RAJENDRA R. CHATURVEDI,MUMBAI vs. DCIT CC 2(3), MUMBAI

आदेश / O R D E R Per Joginder Singh (Judicial Member) The assessee is in appeal, challenging the impugned

order dated 30/09/2015 of the Ld. First Appellate Authority,

Mumbai. The only ground raised by the assessee pertains to

treatment of service charges received from M/s ARCIL as

‘income from other sources’, thereby, disallowing claimed

deduction u/s 24(a) of the Income Tax Act, 1961 (hereinafter

the Act).

by Ms. Lalta Perulkar, ld. counsel for the assessee, is that

the income may treated as income from house property.

Reliance was placed upon the decision of the Tribunal in the

case of Star Gold Private Limited vs DCIT (2017) 85

taxman.com 167 (Mum. ITAT), order dated 30/06/2017.

Our attention was invited to the agreement between the

parties, available in the paper book. On the other hand,

the Ld. DR, Shri Saurabh Deshpande, defended the

impugned order.

2.1. We have considered the rival submissions and

perused the material available on record. In view of the

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above, we are reproducing hereunder the relevant portion

from the aforesaid order of the Tribunal dated 30/06/2017

for ready reference and analysis:-

“This appeal filed by the assessee is directed against order of Commissioner of Income-tax (Appeals)-9, Mumbai dated 17- 11-2014 and it pertains to assessment year 2011-12. 2. The brief facts of the case are that the assessee company, engaged in the business of providing business facilities and infrastructure for business, filed its return of income for the assessment year 2011-12 on 16-08-2011 declaring total income at Rs.89,14,061 which was subsequently revised on 21-02- 2012 ITA No.351/Mum/2015 declaring total income at Rs.1,59,63,771. The case has been selected for scrutiny and notices u/s 143(2) and 142(1) of the Act were issued. In response to notices, the authorized representative of the assessee appeared from time to time and furnished relevant details, as called for. During the course of assessment proceedings, the AO noticed that the assessee is owner of property situated at Plot No.63, Street No.13, MIDC, Andheri (E), Mumbai-400 093 consisting of 1st & 2nd Floor having total built up area of 18,954 sq.ft. and aforesaid property was leased to M/s Fullerton India Credit Company Ltd under a lease agreement dated 09-01-2008. The assessee has entered into two lease agreements, one for leasing of premises and another for providing amenities to the building. The assessee has treated rental receipts under the head "Income from house property" whereas compensation received towards providing amenities has been considered under the head "Income from business". Therefore, the AO asked the assessee to explain as to why compensation received on amenities shown under the head 'business income' should not be taxed under 'Income from house property'. In reply, assessee submitted that it has entered into leave & licence agreement with the tenant for the said building along with furniture and other facilities including car parking, benefit of sanitary fittings, water supply, additional electricity supply for which separate agreement has been entered into, which has been ITA No.351/Mum/2015 considered under the head "Income from business". The assessee further submitted that it was also providing facilities such as security services, maintenance of building, pantry services, etc. Hence, the assessee was shown business income for compensation received towards providing amenities after claiming expenditure.

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ITR 596 (SC) submitted before CIT(A) that income derived from rendering services in addition to letting out of the property was income derived from carrying on an adventure in the nature of trade, therefore, compensation received from the tenant for providing additional services, which are not connected to the letting out of premises has been rightly assessed under the head, "Income from business". The AO, without appreciating the facts, has simply considered amenity charges under the head "Income from house property", which is incorrect. In support of its arguments, the assessee relied upon the decision of Hon'ble Madras High Court in the case of CIT vs Chennai Properties & Investments Ltd (2008) 303 ITR 33 (Mad). 5. The CIT(A), after considering the relevant submissions of the assessee observed that the ground was covered by his earlier decision in assessee's own case for AY 2008-09 wherein at paragraph 5.1 of the order it was held that amenity charges received from providing facilities was assessable under the head, "Income from house property". Since the facts are almost identical for the year under consideration, he held that the entire income from amenity charges is taxable under the head "Income from house property". Insofar as ITA No.351/Mum/2015 disallowance of expenditure is concerned, the CIT(A) observed that interest was allowed to assessee in assessment years 2009-10 & 2010-11; however, without any convincing reasons, the AO has not allowed interest during the year under consideration besides noticing that on perusal of balance-sheet of the assessee, the amount of the borrowed capital almost matched with the assets, i.e. the building which has been utilised has yielded income from house property meaning thereby that the borrowed funds are utilized for acquisition of property and there is no proof of diversion of borrowed funds. Under these circumstances, the AO was directed to allow interest claimed by the assessee. With these observations, the CIT(A) partly allowed the appeal filed by the assessee. Aggrieved by the order of CIT(A), the assessee is in appeal before us. 6. The Ld.AR for the assessee submitted that the Ld.CIT(A) erred in considering compensation for use of amenities and facilities as "Income from house property" without appreciating the fact that the assessee has provided additional facility such as security services, additional load of electricity supply, parking service and other related services which are not connected to letting out of premises. The AR further submitted that if the main object of the assessee is letting out of premises and earns rent therefrom, income so earned should be treated as business income. Since the assessee is

