TaxTMI 
TaxTMI 
2016 (12) TMI 751
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....inted out that the issue arising in the present appeal is squarely covered by the order of Tribunal in related party's case. He pointed out that the assessee had received the divided area of warehouse on the dissolution of partnership firm as in the case of Mr. Ramdas T. Khutwad and others. 4. Briefly, in the facts of the case, the assessee had declared income of Rs. 13,61,470/- in the return of income filed for the instant assessment year. The assessee belonged to a family whose members were engaged in letting out warehouses. The Assessing Officer noted that in the case of family concern i.e. M/s. Jaibhavani Warehousing Co. for the assessment year 2008-09, income from letting out of warehouse was assessed as house property, rejecting the claim of assessee that it was business income. The Assessing Officer also noted that the assessee had neither shown the warehouse nor any income from warehousing in the return of income. Consequently, the income from warehouse charges as shown in TDS records was adopted as income of the assessee at Rs. 31,66,875/- and after giving deduction under section24of the Act, the gross income was assessed at Rs. 22,16,812/-. 5. The CIT(A) upheld the ....
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....sed as 'Income from house property'. The Revenue in this regard has placed heavy reliance on the ratio laid down by the Pune Bench of Tribunal in the case of Nutan Warehousing Company Pvt. Ltd. (supra), which matter travelled up to Hon'ble High Court, which in turn, had set aside the matter to the file of Assessing Officer. 11. After the matter was set aside to the file of Assessing Officer by the Hon'ble High Court in the case of Pune Bench of Tribunal in Nutan Warehousing Company Pvt. Ltd. v. DCIT (supra), the matter was decided against the assessee by the Assessing Officer which was confirmed by the CIT(A). However, the Pune Bench of Tribunal in M/s. Nutan Warehousing Company Pvt. Ltd. v. DCIT in ITA Nos. 1963 to 1968/PN/2013, relating to assessment years 2000-01, 2002-03 to 2006-07, in ITA No. 2130/PN/2013, relating to assessment year 2001-02 and in ITA No. 361/PN/2014, relating to assessment year 2008-09, vide order dated 30.09.2016 has in turn relied on the latest decision of the Hon'ble Supreme Court in M/s. Rayala Corporation Pvt. Ltd. v. ACIT (supra) and have decided the issue in favour of the assessee holding that warehousing receipts are to be taxe....
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....ch the factory came to be leased out. Consequently, upon considering the position in this regard counsel appearing on behalf of the assessee has fairly stated that the assessee would not consider that the earlier decision of the Tribunal be regarded as binding. In so far as the decision which is impugned in these proceedings is concerned, the Tribunal has basically relied upon the lease agreement dated March 18, 2001, between the assessee and Hindustan Lever. It is on the basis of the terms of the lease agreement that the Tribunal arrived at a conclusion that the primary purpose of the assessee was to let out the factory and that the income that was derived therefrom could not consequently be regarded as income from business. The submission of the assessee is that the terms on which the assessee entered into warehousing agreements have not been considered at all in the decision of the Tribunal. Now, a perusal of the decision of the Tribunal would show that the Tribunal noted two decisions of the Tribunal, the first in Vora Warehousing P. Ltd. v. Asst. CIT [1999] 70 ITO 518 (Mum) (SMC) where the rent which was realized from warehousing activity was held to be assessable as busine....
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....ee from the lease of 68,000 sq.ft of the factory to Hindustan Lever Ltd. as 'income from house property' and treated the warehousing activities carried out by the assessee on the remaining warehouses as 'business income' which has been upheld by the Ld. CIT(A). 34. It is the submission of the Ld. Counsel for the assessee that the main objects to be pursued as per the memorandum of association are construction of warehouses for storage of agricultural goods. Provisions of Bombay Warehousing Act, 1959 are applicable to the assessee company. It is also his submission that the AO was required to examine the terms of the lease deed and decide whether leasing activity is subservient to the warehousing activity or not. Further, if going by the version of the AO, 69% of the total receipts/total area is meant for warehousing activity, in that case, the AO should have accepted that leasing activity is subservient to warehousing activity that being the dominant activity of the assessee. 35. From the various details furnished by the assessee in the paper book, we find the main objects to be pursued by the assessee company on its incorporation are as under:- "iii. Objec....
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.... % of warehsg ch. Received from HLL to the total warehsg ch. A B=C+D C D E = (D/B)*100 F G = (F/C)*100 2000 - 01 10,313,426.00 7,598,434.00 2,714,992.00 26.32 4,836,240.00 63.65 2001- 02 17,686,971.33 11,817,590.33 5,869,381.00 33.18 11,066,970.00 93.65 2002 - 03 19,580,172.66 13,910,172.66 5,670,000.00 28.96 11,390,112.00 81.88 2003 - 04 20,431,251.63 13,647,501.63 6,783,750.00 33.20 11,760,877.50 86.18 2004 - 05 19,776,426.00 12,858,926.00 6,917,500.00 34.98 12,279,750.00 95.50 2005 - 06 21,521,078.50 14,570,078.50 6,951,000.00 32.30 11,342,060.00 77.84 38. A perusal of the above breakup of the lease rental income from Hindustan Lever Ltd. and various other parties vis-a-vis the main objects of the assessee company show that warehousing activity is the dominant activity and leasing out being incidental is subservient. 39. We find merit in the submission of the Ld. Counsel for the assessee that the assessee has constructed several sheds for industrial and warehouse purposes which proves that the leasing is done for exploitation of....
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....ed income under the head 'income from business'. The relevant observation of the Hon'ble Supreme Court read as under:- "From the aforesaid facts, it is clear that the question which is to be determined on the facts of this case is as to whether the income derived by the company from letting out this property is to be treated as income from business or it is to be treated as rental income from house property. We have heard the learned counsel for the parties on the aforesaid issue. Before we narrate the legal principle that needs to be applied to give the answer to the aforesaid question, we would like to recapitulate some seminal features of the present case. The Memorandum of Association of the appellant-company which is placed on record mentions main objects as well as incidental or ancillary objects in clause III. (A) and (B) respectively. The main object of the appellant company is to acquire and hold the properties known as "Chennai House" and "Firhavin Estate" both in Chennai and to let out those properties as well as make advances upon the security of lands and buildings or other properties or any interest therein. What we emphasise is that holding the a....
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....ich was the assessee, was formed with the object, inter alia, of acquiring and disposing of the underground coal mining rights in certain coal fields and it had restricted its activities to acquiring coal mining leases over large areas, developing them as coal fields and then sub-leasing them to collieries and other companies. Thus, in the said case, the leasing out of the coal fields to the collieries and other companies was the business of the assessee. The income which was received from letting out of those mining leases was shown as business income. Department took the position that it is to be treated as income from the house property. It would be thus, clear that in similar circumstances, identical issue arose before the Court. This Court first discussed the scheme of the Income Tax Act and particularly six heads under which income can be categorised/classified. It was pointed out that before income, profits or gains can be brought to computation, they have to be assigned to one or the other head. These heads are in a sense exclusive of one another and income which falls within one head cannot be assigned to, or taxed under, another head. Thereafter, the Court pointed out tha....
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....th an asset with which trade is commonly carried on. We find nothing in the cases referred, to support the proposition that certain assets are commercial assets in their very nature." We are conscious of the aforesaid dicta laid down in the Constitution Bench judgment. It is for this reason, we have, at the beginning of this judgment, stated the circumstances of the present case from which we arrive at irresistible conclusion that in this case, letting of the properties is in fact is the business of the assessee. The assessee therefore, rightly disclosed the income under the Head Income from Business. It cannot be treated as 'income from the house property'. We, accordingly, allow this appeal and set aside the judgment of the High Court and restore that of the Income Tax Appellate Tribunal. No orders as to costs." 41. We find subsequent to the hearing of the appeal before us the Hon'ble Supreme Court in the case of M/s. Rayala Corporation Pvt. Ltd. v. ACIT vide Civil Appeal No. 6437/2016 order dated 11-08-2016 following the decision in the case of M/s. Chennai Properties (Supra) has decided an identical issue by holding that where the business of the company is to....
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....ifficult 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 its property, it is possible to say on which side the operations fall and to what head the income is to be assigned." 5. The learned counsel also submitted that the assessee is a private limited company and even as per its Memorandum of Association its business is to deal into real estate and also to earn income by way of rent by leasing or renting the properties belonging to the assessee company. 6. The learned counsel also drew our attention to the fact that the High Court and the authorities below had come to a specific finding to the effect that the assessee company had stopped its other business activities and was having only an activity with regard to the leasing its properties and earning rent therefrom. Thus, except leasing the properties belonging to the assessee company, the company is not having any other business and the said fact is not in dispute at all. 7. For the afore-stated reasons, the learned counsel submitted that the impugned judgment delivered by the High Court is not proper for the reason that the High Court ....
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....of the law laid down by this Court in the case of Chennai Properties (supra) and looking at the facts of these appeals, in our opinion, the High court was not correct while deciding that the income of the assessee should be treated as Income from House Property. 13. We, therefore, set aside the impugned judgments and allow these appeals with no order as to costs. We direct that the income of the assessee shall be subject to tax under the head "Profits and gains of business or profession". 42. As mentioned earlier, the main objects of the assessee company is to carry on the business of warehousing, cold storage and refrigeration, to provide facilities and godowns for proper and safe storing of valuable agricultural and horticultural produce and to provide godowns and warehousing facilities for goods of all description of agricultural and allied products. Similarly, the other objects of the assessee company also provide to let on lease or hire the whole or any part of the real and personal property of the assessee company. We, therefore, respectfully following the above two decisions of the Hon'ble Supreme Court cited (Supra) hold that the lease income received by the asses....