TaxTMI 
TaxTMI 
2024 (8) TMI 1753
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....ure incurred by way of compensation paid for surrender of tenancy rights amounting to Rs. 1,18,66,667/-. (VI) Without prejudice to Ground No. V: Disallowance of depreciation on compensation paid for surrender of tenancy rights amounting to Rs. 5,93,333/- (VII) Incorrect Computation of Book Profits u/s. 115JB of the Act. (VIII) Non Grant of MAT Credit amounting to Rs. 13,42,936/- (IX) Non Grant of Unabsorbed Depreciation amounting to Rs. 8,81,186/-. (X) Non Grant of Brought Forward and Carry forward of MAT Credit amounting to Rs. 6,14,510/-. (XI) Short Grant of TDS amounting to Rs. 26,298/-. 3. Brief facts qua the first issue, whether the composite letting of property is to be taxed under the head 'income from house property' or from 'profits and gains from business', are that, in the year 1962, the assessee had constructed an industrial estate comprising of several small industrial galas. Out of the total construction of around 1,50,000 sq. ft., area admeasuring around 6,000 sq. ft. was presently utilised by the assessee for the purpose of running its other businesses, namely business of dealing in fabrics and....
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....d that although the occupiers were allotted table space in effect the right given to this occupiers were to enjoy furnished accommodation in the said immovable property. The other amenities like providing watch and ward staff, electricity and water were consequential to the principal right given to those occupiers under the said agreement. Hence, the income derived from the assed property by way of realization of the license fees assessed as rental income and not as business income. 5. Ld. AO held that the only object and intention of the assessee while exploiting the said property was to let out the property on a monthly rent and there was no complex commercial activity involved in the letting out of the property. Thus the lease rent received by the assessee was only because of bare letting of the property. The receipts being rent from property cannot change the character of income and the income does not change or become income from business merely because the property is a commercial property. Thus, he opined that in his considered opinion this activity cannot be termed as a business activity as contended by the assessee and hence the rent received by the assessee shall be as....
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.... from house property by the AO stand confirmed. This ground is therefore dismissed." 6. Before us ld. Counsel for the assessee submitted that first of all here in this case, 'principle of consistency' should be followed, because, since beginning the rental income has been consistently been offered to tax as profits and gains from business or profession and accepted by the Department. In support he also filed various assessment orders from A.Ys. 1998-99 till A.Y.2015- 16, wherein this income offered as 'business income' has been accepted. Since, there is no change in facts or change in law therefore, principle of consistency should be followed and in support he relied upon the following decisions :- ⮚ Radhasoami Satsang v. CIT [1991] 193 ITR 321 (SC) ⮚ H.A. Shah & Co. v. CIT [1955] 30 ITR 618 (Bombay HC) ⮚ CIT v. Neo Poly Pack (P) Ltd.[2000] 245 ITR 492 (Delhi HC) ⮚ CIT v Goel Builders [2010] 331 ITR 344 (Allahabad HC) ⮚ Shibani S. Bhojwani v. DCIT [2017] 166 ITD 488 (Mumbai Trib) ⮚ Samir Bhojwani v. ACIT (ITA No. 331/M/2015) (Mumbai Trib.) ⮚ ITO v. Rasi....
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....s admeasuring about 700 to 10,000 square feet. These galas were rented to various occupants from time to time. Further, where the occupants demanded certain additions/ alterations based on their "working requirements, the galas were customized and altered according to the specific requirements of the occupants. Such additions/alterations interalia include the construction of various types of cabins with furniture, installation of air conditioners, construction of mezzanine levels and wooden steps, construction of toilets and washrooms as per the requirements of the customers, installation of workstations and electrical fittings as per requirements of the customers, provision of uninterrupted power supply, etc. Furthermore, the Assessee has exclusively handling the upkeep and maintenance of the industrial building, including all necessary repairs. For all these works, the Assessee has incurred large sum of money from time to time which is capitalised under the "Industrial Gala" i.e. Fixed Asset or expensed out to the Profit and Loss Account of the Assessee. To substantiate the aforementioned points, the Assessee hereby submits the below mentioned details: ....
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....at various furnishings such as chairs, sofas, spotlights, white boards, workstations, light fittings, air conditioners, etc., were provided by the Assessee for various areas such as cabins, cafeteria, rest rooms, etc in the gala leased to Metropolis Healthcare Limited. b. Thereafter, the Ld. AR drew our attention to the memorandum of understanding between the Appellant Assessee and What's On India Private Limited [He referred to page no. 25 to 27-Annexure 1 to the written submission made on June 10, 2024] On page 26, it has been stated that all renovation cost for the premises shall be borne by the Appellant Assessee Furthermore, on page 27, it is mentioned that the premises should be fully furnished with 80 workstations, 3 cabins, 1 conference room, 1 pantry, 2 washrooms, free reserved parking, central air conditioning, ample lightning, etc. The Id. AR also stated that What's On India Private Limited is one of the largest tenants of the Assessee, occupying approximately 10,000 square feet of the total 1,50,000 square feet area of the industrial building. c. The Id. AR then drew our attention to the email communication received from one of the tenants, JSM....
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....rdly it is to be found out whether it is inseparable or not. If they are inseparable and the intention is to carry on the business of letting out the commercial property and carrying at complex commercial activity and getting rental income therefrom, then such a rental income falls under the heading of profits and gains of business or profession. 11. On the other hand, ld. DR relying upon the order of the ld. AO and ld. CIT(A) submitted that once the income has been derived by letting out of the properties, then income has to be assessed as income from house property and not of business income. 12. We have heard the rival submissions and perused the relevant facts and material brought on record. As noted above assessee has constructed an industrial building way back in the year 1962 on the leasehold industrial estate which is an industrial building consist of four-storey building, admeasuring about 1,50,000 square feet. The assessee is using around 6,000 square feet of its own purpose and balance is used for renting of galas to various parties. It has also been highlighted for letting out such building contains various facilities and amenities and services are being provided.....
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....y amenity agreement. The assessee has been incurring huge capital expenditure as per requirement of the customers and during the year assessee had spent during the A.Y.2015-16 and 2016-17 had spent Rs. 1,70,03,229/- and Rs.2,24,32,683/- respectively. If the assessee is incurring such a huge expenditure and capitalizing to the fixed assets, it clearly shows the intention was not to simply give the property on rent. If the assessee is customising the property and providing all kinds of fixtures and furniture tailored made as per the requirement of the occupants and also providing various services to the occupants, then this is nothing but a kind of a service provider. 13. During the course of hearing we had asked the parties to address on the principles laid down by the Hon'ble Supreme Court in the case of Raj Dadarkar & Associates vs. DCIT (2017) 394 ITR 592 which was rendered on this issue. In the case before Hon'ble Supreme, the assessee having obtained a property on lease, constructed various shops and stalls on it and gave the same to various persons on sub-licensing basis. It was found as a matter of fact by the Tribunal that assessee was not engaged in systematic or....
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....ifferent carpet areas on the premises. The assessee collected the receipt from the sub-licensees in form of leave & license fees and service charges for providing various services, including security charges, utilities etc. The assessee filed the return wherein income from the aforesaid shops and stalls sub-licensed by it was offered to tax under the head Profits and gains of business or profession. 14.2. The ld. AO computed the income from the shops and the stalls under head Income from House Property. The reasons given for so computing the income under the head Income from House Property were by virtue of section 27(iiib), the appellant was 'deemed owner of the premises as it had acquired leasehold right in the land for more than 12 years; in agreements for sub- licensing the words lease compensation were used instead of license fees and deposits were referred as 'sub-lease deposits", property tax had been levied on the assessee. 14.3. The Tribunal also held that assessee had not established that it was engaged in any systematic or organized activity of providing service to the occupiers of the shops/stalls so as to constitute the receipts from them as business inco....
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....from house property. 15. This finding of the Tribunal has been upheld by the Hon'ble Supreme Court in para 18 in the following manner :- "18. The ITAT being the last forum insofar as factual determination is concerned, these findings have attained finality. In any case, as mentioned above, the learned counsel for the appellant did not argue on this aspect and did not make any efforts to show as to how the aforesaid findings were perverse. It was for the appellant to produce sufficient material on record to show that its entire income or substantial income was from letting out of the property which was the principal business activity of the appellant. No such effort was made." 16. Ergo, on these facts, the Hon'ble Supreme Court held that the judgment of Hon'ble Supreme Court in the case of Chennai Properties and Investments Ltd. vs. CIT (2015) 373 ITR 673 and Rayala Corporation (P) Ltd vs. Asstt. CIT (2016) 386 ITR 500 would not be applicable. In this regard the observation and finding of the Hon'ble Supreme Court reads as under :- "19. Reliance placed by the appellant on the judgments of this Court in Chennai Properties & Investments Ltd. (su....
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.... 20. In Rayala Corporation (P) Ltd. (supra) fact situation was identical to the case of Chennai Properties & Investments Ltd. (supra) and for this reason, Rayola Corporation (P) Ltd. (supra) followed Chennai Properties & Investments Ltd. (supra) which is held to be inapplicable in the instant case. 17. Thus, the Hon'ble Supreme Court has rendered the judgment on the fact formulated by the Tribunal because those services were found to be inseparable of basic charges of rent. 18. One very important principle which has been reiterated by the Hon'ble Supreme Court in the aforesaid case is that facts of the case has to be seen while applying the test for determining the real nature of the income whether particular income will fall as income from 'house property' or 'business income'. The Hon'ble Supreme Court held that under certain circumstances where income may have derived from letting out of the premises, it can still be treated as 'business income'. If the letting out of the business premises itself for the business of the assessee, then it is to be treated as 'business income'. Their Lordships even referred to the Constitutional B....
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....vogue in the current scenario where an enterprise or entity or persons are has developing huge commercial/ official paraphernalia and customizing the infrastructure by putting fixtures and furniture, work stations, pantry services, including services to the users / occupants either on temporary basis, hourly basis or for a long term and charging occupancy user. Such systematic and organised activity is nothing but services by a service provider and not simply leasing out the property. Here in the present case as noted above assessee is providing much more than the service and in fact customizing the needs of users / occupants to give the holistic services for running of the office. Thus, under these circumstances, we hold that like in the earlier years, income has to be assessed under the head 'income from profits and gains'. Accordingly, this issue is allowed in favour of the assessee. 20. Ground No.2 is with regard to disallowance of various expenses amounting to Rs. 2,00,47,569/-. The ld. AO after going through the details of rental income and expenses claimed, noted that activity of the assessee is mixed bag and there are huge expenses which relate to renting of the ....
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....ading activity. 25. When the expenditure has been incurred for composite business not only for trading of shares and fabrics but also for carrying out organized activity of renting the premises, then expenditure cannot be segregated. Once letting out of the premises has been treated as business income, the expenditure debited to the profit and loss account even for this activity has to be allowed. Accordingly, we direct the ld. AO to allow such expenditure. Accordingly, ground No.3 is allowed. 26. Ground No.4 is disallowance of depreciation amounting to Rs. 22,08,520/-. During the captioned year, opening written down value of fixed assets was Rs. 1,62,29,318/-and additions amounting to Rs. 1,29,90,147 (comprising Rs. 20,05,797/- being held for more than 180 days and the balance for less than 180 days) were made to the fixed assets. 27. The ld. AO disallowed depreciation amounting to Rs.22,08,520/- which includes depreciation on both the opening written down value and the additions made during the year. The disallowance was made on the ground that the assessee failed to furnish evidence of installations i.e., put to use certificates. The ld. CIT (A) has upheld the action of....
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....ound No.5 & 6 relate to disallowance of expenditure incurred by way of compensation paid for surrender of tenancy rights amounting to Rs. 1,18,66,667/- and Ground No. 6- Allowance of depreciation on compensation paid for surrender of tenancy rights amounting to Rs. 5,93,333/-. 31. The Ld. AO disallowed expenditure incurred by way of compensation paid for surrender of tenancy rights amounting to Rs. 1,18,66,667/-, relying on the assessment order of AY 2015-16, where similar disallowance was made. 32. The Ld. CIT (A) upheld the action of the ld. AO of disallowance of expenditure incurred by way of compensation paid for surrender of tenancy rights amounting to Rs. 1,18,66,667/ stating that the expenses have been capitalised in the books of accounts and the claim has been made by way of a revised return filed after the stipulated period of tax audit i.e. September 27, 2019, which emerges as after thought of the assessee. 33. The brief facts and background as submitted by the assessee on this issue before us are as under :- i. During the captioned year, the Appellant Assessee paid compensation of Rs. 1.18,66,667/- to its existing tenants for surrendering their tenancy ....
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.... ii. Shyam Burlap Co. Ltd. v. CIT (2016) 380 ITR 15 (Calcutta HC) iii. Commr. Of Agri I.T. v. Bombay Burmah Trading Corporation Ltd. (1981) 131 ITR 154 (Kerala HC) 35. After hearing both the parties and on perusal of the material placed on record, it is seen that assessee has paid compensation of Rs.1,18,66,667/- to the existing tenants for surrendering the tenancy rights. The assessee had filed a suit against these tenants to restrain them from creating any third party rights and the tenant had approached the assessee for settlement and based on this consent terms assessee had to pay the compensation to other tenants. We find that this issue is covered by the decision of Hon'ble Calcutta High Court in the case of Shyam Burlap Co. Ltd. v. CIT (supra) wherein it was held that rental income earned by the assessee was taxable as business income, then compensation paid by the assessee to existing tenants to obtain vacant possession of building so as to earn higher rental income by letting out to new tenants was to be regarded as business expenditure allowable u/s.37(1). In para 14 & 15 of the Judgment the Hon'ble High Court held as under :- The Assessi....
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....ssity and commercial expediency. Since there was no question of acquiring a property it cannot be said that the payment made was for having a benefit of enduring nature. Rather the compensation was paid to the existing tenants to have their portions vacated to have new tenants with higher rent and thus to have a higher rental income which was a business activity permitted by the Memorandum. [Para 14] 36. Similar view has been reiterated by the Hon'ble Kerala High Court as relied upon by the ld. Counsel. Since, no contrary judgment has been brought on record before us therefore, respectfully following two decisions of Calcutta High Court in the case of CIT v. Auto Distributor Ltd.; Shyam Burlap Co. Ltd. v. CIT and Hon'ble Kerala High Court judgment, we allow this issue in favour of the assessee and held that the compensation paid to the existing tenant for surrendering of tenancy rights is allowable u/s. 37(1). 37. Ground No. 7-Incorrect computation of book profit u/s. 115JB of the Act. 38. The ld. AO has made disallowance of income tax provision debited to statement of profit and loss at Rs. 38,00,000/- instead of Rs. 37,53,891/-, while arriving at the book profit ....