SWAPNA MURARKA, MUMBAI V. ACIT 12(1), MUMBAI

ITA 3218/MUM/2012

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9233 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 10 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-03-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 04-03-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 09-05-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NEIL PHILIP
• Assessee Lawyers: ARUN SATHE
• Keywords: Gift; Earning of tax free income
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH E, MUMBAI BEFORE SHRI D. KARUNAKAR RAO, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER ITA NO. 3218/MUM/2012 ASSESSMENT YEAR: 2008-09 SWAPNA MURARKA BATLIVALA & KARANI 3 RD FLOOR, UNION BANK BUILDING, DALAL STREET FORT MUMBAI 400 001 PAN:-AATPM 3032 D VS. ACIT 12(1) MUMBAI (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI ARUN SATHE & MS. AARTI SATHE REVENUE BY : SHRI NEIL PHILIP DATE OF HEARING : 12.03.2015 DATE OF ORDER : 27 . 03.2015 O R D E R PER AMIT SHUKLA, JM: THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST ORDER DATED 07.03.2012, PASSED BY LD. CIT(A)-23, MUMBAI FOR THE QUANTUM OF ASSESSMENT PASSED U/S 143(3) FOR THE A.Y. 2008-09. 2. IN GROUND NO. 1 TO 3, THE ASSESSEE IS MAINLY AGG RIEVED BY THE FINDING OF THE LD. CIT(A) IN HOLDING THAT THE INCOM E FROM THE HOUSE PROPERTY SHOWN BY THE ASSESSEE ON LETTING OUT THE P ROPERTY ON RENT TO HER HUSBAND, IS A COLOURABLE TRANSACTION AND THEREF ORE, THE SAME IS ASSESSABLE UNDER THE HEAD, INCOME FROM OTHER SOURC ES; AND IN GROUND NO. 4 THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE MADE U/S 14A READ WITH RULE 8D. ITA NO. 3218/MUM/2012 ASSESSMENT YEAR: 2008-09 2 3. THE ASSESSEE IS AN INDIVIDUAL AND A OWNER OF A H OUSE PROPERTY WHO HAS FILED HER RETURN OF INCOME AT AN INCOME OF RS.1,39,38,925/-. SUCH A RETURN OF INCOME ALSO INCLUDED INCOME FROM HOUSE PROPERTY COMPUTED AT RS.12,65,575/- ON A GROSS RENT OF RS.18 ,25,000/-. ON THE VERIFICATION OF THE DETAILS OF RENT, THE AO NOTED T HAT ASSESSEE HAS RECEIVED THE RENT FROM HER HUSBAND IN RESPECT OF TH E PROPERTY WHICH WAS ALSO OCCUPIED BY THE ASSESSEE HERSELF. HE OBSERVED THAT THE ASSESSEE HAS RECEIVED RENT FROM HER HUSBAND IN RESPECT OF SE LF OCCUPIED PROPERTY AND THEREFORE, THERE IS NO RELATIONSHIP OF LESSOR A ND LESSEE. ACCORDINGLY, HE HELD THAT THE RENTAL INCOME RECEIVED BY HER CANN OT BE TAXED UNDER THE HEAD INCOME FROM HOUSE PROPERTY AND ACCORDINGLY , THE CLAIM OF MUNICIPAL TAXES PAID AND DEDUCTION U/S 24(A) WILL N OT BE ALLOWED. THE INCOME THUS WOULD BE TAXED UNDER THE HEAD INCOME FR OM OTHER SOURCES. 4. BEFORE THE LD. CIT(A), THE ASSESSEE SUBMITTED TH AT THE ASSESSEE NOT ONLY HAD THE RIGHT TO LET OUT HER THE PROPERTY TO HER HUSBAND BUT ALSO HAD THE RIGHT TO RESIDE WITH HER HUSBAND IN EX ERCISE OF HER MARITAL RIGHT. SECTION 22 PROVIDES THAT THE ASSESSEE SHOULD BE THE OWNER OF THE HOUSE PROPERTY AND IF SUCH A HOUSE PROPERTY HAD GEN ERATED INCOME THEN IT HAS TO BE TAXED UNDER THE HEAD INCOME FROM HOUSE PROPERTY. THERE IS NO PROHIBITION UNDER THE LAW, IF THE WIFE LETS OUT HER PROPERTY TO HER HUSBAND ON RENT, THEN SUCH RENTAL RECEIPTS CEASES T O THE INCOME FROM HOUSE PROPERTY. IT WAS FURTHER SUBMITTED THAT, IF T HE RENT RECEIVED FROM THE HUSBAND IS NOT ACCEPTED, THEN IT SHOULD BE TREA TED AS GIFT BUT UNDER NO CIRCUMSTANCES IT CAN BE TREATED AS INCOME FROM O THER SOURCES. HOWEVER, THE LD CIT(A) HELD THAT THE TRANSACTION BE TWEEN THE HUSBAND AND WIFE IS COLOURABLE DEVICE WITH AN OBJECT OF TAX AVOIDANCE. IT IS A SELF OCCUPIED PROPERTY OF THE ASSESSEE, WHEREIN HER HUSB AND STAYS ALONG ITA NO. 3218/MUM/2012 ASSESSMENT YEAR: 2008-09 3 WITH THE ASSESSEE AND THEREFORE, MONEY RECEIVED FRO M THE HUSBAND UNDER THE GUISE OF RENT IS A SHAM TRANSACTION. ACCO RDINGLY, HE DISMISSED THE ASSESSEES GROUND ON THIS SCORE. 5. BEFORE US, LEARNED COUNSELS SHRI ARUN SATHE AND MS. AARTI SATHE SUBMITTED THAT UNDER THE HINDU ADOPTIONS AND MAINT ENANCE ACT, 1956, IT IS THE DUTY OF THE HUSBAND TO PROVIDE RESIDENCE AND MAINTENANCE OF THE WIFE. THUS, WHEN THE ASSESSEE WAS RESIDING WITH HER HUSBAND, THEN SHE WAS UNDER A CONJUGAL RIGHT AND THE RESPONSIBILI TY OF MAINTENANCE IS WITH THE HUSBAND, WHICH ALSO INCLUDES PROVIDING RES IDENCE. OTHERWISE ALSO, THERE IS NO PROHIBITION UNDER THE ACT THAT WI FE CANNOT CHARGE RENT FROM HER HUSBAND. HERE IN THIS CASE THE PROPERTY IS OWNED BY THE ASSESSEE AND THE ASSESSEE HAS ALL THE RIGHTS TO LET OUT HER PROPERTY TO ANY PERSON INCLUDING HER HUSBAND. LEARNED COUNSEL F URTHER BROUGHT TO OUR NOTICE THAT IN THE SUBSEQUENT ASSESSMENT YEAR I .E. A.Y. 2010-11, THE DEPARTMENT HAS ACCEPTED THE RENT RECEIVED FROM THE HUSBAND AS TAXABLE UNDER THE HEAD INCOME FROM HOUSE PROPERTY. SUCH AN ACCEPTANCE BY THE DEPARTMENT HAS BEEN MADE IN THE O RDER PASSED UNDER SCRUTINY PROCEEDINGS U/S 143(3). 6. ON THE OTHER HAND, LD. DR STRONGLY RELIED UPON T HE ORDER OF THE LD. CIT(A) AND SUBMITTED THAT THE PROPERTY WAS SELF OCCUPIED AND THEREFORE ITS INCOME HAS TO BE TAKEN AT NIL. FURT HER WHEN THE ASSESSEE HERSELF RESIDING WITH HER HUSBAND THEN UNDER THE GU ISE OF RENT THE ASSESSEE IS RECEIVING MONEY FROM HER HUSBAND AND CL AIMING STATUTORY DEDUCTIONS U/S 24(B). THIS IS NOTHING BUT COLOURABL E DEVICE TO AVOID TAX. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS ALSO PERUSED THE RELEVANT FINDING GIVEN IN THE IMPUGNED ORDER. IT IS AN UNDIS PUTED FACT THAT THE ASSESSEE IS OWNER OF THE PROPERTY, WHEREIN SHE IS R ESIDING WITH HER ITA NO. 3218/MUM/2012 ASSESSMENT YEAR: 2008-09 4 HUSBAND. HER HUSBAND HAS PAID RENTAL INCOME TO THE ASSESSEE WHICH HAS BEEN DISCLOSED BY THE ASSESSEE IN HER RETURN OF INC OME AS INCOME FROM HOUSE PROPERTY. DEPARTMENTS CASE IS THAT SUCH AN I NCOME IS TO BE TAXED UNDER THE HEAD INCOME FROM OTHER SOURCES. SECTION 22 IS A CHARGING SECTION, WHEREIN THE ANNUAL VALUE OF THE PROPERTY I S TAXED UNDER THE HEAD INCOME FROM HOUSE PROPERTY. SECTION 23 TO SE CTION 27 PROVIDES THE DETERMINATION OF ANNUAL VALUE AND VARIOUS DEDUC TIONS. STRONG RELIANCE HAS BEEN PLACED BY THE DEPARTMENT ON SUBSE CTION (2) OF SECTION 23 WHICH READS AS UNDER:- 23 (2) WHERE THE PROPERTY CONSISTS OF A HOUSE OR PA RT OF A HOUSE WHICH- (A) IS IN THE OCCUPATION OF THE OWNER FOR THE PURPOSES OF HIS OWN RESIDENCE; OR (B) CANNOT ACTUALLY BE OCCUPIED BY THE OWNER BY REASON OF THE FACT THAT OWING TO HIS EMPLOYMENT, BUSINESS OR PROFESSION CARRIED ON AT ANY OTHER PLACE, HE HAS TO RESIDE AT THAT OTHER PLACE IN A BUILDING NOT BELONG ING TO HIM, THE ANNUAL VALUE OF SUCH HOUSE OR PART OF THE HOUSE SHALL BE TAKEN TO BE NIL. SECTION 23 ONLY PROVIDES THE COMPUTATION OF ANNUAL VALUE UNDER CERTAIN DEEMING CONDITIONS AS THE OPERATING PART OF SECTION 23(1) READS AS UNDER: FOR THE PURPOSES OF SECTION 22, THE ANNUAL VALUE O F ANY PROPERTY SHALL BE DEEMED TO BE.......... FROM THE PLAIN READING OF SUBSECTION (2) IT IS EVID ENT THAT THE ANNUAL VALUE OF A PROPERTY WHICH IS A SELF OCCUPIED, THEN ANNUAL VALUE CANNOT BE DEEMED AND SHALL BE TAKEN AT NIL. THIS DEEMING V ALUE AT NIL IS TO BE CLAIMED BY THE ASSESSEE. HOWEVER, IF THE ASSESSEE H AS LET OUT THE SELF OCCUPIED PROPERTY, THEN SUBSECTION (2) WILL NOT APP LY. THIS HAS BEEN ITA NO. 3218/MUM/2012 ASSESSMENT YEAR: 2008-09 5 SPECIFICALLY PROVIDED IN SUBSECTION (3) OF SECTION 23. IF THE ASSESSEE HAS CLAIMED THAT SELF OCCUPIED PROPERTY HAS BEEN LET OU T AND RENT HAS BEEN RECEIVED THEN THE ANNUAL VALUE CANNOT BE DEEMED AT NIL. HERE IN THIS CASE, THE MAIN ALLEGATION OF THE REVENUE THAT TRANS ACTION BETWEEN THE HUSBAND AND WIFE IS COLOURABLE TRANSACTION TO REDUC E THE TAX LIABILITY. HOWEVER, SUCH ALLEGATION CANNOT BE LABELED AGAINST THE ASSESSEE, UNLESS IT IS BROUGHT ON RECORD AS TO WHAT BENEFIT IS BEING DERIVED BY THE HUSBAND OR THERE IS ANY TAX AVOIDANCE BY THE HUSBAN D. IF AT ALL ANY ADVERSE INFERENCE IS TO BE DRAWN, THEN SAME NEEDS T O BE EXAMINED IN THE CASE OF THE HUSBAND, AS TO WHETHER ANY TAX BENE FIT IS BEING SOUGHT BY THE HUSBAND. EVEN FOR THE ARGUMENT SAKE, STAND O F THE REVENUE IS ACCEPTED, THEN THERE IS NO DENYING FACT THAT THE MO NEY HAS COME FROM HER HUSBAND AND IF SUCH A MONEY WAS NOT RENT, THEN IT CAN BE TREATED AS GIFT FROM A HUSBAND TO HIS WIFE. HOW CAN IT BE TREA TED AS INCOME FROM OTHER SOURCES. THE ENTIRE FINDING OF THE AO AS WELL AS LD. CIT(A), THAT IT IS A COLOURABLE TRANSACTION IS WITHOUT ANY MERITS A ND EXAMINING THE CASE OF THE HUSBAND. IF AT ALL THE REVENUE HAD ANY DOUBT ABOUT SUCH ARRANGEMENT, THEN BOTH THE CASES OF HUSBAND AND WIF E SHOULD HAVE BEEN EXAMINED. IF THE MONEY RECEIVED BY THE ASSESSE E HAS BEEN SHOWN BY LETTING OUT OF THE PROPERTY, THEN IT HAS TO BE T AXED AS INCOME FROM HOUSE PROPERTY UNLESS SOME MATERIAL IS BROUGHT ON RECORD TO CONTROVERT THE TRANSACTION. FURTHER AS BROUGHT ON RECORD BY TH E LEARNED COUNSEL, THE DEPARTMENT ITSELF IN THE SUBSEQUENT YEAR HAS AC CEPTED THE RENT RECEIVED FROM HUSBAND AS CHARGEABLE TO TAX UNDER TH E HEAD INCOME FROM HOUSE PROPERTY. THUS, ON THE FACTS OF THE CASE , THE ASSESSEES INCOME FROM LETTING OUT THE PROPERTY IS TO BE TAXED UNDER THE HEAD ITA NO. 3218/MUM/2012 ASSESSMENT YEAR: 2008-09 6 INCOME FROM HOUSE PROPERTY. ACCORDINGLY, THE GROU ND RAISED BY THE ASSESSEE IS ALLOWED. 8. IN GROUND NO. 4, THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE MADE U/S 14A READ WITH RULE 8D. THE ASSESSEE HAS EA RNED DIVIDEND INCOME OF RS.13,18,704/- WHICH WAS CLAIMED AS EXEMP T. IN THE COMPUTATION OF INCOME, THE ASSESSEE HAS NOT OFFERED ANY DISALLOWANCE U/S 14A. ACCORDINGLY, AO HELD THAT THE DISALLOWANCE HAS TO BE WORKED OUT IN ACCORDANCE WITH THE RULE 8D AND WORKED OUT T HE DISALLOWANCE AT RS.3,66,782/- BY WORKING OUT 0.5% OF THE AVERAGE IN VESTMENT. SUCH A DISALLOWANCE HAS ALSO BEEN CONFIRMED BY THE LD. CIT (A). 9. BEFORE US, LEARNED COUNSEL SUBMITTED THAT, ASSES SEE HAS NOT INCURRED ANY EXPENDITURE IN RELATION TO THE EARNING OF THE EXEMPT INCOME. ONCE THE ASSESSEE HAS CLAIMED THAT SHE HAS NOT INCURRED ANY EXPENDITURE, THEN AO WAS REQUIRED TO VERIFY THE ASS ESSEES CLAIM AFTER EXAMINING THE ACCOUNT AND THEN ONLY AFTER SATISFYIN G HIMSELF ABOUT THE CORRECTNESS OF ASSESSEES CLAIM HE COULD HAVE PROCE EDED TO RESORT TO RULE 8D FOR THE PURPOSE OF DISALLOWANCE. 10. ON THE OTHER HAND, LD. DR STRONGLY RELIED UPON THE ORDER OF THE LD. CIT(A). 11. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND ON PERUSAL OF THE MATERIAL PLACED ON RECORD, IT IS NOTICED THAT, THE ASSESSEE HAS SHOWN INCOME UNDER THE HEAD SALARY, INCOME FROM HOUSE PRO PERTY, CAPITAL GAINS AND INTEREST INCOME, WHICH IS MAINLY FROM SAV ING BANK ACCOUNT AND FDR. FROM THE PERUSAL OF THE P&L ACCOUNT, IT IS SEEN THAT ASSESSEE HAS DEBITED RS.1,52,835/- ON SHARE TRANSACTION CHAR GES AND STT CHARGES OF RS.2,89,148/- WHICH CAN BE SAID TO BE RELATABLE FOR PURCHASE OF SHARES. THE AO WITHOUT EXAMINING THE NATURE OF EXPE NDITURE AND ITA NO. 3218/MUM/2012 ASSESSMENT YEAR: 2008-09 7 ASSESSEES CLAIM, HAS RESORTED TO RULE 8D MECHANICA LLY. THIS IS NOT MANDATE OF THE LAW UNDER SECTION 14(2). ON THESE FA CTS AND IN THE INTEREST OF JUSTICE, WE RESTORE THIS MATTER TO THE FILE OF THE AO TO EXAMINE THE NATURE OF EXPENSES CLAIMED BY THE ASSES SEE AND WHETHER ANY EXPENDITURE CAN BE HELD TO BE ATTRIBUTABLE FOR EARNING OF THE EXEMPT INCOME OR NOT. WHILE DOING SO, THE ASSESSING OFFICE R WILL PROVIDE SUFFICIENT OPPORTUNITY TO THE ASSESSEE TO EXPLAIN H ER CASE. THUS, GROUND NO. 4 IS TREATED AS ALLOWED FOR STATISTICAL PURPOSE S. 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS TREATED AS PARTLY ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 27 TH DAY OF MARCH, 2015. SD/- SD/- (D.KARUNAKAR RAO) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 27.03.2015 *SRIVASTAVA COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR E BENCH //TRUE COPY// BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.