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Income Tax Appellate Tribunal, “B” BENCH, PUNE
Before: SHRI D. KARUNAKARA RAO, AM & SHRI VIKAS AWASTHY, JM
आदेश / ORDER
PER VIKAS AWASTHY, JM :
These three appeals by two different assessees are taken up These three appeals by two different assessees are taken up together for adjudication as issues raised in the appeals are arising from same set of facts and identical issues are involved in all the three appeals. Both the assessees are closely related to each other (Father & Son).
2. ITA No. 666/PUN/2015 by assessee [Shri Ishwarlal S. Lalwani ITA No. 666/PUN/2015 by assessee [Shri Ishwarlal S. Lalwani (Jain)] is directed against the order of Commissioner of Income Tax (Appeal)-II, Nashik dated 27.03.2015 for the assessment year 2009-10.
3 ITA Nos.666, 667 & 999/PUN/2015 A.Ys. 2009-10 & 2010-11
In ITA No.667/PUN/2015, the assessee has assailed the order of
Commissioner of Income Tax (Appeal)-II, Nashik dated 31.03.2015 for
the assessment year 2010-11.
ITA No. 999/PUN/2015 by assessee (Shri Manish Ishwarlal
Lalwani Jain) is directed against the order of Commissioner of Income
Tax (Appeal)-II, Nashik dated 19.05.2015 for the assessment year 2009-
10.
The facts germen to all the three appeals are: Assessees are the
Directors of M/s. Rajmal Lakhichand Jewellers Pvt. Ltd. During the
course of assessment proceedings in the case of respective assessees,
the Assessing Officer observed that the assessees have purchased flat at
Khar, Mumbai. Flat No.701 Mangal Sandesh, Khar, Mumbai was
purchased in the name of Shri Ishwarlal S. Lalwani and Flat No.801 in
the same building was purchased in the name of Shri Manish Ishwarlal
Lalwani Jain. The loan installments for the flats and interest were paid
by the company M/s. Rajmal Lakhichand Jewellers Pvt. Ltd. Both the
flats were joined and were made in the form of duplex residential single
unit. The Assessing Officer held that interest and loan amount paid by
the company in respect of flats is taxable as perquisite within the
meaning of section 2(24)(iv) of the Income Tax Act, 1961 (hereinafter
referred to as ‘the Act’) in the hands of both assessees. Apart from above,
Assessing Officer held that expenditure in respect of above said flats in
the nature of Electricity and Telephone expenses paid by the company
also constitute perquisite in the hands of both assessees. The Assessing
Officer made addition of the aforesaid expenditure as well, as perquisite
4 ITA Nos.666, 667 & 999/PUN/2015 A.Ys. 2009-10 & 2010-11
in the hands of assessee. Accordingly, following additions were made in
the hands of assessee in respect of flats.
(Amount in Rs.)
In the case of Ishwarlal S. Lalwani (Jain)
Assessment Addition on Addition on Addition on year account of account of account of Total interest on re-payment expenditure house of loan related to flats property 2009-10 2009-10 21,92,769/- 21,92,769/- 30,52,150/- 30,52,150/- 24,000/- 24,000/- 52,68,919/- 52,68,919/-
2010-11 21,01,227/- 27,48,724/- 2,71,142/- 51,21,093/-
In the case of Manish Ishwarlal Lalwani Jain
2009-10 21,92,769/- 30,52,150/- 24,000/- 52,68,919/-
4. Aggrieved by the additions made during assessment proceedings, Aggrieved by the additions made during assessment proceedings,
the assessees filed appeal in their respective cases for the respective
assessment years. The Commissioner of Income Tax (Appeal) confirmed
the additions made by the Assessing Officer. Now, both the assessees are
in second appeal before the Tribunal.
5. Shri Sunil Pathak appearing on behalf of assessees submitted that Shri Sunil Pathak appearing on behalf of assessees submitted that
Co-ordinate Bench of Tribunal in appeal filed by the company, M/s.
Rajmal Lakhichand Jewellers Pvt. Ltd. in ITA No. 891/PN/2013 for the
assessment year 2007-08 decided on 29.02.2016 has held that duplex
flat at Khar, Mumbai though purchased in the name of Directors is in
fact owned by the company. The Tribunal has held that company is
eligible for claiming depreciation, interest expenditure and other eligible for claiming depreciation, interest expenditure and other
expenses in respect of said flats. The ld. AR furnished copy of order of
5 ITA Nos.666, 667 & 999/PUN/2015 A.Ys. 2009-10 & 2010-11
Tribunal in the case of M/s. Rajmal Lakhichand Jewellers Pvt. Ltd. Vs.
JCIT in ITA No.891/PN/2013 (supra).
The ld. Counsel submitted that once it has been held that the legal
owner of the flat is company, there is no question of making addition in
respect of interest on house property, repayment of loan and other
related expenditure such as telephone and electricity in the hands of
assessee as perquisite.
5.1 The ld. AR pointed that the flats in question are used for business
purpose. The employees/officials of M/s. Rajmal Lakhichand Jewellers
Pvt. Ltd. use flat at Khar, Mumbai for stay as and when they visit to
Mumbai in connection with company’s business. The Ld. AR further
contended that the flats are shown in the Balance Sheet of the company
and depreciation is also claimed on same. The Assessing Officer in
original assessment proceedings for assessment year 2007-08 had
accepted company’s claim of deprecation on the said flats.
Dr. Vivek Aggarwal and Shri Mukesh Jha representing the
Department vehemently defending the findings of Commissioner of
Income Tax (Appeal) submitted that two flats at Khar, Mumbai are
registered in the names of Shri Ishwarlal S. Lalwani (Jain) (Flat No. 701)
and Shri Manish Ishwarlal Lalwani Jain ( Flat No. 801), respectively.
They had obtained loan from State Bank of India, Jalgaon for purchase
said flats. The assessees are real and legal owner of said two flats.
Though the company has shown the flats in its book of accounts and
has even claimed depreciation on the said flats but the company is not
beneficial owner of the flats. The Authorities below rightly treated the
6 ITA Nos.666, 667 & 999/PUN/2015 A.Ys. 2009-10 & 2010-11
payment of interest, repayment of loan and other expenses relating to
flats as perquisite/benefit u/s. 2(24)(iv) of the Act in the hands of both
assessees. The ld. DR submitted that in the case of sale of flats, it would
be assesses who would be claiming capital gain/ loss and not the
company. The ld. DR further pointed that the flats are continuously
occupied by Manish Ishwarlal Jain and his family, therefore, it cannot be
said that the flats are used by staff/officials of the company for business
purpose. The ld. DR prayed for affirming the findings of Commissioner of
Income Tax (Appeal) and dismisses the appeals of assessees.
The ld. AR Controverting the submissions made on behalf of
Department submitted that flats were purchased by the company in the
names of assessees only as a matter of convenience. The de-facto and
beneficial owner of the flats is M/s. Rajmal Lakhichand Jewellers Pvt.
Ltd. The Board of Directors of company had authorized purchase of flats
in the name of Directors and flats are used for the business purpose of
the company. The ld. AR stated at Bar that in case a situation arises
that flats are sold, the sale proceeds of the flats would be accounted in
the hands of company and not in the names of assessees.
7.1 The ld. AR fairly admitted that one of the flat is occupied by Shri
Manish Ishwarlal Lalwani Jain and his family, therefore, fair rent of the
flat may be charged to him in respect of one flat.
We have heard the submissions made by representatives of rival
sides and have perused the orders of Authorities below. The common
issue running through all the three appeals, is with respect to charging
7 ITA Nos.666, 667 & 999/PUN/2015 A.Ys. 2009-10 & 2010-11
of interest, repayment of loan and expenditure relating to flats at Khar,
Mumbai as perquisite u/s. 2(24) (iv) of the Act in the hands of assessee.
It is an undisputed fact that two flats i.e. Flat No. 701 & Flat No.
801 were purchased in the names of Ishwarlal S. Lalwani (Jain) and
Manish Ishwarlal Lalwani Jain, respectively. The aforesaid persons are
Directors of M/s. Rajmal Lakhichand Jewellers Pvt. Ltd. It is the
contention of assessees that flats at Khar, Mumbai were purchased in
the name of Directors for the sake of convenience. The Board of
Directors of the company has authorized purchase of flats in the name of
Directors. The cost of flats was paid by the company and company has
reflected the said flats in its Balance Sheet. The company has been
claiming depreciation on said flats. The flats are being used for the
business purpose of the said company.
We find that the issue regarding payment of interest, loan and
other expenses relating to flats whether admissible in the hands of
company, was raised before the Tribunal in appeal filed by M/s. Rajmal
Lakhichand Jewellers Pvt. Ltd. in ITA No. 891/PN/2013 (supra). The
relevant ground raised by the assessee company in its appeal reads as
under :
“1) The learned CIT(A) erred in confirming the disallowance of Rs.38,87,288/- on account of interest and of Rs.48,194/- out of telephone and electricity expenses on the ground that these expenses relate to the flats at Khar, Mumbai and these flats are not owned by the appellant company but by its directors Shri Ishwarlal Jain and Shri Manish Jain (page 12 CIT(A) order).”