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involved in the ITA No.351/Mum/2015 business of providing facility management services and infrastructure for business, it has rightly treated compensation received towards providing amenities under the head "Income from business". In support of his argument, the Ld.AR relied upon the decision of Hon'ble Supreme Court in the case of Rayala Corporation Ltd vs ACIT 2016) 386 ITR 500 (SC) and also ITAT Mumbai Bench decision in the case of Kavita Marketing Pvt Ltd vs ITO (2016) 47 CHH 228 (Mum Trib). 7. The Ld.DR, on the other hand, supported the orders of authorities below and submitted that the issue has been already considered by the ITAT, in assessee's own case in the earlier years and observed that the receipts towards amenities are to be considered as part of rental income. The Ld.DR further submitted that the assessee has earned compensation for providing amenity charges to the same tenant, who occupied the premises by splitting rental agreement into two parts which is evident from the fact that the tenant has deducted tax at source u/s 194-I of the Income-tax Act, 1961 on total payments including compensation paid for providing amenities. Therefore, the AO has rightly assessed compensation received under the head "Income from house property and his order should be upheld. In support of his argument, he relied upon the decision of the Hon'ble Supreme Court in the case of Shambhu Investment (P) Ltd vs. CIT (2003) 263 ITR 143 (SC) and submitted that income ITA No.351/Mum/2015 derived from letting out furnished premises on monthly rent to various parties along with furniture, fixtures, etc. and also providing them common services like watch and ward, electricity, water and other amenities without any separate charge was assessable as "Income from house property" and not as business income. 8. We have heard both the parties and considered the material available on record. The factual matrix which leads to the impugned addition is that the assessee has let out premises by entering into two separate agreements for letting out premises and providing amenities. The assessee has considered rental receipts under the head "Income from house property", whereas compensation received for providing amenities has been considered as "Income from business". The AO has assessed compensation received from providing amenities under the head "Income from house property" on the ground that mere splitting up of rental agreement cannot change the character of income which has to be assessed under a particular head of income. The AO further observed that as per the details furnished by the assessee, like leave & licence agreement, these two agreements are inseparable from each

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other which is evident from the annexure annexed to the agreement which states that the assessee needs to provide certain amenities in pursuance to leave & licence agreement. The AO further observed that the tenant has deducted TDS ITA No.351/Mum/2015 on total payments including compensation paid for providing amenities u/s 194-I. Therefore, it is abundantly clear that the socalled compensation received for providing amenities is part and parcel of rental receipts. It is the claim of the assessee that its main object is to provide business facilities and infrastructure for business and once it is involved in the business of providing premises on rental basis, then the rental receipts received is assessable under the head "Income from business". The assessee further submitted that it has entered into separate agreement for providing amenities which is not connected to the letting out of the premises, therefore, any charges received for providing additional services cannot be considered as annual letting value as per section 23 of the Income-tax Act, 1961. The assessee further contended that it is providing additional services like watch and ward, additional load of electricity supply and other related services for which it has separately charged the tenant against which the assessee has incurred expenses. Therefore, the said activities come under the head "Income from business". 9. The question to be resolved here is whether on the facts and in the circumstances of the case, the compensation received by the assessee for providing amenities to the tenant, who occupied the premises of the assssee, is assessable under the head "Income from house property" or "Income from business". A similar issue has been considered by the ITAT, SMC Bench, ITA No.351/Mum/2015 Mumbai in assessee's own case for AY 2008-09 in ITA No.349/um/2015 dated 22- 06-2016. The co-ordinate bench of this Tribunal, under similar facts, has held that receipts towards amenities are to be considered as part of rental income. However, the expenses incurred towards security service and pantry services are not connected to the rental income and hence, they should be deducted from the receipts from amenities. The relevant pat of the order of the co-ordinate bench is extracted below:- "6. I further notice that the assessee has let out the two storey building to only one tenant. The nature of amenities claimed to have been provided consisted of security services, building maintenance, car parking facility, pantry services. The electricity expenses incurred by the assessee are being reimbursed by the tenant. I notice that the security services and pantry services are not germane to the letting of building, but other services are part and parcel of letting of building.

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Hence the decision rendered by the Hon'ble Supreme court in the case of Shambu Investments (supra) shall squarely apply to the assessee. I also agree with the Ld D.R that the principle of resjudicata shall not apply to income tax proceedings. 7. Accordingly I am of the view that the predominantly, the receipts towards amenities are to be considered as part of rental income only. However, as stated earlier, the expenses incurred towards security services and pantry services are not connected to the rental income and hence they should be deducted from the receipts towards amenities. Accordingly the only net receipts after deduction of above said income should be considered as part of rental receipts. I order accordingly." The facts remain unchanged. The assessee fails to bring on record any evidences to prove that the facts are different from the facts considered by the Tribunal in the earlier assessment year. Therefore, we are of the view that ITA No.351/Mum/2015 compensation received for providing amenities is assessable under the head "Income from house property", more particularly, when the building is let out to the tenant to whom amenities are provided by way of separate agreement which is inseparable from the leave and licence agreement entered into with the tenant for letting out premises. Though assessee placed its reliance on the decision of Hon'ble Supreme Court in the case of Rayala Corporation Ltd (supra), with due respect, we notice that the facts before the Hon'ble Supreme Court are entirely different from the facts of the present case, therefore, we are of the considered view that the case law relied upon by the asssessee has no application to the facts of the assessee's case. The CIT(A), after considering relevant facts, has rightly upheld the action of the AO in treating compensation received under the head "Income from house property". We do not find any error in the order of the CIT(A); hence we reject the ground raised by the assessee. 10. The next issue that came up for our consideration is deductions towards expenses claimed against compensation receipts. The assessee has claimed various expenditures against compensation receipts while computing income under the head "Income from business". According to the assessee, it has incurred huge expenditure for electricity charges which is included in the receipts received towards providing amenity services. The assessee furtherITA No.351/Mum/2015 clarified that it has incurred various expenses such as security charges, rates & taxes, etc. in connection with providing services to the tenant. The AO disallowed expenditure claimed by the assessee on the ground that the amount of compensation received by the assessee is assessable under the head "Income

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from house property" against which only standard deduction provided u/s 24 is allowable. 11. Having heard both the sides and considered material available on record, we find that the AO has disallowed total expenditure claimed by the assessee against business receipts on the sole ground that compensation received for providing amenities is assessable under the head "Income from house property". However, the AO has allowed standard deduction u/s 24 while computing "Income from house property". Insofar as other expenses including interest paid on loan is concerned, the AO has disallowed the expenditure. It is the claim of the assessee that out of the total expenditure incurred, major portion of expenditure is incurred towards providing additional load of electricity which has been reimbursed by the service receiver which is included in compensation paid for amenity charges which needs to be excluded. We find force in the argument of the assessee for the reason that providing additional services in the form of electricity and security services is not part and parcel of providing premises on rental basis, therefore, any ITA No.351/Mum/2015 charges received towards services provided in the form of electricity supply and security services need to be excluded from the gross receipts received. In respect of amenity charges, the assessee has filed necessary details in support of expenditure incurred for providing electricity and security services. On perusal of the details filed by the assessee, we find that the assessee has incurred an amount of Rs.44,44,226 towards electricity expenses and claims that the same has been reimbursed by the service receiver which is included in the compensation provided for amenities. Therefore, we are of the view that any amount paid towards reimbursement of electricity charges needs to be excluded for the purpose of compensation received from providing amenities for the purpose of computation of "Income from house property". Accordingly, we set aside the issue to the file of the AO and direct the AO to examine the claim of the assessee in regards to the details furnished. In case it is found that electricity charges incurred and reimbursed is included in compensation payments, then the AO is directed to exclude such charges for the purpose of computation of gross receipts under the head "Income from house property". We further direct the AO to consider reimbursement of electricity charges and allow expenditure incurred by the assessee for providing such services separately under the head "Income from other ITA No.351/Mum/2015 sources". Accordingly, the ground raised by the assessee is partly allowed, for statistical purposes.

ITA No. 5546/Mum/2015 10 Rajendra R. Chaturvedi

are that the assessee an individual earned income by way of

salary, rent, profits from partnership firm, etc, declared

income of Rs.4,01,27,380/- in its return filed on

30/09/2011. Subsequently, the assessee revised its total

income to Rs.4,01,87,850/-. During assessment

proceedings, the ld. Assessing Officer asked explanation

with respect to salary income and income from house

property, capital gains and also income from other sources.

During the relevant year, the assessee received

Rs.3,62,10,870/- as rent from ARCIL, which was shown

under the head income from house property. The assessee

gave the brake up of the rent along with copy of the rent

agreement before the Assessing Officer. The ld. Assessing

Officer was observed that the rent received from ARCIL

consist of rent as well as maintenance charges. The

assessee explained that he does not have any specific

maintenance responsibility and did not incur any expenses

for maintaining the property. The Ld. Assessing Officer did

not consider the contention of the assessee and assessed

ITA No. 5546/Mum/2015 11 Rajendra R. Chaturvedi

the amount of Rs.82,29,740/-, taking service charges as

income from other sources, thereby disallowing claimed

deduction u/s 24(a) of the Act. On appeal before the Ld.

Commissioner of Income Tax (Appeal), the stand taken in

the assessment order was affirmed, which is under

challenge before this Tribunal. We find that the Tribunal in

the case of Star Gold Pvt. Ltd., wherein, the assessee let out

the premises by entering into two separate agreements one

for letting out the premises and another for providing

amenities. The assessee considered the rental receipts

under the head income from house property, whereas,

compensation received for providing amenities was

considered as business. The Tribunal decided that it was

assessable under the head income from house property. In

the case of the assessee, there is only one agreement. The

Tribunal has already considered the decision from Hon'ble

Apex Court in CIT vs National Storage Pvt. Ltd. (1967) 66

ITR 596 (SC), CIT vs Chennai Properties and Investment

(2008) 303 ITR 33, Rayala Corporation Ltd. vs ACIT (2016)

386 ITR 500 and Kavita Marketing Pvt. Ltd. vs Income Tax

Officer (159 ITD 547)(Mum. ITAT) and also the decision from

ITA No. 5546/Mum/2015 12 Rajendra R. Chaturvedi

Hon'ble Apex Court in Sambhoo Investment Pvt. Ltd. (2003)

263 ITR 143(SC) by holding that it was assessable as income

from house property and not business income. Before us,

the Ld. counsel for the assessee also claimed that in earlier

year, the Ld. Assessing Officer himself accepted the income

as income from house property and this claim was not

contradicted by the Revenue, therefore, in the absence of

contrary facts, it has to be taken as income from house

property only. The Ld. Assessing Officer is directed to follow

the aforesaid order of the Tribunal and treat the income as

income from house property. The appeal of the assessee is

allowed.

Finally, the appeal of the assessee is allowed.

This order was pronounced in the open court in the

presence of the ld. representatives from both side at the

conclusion of the hearing on 31/10/2017.

Sd/- Sd/-

(Rajesh Kumar) (Joginder Singh) लेखा सद�य / ACCOUNTANT MEMBER �या�यक सद�य /JUDICIAL MEMBER

मुंबई Mumbai; �दनांक Dated : 02/11/2017 f{x~{tÜ? P.S //.�न.स.

ITA No. 5546/Mum/2015 13 Rajendra R. Chaturvedi

आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant (Respective assessee) 2. ��यथ� / The Assessee. 3. आयकर आयु�त(अपील) / The CIT, Mumbai. 4. आयकर आयु�त / CIT(A)- , Mumbai, 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, मुंबई / DR, ITAT, Mumbai 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy//

उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील�य अ�धकरण, मुंबई / ITAT, Mumbai