Challa Satish Reddy HUF, Secunderabad V. Dy. Commissioner of Income Tax , Circle-10(1), Hyderabad

ITA 46/Hyd/2020

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 5548 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 5 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-06-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: DB-B
• Assessment Year: 2013-2014
• Appeal Filed On: 09-01-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SUMITRA NANDAN
• Keywords: Business income; Capital Gains
• Section: 192; 54EC

Judgement Text

आयकर अपील य अ धकरण, हैदराबाद पीठ म IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES “B”, HYDERABAD BEFORE SHRI RAMA KANTA PANDA, ACCOUNTANT MEMBER & SHRI K.NARASIMHA CHARY, JUDICIAL MEMBER आ.अपी.सं / ITA No. 46/Hyd/2020 ( िनधा रण वष / Assessment Year: 2013-14 ) Challa Satish Reddy (HUF), Secunderabad [PAN No. AASHS4157A] Vs. Dy.Commissioner of Income Tax, Circle-10(1), Hyderabad अपीलाथ / Appellant यथ / Respondent नधा रती वारा/Assessee by: Shri Sumitra Nandan, AR राज व वारा/Revenue by: Shri Rohit Mujumdar , DR स ु नवाई क तार ख/Date of hearing: 07-06-2022 घोषणा क तार ख/Pronouncement on: 20-06-2022 आदेश / ORDER PER K. NARASIMHA CHARY, JM: Aggrieved by the order dated 01-10-2019, passed by the Learned Commissioner of Income Tax (Appeals)-6, Hyderabad (“Ld. CIT(A)”) in the case of M/s.Challa Satish Reddy, HUF (“the assessee”) for the AY.2013-14, assessee filed this appeal. 2. Briefly stated facts relevant for the disposal of this appeal are that the assessee is deriving income from house property, other sources and long term capital gains. For the AY.2013-14, the assessee filed return of ITA No.46/Hyd/2020 Page 2 of 10 income on 26-03-2014 declaring an income of Rs.1,90,16,300/- after claiming exemption u/s.54EC of the Income tax Act, 1961 (“the Act”). During the course of assessment proceedings it was found that the assessee admitted an income of Rs.57,56,254/- from house property, Rs.1,31,84,565/- from capital gains and Rs.2,30,480/- from other sources. From their property called Challa Chambers, wherein the brother of the assessee was also having a share, the assessee derived an income of Rs.12,35,986/- towards maintenance charges and after deducting the expenses to the tune of Rs.10,65,361/-, the assessee had shown the above Rs.2,30,480/- from other sources. Insofar as this income is concerned, the case of the assessee has been that they have entered into rental agreements with their tenants and maintenance agreements with both tenants and non-tenants, to whom they were rendering some additional services like watch and ward facility, lift, parking, security, general maintenance and power back-up for common areas etc. 3. According to the learned Assessing Officer, all these facilities, insofar as they are provided to the tenants, are attached to the letting out the property and cannot be treated as ‘independent services’. Learned Assessing Officer, therefore, treated the same as part of the income from house property. Accordingly, the assessment was complete by order dt.16-03-2016 passed u/s.143(3) of the Act by making certain additions and assessing the total income of the assessee at Rs.1,98,03,811/-. 4. Aggrieved by such an action of learned Assessing Officer, assessee preferred an appeal before the Ld. CIT(A). Ld. CIT(A) having considered the assessment order in the light of the submissions made by the assessee to the contrary, was of the opinion that the maintenance service charges are ITA No.46/Hyd/2020 Page 3 of 10 nothing but part of rent, inasmuch as all the facilities referred to by the assessee as ‘services under maintenance agreement’ would only go to have a bearing on the quantum of rent itself and, therefore, insofar as the tenants are concerned, such artificial bifurcation of the letting out the property and the so called amenities they cannot form part of the business income. For reaching this conclusion, Ld. CIT(A) placed reliance on the decisions reported in JST Reality Private Limited (Mumbai ITAT) ITA No.3974/Mum/2011 (AY.2007-08), G.Raghuram (Hyderabad, ITAT) ITA Nos.314 & 315/Hyd/2017, dt.20-03-2019 and Sunil Kumar Gupta vs Asst Commissioner of Income Tax in ITA No.369/2015 by order dt.27-09-2016. 5. Apart from this, Ld. CIT(A) noticed that insofar as the computation of capital gains is concerned, the assessee claimed exemption u/s.54EC of the Act to the extent of Rs.1 Crore for the AYs.2012-13 and 2013-14 on the ground that he invested Rs.50 Lakhs in NHAI bonds on 31-03-2013 and 30- 04-2013 each, on the ground that both the investments fall within a period of six months after the date of transfer of the asset. On this aspect, Ld. CIT (A) was of the opinion that the assessee is eligible to claim exemption u/s.54EC of the Act only to the extent of Rs.50 Lakhs notwithstanding the fact that it made investment in NHAI bonds to the extent of Rs.1 Crore within a period of six months from the date of transfer of the original asset but in two different assessment years. Challenging both these findings, assessee preferred this appeal. 6. Insofar as the first issue covered by Ground Nos.1 to 5, 7 and 8 is concerned, it relates to the amounts received under the maintenance agreement. Learned AR submitted that the assessee is rendering certain services relating to the common areas around the demised premises of ITA No.46/Hyd/2020 Page 4 of 10 tenant and non-tenants, maintenance service agreement is different from the rental agreement, and inasmuch as the assessee is rendering certain services which are beyond the scope of rental agreement and on par with the services rendered to the non-tenants, it cannot be said that the amounts received for the services rendered to the tenants beyond the scope of rental agreement would also relatable to the income from house property. According to the assessee, the sums received by the assessee under the maintenance agreement does not form part of the income from house property but those are part of business income. 7. Learned AR further submitted that under identical circumstances for the AY.2012-13, the Ld. CIT(A) upheld the contention of the assessee that the service charges constitute a separate source of income, though the income from house property taxes into its fold the letting out the tenant which includes the services like providing fans, bulbs, air conditions and lift etc. He submits that Ld. CIT(A) further held in the AY.2012-13 that any payments towards services like cleaning, housekeeping, security and lighting etc., would not fall in the ambit of letting out the premises and constitute a separate maintenance service for which a separate payment could be received. 8. Per contra, learned DR submits that all the amenities now the assessee enumerates under the maintenance agreement are the factors which have a bearing on the quantum of rent and, therefore, they are relevant for fixation of the fair rent but they do not constitute distinct services from the letting out activity. Provision of power back up, lift, car parking and lighting will enhance the rent and, therefore, the rent represents the payment for these services also, as such, whether or not ITA No.46/Hyd/2020 Page 5 of 10 they are paid by way of including the same in rent or separately, they are income from house property only. While taking us through the various agreements, he demonstrated that the assessee had shown car parking, power back up as additional services but as a matter of fact, in the rent agreement itself executed with Aviva Life Insurance, HDFC and Web synergies – provision of car parking is shown as a part of the letting out activity. According to him, inasmuch as the Ld. CIT (A) followed the binding precedents cited in the order itself it cannot be said that any interference is required. 9. We have gone through the record in the light of the submissions made on either side. It could be seen from the rental agreement between the assessee and HSBC at page No.117 to 121 (at Pg.No.120) of the paper book, Punjab National Bank rental agreement at page No.136 to 141 (at Pg.No.137) and Web Synergies India Pvt. Ltd., page Nos.142 to 147 (at pg.144), provision of car parking is shown as a part of the letting out activity. However, the same was shown as one of the maintenance services with the Aviva Life Insurance, HSBC Investment. It is therefore, clear that there is an overlap in the services provided in the rental agreement and maintenance agreement and when a service is covered by rental agreement, even if an additional accommodation is provided by way of car parking, certainly it would be an activity covered by the income from house property only. 10. There are certain services provided by the assessee which are common for tenants and non-tenants and have nothing to do with the letting out activity like cleaning and housekeeping etc., and such services could be secured by the occupants of the premises even by the third ITA No.46/Hyd/2020 Page 6 of 10 parties and, therefore, merely because they are provided by the land lord alone, it cannot be said that they are part of letting out activity. Further, for the AY.2012-13, the Ld. CIT (A) directed the learned Assessing Officer to adopt the annual value of the premises as shown by the assessee and compute the income from house property accordingly by disallowing the repair and maintenance services of the premises. Having regard to this direction given in the earlier assessment year, we are of the considered opinion that for this year also the very same course could be followed. As a matter of fact, learned AR pleaded for the same during the course of arguments. 11. Having considered the totality of circumstances, as analysed above, we are of the considered opinion that best course open in this matter is to direct the learned Assessing Officer to adopt the annual value of the premises as shown by the assessee and compute the income from house property accordingly, as was followed in this case by the Ld. CIT(A) for the AY.2012-13. We order so and accordingly allow the grounds of appeal for statistical purposes. 12. Now coming to the issue relating to the exemption claimed by the assessee u/s. 54EC of the Act to the tune of Rs.100 Lakhs invested on 31- 03-2013 and 30-04-2013, according to the Ld. CIT(A), the investment u/s. 54EC of the Act is transaction based and not the assessment year based and, therefore, the assessee is entitled to avail the benefit of deduction only in respect of the first investment to the tune of Rs.50 Lakhs during the AY.2013-14 and not entitled to the same in respect of the investment of Rs.50 Lakhs in the AY.2014-15. Ld. CIT(A) further observed that in the alternative, the transfer of shares took place on 31-03-2013 and, ITA No.46/Hyd/2020 Page 7 of 10 therefore, the investment made on 31-03-2013 cannot be considered because it is not after the date of transfer of the original asset, but on the date of transfer of the original asset. 13. Learned AR firstly contended that as is evident by the bank entry to be found at page No.94 of the paper book the entire sale consideration of Rs. 2,52,68,979/- was received on 28-01-2013 itself but the actual transfer of shares took place on 20-03-2013 and, therefore, the investment made on 31-03-2013 was proper and after the transfer of the original asset. Nextly he contended that in the decisions reported in Coromandel Industries (2015) 370 ITR 586 (Mad) and CIT Vs. Jaichander 370 ITR 579 (Madras HC), the Hon'ble High Court held that there is ambiguity in the language of Section 54EC(1) of the Act inasmuch as it indicated that there is no cap on the investment to be made in bonds but the requirement is that within a period of six months, the investment of Rs. 50 Lakhs per assessment year could be made. It is further submitted that noticing this ambiguity, the legislature inserted the 2 nd proviso to Section 54EC(1) of the Act by way of Finance Act, 2014 w.e.f. 01-04-2015 which is effective from the AY.2015-16 only. For these reasons, he submitted that the burden of the ambiguity cannot be shifted to the assessee. 14. It is the submission of the learned DR that the purpose of Section 54EC of the Act is to allow exemption from tax on long term capital gains, if invested in bonds, targeted exclusively for creation of infrastructure and community assets. A plain reading of this section does not give any indication that this section desires to create any classification between the assessees, who derive capital gains till the month of September in whose case, the investment of Rs. 50 Lakhs is possible only once, and the other ITA No.46/Hyd/2020 Page 8 of 10 class of assessees, who derive the long term capital gains from the month of September of any year in whose case, it would be possible for investment of Rs. 50 Lakhs in two assessment years each. Such a classification has no nexus with the objects of the provision and, therefore, the unreasonable discrimination cannot be read into a provision of the Act so as to violate the principle of equality. While attributing such an act of discrimination, in violation of the principles of equality, to any statutory provision, the adjudicatory fora must be slow and reject such an interpretation. Basing on this analogy, he stresses that the decision of the Hon'ble Rajastan High Court in the case of Raj Kumar & Sons (supra) has to be preferred to the decisions of the Hon'ble Madras High Court in consonance with the constitutionality of the interpretation. 15. Having considered the issue in the light of the submission made on either side, we find that the Ld. CIT(A) is right in his observation that there is conflict of decisions on this issue between various Hon'ble High Courts. The decisions of the Hon'ble Madras High Court supra were brought to the notice of the Ld. CIT(A). Ld. CIT(A), however, referred to the latest decision on this aspect rendered by the Hon'ble Rajastan High Court in the case of Shri Raj Kumar Jain & Sons HUF Vs. CIT in ITA No. 157/2012 and observed that inasmuch as the issue did not attain any finality by way of any judgment of the Hon'ble Apex Court, he would be justified in following the latest judgment on this aspect and on that premise, he disallowed the deduction of Rs. 50 Lakhs claimed to have invested on 30-04-2013. 16. Though the learned DR submitted that inasmuch as there is no reasonable nexus between the object of the provision and the need to create any classification amongst the assessees deriving long term capital ITA No.46/Hyd/2020 Page 9 of 10 gains prior to and after the months of September in any particular year, the provision cannot be read to have been creating any unreasonable classification amongst the assessees deriving long term capital gains since such classification would result in undesired discrimination, the judicial opinion of the Hon'ble Madras High Court is that there is ambiguity in the legislative language giving rise to the opinion that the deduction u/s. 54EC of the Act is not transaction base but assessment year base. Such situation is covered by the decision of the Hon'ble Apex Court in the case of CIT vs. Vegetable Products Ltd., [1973] 88 ITR 192 (SC), wherein it was held that If court finds that language to be ambiguous or capable of more meanings than one, then the court has to adopt that interpretation which favours the assessee. We, therefore, while respectfully following the decision of the Hon'ble Apex Court supra are inclined to allow benefit of the ambiguity to the assessee. Findings of the Ld. CIT(A) on this aspect are reversed and the addition made on this count is directed to be deleted. 17. In the result, the appeal of assessee is partly allowed for statistical purposes. Order pronounced in the open court on this the 20 th day of June, 2022 Sd/- Sd/- (RAMA KANTA PANDA) (K. NARASIMHA CHARY) ACCOUNTANT MEMBER JUDICIAL MEMBER TNMM Hyderabad, Dated: 20-06-2022 ITA No.46/Hyd/2020 Page 10 of 10 Copy forwarded to: 1. Challa Satish Reddy (HUF), Plot No.54, Park View Enclave, Manovikas Nagar, Bowenpally, Secunderabad. 2. The Dy.Commissioner of Income Tax, Circle-10(1), Hyderabad. 3. The CIT(Appeals)-6, Hyderabad. 4. The Pr.CIT-6, Hyderabad. 5. DR, ITAT, Hyderabad. 6. GUARD FILE TRUE COPY ASSISTANT REGISTRAR ITAT, HYDERABAD