M/s Sri Vinayaka Automobiles Private Limited, Secunderabad V. ITO, Ward-3(1), Warangal

ITA 783/HYD/2013

• Counselvise Citation: 78322514 RSA 2013
• Duration Of Justice: 1 year(s) 11 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-05-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 07-05-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 17-05-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAMAKRISHNA BANDI
• Keywords: Business income; Depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A : HYDERABAD BEFORE SHRI P. M. JAGTAP, ACCOUNTANT MEMBER AND SMT. P. MADHAVI DEVI, JUDICIAL MEMBER ITA.NO.783/HYD/2013 ASSESSMENT YEAR 2005-2006 M/S. SRI VINAYAKA AUTOMOBILES P. LTD., SECUNDERABAD. PAN AAGCS7090H VS. THE INCOME TAX OFFICER, WARD 3(1) HYDERABAD. (APPELLANT) (RESPONDENT) FOR ASSESSEE : MR. A. SRINIVAS FOR REVENUE : MR. RAMAKRISHNA BANDI DATE OF HEARING : 07.05.2015 DATE OF PRONOUNCEMENT : 08.05.2015 ORDER PER P.M. JAGTAP, A.M. THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(A)-IX, MUMBAI (HAV ING CONCURRENT JURISDICTION OVER CIT(A)-IV, HYDERABAD) DATED 12.03.2013. 2. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY WHICH WAS CARRYING ON THE BUSINESS OF TRADING IN AU TOMOBILES. AFTER THE DISCONTINUATION OF THE SAID BUSINESS, IT GAVE ITS PREMISES ALONG WITH AMENITIES ON RENT AND ALSO AGRE ED TO PROVIDE MAINTENANCE AND OPERATION SERVICES TO THE T ENANT. FOR THE SAID PREMISES, THE ASSESSEE COMPANY RECEIVED A RENT OF RS. 3 LAKHS FOR THE YEAR UNDER CONSIDERATION AND ALSO R ECEIVED RS.2,40,000 FOR THE AMENITIES PROVIDED IN THE PREMI SES. FOR MAINTENANCE AND OPERATIONS, IT RECEIVED A SUM OF RS .8,40,000 2 ITA.NO.783/HYD/2013 M/S. SRI VINAYAKA AUTOMOBILES P. LTD., SECUNDERABAD. FOR THE YEAR UNDER CONSIDERATION. ALL THESE RECEIPT S WERE DECLARED BY THE ASSESSEE AS ITS BUSINESS RECEIPTS A LONG WITH MISCELLANEOUS RECEIPTS OF RS.1,509 AND PROFIT ON SA LE OF SHARES OF RS.1,65,750 AND AFTER CLAIMING VARIOUS EXPENSES INCLUDING DEPRECIATION OF RS.2,52,978 ON THE PREMISES, TOTAL INCOME OF RS.4,41,880 WAS DECLARED BY THE ASSESSEE IN THE RET URN OF INCOME FILED FOR THE YEAR UNDER CONSIDERATION ON 30 TH OCTOBER, 2005. 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTICED BY THE A.O. THAT ASSESSEE HAS ENTERED I NTO THREE SEPARATE AGREEMENTS WITH THE TENANT FOR PREMISES, A MENITIES AND MAINTENANCE AND OPERATION SERVICES AS UNDER : 1. RENTAL AGREEMENT FOR PREMISES OF GROUND FLOOR AND 1 ST FLOOR AT SURVEY NO.941/A, NAGOLE ROAD, SAROORNAGAR, R.R. DISTRICT ON 14.08.03 FOR THE PREMISES ADMEASUR ING 15,382 SFT AT THE RATE OF RS.25,000/- PER MONTH. TH US THE TOTAL RENT PER ANNUM DERIVED WAS RS.3,00,000/-. 2. THE ASSESSEE ALSO ENTERED INTO RENTAL AGREEMENT FOR PROVISION OF AMENITIES ON 14.08.2003 AT THE RATE OF RS.20,000/- PER MONTH. THE TOTAL RENT PER ANNUM IS RS.2,40,000/-. 3. THE ASSESSEE ALSO ENTERED INTO RENTAL AGREEMENT FOR MAINTENANCE AND OPERATION ON 14.08.2003 AT THE RATE OF RS.70,000/- PER MONTH AND THE ANNUAL RECEIPTS AR E AT RS.8,40,000/-. ACCORDING TO THE A.O., THE RENT RECEIVED BY THE ASS ESSEE FOR PREMISES AS WELL AS FOR AMENITIES PROVIDED IN THE P REMISES WAS CHARGEABLE TO TAX IN THE HANDS OF THE ASSESSEE UNDER THE HEAD INCOME FROM HOUSE PROPERTY. HE HELD THAT TH E ASSESSEE HOWEVER ENTITLED FOR DEDUCTION OF 30% UNDER SECTION 24 ONLY IN RESPECT OF RENT RECEIVED FROM FOR PREMISES AND NOT FOR RENT RECEIVED FOR AMENITIES. ACCORDINGLY, ALLOWING SUCH DEDUCTION AT 3 ITA.NO.783/HYD/2013 M/S. SRI VINAYAKA AUTOMOBILES P. LTD., SECUNDERABAD. RS.90,000, HE DETERMINED THE INCOME CHARGEABLE TO T AX IN THE HANDS OF THE ASSESSEE UNDER THE HEAD INCOME FROM H OUSE PROPERTY AT RS.4,40,000. CONSEQUENTLY, THE DEPRECI ATION CLAIMED BY THE ASSESSEE ON BUILDING/PREMISES WAS DI SALLOWED BY THE A.O. ON APPEAL, THE LD. CIT(A) UPHELD THE AC TION OF THE A.O. ON THIS ISSUE RELYING INTER ALIA, ON THE DECIS ION OF HONBLE SUPREME COURT IN THE CASE OF EAST INDIA HOUSING AND LAND DEVELOPMENT TRUST VS. CIT 42 ITR 49 AND IN THE CASE OF A.G. MERCHANTILE CORPORATION VS. CIT 83 ITR 700. AGGRIEV ED BY THE ORDER OF THE LD. CIT(A), THE ASSESSEE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL ON THE FOLLOWING GROUNDS : 1. THE ORDER OF THE A.O. IS CONTRARY TO LAW, FACTS AN D CIRCUMSTANCES OF THE CASE. 2. THE A.O. ERRED IN TREATING AN AMOUNT OF RS.5,40,000 AS INCOME FROM HOUSE PROPERTY WHEN THE ASSESSEE HAD OFFERED THE SAME AS BUSINESS INCOME. 3. THE APPELLATE COMMISSIONER OUGHT NOT TO HAVE CONFIRMED THE ABOVE ACTION OF THE A.O. IN TREATING THE BUSINESS INCOME AS HOUSE PROPERTY INCOME. 4. THE A.O. ERRED IN DISALLOWING THE DEPRECIATION OF RS.2,52,978/- CONSEQUENT TO THE TREATING THE SAID PROPERTY AS HOUSE PROPERTY. 5. THE APPELLATE COMMISSIONER OUGHT NOT TO HAVE CONFIRMED THE DISALLOWANCE OF THE DEPRECIATION MADE BY THE A.O. 6. ANY OTHER GROUNDS WHICH THE APPELLANT MAY URGE EITH ER BEFORE OR AT THE TIME OF HEARING. 4. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. GROUND NOS. 1 AND 6 RAISED BY THE ASSESSEE IN THIS APPEAL ARE GENERAL WHICH DO NOT REQUIRE SPECIFIC ADJUDICATION. THE ISS UE INVOLVED IN GROUND NOS. 2 AND 3 RELATES TO THE HEAD OF INCOM E UNDER 4 ITA.NO.783/HYD/2013 M/S. SRI VINAYAKA AUTOMOBILES P. LTD., SECUNDERABAD. WHICH THE RENTAL INCOME OF RS.5,40,000 IS CHARGEABL E TO TAX IN THE HANDS OF THE ASSESSEE WHILE THE ISSUE RAISED IN GROUND NOS. 4 AND 5 RELATING TO THE ASSESSEES CLAIM FOR D EPRECIATION ON BUILDING IS CONSEQUENTIAL TO THE ISSUE INVOLVED IN GROUND NOS. 2 AND 3. 5. THE LD. COUNSEL FOR THE ASSESSEE AT THE OUTSET HAS CONTENDED THAT THE ENTIRE ARRANGEMENT WITH THE TENA NT OF GIVING THE PREMISES ON RENT ALONG WITH AMENITIES PR OVIDED THEREIN AS WELL AS PROVIDING MAINTENANCE AND OPERAT ION SERVICES WAS A COMPOSITE ARRANGEMENT AND THE AUTHOR ITIES BELOW WERE NOT JUSTIFIED TO CONSIDER AND ACCEPT THE SAME IN PIECEMEAL MANNER. HE HAS CONTENDED THAT THEY SHOULD HAVE ACCEPTED THIS TRANSACTION AS A WHOLE OR REJECTED TH E SAME ENTIRELY. WE ARE UNABLE TO ACCEPT THIS CONTENTION O F THE LD. COUNSEL FOR THE ASSESSEE. IT IS OBSERVED THAT THREE SEPARATE AGREEMENTS WERE ENTERED INTO BY THE ASSESSEE WITH T HE TENANT FOR GIVING THE PREMISES ON RENT, PROVIDING THE AMEN ITIES AVAILABLE THEREIN AND PROVIDING THE MAINTENANCE AND OPERATION SERVICES. THE ASSESSEE COMPANY ITSELF THUS HAS TREA TED THESE TRANSACTIONS AS SEPARATE TRANSACTIONS AND IT THEREF ORE CANNOT BE ACCEPTED THAT THE ENTIRE TRANSACTION WAS A ONE C OMPOSITE TRANSACTION AS SOUGHT TO BE CONTENDED BY THE LD. CO UNSEL FOR THE ASSESSEE. 5.1. THE LD. COUNSEL FOR THE ASSESSEE HAS ALSO CONTENDED THAT IT IS A CASE OF EXPLOITATION OF COMM ERCIAL ASSETS BY THE ASSESSEE COMPANY AND THEREFORE, THE INCOME E ARNED FROM SUCH COMMERCIAL EXPLOITATION CONSTITUTES THE I NCOME OF THE ASSESSEE FROM BUSINESS. IT IS HOWEVER OBSERVED THAT THE BUSINESS OF TRADING IN AUTOMOBILE EARLIER CARRIED O N BY THE ASSESSEE COMPANY WAS DISCONTINUED IN THE PAST AND S INCE IT 5 ITA.NO.783/HYD/2013 M/S. SRI VINAYAKA AUTOMOBILES P. LTD., SECUNDERABAD. WAS NOT A CASE OF ANY SUCH BUSINESS CARRIED ON BY T HE ASSESSEE IN THE YEAR UNDER CONSIDERATION AND THERE BEING NO INDICATION OR INTENTION OF THE ASSESSEE COMPANY TO REVIVE THE SAID BUSINESS, IT CANNOT BE SAID THAT THE PROPERTY IN QU ESTION GIVEN ON RENT CONSTITUTES COMMERCIAL ASSET OF THE ASSESSE E COMPANY. WE, THEREFORE, FIND IT DIFFICULT TO ACCEPT THIS CON TENTION ALSO OF THE LD. COUNSEL FOR THE ASSESSEE. 5.2. AT THE TIME OF HEARING BEFORE US, THE LD. COU NSEL FOR THE ASSESSEE HAS RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CHENNAI PROPERTIES AND INVESTMENT LTD., VS. CIT (CIVIL APPEAL NO.4494 OF 2 004 DATED 09 TH APRIL, 2015) IN SUPPORT OF ASSESSEES CASE THAT TH E RENTAL INCOME RECEIVED FOR PREMISES/BUILDING IS CHARGEABLE TO TAX AS ITS BUSINESS INCOME. HOWEVER, AS RIGHTLY CONTENDED BY THE LEARNED D.R., THIS CASE RELIED UPON BY THE LD. COUN SEL FOR THE ASSESSEE IS DISTINGUISHABLE ON FACTS INASMUCH AS TH E ASSESSEE COMPANY IN THE SAID CASE WAS INCORPORATED WITH THE MAIN OBJECTIVE TO ACQUIRE THE PROPERTY IN THE CITY OF MA DRAS AND TO LET OUT THOSE PROPERTIES AND KEEPING IN VIEW THAT L ETTING OF THE PROPERTIES WAS IN FACT THE BUSINESS OF THE ASSESSEE COMPANY, THE RENTAL INCOME WAS HELD TO BE CHARGEABLE TO TAX IN THE HANDS OF THE ASSESSEE AS BUSINESS INCOME BY THE HON BLE SUPREME COURT. IN THE PRESENT CASE, THE MAIN OBJECT IVE OF THE ASSESSEE COMPANY IS NOT TO ACQUIRE THE PROPERTIES A ND TO LET OUT THOSE PROPERTIES AND THIS BEING THE UNDISPUTED POSITION, THE DECISION OF THE HONBLE SUPREME COURT IN THE CA SE OF CHENNAI PROPERTIES AND INVESTMENT LTD., VS. CIT (SU PRA) CITED BY THE LD. COUNSEL FOR THE ASSESSEE HAS NO APPLICAT ION TO THE FACTS OF THE PRESENT CASE. 6 ITA.NO.783/HYD/2013 M/S. SRI VINAYAKA AUTOMOBILES P. LTD., SECUNDERABAD. 5.3. THE LD. COUNSEL FOR THE ASSESSEE HAS ALSO RAI SED AN ALTERNATIVE CONTENTION THAT THE RENTAL INCOME RE CEIVED BY THE ASSESSEE FOR AMENITIES PROVIDED IN THE PREMISES HAVING BEEN HELD TO BE CHARGEABLE TO TAX BY THE A.O. IN TH E HANDS OF THE ASSESSEE AS PROPERTY INCOME, DEDUCTION OF 30% A S PER THE PROVISIONS OF SECTION 24 SHOULD BE ALLOWED. HE HAS ALSO CONTENDED THAT IF THE SAID INCOME IS HELD TO BE IN THE NATURE OF INCOME FROM OTHER SOURCES, DEDUCTIONS AS PERMISSIBL E UNDER SECTION 57(III) MAY BE ALLOWED. WE FIND MERIT IN TH E SECOND ALTERNATE CONTENTION RAISED BY THE LD. COUNSEL FOR THE ASSESSEE. IN OUR OPINION, THE AMOUNT RECEIVED BY TH E ASSESSEE FOR AMENITIES PROVIDED IN THE PREMISES IS THE INCOM E WHICH IS CHARGEABLE TO TAX UNDER THE HEAD INCOME FROM OTHER SOURCES AND SINCE THIS POSITION IS NOT DISPUTED EVEN BY THE LEARNED D.R., WE DIRECT THE A.O. TO ALLOW DEDUCTION UNDER S ECTION 57(III) TO THE ASSESSEE FOR ALL THE EXPENSES INCURRED FOR E ARNING THE SAID INCOME. ACCORDINGLY, GROUND NOS. 2 AND 3 OF TH E ASSESSEES APPEAL ARE PARTLY ALLOWED WHILE GROUND N OS. 4 AND 5 INVOLVING THE CONSEQUENTIAL ISSUE RELATING TO ASSES SEES CLAIM FOR DEPRECIATION ON BUILDING ARE DISMISSED. 6. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTL Y ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 08.0 5.2015. SD/- SD/- (SMT. P. MADHAVI DEVI) (P.M. JAGTAP) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED 08 TH MAY, 2015. VBP/- 7 ITA.NO.783/HYD/2013 M/S. SRI VINAYAKA AUTOMOBILES P. LTD., SECUNDERABAD. COPY TO 1. M/S. SRI VINAYAKA AUTOMOBILES P. LTD., PLOT NO.12, PHASE-II, BHAVANA COLONY, NEW BOWENPALLY, SECUNDERABAD. 2. THE INCOME TAX OFFICER, WARD 3(1), HYDERABAD. 3. CIT(A)-IX, MUMBAI (HAVING JURISDICTION OVER CIT(A)- IV, HYDERABAD 4. CIT(A)-IV, HYDERABAD. 5. CIT-III, HYDERABAD. 6. D.R. I.T.A.T. A BENCH, HYDERABAD. 7. GUARD FILE