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2006 (8) TMI 286 - AT - Income TaxLet out the property i.e. warehouse - activity of leasing/hiring/letting of its land and building - business activity - whether the warehousing charges received by the assessee should be assessed as 'income from house property' or as 'business income' - lease agreement between the assessee company and Lipton India and with Hindustan Lever - HELD THAT:- This is not a case where the leasing of the property was incidental or subservient to the main business of the assessee. The assessee, was engaged in the activity of leasing/hiring/letting of its land and building and in our opinion, this activity was not a 'business activity'. The lease rent received by the assessee was because of the bare letting of the property. The said character cannot change and the income does not become income from trade or business merely because letting out included certain additional services such as security, issuing the goods on the directions of the client lighting, cleaning, and sanitation, etc., which are only incidental to the use and occupation of the premises. Therefore, we hold that the lease rent received by the assessee from Lipton India and from Hindustan Lever was rightly assessed as 'income from house property'. The ground Nos. 3 and 4 are accordingly rejected. Whether the warehousing charges received by the assessee should be assessed as 'income from house property' or as 'business income' - The income from warehousing is derived from house property by the exercise of the property rights, properly so-called, and the said character is not changed and the income does not become 'income from business' merely because the hiring is inclusive of certain services, such as security, labour for loading and unloading, lighting, cleaning etc., which are incidental to the use and the occupation of the premises. In warehousing the dominant object is exploitation of house property and the other services that go with it are only incidental. In it no complex commercial activity is involved. Thus, we agree with the conclusions reached by the CIT(A). The grounds Nos. 1 to 4 are accordingly rejected. Disallowance of interest on account of interest free advances - HELD THAT:- In our considered opinion the assessee needs to be given one more opportunity to substantiate its claim and it will be in the interest of natural justice to do so. We, therefore, remit this issue back to the file of the CIT(A) with a direction that he should re-examine the claim and pass a fresh order on this point, after giving adequate opportunity of being heard to the assessee. The ground No. 6 is decided accordingly. Disallowance out of service charges u/s 40A(2)(b) - HELD THAT:- We have no doubt in our mind that the 'fair market value of the services' rendered by M/s Shree Industrial Suppliers was not the basis for paying Rs. 27,02,000. The assessee company failed to discharge the burden of proving that the impugned payment of Rs. 27,02,000, represented the 'fair market value of the services' rendered by M/s Shree Industrial Suppliers and that the expenditure of Rs. 27,02,000 was incurred for legitimate needs of its business. The new plea of a 'give and take arrangement' was a self-serving argument and had no merit. The CIT(A), after taking into consideration the facts of the case, restricted the claim to Rs. 3,74,408. Shri. Pranay, the ld DR, explained that the method adopted by the CIT(A) for estimating the 'fair market value of the services' rendered by M/s Shree Industrial Suppliers was akin to the Cost Plus Method which was a recognized method. In view of above discussions we are of the considered opinion, that the order of the CIT(A) does not call for any interference and is accordingly upheld. The grounds Nos. 7 and 8 are accordingly rejected. In the result the appeal filed by the assessee is partly allowed.
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