M/s. Jaibhavani Warehousing Co. v. The Income Tax Officer, Ward 4(3), Pune
[Citation -2016-LL-1014-78]

Citation 2016-LL-1014-78
Appellant Name M/s. Jaibhavani Warehousing Co.
Respondent Name The Income Tax Officer, Ward 4(3), Pune
Court ITAT-Pune
Relevant Act Income-tax
Date of Order 14/10/2016
Assessment Year 2008-09
Judgment View Judgment
Keyword Tags income from business • immovable property • personal property • commercial asset • deduction of tax • legal principle • rental income • cold storage • lease income • letting out • lease deed • lease rent
Bot Summary: The only dispute in the above grounds is regarding the treatment of the lease income from Hindustan Lever Ltd. as income from house property or as business income. We find the Hon ble High Court while setting aside the issue to the file of the AO has observed as under : The question as to whether the income which is received by the assessee from the transaction which has been entered into in respect of the immovable property in question should be treated as income from house property or as income from business would have to be resolved on the basis of the well settled tests laid down in the law in decided cases. CIT 1999 70 ITO 518 where the rent which was realized from warehousing activity was held to be assessable as business income and the second in the case of V. N. Rukari v. ITO in ITA No. 84/PN/2001 in which the Tribunal held that the income which was realized from warehousing activity would be assess-able as income from house property. On further appeal by the revenue the Hon ble High Court vide order dated 05-09-2002 allowed the appeal filed by the revenue holding that income derived by letting out of the properties would not be income from business but can be assessed only as income from house property. After applying the aforesaid principle to the facts, which were there before the Court, it came to the conclusion that income had to be treated as income from business and not as income from house property. The reason for which the aforestated issue has arisen is that though the assessee is having the house property and is receiving income by way of rent, the case of the assessee is that the assessee company is in business of renting its properties and is receiving rent as its business income, the said income should be taxed under the Head Profits and gains of business or profession whereas the case of the Revenue is that as the income is arising from House Property, the said income must be taxed under the head Income from House Property. 1.The learned counsel appearing for the assessee submitted that the issue involved in these appeals is no more res integra as this Court has decided in the case of Chennai Properties and Investments Ltd. v. Commissioner of Income Tax 2015 373 ITR 673 that if an assessee is having his house property and by way of business he is giving the property on rent and if he is receiving rent fromthe said property as his business income, the said income, even if in the nature of rent, should be treated as Business Income because the assessee 15 ITA No s.1005/PN/2016 Ors M/s. Jaibhavani Warehousing Co. Ors.


IN INCOME TAX APPELLATE TRIBUNAL PUNE BENCH SMC , PUNE BEFORE MS. SUSHMA CHOWLA, JM ITA No. 1005/PN/2016 Assessment Year : 2008-09 M/s. Jaibhavani Warehousing Co., Sr. No.164, Phursungi, Tal. Haveli, Dist. Pune - 412308 Appellant PAN: AACFJ0877G Vs. Income Tax Officer, Ward 4(3), Pune Respondent ITA No s.1211 to 1213/PN/2016 Assessment Years : 2004-05 to 2006-07 M/s. Jaibhavani Warehousing Co., Sr. No.164, Phursungi, Tal. Haveli, Dist. Pune - 412308 Appellant PAN: AACFJ0877G Vs. Income Tax Officer, Ward 4(3), Pune Respondent Appellant by : Shri Pramod Shingte Respondent by : Shri Hitendra Ninawe 2 ITA No s.1005/PN/2016 & Ors M/s. Jaibhavani Warehousing Co. &Ors. ITA No. 1004/PN/2016 Assessment Year : 2008-09 M/s. Shivshambhu Warehousing Co., Sr. No.164, Phursungi, Tal. Haveli, Dist. Pune - 412308 Appellant PAN: AA KFS5974K Vs. Income Tax Officer, Ward 4(3), Pune Respondent ITA No s.1933 to 1935/PN/2016 Assessment Years : 2004-05 to 2006-07 M/s. Shivshambhu Warehousing Co., Sr. No.164, Phursungi, Tal. Haveli, Dist. Pune - 412308 Appellant PAN: AAKFS5974K Vs. Income Tax Officer, Ward 4(3), Pune Respondent Appellant by : Shri Pramod Shingte Respondent by : Shri Hitendra Ninawe ITA No. 1006/PN/2016 Assessment Year : 2010-11 Mr. Ramdas T. Khutwad, Komal Niwas, Sonarpool, Phurshungi, Tal. Haveli, Dist. Pune - 412308 Appellant PAN: BVPK5165E Vs. Income Tax Officer, Ward 4(3), Pune Respondent 3 ITA No s.1005/PN/2016 & Ors M/s. Jaibhavani Warehousing Co. &Ors. ITA No. 1007/PN/2016 Assessment Year : 2010-11 Mr. Namdeo Tukaram Khutwad, Komal Niwas, Sonarpool, Phurshungi, Tal. Haveli, Dist. Pune - 412308 Appellant PAN: ABVPK516 2D Vs. Income Tax Officer, Ward 4(3), Pune Respondent Appellant by : Shri Pramod Shingte Respondent by : Shri Hitendra Ninawe Date of Hearing : 06.10.2016 Date of Pronouncement: 14.10.2016 ORDER PER SUSHMA CHOWLA, JM: This bunch of appeals filed by different assessee against respective orders of CIT(A), relating to different assessment years against respective orders passed under section 143(3) and 143(3) r.w.s. 147 of Income-tax Act, 1961 (in short Act ). 2. This bunch of appeals relating to connected assessee on identical issue were heard together and are being disposed of by this consolidated order for sake of convenience. However, reference is being made to facts in ITA No.1005/PN/2016 to adjudicate issue. 4 ITA No s.1005/PN/2016 & Ors M/s. Jaibhavani Warehousing Co. &Ors. 3. assessee in ITA No. 1005/PN/2016 has raised following grounds of appeal:- 1. On fact and in circumstance of case and in law of learned Commissioner of Income Tax (Appeals)-3, Pune has erred in disallowing Income from business (Warehousing Receipts) treat as Income from House property. 4. assessee is aggrieved by order of CIT(A) in holding warehousing receipts as income from house property as against claim of assessee of business income. 5. Briefly, in facts of case, assessee was engaged in business of warehousing for past several years. For year under consideration, assessee had furnished e-return of income declaring loss of Rs.89,506/-, which was processed under section 143(1) of Act. Thereafter, case of assessee was picked up for scrutiny. assessee had declared income from warehousing receipts as income from business. Assessing Officer noted that in Form No.16A issued by various tenants, said receipts were subject to deduction of tax under section 194I of Act under head Rent . claim of assessee before Assessing Officer was that in addition to providing space, it was giving various services and hence, it was to be treated as Business Income . Assessing Officer however, observed that no details or evidence in respect of expenses claimed have been furnished. Assessing Officer further observed that even otherwise, expenses pointed out by assessee were only incidental to use and occupation of premises. As per Assessing Officer, i n absence of assessee proving that there was any complex receipts to be assessed as Income from business and since assessee had let out premises to different tenants from whom fixed rent was received, it established case of premises being 5 ITA No s.1005/PN/2016 & Ors M/s. Jaibhavani Warehousing Co. &Ors. let out on rent. Assessing Officer further relied on ratio laid down by Pune Bench of Tribunal in case of Nutan Warehousing Company Pvt. Ltd. (2007) 106 TTJ 136 (Pune) and held that receipts from warehousing were to be assessed as Income from house property . 6. CIT(A) noted that decision of Pune Bench of Tribunal had travelled to Hon ble High Court in Nutan Warehousing Co. Pvt. Ltd. Vs. DCIT (2010) 326 ITR 94 (Bom), wherein matter was remanded back to Assessing Officer. He further examined terms of one of lease deed entered into by assessee and held that though assessee mentions warehousing income as indirect income but no other income was shown in Profit & Loss Account, which in turn, establishes case of Assessing Officer that there was no service or amenities provided by assessee to lessee in addition to rented space. CIT(A) further observed that objects of partnership deed mentions warehouses given on rent which establishes case that partnership was formed only to exploit property and to derive rental income. Reliance placed on other decisions by assessee were also distinguished by CIT(A). case of assessee that activity of warehousing described as business in Bombay Warehousing Act, 1959 was also not accepted, in view of ratio laid down by Pune Bench of Tribunal in case of Nutan Warehousing Company Pvt. Ltd. (supra). Therefore, order of Assessing Officer was upheld particularly, in view of directions of jurisdictional High Court. 7. assessee is in appeal against order of CIT(A). 8. learned Authorized Representative for assessee pointed out that issue of assessability of warehousing receipts in hands of assessee is 6 ITA No s.1005/PN/2016 & Ors M/s. Jaibhavani Warehousing Co. &Ors. now settled by Hon ble Supreme Court in cases of M/s. Rayala Corporation Pvt. Ltd. Vs. ACIT in Civil Appeal No.6437 of 2016 vide judgment dated 11.08.2016 and Chennai Properties & Investments Ltd. Vs. CIT (2015) 373 ITR 673 (SC). He further pointed out that Hon ble Bombay High Court in Nutan Warehousing Company Pvt. Ltd. (supra) had set aside matter to file of Assessing Officer, who in turn, had decided appeal against assessee which was followed by CIT(A) and now issue has been decided by Pune Bench of Tribunal in second round. He further filed tabulated details, under which he pointed out that from assessment year 1998- 99, assessee was declaring warehousing receipts under head Income from business , which were accepted up to 2007-08 under section 143(1) of Act. He further pointed out that in assessment year 2008-09, for first time, assessment was made under section 143(3) of Act, wherein said warehousing receipts were treated as Income from property . Following decision in assessment year 2008-09, assessment proceedings for assessment years 2004-05 to 2006-07 were reopened under section 147 of Act and thereafter, assessment was co mpleted under section 143(3) r.w.s. 147 of Act by including said income under head Income from property . However, for assessment year 2007-08, return of income filed by assessee was accepted under section 143(1) of Act and same had not been disturbed. Similarly, in assessment years 2009-10 and 2010-11, return has been processed under section 143(1) of Act and claim of assessee had not been disturbed. 9. learned Departmental Representative for Revenue on other hand, placed reliance on orders of authorities below. 7 ITA No s.1005/PN/2016 & Ors M/s. Jaibhavani Warehousing Co. &Ors. 10. On perusal of record and after hearing both learned Authorized Representatives, issue arising for adjudication in present appeal is assessability of warehousing receipts in hands of assessee. claim of assessee was that since it was engaged in business of providing warehousing facilities and was also providing other facilities and incurring other expenditure for carrying on said activity of warehousing, then income was to be assessed under head Income from business . However, case of Revenue on other hand, is that said income received by assessee is pursuant to giving space on hire as per terms of lease deed and no other activity was being carried out and hence, same is to be assessed as Income from house property . Revenue in this regard has placed heavy reliance on ratio laid down by Pune Bench of Tribunal in case of Nutan Warehousing Company Pvt. Ltd. (supra), which matter travelled up to Hon ble High Court, which in turn, had set aside matter to file of Assessing Officer. 11. After matter was set aside to file of Assessing Officer by Hon ble High Court in case of Pune Bench of Tribunal in Nutan Warehousing Company Pvt. Ltd. Vs. DCIT (supra), matter was decided against assessee by Assessing Officer which was confirmed by CIT(A). However, Pune Bench of Tribunal in M/s. Nutan Warehousing Company Pvt. Ltd. Vs. DCIT in ITA Nos.1963 to 1968/PN/2013, relating to assessment years 2000-01, 2002-03 to 2006-07, in ITA No.2130/PN/2013, relating to assessment year 2001-02 and in ITA No. 361/PN/2014, relating to assessment year 2008-09, vide order dated 30.09.2016 has in turn relied on latest decision of Hon ble Supreme Court in M/s. Rayala Corporation Pvt. Ltd. Vs. ACIT (supra) and have decided issue in favour of assessee 8 ITA No s.1005/PN/2016 & Ors M/s. Jaibhavani Warehousing Co. &Ors. holding that warehousing receipts are to be taxed as business income . relevant findings of Tribunal in M/s. Nutan Warehousing Company Pvt. Ltd. Vs. DCIT (supra) are as under:- 32. We have considered rival arguments made by both sides, perused orders of AO and CIT(A) and paper book filed on behalf of assessee. We have also considered various decisions cited before us. only dispute in above grounds is regarding treatment of lease income from Hindustan Lever Ltd. as income from house property or as business income . We find Hon ble High Court while setting aside issue to file of AO has observed as under : question as to whether income which is received by assessee from transaction which has been entered into in respect of immovable property in question should be treated as income from house property or as income from business would have to be resolved on basis of well settled tests laid down in law in decided cases. What is material in such cases is primary object of assessee while exploiting property. If primary or dominant object is to lease or let out property, income which is derived from property would have to be regarded as income from house property. Conversely if dominant intention of assessee is to exploit commercial asset by carrying on commercial activity, income that is received would have to be treated as income from business. What has to be deduced is to whether letting out of property constitutes dominant aspect of transaction or whether it was subservient to main business of assessee of carrying out warehousing activities. first submission which has been urged on behalf of assessee, to effect that decision of Tribunal rendered on March 19, 2001 for assessment years 1994-95, 1995-96 and 1996-97 ought to have been considered, but has not been considered by Tribunal, cannot be brushed aside as without substance. Be that as it may, during course of hearing of these proceedings we have considered earlier judgment of Tribunal. Ex facie, perusal of earlier judgment would show that that Tribunal has not made reference to detailed terms and conditions of warehousing agreements entered into by assessee or to lease agreement by which factory came to be leased out. Consequently, upon considering position in this regard counsel appearing on behalf of assessee has fairly stated that assessee would not consider that earlier decision of Tribunal be regarded as binding. In so far as decision which is impugned in these proceedings is concerned, Tribunal has basically relied upon lease agreement dated March 18, 2001, between assessee and Hindustan Lever. It is on basis of terms of lease agreement that Tribunal arrived at conclusion that primary purpose of assessee was to let out factory and that income that was derived therefrom could not consequently be regarded as income from business. submission of assessee is that terms on which assessee entered into warehousing agreements have not been considered at all in decision of Tribunal. Now, perusal of decision of Tribunal would show that Tribunal noted two decisions of Tribunal, first in Vora Warehousing P. Ltd. v. Asst. 9 ITA No s.1005/PN/2016 & Ors M/s. Jaibhavani Warehousing Co. &Ors. CIT [1999] 70 ITO 518 (Mum) (SMC) where rent which was realized from warehousing activity was held to be assessable as business income and second in case of V. N. Rukari v. ITO in ITA No. 84/PN/2001 in which Tribunal held that income which was realized from warehousing activity would be assess-able as income from house property. Tribunal followed decision of Madras High Court in CIT v. Indian Warehousing Industries Ltd. [2002] 258 ITR 93 and was of view that facts of that case were identical, in holding that income received from leasing of ware-house was assessable as income from house property. Ex facie, therefore, terms of warehousing agreement were not considered by Tribunal. Merely styling agreement as warehousing agreement would not be conclusive of nature of transaction since it is for Tribunal to determine as to whether transaction was bare letting out of asset or whether assessee was carrying on commercial activity involving warehousing operations. Since Tribunal has not considered this aspect of case, we are of view that it would be appropriate and proper to set aside decision of Tribunal and to remand proceedings back to Assessing Officer for fresh determination and assessment in accordance with law. We order accordingly. Upon remand, it is clarified that Assessing Officer shall not consider himself to be bound by decision of Tribunal dated March 19,2001 for assessment years 1994-95, 1995-96 and 1996-97, in view of concession in those terms which has been made during these proceedings by assessee. In order to facilitate fresh exercise being carried out in terms of order passed by this court, impugned order of Tribunal dated August 31, 2006 is set aside. How-ever, it is clarified that all rights and contentions of assessee and Revenue on all aspects of case on merits are kept open. order of remand, it is clarified shall also be with respect to disallowance that has been effected under section 40A(ii) of Income-tax Act, 1961. In view of order of remand, it is not necessary for this court to express any view one way or other on questions of law involved. appeal is accordingly disposed of. No costs. 33. We find AO after considering submission of assessee, which have already been narrated in preceding paragraphs, treated lease rental received by assessee from lease of 68,000 sq.ft of factory to Hindustan Lever Ltd. as income from house property and treated warehousing activities carried out by assessee on remaining warehouses as business income which has been upheld by Ld.CIT(A). 34. It is submission of Ld. Counsel for assessee that main objects to be pursued as per memorandum of association are construction of warehouses for storage of agricultural goods. Provisions of Bombay Warehousing Act, 1959 are applicable to assessee company. It is also his submission that AO was required to examine terms of lease deed and decide whether leasing activity is subservient to warehousing activity or not. Further, if going by version of AO, 69% of total receipts/total area is meant for warehousing activity, in that case, AO should have accepted that leasing activity is subservient to warehousing activity that being dominant activity of assessee. 35. From various details furnished by assessee in paper book, we find main objects to be pursued by assessee company on its incorporation are as under : 10 ITA No s.1005/PN/2016 & Ors M/s. Jaibhavani Warehousing Co. &Ors. iii. Objects : objects for which Company is established are : Main Objects Of company to be pursued by Company on its incorporation are : (1)(a) To carry on business of Warehousing, cold storage and refrigeration in all its branches and activities and sphere. (b) To carry on business of storage of fertilizers, insecticides, quality seeds, agricultural and horticultural equipment, tools and machinery. (c) To carry on business of quality seeds and develop quality seeds, acquire suitable lands and carry on agriculture. (d) To produce material and fertilizers and insecticides and acquire agency in above lines and act as Commission Agents. (e) To act as clearing and forwarding agents of aforesaid products. (f) To provide facilities and godowns for proper and safe storing of valuable agricultural and horticultural produce and to provide goods and services of all kinds in connection there with. (g) To provide godowns and warehousing facilities for goods of all description of agricultural and allied products. 36. Similarly, objects incidental or ancillary to attainment of main objects include following : 2. To purchase, erect, establish or otherwise acquire and equip warehousing godowns, additional cold storage plants or unit for business of Company as may deem desirable and to build and erect necessary structures or buildings to house same. ................ ................ 18. To let on lease or on hire whole or any part of real and personal property of Company on such terms as Company shall determine, to enter into such arrangements as Company may think proper with any public authority for buildings, chawls and tenements as property of Company or on property of others or to let same either to employees of Company or to others and upon such terms as Company may think proper. 