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TMI Blog2010 (11) TMI 606X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act is mandatory and consequential in nature and, therefore, the same is dismissed for all the AYs under dispute. 2.2. Since the issues in the remaining grounds were illustrative and in exhaustive manner, for the sake of convenience and clarity and also for the appreciation of facts, they are reformulated, in concise manner, as under: (i) the reassessment orders were bad in law and void-ab-initio for want of requisite jurisdiction as the mandatory requirements to assume jurisdiction u/s 148 of the Act did not exist and also have not been complied with; (ii) the assessee was carrying on indivisible integrated business of running coffee curing works, providing ware-housing facilities, weigh bridge, estate supplies, money lending etc., and, thus, its income was to be taxed under the head 'business' only (iii) the authorities below were not justified in assessing the receipts such as service charges, interest, misc. receipts under the head 'Other sources' as against 'business income'; (iv) authorities below erred in disallowing the expenses such as establishment, traveling, service charge etc. which were incurred wholly and exclusively for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as filed and the assessee cannot be assessed in respect of return filed by 'AOP' as 'firm' and, therefore, the assessment made on the assessee as 'firm' was bad in law and liable to be annulled; and (iii) for the above and other grounds that may be urged at the time of hearing of the appeal, your assessee humbly prays that the appeal may be allowed and justice rendered. 3.3.1. After due consideration of the submission of either party, the assessee's prayer for admission for additional grounds was acceded to and the Registry was directed to place the assessee's application on record. 4. As the issues raised in the above appeals were similar and inter-linked, for the sake of convenience and clarity, they were heard, considered and disposed off in this common order. A.Y 2006-07: 5. Briefly stated, the assessee firm ['the assessee' in short] was engaged in the business of coffee curing as an agent of Coffee Board under the name of M/s. Highland Coffee Works until 1995. Consequent on decontrol of coffee trade, the Coffee Board dispensed with the business with the assessee and then the assessee let-out its go-downs for storage of commercial goods a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asoning was that- "19..............the question of set-off would arise only if the firm had business incomes to set off such losses or depreciation against. In the statement showing the break-up of incomes appended to the appellant's submission dated: 26.11.2008 filed before the assessing officer, the firm has shown that there was no business income in the form of agency remuneration from coffee board, return on capital from Coffee Board, coffee ransoming charges etc., from assessment year 1998-99 onwards. The only income received in that period was 'machinery hire and warehousing' charges. These consisted only of lease rentals received in respect of go-downs, yards and machinery given on rent, which I have held to be income from house property. When there was neither business income nor loss, nor was depreciation allowable on income from house property, the question of set off could hardly arise...." A.Ys. 02-03, 03-04, 04-05, 05-06 and 07-08: 7. For these assessment years, the assessee had furnished its returns of income, admitting 'Nil' income. There was a survey operation u/s 133A of the Act in the assessee's business premises on 9.5.2007 and during the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no new deed of partnership was filed and not complied with the requirements of s.184 of the Act. - the AO was not justified in treating the assessee as a firm without referring to the mandatory requirements of s.184 of the Act and, thus, the status of the assessee be treated as an AOP as per the returns furnished; (v) The AO had not appreciated the facts of the business activities carried on by the assessee and the numerous evidences in the shape of documents produced before him and, thus, he was not justified in considering the income received on job work charges and machinery hire received from Longway Tradewings as income from house property; - having mixed up business income as income from house property, the AO split the income as (a) income from house property; (b) business income; and (c) income from 'other sources' and in the process denied the legitimate claim of business expenses; - the AO had failed to notice that the assessee was engaged in financing and the money lending activities even as on date and the money lending license had been renewed; and (vi) the AO had denied the claim of setting off unabsorbed depreciation and brough ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m other activities like photocopying, weigh bridge, and coin box sand generator collections etc., in respect of which he has allowed corresponding expenditure, I therefore dismiss the appellant's grounds of appeal and confirm the assessment of the firm's income from house property. 28. I cannot find fault with the assessing officer for categorizing the appellant's income into different sources because all kinds of incomes cannot be assessed under a single head as per the scheme of I.T. Act. I find no substance in the appellant's argument that the AO had failed to appreciate the appellant's business and reject that ground of appeal. Similarly, disallowance of expenditure was warranted and justified to the extent they did not relate to business income. However, as the AO has held that a part of the appellant's income was from business, he may allow (i) set off of carried forward business losses of earlier assessment years to the extent business income is available for set-off; (ii) unabsorbed depreciation in respect of assets still being used in the appellant's own business, but not on those let out; and (iii) any additional expenditure to the extent proved by the appellant t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if the assets were to be sold in future and since they were assets of the partnership firm and the capital gains was assessable in the hands of the firm or AOP alone as the case may be and, further, s.26 of the Act was only with reference to 'house property' income and not w. r. to 'capital gains' and, therefore, the AO's finding was contrary to s.185 of the Act. There was no tax advantage in claiming the status of AOP in stead of 'firm' as the assessee has been incurring loss and such losses ought to be carried forward either in the hands of AOP or firm, even if the income requires to be assessed under various heads and, thus, the motives attributed to claim the status as 'AOP' were uncalled for; relies on finding of the Hon'ble ITAT, Chennai in Dawood Sons 124 ITD 367 - the assessee has been acting as an agent of the Coffee Board for curing coffee and for this purpose it had established an undertaking to cure coffee and to store the raw as well cured coffee seeds; that the under-taking included apart from the machinery for curing coffee, go-down space to warehouse the coffee stocks. According to the terms of the agreement entered into with Coffee Board on 31.12.1987 [P 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e considered as separate were interlinked to the agency business. Therefore, all these activities together constituted a single business and not several businesses. The expenses incurred, employees employed, books of accounts maintained were common and, thus, income derived from this business undertaking was business income only. Relies on the case law - Karnataka Light Metal Industries Pvt. Ltd. 225 ITR 947 (Kar) - due to decontrol of coffee, the agency business of the assessee with the Coffee Board came to an end whereby the assessee had no sufficient funds either to run curing works on its own or advancing funds to planters as it did earlier. The assessee had not discontinued the business of curing, however, permitted others like Longway Trade-links to cure coffee in its premises for consideration. The other portions of the undertaking which were used as warehouses were given on license basis to others for storing and the assessee was getting income from warehousing activity from go-down portions of the undertaking. No tenancy was entered into which, according to the assessee, would come in its way to resume its earlier coffee curing business on its own and, thus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and, accordingly, the AO had granted certificate u/s 197(1) of the Act dt.7.7.2003 for the AYs 2002-03 to 2005-06 and 2007-08 and it was only after the introduction of s.194-I of the act, ware-housing charges was also brought u/s 194-I of the Act; - there were no additions to the existing premises to derive any further income by way of rent and, thus, what was being received during the assessment years under challenge was in substitution to what was received from the Coffee Board as agency commission which was nothing but by way of exploiting the very same undertaking in a different manner. Therefore, there was only a single business carried on from the undertaking and all the receipts by way of warehousing charges etc., constituted a single business; - AY 2006-07: By bifurcating the income under various heads, the AO had not allowed the bad debts of Rs.15,14,758/- written off in respect of which details have been furnished to the AO; Relies on case law: TRF Ltd 35 ITR 156 (SC) - No benefit of carried forward losses was allowed on the ground that the income from the commercial assets required to be assessed under the head 'other than business' - eith ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 607 (b) CIT v. K.L. Venugopal 162 ITR 551 (Kar) (c) Abdul Sattar M. Mokashi 174 ITR 368 (Kar) (d) B.B.Biddappa v. DCIT 85 ITR 947 (Kar) (e) Karnataka Metal Industries Pvt. Ltd. v CIT 225 ITR 947 (Kar). 8.1. On the other hand, the Ld. D.R was very forceful in rebutting the contentions put forth by the rival party. The submissions of the Ld. D.R, for the sake of clarity and proper appreciation of facts, are summarized as below: With regard to the status of the assessee: - there were two registered partnership deeds which qualifies the requirements of s. 184(1) of the Act that- (a) A firm shall be assessed as a firm for the purposes of the Act, if (i) the partnership is evidenced by an instrument; and (ii) the individual shares of the partners are specified in that instrument; - the assessee had filed its return of income quoting the PAN required for processing the return u/s 143(1) of the Act which was allotted in the name of the firm; - it had furnished its return for the AY 95-96 stating that 'there was no change in the Constitution of the firm or remuneration and interest payable to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ip Act, 1932 were applicable on the partners; - Observations of the CIT(A): the assessee firm was constituted under a partnership deed dt.1.8.1995 which sets out the share of income of its partners; that the income of the firm was chargeable to tax under head 'business income, 'house property' and 'other sources; and that in view of the matter, the assessee was a partnership firm [Dulichand Laxminarayana v. CIT 29 ITR 535 (SC)] In order to attract s.26 of the Act, the property must be owned by two or more persons and their respective shares must be definite and ascertainable and that the partners cannot be said to have definite and ascertainable share to the properties of the firm [156 ITR 509 (SC) AIR 966 SC 1300 in Addanki Narayanappa v. Bhaskara Krishnappa. Hence, the assessee has to be assessed as partnership firm; and - in view of the judicial pronouncements and factual position on the issue, the assessee's status should be treated as 'firm'. Relies on the case law: Munilal Shivnarain Kothari v CIT (1984) 149 ITR 567 (Raj) 9. We have decisively considered the rival submissions, diligently perused the relevant records and also voluminous paper Bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ieve that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment.......... and, thus, the AO, we are of the firm view, was within his realm to assume the jurisdiction u/s 148 of the Act and the reassessments concluded were within the parameters of the Act. As rightly highlighted by the Ld. CIT (A), in terms of clause (c) of Explanation 2 of s.147 of the Act, where an assessment has been made, but, (i) income chargeable to tax has been under-assessed, or (ii) such income has been assessed at too low a rate; or (iii) such income has been made the subject of excessive relief under this Act; or (iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed, the case was deemed to be one where income chargeable to tax had escaped assessment. (iv) Considering the facts of the issue as deliberated upon in the fore-going paragraph, we are of the considered view that the AO was justified in re-opening the assessments under challenge u/s 147 of the Act by issuance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent to the original assessment, the ITO had information that the assessee had done some procurement business and earned large profits which had escaped assessment for the AY 1949-50. since the assessment AY 1954-55, the ITO had taken the status of the assessee to be that of an 'individual', he issued a notice u/s 34 of the Act to reopen the assessment for the AY 49-50 in the status of an 'Indl' to make the reassessment in that status. The assessee, however, filed a return in the status of HUF. Pending the proceedings, the AAC in an appeal against the assessment for the AY 1954-55 held that the status of the assessee was that of a HUF. Thereafter, the ITO issued a fresh notice to reassess the income of the assessee for the AY 49-50 as a HUF. The question before the Hon'ble Court was - whether the assessment made pursuant to the second notice and the second return, ignoring the first return filed pursuant to the first notice was valid? After analyzing the pros and cons of the issue, the Hon'ble Court ruled that the second notice issued was valid and the return filed in response to that notice and the assessment thereon were valid. With due respects, we would like to point out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a different footing, the case law relied on by the assessee has no relevance. (iii) Abdul Sattar M.Mokashi v. CIT - 174 ITR 368 (Kar): The assessee was carrying on transport business. His statement before the excise authorities that he was the real owner of the trucks standing in the names of his brothers which fact had not been disclosed to the incometax authorities and, hence, the ITO started reassessment proceedings u/s 147(a) and the notice issued to the assessee was in the status of an individual and reassessment proceedings were completed in the same status. On appeal, the AAC held that the business jointly organized and conduced by the assessee and his brothers attracted assessment in the status of AOP and directed the ITO to change the status of the assessee and this was confirmed by the Tribunal. On a reference, it was held by the Hon'ble Court that- (a) that in view of the statement made by the assessee before the excise authorities, the ITO was justified in drawing the inference that the trucks standing in the names of the assessee's brothers actually belonged to him and the initiation of reassessment proceedings was valid; (b) that the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pose of an assessment. The above provisions are equally applicable to a case where a change in the constitution of the firm has taken place. Sub-section (4) of s.184 provides that when there is a change, the assessee shall furnish a certified copy of the reconstituted instrument of partnership deed along with the return and all the provisions of sub-sections (1) and (2) shall apply. Therefore, it is clear that when there is a change in the constitution of a firm, it is for the assessee to seek again status of a 'firm' for the purpose of an assessment by filing a certified copy of the revised deed of partnership. If sub-section (4) is not satisfied, the same shall be construed as non-satisfaction of sub-section (1) and (2) of s.184. The result is that the assessee goes out of the purview of s.184 as far as status of assessment is concerned. In such circumstances, the law provides that s.185 shall operate and the assessee shall be assessed in the status of an AOP....." However, in the present case, according to the AO (on P.6 of the assessment order), the assessee vide its letter dated 21.12.2009 has reiterated the stand taken in its submission dated: 26.11.2008 filed during ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ived at a conclusion that the assessee was not in any way involved in the tenants' day-to-day business activities, the assets leased out had lost their commercial characters. However, the contentions of the assessee was that as an agent of Coffee Board it had to distribute funds to the planters who delivered coffee for curing on behalf of the Board for which payments used to be made by the Board to the assessee and, thus, the assessee was constant touch with the planters. The assessee had to make estate supplies like manure to the plants and also derived interest for having advanced funds and, thus, the assessee was deriving income by way of receipt of interest which was a business carried on by it. Apart from establishing a weigh bridge for weighing the coffee loads whereby in receipt of income by way of weigh bridge collections, besides establishing of telephone [booth] facility, Xerox etc. All these income earning activities were so merged with one another that it was a single integrated business; that common books of accounts were maintained and there has been connecting and intervening of the funds which were controlled and managed by the firm. Thus, all these earning ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nding the ware-housing or storing facilities was part of its activities during the agency business and the income received by way of warehousing charges from others too was business income only and letting out of the property cannot be labeled as liable for assessment under 'house property' as determined by the Revenue. A clinching evidence which was in favour of the assessee that warehousing facility was a business income which was liable to be taxed for which TDS required to be made and, accordingly, the AO himself had granted a certificate u/s 197(1) of the Act dt.7.7.2003 in Form No.15AA to Prakash Electrical Co. (P) Ltd authorizing it to deduct tax at the rate of 1% for the warehousing charges payable to the assessee [source: P 102 of PB - AR]. Further the warehousing activity became a taxable service under Service-tax Act and therefore, the appellant was obliged to obtain license and the copy of the license is placed at Page No.27 of the Paperbook. Thus, the income received by way of warehousing charges from others is business income only and not income from letting out of the property liable for assessment under the head "House Property". The AO had not broug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n carried on by the assessee." In the case of CIT v. Ramnath Goenka reported in 259 ITR 27 (Mad), the Hon'ble Madras High Court, in its wisdom, had held that "The adjustment of the carried forward loss under the 1922 Act as also under the 1961 Act is against the profits and gains of business or profession. Neither Act while referring to that adjustment refers to the heads of income. The amount of dividend would form part of the income from the business of the assessee if the shares were a part of the assessee's trading asset even when the dividend received on those shares had been computed as being part of the assessee's income under the head 'other sources'. Business loss carried forward from earlier years can be set off against the dividend income derived from shares held as stock-in-trade." In a nut-shell, the income of the assessee is to be assessed under the head 'income from business' only in stead of bifurcating its income under various heads as did by the AO in his impugned orders for all the AYs under challenge. While doing so, the AO shall allow the expenses incurred by the assessee during the course of earning its business income. It is ordered ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts of the assessee. Accordingly, we hold that the bad debts written off by the assessee in its books of account shall be allowed as a deduction. It is ordered accordingly. A.Y. 2006-07: 9.4. In its additional grounds, as referred above, the assessee has raised the issue of treating its status as 'firm' in stead of 'AOP'. We have since decided the issue against the assessee for the reasons recorded supra; the additional ground raised by the assessee is dismissed. 9.5. The first ground of the assessee being that the authorities below failed to recognize that the same business activity of coffee curing was continued during the previous year and the income from such activity was to be assessed under the head 'business' as against either as 'other sources' or 'house property.' This issue has since been decided in favour of the assessee for the reasons recorded supra for the AYs 2002-03, 03-04, 04-05, 05-06 and 07-08. As the issue raised is identical to that of the issue for the AYs referred above, the same finding holds good for this assessment year as well. It is ordered accordingly. 9.6. The next issue raised was in respect of the carrie ..... X X X X Extracts X X X X X X X X Extracts X X X X
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