DCIT, Hyderabad v. M/S Yamuna Digital Electronics Pvt.Ltd, Hyderabad

ITA 1094/HYD/2010 | 2004-2005
Pronouncement Date: 31-01-2011 | Result: Allowed

Appeal Details

RSA Number 109422514 RSA 2010
Assessee PAN AAACY0938J
Bench Hyderabad
Appeal Number ITA 1094/HYD/2010
Duration Of Justice 5 month(s) 12 day(s)
Appellant DCIT, Hyderabad
Respondent M/S Yamuna Digital Electronics Pvt.Ltd, Hyderabad
Appeal Type Income Tax Appeal
Pronouncement Date 31-01-2011
Appeal Filed By Department
Order Result Allowed
Bench Allotted B
Tribunal Order Date 31-01-2011
Assessment Year 2004-2005
Appeal Filed On 18-08-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B HYDERABAD BEFORE SHRI G.C. GUPTA VICE PRESIDENT AND SHRI CHANDRA POOJARI ACCOUNTANT MEMBER ITA NO.1094/H/2010 ASSESSMENT YEAR 2004-05 THE DCIT CIRCLE 3(3) HYDERABAD VS M/S YAMUNA DIGITAL ELECTRONICS (P) LTD. HYDERABAD. (PAN AAACY 0938 J) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI K.E. SUNIL BABU RESPONDENT BY : SHRI M. LAXMI NARASIMHA O R D E R PER CHANDRA POOJARI ACCOUNTANT MEMBER: THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A) IV HYDERABAD DATED 29. 1.2010 AND PERTAINS TO THE ASSESSMENT YEAR 2004-05. 2. THE REVENUE RAISED THE FOLLOWING GROUNDS: 1. THE CIT(A) ERRED BOTH ON FACTS AND IN LAW. 2. THE CIT(A) HAS ERRED IN DIRECTING THE ASSESSING OFF ICER TO TREAT THE LEASE RENTAL INCOME AS BUSINESS INCOME AS AGAINST T HE SAME ASSESSED AS INCOME FROM HOUSE PROPERTY PLACING RE LIANCE ON THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF U NIVERSAL PLAST LIMITED (237 ITR 454). 3. THE CIT(A) FAILED TO APPRECIATE THE FACT THAT THE A SSESSEE COMPANY WAS SET UP WITH THE OBJECT AND INTENTION OF DEVELOP ING AND SUPPLYING SIGNAL GENERATORS. IT WAS NOT THE INTENT ION OF THE ASSESSEE COMPANY TO LET OUT PREMISES AND DERIVE INC OME THEREFROM. ITA NO.1094/H/2010 M/S YAMUNA DIGITAL ELECTRONICS (P) LTD. HYDERABAD 2 2 4. THE CIT(A) HAS FAILED TO APPRECIATE THE FACT THAT I F THE PRIMARY OBJECT IS TO EXPLOIT THE IMMOVABLE PROPERTY BY WAY OF COMPLEX COMMERCIAL ACTIVITIES IN THAT EVENT IT MUST BE HEL D AS BUSINESS INCOME. THE RATIO OF DECISION IN THE CASES OF (I) EAST INDIA HOUSING AND LAND DEVELOPMENT TRUST LTD. (42 ITR 49 (H.C) AN D SHAMBHU INVESTMENTS (P) LTD. (249 ITR 47(CAL.) ARE RATHER A PPLICABLE TO THE FACTS OF THE ASSESSEES CASE AND NOT IN THE CASE OF UNIVERSAL PLAST LIMITED (237 ITR 454) (S.C) 3. BRIEF FACTS OF THE ISSUE ARE THAT THE ASSESSEE IS A COMPANY M/S YAMUNA DIGITAL ELECTRONICS (P) LTD. ENGAGED IN THE BUSINESS OF MANUFACTURE OF ELECTRONICS TESTING AND MEASURING EQ UIPMENTS. FOR THE ASSESSMENT YEAR UNDER CONSIDERATION THE ASSESSING OFFICER DETERMINED THE BUSINESS INCOME AT NIL AND TREATED THE INCOME FROM LET OUT PROPERTY CLAIMED TO BE BUSINESS INCOME AS INCOME FROM HOUSE PROPERTY. BESIDES THERE WAS AN ADDITION U/S 68 OF THE IT ACT AT RS.26 38 400/-. THE ASSESSEE IN THE ASSESSMENT YEAR UNDER CONSIDERATION DERIVED INCOME FROM BUILDINGS BY LETTING OUT TO M/S SHIV SHIVANI PUBLIC SCHOOL AND GLOBAL TRUST BANK. THE ASSESSING OFFICER TREATED THE INCO ME DERIVED FROM LETTING OUT OF THE PROPERTY TO THE ABOVE PARTIES AS INCOME FROM HOUSE PROPERTY. ON APPEAL THE CIT(A) PLACED RELIANCE ON THE JUDGEME NT OF THE HONBLE SUPREME COURT IN THE CASE OF M/S UNIVARSAL PLAST LT D. VS. CIT (237 ITR 454) AND HELD THAT THE INCOME DERIVED FROM THE LETT ING OUT OF THE PROPERTY HAS TO BE TREATED AS INCOME UNDER THE HEAD PROFI TS AND GAINS OF THE BUSINESS INSTEAD OF INCOME FROM HOUSE PROPERTY. AGAINST THIS THE REVENUE IS IN APPEAL BEFORE US. 4. WE HAVE HEARD BOTH THE PARTIES AND PERUSED TH E MATERIALS AVAILABLE ON RECORD. THE CONTENTION OF THE ASSESSE ES COUNSEL IS THAT THE ASSESSEE HAS LET OUT THE PROPERTY FOR A TEMPORARY P ERIOD WITH AN INTENTION TO RESTART ITS ORIGINAL BUSINESS OF MANUFACTURE OF ELECTRONICS AND TESTING MEASURING EQUIPMENTS. DUE TO FINANCIAL HARDSHIPS T HE ASSESSEE WAS FORCED TO LET OUT A PORTION OF THE FACTORY BUILDING TO THE ABOVE TWO PARTIES. ITA NO.1094/H/2010 M/S YAMUNA DIGITAL ELECTRONICS (P) LTD. HYDERABAD 3 3 5. HE SUBMITTED THAT THE COMPANY HAD LEASED A POR TION OF THE BUILDING TO SHIV SHIVANI PUBLIC SCHOOL FOR A PERIOD OF 11 MONTHS ONLY AND LEASED TO THE GLOBAL TRUST BANK FOR A PERIOD OF 10 YEARS WITH A CONDITION THAT THE LEASE CAN BE TERMINATED BY GIVING SIX MONT HS NOTICE. ACCORDING TO HIM THE LEASE INCOME HAD BEEN USED FOR THE PURPOSE OF CARRYING OUT THE BUSINESS AND R&D DEVELOPING NEW PRODUCTS AND AS ALS O TO MEET REGULAR EXPENSES. EVEN AFTER LEASING THE PORTION OF THE BU ILDING THE ASSESSEE WAS NOT IN A POSITION TO RUN THE COMPANY WITHOUT FURTHE R INVESTMENT BY SHARE HOLDERS. ON THE OTHER HAND THE LEARNED DEPARTMENTA L REPRESENTATIVE SUBMITTED THAT THE ASSESSEES INTENTION IS ONLY TO LET OUT THE PROPERTY AND NOT CARRY ON ANY KIND OF COMMERCIAL ACTIVITY FOR TH E PURPOSE OF EARNING SUCH INCOME AND THERE IS NO HOPE OF RESTARTING THE ASSESSEES ORIGINAL BUSINESS IN THE SAID PREMISES. ACCORDING TO THE D. R. THE PROPERTY WAS LET OUT FOR THE PURPOSE OF EARNING RENTAL INCOME IT CA NNOT BE SAID THAT THE ASSESSEE HAS EXPLOITED A COMMERCIAL ASSET. IN THE ABOVE BACKGROUND WE HAVE GONE THROUGH THE FACTS OF THE CASE. AS SEEN FROM THE FACTS THE ASSESSEE IS NOT DOING ANYTHING EXCEPT LEASING OF IT S ASSETS FOR THE PURPOSE OF RECEIVING RENTAL INCOME. BEING SO WHEN THE ASS ESSEE LEASED OUT THE PROPERTY THE INCOME DERIVED FROM IT CANNOT BE TREA TED AS INCOME FROM BUSINESS. SINCE THE ASSESSEE AFTER LETTING OUT TH E PROPERTY HAS NOT CARRIED ON ANY FURTHER ACTIVITY WHICH COULD BE TERMED AS AD VENTURE IN THE NATURE OF TRADE/BUSINESS WE CANNOT SAY THAT THE ASSESSEE CARRIED ON THE BUSINESS. EXPLOITATION OF THE PROPERTY BY LEASING THE SAME FOR THE PURPOSE OF THE EARNING RENT CANNOT BE CONSTRUED AS CARRYING ON THE BUSINESS. THE COMMERCIAL ASSET HAS TO BE EXPLOITED BY THE ASSESSE E IN THE COURSE OF ITS BUSINESS ACTIVITY FOR THE PURPOSE OF CLAIMING THE I NCOME AS BUSINESS INCOME. IN THE PRESENT CASE ADMITTEDLY THE ASSES SEE HAS NOT CARRIED ON THE ACTIVITY OF RUNNING EDUCATIONAL INSTITUTIONS/BA NKING BUSINESS. THE RUNNING OF EDUCATIONAL INSTITUTIONS OR BANK BY SOME OTHER ASSESSEE CANNOT BE CONSIDERED AS CARRYING ON THE BUSINESS BY THE AS SESSEE. THEREFORE IT ITA NO.1094/H/2010 M/S YAMUNA DIGITAL ELECTRONICS (P) LTD. HYDERABAD 4 4 CANNOT BE CORRECT TO SAY THAT THE ASSESSEE WAS EXPL OITING THE COMMERCIAL ASSET IN THE COURSE OF CARRYING OUT EDUCATIONAL ACT IVITIES/BANK. WE HAVE CAREFULLY GONE THROUGH THE JUDGEMENT IN THE CASE OF UNIVERSAL PLAST LTD. (SUPRA). IN THAT CASE SUPREME COURT LAID DOWN THE FOLLOWING PROPOSITION: (1) NO PRECISE TEST CAN BE LAID DOWN TO ASCERTAIN WHETHER INCOME (REFERRED TO BY WHATEVER NOMENCLATURE LEASE AMOUNT RENTS LICENCE FEE) RECEIVED BY AN ASSESSEE FROM LEASING OR LETTING OUT OF ASSETS W OULD FALL UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. (2) IT IS MIXED QUESTION OF LAW AND FACT AND HAS TO BE DETERMINED FROM THE POINT OF VIEW OF A BUSINESSMAN IN THAT BUSINESS ON THE FACTS AND IN THE CIRCUMSTANCES OF EACH CASE INCLUDING TRUE INTERPRE TATION OF THE AGREEMENT UNDER WHICH THE ASSETS ARE LET OUT (3) WHERE ALL THE ASSETS OF THE BUSINESS ARE LET OU T THE PERIOD FOR WHICH THE ASSETS ARE LET OUT IS A RELEVANT FACTOR TO FIND OUT WHETHER THE INTENTION OF THE ASSESSEE IS TO GO OUT OF BUSINESS ALTOGETHER OR TO COME BACK AND RESTART THE SAME (4) IF ONLY A FEW OF THE BUSINESS ASSETS ARE LET OU T TEMPORARILY WHILE THE ASSESSEE IS CARRYING OUT HIS OTHER BUSINESS ACTIVIT IES THEN IT IS A CASE OF EXPLOITING THE BUSINESS ASSETS OTHERWISE THAN EMPLO YING THEM FOR HIS OWN USE FOR MAKING PROFIT FOR THAT BUSINESS BUT IF THE BUSINESS NEVER STARTED OR HAS STARTED BUT CEASED WITH NO INTENTION TO BE RESU MED THE ASSETS ALSO WILL CEASE TO BE BUSINESS ASSETS AND THE TRANSACTION WIL L ONLY BY EXPLOITATION OF PROPERTY BY AN OWNER THEREOF BUT NOT EXPLOITATION OF BUSINESS ASSETS. 6. IN THE CASE BEFORE THE APEX COURT IT WAS A FA CT THAT THE LEASING OF THE FACTORY WAS NOT A SEQUEL TO THE ASSESSEES D ECISION TO GO OUT OF THE BUSINESS IN RESPECT OF THE SUBJECT FACTORY AND THAT IT WAS JUST A MAKE SHIFT TRANSIENT ALTERNATIVE MEANS OF COMMERCIAL EXPLOITAT ION OF THE COMMERCIAL ASSETS. FURTHER IT WAS HELD THAT THE ASSESSEE CA NNOT BE SAID THAT IT HAD DISMANTLED ITS BUSINESS NEVER TO RETURN BACK TO IT AND DECIDED THAT THE INCOME RECEIVED BY THE ASSESSEE BY LEASING OUT THE FACTORY WAS BUSINESS INCOME. BUT IN THE PRESENT CASE THE INTENTION OF THE ASSESSEE CANNOT BE SAID THAT ASSETS ARE LEASED OUT WITH AN INTENTION T O RESTART THE BUSINESS. IN OUR OPINION THERE IS NO POSITIVE MATERIAL ON RE CORD TO SHOW THAT THE ASSESSEE HAS REALLY ANY INTENTION TO RESTART ITS BU SINESS WHEN THE INTENTION OF THE ASSESSEE WAS LET OUT ITS BUILDING FOR THE PURPOSE OF EARNING ITA NO.1094/H/2010 M/S YAMUNA DIGITAL ELECTRONICS (P) LTD. HYDERABAD 5 5 RENTAL INCOME AND SUCH INCOME HAS TO BE ASSESSED AS INCOME FROM HOUSE PROPERTY. IN THE PRESENT CASE THE INTENTION OF THE ASSESSEE CANNOT BE SAID THAT ASSETS ARE LET OUT WITH AN INTENTION TO R ESTART THE BUSINESS. WHEN THE INTENTION OF THE ASSESSEE WAS LET OUT ITS BUILDING FOR THE PURPOSE OF EARNING RENTAL INCOME AND THE INCOME IS IDENTIFI ED AS INCOME FROM PROPERTY AND SUCH INCOME HAS TO BE TREATED AS INCOM E FROM HOUSE PROPERTY ONLY. IN OUR OPINION THE JUDGEMENT IN TH E UNIVERSAL PLAST LIMITED (SUPRA) HAS NO RELEVANCE IN THE PRESENT CAS E. MORE SO THE AGREEMENT ENTERED BY THE ASSESSEE WITH THE GLOBAL T RUST BANK IS NOT FOR A TEMPORARY PERIOD BUT FOR 10 YEARS WHICH IS VERY LON G PERIOD. SINCE THE ASSESSEE HAS NOT CARRIED ON ANY BUSINESS ACTIVITIES FROM THE IMPUGNED PROPERTIES THE INCOME EARNED FROM EXPLOITATION OF THE PROPERTY CANNOT BE CONSIDERED AS INCOME FROM BUSINESS AND IT IS TO BE CONSIDERED AS INCOME FROM HOUSE PROPERTY ONLY. 7. IN THE RESULT THE APPEAL OF THE REVENUE IN ITA NO.1094/H/2010 IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT 31.1.2011 SD/- SD/- G.C. GUPTA CHANDRA POOJARI VICE PRESIDENT ACCOUNTANT MEMBER DATED THE 31 ST JANUARY 2011 COPY FORWARDED TO: 1. M/S YAMUNA DIGITAL ELECTRONICS (P) LTD. 8-2-629 ROAD NO.1 BANJARA HILLS HYDERABAD 2. THE DCIT CIRCLE 3(3) HYDERABA 3. CIT(A)-IV HYDERABAD. 4. CIT HYDERABAD 5. THE D.R. ITAT HYDERABAD. NP