R.K. & COMPANY P. LTD, MUMBAI v. ITO 7(2)(1), MUMBAI

ITA 1837/MUM/2009 | 2005-2006
Pronouncement Date: 27-10-2010 | Result: Dismissed

Appeal Details

RSA Number 183719914 RSA 2009
Bench Mumbai
Appeal Number ITA 1837/MUM/2009
Duration Of Justice 1 year(s) 7 month(s) 7 day(s)
Appellant R.K. & COMPANY P. LTD, MUMBAI
Respondent ITO 7(2)(1), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 27-10-2010
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted D
Tribunal Order Date 27-10-2010
Date Of Final Hearing 07-04-2009
Next Hearing Date 07-04-2009
Assessment Year 2005-2006
Appeal Filed On 20-03-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES D MUMBAI BEFORE SHRI R.S.SYAL AM AND SHRI VIJAY PAL RAO JM ITA NO.1837/MUM/2009 : ASST. YEAR 2005-2006 M/S.R.K. & COMPANY PRIVATE LIMITED 1 KAMDAR SHOPPING CENTRE TEJPAL ROAD VILE PARLE (EAST) MUMBAI 400 057. PA NO.AACCR3695P. VS. THE INCOME TAX OFFICER WARD 7(2)(1) MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI S.S.PHADKAR RESPONDENT BY : SHRI JITENDRA YADAV O R D E R PER R.S.SYAL AM : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) ON 30.12.2008 IN RELATION TO THE ASSESSMENT YEAR 2005-2006. 2. THE ONLY GRIEVANCE IN THIS APPEAL IS AGAINST THE TREATMENT GIVEN TO INCOME FROM RENT FROM BUILDING CONVERTED INTO STOCK IN TRA DE AS HOUSE PROPERTY INCOME INSTEAD OF BUSINESS INCOME AS CLAIMED BY THE ASSESS EE. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS OWNER OF VARIOUS PREMISES AND WAS EARNING RENTAL INCOME FROM ITS TENANTS. THIS RENTAL INCOME WAS SHO WN AS BUSINESS INCOME IN THIS YEAR. ON BEING CALLED UPON TO EXPLAIN AS TO WHY IT SHOULD NOT BE TREATED AS `INCOME FROM HOUSE PROPERTY AS WAS OFFERED AND ASSESSED IN THE EARLIER YEARS THE ASSESSEE DID NOT FURNISH ANY EXPLANATION. THE A.O. THEREFOR E TAXED THE INCOME UNDER THE HEAD `INCOME FROM HOUSE PROPERTY. CONSEQUENTLY TH E ASSESSING OFFICER DISALLOWED CERTAIN EXPENSES WHICH WERE CLAIMED BY T HE ASSESSEE AGAINST SUCH BUSINESS INCOME AND GRANTED MANDATORY DEDUCTION U/S .24. THE LEARNED CIT(A) UPHELD THE ASSESSMENT ORDER ON THIS ISSUE BY HOLDIN G THAT THE RENTAL INCOME WAS ITA NO.1837/MUM/2009 M/S.R.K. & COMPANY PRIVATE LIMITED. 2 LIABLE TO BE CONSIDERED UNDER THE HEAD `INCOME FROM HOUSE PROPERTY. HE FURTHER DIRECTED THE ASSESSING OFFICER TO ALLOW DEDUCTION FOR THE PROPERTY TAX PAID TO BMC WHICH WAS NOT ALLOWED BY THE A.O. THE ASSESSEE IN T HE INSTANT APPEAL IS AGGRIEVED ONLY AGAINST THE TREATMENT GIVEN TO INCOME FROM REN T AS HOUSE PROPERTY INCOME INSTEAD OF BUSINESS INCOME CLAIMED BY THE ASSESSEE. 3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE ASSESSEE HAS MADE OUT A CASE THAT IT PU RCHASED LAND IN GHATKOPAR IN 1948 AND CONSTRUCTED 3 CHAWLS AND 2 BUILDINGS FROM WHICH IT WAS DERIVING RENTAL INCOME FROM TENANTS FOR MANY YEARS. IN THE ASSESSME NT YEAR 2003-2004 THE COMPANYS SHAREHOLDING UNDERWENT A CHANGE AND THE P ROPERTY WAS CONVERTED INTO STOCK IN TRADE WITH EFFECT FROM 1.4.2004. THUS IT D EMONSTRATES THAT UP TO THE IMMEDIATELY PRECEDING ASSESSMENT YEAR THE RENTAL I NCOME DERIVED BY THE ASSESSEE FROM TENANTS OF THE PROPERTY WAS CHARGED TO TAX UND ER THE HEAD `INCOME FROM HOUSE PROPERTY. IT IS ONLY FROM THIS YEAR THAT THE ASSE SSEE THOUGHT OF CONVERTING THIS PROPERTY INTO STOCK IN TRADE AND CLAIMED THAT THE R ENTAL INCOME BE TAXED UNDER THE HEAD `BUSINESS INCOME INSTEAD OF `INCOME FROM HOU SE PROPERTY. THE LEARNED A.R. HAS RELIED ON CERTAIN ORDERS PASSED BY THE TRI BUNAL AND THE JUDGEMENT OF THE HONBLE SUPREME COURT IN THE CASE OF S.G.MERCANTILE CORPORATION P.LTD. VS. CIT [(1972) 83 ITR 700 (SC)] TO ESPOUSE HIS POINT OF VIEW. THE UNDISPUTED FACTS ARE THAT THE RENTAL INCOME WAS OFFERED BY THE ASSESSEE FOR TAXATION UNDER THE HEAD `INCOME FROM HOUSE PROPERTY UP TO ASSESSMENT YEAR 2004-2005 THOUGH THE MANAGEMENT UNDERWENT CHANGE IN ASSESSMENT YEAR 2003 -2004. EVEN AFTER THE CHANGE IN MANAGEMENT THE RENTAL INCOME WAS DERIVED FROM THE SAME PROPERTY AND NO COMPLEX BUSINESS ACTIVITY HAVING BEEN CARRIED OU T BY THE ASSESSEE HAS BEEN BROUGHT TO OUR NOTICE. IT IS MERE CONTEMPLATION OF THE ASSESSEE THAT IT WANTS TO CONVERT SUCH PROPERTY INTO MALL ETC. IN FUTURE. TH E HONBLE SUPREME COURT IN THE CASE OF CIT VS. SHAMBHU INVESTMENT (P) LTD. [(2003) 263 ITR 143 (SC)] HAS HELD THAT WHERE THERE IS A COMPOSITE LETTING OUT OF BUIL DING FURNITURE AND FIXTURE THE ITA NO.1837/MUM/2009 M/S.R.K. & COMPANY PRIVATE LIMITED. 3 INCOME IS LIABLE TO BE TAXED UNDER THE HEAD `INCOME FROM HOUSE PROPERTY. IN THIS JUDGEMENT IT WAS APPROVED THAT IF IT IS FOUND THAT THE MAIN INTENTION IS TO EXPLOIT THE IMMOVABLE PROPERTY BY WAY OF COMPLEX COMMERCIAL ACT IVITY IN THAT EVENT IT SHOULD BE HELD AS `BUSINESS INCOME. FACTS UNDER CONSIDERATION DO NOT INDICATE THAT THERE WAS ANY COMPLEX COMMERCIAL ACTIVITY CARR IED ON BY THE ASSESSEE IN THE YEAR IN QUESTION. THE BUILDING WHICH WAS LET OUT T O TENANTS IN PAST CONTINUED AS SUCH IN THE INSTANT YEAR. WE THEREFORE HOLD THAT THE JUDGEMENT OF THE HONBLE SUPREME COURT IS STRICTLY APPLICABLE AND THE INCOME IS LIABLE TO BE TAXED UNDER THE HEAD `INCOME FROM HOUSE PROPERTY. IN SO FAR AS TH E RELIANCE OF THE LD. AR ON CERTAIN TRIBUNAL ORDERS IN HIS FAVOUR IS CONCERNED WE FIND THAT THE RATIO OF SUCH ORDERS CANNOT BE APPLIED IN VIEW OF THE SPECIAL BE NCH ORDER PASSED IN ATMARAM PROPERTIES P. LTD. VS. JCIT[(2006) 102 TTJ 345 (DEL)(SB) IN WHICH IT HAS BEEN HELD THAT THE RENTAL INCOME DERIVED BY THE ASSESSEE-COMP ANY BY LETTING OUT A PROPERTY SIMPLICITOR WAS CHARGEABLE TO TAX UNDER THE HEAD ` INCOME FROM HOUSE PROPERTY AND NOT AS `BUSINESS INCOME IRRESPECTIVE OF THE F ACT THAT THE ASSESSEE-COMPANY WAS DOING BUSINESS OF ACQUIRING DEVELOPING AND SE LLING PROPERTIES. THE FACTS OF THE INSTANT CASE ARE IN CLOSE RESEMBLANCE TO THOSE CONSIDERED BY THE SPECIAL BENCH IN THE AFORENOTED CASE. HERE ALSO THE ASSESSEE IS C LAIMING TO BE A BUILDER WHO CONVERTED THE PROPERTY INTO STOCK IN TRADE. IT IS F URTHER NOTED THAT THE JUDGEMENT IN THE CASE OF S.G.MERCANTILE CORPORATION P.LTD. (SUPRA) IS DISTINGUISHABLE ON THE FACTS INASMUCH AS IN THAT CASE THE ASSESSEE TOOK LO AN OF PROPERTY AND SUBLET PART THEREOF WITH A VIEW TO MAKE PROFITS AND THE PROFIT WAS HELD TO BE TAXABLE AS BUSINESS INCOME. THIS POSITION IS NOT HERE. ON THE OTHER HAND WE FIND THAT THE HONBLE SUPREME COURT IN THE CASE OF EAST INDIA HOUSING & LAND DEVELOPMENT TRUST LTD. VS. CIT [(1961) 42 ITR 49 (SC)] AS RELIED ON BY THE LD. DR CONSIDERED THE FACTS IN WHICH THE ASSESSEE-COMPANY WAS INCORPO RATED WITH THE OBJECT OF BUYING AND DEVELOPING LANDED PROPERTIES. AMOUNT RE CEIVED FROM TENANTS FROM SHOPS AND STALLS WAS HELD TO BE TAXABLE UNDER THE H EAD `INCOME FROM HOUSE ITA NO.1837/MUM/2009 M/S.R.K. & COMPANY PRIVATE LIMITED. 4 PROPERTY. IN VIEW OF THE ABOVE DISCUSSION WE HOLD THAT THE LD. C IT(A) HAS TAKEN AN INESCAPABLE VIEW. THE SAME IS THEREFORE UPHEL D. 4. IN THE RESULT THE APPEAL IS DISMISSED. ORDER PRONOUNCED ON THIS 27 TH DAY OF OCTOBER 2010. SD/- SD/- ( VIJAY PAL RAO ) ( R.S.SYAL ) JUDICIAL MEMBER ACC OUNTANT MEMBER MUMBAI : 27 TH OCTOBER 2010. DEVDAS* COPY TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT CONCERNED 4. THE CIT(A) - VII MUMBAI. 5. THE DR/ITAT MUMBAI. 6. GUARD FILE. TRUE COPY. BY ORDER ASSISTANT REGISTRAR ITAT MUMBAI.