ORDER
N.S. Saini, A.M.
These are the three appeals filed by the revenue for the assessment years 1992-93, 1993-94 and 1994-95. As the issue involved in all the three appeals are common the same are disposed of by this consolidated order.
I.T.A. No. 239 (Gau) of 1997
Assessment year 1992-93
2. The grounds of appeal taken in this appeal are :
(i) The Commissioner (Appeals) erred in law and in facts in directing the assessing officer to accept the storage income as disclosed by the assessee at Rs. 58,000.
(ii) The Commissioner (Appeals) erred in law and in facts in directing the assessing officer to allow interest of Rs. 43,077 payable to M/s. Debidutt Poddar & Sons and other relevant expenses.
3. We have heard the rival submissions and perused the orders of both the lower authorities in the light of the materials available on record. Briefly the relevant facts of the case are that the assessee owned a commercial property consisting of godown at basement, ground floor and first floor. The assessee had shown income from storage charges received from sundry parties for letting out of the basement as “income from other sources” and claimed therefrom various expenses incurred as deduction while computing the total income. The expenses also includes interest of Rs. 43,077 payable to M/s. Debidutt Poddar & Sons. Loan originally taken from M/s. Debidutt Poddar and Sons for acquisition of the aforesaid property was Rs. 1,50,000 only and the above interest of Rs. 43,077 includes interest on interest. According to the assessing officer, the income from letting out of the aforesaid property is to be assessed under the head “income from house property”. The assessing officer also observed that no income was shown by the assessee from the ground floor and the first floor. She estimated the annual rateable value of the whole property at Rs. 1,20,000 and the same being more than storage charges received by the assessee, she took the annual value of the property at Rs. 1,20,000 and accordingly computed the income under the head “income from house property”. In computing the said income, as the loan taken for acquisition of the property was Rs. 1,50,000 and hence she allowed interest on original borrowing of Rs. 1,50,000 only as deduction under section 24 of the Act. Thus, a portion of the interest payable to Messers section Debidutt Poddar & Sons and other relevant expenses as claimed by the assessee was disallowed. In appeal, the Commissioner (Appeals) has observed that the annual value of the property taken by the assessing officer at Rs. 1,20,000 was without any basis and further the assessing officer has not made any enquiry to ascertain whether the charges received by the assessee was storage or rental income. In view of this he directed the assessing officer to accept the income of storage charges as shown by the assessee and to allow interest and other relevant expenses as claimed. Thus, the Commissioner (Appeals) directed the assessing officer to assess the storage income under head income from other sources”. Being aggrieved by this order, the revenue is in appeal before us on the ground stated hereinabove.
4. Section 14 of the Act classified all income into 5 heads for the purpose of charge to income-tax and computation of total income. The Honble Supreme Court in the case of United Commercial Bank Ltd. v. CIT (1957) 32 ITR 688, 657 (SC) held that provisions of section 14 are of mandatory character. The Apex Court of the country in the case of Bihar State Cooperative Bank Ltd. v. CIT (1960) 39 ITR 114, 116 (SC) also held that it does not matter any way how the assessee has chosen to show a particular income in the return of income submitted by him. The income is to be taxed under appropriate head of income. The Honble Madras High Court in the case of H.C. Kothari v. CIT (1951) 20 ITR 579 (Mad) held that it is imperative on the part of the department to charge the income under the specific head under which it falls since the law leaves no option in the matter.
5. The Honble Supreme Court in the case of Sultan Bros. (P) Ltd. v. CIT (1964) 51 ITR 353 (SC) has held that “we think each case has to be looked at from a businessmans point of view to find out whether the letting was the doing of a business or the exploitation of his property by an owner”. Thus, the question whether particular letting is business has to be decided in the circumstances of each case and in the setting and back ground of the facts of the case.
6. In the case of CIT v. Halai Noman Association (2000) 243 ITR 439 (Mad) the Honble Madras High Court has observed :
“The activity of earning an income from making the building available to others for a charge for limited period is not to be equated with the letting out of a building on lease from month to month or year to year, wherein it would be said that the building was being exploited by the owner to earn a rental income. Here the expression “letting out” is used only for a limited purpose. The building remains under the control of the owner. What is granted by the owner is only a licence for a prescribed fee for a specified period. This activity of the assessee can be described as a business carried on by the assessee with the intention of earning income from the building, the business being that of making available the building to others for a charge for a limited duration. The overall control of the building at all times being retained by the assessee.”
Observing as above, the Honble Madras High Court held that the Tribunal is, therefore, right in holding that the income derived by the assessee from making the building available to others for a limited period for various purposes is only business income. Thus, it is clear that whenever the building remains under the control of an owner, the activity of the assessee can be described as business carried on by the assessee with the intention of earning income from the building.
7. Coming to the facts of the case in hand, it is observed that the assessee has allowed the other person, i.e., the nearby traders/mechanics to store their goods in his premises for certain duration and in consideration of the same he charged storage charges. There is no martial on record to show that for earning storage charges the assessee has handed over the possession and control of the property to the person from whom it received storage charges. The revenue has not been able to bring on record any material to show that during the course of the activity or earning storage income by letting out the godown for a limited period, any tenancy right was accrued to the persons who stored goods therein. Facts of the case show that the assessee was carrying on the activity of allowing others to stores their goods in the premises in a systematic and regular manner with a motive to earn profit. Further the assessee never parted with the possession of the building. The building always remained under the possession of the assessee. The overall control of the building at all times remained with the assessee. Thus, in our considered opinion, the above organised activity of the assessee carried on continuously can be described only as business carried on by, the assessee with the intention of earning income from the building, the business being that of storing of goods of others is very similar to the business of running of a warehouse. The income arose to the assessee for not being his owner of the property but, for his carrying on of a commercial activity in a regular and systematic manner. in the building and the said activity being storing of goods of others. In the circumstances, the income earned by the assessee from the above activities is from carrying on of a business and the same ought to have been assessed under the head Income from business or profession”. Thus, the assessing officer was not correct in concluding that the income derived from letting out the commercial property is to be taxed under the head Income from house property” only and further the Commissioner (Appeals) also erred in directing the assessing officer to assess the storage income under the head “Income from other sources”. Further, the assessing officer has observed in the order of assessment that no charges are shown as received for letting out of the ground floor and the first floor. The order is silent about the manner of use of the ground floor and the first floor. Admittedly, the property is a commercial property. The purpose for which the ground floor and the first floor of the property was used during the year under consideration is not in record. If the ground floor and the first floor remained vacant throughout the year, then its proportionate annual rateable value is to be assessed under the head Income from house property” and if the ground floor and first floor is used in the own business of the assessee, then no income from it can be brought to tax separately. In the circumstances, we set aside the order of the both the lower authorities and remand the matter back to the file of the assessing officer for deciding the issue afresh in accordance with the discussion made hereinabove and after allowing an opportunity of being heard to the assessee. The revenue succeeds on this ground of appeal.
8. The 2nd ground of appeal relates to interest and other relevant expenses claimed as deduction by the assessee. This ground is consequential in nature an depends upon the determination of head under which the relevant income is to be assessed. As we have held that the income from storage charges is to be assessed as business income, the expenses allowable for computing the said business income is to be allowed as deduction to the assessee. Accordingly, we remit the issue back to the file of the assessing officer who shall verify the same and shall allow the deduction for interest and other relevant expenses is accordance with law.
9. In the result, the appeal filed by the revenue is allowed.
I.T.A. No. 240 (Gau) of 1997
Assessment year 1993-94
10. The ground of appeal taken by the revenue in this appeal are as under :
(1) For that the Commissioner (Appeals) erred in law and in facts in deleting the addition of the gross house property income of Rs. 1,20,000,
(2) For that the Commissioner (Appeals) erred in law and in facts in directing the assessing officer to allow the interest payment of Rs. 61,645,
(3) For that the Commissioner (Appeals) erred in law and in facts in deleting the disallowance of Rs. 1,500 being the advertisement cost in the Rotary Club Souvenir.”
