TMI Blog2008 (4) TMI 540X X X X Extracts X X X X X X X X Extracts X X X X ..... enses, expenses for electricity, security, accrued liability for recovered rent, repairs, depreciation, ( iii )Disallowance of depreciation on intangible asset. As per the table hereunder : Sl. No. Issues involved Asst. Year Asst. Year Asst. Year 2001-02 2002-03 2003-04 1. Assessment of the income under Gr. Nos. 1 Gr. Nos. 1, Gr. Nos. 3 the head "property" instead of to 5 2, 3 5 business proper determination 6 of head of income and thereby allowing liability for rent payable to KPT under mercantile method of accounting. 2. Other expenditure including Gr. No. 7 Gr. No. 5 Gr. Nos. 2 depreciation be allowed as 4 deduction 3. Allowances of repairs (capitalized Gr. No. 6 Gr. No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e department has not allowed the expenses as deduction to assess from the income returned but earned under the head "Property" though the property does not legally belong to the assessee nor the assessee is in legal possession of the property that is exploited by the assessee. The ld. Representative has pointed out that the property in question belongs to Calcutta Port Trust which was originally leased to M/s. Binani Metals Ltd. The said company used to let out the property to various commercials to different persons. In addition to that the company earned income from providing maintenance and security, electricity, ground rent etc. from the same place. As the individual occupier did not acquire facilities for electric connection, providing electric power was one of the activities of the assessee. The lease granted to M/s. Binani Metals Ltd. expired long ago. Hence, the courts cases and other proceedings are pending for eviction against M/s. Binani Metals Ltd. After expiry of lease rights, the said company M/s. Binani Metals Ltd. formed the assessee as a subsidiary company and handed over the property to the assessee. At the same time the assessee also attempted to settle the issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... categorically mentions that the ownership must be established in which the assessee derives income from that property as property income. The assessee has incurred expenses on repairs that were capitalized and hence depreciation on such amounts was claimed originally. But later on under proper advice the assessee claimed the entire repairs as revenue expenditure in different years of the said expenses. The assessee claimed depreciation and other expenses as per profit and loss account on security, electricity, ground rent, managerial remuneration. But this aspect was totally ignored by the tax authorities as the income returned by the assessee was considered as income from property and allowing the statutory deduction against such rental income but at the same time the departmental authorities have not disputed the bona fide and genuineness of the expenditure charged in the profit and loss account and the quantum thereon. Later on the assessee has found an obligation that may arise regarding liability of rent on the property and its occupation being payable to the KPT. Therefore it is found that the liability is accounted for by the assessee on annual basis as it is following the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tricity, security etc. were shown under the head "Business". After finding out the said method as incorrect as per law the assessee has revised the return showing the entire income under the head "Business" and filed the revised computation. The computation for all the years have been completed treating the income returned as income from "house property" and thereby refusing the claims of the assessee for repairs, administrative expenses, depreciation and other depreciation claimed by the assessee. 4.1 As can be seen from the above undisputed facts it is categorically established by the assessee that the assessee is not the owner of the property in its occupation nor the lessee of the same. It simply came into possession of the same through the original lessee M/s. Binani Metals Ltd. whose lease with KPT has expired long back and court orders and proceedings are still pending for eviction against the said company M/s. Binani Metals Ltd. Therefore, under no stretch of imagination the assessee can be treated as the owner of the property in its occupation to assess the income derived by the assessee by exploitation of the property as income from "house property". 4.2 In suppor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s. Binani Metals Ltd. are not made as basis for the addition during the re-assessment proceedings, but is simply influenced by the assessments passed in the subsequent year 2001-02 onwards and reopened the assessment that was already completed. Such re-opening is not valid as found by the decision of the Allahabad High Court in the case of Dass Friends Builders (P.) Ltd. v. Dy. CIT [2006] 280 ITR 77. So the reopening of the assessment for assessment year 2000-01 itself is void ab initio. Apart from that and without prejudice to this contention, the ld. AR has submitted that the provisions of Chapter XIV-B relates to the matters in the course of search wherein the assessment has to be completed as per provisions contained in the said chapter. According to such provision, on satisfaction of the Assessing Officer dealing with such proceedings of the persons against whom authorization under section 132 was executed, the seized materials relating to other persons are required to be sent to the Assessing Officer having jurisdictions over those third persons and appropriate notice under section 158BD/158BC is required to be issued. But the Assessing Officer cannot usurp the jurisd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ( f ) Bindals Developers (P.) Ltd. v. ITO [2007] 292 ITR (AT) 178 (Delhi) ( g ) CIT v. A.V.K. Constructions (P.) Ltd. [2007] 292 ITR 512 (Mad.). To support the contention of the assessee, that the income earned by the assessee by exploiting the property in its occupation without having any right over it from various persons, can be assessed only as business income but not as property income. 4.8 The following decisions are relied by the ld. AR in respect of the contention that the repairs claimed by the assessee are allowable. ( a ) CIT v. D H Secheron Electrodes (P.) Ltd. [1998] 233 ITR 463 (MP) ( b ) CIT v. TVS Lean Logistics Ltd. [2007] 293 ITR 432 (Mad.) ( c ) CIT v. T.V. Sundaram Iyengar Sons (P.) Ltd. [1990] 186 ITR 276 (SC) ( d ) CIT v. Ayesha Hospitals (P.) Ltd. [2007] 292 ITR 266 (Mad.) ( e ) CIT v. Bombay Dyeing Mfg. Co. Ltd. [1996] 219 ITR 521 (SC). 5. Contrary to this, the ld. Departmental Representative has vehemently argued supporting the orders passed by the Departmental Authorities by assailing the contention raised by the assessee and accordingly sought for upholding the orders passed by department by dismis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lease has already expired. The only base that can be made is the bills charged by M/s. Binani Metals Ltd. to the assessee towards the property in occupation under various heads but nowhere in these documents it was mentioned that the assessee has been recognized as the sub-lessee of KPT. Therefore, respectfully following the decisions rendered by the various judicial forums that were relied on by the assessee such as by the Hon ble Supreme Court in the case of R.B. Jodha Mal Kuthalia ( supra ) wherein it was held that "the owner must be the person, who can exercise, the rights of owner not on behalf of the owners but in his own right." This Tribunals Bombay Bench as well as Hyderabad Bench in Janta Bazar Sales (P.) Ltd. ( supra ), PFH Mall Retail Management Ltd. ( supra ) and Bhagyanagar Construction (P.) Ltd. ( supra ) is of the same view to the effect that "if the assessee is not the owner of the building, income from letting out the same with amenities would have to be assessed either under head "Business" or "income from other sources" depending on the fact as to whether renting out of the building or land was appurtenant thereto was done in the course of bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as one in which the assessee has vested interest so as to assessee the income derived from them under section 2( e )(2)( iii ) of the Income-tax Act." The ratio and proposition in the case of CIT v. Podar Cement (P.) Ltd. [1997] 226 ITR 625 (SC) and Shambu properties relied on by the departmental authorities are distinguishable from the facts of the case in hand as there is agreement to acquire rights in the properties in the case of Podar Cement (P.) Ltd. ( supra ) whereas in the present case that the material requirement of agreement of acquiring the right is very much absent. 6.3 In the case of Bindals Developers (P.) Ltd. ( supra ) the Tribunal has held after considering the case of Podar Cement (P.) Ltd. ( supra ) that the assessee earning the rent from sub-letting it not having the ownership right such a rent has to be assessed as income from other sources and deduction of expenditure earned on such income is allowable. The same view is taken by the Hon ble Madras High Court in the case A.V.K. Constructions (P.) Ltd. ( supra ). The claim of the assessee for various expenditure are to be treated as revenue expenditure only as the assessee has spent on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the re-assessment proceedings also the Assessing Officer only revised his previous decision of considering of income offered as business income, changed to that of income from house property in the absence of any material that came to his knowledge after the completion of original assessment proceedings. This contention of the assessee gains support from the decision of the Hon ble Allahabad High Court in the case of Dass Friends Builders (P.) Ltd. ( supra ) and for reopening of the assessment certain documents were found relating to the assessee and such proceedings were made in the name of M/s. Binani Metals Ltd. If that is the case the Assessing Officer who has searched M/s. Binani Metals Ltd. has to satisfy himself first that the papers seized during the search belong to the third party and accordingly record satisfaction and send them to the Assessing Officer having jurisdiction over that third party to be considered in his hands for assessment. In view of the special provisions contained in Chapter XIV-B such information cannot be made a basis for reopening the assessment has already concluded and hence we are of the considered view that the reopening of the assessment made ..... X X X X Extracts X X X X X X X X Extracts X X X X
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