JASTBHAV INTERNATIONAL, MUMBAI V. ITO 16(2)(2), MUMBAI

ITA 5776/MUM/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 88398 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-02-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: J
• Next Hearing Date: 02-02-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 17-09-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AKHILENDRA YADAV
• Assessee Lawyers: V C SHAH
• Keywords: Business income

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL J BENCH, MUMBAI , , . , BEFORE SHRI VIJAY PAL RAO , JM AND SHRI D. KARUNAKARA RAO, AM ./I.T.A. NO.5776/MUM/2012 ( / ASSESSMENT YEAR : 2007-08 ) JASTBHAV INTERNATIONAL KOTAK KUNJ, 1 ST FLOOR 27, N.S. PARKAR MARG MUMBAI-400 007. / VS. ITO 16(2)(2) MATU MANDIR MUMBAI-400 007. ./ ./PAN/GIR NO. : AACFJ 7782 N ( /APPELLANT ) ( / RESPONDENT ) / APPELLANT BY : SHRI V.C. SHAH - AR ! / RESPONDENT BY : SHRI AKHILENDRA YADAV - DR '#$ ! % / DATE OF HEARING : 02/02/2015 &'( ! % / DATE OF PRONOUNCEMENT : 11/02/2015 ) / O R D E R PER VIJAY PAL RAO, JM : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 19/07/12 OF CIT(A) FOR THE ASSESSMENT YEAR 2007-08. THE ASSESSE E HAS RAISED THE FOLLOWING GROUNDS:- 1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LEARNED CIT (A) ERRED IN CONFIRMING THAT THE RENTA L INCOME EARNED AMOUNTING TO RS.4,80,000/- FROM THE OCCUPANT WHO WAS A LEASEE WAS ASSESSABLE A S INCOME FROM OTHER SOURCES AND NOT THE INCOME FROM B USINESS THOUGH THE PREMISES WERE PROCURED FOR THE PURPOSE OF BUSINESS AND WERE USED PARTIALLY FOR THE BUSINESS OF THE APPELLANT AND PARTIALLY GIVEN O N LEAVE AND LICENSE FOR RUNNING BUSINESS. 2 ITA NO.5776/M/12 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LEARNED CIT (A) ERRED IN CONFIRMING THAT THE NET IN COME OF RS.2,99,9 13/- EARNED OUT OF BORROWING AND LENDING ACTIVITY OF YOUR APPEL LANT WAS ASSESSABLE AS INCOME FROM OTHER SOURCES AS AGAINST INCOME FROM BU SINESS BEING EARNED OUT OF ACTIVITY OF BORROWING AND LENDING. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LEARNED CIT (A) ERRED IN NOT GIVING ANY DECISION ON THE CLAIM OF YOUR APPELLANT THAT ENTIRE EXPENDITURE OF RS.7,73,533/- WAS ALLOWABLE AS DEDUCTION IN COMPUTING INCOME FROM BUSINESS THOUGH THE LEARNE D ASSESSING OFFICER HAD ALLOWED THE DEDUCTION OF RS.75,205/- ONLY. 2. GROUND NO. 1 AND 2 REGARDING RENTAL INCOME AS WELL AS INTEREST INCOME OFFERED AS BUSINESS INCOME IS ASSESSED AS INCOME FROM OTHE R SOURCES. THE ASSESSEE IS A PARTNERSHIP FIRM AND ENGAGED IN THE BUSINESS OF PRO VIDING SERVICES OF VARIOUS TYPES TO THE TOURISTS INCLUDING PROVIDING OF ACCOMMODATION AND GUIDANCE IN RESPECT OF THEIR TOUR IN INDIA. DURING THE YEAR UNDER CONSIDERATION THE A SSESSEE HAS RECEIVED DIVIDEND INCOME WHICH IS EXEMPT UNDER SECTION 10(34) OF THE ACT, INTEREST INCOME OF RS.4,08,747/- AND RENT INCOME OF RS.41,80,000/-. T HE AO NOTED THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS NOT DONE ANY B USINESS ACTIVITY. ACCORDINGLY THE AO ASSESSED THE INTEREST INCOME AND RENTAL INCOME A S INCOME FROM OTHER SOURCES. THE ASSESSEE OBJECTED TO THE TREATMENT OF INTEREST INCO ME AND RENTAL INCOME AS INCOME FROM OTHER SOURCES WHEN THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PROVIDING SERVICES OF VARIOUS TYPES TO THE TOURISTS, INCLUDING PROVIDI NG OF ACCOMMODATION, AND THERE WAS COMMERCIAL USER AND COMMERCIAL EXPLOITATION OF ASSE T. THE INTENTION AND ACTIVITY HAS ALWAYS BEEN TO CONDUCT BUSINESS ACTIVITY BESIDES IT IS ALSO ENGAGED IN FINANCIAL ACTIVITY. THE ASSESSEE FIRM HAS BORROWED FUNDS FOR THE PURPOS E OF BUSINESS AND PAID RENT FROM THE FUND BORROWED AND WAS ALSO LENT. THERE WAS ACCO RDINGLY USER OF FUND BORROWED FOR FINANCING ACTIVITY. AS REGARDS THE RENTAL INCOME TH E ASSESSEE SUBMITTED THAT THE ASSESSEE IS NOT THE OWNER OF THE PROPERTY IN QUESTI ON BUT IT WAS TAKEN ON LEASE AND GIVEN ON LEASE BY THE ASSESSEE. APART FROM LEASING THE PROPERTY, THE ASSESSEE PROVIDED A PEON AND LIFT FACILITY AS WELL AS MAINTENANCE FAC ILITY TO THE LESSEE. THE INCOME FROM FINANCIAL ACTIVITY HAS INCREASED FROM RS.2,96,607/- IN THE YEAR 2006-07 TO RS.4,08,747/- 3 ITA NO.5776/M/12 IN ASSESSMENT YEAR UNDER CONSIDERATION. THUS THE AS SESSEE CLAIMED THAT BOTH THE INCOME ARE FROM THE BUSINESS ACTIVITY OF THE ASSESS EE. THE AO DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AND TREATED THE INTEREST AS WELL AS RENTAL INCOME AS INCOME FROM OTHER SOURCES. 3. ON APPEAL THE ASSESSEE REITERATED THE CONTENTION S AS RAISED BEFORE THE AO BUT COULD NOT SUCCEED. BEFORE US, THE LD. AR OF THE ASS ESSEE HAS SUBMITTED THAT THE RENTAL INCOME AS WELL AS INTEREST INCOME OF THE ASSESSEE H AS BEEN ACCEPTED AS BUSINESS INCOME BY THE AO IN THE EARLIER ASSESSMENT YEARS. I T IS FURTHER CONTENDED THAT THE ASSESSEE IS IN THE BUSINESS OF PROVIDING VARIOUS SE RVICES TO THE TOURISTS INCLUDING THEIR ACCOMMODATION. ONCE THE RENTAL INCOME IS ACCEPTED A S BUSINESS INCOME IN THE EARLIER YEAR THE AO CANNOT TAKE A DIFFERENT VIEW IN THE YEA R UNDER CONSIDERATION. IN SUPPORT OF HIS CONTENTION HE HAS RELIED UPON THE JUDGMENT OF HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. NEO POLY PACK (P) LTD.