Padma Vashi Shewaramani, CHENNAI V. ADIT, CHENNAI

ITA 2281/CHNY/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 86380 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-03-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 09-03-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 12-09-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S DASGUPTA
• Assessee Lawyers: K M MOHANDASS
• Keywords: Business income; Revised return
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI . , !'# $ %$! $#& , ' !'# !( BEFORE SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER ! ./ ITA NO.2281/MDS/2014 ' ) $*) / ASSESSMENT YEAR : 2007-08 SMT. PADMA VASHI SHEWARAMANI, NO.73, JANKI BHAWAN, SARDAR PATEL ROAD, GUINDY, CHENNAI - 600 032. PAN : AAYPS 4687 D V. THE ASSISTANT DIRECTOR OF INCOME TAX, INTERNATIONAL TAXATION, CHENNAI - 600 034. (&,/ APPELLANT) (./&,/ RESPONDENT) &, 0 1 ! / APPELLANT BY : SHRI K.M. MOHANDASS, CA ./&, 0 1 ! / RESPONDENT BY : SHRI S. DAS GUPTA, JCIT ! 2 $ 0 3 / DATE OF HEARING : 09.03.2015 4* 0 3 / DATE OF PRONOUNCEMENT : 27.03.2015 / O R D E R PER VIKAS AWASTHY, JUDICIAL MEMBER: THE APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINS T THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-VII, CH ENNAI, DATED 23.05.2014 FOR THE ASSESSMENT YEAR 2007-08. THE AS SESSEE HAS ASSAILED THE FINDINGS OF THE CIT(APPEALS) PRIMARILY ON FOLLOWING THREE GROUNDS:- 2 I.T.A. NO.2281/MDS/14 (1) DISALLOWANCE U/S 14A READ WITH RULE 8D (2) REJECTION OF SET OFF OF SHORT TERM CAPITAL LOSS AGAINST SHORT TERM CAPITAL GAINS. (3) RENTAL INCOME FROM PROPERTY TREATED AS BUSINESS INCOME INSTEAD OF INCOME FROM HOUSE PROPERTY. 2. THE APPEAL HAS BEEN FILED WITH A DELAY OF 26 DAY S. THE ASSESSEE HAS FILED APPLICATION FOR CONDONATION OF D ELAY SUPPORTED BY AFFIDAVIT. AFTER PERUSAL OF THE SAME, WE ARE SA TISFIED THAT THE DELAY IN FILING OF THE APPEAL IS CAUSED DUE TO MEDI CAL EXIGENCIES. THE DELAY IN FILING OF THE APPEAL IS CONDONED AND T HE APPEAL IS ADMITTED TO BE HEARD ON MERITS. 3. THE FACTS IN BRIEF AS EMANATING FROM RECORDS ARE : THE ASSESSEE IS A NON-RESIDENT INDIVIDUAL. THE A SSESSEE FILED HER RETURN OF INCOME FOR ASSESSMENT YEAR 2007 -08 ON 27.07.2007 DECLARING LOSS OF ` 4,15,520/-. THE CASE OF THE ASSESSEE WAS TAKEN UP SCRUTINY AND THE NOTICE UNDER SECTION 143(2) OF THE INCOME-TAX ACT, 1961 (IN SHORT 'THE A CT') WAS ISSUED TO THE ASSESSEE. THE ASSESSEE DURING THE PERIOD HAD EARNED TAX FRE E INCOME IN THE FORM OF DIVIDEND. THE ASSESSING OFFICER MAD E DISALLOWANCE ON THE INTEREST FREE INCOME BY APPLYING THE PROVISI ONS OF RULE 8D OF INCOME-TAX RULES, 1962. 3 I.T.A. NO.2281/MDS/14 THE ASSESSEE DURING THE PERIOD RELEVANT TO THE AS SESSMENT YEAR UNDER CONSIDERATION, SOLD SOME PROPERTY AND DE BITED THE LOSS TO PROFIT & LOSS ACCOUNT. DURING THE COURSE OF SCR UTINY ASSESSMENT, THE ASSESSEE REALIZED HER MISTAKE AND FILED A REVIS ED COMPUTATION OF INCOME BY SETTING OFF THE SHORT TERM CAPITAL LOS S AGAINST SHORT TERM CAPITAL GAINS. THE A.O. REFUSED TO TAKE COGNI ZANCE OF THE SAME ON THE GROUND THAT REVISED COMPUTATION HAS BEE N FILED, WITHOUT FILING REVISED RETURN OF INCOME. THE ASSESSEE IN THE RETURN OF INCOME ADMITTED REN TAL INCOME FROM COMMERCIAL PROPERTY UNDER THE HEAD INCOME FRO M HOUSE PROPERTY. THE A.O. HELD THAT THE ASSESSEE IN EARL IER ASSESSMENT YEARS HAS CLAIMED THE INCOME FROM LETTING OUT OF TH E PROPERTY AS BUSINESS INCOME. THE ASSESSEE CANNOT ARBITRARILY C HANGE THE HEAD OF THE INCOME. THE ASSESSING OFFICER TREATED THE R ENTAL INCOME FROM PROPERTY UNDER THE HEAD BUSINESS INCOME. 4. AGGRIEVED BY THE ASSESSMENT ORDER DATED 24.12.20 09, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(APPEALS ). THE CIT(APPEALS) UPHELD THE FINDINGS OF THE ASSESSING O FFICER AND REJECTED THE APPEAL OF THE ASSESSEE. 4 I.T.A. NO.2281/MDS/14 NOW, THE ASSESSEE HAS COME IN SECOND APPEAL BEFOR E THE TRIBUNAL ASSAILING THE FINDINGS OF THE FIRST APPELL ATE AUTHORITY. 5. SHRI K.M. MOHANDASS, CA, APPEARING ON BEHALF OF THE ASSESSEE, SUBMITTED THAT THE FIRST APPELLATE AUTHOR ITY HAS ERRED IN CONFIRMING THE DISALLOWANCE MADE BY THE ASSESSING O FFICER UNDER SECTION 14A R.W. RULE 8D. THE LD. A.R. CONTENDED T HAT THE PROVISIONS OF RULE 8D DOES NOT APPLY IN THE ASSESSM ENT YEAR 2007- 08. IN SUPPORT OF HIS SUBMISSION, HE RELIED ON THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ AND BOYCE MFG. CO. LTD VS. DY. CIT (328 ITR 81). WITH RESPECT TO SETTING OFF OF SHORT TERM CAPITAL LOSS AGAINST SHORT TERM CAPITAL GAINS, THE LD. A.R. CONTENDED THAT THE LOSS ON SALE OF FIXED ASSETS UND ER SECTION 50 OF THE ACT WAS NOT SHOWN AS SHORT TERM CAPITAL LOSS UN DER THE HEAD CAPITAL GAINS BUT WAS DEBITED TO PROFIT & LOSS AC COUNT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE REAL IZED HER MISTAKE AND FILED REVISED COMPUTATION OF INCOME BEF ORE THE ASSESSING OFFICER, CLAIMING SET OFF OF SHORT TERM C APITAL LOSS AGAINST SHORT TERM CAPITAL GAIN. THE A.O. HAS FAILED TO CO NSIDER THE REVISED COMPUTATION. IN SUPPORT OF HIS SUBMISSION, THE LD. A.R. PLACED RELIANCE ON THE DECISION OF HON'BLE SUPREME COURT O F INDIA IN THE CASE OF GOETZE (INDIA) LTD. V. CIT (284 ITR 323). ON THE THIRD ISSUE 5 I.T.A. NO.2281/MDS/14 OF TREATING RENTAL INCOME FROM LETTING OUT OF PROPE RTY AS BUSINESS INCOME, THE LD. A.R. SUBMITTED THAT EARLIER, THE A SSESSEE HAS BEEN OFFERING RENTAL INCOME UNDER THE HEAD INCOME FROM BUSINESS. IN VIEW OF THE JUDGMENT OF THE HON'BLE SUPREME COURT O F INDIA IN THE CASE OF CIT V. SHAMBHU INVESTMENTS (263 ITR 143) AN D THE JUDGMENT OF HON'BLE JURISDICTIONAL HIGH COURT IN TH E CASE OF KEYARAM HOTELS PVT. LTD. V. DCIT 2014 (11) TMI 633, THE ASS ESSEE CHANGED THE HEAD OF INCOME AND RETURNED THE RENTAL INCOME U NDER THE HEAD INCOME FROM HOUSE PROPERTY. THE LD. A.R. PRAYED FOR SETTING ASIDE THE IMPUGNED ORDER. 6. ON THE OTHER HAND, SHRI S. DAS GUPTA, JCIT, REPR ESENTING THE REVENUE, STRONGLY DEFENDED THE ORDER OF THE CIT (APPEALS). THE LD. D.R. CONTENDED THAT THE ASSESSEE CANNOT RAISE F RESH CLAIM BY FILING A REVISED COMPUTATION BEFORE THE A.O. THE H ON'BLE SUPREME COURT OF INDIA IN THE CASE OF GOETZE (INDIA) LTD. ( SUPRA) HAS CATEGORICALLY HELD THAT THE A.O. HAS NO POWER TO EN TERTAIN FRESH CLAIM OF THE ASSESSEE OTHER THAN BY WAY OF REVISED RETURN OF INCOME. ON THE ISSUE OF TREATING RENTAL INCOME UNDER THE HE AD INCOME FROM BUSINESS, THE LD. D.R. SUBMITTED THAT THE ASSESSEE HAS BEEN SHOWING INCOME UNDER THE HEAD BUSINESS INCOME. T HERE IS NO CHANGE IN THE AGREEMENT WITH THE TENANTS. THE TENA NTS IN THE TDS 6 I.T.A. NO.2281/MDS/14 CERTIFICATE HAVE SHOWN THE AMOUNT AS CONTRACT PAYME NT AND NOT AS RENT. THE ASSESSEE CANNOT CHANGE THE HEAD OF INC OME IN ARBITRARY MANNER TO SUIT ITS CONVENIENCE AND CLAIM STATUTORY DEDUCTIONS. 7. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESENTATIVES OF BOTH SIDES AND HAVE PERUSED THE ORDERS OF AUTHORITIES BELOW. THE ASSESSEE IN HER APPEAL HAS RAISED THREE ISSUES. THE FIRST ISSUE IN APPEAL IS WITH REGARD T O DISALLOWANCE UNDER SECTION 14A R.W. RULE 8D. THE ASSESSING OFFI CER HAS APPLIED RULE 8D FOR MAKING DISALLOWANCE ON INCOME NOT CHARG EABLE TO TAX. THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ AND BOYCE MFG. CO. LTD. (SUPRA) HAS HELD THAT THE PROVISIONS OF RULE 8D ARE APPLICABLE FROM ASSESSMENT YEAR 2008-09. THUS, TO THE IMPUGNED ASSESSMENT YEAR, I.E. ASSESSMENT YEAR 2007-08, THE PROVISIONS OF RULE 8D WILL NOT BE APPLICABLE. HOWEVER, WE ARE OF THE OPINION THAT A REASONABLE DISALLOWANCE HAS TO BE MADE ON INCOME NOT CHARGEABLE TO TAX. ACCORDINGLY, WE DIRECT THE ASSE SSING OFFICER TO MAKE A DISALLOWANCE OF 2% OF INTEREST FREE INCOME E ARNED BY THE ASSESSEE DURING THE RELEVANT PERIOD. THIS GROUND O F APPEAL OF THE ASSESSEE IS THUS PARTLY ALLOWED. 8. THE NEXT ISSUE IN THE APPEAL IS WITH REGARD TO S ET OFF OF SHORT TERM CAPITAL LOSS AGAINST SHORT TERM CAPITAL GAINS. IT IS AN 7 I.T.A. NO.2281/MDS/14 UNDISPUTED FACT THAT THE ASSESSEE HAD DEBITED THE S HORT TERM CAPITAL LOSS IN PROFIT & LOSS ACCOUNT INSTEAD OF TREATING I T UNDER THE HEAD CAPITAL GAINS. AFTER THE ASSESSEE REALIZED HER M ISTAKE, SHE FILED A REVISED COMPUTATION BEFORE THE ASSESSING OFFICER AT THE TIME OF SCRUTINY ASSESSMENT. THE ASSESSING