DCIT CIR. 13(2)(2), MUMBAI V. SHARAN HOSPITALITY PVT. LTD., MUMBAI

ITA 5867/MUM/2016

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 3439 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-10-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Assessment Year: 2012-2013
• Appeal Filed On: 03-10-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIDISHA KALRA
• Assessee Lawyers: P RIYANKA JAIN; BHAVIK DE SAI
• Keywords: Earning of tax free income; Revised return; Rule 8D
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES G, MUMBAI BEFORE S/SHRI SAKTIJIT DEY, JUDICIAL MEMBER & N K PRADHAN, ACCOUNTANT MEMBER ITA NO.5867/MUM/2016 ASSESSMENT YEAR 2012-13 DEPUTY CIT 13(2)(2), MUMBAI. VS. M/S. SHARAN HOSPITALITY PVT LTD., GR. FLOOR, GYS INFINITY, PARANJPE B SCHEME, SUBHASH ROAD, VILE PARLE (E), MUMBAI 400 057. PAN AAGCS8608F (APPELLANT) (RESPONDENT) APPELLANT BY : MS. VIDISHA KALRA RESPONDENT BY : MS. PRIYANKA JAIN & SHRI BHAVIK DE SAI. DATE OF HEARING : 0 5 .0 8 .201 9 DATE OF PRONOUNCEMENT : 11 . 10 .2019 O R D E R PER SAKTIJIT DEY, JUDICIAL MEMBER: THIS IS AN APPEAL BY THE REVENUE AGAINST ORDER, DA TED 18.07.2016, OF LEARNED CIT(A)-123 MUMBAI, FOR THE ASSESSMENT YEAR 2012-13. 2. VIDE GROUND NO.1 REVENUE HAS ASSAILED THE DECISI ON OF CIT(A) IN ACCEPTING ASSESSEES CLAIM THAT THE MAINTENANCE INC OME RECEIVED BY THE ASSESSEE SHOULD BE TREATED AS INCOME UNDER THE HEAD BUSINESS AND PROFESSION. BRIEFLY, THE FACTS ARE THE ASSESSEE C OMPANY, AS STATED BY THE ASSESSING OFFICER, IS ENGAGED IN THE BUSINESS OF RU NNING IMMOVABLE PROPERTY AND PROVIDING AMENITIES & MAINTENANCE SERVICES. FO R THE ASSESSMENT YEAR UNDER DISPUTE, ASSESSEE FILED ITS RETURN OF INCOME ON 30.05.2012 DECLARING ITA NO.5867/MUM/2016 SHARAN HOSPITALITY PVT. LTD. 2 LOSS OF RS 123,38,13,051/-. SUBSEQUENTLY, ASSESSEE FILED REVISED RETURN OF INCOME ON 25.03.2013. DURING THE ASSESSMENT PROCEE DINGS THE ASSESSING OFFICER NOTICED THAT, THOUGH, ASSESSEE HAD RECEIVED INCOME FROM LETTING OUT PROPERTY, HOWEVER, HE HAS OFFERED INCOME RECEIVED T HEREFROM UNDER TWO HEADS I.E. RENTAL INCOME AND MAINTENANCE INCOME. W HILE THE RENTAL INCOME WAS OFFERED UNDER THE HEAD INCOME FROM HOUSE PROPE RTY, MAINTENANCE INCOME WAS SHOWN UNDER THE HEAD BUSINESS AND PROFE SSION. HE, THEREFORE, CALLED UPON THE ASSESSEE TO EXPLAIN WHY MAINTENANCE INCOME SHOULD NOT BE TREATED AS INCOME FROM HOUSE PROPERTY. FURTHER, HE OBSERVED, IN THE PRECEDING ASSESSMENT YEARS THE ASSESSING OFFICER HA S TREATED THE MAINTENANCE INCOME AS INCOME FROM HOUSE PROPERTY. ALLEGING THAT THE ASSESSEE COULD NOT OFFER ANY SATISFACTORY REPLY TO THE QUERY RAISED BY HIM; TO MAINTAIN CONSISTENCY HE TREATED THE MAINTENANCE INC OME OF RS 9,10,53,272/- AS INCOME FROM HOUSE PROPERTY. BEING AGGRIEVED W ITH THE AFORESAID DECISION OF THE ASSESSING OFFICER, ASSESSEE PREFERR ED APPEAL BEFORE LEARNED CIT(A). 3. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSE E IN THE CONTEXT OF FACTS AND MATERIALS ON RECORD, LEARNED CIT(A) FOUND THAT THE MAINTENANCE INCOME RECEIVED BY THE ASSESSEE IS IN RESPECT OF SE RVICING AND MAINTENANCE OF LIFT, HIGH END AIR CONDITIONING MAINTENANCE, FAADE CLEARING SYSTEM MAINTENANCE, WATER AND FIRE PUMPS MAINTENANCE, SERV ICES OF HOUSEKEEPING, MAINTENANCE OF SANITARY INSTALLATIONS, WALLS, FLOOR ING, PAINT, ELECTRICAL INSTALLATIONS INCLUDING FRIDGE, COOKING RANGE, GEYS ERS, SERVICE OF EXTERNAL SECURITY, EXTERNAL PAINTING OF LICENSED PREMISES, E XTERNAL CLEARING OF THE LICENSED PREMISES ETC. FURTHER, HE FOUND THAT SIMI LAR TREATMENT GIVEN BY THE ASSESSEE TO MAINTENANCE INCOME IN A.Y. 2009-10 AND 2010-11 WAS ACCEPTED BY THE ASSESSING OFFICER IN SCRUTINY ASSESSMENT. C ONSIDERING THE ABOVE, LEARNED CIT(A) ACCEPTED ASSESSEES CLAIM OF MAINTEN ANCE INCOME AS INCOME FROM BUSINESS AND PROFESSION. ITA NO.5867/MUM/2016 SHARAN HOSPITALITY PVT. LTD. 3 4. THE LEARNED DR STRONGLY RELYING ON THE OBSERVATI ONS OF THE ASSESSING OFFICER SUBMITTED, THE MAINTENANCE INCOME HAVING BE EN DERIVED FROM THE LETTING OUT OF THE PREMISES AS A WHOLE IS PART OF R ENTAL INCOME RECEIVED. HENCE, SHOULD BE ASSESSED AS INCOME FROM HOUSE PRO PERTY. FURTHER, HE SUBMITTED, IN A.Y. 2013-14, THOUGH THE ASSESSING OF FICER HAD MADE SIMILAR DISALLOWANCE THE ASSESSEE HAS NOT CONTESTED IT. TH EREFORE, HE SUBMITTED THE DECISION OF THE ASSESSING OFFICER ON THE ISSUE SHOU LD BE UPHELD. 5. THE LEARNED AR SUBMITTED, THE MAINTENANCE INCOME RECEIVED BY THE ASSESSEE IS IN NO WAY CONNECTED TO THE RENTAL INCOM E FROM LETTING OUT OF THE HOUSE PROPERTY. SHE SUBMITTED, IN TERMS OF A SEPARA TE AGREEMENT ENTERED WITH THE LESSEES, THE ASSESSEE AGREED TO PROVIDE CE RTAIN MAINTENANCE SERVICES WHICH IS NOT PART OF THE LETTING OUT OF THE PROPERT Y. SHE SUBMITTED, SINCE THE RENDERING OF MAINTENANCE SERVICES IS A COMPLETELY S EPARATE AND DISTINCT ACTIVITY OF THE ASSESSEE, THE INCOME RECEIVED THERE FROM CANNOT BE TREATED AS PART OF RENTAL INCOME. FURTHER, SHE SUBMITTED, IN THE PAST AS WELL AS SUBSEQUENT ASSESSMENT YEARS, EXCEPT THE IMPUGNED AS SESSMENT YEAR, THE ASSESSING OFFICER HAD ACCEPTED ASSESSEES CLAIM OF MAINTENANCE INCOME AS INCOME FROM BUSINESS AND PROFESSION. SHE SUBMITTE D, SINCE IN A.Y. 2013- 14, THERE WAS NO REVENUE IMPLICATION ON ACCOUNT OF CHANGE OF HEAD OF MAINTENANCE INCOME, ASSESSEE DID NOT CONTEST IT IN THE APPEAL PREFERRED BEFORE CIT(A). SHE SUBMITTED, IN A.Y. 2014-15, THE ASSESSING OFFICER HAS ACCEPTED THE MAINTENANCE INCOME AS INCOME FROM BUS INESS AND PROFESSION. IN SUPPORT OF HER SUBMISSIONS, LEARNED AR RELIED UP ON THE FOLLOWING DECISIONS: KARNANI PROPERTIES LTD VS. CIT 82 ITR 547 (SC) CIT VS. ASSOCIATED BUILDING CO. LTD. 10 TAXMAN 14 ( BOM) CIT VS. RUNWAL DEVELOPERS PVT. LTD. 15 TAXMANN.COM 196 (BOM) CIT VS. K L PURI (HUF) 233 ITR 43 (DEL) ATTUKAL SHOPPING COMPLEX PVT LTD VS. CIT 125 TAXMAN 881 (KER) CIT VS. SHANKARANARAYANA HOTELS PVT. LTD. 67 TAXMAN 520 (KAR) CIT VS. SARABHAI PVT. LTD. 129 TAXMAN 43 (GUJ) ITA NO.5867/MUM/2016 SHARAN HOSPITALITY PVT. LTD. 4 KAVITA MARKETING PVT. LTD. VS. ITO 70 TAXMANN.COM 3 91 (MUM. TRIBUNAL) 6. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE FACTUAL MATRIX OF THE ISS UE REVEALS THAT THE ASSESSEE HAD ENTERED INTO TWO SEPARATE AGREEMENTS VIZ., ONE FOR LETTING OUT THE PROPERTIES AND ONE FOR RENDERING CERTAIN MAINTENANC E SERVICES. THE MAINTENANCE SERVICES RENDERED BY THE ASSESSEE INCLU DES SERVICING AND MAINTENANCE OF LIFT, HIGH END AIR CONDITIONING MAIN TENANCE, FAADE CLEARING SYSTEM MAINTENANCE, WATER AND FIRE PUMPS MAINTENANC E, SERVICES OF HOUSEKEEPING, MAINTENANCE OF SANITARY INSTALLATIONS , WALLS, FLOORING, PAINT, ELECTRICAL INSTALLATIONS INCLUDING FRIDGE, COOKING RANGE, GEYSERS, SERVICE OF EXTERNAL SECURITY, EXTERNAL PAINTING OF LICENSED PR EMISES, EXTERNAL CLEARING OF THE LICENSED PREMISES ETC. AS COULD BE SEEN FROM T HE NATURE OF MAINTENANCE SERVICES PROVIDED BY THE ASSESSEE, THEY CANNOT BE P ART OF STANDARD INCOME RECEIVED FROM LETTING OUT A PROPERTY. GENERALLY, W HILE LETTING OUT A PROPERTY, THE HOUSE OWNER IS NOT REQUIRED TO PROVIDE THESE SE RVICES. THE ASSESSEE HAS PROVIDED THE AFORESAID SERVICES IN ADDITION TO HIS ACTIVITY OF LETTING OUT THE PROPERTY. IT COULD BE A FACT THAT THE AFORESAID SE RVICES WERE PROVIDED TO THE LESSOR/TENANTS ON THEIR SPECIFIC REQUEST AS THE ASS ESSEE IS NOT REQUIRED TO PROVIDE SUCH SERVICES, AND THE TENANTS CAN INDEPEND ENTLY GET IT DONE FROM OTHERS. THAT BEING THE CASE, IN OUR CONSIDERED OPI NION, THE INCOME RECEIVED FROM MAINTENANCE SERVICES CANNOT BE TREATED AS PART OF TOTAL INCOME AS THE ASSESSEE HAS UNDERTAKEN SUCH SERVICES AS AN INDEPEN DENT ACTIVITY. MOREOVER, IT IS EVIDENT, IN A.YS. 2009-10 AND 2010-11 AS WELL AS IN A.Y. 2014-15, THE ASSESSING OFFICER HAS ACCEPTED ASSESSEES CLAIM THA T MAINTENANCE INCOME HAS TO BE ASSESSED AS INCOME FROM BUSINESS AND PROFESS ION. FURTHER, THE DECISIONS RELIED UPON BY THE LEARNED AR ALSO PERSUA DE US TO CONCLUDE THAT MAINTENANCE INCOME RECEIVED BY THE ASSESSEE CANNOT BE TREATED AS PART OF RENTAL INCOME SO AS TO ASSESS IT AS INCOME FROM HO USE PROPERTY. THEREFORE, ON OVERALL CONSIDERATION OF FACTS, CIRCU MSTANCES, MATERIALS ON ITA NO.5867/MUM/2016 SHARAN HOSPITALITY PVT. LTD. 5 RECORD AND KEEPING IN VIEW THE RATIO OF DECISIONS C ITED ABOVE, WE UPHOLD THE DECISION OF LEARNED CIT(A) ON THE ISSUE. GROUND NO. 1 IS DISMISSED. 7. VIDE GROUND NO.2, REVENUE IS CHALLENGING DELETIO N OF DISALLOWANCE OF EXPENDITURE MADE U/S. 14A READ WITH RULE 8D AMOUNTI NG TO RS 46,10,830/- BRIEFLY, THE FACTS ARE, DURING THE ASSESSMENT PROCE EDINGS THE ASSESSING OFFICER NOTICING THAT THE ASSESSEE HAS MADE INVESTM ENTS IN SHARES WHICH HAS THE POTENTIAL OF YIELDING TAX FREE DIVIDEND INCOME, WHEREAS, THE ASSESSEE HAS CLAIMED EXPENSES OF RS. 47,24,158/- CALLED UPON THE ASSESSEE TO EXPLAIN WHY DISALLOWANCE U/S. 14A READ WITH RULE 8D SHOULD NOT BE MADE. IN RESPONSE, IT WAS SUBMITTED BY THE ASSESSEE, SINCE, NO EXEMPT INC OME WAS EARNED DURING THE YEAR AND NO BORROWED FUND WAS UTILIZED FOR THE PURPOSE OF INVESTMENT IN SHARE, NO DISALLOWANCE U/S. 14A READ WITH RULE 8D C AN BE MADE. HOWEVER, REJECTING THE EXPLANATION OF THE ASSESSEE, THE ASSE SSING OFFICER PROCEEDED TO COMPUTE DISALLOWANCE UNDER RULE 8D AND QUANTIFIED I T AT RS 46,10,830/-. DURING THE APPEAL PROCEEDINGS, LEARNED CIT(A) HAVIN G TAKEN NOTE OF THE FACT THAT DURING THE YEAR UNDER CONSIDERATION ASSESSEE H AD NOT RECEIVED ANY EXEMPT INCOME, DELETED THE DISALLOWANCE MADE U/S. 1 4A READ WITH RULE 8D OF THE ACT. 8. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED MATERIAL AVAILABLE ON RECORD. NOW IT IS FAIRLY WELL SETTLED BY VIRTUE OF A NUMBER OF JUDICIAL PRONOUNCEMENTS INCLUDING THE DECISION OF HONBLE JU RISDICTIONAL HIGH COURT IN THE CASE OF PCIT VS. BALLARPUR INDUSTRIES LTD. [ITA 51 OF 2016] THAT IN ABSENCE OF ANY EXEMPT INCOME EARNED DURING A PARTIC ULAR ASSESSMENT YEAR, NO DISALLOWANCE U/S. 14A READ WITH RULE 8D CAN BE M ADE. THEREFORE, IN VIEW OF THE RATIO LAID DOWN IN THE JUDICIAL PRONOUNCEMEN T REFERRED TO ABOVE AS WELL AS RELIED UPON BY LEARNED CIT(A), WE UPHOLD THE DEC ISION OF LEARNED CIT(A) IN DELETING THE DISALLOWANCE MADE U/S. 14A. ITA NO.5867/MUM/2016 SHARAN HOSPITALITY PVT. LTD. 6 GROUND NO.2 IS DISMISSED. 9. GROUND NOS. 3 & 4 BEING GENERAL IN NATURE DO NOT REQUIRE ANY ADJUDICATION. 10. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 11 TH DAY OF OCTOBER, 2019. SD/- SD/- (N K PRADHAN) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDI CIAL MEMBER MUMBAI; DATED : 11 TH OCTOBER, 2019. SA COPY OF THE ORDER FORWARDED TO : 1. THE APP E L L ANT. 2. THE RESPONDENT. 3. T HE CIT(A), MUMBAI. 4. THE CIT 5. DR, G BENCH, ITAT, MUMBAI BY ORDER, //TRUE COPY// ( ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, MUMBAI