HIND MUSAFIR AGENCY LTD.,MUMBAI vs. ACIT-2(1)(2), MUMBAI

Hind Musafir Agency Ltd 8. On the facts and in the circumstances of the case and in law, the appellant prays that the Assessing Officer be directed to allow deduction in respect of education cess on income-tax paid during the year. 2. Brief facts of the case at that the assessee is a company engaged in the business of travel and tourism, filed its return of income for relevant assessment year on 31st March 2017 and declaring total income of ₹1,00,31,920/- and book profit under section 115JB at Rs. 18,05,52,057/-. The case was selected for scrutiny and assessment was completed under section 143(3) on 12th December 2017. The assessing officer while passing the assessment order noted that the assessee has claimed rental income and offered the same under the head “income from house property”. The assessee claimed rental income from the house property which was included in block of asset for which the assessee has claimed depreciation. During the year under consideration the assessee also claimed depreciation on the asset and claimed rental income of the same asset under the head “income from house property”. The assessing officer after issuing the show cause notice and considering the reply of assessee, treated the rental income from house property (business asset) as income from “business income”. The assessing officer further held that that in future on sale of property will be considered as short term capital gain under section 50 of the Act.

Hind Musafir Agency Ltd 3. The assessing officer during the assessment further noted that the assessee has made investment for earning exempt income. On show cause notice for disallowance under section 14A, the assessee claim that investment was made in group concerned as a strategic decision. The assessing officer invoked the provision of Rule 8 D and worked out the disallowance of ₹ 4,97,414/-. The assessing officer disallowed Rs. 399598/- under Rule 8D(ii) and Rs. 97,816/- under Rule 8D(iii). Since the assessee has already disallowed amount of Rs. 55,774/- the assessing officer after granting set-off of suo moto disallowance, disallowed ₹ 4,41,640/-. On appeal before learned Commissioner (Appeals) the treatment of income from ‘house property’ as ‘business income’ was upheld, however, disallowance under section 14A read with Rule 8D was sustained to the extent of ₹ 97,816/-. Thus, further aggrieved the assessee has filed present bill before this Tribunal. The assessee has raised fresh/ new ground of appeal related to deduction of education cess of Rs. 11,04,967/-.

4. We have heard the submission of learned authorized representative (ld. AR) of the assessee and the learned department representative (ld. DR) for the revenue and gone through the orders of authorities below. Ground No. 1 to 3 relates to treatment of letting income as income from business

Hind Musafir Agency Ltd in place of ‘income from house property’. The learned AR of the assessee submits that during the year, the assessee had let out its office premises situated at Fort, Mumbai to DTDC. The rental income received from DTDC was offered to tax under the head ‘income from house property’ in the return of income and expenses of repair of Rs. 28,184/- on repair and maintenance of property was disallowed in the return of income.

Prior to renting out the property, it was used for the purpose of assessee’s business and was a part of block of asset on which depreciation was being claimed by the assessee for income tax purposes since the year of acquisition that is financial year 2004-05. During the assessment, the assessee was asked to explain as to why income from letting out should not be treated as a business income as the assessee has claimed depreciation under section 32. The assessee vide its reply dated 4 December 2017 made detailed submission before the assessing officer.

The assessing officer has recorded the submission in para -4 of the assessment order. The rental income cannot be treated as a business income as a renting out property is not the business of assessee. The assessee is engaged in the business of tour and travels. This fact is duly recorded by assessing officer in the assessment order itself. It was submitted that 97% of the income of the assessee is from the travel and Hind Musafir Agency Ltd tourism and only about 3% relates to the isolated activity of letting out of Fort property. The ld AR for the assessee prayed for treating the income from letting of property as income from house property. In support of his submissions the ld AR for the assessee rely on the decisions of Hon’ble Apex Court in Raj Dadarkar & Associate Vs ACIT [2017] 81 taxmann.com193 (SC), Chennai Property & Investment Ltd Vs CIT [2015] 56 taxmann.com 456(SC) and Shambhu Investment Private Limited Vs CIT [2003] 263 ITR 143 (SC) 5. The ld. AR for the assessee further submits that as per sub-section (2) of section 38 of the Act, if any building used for the purpose of business is not exclusively so used for the purpose of business, the deduction under section 32 shall be restricted to a fair proportionate part, which may be determined by the assessing officer.

Hind Musafir Agency Ltd 7. We have considered the rival submissions of the parties and have gone through the orders of the lower authorities. We have also deliberated on the various case laws cited by ld AR for the assessee. There is no dispute that the office premises, which is let out by the assessee during the relevant year under consideration is part of block of asset and the assessee has claimed and availed depreciation on it in earlier years. The assessee claimed that they have shifted its office to Dadar and the business asset (office premises) for the first time was let out to DTDC and the assessee offered the said letting income under the head ‘income from house property’. The assessing officer treated the said income under the head ‘business income’ in place of ‘income from house property’ by taking view that the assessee cannot claim the income from letting of property, as income from Housed Property on which depreciation has been claimed. The contention of the assessee that letting out of the property was not a business activity of assessee was also rejected by assessing officer as the assessee itself declared that they have claimed depreciation of Rs. 93,284/- independently on the asset. The ld. Commissioner (Appeals) affirmed the action of assessing officer by taking view that undoubtly the property on which the assessee earned rental income is part of business asset and the assessee had claimed depreciation on it.

Hind Musafir Agency Ltd 8. Before us the ld AR for the assessee raised two fold submissions, (i) that the letting out of the property is not the part of business activity of the assessee and that letting out of property was an isolated activity of the assessee and (ii) as per section 38(2), if any building used for the purpose of business is not exclusively so used for the purpose of business, the deduction under section 32 shall be restricted to a fair proportionate part, which may be determined by the assessing officer. We have noted that first contention of the assessee has been considered by the lower authorities and had already been rejected. We are in agreement with the finding of the assessing officer that the assessee cannot altogether claim depreciation on the business asset as well as income from the same business asset as income from the house property. The case laws relied by ld. AR for the assessee not applicable on the unique facts of the present case. In none of the case laws cited above, the same property was shown in the block of asset as shown in the present case. The assessee has declared its income from letting out of house properties under the head ‘Income from House Property' which falls under Chapter IV-C of the 1961 Act containing Section 22 to 27.Thus, the assessee will be entitled only for deductions prescribed under sections 22 to 27 of Chapter IV-C of the Act, while computing ‘income from house property’ chargeable to Hind Musafir Agency Ltd tax. This chapter IV-C of the Act does not provide for depreciation on immovable properties as one of deductions from income earned by assessee from letting out of such house property. However, section 32 of the Act provides for depreciation and falls under Chapter IV-D which concerns itself with computation of income from Profits or Gains from ‘Business or Profession’. Thus, there is no question of allowing any deduction as depreciation under section 32 for the period for which this property was let out and income thereof was offered for tax under the head 'income from house properties'. Thus, we concur with the finding of the assessing officer.

Hind Musafir Agency Ltd passing the order the assessing officer shall grant opportunity to the assessee as per the new procedure of assessment. The assessee is also directed to provide all information and evidence to the assessing officer. 10. In the result these grounds of appeal are allowed for statistical purpose.

11. Ground No. 4 to 7 relates to disallowance under section 14A. The ld AR for the assessee fairly conceded that ground No.7 is covered against the assessee by the decision of Hon’ble Apex Court in Maxopp Investment Ltd Vs CIT reported in 402 ITR 430 SC. Hence, ground No. 7 of the appeal is dismissed.

12. So far as ground no. 4 to 6 are concerned the ld AR for the assessee submits that he has a very limited prayer that for the purpose of disallowance under Rule 8D(iii), only those investment which yielded the exempt income during the year may be considered for computing the average value of investment which yielded exempt income during the year. In support of his submissions the ld AR for the assessee rely on the decision of Special Bench of Delhi Tribunal in ACIT Vs Vireet Investment Vs ACIT [2017] 165 ITD 27 (Delhi- Trib SB).

13. On the other hand the ld. DR for the revenue supported the order of the ld Commissioner (Appeals).

Hind Musafir Agency Ltd 14. We have considered the rival submissions of the parties and gone through the orders of the tax authorities below. As noted above the ld AR for the assessee have confined his submissions to the extent that only those investment which yielded exempt income during the year should be considered for computing the average value of investment which yielded exempt income during the year as held by Special bench of Delhi Tribunal in Vireet Investment P. Ltd. (supra). After considering the submission of ld. AR of the assessee, we find convincing force in his submission that only those investments which yielded exempt income during the year be considered for computing the average value of investment. Therefore, the assessing officer is directed to re-compute the disallowance under Rule 8D(2)(iii) by following the decision of Special Bench of Delhi Tribunal in Vireet Investment P. Ltd. (supra). Needless to order that before re-computing the disallowance under Rule 8D(2)(iii), the assessing officer shall grant opportunity of hearing to the assessee.

The assessee is also directed to provide necessary details and information to the assessing officer. 15. In the result, this ground of appeal is partly allowed.

16. Ground No. 8 relates to deduction of education cess. The ld. AR for the assessee submits that the assessee has raised this ground of appeal for the Hind Musafir Agency Ltd first time before the Tribunal. The Ground of appeal is purely legal in nature. The assessee is claiming deduction of payment of education cess as allowable deduction on the basis of various decision of Tribunal, Hon’ble Bombay High Court in Sesa Goa Ltd. Vs. DCIT [2020] 107 CCH 376 (Bom) and Hon’ble Rajasthan High Court in Chambal Fertilizers and Chemical Ltd. Vs. DCIT (ITA No. 52 of 2018).

and in case the additional ground of appeal is admitted, the issue may be restored to the file of assessing officer for considering the issue.

18. We have considered the rival submission of the parties and deliberated on various case laws relied by ld. AR of the assessee. We have noted that the assessee has raised this ground of appeal, for the first time before the Tribunal. The ld. AR for the assessee submitted that the ground of appeal is purely legal in nature. Considering the fact that the ground of appeal raised by assessee is purely legal in nature and no new facts are necessary to be brought on record for considering the relief claimed under this grounds of appeal and further, considering the decision of Hon’ble

Hind Musafir Agency Ltd Bombay High Court in Sesa Goa (supra), we admit the ground of appeal and direct the AO to consider the claim of assessee and allow appropriate relief in accordance with the decision of Hon’ble Bombay High Court in Sesa Goa Ltd. (supra) wherein it was held that Education Cess and Higher and Secondary Education Cess are liable for deduction in computing income chargeable under head of 'profits and gains of business or profession’. Hence, this ground of appeal is admitted and restored to the file of assessing officer to consider and allow appropriate relief to the assessee by following the decision of jurisdictional High Court in Sesa Goa Ltd. (supra). In the result, this ground of appeal allowed for statistical purpose.