FANCY CORPORATION LTD, MUMBAI V. ITO 2(1)(3), MUMBAI

ITA 2166/MUM/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 78899 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-06-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2009-2010
• Appeal Filed On: 18-03-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: JITENDRA SINGH
• Keywords: Business income; Depreciation; Business expenditure; Rule of consistency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH C, MUMBAI BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND DR. S.T.M. PAVALAN, JUDICIAL MEMBER ITA NOS. 2166/MUM/2013 ASSESSMENT YEAR: 2009-10 M/S. FANCY CORPORATION LTD. 16, MUMBAI SAMACHAR MARG, FORT MUMBAI-400 001 PAN: AAACF 0866 C VS. ITO-2(1)(3) ROOM NO. 553, 5 TH FLOOR, AAYAKAR BHAVAN, MK MARG MUMBAI-400 020 (APPELLANT) (RESPONDENT) ITA NOS. 6083/MUM/2010 ASSESSMENT YEAR: 2007-08 M/S. FANCY CORPORATION LTD. 16, MUMBAI SAMACHAR MARG, FORT MUMBAI-400 001 PAN: AAACF 0866 C VS. ACIT, OSD-2(1) MUMBAI, ROOM NO. 624, 6 TH FLOOR, AAYAKAR BHAVAN MK ROAD, MUMBAI-400 020 (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SALIL KAPOOR & JITENDRA SINGH REVENUE BY : SHRI RAJESH KUMAR DATE OF HEARING : 07.04.2014 DATE OF PRONOUNCEMENT : 06 .0 6.201 4 O R D E R PER DR. S.T.M. PAVALAN, JM: THESE APPEALS FILED BY THE ASSESSEE ARE DIRECTED A GAINST THE ORDERS OF THE LD. CIT(A)-4, MUMBAI DATED 28.05.2010 & 18.02.2013 FOR THE ASSESSMENT YEARS 2007- 08 & 2009-10 RESPECTIVELY. 2. THE MAIN ISSUE PERTAINING TO BOTH THE APPEALS RE LATE TO THE DECISION OF THE LD. CIT(A) IN CONFIRMING THE ACTION OF THE AO IN TREATI NG THE INCOME EARNED BY THE ASSESSEE FROM BUSINESS SERVICE CENTRE AS INCOME FRO M OTHER SOURCES AGAINST THE SAME DECLARED BY THE ASSESSEE AS BUSINESS INCOME. T HE RELEVANT FACTS ARE THAT THE ASSESSEE, A COMPANY EARLIER ENGAGED IN THE BUSINESS OF EMBROIDERY WHICH WAS CLOSED DOWN, FOR THE LAST MANY YEARS HAD LET OUT IT S BUSINESS PROPERTY. THE INCOMES ITA NOS. 2166/MUM/2013 ITA NOS. 6083/MUM/2010 M/S. FANCY CORPORATION LTD ASSESSMENT YEAR: 2007-08 ASSESSMENT YEAR: 2009-10 2 RECEIVED BY THE ASSESSEE FROM LETTING DOWN THE PREM ISE, DURING THE YEARS UNDER CONSIDERATION WERE TREATED BY THE AO AS INCOME FROM OTHER SOURCE. ACCORDING TO THE AO, RENTAL INCOME WAS NOTHING BUT INCOME EARNED FRO M SUB-LETTING AND IT IS A TRITE LAW THAT WHERE THE ASSESSEE IS A TENANT AND MAKES P ROFIT BY LETTING IT, THE INCOME IS CHARGEABLE UNDER THE HEAD INCOME FROM OTHER SOURCES . ON APPEAL, THE LD. CIT(A) UPHELD THE ACTION OF THE AO AS