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Income Tax Appellate Tribunal, “D” BENCH : KOLKATA
Before: Hon’ble Shri M.Balaganesh, AM & Shri S.S.Viswanethra Ravi, JM]
Per M.Balaganesh, AM
This appeal by the Revenue arises out of the order of the Learned Commissioner of Income Tax(Appeals)-10, Kolkata [in short the ld CIT(A)] in Appeal No. 30/CIT(A)- 10/Cir-35/2014-15/Kol dated 27.08.2015 against the order passed by the ACIT, Circle- 35, Kolkata [ in short the ld AO] under section 147/251/154/143(3) of the Income Tax Act, 1961 (in short “the Act”) dated 06.02.2015 for the Assessment Year 2010-11.
The first issue to be decided in this appeal is as to whether the Ld. CIT(A) was justified in deleting the disallowance made u/s 14A of the Act read with Rule 8D(2)(ii) of the Act, in the facts and circumstances of the case.
The brief fact of this issue is that the assessee filed her return of income on 30.10.2010 declaring total income of Rs. 8,42,27,182/- for the assessment year 2010-11.
2 ITA No.1325/Kol/2015 Madhu Devi Saraf A.Yr.2010-11 The original assessment was framed u/s 143(3) of the Act on 15.03.2013 determining total income at Rs. 8,82,18,700/-. This income was later reduced to Rs. 4,53,07,588/- vide order passed u/s 251/154/143(3) of the Act dated 04.02.2015. The assessee derived exempt income in the form of dividend to the tune of Rs. 1,69,63,044/- and interest from PPF amounting to Rs. 4,77,417/-. The assessee voluntarily disallowed the sum of Rs. 5 lakhs on an ad hoc basis u/s 14A of the Act in the original return of income. In the original assessment, the Ld. AO observed that though the disallowance u/s 14A read with Rule 8D of the Rules works out to Rs. 75,60,839/-, since the assessee had debited total expenses in her profit and loss account only to the tune of Rs. 40,73,576/-, the disallowance u/s 14A of the Act was also restricted to Rs. 40,73,576/-. The Ld. AO later observed that the assessee had actually paid a sum of Rs. 1,39,77,495/- towards interest on loans which was netted off with interest income in the profit and loss account, thereby reducing the total amount debited to profit and loss account to Rs. 40,73,576/-. Since, this has a bearing on the disallowance made u/s 14A of the Act in the original assessment, the Ld. AO reopened the assessment u/s 147 of the Act. In the reassessment, the Ld. AO disallowed the sum of Rs. 70,60,839/- (75,60,839 – 5,00,000) u/s 14A of the Act read with Rule 8D(2) of the Rules.
The Ld. CIT(A) observed that the appeal against the original assessment order u/s 143(3) of the Act dated 15.03.2013 was disposed off by the Ld. CIT(A)-XX vide order dated 09.09.2014, wherein, the assessee has only positive interest income (net of Rs. 4,50,84,575/-) and hence, there is no scope for disallowance of interest in terms of Rule 8D(2)(ii) of the Rules. In respect of disallowance to be made under Rule 8D(2)(iii), the Ld. CIT(A)-XX had observed that the total remaining expenses debited in the profit and loss account to the tune of Rs. 40,73,576/- pertained to the expenses related to business income of the assessee and hence, they cannot be attributed as expenditure incurred from earning exempt income. Accordingly, the disallowance made under Rule 2
3 ITA No.1325/Kol/2015 Madhu Devi Saraf A.Yr.2010-11 8D(2)(iii) was also deleted by the erstwhile Ld. CIT(A) in the original assessment proceedings framed u/s 143(3) of the Act for the assessment year 2010-11.
4.1. The Ld. CIT(A) while passing the impugned order placed reliance on the said order of his predecessor and deleted the disallowance made u/s 14A read with Rule 8D(2)(ii) of the Rules to the tune of Rs. 49,31,531/-. Aggrieved the Revenue is in appeal before us on the following ground: 1. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the addition made u/s 14A read with Rule 8D(ii) without considering that computation of disallowance under Rule 8D(ii) is based on total interest paid and not on the netting of interest income.
We have heard the rival submissions. We find that in the original assessment proceedings framed u/s 143(3) of the Act for the assessment year 2010-11, the disallowance made u/s 14A of the Act was deleted by the Ld. CIT(A) vide order dated 09.09.2014. Against this order, the revenue had preferred an appeal before this Tribunal and this Tribunal in I.T.A. No. 2216/Kol/2014 dated 16.08.2017 had held that the assessee had sufficient own funds which is several times more than the investment made by her and hence, there is no need to make any disallowance under rule 8D(2)(ii) of the Rules. This Tribunal also held with regard to the disallowance under Rule 8D(2)(iii), the assessee on her own had disallowed a sum of Rs. 5 lacs in the return of income out of total administrative expenses of Rs. 40,73,576/-. The Ld. AO had not recorded any satisfaction as to how the said disallowance made by the assessee is incorrect having regard to the accounts of the assessee in terms of Section 14A(2) of the Act read with Rule 8D(1) of the Rules. Accordingly, this Tribunal held that the other disallowance under Rule 8D(2)(iii) deleted by the Ld. CIT(A) was in order and dismissed the appeal of the revenue. We find that the aforesaid finding given would squarely apply to the
4 ITA No.1325/Kol/2015 Madhu Devi Saraf A.Yr.2010-11 instant appeal also as admittedly the revenue had agitated the disallowance made under Rule 8D(2)(ii) of the Rules in the sum of Rs. 49,31,531/-. Since, this issue had already been decided by this Tribunal in I.T.A. No. 2216/Kol/2014 dated 16.08.2017 in assessee’s case for the assessment year 2010-11 in original assessment proceedings, there is no need to adjudicate the same again in the reassessment proceedings. Hence, the ground no. 1 raised by the Revenue is dismissed.
The next ground to be decided in this appeal is as to whether the Ld. CIT(A) was justified in deleting the addition made towards rental income in the sum of Rs. 8,40,000/- in respect of five shops, in the facts and circumstances of the case.
The brief facts of this issue is that the assessee had acquired five shops at Satyanarayan Park, A.C. Market, Kolkata from her late husband Shri Sankar Lal Saraf, who expired on 15.05.2005. These five shops were vested on the assessee in terms of last will of her husband. Late Shri Sankar Lal Saraf had acquired these shops under deed of sub-license made on 25.08.1995 between Happy Homes & Hotels Pvt. Ltd. (Licensee and Sankar Lal Saraf as sub-licensee). Late Shri Sankar Lal Saraf had paid a sum of Rs. 3,77,576/- as premium to M/s Happy Homes & Hotels Pvt. Ltd. for the above five shops. M/s Calcutta Municipal Corporation, being licensor of Satyanarayan Park, AC Market, is the owner of the shops being constructed and developed by licensee M/s Happy Homes & Hotel Pvt. Ltd.. Ignoring the aforesaid facts, the ld. AO in the reassessment proceedings observed, that the assessee is the owner of five shops at Satyanarayan Park, AC market and since there was no rental income offered by the assessee under the head income from house property in respect of these five shops, he deputed his Inspector for ascertaining the fair market value of rent for these five shops. The Inspector reported the fair market rent of these shops at Rs. 20,000/- per month per 4
5 ITA No.1325/Kol/2015 Madhu Devi Saraf A.Yr.2010-11 shop of approximately 80 sq. ft. Accordingly, the Ld. AO determined the gross rental income at Rs. 12 lacs, being the annual value determined based on Inspector’s report (20,000 x 12x 5 shops = 12 lacs). From this gross rental income, the Ld. AO granted standard deduction @ 30% towards repairs and determined the net rental income of Rs. 8,40,000/- under the head income from house property and completed the reassessment.
Before the Ld. CIT(A), the assessee pleaded that she is not the owner of the property and hence there could not be any charge of rental income of notional basis under the head income from house property on her. She also placed reliance on the decision of Hon’ble Supreme Court in the case of R.B. Jodha Mal Kuthiala vs. CIT reported in [1971] 82 ITR 570; decision of Hon’ble Karnataka High Court in the case of CIT vs. Smt. Divya Devi reported in [1996] 217 ITR 824 & the decision of Hon'ble Supreme Court in the case of S.G. Mercantile Pvt. Ltd. vs. CIT reported in [1972] 83 ITR 700 in support of her contentions. The Ld. CIT(A) deleted the addition by making the following observations:-
“10. I have considered the observation of AO and also the submission made by Ld. AR. It is noted from Deed of Sub-License made on 25.08.1995 that the appellant is “sub- licensee” of the shops and M/s Happy Home & Hotel Pvt. Ltd. is “License” and the Calcutta Municipal Corporation is “Licensor” of the Satyanarayan Park, A. C. Market. Accordingly, it is quite clear that the appellant is not the owner of the shops. In terms of provision of Section 22 of I.T. Act, 1961 “the annual value of property consisting of any building or lands appurtenant thereto of which the assessee is the owner, other than such portions of such property as he may occupy for the purpose of any business of profession carried on by him the profits of which are chargeable to income tax head “Income from House Property”. I am unable to agree with the observation of the AO that the shop(s) is a business asset and covered under House Property income for taxability. Therefore, I am unable to sustain the addition of Rs. 8,40,000/- made by AO towards the “Income From House Property” for deemed Rent. The said addition is directed to be deleted.”
6 ITA No.1325/Kol/2015 Madhu Devi Saraf A.Yr.2010-11
Aggrieved, the Revenue is in appeal before us on the following ground:
On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in considering that the assessee is not the owner of the shops and deleting the addition on rental income which is supported by Ld. CIT(A)’s order dated 12.06.2015 for the A.Y. 2011-12 on the same issue and on the findings made by the AO on the basis of Departmental Inspector. Ld. CIT(A) has also erred by not considering the order dated 12.06.2015 on the same issue passed by his predecessor.
We have heard the rival submissions. We find that the Ld. CIT(A) had given a categorical finding that the assessee is not the owner of these five shops hence, the provision of Section 22 of the Act cannot be invoked in the instant case. We find that the provision being deemed to be let out would apply only when the assessee prima facie is the owner of the property. The same cannot be made applicable for business assets. In the instant case, the assessee had used these five shops for the purpose of her business in the capacity of sub-licensee. These facts are not in dispute. Hence there is no scope for assessment of rental income on notional basis on fair market value determined by the Inspector of Income Tax. The Ld. AR also drew our attention to the provisions of newly inserted sub-section (5) to Section 23 of the Finance Act, 2017 w.e.f. 01.04.2018. For the sake of convenience, the newly inserted Section 23(5) is reproduced herein below:
“5. Where the property consisting of any building or land appurtenant thereto is held as stock-in-trade and the property or any part of the property is not let during the whole or any part of the previous year, the annual value of such property or part of the property, for the period up to one year from the end of the financial year in which the certificate of completion of construction of the property is obtained from the competent authority, shall be taken to be nil.”
7 ITA No.1325/Kol/2015 Madhu Devi Saraf A.Yr.2010-11 From the aforesaid provision, it would be clear that the legislature in its wisdom had contemplated to bring to tax the rental income from properties held as stock in trade on notional basis after one year from the date on which they were acquired, and this amendment is effective only from 01.04.2018. We find similar provision was conspicuously absent previously under the Income Tax Act more particularly, under the head ‘profits and gains of business or profession’ for chargeability of notional income for five shops. Hence, we hold that the Ld. CIT(A) had rightly deleted the addition made towards rental income under the head income from house property in the instant case and accordingly, the ground no. 2 of the revenue is dismissed.
In the result, the appeal of the Revenue is dismissed.
Order pronounced in the Court on 15.11.2017
Sd/- Sd/- [S.S. Viswanethra Ravi] [ M.Balaganesh ] Judicial Member Accountant Member
Dated : 15.11.2017 SB, Sr. PS Copy of the order forwarded to: 1. ACIT, Circle-35, Kolkata, Aayakar Bhawan Poorva, 8th Floor, 110, Shanti Palli, Kolkata- 700107. 2. Smt. Madhu Devi Saraf, 31, Shakespeare Sarani, Jasmine Tower, 4th Floor, R. No. 405A & B, Kolkata-700017. 3..C.I.T.- 4. C.I.T.- Kolkata. 5. CIT(DR), Kolkata Benches, Kolkata.