Income Tax Appellate Tribunal - Chandigarh
M/S Punjab State Container And ... vs Acit, C-2(1), Chandigarh on 28 February, 2019
आयकर अपील य अ धकरण,च डीगढ़ यायपीठ "बी", च डीगढ़
IN THE INCOME TAX APPELLATE TRIBUNAL,
CHANDIGARH BENCH 'B' , CHANDIGARH
ी संजय गग , याय क सद य एवं ीमती अ नपण
ू ा ग(ु ता, लेखा सद य
BEFORE: SHRI SANJAY GARG, JUDICIAL MEMBER
AND SMT.ANNAPURNA GUPTA, ACCOUNTANT MEMBER
C.O. No.57/Chd/2017
नधा रण वष /Assessment Year : 2013-14
M/s Punjab State Container बनाम The A.C.I.T.,
& Warehousing Corporation Circle 2(1),
Ltd., SCO 74-75, Sector 17-B, Chandigarh.
Chandigarh
थायी लेखा सं./PAN NO: A A E C P 0 6 0 6 J
नधा रती क ओर से/Assessee by : Shri T.N. Singla, CA
राज व क ओर से/ Revenue by : Shri G.S. Phani Kishore, CIT DR
सन
ु वाई क तार ख/Date of Hearing : 17.12.2018
उदघोषणा क तार ख/Date of Pronouncement:28.02.2019
आदे श/ORDER
Per Anna pur na Gupta, Account ant Member The present Cros s Objecti on has been preferred b y the assessee agai n st the order dated 7.3.20 17 of the Commi ssi oner of I ncome Ta x ( Appeal s) -I , Chandi garh [ herei nafter referred to as CI T( A) ] .I t w a s p o i n t e d o u t t h a t the appeal filed by the Revenue against the order of the CIT(A),had been dismissed earlier since the tax effect involved in the same was below that prescribed b y t h e C B D T C i r c u l a r N o . 3/2018 dated 11.07.2018 for fi l i ng appeal s before the I . T.A. T. There was a del a y of 72 da ys i n fi l i ng of the Cross Objecti on. An appl i cati on for condoni ng the del a y was fi l ed before us dated 27.11.2017 sta ti ng therei n tha t the del a y 2 C.O.57/Chd/2017 A.Y. 2013-14 was on account of the oversi ght of the counsel for assessee, Shri T.N. Si ngl a, who was bus y in GST, Audi t and Tax Audi t when the copy of the appeal fi l ed by the Revenue on 3.8.2017, was provi ded to i t and further that on 25.10.2017 Shri T.N. Si ngl a had an attack of dengue and it was onl y thereafter when he started attendi ng the offi ce on 10.11.2017, that the Cross Objecti on was fi l ed on 13.11.2017. An affi davi t of the counsel for the assessee, Shri T.N. Si ngl a, wa s al so pl aced before us concedi ng to hi s mi stake as afore stated i n fi l i ng t he Cross Objecti on i n ti me. I t was, therefore, stated that the del a y be condoned.
3. The Ld. DR objected to the same.
4. On going through the contents of the application, supported by way of affidavit filed by the counsel for the assessee, we find that in the peculiar facts and circumstances of the case, the delay of 72 days has occurred for reasons beyond the control of the assessee. Accordingly, being satisfied with the explanation of the assessee, we condone the delay. The said order was pronounced in the open Court in the presence of both the parties and the parties were accordingly directed to argue the appeal on merits.
5. The grounds taken up by the assessee are as under:
"1. That the order of Learned CIT (Appeals) is bad, against the facts & law.
3 C.O.57/Chd/2017 A.Y. 2013-14
2. The Learned Commissioner of Income Tax (Appeals) has wrongly treated the income of lease rentals as "Profits and Gains of Business and profession"
instead of "income from house property".
3. The Learned Commissioner of Income Tax (Appeals) has wrongly disallowed the deduction of 30% u/s 24(a).
4. The Learned Commissioner of Income Tax (Appeals) wrongly disallowed the penalty/fine expense amounting to Rs. 1,67,620/-.
5. The Learned Commissioner of Income Tax (Appeals) has wrongly initiated the penalty u/s 271(1)(c).
6. That the appellant craves leave to add, alter, amend the grounds of appeal before the appeal is final heard and disposed off."
6. Ground Nos.1 and 6 raised by the assessee are general in nature and need no adjudication. Ground No.5 is against the initiation of levy of penalty u/s 271(1)(c) of the Act which being premature also needs no adjudication.
7. Ground No.2 raised by the assessee relates to the issue of characterization of the rental income received by the assessee, whether in the nature of "income from house property" as returned by the assessee or in the nature of "income from business and profession" as assessed by the assessing officer (A.O.) and confirmed by the CIT(A). In ground No.3 the assessee has raised the consequential ground of denial of deduction of 30% u/s 24(a) on account of the revenue authorities not treating the rental income as income from house property. Since both the issues are linked, therefore, they were taken up together for hearing.
4 C.O.57/Chd/2017 A.Y. 2013-14
8. Brief facts relating to the case are that the a s s e s s e e owned a building in Navi Mumbai known as Container Freight Station (hereinafter referred to as 'OPS') which was purchased in F.Y. 1995-96. The assessee had leased this facility to one M/s Gateway Distriparks Ltd. (hereinafter referred to as 'GDL") under an Operation and Management Agreement dated 12.01.2007 and the income thus received was reflected as Income from House Property u/s 22 of the Act and 30% deduction of the same was consequently claimed u/s 24 of the Act. The Assessing Officer noted that in earlier years, the income was treated as business income. The assessee was asked to justify the change in treatment and was also asked to file the copy of the lease agreement. The assessee stated that they had leased out built up covered storage space of 52,500 sq mtrs on a land measuring 27.5 acres to Gateway Distriparks Limited for 15 years for which lease rent was received and the same was shown wrongly as business income from 2007 to 2013. That on realizing this mistake they now had reclassified their income as "Income from Business" from the impugned assessment year i.e A.Y 2013-14.Th e A . O . e x a m i n e d the agreement submitted by the assessee and observed that as per the agreement, the relationship appeared to be one of subcontracting of the operation and maintenance of the CFS facility,thus having a 5 C.O.57/Chd/2017 A.Y. 2013-14 character of business income rather than of house property income. He accordingly, treated the income from lease of CFS facility at Navi Mumbai as business income of the assessee and, consequently also denied the claim of 30% deduction claimed by the assessee u/s 24(a) of the Act.
9. The matter was carried in appeal before the Ld.CIT(A) who upheld the order of the A.O.
10. Before us the Ld. counsel for assessee stated that letting out of the CFS facility was not by way of its business and thus could not be treated as business income of the assessee. Reliance was placed on the decision of the Hon'ble Apex Court in the case of Raj Dadarkar & Associates Vs. ACIT, reported in 394 ITR 592 for the preposition that the income from letting out of property could be treated as business income only if letting out of property was the object of the company.
11. The Ld. DR, on the other hand, pointed out that both the A.O. and the CIT(A) had referred to various clauses of the lease agreement pointing out therefrom that it was not a simple letting out of building or premises but rather it was in the nature of a contract for operation and maintenance of the CFS facility and, therefore, had been rightly treated as business income of the assessee. The Ld. DR drew our attention to the 6 C.O.57/Chd/2017 A.Y. 2013-14 findings of the A.O. as reproduced at para 4.1 of the CIT(A) as under:
"2.4 I have gone through the submissions of the assessee but the claim of the assessee is not acceptable. On perusal of the agreement, it is noticed that it is an agreement for sub-contracting the operation and maintenance of CFS facility i.e. for the business of the assessee and not for letting out of house property to earn income under the head house property as the owner.
2.5 In this regard, the following observations are made:-
1. The Customs Authorities had appointed the assessee as the custodian in respect of the CFS facility.
2. The assessee was interested in entering into a strategic alliance with qualified and experienced entities or consortium for management and operation of its CFS.
3. The assessee issued a Request for Proposal and on evaluation of the bids selected M/s Gateway Distriparks Limited as the operator giving it the right to operate and maintain the CFS subject to certain terms and conditions.
4. Under the Agreement, the assessee has to hand over the CFS facility and assets to the operator who will be responsible for maintaining them and has to return them at the end of the Agreement period.
5. As per the Agreement, the assessee has to appoint an Independent Consultant out of a list of 5 consultants provided by the operator. This Independent Consultant has to review and report on the maintenance of the CFS facility and any deficiency indentified by the Independent Consultant has to be rectified by the operator within 3 months or any further time allowed by the assessee. [para 6 of the Agreement]
6. The operator has to provide Performance Bank Guarantee to the assessee in addition to the upfront fee and Annual fee. In case of failure to rectify the deficiency as pointed out by the Independent Consultant, the assessee has the right to encash the Performance Bank Guarantee. [Paras 5 and 6 Agreement]
7. Under the Agreement, the assessee will permit and authorize the operator to enter into appropriate contracts for carrying on permitted activities and receive payment in its own name or on behalf of
7 C.O.57/Chd/2017 A.Y. 2013-14 the assessee [para 7.2 of the Agreement] The operator will be responsible for performance of all obligations of the assessee under the subsisting contracts w.r.t. operation and maintenance of CFS. [para 7.3 of the Agreement] The operator has to submit a copy of its unaudited accounts to the assesses within 90 days of the close of each accounting quarter and the duly auditedaccounts at the close of each financial year. Further, any material change subsequent to the date of such accounts shall be notified to the assesses by the operator within 30 days of the occurrence, [para 9.1 of the Agreement] 2.7 From the above observations, it is amply clear that the income received is not for the building and land appurtenant thereto only but is for a complex commercial activity wherein M/s Gateway Distriparks Limited has been handed over the CFS facility along with the assets of the assesses to look after operation and management for a defined period but the assessee is the ultimate custodian of the CFS facility. From the above, it is also seen that even after the operation and management has been handed over to M/s Gateway Distriparks Limited, the assessee retains control in the form of appointment of Independent Consultants, right to receive the accounts of the operator quarterly and annually, etc. The arrangement between the assessee and the operator is not for the mere use of the property but for the use of the property along with other assets with a mandate to operate and maintain the CFS facility of the assessee.
2.8 Moreover, form 3CD furnished by the assessee clearly states its nature of business or profession as "Lease income from Dry Port". Final accounts of the assessee also show that its main income is from lease and the remaining small part of its income is earned from interest on FSs. Therefore, the letting out of CFS facility was for doing business and not for exploitation of the property by the owner.
29. In this regard, reliance is placed on the recent judgment of the Supreme Court in the case of M/s Chennai Properties & Investments Limited vs CIT [TS-238- SC-2015] wherein it was held that if letting out of properties was the business of the taxpayer, then its income would be chargeable to tax under the head profits and gains of business or profession' as opposed to 'income from house property. In arriving at the decision, the Hon'ble Apex Court also placed reliance on its decision in the case of Karanputra Development Co. Limited [1 962] 44 ITR 362 [SC) wherein it had held that the deciding factor was not the ownership of land or leases, but the nature of the activity of the taxpayer and the nature of the operations in relation to 8 C.O.57/Chd/2017 A.Y. 2013-14 the same. The objectives of the company must also be kept in view to interpret the activities of the company. 2.10 In view of the above, income from lease of CFS facility at Navi Mumbai is treated as business income as was shown by the assessee and accepted, by the department in the earlier years (instead of Income from house property)."
and further to the findings of the Ld.CIT(A) at paras 4.4 to 4.4..2 as under:
"4.4 On plain reading of the lease deed it becomes very clear that agreement between the appellant and the lessee is not a mere agreement to lease out a building or a premises. It is rather a contract for operation and maintenance of the CFS facility as has been rightly observed by the Assessing Officer. The agreement dated 12.01.2007 is between the appellant and GDL, and the title of the agreement is 'Operations and Management Agreement'. The second party to the agreement i.e. GDL, has been referred to as 'the operator'. The appellant is in possession of land of 27 acres in Navi Mumbai, which it has received from the lease from C-IDCO for 60 years. The appellant has developed this land for the purpose of operating freight container station with a built up covered capacity of 52,500 sq.mtrs. The CRS is a strategically located and provides container warehousing back facility to Jawaharlal Nehru Port. The appellant has been appointed as the custodian of the CFS facility by the Custom Authority for operating and maintaining the CFS facility. The appellant has entered into a strategic alliance with the operator for 15 years wherein the land and the building has been given to the operator for the operation of the facility. In clause 3.1 of the agreement the activities which operator has to carry out have been defined from sl.nos. (i) to (x), which include as under:-
