M/S. ATULRAJ BUILDERS PVT. LTD, MUMBAI V. THE DY CIT CEN CIR-32,

ITA 4753/MUM/2008

• Counselvise Citation: 475319914 RSA 2008
• Duration Of Justice: 3 year(s) 2 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-09-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 12-09-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 18-07-2008
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: HARESH P SHAH MS USHA NAIR
• Keywords: Business income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI BEFORE SHRI R.V. EASWAR, PRESIDENT AND SHRI RAJENDRA SINGH (AM) ITA NO. 4753/M/2008 ASSESSMENT YEAR:2004-2005 ATULRAJ BUILDERS PVT. LTD. 601, SHREE AMBA SHANTI CHAMBERS, ANDHERI KURLA ROAD, ANDHERI (E), MUMBAI 400 057. PAN: AABCA7938D THE DY. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-32, MUMBAI 400 020. (APPELLANT) (RESPONDENT) ASSESSEE BY: REVENUE BY: SHRI HARESH P. SHAH MS. USHA NAIR DATE OF HEARING: DATE OF PRONOUNCEMENT: 12-09-2011 21-09-2011 O R D E R PER RAJENDRA SINGH (AM): 1. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 27.5.2008 OF CIT (A) FOR THE ASSESSMENT YEAR 2004-05. THE ASSES SEE IN THIS APPEAL HAS RAISED DISPUTES ON TWO DIFFERENT GROUNDS. 2. THE FIRST DISPUTE IS REGARDING DISALLOWANCE OF P ROPERTY TAX OF RS. 24,59,281/-. THE FACTS IN BRIEF ARE THAT THE ASSES SEE WHO WAS A BUILDER HAD CONSTRUCTED GALAS WHICH HAD BEEN SOLD DURING THE YE AR. AO NOTED THAT WHILE COMPUTING THE INCOME, THE ASSESSEE HAD DEDUCTED A S UM OF RS.24,57,281/- ON ACCOUNT OF PROPERTY TAX. THE ASSESSEE EXPLAINED TH AT THE PROPERTY TAX RELATED TO THE CONSTRUCTION PERIOD. THE ASSESSEE HAD COLLECTED DEVELOPMENT/BETTERMENT CHARGES FROM THE PURCHASERS WHICH HAD BEEN OFFERED TO TAX AND, THEREFORE ITANO.4753/M/2008 ATULRAJ BUILDERS PVT. LTD. 2 PAYMENT ON ACCOUNT OF TAX WAS REQUIRED TO BE ALLOWE D AS PAYMENT OF TAX WAS THE RESPONSIBILITY OF THE BUILDER. THE PURCHASERS WERE LIABLE FOR PAYMENT OF TAX ONLY AFTER TAKING OVER THE POSSESSION OF THE PROPERTY. THE AO WAS, HOWEVER NOT SATISFIED BY THE EXPLANATION GIVEN. HE NOTED FROM THE SAMPLE AGREEMENTS ENTERED WITH THE PURCHASERS THAT EXPENSES RELATING TO TAX, ETC., WERE TO BE BORNE BY THE PURCHASER. HE REFERRED TO CLAUSE 27 OF THE AGREEMENT WHICH PROVIDED THAT, ON EXPIRY OF 10 DAYS NOTICE IN WRITING GIVEN BY THE PROMOTERS TO THE PURCHASERS TO THE EFFECT THAT THE SAID PREMISES WAS READY FOR OCC UPATION, ON OR BEFORE TAKING THE POSSESSION OF THE PREMISES WHICH EVER IS EARLIER, T HE PURCHASER WOULD BE LIABLE TO PAY REGULARLY TO THE PROMOTERS THE PROPORTIONATE SH ARE OF THE PURCHASER OF THE MUNICIPAL TAX OF THE SAID LAND AND/OR BUILDING AND ALSO OF THE ENTIRE LAY OUT AND COMPLEX AND ALL RATES AND TAXES. FURTHER, CLAUSE 32 PROVIDED THAT IN RESPECT OF ANY CHARGES LEVIED BY OR ANY PAYMENT REQUIRED TO BE MAD E TO ANY GOVERNMENT OR LOCAL BODIES EITHER ON LAND OR BUILD OR OTHERWISE, THE PU RCHASER ON BEING CALLED UPON TO DO SO BY THE PROMOTERS, PAY TO THE PROMOTERS HIS/HE R SHARE THEREOF AND BEFORE OR AFTER TAKING POSSESSION OF THE SAID PREMISED AS MAY BE REQUIRED OR DETERMINED BY THE PROMOTERS. AO, THEREFORE, CONCLUDED THAT ANY OU T GOINGS RELATING TO THE PROPERTY PURCHASED HAD TO BE BORNE BY THE PURCHASER . AS REGARDS THE DEVELOPMENT OR BETTERMENT CHARGES COLLECTED BY THE ASSESSEE, THE AO OBSERVED THAT IN THE ASSESSMENT YEAR 2003-04, THE ASSESSEE H AD COLLECTED TOTAL SUCH CHARGES OF RS. 14,54,500/- BUT THE SAME WAS NOT INC LUDED IN THE INCOME OF THE SAID YEAR. FURTHER, IN THE ASSESSMENT YEAR UNDER C ONSIDERATION, THE ASSESSEE HAD COLLECTED DEVELOPMENT/BETTERMENT CHARGES OF RS. 2,1 0,750/- BUT ONLY A SUM OF RS. 1,52, 625/- HAD BEEN INCLUDED IN THE INCOME. THE A O THUS HELD THAT MUNICIPAL TAXS PAID BY THE ASSESSEE WAS NOT THE ALLOWABILITY OF THE ASSESSEE AND, THEREFORE, THE SAME COULD NOT BE CONSIDERED AS EXPENDITURE FOR THE PURPOSE OF BUSINESS AND ITANO.4753/M/2008 ATULRAJ BUILDERS PVT. LTD. 3 ACCORDINGLY HE DISALLOWED THE CLAIM. IN APPEAL, CI T (A) CONFIRMED THE ORDER OF THE AO AGGRIEVED BY WHICH THE ASSESSEE IS IN APPEAL BEF ORE THE TRIBUNAL. 2.1. BEFORE US, THE LEARNED AR FOR THE ASSESSEE REI TERATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES AND SUBMITTED THAT THE RE WAS NO DISPUTE THAT THE ASSESSEE HAD PAID THE MUNICIPAL TAX WHICH WAS CLEAR FROM THE DETAILS GIVEN AT PAGE 1 OF THE PAPER BOOK. THE ASSESSEE PAID THE TA XES AS PER THE DEMAND BY THE BMC AND THEREFORE THE SAME WAS REQUIRED TO BE DEDUC TED WHILE COMPUTING THE BUSINESS INCOME. IT WAS ALSO SUBMITTED THAT THE AS SESSEE HAD DECLARED THE INCOME IN RESPECT OF TAXES RECOVERED FROM THE PURCH ASERS IN THE SUBSEQUENT YEARS. HE REFERRED TO THE DETAILS OF RECOVERIES GIVEN ON P AGE 21 OF THE PAPER BOOK. IT WAS ARGUED THAT THE EXPENDITURE HAD BEEN INCURRED W HOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND, THEREFORE, THE SAME SHOULD BE ALLOWED. THE LEARNED DR ON THE OTHER HAND STRONGLY SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES AND SUBMITTED THAT THE MUNICIPALITY TAXES WERE NOT THE LIABILITY OF THE ASSESSEE AS PER THE AGREEMENT WITH THE PURCHASERS AND THEREFORE, AN Y DEDUCTION ON THAT AMOUNT COULD NOT BE ALLOWED. IT WAS ALSO POINTED OUT THAT DEBITS GIVEN AT PAGE 21 SHOWED THAT RECOVERY WAS IN RESPECT OF DEVELOPMENT/BETTER CHARGES AND NOT MUNICIPAL TAXES. 2.2. WE HAVE PERUSED THE RECORD AND CONSIDERED THE RIVAL CONTENTIONS CAREFULLY. THE DISPUTE REGARDING ALLOWABILITY OF PROPERTY TAX OF RS. 24,59,281/- PAID BY THE ASSESSEE AND CLAIMED AS DEDUCTION. THE ASSESSEE IS A BUILDER WHO HAD CONSTRUCTED GALAS WHICH HAD BEEN SOLD DURING THE YE AR. THE ASSESSEE HAD PAID PROPERTY TAX OF RS. 24,57,281/- TO BMC IN RESPECT OF THE GALAS SOLD. A PERUSAL OF THE AGREEMENT WITH THE BUYERS SHOWS THAT PAYMENT OF MUNICIPAL TAX IN RESPECT OF PROPERTY CONSTRUCTED WAS NOT THE LIABILITY OF THE A SSESSEE. CLAUSE 27 OF THE AGREEMENT CLEARLY PROVIDED THAT BEFORE TAKING POSSE SSION OF THE PROPERTY, ITANO.4753/M/2008 ATULRAJ BUILDERS PVT. LTD. 4 PURCHASER WAS LIABLE TO PAY TO THE PROMOTERS THE PR OPORTIONATE SHARE OF MUNICIPAL TAX AND OTHER RATE AND TAXES. FURTHER, CLAUSE 32 A LSO PROVIDED THAT PURCHASER WAS REQUIRED TO PAY TO THE PROMOTERS HIS/HER SHARE IN R ESPECT OF ANY CHARGES LEVIED OR ANY PAYMENTS REQUIRED TO MADE TO ANY GOVERNMENT OR LOCAL BODY. IT IS THUS CLEAR THAT TAXES WERE PAYABLE BY THE PURCHASERS AS PER TH E AGREEMENT. ANY DEDUCTION ON ACCOUNT OF ANY EXPENDITURE CAN BE ALLOWED IN CAS E OF THE ASSESSEE, ONLY IN RESPECT OF THE LIABILITY INCURRED BY THE ASSESSEE T OWARDS SUCH EXPENDITURE. SINCE THE MUNICIPAL TAXES WERE PAYABLE BY THE PURCHASERS, CLAIM OF DEDUCTION ON THIS ACCOUNT CANNOT BE ALLOWED IN CASE OF THE ASSESSEE. WE, THEREFORE, SEE NO INFIRMITY IN THE ORDER OF THE CIT (A) CONFIRMING THE DISALLOW ANCE AND THE SAME IS THEREFORE UPHELD. 3. THE SECOND DISPUTE IS REGARDING THE TREATMENT OF RENT RECEIVED BY THE ASSESSEE FROM BPL MOBILE COMPANY. THE ASSESSEE HAD TREATED THE INCOME AS INCOME FROM THE HOUSE PROPERTY WHEREAS THE AO HAD A SSESSED THE SAME AS BUSINESS INCOME. THE AO NOTED THAT THE ASSESSEE HA D ALLOWED THE USE OF THE TERRACE TO BPL COMMUNICATION COMPANY FOR INSTALLATI ON OF COMMUNICATION EQUIPMENTS FOR WHICH RENT OF RS. 3 LACS HAD BEEN RE CEIVED. THE AO ALSO NOTED THAT THE ASSESSEE WAS OWNER OF THE PROPERTY DURING THE Y EAR WHICH WAS THE BUSINESS ASSET OF THE ASSESSEE AS THE OCCUPATION CERTIFICATE IN FAVOUR OF THE PURCHASERS HAD BEEN GRANTED ONLY ON 7.4.2004 I.E., AFTER THE END O F THE RELEVANT YEAR. THE AO FURTHER OBSERVED THAT THE RENTAL INCOME HAD BEEN RE CEIVED ON ACCOUNT OF TEMPORARY EXPLOITATION OF THE COMMERCIAL ASSET AND, THEREFORE, THE INCOME HAD TO BE TREATED AS BUSINESS INCOME. ACCORDINGLY THE AO ASSESSED THE RENTAL INCOME AS BUSINESS INCOME. CIT (A) AGREED WITH THE FINDING O F THE AO THAT RENTAL INCOME WAS FROM TEMPORARY EXPLOITATION OF THE COMMERCIAL A SSET AND THEREFORE, THE INCOME HAD BEEN RIGHTLY ASSESSED AS A BUSINESS INCO ME AND ACCORDINGLY HE ITANO.4753/M/2008 ATULRAJ BUILDERS PVT. LTD. 5 CONFIRMED THE ORDER OF AO AGGRIEVED BY WHICH THE AS SESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 3.1. BEFORE US, THE LEARNED AR FOR THE ASSESSEE ARG UED THAT RENTAL INCOME HAD BEEN RECEIVED FROM LETTING OUT THE SPACE ON THE TER RACE FOR PUTTING UP TOWERS BY THE MOBILE COMPANY AND THEREFORE, THE RENTAL INCOME WAS THE INCOME FROM THE HOUSE PROPERTY AS THE ASSESSEE WAS THE OWNER OF THE PROPERTY DURING THE RELEVANT YEAR. IT WAS ALSO SUBMITTED THAT THERE WERE DECISI ONS OF THE TRIBUNAL IN SUPPORT OF THE SAID PROPOSITION. THE LEARNED DR ON THE OTHER HAND SUPPORTED THE ORDER OF THE AUTHORITIES BELOW AND PLACED RELIANCE ON THE FINDIN GS GIVEN IN THE RESPECTIVE ORDERS. 3.2. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING THE NATURE OF INCOME EARNE D BY THE ASSESSEE ON RENTING OF THE SPACE ON THE TERRACE OF THE HOUSE PROPERTY F OR PUTTING UP TOWERS BY THE MOBILE COMPANY. THE ASSESSEE HAD TREATED THE RENTA L INCOME AS INCOME FROM THE HOUSE PROPERTY WHEREAS THE AUTHORITIES BELOW HAVE A SSESSED THE INCOME AS BUSINESS. THERE IS NO DISPUTE THAT THE HOUSE PROPE RTY UNDER REFERENCE WAS A COMMERCIAL/TRADING PROPERTY OF THE ASSESSEE AND PEN DING SALE, THE ASSESSEE HAD ALLOWED TO USE THE SPACE ON THE TERRACE BY MOBILE C OMPANIES ON PAYMENT OF RENT. RENTAL INCOME IS, THEREFORE, FROM THE COMMERCIAL EX PLOITATION OF A BUSINESS/TRADING ASSET. SUCH INCOME, IN OUR VIEW, HAS TO BE ASSESSE D AS BUSINESS INCOME. THE LEARNED AR FOR THE ASSESSEE HAS REFERRED TO CERTAIN DECISIONS OF TRIBUNAL IN WHICH THE RENTAL INCOME, FROM USE OF SPACE ON THE TERRACE OF THE HOUSE, RECEIVED FROM MOBILE COMPANIES FOR PUTTING UP TOWERS, HAS BEEN HE LD ASSESSABLE AS INCOME FROM HOUSE PROPERTY. THE SAID CASES ARE, HOWEVER, DISTI NGUISHABLE AS IN THOSE CASES THERE WAS NO DISPUTE AS IN THE NATURE OF INCOME FRO M PROPERTY WHICH WAS ASSESSABLE AS INCOME UNDER THE HEAD HOUSE PROPERTY AND, THEREFORE, RENTAL ITANO.4753/M/2008 ATULRAJ BUILDERS PVT. LTD. 6 INCOME FROM LETTING OUT SPACE ON THE TERRACE WAS HE LD ASSESSABLE AS INCOME FROM HOUSE PROPERTY AS TERRACE WAS CONSIDERED AS PART OF THE PROPERTY. IN THE PRESENT CASE, AS POINTED OUT EARLIER, THE HOUSE PROPERTY IS A BUSINESS/TRADING ASSET AND, THEREFORE, ANY INCOME ARISING FROM EXPLOITATION OF SAID PROPERTY HAS TO BE ASSESSED AS A BUSINESS INCOME. WE, THEREFORE, SEE NO INFIRM ITY IN THE ORDER OF CIT (A) UPHOLDING THE TREATMENT OF RENTAL INCOME MADE BY AO AS INCOME FROM BUSINESS. THE ORDER OF CIT (A) IS ACCORDINGLY UPHELD. 4. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DIS MISSED. THE ORDER WAS PRONOUNCED IN OPEN COURT ON 21 ST SEPTEMBER, 2011 SD/- SD/- (R.V. EASWAR) (RAJENDRA SINGH) PRESIDENT ACCOUNTANT MEMBER DATE : 21-09-2011 AT :MUMBAI OKK COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A), MUMBAI CONCERNED 4. THE CIT, MUMBAI CITY CONCERNED 5. THE DR A BENCH, ITAT, MUMBAI // TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI