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TMI Blog2018 (11) TMI 127X X X X Extracts X X X X X X X X Extracts X X X X ..... treats the income generated from leave and licence fees as business income, the AO is duty bound to allow depreciation to the assessee on the asset generating such income. In such eventuality, the income which would ultimately be determined would be lesser than the income offered by the assessee, hence, prejudicial to the interest of Revenue. It is also relevant to observe, in assessee’s own case for A.Y. 2009-10 the AO while completing the assessment under Section 143(3) of the Act has accepted the income generated from leave and licence fees of the building as income from house property. The assessment order so passed has neither been revised nor reopened. That being the case, the Department cannot be allowed to take different stand in different assessment years with regard to head of income generated from leave and licence fees. Allowance of assessee’s claim of deduction under Section 24(b) on account of interest on borrowed capital - Loan availed by the assessee was for the purpose of construction of building - Held that:- It is a clearly established fact that vide sanction letter dated 20.04.2006 the HDFC bank did not disburse any fresh loan to the assessee but the outstand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income on 29th October 2007, declaring total income of ₹ 2,09,11,640. The return of income filed by the assessee was selected for scrutiny and after verifying the books of account and other documents, the Assessing Officer completed the assessment under section 143(3) of the Income Tax Act, 1961 (for short the Act ) vide order dated 24th December 2009, determining the total income at ₹ 2,17,41,730. Subsequently, the Assessing Officer being of the opinion that leave and license fee received by the assessee should be assessed as income from business, instead of income from property, re opened the assessment under section 147 of the Act by issuing a notice under section 148 of the Act on 30th March 2012. During the re assessment proceedings, when the Assessing Officer called upon the assessee to explain why the leave and license fee should not be assessed as business income, the assessee objected to it by submitting elaborate submissions supported by judicial precedents to justify its claim that such income should be assessed as income from house property. The Assessing Officer however, did not find merit in the submission of the assessee. He observed that the property i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer. 5. The learned Departmental Representative (D.R.) relying upon the observations of the Assessing Officer submitted, while completing the original assessment the Assessing Officer has not examined the issue relating to the proper head under which the rental income is to be assessed. Therefore, he submitted, there being no change of opinion, re opening of assessment under section 147 of the Act is valid. In support of his contention, the learned Departmental Representative relied upon the decision of the Hon'ble Gujarat High Court in CIT v/s Neha Builders Pvt. Ltd., [2008] 296 ITR 661 (Guj.). 6. So far as the merits of the issue is concerned, the learned Departmental Representative submitted, since the assessee is holding the property as stock in trade and is in the business of leasing out property, the rental income derived by the assessee is to be treated as business income. 7. The learned Authorised Representative (A.R.) strongly supporting the decision of the learned Commissioner (Appeals) submitted, the assessee is not in the business of leasing property but is a real estate developer and builder. Therefore, rental income derived by the assessee cannot be tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tative submitted, while completing the original assessment under section 143(3) of the Act the Assessing Officer after examining the issue has accepted assessee s claim of house property income. He submitted, in the absence of any other tangible material, the Assessing Officer could not have re opened the assessment on the basis of very same material available at the time of original assessment. He submitted, even though the re opening of assessment is within the period of four years, however, the Assessing Officer cannot exercise his power under section 147 of the Act on a mere change of opinion just to change the head of income from income from house property to income from business. Thus, he submitted, the re opening of assessment under section 147 of the Act is also invalid. In this context, he relied upon the decision of the Hon'ble Supreme Court in CIT v/s Kelvinator of India Ltd., [2010] 320 ITR 561 (SC). 8. We have considered rival submissions and perused materials on record. We have also applied our mind to the decisions relied upon. As far as the factual aspect of the issue is concerned there is no dispute between the parties. The only dispute is with regard to pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . What is required to be examined is the intention of the assessee whether to exploit the property as owner or engage itself in an organized and systematic activity of constructing, developing and building house property and giving them on lease along with other services for earning rental income. As can be seen from the objects of the assessee as contained in the Memorandum and Articles of Association, the primary object of the assessee is not to construct, develop and lease them out for earning rental income but to engage itself as real estate developer. Therefore, as it appears from the facts on record, the business of the assessee is not letting out properties for earning rental income. In case of Chennai Properties and Investment Ltd. (supra) the Hon'ble Supreme Court held the income derived from letting out of property as business income only because the building was constructed by the assessee for earning rental income as per the object of the company. The same view was again expresses by the Hon'ble Supreme Court in the case of Rayala Corporation Ltd. (supra). However, in the case of Raj Dadarkar Associates (supra) the Hon'ble Supreme Court, taking note of its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed capital. 11. The brief facts of the case are, for the impugned assessment year the assessee filed its return of income on 27.09.2009 declaring total income of ₹ 3,46,39,786/-. In the course of assessment proceedings, the AO noticed that while computing the income from house property the assessee has claimed deduction of ₹ 1,08,60,299/- under Section 24(b) of the Act towards interest and pre-payment charges. After calling for necessary details from the assessee and examining those AO found that as per the sanction letter from HDFC Bank the loan was obtained subsequent to leasing out of the property. Therefore, he called upon the assessee to explain why interest payment should not be disallowed. In response to the query raised by the AO it was submitted by the assessee that initially the assessee had borrowed ₹ 15 crores in the year ending 31.03.2005 for construction of the building. It was submitted, during the financial year 2005-06 the assessee has repaid an amount of ₹ 6 crores and the outstanding loan as on 31.03.2006 was ₹ 16 crores. It was submitted, the aforesaid loan amount was converted to EMI based loan as per the sanction letter dated 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ued by the HDFC bank submitted that the loan of ₹ 15 crores was sanctioned for construction of house. He submitted, the assessee took further loan of ₹ 7 crores as on 31.03.2006 and the outstanding loan payable by the assessee stood at ₹ 15 crores. He submitted, on 01.07.2006 the assessee entered into a loan agreement with the HDFC bank under which the outstanding loan payable by the assessee was converted to a new loan. To substantiate such fact the learned A.R. drew our attention to different clauses of the loan agreement, a copy of which is placed at page 79 of the Paper Book. The learned A.R. submitted, in realty the assessee did not receive any fresh loan but the old outstanding loan availed by the assessee for construction purpose was termed as new loan. Thus, he submitted, the learned CIT(A) was justified in allowing the claim of the assessee. Without prejudice to the aforesaid submission, the learned A.R. submitted that interest payable on a fresh loan raised to repay the original loan taken for construction/buying property is also allowable as deduction as per CBDT Circular No. 28 dated 20.08.1969. 14. We have considered rival contentions and perused t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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