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Income Tax Appellate Tribunal, “H” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI MANOJ KUMAR AGGARWAL
Captioned appeal has been filed by the assessee challenging the order dated 28th December 2018, passed by the learned Commissioner of Income Tax (Appeals)–10, Mumbai, pertaining to the assessment year 2013–14.
In ground no.1, the assessee has challenged the disallowance of ` 33,49,861, paid towards stamp duty and registration fee at the time of registration of tenancy agreement.
2 M/s. Hickson & Dadajee Pvt. Ltd.
Brief facts are, the assessee is a resident company. For the assessment year under dispute, the assessee filed its return of income on 1st November 2013, declaring total income of ` 16,68,789. In the course of assessment proceedings, the Assessing Officer on verifying the facts and material on record found that the assessee earlier was engaged in manufacturing of food grade colours and chemicals. For such manufacturing activity, it had two units, one at Goregaon and the other at Tarapur. However, due to accumulated loss and erosion of networth, the assessee became sick and was declared as a sick industrial unit by the BIFR and a rehabilitation package was also formulated. However, even after the rehabilitation of the unit, it still incurred huge loss as a result of which it suspended its operational activity. The Assessing Officer found that during the year under consideration, no chemical business was in existence. However, he found that the assessee had claimed various expenses which had no nexus with the interest income earned by the assessee. Therefore, he called upon the assessee to justify the expenses claimed. After considering the submissions of the assessee, the Assessing Officer observed that the expenses claimed towards payment of stamp duty and registration fee is in the nature of capital expenses as it was for the purpose of acquiring a perpetual tenancy right. Accordingly, he disallowed an amount of ` 33,49,861.
3 M/s. Hickson & Dadajee Pvt. Ltd.
Though, the assessee contested the aforesaid disallowance, however, learned Commissioner (Appeals) also sustained it.
The learned Counsel for the assessee submitted, both the Assessing Officer and learned Commissioner (Appeals) have completely misconceived the facts while concluding that the tenancy right acquired by the assessee is perpetual in nature, hence, a capital asset. Drawing our attention to the tenancy agreement dated 18th March 2013, a copy of which is placed at Page–18 of the paper book, the learned Counsel submitted, the tenancy right acquired by the assessee is on monthly basis and is revocable. He submitted, while treating the expenses claimed by the assessee as capital expenditure by treating the tenancy rights as capital asset, the Departmental Authorities have completely missed out the aforesaid factual position. The learned Counsel submitted, the Departmental Authorities have also ignored the fact that the tenancy agreement has been executed under the provisions of Maharashtra Rent Control Act, 1999 and the assessee, as per the terms of the agreement, has to pay monthly rent of ` 15,000, which has also been allowed by the Assessing Officer. Thus, he submitted, the expenditure incurred by the assessee is allowable. In support of such contention, the Authorised Representative relied upon the following decisions:–
4 M/s. Hickson & Dadajee Pvt. Ltd. i) Balmer Lawrie & Co. Ltd. v/s CIT, 111 taxman.com 316 (2019); ii) CIT v/s Bombay Cycle & Motor Agency Ltd., 118 ITR 42 (Bom.); iii) CIT v/s Gopal Associates, [2009] 222 CTR 307 (HP); and iv) Gujarat Machinery Mfg. Ltd. v/s CIT, [1995] 211 ITR 1010.
The learned Departmental Representative strongly relied upon the observations of the Assessing Officer and learned Commissioner (Appeals).
We have carefully considered the rival submissions in the light of decisions relied upon and perused the material on record. It is evident, the Assessing Officer has disallowed the expenditure incurred towards registration charges and stamp duty relating to the tenancy agreement assuming that the tenancy is irrevocable and the rights acquired under the tenancy agreement is perpetual in nature. As it appears from the orders of learned Commissioner (Appeals), he has primarily relied upon a resolution dated 15th February 2013 adopted in the board meeting of the assessee company, allegedly stating that the company is to enter into “forever tenancy right agreement”. Further, the learned Commissioner (Appeals) has observed that initially the assessee was granted lease/tenancy rights for a period of 35 years which ended in the year 2003. Thereafter, there was no lease/tenancy agreement between the assessee and the landlord. It appears from the tenancy
5 M/s. Hickson & Dadajee Pvt. Ltd. agreement that the landlord had filed a suit for eviction against the assessee. Subsequently, the assessee approached the landlord for continuing as a tenant. After accepting the request of the assessee, the landlord had entered into a tenancy agreement with the assessee on 18th March 2013. The aforesaid tenancy agreement makes it very much clear that the assessee’s right is only that of a legal tenant. The agreement further stipulates that the assessee has to pay a monthly rent of ` 15,000, excluding statutory dues and water charges. However, if the landlord raises a bill for statutory dues, the assessee has to pay it. The agreement further makes it clear that in case of delay in payment of rent, the assessee would be liable to pay interest @ 18% on the outstanding dues. Thus, from a reading of the tenancy agreement, prima facie, it appears that the assessee’s right under the agreement is that of the monthly tenant. Further, the tenancy agreement prohibits the assessee from making any additions/alterations to the tenanted premises without the prior written consent of the landlord. The agreement also provides that the landlord or his representative will have the right to enter the premises at all reasonable time for the purpose of inspection, repair, etc. Further, the agreement provides that in case of any breach in the terms and conditions, the landlord will be entitled to revoke the tenancy right and take the possession of the property after evicting the assessee.
6 M/s. Hickson & Dadajee Pvt. Ltd.
Thus, on a reading of the tenancy agreement as a whole it does not appear that there is transfer of property by the landlord to the assessee as concluded by learned Commissioner (Appeals). Though, it may be a fact that the tenancy agreement is silent on the duration of the terms of the tenancy, however, there are various terms and conditions in the tenancy agreement which make it clear that the right, title and interest over the tenanted property still remains with the landlord and have not been transferred to the assessee. It is a fact on record that the tenancy agreement has been executed and registered under the Maharashtra Rent Control Act,1999. It is also a fact on record that the monthly rent paid by the assessee and the landlord has been allowed as expenditure. That being the case, there is no reasonable basis for disallowing the stamp duty and registration charges by holding it as capital expenditure. Though, learned Commissioner (Appeals) has referred to a Board resolution to conclude that the assessee has acquired enduring right over the property, however, the terms of the tenancy agreement speak differently. If one goes by the tenancy agreement, there cannot be any doubt that there is no perpetual right granted to the assessee. In view of the aforesaid, we hold that the expenditure incurred by the assessee towards stamp duty and registration charges for registering the tenancy agreement is revenue in nature and allowable. Accordingly, we direct the Assessing
7 M/s. Hickson & Dadajee Pvt. Ltd. Officer to delete the addition. Ground no.1, raised by the assessee is allowed.
In ground no.2, the assessee has challenged disallowance of expenditure amounting to ` 33,35,091.
As discussed earlier, while verifying the facts and material on record during the assessment proceedings, the Assessing Officer found that the chemical business earlier carried on by the assessee is no longer in existence. Therefore, he was of the view that various expenses claimed by the assessee which do not have any nexus with the interest income earned cannot be allowed. In the process, he disallowed the expenditure claimed by the assessee. Learned Commissioner (Appeals) also upheld the disallowance made by the Assessing Officer.
The learned Counsel for the assessee submitted, the assessee has temporarily suspended its business activities and has all intention to restart the chemical business. Thus, he submitted, the expenditure incurred has to be allowed as it is required to keep the business as a going concern. He submitted, various evidences submitted and submissions made by the assessee were not properly considered while disallowing assessee’s claim.
8 M/s. Hickson & Dadajee Pvt. Ltd. 12. The learned Departmental Representative relied upon the observations of the Assessing Officer and learned Commissioner (Appeals).
We have carefully considered the rival submissions and perused the material on record. Undisputedly, the expenditure claimed by the assessee was disallowed solely for the reason that the chemical business of the assessee is no longer in existence. However, it is the claim of the assessee that the business has not been closed permanently. In our view, if the assessee can bring on record sufficient evidence to prove that the business is continuing and has not been permanently closed, the expenditure relating to such business has to be allowed. However, since the assessee requires to establish its claim through proper evidence, we are inclined to restore the issue to the Assessing Officer for fresh adjudication after providing reasonable opportunity of hearing to the assessee. The ground raised by the assessee is allowed for statistical purposes.
In the result, appeal is partly allowed. Order pronounced in the open court on 14.12.2020