Income Tax Appellate Tribunal - Chennai
Maharaja Seafoods India P Ltd., Chennai vs Department Of Income Tax on 27 February, 2013
IN THE INCOME TAX APPELLATE TRIBUNAL
'C' BENCH, CHENNAI
BEFORE SHRI ABRAHAM P.GEORGE , ACCOUNTANT MEMBER
AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER
ITA No.1017 & 1018/Mds/2011
(Assessment Year :2004-05 & 2005-06)
Assistant Commissioner of Vs. M/s. Maharaja Seafoods India P. Ltd.
Income Tax, Company Circle-VI(1), 1, 5th Street,
Aayakar Bhavan IV floor, Dr.Radhakrishna Salai,
121, M.G.Road, Chennai-600 004.
Chennai-600 034. PAN: AABCM4787G
(Appellant) (Respondent)
Appellant by : Mr. T.N.Betgiri, JCIT
Respondent by : Mr. S.Sridhar, Advocate
Date of Hearing : 27th February, 2013
Date of Pronouncement : 20th March, 2013
ORDER
Per Vikas Awasthy, JM:
The present set of appeals have been filed by the Revenue impugning the orders of the CIT(A)-V, Chennai dated 10.03.2011 for the assessment year 2004-05 and 2005-
06. Since the issues involves in both the appeals are identical, they are taken up together for adjudication.
2. The brief facts of the case are that the assessee is a company registered under the Companies Act, 1956 and is engaged in the business of export of seafood products after 2 ITA No.1017 & 1018/Mds/2011 processing. For the assessment year 2004-05, the assessee filed its return of income on 12.10.2004 returning loss of `66,42,819/-. For the assessment year 2005-06 the assessee filed its return of income on 31.10.2005 returning loss of `26,43,751/-. The case of the assessee was selected for scrutiny and notice under section 143(2) dated 12.01.2005 for the assessment year 2004-05 was served on the assessee.
The assessee had rented out its land and buildings with electrical installations to M/s. Farm Suzanne Pvt. Ltd. In lieu thereof, the assessee received a sum of ` 12,00,000/- as storage charges. The assessee treated the said income as 'business income'. The assessee claimed several expenses viz. repairs and maintenance, miscellaneous expenses, rent, rates & taxes, interest , bank charges, audit fees, depreciation etc. from the business income. The Assessing Officer held that the income from letting out of building amounts to income from 'house property' and only deduction allowable is as per section 24 of the Act. Since the income from letting of land and buildings is not a business income, 3 ITA No.1017 & 1018/Mds/2011 the expenses claimed by the assessee are not allowable expenses.
3. The second issue during the assessment proceedings which cropped up relates to capital gains. The assessee had sold land measuring 26,087sq.ft of land at Marakayar Nagar, Neelankarai Village. The assessee adopted the guideline value of ` 521/- per sq.ft for the purpose of determining sale consideration for capital gain. For determining the cost of acquisition, the assessee adopted market value of ` 120/- per sq.ft as on 1.4.1981. The Assessing Officer ascertained the market value from the office of Sub-Registrar, Adyar, Chennai to determine the cost of acquisition as on 1.4.1981. The Sub- Registrar certified that as on 1.4.1981 the value of survey no.92/2/A i.e. property in question was ` 3500/- per ground or ` 1.46 per sq.ft. The Assessing Officer rejected the acquisition value relied on by the assessee and proceeded on to determining long term capital gains on the basis of the certificate issued by the Sub-Registrar.
4. Aggrieved against the assessment order dated 29.12.2006 the assessee preferred an appeal before the 4 ITA No.1017 & 1018/Mds/2011 CIT(A). The CIT(A) vide his order dated 10.03.2011 held that the income earned by the assessee by letting out of building is to be assessed under the head "income from business" . As regards the issue of value of property as on 1.4.1981, the CIT(A) neither accepted the version of the assessee nor the guideline value adopted by the Assessing Officer but made his own estimation adopting mean value @ ` 60/- per sq.ft.
Aggrieved against the order of the CIT(A), the Revenue has come in second appeal before the Tribunal.
5. Similarly, for the assessment year 2005-06, the issue before the CIT(A) was with regard to assessment of income received by the assessee from the renting out of the building and determination of long term capital gains by sale of the property aforementioned. The CIT(A) for assessment year 2005-06 followed his order passed in the assessment year 2004-05.
6. The DR appearing on behalf of the Revenue with respect to issue no.1 submitted that the assessee had no intention to continue in his business. The assessee had already sold immovable assets of the company. The DR 5 ITA No.1017 & 1018/Mds/2011 referred to page 3 of the paper book, wherein in Annexure to the Auditor's Report for the period ended on 31.3.2005, the auditors have pointed out that the company has already disposed of all the plant and machinery, furniture, vehicles and miscellaneous assets in the previous financial year. The DR submitted that the stand taken by the assessee before the CIT(A) that the assessee had rented out the building on account of lull in the business is not tenable in view of the remarks made in the Auditors' Report. The DR contended that in the present case storage charges received by the assessee are liable to be assessed under the head 'income from house property' and as such the assessee is not entitled for claiming any business expenses. The only benefit which the assessee can claim is, as admissible under section 24 of the Act. In order to support his submissions, the DR relied on the judgement of the Hon'ble Supreme Court of India in the case of Universal Plast Ltd. Vs. CIT reported as 237 ITR 454(SC) to say, lease after the assessee has stopped his business with no intention of reviving it, the income from lease 6 ITA No.1017 & 1018/Mds/2011 is not assessable as 'business income' but it should be treated as 'income from house property'.
7. As regards ground no.2 relating to determination of capital gains, the DR submitted that the land in question is situated in Neelangarai Village whereas the value taken by the CIT(A) relates to Thiruvanmiyur which is part of Chennai. Therefore, the value adopted by the CIT(A) is not applicable in the present case. The land was purchased by the assessee way back in the year 1973. The Assessing Officer had ascertained the value from the office of the Sub-Registrar, Adyar, Chennai. According to which the guideline value is `3500 /- per ground or ` 1.46 per sq.ft. Since the guideline value as per Sub-Registrar's office is far less than the one claimed by the assessee, the cost of acquisition has to be determined as per guideline value. The DR submitted that neither before the Assessing Officer nor before the CIT(A), the assessee has been able to demonstrate as to how the value of ` 120/- per sq.ft. has been adopted by the assessee. The DR in support of his contentions, relied on the judgement 7 ITA No.1017 & 1018/Mds/2011 of the Hon'ble Madras High Court in the case of CIT Vs. J.V.K. Rao, reported as 258 ITR 90(Mad).
8. On the other hand, Shri S.Sridhar appearing on behalf of the assessee submitted that only a part of plant and machinery has been sold by the assessee. The remaining part of land and machinery, wherein processing unit has been set up has been leased out. The assessee was forced to shut down its business on account of lull in the business. It was a temporary phase when the assessee decided to lease out its land and building along with electrical installments to earn income out of the commercial assets. The counsel submitted that in view of the fact that the assessee had closed down its business temporarily the income received as storage charges is liable to be assessed under the head 'income from business' and not under the head 'income from house property'. Since the income is liable to be assessed as 'income from business', the expenses claimed by the assessee are allowable as business expenses. The sale of certain assets by no stretch of imagination can lead to the conclusion that the assessee has closed down its business. 8 ITA No.1017 & 1018/Mds/2011
9. With regard to second ground of appeal, the counsel for the assessee submitted that the land in question is situated on East Coast Road and is at a prime location. Proximity of Mahabalipuram, an international tourist place has escalated the value of land manifold, therefore, fair market value has to be taken into consideration and not the guideline value. The counsel contended that the ratio laid down by the Hon'ble Madras High Court in the case of CIT Vs. JVK Rao (supra) is not applicable in the facts and circumstances of the present case. Supporting the order of the CIT(A), the counsel for the assessee contended that the CIT(A) has fairly estimated the value by adopting mean value. In order to support his contentions, the counsel relied on the judgement of the Hon'ble Madras High Court in the case of CIT Vs. J.Chelladurai reported as 204 Taxman 258(Mad), wherein the Hon'ble High Court accepted average value of the land as adopted by the assessee and as determined by the Assessing Officer.
10. We have heard the submissions made by both the parties and have perused the orders of the authorities below. 9 ITA No.1017 & 1018/Mds/2011 We have also perused the judgements/orders referred to by both the parties.
11. The issue no.1 in the appeal of the Revenue relates to the head under which the income received by the assessee as " storage charges" is to be determined. The assessee is claiming the income to be assessed under the head "business income" whereas the Revenue intends to assess the income under the head "income from house property". It is an admitted fact that the assessee has rented out its land and building to earn income from the assets of the company. The stand of the assessee is that due to lull in the business of seafood exports, the assessee had extended the facility of storage to other exporters to store their products resulting in earning the income under consideration. Therefore, leasing out of the storage facility has to be assessed as 'business income' and all the expenses relating thereto are to be allowed. We find that the assessee may have stopped its business activities of exporting sea foods on account of lull in the business, but its act and conduct clearly shows that it had no intention to revive its business as it had already disposed 10 ITA No.1017 & 1018/Mds/2011 of its plant and machinery, furniture, vehicles, miscellaneous assets etc. This fact is evident from the Annexure to the Auditors' Report for the period ended on 31.3.2005. In such like circumstances, where the assessee has no intention to revive its business and has leased out its commercial assets viz. land and building for earning income, the income has to be assessed under the head 'income from house property'. Our view is further fortified by the decision of the Hon'ble Supreme Court of India in the case of Universal Plast Ltd. Vs. CIT (supra). The Hon'ble Supreme Court of India after examining various judgements on the issue concluded as under:-
"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 11 ITA No.1017 & 1018/Mds/2011 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 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."
If the aforesaid principles relating to income from leasing out the assets of the business are applied in the instant case, we can conclude that the income earned by the assessee from letting of buildings and land is not business income and hence the business expenditures claimed by the assessee are not allowable. Accordingly, this ground of appeal of the Revenue is allowed.
12. The second ground of appeal of the Revenue relates to determination of the cost of acquisition of the asset. The assessee has adopted the value as per the value determined by the Registered Valuer. The guideline value adopted by the Assessing Officer is at Rs.1.46 per sq.ft is based on the certificate issued by Sub-Registrar, Adyar, Chennai. There is 12 ITA No.1017 & 1018/Mds/2011 a wide variation in the value adopted by the assessee i.e. Rs.120 per sq.ft. and the guideline value adopted by the Assessing Officer i.e. Rs.1.46 per sq.ft. It is not in dispute that the land in question is situated at a prime location on East Coast Road. The CIT(A) has determined the value of the land @ Rs.60/- per sq.ft. by adopting mean value.
13. In our considered opinion, where there is a wide variation in the fair market value and the guideline value, it would be appropriate if an average value is adopted. This method of valuation has been approved by the Hon'ble jurisdictional High Court in the case of CIT Vs. J.Chelladurai (supra). In the said case, the assessee had relied on the certificate issued by Sub-Registrar where the value was determined at Rs.500/- per cent. The said certificate was later on found to be forged. The Assessing Officer determined the value at Rs.100 per cent . In such like circumstances, the Hon'ble High Court for computing capital gains adopted average of the value as adopted by the assessee and as determined by the Assessing Officer. In the present case also the CIT(A) has adopted mean value @ Rs.60/- per sq.ft. In 13 ITA No.1017 & 1018/Mds/2011 view of the above facts and circumstances of the case, it would be appropriate that mean value adopted by the CIT(A) to determine the value of capital assets be approved.
14. In view of our above findings, the order of the CIT(A) on this issue is upheld and this ground of appeal of the Revenue is dismissed.
15. In the result, both the appeals of the Revenue are partly allowed.
Order pronounced in the open court on Wednesday , the 20th day of March, 2013 at Chennai.
Sd/- Sd/-
(Abraham P.George ) (Vikas Awasthy)
Accountant Member Judicial Member
Chennai,
Dated the 20th March, 2013.
somu
Copy to: (1) Appellant (4) CIT(A)
(2) Respondent (5) D.R.
(3) CIT (6) G.F.