THE INDUSTRIAL LEATHER CO. P.LTD, MUMBAI V. ITO 2(2)(1), MUMBAI

ITA 967/MUM/2011

• Counselvise Citation: 96719914 RSA 2011
• Duration Of Justice: 2 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-04-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2007-2008
• Appeal Filed On: 03-02-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: SANJUKTA CHOW DHURY; P K PARIDA
• Keywords: Business income; Depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES SMC, MUMBAI BEFORE SHRI R.K. PANDA (A.M.) ITA NO.967/MUM/2011 ASSESSMENT YEAR : 2007-2008 THE INDUSTRIAL LEATHER CO. PVT. LTD. ASH LANE, FORT, MUMBAI-400 001 PAN NO. : AAACT2821P I.T.O. 2(2)(1) MUMBAI. (APPELLANT) VS. (RESPONDENT) APPELLANT BY : SHRI P.K. PARIDA & SANJUKTA CHOWDHURY RESPONDENT BY : SHRI R. K. GUPTA O R D E R PER R.K. PANDA, A.M. THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 16.11.2010 OF THE CIT(A)-5, MUMBAI RELATING TO ASS ESSMENT YEAR 2007-08. 2. FACTS OF THE CASE, IN BRIEF, ARE THAT THE AO DU RING THE COURSE OF ASSESSMENT PROCEEDINGS NOTED THAT THE ASSESSEE COMP ANY HAS EARNED COMPENSATION AND BUSINESS SERVICE CHARGES TOTALLING TO ` .3 LACS IN CONSIDERATION OF ALLOWING USAGE OF PREMISES AND REN DERING BUSINESS SERVICES TO M/S. MAGIC EYE PVT. LTD. FROM THE PROFIT AND LOS S ACCOUNT FOR THE YEAR ENDING 31 ST MARCH, 2007, THE AO NOTED THAT THE ONLY RECEIPT CR EDITED THEREIN IS SERVICE CHARGES AND COMPENSATION RECEIVED OF ` .3 LACS AGAINST WHICH THE ASSESSEE COMPANY HAS CLAIMED VARIOUS EXPENSES AND C LAIMED LOSS OF ` .66,154/-. ON BEING, QUESTIONED BY THE AO TO EXPLAI N AS TO WHY THE COMPENSATION OF ` .1,20,000/- AND BUSINESS CHARGES OF ` .1,80,000/- SHOULD NOT BE TAXED AS INCOME FROM HOUSE PROPERTY, THE A SSESSEE SUBMITTED THAT HE IS NOT THE OWNER OF THE PREMISES AND IS ONLY A TENA NT PAYING MONTHLY RENT OF 2 ` .451/- TO THE OWNER SWAGAT CATERERS. WITH REGARD TO BUSINESS CHARGES OF ` .1,80,000/-, IT WAS SUBMITTED THAT THIS WAS RECEIVE D FOR RENDERING VARIOUS FACILITIES AND AMENITIES TO THE CLIENT. 3. HOWEVER, THE EXPLANATION GIVEN BY THE ASSESSEE W AS NOT ACCEPTED BY THE AO. THE AO WAS OF THE OPINION THAT THE ASSESSEE IS DEEMED OWNER OF THE BUSINESS CENTRE PREMISES, IN TERMS OF SECTION 27(II IB) AND CLAUSE ((F) OF SEC. 269 (UA) OF THE I.T.ACT. RELYING ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF M/S. SHAMBHU INVESTMENT PVT. LTD. REPOR TED IN 263 ITR 143, THE AO HELD THAT THE COMPENSATION OF ` .3 LACS RECEIVED BY THE ASSESSEE SHOULD BE TREATED AS INCOME FROM HOUSE PROPERTY. 4. BEFORE THE LEARNED CIT(APPEALS), THE ASSESSEE RE ITERATED THE SAME SUBMISSIONS AS MADE BEFORE THE AO. IT WAS FURTHER S UBMITTED THAT SEC. 269 (UA) OF THE IT ACT, ON WHICH THE AO HAS BASED HER D ECISION HAS BEEN ABOLISHED AND, THEREFORE, HAS NO RELEVANCE. IT WAS ARGUED THAT THE ASSESSEE IS A MERE TENANT AND, THEREFORE, COULD NOT BE HELD AS DEEMED OWNER. IT WAS ALSO SUBMITTED THAT THE ASSESSEE, NOT BEING A MEMBER OF ANY SOCIETY, COMPANY OR ASSOCIATION, PROVISIONS OF SEC.27(III) ARE NOT APPL ICABLE TO THE FACTS OF THE CASE. RELYING ON THE PROVISIONS OF TRANSFER OF PROPERTY A CT, IT WAS SUBMITTED THAT THE SAME DOES NOT INCLUDES TENANCY RIGHTS. IT WAS S UBMITTED THAT THE INCOME TAX ACT RECOGNIZES THE DISTINCTION BETWEEN A TENANC Y RIGHT AND OTHER LIKE RIGHTS AS EVIDENCED IN SEC.55(II) OF THE I.T. ACT. SEVERAL DECISIONS WERE ALSO CITED BEFORE HIM AND IT WAS ARGUED THAT THE INCOME SHOULD BE TREATED AS BUSINESS INCOME. 4.1 HOWEVER, LEARNED CIT(APPEALS) WAS NOT SATISFIE D WITH THE EXPLANATION ADVANCED BY THE ASSESSEE AND UPHELD THE ACTION OF T HE AO BY HOLDING AS UNDER :- I HAVE CONSIDERED THE ASSESSMENT ORDER AND THE SUB MISSIONS OF THE APPELLANT. LOOKING INTO THE PROVISIONS OF SEC.2 7(IIIB), I AGREE WITH THE AO. AS I FIND, SEC. 27(IIIB) DIRECTLY HITS THE APPELLANT AS IN RESPECT OF THE BUILDING, THE APPELLANT HAS ACQUIRED THE RIGHT OF USAGE OF THE PREMISES. THE EXCLUSION THAT IS PROVID ED IN THE CLAUSE DOES NOT COVER THE APPELLANTS CASE. IN VIEW OF THI S, THE AO HAS 3 RIGHTLY HELD THAT THE APPELLANT IS A DEEMED OWNER. I ALSO FIND, THE ATTENDING CLAUSE (F) OF SEC. 269(UA) IS ALSO IN PLA Y IN THE APPELLANTS CASE. THE APPELLANT HAS NOT BROUGHT ANY THING ON RECORD TO INDICATE THAT THE CONDITIONS IN SEC. 27(I IIB) AND CLAUSE (F) OF SEC. 269(UA) ARE NOT APPLICABLE IN ITS CASE, IT IS THE PROVISIONS OF SEC. 27(IIIIB), WHICH ARE BEING APPLIED AND CLAUSE (F) OF SEC. 269(UA) COMES INTO OPERATION ONLY AS PART OF SEC. 27(IIIB), WHICH IS IN CURRENCY. THE APPELLANTS OTHER ARGUMENT THAT TENAN CY RIGHT IS NOT COVERED IS ALSO MISPLACED IN THAT SEC.27(IIIB) TALK S ABOUT ANY RIGHTS WHICH WOULD MAKE IT CLEAR THAT IT DOES NOT M AKE ANY DISTINCTION BETWEEN DIFFERENT TYPES OF RIGHTS. OTHE RWISE ALSO LEASE AND TENANCY RIGHTS ARE TREATED AT PAR DEPENDING UPO N THE PERIOD OF THE RIGHTS. THE APPELLANTS OTHER ARGUMENT THAT IT IS NOT A MEMBER OF ANY SOCIETY, COMPANY OR ASSOCIATION IS ALSO OFF THE MARK AS THIS IS NOT A CONDITION FOR OPERATION OF SEC.27(IIIB). I N THIS RESPECT, I ALSO FIND THAT THE AO IS RELIANCE ON THE DECISION IN THE CASE M/S. SHAMBHU INVESTMENT PVT. LTD. IS APT AND APPROPRIATE . CLUED INTO THE FOREGOING, I FIND THE ACTION OF THE AO JUSTIFIE D. ACCORDINGLY, THE GROUNDS OF APPEAL ARE DISMISSED. 5. AGGRIEVED WITH SUCH ORDER OF THE LEARNED CIT(APP EALS), THE ASSESSEE IS IN APPEAL BEFORE US WITH THE FOLLOWING GROUND AS PE R GROUND OF APPEAL NO.1 :- 1. BUSINESS INCOME ALLEGEDLY TREATED AS INCOME FRO M HOUSE PROPERTY `.3,00,000/-. A) THE LEARNED. CIT(A) ERRED IN TREATING THE BUSINESS RECEIPTS OF THE APPELLANT AS INCOME FROM HOUSE PROPERTY WITHOUT APP RECIATING THAT THE CASE OF THE APPELLANT DOES NOT FALL WITHIN THE AMBIT OF SEC.22. B) THE LEARNED. AO OUGHT TO HAVE APPRECIATED THAT THE CASE OF THE APPELLANT DOES NOT FALL WITHIN THE AMBIT OF SEC.269 UA(F) NOR THE PROVISION OF SEC.27(IIIB) IS ATTRACTED. THUS INVOKI NG THE EXTENDED MEANING THEREBY AMOUNTS MIS-APPLICATION OF PROVISIO N AS THE PREMISES USED WAS OUT OF PAGDI AND THERE WAS NO LEA SE AGREEMENT AS SUCH. C) WITHOUT PREJUDICE TO MERITS, THE CONSIDERATION RECE IVED AGAINST RENDERING SERVICES COULD ALTERNATIVELY BE TAXED UND ER BUSINESS INCOME AND THE COMPENSATION RECEIVED FOR UTLIZATION OF PART PREMISES COULD BE TAXED U/S.22 BY VIRTUE OF COMPOSI TE AGREEMENT. 6. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SAME SUBMISSIONS AS MADE BEFORE THE AO AND THE LEARNED CIT(APPEALS). HE SUBMITTED THAT THE ASSESSEE IS RUNNING A BUSINESS CENTRE IN A SYSTEMAT IC AND ORGANISED MANNER AND, THEREFORE, IT SHOULD BE TREATED AS ADVENTURE I N NATURE OF TRADE. HE 4 SUBMITTED THAT SINCE THE ASSESSEE IS NOT THE OWNER, THE PROVISIONS OF SEC. 269 (UA) DO NOT COME INTO PLAY. FURTHER, THE AO HAS ACC EPTED THE DEPRECIATION ON FURNITURES AND FIXTURES. THERE IS NO AGREEMENT BET WEEN THE TENANT AND THE ASSESSEE IN THE INSTANT CASE. HE SUBMITTED THAT THE DECISION RELIED ON BY THE AO IN CASE OF M/S. SHAMBHU INVESTMENT PVT. LTD. (SU PRA) IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE, SINCE IN THAT CASE T HE ASSESSEE WAS THE OWNER WHEREAS IN THE INSTANT CASE, THE ASSESSEE IS PAYING RENT. IN HIS ALTERNATE SUBMISSION, HE SUBMITTED THAT THE AMOUNT OF ` .1,20,000/- RECEIVED TOWARDS COMPENSATION BE TREATED AS RENTAL INCOME AND THE SERVICE CHARGES OF ` .1,80,000/- SHOULD BE TREATED AS BUSINESS INCOME. 7. THE LEARNED DR ON THE OTHER HAND, WHILE SUPPORTI NG THE ORDER OF THE LEARNED CIT (APPEALS) SUBMITTED THAT ALTHOUGH THE A SSESSEE IS PAYING A MONTHLY RENT OF ` .451/- TO THE OWNER SWAGAT CATERERS, THE FACT REMAI NS THAT HE HAS TAKEN THE PREMISES ON PAGDI SYSTEM. THEREF ORE, THE ASSESSEE VIRTUALLY IS THE OWNER OF THE PREMISES. THEREFORE, THE DECISION OF THE HONBLE SUPREME COURT IN CASE OF M/S. SHAMBHU INVESTMENT PV T LTD. (SUPRA) IS CLEARLY APPLICABLE TO THE FACTS OF THE CASE. HE, AC CORDINGLY, SUBMITTED THAT THE ORDER OF THE LEARNED CIT(APPEALS) SHOULD BE UPHELD. 8. I HAVE CONSIDERED THE RIVAL SUBMISSIONS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE AO AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. I HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE ME BY BOTH THE SIDES. THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSEE HAS RECEIVED A SUM OF ` .3 LACS FROM M/S. MAGIC EYE PVT. LTD., IN CONSIDERA TION OF ALLOWING USAGE OF PREMISES AND RENDERING CERTAIN SERVICES. FROM THE DETAILS FURNISHED BY THE ASSESSEE BEFORE THE AO, IT IS SEEN THAT THE ASSESSEE HAS RECEIVED COMPENSATION OF ` .1,20,000/- AND BUSINESS SERVICE CHARGES OF ` .1,80,000/-. IT IS IN THE CASE OF REVENUE THAT SINC E THE ASSESSEE IS THE OWNER OF THE PREMISES, THE DECISION OF HONBLE SUPREME CO URT IN THE CASE OF M/S. SHAMBHU INVESTMENT PVT. LTD. (SUPRA) IS CLEARLY APP LICABLE AND THE ENTIRE RECEIPT HAS TO BE CONSIDERED AS INCOME FROM HOUSE PROPERTY. IT IS THE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT SINCE HE IS NOT THE REAL OWNER, THEREFORE, PROVISIONS OF SECTION 22 DOE S NOT COME INTO PLAY AND 5 SINCE THE ASSESSEE IS CONDUCTING THE BUSINESS SERVI CE IN AN ORGANISED AND SYSTEMATIC MANNER AND SINCE THE AO HAS ALLOWED DEPR ECIATION ON FURNITURES AND FIXTURES, THEREFORE, THE TOTAL COMPENSATION OF ` .3 LACS RECEIVED BY THE ASSESSEE COMPANY SHOULD BE TREATED AS EITHER BUSIN ESS INCOME OR ADVENTURE IN NATURE OF TRADE. IT IS THE ALTERNATE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE AMOUNT OF ` .1,20,000/- RECEIVED TOWARDS COMPENSATION SHOULD BE TREATED AS RENTAL INCOME A ND ` .1,80,000/- RECEIVED TOWARDS BUSINESS CHARGES TO BE TREATED AS BUSINESS RECEIPTS. 9. IN MY OPINION, THE ALTERNATE CONTENTION OF THE A SSESSEE APPEARS TO BE ACCEPTABLE. THEREFORE, I DIRECT THE AO TO TREAT COM PENSATION OF ` .1,20,000/- AS RENTAL INCOME AND THE BALANCE AMOUNT OF ` .1,80,000/- TO BE TREATED AS BUSINESS INCOME. THE AO IS DIRECTED TO ALLOW ONLY THE EXPENSES ATTRIBUTABLE TO THE BUSINESS SERVICE CHARGES. I HOLD AND DIRECT ACCORDINGLY. THE GROUND RAISED BY THE ASSESSEE IS ACCORDINGLY, PARTLY ALLOW ED. 10. GROUND OF APPEAL NO.2 RELATES TO LEVY OF PENAL INTERESTS, WHICH IN MY OPINION IS MANDATORY AND CONSEQUENTIAL IN NATURE. A CCORDINGLY, THE SAME IS DISMISSED. 11. GROUND OF APPEAL NO.3 BEING GENERAL IN NATURE I S DISMISSED. 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON THIS 15 TH DAY OF APRIL, 2011. SD/- (R.K. PANDA) ACCOUNTANT MEMBER MUMBAI, DATED : 15/04/2011 6 COPY FORWARDED TO : 1. THE APPELLANT, 2. THE RESPONDENT, 3. THE C.I.T. 4. CIT (A) 5. THE DR, SMC - BENCH, ITAT, MUMBAI //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI ROSHANI