SAPHIRE MANAGEMENT SERVICES P.LTD, MUMBAI V. ITO WD 2(3)(2), MUMBAI

ITA 4200/MUM/2012

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0626 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 11 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-05-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 10-09-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 15-06-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NEIL PHILIP
• Keywords: Business income; Business expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH E , MUMBAI BEFORE SHRI R.C. SHARMA , ACCOUNTANT MEMBER AND SHRI SANJAY GARG , JUDICIAL MEMBER ITA NO. 4200/M/2012 ASSESSMENT YEAR: 2008 - 09 M/S. SAPPHIRE MANAGEMENT SERVICES PVT. LTD., 265, BIRYA HOUSE, BAZARGATE, FORT, MUMBAI 400 001 PAN: AADCS 0993E VS. INCOME TAX OFFICER, WARD - 2(3)(2) AAYAKAR BHAVAN, MUMBAI (APPELLANT) (RESPONDENT) PRESENT FOR: ASSESSEE BY : SHRI JAYANT R. BHATT, A.R. REV ENUE BY : SHRI NEIL PHILIP, D.R. DATE OF HEARING : 17.03 .201 5 DATE OF PRONOUNCEMENT : 27.05. 2015 O R D E R PER SANJAY GARG, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSESSEE AGAINST THE ORDER DATED 30.03.2012 OF THE COMMIS SIONER OF INCOME TAX (APPEALS) [(HEREINAFTER REFERRED TO AS CIT(A)] RELEVANT TO ASSESSMENT YEAR 2008 - 09 . THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS OF APPEAL: 1. THE LEARNED CIT (APPEALS) ERRED IN CONFIRMING THE BUSINESS COMPENSATION INCOME FROM RUNN ING A COMMERCIAL CENTRE AS INCOME FROM HOUSE PROPERTY. 2 . THE LEARNED CIT (APPEALS) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF THE ENTIRE EXPENSES INCURRED BY THE APPELLANT WHILE CARRYING ON THE BUSINESS, INCLUDING THE STATUTORY EXPENSES LIKE AUDIT FEES, PROFESSION TAX, ROC FILING FEES 3 . THE LEARNED CIT (APPEALS) HAS ERRED I N CONFIRMING THE ADDITION OF RS. 41000/ - OUT OF THE DEPOSITS FROM CUSTOMERS AS UNCLAIMED DEPOSITS WHICH IS IN FACT A GENUINE LIABILITY OF THE COMPANY. 4 . THE APPELLANT CRAVES LEAVE T O ADD, ALTER, AMEND, AND MODIFY THE ITA NO.4200/M/2012 M/S. SAPPHIRE MANAGEMENT SERVICES PVT. LTD. 2 AFORESAID GROUND/S OF APPEAL AT OR ANY TIME BEFORE THE HEARING AS MAY BE ADVISED FROM TIME TO TIME. RELIEF CLAIMED 1. THE INCOME FROM RUNNING A COMMERCIAL CENTRE BEING IN THE NATURE OF BUSINESS INCOME BE TREATED ACCORDINGL Y INSTEAD OF TREATING THE SAME AS INCOME FROM HOUSE PROPERTY . 2. THE ENTIRE EXPENSES INCURRED BY THE ASSESSEE WHILE CARRYING ON THE BUSINESS OF RUNNING A COMMERCIAL CENTRE BE ALLOWED AS A DEDUCTION. 3 . THE ADDITION CONFIRMED BY THE LEARNED CIT(APPEALS)TOWA RD UNCLAIMED DEPOSITS TO THE TUNE OF RS 41000/ - BE DELETED. 4. ANY OTHER RELIEF AS MAY BE DEEMED FIT BY THE AUTHORITY. GROUND NO.1 2. THE ISSUE RAISED IN GROUND NO.1 IS RELATING TO THE INCOME EARNED BY THE ASSESSEE FROM RUNNING OF A BUSINESS CENTR E WHETHER IS TO BE ASSESSED UNDER THE HEAD INCOME FROM HOUSE PROPERTY AS HAS BEEN DONE BY THE ASSESSING OFFICER (HEREINAFTER REFERRED TO AS THE AO) OR THE SAME IS TO BE ASSESSED AS BUSINESS INCOME AS HAS BEEN CLAIMED BY THE ASSESSEE . 