H5 ASIA PACIFIC P. LTD, MUMBAI V. ITO RG 8(2)(1), MUMBAI

ITA 5836/MUM/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 4048 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-04-2016
• Appeal Filed By: Assessee
• Bench Allotted: H
• Assessment Year: 2010-2011
• Appeal Filed On: 17-09-2014
• Court: TRIBUNAL
• Assessee Lawyers: KADAMBARI DAVE; GIRISH DAVA
• Keywords: Business income; Depreciation; Opportunity of being heard
• Section: 56; 28; 10

Judgement Text

IN THE INCO ME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER I.T.A. NO. 5836/M/2014 (ASSESSMENT YEAR: 2010 - 2011 ) I.T.A. NO.5837/M/2014 (ASSESSMENT YEAR: 2011 - 2012 ) H5 ASIA PACIFIC PRIVATE LIMITED, 5 TH FLOOR, SATELLITE SILVER, ANDHERI KURLA ROAD, MAROL NAKA, ANDHERI (E), MUMBAI - 59. / VS. ITO - RANGE - 8(2)(1), R.NO.212, 2 ND FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. ./ PAN : AABCH7204B ( / APPELLANT) .. ( / RESPONDENT ) / APPELLANT BY : SHRI GIRISH DAVA & KADAMBARI DAVE / RESPONDENT BY : SHRI RAJENDRA CHANDEKAR, DR / DATE OF HEARING : 20.04.2016 / DATE OF PRONOUNCEMENT : 20.04.2016 / O R D E R PER D. KARUNAKARA RAO, AM: THERE ARE TWO APPEALS UNDER CONSIDERATION AND THEY ARE FILED BY THE ASSESSEE. THE ISSUE IS IDENTICAL IN BOTH APPEALS. FOR THE SAKE OF CONVENIENCE AND COMPLETENESS OF THIS ORDER , WE EXTRACT THE GROUNDS OF APPEALS FILED FOR THE ASSESSMENT YEAR 2010 - 11 AND SAME READ AS UN DER: - 1. THE CIT (A) ERRED IN CONFIRMING THE ACTION OF THE AO IN TREATING THE INCOME OF RS. 9, 66 , 577 / - FROM SUB - LETTING OF PROPERTY AS INCOME FROM OTHER SOURCES AS AGAINST BUSINESS INCOME AS CLAIMED BY THE APPELLANT. 2 WITHOUT PREJUDICE TO THE ABOVE, THE CIT (A) ERRED IN CONFIRMING THE ACTION OF THE AO OF NOT ALLOWING THE CORRESPONDING RENT EXPENDITURE INCURRED BY THE APPELLANT ON THE SUB - LEASED PRE MISES AS DEDUCTIO N UNDER SECTION 57(III) OF THE A CT. 3. THE CIT (A) ERRED IN CO NFIRMING THE ACTION OF THE AO IN RE DUCING THE D EDUCTION UNDER SECTION 10 A PROPORTIONATELY. 4. THE CIT (A) ERRED IN NOT DECIDING THE GROUND OF APPEAL FILED BY THE APPELLANT RELATING TO NON - GRANTING OF CR EDIT FOR ADVANCE TAX PAID OF RS. 4 , 486/ - . 2 2. A T THE OUTSET, LD COUNSEL FOR THE ASSESSEE MENTIONED THAT THE ASSESSMENT O F THE SUB - LEASE RENTAL INCOME EARNED FROM THE SUB - LICENSEE UNDER PROPER HEAD OF INCOME IS THE ISSUE RAISED IN THE GROUND NO.1 ABOVE. T HE ADJUDICATION OF GROUND 2 IS NECESSARY IF THE GROU ND NO.1 A BOVE IS NOT DECIDED IN FA VOUR OF THE ASSESSEE. OTHERWISE, THE ADJUDICATION OF GROUND NO.3 BECOMES AN ACADEMIC SIGNIFICANCE. REGARDING GROUND NO. 4, LD COUNSEL FOR THE ASSESSEE MENTIONED TH AT THIS GROUND, RELATING TO NON - GRANTING OF CREDIT TO THE ADVANCE TAX PAYMENT, WAS NOT DECIDED BY THE CIT (A) . IT IS THE LD COUNSEL S PLAYER THAT THIS ISSUE NEEDS TO BE REMANDED WITH THE DIRECTION TO THE CIT (A) TO ADJUDICATE THE SAME AFTER GRANTING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASS ESSEE. 3. BRIEFLY STATED RELEVANT FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF COMPUTER SOFTWARE & IT ENABLED S ERVICES . ASSESSEE IS ELIGIBLE FOR CLAIM OF EXEMPTION UNDER SECTION 10A OF THE ACT. ASSESSEE RENTED A BUILDING (1+4 FL OORS) FOR BUSINESS PURPOSES AS PER THE AGREEMENT, TH E COPY OF WHICH IS PLACED AT PAG E 29 - 52 OF THE ASSESSEES PAPER BOOK. SUBSEQUENTLY , ON 16/2/ 20 10, ASSESSEE SUB - LICENSED THE 4 TH FLOOR OF THE SAID BUILDING FOR EARNING RECEIPTS TO MEET OUT THE FINANCIAL DI FFICULTIES. THE SUB - LICENSING WAS IN FORCE AS PER THE SUB - LICENSE AGREEMENT , AND THE COPY OF THE SAME IS PLACED AT PAG E S 53 - 76 OF THE ASSESSEES PAPER BOOK. IN T HE RETURN OF INCOME , ASSESSEE OFFERED THE SAID THE RECEIPTS OUT OF SUB - LICENSING AGREEMENT AS INCOME FROM BUSINESS . FURTHER , ASSESSEE INCLUDED THE SAID INCOME AS AN ELIGIBLE INCOME FOR THE PURPOSE OF CLAIM OF EXEMPTION U/S 10A O F THE ACT. 4. ON THIS ISSUE OF PROPER HEAD OF INCOME FOR TAXING SUCH RENTAL RECEIPTS AS WELL AS ALLOWABILITY OF SUCH INCOME FOR CLAIMING DEDUCTION U/S 10 A OF THE A CT, LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT AN IDENTICAL ISSUE C AME UP FOR ADJUDICATION BY THE ITAT, MUMBAI B ENCH IN T HE CASE OF WNS GLOBAL SERVICES PVT. LTD (I TA NO . 795/M/2006 AND TWO OTHERS FOR ASS ESSMENT YEARS 2001 - 02 TO 2003 - 04) , DATED 18 TH MARCH , 201 1. IN THIS REGARD, HE BROUGHT OUR ATTENTION TO PARAGRAPH 19 OF THE SAID ORDER OF THE TRIBUNAL (SUPRA) AND READ OUT THE SAME . FURTHER , HE SUBMITTED THAT THE FACTS OF THE SAID CASE ARE AKIN TO THAT OF T HE PRESENT CASE UNDER CONSIDERATION. HE FAIRLY MENTIONED THAT THE ONLY 3 DIFFERENCE IS THAT THE SAID THE RENTAL RECEIPTS WERE NOT CONSIDERED ELIGIBLE FOR THE PURPOSE OF EXEMPTION U/S 10A ACT. FURTHER ALSO, HE SUBMITTED THE TRIBUNAL MAY CONSIDER GIVING SIMILA R DIRECTIONS TO THE ASSESSING OFFICER TO DECIDE THE ISSUE IN T UNE WITH THE RATIO LAID DOWN BY THE T RIBUNAL IN THE SAID CASE (SUPRA) . HE CONVEYED NO OBJECTION FOR TAXING SUCH RENTAL RECEIPTS AS INELIGIBLE BUSINESS RECEIPTS SO FAR AS THE CLAIM OF EXEMPTI ON U/S 10A OF THE ACT, IS CONCERNED. 5. ON THE OTHER HAND, LD DR FOR THE REVENUE RELIED DUTIFULLY ON THE OR DER S OF THE AO AND THE CIT (A). IT IS NOT KNOWN AS TO WHY THIS ORDER WHICH WAS IN EXISTENCE AT THE RELEVANT POINT OF TIME, WAS NOT FILED BY THE ASSESSEE BEFORE THE CIT (A) . IT IS THE SUBMISSION OF THE LD DR THAT THE RENTAL INCOME WAS PROPERLY TAXED BY THE ASSESSING OFFICER UNDER THE HEAD INCOME FROM OTHER SOURCES. 6. WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE OF PROPER HEAD OF INCOME FOR TAXI NG THE RENTAL RECEIPTS AND ALSO PERUSED THE RELEVANT PAPERS PLACED BEFORE US AS WELL AS THE ABOVE MENTIONED ORDER OF THE TRIBUNAL (SUPRA). AFTER HEARING BOTH THE PARTIES, WE FIND, THE SOLITARY ISSUE FOR TAXING SUCH RENTAL RECEIPTS RELATES TO SELECTION OF PROPER HEAD OF INCOME WHILE THE ASSESSEE TREATED THE SAME AS BUSINESS INCOME , THE AO IS OF THE OPINION THAT THE INCOME IS REQUIRED TO BE TAXED UNDER THE HEAD INCOME FROM OTHER SOURCES. WE HAVE ALSO CONSIDERED THE LD COUNSELS PRAYER FOR DECIDING THIS ISSUE IN TUNE WITH THE RATIO LAID DOWN BY THE COORDINATE BENCH IN THE CASE OF WNS GLOBAL SERVICES PVT LTD (SUPRA). FOR THE SAKE OF COMPLETENESS OF THIS ORDER, WE FIND IT RELEVANT TO EXTRACT PARA 19 OF THE SAID TRIBUNALS ORDER DATED 18.3.2011 (SUPRA) AND THE SAME IS EXTRACTED AS UNDER: - 19. INCOME FROM LEASE OF PROPERTY BY AN OWNER OF THE PROP ERTY IS ASSESSABLE UNDER THE HEAD INCOME FROM BUSINESS VIRTUE OF THE P ROVISIONS OF SECTION 22 OF THE A CT. WHERE IT IS A COMPOSITE LEASE OF FACTORY, IT WOULD BE AS SESSA BLE AS INCOME FROM OTHER SOURCES UNDER SECTI ON 56 (2)(II) AND (III) OF THE A CT, PROVIDED IT IS NOT ACCESSIBLE AS INCOME FROM BUSINESS. THE CLASSIFICATION OF INCOME UNDER ANY OF THE THREE HEADS OF INCOME WOULD DECIDE THE DEDUCTIONS THAT THE ASSESSE E WOULD BE ALLOWED WHILE COMPUTING INCOME FROM SUB - LETTING BY THE ASSESSEE. IN THIS CASE , THE HEAD OF INCOME FROM HOUSE PROPERTY IS RULED OUT BECAUSE THE ASSESSEE IS NOT THE OWNER OF THE PROPERTY AND HE HIMSELF IS A LESSEE . THE QUESTION IS ONLY AS TO WHETHER THE INCOME IS TO BE ASSESSED UNDER H E AD INCOME FROM OTHER SOURCES OR INCOME FROM BUSINESS . IF INCOME IN QUESTION IS ASSESSED AS INCOME FROM OTHER SOURCES , THE ASSESSEE WILL GET DEDUCTION IN ACC ORDANCE WITH SECTION 57 OF THE A CT, WHICH 4 WOULD INC LUDE ALSO DEPRECIATION. IF IT IS TREATED AS INCOME FROM BUSINESS, THE ASSESSEE WOULD GET DEDUCTION IN ACCORDANCE WITH T HE PROVISIONS OF SECTION 28 TO 44 OF THE A CT. THE PARAMETERS FOR ALLOWING DED UCTIONS UNDER SECTION 57 OF THE A CT, IS CIRCUMSCRIBED BY THE REQUIREMENT OF THE EXPEND ITURE HAVING BEEN INCURRED TO EARN THE INCOME WHICH IS SOUGHT TO BE TAXED. IF IT IS TREATED AS INCOME FROM BUSINESS, THE CRITERIA FOLLOWING DEDUCTION, IS THAT EXPENDITURE IS INCURRED FOR THE PURPOSE OF BUSINESS, WHICH IS BROADER I N SCOPE AND ENCOMPASSES ALL EXPENDITURE WHICH IN THE OPINION OF THE ASSESSEE IS FOR PURPOSE OF BUSINESS. 7. WE HAVE ALSO CONSIDERED THE CONCESSION GIVEN BY THE ASSESSEE WITH REGARD TO EXCLUSION OF THE RECEIPTS FOR COMPUTING ALLOWABLE EXEMPTION U/S 10A OF THE ACT IN RESPECT OF SUCH SUB - RENTAL RECEIPTS. AFTER HEARING BOTH THE PARTIES, WE ARE OF THE OPINION THAT A DIRECTION IS REQUIRED TO BE GIVEN TO THE ASSESSING OFFICER TO COMPLY WITH THE RATIO LAID DOWN BY THE TR IBUNAL ALREADY ON SUCH ISSUE. WE ARE SATI SFIED THAT SUCH RENTAL RECEIPTS ARE REQUIRED TO BE CONSIDERED AS BUSINESS INCOME AND NOT THE INCOME FROM OTHER SOURCES . HOWEVER, CONSIDERING THE FAIR SUBMISSION OF SHRI GIRISH DAVE, WE DIRECT THE ASSESSING OFFICER TO EXCLUDE SUCH RENTAL RECEIPTS AS EL IGIBLE INCOME FOR THE PURPOSE OF EXEMPTION U/S 10A OF THE ACT AND TAX THE NET INCOME AFTER REDUCING THE RELATABLE EXPENSES INCURRED FOR EARNING OF SAID SUB - LEASED INCOME . AO IS DIRECTED TO GRANT A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AND DECIDE THE ISSUE IN TUNE WITH THE RATIO LAID DOWN IN THE SAID ORDER OF THE TRIBUNAL (SUPRA). ACCORDINGLY, THIS ISSUE RAISED BY THE ASSESSEE IN BOTH THE APPEALS IS ALLOWED FOR STATISTICAL PURPOSES. AO SHALL PASS THE RELEVANT ORDERS AND FINALISE THE SAME IN A TIME BOUND MANNER. ACCORDINGLY, THE ISSUE RAISED IN GROUND NO.1 IS DECIDED PROTANTO . 8. CONSIDERING OUR DECISION ON GROUND NO.1, IN OUR OPINION, THE ADJUDICATION OF GROUND NOS. 2 AND 3 BECOMES AN ACADEMIC EXERCISE. ACCORDINGLY, THE SAID GROUNDS ARE DISMISSED AS ACADEMIC . 9. GROUND NO.4 RELATES TO THE FAILURE OF THE CIT (A) IN ADJUDICATION OF THE GRIEVANCE OF THE ASSESSEE RELATION TO TDS CERTIFICATES. CONSIDERING THE ADMITTED POSITION OF BOTH THE PARTIES, WE REMAND THIS GROUND TO THE FILE OF THE AO FO R APPROPRIATE DECISION ON THE MATTER. ACCORDINGLY, GROUND NO.4 IS ALSO ALLOWED FOR STATISTICAL PURPOSES . 10. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. 5 ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH APRIL, 201 6. S D / - S D / - ( AMIT SHUKLA ) (D. KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; 20.4 .2016 . . ./ OKK , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI