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Income Tax Appellate Tribunal, MUMBAI BENCH “H”, MUMBAI
Before: SHRI G.S. PANNU & SHRI C.N. PRASAD
The captioned are two appeals by the assessee pertaining to Assessment Years 2008-09 and 2013-14 and since the substantive issue involved is common, they have been clubbed and heard together and a consolidated order is being passed for the sake of convenience and brevity.
In both the appeals, the controversy relates to the nature and treatment of amounts received by the assessee from warehousing activity.
2 M/s. Tulsi Shipping Pvt. Ltd. 5558/Mum/2016 As per the assessee, the receipts from the warehousing activities are liable to be treated as ‘business income’, whereas as per the Assessing Officer, the same are liable to be treated as ‘income from house property’.
In this background, we may take-up for consideration the appeal in which is directed against the order of CIT(A)-6, Mumbai dated 08.06.2016, pertaining to the Assessment Year 2013-14, which in turn has arisen from the order passed by the Assessing Officer, Mumbai dated 31.12.2015 under section 143(3) of the Income Tax Act, 1961 (in short ‘the Act’).
In this appeal, the Grounds raised by the assessee reads as under :-
a) The order passed by the Ld. CIT(A) is contrary to law and liable to be quashed and/or set aside. b) The Ld. CIT(A) ought to have treated the receipt of Rs.31,51,536/- from warehousing activities as business income and ought to have allowed the expenses relevant thereto as debited in the profit and loss account against the said receipts, and ought to have allowed consequential relief. c) The Ld. CIT(A) has erred in treating the receipts from warehousing activities as income from house property, without appreciating the facts and circumstances that the receipts arose not out of mere letting of property, but arose directly out of the regular business activities of the appellant.
In order to appreciate the controversy, the relevant facts are that the appellant is a company incorporated under the provisions of the Companies Act, 1956 and is, inter-alia, engaged in the business of shipping and warehousing agency. The return of income filed by the assessee for Assessment Year 2013-14 was picked-up for scrutiny assessment wherein
3 M/s. Tulsi Shipping Pvt. Ltd. 5558/Mum/2016 one of the points noted by the Assessing Officer was that assessee had credited in the Profit & Loss Account income by way of godown rent of Rs.31,52,536/-. The assessee was show-caused as to why the income shown under the head ‘godown rent’ should not be taxed as income from ‘house property’. The relevant discussion in the assessment order reveals that one of the pertinent points canvassed by the assessee was that similar income has been offered as ‘business income’ in other past years and, therefore, the same treatment be continued. The Assessing Officer disagreed with the assessee, and according to him, since such income was earned from letting- out of property, the same is liable to be assessed under the head ‘income from house property’. The Assessing Officer also noted that for Assessment Year 2008-09, the assessment has been reopened u/s 147/148 of the Act on the ground that income chargeable to tax had escaped assessment inasmuch as income from letting-out of the godown was wrongly assessed as ‘business income’ in the original assessment. For the said reason, the income declared as godown rent was subjected to assessment as ‘income from house property’. The aforesaid stand of the Assessing Officer was taken in appeal before the CIT(A), who has upheld the stand of the Assessing Officer by noticing that in Assessment Year 2008-09, against the order passed by the Assessing Officer u/s 143(3) r.w.s. 147 of the Act, said income has been held to be assessable as ‘income from house property’. Pertinently, at this point, we may also notice that the other captioned appeal is preferred by the assessee against the order of CIT(A) for Assessment Year 2008-09 dated 21.09.2015, which has been followed in the instant Assessment Year of 2013-14 by the CIT(A). Thus, in this background, rival counsels have made their submissions.
4 M/s. Tulsi Shipping Pvt. Ltd. 5558/Mum/2016
Before us, the learned representative for the assessee vehemently pointed out that so far as the point of consistency is concerned, it is relevant to note that qua the Assessment Years 2006-07 and 2007-08, vide orders passed u/s 143(3) of the Act dated 30.10.2008 and 06.11.2009 respectively, similar income has been held to be assessable as ‘business income’, and such orders have not been disturbed. Be that as it may, on the merits of the case, the learned representative pointed out that assessee was in the business of shipping agency at Mumbai with branches at Kandla, Jamnagar and Bangalore. It is pointed out that for the purpose of carrying on shipping agency business, assessee owns a godown at Gandhidham, Kandla of nearly one lakh square feet, which it is using for the purposes of its business. The learned representative for the assessee pointed out that the importers generally require storage facility for a short period of time for the goods imported for various reasons, namely, that the delivery of goods have to be taken from customs lest they may have to incur demurrage charges; or, the importers may have to arrange for transportation of the goods imported which may involve some time after taking clearance from the customs; and/or on account of vagaries of transportation such as traffic, road conditions, climatic conditions, etc., which may require temporary godown facility at the point of import. Assessee provides a fully-equipped warehousing facility, which predominantly caters to the requirement of importers/clients. The learned representative pointed out with reference to the Paper Book, wherein are placed invoices raised on the clients, to point out that no specific or earmarked space in the godown is rented out, and nor any specific space is let-out to specific persons or for a definite period. In other words, according to the learned representative, the manner in which assessee is earning such income is not in the nature of rent for property, but 5 M/s. Tulsi Shipping Pvt. Ltd. 5558/Mum/2016 is merely in the nature of compensation for the services rendered and, therefore, the same cannot be construed as ‘income from house property’.
On the other hand, the ld. DR appearing for the Revenue has defended the action of the Assessing Officer and has pointed out that so far as Assessment Year 2008-09 is concerned, the Assessing Officer has treated the income from godown rent as ‘income from house property’ by following the ratio of the decision of the Hon'ble Supreme Court in the case of Shambu Investment Pvt. Ltd vs CIT, 263 ITR 143 (SC); and, similar stand has been taken for Assessment Year 2013-14.
We have carefully considered the rival submissions. As the aforesaid discussion reveals, the sum and substance of the dispute revolves around the character of amount received by the assessee against giving of godown space on rent. Notably, the appellant-assessee is engaged in the business of shipping agency and warehousing. The property in question, which is a warehouse, is located at Kandla where assessee is carrying out its business activities of shipping agency, etc. The crux of the stand of Revenue is that the impugned sum has been earned by the assessee for making available its warehouse/godown space and, therefore, it was an income derived from letting-out of property and thus, the same is assessable as ‘income from house property’. No doubt, in a case of earning income from renting of property simpliciter, the income would be assessable as ‘income from house property’. So, however, it is a trite law that situations other than simple letting-out of property or activities which involve more than letting-out of property can, under given circumstances, be assessable as ‘business income’. In this context, we may refer to the judgment of Hon'ble Supreme
6 M/s. Tulsi Shipping Pvt. Ltd. 5558/Mum/2016 Court in the case of M/s. Rayala Corporation Pvt. Ltd. vs ACIT, 44 ITR 362 (SC) to point out that the manner of carrying out the activity, and the nature of dealing of property in question are determinative of the issue as to whether the income is assessable as ‘income from house property’ or ‘business income’. In the present case, the plea of the assessee is that it is maintaining godown/warehouse with the primary purpose of providing service to importers of goods to store their imported goods for a short duration. The mechanics of the operations have been explained by the assessee, which we have briefly touched upon in the earlier part of this order. It has been further pointed out that the warehousing facility is equipped to cater to the requirements of the importers/clients who may need to store their imported goods after clearance from the customs, pending their transportation to the ultimate destination of use. It is pointed out that the godown/warehousing space is made available to various parties on ‘need’ basis for varying periods of time. At the time of hearing, it was also emphasised that the goods stored range from perishable to non- perishable, consumer and industrial items, and for that reason, assessee ensures their safe storage. In the Paper Book, assessee has also furnished copies of sample invoices which support its plea that varying amount of space is made available for storage to various parties for varying periods. In our considered opinion, the manner and nature of dealings with the property undertaken by the assessee cannot be construed as renting simpliciter. At this stage, we may also refer to the judgment of the Hon'ble Madras High Court in the case of CIT vs NDR Warehousing (P.) Ltd., 372 ITR 690 (Madras), which has been relied upon by the appellant before us and which is directly on the point. As per the Hon'ble Madras High Court, the income earned from letting-out of warehouse and godown was chargeable
7 M/s. Tulsi Shipping Pvt. Ltd. 5558/Mum/2016 under the head ‘income from business’ having regard to the facts and circumstances of the case. In the case before the Hon'ble High Court, assessee was engaged in the business of warehousing, handling and transport business and it was providing storage facility to manufacturers, traders and other concerns engaged in warehousing activity and the services provided included several auxiliary services such as pest control, preventive measures against decay of goods stored due to vagaries of moisture/temperature, fungus formation, etc., besides security and protection of goods stored. In this context, the decision of the Mumbai bench of the Tribunal in the case of Vora Warehousing (P.) Ltd. vs. ACIT, [1999] 70 ITD 518 (Mum)(SMC) is also relevant where it has been observed that the warehouses constructed with facility to store goods are to be considered as ‘commercial assets’ and income realised by letting-out such facility was assessable as ‘business income’. Considered in the aforesaid light, in our view, in the present case, the Assessing Officer was not justified in considering the income from godown rent as ‘income from house property’.
Apart therefrom, there is also the principle of consistency inasmuch as for Assessment Years 2006-07 and 2007-08, assessments have been completed u/s 143(3) of the Act and copies of the respective orders have been placed in the Paper Book at pages 12 and 15 respectively. In the assessment order dated 31.10.2008 for Assessment Year 2006-07, there is an elaborate discussion in the context of such activity inasmuch as the Assessing Officer has discussed the allowability of expenditure incurred on godown on various heads and partial disallowance has been made in terms of Sec. 37(1) of the Act. Quite clearly, the Assessing Officer was conscious of 8 M/s. Tulsi Shipping Pvt. Ltd. 5558/Mum/2016 assessing the income from godown rent under the head ‘income from business’, which he has not disturbed. At the time of hearing, the learned representative also referred to a written communication dated 23.09.2008 addressed to the Assessing Officer in the course of the assessment proceedings for Assessment Year 2006-07, wherein it has been categorically asserted that the receipts constitute business receipts, being a part of its business. There is no repudiation to such a specific plea set-up by the assessee and, in fact, in the assessment order, the income has been assessed as ‘business income’. Similar is the situation in Assessment Year 2007-08. This clearly points out that in the instant assessment year there is a departure made by the Assessing Officer, which is impermissible unless it can be shown that there is a change of facts or a change in law. It goes without saying that in such a circumstance, the onus is on the Assessing Officer to justify the departure. We have perused the orders of the authorities below in the above background and find that there is no case being made out, as to why the departure, except by referring to the judgment of the Hon'ble Supreme Court in the case of Shambhu Investment (P) Ltd. (supra). So far as the judgment of the Hon'ble Supreme Court in the case of Shambhu Investment (P) Ltd. (supra) is concerned, we find that the same was available with the Assessing Officer even when the assessments for Assessment Years 2006-07 and 2007-08 were completed u/s 143(3) of the Act. Secondly, the judgment of the Hon'ble Supreme Court in the case of Shambhu Investment (P) Ltd. (supra) is rendered in the background of its own facts as they were emerging from the order of the Hon'ble High Court reported in CIT vs Shambhu Investment Pvt. Ltd., 249 ITR 47 (Kolkata). In fact, a perusal of the judgment of the Hon'ble Kolkata High Court in the case of Shambhu Investment Pvt. Ltd. (supra) would reveal that the Hon’ble Court
9 M/s. Tulsi Shipping Pvt. Ltd. 5558/Mum/2016 clearly negated that merely because the income is attached to any immoveable property, that cannot be the sole factor for assessment of such income as ‘income from house property’. It further prescribed that if the main intention of the assessee is to let-out the property, the income thereof must be considered as ‘rental income’ or ‘income from house property’, whereas if the primary object is to exploit the immoveable property by way of complex commercial activity, in that event, it should be held as a ‘business income’. In the background of the aforesaid legal position, the Hon'ble High Court found on facts of the case before it that the income was earned merely from letting-out of property and, therefore, held it to be assessable as ‘income from house property’. The said legal position has been approved by the Hon'ble Supreme Court in its judgment reported in the case of Shambhu Investment (P) Ltd. (supra). So far as the facts in the instant case are concerned, there is no case made out by the Revenue as to how it can be said that the manner in which the assessee has dealt with the impugned property, it was with the intention of earning rental income only. In fact, providing of warehousing/godown space to various clients at the port of import is in assessee’s line of business of shipping agency, etc. and it is a case where the property has been exploited for commercial business activity which, inter-alia, included providing of warehousing space. Therefore, in our view, the decision in the case of Shambhu Investment (P) Ltd. (supra) does not help the case of Revenue, having regard to the instant fact-situation.
Further, in Assessment Year 2008-09, the CIT(A) has also referred to the judgment of the Hon'ble Bombay High Court in the case of CIT vs J.K. Investors (Bombay) Ltd., 248 ITR 723 (Bom.) to profess that where the rental income is earned alongwith service charges from the rented property, the 10 M/s. Tulsi Shipping Pvt. Ltd. 5558/Mum/2016 same are liable to be assessed as ‘income from house property’. We have carefully perused the judgment of the Hon'ble Bombay High Court in the case of J.K. Investors (Bombay) Ltd. (supra) and find that the same is totally inapplicable in deciding the controversy before us. In fact, the point which arose for consideration before the Hon'ble High Court has been culled out by the Hon'ble High Court in the following words :-
“The short point which arises for consideration in this appeal is : Whether notional interest on interest-free deposit received by the assessee against letting of property could be taken into account in cases falling under section 23(1)(b) of the Income-tax Act, 1961 ? In other words, whether notional interest would form part of actual rent received or receivable under section 23(1)(b) ?”
The aforesaid clearly establishes that the issue before the Hon'ble High Court was the determination of the amount of income assessable in terms of Sec. 23(1)(b) of the Act from renting of a property. Quite clearly, the issue before us stands on an entirely different footing and, therefore, the same cannot be governed by the ratio of the judgment of the Hon'ble Bombay High Court in the case of J.K. Investors (Bombay) Ltd. (supra). Thus, the reliance placed by CIT(A) on said decision is clearly untenable.
In this background, we, therefore, conclude by holding that the lower authorities have erred in assessing the receipts from warehousing activity as ‘income from house property’ instead of treating it as ‘business income’. Accordingly, we set-aside the order of the CIT(A) and direct the Assessing Officer to recompute the income by treating the receipt from warehousing activity as ‘business income’. Thus, on this aspect, assessee succeeds.
11 M/s. Tulsi Shipping Pvt. Ltd. 5558/Mum/2016
Insofar as Assessment Year 2008-09 is concerned, the controversy stands on an identical footing so far as the merits of the issue are concerned. Therefore, our decision in appeal of assessee being for Assessment Year 2013-14 shall apply mutatis mutandis to the appeal of assessee for Assessment Year 2008-09 also.
So, however, in Assessment Year 2008-09 the captioned proceedings are as a consequence of assessment being reopened by issuance of notice under Sec. 147/148 of the Act. In the original assessment finalised u/s 143(3) of the Act dated 06.11.2009, the income from godown rent was assessed as ‘business income’. The assessee has also challenged the validity of the proceedings initiated under Sec. 147/148 of the Act on the ground that the same is based on a mere change of opinion, with facts remaining the same. In this context, our attention has been drawn to the reasons recorded for reopening the assessment, a copy of which is placed at page 27 of the Paper Book. As per the reasons recorded, the Assessing Officer noted that the receipts from godown rent and facilities have been assessed as ‘business income’ instead of ‘income from house property’ and that the same should have been chargeable to tax under the head ‘income from house property’ as per the judgment of the Hon'ble Supreme Court in the case of Shambhu Investment (P) Ltd. (supra). Thus, the solitary reason weighing with the Assessing Officer to reopen the assessment in order to tax the receipts from godown rent and facilities as ‘income from house property’ was based on the judgment of the Hon'ble Supreme Court in the case of Shambhu Investment (P) Ltd. (supra). Quite clearly, the judgment of the Hon'ble Supreme Court is dated 21.01.2003 and it was available even at 12 M/s. Tulsi Shipping Pvt. Ltd. 5558/Mum/2016 the time of the original assessment. Pertinently, in this case, when the Assessing Officer recorded the reasons to reopen the assessment for Assessment Year 2008-09, he was conscious that for Assessment Years 2006- 07 and 2007-08, assessments have been completed u/s 143(3) of the Act and such income has been accepted as ‘business income’. Under these circumstances, it was imperative for the Assessing Officer to record the reasons as to why such assessments were not correct, especially considering the fact that the judgment of the Hon'ble Supreme Court in the case of Shambhu Investment (P) Ltd. (supra) was all along available to the assessing authority at the time of assessments made u/s 143(3) for Assessment Years 2006-07, 2007-08 and 2008-09. There is no attempt made by the Assessing Officer to refer to any new tangible material say as to why the departure from the accepted stand of assessing the receipts from godown rent and facilities as ‘business income’, was required to be made. In the earlier part of our order, we have already noted that the ratio of the judgment of the Hon'ble Supreme Court in the case of Shambhu Investment (P) Ltd. (supra) is, in any case, not attracted to the facts of the case. Even if one is to consider that at the stage of recording of reasons what is of importance is to formulate only a prima facie opinion, yet, in the present case, we find that such an onus has not been discharged by the Assessing Officer inasmuch as he does not make out any case for making a departure from the earlier accepted stand in the scrutiny assessments. For this reason also, we are inclined to uphold the stand of the assessee that the initiation of proceedings under Sec. 147/148 of the Act is flawed and is based on a mere change of opinion without there being any new material or any change in facts or law post the original assessment. Thus, on this aspect also, assessee succeeds.
13 M/s. Tulsi Shipping Pvt. Ltd. 5558/Mum/2016
In the result, both the appeals of the assessee are allowed, as above.
Order pronounced in the open court on 1st February, 2018.