Case: The Commissioner of Income Tax-12 Vs. M/S. Sane &amp; Doshi Enterprises

1. These appeals were heard together and are being disposed of by a common order. That is because common questions and submissions are raised by parties.2. Both sides agree that for the sake of convenience, the facts in Income Tax Appeal No.5313 of 2010 can be referred to. Thebefore us is common to all appeals and it is engaged in the real estate business and constructed a commercial complex viz. May Fair Tower. It is stated to be a partnership firm registered under the Indian Partnership Act, 1932. It filed its return of income for the assessment yeardated 25th October, 2000, declaring total income at Rs.5,51,81,680/including rental income of Rs.45,57,272/and claimed deduction under section 24(a) of the Income Tax Act,1961 (hereinafter referred to as the IT Act) of Rs.This claim of the assessee was not accepted by the Assessing Officer. The Assessing Officer treated the rental income as business income on the ground that the receipts from this property were on account of exploitation of commercial assets and as such, it is the business profit of the assessee. He further observed that the assessee is engaged in the business of construction of building with a view to sell the same and not for leasing it. Thus, leasing of unsold units is an integral part of its business. Hence the income earned on leasing was business income. The assessment order was passed on 29th March, 2006.3. The assessee, aggrieved by this order, preferred an appeal before the Commissioner of Income (Appeals). The Commissioner passed an order on 19th September, 2006 (Annexure C) partly allowing the appeal. The Commissioner concluded that the claim of the assessee of expenses of Rs.45,00,000/should have been allowed. Therefore, ground No.5 in the Memo of Appeal before the Commissioner and raised by the assessee came to be accepted.4. The Commissioner also accepted the ground of the assessee and pertaining to the charge of rental income. The Commissioner found substance in the assessees grievance and held that this should be treated as income from house property. Thus, Grounds 2, 3 and 4 in the Memo of Appeal came to be allowed Ground No.5 was also allowed. However, the Assessing Officers order to the extent of disallowance of Rs.1,80,000/as compensation amount was confirmed. That is how the Commissioner partly allowed the appeal.5. We are not concerned with the other aspect and particularly about the compensation amount. It is common ground that we are concerned with Ground Nos.2, 3, 4 and 5 which have been allowed by the Commissioner.

Reasoning:
The problem arose when the assessee abruptly deviated from the accounting practice by taking out only two itemsrental receipts and property taxes from house property and claimed huge deduction under section 24(a). For the reasons that have been assigned by the Revenue and noted hereinabove, particularly of non maintenance of separate accounts and bifurcation that the deduction was rightlywe are not required to refer to all the Memos of Appeal and the individual facts therein or the view taken by the authorities under the I.T. Act simply because the points or questions raised are common to all of them. We have noted not only the rival stands as emerging from the oral arguments, but from the written submissions only because Mr. Chhotaray submits that the enormity of the Revenue and the impact of the view taken by the Tribunal on other matters requires us to give anconsideration. If this order has become rather bulky, then the reasons for the same areincome received by the appellant from shops is indisputably income from property; so is the income from stalls from occupants. The character of the income is not altered merely because some stall remain occupied by the same occupants and the remaining stalls are occupied by a shifting class of occupants. The primary source of income from the stalls is occupation of the stalls, and it is a matter of little moment that the occupation which is the source of the income is temporary. Theauthorities were, in our judgment, right in holding that the income received by the appellant was assessable under section 9 of the. We do not find that the emphasis by Mr. Chhotaray and on certain aspects which allegedly missed and escaped the attention of the Tribunal would enable us to take any different view. Even if what has been emphasised by Mr. Chhotaray is taken into account, what the underlying test and as evolved throughout is whether the income has been derived from property. The treatment given in the books of account aswould not, therefore, alter the character or the nature of the income as held by the Honble Supreme Court. If there is a test and which is in the field and emerging from repeated judgments rendered either by the Honble Supreme Court or by other High Courts, then, even if Mr. Chhotarays additional questions are taken into account, a different conclusion cannot be reached. Mr. Chhotaray was at pains to rely on certain judgments and wherein, according to him, the treatment given to the income would be decisive.We cannot ignore the fact that when the assessee was in business, set up factories and entire infrastructure for carrying out certain manufacturing activities suffered losses and thereafter inducted a third party as licencees therein to continue the business. In that really it was found that the assessee generated the income as licence fees and a share in profits. Admittedly and undisputedly this was generated from the factory and from thewhich have been given on leave and licence basis. It is in relation to that the Supreme Court held that it is important to lay down a precise test as to whether an income be given the nomenclature, lease amount, rents, licence fee received by an assessee from leasing or letting out of assets would fall under the head Profits and gains of business or profession. Pertinently the Supreme Court held that it is a mixed question of law and fact and has to be determined from the point of view of a businessman in that business, on the facts and in the circumstances of each case, including true interpretation of the agreement under which the assets are let out. Where all the assets of the business are let out, the period for which the assets are let out is a relevant factor to find out whether the intention of the assessee is to go out of business or to come back and restart the same.28. We do not think that the reliance by Mr. Chhotaray on this decision is well placed. The tests which have been evolved by the Honble Supreme Court and which are summarised and noted above themselves indicate that the matter has to be approached by referring and taking into account the facts and circumstances of each case. These are not general tests or rules which have been laid down. They have been evolved and that is how we do not think that reliance by the Revenue on this decision would carry the matter any further. Equally, we do not think that any factual aspect and particularly on the conduct of the assessee and the treatment or non treatment in the books of account would carry the matter further. Eventually, the character and nature of the income is determinative and decisive and it is not the treatment that the assessee gives it in its books of account which would enable us to come to any conclusion. If the legal propositions which have been invoked and the deductions claimed are to be granted by applying the tests evolved and the parameters laid down, the governing conditions would be as to whether the deduction is permissible given the clear language of the section or provision and whether that is applicable to the facts and circumstances of a given case. Similarly, we do not think that the reliance on the judgment of the Honble Supreme Court in the case of Commissioner of Incometax vs. Maheshwari Devi Jute Mills Ltd. would assist the Revenue. The Madras High Court case ought to be then noticed. There, the assessee was a company carrying on business as authorised dealers in Tata diesel vehicles in a building on Mount Road in Madras. The building consisted of three floors including the ground floor. While the ground floor and the first floor were used for the assessees business, the second floor was let out to a Government department. In the assessment years7, the assessee claimed that the rental receipts in respect of the second floor should be considered under the head business as the entire property has been constructed with a view to use the same for the purpose of its business and that the surplus accommodation due to its shifting of branches outside Madras was let out. TheOfficer rejected the contention and treated this income as income from property disallowing the deduction claimed under the head business towards repairs. The matter was carried by the assessee before the Tribunal and it allowed the claims. On a reference by the Tribunal, the Honble High Court of Madras held that as the building in question was a commercial asset, the assessee could exploit it either by itself or by letting it to others. Therefore, in a matter like this, the fundamental position that had been asserted was whether a particular building or premises was a commercial asset or a house property. If the premises were a commercial asset, then, the income derivedwould amount to business income, otherwise it would be income derived from property assessable under the head Property income. If on the facts, the Tribunal found that this was a commercial asset of the assessee used by it from the very beginning as such, then, the letting out of the second floor premises and the income derived by way of rentwas rightly assessable under the head business income. In holding and taking the above view, the Honble Madras High Court distinguished the judgments and particularly in the case of East India Housing and Land Development Trust Ltd. We do not think that such a view and essentially confined to the facts of that assessees case would enable the Court on the Revenue in this matter to interfere with the concurrent findings of the Commissioner and that of the Tribunal. Eventually, as the Madras High Court held, the fundamental position had to be ascertained and that was whether a particular building or premises was a commercial asset or a house property.29. We do not think that when the Tribunal relied upon the judgment of the Honble Supreme Court in the case of East India Housing, it had committed any error of law or acted perversely. Therefore, assuming that we can allow any mixed questions to be raised for the first time, raising them does not enable the Revenue to urge and contrary to what is held by theis in that peculiar fact situation that the Supreme Court took the view and with regard to the nature of income. We are of the view that on the essential contentions raised before the Tribunal and as elaborated or additionally proposed before us a different view than the one taken by the Tribunal is not possible.We do not think that the Assessing Officers view having been interfered with in such a scenario that any substantial question of law arises for our determination and consideration. Thus, the appeals fail on these twois the conclusion which was before the Tribunal and the Tribunal found that the assessee had earned substantial rental income and, therefore, the interest on borrowed funds has to be allowed. The Tribunal also perused the ProfitLoss account and where the closing stock was shown as Nil. The Tribunal presumed that the entire income is related to the premises which were let out by the assessee. Therefore, there is no reason to interfere with the order of thethe entire basis was that there must emerge a relationship of borrower and lender. The Partnership Act was referred to and it was held the firms partners are indistinguishable from one another. It is only by a legal fiction that interest on capital is allowed as a deduction from business income. No such legal fiction has been created under the head Income from house property. Since the amount is held as not a borrowing for the purposes of section 24(b), the question of nexus between the capital contribution of the partners and its use for acquisition / construction of relevant properties is not relevant. He, therefore, confirmed the order of the Assessing Officer by such reasoning.The Tribunal held that if a similar issue was involved in the immediately preceding assessment yearand there a finding was rendered in favour of the assessee by the Commissioner (Appeals), then, it was not possible to take a different view particularly because that finding of the Commissioner was upheld by the Tribunal by its order dated 20th April, 2010. If the facts and circumstances in which the claim arose were identical, then, the Tribunal concluded that a different view on facts was impossible.42. We do not think that any larger question or wider controversy needs to be determined. If the matter was approached in this angle by the Commissioner and in the same factual backdrop, then, there is no justification for taking a contrary view. If two conflicting views of the Commissioner were placed before the Tribunal and the Tribunal found that it had concurred with one of those views and that the view with which it concurred prevails, then, we do not think how the Revenue can raise this issue. The issue has been considered bearing in mind the typical factual background. If the entire interest paid on the partners capital was related to the premises which were let out by the assessee but the construction thereof came from the contributions of the partners, then, the interest was due and payable to them. That interest was payable not only in terms of the general principle of partnership and highlighted in the Indian Partnership Act, 1932, but also on the broad consideration under section 24(b) of the Income Tax Act, 1961. If the income is income from house property and that is a deduction which could be granted from the same we do not think that the Revenue should be permitted to raise this ground. Even otherwise, the finding being consistent with the factual position which is not disputed, then all the more even this ground cannot be considered as a substantial question of law. We do not think any reference is required to the detailed written submissions or the case laws in this regard.