The ACIT, Circle-2(1)., Guntur v. /s Sri Bharathi Warehousing Corporation,, Guntur

ITA 67/VIZ/2007 | 2003-2004
Pronouncement Date: 07-12-2010 | Result: Allowed

Appeal Details

RSA Number 6725314 RSA 2007
Bench Visakhapatnam
Appeal Number ITA 67/VIZ/2007
Duration Of Justice 3 year(s) 8 month(s) 12 day(s)
Appellant The ACIT, Circle-2(1)., Guntur
Respondent /s Sri Bharathi Warehousing Corporation,, Guntur
Appeal Type Income Tax Appeal
Pronouncement Date 07-12-2010
Appeal Filed By Department
Order Result Allowed
Bench Allotted DB
Tribunal Order Date 07-12-2010
Date Of Final Hearing 29-11-2010
Next Hearing Date 29-11-2010
Assessment Year 2003-2004
Appeal Filed On 26-03-2007
Judgment Text
ITA67/07 153/08&522/VIZ/09 M/S. BHARATHI WAREHOUSING CORPN. GUNTUR IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV JUDICIAL MEMBER AND SHRI BR BASKARAN ACCOUNTANT MEMBER ITA NO. 67 /VIZAG/ 20 07 ASSESSMENT YEAR : 2003 - 04 ACIT CIRCLE - 2(1) GU NTUR SRI BHARATHI WAREHOUSING CORPORATION GUNTUR (APPELLANT) VS. (RESPONDENT) PAN NO.AAVFS 5390J ITA NO. 153 /VIZAG/200 8 ASSESSMENT YEAR : 200 4 - 0 5 ACIT CIRCLE - 2(1) GUNTUR SRI BHARATHI WAREHOUSING CORPORATION GUNTUR (APPELLANT) VS. (RESPONDENT) ITA NO. 522 /VIZAG/200 9 ASSESSMENT YEAR : 200 5 - 0 6 D CIT CIRCLE - 2(1) GUNTUR SRI BHARATHI WAREHOUSING CORPORATION GUNTUR (APPELLANT) VS. (RESPONDENT) APPELLANT BY: SHRI T.L. PETER DR RESPONDENT BY: SHRI U.L.N. SUDHAKAR ADVOCATE ORDER PER SHRI S. K. YADAV JUDICIAL MEMBER : - THESE APPEALS ARE PREFERRED BY THE REVENUE AGAINST THE RESPECTIVE ORDERS OF THE CIT(A) ON COMMON GROUNDS THAT CIT(A) HAS ERRED IN TREATING THE RENTAL RECEIPTS ON BUILDINGS AS INCOME FROM BUSINESS INSTEAD OF INCOME FROM HOUSE P ROPERTY ASSESSED BY THE ASSESSING OFFICER. 2. THE BRIEF FACTS BORNE OUT FROM THE RECORD ARE THAT THE ASSESSEE DERIVES INCOME FROM LETTING OUT OF PROPERTIES AND BUSINESS IN TOBACCO. THE ASSESSEE OWNED FEW IMMOVABLE PROPERTIES WHICH WERE LET OUT TO DIFFER ENT TENANTS. ONE PROPERTY WAS LET OUT TO M/S. FOOD WORLD SECOND PROPERTY AT BANGALORE WAS LET OUT TO STANDARD CHARTERED BANK AND OTHER PROPERTIES AT CHENNAI WERE ITA67/07 153/08 &522/VIZ/09 M/S. BHARATHI WAREHOUSING CORPN. GUNTUR 2 ALSO LET OUT TO DIFFERENT TENANTS. THE RENTAL INCOME RECEIVED BY THE ASSESSEES WAS CLAIMED TO BE THE BUSINESS INCOME OF THE ASSESSEES ON THE GROUND THAT ASSESSEE WAS ENGAGED IN CONSTRUCTION ACTIVITIES AND LETTING OF PROPERT IES IS ONE OF THE MAIN BUSINESS ACTIVITY. THE ASSESSING OFFICER EXAMINED THE CLAIM OF THE ASSESSEE IN THE LIGHT OF VARIOUS JUDICIAL PRONOUNCEMENTS AND FINALLY CONCLUDED THAT THE RENTAL INCOME OF THE PROPERTY IS AN INCOME FROM HOUSE PROPERTY AND NOT A BUSINESS INCOME OF THE ASSESSEES. ONLY THE INCOME ON TOBACCO SALES AND COMMISSION RECEIVED BY THE ASSESSEE IS TO BE ASSESSED U NDER THE HEAD `PROFIT OR GAINS FROM BUSINESS OR PROFESSION. 3. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) AND THE CIT(A) RELYING UPON THE VARIOUS JUDGEMENTS OF DIFFERENT HIGH COURTS AND ALSO THE SUPREME COURT IN THE CASE OF SULTAN BROS (P) LTD. VS. CIT 51 ITR 353 ALLOWED THE RELIEF TO THE ASSESSEE BY HOLDING THAT THE RENTAL INCOME FROM THESE PROPERTIES ARE TO BE ASSESSED AS A BUSINESS INCOME. 4. NOW THE REVENUE HAS PREFERRED AN APPEAL BEFORE THE TRIBUNAL WITH THE SUBMISSIONS THAT EACH PROPERT Y WAS LET OUT TO A SINGLE TENANT . I N SOME CASE IT WAS LET OUT FOR APPROXIMATELY 10 YEARS AND SOME WERE LET OUT FOR 3 YEARS SUBJECT TO THE RENEWAL OF TENANCY. IN FACT TOTAL NUMBER OF PROPERTIES ARE 8 AND SOME OF THEM WERE LET OUT TO ONE TENANT AS PER THE ASSESSEE . THEREFORE IT IS A CLEAR CASE WHERE RENTAL INCOME IS TO BE ASSESSED AS AN INCOME FROM HOUSE PROPERTY. HE HAS PLACED A STRONG RELIANCE UPON THE JUDGEMENT OF THE APEX COURT IN THE CASE OF SHAMBHU INVESTMENT (P) LTD. VS. CIT 263 ITR 143 (SC) AND T HE JUDGEMENT OF THE CALCUTTA HIGH COURT IN THE SAID CASE REPORTED AT 249 ITR 47 IN WHICH THE FACTS AND FINDINGS ARE EXPLICITLY CLEAR. 5 . THE LD. D.R. FURTHER CONTENDED THAT CIT(A) HAS NOT EXAMINED THE ISSUE IN THE LIGHT OF THE JUDGEMENTS OF THE APEX COURT IN THE CASE OF SHAMBHU INVESTMENT (SUPRA). THEREFORE THE CIT(A) ORDER DESERVES TO BE SET ASIDE. 6 . HAVING HEARD THE RIVAL SUBMISSIONS AND FROM A CAREFUL PERUSAL OF THE ORDERS OF THE LOWER AUTHORITIES WE FIND THAT UNDISPUTEDLY THE ASSESSEE WAS ITA67/07 153/08 &522/VIZ/09 M/S. BHARATHI WAREHOUSING CORPN. GUNTUR 3 ENGAGED I N THE BUSINESS OF TOBACCO AND COMMISSION AND BESIDES HE HAS ALSO DERIVED INCOME FROM LETTING OUT OF THE PROPERTIES. HE HAS CONSTRUCTED ITS PROPERTY AT DIFFERENT PLACES AND LET OUT TO DIFFERENT TENANTS. IN ANY CASE ONE PROPERTY WAS LET OUT TO A SINGLE TE NANT EITHER FOR 3 YEARS OR FOR 10 YEARS. NOW THE QUESTION ARISE UNDER THIS TYPE OF SITUATION WHE THER RENTAL INCOME IS TO BE TREATED AS AN INCOME FROM HOUSE PROPERTY OR A BUSINESS INCOME. THE CONTROVERSY IN THIS REGARD HAS BEEN SET AT REST BY THE JUDGEM ENT OF THE APEX COURT IN THE CASE OF SHAMBU INVESTMENT (SUPRA) IN WHICH THEIR LORDSHIP OF THE APEX COURT HAVE CATEGORICALLY HELD THAT THE INCOME DERIVED BY ASSESSEE BY LETTING OUT FURNISHED PREMISES ON MONTHLY RENT BASIS TO VARIOUS PARTIES ALONG WITH THE F URNISHED FIXTURE LIGHT AIR CONDITIONERS ETC. FOR BEING USED AS A TABLE SPACE AND ALSO PROVIDED THEM COMMON SERVICES LIKE WATCH AND WARD STAFF ELECTRICITY WATER AND OTHER AMENITIES WITHOUT ANY SEPARATE CHARGES WAS ASSESSABLE AS INCOME FROM HOUSE PROPERTY AND NOT A BUSINESS INCOME. THE FACTS ARE NOT CLEAR IN THE JUDGEMENT OF THE APEX COURT THAT IS WHY WE WOULD LIKE TO REFER THE JUDGEMENT OF THIS HIGH COURT WHICH HAS BEEN APPROVED BY THE APEX COURT. THE JUDGEMENT OF THE HIGH COURT IN THE CASE OF SHAMBHU INVESTMENT (SUPRA) IS REPORTED AT PG.249 ITR 47. THE FACTS OF THAT CASE ARE THAT ASSESSEE OWNED A BUILDING AT RAHEJA CHAMBERS NARIMAN POINT MUMBAI. THE SAID PREMISES HAS BEEN FURNISHED BY THE ASSESSEE AND HAS BEEN LET OUT TO VARIOUS PERSONS/FIRMS/ORGAN IZATIONS WITH ALL FURNIRUE FIXTURE AND LIGHT AIR CONDITIONERS FOR BEING USED AS A TABLE SPACE. THE SAID ASSESSEE UNDER THE AGREEMENT WITH THOSE OCCUPIERS ARE TO PROVIDE SERVICE LIKE WATCH AND WARD STAFF ELECTRICITY WATER AND OTHER COMMON AMENITIES. INCOME DERIVED BY THE ASSESSEES FROM THE SAID OFFICE PREMISES WAS OFFERED FOR TAXATION AS A BUSINESS INCOME AND THE SAME WAS ASSESSED ACCORDINGLY BY THE A.O. THE CIT INVOKED ITS JURISDICTION U/S 263 AFTER HAVING OBSERVED THAT THE INCOME DERIVED FROM THE SAID PROPERTIES WERE ACTUALLY RENT RECEIVED FROM THE OCCUPIERS AND NOT TO BE RE GA RDED AS SERVICE CHARGES AND MAINTENANCE AND CANNOT BE TERMED AS BUSINESS INCOME AND REVISE THE ORDER OF THE ASSESSING OFFICER BY HOLDING THAT RENTAL INCOME HAS TO BE ASSESSED UNDER THE HEAD INCOME FROM HOUSE PROPERTY. THE MATTER TRAVELED TO THE HIGH COURT AND THE HONBLE CALCUTTA HIGH COURT HAVING EXAMINED THIS ISSUE IN DETAIL HAS ITA67/07 153/08 &522/VIZ/09 M/S. BHARATHI WAREHOUSING CORPN. GUNTUR 4 CATEGORICALLY HELD THAT INCOME DERIVED BY THE ASSESSEE FROM LETTING OUT THE FURNISHED PREMISES ON MONTHLY RENT BASIS TO VARIOUS PARTIES FOR BEING USED AS A `TABLE SPACE IS TO BE ASSESSED AS INCOME FROM PROPERTY AND NOT BUSINESS INCOME. THE RELEVANT OBSERVATIONS OF THE HONBLE HIGH COURT ARE EXTRACTED HEREUNDER: MERELY BECAUSE INCOME IS ATTACHED TO ANY IMMOVABLE PROPERTY CANNOT BE THE SOLE FACTOR FOR ASSESSMENT OF SUCH INCOME AS INCOME FROM PROPERTY. WHAT HAS TO BE SEEN IS WHAT WAS THE PRIMARY OBJECT OF THE ASSESSEE WHILE EXPLOITING THE PROPERTY. IF IT IS FOUND APPLYING SUCH TEST THAT MAIN INTE NTION IS FOR LETTING OUT THE PROPERTY OR ANY PORTION THEREOF THE SAME MUST BE CONSIDERED AS RENTAL INCOME OR INCOME FROM PROPERTY. 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. FROM THE COPY OF THE AGREEMENT IT APPEARS THAT THE ASSESSEE HAS LET OUT THE FURNISHED OFFICE AT A MONTHLY RENT PAYABLE MONTH BY MONTH BY THE RESPECTIVE OCCUPANTS. SERVICES RENDERED TO THE VARIOUS OCCUPANTS A CCORDING TO THE SAID AGREEMENT ARE NOT SEPARATELY CHARGED AND THE MONTHLY RENT PAYABLE IS INCLUSIVE OF ALL CHARGES TO THE ASSESSEE. A PORTION OF THE SAID PROPERTY IS USED BY THE ASSESSEE HIMSELF FOR HIS OWN BUSINESS PURPOSE. THE REST OF THE SAID PROPERTY HAS BEEN LET OUT TO THE VARIOUS OCCUPIERS. IT FURTHER APPEARS THAT THE ASSESSEE HAD ALREADY RECOVERED A SUM OF RS.4 25 000/ - AS AND BY WAY OF SECURITY FREE ADVANCE FROM THREE OCCUPANTS. HENCE THE ENTIRE COST OF THE PROPERTY LET OUT TO THOSE OCCUPIERS H AVE ALREADY BEEN RECOVERED AS AN BY WAY OF INTEREST - FREE ADVANCE BY THE ASSESSEE. HENCE IT CANNOT BE SAID THAT THE ASSESSEE IS EXPLOITING THE PROPERTY FOR ITS COMMERCIAL BUSINESS ACTIVITIES AND SUCH BUSINESS ACTIVITIES ARE PRIME MOTTO AND LETTING OUT THE PROPERTY IS A SECONDARY ONE. THERE IS NO SEPARATE AGREEMENT FOR FURNITURE AND FIXTURES OR FOR PROVIDING SECURITY AND OTHER AMENITIES. THE ONLY INTENTION WAS TO LET OUT THE PORTION OF THE PREMISES TO THE RESPECTIVE OCCUPANTS. HENCE THE INTENTION IN MAK ING SUCH AGREEMENT IS TO ALLOW THE OCCUPANTS TO ENJOY THE TABLE SPACE TOGETHER WITH THE FURNITURE AND FIXTURES. FROM A PLAIN READING OF THE AGREEMENT IT APPEARS THAT THE INTENTION OF THE PARTIES TO THE SAID AGREEMENT ARE CLEAR AND UNAMBIGUOUS BY WHICH THE FIRST PARTY HAS ALLOWED THE SECOND PARTY TO ENJOY THE SAID TABLE SPACE UPON PAYMENT OF THE COMPREHENSIVE MONTHLY RENT. AS DISCUSSED HEREINBEFORE IT IS COMPOSITE TABLE SPACE LET OUT TO VARIOUS OCCUPANTS THE AMENITIES GRANTED TO THOSE OCCUPANTS INCLUDING THE USER OF THE FURNITURE AND FIXTURES ARE ATTACHED TO SUCH LETTING OUT. BY THE SAID AGREEMENT THE PARTIES HAVE INTENDED THAT SUCH LETTING OUT WOULD BE AN INSEPARABLE ONE. HENCE THE PRIME OBJECT OF THE ASSESSEE UNDER THE SAID AGREEMENT WAS TO LET OUT TH E PORTION OF THE SAID PROPERTY TO VARIOUS OCCUPANTS BY GIVING THEM ADDITIONAL ITA67/07 153/08 &522/VIZ/09 M/S. BHARATHI WAREHOUSING CORPN. GUNTUR 5 RIGHT OF USING THE FURNITURE AND FIXTURES AND OTHER COMMON FACILITIES FOR WHICH RENT WAS BEING PAID MONTH BY MONTH IN ADDITION TO THE SECURITY ADVANCE COVERING THE ENTIRE COST OF THE SAID IMMOVABLE PROPERTY. IN VIEW OF THE FACTS AND LAW DISCUSSED ABOVE THE INCOME DERIVED FROM THE SAID PROPERTY IS INCOME FROM PROPERTY AND SHOULD BE ASSESSED AS SUCH. IN FACT THERE WAS A RELATIONSHIP OF LANDLORD AND TENANT BETWEEN ASSESSEE AND PERS ONS WHO HIRED OFFICE ACCOMMODATION SULTAN BROS (P) LTD. VS. CIT (1964) 51 ITR 353 (SC): TC 41R. 500 APPLIED. 7 . THIS VIEW OF THE HONBLE HIGH COURT HAS BEEN APPROVED BY THE APEX COURT THEREFORE THE NATURE OF RENTAL INCOME FROM HOUSE PROPERTY IS TO BE EXAMINED IN THE LIGHT OF SURROUNDING CIRCUMSTANCES AND THE INTENTION OF THE ASSESSEES AT THE TIME OF LETTING OUT OF THE PROPERTY. 8 . TURNING TO THE FACTS OF THE CASE WE FIND THAT ASSESSEE HAS CONSTRUCTED ITS PROPERTIES AT VARIOUS PLACES AND WERE LET OUT TO DIFFERENT TENANTS FOR A LONGER PERIOD. THEREFORE THERE IS NO IOTA OF EVIDENCE ON THE BASIS OF WHICH IT CAN BE INFERRED THAT LETTING OUT OF THE PROPERTY IS THE BUSINESS ACTIVITY OF THE ASSESSEES OR THE COMMERCIAL ASSETS ARE EXPLOITED BY THE ASSESSEE F OR A TEMPORARY PERIOD. THEREFORE THE RENTAL INCOME DERIVED FROM THESE IMMOVABLE PROPERTIES IS NOTHING BUT AN INCOME FROM HOUSE PROPERTY. THE PRESENT FACTS OF THE CASE IS RATHER WORST THAN THE CASE OF THE SHAMBHU INVESTMENT (SUPRA) IN WHICH ASSESSEE WAS ENGAGED IN OTHER ACTIVITIES OF PROVIDING AMENITIES OR FACILITIES TO THE TENANTS BESIDES EARNING THE RENTAL INCOME. WE HAVE EXAMINED THE JUDGEMENTS REFERRED TO BY THE ASSESSEE IN THE CASE OF CIT VS. ANAND THEATRES ETC. 244 ITR 192 & CIT VS. D.P. SANDHU BRO THERS CHAMBERS PVT. LIMITED 273 ITR 1. BUT THESE JUDGEMENTS ARE RENDERED IN DIFFERENT CONTEXT . THEREFORE NO ASSISTANCE CAN BE DRAWN FROM THE SE JUDGEMENTS IN FAVOUR OF THE ASSESSEES. WE HAVE ALSO EXAMINED THE ORDER OF THE CIT(A) AND WE FIND THAT CIT(A) HAS NOT EXAMINED THE ISSUE IN THE LIGHT OF THIS JUDGEMENT OF THE APEX COURT IN THE CASE OF SHAMBHU INVESTMENT (SUPRA) THOUGH IT WAS AVAILABLE AT THE RELEVANT POINT OF TIME. THE APEX COURT HAVE RENDERED THE JUDGEMENT ON 21 ST JANUARY 2003 WHEREAS THE CI T(A) HAS PASSED HIS ORDER ON 1 ST DECEMBER 2007. THEREFORE THE FINDINGS OF THE CIT(A) ARE CONTRARY TO THE RATIO LAID DOWN BY THE APEX COURT IN THE CASE OF SHAMBHU INVESTMENT (SUPRA). WE THEREFORE DO NOT FIND ITA67/07 153/08 &522/VIZ/09 M/S. BHARATHI WAREHOUSING CORPN. GUNTUR 6 OURSELVES IN AGREEMENT WITH THE ORDER OF THE CIT(A). A CCORDINGLY THE ORDER OF THE CIT(A) IS SET ASIDE AND THAT OF THE A.O. IS RESTORED. 8. IN THE RESULT THE APPEALS OF THE REVENUE ARE ALLOWED. PRONOUNCED IN THE OPEN COURT ON 7.12 .20 10 SD/ - SD/ - (BR BASKARAN) (SUNIL KUMAR YADAV) A CCOUNTANT MEMBER JUDICIAL MEMBER VG/SPS VISAKHAPATNAM DATED 7 TH DECEMBER 20 10 COPY TO 1 ACIT CIRCLE - 2(1) GUNTUR 2 M/S. SRI BHARATHI WAREHOUSING CORPORATION D.NO.8 - 24 - 31 MANGALAGIRI ROAD GUNTUR 3 TH E CI T GUNTUR 4 THE CIT (A) GUNTUR 5 THE DR ITAT VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM