SEAMEC LTD ( FORMELRY KNOWNA S SOUTH EAST ASIA MARINE LINES ENGG. & CONSTN. LTD), MUMBAI V. ADDL CIT RG 5(3), MUMBAI

ITA 3937/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55330 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-10-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2006-2007
• Appeal Filed On: 14-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: B JAYA KUMAR
• Keywords: Business income; Business expenditure
• Section: 143(3); 263

Judgement Text

ITA NO. 3937/ MUM/2010 ASSESSMENT YEAR: 2006-07 PAGE 1 OF 4 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI E BENCH, MUMBAI BEFORE SHRI PRAMOD KUMAR (ACCOUNTANT MEMBER) AND SHRI VIJAY PAL RAO (JUDICIAL MEMBER) ITA NO. 3937/MUM/2010 ASSESSMENT YEAR: 2006-07 SEAMEC LIMITED (FORMERLY KNOWN AS SOUTH EAST ASIA MARINE ENGINEERS & CONSTRUCTION LIMITED) ....APPELLANT A 901-905, 9 TH FLOOR, 215 ATRIUM ANDHERI KURLA ROAD, ANDHERI (EAST) MUMBAI 400069 [PAN : AABCP8214H] VS. ADDITIONAL DIRECTOR OF INCOME TAX RANGE 5 (3), MUMBAI RESPONDENT APPEARANCES: APURVA SHAH , FOR THE APPELLANT B JAYAKUMAR , FOR THE RESPONDENT ORDER RESERVED ON : JULY 6, 2011 ORDER PRONOUNCED ON : OCTOBER 5 , 2011 O R D E R PER PRAMOD KUMAR: 1. THE SHORT ISSUE THAT WE ARE REQUIRED TO ADJUDIC ATE IN THIS APPEAL IS WHETHER OR NOT, ON THE FACTS AND IN THE CIRCUMSTANC ES OF THE CASE, LEARNED COMMISSIONER WAS JUSTIFIED IN INVOKING HIS POWERS U NDER SECTION 263 OF THE INCOME TAX ACT, 1961. THE ASSESSMENT YEAR INVOLVED IS 2006-07 AND THE IMPUGNED REVISION ORDER, UNDER SECTION 263, WAS PAS SED ON 19 TH FEBRUARY 2010. ITA NO. 3937/ MUM/2010 ASSESSMENT YEAR: 2006-07 PAGE 2 OF 4 2. THE ISSUE IN APPEAL LIES IN A VERY NARROW COMPAS S OF MATERIAL FACTS. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF CHARTERING O F MULTI SUPPORT VESSELS. AS AGAINST A RETURNED INCOME OF RS 5,05,12,875, THE AS SESSMENT UNDER SECTION 143(3) WAS COMPLETED AT AN INCOME OF RS 5,70,45,720 . SUBSEQUENTLY, HOWEVER, LEARNED COMMISSIONER PERUSED THE ASSESSMEN T RECORDS AND NOTICED THAT THE ASSESSEE HAD CLAIMED A DEDUCTION FOR RS 68 ,01,000 ON ACCOUNT OF RENT. IT WAS ALSO NOTICED THAT THOUGH ALL DEDUCTIONS WERE TAX NEUTRAL INASMUCH AS BUSINESS INCOME WAS ASSESSED ON GROSS BASIS UNDER T HE TONNAGE TAX SCHEME UNDER SECTION 115 VP, SINCE THIS RENT DEDUCTION WA S ON NET BASIS, AND INCLUSIVE OF THE RECOVERIES FOR RENT MADE FROM SISTER CONCERN NAMELY TECHNIP OFFSHORE CONTRACTING BV, THE AMOUNT RECEIVED BY THE ASSESSEE FROM THE SISTER CONCERN OUGHT TO HAVE BEEN TAXED IN THE