SUBHI CONSTRUCTIONS PVT. LTD, MUMBAI V. ASST CIT CR 3(3), MUMBAI

ITA 2318/MUM/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 3920 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-05-2016
• Appeal Filed By: Assessee
• Bench Allotted: E
• Assessment Year: 2010-2011
• Appeal Filed On: 07-04-2014
• Court: TRIBUNAL
• Department Lawyers: A K NAYAK
• Keywords: Tax effect

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE S/SHRI B.R. BASKARAN (AM) & AMIT SHUKLA (JM) I.T.A. NO. 2318 /MUM/ 2014 (ASSESSMENT YEAR 2010 - 11 ) M/S. SUBHI CONSTRUCTION PVT. LTD. 421, MAKER CHAMBER V NARIMAN POINT MUMBAI - 400 021. ACIT C IRCLE 3(3) 6 TH FLOOR AAYAKAR BHAVAN M.K. ROAD MUMBAI - 400 020. ( APPELLANT ) ( RESPONDENT ) I.T.A. NO. 3420/MUM/2014 (ASSESSMENT YEAR 2010 - 11) ACIT CIRCLE 3(3) 6 TH FLOOR AAYAKAR BHAVAN M.K. ROAD MUMBAI - 400 020. M/S. SUBHI CONSTRUCTION PVT. LTD. 421, MAK ER CHAMBER V NARIMAN POINT MUMBAI - 400 021. ( APPELLANT ) ( RESPONDENT ) PAN NO. AAFCS6983A ASSESSEE BY SHRI VIMAL PUNMIYA DEPARTMENT BY SHRI A.K. NAYAK DATE OF HEARING 12.4 . 201 6 DATE OF PRONOUNCEMENT 4 . 5 . 201 6 O R D E R PER B ENCH : - THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER DATED 06 - 02 - 2014 PASSED BY LD CIT(A) - 7, MUMBAI FOR ASSESSMENT YEAR 2010 - 11, WHEREIN HE GAVE PARTIAL RELIEF TO THE ASSESSEE IN RESPECT OF MUNICIPAL TAXES CLAIMED AGAINST HOUSE PROPERTY INCOME. 2. THE FACTS RELATING TO THE ISSUE HAVE BEEN NARRATED BY LD CIT(A) AS UNDER: - SUBHI CONSTRUCT ION PVT. LTD. 2 FOR THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS SHOWN RENTAL INCOME OF RS.3,22,73,900/ - ON LETTING OUT ITS PREMISES LOCATED AT ANDHERI. AGAINST SUCH RENTAL INCOME, THE ASSES SEE CLAIMED PAYMENT OF PROPERTY TAX AT RS.54,22,365/. THE AO ON ANALYSIS OF DETAILS FOUND THAT THE ASSESSEE IS OWNING A COMMERCIAL TOWER KNOWN AS 'BLUE WAVE' CONSISTING OF 8 FLOORS, OUT OF WHICH IT HAS ENTERED INTO LEAVE AND LICENSE AGREEMENT WITH 3 DIFFER ENT PARTIES I.E I) GG PHOTO LTD, (B)STARDEN MEDIA SERVICES PVT. LTD & C)INDUSTRIAL DEVELOPMENT AGENCY (IRELAND) FOR LETTING OUT UNITS SITUATED AT SIXTH FLOOR, SEVENTH FLOOR AND FIFTH FLOOR OF THE SAID BUILDING. THUS, THE ASSESSEE HAS SHOWN RENTAL INCOME FR OM THREE FLOORS I.E. 5 TH ,6 TH ,7 TH OUT OF 8 FLOORS OF THE SAID BUILDING. THE MUNICIPAL AUTHORITY HAS LEVIED A MUNICIPAL TAX FOR THE YEAR UNDER CONSIDERATION OF RS. 1,10,30,098/ - ON THE SAID BUILDING WHICH HAS BEEN PAID BY THE ASSESSEE IN THE YEAR ITSELF. WHI LE