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TMI Blog2015 (4) TMI 882X X X X Extracts X X X X X X X X Extracts X X X X ..... return of income for the assessment year 2000-01 dated 25th October, 2000, declaring total income at Rs. 5,51,81,680/- including rental income of Rs. 45,57,272/- and claimed deduction under section 24(a) of the Income Tax Act,1961 (hereinafter referred to as the "IT Act") of Rs. 11,39,318/-. This claim of the assessee was not accepted by the Assessing Officer. The Assessing Officer treated the rental income as business income on the ground that the receipts from this property were on account of exploitation of commercial assets and as such, it is the business profit of the assessee. He further observed that the assessee is engaged in the business of construction of building with a view to sell the same and not for leasing it. Thus, leasing of unsold units is an integral part of its business. Hence the income earned on leasing was business income. The assessment order was passed on 29th March, 2006. 3. The assessee, aggrieved by this order, preferred an appeal before the Commissioner of Income (Appeals). The Commissioner passed an order on 19th September, 2006 (Annexure C) partly allowing the appeal. The Commissioner concluded that the claim of the assessee of expenses of Rs. 45,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s justified in directing the Assessing Officer to tax the rental income of Rs. 45,57 lakhs as 'income from house property' and to allow deduction u/s 24 ignoring the fact that the income was received from the business asset of unsold flats shown as closing stock? (b) Whether on the facts and in the circumstances of the case and in law, the Hon'ble Income Tax Appellate Tribunal was justified in directing the Assessing Officer to allow the claim of expenses of Rs. 45 lakhs on account of provision for incomplete work ignoring the fact that there was no incomplete work in the project as is evident from the fact that assessee has received rental income out of closing stock shown by him ? (c) Whether the rental income earned by the assessee is a business income of the assessee earned on account of exploitation of the business assets or it was an income from house property ? (d) Whether on the facts and in the circumstances of the case and in law, the Hon'ble Income Tax Appellate Tribunal was justified in treating the rental income as income from house property without appreciating that the assessee has maintained a consolidated profit and loss account treating the rent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a consolidated Profit & Loss Account thereby combining its trading and rental receipts. However, to claim the deduction as above, it has taken out the rental receipts and property taxes and shown it under a separate head of income from house property. The Assessing Officer noticed this and strongly commented on the method of drawing up the Profit & Loss Account by the assessee. He noted that certain expenditure like legal, professional and consultancy charges to the tune of Rs. 6,52,000/- and which pertains to the rented property has been claimed as deduction again in computing the business loss. This amounts to a double deduction. If the income from house property is the subject matter of deduction, then, no separate deduction can be claimed in respect of any individual item of expenditure pertaining to the rented property. 11. Mr. Chhotaray has relied upon these findings in the Assessment Officer's order and by referring to the Partnership Deed dated 16th March, 1999 (clause 6 page 3 of the same), he would submit that upon examination of all this material, the Assessing Officer rightly concluded that the rental income is taxable as business income. The Profit & Loss Account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee never contended that rental income should be separated from trade receipts and that is why single consolidated account was maintained. 14. If the accounts are maintained in the normal course treating the entire receipts including rental income as business receipts, then, there is no question of claiming deduction under section 24(a). The problem arose when the assessee abruptly deviated from the accounting practice by taking out only two items - rental receipts and property taxes from house property and claimed huge deduction under section 24(a). For the reasons that have been assigned by the Revenue and noted hereinabove, particularly of non maintenance of separate accounts and bifurcation that the deduction was rightly disallowed. Mr. Chhotaray, therefore, submits that the jugglery and the manner in which the deduction was claimed indicated that the assessee was not acting bona fide and rather claiming double deduction. 15. Even in relation to this rental income, without prejudice and in the alternative if this income is treated as income from house property, then, the figures adopted by the assessee should not have been accepted straight away. The Commissioner and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terthought. The partnership capital could have been utilised for different purpose. There should be a clear link between the borrowed money and construction on the property. If no separate account is maintained in respect of the let out property, then, there is a grave doubt about the claim of the assessee on deduction under section 24(b). For all these reasons he submits that such an important issue having been missed by the Commissioner and the Tribunal, we should proceed to entertain this appeal and allow it. Mr. Chhotaray has pointed out in his written submissions as to how this claim had been elaborated throughout by the Revenue. They have highlighted the conduct of the assessee. For all these reasons he submits that the Commissioner and the Assessing Officer were not in error with regard to this claim and their conclusions were based on the settled legal principles. The existence of the firm and independent of the partners is a principle which has been applied. If there is no such existence as distinct and understood in the case of a company, then, all the more this Court must interfere with the order of the Tribunal. 17. Even with regard to the third issue, Mr. Chhotaray su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n that regard, reliance is placed on Kedarnath Jute Manufacturing Company Limited vs. Commissioner of Income Tax 82 ITR 363 and Sutlej Cotton Mills Ltd. vs. Commissioner of Income Tax, 116 ITR 1. Mr. Tiwari submits that as far as assessment year 2006-07 onwards are concerned, there is no income from sale of apartments. In none of the assessment orders, the Assessing Officer has found any fault with the Profit & Loss account of the respondent-assessee because in the return of income, the income from house property has been separately computed. Now, a different question cannot be proposed by the Revenue. 19. Mr. Tiwari also points out that as far as the assessment year 2006-07 is concerned for which an additional question is proposed, it is submitted that upto the year 2005-06, the premises were reflected as stock-in-trade because the respondent-assessee was carrying out sale of apartments also. From 2006-07 onwards all apartments have been let out on rent and there is no trading income. For this reason, the deduction of interest under section 24(b) of the Act has been claimed from assessment year 2006-07 onwards and not in earlier years. The Tribunal has duly noted this fact. Mr. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... als and, therefore, they deserve to be dismissed. 20. We have, with the assistance of the learned counsel appearing on both sides, perused the Memo of Appeals and which are stated to be raising the above questions. They are common to all and, therefore, the Revenue as also the assessee's counsel pointed out that we need not separately refer to each and every Memo of Appeal and its annexures. Thus, we are not required to refer to all the Memos of Appeal and the individual facts therein or the view taken by the authorities under the I.T. Act simply because the points or questions raised are common to all of them. We have noted not only the rival stands as emerging from the oral arguments, but from the written submissions only because Mr. Chhotaray submits that the enormity of the Revenue and the impact of the view taken by the Tribunal on other matters requires us to give an in-depth consideration. If this order has become rather bulky, then the reasons for the same are obvious. 21. The Tribunal had before it, the appeal of the Revenue and which according to the Revenue challenges the order of the Commissioner and the Income Tax (Appeals) on various grounds. The three grounds w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dgments and the parameters laid down therein. The Tribunal found that the Commissioner examined this issue in detail. Para 2.23 of the Commissioner's order with specific references to the legal provisions have been reproduced in the Tribunal's order. The Commissioner held that the assessee has constructed a building of which it is owner and received income from letting out some portion of this house property. It continued to receive the same even till the date of passing of the order by the Commissioner. The Commissioner referred to some of the decisions and held that the rental income has been shown as income from house property by the assessee-company. The matter was viewed differently by the Assessing Officer. However, the Tribunal decisions and the judgments of the Hon'ble Supreme Court and some of the High Courts and referred by the Commissioner dealt with identical claim. If the assessee company is engaged in the business of construction and real estate development and it earned income in the form of rent from the tenants / lessees to whom the property was let out, then, whether the property is held as stock-intrade or otherwise is not what is material. The real a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Income-tax Act the following six different heads of income are made chargeable : (I) salaries, (2) interest on securities, (3) income from property (4) profits and gains of business, profession or vocation, (5) income from other sources and (6) capital gains. This classification under distinct heads of income, profits and gains is made having regard to the sources from which income is derived. Income-tax is undoubtedly levied on the total taxable income of the taxpayer and the tax levied is a single tax on the aggregate taxable receipts from all the sources; it is not a collection