9911796707
TMI Blog2024 (5) TMI 1416X X X X Extracts X X X X X X X X Extracts X X X X ..... s, CO2 flooding system, carpets, etc. were leased by the appellant company, along with the building, which added substantial value to the building and the lease rentals. The same cannot be said to be inseparable from letting out of the building premises. Assessee is no expected to establish that if these services, amenities and facilities were not available the other party would not have accepted the letting out. The tax authorities should not expect that business entities were supposed to explain, with precision and accuracy, every decision they make, to based on commercial expediency, as understood by the said authority. The tax authority should take notice of transformation of business needs based on new business culture and environment. The user here is not mere tenant but had accepted the possession of building, as a whole, with desired services and amenities made available by the appellant, so that no time, energy and resources are wasted in customizing the building to the needs of user , occupant. The fact that in respect of certain facilities, limits were put up and the user was supposed to pay over and above the limits on consumption basis firmly establishes the fact that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted standard deduction of 30% as per Section 24 of the Act. The Assessing Officer further disallowed certain expenses claimed by the assessee in return of income. 4. The case of the assessee is that there was composite rent received which included not only rent of premises but also includes various services which were suppose to be rendered like electricity, telephone lines, fax lines, water, repair maintenance, insurance carpentry repairs etc. It was also submitted to the Assessing Officer that in the audited account assessee company has claimed various expenses which have been incurred for providing various facilities/services as the composite rent includes various services. It was also submitted that after the rectification deed of 01.04.2009 when rent was reduced from Rs. 80 per sq feet to Rs. 60 per sq feet it was agreed that the tenant shall be liable to pay electricity charges also as per meter reading. The assessee company claimed that the reduction in rent was carried out with a view that user shall bear various expenses which were earlier incurred by the assessee company. It was particularly mentioned that post this rectification deed the services are limited to providing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered the submissions of the Ld. AR and perused the order passed by the AO. I find that the assessee has rented out the premises (which is a commercial complex) along with all interiors furnishing, installations etc. during the previous year 2009-10 and has earned rental income out of it. I have also perused the detail of assets submitted by the appellant. I find that the appellant has rented out the the part of the commercial complex admeasuring 1,56,451 square feet of the area @ Rs. 80 per square feet vide commercial lease agreement dated 14.7.2008. Thereafter, the appellant entered into an amendatory and rectification lease deed dated 10th January, 2010 with retrospective effect from 1.4.2009 by which the rate of rent was reduced from Rs. 80 per square feet to Rs. 60 per square feet on the stipulation that the user shall be liable to pay electricity charges as per meter billing and power backup charges for running DG set and water charges as per meter reading. On perusal of clause 3 and clause 4 of the amendatory agreement, I find that the reduction in the rent was on account of miser position of the user and not that the user will incur expenses for the services provided b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s relied upon by the Ld AR are not applicable to the facts of the case as they were decided on different facts. Therefore, the same are distinguished on facts. Further, I find that the Hon'ble Jurisdictional High Court of Delhi has considered the issue of taxability of income from house property in the case of CIT Vs. Ansal Housing Finance Leasing Co. Ltd. in ITA No. 18/1999 and ITA No. 56-57/2001 in their judgment dated 31.10.2012. Their lordships have discussed the whole jurisprudence on the issue in detail in para 6 to 15. For the sake of the convenience, the same are reproduced as follows: 6. This Court has considered the submission of parties. In East India Housing Land Development Trust (supra) the assessee, incorporated with the object of buying and developing landed properties and promoting and developing markets, purchased land in Calcutta and set up a market. The question was whether the income realized from the tenants of those shops taxable as business income under section 10 of the Income-tax Act or income from property under Section 9. The Supreme Court held that the income derived by the company from shops and stalls was income received from property and fell und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which it gave to the transaction but to the substance of the matter. The Californian Copper Syndicate case ((1904) 5 T. C 159) illustrates vividly dealings with mineral rights and concessions by a company as part of the objects of its business, or, in other words, in the doing of the business. The Calcutta cases and the case of Fry v. Salisbury House Estate Ltd. (1930 A. C. 432) illustrate the contrary Proposition. There, the property, though dealt with by a company intending to do business, was dealt with as landowner. The intention in those cases was not to derive profit by business done with those properties but to derive income by renting them out Where a Company acquires properties which it sells or leases out with a view to acquiring other properties to be dealt with in the same manner, the company is not treating them as properties to be enjoyed in the shape of rents which they yield but as a kind of circulating capital leading to profits of business, which profits may be either enjoyed- or put back into the business to acquire more properties for further profitable exploitation. 7. In Sultan Bros (P.) Ltd. v. CIT[1964] 51 ITR 353 the Supreme Court held that: It seems to us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lls Ltd. AIR 1988 SC 460. it was observed that whether a particular income is income from business or from investment must be decided according to the general commonsense view of those who deal with those matters in the particular circumstances and the conduct of the parties concerned. In O. Rm. Sp. Sv. Firm v. CIT[1960] 39 ITR 327 the Madras High Court held that: Under the Indian Income-tax Act, 1922, the income of an assessee is one and section 7 to 12 of the Act direct the modes in which the income-tax is to be levied. No one of those sections can be treated to be general or specific for the purpose of any particular source of income. They are all specific and deal with the various heads in which an item of income, profits and gains of an assessee falls. These sections are mutually exclusive and where an item of income falls specifically under one head it has to be charged under that head and no other. No doubt in that case the learned judges had to decide whether the interest on securities, which fall under section 8 of the Income-tax Act, also came within the scope of section 10 of that Act. But what applies to section 8 obviously also applies to section 9 in relation to secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ource of income; they are all specific and deal with the various heads in which an item of income, profits and gains of an assessee falls. These sections are mutually exclusive and where an item of income falls specifically under one head it has to be charged under that head and no other. 12. Likewise, in CIT v. Chugandas Co. [1965] 55 ITR 17 (SC) it was held that business income was broken up under different heads under the Income-tax Act only for the purpose of computation of the total income and by that break up the income did not cease to be the income of the business. Therefore, the court observed that: The heads described in Section 6 and further elaborated for the purpose of computation of income in Sections 7 to 10, and 12, 12A, 12AA and 12B are intended merely to indicate the classes of income : the heads do not exhaustively delimit sources from which income arises. It was also held that: even if an item of income is earned in the course of carrying on a business, it will not necessarily fall within the head profits and gains of business within the meaning of section 10 read with section 6(iv). If securities constitute stock-in-trade of the business of an assessee, interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Furthermore, application of ALV to determine the tax is regardless of whether actual income is received; it is premised on what constitutes a reasonable letting value, if the property were to be leased out in the marketplace. If the assessee's contention were to be accepted, the levy of income tax on unoccupied houses and flats would be impermissible - which is clearly not the case. 14. As far as the alternative argument that the assessee itself is occupier, because it holds the property till it is sold, is concerned, the Court does not find any merit in this submission. While there can be no quarrel with the proposition that occupation can be synonymous with physical possession, in law, when Parliament intended a property occupied by one who is carrying on business, to be exempted from the levy of income tax was that such property should be used for the purpose of business. The intention of the lawmakers, in other words, was that occupation of one's own property, in the course of business, and for the purpose of business, i.e. an active use of the property, (instead of mere passive possession) qualifies as own occupation for business purpose. This contention is, therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es (including air conditioners, furniture etc.) along with the premises leased out to Emaar MGF Land Ltd. The CIT(A) has confirmed the opinion of the AO that since the rental income shall be treated as income from house property and expenditure on maintenance of assets are already covered by statutory deduction under section 24(a) of the Act, therefore, the same are not allowable to be claimed as deduction against other incomes in the profit and loss account. Appellant prays that the disallowance of expenditure of Rs. 10,55,911 should be deleted as the receipts from lease of commercial assets should be treated as income from business and profession and therefore the deduction of expenditure on maintenance of assets shall be allowed. Hence, the contentions of the learned AO which have been confirmed by CIT(A) are against the law and accepted judicial pronouncements. Ground No. 4: The CIT(A) has erred in confirming the disallowance made by the AO on account of depreciation amounting to Rs. 6,98,81,906 on assets utilized in the business on the presumption that the rental income should be treated as income from house property and charge of depreciation is already covered by the statuto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of CIT v. Vikram Cotton Mills Ltd.: 169 ITR 597, wherein the Hon'ble Court held that in cases of lease of assets, the intention of the lessor is of significance to determine the nature of rental income earned thereupon from such lease. The relevant part of the judgment relied is reproduced hereunder: 14. In each case the intention has to be gathered from the facts and circumstances of the case as to whether the commercial asset was intended to be exploited by the assessee or whether it was intended to be used by letting it out for a temporary period. In the context of these facts, it was a possible conclusion that the assessee intended that there should be a temporary suspension of the business for the purpose of reconstruction of the company and for that matter there must be stoppage of the user of the machinery by the assessee. It was a temporary lease though for 10 or 19 vears on renewal and after the expiry of the period the property was to revert back to the assessee. It is predominantly a matter of intention. Intention is an inference to be drawn from the relevant facts. XXX 16. On that basis, applying the correct principle, the Tribunal found that the intent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Hon'ble Supreme Court in the case of Universal Plant (supra), the Hon'ble Delhi Bench of the Tribunal in the case of ITO vs. Skipper Properties (P.) Ltd.: 118 TTJ 111, under similar circumstances, held that rental income earned from letting out of a property due to difficult market conditions and with no intention to close down the normal business operations, would be taxable as 'business income'. 13. We have carefully considered the rival submissions in the light of material placed before us. There is no material on record to controvert the fact that for shorter period the assessee had leased out its theatre to two parties mentioned above and the reasons were stated to be the difficult market conditions and the poor health of Director who was looking after such business of the assessee, [reference can be made to para 2.2 page 13 of the order of CIT (A)]. The period for which such lease was given as can be seen from the order of CIT(A) is from assessment year 1998-99 till 31-3-2000. Earlier to this assessee has been carrying out the activity of exhibiting films in its theatre and such income of the assessee was being declared and assessed under the head ' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... each case, including true interpretation of the agreement under which the assets are let out; 3) where all the assets of the business are let out, the period for which the assets are let out is a relevant factor to find out whether the intention of the assessee is to go out of business altogether or to come back and restart the same; and 4) if only or a few of the business assets are let out temporarily while the assessee is carrying out his other business activities, then it is a case of exploiting the business assets otherwise than employing them for his own use for making profit for that business; but if the business never started or has started but ceased with no intention to be resumed, the assets also will cease to be business assets and the transaction will only be exploitation of property by an owner thereof, but not exploitation of business assets. 15. The case of the assessee falls within the situation as envisaged at Sl. No. 3 as in the present case all the assets of the business owned by the assessee have been leased out. If such is a situation then the period for which the assets are let out is a relevant factor. It has already been pointed out that the period of lease ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view of the aforesaid, it was submitted that rental income received from letting out of a property due to difficult market conditions in the real estate market and with no intention to close down the normal business operations, would be taxable as 'business income' as opposed to 'income from house property' assessed by the assessing officer. Even otherwise, considering that the building was constructed with the object of commercially exploiting by way of selling, the commercial exploitation of such property by way of letting, instead of selling, forms an integral part of the main object/business and, therefore, for that reason as well, such rental income would be taxable as 'business income' as against 'income from house property' alleged by the assessing officer in the impugned order. Reference, in this regard was placed on the decision of the Hon'ble Supreme Court in the case of Karanpura Development Co. Ltd. vs. CIT: 44 ITR 362, wherein, according to ld. AR, under similar circumstances, the Court while characterizing the assessee as a trader, held that rental income earned from letting out of the property would be taxable as 'business inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /amenities/assets such as telephone lines, fax lines, EPABX system, signage boxes, internet lines, air conditioners, fire extinguishers refills, hand dryers, furniture, electricity charges, water charges, etc., for the purpose of commercial use in lieu of composite rent receivable thereon. An exhaustive list of facilities and amenities provided by the appellant to Emaar MGF alongwith the office space is enlisted in Exhibit A appended to the Commercial Lease agreement. The relevant clauses of the agreement corroborating the fact that the appellant leased out a commercial complex office space alongwith amenities/ facilities to Emaar MGF were relied and which are reproduced as under: . Whereas E. The owner owns a plot of land admeasuring 1.447 acres in Sikandarpur Chowk, sector, 28, Gurgaon, Haryana reserved and approved for commercial use by the Haryana Urban Development Authority (HUDA). F. AND WHEREAS Owners has constructed a commercial complex on the said plot named as Business Park (hereinafter referred as Commercial complex ) consisting of offices with basements for parking and services. The said commercial complex is a commercial asset for the owner and has been incorporated in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the existing charges as herein above provided. 24. The leased commercial premises will be used by the user as its office for commercial purpose only. User will comply with the rules of the Building adopted and altered by Owner from time to time and will cause all of its agents, employees, invitees and visitors to do so; all changes to such rules will be sent by owner to user in writing. 10.1 It was submitted that on perusal of the aforesaid clauses (clause 'F', 'H' and 19 in specific) and exhibit 'A' to the agreement, it can clearly be established that the appellant did not simply provide a building on lease simpliciter; instead provided a commercial complex equipped with various amenities/facilities for the purpose of commercial use by Emaar MGF in lieu of composite/inseparable rent. Accordingly, it should be appreciated that the rent was received from renting of the commercial complex, equipped with various facilities and services as a whole, as opposed to building/house property simpliciter, which was outside the provisions of taxation under the head 'income from house property' under section 22 of the Act. 10.2 Ld. AR submitted that Commercial Le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome from other sources' and the same is not automatically taxable under the head 'income from house property'. 10.7 Attention in this regard was also invited to the decision of the Hon'ble Karnataka High Court in the case of CIT vs. Velankani Information Systems (P.) Ltd.: 265 CTR 250, wherein the Court held that in case the property is leased as a whole alongwith amenities/facilities, then the lease rental received therefrom would be taxable as business income. The finding of the Court as relied reads as under: 24. This doctrine of inseparability finds a place in these two provisions. The inseparability referred to in the said provision is arising from the intention of the parties. 25. We have to find out in that context what was the intention of the parties in entering into the lease transaction. It is not the number of agreements, which are entered into between the parties which is decisive in determining the nature of transaction. What is the object of entering into more than one said transactions is to be looked into. However, if for enjoyment of lease, the subject matter of all the agreements is necessary, then notwithstanding the fact that there are more th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to exploit commercial property by putting up construction and letting it out for the purpose of getting rental income, then notwithstanding the fact that the furniture and fittings are provided to the lessee, the income from the building fall under the head 'income from house property. But if the assessee is in the business of taking land, putting up commercial buildings thereon and letting out such buildings with all furniture as his profession or business, then notwithstanding the fact that he has constructed a building and he has also provided other facilities and even if there are two separate rental deeds, it does not fall within the heading of income from house property. Therefore, firstly what is the intention behind the lease and secondly what are the facilities given along with the buildings and documents executed in respect of each of them is to be seen. Thirdly it is to be found out whether it is inseparable or not. If they are inseparable and the intention is to carry on the business of letting out the commercial property and carrying at complex commercial activity and getting rental income therefrom, then such a rental income falls under the heading of profits and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be taxed as 'business income', the same can be taxed under the head 'income from other sources' and accordingly, expenses incurred for earning of such income would be allowed as deduction under clause ii) of section 57 of the Act. Accordingly, expenses aggregating to Rs. 10,55,911, tabulated below, incurred for the purpose of earning lease rental of Rs. 10,87,64,735 would be allowable under section 57 of the Act: S.No Particulars Amount 1 EKO pro engineers (P) Ltd. Evm Monitoring 24.266 2 ETA Melco Engg Co (P) Ltd. AMC 3,76,652 3 Goojar mal Ganpat Rai (P) Ltd., Repair charges for utronic sensor 16,527 4 ThyssenKrupp Elevator (India) (P) Ltd. AMC for elevator 83,768 5 Voltas AMC of AC 1,01,644 6 Daga Trading Co (P) Ltd. Repair work at building 29,315 7 Insurance 4,23,739 Total 10,55,911 11.2 Further, the appellant is also entitled to claim depreciation of Rs. 6,98,81,906 including depreciation of Rs. 2,81,24,572 in relation to assets other than building). Reliance, in this regard was placed on the decision of the Hon'ble Delhi High Court in the case of Jay Metal Industries (P) Ltd. vs. CIT: 396 ITR 194, wherein, the Court, under similar circumstances, held that r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r MGF land Ltd.) and reimbursed by the assessee. Ld. Sr. DR submitted that the assessee has not received reimbursement Of Rs. 1.43 crores spent on duel charges for DG set, which were required to be paid/borne by lessee. 12.2 Ld. Sr DR submitted that It was submitted that the assessee the claimed that the desired complex is under construction, and the same is leased to commercially exploit it for temporary period. The said fact is not acceptable as not CWIP is appearing in books. It was submitted that Appellant s intention was to treat the complex leased as stock-in-trade. Thus, appellant not entitled to depreciation on stock-n-trade. Since, decisions are taken by Emaar MGF Land Ltd. (ultimate holding company) and expenses also incurred by it, which are later reimbursed by the appellant company, the appellant is incorporated to only enjoy rental income and, therefore, said income cannot be taxed as business income. It was also submitted that the contention of the appellant that it had constructed the complex to sell but the same is let out due to lull period in the real estate market, is a new contention nor raised before lower authorities. The appellant must not be allowed to raise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s justified to contend that the only submission of the assessee before the lower authorities was that the area surrounding the subject property was not fully developed at the time of completion and, therefore, was not fetching the desired price for sale. It was submitted that, on further development of the area in future. The reference was made to page 28 of PB- CIT(A) submissions; and page 64-submissions before AO. Further it comes up that appellant had categorically stated before the lower authorities, i.e., assessing officer and the CIT(A) that - As a prudent business person, the assessee has taken a decision of letting its commercial property instead of keeping it idle and earning lease rent for its use, till it finds potential buyer at right price [refer pages 57-78 @ 64 of PB- Submissions before AO dated 20.10.2014; and page 21-56 @ 28 of PB- CIT(A) Submissions]. The explanation only establishes how the subject property was a business asset held for the purpose of sale, and temporary letting out was thereof for the purpose of meeting the business requirements of the assessee for a limited period of time and to tide over a difficult period/market crisis. 13.2 Then the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciation under section 32 of the Act is that the asset must be put to use for business purpose. In the present case, the subject asset, i.e, commercial complex was put to use for the purpose of business by way of lease, and therefore claim of depreciation thereon is justified. We find logic in the contention of Ld. AR that even if the composite rent is treated as income from other sources under section 56(2)iii), the depreciation is clearly admissible in terms of section 57(ii) of the Act. His reliance on Jay Metal Industries (P) Ltd. vs. CIT: 396 ITR 194 (Del), Oriental Building Furnishing Co. Ltd. vs. DCIT: 53 ITD 198 (Del Trib.), Serendipity Apparels (P.) Ltd. vs. ITO: 78 Taxmann. Com 154 (Ahmedabad - Trib.), is appropriate. 13.5 It may be noted that leased building may be a - (1) building simpliciter, without any facilities/infrastructure; or ii) a building with various/ substantial amenities, plants and machineries, furniture etc. While the former shall undisputedly be taxable under the head of income from house property, the latter would be outside the ambit of taxation under that head. 14. After taking into consideration the aforesaid, we are of the considered view that there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aryana for running and operating its office for commercial purpose. However the owner will handover space as ear marked by the user immediately on signing of this lease deed for fit outs and installation of various facilities by the user as per its requirements. 23. The above charges specified under clause 3 is inclusive of House Tax/ Property Tax or any other levies as currently imposed by the local authorities or may be imposed by the local authorities in the future, back up power for running DG sets, other facilities and amenities including the car parking space in the basement and other administration expenses for the leased office space as agreed between the parties upto limits specified in the Exhibit A . In respect of usage of certain facilities above the limits, the User will pay for the water charges, charges for electricity, telephone and other facilities and amenities fixed as metered charged in addition to the existing charges as herein above provided. 24. The leased commercial premises will be used by the user as its office for commercial purpose only. User will comply with the rules of the Building adopted and altered by Owner from time to time and will cause all of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the possession of building, as a whole, with desired services and amenities made available by the appellant, so that no time, energy and resources are wasted in customizing the building to the needs of user , occupant. 16. The fact that in respect of certain facilities, limits were put up and the user was supposed to pay over and above the limits on consumption basis firmly establishes the fact that it was not merely a tenancy/lease agreement, but, the intention was to exploit the commercial asset. 17. Lastly, the ld. DR has primarily relied two judgements in the case Shambhu Investments (P) Ltd. vs. CIT [2003] 129 Taxman 70 (SC) and East India Housing and Land Development Trust Ltd. vs. CIT [1961] 42 ITR 49 (SC). The judgement of the Hon ble Supreme Court in the case of Shambhu Investments (P) Ltd. has been considered by the coordinate Bench in the case of M.M. Creations (supra) as relied by Ld. AR and we consider it relevant to reproduce paras 20 to 23 as below:- 20. It is settled legal position that each case has to be decided on its own facts including construction of the agreement, under which assets have been let out or handed over to a third party and no precise test can be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their Lordships had an occasion to elaborately deal with judicial precedents on whether rental income could be taxed under head business profits, and their Lordships concluded as follows: Taking a sum total of aforesaid discussions, it clearly appears that merely because income is attached to any immovable property cannot be the sole factor for assessment of such income as income from property; what has to be seen is what was the primary object of the assessee while exploiting the property. If it is found, applying such test, that main intention is for letting out the property, or any part thereof, the same must be considered as rental income or income from property. In case, it is found that the main intention is to exploit the immovable and property by way of complex commercial activities, in that event, it must be held as business income. 8. It is thus clear that when a property is exploited by way of complex commercial activities , income so earned by exploiting the property is to be taxed as business income. Viewed in this perspective, and having regard to the fact that it is not a case of simplicitor renting of premises but significant value addition to premises by providing ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