WORKING OUT THE DEDUCTION AGAINST PROPERTY INCOME, THE ASSESSEE HAS REDUCED RS.55,77,635/ - FROM THE TOTAL TAX PAID BEING THE AMOUNT OF TAX RECOVERED FROM THE TENANTS AND THE BALANCE AMOUNT OF RS.54,22,365/ - [RS.1,10,30,098 - (RS.55,77,635/ - + RS.30,098/ - )] HAS BEEN CLAIMED AS DEDUCTION AGAINST THE PROPERTY INCOME AFTER REDUCING THE TAX NOT PAID IN THE YEAR TO THE EXTENT OF RS.30,098/ - . THE AO THUS OBSERVED THAT THE ASSESSEE HAS CLAIMED PROPERTY TAX IN RESPECT OF THE ENTIRE BUILDING AS DEDUCTION U/S.23 THO UGH IT HAS BEEN SHOWING RENT FROM UNITS SITUATED AT 3 FLOORS OUT OF 8 FLOORS IN THE SAID BUILDING. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO ASKED THE ASSESS E E TO EXPLAIN AS TO WHY DEDUCTION CLAIMED ON PROPERTY TAX SHOULD NOT BE ALLOWED PROPORTIONATE LY BASED ON THE RENTAL INCOME SHOWN FROM THE SAID OFFICE PREMISES. IN RESPONSE TO IT, THE ASSESSEE FILED A WRITTEN SUBMISSION STATING THAT ALL THE FLOORS OF THE B1DING COLLECTIVELY CONSTITUTE ONE SINGLE BUILDING ONLY AND HENCE THE THEORY OF SLICING OR PROP ORTION IS NOT AT ALL WARRANTED AND ACCORDINGLY REQUESTED TO ALLOW THE DEDUCTION CLAIMED. WITHOUT PREJUDICE TO THE ABOVE, THE ASSESSEE SUBMITTED THE WORKING OF ATTRIBUTABLE PROPERTY TAX FOR EACH OF THE FLOOR IN THE BUILDING. SUBHI CONSTRUCT ION PVT. LTD. 3 THE AO HAVING GONE THROUGH THE A BOVE FOUND THAT THE ASSESSEE HAS ENTERED INTO 3 DIFFERENT AGREEMENTS WITH 3 DIFFERENT PARTIES FOR LETTING OUT EACH OF THE FLOOR. MOREOVER, THE LICENSE FEE CHARGED TO THE LICENSEE IS DIFFERENT ON EACH FLOOR WHICH IS QUITE EVIDENT FROM THE LEASE DEEDS. SINCE THE ASSESSEE RENTED ITS OFFICE PREMISES BY SLICING IT INTO DIFFERENT FLOORS TO DIFFERENT PARTIES, THE PROPERTY TAX CLAIMED AGAINST OTHER FLOORS WHICH ARE LYING VACANT IS NOT JUSTIFIABLE. HE ALSO NOTED THAT THE WORKING OF ATTRIBUTABLE PROPERTY TAX TO EACH OF THE FLOOR SUBMITTED BY THE ASSESSEE IS NOT PROPER AND NOT SUPPORTED WITH ANY AUTHENTIC EVIDENCES. ACCORDINGLY, HE WORKED OUT THE PROPORTIONATE ALLOWABLE DEDUCTION OF PROPERTY TAX AGAINST THE RENTAL INCOME AS UNDER: 1 TOTAL NUMBER OF FLOORS OF THE OFFICE PREMISES 8 2 TOTAL NUMBER OF FLOORS FROM WHICH RENTAL INCOME SHOWN 3 3 TOTAL AMOUNT OF DEDUCTION CLAIMED 54,22,365 4 PROPORTIONAL ALLOWABLE DEDUCTION (5422365 X 3/8) 20,33,386 5 EXCESS DEDUCTIO N CLAIMED (3 - 4) 33,88,979 ACCORDINGLY , HE DISALLOWED THE EXCESS DEDUCTION CLAIMED BY THE ASSESSEE AMOUNTING TO RS.33,88,979/ - .) 3. THE LD CIT(A) HELD THAT THE PROPORTIONATE DISALLOWANCE HAS TO BE WORKED OUT AS PER THE DETAILS OF MUNICIP AL TAX ACTUALLY LEVIED IN RESPECT OF EACH OF THE FLOORS. ACCORDINGLY HE HELD THAT THE DISALLOWANCE OF MUNICIPAL TAX SHOULD BE RESTRICTED TO THE TAX RELATING TO VACANT FLOORS AS PER THE BMC WORKINGS AND ACCORDINGLY DIRECTED THE AO TO RESTRICT THE DISALLOWA NCE TO RS.10,12,604/ - IN THE PLACE OF RS.33,88,979/ - . AGGRIEVED, BOTH THE PARTIES HAVE FILED THESE APPEALS BEFORE US. 4. THE CONTROVERSY THAT IS URGED BEFORE US RELATES TO THE QUANTUM OF MUNICIPAL TAXES THAT IS REQUIRED TO BE DEDUCTED FROM THE ANNU AL LETTING VALUE OF THE PROPERTY IN TERMS OF THE PROVISO TO SEC. 23 OF THE ACT. HENCE WE REFER TO THE PROVISIONS OF SEC. 23, WHICH READ AS UNDER: - 23. ANNUAL VALUE HOW DETERMINED. - (1) FOR THE PURPOSES OF SECTION 22, THE ANNUAL VALUE OF ANY PROPERTY SHAL L BE DEEMED TO BE (A) THE SUM FOR WHICH THE PROPERTY MIGHT REASONABLY BE EXPECTED TO LET FROM YEAR TO YEAR; OR SUBHI CONSTRUCT ION PVT. LTD. 4 (B) WHERE THE PROPERTY OR ANY PART OF THE PROPERTY IS LET AND THE ACTUAL RENT RECEIVED OR RECEIVABLE BY THE OWNER IN RESPECT THEREOF IS IN EXCES S OF THE SUM REFERRED TO IN CLAUSE (A), THE AMOUNT SO RECEIVED OR RECEIVABLE; OR (C) WHERE THE PROPERTY OR ANY PART OF THE PROPERTY IS LET AND WAS VACANT DURING THE WHOLE OR ANY PART OF THE PREVIOUS YEAR AND OWING TO SUCH VACANCY THE ACTUAL RENT RECEIVED O R RECEIVABLE BY THE OWNER IN RESPECT THEREOF IS LESS THAN THE SUM REFERRED TO IN CLAUSE (A), THE AMOUNT SO RECEIVED OR RECEIVABLE : PROVIDED THAT THE TAXES LEVIED BY ANY LOCAL AUTHORITY IN RESPECT OF THE PROPERTY SHALL BE DEDUCTED (IRRESPECTIVE OF THE PREV IOUS YEAR IN WHICH THE LIABILITY TO PAY SUCH TAXES WAS INCURRED BY THE OWNER ACCORDING TO THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY HIM) IN DETERMINING THE ANNUAL VALUE OF THE PROPERTY OF THAT PREVIOUS YEAR IN WHICH SUCH TAXES ARE ACTUALLY PAID BY HIM . A CAREFUL PERUSAL OF THE ABOVE SAID PROVISIONS WOULD SHOW THAT WHILE DETERMINING THE ANNUAL LETTING VALUE OF THE PROPERTY, THE FACT AS TO WHETHER IT IS WHOLLY LET OR PARTIALLY LET IS CONSIDERED. HOWEVER, PROVISO TO SEC. 23 OF THE ACT PROVIDES FOR DEDU CTION OF TAXES LEVIED BY ANY LOCAL AUTHORITY IN RESEPCT OF THE PROPERTY SHALL BE DEDUCTED IN DETERMINING THE ANNUAL VALUE OF THE PROPERTY OF THAT PREVIOUS YEAR IN WHICH SUCH TAXES ARE ACTUALLY PAID. WE NOTICE THAT THE REFERENCE IS TO THE PROPERTY A ND NOT TO WHOLE OR ANY PART OF PROPERTY. WE HAVE ALREADY NOTICED THAT THE MUNICIPAL TAXES HAVE TO BE DEDUCTED IN THE YEAR OF PAYMENT, EVEN THOUGH, IT MAY RELATE TO ANY OF THE YEARS. THUS, THE IMPORTANCE IS GIVEN TO THE YEAR OF PAYMENT, WHETHER OR NOT IT PERTAINS TO THE YEAR IN WHICH THE PROPERTY INCOME IS ASSESSED. FURTHER, EVEN THOUGH THE PROVISIONS OF SEC. 23(B) AND (C) MAKES A REFERENCE TO ANY PART OF PROPERTY, YET WHAT IS RELEVANT IS WHETHER THE AMOUNT OF ACTUAL RENT RECEIVED OR RECEIVABLE BY TH E OWNER IS IN EXCESS OF THE SUM REFERRED TO IN SEC. 23(A) OF THE ACT. THUS, IN OUR CONSIDERED VIEW, THE QUESTION OF APPORTIONMENT OF THE RENT/ MUNICIPAL TAXES MAY ARISE ONLY IF IT IS SHOWN THAT EACH FLOOR OF THE PROPERTY IS A DISTINCT AND SEPARATE PROPERT Y, WHICH IS NOT THE CASE HERE. THE COPIES OF MUNICIPAL TAX RECEIPTS WOULD SHOW THAT THE BMC HAS GIVEN A SINGLE NUMBER TO THE IMPUGNED PROPERTY, VIZ., 00109648 AND HENCE THE BMC ALSO IS CONSIDERING THE ENTIRE BUILDING AS A SINGLE PROPERTY. HENCE, IN OU R VIEW, THERE IS MERIT IN THE CONTENTION OF THE ASSESSEE AND ACCORDINGLY WE ARE OF THE VIEW THAT THE TAX AUTHORITIES ARE NOT JUSTIFIED IN MAKING PROPORTIONATE DISALLOWANCE OF MUNICIPAL TAXES ACTUALLY PAID BY THE ASSESSEE. SUBHI CONSTRUCT ION PVT. LTD. 5 5. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND DIRECT THE AO TO ALLOW THE ENTIRE AMOUNT OF MUNICIPAL TAXES PAID BY THE ASSESSEE WHILE COMPUTING THE ANNUAL LETTING VALUE OF THE PROPERTY. 6. THE ASSESSEE HAS ALSO RAISED AN ALTERNATIVE GROUND PRAYING FOR AL LOWANCE OF STANDARD DEDUCTION TOWARDS REPAIRS, IF ANY PART OF THE MUNICIPAL TAXES IS DISALLOWED. SINCE, WE HAVE HELD THAT THE ENTIRE AMOUNT OF MUNICIPAL TAXES ACTUALLY PAID BY THE ASSESSEE IS ALLOWABLE AS DEDUCTION, THIS ALTERNATIVE GROUND BECOMES INFRUCT UOUS. 7. IN VIEW OF THE ABOVE, THE APPEAL FILED BY THE REVENUE CHALLENGING THE PARTIAL RELIEF GRANTED BY LD CIT(A) IS ALSO LIABLE TO BE DISMISSED. EVEN OTHERWISE, THE TAX EFFECT INVOLVED IN THE APPEAL FILED BY THE REVENUE IS LESS THAN RS.10.00 LAKH S AND HENCE THE REVENUE IS PRECLUDED FROM PURSUING THIS APPEAL AS PER THE CIRCULAR NO.21/2015 DATED 10 - 12 - 2015 ISSUED BY THE CBDT. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED AND THE APPEAL OF THE REVENUE IS DISMISSED. ORDER HAS BE EN PRONOU NCED IN THE OPEN COURT ON 4 .5 .2016 . SD/ - SD/ - (AMIT SHUKLA ) (B.R.BASKARAN ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED : 4 / 5 /20 1 6 COP Y OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// ( DY./ASSTT. REGISTRAR) ITAT, MUMBAI PS