2017-TIOL-1365-HC-MUM-IT + Story

CIT Vs E-CITY PROJECT CONSTRUCTION PVT LTD : BOMBAY HIGH COURT (Dated: July 18, 2017)

Income tax - rental income - leasing out of mall - commercial activity - business income

During the subject year, a company named E-City Entertainment Pvt.Ltd was demerged and its properties were divided in the present Assessing Company i.e., E City Project Construction Pvt Ltd. The Assessee is primarily engaged in the business of leasing and rentals of property and other types of leasing business. The counsel for Assessee submitted that both CIT(A) as well as ITAT on appreciation of facts, arrived at the concurrent conclusion that the income derived by way of rent was a business income. According to the counsel, even the object clause in the Memorandum of Association made it clear that the business of the Assessee was to construct malls/commercial complex and lease it. The entire income of Assessee was rent income except the other paltry sum received by the interest on fixed deposits and sale of scrap.

On appeal, the HC held that,

Whether operational income derived from leasing out of shops/stalls, are to be treated as 'business income', when the intention was to commercially exploit the property by way of complex commercial activities - YES: HC

++ it is to be noted that no straitjacket formula can be laid down to conclude as to an income being a 'income from the house property' or 'business income'. It does not appear to be a matter of debate that prior to the A.Y 2006-07, consistently the AO has accepted that the income derived to the Assessee by way of rent is a business income. The deviation is from the Assessment Year 2007-08. One of the ground raised is that there is demerger of the Company and that is why the AO has right to revisit the facts and arrive at an independent conclusion. The Company which is demerged is E-City Entertainment Pvt.Ltd. The properties of the said demerged Company are divided in the present Assessing Companies. It is not disputed that E-City Entertainment was assessed till the Assessment Year 2005-06 and the income derived by the said Company by way of rent was always assessed as 'business income'. There is no dispute with the proposition that the principle of res judicata would not apply, however principle of consistency has to be considered. Even in a case of Sultan Brothers, the Apex Court has observed that a small entry in the object clause showing a particular object would not be a determinative factor to arrive at a conclusion, whether the income is to be treated as 'income from business' and as such a question would depend upon the circumstances of each case i.e. whether particular business is letting or not. The said Judgment was considered by the Apex Court in the case of Chennai Properties and Investments Limited, Chennai, wherein the Apex Court held the 'rent income' to be a 'business income'. However, in the present case, the facts are otherwise. The substantive income of the Assessee is from leasing out the shop/stalls;

++ the Tribunal in its Judgment, while appreciating the facts, has observed that the various malls are built by Assessee and are operated from the year 2001. The operational income received from the said activity, in the form of rent, and other service charges was consistently offered to tax as its business income in the earlier years and the same was accepted by the Department as a business income. After demerger, both the Assessee Companies took over the assets and liabilities of the demerged Company and continued the same business of operating and running the malls. The Tribunal has considered the nature of the business activities of the Assessee Company, as well as, terms and conditions of the relevant agreements, under which the commercial space in the mall was given on hire by the Assessee Companies to the concerned parties. It also considered the various services provided by the Assessing Companies during the course of operation and running of the Family Entertainment Centrecummalls. On appreciation of facts, the Commissioner (Appeals) and the Tribunal have concurrently arrived at a conclusion that the intention of the Assessing Companies was to commercially exploit the property by way of complex commercial activities and it was not a case of letting out the property simplicitor. The rental income and the service charges thus were received by the Assessee Company as business income during the course of business carried out by them of operating and running a Mall as a commercial activity. The facts of the present case are much similar to the case of Chennai Properties and Investments Limited, Chennai. We find that the appreciation of evidence by the Commissioner (Appeals) and Tribunal is not perverse and the finding arrived at by them is plausible one.

Revenue's appeal dismissed

2017-TIOL-1364-HC-DEL-IT

CIT Vs INTERNATIONAL TRACTORS LTD : DELHI HIGH COURT (Dated: July 20, 2017)

Income Tax – Sections 80IA, 263, 148

Keywords - industrial undertaking - small scale undertaking – pervious year – fixed assets – revision- order erroneous - prejudicial to interest of revenue – reopening

The Assessee was engaged in the business of manufacturing and trading agricultural tractors/tractor parts and components. The Assessee commenced its production in the FY 1997-98 and treated it as the 'initial assessment year' for the purposes of claiming the benefit of Section 80-IA. In terms of Notification No. SO 232(E) dated 2nd April, 1991 which was operative upto 9th December, 1997, an industrial undertaking could be treated as a small scale undertaking under Section 11B of the Industries (Development and Regulation) Act, 1951 (IDR Act) if its total investment in fixed assets i.e., Plant and machinery (P&M) did not exceed Rs. 60 lakhs. During the AY 1997-98, the total investment in fixed assets worked out to Rs. 1.07 crores. Revenue was of the view that in the initial year the Assessee was not a small scale industrial undertaking and was not entitled to the deduction under Section 80-IA of the Act. While the Assessee claimed this deduction in the original return filed for AY 1997-98, it did not make any such claim in its revised return. Further, no such deduction was allowed by the AO for the AY 1997-98. A fresh notification dated 9th December, 1997 was issued raising the limit of investment by a Small Scale Industry ('SSI') in fixed assets to Rs. 3 crores. This notification became operative from 10th December, 1997. In terms of Schedule 4 to the Audit Report, the total investment made by the Assessee as on 31st March, 1998 in fixed assets worked out to Rs. 3.37 crores. The Assessee also applied to the Ministry of Industries for being registered as a Medium Scale Unit and it, in fact, got registered as a Medium Scale Industry ('MSI'). By a subsequent notification, the limit of investment in fixed assets in P&M by an SSI got reduced to Rs. 1 crore. The case of the Revenue is that this notification also applied to the Assessee since it never obtained a permanent registration as an SSI unit. Further, as on 31st March, 1999, the Assessee's total investment in P&M worked out to more than Rs. 6.42 crores. This increased to Rs. 19.82 crores as on 31st March, 2000 and approximately Rs. 23 crores as on 31st March, 2001. The case of the Revenue, therefore, is that the Assessee was never an SSI. Assessee had claimed deduction u/s 80-IA of Rs. 1,01,50,131 but the AO allowed only an amount of Rs. 95,59,064.

For the AY 1999-00, after the AO allowed the deduction under Section 80-IA, the CIT exercised jurisdiction under Section 263 and held that the deduction under Section 80-IA ought not to have been granted to the Assessee as it was, in fact, a medium scale or large scale industrial undertaking during the AY in question. The CIT opined that the allowing of the deduction would go against the legislative intent. Thereafter, the AO issued a notice to the Assessee under Section 148 seeking to re-open the assessment for the AY 1998-99. In response, Assessee filed a return declaring the same income as per the revised return. AO held that the total investment worked out to Rs. 9,27,11,983 whereas the ceiling as per the notification dated 24th December, 1999 for an SSI was Rs. 1 crore only. By the assessment order, the deduction was disallowed and added to the taxable income of the Assessee.

In appeal, CIT(A) held that the action under Section 263 of the Act was not warranted. ITAT held that the Assessee was entitled to deduction under Section 80-IA. The proceeding initiated under Section 147 of the Act was held to be void ab initio.

On appeal, the HCourt held that,

Whether eligibility for availing deduction u/s 80IA should be shown to be fulfilled at the end of each and every previous year relevant to the AY relevant to the ten successive AYs for which the benefit is granted – NO: HC

Whether power under Section 263 can be exercised to revisit a debatable issue – NO: HC

++ there is no specific provision which states that the eligibility for availing the deduction should be shown to be fulfilled at the end of each and every previous year relevant to the AY relevant to the ten successive AYs for which the benefit is granted. While Section 80-IA(12)(f) defines an SSI to mean an industrial undertaking that has the status of an SSI on the last day of the previous year (which expression 'previous year' is referable to the previous year relevant to the 'initial assessment year'), it is not meant to refer to a previous year relevant to each of the ten AYs for which benefit under Section 80-IA is availed. The very use of the word 'initial' preceding in the word 'assessment year' and a separate definition for that expression given under Section 80-IA(12)(c) is not without significance. It is only in relation to the 'initial' assessment year in which an undertaking begins to manufacture or produce articles or things that the following nine years are determined. The ITAT in the said order agreed with the Assessee that Section 80-IA did not contemplate the carrying out of a yearly review to ensure that on the last date of other previous year, of the ten AYs for which the deduction was allowed, the eligibility condition stood fulfilled. In the initial AY 1997-98, the Assessee was facing a loss and, therefore, did not make a claim. Nevertheless that continued to remain the initial AY. The Assessee claimed deduction only in regard to the remaining years. The ten years would begin to be counted from the AY 1997-98 itself although the deduction was not claimed for that AY. It could not have been claimed for AY 1997-98 because under Section 80-IA, the aggregate deduction claimed of the Assessee could not have exceeded its gross total income;