37. From statement showing year-wise details of total receipts as per profit and loss account, warehousing charges and service charges from Hindustan Lever Ltd. etc. copy of which is placed at page 212 of paper book, we find details are as under : 11 ITA No s.1005/PN/2016 & Ors M/s. Jaibhavani Warehousing Co. &Ors. % of warehsg ch. % of Lease Warehousing Received Total Rcpts as Warehousing Lease Rent F.Y. Rent to Total charges received from HLL Per P&L charges From HLL Receipts from HLL to total warehsg ch. G= B=C+D C D E = (D/B)*100 F (F/C)*100 2000 - 01 10,313,426.00 7,598,434.00 2,714,992.00 26.32 4,836,240.00 63.65 2001- 02 17,686,971.33 11,817,590.33 5,869,381.00 33.18 11,066,970.00 93.65 2002 - 03 19,580,172.66 13,910,172.66 5,670,000.00 28.96 11,390,112.00 81.88 2003 - 04 20,431,251.63 13,647,501.63 6,783,750.00 33.20 11,760,877.50 86.18 2004 - 05 19,776,426.00 12,858,926.00 6,917,500.00 34.98 12,279,750.00 95.50 2005 - 06 21,521,078.50 14,570,078.50 6,951,000.00 32.30 11,342,060.00 77.84 38. perusal of above break up of lease rental income from Hindustan Lever Ltd and various other parties vis- -vis main objects of assessee company show that warehousing activity is dominant activity and leasing out being incidental is subservient. 39. We find merit in submission of Ld. Counsel for assessee that assessee has constructed several sheds for industrial and warehouse purposes which proves that leasing is done for exploitation of commercial asset. We also find force in submission of Ld. Counsel for assessee that assessee has not merely leased out 4 walls of warehouse. It has also provided essential and necessary services of supervisory, loading and unloading, handling, security, transporting etc. to all clients including Hindustan Lever Ltd. on daily basis during working hours. assessee has incurred expenditure on Electricity, Maintenance, Staff etc. which proves that leasing is complex activity directly linked with main warehousing activity. Therefore, it is subservient to warehousing activity. Further, since plots have been acquired on lease as well as plots owned by assessee are used for constructing warehouses same clearly proves commercial use of warehouse. Further, assessee is liable to pay service tax on service of storage and warehousing since service of storage and warehousing has been included as taxable service. 40. We find identical issue had come up before Hon ble Supreme Court in case of M/s. Chennai Properties (Supra). In that case, assessee company was incorporated under Indian Companies Act. Its main object was to acquire properties in City of Madras and let out these properties. assessee had let out said properties and rental income received therefrom was shown as income from business in return filed by assessee. However, according to AO since income was received from letting out of properties it was in nature of rental income. He therefore treated rental income as income from house property . In appeal Ld.CIT(A) allowed appeal of assessee by holding that such rental income is income from business . Tribunal upheld action of 12 ITA No s.1005/PN/2016 & Ors M/s. Jaibhavani Warehousing Co. &Ors. CIT(A). On further appeal by revenue Hon ble High Court vide order dated 05-09-2002 allowed appeal filed by revenue holding that income derived by letting out of properties would not be income from business but can be assessed only as income from house property. assessee filed appeal before Hon ble Supreme Court. Hon ble Supreme Court allowing appeal filed by assessee held that letting of properties infact is business of assessee and therefore assessee has rightly disclosed income under head income from business . relevant observation of Hon ble Supreme Court read as under : From aforesaid facts, it is clear that question which is to be determined on facts of this case is as to whether income derived by company from letting out this property is to be treated as income from business or it is to be treated as rental income from house property. We have heard learned counsel for parties on aforesaid issue. Before we narrate legal principle that needs to be applied to give answer to aforesaid question, we would like to recapitulate some seminal features of present case. Memorandum of Association of appellant-company which is placed on record mentions main objects as well as incidental or ancillary objects in clause III. (A) and (B) respectively. main object of appellant company is to acquire and hold properties known as Chennai House and Firhavin Estate both in Chennai and to let out those properties as well as make advances upon security of lands and buildings or other properties or any interest therein. What we emphasise is that holding aforesaid properties and earning income by letting out those properties is main objective of company. It may further be recorded that in return that was filed, entire income which accrued and was assessed in said return was from letting out of these properties. It is so recorded and accepted by assessing officer himself in his order. It transpires that return of total income of Rs.244030 was filed for assessment year in question that is assessment year 1983-1984 and entire income was through letting out of aforesaid two properties namely, Chennai House and Firhavin Estate . Thus, there is no other income of assessee except income from letting out of these two properties. We have to decide issue keeping in mind aforesaid aspects. With this background, we first refer to judgment of this Court in East India Housing and Land Development Trust Ltd.'s case which has been relied upon by High Court. That was case where 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: whether rental income that is received was to be treated as income from house property or income from business. This court while holding that income shall 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 13 ITA No s.1005/PN/2016 & Ors M/s. Jaibhavani Warehousing Co. &Ors. 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. Before we refer to Constitution Bench judgment in case of Sultan Brothers (P) Ltd., we would be well advised to discuss law laid down authoritatively and succinctly by this Court in 'Karanpura Development Co. Ltd. v. Commissioner of Income Tax, West Bengal' [44 ITR 362 (SC)]. That was also case where company, which was assessee, was formed with object, inter alia, of acquiring and disposing of underground coal mining rights in certain coal fields and it had restricted its activities to acquiring coal mining leases over large areas, developing them as coal fields and then sub-leasing them to collieries and other companies. Thus, in said case, leasing out of coal fields to collieries and other companies was business of assessee. income which was received from letting out of those mining leases was shown as business income. Department took position that it is to be treated as income from house property. It would be thus, clear that in similar circumstances, identical issue arose before Court. This Court first discussed scheme of Income Tax Act and particularly six heads under which income can be categorised / classified. It was pointed out that before income, profits or gains can be brought to computation, they have to be assigned to one or other head. These heads are in sense exclusive of one another and income which falls within one head cannot be assigned to, or taxed under, another head. Thereafter, Court pointed out that deciding factor is not ownership of land or leases but nature of activity of assessee and nature of operations in relation to them. It was highlighted and stressed that objects of company must also be kept in view to interpret activities. In support of aforesaid proposition, number of judgments of other jurisdictions, i.e. Privy Counsel, House of Lords in England and US Courts were taken note of. position in law, ultimately, is summed up in following words: - As has been already pointed out in connection with other two cases where there is letting out of premises and collection of rents assessment on property basis may be correct but not so, where letting or sub-letting is part of trading operation. diving line is difficult to find; but in case of company with its professed objects and manner of its activities and nature of its dealings with its property, it is possible to say on which side operations fall and to what head income is to be assigned. After applying aforesaid principle to facts, which were there before Court, it came to conclusion that income had to be treated as income from business and not as income from house property. We are of opinion that aforesaid judgment in Karanpura Development Co. Ltd.'s case squarely applies to facts of present case. No doubt in Sultan Brothers (P) Ltd.'s case, Constitution Bench judgment of this 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 14 ITA No s.1005/PN/2016 & Ors M/s. Jaibhavani Warehousing Co. &Ors. circumstances of each case, viz., whether particular business is letting or not. This is so stated in following words: - 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. We are conscious of aforesaid dicta laid down in Constitution Bench judgment. It is for this reason, we have, at beginning of this judgment, stated circumstances of present case from which we arrive at irresistible conclusion that in this case, letting of properties is in fact is business of assessee. assessee therefore, rightly disclosed income under Head Income from Business. It cannot be treated as 'income from house property'. We, accordingly, allow this appeal and set aside judgment of High Court and restore that of Income Tax Appellate Tribunal. No orders as to costs. 41. We find subsequent to hearing of appeal before us Hon ble Supreme Court in case of M/s. Rayala Corporation Pvt. Ltd. Vs. ACIT vide Civil Appeal No.6437/2016 order dated 11-08-2016 following decision in case of M/s. Chennai Properties (Supra) has decided identical issue by holding that where business of company is to lease its property and to earn rent, such rental income has to be treated as income from profits and gains of business or profession . relevant observations of Hon ble Supreme Court reads as under : appellant-assessee, private limited company, is having house property, which has been rented and assessee is receiving income from said property by way of rent. main issue in all these appeals is whether income so received should be taxed under head Income from House Property or Profit and gains of business or profession . reason for which aforestated issue has arisen is that though assessee is having house property and is receiving income by way of rent, case of assessee is that assessee company is in business of renting its properties and is receiving rent as its business income, said income should be taxed under Head Profits and gains of business or profession whereas case of Revenue is that as income is arising from House Property, said income must be taxed under head Income from House Property . 1.The learned counsel appearing for assessee submitted that issue involved in these appeals is no more res integra as this Court has decided in case of Chennai Properties and Investments Ltd. v. Commissioner of Income Tax [2015] 373 ITR 673 (SC) that if assessee is having his house property and by way of business he is giving property on rent and if he is receiving rent fromthe said property as his business income, said income, even if in nature of rent, should be treated as Business Income because assessee 15 ITA No s.1005/PN/2016 & Ors M/s. Jaibhavani Warehousing Co. &Ors. is having business of renting his property and rent which he receives is in nature of his business income. 2.According to learned counsel appearing for assessee, afore-stated judgment in case of Chennai Properties (supra) has referred to all judgments on subject and more particularly, judgment in case of Karanpura Development Co. Ltd. v. CIT [1962] 44 ITR 362 (SC) which has summed up as under:- As has been already pointed out in connection with other two cases where there is letting out of premises and collection of rents assessment on property basis may be correct but not so, where letting or sub-letting is part of trading operation. dividing line is difficult to find; but in case of company with its professed objects and manner of its activities and nature of its dealings with its property, it is possible to say on which side operations fall and to what head income is to be assigned. 5. learned counsel also submitted that assessee is private limited company and even as per its Memorandum of Association its business is to deal into real estate and also to earn income by way of rent by leasing or renting properties belonging to assessee company. 6. learned counsel also drew our attention to fact that High Court and authorities below had come to specific finding to effect that assessee company had stopped its other business activities and was having only activity with regard to leasing its properties and earning rent therefrom. Thus, except leasing properties belonging to assessee company, company is not having any other business and said fact is not in dispute at all. 7. For afore-stated reasons, learned counsel submitted that impugned judgment delivered by High Court is not proper for reason that High Court has directed that income earned by appellant assessee should be treated as Income from House Property . 8. On other hand, learned counsel appearing for respondent- Revenue made effort to justify reasons given by High Court in impugned judgment. learned counsel also relied upon judgment delivered by this Court in case of M/s. S.G. Mercantile Corpn. (P) Ltd. v. CIT, Calcutta (1972) 1 SCC 465. According to him, important question which would arise in all such cases is whether acquisition of property for leasing and letting out all shops and stalls would be essentially part of business and trading operations of assessee. According to learned counsel appearing for Revenue, leasing and letting out of shops and properties is not main business of assessee as per Memorandum of Association and therefore, income earned by assessee should be treated as income earned from House Property. He, therefore, submitted that impugned judgment is just legal and proper and therefore, these appeals should be dismissed. 9. Upon hearing learned counsel and going through judgments cited by learned counsel, we are of view that law laid down by this Court in case of Chennai Properties (supra) shows correct position of law and looking at facts of case in question, case on hand is squarely covered by said judgment. 16 ITA No s.1005/PN/2016 & Ors M/s. Jaibhavani Warehousing Co. &Ors. 10. Submissions made by learned counsel appearing for Revenue is to effect 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 income taxable under head Profits and Gains of Business or Profession . It is admitted fact in instant case that assessee company has only one business and that is of leasing its property and earning rent therefrom. Thus, even on factual aspect, we do not find any substance in what has been submitted by learned counsel appearing for Revenue. 11. judgment relied upon by learned counsel appearing for assessee squarely covers facts of case involved in appeals. business of company is to lease its property and to earn rent and therefore, income so earned should be treated as its business income. 12. In view of law laid down by this Court in case of Chennai Properties (supra) and looking at facts of these appeals, in our opinion, High court was not correct while deciding that income of assessee should be treated as Income from House Property. 13. We, therefore, set aside impugned judgments and allow these appeals with no order as to costs. We direct that income of assessee shall be subject to tax under head Profits and gains of business or profession . 42. As mentioned earlier, main objects of assessee company is to carry on business of warehousing, cold storage and refrigeration, to provide facilities and godowns for proper and safe storing of valuable agricultural and horticultural produce and to provide godowns and warehousing facilities for goods of all description of agricultural and allied products. Similarly, other objects of assessee company also provide to let on lease or hire whole or any part of real and personal property of assessee company. We, therefore, respectfully following above two decisions of Hon ble Supreme Court cited (Supra) hold that lease income received by assessee on account of let out of warehouses/godowns as profits and gains from business or profession . We therefore set aside order of CIT(A) and direct AO to treat lease rentals received by assessee company from Hindustan Lever Ltd. as business income . 12. In facts of present case, assessee was partnership firm which was constituted vide Articles of Partnership dated 21.11.1997 , copy of which is placed at pages 45 to 71 of Paper Book. nature of business agreed upon by partners of said firm is to carry on warehousing activity. Registrar of Firms has registered partnership deed vide firm No.P/PA 37086 and nature of business is to give on hire warehouses to companies, firms, businessmen and farmers for keeping stock / records, etc. copy of said 17 ITA No s.1005/PN/2016 & Ors M/s. Jaibhavani Warehousing Co. &Ors. certificate is placed at page 44 of Paper Book. assessee firm was thus, constituted to carry on business of warehousing activities. assessee has been carrying on activity of warehousing since 1998-99 onwards. income declared by assessee under head Income from business has not been disturbed though same was processed under section 143(1) of Act. For first time, assessment was made under section 143(3) of Act in assessment year 2008-09 and pursuant to same, assessment proceedings for assessment years 2004-05 to 2006-07 were reopened under section 147 of Act. For assessment year 2007-08, income declared by assessee has not been disturbed and even for assessment years 2009-10 and 2010-11, same has been accepted. Assessing Officer and CIT(A) had denied claim of assessee, in view of ratio laid down by Pune Bench of Tribunal in case of Nutan Warehousing Company Pvt. Ltd. (supra), which has now in second round, been allowed in favour of assessee. Further, Hon ble Supreme Court in M/s. Rayala Corporation Pvt. Ltd. Vs. ACIT (supra) had held that in facts of said case where assessee company had only one business and that was of leasing its property and earning rent therefrom; on such factual aspect, it was held that rental income was taxable under head Profits & Gains of business and profession . It was further held by Hon ble Supreme Court that where business of company was to lease its property to earn rent and therefore income so earned was to be treated as its Business income . Following said ratio laid down by Hon ble Supreme Court and in view of ratio laid down by Pune Bench of Tribunal in M/s. Nutan Warehousing Company Pvt. Ltd. Vs. DCIT (supra), I hold that warehousing receipts are to be assessed as Income from business in hands of assessee. ground of appeal No.1 raised by assessee is thus, allowed. 18 ITA No s.1005/PN/2016 & Ors M/s. Jaibhavani Warehousing Co. &Ors. 13. For assessment years 2004-05 to 2006-07, assessment proceedings were reopened pursuant to assessment completed in assessment year 2008-09 and on said basis, income was treated as Income from property . Following same parity of reasoning, there is no merit in orders of authorities below and reversing same, Assessing Officer is directed to compute income under head Income from business in hands of assessee. grounds of appeal raised in assessment years 2004- 05 to 2006-07 are thus, allowed. 14. facts and issue in ITA No.1004/PN/2016 along with ITA Nos.1933 to 1935/PN/2016 are identical to facts and issue in ITA No.1005/PN/2016 . said partnership firm was also constituted similarly. Where sole activity of assessee firm was to carry on warehousing activity, following same parity of reasoning, Assessing Officer is directed to compute income under head Income from business in hands of assessee. grounds of appeal raised by assessee are thus, allowed. 15. Now, coming to appeals in ITA Nos.1006/PN/2016 and 1007/PN/2016. 16. learned Authorized Representative for assessee pointed out that partnership firm M/s. Jaibhavani Warehousing Co. was dissolved and thereafter, warehouse area was distributed amongst partners and they had submitted their return of income declaring their share of warehousing activity. He further contended that issue arising in present two appeals is identical to earlier appeals. 19 ITA No s.1005/PN/2016 & Ors M/s. Jaibhavani Warehousing Co. &Ors. 17. learned Departmental Representative for Revenue fairly accepted that issue arising in present appeals is identical to issue in ITA No.1005/PN/2 016. 18. In view thereof, following same parity of reasoning, Assessing Officer is directed to assess income under head Income from business since assessee is engaged in activity of letting out its premises for warehousing activities. grounds of appeal raised by assessee in both appeals are thus, allowed. 19. In result, all appeals of assessee are allowed. Order pronounced on this 14th day of October, 2016. Sd/- (SUSHMA CHOWLA) JUDICIAL MEMBER Pune; Dated : 14th October, 2016. GCVSR Copy of Order is forwarded to : 1. Appellant; 2. Respondent; 3. CIT(A)-3/CIT(A)-1, Pune; 4. Pr. CIT-2, Pune 5. DR SMC , ITAT, Pune; 6. Guard file. BY ORDER, //True Copy // Sr. Private Secretary ITAT, Pune M/s. Jaibhavani Warehousing Co. v. Income Tax Officer, Ward 4(3), Pune
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