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Income Tax Appellate Tribunal, “SMC” Bench, Mumbai
The assessee has filed this appeal challenging the order dated 22.10.2019 passed by learned CIT(A)-24, Mumbai and it relates to A.Y. 2013- 14. The assessee is aggrieved by the decision of learned CIT(A) in confirming the assessment order in assessing rental income under head ‘income from house property’, even though the assessee had declared it as its business income and consequently, confirming the disallowance of expenses claimed against rental income.
The Learned AR submitted that the impugned issue is a recurring issue. In the past years, i.e., in A.Y. 2010-11 & 2012-13, identical issue has decided in favour of the assessee, i.e., the ITAT has directed the AO to assess rental income as business income of the assessee. The Learned AR also furnished copies of the orders passed by the Tribunal in both the years.
2 M/s. Third Eye Estates (India) Pvt. Ltd.
We heard DR and perused the record. The assessee company is engaged in the business of purchase and sale of properties and also in the business of giving properties on hire. The assessee has declared rental income as part of its business income and claimed expenses thereon. Before AO, the assessee submitted that renting out premises is part of its business activity. It was further submitted that the rental income is a composite income which included charges for providing various facilities and services. Accordingly, it was submitted that the rental income was rightly offered as its business income. In support of this claim, the assessee placed its reliance on the decision rendered by Hon’ble Supreme Court in the case of Chennai Properties & Investment Ltd (56 taxmann.com 456)(SC). The AO did not accept the contentions of the assessee and accordingly, the AO assessed the rental income under the head “Income from House property”. The AO granted deduction @ 30% u/s 24(a) of the Act and further allowed interest expenses related to the rental income. Accordingly, he did not allow various other expenses claimed by the assessee.
4. Before Ld CIT(A), the assessee did not appear. Hence the Ld CIT(A) dismissed the appeal of the assessee.
In the normal course, this appeal should be restored to the file of Ld CIT(A) for adjudicating the issues on merits after hearing the assessee, since the first appellate authority has passed the order ex-parte. However, we notice that this issue is a recurring issue and the Tribunal has already adjudicated identical issue in favour of the assessee in the assessee’s own case in A.Y. 2010-11 in dated 13.11.2017. We also noticed that the said decision has been followed in A.Y. 2012-13 by another Coordinate Bench in assessee’s own case in ITA No. 6434/Mum/2016 dated 30.9.2019. Accordingly, in order to avoid multiplicity of proceedings, we proceed to dispose of the appeal of the assessee on merits.
3 M/s. Third Eye Estates (India) Pvt. Ltd.
We noticed earlier that an identical issue has been decided in favour of the assessee by the Tribunal in AY 2012-13 following the decision rendered in the assessee’s own case by another co-ordinate bench in AY 2011-12. For the sake of convenience we extract below the order passed by the Coordinate Bench in A.Y. 2012-13 :-
7. Adverting to the merits of the case, it was submitted by the ld. A.R that the issue as regards recharacterizing of the rental receipts shown by the assessee as its ‘business income’, as ‘income from house property’ by the A.O, had been vacated by the Tribunal in the assesses own case for A.Y. 2010-11, viz. ITO-15(3)(1) Vs. Third Eye State Pvt. ltd., (ITA No.1005/Mum/ 2015, dated -.11.2017) (copy placed on record). It was submitted by the ld. A.R, that the Tribunal while disposing off the aforesaid appeal, wherein identical facts and issue were involved, had therein upheld the order of the CIT(A) and observed that the claim of the assessee that the rental receipts were liable to be assessed as its ‘business income’, was in order. Accordingly, it was submitted by the ld. A.R, that the disallowance of expenses by the lower authorities by re-characterising its business income as ‘income from house property’ could not be sustained and was liable to be vacated. Also, it was submitted by the ld. A.R, that as a fall out of the aforesaid view, the gain arising on the transfer of the property by the assessee company during the year under consideration had been assessed by the lower authorities as the income of the assessee chargeable to tax under the head LTCG, therefore, the same was also to be vacated. Further, the ld. A.R also assailed the disallowance of the assessee claim of depreciation on „motor car‟ that was made by the A.O, for the reasons, viz. (i). that, the motor car was registered in the name of the director of the assessee company viz. Mr. Uday Singh; and (ii). that, as Mr. Uday Singh was also director in two other companies, therefore, it could not be held that the motor car was being used wholly and exclusively for the business of the assessee company. On a similar footing, it was submitted by the ld. A.R that the claim for deduction of the interest expenditure incurred on the loan raised for purchasing the aforesaid car was also disallowed by the A.O. It was submitted by the ld. A.R that the depreciation‟ on motor car purchased by a company cannot be disallowed for the reason that it was registered in the name its director. In support of his aforesaid contentions the ld. A.R had placed reliance on certain judicial pronouncements to which our attention was drawn during the course of hearing of the appeal. Also, it was submitted by the ld. A.R, that for the reason that Mr. Uday Singh, director of the assessee company was also a director in two other companies, the claim of the assessee towards depreciation on the car could not have been declined. As regards the disallowance of the vehicle expenses by the A.O, it was submitted by the ld. A.R, that there can be no question of any personal expenses in the case of a company. In order to drive home his aforesaid contention, support was drawn by him from certain judicial pronouncements. Lastly, it was submitted by the ld. A.R, that the lower authorities had wrongly
4 M/s. Third Eye Estates (India) Pvt. Ltd. disallowed the assesses claim in respect of the education expenses which were incurred in respect of one of its director viz. Mr. Uday Singh for pursuing of an "Advance Management Programme" from Harvard business school. It was the claim of the ld. A.R, that as the aforesaid expenses were incurred wholly and exclusively for the purpose of the business of the assessee which was to be benefitted by the aforesaid education of the director, therefore, the same was duly allowable under Sec.37 of the Act.
8. We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record, and also the judicial pronouncements relied upon by them. As is discernible from the orders of the lower authorities the A.O not finding favour with the claim of the assessee that its rental receipts were liable to be assessed under the head ‘business income’, had thus, brought the same to tax under the head ‘Income from house property’. The aforesaid conviction of the A.O was backed by the reason that there was no formal ‘agreement’ between the assessee company and its director for rendering of services or providing furniture and fixtures or other services, on the basis of which the rental income could justifiably be compartmentalized under the head ‘business income’. On appeal, the CIT(A) not finding favour with the aforesaid claim of the assessee had upheld the view taken by the A.O.
We find that the aforesaid issue is squarely covered by the order of the Tribunal in the assesses own case for A.Y. 2010-11 in ITO-15(3)(1), Mumbai Vs. Third Eye Estate Pvt. Ltd. (ITA No.1005/Mum/2015, dated - .11.2017). In the aforesaid case, the Tribunal finding favour with the claim of the assessee, had concluded, that the rental receipts were rightly claimed by the assessee as its "business income". The Tribunal while concluding as hereinabove, had observed as under :
“3. We have heard the rival submissions and have carefully considered the same along with the orders of the authorities below. It is not denied that the main objects of the assessee not only includes acquisition and sale of flats, provision of convenience commonly provided in the flats, shops and residential and commercial premises but the assessee can also let out the property. Therefore, in view of the decision of the Hon’ble Supreme Court in the case of Chennai Properties And Investment Ltd. vs. CIT [2015] 373 ITR 673, we are of the view that this issue is no more res integra. We, therefore, confirm the order of the CIT(A) treating the income as "Income from business" in respect of the rent received.
We also do not find any illegality or infirmity in the order of the CIT(A) deleting the disallowance of claim of expenses amounting to Rs.44,33,565/- which has been incurred by the assessee for maintaining the business assets as the assessee is engaged in the business of renting various business activities such as house- keeping, security, telephone, electricity, maintenance etc. No cogent material or evidence was brought to our notice by the learned DR so 5 M/s. Third Eye Estates (India) Pvt. Ltd.
that the finding given by the learned CIT(A) could be reversed. We, therefore, confirm the order of the CIT(A) on this account."
Accordingly, finding ourselves to be in agreement with the aforesaid view, we respectfully follow the order passed by the Tribunal in the assesses own case for A.Y. 2010-11. As such, the A.O is directed to assess the rental receipts in the hands of the assessee as its "business income". The Ground of appeal No. 1 is allowed.”
Following the consisted view taken by the Tribunal, we direct the Assessing Officer to assess the rental receipts in the hands of the assessee as ‘business income’. Since we have held that the rental income is assessable as business income, the various expenses claimed by the assessee need to be allowed. We direct the AO accordingly.
In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 25.08.2022.