TaxTMI 
TaxTMI 
2018 (3) TMI 1312
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....return of income for the Asst Year 2012-13 was filed by the assessee company on 27.9.2012 declaring total income of Rs. 40,55,320/- . The assessee received rent of Rs. 1,33,03,110.60 from the property owned in the form of warehouse situated at Khaprail Road, Nemai, Matigara, Dist. Darjeeling - 734010 near Siliguri Town and rented to the various parties (i) Hindustan Unilever Limited, (ii) Future Supply Chain Solutions Limited, (iii) Sigma Supply Chain Solutions Limited, (iv) Amrit Feeds Limited, (v) N.B.Suppliers, (vi) Kurseong Carriers Private Limited, (vii) Godrej Agrobet Limited, (viii) Jai Trading, (ix) Bidyut Ghosh and (x) Hatsun Agro Products Limited during the year. The assessee claimed such rent from the said warehouse under the head 'income from business or profession' being the owner of warehouse (building). The ld AO observed that the rented area / portion of the building has not been used by the assessee for the purpose of its business. The ld AO discussed the provisions of section 22 of the Act and held that the warehouse was a property owned by the assessee and not used for business and therefore the income earned from letting out was in nature of 'house property' inc....
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.... which were necessary to ensure proper and safe handling of storage of goods and products. Security & alarm systems were also installed therein. The assessee invested substantial sums in installing central airconditioning plant, generator, water pumps, electrical fittings and various machineries, computers & furniture to make the structure fit to be used as an exclusive storage facility for FMCG companies. Accordingly it was pleaded that the assessee had constructed a specialized infrastructure facility by way of warehouse in organized manner so as to be exploited for commercial gains. It was pleaded that the assesse had employed a large workforce such as night guards, sweepers, watchmen, electricians and other staff member etc for providing contractual amenities at the warehouse. The assessee was thus in the overall control, supervision and management of the premises. In consideration for providing the storage space in the warehouse along with attendant ancillary services and amenities, the assessee charged a fixed monthly license fee from all the tenants in the warehouse. Accordingly, it was submitted that the assessee was in the business of constructing, operating and maintainin....
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....and security systems. The assessee has also employed a huge labour force to run, operate and maintain the warehouse. Part of the warehouse was let out in the ordinary course of its business and rental income derived thereon was offered under the head 'income from business'. Accordingly, we hold that the assessee had constructed a specialized infrastructure facility by way of warehouse in organized manner so as to be exploited for commercial gains. We hold that the decisive test is the true nature of activity carried out by the assessee which produces the income from warehouse and not the way in which it is measured i.e whether it is variable or a fixed monthly sum. The ld CITA had categorically observed that the assessee had made substantial investment in construction of a building and in acquisition and installation of plant and machineries so as to develop, operate & maintain a modern warehousing facility which could simultaneously be used by number of FMCG companies for storing numerous types of consumer products. The rent charged by the assessee was therefore not only for letting out of the building simplicitor but for providing incidental facilities and amenities for safe stor....
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....out coalfields was held assessable as business income by the Hon'ble Supreme Court. Applying the ratio laid down in the aforesaid judgement, the Hon'ble Supreme Court held where letting out of properties is the business of an assessee, the rental income derived therefrom is business income. We also find that the decision of Hon'ble Supreme Court relied upon by the ld AO in the case of S.G.Mercantile Corporation (P) Ltd vs CIT reported in 83 ITR 700 (SC) is actually in favour of the assessee, in asmuch as, in that case, the income was assessed only as business income. 2.3.2. We also find that the assessee was formed in the year 2006 and had been deriving rental income from warehouse from that year and the same has been accepted by the revenue upto Asst Year 2011-12 as 'income from business'. The ld AR also stated that the assessment for the Asst Year 2011-12 was completed u/s 143(3) of the Act, wherein the rental income was assessed only under the head 'income from business'. No new material was brought to on record to establish with sufficient evidence that the position accepted by the revenue in earlier years was untenable either on facts or as per law. Hence when there is no cha....
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....actually distinguishable. It is not in dispute that the warehouse has been constructed by the assessee with several infrastructure facilities in accordance with the requirements of the specific multinationals so as to store their products in the warehouse. 2.3.4. In view of the aforesaid findings in the facts and circumstances of the case and respectfully following the decision of the Hon'ble Supreme Court in the case of Chennai Properties supra, we hold that the ld CITA had rightly directed the ld AO to treat the warehouse rentals as income from business and consequentially allow the expenditure claimed in the return as business expenditure. Accordingly, the Ground No.1 raised by the revenue is dismissed. 3. The next issue to be decided in this appeal is as to whether the ld CITA was justified in deleting the disallowance of commission paid to related parties by invoking provisions of section 40A(2) of the Act in the facts and circumstances of the case. 3.1. The brief facts of this issue is that the ld AO observed that the assessee has paid service commission of Rs. 1,47,26,906/- during the year in comparison to Rs Nil in the earlier year. The assessee was requested to explain ....
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.... AO also made an alternative observation that since the service commission of Rs. 61,85,300/- was paid only to related parties having the same address, such claim of the assessee company is not admissible u/s 37(1) of the Act as the said payment does not constitute business purpose. 3.2. The assessee stated that it belongs to the Agarwal Group of which M/s R.S.Ispat Limited is the flagship company . R.S.Ispat Limited is primarily in the business of manufacturing and trading of steel and allied products and has been in the business of more than 2 decades. R.S.Ispat Limited is a reputed name in the steel industry and has an established marketing and distribution channels. The assessee therefore decided to avail the benefit of marketing and distribution netweork, knowledge and expertise of R.S.Ispat Limited and appointed it as their sole sale promotion agent for a period of one year. Formal agreement was executed on 30.3.2011 which was duly notarized. In terms of the sales promotion agreement, R.S.Ispat Ltd was entrusted with the task of assisting in sales and other sales related auxiliary services. In consideration, the assessee was required to pay 4% of the total sales invoice bill....
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....fit and loss account, which goes to prove that they are in the regular business of earning service commission from other parties also and hence there is absolutely no scope to doubt the entire transaction or the agreement entered into with them, by treating the same as a sham or colourable device. Undoubtedly, the payee had experience in steel business which had enabled itself to earn commission income from various parties in the market including the assessee herein. These contentions were duly appreciated by the ld CITA and accordingly the disallowance made by the ld AO was deleted. Aggrieved, the revenue is in appeal before us on the following ground:- 2. Disallowance of payment of service commission to related parties under same group of management and located at the same address with the assessee u/s 40A(2) of the IT Act, 1961. 3.3. We have heard the rival submissions. We find that the ld CITA had given a categorical finding that the assessee had completely outsourced its marketing activity to R S Ispat Limited which had sourced the entire sales to the assessee . Admittedly the sales were made by the assessee to its related parties (42%) and also to unrelated parties (58%) ....
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....ld that the ld CITA had rightly appreciated these facts and contentions of the assessee and had rightly deleted the disallowance and we find no infirmity in the said order of the ld CITA in this regard. Accordingly, the Ground No. 2 raised by the revenue is dismissed. 4. The last issue to be decided in this appeal is as to whether the ld CITA was justified in directing the ld AO to grant depreciation at 15% on Electrical Installations in the facts and circumstances of the case. 4.1. The brief facts of this issue is that the assessee claimed depreciation at the rate of 15% on Electrical Installations reflected in the Balance Sheet. In the course of assessment proceedings, the assessee had furnished the details of opening and closing written down value (WDV) of plant and machineries. The ld AO thereafter show caused the assessee to explain as to why the electrical installations at the factory should not be treated as 'office equipment' instead of 'plant and machinery' and therefore why the normal depreciation should not be reduced from 15% to 10%. In response the assessee submitted the nature and purpose of electrical installations and explained that these installations were made a....
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.... isolation. From the impugned order I find that no material or evidence was gathered by the AO to dispel the assessee's averments not the AO brought on record any positive material to substantiate his finding that electrical installations were in the nature of building or furniture & fixtures. Moreover, I find that substantial part of the claim for depreciation on electrical installations pertained to WDV of the electrical installations brought forward from the earlier year. I do not find in the earlier years' assessments the claim for depreciation was reduced on the ground that it did not qualify for depreciation at the general rate applicable to plant & machinery. On the contrary the AR furnished evidence to show that in the earlier year the depreciation was allowed at the rate of 15% being the general rate applicable to plant & machineries. In the circumstances, I find that if in the earlier years, the character of the depreciable asset was accepted by the Department to be plant & machinery eligible for depreciation at general rate of 15% then in later year the AO could not change the character and or category of the depreciable asset and reduce the permissible rate to 10%. I fu....