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TMI Blog2005 (12) TMI 214X X X X Extracts X X X X X X X X Extracts X X X X ..... ubewell, pump maintenance, etc., have been incurred through self-made vouchers which are not properly verifiable, therefore, he disallowed Rs. 10,000 out of such expenses claimed and added the same in the income of the assessee and, therefore, completed the assessment at an income of Rs. 35,89,430 vide order dated 25-11-2003 passed under section 143(3) of the Income-tax Act. 2.1 On examination of the assessment record, it was noticed by the Ld. CIT that the assessee-company has claimed various expenses to the tune of Rs. 17,54,266 for extending service facilities to its tenants. It was further found by the Ld. CIT that statutory deduction on account of repairs and collection has already been claimed and allowed while computing the rental income, therefore, the excess expenses of Rs. 17,54,264 on account of repairs and maintenance in addition to statutory deduction resulting loss to the revenue, and accordingly, the Ld. CIT was of the view that the assessment order passed under section 143(3) dated 25-11-2003 is bad in law and is erroneous insofar as it is prejudicial to the interest of the revenue and, accordingly, issued a show-cause notice under section 263 as to why necessary d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her submits that from the last 5 decades it is being shown and accepted as such by the revenue except in the assessment year 1970-71 in which the claim of the assessee has been accepted by the then AAC of Income-tax vide order dated 15-11-1972 for assessment year 1970-71. He further submits that the assessee's accounts arc audited and in the annual report of the audited accounts the assessee has shown 'rental income' and 'service charges' separately and has claimed expenses as per Profit and Loss Account allowable under the Act. He further submits that the Assessing Officer after examining the books of account and the details has accepted the 'rental income' under the head "Income from house property" and 'service charges' under the head "Profits and gains of business" which is as per law laid down by the Hon'ble Supreme Court in the case of Karnani Properties Ltd. v. CIT [1971] 82 ITR 547 and also by the CBDT Circular No. 33 of 1941, dated 23-5-1941 appearing at page 1 of the assessee's Paper book. The reliance was also placed on the decision of Tribunal 'E' Bench, Kolkata in the case of Joint CIT v. Shree Govind Property & Investment (P.) Ltd. [IT Appeal No. 177/Cal./1999, dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rely applicable to the facts of the present case. As the assessee is receiving composite monthly rent including service charges as per tenancy agreements filed by the assessee in his paper book, therefore, there is no error in the order of the Ld. CIT in setting aside the issue to the file of the Assessing Officer. He further submits that since the Assessing Officer has failed to make proper enquiry, therefore, under the provisions of section 263, Commissioner has the power to set aside the assessment. The reliance was also placed on the decisions in the cases of Gee Vee Enterprises v. Addl. CIT [1975] 99 ITR 375 (Delhi), CIT v. South India Shipping Corpn. Ltd. [1998] 233 ITR 546 (Mad), CIT v. M.M. Khambhatwala [1992] 198 ITR 144 (Guj.) and CIT v. Bhagwan Das [2005] 272 ITR 367 (All.). He, therefore, submits that the order passed by the Ld. CIT under section 263 be upheld. 6. In the rejoinder, the Ld. Counsel for the assessee submits that as per tenancy agreements monthly rent and service charges are separately described and mentioned, therefore, there is no composite rent. He further submits that in the bills also the assessee has shown monthly rent and service charges separately ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al E. & O.E. -------------------------------------------------------- Please pay by crossed cheque only. For A.H.A.H. Properties (P.) Ltd. Sd/- Accountant Sd/- Authorised Signatory" However, it is observed that the above bill dated 1-10-2005 is relevant to the financial year 2005-06 corresponding to the assessment year 2006-07 and not relevant to the year under consideration. We further find that in the annual return of accounts for the previous year 2000-01 relevant to assessment year 2001-02, the assessee has shown rent and service charges separately in his gross income as under:- --------------------------------------------------- Rent (Gross) Rs. 50,78,612.43 Corporation Tax Realised Rs. 6,30,211.32 Service Charges Rs. 7,67,932.26 Dividend on Long-Term Inventories Rs. 90.00 Miscellaneous Receipts Rs. 1,132.24 Interest on Fixed Deposit Loan (Gross) Rs. 8,13,833.00 ----------------- Rs. 72,91,811.25 --------------------------------------------------- We further find that in the return of income for the assessment year under consideration 2001-02, the assessee has shown rental income under the head "Income from house property" and service charges under the head "Profit and g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... total of the aforesaid decisions it clearly appears that merely because income is attached to any immovable property that 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 the main intention is for letting out the property or any portion 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 property by way of complex commercial activities in that event it must be held as business income." 8.1 In the light of the above test, it has been observed by the Hon'ble Calcutta High Court that services rendered to the various occupants according to the said agreement are not separately charged and the monthly rent payable is inclusive of all charges to the assessee, therefore, it has been held that by the said agreement the parties have intended that such letting out would be an inseparable one. It has been further held that the prime object of the assessee under the said agreement was to let out the portion of the said property t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the officer was erroneous and not warranted by law, the jurisdiction of the Commissioner under section 263 of the Act was not ousted. It has been further held that the Commissioner in exercise of his power of revision can pass such order as the circumstances of the case would justify including an order directing a fresh assessment and lastly it has also been held that the order of the ITO which was the subject-matter of revision before the Commissioner of Income-tax under section 263 of the Act did not merge with the order of the First Appellate Authority as the subject-matter of appeal before the First Appellate Authority was different. 11. In M.M. Khambhatwala's case, relied on by the Ld. Departmental Representative, it has been held that the Commissioner would be entitled to revise the order of the ITO, if he is of the view that the order of the ITO is erroneous and prejudicial to the interests of the revenue. The CIT can exercise his power under section 263 of the Income-tax Act, even in a case where the issue is debatable. Revisional powers under section 263 are not comparable with powers of rectification of mistake under section 154 of the Income-tax Act. 12. In Shri Bhagwa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt sources, it should not have been allowed by the High Court to change its case, (ii) that, on the facts, the services rendered by the assessee to its tenant were the result of its activities carried on continuously in an organized manner, with a set purpose and with a view to earn profits; those activities were business activities and the income arising therefrom was assessable under section 10 of the Income-tax Act, 1922. 14. Requirements for exercise of power of revision under section 263 have been considered by the Hon'ble Apex Court in the case of Malabar Industrial Co. Ltd. The relevant portion of the said judgment is as follows: "The phrase 'prejudicial to the interests of the revenue' has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. For example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of Revenue, or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an organized manner, kept a large number of staff to perform all such duties, maintained regular books of account in a systematic & organised manner consistently from last so many years and keeping in view the consistency and also in the absence of any contrary material brought on record by the revenue to show that all such expenses claimed by the assessee are not allowable under the head "Profits and gains of business or profession" or the assessee has not incurred such expenses or the expenses claimed by the assessee are fictitious or the similar expenses have been allowed under the head "Income from house property" or the Assessing Officer has made no enquiry or the view taken by the Assessing Officer in allowing such expenses is not a possible view permissible under the law, we are of the view that the Ld. CIT has erred in holding that once the deduction under section 24 of the Income-tax Act is fully allowed to the assessee-company from rental income, the extra expenses for repairs and maintenance, etc., are not allowable and in setting aside the issue for limited purpose to the file of the Assessing Officer for fresh consideration and accordingly, the order passed by the Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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