GOLDLIFE MERCANTILE CO.P.LTD, MUMBAI V. ITO RG 6(3)(1), MUMBAI

ITA 1914/MUM/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 83498 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 4 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-08-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: J
• Next Hearing Date: 01-05-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 08-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: RONAK G DOSHI
• Keywords: Business expenditure

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL J B ENCH, MUMBAI ! , ' #$ % % % % , , #$ & BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER / ITA NO.1914/MUM/ 2011 ( ( ( ( ( / ASSESSMENT YEAR:2006-07 M/S. GOLDLIFE MERCANTILE CO. PVT. LTD., PENINSULA SPENTA, 2 ND FLOOR, MATHURADAS MILL COMPOUND, SENAPATI BAPAT MARG, LOWER PAREL, MUMBAI-400 013 / VS. THE ITO, RANGE-6(3)(1), MUMBAI $) ' ./ * ./ PAN/GIR NO. : AACG 3011E ( )+ / APPLICANT ) .. ( ,-)+ / RESPONDENT ) )+ . / APPLICANT BY: SHRI RONAK G. DOSHI ,-)+ / . / RESPONDENT BY: SHRI DURGA DUTT / 01' / DATE OF HEARING :28.07.2014 23( / 01' / DATE OF PRONOUNCEMENT :06.08.2014 #4 / O R D E R PER N.K. BILLAIYA, AM: THIS APPEAL BY THE ASSESSEE IS PREFERRED AGAINST T HE ORDER OF THE LD. CIT(A)-12, MUMBAI DT. 11.11.2010 PERTAINING TO ASSE SSMENT YEAR 2006- 07. 2. THE GRIEVANCE OF THE ASSESSEE CAN BE SUMMARIZED AS FOLLOWS: ITA NO. 1914/M/2011 2 1. THE LD. CIT(A) ERRED IN TREATING INTEREST INCOME UN DER THE HEAD INCOME FROM OTHER SOURCES INSTEAD OF INCOME FROM BU SINESS AND PROFESSION. 2. THE LD. CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF BUSINESS EXPENDITURE OF RS. 6,15,939/-. 3. THE LD. CIT(A) ERRED IN TREATING THE INCOME RECEIVE D BY THE ASSESSEE FOR PROVIDING AMENITIES AS INCOME FROM OTH ER SOURCES INSTEAD OF INCOME FROM HOUSE PROPERTY. 4. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF LETTI NG OUT PROPERTY AND FINANCIAL & INVESTMENT ACTIVITY IN SHARES AND SECUR ITIES. FOR THE YEAR UNDER CONSIDERATION, THE ASSESSEE RECEIVED INTEREST INCOME AT RS. 96,97,479/- AND RENT AT RS. 17,96,792/-. THE INTER EST INCOME HAS BEEN OFFERED UNDER THE HEAD PROFITS AND GAINS OF BUSINES S OR PROFESSION AND RENTAL INCOME UNDER THE HEAD INCOME FROM HOUSE PROP ERTY. 4.1. DURING THE COURSE OF THE SCRUTINY ASSESSMENT P ROCEEDINGS, THE ASSESSEE WAS ASKED TO JUSTIFY ITS CLAIM OF INTEREST INCOME OFFERED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSIO N. IT WAS EXPLAINED THAT THE ASSESSEE IS IN THE BUSINESS OF INVESTMENT AND F INANCE AND IN PURSUANCE TO ITS BUSINESS ACTIVITY, THE ASSESSEE RECEIVED LOA N FROM ACT FININVEST LTD., AND TENDERED THE SAME TO M/S. DAWNS MILLS CO. LTD. THE AO CONSIDERED THE EXPLANATION OF THE ASSESSEE IN THE LIGHT OF THE MEMORANDUM AND ARTICLES OF ASSOCIATION. THE AO OBS ERVED THAT GIVING LOANS AND ADVANCES IS NOT THE MAIN OBJECTIVE OF THE COMPANY THOUGH IT IS AN ANCILLARY OBJECT OF THE COMPANY. THE AO FURTHER OBSERVED THAT THE ASSESSEE HAS BORROWED MONEY ONLY FROM ONE COMPANY A ND LENDED THE SAME TO ITS SISTER CONCERN. THE AO FURTHER OBSERVE D THAT THERE IS NO ITA NO. 1914/M/2011 3 CONTINUITY OR REGULARITY IN THE LENDING ACTIVITY AN D WENT ON TO TAX THE INTEREST INCOME UNDER THE HEAD INCOME FROM OTHER S OURCES. THE INTEREST PAID TO M/S. ACT FININVEST LTD., WAS DEDUCTED FROM THE INTEREST EARNED BY THE ASSESSEE. 4.2. ON FURTHER SCRUTINY, THE AO NOTICED THAT THE A SSESSEE HAS GIVEN ITS PREMISES ON RENT TO M/S. PRANA STUDIOS PVT. LTD. T HE AO FOUND THAT THE ASSESSEE HAS ENTERED INTO TWO SEPARATE AGREEMENTS O NE FOR GIVING THE PREMISES ON RENT AND OTHER FOR PROVIDING VARIOUS AM ENITIES. THE AO ASKED THE ASSESSEE TO EXPLAIN WHY INCOME FROM AMENI TIES HAS BEEN SHOWN UNDER THE HEAD INCOME FROM HOUSE PROPERTY. IT WAS EXPLAINED THAT THE AMENITIES HAVE BEEN PROVIDED AS PER THE AGREEMENT. THE AMENITIES ARE INCIDENTAL TO THE OCCUPATION OF THE LEASED PREMISES THEREFORE THE SAME HAS BEEN SHOWN UNDER THE HEAD INCOME FROM HOUSE PROPERT Y. THE AO WAS NOT CONVINCED WITH THE REPLY OF THE ASSESSEE AND WE NT ON TO TAX THE RECEIPTS FROM AMENITIES UNDER THE HEAD INCOME FROM OTHER SOURCES. THE AO FURTHER DISALLOWED THE EXPENDITURE CLAIMED BY TH E ASSESSEE. 5. AGGRIEVED BY THIS, THE ASSESSEE CARRIED THE MATT ER BEFORE THE LD. CIT(A). 6. AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS, THE LD. CIT(A) OBSERVED THAT THE ASSESSEE WAS NOT ENGAGED IN MONEY LENDING BUSINESS. THE ASSESSEE HAS EARNED INTEREST ONLY ON THE MONEY ADVANCED BY IT TO ITS SISTER CONCERN. THEREFORE, THE INTEREST INCOME CAN NOT BE SAID TO BE IN THE ORDINARY COURSE OF THE BUSINESS AND WENT ON TO CONF IRM THE ACTION OF THE AO BY TREATING THE INTEREST INCOME UNDER THE HEAD I NCOME FROM OTHER SOURCES ON HOLDING THAT THE ASSESSEE IS NOT CARRYIN G OUT ANY BUSINESS ACTIVITY. THE LD. CIT(A) FURTHER CONFIRMED THE DISA LLOWANCE OF EXPENDITURE. ITA NO. 1914/M/2011 4 6.1. ON THE ISSUE OF INCOME FROM HOUSE PROPERTY VIS --VIS INCOME FROM OTHER SOURCES, THE LD. CIT(A) OBSERVED THAT THE ASS ESSEE WAS HAVING TWO SEPARATE AGREEMENTS ONE FOR THE LEASING OUT OF PREM ISES AND THE OTHER FOR THE PROVISION FOR AMENITIES. ON THESE FACTS, THE L D. CIT(A) CONFIRMED THE FINDINGS OF THE AO THAT INCOME FROM AMENITIES SHOUL D BE TAXED UNDER THE HEAD INCOME FROM OTHER SOURCES. 7. AGGRIEVED BY THIS, THE ASSESSEE IS BEFORE US. T HE LD. COUNSEL FOR THE ASSESSEE REITERATED THE CLAIM THAT THE ASSESSEE WAS IN THE BUSINESS OF FINANCIAL AND INVESTMENT AND THEREFORE IN PURSUANCE OF THE BUSINESS, THE INTEREST INCOME OF THE ASSESSEE DESERVES TO BE TAXE D UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION AND ACCORDINGLY ALL THE RELATED EXPENDITURES NEED TO BE ALLOWED. 8. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE SUPPORTED THE FINDINGS OF THE LOWER AUTHORITIES. 9. WE HAVE PERUSED THE ORDERS OF THE AUTHORITIES BE LOW. IT IS NOT IN DISPUTE THAT THE BORROWED AMOUNT HAS BEEN LENDED TO ITS SISTER CONCERN. THE AMOUNT WAS BORROWED AT THE RATE OF 8.25% INTERE ST AND THE SAME WAS GIVEN AT THE RATE OF 11.03% INTEREST. THE INTENTIO N IS CLEAR, THE ASSESSEE WAS ENGAGED IN MONEY LENDING BUSINESS. ALTHOUGH TH E MAIN OBJECT OF THE ASSESSEE COMPANY MAY NOT BE MONEY LENDING BUSINESS BUT ANCILLARY OBJECT CLEARLY SHOW THAT THE ASSESSEE IS ENGAGED IN FINANCIAL ACTIVITIES. SINCE THE ONLY THE TAXABILITY OF THE HEAD OF INCOME IS UNDER DISPUTE, IN OUR CONSIDERED VIEW, CONSIDERING THE NATURE OF ACTIVITI ES OF THE ASSESSEE, WE HAVE NO HESITATION TO HOLD THAT THE INCOME FROM INT EREST SHOULD BE TAXED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PRO FESSION. WE, ACCORDINGLY DIRECT THE AO TO TREAT THE INTEREST INC OME UNDER THE HEAD ITA NO. 1914/M/2011 5 PROFITS AND GAINS OF BUSINESS OR PROFESSION. HAVI NG HELD THAT, WE DIRECT THE AO TO CONSIDER THE CLAIM OF EXPENDITURE UNDER T HE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION AS PER THE PROVISIO NS OF LAW AFTER DUE VERIFICATION AND AFTER GIVING REASONABLE OPPORTUNIT Y OF BEING HEARD TO THE ASSESSEE. GROUND NO. 1 IS ALLOWED AND GROUND NO. 2 IS ALLOWED FOR STATISTICAL PURPOSE. 10. THE NEXT GRIEVANCE RELATES TO THE TAXABILITY OF INCOME FROM AMENITIES UNDER THE HEAD INCOME FROM OTHER SOURCES . IT IS NOT IN DISPUTE THAT THE ASSESSEE HAS ENTERED INTO TWO SEPA RATE AGREEMENTS ONE RELATING TO THE RENT OF THE LEASED PREMISES AND TH E OTHER RELATING TO THE AMENITIES. A PERUSAL OF BOTH THESE AGREEMENTS SHOW S THAT THE SERVICE AGREEMENT IS DEPENDING UPON THE RENT AGREEMENT WHIC H MEANS THAT IN THE ABSENCE OF RENT AGREEMENT, THERE COULD BE NO SERVIC E AGREEMENT. THIS BEING THE FACT OF THE MATTER, SERVICE CHARGES HAVE TO BE INCLUDED AS THE PART OF RENTAL INCOME. FOR THESE OBSERVATIONS, WE DRAW SUPPORT FROM THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT I N THE CASE OF CIT VS. J.K. INVESTORS (BOM) LTD 25 TAXMAN.COM 12 WHEREIN O N IDENTICAL FACTS THE HONBLE HIGH COURT HAS LAID DOWN THE TEST TO DE TERMINE WHETHER THE SERVICE AGREEMENT WAS DIFFERENT FROM THE RENT AGREE MENT AND WHETHER THE SERVICE AGREEMENT COULD STAND INDEPENDENTLY OF THE RENT AGREEMENT. IN THE LIGHT OF THIS TEST, WE FIND THAT IN THE CASE IN HAND, THE SERVICE AGREEMENT IS TOTALLY DEPENDENT UPON THE RENT AGREEM ENT CONSIDERING THE AMENITIES TO BE PROVIDED BY THE ASSESSEE, WHICH INC LUDES LIFT FACILITY, SECURITY, COMMON AREA FACILITY, CAR PARKING ETC. WE FIND THAT ALL THE ABOVE AMENITIES ARE PART AND PARCEL OF THE BUILDING WHICH ARE NECESSARY FOR THE ENJOYMENT OF THE BUILDING BY THE TENANT AND OTHERWI SE NO TENANT WILL OCCUPY THE BUILDING ON LEASE AND SUCH AMENITIES NOT ONLY INCREASE THE COST OF THE BUILDING BUT ALSO THE RENTAL INCOME. CONSIDERING THE FACTS IN ITA NO. 1914/M/2011 6 THE LIGHT OF THE DECISION OF THE HONBLE JURISDICTI ONAL HIGH COURT, WE DIRECT THE AO TO TREAT THE INCOME FROM AMENITIES UN DER THE HEAD INCOME FROM HOUSE PROPERTY AND COMPUTE THE INCOME AS PER T HE PROVISIONS OF LAW UNDER THE HEAD INCOME FROM HOUSE PROPERTY. 11. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 6 TH AUGUST, 2014 #4 / 3( ' 5 6#7 6.8.2014 3 / 8 SD/- SD/- (VIVEK VARMA ) (N.K. BILLAIYA) #$ / JUDICIAL MEMBER ' #$ / ACCOUNTANT MEMBER MUMBAI; 6# DATED : . . ./ RJ , SR. PS #4 #4 #4 #4 / // / ,0 ,0 ,0 ,0 9(0 9(0 9(0 9(0 / COPY OF THE ORDER FORWARDED TO : 1. )+ / THE APPELLANT 2. ,-)+ / THE RESPONDENT. 3. : ( ) / THE CIT(A)- 4. : / CIT 5. ;8 ,0 , , / DR, ITAT, MUMBAI 6. 8< = / GUARD FILE. #4 #4 #4 #4 / BY ORDER, -0 ,0 //TRUE COPY// > >> > / ? ? ? ? (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI