Case Law Details
New Horizon Logiware (P) LTD Vs ITO (ITAT Delhi)
AO has discussed the facts in detail and the relevant clauses of the lease deed and also mentioned that the said warehouse was already rented to present tenant (Tupperware) by earlier owner from whom assessee has purchased this building in this year. As per AO, the dominant object of the rent agreement is only to enjoy rent-and nothing more. On the other hand, the assessee has pleaded that the main object clause of the memorandum of association clearly mentions that the assessee is engaged in the business of warehousing, transporting and carriage of goods and to provide storage and protection of goods. I further note that both AO as well as assessee relied on the decisions of different Courts including Apex Court, in support of their contentions. The assessee has relied on the judgment of Hon’ble Supreme Court in the case of M/s. Chennai Properties and Investment Ltd Chennai vs CIT and M/s. Rayala Corporation Pvt. Ltd vs ACIT mentioning that the Hon’ble Court decided the issue keeping in view the main object clause of the assessee as per MOA and the rental income earned by assessee was treated as business income not income from house property.
However, now the Hon’ble Supreme Court has settled the issue by considering these two cases alongwith other cases decided by them, as also referred by AO in the assessment order, in the case Raj Dadarakar and Associates vs ACIT 394 ITR 592. In this case, Hon’ble Court, after discussing its earlier decisions, has held that there may be instances where a particular income may fall under more than one head but where ever this is income from leasing out of premises and collecting rent, normally such an income is to be treated as income from house property, in case provisions of section 22 of the Act are satisfied with the primary ingredient that the assessee is the owner of the building or land appurtenant thereto. It has been further held by Hon’ble Court that merely because there is an entry in the objects clause of the business showing a particular object that would not be the determinative factor to arrive at a conclusion that the income is to be treated as income from business.
In the case of the assesseee, after purchasing the warehouse from earlier owner, it has become the sole owner of the property. Though the ownership has been changed on record but the nature of usage of the warehouse remains the same. Before purchasing the warehouse by assessee, the earlier owner was receiving the income from warehouse as rental income and after change of ownership, the nature of payments made by occupier (Tupperware) remains the same. Thus, the nature of transactions or income generated through this warehouse did not change. The basis taken by assessee regarding the clauses of memorandum of association also holds no force now after the aforesaid decision of Hon’ble Supreme Court. In view of this, Ld. CIT(A) has rightly held that income from warehouse has to be assessed under the head income from house property not under the head income from business and profession.
FULL TEXT OF THE ITAT JUDGMENT
This appeal is filed by the Assessee against the order dated 09.11.2017 passed by the Ld. CIT(A), 28, New Delhi relating to assessment year 2014-15 on the following grounds:-
1. On the facts and circumstances of the case and the law, the order passed by CIT(A) upholding the assessment made by Ld. AO for assessment year 2014-15 is bad and illegal in law.
2. On the facts and circumstances of the case and the law, the Ld. CIT(A) has erred in upholding the order passed by Id. AO treating income from leasing of warehouse taxable under the head “Income from House Property”, instead of “Income from Business” as claimed by appellant, on the basis of dominant object of the rent agreement ignoring the fact the appellant’s is primarily engaged in the business of leasing of warehouses.
3. The Ld. CIT(A) has erred, while disposing off the appeal, in distinguishing the Hon’ble Supreme Court judgement in case of Chennai Properties & Investment Limited vs. Commissioner of Income Tax (2015) 313 ITR 0673 (SC) and M/s Rayala Corporation Pvt Ltd., Vs ACIT and applying the law laid down in case of Raj Dadarakar and Associates vs ACIT 394 ITR 592 without understanding ratio of judgement in case of Raj Dadarakar and Associates (Supra) correctly and without appreciating that Hon’ble Apex court has neither dissented with the ratio of judgement in case of Chennai Properties and Investment Ltd. and Rayala Corporation Pvt Ltd. nor it has overruled such ratio in case of Raj Dadarakar and Associates (Supra).
4. Without prejudice to ground no. 2 & 3 above, the Ld. CIT(A) has erred in not adjudicating upon disallowance of expenses amounting to Rs. 1,65,22,093 claimed in the profit & loss account contested in second para of ground no. 1 of the appeal in as much as the said expense consist of expenses amounting to Rs. 3,33,663/- incurred for business purpose and an amount of Rs. 43,553/- being depreciation on the assets other than building, rent from which has been ordered to be taxed under the head “Income from House Property”.
5. The appellant craves leave to add, modify, alter, withdraw any of the ground in course of appellant proceedings.
2. The brief facts of the case are that assessee filed its return of income declaring Nil income on 23.09.2014 after claiming carry forward unabsorbed depreciation/business loss of Rs. 51,77,506/-. The income of assessee comprised of rental income and consultancy. During the assessment proceedings, it was observed by AO that the assessee has purchased a already rented warehouse in Dehradun from M/s. A.S. Cargo Movers Pvt. Ltd and declared the rental income of Rs. 1,36,33,375/-against the said property. However, while computing the income, assessee treated the same as business income and claimed expenses under the heads finance costs, depreciation and other expenses aggregating to Rs. 1,65,13,151/-. The AO proposed the assessee to assess the said business income as rental income on the ground that the dominant intention of letting out the said warehouse is receiving rental income in view of the lease executed between both the parties. The AO discussed the various clauses of the lease deed and arrived at the conclusion that letting out the warehouse by assessee was covered by the provisions of section 22 of the Act and income received out of it, has to be assessed as income from house property. Consequently, he computed the income from warehouse at Rs. (-) 1,51,524/- under this head after allowing the statutory deduction us/ 24(a) and interest expenses u/s 24(b) of the Act. Since the receipts from warehouse was computed by AO under the head of income from house property, the business expenses claimed by the assessee were further disallowed by him and net income under the head business was computed at Rs. 30,72,890/- and assessment was completed u/s. 143(3) of the I.T. Act, 1961 vide order dated 26.09.2016. Against the said assessment order dated 26.9.2016, Assessee appealed before the Ld. CIT(A), who vide his impugned order dated 09.11.2017 has dismissed the appeal of the Assessee. Aggrieved by the impugned order, assessee is in appeal before the Tribunal.
3. Ld. Counsel for the assessee submitted that revenue authorities erred in treating income from leasing of warehouse taxable under the head “Income from House Property”, instead of “Income from Business” as claimed by assessee, on the basis of dominant object of the rent agreement ignoring the fact the appellant’s is primarily engaged in the business of leasing of warehouses. He further submitted that the Ld. CIT(A) has erred, while disposing off the appeal, in distinguishing the Hon’ble Supreme Court judgement in case of Chennai Properties & Investment Limited vs. Commissioner of Income Tax (2015) 313 ITR 0673 (SC) and M/s Rayala Corporation Pvt Ltd., Vs ACIT and applying the law laid down in case of Raj Dadarakar and Associates vs ACIT 394 ITR 592 without understanding ratio of judgement in case of Raj Dadarakar and Associates (Supra) correctly and without appreciating that Hon’ble Apex court has neither dissented with the ratio of judgement in case of Chennai Properties and Investment Ltd. and Rayala Corporation Pvt Ltd. nor it has overruled such ratio in case of Raj Dadarakar and Associates (Supra). It was further submitted that Ld. CIT(A) has also erred in not adjudicating upon disallowance of expenses amounting to Rs. 1,65,22,093 claimed in the profit & loss account contested in second para of ground no. 1 of the appeal in as much as the said expense consist of expenses amounting to Rs. 3,33,663/- incurred for business purpose and an amount of Rs. 43,553/- being depreciation on the assets other than building, rent from which has been ordered to be taxed under the head “Income from House Property”. In view of above, he requested that the appeal of the assessee may be allowed.
4. On the other hand, Ld. DR relied upon the order of the Ld. CIT(A) and stated he has passed a well reasoned order, which does not need any interference on our part.
5. I have heard both the parties and perused the records especially the impugned order. I note that AO has discussed the facts in detail and the relevant clauses of the lease deed and also mentioned that the said warehouse was already rented to present tenant (Tupperware) by earlier owner from whom assessee has purchased this building in this year. As per AO, the dominant object of the rent agreement is only to enjoy rent-and nothing more. On the other hand, the assessee has pleaded that the main object clause of the memorandum of association clearly mentions that the assessee is engaged in the business of warehousing, transporting and carriage of goods and to provide storage and protection of goods. I further note that both AO as well as assessee relied on the decisions of different Courts including Apex Court, in support of their contentions. The assessee has relied on the judgment of Hon’ble Supreme Court in the case of M/s. Chennai Properties and Investment Ltd Chennai vs CIT and M/s. Rayala Corporation Pvt. Ltd vs ACIT mentioning that the Hon’ble Court decided the issue keeping in view the main object clause of the assessee as per MOA and the rental income earned by assessee was treated as business income not income from house property. However, now the Hon’ble Supreme Court has settled the issue by considering these two cases alongwith other cases decided by them, as also referred by AO in the assessment order, in the case Raj Dadarakar and Associates vs ACIT 394 ITR 592. In this case, Hon’ble Court, after discussing its earlier decisions, has held that there may be instances where a particular income may fall under more than one head but where ever this is income from leasing out of premises and collecting rent, normally such an income is to be treated as income from house property, in case provisions of section 22 of the Act are satisfied with the primary ingredient that the assessee is the owner of the building or land appurtenant thereto. It has been further held by Hon’ble Court that merely because there is an entry in the objects clause of the business showing a particular object that would not be the determinative factor to arrive at a conclusion that the income is to be treated as income from business. In the case of the assesseee, after purchasing the warehouse from earlier owner, it has become the sole owner of the property. Though the ownership has been changed on record but the nature of usage of the warehouse remains the same. Before purchasing the warehouse by assessee, the earlier owner was receiving the income from warehouse as rental income and after change of ownership, the nature of payments made by occupier (Tupperware) remains the same. Thus, the nature of transactions or income generated through this warehouse did not change. The basis taken by assessee regarding the clauses of memorandum of association also holds no force now after the aforesaid decision of Hon’ble Supreme Court. In view of this, Ld. CIT(A) has rightly held that income from warehouse has to be assessed under the head income from house property not under the head income from business and profession. The computation made by AO under the head income from house property determining the net loss of Rs. 1,51,524/- was, therefore, rightly upheld and confirmed by Ld. CIT(A), which does not need any interference on my part, hence, I uphold the action of the Ld. CIT(A) on the issue in dispute and reject the grounds raised by the Assessee.
6. In the result, the Appeal of the Assessee is dismissed.
Order pronounced on 05-11-2018.