11. The facts of the case relevant for first two grounds are same as stated in para 3 hereinabove, same and except that the assessee has not shown any income from storage charges this year. The assessee has claimed interest payable to M/s. Debidutt Poddar & Sons as discussed from the business income of his proprietary business styled M/s. Kohli Tyres carrying on business at Gauhati. The assessee submitted before the assessing officer that due to bad law and order situation at Gauhati, he remained in Delhi and used the premises as his Delhi Branch office to look after the Gauhati business as well as to explore new area of business at Delhi. The assessing officer observed that no expense of Delhi office was claimed as deduction from the proprietary business income except interest as stated above and this shows that the explanation of the assessee was a mere afterthought. Hence, the assessing officer not allowed the deduction of interest expenses from the business income of the assessee and computed the notional income from house property at Rs. 69,000 by taking the annual reteable value of the property at Rs. 1,20,000. The Commissioner (Appeals) has observed that the assessing officer has rejected the claim of the assessee that the property was used for the purposes of business, without any basis. The assessing officer has failed to make an enquiry through her counterpart in New Delhi as has been done in another case of the assessee to verify and ascertain the claim of the business activities of the assessee. In view of this, he deleted the notional income from house property calculated by the assessing officer at Rs. 69,000 and directed the assessing officer to allow deduction for interest of Rs. 61,646 from out of the business income of the assessee. Being aggrieved the department is in appeal before us.
12. After hearing the rival submissions in the light of the material available before us, we find that the house property under consideration is a commercial property. The submission of the assessee before the assessing officer regarding the prevailing bad law and order situation at tile material time at Gauhati was not disputed by the assessing officer. The assessing officer, rejected the explanation of the assessee merely because no other expenses in respect of Delhi office was claimed by the assessee out of his business income. The explanation of the assessee that other expenses were not substantial and the same were met out of the withdrawals of the assessee, was not accepted by the assessing officer because in his subjective opinion the increase in withdrawal was not sufficient to justify two establishment. Considering the prevailing law and order situation as narrated by the assessee in his letters dated 24-2-1995 and 28-2-1995 filed before the assessing officer and which were not controverted by the revenue, we find that the explanation given by the assessee was plausible and the same was rejected by the assessing officer without bringing any relevant and cogent material on record to show otherwise. Hence, considering the facts and circumstances of the case in totality, we find no reason to interfere with the order of the Commissioner (Appeals). This, the first and second ground of appeal are dismissed.
13. The respect of 3rd ground of appeal it is observed that the assessing officer disallowed the expenses of Rs. 1,500 being advertisement in Rotary Club Souvenir without assigning any reason whatsoever.
The Commissioner (Appeals) observed that the above expenses has been incurred for the purpose of business of the assessee and hence deleted the disallowance. The revenue has brought no material on record to controvert the above finding of the Commissioner (Appeals). Hence, there is no merit in this ground of appeal and the same is dismissed.
14. In the result, the appeal of the revenue is dismissed.
ITA. No. 241 (Gau) of 1997
Assessment year 1994-95
15. The grounds of appeal taken by the revenue in this appeal are as follows :
“(1) For that the Commissioner (Appeals) erred in law and in facts in directing the assessing officer to accept the income disclosed by the appellant at Rs. 72,000,
(2) For that the Commissioner (Appeals) erred in law and in facts directing to allow interest payment of Rs. 78,057.”
16. After considering the rival submissions we find that the facts of the case and the issues in this year are same as were in I.T.A. No. 239 (Gau) of 1997 in the case of the assessee for the assessment year 1991-92. Hence, following out decision in ITA No. 239 (Gau) of 1997, we set aside the orders of the lower authorities in respect of both the issues under consideration and direct the assessing officer to decide the issue afresh in the light of discussion made in I.T.A. No. 239 (Gau) of 1997.
17. In the result, this appeal of the revenue in allowed.
18. In the result, the appeal in ITA No. 239 (Gau) of 1997 and 241 (Gau) of 1997 are allowed and ITA No. 240 (Gau) of 1997 is dismissed.