TaxTMI 
TaxTMI 
TaxTMI 
2016 (9) TMI 511
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....ner of Income-tax (Appeals) ("CIT(A)") erred on facts and in law in not quashing the assessment order, dated 25.03.2014, passed by the assessing officer ("AO") under section 147/143(3) of the Income Tax Act, 1961 ("the Act") on the ground of being beyond jurisdiction, bad in law and void ab initio. 1.1 That the CIT(A) erred on facts and in law in holding that the 'reasons to believe' recorded by the AO had a direct nexus with the income escaping assessment. 1.2 That the CIT(A) erred on facts and in law in upholding that the revisionary order dated 02.01.2012 passed under section 263 for assessment year 2008-09, constituted fresh material for the AO to re-open the concluded assessment for the impugned assessment year under section 147 of the Act. Without prejudice 2. That the CIT(A) erred on facts and in law in sustaining the addition made by the AO to the extent of Rs. 48,04,138, on account of notional annual letting value ("ALV") of the land ("subject property") under section 23(1) of the Act on the ground that ALV of said property exceeded actual rent charged by the appellant. 2.1 That the CIT(A) erred on facts and in law in holding that the ALV of the property has to....
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....he appellant craves to amend, alter or add any ground of the appeal before the appeal is heard." 4. As per application filed by the assessee for admission of additional ground, in 'Chennai Properties And Investment Limited vs. CIT' 373 ITR 673 (SC), vide judgment dated 09.04.2015, the Hon'ble Supreme Court has held that where in terms of memorandum of association of a company, the main object of such company is to acquire properties and earn income by letting out the same, such income is taxable as 'business income' and not as 'income from house property'. It is the case of the assessee, that this is exactly the situation in the assessee's case also and it is, therefore, that the additional ground, being entirely a legal ground, is admissible. 5. The above position is patent on record. In 'Chennai Properties And Investment Limited' (supra), the Hon'ble Supreme Court has held where in terms of memorandum of association of a company, the main object of such company is to acquire properties and earn income by letting out the same, such income is taxable as 'business income' and not as 'income from house property'. In the case of the assessee also, the main object of the assessee is....
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....total income of Rs. 4,29,34,930/-. In this order, addition of Rs. 5,70,94,694/- was made on account of alleged notional annual letting value of the property in question under sections 22, 23(1) and 24(a) of the Act. By virtue of order, dated 29.05.2015, the ld. CIT(A) confirmed the initiation of assessment proceedings under section 147 of the Act. On merits, the action of the AO in computing total notional annual letting values under section 23(1) of the Act was upheld by the ld. CIT(A). However, the method of determination of ALV, as adopted by the AO, was rejected. The ld. CIT(A) adopted 10% of the estimated cost of land and building as ALV. As such, the addition made by the AO on account of ALV, was reduced to amount of Rs. 68,63,054/- and deduction therefrom @ 30% was allowed to the assessee u/s 24 of the Act. The contention on behalf of the assessee is that in 'Chennai Properties and Investments Limited vs. CIT', 373 ITR 673 (SC), it has been held that where in terms of the memorandum of association of company, the main object of such company is to acquire properties and to earn income by letting out the same, such income is taxable as business income and not as income from ho....
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....pra). 10. The assessee in 'Chennai Properties And Investment Limited' (supra), was a company incorporated with its main object to acquire properties in the city of Madras and to let out those properties. The assessee had rented out such property. The rental income received therefrom was shown as income form business. However, the AO was of the opinion that since the income was received from letting out the property, it was in the nature of rental income. Therefore, the AO treated the income as income from house property. The ld. CIT(A) reversed the AO's action and directed the income to be treated as business income. The ITAT dismissed the appeal filed by the Department. The Hon'ble High Court, reversed the Tribunal order, holding that the income derived by letting out the property would not be income from business, but, it could be assessed only as income from house property. The question before the Hon'ble Supreme Court, therefore, was as to whether the income derived by the company from letting out the property was to be treated as income from business, or whether it was to be treated as rental income from house property. The Hon'ble Supreme Court observed that the main object ....
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....ining leases was shown as business income; and that the Department took the position that it was to be treated as income from house property. Recapitulating 'Karanpura Development Co. Ltd.' (supra), it was observed that before income, profits and gains can be brought to computation, they have to be assigned to one or the other head of income; that these heads are inclusive of one another and income which falls within one head cannot be assigned to, or taxed under another head; that therefore, the deciding factor is not the ownership of land or leases, but the nature of the activity of the assessee and the nature of the operations in relation to them; that the objects of the company must also be kept in view to interpret the activities; that where there is a letting out of premises and collection of rents the assessment on property position may be correct, but not so, where the letting out is part of a trading operation; that the dividing line is difficult to find, but in the case of a company with its professed objects and the manner of its activities and the nature of its dealings with the property, it is possible to say on which side the operation falls and to what head the incom....
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....cquired by it, is taxable as business income and not income from house property. This, as considered, is entirely in line with the ratio laid down by their lordships in 'Chennai Properties And Investment Limited' (supra). 14. Now, the issue as to whether the said income is to be treated as business income of the assessee or income from house property. 'Chennai Properties And Investment Limited' (supra), is directly and squarely applicable on this point. It holds that since the main object of the assessee was to acquire and let out properties, from which letting out, income was earned, such income is to be treated as business income. The ratio laid down by the Hon'ble Apex Court is that the nature of the activity of the assessee and the nature of the operation in relation to the leasing out of land, which is the deciding factor as to under which head the profits and gains earned from leasing out are to be assigned. Their lordships have held that so as to interpret such activities, the objects of the company must also be kept in view. Now, as observed, in the present case, undisputedly, the main object of the assessee happened to be acquiring land and buildings in the State of J & K....