KAVITA MARKETING P.LTD, MUMBAI V. ITO 5(2)(2), MUMBAI

ITA 4886/MUM/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 3162 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-06-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 24-07-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business income
• Section: 143(3); 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A, MUMBAI BEFORE SHRI G.S.PANNU, ACCOUNTANT MEMBER AND SHRI JOGINDER SINGH, JUDICIAL MEMBER ITA NO. 4886/MUM/2014 (ASSESSMENT YEAR : 2009-10) M/S. KAVITA MARKETING PVT. LTD., C/O. SHRI PRAKASH JHUNJUNWALA, CHARTERED ACCOUNTANT, 5,JOLLY BHAWAN NO.2, GR. FLR., 7, NEW MARINE LINES,CHURCHGATE, MUMBAI 400 020. PAN:AAACK 2103P ... APPEL LANT VS. THE INCOME TAX OFFICER,WD.5(2)(2) 4 TH FLOOR, AAYKAR BHAVAN, MK ROAD, MUMBAI 400 020 .... RESPONDENT APPELLANT BY : SHRI PRAKASH JHUNJHUNWALA RESPONDENT BY : SHRI AARSI PRASAD DATE OF HEARING : 08/02/2016 DATE OF PRONOUNCEMENT : 15/06/2016 ORDER PER G.S. PANNU,AM: THE CAPTIONED APPEAL FILED BY THE ASSESSEE PERTAINI NG TO ASSESSMENT YEAR 2009-10 IS DIRECTED AGAINST AN OR DER PASSED BY CIT(A)-9, MUMBAI DATED 02/05/2014, WHICH IN TURN AR ISES OUT OF AN ORDER PASSED BY THE ASSESSING OFFICER UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) DATED 05 /12/2011. 2 ITA NO. 4886/MUM/2014 (ASSESSMENT YEAR : 2009-10) 2. IN THIS APPEAL, ASSESSEE COMPANY HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- THE APPELLANT COMPANY PREFERS AN APPEAL AGAINST A N ORDER DATED 02/05/2014 PASSED LD. COMMISSIONER OF INCOME TAX (A PPEAL) 9, MUMBAI ON FOLLOWING AMONGST OTHER GROUNDS EACH OF W HICH ARE WITHOUT PREJUDICED TO ANY OTHER:- 1.0 ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, LD. CIT(A) ERRED IN CONFIRMING THE LD. AO'S ACTION ON ERRONEOU SLY TREATING THE FACILITY CHARGES RECEIVED OF RS 9,60,0001- AS 'INCO ME FROM HOUSE PROPERTY' AS AGAINST APPELLANT'S CLAIM AS 'INCOME F ROM BUSINESS OR PROFESSION'; 1.1 THE CIT(A) ERRED IN IGNORING THE VITAL FACT TH AT THE LEAVE AND LICENSE AGREEMENT BIFURCATES THE RECEIPTS TOWARDS R ENT OF RS 11,40,000/- AND RECEIPTS FOR VARIOUS FACILITIES OF RS 9,60,000/- 1.2 THE LD CIT(A) ERRED SERIOUSLY IN IGNORING THE REMAND REPORT WHEREIN LD AO ACCEPTED THAT THE APPELLANT HAD INCUR RED THE HOUSE KEEPING AND SECURITY EXPENSES OF RS 10,11,900/- 2.0 THE LD. CIT(A) ERRED IN NOT ADJUDICATING THE GR OUND RELATING TO DISALLOWANCE OF EXPENSES OF RS 18,96,428/- MADE IN ASSESSMENT MERELY FOR THE REASON THAT THE BUSINESS WAS NOT A CHIEVED IN IMPUGNED YEAR; 3. AS THE ABOVE CITED GROUNDS OF APPEAL REVEAL, THE GRIEVANCE OF THE ASSESSEE IS ON TWO COUNTS, WHICH WE SHALL TAKE UP I N SERIATIM. THE SUBSTANTIVE DISPUTE IN GROUNDS OF APPEAL NOS.1.0 TO 1.2 IS WITH REGARD TO THE ASSESSABILITY OF RS.9, 60,000/- RECEIVED BY THE ASSESSEE AS FACILITY SERVICE CHARGES. IN THE COURSE OF ASSESSMENT PROCE EDINGS, THE ASSESSING OFFICER NOTICED THAT ASSESSEE HAD GIVEN ON RENT A P ROPERTY, ON WHICH IT WAS RECEIVING RENT OF RS.13,80,000/- AND FACILITY S ERVICE CHARGES OF RS.9,60,000/-. IN SO FAR AS, THE ASSESSABILITY OF RENT RECEIVED OF RS.13,80,000/- IS CONCERNED, THE ASSESSING OFFICER DID NOT DISPUTE THAT THE SAME WAS ASSESSABLE UNDER THE HEAD INCOME FROM HOUSE PROPERTY. THE RECEIPTS BY WAY OF FACILITY SERVIC E CHARGES OF 3 ITA NO. 4886/MUM/2014 (ASSESSMENT YEAR : 2009-10) RS.9,60,000/- WAS RETURNED BY THE ASSESSEE AS ASSES SABLE UNDER THE HEAD BUSINESS INCOME, WHICH WAS OBJECTED TO BY TH E ASSESSING OFFICER. ACCORDING TO ASSESSING OFFICER, THE AMOUN T OF RS.9,60,000/- WAS ALSO RECEIVED FROM THE PERSON FROM WHOM RENTAL INCOME WAS RECEIVED AND, THEREFORE, THE SAME WAS LIABLE TO BE ASSESSED UNDER THE HEAD INCOME FROM HOUSE PROPERTY. THE ASSESSING O FFICER WAS NOT SATISFIED WITH THE EXPLANATION OF THE ASSESSEE THAT THE SAID SUM WAS RECEIVED ON ACCOUNT OF CERTAIN SPECIFIC SERVICES RE NDERED. AS PER THE ASSESSING OFFICER THE SERVICES RENDERED BY THE ASSE SSEE ARE NOT OF ANY SPECIAL NATURE BUT THEY ARE OF ROUTINE NATURE EXPEC TED TO BE PROVIDED BY A LANDLORD. ACCORDINGLY, IT WAS HELD THAT THE A MOUNT OF RS.9,60,000/- WAS ALSO TAXABLE UNDER THE HEAD INCOM E FROM HOUSE PROPERTY BY TREATING IT AS A PART AND PARCEL OF T HE RENTAL INCOME. THE SAID DECISION OF THE ASSESSING OFFICER HAS ALSO BEE N AFFIRMED BY THE CIT(A). AS PER THE CIT(A), THE FACILITY SERVICE C HARGES OF RS.9,60,000/- WERE RECEIVED BY THE ASSESSEE PRIMARILY BECAUSE OF THE LETTING OUT OF THE PROPERTY AND, THEREFORE, THE ASSESSING OFFICER WAS RIGHT IN TREATING THE SAME AS AN AMOUNT ASSESSABLE UNDER THE HEAD IN COME FROM HOUSE PROPERTY. 4. BEFORE US, LD. REPRESENTATIVE FOR THE ASSESSEE P OINTED OUT THAT THE FACILITY SERVICE CHARGES OF RS.9,60,000/- WERE BEING RECEIVED UNDER SEPARATE TERMS AND CONDITIONS FOR PROVISION OF SERV ICES SUCH AS HOUSE- KEEPING, CARETAKER AND SECURITY, ETC., THEREFORE , IT WAS NOT RELATABLE TO THE LETTING OUT OF THE PREMISES FOR WHICH RENTAL IN COME WAS BEING RECEIVED SEPARATELY. LD. REPRESENTATIVE FOR THE AS SESSEE ALSO POINTED OUT THAT ASSESSEE WAS INCURRING EXPENSES SPECIFICA LLY FOR RENDERING SUCH 4 ITA NO. 4886/MUM/2014 (ASSESSMENT YEAR : 2009-10) SERVICES AND FOR THAT MATTER HE REFERRED TO THE FAC T THAT ASSESSEE HAD INCURRED HOUSE-KEEPING EXPENSES OF RS.5,34,900/- AN D SECURITY CHARGES OF RS.4,77,000/-. THE LD. REPRESENTATIVE FOR THE ASSESSEE EXPLAINED THAT IN FACT, DURING THE YEAR UNDER CONSIDERATION A SSESSEE HAD INCURRED A SMALL LOSS AS THE SERVICE PROVIDER HAD RECOVERED HIGHER AMOUNT FROM THE ASSESSEE THAN THE FACILITY SERVICE CHARGES E ARNED BY THE ASSESSEE. IN SUPPORT OF THE SUBMISSIONS THAT SUCH CHARGES ARE NOT TAXABLE UNDER THE HEAD HOUSE PROPERTY INCOME BUT UNDER THE HEAD BUSINESS INCOME HE HAS RELIED UPON VARIOUS DECISIONS NAMELY ; (I) A.R. COMPLEX VS. ITO, 292 ITR 615(MAD);(II) CIT VS. SARABHAI (P ) LTD.,263 ITR 197 (GUJ); AND, (III) ACIT VS. VIJAY S. MALLYA, 52 SOT 0197 ( URO). 5. ON THE OTHER HAND, LD. DEPARTMENTAL REPRESENTATI VE HAS SUPPORTED THE STAND OF THE LOWER AUTHORITIES BY REI TERATING THE ARGUMENTS CONTAINED IN THE RESPECTIVE ORDERS, WHICH WE HAVE ALREADY ADVERTED TO IN THE PARAS ABOVE AND ARE NOT BEING RE PEATED FOR THE SAKE OF BREVITY. 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. QUITE CLEARLY, THERE CAN BE NO DISPUTE TO THE PROPOSITION THAT INCOME DERIVED FROM MERE LETTING OUT OF PROPERTY IS LIABLE TO BE A SSESSED ONLY UNDER THE HEAD INCOME FROM HOUSE PROPERTY. THUS, THERE IS NO DISPUTE BETWEEN ASSESSEE AND THE REVENUE WITH REGARD TO THE RENTAL RECEIPTS OF RS.13,80,000/-, WHICH HAVE BEEN RECEIVED FOR LETTIN G OUT THE PROPERTY. SO HOWEVER, THE POSITION CANVASSED BY THE ASSESSEE IS THAT APART FROM LETTING OUT OF PROPERTY, IT IS ALSO RENDERING CERTA IN SERVICES TO THE TENANT BY PROVIDING SPECIFIC SERVICES ON ACCOUNT OF HOUSE- KEEPING, SECURITY, 5 ITA NO. 4886/MUM/2014 (ASSESSMENT YEAR : 2009-10) ETC. ASSESSEE HAS ALSO POINTED OUT THAT THE FACIL ITY SERVICE CHARGES EARNED BY IT ALSO REQUIRE OUTGOINGS ALSO INASMUCH AS IT HAD HIRED SERVICES PROVIDERS FOR THE SAME. QUITE CLEARLY, TH E PROVIDING OF SUCH SERVICES DO NOT SHOW THAT THE INCOME BY WAY OF FA CILITY SERVICE CHARGES CAN BE SAID TO BE DERIVED FROM MERE OWNERS HIP OF THE PROPERTY. FOR THIS REASON, THE STAND OF THE ASSESS EE IS THAT INCOME FROM SUCH SERVICES IS LIABLE TO BE TREATED AS BUSINESS INCOME. IN THIS CONNECTION, IT WOULD BE RELEVANT TO REFER TO THE JU DGMENT OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF SARABHAI (P) LTD. , WHICH LAYS DOWN THAT IF THE OWNER OF A PROPERTY CARRIES ON UPON THE PRO PERTY SOME ACTIVITIES WHICH RESULTS IN PROFITS AND GAINS ARISING, NOT FRO M THE OWNERSHIP BUT FROM USE THEREOF, SUCH PROFIT AND GAINS WOULD BE CH ARGEABLE TO TAX AS BUSINESS INCOME AND NOT INCOME UNDER THE HEAD INC OME FROM HOUSE PROPERTY. IN FACT, IN THE CASE BEFORE HONBLE GUJ ARAT HIGH COURT, ASSESSEE WAS OWNER OF THE PROPERTY, WHICH WAS LET O UT TO THE TENANTS. APART FROM LETTING OUT, ASSESSEE WAS ALSO RENDERING CERTAIN SERVICES BY PROVIDING VARIOUS AMENITIES FOR WHICH AMOUNT WAS BE ING SEPARATELY EARNED. THE HONBLE HIGH COURT HELD THAT AMOUNT RE CEIVED FROM THE TENANTS AS RENT FOR LETTING OF THE PROPERTY WAS A SSESSABLE UNDER SECTION 22 OF THE ACT AS INCOME FROM HOUSE PROPERT Y AND THE OTHER RECEIPTS IN RESPECT OF THE SERVICES RENDERED TO THE TENANTS WAS LIABLE TO BE ASSESSED UNDER SECTION 28 OF THE ACT AS BUSINES S PROFITS. IN OUR VIEW, THE RATIO LAID DOWN BY THE HONBLE GUJARAT HI GH COURT IN THE CASE OF SARABHAI (P) LTD.(SUPRA) COVERS THE INSTANT SITU ATION. UNDISPUTEDLY, THE FACILITY SERVICE CHARGES ARE BEING RECEIVED B Y THE ASSESSEE IN RETURN OF PROVIDING SPECIFIC SERVICES LIKE HOUSE-KEEPING, SECURITY, ETC. TO THE SIMILAR EFFECT IS ALSO THE JUDGMENT OF THE HONBLE MADRAS HIGH COURT IN 6 ITA NO. 4886/MUM/2014 (ASSESSMENT YEAR : 2009-10) THE CASE OF A.K.COMPLEX (SUPRA), WHICH WAS RELIED U PON BY THE ASSESSEE BEFORE US. THE ARGUMENT OF THE REVENUE THAT SERVIC ES RENDERED BY THE ASSESSEE ARE NOT OF SPECIAL NATURE, AND THEY ARE OF ROUTINE NATURE EXPECTED TO BE PROVIDED BY THE LANDLORD, IS OF NO C ONSEQUENCE TO DECIDE THE CONTROVERSY IN QUESTION. THIS IS FOR TH E REASON THAT FACTUALLY IT HAS NOT BEEN DISPUTED BY THE REVENUE THAT SERVIC ES BY WAY OF HOUSE- KEEPING, SECURITY, ETC. HAVE BEEN RENDERED BY THE A SSESSEE. MOREOVER, IT HAS TO BE DECIPHERED ON THE BASIS OF TERMS AND CONDITIONS IN EACH CASE AS TO THE NATURE OF THE SERVICES THAT MAY BE P ROVIDED BY THE OWNER OF PROPERTY TO ITS TENANTS TO DECIDE AS TO WHETH ER THEY ARE DISTINCT FROM AN ACTIVITY WHICH IS MERELY BECAUSE OF OWNERS HIP OF THE PROPERTY. IN THE PRESENT CASE, IT IS QUITE EVIDENT THAT THE S AID SERVICES ARE DISTINCT FROM LETTING OUT OF THE PROPERTY AND, THEREFORE, AS SESSEE IS JUSTIFIED IN ASSERTING THAT THE SAME BE TAXED AS BUSINESS INCOM E. THUS, ON THIS ASPECT, WE SET-ASIDE THE ORDER OF THE CIT(A) AND DI RECT THE ASSESSING OFFICER TO RECOMPUTE THE INCOME IN VIEW OF THE AFOR ESAID DIRECTIONS. IN THE RESULT, ON THIS GROUND ASSESSEE SUCCEEDS. 7. THE SECOND GROUND RAISED BY THE ASSESSEE IS WITH REGARD TO THE DISALLOWANCE OF EXPENSES OF RS.18,96,428/-. IT HAS BEEN EXPLAINED THAT THE EXPENDITURE WAS DISALLOWED BY THE ASSESSING OFF ICER ON THE GROUND THAT THERE WAS NO BUSINESS ACHIEVED DURING THE YEAR . LD. REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT TH E SAID GROUND HAS INADVERTENTLY NOT BEEN DECIDED BY THE CIT(A). 