The ACIT, Circle-2(1), Guntur v. M/s Sri Bharathi Ware Housing Corporation, Guntur

ITA 195/VIZ/2011 | 2006-2007
Pronouncement Date: 15-07-2011 | Result: Allowed

Appeal Details

RSA Number 19525314 RSA 2011
Assessee PAN AAFVS5390J
Bench Visakhapatnam
Appeal Number ITA 195/VIZ/2011
Duration Of Justice 2 month(s) 3 day(s)
Appellant The ACIT, Circle-2(1), Guntur
Respondent M/s Sri Bharathi Ware Housing Corporation, Guntur
Appeal Type Income Tax Appeal
Pronouncement Date 15-07-2011
Appeal Filed By Department
Order Result Allowed
Bench Allotted DB
Tribunal Order Date 15-07-2011
Assessment Year 2006-2007
Appeal Filed On 12-05-2011
Judgment Text
ITA NO195/V/11 M/S. BHARATHI WAREHOUSING CORPN. GU NTUR. 1 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV JUDICIAL MEMBER AND SHRI BR BASKARAN ACCOUNTANT MEMBER ITA NO. 195 &196 /VIZAG/ 20 11 ASSESSMENT YEAR : 2006 - 07 & 2007 - 08 ACIT CIRCLE - 2(1) GUNTUR VS. M/S. SRI BHARATHI WAREHOUSING CORPORATION GUNTUR (APPELLANT) (RESPONDENT) PAN NO.AAFVS 5390J APPELLANT BY: SHRI N O N E RESPONDENT BY: SHRI TH.L. PETER CIT(DR) ORDER PER SHRI S.K. YADAV JUDICIAL MEMBER:- THESE APPEALS ARE PREFERRED BY THE REVENUE AGAINS T THE ORDER OF THE CIT(A) ON VARIOUS COMMON GROUNDS WHICH ARE AS UNDER : 1. THE ORDER OF THE LD. CIT(A) IS NOT JUSTIFIED IN ALL OWING THE ASSESSEES APPEAL TREATING THE RENTAL INCOME DERIVE D BY THE ASSESSEE AS INCOME FROM BUSINESS. 2. THE LD. CIT(A) OUGHT TO HAVE CONSIDERED THE DECISIO N OF THE HONBLE HIGH COURT OF GUJARAT IN THE CASE OF SARABH AI P LTD. 263 ITR 197 IN WHICH IT WAS HELD THAT THE INCOME RECEIV ED ON THE LET OUT PROPERTIES HAS TO BE BROUGHT TO TAX UNDER THE INCOME FROM HOUSE PROPERTY. 3. THE LD. CIT(A) OUGHT TO HAVE CONSIDERED THE DECISIO N OF THE HONBLE SUPREME COURT OF INDIA IN THE CASE OF SHAMB HU INVESTMENT P LTD VS. CIT 263 ITR 143(SC) AND UPHELD THE ADDITION MADE BY THE ASSESSING OFFICER. 4. ANY OTHER GROUND(S) THAT MAY BE URGED AT THE TIME O F HEARING. 2. THESE APPEALS CAME UP FOR HEARING ON 13.7.2011. AN APPLICATION FOR ADJOURNMENT WAS RECEIVED ON BEHALF OF THE ASSESSEES ON THE GROUND THAT HIS COUNSEL WAS NOT WELL. FROM A CAREFUL PERUSAL OF RE CORD WE FIND THAT ON EARLIER OCCASION ALSO THE ASSESSEE SOUGHT ADJOURNM ENT FOR ONE REASON OR THE OTHER. DURING THE COURSE OF HEARING OUR ATTENTION WAS INVITED BY THE LD. D.R. THAT THE IMPUGNED ISSUE IS SQUARELY COVERED BY THE ORDER OF THE TRIBUNAL IN ITA NO195/V/11 M/S. BHARATHI WAREHOUSING CORPN. GU NTUR. 2 THE ASSESSEES OWN CASE PASSED IN EARLIER YEARS. I T WAS ALSO CONTENDED THAT THE CIT(A) HAD ADJUDICATED THE APPEAL FOLLOWING HIS ORDER FOR THE ASSESSMENT YEAR 2003-04 2004-05 & 2005-06 AND DECIDED THE ISS UE