M/S. BOMBAY SEALINK BUILDERS P. LTD., MUMBAI V. ITO - 3(1)(2), MUMBAI

ITA 794/MUM/2008

• Counselvise Citation: 79419914 RSA 2008
• Duration Of Justice: 3 year(s) 2 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 28-12-2010
• Assessment Year: 1999-2000
• Appeal Filed On: 06-02-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K SINGH
• Keywords: Business income; Depreciation; Business expenditure; Notional interest; Unabsorbed depreciation

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL I BENCH, MUMBAI BEFORE SHRI R.S.PADVEKAR (JM) AND SHRI RAJENDRA SI NGH(AM) ITA NO.794/M/2008 ASSESSMENT YEAR 1999-200 ITA NO.795/M/2008 ASSESSMENT YEAR 2001-02 ITA NO.7210/M/2007 ASSESSMENT YEAR 2002-03 ITA NO.3552/M/2009 ASSESSMENT YEAR 2006-07 BOMBAY SEALINK BUILDERS (P) LTD. THE ITO 3(1)(2), AAYAKAR BHAVAN, 121, MAKER CHAMBER VI M.K.ROAD, MUMBAI 400 020 NARIMAN POINT, MUMBAI 400 021. PAN : AAACB2701Q APPELLANT RESPONDENT ITA NO.7352/M/2007 ASSESSMENT YEAR 2002-03 ITA NO.3142/M/2009 ASSESSMENT YEAR 2006-07 THE ITO 3(1)(2), MUMBAI BOMBAY SEALINK BUILDERS (P) LTD. APPELLANT RESPONDENT ASSESSEE BY : SHRI VIMAL PUNMIYA REVENUE BY : SHRI S.K. SINGH O R D E R PER BENCH THESE APPEALS/ CROSS APPEALS ARE DIRECTED AGAINST DIFFERENT ORDERS DATED 30.10.07, 28.9.07, 20.2.09 OF CIT(A) FOR THE ASSESS MENT YEARS 1999-00, 2001- 02, 2002-03 AND 2006-07. AS THERE ARE SOME COMMON I SSUES INVOLVED IN THESE APPEALS, THESE ARE BEING DISPOSED OFF BY A SINGLE C ONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 2 2. THE APPEALS OF THE ASSESSEE IN ITA NOS.794/M/2008, 795/M/2008, 7210/M/2007 AND 3552/M/2009 . THE DISPUTES RAISED BY THE ASSESSEE IN THESE APPEALS RELATE TO NATURE OF RENTAL INCOME REC EIVED BY THE ASSESSEE FROM LETTING OUT OF FLAT, ALLOWABILITY OF EXPENSES RELAT ING TO SOCIETY CHARGES, TRAVELING AND DEPRECIATION, NATURE OF INTEREST INCOME AND CAR RIED FORWARD OF LOSS OF EARLIER YEARS. 2.1 THE FIRST DISPUTE WHICH IS RELEVANT ONLY FOR A. YRS.2002-03 AND 2006-07 IS REGARDING NATURE OF RENTAL INCOME EARNED BY THE ASS ESSEE FROM LETTING OUT OF FLAT. THE ASSESSEE WHICH IS A PRIVATE COMPANY HAD B EEN FORMED WITH THE OBJECT OF ACQUIRING/ DEVELOPING PROPERTIES FOR THE PURPOSE OF BUSINESS. THE ASSESSEE HAD ACQUIRED A RESIDENTIAL FLAT AT THE PREMISES OF NATIONAL CENTRE OF PERFORMING ARTS (NCPA) ON 31.3.1992 FOR A SUM OF RS.3,12,40,75 0/- WHICH HAD BEEN LET OUT TO HSBC BANK. THE ASSESSEE HAD ALSO TAKEN INTER EST FREE DEPOSIT OF RS.3.5 CRORES FROM THE TENANT IN ADDITION TO THE RENTAL IN COME. THE ASSESSEE HAD DECLARED THE RENTAL INCOME ARE BUSINESS INCOME. THE AO HOWEVER DID NOT ALLOW THE CLAIM AND ASSESSED THE RENTAL INCOME AS HOUSE P ROPERTY INCOME. IN APPEAL THE ASSESSEE SUBMITTED THAN MAIN OBJECT OF THE ASSE SSEE COMPANY WAS TO EXPLOIT IMMOVABLE PROPERTIES INCLUDING LETTING OUT OF PROPERTY. THE FLAT ACQUIRED BY THE ASSESSEE HAD BEEN SHOWN AS BUSINESS ASSET ON WHICH THE ASSESSEE WAS CLAIMING DEPRECIATION. THE RENTAL INCOME SHOULD THE REFORE TO BE ASSESSED AS BUSINESS INCOME. CIT(A) HOWEVER OBSERVED THAT THE A O HAD GIVEN A FINING THAT THERE WAS NO BUSINESS DONE DURING THE YEAR. THE ASS ESSEE HAD RECEIVED RENTAL INCOME FROM LETTING OUT OF THE RESIDENTIAL FLAT. CI T(A) THEREFORE HELD THAT THE RENTAL INCOME SHOULD BE ASSESSED AS INCOME FROM HOU SE PROPERTY. AGGRIEVED BY THE SAID DECISION THE ASSESSEE IS IN APPEAL. 3 2.1.1 WE HAVE HEARD BOTH THE PARTIES, PERUSED THE R ECORDS AND CONSIDERED THE MATTER CAREFULLY. THE LEARNED AR FOR THE ASSESSEE A DMITTED THAT NO BUSINESS COULD BE STARTED BY THE ASSESSEE AS THE ASSESSEE BE ING A NON RESIDENT COULD NOT GET THE PERMISSION FROM RBI. THERE IS NO BUSINE SS OF THE COMMERCIAL EXPLOITATION OF THE PROPERTIES HAVING BEEN STARTED BY THE ASSESSEE, RENTAL INCOME FROM THE PROPERTY COULD NOT BE ASSESSED AS B USINESS INCOME. THE ASSESSEE HAD ACQUIRED ONLY ONE RESIDENTIAL FLAT AT NCPA AND INCOME HAD BEEN RECEIVED FROM LETTING OUT OF THE PROPERTY AS AN OWN ER AND NOT FROM COMMERCIAL EXPLOITATION. WE THEREFORE SEE NO INFIRMITY IN THE ORDERS OF AUTHORITIES BELOW ASSESSING THE RENTAL INCOME UNDER THE HEAD HOUSE P ROPERTY. THE SAME IS THEREFORE UPHELD. 2.2 THE SECOND DISPUTE WHICH IS RELEVANT FOR ALL TH E FOUR YEARS IS REGARDING ALLOWABILITY OF DEDUCTION ON ACCOUNT OF SOCIETY CHA RGES PAID BY THE ASSESSEE TO THE SOCIETY. THE AUTHORITIES BELOW HAD DISALLOWED T HE SAME HOLDING THAT THERE WAS NO BUSINESS IN EXISTENCE AND THEREFORE THE EXPE NSES COULD NOT BE ALLOWED. AGGRIEVED BY THE DECISION OF THE CIT(A), THE ASSESS EE IS IN APPEAL BEFORE THE TRIBUNAL. 2.2.1 WE HAVE HEARD BOTH THE PARTIES, PERUSED THE R ECORDS AND CONSIDERED THE MATTER CAREFULLY. THE DISPUTE IS REGARDING ALLOWABI LITY OF EXPENDITURE ON ACCOUNT OF MAINTENANCE CHARGES PAID BY THE ASSESSEE TO SOCI ETY AS AN OWNER OF THE FLAT IN THE SOCIETY. WE HAVE ALREADY HELD THAT THE RENTA L INCOME FROM FLAT HAS TO BE ASSESSED AS INCOME FROM HOUSE PROPERTY. THE INCOME UNDER THE HEAD HOUSE PROPERTY IS ASSESSED IN RESPECT OF BONAFIDE LETTIN G OUT VALUE OF THE PROPERTY AND NOT ANY INCOME FROM ANY OTHER SERVICES. THEREF ORE IN CASE, AS PER THE AGREEMENT, RENT FIXED BETWEEN THE PARTIES ALSO INCL UDES CHARGES FOR ANY 4 SERVICES RENDERED BY THE SOCIETY, SUCH CHARGES INCL UDED IN THE RENT HAVE TO BE EXCLUDED AND ONLY THE PART OF THE RENT RELATING TO THE LETTING OUT OF THE PROPERTY HAS TO BE ASSESSED AS HOUSE PROPERTY INCOME. IN THI S CASE IT IS NOT CLEAR WHETHER THE RENT RECEIVED BY THE ASSESSEE ALSO INCL UDED CHARGES FOR COMMON SERVICES PROVIDED BY THE SOCIETY. THE MATTER THEREF ORE REQUIRES VERIFICATION. WE ACCORDINGLY SET ASIDE THE ORDER OF CIT(A) AND RESTO RE THE MATTER TO THE FILE OF AO FOR PASSING A FRESH ORDER AFTER NECESSARY VERIFI CATION AND AFTER ALLOWING OPPORTUNITY OF HEARING TO THE ASSESSEE. 2.3 THE THIRD DISPUTE IS REGARDING ALLOWABILITY OF EXPENSES ON ACCOUNT OF TRAVELING AND DEPRECIATION ON THE FIXED ASSET. THIS CLAIM HAS BEEN DISALLOWED BY THE AUTHORITIES BELOW ON THE GROUND THAT NO BUSINES S HAD STARTED. IN FACT THE LEARNED AR FOR THE ASSESSEE FAIRLY CONCEDED BEFORE US THAT THE BUSINESS COULD NOT BE STARTED. THEREFORE, IN OUR VIEW, CLAIM OF E XPENSES ON ACCOUNT OF TRAVELING, DEPRECIATION ETC COULD NOT BE ALLOWED. M OREOVER, WE HAVE ALREADY HELD THAT THE RENTAL INCOME FROM THE FLAT HAS TO BE ASSESSED AS INCOME FROM HOUSE PROPERTY AND THEREFORE DEPRECIATION CANNOT BE ALLOWED IN RESPECT OF THE FLAT ON THIS GROUND ALSO. THE ORDER OF CIT(A) IS TH EREFORE UPHELD. 2.4 THE FOURTH DISPUTE WHICH IS RELEVANT ONLY FOR A .Y.2006-07 IS REGARDING NATURE OF INTEREST INCOME RECEIVED BY THE ASSESSEE FROM THE FDRS. THE ASSESSEE HAD DECLARED THE INTEREST INCOME AS BUSINE SS INCOME. THE CLAIM HAS BEEN REJECTED BY THE AUTHORITIES BELOW WHO HAVE ASS ESSED THE INTEREST INCOME AS INCOME FROM OTHER SOURCES. AGGRIEVED BY THE SAID DECISION THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 5 2.4.1 WE HAVE HEARD BOTH THE PARTIES IN THE MATTER. WE HAVE ALREADY HELD EARLIER THAT NO BUSINESS HAD BEEN STARTED BY THE AS SESSEE AND THEREFORE THERE COULD NOT BE ANY LINKAGE OF THE FDR TO ANY BUSINESS DONE BY THE ASSESSEE. THE INTEREST INCOME RECEIVED BY THE ASSESSEE FROM FIXED DEPOSITS IN THE BANK HAS TO BE ASSESSED AS INCOME FROM OTHER SOURCES. WE SEE NO INFIRMITY IN THE ORDER OF CIT(A) IN THIS REGARD AND THE SAME IS THEREFORE UPH ELD. 2.5 THE FIFTH DISPUTE WHICH IS RELEVANT ONLY FOR A. YRS.1999-2000, 2001-02 IS REGARDING CARRIED FORWARD OF LOSSES AND UNABSORBED DEPRECIATION OF EARLIER YEARS. THE CLAIM HAS BEEN DISALLOWED BY THE AUTHORI TIES BELOW ON THE GROUND THAT THERE WERE NO BUSINESS ACTIVITIES BEING CARRIE D ON BY THE ASSESSEE. AGGRIEVED BY THE SAID DECISION THE ASSESSEE IS IN A PPEAL. 2.5.1 WE HAVE HEARD BOTH THE PARTIES IN THE MATTER. THE LEARNED AR FOR THE ASSESSEE FAIRLY CONCEDED THAT NO BUSINESS HAD START ED BY THE ASSESSEE. THEREFORE THERE IS NO QUESTION OF ALLOWING ANY EXPE NDITURE AS BUSINESS EXPENDITURE OR ANY DEPRECIATION IN RESPECT OF ANY A SSETS. THEREFORE IN OUR VIEW THE CLAIM OF CARRY FORWARD AND SET OFF OF BUSINESS LOSS AND DEPRECIATION HAS BEEN RIGHTLY DISALLOWED. WE ACCORDINGLY CONFIRM THE ORDER OF CIT(A). 3. THE APPEALS OF THE REVENUE IN ITA NOS.7352/M/2007 AND 3142/M/2009 . 3.1 IN THESE APPEALS ONLY DISPUTE RAISED BY THE REV ENUE IS REGARDING THE ASSESSABILITY OF NOTIONAL INTEREST ON INTEREST FREE DEPOSITS RECEIVED BY THE ASSESSEE WHILE LETTING OUT OF THE PROPERTY AS INCOM E FROM HOUSE PROPERTY. THE ASSESSEE WHILE LETTING OUT THE PROPERTY TO HSBC BAN K HAD TAKEN INTEREST FREE 6 DEPOSITS OF RS.3.50 CRORES IN ADDITION TO THE MONTH LY LEASE RENT. THE AO TREATED 10% OF THE INTEREST FREE DEPOSITS I.E. RS.35,00,000 /- AS RENT RECEIVABLE UNDER 23(1)(B) OF THE INCOME-TAX ACT AND ASSESSED THE SAM E UNDER THE HEAD HOUSE PROPERTY INCOME. IN APPEAL THE ASSESSEE SUBMITTED T HAT THE INTEREST FREE DEPOSITS RECEIVED FROM HSBC BANK HAS BEEN KEPT IN F IXED DEPOSITS INTEREST FROM WHICH HAD BEEN OFFERED BY THE ASSESSEE AS BUSINESS INCOME AND THEREFORE THE SAME COULD NOT BE CONSIDERED AS HOUSE PROPERTY INCO ME BECAUSE THERE WILL BE DOUBLE TAXATION. CIT(A) AGREED WITH THE SUBMISSION OF THE ASSESSEE AND HELD THAT NOTIONAL INTEREST COULD NOT BE ASSESSED UNDER SECTION 23(1)(B). AGGRIEVED BY THE SAID DECISION, THE REVENUE IS IN APPEAL BEFO RE THE TRIBUNAL. 3.1.1 WE HAVE HEARD BOTH THE PARTIES PERUSED THE RE CORDS AND CONSIDERED THE MATTER CAREFULLY. THE ASSESSEE AT THE TIME OF LETTI NG OUT OF FLAT HAD RECEIVED INTEREST FREE DEPOSITS OF RS.3.50 CRORES. THE AO HA D TREATED THE NOTIONAL INTEREST @ 10% ON THE INTEREST FREE DEPOSITS AS REN T RECEIVABLE UNDER SECTION 23(1)(B) WHICH HAS NOT BEEN UPHELD BY THE CIT(A). W E AGREED THAT NOTIONAL INTEREST ON THE INTEREST FREE DEPOSITS CANNOT BE TR EATED AS RENT RECEIVABLE UNDER SECTION 23(1)(B) AS HELD BY HONBLE HIGH COURT OF M UMBAI IN CASE OF CIT VS J.K. INVESTORS (BOMBAY) LTD. (248 ITR 723). HOWEVER WHET HER THE NOTIONAL INTEREST COULD BE CONSIDERED WHILE DETERMINING THE ANNUAL VA LUE OF THE PROPERTY UNDER SECTION 23(1)(A) WAS LEFT OPEN BY THE HONBLE HIGH COURT IN THE SAID CASE. THIS ASPECT HAS NOT BEEN EXAMINED BY THE CIT(A). WE THER EFORE SET ASIDE THE ORDER OF CIT(A) AND RESTORE THE MATTER BACK TO THE FILE O F AO FOR PASSING A FRESH ORDER AFTER NECESSARY EXAMINATION IN THE LIGHT OF OBSERVA TIONS MADE ABOVE AND AFTER ALLOWING OPPORTUNITY OF HEARING TO THE ASSESSEE. 7 4. IN THE RESULT THE APPEALS OF THE ASSESSEE ARE PA RTLY ALLOWED AND THOSE OF THE REVENUE ARE ALLOWED FOR STATISTICAL PURPOSE. 5. ORDER WAS PRONOUNCED IN THE OPEN COURT 29.04.20 11. SD/- SD/- ( R.S. PADVEKAR ) (RAJEND RA SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE : .04.2011 AT :MUMBAI COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A), MUMBAI CONCERNED 4. THE CIT, MUMBAI CITY CONCERNED 5. THE DR I BENCH, ITAT, MUMBAI // TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI ALK