Gujarat High Court
Commissioner Of Income Tax Ii vs Tirupati Organisers Pvt on 21 September, 2012
Author: Akil Kureshi
Bench: Akil Kureshi
COMMISSIONER OF INCOME TAX II....Appellant(s)V/STIRUPATI ORGANISERS PVT LTD....Opponent(s) O/TAXAP/266/2013 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 266 of 2013 With TAX APPEAL NO. 267 of 2013 TO TAX APPEAL NO. 268 of 2013 ================================================================ COMMISSIONER OF INCOME TAX II....Appellant(s) Versus TIRUPATI ORGANISERS PVT LTD....Opponent(s) ================================================================ Appearance: Mr SUDHIR M MEHTA, ADVOCATE for the Appellant(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MS JUSTICE SONIA GOKANI 4th April 2013 ORAL ORDER
(PER : HONOURABLE MR.JUSTICE AKIL KURESHI) These Tax Appeals arise out of common background. We may notice facts as arising in Tax Appeal No. 266 of 2013.
Revenue is in appeal against the judgment of the Income Tax Appellate Tribunal, Ahmedabad [ Tribunal for short] dated 21st September 2012, raising following substantial questions for our consideration :-
[A] Whether on the facts and in the circumstances of the case and in law, the Hon ble Tribunal is right in deleting addition of Rs. 1,55,59,877/= made on account of business income treated by the Assessing Officer as income from house property and deleting addition of Rs. 13,46,107/= made on account of sale of canteen coupons ?
[B] Whether on the facts and in the circumstances of the case and in law, the Hon ble Tribunal is justified in ruling that the receipt on account of letting out of furnished premises is business income merely on the ground that the assessee has carried out modification to his premises to suit the requirement of tenant and no other activity has ever been carried out by the assessee ?
{C} Whether on the facts and in the circumstances of the case and in law, the Hon ble Tribunal is right in ruling that receipt on account of letting out of furnished premises is business income while the condition of agreement with the tenant abundantly indicate it to be actually a case of letting out of furnished premises for a fixed period and for defined amount ?
The main issue that the Revenue argued before us was with respect to addition of Rs. 1.55 Crores [rounded off] made by the Assessing Officer as income from house property.
For the Assessment Year 2006-07, the assessee had filed its return of income on 29th December 2006 which was taken in scrutiny. The Assessing Officer framed assessment on 7th October 2008 determining total income at Rs. 1.69 Crores [rounded off] . Out of such amount, a sum of Rs. 1.55 Crores represented what the Assessing Officer treated as the assessee s income from house property. The Assessing Officer found that the assessee company had entered into a joint business agreement [ JBA for short] with three other parties in which the assessee had to provide infrastructure; including electrical installations, lifts, plant and machinery, security systems, canteen, house-keeping, etc. Assessee also had undertaken responsibility for operation and maintenance of such facilities and to provide skilled work force and manufacturing expertise for diamond processing. In turn, the assessee would receive a guaranteed monthly amount of Rs. 6,00,000/= or rupee one per inward carat of diamond. The Assessing Officer was of the opinion that the income generated in the process would be the assessee s income from house property and not business income. He was of the opinion that the assessee company was supplying building and such other infrastructural facilities for which purpose, the assessee would be receiving guaranteed amount in the nature of rent, which would be revised from time to time. The assessee Company was not entitled to any share in the profit nor would bear any loss in the business. On such basis, the Assessing Officer made the addition. Assessee carried the matter in appeal. CIT [A] deleted the addition, making following observations :-
I have considered the submissions as well as judicial pronouncements cited by the Assessing Officer and the appellant. On consideration of facts, I find that following facts have not been considered by the A.O while coming to conclusion that share of JBA received by the appellant was Income from House property and not Income from Business .
[i] The amount received under JBA was towards not only use of infrastructure but also its operation and maintenance and for providing host of utilities and services.
[ii] The appellant was carrying on the activity in an organized manner and on daily basis by employing a team of personnel.
[iii] The appellant was running number of operational departments on daily basis like any business house such as Canteen, support, security, etc. [iv] The appellant made acquisition of 2 companies through Amalgamation and Merger for development of the infrastructure.
[v] It had developed the infrastructure keeping in mind the requirements of Diamond Trading Company [DTC] applicable to its site holders factories as well as all the labour law regulations.
[vi] Instead of having simple manner of deriving income, it entered into JBA to ensure that it can also get the rewards of business done jointly.
[vii] It is also seen that the user had no right of occupancy. They had only limited access to use the space for the purpose of business and that too in respect of certain activities; premises were fully in control of the applicant.
{viii] The appellant had also obtained registration under labour law and other applicable factory laws.
All the above facts support the intention of the appellant of exploiting its infrastructure commercially which distinguishes it from a normal owner of property who had intention to earn rental income by letting it out. I have also gone through the judgments relied upon by the Assessing Officer and the appellant. The crucial test laid down by all the courts is that mere fact that the income is attached to immovable property, cannot be sole criteria for assessment of such income as income from House property. It is necessary to find out as to what is the primary object of the assessee while exploiting the property. It is necessary to find out as to what is the primary object of the assessee while exploiting the property. If it is found that the main intention is for simply letting out property or any portion thereof, the resultant income must be assessed held as income from house property. If, on the other hand, the main intention is found to be the exploitation of immovable property by way of commercial activities then the resultant income must be held as business income.
The Assessing Officer relied upon the case of Shambhu Investment Private Limited [Supra] wherein Hon ble Court after laid down law that what was to be seen was the intention of the assessee. If the intention was to exploit property commercially, the resultant income must be assessed as business income. Thus, even applying ratio of Shambu Investment [Supra] the income of the appellant is to be assessed as Business Income since the intention of the appellant is to exploit property commercially. The facts of the appellant are quite different from that of the case of Shambu Investment and hence the findings to that extent are not applicable to case of appellant. Further, the case of the appellant is also covered by judgment of jurisdictional Hon ble Gujarat High Court given in the case of Saptarashi Services [Supra] wherein the assessee had constructed a business centre and let out its different portions to different parties along with services like lift, receptionist, secretary, data processing, security, etc. The Hon ble Tribunal held that the compensation received by assessee from the occupants was to be taxed as income from business.
In view of the above, I am of the considered opinion that the income of the appellant is to be assessed as Income under the head Business and not income from house property .
The similar addition had been deleted by the CIT [A] for A.Y 2007-08. The learned CIT [A] has followed his predecessor s orders for A.Ys 2005-06 and 2006-07 and allowed the appeal in favour of the assessee.
Revenue thereupon approached the Tribunal. Tribunal dismissed the Revenue s appeal principally relying on its own decision in case of ACIT v. M/s. Vardhman Infrastructure Private Limited.
Learned counsel for the Revenue submitted that the case of M/s. Vardhman Infrastructure Private Limited [Supra] was not carried in appeal in view low tax effect. In the present Tax Appeal, he contended that the Tribunal committed a serious error in confirming the decision of CIT [A]. He relied on the decision of Apex Court in case of Shambhu Investment P. Limited v. Commissioner of Income-Tax, reported in 263 ITR 143.
We, however, find that the CIT [A] as well as the Tribunal have correctly appreciated the facts on record. The assessee did not supply solely the house property with or without furnishings. It supplied various requirements of the joint venture business; such as, infrastructure, machinery, security systems, canteen and house-keeping. The assessee also undertook the responsibility of operation and maintenance of such services and also to provide skilled work force for processing the diamonds. In turn, the agreement assured a minimum return of Rs. 6,00,000/= to the assessee, or return at the rate of rupee one per inward carat; whichever was higher. It, therefore, cannot be stated that the assessee was not in the business through joint venture of processing of the diamonds. Merely because such agreement envisaged assured return to the assessee, in lieu of either profit or loss to be shared from the joint venture, would not take away the fact that the assessee was engaged in the business.
CIT [A] has noted salient features of the agreement in question. For example, he noted that the assessee received amounts under the agreement not only for the use of infrastructure but also for its operation and maintenance and for providing various other services. The assessee was carrying on activities in an organized manner and such purpose on daily basis, was employing a large number of workers. More significantly, the user had no right of occupancy. They had only limited access to the use of space for the purpose of business and that too in respect of certain activities. At all times, the premises remained fully under the control of the assessee.
We notice that under some what similar background, when the Tribunal in case of Saptarishi Services [Supra] had held the income to be his business income and not from the house property, this Court had dismissed the appeal holding that no question of law arises. In such case, the assessee had taken certain piece of land on lease and thereupon put up construction of a commercial building with an idea of having a business center. Different portions of the building were given on rent to third parties and the assessee treated the rent as service charges under the head, income from business and profession . Assessee explained to the Assessing Officer that in addition to providing the premises, the assessee also provided several other facilitates; such as, services of lift, services of receptionists, secretarial services, data processing, conference room, etc. The Assessing Officer did not accept the contention and treated the income, derived from the house property. The Tribunal ultimately held in favour of the assessee and came to conclusion that, , ..the director of M/s. Saptarashi Services (P) Limited are not related to the directors of M/s. Kohinoor Tabacco Products (P) Limited. The electricity charges from October 1, 1989 to March 31, 1990, were paid to M/s. Mohanlal Hargovandas who were one of the members of the service centre and M/s. Saptarshi Services (P) Limited reimbursed them later. The assessee is having EPABX machine which facilitates providing telephone services to the occupants of the service centre. Besides this, the assessee is providing various services to the occupants like services of lift, services of receptionists, secretarial services, data processing, conference room, etc. The object of the said complex is that facilities to be provided with the building. Thus the assessee is providing a working place along with the various facilities.
Against such decision, Revenue s appeal was dismissed by this Court.
The decision of Supreme Court in case of Sambhu Investment (P) Limited [Supra] was rendered in different facts-situation. In such case, the assessee was owner of immovable property. It occupied a portion thereof and let out the rest to be used as table space to occupants, with furniture and fixtures and lights and air-conditioners. For such purpose, tenants paid monthly rental; inclusive of charges. The High Court held that such income should be treated as income from house property . The Apex Court upheld this judgment.
In the present case, the facts are vitally different. The assessee had not rented out property but had allowed its use thereof for the purpose of joint venture business. In addition to the space with proper infrastructural facilitates, it also provides various other facilitates to be used for the purpose of diamond processing.
In the result, Tax Appeals are dismissed.
{AKIL KURESHI, J.} {Ms. SONIA GOKANI, J.} Prakash* Page 10 of 10