M/s. S.K. Khanna & Sons, Delhi V. ITO, New Delhi

ITA 828/DEL/2010

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 7256 (ITAT-DELHI)
• Duration Of Justice: 6 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 18-08-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 25-02-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R P SINGH
• Keywords: Business income
• Section: 27

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G: NEW DELHI BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI B.C. MEENA, ACCOUNTANT MEMBER ITA NO. 828/DEL/2010 ASSESSMENT YEAR: 2005-06 M/S S.K. KHANNA & SONS, 1658-60, LODHI ROAD, KASHMERE GATE, DELHI. PAN NO. - VS. ITO, WARD 20(2), NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : K. SAMPATH, ADV. RESPONDENT BY : R.P. SINGH, SR. DR O R D E R PER I.P. BANSAL, J.M. THIS IS AN APPEAL FILED BY THE ASSESSEE. IT IS DIRECTED AGAINST THE ORDER OF CIT(A) DATED 1.2.10 FOR A.Y. 2005-06. GROUNDS O F APPEAL READ AS UNDER: - 1. THAT THE ORDER OF THE LD. CIT(A) IS BAD BOTH ON LAW AND FACTS. 2. THAT THE LD. CIT(A) HAS ERRED IN SUSTAINING DISA LLOWANCE OF A SUM OF RS. 86,803/- LEGITIMATELY CLAIMED AS DEDUCTION U/S 24(A ), BY WRONGLY TREATING THE RENTAL INCOME EARNED BY THE APPELLANT ON ACCOUN T OF LETTING OUT TERRACE OF THE BUILDING OWNED BY THE APPELLANT, AS INCOME FROM OTHER SOURCE, WHICH IS NOT BASED ON FACT BUT IS BASED ME RELY ON HYPOTHECATION, CONJECTURES AND SURMISES. 3. THAT THE APPELLANT CRAVES LEAVE AND PRAYS THAT T HE RELIEF CLAIMED ABOVE OR ANY OTHER RELIEF, TO WHICH THE APPELLANT IS ENTI TLED, MAY KINDLY BE GRANTED. 2 ITA NO. 828/DEL/2010 2. THE ASSESSEE IN THE PRESENT CASE IS A PARTNERSHI P FIRM AND DERIVING INCOME FROM SALE OF ELECTRICAL GOODS. THE ASSESSEE HAS EARNED RENTAL INCOME OF RS. 3,16,578/- FROM HUTCHSON & ESSAR FOR THE TOW ERS INSTALLED AT ITS PREMISES. IN THE COMPUTATION OF INCOME THE RENT WAS EXCLUDED FROM PROFIT AND GAINS OF BUSINESS AND OFFERED FOR TAXATION UNDER THE HEAD I NCOME FROM HOUSE PROPERTY, WHERE FROM STATUTORY DEDUCTION OF 30% WAS CLAIMED. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE HAD AGREED BEFO RE AO FOR TREATING THE SAID INCOME AS INCOME FROM OTHER SOURCES ON THE GRO UND THAT NO DWELLING UNIT WAS LET OUT AND IT WAS ONLY THE TOWER, WHICH WAS IN STALLED AT THE ROOF OR OPEN PART OF THE PREMISES. 3. AGGRIEVED BY SUCH TREATMENT, THE ASSESSEE FILED AN APPEAL BEFORE CIT(A) IN WHICH IT WAS CLAIMED THAT AO HAD WRONGLY DISALLOWED THE CLAIM OF THE ASSESSEE OF 30% OUT OF RENTAL INCOME EARNED BY IT F ROM INSTALLATION OF TOWERS BY HUTCHSON & ESSAR. ACCORDING TO ASSESSEE SUCH DEDUC TION WAS ALLOWABLE U/S 24(A) OF THE ACT. 4. BEFORE CIT(A), IT WAS SUBMITTED THAT THE AO WAS WRONG IN PRESUPPOSING THAT THE INCOME OF HOUSE PROPERTY CAN ARISE ONLY OU T OF DWELLING UNIT AS THE INCOME EARNED BY THE ASSESSEE ALSO FALLS WITHIN THE AMBIT OF HOUSE PROPERTY INCOME. LD. CIT(A) OBSERVED THAT HOUSE PROPERTY INCLUDES BUILDINGS AND LANDS APPURTENANT THERETO BUT IF THE LAND APPURTENA NT THERETO YIELD ANY INDEPENDENT AND COMMERCIAL INCOME, SUCH INCOME SHAL L NOT BE TAXABLE UNDER THE HEAD HOUSE PROPERTY. THE SAME WILL BE TAXED EITHER AS BUSINESS INCOME 3 ITA NO. 828/DEL/2010 OR INCOME FROM OTHER SOURCES AND FOR THIS PURPOSE L D. CIT(A) HAS PLACED RELIANCE ON THE DECISION OF HONBLE MADRAS HIGH COU RT IN THE CASE OF RAMALAXMI REDDY (M.) VS. CIT 232 ITR 281. ACCORDI NG TO LD. CIT(A), FOR A STRUCTURE TO QUALIFY AS BUILDING MUST HAVE A COVERE D SPACE SURROUNDED BY WALLS. THEREFORE, LD. CIT(A) HAS HELD THAT ROOFTOP NEITHER CAN BE CONSIDERED AS BUILDING NOR THE LAND APPURTENANT THERETO. LD. CIT (A) OBSERVED THAT IF THE LOGIC PUT BY ASSESSEE IS TO BE ACCEPTED THEN THE BRIDGES AND FLYOVERS ALSO FALLS WITHIN THE DEFINITION OF BUILDING BECAUSE THEY HAVE ROOFTO P. ACCORDING TO LD. CIT(A) BRIDGES AND FLYOVER CANNOT BE SAID TO BE BUILDING B ECAUSE THEY DO NOT HAVE COVERED SPACE BY WALLS AND IN THE CIRCUMSTANCES LD. CIT(A) HAS UPHELD THE ACTION OF AO. THE ASSESSEE IS AGGRIEVED, HENCE IN APPEAL. 5. LD. AR AFTER NARRATING THE FACTS, PLEADED THAT R OOFTOP OF THE ASSESSEES BUILDING IS PART OF THE BUILDING. THE BUSINESS OF THE ASSESSEE IS NOT TO EARN INCOME OUT OF INSTALLATION OF TOWERS ON THE BUILDIN GS OWNED BY IT. THE BUSINESS OF THE ASSESSEE IS SALE OF ELECTRICAL GOODS. THERE FORE, HE SUBMITTED THAT THE AMOUNT RECEIVED BY THE ASSESSEE FROM THE PARTIES WH O HAVE INSTALLED THEIR TOWERS ON THE ROOFTOP OF THE BUILDING OWNED BY THE ASSESEE CAN ONLY BE IN THE SHAPE OF RENT ASSESSABLE AS INCOME FROM HOUSE PROPE RTY. HE SUBMITTED THAT THE CONSENT OF THE ASSESSEE BEFORE AO FOR ASSESSING THE SAID AMOUNT AS INCOME FROM OTHER SOURCE CANNOT ACT AS AN ESTOPPEL AS THE CHARACTER OF INCOME EARNED BY THE ASSESSEE HAS TO BE ASCERTAINED IN ACC ORDANCE WITH LAW. HE SUBMITTED THAT WHAT IS ASSESSABLE AS INCOME FROM OT HER SOURCES IS A RECEIPT, WHICH DOES NOT FALL WITHIN THE AMBIT OF INCOME UN DER ANY OF THE SPECIFIED HEADS DESCRIBED UNDER SEC. 14 OF THE ACT. HE SUBMI TTED THAT EARNING INCOME 4 ITA NO. 828/DEL/2010 FROM LETTING OUT A SPACE EXISTING IN THE BUILDING F ALLS WITHIN THE AMBIT OF INCOME FROM HOUSE PROPERTY AND, THEREFORE, IT WAS RIGHTLY SO CLAIMED BY THE ASSESSEE AND THE CLAIM OF THE ASSESSEE HAS WRONGLY BEEN DENI ED BY THE AO AND CIT(A). THEREFORE, HE SUBMITTED THAT THE INCOME EARNED BY T HE ASSESSEE SHOULD BE TREATED TO BE INCOME FROM HOUSE PROPERTY AND STATUT ORY DEDUCTION SHOULD BE ALLOWED TO THE ASSESSEE. 6. ON THE OTHER HAND, LD. DR RELYING ON THE ORDER O F AO AND CIT(A) HAS PLACED RELIANCE ON THE DECISION OF CALCUTTA HIGH CO URT IN THE CASE OF MUKHERJEE ESTATE PVT. LTD. VS. CIT 244 ITR 01, WHEREIN INCOME EARNED FROM HOARDINGS INSTALLED AT THE ROOFTOP OF THE BUILDING OF THE ASS ESSEE WAS CONSIDERED TO BE AN INCOME ASSESSABLE UNDER THE HEAD INCOME FROM OTHER SOURCES. THUS, IT WAS PLEADED BY LD. DR THAT THE ORDER OF CIT(A) SHOULD B E UPHELD AND THE APPEAL FIELD BY THE ASSESSEE SHOULD BE DISMISSED. 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS IN THE LIGHT OF MATERIAL PLACED BEFORE US. PART (C) OF CHAPTER IV I.E. FROM SEC. 22 TO 27 GOVERNS THE INCOME EARNED FROM HOUSE PROPERTY. SEC. 22 STA TES THAT ANNUAL VALUE OF A PROPERTY CONSISTING OF ANY BUILDINGS OR LANDS APPUR TENANT THERETO OF WHICH THE ASSESSEE IS OWNER EXCLUDING SUCH PORTION OF SAID PR OPERTY AS IS OCCUPIED FOR THE PURPOSES OF ANY BUSINESS OR PROFESSION CARRIED ON BY THE ASSESSEE WHICH ARE CHARGEABLE TO INCOME TAX, SHALL BE CHARGED TO I NCOME TAX UNDER THE HEAD INCOME FROM HOUSE PROPERTY. THEREFORE, INGREDIEN TS TO FALL A PARTICULAR INCOME UNDER THE HEAD INCOME FROM HOUSE PROPERTY IS THAT IT SHOULD ARISE FROM ANY BUILDINGS OR LANDS APPURTENANT THERETO OF WHICH THE ASSESSEE IS OWNER AND THAT 5 ITA NO. 828/DEL/2010 BUILDING OR LAND APPURTENANT THERETO SHOULD BE OTHE R THAN WHICH HAS BEEN OCCUPIED BY THE ASSESSEE FOR THE PURPOSES OF HIS BU SINESS OR PROFESSION, THE INCOME OF WHICH IS CHARGEABLE TO TAX. THE TOWER IN RESPECT OF WHICH THE ASSESSEE HAS RECEIVED THE INCOME IS INSTALLED AT TH E ROOFTOP OF THE BUILDING WHICH IS WITHIN FOUR CORNERS OF THE BUILDING OWNED BY THE ASSESSEE. THE PORTION WHICH HAS BEEN UTILIZED FOR THE PURPOSE OF INSTALLI NG TOWER IS NOT UTILIZED BY THE ASSESSEE FOR THE PURPOSES OF HIS BUSINESS OR PROFES SION FOR WHICH IT IS ASSESSABLE UNDER THE HEAD INCOME FROM BUSINESS OR PROFESSION. THE BENEFIT OF SEC. 22 HAS BEEN DENIED BY THE AO TO THE ASSESSE E ON THE GROUND THAT IT WAS SO AGREED BY THE ASSESSEE BEFORE HIM AND ALSO ON TH E GROUND THAT THE PORTION ON WHICH THE TOWERS WERE INSTALLED CANNOT BE TERMED AS LETTING OF DWELLING UNIT AND THOSE TOWERS WERE