Jyoti Estate V. DY.C.I.T.(ASSTT)

TAXAP/281/2002

AI Insights

The case involves Jyoti Estate, a partnership firm primarily engaged in letting out warehouses/godowns and transportation of fertilizers, which contested the classification of their rental income. Initially, the income was assessed as 'income from house property' by the assessment officer, but the CIT (Appeals) reclassified it as 'business income'. However, the ITAT reversed this decision, classifying the income back as 'income from house property'. The High Court's decision supported the ITAT's classification, emphasizing that the activities conducted by Jyoti Estate were more aligned with property income than business income, despite the additional services provided.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 812986 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 17-11-2014
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income-tax vs. Surat Textile Market Co-operative Shops and Warehouse Society Ltd [2003] 264 ITR 289, Tax Appeal No. 266 of 2013 and allied matters rendered on 04.04.2013
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: MAUNA BHATT
• Assessee Lawyers: S N DIVETIA
• Keywords: Assessment Officer; Business income; Godown rental; Income tax appellate tribunal; Property income; Warehouse rental
• Section: 22; 27; 28

Judgement Text

"O/TAXAP/276/2002 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 276 of 2002 TO TAX APPEAL NO. 282 of 2002 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER ================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================================ JYOTI ESTATE....Appellant(s) Versus DY.C.I.T.(ASSTT)....Opponent(s) ================================================================ Appearance: MR SN DIVATIA, ADVOCATE for the Appellant(s) No. 1 MRS MAUNA M BHATT, ADVOCATE for the Opponent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE KS JHAVERI and Page 1 of 9 O/TAXAP/276/2002 JUDGMENT HONOURABLE MR.JUSTICE K.J.THAKER Date : 17/11/2014 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1. Being aggrieved and dissatisfied with the impugned judgment and order passed by the Income Tax Appellate Tribunal, Ahmedabad Bench (hereinafter referred to as ‘the Tribunal’) dated 25.01.2002 in ITA Nos. 1650/A/95, 1651/A/95, 1652/A/95, 1653/A/95, 1654/A/95, 1655/A/95 & 353/A/96 for the Assessment Years 1986-87, 1987-88, 1988- 89, 1989-90, 1990-91, 1991-92 & 1992-93 respectively, the revenue has preferred the present Tax Appeals for consideration of the following substantial question of law which were framed while admitting the matters: “Whether, on the facts and circumstances, the Tribunal was justified in holding that the rental income from letting out of warehouses/godowns together with various services rendered to the occupant did not constitute a business activity of the appellant and as such the income arising therefrom was not assessable under sec. 28 of the Income-tax Act, 1961 as business income? Whether, on the facts and circumstances of the case, the Tribunal could have arrived at conclusion that the income from letting out of the warehouse/godown was assessable as property income under sec. 22 of the Income-tax Act, 1961?” Page 2 of 9 O/TAXAP/276/2002 JUDGMENT 2. The appellant, a partnership firm, is engaged mainly in the business of letting out warehouses/godowns for storage purposes and also is in the business of transportation of fertilizers. The appellant firm had filed its return of income for the assessment years in question claiming the rental income from warehouse as business income. However, the assessment officer held that the income from letting out the warehouse/godown was not assessable as business income but was ‘income from house property’. On appeal the CIT (Appeals) held that the income from letting out of warehouses was assessable as business income. 3. On appeal before the ITAT by the revenue, by impugned judgment and order, ITAT allowing the appeal held that the rental income derived from letting out of warehouses/godowns was liable to be taxed as income from house property and not as income from business. Being aggrieved and dissatisfied with the impugned judgment and order passed by the ITAT, the assessee has preferred the present Tax Appeals for consideration of the aforesaid substantial questions of law. 4. Mr. Divetia, learned advocate appearing for the appellant has drawn the attention of this Court to the profit and loss account statement and balance sheet of the assessee placed on record as well as the certificate issued by Indian Potash Limited and the partnership deed and submitted that the rent received from the warehouse in the case of the assessee is incidental to the business. He submitted that such income can be assessable only under the head ‘business income’ and not as ‘income from house property’. Page 3 of 9 O/TAXAP/276/2002 JUDGMENT 4.1 Mr. Divetia has relied upon the decision of this Court in the case of Commissioner of Income-tax vs. Surat Textile Market Co-operative Shops and Warehouse Society Ltd reported in [2003] 264 ITR 289 wherein it is held that nominal rent for godown and shops constitutes income from other sources and that the income derived by the assessee by permitting use of auditorium by collecting charges would fall under the head ’business income’. It is held that the income which was derived by fulfillment of the object of the assessee to provide amenity to its members shall be construed as business income. It is further held that provision of canteen had to be construed as service planned and provided by the assessee as an amenity to facilitate trade and income from such canteen had therefore to be construed as business income. 4.2 Mr. Divetia has also placed reliance on an unreported decision of this Court in Tax Appeal No. 266 of 2013 and allied matters rendered on 04.04.2013. This Court has observed as under: “We notice that under some what similar background, when the Tribunal in case of Saptarishi Services [Supra] had held the income to be his business income and not from the house property, this Court had dismissed the appeal holding that no question of law arises. In such case, the assessee had taken certain piece of land on lease and thereupon put up construction of a commercial building with an idea of having a business center. Different portions of the building were given on rent to third parties and the assessee treated the rent as service charges under the head, income from business and profession. Page 4 of 9 O/TAXAP/276/2002 JUDGMENT Assessee explained to the Assessing Officer that in addition to providing the premises, the assessee also provided several other facilitates; such as, services of lift, services of receptionists, secretarial services, data processing, conference room, etc. The Assessing Officer did not accept the contention and treated the income, derived from the house property. The Tribunal ultimately held in favour of the assessee and came to conclusion that, , ..the director of M/s. Saptarashi Services (P) Limited are not related to the directors of M/s. Kohinoor Tabacco Products (P) Limited. The electricity charges from October 1, 1989 to March 31, 1990, were paid to M/s. Mohanlal Hargovandas who were one of the members of the service centre and M/s. Saptarshi Services (P) Limited reimbursed them later. The assessee is having EPABX machine which facilitates providing telephone services to the occupants of the service centre. Besides this, the assessee is providing various services to the occupants like services of lift, services of receptionists, secretarial services, data processing, conference room, etc. The object of the said complex is that facilities to be provided with the building. Thus the assessee is providing a working place along with the various facilities. Against such decision, Revenues appeal was dismissed by this Court. The decision of Supreme Court in case of Sambhu Investment (P) Limited [Supra] was rendered in different facts-situation. In such case, the assessee was owner of immovable property. It occupied a portion thereof and let out the rest to be used as table space to occupants, with furniture and fixtures and lights and air-conditioners. For such purpose, tenants paid monthly rental; inclusive of charges. The High Court held that such income should be treated as income from house property. The Apex Court upheld this judgment. In the present case, the facts are vitally different. The assessee had not rented out property but had allowed its use thereof for the purpose of joint venture business. In addition to the space with proper infrastructural facilitates, it also provides various other facilitates to be used for the purpose of diamond processing.” Page 5 of 9 O/TAXAP/276/2002 JUDGMENT 5. Mr. Manish Bhatt, learned Senior Counsel appearing with Ms. Mauna Bhatt, learned advocate for the revenue supported the impugned order passed by the Tribunal. He submitted that the Tribunal has considered the fact that the provision for security, adequate space for canteen, light and water arrangements, telephone and other facilities and providing tarred roads are incidental to the main activity of letting out of godowns for storage of fertilizers. 5.1 Mr. Bhatt submitted that it can be seen from the assessment order as well as the letter from Indian Potash Ltd that their requirement was semi plinth which means there were no constructed godowns and that there cannot be godowns without walls, doors and roofs. He submitted that therefore whatever the assessee earned from Indian Potash Limited cannot by any strength of imagination be said to be godown rent claimed to be assessable as business income. 6. We have carefully considered the submissions made by learned advocates for both the sides. The ground in these appeals relates to the head of income as to under which head warehousing charges (rent) is assessable. The assessee in the present case had given on hire plinth area i.e. semi pucca property to Indian Potash Ltd and later on the said area was covered by four walls and roof to give protection against rain, heat etc. There are as many as seventeen partners (with ten admitted subsequently) and they have made huge investment in the firm. The partnership is formed to carry on business in transport and constructing letting out godowns. They have borrowed huge funds to finance the entire project and have Page 6 of 9 O/TAXAP/276/2002 JUDGMENT provided infrastructural facilities. It is required to be seen that the infrastructural facilities like pacca road, light - water connection etc have been carried out which would warrant inference that the same is used for business trading and not for merely exploiting the asset. 7. The Tribunal in paragraph 5.15 of the impugned order observed as under: “5.15 The assessee is undoubtedly the owner of godowns constructed by them which have been let out to M/s. IPL for storage of fertilizers. The income derived by the assessee by way of rent of such godowns from M/s. IPL is therefore cleraly liable to be taxed as “income from property” and not as “income from business” as claimed by the assessee. The fact that the company had rendered certain incidental services for earning such rental income would not alter the nature of such income as being assessable under the head “income from house property”. The provision for security, adequate space for canteen, light and water arrangements telephone and other facilities and providing tarred roads are incidental to the main activity of letting out of godowns for storage of fertilizers. M/s. IPL making payment for use of godowns for storage of fertilizers and such rental income squarely falls within the ambit and scope of “income from house property” chargeable to tax u/s 22 to 27 of the Act.” 7.1 We are in complete agreement with the reasonings adopted and findings arrived at by the Tribunal. It is a settled law that whether any income falls under one head or the other has to be decided according to the common notions of practical and reasonable man for the act does not provide any guidance in the matter and that no general principle could be laid down which is applicable to all cases and each case has to Page 7 of 9 O/TAXAP/276/2002 JUDGMENT be decided on its own facts and circumstances. Given the set of facts and circumstances in the present case, we find that the decisions cited by learned advocate for the assessee shall not be applicable herein. The assessee herein has not let out the constructed building but is providing complex service oriented activities. The return received by the assessee is not the income derived from the exercise of property rights only but is derived from carrying on an adventure in the nature of trade. If the entire conduct and series of activities undertaken by the assessee firm is examined right from the inception of firm, it is borne out that the assessee carried out the activities with a view to earn profit or gain rather than to earn income as an owner of the asset. We therefore are of the opinion that the Tribunal was justified in holding that the rental income from letting out of warehouses/godowns together with various services rendered to the occupant did not constitute a business activity of the appellant and as such the income arising therefrom was not assessable under sec. 28 of the Income-tax Act, 1961 as business income. 8. In the premises aforesaid, we answer the questions raised in the present appeals in the affirmative - in favour of the revenue and against the assessee. The impugned order passed by the Tribunal is upheld. Appeals are dismissed accordingly. (K.S.JHAVERI, J.) (K.J.THAKER, J) Page 8 of 9 O/TAXAP/276/2002 JUDGMENT divya Page 9 of 9 "