ITO 20(3)1, MUMBAI V. ELECTRONIC & ENGINEERING CO., MUMBAI

ITA 6751/MUM/2010

• Counselvise Citation: 675119914 RSA 2010
• Duration Of Justice: 1 year(s) 8 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-05-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2007-2008
• Appeal Filed On: 23-09-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DINESH K UMAR
• Assessee Lawyers: MAYUR KISNADWALA
• Keywords: Business income

Judgement Text

I.T.A. NO. 6751/MUM/2010 M/S ELECTRONIC & ENGINEER ING CO. PAGE 1 O F 4 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E MUMBAI BEFORE SHRI R.S.SYAL, ACCOUNTANT MEMBER & SHRI VIVEK VARMA, JUDICIAL MEMBER I.T.A.NO. 6751/MUM/2010 ASSESSMENT YEAR: 2007-08 THE INCOME TAX OFFICER 20 (3) 1, MUMBAI. VS. M/S. ELECTRONIC & ENGINEERING CO., DALIA INDUSTRIAL ESTATE, NEW LINK ROAD, ANDHERI (W), MUMBAI 400 053. PAN: AAAFE 0594 M (APPELLANT) (RESPONDENT) APPELLANT BY : MR. DINESH KUMAR. RESPONDENT BY : MR. MAYUR KISNADWALA. DATE OF HEARING: 15-05-2012. DATE OF PRONOUNCEMENT: 23-05-2012. O R D E R PER VIVEK VARMA: THIS APPEAL FILED BY THE DEPARTMENT IS AGAINST THE ORDER OF THE CIT(A) DATED 19-07-2010. 2. THE GROUNDS AS RAISED BY THE DEPARTMENT ARE HERE UNDER: I THE LEARNED CIT(A) HAS ERRED ON FACTS AND IN LA W AND IN THE CIRCUMSTANCES OF THE CASE IN DIRECTING THE ASSE SSING OFFICER TO TREAT THE RENT COMPENSATION AND SERVICE CHARGES AS INCOME FROM BUSINESS INSTEAD OF INCOME F ROM HOUSE PROPERTY AS ADOPTED BY THE ASSESSING OFFICER. II THE LEARNED CIT(A) HAS ERRED ON FACTS AND IN LAW AND IN THE CIRCUMSTANCES OF THE CASE IN NOT APPRECIATING T HE FACT THAT, THIS ISSUE HAS BEEN SETTLED BY THE APEX COURT IN FAVOUR OF THE REVENUE IN ITS LANDMARK JUDGEMENT RENDERED IN THE CASE OF M/S. SHAMBHU INVESTMENT PVT . LTD. VS. CIT 263 ITR 143. I.T.A. NO. 6751/MUM/2010 M/S ELECTRONIC & ENGINEER ING CO. PAGE 2 O F 4 III. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT (APPEALS) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE AO B E RESTORED. 3. GROUNDS NO. I, II & III ARE IDENTICAL TO GROUNDS RAISED BY THE DEPARTMENT IN I.T.A. NO. 4516/MUM/2010 AND I.T.A. N O. 5807/MUM/2010 FOR THE ASSESSMENT YEARS 2005-06 AND 2006-07 RESPECTIVELY, IN THE CASE OF THE ASSESSEE. 4. WE FIND THAT EFFECTIVE GROUNDS NO. I & II HAVE B EEN DECIDED BY THE COORDINATE BENCHES IN THESE TWO YEARS WHEREAS I N ASSESSMENT YEAR 2006-07 THE DECISION TAKEN BY THE COORDINATE BENCH IS REPRODUCED HEREUNDER: 3.4 AFTER HEARING BOTH THE SIDES WE FIND IDENTICAL ISSUE HAD COME UP BEFORE US IN ASSESSEES OWN CASE FOR A.Y. 2005-0 6 AND VIDE ORDER OF EVEN DATE WE HAVE DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE AND DISMISSED THE APPEAL FILED BY THE REVENUE BY HOLDIN G AS UNDER:- 6. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PURSUED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. FROM THE VAR IOUS DETAILS FURNISHED BY THE ASSESSEE IN THE PAPER BOOK WE FIND IT IS THE SUBMISSION OF THE ASSESSEE THAT DUE TO SOME LABOUR DISPUTE THE ASSESSEE HAS TEMPORARILY LET OUT A PART OF ITS PREM ISES TO ITS SISTER CONCERN AND DURING THE IMPUGNED ASSESSMENT YEAR THE ASSESSEE HAS FURTHER LET OUT A PORTION OF THE PROPERTY TO ONE M/ S JYOTI STRUCTURES ENGINEERING SERVICES PVT. LTD. IT IS THE CASE OF TH E ASSESSEE THAT IT HAS EXPLOITED ITS COMMERCIAL ASSET DURING ITS TEMPORARY LULL IN THE BUSINESS ACTIVITY WHICH IT HAS REVIVED DURING A.Y. 2008-09. FURTHER IT IS ALSO CASE OF THE ASSESSEE THAT DURING A.Y. 2004-05 THE A .O. IN THE SCRUTINY ASSESSMENT HAS ACCEPTED THE CLAIM OF BUSINESS CENTR E RECEIPT AS BUSINESS INCOME AND DURING A.Y. 2002-03 AND 2003-04 THE SAME HAS BEEN ACCEPTED IN SUMMARY ASSESSMENT. IT IS THE CASE OF THE REVENUE THAT IN VIEW OF THE DECISION OF HONBLE SUPREME CO URT IN THE CASE OF SHAMBHU INVESTMENT PVT. LTD. SUCH BUSINESS CENTRE R ECEIPT HAS TO BE TREATED AS INCOME FROM HOUSE PROPERTY AND NOT AS IN COME FROM BUSINESS CENTRE. 6.1 WE FIND THE CASE THE CASE OF THE ASSESSEE IS S QUARELY COVERED BY THE DECISION OF HONBLE MADHYA PRADESH HIGH COURT I N THE CASE OF KOHINOOR TOBACCO PRODUCTS P. LTD. (SUPRA). IN THAT CASE THE ASSESSEE I.T.A. NO. 6751/MUM/2010 M/S ELECTRONIC & ENGINEER ING CO. PAGE 3 O F 4 WAS A COMPANY WHICH CARRIED ON BIDI MANUFACTURING B USINESS AT THE RELEVANT TIME. IT ACQUIRED PROPERTY FOR ITS BIDI BU SINESS CONSISTING OF FACTORY BUILDING, GO-DOWNS, OFFICER/STAFF QUARTERS ETC. THE PROPERTIES WERE BEING USED FOR THE PURPOSE OF ITS BUSINESS. HO WEVER, DUE TO LABOUR PROBLEM AND OTHER CIRCUMSTANCES, THE ASSESSE E HAD TO TEMPORARILY REDUCE ITS ACTIVITIES AND CONSEQUENTLY LET OUT SOME OF THE PROPERTIES WHICH WERE NOT IMMEDIATELY REQUIRED BY I T FOR THE PURPOSE OF ITS BUSINESS. THE ASSESSEE SHOWED RENTAL INCOME FROM THE PROPERTIES AS BUSINESS INCOME WHICH WAS TREATED AS INCOME FROM HOUSE PROPERTY BY THE A.O. THE TRIBUNAL HELD THE IN COME WAS TO BE TREATED AS BUSINESS INCOME. ON A REFERENCE, THE HON BLE HIGH COURT HELD THAT THE PROPERTIES WERE TEMPORARILY LET OUT T O KEEP THEM IN GOOD CONDITION SO THAT THEY COULD BE USED AND EXPLOITED AGAIN FOR THE PURPOSE OF ASSESSEES BIDI MANUFACTURING BUSINESS A ND THE ASSESSEES INTENTION WAS TO INCREASE ITS BUSINESS GRADUALLY AN D NOT TO CLOSE DOWN ITS BUSINESS. ACCORDINGLY RENTAL INCOME WAS HELD TO BE ASSESSABLE AS BUSINESS INCOME. 6.2 NOW COMING TO THE FACTS OF THE CASE WE FIND TH E ASSESSEE HAD SUBMITTED BEFORE THE A.O. THAT DUE TO PENDING LABOU R COURT CASES AND THE HUGE RECURRING LOSSES THE ASSESSEE TOOK A COMME RCIAL DECISION TO EXPLOIT ITS BUSINESS ASSETS. DUE TO LOSS OF ORDERS MANY WORKMEN WERE RENDERED SURPLUS AND ACCORDINGLY RETRENCHED. THEY H AVE GONE TO COURT FOR REINSTATEMENT AND THE DECISION OF THE COURT IS AWAITED. AS THE MATTER IS SUBJUDICE AND IT IS NOT POSSIBLE FOR THE ASSESSEE TO CARRY ON THE MANUFACTURING ON LOWER SCALE, THE ASSESSEE DECI DED TO SUSPEND ITS MANUFACTURING ACTIVITY BUT NOT THE BUSINESS. TILL T HE FINAL DECISION OF THE COURT, THE ASSESSEE FIRM HAS DECIDED TO CONTINU E ITS BUSINESS BY COMMERCIAL EXPLOITATION OF ITS BUSINESS ASSETS. FUR THER THE FINDING GIVEN IN THE ORDER OF THE LD. CIT(A) THAT THE ASSES SEE HAS STARTED ITS TRADING ACTIVITY BY IMPORTING THE EQUIPMENTS WHICH IT WAS MANUFACTURING AND HAD SUPPLIED TO OLD CUSTOMERS COU LD NOT BE CONTROVERTED BY THE LD. D.R. WE, THEREFORE FIND MER IT IN THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE ASSET HAS BEEN COMMERCIALLY EXPLOITED BY THE ASSESSEE FIRM DURING ITS TEMPORARY SUSPENSION OF BUSINESS ACTIVITY. THEREFORE IN VIEW OF THE DECISION OF THE HONBLE M.P. HIGH COURT IN THE CASE OF KOHINOOR TOBACCO PRODUCTS P. LTD. (SUPRA) SUCH RENTAL INCOME, IN OUR OPINION , HAS TO BE TREATED AS BUSINESS INCOME. 6.3 THE DECISION IN THE CASE OF SHAMBHU INVESTMENT PVT. LTD.(SUPRA), IN OUR OPINION, DOES NOT APPLY TO THE FACTS OF THE PRESENT CASE. IN THAT CASE THE PROPERTY WHICH WAS PURCHASED FOR A CONSIDERATION OF RS. 5,42,443/- WAS PARTLY UTILISED BY THE ASSESSEE FOR ITS OWN BUSINESS AND THE BALANCE PORTION WAS LET OU T TO VARIOUS OCCUPIERS BY ACCEPTING INTEREST FREE SECURITY DEPOS IT OF RS. 4,25,000/-. UNDER THESE CIRCUMSTANCES, THE HONBLE CALCUTTA HIG H COURT CAME TO THE CONCLUSION THAT THE ENTIRE COST OF THE PROPERTY LET OUT TO THOSE OCCUPIERS HAS ALREADY BEEN RECOVERED BY WAY OF INTE REST FREE ADVANCE BY THE ASSESSEE. HENCE, IT CANNOT BE SAID THAT THE ASSESSEE IS EXPLOITING ITS PROPERTY FOR ITS COMMERCIAL BUSINESS ACTIVITIES AND SUCH BUSINESS ACTIVITIES ARE PRIME MOTIVE AND LETTING OU T THE PROPERTY IS SECONDARY ONE. THIS DECISION OF THE HONBLE CALCUTT A HIGH COURT HAS I.T.A. NO. 6751/MUM/2010 M/S ELECTRONIC & ENGINEER ING CO. PAGE 4 O F 4 BEEN UPHELD BY THE HONBLE SUPREME COURT. HOWEVER, IN THE INSTANT CASE THE PROPERTY HAS BEEN LET OUT DURING THE PERIO D OF TEMPORARY SUSPENSION OF THE BUSINESS ACTIVITY AND THE COMPANY HAS STARTED ITS BUSINESS ACTIVITY FROM A.Y. 2008-09 ONWARDS. THEREF ORE, THIS DECISION, IN OUR OPINION, IS DISTINGUISHABLE ON FACTS AND NOT APPLICABLE TO THE FACTS OF THE CASE OF THE ASSESSEE. 6.4 SO FAR AS THE DECISION RELIED ON BY THE A.O. I N THE CASE OF EAST INDIA HOUSING AND LAND DEVELOPMENT TRUST LTD. (SUPR A) WE FIND THE SAME HAS ALREADY BEEN CONSIDERED BY THE HONBLE MAD HYA PRADESH HIGH COURT IN THE CASE OF KOHINOOR TOBACCO PRODUCTS P LTD. (SUPRA). SIMILARLY IN THE CASE OF CIT V. NEW INDIA INDUSTRIE S LTD. REPORTED IN 201 ITR 208 RELIED ON BY THE A.O., THE ASSESSEE IN THAT CASE HAD CEASED TO USE IT AS A COMMERCIAL ASSET EITHER HIMSE LF OR THROUGH OTHERS AND UNDER THOSE CIRCUMSTANCES THE HONBLE CO URT HELD THE PENAL INCOME UNDER THE HEAD INCOME FROM HOUSE PROP ERTY. IN VIEW OF THE ABOVE AND IN VIEW OF THE DETAILED REASONS GIVEN BY THE LD. CIT(A) WHILE TREATING THE BUSINESS CENTRE RECEIPT AS BUSI NESS INCOME, WE DO NOT FIND ANY INFIRMITY IN THE SAME. WE ACCORDINGLY UPHOLD THE ORDER OF THE LD. CIT(A) ON THIS ISSUE. THE GROUNDS RAISED BY THE REVENUE ARE ACCORDINGLY DISMISSED. RESPECTFULLY FOLLOWING THE DECISION TAKEN BY THE CO ORDINATE BENCH IN ASSESSEES OWN CASE FOR THE TWO YEARS AS MENTIONED HERE ABOVE, WE UPHOLD THE ORDER OF THE CIT(A). HENCE GROUNDS RAISE D BY THE REVENUE ARE DISMISSED. 5. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 2 3/05/2012. SD/- SD/- (R.S.SYAL) ( VIVEK VARMA ) ACCOUNTNAT MEMBER JUDIC IAL MEMBER MUMBAI: 23/05/2012. P/-*