Garg Dyeing & Processing Industries, New Delhi v. ACIT, New Delhi

ITA 4652/DEL/2010 | 2007-2008
Pronouncement Date: 11-03-2011 | Result: Partly Allowed

Appeal Details

RSA Number 465220114 RSA 2010
Assessee PAN FLOOR4800S
Bench Delhi
Appeal Number ITA 4652/DEL/2010
Duration Of Justice 4 month(s) 20 day(s)
Appellant Garg Dyeing & Processing Industries, New Delhi
Respondent ACIT, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 11-03-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted C
Tribunal Order Date 11-03-2011
Date Of Final Hearing 29-03-2012
Next Hearing Date 29-03-2012
Assessment Year 2007-2008
Appeal Filed On 22-10-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C DELHI BEFORE SHRI RAMESH P. TOLANI AND SHRI K.G. BANS AL ITA NO. 4652(DEL)/2010 ASSESSMENT YEAR: 2007-08 GARG DYEING & PROCESSING ASSISTANT COMMISSIONER INDUSTRIES G-2 B-1 MOHAN CO-OP. VS. OF INCOME-TAX CIRCLE 22(1) INDUSTRIAL AREA MATHURA ROAD NEW DELHI. NEW DELHI. PIN-AAEFG4400A (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI RAJEEV SAXENA ADVOCATE RESPONDENT BY : SHRI MOHANISH VERMA CIT DR ORDER PER K.G. BANSAL :AM IN THIS APPEAL THE ASSESSEE HAD TAKEN UP SEV EN GROUNDS. IN THE COURSE OF HEARING BEFORE US ONLY TWO GROUNDS H AVE BEEN PRESSED BY THE LD. COUNSEL FOR THE ASSESSEE. THESE GROUNDS ARE TO THE EFFECT THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(APPEALS) ERRED IN (I) HOLDING THAT THE RENTAL INCOME IS ASSESSABLE UNDER THE RESIDUARY HEAD AND NOT UNDER THE HEAD INCOM E FROM HOUSE PROPERTY; AND (II) MAKING THE ADDITION OF RS. 32 12 038/- AS DIVIDEND U/S 2(22)(E) OF THE ACT. BEFORE PROCEEDING FURTHER WE MAY BRIEFLY NARRATE OTHER GROUNDS. ITA NO. 4652(DEL)/2010 2 1.1 GROUND NO. 1 CHALLENGES THE ASSUMPTION OF JU RISDICTION TO MAKE ASSESSMENT U/S 143(3) AS THE NOTICE U/S 143(2) WAS ALLEGEDLY NOT SERVED WITHIN THE STATUTORILY PRESCRIBED LIMIT. GROUN D NO. 2 IS GENERAL IN NATURE STATING THAT ADDITION OF RS. 85 04 042/- WAS MAD E PURELY ON CONJECTURES AND SURMISES. AS MENTIONED EARLIER THESE GROU NDS HAVE NOT BEEN PRESSED BY THE LD. COUNSEL AND THEREFORE DISMISSED AS NOT PRESSED. 1.2 GROUND NO. 5 REGARDING THE CHARGE OF INTEREST UNDER SECTIONS 234B AND 234C WAS STATED TO BE CONSEQUENTIAL IN NATUR E. ACCORDINGLY THE AO IS DIRECTED TO RECOMPUTED THE INTEREST ON THE BAS IS OF TAX PAYABLE DETERMINED AFTER GIVING EFFECT TO THIS ORDER. 1.3 GROUND NO. 6 IS AGAINST INITIATION OF PENALT Y U/S 271(1)(C) OF THE ACT. AND GROUND NO. 7 MENTIONS THE FACTS REGA RDING THE PROPERTY LET OUT BY THE ASSESSEE IN RESPECT OF WHICH IT WAS CL AIMED THAT THE INCOME IS ASSESSABLE UNDER THE HEAD INCOME FROM HOUSE PROP ERTY. THESE GROUNDS ARE ALSO DISMISSED AS NOT PRESSED. 2. THE FACTS REGARDING GROUND NO. 3 ARE THAT TH E ASSESSEE SHOWED RENTAL INCOME AS TAXABLE UNDER THE HEAD INCOM E FROM HOUSE PROPERTY. ITA NO. 4652(DEL)/2010 3 THE ASSESSEE HAD RECEIVED TOTAL RENT OF RS. 1 7 6 40 000/- IN THIS YEAR. ACCORDING TO THE AO THIS AMOUNT HAD THREE COMPONE NTS: -RENT FOR BUILDING -RENT FOR FURNITURE FITTINGS AND FIXTURES AND -MAINTENANCE CHARGES. SINCE A COMPOSITE SUM WAS RECEIVED IN RESPE CT OF THE AFORESAID THE AO BROUGHT THIS AMOUNT TO TAX UNDER THE HEAD OTHER SOURCES. THUS THE CLAIM OF DEDUCTION U/S 24 WAS DENIED. 2.1 BEFORE THE LD. CIT(APPEALS) IT WAS SUBMITTE D THAT THE PROVISION CONTAINED IN SECTION 56(2)(III) COME INTO FORCE WHEN THE FOLLOWING CONDITIONS ARE SATISFIED:- (I) THERE IS A COMPOSITE RENT FOR LETTING OUT B UILDING AND MACHINERY/FURNITURE/PLANT (II) THE LETTINGS ARE INSEPARABLE SO THAT ONE CA NNOT BE SEPARATED FROM THE OTHER; AND (III) INCOME FROM SUCH LETTING IS NOT TAXABLE UND ER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. ITA NO. 4652(DEL)/2010 4 2.2 THE LD. CIT(APPEALS) CONSIDERED THE FACTS OF THE CASE AND MENTIONED THAT THE BUILDING LET OUT BY THE ASS ESSEE COMPRISES OF OFFICE SPACE WHICH HAS BEEN SUITABLY FURNISHED BY WAY O F AIR-CONDITIONING POWER BACK UP INTERIOR DECORATION FURNITURE AN D THE AGREEMENTS SPECIFY THE PARTICULAR REQUIREMENT WITH REFERENCE TO OFF ICE SPACE AND INTERIOR DECORATION. FROM THE POINT OF VIEW OF THE LESSEE THE RENT PAID REPRESENTS THE EXPENDITURE INCURRED FOR THE OFFICE SPACE AND THE FACILITIES. HOWEVER THE RENT PAID BY THEM TO THE ASSESSEE C OVERS THE AMOUNT ATTRIBUTABLE TO THE OFFICE SPACE AND THE ATTENDA NT FACILITIES. THEREFORE LETTING OUT OF THE SPACE IS INEXTRICABLY LINKED WITH THE CHARGES IN RESPECT OF OTHER FACILITIES. ACCORDINGLY IT WAS HELD TH AT THE AMOUNT IS TAXABLE UNDER THE RESIDUARY HEAD. 3. BEFORE US THE LD. COUNSEL FURNISHED THE DETAI LS OF RENT ETC. RECEIVED FROM VARIOUS TENANTS IN RESPECT OF THE PROPERTY SI TUATED AT MOHAN COOPERATIVE INDUSTRIAL ESTATE. THESE ARE AS UNDER:- NAME OF TENANT HALDIRAM HUTCHISON PROTON LINKS TRINET PREMISES GROUND FLOOR & FIRST FLOOR 25000 SQ. FT. SECOND FLOOR12600 SQ. FT. SECOND FLOOR 4800 SQ. FT. SECOND FLOOR 7500 SQ. FT. DATE OF COMMENCEMENT 09.09.2005 29.06.2005 01.09.2005 09.01.2006 ITA NO. 4652(DEL)/2010 5 NO. OF YEARS 3+3+3 3 YEARS 3+3+3 3+3+3 RENT (RS.) 5 40 000 4 90 000 1 80 000 2 75 000 SECURITY/ADVANCE (RS.) 32.40+ 16.20 LAKHS 29.40+18.00 LAKHS 10.80 LAKHS 16.50 LAKHS FACILITIES/AMENITIES PROVIDED BY LESSOR NIL FITTING & FIXTURE (FLOORING AIR- CONDITIONING FALSE CEILING LIGHTING) FURNITURE & FIXTURE CENTRALLY AIR- CONDITIONING FURNITURE FIXTURE & LIGHTING ETC. FIXTURE & FITTING LEASE ALLOWED TO PUT CHANGES FOR THEIR BUSINESS YES YES NO CLAUSE FOR PERMISSION OR RESTRICTION NO CLAUSE FOR PERMISSION OR RESTRICTION RELEVANT CLAUSE 7(H) & (J) 2&3 PAPER BOOK PAGE 43 47 3.1 IT WAS SUBMITTED THAT ON PERUSAL OF THE AF ORESAID TABLE IT WILL BE SEEN THAT VARIOUS FLOORS OF THE BUILDING HAD BE EN RENTED OUT TO DIFFERENT TENANTS. NO FACILITY OR AMENITY WAS PROVIDED TO H ALDIRAM. HOWEVER FACILITIES AS MENTIONED IN THE TABLE WERE PROVID ED TO HUTCHISON PROTON LINKS AND TRINET. ALTHOUGH NOTHING IS STATED I N THE TABLE ABOUT OCCUPATION OF ANY PART OF THE BUILDING BY THE ASS ESSEE IT WAS SUBMITTED THAT THE TOP FLOOR WAS OCCUPIED BY THE ASSESSEE FROM WHERE IT HAS BEEN CARRYING ON ITS BUSINESS. WE ALSO PERUSED THE PROFIT AND LOSS ACCOUNT ITA NO. 4652(DEL)/2010 6 OF THE ASSESSEE FOR THIS YEAR WHICH INTER-ALIA S HOWS THAT THE ASSESSEE RECEIVED RENT AMOUNTING TO RS. 1 76 40 000/-. A SUM OF RS. 11 77 305/- HAS BEEN DEBITED TO THE PROFIT AND LOSS ACCOUNT AS DEPRECIATION. THIS DEPRECIATION IS IN RESPECT OF THE BUILDING AND F URNITURE ETC. RENTED OUT BY THE ASSESSEE. THE COMPUTATION OF INCOME SHOWS T HAT THE DEPRECIATION OR PART THEREOF PERTAINING TO THE BUILDING AND AS SETS LET OUT HAS NOT BEEN DISALLOWED WHILE COMPUTING THE BUSINESS INCOME. HOWEVER THE RENT HAD BEEN REDUCED FROM THE BUSINESS INCOME AND THIS A MOUNT IS TREATED AS INCOME FROM HOUSE PROPERTY. AFTER CLAIMING DEDUC TION U/S 24 AMOUNTING TO RS.52 92 000/- INCOME UNDER THIS HEAD HAS BE EN COMPUTED AT RS. 1 23 48 000/-. THE SCHEDULE OF FIXED ASSETS ANN EXED TO THE ACCOUNTS IS REPRODUCED BELOW:- SCHEDULE OF FIXED ASSETS PARTICULARS WDV AS ON 31.3.06 ADD/DEP. BEFORE SEPT. ADD/DEP. AFTER SEPT. TOTAL AS ON 31.3.07 DEP. FOR THE YEAR WDV AS ON 31.3.07 LAND 64 296.20 - - 64 296.20 - 64 296.20 BUILDING 8756944.26 383997.00 32000.00 9172941.26 - 9172941.26 CAR (SAKODA LAURA) - 1797844.00 - 1797844.00 269677.00 1528167.00 AIR CONDITIONER 2155674.77 - - 2155674.77 323351.00 1832323.77 ITA NO. 4652(DEL)/2010 7 GENERATOR 1294813.07 - - 1294813.07 194222.00 11005 91.07 COMPUTER 40600.00 - - 40600.00 24360.00 16240.00 FURNITURE & FIXTURE 217255.70 - - 217255.70 21726.00 195529.70 ELECTRIC FITTING 3439693.78 - - 3439693.78 343969.38 3095724.40 TOTAL: 15969277.78 2181841.00 32000.00 18183118.78 1177305.38 17005813.40 THE CASE OF THE LD. COUNSEL IS THAT THE INCOME IS TAXABLE AS PROPERTY INCOME. HOWEVER IT IS CONCEDED THAT DEPRECIATI ON RELATING TO LET OUT PORTION OF THE PROPERTY AND OTHER ASSETS MAY B E DISALLOWED WHILE COMPUTING THE BUSINESS INCOME. 4. IN REPLY THE LD. DR SUBMITTED THAT THE PRO PERTY UNDER QUESTION IS A COMMERCIAL PROPERTY. THIS PROPERTY HAS BEEN LE T OUT TO VARIOUS PARTIES AS PER MEMORANDUM OF UNDERSTANDING WITH THEM. IN THIS CONNECTION OUR ATTENTION HAS BEEN DRAWN TO DISCUSSION ON PAGE NOS . 4 TO 6 OF THE ASSESSMENT ORDER WHERE TERMS AND CONDITIONS WITH VARIOUS TENANTS HAVE BEEN MENTIONED. IN THE CASE OF PROTON LINKS A ND M/S IN TOUCH IT IS MENTIONED THAT THE PREMISES WERE LET OUT ON THE CONDITION THAT THE LESSOR WILL PROVIDE FACILITIES OF RECEPTION AREA WITH SOFAS RECEPTION DESK WORKSTATIONS OF QUALITY FURNITURE FOR OFFICES AND CONFERENCE ROOMS APART ITA NO. 4652(DEL)/2010 8 FROM OTHER SPECIFICATION FOR SOUND PROOFING OF WINDOWS BLINDS PHONE WIRINGS ELECTRICAL WIRINGS GENERATORS ETC. I T MAY BE MENTIONED HERE THAT THE TABLE FURNISHED BY THE ASSESSEE DOES NOT CON TAIN THE NAME OF IN TOUCH. THE AGREEMENT WITH TRINET CONTAINS T HE PROVISION THAT THE LESSOR SHALL GIVE THE SAID PREMISES WITH FIXT URES AND FITTINGS AS PER SCHEDULE ATTACHED TO THE AGREEMENT AND THE SC HEDULE SPEAKS OUT IN GREAT DETAILS THE FACILITIES LIKE WORKSTATIONS CHAIRS AIR CONDITIONS ETC. TO BE PROVIDED BY THE LESSOR TO THE LESSEE. THE AG REEMENT WITH HUTCHISON ALSO MENTIONS ABOUT FITTINGS AND FIXTURES MENTIONE D IN THE ANNEXURE AND THIS ANNEXURE HAS NOT BEEN PROVIDED BY THE ASSESSEE. THEREFORE HIS CASE IS THAT IT IS NOT A CASE OF RENTING OUT THE PREMI SES SIMPLICITER BUT A CASE OF RENTING THE PREMISES WITH A HOST OF FACILITIES B Y WAY OF INFRASTRUCTURE AND ALSO MAINTENANCE. 4.1 IT IS FURTHER SUBMITTED THAT THE ASSESSEE HAS CLAIMED DEPRECIATION IN THE ACCOUNTS IN RESPECT OF ALL THE ASSETS. THIS SHOWS THAT THE INTENTION AT THE TIME OF LETTING WAS THAT IT IS AN INSEPA RABLE LEASE THE RENT FROM WHICH IS CHARGEABLE UNDER THE RESIDUARY HEAD. I T IS ONLY AT THE TIME OF FILING OF THE RETURN THAT THEN ASSESSEE THOUGHT OF CLAIMING DEDUCTION U/S ITA NO. 4652(DEL)/2010 9 24 AND THEREFORE THE HEAD OF INCOME WAS CHANGE D FROM RESIDUARY HEAD TO THE PROPERTY HEAD. 5. HAVE CONSIDERED THE FACTS OF THE CASE AND S UBMISSIONS MADE BEFORE US. THE FACTS SUBMITTED BY THE ASSESSEE ARE T HAT FOUR FLOORS OF THE BUILDING HAVE BEEN LET OUT TO HALDIRAM HUTCHISON PROTON LINKS AND TRINET. NO ATTENDANT FACILITY HAS BEEN GRANTED TO HALDIRAM. HOWEVER VARIOUS KINDS OF FACILITIES SUCH AS FITTINGS AN D FIXTURES AIR-CONDITIONING AND FURNITURE HAS BEEN PROVIDED TO HUTCHISON AND PROTON LINKS. WHILE THE ASSESSMENT ORDER SPEAKS OF LETTING OUT TO IN T OUCH THE DETAILS FURNISHED BY THE ASSESSEE SHOW THE LETTING OUT TO TRINET AS THE NAME OF IN TOUCH DOES NOT APPEAR IN THE TABLE FURN ISHED BY THE ASSESSEE. THE TABLE SHOWS THAT ONLY FIXTURES AND FITTING S HAS BEEN PROVIDED TO TRINET THE ASSESSMENT ORDER SHOWS THAT THE AN NEXURE TO THE AGREEMENT WAS NOT PROVIDED TO THE AO AND THEREFORE THE AO PRESUMED THAT FACILITIES SIMILAR TO PROTON LINKS WERE PROVIDED TO IT. THE QUESTION IS WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE RENT RECEIVED IS CHARGEABLE AS PROPERTY INCOME OR AS RESIDUAL INCOME? ITA NO. 4652(DEL)/2010 10 5.1 WE MAY NOW CONSIDER THE JURISPRUDENCE RELI ED UPON BY THE RIVAL PARTIES. IN THE CASE OF SULTAN BROTHERS VS. CIT (1964) 51 ITR 353 (SC) (CONSTITUTION BENCH) THE QUESTION BEFORE THE HO NBLE COURT WAS-WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE INCOME DERIVED FROM LETTING OF THE BUILDING CONSTRUCTED ON PLOT NO. 7 IS PROPERLY TO BE COMPUTED UNDER SECTION 9 10 OR12 OF THE ACT? T HE HIGH COURT HAD HELD THAT THE INCOME FROM THE BUILDING WILL BE COMPUTED U/S 9 INCOME FROM FURNITURE AND FIXTURE U/S 12(3) AND NO PART O F THE INCOME IS TAXABLE U/S 10. THE HONBLE COURT MENTIONED THAT WHETHER A PARTICULAR LETTING IS BUSINESS HAS TO BE DECIDED IN THE CIRCUMSTANCES OF EACH CASE. THE MAIN CONSIDERATION IS WHETHER FROM THE POINT OF VIEW OF THE BUSINESSMAN THE LETTING WAS DOING A BUSINESS OR THE EXPLOITAT ION OF HIS PROPERTY AS AN OWNER. A THING CAN BY ITS VERY NATURE CANNOT BE SAID TO BE A COMMERCIAL ASSET. A COMMERCIAL ASSET IS ONLY AN ASSET USED IN A BUSINESS AND NOTHING ELSE. THEREAFTER THE HON BLE COURT POSED THE QUESTION-WHAT THEN IS INSEPARABLE LETTING. I T WAS MENTIONED THAT THE INSEPARABILITY IN SECTION 12(4) ARISES FROM THE INTENTION OF THE PARTIES. THEREFORE IT HAS TO BE ASCERTAINED WHETHER THE RE IS ONE LEASE OR TWO I.E. SEPARATE LEASES IN RESPECT OF FURNITURE AND THE BUILDING AND THAT THE TWO SHOULD BE ENJOYED TOGETHER. WAS IT THE INTENTI ON TO MAKE THE LETTING OF ITA NO. 4652(DEL)/2010 11 TWO PRACTICALLY ONE LETTING? WOULD ONE HAVE B EEN LET ALONE AND A LEASE OF IT ACCEPTED WITHOUT THE OTHER? IF TH E ANSWER TO THE FIRST TWO QUESTIONS IS IN AFFIRMATIVE AND THE LAST IN T HE NEGATIVE THEN IN OUR VIEW IT HAS TO BE HELD THAT IT WAS INTENDED THAT LETTING WOULD BE INSEPARABLE. THIS VIEW ALSO PROVIDES A JUSTIFI CATION FOR TAKING THE CASE OF INCOME FROM LEASE OF A BUILDING OUT OF SECTIO N 9 AND PUTTING IT U/S 12 UNDER RESIDUARY HEAD OF INCOME. COMING TO THE FACTS THE ASSESSEE WAS TAXED U/S 9 IN RESPECT OF BUILDING AND SECTION 1 2 IN RESPECT OF HIRE CHARGES RECEIVED FOR LETTING OF FURNITURE AND FIXTURES. THE AAC HELD THAT THE RENT FROM THE BUILDING COULD BE ASSESSED U/S 12 WIT H THE ALLOWANCES MENTIONED IN SUB-SECTION (4) WHERE THE LETTING OF FURNITURE AND FIXTURE WAS INSEPARABLE FROM LETTING OF THE BUILDING AND AS THAT WAS NOT THE CASE HERE THE BUILDING HAD BEEN RIGHTLY ASSESSED U/ S 9. THE TRIBUNAL UPHELD THE FINDINGS OF THE LOWER AUTHORITIES. WE HAV E ALREADY MENTIONED ABOUT THE FINDINGS OF THE HIGH COURT. THE HONBLE COURT MENTIONED ABOUT THE RELEVANT PORTION OF THE LEASE DEED. THEREAFTER IT WAS MENTIONED THAT THE BUILDING AND FIXTURES AND FURNITURE WERE TO BE USED FOR ONE PURPOSE NAMELY FOR THE PURPOSE OF RUNNING A HOTEL. THE LESSEE WAS PROHIBITED FROM REMOVING ANY ARTICLE OR THING FROM THE PRE MISES EXCEPT FOR THE PURPOSE OF AND IN THE COURSE OF THE HOTEL BUS INESS. THE LESSEE WAS TO ITA NO. 4652(DEL)/2010 12 EFFECT REPAIRS TO THEM OR TO REPLACE THEM . THE REFORE THE LEASE DEED ESTABLISHES THAT IT WAS THE INTENTION OF THE PART IES THAT FURNITURE FIXTURE AND BUILDING SHOULD BE ENJOYED TOGETHER AND NOT ON E SEPARATELY FROM THE OTHER. ACCORDINGLY IT WAS HELD THAT RENT FROM T HE BUILDING WILL BE COMPUTED SEPARATELY FROM THE INCOME FROM FURNITU RE AND FIXTURES. THE ASSESSEE WILL BE ENTITLED TO DEDUCTION U/S 12 (4) IN RESPECT OF RENT FROM THE BUILDING AND UNDER SUB-SECTION (3) IN RESPE CT OF RENT FROM FURNITURE AND FIXTURES. IT WAS FURTHER HELD THAT NO PA RT OF THE INCOME CAN BE ASSESSED U/S 9 OR 10. THUS THE JUDGMENT OF TH E HIGH COURT WAS SET ASIDE. 5.2 IN THE CASE OF DR. P.A. VERGHESE VS. CIT (197 1) 80 ITR 180 THE FACTS ARE THAT THE ASSESSEE CONSTRUCTED A BUIL DING AND WHEN THE CONSTRUCTION WAS IN PROGRESS HE ENTERED INTO A N AGREEMENT WITH THE EXPORT PROMOTION COUNCIL TO LEASE THE SECOND FL OOR AND A PART OF THE FIRST FLOOR OF THE BUILDING TO THE COUNCIL. TH E TERMS AND CONDITIONS OF THE LEASE AGREEMENT WERE AS UNDER:- 1. THE ACCOMMODATION WILL BE HIRED IN THE NAME OF T HE CASHEW EXPORT PROMOTION COUNCIL WHO SHALL HAVE THE RIG HT TO SUBLET THE ACCOMMODATION TO ANY PARTY THEY CHOOSE. 2. THE TOTAL RENT FOR THE PORTION HIRED WILL BE RS. 2 350/- (RUPEES TWO THOUSAND THREE HUNDRED AND FIFTY ONLY PER MENSEM . ITA NO. 4652(DEL)/2010 13 3. YOU WILL PROVIDE THE NECESSARY PARTITIONS AS IND ICATED IN THE DRAWING ATTACHED TO THIS LETTER. 4. YOU WILL PROVIDE THE NECESSARY LAVATORIES CLOSETS ETC. AS INDICATED IN THE ATTACHED DRAWING. 5. YOU WILL AIR-CONDITION THE ROOM MARKED COUNCIL HALL. 6. THREE GARAGES IN THE COURT-YARD WILL BE RESERVED FOR OUR USE. 7. A FLUORESCENT TUBE FITTING EXPORT HOUSE WILL BE PROMINENTLY DISPLAYED IN THE BUILDING. 8. YOU WILL PROVIDE SEPARATE ELECTRIC METERS FOR THE SPACES AS INDICATED TO YOU (3 IN NUMBER). WE AGREE TO PAY THE CHARGES INCURRED ON ACCOUNT OF ELECTRICITY CONSUMED BY US. 9. YOU WILL MAKE ARRANGEMENTS FOR THE UNINTERRUPT ED WATER SUPPLY TO THE OFFICES OCCUPYING THE SPACE REFERRED TO YOU . 10. YOU WILL MAINTAIN THE BUILDING AT YOUR OWN COST. WHITE- WASHING/COLOUR WASHING WILL BE DONE AT LEAST ONC E A YEAR. 11. YOU WILL ENSURE THAT THE LIFT IS PROVIDED NOT LAT ER THAN 1 ST OF APRIL 1963. 12. THE RENT WILL BE PAYABLE BY THE CASHEW EXPORT PR OMOTION COUNCIL AT THE END OF EACH MONTH TO YOU FROM THE DATE O F OCCUPATION. 13. THE THIRD FLOOR WHEN READY WILL NOT BE LET OUT TO ANY OTHER PARTY WITHOUT CONSULTING US. 14. THE BUILDING SHOULD BE READY FOR OCCUPATION BY 1 ST OF NOVEMBER 1962. 15. THIS AGREEMENT WILL BE TERMINABLE BY A NOTICE OF SIX MONTHS ON EITHER SIDE. ITA NO. 4652(DEL)/2010 14 IF YOU AGREE WITH THE ABOVE CONDITIONS KINDL Y SIGN THE DUPLICATE COPY OF THIS LETTER IN TOKEN OF YOUR ACCEPTANCE AND RETURN IT TO US. THE CASE OF THE ASSESSEE WAS THAT THE AGREEMEN T IS IN RESPECT OF THE HIRE OF THE MACHINERY PLANT AND FURNITURE ALONG WITH T HE BUILDING AND THEREFORE IT IS TAXABLE UNDER THE RESIDUARY HEAD. THE AO HOWEVER TAXED THE INCOME UNDER THE PROPERTY HEAD. THIS DECISION WA S UPHELD BY THE AAC AND THE INCOME-TAX APPELLATE TRIBUNAL. THE QUESTI ON REFERRED TO THE HONBLE COURT WAS-WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE INCOME FROM LETTING OF THE BUILDING BY THE ASSESSEE TO THE EXPORT PROMOTION COUNCIL IS ASSESSABLE UNDER THE HEAD INCOME FROM HOUSE PROPERTY? THE DECISION IN THE CASE OF SULTAN BROTHERS WAS REFERRED TO AND THE LD. COUNSEL FOR THE ASSESSEE RELIED ON THIS DECISION. THE HONBLE COURT MENTIONED THAT THE QUESTION WHETHER THE TW O LETTINGS FORM PART AND PARCEL OF THE SAME TRANSACTION OR THE TWO LE TTINGS ARE INSEPARABLE ARISES ONLY IF THERE ARE TWO LETTINGS. THERE ARE NO TWO LETTINGS IN THIS CASE. THE AMENITY PROVIDED TO THE LESSEE FORM PA RT OF THE BUILDING. THEREFORE IT WAS HELD THAT THE AFORESAID DECI SION DOES NOT SUPPORT THE CASE OF THE ASSESSEE. ACCORDINGLY IT WAS HELD THAT THE INCOME WAS ASSESSABLE U/S 22 AND NOT U/S 56(2)(III). ITA NO. 4652(DEL)/2010 15 5.3 IN THE CASE OF NEW SAVAN SUGAR & GUR REFININ G CO. LTD. VS. CIT (1969) 74 ITR 7 (SC) THE FACTS ARE THAT THE ASSESSEE CARRIED ON THE BUSINESS OF CRUSHING SUGARCANE AND GUR REFINING. M/S ANDREW YULE & COMPANY WERE ACTING AS MANAGING AGENT OF THE ASSESSEE COMPANY. IN VIEW OF INCREASING GOVERNMENT INTERFERENCE IN T HE AFFAIRS OF SUGAR INDUSTRY THE MANAGING AGENT EXPRESSED THE VI EW THAT THE BUSINESS WILL RUN INTO LOSSES. THEREFORE IT WAS ADVISED TH AT THE COMPANYS AFFAIRS SHOULD BE PUT ON A LESS DISCOURAGING BASIS B Y ACCEPTING THE OFFER OF A LEASE BY THE COMPANY AS A RUNNING CONCERN FROM STANDARD REFINERY & DISTILLERY LIMITED. ACCORDINGLY IT WAS DECIDED IN EXTRAORDINARY MEETING TO ENTER INTO THE LEASE AGREEMENT WITH THE A FORESAID STANDARD. THE LEASE DEED WAS EXECUTED WHICH CAME INTO EFFEC T FROM RETROSPECTIVELY FROM 1.6.1945. THE ASSESSEE WAS TO RECEIVE ROYALTY ON MANUFACTURE OF SUGAR AND MOLASSES. THE ROYALTY ON SUGAR WAS PUT @ RS. 75/- PER 100 MOUNDS AND THE ROYALTY ON MOLASSES WAS PUT A T 3 PAISE PER MOUND ON THE MOLASSES SOLD DURING EACH YEAR. THE ROY ALTY WAS SUBJECT TO MINIMUM PAYMENT OF RS. 65 000/- PER ANNUM. THE CASE OF THE ASSESSEE WAS THAT IT HAD LEASED A COMMERCIAL ASSET AND THEREFORE THE INCOME SHOULD BE ASSESSED U/S 10. THE ITO WAS OF THE VIEW THAT THE INCOME IS TAXABLE UNDER THE RESIDUARY HEAD AND THEREFOR E THE ASSESSEE WAS NOT ITA NO. 4652(DEL)/2010 16 ENTITLED TO ADDITIONAL DEPRECIATION AND DEVELOPM ENT REBATE. ON APPEAL THE AAC HELD THAT IT WAS A SIMPLE CASE OF LE ASE OF BUILDING AND MACHINERY IN A SUGAR FACTORY. IN FURTHER AP PEAL THE TRIBUNAL HELD THAT THE FACTS OF THE CASE FALL U/S 12 AND NOT UN DER SECTION10 AND THEREFORE THE CLAIM OF ADDITIONAL DEPRECIATION AND DEVEL OPMENT REBATE COULD NOT BE ALLOWED. TWO QUESTIONS WERE POSED TO THE HIG H COURT- (I) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE INCOME WAS ASSESSABLE U/S 12 AND NOT U/S 10? AND (II) WHETHER ON T HE FACTS AND IN THE CIRCUMSTANCES OF THE CASE ADDITIONAL DEPRECIATI ON AND DEVELOPMENT REBATE CAN BE ALLOWED AS DEDUCTION. THE HIGH C OURT ANSWERED BOTH THE QUESTIONS AGAINST THE ASSESSEE AND HELD THAT THE I NCOME WAS LIABLE TO BE ASSESSED U/S 12 AND THAT ADDITIONAL DEPRECIATION AND DEVELOPMENT REBATE COULD NOT BE ALLOWED. THE HONBLE HIGH COURT REFERRED TO VARIOUS CLAUSES OF THE LEASE AGREEMENT. IT CAME TO THE CONCLUSION THAT THE INTENTION OF THE ASSESSEE WAS NOT TO TREAT THE FACTORY AS A COMMERCIAL ASSET DURING THE SUBSISTENCE OF THE LEASE. THE INTENTION WAS TO GO OUT OF THE BUSINESS ALTOGETHER. THEREFORE THE ROYALTY WAS RECEIVED IN THE CAPACITY AS OWNER OF THE FACTORY. ACCORDINGLY T HE FIRST QUESTION WAS ANSWERED CORRECTLY BY THE HIGH COURT. IT ALSO CAME TO THE CONCLUSION THAT THE CASE OF THE ASSESSEE IN REGARD TO CLAIM OF ADDITIONAL DEPRECIATION AND ITA NO. 4652(DEL)/2010 17 DEVELOPMENT REBATE WAS BASED UPON THE ASSUMPT ION THAT THE AMENDMENT MADE TO SECTION 10(2) SHOULD BE CARRIED TO SUB- SECTIONS (3) AND (4) OF SECTION 12. THE HONBLE COURT MENTIONED THAT IT CANNOT SUPPLY THE GAP IN THE ACT OR MAKE UP THE DEFICIENCY. THEREFORE THE SECOND QUESTION WAS ALSO ANSWERED AGAINST THE ASSESSEE. 5.4 IN THE CASE OF UNIVERSAL PLAST LTD. & ANO THER VS. CIT (1999) 237 ITR 454 THE FACTS WERE THAT THE ASSESSEE S ET UP A FACTORY FOR CARRYING ON THE BUSINESS OF MANUFACTURING PVC SHEETS AND ALLIED PRODUCTS. THE ASSESSEE SUFFERED LOSSES FOR TWO YEARS. IT THE N ENTERED INTO AN AGREEMENT WITH M/S LEATHERLITE INDUSTRIES LTD. FOR A PERIOD OF 7 YEARS ON 30.3.1977. UNDER THE AGREEMENT THE LICENSEE WAS TO PAY LICENSE FEES OF RS. 24.00 LAKH AND 25% OF THE NET PROFIT OF TH E FACTORY WITH EFFECT FROM 1.4.1977. IN THE FIRST THREE MONTHS WHICH WAS RELEVANT TO ASSESSMENT YEAR 1977-78 THE ASSESSEE RECEIVED ONLY LICEN SE FEES OF RS. 6.00 LAKH. THIS RECEIPT WAS SHOWN AS BUSINESS INCOME. THE AO ASSESSED THE AMOUNT UNDER THE RESIDUARY HEAD. HOWEVER THE CIT(APPEALS) ACCEPT THE PLEA OF THE ASSESSEE THAT IT WAS BUSINESS INCOME. THE TRIBUNAL CONFIRMED THE ORDER OF THE CIT(APPEALS). THE HIGH COURT D ECIDED THE MATTER IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE. THE HONBLE COURT ITA NO. 4652(DEL)/2010 18 EXAMINED VARIOUS CLAUSES OF THE LEAVE & LICENSE AGR EEMENT. IT WAS MENTIONED THAT THE HIGH COURT CAME TO THE CORRECT CONCLUSION THAT THE RECEIPT WAS TAXABLE UNDER THE RESIDUARY HEAD. 5.5 IN THE CASE OF SHAMBHU INVESTMENTS PVT. LT D. VS.CIT (2003) 263 ITR 143 THE FACTS ARE THAT THE ASSESSEE OWNED AN IMMOVABLE PROPERTY COSTING RS. 5 42 443/-. IT OCCUPIED A PORTION OF THE PROPERTY AND LET OUT THE REST TO BE USED AS TABLE SPA CES TO THE OCCUPANTS WITH FURNITURE AND FIXTURES AND AIR-CONDITIONERS. THE ASSESSEE ALSO PROVIDED SERVICES LIKE WATCH AND WARD STAFF ELECTRICITY AND WATER AND OTHER COMMON AMENITIES. THE MONTHLY RENT PAYABLE WAS INCLUSIVE OF ALL THE CHARGES. THE ASSESSEE HAD ALSO RECOVERED BY WAY OF SECURITY FROM THE OCCUPANTS A SUM OF RS. 4 25 000/-. THE HIGH COUR T HELD THAT THE INCOME WAS CHARGEABLE IN THE HANDS OF THE ASSESSEE AS IN COME FROM HOUSE PROPERTY. THE HONBLE SUPREME COURT HEARD THE L EARNED COUNSELS OF BOTH THE PARTIES AND CAME TO THE CONCLUSION THAT THERE IS NO REASON TO INTERFERE WITH THE CONCLUSION ARRIVED AT BY THE HIGH COU RT. 5.6 IN THE CASE OF CIT VS. CHENNAI PROPERTIES AN D INVESTMENTS LTD. (2004) 136 TAXMAN 202 (MAD.) THE FACTS WE RE THAT THE ASSESSEE ITA NO. 4652(DEL)/2010 19 OWNED TWO BUILDING IN CHENNAI AND RECEIVED RE NTAL INCOME BY LETTING OUT THESE BUILDINGS. THE AO DECLINE TO ASSESS THE RENTAL INCOME AS BUSINESS INCOME AND ASSESSED IT UNDER THE HEAD INCOME FROM PROPERTY. THE CIT(APPEALS) ALLOWED THE APPEAL OF THE ASSE SSEE AND HIS ORDER WAS CONFIRMED BY THE TRIBUNAL. THE HONBLE COURT MENT IONED THAT THE CONSTITUTION BENCH IN THE CASE OF SULTAN BROTHERS (SUPRA) HELD THAT THE QUESTION WHETHER A PARTICULAR LETTING IS BUSIN ESS HAS TO BE DECIDED IN THE CIRCUMSTANCES OF THAT CASE AND EACH CASE HAS TO BE LOOKED AT BUSINESSMANS POINT OF VIEW TO FIND OUT WHETHER THE LETTING WAS DONE AS A BUSINESS TO EXPLOIT THE ASSETS OR THE LETTING WAS DONE TO EXPLOIT THE PROPERTY AS OWNER. THIS IS TRUE IRRESPECTIVE OF THE FACT WHETHER THE BUILDING IS COMMERCIAL OR RESIDENTIAL. THE ONL Y EXCEPTION IS WHERE THE LETTING OF BUILDING IS INSEPARABLE FROM LETTING OF MACHINERY PLANT AND FURNITURE IN WHICH CASE IT HAS TO BE ASSESSED UNDER THE RESIDUARY HEAD. THE HONBLE COURT DECIDED THE MATTER IN FAVOUR OF REVENUE AND AGAINST THE ASSESSEE. 5.7 IN THE CASE OF SKYLAND BUILDINGS PVT. LTD. VS. ITO (2005) 277 ITR (AT) 255 (DEL) THE FACTS ARE THAT THE A SSESSEE SHOWED RECEIPT OF LEASE RENT AMOUNTING TO RS. 8 06 670/- AS BUSI NESS INCOME. IN VIEW OF ITA NO. 4652(DEL)/2010 20 THE PAST HISTORY OF THE CASE THE AO ASSESSED T HE INCOME UNDER THE RESIDUARY HEAD. CERTAIN EXPENSES CLAIMED BY T HE ASSESSEE WERE DISALLOWED IN VIEW OF THE PROVISION CONTAINED IN SECTION 57(III). THE CIT(APPEALS) CAME TO THE CONCLUSION THAT THE AS SESSEE EXPLOITED THE ASSESSED AS OWNER THEREOF AND THEREFORE THE IN COME WAS TO BE ASSESSED AS INCOME FROM PROPERTY. THE TRIBUNAL MENTIONE D THAT ALTHOUGH NO SPECIFIC GROUND IS TAKEN IN THIS MATTER BY THE A SSESSEE THE CIT(APPEALS) HAS RIGHTLY ASSESSED THE INCOME UNDER THE PROPER TY HEAD. THEREFORE THE ASSESSEE WOULD BE ENTITLED TO DEDUCTIONS MENTION ED IN SECTION 24 WHILE COMPUTING THE PROPERTY INCOME. HOWEVER IT WILL N OT BE ENTITLED TO DEDUCT THE EXPENSES IN RELATION TO PROPERTY FOR COMPUTA TION OF BUSINESS INCOME. 5.8 COMING TO THE FACTS OF THE CASE BEFORE US T HE LOWER AUTHORITIES HAVE CONSIDERED AS IF ALL THE LEASES STAND ON THE SAME FOOTING. THEREFORE THE WHOLE OF THE LEASE RENT HAS BEEN BROUGHT TO TAX UNDER THE RESIDUARY HEAD. HOWEVER WE FIND THAT THE FACT S IN RESPECT OF LEASE TO HALDIRAM ARE DIFFERENT. THE LEASE DEED HAS BEEN PLACED ON PAGE NOS. 40 TO 45 OF THE PAPER BOOK. ON PERUSAL THEREOF WE FIND THAT THE SUBJECT MATTER OF LEASE IS GROUND FLOOR AND FIRST FLOOR O F THE PROPERTY BUILT ON PLOT NO. G-2 B-1 MOHAN COOPERATIVE INDUSTRIAL ESTATE NEW DELHI ALONG WITH ITA NO. 4652(DEL)/2010 21 THE RIGHT TO USE COMMON AREAS AND FACILITIES SUCH AS STAIRCASES; CORRIDOR; LIFT; AND LIFT LOBBY OF THE PROPERTY. THE ASSESSEE IS ADMITTEDLY THE OWNER OF THIS PROPERTY. APART FROM THE BUILDING ON GROUND AND FIRST FLOORS THE LESSEE HAS BEEN GIVEN A RIGHT TO U SE COMMON FACILITIES DESCRIBED ABOVE WHICH ARE NORMALLY ALLOWED TO A NY LESSEE FOR ENJOYING THE DEMISED PREMISES IN A PROPER MANNER. NO MACHI NERY PLANT OR FURNITURE HAS BEEN LEASED OUT TO THE HALDIRAM. T HEREFORE IT IS A CLEAR CASE OF EXPLOITATION OF THE PREMISES BY THE ASSESSEE AS AN OWNER THEREOF. THE CASES REFERRED TO BY THE RIVAL PARTIES PERTAI N TO COMPOSITE LEASES OF THE PREMISES MACHINERY FURNITURE AND FIXTURES ETC . THEREFORE THESE CASES ARE NOT APPLICABLE IN RESPECT OF THIS LEASE. SIN CE THE ASSESSEE HAS EXPLOITED THE PROPERTY QUA OWNER THE LEASE REN T RECEIVED FROM HALDIRAM IS ASSESSABLE U/S 22 OF THE ACT AS INCOME FROM HOUSE PROPERTY. IT AUTOMATICALLY FOLLOWS FROM THIS CONCLUSION THAT THE ASSESSEE IS ENTITLED TO THE DEDUCTION MENTIONED IN SECTION 24. FURTHER ANY EXPENDITURE INCURRED ON THIS PROPERTY FOR MAINTENANCE DEPRECI ATION ETC. IS NOT DEDUCTIBLE IN COMPUTING THIS INCOME. THEREFORE TH E AO IS DIRECTED TO COMPUTE THE INCOME FROM THIS PROPERTY U/S 22 AND DISALLOW DEPRECIATION AND EXPENDITURE DEBITED IN THE BOOKS WHICH RELA TE TO THIS PORTION OF THE PROPERTY. ITA NO. 4652(DEL)/2010 22 5.9 FROM THE TABLE IT WILL BE FURTHER SEEN THAT L EASES TO HUTCHISON AND PROTON LINKS CONSIST OF THE SPACE FITTINGS AND FIXTURES AIR-CONDITIONING PLANT CEILING LIGHTS AND FURNITURE AND FIXT URES. IN RESPECT OF TRINET IT IS MENTIONED THAT ONLY FIXTURE AND FITTINGS HAVE BEEN LEASED OUT. THE AO ON THE OTHER HAND MENTIONS ABOUT THE LEASE TO M/S IN TOUCH AND THAT LEASE TERMS ARE SIMILAR TO THE LEASE TER MS IN CASE OF PROTON LINKS. FROM THE LEASE DEED WITH TRINET FILED BEFORE US ( PB PAGE NOS. 59-62) IT IS SEEN THAT THE SAID PREMISES WERE LEASED W .E.F. 9.1.2006 ALONG WITH FIXTURES & FITTINGS AS PER ANNEXURE A. THIS A NNEXURE WAS NOT FILED EITHER BEFORE THE AO OR ENCLOSED IN THE PAPER BOOK. TH EREFORE THE AOS FINDING THAT THE SUBJECT MATTER OF THE LEASE IS SIMILAR TO THE SUBJECT MATTER OF LEASE IN THE CASE OF HUTCHISON AND PROTON LINKS IS CON FIRMED BY TAKING AN ADVERSE VIEW AS THE RELEVANT ANNEXURE HAS NOT BE EN FILED. THUS THESE THREE CASES ARE OF COMPOSITE LEASES IN WHICH A CONSOLIDATED RENT HAS BEEN FIXED. IN THE CASE OF SULTAN BROTHERS (SUPR A) THE HONBLE COURT HAD POSED TWO QUESTIONS. THE FIRST ONE IS- WHETHER T HE SUBJECT MATTER OF LEASE SHOULD BE ENJOYED TOGETHER? THE CASE OF THE LD. COUNSEL BEFORE US HAS BEEN THAT THE PREMISES WERE SUITABLY FURNISH ED AND AMENITIES REQUIRED BY THE LESSEES WERE INSTALLED. THEREFORE IT IS CLEAR THAT IT IS NOT A CASE OF LEASING BUILDING SEPARATELY AND OTHER ASSETS SE PARATELY. ACCORDINGLY IT IS ITA NO. 4652(DEL)/2010 23 HELD THAT THE INTENTION WAS TO LET THE BUILDING PLANT FITTINGS AND FURNITURE ETC. TOGETHER. THE SECOND QUESTION IS-WHETHER THE INTENTION IS TO MAKE LETTING OF TWO PRACTICALLY ONE LETTING? IT IS SEEN THAT A CONSOLIDATED LEASE DEED HAS BEEN DRAWN IN WHICH A CONSOLIDATED LEAS E RENT HAS BEEN FIXED. THEREFORE THERE IS A CONSOLIDATED LEASE OF VARI OUS ASSETS. IT IS ALSO A MATTER OF FACT ON RECORD ACCEPTED BY THE LD. CO UNSEL THAT ONE WOULD NOT HAVE BEEN LET WITHOUT THE OTHER AS FITTINGS ETC. WERE MADE IN ACCORDANCE WITH DESIRES OF THE LESSEES. THEREFORE WE A RE OF THE VIEW THAT THE FACTS OF THE CASE ARE SQUARELY COVERED BY THIS DECI SION OF THE CONSTITUTION BENCH. ACCORDINGLY THE LEASE RENT HAS TO BE ASSESSED UNDER THE RESIDUARY HEAD. IT MAY BE MENTIONED HERE THAT T HE ASSESSEE HAS CLAIMED DEPRECIATION IN RESPECT OF ALL ASSETS WHICH ARE SUB JECT MATTER OF LEASE WITH THESE THREE PARTIES. THIS CONDUCT ALSO SHOWS TH AT THE ASSESSEE WANTED TO USE THE ASSETS AS BUSINESS ASSETS. 5.10 COMING TO THE DECISION IN THE CASE OF DR. P .A. VERGHESE (SUPRA) A NUMBER OF AMENITIES WERE GRANTED IN TERMS OF T HE LEASE WHICH HAVE ALREADY BEEN MENTIONED BY US WHILE DEALING WITH THE CASE. IT WAS HELD THAT THE CASE IS ONE OF INSEPARABLE LEASE AND THE RENT AL IS ASSESSABLE UNDER THE HEAD INCOME FROM OTHER SOURCES. THE RATIO OF THIS CASE IS ALSO ITA NO. 4652(DEL)/2010 24 APPLICABLE IN THE INSTANT CASE. IN THE CASE O F NEW SAVAN SUGAR & GUR REFINING COMPANY LTD. (SUPRA) THE QUESTION WAS-W HETHER THE INCOME IS ASSESSABLE UNDER THE RESIDUARY HEAD OR UNDER THE BUSINESS HEAD? THE QUESTION AROSE BECAUSE IF THE INCOME IS ASSESSE D UNDER THE BUSINESS HEAD THE ASSESSEE WILL BE ENTITLED TO ADDITIONAL DE PRECIATION AND DEVELOPMENT REBATE. THAT IS NOT THE QUESTION BEFORE US. HOWE VER THE FINDING THAT THE INCOME WAS ASSESSABLE UNDER THE RESIDUARY HEAD IS APPLICABLE TO THE FACTS OF THIS CASE ALSO. IN THE CASE OF UNIVERSAL P LAST LTD. & ANOTHER THE QUESTION WAS-WHETHER THE LEAVE & LICENSE FEES WA S TAXABLE UNDER THE BUSINESS HEAD OR THE RESIDUARY HEAD? IN OUR CA SE IT DOES NOT MAKE A DIFFERENCE WHETHER THE INCOME IS TAXED UNDER AN Y OF THE AFORESAID HEADS. NONETHELESS THE DECISION CANNOT BE SAID TO LEAD TO AN INFERENCE THAT THE LEASE RENT IN THIS CASE IS TAXABLE AS PROPERTY IN COME. IN THE CASE OF CHENNAI PROPERTIES & INVESTMENTS LTD. (SUPRA) THE FINDING WAS THAT THE ASSESSEE WAS EXPLOITING THE PROPERTY AS OWNER THEREOF BY LEASING THE SAME AND REALIZING INCOME BY WAY OF RENT. SUCH ARE NOT THE FACTS IN THIS CASE AS IT IS A CASE OF CONSOLIDATED LEASE OF BUILDING PLANT FURNITURE AND FIXTURES. THE ASSESSEE HAS ALSO CLAIMED DEPREC IATION ON ALL THE ASSETS. IT WILL ALSO BE APPROPRIATE FOR US TO EXAMINE THE DECI SION OF CALCUTTA HIGH COURT IN THE CASE OF SHAMBHU INVESTMENTS PRI VATE LIMITED (2001) 249 ITA NO. 4652(DEL)/2010 25 ITR 47 WHICH WAS AFFIRMED BY THE HONBLE SUP REME COURT. THE FACTS ARE THAT THE ASSESSEE WAS OWNER OF A BUILDING IN MUMBAI AND THE PREMISES WERE FURNISHED BY THE ASSESSEE. THE PR EMISES WERE LET OUT TO VARIOUS PERSONS AS TABLE SPACES ALONG WITH ATTE NDANT FACILITIES. THE COST OF THE BUILDING WAS RS. 5 42 443/-. A PORTION OF THE PROPERTY WAS USED BY THE ASSESSEE HIMSELF FOR HIS BUSINESS PURPOSES. THE REST WAS LET OUT TO VARIOUS OCCUPIERS. THE ASSESSEE ALSO RECOVERED A SUM OF RS. 4 25 000/- BY WAY OF INTEREST-FREE SECURITY ADVANCE FROM THREE OCCUPANTS. THE HONBLE COURT HELD THAT THE PRIME OBJECT WAS TO LET OUT THE PORTION OF THE PROPERTY TO VARIOUS OCCUPANTS BY GIVING THEM ADDITIONAL RIGHTS OF USING THE FURNITURE AND FIXTURES AND COMMON AMENITIES FOR WHICH RENT WAS PAID MONTH BY MONTH IN ADDITION TO INTEREST-FREE SEC URITY ADVANCE COVERING THE ENTIRE COST OF THE IMMOVABLE PROPERTY. THEREF ORE IT WAS HELD THAT THE INCOME IS ASSESSABLE AS PROPERTY INCOME. THE FACTS OF THIS CASE ARE DISTINGUISHABLE. THE ASSESSEE HAS CLAIMED DEPREC IATION ON THIS BUILDING WHICH SHOWS THAT THE LETTING WAS IN THE NATURE OF CARRYING OUT THE BUSINESS. THE FACTS REGARDING COST OF CONSTRUCTION HAVE NOT BEEN FILED. AS MENTIONED EARLIER THE QUESTION WHETHER THE INC OME IS TAXED AS BUSINESS INCOME OR RESIDUARY INCOME DOES NOT MAKE ANY DI FFERENCE IN COMPUTATION OF INCOME AND THEREFORE THIS ISSUE B ECOMES IMMATERIAL. ITA NO. 4652(DEL)/2010 26 SINCE THE INTENTION RIGHT FROM THE INCEPTION WAS TO USE THE BUILDING AND OTHER ASSETS AS BUSINESS ASSETS BY CLAIMING DEPR ECIATION AND OTHER EXPENSES THE RATIO OF THIS CASE IS NOT APPLICABL E. THEREFORE WE ARE OF THE VIEW THAT THE RENT RECEIVED IN RESPECT OF COMPOS ITE LEASE OF SPACE PLANT ETC. THE INCOME IS TAXABLE UNDER THE RESIDUARY HEAD. 5.11 THUS GROUND NO. 3 IS PARTLY ALLOWED. 6. IN RESPECT OF GROUND NO. 4 THE FACTS MENTIONE D IN THE ORDER OF THE LD. CIT(APPEALS) ARE THAT THE ASSESSEE-FIRM RECEIVED AN ADVANCE OF RS. 32 12 038/- FROM TERA CONSTRUCTION PVT. LTD. IN WHICH SHRI GURDEEP SINGH IS HOLDING 52.82% SHARES. HE IS 50% PARTN ER IN THE FIRM. THE AO TREATED THE AMOUNT OF ADVANCE AS DIVIDEND U/S 2(22)(E). IN THE IMPUGNED ORDER THE LD. CIT(APPEALS) MENTIONED THAT THE AFORESAID PROVISION IS A DEEMING PROVISION AND ITS APPLI CABILITY HAS TO BE DECIDED ON FULFILLMENT OF CERTAIN CONDITIONS. ONCE TH ESE CONDITIONS ARE SATISFIED THE PROVISION AUTOMATICALLY COMES IN TO OPERATION. ONE OF THE ARGUMENTS IS THAT THE MONEY IS RECEIVED AS ADV ANCE IN CONSIDERATION OF AGREEMENT TO SELL IMMOVABLE PROPERTY. HOWEVER T HERE IS NO EVIDENCE IN SUPPORT OF THIS CONTENTION. THE FINDING OF THE AO IS THAT THIS EXPLANATION ITA NO. 4652(DEL)/2010 27 IS MERELY AN AFTERTHOUGHT. THIS FINDING HAS BEEN CONFIRMED BY THE LD. CIT(APPEALS). CONSEQUENTLY THE ADDITION HAS ALSO BEEN CONFIRMED. THE CASE OF THE LD. COUNSEL BEFORE US IS THAT THE ASS ESSEE-FIRM IS NOT A SHAREHOLDER IN TERA CONSTRUCTIONS PRIVATE LIMITED. IT IS THE PARTNER OF THE FIRM SHRI GURDEEP SINGH WHO IS HOLDING 52.82% SHARES IN THE COMPANY. FURTHER THE ADVANCE WAS RECEIVED BY THE FIRM FOR SALE OF TOP FLOOR OF THE BUILDING OWNED BY THE ASSESSEE THE CONSTRUCTION OF WHICH WAS TO BE UNDERTAKEN. HOWEVER THE MONEY WAS REFUNDED AS THE PERMISSION TO CONSTRUCT ANOTHER FLOOR COULD NOT BE OBTAINED. THE CASE OF THE LD. COUNSEL IS THAT THE MINUTES OF THE BOARD MEETING WERE N OT FILED BEFORE THE AO OR THE LD. CIT(APPEALS). HE ALSO RELIED ON THE D ECISION IN THE CASE OF CIT VS. UNIVERSAL MEDICARE PVT. LTD. 2010-TIOL-215-H C-MUM-IT DATED 22.03.2010 A COPY OF WHICH HAS BEEN PLACED IN THE CASE LAW PAPER BOOK ON PAGE NOS. 45 TO 49. IT IS THE COMMON CA SE OF BOTH THE PARTIES THAT THE FACTS OF THE CASE ARE COVERED BY THIS DECI SION WHICH IS THAT THE DIVIDEND INCLUDING DEEMED DIVIDEND U/S 2(22)(E) HAS TO BE TAXED IN THE HANDS OF SHAREHOLDERS. IN THIS VIEW THE PURPOSE OF ADVANCE BECOME IMMATERIAL. THE RELEVANT PORTION OF THE JUDGMENT IS REPRODUCED BELOW:- 9. IN ORDER THAT THE FIRST PART OF CLAUSE (E) OF SECTION 2(22) IS ATTRACTED THE PAYMENT BY A COMPANY HAS TO BE BY WAY OF AN ITA NO. 4652(DEL)/2010 28 ADVANCE OR LOAN. THE ADVANCE OR LOAN HAS TO B E MADE AS THE CASE MAY BE EITHER TO A SHAREHOLDER BE ING A BENEFICIAL OWNER HOLDING NOT LESS THAN TEN PER CENT OF T HE VOTING POWER OR TO ANY CONCERN TO WHICH SUCH A SHAREHO LDER IS A MEMBER OR A PARTNER AND IN WHICH HE HAS A S UBSTANTIAL INTEREST. THE TRIBUNAL IN THE PRESENT CASE HAS FOUND THAT AS A MATTER OF FACT NO LOAN OR ADVANCE WAS GRANTED TO THE ASSESSEE SINCE THE AMOUNT IN QUESTION HAD ACT UALLY BEEN DEFALCATED AND WAS NOT REFLECT IN THE BOOKS OF ACCOUNT OF THE ASSESSEE. THE FACT THAT THERE WAS A DEFALCATI ON SEEMS TO HAVE BEEN ACCEPTED SINCE THIS AMOUNT WAS ALLOWED A S A BUSINESS LOSS DURING THE COURSE OF ASSESSMENT YEAR 2006 -2007. CONSEQUENTLY ACCORDING TO THE TRIBUNAL THE FIRST REQUIREMENT OF THERE BEING AN ADVANCE OR LOAN WAS NOT FU LFILLED. IN OUR VIEW THE FINDING THAT THERE WAS NO ADVANCE OR LOAN IS A PURE FINDING OF FACT WHICH DOES NOT GIVE RISE TO ANY SUBSTANTIAL QUESTION OF LAW. HOWEVER EVEN ON THE SECOND ASPECT WHICH HAS WEIGHED WITH THE TRIBUNAL WE ARE OF T HE VIEW THAT THE CONSTRUCTION WHICH HAS BEEN PLACED ON THE PR OVISIONS OF SECTION 2(22)(E) IS CORRECT. SECTION 2(22)(E) D EFINES THE AMBIT OF THE EXPRESSION DIVIDEND. ALL PAY MENTS BY WAY OF DIVIDEND HAVE TO BE TAXED IN THE HANDS OF TH E RECIPIENT OF THE DIVIDEND NAMELY THE SHAREHOLDER. THE EFFE CT OF SECTION 2(22) IS TO PROVIDE AN INCLUSIVE DEFINITION O F THE EXPRESSION DIVIDEND. CLAUSE (E) EXPANDS THE NATURE OF PAY MENTS WHICH CAN BE CLASSIFIED AS A DIVIDEND. CLAUSE (E) OF SECTION 2(22) INCLUDES A PAYMENT MADE BY THE COMPANY IN WHICH T HE PUBLIC IS NOT SUBSTANTIALLY INTERESTED BY WAY OF AN AD VANCE OR LOAN TO A SHAREHOLDER OR TO ANY CONCERN TO WHICH SUCH SHAREHOLDER IS A MEMBER OR PARTNER SUBJECT TO THE FULFILL MENT OF THE REQUIREMENTS WHICH ARE SPELT OUT IN THE PROVIS ION. SIMILARLY A PAYMENT MADE BY A COMPANY ON BEHA LF OF FOR THE INDIVIDUAL BENEFIT OF ANY SUCH SHAREHOLDER I S TREATED BY CLAUSE (E) TO BE INCLUDED IN THE EXPRESSION D IVIDEND. CONSEQUENTLY THE EFFECT OF CLAUSE (E) OF SECTI ON 2(22) IS TO BROADEN THE AMBIT OF THE EXPRESSION DIVIDEND BY INCLUDING CERTAIN PAYMENTS WHICH THE COMPANY HAS MADE BY WAY OF A LOAN OR ADVANCE OR PAYMENTS MADE ON BEHALF OF OR FOR THE INDIVIDUAL BENEFIT OF A SHAREHOLDER. THE DE FINITION DOES NOT ALTER THE LEGAL POSITION THAT DIVIDEND H AS TO BE TAXED IN ITA NO. 4652(DEL)/2010 29 THE HANDS OF THE SHAREHOLDER. CONSEQUENTLY IN THE PRESENT CASE THE PAYMENT EVEN ASSUMING THAT IT WAS A DIVIDEND WOULD HAVE TO BE TAXED NOT IN THE HANDS OF THE ASSESSEE BUT IN THE HANDS OF THE SHAREHOLDER. THE TRIBUNAL WAS IN THE CIRCUMSTANCES JUSTIFIED IN COMING TO THE CONCL USION THAT IN ANY EVENT THE PAYMENT COULD NOT BE TAXED IN T HE HANDS OF THE ASSESSEE. WE MAY IN CONCLUDING NOTE THAT THE BASIS ON WHICH THE ASSESSEE IS SOUGHT TO BE TAXED IN T HE PRESENT CASE IN RESPECT OF THE AMOUNT OF RS. 32 00 000/- IS THA T THERE WAS A DIVIDEND UNDER SECTION 2(22)(E) AND NO OTHER BAS IS HAS BEEN SUGGESTED IN THE ORDER OF THE ASSESSING OFFICER. 6.1 AS IT IS THE COMMON GROUND THAT THE FACTS O F THE CASE ARE COVERED BY THIS DECISION THE GROUND IS DECIDED IN FAVOU R OF THE ASSESSEE. 7. IN THE RESULT THE APPEAL IS PARTLY ALLOWED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT ON 11 MARCH 2011. SD/- SD/- (RAMESH P. TOLANI) (K.G.BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE OF ORDER: 11TH MARCH 2011. SP SATIA COPY OF THE ORDER FORWARDED TO: GARG DYEING & PROCESSING INDUSTRIES NEW DELHI. ACIT CIRCLE 22(1) NEW DELHI. CIT(A) CIT THE DR ITAT NEW DELHI. ASSISTANT REG ISTRAR.