Appeal Details
Counselvise Citation
64921114 RSA 2012
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
1 year(s) 9 month(s) 18 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
28-02-2014
Appeal Filed By
Department
Order Result
Dismissed
Bench Allotted
A
Next Hearing Date
30-12-2013
Assessment Year
2002-2003
Appeal Filed On
10-05-2012
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH A BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER I.T.A. NO S . 649 , 650, 780 & 781 /BANG/201 2 (ASSESSMENT YEAR : 2002-03 TO 2005-06) INCOME TAX OFFICER , WARD 12(1), BANGALORE. VS. M/S. NANDAKI BUSINESS SOLUTIONS PVT.LTD . NO.24, SIRUR PARK ROAD, SESHADRIPURAM, BANGALORE-560 020 PAN AACCC 1269J APPELLANT RESPONDENT. APPELLANT BY : SHRI BIJOY KUMAR PANDA . RESPONDENT BY : SHRI Y.K. RAGHAVENDRA RAO. DATE OF HEARING : 30.12.2013. DATE OF PRONOUNCEMENT : 28.02. 2014. O R D E R PER SHRI JASON P. BOAZ, A.M. : THESE FOUR APPEALS BY REVENUE ARE AGAINST THE ORDE RS OF THE COMMISSIONER OF INCOME TAX (APPEALS) III, BANGALORE DT.22.2.2012 FOR ASST. YEARS 2002-03 AND 2003-04 AND DT.14.3.2012 FOR ASST. YEARS 2004-05 AND 2005-0 6. BEING CONNECTED, AND HAVING COMMON ISSUES, THESE APPEALS HAVE BEEN POSTED AND H EARD TOGETHER AND ARE THEREFORE DISPOSED OFF BY WAY OF THIS COMMON ORDER. 2. THE FACTS OF THE CASE, IN BRIEF, ARE AS UNDER : 2.1 THE ASSESSEE IS A COMPANY CARRYING ON THE BUSIN ESS OF NON-BANKING FINANCIAL ACTIVITIES (NBFC IN SHORT) AFTER OBTAINING THE NE CESSARY LICENSE FROM THE RBI. THE 2 ITA NOS.649, 650, 780 & 781/BANG/12 ASSESSEE ENTERED INTO A REGISTERED LEASE AGREEMENT DT.29.10.1971 WITH MYTHIC SOCIETY, A NON-PROFIT MAKING INSTITUTION REGISTERED UNDER THE THEN MYSORE REGISTRATION ACT, AND SECURED LEASEHOLD RIGHTS FOR A PERIOD OF THIRTY YEA RS OF A PIECE OF LAND BELONGING TO THIS SOCIETY. A BUILDING WAS ERECTED ON THE AFORESAID L AND AND THE ASSESSEE LET OUT THE SPACE TO VARIOUS OFFICES AND ESTABLISHMENTS AND DERIVED R ENTAL INCOME WHICH WAS BEING OFFERED TO TAX AS INCOME UNDER THE HEAD HOUSE PROPERTY. AFTER THE EXPIRY OF THE LEASE PERIOD OF 30 YEARS ON 28.10.2001, A FRESH LEASE AGREEMENT DT. 4.2.2002 WAS ENTERED INTO BY THE ASSESSEE WITH MYTHIC SOCIETY FOR A PERIOD OF THREE YEARS INITIALLY WITH AN OPTION TO RENEW THE LEASE PERIOD WITH THE POWER TO SUBLET. THIS AC CORDING TO THE ASSESSEE, CHANGED THE BASIC CHARACTER OF THE INCOME AND HENCE THE INCOME THEREFROM NEEDS TO BE CLASSIFIED UNDER THE HEAD INCOME FROM BUSINESS AND NOT INCO ME FROM HOUSE PROPERTY 2.2.1 FOR ASST. YEAR 2002-03 , THE ASSESSEE FILED ITS RETURN OF INCOME ON 30.10. 2002 RETURNING A LOSS OF RS.50,900. THIS FIGURE WAS ARR IVED AT AFTER ADJUSTING THE INCOME UNDER THE HEAD INCOME FROM HOUSE PROPERTY AGAINST THE L OSS CLAIMED UNDER THE HEAD INCOME FROM BUSINESS. THE RETURN WAS PROCESSED UNDER SE CTION 143(1) OF THE INCOME TAX ACT, 1961 (THE ACT IN SHORT). SUBSEQUENTLY, PROCEEDING S U/S.147 OF THE ACT WERE INITIATED BY THE ASSESSING OFFICER AND NOTICE UNDER SECTION 148 OF THE ACT DT.28.2.2006 WAS ISSUED TO THE ASSESSEE. IN RESPONSE THERETO THE ASSESSEE FIL ED A RETURN OF INCOME FOR ASST. YEAR 2002-03 ON 18.7.2006 DISCLOSING THE SAME LOSS OF RS .50,900 AS DECLARED IN THE ORIGINAL RETURN OF INCOME FILED ON 30.10.2002. HOWEVER, IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE FILED ANOTHER REVISED RETURN ON 12.12. 2006 IN WHICH THE RENTAL INCOME UP TO 3 ITA NOS.649, 650, 780 & 781/BANG/12 OCTOBER, 2001 (VIZ. WHEN THE ORIGINAL LEASE, AGREEM ENT EXPIRED) WAS TREATED AS INCOME FROM HOUSE PROPERTY AND THE RENTAL INCOME RECEIVED AFTER OCTOBER, 2001 WAS TREATED AS INCOME FROM BUSINESS. 2.2.2 THE ASSESSING OFFICER DID NOT AGREE WITH THE POSITION TAKEN BY THE ASSESSEE IN THE REVISED RETURN FILED ON 12.12.2006 AND TREATED THE ENTIRE RENTAL INCOME RECEIVED BY THE ASSESSEE AS INCOME FROM HOUSE PROPERTY, FOR THE F OLLOWING REASONS : I) FOR THE ENTIRE YEAR THE ASSESSEE HAD THE SAME TE NANTS, RECEIVED ONLY RENTAL INCOME AND THE RENT RECEIVED REMAINED THE SAME THROUGHOUT THE PERIOD UNDER CONSIDERATION; AND II) SINCE THE ASSESSEE HAS THE RIGHT TO RECEIVE REN T, IT SHOULD BE TREATED AS INCOME FROM HOUSE PROPERTY AS HELD BY THE HONBLE KARNATAKA HIG H COURT IN THE CASE OF BHUPALAM ENTERPRISES REPORTED IN 262 ITR 517. THE ASSESSMENT WAS COMPLETED BY AN ORDER UNDER SEC TION 143(3) R.W.S. 147 OF THE ACT DT.28.12.2006 WHEREIN THE INCOME OF THE ASSESSE E WAS DETERMINED AT RS.35,40,497 UNDER THE NORMAL PROVISIONS OF THE ACT AND BOOK P ROFITS UNDER SECTION 115JB OF THE ACT WERE DETERMINED AT RS.14.93,343. 2.2.3 AGGRIEVED BY THE ORDER OF ASSESSMENT FOR ASST . YEAR 2002-03 DT.28.12.2006, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT (APPEA LS) III, BANGALORE. THE LD. CIT (APPEALS) IN HIS ORDER DT.22.2.2012 ALLOWED THE ASS ESSEE PARTIAL RELIEF. THE LD. CIT (APPEALS) UPHELD THE DECISION OF THE ASSESSING OFFI CER, THAT THE INCOME BY WAY OF RENTS RECEIVED FROM ITS TENANTS HAS TO BE COMPUTED AND TA XED AS INCOME FROM HOUSE PROPERTY. 4 ITA NOS.649, 650, 780 & 781/BANG/12 ON THE ISSUE OF THE ALLOWABILITY OF THE ASSESSEE'S CLAIM FOR DEDUCTION OF GROUND RENT, THE LEARNED CIT (A) UPHELD THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING THE LEASE RENT PAID TO THE LESSOR IN COMPUTING THE INCO ME UNDER THE HEAD INCOME FROM HOUSE PROPERTY. HOWEVER, THE LD. CIT (APPEALS) ALLOWED 20% OF THE GROUND RENT TO BE ADJUSTED IN COMPUTING THE INCOME UNDER THE HEAD INCOME FROM BUSINESS, CONSIDERING THE FACT THAT A PART OF THE BUILDING HAS BEEN RETAINED BY THE ASSES SEE FOR ITS OWN BUSINESS. ON THE ISSUE OF WHETHER THE ASSESSEE CARRIED ON AN Y BUSINESS ACTIVITIES DURING THE YEAR, THE LEARNED CIT (APPEALS) HELD THAT THE ASSES SEE DID CARRY ON IT BUSINESS ACTIVITIES AND DIRECTED THE ASSESSING OFFICER TO COMPUTE THE I NCOME OR LOSS UNDER THE HEAD INCOME FROM BUSINESS AFTER CONSIDERING ALL EXPENSES CLAIM ED BY THE ASSESSEE EXCLUDING THE PORTION OF THE EXPENDITURE ATTRIBUTABLE TO THE PROP ERTY. 2.3.1 FOR ASST. YEAR 2003-04 , THE ASSESSEE FILED ITS ORIGINAL RETURN OF INCOME ON 27.11.2003, DECLARING NET LOSS OF RS.18,21,720, IN WHICH INCOME FROM HOUSE PROPERTY SHOWN AT RS.16,60,661 AND BUSINESS LOSS AT RS.64,82,385. THIS RETURN WAS PROCESSED UNDER SECTION 143(1) OF THE ACT. SUBSEQUENTLY, THE ASSES SING OFFICER INITIATED PROCEEDINGS U/S.147 OF THE ACT AND ISSUED NOTICE UNDER SECTION 148 OF THE ACT TO THE ASSESSEE ON 28.8.2006. IN RESPONSE THERETO, THE ASSESSEE FILED A RETURN OF INCOME ON 22.9.2006 DECLARING THE SAME INCOME AS WAS RETURNED IN THE OR IGINAL RETURN OF INCOME FOR ASST. YEAR FILED ON 27.11.2003. ON 24.1.2007, THE ASSESSEE F ILED A REVISED RETURN OF INCOME DECLARING NET LOSS OF RS.8,13,726 COMPRISING OF INC OME FROM HOUSE PROPERTY AT RS.12,10,506 AND BUSINESS LOSS OF RS.20,51,232. IN THIS RETURN, THE ASSESSEE HAS DECLARED 5 ITA NOS.649, 650, 780 & 781/BANG/12 ARREARS OF RENT RECEIVED AMOUNTING TO RS.26,94,507 U/S. 25B OF THE ACT. THE ASSESSMENT WAS COMPLETED BY AN ORDER UNDER SECTION 143(3) R.W. S. 147 OF THE ACT DT.24.12.2007 WHEREIN THE INCOME OF THE ASSESSEE WAS DETERMINED A T RS.67,39,902 UNDER THE NORMAL PROVISIONS OF THE ACT AND BOOK PROFITS UNDER SECT ION 115JB OF THE ACT WERE COMPUTED AT RS.9,15,391. 2.3.2 AGGRIEVED BY THE ORDER OF ASSESSMENT FOR ASSE SSMENT YEAR 2003-04 DT.24.12.2007, THE ASSESSEE PREFERRED AN APPEAL BEF ORE THE CIT (APPEALS) III, BANGALORE, WHO DISPOSED OFF THE ASSESSEE'S APPEAL B Y ORDER DT.22.2.2012 ALLOWING THE ASSESSEE PARTIAL RELIEF. 2.4.1 FOR ASSESSMENT YEAR 2004-05 , THE ASSESSEE FILED ITS ORIGINAL RETURN OF INCOME ON 1.11.2004 DECLARING NET LOSS OF RS.11,35,300. IN T HIS RETURN THE ASSESSEE HAS DECLARED INCOME FROM HOUSE PROPERTY AT RS.36,52,622 AND BUSI NESS LOSS AT RS.48,15,553. SUBSEQUENTLY, THE ASSESSING OFFICER INITIATED PROCE EDINGS UNDER SECTION 147 OF THE ACT AND ISSUED NOTICE UNDER SECTION 148 OF THE ACT TO T HE ASSESSEE ON 7.9.2006. IN RESPONSE THERETO, THE ASSESSEE FILED A RETURN OF INCOME ON 2 7.10.2006 DECLARING THE SAME INCOME / LOSS AS DECLARED IN THE ORIGINAL RETURN OF INCOME F ILED ON 1.11.2004. THE ASSESSEE FILED A REVISED RETURN OF INCOME ON 24.10.2006 DECLARING H OUSE PROPERTY INCOME AT RS.1,974, BUSINESS INCOME AT RS.26,786 AND INCOME FROM OTH ER SOURCES AT RS.27,629. THE GROSS TOTAL INCOME OF RS.56,390 WAS SHOWN TO BE ENTIRELY ADJUSTED AGAINST BROUGHT FORWARD LOSSES OF EARLIER YEARS AND ACCORDINGLY THE INCOME AS PER THIS RETURN WAS NIL. THE ASSESSMENT WAS COMPLETED BY AN ORDER UNDER SECTION 143(3) R.W.S. 147 OF THE ACT 6 ITA NOS.649, 650, 780 & 781/BANG/12 DT.24.12.2007 WHEREIN THE INCOME OF THE ASSESSEE WA S DETERMINED AT RS.53,18,851 AS PER NORMAL COMPUTATION AND BOOK PROFITS UNDER SECTION 115JB OF THE ACT WERE COMPUTED AT RS.3,38,284. 2.4.2 AGGRIEVED BY THE ORDER OF ASSESSMENT FOR ASSE SSMENT YEAR 2004-05 DT.24.12.2007, THE ASSESSEE PREFERRED AN APPEAL BEF ORE THE CIT (APPEALS) III, BANGALORE, WHO DISPOSED OF THE ASSESSEE'S APPEAL BY ORDER DT.14.3.2012 ALLOWING THE ASSESSEE PARTIAL RELIEF. 2.5.1 FOR ASSESSMENT YEAR 2005-06 , THE ASSESSEE FILED THE RETURN OF INCOME ON 29.10.2005 DECLARING LOSS OF RS.8,41,560. THE CASE WAS TAKEN UP FOR SCRUTINY AND THE ASSESSMENT WAS COMPLETED BY AN ORDER UNDER SECTION 143(3) OF THE ACT DT.30.8.2006 WHEREIN THE INCOME OF THE ASSESSEE WAS DETERMINED A T RS.50,16,084 AS PER THE NORMAL PROVISIONS OF THE ACT AND THE BOOK PROFITS UNDER SECTION 115JB WERE COMPUTED AT RS.8,82,290. 2.5.2 AGGRIEVED BY THE ORDER OF ASSESSMENT FOR ASSE SSMENT YEAR 2005-06, DT.30.8.2006, THE ASSESSEE PREFERRED AN APPEAL BEFO RE THE CIT (APPEALS) III, BANGALORE. THE LEARNED CIT (A) DISPOSED OFF THE ASSESSEE'S APP EAL BY ORDER DT.14.3.2012 ALLOWING THE ASSESSEE PARTIAL RELIEF. 3. AGGRIEVED BY THE ORDERS OF THE CIT (APPEALS) I II, BANGALORE FOR ASSESSMENT YEARS 2002-03 AND 2003-04 DT.12.2.2012 AND FOR ASSE SSMENT YEARS 2004-05 AND 2005- 06 DT.14.3.2012, REVENUE IS NOW IN APPEAL BEFORE TH IS TRIBUNAL RAISING THE FOLLOWING GROUNDS: 7 ITA NOS.649, 650, 780 & 781/BANG/12 ASSESSMENT YEARS 2002-03 & 2003-04 1. THE ORDER OF THE LEARNED CIT (APPEALS) IS OPP OSED TO LAW AND FACTS OF THE CASE. 2. THE CIT (APPEALS) ERRED IN ALLOCATING 20% OF TH E LEASE RNT AND OTHER EXPENSES UNDER BUSINESS WHEN THE INCOME FROM LETTIN G OUT PROPERTY IS TO BE TREATED AS INCOME FROM HOUSE PROPERTY AS AGAINST BUSINESS LOSS COMPUTED BY THE CIT (APPEALS). 3. FOR THESE AND OTHER GROUNDS THAT MAYBE URGED AT THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE CIT (APPEALS) IN SO FA R AS IT RELATES TO THE ABOVE GROUNDS MAYBE REVERSED AND THAT OF THE ASSESSING OF FICER MAY BE RESTORED. 4. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEN D AND /OR DELETE ANY OF THE GROUNDS MENTIONED ABOVE. ASSESSMENTS YEARS 2004-05 & 2005-06. 1. THE ORDER OF THE LEARNED CIT (APPEALS) IS OPPO SED TO LAW AND FACTS OF THE CASE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED CIT (APPEALS) ERRED IN DIRECTING THE ASSESSING OFFICER TO COMPUTE THE BUSINESS INCOME BY ALLOWING THE EXPENSES THAT THE ASSESSING OFFICER TO COMPUTE THE BUSINESS INCOME BY ALLOWING THE EXPENSES THAT ARE D EBITED TO THE PROFIT AND LOSS ACCOUNT EVEN THOUGH THE ASSESSEE HAD NOT CARRI ED OUT ANY BUSINESS DURING THIS YEAR, WHICH IS EVIDENT FROM THE FACT THAT THE RECEIPTS CREDITED TO PROFIT AND LOSS ACCOUNT ARE ONLY RENTAL RECEIPTS. 3. THE CIT (APPEALS) ERRED IN INDIRECTLY ALLOWING EXPENSES UNRELATED TO EARNING OF RENT AS DEDUCTION FROM HOUSE PROPERTY IN COME SINCE THE BUSINESS INCOME COMPUTED AS PER HIS DIRECTIONS WOULD BE A LO SS WHICH GETS SET OFF AGAINST THE INCOME FROM HOUSE PROPERTY. 4. FOR THESE AND OTHER GROUNDS THAT MAYBE URGED A T THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE CIT (APPEALS) IN SO FA R AS IT RELATES TO THE ABOVE GROUND MAYBE REVERED AND THAT OF THE ASSESSING OFFI CER MAYBE RESTORED. 5. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AME ND AND / OR DELETE ANY OF THE GROUND MENTIONED ABOVE. 4. THE CIT (APPEALS) III, BANGALORE WHO DISPOSED OF THE ASSESSEE'S APPEALS FOR ASSESSMENT YEARS 2002-03 TO 2005-06 BY SEPARATE ORD ERS, HAS DISCUSSED THE ISSUES IN APPEAL BEFORE HIM, IN THE ORDER PASSED BY HIM FOR A SSESSMENT YEAR 2002-03 DT.12.2.2012 AND HAS RELIED ON HIS DECISION FOR ASSESSMENT YEAR 2002-03 WHILE DECIDING THE SAME ISSUES 8 ITA NOS.649, 650, 780 & 781/BANG/12 FOR THE OTHER YEARS, VIZ. ASSESSMENT YEARS 2003-04 TO 2005-06. REVENUE, HOWEVER, WHILE FILING THE IMPUGNED APPEALS BEFORE THIS TRIBUNAL H AS RAISED ONE SET OF GROUNDS IN THE APPEALS FOR ASSESSMENT YEARS 2002-03 & 2003-04 AND ANOTHER SET OF GROUNDS IN THE APPEAL FOR ASSESSMENT YEARS 2004-05 AND 2005-06. I T APPEARS THAT WHILE THE GROUNDS RAISED FOR ASSESSMENT YEARS 2002-03 AND 2003-04 IS AGAINST THE DECISION OF THE LEARNED CIT (A) IN ALLOWING 20% OF THE LEASE RENT UNDER THE HEAD BUSINESS INCOME, THE GROUNDS RAISED IN THE APPEAL FOR ASSESSMENT YEARS 2004-05 AND 2005-06 IS AGAINST THE DECISION OF THE LEARNED CIT (A) IN DIRECTING THE ASSESSING OFFICER TO COMPUTE THE BUSINESS INCOME BY ALLOWING EXPENSES DEBITED TO THE PROFIT AND LOSS ACCOUNT, EVEN THOUGH THE ASSESSEE HAS NOT CARRIED OUT ANY BUSINESS DURING TH E YEAR. SINCE THE ISSUE OF TREATING 20% OF THE LEASE RENT RECEIVED BY THE ASSESSEE UNDE R THE HEAD BUSINESS INCOME IS RELATED TO THE ISSUE OF THE LEARNED CIT (A) HOLDING THAT TH E ASSESSEE WAS ENGAGED IN BUSINESS ACTIVITY, ALL THESE ISSUES WILL BE DISPOSED OFF BY WAY OF THIS COMMON ORDER. 6. THE GROUNDS RAISED AT S.NOS.1, 3 & 4 FOR ASSESSM ENT YEARS 2002-03 & 2003-04 AND THE GROUNDS RAISED AT S.NOS.1, 4 & 5 FOR ASSESS MENT YEARS 2004-05 AND 2005-06 , BEING GENERAL IN NATURE, NO ADJUDICATION IS CALLED FOR THEREON. 6.1 THE GROUNDS THAT NOW SURVIVE FOR CONSIDERATION ARE GROUND AT S.NO.2 FOR ASSESSMENT YEARS 2002-03 AND 2003-04 AND GROUNDS AT S.NOS.2 AND 3 FOR ASSESSMENT YEARS 2004-05 AND 2005-06 . THE ISSUES THAT ARE GERMANE TO THE AFORESAID GRO UNDS OF APPEAL RAISED BY REVENUE ARE AS UNDER : 9 ITA NOS.649, 650, 780 & 781/BANG/12 (I) WHETHER THE RENTAL INCOME HAS TO BE TREATED AS INCOME FROM HOUSE PROPERTY OR INCOME FROM BUSINESS ?; (II) WHETHER THE ASSESSEE IS ENGAGED IN BUSINESS A CTIVITY ?; (III) WHETHER THE LEASE RENTALS SHOULD BE ALLOWED AS DEDUCTION OR NOT ? TREATMENT OF RENTAL INCOME 6.2 GROUND AT S.NO.2 FOR ASSESSMENT YEARS 2002-03 A ND 2003-04 SEEMS TO SUGGEST THAT THE LEARNED CIT (A) HAS TREATED THE INCOME FRO M RENTAL PROPERTY AS BUSINESS INCOME. A PERUSAL OF THE ORDER OF THE LEARNED CIT (A) FOR A SSESSMENT YEAR 2002-03 WOULD SHOW THAT THIS IS NOT THE CASE. AS DISCUSSED EARLIER, T HE ASSESSEE TREATED THE RENTAL INCOME AS INCOME FROM HOUSE PROPERTY IN BOTH THE ORIGINAL A ND REVISED RETURNS OF INCOME FILED BEFORE THE ASSESSING OFFICER. HOWEVER, IT IS SEEN THAT DURING ASSESSMENT PROCEEDINGS, THE ASSESSEE TOOK THE STAND THAT THE RENTAL INCOME HAS TO BE TREATED AS INCOME FROM BUSINESS. ACCORDING TO THE ASSESSEE, THE ORIGINAL LEASE AGREEMENT EXPIRED IN OCTOBER, 2001 AND THE FRESH LEASE AGREEMENT W.E.F. OCTOBER, 2001 ONWARDS WAS ONLY FOR THE BUILDINGS ERECTED ON THE LAND ORIGINALLY LEASED AND THAT THIS CHANGE HAD THE EFFECT OF CHANGING THE CHARACTER OF THE RENTAL INCOME FROM I NCOME FROM HOUSE PROPERTY TO INCOME FROM BUSINESS. THE ASSESSING OFFICER DID NOT CONC UR WITH THESE CONTENTIONS OF THE ASSESSEE AND FOR THE REASONS DETAILED EARLIER AT PA RA 2.2.1 OF THIS ORDER (SUPRA), HELD THE RENTAL INCOME TO BE INCOME FROM HOUSE PROPERTY. 6.3.1 THE LEARNED CIT (A) HAS UPHELD THE DECISION O F THE ASSESSING OFFICER IN TREATING THE RENTAL INCOME AS INCOME FROM HOUSE PROPERTY A ND NOT AS STATED BY REVENUE IN THE 10 ITA NOS.649, 650, 780 & 781/BANG/12 GROUND RAISED AT S.NO.2 FOR ASSESSMENT YEAR 2002-03 AND 2003-04. HAVING DECIDED THAT THE RENTAL INCOME IS TO BE TREATED AS INCOME FROM HOUSE PROPERTY, THE LEARNED CIT (A) HAS EXAMINED THE ALLOWABILITY OF THE GROUND RENT PA ID TO THE LESSOR AS A DEDUCTION. THE ASSESSEE ARGUED THAT ONE OF ITS BUSINESS ACTIVITIES WAS TO OBTAIN LAND ON LEASE, DEVELOP THE SAME AND EARN INCOME AND AS SUCH THE LIABILITY TO P AY GROUND RENT IS AN INTEGRAL PART OF ITS BUSINESS ACTIVITY. THE LEARNED CIT (A), HOWEVER, D ID NOT AGREE WITH THESE CONTENTIONS PUT FORTH BY THE ASSESSEE. THE LEARNED CIT (A) HELD TH AT ONCE THE RENTAL INCOME HAS BEEN HELD TO BE INCOME FROM HOUSE PROPERTY, THE EXPENSE S THAT ARE ALLOWABLE ARE SPECIFICALLY ENUMERATED IN THE PROVISIONS OF THE AMENDED SECTION 24 OF THE ACT. IN THIS VIEW OF THE MATTER, THE LEARNED CIT (A) UPHELD THE DECISION OF THE ASSESSING OFFICER IN DISALLOWING THE LEASE RENT PAID IN COMPUTING THE INCOME OF THE ASSESSEE UNDER THE HEAD INCOME FROM HOUSE PROPERTY. 6.3.2 THE LEARNED CIT (A), HOWEVER, NOTED THAT A PART OF THE BUILDING HAS BEEN USED BY THE ASSESSEE FOR ITS OWN BUSINESS. SINCE HE HAD AC CEPTED THE CONTENTION THAT THE ASSESSEE IS ENGAGED IN BUSINESS ACTIVITY, THE LEARN ED CIT (A) ATTRIBUTED 20% OF THE GROUND RENT TO BE TOWARDS THE BUILDING USED FOR BUSINESS O F THE ASSESSEE AND ACCORDINGLY ALLOWED 20% OF THE GROUND RENT AS EXPENDITURE RELATED TO BU SINESS. AS THIS DECISION IS RELATED TO THE DECISION OF THE LEARNED CIT (A) ON WHETHER THE ASSESSEE IS ENGAGED IN BUSINESS ACTIVITIES, IT WOUL D BE NECESSARY TO EXAMINE THAT ISSUE AFRESH. 11 ITA NOS.649, 650, 780 & 781/BANG/12 WHETHER THE ASSESSEE IS ENGAGED IN BUSINESS ACTIVIT Y. 6.4.1 THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSI NESS OF NON-BANKING FINANCIAL ACTIVITIES (NBFC) FOR WHICH IT HAD OBTAINED LICENSE FROM THE RBI. THE ASSESSING OFFICER HELD THAT THE ASSESSEE HAD NOT CARRIED ON ANY BUSIN ESS ACTIVITY DURING THE RELEVANT PERIODS AND DISALLOWED ALL THE EXPENSES DEBITED TO THE PROF IT AND LOSS ACCOUNT. 6.4.2 ON APPEAL, THE LEARNED CIT (A) HELD THAT THE ASSESSEE HAD CARRIED OUT / PERFORMED BUSINESS ACTIVITIES, MAKING THE FOLLOWING OBSERVATI ONS : (I) THE ASSESSEE, BEING A NBFC, HAS ADVANCED LOANS TO BORROWERS AND RECOVERY OF SUCH LOANS DURING THE COURSE OF BUSINESS ALSO CONSTITUTE D BUSINESS ACTIVITY; (II) SERVICING OF OLD LOANS IS ALSO A BUSINESS ACT IVITY; (III) THE ONLY GROUND / REASON OF THE ASSESSING OF FICER FOR NOT ALLOWING EXPENSES IS THAT THERE IS NO INCOME SHOWN UNDER THE HEAD INCOME FRO M BUSINESS ; (IV) THE ASSESSING OFFICER HAS NOT DISPUTED THE V ERACITY OF THE DEDUCTIONS CLAIMED BY THE ASSESSEE IN ITS PROFIT AND LOSS ACCOUNT. 6.5 WE HAVE HEARD BOTH THE LEARNED DEPARTMENTAL REP RESENTATIVE WHO SUPPORTED THE GROUNDS RAISED AND THE LEARNED AUTHORISED REPRESENT ATIVE WHO RELIED ON THE DECISION OF THE LEARNED CIT (A) IN HIS ORDERS FOR THE PERIODS U NDER CONSIDERATION. WE HAVE ALSO PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RE CORD AND AGREE WITH THE VIEW OF THE LEARNED CIT (A) THAT THE ASSESSEE HAS BEEN CARRYING ON / PERFORMING BUSINESS ACTIVITIES; HOWEVER MINIMAL IT MAY BE. THAT THE ASSESSEE HAS P ERFORMED THE ACTIVITIES OF SERVICING OF LOANS AND RECOVERY OF DUES WHICH HAVE ARISEN IN THE COURSE OF ITS BUSINESS AS A NBFC IS 12 ITA NOS.649, 650, 780 & 781/BANG/12 ALSO NOT DISPUTED. MERELY BECAUSE THE ASSESSEE DID NOT HAVE ANY BUSINESS INCOME CANNOT BE A REASON TO CONCLUDE THAT THERE IS A CESSATION O F BUSINESS ACTIVITIES. IN THIS VIEW OF THE MATTER, WE HOLD THAT THE LEARNED CIT (A)S FINDING, THAT THE ASSESSEE HAD INDEED PERFORMED BUSINESS ACTIVITIES DURING THE RELEVANT P ERIODS UNDER CONSIDERATION, TO BE IN ORDER. IT, THEREFORE, FOLLOWS THAT THE ASSESSEE IS ENTITLED TO BE ALLOWED DEDUCTION OF EXPENDITURE ATTRIBUTABLE TO BUSINESS ACTIVITIES. W E ARE, THEREFORE, OF THE OPINION THAT THE LEARNED CIT (A) WAS RIGHT IN DIRECTING THE ASSE SSING OFFICER TO COMPUTE THE ASSESSEE'S BUSINESS INCOME BY ALLOWING THE EXPENS ES DEBITED TO THE PROFIT AND LOSS ACCOUNT. 6.6.1 NOW, WE SHALL ADDRESS THE CONTENTIONS OF REVE NUE THAT THE LEARNED CIT (A) HAS INDIRECTLY ALLOWED EXPENSES UNRELATED TO EARNING OF THE RENTAL INCOME AS DEDUCTION FROM INCOME FROM HOUSE PROPERTY. IT IS REVENUES CONT ENTION THAT BY ALLOWING THE DEDUCTION OF EXPENSES CLAIMED IN THE PROFIT AND LOSS ACCOUNT FRO M BUSINESS, THE LEARNED CIT (A) HAS IN FACT ALLOWED DEDUCTION OF EXPENSES FROM RENTAL INC OME. BECAUSE THE ASSESSEE HAS SHOWN LOSSES FROM BUSINESS AND IF SUCH BUSINESS EXPENSES LEADING TO SUCH LOSSES ARE ALLOWED, THE NET EFFECT WILL BE THAT THE BUSINESS EXPENSES WILL GET SET OFF AGAINST THE INCOME FROM HOUSE PROPERTY. 6.6.2 THIS CONTENTION OF REVENUE, IN OUR CONSIDERED VIEW, IS NOT TENABLE. THE LEARNED CIT (A) HAS RENDERED A CLEAR FINDING THAT THE ASSESSEE HAS TWO STREAMS OF REVENUE EARNING ACTIVITIES VIZ., INCOME FROM HOUSE PROPERTY AND INCOME FROM BUSINESS. THE RENTAL INCOME FROM THE BUILDING HAS BEEN HELD TO BE INCOME FROM HOUSE PROPERTY AND ONLY SUCH 13 ITA NOS.649, 650, 780 & 781/BANG/12 DEDUCTIONS AS ARE SPECIFIED IN SECTION 24 OF THE AC T HAVE BEEN HELD TO BE ALLOWABLE. IN THIS MATTER, THE LEARNED CIT (A) HAS UPHELD THE ACT ION OF THE ASSESSING OFFICER. AS FAR AS THE BUSINESS ACTIVITIES OF THE ASSESSEE ARE CONC ERNED, THE LEARNED CIT (A) HAS RENDERED A FINDING THAT THE ASSESSEE IS ENGAGED IN BUSINESS ACTIVITIES AND IS THEREFORE ENTITLED TO CLAIM DEDUCTION AS BUSINESS EXPENDITURE , THOSE EXPENSES DEBITED TO THE PROFIT AND LOSS ACCOUNT WHICH ARE ATTRIBUTABLE TO SUCH BUS INESS ACTIVITIES, IF THE BUSINESS ACTIVITIES RESULT IN LOSS, THE PROVISIONS OF THE AC T ALLOWING SETTING OFF OF THESE LOSSES AGAINST THE INCOME FROM OTHER HEADS OF INCOME WOULD COME INTO PLAY. THIS SHOULD NEITHER BE CONSTRAINED TO MEAN THAT THE EXPENSES UNRELATED TO THAT HEAD OF INCOME ARE TO BE ALLOWED NOR CAN THIS BE A REASON TO HOLD THAT THE A CTIVITIES UNDER THAT HEAD DO NOT EXIST. THE LEARNED CIT (A) HAS RENDERED TWO FINDINGS, THAT ARE DISTINCT AND DIFFERENT FROM EACH OTHER, NAMELY : (I) THAT THE RENTAL INCOME IS TO BE ASSESSED AS I NCOME FROM HOUSE PROPERTY, AND (II) THAT THE ASSESSEE HAS ENGAGED IN BUSINESS ACT IVITIES IN THE RELEVANT PERIOD AND THE EXPENDITURE ATTRIBUTABLE TO THE BUSINESS ACTIVITIES ARE TO BE ALLOWED AS EXPENDITURE. 6.6.3 WE WILL NOW REVISIT THE ISSUE OF ALLOWANCE OF 20% OF THE GROUND RENT AS EXPENSES RELATED TO THE BUSINESS. ADMITTEDLY, IT IS A UNDIS PUTED FACT THAT A PORTION OF THE BUILDING, FROM WHICH RENTAL INCOME IS RECEIVED, HAS BEEN RETA INED BY THE ASSESSEE FOR CARRYING ON ITS OWN BUSINESS. WE FIND THAT THE ASSESSING OFFIC ER HAS NOT DISPUTED THE DEDUCTIONS UNDER SECTIONS 29 TO 43D OF THE ACT. IN THIS VIEW OF THE MATTER, IT FOLLOWS THAT SINCE A PORTION OF THE BUILDING IS USED FOR THE ASSESSEE'S BUSINESS PURPOSES, THE EXPENSES 14 ITA NOS.649, 650, 780 & 781/BANG/12 ATTRIBUTABLE TO SUCH BUSINESS ACTIVITY ARE ALLOWABL E AS BUSINESS EXPENDITURE. THE LEARNED CIT (A) HAS ESTIMATED THE EXPENDITURE TO BE 20% OF THE TOTAL LEASE RENT. IT IS SEEN THAT REVENUE HAS NOT RAISED ANY GROUND ON THE QUANTUM OF SUCH ESTIMATION BY THE LEARNED CIT (APPEALS) AND AS SUCH WE FIND NO REASON TO INTERFER E IN THE QUANTUM OF ESTIMATION @ 20% MADE BY THE LEARNED CIT (A). IN VIEW OF THE ABOVE FINDINGS, WE DISMISS THE GROU NDS RAISED BY REVENUE AT S.NO.2 FOR ASSESSMENT YEARS 2002-03 & 2003-04 AND GROUNDS RAISED AT S.NOS. 2 & 3 FOR ASSESSMENT YEARS 2004-05 AND 2009-10. 7. IN THE RESULT, REVENUE APPEALS FOR ASSESSMENT YE ARS 2002-03 TO 2005-06 ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 2 8 TH FEB., 2014. SD/- SD/- (N.V. VASUDEVAN) (JASON P BOAZ) JUDICIAL MEMBER ACCOUNTANT MEMB ER *REDDY GP COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, - A BENCH. 6. GUARD FILE. (TRUE COPY ) BY ORDER SR. PRIVATE SECRETARY, ITAT, BANGALORE
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Laws Referred To
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No Objection Letter for Use of Property – Partnership Firm
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