2017 (1) TMI 570 - AT - Income Tax

Nature of income - Income received from Strand Book Stall for providing warehousing, binding, shrink wrapping, supervision charges and mailing charges - business income or income from house property - Held that - The assessee has established that it was carrying on its activities of commercially exploiting its business asset, i.e. the said factory premises at Thane, to render the aforementioned services to M/s. Strand Book Stall for a consideration which constitute business income . It is not disputed that this position, i.e. such income for rendering of similar services to M/s. Strand Book Stall was accepted as business income as declared by the assessee, even in scrutiny assessments under section 143(3) of the Act for A.Y. 1996-97 and 2003-04. While the principle of res-judicata is not applicable to income tax proceedings, we observe that the authorities below have not brought on record any material to prove that the factual matrix of the case on this issue has undergone any change in the year under consideration in the case on hand. The factual matrix of the case on hand in similar to that of the case of CIT vs. NDR Warehousing P. Ltd. (2014 (12) TMI 189 - MADRAS HIGH COURT) and the same would squarely cover the issue in the case on hand. Moreover the Department having accepted the assessee s position in earlier years, even in scrutiny assessments that the income from M/s. Strand Book Stall even though bearing the nomenclature of rent was exigible as business income , we find that it is nobody s case that the factual matrix of the case has undergone any such change that required action that such income was to be taxed under the head income from other sources and not business income as declared by the assessee. - Decided in favour of assessee.

Summary

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Classification of income received from providing warehousing and related services as 'business income' or 'income from house property'.

Detailed Analysis:

Issue 1: Condonation of Delay in Filing the Appeal
The appeal was filed with a delay of 728 days. The assessee attributed the delay to the death of the managing director and the subsequent absence of a responsible executive to manage the company’s affairs. The new director, who was appointed in September 2012, discovered the pending appeal and filed it in June 2013. The assessee argued that the delay was due to bona fide reasons and not due to any malafide or deliberate intention. The Tribunal considered the principles laid down by the Hon'ble Apex Court in cases like *Collector, Land Acquisition vs. MST Katiji & Others* and *CIT vs. West Bengal Infrastructure Development Corporation Ltd.*, emphasizing that substantial justice should prevail over technical considerations. The Tribunal found the reasons cited by the assessee to be reasonable and condoned the delay, admitting the appeal for consideration on merits.

Issue 2: Classification of Income Received from Providing Warehousing and Related Services
The assessee company, engaged in book binding and publishing, received ?15,50,000 from Strand Book Stall for providing warehousing, binding, shrink wrapping, and other services. The Assessing Officer (AO) treated this income as 'income from house property', allowing only a 30% deduction for repairs and disallowing the entire business expenditure claimed by the assessee. The CIT(A) upheld this assessment.

The assessee argued that the income should be classified as 'business income' because the services provided were part of a systematic and organized business activity. The company had been commercially exploiting its business asset (the factory premises) since 1982, and the services were rendered solely by the assessee’s employees. The assessee also pointed out that the income had been consistently treated as 'business income' in previous years, including in scrutiny assessments for A.Y. 1996-97 and 2003-04.

The Tribunal noted that the factual matrix of the case had not changed and that the income was derived from the commercial exploitation of the business asset. Citing the decision in *CIT vs. NDR Warehousing Pvt. Ltd.* and *Vora Warehousing (P) Ltd. vs. ACIT*, the Tribunal held that the income should be classified as 'business income'. The Tribunal reversed the decision of the authorities below and directed that the income of ?15,50,000 earned by the assessee from M/s. Strand Book Stall for the provision of various services should be assessed as 'business income'.

Conclusion:
The Tribunal allowed the assessee’s appeal for A.Y. 2006-07, condoning the delay in filing the appeal and classifying the income received from providing warehousing and related services as 'business income'.