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TMI Blog2014 (11) TMI 684X X X X Extracts X X X X X X X X Extracts X X X X ..... y carrying out certain technical activity and since it forms the foundation to determine whether the assessee was continuing to carry on the business, the onus to prove its claim is fully placed upon the assessee - the assessee has failed to discharge the onus - CIT(A) was not justified in accepting the claim of the assessee that it has continued to carry on its business - the nature of business activity of the assessee company and its holding company was different and hence the possibility of workers of the assessee company rendering technical services was remote - the so called “job work” or “receipt of labour charges” can only be categorized as colourable device to create an impression that the assessee has continued to carry on the business - the AO was justified in disallowing the claim of administrative expenses and further he was also justified in assessing the receipt of labour charges as income from other sources – Decided in favour of revenue. Whether the expenses are assessable as business income or house property income – Held that:- The rent received on letting out of factory premises on temporary basis due to lull in the business is normally assessed as “Business i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted as fair rental value - the ALV may be taken as the municipal ratable value - the order of CIT(A) is modified – Decided partly in favour of assessee. - I.T.A. No. 782/Mum/2013 - - - Dated:- 19-11-2014 - Shri Vijay Pal Rao (JM), And B. R. Baskaran (AM),JJ. For the Appellant : Shri Love Kumar For the Respondent : Shri Devendra Jain ORDER Per B. R. Baskaran, Accountant Member: The appeal filed by the revenue is directed against the order dated 23.11.2012 passed by Ld CIT(A)-22, Mumbai and it relates to the assessment year 2009-10. 2. The revenue is aggrieved by the decision rendered by Ld CIT(A) on the following issues:- (a) Whether rental income is assessable under the head Income from House Property or Income from business . (b) Whether the Ld CIT(A) is justified in deleting the disallowance of entire expenditure of ₹ 17,22,361/- claimed by the assessee as business expenses. (c) Whether the income from Labour charges is assessable under the head Income from Business or income from other sources . 3. The facts relating to the case are stated in brief. The assessee is engaged in the business of dealing in computers and per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he genuineness of the same. The AO also disallowed the claim of depreciation on the reasoning that none of the assets have been used for purpose of business. 5. The assessee had received rental income of ₹ 3,60,000/- from M/s Reliance Infratel Ltd and declared the same as business income. However, the AO assessed the same under the head Income from House Property. The assessee had also received rental income of ₹ 1,08,000/- for an area of 1015.75 Sq. mts from its holding company M/s Seto Teknolog P Ltd. The AO noticed that the above said premises is located in an industrial area and further the assessee has let out a well equipped premises. The rent received by the assessee worked out to Re.0.82 per Sq. ft. The rental income was lower than the municipal ratable value of the property, which was claimed by the assessee to be ₹ 5,29,580/-. Further it was seen that the assessee had received interest free deposit of ₹ 3.00 crores. The AO noticed that the prevailing rental rate in that area was ₹ 40/- to ₹ 60/- per sq.ft. Accordingly the AO, by considering the facts available in the instant case, adopted a rate of ₹ 40/- per sq.ft. and accordi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aimed to have undertaken certain labour works from its holding company. The assessing officer has pointed out that the details of works carried out by the assessee company could not be furnished. The assessee was seen simply raising a bill at the end of every month, without mentioning therein the nature of services rendered. From the details given in the assessment order, we notice that the assessee herein was engaged in the business of dealing in computers and peripherals. However, the holding company M/s Seto Teknolog P Ltd is engaged in the business of manufacturing of computer based power line transducers, custom designed microprocessors etc. We notice that the business activity of the holding company appear to be more complex and technical in nature, where as the activity of the assessee company consisted of merely dealing in computers and peripherals. Hence, in order to carry out the job work given by the holding company, the assessee company should have possessed skilled workers, who were having required technical knowledge. However, it is unbelievable that the assessee could have performed the job work with the help of its existing workers, who were merely engaged in the jo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the year under consideration. Accordingly, we set aside the order of Ld CIT(A) on this issue and restore the view taken by the assessing officer. 9. In view of the above, in our view, the assessing officer was justified in disallowing the claim of administrative expenses of ₹ 17,22,361/- and further he was also justified in assessing the alleged receipt of labour charges of ₹ 7,96,000/- as income from other sources. 10. The consideration of next question stated as (b) above would help us to adjudicate the ground relating to assessment of rental income, i.e., whether it is assessable as business income or house property income. 11. The case of the assessee is that it did not received orders and hence it has started providing labour services to its holding company. Further, in order to exploit the vacant space available with the company, it was claimed that it has leased out terrace and a small portion to M/s Reliance Infratel Limited for installation of their telephone tower. Further the factory premises was also let out to its holding company. The assessee declared the rental income as business receipts apparently on the plea that such a letting of the pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it has let out the space which was not required for it. Hence, the claim of letting out on a temporary basis, in our view, does not apply to the facts surrounding the rental receipt from M/s Reliane Infratel Ltd. We are of the view that the intention of the assessee in letting out the terrace to a telephone company for enabling it to erect a tower could only be with the intention to earn rental income. Hence, in our view, the assessing officer was justified in assessing the rental income received from M/s Reliance Infratel Limited under the head Income from House Property . Accordingly, we set aside the order of Ld CIT(A) on this issue. 14. The next issue relates to the assessment of rental income received from the holding company of the assessee. We have already noticed that the assessee had let out its factory premises to its holding company on a monthly rent of ₹ 9000/- p.m. The assessing officer has noticed that the said rent was far less than the market rate. Accordingly he enhanced the rental income to ₹ 52,46,400/- p.a. and assessed the same as Income from House property. 15. The claim of the assessee is that the factory premises have been let out on temp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ged by the assessee in view of the fact that it has received interest free deposit of ₹ 3.00 crores from the holding company. Before the AO, the assessee has submitted that the ratable value for property taxes purposes was fixed at ₹ 5,29,850/-. 18. The Annual letting value is determined as per the provisions of sec. 23 of the Act, according to which the fair market value or the actual rent received whichever is higher is taken as ALV. There are also cases to the effect that the municipal ratable value may be adopted as fair rental value. The courts have decided against adding the notional interest calculated on the security deposit to the ALV. In the instant case, the assessee has submitted that the municipal ratable value for property taxes was ₹ 5,29,850/- and the actual rent received was ₹ 1,08,000/-. Hence, in our view, the ALV may be taken as the municipal ratable value of ₹ 5,29,850/- in the instant case. Accordingly, we modify the order of Ld CIT(A) on this issue and direct the assessing officer to adopt the municipal ratable value and assess the same under the head Income from house property. 19. In the result, the appeal filed by the as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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