DCIT 1(2), MUMBAI V. NAUTILUS TRADING & LEASING P.LTD, MUMBAI

ITA 5778/MUM/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 9067 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 3 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-01-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 10-08-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 24-09-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAURABH KUMAR RAIDR
• Keywords: Business income
• Section: 10

Judgement Text

, INCOME-TAX APPELLATE TRIBUNAL -BBENCH MUMBAI , , BEFORE S/SH.RAJENDRA,ACCOUNTANT MEMBER AND AMARJIT SINGH,JUDICIAL MEMBER ./I.T.A./5778/MUM/2013, / ASSESSMENT YEAR: 2007-08 DCIT 1(2) ROOM NO.535, 5 TH FLOOR AAYAKAR BHAVAN, M.K. ROAD MUMBAI-400 020. VS. M/S. NAUTILUS TRADING & LEASING LIMITED 13, MEERA BAUG, SANTACRUZ (W) MUMBAI-400 054. PAN:AACCN 3989 N ( /APPELLANT ) ( / RESPONDENT) / REVENUE BY: SHRI SAURABH KUMAR RAI-DR /ASSESSEE BY: NONE / DATE OF HEARING: 29/11/2016 / DATE OF PRONOUNCEMENT:06/01/2017 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) , / PER RAJENDRA A.M. - CHALLENGING THE ORDER DATED 03/05/2013 OF THE CIT(A )-7,MUMBAI, THE ASSESSING OFFICER(AO) HAS FILED THE PRESENT APPEAL.ASSESSEE-COMPANY,DERIV ING INCOME FROM HOUSE PROPERTY, FILED ITS RETURN OF INCOME ON 18/10/2007, DECLARING LOSS OF R S. 1.05 CRORES.THE AO COMPLETED THE ASSESSMENT, UNDER SECTION 143 (3) OF THE ACT, ON 4/ 12/2009, DETERMINING ITS INCOME AT RS.(-) 9.46 LAKHS. 2. THE EFFECTIVE GROUND OF APPEAL IS ABOUT ALLOWING TH E INCOME ON ACCOUNT OF LICENCE FEES (RS. 1.08 CRORES) AND AMENITIES(RS.19.30 LAKHS) AS BUSIN ESS INCOME AS AGAINST THE INCOME FROM HOUSE PROPERTY INCOME.DURING THE ASSESSMENT PROCEED INGS,THE AO FOUND THAT THE ASSESSEE HAD LET OUT ITS PROPERTY TO CITIGROUP INFORMATION T ECHNOLOGY O&S LTD.(CITIGROUP)AS PER THE LEAVE AND LICENSE AGREEMENT DATED 29/06/2006, THE L ICENCE FEE FOR THE YEAR UNDER CONSIDERATION WAS RS.12.01 LAKHS PER MONTH EFFECTIV E FROM 01/07/2006, THAT THE ASSESSEE HAD ALSO TAKEN INTEREST-FREE DEPOSIT OF RS.72.07 LAKHS, THAT DURING THE EARLIER YEAR THE ASSESSEE HAD RECEIVED TOTAL RENT OF RS.1.27 CRORES,THAT IT HAD T REATED THE RENT UNDER THE HEAD BUSINESS INCOME AND HAD BIFURCATED THE RECEIPTS AS LICENSEE FEES AND AMENITIES FEES, THAT AFTER CLAIMING VARIOUS EXPENSES AGAINST THE INCOME, THE ASSESSEE D ISCLOSED NET LOSS OF RS.1.05 CRORES AS BUSINESS LOSS.HE DIRECTED THE ASSESSEE TO EXPLAIN A S TO WHY THE INCOME FROM THE PROPERTY SHOULD NOT BE CHARGED TO TAX UNDER SECTION 22 OF TH E ACT UNDER THE HEAD INCOME FROM HOUSE PROPERTY.AFTER CONSIDERING THE SUBMISSION OF THE A SSESSEE, HE REFERRED TO THE CASES OF SG MERCANTILE CORPORATION MERCANTILE PRIVATE LTD. (83 ITR 700) & CHENNAI PROPERTIES (266 ITR 685). HE HELD THAT THE ASSESSEE WAS INCORPORATED ON 27.3.2006, THAT IT HAD TAKEN A LOAN OF RS. 5778/M/13-NAUTILUS TRADING & LEASING LTD. 2 10.34 CRORES TO ACQUIRE THE PROPERTY, THAT THE CLAI M OF THE ASSESSEE THAT IT UTILISED ITS OWN BUSINESS FUNDS FOR PURCHASING THE PROPERTY WAS FACT UALLY INCORRECT, THAT IT HAD CLAIMED THAT PROPERTY WAS ACQUIRED WITH AN INTENTION TO SELL AND MAKE PROFIT, THAT IT WAS A COMMERCIAL ASSET AND WAS EXPLOITED TO MAKE INCOME, THAT THE CL AIM MADE BY THE ASSESSEE THAT PROVIDING VARIOUS FACILITIES AND AMENITIES WAS IN THE NATURE OF SERVICES, THAT INCOME EARNED BY THE ASSESSEE FROM THE LETTING OUT OF THE PREMISES AND P ROVIDING AMENITIES HAD TO BE ASSESSED UNDER SECTION 22 OF THE ACT. 3. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY (FAA).BEFORE HIM,IT WAS ARGUED THAT THE MAIN OBJECT OF THE ASSESSEE WAS TO CARRY ON THE BUSINESS OF SELLING, RESELLING, EXC HANGING, REPURCHASING, LETTING OUT, GRANTING LICENCES OF THE LAND/BUILDING/PLANTS/MACHINERY/FACT ORIES, THAT IN PURSUANCE OF THE OBJECTIVES THE ASSESSEE HAD PURCHASED A COMMERCIAL PROPERTY AF TER OBTAINING LOAN, IT DECIDED TO EXPLOIT THE COMMERCIAL PROPERTY ON LEAVE AND LICENSE BASIS ALONG WITH VARIOUS AMENITIES, THAT IT WAS PURELY A COMMERCIAL ACTIVITY AND WAS DONE IN THE CO URSE OF BUSINESS, THAT IT HAD ENTERED INTO TWO AGREEMENTS WITH CITIGROUP, THAT THE LEAVE AND L ICENSE AGREEMENT ENTERED INTO WITH THE TENANT WAS NOT A LEAVE AND LICENSE AGREEMENT FOR EA RNING INCOME FROM INVESTMENTS,THAT THE ASSESSEE HAD AGREED TO PROVIDE SERVICES TO THE LICE NSEE, THAT THE NATURE OF ASSET WHICH WAS GIVEN ON LEAVE AND LICENSE WAS HUNDRED PERCENT COMM ERCIAL ASSET. THE ASSESSEE RELIED UPON CERTAIN CASE LAWS AND ARGUED THAT AMOUNT IN DISPUTE WAS WRONGLY ASSESSED UNDER THE HEAD INCOME FROM HOUSE PROPERTY BY THE AO. 4. AFTER CONSIDERING THE ASSESSMENT ORDER AND SUBMISSI ON OF THE ASSESSEE, THE FAA HELD THAT THE COMPANY WAS INCORPORATED IN MARCH, 2006 WITH TH E MAIN OBJECT OF CARRYING ON BUSINESS OF SELLING,RESELLING,LETTING OUT ETC., THAT IT HAD PURCHASED THE COMMERCIAL PROPERTY, THAT THE UNIT HAD BEEN USED ONLY FOR A SPECIFIC BUSINESS PURPOSE OF INFORMATION AND INFORMATION TECHNOLOGY ENABLED SERVICES, IT HAD TRIED TO DEVELO P ITS BUSINESS BUT DUE TO VOLATILE MARKET IT COULD NOT START BUSINESS ACTIVITIES, THAT IT DECIDE D TO EXPLOIT THE COMMERCIAL PROPERTY ON LEAVE AND LICENSE BASIS ALONG WITH OTHER AMENITIES, THAT THE NATURE OF ASSET WAS COMMERCIAL. HE REFERRED TO THE CASES OF KRISHNA LAND DEVELOPERS PR IVATE LTD. (ITA/1057/MUM/2010),PFH MALL AND RETAIL MANAGEMENT LTD. (110 ITD 337), GLOB AL TECH PARK PRIVATE LTD. (119TTJ 421) AND HELD THAT AO WAS NOT JUSTIFIED IN ASSESSIN G THE INCOME RECEIVED BY THE ASSESSEE UNDER THE HEAD INCOME FROM HOUSE PROPERTY. 5778/M/13-NAUTILUS TRADING & LEASING LTD. 3 5. DURING THE COURSE OF HEARING BEFORE US, THE DEPARTM ENTAL REPRESENTATIVE (DR) SUPPORTED THE ORDER OF THE AO AND REFERRED TO THE CASE OF JST REALTY PRIVATE LTD.(51 TAXMANN.COM 52). 6. WE HAVE PERUSED THE MATERIAL AVAILABLE ON RECORD. W E FIND THAT THE ASSESSEE HAD PURCHASED A PROPERTY AND SAME WAS LET OUT TO CITIGROUP, THAT IT HAD ENTERED INTO TWO AGREEMENTS WITH ITS TENANT, THAT IT HAD PROVIDED VARIOUS AMENITIES TO T HE CITIGROUP, THAT THE RENTAL INCOME RECEIVED BY IT WAS OFFERED UNDER THE HEAD BUSINESS INCOME, T HAT THE AO WAS OF THE OPINION THAT LEAVE AND LICENSE FEES AND CHARGES RECEIVED AGAINST THE A MENITIES WERE TO BE TAXED UNDER THE HEAD INCOME FROM HOUSE PROPERTY. IT IS A FACT THAT THE M AIN OBJECT OF THE ASSESSEE, AS EVIDENT FROM THE MEMORANDUM OF INCORPORATION, WAS TO DEAL IN PRO PERTIES AS WELL AS TO LET THEM OUT. IT HAD PURCHASED A PROPERTY, BUT COULD NOT SELL IT. LATER ON, IT CONVERTED THE PROPERTY INTO COMMERCIAL ASSET AND PROVIDED VARIOUS AMENITIES TO THE TENANT. WE FIND THAT THE HONBLE BOMBAY HIGH COURT IN THE C ASE OF CIT VS. NATIONAL STORAGE (P.) LTD.(48 ITR 577),WHILE LAYING DOWN THE PRINCIPLES T O BE FOLLOWED IN DETERMINING THE PARTICULAR HEAD UNDER WHICH AN INCOME IS TO BE ASSE SSED, HAS OBSERVED AS UNDER: 'IN CASES WHERE THE INCOME RECEIVED IS NOT FROM THE BARE LETTING OF THE TENEMENT OR FROM THE LETTING ACCOMPANIED BY INCIDENTAL SERVICES OR FACIL ITIES, BUT THE SUBJECT HIRED OUT IS A COMPLEX ONE AND THE INCOME OBTAINED IS NOT SO MUCH BECAUSE OF THE BARE LETTING OF THE TENEMENT BUT BECAUSE OF THE FACILITIES AND SERVICES RENDERED, TH E OPERATIONS INVOLVED IN SUCH LETTING OF THE PROPERTY MAY BE OF THE NATURE OF BUSINESS OR TRADIN G OPERATIONS AND THE INCOME DERIVED MAY BE OF THE NATURE OF BUSINESS OR TRADING OPERATIONS AND THE INCOME DERIVED MAY BE INCOME NOT FROM EXERCISE OF PROPERTY RIGHTS PROPERLY SO-CALLED SO AS TO FALL UNDER SECTION 9 BUT INCOME FROM OPERATIONS OF A TRADING NATURE FALLING UNDER S ECTION 10 OF THE ACT;' IN THE CASE UNDER CONSIDERATION THE ASSESSEE HAD PR OVIDED CERTAIN AMENITIES AND FACILITIES TO THE TENANTS. IT IS A CASE OF EXPLOITING THE ASSET C OMMERCIALLY AND NOT THE CASE OF MERE LETTING IT OUT. THEREFORE, IN OUR OPINION, THE ORDER OF THE FA A DOES NOT SUFFER FROM ANY LEGAL INFIRMITY.IN OUR OPINION,FACTS OF JST REALITY( SUPR A)ARE DISTINGUISHABLE FROM THE FACTS OF THE CASE UNDER APPEAL.CONSIDERING THE PECULIAR FACTS AN D CIRCUMSTANCES OF THE CASE, WE DECIDE THE EFFECTIVE GROUND OF APPEAL AGAINST THE AO. AS A RESULT, APPEAL FILED BY THE AO STANDS DISMISSE D. . ORDER PRONOUNCED IN THE OPEN COURT ON 06 TH JANUARY, 2017. , 2017 SD/- SD/- ( / AMARJIT SINGH ) ( / RAJENDRA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; .DATED : 06.01.2017. JV.SR.PS. 5778/M/13-NAUTILUS TRADING & LEASING LTD. 4 / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR A BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.