M/s. FLORA CAPITAL & CREDIT P. LTD., MUMBAI V. ITO - 3(1)(4), MUMBAI

ITA 7326/MUM/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 1149 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 7 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-07-2010
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 17-06-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 07-12-2007
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: JAGDISH
• Keywords: Business income; Depreciation; Business expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI F` BENCH BEFORE SHRI T.R.SOOD, AM & SMT. ASHA VIJAY RAGHAVAN , JM I.T.A.NO. 7326/MUM/2007 - A.Y 2003-04 M/S FLORA CAPITAL & CREDIT PVT. LTD., 1004, MAKER CHAMBER V, NARIMAN POINT, MUMBAI 400 021 PAN NO.AAADCF 0814 A VS. THE INCOME TAX OFFICER 3(1)(4), MUMBAI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SATISH MODY. REVENUE BY : SHRI JAGDISH. O R D E R PER T.R.SOOD, AM: IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLLOW ING GROUNDS: 1. ON THE FACTS OF CASE AND IN LAW THE LEARNED CIT[A] ERRED IN HOLDING INCOME OF RS.3,00,000/- AS THE INCOME FROM HOUSE PROPERTY INSTEAD OF BUSINESS INCOME. 2. ON FACTS OF CASE AND IN LAW THE LEARNED CIT[A] HAD IN DISALLOWING DEPRECIATION OF RS.7,85,603/- AND PAINT ING CHARGES OF RS.29,000/-. 7. GROUND NO.1 : AFTER HEARING BOTH THE PARTIES, WE FIND THAT DURING ASSESSMENT PROCEEDINGS AO NOTICED THAT ASSES SEE HAD RECEIVED COMPENSATION OF RS.3,00,000/- AGAINST WHICH VARIOUS BUSINESS EXPENSES WERE CLAIMED. A QUERY WAS RAISED AS TO WHY THIS COMPENSATION RECEIPT COULD NOT BE TREATED AS INCOM E FROM HOUSE PROPERTY. IN RESPONSE TO THE SAME, IT WAS SUBMITTE D AS UNDER: THE FLORA CAPITAL & CREDIT P. LTD. IS A FINANCE CO MPANY ENGAGED IN THE BUSINESS OF PLACEMENT OF INTER-CORPORATE DEPOSI TS [ICD] AND BILL DISCOUNTING. FROM F.Y 2001-02, DUE TO SLUGGISH DEMA ND IN FINANCE AND HIGH RISK FACTOR, THE ASSESSEE HAS GIVEN TABLE SPACE TO M/S CREDENCE SECURITIES P. LTD. FOR RUNNING ITS BUSINES S FOR RS.3,00,000/- P.A. ONLY AS SMALL PORTION OF TABLE SPACE WAS GIVEN TO, THEREFORE THE COMPENSATION RECEIVED FROM M/S CREDENCE SECURITIES P. LTD. SHOULD BE NOT BE TREATED AS INCOME FROM HOUSE PROPERTY BUT BUSINESS INCOME. 2 AO AFTER EXAMINATION OF THE SUBMISSIONS OBSERVED TH AT ASSESSEE HAD BASICALLY RECEIVED RENTAL INCOME WHICH WAS BEING DI SGUISED AS COMPENSATION. THE AO REFERRED TO THE DECISION OF TH E SUPREME COURT IN THE CASE OF CIT VS. SHAMBHU INVESTMENTS LTD. [263 I TR 143] AND HELD THAT COMPENSATION WAS IN THE NATURE OF RENTAL INCOM E AND, THEREFORE, THE SAME WAS ASSESSED AS INCOME FROM HOUSE PROPERT Y. AO ALLOWED STATUTORY DEDUCTION U/S.24[A] @ 30% AND ASSESSED TH E INCOME FROM HOUSE PROPERTY AT RS.2,10,000/-. 8. BEFORE THE CIT[A] , IT WAS MAINLY CONTENDED THAT THE ASSESSEE WAS A FINANCE COMPANY MAINLY ENGAGED IN THE BUSINES S OF PLACEMENT OF INTER CORPORATE DEPOSITS AND BILL DISCOUNTING. S INCE THE COMPANY WAS SUFFERING CONTINUOUS LOSSES, IT WAS DECIDED TO EXPL OIT ITS COMMERCIAL ASSETS TEMPORARILY TO OVER COME THE FINANCIAL ITS F INANCIAL LOSSES. THE COMPANY LET OUT THE PREMISES TOGETHER WITH ALL ASSE TS AND RECEIVED THE COMPENSATION UNDER AN AGREEMENT OF LICENSOR AND LIC ENSEE AND NOT THAT OF LAND-LORD AND TENANT AND, THEREFORE, THIS C OMPENSATION SHOULD HAVE BEEN ASSESSED AS INCOME FROM BUSINESS. THE LD. CIT[A] AFTER EXAMINING THE SUBMISSIONS, DID NOT FIND FORCE IN TH E SAME AND HE ALSO FOLLOWED THE DECISION OF THE SUPREME COURT IN THE C ASE OF SHAMBHU INVESTMENT LTD. [SUPRA] AND HELD THAT COMPENSATION RECEIVED WAS IN THE NATURE OF INCOME FROM PROPERTY, PARTICULARLY, B ECAUSE NO AGREEMENT WAS FILED REGARDING HOW MUCH SPACE WAS LE T OUT. 9. BEFORE US, LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT BUSINESS WAS TEMPORARILY CLOSED BECAUSE THERE WERE LOTS OF L OSSES. HE ARGUED 3 THAT ONLY A SMALL PORTION WAS GIVEN ON RENT AND, TH EREFORE, SUCH COMPENSATION SHOULD HAVE BEEN ASSESSED AS INCOME FR OM BUSINESS. 10. ON THE OTHER HAND, LD. DR SUBMITTED THAT NO AGR EEMENT REGARDING LETTING OUT WAS FILED BEFORE THE LOWER AU THORITIES OR EVEN BEFORE THE TRIBUNAL TO SHOW THAT THE PREMISES WERE LET OUT ALONG WITH THE OTHER ASSETS AND, THEREFORE, SUCH CO MPENSATION RECEIVED BY THE ASSESSEE FROM LETTING OUT, HAS TO B E ASSESSED ONLY AS INCOME FROM HOUSE PROPERTY. HE ALSO RELIED ON THE DECISION OF THE SUPREME COURT IN THE CASE OF SHAMBH U INVESTMENTS PVT. LTD. VS. CIT [249 ITR 47]. 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY AND FIND FORCE IN THE SUBMISSIONS OF THE LD. DR. THOUGH IT W AS URGED BEFORE THE LOWER AUTHORITIES THAT ONLY A TABLE SPACE WAS GIVEN , BUT AGREEMENT OF LETTING OUT WAS NOT FURNISHED BEFORE THE LOWER AUTH ORITIES OR EVEN BEFORE US. WHEN THE ISSUE HAD BEEN DECIDED AGAINST THE ASSESSEE BY THE CIT[A] , THE ASSESSEE COULD HAVE TAKEN CAUTION TO FILE A COPY OF THE AGREEMENT. THE LD. COUNSEL OF THE ASSESSEE ADMITTED DURING THE HEARING THAT SUCH AGREEMENT WAS NOT TRACEABLE. THER EFORE, IT CANNOT BE INFERRED THAT THE ASSESSEE HAD LET OUT THE PREMI SES ALONG WITH THE OTHER ASSETS. FURTHER, NO EVIDENCE WAS FILED BEFORE US TO SHOW THAT ASSESSEE HAD RESTARTED THE BUSINESS IN LATER YEAR. IN ANY CASE, THE HON'BLE SUPREME COURT IN THE CASE OF SHAMBHU INVEST MENTS PVT. LTD. WHEREIN IT WAS HELD AS UNDER: HELD, THAT IT WAS EVIDENT FROM THE AGREEMENT THAT THE ASSESSEE HAD LET OUT THE FURNISHED OFFICE TO THE OCCUPANTS ON A MONT HLY RENTAL WHICH WAS INCLUSIVE OF ALL CHARGES TO THE ASSESSEE . THE ENTIRE COST OF THE PROPERTY LET OUT TO THE OCCUPANTS HAD BEEN RECOVERE D AS AND BY WAY OF INTEREST-FREE ADVANCE BY THE ASSESSEE . THEREFORE, IT COULD NOT BE SAID THAT THE ASSESSEE WAS EXPLOITING THE PROPERTY FOR ITS COMMERCIAL BUSINESS ACTIVITIES. 4 THEREFORE, FOLLOWING THE ABOVE DECISION, WE HOLD TH AT THE COMPENSATION RECEIVED BY THE ASSESSEE FROM LETTING OUT OF THE PROPERTY HAS BEEN RIGHTLY HELD TO BE ASSESSABLE AS INCOME FR OM HOUSE PROPERTY AND ACCORDINGLY WE CONFIRM THE ORDER OF THE LD. CIT [A] . 12. GROUND NO.2 : AFTER HEARING BOTH THE PARTIES WE FIND THAT THE ASSESSEE HAD CLAIMED DEPRECIATION ON THE ABOVE PROP ERTY AMOUNTING TO RS.7,39,619/- IN ADDITION TO THIS ASSESSEE HAS CLAI MED PAINTING EXPENSES OF RS.29,000/-. THIS DEPRECIATION WAS DISA LLOWED BY THE AO BECAUSE, ACCORDING TO HIM, ONCE INCOME WAS ASSESSED AS INCOME FROM HOUSE PROPERTY AND THERE WAS NO BUSINESS, THEN NO OTHER DEDUCTION WAS ALLOWABLE UNDER THE HEAD INCOME FROM HOUSE PRO PERTY EXCEPT THAT STATUTORY DEDUCTION U/S.24[A] WHICH HAS ALREAD Y BEEN ALLOWED BY THE AO. 13. THE LD. CIT[A] HAS ADJUDICATED THIS ISSUE VIDE PARA 3.5 WHICH IS AS UNDER- 3.5 IN THE APPELLANTS CASE ALSO, THE PURPOSE OF C OMPENSATION RECEIVED BY THE ASSESSEE IS PURELY IN THE NATURE OF RENT AS THE ASSESSEE HAS EXPLOITED THE PROPERTY FOR THE SOLE PURPOSE OF DERIVING RENT. THEREFORE THE ASSESSING OFFICER HAS RIGHTLY ASSESSE D THIS INCOME AS INCOME FROM HOUSE PROPERTY AS PER DECISION OF HON'B LE SUPREME COURT IN THE CASE OF SHAMBHU INVESTMENTS LTD. [SUPR A]. THE ACTION OF THE ASSESSING OFFICER IS JUSTIFIED AND CONFIRMED. A S REGARDS CLAIM OF DEPRECIATION IS CONCERNED, THE APPELLANT HIMSELF AD MITTED THAT THERE WAS NO BUSINESS ACTIVITY DONE DURING THE YEAR. FURT HER THE APPELLANT HAS NOT CLARIFIED AT HOW MUCH PORTION WAS GIVEN ON RENT AND HOW THIS HAS BEEN UTILIZED BY THE APPELLANT. THEREFORE, THE ASSESSING OFFICER HAS RIGHTLY DISALLOWED DEPRECIATION CLAIMED BY THE ASSESSEE AS NO DEPRECIATION IS ALLOWABLE AGAINST THE INCOME FROM H OUSE PROPERTY. THE ACTION OF THE ASSESSING OFFICER IS CONFIRMED IN THI S REGARD. 14. BEFORE US, THE LD. COUNSEL OF THE ASSESSEE SUBM ITTED THAT ONCE AN ASSET HAS ENTERED INTO A BLOCK, THEN FOR THE PUR POSE OF DEPRECIATION THE USAGE HAS TO BE SEEN ONLY IN THE FIRST YEAR WHE N THE ASSET ENTERS 5 INTO THE BLOCK AND LATER ON DEPRECIATION HAS TO BE ALLOWED ON THE BASIS THAT PARTICULAR ASSET FALLS INTO THE PARTICULAR BLO CK OF ASSETS. IN THIS REGARD HE STRONGLY RELIED ON THE ORDER OF THE TRIBU NAL IN THE CASE OF G.R.SHIPPING LTD. VS. DY. CIT IN I.T.A.NO.822/M/05 [COPY OF WHICH HAS BEEN FILED ON RECORD]. 15. ON THE OTHER HAND, THE LD. DR, SUBMITTED THAT S INCE THE BUILDING HAS BEEN USED FOR LETTING OUT PURPOSES AND, THEREFO RE, IT DOES NOT REMAIN IN THE BLOCK OF ASSETS AND, ACCORDINGLY, THE ASSESSEE IS NOT ENTITLED TO DEPRECIATION. 16. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY AND ARE UNABLE TO AGREE WITH THE SUBMISSIONS OF THE LD. COU NSEL OF THE ASSESSEE. THOUGH THE CONCEPT OF BLOCK OF ASSETS IS ELIGIBLE, BUT WHEN IT RELATES TO ONLY ONE ASSET, I.E. BUILDING, AND IF IN COME FROM THE SAME IS ASSESSED AS INCOME FROM HOUSE PROPERTY, THEN NO DED UCTION IS POSSIBLE EXCEPT THE DEDUCTION PROVIDED UNDER THE ACT. SINCE THERE IS NO BUSINESS INCOME, HENCE THERE IS NO QUESTION OF ANY DEDUCTION UNDER THE HEAD BUSINESS AND FURTHER WHEN A PARTICULAR ASS ET IS USED ONLY FOR THE PURPOSE OF LETTING OUT, THEN THE CONCEPT OF BLO CK OF ASSETS CANNOT BE APPLIED BECAUSE THE BUILDING ON WHICH DEPRECIATI ON IS BEING CLAIMED, WOULD GO OUT OF THE BLOCK AS THE SAME WAS USED FOR THE PURPOSE OF LETTING OUT AND WAS NOT USED FOR THE BUS INESS PURPOSES. THEREFORE, WE FOND NOTHING WRONG IN THE ORDER OF TH E LD. CIT[A] AND CONFIRM THE SAME. 16. IN THE RESULT, ASSESSEES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 9TH DAY OF JULY, 2010. SD/- SD/- (ASHA VIJAY RAGHAVAN) (T.R.SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI: 9 TH JULY, 2010. 6