A.R.FOUNDATIONS P LTD.,CHENNAI vs. DCIT CORPORATE CIRCLE 1(1), CHENNAI

This is an appeal filed by the assessee against the order of the Commissioner of Income-tax (Appeals)-1, Chennai in appeal No.322/CIT(A)-1/2016-17 dated 21.02.2018 for the assessment year 2014-15.

Mr.S.Sridhar represented on behalf of the Assessee, and Mrs.Ruby George represented on behalf of the Revenue.

It was submitted by ld.A.R that the assessee is a company, which is in the business of property developer and real estate. It was a ITA No.924/Chny./2018 :- 2 -: submission that assessee had derived rental income from letting out of its premises to an extent of `16,81,15,215/-. The assessee had also received amenity charges to an extent of `1,99,37,145/-. The rental income received by the assessee had been offered under the head “Income from House Property” and the amenity charges had been offered under the head “Income from business”. It was a submission that the assessee had claimed set off of various expenses against the said business income. In the course of assessment, the ld. Assessing Officer had treated the amenity charges offered by the assessee as a rental income. Further, it was a submission that the ld. Assessing Officer has also held that even assuming that the amenity charges were liable to be held as business income, still the expenditure was liable to be apportioned between the rental income and the amenities income in the ratio 89 : 11. It was a submission that on appeal the Ld.CIT(A) agreed with the assessee that the income from the amenities was liable to be assessed under the head “Income from business”. And no appeal has been preferred by the Revenue.

In reply, ld.D.R vehemently supported the orders of the ld. Assessing Officer and the Ld.CIT(A). It was a submission that the apportionment was liable to be made in so far as business expenditure could not be set off of against rental income.

We have considered the rival submissions. Admittedly, the assessee is a company. The business of the assessee-company is real ITA No.924/Chny./2018 :- 4 -: estate and development. The business of the assessee being putting up of buildings, selling them, or leasing them out, as the business requires. The income from such business is assessed under the specified five heads of income under the Income Tax Act, 1961. Just because the income earned by the assessee from its business of leasing out of buildings is assessed under the head “Income from House Property”, it would not mean that the business expenses of the assessee-company would not be allowable. The statutory expenditure incurred by the assessee for maintenance of status as a company, admittedly is expenditure, which is liable to be allowed. Thus, the employee’s benefit expenses under schedule-19, is admittedly allowable expenditure and cannot be apportioned. In respect of Schedule-20, being Finance Cost, the same being in respect of the interest paid to the Bank and also the banking charges, being for the business of the assessee is an allowable expenditure. Coming to other expenses, the assessee itself in its computation of total income has claimed the rates and taxes in respect of the property, when computing the income from the house property. The computation of total income clearly shows that the assessee has not claimed depreciation in respect of the leased out property. The income derived from letting out activity has been offered and assessed under the head “Income from House Property” by the assessee. This being so, perusal ITA No.924/Chny./2018 :- 5 -: of the statement of total income as filed by the assessee along with the return, clearly shows that it is only the expenditure in relation to the earning of the income from the amenities and the statutory expenditure in relation to the assessee-company, which are being claimed by the assessee. The Revenue has not been able to point out any of the expenses, which have been claimed by the assessee against the income from the amenities, which is liable to be apportioned. The apportionment done by the Assessing Officer is also not specific. This being so, we are of the view that the apportionment of the expenditure as done by the ld. Assessing Officer is unsustainable and consequently, we delete the same.

In the result, the appeal of the assessee is allowed.