M/s. PHOTOPHONE COMEL P. LTD., MUMBAI V. ITO Wd. - 1(2)(4), MUMBAI

ITA 852/MUM/2008

• Counselvise Citation: 85219914 RSA 2008
• Duration Of Justice: 3 year(s) 10 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-12-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: J
• Next Hearing Date: 15-11-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 07-02-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: E V IRANI
• Keywords: Business income; Depreciation; Rule of consistency; Capital expenditure

Judgement Text

1 PHOTOPHONE COMMEL.P LTD IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI MUMBAI MUMBAI MUMBAI J J J J BENCH BENCH BENCH BENCH MUMBAI BENCHES, MUMBAI MUMBAI BENCHES, MUMBAI MUMBAI BENCHES, MUMBAI MUMBAI BENCHES, MUMBAI BEFORE SHR BEFORE SHR BEFORE SHR BEFORE SHRI PRAMOD KUMAR I PRAMOD KUMAR I PRAMOD KUMAR I PRAMOD KUMAR, ,, , AM & AM & AM & AM & SHRI SHRI SHRI SHRI VIJAY PAL RAO, JM VIJAY PAL RAO, JM VIJAY PAL RAO, JM VIJAY PAL RAO, JM ITA NO. ITA NO. ITA NO. ITA NO. 852/MUM/2008 852/MUM/2008 852/MUM/2008 852/MUM/2008 (ASST YEAR (ASST YEAR (ASST YEAR (ASST YEAR 2003 2003 2003 2003- -- -04 0404 04) )) ) PHOTOPHONE COMMEL.P LTD 2G KAKAD HOUSE OPP BOMBAY HOSPITAL 11 NEW MARINE LINES MUMBAI 20 VS THE INCOME TAX OFFICER WARD 1(2)(4), MUMBAI (APPELLANT) (APPELLANT) (APPELLANT) (APPELLANT) (RESPONDENT) (RESPONDENT) (RESPONDENT) (RESPONDENT) PAN NO. PAN NO. PAN NO. PAN NO. AAACC2496D AAACC2496D AAACC2496D AAACC2496D ASSESSEE BY SH E V IRANI REVENUE BY SH PARTHASARATH NAIK DT.OF HEARING 15 TH NOV 2011 DT OF PRONOUNCEMENT 21 ST DEC 2011 ORDER ORDER ORDER ORDER PER PER PER PER VIJAY VIJAY VIJAY VIJAY PAL RAO PAL RAO PAL RAO PAL RAO, , , , JM JMJM JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 27.11.2007 OF THE CIT(A) FOR THE AY 2003-04. 2 THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS IN THIS APPEAL: I) THE CIT(A) HAS ERRED IN CONFIRMING THE LICENSE F EES OF ` 47,73,960 AS INCOME FROM OTHER SOURCES INSTEAD OF BUSINESS INCOM E. II) THE CIT(A) HAS ERRED IN CONFIRMING THE DISALLOW ANCE OF THE FOLLOWING EXPENSES AGGREGATING TO `. 5,27,765/- III) THE CIT(A) HAS ERRED IN CONFIRMING THE DISALLO WANCE OF CAR REPAIRS EXPENDITURE OF `. 20,5000/- 3 GROUND NO.1 IS REGARDING TREATING THE LEAVE AND L ICENSE FEE INCOME AS INCOME FROM OTHER SOURCES INSTEAD OF BUSINESS INCOM E. 2 PHOTOPHONE COMMEL.P LTD 4 WE HAVE HEARD THE LD AR OF THE ASSESSEE AS WELL A S THE LD DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET, WE NOTE THAT AN IDENTICAL ISSUE WAS CONSIDERED AND DECIDED BY THE T RIBUNAL IN ASSESSEES OWN CASE FOR THE AY 2001-02 IN ITA NO. 4853/MUM/2005 V IDE ORDER DATED 22.8.2009 IN PARAS 6 & 7 AS UNDER: 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES ALONG WITH THE PAPER BOOK FIL ED BEFORE US WHICH CONTAINED A COPY OF AN AGREEMENT WITH THE TE NANT. THIS IS THE CASE WHERE THE ASSESSEE COMPANY RENTED A PREMIS ES IN THE BUILDING KNOWN AS EXCOM HOUSE AND FURNISHED THE S AID PREMISES AND INSTALLED TELEPHONES, FURNITURE AND FIXTURES AN D AIR-CONDITIONERS AS EVIDENT FROM CAUSE (4) OF THE AGREEMENTS WITH TH E CLIENTS. THE COMPANY WAS ALSO TO PROVIDE THE CLIENT A NUMBER OF TABLES AND CHAIRS, FILLING CABINETS AND CUPBOARDS FOR STORAGE PAPERS AND RACKS. A COMPANY SHALL ALSO MAKE AVAILABLE TO CLIENTS A BU SINESS SERVICE FACILITIES AND AMENITIES AND CONVENIENCES FOR A MON THLY AMOUNTS OF ` 2,59,490/- FOR THE USE OF THE SAID FACILITIES FOR A PERIOD OF 3 YEARS WITH THE CONDITION OF RENEWAL AFTER EVERY 12 MONTHS . FURTHER, AND THE AGREEMENT SPECIFIES IN PARA 1 OF THE AGREEMENT THAT EITHER PARTY HAS RIGHT TO TERMINATE THE AGREEMENT AFTER A PERIOD OF 12 MONTHS AFTER THE ADVANCE NOTICE OF 6 MONTHS. ON THE OTHER HAND, THE REVENUES CASE IS THAT THE CLIENTS HAVE CONTINU ED TO USE THE PREMISES FOR LONGER PERIOD AND, THEREFORE, THIS IS A CASE FOR TAXING THE RECEIPTS UNDER THE HEAD INCOME FROM OTHER SOUR CES AND NOT UNDER THE HEAD BUSINESS INCOME. 7. IT IS SETTLED LAW THAT THE ACTIVITY OF LETTING O UT IMMOVABLE PROPERTY IS ALWAYS ASSESSABLE UNDER THE INCOME FROM HOUSE P ROPERTY, EVEN THOUGH THE OBJECT OF THE ASSESSEE IS TO CARRY ON TH E BUSINESS. THE APEX COURT IN THE JUDGMENT OF THE EAST INDIA HOUSIN G AND LAND DEVELOPMENT TRUST LTD (42 1TR 49)(SC) HELD THAT NOR MALLY THE RENTAL INCOME OUGHT TO BE COMPUTED UNDER THE SPECIF IC HEAD OF INCOME FROM HOUSE PROPERTY, UNLESS THE ASSESSEE F ULFILS THE CONDITIONS OF THE MEANING OF THE BUSINESS OR PROF ESSION. THE WORD BUSINESS CONNOTES SOME REAL, SUBSTANTIAL AND SYST EMATIC OR ORGANIZED COURSE OF ACTIVITY OR CONDUCT WITH THE SA ID PURPOSE HAS HELD BY THE SUPREME COURT IN THE CASE OF NARAYAN SW ADESHI WEAVING MILLS (26 1TR 765)(SC). IF THIS TEST IS SAT ISFIED THEN THE INCOME EARNED WOULD BE COMPUTED AS BUSINESS INCOME. IN THE PRESENT CASE, THE ASSESSEE HAS TAKEN A PREMISES ON LEASE AND PROVIDED SYSTEMATICALLY CERTAIN AMENITIES AND FACIL ITIES SUCH AS TELEPHONES, FURNITURE FITTINGS, TABLE AND CHAIRS, A IR-CONDITIONERS ETC FOR ATTRACTING THE CLIENTS FOR A PERIOD OF 12 MONTH S WITH AN OPTION TO RENEW THE SAME FOR 3 YEARS LONG PERIOD AND ALSO WIT H OPTION TO TERMINATE THE AGREEMENTS. PROVIDING SUCH AMENITIES AND OPTION TO TERMINATE THE AGREEMENTS WITH THE CLIENTS INDICATE THE ASSESSEES INTENTION TO NOT TO STICK TO A PARTICULAR CLIENT FO R EVER. THE ACTIVITIES 3 PHOTOPHONE COMMEL.P LTD OF THE ASSESSEE ALSO INDICATES THAT THE ASSESSEES BUSINESS FALLS WITHIN THE MEANING OF THE WORD BUSINESS AS EXPOUN DED BY THE APEX COURT IN THE CASE OF THE NARAYAN SWADESHI WEAV ING MILLS (SUPRA). THEREFORE, WE ARE OF THE CONSIDERED OPINIO N THAT THE CIT (A) DECISION IN THIS REGARD NEED TO BE SET ASIDE AND TH E ASSESSEES INCOME IS TAXABLE UNDER THE HEAD INCOME FROM BUSIN ESS OR PROFESSION. 5 WE FURTHER NOTE THAT IN THE CONCLUSION OF THE GRO UND, THE TRIBUNAL HAS MISTAKENLY WRITTEN AS DISMISSED, WHICH WAS SUBSEQUE NTLY RECTIFIED BY CORRIGENDUM DATED 7.1.2009. FURTHER, IN THE SUBSEQU ENT YEAR, FOR THE AY 2007-08, THE ASSESSING OFFICER HAS ACCEPTED THE SAID INCOME AS BUSINESS INCOME. THE LD AR OF THE ASSESSEE HAS FILED THE COP Y OF THE ASSESSMENT ORDER FOR THE AY 2007-08. 5.1 RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNA L IN ASSESSEES OWN CASE AS WELL AS BY THE REASON OF RULE OF CONSISTENCY, WHEN THE DEPARTMENT HAS ACCEPTED THE CLAIM OF THE ASSESSEE IN THE SUBSEQUENT YEAR, W E DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 6 GROUND NO. 2 IS REGARDING DISALLOWANCE OF VARIOU S EXPENSES. 7 THE ASSESSING OFFICER DISALLOWED THE FOLLOWING EX PENSES: TELEPHONE EXPENSES `. 3,145/- RENT `. 1,80 ,000/- WATER CHARGES `. 12,523/- PROPERTY CHARGES `. 4,926/- DEPRECIATION ON REFRIGERATOR `. 5,651/- MAINTENANCE CHARGES `. 91,792/- REPAIRS & MAINTENANCE `. 2,29,728/- 7.1 THE CIT(A) HAS ALSO CONFIRMED THE ACTION OF THE ASSESSING OFFICER . 8 WE HAVE HEARD THE RIVAL CONTENTION AS WELL AS THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET, WE NOTE THAT THE TRIBUNAL IN ASSESSEES OWN CASE FOR AY 20001-02 (SUPRA) HAS CONSIDERED THE DECIDED THE ISSUE OF EXPENSES IN RESPECT OF SALE OF BUNGALOW AS REVENUE WHICH WAS TREATED BY THE ASSESSING OFFICER AS 4 PHOTOPHONE COMMEL.P LTD CAPITAL IN NATURE. IN PARAS 15 TO 17, THE TRIBUNA L HAS ADJUDICATED THE SAID ISSUE AS UNDER: 15. GROUND 4 RELATES TO DECISION OF THE CIT (A) IN CONFIRMING DISALLOWANCE OF ` 1,25,628/- SPENT TOWARDS REPAIRS AND MAINTENANCE EXPENSES. ASSESSING OFFICER TREATED THEM AS CAPITAL EXPENDITURE. 16. AGGRIEVED WITH THE SAME, THE ASSESSEE HAS FILED AN APPEAL BEFORE THE CIT (A) ASSESSEE MENTIONED THAT THE SAID AMOUNT WAS SPENT FOR ITS GARDEN AT LONAVALA OFFICE VIDE BILL D ATED 16.3.2000. THE DETAILS OF EXPENDITURE REVEALED AMOUNT WAS SPENT ON EXCAVATION OF THE SOIL, LAYING 9 THICK DRY RUBBLE STONE SOILING AND FILLING VOIDS AND REANSING AND PROVIDING AND LAYING PCC CONCRETE AND MOSAIC FLOORING WITH CEMENT PASTE. ASSESSEE MENTIONED THAT NO NEW A SSET HAS COME INTO EXISTENCE. THEREFORE, THE SAME SHOULD BE ALLOWED AS A EVENT EXPENDITURE. CIT (A) EXAMINED THE DESCRIPTION UNDERTAKEN IN THE GARDEN AND HELD THE EXPENDITURE IS CLEARLY CAPI TAL IN NATURE AND ASSET RESULTED WILL HAVE ENDURING BENEFIT TO THE AS SESSEE. AFTER ASSET WISE ANALYSIS UNDERTAKEN BY THE CIT (A) PROCE EDED TO TREAT THE EXPENDITURE OF ` 1,25,628/- CONSISTING OF ` 1,0 2,023 + 23,635/- AS CAPITAL EXPENDITURE. 17. AGGRIEVED WITH THE ABOVE, THE ASSESSEE FILED AN D APPEAL BEFORE US. LD AR ARGUED THAT THE SAID AMOUNT IS REVENUE IN NATURE. THE LD DR RELIED ON THE ORDERS OF THE LOWER AUTHORITIES. W E HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS & THE LOWE R AUTHORITIES AS WELL AS PAPER BOOKS FILED BEFORE US. WE HAVE EXAMIN ED THE NATURE OF EXPENDITURE, THE DETAILS OF WHICH ARE, SUBMITTED IN THE TABLE GIVEN BELOW: 1 EXCAVATION SOILS 990 CUFT 3514 2 PROVIDING AND LAYING 9 THICK DRY RUBBLE STONE SOILING AND FILLING VOIDS AND REANSING THE SAME 88,910 3 PROVIDING AND LAYING PCC CONCRETE FOR MIX 1:3:6:990 SF.FT 39,600 4 PROVIDING AND LAYING CHINAR MOSAIC FLOORING WITH CEMENT PAST COMPLETELY 49,999 THE EXPENDITURE OF `.125,628/- OUT OF THE