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2015 (4) TMI 400 - ITAT DELHI

2015 (4) TMI 400 - ITAT DELHI - TMI - Income from letting of a property - Income from house property or profits and gains of business and profession - Held that:- Undisputedly in the earlier assessment years, coordinate benches have held that the income from letting out is in the nature of income from house property. Once there are categorical findings to this effect, and there is no dispute on that fact, it is not open to the lower authorities to still hold that the income can be taxed as busin .....

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axability of income under this head. - Decided in favour of assessee.

Disallowance of brand building expenses - CIT(A)deleted the addition - Held that:- what the Assessing Officer has overlooked is that even under the mercantile method of accounting, the expenses are booked at the point of time when the liability to pay crystallizes and irrespective of whether the benefit are wholly in the current year, or partly in future year as well, a revenue expenditure is allowed as a deduction .....

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s have been made and to which contributions pertain. In such circumstances, a purely adhock disallowance on the basis that the benefits of this contribution will also be available in a subsequent period, is wholly uncalled for. We are unable to see any merits in this same.We have also noted that the expenses are partly allowed as deduction. Therefore, genuineness, revenue nature and business expediency of these expenses is accepted by the Assessing Officer himself. - Decided in favour of assesse .....

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by way of this consolidated order. 2. In the appeal filed by the assesse, the following grievance is raised: The learned CIT(A)-II New Delhi has erred on fact in confirming the action of ACIT, CC -3, New Delhi under section 143(3) with regard to assessing the taxable income from house property, as business income, to ₹ 6,59,36,930 despite the fact that ITAT in earlier years has accepted the contention of the company. 3. In plain words, the assesse is aggrieved of the CIT(A) holding that th .....

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Assessing Officer noticed that the assesse had shown an income of ₹ 6,85,30,860 as an income from house property and claimed deductions, inter alia, in respect of municipal taxes of ₹ 31,96,341 and standard deduction under section 24 at 30% which worked out to ₹ 1,97,81,079. In response to the Assessing Officer s requisition for details, inter alia, of rental income, it was submitted that the rental income of the assesse comprises of the rent from letting out of the space in t .....

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nal was also submitted to the Assessing Officer. The AO took note of the same but pointed out that the dispute before the Tribunal was whether the income was taxable as income from other sources or as income from house property and it was in this context that the Tribunal held that the income was taxable as income from house property. This decision, according to the Assessing Officer, had no relevance in the present context where the dispute is with respect to taxability under the head profits a .....

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ved that there is no difference between letting out of the hotel rooms and the renting out of the shops in the hotel premises especially when hotel premises, inter alia, includes commercial complex also . He further noted that the commercial complex has no separate identity and is just a part of the hotel building . The AO was of the view that just because the shops are let out for a longer duration, there cannot be a treatment different from what is given to the rentals from letting of rooms. T .....

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and profession . Aggrieved by the stand so taken by the Assessing Officer, assesse carried the matter in appeal before the CIT(A) but without any success. Learned CIT(A) noted that as per the notes to accounts , the project , which essentially includes commercial premises so given on rent as well, is constructed on the land taken on lease from the Airport Authority of India. It was also noted that the tax audit report describes the business of the assesse as hotel with commercial complex . He w .....

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space, as a commercial venture . Learned CIT(A) also noted that its only income from a property, other than a property used for planned business activity, which can be taxed as income from house property , and since the income in question was by way of an organized business activity, the Assessing Officer rightly taxed it under the head profits and gains from business and profession . The assesse is not satisfied by the stand so taken by the CIT(A) as well, and is in further appeal before us. 5 .....

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CIT Vs Shambhu Investments Pvt Ltd (249 ITR 47), which has been approved by Hon ble Supreme Court in the case of Shambhu Investments Pvt Ltd Vs CIT (263 ITR 143), if it is found applying such test that the main intention is for letting out the property or any portion thereof the same must be considered as rental income or income from property and in case it is found that the main intention is to exploit the immovable property by way of complex commercial activities in that event it must be held .....

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ts the property by way of a complex commercial activity, income from such a letting out could still be taxable as a business income. Clearly, therefore, it is not the business as an object but complexity of the business activity, in the course of letting out the property, which is determinative of the head under which rental income is to be brought to tax. Hon ble AP High Court s judgment in the case of AP State Small Scale Development Corp (supra), which has been relied upon by the AO as well, .....

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the tenements but because of the facilities and services rendered, and the operations involved in each letting of the property may be of the nature of business or trading operations. In such a case, the income derived is liable to be assessed under the head Business'. The above propositions emerge from the decision of the Supreme Court in CIT vs. National Storage (P) Ltd. (supra), affirming the decision of the Bombay High Court in the same case (1963) 48 ITR 577." 11. In CIT vs. Nation .....

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assessee installed a fire alarm and paid an annual amount to the municipality towards fire services. It maintained a regular staff and also paid for the entire staff of the Indian Motion Picture Distributors Association for services rendered to the licensees. It was held that the assessee was carrying on an adventure or concern in the nature of trade and the subject which was hired out was a complex one. Dealing with the activities carried on by the assessee in that case and agreeing with the vi .....

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bject which is hired out is a complex one' and the return received by the assessee is not the income derived from the exercise of property rights only but is derived from carrying on an adventure or concern in the nature of trade." 7. It is, therefore, quite clear that an income from letting out can be brought to tax under the head profits and gains of business and profession only when income received is not only for letting accompanied by incidental services or facilities but the subje .....

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which has added value for earning not because of the room simplictor but because of the integrated complex activities such as room maintenance and upkeep, house keeping support, amenities inside and outside the room, room service and support, lobby and common space, recreational facilities, health club and swimming pool, telephone, fax and message services, butler and endless other services. These services, and complex business activity in respect thereto, are so vital that the importance of th .....

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on that we are dealing with, it is not even the case of the Assessing Officer that the letting is accompanied by incidental services and facilities which have a dominant role to play in the earning from the property let out. We have also perused the lease agreements filed before us and we find that the property is let out, without any dominant incidental services as part of this arrangement, for the purposes of running offices and commercial establishments. We donot find it a case of anything mo .....

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ng as the character of arrangement has distinct character, and there is no dispute on that aspect. It is a case of renting simplictor and the services incidental to letting out do not constitute such complex character so as to be render it as a business by itself. 9. We have also noted that undisputedly in the earlier assessment years, coordinate benches have held that the income from letting out is in the nature of income from house property. Once there are categorical findings to this effect, .....

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. A decision does not lose its authority merely because it was badly argued, inadequately considered or fallaciously reasoned....". Learned CIT(A) was thus in error in not following a binding judicial precedent. His adventurism was neither judicially appropriate nor legally permissible. In this view of the matter, for the reason of consistency in approach and bound by the judicial precedent by the coordinate bench also, we hold that the income from letting out the property ought to have bee .....

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. Grievance raised by the Assessing Officer is as follows: That the learned CIT(A) erred in law and on facts of the case in deleting the addition of R 25,95,251 made by the Assessing Officer on account of disallowance of brand building expenses. 14. So far as this grievance of the Assessing Officer is concerned, the relevant material facts are as follows. During the course of the assessment proceedings, the Assessing Officer noted that the assesse had debited a sum of ₹ 51,90,502 on accoun .....

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assessment year, by observing as follows: The expenses which have been enhanced this way will help the company in future years and, therefore, cannot be said to be expenses held for business during the year under consideration. The assesse company has been following the mercantile method of accounting, and, therefore, out of total expenses debited, a sum of 50% (being the additional brand building expenses charged) is related to the profits of the subsequent years and cannot be allowed. Therefor .....

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ntribution for brand building, and the payments for brand building have been allowed by the AO in the earlier years, including the preceding year when payments were enhanced. In the year under consideration, adhoc disallowance to the extent of 50% has been made without any clear and cogent basis or findings to demonstrate that it is relatable to future years. The arbitrary disallowance out of the total expenses debited under the brand building expenses is devoid of logic and, therefore, cannot b .....

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