ACIT 16(3), MUMBAI V. NALINI HARSHAD GORADIA, MUMBAI

ITA 6663/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 79497 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-07-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 11-06-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 02-11-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: BIHARI LAL
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH B, MUMBAI BEFORE SHRI SANJAY ARORA, ACCOUNTANT MEMBER AND DR. S.T.M. PAVALAN, JUDICIAL MEMBER ITA NO. 6663/MUM/2012 ASSESSMENT YEAR: 2009-10 ACIT-16(3) MUMBAI VS. MS. NALINI HARSHAD GORADIA 3 RD FLOOR, SHRI RAM MANSION PAREKH STREET, PRATHANA SAMAJ, MUMBAI-400 004 (APPELLANT) (RESPONDENT) PERMANENT ACCOUNT NO. :- AACPG 2716 M APPELLANT BY : SHRI BIHARI LAL REVENUE BY : SHRI DURGA DUTT DATE OF HEARING : 11.06.2014 DATE OF PRONOUNCEMENT : 30.07.2014 O R D E R PER DR. S.T.M. PAVALAN, JM: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER OF THE LD.CIT(A)-27, MUMBAI DATED 29.08.2012 FOR THE ASSES SMENT YEAR 2009-10. 2. IN THIS APPEAL, THE REVENUE HAS AGITATED THE DEC ISION OF THE LD.CIT(A) DIRECTING THE AO TO ALLOW THE DEDUCTION CLAIMED BY THE ASSESSEE ON ACCOUNT OF MUNICIPAL TAXES PAID AGAINST THE INCOME DECLARED UN DER THE HEAD INCOME FROM OTHER SOURCES. 3. BRIEFLY STATED, THE ASSESSEE IS AN INDIVIDUAL HA VING INCOME FROM HOUSE PROPERTY, BUSINESS AND OTHER SOURCES. THE AO IN HIS ASSESSMENT ORDER U/S 143(3) OF THE ACT, DISALLOWED THE MUNICIPAL TAXES OF RS.41,78 ,756/- CLAIMED AS EXPENDITURE AGAINST THE INCOME UNDER THE HEAD OTHER SOURCES. FURTHER FACTS ARE THAT THE ASSESSEE HAD TAKEN THE LAND ON LEASE FOR 99 YEARS, FROM ONE M/S. HAPRA INVESTMENT P. LTD., BY PAYING A PREMIUM OF RS.65 LAKHS, VIDE A GREEMENT DATED 1.12.2003. THE ASSESSEE CONSTRUCTED SUPER STRUCTURE ON THE SAID LE ASE HOLD LAND BY INCURRING ADDITIONAL COST OF RS.2,43,09,099/-. THE ASSESSEE G AVE THE PREMISES SO CONSTRUCTED TO M/S. KIRAN RETAIL P. LTD TO CARRY ON ITS BUSINES S AS PER AGREEMENT DATED 12 TH APRIL, 2007. THE SAID AGREEMENT BETWEEN THE ASSESSEE AND M /S KIRAN RETAIL P. LTD., PROVIDED THAT FROM 01.04.2008, THE ASSESEEE WILL BE LIABLE TO PAY THE MUNICIPAL TAXES ITA NO. 6663/MUM/2012 MS. NALINI HARSHAD GORADIA ASSESSMENT YEAR: 2009-10 2 ON SUPER STRUCTURE CONSTRUCTED BY THE ASSESSEE. IN TURN, THE ASSESSEE WAS TO RECEIVE COMPENSATION FROM M/S. KIRAN RETAIL P. LTD. WHICH W AS BASED ON HIGHEST AMOUNT TO BE DERIVED FROM THREE ALTERNATIVES NAMELY, 3% OF SA LES OR RS.25,00,000/- PER ANNUM OR THE PAYMENT OF MUNICIPAL TAX. DURING THE FINANCI AL YEAR 2008-09 (A.Y. 2009-10), THE HIGHEST AMOUNT QUANTIFIED WAS RELATED TO PAYMEN T OF MUNICIPAL TAX PAID DURING THE FINANCIAL YEAR 2008-09, BEING, RS.30,00,000/-. ACCORDINGLY, THE COMPENSATION RECEIVABLE WAS RS.30,00,000/-. THUS IN SUBSTANCE, T HE AMOUNT OF COMPENSATION RECEIVABLE FROM M/S. KIRAN RETAIL P. LTD. STOOD EXP ENDED FOR PAYMENT OF MUNICIPAL TAXES, RESULTING IN ZERO INCOME. THE AO AGREED IN P RINCIPLE THAT THE COMPENSATION PAYABLE UNDER THE AGREEMENT WITH M/S. KIRAN RETAIL P. LTD. WAS RELATABLE TO MUNICIPAL TAXES, AS THE SAME WAS HIGHEST OF OTHER A LTERNATIVES. HOWEVER, THE AO WENT BY ACTUAL DEMAND, RAISED BY THE MUNICIPALITY F OR THE FINANCIAL YEAR 2008-09 WHICH WAS RS.41,78,756/-. HE, THEREFORE, SUBSTITUTE D THE QUANTUM OF COMPENSATION FROM RS.30,00,000/- TO RS.41,78,756/-. HOWEVER, THE AO DID NOT GIVE CREDIT FOR LIABILITY, IN RESPECT OF MUNICIPAL TAXES PAYABLE BY ASSESSEE FOR THE REASONS THAT THE MUNICIPAL BILLS WERE ISSUED IN THE NAME OF OWNERS O F THE LAND, NAMELY M/S. HAPRA INVESTMENT P. LTD., AND THE LIABILITY TO PAY THE MU NICIPAL TAXES WAS ON THE OWNER OF THE LAND I.E. HAPRA INVESTMENT P. LTD. THE AO FURTH ER OBSERVED THAT THE PAYMENT OF MUNICIPAL TAXES WAS NOT A NECESSARY EXPENSE IN EARN ING THE INCOME FROM OTHER SOURCES SINCE THE IMPUGNED INCOME WAS NOT OFFERED UNDER THE HEAD HOUSE PROPERTY INCOME WHERE IT IS NECESSARY TO PAY MUNICIPAL TAXE S. THE AO WAS OF THE OPINION THAT THE ASSESSEE COULD HAVE EARNED THE IMPUGNED INCOME EVEN WITHOUT PAYING ANY PROPERTY TAXES. ACCORDINGLY, THE AO DISALLOWED THE CLAIM OF THE ASSESSEE. ON APPEAL, THE LD.CIT(A) DIRECTED THE AO TO ALLOW THE CLAIM OF THE ASSESSEE. ACCORDING TO THE LD.CIT(A), THE PAYMENT OF THE MUNICIPAL TAXES BY TH E ASSESSEE HAD ARISEN OUT OF CONTRACTUAL OBLIGATION BETWEEN THE ASSESSEE AND THE LAND OWNER, IRRESPECTIVE OF THE FACT THAT IN WHOSE NAME THE DEMAND WAS RAISED BY TH E MUNICIPAL AUTHORITIES AND MUNICIPAL TAXES PAID IN THE PRESENT CONTEXT HAD BEE N LEVIED ON ACCOUNT OF STATUTORY LIABILITY, WHICH WERE TRANSFERRED TO THE ASSESSEE O N ACCOUNT OF CONTRACTUAL LIABILITY. AGGRIEVED BY THE IMPUGNED ORDER, THE REVENUE IS IN APPEAL BEFORE US. 4. HAVING HEARD BOTH THE SIDES AND PERUSED THE MATE RIAL ON RECORD, IT IS PERTINENT TO MENTION THAT THE ASSESSEE HAS TAKEN TH E LAND AT SANTACRUZ (W), MUMBAI ITA NO. 6663/MUM/2012 MS. NALINI HARSHAD GORADIA ASSESSMENT YEAR: 2009-10 3 ON LEASE FOR A PERIOD OF 99 YEARS FROM M/S. HARPRA INVESTMENT P. LTD. FOR A CONSIDERATION OF RS.65 LAKHS AND A YEARLY RENT OF R S. ONE LAKH. AT THE TIME OF LEASE, THE MUNICIPAL TAXES APPLICABLE WERE RS.2,628/- PER ANNUM AND THE N.A. ASSESSMENT PAYABLE WAS RS.2,154/- PER ANNUM. THE ASSESSEE HAS BEEN ALLOWED TO DEMOLISH THE THEN EXISTING BUILDINGS AND STRUCTURES STANDING THE REON IF ANY, AND TO CARRY OUT ANY ADDITION OR ALTERATION OR TO PUT UP ANY ADDITIONAL STRUCTURE OR BUILDING AND/OR TO RECONSTRUCT BUILDINGS AND/OR STRUCTURES ON THE SAID DEMISED PREMISES IN ACCORDANCE WITH THE PLAN THAT MAY BE APPROVED AND/OR SANCTIONE D BY THE MUNICIPAL CORPORATION OF GREATER MUMBAI AND THE OTHER CONCERNED AUTHORITI ES AT ANY TIME DURING THE SUBSISTENCE OF LEASE. FURTHER, THE ASSESSEE IS ENTI TLED TO DEAL WITH THE BUILDINGS AND STRUCTURES THAT MAY BE CONSTRUCTED ON THE SAID PREM ISES EITHER ON OWNERSHIP BASIS AND/OR IN SUCH MANNER BY THE ASSESSEE IN AN ABSOLUT E DISCRETION DEEMED FIT. THE LEASE AGREEMENT, IN SPECIFIC, PROVIDES THAT THE ASS ESSEE HAS TO PAY AND DISCHARGE ALL RATES, TAXES, CHARGES, DUES OUTGOING AND ASSESSMENT S OF EVERY DESCRIPTION OF WHATSOEVER NATURE CHARGED AND IMPOSED AT PRESENT OR HEREAFTER BECOME PAYABLE EITHER BY THE LESSOR OR THE LESSEE. IT IS ONLY IN P URSUANCE OF THIS AGREEMENT THAT THE ASSESSEE HAS INVESTED AN AMOUNT OF RS.2.43 CRORES T OWARDS BUILDING CONSTRUCTION EXPENSES ON THE ABOVE LEASE HOLD LAND, APART FROM P AYING A PREMIUM OF RS.65 LAKHS. THUS A NEW STRUCTURE HAS BEEN BROUGHT INTO EXISTENC E AND THE ASSESSEE FURTHER ENTERED INTO AN AGREEMENT WITH M/S. KIRAN RETAIL P. LTD. TO EXPLOIT THE SAID BUILDING AND TO RECEIVE COMPENSATION THEREOF IN THE AGREED M ANNER. IN THE AFORESAID AGREEMENT WITH M/S. KIRAN RETAIL P. LTD, IT HAS BEE N AGREED IN SPECIFIC THAT MUNICIPAL TAXES ARE PAYABLE BY THE ASSESSEE BEING REFERRED TO AS OWNER. WHEN VIEWED IN THIS BACKGROUND, THE MUNICIPAL TAXES WHICH HAVE BEEN HIT HERTO LEVIED RS.4,782/- PER ANNUM LEVIED HAS BEEN AT RS.41.78 LAKHS FOR THE YEA R UNDER CONSIDERATION ONLY DUE TO THE REASON THAT A NEW BUILDING CAME INTO EXISTEN CE ON THE AFORESAID LAND. IN OTHER WORDS, THE ENHANCED MUNICIPAL TAXES ARE ATTRIBUTABL E TO THE NEW BUILDING CONSTRUCTED. THE ASSESSEE BEING THE DEFACTO OWNER O F THE BUILDING AND ENJOYING THE FRUIT THEREON HAS TO INCUR THE MUNICIPAL TAXES ON T HE SAID BUILDING AS AGREED UPON. BUT FOR THE NEW BUILDING BROUGHT INTO EXISTENCE, HI GHER MUNICIPAL TAXES COULD NOT HAVE BEEN LEVIED. THEREFORE, WHILE THE LEVY OF MUNI CIPAL TAXES ARISES ON ACCOUNT OF A STATUTORY OBLIGATION, THE PAYMENT OF THE MUNICIPAL TAXES BY THE ASSESSEE ARISES OUT ITA NO. 6663/MUM/2012 MS. NALINI HARSHAD GORADIA ASSESSMENT YEAR: 2009-10 4 OF CONTRACTUAL OBLIGATION BETWEEN THE ASSESSEE AND THE LAND OWNER, IRRESPECTIVE OF THE FACT THAT IN WHOSE NAME THE DEMAND HAS BEEN RAI SED BY THE MUNICIPAL AUTHORITIES. THE AO FAILED TO LOOK AT THE CONTENT O F THE AGREEMENT IN COMING TO THE CONCLUSION THAT MUNICIPAL TAXES BEING A STATUTORY L EVY, THE ASSESSEE IS NOT REQUIRED TO PAY THE SAME. THEREFORE, WE CONCUR WITH THE FIND INGS OF THE LD.CIT(A) THAT THE MUNICIPAL TAXES PAID IN THE PRESENT CONTEXT ARE LEV IED ON ACCOUNT OF STATUTORY LIABILITY WHICH HAVE BEEN TRANSFERRED TO THE ASSESSEE ON ACCO UNT OF CONTRACTUAL LIABILITY. IT IS NOT CORRECT ON THE PART OF THE AO ON ONE HAND TO CO NSIDER THAT THE INCOME ARISING OUT OF THE AGREEMENT HAS A RELATION TO THE QUANTUM OF MUNICIPAL TAXES PAYABLE AND ON THE OTHER HAND IN FINALLY NOT ALLOWING THE MUNIC IPAL TAXES PAID BY THE ASSESSEE. THUS, WE ARE INCLINED TO AGREE WITH THE OBSERVATION OF THE LD.CIT(A) THAT THE AO IS SELF CONTRADICTORY IN THE STAND TAKEN BY HIM. IT IS ALSO OBSERVED THAT IN THE SUBSEQUENT YEAR, (AY 2010-11), THE AO, VIDE ASSESSM ENT ORDER DATED 05.02.2014, PASSED UNDER SECTION 143(3) OF THE ACT HAS ALLOWED A SIMILAR DEDUCTION OF RS.77,98,047/-CLAIMED BY THE ASSESSEE. 4.1 HOWEVER, FROM THE PERUSAL OF THE RELEVANT RECOR DS AND THE ORDERS OF THE AUTHORITIES BELOW, IT IS NOT CLEAR WHETHER THE ASSE SSEE HAS ACTUALLY PAID THE MUNICIPAL TAXES OF RS.41,78,756/-, WHICH HAS BEEN C LAIMED AS EXPENDITURE AGAINST THE INCOME FROM OTHER SOURCES AS DECLARED BY THE AS SESSEE. IN VIEW OF THAT MATTER, WHILE WE ACCEPT THE CONTENTION OF THE ASSESSEE THAT SHE IS ENTITLED FOR DEDUCTION OF THE MUNICIPAL TAXES PAID, WE DIRECT THE AO TO ASSES S THE IMPUGNED RECEIPT AS INCOME OF THE ASSESSEE UNDER THE HEAD INCOME FROM OTHER S OURCES AND ALLOW THE CLAIM OF EXPENDITURE/DEDUCTION OF ACTUAL PAYMENT MADE BY THE ASSESSEE IN RESPECT OF THE MUNICIPAL TAXES DURING THE YEAR UNDER CONSIDERATION AFTER DUE VERIFICATION. ACCORDINGLY, WE MODIFY THE IMPUGNED ORDER OF THE LD .CIT(A). 5. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 30 TH DAY OF JULY 2014. SD/- SD/- (SANJAY ARORA) (DR. S.T.M. PAVALAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 30.07.2014. ITA NO. 6663/MUM/2012 MS. NALINI HARSHAD GORADIA ASSESSMENT YEAR: 2009-10 5 *SRIVASTAVA COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR B BENCH //TRUE COPY// BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.