Case: Raj Dadarkar Associates  Vs. Acit -Cc-46

2. Few facts giving the background in which aforesaid questions have arisen for consideration, may first be taken note of. These are recapitulated hereinafter:The Maharashtra Housing and Developing Authority ("MHADA") had constructed buildings known as Shyam Sunder Cooperative Society, Ram Darshan Cooperative Society and Sindhu Cooperative Society at Jariwala Compound Market, Opposite Navjivan Post Office, Lamington Road, Mumbai400088. However, there was a reservation for Municipal retail market on the plot on which MHADA had put up the construction. Therefore, MHADA handed over the ground floor [stilt portion] of the above said buildings and admeasuring around 17,925 sq. ft. (hereinafter referred to as the "market portion") to Market Department of Municipal Corporation Greater Bombay ("MCGB"). This land was acquired by the MCGB from the MCGB by recovering the necessary cost.3. In 1993, the Market Department of the MCGB auctioned the market portion on a monthly license [stallage charges] basis to run municipal market. The appellant firm participated in the auction to acquire the right to conduct the market on the market portion. The appellant was the successful bidder and was handed over possession of the market portion on 28.05.1993. The terms and conditions subject to which the appellant was given the said market portion to run and maintain municipal market contained in the terms and conditions of the auction dated 11.03.1993. The premises allotted to the appellant was a bare structure, on stilt, that is, pillar/column, sans even four walls. In terms of the auction, it was the appellant who had to make the entire premises fit to be used a market, including construction of walls, construction of entire common amenities like toilet blocks, etc. Accordingly, after taking possession of the premises, the appellant spent substantial amount on additions/alternations of the entire premises, including demolishing the existing platform and, thereafter, reconstructing the same according to the new plan sanctioned by the MCGB. [Rs. 1,83,61,488/spent from Financial Year2] The appellant constructed 95 shops and 30 stalls of different carpet areas on the premises under the market name "Saibaba Shopping Centre". The appellant also obtained, in terms of the conditions of the auction, necessary registration certificate for running a business under the Shop and Establishment Act and other licenses/permissions from MCGB and other Government andbodies for carrying on trading activities on the said premises. The appellant firm was responsible formaintenance, cleanliness and upkeep of the market premises. The appellant also had to incur/pay water charges, electricity charges, taxes and repair charges.Essentially, the appellant collected the following types of receipt from theees [same rate of stallage charges and on the same terms and condition as given to the appellant the MCGB].(b) Leave & License fees.(c) Service Charges for providing various services, including security charges, utilities, etc.4. The appellant filed the returns of income and right from the year 1999 till 2004, it had been offering the income from the aforesaid shops and stallsby it under the head "Profits and Gains of Business or Profession" of theIncome Tax Act, 1961 (hereinafter referred to as the `Act). The income was also assessed accordingly. However, the case of the appellant for the Financial Yearwas reopened by the respondent by issuing notice under Section 148 of the Act and in response to the same the appellant filed its return on 12.12.2003. Thereafter, notice under Section 143(2) of the Act dated 10.01.2005 was issued and served by the respondent. Reassessment order was framed, computed the income from the shops, and the stalls under head "Income from House Property" of the Act. The reasons given by the respondent for so computing the income under the head "Income from House Property"By virtue of Section 27(iiib) of the Act, the appellant was "deemed owner" of the premises as it had acquired leasehold right in the land for more than 12 years;(ii) In agreements forthe words "lease compensation" were used instead of "license fees" and deposits were referred asdeposits". Further, in some correspondence, like loan application, etc., the words, "lease" were used;(iii) Property tax has been levied on thethe respondent held that the income received by the appellant from the market stalls was assessable as "Income from House Property" under the Act.5. Being aggrieved by the above mentioned reassessment order dated 29.03.2005, the appellant filed an appeal before the Commissioner of Income Tax (Appeals) ["CIT (Appeals)"] on 13.04.2005. The CIT (Appeals) allowed the appeal of the appellant and reversed the action of the respondent on 30.12.2005. Aggrieved by the order dated 30.12.2005 of the CIT (Appeals), the respondent as well as appellant filed appeals before the Income Tax Appellate Tribunal ("ITAT"). The ITAT reversed the order of the CIT (Appeals) and confirmed the action of the Assessing Officer vide its decision dated 10.09.2009. Being aggrieved by the order of the ITAT, the appellant preferred an appeal before the High Court. The High Court, by the impugned order dated 19.09.2014, dismissed the appeal filed by the appellant.6. It is this judgment of the High Court against which present appeals, via Special Leave to Appeal, have been filed.

Reasoning: 10. We have considered the aforesaid submissions of counsel for the parties in the light of legal provisions contained in the Act. We may remark at the outset that it is not in dispute that having regard to the terms and conditions on which the leasehold rights were taken by the appellant in auction, constructed the market area thereupon and gave the same to various persons onbasis, the appellant would be treated as deemed owner of these premises in terms of Section 27(iiib) of thethe present case, the appellant is held to be "deemed owner" of the property in question by virtue of Section 27(iiib) of the Act. On the other hand, under certain circumstances, where the income may have been derived from letting out of the premises, it can still be treated as business income if letting out of the premises itself is the business of the assessee.The ITAT being the last forum insofar as factual determination is concerned, these findings have attained finality. In any case, as mentioned above, the learned counsel for the appellant did not argue on this aspect and did not make any efforts to show as to how the aforesaid findings were perverse. It was for the appellant to produce sufficient material on record to show that its entire income or substantial income was from letting out of the property which was the principal business activity of the appellant. No such effort was made.19. Reliance placed by the appellant on the judgments of this Court in Chennai Properties & Investments Ltd. and Rayala Corporation (P) Ltd. would be of no avail. In Chennai Properties & Investments Ltd. where one of us (Sikri, J.) was a part of the Bench found that the entire income of the appellant was through letting out of the two properties it owned and there was no other income of the assessee except the income from letting out of the said properties, which was the business of the assessee. On those facts, this Court came to the conclusion that judgment of this Court in Karanpura Development Co. Ltd. v. CIT, (1962) 44 ITR 362  was applicable and the judgment of this Court in East India Housing and Land Development Trust Ltd. v. CIT, (1961) 42 ITR 49  was held to be distinguishable. In the present case, we find that situation is just the reverse. The judgment in East India Housing and Land Development Trust Ltd. which would be applicable which is discussed in para 8 of Chennai Properties & Investments Ltd. case and the reproduction thereof would bring home the point we areWith this background, we first refer to the judgment of this Court in East India Housing and Land Development Trust Ltd. case [East India Housing and Land Development Trust Ltd. v. CIT, (1961) 42 ITR 49 (SC)] which has been relied upon by the High Court. That was a case where the company was incorporated with the object of buying and developing landed properties and promoting and developing markets. Thus, the main objective of the company was to develop the landed properties into markets. It so happened that some shops and stalls, which were developed by it, had been rented out and income was derived from the renting of the said shops and stalls. In those facts, the question which arose for consideration was: whether the rental income that is received was to be treated as income from the house property or the income from the business? This Court while holding that the income shall be treated as income from the house property, rested its decision in the context of the main objective of the company and took note of the fact that letting out of the property was not the object of the company at all. The Court was therefore, of the opinion that the character of that income which was from the house property had not altered because it was received by the company formed with the object of developing and setting up properties.In Rayala Corporation (P) Ltd., fact situation was identical to the case of Chennai Properties & Investments Ltd. and for this reason, Rayala Corporation (P) Ltd. followed Chennai Properties & Investments Ltd., which is held to be inapplicable in the instant case.