The Tribunal vide order dated 29.02.2016 held that company is The Tribunal vide order dated 29.02.2016 held that company is
eligible to claim interest expenditure and other expenditure such as
telephone and electricity expenditure relating to the flats at Mumbai.
8 ITA Nos.666, 667 & 999/PUN/2015 A.Ys. 2009-10 & 2010-11
The relevant extract of the findings of Tribunal in the issue are as under:
“11.We have considered the rival arguments made by both the “11.We have considered the rival arguments made by both the sides, perused the orders of the AO and CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the AO in the instant case disallowed interest of Rs.38,87,288 and telephone/electricity charges of Rs.48,154/- in respect of the property at Khar, Mumbai on the ground that the interest and other expenses claimed has no relation with the business of the assessee company. We find in appeal the Ld.CIT(A) not only upheld the action of the AO but he further enhanced the disallowance by Rs.31,71,672/- being the interest on loan amount of Rs.2,64,30,607/- diverted for non business purposes. The reasoning for such enhancement has already been reproduced in the findings given by the CIT(A). It is the submission of the Ld. Counsel for the assessee that since the the submission of the Ld. Counsel for the assessee that since the flats have already entered into the block of asset and depreciation claimed in the original return has been allowed and the same has not been withdrawn, therefore, it is to be held that the flat at Khar is a business asset and utilized for the purpose of business. It is also his submission that in view of various decisions the flats need not to be registered in the name of the assessee company.
We find merit in the submission of the Ld. Counsel for the assessee. There is no dispute to the fact that the flats purchased at Khar has been shown in the asset side of the balance sheet and the loan obtained from bank in the name of the directors has been shown as liability in the liability side of the balance sheet. The shown as liability in the liability side of the balance sheet. The Board of Directors vide resolution dated 10-02-2006 have approved for the purchase of the flats in the name of the 2 directors. Depreciation in the computation statement is as per Form No.3CD enclosed along with return of income. In the schedule of depreciation enclosed along with Form 3CD we find depreciation has been claimed at Rs.2,18,73,103/- which includes the depreciation of Rs.62,39,688/- on building/flats amounting to Rs.5,98,28,719/- (page 35 of the paper book). The submission of the assessee before the CIT(A) that the assessee’s claim for depreciation has been accepted for the A.Y. 2007-08 is also not disputed by the CIT(A). We find before CIT(A) the assessee has inter alia made following submissions :
“It was only for the sake of convenience that the said flats were registered in the name of the Directors. The facts of the case clearly show that the company is the real owner of both the flats notwithstanding their registration in the names of directors. It is the de-facto and beneficial ownership which is material and relevant.
In the context of depreciation the courts have accepted the assessee’s claim for the same even when property/vehicles are not registered in the name of company/firm but in the names of directors/partners.
Addl.CIT Vs. Manjeet Engg. Ind. 154 ITR 509 Delhi CIT Vs. Fazilka Dabwali 270 ITR 398; P&H
Ratio of the said decisions would also apply to the facts of our case also. It is also important to note that the
9 ITA Nos.666, 667 & 999/PUN/2015 A.Ys. 2009-10 & 2010-11
appellant’s claim for depreciation has been accepted also for the A.Y. 2007-08.
We are enclosing herewith a copy of our sales tax We are enclosing herewith a copy of our sales tax registration certificate wherein the particulars of Offices and its addresses are mentioned.”
From the above it is clearly seen that the assessee’s claim of depreciation which has been accepted by the AO in the original assessment has not been withdrawn. This otherwise implies that the AO has accepted the flat as business asset used for the purpose of business. We find the Hon’ble Punjab & Haryana High Court in the case of CIT Vs. Fazilka Dabwali TPT Company Pvt. Ltd. following the decision of Hon’ble Supreme Court in the case of CIT Vs. Poddar Cement Pvt. Ltd. and others reported in 226 ITR 625 has allowed the claim of depreciation on buses purchased in the name of its directors. Although the buses were not registered the name of its directors. Although the buses were not registered in the name of the company it was held that registration of the same in the name of the company is not relevant and the company is entitled to depreciation in respect of the buses.
The Hon’ble Supreme Court in the case of CIT Vs. Poddar Cement Pvt. Ltd. (Supra) has held that under the common law, “owner” means a person who has got valid title legally conveyed to him after complying with the requirements of law such as the Transfer of Property Act, Registration Act, etc. But, in the context of section 22 of the Income tax Act, 1961 having regard to the ground realities and further having regard to the object of the Income tax realities and further having regard to the object of the Income tax Act, namely, " to tax the income", " owner " is a person who is entitled to receive income from the property in his own right. The Hon’ble Delhi High court in the case of Addl.CIT Vs. Manjeet Engineering Industries (Supra) has held that when a partner brings his property to the partnership firm and the firm treats his property as belonging to the firm only, it has the effect of transferring the property to the firm. Document in writing and registration is not necessary. Following the above principles and considering the fact that the company has already shown the asset in the balance sheet of the assessee company and the loan obtained by the directors for purchase of the flats has been shown as liability in the liability side of the balance sheet and the depreciation claimed by the assessee on such flat has not been rejected in the by the assessee on such flat has not been rejected in the assessment completed u/s.143(3), therefore, disallowance of interest and the telephone/electricity expenses on account of flat at Khar, Mumbai in our opinion is not justified. In view of the above discussion, we are of the considered opinion that the CIT(A) was not justified in disallowing the interest expenditure and telephone and electricity expenditure relating to the flats at Mumbai. We accordingly set aside the order of the CIT(A) and the grounds raised by the assessee are allowed.”
The Co-ordinate Bench of Tribunal has held that the company is
eligible to claim interest and other expenditure in respect of the flats, as
the flats are owned by company. Thus, we find no merit in the
10 ITA Nos.666, 667 & 999/PUN/2015 A.Ys. 2009-10 & 2010-11
submissions of ld. DR that interest and other expenditure relating to
flats at Khar, Mumbai should be charged as perquisites in the hands of
assessee. In so far as apprehension of Department that at the time of
sale of flats, the capital gain/loss, as the case may be, arising from such
sale would be claimed by the assessees, the ld. AR has stated at Bar that
once the flats are reflected in the Balance Sheet of company, there is no
question of assessees claiming such benefit at the time of sale of flats.
Even otherwise, once the flats are held to be assets of company, the
individuals have no right to claim any benefit flowing from title of the
flats. The apprehension of the ld. DR is without any substance.
Thus, in view of the facts of the case and the order of co-ordinate
Bench in the case of M/s. Rajmal Lakhichand Jelwellers (supra), the ITA
No. 666 & 667/PUN/2015 are allowed.
ITA No. 999/PUN/2015
As regards taxability of payment of interest on house property,
repayment of loan and expenditure related to flat at Khar, Mumbai as
perquisite u/s. 2(24)(iv) is concerned, the findings given by us in ITA No.
666 & 667/PUN/2015 would mutatis-mutandis apply in present appeal.
In this case the ld. AR has fairly admitted that one of the flat has
been occupied by Manish I. Jain (assessee) who is staying there with his
family. The ld.AR has further admitted that so far no rent is being
charged from him by the company. A fair rent may be assessed and
charged for the use of flat from the said assessee. The ld. AR has been
fair in admitting this fact. Since, this facet of the issue is highlighted for
11 ITA Nos.666, 667 & 999/PUN/2015 A.Ys. 2009-10 & 2010-11
the first time before the Tribunal, we deem it appropriate to remit this appeal to the file of Assessing Officer. The Assessing Officer shall determine the fair rental value of the flat and assess the same in the hands of assessee, in accordance with law. The Assessing Officer before making any such addition shall grant opportunity of hearing to the assessee. Thus, the appeal of assessee is allowed for statistical purpose.
In the result, appeal of assessee in ITA No. 666/PUN/2015 and 667/PUN/2015 are allowed and appeal of assessee in ITA No.999/PUN/2015 is allowed for statistical purpose.
Order pronounced on Monday, the 29th day of January, 2018.
Sd/- Sd/- (डी. क�णाकरा राव/D. Karunakara Rao) (�वकास अव�थी/ Vikas Awasthy) लेखा सद�य / ACCOUNTANT MEMBER �या�यक सद�य / JUDICIAL MEMBER लेखा सद�य / �या�यक सद�य / पुणे/ Pune; �दनांक/ Dated : 29th January, 2018 SB आदेश क� ��त�ल�प अ�े�षत/ Copy of the Order forwarded to : अपीलाथ�/ The Appellant. 1. ��यथ�/ The Respondent. 2. आयकर आयु�त (अपील) / The CIT(A)-II, Nashik 3. 4. The Pr. Commissioner of Income Tax-II, Nashik �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, “बी” ब�च, �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, “बी” ब�च, 5. 5. पुणे/ DR, ITAT, “B” Bench, Pune. गाड� फ़ाइल/ Guard File. 6.
// True Copy // //स�या�पत ��त// True// आदेशानुसार/ BY ORDER,
�नजी स�चव / Private Secretary, आयकर अपील�य अ�धकरण, पुणे/ ITAT, Pune.