M/s Shambala Propety Pvt. Ltd., V. JCIT,

ITA 214/BANG/2014

• Counselvise Citation: 21421114 RSA 2014
• Duration Of Justice: 8 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 27-10-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 11-02-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR K SHANKAR PRA SAD
• Assessee Lawyers: B K MANJUNATH
• Keywords: Business income; Depreciation
• Section: 27; 11

Judgement Text

ITA NO.214 OF 2014 SHAMBALA PROPERTIES PVT LTD BANG ALORE PAGE 1 OF 9 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE C BENCH, BANGALORE BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER ITA NO.214/BANG/2014 (ASSESSMENT YEAR:2009-10) M/S. SHAMBALA PROPERTIES PRIVATE LIMITED NO.7 REST HOUSE ROAD, BANGALORE 560001 PAN: AAHCS 1313 C VS. JT. COMMISSIONER OF INCOME TAX (OSD) CIRCLE 12(3), BANGALORE (APPELLANT) (RESPONDENT) ASSESSEE BY: SHRI B.K. MANJUNATH, CA DEPARTMENT BY: DR.K.SHANKAR PRASA D, (DR) DATE OF HEARING: 27/10/2014 DATE OF PRONOUNCEMENT: 31/10/2014 O R D E R PER RAJPAL YADAV, J.M. THE ASSESSEE IS IN APPEAL BEFORE US AGAINST THE OR DER OF LEARNED CIT (A) DATED 6.11.2013 PASSED FOR ASSESSME NT YEAR 2009-10. THE ASSESSEE HAS TAKEN TEN GROUNDS OF APPE AL, HOWEVER, ITS GRIEVANCE REVOLVES AROUND TWO ISSUES N AMELY (A) LEARNED REVENUE AUTHORITIES HAVE ERRED IN DETERMINI NG THE RENTAL INCOME OF THE ASSESSEE AND NOT RECOGNISING THE INCO ME FROM OTHER SOURCES, EARNED BY PROVIDING VARIUOS SERVICES (B) LEARNED REVENUE AUTHORITIES HAVE ERRED IN CHARGING INTEREST U/S 234A, B & D WITHOUT PROVODING ANY OPPORTUNITY OF HEARING. 2. THE BRIEF FACTS ABOUT THE CASE ARE THAT THE ASSE SSEE COMPANY HAS FILED ITS RETURN OF INCOME ON 10.09.201 0 DECLARING ITA NO.214 OF 2014 SHAMBALA PROPERTIES PVT LTD BANG ALORE PAGE 2 OF 9 AN INCOME OF RS.95,60,249/-. THE RETURN WAS DUE ON 30.09.2009 AS PER THE LIMITATIONS PROVIDED U/S 139(1). THUS IT WAS FILED BELATEDLY. THE CASE WAS SELECTED FOR SCRUTINY ASSES SMENT AND A NOTICE U/S 143(2) WAS ISSUED AND SERVED UPON THE AS SESSEE. THE ASSESSEE OWNS IMMOVABLE PROPERTY COMPRISED AT 19/1 VITTAL MALLYA ROAD, BANGALORE. THIS PROPERTY WAS LET OUT T O THREE PARTIES NAMELY (1) 1X1A TECHNOLOGIES PVT LTD 3705 SFT IN 2 ND FLOOR AND 4 CAR PARKS, (2) WIND RIVER SYSTEMS INTER NATIONAL 804 SFT IN FIRST FLOOR AND 12 CAR PARKS AND (3) VASTRA ENTERPRISES (C ARVIND FASHIONS) 6073 SFT IN GROUND FLOOR AND 160 0 SFT OF MEZZANINE. ACCORDING TO THE ASSESSEE IT HAD RECEIVE D AN AGGREGATE RENT OF RS.1,99,93,048/- WHICH INCLUDE SE RVICE TAX OF RS.19,53,854/-. THE NET RENT WOULD BE OF RS.1,80,39 ,194/-. THE ASSESSEE HAD CLAIMED A SUM OF RS.23,90,131/- AGAINS T THE RENTAL INCOME TOWARDS GENERATOR MAINTENANCE, LIFT MAINTENA NCE, SECURITY CHARGES ETC. IN THIS WAY THE ASSESSEE HAD SHOWN INCOME FROM HOUSE PROPERTY AT RS.1,56,49,063/-. IN ADDITIO N TO THIS THE ASSESSEE HAS SHOWN AN AMOUNT OF RS.59,07,063/- RECE IVED FROM THE TENANTS TOWARDS OTHER SERVICES IT HAD INCURRED AN EXPENDITURE OF RS.66,34,423/- WHICH WAS CLAIMED AS DEDUCTION U/S 57. THUS A LOSS OF RS.7,27,360/- WAS CLAIMED UN DER THE HEAD INCOME FROM OTHER SOURCES. THE ASSESSEE HAS COMPUTED THE HOUSE PROPERTY INCOME AS UNDER: RENT RECEIVED RS.1,56,49,063 LESS:MUNICIPAL TAXES RS. 7,61,752 BALANCE RS.1,48,87,311 LESS: DEDUCTION U/S 24(A) @30% REPAIRS & COLLECTION CHARGES RS.44,66,193 DEDUCTION U/S 24(B) PRE-CONSTRUCTION PERIOD INTEREST RS. 1,33,509 RS.45,99,702 INCOME FROM HOUSE PROPERTY RS.1,02,87,609 ITA NO.214 OF 2014 SHAMBALA PROPERTIES PVT LTD BANG ALORE PAGE 3 OF 9 AFTER SETTING OFF THE LOSSES UNDER THE HEAD INCOME FROM OTHER SORUCES, IT HAS SHOWN AN INCOME OF RS.95,60,2 49/- IN THE RETURN. 3. THE ASSESSING OFFICER HAS GONE THROUGH THE DETAI LS OF EXPENDITURE. HOWEVER, HE WAS OF THE OPINION THAT IT IS A SIMPLICITOR LETTING OUT OF HOUSE PROPERTY, ASSESSEE CANNOT CLAIM THE EXPENSES UNDER THE HEAD ACCOUNTING CHARGES, AUD IT FEES, MISCELLANEOUS EXPENSES ETC. HE COMPUTED THE INCOME OF THE ASSESSEE AS UNDER: INCOME FROM HOUSE PROPERTY: RENT RECEIVED RS. 2,15,56,126 LESS: MUNICIPAL TAX PAID RS. 7,61,752 ANNUAL VALUE RS. 2,07,94,374 LESS: DEDUCTIONS U/S 24 OF THE ACT: I) 30% OF THE ANNUAL VALUE RS.62,38,312 II) INTEREST PAID NIL III) PRE-CONTRACT PERIODS INTEREST RS. 1,33,509 RS. 63,71,821 HOUSE PROPERTY OR TOTAL INCOME RS. 1,44,22,553 4. AGGRIEVED WITH THE DETERMINATION OF THE HOUSE PR OPERTY INCOME, ASSESSEE WENT IN APPEAL BEFORE THE CIT (A). IT CONTENDED THAT THE ASSESSEE HAD RECEIVED POWER AND BACK UP CH ARGES FROM THE TENANTS WHICH CANNOT BE CONSIDERED AS PART OF T HE RENT. IT ALSO POINTED OUT THAT THE ASSESSEE HAS BEEN PROVIDI NG VARIOUS TYPES OF SERVICES APART FROM THE LETTING OF THE HOU SE PROPERTY. THE SERVICES INCLUDE SECURITY, MAINTENANCE OF LIFT, POW ER CHARGES ETC. THUS IT HAS CARRIED OUT THE BUSINESS OF LETTING OUT THE HOUSE PROPERTY. THE EXPENSES INCURRED BY THE ASSESSEE FOR CARRYING OUT THE BUSINESS OF LETTING OUT OF THE PROPERTY HAVE TO BE ALLOWED TO IT. ITA NO.214 OF 2014 SHAMBALA PROPERTIES PVT LTD BANG ALORE PAGE 4 OF 9 5. THE LEARNED CIT (A) IN PRINCIPLE AGREED TO THE A SSESSEE THAT THE RECEIPTS RECEIVED FOR THE FACILITIES WHICH ARE NOT INCIDENTAL TO LETTING OUT THE PROPERTY ARE TO BE ASSESSED AS INCO ME FROM OTHER SOURCES. THE OBSERVATIONS OF THE LEARNED CIT (A) IS BASED UPON THE VARIOUS DECISIONS RELIED UPON BY HER ON PAGE NO S. 11 TO 13 OF THE PAPER BOOK. THE FOLLOWING OBSERVATIONS ARE WORT H TO NOTE: 3.10 THE APPELLANT ENTERED INTO A COMPOSITE LEASE AGREEMENT. ACCORDINGLY, SERVICES RENDERED IN PROVID ING ELECTRICITY, USE OF LIFT, SUPPLY OF WATER, MAINTENA NCE OF STAIRCASE AND WATCH AND WARD FACILITIES ARE NOT INCIDENTAL TO LETTING OUT THE PROPERTY AND SERVICE CHARGES ARE ASSESSABLE AS INCOME FROM OTHER SOURCES AND NOT U/S 22 OF THE ACT. WHILE TAKING THIS VIEW, IT IS RELEVANT TO QUOTE THE FOLLOWING DECISIONS:.. I) CIT V. KANAK INVESTMENT P LTD 95 ITR 419 (CAL.) II) CIT V. MODEL MFT. CO.P LTD 175 ITR 394 (CAL) III) CIT V. SHANKARANARAYANA HOTELS (P)LTD 201 ITR 138 (KAR.) IV) A.R.COMPLEX V. I.T.O 292 ITR 613 (MADRAS) V) CIT VS. S.MOHAN KUMAR (HUF) 12 TAXMANN.COM 361 (KAR.) .. 3.11 HOWEVER, FROM A READING OF THE CLAUSES OF THE LEASE AGREEMENTS, IT IS CLEAR THAT THE APPELLANT HA D TO PROVIDE CERTAIN SERVICES. FOR THE PURPOSE OF PROVID ING SUCH SERVICES, THE OCCUPANTS HAD TO PAY CONSOLIDATE D CHARGES PER MONTH AND ALSO ELECTRICITY CHARGES AS ALLOCATED BY THE APPELLANT. THE A.O HAS COMPUTED RE NT RECEIPT OF RS.2,15,56,126/- (RS.1,99,93,048 + RS.35,16,932 MINUS RS.19,53,852). HOWEVER, INCOME FROM HOUSE PROPERTY EXCLUDING SERVICE TAX AS PER LE ASE AGREEMENT WOULD BE AS UNDER: ITA NO.214 OF 2014 SHAMBALA PROPERTIES PVT LTD BANG ALORE PAGE 5 OF 9 IXIA TECHNOLOGIES PVT LTD RS.30,05,736 WIND RIVER SYSTEM INTERNATIONAL INC RS.50,66,056 VASTRA ENTERPRISES (ARVIND FASHION) RS.1,07,10,000 TOTAL RS.1,87,81,792 3.12 SINCE THE APPELLANT IS PROVIDING OTHER FACILIT IES AND SUPPLY OF POWER, GENERATOR FOR PROVIDING BACK-U P POWER SUPPLY FOR WHICH IT HAD COLLECTED CHARGES FRO M THE TENANTS AMOUNTING TO RS.35,16,932/-. THE APPELLANT HAS CLAIMED EXPENDITURE OF RS.66,34,423/- AND THE SAME HAS TO BE APPORTIONED PROPORTIONATE TO RENT RECEIPT AND RECEIPT FOR SERVICES RENDERED, THE FOLLOWING JUDICIAL RULING CITED ABOVE. A CLOSE EXAMINATION OF THE DETAILS FURNISHED BY THE APPELLA NT AN AMOUNT OF RS.35,16,932/- COLLECTED FROM THE TENANTS FOR SERVICE RENDERED BY WAY OF POWER CHARGE S, MAINTENANCE CHARGES, GENERATOR POWER CHARGES ETC. 6. THE LEARNED CIT (A) HAS OBSERVED THAT THE EXPEND ITURE CLAIMED BY THE ASSESSEE OUGHT TO BE APPORTIONED PRO PORTIONATE TO THE RENT RECEIVED AND RECEIPTS FROM SERVICES RENDER ED. SHE DIRECTED THE ASSESSING OFFICER TO RE-COMPUTE THE IN COME AFTER ALLOWING THE EXPENDITURE AS PER THIS DIRECTION. 7. THE LEARNED COUNSEL FOR THE ASSESSEE TOOK US THR OUGH THE DETAILS OF EXPENDITURE EXTRACTED BY THE ASSESSING O FFICER ON PAGE NO.3 WHICH READ AS UNDER: RS. GENERATOR MAINTENANCE 5,21,922 ACCOUNTING CHARGES 12,000 AUDIT FEE 15,000 MISC.EXPENSES 5,34,410 ITA NO.214 OF 2014 SHAMBALA PROPERTIES PVT LTD BANG ALORE PAGE 6 OF 9 POWER CHARGES 28,67,284 RENT 2,02,049 SECURITY CHARGES 2,16,600 TELEPHONE CHARGES 64,770 TRAVELING EXPENSES 4,63,329 WATER CHARGES 2,55,526 SALARIES 3,67,600 LIFT MAINTENANCE 1,43,507 DEPRECIATION 9,70,426 66,34,423 8. HE POINTED OUT THAT ELEMENT OF RENT IS NOT INVOL VED IN POWER CHARGES, GENERATOR MAINTENANCE, LIFT MAINTENANCE, D EPRECIATION ON GENERATOR ETC. THEREFORE, THESE RECEIPTS CANNOT FORM PART OF RENT. THESE ARE TO BE ASSESSED AS INCOME FROM OTHER SOURCES AND EXPENDITURE ATTRIBUTABLE TO EARNING THESE RECEIPTS ARE TO BE ALLOWED TO THE ASSESSEE U/S 57 OF THE INCOME TAX AC T. 9. ON THE OTHER HAND, THE LEARNED DR CONTENDED THAT THE ASSESSEE HAS LET OUT THE HOUSE PROPERTY AND THEREFO RE, THE DEDUCTION ADMISSIBLE U/S 24 OF THE INCOME TAX ACT B E ALLOWED TO THE ASSESSEE. NO SEPARATE EXPENDITURES ARE ADMISSIB LE. 10. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS A ND GONE THROUGH THE RECORD CAREFULLY. SECTION 14 IN CHAPTE R IV OF THE INCOME TAX ACT PROVIDES HEADS OF INCOME NAMELY (A) SALARY (B) (.) (C) INCOME FROM HOUSE PROPERTY (D) PROPERTY AN D GAINS OF BUSINESS OR PROFESSION (E) CAPITAL GAINS AND (F) IN COME FROM OTHER SOURCES. THE DETERMINATION OF INCOME FROM HOUSE PRO PERTY UNDER ITA NO.214 OF 2014 SHAMBALA PROPERTIES PVT LTD BANG ALORE PAGE 7 OF 9 THE HEAD (C) IS BEING PROVIDED IN SECTIONS22 TO 27 OF THE INCOME TAX ACT. SECTION 22 PROVIDES THAT IF THE ASSESSEE I S THE OWNER OF ANY PROPERTY WHICH IS BEING NOT USED BY HIM FOR THE PURPOSE OF ANY BUSINESS OR PROFESSION CARRIED ON BY HIM, THEN THE ANNUAL VALUE OF THE PROPERTY WOULD BE CHARGEABLE TO INCOME TAX UNDER THE HEAD INCOME FROM HOUSE PROPERTY. SECTION 23 PRO VIDES METHOD TO DETERMINE THE ANNUAL VALUE OF THE PROPERT Y. THE PROVISO APPENDED TO THIS SECTION ALSO CONTEMPLATES THAT TAXES LEVIED BY ANY LOCAL AUTHORITY IN RESPECT OF SUCH PR OPERTY SHALL BE DEDUCTED WHILE DETERMINING THE ANNUAL VALUE. SECTIO N 24 PROVIDES THE DEDUCTION FROM INCOME FROM HOUSE PROPE RTY. THERE IS NO DISPUTE THAT THE ASSESSEE HAD EARNED INCOME F ROM HOUSE PROPERTY. THE DETERMINATION OF ANNUAL VALUE OR THE RENT IS ALSO NOT IN DISPUTE. THE ASSESSING OFFICER HAD RELIED UP ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE O F SHAMBHU INVESTMENT PVT LTD (2003) 263 ITR 143 (SC). TO OUR MIND THE DISPUTE IN THE PRESENT CASE IS NOT OF THE NATURE, W HETHER INCOME FROM LETTING OUT OF THE HOUSE PROPERTY HAS TO BE AS SESSED AS A BUSINESS INCOME OR AN INCOME FROM HOUSE PROPERTY. T HE CONTENTIONS OF THE ASSESSEE ARE THAT IT IS IN THE B USINESS OF LETTING OUT OF HOUSE PROPERTY. THEREFORE, THE INCID ENTAL EXPENSES INCURRED FOR MAINTAINING THE CORPORATE IDENTITY AND FOR EXPLORING THE PROSPECTIVE TENANTS OR HOW TO USE THE PROPERTY AT THE OPTIMUM LEVEL FOR EARNING HOUSE PROPERTY INCOME, IT HAD INCURRED TRAVELING EXPENDITURE, SALARY EXPENSES, AU DIT EXPENSES ETC. IN OTHER WORDS, APART FROM LETTING OUT THE PRO PERTY, IT HAS BEEN EARNING INCOME FROM OTHER SOURCES IN THE SHAPE OF PROVIDING POWER, SECURITY, LIFT MAINTENANCE ETC. TH IS INCOME OUGHT TO BE ASSESSED SEPARATELY UNDER THE HEAD INCO ME FROM ITA NO.214 OF 2014 SHAMBALA PROPERTIES PVT LTD BANG ALORE PAGE 8 OF 9 OTHER SOURCES. THE LEARNED CIT (A) IN PRINCIPLE HAS ACCEPTED ITS STAND, BUT FAILED TO GIVE ANY LOGIC FOR DIRECTING T HE ASSESSING OFFICER TO ALLOW THE EXPENSES FOR EARNING THESE REC EIPTS IN PROPORTION TO THE RENT RECEIPT AND THE RECEIPT FOR SERVICES RENDERED. THE LEARNED CIT (A) MADE OBSERVATIONS IN PARA 3.14 ABOUT THE ADMINISTRATIVE EXPENSES AND HAS ALSO OBSE RVED THAT NO BUSINESS IS BEING CARRIED OUT BY THE ASSESSEE, BUT FAILED TO RECORD ANY SPECIFIC FINDING. THE OBSERVATIONS READ AS UNDE R: 3.14 FURTHER, THE APPELLANT RECEIVED AN AMOUNT FROM LET OUT PROPERTY AND NO OTHER BUSINESS IS CARRIED ON BY THE APPELLANT, THEREFORE, ADMINISTRATIVE EXPENSES VIZ., ACCOUNTING CHARGES, AUDIT CHARGES, MISC. EXPENSES, RENT, TELEPHONE CHARGES, TRAVELING EXPENSE, SALARIES, DEPRECIATION ON FURNITURE AND FIXTURE ETC. ON THE BASIS OF RECEI PTS I.E. RENTAL INCOME AND INCOME FROM OTHER SOURCES. 11. AS OBSERVED EARLIER, THE LEARNED FIRST APPELLAT E AUTHORITY HAD CONCURRED WITH THE SUBMISSIONS OF THE ASSESSEE THAT SERVICES RENDERED IN PROVIDING ELECTRICITY, USE OF LIFT, SUP PLY OF WATER ETC. ARE NOT INCIDENTAL TO LETTING OUT THE PROPERTY AND SERVICE CHARGES ARE ASSESSABLE AS INCOME FROM OTHER SOURCES AND NOT U/S 22 (PARA 3.10 EXTRACTED SUPRA). THE DEPARTMENT HAS NOT CHALLENGED THIS FINDING. THEREFORE, THE ONLY ISSUE LEFT WHICH IS TO BE RE- ADJUDICATED BY THE ASSESSING OFFICER IS THE GENUINE NESS OF THE EXPENDITURE ATTRIBUTABLE TO EARNING THESE RECEIPTS. THE LEARNED CIT (A) HAS DIRECTED THE ALLOWANCE OF EXPENDITURE I N PROPORTIONATE TO THE RENT RECEIVED AND RECEIPTS FOR SERVICES RENDERED, BUT HOW THIS METHOD IS BASED ON SCIENTIFI C FORMULA IS NOT DISCERNIBLE. ASSESSING OFFICER SHALL GO INTO TH ESE ASPECTS AND ITA NO.214 OF 2014 SHAMBALA PROPERTIES PVT LTD BANG ALORE PAGE 9 OF 9 THEREAFTER CALCULATE THE EXPENDITURES WHICH ARE TO BE ALLOWED FOR EARNING MISCELLANEOUS RECEIPTS WHICH ARE ASSESSABLE AS INCOME FROM OTHER SOURCES. IN OTHER WORDS, ASSESSING OFFIC ER HAS TO DETERMINE THE TAXABLE INCOME UNDER THE HEAD OTHER SOURCES. 12. AS FAR AS THE CHARGING OF INTEREST U/S 234A,B&D IS CONCERNED, NO ARGUMENTS WERE ADVANCED AT THE TIME O F HEARING. THESE ISSUES WOULD BE CONSEQUENTIAL TO THE MAIN ISS UES. 13. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST OCTOBER, 2014. SD/- SD/- (JASON P. BOAZ) (RAJPAL YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE DATED 31 ST OCTOBER, 2014. VNODAN/SPS COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, ITAT, BANGALORE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCHES, BANGALORE