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TMI Blog2007 (3) TMI 296X X X X Extracts X X X X X X X X Extracts X X X X ..... only income of the assessee. However, he found that the assessee claimed this income as business income and claimed the various expenditures against the said income. The AO asked the assessee to explain why this rental income should not be treated as "income from house property" since assessee is the owner of the house property. 2.1 In response to the said query raised by the AO, the assessee submitted that the assessee company cannot be treated as the owner of the house property at 6, Marquis St., Kolkata-16. The company has acquired the partnership firm, Ganesh Properties, which erected the structure on the leasehold land for the period of 51 years commencing from 1963. The interest in the property vested in the assessee by reason of the takeover of the partnership firm by the company as a going concern on 1st April, 2000. 2.2 It was further submitted that according to the lease agreement the lease right that subsisted in the partnership firm now vests in the company by acquisition from the firm as the culmination of the takeover. But in the hands of the assessee, its character is radically different. As the transferee, it has only temporary right, both in the building and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 997) 226 ITR 625 (SC) (d) Scindia Potteries (P) Ltd. vs. CIT (2001) 171 CTR (Del) 455 : (2002) 253 ITR 168 (Del). (e) Indian Overseas Bank Ltd. vs. CIT (2000) 246 ITR 206 (Mad) (f) CIT vs. Chennai Properties & Investments Ltd. (2004) 186 CTR (Mad) 409 : (2004) 266 ITR 685 (Mad). 4. Aggrieved with such order of the learned CIT(A), the assessee is in appeal before us with the following grounds of appeal: "1. That the learned CIT(A) was wrong in confirming the action of the AO in assessing to tax the rental income received from short-term leasehold property as income from house property instead of income from business. 2. That the income from the short-term leasehold property should have been allowed in computing the business income: (i) Repairs and maintenance Rs. 7,04,369.75 (ii) General expenses Rs. 17,280.00 (iii) Salary and bonus Rs. 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... giving out the same along with providing other amenities was the main business of the assessee and accordingly receipts shall be treated as business receipts in view of the Supreme Court's decision in the case of Karnani Properties Ltd. vs. CIT (1971) 82 ITR 547 (SC). 2. That under the facts and in the circumstances of the case, the AO failed to appreciate that carrying on business of taking properties on lease and giving out the same along with providing other amenities was the main business of the assessee and the expenditures were incurred by the assessee towards providing amenities to the tenants and hence are business expenditures. 3. That further grounds of appeal may be taken on or before the date of hearing." 5. The learned counsel for the assessee at the time of hearing submitted that the above additional grounds do not involve any new facts but are on the basis of material already existing on record. Referring to the decision of the Hon'ble Supreme Court in the case of Jute Corporation of India Ltd. vs. CIT (1990) 88 CTR (SC) 66 : (1991) 187 ITR 688 (SC) and the decision of the Allahabad Bench of the Tribunal in the case of Verma Roadways vs. Asstt. CIT (2001) 70 TTJ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... certain business expenses claimed by the appellant and determined the total income of the appellant at Rs. 11,63,970 and Rs. 11,40,400 for asst. yr. 2001-02 and asst. yr. 2002-03, respectively. 8.2 The learned counsel for the assessee referring to the copy of the memorandum and articles of association of the company placed at pp. 1 to 19 of the paper book submitted that carrying on business of taking properties on lease and giving out the same with all appurtenant amenities including the facility of storage, watch and ward security, lighting of common passages, scavenging, water supply, etc. was the main object of the company as per memorandum of association and the expenses were incurred in relation to attainment of the main objectives of the company. He submitted that the appellant company rendered these services to its customer in an organized and systematic manner. 8.3 Referring to the bills of M/s Star Dox Commercial (P) Ltd., placed in paper book pp. 20 to 31, he submitted that providing of these facilities to its tenants were basic conditions for giving out the properties on rent. Had these facilities not been provided, the appellant could not have carried on its business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red the constructed house property on lease. Erection was done by the firm from whom the asset was acquired by the assessee. Moreover, in the case relied upon by the AO, it was neither the business of the assessee to acquire on lease and give out the same, nor any other amenities were provided in order to accomplish the business objectives of the assessee, whereas in the present case, the assessee provided various amenities to its customers along with letting out the leasehold acquired property. Under these circumstances, he submitted that the ratio of Estate of Om Prakash Jhunjhunwala cannot be applied in the case of the appellant assessee. 8.6 He submitted that it was stated before the AO that the assessee was not the owner of the land but was only a lessee, merely for an unexpired period of 13 years. The structure erected by the erstwhile partnership firm is to revert to the lessor of the land by 2014 in terms of clause No. 10 at p. 6 of the lease deed. 8.7 Referring to the decision of the Hon'ble Calcutta High Court in the case of Ballygunge Bank Ltd. vs. CIT (1946) 14 ITR 409 (Cal), he submitted that it has been decided that rent derived shall be assessed under the head inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case inasmuch as the assessee's case is related to leasehold property, case of Podar Cement (P) Ltd. is not applicable in the case of the present assessee. 8.10 Referring to the decision in the case of Chennai Properties & Investments Ltd. as relied on by the learned CIT(A), he submitted that this case is also not applicable in the case of the assessee, since neither the property was owned by the appellant assessee, nor the property was leased out by it. Furthermore, the receipts were not restricted to only rent but also included charges for services provided by the appellant. 8.11 Referring to the decisions in the case of Scindia Potteries (P) Ltd. vs. CIT and in the case of Indian Overseas Bank Ltd. vs. CIT, referred to by the learned CIT(A), he submitted that these decisions are also not applicable to the case of the present assessee, since it has already been submitted that no asset owned by the appellant assessee has been let out. Moreover, the assessee is also not the deemed owner within the meaning of s. 27. 8.12 He accordingly submitted that in the light of the pronouncement held by the Hon'ble Supreme Court in the cases of Karnani Properties Ltd. and Sarabhai Managemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ination thereof as hereinbefore mentioned make over peaceful possession of the demised premises to the lessor together with the boundary walls, flooring, mooring, all brick built constructions and structures that are found to be permanently imbedded in earth in the demised premises free from all encumbrances with the then existing tenants, if any, without claiming any compensation therefor from the lessor." 10.4 We also find from the copy of the bill No. AFL/04/2000-01, dt. 9th July, 2000 issued to M/s AFL Ltd. and filed during the course of hearing before us that the bill for Rs. 1,30,300 includes the following: Rent Rs. 79,100 Service charges Rs. 50,000 Municipal tax Rs. 1,200 ------------ Rs. 1,30,300 &nb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessable under s. 9. On a reference, the High Court held that the latter part of the receipts was also assessable as income from house property under s. 9. On appeal to the Supreme Court. Held, reversing the decision of the High Court, (i) that the Department having all along proceeded on the basis that the income of the assessee was from two different sources, it should not have been allowed by the High Court to change its case; (ii) that, on the facts, the services rendered by the assessees to its tenants were the result of its activities carried on continuously in an organized manner, with a set purpose and with a view to earn profits; those activities were business activities and the income arising therefrom was assessable under s. 10. When the question referred to the High Court speaks of "on the facts and in the circumstances of the case", it means on the facts and circumstances found by the Tribunal and not facts and circumstances that may be found by the High Court on a reappraisal of the evidence. In the absence of a question whether the findings were vitiated for any reason being before the High Court, the High Court has no jurisdiction to go behind or question the st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the carrying on of the respondent's business. It was not correct to treat the respondent as having commenced business only when the licensee or lessee occupied the premises or started paying rent. The Tribunal had proceeded on a misapprehension regarding the nature of the respondent's business and the High Court was right in interfering with the finding of the Tribunal which was based on a misdirection in law." 10.9 We find that the various decisions relied on by the AO and the learned CIT(A) are not applicable to the facts of the present case. 10.10 In the case of Estate at Om Prakash Jhunjhunwala as relied on by the AO, we find that the assessee had built the superstructure on leasehold land and had derived rent on superstructure whereas in the instant case, the assessee did not erect any superstructure on the leasehold land but acquired the constructed house property on lease and let out the same with various other facilities in an organized manner. 10.11 In the cases of Coconada Radhaswamy Bank Ltd. and Nalinikant Ambalal Modi, as relied on by the learned CIT(A), we find that the Hon'ble apex Court had held that the head of income has to be decided on commercial principles ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t portion. The assessee is eligible for deduction of various expenses under s. 37(1) from the portion of service charges. We hold and direct accordingly. 11. In the result, the appeal filed by the appellant is partly allowed. 12. ITA No. 303/Kol/2006 (asst. yr. 2002-03): "1. That the learned CIT(A) was wrong in confirming the action of the AO in assessing to tax the rental income received from short-term leasehold property as income from house property instead of income from business. 2. That the income from the short-term leasehold property should have been assessed as business income and the following expenses should have been allowed in computing the business income: (i) Repairs and Maintenance Rs. 6,60,000.00 (ii) General expenses Rs. 3,782.00 (iii) Salary and bonus Rs. 1,76,310.00 (iv) Electricity charges ..... X X X X Extracts X X X X X X X X Extracts X X X X
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