Sh. Rajesh Chandra, New Delhi v. ACIT, New Delhi

ITA 4190/DEL/2010 | 2007-2008
Pronouncement Date: 14-01-2011 | Result: Allowed

Appeal Details

RSA Number 419020114 RSA 2010
Assessee PAN AAIPR7940L
Bench Delhi
Appeal Number ITA 4190/DEL/2010
Duration Of Justice 4 month(s) 3 day(s)
Appellant Sh. Rajesh Chandra, New Delhi
Respondent ACIT, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 14-01-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted F
Tribunal Order Date 14-01-2011
Date Of Final Hearing 10-11-2010
Next Hearing Date 10-11-2010
Assessment Year 2007-2008
Appeal Filed On 10-09-2010
Judgment Text
I.T.A. NO. 4190 /DEL/2010 1/7 IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL NEW DELHI BENCH F NEW DELHI BENCH F NEW DELHI BENCH F NEW DELHI BENCH F BEFORE SHRI R. P. TOLANI JUDICIAL MEMBER AND SHRI K. D. RANJAN ACCOUTANT MEMBER ITA NO. 4190 /DEL/2010 (ASSESSMENT YEAR 2007-08) SH. RAJESH CHANDRA VS. ACIT CIRCLE 36(1) F-91 PREET VIHAR VIKAS MARG NEW DELHI. NEW DELHI. (APPELLANTS) (RESPONDENTS) PAN / GIR NO. AAIPR7940L APPELLANT BY: SHRI S.M. MATHUR CA RESPONDENT BY: SMT. BANITA DEVI NAOREM SR. DR ORDER ORDER ORDER ORDER PER K. D. RANJAN AM: PER K. D. RANJAN AM: PER K. D. RANJAN AM: PER K. D. RANJAN AM: 1. THIS APPEAL BY THE ASSESSEE FOR THE ASSESSMENT Y EAR 2007-08 ARISES OUT OF THE ORDER OF LD. CIT(A) XXVII NEW DE LHI. THE GROUNDS OF APPEAL ARE REPRODUCED AS UNDER: 1) THAT ON THE FACTS AND IN THE CIRCUMCISE OF THE CASE THE CIT(A) HAS ERRED IN LAW IN UPHOLDING THE DECISI ON OF THE LD. ACIT AND HE HAS ERRONEOUSLY CONFIRMED AN D HELD THAT THE AGREEMENT BETWEEN M/S. ZODIAC CLOTHING CO. LTD. SO CALLED CONSIGNOR AND THE APPELLANT SO CALLED CONSIGNEE IS OF BUSINESS RELATIONSHIP IN LETTING OUT THE PREMISES FOR PROFI T AND BY ANY STRETCH IT CANNOT BE HELD TO BE A LEASE/RENT AGREEMENT BETWEEN THE TWO. WHILE HOLDING SO HE HAS FURTHER ERRED IN DENYING THE DEDUCTION U/S 24(2 ) OF THE ACT TO THE APPELLANT. 2) THAT THE CIT(A) WHILE HOLDING THE ABOVE FINDINGS DID NOT GIVE ANY COGNIZANCE TO THE DETAILED SUBMISSIONS (POINT-WISE) FILED BEFORE HIM. HE HAS ALSO DID NOT HOLD THAT POINT WISE SUBMISSIONS OF THE APPELLANT ARE UNTRUE ARE CONTRARY TO THE FACTS AND IN THE TOTALI TY OF CIRCUMSTANCES OF THE FACTS OF THE CASE. EH CIT(A) HAS THUS ACTED IN BIASED AND ARBITRARY MANNER WHICH IS NOT ONLY BAD IN LAW BUT AGAIN THE PRINCIPLES OF NAT URAL JUSTICE. 3) THAT THE ORDERS PASSED BY THE CIT(A) ARE NON- SPEAKING ORDER WHICH ARE NOT SUSTAINABLE IN LAW. HE I.T.A. NO. 4190 /DEL/2010 2/7 HAD MERELY REPRODUCED THE SUBMISSIONS OF THE APPELLANT THE REMAND REPORT OF THE LD. A.O. AND CONCLUDED HIS ERRONEOUS DECISION WITHOUT GIVING ANY COGNIZANCE TO THE DETAILED SUBMISSIONS OF THE APPELLANT BEFORE HIM AND THE DOCUMENTARY SUPPORT THEREOF. WHILE REJECTING THE SUBMISSIONS OF THE APPELLANT HE WAS FAILED TO HOLD THAT THE CERTIFICA TE OF TDS ISSUED BY M/S. ZODIAC CLOTHING CO. LTD. U/S 194 -I OF THE I. T. ACT IS EITHER WRONG OR INCORRECT. THE CERTIFICATE OF TDS ISSUED BY ZODIAC ITSELF PROVES THAT THE ARRANGEMENT WAS OF LEASE RENTAL ONLY. 4) THAT THE CIT(A) HAS FURTHER ERRED IN LAW AND ON THE FACTS OF THE CASE WITHOUT SUMMONING THE PARTY CONCERN I.E. M/S. ZODIAC CLOTHING CO. LTD. BEFORE DISBELIEVING THE CERTIFICATE OF TDS ISSUED BY THEM U/S 194-I OF THE ACT. HE DID NOT ALSO PROVIDE ANY OPPORTUNITY TO ZODIAC TO EXPLAIN AS TO WHY THEY H AD TREATED THE SAID PAYMENT AS LEASE RENT WHEN THE SO CALLED AGREEMENT WERE OF BUSINESS ARRANGEMENT. WITHOUT DOING SO HE HAS PASSED THE APPELLATE ORDER MERELY ON CONJECTURES AND SURMISES WHICH IS BAD IN LAW. 5) THAT THE APPELLANT ASSAIL HIS RIGHT TO ALTER/AME ND AND FURNISH ADDITIONAL GROUNDS OF APPEAL IF NEEDED WI TH THE PERMISSION OF THE HONBLE INCOME TAX APPELLATE TRIBUNAL NEW DELHI. IN VIEW OF THE ABOVE THE APPELLANT HUMBLY PRAY THA T THE IMPUGNED ERRONEOUS ORDER PASSED BY THE HONBLE CIT( A) MAY PLEASE BE CANCELLED AND NECESSARY RELIEF BE AFF ORDED TO THE APPELLANT AFTER PROVIDING AN OPPORTUNITY OF BEING HEAD TO THE APPELLANT. 2. THE ONLY ISSUE FOR CONSIDERATION RELATES TO THE ASSESSMENT OF COMMISSION INCOME AS INCOME FROM HOUSE PROPERTY. T HE FACTS STATED IN BRIEF ARE THAT THE ASSESSEE OWNS SHOP AT 16-B KHAN MARKET DELHI JOINTLY WITH SHRI VIPIN KUMAR SHARMA HAVING 50% SHARE EACH. THE ASSESSEE WITH HIS CO-OWNER ENTERE D INTO AGREEMENT WITH ZODIAC CLOTHING CO. LTD. ON 21.04.20 05 ACCORDING TO WHICH THE ASSESSEE WAS APPOINTED AS CONSIGNEE FOR T HE PRODUCT MANUFACTURED BY ZODIAC CLOTHING CO. LTD. AS PER TH E TERMS OF APPOINTMENT AN AMOUNT OF ` 2.50 LACS PER MONTH WAS AGREED TO BE PAID BY M/S. ZODIAC CLOTHING CO. LTD. TO THE CONSIG NEES IN RESPECT OF USE OF SHOP PREMISES. IT WAS AGREED BETWEEN THE PA RTIES THAT IN I.T.A. NO. 4190 /DEL/2010 3/7 CONSIDERATION OF CONSIGNEE PROVIDING THE CONSIGNOR WITH THE SAID SHOP PREMISES THE CONSIGNOR SHALL PAY THE CONSIGNE E A COMMISSION @ ` 2.50 LACS PER MONTH. THE TOTAL PAYMENT FOR THE YEAR UNDER CONSIDERATION WAS RECEIVED BY THE OWNERS OF THE SHO P AT ` 30 LACS OUT OF WHICH ` 15 LACS WERE RECEIVED BY THE ASSESSE E. THE ASSESSEE IN HIS THEIR RETURN OF INCOME HAD SHOWN THE AMOUNT OF ` 15 LACS AS INCOME FROM HOUSE PROPERTY AND CLAIMED DEDUCTION @ 30% U/S 24 OF THE ACT AT ` 4.50 LACS. THE A.O. WHILE COMPLETING THE ASSESSMENT TREATED THE PAYMENT OF ` 15 LACS AS BUSINESS INCOME AND DISALLOWED THE DEDUCTION U/S 24 OF THE ACT AT ` 4.50 LACS. 3. BEFORE LD. CIT(A) IT WAS SUBMITTED THAT THE WOR D COMMISSION WAS INADVERTENTLY MENTIONED IN THE AGREEMENT WHEREA S IT WAS TO BE TYPED AS RENT. ACCORDINGLY ZODIAC CLOTHING CO. LTD. HAS PAID RENT TO THE ASSESSEE. THEY HAVE DEDUCTED TAX AT SOURCE U/S 194-I WHICH IS APPLICABLE TO RENTAL INCOME RECEIVED BY THE ASSE SSEE. IT WAS ALSO SUBMITTED THAT THE A.O. HAS CONCLUDED FROM THE AGRE EMENT THAT THE SAME WAS IN RESPECT OF COMMISSION RECEIVED IN RESPE CT OF CONSIGNMENT OF PRODUCTS. THE ASSESSEE HAD NOT ENGA GED ANY EMPLOYEES AND WAS NOT HAVING ANY CONTROL OVER THE S TOCK OF ZODIAC CLOTHING CO. LTD. AND GOODS WERE SOLD BY THEIR EMPL OYEES. AS PER THE AGREEMENT THE ASSESSEE HAD RECEIVED REIMBURSEME NT OF ELECTRICITY WATER CHARGES AND TELEPHONE CHARGES IN ADDITION TO THE RENTALS. THEREFORE THE AMOUNT RECEIVED FROM ZODIA C WAS ASSESSABLE AS RENTAL INCOME AND NOT AS BUSINESS INC OME. LD. CIT(A) HOWEVER UPHELD THE STAND TAKEN BY THE A.O. BY OBSE RVING AS UNDER: 8. DETERMINATION: I HAVE CAREFULLY GONE THROUGH THE SUBMISSIONS MADE BY THE APPELLANT AS WELL AS THE FINDINGS OF THE A.O. I AM UNABLE TO AGREE WITH THE ARGUMENTS OF THE APPELLANT. THE A.O . HAS IN HIS ASSESSMENT ORDER CLEARLY BROUGHT OUT THE ESSENTIAL FACTS. THEY ARE: I) THE AGREEMENT BETWEEN THE APPELLANT & THE ZODIAC CLOTHING COMPANY LTD. IS THAT OF A CONSIGNOR- CONSIGNEE. II) ZODIAC CLOTHING CO. LTD. AS PER THE AGREEMENT I S PAYING ` 2.50 LACS AS COMMISSION TO THE APPELLANT. I.T.A. NO. 4190 /DEL/2010 4/7 III) THE APPELLANT HOWEVER HAS SHOWN THE SAID RECEI PT AS HOUSE PROPERTY INCOME & CLAIMED DEDUCTION U/S 24 FO R A SUM OF ` 4.50 LACS. IV) SINCE THE APPELLANT HAS RECEIVED THE SUMS AS COMMISSION NO DEDUCTION IS POSSIBLE U/S 24. 8.1 THE STAND OF THE APPELLANT THAT THE WORD COMMI SSION WAS INADVERTENTLY MENTIONED IS WITHOUT ANY REASON. THE RELEVANT PARA OF THE AGREEMENT READ AS UNDER: AND WHEREAS THE CONSIGNEE ARE THE OWNER OF COMMERC IAL SHOP PREMISES ADMEASURING 464 SQ. FT. SITUATED AT 1 6-B KHAN MARKET NEW DELHI (HEREIN AFTER REFERRED AS HE SAID SHOP PREMISES) AND HAS APPROACHED THE CONSIGNOR TO RUN A SALES OUTLETS FOR THE SAID PRODUCTS AT THE SAID SHOP PREM ISES OF THE CONSIGNORS OWN ACCOUNT. AND WHEREAS THE CONSIGNORS IS DESIROUS OF APPOINTIN G THE CONSIGNEE AS CONSIGNEE OF THE SAID PRODUCTS FOR THE PERIOD AND UPON THE TERMS AND CONDITION CONTAINED HERE IN BELOW. 8.2 THE DETAILED NARRATION OF THE FINDINGS OF THE A .O. AS BROUGHT OUT IN THE ASSESSMENT ORDER IS SELF-EXPLANA TORY. IT SHOWS THAT THE APPELLANT HAD A BUSINESS RELATIONSH IP IN LETTING OUT THE PREMISES FOR PROFIT & BY ANY STRETC H OF IMAGINATION THE RECEIPTS FROM SUCH AGREEMENT CANNOT BE TAKEN AS HOUSE PROPERTY INCOME. I UPHOLD THE STAND OF THE A.O. IN DENYING THE APPELLANT THE DEDUCTION SOUGHT FOR U/S 24. THE GROUND OF THE APPELLANT IS DISMISSED. 4. BEFORE US LD. A.R. FOR THE ASSESSEE SUBMITTED T HAT ON READING OF THE ENTIRE AGREEMENT ONE WILL FIND THAT THE AGRE EMENT IS FOR LEASE OF SHOP TO ZODIAC CLOTHING CO. LTD. THE ASSESSEE HA D RECEIVED INTEREST FREE DEPOSITS OF ` 15 LACS WHEREAS IN THE CASE OF CONSIGNOR THE CONSIGNEE WILL NEVER RECEIVE THE DEPOSITS. THE A.O. IN ASSESSMENT YEAR 2006-07 HAS ASSESSED THE INCOME UND ER THE HEAD HOUSE PROPERTY AND NO ACTION U/S 263 HAS BEEN TAK EN IN ASSESSMENT YEAR 2006-07. HE PLACED RELIANCE ON THE DECISION OF NUTAN WAREHOUSING PVT. LTD. VS DCIT 326 ITR 94 (BOM .) FOR THE PROPOSITION THAT PRIMARY OBJECT OF THE ASSESSEE SHO ULD BE ASCERTAINED WHETHER THE PRIMARY AND THE DOMINANT OB JECT WAS TO LET OUT THE PROPERTY OR TO EXPLOIT THE PROPERTY COMMERC IALLY. WHERE PRIMARY OBJECT WAS TO LET OUT THE PROPERTY THE INC OME DERIVED FROM THE PROPERTY WILL BE ASSESSABLE TO TAX AS INCOME FR OM HOUSE PROPERTY. I.T.A. NO. 4190 /DEL/2010 5/7 5. ON THE OTHER HAND LD. D.R. FOR THE REVENUE SUPP ORTED THE ORDER OF LD. CIT(A). 6. WE HAVE HEARD BOTH THE PARTIES AND HAVE GONE THR OUGH THE MATERIAL AVAILABLE ON RECORD. WE HAVE CAREFULLY GO NE THROUGH THE VARIOUS CLAUSES OF CONSIGNOR AGREEMENT ENTERED INTO BETWEEN THE PARTIES. AS PER CLAUSE THE CONSIGNOR WAS TO DEPOS IT INTEREST FREE SECURITY DEPOSIT OF ` 15 LACS WITH THE CONSIGNEE TO BE RETAINED BY AND KEPT BY THE CONSIGNEE THROUGHOUT THE PERIOD OF AGREEMENT. AS PER CLAUSE 10 THE CONSIGNEE IS NOT LIABLE IN ANY W AY FOR THE SALARY WAGES AND OTHER PAYMENTS BOTH STATUTORY AND CONTRA CTUAL TO BE MADE TO THE EMPLOYEES DEPLOYED BY THE CONSIGNOR IN THE SAID SHOP PREMISES. THE CONSIGNOR AS PER CLAUSE 11 WAS LIABL E FOR PAYMENT OF SALES TAX AND VAT ON THE SALES AFFECTED FROM THE SH OP PREMISES AND THE CONSIGNOR WAS ENTITLED TO DECORATE AND FURNISH THE SAID SHOP PREMISES. THE FURNITURE ETC WAS TO BE FIXED BY TH E CONSIGNOR. CLAUSE 15 PROVIDES THAT CASH MEMO AND BILLS SHALL S HOW LOGO OF THE CONSIGNOR. ON THE TERMINATION OF THE CONTRACT PERI OD THE INTEREST FREE DEPOSIT WAS TO BE REFUNDED TO THE OWNER. THE CONSIGNEE WERE NOT PERMITTED TO USE THE NAME OF ZODIAC OR ZODI OR ANY OTHER MAKE SIMILAR TO IT IN ANY BUSINESS VENTURE AFTER TH E EXPIRY OR ON THE TERMINATION OF THE PERIOD. THE CONSIGNEE WAS ELIGI BLE FOR REIMBURSEMENT OF ELECTRICITY WATER AND TELEPHONE C HARGES. WE HAVE NOT COME ACROSS THE TERMS OF AGREEMENT ACCORDI NG TO WHICH THE CONSIGNEE IS ENTITLED TO COMMISSION ON THE BASI S OF TURNOVER. THE PAYMENT OF ADVANCE INTEREST FREE SECURITY DEPOS IT AND REIMBURSEMENT OF EXPENSES ON ACCOUNT OF ELECTRICITY BILLS AND TELEPHONE BILLS WHICH WILL BE IN THE NAME OF THE OW NER GIVE AN INDICATION THAT THE PAYMENTS RECEIVED BY THE ASSESS EE ARE IN RESPECT OF RENT. ZODIAC CLOTHING CO. LTD. HAS DEDU CTED TAX AT SOURCE U/S 1945-I OF THE ACT WHICH IS APPLICABLE IN THE C ASE OF RENTAL INCOME. THE SALES TAX & VAT HAVE BEEN PAID BY THE CONSIGNOR. ZODIAC HAS EMPLOYED THEIR EMPLOYEES FOR SALE OF THE PRODUCTS. THEREFORE ENTIRE MANAGEMENT OF THE SHOP WAS IN THE HANDS OF I.T.A. NO. 4190 /DEL/2010 6/7 ZODIAC CLOTHING CO. LTD. AND NOT IN THE HANDS OF TH E ASSESSEE. THEY HAVE SIMPLY GIVEN THE PREMISES ON RENT THOUGH THE A GREEMENT TALKS ABOUT THE RELATIONSHIP OF CONSIGNOR AND CONSIGNEE. HON'BLE HIGH COURT OF BOMBAY IN THE CASE OF NUTAN WAREHOUSING CO . LTD. HAS OBSERVED THAT THE INCOME RECEIVED BY THE ASSESSEE F OR A TRANSACTION ENTERED INTO IN RESPECT OF IMMOVABLE PROPERTY SHOUL D BE TREATED AS INCOME FROM HOUSE PROPERTY OR AS INCOME FROM BUSINE SS WOULD HAVE TO BE RESOLVED ON THE BASIS OF WELL SETTLED TE STS LAID DOWN BY LAWS IN THE DECIDED CASES. WHAT IS MATERIAL IN SUC H CASES IS TO SEE THE PRIMARY OBJECT OF THE ASSESSEE WHILE EXPLOITING THE PROPERTY. IF THE PRIMARY DOMINATING OBJECT IS TO LEASE OUT OR LE T OUT THE PROPERTY THE INCOME DERIVED FORM THE PROPERTY WOULD HAVE TO BE REGARDED AS INCOME FORM HOUSE PROPERTY. CONVERSELY IF THE DOM INANT INTENTION OF THE ASSESSEE IS TO EXPLOIT THE COMMERCIAL ASSET BY CARRYING ON A COMMERCIAL ACTIVITY THE INCOME WOULD HAVE TO BE TR EATED AS INCOME FORM BUSINESS. WHAT HAS TO BE DECIDED IS AS TO WHE THER LETTING OUT OF THE PROPERTY CONSTITUTES A DOMINANT ASPECT OF TH E TRANSACTION OR WHETHER IT WAS SUBSERVIENT TO THE MAIN BUSINESS OF THE ASSESSEE. APPLYING THE RATIO OF THE DECISION OF HON'BLE HIGH COURT OF BOMBAY IN THE CASE OF NUTAN WAREHOUSING CO. PVT. LTD. TO T HE FACTS OF THE ASSESSEES CASE WE FIND THAT ASSESSEE HAS SIMPLY G IVEN THE SHOP PREMISES TO ZODIAC CLOTHING CO. PVT. LTD. FOR RUNNI NG OF THEIR SALES OUTLET AND ASSESSEE HAD RECEIVED ` 15 LACS AS INTER EST FREE SECURITY DEPOSIT WHICH IS APPLICABLE IN THE CASE OF LETTING OUT OF THE PROPERTY. THE ASSESSEE HAD NOT RECEIVED ANY COMMISSION BASED ON CONSIGNMENT SALES. SALES ARE MADE THROUGH THE EMPLO YEES OF THE CONSIGNOR AND THE ASSESSEE IN ADDITION TO THE FIXED AMOUNT OF ` 2.50 LACS PER MONTH TERMED AS COMMISSION HAS RECEIV ED REIMBURSEMENT OF ELECTRICITY WATER AND TELEPHONE C HARGES INSTALLED IN THE PREMISES. REIMBURSEMENT OF TELEPHONE AND EL ECTRICITY/WATER CHARGES CANNOT BE ASSOCIATED WITH THE SALE OF GOOD S. THE CONSIGNEE I.E. ASSESSEE WAS RESPONSIBLE TO UPKEEP T HE PREMISES IN GOOD CONDITION. ENTIRE FURNITURE AND DECORATION CO ST OF THE I.T.A. NO. 4190 /DEL/2010 7/7 SHOWROOM WAS MET BY THE CONSIGNOR. AS PER CLAUSE 1 2 OF THE AGREEMENT ON EXPIRY OF TERM OF AGREEMENT THE CONS IGNEE DID NOT HAVE ANY RIGHT OR INTEREST IN FURNITURE AND FIXTURE S AND THEY WERE NOT ENTITLED TO REMOVE ANY OF THE ITEMS FIXED BY THE CO NSIGNOR. THEREFORE FROM READING OF VARIOUS CLAUSES OF THE A GREEMENT IT IS EVIDENT THAT THE PRIMARY AND THE DOMINANT OBJECT OF THE ASSESSEE WAS TO LEASE OUT THE PROPERTY AND NOT TO EXPLOIT TH E PROPERTY ON COMMERCIAL BASIS. THEREFORE IN OUR CONSIDERED OPIN ION THE SO CALLED COMMISSION RECEIVED BY THE ASSESSEE IS IN THE NATUR E OF RENTAL INCOME AND IS LIABLE TO BE TAXED UNDER THE HEAD IN COME FROM HOUSE PROPERTY. ACCORDINGLY THE ASSESSEE WILL BE ENTIT LED TO DEDUCTION U/S 24 OF THE ACT @ 30%. THE A.O. THEREFORE DIRE CTED TO ALLOW DEDUCTION U/S 24(A) OF THE ACT. WE THEREFORE SET ASIDE THE ORDER OF LD .CIT(A) AND ALLOW THE APPEAL IN FAVOUR OF THE AS SESSEE. 7. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. 8. PRONOUNCED IN THE OPEN COURT ON 14 TH JAN. 2011. SD./- SD./- (R. P. TOLANI) (K. D. RANJAN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 14 TH JAN. 2011 SP. COPY FORWARDED TO 1. APPELLANT 2. RESPONDENT 3. CIT TRUE COPY: BY ORDER 4. CIT(A) 5. DR DY. REGISTRAR ITAT NEW DELHI