DCIT 1(1)(1), MUMBAI V. FGP LTD, MUMBAI

ITA 3474/MUM/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 9010 (ITAT-MUMBAI)
• Duration Of Justice: 7 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-01-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2009-2010
• Appeal Filed On: 18-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANUPAMA SINGLA
• Keywords: Capital asset; Business income; Depreciation

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI . . , , BEFORE SHRI C.N. PRASAD , JM AND SHRI RAJESH KUMAR , AM ITA NO. 347 4 / MUM/ 20 1 6 ( / ASSESSMENT YEAR: 20 09 - 10 ) DY.COMMISSIONER OF INCOME TAX 1(1)(1), ROOM NO.579, AAYAKAR BHAVAN, M K ROAD, MUMBAI - 400020 / VS. FGP LTD, COMMERCIAL UNION, 9, WALLACE ST REET , FORT, MUMBAI - 400001 ./ PAN : AAACF1671M ( / APPELLANT) : ( / RESPONDENT ) / A PPELLANT BY : MS.ANUPAMA SING LA /RESPONDENT BY : SHRI ASHWIN KASHINATH / DATE OF HEARING : 5.1.2017 / DATE OF PR ONOUNCEMENT : 18. 1. 201 7 / O R D E R PER RAJESH KUMAR, A. M: THIS IS AN APPEAL FILED BY THE REVENUE CHALLENGING THE ORDER DATED 16 .2.2016 PASSED BY THE LD. CIT(A) - 2, MUMBAI FOR THE ASSESSMENT YEAR 20 09 - 10. 2. GROUNDS OF APPEAL TAKEN BY THE REV ENUE ARE AS UNDER: 1 WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) WAS RIGHT IN HOLDING THAT THE RENTAL INCOME FROM THE BUSINESS CENTRE HAD TO BE ASSESSEE'S BUSINESS INCOME AGAINST THE INCOME FROM OTHER SOURCES HELD BY T HE A.O, IGNORING THE FACTS ON 2 ITA NO. 347 4 /M/201 6 RECORD IN THE FORM OF CONFIRMATION FILED BY THE TENANT WHICH DID NOT STATE ANY SERVICES WERE PROVIDED BY ASSESSEE WHICH SHOWED THAT THE ASSESSEE WAS RECEIVING MERE RENTAL INCOME FROM LETTING OUT PREMISES NOT OWNED BY IT ? ' 2. ' WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) WAS RIGHT IN ALLOWING EXPENDITURE DEBITED TO PROFIT & LOSS ACCOUNT AS SUBSTANTIAL PART OF THE EXPENDITURE PERTAINS TO THE PAYMENTS MADE TO INTERNAL AUDITORS, INCOME TAX C ONSULTANT, SERVICE TAX CONSULTANT AND LEGAL CONSULTANTS EVEN WHEN THIS EXPENDITURE PERTAINS TO EARLIER COURT CASES AND ALSO DIRECTING THE A.O. TO ALLOW THE EXPENSES UNDER THE HEAD 'BUSINESS'? ' 3. 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT(A) WAS RIGHT IN ALLOWING DEPRECIATION OF RS.56,048/ - ON PLANT AND MACHINERY INSTALLED IN THE LEASED PROPERTY WHOSE INCOME IS TO BE ASSESSED AS 'INCOME FROM OTHER SOURCES, EVEN WHEN THE ASSESSEE'S BUSINESS WAS ACTUALLY DISCONTINUED? 3. AT THE OUTSET, THE LD.AR POINTED OUT THAT THE CASE OF THE ASSESSEE IS FULLY COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE DECISION OF CO - ORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE AND THEREFORE THE APPEAL FILED BY THE REVEN UE SHOULD BE DISMISSED IN VIEW OF THE SAID DECISION. 