2022 (2) TMI 516 - AT - Income Tax

Correct head of Income - income from warehouse - income from house property or business income - HELD THAT - As perused the agreement for letting out the warehouse which is an agreement entered into between M.P. Warehousing and Logistic Corporation and the assessee. Ongoing through clause (3) of this agreement we find that the assessee is required to maintain the 24 hours security arrangement cleaning and fumigation of the premises on regular intervals provide labour on daily wages and also to ensure the compliance of labour Rules and is also responsible to compensate the labourers towards any liability under labour laws arising at the warehouse. Agreement also shows that the assessee is required to provide the equipment for storage of goods. We find merit in the contention of assessee that the alleged gross receipts are not in the nature of rental income from letting out the property but are business receipts received for carrying out warehouse operations as per the terms of the agreement. We set aside the finding of Ld. CIT(A) and hold that both lower authorities erred in treating the alleged receipts as rental income. Finding of Ld. CIT(A) is reversed and the net profit shown from operations of warehouse is directed to be treated as business income. Thus the addition is deleted. Ground no. 1 of the assessee s appeal is allowed.

Summary

Issues involved:
1. Determination of whether the amount shown by the assessee as income from warehouse is Income from house property or Income from business.

Analysis:
1. The appeal was filed by the Revenue against the order of the Ld. Commissioner of Income Tax(Appeals) regarding the treatment of income from warehouse operations. The Revenue contended that the income should be considered as Income from house property instead of business income.
2. The primary issue for consideration was whether the amount declared by the assessee as income from warehouse should be categorized as Income from house property or Income from business.
3. The facts of the case revealed that the assessee, a partnership firm engaged in trading of grains and cotton processing, declared income of ?10,74,190, with a portion attributed to profit from warehouse operations.
4. The Assessing Officer (AO) treated the gross receipts from the warehouse as Income from house property, resulting in an addition of ?2,80,881 to the assessee's income.
5. The Ld. CIT(A) upheld the AO's decision, stating that the warehouse receipts were merely from letting out the property without any additional activities related to running the warehouse.
6. The assessee argued that the income should be considered as business income based on an agreement with MP Warehousing & Logistic Corporation, requiring various operational functions for the warehouse.
7. After considering the arguments, the Tribunal examined the agreement between the assessee and MP Warehousing, which outlined responsibilities such as security, maintenance, labor management, and equipment provision.
8. The Tribunal concluded that the gross receipts were not rental income but business receipts for warehouse operations as per the agreement terms, overturning the lower authorities' decision.
9. Consequently, the addition of ?2,80,881 was deleted, and the income from warehouse operations was treated as business income.
10. The Tribunal allowed the appeal of the assessee, emphasizing that the alleged receipts were not rental income but business receipts for carrying out warehouse operations as per the agreement terms.

This detailed analysis provides a comprehensive overview of the judgment, highlighting the key legal arguments and decisions made by the Tribunal in resolving the issues raised in the appeal.