TaxTMI 
TaxTMI 
TaxTMI 
2025 (9) TMI 1730
X X X X Extracts X X X X
X X X X Extracts X X X X
....Decision rendered herein would apply mutatis mutandis to rest of other appeals. 2. ITA No. 3395/MUM/2024(A.Y. 2012-13) The grounds of the appeals are as under: 1. The Ld National Faceless Appeal Centre [hereinafter referred to as "NFAC'] erred in confirming the action of the Assessing Officer of treating the rental receipts of Rs 2,82,16,861/- as business income and denied the standard deduction under section 24(a) amounting to Rs. 83,74,762/- without appreciating the facts and circumstances of the case. Thus, gross total income determined at Rs. 2,60,33,302/- as against returned income of Rs. 1,69,14,565/- is not at all justified and the addition made may deleted. 2. The Ld. NFAC erred in confirming the action of the AO without appreciating the fact that the godowns constructed by the Appellant are being held as stock in trade and the same are given lease to several parties which rental income. Thus, the provision of section 22 of the Income tax Act, 1961 (hereinafter referred as 'the Act') and the rental income chargeable tax under the head 'Income from house property'. [CIT v Ansal Housing Finance & Leasing Co. Ltd (2016) 72 Taxman.com 254]. Thus, the AO ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nder: "4.1 The issue pertaining to this appeal is related to the treatment of income received from letting out of warehouses as Income from business & profession by AO against the claim of appellant as income from house property. The AO in the assessment order stated that letting out of godowns/ warehouses is the main business of the appellant and rental income therefrom constitutes dominant part of income in P&L A/c. Further, the AO stated that appellant has depicted rental income as income from house property to take advantage of standard deduction provided u/s 24(a) of the Act. 4.2 The AO relied on the decision of Hon'ble Supreme Court in the case of Chennai Properties & Investments Ltd Vs CIT, Central -3, Tamil Nadu [2015] 56 taxmann 456 (SC) in which it was held that where the main object of the assessee company was to acquire properties and earn income by letting the same, said income was to be brought to tax as business income and not income from house property. Accordingly, AO taxed the net profit of Rs. 2,82,16,861/- derived from rental receipt as Business income and income from house property was treated as Nil. 4.3 On the other hand the appella....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hall be treated as deemed owner of a building or part thereof. In the present case, the appellant is held to be "deemed owner" of the property in question by virtue of Section 27(iiib) of the Act. On the other hand, under certain circumstances, where the income may have been derived from letting out of the premises, it can still be treated as business income if letting out of the premises itself is the business of the assessee." In the present case, renting of warehouses is the main business of the appellant as certified by auditor in form 3CD & also in P&L A/c where appellant has shown income from renting of warehouses as Rs. 2,82,16,861/- & Income from sales of Rs. 96,36,300/-. 4.5 It is also pertinent to mention here that Hon'ble Apex Court in their decision in case of Raj Dadarkar & Associates has reiterated the view taken by the Court in Sultan Bros. (P) Ltd. Vs CIT [1964] 51 ITR 353 (SC) in which constitution bench of Hon'ble Supreme Court held as under: "7. We think each case has to be looked at from a businessman's point of view to find out whether the letting was the doing of a business or the exploitation of his property by an owner. We do not f....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t report, the appellant's business was to construct godown/ warehouses on the land & then gave it on rent. Thus, appellant gave warehouses on rent as per its main business activity. Thus, facts of Raj Dadarkar Case are different from appellate's case. Rather, the facts of the present case are similar to the case of Chennai Properties & Investment [(2015] 56 taxmann 456 (SC)] & Rayala Corporation [(2016) taxman 149 (SC)] in which it was held by the Hon'ble Apex Court that where assessee is engaged in business of leasing out its owned properties to earn rent, which was the business of the assessee, income so earned as rent should be treated as "business income" and not as income from house property. 4.9 In the present case also, the facts are similar to Chennai Properties &Investment [ (2015) 56 taxmann 456 (SC)] & Rayala Corporation [(2016) taxman 149 (SC)][supra] as income earned from rent is forming dominant part as reflected from audited P&L A/c of the appellant. Further, renting of properties is the main business activity of the appellant as per form 3CD. Therefore, ratio laid down by Apex Court in case of Chennai Properties & Investment [ (2015] 56 taxmann 456 (SC)] & ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... is contented that the impugned properties are located in Bhiwandi area of Mumbai and were leased out on rent. It is submitted that the galas in question were leased out to earn house property income even though the same were shown as stock-in-trade in the books of account. No deduction was claimed as per the profit and loss account. In respect of query by the Bench regarding year of construction and how it was appearing in books of accounts since construction and whether as stock in trade or not, the ld.AR submitted that that it is difficult to ascertain the specific date or on which date the construction of the godown was completed. However, details of all the godowns, the period for which they were leased out is provided were duly submitted. In respect of expenses incurred, it was stated that the assessee had incurred insurance expenses with respect to the building same was debited to the profit & Loss A/c as part of indirect expenses. It is further claimed that the assessee has not incurred any expenditure towards providing any services to the licensee including any expenditure towards security guard, cleaning, electricity etc. 6.1 It is submitted that the assessee is a part....
X X X X Extracts X X X X
X X X X Extracts X X X X
....planation, it can be seen that the assessee has not created any business loss in ITR, it has just shifted the income from Profit & Loss A/c to their respective charging head in the ITR. So, the AO's contention is incorrect. 6.3 It is further stated that the AO has drawn an adverse inference relying on the entry in column 10(a) of the Tax Audit Report. In this column of the tax audit report the Tax Auditor has mentioned "Nature of Business as Construction of godowns and galas & Land development & Renting of Immovable Property." The assessee submitted that the A.O. is not justified in drawing an adverse conclusion as the tax auditor had described the activity carried on by the assessee. This will not have any bearing on the fact under which head the lease rentals received by it are to be taxed. It is submitted that in the partnership deed the object of the business is mentioned as Construction of godowns and galas and Land Development. Thus, the object of the assessee was never to carry on the leasing business. The unit in the stock-in-trade were leased out as it is commercially expedient measure to generate revenue. It is also pleaded that the Constitutional Bench of the Hon'ble ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rtain parts of the stock was actually sold during h entire period of holding. Evidently, the assessee is engaged in the business activity of construction of galas/godowns for the sole purposes of earning business income therefrom as it is the only activity. Moreover, it is not a case where some of the unsold units lying vacant were leased out for the intervening period. 7.2 We find that the ld.CIT(A) has exhaustively dealt with all relevant judicial decisions in this regard and applied the ratio laid down to the facts of the case as also distinguishing the cases relied upon by the assessee on facts of the case. We notice that in case of Chennai Properties & Investments (supra), the hon'ble Apex Court held that in case of bare letting of property by construing the object clause of the company (and not the circumstance of bare letting) as relevant factor to determine the head of taxation. In this case, the main object of the memorandum made specific reference, by name, to two different properties from which rental income was earned. There was also no dispute that the entire income of the taxpayer was from letting of properties. Due to this, it was held the rental income from prope....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the purpose of Section 23 of the Income Tax Act, 1961 (Act) if income is assessable as " Income From House Property". 3. As far as the first issue is concerned, It is squarely covered by the Judgment of the Hon'ble Supreme Court in the case of East India Housing and Land Development Trust V/s CIT, 42 ITR 49, wherein it has been held that rental income from immovable properties is to be assessed under the specific head l.e., "Income From House Property" if such asset Is owned by the assessee even though the assessee may be in the business of real estate. The Learned Counsel for the Assessee could not make any other submissions In view of the above Judgment of the Supreme Court. Therefore, we hold that the rental income from Immovable property owned by the assessee is assessable under the head From House Property". 18. In the aforesaid circumstances, the primary question before the Court is whether the approach of the Tribunal was correct in categorising that the assessee's case would be squarely hit by the law as laid down by the Supreme Court in East India Housing (supra). 19. We may observe that it is a settled principle of law that the Assessing....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nder Section 9 of the Act. The Supreme Court examined the nature of the assessee's business and in doing so observed that the assessee was required to obtain license from the Corporation of Calcutta and to perform other acts in conformity with the provisions of the Act, and for that purpose the assessee had to maintain staff and to incur expenditure. It was observed that for such reason, the income derived from letting out property belonging to the appellant did not become "profit or gains from business", within the meaning of Sections 6 & 10 of the Income Tax Act. The Supreme Court observed that if the income from a source falls within a specific head as set out in Section 6, the fact that it may indirectly be covered by another head will not make the income taxable under the latter head. The Supreme Court observed that the income derived by the company from shops and stalls was income received from property falling under the specific head described in Section 9. It was held that the character of the income was not altered because it was received by a company formed with the object of developing and setting up markets. The relevant observations of the Supreme Court are require....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... this Court explained after an exhaustive review of the authorities that under the scheme of the Income Tax Act, 1922, the heads of income, profits and gains enumerated in the different clauses of Section 6 are mutually exclusive, each specific head covering items of income arising from a particular source. 4. In Fry v. Salisbury House Estate Ltd. [LR (1930) AC 432] a company formed to acquire, manage and deal with a block of buildings having let out the rooms as unfurnished offices to tenants was held chargeable to tax under Schedule A to the Income Tax Act, 1918 and not Schedule D. The company provided a staff to operate the lifts and to act as porters and watch and protect the building and also provided certain services, such as heating and cleaning to the tenants at an additional charge. The taxing authorities sought to charge the income from letting out of the rooms as receipts of trade chargeable under Schedule D, but that claim was negatived by the House of Lords holding that the rents were profits arising from the ownership of land assessable under Schedule A and that the same could not be included in the assessment under Schedule D as trade receipts. 5. I....
X X X X Extracts X X X X
X X X X Extracts X X X X
....usiness', and observed that it should be treated as such and taxed accordingly. Aggrieved by such order passed by the CIT(A), the department filed an appeal before the Tribunal, which declined to interfere with the order of the CIT (A) and dismissed the appeal. The department thereafter approached the High Court assailing the concurrent orders passed by the CIT(A) and the Tribunal. The department's appeal was, however, allowed by the High Court, when it held that the income derived by letting out of the properties would not be income from business, but could be assessed only as "income from house property". The High Court's decision primarily rested on the premise of the decision of the Supreme Court in East India Housing (supra). It is in such circumstances, the question which fell before the Supreme Court was as to whether the income derived by the company from letting out the property, is to be treated as income from business or it should be treated as rental income from house property. The Supreme Court, in answering such question, noted the Memorandum of Association of the appellant which mentioned the main objects as well as incidental or ancillary objects of the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... vs. CIT, observed that merely an entry in the object clause showing a particular object would not be the determinative factor to arrive at the conclusion, whether the income is to be treated as 'income from business', and such question would depend upon the circumstances of each case viz. whether a particular business is letting or not. The Supreme Court in Chennai Properties and Investment Ltd. (supra) referring to such settled position in law, in the facts and circumstances of the case, held that letting of properties was in fact the business of the assessee, and the assessee therefore rightly disclosed the income under the head 'income from business'. The Supreme Court held that such income of the assessee cannot be treated as 'income from the house property'. Accordingly, the judgment of the High Court was set aside. The relevant observations of the Supreme Court are required to be noted, which read thus: "6. The memorandum of association of the appellant Company which is placed on record mentions the main objects as well as the For such reasons, apparently there was an error on the part of the tribunal in holding that the assessee's income....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n certain coalfields and it had restricted its activities to acquiring coal mining leases over large areas, developing them as coalfields and then sub-leasing them to collieries and other companies. Thus, in the said case, the leasing out of the coalfields to the collieries and other companies was the business of the assessee. The income which was received from letting out of those mining leases was shown as business income. The department took the position that it is to be treated as income from the house property. It would be thus clear that in 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 th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rned with an asset with which trade is commonly carried on. We find nothing in the cases referred, to support the proposition that certain assets are commercial assets in their very nature." 12. We are conscious of the aforesaid dicta laid down in the Constitution Bench judgment. It is for this reason, we have, at the beginning of this judgment, stated the circumstances of the present case from which we arrive at the irresistible conclusion that in this case, letting of the properties is in fact is the business of the assessee. The assessee therefore, rightly disclosed the income under the head "income from business". It cannot be treated as "income from the house property". We, accordingly, allow this appeal and set aside the judgment [CIT v. Chennai Properties & Investments Ltd., (2004) 186 CTR 680 (Mad)] of the High Court and restore that of the Income Tax Appellate Tribunal. No orders as to costs." 24. Adverting to the law as laid down in Chennai Properties & Investments Ltd. (supra), it is clear that what must be borne in mind for the Court is to consider the main objective of the assessee as contained in the Memorandum of Association, and that the deciding f....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... High Court of Gujarat in the case of CIT Vs. Neha Builders Pvt. ltd. (2008) 296 ITR 661 (Guj), and further relying on the judgment of the Hon'ble Supreme Court in the case of Chennai Properties & Investments Ltd. Vs. CIT (2015) 377 ITR 673 (SC), had observed, that the income generated by an assessee who was engaged in the business of acquiring and holding properties from such source would be its 'business income' and not its income under the head 'house property'. Also, we find that the Tribunal while disposing off the appeal in the case of the sister concern of the assessee in Haware Engineers and Builders Pvt. Ltd. Vs. DCIT, Central Circle-4(2), Mumbai [ITA No. 7155/Mum/2016, dated 10.10.2018], had concluded that if an immovable property in the shape of flats/shops is held by the assessee as stock-in-trade of its business, then it becomes part of its trading operations, and any income derived there from would be its business income and not Income from house property. On the basis of the aforesaid deliberations, the Tribunal while disposing off the aforesaid appeal had vacated the addition of the 'ALV' that was made by the lower authorities in respect of the flats/shops ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t. CIT, (supra) the assessee company was a private company and had a house property, which was let out and earned a rental income from the premise. The main issue before the court was that 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 "Income from House Property". As per its Memorandum of Association its business is to deal into real estate and also to earn income by way of rent by leasing or renting the properties belonging to the assessee company. The Supreme Court followed the Chennai Property case, and it was considered that the income earned will be income from business. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e the assessee is owner of the building as discussed above, the assessee shall be liable for all the provisions of the Act in respect of the building. The property constructed and remained unsold during the year, shall be liable for tax under the head income from house property. d. Moreover, this being a debatable issue and on the same ground, the Department is in appeal before the Hon'ble ITAT in the assessee's own case for Assessment Year 2012-13. In view of the same, keeping the law of consistency in mind and with due respect to the CIT's decision, the computation of total income submitted by the assessee is not acceptable. 4. Therefore, AO proceeded to make assessment u/s 143(3) treating the total income at Rs. 2,22,60,750/- by assessing the rental income under the head 'Income from House Property'. 5. Aggrieved with the above order, assessee preferred the appeal before Ld. CIT(A) and Ld. CIT(A) after considering the submission of assessee as well as following the decision of ITAT in assessee's own case for Assessment Year 2012-13, allowed the appeal of the assessee to assess the income under the head 'Income from Business&....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ore the Coordinate Bench in the case of the M/s. Runwal Constructions v. ACIT (supra) and the Tribunal held as under: - "3. The brief facts of the case are that the assessees, engaged in the business of builders and developers, filed return of income for A.Y. 2012- 13. The assessment was completed under Section 143(3) of Income Tax Act, 1961 (hereinafter "the Act") and while completing the assessment the AO computed the annual letting value in respect of unsold flats held as stock in trade by the assessees. The assessees contended before the AO that they are engaged in the business of builder, developers and construction and the property they purchased is stock in trade and the income from sale of such developed property into flats is assessable as business income. Therefore, the unsold flats which are in the stock in trade cannot be brought to tax under the head 'income from house property' simply because the flats remain unsold at the end of the year. The assessees also placed reliance on the decision of the Hon'ble Gujarat High Court in the case of CIT vs. Neha Builders Pvt. Ltd. (296 ITR 661) in support of their contentions. However, the AO referring to the de....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... upheld by the learned CIT(A). 8. The Hon'ble Gujarat High Court in the case of Neha Builders Pvt. Ltd. (supra) considered the question whether the rental income received from any property in the construction business can be claimed under head "income from property" even though the said property was included in the closing stock. The Hon'ble Gujarat High Court held that if the business of the assessee is to construct the property and sell it or to construct and let out the same, then that would be the business and the business stocks, which may include movable and immovable, would be taken to be stock in trade and any income derived from such stocks cannot be termed as income from house property. While holding so the Hon'ble High Court observed as under: - "8. True it is, that income derived from the property would always be termed as 'income' from the property, but if the property is used as 'stock-in- trade', then the said property would become or partake the character of the stock, and any income derived from the stock, would be 'income' from the business, and not income from the property. If the business of the assessee is t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... same is not assessable u/s.23(1) of the IT Act. 4. On the other hand, ld. DR relied on the order of Hon'ble Delhi High Court in the case of Ansal Housing Finance & Leasing Co. Ltd., 354 ITR 180 (Delhi) in support of the proposition that even in respect of unsold flats by the developer is liable to be taxed as income from house property. 5. We have considered rival contentions and perused the record. The issue under consideration has been restored by the CIT(A) to the file of AO to compute the annual value. Recently the Hon'ble Supreme Court in the case of M/s Chennai Properties & Investments Ltd. Vs. CIT, reported in (2015) 42 SCD 651, vide judgment dated 9-4- 2015 has held that where assessee company engaged in the activity of letting out properties and the rental income received was shown as business income, the action of AO treating the rental income as income from house property in place of income from business shown by the assessee was held to be not justified. The Honble Supreme Court held that since the assessee company's main object, is to acquire and held properties and to let out these properties, the income earned by letting out these properties is mai....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ncerned, it is apparent that the said decision is distinguishable in as much it pertained to whether Ansal Housing, as a real estate developer, should be taxed on the notional rental income (Annual Letting Value or ALV) of unsold flats. Here in this the case issue involved is of letting out /leasing of warehouses or godowns and not unsold flat and there is no issue of any notional rent accruing. In the instant case, the main business activity of the assessee comprises of construction and letting out of warehouses on rent as part of it main activity. It is not case of stock in trade remaining vacant for temporary period. 8.1 In so far as the reliance placed on the decision of hon'ble Bombay High Court in the case of Banzai estates Bombay is concerned, we find that here the Assessing Officer, treating the income from the MBC Tower property as "business income." The Tribunal, ruled in favour of the assessee, referring past consistency in treating this income as "income from house property" and citing several Supreme Court decisions. The High Court upheld the Tribunal's decision, stating that the principles of consistency should apply. It noted that in previous years, the Revenue ha....