Smt Mittapalli Tulasi Tanuja, Guntur V. The ITO, Ward-2(1), Guntur

ITA 516/VIZ/2008

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 50156 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 2 year(s) 6 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-04-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 06-04-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 08-10-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: J SIRI KUMAR
• Keywords: Opportunity of being heard; Diversion of income; Capital expenditure
• Section: 27

Judgement Text

ITA NOS 514 TO 516 OF 08 AND 24 OF 2011 OF MITTAPAL LI TULASI TANUJA GUNTUR PAGE 1 OF 8 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI BR BASKARAN, ACCOUNTANT MEMBER ITA NOS. 514 TO 516/VIZAG/2008 & ITA NO.24/VIZAG/2011 ASSESSMENT YEARS: 2002-03 TO 2005-06 MITTAPALLI TULASI TANUJA, GUNTUR VS. ITO WARD-2(1) GUNTUR (APPELLANT) PAN NO: AFUPM 9740 G (RESPONDENT) APPELLANT BY: SHRI G.V.N. HARI, CA RESPONDENT BY: SHRI J. SIRI KUMAR, DR ORDER PER BENCH:- ALL THESE APPEALS FILED BY THE ASSESSEE ARE DI RECTED AGAINST THE ORDERS PASSED BY LD CIT(A), GUNTUR AND THEY RELATE TO THE ASSESSMENT YEARS 2002-03 TO 2005-06. 2. THOUGH THE ASSESSEE HAS RAISED MANY GROUNDS IN ALL THESE YEARS, THE LD A.R RESTRICTED HIS ARGUMENTS TO THE FOLLOWING TW O ISSUES:- A. THE AMOUNT OF CREDIT TO BE ALLOWED FROM THE TDS DEDUCTED ON RENTAL INCOME. B. THE INTEREST CLAIM ON THE LOAN TAKE N FROM OUTSIDERS. ACCORDINGLY THE OTHER GROUNDS ARE DISMISSED. 3. THE FACTS RELATING TO THE ISSUES CITED ABOVE ARE STATED IN BRIEF. THE ASSESSEE IS OWNER OF A BUILDING AND HER RELATIVE NA MED MS. M.SUVARNA IS ITA NOS 514 TO 516 OF 08 AND 24 OF 2011 OF MITTAPAL LI TULASI TANUJA GUNTUR PAGE 2 OF 8 THE OWNER OF AN ADJACENT BUILDING. THE ASSESSEE HA D LET OUT BOTH THE BUILDINGS TO M/S ITC LTD BY VIRTUE OF AN AGREEMENT ENTERED BY THE ASSESSEE WITH THE ABOVE SAID COMPANY. THE SAID COMPANY PAID THE RENT PERTAINING TO BOTH THE BUILDINGS (USED AS GODOWN) TO THE ASSES SEE. BY AN AGREEMENT ENTERED BETWEEN THE ASSESSEE AND HER RELATIVE MS. M . SUVARNA, THE ASSESSEE SHALL PAY 50% OF THE TOTAL RENT TO MS. M.S UVARNA. AS THE ENTIRE RENT IS PAID BY M/S ITC LTD TO THE ASSESSEE HEREIN, THE SAID COMPANY DEDUCTED TDS AND ISSUED THE TDS CERTIFICATE IN THE NAME OF THE ASSESSEE HEREIN. IN THE RETURN OF INCOME, THE ASSESSEE DECLA RED GROSS AMOUNT OF RENT RECEIVED FROM M/S ITC LTD. UNDER THE HEAD INC OME FROM HOUSE PROPERTY AND DEDUCTED 50% THERE OF AS THE SAME REL ATES TO HER RELATIVE SMT. M. SURVARNA. SINCE THE TDS CERTIFICATE WAS IS SUED IN THE NAME OF THE ASSESSEE, SHE CLAIMED DEDUCTION FOR THE ENTIRE AMOU NT OF TDS. ACCORDING TO THE ASSESSEE, SHE HAD BORROWED FUNDS FROM A BANK AND ALSO FROM A PERSON NAMED SHRI M.JAGADISH BABU FOR THE PURPOSE O F CONSTRUCTION OF THE BUILDING. ACCORDINGLY SHE CLAIMED DEDUCTION FOR IN TEREST EXPENDITURE AGAINST THE RENTAL INCOME. 3.1 WHILE COMPLETING THE ASSESSMENT, THE ASSESS ING OFFICER DISALLOWED THE CLAIM OF ENTIRE INTEREST WITH THE OBSERVATION T HAT THE ASSESSEE DID NOT PROVE THAT THE SAID LOANS WERE BORROWED ONLY FOR TH E PURPOSE OF CONSTRUCTION OF GODOWN BUILDING. THE ASSESSING OFF ICER ALSO ALLOWED TDS CREDIT ONLY TO THE EXTENT OF 50%, AS THE ASSESSEE H AS OFFERED ONLY 50% OF THE TOTAL RENTAL RECEIPTS. 4. AGGRIEVED, THE ASSESSEE CARRIED THE MATTERS IN APPEAL BEFORE LD CIT(A). THE FIRST APPELLATE AUTHORITY TOOK THE VIE W THAT THE 50% OF RENTAL INCOME TRANSFERRED TO SMT. M. SUVARNA IS A DIVERSIO N OF INCOME, SINCE THE ITA NOS 514 TO 516 OF 08 AND 24 OF 2011 OF MITTAPAL LI TULASI TANUJA GUNTUR PAGE 3 OF 8 ASSESSEE DID NOT HAVE ANY REAL RIGHT TO ENJOY THE R ENT RECEIVED ON THE GODOWN BELONGING TO SMT. M.SUVARNA. ACCORDINGLY, T HE LD CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER IN RE STRICTING THE CREDIT OF TDS TO 50%. WITH REGARD TO THE DISALLOWANCE OF INTERES T, THE LD CIT(A) DIRECTED THE ASSESSING OFFICER TO ALLOW THE DEDUCTION OF INT EREST PAYABLE TO THE BANK AND CONFIRMED THE DISALLOWANCE OF INTEREST PAYABLE TO OTHER PERSON. STILL AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND CARE FULLY PERUSED THE RECORD. THE FIRST ISSUE RELATES TO THE QUANTUM OF TDS CREDI T TO BE ALLOWED IN THE HANDS OF THE ASSESSEE. THE UNDISPUTED FACTS ARE TH AT (A) THE ASSESSEE IS THE OWNER OF ONLY ONE BUILDIN G. (B) HOWEVER, THE ASSESSEE HAS LET OUT TWO INDEPEN DENT BUILDINGS TO M/S ITC LTD, I.E ONE BUILDING OWNED BY HER AND ANOT HER ADJACENT BUILDING OWNED BY HER RELATIVE. (C) THE ASSESSEE IS RECEIVING RENT FOR BOTH THE BUILDINGS AND THE TDS IS DEDUCTED ON SUCH RENTAL PAYMENTS. (D) THE TDS CERTIFICATE HAS BEEN ISSUED IN THE NA ME OF THE ASSESSEE FOR THE AGGREGATE RENT GIVEN FOR BOTH THE BUILDINGS . (E) THE ASSESSEE HAS OFFERED HER SHARE OF RENTAL INCOME UNDER THE HEAD INCOME FROM HOUSE PROPERTY. FOR THAT PURPOSE, THE ASSESSEE HAS DISCLOSED FIRST THE TOTAL RENT RECEIPT AND DEDUCTED 50% THEREOF, AS THE SAME IS RELATED TO THE OTHER BUILDING. (F) THE ASSESSEE HAS CLAIMED DEDUCTION OF FULL AM OUNT OF TDS AS PER THE TDS CERTIFICATE, SINCE THE CERTIFICATE IS I SSUED IN HER NAME. 6. THE CASE OF THE ASSESSING OFFICER IS THAT ITA NOS 514 TO 516 OF 08 AND 24 OF 2011 OF MITTAPAL LI TULASI TANUJA GUNTUR PAGE 4 OF 8 (A) WHEN TWO INDEPENDENT BUILDINGS OWNED BY TWO P ERSONS ARE LET OUT, WHAT IS THE NECESSITY OF HAVING ONE AGREEMENT WITH ITC LTD. (B) THOUGH THE ASSESSEE HAS RECEIVED RENT FOR BOT H THE BUILDINGS, SHE HAS OFFERED ONLY HALF OF THE RENTAL RECEIPT FOR TAXATION IN HER HANDS BY TRANSFERRING THE REMAINING 50% TO THE OTHER OWNER O F THE BUILDING NAMED MISS MITTAPALLI SUVARNA. HOWEVER THE ASSESSEE HAS CLAIMED DEDUCTION OF FULL TDS AMOUNT. (C) THE INTENTION OF THE ASSESSEE IS T O AVOID TAX IN HER HANDS BY GETTING BENEFIT OF CLAIMING OF TOTAL TDS AMOUNT. 7. THE CASE OF THE LD CIT(A) IS THAT (A) THE ASSESSEE HAS ENTERED INTO A SINGLE AGREEM ENT FOR BOTH THE BUILDINGS ONLY FOR THE SAKE OF CONVENIENCE. (B) THE DEDUCTIONS ALLOWABLE U/S 23 AND 24 OF THE ACT ARE VERY SPECIFIC. HENCE THE RENT TRANSFERRED TO M.SUVARNA, THE OTHER OWNER CANNOT BE TREATED AS A DEDUCTION, BUT CAN ONLY BE TREATED AS DIVERSION OF INCOME. (C) THE ASSESSEE HAS NO REAL RIGHT TO ENJOY THE R ENT RECEIVED FOR THE OTHER GODOWN. (D) SINCE THE RENTAL INCOME OF OTHER BUILDING DOE S NOT BELONG TO THE ASSESSEE, THE TRANSFER OF 50% OF THE RENT DOES NOT AMOUNT TO APPLICATION OF INCOME. HENCE TDS CREDIT CAN BE ALLOWED ONLY ON TH E INCOME OFFERED BY THE ASSESSEE., I.E TO THE EXTENT OF THE ASSESSEES SHARE OF THE RENT AS PER SEC. 199 OF THE ACT. 8. IN OUR VIEW, BOTH THE TAX AUTHORITIES HAVE FA ILED TO CONSIDER THE ISSUE IN A PROPER PERSPECTIVE. THERE CANNOT BE ANY DISPU TE THAT THE RENTAL INCOME CAN BE ASSESSED UNDER THE HEAD INCOME FROM H OUSE PROPERTY ONLY IN THE HANDS OF THE ORIGINAL OWNER OF THE BUIL DING, SAVE AS OTHER WISE ITA NOS 514 TO 516 OF 08 AND 24 OF 2011 OF MITTAPAL LI TULASI TANUJA GUNTUR PAGE 5 OF 8 PROVIDED U/S 27 OF THE ACT. IF A PERSON WHO IS IN RECEIPT OF THE RENTAL INCOME IS NOT THE OWNER OF THE BUILDING, THEN THE S AID RENTAL INCOME HAS TO BE ASSESSED, GENERALLY UNDER THE HEAD INCOME FROM O THER SOURCES. AS PER THE PROVISIONS OF SEC. 194-L, TDS IS DEDUCTED ON RENT PAYMENT EITHER AT THE TIME OF CREDIT OF SUCH RENTAL INCOME TO THE ACCOUNT OF THE PAYEE OR AT THE TIME OF PAYMENT THERE OF IN CASH OR BY THE I SSUE OF CHEQUE OR DRAFT OR BY ANY OTHER MODE, WHICHEVER IS EARLIER. AS PER THE PROVISIONS OF SEC.199 THAT STOOD AT THE RELEVANT POINT OF TIME, T HE TDS AMOUNT IS TREATED AS A PAYMENT OF TAX ON BEHALF OF THE PERSON FROM WH OSE INCOME THE DEDUCTION WAS MADE OR OF THE OWNER OF THE SECURITY, OR DEPOSITOR OR OWNER OF PROPERTY OR OF UNIT HOLDER OR OF THE SHARE HOLDE R, AS THE CASE MAY BE, AND CREDIT SHALL BE GIVEN TO HIM FOR THE TDS AMOUNT ON PRODUCTION OF TDS CERTIFICATE FOR THE ASSESSMENT YEAR FOR WHICH SUCH INCOME IS ASSESSABLE. 9. KEEPING THIS LEGAL PROPOSITION IN MIND, NOW WE SHALL ADDRESS THE ISSUE RELATING TO THE TDS CREDIT. THE ASSESSEE HAS ENTERED INTO AN AGREEMENT WITH M/S ITC LTD FOR A PERIOD OF 11 MONTH S ONLY AND THERE AFTER THE SAME IS RENEWED FOR EVERY 11 MONTHS AND SO ON. THE SAID AGREEMENT IS A COMPOSITE AGREEMENT TO LET OUT THE GODOWNS AND ALSO FOR PROCESSING AND HANDLING OF TOBACCO LEAVES. THE RENTAL INCOME IS DESCRIBED AS FIXED CHARGES AND THE VARIABLE CHARGES ARE PAID FOR DIFF ERENT KIND OF WORKS MENTIONED IN THE SAID AGREEMENT. THE ASSESSEE HAS A LSO ENTERED INTO A LEASE AGREEMENT WITH THE M. SUVARNA, THE OTHER BUIL DING OWNER, WHERE BY THE ASSESSEE HAS AGREED TO PAY 50% OF THE GROSS REN TAL RECEIPT TO THE OTHER OWNER. 10. THUS IT IS SEEN THAT THE COMPANY M/S ITC LTD ., HAS ENTERED INTO THE COMPOSITE AGREEMENT ONLY WITH THE ASSESSEE, I.E. AG REEMENT INCLUDES ITA NOS 514 TO 516 OF 08 AND 24 OF 2011 OF MITTAPAL LI TULASI TANUJA GUNTUR PAGE 6 OF 8 PAYMENT OF RENTAL INCOME FOR BOTH THE GODOWNS AND A LSO PAYMENT OF SERVICE CHARGES FOR OTHER SERVICES PROVIDED BY THE ASSESSEE. AS PER THE LEASE AGREEMENT ENTERED INTO BY THE ASSESSEE WITH T HE OTHER OWNER, THE RENTAL INCOME SHALL BE SHARED EQUALLY BY BOTH THE P ARTIES. 11. WE HAVE ALREADY STATED THAT THE RENT RECEIV ED BY THE OWNER OF THE BUILDING ALONE IS ASSESSABLE TO TAX UNDER THE HEAD INCOME FROM BUSINESS AND THE RENTAL INCOME RECEIVED BY THE NON-OWNER OF THE BUILDING IS GENERALLY ASSESSED UNDER THE HEAD INCOME FROM OTHE R SOURCES. IF THE RENTAL INCOME IS ASSESSED UNDER THE HEAD INCOME FRO M OTHER SOURCES, THEN AS PER THE PROVISIONS OF SEC. 57 (III) ANY OTH ER EXPENDITURE (NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE) LAID OUT OR E XPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING SU CH INCOME IS DEDUCTIBLE. THUS, IN THE INSTANT CASE, THE RENTAL INCOME RECEIV ED BY THE ASSESSEE IN RESPECT OF THE OTHER BUILDING IS ASSESSABLE UNDER T HE HEAD INCOME FROM OTHER SOURCES AND THE RENT PAID BY THE ASSESSEE TO THE OTHER OWNER IS DEDUCTIBLE AS EXPENDITURE. 12. IT IS A WELL SETTLED PROPOSITION OF THE LAW THAT IT IS THE DUTY OF THE ASSESSING OFFICER TO ASSESS THE INCOME UNDER CORREC T HEAD. ACCORDINGLY, THE RENTAL INCOME RECEIVED BY THE ASSESSEE FOR THE OTHE R BUILDING AND THE RENT PAID FOR THE OTHER BUILDING HAVE TO BE CONSIDERED U NDER THE HEAD INCOME FROM OTHER SOURCES. SINCE BOTH THE AMOUNTS ARE EQU AL IN THE INSTANT CASE, NO SURPLUS THAT IS TAXABLE ARISES IN THE HANDS OF T HE ASSESSEE. IF THE RENTAL INCOME OFFERED UNDER BOTH THE HEADS IS TAKEN TOGETH ER THE CONDITIONS LAID DOWN IN SEC. 199 ALSO GET FULFILLED AND IN THAT CAS E, THE ENTIRE AMOUNT OF TDS HAS TO BE GIVEN CREDIT IN THE HANDS OF THE ASSE SSEE. ACCORDINGLY WE HOLD THAT THE ASSESSEE IS ENTITLED FOR TDS CREDIT O F THE WHOLE AMOUNT ITA NOS 514 TO 516 OF 08 AND 24 OF 2011 OF MITTAPAL LI TULASI TANUJA GUNTUR PAGE 7 OF 8 SHOWN IN THE TDS CERTIFICATE. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE IN ALL THE YEARS UNDER CONSIDE RATION AND DIRECT THE ASSESSING OFFICER TO ALLOW CREDIT OF ENTIRE AMOUNT OF TDS IN THE HANDS OF THE ASSESSEE. 13. THE NEXT ISSUE PERTAINS TO THE DISALLOWANCE OF INTEREST EXPENDITURE WHILE COMPUTING THE INCOME FROM HOUSE PROPERTY. AC CORDING TO THE ASSESSEE, HE HAS BORROWED MONEY FOR THE CONSTRUCTIO N OF THE GODOWN BUILDING BOTH FROM THE BANK AND ALSO FROM A PERSON NAMED SHRI M.JAGADISH. THE ASSESSEE CLAIMED THE INTEREST PAID ON BOTH THE LOANS. THE ASSESSING OFFICER DISALLOWED THE ENTIRE CLAIM O F INTEREST EXPENDITURE WITH THE REASONING THAT THE ASSESSEE HAS FAILED TO PROVE THAT THE IMPUGNED LOANS WERE USED FOR THE CONSTRUCTION OF THE GODOWN BUILDING. HOWEVER THE LD CIT(A) HAS ALLOWED THE INTEREST PAYABLE TO BANK, BUT CONFIRMED THE DISALLOWANCE OF INTEREST PAYABLE TO SHRI M.JAGADISH BABU. 14. AT THE TIME OF HEARING, THE LD A.R SUBMITTE D THAT THE TAX AUTHORITIES HAVE DISALLOWED THE INTEREST PAYABLE ON LOAN TAKEN FROM SHRI M. JAGADISH BABU ON THE PRESUMPTION THAT THE SAID LOAN WOULD NO T HAVE BEEN USED FOR THE CONSTRUCTION OF THE GODOWN BUILDING. ACCORDING TO LD A.R, THE SAID PRESUMPTION IS AGAINST THE FACTUAL POSITION. ACCOR DINGLY HE PRAYED THAT THE SAID ISSUE MAY BE SET ASIDE TO THE FILE OF THE ASSE SSING OFFICER FOR MAKING PROPER EXAMINATION. THE LD D.R ALSO DID NOT OBJECT TO THE SAID PLEA MADE BY THE LD A.R. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE ON ALL THE YEARS UNDER CONSIDERATION AND REST ORE THE SAME TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO CONSID ER THE CLAIM OF THE ASSESSEE IN ALL THE YEARS UNDER CONSIDERATION IN AC CORDANCE WITH LAW BY EXAMINING BOOKS AND OTHER MATERIALS THAT MAY BE PRO DUCED BY THE ITA NOS 514 TO 516 OF 08 AND 24 OF 2011 OF MITTAPAL LI TULASI TANUJA GUNTUR PAGE 8 OF 8 ASSESSEE. NEED LESS TO MENTION, THE ASSESSEE SHOUL D BE GIVEN NECESSARY OPPORTUNITY OF BEING HEARD. 15. IN THE RESULT, ALL THE APPEALS OF THE ASSESS EE ARE TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 12 TH APRIL, 2011. SD/- SD/- (SUNIL KUMAR YADAV) (B R BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PVV/SPS VISAKHAPATNAM, DATE:12-04-2011 COPY TO 1 SHRI MITTAPALLI TULASI TANUJA, GUNTUR C/O SHRI G. V.N. HARI, FCA, D.NO.30-14-11, LEELA MAHAL JUNCTION, DABBERU MANSIO N, DABA GARDENS, VISAKHAPATNAM 53020 2 THE ITO WARD-2(1) GUNTUR 3 4. THE CIT GUNTUR THE CIT(A), GUNTU R 5 THE DR, ITAT, VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM