Tc/75/2004 Of M/S.a.r.complex v. Income Tax Officer,Ward-Iii

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 12.06.2007 Coram : THE HONOURABLE MR.JUSTICE P.D.DINAKARAN AND THE HONOURABLE MR.JUSTICE P.P.S.JANARTHANA RAJA Tax Case (Appeal) Nos.75 of 2004and 176 of 2004 M/s.A.R.Complex,No.69, Arcot Road,Valasaravakkam,Chennai-87. ..Appellant in T.C.(A) No.75 of 2004 M/s.A.R.Plaza,No.1, Arcot Road,Valasaravakkam,Chennai-87. ..Appellant in T.C.(A) No.176 of 2004 Income Tax Officer,Ward III(1), Chennai. ..Respondent in both the T.C.(A)s. Appeals under Section 260A of the Income-tax Act, 1961 against theorder of the Income Tax Appellate Tribunal, Bench 'D', Chennai in I.T.A.No.2005 & 2007 (Mds)/2002 dated 09.06.2003 for the assessment year 1999-2000, against ITA No.28/02-03 dated 14.11.02 on the file commissioner ofIncome Tax (Appeals)VII Chennai against PAN/GIR 75208A dated 28.2.02 onthe file of the Income Tax officer ward III-(1) Chennai. (TC.No.75/04)appeal against ITA 25/02-03 dt.30.10.02 on the file of the Commissioner ofIncome Tax (Appeals) Chennai in PAN/GIR in AABFA 3351J on the file of theIncome Tax officer ward III(1) Chennai (TC.176/04) For Appellants : Mr.D.Trilokchand Chopda For Respondent : Mr.N.Muralikumaran, Sr.Standing Counsel COMMON JUDGMENT (Judgment of the Court was delivered byP.P.S.Janarthana Raja, J.)These appeals are filed under Section 260A of the Income Tax Act,1961 by the assessees, against the order of the Income Tax AppellateTribunal, Bench 'D', Chennai in I.T.A. No.2005 & 2007 (Mds)/2002 dated09.06.2003. On 04.02.2004, this Court admitted T.C.(A) No.75 of 2004 andformulated the following substantial questions of law:- 1. Whether the Tribunal is right in law in holding thatthe income derived from the commercial complex is to betreated as income from property? 2. Having found that the commercial complex is abusiness asset of the appellant, whether the Tribunalwent wrong in holding that income from exploitation ofa business asset is income from property? On 15.04.2004, this Court admitted T.C.(A)No.176 of 2004 and formulatedthe following substantial questions of law:- 1. Whether the Tribunal is right in law in passing theimpugned order without considering the case in theproper perspective and the submissions made? 2. Whether the Tribunal is right in holding that theincome derived from the commercial complex is to betreated as income from property? 3. Having found that the commercial complex is abusiness asset of the appellant, whether the Tribunalwent wrong in holding that income from exploitation ofa business asset is income from property? 4. Whether the assessment in the status of a firm issustainable in law, there being no business income? 2.Both these appeals have been filed by two different assesseeswho are sister concerns for an identical issue. Hence we are taking upboth these appeals and disposing the same by a common judgment. 3.The facts leading to the above substantial questions of law areas under:- T.C.(A) No.75 of 2004:- 2. Whether the Tribunal is right in holding that theincome derived from the commercial complex is to betreated as income from property? 3. Having found that the commercial complex is abusiness asset of the appellant, whether the Tribunalwent wrong in holding that income from exploitation ofa business asset is income from property? 4. Whether the assessment in the status of a firm issustainable in law, there being no business income? 2.Both these appeals have been filed by two different assesseeswho are sister concerns for an identical issue. Hence we are taking upboth these appeals and disposing the same by a common judgment. 3.The facts leading to the above substantial questions of law areas under:- T.C.(A) No.75 of 2004:- The assessee is a partnership firm and it came into existence on 1[st]day of April 1992. It consisted of five partners. The business of theassessee is developing, constructing commercial complex and running themas business centres and such other business as may be mutually agreedamongst the partners. The business also include providing occupantsservices in the nature of providing security, supervisor, sweeper etc.,providing lighting in all common areas, water and sanitation facilitiesand maintain the building, the common areas, the overhead tank, sump etc.for the peaceful, smooth, effective and conducive conduct of business ofthe occupants and to provide such other services such as common reception,telephone booth, generator etc. as may be required by the occupants andagreed upon by both the parties from time to time. There is also aService-cum-Lease Agreement entered by the assessee and the occupant on 1[st]of April 1997. The relevant assessment year is 1999-2000 and thecorresponding accounting year ended on 31.03.1999. The assessee filedReturn of income on 22.03.2000 admitting an income of Rs.3,850/- under thehead "business". It is seen from the profit and loss account accompanyingthe Return that the entire receipts were only from rentals. The AssessingOfficer was of the view that the rental income has to be treated as"income from house property" and not under the head "business" and hencenotice under Section 148 of the Income-tax Act ("Act" in short) was issuedon 22.11.2000. The assessee firm by its letter dated 13.12.2000 statedthat the Return filed on 22.03.2000 may be treated as the one filed inresponse to the notice under Section 148 of the Act. Later, notice underSection 143(2) was issued to the assessee on 06.12.2000 requiring theassessee to appear on 19.12.2000. The assessment was completed underSection 143(3) r/w Section 147 of the Act and assessed the rental receiptsunder the head "house property" and determined a total income ofRs.2,21,540/-. Aggrieved by the order the assessee filed an appeal to theCommissioner of Income-tax (Appeals). The C.I.T.(A) dismissed the appealand confirmed the order of the Assessing Officer. Aggrieved, theassessee filed an appeal to the Income-tax Appellate Tribunal ("Tribunal"in short). The Tribunal dismissed the appeal and confirmed the order ofthe lower authority. Hence the present appeal by the assessee. T.C.No.176 of 2004:- The assessee is a partnership firm and it came into existence on 1[st]day of April 1993. It consisted of four partners. The business of theassessee is developing, constructing commercial complex and running themas business centres and such other business as may be mutually agreedamongst the partners. The business also include providing occupantsservices in the nature of providing security, supervisor, sweeper etc.,providing lighting in all common areas, water and sanitation facilitiesand maintain the building, the common areas, the overhead tank, sump etc.for the peaceful, smooth, effective and conducive conduct of business ofthe occupants and to provide such other services such as common reception,telephone booth, generator etc. as may be required by the occupants and The assessee is a partnership firm and it came into existence on 1[st]day of April 1993. It consisted of four partners. The business of theassessee is developing, constructing commercial complex and running themas business centres and such other business as may be mutually agreedamongst the partners. The business also include providing occupantsservices in the nature of providing security, supervisor, sweeper etc.,providing lighting in all common areas, water and sanitation facilitiesand maintain the building, the common areas, the overhead tank, sump etc.for the peaceful, smooth, effective and conducive conduct of business ofthe occupants and to provide such other services such as common reception,telephone booth, generator etc. as may be required by the occupants and agreed upon by both the parties from time to time. There is also aService-cum-Lease Agreement entered by the assessee and the occupants on1[st] of April 1997. The relevant assessment year is 1999-2000 and thecorresponding accounting year ended on 31.03.1999. The assessee filedReturn of income on 22.03.2000 for the assessment year 1998-99 admittingan income of Rs.2,760/- under the head "business". It is seen from theprofit and loss account accompanying the Return that the entire receiptswere only from rentals. The Assessing Officer was of the view that therental income has to be treated as "income from house property" and notunder the head "business" and hence notice under Section 148 of the Actwas issued on 22.11.2000. The assessee firm by its letter dated13.12.2000 stated that the Return filed on 22.03.2000 may be treated asthe one filed in response to the notice under Section 148 of the Act.Later, notice under Section 143(2) was issued to the assessee on06.12.2000 requiring the assessee to appear on 19.12.2000. The assessmentwas completed under Section 143(3) r/w Section 147 of the Act and assessedthe rental receipts under the head "house property" and determined a totalincome of Rs.2,42,500/-. Aggrieved by the order the assessee filed anappeal to the Commissioner of Income-tax (Appeals). The C.I.T.(A)dismissed the appeal and confirmed the order of the Assessing Officer.Aggrieved, the assessee filed an appeal to the Income-tax AppellateTribunal ("Tribunal" in short). The Tribunal dismissed the appeal andconfirmed the order of the lower authority. Hence the present appeal bythe assessee. 4.Learned counsel appearing for the assessee in both these taxcases submitted that the assessees constructed business centres and letout the same and continued providing its services, as business activity.The assessee firms were constituted only for the purpose of carrying onits activity. Hence the receipts constitute only business receipts.Hence the order passed by the authorities below are wrong, illegal,without basis and justification. It is further submitted that there areenough proof and material evidence to show that the assessees provideservices to the occupants and there are Service Agreements entered by theassessees with their occupants. There is no dispute regarding providingof services. It is only because of non-filing the sufficient proof beforethe authorities below, the authorities held against the assessees.Alternatively, the authorities ought to have bifurcated the receipts andquantified a portion of the receipts for rendering services and hence thesame should be assessed under the head "income from business" or "incomefrom other sources". Hence the authorities are wrong in assessing thewhole income under the head "income from house property". 5.Learned Senior Standing counsel appearing for the Revenuesubmitted that the issue is covered by this Court judgment reported in 286ITR 685 in the case of C.I.T. Vs. Chennai Properties and Investments Ltd.in favour of the Revenue, wherein it was held that the income from lettingout the building belonging to it should be assessable as income fromproperty. In respect of the apportionment of the rental receipt, theassessee had not produced any material or evidence to the authoritiesbelow. Hence the order passed by the authorities are in confirmity withlaw. 6.Heard the counsel. It is fairly stated by the counsel appearingfor the assessees that mere letting out the property and deriving incomefrom it should be assessed only under the head "income from houseproperty" and also the issue now stands concluded by this Court judgmentreported in 286 ITR 685 in the case of C.I.T. Vs. Chennai Properties andInvestments Ltd. in favour of the Revenue. Hence we answer the questionsin favour of the Revenue, against the assessee. 7.An alternative argument is also advanced that the whole receiptamount should not be assessed under the head "income from house property"on the ground that certain portion of the amount is related to servicesprovided as per the agreements which are independent ones. The rentalreceipts shows only the consolidated amount, instead of apportioning itinto different heads. The Revenue should have apportioned the amounts andsuch apportioned amounts should be assessed under the head "income frombusiness" or "income from other sources". In the present cases, there areService-cum-Lease Agreements entered on 1[st] April 1997 by the assesseeswith their respective occupants. For convenient purpose, we reproducebelow the clauses contained in one of the Tax Case, namely T.C. No.75 of2004:- "1. The consolidated service charges payable shall be Rs.1,200/-(Rupees one thousand and two hundred only) per month or such sumas agreed upon mutually by both the parties. 2. The advance amount shall be Rs.30,000/- (Rupees thirtythousand only) which shall be Interest free. 3. The OCCUPANT / SERVICE RECEIVER shall also be entitled to sub-lease this facility with the prior permission of LANDLORD /SERVICE PROVIDER. 4. The service cum lease agreement shall be valid for a maximumof 11 months, which can however be extended further / terminatedby mutual agreement at any time. 5. The LANDLORD / SERVICE PROVIDER shall provide services ofsecurity, supervisor, sweeper, water, sanitation and such otherservices such as common reception, telephone booth, generatoretc. as may be required by the occupants for their peaceful andconducive as well as smooth and efficient conduct of business andagreed upon by both the parties from time to time. 6. The LANDLORD / SERVICE PROVIDER shall bear the cost ofmunicipal / corporation taxes, common electricity charges,maintenance of building, supervisor, security, water, sanitationand such other services as agreed upon from time to time. 7. The premises is being utilised for business purpose only." From a reading of the above clauses, it is clear that the assessee firmhas to provide certain services. For the purpose of providing suchservices, the occupant has to pay a consolidated charge of Rs.1,200/- permonth in the case of T.C.No.75 of 2004. There is no dispute regarding theactual services provided by the assessee firms and the Revenue also didnot deny the same. The only reason given by the Tribunal is that theassessees failed to substantiate their claims. The relevant portion ofthe order of the Tribunal reads as under:- 7. The premises is being utilised for business purpose only." From a reading of the above clauses, it is clear that the assessee firmhas to provide certain services. For the purpose of providing suchservices, the occupant has to pay a consolidated charge of Rs.1,200/- permonth in the case of T.C.No.75 of 2004. There is no dispute regarding theactual services provided by the assessee firms and the Revenue also didnot deny the same. The only reason given by the Tribunal is that theassessees failed to substantiate their claims. The relevant portion ofthe order of the Tribunal reads as under:- "3. We have given very careful consideration to thesubmissions and to the various documents filed beforeus. Referring to the balance-sheet of the firms wenotice that there are no generators. There is a landand building. Referring to the P&L A/c we find thesalary at Rs.27,600 and depreciation claimed andpartners remuneration and some general expenses. Thisis only to show that the claim of the assessee that ithad maintained some office and incurred expenditure inthis regard is not substantiated. The authoritiestherefore were justified in coming to the conclusionthat such rental receipts are assessable as income fromhouse property. Upholding their orders, both theappeals are dismissed." Profit and Loss Account as well as Balance Sheet were filed before theauthorities wherein all the details regarding expenditures as well asreceipts were reflected. There is no proper consideration of the detailsregarding providing services as well as receipt of the same by theauthorities below. The authorities ought to have considered the same. Ifit is necessary, they have to bifurcate a portion of the rental receiptinto various heads. In such circumstances, in the interest of justice, wedirect the Assessing Officer to consider the details regarding theservices provided as well as the amount received for the same and the saidreceipt amounts derived from providing services may be considered underthe head "income from other sources" or under the head "income frombusiness" and pass orders in accordance with law after giving opportunityto the assessees. 8.With the above observations, the tax cases are disposed of. Nocosts. km Sd/-Asst.Registrar /true copy/ Sub Asst.Registrar To 1. The Assistant Registrar, Income-tax Appellate Tribunal, Chennai Bench "D", Rajaji Bhavan, Besant Nagar, chennai-90. (5 Copies) Rajaji Bhavan, Besant Nagar, chennai-90. (5 Copies) 2. The Commissioner of Income-tax (Appeals) VII, Chennai-34. Chennai-34. 3. The Income-tax Officer, Ward III(1), Chennai-600 034. Ward III(1), Chennai-600 034. +1 cc to Mr.T.Pramod Kumar Chopda, Advocate Sr.No.34138. +2 ccs to Mr.N.Muralikumaran, Advocate Sr.No.34193. MBS(CO)dcp/25.6.07 T.C.(A) Nos.75 of 2004 and 176 of 2004