OFFICER REFUSED TO ACCEPT THE CLAIM OF THE ASSESSEE. THE HON'BLE SUPREME COURT O F INDIA IN THE CASE OF GOETZE (INDIA) LTD. (SUPRA) HAS HELD THAT P OWERS OF THE TRIBUNAL ARE NOT IMPINGED FOR ACCEPTING SUCH CLAIM OF THE ASSESSEE. ACCORDINGLY, WE REMIT THIS ISSUE BACK TO THE FILE O F THE ASSESSING OFFICER WITH A DIRECTION TO CONSIDER THE REVISED CO MPUTATION FURNISHED BY THE ASSESSEE. THIS GROUND OF THE APPE AL IS ALLOWED FOR STATISTICAL PURPOSES. 9. THE THIRD ISSUE IN THE APPEAL IS WITH REGARD TO TREATING RENTAL INCOME FROM PROPERTY UNDER THE HEAD INCOME FROM HO USE PROPERTY INSTEAD OF INCOME FROM BUSINESS. IT IS AN ADMITTED FACT THAT IN THE EARLIER ASSESSMENT YEARS, THE ASSESSEE HAS BEEN ADM ITTING THE RENTAL INCOME UNDER THE HEAD INCOME FROM BUSINESS . FOR THE ASSESSMENT YEAR UNDER APPEAL THE ASSESSEE CHANGED T HE HEAD FROM THE BUSINESS INCOME TO INCOME FROM HOUSE PROP ERTY. THE ASSESSEE HAS PLACED RELIANCE ON THE DECISION OF HON 'BLE SUPREME COURT OF INDIA IN THE CASE OF SHAMBHU INVESTMENTS ( SUPRA). THE 8 I.T.A. NO.2281/MDS/14 RENTAL INCOME WHETHER TO BE TREATED AS BUSINESS INC OME OR UNDER THE HEAD INCOME FROM HOUSE PROPERTY IS A MIXED QU ESTION OF FACT AND LAW. THE AUTHORITIES BELOW HAVE NOT EXAMINED T HE RENT AGREEMENT ENTERED INTO BY THE ASSESSEE WITH TENANTS AND OTHER FACTS SURROUNDING THE AGREEMENT. IF THE MAIN INTEN TION OF THE ASSESSEE IS TO LET OUT THE PROPERTY OR ANY PART OF IT, THE RENTAL INCOME THEREFROM SHOULD BE ASSESSED UNDER THE HEAD INCOME FROM HOUSE PROPERTY. IF THE OBJECT IS TO EXPLOIT THE COMMERC IAL PROPERTY BY LETTING OUT TEMPORARILY, THEN THE INCOME DERIVED FR OM SUCH LETTING OUT OF PROPERTY CAN BE TERMED AS BUSINESS INCOME. WE ARE OF THE CONSIDERED OPINION THAT THIS ISSUE NEEDS A REVISIT TO ASSESSING OFFICER TO EXAMINE THE RENT AGREEMENT AND ANALYSIS OF OTHER MATERIAL. THE A.O. SHALL ALSO TAKE INTO CONSIDERAT ION THE GENERAL PRINCIPLES LAID DOWN BY THE HON'BLE SUPREME COURT O F INDIA IN THE CASE OF UNIVERSAL PLAST LTD. V. CIT (237 ITR 454) T O DETERMINE WHETHER THE RENTAL INCOME IS ASSESSABLE AS BUSINES S INCOME OR INCOME FROM HOUSE PROPERTY. ACCORDINGLY, THIS GR OUND OF APPEAL IS REMITTED TO THE FILE OF THE ASSESSING OFFICER. 8. IN THE RESULT, THE IMPUGNED IS SET ASIDE AND THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES . 9 I.T.A. NO.2281/MDS/14 ORDER PRONOUNCED ON FRIDAY, THE 27 TH OF MARCH, 2015 AT CHENNAI. SD/- SD/- ( . ) ( %$! $#& ) (A. MOHAN ALANKAMONY) (VIKAS AWASTHY) !'#/ ACCOUNTANT MEMBER ' !'# /JUDICIAL MEMBER /CHENNAI, E' /DATED, THE 27 TH MARCH, 2015. KRI. 'F 0 .'3G% H%*3 /COPY TO: 1. &, /APPELLANT 2. ./&, /RESPONDENT 3. 2 I3 /CIT(INTERNATIONAL TAXATION), CHENNAI 4. 2 I3 () /CIT(A)-VII, CHENNAI-34 5. %$JK .'3' /DR 6. KL) M /GF.