ACIT, CHENNAI V. M/s. R.P.Rajarajan Enterprises, CHENNAI

ITA 488/CHNY/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61020 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 1 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-04-2012
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 26-03-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 11-03-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: B NANDHA KUMAR
• Assessee Lawyers: V S JAYAKUMAR
• Keywords: Business income; Depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER I.T.A. NOS. 487 & 488/MDS/2011 (ASSESSMENT YEARS : 2006-07 & 2007-08) THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE XV, CHENNAI - 600 034 . (APPELLANT) V. M/S R.P. RAJARAJAN ENTERPRISES, NO.578, ANNA SALAI, TEYNAMPET, CHENNAI - 600 018. PAN : AAHFR3613H (RESPONDENT) C.O. NOS. 65 & 66/MDS/2011 (IN I.T.A. NOS. 487 & 488/MDS/2011) ASSESSMENT YEARS : 2006-07 & 2007-08 M/S R.P. RAJARAJAN ENTERPRISES, NO.578, ANNA SALAI, TEYNAMPET, CHENNAI - 600 018. (CROSS-OBJECTOR) V. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE XV, CHENNAI - 600 034. (RESPONDENT) REVENUE BY : SHRI B. NANDHA KUMAR, JCIT ASSESSEE BY : SHRI V.S. JAYAKUMAR DATE OF HEARING : 26.03.2012 DATE OF PRONOUNCEMENT : 17.04.2012 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : THESE ARE APPEALS OF THE REVENUE AGAINST ORDERS DA TED 14.12.2010 OF COMMISSIONER OF INCOME TAX (APPEALS)- XII, CHENNAI, I.T.A. NOS. 487 & 488/MDS/11 C.O. NOS. 65 & 66/MDS/11 2 FOR IMPUGNED ASSESSMENT YEARS AND CROSS-OBJECTIONS OF THE ASSESSEE FOR THE SAME YEARS. 2. APPEALS OF THE REVENUE ARE TAKEN UP FIRST FOR DI SPOSAL. 3. SIMILAR GROUNDS HAVE BEEN RAISED BY THE REVENUE FOR BOTH THE YEARS. VIDE ITS GROUND NO.2, ITS GRIEVANCE IS THAT CIT(APPEALS) HELD RENTAL RECEIPTS OF ` 83,13,300/- FOR ASSESSMENT YEAR 2006-07 AND ` 1,13,16,960/- FOR ASSESSMENT YEAR 2007-08, AS INCOM E UNDER THE HEAD BUSINESS AND NOT INCOME UNDER THE HEAD INCO ME FROM HOUSE PROPERTY AS ASSESSED BY THE A.O. 4. SHORT FACTS APROPOS ARE THAT ASSESSEE HAD ACQUIR ED A COMMERCIAL BUILDING AND LEASED IT OUT TO SIX MULTIN ATIONAL COMPANIES. TWO AGREEMENTS WERE EXECUTED WITH RESPECTIVE COMPAN IES, ONE FOR RENTAL AND THE OTHER FOR AMENITIES. THE INCOME FRO M LETTING OUT WAS TREATED AS INCOME FROM HOUSE PROPERTY, WHEREAS, I NCOME FROM AMENITIES WAS SHOWN UNDER THE HEAD BUSINESS AND E XPENSES WERE CLAIMED AGAINST SUCH BUSINESS INCOME. THE A.O. NOT ED THAT FOR ASSESSMENT YEAR 2006-07, THE INCOME FROM LETTING OU T THE PROPERTY WAS SHOWN BY THE ASSESSEE AS ` 38,12,400/-, WHEREAS, INCOME FROM AMENITIES CAME TO ` 83,18,100/-. FOR ASSESSMENT YEAR 2007-08, I.T.A. NOS. 487 & 488/MDS/11 C.O. NOS. 65 & 66/MDS/11 3 THESE AMOUNTS WERE ` 55,62,070/- AND ` 1,13,16,960/- RESPECTIVELY. ASSESSEE WAS PUT ON NOTICE WHY THE ENTIRE INCOME SH OULD NOT BE CONSIDERED AS COMPOSITE RENT AND TAXED UNDER THE HE AD INCOME FROM HOUSE PROPERTY. SUBMISSION OF THE ASSESSEE WAS TH AT THE COMMERCIAL BUILDING WAS EQUIPPED WITH ALL INFRASTRU CTURE AND THE BUILDING HAD COMMERCIAL VALUE. THEREFORE, AS PER T HE ASSESSEE, THE INCOME DERIVED BY PROVIDING AMENITIES HAD TO BE PRO PERLY TAXED UNDER THE HEAD INCOME FROM BUSINESS. ASSESSING O FFICER, AFTER VERIFYING THE AGREEMENTS, BOTH FOR RENTAL AS WELL A S AMENITIES, NOTED THAT THE AMENITIES PROVIDED BY THE ASSESSEE WERE GY PSUM BOARD FALSE ROOFING WITH LIGHTING, SPLIT AIR CONDITIONER UNITS, WALL PAINTING, CERAMIC FLOORING, BACK-UP GENERATOR, VENETIAN BLIND S FOR ALL WINDOWS AND CABLE NETWORK FOR COMPUTERS. AS PER THE A.O., THESE WERE ONLY BASIC AMENITIES PROVIDED AND WERE PART AND PARCEL O F THE BUILDING. FURTHER, ACCORDING TO A.O., THE AMENITY CHARGES WER E MUCH HIGHER THAN THE RENTAL RECEIPT AND THEREFORE, THE AGREEMEN TS WERE ONLY CLEVER METHODOLOGY FOR BIFURCATING THE INCOME TO SH OW A PART THEREOF UNDER THE HEAD BUSINESS. THEREFORE, A.O. DID NOT ALLOW THE CLAIM OF THE ASSESSEE AND CONSIDERED THE INCOME FROM AMENITI ES ALSO UNDER THE HEAD INCOME FROM HOUSE PROPERTY. RELYING ON THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CI T V. CHENNAI I.T.A. NOS. 487 & 488/MDS/11 C.O. NOS. 65 & 66/MDS/11 4 PROPERTIES AND INVESTMENTS LTD. (263 ITR 685), HE H ELD THAT THE INCOME WAS ONLY BY EXPLOITING THE PROPERTY OWNED BY THE ASSESSEE AND RENTALS ON SUCH EXPLOITATION OF PROPERTY HAD TO BE CONSIDERED ONLY UNDER THE HEAD INCOME FROM HOUSE PROPERTY. AS A RESULT, ASSESSEES CLAIM FOR VARIOUS EXPENSES, OTHER THAN I NTEREST ON TERM LOANS, WERE NOT ALLOWED. FOR ASSESSMENT YEAR 2007- 08, WHOLE OF THE INTEREST CLAIM WAS ALLOWED UNDER THE HEAD INCOME F ROM HOUSE PROPERTY, SINCE THE CAPITAL BORROWED WAS FOR THE P URPOSE OF CONSTRUCTION OF THE PROPERTY. HOWEVER, FOR ASSESS MENT YEAR 2006- 07, THE A.O. NOTED THAT OUT OF THE TOTAL INTEREST C LAIM OF ` 92,76,975/- ON TERM LOANS, A SUM OF ` 4,18,454/- COULD NOT BE ALLOWED BEING INTEREST INCURRED DURING THE PRE-CONSTRUCTION PERIO D. FURTHER, THE A.O. ALSO NOTED THAT ASSESSEE HAD GIVEN INTEREST FREE AD VANCE OF ` 2,25,95,260/- TO ONE MRS. P. USHA AND THEREFORE, AC CORDING TO HIM, PRO-RATA INTEREST INCURRED BY THE ASSESSEE COULD NO T BE CONSIDERED AS UTILIZED FOR THE CONSTRUCTION OF THE PROPERTY WHICH WAS LET OUT. EFFECTIVELY AGAINST THE TOTAL INTEREST CLAIM OF ` 92,76,975/-, WHAT WAS ALLOWED WAS ONLY ` 63,37,840/-. 5. IN ITS APPEAL BEFORE LD. CIT(APPEALS), ARGUMENT OF THE ASSESSEE WAS THAT MONTHLY RENT RECEIVED WAS CATEGORICALLY BI FURCATED AS I.T.A. NOS. 487 & 488/MDS/11 C.O. NOS. 65 & 66/MDS/11 5 AMENITIES AND HIRE CHARGES. ACCORDING TO ASSESSEE, THE AMENITIES WERE ON INTERIORS, WORKSTATIONS AND CABINS, AND THE DECISION OF JURISDICTIONAL HIGH COURT IN THE CASE OF CHENNAI PR OPERTIES AND INVESTMENTS LTD. (SUPRA) COULD NOT BE APPLIED FOR A MENITIES OF THE NATURE PROVIDED BY THE ASSESSEE. LD. CIT(APPEALS) ACCEPTED THESE CONTENTIONS AND DIRECTED THE A.O. TO CONSIDER RECEI PTS FROM AMENITIES UNDER THE HEAD INCOME FROM BUSINESS. FOR ASSESSM ENT YEAR 2006- 07, LD. CIT(APPEALS) ALSO DIRECTED THE A.O. TO DELE TE THE DISALLOWANCE OF INTEREST MADE BY HIM SINCE ASSESSEE HAD PAID INT EREST ON TERM LOANS AND SUCH TERM LOANS WERE UTILIZED FOR THE PUR POSE OF ITS BUSINESS. 6. NOW BEFORE US, LEARNED D.R., STRONGLY ASSAILING THE ORDER OF LD. CIT(APPEALS), SUBMITTED THAT IT WAS A COMPOSITE REN TAL OF BUILDING AND ASSESSEE WAS ONLY EXPLOITING ITS IMMOVABLE PROPERTY . THEREFORE, ACCORDING TO HIM, NOT ONLY THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CHENNAI PROPERTIES AND INVESTM ENTS LTD. (SUPRA), BUT ALSO THE DECISION OF HONBLE APEX COUR T IN THE CASE OF CIT VS. SHAMBHU INVESTMENTS (263 ITR 143), CLEARLY FAVOURED THE TREATMENT GIVEN BY THE ASSESSING OFFICER. ACCORDIN G TO HIM, LD. CIT(APPEALS) FELL IN ERROR IN DIRECTING THE ASSESSI NG OFFICER TO I.T.A. NOS. 487 & 488/MDS/11 C.O. NOS. 65 & 66/MDS/11 6 CONSIDER THE RECEIPTS FROM AMENITIES UNDER THE HEAD INCOME FROM BUSINESS. 7. PER CONTRA, LEARNED A.R. STRONGLY SUPPORTED THE ORDER OF LD. CIT(APPEALS). 8. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. THE AMENITIES PROVIDED BY THE ASSESSEE ALONG WITH I TS BUILDING, WERE AS UNDER:- (1) GYPSUM BOARD FALSE ROOFING WITH LIGHTING (2) SPLIT AIR CONDITIONER UNITS (3) WALL PAINTING (4) CERAMIC FLOORING (5) BACK-UP GENERATOR (6) VENETIAN BLINDS FOR ALL WINDOWS (7) CABLE NETWORK FOR COMPUTERS GIVING OF THE ABOVE AMENITIES, IN OUR OPINION, CAN NEVER BE CONSIDERED AS INDEPENDENT HIRING OF MACHINERY OR PL ANT OR FURNITURE. THESE WERE BASIC NECESSITIES FOR FACILITATING THE U SE OF THE BUILDING. HENCE, WE ARE OF THE OPINION, RENTING OUT OF BUILDI NG WITH SUCH AMENITIES WOULD NOT RESULT IN ANY BUSINESS INCOME. WHAT WAS EARNED WAS BY EXPLOITATION OF THE PROPERTY AND HENCE, RESU LTANTLY SUCH INCOME WOULD BE ASSESSABLE UNDER THE HEAD INCOME F ROM HOUSE PROPERTY. HONBLE APEX COURT IN THE CASE OF SHAMB HU INVESTMENTS I.T.A. NOS. 487 & 488/MDS/11 C.O. NOS. 65 & 66/MDS/11 7 (SUPRA) HAS CLEARLY HELD THAT INCOME EARNED BY LETT ING OUT FURNISHED PREMISES ON MONTHLY RENT, EVEN IF IT INCLUDED FURNI TURE, LIGHT AND AIR- CONDITIONS, WOULD STILL BE ASSESSABLE UNDER THE HEA D INCOME FROM HOUSE PROPERTY AND NOT AS INCOME FROM BUSINESS. HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CHENNAI PR OPERTIES AND INVESTMENTS LTD. (SUPRA) HELD THAT WHEN ASSESSEE EX PLOITS THE PROPERTY AS OWNER BY LEASING OUT THE BUILDING, RENT AL RECEIPTS WOULD ONLY BE ASSESSABLE UNDER THE HEAD INCOME FROM HOUS E PROPERTY. WE ARE OF THE VIEW THAT LD. CIT(APPEALS) FELL IN ER ROR IN DIRECTING THE A.O. TO CONSIDER THE RECEIPTS FROM AMENITIES UNDER THE HEAD BUSINESS INCOME WHEN SUCH AMENITIES WERE PART AND PARCEL OF THE BUILDING RENTED OUT. JUST BECAUSE THERE WERE SEPAR ATE AGREEMENTS, IT WOULD NOT MEAN THAT THERE WERE SEPARATE RENTING OUT OF AMENITIES AND SHOPS. WE ARE OF THE OPINION THAT LD. CIT(APPEALS) FELL IN ERROR IN GIVING SUCH DIRECTION TO A.O. WE SET ASIDE HIS ORD ER IN THIS REGARD AND REINSTATE THE ADDITION MADE BY THE A.O. 9. GROUND NO.2 STANDS ALLOWED. 10. VIDE ITS GROUND NO.3, REVENUE IS AGGRIEVED THAT LD. CIT(APPEALS) DELETED DISALLOWANCE OF INTEREST ON BO RROWED CAPITAL. INSOFAR AS THIS GROUND IS CONCERNED, WE ARE OF THE OPINION THAT LOANS I.T.A. NOS. 487 & 488/MDS/11 C.O. NOS. 65 & 66/MDS/11 8 AVAILED BY THE ASSESSEE TO THE EXTENT UTILIZED BY T HE ASSESSEE FOR CONSTRUCTION OF THE BUILDING IS AN ALLOWABLE DEDUCT ION UNDER THE HEAD INCOME FROM HOUSE PROPERTY. THE A.O., IN FACT, G AVE SUCH ALLOWANCE FOR ASSESSMENT YEAR 2007-08, BUT FOR ASSE SSMENT YEAR 2006-07, A PART THEREOF WAS DISALLOWED SINCE THE LO AN AMOUNT, ACCORDING TO A.O., WAS DIVERTED FOR GIVING NON-INTE REST BEARING LOANS TO ONE MRS. USHA. WE ARE OF THE OPINION THAT THE D IVERSION OF LOAN AMOUNT, AS ASSERTED BY THE A.O. BASED ON A LETTER D ATED 31.12.2008 OF THE ASSESSEE, WAS NOT REBUTTED IN ANY MANNER BY THE ASSESSEE BEFORE LD. CIT(APPEALS). WE ARE OF THE OPINION THA T LD. CIT(APPEALS) SHOULD NOT HAVE DELETED DISALLOWANCE OF INTEREST IN SOFAR AS IT RELATED TO DIVERSION OF INTEREST BEARING FUNDS AND LOANS UT ILIZED DURING PRE- CONSTRUCTION PERIOD. 11. GROUND NO.3, THEREFORE, STANDS ALLOWED. 12. NOW TAKING UP THE CROSS-OBJECTIONS OF THE ASSES SEE, ITS GRIEVANCE IS THAT LD. CIT(APPEALS) OUGHT HAVE CONSI DERED ITS ALTERNATIVE CLAIM OF ALLOWANCE FOR DEPRECIATION AND INTEREST IF THE RENTAL INCOME FROM AMENITIES WERE CONSIDERED UNDER THE HEAD INCOME FROM HOUSE PROPERTY. AS ALREADY HELD BY U S, THE INCOME FROM AMENITIES WERE NOT TO BE CONSIDERED SEPARATELY BUT WAS ONLY AS I.T.A. NOS. 487 & 488/MDS/11 C.O. NOS. 65 & 66/MDS/11 9 INCOME EARNED BY EXPLOITATION OF THE PROPERTY BY TH E ASSESSEE. HENCE, SUCH INCOME HAD TO BE CONSIDERED ONLY UNDER THE HEAD INCOME FROM HOUSE PROPERTY. THIS BEING SO, THERE WAS NO QUESTION OF ANY ALLOWANCE OF DEPRECIATION. INSOFAR AS INTER EST PORTION IS CONSIDERED TO THE EXTENT IT WAS ALLOWABLE HAS ALREA DY BEEN CONSIDERED BY THE A.O. WHILE COMPUTING ASSESSEES I NCOME UNDER THE HEAD INCOME FROM HOUSE PROPERTY. 13. IN THE RESULT, WE DO NOT FIND ANY MERITS IN THE CROSS-OBJECTIONS FILED BY THE ASSESSEE. 14. TO SUMMARIZE THE RESULT, APPEALS OF THE REVENUE ARE ALLOWED, WHEREAS, CROSS-OBJECTIONS FILED BY THE ASSESSEE ARE DISMISSED, FOR BOTH THE YEARS. THE ORDER WAS PRONOUNCED IN THE COURT ON 17 TH APRIL, 2012. SD/- SD/- (VIKAS AWASTHY) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 17 TH APRIL, 2012. KRI. COPY TO: APPELLANT/RESPONDENT/CIT(A)-XII, CHENNAI- 34/ CIT, CHENNAI-X, CHENNAI/D.R./GUARD FILE