MADHUSUDAN LAW UNIVERSITY,MOOT COURT ASSIGNMENT 2023-24

TABLE OF CONTENTS

ABBREVIATIONS....................................................................................................................2

INDEX OF AUTHORITIES......................................................................................................3
CASE LAWS...............................................................................................................................
BOOKS REFERRED..................................................................................................................
LEGAL DATABASE...................................................................................................................
STATUTES...................................................................................................................................
STATEMENT OF JURISDICTION...........................................................................................4

STATEMENT OF FACTS..........................................................................................................5

ISSUES RAISED.......................................................................................................................6

SUMMARY OF ARGUMENTS................................................................................................7

ARGUMENTS
ADVANCED.....................................................................................................8

ISSUE I: WHETHER THE APPEAL IS MAINTAINABLE?...................................................8

ISSUE II: WHETHER THE AO IS WRONG OR ERRONEOUS IN COMPUTING THE

TAX?..........................................................................................................................................9

ISSUE III: WHETHER MR. DELULU IS JUSTIFIABLE IN HIS

CLAIMS?........................10

PRAYER...................................................................................................................................12

ON BEHALF OF THE RESPONDENT’S COUNCEL

1
MADHUSUDAN LAW UNIVERSITY,MOOT COURT ASSIGNMENT 2023-24

ABBREVIATIONS

SC Supreme Court
CIT Commissioner of Income Tax
ITC Income tax Commissioner
AO Assessing Officer
MAD Madras
BOM Bombay
FWCS Fly-wing Courier Service
Ltd. Limited
SCC Supreme Court Cases
CEPT Commissioner of Excess Profit
Hon’ble Honourable
V. Versus
Art. Article
COI Constitution of India
& And
AIR All India Report

ON BEHALF OF THE RESPONDENT’S COUNCEL

2
 MADHUSUDAN LAW UNIVERSITY,MOOT COURT ASSIGNMENT 2023-24

CASE LAWS
1. M. Anandan vs. ITO
2. CIT vs. Nalinikant Ambalal Mody
3. CIT vs. Kasturi Estate Pvt. Ltd.
4. CIT vs. Tamilnadu Dairy Development Corp. Ltd
5. CEPT vs. Laxmi Silk Mill Ltd.
6. Cit vs. Bazzar
7. Saswad Mali Sugar Factory Ltd. vs. CIT
8. Sambhu Investment Pvt. Ltd. vs CIT
9. Gopal Purohit vs CIT

BOOKS REFERREED
1. Dr. Girish Ahuja and Dr. Ravi Gupta, Direct Taxes Ready Reckoner and Tax Planning,
Wolters Kluwer India Pvt. Ltd.
2. Kanga & Palkiwala, The law and Practice of Income Tax Lexis Nexis
3. Atal Kumar Taxation Laws, First Edition, 2013, Central Law Publication

LEGAL DATABASE

1. www.scconline.com
2. www.manupatrafast.com

STATUTES

1. Income Tax Act, 1961

ON BEHALF OF THE RESPONDENT’S COUNCEL

3
 MADHUSUDAN LAW UNIVERSITY,MOOT COURT ASSIGNMENT 2023-24

STATEMENT OF JURISDICTION

The appeal is filed under section 246a of the income tax act against the order of assessment
of income for the purpose of income tax passed by the assessing officer.

Any assessee aggrieved by any of the following orders of an Income-tax Officer may appeal
to the Appellate Assistant Commissioner against such order—

(a) an order against the assessee, being a company, under section-104

(b) an order imposing a fine under sub-section (2) of section-131

(c) an order against the assessee, where the assessee denies his liability to be assessed under
this Act or any order of assessment under sub-section (3) of section-143 or section-144,
where the assessee objects to the amount of 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;

(d) an order under section-146 refusing to reopen an assessment made under section-144

(e) an order of assessment, re-assessment or re-computation under section-147 or section-150

(f) an order under section-154 or section-155 ,having the effect of enhancing the assessment
or reducing a refund or an order refusing to allow the claim made by the assessee under either
of the said sections;

(g) an order made under section-163 treating the assessee as the agent of a non-resident;

(h) an order under sub-section (2) or sub-section (3) of section-170

(i) an order under section-171

(j) an order refusing to register a firm under clause (b) of sub-section (1) or under sub-section
(5) of section-185

(k) an order cancelling the registration of a firm under sub-section (1) or under sub-section
(2) of section-186.

ON BEHALF OF THE RESPONDENT’S COUNCEL

4
 MADHUSUDAN LAW UNIVERSITY,MOOT COURT ASSIGNMENT 2023-24

STATEMENT OF FACTS

1. Rich businessman Mr. Delulu Pradhan, an Odisha native, owns a number of

businesses, including Anytime Grocery, 24/7 Stationery, Femi9 Cosmetics, and Mad
Fashion.
2. In addition, he dealt in real estate, buying and selling land for investment purposes.
Rich businessmen from all over Odisha used to present Mr. Delulu with start-up offers
because he was well-known in the community.
3. He received an offer from FWCS on September 28, 2023, that they want to run one of
their branches at Mr. Delulu’s house premises, in the first floor of his house. They
offered to give rent of total 97,000 Rs. Per month which was divided into 45,000 Rs.
For one room in the first floor, RS.20,000 for office equipment’s such as chair, sofa,
desk etc, an old car owned by Mr. Delulu to be used for courier business at the rent of
Rs.10,000, Wi-Fi connection at Rs. 2000, electricity and water usage at RS. 20,000.
4. Mr. Delulu accepted the offer, and he then signed the contract with Fly-wing courier
on began receiving rent in one lump sum of Rs. 97000 the following month.
5. On July 31, 2024, Mr. Delulu files his IT return for the Assessment Year 2023–2024.
6. On October 1, 2024, he received a demand notice from the Income Tax Authorities
stating that there are some inconsistencies in his filed return because he neglected to
include the rent income received by the courier company.
7. Mr. Delulu moved to file an appeal with the CIT, claiming that the Assessing Officer
made a mistake in computing the tax on the business income and that he should not
have paid tax on the aforementioned income.

ON BEHALF OF THE RESPONDENT’S COUNCEL

5
 MADHUSUDAN LAW UNIVERSITY,MOOT COURT ASSIGNMENT 2023-24

ISSUES RAISED

The following questions have been raised before the Commissioner of Income Tax to
consider:

ISSUE I: WHETHER THE APPEAL IS MAINTAINABLE

ISSUE II: WHETHER THE AO IS WRONG OR ERRONEOUS IN COMPUTING

THE TAX

ISSUE III: WHETHER MR. DELULU IS JUSTIFIABLE IN HIS CLAIMS

ON BEHALF OF THE RESPONDENT’S COUNCEL

6
 MADHUSUDAN LAW UNIVERSITY,MOOT COURT ASSIGNMENT 2023-24

SUMMARY OF ARGUMENTS

ISSUE I: WHETHER THE APPEAL IS MAINTAINABLE

The assessing officer's order is correct, but the current appeal is not maintainable under the
1961 Income Tax Act due to several sections and case laws, including failure to declare
income, taxability of rental income, and tax avoidance, making the appeal lacked merit and
not maintainable.

ISSUE II: WHETHER THE AO IS WRONG OR ERRONEOUS IN COMPUTING

THE TAX

The Assessing Officer did not make any errors in calculating the tax, as the rent from the
house would be considered business income under the Income Tax Act. The court ruled that
the term "business" has a broad meaning and needs to be considered in relation to each
activity and individual's occupation and profits.

ISSUE III: WHETHER MR. DELULU IS JUSTIFIABLE IN HIS CLAIMS

The appellant's claims are unfounded as the house, vehicle, and equipment rented out fall
under business income under the Income Tax Act, 1961. The Bombay High Court ruled that
revenue from student residences should be subject to business income tax. Therefore, the
income derived from the property is considered business income, making the appellant's
claim legally invalid and unjustified.

ON BEHALF OF THE RESPONDENT’S COUNCEL

7
 MADHUSUDAN LAW UNIVERSITY,MOOT COURT ASSIGNMENT 2023-24

ARGUMENTS ADVANCED

ISSUE I: WHETHER THE APPEAL IS MAINTAINABLE

It is respectfully submitted to this forum that the assessing officer's order is correct, and
hence, the current appeal is not maintainable under the Income Tax Act. The income tax Act
of 1961 makes it legally warranted, therefore, that the appeal is not tenable. In M. Anandan
v. ITO1, it was decided that the Assessing Officer had a responsibility to make assessments
that are in line with the law, and that in the event that an appeal is filed against his
assessment, the appeal must be brief and accurate. In appellant’s case, a number of things
could make it difficult to uphold his appeal.

The following sections of the Income Tax Act and possible case laws could be used against
his appeal such as, Failure to Declare Income: Taxpayers are required by Section 139 of the
Income Tax Act, 1961 to declare all sources of income on their tax returns. As in Mr. Delulu's
case, failing to disclose rental income might result in fines and legal ramifications.

The second point is Taxability of Rental Income: In accordance with Section 22 of the
Income Tax Act, rental income is often subject to taxation under the heading "Income from
House Property". This category includes the rent that appellant receives, which is taxable.
Legal precedents, like CIT v. Nalinikant Ambalal Mody2, established the taxable principle of
rental income. The Income Tax Act has particular provisions pertaining to the taxation of
rental income and the deductions that may be taken from it. In order to be eligible for any
exemptions or deductions under these particular laws, the appellant would have to provide
proof of eligibility. CIT v. Kasturi Estates Pvt. Ltd.3 case law highlighted how crucial it is to
follow the precise guidelines set forth in the Income Tax Act.

The third on is ,Tax Avoidance: Mr. Delulu's appeal might not be tenable if it is thought that
he is trying to avoid paying taxes on his income. Anti-avoidance rules in the Income Tax Act
prohibit taxpayers from structuring transactions only with the intention of avoiding taxes.
Additionally, in cases where there are no provisions, the assessee may not attempt to draw
any inferences from them. Thus, based on the case's enunciation and factual circumstances, it
might be said that the appeal lacked all the merits and is not maintainable.

1. 1995 53 ITD 428 (MAD)

ON BEHALF OF THE RESPONDENT’S COUNCEL

8
 MADHUSUDAN LAW UNIVERSITY,MOOT COURT ASSIGNMENT 2023-24

2. 1967 AIR 193

3. 1966 62 ITR 578 (MAD)

II. WHETHER THE WHETHER THE AO IS WRONG OR ERRONEOUS IN

COMPUTING THE TAX

It is respectfully argued before this forum that the Assessing Officer did not make a mistake
or error in calculating the tax. Because, for income tax purposes, the rent from the house
would be considered business income under the Income Tax Act.

It is argued that the Hon'ble Court determined in CIT v. Tamil Nadu Dairy Development
Corporation Ltd4 that the term "business" has a very broad meaning and is by no means
definitive in its scope, needing to be considered in relation to each specific type of activity
and the occupation of the individual in question.

The Hon'ble Court determined that the assessee was engaged in the business of producing
silk cloth and dying silk yarn in the case of CEPT v. Lakshmi Silk Mills Ltd5. Since the
assessee was unable to use the dying plant as a commercial asset at the time of its lease, it
was determined that the rent received from the lessees was taxable as business income even
though the assessee was unable to work the plant during the relevant accounting year due to
the difficulty of obtaining silk yarn as a result of the previous war. It should have been
"Carried on" with business. Accounting year under clause (i) makes it plain that the business
must have been conducted by the assessee at any point during the accounting year, although
not necessarily continuously, in order to draw the application of the provision.

In the current case, it is made abundantly evident that the appellant's old car, various office
supplies, and the house itself were rented out with the primary goal of generating cash from
the property. Because of this, it would be considered business income for the purposes of the
Income Tax Act of 1961. As a result, the tax on that income is calculated in accordance with
the law, and A.O. has not made any legal errors.

4. 1999 239 ITR 142 (MAD)

5. 1951 AIR 454

ON BEHALF OF THE RESPONDENT’S COUNCEL

9
 MADHUSUDAN LAW UNIVERSITY,MOOT COURT ASSIGNMENT 2023-24

III. WHETHER MR. DELULU IS JUSTIFIABLE IN HIS CLAIMS

It is respectfully argued before this forum that appellant's claims are unfounded because the
house, vehicle, and other equipment he rented out fall under the category of business income.
It is humbly submitted that the definition of "business" under 2(13) of the Income Tax Act,
1961 is as follows: a business is something that occupies a person's attention and labour for
the purpose of profit; it is an activity that is carried out continuously in an organized manner
with a set purpose and with a view to earning profit.

This definition was also established in the case of CIT v. Bazzar 6that for the purposes of this
agreement, the rent from the house and the car qualifies as "business income" under the IT
Act 1961.

In Saswad Mali Sugar Factory Ltd. v. CIT7, it is further submitted The Bombay High Court
ruled that the revenue derived from student residences ought to be subject to business income
tax.

In the matter of Shambhu Investment Pvt. Ltd. v. Commissioner of Income-Tax 8,The

Honourable court ruled that "it is evident that the mere fact that income is affixed to any real
estate cannot serve as the exclusive basis for classifying that income as income from
property.

Gopal Purohit vs. CIT 9, In this case, the Bombay High Court held that where the letting out
of properties is a systematic and organized activity carried out with a view to making a profit,
the income derived from such activity can be treated as business income.

What needs to be determined is what the assesses main goal was when using the property for
its intended purpose. Rent or income from property must be recognized if it is determined,
through the use of such a test, that the primary goal is to rent out the entire property or any
portion of it. It must be recorded as business income if it turns out that the primary goal is to
use the immovable property for intricate commercial endeavours.

6. 248 ITR 434

7. 1999 236 ITR 706 (BOM)
8. 2001 249 ITR 47 (CAL)

ON BEHALF OF THE RESPONDENT’S COUNCEL

10
 MADHUSUDAN LAW UNIVERSITY,MOOT COURT ASSIGNMENT 2023-24

9. 2010 228 CTR 582 (BOM)

It is established in this case that the courier service provider is concerned about operating a
branch at the appellant's residence or residences. They also propose to pay the rent for office
supplies and an old vehicle that the courier company wants to use for their courier operations,
rather than just the house. Then, on October 1, 2023, the appellant and the courier company
sign an agreement, and as of the following month, the appellant is receiving a lump sum
payment of INR 97,000 as rent, demonstrates unequivocally that the appellant's old car, other
office supplies, and the house were rented out with the primary goal of generating income
from the property. Consequently, For the purposes of the Income Tax Act of 1961, it would be
considered business income; as a result, the appellant's claim is legally invalid and
unjustified.

ON BEHALF OF THE RESPONDENT’S COUNCEL

11
 MADHUSUDAN LAW UNIVERSITY,MOOT COURT ASSIGNMENT 2023-24

PRAYER

Wherefore in the light of facts presented, issues raised, arguments advanced and authorities
cited, the Counsel on behalf of the appellant humbly pray before this Hon’ble Court that it
may be pleased to adjudge and declare that:

1. The Appeal is not tenable.

2. AO is not wrong or erroneous in computing the tax.
3. The appellant is not justified in his claim.

AND/OR

Pass any other Order, Direction, or Relief that this Hon’ble Court may deem fit and proper in
the interest of justice, equity, and good conscience. And for this act of kindness, the counsel
for the accused shall duty-bound forever pray.

All of which is most humbly and respectfully submitted

Sd/-

(Counsel for the respondent)

ON BEHALF OF THE RESPONDENT’S COUNCEL

12