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Income Tax Appellate Tribunal, “C” BENCH : BANGALORE
Before: SHRI SUNIL KUMAR YADAV & SHRI INTURI RAMA RAO
Per Sunil Kumar Yadav, Judicial Member
This appeal is preferred by the assessee against the order of CIT(A), interalia, on the following grounds:
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The order of the Commissioner of Income-tax (Appeals) is opposed to law and to the principles of natural justice in that the learned CIT(A) had failed to consider all the submissions of the appellant and also the citations provided by the appellant to support its claim and consequently the order is liable to be set aside.
On the facts the learned Commissioner (A) erred in following his predecessor order which was set aside by the Appellate Tribunal and having failed to consider the case independently alter applying his mind with regard to the submissions made by the appellant, the order is opposed to law and liable to be cancelled.
Without prejudice, the learned Commissioner (A) erred in holding the income of the appellant realized out of the software park was required to be assessed under the head property', without appreciating that the activity was business activity and the income realized therefrom was required to be assessed under the head income from business' as claimed by the appellant.
The learned Commissioner (A) erred in following the judgments of the Hon'ble Supreme Court which were distinguishable and on the other hand the Supreme Court judgments and also the jurisdictional High Court judgments cited by the appellant fully support the claim of the appellant and they had also binding on the Commissioner (A) and accordingly he ought to have followed the same and allowed the claim of the appellant.
The learned Commissioner (A) having failed to consider the judgments of the jurisdictional High Court without adequate reason, the order passed by him was opposed to law and liable to be
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cancelled.
The learned Commissioner (A), on the facts and in the circumstances ought to have accepted the explanation of the appellant and held that the income from software park was required to be assessed only under the head income from business'.
The learned Commissioner (A) ought to have allowed the claim of depreciation and interest on the borrowed funds utilized for the business were liable to be allowed in full.
Without prejudice, the additions/ disallowance are excessive, arbitrary and unreasonable and ought to be reduced substantially.
The learned Commissioner (A) erred in sustaining the interest u/s.234B & 234D of the Act.
For these and other grounds that may be urged at the time of hearing of the appeal the appellant prays that the appeal may be allowed.
Though various grounds are raised, but they all relate to the nature
of receipt of income received on account of leasing of property. The
assessee has claimed certain income received on account of leasing of
property as an income from house property. The assessee has also
treated certain income received on account of providing certain services to
lessee as business income. But the AO has treated the entire receipt of
income as income from house property.
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The assessee has preferred an appeal before the CIT(A) with the
submission that two separate agreements were executed for leasing of
immovable property and for providing certain services to the lessee. He
also placed reliance upon the judgment of judicial High Court in the case of
CIT Vs. S. Mohan Kumar (HUF) in Income Tax Appeal No. 325/2009 dated
7.2.2011 with the submission that wherever the income received on
account of leasing of property and providing of service is separable, the
income received on account of rendering of services shall be treated as a
business income. The CIT(A) was not convinced with the contentions of
the assessee and he confirmed the assessment order.
Now the assessee is in appeal before the Tribunal. The learned
counsel for the assessee has invited our attention to the fact that in the first
round of appeal, the order of the CIT(A) was set aside and the matter was
restored to him to readjudicate the issue after affording opportunity of being
heard to the assessee. The CIT(A) has reiterated its earlier order and
made the additions. The learned counsel for the assessee further invited
our attention that in the succeeding year i.e., 2006-07 no disallowance was
made by the AO in this regard. Once they have accepted, the treatment
given to the receipt of a particular income in one year, they cannot take a
contrary view in different assessment years.
The learned DR placed the reliance upon the order of the CIT(A).
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Having carefully examined the order of the lower authorities in the
light of the rival submissions, we find that there were two separate
agreements executed viz., for leasing out the immovable property to Tata
Consultancy Services and the other for providing certain amenities. In both
the agreements, different considerations were stipulated. Therefore the
stipulated amount received on account of leasing out the immovable
properties and also for rendering certain services/amenities can be
separable.
We have also carefully examined the judgment of jurisdictional High
Court in the case of CIT vs. S. Mohan Kumar (HUF) (supra). We find that
in this judgment, their Lordship has categorically held that wherever the
amount received on account of leasing out of the immovable properties and
rendering of certain services is not separable under both the heads, the
entire amount shall be treated as an income from house property but
wherever the amount is separable on account of execution of two
agreements, the consideration received on account of rendering
services/amenities be treated as a business income. For the sake of
reference, we extract the relevant portion of the judgment as under:
“Answering the said question, they held the rent from the building will be computed separately from the income from the furniture and fixtures and in the case of rent from the building the appellant- will be entitled to the allowances mentioned in sub- section (4) of Section 12 and in the case of income from the furniture and fixtures, to those mentioned in sub-section (3), and that no part of the income can be assessed under Section 9 or under Section 10. Therefore, in substance it was held the income falls under the heading of income from other sources and not income from business. Therefore, the Supreme Court did not go into
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the question whether income from the furniture and fixtures would fall under the income from house property at all. As such, the said judgment has no application to the facts of this case. 16. In this case the question for consideration is whether the income from furniture and fixtures is to be put under the head income from house property'. As both the leases are contained in very same document the said judgments are of very little assistance in deciding the case on hand. However, the Madras High Court in the case of TARAPORE AND COMPANY v. COMMISSIONER OF INCOME TAX reported in (2003) 259 I.T.R. 389 dealing with an identical issue held as under:- “That the actual rent received by the owner (assessee) would constitute the basis for determining the annual value and it was the value which would have to form the basis for determining the income from house property and for allowing the deduction from income from house property to the extent permitted under the other provisions of the Income-tax Act. In making such computation, there was no provision to add other amounts received by the owner of the building as representing the value of the service charges rendered by him to his tenants as income from house property. Hence, the Tribunal was right in holding that the receipts from service charges were liable to be assessed as income from other sources and not income from house property.” 17. Therefore, from the aforesaid statutory provisions it is clear that if the income is to be chargeable under the heading of 'income from house property' it should be the income which represents the annual value of property consisting of any building or lands appurtenant thereto of which the assessee is the owner and only such income shall be chargeable to income tax under the head 'income from house property.' When Section 56(2)(iii) makes it explicitly clear that the income from machinery or fixture belonging to the assessee and let out on hire, if is not chargeable under the heading of 'profits and gains of business or profession', then it- has to be charged to income tax under the heading 'income from other sources.' If the aforesaid income is inseparable from letting out the said plant machinery other than the income of such letting out cannot if it is not chargeable to income tax under 'profits and gains or profession', is chargeable under the head 'income from other sources’. Therefore under these circumstances, the income derived from letting out the furniture and fixture is not chargeable under the heading of 'income from house property’.”
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It is also obvious from the record that in the succeeding year, the revenue did not object the treatment given by the assessee to receipts on account of leasing of property and rendering of services. Once the revenue has accepted the treatment given by the assessee to a particular receipt, they cannot take contrary view in different assessment year. In the light of these facts and the legal propositions laid down by jurisdictional High Court, we are of the view that the income received by the assessee from rendering services by virtue of separate agreement shall be treated as business income and the receipts received on account of leasing out of property shall be treated as income from house property as shown by the assessee in the return of income. Accordingly, we set aside the order of the CIT(A) and restore the matter back to the file of the AO to compute the income from house property as well as business income in terms indicated above.
In the result, the appeal filed by the assessee is allowed for statistical purposes.
Pronounced in the open court on this 31st day of March, 2017.
Sd/- Sd/- (INTURI RAMA RAO) (SUNIL KUMAR YADAV) Accountant Member Judicial Member Bangalore. Dated: 31st March, 2017. /NShylu/
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Copy to:
Appellants 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. 6. Guard file
By order
Assistant Registrar, ITAT, Bangalore.