(245 ITR 492) AND SUBMITTED THAT THE HON'BLE HIGH COURT HAS HELD THAT RENTAL INCOME ASSESSED IN EAR LIER YEAR AS BUSINESS INCOME SHOULD CONTINUE TO BE SO ASSESSED. HE HAS ALSO RELIED UPON THE JUDGMENT OF HON'BLE HIGH COURT OF ANDHRA PRADESH IN THE CASE OF CIT VS. G.V. RATTAIAH AND CO. (256 ITR 351) . AS REGARDS THE INTEREST INCOME THE LD. AR HAS SUBMITTE D THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF LENDING AND BORROWING MONEY WITH TH E INTENTION OF EARNING PROFIT. THE INTEREST INCOME EARNED FROM THE SAID ACTIVITY IS IN THE NATURE OF BUSINESS PROFIT. THEREFORE, SAME SHALL BE TREATED AS INCOME FROM BUS INESS. THE AO HAS TREATED THE SAID INCOME AS INCOME FROM OTHER SOURCES ON THE BASIS OF PARTNERSHIP DEED WITHOUT CONSIDERING THE ACTUAL ACTIVITY OF THE ASSESSEE . H E HAS RELIED UPON THE DECISION IN CASE OF CIT VS. DHANALAXMI CORPORATION (46 ITR 1031) AND SUBMITTED THAT THE PARTNERS MAY DO BUSINESS IN A LINE NOT MENTIONED IN THE PARTNERS HIP DEED. THUS, THE LD. AR HAS SUBMITTED THAT THE AO IS NOT JUSTIFIED IN TREATING THE RENTAL INCOME AND INTEREST INCOME AS INCOME FROM OTHER SOURCES WHEN THE ASS ESSEE IS IN THE REGULAR ACTIVITY OF BORROWING FUND AND LENDING THE SAME FOR EARNING THE PROFIT. 4 ITA NO.5776/M/12 3.1 ON THE OTHER HAND THE LD. DR HAS RELIED UPON TH E ORDER OF AUTHORITIES BELOW AND SUBMITTED THAT MERELY BECAUSE THE ASSESSEE HAS TAKE N A PROPERTY ON LEASE AND GIVING THE SAME ON RENT DOES NOT AMOUNT TO HAVE INVOLVED I N BUSINESS ACTIVITY. IN ORDER TO PROVE THE ACTIVITY AS BUSINESS ACTIVITY, THE ASSESS EE HAS TO SHOW THAT THE ASSESSEE WAS CARRYING OUT CONTINUOUS AND SYSTEMATIC ACTIVITY BY APPLICATION OF HIS LABOUR SKILL AND MONEY. THUS, THE LD. DR HAS SUBMITTED THAT AUTHORIT IES BELOW HAVE RIGHTLY ASSESSED RENTAL INCOME AND INTEREST INCOME FROM OTHER SOURC ES. 4. HAVING CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD WE NOTE THAT THE RENTAL INCOME EARNED BY THE ASSESS EE IS FROM THE PREMISES WHICH WAS TAKEN BY THE ASSESSEE ON LEASE. THE ACTIVITY OF TAK ING THE PREMISES ON LEASE AND FURTHER LETTING IT OUT DOES NOT FALL IN THE PURVIEW OF INC OME FROM HOUSE PROPERTY WHICH WAS ALSO ACCEPTED BY THE AO. SINCE THE ASSESSEE IS ENGAGED I N THE BUSINESS OF PROVIDING VARIOUS FACILITIES TO THE TOURISTS INCLUDING ACCOMMODATION, OTHER GUIDANCE AND TOURIST ACTIVITY, THEREFORE, THE PREMISES IN QUESTION TAKEN ON LEASE AND GIVING THE SAME ON HIRE WITH THE FACILITY OF ATTENDANT/PEON, LIFT AS WELL AS MAINTEN ANCE OF THE PREMISES SUPPORTS THE CASE OF THE ASSESSEE THAT THE ASSESSEE IS ACTUALLY INVOL VED IN THE ACTIVITY OF EARNING THE RENTAL INCOME FROM THE PREMISES IN QUESTION. WE FUR THER NOTE THAT FOR THE EARLIER ASSESSMENT YEARS THE AO ACCEPTED RENTAL INCOME AS B USINESS INCOME OF THE ASSESSEE. THOUGH, THE RETURN OF INCOME IN THE EARLIER ASSESSM ENT YEAR WAS ACCEPTED UNDER SECTION 143(1), HOWEVER, WHEN THERE IS NO CHANGE IN THE FACTS AND CIRCUMSTANCES OF THE CASE FOR THE