IN FAVOUR OF THE ASSESSEES. IN THOSE YEARS REVENUE PREFERRED AN AP PEAL BEFORE THE TRIBUNAL AND TRIBUNAL REVERSED THE ORDER OF THE CIT(A). SIN CE THE FACTS ARE IDENTICAL IN THESE YEARS THE ISSUE BE DECIDED IN TERMS OF THE O RDER OF THE TRIBUNAL FOR THE ASSESSMENT YEAR 2003-04 TO 2005-06 AND NO PURPOSE W OULD BE SERVED FOR GRANTING AN ADJOURNMENT. THE LD. COUNSEL FOR THE A SSESSEE HAS ALSO FILED A COPY OF THE ORDER OF THE TRIBUNAL. 3. HAVING EXAMINED THESE FACTS WE ARE OF THE VIEW THAT THE ASSESSEE KNOWING FULLY WELL THAT THE IMPUGNED ISSUE IS SQUAR ELY COVERED BY THE ORDER OF THE TRIBUNAL FOR EARLIER YEARS IS TRYING TO DEF ER THE HEARING FOR ONE REASON OR THE OTHER. WE THEREFORE FIND NO MERIT IN THE REQUEST OF THE ASSESSEE FOR ADJOURNMENT. WE ACCORDINGLY REJECT THE ADJOURNMENT APPLICATION AND HEARD THE APPEAL. 4. HAVING GIVEN A THOUGHTFUL CONSIDERATION TO THE R EVENUES CONTENTION AND FROM A CAREFUL PERUSAL OF THE ORDERS OF LOWER A UTHORITIES AND THE ORDER OF THE TRIBUNAL FOR THE ASSESSMENT YEAR 2003-04 TO 200 5-06 WE FIND THAT THE IMPUGNED ISSUE INVOLVED IS WITH RESPECT TO THE NATU RE OF RENTAL INCOME. THE CIT(A) HELD THE RENTAL INCOME TO BE THE BUSINESS IN COME BUT THE TRIBUNAL HAS REVERSED THE ORDER OF THE CIT(A) AND FOLLOWING THE JUDGEMENT OF THE APEX COURT IN THE CASE OF SHAMBHU INVESTMENT DECIDED TH E RENTAL INCOME AS AN INCOME FROM HOUSE PROPERTY. THE CIT(A) DECIDED THE APPEALS FOLLOWING HIS ORDER PERTAINING TO THE ASSESSMENT YEAR 2003-04 & 2 005-06 WHICH WERE REVERSED BY THE TRIBUNAL. THE RELEVANT OBSERVATION OF THE TRIBUNAL ARE EXTRACTED HEREUNDER: 6. HAVING HEARD THE RIVAL SUBMISSIONS AND FROM A C AREFUL PERUSAL OF THE ORDERS OF THE LOWER AUTHORITIES WE FIND THAT UNDISP UTEDLY THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF TOBACCO AND COMMISSI ON AND BESIDES HE HAS ALSO DERIVED INCOME FROM LETTING OUT OF THE PRO PERTIES. HE HAS CONSTRUCTED ITS PROPERTY AT DIFFERENT PLACES AND LE T OUT TO DIFFERENT TENANTS. IN ANY CASE ONE PROPERTY WAS LET OUT TO A SINGLE TENANT EITHER ITA NO195/V/11 M/S. BHARATHI WAREHOUSING CORPN. GU NTUR. 3 FOR 3 YEARS OR FOR 10 YEARS. NOW THE QUESTION ARIS E UNDER THIS TYPE OF SITUATION WHETHER RENTAL INCOME IS TO BE TREATED AS AN INCOME FROM HOUSE PROPERTY OR A BUSINESS INCOME. THE CONTROVE RSY IN THIS REGARD HAS BEEN SET AT REST BY THE JUDGEMENT OF THE APEX C OURT IN THE CASE OF SHAMBU INVESTMENT (SUPRA) IN WHICH THEIR LORDSHIP O F THE APEX COURT HAVE CATEGORICALLY HELD THAT THE INCOME DERIVED BY ASSESSEE BY LETTING OUT FURNISHED PREMISES ON MONTHLY RENT BASIS TO VAR IOUS PARTIES ALONG WITH THE FURNISHED FIXTURE LIGHT AIR CONDITIONERS ETC. FOR BEING USED AS A TABLE SPACE AND ALSO PROVIDED THEM COMMON SERVICES LIKE WATCH AND WARD STAFF ELECTRICITY WATER AND OTHER AMENITIES WITHOUT ANY SEPARATE CHARGES WAS ASSESSABLE AS INCOME FROM HOUSE PROPERT Y AND NOT A BUSINESS INCOME. THE FACTS ARE NOT CLEAR IN THE JU DGEMENT OF THE APEX COURT THAT IS WHY WE WOULD LIKE TO REFER THE JUDGE MENT OF THIS HIGH COURT WHICH HAS BEEN APPROVED BY THE APEX COURT. T HE JUDGEMENT OF THE HIGH COURT IN THE CASE OF SHAMBHU INVESTMENT (S UPRA) IS REPORTED AT PG.249 ITR 47. THE FACTS OF THAT CASE ARE THAT ASS ESSEE OWNED A BUILDING AT RAHEJA CHAMBERS NARIMAN POINT MUMBAI. THE SAID PREMISES HAS BEEN FURNISHED BY THE ASSESSEE AND HAS BEEN LET OUT TO VARIOUS PERSONS/FIRMS/ORGANIZATIONS WITH ALL FURNIT URE FIXTURE AND LIGHT AIR CONDITIONERS FOR BEING USED AS A TABLE SPACE. THE SAID ASSESSEE UNDER THE AGREEMENT WITH THOSE OCCUPIERS ARE TO PRO VIDE SERVICE LIKE WATCH AND WARD STAFF ELECTRICITY WATER AND OTHER COMMON AMENITIES. INCOME DERIVED BY THE ASSESSEES FROM THE SAID OFFIC E PREMISES WAS OFFERED FOR TAXATION AS A BUSINESS INCOME AND THE S AME WAS ASSESSED ACCORDINGLY BY THE A.O. THE CIT INVOKED ITS JURISD ICTION U/S 263 AFTER HAVING OBSERVED THAT THE INCOME DERIVED FROM THE SA ID PROPERTIES WERE ACTUALLY RENT RECEIVED FROM THE OCCUPIERS AND NOT T O BE REGARDED AS SERVICE CHARGES AND MAINTENANCE AND CANNOT BE TERME D AS BUSINESS INCOME AND REVISE THE ORDER OF THE ASSESSING OFFICE R BY HOLDING THAT RENTAL INCOME HAS TO BE ASSESSED UNDER THE HEAD IN COME FROM HOUSE PROPERTY. THE MATTER TRAVELED TO THE HIGH COURT A ND THE HONBLE CALCUTTA HIGH COURT HAVING EXAMINED THIS ISSUE IN D ETAIL HAS CATEGORICALLY HELD THAT INCOME DERIVED BY THE ASSESSEE FROM LETTI NG OUT THE FURNISHED PREMISES ON MONTHLY RENT BASIS TO VARIOUS PARTIES F OR BEING USED AS A `TABLE SPACE IS TO BE ASSESSED AS INCOME FROM PROP ERTY AND NOT BUSINESS INCOME. THE RELEVANT OBSERVATIONS OF THE HONBLE HIGH COURT ARE EXTRACTED HEREUNDER: MERELY BECAUSE INCOME IS ATTACHED TO ANY IMMOVABL E PROPERTY CANNOT BE THE SOLE FACTOR FOR ASSESSMENT O F SUCH INCOME AS INCOME FROM PROPERTY. WHAT HAS TO BE SEEN IS WH AT WAS THE PRIMARY OBJECT OF THE ASSESSEE WHILE EXPLOITING THE PROPERTY. IF IT IS FOUND APPLYING SUCH TEST THAT MAIN INTENTION IS FOR LETTING OUT THE PROPERTY OR ANY PORTION THEREOF THE SAME MUST BE CO NSIDERED AS RENTAL INCOME OR INCOME FROM PROPERTY. IN CASE IT IS FOUND THAT THE MAIN INTENTION IS TO EXPLOIT THE IMMOVABLE PROPERTY BY WAY OF COMPLEX COMMERCIAL ACTIVITIES IN THAT EVENT IT MUST BE HELD AS BUSINESS INCOME. FROM THE COPY OF THE AGREEMENT IT APPEARS THAT ITA NO195/V/11 M/S. BHARATHI WAREHOUSING CORPN. GU NTUR. 4 THE ASSESSEE HAS LET OUT THE FURNISHED OFFICE AT A MONTHLY RENT PAYABLE MONTH BY MONTH BY THE RESPECTIVE OCCUPANTS. SERVICES RENDERED TO THE VARIOUS OCCUPANTS ACCORDING TO THE SAID AGREEMENT ARE NOT SEPARATELY CHARGED AND THE MONTHLY RENT PAY ABLE IS INCLUSIVE OF ALL CHARGES TO THE ASSESSEE. A PORTIO N OF THE SAID PROPERTY IS USED BY THE ASSESSEE HIMSELF FOR HIS OW N BUSINESS PURPOSE. THE REST OF THE SAID PROPERTY HAS BEEN LE T OUT TO THE VARIOUS OCCUPIERS. IT FURTHER APPEARS THAT THE ASS ESSEE HAD ALREADY RECOVERED A SUM OF RS.4 25 000/- AS AND BY WAY OF S ECURITY FREE ADVANCE FROM THREE OCCUPANTS. HENCE THE ENTIRE CO ST OF THE PROPERTY LET OUT TO THOSE OCCUPIERS HAVE ALREADY BE EN RECOVERED AS AN BY WAY OF INTEREST-FREE ADVANCE BY THE ASSESSEE. HENCE IT CANNOT BE SAID THAT THE ASSESSEE IS EXPLOITING THE PROPERTY FOR ITS COMMERCIAL BUSINESS ACTIVITIES AND SUCH BUSINESS AC TIVITIES ARE PRIME MOTTO AND LETTING OUT THE PROPERTY IS A SECON DARY ONE. THERE IS NO SEPARATE AGREEMENT FOR FURNITURE AND FIXTURES OR FOR PROVIDING SECURITY AND OTHER AMENITIES. THE ONLY INTENTION W AS TO LET OUT THE PORTION OF THE PREMISES TO THE RESPECTIVE OCCUPANTS . HENCE THE INTENTION IN MAKING SUCH AGREEMENT IS TO ALLOW THE OCCUPANTS TO ENJOY THE TABLE SPACE TOGETHER WITH THE FURNITURE A ND FIXTURES. FROM A PLAIN READING OF THE AGREEMENT IT APPEARS TH AT THE INTENTION OF THE PARTIES TO THE SAID AGREEMENT ARE CLEAR AND UNAMBIGUOUS BY WHICH THE FIRST PARTY HAS ALLOWED THE SECOND PARTY TO ENJOY THE SAID TABLE SPACE UPON PAYMENT OF THE COMPREHENSIVE MONTH LY RENT. AS DISCUSSED HEREINBEFORE IT IS COMPOSITE TABLE SPACE LET OUT TO VARIOUS OCCUPANTS THE AMENITIES GRANTED TO THOSE OCCUPANTS INCLUDING THE USER OF THE FURNITURE AND FIXTURES ARE ATTACHED TO SUCH LETTING OUT. BY THE SAID AGREEMENT THE PARTIES HAVE INTENDED THA T SUCH LETTING OUT WOULD BE AN INSEPARABLE ONE. HENCE THE PRIME OBJECT OF THE ASSESSEE UNDER THE SAID AGREEMENT WAS TO LET OUT TH E PORTION OF THE SAID PROPERTY TO VARIOUS OCCUPANTS BY GIVING TH EM ADDITIONAL RIGHT OF USING THE FURNITURE AND FIXTURES AND OTHER COMMON FACILITIES FOR WHICH RENT WAS BEING PAID MONTH BY MONTH IN ADD ITION TO THE SECURITY ADVANCE COVERING THE ENTIRE COST OF THE SA ID IMMOVABLE PROPERTY. IN VIEW OF THE FACTS AND LAW DISCUSSED A BOVE THE INCOME DERIVED FROM THE SAID PROPERTY IS INCOME FROM PROPE RTY AND SHOULD BE ASSESSED AS SUCH. IN FACT THERE WAS A RELATIONS HIP OF LANDLORD AND TENANT BETWEEN ASSESSEE AND PERSONS WHO HIRED O FFICE ACCOMMODATION SULTAN BROS (P) LTD. VS. CIT (1964) 51 ITR 353 (SC): TC 41R. 500 APPLIED. 7. THIS VIEW OF THE HONBLE HIGH COURT HAS BEEN APP ROVED BY THE APEX COURT THEREFORE THE NATURE OF RENTAL INCOME FROM HOUSE PROPERTY IS TO BE EXAMINED IN THE LIGHT OF SURROUNDING CIRCUMSTANC ES AND THE INTENTION OF THE ASSESSEES AT THE TIME OF LETTING OUT OF THE PROPERTY. 8. TURNING TO THE FACTS OF THE CASE WE FIND THAT A SSESSEE HAS CONSTRUCTED ITS PROPERTIES AT VARIOUS PLACES AND WE RE LET OUT TO DIFFERENT ITA NO195/V/11 M/S. BHARATHI WAREHOUSING CORPN. GU NTUR. 5 TENANTS FOR A LONGER PERIOD. THEREFORE THERE IS N O IOTA OF EVIDENCE ON THE BASIS OF WHICH IT CAN BE INFERRED THAT LETTING OUT OF THE PROPERTY IS THE BUSINESS ACTIVITY OF THE ASSESSEES OR THE COMME RCIAL ASSETS ARE EXPLOITED BY THE ASSESSEE FOR A TEMPORARY PERIOD. THEREFORE THE RENTAL INCOME DERIVED FROM THESE IMMOVABLE PROPERTIES IS N OTHING BUT AN INCOME FROM HOUSE PROPERTY. THE PRESENT FACTS OF T HE CASE IS RATHER WORST THAN THE CASE OF THE SHAMBHU INVESTMENT (SUPR A) IN WHICH ASSESSEE WAS ENGAGED IN OTHER ACTIVITIES OF PROVIDI NG AMENITIES OR FACILITIES TO THE TENANTS BESIDES EARNING THE RENTA L INCOME. WE HAVE EXAMINED THE JUDGEMENTS REFERRED TO BY THE ASSESSEE IN THE CASE OF CIT VS. ANAND THEATRES ETC. 244 ITR 192 & CIT VS. D.P. SANDHU BROTHERS CHAMBERS PVT. LIMITED 273 ITR 1. BUT THESE JUDGEME NTS ARE RENDERED IN DIFFERENT CONTEXT. THEREFORE NO ASSISTANCE CAN BE DRAWN FROM THESE JUDGEMENTS IN FAVOUR OF THE ASSESSEES. WE HAVE AL SO EXAMINED THE ORDER OF THE CIT(A) AND WE FIND THAT CIT(A) HAS NOT EXAMINED THE ISSUE IN THE LIGHT OF THIS JUDGEMENT OF THE APEX COURT IN THE CASE OF SHAMBHU INVESTMENT (SUPRA) THOUGH IT WAS AVAILABLE AT THE RELEVANT POINT OF TIME. THE APEX COURT HAVE RENDERED THE JUDGEMENT O N 21 ST JANUARY 2003 WHEREAS THE CIT(A) HAS PASSED HIS ORDER ON 1 ST DECEMBER 2007. THEREFORE THE FINDINGS OF THE CIT(A) ARE CONTRARY TO THE RATIO LAID DOWN BY THE APEX COURT IN THE CASE OF SHAMBHU INVESTMENT (SUPRA). WE THEREFORE DO NOT FIND OURSELVES IN AGREEMENT WITH THE ORDER OF THE CIT(A). ACCORDINGLY THE ORDER OF THE CIT(A) IS SE T ASIDE AND THAT OF THE A.O. IS RESTORED. 8. IN THE RESULT THE APPEALS OF THE REVENUE ARE ALLOWED. 5. SINCE THE IMPUGNED ISSUE IS SQUARELY COVERED BY THE ORDER OF THE TRIBUNAL WE FOLLOWING THE SAME SET ASIDE THE ORD ER OF THE CIT(A) AND RESTORE THAT OF THE A.O. 6. IN THE RESULT THE APPEAL OF THE REVENUE IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON 15.7.2011 SD/- SD/- (BR BASKARAN) (SUNIL KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER VG/SPS VISAKHAPATNAM DATED 15 TH JULY 2011 ITA NO195/V/11 M/S. BHARATHI WAREHOUSING CORPN. GU NTUR. 6 COPY TO 1 ACIT CIRCLE - 2(1) GUNTUR 2 M/S. SRI BHARATHI WAREHOUSING CORPORATION 8 - 24 - 31 MANGALAGIRI ROAD GUNTUR 3 THE CI T GUNTUR 4 THE CIT (A) GUNTUR 5 THE DR ITAT VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM