Income Tax Appellate Tribunal - Chennai
Dcit, Chennai vs Suryavardhan Estates Pvt. Ltd., ... on 17 October, 2017
आयकर अपील य अ
धकरण, 'सी' यायपीठ, चे नई
IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH 'C', CHENNAI
ी संजय अरोड़ा, लेखा सद य एवं
ी धु व!
ु आर.एल रे "डी, या$यक सद य के सम& ।
BEFORE SHRI SANJAY ARORA, ACCOUNTANT MEMBER
AND SHRI DUVVURU RL REDDY, JUDICIAL MEMBER
आयकर अपील सं./ITA No.462/Mds/2017 &
C.O No.36/Mds/2017
$नधा(रण वष( / Assessment Year : 2012-13
Dy. Commissioner of Income Tax, Suryavardhan Estates Pvt. Ltd.,
Corporate Circle-6(2), Vs. 6th Floor, Dhun Building,
Aayakar Bhavan, New Block, No.827, Annasalai,
7th Floor, 121, M.G.Road, Chennai - 600 002.
Chennai - 600 034. [PAN: AAJCS 5120M]
(अपीलाथ /Appellant) ( यथ /Respondent)
आयकर अपील सं./ITA No.697/Mds/2017
$नधा(रण वष( / Assessment Year : 2012-13
Asst. Commissioner of Income Tax, Suryavardhan Estates Pvt. Ltd.,
Corporate Circle-6, Vs. 6th Floor, Dhun Building,
Chennai. No.827, Annasalai,
Chennai - 600 002.
[PAN: AAJCS 5120M]
(अपीलाथ /Appellant) ( यथ /Respondent)
अपीलाथ+ क- ओर से / Appellant by : Shri Asish Tripathi, Jt. CIT
/0यथ+ क- ओर से/Respondent by Shri V.S.Jayakumar, Advocate
:
Shri M.Chidambaram, FCA
सन
ु वाई क- तार ख/ Date of hearing : 25.07.2017
घोषणा क- तार ख /Date of Pronouncement : 17.10.2017
आदे श /ORDER
Per Sanjay Arora, AM:
2
ITA No.462 & 697/Mds/2017 & C.O No.36/Mds/2017 Suryavardhan Estates Pvt. Ltd. (AY 2012-13) These are cross appeals by the Assessee and the Revenue directed against the Order by the Commissioner of Income Tax (Appeals)-15, Chennai ('CIT(A)' for short) dated 07/11/2016, allowing the assessee's appeal contesting its assessment u/s. 143(3) of the Income Tax Act, 1961 ('the Act' hereinafter) for assessment year (AY) 2012-13 vide the order dated 27.03.2015. The assessee has in addition also preferred a Cross Objection.
2. The background facts of the case in brief are that the assessee is a company in the business of civil contractors and flat promoters, following mercantile system of accounting. During the course of assessment proceedings, the Assessing Officer (AO), on a perusal of the notes forming part of the financial statements for the year ending 31.03.2012, observed the assessee to have unsold finished stock of 75,060 square feet in respect of a residential building by the name 'Victoria Towers' at Siruseri, OMR, Chennai. Similarly, it held unsold area to the extent of 40,477 sq. ft. in a shopping complex by the name 'Corromandel Plaza', at Navalur, OMR, Chennai. The annual value (AV) thereof in terms of s. 23 was, is in his view, liable to be assessed as income from house property u/s. 22 of the Act. Accordingly, the average rental value realized by the assessee during the year was applied by him to the unsold area as at the year-end, and brought to tax as income from house property at . 4,04,37,950/-, i.e., after allowing standard deduction @ 30% of the annual value u/s. 24(a). In appeal, the ld. CIT(A) was of the view that in-as-much as the residential apartments in Victoria Towers represent the assessee's trading stock, i.e., business assets, there was no question of their rental value being assessed as income from house property, i.e., where the main object of the appellant company is, as stated, to acquire and hold properties. Subject to the direction to the AO to verify the main objects as being in consonance with its activities, he allowed the assessee's claim. The issue of assessment of the annual letting value 3 ITA No.462 & 697/Mds/2017 & C.O No.36/Mds/2017 Suryavardhan Estates Pvt. Ltd. (AY 2012-13) (ALV) of the unsold flats was disposed by him accordingly. As regards the AV of the unsold shops at the shopping mall, it was found by him that the assessee was providing various common facilities and services, viz. cleaning & maintenance, escalators, centralized air conditioning, rest rooms, security, fire fighting, water purification, sewer treatment and net connectivity. In fact, the assessee also maintained maintenance staff, viz. watch & ward, plumbers, electricians, supervisors, lift operators, managers, etc. These services and facilities, which were provided to the tenants either free or at a charge, were inseparable to the letting of the floor space (shops), given on leave and license basis to the customers. The assessee company was only exploiting its immovable property by way of complex commercial activities. The rental income there-from was accordingly assessable as business income, relying on the decision in the case of CIT v. Prakash Agnihotri [2014] 46 taxmann.com 145 (All) and PFH Mall and Retail Management Ltd. [2008] 110 ITD 337 (Kol) (SB). The question of computing the annual value, i.e., the notional rent, of the area not let does not thus arise.
The second issue arising in the instant appeals is the assessee's claim for additional depreciation (@ 10 per cent) on car parking facility (at . 1,24,81,645/-) and on plant and machinery (at . 9,06,357/-) installed, at the shopping complex, disallowed by the AO on the ground that it was in the business of construction, which is not included in the definition of manufacturing u/s. 2(29BA) of the Act (refer para 4.2 of the assessment order). This aspect, however, remained to be adjudicated by the ld. CIT(A), which is thus the subject matter of the assessee's appeal, who has also preferred a cross objection, raising identical grounds. We may though mention that the assessee's appeal is delayed by a period of 72 days, which is not explained, with the appeal even not accompanied by any condonation petition. The same is therefore not maintainable.
4ITA No.462 & 697/Mds/2017 & C.O No.36/Mds/2017 Suryavardhan Estates Pvt. Ltd. (AY 2012-13) The subject matter of the Revenue's challenge, on the other hand, per its Gds. 2.1 to 2.6, is the adjudication by the ld. CIT(A) qua the first issue. The Revenue's stand is two fold, i.e., on procedure as well as on merits. Qua procedure, it is claimed that the ld. CIT(A) ought not to have directed the AO to verify the Memorandum of Association (MoA), i.e., qua the Victoria Tower construction. He should have, instead, admitting additional evidence in the form of MoA u/r. 46A, sought the AO's consideration in the matter and decided accordingly. On merits, the Revenue's grievance (per Gd.2.1 (part) & 2.6) is that the rental income of house property, even if a commercial complex, was assessable as income from house property u/s. 22, relying on the decision in the case of Keyaram Hotels P. Ltd. v. Dy. CIT [2015] 373 ITR 494 (Mad), SLP against which stands dismissed vide [2015] 325 taxmann 512 (SC). Gd. 2.5, we may clarify, speaks of investment of net consideration within the stipulated period as a basis of the extension of benefit u/s. 54/54F. We find no relevance of the same in the present case nor any argument in respect of this ground was advanced during hearing, so that the same is dismissed as without merit.
3. We have heard the parties, and perused the material on record.
The issue, on merits, which is qua both the properties, is clearly as to whether a house property owned by the assessee, held for being either sold, as in the case of residential flats at Victoria Towers, or for being let, as in the case of the shopping complex, is liable to be assessed as income from house property u/s. 22. The Revenue's objection on the procedure followed by the ld. CIT(A) is of little moment in-as-much as it is clear that in his view if the assessee's activity of construction and sale of residential flats falls within the main objects of the company, the rental value of the unsold flats as at the year-end could not be considered for being subject to tax on their annual value. It is clear that the ld. CIT(A) regards the assessee's main object/s as relevant in deciding the issue.
5ITA No.462 & 697/Mds/2017 & C.O No.36/Mds/2017 Suryavardhan Estates Pvt. Ltd. (AY 2012-13) He is well his powers, which are coterminus with that of the AO, to have called for and examined the assessee's MoA, and decide accordingly. That he has not is apparent from the absence of any certificate to that effect below the index of papers furnished before us by way of paper-book, as well as the assessee's application u/r. 10 of the ITAT Rules, 1963, stating that in-as-much as the documents listed at the specified serial numbers of the index, which includes the MoA, the same may be taken on record. In fact, he ought to have, in the interest of justice and fairness of procedure, required its examination by the AO, obtaining his comments thereon, and meeting the same. However, as apparent, the basis of his decision is the relevance of the assessee's object charter, and for which he relies on the decision in Chennai Properties & Investments Ltd. v. CIT [2015] 373 ITR 673 (SC). The ld. CIT(A) relying on the decision by the Apex Court for regarding the main objects as relevant, the Revenue's objection qua the procedural aspect would not be of much consequence even as, without doubt, on merits, it could question the same, which it does. The Revenue objection qua procedure fails.
Coming to Gds. 2.1 (part) and 2.6; Gd. 2.5 having been already dismissed, we may visit the law as explained by the higher courts of law. Any income arising or accruing or received by the assessee during the relevant previous year, or deemed to be so under the Act, i.e., from any source, is to be classified under any of the six (now, five) specified heads of income on the basis of its source. The said heads, as explained per it's constitutional bench decision by the Apex Court in Sultan Brothers (P.) Ltd. v. CIT [1964] 51 ITR 353 (SC), are mutually exclusive, so that it cannot be said that one is more specific than the other, and once an income is assignable to one, it cannot be taxed under another; the relevant part of the judgment reading as under:
'The several heads of income mentioned in section 6 of the Income Tax Act, 1922, and dealt with separately in sections 7 to 12 are mutually exclusive, each head being specific to cover the income arising from a particular 6 ITA No.462 & 697/Mds/2017 & C.O No.36/Mds/2017 Suryavardhan Estates Pvt. Ltd. (AY 2012-13) source, and it cannot be said that any one of these sections is more specific than another. Therefore, a particular variety of income must be assignable to one or the other of these sections. If the income under consideration is taxable under section 9 or section 10, then it cannot be taxed under section
12.' [emphasis, ours] Incomes not falling under any of the specified sources would fall under the residuary head, i.e., 'Income from other sources' (Chapter IV-F), which specifies certain categories of incomes as well, viz., dividend income; income from letting of house property by a person who is not the owner thereof; where the same is let (by the owner) along with other assets, i.e., furniture, plant or machinery, under the condition of the two lettings being inseperable, etc. In this context, it may be clarified that, for the purpose of s. 22, the owner is the person who can exercise the rights of the owner, i.e., not on behalf of another, but in his own right. In other words, is a person who is entitled to receive income from house property in his own right (R.B. Jodhamal Kuthiala v. CIT [1971] 82 ITR 570, 575, 578-9 (SC); CIT v. Podar Cement Pvt. Ltd. [1997] 226 ITR 625, 647, 653 (SC)). Ownership of house property, howsoever profitable, it was clarified in CIT vs. National Storage Pvt. Ltd. [1963] 48 ITR 577 (594) (Bom), cannot be a business or trade under the Act. Further, where income falls under any of the specific heads, it has got to be computed under that head only and in the manner specified under the Act. Section 22 is the charging section in respect of income from house property (Chapter-IV-C of the Act) and reads as under:
CHAPTER-IV Computation of total income from house property 'Income from house property.
22. The annual value of property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner, other than such portions of such property as he may occupy for the purposes of any business or profession carried on by him the profits of which are chargeable to incometax, shall be chargeable to income-tax under the head "Income from house property".' 7 ITA No.462 & 697/Mds/2017 & C.O No.36/Mds/2017 Suryavardhan Estates Pvt. Ltd. (AY 2012-13) Section 23 defines the annual value of the property, which is the subject matter of charge u/s. 22, as well as provides the manner of its determination, and reads as under:
Annual value how determined.
23. (1) For the purposes of section 22, the annual value of any property shall be deemed to be--
(a) the sum for which the property might reasonably be expected to let from year to year; or
(b) where the property or any part of the property is let and the actual rent received or receivable by the owner in respect thereof is in excess of the sum referred to in clause (a), the amount so received or receivable; or
(c)......
Provided .......
Annual Value (AV) of a house property u/s. 23(1)(a) is the sum at which the property may reasonably be expected to be let from year to year. This is of course subject to the actual rent, where let, being not in excess, so that the higher sum, where so, shall be adopted as the AV. Once an income is derived from house property, how would, one may ask, it matter whether the letting is undertaken as a business or otherwise. Why, income from house property would stand to be assessed even if the property under reference is not actually let, i.e., on the basis of the reasonable rent that it is expected to fetch on a regular basis. That is, seeks to bring to tax the income potential of a property irrespective of whether it is realized or not. It is for this reason that the Hon'ble Courts have regarded the ownership (of the house property) per se as the basis for the charge of rental income to tax under the Act.
The conclusions drawn in the matter in National Storage Pvt. Ltd. (supra) (affirmed in [1967] 66 ITR 596 (SC), a larger bench decision) after an exhaustive review of the authorities on the subject, are as under:
'1. Income-tax is a single tax levied on the total income classified and chargeable under the various heads and not an aggregate of the distinct taxes levied separately on each head of income.8
ITA No.462 & 697/Mds/2017 & C.O No.36/Mds/2017 Suryavardhan Estates Pvt. Ltd. (AY 2012-13)
2. That the heads of income in section 6 of the Act are specific heads, which are exclusive and exhaustive.
3. The income which falls under any of these specific heads has got to be computed under that head only in the manner specified in the following sections 7 to 12.
4. If the income falls under the head 'income from property' which is chargeable under section 9, it has to be taxed under section 9 only and cannot be taken to sec-
tion 10 on the ground that the business of the assessee was to exploit property and earn income or because the income was obtained by a trading concern in the course of its business.
5. House-owning, however profitable, cannot be a business or trade under the Income-tax Act. Where income is derived from house property by the exercise of property rights properly so called, the income falls under the head 'income from property' chargeable under section 9. It is the nature of the operations and not the capacity of the owner that must determine whether the income is from property or from trade. Where the operations involved in the activity of earning income from house property are not different from those of an ordinary house-owner turning to profitable account the property of which he is the owner, the income derived is income from property chargeable under section 9 irrespective of whether the oper- ations are carried on by a company one of whose objects or even the sole object is to indulge in the activity of earning income from house property. Thus, where house property is given on lease or licence basis for earning income therefrom, the true character of the income derived is income from property falling under section 9. The said character is not changed and the income does not become income from trade or business if the hiring is inclusive of certain additional services such as heating, clean- ing, lighting or sanitation, which are relatively insignificant and only incidental to the use of occupation of the tenements.
6. In cases where the income received is not from the bare letting of the tenement or from the letting accompanied by incidental services or facilities, but 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 services rendered, the operations involved in such letting of the property may be of the nature of business or trading operations and the income derived may be income not from exercise of property rights properly so called so as to fall under section 9 but income from oper- ations of a trading nature falling under section 10 of the Act; and
7. In cases where the letting is only incidental and subservient to the main business of the assessee, the income derived from the letting will not be the income from prop- erty falling under section 9 and the exception to section 9 may also come into oper- ation in such cases.' 'The word "business" is defined in section 2(13) to include "any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture". It, therefore, follows that if the assessee owner is occupying the prop- erty for carrying on any adventure or concern in the nature of trade the profits whereof are chargeable to income-tax, section 22 specifically excludes such property from the scope and operation of sections 22 to 27.' 9 ITA No.462 & 697/Mds/2017 & C.O No.36/Mds/2017 Suryavardhan Estates Pvt. Ltd. (AY 2012-13) The Apex Court had earlier, per its larger bench decision in East India Housing & Land Development Trust Ltd. [1961] 42 ITR 49 (SC), clarified that the character of income is not altered because it was received by a company formed with the object of developing landed properties and setting up of markets. This aspect, i.e., the company being registered with the sole object to acquire land, build houses and let premises to tenants, was again found of no moment, as the income continued to be from property, and the mere fact that the owner is a company would not be relevant (Commercial Properties Ltd., In re, AIR [1928] Cal 456 (also, Indian City Properties Ltd. v. CIT [1965] 55 ITR 262 (Cal)). How does it matter, then, that the letting, where so, forms one of the objects of the assessee-company? We cannot help but refer again to the decision in Sultan Brothers (P.) Ltd. (supra), wherein, among others, the concept of complex letting, i.e., the inseparable letting of a house property belonging to the assessee, along with furniture, plant or machinery, is explained, and in which case the income would be assessable as either income from other sources (u/s. 56(2)(iii)) or as business income u/s. 28. This is as, as explained, this becomes a new source of income. The Apex Court devised tests for determining the inseparability of the two lettings, followed in Shambhu Investments (P.) Ltd. v. CIT [2003] 263 ITR 143(SC). That is, the entire (rent) income would, in case of such inseparability, stand to be assessed under either head, depending on whether it constitutes or forms a part of the assessee's business or not.
