NEXUS EQUITY ADVETISING P. LTD, MUMBAI V. ACIT CIR 7(1), MUMBAI

ITA 4224/MUM/2009

• Counselvise Citation: 422419914 RSA 2009
• Duration Of Justice: 2 year(s) 5 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-12-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 20-07-2011
• Assessment Year: 1999-2000
• Appeal Filed On: 09-07-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O A MAO
• Assessee Lawyers: PRAKASH K JOTWANI
• Keywords: Business income; Cost of acquisition

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B , MUMBAI BEFORE SHIRI D.MANMOHAN, VP AND SHRI RAJENDRA SINGH, AM ITA NO. : 4224/MUM/2009 ASSESSMENT YEAR : 1999-2000 M/S. N EXUS EQUITY ADVERTISING PVT. LTD. 72-74, HIRA, K.C. ROAD, NEAR LILAVATI HOSPITAL, BANDRA RECLAMATION, MUMBAI-400 050 PAN NO: AAACN 1192 P VS. THE ACIT - CIRCLE 7(1), AAYAKAR BHAVAN, MUMBAI-400 020 (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI P RAKASH K. JOTWANI RESPONDENT BY : SHRI O.A. MAO DATE OF HEARING : 17 .11.2011 DATE OF PRONOUNCEMENT : 09.12.2011 ORDER PER RAJENDRA SINGH (AM) : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 15.04.2009 OF THE LD. CIT(A)-VII, MUMBAI FOR THE AS SESSMENT YEAR 1999-2000. THE ASSESSEE IN THIS APPEAL HAS RAISED D ISPUTES ON TWO DIFFERENT GROUNDS WHICH RELATE TO COMPUTATION OF IN COME FROM THE PROPERTIES OWNED BY THE ASSESSEE AND LYING VACANT D URING THE YEAR AND NATURE OF INCOME EARED FROM SUB-LEASE OF COMPUTERS, EQUIPMENTS, VEHICLES AND OTHER ASSETS. ITA NO : 4224/MUM/2009 M/S. NEXUS EQUITY ADVERTISING PVT. LTD. 2 2. WE FIRST TAKE UP THE ISSUE RELATING TO THE ASSES SMENT ON INCOME FROM SUB-LEASE OF COMPUTERS, EQUIPMENTS, VEHICLES A ND OTHER ASSETS, WHICH HAD BEEN SUB-LEASED BY THE ASSESSEE ALONG WIT H THE PROPERTIES. THE ASSESSEE HAD LET OUT CERTAIN PROPERTIES ALONG W ITH THE VARIOUS EQUIPMENTS MENTIONED ABOVE, FOR WHICH TOTAL COMPENS ATION HAD BEEN RECEIVED AT `. 47,55,051/- INCLUDING THE SUB-LEASE CHARGES OF `. 20,70,636/- IN RESPECT OF THE EQUIPMENTS. THE ASSES SEE HAD SHOWN THE SAID INCOME AS BUSINESS INCOME. THE ASSESSEE HAD PAID A TOTAL SUM OF `. 22,95,186/- IN CONNECTION WITH THE LEASE OF THE VAR IOUS ASSETS WHICH ALONG WITH THE SOME OTHER EXPENSES HAD BEEN C LAIMED AS DEDUCTION AGAINST THE BUSINESS INCOME. THE AO OBSER VED THAT BUSINESS OF THE ASSESSEE COMPANY AND GOODWILL HAD B EEN SOLD IN THE FINANCIAL YEAR 1997-98 TO M/S. LOWE MAURITIUS LTD. AND THE ASSESSEE HAD ALSO ENTERED INTO NON-COMPETE AGREEMENT WITH TH E SAID CONCERN. THUS, THE BUSINESS OF THE ASSESSEE HAD DISCONTINUED . THIS SUSPECT HAD ALSO BEEN CONSIDERED IN THE ASSESSMENT YEAR 2001-02 , IN WHICH IT WAS HELD THAT THE BUSINESS HAD DISCONTINUED AND THE INC OME HAD BEEN ASSESSED AS HOUSE PROPERTY INCOME. THE AO, THEREF ORE, ASSESSED THE RENT AND LEASE CHARGES OF `. 47,55,051/- AS INCOME FROM HOUSE PROPERTY, HOLDING THAT THE SUB-LEASE OF VARIOUS AS SETS WAS INTEGRATED PART OF THE PROPERTIES. 2.1 THE ASSESSEE DISPUTED THE DECISION OF THE AO AN D SUBMITTED BEFORE THE CIT(A) THAT INCLUSION OF SUB-LEASE CHARG ES IN RESPECT OF VARIOUS EQUIPMENTS IN THE HOUSE PROPERTY INCOME WAS NOT JUSTIFIED. IT WAS POINTED OUT THAT THE EQUIPMENTS HAD BEEN TAKEN ON LEASE FROM VARIOUS COMPANIES AND GIVEN ON LEASE TO M/S. ENTERP RISE NEXUS COMMUNICATIONS PVT. LTD AND, THEREFORE, THE SAME CO ULD NOT BE ASSESSED AS INCOME FROM HOUSE PROPERTY. CIT(A) HO WEVER, DID NOT ACCEPT THE CONTENTION RAISED. HE REFERRED TO THE DE CISION OF THE ITA NO : 4224/MUM/2009 M/S. NEXUS EQUITY ADVERTISING PVT. LTD. 3 TRIBUNAL IN ASSESSMENT YEAR 2001-02 TO POINT OUT TH AT INCOME HAD BEEN ASSESSED AS HOUSE PROPERTY INCOME IN THAT YEAR ALSO. CIT(A) ALSO REFERRED TO THE JUDGMENT OF HON'BLE SUPREME COURT I N THE CASE OF SHAMBHU INVESTMENTS VS. CIT (263 ITR 143), IN WHICH THE ASSESSEE HAD RECEIVED RENTAL INCOME FROM LETTING OUT OF THE PROPERTY ALONG WITH THE FURNITURE, FIXTURE AND AIR CONDITIONER. THE ENT IRE INCOME HAD BEEN HELD ASSESSABLE AS INCOME FROM HOUSE PROPERTY. CI T(A), THEREFORE, UPHELD THE ORDER OF THE AO IN ASSESSING THE ENTIRE RENTAL INCOME INCLUDING THE SUB-LEASE CHARGES RECEIVED IN RESPECT OF VARIOUS ASSETS AS INCOME FROM HOUSE PROPERTY. AGGRIEVED BY THE SAID DECISION, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 2.2 BEFORE US, THE LD. AR FOR THE ASSESSEE SUBMITTE D THAT IN THE ASSESSMENT YEAR 2001-02, THERE WAS NO CLEAR DECISIO N BY THE TRIBUNAL AS TO THE NATURE OF INCOME FROM SUB-LEASE OF VARIOU S EQUIPMENTS. IN THAT YEAR, THE AO HAD ASSESSED THE INCOME FROM HOUS E PROPERTY AT `. 33,04,132/- AND INCOME FROM OTHER SOURCES AT `. 20,89,743/-. THE AO HAD ASSESSED THE SUNDRY BALANCE WRITTEN OFF AS INCOME FROM BUSINESS U/S.41(2). CIT(A) UPHELD THE ORDER OF THE AO THAT THE RECEIPTS OTHER THAN THE SUNDRY BALANCE WRITTEN OFF WERE TAXABLE UNDER THE HEAD INCOME FROM HOUSE PROPERTY OR INCOME FR OM OTHER SOURCES. ON FURTHER APPEAL, THE TRIBUNAL HAD UPHEL D THE FINDINGS OF AUTHORITIES BELOW THAT THE BUSINESS OF THE ASSESSEE HAD DISCONTINUED AND THE INCOME HAD BEEN CORRECTLY ASSESSED UNDER TH E HEAD INCOME FROM OTHER SOURCES OR INCOME FROM HOUSE PROPERTY . IT WAS THUS CLEAR THE ISSUE RELATING TO THE NATURE OF INCOME FROM SUB -LEASE OF VARIOUS EQUIPMENTS HAD NOT BEEN DECIDED. IT WAS ARGUED THAT THE ASSESSEE HAD TAKEN THE SAID EQUIPMENTS ON LEASE AND SUB-LEASED T O THE GROUP COMPANY AND, THEREFORE, THE INCOME HAS TO BE ASSESS ED AS INCOME FROM OTHER SOURCES AND EXPENSES INCURRED HAVE TO B E ALLOWED. THE LD. ITA NO : 4224/MUM/2009 M/S. NEXUS EQUITY ADVERTISING PVT. LTD. 4 DR ON THE OTHER HAND, SUPPORTED THE ORDER OF AUTHOR ITIES BELOW AND PLACED RELIANCE ON THE FINDINGS GIVEN IN THE RESPEC TIVE ORDERS. 2.3 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE MATTER CAREFULLY. THE DISPUTE IS REGARDING THE ASSESSMENT OF INCOME RECEIVED BY THE ASSESSEE FROM LETTING OUT OF CERTAIN PROPERT IES AND FROM SUB- LEASE OF CERTAIN EQUIPMENTS SUCH AS COMPUTER, VEHIC LES ETC., WHICH HAD BEEN SUB-LEASED ALONG WITH THE PROPERTIES. THE AO A SSESSED THE ENTIRE RECEIPTS AMOUNTING TO `. 47,55,051/- UNDER THE HEAD HOUSE PROPERTY INCOME. THE CASE OF THE ASSESSEE IS THAT THE SUB-L EASE CHARGES IN RESPECTS OF VARIOUS EQUIPMENTS SHOULD BE ASSESSED A S INCOME FROM OTHER SOURCES AND EXPENSES INCURRED FOR EARNING TH E SAID INCOME SHOULD BE ALLOWED. AS REGARDS, THE ASSESSMENT OF RE NTAL INCOME FROM THE PROPERTIES, NO DISPUTE HAS BEEN RAISED AND THE ISSUE IS ALSO SETTLED BY THE DECISION OF THE TRIBUNAL IN THE ASSESSMENT Y EAR 2001-02, IN WHICH IT HAS BEEN HELD THAT THE BUSINESS OF THE ASS ESSEE HAD BEEN DISCONTINUED AND, THEREFORE, INCOME FROM THE LETTIN G OUT OF THE PROPERTY HAS TO BE ASSESSED AS INCOME FROM HOUSE P ROPERTY. A PERUSAL OF THE ORDER OF CIT(A) AND THE ORDER OF THE TRIBUNAL IN THE ASSESSMENT YEAR 2001-02 IN ITA NO.3401/MUM/2005, RE LEVANT PORTION OF WHICH HAS ALSO BEEN REPRODUCED IN THE OR DER OF THE CIT(A), WHICH SHOWS THAT THERE IS NO CLEAR DECISION OF THE TRIBUNAL ON THE ISSUE AS TO THE NATURE OF INCOME FROM SUB-LEASE OF VARIOUS EXPENSES. THE TRIBUNAL IN THE SAID ORDER ONLY HELD THAT THE I NCOME HAD BEEN CORRECTLY ASSESSED AS INCOME FROM HOUSE PROPERTY OR INCOME FROM OTHER SOURCES, EXCEPT THE SUNDRY BALANCE WRITTEN O FF WHICH WERE ASSESSED AS BUSINESS INCOME UNDER THE SPECIFIC PR OVISIONS OF SECTION 41(2). THEREFORE, IN OUR VIEW, THE DECISION OF THE TRIBUNAL IN THE ASSESSMENT YEAR 2001-02 CANNOT BE TAKEN AS A PRECED ENT FOR THE ISSUE REGARDING THE NATURE OF INCOME FROM SUB-LEASE OF VA RIOUS ASSETS. ITA NO : 4224/MUM/2009 M/S. NEXUS EQUITY ADVERTISING PVT. LTD. 5 2.4 THE AUTHORITIES BELOW HAD HELD THAT THE ENTIRE INCOME INCLUDING THE SUB-LEASE CHARGES HAS TO BE ASSESSED AS HOUSE PROPERTY INCOME, AS THE EQUIPMENTS WERE INTEGRAL PART OF THE PROPERT IES. IN CASE, THE EQUIPMENTS WERE INTEGRAL PART OF THE PROPERTIES AND THESE WERE LET OUT INSEPARABLY FROM THE PROPERTY, THE ENTIRE INCOME FR OM THE PROPERTY AS WELL AS SUB-LEASE OF EQUIPMENTS HAS TO BE ASSESSED AS INCOME FROM OTHER SOURCES U/S.56(2)(III). UNDER THE SAID PROVI SION, IN CASE THE ASSESSEE LETS ON HIRE MACHINERY, PLANT OR FURNITURE BELONGING TO HIM AND ALSO BUILDING, AND THE LETTING OF THE BUILDING IS INSEPARABLE FROM THE LETTING OF THE SAID MACHINERY, PLANT OR FURNITU RE, THE INCOME FROM SUCH LETTING, IF IT IS NOT ASSESSABLE AS INCOME FR OM BUSINESS HAS TO BE ASSESSED AS INCOME FROM OTHER SOURCES. THE INSEPA RABILITY HAS TO BE DECIDED ON THE BASIS ON INTENTIONS OF THE PARTIES I N LETTING OUT THE PROPERTIES AND EQUIPMENTS AND NOT ON THE BASIS WHET HER THE TWO WERE PHYSICALLY INSEPARABLE IN VIEW OF THE JUDGMENT OF H ON'BLE SUPREME COURT IN THE CASE OF SULTAN BROTHERS PVT. LTD. VS. CIT (51 ITR 353). THEREFORE, IN CASE THE AUTHORITIES BELOW WERE OF TH E VIEW THAT THE EQUIPMENTS HAD BEEN INSEPARABLY LET ALONG WITH THE PROPERTY, THE ENTIRE INCOME WAS REQUIRED TO BE ASSESSED AS INCOM E FROM OTHER SOURCES. BUT SINCE, THE INCOME FROM PROPERTY HAS B EEN ASSESSED AS INCOME UNDER THE HEAD HOUSE PROPERTY, IT SHOWS TH AT THE PROPERTIES AND THE ASSETS HAVE NOT BEEN CONSIDERED BY THE AUTH ORITIES BELOW, AS LET OUT INSEPARABLY AS THE RENTAL INCOME OF THE PRO PERTY HAS BEEN ASSESSED AS INCOME FROM HOUSE PROPERTY. THEREFORE , IN OUR VIEW, ON THE FACTS OF THE CASE, THE INCOME FROM SUB-LEASE OF VARIOUS EQUIPMENTS HAS TO BE ASSESSED AS INCOME FROM OTHER SOURCES A ND ANY EXPENDITURE INCURRED FOR EARNING OF SUCH INCOME HAS TO BE ALLOWED AS DEDUCTION U/S.57(III). THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF SHAMBHU INVESTMENTS (SUPRA) IS DISTINGU ISHABLE. IN THAT CASE, ISSUE WAS WHETHER THE INCOME FROM THE PROPERT Y LET OUT ALONG ITA NO : 4224/MUM/2009 M/S. NEXUS EQUITY ADVERTISING PVT. LTD. 6 WITH FURNITURE AND FIXTURE COULD BE ASSESSED AS BU SINESS INCOME OR HOUSE PROPERTY INCOME. THERE WAS NO ISSUE, WHERE IT COULD BE ASSESSED AS INCOME FROM OTHER SOURCES. THE CASE I S, THEREFORE, NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. WE, TH EREFORE, SET A SIDE THE ORDER OF THE CIT(A) ON THIS POINT AND RESTORE THIS LIMITED ISSUE OF COMPUTING THE INCOME FROM SUB-LEASE OF VARIOUS EQUI PMENTS AS INCOME FROM OTHER SOURCES AFTER NECESSARY EXAMINA TION OF THE EXPENSES INCURRED AND AFTER ALLOWING AN OPPORTUNITY OF HEARING TO THE ASSESSEE. 3. THE SECOND DISPUTE IS REGARDING THE COMPUTATION OF INCOME FROM LETTING OUT OF THE RANIKHET PROPERTY AND THE FLAT A T SAGAR APARTMENT, DELHI WHICH WERE LYING VACANT DURING THE YEAR. THE AO NOTED THAT THE COST OF ACQUISITION OF THESE TWO PROPERTIES WERE `. 8,53,161/- AND `. 1,51,02,184/- RESPECTIVELY. HE COMPUTED THE ANNUAL VALUE OF THE PROPERTY AT 10% OF THE COST OF ACQUISITION FOLLOWIN G THE JUDGMENT OF ALLAHABAD HIGH COURT IN THE CASE OF SMT. RADHADEVI DALMIYA (125 ITR 134). IN APPEAL, CIT(A) NOTED THAT SIMILAR ISSUE RE GARDING THE ASSESSMENT OF INCOME FROM HOUSE PROPERTIES WHICH WE RE LYING VACANT DURING THE WHOLE YEAR HAD ARISEN IN THE ASSESSMENT YEAR 2001-02 AND THE TRIBUNAL IN THE ORDER DATED 13.01.2009 HELD THA T THE AO HAD NOT DETERMINED THE ANNUAL VALUE OF THE PROPERTY IN ACCO RDANCE WITH THE PROVISIONS OF RENT CONTROL ACT OR THE PROVISIONS OF THE ACT AND, THEREFORE, THE TRIBUNAL RESTORED THE ISSUE TO THE F ILE OF THE AO FOR DETERMINING THE ANNUAL VALUE AS PER THE APPLICABILI TY OF LAW. CIT(A) OBSERVED THAT THE ASSESSEE IN THIS YEAR DID NOT PRO DUCE THE DETAILS REGARDING THE ASSESSMENT OF STANDARD RENT. THE ANNU AL VALUE OF THE PROPERTY AS PER THE DECISION OF ITAT IN THE ASSESSM ENT YEAR 2001-02 IS REQUIRED TO BE COMPUTED BY APPLYING THE MARKET VALU E OR STANDARD RENT WHICHEVER IS APPLICABLE. SINCE, THE ASSESSEE D ID NOT GIVE THE ITA NO : 4224/MUM/2009 M/S. NEXUS EQUITY ADVERTISING PVT. LTD. 7 DETAILS, THE AO WAS JUSTIFIED IN DETERMINING THE MA RKET VALUE ON THE BASIS OF COST OF ACQUISITION. HOWEVER, THE CIT(A) H ELD THAT RATE OF 10% APPLIED BY THE AO WAS ON HIGHER SIDE AND, THEREFORE , HE REDUCED THE SAME TO 7% OF THE COST OF ACQUISITION. AGGRIEVED BY THE SAID DECISION, THE ASSESEE IS IN APPEAL BEFORE THE TRIBUNAL. 3.1 BEFORE US, THE LD. AR FOR THE ASSESSEE REITERAT ED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES. REFERENCE WAS AL SO MADE TO THE FULL BENCH JUDGMENT OF THE DELHI HIGH COURT IN THE CASE OF CIT VS. MONI KUMAR SUBBA (199 TAXMAN 301). THE LD. DR ON THE OTH ER HAND, SUPPORTED THE ORDERS OF AUTHORITIES BELOW. 3.2 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING THE COMPUTATION OF INCOME UNDER THE HEAD HOUSE PROPERTY IN RESPECT O F THE TWO PROPERTIES OWNED BY THE ASSESSEE, WHICH WERE LYING VACANT DURING THE YEAR. IN CASE OF PROPERTIES WHICH ARE LYING VACANT FOR THE WHOLE YEAR, THE VACANCY ALLOWANCE U/S.23(1)(C) IS NOT PERMISSIB LE. THIS VIEW IS SUPPORTED BY THE JUDGMENT OF HON'BLE HIGH COURT OF ANDHRA PRADESH IN THE CASE OF VIVEK JAIN VS. ACIT (337 ITR 74). NO CONTRARY JUDGMENT HAS BEEN BROUGHT TO OUR NOTICE BY THE LD. AR. THERE FORE, THE INCOME FROM THE TWO PROPERTIES LYING VACANT FOR THE WHOLE YEAR HAS TO BE ASSESSED AS HOUSE PROPERTY INCOME. THE ANNUAL VAL UE OF A PROPERTY UNDER THE PROVISIONS OF SECTION 23(1)(A) HAS TO BE TAKEN AS A SUM FOR WHICH THE PROPERTY MIGHT REASONABLY BE EXPECTED TO LET OUT FROM YEAR TO YEAR. IN CASE, THE PROPERTY IS COVERED BY THE RE NT CONTROL ACT, THE STANDARD RENT DETERMINED OR DETERMINABLE UNDER THE RENT CONTROL ACT HAS TO BE TAKEN AS THE ANNUAL VALUE. BUT IN CASE, THE PROPERTY IS NOT COVERED BY THE RENT CONTROL ACT, THE ANNUAL VALUE H AS TO BE TAKEN AS THE FAIR RENTAL VALUE AFTER TAKING INTO VARIOUS FAC TORS. THIS VIEW IS ITA NO : 4224/MUM/2009 M/S. NEXUS EQUITY ADVERTISING PVT. LTD. 8 SUPPORTED BY THE THIRD MEMBER DECISION OF THE TRIBU NAL IN THE CASE OF ITO VS. BAKER TECHNICAL SERVICES PVT. LTD. (125 ITD 1). THIS ASPECT HAS ALSO BEEN CONSIDERED BY THE FULL BENCH OF THE DELHI HIGH COURT IN THE CASE OF CIT VS. MONI KUMAR SUBBA (SUPRA) IN WHICH T HE HIGH COURT HAS HELD THAT RATEABLE VALUE IF CORRECTLY DETERMINE D UNDER THE MUNICIPAL LAW, CAN BE TAKEN AS ANNUAL VALUE BUT THA T VALUE IS NOT BINDING ON THE AO IF HE CAN SHOW THAT THE RATEBALE VALUE UNDER THE MUNICIPAL LAW DOES NOT REPRESENT THE CORRECT FAIR R ENT. IN THAT CASE, THE AO MAY DETERMINE THE SAME ON THE BASIS OF MATER IAL/EVIDENCE ON RECORD. THE DETERMINATION OF THE ANNUAL VALUE IS, T HEREFORE, REQUIRED TO BE MADE IN THE LIGHT OF THE JUDGMENTS DISCUSSED ABO VE AFTER NECESSARY EXAMINATION WHICH HAS NOT BEEN DONE. WE, THEREFORE, SET ASIDE THE ORDER OF THE CIT(A) AND RESTORE THE MATTER BACK TO THE FILE OF AO FOR PASSING A FRESH ORDER AFTER NECESSARY EXAMINATION A ND AFTER ALLOWING OPPORTUNITY OF HEARING TO THE ASSESSEE. 4. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON THIS 9 TH DAY OF DECEMBER, 2011. SD/ - SD/ - ( D. MANMOHAN ) ( RAJENDRA SINGH ) VICE PRESIDENT ACCOUNTANT MEMBER MUMBAI, DT: 09/12/2011 ITA NO : 4224/MUM/2009 M/S. NEXUS EQUITY ADVERTISING PVT. LTD. 9 COPY FORWARDED TO : 1. THE APPELLANT, 2. THE RESPONDENT, 3. THE C.I.T. 4. CIT (A) 5. THE DR, A - BENCH, ITAT, MUMBAI //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI ROSHANI