DCIT,1(3)(2), MUMBAI V. VULPECULA TRADING AND INVESTMENTS CO.PVT. LTD., MUMBAI

ITA 4234/MUM/2017

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 8447 (ITAT-MUMBAI)
• Duration Of Justice: 5 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-11-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2011-2012
• Appeal Filed On: 08-06-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N HEMALATHA
• Keywords: Business income
• Section: 43B

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, MUMBAI BEFORE SHRI B.R. BASKARAN (AM) I.T.A. NO. 4234 /MUM/ 2017 (ASSESSMENT YEAR 20 11 - 12 ) DCIT 1(3)(2) ROOM NO. 540 5 TH FLOOR AAYAKAR BHAVAN M.K. ROAD MUMBAI - 400 020. V S . M/S. VULPECULA TRADING & INVESTM ENTS CO. PVT. LTD. 5 TH FLOOR, LIBERTY BUILDING SIR V.T. MARG 41/42, NEW MARINE LINES MUMBAI - 400 020. ( APPELLANT ) ( RESPONDENT ) PAN : AAACV1209D ASSESSEE BY SHRI RAJESH S. SHAH DEPARTMENT BY MS. N. HEMALATHA DATE OF HEARING 1 .1 1 . 201 7 DATE OF PRONOUNCEMENT 10 . 11 . 201 7 O R D E R THE APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 31.3.2017 PASSED BY THE LEARNED CIT(A) - 3, MUMBAI AND IT RELATES TO A.Y. 2011 - 12. THE REVENUE IS AGGRIEVED BY THE DECISION OF THE LEARNED CIT(A) IN ALLOWING THE CLAIM OF ` 32.70 LAKHS , BEING THE AMOUNT PAYABLE TO LANDLORD ON ACCOUNT OF ENHANCEMENT OF MUNICIPAL TAXES. THIS IS SECOND ROUND OF PROCEEDINGS. 2. FACTS RELATING TO THE ISSUE ARE THAT THE ASSESSEE HA D TAKEN GROUND FLOOR, MEZZANINE FLOOR AND FIRST FLOOR O F A BUILDING ON LEASE FROM M/S LIBERTY CINEMA . IN TURN , IT LEASED OUT THE SAME TO M/S. ARAB BANGLADESH BAN K. THE ASSESSEE DECLARED LEASE RENT RECEIVED BY IT AS ITS BUSINESS INCOME. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS CLAIMED A SUM OF ` 32.7 0 LAKHS AS MUNICIPAL TAXES PAYABLE. SINCE THE ASSESSEE DID NOT PAY THE ABOVE SAID AMOUNT, THE ASSESSING OFFICER PROPOSED TO INVOKE THE PROVISIONS OF SECTION 43B OF THE ACT. THE ASSESSEE SUBMITTED THAT A SUM OF ` 9,50,000/ - HAS BEEN PAID BY IT BEFORE FILING THE RETURN OF INCOME. ACCORDINGLY, THE ASSESSING OFFICER REDUCED THE AMOUNT BY ` 9,50,000/ - FROM RS.32.70 LAKHS AND ADDED THE BALANCE AMOUNT OF ` 23.20 LAKHS U/S. 43B OF THE ACT. M/S. VULPECULA TRADING AND INVESTMENTS CO. PVT. LTD. 2 3. IN THE FIRST ROUND OF APPELLATE PROCEEDINGS, THE LEARNED CIT(A) NOTICED T HAT THE M/S. LIBERTY CINEMA HAS RAISED A DEBIT NOTE UPON THE ASSESSEE ON ACCOUNT OF ENHANCED MUNICIPAL TAXES ONLY ON 13.4.2011. ACCORDINGLY HE TOOK THE VIEW THAT ADDITIONAL LIABILITY IN THE FORM OF MUNICIPAL TAXES ACCRUED TO THE ASSESSEE ONLY IN THE YEAR R ELEVANT TO A.Y. 2012 - 13. ACCORDINGLY, THE LEARNED CIT(A) TOOK THE VIEW THAT DISALLOWANCE HAS NOT TO BE MADE U/S. 43B , BUT ON THE REASON ING THAT EXPENDITURE DOES NOT PERTAIN TO THE YEAR UNDER CONSIDERATION . HE ALSO TOOK THE VIEW THAT REDUCTION OF ` 9.50 LAK HS MADE BY THE ASSESSING OFFICER IS NOT C O R RECT. ACCORDINGLY, HE DIRECTED HIM TO D ISALLOW A SUM OF ` 32.70 LAKHS IN THE PLACE OF ` 23.20 LAKHS , WHICH HAS RESULTED IN ENHANCEMENT OF INCOME BY ` 9.50 LAKHS. 4. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEF ORE THE ITAT AND THE TRIBUNAL, VIDE ITS ORDER DATED 19.8.2016 PASSED IN ITA NO. 7526/MUM/2014 , RESTORED THE MATTER BACK TO THE FILE OF THE LEARNED CIT(A) FOR EXAMINING THE ISSUE AFRESH AND IT ALSO DIRECTED THE LEARNED CIT(A) TO PASS A SPEAKING ORDER. ACCOR DINGLY, PRESENT ORDER CAME TO BE PASSED BY THE LEARNED CIT(A). 5. BEFORE THE LEARNED CIT(A), ASSESSEE CONTENDED THAT IT IS ONLY A TENANT OF M/S. LIBERTY CINEMA AND AS PER THE TENANCY AGREEMENT, ANY ENHANCEMENT OF MUNICIPAL TAX HAS TO BE BORNE BY THE ASSE SSEE. ACCORDINGLY, IT WAS SUBMIT T ED THAT THE PAYMENT MADE BY THE ASSESSEE TOWARDS MUNICIPAL TAXES, IN FACT , PARTAKE CHARACTER OF RENT ONLY . ACCORDINGLY IT WAS SUBMITTED THAT THE PROVISIONS OF SECTION 43B OF THE ACT IS NOT APPLICABLE FOR THIS PAYMENT. TH E ASSESSEE FURTHER SUBMITTED THAT IT IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND AT THE TIME OF FINALIZATION OF ACCOUNT, ALL KNOWN LIABILIT IES HA VE TO BE PROVIDED FOR AS PER THE PRINCIPLES OF ACCOUNTING. IT WAS SUBMITTED THAT THOUGH M/S. LIBERTY CINE MA HAS RAISED THE DEBIT NO TE ON 13.4 .20 1 1, THE SAME WAS BASED ON MUNICIPAL NOTICE DATED 16.3.2011 AND HENCE THE SAME WOULD PERTAIN TO THE YEAR RELEVANT TO A.Y. 2011 - 12 ONLY . ACCORDINGLY, IT WAS SUBMITTED THAT IT HAS PROVIDED FOR THE SAME IN THE ACCOUNTS EN DING ON 31.3.2011. ACCORDINGLY, M/S. VULPECULA TRADING AND INVESTMENTS CO. PVT. LTD. 3 THE ASSESSEE SUBMITTED THAT PROVISIONS OF ` 32.70 LAKHS IS ALLOWABLE AS DEDUCTION IN A.Y. 2011 - 12. 6. THE LEARNED CIT(A) WAS CONVINCED WITH THE CONTENTION S OF THE ASSESSEE AND ACCORDINGLY HELD THAT THE AMOUNT OF ` 32.70 LAK HS IS ALLOWABLE AS DEDUCTION UNDER THE HEAD RENT. THE REVENUE IS AGGRIEVED BY THE DECISION OF THE LEARNED CIT(A). 7. I HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. IN MY VIEW THE LEARNED CIT(A) HAS PASSED THIS IMPUGNED ORDER ON PROPE R REASONING BY DULY CONSIDERING CONTENTION S OF ASSESSEE. F OR THE SAKE OF CONVENIENCE, I EXTRACT BELOW THE OPERATIVE PORTION OF THE ORDER PASSED BY THE LEARNED CIT(A) : - 6.3 I HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND THE FACTS OF THE CASE. IT IS AN UNDISPUTED FACT THAT THE APPELLANT HAD ACQUIRED THE PREMISES ON LEASE BASIS FROM M/S LIBERTY CINEMA, WHICH WAS FURTHER SUB LEASED TO M/S ARAB BANGLADESH BANK. IT WAS SUBMITTED THAT THE RENT PAID TO LIBERTY CINEMA INCLUDE THE ENHANCED P ROPERTY ATT RIBUTABLE TO THE PREMISES AS PER THE AGREEMENT BETWEEN THE APPELLANT AND THE LAND LORD NAMELY LIBERTY CINEMA. SINCE THE LIABILITY TO PAY PROPERTY TAX TO M UNICIPAL CORPORATION IS STATUTORILY CASTED ON THE LAND LORD NAMELY LIBERTY CINEMA B EING THE OWNER OF T HE LAND AND BUILDING. THEREFORE, ANY ENHANCED PROPERTY TAX AID BY THE LAND LORD IS TO BE RECOVERED FROM THE TENANT AS RENT AS PER THE RELEVANT P ORTION OF THE AGREEMENT AS GIVEN IN PARA 2(B), WHICH IS RE P RODUCED AS UNDER - '(B) TO PAY TO THE LESSORS ON DEM AND SUCH PORTION OF ANY INCREASE IN ANY TAXES, ASSESSMENTS, CHARGES, RATES, CESSES, DUES, DUTIES OR IMPOSITIONS THAT MAY NOW OR AT ANY TIME HEREAFTER DURING THE CONTINUANCE OF THESE PRESENTS TO LEVIED IN RESPE C T OF OR IN C ONNECTION WITH THE SAID BUILDING A ND OR ANY NEX TUXES, ASSESSMENTS, CHARGES, RATES, ASSESSMENTS DUES, DUTIES OR IMPOSITIONS THAT MAY FROM TIME TO TIME HEREAFTER DURING THE CONTINUANCE OF THESE PRESENTS BE LEVIED IN RESPECT OF THE SAID BUILDING EITHER BY THE GOVERNMENT OR THE MUNICIPAL CORP ORATION OR ANY PUBLIC BODY OR AUTHORITY WHATSOEVER AND WHETHER THE SAME ARE PAYABLE BY THE LESSORS OR THE LESSEE OR THE OCCUPIERS OF THE SAID BUILDING AS MAY BE PROPORTIONATE TO THE RESERVED RENT, PROVIDED THAT THAT SUCH SUMS ARE RECOVERABLE FROM THE LESSE E BY LAW.' M/S. VULPECULA TRADING AND INVESTMENTS CO. PVT. LTD. 4 6.4 THEREFORE, THE PAYMENT MADE BY TH6 APPELLANT TO LIBERTY CINEMA IS RENT WHICH INCLUDES INCREASE IN THE MUNICIPAL TAX . . IT WAS FURTHER OBSERVED THAT THE SAID INCREASE IN THE PROPERTY TAX IS REQUIRED TO BE RECOVERED FROM THE TENANT AS PER SEC TION 12 OF THE MAHARASHTRA RENT CONTROL ACT, 1999 ALSO. 6.5 IN VIEW OF THE PROVISIONS OF THE AGREEMENT AND AS STATED EARLIER IS A RENT IN THE BOOKS OF THE APPELLANT. 'HOWEVER, THE APPELLANT HAS DEBITED THE AMOUNT OF RENT WHICH INCLUDES ENHANCED PROPERTY TAX TO THE TUNE OF RS. 32,70,358H THE AO HAS OBSERVED THAT OUT OF SAID AMOUNT OF RS. 9,50,000/ - , WAS PAID BY THE APPELLANT BEFORE THE DATE OF FILING OF THE RETURN AND REMAINING AMOUNT OF RS. 23,20,358/ - , WAS DISALLOWED U/S 43B OF THE IT ACT, 1961 AS UNPA ID TILL THE DATE OF FILING OF RETURN. 6.6 ON THE OTHER HAND, THE APPELLANT SUBMITTED THAT SECTION 43B OF THE ACT IS NOT APPLICABLE TO THE PAYMENT WHICH IS IN THE NATURE OF RENT AND NOT IN THE NATURE OF MUNICIPAL TAXES IN THE HANDS OF THE APPELLANT. I AGRE E WITH THE ARGUMENT OF THE APPELLANT THAT NATURE OF PAYMENT IN THE HANDS OF THE APPELLANT IS RENT, WHICH INCLUDES ENHANCED MUNICIPAL TAXES AS PER THEIR AGREEMENT BETWEEN THE APPELLANT AND LIBERTY CINEMA. SINCE THE APPELLANT IS