INSTALLED AT THE ROOF OR OPEN PART OF THE PREMISES. LD. CIT(A) HAS UPHELD THE ACTION OF THE AO ON THE GROUN D THAT IF THE ROOFTOP IS CONSIDERED TO BE LAND APPURTENANT THERETO AND THAT LAND YIELDS ANY INDEPENDENT AND COMMERCIAL INCOME, SUCH INCOME WILL NOT BE ASSE SSABLE UNDER THE HEAD INCOME FROM HOUSE PROPERTY AND THE SAME WILL BE T AXED EITHER AS BUSINESS INCOME OR INCOME FROM OTHER SOURCES AND FOR HOLD ING SO LD. CIT(A) HAS MADE REFERENCE TO THE DECISION OF HONBLE MADRAS HIGH CO URT IN THE CASE OF RAMLUXMI REDDY (M.) VS. CIT (SUPRA) IN WHICH IT HAS BEEN HELD THAT FOR A STRUCTURE TO QUALIFY AS BUILDING MUST HAVE A COVERE D SPACE SURROUNDED BY WALLS. 8. WE HAVE CAREFULLY GONE THROUGH THE AFOREMENTIONE D DECISION OF HONBLE MADRAS HIGH COURT. ACCORDING TO THE FACTS OF THAT CASE THE ASSESSEE HAD A WELL IN THE COMPOUND OF HER DWELLING HOUSE WITH A PERENN IAL SPRING, WHICH PROVIDED COPIOUS SUPPLY OF WATER. DURING THE DROUGHT OF 197 4 SHE ALLOWED TWO PARTIES TO 6 ITA NO. 828/DEL/2010 DRAW WATER FROM THE WELL AND IN RETURN RECEIVE A CE RTAIN SUM. AFTER MEETING THE EXPENSES THE NET REALIZATION WERE CLAIMED NOT TAXAB LE AS THE SAME WOULD FALL ONLY U/S 22 OF THE ACT. THE AO CONSIDERED THE SAID AMOUNT AS INCOME OF THE ASSESSEE. AAC CONFIRMED THE ORDER OF AO AND OBSERV ED THAT UNLIKE IN A.Y. 1970-71, WHERE THE TRIBUNAL HAD GRANTED EXEMPTION U /S 10(3) IN SIMILAR CIRCUMSTANCES, THE SALE PROCEEDS IN RELATION TO THE ASSESSMENT YEAR UNDER CONSIDERATION COULD NOT BE TERMED AS CASUAL AND NON -RECURRING IN NATURE. THE TRIBUNAL HELD THAT ASSESSEE WAS DERIVING INCOME BY GIVING AWAY THE WATER FROM THE WELL JUST AS ASSESSEE MIGHT DERIVED INCOME BY S ELLING THE FRUITS ON THE TREE IN A PROPERTY AND THAT WITHOUT LETTING OUT THE PROP ERTY IT COULD NOT BE TREATED AS FORMING PART OF ANNUAL VALUE. HOWEVER, AS IN A.Y. 1970-71 SEC. 10(3) WAS HELD APPLICABLE. THEREFORE, THE TRIBUNAL ALLOWED EXEMPT ION U/S 10(3) TO THE EXTENT OF RS. 10,000/-. HONBLE HIGH COURT FOUND THAT THOUGH THE PORTION OF THE VACANT LAND IN WHICH THE WELL WAS SITUATED COULD HAVE BEEN EARLIER APPURTENANT LAND TO THE ADJOINING DWELLING HOUSE, WHICH WAS PUT UP SUBS EQUENT TO THE A.Y. 1970- 71, WHEN THE ENTIRE VACANT LAND WAS WITHOUT ANY SUP ER STRUCTURE THEREIN, THE SAID PORTION SEIZED TO BE AN APPURTENANT LAND TO TH E SAID DWELLING HOUSE AND BECAME PRIMARILY A SOURCE OF AN INDEPENDENT INCOME DERIVED FROM THE WATER FROM THE ABOVE SAID WELL THEREIN, DESPITE THE FACT THAT THE WELL WATER MIGHT HAVE ALSO BEEN UTILIZED BY THE ASSESSEE FOR HER DOMESTIC PURPOSES. THEREFORE, IT WAS HELD THAT THE LAND WAS NOT APPURTENANT TO THE A DJOINING DWELLING HOUSE AND IN THE INSTANT CASE POTABLE WATER HAD BEEN STRUCK W HICH BECAME A PERENNIAL SOURCE OF POTABLE WATER, WHICH COULD BE INDEPENDENT LY AND COMMERCIALLY EXPLOITED AND, THEREFORE, IT WAS HELD THAT THE INCO ME COULD NOT COME UNDER THE HEAD INCOME FROM HOUSE PROPERTY. 7 ITA NO. 828/DEL/2010 9. NOW EXAMINING THE FACTS OF THE PRESENT CASE IN T HE LIGHT OF THE AFOREMENTIONED DECISION. THE TERRACE ON WHICH THE TOWER IS INSTALLED IS PART OF THE BUILDING OF THE ASSESSEE AS THE SAME SITUATED, WITHIN THE FOUR CORNERS OF THE BUILDING. THEREFORE, IT CANNOT BE SAID THAT ROOFTO P OF THE ASSESSEES BUILDING WAS NOT A BUILDING. IN ANY CASE IT CANNOT BE HELD THAT OPEN TERRACE IS NOT A SPACE APPURTENANT TO THE BUILDING. THEREFORE, THE CASE RELIED UPON BY A LD. CIT(A) CANNOT BE APPLIED TO HOLD THAT THE INCOME EA RNED BY THE ASSESSEE DOES NOT HAVE THE CHARACTER OF INCOME FROM HOUSE PROPERT Y. 10. NOW COMING TO THE DECISION RELIED UPON BY LD. D R IN THE CASE OF MUKHERJEE ESTATE PVT. LTD. VS. CIT (SUPRA). IN THA T CASE THE ASSESSEE HAD RECEIVED A SUM OF RS. 51,864/- ON ACCOUNT OF DISPLA Y OF HOARDINGS OF VARIOUS CONCERNS ON THE ROOFTOP OF THE ASSESSES BUILDING F OR ADVERTISEMENT PURPOSES. THE ITO ASSESSED THE SAID INCOME AS INCOME FROM OTH ER SOURCES. CIT(A) ACCEPTED THE CLAIM OF THE ASSESSEE AND ASSESSED THE SAID INCOME UNDER THE HEAD INCOME FROM HOUSE PROPERTY. THE TRIBUNAL REVE RSE THE ORDER OF CIT(A) AND RESTORE THE ORDER OF AO. IT WAS HELD BY HONBL E HIGH COURT THAT PERMITTING SOME COMPANIES TO DISPLAY THEIR BOARDS ON THE BUILD ING COULD NOT BE TAKEN AS INCOME FROM HOUSE PROPERTY AS HOARDINGS COULD NOT B E TREATED AS PART OF THE BUILDING. THUS, THE ORDER OF THE TRIBUNAL WAS UPHE LD. CAREFUL PERUSAL OF THE SAID DECISION WILL REVEAL THAT DURING THE COURSE OF HEARING A QUERY WAS PUT BY THE HONBLE HIGH COURT TO THE COUNSEL OF THE ASSESS EE THAT WHETHER THERE WAS AN AGREEMENT TO THE EFFECT TO CONCLUDE THAT WHETHER THE HOARDINGS WERE LET OUT OR THE ROOFTOP WAS LET OUT. THE COUNSEL OF THE ASS ESSEE FAILED TO PRODUCE THOSE 8 ITA NO. 828/DEL/2010 AGREEMENTS. IT WAS OBSERVED THAT THERE WAS NO REFE RENCE OF SUCH AGREEMENT BEFORE ANY OF THE INCOME TAX AUTHORITIES BELOW. IN THOSE CIRCUMSTANCES HONBLE HIGH COURT OBSERVED THAT ASSESSEE HAD LET O UT THE HOARDINGS WHICH WERE NEITHER PART OF THE BUILDING NOR PART OF THE A PPURTENANT LAND THERETO AND IN THE CIRCUMSTANCES IT WAS HELD THAT PERMISSION GIVEN TO CERTAIN COMPANIES TO DISPLAY THEIR BOARDS ON HAORDINGS CANNOT BE TAKEN A S INCOME FROM HOUSE PROPERTY AS THE HOARDINGS CANNOT BE TREATED AS PART OF THE BUILDING. FOR SAKE OF CLARITY THOSE OBSERVATIONS OF HONBLE HIGH COURT AR E REPRODUCED BELOW: - NONE APPEARED FOR THE REVENUE. LD. COUNSEL FOR T HE ASSESSEE SUBMITS THAT THE ASSESSEE HAS LET OUT THE ROOF FOR ADVERTISEMENT FOR HOARDING AND ADVERTISEMENT. THER EFORE, THE INCOME SHOULD BE ASSESSED AS INCOME FROM HOUSE PROPERTY. A QUERY WAS EFFECT TO CONCLUDE WHETHER T HE HOARDING WAS LET OUT OR THE ROOF IS LET OUT. HE FA ILED TO PRODUCE THAT AGREEMENT NOR IS THEIR ANY REFERENCE T O SUCH CONSIDERING THE FINDING OF THE TRIBUNAL THAT THE AS SESSEE HAS LET OUT THE HOARDINGS. THESE ARE NEITHER PART OF T HE BUILDING NOR THE LAND APPURTENANT THERETO. THEREFORE, PERMI TTING SOME COMPANIES TO DISPLAY THEIR BOARDS ON HOARDINGS CANNOT BE TAKEN AS INCOME FROM HOUSE PROPERTY AS HOARDINGS CANNOT BE TREATED AS PART OF THE BUILDING. CONSIDE RING THIS FINDING, WE FIND NO FORCE IN THE SUBMISSIONS OF LD. COUNSEL FOR THE ASSESSEE. IN THE RESULT, WE ANSWER QUESTION NO S. 1 & 2 IN THE AFFIRMATIVE, I.E., IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE. QUESTION NO. 3 WHETHER THE FINDING O F THE TRIBUNAL IS PERVERSE WE ANSWER THE QUESTION IN THE NEGATIVE, I.E. IN FAVOUR OF THE REVENUE AND AGAINST THE ASSES SEE. THE APPLICATION IS ACCORDINGLY DISPOSED OF. 9 ITA NO. 828/DEL/2010 11. CONSIDERING THE FACTS OF THE PRESENT CASE IN TH E LIGHT OF AFOREMENTIONED DECISION IT IS OBSERVED THAT WHAT WAS CONSIDERED IN THAT DECISION WAS LETTING OUT OF HOARDINGS AND NOT THE BUILDING BUT IN THE PRESEN T CASE ASSESSEE HAS NOT LET OUT HOARDINGS BUT IT PERMITTED THE LESSEE COMPANIES TO INSTALL TOWERS ON THE ROOFTOP OF ITS BUILDING. THEREFORE, THE CASE RELIE D UPON BY LD. DR HAS NO APPLICATION ON THE FACTS OF THE PRESENT CASE. 12. IN THE PRESENT CASE THE INCOME EARNED BY THE AS SESSEE HAS DIRECT NEXUS WITH THE BUILDING OWNED BY THE ASSESSEE FROM WHERE INCOME HAS BEEN DERIVED. THEREFORE, THE INCOME RECEIVED BY THE ASSESSEE IS A NNUAL LETTING VALUE AND THE PROVISIONS GOVERNING INCOME FROM HOUSE PROPERTY WIL L BE FULLY APPLICABLE AND THE ASSESSEES ENTITLED TO GET DEDUCTION U/S 24(A). 13. IN VIEW OF ABOVE DISCUSSION, THE APPEAL FILED B Y THE ASSESSEE IS ALLOWED. ORDER WAS PRONOUNCED IN THE OPEN COURT ON 31.8.2010 (B.C. MEENA) ACCOUNTANT MEMBER (I.P. BANSAL) JUDICIAL MEMBER DATED: 31.8.2010 *KAVITA 10 ITA NO. 828/DEL/2010 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, NEW DELHI. TRUE COPY BY ORDER DEPUTY REGISTRAR