BHANSALI CONSTRUCTION & FINANCE P. LTD, MUMBAI V. ITO 3(1)(2), MUMBAI

ITA 576/MUM/2011

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 3103 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 8 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 26-08-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 20-01-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S SENTHI KUMARANDR
• Section: 143(3)

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES G, MUMBAI , , , BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER, AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER ITA NO.576/MUM/2011 ASSESSMENT YEAR: 2005-06 M/S BHANSALI CONSTRUCTION & FINANCE PVT. LTD. 94, MAKER CHAMBERS-VI, NARIMAN POINT, MUMBAI-400021 / VS. INCOME TAX OFFICER-3(1)(2), AAYAKAR BHAVAN, M.K.ROAD, MUMBAI-400020 ( /ASSESSEE) ( / REVENUE) P.A. NO. AAACB6041M / REVENUE BY SHRI S. SENTHI KUMARAN-DR / ASSESSEE BY SHRI VASANTI B. PATEL !' # / DATE OF HEARING : 15/09/2015 ' # / DATE OF ORDER: 30/09/2015 / O R D E R PER ASHWANI TANEJA (ACCOUNTANT MEMBER) THE PRESENT APPEAL IS AGAINST THE ORDER OF LD. COMMISSIONER OF INCOME TAX, (APPEALS) -7 MUMBAI, (I N SHORT, CIT(A)), DATED 02/11/2010, FOR THE ASSESSMENT YEAR 2005-06 AGAINST THE ASSESSMENT ORDER 143(3) DATED 19/11/200 7. M/S BHANSALI CONSTRUCTION & FINANCE ITA NO.576/MUM/2011 2 2. THE GROUNDS RAISED BY THE ASSESSEE IN THE APPEA L MEMO ARE REPRODUCED HEREUNDER:- 1.0 ON THE FACTS & CIRCUMSTANCES OF THE CASE THE LE ARNED CIT (A)) ERRED IN TREATING RENT FOR AMENITIES/ COMMON FACILI TIES RECEIVED AS RENT FOR LETTING OUT OF BUILDING 1.1 ON THE FACTS & CIRCUMSTANCES OF THE CASE THE LE ARNED CIT (A) ERRED IN DISALLOWING RENT FOR AMENITIES PAID TO M/ S. TAMILNADU REAL ESTATE PVT. LTD. AGAINST THE RENT FOR AMENITIE S/ COMMON FACILITIES RECEIVED FROM THE TENANT. 1.2 ON THE FACTS & CIRCUMSTANCES OF THE CASE THE LE ARNED CIT (A) ERRED IN APPRECIATING THE FACT THAT WORD MAINTENANC E CHARGES USED IS NOTHING BUT WORD USED FOR RENT FOR AMENITIE S/COMMON FACILITIES. 2.0 ON THE FACTS & CIRCUMSTANCES OF THE CASE THE LE ARNED CIT (A) ERRED IN LEVYING PENALTY U / S. 271(1)(C) OF THE IN COME TAX ACT, 1961. 2.1. THE SOLITARY ISSUE RAISED IN THIS APPEAL IS W ITH REGARD TO TREATMENT AND TAXABILITY OF MAINTENANCE CHARGES RECEIVED BY THE ASSESSEE FROM ITS TENANTS IN THE HANDS OF THE A SSESSEE AND DEDUCTIBILITY OF MAINTENANCE CHARGES PAID BY THE AS SESSEE, IN TURN, TO THE DEVELOPER BY THE ASSESSEE. 2.2. THE BRIEF FACTS, AS UNDERSTOOD FROM THE ASSES SMENT ORDER ARE THAT DURING THE YEAR, THE ASSESSEE COMPAN Y WAS ENGAGED IN THE BUSINESS OF REAL ESTATE, AND RECEIVE D LEASE RENT FROM THE PROPERTY LEASED OUT TO TWO TENANTS. 2.3. DURING THE YEAR, THE ASSESSEE RECEIVED RENTAL INCOME FROM THE TWO DIFFERENT PROPERTIES LEASED OUT TO TWO DIFFERENT TENANTS NAMELY M/S SUNDARAM CLAYTON LTD. & MS. ICON CLINICAL M/S BHANSALI CONSTRUCTION & FINANCE ITA NO.576/MUM/2011 3 RESOURCES INDIA PVT. LTD. IT WAS NOTED BY THE ASSES SING OFFICER THAT OVER AND ABOVE THE RENTAL INCOME, THE ASSESSE E COMPANY HAS ALSO RECEIVED MAINTENANCE CHARGES FROM THESE TW O TENANTS AGGREGATING RS.3,75,280/-, DURING THE YEAR. ACCORDI NGLY, THE ASSESSING OFFICER CONFRONTED THE ASSESSEE THAT THE MAINTENANCE CHARGES SHOULD ALSO BE TREATED AS PART OF THE RENT AND SHOULD BE TAXED ACCORDINGLY IN THE HANDS OF THE ASSESSEE C OMPANY. IN RESPONSE, THE ASSESSEE COMPANY SUBMITTED THAT THE T OTAL SOCIETY MAINTENANCE CHARGES RECEIVED BY THE ASSESSE E ARE RS.3,75,280/-, WHEREAS, THE TOTAL SOCIETY MAINTENAN CE CHARGES PAID BY THE ASSESSEE TO THE DEVELOPER M/S TAMILNADU REAL ESTATE PVT. LTD. AMOUNTED TO RS.13,24,779/- FOR THE YEAR UNDER CONSIDERATION. THUS, THE NET PAYMENT MADE TO RS.9, 49,499/- TO THE SAID COMPANY WAS DEBITED TO THE PROFIT AND L OSS ACCOUNT, BUT THE SAME WAS NOT CLAIMED AS AN EXPENSE AGAINST INCOME FOR THE YEAR. THE ASSESSEE FURTHER SUBMITTED THAT IN V IEW OF THESE FACTS, THE SOCIETY MAINTENANCE CHARGES RECEIVED BY THE ASSESSEE COMPANY FOR RS.3,75,280/- SHOULD NOT BE TAXED AS RE NT. 2.4. HOWEVER, THE ASSESSING OFFICER WAS NOT SATISF IED WITH THE RESPONSE OF THE ASSESSEE. ACCORDINGLY, IT WAS H ELD BY THE ASSESSING OFFICER THAT THE RENT INCOME HAS BEEN DEC LARED LESS BY RS.3,75,280/-. IT WAS FURTHER OBSERVED BY THE AS SESSING OFFICER THAT THIS AMOUNT IS TERMED AS MAINTENANCE C HARGES, BUT IT FORMS PART OF THE RENTAL INCOME. ACCORDINGLY, TH E ASSESSING OFFICER INCREASED THE AMOUNT OF RENT BY THIS AMOUNT AND TAXED IT ACCORDINGLY UNDER THE HEAD INCOME FROM HOUSE PR OPERTY. M/S BHANSALI CONSTRUCTION & FINANCE ITA NO.576/MUM/2011 4 2.5. THE ASSESSEE CONTESTED THE MATTER BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS), WHEREIN, THE DETAILED SUBMISSION WERE MADE AND DETAILS AND EVIDENCES OF MAINTENANCE CHARGES RECEIVED AND PAID BY THE ASSESS EE WERE SUBMITTED TO HIM. THE ASSESSEE ALSO SUBMITTED COPY OF RENTAL AGREEMENT WITH BOTH THE TENANTS AND SUBMITTED THAT THE ADDITION MADE BY THE ASSESSING OFFICER WAS CONTRARY TO LAW AND FACTS. BUT, LD. COMMISSIONER OF INCOME TAX (APPEALS ) WAS NOT SATISFIED AND CONVINCED WITH THE ARGUMENTS OF THE A SSESSEE COMPANY AND THEREFORE, THE ADDITION MADE BY THE ASS ESSING OFFICER WAS CONFIRMED. THE LD. COMMISSIONER OF INCO ME TAX (APPEALS) ALSO REJECTED THE ALTERNATIVE PLEA OF THE ASSESSEE THAT, IF THE MAINTENANCE CHARGES WERE TO BE TAXED SEPARAT ELY, IN THAT CASE, THE SAME WAS ASSESSABLE UNDER THE HEAD INCOME FROM OTHER SOURCES AND AGAINST THIS, PAYMENT MADE TO M/S TAMILNADU REAL ESTATE PVT. LTD. ON ACCOUNT OF MAINT ENANCE CHARGED PAID BY THE ASSESSEE SHOULD ALSO BE ALLOWED AS DEDUCTION U/S 57(III) OF THE INCOME TAX ACT, 1961. THE COMMISSIONER OF INCOME TAX (APPEALS) WAS NOT CONVIN CED WITH THIS ARGUMENT OF THE ASSESSEE COMPANY ALSO AND IT W AS HELD BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS) THAT I NCOME TAX ACT PROVIDES DEDUCTION TO THE EXTENT OF 30% OUT OF SUCH RENTAL RECEIPT FOR VARIOUS EXPENSES WHICH INCLUDES EXPENSE S ON ACCOUNT OF REPAIRS AND MAINTENANCE. AS PER THE LD. COMMISSIONER OF INCOME TAX (APPEALS), THIS DEDUCTIO N OF 30% IN ITSELF HAS THE ELEMENT OF EXPENDITURE ON ACCOUNT OF MAINTENANCE. CONSEQUENTLY, IT WAS HELD BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS) THAT THE ASSES SING M/S BHANSALI CONSTRUCTION & FINANCE ITA NO.576/MUM/2011 5 OFFICER WAS RIGHT IN TAXING THE RECEIPT AS RENTAL I NCOME AND NOT ACCEPTING THE ASSESSEES PLEA TO TREAT IT AS INCOME FROM OTHER SOURCES AND ALLOWING THE RELATED EXPENSES AGAINST S UCH INCOME FROM OTHER SOURCES. 2.6. BEFORE US, THE LD. COUNSEL HAS ARGUED THAT TH E ACTION OF THE LD. ASSESSING OFFICER WAS UNFAIR AND UNJUSTI FIED IN TREATING THE AMOUNT OF MAINTENANCE CHARGES RECEIVED AS PART OF RENTAL INCOME. IT WAS FURTHER SUBMITTED THAT IN AN Y CASE, THE ACTION OF THE LOWER AUTHORITIES WAS HIGHLY UNJUSTIF IED IN NOT GIVING THE BENEFIT OF DEDUCTION OF PAYMENT MADE BY THE ASSESSEE ON ACCOUNT OF MAINTENANCE CHARGES. IT WAS SUBMITTED THAT THE ASSESSEE HAS MADE PAYMENT OF NET EXCESS OF RS.9,49,499/- FOR WHICH ASSESSEE SHOULD HAVE BEEN A LLOWED BENEFIT OF SET OFF AGAINST THE RENTAL INCOME. AS A GAINST THIS, THE ASSESSEE HAS BEEN MADE TO PAY TAX ON THE AMOUNT OF RS.3,75,280/-, WHICH WAS NOT THE INCOME OF THE ASSE SSEE AT ALL. THE AMOUNT OF MAINTENANCE CHARGES WERE RECEIVED BY THE ASSESSEE IN FIDUCIARY CAPACITY, ON BEHALF OF THE M/ S TAMILNADU REAL ESTATE PVT. LTD.. THUS, NOTHING SHOULD HAVE B EEN BROUGHT TO TAX IN THE HANDS OF THE ASSESSEE UNDER THIS HEAD . THE LD. COUNSEL RELIED UPON THE JUDGMENT OF HONBLE DELHI H IGH COURT IN THE CASE OF CIT VS R.J. WOOD P. LTD. 334 ITR 358 (DELHI) IN SUPPORT OF HIS CLAIM. ON THE OTHER HAND, THE LD. D R SUPPORTED THE ORDER OF THE LOWER AUTHORITIES AND SUBMITTED TH AT THE ASSESSMENT HAS BEEN MADE BY THE ASSESSING OFFICER I N ACCORDANCE WITH THE SCHEME OF THE ACT WITH REGARD T O TAXABILITY OF RENTAL INCOME UNDER THE HEAD INCOME FORM HOUSE P ROPERTY. IT M/S BHANSALI CONSTRUCTION & FINANCE ITA NO.576/MUM/2011 6 WAS SUBMITTED THAT SINCE THERE IS CONCEPT OF STANDA RD DEDUCTION OF 30%, THE ASSESSEE WAS NOT ELIGIBLE FOR ANY MORE DEDUCTION ON ACCOUNT OF MAINTENANCE CHARGES. HE REQ UESTED FOR UPHOLDING THE ORDERS OF THE LOWER AUTHORITIES. 2.7. WE HAVE HEARD BOTH THE SIDES VERY CAREFULLY A ND GONE THROUGH THE MATERIAL PLACED BEFORE US. IT IS NOTED FROM THE COPIES OF AGREEMENT OF THE ASSESSEE WITH THE TENANT S THAT THERE IS SEPARATE CLAUSE FOR PAYMENT OF MAINTENANCE CHARG ES BY THE TENANTS TO THE ASSESSEE. FOR THE SAKE OF READY REFE RENCE THIS CLAUSE IS REPRODUCED HEREUNDER:- THE TENANT HEREBY COVENANTS AND UNDERTAKES TO PAY MAINTENANCE CHARGES AT RS.5 PER SQUARE FEET PER MON TH FOR USE OF ALL COMMON FACILITIES (I.E.) SECURITY, C LEANING, COMMON LIGHTING, GENERATOR SET, LANDSCAPING, FIRE FIGHTING, LIFT MAINTENANCE, WATER SUPPLY AND OTHER UTILITIES ETC. IT IS UNDERSTOOD BY THE TENANT THAT THE ABOVE DOES INCLUDE WATER CHARGES, IF ANY, PAYABLE T O THE BOARD DIRECTLY/LANDLORD/ MAINTENANCE COMPANY, WHICH THE TENANT, UNLESS VALIDLY DISPUTED CONVENANT S AND UNDERTAKES TO PAY WITHOUT ANY DEFAULT. 2.8. A PERUSAL OF ABOVE CLAUSE CLARIFIES THAT TH E MAINTENANCE CHARGES ARE DIFFERENT FROM THE NATURE O F RENT. THESE CHARGES ARE NOT PAID FOR THE USERS OF THE PRO PERTY AS SUCH. THESE CHARGES HAVE BEEN PAID FOR MAKING SOME EXTRA USE OF THE PROPERTY, THE MAINTENANCE CHARGES ARE NOT IN THE NATURE OF THE RENT SIMPLICITOR. THESE HAVE BEEN CALLED MAI NTENANCE CHARGES BUT THESE ARE FOR THE EXTRA FACILITIES ENJO YED BY THE M/S BHANSALI CONSTRUCTION & FINANCE ITA NO.576/MUM/2011 7 TENANTS. THESE CANNOT BE SAID TO BE NECESSARILY IN TEGRAL PART OF THE RENTAL INCOME. IN OUR VIEW, THESE ARE APPARENT LY, OVER AND ABOVE, THE RENTAL INCOME EARNED BY THE ASSESSEE COM PANY, THEREFORE, IN OUR CONSIDERED VIEW, THIS INCOME CANN OT BE CLUBBED WITH THE RENTAL INCOME. THERE CAN BE DIFFER ENT TYPES OF ARRANGEMENTS BY THE LAND LORDS WITH DIFFERENT TENAN TS. THEREFORE, PRESUMING THAT THIS KIND OF CHARGES, FOR M PART OF THE RENTAL INCOME, IN THE GIVEN FACTS OF THE CASE, WOUL D NOT BE FAIR AND JUSTIFIED, IN OUR CONSIDERED VIEW. ACCORDINGLY, IT IS HELD THAT THESE MAINTENANCE CHARGES ARE NOT PART OF THE RENTA L INCOME AND THEREFORE AMOUNT OF MAINTENANCE CHARGES, RECEIV ED BY THE ASSESSEE, IN THESE FACTS AND CIRCUMSTANCES OF THE CASE IS NOT PART OF THE RENTAL INCOME. 2.9. THIS ISSUE HAS BEEN FURTHER EXAMINED BY THE U S WITH REGARD TO TAXABILITY OF THE THESE CHARGES IN THE HA NDS OF THE ASSESSEE COMPANY. IN OUR VIEW, SINCE THESE CHARGES SHOULD NOT BE CLUBBED WITH THE RENTAL INCOME, THEREFORE, THESE CHARGES CANNOT BE BROUGHT TO TAX UNDER THE HEAD INCOME FRO M HOUSE PROPERTY, IN THE GIVEN FACT AND CIRCUMSTANCES. IN OUR VIEW, THESE CHARGES SHOULD BE BROUGHT TO TAX UNDER THE HE AD INCOME FROM OTHER SOURCES. ACCORDINGLY, THE ASSESSEE SHO ULD BE ELIGIBLE TO MAKE CLAIM OF THE EXPENSES ALSO, WHICH HAVE BEEN INCURRED FOR EARNING THIS INCOME. THEREFORE, WE HO LD THAT THE AMOUNT RECEIVED BY THE ASSESSEE ON ACCOUNT OF MAINT ENANCE CHARGES AMOUNTING TO RS.3,75,280/- WOULD BE TAXABLE UNDER THE HEAD INCOME FROM OTHER SOURCES AND ASSESSEE WIL L BE M/S BHANSALI CONSTRUCTION & FINANCE ITA NO.576/MUM/2011 8 ELIGIBLE TO MAKE CLAIM OF THE PAYMENT MADE UNDER TH IS HEAD TO M/S TAMILNADU REAL ESTATE PVT. LTD. WE DIRECT ACCOR DINGLY. 2.10. AS A RESULT, APPEAL OF THE ASSESSEE IS PARTL Y ALLOWED. ORDER WAS PRONOUNCED IN ON 30./09/2015. SD/- SD/- ( AMIT SHUKLA ) ( ASHWANI TANEJA ) '# / JUDICIAL MEMBER $# / ACCOUNTANT MEMBER ! MUMBAI; & DATED :30/09/2015 SK P.S/. .. %'&'()(*& / COPY OF THE ORDER FORWARDED TO : 1. ( )* / THE APPELLANT 2. +,)* / THE RESPONDENT. 3. ( ( ) / THE CIT, MUMBAI. 4. / CIT(A)- , MUMBAI 5. / 0 1+2 , ( #23 , ! / DR, ITAT, MUMBAI 6. 1 45 ! / GUARD FILE. / BY ORDER, , /(+ //TRUE COPY// / (DY./ASSTT. REGISTRAR) , ! / ITAT, MUMBAI