TaxTMI 
TaxTMI 
TaxTMI 
2016 (9) TMI 258
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....ppeal is the allowability of depreciation on 'Furniture and Fixture', forming part of the leased assets, income from which is assessable u/s. 22 of the Act as 'Income from house property'. The subject matter of the Revenue's appeal is the deletion of the disallowance by the Assessing Officer (AO) of expenditure on 'brokerage' and 'professional fees'. The same was effected by the AO as it pertained to the assessee's property income, assessable u/s. 22 r/w s. 23, which does not admit of any such claim. 3. The assessee firm runs a hotel business and, besides, is in the business of construction (of residential and commercial space). In addition, it also leases own property. Four such properties, viz. Somerset, Citi Park, Crisil and Ventura, were among the leased properties, income from which is, accordingly, both, returned and assessed as 'income from house property'. The assessee, however, contends that the furniture and fixture, form as it does a part of the assets under lease, depreciation thereon (at Rs. 21,45,127/-) be, accordingly, allowed in the computation of income of its' construction business. The same stands not accepted by the Revenue in-as-much as there is no scope for a....
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.... accepted. The assessee has per its Ground 1(c), however, raised an alternate claim, as under: '1. (c) Alternatively, appellant prays that proportionate rent be assessed under the head income from other sources and depreciation on furniture and fixtures on leased assets should be allowed u/s. 57.' Though no arguments in its respect were advanced during hearing, the ld. AR did not specifically state the same as being 'not pressed'. Further, we find the assessee to have raised the said plea before the first appellate authority as well vide it's 'Statement of Facts' (SOF) before the first appellate authority, reading as under, which though remains unaddressed by him: '6. b. Assessing Officer failed to appreciate that on many occasions along with lease of immovable property, certain movable assets are also leased. The appellant submits that primary letting out is of immovable property and letting out of movable asset is incidental to letting out of immovable property. In such circumstance a reasonable amount of lease rental is towards such movable assets and the amount of such proportionate lease rent would be equivalent to or less than depreciation on such movable assets. The appe....
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....urt devised tests for determining the inseparability of the two lettings. That is, the entire (rent) income would, in case of inseparability, stand to be assessed under either head, depending on whether it constitutes or forms a part of the assessee's business, or not so. The Apex Court also discountenanced the plea with regard to the commercial exploitation of a house property by its' owner. A thing is not, it held, by its' nature a commercial asset, and which is only an asset used in a business and nothing else, and that business may be carried on by practically all things, so that nothing turns on the fact that the letting is of a 'commercial asset' or toward commercial exploitation of a house property. And its rental income, in case of separable lettings, would stand to be assessed as income from house property. Ownership of house property, howsoever profitable, it was clarified in CIT vs. National Storage (P.) Ltd. [1963] 48 ITR 577, 594 (Bom) (since affirmed in [1967] 66 ITR 596 (SC)), cannot be business or trade under the Act. The legal aspect of the matter is thus clear. As regards the factual aspect, the same would normally require verification and determination at the en....
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.....1 The principal facts are simple and undisputed. The assessee is in the business of construction and development of real estate, as well as leasing out (or letting) of such property, yielding income assessable u/s. 28 and 22, i.e., under the heads of income 'Profits and gains of business or profession' and 'Income from house property' respectively. Rs. 10.93 lacs stands allowed to one, M/s. C. B. Richard Ellis, as professional fee for leasing of commercial space to Citi Max Restaurant Ltd. for running a restaurant. Another Rs. 4.29 lacs is paid to one, Deepika Chopra, as brokerage (professional fees) for arranging leave and license for agreement of Shop-G2. The assessee's case is that the constructed property let, though assessable as 'income from house property', i.e., as against 'profits and gains of business or profession' qua property not subject to letting, the two activities - construction and selling and leasing of property constructed, form part of one, integrated business. The expenditure on the services availed for securing a tenant must therefore be considered as incurred in the course of its business, and deduction in respect of the impugned expenses allowed u/s. 37(1....
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....ific head described in section 9. The character of that income, it clarified, is not altered because it was received by a company formed with the object of developing and setting up markets. In Karanpura Development Co. Ltd. (supra), the assessee-company was formed with an object of acquiring and disposing of underground coal mining rights. Toward this, it acquired diverse coal mining leases from time to time, and developed them as coal fields by providing means of communication, etc., and subleased them to collieries and other companies. It never worked the coal fields with a view to raising coal, nor did it acquire or sell coal raised by the sub-lessees. As a condition of the acquisition of the leases, the assessee-company had paid salami at the rate of Rs. 40 per standard bigha, as well as royalty at certain rates. From the sub-lessees, the assessee-company charged salami at the rate of Rs. 400 per standard bigha and royalties at higher rates. It claimed that the amount realised by way of increased salami was on capital account and, thus, could not be included in its income assessable under the Act. The same was found by the Hon'ble Court to be realized by way of a trader and, ....
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....en the issue has come before the Hon'ble Court, as for example in Empire Jute Co. Ltd. vs. CIT [1980] 124 ITR 1 (SC). Its reference to the character of the income arising, i.e., business or otherwise - which was not in issue, also forms part of the well settled law (by it). The Apex Court, it needs to be borne in mind, referred to the ownership of the property therein in the context of the question before it. Further, the property under reference was not 'house property', which is regarded as a separate and distinct source of income under the Act. In Cocanada Radhaswami Bank Ltd. (supra), the assessee-company carried the banking business, holding securities as a part of the trading assets of the said business. The assessee was assessed for business loss for A.Y. 1949-50. The same was disallowed for being set off against the interest on securities for the succeeding years. The Apex Court held that the income from securities, which formed part of the assessee's trading assets, was part of its income from business and, therefore, the loss incurred in the business in the earlier years can be set off against the income from securities also in the succeeding years. In Chugandas & Co. (....
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....ture will be a permissible deduction but if they do not the principle of apportionment of the expenditure will apply because there will be no nexus between the expenditure attributable to the venture not forming integral part of the business and the expenditure sought to be deducted as the business expenditure of the assessee.' [emphasis, ours] [catch notes, culled from the discussion at pgs. 453,455 of the Reports] The Hon'ble Court highlighted the primacy of the computation of income under the prescribed head of income, following the relevant computation provisions. The apportionment of the expenditure and allowing deduction of only that proportion which was referable to the taxable income was held as unsustainable in view of the fact that the income from different ventures was shown as earned in the course of one indivisible business. 8.3 In our considered view, the answer to the question at hand would lie in determining as to whether the property leased forms part of the assessee-company's trading assets, or not so. That is, as explained in Karanpura Development Co. Ltd. (supra), whether they are a part of the fixed capital, that the owner keeps possession of and turns to ....
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....t categorised the relevant house property separately under the head 'leased stock' under the grouping 'current assets'. The treatment accorded in books, though un-evidenced, would not, in our view, be determinative of the matter, as is trite law (Tuticorin Alkali Chemicals & Fertilizers Ltd. vs. CIT [1997] 227 ITR 172 (SC); Sutlej Cotton Mills Ltd. vs. CIT [1979] 116 ITR 1 (SC), etc). On the contrary, the said treatment is contradicted by the assessee claiming depreciation on a part of the leased assets, i.e., furniture and fixture, which is leased out along with the house property. Forming part of the assets under lease, claimed as trading assets, how could, one may ask, depreciation be claimed thereon, implying their being capital assets, even if accounted for separately under the account head 'furniture and fixture' (in the balance-sheet) or clubbed along-with, i.e., as part of the 'leased stock'. The same clearly indicts the assessee's case, toward which, as afore-noted, no material in support is on record. Add to this, the fact that the property under reference is actually leased out, i.e., constitutes a source of income and, thus, a capital asset by definition, and the assess....