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2016 (9) TMI 258 - ITAT MUMBAI

2016 (9) TMI 258 - ITAT MUMBAI - TMI - Allowability of depreciation on ‘Furniture and Fixture’, forming part of the leased assets, income from which is assessable u/s. 22 of the Act as ‘Income from house property’ - Held that:- The letting of the furniture and fixture is incidental (to letting the building) (para 6(b) of SOF). Further, per para 6(c) thereof, as an alternative, a prayer is made for a proportionate allowance, i.e., qua building that is complete and not leased, while that leased or .....

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as income from other sources. Our decision rests, we may clarify, not on the inseparability of the two lettings, but on the finding of the furniture and fixture under reference forming an integral part of the building, so that it’s letting is, as admitted, incidental. That is, it is a case of a single letting and, therefore, the rent relatable to furniture and fixture is not ascertainable. - Add to this, the fact that the property under reference is actually leased out, i.e., constitutes a s .....

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ections (Sultan Brothers (P.) Ltd. (1963 (12) TMI 4 - SUPREME Court); East India Housing & Land Development Trust Ltd. (2016 (3) TMI 1109 - ITAT RAJKOT)), and there can be no manner of any doubt that the assessee’s claim is not sustainable in law. - Decided against the assessee. - I.T.A. No.3409/Mum/2013, I.T.A. No. 4495/Mum/2013, I.T.A. No. 4496/Mum/2013 - Dated:- 28-7-2016 - SHRI SANJAY ARORA, AM AND SHRI RAM LAL NEGI, JM For The Revenue : Shri Chetan Karia For The Assessee : Shri R. P. .....

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see, raising though the same issue, i.e., which forms the subject matter of its appeal afore-said agitating a similar order dated 07.3.2013 by the same first appellate authority. The appeals were, accordingly, clubbed and heard together. Lake View Developers 2. The sole issue arising in the assessee s appeal is the allowability of depreciation on Furniture and Fixture , forming part of the leased assets, income from which is assessable u/s. 22 of the Act as Income from house property . The subje .....

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viz. Somerset, Citi Park, Crisil and Ventura, were among the leased properties, income from which is, accordingly, both, returned and assessed as income from house property . The assessee, however, contends that the furniture and fixture, form as it does a part of the assets under lease, depreciation thereon (at ₹ 21,45,127/-) be, accordingly, allowed in the computation of income of its construction business. The same stands not accepted by the Revenue in-as-much as there is no scope for a .....

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relied on East India Housing & Land Development Trust Ltd. vs. CIT [1961] 42 ITR 49 (SC). Assessee s Appeal (in ITA No. 3409/Mum/2013) 5. We have heard the parties, and perused the material on record. The primary facts are not in dispute. Income of the assessee s construction business and that derived from leasing activity is, both, returned and assessed as business income and income from house property respectively. That is, there is no dispute as regards the head of income where-under the .....

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as regards the computation of income assessable under the said head of income, the same violates the wellsettled law as explained by the Hon ble Apex Court time and again, and toward which we may reproduce from its constitution bench decision in Sultan Brothers (P.) Ltd. vs.CIT [1964] 51 ITR 353 (SC): The several heads of income mentioned in section 6 of the Income Tax Act, 1922, and dealt with separately in sections. 7 to 12 are mutually exclusive, each head being specific to cover the income .....

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rnatively, appellant prays that proportionate rent be assessed under the head income from other sources and depreciation on furniture and fixtures on leased assets should be allowed u/s. 57. Though no arguments in its respect were advanced during hearing, the ld. AR did not specifically state the same as being not pressed . Further, we find the assessee to have raised the said plea before the first appellate authority as well vide it s Statement of Facts (SOF) before the first appellate authorit .....

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nt would be equivalent to or less than depreciation on such movable assets. The appellant submits that depreciation on leased movable asset is allowable u/s. 57 and it is only a matter of presentation that a part lease rent would be assessed under the head income from other sources and depreciation would be allowable against such income either over period of lease term (i.e., 3 years) or at commercial rates or @ minimum 10% on the Amenities provided and the impact on total income would be neglig .....

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ts. The assessee s plea raises two issues. Whether the furniture and fixture under reference is a part of the building/s, or independent of it? Example of the former would include doors and windows , inbuilt cupboards , kitchen cabinets , etc., i.e., which form an integral part of the building, provided for its user proper. Examples of the latter, on the other hand, would be: tables and chairs, separate cupboards, furniture in general, etc., used independently, for a given purpose. It is only in .....

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h the assessee s argument is maintainable. That is, the furniture and fixture has to be building, nay, flat (identifiable section thereof) specific. We may here also refer to Sultan Brothers (P.) Ltd. (supra). It stands explained therein that where letting of machinery or furniture and fixture accompanies the letting of a building in a manner that the two are inseparable, the income arising would stand to be assessed as business income or income from other sources . The apex court devised tests .....

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and that business may be carried on by practically all things, so that nothing turns on the fact that the letting is of a commercial asset or toward commercial exploitation of a house property. And its rental income, in case of separable lettings, would stand to be assessed as income from house property. Ownership of house property, howsoever profitable, it was clarified in CIT vs. National Storage (P.) Ltd. [1963] 48 ITR 577, 594 (Bom) (since affirmed in [1967] 66 ITR 596 (SC)), cannot be busin .....

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re and fixture is incidental (to letting the building) (para 6(b) of SOF). Further, per para 6(c) thereof, as an alternative, a prayer is made for a proportionate allowance, i.e., qua building that is complete and not leased, while that leased or, as the case may be, under construction, being liable to be adjusted against the value of the leased stock and work-in-progress (WIP) respectively. The furniture and fixture in the present case is without doubt only an adjunct to the letting of the buil .....

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d, incidental. That is, it is a case of a single letting and, therefore, the rent relatable to furniture and fixture is not ascertainable. We decide accordingly, and the assessee s Gd. 1(c) is also not acceptable. 6. In the result, the assessee s appeal is dismissed. Revenue s Appeal (in ITA No. 4495/Mum/2013) 7. The basis of the deletion (of the impugned disallowance - refer para 2 of this order) by the ld.CIT(A) is on the ground of it being incurred by the assessee in the course of its busines .....

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d. (supra). 8. We have heard the parties, and perused the material on record. 8.1 The principal facts are simple and undisputed. The assessee is in the business of construction and development of real estate, as well as leasing out (or letting) of such property, yielding income assessable u/s. 28 and 22, i.e., under the heads of income Profits and gains of business or profession and Income from house property respectively. ₹ 10.93 lacs stands allowed to one, M/s. C. B. Richard Ellis, as pr .....

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g and leasing of property constructed, form part of one, integrated business. The expenditure on the services availed for securing a tenant must therefore be considered as incurred in the course of its business, and deduction in respect of the impugned expenses allowed u/s. 37(1) of the Act, placing reliance on the decisions cited supra. The Revenue s case, relying on East India Housing & Land Development Trust Ltd. (supra), is that classification of income under different heads of income, e .....

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computed for the purposes of tax in the manner provided by the appropriate sections. The reliance on Rajasthan State Warehousing Corporation (supra) is met by adverting to section 14A, since brought on the statute w.r.e.f. 01.4.1962. The decision is, in any case, rendered in the context of or on the premise of income being not taxable, which is not so in the instant case. Similarly, the reliance on Mukti Properties (P) Ltd. (supra) was also sought to be distinguished on facts. 8.2 We may, before .....

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in s. 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 s. 6, the fact that it may indirectly be covered by another head will not make the income taxable under the latter head. [emphasis, ours] Repelling the argument that the activity being pursued comprised one o .....

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d coal mining rights. Toward this, it acquired diverse coal mining leases from time to time, and developed them as coal fields by providing means of communication, etc., and subleased them to collieries and other companies. It never worked the coal fields with a view to raising coal, nor did it acquire or sell coal raised by the sub-lessees. As a condition of the acquisition of the leases, the assessee-company had paid salami at the rate of ₹ 40 per standard bigha, as well as royalty at ce .....

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ween income and capital , as well as the nature of the income being realised. In its words: Income does not include fixed capital or the realising of fixed capital by turning it into some other form of capital or money. Fixed capital is what the owner keeps in his possession but turns to profit; circulating capital, however, is turned over in the process of profitmaking. It may sometimes happen that in the process of production, fixed capital may be consumed or wasted, but that is a reduction of .....

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er on rent. Where this happens, the appropriate head to apply is "income from property" (s. 9), even though the company may be doing extensive business otherwise. But a company formed with the specific object of acquiring properties not with the view to leasing them as property but to selling them or turning them to account even by way of leasing them out as an integral part of its business, cannot be said to treat them as landowner but as trader. The cases which have been cited in thi .....

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nue nature or on capital account. The Apex Court answered by adverting to the fundamental principles as to what constituted revenue and capital , applying the same to the facts of the case. The said principles represent trite law, reiterated by it time and again, i.e., as and when the issue has come before the Hon ble Court, as for example in Empire Jute Co. Ltd. vs. CIT [1980] 124 ITR 1 (SC). Its reference to the character of the income arising, i.e., business or otherwise - which was not in is .....

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e assessee was assessed for business loss for A.Y. 1949-50. The same was disallowed for being set off against the interest on securities for the succeeding years. The Apex Court held that the income from securities, which formed part of the assessee s trading assets, was part of its income from business and, therefore, the loss incurred in the business in the earlier years can be set off against the income from securities also in the succeeding years. In Chugandas & Co. (supra), the assessee .....

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son to restrict the condition of the applicability of the exemption u/s.25(3) only to income on which tax was payable under the head profits and gains of business, profession or vocation . The exemption u/s. 25(3) is general. The income tax is a single tax. By breaking up the income under different heads of income, the same does not cease to be the income of the business; the different heads of income being only the classification prescribed by the Act for computation of total income. That is, t .....

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r not computation under each head results in taxable income; (ii) if income of an assessee arises under any of the heads of income but from different items e.g., different house properties or different securities, etc., and income from one or more items alone is taxable whereas income from the other item is exempt under the Act, the entire permissible expenditure in earning the income from that head is deductible; and (iii) in computing profits and gains of business or profession when an assesse .....

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ere will be no nexus between the expenditure attributable to the venture not forming integral part of the business and the expenditure sought to be deducted as the business expenditure of the assessee. [emphasis, ours] [catch notes, culled from the discussion at pgs. 453,455 of the Reports] The Hon ble Court highlighted the primacy of the computation of income under the prescribed head of income, following the relevant computation provisions. The apportionment of the expenditure and allowing ded .....

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the fixed capital, that the owner keeps possession of and turns to profit, or as a part of the circulating capital which is turned over in the process of profit-making. Using its words, whether the profit derived is by way of an owner or as a trader. It is only in the case of the latter, i.e., where the property forms part of the trading assets, that income by way of leasing, even if assessable as income from house property, could be said to bear the character of business income and, equally imp .....

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ead of income as liable to be characterised as income covered also by another (head of income) and, which, therefore, could be said to be indirectly covered by the latter head of income, though would not make it assessable under that, latter head. The heads of income under reference in the instant case present one such example. This is as section 22 makes no distinction between a property held either as a capital asset or as a trading asset. Why, a house property may form part of the stock-in-tr .....

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d a regular source of income. There is nothing to show that the leasing income is for the interim period only, i.e., where and to the extent the house property, though under sale, is not being let for the time being. No material has been brought on record by the assessee to further its case in the matter, i.e., qua this vital aspect. The ld. AR, on being queried by the Bench during hearing in the matter, would state that the assessee has in its books of account categorised the relevant house pro .....

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re, which is leased out along with the house property. Forming part of the assets under lease, claimed as trading assets, how could, one may ask, depreciation be claimed thereon, implying their being capital assets, even if accounted for separately under the account head furniture and fixture (in the balance-sheet) or clubbed along-with, i.e., as part of the leased stock . The same clearly indicts the assessee s case, toward which, as afore-noted, no material in support is on record. Add to this .....

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necessarily computed under that head only and in the manner provided under the relevant sections (Sultan Brothers (P.) Ltd. (supra); East India Housing & Land Development Trust Ltd. (supra)), and there can be no manner of any doubt that the assessee s claim is not sustainable in law. We may next clarify that the facts in Mukti Properties (P) Ltd. (supra) are distinctively different. The expenditure under reference in that case was on administrative expenditure. Letting and providing mainten .....

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