M/s Vijay Durg Poultry Pvt. Ltd, Bhubaneswar v. ACIT, Bhubaneswar

ITA 304/CTK/2010 | 2007-2008
Pronouncement Date: 25-02-2011

Appeal Details

RSA Number 30422114 RSA 2010
Bench Cuttack
Appeal Number ITA 304/CTK/2010
Duration Of Justice 6 month(s) 15 day(s)
Appellant M/s Vijay Durg Poultry Pvt. Ltd, Bhubaneswar
Respondent ACIT, Bhubaneswar
Appeal Type Income Tax Appeal
Pronouncement Date 25-02-2011
Appeal Filed By Assessee
Bench Allotted DB
Assessment Year 2007-2008
Appeal Filed On 09-08-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL CUTTACK BENCH CUTTACK ( ) BEFORE . . HONBLE SHRI K.K.GUPTA ACCOUNTANT MEMBER. /AND . . . S HRI K.S.S.PRASAD RAO JUDICIAL MEMBER / I.T.A.NO. 304/CTK /2010 / ASSESSMENT YEAR 2007 - 08 M/S.VIJAY DURGA POULTRY OPRIVATE LIMITED A0 - 17/9 SURYA NAGAR BHUBANESWAR 751 003 PAN:AABCV 9428 K - - - VERSUS - ASST.COMMISSIONER OF INCOME - TAX CIRCLE 1(1) BHUBANESWAR. ( /APPELLANT ) ( / RESPONDENT ) / FOR THE APPELLANT : / SHRI N.PANDA AR / FOR THE RESPONDENT: / SHRI S.C.MOHANTY DR / ORDER . . SHRI K.K.GUPTA ACCOUNTANT MEMBER. THIS APPEAL BY THE ASSESSEE AGITATES THE ACTION OF THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN ASSESSING INCOME RETURNED BY THE ASSESSEE NOT AS FROM BU SINESS BUT AS FROM OTHER SOURCES. 2. THE BRIEF FACTS AS REITERATED BY THE LEARNED COUNSEL FOR THE ASSESSEE ARE THAT THE ASSESSEE CHOSE TO LET OUT ITS BROILER FA RM BY WAY OF A LEASE WHEN THE ASSESSING OFFICER CHOSE TO TAX THE LEASE INCOME AS INCOME FROM HOU SE PROPERTY. THE ASSESSEE SUBMITTED THAT BEING A FACTORY SHED AND POULTRY FIRM THE RECEIPTS FROM THE LES SEE WAS IN THE NATURE OF BUSINESS WHO CONDUCTED THE SAME BUSINESS AS WAS BEING CONDUCTED BY THE ASSESSEE WHICH INCOME WAS ALWAYS TAXED UNDER THE HEAD I NCOME FROM BUSINESS AS CAN BE VERIFIED IN THE EARLIER YEARS. HOWEVER IN ORDER TO AVOID GIVING STATUTORY DEDUCTIONS IN THE COMPUTATION OF INCOME FROM HOUSE PROPERTY THE ASSESSING OFFICER CHOSE TO CONSIDER THE INCOME ON ACCOUNT OF RENT RECEIVED DURING THE YEAR AS I.T.A.NO. 304/CTK/2010 2 INCOME FROM OTHER SOURCES THEREBY ALLOWING THOSE EXPENSES WHICH HE BELIEVED HAD DIRECT NEXUS TO THE INCOME UNDER THE PROVISIONS OF SECTION 57(III). AGGRIEVED THE ASSESSEE APPEALED BEFORE THE FIRST APPELLATE AUTHORITY WHO CONSIDERED THAT THE DIR ECTORS SALARY BEING A M AJOR EXPENDITURE HAD NO NEXUS TO THE EARNING OF INCOME FROM OTHER SOURCES AND THEREBY THE ONLY EXPENSES DIRECTLY CAN BE ALLOWED FROM INCOME FROM OTHER SOURCES SUCH ARE AS AUDIT FEES BANK COMMISSION AND DEPRECIATION AMOUNTING TO 3 32 000 WHICH RESULTED IN INCOME OF 4 47 871 AS AGAINST RETURNED BY THE ASSESSEE AT NIL ON ADJUSTMENT OF BROUGHT FORWARD LOSSES. 3. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE AUTHORITIES BELOW TRIED TO POSE A QUESTION TO THEMSELVES WHE THER THIS INCOME SHOULD BE ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES WERE IN CONFUSION WHETHER THE INCOME FROM BUSINESS RENDERED BY THE ASSESSEE COULD BE TAXED AS INCOME FROM HOUSE PROPERTY WHEN THE ASSESSING OFFICER IN HIS WISDOM CHOSE TO TAX TH E SAME AS INCOME FROM OTHER SOURCES BY ESTABLISHING A DIRECT NEXUS TO THE INCOME EARNED WHICH HAS NO BEARING TO THE FACTS OF THE ASSESSEES CASE. TO A LESSEE THE INCOME IS RECEIVED AS PER THE LEASE AGREEMENT AND THEREFORE HAS NOT BEEN DECIPHERED IN THE AG REEMENT THAT THE LESSER HAS TO INCUR THESE EXPENDITURES TO BE ALLOWED AGAINST THE LEASE PAYMENTS . THEREFORE IT WAS A FUTILE EXERCISE BY BOTH THE AUTHORITIES TO CONSIDER THE TAXABILITY OF LEASE INCOME AS INCOME FROM OTHER SOURCES WHEN THEY REALIZE THE INC OME FROM HOUSE PROPERTY HAS TO BE ASCERTAINED AT THE ANNUAL LETTING VALUE AGAINST WHICH 30% STATUTORY DEDUCTION IS TO BE GIVEN AGAINST REPAIRS AND MAINTENANCE AFTER MUNICIPAL TAXES. HAVING ALLOWED THE CLAIM OF DEPRECIATION A 30% STATUTORY DEDUCTIONS COULD HAVE COVERED UP ALL THE EXPENSES WHEN THEY CHOSE TO CONFIRM THE ACTION OF TAXING THE SAME AS INCOME FROM OTHER SOURCES BUT WITHOUT HAVING ANY RELEVANCE TO THE I.T.A.NO. 304/CTK/2010 3 EXPENDITURES WHEN ALL THE ASSETS WHICH ARE USED PRIMARILY BY THE LESSEE HAVE BEEN ALLOWED DEPREC IATION IN THE HANDS OF THE ASSESSEE. HE VEHEMENTLY ARGUED THAT LETTING OUT A POULTRY FIRM WAS PART OF THE ASSESSEES BUSINESS WHEN THE SAME BUSINESS CONTINUED TO FLOURISH IN THE EARLIER YEARS. THEREFORE IT IS VERY CLEAR THAT THE INCOME HAS BEEN GENERATED FROM THE SAME SET OF ASSETS WHICH WERE UTILIZED BY THE ASSESSEE PRIOR TO LETTING THEM OUT FOR A BETTER BUSINESS RETURN. IN ANY CASE THE EXPENSES WHICH THE AUTHORITI ES BELOW HAVE SOUGHT TO HOLD AS BEARING NO NEXUS TO EARN INCOME IS PURELY SURMISE AND SUSPI CION INSOFAR AS NONE OF THE EXPENSES CAN BE CONSIDERED AS NOT INCURRED FOR THE BUSINESS OF THE ASSESSEE AND THE ASSESSEE BEING A NON - PERSONAL ENTITY WAS TO BE FUNCTIONING WITH THE HELP OF THE DIRECTOR WHOSE SALARY IS A CONTRACTUAL OBLIGATION ON THE PART OF THE ASSESSEE TO BEAR. THE CASE LAWS CITED BY THE AUTHORITIES BELOW HAVE NO BEARING TO THE FACTS OF THE ASSESSEES CASE INSOFAR AS IT WAS NOT THE CASE OF ASSESSING INCOME RENDERED AS BUSINESS INCOME ON THE SAME ASSETS LEASED OUT. 4. THE LEARNED DR SUPPORT ED THE ORDERS OF THE AUTHORITIES BELOW BY STATING THAT ONCE THE ASSESSEE HAD PARTED WITH THE FIXED ASSETS ON LEASE THE AMOUNT RETURNED BY THE LESSEE WAS TO BE HELD AS INCOME FROM OTHER SOURCES IN VIEW OF THE FACT THAT THE EXPENSES DISALLOWED HAVE NO BEARI NG ON THE ACTION OF LEASING OUT THE PROPERTY. THEREFORE HE SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW FOR HIS PART SUBMISSION. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. ON OUR CAREFUL CONSIDERATION OF THE FAC TS AND CIRCUMSTANCES WE ARE INCLINED TO HOLD THAT THERE WAS NO NEED TO BIFURCATE THE INCOME IN ORDER TO ESTABLISH NEXUS OF SPENDING FOR INCOME WHICH WAS NOT TO BE AN INCOME FROM BUSINESS. THE EXPENSES DISALLOWED DO NOT APPEAR TO HAVE BEEN INCURRED FOR NON - BUSINESS PURPOSES. WE FIND FORCE IN THE I.T.A.NO. 304/CTK/2010 4 CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT NON - PERSONAL ENTITY IS RUN BY THE DIRECTORS WHO ACT ON BEHALF OF THE COMPANY AND ARE ENTITLED TO SALARY INSOFAR AS THE ASSESSING OFFICER CATEGORICALLY ALLOWED DEPRECIATION AS AN INCIDENTAL EXPENDITURE U/S.57(III) ON LEASING OUT THE PROPERTY TO EARN INCOME FROM OTHER SOURCES. THIS CLINCHES THE ISSUE IN FAVOUR OF THE ASSESSEE TO THE EFFECT THAT THE AUTHORITIES BELOW MISGUIDED THEMSELVES TO ASSUME JURISDICTION TO A SSESS THE LEASE MONEY AS INCOME FROM OTHER SOURCES. THE ACTIVITIES CARRIED OUT BY THE LESSEE WAS THE SAME AS WAS BEING CARRIED OUT BY THE ASSESSEE IN THE EARLIER YEARS WHICH RESIDUAL INCOME BY INCURRING EXPENSES AS CLAIMED IN THE INCOME AND EXPENDITURE ACC OUNT OF THE ASSESSEE WERE TO BE BIFURCATED FOR THE PURPOSE OF EARNING INCOME FROM OTHER SOURCES. WE HAVE SEEN THE DETAILS OF EXPENSES CLAIMED WHICH ARE DIRECTLY INCURRED FOR THE BUSINESS OF THE ASSESSEE I.E. RUNNING A POULTRY F A RM BUT BY A LESSEE. THEREFO RE WE ARE UNABLE TO SATISFY OURSELVES THAT THE LEASE INCOME CANNOT BUT BE TAXED AS INCOME FROM OTHER SOURCES. HAVING ALLOWED DEPRECIATION AS DIRECT BEARING TO EARNING LEASE INCOME THE ASSESSING AUTHORITIES THEMSELVES HAVE HELD THE INCOME AS INCOME FROM H OUSE PROPERTY WHICH IF WAS TO BE CONSIDERED WOULD HAVE COVERED THE VERY EXPENSES TO BE STATUTORILY ALLOWED UNDER THE PROVISIONS OF SECTION 24(A). WE DO NOT FIND ANY MERIT IN EXERCISE OF ESTABLISHING A NEXUS IN EARNING THIS INCOME AS OTHERWISE CONSIDERED BY THE ASSESSING OFFICER AND THE LEARNED CIT(A) INSOFAR AS THE COMPUTATION OF INCOME FROM BUSINESS HAS TO BE IN ACCORDANCE WITH THE PROVISIONS WHICH THE ASSESSEE WAS ENTITLED TO AS WAS IN THE EARLIER YEARS WHEN IT ITSELF CONDUCTED THE SAME TRANSACTIONS WAS N OW BEING DONE BY THE LESSEE. WE DIRECT THAT THE DISALLOWED EXPENSES HAVING NO BEARING OR NEXUS FOR EARNING INCOME FROM OTHER SOURCES TO BE CONSIDERED AS ALLOWABLE UNDER THE HEAD INCOME FROM BUSINESS TO BE SET OFF IN ACCORDANCE WITH THE PROVISIONS OF THE INCOME - TAX I.T.A.NO. 304/CTK/2010 5 ACT. IN VIEW THEREOF THE INCOME IS TO BE ASSESSED AS RETURNED BY THE ASSESSEE FROM BUSINESS. 6 . IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. THIS ORDER IS PRONOUNCED IN OPEN COURT ON DT. 25 TH FEBRUARY 2011 SD/ - SD/ - ( . . . ) ( K.S.S.PRASAD RAO) JUDICIAL MEMBER ( . . ) (K.K.GUPTA) ACCOUNTANT MEMBER. ( ) DAT E: 25 TH FEBRUARY 2011 - COPY OF THE ORDER FORWARDED TO: 1 . / THE APPELLANT : M/S.VIJAY DURGA POULTRY OPRIVATE LIMITED A0 - 17/ 9 SURYA NAGAR BHUBANESWAR 751 003 2 / THE RESPONDENT: ASST.COMMISSIONER OF INCOME - TAX CIRCLE 1(1) BHUBANESWAR 3 . / THE CIT 4 . ( )/ THE CIT(A) 5 . / DR CUTTACK BENCH 6 . GUARD FILE . / TRUE COPY / BY ORDER [ ] SENIOR PRIVATE SECRETARY ( ) ( H.K.PADHEE ) SENIOR.PRIVATE SECRETARY.