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Income Tax Appellate Tribunal, “SMC” BENCH : KOLKATA
Before: Hon’ble Shri J.Sudhakar Reddy, AM]
This is an appeal filed by the assessee directed against the order of the Commissioner of Income Tax (Appeals)-2, Kolkata dated 11.05.2018 for the assessment year 2013-14 passed u/s 250 of the Income Tax Act, 1961 (in short the Act).
The assessee is a company and has filed its return of income for the assessment year 2013-14 electronically on 21.09.2013.
The fact relating to the issue that is to be adjudicated by me in ground nos. 1 and 2 are stated by the Assessing Officer at page 2.8 which is extracted for ready reference:
Accordion Properties Pvt. Ltd. A.Yr.2013-14 “(A) INCOME FROM HOUSE PROPERTY The assessee is the owner of a building (flat) at 9a, Bally High, 1, Ballygunge Park Road, Kolkata-700019 and earning rental income by let out a portion of such property but and computed the same under the head ‘Income from Business or Profession’. Therefore, considering the facts, the said income is computed as income from house property and the assessee is entitled to get deductions under section 24 only and the assessee is not entitled to get any other deduction in respect of that as per provision of the Act. Considering the same the following expenditure should be disallowed under the head of ‘income from Business or Profession’. Those are- i) Corporation Tax : Rs. 39,852/- ii) Maintenance Expenses : Rs. 69,600/- iii) Depreciation : Rs. 90,971/- iv) Service Tax and other charges : Rs. 11,272/- (related to building only) Total amount to be disallowed is Rs. 2,11,695/-.”
The second issue that arises in this appeal is on the time of disallowance u/s 14A of the Act. The third issue is with regard to a disallowance made u/s 40a(ia) of the Act for non-deduction of tax at source. The ld. CIT(A) uphold the order of the assessing officer on all these issues. Aggrieved the assessee is in appeal before us.
The ld. Counsel for the assessee Shri P.J. Bhide submitted that the assessee company is a owner of a flat at 9A, Bally High, 1, Ballygunge Park Road, Kolkata-700019. He submits that the company allowed its own director to use a portion of this flat for the purposes of the director’s personal business. The portion by the directors for which rent was charged is used, admittedly a “common area” in the residential flats. An amount of Rs. 16,000/- per month was charged from the directors towards rent for the use of a common area. The ld. Counsel for the assessee relies on a number of case laws for the proposition that the rent in question is assessable under the head “Income from business” and not under the head “Income from house property”. The ld. DR relies on the order of the assessing officer as well as ld. CIT(A). 2
Accordion Properties Pvt. Ltd. A.Yr.2013-14
I find that, what is let out is the “common area” of the residential flats complex in question. Common area generally belongs to the owners’ association and it cannot be under exclusive ownership to the assessee company as such. We are not on the issue as to whether anybody can rent out common areas in a residential flats complex. The issues are, under which head of income the rent in question is taxable, as the assessee cannot be said to be the exclusive owner of the common area. The rent received from letting out such area of which the assessee is not the exclusive owner, in my view is not taxable under the head “Income from house property”. As letting out of the common area of a residential complex cannot be the business of the assessee, the rent cannot be taxed under the head “Income from business”. I hold that the income in question should be taxed under the head income from other sources. Accordingly, ground nos. 1 and 2 is allowed in part.
Ground no. 3 is against the disallowance u/s 14A of the Act. The dividend income earned by the assessee during the year, which is claimed as exempt is Rs. 10,800/-. The disallowance made u/s 14A was Rs. 1,02,863/- and Rs. 920/- . The disallowance in question cannot be made in excess of the exempt income earned, in view of the judgment of the Hon’ble Delhi High Court in the case of Joint Investment Pvt. Ltd. vs. CIT order dated 25.02.2015. Hence I restrict the disallowance in question to Rs. 10,800/- only. Accordingly, ground no. 3 is allowed in part.
Ground no. 4 is of the disallowance u/s 40a(ia) of the Act. The assessee submits that this is a case of reimbursement of expenditure. The ld. CIT(A) held that the assessee has not produced any evidence to suggest that the payment in question was 3
Accordion Properties Pvt. Ltd. A.Yr.2013-14 reimbursement of expenditure of M/s Sharma Kajaria & Co.. The assessee furnishes copy of the bill raised by the Advocates which demonstrates that amount in question was paid towards “Court Fee” and “Stamp Duty”. This payment does not require any deduction of tax at source. Hence, I delete the disallowance and allow this ground of the assessee.
In the result, the appeal of the assessee is allowed in part.
Order pronounced in the Court on 28 .11.2018
Sd/- [ J.Sudhakar Reddy] Accountant Member Dated : 28.11.2018 SB, Sr. PS Copy of the order forwarded to:
1. 1. Accordion Properties Pvt. Ltd., 12, Pretoria Street, 5th Floor, Kolkata-700071.
2. DCIT, Circle-4(2), P-7, Chowringhee Square, Aayakar Bhawan, 4th Floor, Kolkata-700069. 3..C.I.T.(A)- , Kolkata 4. C.I.T.- Kolkata.
5. CIT(DR), Kolkata Benches, Kolkata.