INCOME TAX OFFICER Vs. SHEETAL KHURANA FOOD P LTD
LAWS(IT)-2008-1-28
INCOME TAX APPELLATE TRIBUNAL
Decided on January 11,2008

Appellant
VERSUS
Respondents

JUDGEMENT

A.D. Jain, Judicial Member - (1.) THESE are department's appeals for the assessment years 2003-04 and 2004-05. The facts remaining similar, they are, for facility, being taken from I.T.A. No. 468(ASR)/2006.
(2.) The department contends that the learned CIT(A) has erred in directing the A.O. to treat the income of the assessee as business income rather than income from house property, ignoring the decision of the Hon'ble Supreme Court in the case of "Shambhu Investments (P) Ltd. v. CIT" 263 ITR 143(SC). The facts are that for the assessment year 2003-04, the assessee had filed a return of income on 16-10-2003 declaring a net taxable income of Rs. 1,84,380/-. The source of income was rent of building, received from M/s. Citi Financial Consumer Finance India Ltd. ("CFCFIL", for short), at Rs. 8,64,000/-. The A.O. issued a questionnaire to the assessee, asking it to explain as to why it should not be brought under Sections 22 to 25 of the Income tax Act, and as to why the income received from CFCFIL be considered as income from house property, since the very nature of the receipt was rental income and the case appeared to be covered against the assessee in view of the decision of the Hon'ble Supreme Court in the case of "Shambhu Investments (P) Ltd. v. CIT" 263 ITR 143(SC). A show cause notice was also issued. In response, the assessee sought to distinguish "Shambhu Investments (P) Ltd." (supra). It was submitted that in that case, there was one lease in respect of the building and another in respect of furniture; that in the assessee's case, the assessee had provided only the building on lease and no furniture or other amenities were provided; that in that case, from the agreement, it had appeared that the intention of the parties was clear, whereby the landlord had allowed the occupant to enjoy the table space on payment the comprehensive monthly rent, whereas in the assessee's case, the assessee had not provided any table space with comprehensive monthly rent; that in "Shambhu Investments" (supra), the building and furniture were accepted as inseparable, whereas in the assessee's case, only the lease of building was given and no furniture was provided; that therefore, it had been held in that case that the prime object of the assessee under the agreement was to let out the portion of the property to various occupants by giving them additional right of using the furniture and fixtures and other common facilities, for which, rent was being paid month by month, in addition to the security advance covering the entire cost of the immoveable property, whereas in the assessee's case, no security advance covering the entire cost of immovable property was recovered from the occupants; that in the assessee's case, no relationship of landlord and tenant existed, since the assessee was holding the property on lease rent basis only and the lease to CFCFIL was virtually a ' subletting of the property; that the assessee was not the owner of the property and it was holding the same on lease rent basis from Shri Bipindeep Singh, whereas in "Shambhu Investments P. Ltd.", the company was the owner of the property; that the assessee had provided an unfurnished accommodation to the occupant, whereas in Shambu Investments P. Ltd., the company had provided furnished accommodation to different occupants; that whereas in that case, the company had recovered the entire cost of construction from the different occupants, as interest free security, the assessee had not recovered any cost of construction from the occupant; that in that case, the company had let out the premises for a permanent period, whereas the assessee had let out the property only temporary, for a short period; that the assessee could not claim statutory deduction of household property, since it was not the owner of the property, while in "Shambhu Investments P. Ltd.", such was not the case; and that it could not be said that the assessee was not exploiting the property for its commercial business activity, which was its prime motto, whereas letting out the property was a consequential one. The assessee, in favour of its case, relied on numerous case laws, as discussed in the assessment order.
(3.) THE A.O., however, disagreeing with the assessee, observed that in "Shambhu Investments" (supra), the Hon'ble Supreme Court had only upheld that even if the assessee used the property commercially by entering into more than one lease, the intention of making the lease had to be looked into; that in the case of the present assessee, it was clear that the intention of the assessee was to give the property on a long lease, as the lease agreement was for more than nine years, though the initial period of lease was of three years; that the ratio of "Shambhu Investments" (supra) was squarely applicable to the case of the assessee and the income of the assessee was taxable as income from house property and not as income from business, as claimed; that it was incorrect to say that the assessee was not the owner of the property; that in the agreement with the CFCFIL, it had been categorically stated that the assessee was the absolute owner in possession of the premises; that the fact of assessee's ownership of property was further supported by the fact that the assessee had also claimed depreciation and expenses on repairs of the building; that the assessee was entitled to receive income from the property in its own right and, therefore, Section 22 of the Income tax Act was attracted; that in the case of the assessee, the agreement with Shri Bipindeep Singh Khrana, Director of the Company, provided for dismantling of the structure without any compensation from Shri Khurana; that it was not necessary for levy of tax under Section 22 of the Act, that the building and land thereon must belong to one and the same person; that thus, the lessor-owner of the building was to be taxed in respect of the annual value of such building, as the owner thereof, under Section 22 of the Act; that the fact that the assessee had given only the unfurnished building to CFCFIL, went against the assessee and rather made the case stronger for the department that the assessee's rental receipt was taxable as income from house property; that as per para 7 of the agreement with CFCFIL, CFCFIL could not, without the prior consent of the assessee, construct any wooden or concrete partition, structure for installation of any electric equipment required for the smooth functioning of the lease, including but not limited to air conditioners; that the fact that the assessee had not recovered any cost of construction from the occupant did not help the case of the assessee, since in "Shambhu Investments P. Ltd." (supra), where the assessee gave a furnished accommodation on lease, it had been held that the receipt was to be treated as income from house property; that in the case of the assessee, undisputedly, the entire building had been constructed by the assessee; that the assessee being the owner of the property and the lease being not for a temporary period, the fact that the assessee had not recovered the entire cost of construction from the occupant, was of no relief to the assessee; that there was no recovery of the entire cost of the premises by the landlord and admittedly, Shri Bipindeep Singh Khurana had been showing the rental receipt from the assessee company, as his income from house property; that the assessee was wrong in contending that it had temporarily let out the building for a short period; that the initial duration of lease was for three years, which had been extended for a further period of three years, as per letter of the tenant, dated 22-12-2005, with 20% enhancement; that even the initial agreement was for nine years; that further, the assessee had wrongly contended that it was in the line of hoteling; that during the entire relevant period, there had been no other business activity of the assessee, but for the lease under consideration; that all the receipts of the company were on account of rent only; that the main objects of the company did not include hotel/restaurant business; that the assessee was, in fact, the owner of the property, but it had wrongly contended that it could not claim statutory deduction of house property, as it was not the owner of the property and was holding it only on a lease rent basis; that it could not be said that the assessee was exploiting the property for its commercial business activity, which activity was its prime object, whereas letting out of the property was a secondary object; that moreover, the assessee had itself reflected the receipt of the rent as income from house property; and that as such, the said income was required to be taxed as income from house property.;


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