DCIT 8(2), MUMBAI V. NISHTA MALL MANAGEMENT CO. LTD, MUMBAI

ITA 2747/MUM/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 4199 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 11 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-04-2016
• Appeal Filed By: Department
• Bench Allotted: B
• Next Hearing Date: 23-02-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 08-04-2013
• Court: TRIBUNAL
• Keywords: Business income; Depreciation; Commercial expediency
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUM BAI BEFORE SHRI R.C. SHARMA, AM AND SHRI MAHAVIR SINGH, JM ITA NO. 2747/MUM/2013 (ASSESSMENT YEAR: 2008-09) DEPUTY COMMISSIONER OF INCOME-TAX-8(2), APPELLANT MUMBAI, R. NO.216-A, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400020. VS. NISHTA MALL MANAGEMENT CO. PVT. LTD. KNOWLEDGE HOUSE, SHYAM NAGAR, OFF JOGESHWARI-VIKHROLI LINK ROAD, JOGESHWARI (EAST), MUMBAI - 400060 RESPONDENT (PAN: AAECM0705H) PAN - AA FPS5384Q APPELLANT BY: SHRI SANJEEV JAIN, DR RESPONDENT BY: SHRI NISHIT GANDHI DATE OF HEARING : 30.03.2016 DATE OF PRONOUNCEMENT : 07.04.2016 O R D E R PER MAHAVIR SINGH, JM: THIS APPEAL BY REVENUE IS DIRECTED AGAINST THE ORDE R OF CIT(A)-17, MUMBAI IN APPEAL NO. CIT(A)-17/IT-96/2010-11 VIDE O RDER DATED 14.01.2013. ASSESSMENT WAS FRAMED BY DCIT-8(2), MU MBAI U/S. 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED T O AS THE ACT) FOR AY 2008-09 VIDE HIS ORDER DATED 15.09.2010. 2. THE FIRST ISSUE IN THIS APPEAL OF REVENUE IS AGAINS T THE ORDER OF THE CIT(A) IN HOLDING THAT THE RENTAL RECEIPTS OF THE A SSESSEE ARE BUSINESS RECEIPT AND NOT INCOME FROM HOUSE PROPERTY. 2 ITA NO. 2747/MUM/2013 NISHTA MALL MANAGEMENT CO. PVT. LTD. ASST. YEAR 2008-09 3. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE IN ITS P&L ACCOUNT HAS CREDITED AN AMOUNT OF RS.1,05,78,000/- UNDER THE HE AD BUSINESS CENTRE SERVICE CHARGES. AS AGAINST THIS, THE ASSES SEE HAS DEBITED VARIOUS EXPENSES INCLUDING INTEREST AND FINANCE CHA RGES AMOUNTING TO RS.2,08,64,803/- AND ALSO CLAIMED DEPRECIATION AMOU NTING TO RS.8,45,860/-. THE AO ASSESSED THE BUSINESS CENTRE SERVICE CHARGES CREDITED BY THE ASSESSEE IN ITS P&L ACCOUNT AS INCO ME FROM HOUSE PROPERTY AND TREATED THE SAME AS RENTAL INCOME. HE STATED THAT THE ASSESSEE HAS SIMPLY RELIED ON SOME TERMS AND CONDIT IONS AND ALSO OBJECTS MENTIONED IN THE MEMORANDUM OF ASSOCIATION AND ON THAT BASIS IT HAS GIVEN NOMENCLATURE TO RENTAL RECEIPTS AS BUS INESS CENTRE SERVICE CHARGES FOR CLAIMING THE RENTAL INCOME AS BUSINESS INCOME. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A), WHO ALLOWE D THE CLAIM OF THE ASSESSEE BY FOLLOWING ASSESSEES OWN CASE FOR ASST. YEAR 2006-07 BY OBSERVING AS UNDER : 5.16. IN THE APPELLANTS OWN CASE FOR THE AY 2006- 07 IT WAS HELD THAT THE THUS THE APPELLANT WAS A PROPERTY MANAGER RATHER THAN A PASSIVE OWNER. THE PROPERTY WAS TREATED AS A BUSIN ESS ASSET WHICH WAS EXPLOITED BY RENDERING COMMERCIAL SERVICE S IN A SYSTEMATIC AND ORGANIZED MANNER. FOLLOWING DECISIO N IN PFH MALL & RETAIL MANAGEMENT LTD., GESCO CORPORATION LTD., H ARVINDARPAL MEHTA (HUF), IT IS HELD THAT THE BUSINESS RECEIPTS OF RS.1,47,71,318/- HAS TO BE TREATED AS BUSINESS INCO ME. 5.17. THEREFORE, IN VIEW OF THE ABOVE AND SINCE THE FACTS ARE UNCHANGED, THE RENTAL INCOME OF THE APPELLANT IS HE LD AS BUSINESS INCOME INSTEAD OF INCOME FROM HOUSE PROPERTY AS HELD BY THE APPELLANT. HENCE THE GROUND OF APPEAL OF THE APPEL LANT IS ALLOWED. AGGRIEVED, REVENUE IS IN APPEAL BEFORE TRIBUNAL. 4. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH FA CTS AND CIRCUMSTANCES OF THE CASE. BEFORE US, LD. COUNSEL FOR THE ASSESSEE FILED COPIES OF TRIBUNALS ORDER FOR ASST. YEAR 2006-07 I N ASSESSEES OWN CASE IN ITA NO. 5882/M/2010 DATED 30.10.2015, WHEREIN TR IBUNAL HAS CONFIRMED THE ORDER OF CIT(A) AND CONSIDERED THE BU SINESS CENTRE SERVICE CHARGES AS BUSINESS RECEIPTS BY OBSERVING I N PARA 5 AS UNDER: 3 ITA NO. 2747/MUM/2013 NISHTA MALL MANAGEMENT CO. PVT. LTD. ASST. YEAR 2008-09 5. WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND FROM THE RECORD THAT THE BUSINESS ASSET WAS USED BY THE ASSE SSEE IN, ITS BUSINESS OF LETTING OUT AS PER ITS PRIMARY OBJECT T O EXPLOIT THE PROPERTY BY COMPLEX COMMERCIAL ACTIVITY. AFTER CONS IDERING THE BUSINESS' CONDUCTING THAT THE ASSESSEE HAS GRANTED PERMISSIVE USE OF THE SERVICES AND FACILITIES PROVIDED IN THE PREMISES BY THE ASSESSEE. THE CONDUCTOR HAS NO RIGHT OF OCCUPANCY, BUT ONLY LIMITED ACCESS FOR THE PURPOSES OF BUSINESS ACTIVIT IES DURING HOURS OF DAY FIXED IN THE AGREEMENT. WE ALSO FOUND THAT T HE PREMISES ARE IN THE CONTROL OF THE ASSESSEE AND THE ASSESSEE IS REQUIRED TO PROVIDE SERVICES AS PER THE AGREEMENT FOR WHICH PER SONNEL ON PERMANENT BASIS WERE TO BE EMPLOYED. THUS, THE MANA GEMENT AND ADMINISTRATION OF THE MALL VESTED WITH THE ASSESSEE . THE DETAILED FINDING RECORDED BY THE CIT(A) HAS NOT BEEN CONTROV ERTED BY THE DEPARTMENT BY BRINGING ANY POSITIVE MATERIAL ON REC ORD. ACCORDINGLY, WE DO NOT FIND ANY MERIT TO INTERFERE IN THE ORDER OF CIT(A). WE FURTHER FOUND THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CH ENNAI PROPERTIES AND INVESTMENT LTD. 373 ITR 673 IN FAVOU R OF THE ASSESSEE FOR HOLDING THAT SUCH COMMERCIAL EXPLOITA TION RENDERS INCOME FROM BUSINESS RATHER THAN INCOME FROM HOUSE PROPERTY. 5. WHEN THIS WAS POINTED OUT TO LD. SR. DR, HE FAIRLY AGREED THAT THE ISSUE IS COVERED BY TRIBUNALS ORDER IN ASSESSEES OWN CASE FOR ASST. YEAR 2006-07. NO CONTRARY DECISION WAS POINTED OUT BY LD. SR. DR AND NOTHING WAS ARGUED. HENCE, RESPECTFULLY FOLLOWING THE COORDINATE BENCH DECISION IN ASSESSEES OWN CASE, WE DISMISS T HIS ISSUE OF REVENUES APPEAL. 6. THE NEXT ISSUE IN THIS APPEAL OF REVENUE IS AGAINST THE ORDER OF CIT(A) DELETING THE DISALLOWANCE OF INTEREST U/S. 3 6(1)(III) OF THE ACT. FOR THIS, REVENUE HAS RAISED FOLLOWING GROUND NO.5: 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCES OF I NTEREST U/S. 36(1)(III) OF THE ACT, WITHOUT APPRECIATING THAT TH E ASSESSEE HAS FAILED TO SUBSTANTIATE THE COMMERCIAL EXPEDIENCY OF GIVING INTEREST FREE ADVANCES TO THE SISTER CONCERNS OUT OF ITS INT EREST BEARING BORROWINGS. 7. BRIEFLY STATED FACTS ARE THAT THE AO TREATED THE BU SINESS SERVICE CENTRE CHARGES AS RENTAL INCOME AND ASSESSED THE SA ME UNDER THE HEAD INCOME FROM HOUSE PROPERTY. ONCE IT IS ASSESSED AS INCOME FROM HOUSE PROPERTY, THE AO NOTED THAT THE INTEREST PAID TO CE NTRAL BANK OF INDIA 4 ITA NO. 2747/MUM/2013 NISHTA MALL MANAGEMENT CO. PVT. LTD. ASST. YEAR 2008-09 AMOUNTING TO RS.1,43,64,614/- ON TERM LOAN OF RS. 1 5 CR. FOR A PERIOD OF 12 MONTHS INTEREST @ 12.50% WAS A CORPORATE LOAN FOR THE CORPORATE NEEDS. ACCORDING TO HIM, THE UTILIZATION OF THIS R S.15 CR. WAS FOR ADVANCEMENT OF INTEREST FREE LOAN TO SISTER CONCERN S VIZ., ESES COMMERCIAL PVT. LTD. AND ERUDITE TRADING PVT. LTD. ACCORDING TO AO, THESE TWO COMPANIES DID NOT OWN ANY PROPERTY AT THE TIME OF TAKING LOAN AND ALSO NOT ENGAGED IN THE BUSINESS OF REAL E STATE. THEREFORE, HE DISALLOWED THE CLAIM OF ASSESSEE. ACCORDINGLY, DED UCTION U/S. 24(B) OF THE ACT WAS DENIED. HE ALSO GAVE A CAVEAT IN THE O RDER THAT EVEN IF THE INCOME FROM BUSINESS CENTRE SERVICE CHARGES IS TREA TED AS BUSINESS INCOME THEN ALSO THE INTEREST EXPENDITURE WILL NOT BE ALLOWED AS THE SAME WAS NOT UTILIZED FOR THE PURPOSE OF THE BUSINE SS. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A), WHO AFTER GOING THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE ALLOWED THE CLA IM OF THE ASSESSEE BY OBSERVING IN PARA 6.2 AS UNDER: 6.2. THE ALLOWABILITY OF INTEREST FOR THE PURPOSE OF BUSINESS COMES U/S. 36(1)(III) AND INTEREST RELATING TO HOUSE PROP ERTY U/S. 24. IN THE INSTANT CASE, I HAVE ALREADY HELD THAT THE INCO ME IS TO BE ACCRUED AS BUSINESS INCOME AND HENCE THE ALLOWABILI TY OF THE INTEREST HAS TO BE SEEN U/S. 36(L)(III. THE PREREQU ISITE FOR ALLOWANCE OF INTEREST U/S. 36(1)(III) IS THAT THE MONEY SHOUL D HAVE BEEN BORROWED BY THE APPELLANT FOR THE PURPOSE OF BUSINE SS AND INTEREST SHOULD HAVE BEEN PAID ON SAID AMOUNT. IN THE PRESEN T CASE, THE APPELLANT HAS BORROWED THE MONEY AND ADVANCED IT TO THE SISTER CONCERN, WHO ARE IN THE BUSINESS OF MALL MANAGEMENT . THIS MONEY WAS ADVANCED AS PART OF THE SHORT AND LONG TERM STR ATEGY TO EXPAND MALL BUSINESS AND ALSO SET UP SUCH A PREMISE S FOR THE APPELLANT. THIS IS FOR THE PURPOSE OF BUSINESS AND HENCE THE AMOUNT IS HELD TO BE ADVANCED FOR THE PURPOSE OF BU SINESS AND THE INTEREST ON THE SAME IS ALLOWABLE. HENCE, THE GROUN D OF APPEAL OF THE APPELLANT IS ALLOWED. AGGRIEVED, REVENUE IS IN SECOND APPEAL BEFORE TRIBU NAL. 8. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH FA CTS AND CIRCUMSTANCES OF THE CASE. ADMITTEDLY AND FINALLY, THE BUSINESS CENTRE SERVICE CHARGES ARE ASSESSED AS BUSINESS RECEIPTS A ND WE HAVE ALSO CONFIRMED THIS ASPECT IN THE ABOVE ISSUE. WE FIND THAT THE AO HIMSELF 5 ITA NO. 2747/MUM/2013 NISHTA MALL MANAGEMENT CO. PVT. LTD. ASST. YEAR 2008-09 NOTED THE FACT THAT THE LOAN OF RS.15 CR. OBTAINED FROM CENTRAL BANK OF INDIA WAS UTILIZED FOR ADVANCING FURTHER LOAN TO AS SESSEES SISTER CONCERNS VIZ. ESES COMMERCIAL PVT. LTD. AND ERUDIT E TRADING PVT. LTD. AND FACTUALLY THIS IS A CORPORATE LOAN. LD. COUNSE L FOR THE ASSESSEE BEFORE US CLEARLY STATED THAT THE ASSESSEE AND ITS SISTER CONCERNS ARE ENGAGED IN THE BUSINESS OF REAL ESTATE AND THIS FAC T WAS ARGUED BEFORE CIT(A) BY ASSESSEE. HE EXPLAINED THAT THE ASSESSEE HAS EMBARKED UPON SETTING UP MALLS/BUSINESS CENTRE IN A VERY BIG WAY IN INDIA . DEVELOPING AND MANAGING MALLS/SHOPPING COMPLEXES IS A VERY COM PLEX SPECIALIZED BUSINESS ACTIVITY. IT REQUIRES HUGE CAPITAL INVESTM ENT, MANPOWER AND, ABOVE ALL, EXPERTISE AND KNOWLEDGE IN RETAIL MARKET AND CONSUMER BEHAVIOR. THE SISTER CONCERNS OF THE ASSESSEE WERE IN MALL MANAGEMENT AND DEVELOPMENT BUSINESS SINCE MANY YEARS DUE TO WH ICH THEY HAD ACQUIRED RELEVANT EXPERTISE AND KNOWLEDGE IN THE FI ELD OF MALL MANAGEMENT CO. LTD. AS THESE CONCERNS WERE ALREADY IN MALL BUSINESS AND THE ASSESSEE HAD ADVANCED AMOUNTS TO THESE CONC ERNS AS A PART OF ITS SHORT TERM AND LONG TERM STRATEGY TO EXPAND ITS MALL BUSINESS, INCLUDING CONSTRUCTION OF PREMISES FOR THE ASSESSEE IN POPULAR COMMERCIAL CENTRE FOR ENABLING THE ASSESSEE TO ESTA BLISH ITSELF MALL BUSINESS. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTA NCES, WE ARE OF THE VIEW THAT THE CIT(A) HAS RIGHTLY DELETED THE DISALL OWANCE OF INTEREST AND WE CONFIRM THE SAME. THIS GROUND OF REVENUES APPE AL IS DISMISSED. 9. IN THE RESULT, APPEAL FILED BY REVENUE IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON 7TH APRIL, 2 016. SD/- SD/- (R.C. SHARMA) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 7TH APRIL, 2016 JD. SR. P.S. 6 ITA NO. 2747/MUM/2013 NISHTA MALL MANAGEMENT CO. PVT. LTD. ASST. YEAR 2008-09 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. CIT(A) -17, MUMBAI 4. CIT- , MUMBAI 5. DR, B BENCH ITAT, MUMBAI 6. GUARD FILE. BY ORDER //TRUE COPY// (ASSTT. REGISTRAR) ITAT, MUMBAI