IN THE ITAT MUMBAI BENCH ‘A’
Universal Textile Water Proof Co. (India)
v.
Assistant Commissioner of Income-tax, Circle-20(3), Mumbai
SHAILENDRA K. YADAV, JUDICIAL MEMBER
AND V.K. GUPTA, ACCOUNTANT MEMBER
IT APPEAL NO. 4061 (MUM) OF 2003
[Assessment year 1998-99]
October 4, 2007
Section 22, read with sections 28(i) and 37(1), of the Income-tax Act,
1961 - Income from house property - Chargeable as - Assessment year 1998-99 -
Assessee-company owned an office premises in Mumbai, which was given on rent to
sister concerns - Assessee claimed rental income received from its sister
concerns as income from business stating that it was conducting business
service centre in premises, wherein it used to provide infrastructure
facilities like electronic instruments and gadgets, air-conditioners, Eapbx
systems, telephone instruments, telefax, etc., and that under various lease
agreements it had provided said premises along with all infrastructure
facilities to its sister-concerns - Whether since dominant intention of assessee
was just to earn income by way of letting out of premises and further since
rental income in question included element of rent as well as service charges
and further since services rendered by assessee to its tenants were as a result
of its activities carried out continuously in an organized manner with a set of
purpose and with a view to earn profit and further since there was no
segregation of rent and service charges in bills raised against all tenants by
assessee, 60 per cent of rental income deserved to be treated on account of
rent and rest 40 per cent on account of service charges - Held, yes - Whether,
therefore, assessee was also eligible for deduction as per law on rent portion
and on various expenses from portion of service charges in ratio mentioned
above - Held, yes
The assessee-company owned an office premises in Mumbai, which was given on rent to the sister concerns. The assessee claimed the rental income received from the sister concerns as income from business stating that it was conducting the business service centre in the premises, wherein it used to provide infrastructure facilities like electronic instruments and gadgets, air-conditioners, Epbx systems, telephone instruments, telefax, etc., and that under the various lease agreements it had provided the premises alongwith all infrastructure facilities to its sister-concerns. The Assessing Officer disallowed the assessee’s claim and assessed the rental income in question under the head ‘Income from house property’.
On appeal, the Commissioner(Appeals) confirmed the action of the Assessing Officer.
On second appeal:
The true legal relation arising from a transaction alone determines the taxability of a receipt arising from the transaction under the Act. Once the terms of transaction are embodied in a document, the true effect of a transaction may be determined from the terms of the agreement considered in the light of surrounding circumstantial evidence. In order to construe an agreement, one has to look into the substance or essence of it rather than its form. A party cannot escape the consequences of law, merely by describing an agreement in a particular term though in essence and in substance it may be different transaction. [Para 4]
The assessee had given office space along with the infrastructure facilities like electronic instruments and gadgets, air-conditioners, Epbx systems, telephone instruments, telefax, etc., to its sister-concerns. There was no clause in the lease agreements of charging separate service charges for the services rendered by the assessee. Further the assessee had brought noting on record to suggest that it was exploiting the premises for commercial business activity. The tenants were sister-concerns. So the dominant intention of the assessee was just to earn income by way of letting out of the premises and so the same had rightly been concluded under the head ‘Income from house property’. [Para 4.1]
Further in terms of the order of the Mumbai Bench of the Tribunal in the case of Akul Investments Ltd. v. CIT [IT Appeal Nos. 1438 and 1731 (Mum.) of 2000] one was agreed with the assessee that the rental income in question included element of rent as well as services charges. Further in terms of the order of the Calcutta Bench of the Tribunal in the case of Dropadi Properties (P) Ltd. v ITO (2007) 108 TTJ (Kol) 774 it was clear that the services rendered by the assessee to its tenants were as a result of its activities carried out continuously in an organized manner with a set of purpose and with a view to earn profit. Since there was no segregation of rent and service charges in the bills raised against all the tenants by the assessee, 60 per cent of the rental income deserved to be treated on account of rent and the rest 40 per cent on account service charges. Further the assessee was also eligible for deduction as per law on the rent portion and on various expenses from the portion of service charges in the ratio mentioned above. [Paras 5,5.1 and 5.2]
- Akul Investments Ltd. v. CIT [IT Appeal Nos. 1438 and 1731 (Mum) of 2000] and in the case of Dropadi Properties (P.) Ltd. v. ITO (2007) 108 TTJ (Kol) 774 - Followed