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2015 (6) TMI 1229
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..... Karia alongwith Smt. Swati H. Patrawala, ld. counsel for the assessee. The ld. DR, Shri Premanand J. advanced his arguments which are identical to the ground raised by further submitting that the addition was rightly made by the Assessing Officer. On the other hand, the counsel for the assessee, explained that the assessee is a partnership firm is in the business of developer. It was claimed that development was made by the assessee itself and certain units were hold by the assessee and few were leased to lemon brothers. It was claimed that the lease was made for temporary period showing as business income by claiming that leasing is an ancillary activity of the assessee. Reliance was placed upon a later decision from the Hon'ble Apex Court in M/s Chennai Properties vs CIT (Civil Appeal No.4494 of 2004 along with Civil Appeal Nos. 4491-4493 of 2004). It was contended that the assessee dealt with as a trader while the leasing is a business income. It was also contended that the case of Ansal property is not applicable to the facts of the present appeal and the decision in Shambhu Investment, wherein, Sultan Brothers was relied upon has been distinguished by the Hon'ble Apex C....
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.... Vide letter dated 30.08.2011 appellant submitted detailed reply objecting the re opening and requested Assessing Officer to drop the re-assessment proceedings. However, the AO was not satisfied with the explanation of the appellant and proceeded to complete the assessment. 3.1.3 In this respect in appeal proceedings the Ld. A. R. has stated that the appellant is a registered firm engaged in the business of construction and development of property since inception. Since its inception the firm has developed number of properties and dealt with immovable properties only. Some buildings are constructed by the firm for selling the premises in the said buildings and some are constructed purely for giving them on lease. Lease income in case of buildings constructed purely for giving them on lease is considered as Income from House Property and shown accordingly. In case of buildings constructed for sale if some units are unsold, then they are temporarily given on lease and income from the same is considered as Business Income. 3.1.4 During the year the firm has given some premises on temporary lease and has earned lease/license fees from the same. Leasing of premises is ....
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....elieve as required by S. 147. The appellant seeks to draw your honours attention to two judgments of the Hon'ble Supreme court laying down the said propositions in Kelvinator, 256 ITR 1 (Del) (FB) affirmed in 320 ITR 561 (SC) and ICICI Securities Primary Dealership Ltd (reported in itatonline.org), copy enclosed in the paper book. 3.1.11 The appellant, therefore, has submitted that the assessment order u/s. 143(3) r. w.s. 147 itself is without jurisdiction and bad in law and the appellant prayed that the same may be quashed. 3.1.12 Without prejudice, the appellant submitted that the assessing officer erred in passing the assessment order without first dealing with the objections raised by the assessee to reopening and the assessment proceedings have been vitiated and liable to be quashed. The said procedure has been laid down by the Hon'ble Supreme Court in case of GKN Driveshafts, 259 ITR 19 (SC). 3.1.13 I have examined the facts of the case and find that the Assessing Officer has rightly exercised his jurisdiction u/s. 147. The issue for which assessment proceedings have been reopened were not examined in earlier proceedings and it cannot be sai....
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....7 is dismissed. 4. Ground No.2: 4.1 In this ground appellant challenged the action of the AO in taxing the income of Rs. 1,51,95,578/- under the head income from house property. 4.1.1 The appellant is engaged in the business of construction and development of property since inception. Since its inception the firm has developed number of properties and dealt with immovable properties only. Some buildings are constructed by the firm for selling the premises in the said buildings and some are constructed purely for giving them on lease. Lease income in case of buildings constructed purely for giving them on lease is considered as Income from House Property and shown accordingly. In case of buildings constructed for sale if some units are unsold, then they are temporarily given on lease and income from the same is considered as Business Income. 4.1.2 During the year the firm has given some premises on temporary lease and has earned lease/license fees from the same. Leasing of premises is also one manner of commercial utilization of immovable property and hence forms part and parcel of business of firm and therefore income from temporary leasing ....
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.... leased out for temporary period .. v) The appellant submits that clause 14 of lease and license agreement clearly demonstrates the commercial intent of the appellant. The said clause provides that the appellant shall have a right to sell the leased premises without any objection from the lessees except that leave licence agreement shall continue for the balance period. 4.1.5 Section 22 of the I. T. Act, 1961, charges to tax annual value of any building or land appurtenant thereto as income from house 'property except for such portion of property which is occupied for the purpose of business or profession. As section 22 specifically provides for charge of rent under the head Income from house property and special provisions for computation are provided, income for hiring out of property, in most cases would be assessable under the head income from house property. The law on the subject has been laid down by the Hon'ble Supreme Court in the case of National Storage Pro Ltd., 66 ITR 596, and it was held that "House owning, however profitable, cannot be business or trade under the Income Tax Act." 4.1.6 However, the same very judgment further holds t....
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....nother circumstance where income is not assessable under the head income from house property is dealt with by the Hon'ble Supreme Court in Sultan Bros, 51 ITR 353. Section 56(2)(ii) provides that income from hiring out plant, machinery, furniture is assessable under the head 'other sources' if the same is not chargeable under the head 'business income'. Further if building is also let out and letting out of building is inseparable from letting out of plant, etc., then also income is assessable under the head other sources if it is not chargeable under the head business income. Section 56(2)(iii) applies when plant, etc., is let out alongwith building and letting out of both is inseparable. Further, such activity should not be in nature of business or trade as if it is in nature of trade, it shall be assessable under the head business income. What constitutes inseparable was considered by the Hon'ble Supreme Court in Sultan Bros. Pro Ltd v. CIT (1964) 51 ITR 353 in following words: ' "It seems to us that inseparability referred to is an inseparability arising from the intention of the parties. That intention may be ascertained by framing the foll....
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....saction will only be exploitation of property by an owner thereof, but not exploitation of business assets. " 4.1.10 Therefore, in following circumstances, the general rule that rent is assessable under the head house property is not applicable, and those are: i) where the letting out is part of complex services rendered, ii) where letting out is subservient and incidental to main business carried out by the assessee, iii) where plant and property are inseparably let out, and iv) where business assets are let out for a temporary period. The case of the appellant is of second and fourth category and judgments on first and third issues would not be applicable to the case of the appellant. 4.1.11 The judgment in Shambhu Investments, 263 ITR 143 (SC) relied on by the AO affirms judgment of Hon'ble Calcutta High Court reported in 249 ITR 47. In the said case, assessee had let out table space and claim was that letting out of premises and table is inseparable, which claim was rejected. In the said case, issue of temporary letting out of business assets was not involved and, therefore, facts are clearly distinguishable. Al....
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.... 5.1 In this ground, appellant has challenged action of the AO in disallowing depreciation of Rs. 11, 14,982/- on furniture & fixtures on leased assets. AO disallowed the depreciation on the ground that receipt from leasing activities is taxable under the head income from house property and hence depreciation cannot be allowed. 5.2 This ground of depreciation on assets leased is consequential to earlier ground and as the income is held to be assessable as business income, depreciation on leased movable asset is allowable as deduction. This ground is allowed. 6. Ground No 4: 6.1 In this ground appellant challenged the' action of the AO in disallowing proportionate expenses amounting to Rs. 1,41,00,0001 -. The AO observed that income from leased of properties has been assessed under the head income from house property and hence part of the expenses incurred in creating building this stock cannot be allowed as business expenditure. 6.2 Appellant on the other hand stated that these expenses are incurred on the projects completed by it. Appellant also submitted details of these expenses together with names and addresses of the vendors....
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....ibunal in Roma Builders Pvt. Ltd. vs JCIT (ITA No.4118/Mum/2008), order dated 09/03/2011, wherein the assessee was engaged in construction of residential units and development activities, earned some income from leasing activity. During the year, the assessee company gave some commercial units on lease and earned some income by claiming the same as commercial utilization of immovable property by placing reliance upon certain decisions like CIT vs Kohinoor Tobacco Pvt. Ltd. (2005) 149 taxman 620 (MP), CIT vs Anand Rubber & Plastics Pvt. Ltd. 178 ITR 301 (P & H), CIT vs Ajmera Industries Pvt. Ltd. 169 ITR 597 (SC) etc. and held that since it was temporary commercially utilization of the immovable property, therefore, income derived therefrom should be assessed as income from house property for the purposes of section 22 of the Act. In the case of CIT vs Neha Builders Pvt. Ltd (2008) 296 ITR 661, wherein, identically, the income was held to be assessable as business income. In the present appeal, all the units, leased outs, were developed by the assessee itself and only small portion of the total units were leased out on lease and licence basis, which were held as stock in trade.....
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.... be treated as income from house property, thus, applying the ratio laid down in the latest decision by Hon'ble Apex Court in the case of Chennai Properties (Supra), utilization of unsold units for letting out for Commercial utilization for temporary period is assessable as business income. Normally, the income derived from property would be termed as 'income from property' but if the property is held as stock in trade, then the said property would become or part take the character of stock and thus any income derived therefrom would be income from business and not income from property. If business of the assessee is to construct the property and sale it or to construct and let out the same then that would be the business income. However, respectfully following the latest decision from Hon'ble Apex Court in M/s Chennai Properties, we affirm the conclusion drawn by the ld. Commissioner of Income Tax (Appeals). This ground of the Revenue, therefore, is having no merit, consequently, dismissed. 3. The next ground pertains to deleting the disallowances of expenses of Rs. 1,41,00,000/- which were arrived at pro rata basis by the Assessing Officer. The ld. DR defended the conclus....