VASUDHA ENTERPRISES, MUMBAI V. JCIT II RG 12(2), MUMBAI

ITA 2615/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55067 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 20-06-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 05-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T D SINGH
• Assessee Lawyers: S M AGRAWAL
• Keywords: Business income; Commercial expediency; Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH F MUMBAI BEFORE SHRI P.M. JAGTAP (AM) AND SMT. ASHA VIJAYARAGHAVAN (JM) ITA NO. 2615/MUM/2010 ASSESSMENT YEAR-2005-06 M/S. VASUDHA ENTERPRISES, 7,CHURCHGATE MANSION, A-ROAD, CHURCHGATE, MUMBAI-400 020 PAN-AAAFV 1050B VS. THE JCIT, RANGE XII(2), AAYAKAR BHAVAN, MUMBAI-400 020 (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI S.M. AGRAWAL RESPONDENT BY: SHRI T.D. SINGH DATE OF HEARING : 20.06.2011 DATE OF PRONOUNCEMENT: 30 TH AUGUST, 2011 O R D E R PER ASHA VIJAYARAGHAVAN (JM) THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED A GAINST THE ORDER DATED 17.12.2009 PASSED BY THE LD. CIT(A)-23 FOR TH E ASSESSMENT YEAR 2005-06. 2. THE ASSESEE IS A PARTNERSHIP FIRM ENGAGED IN BUS INESS OF REAL ESTATE BY CONSTRUCTING AND SELLING FLATS. ASSESSEE WAS OWNING TWO BUILDINGS CONSISTING OF BUILDING AT KEMPS CORNER WH ICH WAS GIVEN ON RENT TO TENANTS AND SECOND WAS AT WORLI WHICH WAS H ELD AS STOCK IN TRADE AND PROFIT ON SALE WAS OFFERED AS BUSINESS INCOME. ON TERRACE OF 10 TH FLOOR OF BUILDING AT KEMPS CORNER BELONGING TO APPE LLANT, INSTALLED HOARDING AND ASSESSEE WAS EARNING INCOME BY WAY OF RENTING OUT THE ITA NO. 2615/M2010 2 HOARDINGS. THE ASSESSEE FIRM SOLD THE BUILDING AT K EMPS CORNER IN THE YEAR ENDING 31.03.2004 TO THE EXISTING TENANTS WHO WERE OCCUPYING THE PREMISES BUT CONTINUED THE RIGHTS OF HOARDING ON TH E TERRACE OF 10 TH FLOOR OF KEMPS CORNER BUILDING. THE ASSESSEE GAVE RIGHTS OF HOARDING TO M/S. STATUS VIDE AGREEMENT DATED 02.02.1995 BY CHARGING CONSIDERATION OF RS.1,20,000/- PER ANNUM. ORIGINAL RENT FIXED AT RS. 1,20,000/- WAS INCREASED TO RS.1,80,000/- W.E.F. 01.04.1999. LESSE E M/S. STATUS GAVE HOARDING RIGHT TO M/S. NUTAN ADVERTISING AGENCY PVT . LTD. FOR DISPLAY OF HOARDING AT THE CHARGE OF RUPEES ONE LAC PER MONTH. 3. THE ABOVE COMPANY NAMELY M/S. NUTAN ADVERTISING AGENCY PVT. LTD. WAS FINDING IT DIFFICULT TO FIND CLIENTS FOR D ISPLAY OF HOARDINGS AND THEREFORE, VIDE LETTER DATED 24.06.2003 INFORMED TO M/S. STATUS THAT THE SITE OF HOARDING IS ON THE HEIGHT WHICH CAN BE ONLY SUITABLE FOR NEON SIGN AND NOT FOR HOARDING AND THEREFORE THEY WANTED TO T ERMINATE AGREEMENT WITH EFFECT FROM 30.06.2003. DUE TO THIS DIFFICULTY M/S. STATUS GAVE A DISCOUNT OF RS.4 LACS TO NUTAN ADVERTISING AGENCY F OR THE YEAR ENDING 31.03.2003 AND AGREED FOR RENT TO BE CHARGED AT RS. 8 LACS AS AGAINST RS.12 LACS CHARGED EARLIER. FURTHER FOR THE YEAR EN DING 31 ST MARCH 2004, M/S. STATUS COULD GET RENT OF ONLY RS.3 LACS FROM T HE ABOVE PARTY. M/S. NUTAN ADVERTISING AGENCY PVT. LTD. VIDE LETTER DATE D 29.06.2004 INFORMED M/S. STATUS THAT HOARDING WAS VACANT FOR A BOUT SEVEN MONTHS DUE TO THAT THEY SUFFERED HEAVY LOSS AND DUE TO THA T THEY WANTED REDUCTION IN RENT TO ENABLE THEM TO CONTINUE THE RE NTAL ARRANGEMENT. EVEN THOUGH M/S. STATUS GAVE DISCOUNT OF RS.4.00 LA CS TO M/S. NUTAN ADVERTISING AGENCY THEY PAID RENT OF RS.1,80,000/- TO THE APPELLANT FIRM DURING THE YEAR ENDING 31.03.2003 AND FURTHER PAID LICENCE FEES OF 90,972/- TO MUNICIPAL CORPORATION. THE LD. AO DISAL LOWED THE SUM OF RS.2,07,840/- PAID AS LICENSE FEES TO MUNCIPAL CORP ORATION ON ACCOUNT OF DISPLAY OF HOARDING AND ALSO DISALLOWED SOCIETY CHA RGES OF RS.1,20,000/- ITA NO. 2615/M2010 3 PAID TO M/S. MADHU SAGAR SOCIETY. THE LD. CIT(A) CO NFIRMED THE ORDER OF THE AO. 4. AGGRIEVED THE ASSESSEE PREFERRED AN APPEAL BEFOR E US AND WITH RESPECT TO THE ADDITION ON ACCOUNT OF LICENSE FEES SUBMITTED AS FOLLOWS :- DUE TO DECLINE IN DEMAND OF ADVERTISEMENT OF HOARDI NG ON MADHU SAGAR BUILDING AT KEMPS CORNER AND M/S. STATU S GETTING OF RENT OF ONLY RS.3 LACS DURING THE YEAR E NDING 31 ST MARCH 2004, THE ASSESSEE MUTUALLY AGREED TO BEAR LI CENCE FEE OF RS.2,56,535/- PAYABLE TO MUNICIPAL CORPORATION W .E.F. 01.04.2003 PERTAINING TO ASSESSMENT YEAR 2004-2005. THEREFORE THE AR OF THE ASSESSEE SUBMITTED THAT THE QUESTION OF CHARGING MUNICIPAL LICENCE FEE FOR ASSESSMENT YE AR 2005- 2006 UNDER APPEAL TO M/S. STATUS DOES NOT ARISE AND THE LEARNED ASSESSING OFFICER HAS NOT CONSIDERED THE AB OVE FACTS AND DISALLOWED LICENCE FEES OF RS.2,07,840/- PAID B Y ASSESSEE TO MUNICIPAL CORPORATION . 5. WITH RESPECT INTO SECOND ISSUE OF DISALLOWANCE O F A SUM OF RS.1,20,000/- PAID AS SOCIETY CHARGES, THE LD. COUN SEL SHRI S.M. AGRAWAL FOR THE ASSESSEE SUBMITTED AS FOLLOWS : THE ASSESSEE FIRM SOLD THE BUILDING AT KEMPS CORNE R TO THE TENANTS OF THE BUILDING DURING THE YEAR ENDING 31 ST MARCH 2004 PERTAINING TO ASSESSMENT YEAR 2004-2005 AND CONVEYANCE WAS DONE IN FAVOUR OF MADHU SAGAR CO-HSG SOCIETY LTD. (PAGE 28 & 29). AS THE BUILDING WAS SO LD BUT TERRACE OF 10 TH FLOOR WAS USED BY ASSESSEE FIRM FOR HOARDING AND THEREFORE, THE ASSESSEE HAD TO PAY TO MADHU SAG AR CO- HSG SOCIETY WHO WERE THE OWNERS OF THE BUILDING SUM OF RS.1,20,000/- INCLUDING MAINTENANCE CHARGES. DUE TO THE CHANGED CIRCUMSTANCES WHEN BUILDING WAS SOLD AND TH E ASSESSEE WAS NOT THE OWNER BUT USING THE TERRACE FO R HOARDING AND THEREFORE HAD TO PAY SUM OF RS.1,20,000/- TO HO USING SOCIETY OWNING THE BUILDING. THIS AMOUNT CANNOT BE RECOVERED FROM LESSEE M/S. STATUS. M/S. STATUS HAS NOTHING TO DO WITH THE OWNERSHIP OF BUILDING. UNDER THE CIRCUMSTANCES THE ASSESSING OFFICER HAS ERRED IN DISALLOWING SUM OF RS.1,20,000/- PAYMENTS MADE TO M/S. MADHU SAGAR CO- ITA NO. 2615/M2010 4 OPERATIVE HOUSING SOCIETY. THE LEARNED ASSESSING OF FICER HAS CONSIDERED IN ASSESSMENT ORDER THAT MADHU SAGAR CO- OP HOUSING SOCIETY ISSUED BILL IN THE NAME OF ASSESSEE BUT PAYMENT OF RS.1,20,000 0/- TO SOCIETY WAS MADE BY M/S. STATUS BY THEIR OWN CHEQUE AND THEREFORE, ERRED IN OVER LOOKING THAT BY MAKING PAYMENT BY M/S. STATUS TO SO CIETY AND DEBITING THE SAME TO ASSESSEE DOES NOT MAKE M/S. ST ATUS LIABLE TO BEAR THE EXPENDITURE. EARLIER ASSESSEE WA S THE OWNER OF THE BUILDING BUT NOW ASSESSEE IS NOT EH OWNER AN D THEREFORE ASSESSEE IS LIABLE TO BEAR THE CHARGES PA YABLE TO HOUSING SOCIETY FOR USING THEIR PREMISES AND THEREF ORE, THE QUESTION OF DISALLOWING THE SAME IS NOT CORRECT. TH E REASON THAT BECAUSE THE CHEQUE WAS ISSUED BY M/S. STATUS D OES NOT PERMIT THE DEPARTMENT TO DISALLOW THE EXPENDITURE P AYABLE BY ASSESSEE. M/S. STATUS DID NOT RECEIVE ANY INCOME FR OM HOARDING DURING THE ASSESSMENT YEAR 2005-2006 UNDER APPEAL FROM M/S. NUTAN ADVERTISING AGENCY AS THE OL D AGREEMENT WAS TERMINATED AND THE HOARDING WAS UNUSE D DURING THE WHOLE YEAR BUT M/S. STATUS PAID RENT OF RS.1,80,000/- TO ASSESSEE FIRM AND SUFFICIENT LOSS OF RS.2,00,548/- ON ACCOUNT OF HOARDING AND THEREFORE THE LIABILITY OF PAYMENT OF CHARGES TO HOUSING SOCIETY WAS ON THE ASSESSEE AND NOT ON LICENCEE AND THEREFORE THE SAME CANNOT BE DISALLOW. 6. WE FIND THAT APPELLANT FIRM HAD GIVEN RIGHTS OF DISPLAY OF HOARDING TO M/S STATUS AND M/S STATUS GAVE RIGHT OF DISPLAY OF HOARDING TO M/S NUTAN ADVERTISING AGENCY P. LTD. BECAUSE OF THE HEI GHT OF BUILDING WHERE HOARDING WAS FIXED ON 10 TH FLOOR, IT WAS NOT HAVING PROPER ADVERTISING VALUE. THERE WAS NO DISPLAY OF HOARDING DURING THE PERIOD 1 ST APRIL 2004 TO 31 ST MARCH 2005 AND M/S NUTAN ADVERTISING AGENCY PVT. L TD CANCELLED AGREEMENT WITH M/S STATUS W.E.F. 30 TH JUNE 2003. 7. BECAUSE OF ADVERSE BUSINESS CIRCUMSTANCES THE AP PELLANT FIRM AGREED TO BEAR THE LICENCE FEE OF RS 2,07,840/- IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR 2004-05 AND IN VIEW OF CO NTINUED LACK OF ADVERTISERS THE ASSESSEE BORE FOR THE CURRENT YEAR ALSO LICENCE FEES AMOUNTING TO RS 207,840/-, PAYABLE TO THE MUNICIPAL CORPORATION. UNLESS THIS LICENSE FEES WAS PAID THE ASSESSEE WOUL D LOOSE THE RIGHT TO ITA NO. 2615/M2010 5 PUT UP THE HOARDING ON THE TOP OF THE BUILDING. M/S STATUS ADVERTISING, TO WHOM THE ASSESSEE HAD GRANTED THE HOARDING RIGHT S HAD SUB LICENSED THE SAME TO M/S NUTAN ADVERTISING AGENCY LTD. IN VI EW OF THE POOR BUSINESS, STATUS ADVERTISING HAD GIVE A HEAVY DISCO UNT TO M/S NUTAN ADVERTISING. DUE TO THIS ADVERSE CONDITION, THE ASS ESSEE HAD AGREED TO BEAR THE LICENSE FEES PAYABLE TO THE MUNICIPAL CORP ORATION. SUCH A PAYMENT WAS ALLOWED IN THE IMMEDIATELY PRECEDING AS SESSMENT YEAR. IF THIS AMOUNT WAS NOT PAID, THE LICENSE TO PUT UP THE HOARDING ATOP THE BUILDING WOULD HAVE BEEN LOST. HENCE THE ASSESSEE H AD TO KEEP THIS RIGHT BY PAYING THE LICENSE FEES. DUE TO THE FALL IN THE TAKERS FOR PUTTING UP THE HOARDING ON THIS BUILDING, THE ASSESSEE COULD NOT R ECOVER THE SAME FROM THE LICENSEES. 8. DURING THE YEAR ENDED 31 ST MARCH 2005 PERTAINING TO ASSESSMENT YEAR 2005-06 THE HOARDING WERE NOT AT ALL DISPLAYED AND M/S STATUS HAD NO INCOME FROM HOARDING INSPITE OF THAT THEY PAID R ENT OF RS 1,80,000/- TO APPELLANT FIRM AND SUFFERED LOSS OF RS. 2,20,548 /- ON ACCOUNT OF HOARDING AND THEREFORE CONSIDERING THE CHANGED BUSI NESS OPPORTUNITIES APPELLANT AGREE TO BEAR THE LICENCE FOR WHICH IS AN EXPENDITURE WHOLLY AND EXCLUSIVELY INCURRED FOR BUSINESS AND THEREFORE ALLOWABLE. THE DEPARTMENT MUST SIT IN THE CHAIR OF BUSINESS MAN AN D DECIDE THE REASONABLENESS OF EXPENDITURE. 9. PRIOR TO THE SALE OF BUILDING TO MADHU SAGAR CO- HSG SOCIETY LTD. M/S. STATUS WAS TENANT AND M/S. STATUS WAS PAYING M ADHU SAGAR TENANTS ASSOCIATION MAINTENANCE CHARGES OF RS.18,00 0/- PER ANNUM. AFTER SALE OF BUILDING TO TENANTS THERE WAS CONVEYA NCE OF BUILDING IN THE NAME OF MADHU SAGAR CO-OPERATIVE HOUSING SOCIETY LT D. AND THEREFORE, THERE WAS NO TENANTS ASSOCIATION IN EXISTENCE AND Q UESTION OF PAYMENTS OF MAINTENANCE CHARGES TO TENANTS ASSOCIATION DOES NOT ARISE. ITA NO. 2615/M2010 6 10. AS THE PREMISES WERE NO MORE PROPERTY OF APPELL ANT FIRM BUT THE PROPERTY BELONGS TO MADHU SAGAR CO-HSG SOCIETY LTD. AND THEREFORE, THE APPELLANT FIRM HAD TO PAY COMPENSATION FOR USE OF T ERRACE ON 10 TH FLOOR AND MAINTENANCE CHARGES TO MADHU SAGAR CO-HSG SOCIE TY LTD. AMOUNTING TO RS.1,20,000/-. 11. THE ASSESSEE HAD PAID RS. 1,80,000/- TOWARDS MA INTENANCE FEES TO THE SOCIETY FOR THE YEAR. THIS WAS PAID ONLY TO ENA BLE THE ASSESSEE TO HAVE THE ACCESS TO THE TERRACE OF THE BUILDING AND HAVE THE RIGHT TO ASSESSEE PUT UP THE HOARDINGS THERE. THUS BOTH THE SE PAYMENTS WERE MADE OUT OF COMMERCIAL EXPEDIENCY FOR THE PURPOSE O F THE BUSINESS OFT HE ASSESSEE VIZ., LETTING OUT THE DISPLAY SPACE ON THE TERRACE OF THE BUILDING. IN THE CIRCUMSTANCES BOTH THE PAYMENT ARE ALLOWABLE AS REVENUE EXPENDITURE. 12. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED . ORDER PRONOUNCED ON THIS 30 TH DAY OF AUGUST, 2011. SD/- SD/- (P.M. JAGTAP) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDIC IAL MEMBER MUMBAI, DATED 30 TH AUGUST, 2011 RJ COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR F BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, I.T.A.T, MUMBAI ITA NO. 2615/M2010 7 DATE INITIALS 1 DRAFT DICTATED ON: 25 .0 8 .2011 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 25 .0 8 .2011 ______ SR. PS/PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER: _________ ______ JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER: _________ ______ JM/AM 5. APPROVED DRAFT COMES TO THE SR. PS/PS: _________ ______ SR. PS/PS 6. KEPT FOR PRONOUNCEMENT ON: _________ ______ SR. PS/PS 7. FILE SENT TO THE BENCH CLERK: _________ ______ SR. PS/PS 8. 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK: DATE ON WHICH FILE GOES TO AR _________ ______ 10. DATE OF DISPATCH OF ORDER: _________ ______