TMI Blog2016 (3) TMI 1109X X X X Extracts X X X X X X X X Extracts X X X X ..... exploited by the owner of business. In the present case the finding of ld. CIT(A) that asset is a commercial asset has not been controverted by Revenue. In such a situation, we do not find any infirmity in the order of ld. CIT(A) and for which we also find support by the recent decision of Hon’ble Calcutta High Court in the case of Shyam Burlap Co. Ltd. vs. CIT reported in (2015 (9) TMI 852 - CALCUTTA HIGH COURT ), wherein the Hon’ble High Court after taking into consideration that when the object in the memorandum permitted the assessee to carry on business in letting out properties and when 85% of the income was by way of deriving rent and lease, the income from letting was considered as business income of the assessee. In view of the aforesaid facts and relying on the aforesaid decisions of High Courts, we find no reason to interfere with the order of ld. CIT(A) and thus the ground of Revenue is dismissed. Addition on account of unaccounted investment u/s.69 - Held that:- . In the present case, we find that A.O. had proceeded to disallow the expenses of labour on the basis of estimation and has not brought any material on record to demonstrate that the investment were no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore, for the sake of convenience, proceed to dispose of all the appeals by a common order and proceed with the facts for A.Y. 2009-10. 3. The relevant facts as culled out from the material on record are as under. 4. Assessee is a partnership firm which is stated to be having income from rent. It filed its return of income for A.Y. 2009-10 on 29.07.2009 declaring total income of ₹ 35,620/-. The case was selected for scrutiny and thereafter the assessment was framed u/s.143(3) vide order dated 19.12.2011 and the total income was determined at ₹ 11,90,100/-. Aggrieved by the order of A.O., assessee carried the matter before the ld. CIT(A) who vide order dated 15.07.2013 (in Appeal No. CIT(A) XVI/ITO/Wd.2/SNR/561/11-12) granted partial relief to assessee. Aggrieved by the order of ld. CIT(A), Revenue is now in appeal before us and assessee has filed C.O. The grounds raised by Revenue in ITA No.337/Rjt/2013 reads as under: (i) The CIT(A) has erred in law and facts in not considering the condition of provision of section 22, and deleted the addition of ₹ 8,92,173/- on account of rent income is to be taxed under the head Income from House Property , ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sidential property, a copy of construction plan approved by Surendranagar Municipal Authority indicating that the impugned property was passed as a school building. The appellant has argued that the main objective of the partnership firm incorporated on 4-1-2008 was to carry out 'land , building, farm house, club resort, health club construction to give on rent, to take on rent, lease agreement and to do educational activities to run the classes and trading and manufacturing. It has been argued that to undertake educational activity is one of main objective of the firm and that in the instant case after creating necessary set up for running an educational institute, the property was given on rent to another educational trust. Thus, giving property on rent to carry out education activity is incidental to the main object of the firm. Asserting that facts of judicial decisions relied upon by the A O are distinguished from appellants facts, the appellant has placed reliance upon decision of Hon'ble Madras High Court in the case of CIT vs B Nagireddy 147 ITR 337 and of Hon'ble A P High Court in the case of CIT vs Ramaiya Krishnamurty 159 !TR 929. 3.3 On careful considerat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Hon'ble Gujarat High Ciourt in the case of CIT vs New India Industries Ltd have held that the income earned from the letting out of commercial property was to be taxed as business income and not as income from house property, -the relevant portion of the said judgement are as under :- .We need not discuss all the judgments relied upon by the learned counsel for the department, as the principle of income from property is an income of profit and gain of business, or profit and gain from the house property have been clearly laid down by the Supreme Court. The test laid down by the Supreme Court in Universal Plast Ltd.'s case (Supra) case have been followed, in almost all the subsequent judgments. We may however refer to judgement in Mangla Homes (P.) Ltd.'s case (supra). 10. In Mangla Homes (P.) Ltd.'s case (supra), the appellant - a private limited company was incorporated with the object of dealing in properties. The main Object of the company, as contained in the memorandum of association, was to carry on business of dealing and investment in properties, flats ,warehouses, shops, commercial and residential houses, and the ancillary object was to carry on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eing exploited commercially by the letting out or whether it is being let out for the purpose of enjoying the rent. The distinction between the two in a narrow one hand has to depend on certain facts peculiar to each cases. Pure and simple. Commercial, asset like machinery, plant, tools, industrial sheds on godowns having high business potential stand on a different fooling from assets like land or building. (iv) If an assessee derived income from a commercial assets which is capable of being use as a commercial asset, then it is income from his business. Whether he uses that commercial asset himself for lets it out to somebody else to be used. The asset would not cease to be commercial asset simply because temporarily it was put out of use or it was let out to another person for his use. (v)So long as the Commercial asset is capable of being exploited as such, its income is business income irrespective of the manner in which the asset is exploited by the owner of the business. He entitled to exploit it to his best advantage and be may do so either by using it himself personally or by letting it out to somebody else. (vi) If the commercial asset is not capable of being use ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sultan Bros. (P.) Ltd.'s case (supra), Commercial Properties Ltd. v. CIT AIR 1928 Cat. 456, East India Housing Land Development Trust Ltd. v. CIT [1961] 42 ITR 49 (SC), CIT v. Punjab National Bank Ltd. [1983] 141 ITR 886/ 13 Taxman 32 (Delhi)], CIT v. Indian Metal and Metallurgical Corpn. [1995] 215 ITR 424/[1996] 84 Taxman 481 (Mad.), CIT v. Arvindkumar Odhavij [1995] 213 ITR 551 (Bom.), and other cases, it did not apply the principle laid down by the Supreme Court in Universal Plast Ltd.'s case (supra) to the facts of the present case. 13. If we apply the tests laid down by the Supreme Court in Universal Plast Ltd.'s case (supra), to the facts of the present case, we find that all the assets of the business were not rented out by the assessee-company. It was doing the main business of manufactures, imports, purchases and dealing In scientific apparatus, chemicals, chemical products, articles of glass, metal, wood, paper etc., more or /ess connected with science, as given in clause 3(a) of the Memorandum of Association. Out of the three properties in Mumbai, the property in dispute was being used for its Regional Office. In the interest of the company, it decided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and machineries. Therefore, there cannot be any case that the nature of the assets has been changed. The commercial assets exploited by the assessee for the purpose of its business remained the same and its character has not been converted into a house property or non commercial asset. Therefore, whether the business of manufacturing glass products is carried on by the assessee company itself or by M/s. Borosil Glass Works Ltd., the lessee, the assets including land, buildings, plant and machineries always remained as properties in the nature of commercial establishments occupied for the purpose of carrying on business. In other words, it was always economic/productive asset. Section 2(ea) excludes such assets from the definition of assets operative from first day of April, 1993. Any property in the nature of commercial establishments or complexes is excluded from the definition of assets liable for wealth tax. That is specifically mentioned as item(5) of section 2(ea)(i). Item(3) thereof provides exemption if the assessee occupies the house for the purpose of any business or profession carried on by him. The exemption provided in item(5) goes beyond that. It also provides exempt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the bank took cognizance of the commercial viability of this project to grant loan which partners pooled their resources to repay the loan and let out the property to the commercial organizations for earning income against which incidental expenses incurred for carrying out such activities were denied. The depreciation and interest therefore becomes an integral part for earning the income cannot be lost sight off when there is specific provision for claiming the same from the house property. It is not the case of the assesses to claim higher depreciation that what is allowable by law. It is also not the claim of the assessee to make profit in the form of income from business by earning more interest than what has been paid to the bank. The assessee's contention therefore becomes clear insofar as it rendered its income, residual to receipts from the lessees on account of electricity, water charges etc., which are the business activities from the assesses to charge for their portion and incur the remaining for itself along with the maintenance and providing security was in the nature of carrying out commercial activities and not for the purpose of letting it out as house pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... our of assessee and after considering the decision of Hon ble Allahabad High Court cited therein and after following the ratio laid down by Hon ble Gujarat High Court in the case of CIT vs. New India Industries Ltd. [1993] 201 ITR 208 (Guj) has given a finding that the property let out by assessee was a commercial asset which could only be exploited commercially and therefore the income earned was treated as business income. We also find that ld. CIT(A) while deciding the issue in assessee s favour had also relied on various decisions cited in his order. In the present case, we find that one of the main object of the assessee was to run classes and to do educational activities and the property which has been let out by the assessee was a commercial property and was also used by the person to whom it was leased, for the purpose of educational activities. We further find that Hon ble Gujarat High Court in the case of New India Industries (supra) and after relying on various decisions has laid down various tests to determine the head of income under which the rental income is to be assessed. The tests inter alia lays down the principle that when an assessee derives income from a co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4.2 I have carefully considered the facts of the case in the light of submissions made by the appellant and the arguments taken by the assessing officer. The appellant has primarily reiterated the same arguments taken before the A O. It has also been argued that the addition is made upon conjectures and that section 69 do not permit any addition on conjectures. The argument of the appellant that labour expenses are debited upon finalisation of labour charges to be paid to its labours. To the extent, the argument of appellant appears convincing. The fact of the matter however remains that the appellant either during the assessment proceedings or even during current appellate proceedings has failed to give even an iota of evidence so as to indicate that the labour expenses were paid in any subsequent financial year. This aspect is important because nearly four years have lapsed since the labour services were availed by the appellant. The argument if any that the said expenses are pending finalisation till date is highly improbable and cannot be accepted. Thus, there are strong indications to establish that labour expenses were incurred by the appellant apparently by way of cash ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Now, we take Assessee s appeal for A.Y. 2010-11 in ITA No.98/Rjt/2015 12. Assessee filed its return of income for A.Y. 2010-11 on 15.07.2010 declaring total income at Nil. The case was selected for scrutiny and thereafter assessment was framed u/s. 143(3) of the Act on 22.03.2012 and the total income was determined at ₹ 20,24,290/-. Aggrieved by the order of A.O., Assessee carried the matter before ld. CIT(A) who vide order dated 08.01.2015 (in Appeal No. CIT(A) -7/77/2013-14) granted partial relief to the assessee. Aggrieved by the order of ld. CIT(A), assessee is now in appeal before us and has raised the following grounds:- 1. The learned Commissioner of Income Tax (Appeals)-7, Ahmedabad erred in holding that income of ₹ 10,08,000/- should be assessed as income from house property instead of business income as claimed by the appellant. 2. The learned Commissioner of Income Tax (Appeals)-7, Ahmedabad erred in confirming addition of ₹ 10,08,000/- made by the A.O. u/s 22 of the Act and thereby not allowing expenses incurred and debited in its profit and loss account by the appellant to earn business income. 3. The learned Commissioner of Income Ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and fixtures and other common facilities for which rent was being paid month by month in addition to the security free advance covering the entire cost of the said immovable property. In view of the facts and law discussed above we hold that the income derived from the said property is an income from property and should be assessed as such. 5.2.1 It has been held in the cases of Tinsukia Development Corporation Ltd. Vs. CIT (Cal.) 120 ITR 466 and CIT Vs. Mithila Properties Publications Contractor Enterprises P. Ltd. (Pat) 228 ITR 713 that assessee is owner of building on leasehold land - rental income is income from house property even though letting out is an objective of company. It has also been also held in the case of ACIT Vs. Raj Dadarkar Associates (ITAT, Mum) 34 SOT 281 that assessee was in possession and control of market area as a lessee and not as a licensee -lease was for a period exceeding 12 years - rental income received from sub-letting is income from house property and not business income. 5.2.2 The ld. CIT(A) in his order has not considered the above decision. Therefore, differing from him, I hold that the income should be assessed as income fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us decisions cited in the order including decision of Hon ble Gujarat High Court in the case of CIT vs. New India Industries Ltd. [1993] 201 ITR 208 (Guj) and various decisions held the income to be from business and not from house property. We, while deciding the identical ground in Revenue s appeal for A.Y. 2009-10, have hereinabove held that the income from rent is to be assessed as business income and not from house property and decided the issue in favour of assessee. Since, the facts of the case are similar and identical to that of A.Y. 2009-10, we therefore for similar reasons while deciding the ground in A.Y. 2009-10 decide the ground in favour of assessee. Thus, this ground of assessee is allowed. 17. Ground no.3 is with respect to upholding the addition of ₹ 1,68,493/- on account of labour expenses. 17.1 During the course of assessment proceedings and perusing the bandkam (construction) account, A.O. noticed that assessee has incurred expenses aggregating to ₹ 5,22,532/- for the material used for construction. He also noticed that though as per the construction account, all materials debited to construct house have been stated to have been consumed but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l submissions and perused the material on record. In the present case, we find that A.O. has proceeded to disallow the expenses of labour on estimation basis. He has not brought any material on record to demonstrate that the expenses were incurred by the assessee. Before us, ld. A.R. has submitted that the expenses having been incurred in subsequent years. The aforesaid statement of the assessee has not been controverted by the Revenue. In view of the aforesaid facts and more so, when the addition has been made on estimated basis and without bringing any material on record by Revenue to prove the incurring of expenses towards labour by assessee, we are of the view that in the present case, no addition is called for. We thus direct the deletion of addition. Thus, this ground of assessee is allowed. 21. In the result, the assessee s appeal for A.Y.2010-11 is allowed. At last, we take Assessee s appeal for A.Y. 2011-12 in ITA No.99/Rjt/2015 22. Assessee has raised the following grounds:- 1. The learned Commissioner of Income Tax (Appeals)-7, Ahmedabad erred in holding that income of ₹ 12,60,000/- should be assessed as income from house property instead of business i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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