MARIGOLD PREMISES PVT.LTD,,PUNE vs. INCOME-TAX OFFICER (WARD) -14(3),, PUNE

This batch of five appeals by the assessee involves assessment years 2013-14 to 2017-18. Since a common issue is raised in these appeals, we are, therefore, proceeding to dispose them off by this consolidated order for the sake of convenience.

The brief facts of the case for the A.Y. 2013-14 are that the assessee is a company deriving income from Rent and Business.

We have heard the rival contentions and gone through the relevant material on record. The AO treated income from providing services, such as, Canvassing, Space selling, providing Table space, Parking charges, Games collection, Maintenance charges etc. as ‘Income from house property’ in addition to certain income voluntarily offered by the assessee as ‘Income from house property’. The ld. CIT(A) overturned the assessment

The ld. AR was required to show the detail of expenses so as to ascertain if it pertained to business activity or of earning rental income. In this direction, he invited our attention towards pages 21 and 22 of the paper book, which are part of the assessee’s Annual accounts. There is a detail of `Society Maintenance expenses’ totaling Rs.1,17,67,484/- comprising of Repair and Maintenance of Rs.35,59,108/-; Deejay expenses of Rs.92,166/-; Garbage expenses of Rs.60,000/-; Garden expenses of Rs.13,100/- ; Housekeeping and maintenance expenses of Rs.24,92,445/-; Security charges of Rs.15,94,355/-; and Mali expenses of Rs.10,000/- etc. etc. The ld. AR was required to correlate such expenses with the earning of `Business income’ and/or the Rental income. It is quite natural that only the expenses pertaining to the business activity can be claimed as deduction against the 5 Marigold Premises Pvt. Ltd. A.Yrs. 2013-14 to 2017-18 ‘Business income’ and the other expenses which pertain to the Rental activity will fall for consideration under Chapter IV-C of the Act only. The AO has granted standard deduction under the head ‘Income from house property’. In that view of the matter, the expenses which pertain to the earning of rental income have to be disallowed.

The ld. AR could not correlate such expenses individually with the Business and Rental activities. In the absence of such details, no decision can be reached on the allocation of the expenses. The ld. CIT(A) has also recorded in para 5.4 of the impugned order that the assessee did not furnish any details, in the absence of which he proceeded to apportion the Maintenance charges on the basis of receipts. The ld. AR submitted that all the necessary details are now available with the assessee, which can be verified by the AO.

It was further submitted anent to the ‘Income from house property’ that the assessee, in addition to earning rental income, also received Maintenance charges for the portion let out, which were included in the ‘Business income’ and the same have also been assessed accordingly. It was, therefore, urged that even the 6 Marigold Premises Pvt. Ltd. A.Yrs. 2013-14 to 2017-18 expenses pertaining to portion of the property let out should not be disallowed because the receipts in relation to Maintenance charges have been taxed as ‘Business income’. We find that the fact of such receipts of Maintenance charges arising from the rented portion and having been clubbed with the ‘Business income’ is also not borne out from the record. In view of the foregoing discussion, we are satisfied that it would be just and fair if the impugned order is set-aside and the matter is remitted to the file of the AO. We order accordingly and direct him to allocate item-wise expenses to the requisite heads. The portion of the expenses pertaining exclusively to the business activity should be considered as business expenses and allowed as deduction against the income under the head “Profits and gains of business or profession”. Expenses pertaining exclusively to the renting activity should be considered only under the head ‘Income from house property’. The remaining common expenses should be allocated between the two heads on some rational basis, such as, area used for both the activities or revenue from both the activities on gross basis etc. The AO will also ascertain if the receipts of Maintenance charges from the let out portion have been 7 Marigold Premises Pvt. Ltd. A.Yrs. 2013-14 to 2017-18 considered as ‘Business income’. If yes, then the nature of expenses against which the Maintenance charges were received is required to be looked into. The nature of expenses, forming part of the expenses relating to the renting activity, against which Maintenance has been recovered from the tenants, should be considered under the Business head only and others to be disallowed as pertaining to the income falling under the head `Income from house property’. Needless to say, the assessee will be allowed a reasonable opportunity of hearing.

The ld. AR fairly admitted that the facts and circumstances of the other four appeals under consideration are mutatis mutandis similar except for the fact that the details of expenses as shown for the A.Y. 2013-14 were available up to the first appeal stage only for the A.Y. 2014-15 and the details of such expenses for the remaining three years under appeal could not be produced before the AO or the ld. CIT(A).

In view of our decision of remitting the matter to the file of AO for the A..Y. 2013-14, we hold that such decision will hold good for other four years under consideration as well.

In the result, all the appeals are allowed for statistical purposes.