of taxes separately levied on distinct heads of income. But the distinct heads specified in section 6 indicating the sources are mutually exclusive and income derived from different sources falling under specific heads has to be computed for the purpose of taxation in the manner provided by the appropriate section. If the income from a source falls within a specific head set out in section 6, the fat that it may indirectly be covered by another head will not make the income taxable under the latter head. The income derived by the company from shops and stalls is income received from property and falls ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The primary source of income from the stalls is occupation of the stalls, and it is a matter of little moment that the occupation which is the source of the income is temporary. The income-tax authorities were, in our judgment, right in holding that the income received by the appellant was assessable under section 9 of the Income-tax Act. The appeal, therefore, fails and is dismissed with costs. 25. We do not find that the emphasis by Mr. Chhotaray and on certain aspects which allegedly missed and escaped the attention of the Tribunal would enable us to take any different view. Even if what has been emphasised by Mr. Chhotaray is taken into account, what the underlying test and as evolved throughout is whether the income has been derived from property. The treatment given in the books of account as stock-in-trade would not, therefore, alter the character or the nature of the income as held by the Hon'ble Supreme Court. If there is a test and which is in the field and emerging from repeated judgments rendered either by the Hon'ble Supreme Court or by other High Courts, then, even if Mr. Chhotaray's additional questions are taken into account, a different conclusion ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s have been summarised and which read as under : "(1) no precise test can be laid down to ascertain whether income (referred to by whatever nomenclature, least,amount, rents, licence fee) received by an assessee from leasing or letting out of assets would fall under the head "Profits and gains of business or profession"; (2) it is a mixed question of law and fact and has to be determined from the point of view of a businessman in that business on the facts and in the circumstances of each case, including true interpretation of the agreement under which the assets are let out. (3) where all the assets of the business are let out, the period for which the assets are let out is a relevant factor to find out whether the intention of the assessee is to go out of business or to come back and restart the same. (4) if only a few of the business assets are let out temporarily, while the assessee is carrying out his other business activities, then it is a case of exploiting the business assets otherwise than employing them for his own use for making profit for that business; but if the business never started or has started but ceased with no intention to be resumed, the assets also will ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to come to any conclusion. If the legal propositions which have been invoked and the deductions claimed are to be granted by applying the tests evolved and the parameters laid down, the governing conditions would be as to whether the deduction is permissible given the clear language of the section or provision and whether that is applicable to the facts and circumstances of a given case. Similarly, we do not think that the reliance on the judgment of the Hon'ble Supreme Court in the case of Commissioner of Income- tax vs. Maheshwari Devi Jute Mills Ltd. would assist the Revenue. The Madras High Court case ought to be then noticed. There, the assessee was a company carrying on business as authorised dealers in Tata diesel vehicles in a building on Mount Road in Madras. The building consisted of three floors including the ground floor. While the ground floor and the first floor were used for the assessee's business, the second floor was let out to a Government department. In the assessment years 1975-76 and 1976-77, the assessee claimed that the rental receipts in respect of the second floor should be considered under the head "business" as the entire property has been const ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax v. Vikram Cotton Mills Limited. There as well, the property came to be mortgaged and what was before the Supreme Court was the fact that the High Court, with the approval of the assessee and the creditors evolved a scheme where under the business assets of the assessee were let out to M/s. General Fibres Dealers (P) Ltd. It is in that peculiar fact situation that the Supreme Court took the view and with regard to the nature of income. We are of the view that on the essential contentions raised before the Tribunal and as elaborated or additionally proposed before us a different view than the one taken by the Tribunal is not possible. 31. Similarly, with regard to the expenses claimed on account of incomplete work is concerned, the Tribunal found that the Assessing Officer observed that the assessee has shown the sale of 44,960 sq. feet and the remaining 76,106 sq. feet was shown as closing stock on which the assessee claims to have earned rental income. It disallowed Rs. 45 lakhs as expenses incurred on that part of the stock and added the same to the income of the assessee. 