M/s. Keyaram Hotels Pvt. Ltd., CHENNAI V. DCIT, CHENNAI

ITA 2917/CHNY/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 8010 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-01-2017
• Appeal Filed By: Assessee
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 13-10-2016
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Assessee Lawyers: A S SRIRAMAN
• Keywords: Business income
• Section: 143(3); 14A

Judgement Text

, ' ' , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI . , . , $ % BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER ' ( / APPELLANT BY : SHRI A.S. SRIRAMAN, ADVOCATE +,' ( / RESPONDENT BY : SHRI A.V. SREEKANTH, JCIT ( /DATE OF HEARING : 03.01.2017 ( /DATE OF PRONOUNCEMENT : 16.01.2017 /O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER: THE ASSESSEE HAS FILED AN APPEAL AGAINST THE ORDE R OF THE COMMISSIONER OF INCOME TAX (APPEALS) - 8, IN ITA NO . 109/2015-16 DATED 14.09.2016 PASSED U/S. 143(3) AND 250 OF THE INCOME TAX ACT. THE ASSESSEE HAS RAISED TWO SUBSTANTIVE GROUNDS THAT THE LD. CIT (A) ERRED IN CONFIRMING ./ I.T.A. NO. 2917/MDS/2016 / ASSESSMENT YEAR : 2012-13 M/S. KEYARAM HOTELS P. LTD., NO. 2, HARRINGTON ROAD, CHETPET, CHENNAI - 600 031 [PAN: AABCK 8077D] VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 4(2), CHENNAI. ( / APPELLANT) ( /RESPONDENT) :-2-: I.T.A. NO. 2917/MDS/2016 THE ACTION OF THE ASSESSING OFFICER IN ASSESSING TH E INCOME FROM LETTING OF THE COMMERCIAL SPACE, MAINTENANCE AND HIRE CHARGES UNDE R THE INCOME FROM HOUSE PROPERTY AS AGAINST THE INCOME FROM BUSINESS AND LD. CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 2,90,702/- UNDER PROVISIONS OF SECTION 14A OF THE ACT R.W.R. 8D OF THE INCOME TAX RULE . 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY IS IN THE BUSINESS ACTIVITY OF HOTELS AND HIRING COMMERCIAL C OMPLEX AND FILED THE RETURN OF INCOME ON 30.09.2012 WITH TOTAL INCOME OF RS. 5,82,59,360/- AND RETURN OF INCOME WAS PROCESSED U/S. 143(1) OF THE A CT. SUBSEQUENTLY, THE CASE WAS SELECTED FOR SCRUTINY AND NOTICE U/S. 143( 2) WAS ISSUED. IN THE COURSE OF ASSESSMENT PROCEEDINGS THE LD. AR APPEARE D FROM TIME TO TIME AND EXPLAINED THE BUSINESS ACTIVITIES OF HOTELS AND COM MERCIAL COMPLEX AND INCOME GENERATED FROM (I) LETTING OF COMMERCIAL COM PLEXES (II) MAINTENANCE AND OTHER BUSINESS RECEIPTS (III) HIRE CHARGES. TH E ASSESSEE HAS DISCLOSED INCOME FROM BUSINESS AND SUBSTANTIATED THAT SUCH IN COME FALL UNDER THE HEAD OF INCOME FROM BUSINESS, BUT THE LD. AO FOUND ASSES SEE HAS LET OUT THE PORTIONS OF PROPERTY TO VARIOUS CLIENTS WITH ADDITI ONAL RIGHT AND COMMON FACILITIES WHERE RENT IS BEING CHARGED FROM MONTH T O MONTH BASIS. THE LD. AR OF THE ASSESSEE RELIED ON THE ASSESSEE'S OWN CASE O F JURISDICTIONAL HIGH COURT FOR THE ASSESSMENT YEAR 2001-02, AND AS PER THE OBJ ECT CLAUSE OF MEMORANDUM OF ASSOCIATION THE ASSESSEE COMPANY EARN ED INCOME UNDER THE :-3-: I.T.A. NO. 2917/MDS/2016 BUSINESS INCOME AND THE LD. AO RELIED ON MADRAS HIG H COURT DECISION IN THE CASE OF CHENNAI PROPERTIES AND INVESMENT LTD., 265 ITR 685 (MDS). WHERE THE ASSESSEE HAS ENGAGED IN PROPERTY BUSINESS BUT R EALISED INCOME BY LETTING OUT BUILDINGS AND SHALL BE TREATED AS 'INCOME FROM HOUSE PROPERTY'. FURTHER, THE LD. AO FOUND THE INCOME FROM HIRE CHARGES PERTA INS TO LETTING OUT OF SCAFFOLDING MATERIALS. THE ACTIVITIES OF THE ASSES SEE ARE IN A SYSTEMATIC MANNER AND FALLS OUT OF PURVIEW OF BUSINESS INCOME AND FALLS UNDER INCOME FROM OTHER SOURCES. THE ASSESSEE RECEIVED RENTAL I NCOME AND MAINTENANCE CHARGES AS PER THE TERMS OF AGREEMENT AND CLAIMED A S BUSINESS INCOME. WHEREAS, THE MAINTENANCE CHARGES INCLUDES MAINTENAN CE OF COMMON FACILITIES AND AMENITIES, MAINTENANCE OF EQUIPMENT, INSURANCE, ELECTRICITY CHARGES, AIR- CONDITIONING, SECURITY CHARGES, MAINTENANCE OF GARD ENS, LIFTS, PUMP-SETS ETC., AND ANY OTHER SERVICES OR FACILITY PROVIDED BY PROP ERTY MANAGER. WITH THESE ABOVE FINDINGS, THE ASSESSING OFFICER TREATED TOTAL RENTAL INCOME OF THE ASSESSEE UNDER INCOME FROM HOUSE PROPERTY AND ALSO DISALLOWED U/S. 14A R.W.R. 8D RS. 2,90,702/- AND PASSED ORDER U/S. 143( 3) DATED 30.03.2005. 3. AGGRIEVED BY THE ORDER, ASSESSEE FILED AN APPEAL WITH THE CIT(A) . IN THE APPELLATE PROCEEDINGS LD. AR REITERATED THE SUBMISSIONS MADE BEFORE ASSESSING OFFICER AND THE WRITTEN SUBMISSIONS FILED . THE LD. CIT(A) CONSIDERED THE ARGUMENTS AND THE FINDINGS OF THE AS SESSING OFFICER AND CAME TO A CONCLUSION AND RELIED ON THE DECISION OF THE A SSESSEE'S OWN CASE REFERRED :-4-: I.T.A. NO. 2917/MDS/2016 AT PAGE 6 OF THE ORDER AND CONFIRMED THE ACTION OF THE ASSESSING OFFICER IN TREATING THE INCOME FROM HOUSE PROPERTY. WHEREAS, THE LD. CIT(A) OBSERVED UNDER PROVISIONS OF SECTION 14A R.W.R. 8D. THE ASS ESSING OFFICER MADE DISALLOWANCE @ 5% WHICH IS NOT IN ACCORDANCE WITH L AW. AS PER PROVISIONS, THE AO HAS TO CALCULATE DISALLOWANCE AS PER THE PRO VISIONS OF SECTIN 14A R.W.R. 8D AS APPLICABLE FROM ASSESSMENT YEAR 2008-09 AND D IRECTED THE ASSESSING OFFICER TO RECOMPUTE THE DISALLOWANCE U/S. 14A R.W. R. 8D AND PARTLY ALLOWED THE APPEAL. 4. AGGRIEVED BY THE ORDER, ASSESSEE FILED AN APPEAL BEFORE THE TRIBUNAL. THE LD. AR ARGUED THE GROUNDS AND REITER ATED THE FINDINGS AND SUBMISSIONS MADE IN THE ASSESSMENT PROCEEDINGS AND THE APPELLATE PROCEEDINGS AND RELIED ON THE ASSESSEE'S OWN CASE F OR THE ASSESSMENT YEAR 2010-11 OF CO-ORDINATE BENCH DECISION IN ITA NO. 40 2/MDS/2013 & OTHERS DATED 01.06.2016 WHERE THESE FACTS WERE CONSIDERED EXHAUSTIVELY AND DECIDED THE APPORTIONMENT OF RENTAL INCOME AND PRAY ED FOR ALLOWING THE APPEAL. CONTRA, THE LD. DR RELIED ON THE ORDERS OF THE LOWER AUTHORITIES. 5. WE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATE RIAL ON RECORD AND JUDICIAL DECISIONS. WE FIND THE SOLE CRUX OF THE I SSUE BEING CHARGING OF RENTAL INCOME AS BUSINESS INCOME AND ALLOW THE EXPENDITURE . WE FIND SIMILAR ISSUE :-5-: I.T.A. NO. 2917/MDS/2016 DEALT BY THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEE'S OWN CASE IN ITA NO. ITA NO. 402/MDS/2013, ITA NO. 1095/MDS/2014 AN D ITA NO. 2215 & 2216/MDS/2015 DATED 01.06.2016, WHERE IT WAS HELD A T PAGE 14 PARA 10 READ AS UNDER: ' 10. WE HAVE CONSIDERED THE FACTS OF THE CASE IN THE LIGHT OF THE JUDGMENT OF APEX COURT IN CHENNAI PROPERTIES AND IN VESTMENTS LTD. (SUPRA). IT IS NOT IN DISPUTE THAT APART FROM LETTI NG OUT THE PROPERTY, THE ASSESSEE IS MAINTAINING COMMON AREA, LIFT OPERATION , PROVIDING SECURITY, MAINTENANCE OF WAITING HALL, MEETING HALL, ETC. THE SE ACTIVITIES ARE CARRIED ON IN A SYSTEMATIC AND REGULAR MANNER. THER EFORE, THE SERVICE PROVIDED BY THE ASSESSEE IN A SYSTEMATIC AND REGULA R MANNER WOULD AMOUNT TO BUSINESS ACTIVITY. THE RENTAL AGREEMENT E NTERED INTO BY THE ASSESSEE DOES NOT BIFURCATE THE RENT FOR THE SERVIC ES PROVIDED AND LETTING OUT THE PROPERTY. HOWEVER, FOR THE ASSESSME NT YEAR 2003-04, THE ASSESSEE APPEARS TO HAVE CLAIMED BEFORE THE ASS ESSING OFFICER THAT 75% OF THE RENTAL INCOME HAS TO BE ASSESSED AS INCO ME FROM HOUSE PROPERTY AND 25% IS ALLOTTED TO PROVIDING SERVICES, WHICH HAS TO BE TREATED AS INCOME FROM BUSINESS. THIS CLAIM OF THE ASSESSEE WAS ACCEPTED BY THE CIT(APPEALS) FOR ASSESSMENT YEAR 20 03-04. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT IN VIEW OF THE LAW LAID DOWN BY THE APEX COURT IN CHENNAI PROPERTIES AND INVESTM ENTS LTD. (SUPRA), PART OF THE RENTAL INCOME RECEIVED BY THE ASSESSEE FOR PROVIDING SERVICES HAS TO BE CLASSIFIED AS INCOME FROM BUSINE SS. SINCE THE ASSESSEE ITSELF CLAIMS 75% OF RENTAL INCOME HAS TO BE CLASSIFIED AS INCOME FROM HOUSE PROPERTY, THE CIT(APPEALS) HAS RI GHTLY FOUND THAT 75% OF THE RENTAL INCOME FOR ASSESSMENT YEAR 2003-0 4 AS INCOME FROM HOUSE PROPERTY. THEREFORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE IT(APPEALS) HAS RIGHTLY FOUND THAT 75% OF THE RENTAL INCOME :-6-: I.T.A. NO. 2917/MDS/2016 HAS TO BE ASSESSED AS INCOME FROM HOUSE PROPERTY AN D THE BALANCE 25% AS INCOME FROM BUSINESS. BY RESPECTFULLY FOLLOW ING THE LAW LAID DOWN BY THE APEX COURT IN CHENNAI PROPERTIES AND IN VESTMENTS LTD. (SUPRA), WE HOLD THAT THE RENTAL INCOME HAS TO BE B IFURCATED AND 75% OF THE SAME HAS TO BE CLASSIFIED AS INCOME FROM HOU SE PROPERTY AND 25% HAS TO BE CLASSIFIED AS INCOME FROM BUSINESS. 11. WHILE CONFIRMING THE ORDER OF THE CIT(APPEALS) FOR ASSESSMENT YEAR 2003-04, THE ORDERS OF THE LOWER AU THORITIES FOR ASSESSMENT YEARS 2010-11, 2006-07 AND 2009-10 ARE S ET ASIDE AND THE ASSESSING OFFICER IS DIRECTED TO ASSESS 75% OF THE RENTAL INCOME RECEIVED BY THE ASSESSEE AS INCOME FROM HOUSE PROPE RTY AND 25% AS INCOME FROM BUSINESS AFTER ALLOWING ALL APPLICABLE EXPENDITURE AS PER THE PROVISIONS OF LAW.' WE RESPECTFULLY FOLLOWING THE CO-ORDINATE BENCH DEC ISION DIRECT THE ASSESSING OFFICER TO ASSESS 75% OF THE INCOME OF THE ASSESSEE AS INCOME FROM HOUSE PROPERTY AND 25% AS INCOME FROM BUSINESS AND ALLOW THE RELATED EXPENDITURE AND PARTLY ALLOWED THE GROUND OF THE ASSESSEE. 6. WE FIND THE LD. AO MADE DISALLOWANCE U/S. 14A OF THE ACT BY FIXED PERCENTAGE 0.5%. WHEREAS, THE LD. CIT(A) CONSIDERE D THESE FACTS AND DIRECTED THE ASSESSING OFFICER TO RE-CALCULATE BASE D ON THE PROVISIONS OF SECTION 14A R.W.R. 8D AS THEY ARE MANDATORILY APPLI CABLE. THEREFORE, WE ARE NOT IN INCLINED TO INTERFERE WITH THE ORDER OF THE CIT(A) AND UPHELD THE SAME AND ALLOW THE GROUND OF THE ASSESSEE FOR STATISTICA L PURPOSE :-7-: I.T.A. NO. 2917/MDS/2016 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON MONDAY, THE 16TH DAY OF JANUARY , 2017 AT CHENNAI. SD/ - ( . ) (ABRAHAM P. GEORGE) / ACCOUNTANT MEMBER SD/ - ( . ) (G. PAVAN KUMAR) $ /JUDICIAL MEMBER /CHENNAI, 2 /DATED: 16 TH JANUARY, 2017 JPV ( +$45 65 /COPY TO: 1. ' /APPELLANT 2. +,' /RESPONDENT 3. 7 ( )/CIT(A) 4. 7 /CIT 5. 5 +$$ /DR 6. /GF