Case Law Details
Gowtham Residential Junior College Vs ACIT (ITAT Visakhapatnam)
The Ld.DR submitted that the assessee has declared income by way of rent received to the tune of Rs.2,06,66,410/- and treated the same as business income for the current year. The assessee has claimed expenses to the tune of Rs.88,51,069/- involving bank charges, repairs and maintenance, interest paid to banks, travelling charges, depreciation, PF paid and income tax. He further submitted that by referring to clauses in the lease deed, the AO found that the assessee has leased out the buildings for the period of 10 years for annual rent of Rs.2.50 crores, which was reduced to Rs.1.60 crores per year. He further argued that receiving rent is not the business activity of the assessee. Therefore, the AO concluded that the assessee being the owner shall be liable to tax under income from house property and disallowed certain expenditure.
It is an admitted fact that the building was let out for rent and the assessee had received the income from buildings. The main contention of the revenue is that the assessee has no role to play in running the educational institution after it has leased out its assets except major repairs. Even the maintenance of the building is to be done by the lessee. Hence, day to day operation or management of business is the only duty of the lessee. The assessee did not place any evidence to establish that it incurred the expenditure. Therefore, we do not find any infirmity in the orders passed by the AO as well as the CIT(A) and uphold the same.
FULL TEXT OF THE ORDER OF ITAT VISAKHAPATNAM
These appeals are filed by assessee against the orders of the Commissioner of Income Tax (Appeals) [ in short, “CIT(A)”]-12, Hyderabad in Appeal No.10061/2016-17 dated 26.10.2021 for the Assessment Year (A.Y.) 2013-14.
2. Brief facts of the case are that the assessee is a partnership firm, deriving rental income, e-filed its return of income for the A.Y.2017-18 declaring income of Rs.1,14,45,670/- . The assessee had declared income by way of rent received to the tune of Rs.2,06,66,410/- and treated the same as business income for the current year and claimed certain expenses to the extent of Rs.88,51,069/- involving bank charges, repairs and maintenance, interest paid to banks, travelling charges, depreciation, PF paid and income tax. The assessee had leased out its property consisting of building and lands appurtenant thereto for a period of 10 years for an annual rent of Rs.2.50 crores. The lease deed was amended to reduce the leased rent to Rs.1.60 crores per year. Since the assessee is not involved in any business of letting out buildings on lease or hire, the Assessing Officer (AO) treated the income derived by the assessee as income from house property and nullified the loss claimed under the head ‘business’ since entire rental income is considered under the head ‘income from house property’ and assessed the income at Rs.1,44,66,487/- after deducting an amount of Rs.61,99,923/- u/s 24(a).
3. Aggrieved by the order of the AO, the assessee preferred an appeal before the CIT(A) and the Ld.CIT(A) dismissed the appeal of the assessee placing reliance on the following case laws and held that the assessee is not carrying out the business of imparting education after letting out the assets. The assessee has not restarted its business even after expiry of lease period on 31.05.2017, from which in can be inferred that the intention of the assessee is to lease out its assets and not to exploit them for its own business activities. The Ld.CIT(A) also held that though the objectives of the assessee are to run an educational institution, the objectives alone cannot determine the nature of income. The objective of the assessee to run an educational institution was discontinued and land and buildings were leased out along with furniture and fixtures and other common facilities for which the rent was paid month by month along with the interest bearing security deposit, which does not make it business income as the business risks involved are not taken by the assessee. The assessee plays no role in running the business activities of the lessee. Hence, the lease rental income cannot be treated as business income of the assessee.
(a) Hon’ble Supreme Court in Universal Plast Limited Vs. CIT (234 ITR 454)
(b) Hon’ble Supreme Court in East India Housing and Land Development Trust Ltd. Vs. CIT [(1961)] 42 ITR 49 (SC)]
(c) CIT Vs. Shambu Investment Pvt. Ltd.[2001] 249 ITR 47 (Cal.) affirmed by Hon’ble Supreme Court (2003) [263 ITR 143] (SC)
(d) Keyman Hotels(P.) Ltd. vs. DCIT, CC-II(4), Chennai [2015] 63 com 301(SC)
4. Aggrieved by the order of the Ld.CIT(A), the assessee preferred an appeal before the Tribunal and raised the following grounds :
The learned Commissioner of Income Tax (Appeals) erred in facts and the circumstances of the case and in law in confirming the order of the assessing officer by not considering
1. the learned Commissioner of Income Tax (Appeals) erred in appreciating the fact that the entire running business was leased out to the lessee along with movable, immovable properties, students and faculty & other staff and the income being derived is income from business & not income from property.
2. the learned Commissioner of Income Tax (Appeals) erred in appreciating the fact that business not only involve running the educational institution but also letting of the infrastructure along with the business which infrastructure cannot be used otherwise than for running educational institute.
3. The learned Commissioner of Income Tax (Appeals) erred in not taking consideration, the earlier order of the Commissioner of Income Tax (Appeals) which order was passed after obtaining remand reports and rejoinder and based on appreciation of correct facts.
4. The learned Commissioner of Income Tax (Appeals) erred in confirming the order of the assessing officer in assessing the income under the head house property at Rs.2,06,66,410/-without appreciation of correct facts and legal precedents.
5. The learned Commissioner of Income Tax (Appeals) with a wrong notion erred in holding that the income to be treated as business income, the income has to be derived from the activities of running of business or profession and the appellant has no role to play after leasing the business.
6. The learned Commissioner of Income Tax (Appeals) erred with a wrong notion and on pure presumption and surmises, in holding that income derived from letting out of the property is to be treated as Income from House Property.
7. The learned Commissioner of Income Tax (Appeals) erred in confirming the order of assessing officer in not allowing the expenditure and depreciation claimed in the Profit & Loss a/c. against the lease income received.
During the course of appeal hearing, none appeared on behalf of the assessee, inspite of service of notice on the assessee.
3. The Ld.DR submitted that the assessee has declared income by way of rent received to the tune of Rs.2,06,66,410/- and treated the same as business income for the current year. The assessee has claimed expenses to the tune of Rs.88,51,069/- involving bank charges, repairs and maintenance, interest paid to banks, travelling charges, depreciation, PF paid and income tax. He further submitted that by referring to clauses in the lease deed, the AO found that the assessee has leased out the buildings for the period of 10 years for annual rent of Rs.2.50 crores, which was reduced to Rs.1.60 crores per year. He further argued that receiving rent is not the business activity of the assessee. Therefore, the AO concluded that the assessee being the owner shall be liable to tax under income from house property and disallowed certain expenditure. The Ld.CIT(A) also confirmed the same. The Ld.DR pleaded that the order of the Ld.CIT(A) be confirmed.
4. We have heard ld.DR and perused the material placed on record. It is an admitted fact that the building was let out for rent and the assessee had received the income from buildings. The main contention of the revenue is that the assessee has no role to play in running the educational institution after it has leased out its assets except major repairs. Even the maintenance of the building is to be done by the lessee. Hence, day to day operation or management of business is the only duty of the lessee. The assessee did not place any evidence to establish that it incurred the expenditure. Therefore, we do not find any infirmity in the orders passed by the AO as well as the CIT(A) and uphold the same.
5. In the result, appeals of the assessee are dismissed.
Order Pronounced in open Court on 11th May, 2022.
