ACIT 6(3), MUMBAI V. H & M HOUSING FINANCE & LEASING P. LTD, MUMBAI

ITA 821/MUM/2010

• Counselvise Citation: 82119914 RSA 2010
• Duration Of Justice: 1 year(s) 4 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-06-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 08-06-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 03-02-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V V SHASTRI
• Section: 56(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH H, MUMBAI BEFORE SHRI N.V.VASUDEVAN(J.M) & SHRI R.K.PANDA (A .M) ITA NO.821/MUM/2010(A.Y. 2005-06) ITA NO.822/MUM/2010(A.Y.2006-07) THE ACIT 6(3), ROOM NO.522, 5 TH FLOOR, AAYKAR BHAVAN, MK ROAD, MUMBAI 20. (APPELLANT) VS. M/S. H&M HOUSING FINANCE & LEASING P. LTD., 373, KONARK HOUSE, VEER SAVARKAR MARG, COPP. SIDDHIVINAK TEMPLE, PRABHADEVI, MUMBAI 28. PAN:AABCH 4398E (RESPONDENT) APPELLANT BY : SHRI V.V.SHASTRI RESPONDENT BY : SHRI HARSH SHAH ORDER PER N.V.VASUDEVAN, J.M, THESE ARE APPEALS BY THE REVENUE AGAINST A COMMO N ORDER DATED 27/10/2009 OF CIT(A) XII, MUMBAI RELATING TO ASSESS MENT YEAR 2005-06 AND 2006-07. THE GROUNDS OF APPEALS READ AS FOLLOWS: GROUNDS: ITA NO.821/M/2010: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND LAW, THE LD. CIT(A) ERRED IN HOLDING THAT THE COMPENSATION RECEIVED BY THE ASSESSEE FOR THE USE OF THE AMENITIES AMOUNTING TO RS.28,29,128/ - PER MONTH AND RS. 1,69,74,768/- FOR 6 MONTHS PERIOD , AS INCOME FROM HOUSE PROPER INSTEAD OF INCOME FROM OTHER SOURCES, WIT HOUT APPRECIATING THAT: A) THE ASSESSEE DEDUCTED TDS ON THE ENTIRE COMPENSATIO N RECEIVED BY ASSESSEE COMPANY U/S. 194-I, WHICH IS IN RESPECT OF RENT. B) CASE LAWS PERTAINING TO M/S. KANAK INVESTMENT PVT. LTD. 95 ITR 419 (CAL), M/S. MODEL MFG. PVT. 159 ITR 270 (CAL) & M/S. SARABHAI PVT. LTD. 263 ITR 197 (GUJ). 2. THE APPELLANT PRAYS THAT HE ORDER OF THE LD. CI T(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFF ICER BE RESTORED. ITA NO.821/MUM/2010(A.Y. 2005-06) ITA NO.822/MUM/2010(A.Y.2006-07) 2 GROUNDS: ITA NO.822/M/2010: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND LAW, THE LD. CIT(A) ERRED IN HOLDING THAT THE COMPENSATION RECEIVED BY THE ASSESSEE FOR THE USE OF THE AMENITIES AMOUNTING TO RS.28,29,128/ - PER MONTH AND RS. 3,39,49,536/-FOR THE FULL YEAR , AS INCOME FRO M HOUSE PROPER INSTEAD OF INCOME FROM OTHER SOURCES, WITHOUT APP RECIATING THE FOLLOWING: C) THE ASSESSEE DEDUCTED TDS ON THE ENTIRE COMPENSATIO N RECEIVED BY ASSESSEE COMPANY U/S. 194-I, WHICH IS IN RESPECT OF RENT. D) CASE LAWS PERTAINING TO M/S. KANAK INVESTMENT PVT. LTD. 95 ITR 419 (CAL), M/S. MODEL MFG. PVT. 159 ITR 270 (CAL) & M/S. SARABHAI PVT. LTD. 263 ITR 197 (GUJ). 2.ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, DEDUCTION U/S.24(A) IN RESPECT OF REPAIRS TO HOUSE PROPERTY S HOULD BE RESTRICTED TO THE RENTAL INCOME OF RS. 11,60,667/- PER MONTH O R RS. 1,39,28,004/- FOR FULL YEAR AND SHOULD NOT BE ALLOW ED AS COMPENSATION FOR USE OF AMENITIES. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE INTEREST ON BORROWED CAPITAL AMOUNTING TO RS. 30,20 ,137/-, PROPORTIONATE TO THE RENTAL INCOME IS ALLOWABLE AS DEDUCTION U/S. 24(B). 4. THE APPELLANT PRAYS THAT THE ORDER OF THE LD. C IT(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT THE A.O BE RESTORED. 2. THE FACTS AND CIRCUMSTANCES UNDER WHICH THE AFOR ESAID GROUNDS OF APPEAL ARISE FOR CONSIDERATION ARE AS FOLLOWS: THE ASSESSEE IS A COMPANY. IT IS ENGAGED IN THE BUSINESS OF LEASING AND FINANCE OF ALL TYPES OF HOUSING PROPERTIES, BUI LDINGS, PREMISES OF SHOPS, SHOPPING MALLS AND APARTMENTS. ONE M/S. K. RAHEJA PVT. LTD. DEVELOPED A PROPERTY AT YERAWADA, KALAYNI NAGAR, PUNE. IT BEC AME THE OWNER OF PART OF THE PROPERTY SO DEVELOPED CONSISTING OF SIX FLOORS KNOW AS HSBC CENTRE HAVING TOTAL CARPET AREA OF 1,23,321 SQ. FT. M/S. K.RAHEJA PVT. LTD. GAVE THE AFORESAID PROPERTIES ON LEASE TO M/S. HSBC SOFTWARE DEVELOPMENT INDIA PVT. LTD. UNDER A LEASE AGREEMENT DATED 25/2/2004. THE RENT PAYABLE FOR THE PREMISES WAS RS. 11,60,667/- PER MONTH. APART FROM THE ABOVE THERE WAS ITA NO.821/MUM/2010(A.Y. 2005-06) ITA NO.822/MUM/2010(A.Y.2006-07) 3 ANOTHER AGREEMENT DATED 25/2/2004 BETWEEN THE SAME PARTIES, WHEREBY HSBC SOFTWARE DEVELOPMENT INDIA PVT. LTD. THE LESSE E WAS ALLOWED TO USE THE VARIOUS AMENITIES THAT WAS CREATED IN THE BUILD ING LEASED BY K.RAHEJA PVT. LTD. FOR USE OF SUCH AMENITIES A SUM OF RS. 2 8,29,128/- PER MONTH HAD TO BE PAID. 3. BY AN AGREEMENT DATED 28/9/2004 M/S. K.RAHEJA PV T. LTD. SOLD THE PROPERTY WHICH WAS SUBJECT MATTER OF LEASE REFERRED TO ABOVE, TO THE ASSESSEE SUBJECT TO THE RIGHTS OF THE LESSEE UNDER THE AGRE EMENT DATED 25/2/2004. THE ASSESSEE ACCORDINGLY BECAME ENTITLED TO RECEIVE THE RENTS AS WELL AS MAINTENANCE CHARGES PAYABLE BY HSBC SOFTWARE DEVELO PMENT INDIA PVT. LTD. 4. THE ASSESSEE DECLARED THE ENTIRE RENTAL INCOME AS WELL AS AMENITIES CHARGES IN ITS RETURN OF INCOME AS INCOME UNDER THE HEAD INCOME FROM HOUSE PROPERTY. THE ASSESSEE SUBMITTED THAT IN I TS CASE, THE SERVICES ARE PROVIDED BY THE BUILDER OF THE PREMISES AND THE ASS ESSEE IS ONLY RECEIVING COMPENSATION FROM HSBC SOFTWARE DEVELOPMENT CENTRE FOR USE OF THOSE AMENITIES AND FACILITIES PROVIDED BY THE BUILDER. THE ASSESSEE FURTHER SUBMITTED THAT HSBC SOFTWARE DEVELOPMENT CENTRE HAS DEDUCTED TAX AT SOURCE ON THE ENTIRE AMOUNT INCLUDING THE COMPENSAT ION PAID TO THE ASSESSEE UNDER SECTION 1941. THE ASSESSE REITERATE D THAT THE ABOVE FACILITIES ARE PART AND PARCEL OF THE PREMISES LET OUT BY THE ASSESSEE AND NO SEPARATE SERVICES ARE RENDERED BY THE ASSESSEE AND THE SAME HAVE CORRECTLY BEEN TREATED AS INCOME FROM HOUSE PROPERTY. THE ASSESSE E SUBMITTED THAT AS PURCHASER IT PAID FOR BUYING OFFICE / BUILDING SPAC E BUT THE PRICE WAS INCLUSIVE OF COST OF LIFT, COMMON PASSAGE, DRAINAGE , WATER, ELECTRICITY CONNECTION, GARDEN, COMMON ENTRANCE FROM MAIN ROAD ETC. THE ASSESSEE IS ENTITLED TO USE ALL THE FACILITIES. THE ASSESSEE IS THE OWNER OF SPACE ALLOCATED TO IT. THEREFORE, THE ASSESSEE CAN NOT IN TURN GIV E ON LEASE SUCH ITEMS ITA NO.821/MUM/2010(A.Y. 2005-06) ITA NO.822/MUM/2010(A.Y.2006-07) 4 INDEPENDENTLY. ONCE THE ASSESSEE HAS LEASED THE OF FICE TO HSBC SOFTWARE DEVELOPMENT CENTRE THEY ARE AUTOMATICALLY ENTITLED TO USE THESE FACILITIES IN CAPACITY AS OCCUPANTS. THE ENTIRE RUNNING AND MAIN TENANCE OF THE PREMISES UNDER CONSIDERATION IS BORNE BY THE TENANT. MERE S PLITTING OF RENT INTO TWO PARTS DOES NOT MEAN THAT INCOME FROM AMENITIES CHAR GES IS NOT CONNECTED WITH LETTING OUT OF THE PROPERTY. THERE IS NO SEPA RATE LETTING OF THE AMENITIES AND FACILITIES BY THE ASSESSEE. IN FACT THE FACILI TIES ARE PROVIDED BY THE BUILDER THEMSELVES WHICH ARE A PART OF THE PREMISES LET OUT. ACCORDINGLY, THE COMPENSATION RECEIVED FROM THE USE OF SUCH FACILITI ES PARTAKES THE CHARACTER OF INCOME FROM LETTING OUT OF PROPERTY AND THEREFOR E TAXABLE AS INCOME UNDER THE HEAD INCOME FROM HOUSE PROPERTY AND DEDUCTION CLAIMED @ 30% SHOULD BE ALLOWED TO THE ASSESSEE. 5. THE ASSESSING OFFICER WAS HOWEVER OF THE VIEW TH AT THE INCOME FROM LETTING OUT OF THE PROPERTY LEASED HAS TO BE ASSESS ED UNDER THE HEAD INCOME FROM HOUSE PROPERTY AND THAT THE COMPENSATION RECEI VED FOR VARIOUS AMENITIES PROVIDED IN THE PREMISES HAD TO BE ASSESS ED AS INCOME FROM OTHER SOURCES. ACCORDING TO THE ASSESSING OFFICER THE AS SESSEE HAS RECEIVED COMPOSITE RENT AND THE SAME HAS TO BE SPLIT BETWEEN STRUCTURE AND OTHER AMENITIES. IN THIS REGARD THE ASSESSING OFFICER AL SO REFERRED TO THE FACT THAT THERE WERE TWO SEPARATE AGREEMENT, ONE FOR PAYING R ENTS AND THE OTHER FOR USE OF AMENITIES. THE ASSESSING OFFICER, THEREFORE , TAXED A SUM OF RS.69,64,002 UNDER THE HEAD INCOME FROM HOUSE PROPE RTY AND ALLOWED DEDUCTION UNDER SECTION 24(A) OF THE ACT AT 30% AND BROUGHT TO TAX THE REMAINING SUM OF RS. 1,69,74,768/- AS INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES AND DID NOT ALLOW DEDUCTION ON THE SA ME @ 30% THEREOF UNDER SECTION 24(A) OF THE ACT. 6. ON APPEAL BY THE ASSESSEE THE CIT(A) HELD AS FOL LOWS. ITA NO.821/MUM/2010(A.Y. 2005-06) ITA NO.822/MUM/2010(A.Y.2006-07) 5 8 I HAVE CONSIDERED THE SUBMISSIONS. THE SO CAL LED AMENITIES AND THE FACILITIES PROVIDED ALONG WITH THE BUILDING ARE THE FOLLOWING:- A. SPACE FOR GENERATOR SET FOR THE USE IN RESPECT OF S AID PREMISES. B. SPACE FOR AIR CONDITIONING CHILLER ON THE TERRACE O F THE BUILDING. C. SPACE ON THE TERRACE OF THE BUILDING FOR PUTTING UP DISH ANTENNA. D. ONE SERVICE LIFT FOR THE BUILDING OF 884 KG. CAPACI TY. E. FOUR LIFTS OF 13 PASSENGER EACH IN THE SAID BUILDIN G. F. CAR PARKING NOS. 100 IN STILT AN OPEN AREA COMPOUND OF THE BUILDING. G. SCOOTER PARKING NOS.209 IN STILT AND IN OPEN AREA C OMPOUND OF THE BUILDING. H. SPACE FOR TELECOMMUNICATION TOWER ON TERRACE FOR TH E USE OF THE COMPANY. I. RECREATIONAL SPACE. J. FIRE FIGHTING FACILITIES. 9. IT IS QUITE CLEAR THAT WHAT IS LET OUT OR LEASED PRIMARILY CONSISTS OF SPACE FOR GENERATORS, A.C PLANT, CAR PARKING AND SCOOTER PARKING, RECREATION., IN ADDITION, FIRE FIGHTING FACILITIES AND LIFT HAVE BEEN PROVIDED BY WAY OF AMENITIES. THE AMENITIES ARE CO MMON TO THE ENTIRE BUILDING. THE OTHER SO CALLED FACILITIES ARE NOTH ING BUT SPACE IN THE BUILDING. THIS IS NO DIFFERENT FROM THE LIVING SP ACE OR THE WORKING SPACE THAT HAS BEEN LET OUT. THE APPELLANT CANNOT BE SAID TO HAVE PROVIDED ANY SPECIAL SERVICES, THE INCOME FROM WHIC H WOULD NOT QUALIFY AS INCOME FROM HOUSE PROPERTY. THE LIFT IS AN IN TEGRAL PART OF THE BUILDING ALONGWITH FIRE FIGHTING FACILITIES. THE APPELLANT HAS SIMPLY SPLIT THE RENT FOR THE BUILDING INTO TWO AGREEMENTS AND CALLED ONE OF THE AGREEMENT AS LEASE FOR PROVIDING SERVICE FACIL ITIES AND AMENITIES. IN THE CASE OF BHAKTAWAR CONSTRUCTION PVT. LTD. THE FACTS ARE SIMILAR. THE COURT HELD THAT THERE WAS NO INSEPARABLE LETTIN G OF MACHINERY TO BRING IN THE CASE U/S. 56(2). 10. ACCORDING TO SEC. 56(1), INCOME WHICH IS NOT CHARGEABLE UNDER ANY OTHER HEAD WOULD BE CHARGEABLE TO TAX U/S. 56. SEC. 56(2) HOWEVER, LIST OUT VARIOUS ITEMS OF INCOME WHICH WO ULD NORMALLY BE ASSESSED U/S.56. ONE OF THE ITEMS IS RENT FROM MA CHINERY OR EQUIPMENT HIRED. HIRING OF SPACE AS HAS BEEN DONE BY THE APPELLANT CANNOT BE TREATED AS HIRING OF MACHINERY. SINCE TH E AGREEMENT OF THE APPELLANT IS PRIMARILY, HIRING OF SPACE, THE INCOME WOULD IN ANY CASE BE ASSESSABLE UNDER THE HEAD OF HOUSE PROPERTY. THE FACILITIES SUCH AS LIFT WHICH IS PROVIDED IS INSEPARABLE SINCE THE LIFT ITSELF IS NOT LEASED. ITA NO.821/MUM/2010(A.Y. 2005-06) ITA NO.822/MUM/2010(A.Y.2006-07) 6 11. KEEPING IN VIEW THE NATURE OF THE ITEMS WHICH HAVE BEEN LEASED, THE INCOME RECEIVED SHOULD BE TREATED AS INCOME FR OM HOUSE PROPERTY. THE AO IS THEREFORE NOT JUSTIFIED IN TR EATING THE INCOME EARNED THROUGH THE SECOND AGREEMENT AS INCOME FROM OTHER SOURCES. 7. AGGRIEVED BY THE ORDER OF THE CIT(A) THE REVENUE HAS FILED THE PRESENT APPEALS BEFORE THE TRIBUNAL. 8. WE HAVE HEARD SUBMISSIONS OF LD. D.R, WHO RELIED ON THE ORDER OF THE ASSESSING OFFICER. WE ARE OF THE VIEW THAT THE ORD ER OF THE CIT(A) DOES NOT CALL FOR ANY INTERFERENCE. AS CAN BEEN SEEN FROM T HE AGREEMENT FOR PROVIDING AMENITIES (THE DETAILS OF WHICH ARE SET OUT IN THE EARLIER PARAGRAPH) THEY ARE PART AND PARCEL OF PROPERTY AND FORMS PART OF USE O F THE BUILDING BY THE ASSESSEE. THE AMENITIES CANNOT BE LET OUT WITHOUT THE LETTING OUT OF THE SPACE. THUS THE AMENITIES ARE PART AND PARCEL OF T HE PREMISES LET OUT. THEREFORE, THE RIGHT TO USE THE AMENITIES AND THE C OMPENSATION PAID, THEREFORE, CANNOT PARTAKE A CHARACTER OF INCOME FRO M OTHER SOURCES. IN THE CASE OF BHAKTAWAR CONSTRUCTIONS PVT. LTD., 162 ITR 452 (BOM) IT HAS BEEN HELD THAT WHERE THE BUILDINGS WERE LET TO TENANTS UNDER LEASE AGREEMENT AND THE TENANTS WERE PROVIDED WITH AC FACILITIES THERE WAS NO LETTING OF AC PLANT SEPARATELY. SIMILARLY IN THE CASE JK INVESTORS BOM BAY LTD., ITA NO.6967/M/03 FOR A.Y 2000-01 THE TRIBUNAL HAD TO CO NSIDER THE RECEIPT OF MAINTENANCE CHARGES WHETHER WILL FORM PART OF THE I NCOME FROM HOUSE PROPERTY. THE HONBLE TRIBUNAL HELD THAT THE MERE SPLITTING OF RENT IS NOT DECISIVE OF THE ISSUE AND EACH CASE HAS TO BE DECID ED IN THE LIGHT OF THE FACTS AND CIRCUMSTANCES OF EACH CASE. KEEPING IN MIND AB OVE PRINCIPLES LAID DOWN IN THE JUDICIAL PRONOUNCEMENTS, WE ARE OF THE VIEW, THAT IN THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, THE RENT FOR USE OF BUILDING AS WELL AS MAINTENANCE/AMENITY CHARGES HAS TO BE CONSIDERED AS INCOME FROM HOUSE PROPERTY. WE, THEREFORE, DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A). ITA NO.821/MUM/2010(A.Y. 2005-06) ITA NO.822/MUM/2010(A.Y.2006-07) 7 CONSEQUENTLY THE SAME IS CONFIRMED AND THESE APPEAL S BY THE REVENUE ARE DISMISSED. 9. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE A RE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 15 TH DAY OF JUNE, 2011. SD/- SD/- (R.K.PANDA ) (N.V.VASUDEVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED. 15 TH JUNE.2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3 . THE CIT CITY CONCERNED 4. THE CIT(A)- CONCERNED 5. THE D.RH BENCH. (TRUE COPY) BY ORDER ASST. REGISTRAR, I TAT, MUMBAI BENCHES MUMBAI. VM. ITA NO.821/MUM/2010(A.Y. 2005-06) ITA NO.822/MUM/2010(A.Y.2006-07) 8 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 8/6/11 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 9/6/11 SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7. FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER