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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
Before: SHRI B.R.BASKARAN, AM & SHRI AMARJIT SINGH, JM
Assessee by: Shri K. Gopal Department by: Shri Manoj Kumar सुनवाई क� तार�ख / Date of Hearing: 06.01.2016 घोषणा क� तार�ख /Date of Pronouncement: 11.05.2016 आदेश / O R D E R PER AMARJIT SINGH, JM:
This is an appeal against the order dated 09.12.20 11 passed by the Commissioner of Income Tax (Appeals)-36, Mumbai [hereinafter referred to as the "CIT(A)"] relevant to the assessment year 2007-08.
The facts of the case are that the assessee filed its return of income on 31.10.2007 declaring total income Assessment Year: 2007-08 A.Y.2007-08 to the tune of Rs. 1,23,448/-. The return was processed u/s. 143(1) of the Income Tax Act, 1961 (in short "the Act"). The return was selected for scrutiny and notice u/s.143(3) was issued on 23.09.2008 which was served upon the assessee on 30.09.2008. Subsequently, notice u/s. 142(1) along with questionnaire was issued and served upon the assessee. The assessee firm was deriving the income from letting out its premises at Vikhroli was also receiving interest income and other miscellaneous income. On examination of Profit and Loss Account, it was noticed that the assessee has received rent from letting out of premises. Rent received to the tune of Rs.6,75,000/- was credited to the Profit and Loss Account under the head 'Other Income'. Thereafter, the notice was issued the assessee to explain as to why the income earned from letting out of premises should not be taxed under the head income from house property. Thereafter the Assessing Officer treated the said income as income from house property and completed the assessment by assessing the tax to the tune of Rs.5,63,710/-. Since the assessee was not satisfied therefore the appeal was filed before the learned CIT(A) who confirmed the order therefore the assessee has filed the present appeal before us.
3. The assessee has raised the following ground of appeal:- "1. The learned CIT(Appeals) erred in confirming AO's order as valid order ignoring the fact that order was served upon the Appellant
ITA No.1205/Mum/12 A.Y.2007-08 Company beyond time limit prescribed u/s. 153(1) of tile Income Tax Act,1961.
2. The Learned CIT (Appeals) erred in treating and confirming Business of Income of Rs.6,75,000/- received on account of running business centre as Income from House Property, disallowing expenses incurred for generating this income, thus not considering higher Authorities orders cited." Issue No.1:- 4. The learned representative of the assessee did not press the issue no.1 therefore this issue is being decided in favour of the Revenue and against the assessee being not pressed. Issue No.2:- 5. According to issue no. 2, the contention of the assessee is that the Assessing Officer has wrongly treated the income from letting out of the premises to the tune of Rs.6,75,000/- as income from house property whereas it should be treated as business income. It is argued by the learned representative of the assessee that section 22 excludes those property which was being used for business purpose, therefore, in the said circumstances when the agreement executed by the assessee with the lease holder speaks about the business transaction therefore in the said circumstances the income received from letting out of the premises is required to be dealt with business income whereas the learned CIT(A) has wrongly treated the said income as house property income therefore in the said circumstances the order of learned CIT(A) in question is wrong against law and facts and is Assessment Year: 2007-08 A.Y.2007-08 liable to be set aside. In support of these contentions, the learned representative of the assessee has placed reliance upon the order passed by the Hon’ble Income Tax Appellate Tribunal, Mumbai in case of Harvindarpal Mehta (HUF) Vs. Deputy Commissioner of Income Tax, 20(1) [2010] 122 ITD 93 and also placed reliance upon the law settled in [2015] 56 taxmann.com 456 (SC), Chennai Properties & Investments Ltd. Vs. Commissioner of Income Tax, Central — III, Tamil Nadu. However, on the other hand the learned representative of the department has strongly placed reliance upon the order passed by the learned CIT(A) in question. In view of the arguments advanced by the learned representative of the parties and perusing the records carefully, we are of the view that before arriving any conclusion it is required to observed that what was the transaction executed by the assessee with the lessee / tenants. In the relevant assessment year the assessee let out the 1000 sq. Feet area to M/s. Pharmalab India Private Limited on rent @ 45,000/- per month by virtue of agreement dated 27.03.2006 and also let out the 1100 sq. Feet area to Elomatic Pharmalab Consulting & Engg. Pvt. Ltd. on rent @ 30,000/- per month by virtue of agreement dated 28.03.2006. Annual rent of both the parties comes to the tune of Rs.6,75,000/-. The rent agreement dated 27.03.2006 with M/s. Pharmalab India Private Limited and the rent agreement dated 28.03.2006 with Elomatic Pharmalab Consulting &Engg. Pvt. Ltd. were placed on record by the assessee which lies at page 27 to 29 and 30 to 31 on the file.
TA No.1205/Mum/2012 Assessment Year: 2007-08 A.Y.2007-08 "THIS AGREEMENT made at Mumbai this 27' day of March 2006 BETWEEN K.N.K. Engineering Works a firm registered under the Partnership Act and having address at Star Metal Compound, LBS Marg, Vikhroli (West), Mumbai — 400083 herein referred to as the "KNK" of the One Part AND Pharmalab India Private Ltd. a company incorporated under the Companies Act and having address at Plot no. A - 442, Road no. - 28, Ram Nagar, Wagle Industrial Estate, Thane (W), Pin - 400604hereinafter referred to as the "CUSTOMER" of the Other Part; WHEREAS the KNK has an office at Vikhroli (West) at which place it owns and operates a business center to provide business services to customers and the KINK has set up a full fledged office with all equipments and facilities to provide such services on a commercial basis.
AND WHEREAS the Customer has its premises outside Mumbai but is required to co-ordinate and inter connect with various organizations and persons in Mumbai for the purpose of its business. However, the business of the customer does not warrant or justify the acquisition or purchase or setting up of an office in Assescrnent Year: 2007-08 A.Y.2007-08 Mumbai which would be expensive and commercially not viable at the moment although the customer expects the business to increase over time to enable it to acquire or obtain a suitable office. AND WHEREAS the customer has approached the KNK with a respect to allow the customer to utilize the services provided by the KINK has agreed to do so.
NOW THIS AGREEMENT WITNESSETH: The KNK has set up a business center to provide business 1. services to customers and for this purpose has provided various fixtures, fitting, furniture, articles, services of personnel etc.
2. The customer has its office at Thane and for the purpose of sales and more effective functioning of its business the customer requires to be in Mumbai. However, the current financial position and the volume of business generated by the customer does not make it viable for the customer to purchase or acquire and to set up a full fledged running office in Mumbai, at present. The customer expects business to grow and in the long run to set and establish such full fledged office. For the present however the customer finds in economical to use the services provided by the KNK
ITA No.1205/Mum/12 A.Y.2007-08 which are under present conditions sufficient for the customer business.
In the above circumstances the customer has requested the KNK to allow the customer to use the said business services on a regular basis for a temporary period which shall be 12 months. In view of the assurance given by the customer to use the services for a period of 12 months the KNK agreed to enter into arrangement with the customer on the terms set out herein.
The KNK shall provide to the customer and the customer shall have the use of the business services at the business service center of the KNK at Star metal compound, Vikhroli (West) for the period from 1st April 2006 to 31st March 2007.
The KNK agrees to provide various business services including furniture, telephone line, fax line, internet access, stenographer cum typist, secretary, peon etc.
It is clearly agreed and understood that the KINK shall open the business center on all working days except Sundays and public holidays at 9.15 am in the morning and shall close the same at 7.00 pm in the evening. The customer may use the services during this period.
7. In view of the assurances of the customer for TA No.1205/Mum/2012 Assessment Year: 2007-08 A.Y.2007-08 regular business the KNK agrees to accept the charges for use of services on a regular basis rather than per item per day. Hence it is agreed between the parties that the customer shall pay to the KNK the lump sum amount of Rs.45,000 (Rupees Forty Five Thousand only) per month for the period of use as aforesaid. These charges shall be in respect of the use of the services of staff, articles, furniture, telephone, fax and internet facilities etc. in the premises.
The customer shall be entitled to send its employees personnel and staff to use the said services and a list of such persons shall provided to the KNK.
The customer may keep its articles at the business center from time to time but it shall do so at its own risk and in any event such articles shall be removed at the end of the above period, failing which the KNK may dispose off the same and the customer shall have no right or claim in this regard.
The charges set out above for use of the business services are fixed and shall be paid by the customer to the KNK without any reduction or deduction there from except for TDS if any applicable.
The customer shall use the said services as a ITA No.1205/Mum/12 A.Y.2007-08 reasonable and prudent person would. In the event that any loss, harm or damage is caused to the KNK or to the premises or to the articles and facilities in any way due to any act or omission or use by the customer then the customer shall be liable for and shall make good the same to the KNK.
For the use of the said business center the customer shall be interfere with the other persons who may be also using the said business center nor with the KNKs rights and control over the said business premises, furniture, fittings, employees etc.
In the event that the customer fails to make payment of the charges as stated above then the KNK shall be entitled to disallow the customer from using the said services and facilities forthwith and the customer shall not have any right nor make any claim in this regard.
6. So far as the agreement with the Elomatic Pharmalab Consulting & Engg. Pvt. Ltd. is concerned the said agreement is on the same terms and conditions therefore there is no need to repeat the same. We notice that the assessee is not owner of property and hence it is a case of sub letting. Hence it can be assessed either as business income or other sources. This ITA No.1205/Mum/12 A.Y.2007-08 vital point has escaped the attention of tax authorities. Hence entire issue requires re-examination. Accordingly we set aside the order of learned CIT(A) and restore the issues to the file of Assessing Officer with direction to examine them afresh, after providing opportunity to the assessee
In the result the appeal of the Assessee is treated as allowed for statistical purpose.
Order pronounced in the open court on 11th May, 2016.