Income Tax Appellate Tribunal - Delhi
Income Tax Officer vs Skipper Properties Pvt. Ltd. on 1 June, 2007
Equivalent citations: [2008]113ITD56(DELHI), [2008]298ITR394(DELHI)
ORDER
I.P. Bansal, Judicial Member
1. This is an appeal filed by the revenue. It is directed against order of CIT(A) dated 30.1.2004 for assessment year 2000-01. Ground No. 1 reads as under:
On the facts and in the circumstances of the case the 1d.CIT(A) has erred in directing the AO to treat the receipt of Rs. 45,34,032/- as business receipts and allow the expenses claimed therein on merits and as per law as against the receipts were charged under the head income from house property by the AO.
2. The assessee is owner of Janak Theatre located at Janakpuri, New Delhi. During the year under consideration it was given on hire for different periods to M/s. B.N. Gupta & Co. and M/s. National Timber Traders. The hire charges so received were shown as business income. The claim of assessee that these receipts are income from business and profession was denied by the AO. As such these receipts were assessed as income from house property subject to grant of deduction Under Section 24(i) for repairs which is 25% of the gross receipts of Rs. 45,34,032/- thereby assessing the net income in respect of these hire charges for a sum of Rs. 34,00,524/- being income from house property. The action of AO was challenged in the appeal filed before the ld. CIT(A). ft was submitted that during the accounting period relevant to assessment year 1998-99 in view of slump in exhibition of film at cinema hall on account of encouragement and public influence cable net work, the assessee company entered into an agreement dated 23.3.1997 with M/s. B.N. Gupta & Co. and oral agreement with M/s. National Timber Traders for exhibition of films on fixed hire charges of Rs. 2,80,000/- per month and the said agreement continued during the year under consideration. However, the fixed charges were increased to Rs. 3,50,000/- per month. Copies of agreements were filed according to which entire expenditure on running and maintenance of theatre was to be borne by the assessee company, however, the entertainment tax was to be paid by the lessee. It was submitted that the AO has arbitrarily assessed such receipts as income from house property which is against the well settled law. It was pleaded that though the AO has accepted that the assessee is engaged in the business of exhibition of films but has not recorded any finding that no such business has been carried out by the assessee during the year under consideration. It was submitted that assessee company had been engaged in the business of exhibition of movies in Janak theatre at Janakpuri, New Delhi for the last many years. Such income was being declared and assessed under the head "profit and gains of business or profession". Returns of income were being filed year after year and assessments have been made by the department treating the income from this source as "business income". During the previous year relevant to assessment year 2000-01 and in earlier two years, the assessee could not take up the business on its own due to difficult market conditions and poor health of the Director who was looking after this business. Therefore, to continue the business of exhibition of films it was let out to M/s. B.N. Gupta & Co. for some part of the year and to M/s. National Timber Traders with effect from 20.1.2000 to 21.3.2000. It was submitted that the assessee again started running the business of its own w.e.f. 1.4.2000 and continued till 20.1.2002. The letting out of the cinema hall for the limited purpose of exhibition of films during the previous year subject to bearing of running and maintenance expenses of the theatre by the assessee company was, hence, only temporary and had been resorted to under extreme compulsion and limitations. Thus it was pleaded that the receipts of the assessee should have been assessed under the head "profit and gains of business or profession". It was also submitted that AO had obtained all relevant information from the assessee to take a totally different stand and treated the said receipt as income from house property. Reference was made to various judicial pronouncements to contend that under these facts the income should have been assessed as income from business or profession. Ld. CIT (A) after considering the submissions has accepted the claim of the assessee and has directed the AO to treat these receipts as receipt of business and allow the expenses claimed thereon on merits and as per law. It is against these observations of CIT(A) the revenue is aggrieved hence in appeal.
