MUMBAI CONSTRUCTION & DEVELOPERS P. LTD, MUMBAI v. ITO 3(2)(2), MUMBAI

ITA 6660/MUM/2009 | 2001-2002
Pronouncement Date: 23-12-2010 | Result: Allowed

Appeal Details

RSA Number 666019914 RSA 2009
Assessee PAN AAACM7291A
Bench Mumbai
Appeal Number ITA 6660/MUM/2009
Duration Of Justice 11 month(s) 23 day(s)
Appellant MUMBAI CONSTRUCTION & DEVELOPERS P. LTD, MUMBAI
Respondent ITO 3(2)(2), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 23-12-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted J
Tribunal Order Date 23-12-2010
Date Of Final Hearing 12-10-2010
Next Hearing Date 12-10-2010
Assessment Year 2001-2002
Appeal Filed On 31-12-2009
Judgment Text
ITA NO. 6660 /MUM/09 ASSESSMENT YEAR 2001-02 PAGE 1 OF 7 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI J BENCH MUMBAI BEFORE SHRI D K AGARWAL ( JUDICIAL MEMBER) AND SHRI PRAMOD KUMAR (ACCOUNTANT MEMBER) ITA NO. 6660 /MUM/09 ASSESSMENT YEAR 2001-02 MUMBAI CONSTRUCTIONS & DEVELOPERS PVT LTD .A PPELLANT 101-B MITTAL COURT 10 TH FLOOR NARIMAN POINT MUMBAI. PAN : AAACM 7291 A VS. INCOME TAX OFFICER WARD 3(2)(2) MUMBAI . RESPONDENT APPELLANT BY : SHRI J P BAIRAGRA RESPONDENT BY : SHRI SUMEET KUMAR O R D E R PER PRAMOD KUMAR: 1. BY WAY OF THIS APPEAL THE ASSESSEE HAS CALLED INTO QUESTION CORRECTNESS OF CIT(A)S ORDER DATED 4 TH NOVEMBER 2009 FOR THE ASSESSMENT YEAR 2001-02 ON THE FOLLOWING GROUND: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE LEARNED COMMISSIONER (APPEALS) ERRED IN DISMISSING THE APPE AL AND SUSTAINING THE PENALTY OF RS 2 10 692 UNDER SECTION 271(1)(C) LEVIED BY THE ASSESSING OFFICER. 2. THE MATERIAL FACTS GIVING RISE TO THIS DISPUTE B EFORE US ARE AS FOLLOWS. DURING THE COURSE OF THE ASSESSMENT PROCEE DINGS THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS DISCLOSED THE N ATURE OF ITS BUSINESS AS CONSTRUCTION AND LEASING AND THAT IN THE PROFIT AND LOSS ACCOUNT FILED BY ITA NO. 6660 /MUM/09 ASSESSMENT YEAR 2001-02 PAGE 2 OF 7 THE ASSESSEE THE ASSESSEE HAS DISCLOSED RENT RECEIP T AGAINST WHICH ALL SUCH DEDUCTIONS AS ADMISSIBLE IN COMPUTATION OF BUSINES S INCOME ARE CLAIMED. AS AGAINST RENT RECEIPT OF RS 8 18 750 THE NET PRO FIT WAS DISCLOSED AT RS 1 82 826. WHEN ASSESSING OFFICER REQUIRED THE ASSE SSEE TO SHOW CAUSE AS TO WHY THIS RENTAL INCOME OF RS 8 18 750 NOT BE TRE ATED AS INCOME FROM HOUSE PROPERTY AS AGAINST BUSINESS INCOME CLAIM ED BY THE ASSESSEE IT WAS SUBMITTED BY THE ASSESSEE (A) THAT AS EVIDENT FROM OBJECT CLAUSE OF ASSESSEES MEMORANDUM OF ASSOCIATION THE ASSESSEE IS ENGAGED INTER ALIA IN THE BUSINESS OF ACQUIRING OFFICES FLATS BANGAL OWS LAND AND BUILDING ETC AND DEVELOPING IT AND DECORATING AND FURNISHING THE SAME FOR LEASE LET OUT CONDUCTING BUSINESS BY PROVIDING SERVICES; (B) THAT THE COMPENSATION RECEIVED BY THE ASSESSEE IS TOWARDS SERVICE CHARGES OF SO PROVIDING THE USER PLACE FOR BUSINESS AND ASSOCIATED SERVICES; (C ) THAT AS EVIDENT FROM CONDUCTING AGREEMENT WITH BARD INTERNATIONAL INC T HE COMPENSATION RECEIVED BY THE ASSESSEE IS TOWARDS THE SERVICES AN D USE OF PREMISES BY THE CLIENT IS INCIDENTAL TO THE MAIN BUSINESS OF TH E ASSESSEE; AND (D) THAT FOR ALL THESE REASONS THE COMPENSATION RECEIVED BY THE ASSESSEE IS TAXABLE AS BUSINESS INCOME AND NOT AS INCOME FROM HOUSE PR OPERTY. NONE OF THESE SUBMISSIONS HOWEVER IMPRESSED THE ASSESSING OFFICER. HE ANALYZED THE CONDUCTING AGREEMENT ENTERED INTO BE TWEEN THE ASSESSEE AND BARD INTERNATIONAL INC AND NOTED THAT IT IS A D E FACTO RENTING ARRANGEMENT AND THE WHOLE EFFORT IN CAREFULLY DRAFT ING THE CONDUCTING AGREEMENT IS TO GIVE COLOUR OF CREDIBILITY TO NOMEN CLATURE OF AGREEMENT. RELYING UON HONBLE SUPREME COURTS JUDGMENT IN THE CASE OF CIT VS DURGA PRASAD MORE (82 ITR 540) HE DISREGARDED THE FORM O F THE AGREEMENT AND CONCLUDED THAT IN SUBSTANCE IT IS A RENTING AGREE MENT. ACCORDINGLY HE PROCEEDED TO TAX THE INCOME AS INCOME FROM HOUSE PR OPERTY AND DECLINED THE DEDUCTIONS IN COMPUTATION OF BUSINESS INCOME. A GGRIEVED ASSESSEE CARRIED THE MATTER IN APPEAL BUT WITHOUT ANY SUCCES S. THE MATTER HOWEVER DID NOT REST THERE. THE ASSESSING OFFICER ALSO IMPOSED PENALTY UNDER SECTION 271(1)(C) OF THE ACT ON THE GROUND TH AT THE CLAIM MADE BY ITA NO. 6660 /MUM/09 ASSESSMENT YEAR 2001-02 PAGE 3 OF 7 THE ASSESSEE BY WAY OF SHOWING RECEIPTS UNDER COND UCTING AGREEMENT AS BUSINESS INCOME WAS IN DEFIANCE OF LAW WITH CON SCIOUS DISREGARD OF ITS OBLIGATIONS. THE ASSESSING OFFICER WAS ALSO OF THE VIEW THAT THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF INCOME BY TAKING ONE SOURCE OF ITS INCOME UNDER A WRONG HEAD OF INCOME FOR TAKING UNDU E BENEFIT OF THE PROVISIONS OF THE INCOME TAX ACT AND THEREBY REDU CE THE TAX LIABILITY OF THE ASSESSEE DELIBERATELY. A PENALTY OF RS 2 10 69 2 WHICH WAS EQUIVALENT TO TAX SOUGHT TO BE AVOIDED WAS IMPOSED ON THE ASS ESSEE. ONCE AGAIN THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CI T(A) BUT IN VAIN. THE CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICE R. THE ASSESSEE IS AGGRIEVED AND IS IN APPEAL BEFORE US. 3. WE HAVE HEARD THE RIVAL CONTENTIONS PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTUAL MATRIX OF THE CA SE AS ALSO THE APPLICABLE LEGAL POSITION. 4. VIDE OUR ORDER OF EVEN DATE WE HAVE CONFIRMED T HE QUANTUM ADDITION BY OBSERVING AS FOLLOWS: WE FIND THAT HONBLE CALCUTTA HIGH COURT IN THE CA SE OF SHAMBHU INVESTMENTS PVT LTD VS CIT (249 ITR 47) HAVE OBSE RVED THAT WHILE EXAMINING THE NATURE OF AGREEMENT IN SUCH CASES WHAT HAS TO BE SEEN IS WHAT IS THE PRIMARY OBJECT OF THE ASSESSEE WHILE EX PLOITING THE PROPERTY AND THAT WHILE IF IT IS FOUND APPLYING SUCH TEST T HAT THE MAIN INTENTION IS FOR LETTING OUT THE PROPERTY OR ANY PORTION THEREOF THE SAME MUST BE CONSIDERED AS RENTAL INCOME OR INCOME FROM PROPERTY WHEREAS IN CASE IT IS FOUND THAT THE MAIN INTENTION IS TO EXPLOIT THE IMMOVABLE PROPERTY BY WAY OF COMPLEX COMMERCIAL ACTIVITIES IN THAT EVENT IT MUST BE HELD AS BUSINESS INCOME. THESE VIEWS OF HONBLE CALCUTTA HIGH COURT WERE APPROVED BY HONBLE SUPREME COURT IN THE CASE REPOR TED AS OF SHAMBHU INVESTMENTS PVT LTD VS CIT (263 ITR 143). IT IS TH EREFORE CLEAR THAT MERELY BECAUSE CERTAIN FACILITIES HAVE ALSO BEEN PROVIDED BUT THE MAIN INTENTION REMAINS LETTING OUT OF THE PROPERTY IT CANNOT BE S AID THAT THE INCOME FROM RENTING IS TO BE TREATED AS BUSINESS INCOME. A PLA IN READING OF THE CONDUCTING AGREEMENT WHICH IS PLACED BEFORE US AT PAGES 34-48 OF THE PAPERBOOK SHOWS THAT THE ESSENCE OF THE AGREEMENT IS RENTING OUT THE PREMISES. THE ASSESSEE HAS ALSO GIVEN CERTAIN ASSET S ON HIRE BASIS TO THE PERSON OCCUPYING THE PREMISES BUT AS APPROVED BY HONBLE SUPREME COURT IN SHMABU INVESTMENTS CASE (SUPRA) THE MAIN OBJEC T OF THE AGREEMENT BEING RENTING OUT OF PROPERTY THE INCOME FROM RENT ING OUT WHICH IS ITA NO. 6660 /MUM/09 ASSESSMENT YEAR 2001-02 PAGE 4 OF 7 DESCRIBED AS SERVICE CHARGES ON THE FACTS OF THIS C ASE IS TAXABLE AS INCOME FROM HOUSE PROPERTY. IT IS NOT A CASE OF EXPLOITIN G THE IMMOVABLE PROPERTY BY WAY OF COMPLEX COMMERCIAL ACTIVITIES AND THERE FORE THE INCOME FROM IMMOVEABLE PROPERTY CANNOT BE TAXED AS BUSINESS INC OME. JUST BECAUSE THE PERSON BEING GIVEN THE PROPERTY IS ALSO GIVEN SOME FURNITURE AND OTHER INCIDENTAL ASSETS ON LEASE DOES NOT MAKE THE ACTIVI TY OF LETTING OUT A COMPLEX COMMERCIAL ACTIVITY SUCH AS FOR EXAMPLE IN THE CASE OF BUSINESS CENTERS IN WHICH IT IS NOT A LETTING OUT IN ESSENCE . IN THIS VIEW OF THE MATTER AND BASED ON OUR UNDERSTANDING OF THE TRUE IMPORT AND SCOPE OF CONDUCTING AGREEMENT WE CONFIRM THE FINDINGS OF TH E AUTHORITIES BELOW AND DECLINE TO INTERFERE IN THE MATTER . 5. AS EVIDENT FROM THE ABOVE OBSERVATIONS IT IS ON AN APPRECIATION OF THE TRUE NATURE OF CONDUCTING AGREEMENT AS ALSO TH E APPRECIATION TRUE NATURE OF COMPLEXITY OF THE ACTIVITY OF COMMERCIAL EXPLOITATION OF PROPERTY IN QUESTION THAT WE HAVE COME TO CONCLUSI ON THAT THE INCOME FROM RENTING OUT THE PROPERTY IS TO BE TAXED AS IN COME FROM HOUSE PROPERTY. THE CLAIM OF ITS TAXABILITY UNDER THE HE AD BUSINESS INCOME HAS BEEN REJECTED ON THE BASIS OF OUR INHERENTLY SUBJEC TIVE ANALYSIS OF THE NATURE OF AGREEMENT AND ACTIVITY. THE EXPRESSION F URNISHING OF INACCURATE PARTICULARS OF INCOME HAS ALSO NOT BEEN DEFINED IN THE ACT. THE EXPRESSION INACCURATE REFERS TO NOT IN CONFO RMITY WITH THE FACT OR TRUTH AND THAT IS THE MEANING WHICH IN OUR CONSID ERED VIEW IS RELEVANT IN THE CONTEXT OF FURNISHING OF INACCURATE PARTICU LARS. THE EXPRESSION PARTICULARS REFERS TO FACTS DETAILS SPECIFICS OR INFORMATION ABOUT SOMEONE OR SOMETHING. THEREFORE THE PLAIN MEANING OF THE EXPRESSION FURNISHING OF INACCURATE PARTICULARS OF INCOME IM PLIES FURNISHING OF DETAILS OR INFORMATION ABOUT INCOME WHICH ARE NOT I N CONFORMITY WITH THE FACTS OR TRUTH. THE DETAILS OR INFORMATION ABOUT IN COME DEAL WITH THE FACTUAL DETAILS OF INCOME AND THIS CANNOT BE EXTEND ED TO AREAS WHICH ARE SUBJECTIVE SUCH AS THE STATUS OF TAXABILITY OF AN I NCOME ADMISSIBILITY OF A DEDUCTION AND INTERPRETATION OF LAW. THE FURNISHING OF INACCURATE INFORMATION THUS RELATES TO FURNISHING OF FACTUALLY CORRECT DETAILS AND INFORMATION ABOUT INCOME. IN THE PRESENT CASE HOWE VER WHAT HAS BEEN TREATED AS FURNISHING OF INACCURATE PARTICULARS IS MAKING OF A CLAIM WHICH ITA NO. 6660 /MUM/09 ASSESSMENT YEAR 2001-02 PAGE 5 OF 7 WAS NOT ADMITTED BY THE ASSESSING OFFICER. THE ADMI SSION OR REJECTION OF A LEGAL CLAIM IS A SUBJECTIVE EXERCISE AND WHETHER A CLAIM IS ACCEPTED OR REJECTED HAS NOTHING TO DO WITH FURNISHING OF INACC URATE PARTICULARS OF INCOME. THE AUTHORITIES BELOW HAVE APPARENTLY PROCE EDED TO TREAT ASSESSEES MAKING AN INCORRECT CLAIM OF INCOME AS F URNISHING OF INACCURATE PARTICULARS. WHAT IS A CORRECT CLAIM AND WHAT IS AN INCORRECT CLAIM IS A MATTER OF PERCEPTION UNLESS THE CLAIM I S PATENTLY INADMISSIBLE OR INCORRECT AND PARTICULARLY WHEN THE FACTOR GOVE RNING ACCEPTANCE OR REJECTION OF A CLAIM IS AS SUBJECTIVE AN AREA AS DR AWING AN INFERENCE ABOUT MAIN OBJECTIVE OF AN ARRANGEMENT WHETHER IT IS SI MPLY LETTING OUT OR WHETHER IT CONSTITUTES A COMPLEX COMMERCIAL ACTIVIT Y. IN OUR CONSIDERED VIEW RAISING A LEGAL CLAIM EVEN IF IT IS ULTIMATE LY FOUND TO BE LEGALLY UNACCEPTABLE CANNOT AMOUNT OF FURNISHING OF INACCU RATE PARTICULARS OF INCOME. INACCURATE AS WE HAVE NOTED ABOVE IS SO METHING FACTUALLY INCORRECT AND INTERPRETATION OF LAW CAN NEVER BE A FACTUAL ASPECT. NO DOUBT NOT ONLY THAT THE PENALTY PROVISIONS COVER TH E SITUATIONS IN WHICH THE ASSESSEE HAS CONCEALED INCOME OR FURNISHED THE INACCURATE PARTICULARS IN CERTAIN SITUATION EVEN WITHOUT THE RE BEING ANYTHING TO INDICATE SO STATUTORY DEEMING FICTION FOR INCOME I N RESPECT OF WHICH PARTICULARS HAVE BEEN CONCEALED. IN ADDITION TO N ORMAL CONNOTATIONS OF CONCEALMENT THUS A DEEMING FICTION IS ALSO IMPLI CIT IN THE SCHEME OF PENALTY PROVISIONS. THIS DEEMING FICTION BY WAY OF EXPLANATION 1 TO SECTION 271(1)(C) ENVISAGES TWO SITUATIONS (A) FI RST WHERE IN RESPECT OF ANY FACTS MATERIAL TO THE COMPUTATION OF TOTAL INCO ME UNDER THE PROVISIONS OF THE ACT THE ASSESSEE FAILS TO OFFERS AN EXPLANATION OR THE EXPLANATION OFFERED BY THE ASSESSEE IS FOUND TO BE FALSE BY THE ASSESSING OFFICER OR THE CIT(A); AND (B) SECOND WHERE IN RE SPECT OF ANY FACTS MATERIAL TO THE COMPUTATION OF TOTAL INCOME UNDER T HE PROVISIONS OF THIS ACT THE ASSESSEE IS NOT ABLE TO SUBSTANTIATE THE EXPLANATION AND THE ASSESSEE FAILS TO PROVE THAT SUCH EXPLANATION IS BONAFIDE AND THAT THE ASSESSEE HAD DISCLOSED ALL THE FACTS RELATING TO TH E SAME AND MATERIAL TO ITA NO. 6660 /MUM/09 ASSESSMENT YEAR 2001-02 PAGE 6 OF 7 THE COMPUTATION OF TOTAL INCOME. IN THE FIRST SITU ATION THE DEEMING FICTION IS TRIGGERED BY THE INACTION OF THE ASSESSE E BY HIS NOT GIVING THE EXPLANATION WITH RESPECT TO ANY FACT MATERIAL TO TH E COMPUTATION OF TOTAL INCOME OR BY ACTION OF THE ASSESSING OFFICER OR TH E CIT(A) BY GIVING CATEGORICAL FINDING TO THE EFFECT THAT THE EXPLANA TION GIVEN BY THE ASSESSEE IS FALSE. IN THE SECOND SITUATION THE DE EMING FICTION IS TRIGGERED BY THE FAILURE OF THE ASSESSEE LEADING TO SATISFACT ION OF CONDITIONS LAID DOWN IN CLAUSE B OF EXPLANATION 1 TO SECTION 271(1) (C) NAMELY THAT THE ASSESSEE IS NOT ABLE TO SUBSTANTIATE AN EXPLANATION IN RESPECT OF ANY FACT MATERIAL TO THE COMPUTATION OF TOTAL INCOME AND I N ADDITION TO THIS THE ASSESSEE IS ALSO NOT ABLE TO PROVE THAT SUCH EXPLA NATION WAS GIVEN BONAFIDE AND ALL THE FACTS RELATING TO THE SAME AND MATERIA L TO THE COMPUTATION OF TOTAL INCOME HAVE BEEN DISCLOSED BY THE ASSESSEE. WHEN THIS DEEMING FICTION COMES INTO PLAY THE RELATED ADDITION OR DISALLOWANCE IN COMPUTING THE TOTAL INCOME OF THE A SSESSEE FOR THE PURPOSES OF SECTION 271(1)(C) IS DEEMED TO REPRESE NT THE INCOME IN RESPECT OF WHICH INACCURATE PARTICULARS HAVE BEEN F URNISHED BUT THAT THE LEVY OF PENALTY HINGES ON ASSESSEES SUBSTANTIATING THE EXPLANATION PROVING THAT IT IS BONAFIDES AND THAT ALL THE MATER IAL FACTS ARE DISCLOSED. VIEWED IN THIS PERSPECTIVE ALSO HOWEVER WE FIND T HAT THE ASSESSING OFFICER DOES NOT HAVE A LEGALLY SUSTAINABLE CASE. W E HAVE NOTED THE ASSESSEE HAS A REASONABLE EXPLANATION FOR HAVING MA DE THIS CLAIM IN THE INCOME TAX RETURN AND ALL THE NECESSARY DETAILS AR E FILED BY THE ASSESSEE AND THE CLAIM IS MADE IN A FAIR AND TRANSPARENT MAN NER. ONE MAY OR MAY NOT ACCEPT THE CLAIM THAT THE CONSIDERATION RECEIVE D UNDER THE CONDUCTING AGREEMENT CONSTITUTES BUSINESS INCOME BUT A MERE REJECTION OF THE SAID CLAIM DOES NOT RENDER THE CLAIM PATENTLY INADMISSIB LE. COMPLEXITY OF COMMERCIAL ACTIVITY THE EXPRESSION IN SHAMBHU INVE STMENTS (SUPRA) IS AMENABLE TO MORE THAN ONE REASONABLE INTERPRETATIO NS. THE VIEW CANVASSED BY THE ASSESSEE HAS BEEN REJECTED BY US V IDE OUR ORDER OF EVEN DATE BUT IN OUR HUMBLE UNDERSTANDING MERELY BECA USE A LEGAL CLAIM IS ITA NO. 6660 /MUM/09 ASSESSMENT YEAR 2001-02 PAGE 7 OF 7 REJECTED AS HAS BEEN DONE IN THIS CASE IT CANNOT BE INFERRED THAT THERE IS NO REASONABLE EXPLANATION FOR HAVING RESORTED TO TH AT INTERPRETATION AND AS LONG AS THERE IS A REASONABLE EXPLANATION FOR MA KING A CLAIM OR RESORTING TO AN INTERPRETATION PENALTY UNDER SECTI ON 271(1)(C) CANNOT BE IMPOSED. 6. FOR THE REASONS SET OUT ABOVE WE ARE OF THE CON SIDERED VIEW THAT THE IMPUGNED PENALTY INDEED DESERVES TO BE DELETED. WE UPHOLD THE GRIEVANCE OF THE ASSESSEE AND DIRECT THE ASSESSING OFFICER TO DELETE THE IMPUGNED PENALTY OF RS 2 10 692. 7. IN THE RESULT THE APPEAL IS ALLOWED. PRONOUNCED IN THE OPEN COURT TODAY ON 23 RD DAY OF DECEMBER 2010. SD/- SD/- ( D K AGARWAL) (PRAMOD KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI; 23 RD DAY OF DECEMBER 2010. COPY FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-3 MUMBAI 4. THE COMMISSIONER (APPEALS)-III MUMBAI 5. DEPARTMENTAL REPRESENTATIVE - J BENCH MUMBA I 6. GUARD FILE TRUE COPY BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES MUMBAI