TaxTMI 
TaxTMI 
2016 (10) TMI 1005
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....rounds of appeal:- 1. On the fact and in 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 treat....
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....essee is now settled by the Hon'ble Supreme Court in the cases 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....
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....e Supreme Court in M/s. Rayala Corporation Pvt. Ltd. Vs. ACIT (supra) 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 case....
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....t 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 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....
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.... 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. 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....
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.... 11,342,060.00 77.84 38. A perusal of the above break up of the lease rental income from Hindustan Lever Ltd and various other parties vis-à-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 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 be....
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....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 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 ....
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....n 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 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 assessmen....
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....e 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. Vs. 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 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 th....
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....e 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 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 a....
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....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 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 warehousi....