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Income Tax Appellate Tribunal, MUMBAI BENCH “H”, MUMBAI
Before: SHRI C.N. PRASAD, HONBLE & SHRI RAJESH KUMAR, HONBLE
PER C.N. PRASAD (JM) 1. These two appeals are filed by the Revenue against the common order of the Ld. Commissioner of Income Tax (Appeals)-28, Mumbai dated 29.01.2016 for the Assessment Years 2011-12 & 2012-13.
The first common ground in both the appeals is that Ld.CIT(A) is not justified in treating the income from plot of land under the head income
2 ITA.Nos. 1642 & 1643/MUM/2016 M/s. Siroya Holdings from house property instead of income from other sources as treated by the Assessing Officer.
At the outset, Ld. Counsel for the assessee submitted that an identical issue came up before the Tribunal in ITA.No. 6563/Mum/2013 dated 04.11.2016 for the Assessment Year 2009-10, copy of the order is placed on record. It is submitted that the Tribunal sustained the order of the Ld.CIT(A) in holding that the income from renting of plot of land should be assessed under the head income from house property as against the income from other sources.
Ld. DR vehemently supported the orders of the Assessing Officer.
We have heard the rival submissions, perused the orders of the Authorities below and the Tribunal order for the Assessment Year 2009-10. We find that an identical issue came up before the Tribunal in assessee’s own case for the immediately preceding Assessment Year in ITA. No. 6563/Mum/2013 and the Tribunal by order dated 04.11.2016 held that income earned on renting of plot which is adjacent to the building should be assessed under the head income from house property instead of income from other sources as was assessed by the Assessing Officer observing as under:
3 ITA.Nos. 1642 & 1643/MUM/2016 M/s. Siroya Holdings “3. At the outset, Ld Counsel for the assessee brought our attention to the order of the CIT (A) in general and the contents of paras 2.3.5 and 2.3.6 in particular and submitted that the CIT (A) analyzed the applicability of the provisions of section 22 of the Act and found the plot of land in question falls within the scope of expression part of the land appurtenant thereto and therefore, the section 22 of the Act is 2 relevant for taxing the rental income from the land let out for parking. The said land is „appurtenant‟ to the Siroya Centre. We examined the facts of the case and the contents of the said paras. For the sake of completeness of this order, the said paras are extracted as under:-
2.3.4. Similarly, when one perused the leave and license agreement in respect of the plot of land, it would be clear that the land in question is the land appurtenant to the building. Clause (3) of the said leave and license agreement reads as follows: -
“3) The licensors hereby grant leave license and permission to the licenses to use the open space in compound of the said building for parking of vehicles for an aggregate term of ten years commencing form 25th May, 2007. The licensees shall be entitled to use the open compound space of the said building for the purpose of parking its cars. The open space of compound of the said building is shown as the plan annexed and marked as Annexure “1”. This license in respect of the said open space in compound for parking of vehicles shall be coterminous with the indenture of lease of the said building and shall not otherwise be terminable.”
2.3.5. From the above, it is clear that the rents of Rs. 62,07,000/- per month and Rs. 8,00,000/- per month totally amounting to Rs. 8,40,84,000/- per year is being received by the assessee in respect of the same property consisting of the building and the land appurtenant thereto. Earlier, in the agreement for building lease dated 31.1.2006, rent of Rs. 70,07,000/- per month (Rs. 8,40,84,000/- per annum) was agreed to be paid by the lessee for the use of the building and the land on which the building is constructed. However, vide the subsequent agreements, the monthly rent of Rs. 70,07,000/- was segregated as per which rent of Rs. 62,07,000/- was in respect of the buildings and rent of Rs. 8,00,000/- per month was appropriated towards the right to use the land on which the building stands. The land would, therefore, be land appurtenant to the building in the facts and circumstances of the case. Hence, in view of the provisions of section 22 of the Act, the income on account of rent received by the assessee both for the building and the land would be assessable under the head „income from house property”. It would not be logical to hold that if a single agreement had been entered into between the two parties in question for the use of the entire property for a rent of Rs. 70,07,000/-, the same would have been chargeable to tax under the head „income from house property‟ but if two separate agreements have been made for building and the land appurtenant thereto of the
4 ITA.Nos. 1642 & 1643/MUM/2016 M/s. Siroya Holdings same property, then rental income from the building would be assessable under the head „income from house property‟ while the income from the land appurtenant thereto would be assessable under the head „income from other sources‟. In my opinion, the portion of land in question is part of the property on which the building “Siroya Centre” has been constructed and let out and is land appurtenant thereto.”
From the above, we find there is no dispute on fact that assessee owns a property called Siroya Centre at Andheri (E), Mumbai and the same was let out to M/s. Aditya Birla Retails Ltd. Assessee received a sum of Rs. 8,40,84,000/- in the year under consideration. Assessee entered into two lease agreements with the tenant. The first agreement pertains to let out of the Siroya Centre consisting of basement + five floors + Top floor terrace. Another agreement was entered into for let out the plot of land for parking purposes for a monthly rent of Rs. 8 lakhs. Assessee claimed the same under the head „income from house property‟ and relied on the provisions of section 22 and 24 of the Act. However, AO is of the opinion that the rent received from the land portion is outside the ambit of the provisions of section 22 of the Act and he considered the two lease agreements literally. Therefore, the income from the land was taxed by the AO as „income from other sources‟ and denied the deduction allowed u/s 24(a) of the Act in this regard. On these facts, CIT (A) analyzed and applied the judgment of the Hon’ble High Court of Andhra Pradesh in the case of CIT vs. Zaibunisa Begam [1985] 151 ITR 320 (AP) and the judgment of the Hon’ble Madras High Court in the case of Binny Ltd vs. ACWT [2010] 324 ITR 34 (Mad), which are relevant for explaining the meaning of the expression “land appurtenant thereto”. In addition, he relied on certain other decisions of the Tribunal also. CIT (A) also analyzed the provisions of section 22 of the Act which read as under: -
“22. The annual value of property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner, other than such portions of such property as he may occupy for the purpose of any business or profession carried on by him the profits of which are chargeable to income tax, shall be chargeable to income-tax under the head “income from house property”.
After considering the submissions of the assessee, vide para 2.3.1 of his order, CIT (A) gave a finding that the land in question is appurtenant thereto to the building Siroya Centre having the same address and municipal number ie CTS No.41/B/3/A situated at Airport Road, Village Bapnala, Taluka Andheri, Andheri (E), Mumbai. The first and the second schedule confirms the above. In the light of these facts, CIT (A) gave a finding in favour of the assessee as per the discussions given in paras 2.3.4 and 2.3.5 extracted above. Considering the above factual matrix of the case, we are of the opinion, the CIT (A) discussed the issue at length and relied on various binding judgments before granting relief to the assessee. Therefore, in our opinion, the order of the CIT (A) is fair and reasonable and it does not call for any interference. Accordingly, ground raised by the Revenue is dismissed.
5 ITA.Nos. 1642 & 1643/MUM/2016 M/s. Siroya Holdings 6. Respectfully following the said order, we sustain the order of the Ld.CIT(A) as the facts and circumstances being identical. This ground of Revenue is dismissed.
Coming to Ground No.2 in the appeal of the Revenue for the Assessment Year 2011-12 is that Ld.CIT(A) is not justified in allowing deduction for interest u/s.24(b) while computing the income from house property.
Ld. Counsel for the assessee submitted that identical issue came up before the Tribunal in assessee’s own case for the immediately preceding Assessment Year in ITA.No.5901/Mum/2013 dated 16.09.2015 considering the submissions of the assessee and also following the decision of the Tribunal which was later confirmed by the Jurisdictional High Court in the case of M/s. Sane & Doshi Enterprises [232 Taxman 452] allowed the claim for interest u/s.24(b) of the Act. Copy of the order is placed on record.
Ld. DR vehemently supported the order of the Assessing Officer.
We have heard the rival submissions perused the orders of the Authorities below and the order of the Coordinate Bench and find that the issue in appeal is squarely covered by the decision of the Tribunal in
6 ITA.Nos. 1642 & 1643/MUM/2016 M/s. Siroya Holdings assessee’s own case for the Assessment year 2010-11 wherein the claim
for interest expenses u/s. 24(b) was allowed observing as under:
“4. The assessee-firm owns a property called ‘’Siroya Centre’ in Andheri(E), Mumbai. This property was let out to M/s.Aditya Birla Retails Ltd., for annual rent of Rs.8,40,84,000/-. While computing income from house property, the assessee has claimed interest u/s 24(b) of Rs.19,64,857/-. The AO noted that the assessee paid interest of Rs.4,70,909/- on loans from outsiders and balance interest of Rs.93,53,377/- was paid to partners on their capital contribution. Accordingly AO has restricted the claim of interest us 24(b) to Rs.94,182/- out of the total amount of Rs.19,64,857/- claimed by the assessee. The claim of the assessee was denied by the AO on the ground that the amount of interest paid on capital contribution by the partners could not be taken into consideration for the purpose of computation of interest to be deducted u/s 24(b) of the Act. The assessee challenged the action of the AO before the CIT(A) but could not succeed.
Before us, ld. AR of the assessee has submitted that as per the Partnership Deed dated 1/4/2002, partners capital was increased to Rs.4,50,000/- which was taken as partners fixed capital. He has referred to clauses 7 & 8 of the Partnership Deed and submitted that the Partnership Deed permits payment of interest at the rate of 12% per annum or such other ate as may be mutually agreed upon or at such rate not exceeding the rate as may be prescribed by the IT Act or other statutory provision shall be payable on the amount standing to the credit of capital account, loan account or current account of the partners from time to time. He has pointed out that apart from fixed capital of the partners, the current account capital of the partners stood at Rs.3,82,33,742/- on which interest is paid at the rate of 12% as per clause 8 of the Partnership Deed. Thus when there is no bar on payment of interest on capital borrowed from the partner to be claimed as deduction while computing income from house property, then the claim of the assessee u/s 24(b) cannot be rejected. In support of his contention, he has relied upon the decision of this Tribunal dated 16/5/2012 in the case of M/s.Sane & Doshi Enterprises vs. ACIT in ITA No.6532/Mum/2010 which has been upheld by the Hon'ble jurisdictional High Court vide judgment dated 9/4/2015 reported in 232 Taxman 452. Thus the learned AR of the assessee submitted that the issue is covered in favour of the assessee.
On the other hand, learned Departmental Representative has relied upon the orders of the authorities below and submitted that interest paid by the assessee to its partners cannot be treated as expenditure for the purpose of section 24(b) of the Act.
We have considered the rival submissions as well as relevant material on record. At the outset, we note that as per the balance-sheet as on 31/3/2009, fixed capital contribution of partners stands at Rs.4,50,000/- and partner’s capital account balance is at Rs.3,82,33,742/-. Therefore, the current capital balance of the partner is over and above the fixed capital contribution of the capital. There is no dispute that as per Partnership Deed dated 1/4/2002, payment of interest at the rate of 12% per annum on the amount standing to the credit of the capital account,
7 ITA.Nos. 1642 & 1643/MUM/2016 M/s. Siroya Holdings loan account or current accounts of the partners is provided under clause 8 which reads as under:
“8. Simple interest at the rate of 12% per annum or at such other rate as may be mutually agreed upon or at such rate not exceeding rate as may be prescribed by the Income Tax Act or such other statutory modifications or re-enactment thereof as may be in force from time to time, shall be payable on the amounts standing to the credit of Capital Account, Loan Accounts or Current Accounts of the Partners from time to time”
Thus, it is a case where partners have contributed the said amount of Rs.3,82,33,742/- over and above their fixed capital contribution and therefore the payment of interest by the firm to the partners is an allowable expenditure if the said amount is used for acquisition or improvement of the house property in question as per provisions of sec.24(b) of the IT Act. An identical issue has been considered by the co-ordinate bench of this Tribunal in the case of M/s.Sane & Doshe Enterprises (supra) in paragraph 4 as under:
“4. We have heard the arguments of both the sides and also perused the relevant material on record. Although the learned DR has strongly supported the impugned order of the learned CIT(Appeals) confirming the disallowance made by the AO on account of assessee's claim for deduction u/s 24(b) for interest paid on partners' capital account by relying on the various reasons given in the impugned order, the learned counsel for the assessee has filed a written submission to meet satisfactorily each and every point raised by the learned CIT(Appeals) while confirming the disallowance made by the AO on account of assessee's claim for deduction u/s 24(b). Moreover, as rightly submitted by the learned counsel for the assessee, a similar issue involved in the immediately preceding year i.e. assessment year 2006-07 was decided by the learned CIT(Appeals) in favour of the assessee in the similar facts and circumstances and the said decision of learned CIT(Appeals)d giving relief to the assessee has been upheld by the Tribunal vide its order dated 20111 April, 2010 passed in ITA No. 3216/Mum/2009. As held by the Tribunal in the said order, the entire interest paid on the partners' capital was related to the premises which were let out by the assessee and the same, therefore, was allowable as deduction u/s 24(b) while computing income of the assessee under the head "Income from house property". Respectfully following the said decision of the Tribunal in assessee's own case for assessment year 2006-07, we direct the AO to allow the claim of the assessee for deduction on account of interest paid on partners' capital u/s 24(b).”
This order of the Tribunal has been upheld by the Hon'ble jurisdictional High Court reported in 232 Taxman 452 in paragraphs 40 to 42 as under:
“40. While carrying the matter to the Tribunal, the assessee specifically urged that the Commissioner erred in rejecting his
8 ITA.Nos. 1642 & 1643/MUM/2016 M/s. Siroya Holdings claim without appreciating the fact that interest is paid to partners on the amount contributed by them and the said amounts in this case had been utilised for the purpose of construction of the property from which the appellant had earned the rental income (ground No.2). It is in relation to this ground that the Tribunal held in paragraph 4 as under:
"4. We have heard the arguments of both sides and also perused the relevant material on record. Although the learned DR has strongly supported the impugned order of the learned CIT(Appeals) confirming the disallowance made by the AO on account of the assessee's claim for deduction u/s 24(b) for interest paid on partners' capital account by relying on the various reasons given in the impugned order, the learned counsel for the assessee has filed a written submission to meet satisfactorily each and every point raised by the learned CIT(Appeals) while confirming the disallowance made by the AO on account of assessee's claim for deduction u/s 24(b). Moreover, as rightly submitted by the learned counsel for the assessee, a similar issue involved in the immediately preceding year i .e, assessment year 2006-07 was decided by the learned CIT(Appeals) in favour of the assessee in the similar facts and circumstances and the said decision of learned CIT(Appeals) giving relief to the assessee has been upheld by the Tribunal vide its order dated 20th April, 2010 passed in ITA No. 3216/Mum/2009. As held by the Tribunal in the said order, the entire interest paid on the partners' capital was related to the premises which were let out by the assessee and the same, therefore, was allowable as deduction u/s 24(b) while computing income of the assessee under the head Income from house property". Respectfully following the said decision of the Tribunal in assessee's own case for assessment year 2006-07, we direct the AO to allow the claim of the assessee for deduction on account of interest paid on partners' capital u/s 24(b)."
The Tribunal held that if a similar issue was involved in the immediately preceding assessment year 2006-07 and there a finding was rendered in favour of the assessee by the Commissioner (Appeals), then, it was not possible to take a different view particularly because that finding of the Commissioner was upheld by the Tribunal by its order dated 20th April, 2010. If the facts and circumstances in which the claim arose were identical, then, the Tribunal concluded that a different view on facts was impossible.
We do not think that any larger question or wider controversy needs to be determined. If the matter was approached in this angle by the Commissioner and in the same factual backdrop,
9 ITA.Nos. 1642 & 1643/MUM/2016 M/s. Siroya Holdings then, there is no justification for taking a contrary view. If two conflicting views of the Commissioner were placed before the Tribunal and the Tribunal found that it had concurred with one of those views and that the view with which it concurred prevails, then, we do not think how the Revenue can raise this issue. The issue has been considered bearing in mind the typical factual background. If the entire interest paid on the partners' capital was related to the premises which were let out by the assessee but the construction thereof came from the contributions of the partners, then, the interest was due and payable to them. That interest was payable not only in terms of the general principle of partnership and highlighted in the Indian Partnership Act, 1932, but also on the broad consideration under section 24(b) of the Income Tax Act, 1961. If the income is income from house property and that is a deduction which could be granted from the same we do not think that the Revenue should be permitted to raise this ground. Even otherwise, the finding being consistent with the factual position which is not disputed, then all the more even this ground cannot be considered as a substantial question of law. We do not think any reference is required to the detailed written submissions or the case laws in this regard.’’ In view of the facts and circumstances as well as the decision of the this Tribunal in the case of M/s.Sane & Doshe Enterprises (supra) which has been upheld by the Hon'ble jurisdictional High Court, we decide this issue in favour of the assessee and consequently the orders of the authorities below qua this issue are set aside and the claim of the assessee u/s 24(b) is allowed.”
Respectfully following the above decision, we dismiss the ground of
Revenue on this issue.
In the result, appeals of the Revenue are dismissed.
Order pronounced in the open court on the 31st May, 2018.
Sd/- Sd/- (RAJESH KUMAR) (C.N. PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai / Dated 31/05/2017 Giridhar, Sr.PS
10 ITA.Nos. 1642 & 1643/MUM/2016 M/s. Siroya Holdings Copy of the Order forwarded to: 1. The Appellant 2. The Respondent. 3. The CIT(A), Mumbai. 4. CIT 5. DR, ITAT, Mumbai 6. Guard file.
//True Copy// BY ORDER,
(Asstt. Registrar) ITAT, Mum