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Income Tax Appellate Tribunal, MUMBAI BENCHES “SMC”, MUMBAI
Before: Shri Shamim Yahya
This is an appeal by the assessee directed against order of learned CIT(A)- 17, Mumbai, dated 20.02.2017 and pertains to assessment year 2012-13.
The grounds of appeal
read as under:
1. The Ld. CIT(A) erred in confirming the action of the Ld.A.O. in making addition of Rs.12,07,252/- by treating the compensation received from terrace antenna and hall booking as "Income from Other Sources" instead of "Business Income" without appreciating facts and circumstances of the case. Thus, the addition of Rs.12,07,252/- is unjustified and the same may be deleted.
2. The Ld. CIT (A) failed to appreciate that the compensation received by the Appellant for letting of terrace and hall constitutes the business activity of the Appellant. Hence, treating the "Business Income" amounting to Rs.12,07,252/- as "Income from Other Sources" is not at all justified and the same may be deleted.
3. The Ld. CIT (A) erred in disallowing the business expenditure of Rs. 18,57,571/- without appreciating the fact that the same have been incurred in the normal course of carrying out business activity of the Appellant. Thus, the disallowance of the business expenditure is unjustified and the same may be deleted.
4. Without prejudice to the above the Ld. CIT (A) erred in not allowing the expenditure of Rs.18,57,572/- under section 57(iii) of the Act against "Income from other Sources" without appreciating the fact that the said expenditure is incurred for earning income from letting of terrace and hall only. Thus, the same may be allowed under section 57(iii) of the Act.”
Brief facts of the case are that the assessee company is a Private Limited company and is engaged in the business of letting premises. The assessee had e- filed its return of income for the impugned assessment year on 30.09.2012, declaring total income of ` 11,83,411/- The said return was processed u/s. 143(1) of the Act. During the course of assessment proceedings, Assessing Officer noted that assessee is in the receipt of Rental Income of Rs.31,30,7367-. However, the same has been credited in Profit and loss account and also assessee has claimed expenditure of Rs.18,57,572/- against the same. Assessee contended before the Assessing Officer to consider the rent received from Tenants as House Property Income and allow the standard deduction @ 30% u/s.24 of the Act. Assessee company further contended to treat the receipts of income from the let out of Terrace Antenna and Hall as Business Income and allow the expenditure against the same. The Assessing Officer did not accept the contention of the assessee and taxed the income received from terrace antenna and hall booking under the head "Income from Other Sources". He further disallowed the expenses claimed by the assessee company. Aggrieved by the same, assessee is in appeal before me.
Upon assessee’s appeal learned CIT(A) affirmed the action of the Assessing Officer by holding as under: “I have carefully considered the arguments and submissions filed during the appellate proceedings by the AR of the assessee company and also gone through the assessment order. I had also gone through the orders of the preceding years and relevant case laws. Following important facts emerges on analysis:
a) The Assessee company has purchased the property subject to the tenancy and the same was in the occupation of the tenants and the appellant was realizing the rent under the Rent Control Act. b) It is nowhere mention in the Main objects or in the Ancillary objects of the Memorandum of Association that the assessee's nature of business is of letting out the property. c) The preceding year assessment on identical lines has been accepted by the appellant and the assessment order has not been challenged. d) The facts of the Chennai Properties & Investments Ltd. vs. CIT, Central III, Tamilnadu [2015] 56 taxmann.com 456 (SC) are entirely different from the present case as in the Chennai Properties & Investments Ltd. vs. CIT; the main object of that company was 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. e) Assessee company has itself admitted to tax the rental receipts under the head "Income from House Property". The AR of the assessee company is contending only to tax the compensation received from terrace antenna and hall booking of Rs.12,07,252/- under the head "Business Income" instead of "Income from Other Sources" and allow the Business expenses of Rs.18,57,572/- against the same. It is to be noted that compensation received from -letting-the terrace antenna and hall booking are incidental to the letting out the properties. It does not contain any continuous/ organized activity which can have element of carrying of Business. f) The claim under "Income from Business Income" has been surreptitiously made in order to get the benefit of the allowance of Business Expenditure and reduce the taxable receipt. g) As far alternative claim of allowance of expenditure against the Income from other Sources is concerned, it has to be allowed as per the Section 57(iii) of the Act. In other words, the expenditure has to be incurred wholly and exclusively for the purpose of earning such income which is not the case here.
In view of the above, I do not find any reason to deviate from the conclusion of the AO and his categorization of compensation received from terrace antenna and hall booking under "Income from Other Sources" is upheld and grounds raised on this issue are Dismissed."
As far as claim of expenditure against Income from Other Sources is concerned, it is to be kept in mind that standard deduction of 30% is already allowed against the Income from House Property. No expenditure which has been claimed, has been incurred wholly and exclusively for earning of the incidental income under reference. Hence, the ground raised on this issue is Dismissed.”
Against above order assessee is in appeal before the ITAT
I have heard both the counsel and perused the records. Learned counsel for the assessee submitted that assessee company’s only source of income is from letting of the properties and the rental income derived from the same and it should be treated as business income. In this regard, he referred to the decision of Hon’ble Supreme Court in the case Rayala Corporation (P) Ltd. vs. ACIT 72 taxmann.com 149 (SC).
Per contra learned Departmental Representative relied upon the orders of the authorities below. He further referred to the decision of Hon’ble Supreme Court in the case of Raj Dadarkar & Associates vs. ACIT 81 taxmann.com 193.
On careful consideration I note that it is undisputed that assessee company's only source of income is from letting out of properties. This is duly supported by the profit and loss account submitted by the assessee. Even the Assessing Officer has accepted that the entire receipt of the assessee consists of rentals for letting out of property. In these circumstances, I find that Hon’ble Apex court decision in the case Rayala Corporation (P) Ltd. vs. ACIT (supra) duly covers the issue in favour of the assessee. In the said decision Hon’ble Apex court has expounded as under”
“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. 10. 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.
We, therefore, set aside the impugned judgment and allow these appeals with no order as to costs. We direct that the income of the assessee shall be subject to tax under the head "Profits and gains of business or profession"
The decision relied upon by the learned counsel for the Departmental Representative in the case of Raj Dadarkar & Associates vs. ACIT (supra) has been rendered on different set of facts. In the said decision the Hon’ble Supreme Court has held as under: “Reliance placed by the appellant on the judgments of this Court in Chennai Properties & Investments Ltd. (supra) and Rayala Corporation (P) Ltd. (supra) would be of no avail. In Chennai Properties & Investments Ltd. (supra) where one of us (Sikri J.) was a part of the Bench found that the entire income of the appellant was through letting out of the two 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. On those facts, this Court came to the conclusion that judgment of this Court in Karanpura Development Co. Ltd. v. CIT [I962J 44 ITR 362 (SC) was applicable and the judgment of this Court in East India Housing & Land Development Trust Ltd. v. CIT [1961] 42 ITR 49 CSC) was held to be distinguishable”
In accordance with aforesaid discussion, having found the issue to be covered in favour of the assessee by the Supreme Court decision in the case Rayala Corporation (P) Ltd, I set aside the orders of authorities below and hold that the assessee’’s receipts should be considered as business income and the consequences would follow.
In the result, this appeal by the assessee stands allowed.
Order pronounced in the open court on this day of 5th February, 2018.