Case Law Details
Admittedly, the assessee is the owner of the property situated at MBC Tower TTK road, Chennai. The assessee has declared rental income from this house property under the head “Income from House Property”. The Assessee consistently offering the income from this property as rental income under the head income from house property and in earlier years the Revenue was accepting the same as income from house property. The assessee before us filed copies of assessment order in assessee’s own case framed under section 143(3) of the Act for AY 2005- 06, 2006- 07 and 2007- 08 wherein, the return declared under the head income from the house property has been accepted as it is. The assessee before the AO explained that it is showing rental income in respect to self-owned property situated at MBC Tower TTK road, Chennai under the head income from house property and in respect to the properties taken on sub-lease or sub-letting other, in those cases the above properties from which the assessee is offering income from business being property on lease. The AO was not convinced and he assessed the income under the head property and gains from business or profession instead of income from housing property. We find that consistently Revenue is accepted the income from this property i.e. MBC Tower TTK road, Chennai as income from house property. But suddenly, in these three assessment years, now before us the Revenue has changed the head of income from income from house property to income from profits or gains from business or profession without any valid reason. We find that now, Hon’ble Supreme Court in the case of Raj Dadarkar & Associates vs. ACIT [2017] 81 taxmann.com 193 (SC) has clearly held that in case the provisions of Section 22 are applicable the property is to be assessed as income from house property.
Full Text of the ITAT Order is as follows:-
These appeals by the assessee are arising out of the different orders of CIT(A)-5, Mumbai, in appeal No. CIT(A)-5/DCIT-3(1)/IT 339 & 446/2011-12, IT/185/12-13/423/13-14 dated 14-02-2013, 20-03-2014. The Assessments were framed by DCIT Circle 3(1), ACIT Circle-3(1), Mumbai for the A.Ys. 2008- 09, 2009- 10, 2010- 11 vide order dated 30-12-2010, 23-12-2011, 23-11-2012 u/s 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’).2. The first common issue in all three appeals of the assessee is against the order of CIT(A) confirming the action of the AO in assessing the income from self-owned property situated at MBC Tower, TTK Road, Chennai under the head “Profits and Gains of Business or Profession”as against returned by the assessee as rental income under the head “Income Form House Property”. The facts and circumstances are exactly identical in all the three years and the grounds raised are also identical. Hence, we will take the facts from AY 2008- 09 and will decide the issue. The grounds raised by assessee in AY 2008- 09 reads as under: –
“1. That the Ld. CIT(A) on the facts and in the circumstances of the case as well as in law erred in having upheld the action of the AO in treating income from self-owned propertied situated at MBC towers TTK Road, Chennai under “business income”as “income from house property”as offered by the appellant in return of income.”
3. Briefly stated facts are that the assessee is engaged in the business of hiring and leasing of properties. The assessee declared the income from self- owned property situated at MBC Tower TTK road, Chennai as rental income at Rs 5,27,76,383/-. Apart from the above the assessee also declared rental income of Rs 4,24,83,179/- in respect of sub-letting of properties at (a) Chettiar Hall, TTK Road, Chennai (b) Ambature Anna Nagar, Chennai & (c) Creative Enclave, L.C. Road, Chennai, (d) Perungudi, Chennai at Rs. 5,27,76,383/- as profit and gains from business or profession and assessed under the same head. Whereas assessee declared the income from self-owned property situated at MBC Tower TTK road, Chennai as rental income under the head income from house property as against the same the AO assessed this rental income under the head profits or gains from business or profession. The assessee preferred the appeal before CIT(A).
4. The CIT(A) after considering the facts of the case, confirmed the action of the AO in assessing the same as business receipts by observing in Para 3.2 to 3.4 as under. –
“The facts of the case have been considered
The appellant has shown rental income of Rs. 5,27,76,383/- in r/o the various premises (at MBC Towers, Chennai) given to various parties as per the Annexure ‘A’ enclosed. It has also shown the amenities charges from these various parties amounting to Rs. 1,69,86,453/- as per details in the Annexure ‘A’
During the course of appellate proceedings, the appellant was asked to produce the fixed assets register in r/o furniture and fixtures, Air Conditioners, electrical installations provided to the various parties as mentioned in Annexure ‘A’ enclosed. However, the appellant has failed to produce the fixed assets register. The appellant has also failed to produce the list of furniture and fixture, ACs, electrical installations provided to the respective various parties against which the amenities charges have been received the basis of calculating the amenities charges separately
Without prejudice, in fact, the premises given to various parties in the aforesaid building are being run basically as call centers for which composite services by way of furniture and fixtures, AC, electrical installations are required over and above the premises given. It is apparent that composite receipt has been divided under Sham Agreements as Rental charges and Amenities charges. By dividing the composite charges as Rental charges and Amenities charges; under the Sham Agreements -the appellant is able to claim Statutory allowance u/s 24 under the Head ‘Income from House property’ over and above the routine business expenses debited to P&L A/c.”
3.3 Under these facts and circumstances, it is apparent that the appellant has bifurcated the composite amount partly as rental and partly as amenity charges. The law permits tax planning and not tax avoidance. If within the four corners of law the person arranges its affairs in such a way that its overall tax liability is reduced, there cannot be any embargo on such planning.
If however, dubious means are adopted to reduce the incidence of tax by artificially inflating expenses or reducing income, it cannot be described as anything other than tax avoidance. When we consider the reality of the situation in the present place, it becomes abundantly manifest that the business receipts have been bifurcated as rental income (to be shown as income from House property and claiming statutory allowance) and amenity charges to avoid the rightful tax due to the exchequer.
3.4 Accordingly, the AO has rightly held that the total receipts from self-owned property situated at MBC Towers, TTK Road, Chennai is business receipts.
Aggrieved, now assessee is in second appeal before tribunal.
5. We have heard the rival contentions and gone through the facts and circumstances of the case. Admittedly, the assessee is the owner of the property situated at MBC Tower TTK road, Chennai. The assessee has declared rental income from this house property under the head “Income from House Property”. The Assessee consistently offering the income from this property as rental income under the head income from house property and in earlier years the Revenue was accepting the same as income from house property. The assessee before us filed copies of assessment order in assessee’s own case framed under section 143(3) of the Act for AY 2005- 06, 2006- 07 and 2007- 08 wherein, the return declared under the head income from the house property has been accepted as it is. The assessee before the AO explained that it is showing rental income in respect to self-owned property situated at MBC Tower TTK road, Chennai under the head income from house property and in respect to the properties taken on sub-lease or sub-letting other, in those cases the above properties from which the assessee is offering income from business being property on lease. The AO was not convinced and he assessed the income under the head property and gains from business or profession instead of income from housing property. We find that consistently Revenue is accepted the income from this property i.e. MBC Tower TTK road, Chennai as income from house property. But suddenly, in these three assessment years, now before us the Revenue has changed the head of income from income from house property to income from profits or gains from business or profession without any valid reason. We find that now, Hon’ble Supreme Court in the case of Raj Dadarkar & Associates vs. ACIT [2017] 81 taxmann.com 193 (SC) has clearly held that in case the provisions of Section 22 are applicable the property is to be assessed as income from house property.
6. Hon’ble Supreme Court has also validated the decision of Shambu Investment Pvt. Ltd. Vs. CIT (2003) 263 ITR 143 (SC) and CIT Vs. Kanak Investment Pvt. Ltd. [1974] 95 ITR 419 (Calcutta) and also Karani Properties Limited Vs. CIT (1971) 82 ITR 547 (SC). Further, Hon’ble Supreme Court has also affirmed the decision of Sultan Bros. (P) Ltd. Vs. CIT, (1964) 5 SCR 807. They have further distinguished the case law of Chennai Properties & Investments Ltd 373 ITR 673 (SC) and Rayala Corporation (P) Ltd. For this Hon’ble Supreme Court relied on the Karanpura Development Co. Ltd. Vs. CIT, (1962) 44 ITR 362 and the judgment of Hon’ble Supreme Court in the case of East India Housing and Land Development Trust Ltd. v. CIT, (1961) 42 ITR 49 was distinguished.
7. In the given facts and circumstances and the decision of Hon’ble Supreme Court in the case of Raj Dadarkar & Associates (supra), respectfully following the same, we allow the claim of the assessee and direct the AO to assessee the rental income situated at MBC Tower TTK road, Chennai as income from house property, and consequential deductions in respect to interest on borrowed capital, building insurance, Municipal Tax and repair maintenance charges is to be allowed. The AO is directed accordingly.
8. As regards to the another common issue of assessee’s appeal in respect to dis allowance under section 14A read with Rule 8D of Income Tax Rules (hereinafter, the Rules) in respect to the expense dis allowance by AO and confirmed by CIT(A) which are relatable to exempted income. At the outset, the learned Counsel for the assessee stated that due to smallness of dis allowance, he has not pressing the ground relating to the issue in respecting to all the three years, hence, the same is dismissed. This decision will not be applied as a precedent for other years in case the assessee challenges the same. This common issue of the assessee’s appeals is dismissed as not pressed.
9. In the result, all the appeals of assessee are partly allowed.
Order pronounced in the open court on 31-05-2017.
