M/s. JAMNADAS M. CHOKSHI & SONS, MUMBAI V. ITO - 16(1)(3), MUMBAI

ITA 5361/MUM/2006

• Counselvise Citation: 536119914 RSA 2006
• Duration Of Justice: 4 year(s) 11 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: J
• Next Hearing Date: 27-09-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 12-10-2006
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D S SUNDER SINGH
• Assessee Lawyers: MRS SANJA UKTA CHOUDHARY
• Keywords: Business income

Judgement Text

IN THE INCOME TAX APPELLATE TRIB UNAL MUMBAI BENCHES J, MUMBAI BEFORE SHRI R.S. SYAL, AM AND SHRI R.S.PADVEKAR, JM ITA NO.5361/MUM/2006 :ASST.YEAR 2003-2004 M/S.JAMNADAS M.CHOKSHI & SONS GROUND FLOOR, GARDEN VIEW J MEHTA ROAD MUMBAI 400 006. PAN : AACFJ5289J. VS. THE INCOME TAX OFFICER WARD 16(1)(3) MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI PRAMOD KUMAR PARIDA & MRS.SANJA UKTA CHOUDHARY RESPONDENT BY : SHRI D.S.SUNDER SINGH DATE OF HEARING : 27.09.2011 DATE OF PRONOUNCEMENT :30.09.2011 O R D E R PER R.S. SYAL, AM : THIS APPEAL BY THE ASSESSEE ARISES OUT OF THE ORDER PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) ON 22.08.2006 IN RELATION TO THE ASSESSMENT YEAR 2003-2004. 2. FIRST GROUND IS AGAINST THE CONFIRMATION OF DISA LLOWANCE OF DEDUCTION OF MAINTENANCE CHARGES AMOUNTING TO RS.27,40,392. BRIE FLY STATED THE FACTS OF THIS GROUND ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM WHICH DEBITED A SUM OF RS.29,35,500 AS MAINTENANCE CHARGES TO ITS PROFIT A ND LOSS ACCOUNT. THE ASSESSING OFFICER OBSERVED THAT THE MAINTENANCE CHARGES FOR T HE YEAR AMOUNTED TO RS.1,95,108. TAKING A PROPORTIONATE PERIOD OF EXPEN SES RELATABLE TO THIS YEAR, DEDUCTION WAS GRANTED FOR RS.1,21,943. HE, THEREFOR E, MADE ADDITION FOR THE REMAINING AMOUNT AT RS.27,40,392. THE LEARNED CIT(A ) SUSTAINED THE DISALLOWANCE ON THE GROUND THAT THE ASSESSEE HAD NOT PROVED THAT THERE WAS ANY DISPUTE REGARDING THE SOCIETY MAINTENANCE CHARGES PENDING SINCE 01.04 .1994 WHICH WAS CRYSTALLIZED IN THIS YEAR. HE FURTHER OBSERVED THAT AS PER TENAN CY AGREEMENT THE ASSESSEE WAS ITA NO.5361/M/2006 M/S.JAMNADAS M CHOKSHI & SONS. 2 NOT REQUIRED TO PAY ANY MAINTENANCE CHARGES AND PRO PERTY TAX. HE, THEREFORE, UPHELD THE DISALLOWANCE. 3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS SEEN THAT THE ASSESSEE WAS CARRYING O N THE BUSINESS IN THIS PREMISES TAKEN ON RENT. THE SAID SUM OF RS.29.35 LAKH WAS PA ID BY THE ASSESSEE IN THE YEAR DUE TO MAINTENANCE CHARGES FROM THE PERIOD 01.04.19 94 TILL THE YEAR ENDING ON THE GROUND THAT SOME DISPUTE WAS GOING ON BETWEEN THE M EMBERS AND THE SOCIETY AND IT WAS DECIDED NOT TO MAKE PAYMENT TOWARDS SOCIETY CHA RGES TILL THE SETTLEMENT OF DISPUTE. IT WAS IN THE YEAR UNDER CONSIDERATION THA T THE DISPUTE WAS FINALLY SETTLED AND THE AMOUNT WAS PAID. THIS FACT WAS BROUGHT OUT BY THE ASSESSEE BY A NOTE TO ITS ACCOUNTS, THE RELEVANT PARAS OF WHICH READ AS UNDER :- 8) THERE WAS DISPUTE BETWEEN THE OWNERS OF THE PRE MISES OCCUPIED BY THE ASSESSEE AND THE KESHWALA PREMISES CO-OP HSG . SOCIETY IN RESPECT OF MAINTENANCE CHARGES AND OTHER DUES OF SO CIETY WHICH WERE TO BE BORNE BY THE ASSESSEE AS PER AGREEMENT OF TEN ANCY WITH THE OWNERS. THE DISPUTE BETWEEN THE OWNERS AND THE SOCI ETY IS SETTLED DURING THE YEAR AND ACCORDINGLY MAINTENANCE CHARGES RS.27,18,900/- PAID BY THE ASSESSEE DURING THE YEAR IS CHARGED TO PROFIT AND LOSS ACCOUNT. 4. PAGE NO.41 OF THE PAPER BOOK IS A COPY OF THE LE TTER ADDRESSED BY THE ASSESSEE TO THE SECRETARY OF THE SOCIETY COMPLAININ G ABOUT VARIOUS ISSUES, WHICH ALSO REFERS TO SUIT FILED AGAINST THE SOCIETY. THER EAFTER SOME SETTLEMENT WAS ARRIVED AT AND THE ASSESSEE EVENTUALLY PAID THE AMOUNT IN T HE YEAR UNDER CONSIDERATION. RECEIPTS FOR THE AMOUNTS PAID ARE AVAILABLE ON PAGE S 29 AND 30 OF THE PAPER BOOK. THESE FACTS INDICATE THAT THE ASSESSEE PAID THE AMO UNT TOWARDS MAINTENANCE CHARGES FOR THE PREMISES IN WHICH IT WAS CARRYING O N BUSINESS. THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AS CAN BE SEEN FROM THE TITLES OF THE ASSESSMENT ORDER. SINCE THE LIABILITY TOWARDS MAINT ENANCE CHARGES GOT CRYSTALLIZED IN THE YEAR UNDER CONSIDERATION, IN OUR CONSIDERED OPINION, THE ASSESSEE WAS ITA NO.5361/M/2006 M/S.JAMNADAS M CHOKSHI & SONS. 3 JUSTIFIED IN CLAIMING THIS DEDUCTION. WE, THEREFORE , OVERTURN THE IMPUGNED ORDER ON THIS ISSUE AND ORDER FOR THE DELETION OF ADDITION. 5. THE ONLY OTHER GROUND IS AGAINST SUBJECTING THE BUSINESS INCOME OF RS.35.55 LAKH AS INCOME UNDER THE HEAD `INCOME FROM OTHER SO URCES. THE FACTS APROPOS THIS GROUND ARE THAT THE ASSESSEE WAS CARRYING ON THE BU SINESS OF TRADING IN GOLD BARS WHICH WAS DISCONTINUED DURING THE YEAR. THE PREMISE S WAS GIVEN ON RENT TO M/S.LINKCOM SERVICES INDIA PRIVATE LIMITED / FIRST FITNESS PRIVATE LIMITED. THE SAID COMPANY CARRIED OUT THE BUSINESS OF HEALTH CLU B AT THE PREMISES TAKEN ON CONTRACT FROM THE ASSESSEE. THE A.O. OBSERVED THAT THE ASSESSEE WAS NOT THE OWNER OF THE PREMISES AND HENCE THE INCOME OF RS.35.55 LA KH RECEIVED FROM HEALTH CLUB FOR HIRING OUT THE PREMISES WAS LIABLE TO BE CONSI DERED AS INCOME UNDER THE HEAD `INCOME FROM OTHER SOURCES AND NOT BUSINESS INCOME AS CLAIMED. NO RELIEF WAS ALLOWED IN THE FIRST APPEAL. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS NOTICED THAT THE ASSESSEE WAS EARLIER CARRYING ON ITS BUSINESS IN THE PREMISES TAKEN ON RENT. THE SAID PREMISES ALONG WIT H AIR-CONDITIONER AND FURNITURE WAS GIVEN BY THE ASSESSEE, ON CLOSING DOWN ITS BUSI NESS, TO AN OUTSIDER FOR RUNNING OF HEALTH CLUB. AS PER THE TERMS OF AGREEMENT, THE ASSESSEE WAS ENTITLED TO ACCEPT 3% AMOUNT OF THE OVERALL TURNOVER IN THE BUSINESS B EING CONDUCTED BY THE CONTRACTORS AT THE PREMISES SUBJECT TO A MINIMUM GU ARANTEED AMOUNT OF RS.8.50 LAKH PER MONTH. APART FROM THAT THE ASSESSEE ALSO R ECEIVED CERTAIN INTEREST FREE SECURITY DEPOSITS. THESE FACTS INDICATE THAT THE AS SESSEE RECEIVED RS.35.55 LAKH IN THE YEAR IN QUESTION FROM THE SAID OTHER PARTY TOWA RDS HIRING OF PREMISES AND WAS IN NO WAY CONNECTED WITH THE CARRYING ON OF THE BUS INESS OF HEALTH CLUB. ON A PERTINENT QUERY THE LEARNED A.R. ADMITTED THAT THE ASSESSEE WAS NEITHER DIRECTOR NOR SHAREHOLDER IN THE COMPANY WHICH CARRIED OUT THE HE ALTH CLUB. NO EVIDENCE COULD BE ADDUCED TO DEMONSTRATE THAT THE ASSESSEE WAS ENG AGED IN THE CARRYING ON OF THE ITA NO.5361/M/2006 M/S.JAMNADAS M CHOKSHI & SONS. 4 BUSINESS OF HEALTH CLUB IN ANY MANNER. MERELY BECA USE THE CONSIDERATION FOR HIRING OF THE PREMISES HAS BEEN RECEIVED AS PERCENTAGE OF ITS TURNOVER, WOULD NOT IPSO FACTO CONVERT RECEIPT INTO BUSINESS INCOME. THE MANNER I N WHICH CONSIDERATION IN LIEU OF PARTING OF PREMISES IS RECEIVED IS OF NO CO NSEQUENCE, AS IT IS RENTAL INCOME IN ESSENCE. EVEN IF RENTAL INCOME IS RECEIVED IN A MANNER OTHER THAN A FIXED SUM, THE SAME WOULD NOT SHED THE CHARACTER OF RENTAL INC OME. AS THE ASSESSEE WAS NOT THE OWNER OF THE PREMISES, WHICH WAS SUBLET BY IT TO SOME THIRD PARTY ALONG WITH FURNITURE AND FIXTURE ETC. FOR CARRYING ON HEALTH C LUB, IN OUR CONSIDERED OPINION, THE AUTHORITIES BELOW WERE JUSTIFIED IN TREATING SUCH I NCOME AS FALLING UNDER THE HEAD `INCOME FROM OTHER SOURCES. BY NO STANDARD THIS IN COME IN THE GIVEN CIRCUMSTANCES CAN BE CATEGORIZED AS BUSINESS INCOME . WE, THEREFORE, APPROVE THE VIEW TAKEN BY THE LEARNED CIT(A) ON THIS ISSUE. THI S GROUND IS NOT ALLOWED. 7. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED ON THIS 30 TH DAY OF SEPTEMBER, 2011. SD/- SD/- (R.S.PADVEKAR) (R.S.SYAL) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI : 30 TH SEPTEMBER, 2011. DEVDAS* COPY TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT CONCERNED 4. THE CIT(A) - XVI, MUMBAI. 5. THE DR/ITAT, MUMBAI. 6. GUARD FILE. TRUE COPY. BY ORDER ASSISTANT REGISTRAR, ITAT, MUMBAI.