Case Law Details
Brief of the Case
ITAT Delhi held In the case of DCIT vs. D.R.S. Warehousing (North) Pvt. Ltd. that the company was incorporated to provide material handling, storage, transportation, distribution, movers, packing and warehousing facilities which form part of its business. Thus the Assessing Officer is incorrect in proceeding that any income which comes out from property has to be taxed under the head of ‘income from house property’. The CIT (A) has rightly held that income from exploitation of warehouses was income from business. The Hon’ble Supreme Court in case of Chennai Properties & Investments Ltd. [373 ITR 673 (SC)] hold that circumstances of the case in respect of letting of the properties has to be determined first and in assessee’s case, leasing of warehouse is business of the assessee.
Facts of the Case
The business of the assessee company is to construct warehouses at different places in the country for warehousing purposes and earning income from warehousing. During the year, Assessee Company has received warehousing charges of Rs. 4,41,91,942/- declared as business receipts of the assessee company. However, the Assessing Officer has treated such warehousing charges as rental income of the assessee and taxed the said income under the head income from house property after allowing deduction u/s 24(a).
Further during the year, the assessee company has claimed interest payment and bank charges of Rs. 3,57,78,200/- on account of construction of warehouses. Such interest payment was restricted to 50% of the above amount on the ground that balance interest pertains to the amount utilized for constructing warehouses which are still under construction by the A.O. Also, the assessee has claimed underwriting/processing charges of Rs. 2,65,00,199/- which were paid to Axis Bank for processing and underwriting the loans. The said amount was capitalized and disallowed by A.O. The Assessing Officer also disallowed interest payment u/s 36 (1) (iii) of Rs.1,32,39,376/- on the ground that assessee has diverted interest bearing funds for non business purposes. The assessee also claimed brokerage and commission of Rs.7,76,000/- for hiring of warehouses. The Assessing Officer treated such payments as expenditure incurred for acquiring of land etc. and disallowed it.
Contention of the Assessee
Income from letting out of warehouses
The ld counsel of the assessee submitted 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. The assessee company was into the business of the letting of the properties and therefore, the assessee rightly disclosed the income under the head Income from Business. The Ld. AR relied upon the judgment of the Hon’ble Supreme Court in case of Chennai Properties & Investments Ltd. v. Commissioner of Income-tax, Central – III, Tamil Nadu [373 ITR 673 (SC)] wherein the same factual position was highlighted.
Contention of the Revenue
The ld counsel of the revenue supported the order of CIT (A).
Held by CIT (A)
The CIT (A) held that the receipts received by the assessee from exploitation of commercial assets in the form of warehouse treated as business income and deleted the finding of the Assessing Officer that warehousing receipts are “Income from House property”. After certain perusal of the additional documents produced by the assessee before the CIT (A) which was not verified by the Assessing
Officer, the CIT (A) restricted the disallowances of interest pertaining for construction period to Rs. 97,78,899/- and the balance amount of disallowance of interest of Rs.81,10,201/- was deleted.
The CIT (A) further held that the amount of processing charges/commitment charges which is to be capitalized comes to Rs.64,31,598 which is 24.27% of the total commitment / processing charges paid. As a result addition to the extent of Rs.64,31,598 was upheld by CIT(A) and balance addition of
Rs.2,00,68,601 deleted. The CIT (A) held that no interest requires to be disallowed u/s. 36(1)(ii). The CIT(A) observed that the addition made by Assessing Officer was based on incorrect facts and assessee gets relief of Rs. 1,32,39,376/-.
The CIT (A) further held that payment for brokerage to different parties is a revenue expenditure and allowed relief of Rs. 7,76,000/- to the assessee.
Held by ITAT
Income from letting out of warehouses
ITAT held that the assessee company was incorporated to provide material handling, storage, transportation, distribution, movers, packing and warehousing facilities which form part of its business. Thus the Assessing Officer is incorrect in proceeding that any income which comes out from property has to be taxed under the head of ‘income from house property’. The CIT (A) has rightly held that income from exploitation of warehouses was income from business. The Hon’ble Supreme Court in case of Chennai Properties & Investments Ltd. [373 ITR 673 (SC)] hold that circumstances of the case in respect of letting of the properties has to be determined first and in assessee’s case, leasing of warehouse is business of the assessee. In result, this Ground of the Revenue is dismissed.
Commission paid for acquisition of capital asset
ITAT held that since the commission was paid for arranging clients to lease out warehouses, therefore, CIT (A) has correctly deleted the disallowance made by the Assessing Officer. This ground of appeal is dismissed.
Accordingly appeal disposed of.
