Case Law Details
Mahesh Devdutta Gupta Vs ACIT (ITAT Nagpur)
Held that we are of the considered view that the predominant intention of entering into these agreements is letting out of the property and not provision of any independent services.
Facts-
The assessee entered into two agreements of leave license and service charges, in respect of which, the assessee has offered the income under the head “income from house property”, whereas the AO had brought the same under the head “income from other sources”. It was submitted that in the AY 2003–04, AO assessed income from rent and service charges received from ICICI Prudential Life Insurance Co. Ltd and IDBI Bank Ltd. as income from House property. CIT(A) invoked provisions of section 263 on the issue that deduction claimed under section 24(a) was not allowable on service charges.
Further, assessee also alleged disallowance of interest holding that loan taken from the bank is not used towards house property and the same was obtained to be utilized for investment in sponge iron project.
Conclusion-
Held that we are of the considered view that the predominant intention of entering into these agreements is letting out of the property and not provision of any independent services. The Coordinate Bench in assessee’s own case has held that facilities provided are integral part of the house property being let out and such facilities are to be provided where the property is to be let out. Therefore, the facilities are incidental and ancillary to the predominate nature of transaction being letting out of the premises. In case of CIT vs National Storage Private Limited (supra), the Hon’ble Bombay High Court has held that where house property is given on leave and licence basis for earning income therefrom, the true character of the income derived is income from house property and the said character is not changed and the income doesn’t become income from trade or business where the hiring is inclusive of certain additional services such as heating, cleaning, lighting or sanitation where are relatively insignificant and only incidental to the use and occupation of tenements.
With regard to disallowance of interest on loan it was held that in absence of any demonstrative evidence on record that the loan amount was utilized for repayment of earlier loans obtained for the purpose of housing, deduction towards interest cannot be allowed while computing the income under the head “income from house property”.
FULL TEXT OF THE ORDER OF ITAT NAGPUR
The present appeal filed by the assessee is directed against order of the learned Commissioner of Income Tax (Appeals)-3, Nagpur, dated 09.03.2017 for the assessment year 2005–06, wherein the assessee has taken the following grounds of appeal:–
“(1) That the order of the learned Asstt. Commissioner of Income Tax, Central Circle-2(3) is bad in law and wrong on facts and the learned CIT(A) erred in confirming the same.
(2) That the learned CIT(A) erred in law and on facts in confirming and upholding the action of AO in not considering the amount of Rs 18,98,100/- as income from rent. On the facts and circumstances of the case the action of the learned authorities in treating the amount, which is part of rent as income from other sources is highly unjustified.
(3) That the learned CIT(A) erred in law and on facts in confirming the action of AO in holding that the amount of Rs. 18,98,100/- is received on account of services provided by the assessee. On the facts and circumstances of the case there is no regular activity of earning profit by providing services. The learned authorities failed to appreciate that the expenditure incurred by the assessee is common maintenance expenditure for the premises. The addition on such basis is highly unjustified.
(4) That the learned CIT(A) erred in law and on facts in confirming the action of AO in not considering the amount received as “Service Charges and Common Maintenance Charges” in proper perspective. On the facts and in circumstances of the case the amount received as service charges and common maintenance charges is part and parcel of rent and the action of the learned authorities in not considering the same in Annual letting value is highly unjustified.
(5) That the learned CIT(A) erred in law and on facts in confirming the action of AO in not allowing interest of Rs. 1,36,407/- being interest paid to Saraswat Corporative Bank. On the facts and circumstances of the case the learned authorities failed to consider that the amount was partly obtained for repayment of earlier housing loan.
(6) That the learned CIT(A) erred in law and on facts in confirming and upholding the action of AO in not allowing the deduction of interest to the extent of Rs. 25,441/- and restricting the same to Rs. 22,146/-. On the facts and in the circumstances of the case the action of the learned authorities is unjustified.
(7) That the learned CIT(A) erred in law and on facts in confirming and upholding the action of AO in determining income from other sources at Rs. 30,34,619/-instead of Rs. 61,528/- determined by the assessee. On the facts and in the circumstances of the case the action of the learned authorities is arbitrary and without any basis.
(7) That the learned CIT(A) erred in law and on facts in confirming and upholding the action of AO in making disallowance of Rs. 71,715/- treating 15% of expenditure on depreciation of Car, Insurance, interest on car loan and conveyance as personal expenses. On the facts and in the circumstances of the case the action of the learned authorities is arbitrary and hence unjustified. Alternatively the disallowance is on higher side.
(9) That the learned CIT(A) erred in law and on facts in confirming and upholding the action of AO in making addition of Rs. 15,476/-as interest earned. On the facts and circumstances of the case the learned authorities erred in not considering the fact that the TDS certificate issued by UCO Bank is incorrect and hence the income determined on such basis is unjustified.
(10) That the learned CIT(A) erred in law and on facts in confirming and upholding the action of AO in treating Rs. 90,000/- as cash credit u/s. 68 and thereby making addition to income. On the facts and circumstances of the case thelearned authorities erred in not reducing the amount from cost of assets.
(11) That the learned CIT(A) erred in law and on facts in confirming and upholding the action of AO in treating the amount of Rs. 1,35,000/- as cash credit u/s. 68 of the I.T. Act. On the facts and in the circumstances of the case the learned authorities failed to consider the explanation of the assessee hence the addition is not justified.
(12) That the learned CIT(A) erred in law and on facts in confirming and upholding the action of AO in considering Rs. 1,00,000/-received from Smt. Shyamadevi Gupta as income of the assessee. On the facts and in circumstances of the case the action is unjustified.
(13) That the learned Assessing Officer erred in law and on facts in charging interest u/s. 234A and 234B of the Income Tax Act and the learned CIT(A) erred in confirming the action of the AO.
(14) That for any other ground with kind permission of your honour at the time of hearing of appeal.
2. Ground No.1 is general in nature and ground no. 13 is consequential in nature, it does not require any separate adjudication. Further, during the course of hearing, the ld. AR did not press ground No.6. Hence, the same is dismissed as not pressed.
3. Regarding ground No. 2 to 4 and ground No. 7, the ld. AR submitted that these relates to two agreements of leave license and service charges, which were entered into by the assessee in respect of which, the assessee has offered the income under the head “income from house property”, whereas the Assessing Officer has brought the same under head “income from other sources”. It was submitted that both this agreements were duly produced before the Assessing Officer as well as before the ld. CIT(A) and are part of the assessment and the appellate records and there is no dispute regarding the same. It was also submitted that the details of rent and service charges were also verified by the Assessing Officer from the TDS certificates, which were enclosed with the return of income. It was submitted that in the earlier assessment year 2003–04, the Assessing Officer assessed income from rent and service charges received from ICICI Prudential Life Insurance Co. Ltd and IDBI Bank Ltd. as income from House property. It was submitted that though the ld.CIT(A) invoked provisions of section 263 on other matters, however this particular matter and the position accepted by the Assessing Officer was not disturbed by the ld.CIT(A), while invoking provisions of section 263 of the Act. It was further submitted that in the A.Y. 2004–05, the Assessing Officer again assessed the income under the head income from house property, however in this particular year, the ld.CIT(A) invoked provisions of section 263 of the Act on the issue that deduction claimed under section. 24(a) was not allowable on service charges. It was submitted that the assessee carried the matter in appeal before the Tribunal and the Tribunal vide its order in ITA No. 3/Nag/2008, dated 15.10.2012 held that the facilities provided by the assessee are integral part of the house property being let out and the facilities are to be provided where property is to be let out. It was submitted that the facts are similar to the fact of the current year as the same agreement of aforesaid three companies continue during the year and once a particular view has been accepted in the earlier assessment years and there is no change in the facts in subsequent years, the same view must be taken in the year under consideration and in support of the principle of consistency, the ld. AR placed reliance on the decision of Hon’ble Supreme Court in case of Radhasoami Satsang v/s CIT 193 ITR 321. It was further submitted that without prejudice to the aforesaid submission, the assessee is not carrying out any regular activity so as to result into profit earning activity. It was submitted that income was received from bare letting of the tenement accompanied by incidental facilities or services, which are not in the nature of business or trading operations. It was submitted that the nature of facilities provided are of such nature that a landlord is obliged to provide as landlord and the service element is not predominant over the letting activity. Further, our reference was drawn to the relevant provisions in the service agreement executed by the assessee with IDBI Bank Ltd. and it was submitted that identical provisions are executed in agreement with ICICI prudential Life Insurance and CITI Corp Finance India Ltd. with the small variation in case of CIT Corp Finance India Ltd., wherein the power backup in form of inverter facility has also been provided to the tenant. It was accordingly submitted that the findings of the ld.CIT(A) that the services are independent of the rent agreement signed separately by assessee is factually incorrect. Further, reliance was placed on the Hon’ble Bombay High Court decision in the case of CIT v/s. National Storage (P) Ltd. 48 ITR 577 as well as decision of Hon’ble Calcutta High Court in case of CIT v/s. Shambhu Investments(P) Ltd. 249 ITR 47. It was submitted that both the decisions have subsequently been affirmed by the Hon’ble Supreme Court.
4. Per contra, the ld. DR has relied on the findings of the Assessing Officer as well as the ld.CIT(A).
5. We have heard the rival contentions and perused the material available on record. On close reading and examination of the two agreements namely, leave and licence agreement as well as service agreement entered into by the assessee with IDBI Bank, we are of the considered view that the predominant intention of entering into these agreements is letting out of the property and not provision of any independent services. In substance, both the agreements talks about letting of premises and provision of space along with certain incidental services such as renovation of premises, structural repairs and maintenance, painting of external walls, provision of electricity, installation of DG Set, provision of water supply, etc. Therefore, both the agreements have to be read jointly and cannot be read and understood independent of each other especially where the intention of the parties are very clear that both the agreements are in respect of letting out of the premises and provision of services. The intention of the parties have to be gauged from the language of the two agreements and our reading of these two agreements clearly demonstrate that both the parties intend entering into an agreement for letting out of premises with incidental facilities and services. The Coordinate Bench in assessee’s own case in decision referred supra, though in context of proceedings under section 263, has also returned a finding that facilities provided are integral part of the house property being let out and such facilities are to be provided where the property is to be let out. Therefore, the facilities are incidental and ancillary to the predominate nature of transaction being letting out of the premises. In case of CIT vs National Storage Private Limited (supra), the Hon’ble Bombay High Court has held that where house property is given on leave and licence basis for earning income therefrom, the true character of the income derived is income from house property and the said character is not changed and the income doesn’t become income from trade or business where the hiring is inclusive of certain additional services such as heating, cleaning, lighting or sanitation where are relatively insignificant and only incidental to the use and occupation of tenements. We find that the dicta laid down by the Hon’ble Jurisdictional High Court squarely applies in the facts of the present case and respectfully following the same, amount of Rs 18,98,100/- received as services charges have to be assessed under the head ‘Income from house property”. The matter is thus decided in favour of the assessee and the grounds of appeal are disposed off accordingly.
6. Regarding ground No. 5, the ld. AR submitted that disallowance is made of interest paid to Saraswat Co–opertative Bank amounting to Rs. 1,36,407/– holding that the loan taken from the bank is not used towards house property and that the same was obtained to be utilized for investment in sponge iron project and the said findings has since been confirmed by the ld.CIT(A).
7. It was submitted that the loan was taken from Saraswat Co–op Bank and interest of . 1,36,407/– was incurred for the purpose of repayment of earlier housing loan of Bank of India Ltd., the loan was secured by way of equitable mortgage on house property and the sanction letter from Saraswat co–operative Bank was produced before the Assessing Officer and the ld.CIT(A) and necessary explanations along with bank statements were also furnished. Alternatively, it was submitted that where the claim of the assessee that the amount was utilized for repayment of earlier loans obtained for the purpose of housing is not accepted then in such a scenario deduction may be allowed from income under the head ‘Profits and Gains of Business and Profession’ as there is no dispute that the assessee has incurred the interest liability of interest of Rs. 1,36,407/–.
8. Per contra, the ld. DR has relied on the findings of the Assessing Officer as well as the ld.CIT(A).
9. We have heard the rival contentions and perused the material available on record. In absence of any demonstrative evidence on record that the loan amount was utilized for repayment of earlier loans obtained for the purpose of housing, deduction towards interest cannot be allowed while computing the income under the head “income from house property”. However, given the undisputed fact that the assessee has taken the loan for the purposes of his business and has incurred the interest liability of Rs. 1,36,407/–, the same is directed to be allowed while computing the income under the head ‘Profits and Gains of Business and Profession’. In the result, the ground of appeal is allowed.
10. Regarding ground No.8, it was submitted by the ld AR that the same relates to disallowance of Rs. 71,715/– being 15% of the expenditure claimed on account of depreciation on car, insurance, interest on car loan and conveyance holding it to be personal expenses. It was submitted that the proprietary concerns was otherwise required to incur expenditure of interest, insurance and depreciation on car loan and these are fixed expenditures in nature, whether it is used exclusively for the business or partially for personal use. Thus, the element of some personal use has no role to play while granting deduction of such expenses. It was further submitted that the disallowance may be restricted to 15% of repairs and maintenance of car and petrol expenditure, which is Rs. 27,443/–.
11. Per contra, the ld. DR has relied on the findings of the Assessing Officer as well as the ld.CIT(A).
12. We have heard the rival contentions and perused the material available on record. It is an admitted position that the vehicle has been used for personal purposes of the assessee and has thus not been used exclusively for the business purposes and therefore, the AO is well within his right to determine appropriate percentage of whole of the vehicle expenses including depreciation, insurance and interest on car loan as relatable to personal and non-business purposes and restrict the claim as relatable to business purposes. In the instant case, the AO has determined 15% as relatable to personal and non-business purposes which we found reasonable and in light of the same, we see no justifiable basis to interfere with the findings of the ld CIT(A) and the same is hereby confirmed and the ground so taken by the assessee is dismissed.
13. Regarding ground No.9, it was submitted by the ld AR that the addition of Rs 15,476/- is made by the Assessing Officer on the basis of TDS certificate mentioning interest income of Rs. 43,524/– received from UCO Bank. The ld. AR submitted that it was explained before the ld.CIT(A) that TDS certificate was incorrect and the assessee actually received interest of . 28,048/– from UCO Bank, which was duly reflected in the bank statement as well as books of accounts and therefore, the addition made merely on the basis of TDS certificate is unjustified and same may be directed to be deleted.
14. Per contra, the ld. DR has relied on the findings of the Assessing Officer as well as the ld.CIT(A).
15. We have heard the rival contentions and perused the material available on record. The AO has returned a finding that the assessee has reported interest income of Rs 28,048/- as against interest in TDS certificate of Rs 43,524/- whereas the whole of TDS credit as shown in the TDS certificate of Rs 4440/- has been claimed by the assessee. The ld CIT(A) has returned a finding that the contention of the assessee that he has actually received less interest income is not supported by any bank statement or any other documentary evidence. Further, during the course of hearing, nothing has been brought on record in terms of quantum of deposit, tenure and rate of interest basis which the amount of interest income can be reasonably determined. In the result, we see no justifiable basis to interfere with the findings of the ld CIT(A) and the same is hereby confirmed and the ground so taken by the assessee is dismissed.
16. Regarding ground No.10, it was submitted by the ld AR that the same relates to amount of . 90,000/– received as advance against agreement of sale of land at village Chhatarpur, which was found credited in the capital account of the assessee. It was submitted that the said deal was cancelled and the amount was forfeited and being on capital account, the assessee did not offer the same to tax and credited his capital account. It was submitted that the entry in the books of accounts conclusively prove that the amount was forfeited as the deal was cancelled and in such a scenario being a transaction on capital account, the cost of land should have been reduced by the Assessing Officer to that extent instead of bringing the same to tax. It was accordingly submitted that the addition so made and confirmed by the ld. CIT(A) be deleted.
17. Per contra, the ld. DR has relied on the findings of the Assessing Officer as well as the ld. CIT(A).
18. We have heard the rival contentions and perused the material available on record. The ld CIT(A) has returned a finding that neither during the assessment proceedings nor during the appellate proceedings, the assessee has furnished any supporting evidence or documentation in support of his contention that the amount so received by him is on account of forfeiture of amount in relation to cancellation of transaction of property. Nothing has been brought on record during the present proceedings to controvert the said findings of the ld CIT(A). It is therefore a case where certain contentions regarding nature and source of transaction have been raised by the assessee which are however not supported by any documentation and in such a scenario, we do not see any infirmity in the action of the AO and in action of the ld CIT(A) in confirming the same. In light of the same, we do not see any justifiable basis to interfere with the findings of the ld CIT(A) and the same are hereby confirmed and the ground of appeal taken by the assessee is dismissed.
19. Regarding ground No.11, wherein the ld.CIT(A) has confirmed the addition of . 1,35,000/– under section 68 of the Act. It was submitted by the ld AR that the same relates to loan transactions and in respect of two persons namely Umesh Gupta and Dilip Thakre, the assessee has furnished the confirmation and in respect of remaining loan transaction from different persons amounting to . 1 lakh, the name of these persons were submitted. It was submitted that these two confirmations filed by the assessee before the Assessing Officer were not considered either by the Assessing Officer or by the ld. CIT(A). It was submitted that these are small transactions and duly reflected in regular books of accounts. No evidence was found of unaccounted income being used as cash credit. Therefore, the addition may kindly be deleted.
20. Per contra, the ld. DR has relied on the findings of the Assessing Officer as well as the ld.CIT(A).
21. We have heard the rival contentions and perused the material available on record. Regarding transactions with Umesh Gupta and Dilip Thakre, where the assessee has filed the necessary confirmations, a fact not disputed by the lower authorities, the addition is hereby directed to be deleted and in respect of other transactions, we find that the assessee has clearly failed to discharge the initial onus cast on him to satisfactory explain the said transactions with appropriate documentation, the additions are hereby confirmed. In the result, the additions of Rs 35,000/- are hereby deleted and remaining additions of Rs 1,00,000/-are sustained. In the result, the ground of appeal is partly allowed.
21. Regarding ground No.12, wherein addition of . 1 lakh under section 68 was made by the Assessing Officer and which has been confirmed by the ld.CIT(A). It was submitted that same relates to loan received by the assessee from his mother Smt. Shaymadevi Gupta on 28.05.2004 and she has confirmed the said loan transactions in her own assessment proceedings before the same Assessing Officer, which is also the Assessing Officer in the instant case. It was submitted that the addition was made on substantive basis in hands of the mother and on protective basis in the hands of assessee. It was submitted that the addition was made in the hands of the mother, which was also confirmed by the ld.CIT(A), was contested before the Tribunal and the matter was set aside to the file of the Assessing Officer vide ITA No. 456/Nag/2013, dated 25.11.2015 and same is pending before the Assessing Officer. It was submitted that where Smt. Shyamadevi Gupta has confirmed the loan transactions entered into with the assessee, the addition in the hands of the assessee does not lie and if at all, any addition has to be made, the same can made in the hands of the mother of the assessee and therefore, the addition made in the hands of the assessee deserve to be deleted.
23. Per contra, the ld. DR has relied on the findings of the Assessing Officer as well as the ld.CIT(A).
22. We have heard the rival contentions and perused the material available on record. It is an admitted fact as emerging from the records that the mother of the assessee has confirmed before the same Assessing officer in her own assessment proceedings that she has given the amount of Rs 1 lacs to the assessee and in her hands as well, the addition of the said amount has already been made on substantive basis. In such circumstances, we agree with the contention of the ld AR that the addition in the hands of the assessee does not lie and if at all, any addition has to be made, the same can be made in the hands of the mother of the assessee where the matter is currently pending before the Assessing officer in the set-aside proceedings and which the Assessing officer is free to decide as per law. In the result, the addition so made is directed to be deleted and the ground of appeal is allowed.
In the result, the appeal of the assessee is partly allowed.
Order pronounced in the open Court on 10 .06.2022
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