Income Tax Appellate Tribunal - Hyderabad
M/S.Egwood Industries (P) Ltd.,, ... vs Department Of Income Tax on 5 December, 2013
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCHES "A" : HYDERABAD
BEFORE SHRI CHANDRA POOJARI, A.M.
AND
SMT. ASHA VIJAYARAGHAVAN, J.M.
ITA.No.1230/Hyd/2013
Assessment Year 2007-2008
Egwood Industries Pvt. vs. DCIT, Circle 2(2)
Ltd. Hyderabad. Hyderabad
PAN AAACE4485G
(Appellant) (Respondent)
ITA.No.1298/Hyd/2013
Assessment Year 2007-2008
DCIT, C.C. 3 vs. Egwood Industries Pvt. Ltd.
Hyderabad Hyderabad.
PAN AAACE4485G
(Appellant) (Respondent)
For Assessee : Shri KC Devdas
For Revenue : Shri B. Yadagiri
Date of Hearing : 05.12.2013
Date of pronouncement : 13.12.2013
ORDER
PER SMT. ASHA VIJAYARAGHAVAN, J.M.
These cross-appeals are filed by the Revenue and Assessee against the Order of the CIT(A)-III, Hyderabad dated 30.07.2013 for the assessment year 2007-2008. Since, common issues are involved in these appeals, they were clubbed and heard together and are being disposed of by this single consolidated order for the sake of convenience.
2. First, we will take-up ITA.No.1230/Hyd/2013 for the assessment year 2007-2008 of the assessee. It was 2 ITA.No.1230 & 1298/Hyd/2013 M/s. Egwood Industries (P) Ltd. Hyderabad submitted by the A.R. of the assessee in the assessment proceedings as follows :
"That M/s. Rentworks India Pvt. Ltd. provided some Racking systems as per specific request of H.L.L. It is true that the warehouse used by the H.L.L. consists of Racking systems containing G+6 Racking arrangements. But, these Racking Systems are not owned by the assessee. Those Racking systems are taken on lease (hire) from the M/s. Racking Works India Pvt. Ltd. Mumbai and whatever bills raised by them (hire charges) are being reimbursed by H.L.L. The assessee merely acts as a mediator between M/s. Racking Works India Ltd. (the owner of equipment) and the tenant-HLL. The assessee neither derives profit nor incurring loss in arranging racking systems. Further, lease agreement entered by the assessee with H.L.L. does not mention any thing about the Racking systems. No receipts were credited to the P & L account on account of lease rentals from Racks. In any case the assessee being neither owner of Racking systems nor lessor of racks, the role of assessee in this transaction is nominal.
3. The Assessing Officer held that it is clear that the assessee acted as mediator between the Racks India Ltd. and HLL for letting the racks on hire. Irrespective of role played by the assessee in these transactions, as the income credited to profit and loss account being the lease rentals for the civil structure (building), the income is liable to tax under the head 'Income from House Property' only. The A.O. 3 ITA.No.1230 & 1298/Hyd/2013 M/s. Egwood Industries (P) Ltd. Hyderabad further observed that the assessee itself credited the rental income under the head 'Other Income' instead of under the head 'Income from business' in the accounts prepared under the Companies Act. The A.O. pointed out that this act of the assessee in treating the rental income as income from 'Other Sources' proves that there was no business activity. Therefore, the A.O. concluded that the assessee as a landlord merely let out the property and the assessee is not rendering other services such as loading or unloading for considering it as business income. The A.O. opined that it was clear that the assessee as a owner of building was only exploiting the property as a owner by leasing out the same and realizing income by way of rent. The A.O. observed that the fact that one of the object of the company was to construct and let out of godown or the land was taken on lease or that the third party (Racking Works) provided Racking systems to the lessee does not help the assessee's case and involvement of the assessee in arranging the Rack systems and also the role played by it for regular collection of rents does not affect the nature of rent received by it. Hence, A.O. held such rental income derived out of letting the godown is liable to be assessed under the head 'Income from House Property' only. Accordingly, the lease rentals are brought to tax under the head 'House Property' only. The A.O. held that rent of Rs.74,99,916/- and Rs.4,32,010/- received towards main building and green belt respectively totaling to Rs.79,31,926/- pertains to civil structures is brought to tax under the head 'Income from House Property'. The A.O. further observed as follows :
4ITA.No.1230 & 1298/Hyd/2013 M/s. Egwood Industries (P) Ltd. Hyderabad "Without prejudice the above view, if the assessee still insists upon that lease rentals be brought to tax under the head 'Income from Business or Profession', and if any judicial authority upheld such view, the amounts paid (routed through the assessee) to M/s. Rack India Pvt. Ltd. towards lease rents of Racking systems are liable for disallowance u/s. 40(a)(ia) as the assessee did not deduct tax at source under section 194C/194I".
