RAP MEDIA P. LTD, MUMBAI V. ITO 6(1)(2), MUMBAI

ITA 4976/MUM/2011

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 9085 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 6 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-01-2017
• Appeal Filed By: Assessee
• Bench Allotted: D
• Next Hearing Date: 05-01-2017
• Assessment Year: 2006-2007
• Appeal Filed On: 23-06-2011
• Court: TRIBUNAL
• Assessee Lawyers: KARTHIK NATARAJAN
• Keywords: Business income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE SHRI B.R. BASKARAN (AM) & SHRI RAVISH SOOD (JM) I.T.A. NO. 4976 /MUM/20 11 (ASSESSMENT YEAR 20 06 - 07 ) M/S. RAP MEDIA LTD. 16, GOLF LINK ROAD UNION PARK KHAR WEST MUMBAI - 400 052. VS. ITO 6(1)( 2) MUMBAI. ( APPELLANT ) ( RESPONDENT ) PAN NO . AAACA5060H ASSESSEE BY SHRI KARTHIK NATARAJAN DEPARTMENT BY S HRI PURUSHOTTAM KUMAR DATE OF HEARING 5 .1 . 201 7 DATE OF PRONOUNCEMENT 5 . 1 . 201 7 O R D E R PER B.R. BASKARAN (AM) : - THE ASSESSEE HAS FILED THIS APPEAL CHALLENGING THE ORDER DATED 11.04.2011 PASSED BY LD CIT(A) - 14, MUMBAI AND IT RELATES TO THE ASSESSMENT YEAR 2006 - 07. 2. THE ASSESSEE IS AGGRIEVED BY THE DECISION OF LD CIT(A) IN CONFIRMING THE ASSESSMENT OF INTEREST INCOME AND ROYALTY INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES AS AGAINST THE CLAIM OF THE ASSESSEE TO ASSESS THE SAME UNDER THE HEAD INCOME FROM BUSINESS, THEREBY PARTIALLY DISALLOWING THE EXPENDITURE CLAIMED BY THE ASSESSEE. 3. WE HEARD THE PARTIES AND PERU SED THE RECORD. THE LD A.R SUBMITTED THAT THE ASSESSEE WAS FORMERLY KNOWN AS M/S ALLIED CAPITAL SERVICES LTD AND WAS A NBFC. PRESENTLY IT IS KNOWN AS RAP MEDIA LTD. HE SUBMITTED THAT THE ASSESSEE RECEIVED INTEREST INCOME FROM AN ICD PLACED WITH A COMPAN Y AND OFFERED THE SAME AS BUSINESS INCOME. SINCE THE ASSESSEE WAS SPECIALISING IN DEVELOPING M/S. RAP MEDIA LTD. 2 MALLS CUM MULTIPLEXES, IT ENGAGED IN DEVELOPMENT OF A MALL FOR M/S NAMAN BUILDCON LTD. SUBSEQUENTLY ANOTHER COMPANY NAMED M/S ADLABS ENTERED IN THE DEVELOPMENT A ND MANAGEMENT OF MALL OF M/S NAMAN BUILDCON LTD. ACCORDINGLY THE MOU ENTERED BY THE COMPANY WITH M/S NAMAN BUILDCON LTD WAS CANCELLED, BUT AS PER THE CANCELLATION AGREEMENT, THE ASSESSEE WAS ENTITLED TO RECEIVE MONTHLY ROYALTY FROM THE MULTIPLEX, SINCE IT S NAME RAP WAS USED THEREIN. THE ASSESSEE OFFERED THE ROYAL INCOME ALSO AS BUSINESS INCOME. ACCORDINGLY THE ASSESSEE CLAIMED VARIOUS EXPENSES IN ITS PROFIT AND LOSS ACCOUNT. 4. THE AO ASSESSED THE INTEREST INCOME AND ROYALTY INCOME UNDER THE HEAD INC OME FROM OTHER SOURCES AND HENCE ALLOWED CERTAIN EXPENSES ONLY. REMAINING EXPENSES WERE DISALLOWED. THE LD CIT(A) CONFIRMED THE ORDER PASSED BY LD CIT(A). 5. THE FIRST ISSUE RELATES TO THE HEAD UNDER WHICH THE INTEREST INCOME IS ASSESSABLE. THE LD A .R SUBMITTED THAT THE ASSESSEE HAS GIVEN THE DEPOSITS IN THE EARLIER YEARS AND IT HAS BEEN OFFERING THE INTEREST INCOME UNDER THE HEAD BUSINESS ONLY IN ALL THE YEARS, BOTH PRECEDING AND SUCCEEDING. HE SUBMITTED THE SAME HAS BEEN ACCEPTED BY THE AO IN THE SCRUTINY PROCEEDINGS COMPLETED FOR OTHER YEARS. IN SUPPORT OF THE SAME, HE FURNISHED COPIES OF ASSESSMENT ORDERS PASSED FOR AY 2010 - 11 AND 2011 - 12. HE SUBMITTED THAT THE ASSESSEE IS ENTITLED TO CARRY ON FINANCING ACTIVITY AS PER CLAUSE 17 OF THE OBJECTS INCIDENTAL TO MAIN OBJECTS AND CLAUSE 71 OF THE OTHER OBJECTS. HE SUBMITTED THAT THE ASSESSEE HAS GIVEN THESE ADVANCES IN THE NORMAL COURSE OF ITS BUSINESS ACTIVITIES. ACCORDINGLY HE CONTENDED THAT THE INTEREST INCOME SHOULD BE ASSESSED UNDER THE HEA D BUSINESS. M/S. RAP MEDIA LTD. 3 6. ON THE CONTRARY, THE LD D.R SUBMITTED THAT THE ASSESSEE HAS MADE INTER CORPORATE DEPOSITS AND HENCE THE INTEREST INCOME WAS RIGHTLY ASSESSED AS INCOME FROM OTHER SOURCES. 7. HAVING HEARD RIVAL SUBMISSIONS, WE FIND MERIT IN THE CONTEN TIONS OF THE ASSESSEE. WE NOTICE THAT THE ASSESSEE HAS BEEN MAKING DEPOSITS AND GIVING ADVANCES EVERY YEAR AND THE INTEREST INCOME HAS BEEN OFFERED UNDER THE HEAD INCOME FROM BUSINESS. THE FINANCING ACTIVITY IS AUTHORISED UNDER CLAUSE 17 OF THE OBJECTS INCIDENTAL TO MAIN OBJECTS AND ALSO UNDER CLAUSE 71 OF THE OTHER OBJECTS. FURTHER, THE AO HIMSELF HAS ASSESSED THE INTEREST INCOME UNDER THE HEAD INCOME FROM BUSINESS IN VARIOUS OTHER YEARS. WE NOTICE THAT THE LD CIT(A) HAS TAKEN THE VIEW THAT INVESTM ENT OF SURPLUS FUNDS WOULD ALONE BE ASSESSED UNDER THE HEAD BUSINESS, WHICH DOES APPEAR TO BE CORRECT PROPOSITION OF LAW. IN VIEW OF THE ABOVE, WE ARE UNABLE TO AGREE WITH THE VIEW TAKEN BY LD CIT(A). ACCORDINGLY WE SET ASIDE THE ORDER PASSED BY LD CIT(A ) ON THIS ISSUE AND DIRECT THE AO TO ASSESS THE INTEREST INCOME UNDER THE HEAD INCOME FROM BUSINESS. 8. THE NEXT ISSUE RELATES TO THE ROYALTY INCOME RECEIVED BY THE ASSESSEE. THE LD A.R SUBMITTED THAT THE LD CIT(A) HAS UPHELD THE VIEW TAKEN BY THE AO UNDER THE IMPRESSION THAT THE ASSESSEE HAS RECEIVED ONE TIME COMPENSATION. HE SUBMITTED THAT THE MULTIPLEX HAS BEEN BRANDED AS RAP ADLABS AND FURTHER IT IS RECEIVING ROYALTY ON MONTHLY BASIS FOR USE OF ITS BRAND NAME RAP. ACCORDINGLY HE SUBMITTED THAT THE ROYALTY WAS RECURRING RECEIPT AND HE ALSO INVITED OUR ATTENTION TO THE COPY OF LEDGER ACCOUNT PLACED IN THE PAPER BOOK. HE FURTHER SUBMITTED THAT THE ROYALTY INCOME HAS BEEN ASSESSED UNDER THE HEAD BUSINESS IN OTHER YEARS. M/S. RAP MEDIA LTD. 4 9. WE HEARD THE LD D.R AND PERUSED THE RECORD. WE NOTICE THAT THE ASSESSEE HAS BEEN RECEIVING ROYALTY INCOME ON MONTHLY BASIS. HENCE THE VERY BASIS, ON WHICH THE LD CIT(A) HAD CONFIRMED THE ORDER OF THE AO, HAS BEEN FOUND TO BE INCORRECT. FURTHER, WE NOTICE THAT THE ASSESSEE HAS INITIALLY UNDERTAKEN DEVELOPMENT OF MALL AND LATER IT WAS GIVEN TO M/S ADLABS. HOWEVER THE OWNER OF THE MALL HAS DECIDED TO RETAIN THE NAME AS RAP ADLABS AND ACCORDINGLY AGREED TO PAY MONTHLY ROYALTY. THERE IS NO DISPUTE THAT THE ASSESSEE HAS BEEN SPECIALISING IN DEVELOPMENT OF MALLS AND HENCE, IN OUR VIEW, THERE IS MERIT IN THE CONTENTIONS OF THE ASSESSEE THAT THE ROYALTY INCOME SHOULD BE ASSESSED UNDER THE HEAD INCOME FROM BUSINESS. IT IS SUBMITTED THAT THE AO HIMSELF HAS ASSESSED ROYALTY INCOME AS BUSINESS INCOME IN OTHER YEARS. ACCORDINGLY WE SET ASIDE THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE AND DIRECT THE AO TO ASSESS THE ROYALTY INCOME UNDER THE HEAD INCOME FROM BUSINESS. 10. SINCE BOTH THE ABOVE SAID INCOME HAS BEEN DIRECTED TO BE ASS ESSED AS BUSINESS INCOME OF THE ASSESSEE, THE ALLOWABILITY OF VARIOUS EXPENSES CLAIMED BY THE ASSESSEE NEEDS FRESH EXAMINATION. ACCORDINGLY WE RESTORE THIS MATTER TO THE FILE OF THE AO. 11. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER HAS BE EN PRONOUNCED IN THE COURT ON 5 . 1 .201 7. SD/ - SD/ - (RAVISH SOOD ) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED : 5 / 1 / 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 M/S. RAP MEDIA LTD. 5 6. GUARD FILE. BY ORDER, //TRUE COPY// ( DY./ASSTT. REGISTRAR) PS ITAT, MUMBAI