Kanyaka Parameswari Rice Mill Vs ITO (ITAT Visakhapatnam)
In this case Since the rice mill owned by the assessee was let out to another rice mill and the rental income was received without carrying on any business activity or rendering any services incidental to carrying on the rice mill, therefore, the AO rightly assessed the income under the head ‘Income from other sources’.
FULL TEXT OF THE ITAT JUDGMENT
This appeal filed by the assessee is directed against order of the Commissioner of Income Tax (Appeals) {CIT(A)}, Vijayawada vide appeal No.265/MTM/CIT(A)/VJA/09-10 dated 31.12.2014 for the assessment year 2007-08.
2. Ground No.1 & 4 are general in nature, which does not require specific adjudication.
3. Ground No.2 is related to the assessment of income under the head “income from other sources” against the admission of income by the assessee under the head “business income”. The assessee filed the return of income declaring loss of ` 1,51,438/- under the head “business income”. The assessee derives income from leasing of its rice mill comprising of building and machinery. The A.O. selected the case for scrutiny and found that as per the lease deed, the rent accrued was ` 4,81,000/- towards building rent, machinery rent, municipal tax, land tax, etc. against the admission of income of ` 4,50,000/- as rent received. The assessee admitted the income under the head ‘business income’. The assessing officer further observed that the assessee did not provide any services or amenities nor did it has provided any such services to the lessee except leasing out the property and receiving the rent from the rice mill. The assessee also did not carry on any business activity. Hence, the A.O. assessed the income on leasing of the rice mill under the head ‘income from other sources’. The A.O. relied on the decision of Hon’ble Supreme court in the case of M/s. Sultan Brothers Pvt. Ltd. Vs. CIT 51 ITR 353 (SC) wherein Hon’ble Apex court held as under:
“We do not think that the cases cited lay down a test for deciding when a letting amounts to a business. We do not further think that a thing can by its very nature be a commercial asset. A commercial asset is only an asset used in a business and nothing else, and business may be carried on with practically all things. Therefore, it is not possible to say that a particular activity is business because it is concerned with an asset with which trade is commonly carried on. We find nothing in the cases referred, to support the proposition that certain assets are commercial assets in their very nature. ”
4. Aggrieved by the order of the A.O., the assessee went on appeal before the CIT(A) and the Ld. CIT(A) confirmed action of the A.O. in assessing the income under the head ‘income from other sources’.
5. Aggrieved by the order of the Ld. CIT(A), the assessee is in appeal before us. During the appeal hearing, the Ld. A.R. submitted that the assessee owned a rice mill, shed, godowns and machinery and leased the premises to another rice mill i.e. M/s. Sri Kanyaka Parameswari Rice Mill Contractors Company, (hereinafter called as a ‘lessee’) for annual lease rent of ` 4,50,000/-. Since the assessee has constructed a commercial asset and exploiting the commercial asset, the assessee has rightly offered the income under the head ‘business income’. The ld.AR further argued that the intention of the assessee is to do business by exploitation of commercial asset, thus the income of the assessee is to be assessed under the head ‘business income’ but not under the head other sources. The Ld.AR argued that the orders of Ld. CIT(A) may be set aside and direct the A.O. to assess the income under the head ‘business income’.
6. On the other hand, the Ld. D.R. argued that the assessee owns rice mill which is leased to the lessee. The assessee is not carrying any business activity in the rice mill. As rightly observed by the A.O., the assessee has not provided any services to the lessee. Therefore, the Ld. D.R. of the view that both the A.O. as well as the CIT(A) have rightly held the income under the head ‘income from other sources’ and no interference is called for in this case.
7. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. In this case, the A.O. as well as the Ld. CIT(A) has treated the income from letting out of the rice mill as ‘income from other sources’ and followed the decision of Hon’ble apex court in the case of M/s. Sultan Brothers Pvt. Ltd. Vs. CIT (supra). The Hon’ble ITAT, Visakhapatnam has an occasion to consider the issue with regard to the leased income of poultry complex. The assessee had offered the rental income from its leased out poultry complex under the head ‘business income’. The A.O. has assessed the same as ‘income from other sources’ and Hon’ble ITAT confirmed the action of the A.O. in assessing the income under the head ‘income from other sources’ in the case of ITO Ward-4(1) Vs. Pujya Sujatha Agro Farms Pvt. Ltd. 12 taxmann.com 457, (Visakhapatnam). Similarly, Hon’ble Delhi High court in the case of Garg Dyeing & Processing Industries Vs. ACIT reported in 28 taxmann.com 287 held that letting out of building and letting out of fixtures, fittings, air conditioning, plant, furniture were inseparable rental income is assessed as income from other sources. Hon’ble ITAT Bangalore Bench in the case of T.R. Mills Pvt. Ltd. Vs. ITO Ward-12(2), Bengaluru in 84 taxmann.com 74 (Bangalore Trib.) held that the business asset including of fittings and fixtures was let out but after discontinuing business activity of textile mill, rental income could not be treated as income from ‘house property’ and the same would be assessed as income from other sources. In the instant case, the assessee owns a rice mill and let out the rice mill to another rice mill and receiving the rental income without carrying on any business activity or rendering any services incidental to carrying on the rice mill. Therefore, the case laws cited (supra) and the decision of Hon’ble apex court in the case of M/s. Sultan Brothers Pvt. Ltd. (supra) relied upon by the lower authorities are squarely applicable and the lower authorities have rightly assessed the income under the head ‘income from other sources’. Accordingly, we uphold the order of the Ld. CIT(A) on this ground and dismiss the appeal of the assessee.
8. Ground No.3 is related to the disallowance of expenditure incurred by the assessee, denial of depreciation and set off of unabsorbed depreciation. In the assessment order, the assessing officer did not allow the unabsorbed depreciation claimed by the assessee. The A.O. has not given any reason for denying the set off of unabsorbed depreciation of earlier years. However, the A.O. allowed the current year depreciation u/s 57(ii) of the Act. Depreciation is an allowance and section 32 of the Act provides for depreciation on assets used for the purpose of businesses. Section 32(2) of the Act provides for carry forward and set off of unabsorbed depreciation. Section 32(2) of the Act reads as under:
“Depreciation.
Section 32(2) where, in the assessment of the assessee, full effect cannot be given to any allowance under sub-section (1) in any previous year, owing to there being no profits or gains chargeable for that previous year, or owing to the profits or gains chargeable being less than the allowance, then, subject to the provisions of sub-section (2) of section 72 and sub-section (3) of section 73, the allowance or the part of the allowance to which effect has not been given, as the case may be, shall be added to the amount of the allowance for depreciation for the following previous year and deemed to be part of that allowance or i f there is no such allowance for that previous year, be deemed to be the allowance for that previous year, and so on for the succeeding previous years. ”
9. The unabsorbed depreciation of earlier year is considered as the depreciation allowance of the succeeding year, therefore, the unabsorbed depreciation allowance appearing, if any shall be added to the allowance for the depreciation of the succeeding year and deemed to be part of the allowance for current year and and hence eligible for set off against business income and any other head of income for that year of succeeding year. There are no conditions regarding the discontinuance of business. This issue has been considered by the coordinate bench of ITAT Delhi in Nanak Ram Jaisinghani Vs. ITO Ward-13(1), New Delhi reported in (2018) 92 taxmann.com 86 (Delhi Trib.) and held that unabsorbed depreciation and brought forward loss can be set off against income from other sources. For ready reference, we extract relevant paragraph of the order of the coordinate bench cited (supra):
