AJAY BUILDERS,MUMBAI vs. ITO RG 12(1)(1), MUMBAI

Only grievance of the assessee relates to treating the rent received out of leave and license of premises as income from house property in place of income offered under the head income from business.

Rival contentions have been heard and record perused. Facts in brief are that assessee is engaged in the business of building construction. One of its premises was given to sister concern on leave and license basis, income of which was offered as business income, however, same was treated as income from house property and expenses 2 claimed by the assessee were disallowed. The contention of assessee before the AO was that its intention was never to let out the property but to sell the same, the said rental income was earned only because the assessee was debarred from making any third party rights in view of Court’s order. Hence, till such time the dispute was finally settled and till the time the said stock-in-trade was sold, it was decided to earn some income from the property. This was a clear case of exploitation of the stock-in-trade under compulsion since the property could not have been sold. The income was, therefore, in the nature of business income. However, the AO did not accept assessee’s contention and treated the same as income under the head income from house property.

By the impugned order, the CIT(A) confirmed the action of the AO, against which assessee is in further appeal before us.

It was argued by ld. AR that from the year 1997-98 till 2009-2010 income was offered under the head income from business and the same was accepted, and there is no change in the facts and circumstances of the case during the year under consideration, accordingly, the AO was not justified in changing its stand. He further drew our attention to the court order according to which assessee had given this premises to sister concern, insofar as title of the property was defective and the Hon’ble High Court itself has allowed the assessee to give it on leave and license till further order of the Court. Accordingly, assessee has no intention to earn rental income out of the stock-in-trade.

On the other hand, ld. DR relied on the order of the authorities below.

We have considered rival contentions and found from the record that the assessee as a developer got development rights for construction of the property bearing plot no.553, 555 and 556 along with 2 old structures/buildings namely Laxmi Nivas and Futnani Chambers and on the total land area, 3 buildings were constructed namely Olympus (ground = 16 storey), Divine House (ground + 3 floors for alternate accommodation of old tenants) and Trade Centre (ground floor commercial structure having 7 shops of which 1 shop for alternate accommodation and balance 6 shops possessed by Ajay Builders, i.e., the assessee). In the year 1986, members of Olympus CHS Ltd. filed a case in the City Civil Court and claimed that Trade Centre premises should be handed over to the society for community and society office purposes. As per the High Court order, the title of the property was defective to the extent of preconditions specified in the High Court Order. Accordingly, no person was interested to buy such a defective building. Accordingly, assessee was forced to lease the property, as they are unable to sell it because of the defective title, as per the precondition order given by the Hon’ble High Court. There were no certainty as to when the decision of the Court will be final. The Court permission was only conditional as regards as assessee/licensor but also for the lessee who had to file on affidavit in court affirming their willingness to remove themselves from the leased premises immediately as per Court Order.

Under the above peculiar circumstances, income derived from leave and license agreement should be assessed as business income and not as income from house property. Even on consistency, we found that department has consistently assessing the income from said premises as income from business from assessment year 1997-98 to 2009-2010. In earlier year AO was directed by the CIT(A) to treat the income from business and the department did not take the matter further into appeal, therefore, as far as department is concerned, the matter has attained finality. Accordingly, we do not find any merit in the action of lower authorities for treating the income under the head income from house property in place of business income offered by the assessee and consistently accepted by the department in all the earlier years.

In the result, appeal of assessee is allowed. Order pronounced in the open court on this 04/02/2016. Sd/- Sd/- (AMARJIT SINGH) (R.C.SHARMA) न्यानयक सदस्य / JUDICIAL MEMBER ऱेखा सदस्य / ACCOUNTANT MEMBER भुंफई Mumbai; ददनांक Dated 04/02/2016 प्र.कु.मभ/pkm, नन.स/ PS आदेश की प्रनिलऱपप अग्रेपषि/Copy of the Order forwarded to : अऩीराथी / The Appellant 1. प्रत्मथी / The Respondent. 2. आमकय आमुक्त(अऩीर) / The CIT(A), Mumbai. 3. आमकय आमुक्त / CIT 4. ववबागीम प्रनतननधध, आमकय अऩीरीम अधधकयण, भुंफई / DR, ITAT, Mumbai 5. गार्ा पाईर / Guard file. 6. सत्मावऩत प्रनत //True Copy// आदेशाि सार/ BY ORDER,