ACIT, New Delhi V. M/s Kalra Hospital Pvt. Ltd., New Delhi

ITA 2021/DEL/2009

• Counselvise Citation: 202120114 RSA 2009
• Duration Of Justice: 3 year(s) 3 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 28-06-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 13-05-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R S NEGI
• Assessee Lawyers: SAHIL; ANOOP SHARMA SHRI M K GIRI
• Keywords: Business income; Business expenditure; Search and seizure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : D : NEW DELHI BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT AND SHRI I. C. SUDHIR, JUDICIAL MEMBER ITA NO. 2021/DEL/2009 ASSESSMENT YEAR: 2006- 2007 ACIT, CIRCLE 37 (1), VS. M/S. KALRA HOSPITAL PV T. LTD. ROOM NO. 401, N-BLOCK, A-6, KIRTI NAGAR, VIKAS BHAWAN, I.P. ESTATE, NEW DELHI 110 015 NEW DELHI. (APPELLANT) (RES PONDENT) APPELLANT BY : SHRI R.S. NEGI, SR. DR RESPONDENT BY : SHRI ANOOP SHARMA, SHRI M.K. GIRI, ADVOCATE & SHRI SAHIL SHARMA, CA DATE OF HEARING : 28-06-2012 DATE OF PRONOUNCEMENT: 31.8.2012 ORDER PER I.C. SUDHIR, JUDICIAL MEMBER THE REVENUE HAS QUESTIONED FIRST APPELL ATE ORDER ON THE FOLLOWING GROUNDS :- 1. IN THE FACTS AND CIRCUMSTANCES OF THE CASE TH E LD. CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO TREAT THE REN TAL RECEIVED FROM LETTING OUT CATH LAB MACHINE AS BUSINESS INCO ME INSTEAD OF INCOME FROM OTHER SOURCES AS HELD BY THE ASSES SING OFFICER. 2. IN THE FACTS AND CIRCUMSTANCES OF TH E CASE THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE O F ` 13,38,767/- MADE BY THE ASSESSING OFFICER BEING REPAIRS AND MAINTENANCE EXPENDITURE IN RESPECT OF CATH LAB MACHINE IGNORING THE FACT THAT THE RESPONSIBILITY OF UPKEEP AND MAINTEN ANCE WAS THAT OF THE LESSEE AND NOT THE LESSOR I.E. THE ASSESSEE . 3. IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) ERRED IN ITA NO. 2021/DEL/2009 2 DELETING DISALLOWANCE ` 5,75 ,977/ - MADE BY THE ASSESSING OFFICER BEING AMOUNT INCURRED ON KEYMAN INSU RANCE BY HOLDING THAT THE ASSESSEE WAS NOT CARRYING ON ANY BUS INESS. 4. IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) ERRED IN DELETING DISALLOWANCE OF ` 2,78,811/- MADE BY THE ASSESSING OFFICER BEING INTEREST ON LOAN T AKEN FOR PAYMENT OF KEYMAN INSURANCE AND REPAIRS AND MAINTE NANCE OF MACHINERY, WHICH EXPENDITURE ITSELF WAS HELD TO BE NO T ALLOWABLE. 5. IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) ERRED IN DELETING DISALLOWANCE OF ` 1,91,852/- MADE BY THE ASSESSING OFFICER BEING VARIOUS EXPENSES C LAIMED TO EARN THE BUSINESS INCOME BY HOLDING THE SAME TO BE NOT ALLOWABLE. 2. DURING THE YEAR THE ASSESSEE IN ITS RETU RN OF INCOME DECLARED INCOME OF ` 8,45,700/-. THE INCOME SHOWN WAS COMPRISED OF BUSI NESS INCOME BY WAY OF LEASE RENT ON CATH LAB EQUIPMENT A ND RENT RECEIVED IN LETTING OUT THE PROPERTY OWNED BY THE ASSESSEE COMP ANY. THE AO CONSIDERED THE CLAIMED BUSINESS INCOME OF THE ASSES SEE AS INCOME FROM OTHER SOURCES AND DISALLOWED EXPENSES INCURRED WHOL LY AND EXCLUSIVELY FOR THE PURPOSE OF EARNING THAT INCOME. THE AO ACCORDIN GLY ASSESSED THE INCOME OF THE ASSESSEE AT ` 32,47,788/-. THE ADDITION WAS OBJECTED BEFORE THE FIRST APPELLATE AUTHORITY, MAINLY ON THE CONTEN TION THAT THE EQUIPMENT HAD BEEN REGULARLY IN ITS OWN USE FOR THE LAST SEVE RAL YEARS AND IT WAS GIVEN ON LEASE AS A PRUDENT BUSINESS DECISION ARISEN OUT OF CHANGED BUSINESS CIRCUMSTANCES ETC. IT WAS SUBMITTED THAT THE ASSET IS COMMERCIAL IN NATURE AND THE INTENTION TO LEASE OUT THE EQUIPMENT WAS OF TEMPORARY IN NATURE AS EVIDENT FROM THE AGREEMENT. BEING CONVINCED WITH TH ESE SUBMISSIONS THE ITA NO. 2021/DEL/2009 3 LD. CIT(A) HAS DELETED THE ADDITION AGAINST WHICH R EVENUE IS IN APPEAL. THE ADDITIONS MADE ON ACCOUNT OF DISALLOWANCE OF EXPENS ES CLAIMED TO HAVE INCURRED TO EARN THE RENTAL INCOME HAVE BEEN DELETE D BY THE LD. CIT(A) MAINLY ON THE BASIS THAT THE RENTAL RECEIPT FROM LE TTING OUT CATH LAB MACHINE IS A BUSINESS INCOME INSTEAD OF INCOME FORM OTHER S OURCES AS HELD BY THE AO. THE REVENUE HAS QUESTIONED THIS ACTION OF THE L D. CIT(A) IN ITS PRESENT APPEAL BEFORE THE TRIBUNAL. 3. IN SUPPORT OF THE GROUNDS THE LD. DR HAS PLACED RELIANCE ON THE ASSESSMENT ORDER. HE SUBMITTED THAT THE LD. CIT(A) HAS FAILED TO APPRECIATE THAT THE EARLIER AGREEMENT OF THE LEASE OF THE ASSE T WAS NOT TEMPORARY IN NATURE AND THE INTENTION OF THE ASSESSEE WAS TO PAR T WITH THE COMMERCIAL ASSET AND TO CONFINE ITSELF SOLELY TO DERIVE RENTAL INCOME FROM THE SAME BY WAY OF LEASE. 4. LD. AR ON THE OTHER HAND TRIED TO JUST IFY THE FIRST APPELLATE ORDER ON THE ISSUE. HE REITERATED THE SUBMISSIONS MADE BE FORE THE AUTHORITIES BELOW AND CITED THE DECISIONS RELIED UPON BEFORE TH EM. HE POINTED OUT THAT IN THE ASSESSMENT YEARS 2003-04 AND 2004-05 NO SUCH DISALLOWANCE WAS MADE UNDER THE SIMILAR FACTS. HE REFERRED TO PAGE N OS. 50 AND 51 OF THE PAPER BOOK I.E. THE ASSESSMENT ORDER FOR THE ASSES SMENT YEAR 2004-05. HE SUBMITTED FURTHER THAT IN THE PRESENT YEAR ALSO IN PARA NO. 2 OF THE ASSESSMENT ORDER THE AO HIMSELF HAS ADMITTED THAT T HE ASSESSEE IS DERIVING INCOME ONLY FROM LEASE ON ITS COMMERCIAL ASSET I.E. THE CATH LAB MACHINE ITA NO. 2021/DEL/2009 4 AND RENT OF THE BUILDING. THE LD. AR REFERRED PAGE NO. 16 TO 21 OF THE PAPER BOOK I.E. LEASE AGREEMENT AND REFERRED CONTEN TS OF PAGE 20 WHEREIN PERIOD OF LEASING OUT OF THE MACHINE HAS BEEN GIVEN . HE SUBMITTED THAT THE ASSESSEE HAD PURCHASED THE CATH LAB MACHINE IN THE YEAR 1998-99 AND IT WAS BEING RUN AND OPERATED BY THE ASSESSEE. BUT DUE TO SOME UNAVOIDABLE REASONS AS A PRUDENT BUSINESSMAN IT WAS LET OUT FOR SOME PERIOD. HE SUBMITTED THAT THE COMPANY DOES NOT HAVE A NURSING HOME FOR ADMITTING THE PATIENTS REQUIRING TEST WITH THE HELP OF CATH L AB MACHINE. BESIDES THE COMPANY WAS NOT UNDER THE PANEL OF THE HOSPITALS AP PROVED BY THE PSUS , GOVT. UNDERTAKINGS, MNCS, INSURANCE COMPANIES SINC E IT DID NOT HAVE ITS OWN MEDIAL FACILITIES AND HENCE THE SERVICES BEING PROVIDED BY THE COMPANY WERE NOT RECOGNIZED FOR PAYMENT BY THESE PANEL AGEN CIES. 5. LD. AR SUBMITTED FURTHER THAT AS PER TH E TERMS OF THE LEASE AGREEMENT THE MAJOR REPAIRING IN THE MACHINES WAS T O BE BORNE BY THE ASSESSEE. THE ASSESSEE WAS ALSO UNDER OBLIGATION TO PAY INSURANCE PREMIUM ON THE MACHINE AND OTHER MISCELLANEOUS EXPE NSES WERE INCURRED TOWARDS EARNING THE LEASE RENT. THE ASSESSEE HAD ALSO PAID INTEREST ON LOAN TAKEN FOR PAYMENT OF INSURANCE AND REPAIR AND MAINTENANCE OF THE MACHINES. THE LD. CIT(A) WAS THUS JUSTIFIED IN DELE TING THE DISALLOWANCES MADE BY THE AO ON THESE ACCOUNTS TREATING THE RENTA L INCOME FROM CATH LAB MACHINE AS BUSINESS INCOME. THE LD. AR PLACED RELIA NCE ON THE FOLLOWING DECISIONS :- ITA NO. 2021/DEL/2009 5 1. CEPT VS. SHRI LAKSHMI SILK MILLS LTD. (1951) 20 I TR 451 (SC). 2. CIT VS. VIKRAM COTTON MILLS LTD. (1988)169 ITR 5 97 (SC) 3. EVEREST HOTELS LTD. VS. CIT (1978)114 ITR 779 (CA L.) 4. CIT VS ARYAN INDUSTRIES PRIVATE LIMITED (1982) 1 38 ITR 718 (AP) 5. CBDT CIRCULAR NO. 762 DATED 18.2.1998 230 ITR 20 (STATUTE) 6. HAVING GONE THROUGH THE ORDERS OF THE A UTHORITIES BELOW WE FIND THAT THE ASSESSEE COMPANY WAS INCORPORATED IN SEPTE MBER 1996 WITH THE MAIN OBJECT OF RUNNING HOSPITAL, HEALTH CLINIC ETC. THE ASSESSEE STARTED ITS BUSINESS OPERATIONS IN FINANCIAL YEAR 1998-99 AND A CQUIRED CATH LAB MACHINE / ALLIED EQUIPMENTS TO START ITS BUSINESS O PERATION. IN THE RETURN OF INCOME FOR THE ASSESSMENT YEAR UNDER CONSIDERATION I.E. ASSTT YEAR 2006-07 THE ASSESSEE DECLARED INCOME OF ` 8,45,700/- WHICH COMPRISED OF BUSINESS INCOME BY WAY OF LEASE RENT ON CATH LAB EQUIPMENT A ND RENT RECEIVED FOR LETTING OUT THE PROPERTY OWNED BY THE COMPANY. THE AO TREATED THE CLAIMED BUSINESS INCOME AS INCOME FROM OTHER SOURCE S AND FURTHER DISALLOWED EXPENSES INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF EARNING THAT INCOME. THE AO ASSESSED THE INCOME OF THE ASSESSEE AT ` 32,47,788/-. THE LD. CIT(A) HAS HOWEVER ACCEPTED TH E CLAIM OF THE ASSESSEE THAT THE INCOME EARNED FROM LETTING OUT OF THE CATH LAB MACHINE TEMPORARILY WAS A BUSINESS INCOME AND THE EXPENDITU RE INCURRED AS PER THE LEASE AGREEMENT ON THE SAID MACHINE WAS ALLOWABLE. WE HAVE GONE THROUGH ITA NO. 2021/DEL/2009 6 THE TERMS OF THE LEASE AGREEMENT DATED 1.4.22005, A COPY THEREOF HAS BEEN MADE AVAILABLE AT PAGE NO. 16 TO 21 OF THE PAPER BO OK. AS PER PARA NO. 3 OF THE SAID LEASE AGREEMENT THE PERIOD OF HIRE AGRE EMENT IS OF 2 YEARS COMMENCING FROM 1.4.2005 TO 31 ST MARCH, 2007. BEFORE THIS AGREEMENT THE LEASE AGREEMENT DATED 25.5.2003 WAS ALSO FOR A PERI OD OF TWO YEARS COMMENCING FROM 1.6.2003 TO 31.5.2005 AS PER CLAUSE 3 THEREOF. THERE IS NO REASON TO DOUBT THE EXPLANATION OF THE ASSESSEE THAT DUE TO SOME CHANGED CIRCUMSTANCES AS A PRUDENT BUSINESSMAN THE ASSESSEE HAD GIVEN THE CATH LAB MACHINE ON LEASE TEMPORARILY. THIS REL EVANT FACT HAS ALSO NOT BEEN REBUTTED BY THE DEPARTMENT THAT BEFORE LETTING OUT THE EQUIPMENT THE ASSESSEE WAS REGULARLY IN USE OF THE SAID MACHINE F OR THE LAST SEVERAL YEARS FOR ITS OWN PURPOSE. THE TERMS OF THE LEASE AGREEME NTS ALSO DO NOT SUGGEST THAT THE CATH LAB MACHINE WAS LET OUT PERMANENTLY N OR WAS THERE ANY INTENTION OF THE ASSESSEE TO PART WITH THE COMMERCI AL ASSET. THE RATIO LAID DOWN BY HONBLE SUPREME COURT IN THE CASE OF CEPT VS . SHRI LAKSHMI SILK MILLS LTD. (SUPRA) ALSO SUPPORTS THE CASE OF THE AS SESSEE. IN THAT CASE THE ASSESSEE WAS MANUFACTURING AND DYEING SILK YARN. DU RING THE CONCERNED YEAR, THE ASSESSEE COULD NOT WORK ON THE DYEING PL ANT DUE TO DEARTH OF SILK YARN ON ACCOUNT OF THE WAR AND THEREFORE LET IT OUT ON A MONTHLY RENT. THE ISSUE RAISED WAS AS TO WHETHER THE RENT CAN BE ASSE SSED AS BUSINESS INCOME. THE HONBLE SUPREME COURT WAS PLEASED TO H OLD AS UNDER :- IF THE COMMERCIAL ASSET IS NOT CAPABLE OF BEING USED AS SU CH, THEN ITS BEING LET ITA NO. 2021/DEL/2009 7 OUT TO OTHERS DOES NOT RESULT IN AN INCOME WHICH IS THE INCOME OF THE BUSINESS, BUT WE CANNOT ACCEPT THE VIEW THAT AN ASS ET WHICH WAS ACQUIRED AND USED FOR THE PURPOSE OF THE BUSINESS CEASED TO BE A COMMERCIAL ASSET OF THAT BUSINESS AS SOON AS IT WAS TEMPORARILY PUT OUT OF USE OR LET OUT TO ANOTHER PERSON FOR USE IN HIS BUSINESS OR TRADE. TH E YIELD OF INCOME BY A COMMERCIAL ASSET IS THE PROFIT OF THE BUSINESS IRRE SPECTIVE OF THE MANNER IN WHICH THAT ASSET IS EXPLOITED BY THE OWNER OF THE B USINESS. HE IS ENTITLED TO EXPLOIT IT TO HIS BEST ADVANTAGE AND HE MAY DO SO EITHER BY USING IT USING IT HIMSELF PERSONALLY OR BY LETTING IT OUT TO SOMEB ODY ELSE. SIMILAR ARE THE FACTS OF THE PRESENT CASE. THE ASSESEE HAD PUT TO U SE THE SAID CATH LAB EQUIPMENT FOR HIS OWN BUSINESS PURPOSES FOR SEVERAL YEARS BEFORE TAKING A PRUDENT BUSINESS DECISION TO TEMPORARILY LEASE OUT THE EQUIPMENT TO MEET THE EXIGENCIES OF THE BUSINESS. 7. SIMILARLY IN THE CASE OF CIT VS. VIKRAM COTTON MILLS LTD. (SUPRA) THE HONBLE SUPREME COURT HAS LAID DOWN THE SAME RATIO. IN THAT CASE THE ASSESSEE COMPANY HAD GONE INTO LOSSES AND HAD STOPP ED ITS MANUFACTURING ACTIVITY. UNDER THE SCHEME EVOLVED BY THE HIGH COUR T UNDER THE COMPANIES ACT, THE BUSINESS ASSETS WERE LET OUT FOR TEN YEARS WITH AN OPTION FOR RENEWAL FOR ANOTHER TEN YEARS. THE MANAGEMENT OF TH E COMPANY WAS TRANSFERRED TO A BOARD OF TRUSTEES APPROVED BY THE HIGH COURT. THE ISSUE RAISED WAS AS TO WHETHER THE RENTAL INCOME WAS ASSE SSABLE IN THE RELEVANT ASSESSMENT YEAR AS BUSINESS INCOME. THE FINDINGS OF THE TRIBUNAL WERE THAT ITA NO. 2021/DEL/2009 8 ON ACCOUNT OF FINANCIAL CRISES, THE COMPANY FOUND I T ADVANTAGEOUS TO LET OUT THE MACHINERY ON HIRE FOR A TEMPORARY PERIOD AND TH E COMPANY WAS ABLE TO LIQUIDATE ITS LIABILITY AT THE END OF THE LEASE PER IOD AND REGAINED POSSESSION OF ITS ASSETS, THE COMPANY DID NOT SELL OR OTHERWIS E DISPOSED OF ITS ASSETS, THERE WAS NOTHING ON RECORD TO SHOW THAT COMPANY WA S FORMED TO LET OUT PLANT AND MACHINERY ON HIRE. THE TRIBUNAL CAME TO T HE CONCLUSION THAT THE MAINTENANCE OF THE ASSET MEANT THAT THE COMPANY HAD AN INTENTION TO RESTART THE BUSINESS AND THAT THE INTENTION OF THE COMPANY IN LETTING OUT ITS ASSETS WAS TO EXPLOIT THE COMMERCIAL ASSETS FOR THE PURPOSE OF ITS BUSINESS AND, THEREFORE, THE RENTAL INCOME WAS ASSESSABLE AS BUSINESS INCOME. ON A REFERENCE, THAT CONCLUSION WAS UPHELD BY THE HIGH C OURT. ON APPEAL TO THE HONBLE SUPREME COURT, THE HONBLE SUPREME COURT WH ILE AFFIRMING THE DECISION OF THE HONBLE HIGH COURT NOTED THAT ALL R ELEVANT FACTS WERE CORRECTLY CONSIDERED FROM THE STANDPOINT OF AN ORDI NARY PRUDENT BUSINESSMAN BY THE TRIBUNAL AND IT WAS ALSO POINTED OUT THAT THE STOPPAGE OF THE BUSINESS BY THE COMPANY WAS A TEMPORARY SUSP ENSION OF BUSINESS FOR A TEMPORARY PERIOD WITH THE OBJECT OF TIDING OV ER THE CRISES CONDITION . THERE WAS NEVER ANY ACT INDICATING THAT THE COMPANY NEVER INTENDED TO CARRY ON THE BUSINESS IN FUTURE. 8. ALMOST SIMILAR ARE THE FACTS OF THE PRE SENT CASE BEFORE US. THE TOTALITY OF THE FACT OF THE PRESENT CASE SUGGEST TH AT THE CATH LAB MACHINE WHICH WAS ACQUIRED BY THE ASSESSEE IN FURTHERANCE O F ITS INTENTION TO RUN ITA NO. 2021/DEL/2009 9 AND OPERATE IT FOR ITS BUSINESS PURPOSES AND THE AS SESSEE ALSO OPERATED IT FOR ITS BUSINESS FOR CONSIDERABLE YEARS BUT DUE TO CHANGED CIRCUMSTANCES AS A PRUDENT BUSINESSMAN THE MACHINE WAS TEMPORARILY L ET OUT AND RENT WAS EARNED BY EXPLOITING THE SAID COMMERCIAL ASSET. THU S IN VIEW OF THE RATIO RAID DOWN BY THE HONBLE SUPREME COURT IN THE ABOVE STATED DECISIONS, THE RENTAL INCOME EARNED ON THE SAID COMMERCIAL ASSET C AN BE TREATED AS BUSINESS INCOME OF THE ASSESSEE. LD. CIT(A) WAS THU S JUSTIFIED IN HOLDING SUCH DECISION ON THE ISSUE. LIKEWISE IN THE CASE O F NEW SAVAN SUGAR AND GUR REFINING COMPANY LIMITED VS. CIT (SUPRA), THE INTENTION OF THE ASSESSEE WAS TO PART WITH ENTIRE MACHINERY OR FACTO RY AND PREMISES WITH THE OBVIOUS PURPOSE OF EARNING RENTAL INCOME AND TO TREAT FACTORY AND MACHINERY NOT AS COMMERCIAL ASSET DURING SUBSISTEN CE OF LEASE. NO SUCH INTENTION IS THERE IN THE PRESENT CASE OF THE ASSES SEE BEFORE US AS DISCUSSED ABOVE, THE ASSESSEE HAS BEEN TREATING THE MACHINERY AS A COMMERCIAL ASSET WHICH HAS ALSO BEEN ACCEPTED BY THE AO. THESE DECISIONS ARE THUS NOT HELPFUL TO THE REVENUE. THE FIRST APPELLATE ORDER T REATING THE RENTAL INCOME FROM THE HIRING OF CATH LAB MACHINES AS BUSINESS IN COME IS THUS UPHELD. GROUND NO. 1 IS ACCORDINGLY REJECTED. 9. THE ISSUE RAISED IN GROUND NO. 2 TO 5 A RE CONSEQUENTIAL TO THE FINDINGS GIVEN ON GROUND NO. 1. THE FACTS RELATING TO GROUND NO. 2 ARE THAT THE AO DISALLOWED THE CLAIMED EXPENDITURE OF ` 13,38,767/- INCURRED ON THE MAINTENANCE OF THE CATHLAB MACHINE HIRED. THE CLAIM OF THE ASSESSEE WAS ITA NO. 2021/DEL/2009 10 THAT IT WAS INCURRED IN EARNING OF THE BUSINESS INC OME I.E. RENTAL INCOME ON THE MACHINE LAB. THE ASSESSEE CONTENDED THAT AS PER CLAUSE V OF THE LEASE AGREEMENT ENTERED FOR THE YEAR UNDER CONSIDERATION, THE LESSEE WAS UNDER OBLIGATION TO MAINTAIN THE HIRED EQUIPMENT IN PROPE R CONDITION AND TO DO ALL ACTS AS MAY BE REQUIRED FOR UPKEEP AND MAINTENANCE OF THE EQUIPMENT. ALL THE DAY TO DAY REPAIRS, IF ANY, WAS THE RESPONSIBIL ITY OF THE LESSEE, HOWEVER IN CASE OF ANY MAJOR REPAIRS TO THE MACHINE, THE SA ME WAS TO BE BORNE BY THE ASSESEE. THE ASSESSEE WAS ALSO UNDER OBLIGATION AS PER CLAUSE VI OF THE AGREEMENT TO BEAR THE COST OF MAINTENANCE / ANY OTHER STATUTORY LEVY ON THE SAID MACHINE. THE ASSESSEE KEEPING IN VIEW T HE COMMERCIAL INTEREST AND AS A PRUDENT MEASURE AND CAUTION, IN ORDER TO ENSURE ITSELF AGAINST ANY MAJOR BREAK DOWNS TOOK AN ANNUAL MAINTENANCE CONTRA CT (AMC) FROM SIEMENS WHICH COVERED REPLACEMENT OF ALL DAMAGED PA RTS AND UP KEEP OF THE SOPHISTICATED EQUIPMENT. THE AMC WAS UNDERTAKEN BY THE ASSESSEE FOR THE LAST SEVERAL YEARS. THE AO DID NOT AGREE WITH T HESE SUBMISSIONS OF THE ASSESSEE AND DISALLOWED THE CLAIMED EXPENDITURE OF ` 13,38,767/- ON MAINTENANCE IN THE BACKGROUND OF HIS FINDING THAT T HE RENTAL INCOME WAS NOT A BUSINESS INCOME. THE LD. CIT(A) HAS HOWEVER A CCEPTED THE CLAIM UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE. AS D ISCUSSED ABOVE IN THE FINDING OF THE GROUND NO. 1 THAT THE LETTING OUT OF CATH LAB MACHINE WAS A BUSINESS INCOME OF THE ASSESSEE, WE ARE OF THE VIEW THAT THE LD. CIT(A) WAS JUSTIFIED IN ACCEPTING THE CLAIMED EXPENDITURE. THE EXPENDITURE WAS ITA NO. 2021/DEL/2009 11 INCURRED AS PER THE TERMS OF THE AGREEMENT LAID DOW N IN CLAUSE V THEREOF. THE INTENTION OF THE PARTIES ALSO GATHERS SUPPORT F ROM THE CONTENTS OF THE CLAUSE NO. VI OF THE AGREEMENT, WHEREIN IT HAS BEEN AGREED UPON BY THE PARTIES THAT IN CASE THE EQUIPMENT IS DAMAGED OR DU E TO NATURAL WEAR AND TEAR IT IS NOT WORKING, THE ASSESSEE SHALL GET THE SAME REPAIRED AT ITS OWN COST. SINCE THE MAJOR REPAIRS AND MAINTENANCE WAS T HE RESPONSIBILITY OF THE ASSESSEE, THE AMOUNT INCURRED ON AMC WAS A BONA FID E BUSINESS EXPENSE. THE LD. CIT(A) HAS THUS RIGHTLY ALLOWED THE EXPENDI TURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF EARNING OF BUSINESS INCOME. THE SAME IS UPHELD. THE GROUND NO. 2 IS ACCORDINGLY REJECTED. 10. IN GROUND NO. 3 THE REVENUE HAS QUES TIONED THE ACTION OF THE LD. CIT(A) IN DELETING THE DISALLOWANCE OF ` 5,75,977/- MADE BY THE AO BEING AMOUNT INCURRED ON KEY-MAN INSURANCE BY HOLDI NG THAT THE ASSESSEE WAS NOT CARRYING ON ANY BUSINESS. 11. HAVING GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW WE FIND THAT THE SUBMISSION OF THE ASSESSEE REMAINED THAT W HENEVER A KEY-MAN INSURANCE POLICY TAKEN BY IT IS ALWAYS FOR A FIXED PERIOD AND THE ENTIRE INCOME RECEIVED ON MATURITY IS TAXABLE IN THE HANDS OF THE COMPANY. IT WAS ALSO SUBMITTED THAT THE LAW REQUIRES THE KEY-MAN IN SURANCE PREMIUM TO BE PAID, ONCE THE KEY-MEN ARE IDENTIFIED. SINCE THE CO MPANY WAS LIVE AND CAPABLE OF INVOLVING ITSELF INTO ANY OTHER BUSINESS ACTIVITY AT ANY POINT OF TIME, THE PREMIUM PAYABLE WAS THE NEED OF THE BUSIN ESS AND HENCE IT WAS ITA NO. 2021/DEL/2009 12 TO BE ALLOWED AS BUSINESS EXPENDITURE. IT WAS SUBMI TTED THAT THE EXPENSES WERE INCURRED FOR RUNNING THE COMPANY WHETHER ANY B USINESS ACTIVITY IS UNDERTAKEN OR NOT. IT WAS STATED THAT IF THE KEY-ME N INSURANCE IS NOT CONTINUED AND REGULAR PREMIUMS ARE NOT PAID DURING THE TERM OF THE POLICY, THE SURRENDER VALUE ON DISCONTINUANCE WOULD RESULT IN HEAVY FINANCIAL LOSS. CONSIDERING THESE SUBMISSIONS THE LD. CIT(A) IN OUR VIEW HAS RIGHTLY DELETED THE DISALLOWANCE OF THIS EXPENDITURE MADE B Y THE AO. KEEPING IN MIND THAT INCOME DERIVED FROM LEASING OUT OF THE CA TH LAB MACHINE WAS NOT BUSINESS INCOME. THE FIRST APPELLATE ORDER IS THUS UPHELD. GROUND NO. 3 IS ACCORDINGLY REJECTED. 12. IN GROUND NO. 4 THE REVENUE HAS IMPUGN ED THE APPELLATE ORDER WHEREBY THE LD. CIT(A) HAS DELETED DISALLOWANCE OF ` 2,78,811/- MADE BY THE AO BEING INTEREST ON LOAN TAKEN FOR PAYMENT OF KEY-MAN INSURANCE AND REPAIRS AND MAINTENANCE OF MACHINERY, WHICH EXPENDI TURE ITSELF WAS HELD TO BE NOT ALLOWABLE. 13. HAVING GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW WE FIND THAT THE ASSESSEE CLAIMED THE DEDUCTION OF ` 2,78,811/- ON THE BASIS THAT IT WAS INTEREST PAID BY IT ON UNSECURED LOANS TAKEN FO R BUSINESS PURPOSES. A PART OF LOAN TAKEN WAS OLD AND A FRESH LOAN OF ` 15 ,00,000/ - W WAS RAISED DURING THE YEAR TO MEET THE COST OF REPAIR AND MAIN TENANCE AMOUNTING TO ` 13.38 LACS ON THE CATH LAB MACHINE AND THE BALANCE WAS REQUIRED TO MEET OTHER EXPENDITURE . THE INTEREST WAS ALSO REFLECTED IN THE RETURN OF INCOME ITA NO. 2021/DEL/2009 13 OF THE LENDERS WHO FALL UNDER THE SAME TAX SLAB AS THE ASSESEE, SUBMITTED THE ASSESEE. SINCE THE EXPENDITURE ON KEY MAN INSUR ANCE PREMIUM AS WELL AS REPAIRS AND MAINTENANCE IN THE FORM OF AMC WAS A LLOWED BY THE LD. CIT(A), THE LD. CIT(A) FOUND IT ALLOWABLE AND HAS A LLOWED THE SAME. IN THE FINDINGS OF GROUND NOS. 1,2,3 HEREIN ABOVE WE HAVE HELD THE ACTION OF THE LD. CIT(A) JUSTIFIED IN TREATING THE RENTAL INCOME EARNED ON THE CATH LAB MACHINE AS BUSINESS INCOME AND THE EXPENDITURE OF ` 13.38 LACS AND ` 5.75 LACS INCURRED THEREON HAS BEEN ALLOWED, WE DO NOT F IND INFIRMITY IN THE FINDING OF THE LD. CIT(A) ON THE ISSUE RAISED IN GR OUND NO. 4. THE SAME IS UPHELD. GROUND NO. 4 IS ACCORDINGLY REJECTED. 14. IN GROUND NO. 5, THE ACTION OF THE LD. CIT(A) IN DELETING THE DISALLOWANCE OF ` 1,91,852/- MADE BY THE AO BEING VARIOUS EXPENSES CLAIMED TO EARN THE BUSINESS INCOME HAS BEEN QUESTI ONED BY THE REVENUE. 15. THE ASSESSEE CLAIMED TO HAVE INCURRED ` 1,91,852/- ON VARIOUS EXPENSES TO EARN THE BUSINESS INCOME. THESE EXPENSE S ARE UNDER THE HEADS AUDIT FEES, BANK CHARGES, BUSINESS PROMOTION, CAR E XPENSES, FEES AND TAXES, DIRECTORS REMUNERATION, INSURANCE, PRELIMINARY EXP ENSES, PROFESSIONAL CHARGES, TELEPHONE EXPENSES, ETC. THE AO DISALLOWED THE CLAIMED EXPENSES ON THE BASIS THAT THESE ARE NOT ALLOWABLE U/S 37 OF THE ACT. THE CONTENTION OF THE ASSESSEE REMAINED THAT THESE EXPENSES ARE NE CESSARY FOR UPKEEPING THE ASSESSEE COMPANY. IT WAS SUBMITTED THAT THE CO MPANY CANNOT SURVIVE WITHOUT INCURRING THESE EXPENSES. THE LD. CIT(A) AG REED WITH THE ITA NO. 2021/DEL/2009 14 SUBMISSIONS OF THE ASSESSEE THAT THE ASSESSMENT OF A COMPANY IS DIFFERENT FROM ASSESSMENT OF NON CORPORATE ENTITIES AND THERE ARE CERTAIN EXPENSES WHICH ARE REQUIRED AND HAVE TO BE ALLOWED AS REGULA R EXPENSES FOR RUNNING THE AFFAIRS OF A COMPANY. WE CONCUR WITH THE VIEW O F THE LD. CIT(A) AS THERE IS NO REBUTTAL OF THE DEPARTMENT THAT THESE E XPENSES HAVE NOT BEEN INCURRED ON THE CLAIMED HEADS. THE FIRST APPELLATE AUTHORITY IN THIS REGARD IS THUS UPHELD. GROUND NO. 5 IS ACCORDINGLY REJECTED. 16. CONSEQUENTLY THE APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 31.8.2012 AUGUST, 2012. CL F T S SD SD/- SD/- (G.D. AGRAWAL) ( I.C. SUDHIR ) VICE PRESIDENT JUDICIAL MEMBER DATED *VEENA COPY OF ORDER FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR BY ORDER DEPUTY REGISTRAR, ITAT