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Income Tax Appellate Tribunal, MUMBAI BENCHES “A”, MUMBAI
Before: Shri MAHAVIR SINGH, & Shri G. MANJUNATHA
सुनवाई क� तार�ख / Date of Hearing : 03/04/2019 10/04/2019 आदेश क� तार�ख /Date of Order: आदेश / O R D E R Per G. Manjunatha, (Accountant Member) These two appeals filed by the assessee are directed against separate, but identical orders of the Ld. CIT(A)-52, Mumbai, dated 24/07/2017 & 13/02/2017 and they pertains to Assessment Years 2012-13 and 2013-14. Since facts are identical and issues
2 Asiatic Stores & Soda Fountain are common, for the sake of convenience, these appeals were heard together and are disposed of by this consolidated order.
The assessee has more or less filed common grounds of appeal for both assessment years. For the sake of brevity, grounds of appeal taken for Assessment Year 2012-13 are reproduced hereunder:-
“1. On the facts and in the circumstances of the case and in law the Hon'ble CIT(A) erred in not accepting the principles of consistency being followed by appellant and accepted by department year after year in the absence of any material change or new evidence and the reasons assigned for doing so are wrong and contrary to the Income Tax and Rules made there under.
2. On the facts and in the circumstances of the case and in law the Hon'ble CIT(A) erred in not adjudicating the ground that appellant is a partnership firm, the main business is that of running a departmental stores therefore the income there from should have been taxed as business income only Et not rental income as done by the Ld AO and the reasons assigned for doing so are wrong and contrary to the Income Tax and Rules made there under.
3. On the facts and in the circumstances of the case and in law the Hon'ble CIT(A) erred in not adjudicating the ground of appellant admitting that it is running a departmental store. By virtue of which certain type of income like foreign exchange gain, advertisement income etc are common and in turn has to incur various expenses like sales promotion, packing material, electricity etc which are normal hence by no imagination the income can be treated as related to earning rent and the reasons assigned for doing so are wrong and contrary to the Income Tax and Rules made there under.
On the facts and in the circumstances of the case and in Law the Hon'ble CIT(A) erred in not adjudicating the ground of the appellant in respect of commission received on account of providing space and facility to sell various commodities as business income and the reasons assigned for doing so are wrong and contrary to the Income Tax and Rules made there under.
5. On the facts and in the circumstances of the case and in law the Hon'ble CIT(A) erred in upholding the action of the Ld AO of separately taxing the income from foreign exchange difference of Rs. 2,66,339/-, income from money transfer of Rs.23,162/ and also interest income of Rs.4,43,040/- as income from other sources and the reasons assigned for doing so are wrong and contrary to the income tax and rules made there under.”
The brief, facts of the case are that the assessee is partnership firm, engaged in the business of running department store, filed its return of income for Assessment Year
3 Asiatic Stores & Soda Fountain 2012-13 on 28/09/2012, declaring total income at Rs.11,00,370/-. The case was selected for scrutiny and the assessment has been completed u/s 143(3) of the Income Tax Act, 1961 (hereinafter the Act’) on 28/03/2015, determining total income at Rs 1,13,08,730/-, where the AO assessed rental income derived from departmental store under the head “income from house property, as against admission under the head “income from business or profession”. Similarly, the AO has made additions towards income derived from Foreign Exchange Gain under the head “income from other sources”.
4. Aggrieved by the assessment order, the assessee has preferred an appeal before the Ld. CIT(A). The Ld. CIT(A), after considering the submissions of the assessee, for detailed reasons recorded in his appellate order on 24/07/2013, dismissed the appeal filed by the assessee and confirmed the action of the AO in assessing income derived from departmental stores under the head ‘income from house property’ as against assessee admission under the head ‘income from business or profession’. Similarly, the Ld. CIT(A) has confirmed the additions made towards foreign exchange gain difference income and income from western money transfer under the head ‘income from other sources’.
The first issue that came up for consideration from ground no. 1 to 4 is towards assessment of income derived from departmental store under the head ‘income from house property as against assessee admission under the head ‘income from business or profession’. The facts with regard to the impugned dispute are that the assessee being a partnership firm is engaged in the business of running departmental store in the name of 4 Asiatic Stores & Soda Fountain Asiatic departmental stores. The assessee has considered income derived from running departmental store including rental income under the head ‘income from business or profession’. The AO has assessed rental income received from the departmental store under the head ‘income from house property’’ and also determined the quantum of such income based on the prevailing market rate.
The Ld. AR for the assessee, at the time of the hearing, submitted that the issue involved in the present appeal is covered in favour of the assessee by a decision of ITAT, Mumbai, ‘A’ Bench in assessee’s own case for AY 2010-11 in where under identical set of facts the Tribunal held that income earned by the assessee from running of departmental store is assessable under the head ‘income from business’ as claimed by the assessee. The facts being identical for the year under consideration, the additions made by the AO towards income computed under the head ‘income from house property’ may be deleted.
The Ld. DR, on the other hand, fairly accepted that the issue is covered in favour of the assessee by the decision of the ITAT for AY 2006-07 to 2010-11.
We have heard both the parties, perused materials available on record and gone through the orders of authorities below. The issue involved in the present appeal i.e. whether income earned from running departmental store is assessable under the head income from business or profession as claimed by the assessee or income from house property as assessed by the AO is a subject matter of consideration by the Mumbai Tribunal ‘A’ Bench in assessee’s own case for AY 2010-11. The Tribunal after considering
5 Asiatic Stores & Soda Fountain the relevant facts held that income earned by the assessee from running departmental store is assessable under the head ‘income from business’. The relevant observations of the Tribunal are as under:-
Having considered the rival stands and perusing the respective orders of the income-tax authorities as well as the relevant material on record, we proceed to adjudicate the controversy in the following manner. Pertinently, the issue as to whether an income is assessable under the head ‘income from house property’ or as ‘business income’ is a mixed question of law and facts, and each case has to be decided in the light of its own facts and the applicable principles of law. In the present case, the assessee is a Partnership firm whose object is to carry on the business of Department store. It is carrying on this business through different counter holders who own the goods that are sold whereas the assessee is responsible for collection of sales proceeds as well as packaging and delivery of goods. The assessee is earning income by way of Commission relatable to the quantum of sales effected by each of the counter holders apart from earning from the packaging of goods, as also the difference in rate of foreign exchange wherever the clients have paid for the sales in foreign exchange. The moot question is whether the aforesaid streams of income, which ostensibly are flowing from running of the Departmental store can be said to be assessable as ‘business income’, as contended by the assessee.
10. Before proceeding further, we may refer to the seminal features of the case which would have a bearing on the determination as to whether the aforesaid income derived by the assessee-firm is to be treated as income from business or it is to be treated as rental income from house property. At the time of hearing, it has been explained by the learned representative that the assessee-firm has entered into separate but similar agreements with the different counter holders and one such agreement was also placed before us in the Paper Book at page 1-4. A perusal of the said agreement, which is entered with one M/s. Rasool Enterprises dated 28.03.2006, reveals the manner in which the business of Department store is being carried out. In the recital of the said agreement, assessee is referred to as owner of ‘Asiatic Department Store’. The currency of the agreement is for a period of 12 months from 01.04.2006 to 31.03.2007. It is provided that the other party shall bring the goods/products for marketing and sale to the customers. It is also prescribed that in case any/all goods brought by the other party are unsalable or damaged or otherwise not fit for trading, the same would be removed from the premises of the assessee-firm or that of the customers at own cost by the party/counter holder. Clause (7) of the agreement prescribes that as and when the products/goods are sold by the counter holder, the sale proceeds shall be collected by the cash counter which is managed by the assessee-firm and the 6 Asiatic Stores & Soda Fountain
proceeds shall be paid to the counter holder at the end of every week after deduction of its Commission by the assessee-firm. It is also prescribed that the assessee will be entitled to deduct any other costs, charges and expenses payable by the counter holder. The necessary furniture required to display and sell the products shall be provided by the assessee-firm. It is further provided that the keys of the counters or the cupboards or racks where the products or goods brought in by the counter holder are kept for sale shall remain with the assessee-firm only. On the basis of the arrangement with the counter holders some factual inferences which can be drawn are as follows. That the assessee-firm is providing facilities to different persons for selling different commodities and services through different counters, which are provided and are furnished by the assessee; that the individual parties conduct the purchase and sale of the commodities at different counters in the Department store run by the assessee; that the agreement with each of the party is for a temporary period of 12 months; that the keys of the counters of the cupboards wherein the goods brought by the party are kept are in the possession of the assessee as per the terms of the agreement. One of the clauses in the agreement also specifies that the arrangement is for the sale of goods in the manner laid down in the agreement and it does not confer any right of tenancy or sub-tenancy on the counter holders. As per the agreement, it is the duty of the assessee to provide the necessary furniture at such place as is appropriate to run the Department store. Apart from the aforesaid features, the assessee also made a detailed note on the activities carried out by it, which have indeed been reproduced by the Assessing Officer in para 5.3 of his order. The relevant discussion therein reveals that the activities and responsibilities of the assessee in conducting the business of Department store; that the cash collection counters for receiving the sale proceeds was manned by the staff of the assessee; that the assessee was providing the facility for packing the goods and delivery; that the entire packaging material was being supplied by the assessee at its own cost; and, that the packaging facility is managed by the staff of the assessee. Assessee is also providing printed bill books to each of the counter holder at its own cost. Assessee is also providing the watch and ward facility, including opening and closing the Department store is done by its staff. The telephone facility is also provided by the assessee-firm. It is the staff of the assessee who records the entire sale collection and the expenditure incurred in managing the store in connection with each counter holder. The weekly statement of sales and the corresponding Commission payable to the assessee is tabulated by the assessee and provided to each of the counter holders. The sales proceeds after being collected are deposited in the bank by the staff of the assessee. The security as well as the Manager of the Department store is provided by the assessee at its own cost. Assessee is also hiring staff at its own cost to look after the facilities provided by the assesseefirm to the different counter holders to effect sales. The repairs and maintenance of the business are undertaken by the assessee at its own cost. The assessee-firm has arranged and installed the central airconditioning
7 Asiatic Stores & Soda Fountain facility in the Department store, which it is maintaining. All other amenities such as water supply, toilet facilities, maintenance of cleanliness, etc. are undertaken by the assessee at its own cost. The aforesaid features of the arrangement of the assessee with the counter holders have been duly noted by the lower authorities and are not in dispute.
11. In the above background, we may now touch upon some of the judicial pronouncements which would provide the necessary benchmark to decide as to whether in the instant facts and circumstances, the income earned by the assessee is to be treated as ‘business income’ or it is to be treated as ‘income from house property’. At the outset, we may refer to the judgment of the Hon'ble Supreme Court in the case of Karnani Properties Ltd., 82 ITR 547 (SC), which lays down certain tests in order to determine whether the services rendered by the assessee to its tenants are in the nature of business activity so as to assess the resultant income as business income or not? One of the essential factors laid down by the Hon'ble Supreme Court was that in case the services rendered by the assessee are the result of activities being carried out continually in an organised manner, with a set purpose and with a view to earn profits, the same would constitute business activities and the income arising therefrom is liable to be assessed as ‘business income’. In fact, we may also refer to the judgment of the Hon'ble Supreme Court in the case of Karanpura Development Co. Ltd., 44 ITR 362 (SC) wherein Hon'ble Supreme Court asserted that the deciding factor is not the ownership of the property in question, but the manner of activities carried out by the assessee and the nature of operations undertaken by the assessee in relation to the property. We may reproduce the following passage from the aforesaid judgment which has also been referred by the Hon'ble Supreme Court in its later judgment in the case of Chennai Properties & Investments Ltd., [2015] 56 taxmann.com 456 (SC) : “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.”
12. If one is to keep the aforesaid principles in mind, it would be evident that considering the activities undertaken by the assessee relating to the conduct of the business of Department store, the incomes earned by the assessee is liable to be treated as income from business and not as income from house property. Ostensibly, the professed and stated object of the assessee is to run the Department store, as is evidenced by its Partnership deed. The manner of carrying out its activities, and the nature in which it has dealt with the property in question clearly shows that it is not a case of exploiting the property simpliciter, but a case where the objective of earning profits by conducting of the 8 Asiatic Stores & Soda Fountain Department store is merely facilitated by the use of the property. At this stage, we may also refer to two aspects which have been brought out by the learned representative before us. It has been pointed out that assessee earns income by way of Commission from various counter holders and such Commission is based on the actual sales effected by the different counter holders. For the year under consideration, the total Commission earned from the various counter holders was referred to, which shows that the amount of Commission is not consistent or constant across the counter-holders. Even the month-to-month Commission earnings of the assessee from the different counter holders are not constant, but it varies with the level of sales effected. It is a matter of common knowledge that in a typical rental arrangement, inconsistent level of compensation would be clearly missing. Therefore, in our view, the lower authorities erred in treating the income earned by the assessee from running the Departmental store as rental income assessable under the head ‘income from house property’.
13. One aspect which has been emphasised by the lower authorities is that the assessee was holding the property on rent from LIC of India for more than 50 years and, therefore, in view of Sec. 27(iiib) r.w.s. 269UA(f) of the Act, it is deemed to be the owner of the property for the purpose of taxation. Whether or not invoking of Sec. 27(iiib) r.w.s. 269UA(f) of the Act is correct in law, in our view, it is not determinative of the issue as to whether the income is to be treated as ‘business income’ or income assessable under the head ‘income from house property’. As laid down by the Hon'ble Supreme Court in the case of Karnani Properties Ltd. (supra) and Karanpura Development Co. Ltd. (supra), what is of importance is to examine the manner of its activities and the nature of its dealing with the property so as to determine the question of assessing the income under the head ‘house property’ or ‘business income’, and not merely the ownership of the property.
14. Another aspect which has been canvassed by the Assessing Officer is that the sale and purchase of the goods have been undertaken by the respective counter holders and not by the assessee. It has also been emphasised by the Assessing Officer that the income has been earned by the assessee essentially from letting the counter holders use the premises; thus, it is assessable as ‘income from house property’. In our considered opinion, it would be inappropriate to disregard the manner in which the assessee is carrying out the activities before deciding the issue. The view of the Assessing Officer that the sale and purchase has been undertaken by the counter holders is no ground to say the activities being undertaken by the assessee are not in the realm of business. In this context, we may refer to the judgment of the Hon'ble Bombay High Court in the case of Runwal Developers (P.) Ltd., [2011] 15 taxmann.com 196 (Bom.), wherein assessee was in the business of building and developing residential and commercial complexes and was also running a mall. It had constructed an area, part of which was sold to various persons and major portion of the remaining area was given on lease to persons who were running shops, cinema halls, eating places, etc. in the mall. The income streams of the assessee, inter-alia, 9 Asiatic Stores & Soda Fountain included maintenance charges from the lessees, as also the persons to whom the premises were sold towards promotion and upkeep of the mall and such income was offered as ‘business income’. The Assessing Officer held that such income also originated from the property itself and, therefore, was to be taxed as ‘income from house property’. The Hon'ble High Court disagreed with the view of the Revenue and noted that the business conduct agreement showed that the maintenance charges collected by the assessee not only related to the open area/common areas, but related to repairs and maintenance of equipment, transformers, fire-fighting equipment, air-conditioning plant, etc. and other services in the common area of the complex like cost of security services and overall house-keeping of the common area. Considering the factual matrix, the Hon'ble High Court upheld the plea that the income was attributable to conduct of business activity of renting the mall and accordingly, the stand of the assessee for treating the receipts as ‘business income’ was not faulted. In the present case too, the fact that the assessee was not actually selling the goods or that it was undertaking a set of organised activities in support of the counter holders who were executing the sale and purchase of goods, would not distract from the fact that the receipts from the counter holders were business receipts liable to be assessed under the head ‘income from business’.
In our considered opinion, the lower authorities have erred in assessing the income earned by the assessee from running of Departmental store as ‘income from house property’ as against the claim of the assessee of treating it as ‘business income’. Thus, on this aspect, assessee succeeds.”
9. In this view of the matter and consistent with view taken by the Co-ordinate Bench of the Tribunal in assessee’s own case for earlier period, we direct the AO to assessee income earned from running department store under the head ‘income from business or profession’ as claimed by the assessee.
The next issue came up for consideration is assessment of foreign exchange gain at Rs.2,66,339/- assessed under the head ‘income from other sources. The Ld. AR for the assessee submitted that this issue is also covered in favour of the assessee by the decision of ITAT, Mumbai, ‘A’ Bench for AY 2010-11, where, the Tribunal held that income from foreign exchange difference, income from money transfer and also interest income is 10 Asiatic Stores & Soda Fountain part of income derives from departmental store which should be assessed under the head ‘income from business as claimed by the assessee.
Having heard arguments of both sides, we find that the ITAT, Mumbai, ‘A’ Bench for AY 2010-11, had an occasion to consider identical issue in the light of facts brought out by the AO and after considering submissions of the assessee held that income from foreign exchange difference, western money transfer and also interest income is assessable under the head ‘income from business or profession’ as claimed by the assessee, but not assessable under the head ‘income from other sources as assessed by the Ld. AO. The relevant finding of the Tribunal is as under:-
The last Ground of appeal
in this appeal, i.e. Ground of appeal no. 6 reads as under :- “6. On the facts and in the circumstances of the case and in law the Hon'ble CIT(A) erred in upholding the action of the Ld AO of separately taxing the income from foreign exchange difference of Rs.2.53 Lacs and income from Money Transfer of Rs. 70,186/- and also interest of Rs.11,400/- as income from other sources and the reasons assigned for doing so are wrong and contrary to the Income Tax and Rules made there under.”
22. The grievance raised in the aforesaid Ground is consequential to our decision holding the income earned from Departmental store to be assessable as ‘business income’. The Assessing Officer is directed to treat the aforesaid amounts in line with our decision of treating the income from Departmental store as ‘business income’. Thus, on this aspect, assessee succeeds.”
In this view of the matter, and consistent with view taken by the Co-ordinate Bench of the Tribunal, we direct the AO to assess other income being income from foreign exchange difference, money transfer and also interest income under the head ‘income from business’ as claimed by the assessee.
11 Asiatic Stores & Soda Fountain ITA No.123/Mum/2018
The facts and issues involved in this appeal is identical to the facts and issues which we have already decided in Assessment Year 2012-13. The reasons given by us in preceding paragraph in shall mutatis mutandis apply to this appeal also, therefore, for detailed reasons given in preceding paragraph, we direct the AO to assess the income earned by the assessee from running departmental store including other income being difference from foreign exchange, income from money transfer and also interest earned under the head income from business or profession as claimed by the assessee.
In the result, both appeals filed by the assessee are allowed.