M/s. SULAKSHANA SECURITIES LTD., MUMBAI V. ITO - 1(3)(2), MUMBAI

ITA 2028/MUM/2007

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3597 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 2 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-06-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: J
• Next Hearing Date: 06-06-2013
• Assessment Year: 2003-2004
• Appeal Filed On: 08-03-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: FROM AIR CONDITIONING; OTHER CHARGES AN
• Keywords: Business income
• Section: 56(2); 56

Judgement Text

ITA NO. 2028/MUM/2007 SULAKSHANA SECURITIES LTD. PAGE 1 OF 6 IN THE INCOME TAX APPELLATE TRIBUNAL 'J' BENCH, MUMBAI BEFORE SHRI RAJENDRA SINGH, ACCOUNTANT MEMBER AND SHRI SANJAY GARG, JUDICIAL MEMBER ITA NO. 2028/MUM/2007 (ASSESSMENT YEAR 2003-04 ) DATE OF HEARING: 6/6/2013 DATE OF PRONOUNCEMENT: 6/6/2013 O R D E R PER RAJENDRA SINGH THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 20- 12-2006 OF CIT (A) FOR THE ASSESSMENT YEAR 2003-04. THE DISPUTE RAISED IN THIS APPEAL IS REGARDING NATURE OF INCOME RECEI VED BY THE ASSESSEE FROM AIR CONDITIONING AND OTHER CHARGES AND DISALLOWANCE OF PROPERTY MAINTENANCE EXPENSES. THE ASSESSEE HAS ALSO RAISED A GROUND REGARDING DOUBLE DISALLOWANCE OF PROPERTY MAINTENANCE CHARGES WHICH WAS NOT PRESSED BY THE LEARNED AR AT THE TIME OF HEARING OF THE APPEAL AND, THEREFORE, THE SAME IS DISMISSED AS NOT PRESSED. 2. THE FACTS RELATING TO ASSESSMENT OF AIR CONDITIO NING CHARGES ARE THAT THE ASSESSEE DURING THE YEAR HAD RECEIVED RENT OF R S. 45,00,049/- FROM LETTING OUT OF MAFATLAL CENTRE. ASSESSEE HAD ALSO R ECEIVED A SUM OF RS. 66,25,957/- ON ACCOUNT OF AIR CONDITIONING, ELECTRI CITY AND WATER CHARGES. SULAKSHANA SECURITIES LTD. MAFATLAL HOUSE BACKBAY RECLAMATION, MUMBAI 400 020 PAN:- AABCS1783L INCOME TAX OFFICER 1 (3) (2), 5 TH FLOOR, AAYAKAR BHAVAN, M.K. MARG, MUMBAI 400 020. APPELLANT RESPONDENT DEPARTMENT BY. SHRI CHATURBHUJ DAS CHATNANI ASSESSEE BY: SHRI GIRISH DAVE ITA NO. 2028/MUM/2007 SULAKSHANA SECURITIES LTD. PAGE 2 OF 6 THE ASSESSEE HAD DECLARED THE RENTAL INCOME UNDER T HE HEAD INCOME FROM HOUSE PROPERTY AND THE AIR CONDITIONING AND O THER CHARGES HAD BEEN DECLARED AS INCOME FROM OTHER SOURCES AGAINST WHICH PROPERTY MAINTENANCE EXPENSES OF RS. 82,54,091/- HAD BEEN CL AIMED RESULTING INTO NET LOSS OF RS. 20,28,134/- UNDER THE HEAD INCOM E FROM OTHER SOURCES. THE AO HELD THAT SINCE THE ASSESSEE HAD LET OUT THE PROPERTY ON RENT ALONGWITH AIR CONDITIONING AND