1. Handling the import and export of cargo including delivery of containers.
2. Operation and maintenance of a buffer yard.
3. Operate and maintain a container yard for handling of empty containers and carrying out repair facilities including refurbishing containers.
4. Carry out pre-trip constructions of reefer containers and storage of reefer containers.
5. Provide warehousing facilities.
6. Provide third party logistics.
7. Provide-bonded-warehouse facilities.
9 C.O.57/Chd/2017 A.Y. 2013-14
8. Survey and inspection of containers.
9. Repair yard for equipments and other related equipment.
10. Any other container handling and transportations service.
4.4.1 Further in para 6.1 of the agreement the operator is also required to keep an asset register regarding all the assets handed over to the operator and maintain these assets. The operator would also require to engage services of staff on annual contracts and paying salary to such staff for duration of such engagement.
4.4.2 It has further been noticed that the lessee namely GDL is a professional company in the business of operating container freight station in major Indian ports and the services it provide includes providing container yards warehousing, handling and tracking containers. It has been dedicated fleet of trailers etc."
12. The Ld. DR also drew our attention to various decisions relied upon by the Ld.CIT(A) for holding that in order to determine the nature of income whether from house property or from business, the facts of each case have to be seen and where subject of letting out is an apartment only predominantly with the rooms for rent, the income would be in the nature of income from house property. But if the subject matter of hiring was a complex one the income would be treated as derived from the business. Our attention was drawn to the decision referred to by the CIT(A) in the case of National Storage Pvt. Ltd., 66 ITR 596, Associated Building Company Ltd., 137 ITR 339, Mukherji Estate Pvt. Ltd., 244 ITR 1 and Russel Properties Pvt. Ltd., 137 ITR 473. The Ld. DR, therefore, stated that the Ld.CIT(A) had rightly upheld the income from business and profession.
10 C.O.57/Chd/2017 A.Y. 2013-14
13. We have heard the rival contentions and have gone through the order of the Ld.CIT(A). We do not find any infirmity in the order of the Ld.CIT(A). The issue before us, relating to characterization of rental income received, whether in the nature of income from house property or income from business and profession, the proposition of law in this regard distinguishing the same is clear that where the income is received from bare letting out of tenement it would be in the nature of income from house property but where the subject hired out is a complex one and the income obtained is not so much because of the bare letting of the tenement but because of the facilities and service rendered, the operations involved in such letting may be in the nature of business or trading operations and income derived is not from exercise of property rights but income from operations, to be treated as business income of the assessee. If the main intention for exploiting the property is mere letting out the property then it is in the nature of income from house property but if the main intention is to exploit the immovable property by way of complex commercial activities then it is to be treated as business income.
14. In the present case, the factual findings of the Revenue authorities from the lease agreement that the CFS facility was leased out to M/s Gateway 11 C.O.57/Chd/2017 A.Y. 2013-14 Distriparks Ltd., the lessee, alongwith the assets, to look after the operation and management of the CFS facility is not disputed. Therefore, clearly, it was not a mere letting out of property but a contract for running and operating CFS facility on behalf of the assessee. The Ld.CIT(A) has pointed out the facts of the case that the assessee, was in possession of 27 acres of land which it had received from SIDCO on lease for 60 years and which it had developed for the purpose of operating Freight Container Station with a built up covered capacity of 52,500 sq.mtrs. That the assessee was providing container warehousing facility to Jawaharlal Nehru Port and had been appointed as the custodian of CFS facility by the Customs Authority for operating and maintaining the facility. That the assessee had in turn entered into a strategic alliance with the lessee operator for 15 years, titling the agreement as "Operation and Management Agreement", giving the land and building to the operator for carrying out the operation of the facility. The Ld.CIT(A) has listed from clause 3.1 of the agreement the various activities to be carried out by the lessee operator which included handling import and export of cargo, operating and maintaining buffer yard, operating and maintaining the container yard, providing warehousing facility, bonded warehousing facility, providing third party logistic and such other activities. As per the agreement,(para 6) the assessee 12 C.O.57/Chd/2017 A.Y. 2013-14 had to appoint an independent consultant, out of the list provided by the lessee, who had to review and report on the maintenance of the facility. The lessee, as per the agreement(para 5&6) had to provide for a performance bank guarantee which the assessee has a right to revoke in case of failure of the lessee to rectify deficiency pointed out by the consultant.As per the agreement,(para 7.3)the lessee operator would be responsible for all obligations of the assessee under the subsisting contract with respect to operation and maintenance of CFS. The Ld.CIT(A) has further noted that the lessee, i.e. GDL, was a professional company in the business of operating container freight station in major ports. All the above facts have remained uncontroverted before us.
15. In view of the above, we have no hesitation in holding that the Ld.CIT(A) has rightly concluded that it was not a mere letting out of a building but the main purport of the agreement was to subcontract the operations of the CFS facility to the lessee and for the said purpose the CFS facility had been let out to the lessee. Therefore, in view of the undisputed facts as stated above, we hold that the Ld.CIT(A) had rightly held the income earned to be in the nature of income from business and profession. Reliance placed by the Ld. counsel for assessee on the decision of the Hon'ble Apex Court in the case of Raj Dadarkar & Associates 13 C.O.57/Chd/2017 A.Y. 2013-14 (supra) is misplaced since the same is distinguishable. The issue before the Hon'ble Apex Court in that case was not whether the land and building let out was a simple letting out or letting out of a complex structure. On the contrary, in the facts of the said case, the letting out was of flats/building simplicter and the issue to be decided was whether the same could still be held to be in the nature of business income to which the Hon'ble Apex Court had held that it could be so held only if the letting out of property was the object for which the assessee company was set up/found. Therefore, the decision in the case of Raj Dadarkar & Associates (supra), addresses a totally different question and thus cannot be applied to the facts of the present case. In view of the above, ground No.2 raised by the assessee is dismissed.
16. Ground No.3 relating to the claim of deduction u/s 24(a) of the Act on assessing the rental income as income from house property, the same is also dismissed since we have held the income assessable as income from business and profession in ground no.2 above.
17. Ground No.4 relates of disallowance of fine/penalty amounting to Rs.1,67,620/-.
18. The assessee had not claimed this expenditure since he had treated the rental income earned as income from house property. However, the A.O. treated 14 C.O.57/Chd/2017 A.Y. 2013-14 the rental income as income from business and profession and disallowed the amount paid on account of fine and penalty.
19. Before the Ld.CIT(A) no submissions on this account were made by the assessee and the disallowance, therefore, was upheld. Even before us no submissions have been made vis-à-vis this issue.The disallowance, of fine/penalty expenses amounting to Rs.1,67,620/- is, therefore, upheld. This ground of appeal no.4 raised by the assessee is dismissed.
20. I n the resul t, the cross objecti on of the asses see i s di smi ssed.
O r d e r p r on o u n c ed i n t h e O p e n Cou r t .
Sd/- Sd/-
संजय गग अ नपण
ू ा ग(ु ता
(SANJAY GARG) (ANNAPURNA GUPTA)
याय क सद य/Judicial Member लेखा सद य/Accountant Member
,दनांक /Dated: 28th Febraury, 2019
*रती*
आदे श क % त&ल'प अ*े'षत/ Copy of the order forwarded to :
1. अपीलाथ+/ The Appellant
2. %,यथ+/ The Respondent
3. आयकर आयु-त/ CIT
4. आयकर आयु-त (अपील)/ The CIT(A)
5. 'वभागीय % त न0ध, आयकर अपील य आ0धकरण, च2डीगढ़/ DR, ITAT, CHANDIGARH
6. गाड फाईल/ Guard File आदे शानस ु ार/ By order, सहायक पंजीकार/ Assistant Registrar