FOLLOWING THE MERCANTILE ACCO UNTING SYSTEM IT HAS BEEN DEBITED AS SOON AS THE LIABILITY ARISES. THEREFORE, IN MY OPINION THE APPELLANT ACCORDINGLY DEBITED AN AMOUNT OF RS. 32,70,358/ - IN THE P&L A/C AND THE REMAINING UNPAID RENT HAS BEEN SHOWN AS LIABILITY IN THE BALANCE SHEET. THEREF ORE, THE APPELLANT HAS ACCORDINGLY ACCOUNTED FOR ITS EXPENDITURE IN ITS BOOKS OF ACCOUNTS AND CORRECTLY CLAIMED AS ALLOWABLE EXPENDITURE. IN VIEW OF THE SAME, AN AMOUNT OF RS. 32,70,358/ - IS ALLOWED AS AN ALLOWABLE EXPENDITURE TOWARDS RENT WHICH INCLUDES E NHANCED MUNICIPAL TAXES. THE LIMITED ISSUE AS REMANDED BACK BY THE HON'BLE, ITAT MUMBAI HAS BEEN CONSIDERED AND ALLOWED. 8. I NOTICED THAT THE LEARNED CIT(A) HAS EXPRESSED THE VIEW THAT PAYMENT PERTAINING TO ENHANCEMENT OF MUNICIPAL TAXES BORNE BY THE ASS ESSEE HAS TO BE CONSIDERED AS RENT IN THE HANDS OF THE ASSESSEE. SINCE THE ASSESSEE IS NOT THE OWNER OF THE PROPERTY AND ONLY A TENANT; SINCE LIABILITY TO PAY MUNICIPAL TAX IS THE PRIMARY RESPONSIBILITY OF LIBERTY CINEMA AND SINCE THE ASSESSEE HAS AGREED T O BEAR ITS SHARE OF ENHANCED MUNICIPAL TAXES, IN MY VIEW , THE LEARNED CIT(A) WAS JUSTIFIED IN HOLDING THAT ENHANCE D MUNICIPAL TAX BORNE BY THE ASSESSEE PARTAKE CHARACTER OF RENT AND HENCE PROVISIONS OF SECTION 43B WOULD NOT APPLICABLE. M/S. VULPECULA TRADING AND INVESTMENTS CO. PVT. LTD. 5 9. AS PER THE M ERCANTILE SYSTEM OF ACCOUNTING, THE EXPENDITURE IS ALLOWABLE AS DEDUCTION IN THE YEAR IN WHICH THE LIABILITY TO PAY HAS OCCURRED. IT WAS SHOWN BY THE ASSESSEE THAT THE OWNER OF THE BUILDING , M/S LIBERTY CINEMA , HAS RECEIVED NOTICE FROM THE MUNICIPAL CORPO RATIO N IN MARCH, 2011 ITSELF AND IT ONLY HAS DELAYED IN RAISING DEBIT NOTE UPON THE ASSESSEE. ACCORDINGLY WE ARE OF THE VIEW THAT THE LIABILITY HAS ACCRUED THE MOMENT THE NOTICE WAS ISSUED BY THE MUNICIPAL CORPORATION. ACCORDINGLY WE ARE OF THE VIEW THA T THE LIABILITY TO PAY THE ENHANCED MUNICIPAL TAXES HAS ACCRUED TO THE ASSESSEE IN MARCH, 2011 ITSELF. ACCORDINGLY THE IMPUGNED EXPENDITURE PERTAIN S TO THE YEAR UNDER CONSIDERATION AND SINCE THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, IN MY VIEW , THE LEARNED CIT(A) HAS RIGHTLY HELD THAT PROVISIONS OF ` 32.70 LAKHS PERTAINING TO ENHANCEMENT OF MUNICIPAL TAX (RENT) IS ALLOWABLE AS DEDUCTION DURING THE YEAR UNDER CONSIDERATION. ACCORDINGLY I UPHOLD THE ORDER PASSED BY THE LEARNED CIT(A). 10 . I N THE RESULT, APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER HAS BE EN PRONOUNCED IN THE COURT ON 10 .11 . 201 7. SD/ - (B.R.BASKARAN) ACCOUNTANT MEMBER MUMBAI ; DATED : 10 / 11 / 20 1 7 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// ( ASSTT. REGISTRAR /SENIOR PS ) PS ITAT, MUMBAI