2013 (12) TMI 128 - AT - Income Tax

Tribunal allows appeals for assessment years 2003-2010 due to reasonable cause

The Tribunal condoned the delay in filing appeals for assessment years 2003-04 to 2009-10 due to a reasonable cause and bonafide belief of the assessee. ... Condonation of delay for mistake of counsel - income from house property versus business income - primary object test - inapplicability of notional rent under Section 23(1) to business assetsCondonation of delay for mistake of counsel - Delay in filing appeals of 513 days before the Tribunal was condoned. - HELD THAT: - The Tribunal accepted the affidavit of the company's director and found that the assessee had acted bonafidely on the advice of its then Chartered Accountant and only filed appeals after engagement of new counsel who advised otherwise. The Tribunal applied established precedents that mistake of counsel or agent may, in certain circumstances, constitute a reasonable cause for condonation of delay. The Tribunal noted and relied upon earlier decisions including the ratio in Concord of India Insurance Co. Ltd. and the principle affirmed in N. Balakrishnan and related authorities, and followed its own decision in Phoenix Mills Ltd. , concluding that the facts justified condonation of the delay for all years.Delay condoned and appeals admitted for adjudication.Income from house property versus business income - primary object test - For assessment years 2003-04 to 2006-07 the receipts from letting of the shed were held to be income from house property and not business income. - HELD THAT: - Applying the primary-object test as explained by the Supreme Court in Shambhu Investment (P.) Ltd. , the Tribunal examined the factual matrix and found that the assessee never used the shed for its own business, the shed was constructed with funds of the holding company and was immediately let to the holding company at a fixed rent, and only nominal amounts were spent on plant and machinery and fittings. These facts indicated that the asset was not exploited for complex commercial activities by the assessee but was effectively let out for the holding company's use. On that basis the Tribunal agreed with the AO and CIT(A) that the income ought to be assessed as income from house property rather than business income.Appeals for assessment years 2003-04 to 2006-07 dismissed.Inapplicability of notional rent under Section 23(1) to business assets - income from house property versus business income - primary object test - For assessment years 2007-08 to 2009-10 no notional rental income could be assessed under Section 23(1) because the shed was held to be a business asset. - HELD THAT: - Although the AO assessed notional rent on the basis that rent had accrued despite non-receipt, the Tribunal held that where the asset is a business asset (as already determined on the facts), the provisions for computation of notional rent under Section 23(1) (which govern deemed income from property) do not apply to create a notional income. Having earlier concluded that the shed was a business asset and not exploited by the assessee for its commercial activities, the Tribunal found that no notional income under Section 23(1) could be computed and accordingly allowed the appeals for these years.Appeals for assessment years 2007-08 to 2009-10 allowed.Final Conclusion: Delay in filing the appeals was condoned. On merits, appeals for AYs 2003-04 to 2006-07 were dismissed holding the receipts to be income from house property, while appeals for AYs 2007-08 to 2009-10 were allowed holding that no notional rent under Section 23(1) could be computed as the shed was a business asset. Issues:- Condonation of delay in filing appeals- Characterization of rental income as business income or income from house propertyCondonation of Delay in Filing Appeals:The Appellate Tribunal ITAT Mumbai addressed the issue of condonation of delay in filing appeals against the order of the CIT(A) for assessment years 2003-04 to 2009-10. The assessee's appeals were late by 513 days, with the Director of the Company providing an affidavit explaining the delay. The assessee initially did not file appeals based on advice from their former Chartered Accountant, but upon changing counsel, appeals were filed promptly. The Tribunal considered the bonafide belief of the assessee and cited precedents where delay was condoned due to mistakes of counsel. Relying on various decisions, including the case of Phoenix Mills Ltd., the Tribunal concluded that there was a reasonable cause for the delay and thus condoned the delay in filing the appeals.Characterization of Rental Income:Regarding the characterization of rental income as business income or income from house property, the Tribunal examined appeals for assessment years 2003-04 to 2006-07 and 2007-08 to 2009-10. In the former period, the AO assessed the lease rent as income from house property instead of business income claimed by the assessee. The Tribunal found that the assessee had not utilized the business asset for commercial purposes, as the shed was immediately rented out to the holding company after construction. Citing the decision in Shambhu Investment (P.) Ltd., the Tribunal held that the rental income should be assessed as income from house property since the asset was not used for business purposes by the assessee. Consequently, the appeals for the earlier years were dismissed. However, for the later assessment years where no rental income was received, the AO assessed notional income. The Tribunal disagreed, stating that as the shed was a business asset, Section 23(1) did not apply, and no notional income could be computed. Therefore, the appeals for the later years were allowed.In conclusion, the Tribunal dismissed the appeals for assessment years 2003-04 to 2006-07 and allowed the appeals for assessment years 2007-08 to 2009-10 based on the characterization of rental income and the application of relevant legal provisions.