ITO Vs M/s. United White Metal Ltd. (ITAT Mumbai)
We noticed that the rental income of the assessee was to the tune of Rs.2,16,00,000/- which has been shown as income from business. However, the AO declined the claim of the assessee on the basis of this fact that the no activity of business was going on, therefore, the said rental income was treated as income from house property and accordingly, the deduction u/s 24(a) and 23(1) of the Act was allowed and the remaining income in sum of Rs.1,19,73,405/- was treated as income from house property and accordingly taxed. Initially the business of the assessee was of the manufacturing of engineering goods/components/spares which was discontinued since many years ago. Thereafter, the assessee changed its business for development of real estate. The assessee converted its land into stock in trade w.e.f 07.08.2008. Schedule 8 on the balance-sheet shows Rs.109,94,65,193/- as inventory of property.
The assessee entered into the development agreement with Rajesh Real Estate Development P. Ltd. on 12.07.2010 for the development of the land. Earlier the assessee also agreed to alienate the larger portion of the land to Rajesh Estate and Nirman Limited by virtue of letter dated 20.12.2007. The assessee has also converted its land from industrial zone to residential use and necessary permission was also talen. All the activity speaks that the assessee was in the business activity. The assessee was maintaining the office and also the paying the salary to its employee and also incurring the other expenses such as travelling and other administrative expenses etc.
The assessee temporarily letting out the premises to Broker India P. Ltd. by virtue of leave and license agreement dated 17.04.2009. The property was given on leave and licence basis till the approval of the real estate project. The memorandum and Articles of Association permits letting and leasing of property which is the business of the appellant company. The CIT(A) has relied upon the case decided by Hon’ble Apex Court titled as Chennai Properties & Investment Ltd. V. CIT (2015) 277 CTR 0185 (SC).
It also came into notice that in the earlier assessment order u/s 143(3) of the Act, the revenue has accepted the rent as business income. The facts are not distinguishable at this stage also. There is no other distinguishable material on record to which it can be assumed that the income of the assessee on letting out the property falls within the purview of house property. Taking into account, all the facts and circumstances, we are of the view that the finding of the CIT(A) is quite correct and in accordance with law which is not liable to be interfere with at this appellate stage. Accordingly, these issues are being decided in favour of the assessee against the revenue.
FULL TEXT OF THE ITAT JUDGMENT
The revenue has filed the present appeal against the order dated 20.09.2016 passed by the Commissioner of Income Tax (Appeals) -20, 1Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the A.Y.2012-13.
2. The revenue has raised the following grounds: –
“1.Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A} was justified in allowing the income under contention, as income under the head “Profits and Gains of Business or Profession” instead of “Income from House Property” as considered by the AO without appreciating that the decision of Hon’ble Supreme Court in the case of Chennai Properties & Investments Ltd. Vs. CIT (2015) 373 ITR 673(SC) is not applicable to the facts of the assesses as the assessee is in the business of manufacturing of engineering goods during the financial year under consideration.
2. The appellant prays that the order of the Id. ClT (A) on the grounds be set aside and that of the Assessing Officer be restored.
3. The appellant craves leave to add, amend or alter all or any of the grounds of appeal which may be necessary.”
3. The brief facts of the case are that the assessee filed its return of income on 20.09.2012 declaring total income to the tune of Rs.2,14,090/-claiming TDS credit to the tune of Rs.21,60,000/-. The return was processed u/s 143(1) of the I.T. Act, 1961. Thereafter, the case was selected for scrutiny and notices u/s 143(2) & 142(1) of the Act were issued and served upon the assessee. The assessee company was earlier engaged in the manufacturing business of engineering goods/components/spares. The manufacturing activity was discontinued since many years ago. At the present, assessee company has claimed that he was in the business of development of real estate. The assessee company was not found to the carried out any real estate development business activity, therefore, his rental income to the tune of Rs.2,16,00,000/- was treated as income from house property and after further deduction u/s 24(a) of the Act and 23(1) of the Act, the rental income to the tune of Rs.1,19,73,405/- was brought to tax as income from house property. The total income of the assessee was assessed to the tune of Rs.1,24,48,466/-. Feeling aggrieved, the assessee filed an appeal before the CIT(A) who allowed the claim of the assessee, therefore, the revenue has filed the present appeal before us.
4. We have heard the argument and advanced by the Ld. Representative of the parties and perused the record. The revenue has challenged the acceptance of the claim of rental income of the assessee as income from business or profession instead of income from house property. Before going further, we deemed it necessary to advert the finding of the CIT(A) on record.: –
“11 I have considered the submissions of the appellant carefully. The profit and loss account shown for current and preceding year is summarized below.
