DCIT, CIRCLE - 7(1), KOLKATA, KOLKATA vs. M/S. DHANUKA VENTURES PVT. LTD.,, KOLKATA

3 M/s Dhanuka Ventures Pvt. Ltd. A.Yr. 2012-13 5. The assessee submitted that it had been earning agency commission from M/s Pantaloon Retail (India) Ltd (PRIL) for rendering services in connection with stock and display, for retail sale, the products and goods of PRIL at its property located at 49/1, Leela Roy Sarani, (Gariahat Road), Kolkata – 700019 , which also represents retail outlet of PRIL. The assessee pursuant to an agreement with PRIL had agreed for commercial utilization of the immovable property owned by it for operating as a showroom. The assessee pursuant to the agreement had also agreed to provide various services and incur expenses for the purpose of maintaining, managing and assisting PRIL to put up and use the said property as a showroom. As against this business proposal of providing of the aforesaid services, the assessee earns 10% of the gross sales from the showroom as commission, which is offered to tax by the assessee as income from business. During the year under consideration, the assessee earned agency commission of Rs 3,57,08,634/- and offered to tax as business income in consonance with the treatment given by it in the earlier years, which has been accepted by the department in all the earlier years preceding the Asst Year 2010-11. It was submitted that the careful reading of various clauses in the agreement stipulates that the activities were carried out by the assessee with a motive to earn profit and not for the sake of mere letting out of its property. The agreement with PRIL had been made operative for a considerable period of time (i.e 5 years) signifying that the services were being rendered continuously during the said period. For providing the various services as per the agreement, the assessee had to arrange for / obtain permission s/ clearances/ facilitations from various Government bodies. It had to maintain staff and managers and take various administrative measures to ensure smooth running of the retail outlet / showroom premises. All these are continuous organized activities undertaken for a set purpose of carrying on business as managers and maintainers of the retail outlet/ showroom premises . Hence it was pleaded that the assessee had taken up the venture of setting up a showroom at the premises owned by it and for that matter all the aforementioned activities undoubtedly constitute ingredients of an organized business 3

4 M/s Dhanuka Ventures Pvt. Ltd. A.Yr. 2012-13 venture. The assessee placed reliance on the decision of Hon’ble Supreme Court in the case of Karnani Properties Ltd vs CIT reported in 82 ITR 547 (SC).

5.1. In addition to the above, it was pleaded that rental income pre-supposes existence of an owner – tenant relationship between the receiver and the payer of the rent. One of the principal characteristics of such relationship is that the tenant must enjoy tenancy rights, which he acquires the moment he becomes a tenant. Section 55(2)(a) of the act even speaks of the cost of acquisition of such tenancy rights for the purpose of computation of capital gains on transfer thereof. However, in the agreement that the assessee company entered into with PRIL, it has been specifically provided that the user of the services provided by the owner shall not have any tenancy rights.

5.2. The assessee further submitted that the Kolkata Municipal Corporation (KMC) had revised the valuation of the area in which the showroom has been set up by the assessee together with PRIL, by alleging that the said premises had been let out to PRIL and hence had sought to levy higher property tax. In this connection, the assessee filed a writ against KMC before the Hon’ble Calcutta High Court. The Hon’ble Calcutta High Court after examining the agency agreement, vide its order dated 15.10.2004 observed as under:- “I have gone through the agreement, therein nowhere I find that the writ petitioner has parted with the possession of the premises in question or has given control and domain over the property to the Pantaloons Fashion India Ltd.. It appears that it is merely business deal. As a remuneration of such business deal the payment of commissions has been fixed according to yearly turnover. The Pantaloon has been made party to the WRIT petition they have not claimed any right of tenancy. Therefore, it is absurd to guess that subject agreement is otherwise than what is apparent particularly when the alleged tenant does not claim so. It is hard to believe that the tenant would pay any rent or occupation charges without having occupancy right.”

6 M/s Dhanuka Ventures Pvt. Ltd. A.Yr. 2012-13 relied upon in the order of the ld CITA’s order squarely supports the case of the assessee. We find that the assessee had provided various arrangements on a daily basis to the user, to ensure smooth and efficient running of the retail outlet/ showroom which reflect a clear manifestation of an organized activity carried out by the assessee for a set purpose of earning profits out of commercial exploitation of the property owned by it. In consideration of rendering the services as per the agreement, the assessee is compensated in the form of commission calculated at 10% of gross sales in the said retail outlet /showroom. Moreover, the Hon’ble Calcutta High Court in the context of writ proceedings on the levy of higher property tax for the subject mentioned property, had held supra that PRIL does not possess any tenancy rights and the agreement entered into by the assessee with PRIL is only a mere business arrangement. In this background, there is no need to take a different view on the nature of the agreement entered into by the assessee with PRIL. Hence it could be safely concluded that the said receipt of agency commission would squarely fall under the ken of business income and to be assessed accordingly. Moreover, we also find that the said treatment of assessing the agency commission as business income and allowing depreciation thereon, has been allowed by the department up to Asst Year 2009-10 and out of which, the assessments for the Asst Years 2006-07 , 2008-09 and 2009-10 were completed u/s 143(3) of the Act. Hence there is no reason to take a divergent view during the year under appeal on the same set of facts. Reliance in this regard is placed on the decision of Hon’ble Supreme Court in the case of Radhasaomi Satsang vs CIT reported in 193 ITR 321 (SC) enunciating the principles of consistency to be followed by the revenue, when there is no change in facts and circumstances of the case.

8.1. Since the agency commission has been directed to be assessed as business income as above, the allowability of depreciation on the subject mentioned property becomes automatic . Similarly there is no need to disallow any expenses as not relatable to business as admittedly, the ld AO had not stated that the said expenditures which were 6

7 M/s Dhanuka Ventures Pvt. Ltd. A.Yr. 2012-13 disallowed are not meant for business purposes of the assessee. The same were disallowed only on the ground that the agency commission is assessed as house property income against which no expenses could be allowed except allowing flat deduction of 30% on net annual value. Hence we direct the ld AO to delete the disallowance of depreciation and expenses made in the assessment as the agency commission has been directed to be assessed as income from business.