NATIONAL REALTY P.LTD,MUMBAI vs. DCIT CIR 5(2), MUMBAI

This appeal by the assessee is directed against the order of the CIT(A)- 10, Mumbai dated 23.03.2015 for A.Y. 2011-12.

2. The facts of the case, briefly, are as under: - 2.1 The assessee, engaged in the business of leasing of property and other assets, filed its return of income for A.Y. 2011-12 on 14.09.2011 declaring a loss of `3,81,05,562/-. The return was processed under section 143(1) of the Income Tax Act, 1961 (in short 'the Act') and the case was subsequently taken up for scrutiny. The assessment was completed under section 143(3) of the Act vide order dated 24.01.2014 wherein the assessee’s loss was assessed at `3,28,37,661/-; in view of the AO treating the assessee’s income of `56,97,031/- from amenities and service charges as exigible to tax under the head ‘income from house property’ and not as ‘business income or income from other sources’ and consequently for which only the standard deduction being allowable under the head ‘income M/s. National Realty P. Ltd. from house property’; other expenses claimed as business expenses and depreciation would not be allowable. 2.2 Aggrieved by the order of assessment for A.Y. 2011-12 dated 24.01.2014, the assessee preferred an appeal before the CIT(A)-10, Mumbai who dismissed the assessee’s appeal vide the impugned order dated 23.03.2015. 3.1 Aggrieved by the order of the CIT(A)-10, Mumbai dated 23.03.2015 for A.Y. 2011-12, the assessee preferred this appeal and raised the following grounds: - “I. The appellant submits that the Hon'ble Commissioner of Income-tax (Appeals) - 10, Mumbai (hereinafter referred to as "the CIT-(A)") erred in up-holding the action of the learned Deputy Commissioner of Income-tax (hereinafter referred to as 'DCIT') in treating, computing and assessing the income received from providing amenities and services charges as 'Income from House Property' instead of computing and assessing it under the head 'Profit & Gains from Business'. II. Further, as a result thereof, Hon'ble CIT-(A) also erred in up-holding the action of learned DOT in disallowing depreciation of Rs.34,97,160 on the assets acquired and used to earn the amenities income. III. The Hon'ble CIT-(A) erred in up-holding the action of learned DCIT in disallowing normal and regular business expenses of Rs.35,06,322 on the ground that no business was carried on by the appellant despite finding of fact that the appellant carried on business of leasing of properties and other assets. IV. Without prejudice to the Ground I above, if it is held that income from amenities cannot be taxed under the head 'Profit & Gains from Business', then, Hon'ble CIT-(A) erred in up-holding the action of learned DCIT in treating, computing and assessing the income received from providing amenities as 'Income from House Property' instead of computing and assessing it under the head 'Income from Other Sources' after allowing deduction of depreciation of Rs.34,97,160 on the assets used for rendering the amenities u/s 57 of the Act. V. The appellant prays that order of Hon'ble CIT-(A), being contrary to the facts and circumstances of the case, as well as in law, be set aside in view of the grounds of appeal stated at nos. Ito IV. VI. The appellant prays for appropriate relief. VII. The appellant craves leave to add, alter or amend the grounds of appeal at the time of hearing.”

M/s. National Realty P. Ltd. 3.2.1 Vide letter dated 08.12.2016, the assessee raised the following additional grounds: - “ADDITIONAL GROUNDS 1. In the facts and circumstances of the case and in law, the License fee/compensation of Rs.18,06,58,809/- earned by the Appellant was required to be taxed under the head “Profits and gains of business” instead of the head “income from House Property”.

2. The Appellant craves leave to add, alter, delete or modify all or any the above grounds at the time of hearing.” 3.2.2 We have heard both parties on the issue of admission of additional grounds (supra). The submissions of the assessee seeking admission of the additional grounds are as under: - “1. The Appellant is in the business of leasing of properties, with its main object clause being to deal in properties by way of purchase, sale lease, leave and license, etc. The only commercial activity undertaken by the Appellant is acquiring and letting out of various properties, some of which with various amenities. The Appellant has been undertaking such activities since last over two decades. The Appellant had been consistently claiming the income from such business activities under the head "Profits and gains from business”.

M/s. National Realty P. Ltd. (iii) Not taking this additional ground at the time of filing of the appeal was purely unintentional and due to oversight. (iv) In fact, the Appellant had challenged the similar action of the A.O. in treating the license fees / compensation earned by it as taxable under the head 'Income from House Property' in earlier years, that is, for A.Y. 1989-90 to A.Y. 1992-93, A.Y. 1995-96 and A.Y. 2005-06 to A.Y. 2008-09, and, on this very issue, the Appellant's appeals are also admitted by the Hon'ble High Court for those years and are pending final hearing. This fact also goes to show that the Appellant had challenged the action of the A.O. of treating the license fees / compensation as taxable under the head 'Income from House Property' in the earlier years. However, for the year under consideration, it was only due to inadvertence that the ground challenging the action of the A.O. treating the licenses fee as 'Income from House property' remained to be taken.” 3.2.2 Taking into consideration the submissions put forth by the assessee for admission of additional grounds and the fact that similar additional grounds were considered by the Coordinate Bench while deciding the assessee’s appeal for A.Y. 2009-10 in its order in dated 29.06.2016 (a copy of which was placed before the Bench) we are of the view that in the interest of justice and equity the additional grounds raised by the assessee be admitted for consideration. 4.1 We have heard the rival contentions and perused and carefully considered the material on record; including the judicial pronouncements cited. We find that identical grounds/additional grounds were raised by the assessee before the Coordinate Bench in assessee’s appeal for A.Y. 2009-10. These issues were considered and disposed off by the Coordinate Bench in its order in ITA No. 5839/Mum/2012 dated 29.06.2016 for A.Y. 2009-10 in the assessee’s own case as under: -

2. The assessee has raised the following grounds:- “I. The appellant submits that the Hon’ble Commissioner of Income Tax (Appeals) 9, Mumbai (hereinafter referred to as “the CIT(A)”) erred in up-holding the action of the learned Deputy Commissioner of Income-tax (hereinafter referred to as ‘DCIT’) in treating, computing and assessing the income received from providing amenities and services charges as ‘Income from House Property’ instead of computing and assessing it under the head ‘Profit & Gains from Business’.

M/s. National Realty P. Ltd. II. Further, as a result thereof, the Hon’ble CIT(A) also erred in up-holding the action of the learned DCIT in disallowing depreciation of Rs.46,75,819/- on the assets acquired and used to earn the amenities income. III. The Hon’ble CIT(A) erred in up-holding the action of the learned DCIT in disallowing normal and regular business expenses of Rs.26,96,576/- on the ground that no business was carried on by the appellant despite the finding of fact that the appellant carried on the business of leasing of properties and other assets. IV. Without prejudice to the Ground I above, if it is held that income from amenities cannot be taxed under the head ‘Profit & Gains from Business’, then, the Hon’ble CIT(A) erred in up-holding the action of the learned DCIT in treating, computing and assessing the income received from providing amenities as ‘Income from House Property’ instead of computing and assessing it under the head ‘Income from Other Source’ after allowing deduction of depreciation of Rs.46,75,819/- on the assets used for rendering the amenities u/s.57 of the Act. V. The appellant prays that order of Hon’ble CIT(A), being contrary to the facts and circumstances of the case, as well as in law, be set aside in view of the grounds of appeal stated at nos. I to IV. VI. The appellant prays for appropriate relief.” ADDITIONAL GROUNDS:-

1. In the facts and circumstances of the case and in law, the License fee/ compensation of Rs.12,73,37,632/- earned by the Appellant was required to be taxed under the head “Profit and gains of business” instead of the head “Income from House Property” and consequently.

2. Without prejudice to the above, the income from License fee and amenities concerning at least the three properties was required to be taxed under the head “Profits & gains of business or profession”.

3. The brief facts of the case are that the assessee filed the return of income declaring total income to the tune of Rs.80,52,729/- on 11.09.2009. The return was processed u/s.143(1) of the Income Tax Act, 1961 (in short “the Act”). Thereafter, the case was selected for scrutiny and notice u/s.143(2) of the Act was issued on 24.08.2010 and served upon the assessee. Subsequently statutory notice u/s.142(1) of the Act along with questionnaire dated 14.07.2011 was issued and served upon the assessee. The assessee is engaged in the business of leasing of properties and other assets and has shown income from house property, capital gains and dividend income. In the instant case the assessee has claimed the compensation for M/s. National Realty P. Ltd. amenities as business income which was treated by the Assessing Officer as rental income and accordingly the assessment was completed, thereafter the assessee went up in appeal where CIT(A) confirmed the order passed by the Assessing Officer. Feeling aggrieved the assessee has filed the present appeal before us. Issue no.1 and 2:- 4. According to issue no.1 &2 the claim of the assessee is that the compensation for amenities is business income and cannot be treated as rental income. On appraisal of order of the Income Tax Appellate Tribunal in the assessee’s own case for the A.Y.2005-06, the contention of the assessee has been declined and the compensation for amenities has been treated as rental income. The said orders also speaks that the matter of controversy is pending before Hon’ble Bombay High Court for disposal. The Hon’ble Tribunal has decided the matter of controversy on the basis of Calcutta High Court, in case titled as Commissioner of Income Tax Vs. Shambhu Investment Pvt. Ltd. [2001] 249 ITR 47. The representative of the assessee has argued that the matter of controversy has now been adjudicated by the Hon’ble Supreme Case in case of Chennai Properties & Investment Ltd. Vs. CIT [2015] 373 ITR 0673 (SC). However, on the other hand the learned departmental representative has refuted the said contentions. In the instant case the assessee filed the return of income by declaring the rental income from house property to the tune of Rs.12,73,37,632/-. The assessee also received the compensation from amenities to the tune of Rs.1,24,08,780/-. However, the said income has been claimed by the assessee as business income. The Hon’ble Supreme Court has observed in the above mentioned case i.e. Chennai Properties & Investment Ltd. (Supra) that where in the terms of memorandum of association, the main object of the company is to acquire the property and to earn the income by letting out the property, the said income was brought to tax as business income not as income from house property. In view of the said circumstances we are of the view that the matter of controversy is required to be re- examined / verified afresh in view of the observations of the Hon’ble Supreme Court in the case of Chennai Properties & Investment Ltd. (Supra). Accordingly, we set aside the finding of the learned CIT(A) on this issue and remand the case to the Assessing Officer to re-consider the matter of controversy in view of the guidelines contained in the judgment of Hon’ble Supreme Court in the case of Chennai Properties & Investment Ltd. (Supra). The Assessing Officer would provide the reasonable and proper opportunity to the assessee before passing the order in the interest of justice.

5. The other ground are related to the finding of the Assessing Officer while deciding the matter of controversy on the adjudication of issue no.1&2 as decided above therefore these issues would be consequential result thereof. Accordingly, we also set aside these issues and restore to the file of Assessing Officer to adjudicate the