4. THE ISSUE RAISED IN GROUND NO.1 IS AGAINST UPHOLDING THE TREATMENT OF RENTAL INCOME FROM PROPERTY FROM BUSINESS CENTRE AS BUSINESS INCOME INSTEAD OF OTHER SOURCES BY THE AO . THE ISSUE OF RENTA L INCOME FROM BUSINESS CENTER IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF CO - ORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.2653/MUM/2007 (AY - 2003 - 04) ORDER DATED 15.12.2010 VIDE PARA 2.2.5 TO 2.2.7 OF THE ORDER WHICH IS PRODUCED AS BELOW: 3 ITA NO. 347 4 /M/201 6 2.2.5 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING THE NATURE OF INCOME RECEIVED BY THE ASSESSEE FROM THE BUSINESS CENTRE. THE ASSESSEE WAS EARLIER IN SOME OTHER BUSINESS WHICH HAD CLOSED. AFTER CLOSURE OF THE SAID BUSINESS, THE ASSESSEE HAD PASSED A RESOLUTION FOR MAKING PRODUCTIVE USE OF ITS PREMISES FOR RUNNING THE SAME AS A BUSINESS CENTRE UNDER THE PROVISIONS OF CLAUSE 34 OF THE OBJECT CLAUSE OF THE MEMORANDUM OF ASSOCIATION WHICH AUTHO RIZED THE ASSESSEE COMPANY TO CARRY ONE ANY OTHER BUSINESS CALCULATED DIRECTLY OR INDIRECTLY TO ENHANCE THE VALUE OF OR RENDER PROFITABLE ANY OF THE COMPANY'S PROPERTIES. THE SAID RESOLUTION WAS APPROVED IN THE 38TH ANNUAL GENERAL MEETING OF THE COMPANY A COPY OF WHICH HAS BEEN PLACED ON RECORD. IN PURSUANCE OF SUCH RESOLUTION THE COMPANY DEVELOPED THE BUSINESS CENTRE IN TWO PHASES AS IS CLEAR FROM THE 39TH ANNUAL REPORT OF THE COMPANY PLACED ON RECORD. THE ASSESSEE COMPANY SPENT SUBSTANTIAL AMOUNT ON DEVEL OPMENT OF THE PREMISES AS BUSINESS CENTRE. A COPY OF THE BALANCE SHEET AS ON 31.3.2001 PLACED ON RECORD SHOWS THAT OUT OF GROSS BLOCK OF ASSETS OF RS.101.92 LACS THE ASSESSEE HAD SPENT A SUM OF RS.45.63 LACS ON IMPROVEMENT OF THE PREMISES AND ON FURNITURE AND FITTINGS AND EQUIPMENT. THE BUSINESS CENTRE HAD THE FACILITIES SUCH AS FURNITURE, FIXTURES, TELEPHONE DIRECT LINES, EPABX, TELEPHONE BOARD LINE, WATER, ELECTRICITY, SECURITY, CLEANING FACILITIES, BOARD ROOM MAINTENANCE FACILITIES AND FACILITIES FOR REC EIVING AND DISPATCH OF POSTS ETC. 2.2.6 THE ASSESSEE HAD TAKEN THE PREMISES ON LEASE ON MONTH TO MONTH BASIS AND AFTER DEVELOPING THE SAME AS BUSINESS CENTRE HAD SUBLET THE SAME TO DIFFERENT CORPORATE ENTITIES ALONG WITH FACILITIES. THE ISSUE IS WHETHER IN COME FROM SUBLETTING OF THE PREMISES WITH VARIOUS FACILITIES COULD BE CONSIDERED AS INCOME FROM BUSINESS OR INCOME FROM OTHER SOURCES. CIT(A) HAS HELD THAT THE ASSESSEE WAS DEEMED OWNER OF THE PROPERTY UNDER SECTION 27(IIIB) . BUT SINCE THE ASSESSEE HAD SUBLET THE PROPERTIES WITH VARIOUS FACILITIES HE HAS HELD THAT INCOME HAD TO BE ASSESSED AS INCOME FROM OTHER SOURCES AND NOT AS INCOME FROM HOUSE PROPERTY. THE DEPARTMENT HAS NOT CHALLENGED THE DECISION O F CIT(A) NOT TO ASSESS THE INCOME AS INCOME FROM HOUSE PROPERTY. THE PREMISES HAVE BEEN TAKEN BY THE ASSESSEE ON MONTH TO MONTH LEASE WHICH IS SPECIFICALLY EXCLUDED UNDER THE PROVISIONS OF SECTION 27(III B) AND THE ASSESSEE THEREFORE CANNOT BE DEEMED TO BE THE OWNER OF THE PROPERTY. IN ANY CASE IN OUR VIEW OWNERSHIP ISSUE IS NOT VERY RELEVANT BECAUSE THE PREMISES HAD BEEN SUBLET INSEPARABLY WITH 4 ITA NO. 347 4 /M/201 6 FURNITURE, FIXTURES, EQUIPMENTS AND OTHER FACILITIES AS INTE NTION OF THE ASSESSEE WAS TO SUBLET THE PROPERTY AS A BUSINESS CENTRE AND IN SUCH CASES WHERE THE LETTING IS INSEPARABLE WITH EQUIPMENTS AND FACILITIES THE INCOME HAS TO BE ASSESSED AS INCOME FROM OTHER SOURCES UNDER SECTION 56(2)(III) IF THE SAME IS NOT FOUND ASSESSABLE AS INCOME FROM BUSINESS IN VIEW OF THE JUDGMENT OF HON'BLE SUPREME COURT IN CASE OF SULTAN BROTHERS (51 ITR 353). THE ISSUE IS THEREFORE WHETHER THE INCOME HAS TO BE ASSESSED AS BUSINESS INCOME OR INCOME FROM OTHER SOURCES. 2.2.7 ON CAREFUL CONSIDERATION OF THE VARIOUS ASPECTS OF THE MATTER AS WELL AS THE VARIOUS JUDGMENTS PLACED ON RECORD WE ARE OF THE VIEW THAT RENTAL INCOME ON THE FACTS OF THE CASE HAS TO BE ASSESSED AS BUSINESS INCOME . IT IS NOT A CASE OF SIMPLE LETTING OUT OF THE PROPERTY TO ENJOY THE RENTAL INCOME. THE ASSESSEE HAS DEVELOPED THE PROPERTY AND ALSO MADE PROVISIONS FOR VARIOUS SERVICES AS MENTIONED EARLIER WITH A VIEW TO COMMERCIALLY EXPLOIT THE PROPERTY. THE PROPERTY H AS BEEN LET OUT WITH VARIOUS FACILITIES AND AMENITIES FOR CORPORATE CLIENTS SUCH AS BOARD ROOM FACILITIES, LETTERS RECEIPT/DISPATCH FACILITIES, COMPUTER WITH INTERNET FACILITIES, SECURITY ARRANGEMENTS IN ADDITION TO TELEPHONE AND ELECTRICITY AND WATER FACI LITIES ETC. THE INCOME HAS THEREFORE TO BE ASSESSED AS BUSINESS INCOME. THIS VIEW IS SUPPORTED BY THE JUDGMENT OF HON'BLE SUPREME COURT IN CASE OF S.G.MERCANTILE CORPORATION PVT. LTD. VS CIT (83 ITR 700). IN THE SAID CASE ONE OF THE OBJECT OF THE ASSESSEE IN ITS MEMORANDUM OF ASSOCIATION WAS TO TAKE ON LEASE OR OTHERWISE ACQUIRE AND TO HOLD, IMPROVE, LEASE OR OTHERWISE DISPOSE OF LAND, HOUSES AND OTHER REAL ESTATE AND PERSONAL PROPERTIES AND TO DEAL WITH THE SAME COMMERCIALLY. THE ASSESSEE HAD TAKEN ONE PRO PERTY WHICH WAS REMODELED AND REPAIRED SO AS TO MAKE IT FIT FOR SUBLETTING AS SHOP, STALLS AND GROUND SPACE TO SHOPKEEPERS ETC. THE ISSUE WAS WHETHER RENTAL INCOME SHOULD BE ASSESSED AS BUSINESS INCOME OR INCOME FROM OTHER SOURCES. HON'BLE SUPREME COURT OB SERVED THAT TAKING THE PROPERTY ON LEASE AND SUBLETTING PORTION THEREOF WAS PART OF BUSINESS OF THE ASSESSEE AND THEREFORE THE INCOME HAD TO BE ASSESSED AS BUSINESS INCOME SINCE THE ASSESSEE WAS NOT OWNER OF THE PROPERTY. THE CASE OF THE ASSESSEE IS SIMILA R. THE DECISION OF THE TRIBUNAL IN CASE OF HARVINDERPAL MEHTA (HUF) VS DCIT (122 TTJ 163) ALSO SUPPORTS THE CASE OF THE ASSESSEE. IN THAT CASE ALSO THE ASSESSEE WAS RUNNING A BUSINESS CENTRE IN THE PREMISES WITH VARIOUS FACILITIES SUCH AS RECEPTIONIST, TEL EPHONE OPERATOR, COMMON WAITING/ GUEST ROOM, CENTRALIZED AIR CONDITIONING WITH OTHER SERVICES LIKE SWEEPER, TELEPHONE, FURNITURE, FAX MACHINES ETC. THE TRIBUNAL OBSERVED THAT THE OBJECT OF THE ASSESSEE WAS TO RUN THE BUSINESS CENTRE BY EXPLOITING THE PROPE RTY 5 ITA NO. 347 4 /M/201 6 AND NOT MERE LETTING OUT THE SAME ON RENT. IT WAS ACCORDINGLY HELD THAT THE INCOME HAD TO BE ASSESSED AS INCOME FROM BUSINESS. THE LEARNED DR HAS PLACED RELIANCE ON THE JUDGMENT OF HON'BLE HIGH COURT OF GUJARAT IN CASE OF HARIKRISHNA FAMILY TRUST VS CI T (306 ITR 303) IN SUPPORT OF THE CASE OF THE DEPARTMENT. THE SAID CASE IN OUR VIEW IS DISTINGUISHABLE. THE ASSESSEE IN THAT CASE HAD TAKEN THE PROPERTY ON LEASE WHICH WAS INCOMPLETE AND AFTER COMPLETING THE CONSTRUCTION THE ASSESSEE LET OUT THE PREMISES T O POSTS & TELEGRAPH DEPARTMENT. THE PROPERTY HAD NOT BEEN DEVELOPED TO PROVIDE FOR ANY OTHER SERVICES. IT WAS A CASE OF SIMPLE LETTING OUT OF THE PROPERTY TO ENJOY THE RENTAL INCOME FROM A SINGLE TENANT. IT WAS UNDER THESE CIRCUMSTANCES THAT THE HIGH COURT HELD THAT THE INCOME HAD TO BE ASSESSED AS INCOME FROM OTHER SOURCES. THE CASE OF THE ASSESSEE IS DIFFERENT AS POINTED OUT EARLIER AS IN THIS CASE THE PREMISES HAD BEEN DEVELOPED AS A BUSINESS CENTRE AND SUBLET TO CORPORATE ENTITIES ALONG WITH VARIOUS SER VICES AND FACILITIES. WE THEREFORE HOLD THAT THE RENTAL INCOME IN THIS CASE HAS TO BE ASSESSED AS BUSINESS INCOME. THE ORDER OF CIT(A) IS SET ASIDE AND THE CLAIM OF THE ASSESSEE IS ALLOWED. 5. RESPECTFULLY FOLLOWING THE DECISIONS OF THE TRIBUNAL , IN ASSES SEES OWN CASE, THE ISSUE RAISED BY THE REVENUE IS DISMISSED. 6. GROUND NO.2 IS AGAINST DELETION OF DISALLOWANCE S IN RESPECT OF PAYMENT MADE TO INTERNAL AUDITOR, INCOME TAX CONSULTANT, SERVICE TAX CONSULTANT AND LEGAL CONSULTANTS BY THE LD.CIT. 7. THE RAI SED IN THE ABOVE GROUND IS ALSO COVERED BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CA S E VIDE PARA 2.7.3 OF ITA NO.2653/M/2007 (SUPRA) , WHEREIN IT HAS BEEN HELD VIDE PARA AS UNDER : 2.7.3 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVAL CONTEN TIONS CAREFULLY. THE DISPUTE IS REGARDING ALLOWABILITY OF EXPENDITURE OF RS.32,56,724/ - . THE DETAILS OF EXPENDITURE HAVE BEEN GIVEN IN PARA 2.7 EARLIER. THE AO HAS HELD THAT THE EXPENDITURE EITHER PERTAINED TO THE DISCONTINUED BUSINESS OR TO THE CAPITAL AS SET OF THE COMPANY AND THEREFORE HE DISALLOWED THE CLAIM. CIT(A) HAS DIRECTED THE AO TO EXAMINE THE NATURE OF EXPENSES AND CAPITALIZE SUCH 6 ITA NO. 347 4 /M/201 6 EXPENSES WHICH RELATED TO THE CAPITAL ASSET OF THE COMPANY AND TO ALLOW THE PROFESSIONAL EXPENSES OF REVENUE IN NATUR E UNDER INCOME FROM 'OTHER SOURCES'. WE FIND NO INFIRMITY IN THE ORDER OF CIT(A) DIRECTING THE AO TO EXAMINE THE NATURE OF EXPENSES AND CAPITALIZE ALL EXPENDITURE RELATED TO CAPITAL ASSET OF THE COMPANY. AS REGARDS THE DIRECTION OF CIT(A) TO ALLOW PROFESSI ONAL EXPENSES OF REVENUE IN NATURE AGAINST INCOME FROM OTHER SOURCES, WE MODIFY THE DIRECTION AND HOLD THAT THESE EXPENSES WILL BE ALLOWED AGAINST THE BUSINESS INCOME SINCE WE HAVE ALREADY HELD THAT INCOME FROM BUSINESS CENTRE HAS TO BE ASSESSED AS BUSINES S INCOME. WE DISPOSE OFF THE GROUND ACCORDINGLY RESPECTFULLY FOLLOWING THE DECISION OF THE CO - ORDINATE BENCH OF THE TRIBUNAL, WE ARE INCLINED TO DISMISS THE GROUND TAKEN BY THE REVENUE. 8 . THE ISSUE RAISED IN THE GROUND NO.3 IS AGAINST THE FINDING OF THE LD.CIT(A) ALLOWING DEPRECIATION OF RS.56,048/ - ON PLANT AND MACHINERY INSTALLED IN THE LEASED PROPERTY BY IGNORING THE FACTS THAT THE BUSINESS WAS DISCONTINUED AND THE INCOME TO BE ASSESSED AS INCOME FROM OTHER SOURCES. WE FIND THAT THIS ISSUE AL SO STANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE VIDE PARA 2. 8 AND 2.8.1 OF ITA NO.2653/M/2007 (SUPRA) , WHEREIN IT HAS BEEN HELD VIDE PARA AS UNDER : 2.8 THE DISPUTES RAISED IN GROUND NO.9 IS REGARDING D ISALLOWANCE OF DEPRECIATION OF RS.3,49,915/ - ON PLANT AND MACHINERY. THE AO DISALLOWED THE CLAIM OF DEPRECIATION ON THE GROUND THAT THERE WAS NO BUSINESS DONE BY THE ASSESSEE DURING THE YEAR. IN APPEAL CIT(A) CONFIRMED THE ORDER OF AO AGGRIEVED BY WHICH TH E ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 2.8.1 WE HAVE HEARD BOTH THE PARTIES PERUSED THE RECORDS AND CONSIDERED THE MATTER CAREFULLY. THE DISPUTE IS REGARDING ALLOWABILITY OF DEPRECIATION OF RS.3,49,915/ - ON PLANT AND MACHINERY. WE HAVE ALREADY HELD T HAT INCOME FROM BUSINESS CENTRE HAS TO BE ASSESSED AS BUSINESS INCOME. THEREFORE DEPRECIATION ON ALL THE PLANTS AND MACHINERY 7 ITA NO. 347 4 /M/201 6 INSTALLED IN THE BUSINESS CENTRE HAS TO BE ALLOWED. WE HOLD ACCORDINGLY . RESPECTFULLY FOLLOWING THE DECISION OF THE CO - ORDINATE B ENCH OF THE TRIBUNAL, WE ARE INCLINED TO DISMISS THE GROUND TAKEN BY THE REVENUE. 9 . IN THE RESULTS , THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH JAN, 2017. S D SD ( C.N. PRASAD ) ( RAJESH KUMAR) / J UDICIAL MEMBER / A CCOUNTANT MEMBER MUMBAI ; DATED : 18. 1.2017 SRL,SR.PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F ILE / BY ORDER, T RUE COPY / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI