M/s. J Farm House, CHENNAI v. ACIT, CHENNAI

ITA 310/CHNY/2011 | 2004-2005
Pronouncement Date: 25-11-2011 | Result: Partly Allowed

Appeal Details

RSA Number 31021714 RSA 2011
Assessee PAN AABFJ6822G
Bench Chennai
Appeal Number ITA 310/CHNY/2011
Duration Of Justice 9 month(s) 3 day(s)
Appellant M/s. J Farm House, CHENNAI
Respondent ACIT, CHENNAI
Appeal Type Income Tax Appeal
Pronouncement Date 25-11-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted D
Tribunal Order Date 25-11-2011
Date Of Final Hearing 24-11-2011
Next Hearing Date 24-11-2011
Assessment Year 2004-2005
Appeal Filed On 21-02-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH CHENNAI BEFORE SHRI ABRAHAM P. GEORGE ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN JUDICIAL MEMBER I.T.A. NOS. 310 311 312 & 313/MDS/2011 (ASSESSMENT YEARS : 2004-05 TO 2007-08) M/S J. FARM HOUSE N0.18 BALAMUTHUKRISHNAN ST. T. NAGAR CHENNAI 600 017. PAN : AABFJ6822G (APPELLANT) V. THE ASSISTANT COMMISSIONER OF INCOME TAX CENTRAL CIRCLE II(2) CHENNAI 600 034. (RESPONDENT) APPELLANT BY : SHRI G. SITHARAMAN C.A. RESPONDENT BY : SHRI K. RAMASAMY SR. SPECIAL PUBLIC PROSECUTOR DATE OF HEARING : 24.11.2011 DATE OF PRONOUNCEMENT : 25.11.2011 O R D E R PER ABRAHAM P. GEORGE ACCOUNTANT MEMBER : THESE ARE APPEALS OF THE ASSESSEE AGAINST ORDER D ATED 12.11.2010 OF COMMISSIONER OF INCOME TAX (APPEALS)- II CHENNAI FOR IMPUGNED ASSESSMENT YEARS. GRIEVANCE OF THE ASSESS EE IS THAT RENTAL RECEIVED ON AMENITIES WHICH WAS CONSIDERED BY THE A.O. AS I.T.A. NOS. 310 TO 313/MDS/11 2 WELL AS CIT(APPEALS) UNDER THE HEAD INCOME FROM OT HER SOURCES OUGHT TO HAVE BEEN CONSIDERED ONLY UNDER THE HEAD INCOME FROM HOUSE PROPERTY AS RETURNED BY THE ASSESSEE. ASS ESSEES ALTERNATE GROUND IS THAT DEPRECIATION HAS NOT BEEN ALLOWED TO IT ON THE ITEMS CONSIDERED AS AMENITIES. 2. SHORT FACTS APROPOS ARE THAT ASSESSEE HAD LEASED OUT ON 24.9.2003 ONE BUILDING AT 1/240 EAST COAST ROAD I NJAMBAKKAM CHENNAI-41 TO ONE M/S ASIAN HOTELS. THERE WERE TW O AGREEMENTS - FIRST DATED 24.9.2003 FOR THE LEASE OF THE BUILDING AND THE SECOND DATED 10.10.2003 FOR AMENITIES. SIMILARLY ASSESSE E RENTED OUT ANOTHER PROPERTY AT NO.2/1-B-3 SEASHELL AVENUE SH OLINGANALLUR CHENNAI TO M/S CHENNAI CORPORATE CLUB THROUGH A LE ASE AGREEMENT DATED 1.12.2005. THERE WAS A SEPARATE LEASE AGREEM ENT FOR AMENITIES OF EVEN DATE WITH THE SAID CLUB AS WELL. IN THE PREVIOUS YEARS RELEVANT TO ASSESSMENT YEARS 2004-05 AND 2005 -06 ASSESSEE WAS IN RECEIPT OF RENTAL INCOME AND AMENITY CHARGES IN RESPECT OF THE FIRST PROPERTY AND FOR THE PREVIOUS YEARS RELEVANT TO ASSESSMENT YEARS 2006-07 AND 2007-08 ASSESSEE WAS IN RECEIPT OF REN TAL INCOME FROM BOTH THE FIRST AS WELL AS SECOND PROPERTY. HOWEVER THE RECEIPTS I.T.A. NOS. 310 TO 313/MDS/11 3 INCLUDING THAT FOR THE AMENITIES WERE SHOWN BY THE ASSESSEE UNDER THE HEAD INCOME FROM HOUSE PROPERTY IN ALL ITS RE TURNS. THE A.O. HOWEVER IN THE ASSESSMENT TREATED THE AMOUNTS REC EIVED FOR AMENITIES AS INCOME FROM OTHER SOURCES FOR A REAS ON THAT THERE WERE SEPARATE AGREEMENTS FOR AMENITIES WITH RESPECT IVE LESSEES. 3. APPEALS WERE FILED BY THE ASSESSEE BEFORE CIT(AP PEALS). PLEADING OF THE ASSESSEE WAS THAT THE AGREEMENTS WI TH RESPECTIVE PARTIES WERE COMPOSITE ONE AND TERMINATION OF ONE A GREEMENT RESULTED IN AUTOMATIC TERMINATION OF THE OTHER. AS PER THE ASSESSEE THE AMENITIES MENTIONED IN THE RESPECTIVE AGREEMENT S CONSISTED ONLY NORMAL ELECTRICAL FITTINGS AND FURNITURE WHICH WERE ATTACHED TO THE PROPERTY. ASSESSEE ALSO RELIED ON CLAUSE 7(F) OF T HE AGREEMENTS FOR AMENITIES WHICH MENTIONED THAT SUCH AGREEMENTS WERE CO-TERMINUS WITH RESPECTIVE LEASE AGREEMENTS AND ANY DEFAULT IN THE PAYMENT OF CHARGES FOR AMENITIES WOULD BE CONSIDERED AS EQUIVA LENT TO DEFAULT IN THE PAYMENT OF THE RENT. ASSESSEE ALSO ARGUED THAT THE TENANTS CONCERNED WERE DEDUCTING TAXES FROM SUCH AMOUNTS AS THOUGH IT WAS RENT. RELIANCE WAS ALSO PLACED ON A HOST OF DECISI ONS MENTIONED HEREUNDER IN SUPPORT OF ITS ARGUMENTS:- I.T.A. NOS. 310 TO 313/MDS/11 4 1. CIT V. BHAKTAWAR CONSTRUCTION PVT. LTD. (162 ITR 452) (BOMBAY) 2. DR. P.A. VARGHESE V. CIT (80 ITR 180) (KER) 3. KEYARAM HOTELS P. LTD. V. ACIT (300 ITR 118) (MAD RAS) 4. CIT V. MCLEOD & CO. LTD. (203 ITR 290) (CAL) 5. CIT V. NATIONAL STORAGE PRIVATE LTD. (66 ITR 596 ) (SC) 6. ADDL. CIT V. HINDUSTAN MACHINE TOOLS LTD. (121 I TR 798) (KER) 7. CIT V. NATIONAL NEWS PRINT & PAPER MILLS LTD. (1 14 ITR 388) (SC) 8. S.G. MERCANTILE CORPORATION (P) LTD. V. CIT (83 ITR 700) (SC) HOWEVER THE CIT(APPEALS) WAS NOT IMPRESSED. ACCOR DING TO HIM THERE WERE SEPARATE AGREEMENTS ONE FOR LAND AND BU ILDING AND THE OTHER FOR AMENITIES WITH RESPECTIVE LESSEES. HIRE CHARGES MENTIONED IN THE AGREEMENTS FOR AMENITIES WERE DISTINCTIVELY ENUMERATED IN THE SCHEDULE THERETO. LD. CIT(APPEALS) REPRODUCED FROM THE RESPECTIVE AGREEMENTS THE LIST OF AMENITIES WHICH RUN AS UNDE R:- FIRST PROPERTY : 1. TABLES INCLUDING DININING TABLES 2. CHAIRS 3. SOFA/SOFA SETS SOFA SET CUM BED 4. REFRIGERATORS / COOLERS WATER PURIFIERS 5. GEYSERS / WATER HEATERS 6. AIR CONDITIONERS 7. CEILING FANS / TABLE FANS WALL MOUNT FANS I.T.A. NOS. 310 TO 313/MDS/11 5 8. CROCKERY SET 9. KITCHEN SET 10. STORES 11. LAMP SHADES 12. TUBE LIGHTS AND LIGHT FITTINGS 13. TELEVISION 14. MICROWAVE OVENS 15. COTS SECOND PROPERTY : 1. A/C. (WINDOW A/C) PROVIDED IN 12 ROOMS 2. 24 CHAIRS (2 CHAIRS PER ROOM) 3. 1 TEA POI (1 PER ROOM) 4. WARDROBE WOODEN 12 NOS 5. DRESSING WITH MIRROR (12 1 PER ROOM) 6. DOUBLE COAT BED 12 NOS. (1 PER ROOM WITH BED AND PILLOWS PROVIDED) 7. 12 TV SETS (COLOUR) (1 PER ROOM) 8. LOBBY SOFA 2 NOS. (5 SEATER & 8 SEATER) 9. 1 CERANITE TEA POI 10. CEILING FANS 26 NOS. 11. WATER HEATER 12 NOS. 12. PEDESTAL FAN 2 NOS. ON A PERUSAL OF THE ABOVE LD. CIT(APPEALS) CAME TO A CONCLUSION THAT THE HIRE CHARGES WERE FOR TABLES DINING TABLE S COTS ETC. AND NONE OF THEM AROSE OUT OF OWNERSHIP OF THE LAND AND BUILDING. AS PER THE CIT(APPEALS) JUST BECAUSE THE LESSEES HAD DEDU CTED TAX AS APPLICABLE FOR PAYMENT OF RENT WOULD NOT CONVERT SU CH HIRE CHARGES TO RENTAL INCOME ASSESSABLE UNDER THE HEAD INCOME FRO M HOUSE I.T.A. NOS. 310 TO 313/MDS/11 6 PROPERTY. LD. CIT(APPEALS) ALSO NOTED THAT NONE O F THE DECISIONS CITED BY THE ASSESSEE SUPPORTED ITS CASE. HE THER EFORE UPHELD THE ORDER OF THE ASSESSING OFFICER TREATING THE AMENITY CHARGES AS INCOME FROM OTHER SOURCES. ASSESSEE HAD ALSO PLE ADED BEFORE THE CIT(APPEALS) TO DIRECT ALLOWANCE OF DEPRECIATION IF THE AMENITIES CHARGED WERE TO BE CONSIDERED UNDER THE HEAD INCOM E FROM OTHER SOURCES. HOWEVER LD. CIT(APPEALS) DID NOT ALLOW THIS FOR A REASON THAT THERE WAS NO SUCH PLEA MADE BY THE ASSESSEE BE FORE THE ASSESSING OFFICER DURING THE ASSESSMENT PROCEEDINGS . 4. NOW BEFORE US LEARNED A.R. STRONGLY ASSAILING THE ORDERS OF LOWER AUTHORITIES SUBMITTED THAT BOTH THE AGREEMEN TS WERE TO BE READ TOGETHER AND ONE COULD NEVER EXIST WITHOUT THE OTHE R. AS PER LEARNED A.R. BUT FOR THE AMENITIES AGREEMENTS THE CONCERN ED LESSEES WOULD NOT BE RENTED OUT THE LAND AND BUILDING. THE ITEMS RENTED OUT UNDER THE AMENITIES AGREEMENTS WERE PART AND PARCEL AND I NEXTRICABLY CONNECTED TO THE BUILDING. HENCE TREATING SUCH AM ENITIES SEPARATELY WAS NOT JUSTIFIED. RELIANCE WAS ONCE AGAIN PLACED ON THE DECISION OF HON'BLE APEX COURT IN THE CASE OF NATIONAL NEWS PRI NT & PAPER MILLS LTD. (SUPRA) I.T.A. NOS. 310 TO 313/MDS/11 7 5. PER CONTRA LEARNED D.R. SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 6. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL C ONTENTIONS. THERE IS NO DISPUTE THAT THERE WERE SEPARATE AGREEM ENTS ENTERED INTO WITH THE CONCERNED LESSEES - ONE FOR RENTING OUT OF LAND AND BUILDING AND THE OTHER FOR HIRING OUT THE AMENITIES. OF COU RSE AS MENTIONED BY LD. CIT(APPEALS) CLAUSE 7(F) OF THE AGREEMENTS FOR AMENITIES SPECIFICALLY MENTIONED THAT IT WAS CO-TERMINUS WITH RESPECTIVE LESSEES. HOWEVER IN OUR OPINION THIS BY ITSELF W OULD NOT CONVERT THE LEASE OF AMENITIES TO A LEASE OF IMMOVABLE PROPERTY . A LOOK AT SECTION 22 OF INCOME-TAX ACT 1961 (IN SHORT THE A CT) IS NECESSARY HERE. THE SAID SECTION RUNS AS FOLLOWS:- 22. THE ANNUAL VALUE OF PROPERTY CONSISTING OF ANY BU ILDINGS OR LANDS APPURTENANT THERETO OF WHICH THE ASSESSEE IS THE OWNER OTHER THAN SUCH PORTIONS OF SUCH PROPERTY AS HE MAY O CCUPY FOR THE PURPOSES OF ANY BUSINESS OR PROFESSION CARRIED O N BY HIM THE PROFITS OF WHICH ARE CHARGEABLE TO INCOME-TAX SHAL L BE CHARGEABLE TO INCOME-TAX UNDER THE HEAD INCOME FRO M HOUSE PROPERTY. I.T.A. NOS. 310 TO 313/MDS/11 8 WHAT IS CLEAR FROM THE ABOVE IS THAT ANNUAL VALUE O F THE PROPERTY CONSISTING OF BUILDING OR LAND APPURTENANT THERETO ALONE COULD BE CONSIDERED UNDER THE HEAD INCOME FROM HOUSE PROPER TY. THE ONLY QUESTION THEREFORE TO BE ANSWERED IS WHETHER THE AM ENITIES RENTED OUT BY THE ASSESSEE TO THE CONCERNED LESSEES WERE S O ATTACHED TO THE BUILDING THAT THEY COULD BE CONSIDERED AS PART OF THE BUILDING. FROM THE LIST OF AMENITIES WHICH HAVE BEEN REPRODU CED AT PARA 3 ABOVE IT CAN BE SEEN THAT NONE OF THESE ITEMS WERE INEXTRICABLY CONNECTED TO THE BUILDING IN SUCH A WAY THAT IT COU LD BE CONSIDERED AS PART OF THE BUILDING ITSELF. THESE WERE ALL SEPARA BLE ITEMS AND WE CANNOT SAY THAT NOBODY WOULD HAVE RENTED OUT THE BU ILDING BY ITSELF WITHOUT SUCH ITEMS. NONE OF THE CASES RELIED ON BY THE ASSESSEE LAY DOWN A LAW THAT AMENITIES OF THE NATURE MENTIONED A BOVE IF RENTED OUT SHOULD BE CONSIDERED UNDER THE HEAD INCOME FR OM HOUSE PROPERTY. IT WOULD NECESSARILY COME ONLY UNDER TH E RESIDUARY HEAD I.E. INCOME FROM OTHER SOURCES. HOWEVER THE CLA IM OF THE ASSESSEE THAT EVEN IF IT IS CONSIDERED UNDER THE HE AD INCOME FROM OTHER SOURCES DEPRECIATION SHOULD BE ALLOWED CAN NOT BE BRUSHED ASIDE. CLAUSE (II) OF SUB-SECTION (2) OF SECTION 5 6 CLEARLY SPECIFIES I.T.A. NOS. 310 TO 313/MDS/11 9 THAT INCOME FROM MACHINERY PLANT OR FURNITURE BELO NGING TO AN ASSESSEE WHICH IS LET ON HIRE SHALL BE CHARGED UND ER THE HEAD INCOME FROM OTHER SOURCES IF IT IS NOT CHARGED UN DER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. THE RE IS NO CASE FOR THE REVENUE HERE THAT THE RENTALS OF THE AMENITIES WERE TO BE CONSIDERED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PR OFESSION. FURTHER CLAUSE (II) OF SECTION 57 OF THE ACT MANDATES THAT INCOME FROM OTHER SOURCES HAD TO BE COMPUTED AFTER GIVING DEDUCTION IN ACCORDANCE WITH PROVISIONS OF SUB-CLAUSE (II) OF CLAUSE (A) AN D CLAUSE (C) OF SECTION 30 SECTION 31 AND SUB-SECTIONS (1) AND (2) OF SECTION 32 AND SUBJECT TO THE PROVISIONS OF SECTION 38. ASSESSEE S CLAIM FOR EXPENDITURE HAS TO BE CONSIDERED UNDER THESE SUB-CL AUSES WHICH AUTOMATICALLY WOULD JUSTIFY ITS CLAIM FOR DEPRECIAT ION. SIMILARLY ASSESSEE IS ALSO ENTITLED TO CLAIM THOSE EXPENDITUR E INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF EARNING SUCH INC OME AS PROVIDED UNDER CLAUSE (III) OF SECTION 57. SO SUCH CLAIM O F THE ASSESSEE HAS TO BE ALLOWED. THEREFORE WE ARE OF THE OPINION TH AT ALTERNATIVE GROUND OF THE ASSESSEE FOR ALLOWING DEPRECIATION ON THE ITEMS I.T.A. NOS. 310 TO 313/MDS/11 10 CONSIDERED UNDER THE HEAD INCOME FROM OTHER SOURCE S HAS TO BE ALLOWED. 7. CONSEQUENTLY GROUND NOS.1 AND 2 STAND DISMISSED WHEREAS GROUND NO.3 IS ALLOWED. 8. IN THE RESULT APPEALS FOR ALL THE YEARS ARE TRE ATED AS PARTLY ALLOWED. THE ORDER WAS PRONOUNCED IN THE COURT ON 25 TH NOVEMBER 2011. SD/- SD/- (GEORGE MATHAN) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI DATED THE 25 TH NOVEMBER 2011. KRI. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT(A)-II CHENNAI-34 (4) CIT CENTRAL-II CHENNAI (5) D.R. (6) GUARD FILE