Case Law Details
ACIT Vs Camoron Finance & Investments (ITAT Mumbai)
Payment of municipal taxes are directly related to letting out of the property, therefore, the same could not be allowed as a deduction under Sec. 57(iii) for the purpose of earning of amenities charges by the assessee.
FULL TEXT OF THE ITAT JUDGMENT
The present appeal filed by the revenue is directed against the order passed by the CIT(A)-37, Mumbai, dated 28.06.2017, which in turn arises from the order passed by the A.O under Sec. 143(3) r.w.s. 147 of the Income Tax Act, 1961 (for short „Act‟), dated 16.02.2016 for A.Y. 2008-09. The revenue assailing the order of the CIT(A) has raised before us the following grounds of appeal:
“1. On the facts and in the circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals) has erred in allowing municipal taxes against “Income from Other Sources” u/s 57(iii) instead of “Income from house Property” ignoring that the municipal taxes are paid in respect of the house property and thus are directly related to the House property on which income is earned.
2. On the facts and in the circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals) has erred in ignoring that the municipal taxes are to be deducted from “Income from House Property” u/s 23 and not from “Income from Other Sources” and have not covered u/s. 57(iii) of the Income-Tax Act, 1961.
3. The appellant prays that the order of Ld. CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored.
4. The appellant craves leave to amend or to alter any ground or add a new ground, which may be necessary.”
2. Briefly stated, the assessee firm had e-filed its return of income for A.Y. 2008-09 on 01.09.2008, declaring total income of Rs.5,67,38,760/-. Subsequently, the case of the assessee was reopened under Sec. 147 of the Act.
3. The A.O while framing the assessment inter alia observed that the assessee had shown gross rental income of Rs.12,98,00,004/- as regards the lease and amenities charges received from letting out its property situated at Vile Parle (East), Mumbai to HSBC during the year. It was observed by the A.O that the assessee firm had entered into two different agreements with HSBC bank for the lease rentals and amenities charges for letting out its aforesaid property. The lease agreement was entered into by the assessee with HSBC for the Ground to 5thFloor on 28.02.2007 and for the 6th Floor on 28.03.2008, on the basis of which the assessee firm was in receipt of rent of Rs.6,60,00,000/- per annum. At the same time, the amenities agreement was entered for the Ground to 5th Floor on 02.03.2007 and for the 6th Floor on 28.03.2008, on the basis of which the assessee firm was in receipt of amenities charges of Rs.6,38,00,004/- per annum for maintaining the aforesaid property. It was noticed by the A.O that „Clause No. 4‟ of the amenities agreement clearly stated that the amount was to be received by the assessee for carrying out maintenance, major repairs and payment of municipal tax. The A.O observed that the assessee had shown the entire rental income and receipts towards amenities charges under the head “income from house property”, and after deducting from the same viz. (i) property tax of Rs.1,98,57,822/-; (ii). 30% of net rental income amounting to Rs. 2,85,24,719/-; and (iii). interest expenditure of Rs.92,46,443/-, had shown the balance rental income of Rs.5,73,11,234/- as its income under the head “income from house property”.
4. The A.O being of the view that as the aforesaid incomes viz. (i) rental income from the property; and (ii) income received towards amenities charges for giving services to the lessee were two different types of income, therefore, the same could not be clubbed and taxed under the same head i.e “income from house property”. On the basis of his aforesaid conviction the A.O assessed the „rental receipts‟ under the head “income from house property”, whereas the amenities charges received for giving services to the lessee were brought to tax by him under the head “income from other sources”. The A.O while concluding as hereinabove declined to accept the contention of the assessee that as the aforesaid agreements were in the nature of composite agreements, therefore, the amount had rightly been clubbed and was shown under the head “income from house property”. Rather, it was observed by the A.O that the amenities agreement could not be given the color and character as that of a lease agreement‟, as the same only provided for the terms of sharing of expenditure between the lessor and the lessee.
5. Aggrieved, the assessee carried the matter in appeal before the CIT(A). The CIT(A) observed that a similar issue in the case of the assessee for A.Y. 2009-10 had came up before his predecessor. The CIT(A) adopted the view taken by his predecessor and concluded that the A.O had rightly assessed the amount received by the assessee as per the amenities agreement under the head “income from other sources”. Further, the CIT(A) endorsing the view taken by his predecessor, observed that as the liability for payment of municipal taxes was under taken by the assessee as per the amenities agreement, therefore, it was under Sec. 57(iii) entitled for deduction of the municipal taxes against the receipts as per the amenities agreement which were brought to tax under Sec. 56 of the Act. On the basis of the aforesaid deliberations the CIT(A) directed the A.O to compute the income of the assessee both under the head i.e “income from house property” and “income from other sources” for the year under consideration, in the same manner as was so directed by his predecessor in the assesses own case for A.Y 2009-10.
6. The revenue being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. The revenue has assailed the order of the CIT(A) on the ground that he has erred in allowing municipal taxes as a deduction under Sec. 57(iii) while computing the income of the assessee under the head “Income from other sources”. It is the contention of the revenue that the CIT(A) has erred in ignoring that as the municipal taxes have an inextricable nexus with the earning of the rental income, therefore, the same are liable to be deducted while computing the income of the assessee under the head “income from house property”.
7. The ld. Authorized Representative (for short „R‟) for the assessee, at the very outset of the hearing of the appeal fairly stated that the issue involved in the present appeal of the revenue was squarely covered against the assessee. It was submitted by the ld. A.R that the CIT(A) while disposing off the appeal for the year under consideration i.e A.Y 2008-09, had followed the order passed by his predecessor in the assesses own case for A.Y 2009-10. The ld. A.R submitted that the order of the CIT(A) in context of the issue under consideration had been reversed by the Tribunal while disposing off the appeal of the revenue in ACIT-21(1), Mumbai Vs. Camoron Finance and Investments [ITA No. 170/Mum/2013; dated 29.05.2015] (Copy placed on record). It was further submitted by the ld. A.R, that the view taken by the Tribunal in A.Y 2009-10 was thereafter followed by it while disposing off the appeal in the assesses own case for A.Y. 2010-11 in ACIT-21(1), Mumbai, Vs. M/s Camoron Finance & Investment Ltd. [ITA No. 4583/Mum/2014; dated 20.01.2016](Copy placed on record). It was submitted by the ld. A.R that in the aforesaid orders the Tribunal had concluded that as payment of municipal taxes is directly related to the letting out of the property, the rental income from which is taxed under the head “income from house property”, therefore, the same cannot be said to have been expended for the purpose of earning of amenities charges. The ld. A.R submitted that on the basis of the aforesaid deliberations the Tribunal had concluded that the CIT(A) had erred in allowing deduction of the municipal taxes under Sec. 57 (iii) against the income of the assessee from amenities charges. The ld. Departmental Representative (for short „D.R‟) relied on the aforesaid order of the Tribunal and submitted that the issue was squarely covered in favour of the revenue.
8. We have heard the authorized representatives of both the parties, perused the orders of the lower authorities and the material available on record. We find that the issue involved in the present appeal is squarely covered by the order of the Tribunal in the assesses own case for A.Y. 2009-10 in ACIT-21(1), Mumbai Vs. Camoron Finance and Investment [ITA No. 170/Mum/2013; dated 29.05.2015] and that for A.Y 2010-11 in ACIT-21(1) Vs. Camoron Finance and Investment [ITA No. 4583/Mum/2014; dated 20.01.2016]. We find that in the aforementioned orders the Tribunal had observed that as payment of municipal taxes are directly related to letting out of the property, therefore, the same could not be allowed as a deduction under Sec. 57(iii) for the purpose of earning of amenities charges by the assessee. We thus finding ourselves as being in agreement with the view taken by the Tribunal in the assesses own case for the aforementioned years viz. A.Y. 2009-10 and A.Y. 2010-11, respectfully follow the same. The Grounds of appeal No. 1 and 2 raised by the revenue are allowed in terms of our aforesaid observations.
9. That as the Ground of appeal No. 3 and 4 are general, therefore, the same are dismissed as not pressed.
10. The appeal of the revenue is allowed.
Order pronounced in the open court on 28.11.2018