3. DURING THE ASS ESSMENT PROCEEDINGS, THE AO OBSERVED THAT THE ASSESSEE WAS HAVING TENANCY RIGHTS IN THE FIRST FLOOR, SECOND FLOOR AND THIRD FLOOR OF THE PREMISES KNOWN AS BR IYA HOUSE SINCE ITS OWN INCORPORATION IN THE YEAR 1999. THE ASSESSEE HAS BEEN SUBLETTING THE PO RTIONS OF THE PREMISES TO VARIOUS PARTIES FROM TIME TO TIME. THE AO ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE INCOME FROM THE RENT OF THE PREMISES BE NOT ASSESSED AS INCOME FROM HOUSE PROPERTY. HOWEVER, THE ASSESSEE STATED THAT THE ASSESSEE WAS EXPLOIT ING THE PREMISES AS A BUSINESS CENTRE FOR CARRYING ON BUSINESS ACTIVITIES AND THE INCOME WAS TAXABLE UNDER THE HEAD BUSINESS INCOME AND NOT HOUSE PROPERTY. HOWEVER, THE AO DID NOT AGREE WITH THE CONTENTION OF THE ASSESSEE AND OBSERVED THAT THE ASSESSE E WAS THE DEEMED OWNER OF THE PROPERTY WHICH WAS SUBLET BY THE ASSESSEE TO EARN MONTHLY RENTAL INCOME AND THEREFORE THE SAME WAS TO BE ITA NO.4200/M/2012 M/S. SAPPHIRE MANAGEMENT SERVICES PVT. LTD. 3 ASSESSED AS INCOME FROM HOUSE PROPERTY. THE AO ALSO DISALLOWED THE CLAIM OF VARIOUS EXPENDITURE CLAIMED TO HAVE BEEN INC URRED BY THE ASSESSEE IN RELATION TO THE INCOME EARNED FROM THE BUSINESS CENTRE. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE FILED APPEAL BEFORE THE LD. CIT(A). 4. THE LD. CIT(A), AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, ALSO OBSERVED THAT THE ASSESSEE WAS LETTING OUT THE PREMISES ON MONTHLY RENT BASIS AND THE PERIOD OF RENTING OUT THE PROPERTY TO DIFFERENT PARTIES WAS RANGING FROM SIX YEARS TO 16 YEARS, HENCE THE NATURE OF INCOME OF THE ASSESSEE WAS INCOME FROM HOUSE PROPERTY. HE, THEREFO RE, UPHELD THE FINDINGS OF THE AO ON THIS ISSUE. THE ASSESSEE HAS, THUS, COME IN APPEAL BEFORE US ON THIS ISSUE. 5. WE HAVE HEARD THE RIVAL CONTENTIONS OF THE LD. REPRESENTATIVES OF BOTH THE PARTIES AND HAVE ALSO GONE THROUGH THE RECORDS. THE LD. A.R. OF THE ASSESSEE, BEFORE US, HAS PRODUCED A CHART TO SHOW THAT SINCE THE YEAR 2000 - 01 THE INCOME FROM THE LETTING OUT OF THE DIFFERENT PORTIONS OF THE BUSINESS CENTRE IN QUESTION HAS ALWAYS BEEN TREATED BY THE ASSESSEE AS BUSINESS INCOME. FOR THE ASSESSME NT YEAR 2001 - 02, THE RETURN WAS PROCESSED UNDER SECTION 143(3) OF THE INCOME TAX ACT AND THE INCOME FROM THE BUSINESS CENTRE WAS ACCEPTED AS BUSINESS INCOME. EVEN FOR THE ASSESSMENT YEAR 2005 - 06, THE AO HAD TREATED THE INCOME AS INCOME FROM OTHER SOURCES. HOWEVER, IN APPEAL, THE LD. CIT(A) ACCEPTED THE CLAIM OF THE ASSESSEE THAT THE SAME WAS BUSINESS INCOME. THE LD. A.R. HAS FURTHER EXPLAINED THAT EVEN FOR ASSESSMENT YEAR 2006 - 0 7 AND 2007 - 08, THE RETURN OF THE ASSESSEE SHOWING THE INCOME FROM THE PREMISE S AS BUSINESS INCOME WAS ACCEPTED THOUGH U NDER SECTION 143(1) OF THE ACT. H E HAS FURTHER STATED THAT FOR THE YEAR UNDER CONSIDERATION I.E. A.Y. 2008 - 09 , IT IS FOR THE FIRST TIME THAT THE INCOME FROM THE PREMISES HAS BEEN TREATED BY THE AO AS INCOME FROM H OUSE PROPERTY. HE HAS FURTHER SUBMITTED THAT ON THE BASIS OF THE TREATMENT OF INCOME AS INCOME FROM HOUSE PROPERTY FOR THE YEAR UNDER ITA NO.4200/M/2012 M/S. SAPPHIRE MANAGEMENT SERVICES PVT. LTD. 4 CONSIDERATION, THE ASSESSMENT FOR THE A.Y. 2006 - 07 & 2007 - 08 HAS ALSO BEEN REOPENED. THE LD. A.R. OF THE ASSESSEE HAS BR OUGHT OUR ATTENTION TO THE MEMORANDUM OF A SSOCIATION OF THE ASSESSEE COMPANY WHEREIN THE MAIN OBJECT OF THE ASSESSEE COMPANY HAS BEEN MENTIONED AS UNDER: MAIN OBJECTS OF THE COMPANY TO BE PURSUED BY THE COMPANY ON ITS INCORPORATION: 1. TO ACQUIRE LAND, BUILDING AND TO DEVELOP BUSINESS PREMISES, COMMERCIAL COMPLEXES, OFFICE PREMISES, INDUSTRIAL PLOTS, SHEDS, FACTORIES, WAREHOUSES, GARAGES, SHOPS, SHOWROOMS, BUSINESS CENTRES, RESTAURANTS, HOTELS AND TO CARRY ON THE BUSINESS OF PROVIDING AND MAINTAINI NG COMMERCIAL CENTRE AND PROVIDE OFFICE SPACE AND OTHER COMMERCIAL FACILITIES LIKE COMMUNICATION FACILITIES, DESK - TOP - PUBLISHING SERVICES, DOCUMENT DUPLICATING (XEROX) SERVICES AND OTHER MARKETING AND OTHER SERVICES IN INDIA OR ANY PART OF THE WORLD. 6. HE HAS FURTHER BROUGHT OUR ATTENTION TO THE COPIES OF MEMBERSHIP AGREEMENT ENTERED INTO BY THE ASSESSEE WITH THE VARIOUS PARTIES TO WHOM IT HAS BEEN OFFERING THE FACILITIES OF ITS BUSINESS CENTRE TO SHOW THAT AS PER THE CLAUSES OF THE AGREEMENT, THE ASS ESSEE HAS BEEN OFFERING VARIOUS SERVICES SUCH AS MAIL, MESSAGE, SECRETARIAL ASSISTANCE, OPERATED TELEPHONE SERVICE, SERVICES OF PEON, SWEEPER ETC. WHICH SERVICES WERE TO BE PROVIDED IN A FURNISHED CABIN FOR THE RESTRICTED PERIOD OF 10 A.M. TO 7 P.M. DURING WEEK DAYS ONLY. AS PER THE CLAUSE OF THE AGREEMENT , THE CABINS OFFERED BY THE ASSESSEE WOULD BE OPENED AND CLOSED BY THE PEON OF THE ASSESSEE ONLY AND EVEN THERE WAS NO FIXED CABIN RENTED OUT OR PROVIDED TO ANY PARTY AND THE ASSESSEE HAS THE RIGHT TO CHA NGE THE CABIN TO BE OFFERED TO ANY PARTY FROM TIME TO TIME WITHOUT ANY NOTICE. THE FACTS ON THE FILE CLEARLY ESTABLISH THAT THOUGH THE ASSESSEE HAD TAKEN THE PREMI SES ON LEASE ON LONG TERM BASIS, H OWEVER, THE ASSESSEE HAD EXPLOITED THE SAME AS BUSINESS CE NTRE AND IS OFFERING THE CABINS ERECTED IN THE PREMISES TO DIFFERENT PARTIES FROM TIME TO TIME. THE CONTROL OF THE PREMISES REMAINS WITH THE ASSESSEE. THE LICENSE E S/MEMBERS TO WHOM THE CABINS ARE OFFERED ARE ITA NO.4200/M/2012 M/S. SAPPHIRE MANAGEMENT SERVICES PVT. LTD. 5 ENTITLED TO USE THE PREMISES DURING THE DAY PE RIOD I.E. FROM 10 A.M. TO 7 P.M. AND THAT TOO DURING WEEK DAYS ONLY. THE ASSESSEE HAS NOT PARTED WITH THE POSSESSION OF THE PREMISES. ALONG WITH THE CABINS, THE ASSESSEE HAS BEEN OFFERING COMPUTER, TELEPHONE, ELECTRICITY AND OTHER FACILITIES. THE INCOME OF THE ASSESSEE FROM EXPLOITATION OF THE SAID PREMISES HAD CONSISTENTLY BEEN TREATED BY THE DEPARTMENT AS BUSINESS INCOME. WE, THEREFORE, DO NOT FIND ANY REASON FOR THE DEPARTMENT TO DEPART FROM ITS EARLIER CONSISTENT STAND RELATING TO THE TREATMENT OF I NCOME AS BUSINESS INCOME. EVEN THE FACTS, OTHERWISE, SHOW THAT THE INCOME OF THE ASSESSEE BY WAY OF EXPLOITATION OF THE PREMISES FALLS IN THE DEFINITION OF BUSINESS INCOME. WE HOLD ACCORDINGLY. THIS ISSUE IS ACCORDINGLY DECIDED IN FAVOUR OF THE ASSESSEE . GROUND NO.2 7. GROUND NO.2 IS RELATING TO THE DISALLOWANCE OF EXPENDITURE OF VARIOUS EXPENSES CLAIMED BY THE ASSESSEE TO HAVE BEEN INCURRED FOR THE EARNING OF THE BUSINESS INCOME FROM THE PREMISES IN QUESTION. THE LOWER AUTHORITIES SINCE HAD TREATED THE INCOME FROM PREMISES AS INCOME FROM HOUSE PROPERTY, HENCE THEY HAVE DISALLOWED THE ENTIRE EXPENSES CLAIMED AS BUSINESS EXPENDITURE. SINCE WE HAVE SET ASIDE THE ORDER OF THE LD. CIT(A) ON THIS ISSUE AND HAVE DIRECTED TO TREAT THE INCOME FROM PREMISES A S BUSINESS INCOME, HENCE THE MATTER ON THIS ISSUE IS RESTORED TO THE FILE OF THE AO TO VERIFY THE GENUINENESS OF THE BUSINESS EXPENDITURE CLAIM AND TO DECIDE ACCORDINGLY. GROUND NO.3 8. GROUND NO.3 IS RELATING TO CONFIRMATION OF ADDITION OF RS.41,000/ - OUT OF THE DEPOSITS FROM CUSTOMERS WHICH TILL DATE HAVE REMAINED UNCLAIMED. THE ASSESSEE , AT THE TIME OF OFFERING THE SERVICES OF CABIN ALONG WITH FACILITIES , HA D BEEN GETTING DEPOSITS FROM THE PARTIES WHO USED TO AVAIL I T S SERVICES. OUT OF THE SAID DEPO SITS , A SUM OF RS.41,000/ - HAS REMAINED UNCLAIMED FOR THE PERIOD OF ITA NO.4200/M/2012 M/S. SAPPHIRE MANAGEMENT SERVICES PVT. LTD. 6 MORE THAN TWO AND A HALF YEARS. THE AO THEREFORE HELD THAT THE LIABILITY OF THE ASSES SEE TO PAY THE SAID DEPOSITS HAD CEASED. HE, THEREFORE ADDED THE SAID AMOUNT OF RS.41,000/ - INTO THE INCOME OF THE ASSESSEE. THE LD. CIT(A) ALSO CONFIRMED THE FINDING OF THE AO. THE LD. A.R. OF THE ASSESSEE HAS NOT BROUGHT ANY EVIDENCE , EVEN BEFORE US , TO SHOW THAT THE SAID AMOUNT OF RS.41,000/ - HAS EVER BEEN REPAID/REFUNDED BY THE ASSESSEE. THE RESPEC TIVE PARTIES/LICENSES HAVE ALREADY LEFT THE PREMISES AND THE AMOUNT HAS NOT BEEN CLAIMED BY ANY OF THOSE PARTIES SINCE LONG. WE, THEREFORE, DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) IN UPHOLDING THE ORDER OF THE AO IN TREATING THE SAID DEPO SITS AS INCOME OF THE ASSESSEE. THIS ISSUE IS ACCORDINGLY DECIDED AGAINST THE ASSESSEE. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 27.05. 201 5 . SD/ - SD/ - ( R.C. SHARMA ) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 27.05.2015 . * KISHORE , SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT ( A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.