4. Aggrieved, assessee filed appeal before the CIT(A) and the learned CIT(A) confirmed the order of the A.O. with respect to the lease rents paid to M/s. Rack India Pvt. Ltd. holding that TDS was to be deducted on these lease rentals. The learned CIT(A) hold that the amount in question is liable for deduction under section 40(a)(ia) of the Act and directed the A.O. accordingly.
5. Still aggrieved, the assessee filed the present appeal before the Tribunal. The learned Counsel for the assessee Shri K.C. Devdas pointed out that from the profit and loss account the assessee did not claim the above mentioned amounts as payments and did not debit the same to the profit and loss account. The learned Counsel further contended that when the assessee itself did not claim the payments by debiting to profit and loss account, the question of disallowance of those amounts by invoking the provisions of section 40a(ia) does not arise.
6. The learned D.R. on the other hand, relied upon the Order of the Assessing Officer and CIT(A).
5ITA.No.1230 & 1298/Hyd/2013 M/s. Egwood Industries (P) Ltd. Hyderabad
7. We have heard both the parties and perused the material available on record. We find that the facts in the instant case are similar to that one which was decided by the Coordinate Bench of this Tribunal in the case of M/s. Narne Constructions (P) Ltd. in ITA. No. 1462 & 1463/Hyd/2011 for the assessment year 2004-2005 by order dated 25.01.2012 wherein the Tribunal observed as follows :
"10. We have heard both the parties on this issue. The contention of the assessee is that this item has not been debited to Profit and Loss a/c and this has been shown in the balance sheet and it cannot be considered for allowance or disallowances. We find force in the contention of the assessee's counsel that unless the assessee claims this item as expenditure / payment, the A.O. cannot allow or disallow the same. In that circumstances, we set aside this issue to the file of the A.O. to examine whether this is an expenditure/payment claimed by the assessee in the profit and loss account or shown as an item in the balance sheet. In the event, if it is claimed as an expenditure, the A.O. could disturb the same and disallow an expenditure claimed in the P & L a/c. to the extent of 10%, which, in our opinion, is reasonable.6
ITA.No.1230 & 1298/Hyd/2013 M/s. Egwood Industries (P) Ltd. Hyderabad On the other hand, if it is balance sheet item, the A.O. is precluded from doing so."
8. The above view has been further followed by the Coordinate Bench of this Tribunal in the case of M/s. Godavari Developers in ITA.No. 918/Hyd/2011 dated 31st October, 2012.
9. In the present case before us, no claim of expenditure has been made in the profit and loss account and we have verified the same from the profit and loss account for the year ending 31st March, 2007 at page 3 of the paper book where rent has not been claimed under the head "Expenditure" and we are convinced that the assessee is only an intermediary. Hence, applying the ratio of the decision in the case of Godavari Developers (supra), we allow the assessee's appeal.
10. In the result, ITA.No.1230/Hyd/2013 of the assessee is allowed.
11. ITA.No.1298/Hyd/2013 - A.Y. 2007-2008 :
Through this appeal the Revenue has raised 8 grounds which are as under :
1. The order of the learned CIT(A) is erroneous both on facts and law.
2. The learned CIT(A) has erred both on facts and in law in holding that as the property was let out for commercial purpose, the income there from should be treated as income from business.
3. On the facts and in the circumstances of the case the learned CIT(A) erred by not 7 ITA.No.1230 & 1298/Hyd/2013 M/s. Egwood Industries (P) Ltd. Hyderabad distinguishing any of the findings and arguments of the assessment order. He has merely concluded that since the warehouse/godown were used for commercial purpose, the rent received by the assessee from them should be assessed as business income.
4. The learned CIT(A) erred in giving the finding that the rental income be treated as business income merely for the fact that it is used for commercial purpose, the same is neither in conformity with law nor on facts and hence not acceptable.
5. The learned CIT(A) erred in not appreciating the AO's findings of the fact that the warehouse/ godown was used for commercial purpose does not change the nature of income in the hands of the recipient i.e., the assessee who being the owner of the property was only exploiting the same by leasing out and realising income by way of rent.
6. The CIT(A) erred in granting relief for the expenses as business income as the assessee has not carried out any business activity.
7. The CIT(A) erred in holding the income received on let out of furniture and fixtures and generator rightly assessed as 'Income from other sources', to be assessed as business income.
8. Any other ground that may be urged at the time of hearing."
12. Brief facts of the issue, in ground Nos. 2 to 6, are with reference to the treatment of rental income derived from the property leased out as 'income from business' instead of treating the same as 'income from house property'. In this case, a warehouse/godown was let out by the assessee for 8 ITA.No.1230 & 1298/Hyd/2013 M/s. Egwood Industries (P) Ltd. Hyderabad preservation of goods belonging to M/s. Hindustan Lever Ltd., for commercial purposes and the letting out of the building for warehouse is business of the assessee. Accordingly, the CIT(A) was of the opinion that the Assessing Officer is not justified in treating the income from warehouse as income from house property. Against this, the Revenue is in appeal before us.
13. We have heard both the parties and perused the material on record. We find that identical grounds have been raised by the Revenue in the appeal in ITA.No.1287/Hyd/2011 in assessee's own case for assessment year 2006-2007 wherein the Hon'ble ITAT, Hyderabad Bench by order dated 20th June, 2013 has held as follows :
4. "We have heard both the parties and perused the material on record. This issue is covered in favour of the assessee. The assessee constructed a warehouse/godown for specific purpose and let out the same to M/s. Hindustan Lever Ltd., and the income derived is to be treated as income from business only. This view of ours is fortified by the order of the Tribunal in ITO vs. Rasiklal & Co. (P) Ltd. (119 ITD 61) wherein the Tribunal held as under:
"Assessee not merely letting out its premises for warehousing but being also under obligation to provide adequate security to the material 9 ITA.No.1230 & 1298/Hyd/2013 M/s. Egwood Industries (P) Ltd. Hyderabad stored apart from receiving and delivering stock, taking physical inventory at regular intervals, to do loading and unloading and stock taking in addition to ensuring proper spray of pesticides in the godown, it was doing a complex commercial activity, hence receipts were taxable as business income and not income from house property, more so when receipts were assessed as business income in the past and there was no change in factual or legal position."
5. In view of the above ratio laid down by the Tribunal, we are inclined to confirm the order of the CIT(A) on this issue. Ground Nos. 2 to 6 of the Revenue are dismissed.
6. With regard to the next issue (ground No. 7) the facts are that the assessee also has disclosed certain income from letting out of furniture & fixtures and generator. The Assessing Officer has treated the said income received from furniture & fixtures and generator as income from other sources. The Assessing Officer has refused to treat the same as rental income of furniture & fixtures and generator since there is no agreement between the assessee and the lessee. The Assessing Officer is of the view that since 10 ITA.No.1230 & 1298/Hyd/2013 M/s. Egwood Industries (P) Ltd. Hyderabad there is no lease agreement with regard to letting out of the furniture & fixtures and generator and treated the income from them as income from other sources and also allowed depreciation on the said items. On appeal, the CIT(A) held that the lease rent received on hiring of furniture & fixtures and generator has to be treated as business income as the warehouse rent has been treated as business income. Against this, the Revenue is in appeal before us.
7. We have heard both the parties and perused the material on record. It is an admitted fact that the assessee is carrying on the business of letting out warehouse/godown for commercial purposes. The furniture & fixtures and generator are attached to that business of the assessee. This leasing of assets cannot be isolated from the assessee's business so as to treat the income derived from furniture & fixtures and generator as income from other source. In view of this, we are of the opinion that the CIT(A) is justified in treated the income from letting out of furniture & fixtures and generator as income from business and allowing depreciation claim of the assessee. Ground No. 7 is dismissed".
14. Respectfully following the decision of in assessee's own case for the assessment year 2006-2007 in ITA.No.1287/Hyd/2011 we dismiss the Revenue's appeal.
11ITA.No.1230 & 1298/Hyd/2013 M/s. Egwood Industries (P) Ltd. Hyderabad
15. In the result, ITA.No.1298/Hyd/2013 of the Revenue is dismissed.
16. To sum-up, ITA.No.1230/Hyd/2013 of the assessee is allowed and ITA.No.1298/Hyd/2013 of the Revenue is dismissed.
Order pronounced in the open Court on 13.12.2013.
Sd/- Sd/- (CHANDRA POOJARI) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER
Hyderabad, Date 13th December, 2013 VBP/-
Copy to
1. M/s. Egwood Industries (P) Ltd. H.No.6-3-679, 1st Floor, Elite Plaz, Panjagutta, Hyderabad.
2. DCIT, Central Circle-3, 8th Floor, Aayakar Bhavan, Hyderabad.
3. CIT(A)-III, Hyderabad.
4. CIT-II, Hyderabad
5. D.R. 'A' Bench, ITAT, Hyderabad.