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Income Tax Appellate Tribunal, MUMBAI BENCHES, ‘G’ MUMBAI
Before: Shri Joginder Singh, & Shri Manoj Kumar Aggarwal
आदेश / O R D E R
Per Joginder Singh(Judicial Member) The assessee is aggrieved by the impugned order dated 29/12/2010 of the Ld. First Appellate Authority, Mumbai. The assessee has filed precise grounds of appeal out of which ground no.1 treating the club rent of Rs.45,71,097/- as rental income and as such receipts falls under the head ‘Income from house property’ against the claim of the assessee as business receipt, is concerned, the ld. DR, Ms. Anupama Singhla, contended that the impugned issue is covered against the assessee by order of the Tribunal dated 28/11/2010 (ITA No.5451/Mum/2009) for Assessment Year 2005-06. The ld. counsel for the assessee, Shri Prakash Pandit, did not controvert the assertion made by Ld. DR.
We have considered the rival submissions and perused the material available on record. In view of the above, we are reproducing hereunder the relevant portion from the aforesaid order of the Tribunal dated 26/11/2010:-
“3. Brief facts of the case are that the assessee is engaged in the business activities of club house and resort and provides recreation facilities of swimming pool, indoor games, joyride and entertainments. The assessee’s resort is located in Mumbai Pune High way at Village Vineigaon, Taluka, Khalapur, Dist. Raigad. The assessee took over the management of the existing company. During the relevant year to the assessment year under consideration, the development activities of the building were also in progress. The assessee leased out the club rooms and other
M/s Mount View Club & Resorts Pvt. Ltd. infrastructures in the building to MMTI Educational Research Trust, Veera Desai Road, Andheri (W), Mumbai for a sum of Rs.20,52,000/- The assessee admitted the rental income as business income. The AO questioned the nature of the income and asked the assessee to explain the nature of rent. The assessee has stated before the AO as the development activities of the clubrooms and other work was in progress, the assessee thought it fit to commercially exploit letting of the said property temporarily for a period of three years by entering into agreement with the said MMTI. The main contention of the assessee before the AO was that the assessee has exploited the business premises/assets commercially and the income arisen there from is nothing but income from business. The AO did not accept the explanation of the assessee. The AO noted that the TDS has been deducted from the income which shown as rent received from MMTI Educational. Research Trust. Accordingly the AO held that the income received under the head CLUB RENT is nothing but the “income from house property”. Consequently, the AO also disallowed the claim of the expenses. The AO has relied upon the decision of the Hon. Supreme Court in the case of M/s Shambhu Investments Private Limited V/s CIT (263ITR 143).
On appeal, the learned CIT(A) has confirmed the disallowance made by the AO by holding as under :
“2.4 Now, in the instant case, I have already held that the appellant has not started the business activity as per its own objectives, as given in the Memorandum of Association. Hence, the AO has rightly held that this is not a case of exploiting the business assets. The property has been leased out to an educational institution as owner of the property. Hence the income is taxable under the head” Income from House property”. This ground of appeal is dismissed”
Before us, the learned AR of the assessee has submitted that the part of the business premises was let out to MMTI Educational. Research Trust for a period of three years. The assessee surrendered the club and resort business and the part of M/s Mount View Club & Resorts Pvt. Ltd.
its premises was let out for a temporary period in order to exploit the business premises till the development and construction work is completed. Therefore, the assessee was exploited the business asset for making the profit in that business. The assessee has been doing business from the other part of the business premises. He has relied upon the decision of the hon.Supreme Court in the case of Universal Plast Ltd. v. Commissioner of Income-tax reported in [1999] 237 ITR 454 (SC) as well as the decision of the Hon. Jurisdictional High Court in the case of Commissioner Of Income Tax vs Mohiddin Hotels Pvt. Ltd. And Anr. reported in 200 CTR 329.
On the other hand, the learned DR has submitted that the assessee had not started the business activities as per its own objective as given in the Memorandum Of Association. The portion of the premises was let out for the purposes of earning the income to the MMTI Educational. Research Trust for holding the classes and therefore even the premises was let out for carrying out any business of resort or hotels as per the business object of the assessee. Therefore, it is the case of earning the income by letting out the business premises and not exploiting the business asset. He has relied upon the decision of the Hon. Supreme Court in the case of M/s Shambhu Investments Private Limited V/s CIT (263ITR 143).
We have considered the rival contentions and relevant record. It is undisputed fact that the assessee had not completed its construction work of the premises for running the business of club and resort. The part of the premises was leased out to MMTI Educational. Research Trust for a period of three years as per the lease agreement. Since the development work of the business premises was in progress, therefore, the portion which was leased out by the assessee was never utilized by the assessee for its business activities. It is not the case of letting out the business asset which is ready for running the business of resort or club but the assessee has simply let out the premises to an educational
M/s Mount View Club & Resorts Pvt. Ltd. institution for conducting the education classes which has no connection with the business activities of the assessee. Therefore, it is not a case of letting out of premises alongwith the machinery, furniture, fixtures and electrical fittings which are necessary for conducting the business activity for the assessee’s business. But this is a case of simple letting out the building premises. Therefore, the assessee has not made out the case of exploitation of the business asset for making the profit in respect of using the same for its own business. In the case of In Universal Plast Ltd. v. Commissioner of Income tax, the Hon. Supreme Court has decided the issue in he facts where the assessee leased out the factory not for running out of the business but it was just a make-shift transient alternative means of commercial exploitation of the commercial assets when the assessee suffered loss for consecutive two years. Therefore, the said decision is not applicable to the present case where the assessee has not all utilized the premises in question for its own business. Moreover, the Hon. Supreme Court has summarized the proposition at page 461 of the reporter as under :
“(1) no precise test can be laid down to ascertain whether income (referred to by whatever nomenclature, lease, amount, rents, licence fee) received by an assessee from leasing or letting out of assets would fall under the head "Profits and gains of business or profession"; (2) it is a mixed question of law and fact and has to be determined from the point of view of a businessman in that business on the facts and in the circumstances of each case, including true interpretation of the agreement under which the assets are let out; (3) where all the assets of the business are let out, the period for which the assets are let out is a relevant factor to find out whether the intention of the assessee is to go out of business altogether or to come back and restart the same; (4) if only a few of the business assets are let out temporarily, while the assessee is carrying out his other business activities, then it is a case of exploiting the business assets otherwise than employing them for his own use for making profit for that business; but if the M/s Mount View Club & Resorts Pvt. Ltd. business never started or has started but ceased with no intention to be resumed, the assets also will cease to be business assets and the transaction will only be exploitation of property by an owner thereof, but not exploitation of business assets.”
From the decision of the Hon. Supreme Court it is clear that no prescribed test can be laid down to ascertain whether the lease/rent received by the assessee would fall under the head “profit and gain of business or profession or “income from house property”. The issue has to be determined on the basis of the facts and circumstances of the case. It was also held that if the assessee never started business or has started the business but ceased but no intention to resumption then the asset also will ceased to be a business asset. In the case of Commissioner Of Income Tax vs Mohiddin Hotels Pvt. Ltd. And Anr. (supra) the leased out premises was the hotel along with the business. Therefore, it was held that the intention was to exploit the hotel as business asset. In the case in hand, it was not leased out of premises along with the business but it was only a part of incomplete premises leased out for the purpose of other than the business activities. Therefore, in view of the decision of the Hon. Supreme Court in the case of Shambhu Investment (supra), the rent received by the assessee is assessable as income from house property. Accordingly, we do not find any reason to interfere with the impugned order of the CIT(A).
The appeal of the assessee is dismissed.”
We find that in the aforesaid order, the Tribunal has duly considered the factual matrix along with the decision from Hon'ble Apex Court in the case of M/s Shambhu Investments Pvt. Ltd. vs CIT 263 ITR 143 (SC) and another decision in Universal Plast Ltd. vs CIT (1999) 237 ITR 454 (SC) as well as the decision from the Hon'ble jurisdictional High Court in the case of CIT vs Mohiddin Hotels Pvt. Ltd. &
M/s Mount View Club & Resorts Pvt. Ltd.
Ors. 200 CTR 329 and then reached to a conclusion. Neither contrary facts were brought to our notice by the assessee nor any decision in its support, therefore, following the order of the Tribunal for Assessment Year 2005-06, in the case of assessee itself, we dismiss this ground of the assessee. It is pertinent to mention here that even, during hearing, the ld. counsel for the assessee fairly agreed that this ground is covered against the assessee.
The next ground pertains to adding a sum of Rs.10,69,979/- being the difference between the sale consideration received by the appellant and the value computed by the Valuation Officer u/s 50C(2) of the Income Tax Act, 1961 (hereinafter the Act) for two plots of land, sold by the assessee while computing the capital gains. The ld. counsel for the assessee drew our attention to various pages of the paper book by contending that the DVO reduced the value of the property by relying of various sale instances and conveniently ignored the value of the adjacent plot. Our attention was invited to pages 92 to 95, 98 and 99 of the paper book by contending that the DVO relied upon the instances of the plots, which are of lower value, thus, contradictory stand was taken with respect to the plot of the assessee. It was pointed out that the method of valuation adopted by the DVO itself is wrong, however, in the case of the assessee, he has taken a different stand. On the other hand, the ld. DR contended that the impugned
M/s Mount View Club & Resorts Pvt. Ltd. issue/ground was never raised before the Assessing Officer/ Ld. Commissioner of Income Tax (Appeal) and such plea has been preferred for the first time before the Tribunal. The ld. counsel relied upon the decision in the case of CIT vs Smt. Rajkumari Vimla Devi & Ors. (2005) 279 ITR 360 (All.)
3.1. We have considered the rival submissions and perused the material available on record. The facts, in brief, are that the assessee is engaged in the business of club house & Resorts, providing recreation facilities, swimming pool, indoor games, joy rides, etc. The assessee sold two plots namely plot no. 46/0, Kandhroli, Dist. Raigad and 42/2. It was explained that the stamp duty authorities valued the property/plot no.46 at Rs.32,21,000/- against the amount of Rs.22 lakh, received by the assessee and other plot at Rs.88,48,000/- as against the amount of Rs.58,27,800/-, actually received by the assessee. The Ld. Assessing Officer referred both the properties to the Valuation Officer, invoking the provisions of section 50C(2) of the Act. The Valuation Officer sent a preliminary valuation report dated 07/12/2009, whereby, he valued the plot no.46 at Rs.24,52,200/- and the remaining plot at Rs.66,45,398/-. The assessee objected to the report. However, the Valuation Officer vide order dated 08/12/2009, confirmed the valuations made by him. On the basis of this valuation report, the Assessing Officer added a sum of Rs.10,69,797/-, being the difference between the M/s Mount View Club & Resorts Pvt. Ltd. sale value disclosed by the assessee and the valuation adopted by the Valuation Officer, as deemed consideration received by the assessee. On appeal, before the Ld. Commissioner of Income Tax (Appeal), the stand taken in the assessment order was affirmed. The assessee is in further appeal before this Tribunal.
3.2. If the observation made in the assessment order, leading to addition made to the total income, conclusion drawn in the impugned order, material available on record, assertions made by the ld. respective counsel, if kept in juxtaposition and analyzed, before us, the ld. counsel for the assessee explained that the land is located 300 mts away from old Mumbai Pune Highway, having rocky and uneven surface, lack of infrastructure, scarcity of water and vicinity is polluted by nallah and there is no proper approach road. The cost of development of land and creation of infrastructure was quite high. It was also explained that land at new Mumbai Pune Expressway was on more demand and the rates at the old road decreased. It was also contended that due to slow down in the economy, at the relevant time, the real estate sector was badly affected resulting into fall in land prices. It was explained that the sub-registrar/Valuation Officer did not consider these facts, while calculating the market value of the plot. In view of these facts, the business of the assessee was also claimed to be affected and to tide over the crisis, the land was sold at M/s Mount View Club & Resorts Pvt. Ltd. distress prices. It was contended that the figures of sale mentioned in the documents is the true market value of the property. We find that the matter was referred to the District Valuation Officer, vide letter dated 08/12/2009 and the valuation report was accordingly sent. In view of this factual matrix, we are of the considered opinion that market value depends upon so many factors like location of the plot, whether the plot is located on a highway or approach road or on a kachcha road, whether the plot is a corner plot, distance of the plot to the basis amenities, nature of land, demand and supply, market trend, etc. We have perused the estimation of property/valuation report (page 91 onwards of the paper book). The property was inspected by the Valuation Officer and it has been specifically mentioned in Column 3.4(page-95 of the paper book) that the property is situated about 300 to 400 Mts. from the main road, containing hill/slope are touching the boundary of Adivashi hutments. The size of the land is also not square and touching the big nalla. The method adopted by the Assessing Officer is comparison of stamp duty/ready reckoner 2007 and the sale instances adopted for all these properties. The assessee also objected to the report. We have also perused the sale instances (page -99 of the paper book), wherein, the valuation comes to Rs.192.36 per Sq. Mtr, whereas, in the case of the assessee, the valuation has been adopted towards higher side. Considering the totality of facts, we find force in the explanation of the assessee,
M/s Mount View Club & Resorts Pvt. Ltd. therefore, direct the Assessing Officer to delete the addition, because, the valuation adopted by the Valuation Officer does not depicts the true facts and the lacunas, as discussed above and explained by the assessee were not considered while adopting the value of the plot. The Valuation Officer adopted the rates of the property towards higher side quoting the sale instances, which are not of similar land. Even otherwise, the points quoted/explained by the assessee were conveniently ignored. Thus, this ground of the assessee is allowed and the addition made on this count is directed to be deleted.
Finally, the appeal of the assessee is partly allowed.
This order was pronounced in the open court on 18/01/2017.