STARWING CONSTRUCTION P.LTD,MUMBAI vs. CIT 8, MUMBAI

Per Manoj Kumar Aggarwal (Accountant Member)

1. The learned Commissioner of Income Tax has erred in passing an order u/s 263 of the Income Tax Act,1961. The reasons assigned by him for doing the same are ITA.No.3153/Mum/2014 Starwing Construction Private Limited Assessment Year-2009-10 wrong and insufficient. Provisions of the act ought to have been properly construed before doing the same. Regard being had to the fact and circumstances of the case, the said Order u/s 263 ought not to have been passed.

2. The learned Commissioner of income Tax has erred in directing the Assessing officer to assess the Composite Activity of Income from Sub-Letting and from maintaining the Guest House in the property known as ‘Kailash Bunglow’ as Income from House Property instead of assessing under the Head Income from Business and Profession. The learned Commissioner of Income Tax has failed to appreciate the fact that the same has been consistently declared and assessed as Income from Business in earlier previous years. Also, it may please be noted that depreciation on the Improvements made by the appellant has been consistently claimed and allowed. The reasons assigned by him for doing the same are wrong and insufficient. Provisions of the act ought to have been properly construed before doing the same. Regard being had to the facts and circumstances of the case, the said direction given by the learned Commissioner of Income Tax needs to be quashed.

3. The learned Commissioner of Income Tax has erred in directing the Assessing officer to assess Let out Income arising out of the other 3 Office premises situated in ‘Labella’ as Income from House Property. The learned Commissioner of Income Tax has failed to appreciate that the 3 Office premises concerned are business assets on which depreciation was consistently claimed by assessee and allowed by the department. The reasons assigned by him for doing the same wrong and insufficient. Provisions of the act ought to have been properly construed before doing the same. Regard being had to the facts and circumstances of the case, the said direction given by the learned Commissioner of Income Tax needs to be quashed.

4. Order passed is bad in law and contrary to the provisions of the Act.

ITA.No.3153/Mum/2014 Starwing Construction Private Limited Assessment Year-2009-10 3. Subsequently, the said assessment order was subjected to exercise of revisional jurisdiction u/s 263 by Ld. CIT vide show cause notice dated 13/01/2014 on the premise that since the assessee was not the owner of Kailash Bungalow and had sub-let the same, the income earned there-from was taxable under the head ‘Income from other sources’ as against Business Income as assessed by Ld. AO. Secondly, the income from leasing of three office premises, in the opinion of Ld. CIT, was assessable under the head Income from House Property. After considering the assessee’s submissions, the quantum order was set aside and Ld. AO was directed to reframe the assessment with certain directions. Aggrieved by the directions of Ld. CIT, the assessee has by way of the appeal, challenged invocation of revisional jurisdiction u/s 263.

ITA.No.3153/Mum/2014 Starwing Construction Private Limited Assessment Year-2009-10 5. We have carefully heard the rival contentions and perused relevant material on record. From the perusal of documents placed before us, it is noted that Ld. AO, during assessment proceedings, by way of notice u/s 142(1) dated 23/08/2011, inter-alia, raised a specific query as to why the rental income should not be taxed under the head Income from House Property. In reply dated 08/11/211, the assessee has furnished details thereof and justified the assessment thereof as ‘Business Income’ by way of note which is extracted below:-

Note on Rental Income should not to be taxed under the head “Income Form House Property” The Assessee is deriving Rental Income from the following Parties- (Rs.) (A) Axiom Optimals Pvt.Ltd (5 months) Flat No.2 La Bella 99,000.00 (B) Space Office Sytems (I) Pvt.Ltd. (5 months) Flat No.2 La Bella 2,01,604.00 (C) Space Office Systems (I) Pvt.Ltd Flat No.6 La Bella 3,00,000.00 (D) Space Office Systems (I) Pvt.Ltd Flat No.13 La Bella 2,27,236.00 (E) Wipro Ltd. Kalash Bunglow 47,19,000.00 Out of the above, the offices at La-Bella were purchased by the assessee with a view to expand its business. However, the assessee was not able to use the said resources. As such they have temporarily let out the premises. Till date, the assessee has treated the above premises [As above from (A) to (D)] as business asset. As such any income arising on account of business asset should be taxable as business income. In so far as, rent from property at Chakala [As above (E)] is concerned, it is brought to your good self kind notice that the assessee has sub-letted the property. As such, the income from sub-letted property is taxed as “Business Income” and not as “Property Income”, since the assessee is not the owner of the property. In view of the above, the rental income received by the assessee is treated as “Business Income”.

ITA.No.3153/Mum/2014 Starwing Construction Private Limited Assessment Year-2009-10 Further submissions have been made by the assessee in this regard by way of reply dated 07/12/2011 wherein the assessee has justified his stand for treating the rental income as Business Income. The assessee, in support, had file the order of first appellate authority for AY 2001-02.