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Income Tax Appellate Tribunal, “D” Bench, Mumbai
Before: Shri Shamim Yahya & Shri Ravish Sood
O R D E R
PER RAVISH SOOD, JM
The present appeal filed by the assessee is directed against the order passed by the CIT(A)-3, Mumbai, dated 21.11.2016, which in turn arises from the order passed by the A.O under Sec.143(3) of the Income Tax Act, 1961 (for short „Act‟), dated 10.03.2016 for A.Y 2013- 14. The assessee has assailed the order of the CIT(A) by raising before us the following grounds of appeal: “ 1 . 0 0 T A X I N G A M E N I T Y C H A R G E S A S I N C O M E F R O M O T H E R SOURCES AS AGAINST TREATING THE SAME AS INCOME FROM HOUSE PROPERTY. 1.01 On the facts and circumstances of your appellant's case as well as in law, the Ld. CIT (Appeals) has erred in confirming the action of Ld. AO by classifying the income emanating from usage and amenity charges of Rs.1,29,58,200/- as income from other sources by simply ignoring the documentary P a g e | Devbhumi Estates Pvt. Ltd. Vs. The Deputy Commissioner of Income Tax, Circle-2(1)(1) evidences furnished during the course of assessment proceedings as well as appellate proceedings and also by not adjudicating ground of appellant of wrongly assessing Rental Income on assumption and presumption. 1.02 Your appellant prays Your Honour to hold so now treat the Amenity Charges as part of Income from House Property and not as Income from Other Sources. 2.00 DISALLOWANCE TO THE TUNE OF RS.4,42,425/- MADE UNDER SECTION 14A R.W.R 8D. 2.01 On the facts and circumstances of your appellant's case and in law, the Hon'ble CIT(A) has erred in confirming action of ld. AO in erroneously applying section 14A read with rule 8D and partially confirming the disallowance to the tune of Rs.4,42,425/- as against Rs. 56,000/- as claimed and disallowed by your appellant in the return of income for the year. By doing so, the Id. CIT(A) has erred in not appreciating that there is no direct nexus among exempt income earned and expenditure incurred by appellant. 2.02 Your appellant prays Your Honour to hold so now and direct the ld. AO to restrict disallowance at Rs.56,000/- as made by appellant while filing return of income and delete the balance disallowance. 3.00 Your appellant craves leave to add, amend and/or delete all or any ground(s) take hereinabove.”
2. Briefly stated, the assessee company had e-filed its return of income for A.Y.2013-14 on 29.09.2013, declaring its total income at Rs.1,49,28,500/-. Subsequently, the case of the assessee was selected for scrutiny assessment under Sec. 143(2) of the Act.
During the course of the assessment proceedings, it was observed by the A.O that the assessee had claimed to have received rent of Rs.2,17,21,200/- from letting out of office premises at G-01, G- 02 & G-102 admeasuring 8557 Sq. ft. to M/s Batliwala and Karani Securities India Pvt. Ltd. It was observed by the A.O that though the annual license fee as per the „License Agreement‟ worked out at Rs.67,62,000/-i.e @ Rs.5,63,500/- per month, however, the assessee had shown the gross rental from the aforesaid property at Rs.2,17,21,200/-. It was observed by the A.O that the assessee had in its Profit and loss account shown the rental receipts under two heads viz. (i) Rent: Rs.87,63,000/-; and (ii) Amenity Charges :
P a g e | Devbhumi Estates Pvt. Ltd. Vs. The Deputy Commissioner of Income Tax, Circle-2(1)(1) Rs.1,29,58,200/-. Observing, that the rental receipts as per the leave and license agreement of the assessee with M/s Batliwala and Karani Securities India Pvt. Ltd. for the year under consideration worked out to Rs.67,62,000/- i.e @ Rs.5,63,500/- p.m, therefore, the A.O restricted the rental receipts to be assessed under the head “Income From House Property” to the said extent. Accordingly, the balance amount of Rs.1,49,59,200/- [Rs.2,17,21,200/- (-) Rs.67,62,000/-] was brought to tax in the hands of the assessee under the head „Income from other sources‟. On the basis of the aforesaid re-characterisation of the heads of income under which the receipts were to be brought to tax, the entitlement of the assessee towards claim of deduction under Sec.24 was disallowed to the extent of Rs.44,87,760/-. Further, the A.O observed that the assessee during the year under consideration had made investments in HDFC mutual funds of Rs.1,32,00,000/- and had earned dividend income on the same. The A.O worked out the disallowance under Sec. 14A r.w. Rule 8D in respect of the expenditure incurred by the assessee on earning of the said exempt dividend income at Rs.10,13,864/- viz. [a]. 8D(2)(ii) : Rs.9,64,124/-; and [b]. 8D(2)(iii) : Rs.49,740/-.
Aggrieved, the assessee carried the matter in appeal before the CIT(A). As regards the claim of the assessee that the A.O was in error in subjecting part of the rental receipts to tax under the head „Other sources‟, the CIT(A) did not find favour with the same and upheld the view taken by the A.O. However, the CIT(A) was in agreement with the alternative contention of the assessee that the disallowance @ 30% that was claimed by the assessee under Sec. 24 was liable to be restricted only to the extent of the amenity charges of Rs.1,29,58,200/-, and not as regards the amount of Rs.1,49,59,200/- that was adopted by the A.O. Insofar the disallowance under Sec.14A P a g e | Devbhumi Estates Pvt. Ltd. Vs. The Deputy Commissioner of Income Tax, Circle-2(1)(1) r.w. Rule 8D was concerned, the CIT(A) directed the A.O to restrict the disallowance to the extent of the exempt dividend income.
The assessee being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. The ld. Authorised Representative (for short „A.R‟) for the assessee took us through the facts of the case. It was submitted by the ld. A.R, that the assessee had entered into two agreements with the tenants viz. (i) Leave & license agreement: dated 07.08.2012; and (ii) Amenities agreement: dated 07.08.2012. It was submitted by the ld. A.R that the lower authorities were in error in subjecting the amount received by the assessee in lieu of the „amenities agreement‟ to tax under the head “Other sources”. It was submitted by the ld. A.R that in the immediately preceding year i.e A.Y. 2012-13, the A.O had vide his order passed under Sec.143(3), dated 29.12.2014 accepted the claim of the assessee that the entire receipts were liable to be assessed as the income of the assessee under the head „house property‟. The ld. A.R in order to fortify her claim that the receipts pertaining to the amenities provided to the tenants was rightly shown by the assessee as its income under the head „house property‟ relied on the order of the ITAT, Mumbai Bench “H” in the case of Stargold (P) Ltd. Vs.DCIT, 5(3), Mumbai (2017) 85 taxmann.com 167 (Mum). Further, it was submitted by the ld. A.R that as the assessee had substantial self- owned funds, therefore, no disallowance under Sec. 14A r.w. Rule 8D(2) (ii) was called for in its hands. Accordingly, it was submitted by the ld. A.R that the A.O had wrongly dislodged the suo moto disallowance under Sec. 14A of Rs.56,000/- shown by the assessee in its return of income, and raised the same to an amount of Rs. 10,13,864/-.
P a g e | Devbhumi Estates Pvt. Ltd. Vs. The Deputy Commissioner of Income Tax, Circle-2(1)(1) 6. Per contra, the ld. Departmental Representative (for short „D.R‟) relied on the orders of the lower authorities. It was submitted by the ld. D.R that as no infirmity did emerge from the order of the CIT(A), therefore, the appeal filed by the assessee did not merit acceptance and was liable to be dismissed.
We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record, as well as the judicial pronouncements relied upon by them. Admittedly, the assessee as per the “Leave & license agreement”, dated 07.08.2012 had let out its office premises on the ground floor of Office No. G-01, Office No.G-02, and the Office premises No. 102 on the 1st Floor along with the Mezzanine Floor in the “City Ice Building” at Bazar Gate Street, Mumbai, for a period of 60 months commencing from 22.01.2012 to M/s Batliwala and Karani Securities India Ltd. (hereinafter referred to as „Licensee‟), at a license fee of Rs.5,63,500/- p.m. Apart there from, the assessee as per a separate “Amenities agreement”, dated 07.08.2012, that was entered into with the aforesaid licensee, had agreed to provide certain amenities/facilities pertaining to the aforesaid premises for a compensation/amenity charges of Rs. 9,30,350/- per month. We find that the A.O being of the view that as the rental receipts only to the extent of Rs. 5,63,500/- per month were relatable to letting out of the property by the assessee to the aforesaid licensee, had thus observed that receipts only to the said extent were to be assessed as the income of the assessee under the head “house property”. Accordingly, the A.O had subjected the balance amount of receipts of Rs.1,49,59,200/- [Rs.21,17,21,200/-(-) Rs.67,62,000/-] to tax as the income of the assessee from “Other sources”.
P a g e | Devbhumi Estates Pvt. Ltd. Vs. The Deputy Commissioner of Income Tax, Circle-2(1)(1) 8. We have perused the orders of the lower authorities and have given a thoughtful consideration to the issue before us. As is discernible from the “Amenities Agreement”, dated 07.08.2012 (Page 134 to 148) of the Assesses “Paper Book” (for short „APB‟), the assessee had agreed to provide the aforesaid amenities/services in order to facilitate a better and more effective usage of the property by the licensee. A perusal of the nature of amenities which were to be provided by the assessee to the licensee reveals that the same comprised of viz. (i) exclusive usage of the toilets on the Ground floor and 1st Floor of the building for servants/driver/security staff; (ii) provision of a separate independent and exclusive telephone cable connection for the said premises; (iii) a separate, independent and exclusive electricity connection for the said premises and also electricity and water connection for the toilets mentioned hereinabove; (iv) electric and sanitary fittings in the toilets mentioned hereinabove; (v) outside area (north side of the building) for installation of air conditioning units/generators; (vi) usage and benefits of the lift; (vii) provision of the security guard/systems for common area; (viii) benefits of the repairs, cleaning and maintenance to the exterior and interior of the building ; (ix) usage of the water pumps/water tanks (common for building occupants) along with plumbing network; (x) usage and benefit of the common corridors/passages, lobby, staircases and other common areas of the said building; (xi) benefit of the management and maintenance of the lift in the building; and (xii) usage and benefit of the common lighting within the said building and outside in the compound thereof. We find that all of the aforesaid amenities/services referred in the “Amenities Agreement” entered into between the assessee and the licensee were inextricably interlinked and interwoven with the very usage of the offices in the said building which had been let out by the assessee to the aforesaid licensee. In P a g e | 7 AY. 2013-14 Devbhumi Estates Pvt. Ltd. Vs. The Deputy Commissioner of Income Tax, Circle-2(1)(1) fact, we find that the aforesaid services were being provided by the assessee for peaceful enjoyment of the property by the licensee. In our considered view the letting out of the property and the rendering of the aforesaid amenities are clearly inseparable and could not have been separately enjoyed by the licensee.
In order to resolve the issue that as whether the amount received as charges for providing amenities were rightly shown by the assessee as its income under the head “House Property”, or the same were liable to be assessed as its income under the head “Other sources”, as held by the A.O, we shall advert to the guidelines laid down by a 5 judge bench of the Hon’ble Supreme Court in the case of Sultan Brothers Pvt. ltd. Vs. CIT (1964) 51 ITR 353 (SC). In the aforesaid case, it was observed by the Hon‟ble Apex Court that for answering the issue as to whether the letting out of a property along with certain amenities was to be brought to tax under the head “House Property”, three issues were to be looked into viz. (a) was it the intention in making the lease - and it matters not whether there is one lease or two, that is, separate leases in respect of the furniture and the building - that the two should be enjoyed together ? ; (b) was it the intention to make the letting of the two practically one letting; and (c) would one have been let alone and a lease of it accepted without the other ? It was observed by the Hon‟ble Apex Court that if the answers to the first two questions were in the affirmative and the last in the negative, then it has to be held that the lettings would be inseparable. Now, in the case before us, the provision of amenities/services viz. usage of toilets in the building by the servants/drivers/securities staff, provision of electricity connection and water connections for the toilets, provision of exclusive telephone cable etc. and other such services to the licensee, were aimed at facilitating better and more effective usage of the aforesaid property. In our considered view there P a g e | Devbhumi Estates Pvt. Ltd. Vs. The Deputy Commissioner of Income Tax, Circle-2(1)(1) was a clear nexus on the part of the assessee in letting out of the property and provision of the aforesaid services to the licensee, which as observed by us hereinabove were inextricably interlinked and interwoven for effective usage of the said property as a part of one letting. As observed by the Hon‟ble Apex Court, we find that it is immaterial that the assessee had entered into two separate agreements viz. (i) Leave & license agreement, dated 07.08.2012; and (ii). Amenities agreement, dated 07.08.2012. Also, we find that in the absence of the leasing of the aforesaid property the rendering of the amenities/services by the assessee to the licensee would have been impractical or rather impossible. Accordingly, in our considered view the letting out of the property and provision of the aforesaid services being interdependent, intertwined and inseparable, form part of one letting by the assessee. We find that the Hon’ble High Court of Calcutta in the case of CIT Vs. Sambhu Investments Pvt. ltd. (2001) 249 ITR 47 (Cal), had observed that where the prime object of the assessee was to let out the portion of the property to various occupants by giving them additional right of using the furniture & fixtures and other common facilities for which rent was being paid, the income derived therefrom would be assessable under the head “house property”. The aforesaid judgment of the Hon‟ble High Court was thereafter been approved by the Hon’ble Supreme Court in Sambhu Investments Pvt. ltd. Vs. CIT (2003) 263 ITR 143 (SC). Accordingly, on the basis of our aforesaid observations, we are of the considered view that the amount received by the assessee for providing the amenities/facilities to the licensee as per the “Amenities agreement”, dated 07.08.2012 was rightly shown by the assessee as its income under the head “house property”. At the same time, we may herein observe that the assessee had claimed to have received gross rent of Rs. 2,17,21,200/- on letting out of the aforesaid property. However, we P a g e | Devbhumi Estates Pvt. Ltd. Vs. The Deputy Commissioner of Income Tax, Circle-2(1)(1) find that the receipts from the letting out of the aforesaid property and provision of amenities as per the respective „Agreements” works out to an aggregate of Rs.1,79,26,200/- viz. (i) rental receips: Rs.67,62,000/- (i.e @ Rs.5,63,500/- per month); and (ii) compensation/amenity charges: Rs.1,11,64,200/- (i.e @ Rs.9,30,350/- per month). We thus in terms of our aforesaid observations restore the matter to the file of the A.O, with a direction to assess the amenity charges received by the assessee in terms of the “Amenities agreement”, dated 07.08.2012 under the the head “house property”. Also, the A.O in the course of the „set aside‟ proceedings shall verify the reason for the discrepancy in the amount of the gross rental shown by the assessee at Rs.2,17,21,200/- under the head “house Property”, as against the amount of Rs.1,79,26,200/- [Rs.67,62,500/- (+) Rs.1,11,64,200/-] as is discernible from the respective agreements viz. Leave & license agreement, dated 07.08.2012 and Amenities agreement, dated 07.08.2012. In case the assessee is unable to explain the aforesaid discrepancy, then the aforesaid amount of receipt of Rs. 37,95,000/- [Rs.2,17,21,200/- (-) Rs.1,79,26,200/-] shall be assessed by him under the head “Other sources”. Needless to say, the A.O shall in the course of the „set aside‟ proceedings afford a reasonable opportunity of being heard to the assessee. The Ground of Appeal
No. 1 is allowed for statistical purposes in terms of our aforesaid observations.
10. We shall now advert to the claim of the ld. A.R that the A.O had erred in reworking the disallowance under Sec.14A r.w.r. 8D at an amount of Rs.10,13,864/-, as against the suo motto disallowance of Rs.56,000/- shown by the assessee. It is the claim of the ld. A.R, that as the assessee had sufficient self owned funds for making the aforesaid investments during the year under consideration, therefore, no disallowance under Sec.14A r.w. Rule 8D (2)(ii) was called for in its hands. We have given a thoughtful consideration to the aforesaid P a g e | Devbhumi Estates Pvt. Ltd. Vs. The Deputy Commissioner of Income Tax, Circle-2(1)(1) contention of the ld. A.R and find substantial force in the same. In our considered view, in case the self owned funds of the assessee viz. profit, reserves, surplus and current account deposits are found higher than the investments made in the exempt income yielding assets, then no disallowance under Sec.14A r.w. Rule 8D(2)(ii) would be called for in the hands of the assessee. Our aforesaid observation is fortified by the judgement of the Hon’ble High Court of Bombay in the case of CIT Vs. HDFC Bank Ltd. (2014) 366 ITR 505 (Bom). Accordingly, in terms of our aforesaid observations, we direct the A.O to readjudicate the issue pertaining to disallowance under Sec.14A r.w. Rule 8D(2)(ii), keeping in view the judgment of the Hon‟ble High Court of Bombay in the case of HDFC Bank Ltd.(supra). Needless to say, the A.O shall in the course of the „set aside‟ proceedings afford a reasonable opportunity of being heard to the assessee. Accordingly, the matter is restored to the file of the A.O for de novo adjudication in terms of our aforesaid observations. The Ground of appeal
No. 2 is allowed for statistical purposes.
11. The Ground of appeal No. 3 being general in nature is dismissed as not pressed.
12. The appeal of the assessee is allowed for statistical purposes. Order pronounced in the open court on 12.07.2019 (Shamim Yahya) (Ravish Sood) ACCOUNTANT MEMBER JUDICIAL MEMBER भ ुंफई Mumbai; ददन ुंक 12.07.2019 Ps. Rohit P a g e | Devbhumi Estates Pvt. Ltd. Vs. The Deputy Commissioner of Income Tax, Circle-2(1)(1)