ITO,Ward-9(4), Kolkata, Kolkata V. M/s. Sambhu Investments (P)Ltd, Kolkata

ITA 1329/KOL/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 87703 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 5 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-02-2015
• Appeal Filed By: Department
• Bench Allotted: A
• Next Hearing Date: 08-10-2013
• Assessment Year: 2002-2003
• Appeal Filed On: 14-09-2012
• Court: TRIBUNAL
• Department Lawyers: KALYAN NATH
• Assessee Lawyers: R K PATODI
• Keywords: Business income; Earning of tax free income; Proportionate interest
• Section: 143(3); 14A; 56

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: KOLKATA [BEFORE SHRI MAHAVIR SINGH, JM & SHRI SHAMIM YAHYA, AM ] I.T.A NO. 1329 /KOL/201 2 ASSESSMENT YEAR : 200 2 - 0 3 INCOME - TAX OFFICER, WD - 9(4), KOLKATA. VS. M/S. SAMBHU INVESTMENTS PVT. LTD. (PAN: AADCS7502H) ( APPELLANT ) ( RESPONDENT ) DATE OF HEARING: 1 9 .0 2 .2015 DATE OF PRONOUNCEMENT: 27 .02 .2015 FOR THE APPELLANT: SHRI KALYAN NATH, JCIT FOR THE RESPONDENT: S HRI R. K. PATODI, FCA ORDER PER SHRI MAHAVIR SINGH, JM : THIS APPEAL BY REVENUE IS ARISING OUT OF ORDER OF CIT (A) - VIII , KOLKATA IN APPEAL NO. 97 / CIT(A) - VIII / KOL/0 6 - 0 7 DATED 1 2 . 0 6 .201 2 . ASSESSMENT W AS FRAMED BY ITO, WARD - 9(4), KOLKATA U/S. 143(3) /147 OF THE INCOME - TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT ) FOR AY 200 2 - 0 3 VIDE HIS ORDER DATED 28 . 1 2 .20 0 6 . 2. THE FIRST ISSUE IN THIS APPEAL OF REVENUE IS AGAINST THE ORDER OF CIT(A) IN TREATING THE INCOME FROM LETTING OUT OF COMMON FACILITIES , FOR WHICH RENT WAS RECEIVED ON MONTHLY BASIS , AS INCOME FROM OTHER SOURCES AS AGAINST THE ASSESSMENT MADE BY AO AS BE ING INSEPARABLE ONE AND TREATING THE INCOME AS INCOME FROM HOUSE PROPERTY. 3. BRIE FACTS ARE THAT THE ASSESSEE COMPANY CREDITED SUM OF RS.10,62,000/ - UNDER THE HEAD SERVICE AND MAI NTENANCE CHARGES IN THE P&L ACCOUNT AND CLAIMED VARIOUS EXPENSES AGAINST THE SAME , CLAIMING THE SAME AS BUSINESS INCOME. THE ASSESSEE COMPANY IS OWNER OF OFFICE PREMISES AT RAHEJA CHAMBER, 213, NARIMAN POINT, MUMBAI. THE SAID PREMISES HAVE BEEN FURNISHED BY THE ASSESSEE AND LET OUT TO VARIOUS PERSONS/FIRMS/ORGANIZATIONS WITH ALL FURNITURE, FIXTURES, LIGHTING, AIR - CONDITIONERS FOR BEING USED AS TABLE SPACE. THE ASSESSEE, UNDER THE AGREEMENT, IS TO PROVIDE SERVICES LIKE WATCH AND WARD, STAFF, ELECTRICITY, W ATER AND OTHER COMMON AMENITIES TO THE OCCUPIERS. THESE OCCUPIERS ARE PAYING RENT ON MONTHLY BASIS INCLUDING THE RENT FOR THE PREMISES. 2 ITA NO. 1329 /K/201 2 SAMBHU INVESTMENTS PVT. LTD. , AY 200 2 - 0 3 THE ASSESSEE CLAIMED THE SAME AS INCOME FROM BUSINESS AND THE AO RELYING ON THE DECISION OF HON BLE SUPREME COURT IN A SSESSEE S OWN CASE IN SAMBHU INVESTMENT PVT. LTD. VS CIT (2003) 263 ITR 143 (SC) ASSESSED THE SAME AS INCOME FROM HOUSE PROPERTY AND DIRECTED TO ALLOW CONSEQUENTIAL DEDUCTIONS U/S. 24 OF THE ACT ONLY. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A), WHO RELYING ON THE VARIOUS CASE LAWS TREATED THE INCOME AS INCOME FROM OTHER SOURCES BY OBSERVING AS UNDER: I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS PUT FORTH ON BEHALF OF THE APPELLANT AND GONE THROUGH THE MATERIAL PLACED ON RECORD. I HAVE ALSO GONE THROUGH THE LEGAL POSITION IN THE MATTER. IT IS A FACT THAT IN THE APPELLANT S OWN CASE FOR EARLIER ASSESSM ENT YEARS, THE CALCUTTA HIGH COURT HAS CONFIRMED THE REVENUE S CASE THAT THE INCOME FROM THE LET OUT PROPERTY OWNED BY THE APPELLANT COMPANY IS ASSESSABLE UNDER THE HEAD INCOME FROM HOUSE PROPERTY . THE CONTENTION OF THE APPELLANT IS THAT THE HON BLE CAL CUTTA HIGH COURT DID NOT LAY DOWN THE MANNER IN WHICH THE INCOME FROM PROPERTY HAD TO BE WORKED OUT AND THEREFORE, THE LEGAL PROPOSITIONS AS EMERGING FROM TWO ITAT' S ORDERS SHOULD BE ACCEPTED. WHERE OWNER OF A PROPERTY RECEIVES RENT NOT ONLY FOR THE USE O F THE PROPERTY AS SUCH BUT ALSO FOR PROVIDING FACILITIES TO THE TENANTS, SUCH COMPOSITE RENT IS REQUIRED TO BE SPLIT UP AND THE AMOUNT WHICH IS ATTRIBUTABLE TO THE USE OF THE PROPERTY AS SUCH SHOULD BE ASSESSED UNDER SECTION 22 WHILE THE AMOUNT WHICH IS AT TRIBUTABLE TO PROVIDING OF SERVICES AND AMENITIES (LIKE ELECTRIC FITTINGS, LEFT, SANITATION, ETC.) SHOULD BE ASSESSED UNDER SECTION 56 UNDER THE HEAD 'INCOME FROM OTHER SOURCES' - [CIT VS. KANAK INVESTMENTS (P) LTD. (1974) 95 ITR 419(CAL): AND INDIAN CITY PROPERTIES LTD. VS. C I T (1978) 111 ITR 19 (CAL): IN THE FIRST CASE, THE CALCUTTA HIGH COURT DID NOT CONSIDER THE QUESTION WHETHER THE AMOUNT RELATING TO RENDITION OF SERVICES COULD BE ASSESSED AS BUSINESS INCOME. IN KARNANI PROPERTIES LTD. VS. C I T (1971) 8 2 ITR 547 (SC), SIMILAR SERVICES RENDERED BY THE ASSESSEE TO ITS TENANTS WERE FOUND TO BE THE RESULT OF THE ACTIVITIES CARRIED ON IN AN ORGANIZED MANNER, WITH A SET PURPOSE AND WITH A VIEW TO EARNING PROFITS AND HENCE THE ACTIVITIES WERE TREATED AS BUSINES S ACTIVITIES AND INCOME ARISING THEREFROM WAS HELD TO BE BUSINESS INCOME [SEE ALSO CIT VS. RUSSELL PROPERTIES (P) LTD. (1982) 28 CTR (CAL) 359, C IT VS. ASSOCIATED BLDG. CO. LTD.(1982) 28 CTR (BORN) 252 AND CIT VS. SHANKARANARAYANA HOTELS (P) LTD. (1992) 2 01 ITR 138 (KAR). WHEREAS IN CIT VS. MODEL MFG. CO. LTD. (1985) 49 CTR (CAL) 38: (1986) 159 ITR 270 (CAL), THE AMOUNTS RECEIVED FOR RENDERING SERVICES WERE HELD TO BE ASSESSABLE AS INCOME FROM OTHER SOURCES. FOLLOWING ITS OWN DECISION IN TARAPORE & CO. VS . CIT (2003) 259 ITR 389 (MAD), THE HIGH COURT OF MADRAS IN CIT VS. CHENNAI PROPERTIES & INVESTMENTS LTD. (2008) 303 ITR 33 (MAD) HAS HELD THAT AMENITY FOR RENDERING SERVICES RECEIVED IN RESPECT OF LET OUT PROPERTY WERE HELD TO BE ASSESSABLE AS INCOME FROM OTHER SOURCES. FROM THE FOREGOING DISCUSSION OF FACTS AND THE LEGAL PROPOSITIONS AND RATIO LAID DOWN BY DIFFERENT HIGH COURTS INCLUDING THE JURISDICTIONAL HIGH COURT, IT IS UNAMBIGUOUSLY CLEAR THAT IF THE OWNER OF A HOUSE PROPERTY GETS A COMPOSITE RENT F OR THE PROPERTY AS WELL AS FOR SERVICES RENDERED TO THE TENANTS, COMPOSITE RENT IS TO BE SPLIT UP AND THE SUM WHICH IS ATTRIBUTABLE TO THE USE OF THE PROPERTY IS TO BE ASSESSED IN THE FORM OF ANNUAL VALUE UNDER SECTION 22 OF THE ACT. THE AMOUNT WHICH RELAT ES TO RENDITION OF THE SERVICES (SUCH AS ELECTRICITY SUPPLY, PROVISION OF LIFTS, SUPPLY OF WATER, ARRANGEMENT FOR SCAVENGING, WATCH AND WARD FACILITIES, ETC.) IS CHARGED TO TAX UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' OR UNDER THE HEAD 'INCOME FROM OTHER SOURCES'. IN VIEW OF THE ABOVE, FOLLOWING THE DECISIONS OF THE HON'BLE CALCUTTA HIGH COURT IN CIT VS.. MODEL MFG. CO. LTD. (1985) 49 CTR (CAL) 38: (1986) 159 ITR 270 (CAL), AND THE HIGH COURT OF MADRAS IN CIT VS. CHENNAI PROPERTIES & INVESTMENTS LTD. (2008) 303 ITR 3 ITA NO. 1329 /K/201 2 SAMBHU INVESTMENTS PVT. LTD. , AY 200 2 - 0 3 33 (MAD) CITED SUPRA, THE ASSESSING OFFICER IS HEREBY DIRECTED TO SPLIT UP THE COMPOSITE RENT AND THE SUM WHICH IS ATTRIBUTABLE TO THE USE OF THE PROPERTY AND ASSESS THE SAME IN THE FORM OF ANNUAL VALUE UNDER SECTION 22 OF THE ACT ON THE BASIS OF MATERIAL INFORMATION SUCH AS LEASE AGREEMENTS, ETC. AVAILABLE/ BROUGHT ON RECORD AND ALLOW APPROPRIATE DEDUCTIONS AVAILABLE UNDER THE ACT. IT IS ALSO DIRECTED THAT THE BALANCE AMOUNT WHICH RELATES TO RENDITION OF THE SERVICES (SUCH AS ELECTRICITY SUPPLY, PROVISION OF LIFTS, SUPPLY OF WATER, ARRANGEMENT FOR SCAVENGING, WATCH AND WARD FACILITIES, ETC.) BE CHARGED TO TAX UNDER THE HEAD 'INCOME FROM OTHER SOURCES' AFTER ALLOWING DEDUCTIONS IN RESPECT OF EXPENDITURE ATTRIBUTABLE TO EARNI NG OF SUCH INCOME. THE APPELLANT SHALL GET APPROPRIATE RELIEF ON THIS GROUND ACCORDINGLY. AGGRIEVED, NOW REVENUE IS IN APPEAL BEFORE US. 4. BEFORE US, LD. SR. DR SHRI KALYAN NATH STATED THAT THE ISSUE IS COVERED BY THE DECISION OF HON BLE SUPREME COU RT IN ASSESSEE S OWN CASE VIDE SAMBHU INVESTMENT PVT. LTD. VS CIT (2003) 263 ITR 143 (SC) WHEREIN IT IS OBSERVED THAT BY THE SAID AGREEMENT THE PARTIES HAVE INTENDED THAT LETTING OUT WOULD BE INSEPARABLE ONE AND HELD THAT THE PRIME OBJECT OF THE ASSESSEE U NDER THE SAID AGREEMENT WAS TO LET OUT THE PORTION OF THE SAID PROPERTY TO VARIOUS OCCUPANTS BY GIVING THEM ADDITIONAL RIGHT OF USING FURNITURE AND FIXTURE AND OTHER COMMON FACILITIES. ONCE THE ISSUE IS COVERED BY THE DECISION OF HON BLE SUPREME COURT IN A SSESSEE S OWN CASE, CITED SUPRA, WE FIND THAT THE CIT(A) HAS NOT FOLLOWED THE JUDGMENT OF HON BLE SUPREME COURT AND HENCE, WE REVERSE THE ORDER OF CIT(A) AND RESTORE THAT OF THE AO. THIS ISSUE OF REVENUE S APPEAL IS ALLOWED. 5. THE NEXT ISSUE IN THIS APPEAL OF REVENUE IS AGAINST THE ORDER OF CIT(A) IN RESTRICTING THE DISALLOWANCE MADE BY AO ON ACCOUNT OF EXPENDITURE ATTRIBUTABLE TO EXEMPT INCOME I.E. DIVIDEND INCOME U/S. 14A OF THE ACT AT 1% OF THE EXEMPT INCOME. 6. WE HAVE HE ARD RIVAL SUBMISSIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE AO HAS MADE DISALLOWANCE BY INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT AT RS.3,22,462/ - BY APPLYING RULE 8D OF THE I. T. RULES, 1962. THE ASSESSEE HAS DER IVED DIVIDEND INCOME AT RS.4,67,775/ - AND CLAIMED THE SAME AS EXEMPT U/S. 10(33) OF THE ACT . WE FIND THAT THE RELEVANT ASSESSMENT YEAR INVOLVED IS AY 2002 - 03 AND HON BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS. DCIT [2010] 328 ITR 81 (BOM.), HELD THAT RULE 8D OF THE RULES AS INSERTED BY THE I. T (FIFTH AMENDMENT) RULES, 2008 W.E.F. 24.3.2008 IS PROSPECTIVE AND NOT RETROSPECTIVE. 4 ITA NO. 1329 /K/201 2 SAMBHU INVESTMENTS PVT. LTD. , AY 200 2 - 0 3 THE CIT(A) RESTRICTED THE DISALLOWANCE AT 1% OF THE EXEMPTED INCOME U/S. 14A OF THE ACT BY OBSERVING AS UNDER: HOWEVER, IN THE INSTANT CASE OF THE APPELLANT, THE A/R OF THE APPELLANT EXPLAINED THAT NO PROPORTIONATE INTEREST ON BORROWED FUND IS DISALLOWABLE AS THERE WERE NO BORROWED FUNDS OF THE APPELLANT AND NO INTEREST WAS PAID TO ANY ONE DURING THE RELEVANT AY. CONSIDERING THE ENTIRE FACTS OF THE CASE AND KEEPING IN VIEW THE DECISION OF THE JURISDICTIONAL ITAT IN A NUMBER OF CASES, THE AO IS DIRECTED TO RESTRICT THE DISALLOWANCE AT 1% OF THE EXEMPT DIVIDEND INCOME U/S. 14A OF THE ACT. THUS, THIS GR OUND OF APPEAL IS PARTLY ALLOWED. WE FIND THAT THE EXEMPTED INCOME IS TO THE EXTENT OF RS. 4,67,775/ - IN AY 2002 - 03. RULE 8D OF THE RULES IS NOT APPLICABLE IN THIS ASSESSMENT YEAR IN THE ASSESSEE S CASE AS HELD BY HON BLE BOMBAY HIGH COURT IN THE CASE O F GODREJ & BOYCE MFG. CO. LTD. (SUPRA) BEING PROSPECTIVE. WE DIRECT THE AO TO RESTRICT THE DISALLOWANCE AT 1% OF THE EXEMPTED INCOME AS HELD BY LD. CIT(A). THIS ISSUE OF REVENUE S APPEAL DISMISSED. 7. IN THE RESULT, APPEAL OF REVENUE IS PARTLY ALLOWED. 8 . ORDER IS PRONOUNCED IN THE OPEN COURT ON 27.02.2015 SD/ - SD/ - ( SHAMIM YAHYA ) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 27TH FEBRUARY , 201 5 JD.(SR.P.S.) COPY OF THE ORDER FORWARDED TO: 1 . A PPELLANT ITO, WD - 9(4), KOLKATA. 2 RESPONDENT M/S. SAMBHU INVESTMENTS PVT. LTD., 7, SAMBHUNATH MALLICK LANE, KOLKATA - 700 007. 3 . THE CIT (A), KOLKATA 4. 5. CIT KOLKATA DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, BY ORDER, ASSTT. REGISTRAR .