HANDS OF THE ASSESS EE AS INCOME FROM HOUSE PROPERTY. IT WAS IN THIS BACKDROP THAT REVISION P ROCEEDINGS UNDER SECTION 263 WERE INITIATED AGAINST THE ASSESSEE, AND THE ASSESS EE WAS REQUIRED TO SHOW CAUSE AS TO WHY RENT RECOVERED FROM SISTER CONCERN NOT BE BROUGHT TO TAX IN THE HANDS OF THE ASSESSEE AS INCOME UNDER THE HEAD INC OME FROM HOUSE PROPERTY. IT WAS EXPLAINED BY THE ASSESSEE THAT THE RENT COST S WERE RECOVERED FROM THE SISTER CONCERN UNDER THE COST SHARING ARRANGEMENT W HEREIN THE ASSESSEE RECOVERED, FROM ITS SISTER CONCERN, PROPORTIONATE R ENT AND EXPENSES INCURRED TOWARDS COMMON SERVICES, AND THEREFORE, RECOVERIES MADE BY THE ASSESSEE CANNOT BE VIEWED IN ISOLATION WITH THE EXPENSES INC URRED IN RESPECT OF THE SAME. THE DETAILS OF COST SHARING ARRANGEMENT AND T HE BASIS THEREOF WAS DULY FURNISHED TO THE ASSESSEE. IN EFFECT, IT WAS SUBMIT TED THAT THE ASSESSEE DID NOT EARN ANY INCOME BY RECOVERING RENT FROM THE SISTER CONCERN, AND THAT THESE RECEIPTS CANNOT BE CONSIDERED DE HORS THE EXPENSES INCURRED BY THE ASSESSEE ON HIRING OF PREMISES. LEARNED COMMISSIONER, HOWEVE R, WAS NOT IMPRESSED WITH THESE ARGUMENTS. HE WAS OF THE VIEW THAT INCO ME ON LETTING OF THE PREMISES, WHETHER OWNED BY THE ASSESSEE OR NOT, COU LD ONLY BE TAXED UNDER THE HEAD INCOME FROM HOUSE PROPERTY, AND NO DEDUCTION S IN RESPECT OF INTEREST PAID ARE ADMISSIBLE IN COMPUTATION OF INCOME FROM H OUSE PROPERTY. HE ALSO REFERRED TO AND RELIED UPON HONBLE BOMBAY HIGH COU RTS JUDGMENTS IN THEJ ITA NO. 3937/ MUM/2010 ASSESSMENT YEAR: 2006-07 PAGE 3 OF 4 CASES OF CIT VS SMT T B SIDHWA (133 ITR 840) AND CI T VS ARVINDKUMAR ODHAVJI (213 ITR 551) AND HONBLE SUPREME COURTS J UDGMENT IN THE CASE OF CIT VS PODDAR CEMENTS LTD (226 ITR 625). THE ASSESS ING OFFICER WAS ACCORDINGLY DIRECTED TO REFRAME THE ASSESSMENT IN T HE LIGHT OF OBSERVATIONS GIVEN ABOVE AND AFTER GIVING THE ASSESSEE A REASON ABLE OPPORTUNITY OF HEARING. THE ASSESSEE IS AGGRIEVED AND IS IN APPEAL BEFORE U S. 3. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTUAL MATRIX OF THE CASE AS ALSO THE APPLICABLE LEGAL POSITION. 4. IT IS ONLY ELEMENTARY THAT IN A SITUATION IN WHI CH TWO VIEWS ARE REASONABLY POSSIBLE AND THE ASSESSING OFFICER HAS TAKEN ONE OF THESE POSSIBLE VIEWS IN THE COURSE OF THE ASSESSMENT PROCEEDINGS, IT IS NOT OP EN TO THE COMMISSIONER TO SUBSTITUTE THE VIEW ADOPTED BY THE ASSESSING OFFICE R BY HIS VIEW. THERE IS NO DISPUTE BETWEEN THE PARTIES ON THIS FUNDAMENTAL LEG AL POSITION, BUT THE CONTENTION OF THE LEARNED DEPARTMENTAL REPRESENTATI VE IS THAT IN VIEW OF THE JUDICIAL PRECEDENTS RELIED UPON BY THE COMMISSIONER , THE INCOME ON ACCOUNT OF RENT RECEIVED BY THE ASSESSEE, UNDER THE COST SHARI NG ARRANGEMENT, COULD ONLY BE TAXED UNDER THE HEAD INCOME FROM HOUSE PROPERTY . WE DONOT SHARE THIS PERCEPTION. THE CASE LAWS RELIED UPON BY THE LEARNE D COMMISSIONER REFER TO THE SITUATIONS IN WHICH THE ASSESSEE WAS NOT A LEGA L OWNER, AS IN SIDHAWS CASE (SUPRA) AND PODDAR CEMENTS CASE (SUPRA), OR IN A SITUATION IN WHICH SUB LETTING INCOME WAS RECEIVED ON EXPLOITING TENANCY RIGHTS, A S IN ODHAVJIS CASE (SUPRA). THESE SITUATIONS ARE CLEARLY DISTINCT FROM A SITUAT ION, AS IS THE SITUATION BEFORE US, IN WHICH RECOVERIES ON ACCOUNT OF SHARED RENT A RE RECEIVED UNDER A SPECIFIC COST SHARING AGREEMENT A COPY OF WHICH WAS FILED BEFORE US AS INDEED BEFORE THE LEARNED COMMISSIONER AS WELL. IN ANY EVENT, AS HELD BY HONBLE SUPREME COURT IN PODDAR CEMENTS CASE, IN ORDER THAT AN INC OME CAN BE TAXED AS AN INCOME FROM HOUSE PROPERTY IN THE HANDS OF THE ASSE SSEE, IT IS NECESSARY THAT THE ASSESSEE MUST RECEIVE THE SAME, WHETHER AS A LE GAL OWNER OR NOT, IN HIS OWN RIGHT. THAT CLEARLY IS NOT THE CASE BEFORE US. THE ASSESSEE RECEIVED THE ITA NO. 3937/ MUM/2010 ASSESSMENT YEAR: 2006-07 PAGE 4 OF 4 AMOUNTS, TOWARDS SHARING OF RENT COSTS, UNDER THE C OST SHARING ARRANGEMENT AND NOT IN HIS OWN RIGHT. ON THESE FACTS, TO SAY TH E MINIMUM, A VIEW IS INDEED POSSIBLE THAT THE AMOUNTS RECEIVED TOWARDS SHARING OF RENTS, IF AT ALL TAXABLE AS INCOME, CAN ONLY BE TAXED AS INCOME FROM OTHER SOUR CES OR AS RECOVERIES OF BUSINESS EXPENDITURE. IN EITHER OF THESE SITUATIONS , THE TAXABILITY IN THE HANDS OF THE ASSESSEE DOES NOT ARISE AS PROPORTIONATE RENT P AID BY THE ASSESSEE IS EXACTLY THE SAME AMOUNT AS RECOVERED FROM THE SISTE R CONCERN. IN THIS VIEW OF THE MATTER, AND THE ASSESSING OFFICER HAVING ACCEPT ED A VIEW WHICH IS LEGALLY PERMISSIBLE VIEW OF THE MATTER, LEARNED COMMISSIONE R CLEARLY ERRED IN ASSUMING JURISDICTION UNDER SECTION 263 OF THE ACT. WE, THEREFORE, QUASH THE IMPUGNED REVISION ORDER. 5. IN THE RESULT, THE APPEAL IS ALLOWED. PRONOUNCED IN THE OPEN COURT TODAY ON 5 TH DAY OF OCTOBER, 2011. SD/- SD/- (VIJAY PAL RAO ) (PRAMOD KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI; 5 TH DAY OF OCTOBER, 2011 . COPY FORWARDED 1. THE APPELLANT, 2. THE RESPONDENT 3. COMMISSIONER , MUMBAI 4. DEPARTMENTAL REPRESENTATIVE, A BENCH, MUMBAI 5. GUARD FILE TRUE COP Y BY ORDER ETC. ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, MUMBAI