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Income Tax Appellate Tribunal, “A” BENCH KOLKATA
Before: Shri Rajesh Kumar & Shri Pradip Kumar Choubey
order
: September 11, 2025 ORDER
Per Pradip Kumar Choubey, Judicial Member:
The present appeal has been preferred by the assessee against the order dated 14.02.2025 of the Principal CIT(Central), Kolkata [hereinafter referred to as the “ld. PCIT”] exercising his revision jurisdiction u/s 263 of the Income Tax Act, 1961 [hereinafter referred to as the “Act”].
The brief facts of the case are that the assessee filed its return of income u/s 139 of the Act showing loss of Rs.2,90,287/-. A search and seizure operation u/s 132 of the Act was conducted in the cases of Raj Group & Others and the assessee being one of the persons/concerns related to Giridhari Lal Goenka, was also covered under the search and seizure operation and during the course of search and seizure operation, various incriminating materials/documents were found and seized. The return of income of the assessee was selected for scrutiny and the case Decorum Infrastructure Pvt. Ltd was assessed u/s 143(3) vide order dated 31.12.2022 at an assessed loss at Rs.2,90,287/-. The ld. PCIT by exercising his revision jurisdiction u/s 263 has found following discrepancies: (i) issue related to rental income, (ii) issue related to sinking fund, (iii) issue related to unsecured loan. 2.1 The ld. PCIT u/s 263 of the Act has found that it is a case of erroneous assessment and it was prejudicial to the interest of the revenue and accordingly, a show-cause notice u/s 263 of the Act was issued and submission was filed by the assessee but the ld. PCIT after going over the submission set aside the assessment order passed u/s 143(3) of the Act and directed the Assessing Officer to make necessary verification/enquiry and pass a de novo assessment order.
Aggrieved by the said order, the assessee preferred appeal before us. The ld. AR in the course of argument did not press the issue related to sinking of fund and he raised issues related to rental income and unsecured loan. The submission of the ld. AR is that the assessment order cannot be held to be prejudicial as the assessee-company had earned rental income of Rs.25,94,064/- and rent has been earned from the leasing of the property measuring 3621 sq. ft. The assessee has filed registered lease deed, lease agreement and copy of the facilities and maintenance charges. The ld. AR has also enclosed the audited accounts, ITR return, ITR V for the assessment year 2021-22 and submitted that merely because there is an entry in the object clause of the business showing a particular object would not be the determinative factor to arrive at a conclusion that the income is to be treated as income from business. He has cited a decision of the Hon’ble Apex Court in the Decorum Infrastructure Pvt. Ltd case of Sultan Bros. (P) Ltd. vs. CIT (1964) 5 SCR 807 and also filed a decision of Hon’ble Apex Court in the case of Chennai Properties & Investment Ltd., reported in 373 ITR 673 and in the case of Royla Corporation Pvt. Ltd. vs. ACIT (2016) 386 ITR 500 (SC). 3.1 So far as the issue regarding of the unsecured loan taken, the submission of the ld. AR is that in the course of assessment proceedings, the assessee furnished documentary evidences such as source of fund, loan confirmation, copy of bank statement, audited financial statement and ITR acknowledgement and not only that, the Assessing Officer had also issued notices u/s 133(6) of the Act and the same were duly complied. Accordingly, the ld. AR stated that the order passed by the ld. CIT(A) in the aforesaid two issues are bad in law and are liable to be set aside.
Contrary to that, the ld. DR supports the impugned order.
Upon hearing the submissions of ld. counsels of the respective parties, we are going to decide only two issues i.e. rental income shown as business income and unsecured loan taken as the assessee did not press the issue regarding sinking of funds and on the issue of sinking of fund, the order passed by the ld. CIT(A) is confirmed. Now, looking into the facts of the case on the issue of rental income, we find that the assessee has submitted copy of the registered lease deed dated 22.12.2014 along with lease deed agreement and other agreements for facilities and maintenance charges were also entered into the same day with the same party and as per the deed, the assessee was liable to pay a sum of Rs.1/- per square feet per month for providing to a fund for repair and maintenance of the equipment. It is pertinent to mention here that as per clause XIV of the agreement, the amount comes Decorum Infrastructure Pvt. Ltd to Rs.3621/- per month and in this way annually a sum of Rs.44,104/- had been paid. We find that the assessee is not the owner of these assets but was paying the same for the use of the assets. It is further important here to mention that the property has been leased out to Ms Prefetti Van Melle India Pvt. Ltd. vide an agreement dated 05.05.2015 and monthly rent for the said premises and car parking space was Rs.2,16,172/- plus GST. On perusal of the audited accounts, ITR return and ITR-V for the assessment year 2021-22, we find that the said property had been reflected in the audited accounts. The assessee has also filed copy of Memorandum of Association of the company and it is seen from the audited accounts and the Memorandum that the income of the assessee was only from the activity of renting the property and the assessee has originally disclosed income under the head ‘income from business’. We have gone through the Apex Court’s order in the case of Chennai Properties & Investment Ltd. cited supra and the relevant portion of the said order is extracted hereinbelow:
“We have heard the learned counsel for the parties on the aforesaid issue. Before we narrate the legal principle that needs to be applied to give the answer to the aforesaid question, we would like to recapitulate some seminal features of the present case. The Memorandum of Association of the appellant-company which is placed on record mentions main objects as well as incidental or ancillary objects in clause III. (A) and (B) respectively. The main object of the appellant company is to acquire and hold the properties known as “Chennai House” and “Firhavin Estate” both in Chennai and to let out those properties as well as make advances upon the security of lands and buildings or other properties or any interest therein. What we emphasise is that holding the aforesaid properties and earning income by letting out those properties is the main objective of the company. It may further be recorded that in the return that was filed, entire income which accrued and was assessed in the said return was from letting out of these properties. It is so recorded and accepted by the assessing officer himself in his order. It transpires that the return of a total income of Rs.244030 was filed for the assessment year in question that is assessment year 1983-1984 and the entire income was through letting out of the aforesaid two properties Decorum Infrastructure Pvt. Ltd namely, “Chennai House” and “Firhavin Estate”. Thus, there is no other income of the assessee except the income from letting out of these two properties. We have to decide the issue keeping in mind the aforesaid aspects. With this background, we first refer to the judgment of this Court in East India Housing and Land Development Trust Ltd.'s case which has been relied upon by the High Court. That was a case where the company was incorporated with the object of buying and developing landed properties and promoting and developing markets. Thus, the main objective of the company was to develop the landed properties into markets. It so happened that some shops and stalls, which were developed by it, had been rented out and income was derived from the renting of the said shops and stalls. In those facts, the question arose for consideration was: whether the rental income that is received was to be treated as income from the house property or the income from the business. This court while holding that the income shall be treated as income from the house property, rested its decision in the context of the main objective of the company and took note of the fact that letting out of the property was not the object of the company at all. The court was therefore, of the opinion that the character of that income which was from the house property had not altered because it was received by the company formed with the object of developing and setting up properties. Before we refer to the Constitution Bench judgment in the case of Sultan Brothers (P) Ltd., we would be well advised to discuss the law laid down authoritatively and succinctly by this Court in 'Karanpura Development Co. Ltd. v. Commissioner of Income Tax, West Bengal' [44 ITR 362 (SC)]. That was also a case where the company, which was the assessee, was formed with the object, inter alia, of acquiring and disposing of the underground coal mining rights in certain coal fields and it had restricted its activities to acquiring coal mining leases over large areas, developing them as coal fields and then sub-leasing them to collieries and other companies. Thus, in the said case, the leasing out of the coal fields to the collieries and other companies was the business of the assessee. The income which was received from letting out of those mining leases was shown as business income. Department took the position that it is to be treated as income from the house property. It would be thus, clear that in similar circumstances, identical issue arose before the Court. This Court first discussed the scheme of the Income Tax Act and particularly six heads under which income can be categorised / classified. It was pointed out that before income, profits or gains can be brought to computation, they have to be assigned to one or the other head. These heads are in a sense exclusive of one another and income which falls within one head cannot be assigned to, or taxed under, another head. Thereafter, the Court pointed out that the deciding factor is not the ownership of land or leases but the nature of the activity of the assessee and the nature of the operations in relation to them. It was highlighted and stressed that the Decorum Infrastructure Pvt. Ltd objects of the company must also be kept in view to interpret the activities. In support of the aforesaid proposition, number of judgments of other jurisdictions, i.e. Privy Counsel, House of Lords in England and US Courts were taken note of. The position in law, ultimately, is summed up in the following words: - “As has been already pointed out in connection with the other two cases where there is a letting out of premises and collection of rents the assessment on property basis may be correct but not so, where the letting or sub-letting is part of a trading operation. The diving line is difficult to find; but in the case of a company with its professed objects and the manner of its activities and the nature of its dealings with its property, it is possible to say on which side the operations fall and to what head the income is to be assigned.” After applying the aforesaid principle to the facts, which were there before the Court, it came to the conclusion that income had to be treated as income from business and not as income from house property. We are of the opinion that the aforesaid judgment in Karanpura Development Co. Ltd.'s case squarely applies to the facts of the present case. No doubt in Sultan Brothers (P) Ltd.'s case, Constitution Bench judgment of this Court has clarified that merely an entry in the object clause showing a particular object would not be the determinative factor to arrive at an conclusion whether the income is to be treated as income from business and such a question would depend upon the circumstances of each case, viz., whether a particular business is letting or not. This is so stated in the following words: - “We think each case has to be looked at from a businessman's point of view to find out whether the letting was the doing of a business or the exploitation of his property by an owner. We do not further think that a thing can by its very nature be a commercial asset. A commercial asset is only an asset used in a business and nothing else, and business may be carried on with practically all things. Therefore, it is not possible to say that a particular activity is business because it is concerned with an asset with which trade is commonly carried on. We find nothing in the cases referred, to support the proposition that certain assets are commercial assets in their very nature.” We are conscious of the aforesaid dicta laid down in the Constitution Bench judgment. It is for this reason, we have, at the beginning of this judgment, stated the circumstances of the present case from which we arrive at irresistible conclusion that in this case, letting of the properties is in fact is the business of the assessee. The assessee therefore, rightly disclosed the income under the Head Income from Business. It cannot be treated as 'income from the house property'. We, accordingly, allow this Decorum Infrastructure Pvt. Ltd appeal and set aside the judgment of the High Court and restore that of the Income Tax Appellate Tribunal. No orders as to costs.” 5.1 We have also gone through the cited decision of the assessee passed in in the case of Royla Corporation Pvt. Ltd. vs. ACIT (supra) and the relevant portion of the order passed by the Apex Court is extracted hereinbelow:
“(k) In Royla Corporation Private Limited Versus Assistant Commissioner of Income Tax (2016) 386 ITR 500 (SC) Hon'ble Supreme Court considered the question as to whether the income received by way of renting by the assessee engaged in business of renting its properties and receiving rent is business income or income from house property when the assessee company is engaged in business of renting of its properties. The Hon'ble Supreme Court found that the business of the assessee was of renting its property and earning rent therefrom and therefore the income so earned should be treated as its business income. The Supreme Court once again held that: 9. Upon hearing the learned counsel and going through the judgments cited by the learned counsel, we are of the view that the law laid down by this Court in the case of Chennai Properties (supra) shows the correct position of law and looking at the facts of the case in question, the case on hand is squarely covered by the said judgment.
Submissions made by the learned counsel appearing for the Revenue is to the effect that the rent should be the main source of income or the purpose for which the company is incorporated should be to earn income from rent, so as to make the rental income to be the income taxable under the head “Profits and Gains of Business or Profession”. It is an admitted fact in the instant case that the assessee company has only one business and that is of leasing its property and earning rent therefrom. Thus, even on the factual aspect, we do not find any substance in what has been submitted by the learned counsel appearing for the Revenue.
The judgment relied upon by the learned counsel appearing for the assessee squarely covers the facts of the case involved in the appeals. The business of the company is to lease its property and to earn rent and therefore, the income so earned should be treated as its business income.
In view of the law laid down by this Court in the case of Chennai Properties (supra) and looking at the facts of these appeals, in our opinion, the High court was not correct while deciding that the income of the assessee should be treated as Income from House Property.”
Decorum Infrastructure Pvt. Ltd 6. Now, coming to the point of unsecured loan taken. Going over the facts of the case, we find that during the year, the assessee has taken loan of Rs.30.50 lakhs from the following parties:
Name and Address of PAN Loan Net Worth Loan Repaid Party Taken of the in AY Amount Lendor(Rs.) (Rs.) Jajodia Finance Ltd AAACJ8457D 18,00,000 6015.89 8,00,000 in 69A, Lenin Sarani, 3rd Lakhs AY2021-22 Floor, Kolkata 700013 10,00,000 in AY2022-23 JNB Sidhu Finance AABCJ0370Q 2,00,000 2,697.16 AY 2021-22 Pvt Ltd Lakhs 69A, Lenin Sarani, 3rd Floor, Kolkata 700013 Sri Sai Shraddha AANCS8279B 7,50,000 52.64 NA Cements Pvt Ltd Lakhs Suri Road, NH-60, Village-Dahsal, PO Bahadurpur, Raniganj, Bardhaman, WB 713362 Sri Salasar Suppliers AADCS8457R 3,00,000 2422.87 A.Y 2021-22 Pvt. Ltd. lakhs 69A, Lenin Sarani, 3rd Floor, Kol-13.
6.1 We further find that he assessee has filed the copy of the source of fund, loan confirmation duly signed by the parties, copy of bank statement, audited financial statement, ITR acknowledgement before the Assessing Officer and not only that the Assessing Officer had also issued notices u/s 133(6) of the Act and the same were duly complied and the Assessing Officer was duly satisfied with the transaction and then accepted the same. It is further pertinent to mention here that the Assessing Officer after going over the details and examination of the parties has found that majority of the loan has been repaid and thereafter, he assessed the income of the assessee.
Decorum Infrastructure Pvt. Ltd 7. Keeping in view the above discussion, we find that the order passed u/s 143(3) of the Act by the Assessing Officer cannot be said to be prejudicial to the interest of the revenue on the aforesaid two counts as the assessee has duly disclosed the entire thing before the Assessing Officer. Hence, the revision order u/s 263 of the Act passed by the ld. PCIT is here by set aside.
In the result, the appeal of the assessee is allowed.
Kolkata, the 11th September, 2025.