DANNICH SYSCOM LTD, MUMBAI V. ITO WD 9(1)(3), MUMBAI

ITA 5050/MUM/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 88408 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 7 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-02-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 22-01-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 27-06-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JEETENDRA KUMAR
• Keywords: Business income
• Section: 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUM BAI , , BEFORE SHRI SANJAY ARORA, AM AND SHRI VIJAY PAL RA O, JM ./ I.T.A. NO. 5050/MUM/2011 ( / ASSESSMENT YEAR: 2007-08) DAANISH SYSCOM LTD. 5/10, DELITE APTS., 2 ND CARTER ROAD, BANDRA (W), MUMBAI-400 050 / VS. INCOME TAX OFFICER, WARD-9(1)(3), AAYKAR BHAVAN, CHURCHGATE, MUMBAI-400 020 ./ ./PAN/GIR NO. AABCD 8773 D ( ! /APPELLANT ) : ( '#! / RESPONDENT ) ! $ % / APPELLANT BY : SHRI K. GOPAL '#! $ % / RESPONDENT BY : SHRI JEETENDRA KUMAR & ' ( $ ) * / DATE OF HEARING : 28.01.2015 +,- $ ) * / DATE OF PRONOUNCEMENT : 11.02.2015 . / O R D E R PER SANJAY ARORA, A. M.: THIS IS AN APPEAL BY THE ASSESSEE DIRECTED AGAINST THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-19, MUMBAI (CIT(A) FOR SH ORT) DATED 24.03.2011, PARTLY ALLOWING THE ASSESSEES APPEAL CONTESTING ITS ASSES SMENT U/S.143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR THE ASSESSMEN T YEAR (A.Y.) 2007-08 VIDE ORDER DATED 29.12.2009. 2. THE DISPUTE IN THE INSTANT CASE RELATES TO THE V ALIDITY IN LAW OF THE DISALLOWANCE OF THE CLAIM IN RESPECT OF ELECTRICITY EXPENSES (RS.6, 11,294/-) AND SECURITY EXPENSES (64,584/-), CLAIMED BY THE ASSESSEE AGAINST RENTAL INCOME, RECEIVED AT A GROSS OF 2 ITA NO. 5050/MUM/2011 (A.Y. 2007-08) DAANISH SYSCOM LTD. VS. ITO RS.13,29,220/- FOR THE RELEVANT YEAR, IN COMPUTING ITS TAXABLE, I.E., THE TOTAL, INCOME UNDER THE ACT. THE BASIS OF THE ASSESSEES CLAIM; IT NOT DISPUTING THAT THE RENTAL INCOME IS FROM THE PREMISES LET TO THE DAY TRADERS FOR A HIRE, WAS LIABLE TO BE ASSESSED U/S.22 OF THE ACT. SO, HOWEVER, THE ELECTRICITY EXPENSES ARE ONLY TOWA RDS PROVIDING ELECTRIC POWER FOR AIR CONDITIONING THE PREMISES, SO THAT THE ELECTRICITY COST IS INCLUDED IN THE GROSS RECEIPT. THE PAYMENT HAS AN INTIMATE AND DIRECT NEXUS WITH THE R ECEIPT AND, ACCORDINGLY, OUGHT TO BE ALLOWED IN THE FACTS AND CIRCUMSTANCES OF THE CASE, EVEN IF THAT WOULD MEAN ASSESSING THE SAID INCOME, BEING TOWARD PROVISION OF AN AIR CONDI TIONED HALL, IN THE FORM OF VARIOUS COUNTERS TO ENABLE THE TRADERS-HIRERS TO EXHIBIT AN D SELL THEIR WARES TO CUSTOMERS, AS EITHER BUSINESS INCOME, ASSESSABLE U/S.28, OR AS INCOME F ROM OTHER SOURCES U/S.56 OF THE ACT. RELIANCE STANDS PLACED BEFORE US ON THE DECISION IN THE CASE OF J. B. PATEL & CO. VS. DY. CIT (ASST.) [2009] 118 ITD 556 (AHD.) THE REVENUES CASE, ON THE OTHER HAND, IS THAT IT I S ONLY A CASE OF LETTING A BUILDING, AND NOT THAT OF A COMBINED LETTING OF PLANT, MACHIN ERY OR FURNITURE ALONG WITH, IN WHICH CASE ONLY, WHERE INSEPARABLE WITH THAT OF BUILDING, IS THE RENTAL INCOME LIABLE TO BE ASSESSED U/S.56(2)(III) OF THE ACT, PLACING RELIANC E ON DR. P. A. VARGHESE VS. CIT [1971] 80 ITR 180 (KER). NO RENT AGREEMENT/S WAS FURNISHED TO BUTTRESS THE CLAIM THAT THE RENT RECEIVED IS A COMPOSITE CHARGE. IT IS ALSO NOT A CA SE THEREFORE OF LETTING OR PROVISION OF SERVICES, I.E., TOWARD ELECTRICITY AND SECURITY, SE PARATELY, OR OF LETTING/HIRING OF AIR CONDITIONING UNITS AND THE SECURITY STAFF. 3. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. AS REGARDS THE LAW IN THE MATTER, THE SAME IS TRITE . THE TOTAL INCOME UNDER THE ACT HAS TO BE NECESSARILY COMPUTED UNDER THE DIFFERENT, MUTUALLY EXCLUSIVE, HEADS OF INCOME, IN TERMS OF AND BY APPLYING THE COMPUTATIONAL PROVI SIONS, WHICH ARE SUBSTANTIVE IN NATURE, FALLING UNDER THE RELEVANT HEADS OF INCOME. REFERENCE IN THIS REGARD MAY BE MADE BY THE CONSTITUTION BENCH DECISION OF THE APEX COUR T IN ESCORTS INDIA LTD. VS. UNION OF INDIA [1993] 199 ITR 43 (SC). 3 ITA NO. 5050/MUM/2011 (A.Y. 2007-08) DAANISH SYSCOM LTD. VS. ITO SO, HOWEVER, IN OUR CLEAR VIEW, LOOKED AT IN ANY MA NNER, THE ASSESSEES CLAIM MERITS ACCEPTANCE. THE ASSESSEE IS HIRING SPACE (AS STATED, IN THE FORM OF SALES COUNTERS OR OTHERWISE) IN ITS AIR CONDITIONED HALL AT BANDRA, MUMBAI, TO DAY-TRADERS, TO FACILITATE OR ENABLE THEM TO SELL THEIR GOODS (KNOWN IN THE COMME RCIAL LANGUAGE AS BAKDA SALES) OR OTHERWISE TRANSACT BUSINESS. THE APEX COURT IN SULTAN BROTHERS (P.) LTD. VS. CIT [1964] 51 ITR 353 (SC) CLARIFIED THAT THE INSEPARABILITY OF L ETTING IS TO BE ASCERTAINED ON THE BASIS OF THE INTENTION OF THE PARTIES FOR ENTERING INTO THE ARRANGEMENT. IT FRAMED THREE QUESTIONS FOR BEING ANSWERED IN THE MATTER. WAS IT THE INTENTION OF THE PARTIES THAT THE TWO, I.E., THE BUILDING AND PLANT, MACHINERY OR FURNITURE BE ENJOYED TOGETHER? AGAIN, WAS IT THE INTENTION TO MAKE IT ONE LETTING? WOULD ONE HAVE BE EN LET ALONE OR ACCEPTED, I.E., WITHOUT THE OTHER? AIR CONDITIONING, AS IT APPEARS, IS INTE GRAL TO THE LETTING OF ITS HALL BY THE ASSESSEE. IF NOT A CASE OF AN INSEPARABLE LETTING, I.E., OF PLANT, MACHINERY (IN THE FORM OF THE AIR CONDITIONING UNITS) AND BUILDING (IN THE FORM OF HALL), WHAT WE WONDER THE N IT IS? WHERE, THEREFORE, PURSUED AS A REGULAR, SYSTEMATIC ACTIVITY, THE SAME WOULD QUALIFY FOR BEING ASSESSED AS BUSINESS INCOME U/S.28, OR ELSE A S INCOME FROM OTHER SOURCES U/S.56(2)(III). IN EITHER CASE, THE EXPENDITURE ON ELECTRICITY AND SECURITY, BEING A DIRECT AND INCIDENTAL EXPENDITURE, WOULD WARRANT DEDUCTION U/S . 37(1) OR, AS THE CASE MAY BE, SECTION 57(III). THE DECISION IN THE CASE OF DR. P. A. VARGHESE VS. CIT [1971] 80 ITR 180 (KER) IS, FOLLOWING SULTAN BROTHERS (P.) LTD. (SUPRA), BASED ON A FINDING OF LETTING OF BUILDING WITH CERTAIN AMENITIES NECESSARY FOR THE ENJOYMENT OF THE PROPERTY, SO THAT IT WAS A CASE OF ONE LETTING. EVEN CONSIDERING THE ARRANGEMENT TO BE ESSENTIALLY ONE OF LETTING THE PREMISES, WITH AIR-CONDITIONING AS AN AMENITY, AND WHICH CANNOT BE REGARDED, AT LEAST PRIMA FACIE, AS NOT VALID, SO THAT THE RENT IS ASSESSABLE AS IN COME FROM HOUSE PROPERTY, IT NEEDS TO BE APPRECIATED THAT WHAT IS ENVISAGED U/S. 22 IS THE INCOME FROM HOUSE PROPERTY PER SE . THERE HAS BEEN NO ATTEMPT ON THE PART OF THE REVE NUE TO ASCERTAIN OR ASSIGN THE RENT WHICH THE ASSESSEES SAID HOUSE PROPERTY, STAT ED TO BE IN THE FORM OF A HALL, COULD FETCH ON BEING LET ON A YEAR TO YEAR BASIS, I.E., A S A WHOLE. IN FACT, IT ADOPTS THE FIGURE OF RENT/HIRE AS CREDITED BY THE ASSESSEE IN ITS ACCOUN TS, WHICH IS FROM REGULAR PARTIES, AND IN ANY CASE RECEIVED BY CHEQUE, AND ONLY MARGINALLY FR OM OTHERS, RECEIVED IN CASH. HOW 4 ITA NO. 5050/MUM/2011 (A.Y. 2007-08) DAANISH SYSCOM LTD. VS. ITO COULD THEN IT DENY THE ASSESSEES CLAIM OF THE RENT RECEIVED AS BEING FOR THE PROVISION OF SPACE IN AN AIR CONDITIONED HALL ALONG WITH THE SEC URITY SERVICES ? RATHER, THE VERY FACT THAT SEPARATE RECEIPTS HAVE NOT BEEN ISSUED FOR OR TOWARD AIR CONDITIONING AND SECURITY CHARGES, ITSELF IMPLIES AND SUPPORTS THE ASSESSEES CLAIM THAT WHAT IS RECEIVED FROM THE CUSTOMERS IS A COMPOSITE HIRING FEE. WOULD NOT, FOR INSTANCE, THE ELECTRICITY COST, WHER E THE PREMISES IS LET ALONG WITH THE ELECTRICITY CONN ECTION FOR LIGHTING, ETC., REQUIRE BEING DEDUCTED IN DETERMINING THE RENTAL OR THE LETTING V ALUE OF THE HOUSE PROPERTY ? EVEN IF, THEREFORE, THE INCOME IS TO BE ASSESSED U/S.22, THE ANNUAL LETTING VALUE OF THE HOUSE PROPERTY WOULD STAND TO BE COMPUTED AFTER REDUCING THE COST OF ELECTRICITY AND SECURITY STAFF; ASSUMING, AT BEST, THAT NO INCOME ARISES TO THE ASSESSEE ON INCURRING THE SAID EXPENSES, WHICH WOULD, THEREFORE, NEED TO BE DEDUCT ED AT COST. IT IS ONLY THE BALANCE AMOUNT THAT REPRESENTS THE LETTING VALUE OF THE HOU SE PROPERTY, ASSESSABLE U/S.22 R/W S. 23 OF THE ACT. THE ONLY CAVEAT WOULD BE THAT THE ASSE SSEE SHALL HAVE TO ESTABLISH THAT THE EXPENDITURE CLAIMED ON ACCOUNT OF ELECTRICITY AND S ECURITY IS QUA ITS AIR CONDITIONED HALL ONLY. SUBJECT TO VERIFICATION OF THIS ASPECT, FOR W HICH THE ASSESSING OFFICER SHALL MAKE THE NECESSARY VERIFICATION, WE ALLOW THE ASSESSEES CLA IM, SO THAT IT IS ONLY THE RENT INCOME, I.E., NET OF ELECTRICITY AND SECURITY SERVICES COST , AS CLAIMED, THAT WOULD STAND TO BE ASSESSED U/S.22 OF THE ACT. THE ASSESSEES CASE IS ALSO IN AGREEMENT WITH THE DECISION IN THE CASE OF J. B. PATEL & CO. (SUPRA). WE DECIDE ACCORDINGLY. WE ARE CONSCIOUS THAT WE HAVE HEREINBEFORE OBSERVED THE ARRANGEMENT TO BE A CASE OF INSEPARABLE LETTING, SO THAT THE HIRE INCOME IS LIABLE TO BE ASSESSED U/S.28 OR U/S. 56. AGAIN, WITHOUT DOUBT, IT IS THE CORRECT LEGAL POSIT ION THAT IS RELEVANT, AND NOT THE VIEW THAT THE PARTIES MAY TAKE OF THEIR RIGHTS IN THE MATTER [ CIT V. C. PARAKH & CO. (INDIA ) LTD . (1956) 29 ITR 661 (SC); KEDARNATH JUTE MFG. CO. LTD. V. CIT (1971) 82 ITR 363 (SC)]. SO, HOWEVER, IN VIEW OF THE LIMITED ARGUMENTS, I.E. , QUA THE DEDUCTIBILITY OF THE IMPUGNED COSTS, WE ARE DISINCLINED TO ISSUE ANY FINDING OR D IRECTION ON THAT ASPECT OF THE MATTER. WE, BY STATING SO, ONLY WISH TO EMPHASIZE THAT WE A RE DECIDING A LIMITED ISSUE, AS ARGUED AND RAISED BEFORE US, LEAVING THE SAID ISSUE OPEN, AND MAY NOT BE CONSTRUED TO HAVE, PER OUR ORDER, DETERMINED THE SAME AS WELL. 5 ITA NO. 5050/MUM/2011 (A.Y. 2007-08) DAANISH SYSCOM LTD. VS. ITO 4. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED ON THE AFORESAID TERMS. ORDER PRONOUNCED IN THE OPEN COURT ON FEBRUARY 11, 2015 SD/- SD/- (VIJAY PAL RAO) (SANJAY ARORA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER & /( MUMBAI; 0' DATED : 11.02.2015 .'../ ROSHANI , SR. PS !' # $%&' (!'% / COPY OF THE ORDER FORWARDED TO : 1. ! / THE APPELLANT 2. '#! / THE RESPONDENT 3. & 1) ( ) / THE CIT(A) 4. & 1) / CIT - CONCERNED 5. 4 5 ')'67 , * 67- , & /( / DR, ITAT, MUMBAI 6. 5 89 : ( / GUARD FILE !' ) / BY ORDER, */)+ , (DY./ASSTT. REGISTRAR) , & /( / ITAT, MUMBAI