED AGAINST TH E ORDER OF THE CIT(A)-2, NEW DELHI DATED 30.04.2019 PERTAINING TO A. Y. 2015-16. 2. THE SOLE ISSUE IN THE PRESENT CASE TO BE DECIDED IS WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, INCOME FROM RENTING OUT PROPERTY IS TO BE ASSESSED UNDER THE HEAD INCO ME FROM BUSINESS OR INCOME FROM HOUSE PROPERTY. 2 3. BRIEFLY STATED THAT THE FACTS OF THE CASE ARE TH AT THE ASSESSES COMPANY WAS FORMED AND REGISTERED WITH ROC, NCT OF DELHI AND HARYANA ON 25 TH DAY OF NOVEMBER, 2004 WITH ONE OF THE MAIN OBJECTS TO CARRY ON ALL KIND OF BUSINESS, BUY, SEL L, LET OUT, HIRE AND REPAIR IN RELATION TO ANY IMMOVABLE PROPERTY AN D ITS MAINTENANCE SERVICES. 4. APART FROM THIS, IN THE OBJECTS INCIDENTAL OR AN CILLARY TO THE ATTAINMENT OF THE MAIN OBJECTS. THERE WAS SPECIFIC OBJECT AT S. NO.22 AS UNDER : TO LEASE, LET OUT ON HIRE, PLEDGE, HYPOTHECIATE , OR OTHERWISE DISPOSE OFF THE WHOLE OR ANY PART OR PART S OF THE UNDERTAKING OF THE COMPANY OR ANY LAND, BUSINESS PR OPERTY, RIGHTS OR ASSETS OR ANY KIND OF THE COMPANY OR ANY SHARE OF INTEREST BEARING RESPECTIVELY, IN SUCH MANNER AND I N SUCH CONSIDERATION AS THE COMPANY MAY THINK FIT. 5. DURING THE YEAR THE ASSESSEE HAS LEASED OUT FOLL OWING PREMISES :- CHART GIVING DETAILS OF PREMISES ALONG-WITH FACILIT IES TO VARIOUS SOFTWARE/BUSINESS CONCERNS 3 6. THE INCOME OF THE ASSESSEE WAS SHOWN IN ITS PROF IT AND LOSS ACCOUNT AS UNDER :- OTHER INCOMES : ELECTRICITY & DG CHARGES 1,90,700.00 569,417.00 MAINTENANCE CHARGES 3,537,295.00 2,555,000.00 INTEREST OF INCOME TAX 36,094.00 REFUND SR. NO. NAME OF THE TENANT PREMISES & FACILITIES LEASED 1. M/S METAOPTION SOFTWARE P VT. LTD. 1. FURNISHED OFFICE TO COMPUTER SOFTWARE WITH FURNITURE & FIXTURE OF COMPANY (SUPER AREA 7000 SQ. FT. & CARPET AREA 5500 SQ FLAT 6 TH FLOOR. 2. 24-HOUR POWER SUPPLY. 3. CENTRALLY AIR CONDITIONING. 4. MANAGING PARKING FACILITIES 5. DRINKING WATER SUPPLY AND 24-HO UR WATER SUPPLY. 6. 24-HOUR INTERNET FACILITIES. 2. DA VISION GLOBAL ENTERPRISES LIMITED 1. FURNISHED OFFICE TO COMPUTER SOFTWARE WITH FURNITURE & FIXTURE OF 3. M/S ARKADIN CONFERINDIA PVT. LTD. 1. FURNISHED OFFICE TO COMPUTER SOFTWARE WITH FURNITURE & FIXTURE OF COMPANY (SUPER AREA 7,500 SQ. FT. & CARPET AREA - AT 4 TH FLOOR. 2. POWER BACKUP 3. MANAGING PARKING FACILITIES 4. M/S SHARP BUSINESS SYSTEMS (INDIA) PVT. LTD. 1. FURNISHED OFFICE TO COMPUTER SOFTWARE WITH FURNITURE & FIXTURE OF COMPANY (SUPER AREA 7,500 SQ. FT. & CARPET AREA - AT 63 RD FLOOR. 2. POWER BACKUP 3. POWER LOAD 4. CENTRALLY AIR CONDITIONING. 5. MANAGING PARKING FACILITIES 4 RENTAL INCOME 9,102,000.00 5,810,000.00 13,766,089.00 8,934,417.00 7. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER WAS OF THE OPINION THAT THE INCOM E OF THE ASSESSEE FROM RENT HAS TO BE TREATED AS INCOME FROM HOUSE PROPERTY. AFTER DISCUSSING CERTAIN JUDICIAL DECISI ONS THE ASSESSING OFFICER COMPLETED THE ASSESSMENT BY TREATING THE RE NT OF RS.9,102,000/- AS INCOME FROM HOUSE PROPERTY AND AF TER ALLOWING STANDARD DEDUCTION, ADDITION OF RS.63,71,400/- WAS MADE. 8. THE ASSESSEE CARRIED THE MATTER BEFORE THE CIT(A ) BUT WITHOUT ANY SUCCESS. THE CIT(A) DISMISSED THE APPEA L BY OBSERVING AS UNDER :- 6.5 APART FROM THIS, THERE IS NO MENTION OF RENTING OF IMMOVABLE PROPERTY OR MAINTENANCE SERVICES IN ANY OTHER OBJEC TS THROUGHOUT THE MEMORANDUM AND ARTICLES OF ASSOCIATION. REFERENCE A BOUT RENTING ADDED TO AN ENTIRELY DIFFERENT CLAUSE OF SYSTEM DES IGN AND INFORMATION TECHNOLOGY APPEARS AMBIGUOUS. HOW AND W HEN THIS SHORT REFERENCE HAS BEEN ADDED TO AN ENTIRELY DIFFE RENT CLAUSE DEALING WITH ENTIRELY DIFFERENT OBJECT, IS NOT CLEA R AS THE SAME WAS NOT AVAILABLE BEFORE THE AO. EVEN THE INTENTION OF ADDING A SHORT REFERENCE TO A DIFFERENT CLAUSE IS NOT CLEAR. IN FA CT, THE APPELLANT HAS DONE NO BUSINESS IN SYSTEMS OR INFORMATION TECHNOLO GY WHICH IS MENTIONED THROUGHOUT ITS MEMORANDUM AND ARTICLES OF ASSOCIATION. 6.6 THEREFORE, THE APPELLANTS GROUND SUFFERS FROM AMB IGUITY. I DO NOT SEE ANY REASON TO INTERFERE WITH THE DECISION OF TH E AO. EVEN THE INCLUSION OF INTEREST ON IT REFUND OF RS. 36,095/- AS BUSINES S INCOME IS NOT ALLOWABLE. THESE GROUNDS ARE, THEREFORE, DISMISSED AS DEVOID OF MERIT . 5 9. BEFORE US THE LD. COUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TO THE MEMORANDUM OF ASSOCIATION OF THE C OMPANY AND POINTED OUT THAT THE MAIN OBJECT READ WITH OTHER OB JECTS CLEARLY SHOWS THAT THE BUSINESS OF THE ASSESSEE WAS TO LET OUT AND LEASE THE PROPERTY. ON SUCH OBJECTS STRONG RELIANCE WAS PLACED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CH ENNAI PROPERTIES AND INVESTMENTS LTD. 373 ITR 673. 10. PER CONTRA THE DR STRONGLY SUPPORTED THE FINDIN GS OF THE CIT(A). 11. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE ORDERS OF THE AUTHORITIES BELOW. THE MAIN OBJECTS AND OTHER O BJECT OF THE COMPANY HAVE BEEN MENTIONED ELSEWHERE. IN THE LIGH T OF THE MAIN OBJECT AND THE OTHER OBJECT WE DO NOT FIND ANY MERIT IN THE OBSERVATIONS OF THE CIT(A). WE FAIL TO UNDERSTAND T HE APPREHENSION SHOWN BY THE CIT(A) IN RESPECT OF CLAU SE 22 FOR WHICH HE OBSERVED THAT SHORT REFERENCE HAS BEEN AD DED TO ENTIRELY DIFFERENT CLAUSE DEALING WITH ENTIRELY DIF FERENT OBJECT, IS NOT CLEAR AS THE SAME WAS NOT AVAILABLE BEFORE THE AO WHEN THE ASSESSING OFFICER HIMSELF HAS CATEGORICALLY MENTION ED THAT HE HAS EXAMINED THE MEMORANDUM OF ASSOCIATION OF THE ASSES SEE COMPANY. 6 12. RELIANCE ON THE DECISION OF HONBLE SUPREME COU RT IN THE CASE OF CHENNAI PROPERTIES AND INVESTMENT (SUPRA) I S WELL TAKEN. 13. THE RELEVANT FINDINGS OF THE HONBLE SUPREME CO URT READ AS UNDER :- 6. BEFORE WE REFER TO THE CONSTITUTION BENCH JUDGMENT IN THE CASE OF SULTAN BROTHERS (P.) LTD. (SUPRA), WE WOULD BE WELL ADVISED TO DISCUSS THE LAW LAID DOWN AUTHORITATIVELY AND SUCCINCTLY BY THIS COURT IN 'KARANPURA DEVELOPMENT CO. LTD. V. CIT [1962] 44 IT R 362 (SC). THAT WAS ALSO A CASE WHERE THE COMPANY, WHICH WAS THE AS SESSEE, WAS FORMED WITH THE OBJECT, INTER ALIA, OF ACQUIRING AN D DISPOSING OF THE UNDERGROUND COAL MINING RIGHTS IN CERTAIN COAL FIEL DS AND IT HAD RESTRICTED ITS ACTIVITIES TO ACQUIRING COAL MINING LEASES OVER LARGE AREAS, DEVELOPING THEM AS COAL FIELDS AND THEN SUB-LEASING THEM TO COLLIERIES AND OTHER COMPANIES. THUS, IN THE SAID CASE, THE LE ASING OUT OF THE COAL FIELDS TO THE COLLIERIES AND OTHER COMPANIES WAS TH E BUSINESS OF THE ASSESSEE. THE INCOME WHICH WAS RECEIVED FROM LETTIN G OUT OF THOSE MINING LEASES WAS SHOWN AS BUSINESS INCOME. DEPARTM ENT TOOK THE POSITION THAT IT IS TO BE TREATED AS INCOME FROM TH E HOUSE PROPERTY. IT WOULD BE THUS, CLEAR THAT IN SIMILAR CIRCUMSTANCES, IDENTICAL ISSUE AROSE BEFORE THE COURT. THIS COURT FIRST DISCUSSED THE SC HEME OF THE INCOME TAX ACT AND PARTICULARLY SIX HEADS UNDER WHICH INCO ME CAN BE CATEGORISED / CLASSIFIED. IT WAS POINTED OUT THAT B EFORE INCOME, PROFITS OR GAINS CAN BE BROUGHT TO COMPUTATION, THEY HAVE T O BE ASSIGNED TO ONE OR THE OTHER HEAD. THESE HEADS ARE IN A J SENSE EXC LUSIVE OF ONE ANOTHER AND INCOME WHICH FALLS WITHIN ONE HEAD CANNOT BE AS SIGNED TO, OR TAXED UNDER, ANOTHER HEAD. THEREAFTER, THE COURT POINTED OUT THAT THE DECIDING FACTOR IS NOT THE OWNERSHIP OF LAND OR LEASES BUT T HE NATURE OF THE ACTIVITY OF THE ASSESSEE AND THE NATURE OF THE OPER ATIONS IN RELATION TO THEM. IT WAS HIGHLIGHTED AND STRESSED THAT THE OBJE CTS OF THE COMPANY 7 MUST ALSO BE KEPT IN VIEW TO INTERPRET THE ACTIVITI ES. IN SUPPORT OF THE AFORESAID PROPOSITION, NUMBER OF JUDGMENTS OF OTHER JURISDICTIONS, I.E. PRIVY COUNSEL, HOUSE OF LORDS IN ENGLAND AND US COU RTS WERE TAKEN NOTE OF. THE POSITION IN LAW, ULTIMATELY, IS SUMMED UP IN THE FOLLOWING WORDS: 'AS HAS BEEN ALREADY POINTED OUT IN CONNECTION WITH THE OTHER TWO CASES WHERE THERE IS A LETTING OUT OF PREMISES AND COLLECTION OF RENTS THE ASSESSMENT ON PROPERTY BASIS MAY BE CORRE CT BUT NOT SO, WHERE THE LETTING OR SUB-LETTING IS PART OF A TRADI NG OPERATION. THE DIVING LINE IS DIFFICULT TO FIND; BUT IN THE CASE O F A COMPANY WITH ITS PROFESSED OBJECTS AND THE MANNER OF ITS ACTIVITIES AND THE NATURE OF ITS DEALINGS WITH ITS PROPERTY, IT IS POSSIBLE T O SAY ON WHICH SIDE THE OPERATIONS FALL AND TO WHAT HEAD THE INCOME IS TO BE ASSIGNED.' 9. AFTER APPLYING THE AFORESAID PRINCIPLE TO THE FACT S, WHICH WERE THERE BEFORE THE COURT, IT CAME TO THE C ONCLUSION THAT INCOME HAD TO BE TREATED AS INCOME FROM BUSINE SS AND NOT AS INCOME FROM HOUSE PROPERTY. WE ARE OF THE OP INION THAT THE AFORESAID JUDGMENT IN KARANPURA DEVELOPMEN T CO. LTD'S CASE (SUPRA) SQUARELY APPLIES TO THE FACTS OF THE PRESENT CASE. NO DOUBT IN SULTAN BROTHERS (P.) LTD.'S CASE (SUPR A), CONSTITUTION BENCH JUDGMENT OF HIS COURT HAS CLARIF IED THAT MERELY AN ENTRY IN THE OBJECT CLAUSE SHOWING A PART ICULAR OBJECT WOULD NOT BE THE DETERMINATIVE