ACIT, CHENNAI V. M/s. Rattha Holding Co. P. Ltd., CHENNAI

ITA 995/CHNY/2011

• Counselvise Citation: 99521714 RSA 2011
• Duration Of Justice: 2 year(s) 2 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 28-08-2013
• Assessment Year: 2005-2006
• Appeal Filed On: 06-06-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T N BETGERI
• Assessee Lawyers: T BANUSEKAAR
• Keywords: Business income; Depreciation; Revenue expenditure; Capital expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH C CHENNAI BEFORE DR. O.K. NARAYANAN, VICE PRESIDENT AND SHRI S.S. GODARA, JUDICIAL MEMBER I.T.A. NOS.995 TO 997/MDS/2011 ASST. YEARS : 2005-06, 2007-08 & 2008-09 THE ASST. COMMISSIONER OF INCOME TAX, COMPANY CIRCLE V(3), CHENNAI. (APPELLANT ) V. M/S. RATTHA HOLDING COMPANY PVT. LTD., NO.37, TTK ROAD, ALWARPET, CHENNAI-600 018. PAN : AACCR8160K. (RESPONDENT) DEPARTMENT BY : SHRI T.N. BETGERI, JCIT ASSESSEE BY : SHRI T. BANUSEKAAR, CA DATE OF HEARING : 28 AUG 2013 DATE OF PRONOUNCEMENT : 28 AUG 2013 O R D E R PER S.S. GODARA, JUDICIAL MEMBER : THESE ARE THREE APPEALS FILED BY THE REVENUE. TH E RESPECTIVE ASSESSMENT YEARS ARE 2005-06, 2007-08 AN D 2008-09. THEY ARE DIRECTED AGAINST DIFFERENT ORDERS OF TH E COMMISSIONER ITA 995-997/MDS/2011 2 OF INCOME TAX (APPEALS)-V, CHENNAI DATED 16.3.2011, PASSED IN APPEAL NO.516/2008-09 IN PROCEEDINGS UNDER SEC.143( 3) READ WITH SEC.147 OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT), APPEAL NO.158/2010-11 AND NOS.152/2010-11 BOTH DATE D 14.03.2011, IN PROCEEDINGS UNDER SEC.143(3)(3) READ WITH SEC.254 AND SEC.143(3) OF THE ACT RESPECTIVELY. 2. IN THE COURSE OF HEARING, THE REVENUE FIRST OF ALL CLARIFIES THAT THE MAIN ISSUE SOUGHT TO BE RAISED I N ALL THESE APPEALS IS AS TO WHETHER THE RECEIPTS IN QUESTION R AISED BY THE ASSESSEE IN LIEU INCUBATION FACILITY PROVIDED TO M /S. ACCENTURE SERVICES (P) LTD. IS LIABLE TO BE TREATED AS BUSIN ESS INCOME AS PER THE ASSESSEE OR FROM HOUSE PROPERTY AS HELD BY THE ASSESSING OFFICER. ITS FURTHER SUBMISSION IS THAT IN THE ASSESSMENT YEAR 2005-06 ONLY, THERE IS ONE MORE ISS UE OF CURRENT REPAIRS UNDER SEC.31 OF THE ACT WHICH HAS A RISEN FROM THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) DIREC TING THE ASSESSING OFFICER TO ALLOW THE SAME AS DEDUCTION. THEREAFTER, IT STRONGLY ARGUES THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ITA 995-997/MDS/2011 3 HAS ERRED IN UPSETTING THE FINDINGS OF THE ASSESSI NG OFFICE, IN HOLDING THE ASSESSEES INCOME FROM INCUBATION PROJ ECT AS BUSINESS INCOME AS WELL AS IN ALLOWING THE CURREN T REPAIRS IN QUESTION. IN THE LIGHT THEREOF, IT PRAYS FOR ACCEP TANCE OF ALL APPEALS. 3. IN REPLY, THE ASSESSEE STRONGLY ARGUES IN SUPPO RT OF THE FINDINGS OF THE COMMISSIONER OF INCOME TAX (APP EALS) IN ALL THE ASSESSMENT YEARS. TO BUTTRESS THE CONTENTIONS ON THE MAIN ISSUE, IT RELIES ON THE CASE LAW OF CIT V. M/S.ELNE T TECHNOLOGIES LTD. (2012)TIOL 904 (MAD.) DATED 09.10.2012. ON TH E REPAIR ISSUE, IT QUOTES THE CASE LAW OF (2013) 31 TAXMAN.C OM 3(MAD) THIRU AROORAN SUGARS LTD. V. DCIT AND PRAYS FOR REJ ECTION OF ALL THE APPEALS. 4. WE HAVE HEARD BOTH PARTIES AT LENGTH AND PERUSE D THE CASE FILES. THERE IS NO DISPUTE BETWEEN THEM T HAT THE MAIN ISSUE INVOLVED IN ALL CASES IS ABOUT THE HEAD OF IN COME ABOVE SAID REGARDING RECEIPTS RAISED BY THE ASSESSEE AFTER PR OVIDING INCUBATION FACILITY TO M /S. ACCENTURE SERVICES (P) LTD. HE NCE, FOR THE SAKE ITA 995-997/MDS/2011 4 OF CONVENIENCE AND BREVITY, WE TAKE UP ITA NO.995/M DS/2011 AS THE LEAD CASE. 5. CONCISE FACTS OF ITA NO.995/MDS/2011 ARE THAT T HE ASSESSEE IS A COMPANY. IT IS IN THE BUSINESS OF IT DEVELOPMENT AND CONSTRUCTIONS OF MULTI STOREY INFOTECH. ON 13.1 0.2005, IT HAD FILED ITS RETURN OF INCOME DISCLOSING LOSS OF ` .4,26,38,324/-. WE NOTICE FROM THE CASE THAT THE RELEVANT ASSESSMENT O RDER HAS BEEN PASSED BY THE ASSESSING OFFICER ON 29.12.2008 UNDER SEC.143(3) READ WITH SEC.147 OF THE ACT. HOWEVER, NO FACTS ARE FORTHCOMING AS TO WHETHER THE ASSESSMENT HAD EARLI ER BEEN FINALIZED BY THE ASSESSING OFFICER UNDER SEC.143(1) OR 143(3) OF THE ACT. STILL, IT IS EVIDENT TO US THAT IN THE PR OCEEDINGS UNDER SEC.147 OF THE ACT, THE ASSESSING OFFICER CAME ACRO SS ASSESSEES RECEIPTS OF ` .1,18,86,000/- RAISED FROM M /S. ACCENTURE SERVICES (P) LTD. IN LIEU OF PROVIDING INCUBATION FACILITIES IN FURTHERANCE TO AGREEMENT ARRIVED AT BETWEEN THEM. THERE IS NO QUA RREL ON FACTUAL POSITION THAT THE ASSESSEE HAD TAKEN ON LEA SE SAME BUILDINGS OF AN ENTITY BY THE NAME M/S. AR HOLDING S AND ITA 995-997/MDS/2011 5 ELECTRONICS (P) LTD. THEREAFTER, IT SPENT CONSIDER ABLE AMOUNT OF ` 4.65 CRORES IN REFURNISHING ON CARPETS, FALSE CEILI NG, KITCHEN EQUIPMENT, LANDSCAPES, PAINTING & FINISHING, ROAD L AYING, ROOFING & HARD DRILL, SANITARY WORK, SECURITY CONTROL CABLI NG, STRUCTURED CABLING, TILES, VERTICAL BLINDS, PAINTING, INSURANC E, INTEREST, LOAN PROCESSING FEES, LICENCE TAXES, STEEL TRENDS ETC. THE ASSESSEE HAD RETURNED THE RECEIPT ABOVE SAID UNDER THE HEAD BUSINESS INCOME. THE ASSESSING OFFICER DID NOT AGREE WITH T HE SAID TREATMENT OF RECEIPTS OFFERED BY THE ASSESSEE. IN HIS OPINION, THE ASSESSEE BEING A SUB LESSEE, DID NOT RAISE THE RECEIPTS FROM ANY BUSINESS ACTIVITY. THEREFORE, HE HELD THAT THE SAME HAD TO BE TAKEN AS INCOME FROM HOUSE PROPERTY. SIMILARL Y, QUA THE REFURNISHING EXPENSES, HE WAS OF THE OPINION THAT T HE SAME WERE CAPITAL IN NATURE WHICH HAD TO BE DISALLOWED. PROC EEDING ON THIS REASONING, THE ASSESSING OFFICER COMPUTED THE ASSES SEES TOTAL INCOME AS ` .83, 20,200/- RESULTING IN DEMAND OF ` .44,14,625/-. ITA 995-997/MDS/2011 6 6. AGGRIEVED, THE ASSESSEE PREFERRED APPEAL. VIDE ORDER UNDER CHALLENGE, THE COMMISSIONER OF INCOME T AX (APPEALS) HAS ACCEPTED BOTH ITS CONTENTIONS. FIRSTL Y, REGARDING HEAD OF INCOME, HE OBSERVES THAT THE ASSESSEE BEIN G AN ENTITY ENGAGED IN THE BUSINESS OF IT INFRASTRUCTURE, HAD LEASED MOVABLE ASSETS IN THE CAPACITY OF A SUB LESSEE TO M /S. ACCENTURE SERVICES (P) LTD. (SUB LESSEE). THEN HE HAS TAKEN INTO CONSIDERATION THE NATURE OF THE INCUBATION FACILI TY PROVIDED BY THE ASSESSEE AND HOLDS THAT THE LEASE AGREEMENT IS A BUSINESS TRANSACTION RESULTING IN BUSINESS INCOME. AT THE SAME TIME, QUA OTHER CONTENTIONS OF THE ASSESSEE REGARDING THE EXPENSES (SUPRA), THE COMMIS SIONER OF INCOME TAX (APPEALS) HAS HELD THAT THE SAME ARE IN THE NATURE OF CURRENT REPAIRS ALLOWABLE AS DEDUCTION. WHILE D IRECTING THE ASSESSING OFFICER TO ALLOW THE REVENUE EXPENSES, HE FURTHER OBSERVES THAT THOSE ITEMS OF EXPENSES WHICH ARE NOT IN THE NATURE OF CURRENT REPAIRS, HAVE TO BE CAPITALIZED U NDER THE APPROPRIATE HEADS. ITA 995-997/MDS/2011 7 IT IS IN THIS BACKDROP OF FACTS THAT THE REVENUE IS AGGRIEVED. 7. FIRST WE COME TO THE GROUND OF THE REVENUE THAT THE INCOME IS NOT LIABLE TO BE TREATED UNDER T HE HEAD BUSINESS INCOME AS HELD BY THE COMMISSIONER OF IN COME TAX (APPEALS), BEING RECEIPT FROM HOUSE PROPERTY. THE FACTUAL POSITION ALREADY STANDS NARRATED HEREIN ABOVE. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF IT DEVELOPMENT A ND CONSTRUCTION OF MULTI-STOREY INFOTECH. THE IMPUGNE D RECEIPT HAS BEEN RAISED BY THE ASSESSEE AFTER PROVIDING INCUBA TION PROJECT FACILITY TO ITS LESSEE WHO IS ALSO A SOFTWARE COMPA NY AFTER FURNISHING THE BUILDING ETC IN THE NATURE OF MOVABL E ASSETS. IN THIS BACKDROP, WE NOTICE THAT THE HONBLE JURISDICT IONAL HIGH COURT IN THE CASE OF M/S. ELNET TECHNOLOGIES LTD (SUPRA) HAS SQUARELY DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE WHEREIN IT HAS BEEN HELD THAT IN CASE OF A COMPANY PROVIDING SOFTWARE INFRASTRUCTURAL FACILITIES ON LEASE IN LIEU OF RENT PAYMENT, THE RE CEIPT IS BUSINESS INCOME INSTEAD OF THAT FROM HOUSE PRO PERTY. IN THE ITA 995-997/MDS/2011 8 COURSE OF ARGUMENTS, THE REVENUE HAS NOT BEEN ABLE TO CITE ANY DISTINGUISHING FEATURES. ACCORDINGLY, WE RELY UPON THE SAID DECISION AND DECIDE THE ISSUE IN FAVOUR OF THE ASSE SSEE. IN THE LIGHT OF THESE FINDINGS, THE RELEVANT GROUNDS IN AL L THE APPEALS RAISED BY THE REVENUE ARE REJECTED. 8. NOW, WE COME TO THE SECOND PLEA OF THE REVENUE REGARDING REPAIRS (SUPRA). AS STATED HEREIN ABOVE, THE ASSESSEE HAD TAKEN THE BUILDINGS ON LEASE; REFURNISHED THEM AFTER INCURRING EXPENSES IN THE MANNER STATED IN THE PRE CEDING PARAGRAPHS AND PROVIDED INCUBATING FACILITIES TO IT S LESSEE. THE QUESTION SOUGHT TO BE RAISED BY THE REVENUE IS THAT SINCE THE ASSESSEE IS NOT THE OWNER OF THE BUILDING, IT IS NO T ENTITLED FOR THE CLAIM IN QUESTION. FROM THE CASE LAW CITED BY THE ASSESSEE OF M/S. THIRU AROORAN SUGARS LTD. (SUPRA), IT IS EVIDE NT TO US THAT THE SAME ISSUE OF CURRENT REPAIRS UNDERTAKEN BY A L ESSEE IN A RENTED PROPERTY AND ITS ALLOWABILITY HAD ARISEN AND THE HON'BLE JURISDICTIONAL HIGH COURT HAS DECIDED THE ISSUE AS UNDER:- ITA 995-997/MDS/2011 9 3. LEARNED COUNSEL APPEARING FOR THE ASSESSEE PLAC ED RELIANCE ON THE DECISION OF THIS COURT IN CIT V. AY ESHA HOSPITALS (P.) LTD [2007] 292 ITR 266(MAD.), WHEREIN IN RESPE CT OF THE CLAIM MADE FOR THE ASSESSMENT YEAR 1991-92, THE ASS ESSEE CLAIMED THE AMOUNT SPEND ON PAINTING, RELAYING OF THE DAMAGED FLOORS, PARTITIONS, ETC., AS REVENUE EXPEND ITURE. ON THE APPEAL BEFORE THIS COURT BY THE REVENUE, IT WA S POINTED OUT THE ASSESSEE INCURRED EXPENDITURE FOR RELAYING OF THE DAMAGED FLOORS, PAINTING AND PARTITION IN RESPECT O F THE LEASED PROPERTY. REFERRING TO THE DECISION OF THE APEX C OURT IN CIT V. MADRAS AUTO SERVICE (P) LTD.[1998] 233 ITR 468/99 T AXMAN 575, THIS COURT POINTED OUT THAT THE EXPENDITURE IN CURRED IN RESPECT OF THE MAINTENANCE OF THE LEASED PREMISES W AS DEDUCTIBLE AS REVENUE EXPENDITURE. 4. AS REGARDS THE CONTENTIONS TAKEN BY THE REVENUE PLACING RELIANCE ON EXPLANATION 1 TO SECTION 32(1)( II) OF THE INCOME-TAX ACT, WHICH WAS INSERTED WITH EFFECT FROM APRIL 1, 1988, THIS COURT POINTED OUT THAT THE EXPLANATION I S AN EXCEPTIONAL ONE WHICH PERMITS DEPRECIATION IN CASES WHERE THE ASSESSEE DOES NOT OWN A BUILDING, IN RESPECT OF WHI CH THE ASSESSEE INCURS CAPITAL EXPENDITURE ON THE CONSTRUC TION OF ANY STRUCTURE OR DOING OF ANY WORK, IN OR IN RELATION T O, AND BY WAY OF RENOVATION OR EXTENSION OF, OR IMPROVEMENT TO TH E BUILDING. 5. APPLYING THE ABOVE SAID DECISION OF THIS COURT T O THE FACTS OF THE PRESENT CASE, WE HOLD THAT THE TEMPORA RY STRUCTURE BY MEANS OF FALSE CEILING AND OFFICE RENOVATION HAD NOT RESULTED IN ANY CAPITAL EXPENDITURE. THE BENEFIT OF THE ABOV E SAID DECISION OF THIS COURT HENCE, APPLIES TO THE FACTS OF THE CASE. ACCORDINGLY, THE QUESTION IS ANSWERED IN FAVOUR OF THE ASSESSEE AND THE TAX CASE (APPEAL) STANDS ALLOWED. NO COSTS. ITA 995-997/MDS/2011 10 IN THE LIGHT THEREOF AS WELL AS IN VIEW OF SIMIL ARITY OF FACTS, WE HOLD THAT IN PRINCIPLE, THE ASSESSEE IS E NTITLED FOR THE EXPENSES IN QUESTION. WE ALSO FIND THAT THE COMMIS SIONER OF INCOME TAX (APPEALS) HAS ALREADY ISSUED NECESSARY D IRECTIONS TO THE ASSESSING OFFICER TO ALLOW REVENUE EXPENDITUR E AND ALSO TO CAPITALIZE THE EXPENSES WHICH ARE NOT IN THE NATURE OF CURRENT REPAIRS. IN OUR OPINION, SINCE THE COMMISSIONER O F INCOME TAX (APPEALS) HAS ISSUED APPROPRIATE DIRECTIONS TO THE ASSESSING OFFICER TO VERIFY THE NATURE OF THE EXPENSES, WE A FFIRM WITH THE SAME AND LEAVE THE ASSESSING OFFICER TO ACT AS DIRE CTED BY THE COMMISSIONER OF INCOME TAX (APPEALS). 11. CONSEQUENTLY, ALL THE APPEALS FILED BY THE REV ENUE ARE DISMISSED. ITA 995-997/MDS/2011 11 ORDER PRONOUNCED IN THE OPEN COURT ON THURSDAY, THE 28 TH DAY OF AUGUST 2013, AT CHENNAI. SD/- SD/- ( DR. O.K. NARAYANAN ) ( S.S. GODARA ) VICE PRESIDENT JUDICIAL ME MBER CHENNAI, DATED : 28 TH AUGUST 2013 JLS. COPY TO:- (1) APPELLANT (2) RESPONDENT (3) CIT(A) CHENNAI (4) CIT, CHENNAI (5) D.R. (6) GUARD FILE.