OTHER SERVICES THE E NTIRE INCOME SHOULD BE ASSESSED AS INCOME FROM HOUSE PROPERTY. HE, THEREFO RE, COMPUTED THE INCOME AS INCOME FROM HOUSE PROPERTY AT RS. 63,48,2 10/- AFTER ALLOWING STATUTORY DEDUCTION OF 30% U/S 24. THE AO DISALLOWE D THE DEDUCTION CLAIMED ON ACCOUNT OF PROPERTY MAINTENANCE CHARGES ON THE GROUND THAT THE SAME WAS NOT ALLOWABLE AS DEDUCTION UNDER THE H EAD INCOME FROM HOUSE PROPERTY AND ALSO ON THE GROUND THAT THE SAM E WERE NOT SUPPORTED BY DOCUMENTARY EVIDENCE. 3. THE ASSESSEE DISPUTED THE DECISION OF AO AND SUB MITTED BEFORE CIT (A) THAT INCOME FROM AIR CONDITIONING AND OTHER SER VICES WAS REQUIRED TO BE ASSESSED AS INCOME FROM OTHER SOURCES. RELIANCE WAS PLACED ON THE JUDGMENT OF HONBLE SUPREME COURT IN CASE OF SULTAN BROTHERS PVT. LTD.VS. CIT (51 ITR 353 AND ALSO ON THE JUDGMENT O F HONBLE HIGH COURT OF KOLKATA IN CASE OF CIT VS. KANAK INVESTMENTS (P) LTD. (95 ITR 418). CIT (A) HOWEVER, DID NOT ACCEPT THE CONTENTIONS RAISED . IT WAS OBSERVED BY HIM THAT ELECTRICITY, WATER AND AIR CONDITIONING CH ARGES WERE ATTACHED TO THE ENJOYMENT OF THE PROPERTY BY THE TENANTS AND, T HEREFORE, THESE HAD THE SAME CHARACTER AS INCOME FROM HOUSE PROPERTY. THESE CHARGES HAD BEEN RECEIVED BASICALLY FROM LANDLORD-TENANT RELATIONSHI P AND IT WAS NOT POSSIBLE TO ENJOY THE LET OUT THE PROPERTY WITHOUT SUCH SERVICES. CIT (A) THUS, HELD THAT THESE CHARGES CANNOT BE SPLIT UP TO BE CONSIDERED EITHER AS INCOME FROM OTHER SOURCES OR AS INCOME FROM BUSINES S. HE ACCORDINGLY CONFIRMED THE ORDER OF AO ASSESSING THE ENTIRE INCO ME AS INOMCE FROM HOSUE PROPERTY. CIT (A) PLACED RELIANCE ON THE JUDG MENT OF HONBLE HIGH COURT OF BOMBAY IN CASE OF CIT VS. BHAKHTAWAR CONS TRUCTION P. LTD. ( ITA NO. 2028/MUM/2007 SULAKSHANA SECURITIES LTD. PAGE 3 OF 6 162 ITR 452) AND SOME OTHER JUDGMENTS. AGGRIEVED BY THE DECISION OF CIT (A), THE ASSESSEE IS IN APPEAL BEFORE TRIBUNAL. 4. BEFORE US, LEARNED AR FOR THE ASSESSEE SUBMITTE D THAT MAFATLAL CENTRE THE INCOME FROM WHICH IS UNDER CONSIDERATION IN THI S APPEAL WAS EARLIER PART OF MAFATLAL INDUSTRY LTD. (MIL). MIL HAD BECAM E SICK AND AS PER THE SANCTIONED SCHEME OF BIFR THE REAL ESTATE AND INVES TMENT BUSINESS OF MIL DEMERGED AND MADE PART OF ASSESSE COMPANY. THUS THE INCOME FROM MAFATLAL CENTRE BECAME ASSESSABLE IN THE NAME OF AS SESSEE FROM THE ASSESSMENT YEAR 2003-04. IT WAS ALSO SUBMITTED THAT IN EARLIER YEARS UP TO THE ASSESSMENT YEAR 2002-03 THE INCOME FROM AIR CON DITIONING AND OTHER CHARGES HAD BEEN ASSESSED BY THE DEPARTMENT AS INCO ME FROM OTHER SOURCES IN THE NAME OF MIL. IT WAS FURTHER SUBMITTE D THAT EVEN IN THE CASE OF ASSESSEE IN ASSESSMENT YEAR 2006-07, CIT (A) HAS DIRECTED THE AO TO ASSESS THE RECEIPTS FROM AIR CONDITIONING AND OTHER CHARGES AS INCOME FROM OTHER SOURCES BUT CONFIRMED THE DISALLOWANCE O F PART OF THE EXPENSES AGAINST WHICH THE ASSESSEE HAS FILED APPEAL BEFORE TRIBUNAL. IT WAS ALSO SUBMITTED THAT THE DEPARTMENT HAS NOT FILED ANY CRO SS OBJECTION. SIMILARLY IT WAS FURTHER POINTED OUT THAT IN ASSESSMENT YEAR 2008-09 CIT (A) HAS AGAIN DIRECTED THE AO TO ASSESS RECEIPTS FROM AIR C ONDITIONING AND OTHER CHARGES AS INCOME FROM OTHER SOURCES. IT WAS ARUGED THAT INCOME FROM HOUSE PROPERTY IS ASSESSABLE ONLY IN RESPECT OF BON AFIDE ANNUAL VALUE OF LAND AND BUILDING AND NOT IN RESPECT OF SERVICES IF ANY PROVIDED BY THE LANDLORD. RELIANCE WAS PLACED ON THE JUDGMENT OF HO NBLE HIGH COURT OF KOLKATA IN CASE OF KANAK INVESTMENTS P. LTD. ( 95 I TR 351). LEARNED DR ON THE OTHER HAND STRONGLY SUPPORTED THE ORDERS OF AUTHORITIES BELOW AND PLACED RELIANCE ON THE JUDGMENT OF HONBLE SUPREME COURT IN CASE OF SHAMBHU INVESTMENTS PVT. LTD. (263 ITR 143). 5. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE R IVAL CONTENTIONS CAREFULLY. THE DISPUTE RAISED IS REGARDING ASSESSME NT OF INCOME FROM PROVIDING AIR CONDITIONING SERVICES AS WELL AS WATE R AND ELECTRICITY SERVICES BY THE ASSESSEE TO THE TENANTS OF MAFATLAL CENTRE. THE SAID CHARGES HAD ITA NO. 2028/MUM/2007 SULAKSHANA SECURITIES LTD. PAGE 4 OF 6 BEEN RECEIVED BY THE ASSESSEE IN ADDITION TO RENTAL VALUE OF LETTING OUT THE SAID MAFATLAL CENTRE. THE RENTAL INCOME HAS ALREADY BEEN ASSESSED BY AO AS INCOME FROM HOUSE PROPERTY. IN ADDITION THE AO H AS ASSESSED THE OTHER CHARGES AS INCOME FROM HOUSE PROPERTY. CIT (A) HAS CONFIRMED THE ORDER OF AO. IN OUR VIEW THE ORDER OF CIT (A) CANNOT BE U PHELD. THE INCOME TAX UNDER THE HEAD INCOME FROM HOUSE PROPERTY IS REQU IRED TO BE CHARGED ON THE BONAFIDE ANNUAL LETTING VALUE OF LAND AND BUILD ING. IN CASE THE LAND LORD IN ADDITION TO LETTING OUT THE BUILDING HAS AL SO PROVIDED SOME SERVICES, THE INCOME FROM SUCH SERVICES HAS TO BE A SSESSED AS INCOME FROM BUSINESS OR INCOME FROM OTHER SOURCES DEPENDIN G UPON THE NATURE OF SERVICES RENDERED. THIS VIEW HAS BEEN UPHELD BY THE HONBLE HIGH COURT OF KOLKATA IN CASE OF KANAK INVESTMENT PVT. LTD. (9 5 ITR 419). IN THE SAID CASE HONBLE HIGH COURT OF KOLKATA HELD THAT IN CAS E THERE WAS COMPOSITE RENT CHARGED FOR LETTING OUT THE PROPERTY AS WELL A S THE SERVICES RENDERED, IT HAS TO BE SPLIT UP AND THE AMOUNT WHICH IS ATTRI BUTABLE TO THE PROPERTY SHOULD BE ASSESSED AS INCOME FROM HOUSE PROPERTY AN D THE AMOUNT RELATABLE TO THE RENDERING OF SERVICES SHOULD BE AS SESSED AS INCOME FROM OTHER SOURCES. 5.1 CIT (A) IN THE PRESENT CASE HAS PLACED RELIANC E ON THE JUDGMENT OF HONBLE HIGH COURT OF BOMBAY IN CASE OF CIT VS. BHA KTHAWAR CONSTRUCTION PVT. LTD. IN THAT CASE THE ASSESSEE HA D LET OUT THE BUILDING TO THE TENANT AND BY A SEPARATE AGREEMENT HAD MADE AVA ILABLE THE AIR CONDITIONING FACILITY TO THE TENANTS ON PAYMENT O F CERTAIN CHARGES. THE ISSUE WAS WHETHER THE ENTIRE INCOME CONSISTING OF R ENT AND AIR CONDITIONING CHARGES SHOULD BE ASSESSED AS INCOME F ROM HOUSE PROPERTY OR INCOME FROM OTHER SOURCES U/S 56 (2) (III). THE HONBLE HIGH COURT NOTED THAT THE ASSESSEE HAD PROVIDED ONLY THE FACIL ITY OF AIR CONDITIONING AND HAD NOT LET OUT THE INSTALLATION AND, THEREFORE , PROVISIONS OF SECTION 56 (2) (III) WERE NOT APPLICABLE. THUS THE INCOME C OULD NOT BE ASSESSED AS INCOME FROM OTHER SOURCES UNDER SECTION 56 (2) (III ). IT WAS ACCORDINGLY HELD THAT THE ENTIRE INCOME HAD TO BE ASSESSED AS I NCOME FROM HOUSE PROPERTY. IT MAY BE NOTED HERE THAT THE ISSUE IN TH AT CASE WAS NOT WHETHER ITA NO. 2028/MUM/2007 SULAKSHANA SECURITIES LTD. PAGE 5 OF 6 THE RENTAL INCOME SHOULD BE ASSESSED AS INCOME FROM HOUSE PROPERTY AND AIR CONDITIONING CHARGES AS INCOME FROM OTHER SOURC ES. THE ISSUE WAS WHETHER THE ENTIRE INCOME SHOULD BE ASSESSED AS INC OME FROM HOUSE PROPERTY OR AS OTHER SOURCES U/S 56(2) (III). THER EFORE, THE HONBLE HIGH COURT HAD NO OCCASION TO EXAMINE WHETHER THE OTHER CHARGES COULD BE ASSESSED AS INCOME FROM OTHER SOURCES. IN THE PRESE NT CASE THE AO HAS HIMSELF ASSESSED THE RENTAL INCOME AS INCOME FROM H OUSE PROPERTY AND THE DISPUTE IS ONLY IN RELATION TO OTHER CHARGES WH ICH IN OUR OPINION FOLLOWING THE JUDGMENT OF HONBLE HIGH COURT OF KOL KATA IN CASE OF KANAK INVESTMENT PVT. LTD. (SUPRA) HAS TO BE ASSESSED AS INCOME FROM OTHER SOURCES. 5.2 THE LD. DR HAS ALSO RELIED ON THE JUDGMENT OF HONBLE SUPREME COURT IN CASE OF SHAMBHU INVESTMENT PVT LTD. (263 I TR 143). IN THAT CASE THE ASSESSEE HAD LET OUT FURNISHED OFFICE ON MONTHL Y RENT WHICH INCLUDED CHARGES FOR FURNITURE AND FITTING AND OTHER AMENITI ES. THE ISSUE WAS WHETHER THE ENTIRE INCOME SHOULD BE ASSESSED AS INC OME FROM HOUSE PROPERTY OR FROM BUSINESS INCOME. THE HONBLE HIGH COURT OF KOLKATA NOTED THAT WHEN THE MAIN