Case Law Details
DCIT Vs M/s. Turner Morrison Limited, (ITAT Kolkata)
The addition of Rs.80,39,178/- on account of deemed rental income from the building at Qutub Institutional area as made by the Assessing Officer was challenged by the assessee in the appeal filed before the ld. CIT(Appeals) and after considering the submissions made by the assessee as well as the material available on record, the ld. CIT(Appeals) deleted the same for the following reasons given in paragraph no. 21 of his impugned order:-
“21. I have carefully considered the observations of the Assessing Officer in the assessment order, and submissions of the appellant. The appellant has produced a copy of the Writ Petition filed in the Hon ‘ble Delhi High Court relating to sealing of the property in which it is clear that the building was sealed on 14/11/2006 in the sealing drive undertaken by Municipal Corporation of Delhi. Therefore, the appellant was prevented by sufficient cause not to let out this property. Therefore, the Notional Income from the said property lying vacant due to Act of Government cannot be added back. Hence, addition of Rs.80,39,178/- is deleted”.
We have heard the arguments of both the sides on this issue and also perused the relevant material available on record. The ld. D.R. has contended that the relief on this issue was allowed by the ld. CIT(Appeals) by relying on the copy of Writ Petition filed by the assessee for the first time before him, wherein the date of sealing of the property by Delhi Municipal Corporation was mentioned at 14.11.2006 as against the date of 14.11.2011 taken by the Assessing Officer. He has contended that the ld. CIT(Appeals), however, did not give any opportunity to the Assessing Officer to verify this additional evidence in the form of copy of Writ Petition filed by the assessee before giving relief to the assessee on this issue and there is thus a violation of Rule 46A of Income Tax Rules by the ld. CIT(Appeals). The ld. Counsel for the assessee, on the other hand, has submitted that the date of sealing of the property being 14.11.2006 was specifically pointed out by the assessee before the Assessing Officer but the same was wrongly taken by him on 14.11.2011. He has contended that he, however, has no objection if the matter is sent back to the Assessing Officer for verification of the date of sealing of the property. Accordingly, we set aside the impugned order of the ld. CIT(Appeals) on this issue and restore the matter to the file of the Assessing Officer for deciding the same afresh after verifying the exact date of sealing of the property by Delhi Municipal Corporation from the relevant documentary evidence.
FULL TEXT OF THE ITAT JUDGMENT
These two appeals, one filed by the Revenue being ITA No. 297/KOL/2013 and the other filed by the assessee being ITA No. 161/KOL/2013, are cross appeals, which are directed against the order of ld. Commissioner of Income Tax (Appeals)-6, Kolkata dated 16.11.2012.
2. The common issues involved in Grounds No. 1 & 2 of the Revenue’s appeal as well as Grounds No. 1 & 2 of the assessee’s appeal relate to the treatment given by the ld. CIT(Appeals) to the income received by the assessee from service charges relating to house property as business income and allowing substantial expenses claimed by the assessee against the said income.
3. The assessee in the present case is a Company, which was the owner of two buildings at 6, Lions Range, Kolkata and at 16, Bank Street, Mumbai. The space available in the said buildings had been given on rent by the assessee-company to different tenants and the rental income received during the year under consideration amounting to Rs.5,49,40,017/- after claiming deductions on account of Corporation Tax and standard deduction was offered to tax under the head “income from house property”. The assessee-company had rendered certain services to the tenants and the gross receipts from service and maintenance charges amounting to Rs.90,38,482/- were declared by the assessee under the head “profits and gains of business or profession”. Against the said receipts, substantial expenses were claimed by the assessee resulting into business loss of Rs.3,21,29,852/- and after adjusting the same against the income from house property, the total income of Rs.1,28,10,165/- was declared by the assessee in the revised return of income filed for the year under consideration on 30.03.2010. During the course of assessment proceedings, the assessee was required by the Assessing Officer to explain as to why the service and maintenance charges should not be assessed to tax under the head “income from house property”. In this regard, the assessee was also required by the Assessing Officer to file the copy of any agreement or other documents by which it was required to render various services. The assessee, however, failed to offer any explanation to the satisfaction of the Assessing Officer and also failed to file the copy of any agreement or other documents as required by the Assessing Officer. The Assessing Officer, therefore, treated the entire service and maintenance charges received by the assessee as an integral part of the rental income liable to tax under the head “income from house property”. Accordingly, deduction of 30% was allowed by him against the service and maintenance charges of Rs.90,38,482/- received by the assessee and the balance amount of Rs.63,26,937/- was assessed by him under the head “income from house property”. As regards the claim of the assessee for business expenses under various heads, the Assessing Officer found that the only activity of the assessee carried out during the year under consideration was giving buildings on rent and providing some services and having assessed the entire income from rent and service & maintenance charges under the head “income from house property”, the Assessing Officer held that there was no income chargeable to tax as business income of the assessee and accordingly the entire expenses claimed by the assessee as business expenses were disallowed by him.
4. The action of the Assessing Officer in treating its income from service and maintenance charges as income from house property and disallowing the entire expenses claimed as business expenses was challenged by the assessee in the appeal filed before the ld. CIT(Appeals) and after considering the submissions made by the assessee and material available on record including the case laws cited on behalf of the assessee, the ld. CIT(Appeals) held that the service and maintenance charges received by the assessee from tenants were chargeable to tax as its business income for the following reasons given in paragraph no. 8 to 10 of his impugned order:-
“8.The appellant is providing the service of electricity back up on charges to some tenants and supplying electricity to other common areas, power back-up for which the money is charged as per the consumption from the tenants; elevator facility, car parking, lobby facility, security service and other routine maintenance including cleaning, drainage, sewerage etc. The service charges are taken on case to case basis as per agreements entered with the tenants. The appellant has not produced any copy of agreement during the Appellate proceedings to show whether the rates are separate or only one contract is made for hire/rent charges inclusive of service charges, The service charges includes provision of security, maintenance of lifts and common area, providing lighting in common area and the same is recovered even from those to whom part of the premises have been disposed off and even in respect of premises which are not tenanted, All the expenses related to carrying the various businesses as well as for maintaining the corporate activity, viz remuneration of Company Secretary, maintenance of registered office, conduct of Board meetings including travel and stay, travelling for new business prospects are debited to the P&L account by the appellant. The Hon’ble jurisdictional High Court in the case of Commissioner of Income-tax vs Model Manufacturing Co. Pvt. Ltd. (1986) 159 ITR 270 (Cal) held that the services rendered by the assessee in providing electricity, use of lifts, supply of water, maintenance of staircases and watch and ward facilities to the tenants constituted separate activities distinct from the letting out of the property. The service charges realised by the assessee were held to be not assessable under section 22 but were assessable under the head “Income from other sources. It further held a follows:-
“6. In the case of Karnani Properties Ltd. (supra) , the Supreme Court held on the facts of that case that the rental income and the service charges are two different sources and not one source. In that case the flats and the shops were let out to the tenants which included charges for electric current, for the use of lifts, for the supply of hot and cold water, or the arrangements for scavenging, for providing watch and ward facilities as well as other amenities,
7. In the case of CIT v. Kanak Investments (P.) Ltd. [1974} 95 ITR 419 this Court held that where composite rent is received by the assessee from its tenant, it should be split up and the amount attributable to the building only should be computed under section 9(1) of the Indian Income-tax Act, 1922 (‘the 1922 Act’) while the amount attributable to the amenities provided by the assessee to the tenants should be assessed under section 12 of the 1922 Act.
8. In the case of Indian City Properties Ltd. v. CIT [1978] 111 ITR 19, this Court held that the income derived from letting out the buildings was assessable as income from house property under section 22, The lift charges and air-conditioning charges, which had been shown separately in the ITO’s order, were assessable under section 56 of the Act as ‘income.
9. The Tribunal found that the service charges realised constitute a separate item of receipt. The rent and service charges have been separately shown and accounted for as consideration for different things. The Tribunal, in coming to its conclusion that the charges received for amenities furnished by the landlord to the tenants were assessable to income-tax as income from other sources and nor as income from house property, relied on the case of Karnani Properties Ltd. (supra) and the observation of the Lord Macmillan in the case of Salisbury House Estate Ltd. v. Fry [I930j 15 Te 266 (HL). This Court, in the case ofKanak Investments (supra), took the view that even where a composite rent is received, the amount attributable to the amenities provided by the assessee to the tenants should be assessed under the head ‘Income from other sources’. In our view, on the facts found by the Tribunal, the first two questions in this reference must be answered in the affirmative and in favour of the assessee”.
9. The Hon’ble High Court of Karnataka in the case of Commissioner of Income- tax v. Shankaranarayana Hotels (P.) Ltd. in IT Reference Case Nos. 4 to 6 and 12 of 1990 dated October 15, 1992 reported in [1993] 67 TAXMAN 520 (KAR.), 201 ITR 138 (Kar) has held that it was impermissible to split up the consideration payable by the tenant to the landlord, one representing the ‘income from house property’ and the other to represent the income attributable to the amenities or services as alleged services were integrated with the property leased and without the services, it was not possible for the tenant to enjoy the premises and, therefore, the entire rent including the service charges should be considered as the ‘Income from house property’ under section 22. It further observed as follows:-
“9. There are three decisions of the Calcutta High Court wherein a similar view has been upheld. In CIT v. Kanak Investments (P.) Ltd. [1974] 95 ITR 419, it was held that where composiit rent is received by the assessee from its tenants, it should be split up and the amount attributable to the building only should be computed under section 9(1) of the 1922 Act (similar to section 22 of the 1961 Act), while the amount attributable to the amenities provided by the assessee to the tenants should be assessed under section 12 of the 1922 Act. Accordingly, the receipts attributable to the various amenities provided by the landlord in the shape of electric fittings, lift, gas, sanitation, etc., were separately treated under section 12.
10. Indian City Properties Ltd. v. CIT [I978] 111 ITR 19 (Cal.) also involve a similar question. The lift charges and air-conditioning charges were held to be assessable under section 86 treating them separately from the income derived from the building under section 22.
11. CIT v. Model Mfg. Co. (P.) Ltd. [I986] 159 ITR 2701 (Cal.) also stated that the services rendered by the assessee in providing electricity, use of lifts. supply of water, maintenance of staircases and watch and ward facilities to the tenants constituted separate activities distinct from letting out of the property. The service charges realised by the assessee were held to be not assessable under section 22 but were assessable under the head ‘Income from other sources’.
13. In case there is inseparability, as stated above, then it will not be an income from the house property at all and would be the income falling under the present section 56(2) {iii). Further, what follows from this, is, that in case of separability, the two sets of income attributable to the two separate entitles also should be assessed under respective heads. In other words, the income that should be attributed to the property as such alone should be assessed under section 22.
14. In view of the above discussion, we have no hesitation in holding that the composite rent received by the assessee could be split up in the instant case and consequently, the question referred to us is answered in the affirmative and against the revenue. ” ,
10. However, it is seen that the appellant is providing common services and is charging for the same from the tenants. The power back-up is certainly not an income from House Property. It is held that service charges are not part of House Property Income and has to be treated separately. However, the charges of Rs.83,57,523/- should be deducted from the gross rent and then deduction under section 24 (a) of rebate/ deduction of 30% is to be allowed from House Property Income”.
5. The issue relating to claim of the assessee for deduction on account of business expenses under various heads was decided by the ld. CIT(Appeal) vide paragraphs no. 13 to 18 of his impugned order, which read as under:-
“13. The appellant has not been able to find any trading accounting for any business being carried out by it. But, on the other hand, there is a huge personal expenses amounting to RS.1,46,30,000/-; travelling & conveyance of Rs.5,54,000/-; vehicles maintenance of RS.8,56,000/-; communication expenses of Rs.4,72,000/-; printing & stationary of Rs.2,21,000/-; miscellaneous expenses of Rs.6,04,000/-. Out of the various expenses, the following expenses are considered essential for the running of the company:-
| Sl. No. | Particulars | Amount (in Rs.) |
| 1. | Power & fuel | 66,92,000 |
| 2. | Rates & taxes | 58,64,000 |
| 3. | Insurance | 2,41,000 |
| 4. | Legal & professional
expenses |
36,82,000 |
| 5. | Repair & maintenance | 21,000 |
| 6. | Office maintenance | 3,66,000 |
| Total | 1,68,66,000 |
- The other expenses being incurred by the appellant are not commensurate with business or maintenance of the running of the office. The expenses for provision of rent and other items are not allowable as expense since the appellant gets standard deduction from the property income. The appellant has not show adequate expenses on the rent earning i.e. house property income. There are many expenses which are incurred by it for earning of house property income which are being shown in the Profit and Loss Account. The appellant is doing it to claim more deduction since its business loss is set off against the house property income and if it shows expenses incurred on earning of house property income, the same will be disallowed since appellant gets 30% deduction u/s 24(a) and no further expenses can be allowed. There is no justification given by the appellant for such huge expenses without business being carried out by it, since the expenses are incurred for the only work being done by the appellant is of giving property on rent. The appellant has shown income only from rent and occupation service charges and prior period income. The appellant has shown interest of Rs.52,93,000/-. But, on the other hand has also paid interest of Rs.2,61,13,000/- and bank charges of Rs.83,000/-. There is no justification of such huge expenses for such business.
15. The huge financial expenses as per Schedule-17 and legal & professional fee of Rs.36,82,000/- as per the appellant pertains to the property which is sealed by Delhi Municipal Corporation and was acquired by the appellant due to the merger of M/s. Turner Morrison Land Ltd. with it after following due procedure. It is a merger with due approval from loss making company because of no income due to sealing of property and having huge loans. The appellant has shown expenses of Rs.1,46,30,000/- as personal expenses and Rs.2,03,896/-as operating and other expenses. There are financial expenses of Rs.2,61,96,000/- in Schedule-17. The appellant has added back only Rs.20,500/- as building repairs; insurance charges of Rs.15,459/- and corporation tax of Rs.74,64,868/- pertaining to rental income for the purposes of house property income. All other expenses have been claimed in the Profit & Loss account relating to business.
16. During the appellate proceedings when it was pointed out that there is required to be disallowance of expenditure relating to the earning of House Property Income out of the expenses mentioned in Schedule-14, 15 & 17, it was submitted that the expenses relating to financial expenses, Power & Fuel, Rate & Taxes, Insurance, Auditor’s remuneration, Legal & Profession Fee; Rent & Service charges are not pertaining to House Property Income at all. These are expenses for the running of business since the appellant is a corporate entity. However, the appellant has given an alternative plea accepting that certain expenses as discussed and identified out of the total expenses @40% may be considered as pertaining to earning of House Property Income and may not be allowed to be set off against the House Property Income. The said expenses are considered to be part of the earning of House Property Income for which the appellant has claimed Standard Deduction amounting to Rs.2,35,45,722/- and held to be disallowable on the basis of the admission of the appellant without further discussion, since it is considered to be fair and reasonable. The expenses as accepted by the appellant and to be apportioned for earning of house property income are as follows:-
| Sl. No. | Particulars | Amount (in Rs.) |
| 1. | Personal expenses | 1,46,30,000 |
| 2. | Travelling & Conveyance | 5,54,000 |
| 3. | Vehicles maintenance | 8,56,000 |
| 4. | Communication expenses | 4,72,000 |
| 5. | Miscellaneous expenses | 6,04,000 |
| 6. | Total | 1,71,16,000 |
17. The disallowance @ 40% of Rs.1,71,16,000/- amounts to Rs.68,46,400/- is considered and held to be pertaining to earning of House Property Income. Therefore, this will not be allowed as business expenses while calculating the loss in the Profit & Loss account. The financial expenses do not pertain to House Property Income since no loan has been taken by the appellant for the building given on rent. The building which was earlier belonging to M/s. Turner Morrison Land Ltd. is part of Profit & Loss account since the income from the same was being shown by the appellant under the head ‘Income from Business’ as per the submissions during the appellate proceedings. The merged company i.e. M/s. Turner Morrison Land Ltd. had taken loans for the purpose of construction of this building and majority of the amount-borrowed belongs to the said construction of property.
- Therefore, this ground of appeal is partly allowed by considering that out of total expenses claimed by the appellant in the Profit & Loss account an amount of Rs.68,46,400/- is to be disallowed and the balance amount is allowed as pertaining to the business of the appellant. The appellant is a company who was running earlier various businesses and has again started the business in Financial Year 2011-12 as per the submissions. The appellant during the year had been providing various services and the expenses have been incurred to keep the company running. Therefore, it is held that the company is having a business activity. The building at Qutab Institutional Area, New Delhi is a business asset and was giving returns as business income and that still belongs to the appellant, although it has been sealed by Municipal Corporation since 14/11/2006 due to certain dispute. The appellant is entitled to set off the business losses with the current year’s house property income except Rs.68,46,400/- which is the expenditure relating to earning of house property income and are not business expenses. Therefore, the business loss of the appellant will be reduced by an amount of Rs. 68,46,400/-to be set off against house property income. This ground of appeal is partly allowed”.
6. The claim of the assessee for various business expenses thus was allowed by the ld. CIT(Appeals) to the extent of Rs.2,71,35,600/-. Aggrieved by the same, the Revenue and assessee both have raised the following grounds in their respective appeals:-
Revenue’s appeal
(1) Whether on the facts and circumstances of the case, ld. CIT(A) erred in law in holding that income received in respect of service charges related to house property is to be treated as business income as against house property income.
(2) Whether on the facts and circumstances of the case, ld. CIT(A) erred in law in deleting the addition made by AO in respect of unjustified and disproportionate expenses against income from services rendered.
Assessee’s appeal
(1) Because that the ld. CIT(A) was erred in law as well as in facts in disallowing a sum of Rs.68,46,400/- being 40% of the business expenditure of Rs.1,71,1 6,000/- apportioned by him allegedly for earning of house property income and disallowing the same against the total claim of business expenses by the appellant and his such conclusions are based on his surmises and guesses and are contrary to the facts and materials on record.
(2) Because that the ld. CIT(A) was erred in law as well as in facts in reducing the business loss of the appellant by Rs.68,46,400/- to be set off against the house property income of the year under appeal, on the alleged ground that, the said proportionate expenses was for earning of house property income and were not relating to earning of business income, his such conclusions are based on his surmises and guesses and are contrary to the facts and materials on record.
7. The ld. D.R. submitted that the maintenance and other services rendered by the assessee to the tenants were incidental to main activity of letting out the property and the same were thus in the nature of ancillary services to the letting out of house property. He contended that the said charges were declared by the assessee as its business income and disproportionate expenses of about Rs.4 crores were claimed against the said income. He invited our attention to the specific adverse observations and findings recorded by the Assessing Officer in the assessment order to point out and highlight the excessive and unreasonable expenses claimed by the assessee-company as its business expenses. He contended that even though the assessee-company was claimed to be engaged in carrying out other business activities, there was no evidence filed by the assessee to support and substantiate the said claim. He contended that there was no income whatsoever earned by the assessee from such activities claimed to be carried out by it. He contended that the ld. CIT(Appeals), however did not appreciate this factual position in the right perspective and allowed the claim of the assessee of business expenses under various heads to the substantial extent ignoring completely that the only income earned by the assessee during the year under consideration was from letting out the properties and the service and maintenance charges received from the tenants. He contended that the onus to support and substantiate its claim for the business expenses claimed under various heads was on the assessee and there was a failure on the part of the assessee to discharge the said onus.
8. The ld. Counsel for the assessee, on the other hand, submitted that the ld. D.R. has not raised any material contention to dispute or challenge the conclusion drawn by the ld. CIT(Appeals) while treating the service and maintenance charges as assessable to tax under the head “profit and gains of business or profession”. He submitted that the main grievance of the Revenue as projected by the ld. D.R. in his argument is regarding the claim of the assessee for the expenses claimed under various heads, which have been allowed by the ld. CIT(Appeals) substantially. He contended that the assessee was engaged in carrying out various business activities in earlier years and even though there was a temporary lull in the business during the year under consideration, the assessee-company continued to carry on the said activities in the subsequent years and also started some new activities. He contended that the assessee-company thus had not gone out of business and it was a suspension of such business activities temporarily due to lull in the business. He submitted that the assessee-company, therefore, continued to employ its work source and maintain its corporate status as going concern. He contended that the entire facts and circumstances of the case need to be taken into consideration while deciding this issue. In support of his contention, ld. Counsel for the assessee relied on the following judicial pronouncements-
(i) Lakshmi Naryan Board Mills Pvt. Ltd. –vs.- CIT 205 ITR 88 (Calcutta High Court);
(ii) Veecumsees –vs.- CIT 220 ITR 185 (SC).
9. In the rejoinder, ld. D.R. contended that the claim of the assessee of other business activities as made by the ld. Counsel for the assessee is very vague and it is not clear. He contended that it is not clear as to what exactly was the main business of the assessee and how the various other activities claimed to be carried on constituted a composite business. He contended that there is no evidence brought on record by the assessee to show the existence of any other business activities and there is also no income that is shown by the assessee from the said business. He contended that the assessee has also failed to establish any nexus between the various expenses claimed by it and the business activity for which the same were incurred.
10. We have considered the rival submissions and also perused the relevant material available on record. In our opinion, the first and foremost issue that is required to be considered and decided in the present context is regarding the head of income under which the service and maintenance charges received by the assessee are chargeable to tax. The Assessing Officer held the said receipts as income from house property while the ld. CIT(Appeals) treated the same as business income as claimed by the assessee. It is observed that the total service and maintenance charges of Rs.90,38,482/- were received by the assessee during the year under consideration and the details of the same are given at page no. 223 of the assessee’s paper book.
11. A perusal of the above details clearly shows that out of Rs.90,38,482/- received by the assessee towards service and maintenance charges, a sum of Rs.71,25,442/- was received on account of recovery of electric charges. This amount, which constitutes about 80% of the total service and maintenance charges, appears to be recovery made by the assessee from the tenants towards common electric charges and we are unable to understand what exactly are the services that are required to be rendered to collect the common electricity charges from the tenants that can be termed as an independent business activity of the assessee. Even the exact nature of the balance amount received by the assessee on account of service and maintenance charges is not very clear from the details furnished by the assessee and if quantum of such amount is compared, vis-a-vis the substantial rental income received by the assessee, it does not appear that the service and maintenance charges were generated by the assessee from any business activity carried on independently. We, therefore, find merit in the contention of the ld. D.R. that the service and maintenance charges received by the assessee were only incidental to rental income and since the said activity was ancillary to the main activity of letting out the properties, the service and maintenance charges were chargeable to tax as income from house property as rightly held by the Assessing Officer.
12. As regards the alternative claim of the ld. Counsel for the assessee that the assessee-company was engaged in other business activities during the earlier years and there was only temporarily suspension of the said activities during the year under consideration due to lull in the business, we find that this aspect has not been specifically considered either by the Assessing Officer or even by the ld. CIT(Appeals). Even the claim of the ld. Counsel for the assessee of a composite nature of business activities carried on by the assessee by relying on the decision of the Hon’ble Supreme Court in the case of Veecumsees (supra) as well as that of the Hon’ble Calcutta High Court in the case of Lakshmi Naryan Board Mills Pvt. Ltd. (supra), we find that the same has not been considered or examined either by the Assessing Officer or by the ld. CIT(Appeals). We, therefore, consider it fair and proper and in the interest of justice to send this matter to the file of the Assessing Officer for considering the same afresh. Since the issue relating to the claim of the assessee for various business expenses is consequential to this issue, we restore the issue also to the file of the Assessing Officer for deciding the same afresh. We may, however, observe for the sake of clarity that even if the claim of the assessee for temporary suspension of the business due to lull is found to be not acceptable, the expenses incurred by the assessee for continuing and maintaining its corporate status are required to be allowed as deduction under the head “profits and gains of business or profession” as held by the Hon’ble Calcutta High Court in the case of Lakshmi Naryan Board Mills Pvt. Ltd. (supra). We accordingly allow Ground No. 1 of the Revenue’s appeal while Ground No. 2 of the Revenue’s appeal and Grounds No. 1 & 2 of the assessee’s appeal are treated as allowed for statistical purposes.
13. In Ground No. 3 of its appeal, the Revenue has challenged the action of the ld. CIT(Appeals) in deleting the addition made by the Assessing Officer in respect of deemed rental income from the property at Qutub Institutional area, New Delhi.
14. In the balance-sheet filed along with the return of income, the investment in building at Qutub Institutional area, New Delhi was shown by the assessee at Rs.19,14,09,000/-. In this regard, it was explained by the assessee before the Assessing Officer that the said building had come to its balance-sheet as a result of merger of TMLL w.e.f. 01.04.2008 and since the said building was sealed by the Municipal Corporation of Delhi, no income from the same on deemed basis was declared for the year under consideration. This explanation of the assessee was not found acceptable by the Assessing Officer. According to him, the said building was sealed by the Municipal Corporation only on 14.10.2011 and, therefore, annual value of the same was liable to be taxed as house property income in the hands of the assessee under section 23(1)(c) of the Act. Accordingly, notional rent from the said property calculated at the rate of 6% of Rs.19,14,09,000/- was worked out by the Assessing Officer at Rs.1,14,84,540/- and after allowing deduction of 30%, addition of Rs.80,39,178/- was made by him to the total income of the assessee.
15. The addition of Rs.80,39,178/- on account of deemed rental income from the building at Qutub Institutional area as made by the Assessing Officer was challenged by the assessee in the appeal filed before the ld. CIT(Appeals) and after considering the submissions made by the assessee as well as the material available on record, the ld. CIT(Appeals) deleted the same for the following reasons given in paragraph no. 21 of his impugned order:-
“21. I have carefully considered the observations of the Assessing Officer in the assessment order, and submissions of the appellant. The appellant has produced a copy of the Writ Petition filed in the Hon ‘ble Delhi High Court relating to sealing of the property in which it is clear that the building was sealed on 14/11/2006 in the sealing drive undertaken by Municipal Corporation of Delhi. Therefore, the appellant was prevented by sufficient cause not to let out this property. Therefore, the Notional Income from the said property lying vacant due to Act of Government cannot be added back. Hence, addition of Rs.80,39,178/- is deleted”.
16. We have heard the arguments of both the sides on this issue and also perused the relevant material available on record. The ld. D.R. has contended that the relief on this issue was allowed by the ld. CIT(Appeals) by relying on the copy of Writ Petition filed by the assessee for the first time before him, wherein the date of sealing of the property by Delhi Municipal Corporation was mentioned at 14.11.2006 as against the date of 14.11.2011 taken by the Assessing Officer. He has contended that the ld. CIT(Appeals), however, did not give any opportunity to the Assessing Officer to verify this additional evidence in the form of copy of Writ Petition filed by the assessee before giving relief to the assessee on this issue and there is thus a violation of Rule 46A of Income Tax Rules by the ld. CIT(Appeals). The ld. Counsel for the assessee, on the other hand, has submitted that the date of sealing of the property being 14.11.2006 was specifically pointed out by the assessee before the Assessing Officer but the same was wrongly taken by him on 14.11.2011. He has contended that he, however, has no objection if the matter is sent back to the Assessing Officer for verification of the date of sealing of the property. Accordingly, we set aside the impugned order of the ld. CIT(Appeals) on this issue and restore the matter to the file of the Assessing Officer for deciding the same afresh after verifying the exact date of sealing of the property by Delhi Municipal Corporation from the relevant documentary evidence. Ground No. 3 of the Revenue’s appeal is accordingly treated as allowed for statistical purposes.
17. In Ground No. 4, the Revenue has challenged the action of the ld. CIT(Appeals) in deleting the addition made by the Assessing Officer in respect of deemed rental income from the property at Silver Arch Apartments.
18. In the balance-sheet filed along with the return of income, a sum of 2,35,00,000/- was shown by the assessee as advance received against sale of apartment in Delhi. In this regard, it was explained by the assessee before the Assessing Officer that the said advance was received from one Mrs. Bindia Jain against sale of apartment at 506, 5thSilver Arch, New Delhi and although there was an agreement to sell the said flat for a consideration of Rs.2,51,72,384/-, no conveyance could be executed due to some dispute. According to the Assessing Officer, the assessee thus remained the owner in possession of the said property and annual value of the same was chargeable to tax in the hands of the assessee. He accordingly worked out the notional rental income of the said property at Rs.15,10,343/- at the rate of 6% of Rs.2,51,72,384/- and after allowing deduction of 30%, addition of Rs.10,57,240/- was made by him to the total income of the assessee under the head “income from house property”.
19. The addition of Rs.10,57,240/- made by the Assessing Officer was challenged by the assessee in the appeal filed before the ld. CIT(Appeals) and after considering the submissions made by the assessee as well as the material available on record, the ld. CIT(Appeals) deleted the said addition for the following reasons given in paragraph no. 22 of his impugned order:-
“22. The appellant has produced possession certificate as Annexure-2 duly singed by Mrs. Bindia Jain shown that the fixed position of Flat No. 506, 5th Silver Arch Apartment was handed to her on 01/12/2010. Therefore, since the possession of the flat has been handed over, the income of the same cannot be added in the hands of the appellant. The appellant has already received advance of Rs.2,35,00,000/- out of total consideration of Rs.2,51,72,384/- which is 90% of the total consideration. The appellant has not executed the conveyance deed due to some dispute, but possession was given since the major consideration was received and possession handed over. Therefore, it cannot be held that appellant should have given this property on rent, the addition under section 23(i)(a) is not upheld”.
20. We have heard the arguments of both the sides on this issue and also perused the relevant material available on record. The ld. D.R. has submitted that the relief on this issue was given by the ld. CIT(Appeals) on the ground that major consideration for the flat was received by the assessee and possession of the same was also handed over. He has pointed out that the possession of the said flat was handed over by the assessee to Mrs. Bindia Jain only on 01.12.2010 and since the assessee was very much in possession of the said property during the year under consideration, the notional rental income of the same was chargeable to tax in the hands of the assessee under section 23(1)(a) as rightly held by the Assessing Officer. The ld. Counsel for the assessee, on the other hand, has submitted that the assessee had agreed to sell the property in question and 90% of the payment was already received by it from the purchaser Mrs. Bindia Jain. He has contended that even though the possession of the property was given on 01.12.2010 after receipt of the balance payment, the assessee was not in the possession to let out the said property. Relying on the decision of the Hon’ble Supreme Court in the case of S.N. Wadiyar (Decd. Through L.R.) –vs.- CIT [378 ITR 9], the ld. Counsel for the assessee contended that the ld. CIT(Appeals) was fully justified in deleting the addition made by the Assessing Officer on this issue.
21. After considering the rival submissions and perusing the relevant material available on record, we find it difficult to uphold the impugned order of the ld. CIT(Appeals) on this issue. It is observed that although substantial payment against the consideration for sale of the property in question was received by the assessee from Mrs. Bindia Jain, the possession of the property was not handed over by the assessee to the purchaser during the year under consideration and the same was handed over only on 01.12.2010. The ld. CIT(Appeals), in our opinion, therefore, was not justified in deleting the addition made by the Assessing Officer on this issue on the wrong presumption that the possession of the property was already handed over. As rightly contended by the ld. D.R., the possession of the property remained with the assessee during the year under consideration and the assessee being the owner in possession of the property, the notional rental income from the same was chargeable to tax in the hands of the assessee under section 23(1)(a) as rightly held by the Assessing Officer. Even the decision of the Hon’ble Supreme Court in the case of S.N. Wadiyar (Decd. through L.R.) (supra), cited by the ld. Counsel for the assessee is of no help to the assessee on this issue as the same is distinguishable on facts and the issue involved the same therein is found to be different. We, therefore, set aside the impugned order of the ld. CIT(Appeals) giving relief to the assessee on this issue and restore that of the Assessing Officer. Ground No. 4 of the revenue’s appeal is accordingly allowed.
22. In Grounds No. 5 & 6, the Revenue has challenged the action of the ld. CIT(Appeals) in deleting the addition made by the Assessing Officer on account of deemed dividend under section 2(22)(e) of the Act for the loans received from Devbhoomi Awas Limited and M/s. Arcus Limited.
23. In the balance sheet filed along with return of income, loans of Rs.99,00,000/- and Rs.1,15,00,000/- received from Devbhoomi Awas Limited and M/s. Arcus Limited were shown by the assessee-company. According to the Assessing Officer, the provisions of section 2(22)(e) were squarely applicable in respect of the said loans received by the assessee-company from the related parties and accordingly by invoking the said provisions, he made an addition of Rs.2,14,00,000/- to the total income of the assessee on account of deemed dividend. On appeal, the ld. CIT(Appeals) deleted the said addition made by the Assessing Officer under section 2(22)(e) after having found that both the loans in question had been taken by the TMLL in the earlier years and the same were transferred to the assessee-company as a result of merger of TMLL with the assessee-company. He held that the provisions of section 2(22)(e), therefore, were not applicable in respect of the said loans.
24. We have heard the arguments of both the sides on this issue and also perused the relevant material available on record. It is observed that the addition made by the Assessing Officer under section 2(22)(e) in respect of loans received from Devbhoomi Awas Limited and M/s. Arcus Limited by treating the same as deemed dividend under section 2(22)(e) are deleted by the ld. CIT(Appeals) after having found that the said loans had been taken by Turner Morrison Land Limited (TMLL) in the earlier years and the same were transferred to the assessee-company as a result of merger of TMLL with the assessee-company. He also found that the assessee-company was not the shareholder of both these companies when the loans in question were actually received. At the time of hearing before us, the ld. D.R. has not been able to bring anything on record to dispute these findings of fact recorded by the ld. CIT(Appeals) while deleting the addition made by the Assessing Officer under section 2(22)(e). We, therefore, find no justifiable reason to interfere with the impugned order of the ld.CIT(Appeals) on this issue and upholding the same, we dismiss Grounds No. 5 & 6 of the Revenue’s appeal.
25. As regards the issue involved in Ground No. 7 of the Revenue’s appeal relating to the deletion by the ld. CIT(Appeals) of the addition made by the Assessing Officer on the basis of ITS data, it is observed that the difference in relevant ITS data as noted by the Assessing Officer was reconciled by the assessee during the course of appellate proceedings before the ld. CIT(Appeals) and after considering the same, the ld. CIT(Appeals) directed the assessee to produce all the relevant details in support of the reconciliation for verification before the Assessing Officer. Keeping in view this opportunity given by the ld. CIT(Appeals) to the Assessing Officer to verify the reconciliation prepared and furnished by the assessee from the relevant details and documents, we are of the view that the revenue cannot be said to have any grievance from the order of the ld. CIT(Appeals) on this issue. Even the ld. D.R. has not raised any argument on this issue. We, therefore, find no merit in Ground No. 7 of the Revenue’s appeal and dismiss the same.
26. The common issue involved in Grounds No. 3 to 5 of the assessee’s appeal relates to the action of the ld. CIT(Appeals) in confirming the disallowance of Rs.30,90,656/- made by the Assessing Officer under section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 and further enhancement of the same by Rs.16,84,057/-.
27. As noticed by the Assessing Officer from the balance-sheet, the assessee-company it had made substantial investment in shares of other companies. He also found that substantial expenditure on interest was incurred by the assessee during the year under consideration. He, ed the assessee to explain as to why the interest expenditure attributable to the investment made in shares of other companies should not be disallowed under section 14A of the Act. In this regard, it was explained by the assessee that there being no exempt income in the form of dividend received during the year under consideration on the investment made in shares of other companies, no disallowance under section 14A could be made. This contention of the assessee was not found acceptable by the Assessing Officer and by relying on the decision of Special Bench of this Tribunal at Delhi in the case of Cheminvest Limited –vs.- ITO [121 ITD 318], he held that the interest expenditure incurred by the assessee as attributable to the investment made in shares of other companies was liable to be made under section 14A. He accordingly worked out such interest expenditure by applying Rule 8D(2) at Rs.30,90,656/- and made disallowance to that extent under section 14A. On appeal, the ld. CIT(Appeals) not only confirmed the said disallowance made by the Assessing Officer but also enhanced the same by Rs.16,84,057/- by applying Rule 8D(2)(iii) of the Income Tax Rules, 1962.
28. We have heard the arguments of both the sides on this issue and also perused the relevant material available on record. As agreed by the ld. Representatives of both the sides, this issue is squarely covered in favour of the assessee by various judicial pronouncements including the decision of the Hon’ble Delhi High Court in the case of Cheminvest Limited [78 ITR 033], wherein, while overruling the decision of the Special Bench of ITAT at Delhi, it was held that no disallowance under section 14A can be made if there is no exempt income actually received by the assessee in the relevant year. We accordingly delete the disallowance made by the Assessing Officer and enhanced by the ld. CIT(Appeals) under section 14A read with Rule 8D and allow Grounds No. 3 to 5 of the assessee’s appeal.
29. In the result, the appeal of the Revenue as well as assessee both are partly allowed as indicated above.
