ITO, Ward - 8(1), Kolkata V. M/s. Merill Estates Private Limited, Kolkata

ITA 1820/KOL/2009

• Counselvise Citation: 182023514 RSA 2009
• Duration Of Justice: 4 year(s) 8 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-07-2014
• Appeal Filed By: Department
• Bench Allotted: Not Allotted
• Next Hearing Date: 12-05-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 03-11-2009
• Court: TRIBUNAL
• Department Lawyers: P K CHAKRABORTY JCIT LD SR DR
• Assessee Lawyers: S K TULSIYAN
• Keywords: Business income; Depreciation
• Section: 56; 12; 28; 10; 143(3)

Judgement Text

ITA NO. 1820/KOL/2009 M/S. MERILL ESTATES P.LTD-C-M VS-JM 1 , C IN THE INCOME TAX APPELLATE TRIBUNAL, C BENCH: KO LKATA ( ) , , BEFORE HONBLE SRI MAHAVIR SIN GH, JM & HONBLE SRI SHAMIM YAHYA, AM I.T.A NO. 1820/KOL/2009 / ASSESSMENT YEAR :2006-07 I.T.O WARD 1(1), KOLKATA VS. M/S. MERIL L ESTATES PVT. LTD PAN : AABCM 7311C ( $ /APPELLANT ) ( %&$ / RESPONDENT ) $ / FOR THE APPELLANT/ DEPARTMENT : / SHRI P.K. CHAKRABORTY, JCIT/ LD .SR. DR %&$ / FOR THE RESPONDENT/ ASSESSEE: / SHRI S.K. TULSIYAN, ADVOCATE, , LD.AR * + /DATE OF HEARING: 08/07/2014 * + /DATE OF PRONOUNCEMENT: 08/07/2014 / ORDER , SHRI MAHAVIR SINGH, JUDICIAL MEMBER: THIS APPEAL BY REVENUE IS ARISING OUT OF ORDER OF C IT(A), KOLKATA IN APPEAL NO. 122A/CIT(A)-VIII/KOL/08-09 DATED 18-08-2009. ASSES SMENT WAS FRAMED BY I.T.O, WARD- 8(1), KOLKATA FOR THE ASSESSMENT YEAR 2006-0 7 U/S 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) VI DE HIS ORDER DATED 24-09-2008. 2. THE ONLY ISSUE IN THIS APPEAL OF REVENUE IS AGAI NST THE ORDER OF CIT(A) TREATING THE SERVICE CHARGES RECEIVED BY THE ASSESSEE ON LET OU T PROPERTY AS BUSINESS INCOME INSTEAD OF ASSESSMENT MADE BY THE AO AS INCOME FROM OTHER SOURCES. CONSEQUENTLY, THE CIT(A) HAS ALSO ALLOWED INCIDENTAL OR RELATED EXPENSES. F OR THIS REVENUE HAS RAISED FOLLOWING TWO GROUNDS :- GROUND NO.1 THAT THE LD. COMMISSIONER OF INCOME TAX (A) ERRED I N TREATING THE SERVICE CHARGES RECEIVED ON LET OUT PROPERTY AS BUS INESS INCOME INSTEAD OF INCOME FROM OTHER SOURCES. GROUND NO. 2 THAT THE LD. COMMISSIONER OF INCOME TAX (A) ERRED I N ALLOWING THE FOLLOWING EXPENSES :- ITA NO. 1820/KOL/2009 M/S. MERILL ESTATES P.LTD-C-M VS-JM 2 A) MAINTENANCE & SUPERVISION CHARGES OF RS.1,10,166/- B) SERVICE CHARGES OF RS. 66,895/- C) MANAGEMENT FEES OF RS. 1,27,600/- D) REPAIR EXPENSES OF RS. 17,87,519/- (PARTLY) THOUGH ALL THESE EXPENSES ARE RELATED TO EARNING RENTAL INCOME ASSESSED UNDER THE HEAD INCOME FROM THE HOUSE PROPE RTY AND CONSIDERED IN COMPUTING DEDUCTION @ 30% U/S. 24(A) OF THE I.T ACT, 1961. 3. BRIEFLY STATED THE FACTS RELATING TO THE ISSUE S ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF PROPERTY DEVELOPMENT AN D LEASING OUT OF THE SAME AND ALSO PROVIDING SERVICES FOR THE PROPERTY. THE ASSESSEE HAD ACQUIRED TWO PROPERTIES AT 1) 111/1, B.T ROAD, KOLKATA-108 AND 2) 243/1, B.T ROA D, KOLKATA-36. THE ASSESSEE LEASED OUT VARIOUS PORTIONS OF THE PROPERTIES TO DIFFERE NT PARTIES, WHO USE THE SAME MAINLY FOR THE PURPOSE OF GO-DOWNS AS WELL AS OFFICE PREMISES. APART FROM, RENT OUT OF THESE PROPERTIES, THE ASSESSEE HAS ALSO PROVIDED VARIOUS SERVICES TO THE TENANTS/LESSEES LIKE MAINTENANCE AND CLEANING OF COMMON SPACES AS WELL A S INTERNAL ROADS OF THE BUILDING, LIGHTING ARRANGEMENTS IN THE COMMON SPACES, PROVID ING ELECTRICITY TO TENANTS THROUGH ITS OWN TRANSFORMER, PROVIDING SECURITY AND OTHER SER VICES TO THE TENANTS. THE ASSESSEE CHARGED SERVICES CHARGES FROM THE TENANTS AGAINST THESE SERVICES. THE ASSESSEE HAD TO INCUR EXPENSES OF VARIOUS TYPES FOR THE PURPOSE OF PROVIDING THE ABOVE MENTIONED SERVICES TO THE TENANTS OF THE BUILDING. DURING TH E COURSE OF ASSESSMENT PROCEEDINGS ON QUERY FROM THE AO, THE ASSESSEE STATED THAT THESE EXPENSES ARE UNCONNECTED WITH THE RENTAL INCOME OF THE PROPERTIES, BUT ROUTINE WORK OF COLLECTION OF RENT AS WELL AS OTHER SERVICE CHARGES. THE ASSESSEE ALSO CLAIMED THAT THE SE EXPENSES HAD TO INCUR FOR THE PURPOSE OF PROVIDING THE ABOVE STATED SERVICES TO T HE TENANTS. THE AO WHILE COMPLETING THE ASSESSMENT U/S. 143(3) OF THE ACT MADE DISALLOW ANCES OF THE FOLLOWING EXPENSES AS RELATABLE OR ATTRIBUTABLE TO HOUSE PROPERTY:- 1. MAINTENANCE & SUPERVISION CHARGES RS. 1,10,166 /- 2. SERVICE CHARGES RS. 66,895/- 3. MANAGEMENT FEE RS. 1,27,600/- 4. BROKERAGE RS. 48,000/- 5. INTEREST PAYMENT ON BORROWED CAPITAL ITA NO. 1820/KOL/2009 M/S. MERILL ESTATES P.LTD-C-M VS-JM 3 UTILIZED FOR ACQUISITION OF HOUSE PROPE RTY RS. 7,48,209/- 6. DEPRECIATION ON VARIOUS EQUIPMENTS (OTHER THAN BUILDING) RS. 23, 792/- 4. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE TH E CIT(A), WHO AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE ALLOWED THE CLAIM O F THE ASSESSEE BY OBSERVING AS UNDER:- IN THIS GROUND, THE APPELLANT HAS OBJECTED TO THE ACTION OF THE ASSESSING OFFICER IN TREATING SERVICE CHARGES A S INCOME FROM OTHER SOURCES RATHER THAN ASSESSING IT AS INCOME FROM BUSINESS. THE AO BASED HIS DECISION ON THE PRONOUNCEMENTS OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. MODEL MANUFACTURING CO. PVT. LTD [175 374 (1986) AND CIT VS. KANAK INVESTMENTS PVT. LTD [ 95 ITR 419 (1973)]. BUT IN MY OPINION, THE RELIANCE IS MISPLACED. BOTH THESE CASES INVOLVED THE ISSUE OF WHETHER THE CHARGES FOR AMENITIES SHOULD COME UND ER THE CATEGORY OF INCOME FROM HOUSE PROPERTY OR SHOULD BE ASSESS ED UNDER THE HEAD INCOME FROM OTHER SOURCES. THE ISSUE OF TRE ATING SERVICE CHARGES AS BUSINESS INCOME AS AGAINST INCOME FR OM OTHER SOURCES WAS NEVER THE QUESTION IN BOTH THESE CASE S. IN FACT, WHILE PASSING THE ORDER, THEIR LORDSHIPS OBSERVED [ 95 IT R, PAGE-42] THAT IT APPEARS FROM THE TWO SUBSEQUENT DECISIONS OF T HE SUPREME COURT THAT THE PROPER CONTROVERSY MIGHT HAVE BEEN TO DEC IDE WHETHER THE AMOUNT RECEIVED FROM THE TENANTS COULD BE ATTRIBUTE D TO EITHER SECTION 10 OR 12. IN THIS CONNECTION REFERENCE MAY BE MADE TO THE DECISION OF THE SUPREME COURT IN SULTAN BROTHERS PR IVATE LTD V. COMMISSIONER OF INCOME-TAX, AND THE DECISION OF THE SUPREME COURT IN THE CASE OF KARNANI PROPERTIES LTD V. COMMISSIO NER OF INCOME- TAX. BUT WE ARE NOT CONCERNED WITH THAT CONTROVERSY ; SINCE THE QUESTION REFERRED TO US IS A LIMITED ONE AND SINCE THE TRIBUNAL HAS NOT FOUND THE FACTS NECESSARY FOR DECIDING WHETH ER THE AMOUNT COULD BE APPORTIONED BETWEEN SECTION 10 AND SECTION 12 OF THE ACT WHICH SEEMS TO BE, ACCORDING TO THE AFORESAID DECI SIONS OF THE SUPREME COURT, THE APPROPRIATE HEADS UNDER WHICH T HE AMOUNT SHOULD BE TAXED, IN OUR VIEW, WE SHOULD ANSWER THE QUESTION, IN VIEW OF THE FACTS FOUND BY THE TRIBUNAL IN THIS CASE, IN THE AFFIRMATIVE AND IN FAVOUR OF THE ASSESSEE. THUS, IT APPEARS THAT THE HONBLE HIGH COURT WAS OF THE VIEW THAT THE PROPER ISSUE WHICH SHOULD HAVE BEEN DECID ED WAS THAT OF ASSESSMENT OF THESE CHARGES AS BUSINESS INCOME V IS--VIS INCOME FROM OTHER SOURCES AND, IN THAT EVENT THE DECISIO N OF THE APEX COURT ITA NO. 1820/KOL/2009 M/S. MERILL ESTATES P.LTD-C-M VS-JM 4 IN THE CASE OF KARNANI PROPERTIES LTD [82 ITR 547(S .C) & SULTAN BROTHERS PVT. LTD [51 ITR 353] WOULD COME INTO PLA Y. REFERENCE TO THESE DECISIONS SHOW THAT THE APEX COU RT IS OF THE VIEW THAT IF SERVICES RENDERED BY THE ASSESSEE TO ITS TENANTS WERE THE RESULTS OF ITS ACTIVITIES CARRIED ON CONTIN UOUSLY IN AN ORGANIZED MANNER, WITH A SET PURPOSE AND WITH A VIEW TO EARN PROFITS, THOSE ACTIVITIES WOULD CONSTITUTE BUSINESS ACTIVITIES A ND THE INCOME ARISING FROM THERE WOULD BE ASSESSED U/S. 10 (OF THE 1922 ACT, I.E. AS BUSINESS INCOME U/S. 28 OF THE IT ACT, 1961). TH E HONBLE ITAT, KOLKATA, A BENCH HAS REITERATED THE SAME PRINCIPL ES IN THE CASE OF M/S. PFH MALL & RETAIL MANAGEMENT LTD & ALSO IN TH E CASE OF M/S. DROPADI PROPERTIES (P) LTD. RESPECTFULLY, FOLLOWING THESE DECISIONS OF THE HONBLE SUPREME COURT AND THE HONBLE ITAT, KOLKATA, A BENCH. I HOLD THAT THE AO WAS NOT JUSTIFIED IN TR EATING THE SERVICE CHARGES AS INCOME FROM OTHER SOURCES AND THEY SHO ULD BE ASSESSED AS BUSINESS INCOME. 4.1 THE CIT(A) HAS ALSO ALLOWED ALL THE EXPENSES D ISALLOWED BY THE AO BY HOLDING THAT THESE ARE CONSEQUENTIAL TO SERVICE CHARGES. AGGRIEVED, NOW THE REVENUE IS IN APPEAL BEFORE US. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. AT THE OUTSET, SHRI S.K. TULSIYAN, ADV OCATE, THE LD. COUNSEL FOR THE ASSESSEE AS WELL AS SHRI P.K. CHAKRABORTY, JCIT, LD. SR.DR B OTH HAVE FAIRLY STATED THAT EVEN THOUGH THE SERVICE CHARGES RECEIVED ON LET OUT FRO M PROPERTY IS TO BE TREATED AS INCOME FROM OTHER SOURCES, CONSEQUENTIAL EXPENSES ARE TO BE ALLOWED U/S. 57 OF THE I.T ACT, 1961, FOR THE REASON THAT THE INCOME IS ASSESSEE U /S. 56 OF THE ACT. IN TERMS OF THE ABOVE, THE LD. COUNSEL FOR THE ASSESSEE AS WELL AS THE LD. SR. DR BOTH HAVE FAIRLY AGREED THAT THE ISSUE CAN BE REMITTED BACK TO THE FILE OF THE AO TO FIND OUT WHAT ARE THE RELATABLE EXPENSES RELATED TO THE SERVICE CHARGES, THE SAME CAN BE ALLOWED. AS BOTH THE PARTIES CONCEDED BEFORE US, THE MAIN ISSUE NOW WE HOLD TH AT THE INCOME FROM SERVICE CHARGES IS TO BE TREATED AS INCOME FROM OTHER SOURCES. ON CE THE INCOME RECEIVED ON LET OUT FROM THE PROPERTY AS SERVICE CHARGES TREATED AS INCOME FROM OTHER SOURCES, CONSEQUENTIAL DEDUCTION U/S. 57 OF THE ACT HAS TO BE ALLOWED. T HE AO IS DIRECTED TO FIND OUT THE RELATABLE EXPENSES RELATED TO SERVICE CHARGES AND T HEN DECIDE THE QUANTUM OF ITA NO. 1820/KOL/2009 M/S. MERILL ESTATES P.LTD-C-M VS-JM 5 DISALLOWANCES. THEREFORE, THE GROUNDS RAISED BY TH E REVENUE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSE. 6. IN THE RESULT, THE APPEAL OF THE REVENUE IS PAR TLY ALLOWED FOR STATISTICAL PURPOSE AS STATED ABOVE. - + ORDER PRONOUNCED IN THE OPEN COURT ON 08/07/2014 SD/- SD/- [ , ] [ , ] SHAMIM YAHYA, ACCOUNTANT MEMBER MA HAVIR SINGH, JUDICIAL MEMBER ( + ) DATED :8/7/2014 *PP 01 2 /SR.P.S. * %5 65 - COPY OF THE ORDER FORWARDED TO: 1. $ /APPELLANT- ITO W 1(1), KOLKATA, AAYKAR BHAWAN, P -7 CHOWRINGHEE SQ, AAYKAR BHAWAN, 5 TH FL., KOL-69 2 %&$ / RESPONDENT : M/S. MERRILL ESTATES PRIVATE LTD 4 M IDDLETON ST., KOL-16. 3. / THE CIT, 4. ( )/ THE CIT(A), KOLKATA 5. % / DR, KOLKATA BENCHES, KOLKATA &5 % / TRUE COPY , / BY ORDER , /ASSTT. REGISTRAR