ABOVE EXP ENDITURES WAS TREATED AS CAPITAL BY THE ASSESSING OFFICER IN VIE W OF THE DETAILS GIVEN IN THE TABLE ABOVE. WE FIND THAT THE SAID EXP ENDITURE IS UNDISPUTEDLY INCURRED IN CONNECTION WITH MARKING OR MAINTAINING THE GARDEN AT LONAVALA OFFICE. WE FIND NORMALLY LAY ING OF RUBBLE STONE, SOILING, FILLING AND LAYING OF SOME PIPERS O R CEMENT WORK HERE 5 PHOTOPHONE COMMEL.P LTD AND THERE ARE THE DIFFERENT ACTIVITIES OF MAKING OR MAINTAINING OF A GARDEN. THEREFORE, IN VIEW OF THE NATURE OF DETAILS AVAILABLE ON RECORD AND ALSO IN VIEW OF THE SMALLNESS OF THE AMO UNTS INVOLVED, WE ARE OF THE CONSIDERED OPINION THAT THE SAID EXPE NSES ARE REVENUE IN NATURE. ACCORDINGLY, GROUND 4 IS ALLOWED . 8.1 IT IS PERTINENT TO NOTE THAT FOR THE AY 2001-02 THE ASSESSING OFFICER HAS ACCEPTED THE EXPENDITURE INCURRED IN RESPECT TO THE BUNGALOW IN QUESTION AT LONAWALA FOR BUSINESS PURPOSES; THOUGH IT WAS DISAL LOWED BY THE ASSESSING OFFICER BY TREATING THE SAME AS CAPITAL IN NATURE . ONCE THE EXPENDITURE WAS ACCEPTED BY THE ASSESSING OFFICER AS FOR BUSINESS O F THE ASSESSEE, THEN THE REVENUE CANNOT CHANGE THE STAND IN THE SUBSEQUENT Y EAR THAT THE EXPENDITURE ON THE MAINTENANCE OF THE SAID BUNGALOW IS NOT FOR THE BUSINESS OF THE ASSESSEE WITHOUT BRINGING OUT ANY NEW FACTS OR CHANGES IN TH E CIRCUMSTANCES. THEREFORE, FOLLOWING THE ORDER OF THE TRIBUNAL IN ASSESSEES O WN CASE FOR AY 2001-02, WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND AGA INST THE REVENUE. 9 GROUND NO.3 IS REGARDING DISALLOWANCE OF CAR REP AIRS. 10 THE ASSESSING OFFICER DISALLOWED THE CAR REPAIRS EXPENDITURE OF RS.20,500/- AS THE ASSESSEE DID NOT FILE THE RELEVANT BILL. THE CIT(A) ALSO CONFIRMED THE SAID DISALLOWANCE AND OBSERVED THAT IT CANNOT GO THROUG H THE VOUCHERS SUBMITTED BY THE ASSESSEE AND TO EXAMINE THEIR RELEVANCE. 11 WE HAVE HEARD THE RIVAL CONTENTION AS WELL AS PE RUSED THE RELEVANT MATERIAL ON RECORD. THE LD AR OF THE ASSESSEE HAS S UBMITTED THAT THE ASSESSEE HAS FURNISHED THE VOUCHERS BEFORE THE CIT(A) BUT TH E CIT(A) DECLINED TO CONSIDER THE SAME. WE HAVE CAREFULLY PERUSED THE VOUCHERS FILED BY THE ASSESSEE IN SUPPORT OF THE CLAIM. THE VOUCHERS FILED BY THE ASS ESSEE ARE ONLY SELF MADE VOUCHERS OF THE ASSESSEE, WHICH CANNOT BE CONSIDERE D AS ADMISSIBLE EVIDENCE IN SUPPORT OF THE EXPENDITURE FOR CAR REPAIRS. IN THE ABSENCE OF ANY BILL FROM THE 6 PHOTOPHONE COMMEL.P LTD CONCERNED GARAGE, WORKSHOP OR MECHANIC SHOP OR FROM SPARE PARTS SHOP, THE CLAIM OF THE ASSESSEE CANNOT BE ACCEPTED. ACCORDING LY, WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE FINDINGS OF THE LOWER AUTHORIT IES, QUA THIS ISSUE. 12 IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON THE 21 ST DAY OF DEC 2011. SD/ SD/ ( (( ( PRAMOD KUMAR PRAMOD KUMAR PRAMOD KUMAR PRAMOD KUMAR ) )) ) ACCOUNTANT MEMBER ( (( ( VIJAY PAL RAO VIJAY PAL RAO VIJAY PAL RAO VIJAY PAL RAO ) )) ) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 21 ST DEC 2011 RAJ* RAJ* RAJ* RAJ* COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI