TaxTMI 
TaxTMI 
2020 (10) TMI 85
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 2. Ld. CIT (A) has erred in law and on facts in holding the income from letting out of factory building comprising industrial shed & office while ignoring the decision of Hon'ble Supreme Court in the case of M/s. Universal Plast Ltd. & others Vs CIT in 237 ITR 454 which is directly applicable to the facts of the case." 3. Facts of the case, in brief, are that the assessee is a company engaged in the manufacture of Receiver Driers & manufacturing precision components of Car Air-conditioning Systems. It filed its return of income on 28th September 2012declaring total income of Rs. 1,02,47,70,060/-. During the course of assessment proceedings the AO noticed that the assessee had claimed renting of surplus area of factory premises as income from house property. The reply given by the assessee was not convincing to the AO as renting of surplus area of factory building, which was a business asset, amounted to income from other source instead of property income. The assessee had claimed depreciation on factory building along with standard deduction @ 30% out of rent received. The standard deduction of Rs. 98,49,707/- was disallowed by treating the income as income from other sources. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d therefore I proceed to determine these aspects of the issue as under: (i) the appropriate head of income under which an income earned by an assessee has to be taxed vis-a-vis section 14? 3.2.1 The consistent view of the Courts has been that the income of an assessee is to be specifically charged to tax under the heads of income provided u/s 14 of the I.T. Act, 1961. Each head of income specified u/s 14 would arise from a particular source, which determines the nature of the receipt and if it falls under one particular head, it has to be charged under that head and no other. The landmark decisions of UCO Bank Ltd.(32 ITR 688) and East India Housing & Land Development Trust Ltd. (42 ITR 49), which were both Three Judge Bench decisions of the Supreme Court were perused wherein it had been held that various sections were available in the IT Act, 1922 (sections 7 to 12) corresponding to sections available in the IT Act, 1961 (sections 15 to 58) to direct the modes in which the income is to be assessed. As per the classification mentioned in section 14 of the IT Act, 1961, if the income is from a source falling within a specific head, it has to be assessed under that ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....usiness income or under the head income from other sources. The Supreme Court followed its earlier decision in Sri Laxmi Silk Mills Ltd. (20 ITR 451) to hold that the yield of income from a commercial asset, irrespective of the manner in which the assets were exploited by the owner of the business, would be business income. It was emphasized that the assessee was entitled to the assets to its best advantage which he might do, either by using it personally, or by letting it out to someone else. Keeping in mind that there was only a temporary suspension of business and no act has been performed to show that the assessee never intended to discontinue business, the Supreme Court held that it has rightly been assessed as business income. However, taking a slightly different view in the case of Universal Plast Ltd., the Supreme Court (237 ITR 454) after examining all the earlier decisions on the issue arrived at the broad proposition that where all the assets of the business are let out, the period of letting out and the intention of the assessee i.e. whether to go out of business altogether or to come back and restart the same would be a relevant factor. It was held then that when only ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 1,32,300 MARK IV Air Intake India Pvt. Ltd. Industrial Shed 11,290 1,193,430 Ecocat (India) Pvt. Ltd. Industrial Shed 48,681 19,594,561 Ecocat (India) Pvt. Ltd. Office Area 5,890 2,934,276 Total 32,834,358 A.Y. 2013-14 Name of the Company Nature of Premises Area Sq. ft. Total Rent Borgwarner Vikas Emissions Sys India Pvt. Ltd. Industrial Shed 22,824 64,06,864 Ecocat (India) Pvt. Ltd. Industrial Shed 48,681 20,639,432 Ecocat (India) Pvt. Ltd. Office Area 5,890 4,153,319 31,199,615 The facts and figures as per above table are taken from the respective lease agreements and there is no letting out of any other asset, such as plant, machinery or furniture. There is also no consideration received on account of any services provided, as per the lease agreements. The AO has merely assumed that certain services/facilities have been rendered in his order for A.Y. 2013-14. However, the basis of his assumption is not recorded in the assessment order. A building/office space cannot be divorced of basic facilities such as common....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rt of the structure since the year 2004. Thereafter, construction has been carried out by the appellant by way of additional structures such as R&D section, stores, industrial sheds, security and time office space etc. Since the AO has taken the definition of 'building' from the business dictionary (the same not being defined under the I.T. Act, 1961) it is imperative to discuss other statutes to understand the issue. For eg. Section 2(5)of the Real Estate (Regulation & Development) Act, 2016 defines building to include "any structure or erection or part of a structure or erection intended to be used for residential, commercial or for purpose of any business, occupation, profession, trade or any other related purposes". A temporary structure such as one with mud, bamboo, leaves, grass etc. is also defined as a 'building' in various Municipal Corporation Acts & Building Tax Acts in India (refer appellant's submissions). The Madras High Court in the case of Chennai Properties & Investments Ltd. (supra) discussed the meaning of the word 'building'to state that building is not confined in its scope only to dwelling houses. It was stated that: 'H....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... justify the exploitation of the asset in question. No such complex commercial activities were being carried out by the appellant, as evident from the lease agreements nor is it obvious from the financials for the year. The conclusion that can be drawn is that, in effect, there is only rental income for leasing of the asset in question. (v) Whether object clause would be the determinative factor to arrive at the conclusion that income arose from business or from letting out: 3.2.9 The Constitution Bench in the case of Sultan Brothers Pvt. Ltd. (Supra) has clarified that an entry in the objects clause showing a particular object would not be a determinative factor in concluding whether income is to be treated as income from business. According to the Supreme Court, a thing by its very nature cannot be a commercial asset and therefore it is not possible to say that a particular activity is business because it is concerned with an asset with which trade is commonly carried on. When read in conjunction with the subsequent decisions of the Hon'ble Supreme Court such as Karanpura Development, SG Mercantile and the latest decision in Chennai Properties and Investment....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ue in favour of the assesee. Referring to the decision of Hon'ble Supreme Court in the case of Universal Plast Ltd. vs. CIT (supra) Ld. Counsel for the assessee submitted that in the said decision it has been held that no precise test can be laid down to ascertain whether income received by an assessee from licensing or letting out of asset would fall under the head profits and gains of business or profession since it was a mixed question of law and fact and has to be determined from the point of view of a businessman in that business on the facts and in the circumstances of each case. He submitted that since the Ld. CIT(A) has considered various decisions of Hon'ble Supreme Court and has come to a finding that the income has to be treated as income from house property, therefore, there is no infirmity in the order of the Ld. CIT(A) on this issue and the same should be upheld and the grounds raised by the revenue should be dismissed. 8. We have considered the rival arguments made by both the sides perused the orders of the AO and Ld. CIT(A) and the paper book filed by the assessee. We have also considered the various decisions relied on by both the sides. The only question that ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... infirmity in the order of the Ld. CIT(A) on this issue. Accordingly the order of the Ld. CIT(A) on this issue is upheld and the ground raised by the revenue is dismissed. 10. Ground No. 3 raised by the revenue reads as under :- 3. " Ld.CIT (A)has erred in law and on facts in deleting addition of Rs. 35,56,757/- made by the AO u/s,14A of Income Tax Act, 1961 by ignoring the provisions of Rule 8D(2)(ii) of IT Rules, 1962" 11. Facts of the case, in brief, are that the AO during the course of assessment proceedings observed that the assessee has earned exempt income by way of dividend amounting to Rs. 2,13,58,588/- and the assessee has offered disallowance u/s 14A read with Rule 8D at Rs. 45,11,099/- The AO noted that the assessee in the details of disallowance u/s 14A as per Rule 8D has deducted an amount of Rs. 93,30,918/- out of interest paid. It was submitted that ICD on which interest had been earned are out of own funds of the company. Rejecting the various explanations given by the assessee the AO recomputed the disallowance u/s 14A and made further disallowance of Rs. 3556757/- which is over and above the disallowance already made by the assessee at Rs. 45,11....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he bank statements or cash flow statement for the year. The Karnataka High Court in the case of Bharath Beedi Works (P)Ltd. (242 Taxman 492) has held that the burden is upon the assessee to show and prove that interest free funds far exceed the value of investment and thereafter, to justify the quantification of interest towards disallowance for the exempted income. In the present case, the said burden has not been discharged satisfactorily and thereafter, the assessing officer has proceeded to apply the formula provided under Section 8D(2)(ii) read with Section 14A of the Act. The Delhi High Court in the case of Indiabulls Financial Services Pvt. Ltd. (ITA 470/2016) has held that while the language of section 14A presupposes that the AO has to adduce some reasons if he is not satisfied with the amount offered by way of disallowance by the assessee, at the same time section 14A(2) as indeed Rule 8D(i) leave the AO equally with no choice in the matter in as much as the statute in both these provisions mandates that the particular methodology enacted should be followed. In other words, the AO is under mandate to apply the formulae as it were under Rule 8D because of section 14A(2). H....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... CIT (A) to substantiate genuineness of Service rendered by them in sale of shares." 17. Facts of the case , in brief, are that the AO during the course of assessment proceedings noted that assessee has incurred an expenditure of Rs. 1 crore on sale of shares. On being questioned by the AO to explain the nature of such expenditure it was submitted that a sum of Rs. 1,00,00,000/- in terms of payments made to Mr. K. Srinivas & Mr. Dinesh N. Jain had been incurred against sale of shares of Borgwarner. It was brought to the AO's notice that both the persons were instrumental and mainly responsible for the transactions and therefore the services paid to them were directly attributable to the capital gains earned by the company and the assessee had not claimed the same towards business expenditure but had only claimed the same as expenses incurred towards sale. The submission given by the assessee company was not found supported by any document/agreement on record which showed that Mr. K. Srinivas and Mr. Dinesh N. Jain had rendered such services for execution of sale transactions. The explanation given was not found sufficient to prove that such an expense had been incurred for ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....) but u/s 57(iii) as expenses wholly and exclusively incurred for earning the said income, which in this case, was capital gains. Moreover, the Board Resolution filed at Pages 89 to 90 of the paper book records the consent of the board of directors, including independent directors, for payment of the remuneration in connection with the sale of the impugned shares. It is also found that both the persons have accounted for this receipt in their returns of income, copies of which have been filed before the undersigned and paid taxes @30% thereon. The capital gains in the hands of the appellant has been taxed at 20% and if the intention of the appellant was malafide, this payment need not have been made. In the consequence and keeping all these facts in mind it is held that the disallowance of Rs. 1 crore is unjustified. Ground no.11 for AY 2012-13 is allowed." 20. Aggrieved with such order of Ld. CIT(A) the revenue is in appeal before the Tribunal. 21. We have heard the rival submissions made by both the sides and perused the orders of the AO and Ld. CIT(A). We have also gone through the paper book filed before us. We find the AO in the instant case made disallowance of Rs. 1 cr....