D.C.I.T CIR - 6,KOLKATA., KOLKATA vs. M/S TURNER MORRISON LTD., KOLKATA

The common issues involved in Grounds No. 1 & 2 of the Revenue’s appeal as well as Grounds No. 1 & 2 of the assessee’s appeal relate to the treatment given by the ld. CIT(Appeals) to the income received by the assessee from service charges relating to house property as business income and allowing substantial expenses claimed by the assessee against the said income.

The assessee in the present case is a Company, which was the owner of two buildings at 6, Lions Range, Kolkata and at 16, Bank Street, Mumbai. The space available in the said buildings had been given on rent by the assessee-company to different tenants and the rental income received during the year under consideration amounting to Rs.5,49,40,017/- after claiming deductions on account of Corporation Tax and standard deduction was offered to tax under the head “income from house property”. The assessee-company had rendered certain services to the tenants and the gross receipts from service and maintenance charges amounting to Rs.90,38,482/- were declared by the assessee under the head “profits and gains of business or profession”. Against the said receipts, substantial expenses were claimed by the assessee resulting into business loss of Rs.3,21,29,852/- and after adjusting the same against the income from house property, the total income of Rs.1,28,10,165/- was declared by the assessee in the revised return of income filed for the year under consideration on 30.03.2010. During the course of assessment proceedings, the assessee was required by the Assessing Officer to explain as to why the service and maintenance charges should not be assessed to tax under the head “income from house property”. In this regard, the assessee was also required by the Assessing Officer to file the copy of any agreement or other documents by which it was required to render various services. The assessee, however, failed to offer any

The action of the Assessing Officer in treating its income from service and maintenance charges as income from house property and disallowing the entire expenses claimed as business expenses was challenged by the assessee in the appeal filed before the ld. CIT(Appeals) and after considering the submissions made by the assessee and material available on record including the case laws cited on behalf of the assessee, the ld. CIT(Appeals) held that the service and maintenance charges received by the assessee from tenants were chargeable to tax as its business income for the following reasons given in paragraph no. 8 to 10 of his impugned order:- “8.The appellant is providing the service of electricity back up on charges to some tenants and supplying electricity to other common areas, power back-up for which the money is charged as per the consumption from the tenants; elevator

The issue relating to claim of the assessee for deduction on account of business expenses under various heads was decided by the ld. CIT(Appeal) vide paragraphs no. 13 to 18 of his impugned order, which read as under:- “13. The appellant has not been able to find any trading accounting for any business being carried out by it. But, on the other hand, there is a huge personal expenses amounting to RS.1,46,30,000/-; travelling & conveyance of Rs.5,54,000/-; vehicles maintenance of RS.8,56,000/-; communication expenses of Rs.4,72,000/-; printing & stationary of Rs.2,21,000/-; miscellaneous expenses of Rs.6,04,000/-. Out of the various expenses, the following expenses are considered essential for the running of the company:- Sl. No. Particulars Amount (in Rs.) 1. Power & fuel 66,92,000

The claim of the assessee for various business expenses thus was allowed by the ld. CIT(Appeals) to the extent of Rs.2,71,35,600/-. Aggrieved by the same, the Revenue and assessee both have raised the following grounds in their respective appeals:- Revenue’s appeal (1) Whether on the facts and circumstances of the case, ld. CIT(A) erred in law in holding that income received in respect of service charges related to house property is to be treated as business income as against house property income. (2) Whether on the facts and circumstances of the case, ld. CIT(A) erred in law in deleting the addition made by AO

The ld. D.R. submitted that the maintenance and other services rendered by the assessee to the tenants were incidental to main activity of letting out the property and the same were thus in the nature of ancillary services to the letting out of house property. He contended that the said charges were declared by the assessee as its business income and disproportionate expenses of about Rs.4 crores were claimed against the said income. He invited our attention to the specific adverse observations and findings recorded by the Assessing Officer in the assessment order to point out and highlight the excessive and unreasonable expenses claimed by the assessee-company as its business expenses. He contended that even though the assessee-company was claimed to be engaged in carrying out other business activities, there was no evidence filed by the assessee to support and substantiate the said claim. He contended that there was no income whatsoever earned by the assessee from such activities claimed to be carried out by it. He contended that the ld. CIT(Appeals),

The ld. Counsel for the assessee, on the other hand, submitted that the ld. D.R. has not raised any material contention to dispute or challenge the conclusion drawn by the ld. CIT(Appeals) while treating the service and maintenance charges as assessable to tax under the head “profit and gains of business or profession”. He submitted that the main grievance of the Revenue as projected by the ld. D.R. in his argument is regarding the claim of the assessee for the expenses claimed under various heads, which have been allowed by the ld. CIT(Appeals) substantially. He contended that the assessee was engaged in carrying out various business activities in earlier years and even though there was a temporary lull in the business during the year under consideration, the assessee-company continued to carry on the said activities in the subsequent years and also started some new activities. He contended that the assessee-company thus had not gone out of business and it was a suspension of such business activities temporarily due to lull in the business. He submitted that the assessee-company, therefore, continued to employ its work source and maintain its corporate status as going concern. He contended that the entire facts and circumstances of the case need to be taken into consideration while deciding this issue. In support of his contention, ld. Counsel for the assessee relied on the following judicial pronouncements- (i) Lakshmi Naryan Board Mills Pvt. Ltd. –vs.- CIT 205 ITR 88 (Calcutta High Court);

In the rejoinder, ld. D.R. contended that the claim of the assessee of other business activities as made by the ld. Counsel for the assessee is very vague and it is not clear. He contended that it is not clear as to what exactly was the main business of the assessee and how the various other activities claimed to be carried on constituted a composite business. He contended that there is no evidence brought on record by the assessee to show the existence of any other business activities and there is also no income that is shown by the assessee from the said business. He contended that the assessee has also failed to establish any nexus between the various expenses claimed by it and the business activity for which the same were incurred.

We have considered the rival submissions and also perused the relevant material available on record. In our opinion, the first and foremost issue that is required to be considered and decided in the present context is regarding the head of income under which the service and maintenance charges received by the assessee are chargeable to tax. The Assessing Officer held the said receipts as income from house property while the ld. CIT(Appeals) treated the same as business income as claimed by the assessee. It is observed that the total service and maintenance charges of Rs.90,38,482/- were received by the assessee during the year under consideration and the details of the same are given at page no. 223 of the assessee’s paper book.

A perusal of the above details clearly shows that out of Rs.90,38,482/- received by the assessee towards service and maintenance charges, a sum of Rs.71,25,442/- was received on account of recovery of electric charges. This amount, which constitutes about 80% of the total service and maintenance charges, appears to be recovery made by the assessee from the tenants towards common electric charges and we are

As regards the alternative claim of the ld. Counsel for the assessee that the assessee-company was engaged in other business activities during the earlier years and there was only temporarily suspension of the said activities during the year under consideration due to lull in the business, we find that this aspect has not been specifically considered either by the Assessing Officer or even by the ld. CIT(Appeals). Even the claim of the ld. Counsel for the assessee of a composite nature of business activities carried on by the assessee by relying on the decision of the Hon’ble Supreme Court in the case of Veecumsees (supra) as well as that of the Hon’ble Calcutta High Court in the case of Lakshmi Naryan Board Mills Pvt. Ltd. (supra), we find that the same has not been considered or examined either by the Assessing Officer or by the ld. CIT(Appeals). We, therefore, consider it fair and proper and in the interest of justice to send this matter to the file of the Assessing Officer for considering the same afresh. Since the issue relating to the claim of the assessee for various business expenses is consequential to this issue, we restore the issue also

In Ground No. 3 of its appeal, the Revenue has challenged the action of the ld. CIT(Appeals) in deleting the addition made by the Assessing Officer in respect of deemed rental income from the property at Qutub Institutional area, New Delhi.

In the balance-sheet filed along with the return of income, the investment in building at Qutub Institutional area, New Delhi was shown by the assessee at Rs.19,14,09,000/-. In this regard, it was explained by the assessee before the Assessing Officer that the said building had come to its balance-sheet as a result of merger of TMLL w.e.f. 01.04.2008 and since the said building was sealed by the Municipal Corporation of Delhi, no income from the same on deemed basis was declared for the year under consideration. This explanation of the assessee was not found acceptable by the Assessing Officer. According to him, the said building was sealed by the Municipal Corporation only on 14.10.2011 and, therefore, annual value of the same was liable to be taxed as house property income in the hands of the assessee under section 23(1)(c) of the Act. Accordingly, notional rent from the said property calculated at the rate of 6% of Rs.19,14,09,000/- was worked out by the Assessing

The addition of Rs.80,39,178/- on account of deemed rental income from the building at Qutub Institutional area as made by the Assessing Officer was challenged by the assessee in the appeal filed before the ld. CIT(Appeals) and after considering the submissions made by the assessee as well as the material available on record, the ld. CIT(Appeals) deleted the same for the following reasons given in paragraph no. 21 of his impugned order:- “21. I have carefully considered the observations of the Assessing Officer in the assessment order, and submissions of the appellant. The appellant has produced a copy of the Writ Petition filed in the Hon'ble Delhi High Court relating to sealing of the property in which it is clear that the building was sealed on 14/11/2006 in the sealing drive undertaken by Municipal Corporation of Delhi. Therefore, the appellant was prevented by sufficient cause not to let out this property. Therefore, the Notional Income from the said property lying vacant due to Act of Government cannot be added back. Hence, addition of Rs.80,39,178/- is deleted”.

We have heard the arguments of both the sides on this issue and also perused the relevant material available on record. The ld. D.R. has contended that the relief on this issue was allowed by the ld. CIT(Appeals) by relying on the copy of Writ Petition filed by the assessee for the first time before him, wherein the date of sealing of the property by Delhi Municipal Corporation was mentioned at 14.11.2006 as against the date of 14.11.2011 taken by the Assessing Officer. He has contended that the ld. CIT(Appeals), however, did not give any opportunity to the Assessing Officer to verify this additional evidence in the form of copy of Writ Petition filed by the assessee before giving relief to the assessee on this issue and there is thus a violation of Rule 46A of Income Tax Rules by the ld. CIT(Appeals). The ld. Counsel for the assessee, on the other hand, has submitted that the date of sealing of the property being 14.11.2006

In Ground No. 4, the Revenue has challenged the action of the ld. CIT(Appeals) in deleting the addition made by the Assessing Officer in respect of deemed rental income from the property at Silver Arch Apartments.

In the balance-sheet filed along with the return of income, a sum of Rs.2,35,00,000/- was shown by the assessee as advance received against sale of apartment in Delhi. In this regard, it was explained by the assessee before the Assessing Officer that the said advance was received from one Mrs. Bindia Jain against sale of apartment at 506, 5th Silver Arch, New Delhi and although there was an agreement to sell the said flat for a consideration of Rs.2,51,72,384/-, no conveyance could be executed due to some dispute. According to the Assessing Officer, the assessee thus remained the owner in possession of the said property and annual value of the same was chargeable to tax in the hands of the assessee. He accordingly worked out the notional rental income of the said property at Rs.15,10,343/- at the rate of 6% of Rs.2,51,72,384/- and after allowing deduction of 30%, addition of Rs.10,57,240/- was made by him to the total income of the assessee under the head “income from house property”.

We have heard the arguments of both the sides on this issue and also perused the relevant material available on record. The ld. D.R. has submitted that the relief on this issue was given by the ld. CIT(Appeals) on the ground that major consideration for the flat was received by the assessee and possession of the same was also handed over. He has pointed out that the possession of the said flat was handed over by the assessee to Mrs. Bindia Jain only on 01.12.2010 and since the assessee was very much in possession of the said property during the year under consideration, the notional rental income of the same was chargeable to tax in the hands of the assessee under section 23(1)(a) as rightly held by the Assessing Officer. The ld. Counsel for the assessee, on the other hand, has submitted that the assessee had agreed to sell the property in question and 90% of the payment was already received by it from the purchaser Mrs. Bindia Jain. He has contended that even though the possession of the property was given on 01.12.2010 after receipt of the

After considering the rival submissions and perusing the relevant material available on record, we find it difficult to uphold the impugned order of the ld. CIT(Appeals) on this issue. It is observed that although substantial payment against the consideration for sale of the property in question was received by the assessee from Mrs. Bindia Jain, the possession of the property was not handed over by the assessee to the purchaser during the year under consideration and the same was handed over only on 01.12.2010. The ld. CIT(Appeals), in our opinion, therefore, was not justified in deleting the addition made by the Assessing Officer on this issue on the wrong presumption that the possession of the property was already handed over. As rightly contended by the ld. D.R., the possession of the property remained with the assessee during the year under consideration and the assessee being the owner in possession of the property, the notional rental income from the same was chargeable to tax in the hands of the assessee under section 23(1)(a) as rightly held by the Assessing Officer. Even the decision of the Hon’ble Supreme Court in the case of S.N. Wadiyar (Decd. through L.R.) (supra), cited by the ld. Counsel for the assessee is of no help to the assessee on this issue as the same is distinguishable on facts and the issue involved the same therein is found to be different. We, therefore, set aside the impugned order of the ld. CIT(Appeals) giving relief to the assessee on this issue and restore that of the Assessing Officer. Ground No. 4 of the revenue’s appeal is accordingly allowed.

In the balance sheet filed along with return of income, loans of Rs.99,00,000/- and Rs.1,15,00,000/- received from Devbhoomi Awas Limited and M/s. Arcus Limited were shown by the assessee-company. According to the Assessing Officer, the provisions of section 2(22)(e) were squarely applicable in respect of the said loans received by the assessee-company from the related parties and accordingly by invoking the said provisions, he made an addition of Rs.2,14,00,000/- to the total income of the assessee on account of deemed dividend. On appeal, the ld. CIT(Appeals) deleted the said addition made by the Assessing Officer under section 2(22)(e) after having found that both the loans in question had been taken by the TMLL in the earlier years and the same were transferred to the assessee-company as a result of merger of TMLL with the assessee-company. He held that the provisions of section 2(22)(e), therefore, were not applicable in respect of the said loans.

We have heard the arguments of both the sides on this issue and also perused the relevant material available on record. It is observed that the addition made by the Assessing Officer under section 2(22)(e) in respect of loans received from Devbhoomi Awas Limited and M/s. Arcus Limited by treating the same as deemed dividend under section 2(22)(e) are deleted by the ld. CIT(Appeals) after having found that the said loans had been taken by Turner Morrison Land Limited (TMLL) in the earlier years and the same were transferred to the assessee-company as a result of merger of TMLL with the assessee-company. He also found that the assessee-company was not the shareholder of both these companies when the loans in question were actually received. At the time of hearing before us, the ld. D.R. has not been able to bring anything on record to

As regards the issue involved in Ground No. 7 of the Revenue’s appeal relating to the deletion by the ld. CIT(Appeals) of the addition made by the Assessing Officer on the basis of ITS data, it is observed that the difference in relevant ITS data as noted by the Assessing Officer was reconciled by the assessee during the course of appellate proceedings before the ld. CIT(Appeals) and after considering the same, the ld. CIT(Appeals) directed the assessee to produce all the relevant details in support of the reconciliation for verification before the Assessing Officer. Keeping in view this opportunity given by the ld. CIT(Appeals) to the Assessing Officer to verify the reconciliation prepared and furnished by the assessee from the relevant details and documents, we are of the view that the revenue cannot be said to have any grievance from the order of the ld. CIT(Appeals) on this issue. Even the ld. D.R. has not raised any argument on this issue. We, therefore, find no merit in Ground No. 7 of the Revenue’s appeal and dismiss the same.

The common issue involved in Grounds No. 3 to 5 of the assessee’s appeal relates to the action of the ld. CIT(Appeals) in confirming the disallowance of Rs.30,90,656/- made by the Assessing Officer under section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 and further enhancement of the same by Rs.16,84,057/-.

As noticed by the Assessing Officer from the balance-sheet, the assessee-company it had made substantial investment in shares of other companies. He also found that substantial expenditure on interest was incurred by the assessee during the year under consideration. He,

We have heard the arguments of both the sides on this issue and also perused the relevant material available on record. As agreed by the ld. Representatives of both the sides, this issue is squarely covered in favour of the assessee by various judicial pronouncements including the decision of the Hon’ble Delhi High Court in the case of Cheminvest Limited [78 ITR 033], wherein, while overruling the decision of the Special Bench of ITAT at Delhi, it was held that no disallowance under section 14A can be made if there is no exempt income actually received by the assessee in the relevant year. We accordingly delete the disallowance made by the Assessing Officer and enhanced by the ld. CIT(Appeals) under section 14A read with Rule 8D and allow Grounds No. 3 to 5 of the assessee’s appeal.