KAVITA MARKETING P.LTD, MUMBAI V. ITO WD 5(2)(2), MUMBAI

ITA 865/MUM/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 2807 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2010-2011
• Appeal Filed On: 06-02-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income
• Section: 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH SMC, MUMBAI BEFORE SHRI G.S.PANNU, ACCOUNTANT MEMBER ITA NO. 865/MUM/2015 (ASSESSMENT YEAR : 2010-11) M/S. KAVITA MARKETING PVT. LTD., C/O. PRAKASH JHUNJHUNWALA, 5, JOLLY BHAVAN NO.2, CR. FLOOR, 7, NEW MARINE LINES,CHURCH GATE, MUMBAI 400 020 PAN:AAACK 2103P ... APPELL ANT VS. THE INCOME TAX OFFICER, WD.5(2)(2), MUMBAI .... RESPONDENT APPELLANT BY : SHRI PRAKASH JHUNJHUNWALA RESPONDENT BY : SHRI SANTOSH MANKOSKAR DATE OF HEARING : 28/06/2016 DATE OF PRONOUNCEMENT : 30/06/2016 ORDER THE CAPTIONED APPEAL FILED BY THE ASSESSEE PERTAINI NG TO ASSESSMENT YEAR 2010-11 IS DIRECTED AGAINST AN ORDE R PASSED BY CIT(A)- 7, MUMBAI DATED 21/11/2014, WHICH IN TURN ARISES OU T OF AN ORDER PASSED BY THE ASSESSING OFFICER UNDER SECTION 143(3 ) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) DATED 19/03/2013. 2. IN THIS APPEAL, THE ASSESSEE HAS RAISED THE FOLL OWING GROUNDS OF APPEAL:- 1.0 ON FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, LD. CIT(A) ERRED IN CONFIRMING THE FACILITY CHARGES RECEIVED OF RS 9,60 ,000/- AS 'INCOME FROM 2 ITA NO. 221/MUM/2015 (ASSESSMENT YEAR : 2009-10) HOUSE PROPERTY' AS AGAINST APPELLANT'S CLAIM AS 'IN COME FROM BUSINESS OR PROFESSION'; 1.1 THE CIT(A) ERRED IN IGNORING THE VITAL FACT TH AT THE LEAVE AND LICENSE AGREEMENT BIFURCATES THE RECEIPTS TOWARDS RENT OF R S.11 ,40,000/- AND RECEIPTS FOR VARIOUS FACILITIES OF RS 9,60,000/-; 2.0 WITHOUT PREJUDICE, LD. CIT(A) OUGHT TO HAVE TRE ATED THE FACILITY CHARGES RECOVERED OF RS.9,60,000/- AS 'INCOME FROM OTHER SO URCES' AND OUGHT TO HAVE ALLOWED THE INCURRED EXPENSE OF RS.18,28, 787/ - AS DEDUCTIBLE EXPENSE U/S.57(III) OF THE ACT; 3.0 THE LD. CIT(A) ERRED IN CONFIRMING THE DISALLO WANCE OF OFFICE AND ADMINISTRATIVE EXPENSES OF RS.2,69,301/- MADE IN AS SESSMENT MERELY FOR THE REASON THAT NO BUSINESS WAS TRANSACTED IN IMPUGNED YEAR; 3. AT THE TIME OF HEARING, IT WAS A COMMON POINT B ETWEEN THE PARTIES THAT THE ISSUES RAISED IN THE CAPTIONED APP EAL HAVE ALREADY BEEN ADJUDICATED IN ASSESSEES OWN CASE FOR ASSESSMENT Y EAR 2009-10 BY THE TRIBUNAL VIDE ITS ORDER IN ITA NO.4886/MUM/2014 DA TED 15/06/2016. 4. THE FIRST ISSUE, IN THIS APPEAL, RELATES TO ASSE SSABILITY OF FACILITY CHARGES RECEIVED OF RS.9.60 LACS, WHICH HAS BEEN CO NSIDERED BY THE INCOME TAX AUTHORITIES BEING ASSESSABLE AS INCOME F ROM HOUSE PROPERTY AS AGAINST ASSESSEES CLAIM FOR IT BEING AN INCOME ASSESSABLE FROM BUSINESS OR PROFESSION. SIMILAR CONTROVER SY HAD COME UP BEFORE THE TRIBUNAL IN ASSESSMENT YEAR 2009-10(SUPRA), WHE REIN THE TRIBUNAL UPHELD THE PLEA OF THE ASSESSEE BY MAKING THE FOLL OWING DISCUSSION:- 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. QUITE CLEARLY, THERE CAN BE NO DISPUTE TO THE PROPOSITION THAT INCOME DERIVED FROM MERE LETTING OUT OF PROPERTY IS LIABLE TO BE ASSESSED ONLY UNDER THE HEAD INCOME FROM HOUSE PROPERTY. THUS, THERE IS NO DISPUTE BETWEEN ASSESSEE AND THE REVENUE WITH RE GARD TO THE RENTAL RECEIPTS OF RS.13,80,000/-, WHICH HAVE BEEN RECEIVED FOR LETTING OUT THE PROPERTY. SO HOWEVER, THE POSITION CANVASSED BY THE ASSESSEE IS THAT APART FROM LETTING OUT OF PROPERTY , IT IS ALSO RENDERING CERTAIN SERVICES TO THE TENANT BY PROVIDI NG SPECIFIC 3 ITA NO. 221/MUM/2015 (ASSESSMENT YEAR : 2009-10) SERVICES ON ACCOUNT OF HOUSE-KEEPING, SECURITY, ETC . ASSESSEE HAS ALSO POINTED OUT THAT THE FACILITY SERVICE CHARGES EARNED BY IT ALSO REQUIRE OUTGOINGS ALSO INASMUCH AS IT HAD HIRED SER VICES PROVIDERS FOR THE SAME. QUITE CLEARLY, THE PROVIDING OF SUCH SERVICES DO NOT SHOW THAT THE INCOME BY WAY OF FACILITY SERVICE C HARGES CAN BE SAID TO BE DERIVED FROM MERE OWNERSHIP OF THE PROPE RTY. FOR THIS REASON, THE STAND OF THE ASSESSEE IS THAT INCOME FR OM SUCH SERVICES IS LIABLE TO BE TREATED AS BUSINESS INCOME. IN T HIS CONNECTION, IT WOULD BE RELEVANT TO REFER TO THE JUDGMENT OF THE H ONBLE GUJARAT HIGH COURT IN THE CASE OF SARABHAI (P) LTD., WHICH LAYS DOWN THAT IF THE OWNER OF A PROPERTY CARRIES ON UPON THE PROPER TY SOME ACTIVITIES WHICH RESULTS IN PROFITS AND GAINS ARIS ING, NOT FROM THE OWNERSHIP BUT FROM USE THEREOF, SUCH PROFIT AND GAI NS WOULD BE CHARGEABLE TO TAX AS BUSINESS INCOME AND NOT INCO ME UNDER THE HEAD INCOME FROM HOUSE PROPERTY. IN FACT, IN THE CASE BEFORE HONBLE GUJARAT HIGH COURT, ASSESSEE WAS OWNER OF T HE PROPERTY, WHICH WAS LET OUT TO THE TENANTS. APART FROM LETTI NG OUT, ASSESSEE WAS ALSO RENDERING CERTAIN SERVICES BY PROVIDING VA RIOUS AMENITIES FOR WHICH AMOUNT WAS BEING SEPARATELY EARNED. THE HONBLE HIGH COURT HELD THAT AMOUNT RECEIVED FROM THE TENANTS AS RENT FOR LETTING OF THE PROPERTY WAS ASSESSABLE UNDER SECTIO N 22 OF THE ACT AS INCOME FROM HOUSE PROPERTY AND THE OTHER RECEIPTS IN RESPECT OF THE SERVICES RENDERED TO THE TENANTS WAS LIABLE TO BE ASSESSED UNDER SECTION 28 OF THE ACT AS BUSINESS PROFITS. IN OU R VIEW, THE RATIO LAID DOWN BY THE HONBLE GUJARAT HIGH COURT IN THE CASE OF SARABHAI (P) LTD.(SUPRA) COVERS THE INSTANT SITUATION. UNDISPUTE DLY, THE FACILITY SERVICE CHARGES ARE BEING RECEIVED BY THE ASSESSEE IN RETURN OF PROVIDING SPECIFIC SERVICES LIKE HOUSE-KEEPING, SEC URITY, ETC. TO THE SIMILAR EFFECT IS ALSO THE JUDGMENT OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF A.K.COMPLEX (SUPRA), WHICH WAS RELIE D UPON BY THE ASSESSEE BEFORE US. THE ARGUMENT OF THE REVENUE TH AT SERVICES RENDERED BY THE ASSESSEE ARE NOT OF SPECIAL NATURE, AND THEY ARE OF ROUTINE NATURE EXPECTED TO BE PROVIDED BY THE LANDL ORD, IS OF NO CONSEQUENCE TO DECIDE THE CONTROVERSY IN QUESTION. THIS IS FOR THE REASON THAT FACTUALLY IT HAS NOT BEEN DISPUTED BY T HE REVENUE THAT SERVICES BY WAY OF HOUSE-KEEPING, SECURITY, ETC. HA VE BEEN RENDERED BY THE ASSESSEE. MOREOVER, IT HAS TO BE DECIPHERED ON THE BASIS OF TERMS AND CONDITIONS IN EACH CASE AS TO THE NATURE OF THE SERVICES THAT MAY BE PROVIDED BY THE OWNER OF PROPERTY TO IT S TENANTS TO DECIDE AS TO WHETHER THEY ARE DISTINCT FROM AN AC TIVITY WHICH IS MERELY BECAUSE OF OWNERSHIP OF THE PROPERTY. IN THE PRESENT CASE, IT IS QUITE EVIDENT THAT THE SAID SERVICES ARE DIST INCT FROM LETTING OUT OF THE PROPERTY AND, THEREFORE, ASSESSEE IS JUSTIFI ED IN ASSERTING THAT THE SAME BE TAXED AS BUSINESS INCOME. THUS, ON T HIS ASPECT, WE SET-ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE AS SESSING OFFICER TO 4 ITA NO. 221/MUM/2015 (ASSESSMENT YEAR : 2009-10) RECOMPUTE THE INCOME IN VIEW OF THE AFORESAID DIRE CTIONS. IN THE RESULT, ON THIS GROUND ASSESSEE SUCCEEDS. 4.1 FOLLOWING THE AFORESAID PRECEDENT, WHICH HAS BE EN RENDERED UNDER IDENTICAL CIRCUMSTANCES, IN THIS YEAR TOO, T HE ASSESSING OFFICER IS DIRECTED TO RECOMPUTE THE INCOME BY TREATING THE FA CILITY CHARGES RECEIVED OF RS.9.60 LACS AS INCOME FROM BUSINESS AN D PROFESSION. 5. THE ONLY OTHER ISSUE REMAINING IN THE APPEAL IS WITH REGARD TO ASSESSEES CLAIM FOR DEDUCTION OF EXPENSES ON ACCOU NT OF OFFICE AND ADMINISTRATIVE EXPENSES OF RS.2,69,301/-. ON THIS ASPECT ALSO IN ASSESSMENT YEAR 2009-10(SUPRA) THE TRIBUNAL CONSIDE RED THE SUBMISSIONS AND DIRECTED THE ASSESSING OFFICER AS U NDER:- 10. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISS IONS. AT PAGES 58 - 64 OF THE PAPER BOOK, COPIES OF BALANCE SHEET AND P&L ACCOUNT FOR THE YEAR UNDER CONSIDERATION HAVE BEEN PLACED. SCHEDULE 8 OF THE P&L ACCOUNT PERTAINING TO ADMINI STRATIVE EXPENSES REVEAL THAT VARIOUS EXPENSES ON ACCOUNT OF REPAIRS AND MAINTENANCE, FILING FEE, POST AND TELEGRAPH, BANK C HARGES, ACCOUNTING CHARGES, AUDIT FEE, ETC. HAVE BEEN DEBIT ED APART FROM EXPENSES INCURRED ON HOUSE-KEEPING AND SECURITY CHA RGES, WITH WHICH WE HAVE DEALT WITH IN THE EARLIER PART OF THI S ORDER. IN OUR VIEW, THE ASSESSING OFFICER HAS MECHANICALLY DISALL OWED THE ENTIRE EXPENDITURE WITHOUT APPRECIATING THAT CERTAIN BARE MINIMUM EXPENSES ARE LIABLE TO BE INCURRED BY THE ASSESSEE COMPANY IN ORDER TO MAINTAIN ITS STATUS OF A CORPORATE BODY, AS NOTE D BY OUR CO- ORDINATE BENCH IN THE CASE OF PREIMUS INVESTMENT & FINANCE LTD. (SUPRA) BASED ON THE JUDGMENT OF HONBLE ALLAHABAD HIGH COURT IN THE CASE .OF RAMPUR TIMBER & TURNERY CO.LTD. THEREF ORE, WE DEEM IT FIT AND PROPER TO RESTORE THE MATTER BACK TO THE FI LE OF ASSESSING OFFICER IN ORDER TO EXAMINE THE ALLOWABILITY OF EXP ENDITURE AFRESH IN THE AFORESAID LIGHT AND THEREAFTER RECOMPUTE THE IN COME OF THE ASSESSEE. THUS, ON THIS ISSUE THE ASSESSEE SUCCEE DS FOR STATISTICAL PURPOSES. 5 ITA NO. 221/MUM/2015 (ASSESSMENT YEAR : 2009-10) 5.1 FOLLOWING THE AFORESAID PRECEDENT, IN THIS YEAR TOO, THE ASSESSING OFFICER IS DIRECTED TO EXAMINE THE ALLOWABILITY OF EXPENDITURE AFRESH IN THE LIGHT OF THE DIRECTIONS OF THE TRIBUNAL DATED 15/06/2016 (SUPRA). 6. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED , AS ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 30/06/201 6 SD/- (G.S. PANNU) ACCOU NTANT MEMBER MUMBAI, DATED 30/06/2016 VM , SR. PS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT , 2. THE RESPONDENT. 3. THE CIT(A)- 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI