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2016 (12) TMI 751 - ITAT PUNE

2016 (12) TMI 751 - ITAT PUNE - TMI - Warehousing Receipts - nature of income - income from business OR Income from House property - Held that:- The issue is squarely by earlier order of Tribunal in the case of M/s. Jaibhavani Warehousing Co. v. ITO (2016 (10) TMI 1005 - ITAT PUNE) and erstwhile partner Mr. Ramdas T Khutwad and following the same parity of reasoning, it is held that the income is assessable in the hands of assessee as 'Income from business'. - Decided in favour of assessee - ITA .....

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f the case and in law of the learned Commissioner of Income Tax (Appeals)-I, Pune has erred in disallowing Income from business (Warehousing Receipts) treat as Income from House property. 2. On the fact and in the circumstances of the case and in law of the learned Commissioner of Income Tax (Appeals)-I, Pune has not considered the following expenses. 1) Bank Interest on Loan for construction of godown. 2) Gram Panchayat Tax paid on godown." 3. The learned Authorized Representative for the .....

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to a family whose members were engaged in letting out warehouses. The Assessing Officer noted that in the case of family concern i.e. M/s. Jaibhavani Warehousing Co. for the assessment year 2008-09, income from letting out of warehouse was assessed as house property, rejecting the claim of assessee that it was business income. The Assessing Officer also noted that the assessee had neither shown the warehouse nor any income from warehousing in the return of income. Consequently, the income from w .....

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olution of firm on 31.03.2009 various godowns were distributed among the partners. The assessee also received certain godowns in respect of which the warehouse receipts were to the extent of ₹ 31,66,875/-. The CIT(A) upheld the order of Assessing Officer in treating the said income as 'House property income'. 6. The assessee is in appeal against the order of CIT(A). 7. On perusal of record, it transpires that the issue arising in the present appeal is in respect of assessability of .....

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n the hands of partnership firm and also in the hands of partner who received the warehousing area on dissolution of partnership firm i.e. in ITA No. 1006/PN/2016 in the case of Mr. Ramdas T. Khutwad v. ITO and Ors. The Tribunal vide order dated 14.10.2016 held that the said income is assessable under the head 'Income from business' observing as under:- "10. On perusal of record and after hearing both the learned Authorized Representatives, the issue arising for adjudication in the .....

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nt to giving the space on hire as per the terms of lease deed and no other activity was being carried out and hence, the same is to be assessed as 'Income from house property'. The Revenue in this regard has placed heavy reliance on the ratio laid down by the Pune Bench of Tribunal in the case of Nutan Warehousing Company Pvt. Ltd. (supra), which matter travelled up to Hon'ble High Court, which in turn, had set aside the matter to the file of Assessing Officer. 11. After the matter w .....

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t year 2001-02 and in ITA No. 361/PN/2014, relating to assessment year 2008-09, vide order dated 30.09.2016 has in turn relied on the latest decision of the Hon'ble Supreme Court in M/s. Rayala Corporation Pvt. Ltd. v. ACIT (supra) and have decided the issue in favour of the assessee holding that warehousing receipts are to be taxed as 'business income'. The relevant findings of Tribunal in M/s. Nutan Warehousing Company Pvt. Ltd. v. DCIT (supra) are as under:- "32. We have cons .....

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"The question as to whether the income which is received by the assessee from the transaction which has been entered into in respect of the immovable property in question should be treated as income from house property or as income from business would have to be resolved on the basis of the well settled tests laid down in the law in decided cases. What is material in such cases is the primary object of the assessee while exploiting the property. If the primary or the dominant object is to .....

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of the assessee of carrying out warehousing activities. The first submission which has been urged on behalf of the assessee, to the effect that the decision of the Tribunal rendered on March 19, 2001 for the assessment years 1994-95, 1995-96 and 1996-97 ought to have been considered, but has not been considered by the Tribunal, cannot be brushed aside as without substance. Be that as it may, during the course of the hearing of these proceedings we have considered the earlier judgment of the Tri .....

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In so far as the decision which is impugned in these proceedings is concerned, the Tribunal has basically relied upon the lease agreement dated March 18, 2001, between the assessee and Hindustan Lever. It is on the basis of the terms of the lease agreement that the Tribunal arrived at a conclusion that the primary purpose of the assessee was to let out the factory and that the income that was derived therefrom could not consequently be regarded as income from business. The submission of the asse .....

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No. 84/PN/2001 in which the Tribunal held that the income which was realized from warehousing activity would be assess-able as income from house property. The Tribunal followed a decision of the Madras High Court in CIT v. Indian Warehousing Industries Ltd. 258 ITR 93 and was of the view that the facts of that case were identical, in holding that the income received from the leasing of the ware-house was assessable as income from house property. Ex facie, therefore, the terms of the warehousing .....

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he decision of the Tribunal and to remand the proceedings back to the Assessing Officer for a fresh determination and assessment in accordance with law. We order accordingly. Upon remand, it is clarified that the Assessing Officer shall not consider himself to be bound by the decision of the Tribunal dated March 19, 2001 for the assessment years 1994-95, 1995-96 and 1996-97, in view of the concession in those terms which has been made during these proceedings by the assessee. In order to facilit .....

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necessary for this court to express any view one way or the other on the questions of law involved. The appeal is accordingly disposed of. No costs." 33. We find the AO after considering the submission of the assessee, which have already been narrated in the preceding paragraphs, treated the lease rental received by the assessee from the lease of 68,000 sq.ft of the factory to Hindustan Lever Ltd. as 'income from house property' and treated the warehousing activities carried out by .....

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her leasing activity is subservient to the warehousing activity or not. Further, if going by the version of the AO, 69% of the total receipts/total area is meant for warehousing activity, in that case, the AO should have accepted that leasing activity is subservient to warehousing activity that being the dominant activity of the assessee. 35. From the various details furnished by the assessee in the paper book, we find the main objects to be pursued by the assessee company on its incorporation a .....

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develop quality seeds, acquire suitable lands and carry on agriculture. (d) To produce material and fertilizers and insecticides and acquire agency in the above lines and act as Commission Agents. (e) To act as clearing and forwarding agents of the aforesaid products. (f) To provide facilities and godowns for proper and safe storing of valuable agricultural and horticultural produce and to provide goods and services of all kinds in connection there with. (g) To provide godowns and warehousing fa .....

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et on lease or on hire the whole or any part of the real and personal property of the Company on such terms as the Company shall determine, to enter into such arrangements as the Company may think proper with any public authority for buildings, chawls and tenements as the property of the Company or on the property of others or to let the same either to the employees of the Company or to others and upon such terms as the Company may think proper." 37. From the statement showing year-wise det .....

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2,714,992.00 26.32 4,836,240.00 63.65 2001- 02 17,686,971.33 11,817,590.33 5,869,381.00 33.18 11,066,970.00 93.65 2002 - 03 19,580,172.66 13,910,172.66 5,670,000.00 28.96 11,390,112.00 81.88 2003 - 04 20,431,251.63 13,647,501.63 6,783,750.00 33.20 11,760,877.50 86.18 2004 - 05 19,776,426.00 12,858,926.00 6,917,500.00 34.98 12,279,750.00 95.50 2005 - 06 21,521,078.50 14,570,078.50 6,951,000.00 32.30 11,342,060.00 77.84 38. A perusal of the above breakup of the lease rental income from Hindustan .....

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see that the assessee has not merely leased out the 4 walls of the warehouse. It has also provided essential and necessary services of supervisory, loading and unloading, handling, security, transporting etc. to all the clients including the Hindustan Lever Ltd. on daily basis during working hours. The assessee has incurred expenditure on Electricity, Maintenance, Staff etc. which proves that leasing is a complex activity directly linked with the main warehousing activity. Therefore, it is subse .....

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ennai Properties (Supra). In that case, the assessee company was incorporated under the Indian Companies Act. Its main object was to acquire the properties in the City of Madras and let out these properties. The assessee had let out the said properties and the rental income received therefrom was shown as income from business in the return filed by the assessee. However, according to the AO since the income was received from letting out of the properties it was in the nature of rental income. He .....

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sessed only as 'income from house property. The assessee filed appeal before the Hon'ble Supreme Court. The Hon'ble Supreme Court allowing the appeal filed by the assessee held that letting of the properties infact is the business of the assessee and therefore the assessee has rightly disclosed income under the head 'income from business'. The relevant observation of the Hon'ble Supreme Court read as under:- "From the aforesaid facts, it is clear that the question wh .....

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ndum of Association of the appellant-company which is placed on record mentions main objects as well as incidental or ancillary objects in clause III. (A) and (B) respectively. The main object of the appellant company is to acquire and hold the properties known as "Chennai House" and "Firhavin Estate" both in Chennai and to let out those properties as well as make advances upon the security of lands and buildings or other properties or any interest therein. What we emphasise .....

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ssment year 1983-1984 and the entire income was through letting out of the aforesaid two properties namely, "Chennai House" and "Firhavin Estate". Thus, there is no other income of the assessee except the income from letting out of these two properties. We have to decide the issue keeping in mind the aforesaid aspects. With this background, we first refer to the judgment of this Court in East India Housing and Land Development Trust Ltd.'s case which has been relied upon .....

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me that is received was to be treated as income from the house property or the income from the business. This court while holding that the income shall be treated as income from the house property, rested its decision in the context of the main objective of the company and took note of the fact that letting out of the property was not the object of the company at all. The court was therefore, of the opinion that the character of that income which was from the house property had not altered becau .....

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acquiring and disposing of the underground coal mining rights in certain coal fields and it had restricted its activities to acquiring coal mining leases over large areas, developing them as coal fields and then sub-leasing them to collieries and other companies. Thus, in the said case, the leasing out of the coal fields to the collieries and other companies was the business of the assessee. The income which was received from letting out of those mining leases was shown as business income. Depa .....

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nother and income which falls within one head cannot be assigned to, or taxed under, another head. Thereafter, the Court pointed out that the deciding factor is not the ownership of land or leases but the nature of the activity of the assessee and the nature of the operations in relation to them. It was highlighted and stressed that the objects of the company must also be kept in view to interpret the activities. In support of the aforesaid proposition, number of judgments of other jurisdictions .....

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fessed objects and the manner of its activities and the nature of its dealings with its property, it is possible to say on which side the operations fall and to what head the income is to be assigned." After applying the aforesaid principle to the facts, which were there before the Court, it came to the conclusion that income had to be treated as income from business and not as income from house property. We are of the opinion that the aforesaid judgment in Karanpura Development Co. Ltd. .....

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ed in the following words:- "We think each case has to be looked at from a businessman's point of view to find out whether the letting was the doing of a business or the exploitation of his property by an owner. We do not further think that a thing can by its very nature be a commercial asset. A commercial asset is only an asset used in a business and nothing else, and business may be carried on with practically all things. Therefore, it is not possible to say that a particular activity .....

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of the properties is in fact is the business of the assessee. The assessee therefore, rightly disclosed the income under the Head Income from Business. It cannot be treated as 'income from the house property'. We, accordingly, allow this appeal and set aside the judgment of the High Court and restore that of the Income Tax Appellate Tribunal. No orders as to costs." 41. We find subsequent to the hearing of the appeal before us the Hon'ble Supreme Court in the case of M/s. Rayal .....

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ate limited company, is having house property, which has been rented and the assessee is receiving income from the said property by way of rent. The main issue in all these appeals is whether the income so received should be taxed under the head "Income from House Property" or "Profit and gains of business or profession". The reason for which the aforestated issue has arisen is that though the assessee is having the house property and is receiving income by way of rent, the c .....

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se appeals is no more res integra as this Court has decided in the case of Chennai Properties and Investments Ltd. v. Commissioner of Income Tax 373 ITR 673 (SC) that if an assessee is having his house property and by way of business he is giving the property on rent and if he is receiving rent from the said property as his business income, the said income, even if in the nature of rent, should be treated as "Business Income" because the assessee is having a business of renting his pro .....

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ing out of premises and collection of rents the assessment on property basis may be correct but not so, where the letting or sub-letting is part of a trading operation. The dividing line is difficult to find; but in the case of a company with its professed objects and the manner of its activities and the nature of its dealings with its property, it is possible to say on which side the operations fall and to what head the income is to be assigned." 5. The learned counsel also submitted that .....

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d to the leasing its properties and earning rent therefrom. Thus, except leasing the properties belonging to the assessee company, the company is not having any other business and the said fact is not in dispute at all. 7. For the afore-stated reasons, the learned counsel submitted that the impugned judgment delivered by the High Court is not proper for the reason that the High Court has directed that the income earned by the appellant assessee should be treated as "Income from House Proper .....

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stalls would be essentially a part of business and trading operations of the assessee. According to the learned counsel appearing for the Revenue, leasing and letting out of shops and properties is not the main business of the assessee as per Memorandum of Association and therefore, the income earned by the assessee should be treated as income earned from House Property. He, therefore, submitted that the impugned judgment is just legal and proper and therefore, these appeals should be dismissed. .....

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h the company is incorporated should be to earn income from rent, so as to make the rental income to be the income taxable under the head "Profits and Gains of Business or Profession". It is an admitted fact in the instant case that the assessee company has only one business and that is of leasing its property and earning rent therefrom. Thus, even on the factual aspect, we do not find any substance in what has been submitted by the learned counsel appearing for the Revenue. 11. The ju .....

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essee should be treated as Income from House Property. 13. We, therefore, set aside the impugned judgments and allow these appeals with no order as to costs. We direct that the income of the assessee shall be subject to tax under the head "Profits and gains of business or profession". 42. As mentioned earlier, the main objects of the assessee company is to carry on the business of warehousing, cold storage and refrigeration, to provide facilities and godowns for proper and safe storing .....

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on account of let out of the warehouses/godowns as 'profits and gains from business or profession'. We therefore set aside the order of the CIT(A) and direct the AO to treat the lease rentals received by the assessee company from Hindustan Lever Ltd. as 'business income'. 12. In the facts of the present case, the assessee was partnership firm which was constituted vide Articles of Partnership dated 21.11.1997, copy of which is placed at pages 45 to 71 of the Paper Book. The natur .....

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rying on the activity of warehousing since 1998-99 onwards. The income declared by the assessee under the head 'Income from business' has not been disturbed though the same was processed under section143(1)of the Act. For the first time, the assessment was made under section143(3)of the Act in assessment year 2008-09 and pursuant to the same, assessment proceedings for assessment years 2004-05 to 2006-07 were reopened under section147of the Act. For assessment year 2007-08, the income de .....

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