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Income Tax Appellate Tribunal, MUMBAI BENCH “C”, MUMBAI
Before: SHRI C.N. PRASAD, HONBLE & SHRI G. MANJUNATHA, HONBLE
O R D E R PER C.N. PRASAD (JM)
This appeal is filed by the Revenue against the order of the Learned Commissioner of Income Tax (Appeals) – 13 dated 20.08.2018 for the A.Y. 2013-14.
Revenue has raised the following grounds in its appeal: - 1. "Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) has erred while treating the business receipts (rental income) as income from House Property ignoring the vital facts that the assessee is a developer and has been filing audit report u/s 44AB of the I.T. Act which applies only for a person carrying on business or profession"?
2 ITA.NO. 6553/MUM/2018 (A.Y: 2013-14) M/s. Pristine Developers Pvt. Ltd., 2. "Whether on the facts and in circumstances of the case, the Ld.CIT(A) was right in directing the assessing officer to assess the rental income as well as service charges under the head "Income from House Property" instead of "Business Income"? 3. "Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) has erred in confirming the treatment of income out of sale of property held as capital asset as income from capital gains as against business income as treated by the AO? Treatment of profit on sale of property without considering the fact that the capital asset is in fact closing stock of the assessee."
At the outset, Ld. Counsel for the assessee submits that Ground Nos. 1 and 2 of the grounds of appeal of the Revenue is relating to the computation of rental income and service charges i.e. as to whether such rental income and service charges are to be assessable under the head “income from house property” or “business income”. Ld. Counsel for the assessee referring to Page No. 1 to 44 of the Paper Book submits that the Tribunal in assessee’s own case for the A.Ys. 2009-10 to 2012-13 decided the issue in favour of the assessee holding that the rental income and service charges are to be assessed under the head “income from house property” as claimed by the assessee as against the action of the Assessing Officer in bringing to tax under the head “income from business”. Copies of the orders are placed on record.
4. Ld. DR fairly submitted that the issue has been decided in favour of the assessee.
We have heard the submissions, perused the orders of the authorities below and the decision of the Coordinate Bench in assessee’s 3 ITA.NO. 6553/MUM/2018 (A.Y: 2013-14) M/s. Pristine Developers Pvt. Ltd., own case. We find that identical issue has been decided by the Tribunal in ITA.Nos. 3379/Mum/2013 dated 27.08.2014, ITA.No. 4417/Mum/2014 dated 25.02.2016 for the A.Y. 2009-10, A.Y. 2010-11 and in ITA.Nos. 2102 & 2111/Mum/2017 dated 31.08.2018 for the A.Ys. 2011-12 & 2012-13 in favour of the assessee, wherein it has been held that rental income as well as service charges received by the assessee are assessable under the head “income from house property”. The Tribunal in its order dated 31.08.2018 held as under: - “3. We begin with the AY 2011-12. Briefly stated, facts of the case are that, the assessee-company is engaged in the business of property development. Some of the units in its corporate park were leased out during the relevant previous year and rental income and service charges were received in lieu thereof. The assessee had treated the entire receipt as “Income from house property” and claimed statutory deduction u/s. 24 of the Act. While the rental receipt was Rs.2.44 crore, the amount of service charges received was Rs.16.38 crore. The Assessing Officer (AO) proceeded to treat the entire receipt as business receipt taxable under the head “Income from business or profession”. The AO has clarified the issue at paragraph 6 on page -3 of the assessment order dated 17/12/2013 that this is a recurring issue wherein similar additions were made in AYs 2009- 10 and 2010-11. At paragraph 6.2.1 on page-10 and 11, the AO has stated that he had followed the stand taken by the revenue in the two preceding AYs and accordingly subjected to tax the entire receipts of the assessee on account of renting out of the corporate park units under the head “Income from business or profession”.
4. Aggrieved by the order of the AO, the assessee filed an appeal before the ld. CIT(A). It is observed by the ld. CIT(A) that the same issue has been decided by the ITAT in assessee’s own case for AY 2010-11, by following the earlier order of the Co-ordinate Bench of the Tribunal for AY 2009-10. Following the ratio laid down by the Tribunal in assessee’s own case for AYs 2009-10 and 2010- 11, the ld. CIT(A) held that the assessee was justified in returning the entire income from renting out of the units in the corporate park under the head “Income from house property”.
5. Before us, the ld. DR submits that the AO has rightly treated the business activity of the assessee as commercial activity and 4 ITA.NO. 6553/MUM/2018 (A.Y: 2013-14) M/s. Pristine Developers Pvt. Ltd., accordingly brought to tax the entire receipts taxable under the head “Income from business”.
6. On the other hand the ld. counsel of the assessee relies on the order of the Tribunal in assessee’s own case for AYs 2009-10 and 2010-11 and therefore supports the order of the ld. CIT(A).
7. We have heard the rival submissions and perused the relevant materials on record. We find that the same issue arose before the ITAT “C” Bench, Mumbai in assessee’s own case for AY 2009-10 (ITA No.3379/M/2013 dtd. 27/08/2014) and AY 2010-11 (ITA No.4417/M/2014 dtd. 25/02/2016). It would be relevant to mention here that the Tribunal agreed with the order of the ld. CIT(A) directing the AO to assess the rental income as well as service charges receipts under the head “Income from house property”. Facts being identical, we follow the above order of the Co-ordinate Bench and confirm the order of the ld. CIT(A).”
Facts being identical, respectfully following the said decision we uphold the order of the Ld.CIT(A) on this issue and reject the grounds raised by the Revenue.
Coming to Ground No. 3 of grounds of appeal the Ld. Counsel for the assessee submits that this issue is also decided in favour of the assessee by the Tribunal in its order in ITA.No. 4417/Mum/2014 dated 25.02.2016 for the A.Y. 2010-11.
Ld. DR submitted that issue has been decided in favour of the assessee by the Tribunal for the A.Y. 2010-11. However, he placed reliance on the order of the Assessing Officer.
We have heard the rival submissions, perused the orders of the authorities below and find that the issue has been decided in favour of the 5 ITA.NO. 6553/MUM/2018 (A.Y: 2013-14) M/s. Pristine Developers Pvt. Ltd., assessee by the Tribunal in its order in ITA.No. 4417/Mum/2014 dated 25.02.2016 for the A.Y. 2010-11 observing as under: -
“There are two appeals under consideration and they are cross appeals relating to the assessment year 2010-2011. These two appeals are filed against the order of the CIT (A)-13, dated 11.4.2014. Since, the issues raised in these appeals are inter-connected, therefore, for the sake of convenience, they are clubbed, heard combinedly and disposed of in this consolidated order. Appeal wise adjudication is given in the following paragraphs of this order. Grounds raised in Revenue’s appeal are as under:- (i) The Ld CIT (A) has erred on facts and in law in directing the Assessing Officer to treat the income received by way of letting out of unsold stock as income from House Property without properly appreciating the factual and legal matrix as clearly brought out by the Assessing Officer in his assessment order. (ii) The Ld CIT (A) has erred on facts and in law in directing the Assessing Officer to treat the income received by way of letting out of unsold stock as income from House Property without properly appreciating the fact that the assessee was engaged in business of construction and unsold stock on which it earned rent, was part of project undertaken as business activity.” Grounds raised in assessee’s appeal are as under:-
1. On the facts and circumstances of the case and in law, the Ld CIT (A) erred in confirming the treatment of income from sale of property held as capital asset as income from business at Rs. 5,01,55,244/- as against capital gain of Rs. 5,68,08,656/- shown in the return of income. The disallowance is therefore bad in law and needs to be deleted.
2. On the facts of the case and in law, the Ld CIT (A) erred in alleging that the appellant had claimed the expenses in relation to construction of the commercial premises and carried forward resultant business losses pertaining to AY 2006-07 to 2008-2009 ignoring the fact that the expenses were debited to work-in- progress A/c and not debited to profit & loss account and therefore, neither the expenses nor the resultant losses were claimed in the return of income for AY 2006-07 to AY 2008-2009.
3. On the facts and circumstances of the case and in law, the Ld CIT (A) erred in alleging that the appellant had claimed depreciation on the commercial premises ignoring the fact that the depreciation claimed in the original return of income filed for AY 2009-2010 and AY 2010-11 was withdrawn in the revised return of income filed subsequently.”
2. At the outset, Ld Counsel for the assessee brought our attention to the grounds raised in Revenue‟s appeal and submitted that the issue 6 ITA.NO. 6553/MUM/2018 (A.Y: 2013-14) M/s. Pristine Developers Pvt. Ltd., raised in the appeal stands covered against the Revenue by the order of the Tribunal vide appeal ITA No.3379/M/2013 (AY 2009-2010), dated 27.8.2014. In the said appeal decided by the Tribunal (supra), while adjudicating the issue relating to the taxability of the income earned on letting of the house property, the Tribunal held that the head „income from house property‟ is relevant for charging the impugned income. Consequently, the income generated by the said asset constitutes „investment‟ and the sale proceeds earned on sale of such asset is required to be taxed as „capital gains‟. Paras 7 ad 8 of the said order of the Tribunal (supra) dated 27.8.2014 are relevant in this regard.
3. On the other hand, Ld DR for the Revenue relied on the order of the AO.
We have heard both the parties and perused the orders of the Revenue Authorities as well as the cited decision of the Tribunal (supra), dated 27.8.2014. The issues raised by the assessee as well as the Revenue, in their respective appeals, revolve around the „appropriate head of income for taxing the rental / service charges and sale proceeds on sale of the capital asset / investment‟. On perusal of the said order of the Tribunal (supra), wherein one of us (AM) is a party to the said order, we find paras 7 and 8 of the Tribunal‟s order are relevant in this regard and the same are extracted here under for the sake of completeness of this order. “7. We have heard both the parties and perused the orders of the Revenue Authorities as well as the relevant material placed before us. On perusal of the said order of the CIT (A) in general and para 2.3 in particular, we find the same is relevant in this regard. For the sake of completeness of this order, relevant contents of the said para 2.3 of the CIT (A)‟s order are reproduced here which read as under: “2.3…………….The appellant filed original return of income declaring total business income at Rs. 4,54,26,491/-. Thereafter, the appellant filed revised return of income declaring rental income and service charges income under the head „income from house property‟ showing loss of Rs. 1,83,68,059/-. In the original return of income, the appellant did not claim interest expenditure of Rs. 7,82,37,859/- pertaining to the year under consideration and interest of Rs. 1,53,67,625/- being 1/5 th of the interest pertaining to pre-construction period. These interest expenses were claimed by the appellant in the revised return of income under the head „income from house property‟. It is because of claim of interest, positive income of original return became the loss in the revised return of income. In the P & L A/c, this interest expenditure is not appearing. The appellant has explained that this interest expenditure was appearing in the work-in-progress account. The value of building of 52.47 Crore and land at Rs. 13,47 Crore has been capitalized during the year and the interest pertaining 7 ITA.NO. 6553/MUM/2018 (A.Y: 2013-14) M/s. Pristine Developers Pvt. Ltd., to the year under consideration and the interest pertaining to pre-construction period has been claimed in the revised return of income. In my considered view, the appellant was entitled to claim this interest expenditure even if the rental income and service charges income was assessable under the head „Business Income‟. Without prejudice, the filing of revised return of income, the appellant would have claimed this interest expenditure during assessment proceedings itself which would have been resulted in assessed loss. In view of the above facts the AO is directed to assess the rental income as well as service charges receipts under the head “income from House Property”
8. Considering the above, we are of the opinion that the CIT (A) has rightly adjudicated the issue while allowing the assessee‟s appeal. Therefore, in our view the order of the CIT (A) is fair and reasonable and it does not call for any interference. Accordingly, grounds raised
by the Revenue are dismissed.”
5. Respectfully following the above decision of the Tribunal, we direct the AO to give effect to the said order of the Tribunal (supra) dated 27.8.2014, while adjudicating the grounds raised by the Revenue and the assessee in the present appeals. Accordingly, Grounds raised by the Revenue are dismissed and the Grounds raised by the assessee are allowed being consequential.”
Facts being identical, respectfully following the said decision we uphold the order of the Ld.CIT(A) on this issue and reject the ground raised by the Revenue.
In the result, appeal of the Revenue is dismissed.