THE ASSESSEE WAS NOT THE OWNER OF THE PROPERTY AND LETTING OUT OF THE PROPERTY CANNOT BE TREATED AS BU SINESS OF THE ASSESSEE. AGGRIEVED BY THE IMPUGNED DECISION THE ASSESSEE IS IN APPEAL BEFORE US. 2.1 HAVING HEARD BOTH THE SIDES AND PERUSED THE MAT ERIAL ON RECORD, IT IS PERTINENT TO MENTION THAT THE ASSESSEE HAS BEEN EAR LIER ENGAGED IN THE BUSINESS OF MANUFACTURING EMBROIDERY FABRICS SINCE 1947 AND HAS BEEN RENTING OUT SURPLUS PREMISES SINCE 1967. THE INCOMES FROM EMBROIDERY DI VISION AS WELL AS PROPERTY DIVISION HAVE BEEN TREATED AS BUSINESS INCOME AND T AXED ACCORDINGLY. THE PERUSAL OF THE MEMORANDUM AND ARTICLES OF THE ASSOCIATION OF T HE COMPANY AVAILABLE IN THE PAPER BOOK INDICATES THAT THERE ARE 21 ACTIVITIES S TATED THEREIN WHICH CARRY EQUAL STATUS AND CANNOT BE DISTINGUISHED INTO MAIN ACTIVI TY AND SUB-ORDINATE ACTIVITY. PARAGRAPHS 5, 10 AND 12 OF THE MEMORANDUM AND ARTIC LES OF THE ASSOCIATION PERMITS THE ASSESSEE TO CARRY OUT THE ACTIVITY TO GENERATE INCOME FROM LEASE PREMISES. THE PERUSAL OF THE RELEVANT RECORDS AND THE CHART FILED BY THE ASSESSEE DURING THE COURSE OF THE HEARING REVEALS THAT FROM YEAR 1989 TO 2007, GOVERNMENT OF INDIA OCCUPIED ABOUT 10,000 SQ. FT. AND THEREAFTER THE ASSESSEE HA S SET UP THE BUSINESS SERVICE CENTRE AND PROVIDED SERVICES AND FACILITIES TO VARI OUS CLIENTS SINCE OCTOBER 2007. IN PARA 3(F) OF THE BUSINESS SERVICE AGREEMENT AVAILAB LE AT PAGE 49 OF PAPER BOOK, IT IS STATED THAT THE ASSESSEE HAS PROVIDED THE SERVICES FOR USING ALL THE FURNITURE, FIXTURES, CABINETS, CUPBOARDS, EQUIPMENTS, ACCESSOR IES WHICH ARE EXCLUSIVELY OWNED BY THE CENTRE SHALL BE IN THE POSSESSION AND COMPLE TE CONTROL OF THE MANAGEMENT OF THE CENTRE. FURTHER PARA 4 OF THE SAID AGREEMENT PR OVIDES THAT COMMON SERVICES AND FACILITIES MAY BE MADE AVAILABLE ON DAILY OR WEEKLY BASIS. THIS COMMON SERVICES AND FACILITIES INCLUDE THE SWEEPING, PEONS, COMMON RECE PTIONS, USE OF COTTON LOUNGE AND COMMON PERSONAL SERVICE FOR MEMBERS. FURTHER PARA 1 7 OF THE THIS AGREEMENT READS, ITA NOS. 2166/MUM/2013 ITA NOS. 6083/MUM/2010 M/S. FANCY CORPORATION LTD ASSESSMENT YEAR: 2007-08 ASSESSMENT YEAR: 2009-10 3 NOTHING HEREIN CONTAINED SHALL IN ANY WAY BE CONSTR UED AS A TENANCY OF ANY SOUGHT BETWEEN THE PARTIES NOR SHALL CONFER ANY TENANCY, L EASE, LIVE AND LICENSE CONDUCTING OR OTHER RIGHTS OF ANY KIND IN THE OFFICE SPACES AN D THE MANAGEMENT OF ANY SORT OF OFFICE SPACE MAY BE AVAILABLE FOR THE MEMBER. BY BE COMING A MEMBER OF THE CENTRE THE MEMBER SHALL NOT BE DEEMED TO HAVE ACQUIRED