M/s. Prolific Consultancy Services Pvt. Ltd., (now known as Prolific Ventures Pvt. Ltd.) v. Income-tax Officer, Ward-8(2)(4), Mumbai
[Citation -2016-LL-0919-19]

Citation 2016-LL-0919-19
Appellant Name M/s. Prolific Consultancy Services Pvt. Ltd., (now known as Prolific Ventures Pvt. Ltd.)
Respondent Name Income-tax Officer, Ward-8(2)(4), Mumbai
Court ITAT-Mumbai
Relevant Act Income-tax
Date of Order 19/09/2016
Assessment Year 2003-04
Judgment View Judgment
Keyword Tags profits and gains of business • income from house property • mistake apparent on record • commercial exploitation • repair and maintenance • income from business • commercial asset • rental income • letting out
Bot Summary: The issue involved in the above stated appeals was as to the rental income earned by the assessee from sublease of the property which was taken on lease by the assessee whether to be assessed under the head income from house property or as business income of the assessee. Now through the present miscellaneous petitions, the assessee has come with the pleading that in the light of the decision of the Hon ble Supreme Court in the case of Chennai Properties Investments Ltd. decided vide order dated April 9, 2015; the rental income earned by the assessee from sublease of the property is required to be assessed as business income of the assessee. The Ld. Counsel has further relied upon a subsequent decision of the Hon ble Supreme Court in the case of M/s. Rayala Corporation Pvt. Ltd. vs. ACIT vide order dated August 11, 2016 and has therefore submitted that since the income earned by the assessee during the year was only from subleasing of the premises, hence the said income was required to be assessed as business income of the assessee and not under the head income from house property. Since the assessee is deemed owner of the property and had received rental income, the same has been rightly held assessable as income from house property. Then the income is to be assessed as business income of the assessee as held subsequently by the Hon ble Supreme Court in the case of Chennai Properties Investments Ltd. It is pertinent to mention here that the Hon ble Supreme Court in the case of Chennai Properties Investments Ltd. has relied upon another decision of the Tribunal of the Hon ble Supreme Court in the case of Karanpura Development Company Ltd. which was well considered by the Tribunal while passing the impugned order dated 14.08.13. The Tribunal in its wisdom has held that the facts of the case of the assessee do not suggest that the assessee was in the business of commercial exploitation of the property or leasing out of the properties and held that the income earned by the assessee from the sublease of the premises was simple case of letting out of the property and thus income there from was assessable under the head Income from the house property. The Hon ble Supreme Court rejected the above contention and held that since the assessee company had stopped all other activities except the business activity of leasing its property or earning rent there from and therefore the business of the company was to lease its 9 MA No.81 to 86/M/2016 M/s. Prolific Consultancy Services Pvt. Ltd. property and to earn rent and therefore the income so earned should be treated as its business income.


IN INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH C, MUMBAI BEFORE SHRI SANJAY ARORA, ACCOUNTANT MEMBER AND SHRI SANJAY GARG, JUDICIAL MEMBER MA No.81/M/2016 (Arising out of ITA No.2367/M/2011 date of decision: 14.08.2013) Assessment Year: 2003-04 MA No.82/M/2016 (Arising out of ITA No.3426/M/2010 date of decision: 14.08.2013) Assessment Year: 2004-05 MA No.83/M/2016 (Arising out of ITA No.3425/M/2010 date of decision: 14.08.2013) Assessment Year: 2005-06 MA No.84/M/2016 (Arising out of ITA No.3424/M/2010 date of decision: 14.08.2013) Assessment Year: 2006-07 MA No.85/M/2016 (Arising out of ITA No.8143/M/2011 date of decision: 14.08.2013) Assessment Year: 2007-08 MA No.86/M/2016 (Arising out of ITA No.458/M/2012 date of decision: 14.08.2013) Assessment Year: 2008-09 M/s. Prolific Consultancy Income Tax Officer, Services Pvt. Ltd., Ward 8(2)(4), (now known as Prolific Mumbai Ventures Pvt. Ltd.), Vs. Wilson House, Nagardas Road, Andheri (E), Mumbai 400 069 PAN: AACCP5402E (Appellant) (Respondent) Present for: Assessee by : Shri Firoz B. Andhyarujina, A.R. Revenue by : Shri Pavan K. Beerla, Sr. A.R. Date of Hearing : 26.08.2016 Date of Pronouncement : 19.09.2016 2 MA No.81 to 86/M/2016 M/s. Prolific Consultancy Services Pvt. Ltd. ORDER Per Sanjay Garg, Judicial Member: above captioned miscellaneous applications have been moved by assessee under section 254(2) of Act pleading that error apparent on record has occurred in common order dated 14.08.13 passed in relation to ITA Nos.2367/M/2011 and others as mentioned above relating to assessment years 2003-04 to 2008-09. issue involved in above stated appeals was as to rental income earned by assessee from sublease of property which was taken on lease by assessee whether to be assessed under head income from house property or as business income of assessee. Tribunal, after considering relevant submissions of parties, vide order dated 14.08.13 held that rental income earned by assessee from sublease of premises was to be assessed as income from house property . However, Tribunal had accepted contention of assessee that income in relation to any services provided by assessee was to be assessed as income from other sources . 2. Now through present miscellaneous petitions, assessee has come with pleading that in light of decision of Hon ble Supreme Court in case of Chennai Properties & Investments Ltd. (civil appeal No.4494 of 2004 & others) decided vide order dated April 9, 2015; rental income earned by assessee from sublease of property is required to be assessed as business income of assessee. It is say of Ld. Counsel for assessee that in subsequent decision of Hon ble Supreme Court in case of Chennai Properties & Investments Ltd. (supra), correct legal position has been stated and that decision of Hon ble Supreme Court is law of land. Therefore mistake has occurred in order dated 14.08.2013 (supra) of this Tribunal. He has also relied upon CBDT circular No.68 dated 17.11.1971 to contend that mistake arising as result of 3 MA No.81 to 86/M/2016 M/s. Prolific Consultancy Services Pvt. Ltd. subsequent interpretation of law by Hon ble Supreme Court would constitute mistake apparent from records and in that event rectificatory action under section 154 of Act would be in order. Ld. Counsel has also brought our attention to subsequent order of Tribunal in own case of assessee for A.Y. 2009-10 wherein Tribunal while relying upon decision of Hon ble Supreme Court in case of Chennai Properties & Investments Ltd. (supra) has decided issue in favour of assessee. Ld. Counsel has further relied upon subsequent decision of Hon ble Supreme Court in case of M/s. Rayala Corporation Pvt. Ltd. vs. ACIT (civil appeal No.6437 of 2016 & others) vide order dated August 11, 2016 and has therefore submitted that since income earned by assessee during year was only from subleasing of premises, hence said income was required to be assessed as business income of assessee and not under head income from house property . Ld. Counsel, thus, has stressed that even subsequent decision of Hon ble Supreme Court would operate as if it was law of land at time of adjudication of issue by Tribunal on date prior to decision of Hon ble Supreme Court and if lower authorities have interpreted certain provision in contravention to interpretation done by Hon ble Supreme Court, then such interpretation will be mistake apparent on record and can be rectified under section 254(2) of Act. 3. On other hand, Ld. D.R. has stated that there is no mistake apparent on record and that no rectification is required in order dated 14.08.2013 of this Tribunal. 4. We have considered rival contentions and have also gone through applications of assessee, order of Tribunal dated 14.08.13 (supra) and subsequent order of co-ordinate Bench of Tribunal dated 27.05.15 and relevant case laws relied upon by Ld. Counsel for assessee. There 4 MA No.81 to 86/M/2016 M/s. Prolific Consultancy Services Pvt. Ltd. is no disagreement to contention of Ld. Counsel for assessee that law declared by Hon ble Supreme Court is law of land and same is binding on all subordinate courts including this Tribunal. We, further, find that Hon ble Supreme Court in case of Chennai Properties & Investments Ltd. (supra) has held that from facts and circumstances of case before them, irresistible conclusion was that letting of property was in fact business of assessee. However, we find that facts in case of Chennai Properties & Investments Ltd. (supra) were entirely different as that of case of assessee. In case of Chennai Properties & Investments Ltd. (supra) in memorandum of association of appellant company, it was mentioned that main object of appellant company was to acquire and hold property known as Chennai house and Firhavin Estate and to let out those properties as well as make advance upon securities and lands and buildings or other properties or any interest therein. Hon ble Supreme Court emphasized that holding aforesaid properties and earning income by letting out those properties was main objective of company. Hon ble Supreme Court also relied upon its earlier decision in case of Karanpura Development Company Ltd. vs. CIT 44 ITR 362 (SC) wherein facts were that assessee company was formed with object, inter alia of acquiring and disposing of underground coal mining rights in certain coal fields and it was doing activities of acquiring coal mining leases over large areas, developing them as coal fields and then subleasing them to collieries and other companies and thus leasing out of coal fields to collieries and other companies was business of assessee. Hon ble Supreme Court held that in case of company with its professed objects and manner of its activities and nature of its dealings with its property, it was possible to say on which side operations fall and to what head income was to be assigned. Applying said principle, Hon ble Supreme Court treated income of assessee in that case as business income of assessee. We may further point out that Hon ble Supreme 5 MA No.81 to 86/M/2016 M/s. Prolific Consultancy Services Pvt. Ltd. Court has further observed that facts of case before them [Chennai Properties & Investments Ltd. (supra)] were distinguishable so far as observations of Hon ble Supreme Court in case of East India Housing Land Development Trust Ltd. vs. CIT (1961) 42 ITR 49 as well as constitutional bench decision in case of Sultan Brothers Pvt. Ltd. vs. CIT (1964) 5 STR 807 were concerned. It has also been discussed by Hon ble Supreme Court that in case of East India Housing Land Development Trust Ltd. vs. CIT (supra) facts were that company was incorporated with object of buying and developing landed properties and promoting and developing markets. Thus, main objective of company was to develop 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 renting of said shops and stalls. In those facts, question arose for consideration was as to whether rental income that was received was to be treated as income from house property or income from business . Hon ble Supreme Court while holding that income should be treated as income from house property , rested its decision in context of main objective of company and took note of fact that letting out of property was not object of company at all. court was therefore, of opinion that character of that income which was from house property had not altered because it was received by company formed with object of developing and setting up properties. Hon ble Supreme Court further observed that in case of Sultan Brothers (P) Ltd. Constitutional Bench of Supreme Court has clarified that merely entry in object clause showing particular object would not be determinative factor to arrive at conclusion whether income is to be treated as income from business and such question would depend upon circumstances of each case, viz., whether particular letting is business or not. This has been so stated in following words: - 6 MA No.81 to 86/M/2016 M/s. Prolific Consultancy Services Pvt. Ltd. "We think each case has to be looked at from businessman's point of view to find out whether letting was doing of business or exploitation of his property by owner. We do not further think that thing can by its very nature be commercial asset. commercial asset is only asset used in business and nothing else, and business may be carried on with practically all things. Therefore, it is not possible to say that particular activity is business because it is concerned with asset with which trade is commonly carried on. We find nothing in cases referred, to support proposition that certain assets are commercial assets in their very nature." 5. Now coming to decision of Tribunal dated 14.08.13 in case of assessee, we find that following specific observations have been made by Tribunal relating to case of assessee. Since assessee is deemed owner of property and had received rental income, same has been rightly held assessable as income from house property. It is not case of commercial exploitation of property in which case it could be assessed as income from business. assessee has simply sub leased property to enjoy rental income. It is also not case of organized activities of taking properties on lease and letting out. assessee had taken on lease one building which had been sub-leased to tenants and, therefore, rental income has to be assessed as income from house property. We accordingly uphold decision of authorities below to assess rental income as income from house property. 6. While giving factual finding in this respect, Tribunal noted that income from sublease of premises was to be assessed as rental income of assessee. This Tribunal also took note of services provided by assessee along with renting of building. We have also noted details of services as enumerated in order and have found that most of those are general in nature which landlord is supposed to provide to his tenants. We find that Tribunal has also held that said services rendered by assessee was not part of any organized activity with view to earn such income and held that income from services on facts of case has to be assessed as income from other sources and all expenses incurred by assessee for earning of such income has to be allowed as deduction under section 57 of Income Tax Act. It was also held that if any expenditure in relation to services which is also included in relation to expenses on repair and maintenance of portion of building let out, such expenses have to be 7 MA No.81 to 86/M/2016 M/s. Prolific Consultancy Services Pvt. Ltd. excluded as same were already covered in statutory allowance under section 24(c) of Income Tax Act while computing house property income. above narrated part of order of Tribunal reveals beyond doubt that Tribunal has well considered proposition of law that if income is earned from business activity of letting out of properties or commercial exploitation of property by way of organized activities of taking properties on lease and letting out etc. then income is to be assessed as business income of assessee as held subsequently by Hon ble Supreme Court in case of Chennai Properties & Investments Ltd. (supra). It is pertinent to mention here that Hon ble Supreme Court in case of Chennai Properties & Investments Ltd. (supra) has relied upon another decision of Tribunal of Hon ble Supreme Court in case of Karanpura Development Company Ltd. (supra) which was well considered by Tribunal while passing impugned order dated 14.08.13. Hence, proposition of law as laid down subsequently by Hon ble Supreme Court in case of Chennai Properties & Investments Ltd. (supra) and further in case of M/s. Rayala Corporation Pvt. Ltd. (supra) has already been taken into consideration while passing impugned order by Tribunal because in subsequent decision of Hon ble Supreme Court, earlier decision of Hon ble Supreme Court in case of Karanpura Development Company Ltd. (supra) has been relied upon which was well considered by Tribunal while passing impugned order. However, Tribunal in its wisdom has held that facts of case of assessee do not suggest that assessee was in business of commercial exploitation of property or leasing out of properties and held that income earned by assessee from sublease of premises was simple case of letting out of property and thus income there from was assessable under head Income from house property . 8 MA No.81 to 86/M/2016 M/s. Prolific Consultancy Services Pvt. Ltd. 7. We further find that main objects of assessee in this case are providing advisory, consultancy and technical services in area of real estate and properties such as architectural, civil construction, maintenance and related services. None of above objects suggest that letting out of premises was business activity of assessee. We may further point out that premises in question even have not been developed by assessee. premises in question has been taken on lease by assessee and further subletted. facts of case of assessee, in our view, are identical to that of case before Hon ble Supreme Court in case of East India Housing Land Development Trust Ltd. (supra) as discussed above wherein Hon ble Supreme Court has held that when letting out of property was not object of company then rental income can not be assessed as business income . In case in hand it is neither object nor business activity of assessee company to take on lease and sub let properties. So far as reliance of Ld. Counsel on decision of Hon ble Supreme Court in case of M/s. Rayala Corporation Pvt. Ltd. (supra) is concerned; we find that facts were also different in said case. Hon ble Supreme Court in para 5 of said order has observed that as per memorandum of association, business of company was to deal into real estate and also to earn income by way of rent by leasing or renting properties belonging to assessee company. contention of Revenue was that leasing and letting out of shops and properties was not main business of assessee as per memorandum of association. It was contention of Revenue that rent should be main source of income or purpose for which company is incorporated should be to earn income from rent so as to make rental income to be taxed under head profits and gains of business or profession. Hon ble Supreme Court rejected above contention and held that since assessee company had stopped all other activities except business activity of leasing its property or earning rent there from and therefore business of company was to lease its 9 MA No.81 to 86/M/2016 M/s. Prolific Consultancy Services Pvt. Ltd. property and to earn rent and therefore income so earned should be treated as its business income. distinguishable fact in case of M/s. Rayala Corporation Pvt. Ltd. (supra) was that as per memorandum of association of that company, one of objects was to earn income by way of rent by leasing or renting properties belonging to assessee company. Hon ble Supreme Court, thus, held that renting of property was part of business activity of assessee. However, in case in hand, Tribunal after appreciation of facts has held that sub leasing of property was not part of business activity of assessee. Tribunal, as facts were available before it, has given categorical factual finding upon which relevant case laws have been relied upon. With due respect to all case laws relied upon by Ld. Counsel for assessee, we find no mistake apparent on record in this case as said case laws are not applicable because factual finding given by Tribunal is contrary to facts of cases before Hon ble Supreme Court as relied upon by Ld. Counsel for assessee. So far reliance of Ld. Counsel on subsequent decision of Tribunal is concerned, in our view, any finding arrived by co-ordinate Bench of Tribunal in subsequent decision can not be held to be reason enough to hold that there was any mistake in earlier order of different Bench of Tribunal. Moreover, we deem it fit to mention further here that this Tribunal has no power to review etc. If assessee has any grievance against impugned order, proper course to agitate same is by filing appeal before next appellate authority i.e. Hon ble Bombay High Court, but, not with present application under section 254(2) of Act. Tribunal, vide impugned order, has not only considered submissions of assessee but has given categorical finding on all of issues which were raised before Tribunal by Ld. Counsel for assessee. Hon ble Bombay High Court in case of Commissioner Of Income-Tax vs Ramesh Electric And Trading Co. 1993 203 ITR 497 (Bom.), while relying upon decision of Hon ble Supreme Court in case of T. S. Balaram, ITO v. Volkart 10 MA No.81 to 86/M/2016 M/s. Prolific Consultancy Services Pvt. Ltd. Brothers [1971] 82 ITR 50 and further relying upon decisions of various High Courts has categorically held that power of rectification under section 254(2) of Income-tax Act can be exercised only when mistake which is sought to be rectified is obvious and patent; mistake which is apparent from record, and not mistake which requires to be established by arguments and long drawn process of reasoning on points on which there may conceivably be two opinions. Tribunal, under such circumstances, has no jurisdiction under section 254(2) to pass second order. 8. In view of our above observations and legal position as stated above, we do not find any merit in these applications and same are accordingly hereby dismissed. Order pronounced in open court on 19.09.2016. Sd/- Sd/- (Sanjay Arora) (Sanjay Garg) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Dated: 19.09.2016. Kishore, Sr. P.S. Copy to: Appellant Respondent CIT, Concerned, Mumbai CIT (A) Concerned, Mumbai DR Concerned Bench //True Copy// By Order Dy Asstt. Registrar, ITAT, Mumbai. M/s. Prolific Consultancy Services Pvt. Ltd., (now known as Prolific Ventures Pvt. Ltd.) v. Income-tax Officer, Ward-8(2)(4), Mumbai
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