32. The Commissioner found that in the Profit & Loss account, the assessee had offered the profi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , without looking to the facts that same cost of incomplete work was taken in the closing stock. Keeping in view of the facts of the case, we are of the opinion that CIT (A) has properly adjudicated the issue in the light of given facts and circumstances of the case. We, therefore, find ourselves in agreement with the Order of the CIT (A). Accordingly, we confirm the same." 33. We do not think that the Assessing Officer's view having been interfered with in such a scenario that any substantial question of law arises for our determination and consideration. Thus, the appeals fail on these two grounds. 34. Then what remains for our consideration is the argument of Mr. Chhotaray that the Tribunal should not have granted the deduction under section 24(b) of the IT Act as interest on borrowed capital. In relation to that what has been pointed out to us is that this question arises for the assessment years which are subject matter of Income Tax Appeal Nos.6234/2010, 1504/2012 and 418 of 2013. It is argued that these claims are huge and enormous. The Tribunal ought not to have granted them when the conduct of the assessee was mala fide. The assessee claimed this deduction by giving ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come Tax Appeal No.3216/Mum/2009 for assessment year 2006-07 dealt with this ground of the Revenue in paragraph 8.1 and 9. However, what is material to note is that the Commissioner had rendered detailed findings and which came to be confirmed by the Tribunal. The Tribunal found that in ground No.4 of the appeal, the non-allowing of deduction of interest amounting to Rs. 59,77,030/- on borrowed capital against the income from house property was the issue. The argument was that this deduction was already allowed by the Assessing Officer while assessing the rental income as business income. This ground was taken with a view that the rental income would be treated as income from house property and then as a natural corollary the interest paid on the amounts borrowed for the construction of the property should be allowed as a deduction against the rental income. Since ground Nos.1 and 2 pertained to the rental income and taxing the same as income from house property that the Commissioner held that in the light of his findings and conclusions on ground Nos.1 and 2, the Assessing Officer should grant this claim of deduction of Rs. 69,77,030/- as interest on borrowed capital. That is the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owable deduction under section 24(i)(vi). Where the assessee was a partner of a firm and on dissolution of the firm, it took over all assets and liabilities including a building, another judgment was relied upon and rendered by the High Court of Punjab & Harayana in the case of Commissioner of Income Tax vs. Four Fields (P) Ltd. (1998) 96 Taxman 143 which held that no relationship of borrower and lender had come into existence and deduction of interest on acquisition of building claimed against rental was disallowed. Thus, the entire basis was that there must emerge a relationship of borrower and lender. The Partnership Act was referred to and it was held the firm's partners are indistinguishable from one another. It is only by a legal fiction that interest on capital is allowed as a deduction from "business income". No such legal fiction has been created under the head "Income from house property". Since the amount is held as not a borrowing for the purposes of section 24(b), the question of nexus between the capital contribution of the partners and its use for acquisition / construction of relevant properties is not relevant. He, therefore, confirmed the order of the Assessin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... take a different view particularly because that finding of the Commissioner was upheld by the Tribunal by its order dated 20th April, 2010. If the facts and circumstances in which the claim arose were identical, then, the Tribunal concluded that a different view on facts was impossible. 42. We do not think that any larger question or wider controversy needs to be determined. If the matter was approached in this angle by the Commissioner and in the same factual backdrop, then, there is no justification for taking a contrary view. If two conflicting views of the Commissioner were placed before the Tribunal and the Tribunal found that it had concurred with one of those views and that the view with which it concurred prevails, then, we do not think how the Revenue can raise this issue. The issue has been considered bearing in mind the typical factual background. If the entire interest paid on the partners' capital was related to the premises which were let out by the assessee but the construction thereof came from the contributions of the partners, then, the interest was due and payable to them. That interest was payable not only in terms of the general principle of partnership a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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