ANY SUCH RIGHT, TITLE ARE INTEREST IN ANY MANNER WHATSOEVER. THE READING OF AFOREMENTI ONED PARAGRAPHS IN THE AGREEMENT SUGGESTS THAT THE ASSESSEE HAS GIVEN THE PREMISES FOR THE PURPOSE OF PROVIDING BUSINESS SERVICES TO THE CLIENTS. AS REGA RDS THE CONTENTION OF THE REVENUE THAT THE WARD INSPECTORS REPORT DATED 23.12.2011 S TATES THAT NO FURNITURE AND FIXTURE HAVE BEEN PROVIDED BY THE ASSESSEE, IT IS P ERTINENT TO MENTION THAT THE ASSESSEE HAS NOT BEEN PROVIDED OPPORTUNITY TO CONTR OVERT THE REPORT AND HENCE HAS NO EVIDENTIARY VALUE. IN THIS CONNECTION, IT IS REL EVANT TO STATE THAT THE HIGH COURT OF GUJARAT IN THE CASE OF ACIT VS. SAPTARSHI SERVICES LTD. (2004) 265 ITR 379 (GUJ), THE CASE WHERE THE ASSESSEE HAS TAKEN PROPERTY ON L EASE WITH AN IDEA OF BUILDING A BUSINESS CENTRE THEREON AND TO GIVE DIFFERENT PORTI ONS THEREOF ON RENT TO THIRD PARTIES, IT HAS BEEN HELD THAT THE INCOME RECEIPTS FROM SAID ACTIVITY HAS TO BE TREATED AS INCOME FROM BUSINESS AND PROFESSION AS CLAIMED B Y THE ASSESSEE. THE HIGH COURT OF DELHI IN THE CASE OF CIT VS. NEO POLY PACK P. LTD. (2000) 245 ITR 492 (D EL) HAS HELD THAT IN THE ABSENCE OF ANY SINGLE DISTINGUISHI NG FEATURE IN THE YEAR UNDER CONSIDERATION, RENTAL INCOME OF THE ASSESSEE FROM F ACTORY BUILDING SHOULD CONTINUE TO BE ASSESSED AS BUSINESS INCOME AS THE ASESSEE IN AL L THE EARLIER YEARS TREATED THE SAME AS BUSINESS INCOME RATHER THAN ASSESSED AS INC OME FROM HOUSE PROPERTY. FURTHER, THE TRIBUNAL IN THE CASE OF M/S. SAVAL DAS MADHAV DAS IN ITA NOS. 4243/MUM/2005 , BY FOLLOWING THE PRINCIPLE OF CONSISTENCY, HAS HE LD THAT THE INCOME RECEIVED BY THE ASSESSEE FROM EXECUTIVE BUSINESS CE NTRE HAS TO BE TREATED AS BUSINESS INCOME OF THE ASSESSEE. CONSIDERING THE SA ID DECISIONS AFOREMENTIONED, THE FACT THAT THE ASSESSEE RUNNING THE BUSINESS CENTRE BY EXPLOITING THE PROPERTY IS NOT MERELY AN ACTIVITY OF LETTING OUT THE PROPERTY AND THE FACT THAT THE ASSESSEE HAS BEEN SHOWING THE RENT RECEIVED FROM LETTING OUT THE BUSI NESS CENTRE UNDER THE HEAD BUSINESS INCOME CONTINUOUSLY SINCE 1984, WE ARE OF THE CONSIDERED VIEW THAT THE AUTHORITIES BELOW ARE NOT JUSTIFIED IN TREATING THE IMPUGNED RECEIPTS UNDER THE HEAD ITA NOS. 2166/MUM/2013 ITA NOS. 6083/MUM/2010 M/S. FANCY CORPORATION LTD ASSESSMENT YEAR: 2007-08 ASSESSMENT YEAR: 2009-10 4 INCOME FROM OTHER SOURCES. THEREFORE, WE DIRECT THE AO TO TREAT THE IMPUGNED RECEIPTS IN BOTH THE ASSESSMENT YEARS UNDER THE HEA D BUSINESS INCOME AS CLAIMED BY THE ASSESSEE. 3. AS REGARDS THE DECISION OF THE LD. CIT(A) IN CON FIRMING THE ACTION OF THE AO IN DISALLOWING THE EXPENDITURES INCURRED BY THE ASSESS EE, THE RELEVANT FACTS ARE THAT THE ASSESSEE HAD CLAIMED CERTAIN EXPENDITURES DURIN G THE AY 2007-08 WHICH INCLUDED THE EXPENDITURES ON ACCOUNT OF INTEREST OF RS.8,14,903/-, DEPRECIATION OF RS.60,561/-, BANK CHARGES OF RS,16,560/-, COMPENSAT ION OF RS.1,32,000/-LICENCE FEES OF RS.1305/-, RENT PAID OF RS.71,078/-. IN THE ASS ESSMENT FRAMED, THE AO DISALLOWED THE SAID EXPENDITURES ON THE REASON THAT THE INTEREST OF RS.8,14,903/-, DEPRECIATION OF RS.60,561/- CLAIMED BY THE ASSESSEE ARE NOT ATTRIBUTABLE FOR EARNING THE RENTAL INCOME AND THE BANK CHARGES OF RS,16,560 /-, COMPENSATION OF RS.1,32,000/-LICENCE FEES OF RS.1305/-, RENT PAID O F RS.71,078/- ARE NOT INCURRED FOR THE PURPOSE OF EARNING THE BUSINESS INCOME AND HENC E THE SAME COULD NOT BE ALLOWED UNDER THE HEAD FOR THE PURPOSE OF CALCULATI ON. FOR THE AY 2009-10, THE ASSESSEE HAD CLAIMED THE EXPENSES RELATING TO LEGAL CHARGES AMOUNTING TO RS.31,34,314 ON ACCOUNT OF DEFENDING THE RIGHT AND POSSESSION OF PROPERTY. HOWEVER, THE AO DISALLOWED THE SAME AND THE LD.CIT( A) UPHELD THE SAID DISALLOWANCE ON THE REASON THAT THE SAID LEGAL CHAR GES ARE NOT RELATING TO THE LETTING OUT OF THE PROPERTY. 3.1 HAVING HEARD BOTH THE SIDES AND PERUSED THE MA TERIAL ON RECORD, THE DETAILS OF EXPENDITURE INCURRED BY THE ASSESSEE REVEALS THA T THE EXPENSES ARE FOR KEEPING THE PREMISES ALIVE FOR EARNING THE INCOME FROM LEGI TIMATE BUSINESS OF ACTIVITY OF RENTING. THE LEGAL FEES EXPENSE CLAIMED BY THE ASSE SSEE IS FOR THE PURPOSE OF SAFEGUARDING THE COMPANYS TENANTED PROPERTIES. IN VIEW OF THE FACT THAT THE INCOME RECEIVED FROM THE BUSINESS CENTRE HAS TO BE TREATED AS BUSINESS INCOME IN PURSUANCE OF THE ADJUDICATION AFOREMENTIONED AND THE FACT THA T THE EXPENDITURES HAVE NEXUS WITH THE BUSINESS INCOME, THE EXPENDITURES CLAIMED BY THE ASSESSEE HAVE ALSO TO BE ALLOWED AS BUSINESS EXPENDITURE. ACCORDINGLY, WE DI RECT THE AO TO ALLOW THE EXPENDITURE CLAIMED BY THE ASSESSEE. ITA NOS. 2166/MUM/2013 ITA NOS. 6083/MUM/2010 M/S. FANCY CORPORATION LTD ASSESSMENT YEAR: 2007-08 ASSESSMENT YEAR: 2009-10 5 4. IN THE RESULT, THE APPEALS FILED BY THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THI S 6 TH DAY OF JUNE, 2014. //SD// //SD// (P.M. JAGTAP) (DR. S.T.M. PAVALAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 06.06.2014. *SRIVASTAVA COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR C BENCH //TRUE COPY// BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.