TMI Blog2005 (12) TMI 214X X X X Extracts X X X X X X X X Extracts X X X X ..... incurred through self-made vouchers which are not properly verifiable, therefore, he disallowed Rs. 10,000 out of such expenses claimed and added the same in the income of the assessee and, therefore, completed the assessment at an income of Rs. 35,89,430 vide order dated 25-11-2003 passed under section 143(3) of the Income-tax Act. 2.1 On examination of the assessment record, it was noticed by the Ld. CIT that the assessee-company has claimed various expenses to the tune of Rs. 17,54,266 for extending service facilities to its tenants. It was further found by the Ld. CIT that statutory deduction on account of repairs and collection has already been claimed and allowed while computing the rental income, therefore, the excess expenses of Rs. 17,54,264 on account of repairs and maintenance in addition to statutory deduction resulting loss to the revenue, and accordingly, the Ld. CIT was of the view that the assessment order passed under section 143(3) dated 25-11-2003 is bad in law and is erroneous insofar as it is prejudicial to the interest of the revenue and, accordingly, issued a show-cause notice under section 263 as to why necessary direction setting aside the assessment be n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... des it is being shown and accepted as such by the revenue except in the assessment year 1970-71 in which the claim of the assessee has been accepted by the then AAC of Income-tax vide order dated 15-11-1972 for assessment year 1970-71. He further submits that the assessee's accounts arc audited and in the annual report of the audited accounts the assessee has shown 'rental income' and 'service charges' separately and has claimed expenses as per Profit and Loss Account allowable under the Act. He further submits that the Assessing Officer after examining the books of account and the details has accepted the 'rental income' under the head "Income from house property" and 'service charges' under the head "Profits and gains of business" which is as per law laid down by the Hon'ble Supreme Court in the case of Karnani Properties Ltd. v. CIT [1971] 82 ITR 547 and also by the CBDT Circular No. 33 of 1941, dated 23-5-1941 appearing at page 1 of the assessee's Paper book. The reliance was also placed on the decision of Tribunal 'E' Bench, Kolkata in the case of Joint CIT v. Shree Govind Property Investment (P.) Ltd. [IT Appeal No. 177/Cal./1999, dated 25-1-2002] for the assessment year 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... present case. As the assessee is receiving composite monthly rent including service charges as per tenancy agreements filed by the assessee in his paper book, therefore, there is no error in the order of the Ld. CIT in setting aside the issue to the file of the Assessing Officer. He further submits that since the Assessing Officer has failed to make proper enquiry, therefore, under the provisions of section 263, Commissioner has the power to set aside the assessment. The reliance was also placed on the decisions in the cases of Gee Vee Enterprises v. Addl. CIT [1975] 99 ITR 375 (Delhi), CIT v. South India Shipping Corpn. Ltd. [1998] 233 ITR 546 (Mad), CIT v. M.M. Khambhatwala [1992] 198 ITR 144 (Guj.) and CIT v. Bhagwan Das [2005] 272 ITR 367 (All.). He, therefore, submits that the order passed by the Ld. CIT under section 263 be upheld. 6. In the rejoinder, the Ld. Counsel for the assessee submits that as per tenancy agreements monthly rent and service charges are separately described and mentioned, therefore, there is no composite rent. He further submits that in the bills also the assessee has shown monthly rent and service charges separately. He also referred the copy of few ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Space Other Charges, if any For the Month of: September, 2005 2,342.50 Total E. O.E. -------------------------------------------------------- Please pay by crossed cheque only. For A.H.A.H. Properties (P.) Ltd. Sd/- Accountant Sd/- Authorised Signatory" However, it is observed that the above bill dated 1-10-2005 is relevant to the financial year 2005-06 corresponding to the assessment year 2006-07 and not relevant to the year under consideration. We further find that in the annual return of accounts for the previous year 2000-01 relevant to assessment year 2001-02, the assessee has shown rent and service charges separately in his gross income as under:- --------------------------------------------------- Rent (Gross) Rs. 50,78,612.43 Corporation Tax Realised Rs. 6,30,211.32 Service Charges Rs. 7,67,932.26 Dividend on Long-Term Inventories Rs. 90.00 Miscellaneous Receipts Rs. 1,132.24 Interest on Fixed Deposit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further find that it was claimed by the Ld. counsel for the assessee that the assessee is showing consistently 'rental income' under the head "Income from house property" and 'service charges' under the head "Profit and gains of business or profession" and this fact has not been controverted by the Ld. Departmental Representative, therefore, there is a consistency in the head of income shown by the assessee and accepted by the revenue. In the light of the above uncontroverted facts and the tenancy agreements, we are of the view that monthly rent is separate and the service charges realised from the tenants are separate and it cannot be said that monthly rent is inclusive of all service charges and thus the assessee is receiving composite monthly rent. 8. In CIT v. Shambhu Investment (P.) Ltd. [2001] 249 ITR 471 relied on by the Ld. Departmental Representative, the Hon'ble Calcutta High Court has laid down the following test appearing at page 52 for determining that rental income from house property is assessable under the head 'Income from house property' or under the head 'Business income': "Taking a sum total of the aforesaid decisions it clearly appears that merely because i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the absence of any rebuttal. The civil court is neutral. It simply gives decision on the basis of the pleading and evidence which comes before it. The Income-tax Officer is not only an adjudicator but also an investigator. He cannot remain passive in the face of a return which is apparently in order but calls for further inquiry. It is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry. It is because it is incumbent on the Income-tax Officer to further investigate the facts stated in the return when circumstances would make such an inquiry prudent that the word 'erroneous' in section 263 includes the failure to make such an enquiry. The order becomes erroneous because such an inquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct. 10. In South India Shipping Corpn. Ltd.'s case relied on by the Ld. Departmental Representative, it has been held that if the Commissioner on the basis of materials formed an opinion that the grant of allowance made by the officer was erroneous and not warranted by law, the jurisdiction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee maintained a large number of permanent staff. The company claimed p that the entire receipts from the tenants should be treated as income from business as it had been formed for carrying on the business of letting out flats and shops. The ITO rejected its claim but split the receipts into two parts, one part being treated as rent and the other as "income from other sources" taxable under section 12 of the Indian Income-tax Act, 1922. On first appeal, the Appellate Assistant Commissioner rejected the appeal filed by the assessee and affirmed the decision of the ITO. On second appeal, the Tribunal held that the second part was assessable as income from business under section 10. Neither the department nor the assessee contended that that part was assessable as income from property under section 9. On a reference, the Hon'ble High Court held that latter part of the receipts was also assessable as income from property under section 9. On further appeal to the Hon'ble Supreme Court it has been held (i) that the department having all along proceeded on the basis that income of the assessee was from two different sources, it should not have been allowed by the High Court to c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observed that in my opinion, once the deduction under section 24 of the Income-tax Act is fully allowed to the assessee-company from the rental income, the extra expenses for repairs and maintenance, etc., are not allowable. From the fair reading of the above, we find that in the case before us there is no dispute that the rental income from the house property is assessable under the head "Income from house property" and service charges realized from the tenants are assessable under the head "Profits and gains of business or profession". The only dispute in the case before us as observed by the Ld. CIT is with regard to the allowability of expenses of Rs. 17,54,266 which has been claimed by the assessee and allowed by the Assessing Officer out of 'service charges' under the head "Profit and gains of business or profession". Once it has been accepted that the 'service charges' are assessable as "profits and gains of business or profession", the Assessing Officer is bound to allow all expenses/deduction under Chapter IV-D of the Income-tax Act. Since the company has provided various services for the benefits of the tenants in an organized manner, kept a large number of staff to perfo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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