NASSER S AL HAJRI CORPORATION PVT. LTD,MUMBAI vs. AAYAKAR BHAVAN, M.K. ROAD, MUMBAI

The appellant, M/s. Nasser S Al Hajri Corporation Pvt. Ltd. (hereinafter referred to as ‘the assessee company’) by filing the present appeal, sought to set aside the impugned order dated 31.05.2019 passed by Commissioner of Income Tax (Appeals)-17, Mumbai [hereinafter referred to as the CIT(A)] qua the assessment year 2015-16 on the grounds inter alia that :-

Briefly stated facts necessary for adjudication of the controversy at hand are : assessee filed return of income for A.Y. 2015-16, the year under consideration, at the total income of Rs.77,13,686/-. The assessee’s case was selected for scrutiny under limited scrutiny category. Assessee has made claim of 3 M/s. Nasser S Al Hajri Corporation Pvt. Ltd Rs.39,21,839/- under section 57 of the Income Tax Act, 1961 (for short ‘the Act’). Declining the contentions raised by the assessee company that he is entitled for depreciation on the furniture and fixture amounting to Rs.39,21,839/- against the rental income of movable assets, Assessing Officer (AO) proceeded to disallow the claim on the ground that the assessee has failed to prove on record that if he has given two separate items i.e. premises as well as movable properties on rent.

Assessee carried the matter before the Ld. CIT(A) by way of filing appeal who has upheld the disallowance/ addition made by the AO by dismissing the appeal. Feeling aggrieved the assessee has come up before the Tribunal by way of filing present appeal.

We have heard the Ld. Authorised Representatives of the parties to the appeal, perused the orders passed by the Ld. Lower Revenue Authorities and documents available on record in the light of the facts and circumstances of the case and law applicable thereto.

Undisputedly, the assessee company has rented out the premises to M/s. Jet Privelege Pvt. Ltd. by virtue of lease agreement dated 25.06.2014 at the monthly lease rent of Rs.14,96,035/- for the period 01.07.2014 to 30.06.2017 and thereafter the said amount was to be increased to Rs.17,20,440/-. It is also not in dispute that there is no specific reference of furniture and fixture in the agreement.

In the backdrop of the aforesaid undisputed facts the sole question arises for determination in this case is 4 M/s. Nasser S Al Hajri Corporation Pvt. Ltd “As to whether assessee is entitled to bifurcate the entire receipts on account of rent from M/s. Jet Privelege Pvt. Ltd. into premises (immovable property) and furniture and fixture for the purpose of claiming depreciation on the furniture and fixture against the rental income of movable assets?”

The Ld. A.R. for the assessee challenging the impugned order contended that since the assessee has made investment in the immovable property (premises) and movable assets (furniture and fixture) to the ratio of 82.04% and 17.96% respectively. The amount of Rs.39,21,839/- is allowable deduction on account of depreciation on furniture and fixture and relied upon the decision rendered by Hon’ble Karntaka High Court in case of Mohan Kumar HUF 12 taxmann.com 361 (Kar), decision rendered by Hon’ble Supreme Court in case of Raj Dadarkar & Associates 394 ITR 592 SC, Serendipity Apparels (P.) Ltd. 78 taxmann.com 154 (Ahmedabad – Trib.) and Oriental Building & Furnishing Co. Ltd. 79 Taxman 374 (Delhi) (Mag.).

However, on the other hand, Ld. D.R. for the Revenue to repel the arguments addressed by the Ld. A.R. for the assessee contended that when there is no clause in the lease agreement as to renting out the immovable and movable property separately the AO as well as the Ld. CIT(A) have rightly disallowed the deductions claimed by the assessee and relied upon the decision rendered by the Hon’ble Supreme Court in case of Sultan Brothers Pvt. Ltd. 51 ITR 353 and decision rendered by Hon’ble Supreme Court in case of Raj Dadarkar & Associates 394 ITR 592 SC.

Bare perusal of the lease agreement entered into between the assessee and the lessee relevant clauses of which are extracted by 5 M/s. Nasser S Al Hajri Corporation Pvt. Ltd the Ld. CIT(A) in para 4.3 of the impugned order goes to show that there is not even a whisper as to renting out the furniture and fixture by the assessee along with the premises/immovable properties. In case of contract, parties to the agreement make law for themselves to which nothing can be added or deleted. When there was no intention of the parties to the lease agreement (supra) that rent is being paid for immovable and movable assets separately no amount of rent can be attributed to the furniture and fixture as claimed by the assessee.

Hon’ble Supreme Court in case of Raj Dadarkar & Associates (supra) while deciding the identical issue held that ancillary/service/fixtures and fittings cannot be separated from the basic charge of rent, the operative part of decision rendered by Hon’ble Supreme Court is extracted for ready perusal as under: “17. In the instant case, therefore, it is to be seen as to whether the activity in question was in the nature of business by which it could be said that income received by the appellant was to be treated as income from the business. Before us, apart from relying upon the aforesaid clause in the partnership deed to show its objective, the learned counsel for the appellant has not produced or referred to any material. On the other hand, we find that ITAT had specifically adverted to this issue and recorded the findings on this aspect in the following manner: "26. …On this issue facts available on record are that the assessee let out shops/stalls to various occupants on a monthly rent. The assessee collected charges for minor repairs, maintenance, water and electricity. As per the terms of allotment by the BMC, the assessee was bound to incur all these expenses. The assessee, in turn, collected extra money from the allottees. The assessee collected 20% of monthly rent as service charges. Such service charges were also used for providing services like watch and ward, electricity, water etc. This in our opinion was inseparable from basic charges of rent. The assessee has made bifurcation of the receipt from the, occupiers of the shops/stalls as rent and service charges. As rightly held by the Assessing Officer, decision of Hon'ble Supreme Court in the case of Shambu Investment Pvt. Ltd., 263 ITR 143 will apply. The assessee has not established that 6 M/s. Nasser S Al Hajri Corporation Pvt. Ltd he was engaged in any systematic or organized activity of providing service to the occupiers of the shops/stalls so as to constitute the receipts from them as business income. In our opinion, the assessee received income by letting out shops/stalls; and therefore, the same has to be held as income from house property."

Even in case of Sultan Brothers Pvt. Ltd. (supra) Hon’ble Supreme Court held that when a building & plant, machinery or furniture are inseparably let the Income Tax Act contemplates the rent from the building as a residuary head of the income and not one to be computed under section 9 of the old Act” meaning thereby when immovable property and furniture and fixtures have been inseparably let out by the assessee with no specific reference, “furniture and fixtures” cannot be separated for the basic charge of rent for the purpose of claiming depreciation by the assessee.

Moreover, when it is nowhere case of the assessee that it is to exploit movable property “furniture and fixtures” as a business as is also apparent from the lease agreement, the Ld. Lower Authorities have rightly disallowed the depreciation claimed by the assessee under section 57 of the Act. Moreover, lease agreement (supra) speaks for itself that it is for immovable property only. So the question framed is answered in negative. Finding no illegality or perversity in the impugned order passed by the Ld. CIT(A), present appeal filed by the assessee is hereby dismissed. Order pronounced in the open court on 05.07.2022.