Case Law Details
T.R. Mills (P.) Ltd. Vs ITO (ITAT Bangalore)
There is no dispute that the assessee discontinued its business of textile mill and let out the factory premises to the following persons :–
(i) Professional Marketing Group.
(ii) Frontline Marketing.
(iii) Indras Agency.
It is also not disputed that leasing of plant and machinery, godown, and building is one of the business objects of the assessee company as per the Article of Association and Memorandum of Association. It is not the case of the assessee that it has temporarily closed the business activity due to some lull, but the business of textile mill has been permanently discontinued. Therefore the business asset of the assessee company were let out to different persons. Since the assessee has received the rentals from letting out of not the building structure only but it is a factory premises including all fittings and fixtures. Therefore in the facts and circumstances of the case, when the business asset of the assessee is let out but after discontinuing the business activity of the textile mill then the rental income cannot be treated as income from house property however the same would be assessed as income from other sources. Since the factory building was neither acquired nor held by the assessee for the purpose of letting out but it was held by the assessee for its textile business which was discontinued then for the claim of business income cannot be accepted. Accordingly, in view of the above discussion, the assessing officer is directed to assess the rental income as income from other sources and allow the deductions as per section 57 of the Act as well as the expenditure on maintenance of the company in existence.
Full Text of the ITAT Order is as follows:-
This appeal by the assessee is directed against the order dt. 25-6-2014 of Commissioner (Appeals)-III, Bangalore for the assessment year 2006-07.
2. The assessee has raised the following grounds :–
1. The order of the learned Commissioner (Appeals) insofar as it is prejudicial to the interest of the appellant, is bad and unsustainable in the eye of law.
2. Commissioner (Appeals) grossly erred in confirming the treatment of income from business as income from house property, without properly appreciating facts in proper perspective; and hence the addition was bad in law.
3. Without prejudice, the Commissioner (Appeals) ought to have appreciated that even memorandum of association as well as Articles of Association mandated the letting/leasing and hence the income there from was nothing but business income under section 28 of the Act and hence ought to have held that the addition as made by the assessing officer was unsustainable in the eye of law.
4. Without prejudice, the Commissioner (Appeals) ought to have allowed netting of the expenditure, incurred towards staff, employees, security and other staff involved in maintenance of godowns 86 Buildings which are business expenditure incurred in the business of Leasing of the appellant.
5. Commissioner (Appeals) ought to have followed plethora of decisions of the Hon’ble Supreme court and allowed the claim of the appellant.
6. For these and such other grounds that may be urged at the time of hearing, the Appellant prays that the appeal may be allowed.
3. The only dispute raised in this appeal is regarding the rental income from leasing of property owned by the assessee was assessed by the assessing officer as income from house property as against the income from business claimed by the assessee. The assessee discontinued the business of textile mills and leased out the factory premises. The income from leasing out of the factory premises was offered by the assessee as business income. However the assessing officer has assessed the rental income as income from house property. The assessee challenged the action of the assessing officer before the Commissioner (Appeals) and submitted that the object of the assessee in the Memorandum of Association includes leased out of property and therefore the income arises would be business income. The Commissioner (Appeals) did not accept the contention of the assessee and confirmed the action of the assessing officer in assessing the said income as income from house property.
4. Before the Tribunal, the learned Authorised Representative of the assessee has submitted that the assessee has leased out its business asset being factory premises due to the reason that the textile business of the assessee was discontinued. He has further contended that due to the recession in the business the assessee discontinued the business of textile mill and let out the factory building. He has further submitted that the leasing out of the plant and machinery and building is provided as business activity of the assessee as per Article of Association and Memorandum of Association. He has referred to Clauses 14 to 17, 37 to 39 of Memorandum of Association and submitted that in accordance with the clauses of Memorandum of Association leasing out the plant, furniture, etc to commercial undertaking is a business activity of the assessee. Thus the lease rental of commercially leased out the premises is business income of the assessee. In support of his contention, he has relied upon the decision of Hon’ble Supreme Court in the case of Chennai Properties & Investments Ltd. v. CIT (2015) 373 ITR 673 (SC) and submitted that Hon’ble Supreme Court after considering the Memorandum of Association of the said company containing main objects as well as incidental or ancillary objections held that letting of property is business of the assessee and therefore it was rightly disclosed the income under the head “Income from Business”.
5. On the other hand, the learned Departmental Representative has relied upon the orders of the authorities below and submitted that the only source of income returned by the assessee is rental income and there is no other business activity of the assessee during the year under consideration. Therefore once the assessee has closed his business activity then the rental income of the factory building cannot be treated as business income. He has further submitted that the letting out of the property and machinery is not the main business object of the assessee as in the case of Chennai Properties & Investments Ltd. (supra) therefore the Hon’ble Supreme Court decision is not applicable in this case.
6. I have considered the rival submissions as well as the material available on record. There is no dispute that the assessee discontinued its business of textile mill and let out the factory premises to the following persons :–
(i) Professional Marketing Group.
(ii) Frontline Marketing.
(iii) Indras Agency.
It is also not disputed that leasing of plant and machinery, godown, and building is one of the business objects of the assessee company as per the Article of Association and Memorandum of Association. It is not the case of the assessee that it has temporarily closed the business activity due to some lull, but the business of textile mill has been permanently discontinued. Therefore the business asset of the assessee company were let out to different persons. Since the assessee has received the rentals from letting out of not the building structure only but it is a factory premises including all fittings and fixtures. Therefore in the facts and circumstances of the case, when the business asset of the assessee is let out but after discontinuing the business activity of the textile mill then the rental income cannot be treated as income from house property however the same would be assessed as income from other sources. Since the factory building was neither acquired nor held by the assessee for the purpose of letting out but it was held by the assessee for its textile business which was discontinued then for the claim of business income cannot be accepted. Accordingly, in view of the above discussion, the assessing officer is directed to assess the rental income as income from other sources and allow the deductions as per section 57 of the Act as well as the expenditure on maintenance of the company in existence.
7. In the result, the appeal of the assessee is partly allowed.
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