8. AS PER THE ASSESSEE, THE EXPENSES DEBITED IN THE P&L ACCOUNT ARE ROUTINE EXPENSES WHICH ARE LIABLE TO BE ALLOWED FOR MAINTAINING THE 7 ITA NO. 4886/MUM/2014 (ASSESSMENT YEAR : 2009-10) BUSINESS ENTITY. IN THIS CONTEXT, RELIANCE HAS BEE N PLACED ON THE DECISION OF THE MUMBAI TRIBUNAL IN THE CASE OF PREI MUS INVESTMENT & FINANCE LTD. VS. DCIT, 171 TTJ 794(MUM-ITAT) TO SAY THAT EXPENDITURE INCURRED FOR MAINTAINING STATUS NAMELY, MISCELLANE OUS EXPENSES, SALARY, LEGAL EXPENSES, TRAVEL EXPENSES ETC. WOULD BE AN AL LOWABLE EXPENDITURE. 9. ON THE OTHER HAND, LD. DEPARTMENTAL REPRESENTATI VE HAS POINTED OUT THAT THE ASSESSING OFFICER DISALLOWED THE EXPEN DITURE BY NOTICING THAT THE EXPENSES DEBITED IN THE P&L ACCOUNT WERE RELATABLE TO EARNING OF RENTAL INCOME FROM HOUSE PROPERTY AND FU RTHER IN THE ABSENCE OF ANY BUSINESS ACTIVITY, THE IMPUGNED EXPE NDITURE WOULD NOT BE ALLOWED. 10. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. AT PAGES 58 - 64 OF THE PAPER BOOK, COPIES OF BALANCE SHEET AND P &L ACCOUNT FOR THE YEAR UNDER CONSIDERATION HAVE BEEN PLACED. SCHEDUL E 8 OF THE P&L ACCOUNT PERTAINING TO ADMINISTRATIVE EXPENSES REVEA L THAT VARIOUS EXPENSES ON ACCOUNT OF REPAIRS AND MAINTENANCE, FIL ING FEE, POST AND TELEGRAPH, BANK CHARGES, ACCOUNTING CHARGES, AUDIT FEE, ETC. HAVE BEEN DEBITED APART FROM EXPENSES INCURRED ON HOUSE-KEEPI NG AND SECURITY CHARGES, WITH WHICH WE HAVE DEALT WITH IN THE EARLI ER PART OF THIS ORDER. IN OUR VIEW, THE ASSESSING OFFICER HAS MECHANICALLY DISALLOWED THE ENTIRE EXPENDITURE WITHOUT APPRECIATING THAT CERTAI N BARE MINIMUM EXPENSES ARE LIABLE TO BE INCURRED BY THE ASSESSEE COMPANY IN ORDER TO MAINTAIN ITS STATUS OF A CORPORATE BODY, AS NOTED B Y OUR CO-ORDINATE BENCH IN THE CASE OF PREIMUS INVESTMENT & FINANCE L TD. (SUPRA) BASED ON THE JUDGMENT OF HONBLE ALLAHABAD HIGH COURT IN THE CASE .OF 8 ITA NO. 4886/MUM/2014 (ASSESSMENT YEAR : 2009-10) RAMPUR TIMBER & TURNERY CO.LTD. THEREFORE, WE DEEM IT FIT AND PROPER TO RESTORE THE MATTER BACK TO THE FILE OF ASSESSING OFFICER IN ORDER TO EXAMINE THE ALLOWABILITY OF EXPENDITURE AFRESH IN T HE AFORESAID LIGHT AND THEREAFTER RECOMPUTE THE INCOME OF THE ASSESSEE. T HUS, ON THIS ISSUE THE ASSESSEE SUCCEEDS FOR STATISTICAL PURPOSES. 11. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 15/06/2016 SD/- SD/- (JOGINDER SINGH) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT ME MBER MUMBAI, DATED 15/06/2016 VM , SR. PS 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// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI