M/S GENERAL SOAPS,MUMBAI vs. ACIT-CIRCLE 19(3), MUMBAI

On the facts and in the circumstances of the case, both the assessing officer and the CIT (A) have erred in not appreciating the correct facts of the case and thereby arriving at incorrect conclusion in relation to the warehousing charges of Rs. 52,77,504/- earned by the appellant.

The CIT (A) has erred in not following a binding decision of the Income-tax Appellate Tribunal in appellant's own case for AY 2013-

The order of the CIT (A) is in violation of principle of consistency and accordingly the same deserves to be quashed.

We have heard both the sides and have perused the material on record. The solitary issue that rises for consideration in the present appeal pertains to the rental income of INR.52,77,504/- earned by the Assessee. During the relevant previous year, the Assessee had offered aforesaid rental income earned from Hindustan Lever Ltd (HUL) in terms of the Agreement, dated 01/03/2001, from leasing of warehouse. The Assessee had offered the aforesaid rental income to tax under the head ‘Income from House Property’. However, the Assessing Officer was of the view that the aforesaid income was liable to tax under the head ‘Profits and Gains of Business or Professions’.

Being aggrieved the Assessee has carried the issue in appeal before this Tribunal.

We have considered the rival submissions and have perused the material on record.

The Learned Authorized Representative for the Assessee appearing before us placed on record the decision of the Tribunal in the case of the Assessee for the Assessment Year 2013-2014 wherein the identical issue has come up for consideration before the Co-ordinate Bench of the Tribunal and was decided in favour of the Assessee. It was held by the Tribunal that the rental income earned by the Assessee was in the nature of Income from House Property. The relevant extract of the decision of the Tribunal passed in ITA No.3543/Mum/2019, dated 05/04/2021 reads as under:

As can be seen from the materials on record, from the year in which part of the premise was first let out to HUL, the assessee is offering the income from HUL under the head "Income from house property" and department is accepting it though, of course, mostly in orders passed under section 143(1) of the Act. However, in Assessment Year 2008-09, for the first time, there was a dispute between the assessee and the department with regard to the proper head of income under which the income received from warehousing charges is to be assessed. Though, the assessing officer treated the income received from HUL as "Income from business or profession", however, the first appellate authority, while deciding assessee's appeal on the disputed issue held that income received by the assessee is assessable under the head "Income from house property". Of course, in the impugned assessment year, learned Commissioner of Income-tax (Appeals) has not agreed with the aforesaid view of his predecessor.

Be that as it may, I have to decide the issue applying the tests laid down by the Hon'ble Supreme Court in the judicial precedents cited before me to the facts of the present case. In case of Chennai Properties & Investments Ltd (supra) relied upon by learned Commissioner of Income-tax (Appeals), the facts of the case was as per the terms of the Memorandum of Association, the main object of the assessee company was to acquire properties and earn income by letting out the same. In view of the aforesaid main object of the assessee, Hon'ble Apex Court held that when the main business object of the assessee is letting out properties, the income derived from fulfilling such object has to be treated as business.

In case of Rayala Corporation P Ltd (supra), another decision relied upon by the learned Commissioner of Income-tax (Appeals), the main object of the assessee was leasing out of properties to earn rent and as observed by Hon'ble Supreme Court, it was the only business of the assessee. Therefore, in that context, the Hon'ble Supreme Court held that the income derived from letting out since is the main object of the assessee, it has to be treated as "Income from business". However, in case of Raj Dadhalkar& Associates vs CIT (supra), the facts are, the assessee acquired leasehold rights of a property from the municipal corporation and constructed a number of shops and stalls over the said property. Such shops and stalls were let out to various persons unlicensed basis. Though, the assessee claimed the income derived from letting out such shops and stalls as income from business, the assessing officer rejected it and treated it as "Income from house property". The view expressed by the assessing officer was upheld by the higher appellate authorities as well as Hon'ble High Court. When the matter ultimately reached the Hon'ble Supreme Court, the Hon'ble Supreme Court upheld the decision of the Hon'ble High Court and the Tribunal by holding that when it is not established that the assessee was engaged in systematic reorganized activity of providing service to lessees of shops / stalls, merely because in the object clause of the partnership deed it is mentioned that assessee is to carry on business of taking premises on rent and subletting them, it is not sufficient to conclude that income has to be assessed as business income.

If we apply the ratio laid down in the aforesaid decisions to the facts of the present case, it can be seen that the main object of the assessee as per partnership deed is not to carry out business of letting out properties and deriving income, there from. It is a fact that the assessee is conducting its own business from the same premise and part of the un-utilized space has been let out. Furthermore, the facts clearly reveal that there is no systematic and organized LAW of the assessee to engage in warehousing activity. Though, the officer has alleged that the assessee is providing some facilities like watch and ward staff, telephone, etc., this cannot be said to be only meant for the tenant/lessee. Fact may be the assessee is utilizing telephone for its own purpose and has kept the watch and ward staff for its own business and in the process, the interest of the tenant is also protected to some extent. But that cannot lead to the conclusion that the assessee is providing some additional services to the tenant.

Moreover, the facts reveal that the assessee is not involved in any systematic or organized activity of acquiring properties and letting out for earning Income. All these factors must lead to the conclusion that the income derived from letting out a part of the premise to HUL is not a part of its business activity, but, derived as owner of an immovable property. That being the case, the tests laid down by the Hon'ble Apex Court in the case of Shambhu Investments (P) Ltd vs CIT and Raj Dadhalkar& Associates vs CIT (supra) would clearly apply to the facts of the present case. As discussed earlier, the decisions rendered in cases of Chennai Properties & Investments Ltd (supra) & Rayal Corporation P Ltd (supra), would not be applicable to the assessee because of difference in factual position as in the aforesaid cases decided by the Supreme Court, the main object of the concerned assessee was to do business of letting out property. In view of the for sale that the income from letting out premise has to be assessed as “Income from use property". While coming to the aforesaid conclusion I am conscious of the fact that warehousing is one of the objects of the assessee. Therefore, if, in future the assessee undertakes such activity in a systematic and organized manner, it is open to the assessing officer to examine the nature of such income and the appropriate head under which it can be taxed.

In view of my decision above, the statutory deduction as contemplated under section 23 of the Act would be allowable to the assessee while computing the income under the head “Income from house property”. In view of my decision above, ground 4 has become redundant; hence dismissed.”