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Facts
The assessee company, engaged in IT-enabled services, purchased building premises and leased out a portion to another company on a leave and license basis. The assessee claimed depreciation on the building, while the Assessing Officer treated the rental income as 'income from house property' and disallowed depreciation. This was upheld by the CIT(A).
Held
The Tribunal held that the rental income should be treated as business income, not house property income, if letting out is a significant part of the assessee's business activities, referencing Supreme Court judgments. The estimation of annual lettable value by the AO based on non-removable fixtures was rejected. The disallowance of depreciation under Section 14A was upheld as the assessee failed to claim expenses for earning exempt income.
Key Issues
1. Whether depreciation on the building let out on leave and license basis is allowable as business expenditure. 2. Whether the rental income from the property should be assessed as business income or income from house property. 3. Whether the disallowance under Section 14A is justified.
Sections Cited
Section 32 of the Income-tax Act, 1961, Section 43(6)(c)(i)(B) of the Act, Section 22 of the Act, Section 14A of the Act, Rule 8D of the Income-tax Rules, 1962, Section 23 of the Act
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, MUMBAI BENCH “D” MUMBAI
Before: SHRI OM PRAKASH KANT & SHRI SANDEEP SINGH KARHAIL
PER OM PRAKASH KANT, AM
These appeals by the assessee are directed against two separate orders both dated 30.06.2023, passed by the Ld. Commissioner of Income-tax (Appeals) – National Faceless Appeal Centre, Delhi [in short ‘the Ld. CIT(A)’] for assessment years 2013- 14 and 2014-15 respectively. As common issue in dispute is involved in both these appeals, permeating from same set of facts and therefore, these appeals were heard together and disposed off by way of this consolidated order for convenience and avoid repetition of facts.
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Briefly stated facts of the case are the assessee company Briefly stated facts of the case are the assessee company Briefly stated facts of the case are the assessee company is engaged in the business of rendering in engaged in the business of rendering information technology i.e. IT formation technology i.e. IT enabled services and business support services. enabled services and business support services. The assessee vide The assessee vide two agreements dated 24/05/2005 and dated 30/10/2010 two agreements dated 24/05/2005 and dated 30/10/2010 two agreements dated 24/05/2005 and dated 30/10/2010 purchased floors of a building having floors of a building having carpet area of 62,000 sft and carpet area of 62,000 sft and 33 car parking in “ Directi Plex Acme Te 33 car parking in “ Directi Plex Acme Tech Park” at a cost of Rs. at a cost of Rs. 38,35,00,000/-. Out of total premises of the building . Out of total premises of the building owned by the . Out of total premises of the building assessee, some part was under construction some part was under construction in the year under in the year under consideration, which was shown under the head , which was shown under the head ‘Capital work ‘Capital work-in- progress’ and balance area of 51,808.62 and balance area of 51,808.62 sft was in possession of the sft was in possession of the assessee, out of which 11,808.62 sft area on 5 assessee, out of which 11,808.62 sft area on 5th and 6 and 6th floor of ‘B’ wing of office premises was given on wing of office premises was given on leave and license agreement leave and license agreement basis to another company namely Media.net Software Services basis to another company namely Media.net Software Services basis to another company namely Media.net Software Services (India) Pvt. Ltd. ( licensee) ( licensee) for a period of 15 months commencing months commencing from 01.01.2012 and ending on 31.03.2013. As per the agreement, 2012 and ending on 31.03.2013. As per the agreement, 2012 and ending on 31.03.2013. As per the agreement, the ‘licensee’ agreed to do alteration agreed to do alteration in the building including non in the building including non- removable fixtures at removable fixtures at its own cost and the licensor i.e. th cost and the licensor i.e. the assessee agreed not to charge charge any license or compensation fee or compensation fee for the licensed period in lieu of the condition that the lessee in lieu of the condition that the lessee in lieu of the condition that the lessee would leave all those non-removable fixture in the building at the time of removable fixture in the building at the time of removable fixture in the building at the time of vacation of building. For the period of 3 months from January, . For the period of 3 months from January, . For the period of 3 months from January, 2012 to March 2012 2012 i.e. falling in assessment year 2012 falling in assessment year 2012-13, the assessee claimed depreciation on the building treating the same as assessee claimed depreciation on the building treating the same as assessee claimed depreciation on the building treating the same as used for the purpose of the business. Similarly, for the remaining used for the purpose of the business. Similarly, for the remaining used for the purpose of the business. Similarly, for the remaining period of 12 months of the licensed period i.e. for assessment year period of 12 months of the licensed period i.e. for assessment year period of 12 months of the licensed period i.e. for assessment year
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2013-14, the assessee though did not shown any rental income 14, the assessee though did not shown any rental income 14, the assessee though did not shown any rental income from the building however claimed the depreciation u/s 32 of the from the building however claimed the depreciation u/s 32 of the from the building however claimed the depreciation u/s 32 of the Income-tax Act, 1961 (in short ‘the Act’) claiming that the building tax Act, 1961 (in short ‘the Act’) claiming that the building tax Act, 1961 (in short ‘the Act’) claiming that the building was put to use for business purpose. The Assessing Officer in was put to use for business purpose. The Assessing Officer in was put to use for business purpose. The Assessing Officer in assessment year 2013 essment year 2013-14 rejected the claim of the assessee of 14 rejected the claim of the assessee of depreciation and disallowed the same treating the assessee as liable depreciation and disallowed the same treating the assessee as depreciation and disallowed the same treating the assessee as to be assessed under the head ‘income from ho to be assessed under the head ‘income from house property’ and use property’ and computed the Annual L computed the Annual Lettable Value (ALV) of the property alue (ALV) of the property corresponding to the investment made by the lessee in the nding to the investment made by the lessee in the non- nding to the investment made by the lessee in the removable fixtures (Rs. 2,29,00,399/ Rs. 2,29,00,399/-) and computed the income and computed the income under the head ‘income from house property’ amounting to under the head ‘income from house property’ amounting to under the head ‘income from house property’ amounting to Rs.1,28,24,223/- after allowing deduction u/s 24 of the Act (@ 30% after allowing deduction u/s 24 of the Act (@ 30% after allowing deduction u/s 24 of the Act (@ 30% of the ALV). In assessment year 2014 sessment year 2014-15, the assessee has shown he assessee has shown rental income (Rs. 4,95,57,001/ Rs. 4,95,57,001/-) however treated the same as however treated the same as business income and claimed the depreciation on the building. But business income and claimed the depreciation on the building. business income and claimed the depreciation on the building. the Ld. Assessing Officer however treated the said rental income as the Ld. Assessing Officer however treated the said rental income the Ld. Assessing Officer however treated the said rental income liable to be taxed under the head ‘income from house property’ and e taxed under the head ‘income from house property’ and e taxed under the head ‘income from house property’ and accordingly, disallowed the claim of the depreciation of the assessee disallowed the claim of the depreciation of the assessee disallowed the claim of the depreciation of the assessee on the building.
On further appeal, the Ld. CIT(A) upheld the finding of the On further appeal, the Ld. CIT(A) upheld the finding of the On further appeal, the Ld. CIT(A) upheld the finding of the Assessing Officer.
Aggrieved the assessee is Aggrieved the assessee is in appeal before the Tribunal. in appeal before the Tribunal.
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The grounds raised by the assessee in assessment year 2013 The grounds raised by the assessee in assessment year 2013 The grounds raised by the assessee in assessment year 2013- 14 are reproduced as under: 14 are reproduced as under:
On the facts and in the circumstances of the case, the On the facts and in the circumstances of the case, the On the facts and in the circumstances of the case, the learned Commissioner of Income Tax (Appeals) has erred learned Commissioner of Income Tax (Appeals) has erred learned Commissioner of Income Tax (Appeals) has erred in confirming the order in confirming the order of the learned Assessing Officer for of the learned Assessing Officer for disallowances amounting to INR 90,50,293/ disallowances amounting to INR 90,50,293/- under section 32 of the Income Tax Act, 1961 ('the Act') on section 32 of the Income Tax Act, 1961 ('the Act') on section 32 of the Income Tax Act, 1961 ('the Act') on account of depreciation on building. account of depreciation on building. 2. On the facts and in the circumstances of the case, the On the facts and in the circumstances of the case, the On the facts and in the circumstances of the case, the learned Commissioner of learned Commissioner of Income Tax (Appeals) has failed Income Tax (Appeals) has failed to appreciate that the building is an integral part of block to appreciate that the building is an integral part of block to appreciate that the building is an integral part of block of assets and splitting a single asset from a block is not of assets and splitting a single asset from a block is not of assets and splitting a single asset from a block is not permissible under section 43(6)(c)i)(B) of the Act and thus permissible under section 43(6)(c)i)(B) of the Act and thus permissible under section 43(6)(c)i)(B) of the Act and thus bad in law. bad in law. 3. The learned Commissioner of The learned Commissioner of Income Tax (Appeals) did not Income Tax (Appeals) did not consider the fact that depreciation was duly claimed in consider the fact that depreciation was duly claimed in consider the fact that depreciation was duly claimed in relation to the business of the Appellant and thus no relation to the business of the Appellant and thus no relation to the business of the Appellant and thus no disallowances were called for in the case of the Appellant. disallowances were called for in the case of the Appellant. disallowances were called for in the case of the Appellant. 4. On the facts and in the circumstances of the case, the On the facts and in the circumstances of the case, the On the facts and in the circumstances of the case, the learned Commissioner of Income Tax (Appeals) has erred arned Commissioner of Income Tax (Appeals) has erred arned Commissioner of Income Tax (Appeals) has erred in confirming the order of the learned Assessing Officer for in confirming the order of the learned Assessing Officer for in confirming the order of the learned Assessing Officer for additions amounting to INR 1,28,24,223/ additions amounting to INR 1,28,24,223/- under section under section 22 of the Act on account of notional rent. 22 of the Act on account of notional rent. 5. On the facts and in the circumstances of the On the facts and in the circumstances of the case, the case, the learned Commissioner of Income Tax (Appeals) has learned Commissioner of Income Tax (Appeals) has learned Commissioner of Income Tax (Appeals) has grossly erred in considering the value of non grossly erred in considering the value of non-removable removable fixed fixtures and attachments for the purpose of fixed fixtures and attachments for the purpose of fixed fixtures and attachments for the purpose of determining notional rent under section 22 of the Act. determining notional rent under section 22 of the Act. determining notional rent under section 22 of the Act. 6. On the facts and in the circumstanc On the facts and in the circumstances of the case, the es of the case, the learned Commissioner of Income Tax (Appeals) has failed learned Commissioner of Income Tax (Appeals) has failed learned Commissioner of Income Tax (Appeals) has failed to appreciate the fact that the Appellant has not received to appreciate the fact that the Appellant has not received to appreciate the fact that the Appellant has not received any benefit of the interior / renovation of fixed fixtures any benefit of the interior / renovation of fixed fixtures any benefit of the interior / renovation of fixed fixtures carried out by the licensee and the same is utilized by the carried out by the licensee and the same is utilized by the carried out by the licensee and the same is utilized by the licensee till date. censee till date. 7. The learned Commissioner of Income Tax (Appeals) The learned Commissioner of Income Tax (Appeals) The learned Commissioner of Income Tax (Appeals) confirmed the order of the learned Assessing Officer confirmed the order of the learned Assessing Officer confirmed the order of the learned Assessing Officer without having regard to the fact that had there been any without having regard to the fact that had there been any without having regard to the fact that had there been any actual income the same would have been taxed as actual income the same would have been taxed as actual income the same would have been taxed as business income in, lines with business income in, lines with the income offered in the income offered in subsequent years. subsequent years. 8. On the facts and in the circumstances of the case, the On the facts and in the circumstances of the case, the On the facts and in the circumstances of the case, the learned Commissioner of Income Tax (Appeals) has erred learned Commissioner of Income Tax (Appeals) has erred learned Commissioner of Income Tax (Appeals) has erred in confirming the order of the learned Assessing Officer for in confirming the order of the learned Assessing Officer for in confirming the order of the learned Assessing Officer for disallowances amounting to INR 4,80,217/ disallowances amounting to INR 4,80,217/- under section der section 14A of the Act read with Rule 8D of the Income tax Rules, 14A of the Act read with Rule 8D of the Income tax Rules, 14A of the Act read with Rule 8D of the Income tax Rules, 1962; on account of expenses pertaining to exempt 1962; on account of expenses pertaining to exempt 1962; on account of expenses pertaining to exempt income. income. 9. The Appellant craves leave to add, alter, amend or The Appellant craves leave to add, alter, amend or The Appellant craves leave to add, alter, amend or withdraw all or any of the Grounds of Appeals herein or to withdraw all or any of the Grounds of Appeals herein or to withdraw all or any of the Grounds of Appeals herein or to
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submit such statem submit such statements documents and papers as may be ents documents and papers as may be considered necessary either before or during the hearing considered necessary either before or during the hearing considered necessary either before or during the hearing of the appeal as they may be admitted to do so. of the appeal as they may be admitted to do so. 6. The ground Nos s. 1 to 3 of the appeal relate to disallowance of to disallowance of depreciation amounting to Rs.90,50,293/ depreciation amounting to Rs.90,50,293/- u/s 32 of the Act. Before f the Act. Before us, the Ld. Counsel Counsel for the assessee submitted that in the year for the assessee submitted that in the year under consideration, the assessee has not received any rental under consideration, the assessee has not received any rental under consideration, the assessee has not received any rental income. It was submitted that the company Media.net was also income. It was submitted that the company Media.net was also income. It was submitted that the company Media.net was also engaged in rendering service similar to that assess engaged in rendering service similar to that assessee and therefore, ee and therefore, the assessee shared the various maintenance and administrative the assessee shared the various maintenance and administrative the assessee shared the various maintenance and administrative expenditure incurred expenditure incurred, which benefited the assessee which benefited the assessee in reducing its liability and thus the building liability and thus the building was put to use for the purpose of the put to use for the purpose of the business of the assessee. assessee. It was further submitted that the building er submitted that the building was a part of the block of asset and once it became a part of the as a part of the block of asset and once it became a part of the as a part of the block of asset and once it became a part of the block of assets, it was not feasible to compute separate depreciation block of assets, it was not feasible to compute separate depreciation block of assets, it was not feasible to compute separate depreciation and disallow the same. and disallow the same. The total depreciation claimed The total depreciation claimed on building during the year under during the year under consideration was of Rs.3,97,06,857/ consideration was of Rs.3,97,06,857/-. The part of building given on leave and license to M/s Media.net building given on leave and license to M/s Media.net building given on leave and license to M/s Media.net Software Services Pvt. Ltd. was approximately Software Services Pvt. Ltd. was approximately 11800.62 sq. ft. out 1800.62 sq. ft. out of total building area of 51808.62 sq. ft. and therefore, the of total building area of 51808.62 sq. ft. and therefore, the of total building area of 51808.62 sq. ft. and therefore, the Assessing Assessing Officer Officer disallowed disa llowed the the proportionate proportionate depreciation depreciation amounting to Rs.90,50,293/ amounting to Rs.90,50,293/- as worked out in paragraph as worked out in paragraph 4.3 of the impugned assessment order. It was contended by the assessee that impugned assessment order. It was contended by the assessee that impugned assessment order. It was contended by the assessee that depreciation is not disallowable on premises given on leave and depreciation is not disallowable on premises given on leave and depreciation is not disallowable on premises given on leave and license basis as act of license basis as act of granting the premises on leave and license leave and license basis was a temporary phenomena and the licensed compensation a temporary phenomena and the licensed compensation a temporary phenomena and the licensed compensation
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being business it forms part of the business income of the assessee. being business it forms part of the business income of the assessee. being business it forms part of the business income of the assessee. The assessee further relied on the submission made before the ld The assessee further relied on the submission made before the ld The assessee further relied on the submission made before the ld CIT(A).
The Ld. Departmental Representative (DR) on the other hand, Ld. Departmental Representative (DR) on the other hand, Ld. Departmental Representative (DR) on the other hand, submitted that main object of the assessee company was not letting submitted that main object of the assessee company was not let submitted that main object of the assessee company was not let out of the properties and out of the properties and it was engaged mainly in the services of it was engaged mainly in the services of information technology information technology , therefore the income from letting out of therefore the income from letting out of property was liable to be assessed under the head ‘income from property was liable to be assessed under the head ‘income from property was liable to be assessed under the head ‘income from house property’. The Ld DR relied on the order of lower authorities. The Ld DR relied on the order of lower authorities. The Ld DR relied on the order of lower authorities.
We have heard rival submission of the parties and perused the We have heard rival submission of the parties and perused the We have heard rival submission of the parties and perused the relevant material on record. In the case, the assessee has let out a relevant material on record. In the case, the assessee has relevant material on record. In the case, the assessee has part of its building on leave and license agreement basis to another part of its building on leave and license agreement basis to another part of its building on leave and license agreement basis to another company. For the year under consideration, the assessee has company. For the year under consideration, the assessee has company. For the year under consideration, the assessee has agreed not to charge any rental income against the condition of the agreed not to charge any rental income against the condition of the agreed not to charge any rental income against the condition of the lease that the lessee lease that the lessee should leave all non-removable fixed furniture movable fixed furniture in building itself in the event of vacating of said license premises. building itself in the event of vacating of said license premises. building itself in the event of vacating of said license premises. Thus, according to the assessee building has been put to use for the according to the assessee building has been put to use for the according to the assessee building has been put to use for the purpose of the business of the assessee and therefore, any rental purpose of the business of the assessee and therefore, any rental purpose of the business of the assessee and therefore, any rental income from the same would income from the same would to allowable to be assessed under the to allowable to be assessed under the head ‘business income’ and head ‘business income’ and but in view of no rent charged to lessee, but in view of no rent charged to lessee, no business income no business income was earned in the year under consideration. in the year under consideration. The assessee also claim claimed depreciation on the part of part of building which was let out to le which was let out to lessee.
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8.1 We find that the issue of taxability of the rental income from We find that the issue of taxability of the rental income from We find that the issue of taxability of the rental income from the building in case the building in case a company has been decided by the Hon’ble company has been decided by the Hon’ble Supreme Court in the case of Chennai Properties & Investments Chennai Properties & Investments Supreme Court in the case of Ltd. v. CIT [2015] 56 taxmann.com 456 (SC) .The Hon’ble Ltd. v. CIT [2015] 56 taxmann.com 456 (SC) Ltd. v. CIT [2015] 56 taxmann.com 456 (SC) Supreme Court (supra) upreme Court (supra) held that wherein in terms of memorandum held that wherein in terms of memorandum of association, main object of the assessee company is to acquire main object of the assessee company is to acquire main object of the assessee company is to acquire and hold properties and earn income by letting out and hold properties and earn income by letting out, the said income is liable to tax as ‘business income business income’ and not as ‘income fro income from house property’. The relevant finding of the Hon’ble Supreme Court is . The relevant finding of the Hon’ble Supreme Court is . The relevant finding of the Hon’ble Supreme Court is reproduced as under: reproduced as under:
“7. With this background, we first refer to the judgment of this Court in With this background, we first refer to the judgment of this Court in With this background, we first refer to the judgment of this Court in East India Housing and Land Development Trust Ltd.'s case which has East India Housing and Land Development Trust Ltd.'s case which has East India Housing and Land Development Trust Ltd.'s case which has been relied upon by t been relied upon by the High Court. That was a case where the company he High Court. That was a case where the company was incorporated with the object of buying and developing landed was incorporated with the object of buying and developing landed was incorporated with the object of buying and developing landed properties and promoting and developing markets. Thus, the main properties and promoting and developing markets. Thus, the main properties and promoting and developing markets. Thus, the main objective of the company was to develop the landed properties into objective of the company was to develop the landed properties into objective of the company was to develop the landed properties into markets. It so happened that some shops and stalls, which were so happened that some shops and stalls, which were so happened that some shops and stalls, which were developed by it, had been rented out and income was derived from the developed by it, had been rented out and income was derived from the developed by it, had been rented out and income was derived from the renting of the said shops and stalls. In those facts, the question arose for renting of the said shops and stalls. In those facts, the question arose for renting of the said shops and stalls. In those facts, the question arose for consideration was: whether the rental income that is recei consideration was: whether the rental income that is recei consideration was: whether the rental income that is received was to be treated as income from the house property or the income from the treated as income from the house property or the income from the treated as income from the house property or the income from the business. This court while holding that the income shall be treated as business. This court while holding that the income shall be treated as business. This court while holding that the income shall be treated as income from the house property, rested its decision in the context of the income from the house property, rested its decision in the context of the income from the house property, rested its decision in the context of the main objective of the company an main objective of the company and took note of the fact that letting out of d took note of the fact that letting out of the property was not the object of the company at all. The court was the property was not the object of the company at all. The court was the property was not the object of the company at all. The court was therefore, of the opinion that the character of that income which was from therefore, of the opinion that the character of that income which was from therefore, of the opinion that the character of that income which was from the house property had not altered because it was received by the the house property had not altered because it was received by the the house property had not altered because it was received by the company formed with the object of developing and setting up properties. mpany formed with the object of developing and setting up properties. mpany formed with the object of developing and setting up properties. 8. Before we refer to the Constitution Bench judgment in the case of Before we refer to the Constitution Bench judgment in the case of Before we refer to the Constitution Bench judgment in the case of Sultan Brothers (P) Ltd., we would be well advised to discuss the law laid Sultan Brothers (P) Ltd., we would be well advised to discuss the law laid Sultan Brothers (P) Ltd., we would be well advised to discuss the law laid down authoritatively and succinctly by thi down authoritatively and succinctly by this Court in 'Karanpura s Court in 'Karanpura Development Co. Ltd. v. Commissioner of Income Tax, West Bengal' [44 ITR Development Co. Ltd. v. Commissioner of Income Tax, West Bengal' [44 ITR Development Co. Ltd. v. Commissioner of Income Tax, West Bengal' [44 ITR 362 (SC)]. That was also a case where the company, which was the 362 (SC)]. That was also a case where the company, which was the 362 (SC)]. That was also a case where the company, which was the assessee, was formed with the object, inter alia, of acquiring and assessee, was formed with the object, inter alia, of acquiring and assessee, was formed with the object, inter alia, of acquiring and disposing of the underground disposing of the underground coal mining rights in certain coal fields and it coal mining rights in certain coal fields and it had restricted its activities to acquiring coal mining leases over large had restricted its activities to acquiring coal mining leases over large had restricted its activities to acquiring coal mining leases over large areas, developing them as coal fields and then sub areas, developing them as coal fields and then sub-leasing them to leasing them to collieries and other companies. Thus, in the said case, the leasing collieries and other companies. Thus, in the said case, the leasing collieries and other companies. Thus, in the said case, the leasing out of the coal fields to the collieries and other companies was the business of the coal fields to the collieries and other companies was the business of the coal fields to the collieries and other companies was the business of
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the assessee. The income which was received from letting out of those the assessee. The income which was received from letting out of those the assessee. The income which was received from letting out of those mining leases was shown as business income. Department took the mining leases was shown as business income. Department took the mining leases was shown as business income. Department took the position that it is to be treated as inc position that it is to be treated as income from the house property. It would ome from the house property. It would be thus, clear that in similar circumstances, identical issue arose before be thus, clear that in similar circumstances, identical issue arose before be thus, clear that in similar circumstances, identical issue arose before the Court. This Court first discussed the scheme of the Income Tax Act and the Court. This Court first discussed the scheme of the Income Tax Act and the Court. This Court first discussed the scheme of the Income Tax Act and particularly six heads under which income can be categorised / class particularly six heads under which income can be categorised / class particularly six heads under which income can be categorised / classified. It was pointed out that before income, profits or gains can be brought to It was pointed out that before income, profits or gains can be brought to It was pointed out that before income, profits or gains can be brought to computation, they have to be assigned to one or the other head. These computation, they have to be assigned to one or the other head. These computation, they have to be assigned to one or the other head. These heads are in a sense exclusive of one another and income which falls heads are in a sense exclusive of one another and income which falls heads are in a sense exclusive of one another and income which falls within one head cannot be assigned t within one head cannot be assigned to, or taxed under, another head. o, or taxed under, another head. Thereafter, the Court pointed out that the deciding factor is not the Thereafter, the Court pointed out that the deciding factor is not the Thereafter, the Court pointed out that the deciding factor is not the ownership of land or leases but the nature of the activity of the assessee ownership of land or leases but the nature of the activity of the assessee ownership of land or leases but the nature of the activity of the assessee and the nature of the operations in relation to them. It was highlighted and and the nature of the operations in relation to them. It was highlighted and and the nature of the operations in relation to them. It was highlighted and stressed that the objects of the company must also be kept in view to tressed that the objects of the company must also be kept in view to tressed that the objects of the company must also be kept in view to interpret the activities. In support of the aforesaid proposition, number of interpret the activities. In support of the aforesaid proposition, number of interpret the activities. In support of the aforesaid proposition, number of judgments of other jurisdictions, i.e. Privy Counsel, House of Lords in judgments of other jurisdictions, i.e. Privy Counsel, House of Lords in judgments of other jurisdictions, i.e. Privy Counsel, House of Lords in England and US Courts were taken note England and US Courts were taken note of. The position in law, ultimately, of. The position in law, ultimately, is summed up in the following words: is summed up in the following words: - “As has been already pointed out in connection with the other two “As has been already pointed out in connection with the other two “As has been already pointed out in connection with the other two cases where there is a letting out of premises and collection of rents cases where there is a letting out of premises and collection of rents cases where there is a letting out of premises and collection of rents the assessment on property basis may be the assessment on property basis may be correct but not so, where correct but not so, where the letting or sub the letting or sub-letting is part of a trading operation. The diving letting is part of a trading operation. The diving line is difficult to find; but in the case of a company with its line is difficult to find; but in the case of a company with its line is difficult to find; but in the case of a company with its professed objects and the manner of its activities and the nature of professed objects and the manner of its activities and the nature of professed objects and the manner of its activities and the nature of its dealings with its prop its dealings with its property, it is possible to say on which side the erty, it is possible to say on which side the operations fall and to what head the income is to be operations fall and to what head the income is to be assigned.” 9. After applying the aforesaid principle to the facts, which were there After applying the aforesaid principle to the facts, which were there After applying the aforesaid principle to the facts, which were there before the Court, it came to the conclusion that income had to be treate before the Court, it came to the conclusion that income had to be treate before the Court, it came to the conclusion that income had to be treated as income from business and not as income from house property. We are of income from business and not as income from house property. We are of income from business and not as income from house property. We are of the opinion that the aforesaid judgment in Karanpura Development Co. the opinion that the aforesaid judgment in Karanpura Development Co. the opinion that the aforesaid judgment in Karanpura Development Co. Ltd.'s case squarely applies to the facts of the present case. Ltd.'s case squarely applies to the facts of the present case. 10. No doubt in Sultan Brothers (P) Ltd.'s case, No doubt in Sultan Brothers (P) Ltd.'s case, Constitution Bench Constitution Bench judgment of this Court has clarified that merely an entry in the object judgment of this Court has clarified that merely an entry in the object judgment of this Court has clarified that merely an entry in the object clause showing a particular object would not be the determinative factor to clause showing a particular object would not be the determinative factor to clause showing a particular object would not be the determinative factor to arrive at an conclusion whether the income is to be treated as income from arrive at an conclusion whether the income is to be treated as income from arrive at an conclusion whether the income is to be treated as income from business and s business and such a question would depend upon the circumstances of uch a question would depend upon the circumstances of each case, viz., whether a particular business is letting or not. This is so each case, viz., whether a particular business is letting or not. This is so each case, viz., whether a particular business is letting or not. This is so stated in the following words: stated in the following words: - “We think each case has to be looked at from a businessman's “We think each case has to be looked at from a businessman's “We think each case has to be looked at from a businessman's point of view to find out whet point of view to find out whether the letting was the doing of a her the letting was the doing of a business or the exploitation of his property by an owner. We do not business or the exploitation of his property by an owner. We do not business or the exploitation of his property by an owner. We do not further think that a thing can by its very nature be a commercial further think that a thing can by its very nature be a commercial further think that a thing can by its very nature be a commercial asset. A commercial asset is only an asset used in a business and asset. A commercial asset is only an asset used in a business and asset. A commercial asset is only an asset used in a business and nothing else, and bus nothing else, and business may be carried on with practically all iness may be carried on with practically all things. Therefore, it is not possible to say that a particular activity things. Therefore, it is not possible to say that a particular activity things. Therefore, it is not possible to say that a particular activity is business because it is concerned with an asset with which trade is business because it is concerned with an asset with which trade is business because it is concerned with an asset with which trade is commonly carried on. We find nothing in the cases referred, to is commonly carried on. We find nothing in the cases referred, to is commonly carried on. We find nothing in the cases referred, to
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support the proposition that certain assets are commercial assets in t the proposition that certain assets are commercial assets in t the proposition that certain assets are commercial assets in their very nature.” their very nature.” 11. We are conscious of the aforesaid dicta laid down in the We are conscious of the aforesaid dicta laid down in the We are conscious of the aforesaid dicta laid down in the Constitution Bench judgment. It is for this reason, we have, at the Constitution Bench judgment. It is for this reason, we have, at the Constitution Bench judgment. It is for this reason, we have, at the beginning of this judgment, stated the beginning of this judgment, stated the circumstances of the present case circumstances of the present case from which we arrive at irresistible conclusion that in this case, letting of from which we arrive at irresistible conclusion that in this case, letting of from which we arrive at irresistible conclusion that in this case, letting of the properties is in fact is the business of the assessee. The assessee the properties is in fact is the business of the assessee. The assessee the properties is in fact is the business of the assessee. The assessee therefore, rightly disclosed the income under the Head Income from therefore, rightly disclosed the income under the Head Income from therefore, rightly disclosed the income under the Head Income from Business. It cannot be treated as 'income from the house property'. We, ess. It cannot be treated as 'income from the house property'. We, ess. It cannot be treated as 'income from the house property'. We, accordingly, allow this appeal and set aside the judgment of the High accordingly, allow this appeal and set aside the judgment of the High accordingly, allow this appeal and set aside the judgment of the High Court and restore that of the Income Tax Appellate Tribunal. No orders as Court and restore that of the Income Tax Appellate Tribunal. No orders as Court and restore that of the Income Tax Appellate Tribunal. No orders as to costs.” 8.2 Thus, in the case of Chennai P in the case of Chennai Properties Ltd. (supra) the roperties Ltd. (supra) the Hon’ble Hon’ble Supreme Supreme Court Court referred to the object object clause clause of of memorandum of association of the assessee company, and held memorandum of association of the assessee company, memorandum of association of the assessee company, that if the main object of the assessee company was to acquire that if the main object of the assessee company was to acquire that if the main object of the assessee company was to acquire properties and earn income by letting out same properties and earn income by letting out same, said income was to d income was to be brought to tax as business be brought to tax as business income and not under the head under the head ‘income from house property house property’. The Hon’ble Supreme Court pointed . The Hon’ble Supreme Court pointed out that the deciding factor out that the deciding factor is not the ownership not the ownership of property but nature of activity of the assessee and nature of t nature of activity of the assessee and nature of the operations in he operations in relation to property i.e. what is relevant is relation to property i.e. what is relevant is professed object and the professed object and the manner of activities and nature of dealings with its property. In manner of activities and nature of dealings with its property. manner of activities and nature of dealings with its property. other words, main test for assessing rental income under the main test for assessing rental income under the main test for assessing rental income under the head business income is that head business income is that letting out of the properties of the properties should, in fact, should should be the main business of the assessee. be the main business of the assessee. Further the Hon’ble Supreme Court in the case of Rayala Further the Hon’ble Supreme Court in the case of Further the Hon’ble Supreme Court in the case of Corporation (P.) Ltd. v. Assistant Commissioner of Income-tax Corporation (P.) Ltd. v. Assistant Commissioner of Income Corporation (P.) Ltd. v. Assistant Commissioner of Income [2016] 72 taxmann.com 149 (SC) [2016] 72 taxmann.com 149 (SC) has affirmed the decision of the has affirmed the decision of the
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Hon’ble Supreme Court in Chennai Properties & Investments Ltd. Hon’ble Supreme Court in Chennai Properties & Investments Ltd. Hon’ble Supreme Court in Chennai Properties & Investments Ltd. (supra).
8.3 We have perused the memorandum of association of Assessee perused the memorandum of association of Assessee perused the memorandum of association of Assessee Company filed before us. Company filed before us. When we see the facts of the instant case When we see the facts of the instant case in the light of the d in the light of the decision of the Hon’ble Supreme Court as ecision of the Hon’ble Supreme Court as reproduced above, we find that in the instant case main object of reproduced above, we find that in the instant case main object of reproduced above, we find that in the instant case main object of the assessee company the assessee company is not letting out of properties. For ready is not letting out of properties. For ready reference, , , the the the object object object clause clause clause of of of the the the assessee assessee assessee provided provided provided in in in Memorandum of association is Memorandum of association is reproduced as under: reproduced as under:
“(a) THE OBJECTS TO BE PURSUED BY THE COMPANY ON ITS “(a) THE OBJECTS TO BE PURSUED BY THE COMPANY ON ITS “(a) THE OBJECTS TO BE PURSUED BY THE COMPANY ON ITS INCORPORATION ARE : INCORPORATION ARE :- 1. To carry on the business/es in India or abroad to Acquire, Act, 1. To carry on the business/es in India or abroad to Acquire, Act, 1. To carry on the business/es in India or abroad to Acquire, Act, Advertise, Advice, Aid, Analyze, Assemble, Assign, Assist, Authorize, Buy, Advertise, Advice, Aid, Analyze, Assemble, Assign, Assist, Authorize, Buy, Advertise, Advice, Aid, Analyze, Assemble, Assign, Assist, Authorize, Buy, Carry on/out, Chan Carry on/out, Change, Charge, Circulate, Conduct, Consult, Control, ge, Charge, Circulate, Conduct, Consult, Control, Convert, Co- operate, Construct, Create, Create Charge, Deal in, Derive, operate, Construct, Create, Create Charge, Deal in, Derive, operate, Construct, Create, Create Charge, Deal in, Derive, Design, Detect, Develop, Dispose, Disseminate, Design, Detect, Develop, Dispose, Disseminate, Distribute, Distribute, Establish, Exchange, Export, Exchange, Export, Import, Improve, License, Prepare,Engage, Exchange, Export, Import, Improve, License, Prepare,Engage, Sell, Import, Improve, License, Prepare,Engage, Engineer, and Trade for, and Trade for, Transfer, Use, Vend and Work for all Information Transfer, Use, Vend and Work for all Information Technology (IT) related works including but not Limited to Domain Names; Technology (IT) related works including but not Limited to Domain Names; Technology (IT) related works including but not Limited to Domain Names; Service Marks & Names; Web Designing; Web Hosting; Web Intelligence; Service Marks & Names; Web Designing; Web Hosting; Web Intelligence; Service Marks & Names; Web Designing; Web Hosting; Web Intelligence; Web Management; Web Page Hosting; Web Web Management; Web Page Hosting; Web Server, Web Services and all Server, Web Services and all other branches of Domains Registration and registry and to render IT other branches of Domains Registration and registry and to render IT other branches of Domains Registration and registry and to render IT Enabled Services. Enabled Services. To render Information Technology & IT Enabled Services (IT To render Information Technology & IT Enabled Services (IT To render Information Technology & IT Enabled Services (IT-ITES), Business support services including but Not limited to administrative, MI Business support services including but Not limited to administrative, MI Business support services including but Not limited to administrative, MIS & accounting, sales and business development, human resource & accounting, sales and business development, human resource & accounting, sales and business development, human resource management Services, Marketing Support Services, including inter management Services, Marketing Support Services, including inter management Services, Marketing Support Services, including inter-alia digital marketing, Business digital marketing, Business Events and Public Relations Support including Support including management of Media relations, advertisements, an management of Media relations, advertisements, and IT enabled services d IT enabled services including but not limited to Computer Application & System software including but not limited to Computer Application & System software including but not limited to Computer Application & System software Development; Data Processing Centers; Development; Data Processing Centers; Data Processing Units; Data Data Processing Units; Data Processing & Data Processing Systems; software Consultants; software Processing & Data Processing Systems; software Consultants; software Processing & Data Processing Systems; software Consultants; software Development; software services; Development; software services; software Products; website development software Products; website development and maintenance and other web site related support and to sell, lease, and maintenance and other web site related support and to sell, lease, and maintenance and other web site related support and to sell, lease, rent property and other rights over and in any other manner deal with or rent property and other rights over and in any other manner deal with or rent property and other rights over and in any other manner deal with or dispose of the undertaking, property, assets, rights and effects of the dispose of the undertaking, property, assets, rights and effects of the dispose of the undertaking, property, assets, rights and effects of the Company, or any part thereof for such consideration the Company many Company, or any part thereof for such consideration the Company many Company, or any part thereof for such consideration the Company many
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think fit services to its Group Companies and/or Subsidiaries / Associate think fit services to its Group Companies and/or Subsidiaries / Associate think fit services to its Group Companies and/or Subsidiaries / Associate Companies or to any Companies. Companies or to any Companies.” 8.3 Thus from the Memorandum of Association of the assessee it Thus from the Memorandum of Association of the assessee it Thus from the Memorandum of Association of the assessee it is evident that the main business of the assessee was rendering the main business of the assessee was rendering the main business of the assessee was rendering information technology and IT enabled services and not letting out information technology and IT enabled services and not letting out information technology and IT enabled services and not letting out the properties. In the profit and loss account filed by the assessee the properties. In the profit and loss account filed by the assessee the properties. In the profit and loss account filed by the assessee on paper book page 55, the assessee has e 55, the assessee has reported reported miscellaneous other income of Rs.2,09,26,709/ ome of Rs.2,09,26,709/- in assessment year 2013 in assessment year 2013-14 and Rs.8,15,81,450/- in assessment year 2014 in assessment year 2014-15. The details of 15. The details of miscellaneous income are provided on paper book page 64. For miscellaneous income are provided on paper book page 64 miscellaneous income are provided on paper book page 64 ready reference said other income is reproduced as under: ready reference said other income is reproduced as under: ready reference said other income is reproduced as under:
31st March' 2014 31st March' 2013 31st March' 2013 Particulars (Amount in Rs.) (Amount in Rs.) (Amount in Rs.) (i) Miscellaneous Other Income (i) Miscellaneous Other Income 8,15,81,440 2,09,26,709 - Interest on Loan to Employee Interest on Loan to Employee 10,586 25,778 - Interest on Fixed Deposit 6,47,825 10,17,810 - Dividend Received 6,11,362 28,78,569 - Interest Received on Income Tax Refund Interest Received on Income Tax Refund - 1,05,804 - Interest Others 1,35,000 1,28,84,135 - Other Receipts 18,707 24,89,806 - Rent on Building 4,95,57,001 - - Reimbursement of Expenses Reimbursement of Expenses 2,95,03,448 - -Gain & Loss on sale of Assets/Investments Gain & Loss on sale of Assets/Investments 10,97,511 15,24,808 Total 81,581,440 2,09,26,709 8.4 Thus, the rent on building has been shown as miscellaneous the rent on building has been shown as miscellaneous the rent on building has been shown as miscellaneous other income in assessment year 2014 me in assessment year 2014-15, which shows that it is hich shows that it is not the main business of the assessee company. Thus, in the ratio not the main business of the assessee company. Thus not the main business of the assessee company. Thus of the Hon’ble Supreme Court of the Hon’ble Supreme Court (supra), the rental income received or , the rental income received or to be received by the assessee by the assessee from the lessee on the part of the from the lessee on the part of the property given on leave and license is liable to be assessed under property given on leave and license is liable to be assessed under property given on leave and license is liable to be assessed under
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the head ‘income from house property’ and not under the head the head ‘income from house property’ and not under the head the head ‘income from house property’ and not under the head ‘profit and gains or b ‘profit and gains or business or profession’. Accordingly, usiness or profession’. Accordingly, the depreciation on corresponding part of building on corresponding part of building claimed claimed by the assessee is also liable to be disallowed under the head ‘profit and is also liable to be disallowed under the head ‘profit and is also liable to be disallowed under the head ‘profit and gains of business’. The business’. The section 38(2) of the Act provide that where section 38(2) of the Act provide that where any building, machinery plant or furniture hinery plant or furniture etc was not exclusively was not exclusively used for the purpose of business or profession for the purpose of business or profession, the the depreciation claimed u/s 32 of the Act shall be restricted to a fair proportionate claimed u/s 32 of the Act shall be restricted to a fair proportionate claimed u/s 32 of the Act shall be restricted to a fair proportionate part thereof which the Assessing Officer may determine having part thereof which the Assessing Officer may determine having part thereof which the Assessing Officer may determine having regard to the user of such building machinery regard to the user of such building machinery, pla plant or furniture etc for the purpose of business or profession and therefo for the purpose of business or profession and therefo for the purpose of business or profession and therefore, the arguments of the Ld. counsel for the assessee that building being arguments of the Ld. counsel for the assessee that building being arguments of the Ld. counsel for the assessee that building being part of the block of the asset no disallowance could be made u/s 32 part of the block of the asset no disallowance could be made u/s 32 part of the block of the asset no disallowance could be made u/s 32 of the Act are accordingly rejected. of the Act are accordingly rejected. The case laws referred before the The case laws referred before the ld CIT(A) pertains to depreciation on build ld CIT(A) pertains to depreciation on building, plant etc though ing, plant etc though appearing in block of asset but not put to use etc and not where the appearing in block of asset but not put to use etc and not where the appearing in block of asset but not put to use etc and not where the building, plant etc used for letting out and which being not a main building, plant etc used for letting out and which being not a main building, plant etc used for letting out and which being not a main object of the company. object of the company. As the action of the Assessing Off As the action of the Assessing Officer and the ld CIT(A) is in accordanc is in accordance with law, therefore, the disallowance herefore, the disallowance of depreciation made by the Assessing Officer and sustained by the of depreciation made by the Assessing Officer and sustained by the of depreciation made by the Assessing Officer and sustained by the Ld. CIT(A) is accordingly upheld. Ld. CIT(A) is accordingly upheld.
The ground Nos. 4 to 7 Nos. 4 to 7 of appeal are in respect of determination of annual let determination of annual lettable value of the property. As p able value of the property. As per the leave and license agreement, the lessee was supposed to incur leave and license agreement, the lessee was supposed to incur leave and license agreement, the lessee was supposed to incur
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expenditure on movable and non expenditure on movable and non-movable furniture and fixture movable furniture and fixture. The non-movable furniture movable furniture was supposed to be left by the lessee by the lessee in the event of vacating said license premises. The assessee has provided event of vacating said license premises. The assessee event of vacating said license premises. The assessee the detail of the movable and non the detail of the movable and non-movable fixtures installed by the movable fixtures installed by the assessee in the building. The movable furniture stated by the assessee in the building. The movable furniture stated by the assessee in the building. The movable furniture stated by the assessee was of Rs.2,39,26,956/ assessee was of Rs.2,39,26,956/- whereas non-removable fixture, removable fixture, furniture was Rs.2,29,00,399/ furniture was Rs.2,29,00,399/-. Since, the assess . Since, the assessee did not reported any annual let reported any annual lettable value of said part of building, part of building, therefore, the Assessing Officer treated the benefit of non-removable therefore, the Assessing Officer treated the benefit of non therefore, the Assessing Officer treated the benefit of non fixture and furniture received by the assessee as the annual lettable fixture and furniture received by the assessee as the annual let fixture and furniture received by the assessee as the annual let value of the property value of the property for period of 15 months and accordingly hs and accordingly apportioned value for a period of 12 months and apportioned value for a period of 12 months and made addition of made addition of Rs.1,83,20,319/- in para 5.5 of the impugned assessment order. in para 5.5 of the impugned assessment order. in para 5.5 of the impugned assessment order. The ld CIT(A) upheld the addition. The ld CIT(A) upheld the addition.
9.1 We have heard rival submission of the parties and perused the We have heard rival submission of the parties and perused the We have heard rival submission of the parties and perused the relevant material on record. It is the contention of the assessee that t material on record. It is the contention of the assessee that t material on record. It is the contention of the assessee that computation of annual let computation of annual lettable value by the Assessing Officer is not able value by the Assessing Officer is not as per the law. According to him the let as per the law. According to him the lettable value provided under able value provided under the Act is the value for which property could be let out from year to the Act is the value for which property could be let out the Act is the value for which property could be let out year and which could be year and which could be standard rent or the municipal rental or the municipal rental value assessed. In support he relied on the decision of Hon’ble In support he relied on the decision of Hon’ble In support he relied on the decision of Hon’ble supreme Court in the case of supreme Court in the case of Dewan Daulat Rai Kapoor v. NDMC Dewan Daulat Rai Kapoor v. NDMC (1980) 122 ITR 700 (S (1980) 122 ITR 700 (SC), where in it held that when C), where in it held that when the property is subject to Rent Control Act, its annual value under section 23(1) subject to Rent Control Act, its annual value under section 23(1) subject to Rent Control Act, its annual value under section 23(1)
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cannot exceed the standard rent (fixed or determined) under the cannot exceed the standard rent (fixed or determined) under the cannot exceed the standard rent (fixed or determined) under the Rent Control Act unless it is actually let out for a higher amount. In Rent Control Act unless it is actually let out for a higher amount. In Rent Control Act unless it is actually let out for a higher amount. In our opinion, estimating of letteable va our opinion, estimating of letteable value on the basis of non lue on the basis of non removable furniture which would be left by the removable furniture which would be left by the lessee, lessee, is not a proper method under the provisions of proper method under the provisions of law, thus, thus, we reject the estimation of ALV made by the Assessing Officer. Since, the estimation of ALV made by the Assessing Officer. estimation of ALV made by the Assessing Officer. Assessing Officer has not computed the annual Assessing Officer has not computed the annual lettable value as per able value as per the provisions of law law, therefore, the arbitrary value adopted by him value adopted by him is liable to be rejected rejected.
9.2 We find that We find that section 23 of the Act has provided for 23 of the Act has provided for determination of the annual lettable value determination of the annual lettable value of house property. The of house property. The relevant provision reads reads as under:
“23(1) For the purposes of section 22, the annual value of any property “23(1) For the purposes of section 22, the annual value of any property “23(1) For the purposes of section 22, the annual value of any property shall be deemed to be shall be deemed to be- (a)the sum for which the property might reasonably be expected to let the sum for which the property might reasonably be expected to let the sum for which the property might reasonably be expected to let from year to year; from year to year; or (b)where the property or any part of the property is let and the actual where the property or any part of the property is let and the actual where the property or any part of the property is let and the actual rent received or receivable by the owner in respect thereof is in excess rent received or receivable by the owner in respect thereof is in excess rent received or receivable by the owner in respect thereof is in excess of the sum referred to in clause (a), the amount so receiv of the sum referred to in clause (a), the amount so receiv of the sum referred to in clause (a), the amount so received or receivable; or (c)where the property or any part of the property is let and was vacant where the property or any part of the property is let and was vacant where the property or any part of the property is let and was vacant during the whole or any part of the previous year and owing to such during the whole or any part of the previous year and owing to such during the whole or any part of the previous year and owing to such vacancy the actual rent received or receiv vacancy the actual rent received or receivable by the owner in respect able by the owner in respect thereof is less than the sum referred to in clause (a), the amount so thereof is less than the sum referred to in clause (a), the amount so thereof is less than the sum referred to in clause (a), the amount so received or receivable: received or receivable: Provided that the taxes levied by the local authority in respect of the that the taxes levied by the local authority in respect of the that the taxes levied by the local authority in respect of the property shall be deducted (irrespective of the previous year in which property shall be deducted (irrespective of the previous year in which property shall be deducted (irrespective of the previous year in which the liability to pay such taxes was incurred by the owner according to the liability to pay such taxes was incurred by the owner according to the liability to pay such taxes was incurred by the owner according to the method of accounting regularly employed by him the method of accounting regularly employed by him) in determining ) in determining the annual value of the property of that previous year in which such the annual value of the property of that previous year in which such the annual value of the property of that previous year in which such taxes are actually paid by him. taxes are actually paid by him.
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Explanation. - For the purposes of clause (b) or clause (c) of this sub For the purposes of clause (b) or clause (c) of this sub- section, the amount of actual rent received or receivable by the o section, the amount of actual rent received or receivable by the o section, the amount of actual rent received or receivable by the owner shall not include, subject to such rules as may be made in this behalf, shall not include, subject to such rules as may be made in this behalf, shall not include, subject to such rules as may be made in this behalf, the amount of rent which the owner cannot realise.” the amount of rent which the owner cannot realise. 9.3 We find that in the instant case, the assessee has reported We find that in the instant case, the assessee has reported We find that in the instant case, the assessee has reported rental income of Rs. 4,95,57,001/ of Rs. 4,95,57,001/- in subsequent assessment in subsequent assessment year 2014-15, which the Assessing Officer has not disputed and which the Assessing Officer has not disputed and which the Assessing Officer has not disputed and therefore, lettable value for the assessment year 2013-14 for the therefore, lettable value for the assessment year 2013 therefore, lettable value for the assessment year 2013 relevant part of property relevant part of property could be estimated for the year under for the year under consideration after applying appropria after applying appropriate cost indexation as pr te cost indexation as provided for capital gain index for capital gain index or on the basis of any other appropriate or on the basis of any other appropriate estimation of market value of rent of the area estimation of market value of rent of the area . Since the annual . Since the annual lettable value computed by the Assessing Officer lettable value computed by the Assessing Officer has been rejected has been rejected by us, we feel it appropriate to restore this issue e feel it appropriate to restore this issue of determination of of determination of the annual lettable value of the property for the asses value of the property for the asses value of the property for the assessment year under consideration to the ld Assessing officer for deciding as under consideration to the ld Assessing officer f under consideration to the ld Assessing officer f directed above. It is needless to mention that the assessee shall be It is needless to mention that the assessee shall be It is needless to mention that the assessee shall be afforded adequate opportunity of bein afforded adequate opportunity of being heard. The ground No The ground Nos. 4 to 7 of the appeal of the assessee the appeal of the assessee are accordingly allowed for accordingly allowed for statistical purposes.
The ground No. The ground No. 8 of the appeal of the assessee relates to of the appeal of the assessee relates to disallowance of Rs.4,80,217/ disallowance of Rs.4,80,217/- u/s 14A of the Act r.w. Rule 8D of u/s 14A of the Act r.w. Rule 8D of the Income-tax Rules, 1962. tax Rules, 1962.
10.1 The facts in brief qua the issue in dispute are brief qua the issue in dispute are brief qua the issue in dispute are the assessee received dividend of Rs.28,78,569/ received dividend of Rs.28,78,569/- which was claimed which was claimed as exempt
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income however no income however no suo-motu disallowance was made by the disallowance was made by the assessee for earning such exempted income or earning such exempted income, therefore, the Assessing Officer after recording dissatisfaction as to the claim of Assessing Officer after recording dissatisfaction as to the claim of Assessing Officer after recording dissatisfaction as to the claim of the assessee, invoked Rule 8D of the invoked Rule 8D of the Income-tax Rules Rules,1962(b in short the ‘Rules’) and made disallowance of Rs.4,80,271/ and made disallowance of Rs.4,80,271/- and made disallowance of Rs.4,80,271/
10.2 We have heard rival submission of the parties and perused the We have heard rival submission of the parties and perused the We have heard rival submission of the parties and perused the relevant material on record. relevant material on record. The assessee has made investment in The assessee has made investment in quoted shares and mutual funds quoted shares and mutual funds, from which earned exempted , from which earned exempted income. The average value of the investment including the mutual . The average value of the investment including the mutual . The average value of the investment including the mutual funds and the quoted shares has been reproduced by the Assessing funds and the quoted shares has been reproduced by the Assessing funds and the quoted shares has been reproduced by the Assessing Officer, which is reproduced for ready reference: which is reproduced for ready reference:
Investment on 31/03/2012 Investment on 31/03/2012 Investment on 31/03/2013 Investment on 31/03/2013 Average value Mutual Fund 8,47,15,019 47,15,019 3,18,58,588 Quoted Shares 3,66,50,232 3,66,50,232 3,88,63,015 12,13,65,251 12,13,65,251 7,07,21,603 9,60,43,427
10.3 The Ld. counsel for the assessee has submitted that the The Ld. counsel for the assessee has submitted that the The Ld. counsel for the assessee has submitted that the assessee has not incurred assessee has not incurred any expenses for earning exempted earning exempted income. Whereas in our opinion certain expenses of maintaining the income. Whereas in our opinion certain expenses of maintaining the income. Whereas in our opinion certain expenses of maintaining the investment in the mutual funds or transfer investment in the mutual funds or transfer/shifting /shifting from one mutual fund to other funds etc. is required either by the Director of mutual fund to other funds etc. is required either by the Director of mutual fund to other funds etc. is required either by the Director of the assessee or by the dedicated staff essee or by the dedicated staff, therefore, corresponding therefore, corresponding administrative expenses including ministrative expenses including, salary, rent, welfare rent, welfare expenses etc. cannot be denied and since assessee has not claimed to have etc. cannot be denied and since assessee has not claimed to have etc. cannot be denied and since assessee has not claimed to have incurred any such expenses d any such expenses, therefore, invoking of Rule 8D by the therefore, invoking of Rule 8D by the Assessing Officer and correspondi Assessing Officer and corresponding disallowance is justified. ng disallowance is justified.
Directi Internet Solutions Pvt. Ltd. Directi 17 ITA Nos. 3019 & 3018/M/2023 ITA Nos. 3019 & 3018/M/2023
Accordingly, we uphold the disallowance by the Assessing Officer Accordingly, we uphold the disallowance by the Assessing Officer Accordingly, we uphold the disallowance by the Assessing Officer and ground No. 8 of the appeal of the assessee is dismissed. of the appeal of the assessee is dismissed. of the appeal of the assessee is dismissed.
The sole issue in grounds sole issue in grounds raised in appeal for assessment year raised in appeal for assessment year 2014-15 is of disallowance of de 15 is of disallowance of depreciation on part of building given on part of building given on leave and license, on leave and license, which is identical to the ground which is identical to the grounds raised in assessment year 2013 assessment year 2013-14 ,therefore, following our finding therefore, following our finding in AY 2013-14, said ground said grounds of appeal of the assessee are are dismissed. It is to be noted that the to be noted that the assessee has been given given benefit of 30% deduction on ALV by the AO by the AO while calculating tax on rental income tax on rental income under the head ‘income form house property’ instead of under the head ‘income form house property’ instead of under the head ‘income form house property’ instead of depreciation claimed by the assessee while offering rental income depreciation claimed by the assessee while offering rental income depreciation claimed by the assessee while offering rental income under the head ‘business inco business income’.
In the result, the appeal of the assessee for assessment year In the result, the appeal of the assessee for assessment year In the result, the appeal of the assessee for assessment year 2013-14 is allowed partly partly for statistical purposes, whereas appeal of whereas appeal of the assessee for assessment year 2014 the assessee for assessment year 2014-15 is dismissed. 15 is dismissed.
Order pronounced in the open Court on nced in the open Court on 01/03 /03/2024. Sd/ Sd/- Sd/- Sd/ (SANDEEP SINGH KARHAIL SANDEEP SINGH KARHAIL) (OM PRAKASH KANT OM PRAKASH KANT) JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 01/03/2024 Rahul Sharma, Sr. P.S.
Directi Internet Solutions Pvt. Ltd. Directi 18 ITA Nos. 3019 & 3018/M/2023 ITA Nos. 3019 & 3018/M/2023
Copy of the Order forwarded to Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. BY ORDER, BY ORDER, //True Copy// (Assistant Registrar) (Assistant Registrar) ITAT, Mumbai ITAT, Mumbai