Income Tax Appellate Tribunal - Chennai
Ndr Warehousing Pvt Ltd., Chennai vs Department Of Income Tax on 17 October, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
'C' BENCH, CHENNAI
BEFORE SHRI ABRAHAM P.GEORGE, ACCOUNTANT MEMBER AND
SHRI VIKAS AWASTHY, JUDICIAL MEMBER
ITA No.1039 to 1041/Mds/2011
(Assessment Year: 2004-05, 2005-06 & 2007-08 )
Assistant Commissioner of Income Vs. M/s. NDR Warehousing Pvt.Ltd.,
Tax, Company Circle-IV(4), Old No.5, New No.9,
Aayakar Bhavan, IV floor, Errabalu Chetty Street,
121, M.G.Road, Chennai-600 001.
Chennai-600 034. PAN: AAACN2816J
(Appellant) (Respondent)
Appellant by : Mr. Guru Bashyam, JCIT
Respondent by : Ms. J.Sree Vidya, Advocate
Date of Hearing : 17th October, 2012
Date of Pronouncement : 31st October, 2012
ORDER
Per Vikas Awasthy, JM:
The present set of three appeals have been filed by the Revenue impugning the common order of the CIT(A) dated 18.2.2011. The CIT(A) has allowed all the three appeals of the assessee relevant to the assessment years 2004-05, 2005-06 and 2007-08 vide single impugned order.
2. Brief facts of the case are that the assessee is a company registered under the provisions of Companies Act, 1956 and is engaged in the business of warehousing, 2 ITA No.1039 to 1041/Mds/2011 handling and transport business. The assessee had filed return of its income for the relevant assessment years showing income from letting out of building and godown space as "Income from Business". The Assessing Officer rejected the view of the assessee for treating the income from letting out of building and godown as business income and assessed the same as "Income from House Property".
Aggrieved against the assessment order for all the three relevant assessment years, the assessee preferred appeals before the CIT(A). The CIT(A) vide impugned order allowed all the three appeals of the assessee, holding the income from warehousing and letting out of godown and buildings as income from business.
4. The Revenue aggrieved against the order of the CIT(A) has come in second appeal before the Tribunal assailing the order of the CIT(A). For the assessment year 2005-06, the Revenue has taken additional ground with regard to deemed divided to the Directors of the company under section 2(22)(e) of the Act.
3 ITA No.1039 to 1041/Mds/2011
5. Shri Guru Bashyam appearing on behalf of the Revenue submitted that the assessee has wrongly shown the income from letting out of buildings and warehouses as income from business, whereas it should have been income from house property. The DR supporting the assessment order and submitted that the assessee entered into an agreement with M/s. Hindustan Lever Ltd., M/s. Indve Logistics Pvt.Ltd. and M/s. Bax Global (India) Pvt.Ltd. and various other companies for letting out its warehouses. He submitted that as per the agreement between the assessee and the lessees it was evident that buildings/warehouses were leased to the companies on monthly rentals and further the lessees were entitled to make alterations with the approval of the lessor. The assessee had agreed to provide water supply and electricity and no separate charges were being collected for providing such amenities. He submitted that this clearly shows that the income of the assessee is liable to be taxed under the head "Income from House Property" and not under the head "Income from Business". The DR in support of his contentions has relied on the 4 ITA No.1039 to 1041/Mds/2011 judgement of jurisdictional High Court in the case of Keyaram Hotels (P) Ltd. Vs. ACIT., reported as 173 Taxman 262 (Mad) and CIT Vs. Chennai Properties & Investments Ltd., reported as 136 Taxmann 202(Mad).
6. The D.R. submitted that for the assessment year 2005- 06 another issue which has cropped up for adjudication is with regard to advance paid to Shri N.Amrutesh Reddy, one of the Directors. The DR submitted that the assessee is a company in which public are not substantially interested and Mr. Amrutesh Reddy is a Director as well as shareholder holding 78% shares in assessee company. During the relevant period, the assessee had advanced loan to Mr. Amrutesh Reddy on various dates between 22.4.2004 and 20.1.2005. The said loan advanced is nothing but deemed dividend under the provisions of section 2(22)(e) of the Act. The assessee was supposed to deduct tax at source, but the assessee has failed to comply with the provisions of TDS.
7. On the other hand, Ms.Sree Vidya appearing on behalf of the assessee submitted that assessee company was incorporated with the main object to establish warehouses, 5 ITA No.1039 to 1041/Mds/2011 storage rooms, godowns etc. and to carry on the business of warehousemen. Therefore, the assessee is in the business of letting godowns and buildings to other companies on lease. Thus the income earned by the assessee by letting out of buildings and warehouses is "Income from Business" and not "Income from House Property". The counsel supporting the order of the CIT(A) submitted that the order is well-reasoned and detailed order. The counsel for the assessee further submitted that the Department has already admitted this factual position in earlier assessment years. The assessee company was incorporated way back in the year 1986 and since then it has been filing return of its income by treating the income as income from business. In order to support her contentions, the counsel for the assessee placed on record Certificate of Incorporation and Memorandum of Association of the company which are at page 1 and 2 respectively of the paper book filed by the assessee. The counsel further submitted that assessee's main source of income is from leasing out of godowns and warehouses is evident from the profit and loss account of the assessee company. The 6 ITA No.1039 to 1041/Mds/2011 assessee has placed on record profit and loss account for the year ended on 31.03.2004, 31.03.2005 and 31.03.2007 which are at page 17, 22 and 27 respectively of the paper book. The counsel for the assessee also drew our attention to page 32 of the paper book wherein the facilities provided to the warehousing companies are mentioned. The counsel strongly supported the order of the CIT(A) and submitted that in view of the documents on record, it is clearly evident that the assessee is engaged in the business of letting out / leasing of godowns and warehouses. In order to fortify the submissions, the counsel for the assessee relied on the judgement of the Hon'ble Bombay High Court in the case of Nutan Warehousing Company P.Ltd., Vs. DCIT., reported as 326 ITR 94(Bom) and the order of the co-ordinate Bench of the Tribunal in the case of ACIT Vs. Popat Jamal & Sons reported as 121 TTJ 265, ITO Vs. Tejmalbhai & Co., reported as 282 ITR (AT) 224 and ACIT Vs. Sardar Davinder Singh Kohli reported as 85 ITD 544.
8. As regards issue no.2, relating to advance to one of the Directors of the company, the learned counsel strongly 7 ITA No.1039 to 1041/Mds/2011 supported the findings of the CIT(A) on the issue. The counsel for the assessee submitted that even otherwise the alleged deemed dividend cannot be assessed in the hands of the company.
9. We have heard the submissions made by both the parties. We have also gone through the orders of the authorities below and the judgements/orders relied on by the respective parties. The learned counsel for the assessee has placed on record Memorandum of Association of the company. A perusal of the Object Clause of the company shows that the company was incorporated with the following main objects:
(i) To establish warehouses, storage rooms, bins, godowns and cold storages, to carry on the business of warehousemen, stores custodians and to provide facilities for storage of commodities, articles, things of all kinds and description whatsoever.
(ii) To carry on the business of clearing and forwarding agents, carriers, transportation and 8 ITA No.1039 to 1041/Mds/2011 distribution of all kinds of good, articles, commodities, articles, things of all kinds and description whatsoever;
(iii) To provide finance to construction buildings, sheds, godowns, warehouses, storage rooms and bins and/or acquire on lease or otherwise, buildings, sheds, godowns and warehouses.
This clearly shows that the main objects of the company is to earn business profits by pursuing the business of warehousing, cold storage, godowns etc. A further perusal of the profit and loss account for the financial year ended on 31.03.2004 , 31.03.2005 and 31.03.2007 shows that the main source of income of the assessee was storages charges and maintenance charges/user charges. This makes it amply clear that the primary source of income of the assessee was letting out of godowns and warehouses to the manufacturers, traders and other companies carrying on warehousing business. The learned counsel for the assessee had made a statement at the Bar that since the time of incorporation in the year 1986, the assessee has been filing its return of the 9 ITA No.1039 to 1041/Mds/2011 income by treating the income earned from letting of warehouses and godowns under the head "Income from Business" and the same has been accepted by the Department. It was only in the three assessment years i.e. 2004-05 and 2005-06 and 2007-08 that the Revenue has challenged the head of income.
10. The D.R. has relied on the judgement of the Hon'ble Madras High Court in the case of Keyaram Hotels (P)Ltd., (supra) and Chennai Properties and Investments Ltd. (supra) to buttress his argument that where assessee leased out buildings and realized income by way of rent, such rental income is liable to be assessed under head "Income from House Property" and not under head "Income from Business". The facts of the cases relied on by the DR are entirely different from the facts of the present case. Therefore, the law laid down by the Hon'ble jurisdictional High Court in the above mentioned cases cannot be applied in the facts and circumstances of the present case. On the other hand, the counsel for the assessee has relied on the judgement of the Hon'ble Bombay High Court in the case of Nutan 10 ITA No.1039 to 1041/Mds/2011 Warehousing Company P. Ltd (supra). The question before the Hon'ble Bombay High Court for adjudication was whether the income which was received by the assessee from the transaction which has been entered into in respect of the immovable property in question should be treated as income from 'house property' or as 'income from business'. The Hon'ble High Court held that what is material in such case is the primary object of the assessee while exploiting the property. If the primary or the dominant object is to lease or let out property, the income which is derived from the property would have to be regarded as "income from house property". Conversely, if the dominate intention of the assessee is to exploit a commercial asset by carrying on a commercial activity, the income that is received would have to be treated as income from business. What has to be deduced is whether the letting out of the property constitutes a dominant aspect of the transaction or whether it was subservient to the main business of the assessee of carrying out warehousing activities. The Hon'ble High Court remanded the matter back to the Tribunal to consider this aspect of the case. 11 ITA No.1039 to 1041/Mds/2011
In the instant case, a perusal of the profit and loss account of the assessee company and the Object Clause of the Memorandum of Association of the company clearly show that the assessee company was incorporated with an object of carrying on the business of warehousing and letting/renting of godowns and providing facilities for storage of articles or things and descriptions whatsoever. The profit and loss account of the assessee company shows that its main source of income is storage charges and maintenance or user charges. Even substantial part of the expenses also relate to the salaries of the employees engaged in the maintenance and upkeep of the godowns and warehouses. Therefore, in our considered opinion, the income of the assessee from letting out of warehouses and godowns is chargeable under the head "Business Income" and not "Income from House Property". Accordingly, we uphold the findings of the CIT(A) and dismiss this ground of appeal of the Revenue.
11. The second ground of appeal in ITA No.1040/Mds/2011 relevant to the assessment year 2005-06 is regarding amount advanced to the Director of the company to be 12 ITA No.1039 to 1041/Mds/2011 treated as deemed dividend under the provisions of section 2(22)(e) of the Act. A perusal of the documents on record show that Shri N.Amrutesh Reddy one of the Directors of the assessee company had advanced huge funds to the assessee without charging interest thereon. The assessee has been utilizing the amount advanced by the Director from time to time. The CIT(A) has given categoric finding on this issue. The learned DR has not been able to controvert the findings of the CIT(A) on this issue. Therefore, we confirm the findings of the CIT(A) on this issue and dismiss the ground raised by the Revenue in its appeal.
12. Accordingly, all the three appeals of the Revenue are dismissed being devoid of merit.
Order pronounced in the open court on Wednesday , the 31st day of October, 2012 at Chennai.
Sd/- Sd/-
(Abraham P.George) (Vikas Awasthy)
Accountant Member Judicial Member
Chennai,
Dated the 31st October, 2012.
somu
Copy to: (1) Appellant (4) CIT(A)
(2) Respondent (5) D.R.
(3) CIT (6) G.F.