INTENTION WAS TO LET OUT T HE PROPERTY TO ENJOY THE RENT, THE INCOME SHOULD BE ASSESSED AS INCOME F ROM HOUSE PROPERTY BUT IN CASE THE PRIMARY OBJECT WAS TO EXPLOIT THE I MMOVABLE PROPERTY BY WAY OF COMPLEX COMMERCIAL OPERATIONS, THE INCOME HA D TO BE ASSESSED AS INCOME FROM BUSINESS. IN THIS CASE THE ASSESSEE HAD TAKEN ALMOST THE ENTIRE COST OF THE BUILDING AS ADVANCE. THEREFORE I T COULD NOT BE SAID THAT THE ASSESSEE WANTED TO COMMERCIALLY EXPLOIT THE PRO PERTY. THE INTENTION WAS, THEREFORE, TO ENJOY THE RENTAL VALUE. THE HIGH COURT ACCORDINGLY HELD THAT THE ENTIRE INCOME HAD TO BE ASSESSED AS INCOME FROM HOUSE PROPERTY. THE JUDGMENT OF HONBLE HIGH COURT WAS UPHELD BY TH E HONBLE SUPREME COURT. THE CASE IS OBVIOUSLY DISTINGUISHABLE AS IN THAT CASE THE ISSUE WAS NOT WHETHER THE RENTAL INCOME OF THE PROPERTY SHOUL D BE ASSESSED AS HOUSE PROPERTY AND INCOME FROM SERVICES AND AMENITI ES AS INCOME FROM OTHER SOURCES. THE ISSUE AS POINTED OUT EARLIER WAS WHETHER THE ENTIRE INCOME SHOULD BE ASSESSED AS HOUSE PROPERTY INCOME OR AS BUSINESS ITA NO. 2028/MUM/2007 SULAKSHANA SECURITIES LTD. PAGE 6 OF 6 INCOME. SINCE, IT WAS NOT FOUND ASSESSABLE AS BUSIN ESS INCOME, IT WAS HELD ASSESSABLE AS HOUSE PROPERTY INCOME. THEREFOR E, THE SAID JUDGMENT CAN ALSO NOT APPLY TO THE FACTS OF THE PRESENT CASE IN WHICH THE ISSUE IS WHETHER THE INCOME FROM OTHER CHARGES SHOULD BE ASS ESSED AS INCOME FROM HOUSE PROPERTY OR INCOME FROM OTHER SOURCES. T HIS ASPECT AS MENTIONED EARLIER HAD BEEN CONSIDERED BY THE HONBL E HIGH COURT OF KOLKATA IN CASE OF KANAK INVESTMENTS PVT. LTD ( SUP RA) AND, THEREFORE RESPECTIVELY FOLLOWING THE SAID JUDGMENT WE HOLD TH AT INCOME FROM AIR CONDITIONING AND OTHER CHARGES HAS TO BE ASSESSED A S INCOME FROM OTHER SOURCES. WE ALSO HOLD THAT WHILE COMPUTING THE INCO ME FROM OTHER SOURCES THE ASSESSEE WILL BE ENTITLED FOR DEDUCTION OF EXPE NSES U/S 57. THIS ASPECT OF ALLOWABILITY OF EXPENSES U/S 57 IS REQUIRED TO B E EXAMINED AT THE LEVEL OF AO. WE, THEREFORE, SET ASIDE THE ISSUE OF COMPUT ATION OF INCOME FROM OTHER SOURCES TO THE FILE OF AO FOR FRESH ORDER AFT ER NECESSARY EXAMINATION AND AFTER ALLOWING THE OPPORTUNITY OF HEARING TO TH E ASSESSEE. 6. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT TODAY I.E 6-6-20 13. SD/- SD/- (SANJAY GARG ) (RAJENDRA SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED 6 TH JUNE, 2013. SK SR. P.S. COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, J BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI