ACIT 6(3), MUMBAI V. MAHALAXMI ENGINEERING CO. P.LTD, MUMBAI

ITA 332/MUM/2012

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 1914 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 11 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-12-2015
• Appeal Filed By: Department
• Bench Allotted: B
• Next Hearing Date: 19-05-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 13-01-2012
• Court: TRIBUNAL
• Department Lawyers: PEEYUSH SONKAR
• Assessee Lawyers: S C TIWARI
• Keywords: Depreciation
• Section: 6

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B , BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM & SHRI RAM LAL NEGI , JM ./ ITA NO S . 5930 / MUM/20 1 0 & ITA NO.332 &5070 /MUM/2012) ( / ASSESSME NT YEAR S : 200 6 - 07 , 2007 - 08 & 2003 - 04 ) ACIT, CIR - 6(3), MUMBAI VS. M/S MAHALAXMI ENGG. CO. PVT. LTD., M AHALAXMI ENGG. ESTATE L.J.CROSS ROAD, MAHIM, MUMBAI - 400016 ./ ./ PAN/GIR NO. : A A A CM 5 986 C ( / APPELLANT ) .. ( / RESPONDENT ) AND ./ ITA NO. 5704/MUM/2012) ( / ASSESSMENT YEAR : 2003 - 04 ) M/S MAHALAXMI ENGG. CO. PVT. LTD., MAHALAXMI ENGG. ESTATE L.J.CROSS ROAD, MAHIM, MUMBAI - 400016 VS. D CIT, CIR - 6(3), MUMBAI ./ ./ PAN/GIR NO. : A AACM 5986 C ( / APPELLANT ) .. ( / RESPONDENT ) /REVENUE BY : SHRI PEEYUSH SONKAR /ASSESSEE BY : SHRI S.C.TIWARI & RUTUJA N. PAWAR / DATE OF HEARING : 01 / 1 2 /2015 / DATE OF PRONOUNCEMENT 18 / 12 /2015 / O R D E R PER R.C.SHARMA (A.M) : THESE ARE THE APPEALS FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A) FOR THE ASSESSMENT YEAR 2006 - 07, 2007 - 08 & 2003 - 04. THE ITA NO. 5930 /201 0 ITA NOS.332,5070,57 04/12 2 ASSESSEE HAS ALSO FILED AN APP EAL AGAINST THE ORDER OF CIT(A) FOR THE ASSESSMENT YEAR 2003 - 04. 2. COMMON GRIEVANCE OF THE REVENUE IN ALL THE YEARS RELAT E TO TREATMENT OF EXTRA SERVICE CHARGES RECEIVED FROM TENANT WHETHER AS INCOME FROM BUSINESS OR INCOME FROM OTHER SOURCES. 3. RIVAL CO NTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. FROM THE RECORD WE FOUND THAT THE MAINTENANCE CHARGES RECEIVED BY THE ASSESSEE WAS OFFERED IN THE RETURN OF INCOME AS INCOME FROM OTHER SOURCES. THE AO WAS OF THE VIEW THAT THE ASSESSEE HAD REDUCED THE RENT A ND SHOWN HIGHER RECEIPTS ON ACCOUNT OF MAINTENANCE CHARGES. ACCORDING TO HER, THE ALV OF THE PROPERTY SHOULD BE THE AGGREGATE AMOUNT OF RENT AND MAINTENANCE CHARGES RECEIVED BY THE ASSESSEE. SHE HAS OBSERVED THAT THE COMPANY HAD NOT BROUGHT ANYTHING ON REC ORD THAT TO PROVE THAT THEY HAVE PROVIDED ANY AMENITIES OR SERVICES TO THE TENANTS TO EARN MAINTENANCE CHARGES. SHE OBSERVED THAT T HE SO CALLED AMENITIES OR SERVICES ALLEGED TO BE PROVIDED WERE NORMAL FACILITIES WHICH ARE GIVEN TO A TENANT, SUCH AS SEPARAT E ELECTRICIT Y METER FOR TH E PREMISE, WATER SUPPLY, LIFT FACILITY, EMERGENCY EXIT, COMMON SECURITY ETC. THE SPLITTING OF THE INCOME INTO TWO HEADS HAD BEEN DONE TO FACILITATE DEDUCTION OF VARIOUS EXPENSES WHICH ARE NOT ALLOWABLE UNDER THE HEAD INCOME FROM H OUSE PROPERTY. ACCORDING TO THE AO, THE SPITTING OF INCOME HAD BEEN DONE TO AVOID PAYMENT OF THE CORRECT AMOUNT OF TAX. FINALLY, THE RENT AS WELL AS MAINTENANCE CHARGES WHICH WERE DECLARED AS INCOME FROM BUSINESS AND INCOME FROM OTHER SOURCES WERE TREATED AS INCOME FROM HOUSE PROPERTY. ITA NO. 5930 /201 0 ITA NOS.332,5070,57 04/12 3 THE ANTENNA CHARGES AMOUNTING TO RS. 1,64,217/ - WERE ASSESSED AS INCOME FROM OTHER SOURCES. IN THE PROCESS, THE ENTIRE EXPENDITURE CLAIMED IN THE P&L A/C OF RS. 55,69,898/ - WAS DISALLOWED. 4. BY THE IMPUGNED ORDER THE CIT(A) D IRECTED FOR TREATING THE MAINTENANCE CHARGES AS INCOME FROM OTHER SOURCES AFTER HAVING THE FOLLOWING OBSERVATION : - 3.3 I HAVE CONSIDERED THE SUBMISSIONS. ACCORDING TO THE MAINTENANCE SERVICE AGREEMENT BETWEEN THE APPELLANT AND JAINAM TRADING & INVESTMENT P. LTD., THE SERVICES PROVIDED ARE AS UNDER: I. ACCESS TO THE PREMISES ON ALL DAYS AND AT ALL TIMES AND HOURS, WHETHER BUSINESS DAYS OR HOURS OR OTHERWISE. II. ADEQUATE CAR PARKING FACILITY. III. ALUMINUM SLIDING IV. DAY AND NIGHT COMMON WATCHM AN V. COMMON LIGHTING IN PASSAGE AND COMPOUND VI. EMERGENCY EXIT . VII. FURNITURE AND FITTINGS VIII. A SEPARATE ELECTRICITY METER FOR THE PREMISES TO RECORD THE USE OF POWER IX. CONSTANT WATER SUPPLY X. WELL WATER FOR TOILET AND GENERAL CLEANIN G PURPOSE XI. ADEQUATE TOILET AND SEWAGE FACILITIES XI. PAINTING OF THE COMMON AREAS OF THE PREMISES AS PER BMC RULES XIII. PROVIDE THE SECURITY FOR THE ENTIRE PROPERTY XIV. ALL FACILITY AND SERVICES WHICH IT MAKES AVAILABLE GENERALLY TO THE OTHE RS IN THE SAME BUILDING AND XV. PROPER MAINTENANCE OF THE COMMON AREAS OF THE PREMISES. 3.4 ALL THE ABOVE FACILITIES CANNOT BE TREATED A S EXTRA SERVICES WHICH ARE PROVIDED. AS A LANDLORD, THE APPELLANT IS REQUI RE D TO PROVIDE SOME BASIC FACILITIES ALONG WITH THE S PACE TO THE TENANT WHICH INCLUDE EMERGENCY EXIT, WATER SUPPLY, TO I LET AND SEWAGE FACILITIES ETC. NUMBER OF SERVICES MENTIONED IN THE ANNEXURE OF THE AGREEMENT ARE SUCH THAT ARE NORMALLY PROVIDED TO THE TENANT ALONG WITH THE BUILDING. THE SERVIC ES ARE THEREFORE, INCLUDED IN THE RENT RECEIVED FROM THE PROPERTY AND CANNOT BE SAID TO BE EXTRA SERVICES. THESE ARE THE SERVICES MENTIONED AT SR. NOS. (I), (II), (V), (VI), (VIII), (XI), (XII), (XIV) & (XV). THE ONLY EXTRA SERVICES COULD BE ALUMINUM SLIDI NG FOR SECURITY, FURNITURE AND FIXTURES, PROVISION OF SECURITY SERVICES ETC. THE APPELLANT HAS INSTALLED A BOREWELL IN PURSUANCE OF THE DEMAND OF THE TENANT FOR 24 HOURS CONTINUOUS WATER SUPPLY. THIS CAN ALSO BE TREATED AS AN EXTRA SERVICE. FOR THE RENT OF THE SO ITA NO. 5930 /201 0 ITA NOS.332,5070,57 04/12 4 CALLED SERVICES, THE AMOUNT RECEIVED SHOULD BE INCLUDED IN THE RENTAL INCOME OR INCOME UNDER THE EXTRA SERVICES PROVIDED SHOULD BE TREATED AS 'INCOME FROM BUSINESS' OR 'INCOME FROM OTHER SOURCES' 5. THE REVENUE IS ALSO AGGRIEVED FOR RESTRICTING TH E DISALLOWANCE OF RS. 55.69 LAKHS U/S.57(III) OF THE ACT TO RS.29.42 LAKHS BY TREATING THE RECEIPT AS INCOME FROM BUSINESS OR OTHER SOURCES, INSTEAD OF INCOME FROM HOUSE PROPERTY. 6. WE HAVE CONSIDERED RIVAL CONTENTIONS AND GONE THROUGH THE ORDERS OF LOWER AUTHORITIES. FROM THE RECORD WE FOUND THAT T HE DISALLOWANCE HAS BEEN M A DE STATING THAT NOTHING HAS BEEN BROUGHT ON ACCOUNT TO PROVE THE NEXUS OF THE EXPENDITURE WITH THE INCOME. THE MAJ OR ITEM OF EXPENDITURE IN THE P &L A /C CONSISTS OF MAINTENANCE CHARGES O F RS.30,78, 000 / - AND ADMINISTRATIVE EXPENDITURE OF RS.20, 37,894/ - . IN ADDITION AN AMOUNT OF RS. 6 LACS 'HAS BEEN P AID AS SALARY TO DIRECTOR. THE ASSESSEE SUBMITTED A 'STATEMENT', OF EXPENSES INCURRED IN RELATION TO PROVISIONS OF EXTRA SERV ICES . THE MAJOR E XPENSES ARE AS UNDER : - DEPRECIATION RS. 6,43,355/- PROF. TAX RS.35,33,480/- REPAIRS & MAINTENANCE RS. 34,22,888/- SECURITY CHARGES RS. 5,16,948/- DIRECTORS REMUNERATION RS. 6,00,000/ - OUT OF THE ABOVE EXPENDITURE, DEPRECIATION IS NOT ALLOWA BLE AGAINST 'INCOME FROM HOUSE PROPERTY '. PROPERTY TAX EXPENSES ARE ALLOWED AGAINST HOUSE PROPERTY INCOME AND HAVE BEEN ADJUSTED IN THE ASSESSMENT ORDER UNDER THAT HEAD. AS REGARDS SECURITY CHARGES, THIS HAS TO BE ALLOWED IN FULL AGAINST SECURI TY SERVICES PROVIDED WHICH IS AN EXTRA SERVICE AND NOT A PART OF THE RENT. ITA NO. 5930 /201 0 ITA NOS.332,5070,57 04/12 5 7 . AS REGARDS REPAIRS, THE ASSESSEE HAS PROVIDED THE F OLLOWIN G SERVICES WHICH ARE OVER AND ABOVE ORIGINAL DAY TO DAY REPAIRS TO THE PREMISES WHICH ARE ALLOWABLE AT A FIXED RATE UNDER INCOME FR OM HOUSE PROPERTY. THESE ARE AS UNDER: SANITORIAL SERVICES RS. 3, 11,714/ - PREVENTIVE MAINTENANCE CONTRACT RS.14,99,233/ - TOTAL RS. 18, 10,947/ - THE SA NITO RI AL SERVICES ARE NOT USUALLY PROVIDED BY THE LANDLORD. THIS, THEREFORE, IS AN EXTRA SE RVICE. THE ASSESSEE HAS SUBMITTED ONE OF THE TENANTS IS A TELECOM OPERATOR AND HAS INSTALLED SENSITIVE TELECOM EQUIPMENT IN THE PREMISES. SOME OTHER TENANTS ARE MULTINATIONAL CORPORATIONS. THE TENANTS HAD INSISTED THAT THE ASSESSEE SHOULD ENGAGE AN ENGINEE RING .CONSULTANT TO MONITOR THE UPKEEP OF THE BUILDING ACCORDING TO THE STRICT STANDARD IMPOSED BY THEM . FOR THIS REASON, THE APPELLANT HAD T O ENGAGE A CONSULTANT TO WHICH MONTHLY PAYMENTS WERE MADE AT A FIXED RATE. THIS IS NOT A PART OF TH E REPAIR WORK T O BE UNDERTAKEN BY THE APPELLANT BUT SPECIALLY PROVIDE D ON THE CLIENT'S REQUEST. THE AGGREGATE AMOUNT, THEREFORE, WHICH SHOULD BE ALLOWED ON ACCOUNT OF REPAIR AND MAINTENANCE UNDER THE HEAD OTHER SOURCES OF RS.18,10,947/ - OUT OF TOTE' REPAIR EXPENDI TURE O F RS.34,22,888 / - . THE BALANCE AMOUNT WOU LD BE COVERED UNDE R R EPAIR ALLOWANCE UNDER THE HEAD 'INCOME FROM T HE HOUSE PROPERTY. OUT OF T HE TOTAL DISALLOWANCE OF EXPENDITURE AMOUNTI NG TO RS.5 5 .59,89 8/ - , THE FOLLOWING EXPENSES ARE ALLOWABLE UNDER THE HEAD INCOM E FROM OTHER SOURCES. ITA NO. 5930 /201 0 ITA NOS.332,5070,57 04/12 6 REPAIRS RS. 18, 1 0,947/ - DIRECTORS REMUNERATION RS. 3,00,000 / - 50% SECURITY CHARGES RS.5,16,948/ - RS.26,27 ,895/ - THE AMOUNT OF R S .3 L ACS ABOVE REPRESENTS 50% OF THE MANAGERIAL REMUNERATION ASSU M IN G THAT SO MUCH TIME HAS BEEN SPENT BY THE DIRECTOR ETC. ON LOOKING AFTER THIS ASPECT. THE BALANCE AMOUNT OF RS.29,42,003/ - SHOULD BE DISALLOWED AS EXPENDITURE. IN OTHER WORDS, THE DISALLOWANCE OF RS.55,69,898/ - IS RESTRICTED TO RS.29.42,003/ - . 8. THE DETAILED FINDING HAS BEEN REC ORDED BY CIT(A) AFTER CONSIDERING THE MAINTENANCE AGREEMENT ENTERED BY THE ASSESSEE FOR COMING TO THE CONCLUSION THAT SERVICES RELATING TO FURNITURE AND FIXTURES, PROVISIONS FOR SECURITIES SERVICES, BOREWELL FOR WATER SUPPLY ARE THE EXTRA SERVICES , THE AMO UNT RECEIVED FOR THESE SERVICES ARE NOT TO BE TREATED AS INCOME FROM HOUSE PROPERTY. THE CIT(A) HAS FURTHER GIVEN HIS FINDING AT PARA 4 AND ARRIVED AT THE EXPENSES ATTRIBUTABLE TO RENTAL INCOME VIS - - VIS INCOME FROM OTHER SOURCES. ACCORDINGLY, DISALLOWANCE OF RS.55,69,898/ - MADE BY THE AO WAS RESTRICTED TO RS. 29,42,003/ - . THE DETAILED FINDING RECORDED BY CIT(A) WAS NOT CONTROVERTED BY LD. DR. ACCORDINGLY, WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF CIT(A) FOR DELETING THE DISALLOWANCE OF EXPENSES INCURRED FOR EARNING INCOME FROM OTHER SOURCES. 9. SIMILAR GROUNDS HAVE BEEN TAKEN BY THE REVENUE IN THE ASSESSMENT YEAR 2003 - 04 & 2007 - 08. FOLLOWING THE REASONING GIVEN HEREINABOVE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) FOR REDUCING THE DI SALLOWANCE MADE BY THE AO. ITA NO. 5930 /201 0 ITA NOS.332,5070,57 04/12 7 10. IN VIEW OF THE FINDINGS GIVEN BY CIT(A) IN HIS ORDER, WHICH WE HAVE APPROVED HEREINABOVE, WE DO NOT FIND ANY MERIT IN THE CROSS APPEAL FILED BY THE ASSESSEE IN ITA NO.5704/MUM/2012. ACCORDINGLY, THE SAME IS DISMISSED. 1 1 . IN THE RESULT, APPEAL OF ASSESSE E (ITA NO.5704/MUM/2012 ) AS WELL AS APPEALS OF THE REVENUE (ITA NOS.5930/MUM/10 , ITA NOS. 332 &5070 /MUM/2012) ARE DISMISSED, IN TERMS INDICATED HEREINABOVE . O RDER PRONOUNCED IN THE OPEN COURT ON THIS 18/12 / 201 5 . SD/ - ( R AM LAL NEGI ) SD/ - ( R.C.SHARMA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED 18/12 /2015 . . /PKM , . / PS / COPY OF THE ORDER FORWARDED TO : / BY OR DER, / ( ASSTT. REGISTRAR) , / ITAT, MUMBAI 1. / THE APPELLANT 2. / THE R ESPONDENT. 3. ( ) / THE CIT(A), MUMBAI. 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. //TRUE COPY//