Appeal details
Counselvise Citation
[2022] 105 COUNSELVISE.COM (IT) 3505 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
2 year(s) 4 month(s) 12 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
27-04-2022
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
B
Assessment Year
2013-2014
Appeal Filed On
15-12-2019
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, MUMBAI BEFORE SHRI PRASHANT MAHARISHI, AM AND SHRI AMARJIT SINGH, JM ITA No. 7719/Mum/2019 (Assessment Year 2013–14) Nisarg Realtors Pvt. Ltd. Office no. 2 & 3, Meezzanine FLR Vihang Vihar panchpakahadi, Thane West, Mumbai–400 602 Vs. The Asst. Commissioner of income–tax Circle 15(2)(1), 4 th floor, 403, Aayakar Bhavan, M.K. Road, Mumbai – 400 020 (Appellant) (Respondent) PAN No.AAHCA9368D Assessee by : Ms. Nishita Mandalaywala, CA Revenue by : Shri C.T. Mathews, DR Date of hearing: 21.04.2022 Date of pronouncement : 28.04.2022 O R D E R PER PRASHANT MAHARISHI, AM: 01. This appeal is filed by Nisarg Realtors Pvt. Ltd. (the appellant/ assessee) against order passed by learned Commissioner of Income–tax (Appeals)–24, Mumbai (the learned CIT(A)] for A.Y. 2013–14 dated 25 th February, 2019 raising the following grounds of appeal:– “1. On the facts and circumstances of the case and law on the subject the learned Assessing Officer erred in treating the business income of Rs.3,38,46,924/- as Income from House property and disallowing Business expenses of Rs.4,64,59,034/- and the Page | 2 ITA no. 7719/Mum/2019 Nisarg Realtors Pvt. Ltd; A.Y. 2013–14 Learned Commissioner of Income Tax Appeal erred in confirming the order of the Assessing Officer. 2. In view of facts and circumstances of the case and law on the subject income to be taxed under Business Income and not income from House property and consequently the set off business expenses of Rs. 4,64,59,634/- be allowed.” 02. The brief fact of the case shows that assessee is a company engaged in the business of building and developing properties. It filed its return of income on 29 th September 2013 at a loss of ₹3,12,35,068. The case was selected for scrutiny. 03. During the course of assessment proceedings the learned Assessing Officer found that was executed a Leave and License Agreement on 9th September, 2011 between M/s Sankalpan Infrastructure Pvt. Ltd. (Licensor) and M/s Lanxess India Pvt. Ltd. for Lanxess house situated at Thane. As per that deed, Sankalpan Infrastructure Pvt. Ltd. (Licensor) granted license to Lanxess India Pvt. Ltd. (Licensee) from 1 st January 2012, to 31 st December 2016 at license fee of ₹8,08,312 per month for a total built up area of 18,088 sq. ft. Further, rectification deed was entered into where total built up area was enhanced to 48,417 sq. ft. and license fee was revised to ₹20,12,265 PM. Accordingly, the total license fee per year was determined at ₹3,38,46,924. Page | 3 ITA no. 7719/Mum/2019 Nisarg Realtors Pvt. Ltd; A.Y. 2013–14 04. On 11 th April, 2012, there was a deed of assignment between Sankalpan Infrastructure Pvt. Ltd. and the assessee for a total sale consideration of ₹37,62,42,000. Therefore, license income of ₹3,38,46,924 for A.Y. 2013– 14 was earned by assessee. As per the AIR details, the learned Assessing Officer found that M/s Lanxess India Pvt. Ltd. has deducted tax at source under section 194(I) of the Act on the license income earned by the assessee and therefore learned Assessing Officer was of the view that assessee has shown rental income as business income, but same income is chargeable to tax under the head ‘income from house property’. Accordingly, the learned Assessing Officer treated the same as income from house property and granted 30% standard deduction and thereafter, computed ₹2,36,92,847 as income from house property. Consequently, the assessment under section 143(3) of the Act was passed on 28 th March 2016 at a total income of ₹2,37,00,380. 05. Assessee preferred appeal before the learned Commissioner of Income tax (Appeals). The learned CIT (A) vide letter dated 25 February 2019, dismissed the appeal of the assessee. Main reason for confirmation of the action of the Assessing Officer was that the above income subjected to TDS under section 194(I) of the Act, wherein licensee has categorized the same as rental income. The learned CIT (A) rejected the contention of the assessee that memorandum of association of the company cannot alter the character of income. The Page | 4 ITA no. 7719/Mum/2019 Nisarg Realtors Pvt. Ltd; A.Y. 2013–14 assessee is aggrieved with that and has preferred the appeal before us. 06. The learned Authorized Representative vehemently submitted that the assessee is engaged in the business of real estate development. It has purchased one property which was at the time of purchase was earning rental income. Assessee’s memorandum of association clearly shows that the assessee is a developer and builder and according to clause no. A(1) and B(5) assessee can also engage into renting out of the property. The learned Authorized Representative further submitted that the case is squarely covered by the decision of Hon'ble Supreme Court of India in Chennai Properties and Investment Ltd. Vs. CIT 373 ITR 673. Reference was made to paragraph no. 5 of that decision and submitted that assessee has also similar objects in the memorandum of association. Reference was also made to paragraph no. 7, where in the decision of Hon'ble Supreme Court in case of East India Housing and Rent Development Trust Ltd. vs. CIT 42 ITR 49 was also discussed. It was stated that this is the decision relied upon by the CIT (A) to confirm the addition. She further relied upon the decision of Hon'ble Supreme Court in Rayala Corporation Pvt. Ltd. vs. ACIT 386 ITR 500. She, in this case, submitted that similar arguments are used by the Revenue to treat the rental income as income from house property. She referred to paragraph no. 5. Accordingly, she submitted that both these decisions of the Hon'ble Supreme Court cover the issue in Page | 5 ITA no. 7719/Mum/2019 Nisarg Realtors Pvt. Ltd; A.Y. 2013–14 favor of the assessee. She also relied upon on the decision of co-ordinate Bench in case of Asset Investment Services vs. ACIT 331/Mum/2019 Assessment Year 2013- 14 dated 28 January 2020, which also covers the issue in favor of the assessee. Therefore, she submitted that the impugned income earned by the assessee supported by the memorandum of association is chargeable to tax as business income and not the income from house property. 07. The learned Departmental Representative vehemently supported the order of the lower authorities. It was submitted that:– i. TDS was deducted on above sum under section 194I of the Act. ii. Assessee is engaged in business of real estate development and renting may be one of the objects but it is not the only object. iii. Decisions relied upon by assessee do not apply to facts of the case. iv. Intention of assessee is to earn rental income only. 08. We have carefully considered the rival contentions and perused the order of the lower authorities. The fact clearly shows that assessee is a company engaged in the business of real estate development. According to Memorandum Of Association, main object of the assessee Page | 6 ITA no. 7719/Mum/2019 Nisarg Realtors Pvt. Ltd; A.Y. 2013–14 company is to acquire properties such as land and building lease hold or free hold and also to earn rental income from these properties and to develop them. This is contained in main objects of the company clause A (1). Further, in B (5) also the assessee is having incidental and ancillary object of renting out of the properties. Therefore, there is no doubt that assessee has object of renting out of the properties as per its object in Memorandum of Association. This is also not in dispute before the lower authorities but the lower authorities have held that character of income is not altered because it is received by a company formed with the object of real estate development etc. ld Revenue authorities were of the view that as the income is subject to TDS under section 194I of the Act characterized as rent, it is chargeable to tax under the head income from house property. We find that provisions of section 194I of the Act do not determine the characterization of income in the hands of the recipient. In the present case, the decision of the Hon'ble Supreme Court in the case of Chennai Properties and Investment Ltd. vs. CIT 373 ITR 673 and Rayala Corporation Pvt. Ltd. vs. CIT 386 ITR 500 covers the issue in favour of the assessee. Further Honourable Bombay High court in principal commissioner of income tax v. City centre mall nashik pvt. Ltd. [2020] 424 ITR 85 (bom) has also held that when main objects of assessee, over and above real estate development as main clause has renting of property there in and assessee is also providing certain other services as Page | 7 ITA no. 7719/Mum/2019 Nisarg Realtors Pvt. Ltd; A.Y. 2013–14 mentioned in Annexure B of leave and License agreement, income derived is to be taxed as Business Income and not income from house property. Therefore looking at the facts of the case and the decision of honorable Supreme Court and Honorable Bombay High court, we hold that income from property earned by the assessee amounting to ₹3,38,46,924 is chargeable to tax as business income and not as income from house property. Accordingly, we direct the learned Assessing Officer to tax the above income under the head of business income. Accordingly, grounds no. 1 and 2 of the appeal are allowed. 09. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 28 .04.2022. Sd/- Sd/- (AMARJIT SINGH) (PRASHANT MAHARISHI) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) Mumbai, Dated: 28 .04.2022 Sudip Sarkar, Sr.PS 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// Page | 8 ITA no. 7719/Mum/2019 Nisarg Realtors Pvt. Ltd; A.Y. 2013–14 Sr. Private Secretary/ Asst. Registrar Income Tax Appellate Tribunal, Mumbai
