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Assessee by : Shri Amar Gahlot (AR) Revenue by : Shri Akhilendra Jadav (DR) Date of hearing : 25.01.2017 Date of Pronouncement : 08.03.2017 Order Under Section 254(1) of Income Tax Act PER PAWAN SINGH, JUDICIAL MEMBER: 1. This appeal by assessee u/s 253 of the Income-tax Act (‘the Act’) is directed against the order of Ld. Commissioner of Income-tax (Appeals) [for short ‘the CIT(A)] –37, Mumbai dated 01.09.2014 for Assessment Year (AY) 2010-11. The assessee has raised the following grounds of appeal are that: On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A) grossly erred in upholding rent income as income from business and disallowance made by the learned A.O of deduction of Rs. 36,00,000/- claimed u/s 24(a) of the Act. The appellant prays that the rent income should be treated as income from house property and addition of Rs 36,00,000/- with respect to deduction claimed u/s 24(a) may please be deleted.
2. Brief facts of the case are that the assessee-company is engaged in the business of Boat pleasure, Cruisine and letting out of premises. The assessee filed its return of income for relevant AY on 07.09.2010 declaring total income at Rs. 54,60,000/-. The assessment was completed u/s 143(3) of the Act on 22.03.2013.
M/s Sea Scan Marine Services Pvt. Ltd.
The Assessing Officer (AO) while framing the assessment order treated the rental income of Rs. 1,20,00,000/- as “Business Income”. On appeal before the ld. CIT (A), the action of AO was confirmed. Thus, further aggrieved by the order of CIT(A), the assessee has filed the present appeal before the Tribunal.
We have heard the ld. Authorized Representative (AR) of the assessee and ld. Departmental Representative (DR) for the Revenue and perused the material available on record. Ld. AR of the assessee argued that for the Financial Year (FY) under consideration, the assessee has shown rental income of Rs. 1,20,00,000/- under the head “Income from House Property” and claimed standard deduction u/s 24(a) of the Act @ 30% i.e. Rs. 36,00,000/-. The AO treated the rental income under the head “Profit & Gain from Business and Profession” holding that rental income was consistently offered as “Business Income” and there was no change in the facts relating to that income. It was further argued that the main object of the assessee-company is not lease out the property. The property is merely let out and no other business activity is carried out in relation to property let out by assessee. Letting out is not a systematic and organized activities of the assessee. The letting of the property is in the capacity of a house owner and not in the capacity as a trader or businessmen. In support of this submission, the ld. AR of the assessee relied upon the following decisions:
1. 1. United Commercial Bank Ltd. Vs. CIT [1975] 32 ITR 688 (SC). 2. East India Housing and Land Development Trust Ltd. [1961] 42 ITR 49 (SC). 3. Karanpura Development Co. Ltd. Vs. CIT [1962] 44 ITR 362(SC). 4. Sultan Brothers (P) Ltd. Vs CIT [1964] 51 ITR 353 (SC). 5. Chennai Properties & Investments Ltd. vs. CIT [2015] 373 ITR 673. 6. Abdul Qayume Vs. CIT [1990] 50 Taxman 171 (All). 7. Profile Consultancy Services (P) Ltd. Vs CIT [2016] 161 296 (Mumbai-Trib.).
4. On the other hand, ld. DR for the Revenue supported the order of authorities below and argued that the assessee consistently was showing “Business Income” from letting out of the property. The assessee was receiving the rental income by showing rental income as student accommodation and there has been no change in the nature of income received by the assessee. The rental income of the assessee has increased so to claim the standard deduction @ 30%, the assessee has shown letting income under the head “Income from House Property” whereas the actual 2 M/s Sea Scan Marine Services Pvt. Ltd. expenses incurred by the assessee on repair and maintenance of property is only Rs. 76,085/-. No justification was provided by assessee for divergent approach for the AY under consideration. The nature of activities, modus operendi, manner of keeping record and presentation of rental income in the year under consideration 5. are same as in the preceding years. The assessee intends to change the head of income only to reduce its tax liability.
We have considered the rival contention of the parties and gone through the orders of authorities below. The assessing officer while making assessment noticed from the statement of computation of income that assessee has shown rental income of Rs.120,00,000/- under the head ‘income from house property’ and claimed deduction under section 24(a) @ 30% of Rs.36,00,000/- and offered income of Rs. 84,00,000/-.The AO further noticed that the assessee consistently offering such rental income under the head “ Business Income” and was assessed as such and there is no material change in facts and other circumstances, as well as in the nature of income and the activities. The assessee was asked to explain the reason of change of head of income. The assessee filed its reply and contended that during last few years the income was treated under the head ‘business income’ in the return of income. It was further contended that the predecessor of AO pointed out/ asked the assessee why such income should not be treated as income from house property. And the assessee to avoid the litigation with the department has changed the head of income. The contention of the assessee was not accepted by AO holding that the assessee had been receiving rental income from student accommodation and there is no change. The AO further concluded that the assessee claimed deduction of Rs. 36 lakhs, however only a sum of Rs.76,085/- was spent on repair and maintenance and treated the rental income as business income on the principal of consistency when there was no change in the nature of income and other incidental facts. On first appeal before first appellate authority the facts were independently examined by ld CIT(A) qua the issue raised by assessee. The ld CIT(A) asked the assessee to furnish the details of block of asset leased and the details of depreciation claimed from the AY 2004-05 till AY 2010- M/s Sea Scan Marine Services Pvt. Ltd.
No details were furnished by assessee till 17/07/2014. Some statements regarding the queries raised by ld CIT(A) were filed by assessee on 28/08/2014, from which the facts were not verifiable as to which are the asset used for Marine training. The ld CIT(A) concluded that assessee company executed two agreements , one in respect of buildings and other in respect of furniture and fixture. The assessee company derived the benefits claiming depreciation all the years and now has changed the head the income only to claim standard deduction under section 24(a) which is higher than the depreciation comparative to repairs and maintenance. We have noticed that the assessee has not filed copy of Memorandum of Association of Assessee Company for the reasons best known to them. The Audit report filed by the assessee reveals that nature of ‘business or profession’ is Boat pleasure, Cruising, renting of properties [para 8(a)] and there is no change in the nature of business or profession [ para 8(b) page 32of PB]. The ratio of the various decisions is not applicable as the facts of the present case are at variance. We have seen that the order of ld CIT (A) is reasoned one and does not require any interference at our end. The facts of the various decisions relied by the assessee are at variance and the ratio of these decisions are not applicable on the facts of this case. Hence, the ground of appeal
raised by assessee is dismissed. No order as to cost. 7. In the result appeal of the assessee is dismissed. Order pronounced in the open court on this 8th day of March, 2017.