Mr. X vs.

Assessing Officer

BEFORE THE
THE INCOME TAX COMMISSIONER
APPEAL NO . /2017

Under

Section 246A of the Income Tax Act, 1961

IN THE MATTER OF

MR. X .................................................................................................... (Appellant)

v/s.
ASSESSING OFFICER ....................................................................(Respondent)

DRAWN AND FILED BY THE COUNSEL FOR RESPONDENT

-: MEMORIAL ON BEHALF OF RESPONDENT :-

COUNSEL FOR THE RESPONDENT

MOST RESPECTFULLY SUBMITTED BY
AMIT KUMAR
SEC.- B, ROLL NO.- 313
SUBJECT DIRECT TAXATION
VIIITH SEMESTER, NUSRL, RANCHI

TABLE OF CONTENTS
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 Mr. X vs. Assessing Officer

1. INDEX OF AUTHORITIES ...3-5.

1.1 Case Laws ............................................................................................................3.
1.2 Statutes and Guidelines ........................................................................................4.
1.3 Books & Websites ...4.
1.4 List of Abbreviations.............................................................................................5.
2. STATEMENT OF JURISDICTION......................................................................6.
3. STATEMENT OF FACTS .....................................................................................7.
4. STATEMENT OF ISSUES .....................................................................................8.
5. SUMMARY OF ARGUMENTS ............................................................................9.
6. ARGUMENTS ADVANCED .................................................................................10-15.
7. PRAYER .............................................................................................................. 16.

INDEX OF AUTHORITIES

CASE LAWS

1. CIT vs. Bazzar, ..... 200 ITR 131, (1992) 65 Taxman 91 (Ori)
2. CIT vs. K. L. Puri (HUF), ... 1998 233 ITR 43
Delhi
3. Saswad Mali Sugar Factory Ltd. vs. CIT., [1999] 236 1TR 706
(Bom)

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 Mr. X vs. Assessing Officer

4. Commissioner of Income-Tax v. Shambhu Investment Pvt. Ltd 2001 249 ITR 47 Cal
5. Mazagaon Dock Ltd. vs. CIT,1958 AIR
861
6. CIT v. Tamil Nadu Dairy Development Corporation Ltd .216 ITR 535
7. M/s Chennai Properties & Investments Limited,.2015-LL-1009-170
8. Sultan Brothers (P) Limited .............. (1940) 8 I.T.R. 41
9. CEPT vs. Shri Lakshmi Silk Mills Ltd., ..1951 AIR 454, 1952 SCR
1
10. M. Anandan v. ITO, 1995 53 ITD 428 Mad
11. CIT v Ashoka Engineering Co..(1992) 194 ITR 645 (SC)

12. CIT vs. Garware Nylons Ltd..........(212-ITR-242) (Bom).

13. Kirloskar Systems Limited v. Asst. Commissioner of Income Tax
MANU/IL/O147/2014

STATUTES & GUIDELINES

1. The Income Tax Act, 1961

BOOKS

1. Datar, Arvind P, Kanga & Palkivalas THE LAW AND PRACTICE OF INCOME
TAX, Vol. I, Tenth Edition, Lexis Nexis, Mumbai, (2014).
2. Vyas, Dinesh, Kanga & Palkivalas THE LAW AND PRACTICE OF INCOME
TAX, Vol. I, Ninth Edition, Lexis Nexis Butterworths Wadhwa Nagpur, New Delhi,

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 Mr. X vs. Assessing Officer

(2004).
3. Ahuja, Dr. Girish and Gupta, Dr. Ravi, Concise Commentary on Income Tax,
Fifteenth Edition, Bharat Law House Pvt. Ltd., New Delhi, (2014).
4. Ahuja, Dr. Girish and Gupta, Dr. Ravi, Professional Approach to Direct Taxes Law
& Practice, Thirty First Edition, Bharat Law House Pvt. Ltd., New Delhi, (2014).
5. Singhania, Dr. Vinod K. and Singhania, Dr. Monica, Students Guide to Income
Tax, Fifty Second Edition, Taxmann Publications Pvt. Ltd., New Delhi, (2015).
6. Ahuja, Dr. Girish and Gupta, Dr. Ravi, A compendium of Issues on Income Tax and
Wealth Tax, Vol. I, Sixth Edition, Wolters Kluwer India Pvt. Ltd., New Delhi,
(2014).

