TaxTMI 
TaxTMI 
2016 (10) TMI 1005
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....the circumstance of the case and in law of the learned Commissioner of Income Tax (Appeals)-3, Pune has erred in disallowing Income from business (Warehousing Receipts) treat as Income from House property. 4. The assessee is aggrieved by the order of CIT(A) in holding the warehousing receipts as income from house property as against the claim of assessee of business income. 5. Briefly, in the facts of the case, the assessee was engaged in the business of warehousing for the past several years. For the year under consideration, the assessee had furnished e-return of income declaring loss of Rs. 89,506/-, which was processed under section 143(1) of the Act. Thereafter, the case of assessee was picked up for scrutiny. The assessee had declared the income from warehousing receipts as income from business. The Assessing Officer noted that in Form No.16A issued by various tenants, the said receipts were subject to deduction of tax under section 194I of the Act under the head 'Rent'. The claim of assessee before the Assessing Officer was that in addition to providing space, it was giving various services and hence, it was to be treated as 'Business Income'. The Assessing Officer however....
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....es of M/s. Rayala Corporation Pvt. Ltd. Vs. ACIT in Civil Appeal No.6437 of 2016 vide judgment dated 11.08.2016 and Chennai Properties & Investments Ltd. Vs. CIT (2015) 373 ITR 673 (SC). He further pointed out that the Hon'ble Bombay High Court in Nutan Warehousing Company Pvt. Ltd. (supra) had set aside the matter to the file of Assessing Officer, who in turn, had decided the appeal against the assessee which was followed by the CIT(A) and now the issue has been decided by the Pune Bench of Tribunal in second round. He further filed tabulated details, under which he pointed out that from assessment year 1998- 99, the assessee was declaring the warehousing receipts under the head 'Income from business', which were accepted up to 2007-08 under section 143(1) of the Act. He further pointed out that in assessment year 2008-09, for the first time, the assessment was made under section 143(3) of the Act, wherein the said warehousing receipts were treated as 'Income from property'. Following the decision in assessment year 2008-09, the assessment proceedings for assessment years 2004-05 to 2006-07 were reopened under section 147 of the Act and thereafter, assessment was co mpleted under ....
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....ra) and have decided the issue in favour of the assessee holding that warehousing receipts are to be taxed as 'business income'. The relevant findings of Tribunal in M/s. Nutan Warehousing Company Pvt. Ltd. Vs. DCIT (supra) are as under:- "32. We have considered the rival arguments made by both the sides, perused the orders of the AO and CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. The only dispute in the above grounds is regarding the treatment of the lease income from Hindustan Lever Ltd. as 'income from house property' or as 'business income'. We find the Hon'ble High Court while setting aside the issue to the file of the AO has observed as under : "The question as to whether the income which is received by the assessee from the transaction which has been entered into in respect of the immovable property in question should be treated as income from house property or as income from business would have to be resolved on the basis of the well settled tests laid down in the law in decided cases. What is material in such cases is the primary object of the assessee while exploiting the property. If the pr....
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....was realized from warehousing activity was held to be assessable as business income and the second in the case of V. N. Rukari v. ITO in ITA No. 84/PN/2001 in which the Tribunal held that the income which was realized from warehousing activity would be assess-able as income from house property. The Tribunal followed a decision of the Madras High Court in CIT v. Indian Warehousing Industries Ltd. [2002] 258 ITR 93 and was of the view that the facts of that case were identical, in holding that the income received from the leasing of the ware-house was assessable as income from house property. Ex facie, therefore, the terms of the warehousing agreement were not considered by the Tribunal. Merely styling an agreement as a warehousing agreement would not be conclusive of the nature of the transaction since it is for the Tribunal to determine as to whether the transaction was a bare letting out of the asset or whether the assessee was carrying on a commercial activity involving warehousing operations. Since the Tribunal has not considered this aspect of the case, we are of the view that it would be appropriate and proper to set aside the decision of the Tribunal and to remand the proce....
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....sessee company on its incorporation are as under : "iii. Objects : The objects for which the Company is established are : Main Objects Of the company to be pursued by the Company on its incorporation are : A (1)(a) To carry on the business of Warehousing, cold storage and refrigeration in all its branches and activities and sphere. (b) To carry on the business of storage of fertilizers, insecticides, quality seeds, agricultural and horticultural equipment, tools and machinery. (c) To carry on the business of quality seeds and develop quality seeds, acquire suitable lands and carry on agriculture. (d) To produce material and fertilizers and insecticides and acquire agency in the above lines and act as Commission Agents. (e) To act as clearing and forwarding agents of the aforesaid products. (f) To provide facilities and godowns for proper and safe storing of valuable agricultural and horticultural produce and to provide goods and services of all kinds in connection there with. (g) To provide godowns and warehousing facilities for goods of all description of agricultural and allied products." 36. Similarly, the objects incidental or ancillary to the attainment....
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....ubmission 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 the commercial asset. We also find force in the submission of the Ld. Counsel for the assessee that the assessee has not merely leased out the 4 walls of the warehouse. It has also provided essential and necessary services of supervisory, loading and unloading, handling, security, transporting etc. to all the clients including the Hindustan Lever Ltd. on daily basis during working hours. The assessee has incurred expenditure on Electricity, Maintenance, Staff etc. which proves that leasing is a complex activity directly linked with the main warehousing activity. Therefore, it is subservient to the warehousing activity. Further, since plots have been acquired on lease as well as plots owned by the assessee are used for constructing the warehouses the same clearly proves the commercial use of the warehouse. Further, the assessee is liable to pay service tax on the service of storage and warehousing since service of storage and warehousing has been included as taxable service. 40. We find an iden....
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....es upon the security of lands and buildings or other properties or any interest therein. What we emphasise is that holding the aforesaid properties and earning income by letting out those properties is the main objective of the company. It may further be recorded that in the return that was filed, entire income which accrued and was assessed in the said return was from letting out of these properties. It is so recorded and accepted by the assessing officer himself in his order. It transpires that the return of a total income of Rs. 244030 was filed for the assessment year in question that is assessment year 1983-1984 and the entire income was through letting out of the aforesaid two properties namely, "Chennai House" and "Firhavin Estate". Thus, there is no other income of the assessee except the income from letting out of these two properties. We have to decide the issue keeping in mind the aforesaid aspects. With this background, we first refer to the judgment of this Court in East India Housing and Land Development Trust Ltd.'s case which has been relied upon by the High Court. That was a case where the company was incorporated with the object of buying and developing la....
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.... income which falls within one head cannot be assigned to, or taxed under, another head. Thereafter, the Court pointed out that 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. It was highlighted and stressed that the objects of the company must also be kept in view to interpret the activities. In support of the aforesaid proposition, number of judgments of other jurisdictions, i.e. Privy Counsel, House of Lords in England and US Courts were taken note of. The position in law, ultimately, is summed up in the following words: - "As has been already pointed out in connection with the other two cases where there is a letting out of premises and collection of rents the assessment on property basis may be correct but not so, where the letting or sub-letting is part of a trading operation. The diving 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 its property, it is possible to say on which side the operations fall and to what head the income is to be assigned." After app....
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..../s. Chennai Properties (Supra) has decided an identical issue by holding that where the business of the company is to lease its property and to earn rent, such rental income has to be treated as income from 'profits and gains of business or profession'. The relevant observations of the Hon'ble Supreme Court reads as under : "The appellant-assessee, a private limited company, is having house property, which has been rented and the assessee is receiving income from the said property by way of rent. The main issue in all these appeals is whether the income so received should be taxed under the head "Income from House Property" or "Profit and gains of business or profession". The reason for which the aforestated issue has arisen is that though the assessee is having the house property and is receiving income by way of rent, the case of the assessee is that the assessee company is in business of renting its properties and is receiving rent as its business income, the said income should be taxed under the Head "Profits and gains of business or profession" whereas the case of the Revenue is that as the income is arising from House Property, the said income must be taxed under the head "....
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....at the impugned judgment delivered by the High Court is not proper for the reason that the High Court has directed that the income earned by the appellant assessee should be treated as "Income from House Property". 8. On the other hand, the learned counsel appearing for the respondent- Revenue made an effort to justify the reasons given by the High Court in the impugned judgment. The learned counsel also relied upon the judgment delivered by this Court in the case of M/s. S.G. Mercantile Corpn. (P) Ltd. v. CIT, Calcutta (1972) 1 SCC 465. According to him, the important question which would arise in all such cases is whether the acquisition of property for leasing and letting out all the shops and stalls would be essentially a part of business and trading operations of the assessee. According to the learned counsel appearing for the Revenue, leasing and letting out of shops and properties is not the main business of the assessee as per Memorandum of Association and therefore, the income earned by the assessee should be treated as income earned from House Property. He, therefore, submitted that the impugned judgment is just legal and proper and therefore, these appeals should be di....
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.... of the Hon'ble Supreme Court cited (Supra) hold that the lease income received by the assessee on account of let out of the warehouses/godowns as 'profits and gains from business or profession'. We therefore set aside the order of the CIT(A) and direct the AO to treat the lease rentals received by the assessee company from Hindustan Lever Ltd. as 'business income'. 12. In the facts of the present case, the assessee was partnership firm which was constituted vide Articles of Partnership dated 21.11.1997 , copy of which is placed at pages 45 to 71 of the Paper Book. The nature of business agreed upon by the partners of said firm is to carry on warehousing activity. The Registrar of Firms has registered the partnership deed vide firm No.P/PA 37086 and the nature of business is to give on hire warehouses to companies, firms, businessmen and farmers for keeping stock / records, etc. The copy of the said certificate is placed at page 44 of the Paper Book. The assessee firm was thus, constituted to carry on the business of warehousing activities. The assessee has been carrying on the activity of warehousing since 1998-99 onwards. The income declared by the assessee under the head 'Incom....