BOMBAY SEALINK BUILDERS P.LTD, MUMBAI V. ITO 3(1)(2), MUMBAI

ITA 6550/MUM/2011

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0846 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 10 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2015
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 21-05-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 28-09-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Business income; Depreciation; Opportunity of being heard
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH B MUMBAI. BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI SANJAY GARG, JUDICIAL MEMBER ITA NO 6550/MUM/2011 ASSESSMENT YEAR: - 2007-08 M/S BOMBAY SEALINK BUILDERS (P) LTD, 121, MAKER CHAMBER, VI, NARIMAN POINT, MUMBAI 400 021. THE INCOME TAX OFFICER-3(1)(2) MUMBAI. PAN/GIR NO. AAACB2701Q APPELLANT RESPONDENT ORDER PER G.S. PANNU, AM THE CAPTIONED APPEAL BY THE ASSESSEE IS DIRECTED AG AINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) [HEREINAFTER R EFERRED TO AS THE CIT(A)] DATED 19-05-2011, WHICH IN-TURN HAS ARISEN FROM AN ORDER PASSED BY THE ASSESSING OFFICER U/S 143(3) OF THE INCOME TAX ACT, 1961(HEREINAFTER REFERRED TO AS THE ACT) DATED 30.11.2009 PERTAINI NG TO ASSESSMENT YEAR 2007- 08. ASSESSEE BY SHRI VIMAL PUNMIYA REVENUE BY SHRI PAWAN KUMAR BEERLA DATE OF HEARING 21.05.2015 DATE OF PRONOUNCEMENT .07.2015 2 ITA NO 6550/MUM/2011 ASSESSMENT YEAR: - 2007-08 PAGE 2 OF 9 IN THIS APPEAL, ASSESSEE HAS RAISED FOLLOWING THREE MAIN GROUNDS OF APPEAL:- (1) THE LD. CIT(A) ERRED IN CONFIRMING THE RENT RECEIV ED OF RS. 9,00,000/- BY THE ASSESSEE CO. AS INCOME FROM HOUSE PROPERTY AS A GAINST TREATED BY THE ASSESSEE CO. AS INCOME FROM BUSINESS. (2) THE LD. CIT(A) ERRED IN CONFIRMING & TREATING THE F .D.R INTEREST OF RS. 31,88,524/- AS INCOME FROM OTHER SOURCES AS AGAINST TREATED BY THE ASSESSEE CO. AS INCOME FROM BUSINESS. (3) THE LD. CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF FOLLOWING EXPENSES:- (1) SOCIETY CHARGES RS. 3,31,534/- (2) TRAVELLING EXPENSES RS. 22,97,469/- (3) DEPRECIATION RS. 9,34,861/- AND THEREBY ALLEGED THAT THERE WAS NO BUSINESS ACTI VITY IN THE AFORESAID YEAR BY THE ASSESSEE. 2. THE APPELLANT BEFORE US IS A COMPANY INCORPORATE D UNDER THE PROVISIONS OF COMPANIES ACT, 1956 AND FOR THE ASSESSMENT YEAR 2007-08, IT FILED A RETURN OF INCOME DECLARING NIL INCOME. IN THE ENSUING A SSESSMENT FINALIZED U/S 143(3) OF THE ACT, THE TOTAL INCOME HAS BEEN ASSESS ED AT RS. 93,76,310/- AFTER MAKING CERTAIN ADDITIONS/DISALLOWANCES. THE ASSESS EE WAS NOT SATISFIED BY PARTIAL RELIEF ALLOWED BY THE CIT(A) AND, THEREFORE , THE CAPTIONED APPEAL BEFORE THE TRIBUNAL ON THE ABOVE STATED GROUNDS OF APPEAL. 3 ITA NO 6550/MUM/2011 ASSESSMENT YEAR: - 2007-08 PAGE 3 OF 9 3. THE FIRST ISSUE IN THIS APPEAL RELATES TO THE AS SESSMENT OF RENTAL INCOME OF RS. 9,00,000/- EARNED BY ASSESSEE FROM LETTING O UT A RESIDENTIAL PROPERTY OWNED BY IT. IN THE RETURN OF INCOME, ASSESSEE TREA TED THE RENTAL INCOME AS AN INCOME ASSESSABLE UNDER THE HEAD PROFITS FROM BUSI NESS WHEREAS THE ASSESSING OFFICER HELD THAT SUCH RENTAL INCOME WAS ASSESSABLE UNDER THE HEAD INCOME FROM HOUSE PROPERTY. THE CIT(A) HAS ALSO UPHELD THE STAND OF THE ASSESSING OFFICER PRIMARILY FOR THE REASON THAT IN THE PAST ASSESSMENT YEARS, SUCH INCOME HAS BEEN HELD TO BE ASSESSABLE UNDER TH E HEAD INCOME FROM HOUSE PROPERTY. 4. BEFORE US, THE LD. REPRESENTATIVE FOR THE ASSESS EE DOES NOT DISPUTE THAT THE AFORESAID ASPECT OF THE CONTROVERSY HAS BEEN A SUBJECT MATTER OF CONSIDERATION BY THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE EARLIER ASSESSMENT YEARS OF 2002-03 TO 2006-07, WHEREIN, TH E STAND OF THE ASSESSING OFFICER WAS UPHELD. THE TRIBUNAL VIDE A COMBINED OR DER FOR ASSESSMENT YEARS 1999-2000, 2001-02 2002-03 AND 2006-07 IN ITA NOS. 794 & 795/M/2008, 7210/M/2007 AND 3552/M/2009, DATED 29.04.2011, HELD THAT THE RENTAL INCOME DERIVED BY THE ASSESSEE FROM LETTING-OUT OF A RESIDENTIAL FLAT WAS AN INCOME ASSESSABLE UNDER THE HEAD INCOME FROM HOUSE PROPERTY. 5. SO HOWEVER, THE LD. REPRESENTATIVE CONTENDED THA T IN VIEW OF THE SUBSEQUENT JUDGMENT OF HONBLE SUPREME COURT IN THE CASE CHENNAI PROPERTIES & INVESTMENTS LTD. VS. CIT OF 56 TAXMANN .COM 456 (SC) , THE INCOME FROM LETTING-OUT OF THE RESIDENTIAL FLAT IS LIABLE TO BE ASSESSED AS 4 ITA NO 6550/MUM/2011 ASSESSMENT YEAR: - 2007-08 PAGE 4 OF 9 BUSINESS INCOME ON THE GROUND THAT THE OBJECTS OF T HE ASSESSEE, INTER ALIA, INCLUDE DEALING IN PROPERTY BY WAY OF MANAGING, LEA SING ETC. 6. WE HAVE CONSIDERED THE AFORESAID PLEA AND FIND T HAT THE RATIO OF THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF CH ENNAI PROPERTIES & INVESTMENT LTD. (SUPRA) DOES NOT HELP THE APPELLANT . IN THE CASE BEFORE THE HONBLE SUPREME COURT, ASSESSEE HAD RENTED OUT CERT AIN PROPERTIES AND THE RENTAL INCOME RECEIVED THEREFROM WAS SHOWN AS INCOM E FROM BUSINESS IN THE RETURN FILED BY THE ASSESSEE. HOWEVER, THE ASSESSI NG OFFICER REFUSED TO TAX THE SAME AS BUSINESS INCOME AS ACCORDING TO HIM, INCO ME WAS RECEIVED FROM LETTING-OUT OF THE PROPERTY AND THUS WAS IN THE NAT URE OF RENTAL INCOME ASSESSABLE UNDER THE HEAD INCOME FROM HOUSE PROPERT Y. THE HONBLE SUPREME COURT NOTED AN EARLIER JUDGMENT IN THE CASE OF KARANPURA DEVELOPMENT CO. LTD. VS. CIT 44 ITR 362 (SC) , WHEREIN, THE POSITION OF LAW WAS SUMMED UP IN THE FOLLOWING WORDS:- AS HAS BEEN ALREADY POINTED OUT IN CONNECTION WITH THE OTHER TWO CASES WHERE THERE IS A LETTING OUT OF PREMISES AND COLLECTION O F RENTS THE ASSESSMENT ON PROPERTY BASIS MAY BE CORRECT BUT NOT SO, WHERE THE LETTING OR SUB-LETTING IS PART OF A TRADING OPERATION. THE DIVING LINE IS DIFFICU LT TO FIND; BUT IN THE CASE OF A COMPANY WITH ITS PROFESSED OBJECTS AND THE MANNER O F ITS ACTIVITIES AND THE NATURE OF ITS DEALINGS WITH ITS PROPERTY, IT IS POS SIBLE TO SAY ON WHICH SIDE THE OPERATIONS FALL AND TO WHAT HEAD THE INCOME IS TO B E ASSIGNED. 7. HONBLE SUPREME COURT NOTICED THE AFORESAID PRIN CIPLE AND APPLIED THE SAME TO THE FACTS OF THE CASE BEFORE IT, AND HELD T HAT THE INCOME EARNED FROM LETTING OUT OF THE PROPERTY WAS TO BE ASSESSED AS B USINESS INCOME. IN THE CASE 5 ITA NO 6550/MUM/2011 ASSESSMENT YEAR: - 2007-08 PAGE 5 OF 9 OF KARANPURA DEVELOPMENT CO. LTD. (SUPRA), THE HON BLE SUPREME COURT NOTED THAT THE DIVIDING LINE IS DIFFICULT TO FIND; BUT IN THE CASE OF A COMPANY, BASED ON ITS PROFESSED OBJECTS, THE MANNER OF ITS ACTIVITIES AND THE NATURE OF ITS DEALINGS WITH ITS PROPERTY, IT CAN BE EVALUATED AS TO WHAT H EAD THE RENTAL INCOME HAS TO BE ASSIGNED. WHAT HAS BEEN EMPHASIZED BY THE HONBL E SUPREME COURT IS THE PROFESSED OBJECTS AND THE MANNER OF ACTIVITIES CARR IED OUT BY AN ASSESSEE. IT HAS ALSO BEEN POINTED OUT THAT THE NATURE OF DEALIN GS WITH THE PROPERTY WOULD ALSO BE FACTOR TO DETERMINE WHETHER THE ACTIVITIE S FALL FOR CONSIDERATION UNDER THE HEAD BUSINESS INCOME OR HOUSE PROPERTY INC OME. THE FACT-SITUATION IN THE PRESENT CASE HAS ALREADY BEEN CONSIDERED BY THE TRIBUNAL IN THE PAST YEARS UNDER IDENTICAL CIRCUMSTANCES AND IT HAS BEEN CONCL UDED THAT THAT THERE IS NO BUSINESS OF THE COMMERCIAL EXPLOITATION OF THE PROP ERTIES AND, THEREFORE, RENTAL INCOME COULD NOT BE ASSESSED AS BUSINESS INCOME. T HE AFORESAID FINDING OF THE TRIBUNAL IN THE CASE OF ASSESSEE CLEARLY BRINGS OUT THAT THE MANNER AND NATURE OF ITS DEALINGS WITH ITS PROPERTY, WHICH DOES NOT J USTIFY ASSESSMENT OF RENTAL INCOME AS BUSINESS INCOME. THE APPELLANT HAS NOT S HOWN ANY CHANGE IN THE FACT-SITUATION IN THE INSTANT YEAR AS COMPARED TO T HE PAST YEARS, THEREFORE, THERE IS NO JUSTIFICATION FOR DEPARTING FROM EARLIE R STAND OF THE TRIBUNAL ABOUT THE ASSESSMENT OF RENTAL INCOME AS INCOME UNDER T HE HEAD HOUSE PROPERTY. THUS, INSOFAR AS GROUND OF APPEAL NO. 1 IS CONCERNE D, ASSESSEE FAILS, HAVING REGARD TO THE PRECEDENT IN ASSESSEES OWN CASE. 8. THE SECOND GROUND OF APPEAL RELATES TO THE TREAT MENT OF INTEREST ON FDR OF RS. 31,88,524/- AS BUSINESS INCOME. ASSESSEE CO MPANY HAD RECEIVED AN INTEREST FREE DEPOSIT OF RS. 4,25,00,000/- FROM TAT A MOTORS FOR LETTING OUT ITS 6 ITA NO 6550/MUM/2011 ASSESSMENT YEAR: - 2007-08 PAGE 6 OF 9 FLAT. THE AFORESAID AMOUNT WAS KEPT BY THE ASSESSEE IN FIXED DEPOSIT WITH SHEBA PROPERTIES LTD, WHICH EARNED INTEREST OF RS. 31,88,524/-. ASSESSEE DECLARED THE SAID INTEREST INCOME AS BUSINESS INCOM E WHEREAS THE ASSESSING OFFICER TREATED THE SAME AS INCOME ASSESSABLE UNDER THE HEAD INCOME FROM OTHER SOURCES. THE CIT(A) HAS ALSO AFFIRMED THE ORD ER OF ASSESSING OFFICER. 9. IT WAS A COMMON POINT BETWEEN THE PARTIES THAT S IMILAR INCOME HAS BEEN HELD TO BE ASSESSABLE AS INCOME FROM OTHER SOU RCES BY THE TRIBUNAL IN ASSESSEES OWN CASE VIDE ITS ORDER DATED 29.04.2011 (SUPRA). FOLLOWING THE SAME, THE SAID GROUND IS HELD AGAINST THE ASSESSEE AND IS ACCORDINGLY DISMISSED. 10. IN GROUND OF APPEAL NO. 3, THE CLAIM OF ASSESSE E IS FOR DEDUCTION ON ACCOUNT OF SOCIETY CHARGES RS 3,31,534/-; TRAVE LLING EXPENSES RS 22,97,469/-; DEPRECIATION RS 9,34,861/-. 11. INSOFAR AS THE CLAIM FOR DEPRECIATION AND EXPEN SES ON TRAVELLING ARE CONCERNED, THE SAME ARE NOT ALLOWABLE AS THERE IS N O BUSINESS IN EXISTENCE. THE RENTAL INCOME HAS ALREADY BEEN HELD TO BE ASSES SABLE AS INCOME UNDER THE HEAD HOUSE PROPERTY AND THUS DEPRECIATION IS NOT AL LOWABLE IN RESPECT OF THE COST OF FLAT ON THIS GROUND ALSO. CONSEQUENTLY, THE AFORESAID GROUND OF APPEAL OF ASSESSEE IN RELATION TO THE CLAIMS OF DEPRECIATI ON AND TRAVELLING EXPENSES IS DISMISSED. 7 ITA NO 6550/MUM/2011 ASSESSMENT YEAR: - 2007-08 PAGE 7 OF 9 12. SO HOWEVER, IN RELATION TO THE ALLOWABILITY OF DEDUCTION ON ACCOUNT OF CHARGES PAID BY ASSESSEE TO THE MAINTENANCE SOCIETY OF THE BUILDING, IT WAS POINTED OUT THAT SUCH AN ISSUE HAS BEEN SET ASIDE T O THE FILE OF ASSESSING OFFICER BY THE TRIBUNAL IN THE PAST YEARS VIDE ORDE R DATED 29.04.2011 (SUPRA). IN THIS CONTEXT, IT IS TO BE NOTED THAT SECTION 24( A) OF THE ACT, PROVIDES THAT INCOME CHARGEABLE UNDER THE HEAD INCOME FROM HOUSE PROPERTY SHALL BE COMPUTED AFTER MAKING DEDUCTION OF A SUM EQUAL TO 3 0% OF THE ANNUAL VALUE. QUITE CLEARLY, THE DEDUCTIONS U/S 24 ARE TO BE GIVE N FROM AND CALCULATED ON THE BASIS OF ANNUAL VALUE SO DETERMINED U/S 23 OF THE A CT. IN THE CASE OF SHARMILA TAGORE VS. JCIT 93 TTJ 483, IT HAS BEEN, INTER-ALIA, HELD THAT MAINTENANCE CHARGES HAVE TO BE DEDUCTED EVEN WHILE ARRIVING AT ANNUAL LETTING VALUE OF THE PROPERTY U/S 23 OF THE ACT. IN THE CASE OF REALTY F INANCE & LEASING PVT. LTD. VS. ITO 5 SOT 283, IT HAS BEEN HELD THAT SOCIETY CHARGE S ARE TO BE ALLOWED AS DEDUCTION FROM ANNUAL LETTING VALUE (ALV ) PROVIDED THAT THE GROSS RENT RECEIVED BY ASSESSEE ALSO INCLUDES THE SOCIETY CHAR GES, WHICH ARE TO BE BORNE BY THE ASSESSEE. THEREFORE, IN PRINCIPLE, IT HAS TO BE HELD THAT THE SOCIETY CHARGES PAYABLE BY THE ASSESSEE IN RESPECT OF THE L ET OUT OF PROPERTY ARE ALLOWABLE WHILE COMPUTING THE ALV OF THE PROPERTY U /S 23 OF THE ACT, IF THE SAME ARE INCLUDED IN THE GROSS RENT RECEIVED. SO H OWEVER, THE TRIBUNAL IN ITS ORDER DATED 29.04.2011 (SUPRA) HAS REMANDED THE MAT TER BACK TO THE FILE OF ASSESSING OFFICER TO ASCERTAIN AS TO WHETHER THE RE NT RECEIVED BY THE ASSESSEE INCLUDED CHARGES FOR THE COMMON SERVICES PROVIDED B Y THE MAINTENANCE SOCIETY OF THE BUILDING. THEREFORE, IN OUR VIEW, S IMILAR DIRECTIONS ARE EXIGIBLE IN THE INSTANT YEAR ALSO AND ACCORDINGLY, WE SET AS IDE THE ORDER OF CIT(A) AND RESTORE THE MATTER BACK TO THE FILE OF ASSESSING OF FICER FOR CARRYING OUT 8 ITA NO 6550/MUM/2011 ASSESSMENT YEAR: - 2007-08 PAGE 8 OF 9 APPROPRIATE VERIFICATION AND THEREAFTER PASSING AN ORDER AFRESH IN ACCORDANCE WITH LAW. NEEDLESS TO SAY, THE ASSESSING OFFICER SH ALL ALLOW THE ASSESSEE A REASONABLE OPPORTUNITY OF BEING HEARD BEFORE PASS A N ORDER AFRESH ON THIS ASPECT OF THE MATTER. THUS, ON THIS ASPECT ASSESSEE PARTLY SUCCEEDS. 13. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 31 DAY OF JULY 2015. SD/- SD/- (SANJAY GARG) (G.S. PANNU) (JUDICIAL MEMBER) (AC COUNTANT MEMBER) MUMBAI DATED 31-07-2015 SKS SR. P.S, COPY TO: THE APPELLANT THE RESPONDENT THE CONCERNED CIT(A) THE CONCERNED CIT THE DR, BBENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI