2018 (3) TMI 1509 - AT - Income Tax

Warehousing receipts classified as business income, not house property. Sec. 147/148 proceedings invalid. Assessee appeals allowed.

M/s. Tulsi Shipping Private Limited Versus ITO-2 (3) (3), Mumbai

M/s. Tulsi Shipping Private Limited Versus ITO-2 (3) (3), Mumbai - TMI Issues Involved:1. Nature and treatment of amounts received from warehousing activity.2. Validity of the proceedings initiated under Sec. 147/148 of the Income Tax Act for Assessment Year 2008-09.Issue-wise Detailed Analysis:1. Nature and Treatment of Amounts Received from Warehousing Activity:The primary controversy in both appeals pertains to whether the receipts from warehousing activities should be treated as 'business income' or 'income from house property'. The assessee argued that these receipts should be treated as 'business income' as they arise directly from regular business activities and not from mere letting of property. The Assessing Officer, however, treated these receipts as 'income from house property', leading to the reassessment of income for the years under consideration.The assessee, a company engaged in the business of shipping and warehousing agency, maintained that the warehousing facility was integral to its business operations, providing temporary storage solutions to importers. The assessee emphasized that the warehousing services included auxiliary services such as pest control, security, and safe storage, which are not typical of mere property letting. The invoices raised on clients supported the claim that the warehousing space was provided on a 'need' basis without any specific earmarked space being rented out.The Tribunal considered the nature of the warehousing activity and the manner in which the property was used. It referred to precedents such as the Hon'ble Supreme Court's decision in M/s. Rayala Corporation Pvt. Ltd. vs ACIT and the Hon'ble Madras High Court's decision in CIT vs NDR Warehousing (P.) Ltd., which supported the assessee's stance that income from warehousing, involving significant business operations, should be treated as 'business income'. The Tribunal also noted that in previous assessment years (2006-07 and 2007-08), similar receipts were treated as 'business income' and there was no change in facts or law to justify a different treatment for the years under consideration.2. Validity of the Proceedings Initiated Under Sec. 147/148 for Assessment Year 2008-09:The proceedings for Assessment Year 2008-09 were initiated under Sec. 147/148 on the grounds that the income from godown rent should have been taxed as 'income from house property' based on the Hon'ble Supreme Court's decision in Shambhu Investment Pvt. Ltd. vs CIT. The assessee challenged the validity of these proceedings, arguing that the reopening was based on a mere change of opinion without any new material or change in facts.The Tribunal observed that the judgment in Shambhu Investment Pvt. Ltd. was available even at the time of the original assessment, and the Assessing Officer had not provided any new tangible material to justify the reopening. The Tribunal emphasized the principle of consistency, noting that the income from godown rent had been consistently treated as 'business income' in previous assessments, and there was no justification for a departure from this accepted position.The Tribunal concluded that the reopening of the assessment was flawed and based on a mere change of opinion, which is impermissible. Therefore, the initiation of proceedings under Sec. 147/148 was held to be invalid.Conclusion:The Tribunal held that the receipts from warehousing activities should be treated as 'business income' and not 'income from house property'. Additionally, the proceedings initiated under Sec. 147/148 for Assessment Year 2008-09 were deemed invalid. Consequently, both appeals of the assessee were allowed.