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Income Tax Appellate Tribunal, ‘C/SMC’ BENCH: CHENNAI
Before: SHRI V. DURGA RAO
आदेश / O R D E R Per V. Durga Rao, Judicial Member: These three appeals filed by the assessee are directed against the orders of the Learned Commissioner of Income Tax (Appeals)-15, Chennai dated 29.09.2019 & 26.02.2019 relevant to the Assessment Years 2009-10, 2010-11 & 2012-13, respectively.
, 1345 & 1346/Chny/2019 :- 2 -: 2. The common issue is involved in all these three appeals are whether the lease rental income received by the assessee is income from house property or business income.
When these appeals were taken up for hearing, the ld. counsel for the assessee has submitted that the issue involved in these appeals is squarely covered by assessee’s own case in to 2270/Chny/2019 for Assessment Years 2011-12, 2014-15 & 2016-17 by order dated 03.11.2021.
On the other hand, the ld. D.R relied on the orders passed by the authorities below.
For the sake of convenience, the facts have been taken from the Assessment Year 2009-10 in ITA No.1344/Chny/2019. The assessee had taken on lease a shopping premises i.e., Manish Market at No.37, Kasi Chetty Street, Chennai-79 and sub-leased the same to various persons. The income derived is the rental receipts of Rs. 6,12,225/- and shown it as a business income. The assessee debited various expenses i.e., AMC, Maintaining charges, E.B charges, Rent paid, etc. and arrived a net profit of Rs. 2,93,661/-.
On verification of lease agreement entered by the assessee on January, 1987, the owner of the property i.e, M/s. Madanlal , 1345 & 1346/Chny/2019 :- 3 -:
Mahavallah Estate, a trust, it is noticed that the property at 37, Kasi Chetty Street, Chennai – 79 was taken on lease by the assessee for a period of 27 years. Since, the property was taken on lease for a period exceeding 12 years, as per provisions of sub s. (111b) of s. 27 r/w clause (f) of s. 269UA of the Act, the assessee is deemed to be the owner of the property. Accordingly, the rental receipt from Manish Market is assessable as income from house property against the gross rental receipts of Rs. 6,12,225/-, the deduction permissible u/s. 23 & 24 of the Act only admissible.
7. On appeal the Ld. CIT(A) by following the assessment year 2012- 13, confirmed the order passed by the A.O.
8. On being aggrieved, the assessee carried the matter before the Hon’ble ITAT, the Hon’ble ITAT in to 2270/Chny/2019, (supra), has considered the issue in detail and held that the income received by the assessee is a business income and directed the A.O to re-compute the income of the assessee. For the sake of convenience, the relevant portion of the order is extracted as under:
Upon due consideration of material fact, we find that the property under consideration was obtained by the assessee on long term basis and it was sub-leased to various tenants. The income thus earned was offered as 'business income'. The main object of sub-leasing was to exploit the property in a business-like manner and earn the rental income therefrom. It is also evident that the assessee and his associated entities had business interest in real estate development. As held by Hon'ble Supreme Court in the case , 1345 & 1346/Chny/2019 :- 4 -:
of Raj Dadarkar & Associates V/s ACIT (81 Taxmann.com 193), there may be instances where a particular income^ may appear to fall in more than one head. On the facts of a particular ) case, income has to be either treated as income from the house property or as the business income. Tests which are to be applied for determining the real nature of income are laid down in judicial decisions, on the interpretation of the provisions of these two heads. Wherever there is an income from leasing out of premises and collecting rent, normally such an income is to be treated as income from house property, in case provisions of Section 22 of the Act are satisfied with primary ingredient that the assessee is the owner of the said building or lands appurtenant thereto. Section 22 of the Act makes 'annual value1 of such a property as income chargeable to tax under this head. How annual value is to be determined is provided in Section 23 of the Act. 'Owner of the house property' is defined in Section 27 of the Act which includes certain situations where a person not actually the owner shall be treated as deemed owner of a building or part thereof. In the present case, the appellant is held to be "deemed owner" of the property in question by virtue of Section 27(iiib) of the Act. On the other hand, under certain circumstances, where the income may have been derived from letting out of the premises, it can still be treated as business income if letting out of the premises itself is the business of the assessee. As held in Sultan Bros.(P) Ltd. v. CIT [1964] 51 ITR 353 (SC), 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. It is to be seen as to whether the activity in question was in the nature of business by which it could be said that income received by the appellant was to be treated as income from the business. In the decision of Hon'ble Supreme Court in Chennai Properties & Investments Ltd. (373 ITR 673), the entire income of the assessee was through letting out of the properties it owned and there was no other income of the assessee except the income from letting out of the said properties, which was the business of the assessee. Accordingly, the claim of the assessee as business income was accepted by Hon'ble Apex Court in Chennai Properties & Investments Ltd. (supra).
Applying the ratio of above decisions, we find that the major source of income for the assessee is rental income. The assessee obtained long-term lease of the property and sub-leased the same in a regular systematic manner with a view to earn rental income from such activities in a business-like manner. The perusal of financial statements would show that the assessee had obtained loans to procure the properties and business investments were mostly in the nature of various properties. Therefore, considering the facts of the case, the income was rightly offered as 'Business Income' and the claim of the assessee, in this regard, was to be accepted. We order so. The Ld. AO is directed to re-compute the , 1345 & 1346/Chny/2019 :- 5 -: income of the assessee in terms of this order. Resultantly, the appeal stand partly allowed.”
In view of the above, by following the decision of the Co-ordinate Bench of this Tribunal in the assessee’s own case, the income received by the assessee is treated as a business income and direct the A.O to re-compute the income of the assessee. Hence, the appeal filed by the assessee is allowed.
In the result, the appeal filed by the assessee in for Assessment Year 2009-10 is allowed.
In so far as appeal in for A.Y 2010-11 and in A.Y 2012-13, the issue involved in these appeals, the facts are similar to the appeal in ITA No.1344/Chny/2019 for A.Y 2009-10 and therefore, keeping in view of our decision above, the income of the assessee is treated as a business income and the A.O is directed to re-compute the income of the assessee as indicated above. Thus, this ground of appeal raised by the assessee in ITA No.1345/Chny/2019 for A.Y 2010-11 and in ITA No.1346/Chny/2019 for A.Y 2012-13 are allowed.
12. When this appeal is taken up for hearing, the ld. counsel for the assessee has submitted that the very interest claim of the assessee , 1345 & 1346/Chny/2019 :- 6 -: disallowed by the A.O and allowed by Ld. CIT(A) for A.Y 2011-12, 2014-15, 2015-16 & 2016-17, except this year, the Ld. CIT(A) confirmed the order of the A.O. He further submitted that the year under consideration, the Ld. CIT(A) only considered the investment made by the assessee in Sriji Residency by ignoring all other investments made by the assessee which were considered by Ld. CIT(A) earlier year and submitted that the earlier year’s order may be followed.
On the other hand, the Ld. D.R supported the orders of the authorities below.
Both the parities have been heard, perused the materials available on record and gone through the orders of the authorities below. On appeal, the Ld. CIT(A) has observed that the assessee has diverted borrowed funds for business to real estate purpose and for advancing loan to others and did not utilize the borrowed funds for assessee’s business. I have perused the relevant facts and find that the Ld. CIT(A) has observed that the assessee has borrowed loan of Rs. 2.17 crores on which he paid an interest of Rs. 19.48 lakhs, which were claimed as business expenditure. However, out of loan borrowed of Rs. 2.17 crores, the assessee only invested 37.08 lakhs in his business namely Sriji Residency. The assessee has diverted substantial loan , 1345 & 1346/Chny/2019 :- 7 -: borrowed for non business purpose. The A.O has been fairly and reasonably disallowed interest proportionately to the extent of Rs. 16.16 lakhs out of the assessee’s claim of interest expenditure of Rs. 19.48 lakhs after considering the utilization of borrowed loan for the assessee’s business purpose and confirmed the order of the A.O.
The case of the assessee is that the very same interest claim of the assessee has been considered by the Ld. CIT(A) for remaining four assessment years, except this year all the years, interest claim was allowed. He further submitted that this year, the Ld. CIT(A) only considered the investment made by the assessee in Sriji Residency ignoring of other investments. I have gone through the A.Y 2009-10 and the Ld. CIT(A) deleted the addition made by the A.O in respect of interest disallowance u/s. 37 of the Act. He also gave a categorical finding that the business expenditure much more than the loan amounts borrowed by the assessee and also gave a finding that entire loan utilized for the purpose of business of the assessee and the A.O is not correct by observing that the borrowed funds are not utilized by the assessee for his business. The year under consideration, the A.O as well as Ld. CIT(A) has considered only investments made by the assessee in Sriji Residency by ignoring the other investments. By considering the entire facts and circumstances of the case and also by , 1345 & 1346/Chny/2019 :- 8 -: considering the investments made by the assessee, I am of the opinion that the year under consideration cannot be said that the assessee has not utilized the borrowed funds for the purpose of busines. Accordingly, I reverse the order passed by the Ld. CIT(A) and addition made by the A.O is deleted. In view of the above, this ground of appeal raised by the assessee is allowed.
In the result, the appeal filed by the assessee in for Assessment Year 2012-13 is allowed.
In the result, all the three appeals filed by the assessee in 1345 & 1346/Chny/2019 for Assessment Years 2009-10, 2010-11 & 2012-13 are allowed. Order pronounced on 24th November, 2021 in Chennai.