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TMI Blog2016 (10) TMI 1005X X X X Extracts X X X X X X X X Extracts X X X X ..... eme Court and in view of the ratio laid down by the Pune Bench of Tribunal in M/s. Nutan Warehousing Company Pvt. Ltd. Vs. DCIT (2006 (8) TMI 286 - ITAT PUNE-A ), thus hold that the warehousing receipts are to be assessed as ‘Income from business’ in the hands of assessee X X X X Extracts X X X X X X X X Extracts X X X X ..... o service or amenities provided by the assessee to the lessee in addition to the rented space. The CIT(A) further observed that the objects of partnership deed mentions warehouses given on rent which establishes the case that the partnership was formed only to exploit the property and to derive rental income. Reliance placed on other decisions by the assessee were also distinguished by the CIT(A). The case of the assessee that the activity of warehousing described as 'business' in the Bombay Warehousing Act, 1959 was also not accepted, in view of the ratio laid down by the Pune Bench of Tribunal in the case of Nutan Warehousing Company Pvt. Ltd. (supra). Therefore, the order of Assessing Officer was upheld particularly, in view of directions of jurisdictional High Court. 7. The assessee is in appeal against the order of CIT(A). 8. The learned Authorized Representative for the assessee pointed out that the issue of assessability of warehousing receipts in the hands of assessee is now settled by the Hon'ble Supreme Court in the cases of M/s. Rayala Corporation Pvt. Ltd. Vs. ACIT in Civil Appeal No.6437 of 2016 vide judgment dated 11.08.2016 and Chennai Properties & Investments Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roperty'. The Revenue in this regard has placed heavy reliance on the ratio laid down by the Pune Bench of Tribunal in the case of Nutan Warehousing Company Pvt. Ltd. (supra), which matter travelled up to Hon'ble High Court, which in turn, had set aside the matter to the file of Assessing Officer. 11. After the matter was set aside to the file of Assessing Officer by the Hon'ble High Court in the case of Pune Bench of Tribunal in Nutan Warehousing Company Pvt. Ltd. Vs. DCIT (supra), the matter was decided against the assessee by the Assessing Officer which was confirmed by the CIT(A). However, the Pune Bench of Tribunal in M/s. Nutan Warehousing Company Pvt. Ltd. Vs. DCIT in ITA Nos.1963 to 1968/PN/2013, relating to assessment years 2000-01, 2002-03 to 2006-07, in ITA No.2130/PN/2013, relating to assessment year 2001-02 and in ITA No. 361/PN/2014, relating to assessment year 2008-09, vide order dated 30.09.2016 has in turn relied on the latest decision of the Hon'ble Supreme Court in M/s. Rayala Corporation Pvt. Ltd. Vs. ACIT (supra) and have decided the issue in favour of the assessee holding that warehousing receipts are to be taxed as 'business income'. The relevant findings of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion in this regard counsel appearing on behalf of the assessee has fairly stated that the assessee would not consider that the earlier decision of the Tribunal be regarded as binding. In so far as the decision which is impugned in these proceedings is concerned, the Tribunal has basically relied upon the lease agreement dated March 18, 2001, between the assessee and Hindustan Lever. It is on the basis of the terms of the lease agreement that the Tribunal arrived at a conclusion that the primary purpose of the assessee was to let out the factory and that the income that was derived therefrom could not consequently be regarded as income from business. The submission of the assessee is that the terms on which the assessee entered into warehousing agreements have not been considered at all in the decision of the Tribunal. Now, a perusal of the decision of the Tribunal would show that the Tribunal noted two decisions of the Tribunal, the first in Vora Warehousing P. Ltd. v. Asst. CIT [1999] 70 ITO 518 (Mum) (SMC) where the rent which was realized from warehousing activity was held to be assessable as business income and the second in the case of V. N. Rukari v. ITO in ITA No. 84/PN/20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. as 'income from house property' and treated the warehousing activities carried out by the assessee on the remaining warehouses as 'business income' which has been upheld by the Ld.CIT(A). 34. It is the submission of the Ld. Counsel for the assessee that the main objects to be pursued as per the memorandum of association are construction of warehouses for storage of agricultural goods. Provisions of Bombay Warehousing Act, 1959 are applicable to the assessee company. It is also his submission that the AO was required to examine the terms of the lease deed and decide whether leasing activity is subservient to the warehousing activity or not. Further, if going by the version of the AO, 69% of the total receipts/total area is meant for warehousing activity, in that case, the AO should have accepted that leasing activity is subservient to warehousing activity that being the dominant activity of the assessee. 35. From the various details furnished by the assessee in the paper book, we find the main objects to be pursued by the assessee company on its incorporation are as under : "iii. Objects : The objects for which the Company is established are : Main Objects Of the company t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt From HLL % of Lease Rent to Total Receipts Warehousing charges received from HLL % of warehsg ch. Received from HLL to the total warehsg ch. A B=C+D C D E = (D/B)*100 F G =(F/C)*100 2000 - 01 10,313,426.00 7,598,434.00 2,714,992.00 26.32 4,836,240.00 63.65 2001- 02 17,686,971.33 11,817,590.33 5,869,381.00 33.18 11,066,970.00 93.65 2002 - 03 19,580,172.66 13,910,172.66 5,670,000.00 28.96 11,390,112.00 81.88 2003 - 04 20,431,251.63 13,647,501.63 6,783,750.00 33.20 11,760,877.50 86.18 2004 - 05 19,776,426.00 12,858,926.00 6,917,500.00 34.98 12,279,750.00 95.50 2005 - 06 21,521,078.50 14,570,078.50 6,951,000.00 32.30 11,342,060.00 77.84 38. A perusal of the above break up of the lease rental income from Hindustan Lever Ltd and various other parties vis-à-vis the main objects of the assessee company show that warehousing activity is the dominant activity and leasing out being incidental is subservient. 39. We find merit in the submission of the Ld. Counsel for the assessee that the assessee has constructed several sheds for industrial and warehouse purposes which proves that the leasing is done for exploitation of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he relevant observation of the Hon'ble Supreme Court read as under : "From the aforesaid facts, it is clear that the question which is to be determined on the facts of this case is as to whether the income derived by the company from letting out this property is to be treated as income from business or it is to be treated as rental income from house property. We have heard the learned counsel for the parties on the aforesaid issue. Before we narrate the legal principle that needs to be applied to give the answer to the aforesaid question, we would like to recapitulate some seminal features of the present case. The Memorandum of Association of the appellant-company which is placed on record mentions main objects as well as incidental or ancillary objects in clause III. (A) and (B) respectively. The main object of the appellant company is to acquire and hold the properties known as "Chennai House" and "Firhavin Estate" both in Chennai and to let out those properties as well as make advances upon the security of lands and buildings or other properties or any interest therein. What we emphasise is that holding the aforesaid properties and earning income by letting out those prope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acquiring and disposing of the underground coal mining rights in certain coal fields and it had restricted its activities to acquiring coal mining leases over large areas, developing them as coal fields and then sub-leasing them to collieries and other companies. Thus, in the said case, the leasing out of the coal fields to the collieries and other companies was the business of the assessee. The income which was received from letting out of those mining leases was shown as business income. Department took the position that it is to be treated as income from the house property. It would be thus, clear that in similar circumstances, identical issue arose before the Court. This Court first discussed the scheme of the Income Tax Act and particularly six heads under which income can be categorised / classified. It was pointed out that before income, profits or gains can be brought to computation, they have to be assigned to one or the other head. These heads are in a sense exclusive of one another and income which falls within one head cannot be assigned to, or taxed under, another head. Thereafter, the Court pointed out that the deciding factor is not the ownership of land or leases bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng in the cases referred, to support the proposition that certain assets are commercial assets in their very nature." We are conscious of the aforesaid dicta laid down in the Constitution Bench judgment. It is for this reason, we have, at the beginning of this judgment, stated the circumstances of the present case from which we arrive at irresistible conclusion that in this case, letting of the properties is in fact is the business of the assessee. The assessee therefore, rightly disclosed the income under the Head Income from Business. It cannot be treated as 'income from the house property'. We, accordingly, allow this appeal and set aside the judgment of the High Court and restore that of the Income Tax Appellate Tribunal. No orders as to costs." 41. We find subsequent to the hearing of the appeal before us the Hon'ble Supreme Court in the case of M/s. Rayala Corporation Pvt. Ltd. Vs. ACIT vide Civil Appeal No.6437/2016 order dated 11-08-2016 following the decision in the case of M/s. Chennai Properties (Supra) has decided an identical issue by holding that where the business of the company is to lease its property and to earn rent, such rental income has to be treat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nner of its activities and the nature of its dealings with its property, it is possible to say on which side the operations fall and to what head the income is to be assigned." 5. The learned counsel also submitted that the assessee is a private limited company and even as per its Memorandum of Association its business is to deal into real estate and also to earn income by way of rent by leasing or renting the properties belonging to the assessee company. 6. The learned counsel also drew our attention to the fact that the High Court and the authorities below had come to a specific finding to the effect that the assessee company had stopped its other business activities and was having only an activity with regard to the leasing its properties and earning rent therefrom. Thus, except leasing the properties belonging to the assessee company, the company is not having any other business and the said fact is not in dispute at all. 7. For the afore-stated reasons, the learned counsel submitted that the impugned judgment delivered by the High Court is not proper for the reason that the High Court has directed that the income earned by the appellant assessee should be treated as "Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts of these appeals, in our opinion, the High court was not correct while deciding that the income of the assessee should be treated as Income from House Property. 13. We, therefore, set aside the impugned judgments and allow these appeals with no order as to costs. We direct that the income of the assessee shall be subject to tax under the head "Profits and gains of business or profession". 42. As mentioned earlier, the main objects of the assessee company is to carry on the business of warehousing, cold storage and refrigeration, to provide facilities and godowns for proper and safe storing of valuable agricultural and horticultural produce and to provide godowns and warehousing facilities for goods of all description of agricultural and allied products. Similarly, the other objects of the assessee company also provide to let on lease or hire the whole or any part of the real and personal property of the assessee company. We, therefore, respectfully following the above two decisions of the Hon'ble Supreme Court cited (Supra) hold that the lease income received by the assessee on account of let out of the warehouses/godowns as 'profits and gains from business or profes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on'ble Supreme Court and in view of the ratio laid down by the Pune Bench of Tribunal in M/s. Nutan Warehousing Company Pvt. Ltd. Vs. DCIT (supra), I hold that the warehousing receipts are to be assessed as 'Income from business' in the hands of assessee. The ground of appeal No.1 raised by the assessee is thus, allowed. 13. For assessment years 2004-05 to 2006-07, the assessment proceedings were reopened pursuant to the assessment completed in assessment year 2008-09 and on the said basis, the income was treated as 'Income from property'. Following the same parity of reasoning, there is no merit in the orders of authorities below and reversing the same, the Assessing Officer is directed to compute the income under the head 'Income from business' in the hands of assessee. The grounds of appeal raised in assessment years 2004- 05 to 2006-07 are thus, allowed. 14. The facts and issue in ITA No.1004/PN/2016 along with ITA Nos.1933 to 1935/PN/2016 are identical to the facts and issue in ITA No.1005/PN/2016 . The said partnership firm was also constituted similarly. Where sole activity of the assessee firm was to carry on warehousing activity, following the same parity of reasoning, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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