EARLIER ASSESSMENT YEAR AS WELL AS FOR THE ASSESSMENT YEAR UNDER CONSIDERATION THEN WITHOUT DISTURBING THE CLAIM OF THE ASSESSEE IN THE EARLIER ASSESSMENT YEAR THE AO CANNOT TAKE A DIFFERENT VIEW . THEREFORE, IN VIEW OF THE DECISION RELIED UPON BY THE ASSESSEE IN THE CASE OF NEO POLY PACK (P) LTD. (SUPRA), AS WELL AS G.V. RATTAIAH AND CO. (SUPRA), RENTAL INCOME ACCEPTED AS BUSINESS INCOME OF THE ASSESSEE IN EARLIER ASSESSMENT YEAR AS WELL AS IN T HE SUBSEQUENT ASSESSMENT YEAR SHOULD CONTINUED TO BE ASSESSED AS BUSINESS INCOME. 5 ITA NO.5776/M/12 4.1 AS REGARDS THE INTEREST INCOME THERE IS NO DISP UTE THAT THE ASSESSEE HAS BORROWED THE MONEY WHICH IS USED TO LEND FOR EARNIN G THE INTEREST INCOME. THE INCOME EARNED BY THE ASSESSEE IS DIFFERENCE BETWEEN THE IN TEREST PAID BY THE ASSESSEE AND INTEREST RECEIVED BY THE ASSESSEE. FURTHER, THE AO HAS NOT DISPUTED THIS FACT THAT BORROWING AND LENDING MONEY IS A CONTINUOUS ACTIVIT Y OF THE ASSESSEE FROM THE EARLIER ASSESSMENT YEARS. THE AO HAS REJECTED THE CLAIM OF THE ASSESSEE ON THE BASIS OF BUSINESS ACTIVITY AS STIPULATED IN THE PARTNERSHIP DEED WITHOUT CONSIDERING ACTUAL ACTIVITY CARRIED OUT BY THE ASSESSEE. IT IS PERTINENT TO NOT E THAT EVEN IF ANY ACTIVITY IS NOT MENTIONED IN THE PARTNERSHIP DEED BUT IF IT IS REGU LARLY CARRIED OUT BY THE ASSESSEE IN A SYSTEMATIC MANNER THEN THE NATURE OF ACTIVITY HAS T O BE DETERMINED BY CONSIDERING ACTUAL FACT RATHER THAN GOING THROUGH THE SCOPE OF BUSINESS PROVIDED IN THE PARTNERSHIP DEED. HAVING REGARD TO THE FACT THAT THE ASSESSEE H AS BEEN CARRYING OUT THE ACTIVITIES OF BORROWING AND LENDING MONEY CONTINUOUSLY AND IN A S YSTEMATIC MANNER WE ARE OF THE VIEW THAT AUTHORITIES BELOW ARE NOT JUSTIFIED IN DE NYING CLAIM OF THE ASSESSEE WHEN INTEREST INCOME WAS ACCEPTED AS BUSINESS INCOME IN THE EARLIER ASSESSMENT YEAR. ACCORDINGLY GROUND NO.1 AND 2 ARE ALLOWED. 5. GROUND NO.3 REGARDING DISALLOWANCE OF EXPENDITUR E. DISALLOWANCE OF EXPENDITURE IS CONSEQUENTIAL TO THE TREATMENT OF RENTAL AND INT EREST INCOME AS INCOME FROM OTHER SOURCES. IN VIEW OF OUR FINDING ON THE ISSUE OF TRE ATMENT OF RENTAL INCOME AND BUSINESS INCOME, GROUND NO.3 OF THE ASSESSEES APPEAL BECOME S INFRUCTUOUS AND BEING CONSEQUENTIAL TO GROUND NO.1 AND 2, IT IS TREATED A S ALLOWED. 6. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH FEBRUARY, 2015. . 11-02-2015 SD/- SD/- (D. KARUNAKARA RAO) (VIJAY PAL RAO ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; DATED 11 /02 /2015 . . ./ JV, SR. PS 6 ITA NO.5776/M/12 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A)- 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. / BY ORDER, //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI.