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TMI Blog2012 (9) TMI 328X X X X Extracts X X X X X X X X Extracts X X X X ..... e relatively insignificant and only incidental to the use. A mere glance at the impugned order for the year under consideration, reveals that the order passed by the CIT(A) is cryptic and grossly violative of one of the facets of the rules of natural justice, namely, that every judicial/quasi- judicial body/authority must pass reasoned order, which should reflect application of mind by the concerned authority to the issues/points raised before it. ‘Decision’ does not merely mean the ‘conclusion’. It embraces within its fold the reasons forming basis for the conclusion. In view of the foregoing, especially when the CIT(A) have not passed a speaking order, matter is restored to file of CIT(A) to bring out clearly as to whether or not the assessee derived income from exploitation of property as a commercial asset or as a owner – Decided in favor of assessee for statistical purposes - ITA No.5458/D/2011 - - - Dated:- 31-7-2012 - SHRI A.N. PAHUJA AND C.M. GARG, JJ. Assessee by Shri K. Sampath, AR Revenue by Dr. B.R.R. Kumar,DR Date of pronouncement 31-07-2012 ORDER A.N. PAHUJA:- This appeal filed on 07.12.2011 by the assessee against an order da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ebited in the P L account be not restricted in terms of provisions of sec. 57 of the Act. In response, the assessee replied that the company was incorporated with the main objects of dealing in properties, sale, purchase and development of real estate. The schedule of fixed assets revealed that the assessee company was not the owner of any property. The income from lease hold property had been shown as income from business. Since the assessee did not furnish any explanation as to why lease charges be not assessed under the head Income from other sources , the AO brought to tax the amount under the head income from other sources and allowed deduction for the expenses @15% of the lease charges. 3. On appeal, the ld. CIT(A) upheld the findings of the AO in the following terms:- 4.2 I have gone through the findings of the AO in the assessment order and written submission of the ld. AR of the appellant. In this regard, I am inclined to agree with the view of the AO, wherein, he has held that rental income should be assessed as income from other sources and he has also allowed deduction u/s 57(iii) of the I.T. Act, wherein, she has allowed 15% of lease charges of Rs.1,90,980/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tioners were installed, that too as per the requirement of S, the letting out of the office space does not become a business centre. The assessee was not exploiting a commercial asset. It simply is a case of letting out of the property with furniture and fixtures for a consolidated rent. In the case of properties which are taken on rent by the assessee, the income can never be assessed as property income and the dispute can only be whether such income is assessable as business income or as income from other sources . Therefore, the fact that from the assessment year 1992-93 the activity of taking properties on rent and letting them out was assessed as business income cannot affect the decision in the case of income derived from the assessee s owned properties. 4.3 In view of the above discussion and putting reliance on the judgment of Hon ble ITAT, Mumbai, the issue is being decided against the appellant and action of the Assessing Officer is confirmed. Ground No.2 and 3 of the appellant are dismissed. 4. The assessee is now in appeal before us against the aforesaid findings of the ld. CIT(A). The ld. AR on behalf of the assessee while inviting our attention to a copy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd vs. CIT,42 ITR 49(SC); CIT vs. Chagan Dass Co.,55 ITR 17(SC); Nalnikant Ambalal Mody vs. CIT,61 ITR 428(SC) ; Manohar Singh vs. CIT,58 ITR 592(Pun.).66 ITR 596(SC) . 5. On the other hand, the ld. DR supported the findings of the ld. CIT(A) while vehemently arguing that the assessee did not have any activity except letting out the aforesaid premises to PNB. There being no such business of letting out the property in the year under consideration and this being the sole subletting, income has to be assessed under the head other sources . The ld. DR pointed out that the facts of the case under consideration were similar to the facts circumstances in the case of DCIT Vs. Vaishnav S. Puri (HUF) reported at 2011-58 DTR (Mumbai)(Trib) 26, followed by the ld. CIT(A) as also the decision in Windmill Securities P Ltd. v s. DCIT,2011-TIOL-ITAT-Mum. In his rejoinder, the ld. AR pointed out that activity of the business has to be seen over a long period of time. Accordingly, the ld. AR added that income from exploitation of property by the assessee has to be assessed under the head income from business or profession . 6. We have heard both the parties and gone through the facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome was obtained by a trading concern in the course of its business. 5. House-owning, however profitable, cannot be a business or trade under the Income-tax Act. Where income is derived from house property by the exercise of property rights properly so called, the income falls under the head 'income from property chargeable under section 9. It is the nature of the operations and not the capacity of the owner that must determine whether the income is from property or from trade. Where the operations involved in the activity of earning income from house property are not different from those of an ordinary house-owner turning to profitable account the property of which he is the owner, the income derived is income from property chargeable under section 9 irrespective of whether the operations are carried on by a company one of whose objects or even the sole object is to indulge in the activity of earning income from house property. Thus, where house property is given on lease or licence basis for earning income therefrom, the true character of the income derived is income from property falling under section 9. The said character is not changed and the income does not become income f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the findings of the ITAT that the carrying on of all these activities amounted to a carrying on of business and the income derived from the same was business income as claimed by the assessee. 6.2 In East India Housing and Land Development Trust Ltd. v. CIT, the contention was that the rental income of the assessee-company from certain buildings was " income from business " and not " income from property ", because the assessee-company had been formed with the object of promoting and developing markets. The income that the company derived was from markets and stalls erected by it. The assessee was required to obtain a licence from the Corporation of Calcutta and to maintain sanitary and other services in conformity with the provisions of the Calcutta Municipal Act, 1951. Staff had to be maintained and expenditure incurred by the assessee in this connection. Their Lordships, after setting out the six different heads of income specified by section 6 of the Act, observed as follows : " This classification under distinct heads of income, profits and gains is made having regard to the sources from which income is derived. Income-tax is undoubtedly levied on the total taxable income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re installed had been sold to the company. In these circumstances the assessee firm let out the plant, machinery, etc. on an annual rent of Rs. 40,000. Drawing similarity to the facts found in Inland Revenue Commissioners v. Broadway Car Co. Ltd. and applying the common sense principle to the fact so found, Hon ble Apex Court concluded that it was impossible to hold that the letting out of the plant, machinery, etc., was at all a business operation when its normal business activity had come to a close. The ld. AR appearing before us did not demonstrate before us as to how the facts circumstances in this decision are pari materia to the facts and circumstances of the instant case or how this case is of any help to the assessee. 6.31 In Mazagaon Dock Ltd.(supra) relied upon by the ld. AR, the assessee, a private limited company carried on the business as marine engineers and ship repairers. Under an agreement, entered into with the two non-resident companies, the assessee repaired their ships at cost, and charged no profits. The issue before the Hon ble Apex Court was as to whether on the facts and in the circumstances of the case, any income could be included in the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AY 1955-56 against his other business income for the assessment year 1956-57 ? Hon ble Apex Court observed that the assessee carried on the business in bidi leaves apart from other businesses; this business he could do either individually or in partnership with someone else. If the first partnership was dissolved it did not mean that his business in bidi leaves came to an end so long as he continued to do that business either individually or in partnership with others. During the assessment year in question he was admittedly carrying on that business in partnership with three others. The business in which the loss had been sustained by the assessee when he was a partner of the first firm which was dissolved on March 31, 1955, continued to be carried on by him in partnership with three other persons during the assessment year 1956-57, the business, as stated before, being of dealing in or entering into contracts in respect of bidi leaves. The mode in which he carried on the business in bidi leaves was one of taking other persons as partners. He did not stop doing that business in the assessment year in question. Accordingly, the Hon ble Court allowed the claim of the assessee. As i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during the period of three years in question consisted of developing the demised property and letting out portions of the same as shops, stalls and ground spaces. All these facts led to the conclusion that the taking of the property on lease and subletting portions of the same was part of the business and trading activity of the appellant. Accordingly, the Hon ble Apex Court upheld the findings of the Tribunal that the activities of the assessee in taking lease and sub-letting the demised premises were undertaken with the object of doing business and that the assessee-company in letting out the leasehold property was not acting as owner but as trader was borne out by the material on record. 6.5 In Ajmera Industries(supra), the assessee did not commence business in factory sheds and let out the sheds equipped with electrical installation .Since the assessee did not start its manufacturing business, it could not be said that it had derived the income by exploiting its commercial assets through other agencies. Therefore, Hon ble High Court concluded that the income from letting out could not be assessed as from business. As regards factory sheds let out along with electrical install ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'income from property ..It was further observed that where the operations involved in the activity of earning income from house property are not different from those of an ordinary house-owner turning to profitable account the property of which he is the owner, the income derived is income from property chargeable under section 9 irrespective of whether the operations are carried on by a company one of whose objects or even the sole object is to indulge in the activity of earning income from house property. Accordingly, it was concluded that where house property is given on lease or licence basis for earning income therefrom, the true character of the income derived is income from property falling under section 9. The said character is not changed and the income does not become income from trade or business if the hiring is inclusive of certain additional services such as heating, cleaning, lighting or sanitation, which are relatively insignificant and only incidental to the use. As regards cases where the income received is not from the bare letting of the tenement or from the letting accompanied by incidental services or facilities, but the subject hired out is a complex one and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thereof by the quasi- judicial authorit ies has been read as an integral part of the concept of fair procedure and is an important safeguard to ensure observance of the rule of law. I t introduces clarity, checks the int roduct ion of extraneous or ir relevant considerat ions and minimizes arbit rariness in the decision-making process. Hon ble jurisdictional High Court in their decision in Vodafone Essar Ltd. Vs. DRP,196 Taxman423(Delhi) held that when a quasi judicial authority deals with a lis, it is obligatory on its part to ascribe cogent and germane reasons as the same is the heart and soul of the matter and further, the same also facilitates appreciation when the order is called in question before the superior forum. We may point out that a decision does not merely mean the conclusion . I t embraces within its fold the reasons forming basis for the conclusion. [Mukht iar Singh Vs. State of Punjab,(1995)1SCC 760(SC)] . In view of the foregoing, especial ly when the ld. CIT(A) have not passed a speaking order on various issues raised in this appeal, we consider it fair and appropr iate to set aside the order of the ld. CIT(A) and restore the mat ter to his f ile for decidin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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