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Income Tax Appellate Tribunal, KOLKATA BENCH “B” KOLKATA
Before: Shri S.S.Godara & Dr. A.L. Saini
आयकर अपील�य अधीकरण, �यायपीठ – “B” कोलकाता, IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH “B” KOLKATA Before Shri S.S.Godara, Judicial Member and Dr. A.L. Saini, Accountant Member ITA No.961/Kol/2017 Assessment Year :2012-13 ACIT Circle-15(1), V/s. M/s Deva Lease and Aayaka Bhawan,Poorva Finance Pvt. Ltd., 1A, 110, Shantipally, Kolkta- K.B.R. Complex, 4, Ho- 107 Chi-Min Sarani, Kolkata-71 [PAN No.AABCD 7839 E] .. अपीलाथ� /Appellant ��यथ�/Respondent C.O. No.54/Kol/2017 (a/o ITA No.961/Kol/2017) Assessment Year :2012-13 M/s Deva Lease and V/s. ACIT, Circle-15(1), Finance Pvt. Ltd., 1A, Aaykar Bhavan, Poorva, K.B.R. Complex, 4, Ho- 110, Shantipally, Chi-Min Sarani, Kolkata- Kolakta-107 71 [PAN No.AABCD 7839 E] .. �तया�ेपक/Co-objector ��यथ�/Respondent
Shri Dev Kumar Kothari, FCA आवेदक क� ओर से/By Assessee Shri S. Dasgsupta, Addl. CIT-DR राज व क� ओर से/By Revenue 29-05-2018 सुनवाई क� तार�ख/Date of Hearing 31-05-2018 घोषणा क� तार�ख/Date of Pronouncement आदेश /O R D E R PER S.S.Godara, Judicial Member:- This Revenue’s appeal and assessee’s Cross Objection for assessment year 2012-13 arise against the Commissioner of Income Tax (Appeals)-16, Kolkata’s order dated 23.03.2017 in case No.837/CIT(A)-16/Kol/2015-16/C-
ITA No.961/Kol/2017 & CO 54/Kol/2017 A.Y. 2012-13 ACIT Cir-15(1), Kol. Vs. M/s Deva Lease and Finance Pvt. Ltd. Page 2 15(1), involving proceedings u/s 143(3) of the Income Tax Act, 1961; in short ‘the Act’. Heard both the parties. Case file perused.
We come to Revenue’s appeal ITA 961/Kol/2017. Its first and foremost substantive ground seeks to revive u/s 14A r.w 8D disallowance of ₹14,04,497/- in relation to assessee’s exempt dividend income of ₹4,69,052/- derived in the relevant previous year. The Assessing Officer appears to have computed the impugned disallowance in the nature of direct expenses, proportionate interest and administrative expenditure under Rule 8D(1)(i) to (iii) involving sums of ₹16,257/- paid towards security transaction tax, ₹11,17,790/- and ₹2,17,750/-; respectively totalling to ₹14,04,797/- in question.
The assessee preferred appeal. Its first plea during the course of lower appellate proceeding was on merits that the impugned disallowance was not sustainable. It then raise an alternative argument that Section 14A of the Act would not apply as its dividends (supra) had already been subjected to Dividend Distribution Tax u/s 115-O. The CIT(A) accepts its latter argument to conclude that the impugned disallowance provision would not come into play since the dividend income had already been subjected to tax u/s 115-O of the Act. We do not see the CIT(A)’s adjudication on merits.
Mr. Dasgupta vehemently contends during the course of hearing that the CIT(A) has erred in law as well as on facts in excluding operation of Section 14A r.w. 8D of the Income Tax Rule, 1962 by holding that the same is not attracted in case the assessee’s corresponding dividend income is subjected to Dividend Distribution Tax. The assessee on the other hand strongly supports the CIT(A)’s findings under challenge. It seeks to repeat the fact that the impugned dividend income had been assessed to tax; although at a lesser rate, u/s 115-O of the Act. We do not see any merit in assessee’s
ITA No.961/Kol/2017 & CO 54/Kol/2017 A.Y. 2012-13 ACIT Cir-15(1), Kol. Vs. M/s Deva Lease and Finance Pvt. Ltd. Page 3 instant argument. Hon'ble apex court’s recent decision in Godrej & Boyce Manufacturing Company Ltd vs. DCIT (2017) 394 ITR 44( (SC) has decided the very issue in Revenue’s favour as raised is in para-9(a) page 456 rejected in para-34 page 470 thereof. We thus accept Revenue’s arguments qua this former substantive ground in principle.
We notice at this stage that assessee’s Cross Objection CO 54/Kol/2017 raises its latter substantive ground in seeking to restrict impugned disallowance @ 1% of the impugned dividend income. We are unable to accept the same since the disallowance in question has to be computed as per prescribed formula under Rule 8D of Income Tax Rules w.e.f AY 2008-09. The assessee’s instant plea is therefore rejected.
Next question that arises for our apt adjudication relates to computation of the impugned disallowance. There is no material on record which could dispute that assessee has paid security transaction tax of ₹16,257/- in the nature of direct expenditure to be disallowed under Rule 8D(2)(i) of Income Tax Rule. The same is accordingly confirmed. Now comes proportionate interest expenditure disallowance of ₹11,70,790/-. We notice from the case records that assessee had derived interest income of ₹1.12 crores as against interest expenditure of ₹64.10 lakhs. We quote hon'ble Gujarat high court’s decision in DCIT vs. Nirma Credit and Capital Pvt Ltd. (2018) 300 CTR 286 (Guj) holding that such a disallowance is not sustainable in case of net surplus interest income based on netting method. The impugned disallowance of ₹11,70,790/- is therefore held to be not sustainable. This leaves us with the third component of impugned disallowance in the nature of administrative expenditure. The Assessing Officer had computed the same to the tune of ₹2,17,750/- by taking average value of investment as ₹435,14,946/-. The assessee’s written submissions filed during the course of lower appellate proceedings clarified the same to be involving actual figure of ₹352,70,455/-. This latter figure has gone unrebutted at the Revenue’s behest before us. The
ITA No.961/Kol/2017 & CO 54/Kol/2017 A.Y. 2012-13 ACIT Cir-15(1), Kol. Vs. M/s Deva Lease and Finance Pvt. Ltd. Page 4 said figure of ₹352,70,455/- taken as average value of opening and closing value of investments leads to administrative expenditure disallowance of ₹1,76,352/- only as against that of ₹2,17,750/- taken in the course of assessment. We therefore modify the instant disallowance figure to ₹1,76,352/- only. The Revenue’s former substantive ground succeeds in part as we direct the Assessing Officer to disallow an amount of ₹1,92,609/- in place of ₹14,04,797/- in view of our foregoing discussion.
The Revenue’s latter substantive ground challenges correctness of CIT(A)’s directions issued to the Assessing Officer to treat the amount in question of ₹147,27,864/- as income from house property than from “other” sources by way of the following detailed discussion:- “Second issue regarding income form house property: Ground no. 8 reads as follows: That the learned AO erred in treating the Income from House Property amounting to Rs.1,47,27,864/- as income from other sources and disallowing statutory deduction of Rs.43,82,359/-u/s 24 of the IT Act. The company had rent income from the same property in earlier years as well wherein the AO had accepted it as income form House property. Additional grounds c and d filed are as follows: For that in case any part of rental income is not considered as ’income falling under head ‘income form house property’, then rental income from property owned and let out, may be directed to be assessed as business income. In case any part of rental income from house property owned and let out is considered as income from business or as ‘income from other sources’, then allowable deduction of expenditure and depreciation on cost of building (construction portion) may kindly be allowed. The company is the owner of two immovable properties, both of which were given of rent as under duly disclosed in the return of income. a) Salt Lake property at an annual rent of Rs.146.07 lakhs b) Commercial property at an annual rent of Rs.1.20 lakhs. Facts and submissions are summarize below: Salt Lake property: assessee company had purchased one office space in Block EP and GP, Sector V of Bidhan Nagra vide agreement dated 04.102007 with South City parivar Pvt Lt., Full consideration was paid in earlier years and possession was granted by South City Projects (Kolkata) Ltd on 09.07.2009. Since then assessee is owner of property and has all rights and privileges and obligations in respect of the same as an owner. Therefore, we became the beneficial and bona fide owner of the said property as per meaning u/s. 2(47) of IT Act. There has been complete performance on
ITA No.961/Kol/2017 & CO 54/Kol/2017 A.Y. 2012-13 ACIT Cir-15(1), Kol. Vs. M/s Deva Lease and Finance Pvt. Ltd. Page 5 our part. We have control over property as an owner would have. Registration would be completed as and when possible. In such circumstances we are owner for the purpose of earning rent and assessment of income for rent received. Registration and mutation etc. are time consuming procedures and it is ground reality that registration may take long time due to several reasons applicable in particular case. In our case permission from WEBEL and URBAN Development department of the Government of West Bengal is required. In absence of the same property was not transferred and registered in our name. After getting possession of the office, we have approached Untech wireless Ltd (UNITECH) for leasing the office to them. Due to non-registration in our name, Unitech, as per their policy insisted that the developer should be a party (as legal owner) therefore, we had entered into an agreement authorizing South City to enter into agreement with Unitech (this is an agreement of the nature of agency) dated 30.10.2009 to South City Projects (Kolkata) Ltd to enter into an agreement with Unitech until such time necessary legal approvals are obtained and registration is completed in our name. Therefore, South City was only an agent and a trustee and would reimburse in full all amounts received from Unitech after deducting all costs and expenses including any statutory liability. Tax has been deducted from rent received by us on the basis of rental income u/s 194I. Regarding rent of commercial property Rs.1.20 lakhs, learned AO has not given Assessment Year reason for change of head of income. The AO may be directed to compute income under head house property as in earlier years. In assessment year 2010-11 and 2011-12 rent was assessed under head income from house property as claimed by assessee. It seems that the learned AO had changed head of income to ‘other sources’, however he has not allowed deductions u/s 57(ii), particularly depreciation on cost of construction. He did not provide even any opportunity of hearing in this regard. This show that learned AO was not serious about the change made by him and just to deny deduction u/s. 24 he changed head of income in respect of rent for both properties in a very casual manner. This is not at all justified. Most proper head of income is income from house property as assessed in earlier years. Following consistency, the learned AO should have assessed income under head income from house property. Kindly direct the learned AO to compute rental income under head ‘income form house property’ and allow all eligible deductions. In case any income is not held not assessable under head house property, then kindly direct the AO to allow expenses and depreciation on construction cost. A statement showing bifurcation of cost of construction and depreciation allowable is enclosed accordingly we request you to kindly allow depreciation on cost of construction @ 10%.
ITA No.961/Kol/2017 & CO 54/Kol/2017 A.Y. 2012-13 ACIT Cir-15(1), Kol. Vs. M/s Deva Lease and Finance Pvt. Ltd. Page 6 Findings and decision about second issue: From related documents it is seen that assessee made full payment and took over possession of property on 09.07.2009 (page 9 of paper book – possession letter). The conveyance was not register in favour of assessee due to some legal formalities. Therefore to meet the requirement of the tenant, the Registered owner of property, the legal owner that is the vendor namely M/s South City Projects (Kolkata) was appointed and authorized to act as agent of Assessee to facilitate the entering into tenancy agreement with tenant (Unity Tech Wireless (Kolkata) Ltd. The said agent acted as agent and let out property to the tenant and passed over entire rent to assessee/. Tax has also been deducted u/s.194I, credit for which has been allowed by the AO. In earlier year income was computed under head income from house property and statutory deduction as claimed was allowed. This is a simple case wherein assessee is owner of property and it has been let out to earn rent. As conveyance deed was not executed, the legal owner who acted as agent and collected rent and passed over to assessee. Therefore, rental income is assessable under head income from house property. The AO is directed accordingly with direction to allow statutory claims u/s 24 as claimed by assessee in respect of both properties and entire rental income. In view o this claim found admissible and allowed. The alternate claim for depreciation as claimed by filing additional ground is not required to be adjudicated hence dismissed as not necessary.” Mr. Dasgupta strongly reiterates assessment findings to plead that the Assessing Officer had rightly treated the amount in question under the head “income from other source” as in his view, the property ought to comprise of building or land appurtenant thereto & it should be in assessee’s ownership to be used for any business or profession. Mr. Dasgupta therefore states that there is no landlord tenant relation between payee/assessee and ultimate prayer M/s Unitech Ltd. We find no merit in Revenue’s instant grievance. Case record before us comprises of the relevant rent agreement as well which has been correctly appreciated in the course of lower appellate proceedings that the assessee had appointed / authorized M/s South City project to facilitate its tenancy agreement with the prayer concerned. It has come on record that the similar receipts as rent stand accepted as rent income in preceding assessment years (supra). All the facts have gone unrebutted from Revenue’s side. We thus conclude that CIT(A) has rightly held the assessee’s rent sums
ITA No.961/Kol/2017 & CO 54/Kol/2017 A.Y. 2012-13 ACIT Cir-15(1), Kol. Vs. M/s Deva Lease and Finance Pvt. Ltd. Page 7 of ₹147,27,864/- as income from house property. The Revenue’s latter substantive ground pleaded in its appeal fails. The assessee’s cross objections seeking to support the CIT(A)’s finding qua the instant issue are rendered infructuous. 8. This Revenue’ appeal ITA No.961/Kol/2017 is partly allowed whereas assessee’s CO No.54/Kol/2017 is dismissed. Order pronounced in the open court 31/05/2018 Sd/- Sd/- (लेखा सद य) (�या)यक सद य) (Dr. A.L. Saini) (S.S.Godara) (Accountant Member) (Judicial Member) Kolkata, *Dkp, Sr.P.S *दनांकः- 31/05/2018 कोलकाता । आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. आवेदक/Assessee- M/s Deva Lease and Finance Pvt. Ltd. 1A, K.B.R. Complex, 4, Ho-Chi-Min Sarani, Kolkata-71 2. राज व/Revenue-ACIT, Circle-15(1), Aayakar Bhawan Poorva 110, Shantipally, Kol-107 3. संबं5धत आयकर आयु6त / Concerned CIT Kolkata 4. आयकर आयु6त- अपील / CIT (A) Kolkata 5. 9वभागीय �)त)न5ध, आयकर अपील�य अ5धकरण, कोलकाता / DR, ITAT, Kolkata 6. गाड> फाइल / Guard file. By order/आदेश से, /True Copy/ Sr. Private Secretary, Head of Office/DDO आयकर अपील�य अ5धकरण, कोलकाता ।