TMI Blog2009 (4) TMI 528X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 31-3-2002 was issued by the Assessing Officer. In response to the notice issued under section 148, the assessee-company submitted before the Assessing Officer that the return already filed may be treated as return filed in response to the notice under section 148 of the Act. After hearing the assessee, the Assessing Officer completed the assessment under section 148/143(3). 2.3 Being aggrieved, the assessee preferred an appeal before the CIT (Appeals). 2.4 Before the CIT (Appeals), vide ground Nos. 1 2, the assessee challen-ged the validity of assessment proceedings initiated under section 147/148 of the Act, and the assessee submitted that the notice issued under section 148 was not valid in law inasmuch as the Assessing Officer has not brought out any new information on record to invoke jurisdiction under section 147 of the Act. The assessee also contended before the learned CIT (Appeals) that the reasons recorded by the Assessing Officer for re-opening the assessment were nothing but mere change of opinion on the facts already available on record. 2.5 After hearing the assessee and examine the facts and circumstances of the case, the CIT (Appeals) held that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... service charges received for use of property and other services was taxed as rental income instead of business income. This amounts to change of opinion because the first assessment order in assessment year 1998-99 has been made under section 143(3), after due consideration. As mentioned in the reasons recorded, the assessee had declared service charges amounting to Rs. 81,688. It is evident from the records that the Assessing Officer had considered this and had taxed the income of service charges as business income. The Assessing Officer had also during the first assessment gone through the details of building repairs. He had also gone through information of professional charges paid. Assessing Officer allowed these expenses in the first assessment, which he has now disallowed in the order under section 143(3)/148. In earlier years assessment year 1996-97, under section 143(3) also such income has been assessed as business income. It is crystal clear that this is a case of change of opinion on same set of facts. Decision of Full Bench in CIT v. Kelvinator of India Ltd. [2002] 256 ITR 1 (Delhi) has full force in this respect. The DR may have an argument that this issue w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has recorded the following reasons for re-opening the assessment under section 148 of the Act : " Reasons for reopening of assessment for assessment year 1998-99. During the assessment year 1999-2000 the assessment was completed under section 143(3) holding that service charges received by the assessee-company and shown as business income is nothing but rental income assessed to tax as income from house property. Accordingly, the expenses claimed amounting to Rs. 15,79,087 disallowed and total income is recomputed. During the assessment year 1998-99 (present assessment year) the assessee-company have also shown service charges received amounting to Rs. 81,688. Further the issue of loss of Rs. 52,41,164 pertaining to assessment year 1998-99 on account of forfeiture of shares by M/s. Allianz Capital Management Services Ltd. (as described in assessment order for 1999-2000) also need further investigation, hence notice under section 148 is issued." 3.2 On perusal of the aforesaid reasons for reopening the assessment under section 147, it seems clear to us that Assessing Officer has re-opened the assessment for the year under consideration in the light of his finding or view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer has not made any reference to terms of the agreement which was in force during the period relevant to the assessment year 1998-99 and has not examined or considered the same, but instead he has simply relied upon his view and finding in the assessment year 1999-2000 in the light of the agreement entered into between the assessee-company and M/s. IDBI Bank effective from 1-4-1998 i.e. , after the expiry of the financial year relevant to the assessment year 1998-99. Unless it is shown that the agreement effective in these two years was identical, the agreement effective from next financial year i.e., from 1-4-1998 cannot be made a basis to hold or to have a reason to believe that the service charges received by the assessee in earlier year against some other agreement entered into with some other person was also assessable under the "Income from house property". In the reasons recorded by the Assessing Officer, no whisper has even made to the nature of service charges received by the assessee in assessment year 1998-99. Further, the Assessing Officer himself accepted the claim of the assessee that service charges received in that year was assessable business income, in the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that this claim was on account of loss incurred by the assessee due to forfeiture of 276500 equity shares of M/s. Allianz Capital Management Services Limited. The Assessing Officer, however, disallowed the assessee s claim on the ground that ( i ) the loss did not occur during the year under consideration but had occurred in the financial year 1997-98 relevant to the assessment year 1998-99 and ( ii ) though the assessee claimed the loss to be on account of stock-in-trade but assessee in his reply has stated that the investment has already written off and the loss has been claimed. 4.3 On an appeal, the CIT (Appeals) decided the issue against the assessee on two grounds : ( i )That the loss arose in the previous relevant to assessment year 1998-99; ( ii )That it was not a business loss but a capital loss because the assessee-company was not doing any trading in shares. 4.4 Hence, the assessee is in further appeal before us. 4.5 We have heard both the parties and have carefully gone through the orders of authorities below. 4.6 The assessee has raised one preliminary issue that CIT (Appeals) has erred in rejecting the assessee s request about the admission of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opportunity to the appellant by the Assessing Officer, it is seen from the perusal of the assessment order that the appellant was allowed sufficient opportunities by the Assessing Officer to produce the evidence with regard to the allowability of the above claim of loss and the submissions and evidences furnished by the appellant in the course of assessment proceedings were duly considered by the Assessing Officer. Under the circumstances, I am of the considered view that the appellant is not entitled to produce these additional evidences in the course of appeal proceedings in terms of the provisions contained in rule 46A of the Income-tax Rules and, accordingly, these additional evidences are not admitted." 4.8 We have gone through the reasons given by CIT (Appeals) in not admitting the additional evidences sought to be filed by the assessee before him. We have carefully perused the orders of the authorities below. On perusal of Assessing Officer s order, we find that Assessing Officer asked the assessee to submit documentary evidences and assessee s submission in support of the claim of loss of shares by forfeiture. Assessee then submitted certain details before the Assessin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from business or profes-sion". In the course of assessment proceedings, the assessee was asked to explain the nature of service charges amounting to Rs. 24,88,590. In reply thereto, the assessee vide letter dated 25-2-2002 filed the details of service charges received from IDBI mutual fund. It was noticed by the Assessing Officer that the assessee has claimed an amount of Rs. 4,97,718 as TDS deducted from the aforesaid amount of Rs. 24,88,590 received from IDBI mutual fund. Assessing Officer found that the TDS certificate issued by the deductor was with regard to the payment of rent made within the meaning of section 194J of the Act. The agreement dated 9-3-1998 between the assessee-company and IDBI Limited was filed before the Assessing Officer. Having gone through the contents of the agreement, the Assessing Officer noticed that IDBI had agreed to take the premises of the assessee on lease (referred to as membership), at a total sum of Rs. 2,07,382.50 per month. The Assessing Officer further mentioned that the contents of the agreement would clearly show that the agreement, by whatever name it may be called, was, in fact, a lease agreement incorporating the ingredients of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sidering the contents of the agreement, the Assessing Officer was of the view that the agreement was essentially an agreement of lease for letting out the premises to IDBI and the membership charges received during the year were, in fact, in the nature of rent received in respect of the said premises. In arriving at this finding, the Assessing Officer also placed reliance on the receipt issued by IDBI to the appellant company wherein the payment made by IDBI was mentioned as payment towards "Rent". The Assessing Officer also referred to the TDS certificate issued by IDBI wherein also the nature of payment was mentioned as rent. On a careful consideration of the facts and circumstances of the case, I find that, in substance, the dominant object of the agreement was to let out the property to IDBI for enjoying the rental income as owner of the property and the income received by the appellant from IDBI as service charges in respect of the let out property was, in effect, the income by way of rent which was chargeable to tax under the head "Income from house property". Under the circumstances, I am of the considered view that the Assessing Officer was justified in assessing the receip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es, the assessee was the owner of parking space in the said building. He further submitted that the above premises was to be used only for the commercial purposes and not for any other purposes. He further submitted that mere because the tax was deducted at source by IDBI mutual fund under section 194-I is not conclusive to state that the service charges received by the assessee from IDBI was the income assessable under the head "Income from house property" and not the business income. He invited our attention to the agreement entered into with IDBI mutual fund, and then submitted that a portion of the space was kept by the assessee for its own use and activities, and the rest of the portion of space which was not immediately required for assessee s business was let out. He, therefore, submitted that the primary object of the assessee was to exploit the property commercially. He further submitted that the space was being used for the purpose of assessee s business and only in the intervening period, the space was let out for a limited period to IDBI mutual fund. He, therefore, submitted that income from letting out the space at a business centre is to be taxed either under the head ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the orders of the authorities below. We have deliberated upon the decisions cited by both the parties which would be discussed later herein. 5.8 The question whether income from property should invariably be taxed under the head "Income from house property" is to be decided after taking into consideration the Cumulative effect of all factors prevailing in a given case. The Courts have formulated different tests to determine the head under which such income can be taxed. Merely because income is attached to immovable property, it cannot be the sole factor for assessment of such income as "Income from house property". The primary object of the assessee while exploiting the property has to be seen. If it is found that the main intention is for let out of property or any portion thereof, the same must be considered as rental income or income assessable under the head "Income from house property". In case, it is found that the main intention is to exploit the immovable property by way of commercial activities, in that event it must be held as "Business income". It is, therefore, clearly born out that the main test to determine the head under which the income from immovable property ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th no intention to be resumed, the assets also will cease to be business assets and the transaction will only be exploitation of property by an owner thereof, but not exploitation of business assets." 5.10 In the light of the position of law narrated above, we have to examine and consider the facts of the present case and the terms and conditions of the agreement in question. The copy of agreement made on 1-4-1998 with IDBI mutual fund has been placed at pages 73 to 80A of the paper book filed by the assessee. Some of the relevant clauses of the agreement are set out as under : "1. The owner hereby allows the member to use said centre and two car parking spaces annexed to the said building, together with telephone, electrical fittings and fixtures and other services and facilities for a period of three (3) years with effect from 1-4-1998 and ending on 31-3-2001 with option for renewal as per clause No. 8 herein below on the following terms and conditions, it being distinctly agreed and understood that exclusive possession of the said premises shall always remain with the owner. The owner hereby declares, represents and covenants with the member as follows : that the own ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re to the owner and also removed from the said centre all movable possessions of the member and also after he has completed with all other conditions of this agreement. 5. The member agrees that the owner shall keep reserved for the use of the owner along without any costs or consideration, one room having the area of about 100 sq. ft. in the said centre for the exclusive use of the owner wherein the member or any of its officers or employees shall have no right of ingress or egress. 6. In pursuance of this agreement and in consideration of the membership charges specified in clause No. 2 hereinbefore as well as the security deposit specified in clause No. 4 hereinabove, the owner hereby allows to the member the use of the said centre as well as the facilities for the period specified in clause No. 1 hereinbefore, together with, its officers and employees to have the right of use, for the purpose of ingress and egress of the said centre, the entrances, the pathways leading to and from the said centre and car parking spaces. 7. Notwithstanding anything contained in this agreement, the owner agrees that the member shall be entitled to the use of the said centre by any of its of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as effected to the said centre in pursuance of clause No. 14 hereinbefore, to the owners as soon as such alterations/additions are carried out. 16. The member agrees and gives a solemn undertaking that at the expiry of the period of agreement hereunder or on earlier revocation of the period of the agreement hereby granted, the member shall cease to use or occupy the said centre or any part thereof and shall remove himself along with the movable belongings and his officers and their employees from the said centre. ****** 18. It is hereby agreed by and between the parties that the member shall remove himself peacefully along with his movable goods, articles and things from the said centre and car from the parking space annexed to the building on termination of the period of this agreement or, if option of renewal is exercised, on termination of the period of agreement for which the option of renewal is exercised, or on earlier termination of this agreement on account of revocation of the agreement by the owner." 5.11 In the agreement, the assessee has been referred to as "the owner" of the premises let out to IDBI. The IDBI has been referred to as the "Member" of the other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreed to provide requisite furniture, fixtures and fittings in the said centre as per Annexure to the agreement. The requisite furniture, fixtures and fittings to be provided by the assessee includes chair, storage, desks, partitions, sofa chairs, corner and side tables, board room table, doors, windows, vertical blinds, carpets, computer running table, air conditioners etc. 5.12 The nomenclature of payment used in the present agreement as "service charges" and nomenclature given to the present agreement as "Membership Agreement" are not determinative or decisive to find out the true and correct nature of the agreement. What is the material is to consider the same in the light of the primary object and intention of the parties to be ascertained from the terms and conditions of the agreement. All the terms and conditions of the agreement need to be necessarily looked into to determine conclusively the true and correct nature of the agreement rather than to go merely by nomenclature used in the agreement. 5.13 From the said agreement, it is, thus, clear that the assessee had acquired space Nos. 602 and 603 in the business premises known as Regent Chambers, Nariman Point, Mu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be a basis to hold that the assessee was engaged in the business of letting out business centre or developing business centres or shopping malls and was exploiting the property commercially. The fact that the assessee has retained to itself an area of 100 sq. ft. for its own use and purposes cannot be a conclusive factor to establish that the letting out the property to IDBI was a business activity of the assessee when no material or evidences have been brought on record to show and establish that the assessee was doing a complex commercial activity by exploiting the property. The details about the purpose for which the space of 100 sq. ft. retained by the assessee was actually being used by the assessee in relevant year has not been furnished. The assessee has simply let out the space with furnitures and fixtures and was thus earning rental income. The furnitures and fixtures provided in the space let out are only incidental to the main activity of simply letting out the property and cannot be considered to be in the nature of complex commercial activity. 5.14 The property in question was designed as business centre in the period relevant to the assessment year 1996-97. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rlier year were different to that of assessment year 1999-2000 and on that basis the re-opening of assessment under section 147 has been held by us to be invalid in the assessment year 1998-99 vide this common order. Therefore, mere because some income was assessed under the head "Business income" in earlier year on different facts cannot be a basis to assess the present income received from IDBI mutual fund also under the head "Business". The issue in the present assessment year is to be considered and decided in the light of the agreement entered into with IDBI mutual fund, and not with regard to the different agreement entered into with some other party in other years. Thus, this contention of the assessee has no merit and it is rejected. 5.18 Now, coming to the other aspect of the matter relating to the disallowance of certain expenses relating to the property in respect of which the income has been held to be assessable under the head "Income from house property", it is well-settled that when any income from property is assessed under the head "Income from house property", the question of allowing depreciation, building repair and maintenance expenses and other expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. 5.22 The details of Rs. 1,20,000 given by the assessee are as under : ( i )Amount paid to Flex Property (P.) Ltd., Rs. 12,000; ( ii )Amount paid to Arun Kumar, Rs. 10,000; ( iii )Amount paid to UK Paints India Ltd., Rs. 1,00,000. In respect of these expenses, the assessee has submitted that these expenses have been incurred in relation to the business activity of the assessee. However, this aspect of the matter has not been examined and verified by the Assessing Officer. We, therefore, restore this aspect of the matter regarding claim of the sum of Rs. 1,22,000 as deduction under section 37(1) of the Act, to the file of the Assessing Officer for his examination and verification, and then to decide the same as per law. The assessee shall be at liberty to furnish details in support of the claim of deduction amounting to Rs. 1,22,000. The Assessing Officer shall provide reasonable opportunity of being heard to the assessee. The balance sum of Rs. 2,33,268 pertaining to let out space of business centre, shall remain disallowed as so already disallowed by the Assessing Officer and further confirmed by the CIT (Appeals). 6. In result, the appeal filed by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
