TaxTMI 
TaxTMI 
2012 (9) TMI 328
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....red on facts and in law in not allowing deduction of expenditure of Rs.9,46,188/- incurred by the appellant u/s 57(iii) of the Act and in restricting the deduction to 15% of lease rental income, while computing income from other sources. 2.2 That further without prejudice, the CIT(A) erred on facts and in law in not appreciating that aforesaid expenses to the extent incurred for maintaining the corporate entity of the appellant are to be allowed deduction in computing the total income under the Act. The appellant craves leave to add to, amend, alter, or vary the above grounds of appeal at or before the time of hearing. ' 2. Facts, in brief, as per relevant orders are that return declaring loss of Rs.3,87,340/-filed on 23.12.2008 by the assessee, after being processed on 8.8.2009 u/s 143(1) of the Income-tax Act, 1961 (hereinafter referred to as the Act), was selected for scrutiny with the service of a notice u/s 143(2) of the Act issued on 11.08.2009. During the course of assessment proceedings, the Assessing Officer (A.O. in short) noticed that the assessee company incorporated on 1.9.1981,reflected lease charges of Rs.12,73,200/- from letting of its property, under the h....
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....is apparent from lease agreement signed on 18.8.2003 at Mumbai. So as per wording of the lease agreement, the lease rent has been decided as on 18.8.2003 for 10 years. So it is beyond stretch of imagination as to what expenses requires to be incurred in connection with earning rental income. Furthermore, I am putting my reliance on the judgment of the Hon'ble Mumbai ITAT in the case of DCIT Vs. Vaishnav S. Puri (HUF) reported at 2011-58 DTR (Mumbai)(Trib) 26, wherein, Hon'ble Mumbai ITAT has decided the issue as under:- Held: It is well-settled that house-keeping, however, profitable it may be, can never amount to a business activity. A perusal of the business service agreement, shows that this is not a case of a business center being let out to various concerns during the year, in which case it could possibly be argued that the assessee was predominantly carrying on a business and the intention was to exploit a commercial asset. The assessee does not provide any services. From the P&L a/c for the year ended 31st March, 2003. It is seen that the total salaries paid by the assessee were only Rs.1,04,880/-. There were thus no services provided by the assessee which are normally prov....
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....ine floor was leased to PNB. The income from the said premises has been assessed as business income since beginning. Relying upon decisions in Narain Swadeshi Weaving Mills. Vs. CEPT,26 ITR 765(SC);Mazagaon Dock Ltd. vs. CIT, 34 ITR 368 (SC); 26 ITR 765(SC), CIT vs A Dharma Reddy,73 ITR 751(SC),CIT vs. Upasna Hospital,225 ITR 845 (Ker.,), Dr. P Vadamalayan vs. CIT,74 ITR 94(Mad.), the ld. AR argued that the AO himself had admitted lease charges as income from the business in the preceding years and no new facts emerged in the year under consideration. Relying upon principles of consistency and decisions in the case of Radhasoami Satsang Vs. CIT, 193 ITR 321(SC); DIT(E) V. Apparel Export Promotion Council, 244 ITR734 (Delhi); CIT Vs. Neo Polypack (P) Ltd; 245 ITR 92 (Delhi) & CIT vs. Girish Mohan Ganeriwala,260 ITR 417(P&H). the ld. AR added that income had to be assessed as business income. The ld. AR further pointed out that the income from letting out of commercial assets by a business has to be assessed as income u/s 28 of the Act. In this connection, the ld. AR referred to decisions in SG Mercantile Ltd. vs. CIT,83 ITR 700(SC);CIT vs. Ajmera Industries Pvt. Ltd.,103 ITR 245(Cal....
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....e mezzanine floor in the building known as Raj Mahal situated at plot No.5, Block A-1, Veer Nariman Road, Mumbai at a monthly rent of Rs.84,880/- pm. The lease commenced from 13.04.2002 and is for 10 years ending 12th April, 2012 with 25% increase after every three years. Earlier the said property comprising four garages admeasuring about 800 sq. ft. and 375 sq. ft. on mezzanine floor had been leased to New Bank of India in terms of leave and license agreement dated 13.4.1982 at a monthly fee of Rs.11,000/- pm.. The courts have dwelt upon in a number of decisions as to whether income from letting or subletting a property is to be assessed under the head 'Income from House property' or 'Income from other sources' or 'Profits and Gains or Business or Profession' . In CIT vs. National Storage Private Ltd.(Bom.), 48 ITR 577(Bom.),Hon'ble High Court arrived at the following conclusions : " 1. Income-tax is a single tax levied on the total income classified and chargeable under the various heads and not an aggregate of the distinct taxes levied separately on each head of income. 2. That the heads of income in section 6 of the Act are specific heads, which are exclusive and exhaustive. ....
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....properly so called so as to fall under section 9 but income from operations of a trading nature falling under section 10 of the Act ; and 7. In cases where the letting is only incidental and subservient to the main business of the assessee, the income derived from the letting will not be the income 'from property falling under section 9 and the exception to section 9 may also come into operation in such cases. " 6.1 Following the aforesaid decision in CIT vs. Associated Building Co. Limited.,137 ITR 339(Bom.), Hon'ble High Court found that the building in question constructed as early as in 1920 and was let out at that time. The airconditioning plant was put up and the auditorium constructed several years later, in 1949. The maintenance of the air-conditioning plant required the service of a sizable staff, some of whom would have to be specialised in the work of maintaining an air-conditioning plant. Similarly, along with the auditorium, which was constructed, additional services have been provided like the use of a film projector, tape-recorder, microphone and so on. A canteen was also being run. Running of all these activities would necessarily involve the maintenance of a sta....
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....ved from property " and fell for assessment under section 9. Their Lordships relied upon the decision in Fry v. Salisbury House Estates Company Limited in arriving at the aforesaid conclusion. 6.3 At this stage ,we may have a look at the decisions relied upon by the ld. AR.. In Narain Swadeshi Weaving Mills(supra), relied upon by the ld. AR, Hon'ble Apex Court while interpreting the term Business " as defined in Section 2(5) of the Excess Profits Tax Act and referring to the observations of the Judicial Committee in CIT v. Shaw Wallace & Co., that the words used in that definition are no doubt wide but underlying each of them is the fundamental idea of the continuous exercise of an activity and that the word "business" connotes some real, substantial and systematic or organised course of activity or conduct with a set purpose, held that part of the assets did not cease to be commercial assets of that business since it was temporarily put to different use or let out to another and accordingly the income from the assets would be profits of the business irrespective of the manner in which that asset was exploited by the company. The Hon'ble Court indicated that no general principle ....
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....are parallel to the facts and circumstances in the instant case before us nor the ld. AR elaborated as to how this decision helps the case of the assessee. 6.32 In A Dharma Reddy(supra), relied upon by the ld. AR, the assessee, an individual, had only sources of income, his shares in several partnership concerns. Apart from the firms which carried on other businesses there were two firms which carried on the business in bidi leaves. The first was styled as M/s. A. Dharma Reddy, Morthad. The second firm was called A. Dharma Reddy and Co., Ditchpally. The first partnership was dissolved on March 31, 1955, but the second one continued during the assessment year 1956-57. During the assessment year 1955-56 the assessee sustained a loss of Rs. 30,255 in the first firm. As he was carrying on several other businesses, after the necessary set-off, the total loss sustained by him for that year came to Rs.. 24,532. During the AY 1956-57 the assessee's profit in the second firm was estimated at Rs.. 11,853 and his total taxable income was assessed at Rs.. 28,758 for that assessment year. As the assessee carried on business in bidi leaves during the AY 1955-56, he claimed that loss should be c....
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....enting his professional work. Hon'ble Court concluded that it cannot be said that he had no profit motive in such adventure, implying thereby that he was carrying on a business activity, which attracts the investment allowance under section 32A 6.34.. In Manohar Singh(supra) the assessee built a house consisting of thirteen suites of rooms apart from the residential portion, in which he himself resided. The rooms were let out individually. The assessee supplied lunches and dinners, etc., if the tenants so desired. The assessee claimed that it was income from property and, thus, was to be assessed u/s. 9 of the Act. The ITO, however, negatived this contention and held the income as "income from business" liable to assessment u/s. 10. Hon'ble High Court found that it was not the case where the assessee merely earned rental from property. He carried on the business of a paying guest establishment and the building in which this business was carried on was an integral part of the assessee's business venture. 6.4 In SG Mercantile Ltd.(supra), Hon'ble Apex Court noticed that the object for which the company was formed, inter alia, was to take on lease or otherwise acquire and to hold, i....
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....siness income. 6.7 In Russel Prop. Pvt. Ltd.(supra) ,Hon'ble High Court held that the service and maintenance charges recovered from the lessees of the premises were not only towards the provision of lifts but towards other services as well rendered by the assessee and therefore were to be assessed as business income. 6.8. In Shanmugham,(supra), the income from a lodging house having 68 rooms in a building constructed by the assessee,carrying on the business of hosiery, was held to be assessable as business income. 6.9 In Park Hotel Pvt. Ltd.(supra), the income of the assessee running a hotel from a superstructure built on lease hold land, was held to be assessable under the head "Business" . 6.10 In Pateshwari Elect. & Asso Ind P Ltd.(supra),the rent from cold storage, motor garage, Raj oil mill and approval charges may be taxed under the head "Income from business" and not under the head "Income from other sources". 7. In the instant case before us , though the ld. AR referred to a number of decisions while relying upon the principles of consistency in support of his contention that the assessee derived income from exploitation of commercial asset, not even a w....
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....umstances of the case in the light of various judicial pronouncements, ,including those referred to above nor recorded any findings as to whether or not the assessee derived income from exploitation of property as a commercial asset or as a owner. The ld. CIT(A) has not even elaborated the basis for allowing only 15% of the expenses. Though the ld. AR claimed that in the preceding years income has been accepted under the head business, the relevant facts and circumstances or even in the nature of activities undertaken by the assessee in the preceding years is not before us. The assessments for the AYs1992-03 to 2004-05 except for the AY 1996-97,were completed u/s 143(1) of the Act. In the AY 1996-97, there is nothing to suggest as to whether or not the AO raised any query on the issue now raised before us nor are there any such findings. .A mere glance at the impugned order for the year under considerat ion, reveals that the order passed by the ld. CIT(A) is crypt ic and grossly violat ive of one of the facets of the rules of natural just ice, namely, that every judicial/quasi- judicial body/authori ty must pass reasoned order, which should ref lect applicat ion of mind by the conc....