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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
AadoSa / O R D E R महावीर स िंह, न्याययक दस्य/ PER MAHAVIR SINGH, JM:
This appeal filed by the Revenue is arising out of the order of Commissioner of Income Tax (Appeals)-8, Mumbai [in short CIT(A)], Appeal No. CIT(A)-8/IT-487/16-17 vide order dated 29.06.2017. The Assessment was framed by the Income Tax Officer, Ward-3(1)(2), Mumbai (in short ‘ACIT/ITO/ AO’) for the A.Y. 2014-15 vide order dated 2 28.12.2016 under section 143(3) read with section 147 of the Income Tax Act, 1961 (hereinafter ‘the Act’).
2. The interconnected issues raised by Revenue in this appeal is as regards to the order of CIT(A) directing the AO to treat the rental income from the assessee as business income as against assessed by AO as income from house property and consequential deletion of disallowance of remunerations and other expenses. For this Revenue has raised the following three grounds: - “1. Whether on the facts and circumstances and in law, the Ld.CIT(A) was right in eating the rental income of the assessee as business income without appreciating the assessee’s of rent received as income from house property by the A.O. in assessee’s own case for A. V.2011- 12 was not contested further before any appellate authorities by the assessee, the fact involved in these case MIs Rayaia Corporation Pvt. Ltd Vs ACIT (6437 of 2016) is distinguishable from the facts of the instant case. The assessee is covered by the Calcutta high Court in the case of Shambu Investment Ltd vs CIT (super), this fact was ignored by the Ld. CIT('A) in the assessee's own case for A. Y. 2013-14 and in the instant year.
Whether on the facts and circumstances and in law, the Ld. CIT(A) was rught in deleting the disallowance of remuneration of Rs. 3 1,80,00,000/- paid to without appreciating the fact that the assessee had closed its business activity and that the onus of justify and prove the reasonableness of the claim of such expenses u/s 404('2)(b) was on the assessee and not the department as held by the Hon’ble Supreme Court in the case of CIT Vs Shatrunjay Diamonds (Born) 267 ITR 258?"
Whether on the facts and circumstances and in law, the Ld. CIT(A) was right in deleting the disallowance of expenses of Rs. 45,73,4891- without appreciating the fact that the assessee had closed its business activity and only having income from houses property and other sources against which the claim of expenses is not allowed as held in case pf CIT Vs Distributors (Baroda) PVT Ltd (1972) 83 ITR 377 (SC), Narain Swadeshi Wvg Mills CEPT (1954) 26 ITR 765 (SC), CIT Vs. Admirality Flats Motel (1982).”
3. Brief facts are that during the course of assessment proceedings, the AO observed from the P& L account that the assessee had credited the rental income of ₹ 2,62,36,997/- which was shown under the head “income from business and profession” and the interest of ₹ 35,726/- was taken under the head “business income”. The AO show caused to assessee and in response vide letter dated 08.12.2016 made submission which was not accepted by the Assessing Officer and stated that the rent derived from letting out of house property was liable to be assessed 4 under the House property as per the provisions of section 22 to 24 of the Act. The assessee also contended that it was received compensation for providing business support and auxillary support for the use of premises as well as charges for the ready use of work station, cabins, etc. but the AO observed that there were no specific services and assessed the income at ₹ 1,72,31,216/-. The AO also disallowed the remunerations paid to the directors at Rs. 1.80 crores by invoking the provisions of section 40(a)(2b) of the Act. The AO also disallowed expenses debited to the profit and loss account on account of salary, wages, leave encashment, staff welfare, power and fuel, water warehouse rent, repair and maintenance, insurance vehicle, rate and tax, travelling and conveyance and depreciation of car by apportioning the expenses accordingly. Accordingly, the AO disallowed the expenses to Rs. 45,73,489/-. Aggrieved against all the three disallowances and assessing business income as rental income, preferred the appeal before CIT(A). The CIT(A) following the decision of Hon’ble Supreme Court in the case of Rayala Corporation Pvt. Ltd. vs. ACIT in Civil Appeal No. 6437 of 2016 directed the AO to assess the income under the head of business income as against assessed by AO as income from house property. The CIT(A) also allowed the remunerations of directors disallowed by AO. He also deleted the disallowance of expenses debited in the profit and loss account following co-ordinate Bench decision in the case of Edwise Consultants Pvt. Ltd. Vs. DCIT in vide order dated 14.10.2015 & Creative Garments v. ACIT in ITA No 4516/Mum/2009 vide order dated 27.05.2011. Aggrieved now Revenue is in appeal before Tribunal.
Before us, the learned Counsel for the assessee filed copy of Tribunals order in assessee’s own case for AY 2011-12 in 438/Mum/2015 vide order dated 14.02.2018 wherein, Tribunal affirmed the order of CIT(A) treating the letting of its properties and derived rental income as income from business or profession as against the income computed by AO as income from House property. Consequently, Tribunal also allowed the payments/ remuneration to directors and other expenses by observing in Para 12 to 15 as under: - “12. We have heard both the parties, perused the material available on record and gone through the orders of the authorities below. It is admitted fact that the assessee has discontinued its manufacturing activity and continued the activity of letting out its properties and derived rental income. The activity of assessee is also supported by main objects clause in memorandum of association. We further noticed that except letting out properties the assessee has not carried out any other business activity. Once the assessee has carried out its main activity of letting out properties to derive rental income, such rental income should be considered under the head “Income from house property”. This legal proposition is further supported by the decision of Hon’ble Supreme Court in the case of Rayala Corporation Pvt. Ltd. vs. ACIT (supra), wherein under similar circumstances the Hon’ble Supreme Court observed that once the assessee had only one business that was of 6 leasing its property and earning rent there from, the income so earned should be treated as business income and such income was to be subjected to tax under the head “Profit and gains of the business or profession”. This legal proposition is further supported by the decision of ITAT Mumbai SMC Bench, in the case of Distinct Developers Pvt. Ltd. (supra) wherein under similar circumstances the co-ordinate Bench by following the decision of Hon’ble Supreme Court in the case of Rayala Corporation Pvt. Ltd. vs. ACIT (supra) has held that rental income received from letting out of properties should be considered under the head “Income from business”.
Considering the facts and circumstances of this case and also following the ratio of Hon’ble Supreme Court in the case of Rayala Corporation Pvt. Ltd. vs. ACIT (supra), we are of the considered view that if the main activity of the assessee is of letting out properties and derive rental income without any other business activity, then such rental income should be considered under the head “Income from business or profession” but not under the head “Income from house property”. Therefore, we direct the AO to assess rental income under the 7 head “Income from business or profession” as claimed by the assessee.
Coming to disallowance of expenses being directors’ remuneration and motor car expenses including depreciation on motor car. The AO disallowed remuneration paid to directors on the ground that the expenditure was not wholly and exclusively incurred for the purpose of business of the assessee. The AO further observed that once the rental income has been considered under the head “Income from house property” after allowing the deductions available towards expenses as per the provisions of section 24(a), further deductions towards expenses cannot be allowed. We do not find any merits in the arguments of the AO for the reason that the allowability of expenses has to be considered in the light of the nature of business of the assessee and its relevance. Since we have already directed the AO to consider rental income under the head “Income from business”, the AO is directed to consider expenses incurred by the assessee against such income. In this case, the assessee has paid remuneration to directors and also furnished evidences for payment of remuneration for services rendered by the directors to the company. Therefore, we are of the view that the 8 AO was incorrect in disallowing remuneration paid to directors by holding that the expenses were not wholly and exclusively incurred for business and also which is excessive and unreasonable. Hence, we direct the AO to allow expenses claimed by the assessee against business receipts.
In so far as motor car expenses and depreciation on motor car, the assessee has used motor car for the purpose of business even though the car is in the name of director. Merely because the car is in the name of director the usage of car for the purpose of business cannot be ruled out. However, the fact remains that when the AO has specifically asked for production of log book, the assessee failed to furnish log book to prove the use of vehicle for the purpose of business. Therefore, we are of the view that the issue needs to be examined by the AO in the light of the claim of the assessee that the motor car has been used for the business purpose. If the assessee substantiates its claim with necessary evidences and also by producing the log book to prove that car is used for business purpose, then the AO is directed to allow motor car expenses including depreciation on motor car.”
9 5. The Tribunal further in AY 2013-14 in vide order dated 30.07.2018 has followed the orders of the earlier years. In view of the above, the learned Counsel for the assessee stated that the consistent view taken by Tribunal should be followed and there is no change in facts in this year also. On the other hand, the learned Sr. DR could not point out any change in facts and circumstances. When a query was raised by the Bench whether there is a change in property or the property is the same? The learned Sr. DR stated that the income earned from the same property. As the issue is squarely covered by the co- ordinate Bench decision in assessee’s own case for AY 2011-12 in ITA No 438/Mum/2015 and AY 2013-14 in ITA No. 790/Mum/2017, respectfully, following the same, we affirm the order CIT(A) holding that the income earned from letting out properties is income from business or profession and not income from house property and not income from house property. The consequential issues allowed by CIT(A) in favour of assessee holding that the assessee company is entitled for remunerations and expenses and deleted the same, we affirmed the order of CIT(A) on all counts. The appeal of Revenue is dismissed.
In the result, the appeal of Revenue is dismissed.
Order pronounced in the open court on 08-04-2019. (राजेश कुमार / RAJESH KUMAR) (महावीर स िंह /MAHAVIR SINGH) (लेखा दस्य / ACCOUNTANT MEMBER) (न्याययक दस्य/ JUDICIAL MEMBER) मुिंबई, ददनािंक/ Mumbai, Dated: 08-04-2019 स दीप सरकार, व.निजी सधिव / Sudip Sarkar, Sr.PS