M/s Premier Developers,, JAMNAGAR v. The Assistant Commissioner of Income Tax, Circle-3,, JAMNAGAR

ITA 305/RJT/2007 | 1998-1999
Pronouncement Date: 19-03-2010 | Result: Allowed

Appeal Details

RSA Number 30524914 RSA 2007
Assessee PAN AACFP0033C
Bench Rajkot
Appeal Number ITA 305/RJT/2007
Duration Of Justice 2 year(s) 10 month(s) 12 day(s)
Appellant M/s Premier Developers,, JAMNAGAR
Respondent The Assistant Commissioner of Income Tax, Circle-3,, JAMNAGAR
Appeal Type Income Tax Appeal
Pronouncement Date 19-03-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted DB
Tribunal Order Date 19-03-2010
Assessment Year 1998-1999
Appeal Filed On 07-05-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH RAJKOT BEFORE SHRI M.V.NAYAR (AM) AND SHRI D.T. GARASIA (J M) ITA NO.305 TO 308/R/07 A.YS 1998-99 TO 2001-02 M/S. PREMIER DEVELOPERS OPP MILK DAIRY SARU SECTION ROAD JAMNAGAR APPELLANT PAN : AACFP0033C V/S. THE ACIT-3 JAMNAGAR RESPONDENT APPELLANT BY : SHRI J C RANPURA CA RESPONDENT BY : SHRI S L MEENA CIT(DR) O R D E R PER D.T. GARASIA J.M. 1. THESE ARE APPEALS FILED BY THE ASSESSEE AGAINST THE ORDER PASSED ON 20.3.2007 BY THE CIT(A) JAMNAGAR. THIS ORDER OF THE CIT(A) WAS AGAINST ASSESSMENT ORDER PASSED U/S 143(3) / 147 BY THE ACI T CIR-3 JAMNAGAR. SINCE COMMON ISSUES AND COMMON GROUNDS ARE INVOLVED THE SAME DEALT WITH BY VIRTUE OF A COMMON SINGLE ORDER FOR THE SAKE OF CONVENIENCE. THE ONLY GROUND OF APPEAL READS AS UNDER:- THE LD. AO ERRED IN LAW AS WELL AS ON FACTS IN NOT CHARGING THE SERVICE CHARGES INCOME UNDER THE HEAD INCOME FROM HOUSE PRO PERTY AND DISALLOWING DEDUCTION @ 20% (ON THE SAID SERVICE CH ARGE RECEIPTS) FOR NECESSARY AMENITIES PROVIDED WHICH ARE ATTACHED TO THE BUILDING TO RENDER IT CAPABLE OF BEING LET OUT AND TREATING THE SAME AS INCOME FROM OTHER SOURCES WHICH THE LD. LD. CIT(A) ERRED IN LAW AS WELL AS ON FACTS IN CONFIRMING THE SAME. 2. THE FACTS OF THE CASE IS THAT THE ASSESSEE HAD UNDERTAKEN CONSTRUCTION OF CONIC TOWER WHICH WAS LEASED OUT TO RELIANCE PETR OLEUM LTD EVEN BEFORE THE ITA NO. 305 TO 308/R JT/2007 A.YS. 1998-99 TO 2001-02 2 CONSTRUCTION WAS COMPLETED. THE AGREEMENTS WERE IN TWO PARTS I.E. ONE FOR RENT OF THE PREMISES AND ANOTHER FOR PROVIDING SERVICES / A MENITIES ATTACHED WITH THE LETTING OF BUILDING. THE ASSESSEE HAD OFFERED THE ENTIRE R ECEIPT AS RENT FROM LETTING OUT OF HOUSE PROPERTY IN THE RESPECTIVE YEARS OF RECEIPT W HICH WAS ACCEPTED BY THE REVENUE. LATER BY VIRTUE OF INITIATION OF PROCEEDI NGS U/S. 147 THE AO HELD THAT THE RECEIPT FROM SERVICES PROVIDED DOES NOT FALL UNDER THE HEAD INCOME FROM HOUSE PROPERTY BUT PARTAKES THE NOMENCLATURE OF INCOME FROM OTHER SOURCES AND TREATED ACCORDINGLY. IN THE PROCESS HE DECLINED THE ASSESS EES CLAIM OF BASIC DEDUCTION AS CONTEMPLATED UNDER SECTION 24 OF THE I T ACT. ACCO RDING TO THE AO SECTION 22 (BEING THE CHARGING SECTION) ONLY TREATS RENT FROM BUILDIN GS OR LANDS APPURTENANT THERETO. SINCE THE RECEIPTS FROM SERVICES FAILED TO ADHERE T O THE CHARGING SECTION 22 THE SERVICES WERE TREATED AS INCOME FROM OTHER SOURCES. 2.1 THE LD. CIT(A) CONFIRMED THE FINDING OF THE AO BY HOLDING THAT THE ASSESSEE ITSELF HAD ENTERED INTO TWO DIFFERENT AGREEMENT WIT H THE TENANT VIZ. ONE FOR LETTING OUT THE PREMISES ON RENT AND THE OTHER FOR PROVIDING AM ENITIES IN THE RENTED OUT PREMISES. IF THE ASSESSEES SUBMISSION IS TRUE I.E. PROVIDING AMENITIES IN THE RENTED PREMISES IS PART AND PARCEL OF THE PROPERTY THEN N OTHING PREVENTED THE ASSESSEE IN ENTERING INTO A SINGLE AGREEMENT. IN THE ASSESSEES CASE THERE ARE TWO DIFFERENT AGREEMENTS VIZ. ONE FOR RENT AND THE OTHER FOR PR OVIDING SERVICES. IN THE CASE OF THE ASSESSEE IN THE AGREEMENT TO LET OUT THE PREMISES IT IS CLEAR THAT ONLY PREMISES ARE RENTED AND NOT THE FITTINGS AND OTHER FACILITIES IN THE PREMISES WHICH WERE TO BE PROVIDED BY THE ASSESSEE AS SERVICES VIDE A SEPAR ATE AGREEMENT. THE AO HAS THEREFORE RIGHTLY DISALLOWED THE DEDUCTION CLAIMED U/S. 24(II) OF THE ACT ON THE RECEIPTS VIDE SERVICE CHARGES AS PER THE AGREEMENT FOR PROVIDING THE SERVICES AND ASSESSED THE RECEIPTS UNDER THE HEAD INCOME FROM O THER SOURCES. 3. BEFORE US THE LD. AR IN THE WRITTEN SUBMISSION SUBMITTED AS UNDER:- (I) THE FLATS CONSTRUCTED BY THE APPELLANT FALLS UN DER THE DESCRIPTION OF BUILDING REFERRED TO IN SECTION 22 OF THE I T AC T. (II) THE APPELLANT IS THE OWNER AND THE FLATS WERE LEASED ON RENT EVEN BEFORE ITS CONSTRUCTION WAS COMPLETED. ITA NO. 305 TO 308/R JT/2007 A.YS. 1998-99 TO 2001-02 3 (III) THE SAID PROPERTY WAS NOT USED BY THE APPELLA NT FOR THE BUSINESS CARRIED ON BY IT THE PROFITS OF WHICH ARE CHARGEABLE TO INCOME TAX. (IV) THE VERY PURPOSE OF THE APPELLANT WAS TO CREAT E A DWELLING HABITANT WORTHY TO ITS PRINCIPALS BY NOT JUST PROVI DING BASIC SHELL BUT BASIC AMENITIES LIKE WATER ELECTRICITY PLUMBI NG ETC. (V) WHERE AN ITEM OF INCOME FALLS UNDER SPECIFIC ON E HEAD IT HAS TO BE CHARGED UNDER THAT HEAD ALONE. THIS IS WELL SETT LED FROM THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F UNITED COMMERCIAL BANK LTD VS CIT (32 ITR 688-SC). (VI) THE APPELLANT IS BOTH OWNER AND LESSEE. THE LE ASE DOES NOT PROVIDE THAT THE LESSOR BECOMES OWNER OF THE PREMIS ES UPON ITS DEVELOPMENT. IF BUILDING OR LAND APPURTENANT THERET O IS OWNED BY THE APPELLANT INCOME FROM LETTING OUT THE SAME FAL LS UNDER THE HEAD INCOME FROM HOUSE PROPERTY UNLESS THE SAME I S OCCUPIED BY THE APPELLANT FOR THE PURPOSE OF ANY BUSINESS OR PROFESSION CARRIED ON BY HIM THE PROFITS OF WHICH ARE TAXABLE TO INCOME-TAX. (VII) HENCE THE ABOVE CHARACTERISTICS CONFIRM AND CONFINE THE FACT THAT THE RECEIPTS FROM PROVIDING SERVICES AND AMENI TIES ARE PART AND PARCEL OF THE BASIC LETTING OUT ACTIVITY AND HE NCE ARE COMPOSITE IN ITSELF AND THUS THE AO HAS ERRED IN T REATING THE SAME AS INCOME FROM OTHER SOURCES. (VIII) THE LD. CIT(A)S FINDING THAT IF THE SAME IS PART OF RENT THEN TWO AGREEMENTS SHOULD NOT HAVE TAKEN BIRTH IS ONLY A S ECONDARY ISSUE IGNORING THE CONVENIENCE OF THE APPELLANT. T HE FIRST AGREEMENT WAS PREPARED FOR PROVIDING THE BASIC AMEN ITIES AND SERVICES WHICH WAS INCOMPLETE IN ITSELF WHICH PROM PTED THE APPELLANT TO PREPARE A SECOND AGREEMENT SPECIFYING CLEARLY THE ITA NO. 305 TO 308/R JT/2007 A.YS. 1998-99 TO 2001-02 4 TERMS OF RENT OF THE PREMISES ALSO. THIS IS BECAUSE THE APPELLANT WAS DEALING WITH INDIAS LARGEST CONGLOMERATE AND A NY LAPSE IN THE WORDING OF THE AGREEMENT WILL PUT ITSELF IN TRO UBLE AT A LATER DATE. FURTHER CLAUSE 4 OF THE SERVICE AGREEMENT CL EARLY LAYS DOWN THAT THE RENT AGREEMENT AND SERVICE AGREEMENT SHALL COMMENCE AND TERMINATE SIMULTANEOUSLY. THUS BOTH T HE AGREEMENTS ARE MUTUALLY INTERDEPENDENT. THIS FACT I S SUPPORTED BY THE FACT THAT ONE COMMON PAYMENT WAS MADE FOR BO TH THE SERVICES AND ONE COMMON TDS CERTIFICATE WAS ISSUED PER ANNUM DURING THE TENURE OF LETTING TREATING THE WH OLE RECEIPT AS RENT @ 15% U/S. 194I. THE SERVICE CHARGES ARE EARNE D OUT OF LETTING OF BUILDING WITH ALL AMENITIES EMBEDDED THE REIN. 4. WE HAVE PERUSED THE ASSESSMENT ORDER THE ORDER OF THE LD. CIT(A) AS ALSO GONE THROUGH THE SUBMISSION PUT FORTH BY THE LD. AR OF THE ASSESSEE. WE FIND THAT THERE THE ASSESSEE IS THE OWNER AND THE FLATS WERE LEASED ON RENT EVEN BEFORE ITS CONSTRUCTION WAS COMPLETED AND THAT THE SAID PROPER TY WAS NOT USED BY THE APPELLANT FOR THE BUSINESS CARRIED ON BY IT THE PROFITS OF W HICH ARE CHARGEABLE TO INCOME TAX AND THAT THE VERY PURPOSE OF THE APPELLANT WAS TO C REATE A DWELLING HABITANT WORTHY TO ITS PRINCIPALS BY NOT JUST PROVIDING BASIC SHELL BU T BASIC AMENITIES LIKE WATER ELECTRICITY PLUMBING ETC. FURTHER CLAUSE 4 OF TH E SERVICE AGREEMENT CLEARLY LAYS DOWN THAT THE RENT AGREEMENT AND SERVICE AGREEMENT SHALL COMMENCE AND TERMINATE SIMULTANEOUSLY. THUS BOTH THE AGREEMENTS ARE MUTUA LLY INTERDEPENDENT. THIS FACT IS SUPPORTED BY THE FACT THAT ONE COMMON PAYMENT WAS M ADE FOR BOTH THE SERVICES AND ONE COMMON TDS CERTIFICATE WAS ISSUED PER ANNUM DUR ING THE TENURE OF LETTING TREATING THE WHOLE RECEIPT AS RENT @ 15% U/S. 194I. FURTHER THE MATTER STANDS SQUARELY COVERED BY THE DECISION OF THE HONBLE SUP REME IN THE CASE OF SHAMBHU INVESTMENTS P LTD VS CIT REPORTED AT 263 ITR 143. IN THE CITED CASE THE ASSESSEE HAD LET OUT SOME PORTION OF COMMERCIAL SPACE FOR US E AS TABLE SPACE WITH ALL FACILITIES LIKE SECURITY POWER WATER AND OTHER COMMON AMENIT IES. THE AO HAD ACCEPTED THE ASSESSEES CLAIM TO TREAT THE RECEIPT AS BUSINESS I NCOME OFTEN FOUND TO BE OF GREATER ADVANTAGE TO THE TAXPAYER BECAUSE OF THE DEDUCTION FOR DEPRECIATION. THE COMMISSIONER OF INCOME TAX ACTING UNDER SECTION 26 3 REMANDED THE MATTER FOR FRESH CONSIDERATION. HOWEVER HIS ORDER WAS TAKEN U P IN APPEAL TO THE TRIBUNAL. THE ITA NO. 305 TO 308/R JT/2007 A.YS. 1998-99 TO 2001-02 5 TRIBUNAL FOUND FAULT WITH THE ORDER OF THE COMMISSI ONER OF INCOME TAX ON THE GROUND THAT THERE WAS NO CASE FOR PRESUMING THAT THE ORDER OF THE AO WAS IN ANY MANNER ADVERSE TO REVENUE. THE HIGH COURT AFTER ELABORATE REVIEW OF THE CASE LAW FOUND THAT THE AGREEMENT WAS ONE OF TENANCY AND THAT THE ASSESSMENT OF THE INCOME AS BUSINESS INCOME WAS NOT CORRECT ON THE BASIS OF THE FINDING THAT THE PRIMARY INTENTION TO LET OUT OF THE PREMISES WAS TO GET RENT. IT WAS IN THIS CONTEXT THAT THE HIGH COURT UPHELD THE ORDER OF THE INCOME TAX WHICH REQUIRED A FINDING AS TO THE NATURE OF THE RECEIPT. THE SUPREME COURT HAS NOW ENDORSED THE DE CISION OF THE HIGH COURT NOT TO INTERFERE WITH THE HIGH COURTS JUDGMENT AFFIRMING THE INFERENCE. THEREFORE IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE AND R ESPECTFULLY FOLLOWING THE HONBLE SUPREME COURTS DECISION WE HOLD THAT THE RENT INC LUDES CHARGES ON OTHER BASIC AMENITIES AND HENCE THE AO IS DIRECTED TO ALLOW BA SIC DEDUCTION ON THE ENTIRE RECEIPT. 5. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER IS PRONOUNCED IN THE OPEN COURT ON 19/03/201 0_ . SD/- SD/- (M.V.NAYAR) (D.T.GARASIA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATE : 19/03/2010 RAJKOT COPY FORWARDED TO 1. M/S PREMIER DEVELOPERS OPP. MILK DAIRY SARU SE CTION ROAD JAMNAGAR 2. THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE -3 JAMNAGAR 3. THE CIT JAMNAGAR 4. THE CIT(A) JAMNAGAR 5. THE D.R. I.T.A.T. RAJKOT 6. THE GUARD FILE TRUE COPY BY ORDER SENIOR PRIVATE S ECRETARY