We may at this stage clarify that the Act does not draw any distinction between a house property used for residential purposes or not so, as where it is used for commercial purposes. And the rental income from both is assessable as income from house property. Reference here may be made to the constitutional bench decision in Sultan Brothers Pvt. Ltd. (supra) wherein the Apex Court discountenanced the plea with regard to the commercial exploitation of a house 10 ITA No.462 & 697/Mds/2017 & C.O No.36/Mds/2017 Suryavardhan Estates Pvt. Ltd. (AY 2012-13) property by its' owner. A thing is not, it held, by its' nature a commercial asset, and which is only an asset used in a business and nothing else, and that business may be carried on by practically all things, so that nothing turns on the fact that the letting is of a 'commercial asset' or toward commercial exploitation of a house property. To the extent, therefore, the ld. CIT(A) has in the instant case based his decision qua the shopping complex on the commercial exploitation of its property by the assessee, the same is without basis in law.
We shall consider the residential flats at Victoria Towers first. As afore- noted, making reference to Sultan Bros. (P.) Ltd. (supra), which represents trite law, reiterated time and again by the Hon'ble Apex Court, and for which reference may be drawn, for better comprehension, to East India Housing & Land Development Trust Ltd. (supra); its observations, succinctly put, being as under:
'Income-tax is undoubtedly levied on the total taxable income of the taxpayer and the tax levied is a single tax on the aggregate taxable receipts from all the sources; it is not a collection of taxes separately levied on distinct heads of income. But the distinct heads specified in s. 6 indicating the sources are mutually exclusive and income derived from different sources falling under specific heads has to be computed for the purpose of taxation in the manner provided by the appropriate section. If the income from a source falls within a specific head set out in s. 6, the fact that it may indirectly be covered by another head will not make the income taxable under the latter head.' (at pg. 51) [emphasis, ours] To the same effect is its decision in Rajasthan State Warehousing Corporation vs. CIT [2000] 242 ITR 450 (SC). Income, therefore, stands classified under the Act source-wise, i.e., on the basis of its' defining origin and character. It is thus only where the source does not fully capture the intrinsic nature of the receipt that there is scope for income falling under one head of income as liable to be characterized as income covered also by another (head of income) and, which, therefore, could be said to be indirectly covered by the latter head of income, though would not make it assessable under that, latter head. The heads of 11 ITA No.462 & 697/Mds/2017 & C.O No.36/Mds/2017 Suryavardhan Estates Pvt. Ltd. (AY 2012-13) income under reference in the instant case present one such example. This is as section 22 makes no distinction between a property held either as a capital asset or as a trading asset. A house property may, therefore, form part of the stock- in-trade and, yet, where complete, i.e., its annual value is liable to be brought to tax under section 22 r/w s. 23 of the Act. Juxtapose this with the settled position in law that the income assessable under a particular head of income is to be necessarily computed under that head only and in the manner provided under the relevant sections (Sultan Brothers (P.) Ltd. (supra); East India Housing & Land Development Trust Ltd. (supra)), and there can be no manner of any doubt that the assessee's claim is not sustainable in law. As apparent from the clear reading of the relevant provisions, and which again represent trite law, the actual letting of the house property is not a condition for income thereof to be assessable as income from house property u/s. 22. As afore-noted, it is the ownership of the house property per se which is the source of income, and not the fact whether the same is occupied by the assessee only or someone else - at a consideration (viz. a tenant) or otherwise. In that sense, it is the income potential of the house property that is subject to tax. The only exception, covered by the provision itself, is where the property is occupied by the owner for the purpose of his business or profession. Fiscal statutes, it is again trite law, have to be strictly construed. Reference, in this context, may be made, inter alia, to UOI vs. Bombay Elphinstone Spinning & Weaving Co. Ltd. & Ors. 2001(1) SC 536; Orissa State Warehousing Corpn. vs. CIT [1999] 237 ITR 589 (SC); Novapan India Ltd. v. CCE 1994 (73) ELT 769 (SC); IPCA Laboratory Ltd. v. Dy. CIT [2004] 266 ITR 521 (SC)). What all is therefore relevant, and the only caveat, is that the annual value assessed should capture the fair rental value of the property, qua which we observe no dispute in the present case; the AO having adopted the same on the basis of reliable data. We, therefore, find no legal infirmity in the Revenue assessing the fair rental value of the, since 12 ITA No.462 & 697/Mds/2017 & C.O No.36/Mds/2017 Suryavardhan Estates Pvt. Ltd. (AY 2012-13) completed, unsold residential flats at Victoria Towers to tax as income from house property u/s. 22 of the Act. In fact, sec. 23(5) stands inserted by Finance Act, 2017 (w.e.f. 01.04.2018), specifically providing that the annual value of a house property held as stock-in-trade of his business by the assessee shall be taken at nil for a period of one year from the end of the year in which a completion certificate is obtained in its respect. Further endorsing, if it was necessary, that the annual value of a house property held as stock-in-trade is equally assessable u/s. 22, i.e., irrespective of whether the same is actually let or not. The same, it needs to be appreciated, is not in occupation of the owner, much less for the purposes of his business, but represents the inventory of his trade, to be sold or even let. Even as our view is based on and, as such, in conformity with the settled law, as explained by the larger benches of the Hon'ble Apex Court, cited supra, the same, we may add, has found endorsement by the recent decisions by it as well as the Hon'ble jurisdictional High Court, viz. Raj Dararkar v. Asst. CIT (in Civil Appeal Nos. 6455 to 6460 of 2017, dated 9/5/2017) and Keyaram Hotels P. Ltd. (supra) (reference here may also be made to Keyaram Hotels Pvt. Ltd. v. Asst. CIT [2008] 300 ITR 118 (Mad).
Coming to the rental value, based on factual letting or otherwise, of the unsold shops at the shopping complex 'Corromandel Plaza'. The Revenue has already assessed the rental (annual) income of these shops, being regularly let, as a part of the assessee's business income u/s. 28. Where, then, we may ask, is the question of the Revenue, contradicting its' own stand, seeking an assessment of the lettable value or the rent received as income from house property u/s. 22? Where it considers the AO's stand as untenable in law, the only course available to it in law is the revision of his order u/s. 263. The claim for additional depreciation on plant and machinery and car park facility (so that it is not regarded by the assessee as part of the building) has not, as afore-noted, been adjudicated by the ld. CIT(A) per the impugned order, so that the matter shall 13 ITA No.462 & 697/Mds/2017 & C.O No.36/Mds/2017 Suryavardhan Estates Pvt. Ltd. (AY 2012-13) have to necessarily travel to his file for adjudication after hearing the parties, i.e., in accordance with law, per a speaking order.
We decide accordingly.
4. In the result, the Revenue's appeal is partly allowed; the assessee's CO is allowed for statistical purposes, and its appeal is dismissed as not maintainable.
Order pronounced on October 17, 2017 at Chennai.
Sd/- Sd/-
(धु व!
ु आर.एल रे "डी) (संजय अरोड़ा)
(Duvvuru RL Reddy) (Sanjay Arora)
या$यक सद य/Judicial Member लेखा सद य/Accountant Member
नई/Chennai,
3दनांक/Dated, October 17, 2017
EDN
आदे श क- /$त5ल6प अ7े6षत/Copy to:
1. अपीलाथ+/Appellant 2. /0यथ+/Respondent 3. आयकर आय8
ु त (अपील)/CIT(A)
4. आयकर आय8
ु त/CIT 5. 6वभागीय /$त$न
ध/DR 6. गाड( फाईल/GF