FACTOR TO ARR IVE AT AN CONCLUSION WHETHER THE INCOME IS TO BE TREATED AS I NCOME FROM BUSINESS AND SUCH A QUESTION WOULD DEPEND UPON THE CIRCUMSTANCES OF EACH CASE, VIZ., WHETHER A PARTICU LAR BUSINESS IS LETTING OR NOT. THIS IS SO STATED IN TH E FOLLOWING WORDS: 'WE THINK EACH CASE HAS TO BE LOOKED AT FROM A 8 BUSINESSMAN'S POINT OF VIEW TO FIND OUT WHETHER THE LETTING WAS THE DOING OF A BUSINESS OR THE EXPLOITATION OF HIS PROPERTY BY AN OWNER. WE DO NOT FURTHER THINK THAT A THING CAN BY ITS VERY NATURE BE A COMMERCIAL ASSET. A COM MERCIAL ASSET IS ONLY AN ASSET USED IN A BUSINESS AND NOTHI NG ELSE, AND BUSINESS MAY BE CARRIED ON WITH PRACTICALLY ALL THINGS. THEREFORE, IT IS NOT POSSIBLE TO SAY THAT A PARTICU LAR ACTIVITY IS BUSINESS BECAUSE IT IS CONCERNED WITH AN ASSET W ITH WHICH TRADE IS COMMONLY CARRIED ON. WE FIND NOTHING IN THE CASES REFERRED, TO SUPPORT THE PROPOSITION THAT CER TAIN ASSETS ARE COMMERCIAL ASSETS IN THEIR VERY NATURE.' 11. WE ARE CONSCIOUS OF THE AFORESAID DICTA LAID DOWN IN THE CONSTITUTION BENCH JUDGMENT. IT IS FOR THIS REASON, WE HAVE, AT THE BEGINNING OF THIS JUDGMENT, STATED THE CIRCUMSTANCE S OF THE PRESENT CASE FROM WHICH WE ARRIVE AT IRRESISTIBLE C ONCLUSION THAT IN THIS CASE, LETTING OF THE PROPERTIES IS IN FACT IS THE BUSINESS OF THE ASSESSEE. THE ASSESSEE THEREFORE, RIGHTLY DISCL OSED THE INCOME UNDER THE HEAD INCOME FROM BUSINESS. IT CANNOT BE T REATED AS 'INCOME FROM THE HOUSE PROPERTY. WE, ACCORDINGLY, A LLOW THIS APPEAL AND SET ASIDE THE JUDGMENT OF THE HIGH COURT AND RESTORE THAT OF THE INCOME TAX APPELLATE TRIBUNAL. NO ORDER S AS TO COSTS. 14. FINDING PARITY IN THE FACTS OF THE CASE IN HAND WITH THE FACTS OF THE CASE DECIDED BY THE HONBLE SUPREME COURT AN D RESPECTFULLY FOLLOWING THE SAME WE DIRECT THE ASSES SING OFFICER TO TREAT THE RENTAL INCOME AS INCOME FROM BUSINESS. H OWEVER, INCOME FROM INTEREST ON INCOME TAX REFUND IS EXCLUD ED FROM THE BUSINESS INCOME. WITH THESE OBSERVATIONS THE APPEA L FILED BY THE ASSESSEE IS ALLOWED. 9 15. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 13.09.2019. SD/- SD/- (SUCHITRA KAMBLE) (N. K. BILLAIYA) JUDICIAL MEMBER ACCOUNT ANT MEMBER *NEHA* DATE:-13 .09.2019 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGI STRAR ITAT NEW DELHI DATE OF DICTATION 11.09.2019 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 12.09.2019 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER 13.09.2019 DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.PS/PS 13.09.2019 DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT 13.09.2019 DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/ PS 13.09.2019 DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT 13.09.2019 DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 13.0 9.2019 DATE ON WHICH FILE GOES TO THE HEAD CLERK. THE DATE ON WHICH FILE GOES TO THE ASSISTANT REGIST RAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER