2011 (9) TMI 1008 - AT - Income Tax

Revision u/s 263 - computation of income under the head income from house property than business income disclosed by the assessee - Held that - The assessee had received a notice u/s 154 of the Act in view of the audit objection on the issue of assessability of the income under the head income from property/income from business . The reply of the assessee was filed before issue of show cause notice u/s 263 of the Act. In the above said reply the assessee had explained the factual aspects of its case and also the aspect of having received subsidy from NABARD in the warehousing activities carried out. Admittedly, no subsidy is receivable where the assessee has rented out its premises and the income is assessable as income from property. Only in case as the assessee is engaged in the business activities, there is a question of liability of subsidy of carrying out such prescribed business activities. Further we find that warehousing charges received by the assessee were not constant but were variable depending upon the quantity of stock stored in its premises. Even the lease agreement referred to the rate of rent being linked to the quantity of stock and not fixed monthly rent. Further the assessee is to keep the godown in its perfect condition as the said premises are being used for storing perishable items, which require an extra care The Hon ble Supreme Court in CIT VS. Ralson Industries Ltd. 2007 (1) TMI 184 - SUPREME Court have laid down the proposition that the initiation by the CIT of proceedings for revision u/s 263 of the Act cannot be held to have become bad only because an order for rectification was passed by the Assessing Officer u/s 154 of the Act. The learned D.R. for the Revenue had placed reliance on the above said proposition laid down by the Apex Court. However, we find that the learned A.R. for the assessee had referred to the proceedings of rectification u/s 154 of the Act under which reply was given by the assessee which in turn becomes record for the purpose of explanation to section 263 of the Act. In view of explanation filed by the assessee in reply to the notice, we find merit in the alternate plea raised by the assessee that in view of the information being available on record, the CIT could not exercise the jurisdiction u/s 263 of the Act. We set aside the order of the CIT and allow the grounds of appeal raised by the assessee.

Issues Involved:
1. Validity of the order passed by the Commissioner of Income Tax (CIT) under Section 263 of the Income Tax Act.
2. Classification of income from warehousing as "income from house property" versus "income from business."

Issue-wise Detailed Analysis:

1. Validity of the order passed by CIT under Section 263 of the Income Tax Act:

The core issue in the appeal was the CIT's invocation of Section 263, which allows revision of orders deemed erroneous and prejudicial to the interest of Revenue. The CIT held that the assessment framed by the Assessing Officer (AO) was erroneous and prejudicial to the interest of Revenue because the AO did not examine whether the income received from warehousing should be classified as "income from house property" instead of "income from business."

The Tribunal noted that the AO had issued detailed questionnaires and received comprehensive replies from the assessee during the assessment proceedings. The AO had accepted the assessee's classification of income as "income from business" after considering the agreement with the Punjab State Warehousing Corporation (PSWC) and other relevant documents. The Tribunal emphasized that an assessment order passed under Section 143(3) is presumed to be made after due application of mind unless proven otherwise.

The Tribunal referenced several precedents, including the Supreme Court's ruling in Malabar Industrial Co. Ltd. v. CIT, which established that an order is only erroneous if there is an incorrect assumption of facts or incorrect application of law. The Tribunal also cited the Supreme Court's decision in CIT v. Max India Ltd., which held that if the AO's view is a possible view, the CIT cannot invoke Section 263 merely because he disagrees with it.

The Tribunal found that the AO's view was a plausible one and supported by precedent. Therefore, the CIT's invocation of Section 263 was unwarranted. The Tribunal concluded that the AO's order was neither erroneous nor prejudicial to the interest of Revenue, thus setting aside the CIT's order under Section 263.

2. Classification of income from warehousing as "income from house property" versus "income from business":

The CIT argued that the income from warehousing should be classified as "income from house property" because the agreement with PSWC indicated that the assessee was receiving rent for letting out the godown, with no significant services provided. The CIT noted that the rent was fixed per square foot, there was no provision for additional services, and the assessee's only obligation was to keep the godown fit for storage.

The assessee contended that the warehousing income should be classified as "income from business" because the charges were linked to the quantity of storage and services provided, not fixed rent. The assessee also pointed out that they received a subsidy from NABARD for warehousing activities, which would not be available if the income were classified as "income from house property."

The Tribunal examined the agreement and the nature of the warehousing activities. It found that the warehousing charges were variable and linked to the quantity of stock stored, indicating a business activity rather than mere rental income. The Tribunal also noted that the assessee was responsible for maintaining the godown in a condition suitable for storing perishable items, which required active management and services.

The Tribunal concluded that the AO had correctly classified the warehousing income as "income from business" based on the nature of the activities and the terms of the agreement. The Tribunal found no merit in the CIT's reclassification of the income as "income from house property."

Conclusion:

The Tribunal allowed the appeal, setting aside the CIT's order under Section 263 and upholding the AO's classification of the warehousing income as "income from business." The Tribunal emphasized that the AO had taken a plausible view supported by detailed inquiries and relevant documents, and the CIT's invocation of Section 263 was not justified.

← Previous Next →