IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH `A', NEW DELHI
BEFORE SH. N. K. BILLAIYA, ACCOUNTANT MEMBER
AND
MS. SUCHITRA KAMBLE, JUDICIAL MEMBER
ITA No.5764/Del/2019
Assessment Year: 2015-16
M/s. Basics IT Solutions ACIT
Pvt. Ltd. G-2, Nizamuddin Vs Circle 4 (1)
West, New Delhi-110013 New Delhi
PAN No.AACCB5118K
(APPELLANT) (RESPONDENT)
Appellant by Sh. Rajiv Saxena, Advocate
Sh. Shyam Sunder, AR
Respondent by Sh. P. S. Thuingaleng, SR. DR
Date of hearing: 09/09/2019
Date of Pronouncement: 13/09/2019
ORDER
PER N. K. BILLAIYA, AM:
This appeal by the assessee is preferred against the order of
the CIT(A)-2, New Delhi dated 30.04.2019 pertaining to
A. Y. 2015-16.
2. The sole issue in the present case to be decided is whether
on the facts and circumstances of the case, income from renting
out property is to be assessed under the head `Income from
Business' or Income from House Property'.
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3. Briefly stated that the facts of the case are that the assesses
company was formed and registered with ROC, NCT of Delhi and
Haryana on 25th day of November, 2004 with one of the main
objects `to carry on all kind of business, buy, sell, let out, hire
and repair in relation to any immovable property and its
maintenance services.
4. Apart from this, in the objects incidental or ancillary to the
attainment of the main objects. There was specific object at S.
No.22 as under :
`to lease', let out on hire, pledge, hypotheciate, or
otherwise dispose off the whole or any part or parts of the
undertaking of the company or any land, business property,
rights or assets or any kind of the company or any share of
interest bearing respectively, in such manner and in such
consideration as the company may think fit.
5. During the year the assessee has leased out following
premises :-
Chart Giving Details of Premises along-with Facilities to Various
Software/Business Concerns
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Name of the Tenant Premises & Facilities leased
Sr.
No.
1. M/s MetaOption Software Pvt. 1. Furnished office to computer software with
Ltd. furniture & fixture of company (Super Area
7000 sq. ft. & carpet area 5500 sq flat 6th Floor.
2. 24-hour power supply.
3. Centrally air conditioning.
4. Managing parking facilities
5. Drinking water supply and 24-hour water
supply.
6. 24-hour Internet facilities.
2. DA Vision Global Enterprises 1. Furnished
Limited office to
computer
software
with
furniture &
3. M/s Arkadin Conferindia Pvt. fixture of
Ltd. 1. Furnished office to computer software with
furniture & fixture of company (Super Area
7,500 sq. ft. & carpet area - at 4th Floor.
2. Power Backup
3. Managing parking facilities
4. M/s Sharp Business Systems 1. Furnished office to computer software with
(India) Pvt. Ltd. furniture & fixture of company (Super Area
7,500 sq. ft. & carpet area - at 63rd Floor.
2. Power Backup
3. Power Load
4. Centrally air conditioning.
5. Managing parking facilities
6. The income of the assessee was shown in its profit and loss
account as under :-
OTHER INCOMES :
Electricity & DG Charges 1,90,700.00 569,417.00
Maintenance Charges 3,537,295.00 2,555,000.00
Interest of Income Tax 36,094.00
Refund
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Rental Income 9,102,000.00 5,810,000.00
13,766,089.00 8,934,417.00
7. During the course of the assessment proceedings the
Assessing Officer was of the opinion that the income of the
assessee from rent has to be treated as income from house
property. After discussing certain judicial decisions the Assessing
Officer completed the assessment by treating the rent of
Rs.9,102,000/- as income from house property and after allowing
standard deduction, addition of Rs.63,71,400/- was made.
8. The assessee carried the matter before the CIT(A) but
without any success. The CIT(A) dismissed the appeal by
observing as under :-
"6.5 Apart from this, there is no mention of renting of immovable
property or maintenance services in any other objects throughout the
memorandum and articles of association. Reference about renting
added to an entirely different clause of system design and
information technology appears ambiguous. How and when this
short reference has been added to an entirely different clause
dealing with entirely different object, is not clear as the same was
not available before the AO. Even the intention of adding a short
reference to a different clause is not clear. In fact, the appellant has
done no business in systems or information technology which is
mentioned throughout its memorandum and articles of association.
6.6 Therefore, the appellant's ground suffers from ambiguity. I do not
see any reason to interfere with the decision of the AO. Even the inclusion
of interest on IT refund of Rs. 36,095/- as business income is not
allowable. These grounds are, therefore, dismissed as devoid of merit."
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9. Before us the Ld. Counsel for the assessee drew our
attention to the memorandum of association of the company and
pointed out that the main object read with other objects clearly
shows that the business of the assessee was to let out and lease
the property. On such objects strong reliance was placed on the
decision of Hon'ble Supreme Court in the case of Chennai
Properties and Investments Ltd. 373 ITR 673.
10. Per contra the DR strongly supported the findings of the
CIT(A).
11. We have given a thoughtful consideration to the orders of
the authorities below. The main objects and other object of the
company have been mentioned elsewhere. In the light of the
main object and the other object we do not find any merit in the
observations of the CIT(A). We fail to understand the
apprehension shown by the CIT(A) in respect of clause 22 for
which he observed that "short reference has been added to
entirely different clause dealing with entirely different object, is
not clear as the same was not available before the AO" when the
Assessing Officer himself has categorically mentioned that he has
examined the memorandum of association of the assessee
company.
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12. Reliance on the decision of Hon'ble Supreme Court in the
case of Chennai Properties and Investment (supra) is well taken.
13. The relevant findings of the Hon'ble Supreme Court read as
under :-
6. Before we refer to the Constitution Bench judgment in the case of
Sultan Brothers (P.) Ltd. (supra), we would be well advised to discuss
the law laid down authoritatively and succinctly by this Court in
'Karanpura Development Co. Ltd. v. CIT [1962] 44 ITR 362 (SC). That
was also a case where the company, which was the assessee, was
formed with the object, inter alia, of acquiring and disposing of the
underground coal mining rights in certain coal fields and it had
restricted its activities to acquiring coal mining leases over large areas,
developing them as coal fields and then sub-leasing them to collieries
and other companies. Thus, in the said case, the leasing out of the coal
fields to the collieries and other companies was the business of the
assessee. The income which was received from letting out of those
mining leases was shown as business income. Department took the
position that it is to be treated as income from the house property. It
would be thus, clear that in similar circumstances, identical issue arose
before the Court. This Court first discussed the scheme of the Income
Tax Act and particularly six heads under which income can be
categorised / classified. It was pointed out that before income, profits
or gains can be brought to computation, they have to be assigned to one
or the other head. These heads are in a j sense exclusive of one another
and income which falls within one head cannot be assigned to, or taxed
under, another head. Thereafter, the Court pointed out that the deciding
factor is not the ownership of land or leases but the nature of the
activity of the assessee and the nature of the operations in relation to
them. It was highlighted and stressed that the objects of the company
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must also be kept in view to interpret the activities. In support of the
aforesaid proposition, number of judgments of other jurisdictions, i.e.
Privy Counsel, House of Lords in England and US Courts were taken
note of. The position in law, ultimately, is 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."
9. After applying the aforesaid principle to the facts,
which were there before the Court, it came to the conclusion
that income had to be treated as income from business and
not as income from house property. We are of the opinion
that the aforesaid judgment in Karanpura Development Co.
Ltd's case (supra) squarely applies to the facts of the
present case.
No doubt in Sultan Brothers (P.) Ltd.'s case (supra),
Constitution Bench judgment of his Court has clarified that
merely an entry in the object clause showing a particular
object would not be the determinative factor to arrive at an
conclusion whether the income is to be treated as income
from business and such a question would depend upon the
circumstances of each case, viz., whether a particular
business is letting or not. This is so stated in the following
words: --
"We think each case has to be looked at from a
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businessman's point of view to find out whether the letting
was the doing of a business or the exploitation of his
property by an owner. We do not further think that a thing
can by its very nature be a commercial asset. A commercial
asset is only an asset used in a business and nothing else,
and business may be carried on with practically all things.
Therefore, it is not possible to say that a particular activity
is business because it is concerned with an asset with
which trade is commonly carried on. We find nothing in the
cases referred, to support the proposition that certain
assets are commercial assets in their very nature."
11. We are conscious of the aforesaid dicta laid down in the
Constitution Bench judgment. It is for this reason, we have, at the
beginning of this judgment, stated the circumstances of the
present case from which we arrive at irresistible conclusion that
in this case, letting of the properties is in fact is the business of
the assessee. The assessee therefore, rightly disclosed the income
under the Head Income from Business. It cannot be treated as
'income from the house property. We, accordingly, allow this
appeal and set aside the judgment of the High Court and restore
that of the Income Tax Appellate Tribunal. No orders as to costs.
14. Finding parity in the facts of the case in hand with the facts
of the case decided by the Hon'ble Supreme Court and
respectfully following the same we direct the Assessing Officer to
treat the rental income as income from business. However,
income from interest on income tax refund is excluded from the
business income. With these observations the appeal filed by the
assessee is allowed.
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15. In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 13.09.2019.
Sd/- Sd/-
(SUCHITRA KAMBLE) (N. K. BILLAIYA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
*NEHA*
Date:-13 .09.2019
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
ASSISTANT REGISTRAR
ITAT NEW DELHI
Date of dictation 11.09.2019
Date on which the typed draft is placed before the 12.09.2019
dictating Member
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Other member
Date on which the approved draft comes to the 13.09.2019
Sr.PS/PS
Date on which the fair order is placed before the 13.09.2019
Dictating Member for Pronouncement
Date on which the fair order comes back to the Sr. 13.09.2019
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website of ITAT
Date on which the file goes to the Bench Clerk 13.09.2019
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