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M/s Bombay Sealink Builders (P) Ltd, 121, Maker Chamber, VI, Nariman Point, Mumbai 400 021. Vs. The Income Tax Officer-3(1)(2) Mumbai.
August, 04th 2015
IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH `B' MUMBAI.


            BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND
                 SHRI SANJAY GARG, JUDICIAL MEMBER
                                ITA NO 6550/Mum/2011
                                Assessment year: - 2007-08

      M/s Bombay Sealink Builders                 The Income Tax Officer-3(1)(2)
      (P) Ltd, 121, Maker Chamber,                Mumbai.
      VI,
      Nariman Point,
      Mumbai ­ 400 021.
      PAN/GIR No.     AAACB2701Q

      Appellant                                         Respondent

                  Assessee BY               Shri Vimal Punmiya
                  Revenue By                Shri Pawan Kumar Beerla


             Date of hearing                     21.05.2015
             Date of pronouncement                 .07.2015




                                         ORDER

Per G.S. Pannu, AM

      The captioned appeal by the assessee is directed against the order of the
Commissioner of Income Tax (Appeals) [hereinafter referred to as `the
CIT(A)'] dated 19-05-2011, which in-turn has arisen from an order passed by
the Assessing Officer u/s 143(3) of the Income Tax Act, 1961(hereinafter
referred to as `the Act') dated 30.11.2009 pertaining to assessment year 2007-
08.
                                        2
                                                    ITA NO 6550/Mum/2011
                                                    Assessment year: - 2007-08


      In this appeal, assessee has raised following three main Grounds of
appeal:-


      (1)   "The Ld. CIT(A) erred in confirming the rent received of Rs. 9,00,000/- by
            the assessee Co. as Income from house property as against treated by the
            assessee Co. as Income from Business.
      (2)   The Ld. CIT(A) erred in confirming & treating the F.D.R interest of Rs.
            31,88,524/- as Income from other Sources as against treated by the
            assessee Co. as Income from Business.
      (3)   The Ld. CIT(A) erred in confirming the disallowance of following
            expenses:-
            (1)   Society Charges            Rs. 3,31,534/-
            (2)   Travelling Expenses        Rs. 22,97,469/-
            (3)   Depreciation               Rs. 9,34,861/-
            and thereby alleged that there was no business activity in the aforesaid
            year by the assessee."


2.    The appellant before us is a company incorporated under the provisions
of Companies Act, 1956 and for the assessment year 2007-08, it filed a return
of income declaring `Nil' income. In the ensuing assessment finalized u/s
143(3) of the Act, the total income has been assessed at Rs. 93,76,310/- after
making certain additions/disallowances. The assessee was not satisfied by
partial relief allowed by the CIT(A) and, therefore, the captioned appeal before
the Tribunal on the above stated Grounds of appeal.




                                                                       Page 2 of 9
                                   3
                                               ITA NO 6550/Mum/2011
                                               Assessment year: - 2007-08


3.   The first issue in this appeal relates to the assessment of rental income
of Rs. 9,00,000/- earned by assessee from letting out a residential property
owned by it. In the return of income, assessee treated the rental income as an
income assessable under the head "Profits from Business" whereas the
Assessing Officer held that such rental income was assessable under the head
"Income from House Property". The CIT(A) has also upheld the stand of the
Assessing Officer primarily for the reason that in the past assessment years,
such income has been held to be assessable under the head income from
house property.





4.   Before us, the Ld. Representative for the assessee does not dispute that
the aforesaid aspect of the controversy has been a subject matter of
consideration by the Tribunal in the assessee's own case for the earlier
assessment years of 2002-03 to 2006-07, wherein, the stand of the Assessing
Officer was upheld. The Tribunal vide a combined order for assessment years
1999-2000, 2001-02 2002-03 and 2006-07 in ITA Nos. 794 & 795/M/2008,
7210/M/2007 and 3552/M/2009, dated 29.04.2011, held that the rental
income derived by the assessee from letting-out of a residential flat was an
income assessable under the head income from house property.


5.   So however, the Ld. Representative contended that in view of the
subsequent Judgment of Hon'ble Supreme Court in the case Chennai

Properties & Investments Ltd. Vs. CIT of 56 taxmann.com 456 (SC), the

income from letting-out of the residential flat is liable to be assessed as

                                                                 Page 3 of 9
                                        4
                                                     ITA NO 6550/Mum/2011
                                                     Assessment year: - 2007-08


business income on the ground that the objects of the assessee, inter alia,
include dealing in property by way of managing, leasing etc.


6.    We have considered the aforesaid plea and find that the ratio of the
Judgment of Hon'ble Supreme Court in the case of Chennai Properties &
Investment Ltd. (supra) does not help the appellant. In the case before the
Hon'ble Supreme Court, assessee had rented out certain properties and the
rental income received therefrom was shown as income from business in the
return filed by the assessee. However, the Assessing Officer refused to tax the
same as `business income' as according to him, income was received from
letting-out of the property and thus was in the nature of rental income
assessable under the head income from house property.                    The Hon'ble
Supreme Court noted an earlier Judgment in the case of Karanpura
Development Co. Ltd. Vs. CIT 44 ITR 362 (SC), wherein, the position of law
was summed up in the following words:-


      "As has been already pointed out in connection with the other two cases where
      there is a letting out of premises and collection of rents the assessment on
      property basis may be correct but not so, where the letting or sub-letting is part
      of a trading operation. The diving line is difficult to find; but in the case of a
      company with its professed objects and the manner of its activities and the
      nature of its dealings with its property, it is possible to say on which side the
      operations fall and to what head the income is to be assigned."


7.    Hon'ble Supreme Court noticed the aforesaid principle and applied the
same to the facts of the case before it, and held that the income earned from
letting out of the property was to be assessed as business income. In the case

                                                                         Page 4 of 9
                                      5
                                                  ITA NO 6550/Mum/2011
                                                  Assessment year: - 2007-08


of Karanpura Development Co. Ltd. (supra), the Hon'ble Supreme Court noted
that the dividing line is difficult to find; but in the case of a company, based on
its professed objects, the manner of its activities and the nature of its dealings
with its property, it can be evaluated as to what head the rental income has to
be assigned. What has been emphasized by the Hon'ble Supreme Court is the
professed objects and the manner of activities carried out by an assessee. It
has also been pointed out that the nature of dealings with the property would
also be factor to determine whether the activities fall for consideration under
the head `'business income'' or "house property income". The fact-situation in
the present case has already been considered by the Tribunal in the past years
under identical circumstances and it has been concluded that that there is "no
business of the commercial exploitation of the properties" and, therefore, rental
income could not be assessed as business income. The aforesaid finding of the
Tribunal in the case of assessee clearly brings out that the manner and nature
of its dealings with its property, which does not justify assessment of rental
income as business income. The appellant has not shown any change in the
fact-situation in the instant year as compared to the past years, therefore,
there is no justification for departing from earlier stand of the Tribunal about
the assessment of rental income as income under the head "House Property".
Thus, insofar as Ground of appeal no. 1 is concerned, assessee fails, having
regard to the precedent in assessee's own case.


8.    The second Ground of appeal relates to the treatment of interest on FDR
of Rs. 31,88,524/- as business income. Assessee company had received an
interest free deposit of Rs. 4,25,00,000/- from Tata Motors for letting out its
                                                                     Page 5 of 9
                                    6
                                                ITA NO 6550/Mum/2011
                                                Assessment year: - 2007-08


flat. The aforesaid amount was kept by the assessee in fixed deposit with
Sheba Properties Ltd, which earned interest of Rs. 31,88,524/-. Assessee
declared the said interest income as business income whereas the Assessing
Officer treated the same as income assessable under the head income from
other sources. The CIT(A) has also affirmed the order of Assessing Officer.


9.      It was a common point between the parties that similar income has
been held to be assessable as income from other sources by the Tribunal in
assessee's own case vide its order dated 29.04.2011(supra). Following the
same,     the said Ground is held against the assessee and is accordingly
dismissed.


10.     In Ground of appeal no. 3, the claim of assessee is for deduction on
account of Society Charges      Rs ­ 3,31,534/-;    Travelling Expenses Rs ­
22,97,469/-; Depreciation Rs ­ 9,34,861/-.


11.     Insofar as the claim for Depreciation and expenses on travelling are
concerned, the same are not allowable as there is no business in existence.
The rental income has already been held to be assessable as income under the
head house property and thus Depreciation is not allowable in respect of the
cost of flat on this ground also. Consequently, the aforesaid Ground of appeal
of assessee in relation to the claims of Depreciation and Travelling expenses is
dismissed.







                                                                  Page 6 of 9
                                     7
                                                 ITA NO 6550/Mum/2011
                                                 Assessment year: - 2007-08


12.   So however, in relation to the allowability of deduction on account of
charges paid by assessee to the maintenance society of the building, it was
pointed out that such an issue has been set aside to the file of Assessing
Officer by the Tribunal in the past years vide order dated 29.04.2011 (supra).
In this context, it is to be noted that section 24(a) of the Act, provides that
income chargeable under the head income from house property shall be
computed after making deduction of a sum equal to 30% of the annual value.
Quite clearly, the deductions u/s 24 are to be given from and calculated on the
basis of Annual Value so determined u/s 23 of the Act. In the case of Sharmila
Tagore Vs. JCIT 93 TTJ 483, it has been, inter-alia, held that maintenance
charges have to be deducted even while arriving at Annual letting value of the
property u/s 23 of the Act. In the case of Realty Finance & Leasing Pvt. Ltd. Vs.
ITO 5 SOT 283, it has been held that society charges are to be allowed as
deduction from Annual letting Value (ALV ) provided that the gross rent
received by assessee also includes the society charges, which are to be borne
by the assessee. Therefore, in principle, it has to be held that the society
charges payable by the assessee in respect of the let out of property are
allowable while computing the ALV of the property u/s 23 of the Act, if the
same are included in the gross rent received. So however, the Tribunal in its
order dated 29.04.2011 (supra) has remanded the matter back to the file of
Assessing Officer to ascertain as to whether the rent received by the assessee
included charges for the common services provided by the maintenance
society of the building. Therefore, in our view, similar directions are exigible
in the instant year also and accordingly, we set aside the order of CIT(A) and
restore the matter back to the file of Assessing Officer for carrying out
                                                                   Page 7 of 9
                                       8
                                                     ITA NO 6550/Mum/2011
                                                     Assessment year: - 2007-08


appropriate verification and thereafter passing an order afresh in accordance
with law. Needless to say, the Assessing Officer shall allow the assessee a
reasonable opportunity of being heard before pass an order afresh on this
aspect of the matter. Thus, on this aspect assessee partly succeeds.




13.   In the result, appeal of the assessee is partly allowed.
Order pronounced in the open court on this 31 day of July 2015.

                    Sd/-                                      Sd/-

                (Sanjay Garg)                                  (G.S. Pannu)
               (Judicial Member)                            (Accountant Member)
Mumbai dated        31-07-2015
SKS Sr. P.S,




Copy to:
      The Appellant
      The Respondent
      The concerned CIT(A)
      The concerned CIT
      The DR, "B"Bench, ITAT, Mumbai
                                                 By Order

                                                Assistant Registrar
                                           Income Tax Appellate Tribunal,
                                              Mumbai Benches, MUMBAI




                                                                       Page 8 of 9

 
 
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