3. Relying on the order of AO it was vehemently pleaded by the ld. DR that the income received by the assessee from hire charges of Janak theatre is assessable under the head "income from house property". She contended that assessee was receiving hire charges in the shape of rent only and thus the claim of the assessee that these receipts constituted business receipts has wrongly been accepted by the ld. CIT(A). It was contended that the order of AO in this regard should be upheld and that of CIT(A) should be set aside.
4. On the other hand, the learned Counsel appearing on behalf of the assessee pleaded that in earlier years these hire charges have been assessed as business income. The earlier assessments have attained finality. Unless there is material change in fact for the year under consideration revenue cannot take a different stand and on that ground itself the claim of assessee is acceptable. For raising such contention he has relied on the following decisions:
1. CIT v. Neo Poly Pack (P) Ltd. to contend that though it is true that doctrine of res judicata does not strictly apply to income tax proceedings, but where an issue has been considered and decided consistently in a number of earlier assessment years in a particular manner, for the sake of consistency, the same view should continue to prevail in subsequent years unless there is some material change in the facts.
2. CIT v. Narendra Doshi to contend that where the revenue has not challenged the correctness of the two decisions of High Court, they must, therefore, be bound by the principle laid down therein.
3. Berger Paints India Ltd. v. CIT to contend that if the revenue has not challenged the correctness of the law laid down by the High Court and has accepted it in the case of one assessee, then it is not open to the revenue to challenge its correctness in the case of other assessee, without just cause.
4. Union of India and Ors. v. Kaumudini Narayan Dalai and Anr. to contend that High Court having rendered its decision following an earlier decision of the same Court which was not Challenged by the revenue in appeal, it was not open to revenue to challenge before Supreme Court the correctness of later decision of the High Court.
5. Radhasoami Satsang v. CIT to contend that in absence of any material change, a different view than that taken in earlier years, could not be taken.
5. Coming to the merits of the case he pleaded that the facts of the present case falls within four corners of the decision of jurisdictional High Court in the case of CIT v. Northern India Theatres P. Ltd. to contend that where under the terms of lease, the licence for running the cinema is in the name of the assessee and it was the assessee who has got the permission to run the cinema, it was for the assessee to decide how to run the cinema, whether by itself or through the agency of another. But, nevertheless, the legal position would be that the cinema is being run by the assessee. Then, it must not be forgotten that the wear and tear of the furniture, equipment, etc., is the wear and tear of the assesse. Under the terms of the lease, the replacement is to be done by the assessee and not by the lessor except in exceptional cases. Therefore, the assessee is carrying on the business and it was held that Tribunal was right in holding that assessee was using the cinema as a commercial asset and thus income therefrom was assessable under the head "profit and gains of business or profession".
6. Reliance was placed on the decision of Hon'ble Supreme Court in the case of Commissioner of Excess Profits Tax v. Shri Lakshmi Silk Mills Ltd. to contend that where the company was incorporated purely as a manufacturing concern with the object of making profit and plant and machinery was installed for the purpose of its business and when it was found that the same could not be advantageously employed for earning profit by the company itself, to earn profit by leasing it to somebody else the income is assessable under the head "profit and gains of business or profession".
7. Reference was made to the following decisions to contend that such income was assessable under the head "profit and gains of business or profession":
1. CIT v. Vikram Cotton Mills Ltd. to contend that where there is temporary suspension of the business for the purpose of reconstruction of the company the income earned by letting out the assets will be income from business.
2. Universal Plast Ltd. etc. v. CIT to contend that where all the assets of business are let out, the period for which the assets are let out is a relevant factor to find out whether the intention of the assessee is to go out of business altogether or to come back and restart the same.
8. Thus it was pleaded that ld. CIT(A) was right in holding that such receipts are assessable under the head "profit and gains of business or profession".
9. In the rejoinder the ld. DR referred to the following decisions to contend that such receipts are only assessable under the head "income from house property".
10. CIT v. Chennai Properties & Investments Ltd. to contend that assessee being owner of the building was only exploiting the property as owner by leasing out the same and realising income by way of rent, and therefore, the rental income was assessable under the head "income from house property" and not as "business income".
11. Shambu Investment P. Ltd. v. CIT 263 ITR 143 (SC) to contend that where assessee has let out portion of the premises with furniture and fixtures and provided services to the occupants, monthly rent inclusive of charges will be assessable as income from property.
12. Replying to the rejoinder the ld. Counsel pleaded that the case law relied upon by the ld. DR is distinguishable on facts and he reiterated the submissions made earlier.
13. We have carefully considered the rival submissions in the light of material placed before us. There is no material on record to controvert the fact that for shorter period the assessee had leased out its theatre to two parties mentioned above and the reasons were stated to be the difficult market conditions and the poor health of Director who was looking after such business of the assessee [reference can be made to para 2.2 page 13 of the order of CIT(A)]. The period for which such lease was given as can be seen from the order of CIT(A) is from asstt. year 98-99 till 31.3.2000. Earlier to this assessee has been carrying out the activity of exhibiting films in its theatre and such income of the assessee was being declared and assessed under the head "profit and gains of business or profession". These facts also have not been controverted by the revenue. Thus the contention of the assessee that leasing out of the theatre was for a shorter period cannot be rejected. It is also the contention of the assessee that before leasing its income was being assessed under the head "income from business" and after 1.4.2000 also it carried out similar activity and shown the income under the head "income from business". For the year under consideration these receipts have been assessed under the head "income from house property" only on the basis that the assets were leased out. As pointed out earlier the contention of the assessee that such receipts are assessable under the head "profit and gains of business or profession" are two fold. Firstly on the ground that a consistent approach should be adopted by the department and as this income has been assessed in earlier and subsequent years as income from business it should be assessed as income from business for the year under consideration also. Secondly on merits it is the contention of the assessee that looking into the shorter period of leasing out that too for the reasons of difficult market conditions and poor health of the Director, the activity of leasing out the premises cannot be held to be non-business activity in the light of the decisions referred to in earlier part of this order.
14. Looking into the fact that leasing is for a shorter period and it has not been shown that the intention of the assessee was to go out of the business altogether, the contention of the assessee has to be accepted that it cannot be considered to be a non-business activity. Reference can be made to the decision of the Hon'ble Supreme Court in the case of Universal Plast Ltd. etc. v. CIT (supra) wherein their Lordships after considering various case laws have summarized the position of law on this issue as follows:-" In the light of the above discussion, the propositions may be summarised as follows:
(1) No precise test can be laid down to ascertain whether income (referred to by whatever nomenclature, lease amount, rents, licence fee) received by an assessee from leasing or letting out of assets would fall under the head "profits and gains of business or profession".
(2) It is a mixed question of law and fact and has to be determined from the point of view of a businessman in that business on the facts and in the circumstances of each case including true interpretation of the agreement under which the assets are let out.
(3) Where all the assets of the business are let out, the period for which the assets are let out is a relevant factor to find out whether the intention of the assessee is to go out of business altogether or to come back and restart the same.
(4) If only or a few of the business assets are let out temporarily while the assessee is carrying out his other business activities then it is a case of exploiting the business assets otherwise than employing them for his own use for making profit for that business; but if the business never started or has started but ceased with no intention to be resumed, the assets also will cease to be business assets and the transaction will only be exploitation of property by an owner thereof, but not exploitation of business assets.
15. The case of the assessee falls within the situation as envisaged at SI. No. 3 as in the present case all the assets of the business owned by the assessee have been leased out. If such is a situation then the period for which the assets are let out is a relevant factor. It has already been pointed out that the period lease is short and thereafter the intention of the assessee is relevant to find out that whether assessee intents to get out of business altogether or he is intended to come back and restart the same. From the facts it is clear that after leasing out the property the assessee had come back to its business and had restarted the same. Thus the assessee has fulfilled both these factors/tests and, therefore, applying the ratio of aforementioned decision of Hon'ble Supreme Court in the case of Universal Plast Ltd. etc. v. CIT (supra) it is to be held that such income was assessable as income from business.
16. Reference can also be made to the decision of Hon'ble Supreme Court in the case of Commissioner of Excess Profits Tax v. Shri Lakshmi Silk Mills Ltd. (supra) where the company was incorporated purely as a manufacturing concern with the object of making profit. It had installed machinery for the purpose of its business and it found that the said installed machinery could not be advantageously employed for earning profit by the company itself and to earn profit the same was leased out and in circumstances it was observed by their Lordships as under:
13. We are, therefore, of the opinion that it was a part of the normal activities of the assessee's business to earn money by making use of its machinery by either employing it in its own manufacturing concern or temporarily letting it to others for making profit for that business when for the time being it could not itself run it. The High Court, therefore, was in error in holding that the dyeing plant had ceased to be a commercial asset of the assessee and the income earned by it and received from the lessee M/s. Parakh & Co. was not chargeable to excess profits tax. The result, therefore, is that we hold that the answer returned by the High Court to the question referred to it by the Tribunal was wrong and that the correct answer to the question would be in the affirmative and not in the negative.
17. Looking into the facts of the present case in the light of above observations of Hon'ble Supreme Court, we are of the opinion that it is not a case where it can be held that letting out of the theatre by the assessee was not commercial utilization of the assets particularly when the assessee could not itself run it by compulsion of certain circumstances.
18. The case law relied upon by the ld. DR cannot be held applicable to the facts of the present case as in none of those cases the assessee had let out the commercial assets for a short period. The property was constructed and utilized for the purpose of earning rent. Thus the case law relied upon by the ld. DR is distinguishable on facts.
19. Thus keeping in view the case law relied upon by both the parties and the facts of the present case, we are of the opinion that ld. CIT(A) has rightly decided the issue which is in accordance with law. We decline to interfere. This ground of revenue is dismissed.
20. Ground No. 2 reads as under:
On the facts and the circumstances of the case the ld. CIT(A) has erred in deleting the addition of Rs. 21,12,523/- made by the AO on account of unexplained and unconfirmed sundry creditors.
21. The AO disallowed a sum of Rs. 21,12,523/- in absence of details and on account of unconfirmed credit balances pertaining to sundry creditors with the following observations:
(D) Similarly, no details of sundry creditors have been filed despite being asked for vide questionnaires issued as above. In response, vide letter dated 28.3.2003, the assessee company has submitted that:
As regards sundry creditors, it is stated that out of Rs. 24,10,801.92, Rs. 21,12,523.22 represents old creditors, which are outstanding for more than 10 years. Copy of the balance sheet is enclosed in supporting such creditors. Other creditors are very small and represents due to day to day working.
Further vide column 2 of Schedule I on Notes of accounts, the auditors have remarked that "balance under the head unsecured loans, sundry creditors and loans and advances remain unconfirmed and further most of the balances are being carried forward from the previous years.
In view of the above facts and in the absence of details and unconfirmed credit balances, sundry creditors of Rs. 21,12,523/- are being added back to the income of the assessee company."
22. Though the AO has not referred to the applicability or otherwise of Section 41(1), Ld CIT (A) has deleted the addition with the following observations:
As regards sundry creditors for expenses -which have been allowed as deduction while computing taxable income of an assessee - any cessation of such liability becomes liable to tax Under Section 41(1) of the Income Tax Act, 1961. Unless it is proved that the assessee has obtained some benefit in respect of such liability (incurred for expenses) by way of remission or cessation thereof, Section 41(1) of the Income Tax Act, 1961 cannot be pressed into action. The factum of remission or cessation cannot be presumed. The revenue has to prove the year in which the factum of cessation or remission has taken place. It can be proved with the help of positive evidences and not on the basis of inference. In the instant case, the AO has simply drawn an inference from the 'notes to accounts' in the balance sheet and has stopped at that. The AO should have examined the issue further and given a positive finding as to the nature of credits (for expenses) and the year in which the liability had ceased to exist for bringing the same to tax under Section 41(1) of the I.T. Act, 1961. As such, addition of Rs. 21,12,523/- cannot be justified and is deleted.
The revenue is aggrieved with the aforementioned findings of CIT (A), hence in appeal.
23. Referring to the asstt. order it was pleaded by the ld. DR that the assessee did not furnish any detail and according to the audited report the balances outstanding under the head 'sundry creditors' were unconfirmed. It is in these circumstances the AO added the same to the income of the assessee. Ld. CIT(A) has wrongly deleted the addition in absence of details and confirmation of sundry credits. Thus she pleaded that addition has wrongly been deleted by CIT (A) and his order should be set aside and that of AO be confirmed.
24. On the other hand, it was pleaded by the learned Counsel that on 28.3.2003 the assessee was required to submit details and confirmation etc. with regard to sundry creditors and assessment was completed on 31.3.2003. Thus he pleaded that at first instance no proper opportunity was given by the AO to submit the required details as well as confirmation etc. with regard to sundry creditors. He contended that there is no dispute to the fact that all these credits were old. Thus he contended that unless they are written off no addition could have been made during the year under consideration as it was obligatory upon revenue to show that any part of the said amount was written off by the assessee. He referred to the decision of Hon'ble Delhi High Court in the case of CIT v. Om Prakash Mahajan & Sons [1984] 152 ITR 583(Del) to contend that the amount to the extent of which the entry is relatable to the income earned in some earlier year, has to be taxed in that particular year and not in the year in which the same appears in the books.
25. So as it relates to opportunity he relied on the decision of Hon'ble Supreme Court in the case of Tin Box Co. v. CIT to contend that assessment order must be made after the assessee has been given reasonable opportunity of setting out its case; assessment made without giving the assessee such an opportunity was liable to be set aside and the matter was remanded for fresh consideration.
He also referred to the decision of Delhi Tribunal in the case of Uttam Air Products(P)Ltd. v. DCIT, ITAT, Delhi 'C' Bench [2006] 99 TTJ (Del)718 to contend that liability towards unmoved balance having been shown by the assessee in its balance sheet and there being no material or evidence with the revenue to show that the supplier(creditor) had given up its claim, no addition was called for. Referring to these arguments it was pleaded that addition has rightly been deleted by the CIT(A) and his order should be confirmed.
26. We have carefully considered the rival submissions in the light of material placed before us. The relevant observations of the AO with regard to the issue have already been reproduced in the earlier part of this order. There is no dispute that relevant details were not furnished before the AO and the balances which have been added are unconfirmed. In such position the claim of the assessee cannot be accepted at its face value. If a sum has been shown to be outstanding in the books of account the assessee is under an obligation to show the existence of the same if it is called upon to do so. The AO has raised query in this regard which was not complied with probably on the ground that there was lack of opportunity. Thus it may be a case of lack of opportunity as contended by the ld. AR. AO has made no reference to Section 41(1) and the addition has been deleted by CIT(A) entirely on different ground. He has not considered the contention of the AO on the basis of which the addition has been made i.e. the balances are unconfirmed and no details were furnished. Thus the ld. CIT(A) has deviated from the stand of the AO and has deleted the addition on wrong footings. In the absence of details and confirmations the claim of assessee, as pointed out earlier, cannot be accepted. The case law relied upon by the assessee also does not support the case of the assessee as that was not a case where details were not furnished and balances were also not unconfirmed. Therefore, the case laws relied upon on merits of addition are distinguishable on facts. So as it relates to contention of the assessee that there was a lack of opportunity, accepting that argument, we are of the view that the matter requires reconsideration at the level of AO to give a chance to the assessee to avail opportunity to contest the addition. In this view of the situation, we restore this issue to the file of AO with a direction to give reasonable opportunity of hearing to the assessee and then pass an order on this issue in accordance with law. We direct accordingly.
27. This ground is allowed for statistical purposes. In the result, the appeal filed by the revenue is partly allowed for statistical purposes.
Order pronounced in the open court on 05.2007.