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TMI Blog2018 (6) TMI 1178X X X X Extracts X X X X X X X X Extracts X X X X ..... nder the head "business and profession‟, however, no depreciation has been claimed as per I.T. provisions in respect of alleged business assets in the profit and loss account over these years. As mentioned in the lease agreement that the property was purchased for the purpose of trading and it is being temporarily leased because market conditions are not good, even though market conditions improved, the assessee neither sold the property nor even increased the rent. Thus, the conduct of the assessee over the years shows that the main purpose of acquisition was to provide the same to the Director at a very nominal rent. We do not find any infirmity in the order of lower authorities for not treating rental income as income from business and profession. Computation of ALV - we are in agreement with the AR that AO has not properly computed the ALV. Accordingly, ALV is directed to be computed on the basis of principle laid down in the decision of Jurisdictional High Court in the case of Tip Top Typography [2006 (5) TMI 55 - MADHYA PRADESH HIGH COURT]. We direct accordingly. Reopening of assessment - Allowance of minimum business expenditure to run the company is concerned, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0/-. Therefore, after considering all the submissions filed by the assessee and after discussing the facts of the case in detail, the A.O. has passed the Assessment order for A.Y. 2012-13 treating the said rental income as income from house property. The A.O. has adopted the prevailing fair market rental value @Rs.1,50,000/- p.m. for the said flat and also given the benefit of deemed interest on the security deposit received by the assessee. The A.O. had also made additions of Business Expenses of ₹ 80,426/- and disallowance u/s. 14A r.w.Rule 8D in the said order. 3. During the financial year relevant to the Assessment year, the assessee has received the same fixed rent of ₹ 25,000/- p.m. as rent without adopting the fair market rental value for the said flat; In view of the above, the assessment for the year under consideration was reopened to assess the escaped income. 4. In response to the notices issued during the scrutiny proceedings, the authorized representative of the assessee company . Smt. Priya R Mehta, from M/s. D.V. Dalai 65 Co., chartered accountants attended from time to time and filed submissions as called for. 5. The assessee company h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erty as its business activity and allowing the income to be treated as income from business and profession as against the treatment by A. O. as Income from House Property. The assessee has also relied on the decisions of the Hon'ble Supreme court in the case of Rayala Corporation (P.) ltd (Appeal no. 6437 to 6441 of 2016 dated. August 11,2016) stating that as per the said decision Even if the assessee has single property, the income has to be treated under the Business income . 5.2. The above explanation submitted by the representative of the assessee is considered. The explanation could not be accepted in view of the following facts and circumstances of the case. (i) The assessee has relied on decisions of the Hon'ble supreme court in the case of Chennai properties 85 investments Ltd., Chennai Vs CIT (Civil Appeal Nos. 4491-4494 of 2004) and Rayala Corporation Pvt. Ltd. vs, ACIT(Civil appeal No.6437::of 2016). On perusal of the decision in the case of Royals, Corporation it is seen that the assessee is in the business 'pf renting its properties and is receiving rent as its business income and shown it under the head income from Business. While deciding th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any reason for not increasing the rent. In support, the copy of the rent agreement dtd. 31.03.1,908 has been submitted by the assessee stating that the said flat is given on rent for a period of one year for a rent of ₹ 25,000/- p.m and in case the agreement is to be extended then the rent of ₹ 30,000/- p.m is to be paid after one year. The agreement was also not registered and it is made on a stamp paper. Further, supplementary agreement dtd. 05.04.1999 is prepared it is agreed to renew the agreement for further period of five years at the same fixed rate of ₹ 25,000/- p.m without citing any reasons. Lease agreement was not submitted for the further period. 5.4. At this juncture, the issue that arises for a consideration is as to whether the income offered by the assessee under the head Business and Profession is correct, or as to whether the income' needs to be assessed under the head Income from House Property . 5.5. In order to come to a conclusion about the correct head of income under which head the receipt is taxable, it would be necessary to run through the relevant provisions of the Income Tax Act, more specifically Section 14, which de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest free security deposits from concerns to whom certain assets were leased out by the assessee and the amount of such deposit was abnormally very high vis-a-vis the market practice. The said security deposit is held as a sham device to circumvent the real rent and hence notional interest on such security deposit has to be assessed as income from house property. Reliance in this regard placed on the judgement of Hon‟ble Punjab and Haryana High Court delivered in e case of CIT vs K.Street Light Electric Corporation [2011] '3$$ ITR 8 / 244 CTR 647. Further, it has also been held by the judiciary, that rate of interest on cost can also be the basis for determining; fair .rent, if there is no better way to estimate rent. The Hontole G,uJ .rat Court in the case of M/s. Sakarlal Balabhai vs. ITO [1975) 100 ITR 97 (Guj) has ruled that in absence of any better way of estimating rent, the rate of interest on cost of building and land may prqvi4e;a reasonable basis for determining the annual letting value, .pf'/'thi* property and more particularly when the property is occupied by. the owner. It is pertinent to mention here that in the instant case the let out proper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 6.6 After taking into consideration the deposit amount received by assessee from the tenant and its expected annual yield of interest it is held that the sum at which the property might reasonably be expected to let out in this instant case is ₹ 14,40,000/- p.a. (24,90,000 - 10,50,000) which is effectively ₹ 1,20,000/- p.m. excluding the notional interest calculated on the deposit received' in view of the provisions of section 23(l)(a) of the Act; The 'said rent income is assessed under the head Income from House Property after giving standard deduction as prescribed u/s 24(a) of the I.T.: Act. However, no deduction on account, of municipal taxes/property taxes is being allowed since no supporting documentary evidence has ,been furnished by the assessee. 6.7 Therefore, an amount of ₹ 14,40,000/- is treated as income house property and standard deduction u/s. 24(b) of ₹ 4,32,000/- (@ 30% of ₹ 14,40,000/-) is allowed. Hence, an amount of ₹ 10,08,OOO/-(14,40,000 -4,32,000) is added under the head income from house property. Penalty proceedings U/s. 271(1)(c) are separately initiated for furnishing inaccurate particulars of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3;. Furthermore, the judicial consistency also requires that there should not be deviation from the conclusions already arrived unless there is a change in the facts and circumstances. However, there is no change in the facts and circumstances during the years under consideration. Accordingly, AO should be directed to assessee rental income so received under the head of income from business and profession. 10. As per learned AR during the years under consideration, AO has changed his opinion and issued notice u/s. 148 treating the rental income as income from house property‟. During assessment proceedings the AO vide its notice u/s.148(1) dated 08/11/2016 had asked the assessee, why an income received from renting of house property should be taxed under the head Income from House Property . 11. It was submitted before the AO that assessee company has always treated the rental income as business income since 1997. However, the Assessing Officer has completed the assessment by treating business income as income from house property. 12. We have considered rival contentions and carefully gone through the orders of the authorities below. We had also deliberated on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the determinative factor to arrive at an conclusion whether the income is to be treated as income form business and such a question would depend upon the circumstances of each case i.e., whether a particular business is letting or not . Further it is pointed out by the hon'ble Supreme court that each case has to be looked at from a businessman's point of view to find out whether the letting was the doing of a business or the exploitation of his property by an owner. A commercial asset is only an asset Used in a business and nothing else, and business may be carried on which practically all things. In 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. 13. From the above conclusion of the Hon'ble Supreme court it is crystal clear that by just having a word in its object clause in itself not sufficient but it should be supported by the circumstances of each case. The facts and circumstances of the present case are completely different from the above mentioned cases on which the decisions were given by the Hon'ble Supreme court. In the pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the case of Rayala Corporation Pvt. Ltd. the Hon‟ble Suprement Court has just followed the decision in the case of and Chennai Properties Investments Ltd., the facts of which we have already discussed hereinabove in detail and the same is not applicable to the facts of the present case as discussed above. We also found that AO has dealt with the issue threadbare and has dealt with each and every argument of the learned AR for not treating rental income as income from business. 15. In view of the above discussion and keeping in view the peculiar facts and circumstances of the instant case, we do not find any infirmity in the order of lower authorities for not treating rental income as income from business and profession. 16. So far as contention of learned AR with regard to the computation of ALV is concerned, we are in agreement with the AR that AO has not properly computed the ALV. Accordingly, ALV is directed to be computed on the basis of principle laid down in the decision of Jurisdictional High Court in the case of Tip Top Typography 368 ITR 300. We direct accordingly. 17. So far as allowance of minimum business expenditure to run the company is concer ..... X X X X Extracts X X X X X X X X Extracts X X X X
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