++ the words 'previous year' occurring in Section 80-IA(12)(f) have to be read as the previous year relevant to the 'initial assessment year' as defined in Section 80-IA(12)(c) and not for any other purpose. When the entire section is read as a whole, it becomes very clear that the benefit is to be for ten continuous AYs after the initial AY. Assessee was entitled to the benefit from the initial AY i.e., AY 1997-98. It, therefore, could not have been denied this benefit for the next ten AYs. In CIT v. Tata Communications Internet Services Ltd., it was clarified by the Court with specific reference to Section 80-IA that "the bar as provided under section 80-IA(3) is to be considered only for the first year of claim for deduction under section 80-IA. Once the assessee is able to show that it has-used new plants and machinery which has not been 'previously used for any purpose and the new-undertaking is not formed by splitting up or reconstruction of business already in existence, it is entitled to the deduction under section 80-IA for subsequent years. Since the assessee had been granted claim of deduction right from the assessment year 2004-05 under section 80-IA, consequently it cannot be denied deduction for the subsequent years inasmuch as restraint of section 80-IA(3) cannot be considered for every year of claim of deduction, but can be considered only in the year of formation of the business;

++ the assessment was completed under Section 143(3) of the Act for AY 1998-99 onwards. There was no error as such committed by the AO in allowing the deductions under Section 80-IA since the correct interpretation of the said provision was open to debate. The twin conditions of (i) the order having to be erroneous and (ii) prejudicial to the interest of the Revenue cannot be said to have been be cumulatively satisfied in the present case. That the power under Section 263 cannot be exercised to revisit debatable issues is well settled. Even on merits, the order under Section 263 was not warranted. It is contrary to the principle of consistency. The deductions allowed in the earlier AYs should not be withdrawn unless the circumstances have changed. It has been explained by the Madras High Court in CIT v. Carborundum Universal Ltd. that if an Assessee is called upon to apply a new method of valuation to the opening stock of the accounting year, then in consequence the value of closing stock of the year will also get altered and this would result in the modification of the assessment in the previous year. Therefore, the change in the method of valuation of closing of stocks was not a justification for the exercise of power under Section 263. Consequently, as far as AY 2001-02 is concerned, this could not have been a ground for invoking Section 263 of the Act. Again, the mere change in the method of accounting would ipso facto not make a difference to the Revenue and cannot be said to be prejudicial to the interest of the Revenue. The Court having held that there is no justification for the CIT to have invoked Section 263 of the Act, the re-opening of the assessments under Section 147 of the Act in AY 1998- 99, which is the only year for which the question was framed, was not justified.

Revenue's Appeals dismissed

2017-TIOL-1363-HC-MAD-CX

THIRU AROORAN SUGARS Vs CESTAT : MADRAS HIGH COURT (Dated: July 10, 2017)

CX - Assessees were involved in manufacture of excisable goods and assessee's availed Cenvat credit of some input items used to construct supporting structurals - Such availment was challenged by revenue on grounds that the supporting structurals were not valid capital goods and Cenvat credit availed on them was incorrectly availed - Duty demand with interest & penalty wereimposed and later upheld by the Tribunal.

Held - The questions of law framed in present appeal were resolved by the Madras High Court in M/s.Thiruarooran Sugars and another, wherein they were answered in favor of the assessees and against revenue - Hence impugned Tribunal orders dismissed: High Court (Para 1,4,4.1,5)

Appeals Allowed

2017-TIOL-1362-HC-MAD-ST

SOUTH INDIA CORPORATION LTD Vs CST : MADRAS HIGH COURT (Dated: June 13, 2017)

ST - Petitioner allegedly collected service tax but defaulted in depositing it - Subsequently, when the matter reached the Tribunal, the appeal was dismissed for non-appearance of the assessee, despite service of notice - Petitioner challenged the Tribunal finding that petitioner was unrepresented on the date of hearing & sought fresh date for hearing.

Held - Petitioner contended that the Tribunal proceedings were incorrectly reflected in the impugned order - Thereby, petitioner directed to file application before the Tribunal, seeking rectification of such order: High Court (Para 1-7)

Appeal Dismissed

2017-TIOL-1359-HC-MAD-CUS

CC Vs DYNAMATIC TECHNOLOGIES LTD : MADRAS HIGH COURT (Dated: June 29, 2017)

Cus - Assessee imported some goods & sought conversion of shipping bills - Such request was denied by revenue for want of details - Later, Tribunal allowed the assessee's appeal on grounds that examination of the invoices along with Shipping Bills filed carried both the EPCG License Number as well as the Advance License Number.

Held - There was an inconsistency w.r.t. the facts as found by the Adjudicating Authority and those found by the Tribunal, w.r.t. whether or not Advance license numbers were referred to in the invoices filed by the assessee along with the shipping bills - Besides, assessee also placed on record a certificate issued by the Superintendent of Central Excise, stating that goods in question, imported under the Advance License were used in the manufacture of excisable goods which in turn were exported by the assessee - Hence matter remanded back to Tribunal for re-examination of this issue and to determine whether or not assessee was eligible for conversion of shipping bills u/s 149 of the Customs Act: High Court (Para 2,3,4,6.2,6.3,9,11,12)

Case Remanded