WEBSITES

1. www.manupatra.com
2. www.lexis-nexisindia.com
3. www.indiankanoon.com
4. www.westlawindia.com

ABBREVIATIONS

1. & - And
2. AIR - All India Reporter
3. Anr - Another
4. Cl - Clause
5. Edn. - Edition
6. Ors. - Others
7. P. - Page
8. Pp. - Pages
9. v. - Versus
10. Vol. - Volume

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 Mr. X vs. Assessing Officer

11. SC - Supreme Court

12. SCC - Supreme Court Case
13. Honble - Honourable
14. Sec. - Section
15. Co. - Company
16. Pvt. - Private
17. ITR - Income Tax Reporter
18. CIT - Commissioner of Income Tax
19. IT Act - Income Tax Act 1961

20. AO - Assessing Officer

21. UOI - Union of India

STATEMENT OF JURISDICTION

The present appeal is filed under Section 246A1 of the Income Tax Act, 1961 against the order of
the assessment of income for the purpose of income tax by the assessing officer

1(a) an order [passed by a Joint Commissioner under clause (ii) of sub-section (3) of section 115VP or an order]
against the assessee where the assessee denies his liability to be assessed under this Act or an intimation under sub-
section (1) or sub-section (1B) of [section 143 or sub-section (1) of section 200A, where the assessee or the
deductor objects] to the making of adjustments, or any order of assessment under sub-section (3) of section 143
[[except an order passed in pursuance of directions of the Dispute Resolution Panel [or an order referred to in sub-
section (12) of section 144BA]]] or section 144, to the income assessed, or to the amount of tax determined, or to
the amount of loss computed, or to the status under which he is assessed.

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 Mr. X vs. Assessing Officer

STATEMENT OF FACTS

The Respondent most respectfully and humbly submits the facts of the case as under:

Mr. X is a rich and influential person who runs many business in running condition like

grocery, stationery etc. in his locality. As he was affluent he had a passion for purchasing

and selling land and for investment in real estate sector.

One day he gets an offer from a premium courier service provider where by the courier

concern expresses their concern for running one their branch at his one of the house(s)

premises. They also approach to give the rent not only for house premises rather for

certain office equipments and for an old car which is aimed by the courier concern for

using in their courier business.

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 Mr. X vs. Assessing Officer

Subsequently, the agreement is signed between Mr. X and the courier concern on

1.10.2015 and Mr. X starts to receive a lumsump amount as rent@1,80,000 (INR) from

the next month onwards.

In the mean while Mr. X receives demand notice from IT authority for the AY 15-16 and

he is taxed for such aforesaid amount as business income. But Mr. X denied to pay tax on

business income and claims that tax computed on business income is erroneous on the

part of the AO (assessing officer) and moved to appeal.

STATEMENT OF ISSUES

I. IS APPEAL MAINTAINABLE?

II. IS MR.X JUSTIFIED IN HIS CLAIM?

III. IS ASSESSING OFFICER (AO) WRONG OR ERRONEOUS IN COMPUTING

THE TAX?

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 Mr. X vs. Assessing Officer

SUMMARY OF ARGUMENTS

I. IS APPEAL MAINTAINABLE?

It is humble contended before this this Forum that the present appeal is not maintainable as the
order given by the assessing officer is not wrong.

II. IS MR.X JUSTIFIED IN HIS CLAIM?

It is humbly contended before this Forum that Mr. X is not justified in his claim as the the old car
and the other equipments was given on rent with the prime objective of getting income from the
above. Therefore, it would come under the ambit of business income for the purpose of the
Income tax Act, 1961.

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 Mr. X vs. Assessing Officer

III. IS ASSESSING OFFICER (AO) WRONG OR ERRONEOUS IN COMPUTING

THE TAX?

In the present case, It is clearly mentioned that the house premises and other certain office
equipments and an old car of the appellant was given on rent with the prime objective of getting
income from the property. Therefore it would come under the ambit of business income for the
purpose of Income Tax Act 1961 and hence the calculation of tax on that income is as per the law
and hence A.O has not committed any error of law in computing the tax on income earned
through the house and car rented.

ARGUMENTS ADVANCED

I. IS APPEAL MAINTAINABLE?

It is humbly submitted before this Forum that that the present appeal is not at all maintainable
under the Income Tax Act, 1962 as the assessing officer is not wrong in giving notice to Mr. X to
pay the tax for the amount he earned as business income.

In the case of M. Anandan v. ITO2, it was held that it is the duty of the Assessing officer to
assess accordingly the law and if an appeal is made challenging his assessment that must be
precise and to the point. And the assessee must not try and make out any distinction from the
provisions where there are not any.

In the case of CIT v Ashoka Engineering Co3 it has been held that a person can appeal against
an order of the authority only if the right to appeal has been statutorily provided in the statute.
2 1995 53 ITD 428 Mad

3 (1992) 194 ITR 645 (SC)

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 Mr. X vs. Assessing Officer

Furthermore, in the case of CIT vs. Garware Nylons Ltd4, it was held that Right of appeal is
not an inherent right but it is a statutory right created due to the provisions of the statute.

Section-249 (4)-payment of tax on Returned Income before the appeal

Section 249 (4) provides that no appeal shall be admitted unless the appellant has paid the tax
due on the returned income before filing of the appeal. This is a very important part of appeal
proceedings and one has to be extra careful on this front. If the tax on the returned income is not
paid before the filing of the appeal, the appeal is not likely to be admitted. Section 249(4) is
mandatory and there is no remedy available against the operation of the said section.

If the Tax is not paid before the filing of the appeal, then legally the CIT (A) is empowered to
dismiss the appeal.

In the instant case at hand since the assessee has not paid the tax due on the returned income.

Therefore, basing upon the factual circumstances and the enunciation in the case it can be
concluded that the appeal lacked all the merits and hence it not maintainable.

II. IS MR.X JUSTIFIED IN HIS CLAIM?

It is humbly submitted before this Forum that Mr. X is not justified in his claim as the house, the
car and the other equipments which was rented by him comes under the purview of business
income.

It is humbly contended that the term Business as defined under section 2 (13) of the Income
Tax Act, 1961 is business" includes any trade, commerce or manufacture or any adventure
or concern in the nature of trade, commerce or manufacture.

4 (212-ITR-242) (Bom).

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 Mr. X vs. Assessing Officer

As held by the court in the case of CIT vs. Bazzar5 that the word business is a word of large
and indefinite import; it is something which occupies the attention and labour of a person for the
purpose of profit; it is an activity carried on continuously in an organised manner with a set
purpose and with a view to earn profit.

THE INCOME FROM THE HOUSE, CAR AND OTHER EQUIPMENTS RENT
FALLS UNDER THE MEANING OF BUSINESS INCOME FOR THE PURPOSE
OF THEINCOME TAX ACT, 1961.

It is further submitted that the income from the house, car and other equipments rent falls under
the meaning of business income for the purpose of the Income Tax Act, 1961.

As held in the case of CIT vs. K. L. Puri (HUF) 6 that in the instant case there had been two
separate agreements one for rent for accommodation and the other for hire charges of the
furniture and fixtures. The Division Bench of the Delhi High Court held that since the agreement
for providing furniture and fixtures was done by a separate agreement, the rent realised pursuant
to such agreement referable to the furniture and fixtures should not be treated as income from
property.

Also in the case of Saswad Mali Sugar Factory Ltd. vs. CIT 7 the Bombay High Court held that
the income from student hostel should be taxed as business income.

In the case of Commissioner of Income-Tax v. Shambhu Investment Pvt. Ltd 8 it was held by the
Honble Court that it clearly appears that merely because income is attached to any immovable
property that cannot be the sole factor for assessment of such income as income from property.
What has to be seen is what was the primary object of the assesse while exploiting the property.
If it is found applying such test that the main intention is for letting out the property or any

5 200 ITR 131, (1992) 65 Taxman 91 (Ori)

6 1998 233 ITR 43 Delhi

7 [1999] 236 1TR 706 (Bom)

8 2001 249 ITR 47 Cal

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 Mr. X vs. Assessing Officer

portion thereof the same must be considered as rental income or income from property. In case it
is found that the main intention is to exploit the immovable property by way of complex
commercial activities in that event it must be held as business income.

In the present case it is an established fact that the courier service provider expresses their
concern for running one their branch at his one of the house(s) premises. They also approach to
give the rent not only for house premises rather for certain office equipments and for an old car
which is aimed by the courier concern for using in their courier business. Subsequently, the
agreement is signed between Mr. X and the courier concern on 1.10.2015 and Mr. X starts to
receive a lumsump amount as rent @1,80,000 (INR) from the next month onwards.

From the above facts it clearly shows that the house premises, the old car and the other
equipments was given on rent with the prime objective of getting income from the above.
Therefore, it would come under the ambit of business income for the purpose of the Income tax
Act, 1961.

In the case of Kirloskar Systems Limited v. Asst. Commissioner of Income Tax9, where the
assessee company is engaged in the business of real estate development, the assessee had
developed an Industrial Park by name 'Kirloskar Business Park' at Hebbal, Bangalore which was
rented out to various companies. In addition to renting out the buildings in the aforesaid
business park, the assessee also undertook to provide various amenities and services to the
tenants such as maintenance of roads, etc and other fit outs comprising of equipments, furniture,
plant and machinery, fixtures, etc. for which rent was charged.

Now, the issue involved in the case was whether the rental income received on leasing/renting
out of fit-outs, furniture and fixtures is to be treated as eligible to tax under the head 'income
from house property' or 'business income?'

Rent is separately fixed for fit outs given on rent. The amount of rent for the let out buildings is
fixed based on various factors such as extent of area (in sq. ft, sq. metr. etc) let out, location of
the building, type of construction etc. However, rent for the let out of fit outs are fixed based on

9 MANU/IL/O147/2014

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 Mr. X vs. Assessing Officer

other factors such as type of fit out provided, its estimated useful life, the probable maintenance
cost of fit outs on account of wear and tear, replacement etc. Fit outs have a shorter useful life
than that of the building or superstructure. On account of the above differences in the inherent
nature of these two properties, it cannot be considered that the fit outs are an integral part of the
building. And thus cannot be assessed under the head income from house property.

Thus it was held that the income derived by the assessee from letting out of fit-outs, equipments,
furniture and fixtures, etc. is not eligible to tax under the head 'income from house property', but
as business income'

Applying the same principle in the instant case at hand, it can be said that office equipments and
the car which is used by the courier company for their business are not integral part of the house
premises. Also the assessee is exploiting the property by way of complex activities and is also
collecting composite rent. Also Mr.X had a passion for purchasing and selling land and for
investment in real estate sector. Thus by virtue of this it is evident that his real motive is profit
making and he gets 80,000 INR per month from onwards October 2013. And thus, income
derived by such letting is to be taxed under the head business income.

Hence, the claim of Mr.X is not justified in his claim as per law.

III. IS ASSESSING OFFICER (AO) WRONG OR ERRONEOUS IN COMPUTING

THE TAX?

It is humbly submitted before this Forum that Assessing Officer (AO) is not wrong or erroneous
in computing the tax as the rent amount received by Mr. X comes under the ambit of business
income under the Income Tax Act, 1961.

It is contended that the definition of the term business in section 2 (13) is not exhaustive, it
covers every facet of an occupation carried on by a person with a view to earning profits. Thus,
the word business under section 28 has a very broad meaning and may be used in many
different connotations.

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 Mr. X vs. Assessing Officer

In the case of Mazagaon Dock Ltd. vs. CIT10 it was held by the court that the term business is
a word of wide import and in fiscal statues it must be construed in a broad rather than a
restricted sense.

Also in the case of CIT v. Tamil Nadu Dairy Development Corporation Ltd. 11 the Honble Court
held that the term business is a word of very wide connotation and by no means determinate in
its scope and has to be concerned with reference to each particular kind of activity and
occupation of the person concerned.

The Supreme Court (SC), in the case of M/s Chennai Properties & Investments Limited12, held
that if letting out of properties was the business of the taxpayer, then its income would be
chargeable to tax under the head profits and gains of business or profession as opposed to
income from house property.

The SC took into account the principles laid down in its decision in the case of Sultan Brothers
(P) Limited13 wherein it was held that each case needed to be looked at from a businessmans
point of view, to determine whether the letting out was for doing business or exploitation of
property by its owner.

In CEPT vs. Shri Lakshmi Silk Mills Ltd. 14 the assessee owned a dyeing plant which could not
be used by it personally owing to non-availability of yarn. It, therefore let out the plant to another
company on rental basis. The question for consideration was whether the rental income was
assessable as profits from business. The Court held that it was a part of the normal activities of
the assessees business to earn money by making use of its machinery by either employing it in

10 1958 AIR 861

11 216 ITR 535

12 2015-LL-1009-170

13 (1940) 8 I.T.R. 41

14 1951 AIR 454, 1952 SCR 1

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 Mr. X vs. Assessing Officer

its own manufacturing concern or temporarily letting it to others for making profit for that
business when for the time being it could not itself run it.

Business should have been Carried on Accounting year under clause (i) make it clear that in
order to attract the application of the clause, it is necessary that the business should have been
carried on by the assessee at any time during the accounting year but not necessary throughout
the year.

In the present case, It is clearly mentioned that the house premises and other certain office
equipments and an old car of the appellant was given on rent with the prime objective of getting
income from the property. Therefore it would come under the ambit of business income for the
purpose of Income Tax Act 1961 and hence the calculation of tax on that income is as per the law
and hence A.O has not committed any error of law in computing the tax on income earned
through the house and car rented.

Hence, Assessing Officer (AO) is not wrong or erroneous in computing the tax as the rent
amount received by Mr. X comes under the ambit of business income under the Income Tax
Act, 1961.

PRAYER

Wherefore, in the light of facts of the case, issues raised, arguments advanced and

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 Mr. X vs. Assessing Officer

authorities cited, this Court may be pleased to adjudge and declare that

1. Mr. X is not justified in his claim.

2. Assessing Officer is not wrong or erroneous in computing the tax.
3. Appeal is not maintainable.

And pass any other order in favour of the Appellant that it may deem fit in the light of
equity, justice and good conscience.

All of which is respectfully submitted.

On behalf of the Respondent

Date: 2nd May, 2017.

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