By Sanjay R. Shah,
Chartered Accountant

Appellant by : Shri Yogesh Pande, D.R.

Respondent by : Shri J.P. Shah, Advocate

Date of order : 20-9-2004

Facts and Rival Contentions:

This appeal filed by revenue was on the solitary ground that learned CIT(A) erred in law and on facts in deleting addition of Rs.5,15,000/- in respect of alleged gifts received by two minor sons of the assessee.

The brief facts are that the thread ceremony of assessee´s two minor sons was held on 7-2-1985 wherein they received gifts aggregating to Rs.5,15,000/- from the followers of the assessee. According to learned A.O., the assessee was a Dharma Guru of Vaishnav Sampradya and therefore, the gifts made to his two sons were result of his discourse given to the public and thus arising from his vocation. He, accordingly, levied tax upon these gifts by including them as income in the hands of the assessee. CIT(A) deleted the addition.

Before Tribunal, the learned D.R. supported the order of A.O. and contended that gifts were given to the minor sons due to influence of the assessee over the public being a `Dharma Guru´. Therefore, these gifts were rightly treated by A.O. as income of the assessee. He relied upon Supreme Court judgement in 35 ITR 48 wherein a retired Government servant used to teach Vedanta philosophy and one of his disciples transferred certain amounts to the teacher and that was treated as income from vocation.

The A.R. contended that A.O. was unable to lay his hands on any material indicating the facts that gifts were made to the assessee´s two sons on account of assessee´s influence in the society and if the children get gifts the same cannot be treated as income of the assessee. These gifts were given by persons out of love and affection on social ceremony. He relied on decisions reported at 262 ITR 393 and 231 ITR 632. He further placed on record the order of Tribunal in ITA No. 1652/Ahd/93 for A.Y. 1985-86 in case of ITO Vs. Minor Vithaldas Goswamy, one of the sons, wherein these gifts were added even in the hands of assessee´s sons and the assessee had duly explained the genuineness of such gifts by producing relevant material.

HELD:

The Tribunal held that learned CIT(A) has appreciated the facts and circumstances in right perspective and considered the CBDT´s Circular No. 158 dated 27-12-1994 wherein it has been provided that receipts which are of a casual and non-recurring nature will be liable to tax only if they can be properly characterized as income either in general connotation or within the extended meaning given to them by I.T. Act. Since the amount received by assessee´s sons was purely personal in nature it cannot be considered as income chargeable to tax. The assessee´s sons have received gifts in their thread ceremony according to Hindu rites. Therefore, there is no justification in treating them as income of the assessee. The case law relied on by learned D.R. is distinguishable as in that case assessee had directly received money in lieu of his preaching. This is not the case in the facts of this appeal. The Tribunal therefore, did not interfere with the finding of CIT(A) and dismissed the appeal of revenue.

2 IN THE INCOME TAX APPELLATE TRIBUNAL

Appellant by : Shri Anil N. Shah

Respondent by : Shri R.R. Meena

Date of order : 3-1-2005

Facts and Rival Contentions:

In this appeal as many as six grounds were taken by the assessee. However, ground Nos. 3 , 5, and 6 pertaining to Rs.36,000/- received by the firm as rent from theatre and consequential deduction from it towards expenses were the main centres of controversy to determine whether it would be taxed as business income or property income under the head income from house property. If the income gets taxed under the head business income, assessee gets the benefits of deduction of expenses like depreciation and other expenses incurred for the purpose of business which it would not otherwise, get if taxed under property income.

During the course of assessment proceedings A.O. observed that assessee has shown income of theatre rent amounting to Rs.36,000/- as business income. As the appellant was not running the business of exhibition of films but the theatre was given on hire to Minesh Theatre (P) Ltd. who runs the business of exhibition of films, the A.O. assessed the income as income from house property and did not allow depreciation to assessee. The CIT(A) confirmed the order of A.O.

Before Tribunal, learned A.R. raised following contentions:

1) The appellant firm was in existence for last about 10 years and income was assessed as business income right from the beginning and there was no change in activity nor in the nature of business.

2) Like in the past, the appellant had shown income during the year in appeal under the business head from hire charges from cinema theatre and cycle stand etc. The income in respect of cinema theatre consisted of theatre as well as decoration and furnishing of the theatre.

3) What was given on hire was a complete commercial asset which was exploited as such and it was put to use accordingly for showing movies and the theatre was fully

furnished with machineries, projectors and sound system. In earlier years also the income had been assessed under business head and depreciation allowed.

4) Learned A.R. placed reliance on following decisions:

(a) CIT Vs. National Storage Ltd. (SC) 66 ITR 596

(b) CIT Vs. Associated Building Co. Ltd. (Bombay) 137 ITR 339

(c) Manohar Singh Vs. CIT (Punjab) 58 ITR 592

In these decisions it has been held that when the asset let out is a complex one including special devices like air conditioning plant, auditorium, sheds with infrastructural facilities, the income cannot be considered to be derived from mere ownership of house property but was assessable as business income.

5) In S.K. Tulsi & Sons Vs. CIT 187 ITR 685, it was held that cinema a building along with fittings and furniture was a plant and was eligible for depreciation. Similar view was expressed in Tulsi Theatre Vs. CIT 190 ITR 575, Leela Movies Vs. CIT 191 ITR 113 and Santosh Enterprise Vs. CIT 200 ITR 353.

6) Due to the trend of substantial reduction in viewers of cinema in the theatres, due to bad and improper location and safety problems for viewers the business of cinema exhibition had taken a beating and so with a view to prevent losses, the only way available for assessee was to give the theatre for use as such on hire but due to this basic nature of business of partnership never changed.

7) The assessee terminated the contract for lease/hire and started to run cinema on its own w.e.f. 1-1-1996 thus corroborating the stand of assessee that such hiring out was given temporarily for exploiting such asset commercially .

The learned D.R. on the other had supported the order of lower authorities and submitted that principle of res-judicata is not applicable to income tax proceedings. Even if in the earlier year the income has been assessed as business income, it is not necessary for A.O. to follow the same in subsequent year. He further submitted that earlier year´s returns might have been accepted u/s. 143(1)(a).

HELD:

The Tribunal held that assessee has given the theatre on lease for temporary basis. In earlier years as well as subsequent years the assessee firm itself had run the theatre. On the facts of the case, Tribunal held that income received against the business assets is allowable under the heard `income from business´. Accordingly, the orders of lower authorities were set aside and Tribunal directed the A.O. to assess the receipts/income from hire charges under the head income from business and to allow the depreciation and other expenses as per law after providing a reasonable opportunity of hearing to the assessee. (The other issues involved minor points and hence are not discussed here).