PROCTER & GAMBLE HOME PRODUCTS LTD, MUMBAI V. DCIT CIR 8(2), MUMBAI

ITA 3531/MUM/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 3298 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-06-2016
• Appeal Filed By: Assessee
• Bench Allotted: K
• Next Hearing Date: 12-04-2016
• Assessment Year: 2004-2005
• Appeal Filed On: 16-05-2014
• Court: TRIBUNAL
• Department Lawyers: N K CHAND
• Assessee Lawyers: HARESH G BUCH; MONICA AGARWAL
• Keywords: Business income; Depreciation; Business expenditure
• Section: 143(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL K , BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM & SHRI AMIT SHUKLA , JM ./ ITA NO. 3531 / MUM/20 1 4 ( / ASSESSMENT YEAR : 20 04 - 20 05 ) PROCTER & GAMBLE HOME PRODUCTS LIMITED (ERSTWHILE PROCTER & & GAMBLE DISTRIBUTION COMPANY LIMITED), P&G PLAZA CARDINAL GRACIAS ROAD, CHAKKALA, ANDHERI(E), MUMBAI - 400009 VS. DCIT, CIRCLE - 8(2), MUMBAI ./ ./ PAN/GIR NO. : A A A C P 4072 C ( / APPELLANT ) .. ( / RESPONDENT ) /ASSESSEE BY : SHRI HARESH G. BUCH & MS. MONICA AGARWAL /REVENUE BY : SHRI N.K.CHAND / DATE OF HEARING : 06 / 0 6 /201 6 / D ATE OF PRONOUNCEMENT 06/06 /201 6 / O R D E R PER R.C.SHARMA (A.M) : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) - MUMBAI, DATED 20 - 2 - 2014 , FOR THE ASSESSMENT YEAR 20 10 - 2011 , IN THE MATTER OF ORDER PASSED U/S. 143(3) R.W.S. 263 OF THE I.T.ACT, WHEREIN THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS : - GROUNDS I: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE COMMISSIONER OF INCOME - TAX (APPEALS) - 17, MUMBAI ('THE CIT(A)') ERRED IN CONFIRMING THE ACTION OF THE DY. COMMISSIONER OF INCOME - TAX - 8(2), MUMBAI ('THE AO') IN BRINGING TO TAX AN AMOUNT OF RS. 475.73 LACS AS RENT FOR THE ALLEGED CONSIDERATION FOR PREMISES USAGE ITA NO. 3531 / 1 4 2 CHARGES PAYABLE BY PROCTER & GAMBLE HYGIENE AND HEALTH CARE LTD ('PGHH'). 2. THE CIT(A) FURRED ERRED IN HOLDING THAT: I. THE RENTAL INCOME TO THE APPELLANT HAS STARTED ACCRUING AS SOON AS THE AGREEMENT WAS EXECUTED; II. THE PROPERTY HAS BEEN GIVEN ON RENT TO PGHH AND THERE EXIST A RELATIONSHIP OF OWNER AND TENANT BETWEEN THE APPELLANT AN D PGHH; III. THE PRIMARY OBJECT OF THE APPELLANT IS TO EXPLOIT THE PROPERTY BY LETTING OUT A PORTION OF IT TO ITS SISTER CONCERN; AND IV. THERE IS NO COMMERCIAL ACTIVITY CARRIED ON BY THE APPELLANT OTHER THAN THE COLLECTION OF SERVICE CHARGES WHICH IS BASED ON THE TURNOVER AFFECTED BY EACH PARTY OCCUPYING THE PREMISES; 3. HE FAILED TO APPRECIATE AND OUGHT TO HAVE HELD THAT THE PURPOSE OF ENTERING INTO AN AGREEMENT WITH PGHH WAS SHARING OF CERTAIN COMMON FACILITIES AND NOT FOR RENTING OF THE PREMISES I N FAVOUR OF PGHH AND NO TENANCY RIGHTS WERE CREATED IN FAVOUR OF PGHH. 4. THE APPELLANT PRAYS THAT THE ADDITION OF RS. 475.73 LACS BE DELETED. WITHOUT PREJUDICE TO THE ABOVE: GROUND 11: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN CONFIRMING THE ACTION OF THE AO IN ASSESSING THE ALLEGED RENTAL INCOME UNDER THE HEAD 'INCOME FROM HOUSE PROPERTY'. 2. THE CIT(A) ALSO ERRED IN CONFIRMING THE ACTION OF THE AO IN ASSESSING THE INCOME EARNED FROM M/S. NORTEL NETWORK PRIVAT E LIMITED UNDER THE HEAD 'INCOME FROM HOUSE PROPERTY' . 3. THE APPELLANT PRAYS THAT THE SAID RENTAL INCOME BE ASSESSED UNDER THE HEAD 'INCOME FROM BUSINESS OR PROFESSION' AS AGAINST THE 'INCOME FROM HOUSE PROPERTY'. WITHOUT PREJUDICE TO THE ABOVE: GR OUND ILL: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN CONFIRMING THE ACTION OF THE AO IN ASSESSING THE ALLEGED RENTAL INCOME UNDER THE HEAD 'INCOME FROM HOUSE PROPERTY'. ITA NO. 3531 / 1 4 3 2. HE FAILED TO APPRECIATE AND OUGHT TO HAVE HEL D THAT THE SAME WAS TEMPORALLY LET OUT ALONG WITH VARIOUS FACILITIES TO THE SISTER CONCERN. 3. THE APPELLANT PRAYS THAT THE SAID AMOUNT (TO THE EXTENT HELD AS INCOME) BE CONSIDERED AS 'INCOME FOR OTHER SOURCES'. GROUND IV: 1. ON THE FACTS AND CIRCUMS TANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN CONFIRMING THE ACTION OF THE AO IN DISALLOWING RS. 1047.75 LACS CONSISTING OF REPAIRS & MAINTENANCE OF BUILDING, SERVICE CHARGES AND DEPRECIATION ON BUILDING, ON THE ALLEGED GROUND THAT THESE EXPENDITURE H AVE BEEN INCURRED IN RELATION TO THE LET OUT PORTION OF THE BUILDING. 2. HE FURTHER ERRED IN CONFIRMING THE ACTION OF THE AO OF ADOPTING THE PROPORTION OF THE 'SPACE RENTED OUT' AS BASIS FOR DISALLOWING THE EXPENDITURES WITHOUT REJECTING THE METHOD OF AP PORTIONMENT OF EXPENDITURE IN THE RATIO OF 'NET OUTSIDE SALES' ('NOS') AS AGREED BETWEEN THE APPELLANT AND PGHH AND ADOPTED BY THE APPELLANT. 3. HE FAILED TO APPRECIATE AND OUGHT TO HAVE HELD THAT: I. NATURE OF EXPENDITURE OUGHT TO BE EXAMINED BEFORE T REATING THE SAME AS INCURRED IN RELATION TO THE LET OUT PORTION OF THE BUILDING; 11. THE EXPENDITURE CLAIMED BY THE APPELLANT WERE IN THE NATURE OF BUSINESS EXPENDITURE; AND ILL. THE EXPENDITURE INCURRED BY THE APPELLANT WERE IN RELATION TO ITS OWN USE OF THE BUILDING. THE APPELLANT PRAYS THAT THE DISALLOWANCE OF RS. 1047.75 LACS BE DELETED, WITHOUT PREJUDICE TO THE ABOVE: GROUND V: 1. IF THE ALLEGED RENTAL INCOME FROM PGHH AND RENTAL INCOME FROM ORTEL NETWORK PRIVATE LIMITED IS TAXED UNDER THE HEAD 'INCOME FROM HOUSE PROPERTY', IN SUCH CASE, ONLY THE EXPENDITURE RELATED TO BUILDING OUGHT TO BE CONSIDERED FOR DISALLOWANCE RATHER THAN ALL THE SHARED EXPENSES. 2. THE APPELLANT PRAYS THAT FOR THE PURPOSE OF DISALLOWANCE, THE AO BE DIRECTED TO CONS IDER ONLY BUILDING .RELATED EXPENSES. GROUND VI: ITA NO. 3531 / 1 4 4 I. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN CONFIRMING ACTION OF THE AO OF CHARGING INTEREST U/S. 234 OF THE ACT. 2. THE APPELLANT PRAYS THAT THE AO BE DIRECTED TO DEL ETE / APPROPRIATELY REDUCE THE INTEREST U/S.234. 2. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. FACTS IN BRIEF ARE THAT THE ASSESSEE HAD ENTERED INTO AN AGREEMENT WITH ITS SISTER CONCERN FOR SHARING OF CERTAIN COMMON FACILITIES AND NOT FOR REN TING OF THE PREMISES IN FAVOUR OF THE SISTER CONCERN . HOWEVER, THE AO TREATED THE AMOUNT RECEIVED BY ASSESSEE AS INCOME FROM HOUSE PROPERTY. WE FOUND THAT THE PROVISION IN THE AGREEMENT FOR CHARGE AT RS.90 PER SQ.FT. FOR THE BUILT - UP AREA OCCUPIED FROM TIM E TO TIME WAS, IN TERMS OF THE UNDERSTANDING OF THE PARTY, NOT IMPLEMENTED. INSTEAD, AS INTENDED BY THE PARTIES ALL ALONG, THE COST OF COMMON FACILITIES SHARED BY THE COMPANIES WAS POOLED AND BORNE BY THE PARTIES IN THE RATIO OF RESPECTIVE NET SALES. IN TE RMS OF THIS ARRANGEMENT, THE ASSESSEE IN FACT HAD PAID RS.7.63 CRORES TO THE SAID SISTER CONCERN - SUCH AMOUNT BEING NET OF THE RECOVERIES FROM SUCH SISTER CONCERN IN RESPECT OF ITS SHARE OF COMMON EXPENSES, FULL BREAK - UP OF WHICH WAS FURNISHED BY THE ASSE SSEE DURING THE ASSESSMENT PROCEEDINGS. THEREFORE, THERE WAS NO SCOPE FOR ARRIVING AT ANY OTHER ARTIFICIAL RENT OR ANY OTHER AMOUNT RECEIVED/RECEIVABLE BY THE ASSESSEE UNDER THE AGREEMENT. T HE IMPUGNED AMOUNT CONSIDERED TAXABLE IN THE HANDS OF THE ASSESSEE HAS NOT BEEN CONSIDERED BY THE DCIT AS AN ALLOWABLE EXPENSE IN THE HANDS OF THE SISTER CONCERN IN ITS ASSESSMENT, THEREBY RESULTING INTO DOUBLE TAXATION OF THE SAID AMOUNT. ITA NO. 3531 / 1 4 5 3. THE AOS ACTION OF TREATING INCOME FROM HOUSE PROPERTY WAS CONFIRMED BY THE CI T(A) AGAINST WHICH ASSESSEE IS IN FURTHER APPEAL BEFORE US. 4. IT WAS ARGUED BY LD. AR THAT T HERE IS A DIFFERENCE IN UTILIZATION OF HOUSE PROPERTY FOR ITS OWN BUSINESS AND BUSINESS OF ANY OTHER ASSOCIATE ENTITY. IT WAS ALSO SUBMITTED THAT IT MAKES NO DIFF ERENCE IF THE ASSESSEE IS A COMPANY, WHICH HAS BEEN INCORPORATED WITH THE OBJECT OF BUYING AND DEVELOPING LANDED PROPERTY(IES) [83 ITR 700 (SC)] IN THE CASE OF S.G. MERCANTILE CORPORATION (P) LTD. VS. CIT. IT DOES NOT MAKE ANY DIFFERENCE THAT THE PROPERTY CONSTITUTE STOCK- IN - TRADE OF A BUSINESS OF THE ASSESSEE IS TO LET OUT PROPERTIES [ORM SP SV FIRM VS. CI T - 1960 - 39 ITR 327 (MAD) . 5. ON THE OTHER HAND, LD. DR RELIED ON THE ORDER OF LOWER AUTHORITIES AND CONTENDED THAT THE AO HAS CORRECTLY TAXED THE R ENTAL INCOME AS INCOME FROM HOUSE PROPERTY. 6. WE HAVE CONSIDERED RIVAL CONTENTIONS AND ALSO DELIBERATED ON THE JUDICIAL PRONOUNCEMENTS CITED AT BAR BY LD. AR AND DR IN THE CONTEXT OF FACTUAL MATRIX OF INSTANT CASE . FROM THE RECORD WE FOUND THAT THIS ISSUE HAS ALREADY BEEN DECIDED BY TRIBUNAL IN ASSESSEES OWN CASE IN THE ASSESSMENT YEAR 1996 - 97, WHEREIN THE TRIBUNAL IN PARA 12 & 13 HAS HELD AS UNDER : - 12. GROUND NO.5 IS REGARDING TREATING OF RENTAL INCOME OF RS.1,08,00,000/ - AS INCOME FROM HOUSE PROPERTY INSTEAD OF BUSINESS INCOME AND DISALLOWING DEPRECIATION OF RS.16,42,000/ - . 13. THE ASSESSEE HAS GIVEN ON RENT PART OF ITS OFFICE PREMISES AT MATULYA CENTRE TO THE DISTRIBUTOR OF ITS PRODUCTS, M/S PROCTOR & GAMBLE DISTRIBUTION CO. LTD. AND RECEIVED RS.1,08, 00,000/ - AS RENT ITA NO. 3531 / 1 4 6 FOR THE YEAR. THE AO TREATED THIS RECEIPT AS RENTAL INCOME AND DISALLOWED ASSESSEES CLAIM OF DEPRECIATION OF RS.16,42,100/ - , WHICH THE CIT(A) HAS CONFIRMED IN HIS ORDER. IN A.Y.1995 - 96 THE AO HAS TREATED THIS RECEIPT AS INCOME FROM OTHER SOURCES AND THE ITAT HAS UPHELD THE SAME IN ITA NO.845/MUM/2003. RESPECTFULLY, FOLLOWING THE SAID TRIBUNAL DECISION, THE AO IS DIRECTED TO TREAT THE SAME AS INCOME FROM OTHER SOURCES AND COMPUTE THE INCOME ACCORDINGLY. THE GROUND IS PARTLY ALLOWED.' 7. WE FOUND THAT IN A.Y.1997 - 98, 1998 - 99, 1999 - 2000 & 2000 - 2001, SIMILAR VIEW HAS BEEN TAKEN BY TRIBUNAL IN ASSESSEES OWN CASE. AS THE FACTS AND CIRCUMSTANCES DURING THE YEAR UNDER CONSIDERATION ARE SAME, RESPECTFULLY FOLLOWING THE ORDER S OF TRIBUNAL IN ASSESS EES OWN CASE, WE DIRECT THE AO TO TREAT THE INCOME SO RECEIVED AS INCOME OTHER SOURCES AND TO ALLOW THE CLAIM OF DEDUCTION IN RESPECT OF EXPENDITURE INCURRED FOR EARNING THE SAME. THE AO IS TO RECOMPUTE THE INCOME BY TREAT ING THE INCOME SO RECEIVED AS IN COME FROM OTHER SOURCES. WE DIRECT ACCORDINGLY. 8. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED IN PART. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 06/06 /201 6 . SD/ - ( AMIT SHUKLA ) SD/ - ( R.C.SHARMA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED 06/06 /201 6 . . /PKM , . / PS / COPY OF THE ORDER FORWARDED TO : / BY ORD ER, / ( 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//