I.T.O. 7(2)(4), MUMBAI V. STRUCTMAST REALTORS (MUMBAI) PVT. LTD., MUMBAI

ITA 6920/MUM/2012

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9152 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-03-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 04-03-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 12-11-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NEIL PHILIP
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH E, MUMBAI BEFORE SHRI D. KARUNAKAR RAO, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER ITA NO. 6920/MUM/2012 ASSESSMENT YEAR: 2009-10 ITO - 7(2)(4) R. NO. 618, AAYAKAR BHAVAN M.K. MARG MUMBAI 400 020 VS. M/S. STRUCTMAST RELATOR (MUMBAI) PVT. LTD. 10 TH FLOOR, MITTAL COURT. A, NARIMAN POINT MUMBAI 400 021 PAN:-AAHCS 9301 A (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI BHUPENDRA SHAH REVENUE BY : SHRI NEIL PHILIP DATE OF HEARING : 1 2 .03.2015 DATE OF ORDER : 25.03.2015 O R D E R PER AMIT SHUKLA, JM: THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST ORDER DATED 27.09.2012, PASSED BY LD. CIT-13, MUMBAI FOR THE QU ANTUM OF ASSESSMENT PASSED U/S 143(3) FOR THE A.Y. 2009-10, VIDE WHICH FOLLOWING GROUNDS HAVE BEEN RAISED:- I) THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACT S IN TREATING THE INTEREST BEARING REFUNDABLE SECURITY DEPOSITS R ECEIVED FROM TENATS AS CAPITAL BORROWED FOR THE PURPOSE OF SEC . 24(B) OF THE I.T. ACT 1961. II) THE LEARNED CIT9A) HAS ERRED IN LAW AND ON FACT S NOT CONSIDERING THE PROVISION U/S 24(B) OF THE ACT WHER EIN INTEREST PAID ON MONEY BORROWED FOR THE PURPOSE OF REPAYING OLD LOAN AND NOT AN INTEREST PAID ON SECURITY DEPOSITS FROM TENANTS. ITA NO. 6920/MUM/2012 ASSESSMENT YEAR: 2009-10 2 III) THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FAC TS IN ALLOWING INTEREST PAID ON 'SECURITY DEPOSIT' FROM TENANT U/S . 24(B) OF THE I.T. ACT IV) THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACT S IN DIFFERENTIATING BETWEEN THE TERM 'SECURITY DEPOSIT' AND 'BORROWED CAPITAL V) THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONSIDERING THE EXPRESSION ''CAPITAL BORROWED' PRED ICATES THE RELATION OF A BORROWER AND A LENDER; WHICH RELATION SHIP DOES NOT EXISTS IN THAT CASE. VI) THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACT S IN APPRECIATING THAT THE INTEREST BEARING REFUNDABLE S ECURITY DEPOSITS RECEIVED FROM THE TENANTS ONLY TO PROTECT THE POSSI BLE DAMAGE TO THE RENTAL PROPERTY OR NON -PAYMENT OF RENT. VII) THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FAC TS IN APPRECIATING THAT FISCAL LAW MUST BE STRICTLY CONST RUED, THE WORDS MUST SAY WHAT THEY MEAN NOTHING SHOULD BE PRESUMED OR EMPLOYED AS HELD IN HON'BLE SC IN M/S. GOODYEAR IND IA LTD. VS. STATE OF HARYANA 188 ITR 402. VIII) THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FA CTS NOT CONSIDERING THE JUDGMENT OF HON'BLE SC IN THE CASE OF BOMBAY STEAM NAVIGATION CO.{L953) PVT. LTD. VS. CIT (1965) 56 ITR 52. IX] THE LD.CIT(A)'S ORDER IS CONTRARY IN LAW AND ON FACTS AND DESERVES TO BE SET ASIDE. ' 2. THUS THE ONLY ISSUE RAISED BY THE REVENUE IS THA T, DEDUCTION OF INTEREST CLAIMED BY THE ASSESSEE U/S 24 (B) IS NOT ALLOWABLE BECAUSE THE SAME HAS BEEN PAID ON SECURITY DEPOSIT RECEIVED FRO M THE TENANTS. 3. THE BRIEF FACTS OF THE CASE ARE THAT, ASSESSEE I S ENGAGED IN THE BUSINESS OF BUILDERS AND DEVELOPERS. DURING THE YEA R THE ASSESSEE HAD SHOWN INCOME FROM HOUSE PROPERTY, INCOME FROM CAPIT AL GAIN AND INCOME FROM OTHER SOURCES. IN THE COMPUTATION OF IN COME HOUSE PERTY, THE ASSESSEE HAD CLAIMED DEDUCTION OF INTEREST OF R S.62,34,000/-U/S 24(B). THE ASSESSEE HAD TAKEN AN UNSECURED LOAN FRO M RELIANCE INDUSTRIES LTD. OF RS. 11 CRORES FOR THE PURCHASE O F IMMOVABLE PROPERTY AT MITTAL COURT, NARIMAN POINT. THE SAID LOAN WAS I NTEREST FREE AND WAS ITA NO. 6920/MUM/2012 ASSESSMENT YEAR: 2009-10 3 PROVIDED FOR A VERY SHORT PERIOD TO BE REPAID WITHI N THE PERIOD OF 60 DAYS. THE PROPERTY WAS PURCHASED FOR RS.10,07,69,54 0/-. THEREAFTER, THE ASSESSEE LET OUT THESE PROPERTIES TO VARIOUS TE NANTS AND IN TERMS OF THE AGREEMENT ASSESSEE RECEIVED DEPOSITS FROM THESE TENANTS FOR SUM AGGREGATING TO RS.10,25,40,000/-. THESE DEPOSITS WE RE INTEREST BEARING WHERE THE ASSESSEE HAD TO PAY INTERST @ 6%. THESE D EPOSITS WERE UTILIZED FOR THE REPAYMENT OF LOAN TAKEN FORM THE R ELIANCE INDUSTRIES. THE ASSESSEES SUBMISSION IN THIS REGARD HAVE BEEN INCORPORATED BY THE AO FROM PAGES 2 TO 4 OF THE ASSESSMENT ORDER. THE L D ASSESSING OFFICER HELD THAT SECTION 24(B) CLEARLY PROVIDES THAT, INTE REST SHOULD BE PAYABLE ON CAPITAL BORROWED OR THE CAPITAL BORROWED MUST BE FOR THE PURPOSE OF REPAYMENT OF OLD LOAN. THE SECURITY DEPOSITS CANNOT BE TERMED AS CAPITAL BORROWED FOR THE PURPOSE OF REPAYMENT OLD LOAN. THE REAFTER, HE ALSO EXAMINED THE AGREEMENT WITH THE ASSESSEE AND TENANT S, WHEREIN THE NOTICED THAT THERE WAS CLEAR CUT AGREEMENT THAT PAY MENT RECEIVED BY ASSESSEE WAS TOWARDS DEPOSITS BEARING INTEREST OF 5 % PER ANNUM. SOME OF THE AGREEMENT HAVE BEEN REPRODUCED BY HIM FROM P AGES 7 TO 9 OF THE ASSESSMENT ORDER. THUS, AFTER GIVING DETAIL REA SONING, HE HELD THAT SUCH AN INTEREST IS NOT ALLOWABLE AS DEDUCTION U/S 34(B). 4. BEFORE THE LD. CIT(A), THE ASSESSEE GAVE FOLLOWI NG DETAILS OF BORROWING MADE IN THE FINANCIAL YEAR 2006-07, WHICH WERE IN THE FORM OF LOAN AND DEPOSITS. DATE NAME OF THE PARTY NATURE OF RECEIPT AMOUNT (RS .) 01.03.2007 SIMPLEX CONSTRUCTION PVT. LTD. LOAN 1,50,00,000/- 02.03.2007 RAMBHITA TRADING PVT. LTD. LOAN 11,00,000/- ITA NO. 6920/MUM/2012 ASSESSMENT YEAR: 2009-10 4 03.03.2007 LADERUP CORPORATE ADVISORY PVT. LTD. LOAN 50,00,000/ - 07.03.2007 LADERUP CORPORATE ADVISORY PVT. LTD. LOAN 50,00,000/ - 07.03. 2007 SPA SECURITIES LTD. DEPOSIT 25,00,000/ - 13.03.2007 LADDERUP CORPORATE LOAN 20,00,000/- 13.03.2007 LOTUS LOGISTICS PVT. LTD. LOAN 1,00,00,000/- 13.03.2007 SPA CAPITAL SERVICES LTD. DEPOSIT 1,00,00,000/- 13.03.2007 SPA MERCHANT BANKERS LTD. DEPOSIT 1,00,00,000/- 13.03.2007 SPA SECURITIES LTD. DEPOSIT 3,00,00,000/ - 22.03.2007 SPA MERCHANT BANKERS LTD. DEPOSIT 9,40,000/- 22.03.2007 SPA CAPITAL SERVICES LTD. DEPOSIT 10,00,000/- TOTAL BORROWINGS 10,25,40,000/- THEN AGAIN IN THE A.Y. 2008-09, THE ASSESSEE ACCEPT ED FURTHER DEPOSITS OF RS.10,39,000,00/-. THESE AMOUNTS WERE UTILIZED T O REPAY THE BALANCE OF EARLIER LOAN TAKEN. THE PURPOSE AND UTILIZATION OF SUBSEQUENT LOANS/DEPOSITS WAS SUBMITTED BEFORE HIM IN THE FORM OF FUND FLOW STATEMENT AND THE BANK STATEMENT. THESE DEPOSITS WE RE IN FACT WERE A KIND OF LOAN ONLY, AS IT BEARED THE INTEREST RATE O F 6%. SUCH A LOAN ON DEPOSITS WERE UTILIZED FOR THE REPAYMENT OF ORIGINA L LOAN TAKEN FOR THE PURCHASE OF HOUSE PROPERTY. THERE IS NOTHING IN THE SECTION TO SUGGEST THAT DEDUCTION OF INTEREST IS ALLOWABLE STRICTLY ON THE LOANS. THE ITA NO. 6920/MUM/2012 ASSESSMENT YEAR: 2009-10 5 BORROWINGS CAN BE IN THE FORM OF LOANS OR DEPOSITS, AS THE STATUTE ENVISAGES THE PHRASE BORROWED CAPITAL. AND NOT LO AN ALONE. THE INTEREST BEARING REFUNDABLE DEPOSITS WAS NOTHING BU T CAPITAL BORROWING ONLY FOR THE PURPOSE OF SECTION 24(B). RELIANCE WAS ALSO PLACED ON THE DECISION OF ITAT MUMBAI BENCH IN THE CASE OF JCIT VS. B.K. PATEL FAMILY TRUST REPORTED IN (2006) 9SOT 583 . 5. THE LD. CIT-(A) AFTER DEALING WITH THE ENTIRE OB SERVATION OF THE AO AS WELL AS SUBMISSIONS OF THE ASSESSEE, AND THE FAC TS OF THE CASE, ALLOWED THE CLAIM OF DEDUCTION OF INTEREST U/S 24(B ) AFTER OBSERVING AND HOLDING AS UNDER:- 'IT WAS AN ADMITTED FACT THAT SECURITY DEPOSIT TAKE N BY THE APPELLANT FROM THE TENANTS WAS INTEREST BEARING I.E @. 6%. THE FACTS SHOWS THAT THE SECURITY DEPOSITS TAKEN BY THE APPELLANT WAS MORE THAN 120 TIMES OF THE MONTHLY RENT OF THE PROP ERTY. IN THE CASE UNDER CONSIDERATION, THIS CANNOT BE TERMED AS NORMAL SECURITY DEPOSIT IN ANY CASE, WHETHER IT IS A NORMA L SECURITY DEPOSIT OR A SECURITY DEPOSIT OF VERY HIGH AMOUNT, IF INTEREST IS PAYABLE ON SUCH SECURITY DEPOSIT, SUCH SECURITY DEP OSIT IS NOTHING BUT BORROWED CAPITAL OR BORROWED LOANS. NOMENCLATUR E 'SECURITY DEPOSIT' USED WILL NOT ALTER THE CHARACTER OF THE T RANSACTION. SINCE IT WAS INTEREST BEARING, THE SECURITY DEPOSIT WAS N OTHING BUT INTEREST BEARING CAPITAL! LOANS. ANY INTEREST BEARI NG LOAN/CAPITAL TAKEN FOR REPAYMENT OF ORIGINAL LOAN PARTAKES THE C HARACTER OF ORIGINAL LOAN AS EXPLAINED AND RECOGNIZED IN SEC.24 OF THE IT ACT. IN MY CONSIDERED VIEW, IF INTEREST IS PAYABLE ON AM OUNT REPAYABLE, SUCH INTEREST EXPENSES IS ALLOWABLE AS D EDUCTION U/S 24(B) OF THE ACT WHETHER TERM USED FOR THE AMOUNT B ORROWED IS ''SECURITY DEPOSIT' OR ''BORROWED CAPITAL 'OF 'BORR OWED LOANS'. IF INTEREST IS PAYABLE ON SECURITY DEPOSIT THE AMOUNT WAS NOTHING BUT LOAN OR CAPITAL BORROWED. SINCE INTEREST WAS PA YABLE ON SUCH AMOUNT TAKEN IN THE NAME OF 'SECURITY DEPOSIT, THER E EXISTED RELATIONSHIP OF LENDING AND BORROWING. IT IS ALSO I MPORTANT TO NOTE AS TO HOW THE MONEY HAS BEEN UTILIZED. IN THE CASE UNDER CONSIDERATION, THE SECURITY DEPOSIT WAS INTEREST BE ARING AND SECOND IT HAD BEEN UTILIZED FOR THE PURPOSE OF REPA YMENT OF ORIGINAL LOAN. FOR THE PURPOSE OF ALLOWING DEDUCTIO N U/S 24(B) OF THE ACT, IT SHOULD BE THE INTEREST BEARING MONEY BO RROWED AND ITA NO. 6920/MUM/2012 ASSESSMENT YEAR: 2009-10 6 THE TERM 'CAPITAL, 'LOAN OR 'DEPOSIT' IS IMMATER IAL. IT IS ALSO IMMATERIAL WHETHER THE LENDER PARTY WAS NOR NOT IN THE BUSINESS OF MONEY LENDING. THE AO ALSO RAISED A DOUBT AS TO WHETHER THE AMOUNT RECEIVED AS SECURITY DEPOSIT WAS UTILIZED FOR REPAYMENT OF ORIG INAL LOAN. THE APPELLANT HAS EXPLAINED THAT THE AMOUNT OF SECURITY DEPOSIT TAKEN WAS UTILIZED ONLY FOR THE PURPOSE OF REPAYMENT OF O RIGINAL LOAN. IN SUPPORT OF ITS ARGUMENT, THE APPELLANT HAS FILED BA LANCE SHEET WHICH SHOWS THE ONLY ASSET AS INVESTMENTS IN IMMOVA BLE PROPERTY AT RS.10.23 CRORES. ON THE OTHER HAND, THE MAJOR LI ABILITY IS ON ACCOUNT OF SECURITY DEPOSITS TAKEN AT 10.39 CRORES. THE BALANCE SHEET SUPPORTS THE APPELLANTS SUBMISSION THAT THE A MOUNT OF SECURITY DEPOSIT WAS UTILIZED ONLY FOR THE PURPOSES OF REPAYMENT OF ORIGINAL LOANS. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE , IN MY CONSIDERED VIEW THE INTEREST PAID BY THE APPELLANT ON SECURITY DEPOSIT TAKEN FROM THE TENANTS AND LOAN, IF ANY TAK EN FROM OTHER PERSONS, WAS ALLOWABLE AS EXPENDITURE UJS.24(B) OF THE ACT. THE AO IS DIRECTED TO ALLOW DEDUCTION OF SUCH INTEREST EXPENSES. ' 6. BEFORE US, LD. DR STRONGLY RELIED UPON THE ORDER OF THE AO AND SUBMITTED THAT THE ASSESSEE HAS REPAID THE LOAN FRO M THE DEPOSITS RECEIVED FROM THE TENANTS OF THE PROPERTY. SUCH DEP OSITS CANNOT BE EQUATED WITH THE LOAN AS THE SAME WAS IN LIEU OF US AGE OF THE PROPERTY FOR RENT. FROM THE PERUSAL OF THE LEASE AGREEMENT A LSO, IT IS CLEAR THAT APART FROM THE RENT, THE ASSESSEE HAS RECEIVED DEPO SITS THOUGH ON INTEREST @ 6% PER ANNUM. THESE DEPOSITS CANNOT BE T REATED AS BORROWED CAPITAL EITHER FOR THE PURCHASE OF PROPERT Y OR FOR THE REPAYMENT OF OLD LOAN. THUS, ASSESSEE'S CLAIM FOR I NTEREST CANNOT BE ALLOWED WITHIN THE AMBIT OF SECTION 24(B). 7. BEFORE US THE LEARNED COUNSEL STRONGLY RELIED UP ON THE ORDER OF THE LD. CIT-(A) AND SUBMITTED THAT THE ASSESSEE HAS MOS TLY TAKEN LOAN FROM THE VARIOUS PARTIES. IT HAS ALSO RECEIVED DEPOSITS FROM THE TENANTS ON WHICH ASSESSEE HAD TO~ INTEREST. THEREFORE, SUCH DEP OSIT WAS IN THE ITA NO. 6920/MUM/2012 ASSESSMENT YEAR: 2009-10 7 NATURE OF LOAN ONLY AND HENCE INTEREST PAID ON THE DEPOSITS ALSO WHICH WAS UTILIZED IN REPAYMENT OF THE LOAN SHOULD BE ALL OWED. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALSO PER USED THE RELEVANT FINDING GIVEN IN THE IMPUGNED ORDERS, THE ASSESSEE HAD PURCHASED PROPERTY BY UTILIZING THE LOAN OF RS. 11 CRORES TAK EN FROM RELIANCE INDUSTRIES LTD., FOR A SHORT PERIOD. THIS LOAN WAS INTEREST FREE. IN ORDER TO REPAY THE LOAN, THE ASSESSEE HAD TAKEN LOAN AND ALSO DEPOSITS FROM ITS TENANTS AS PER THE DETAILS INCORPORATED ABOVE. THE ASSESSEE HAD UTILIZED THE INTEREST BEARING SECURITY DEPOSITS FOR THE REPAYMENT OF LOAN TAKEN FROM THE RELIANCE INDUSTRIES. THE INTEREST PA ID ON THE DEPOSIT @ 6% HAS BEEN CLAIMED AS DEDUCTION U/S 24(B), ON THE GROUND THAT IT IS BORROWED CAPITAL UTILIZED FOR THE REPAYMENT OF OLD LOAN. GENERALLY UNDER A LEASE AGREEMENT, THE SECURITY DEPOSITS ARE TAKEN AS AN ADVANCE OF RENT OF A CERTAIN PERIOD WHICH ARE GENERALLY NOT INTERES T BEARING. HERE IN THIS CASE THE DEPOSITS RECEIVED FROM VARIOUS TENANTS ARE MORE THAN 100 TIMES OF THE ARRIVAL RENT AMOUNT. THESE DEPOSITS HA VE BEEN TAKEN/ACCEPTED ON A PAYMENT OF INTEREST @ 6% PER AN NUM AND DEPOSIT IS TO BE REFUNDED BACK BY THE ASSESSEE. NOW, WHETHE R SUCH A DEPOSIT CAN BE RECKONED AS 'BORROWED CAPITAL' WITHIN THE ME ANING OF SECTION 24(B). THE WORD 'BORROW' AS DEFINED IN LAW LEXICON (2ND EDITION) MEANS TO TAKE OR RECEIVING FROM ANOTHER PERSON AS A LOAN OR ON TRUST MONEY OR OTHER ARTICLE OF VALUE WITH THE INTENTION OF RETURN ING OR GIVING AN EQUIVALENT FOR . A PERSON CAN BORROW ON A NEGOTIATED INTEREST WITH OR WITHOUT SECURITY. IF THE DEPOSITS ARE INTEREST BEAR ING AND IS TO BE REFUNDED BACK, THEN DEBT IS CREATED ON THE ASSESSEE WHICH IT IS LIABLE TO BE DISCHARGED IN FUTURE. HERE THE CONCEPTS OF DEBT HAS TO BE UNDERSTOOD AS PER THE TERMS OF THE PARTIES. IF THE DEPOSITS HA D BEEN SECURITY DEPOSIT ITA NO. 6920/MUM/2012 ASSESSMENT YEAR: 2009-10 8 SIMPLICITOR TO COVER THE DAMAGE OF THE PROPERTY OR LAPSES ON PART OF THE TENANT EITHER FOR NON-PAYMENT OF RENT OR OTHER CHAR GES, THEN SUCH A DEPOSIT CANNOT BE EQUATED WITH THE BORROWED MONEY, BECAUSE THEN THERE IS NO DEBT ON THE ASSESSEE. A MOMENT A DEPOSI T IS ACCEPTED ON INTEREST, THEN IT PART TAKES THE CHARACTER OF BORRO WED MONEY. IT IS AN UNDISPUTED FACT HERE THAT, THESE INTEREST BEARING D EPOSITS HAS BEEN UTILIZED FOR REPAYMENT OF BORROWED CAPITAL. ACCORDI NGLY, FINDING OF THE LD. CIT(A) IN THIS REGARD IS AFFIRMED. GROUND RAISE D BY THE REVENUE ARE DISMISSED. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 25 TH DAY OF MARCH, 2015. SD/- SD/- (D.KARUNAKAR RAO) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 25.03.2015 *SRIVASTAVA COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR E BENCH //TRUE COPY// BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.