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Income Tax Appellate Tribunal, C Bench, Mumbai
Before: Shri Jason P. Boaz & Shri Ram Lal Negi
These appeals by the assessee are directed against the orders of the CIT(A)-10, Mumbai both dated 23.03.2015 for assessment years 2010-11 & 2011-12. These appeals having certain common issues were heard together and are being disposed off by way of this common order for the sake of convenience.
The facts of the case, briefly stated, are as under: - 2.1 The assessee company is engaged in business as builder and property developer. For A.Y. 2010-11, the original return of income was filed on 15.10.2010 declaring loss of `14,24,57861/-. A revised return was filed on 21.09.2011 declaring loss of `14,30,60,659/-. Subsequently another revised return of income was filed on 30.03.2012 declaring loss of `15,01,82,084/-. The case was selected for scrutiny and the assessment was completed under 2 West Pioneer Properties (India) Pvt. Ltd. section 143(3) of the Income Tax Act, 1961 (in short 'the Act') vide order dated 14.03.2013, wherein the assessee’s loss was determined at `9,10,06,577/-. On appeal, the learned CIT(A)-10, Mumbai disposed off the appeal vide the impugned order dated 23.03.2015, allowing the assessee partial relief. For A.Y. 2011-12, the assessee filed the original return of income on 30.09.2011 declaring loss of `5,33,98,520/-. A revised return of income was filed on 28.09.2012 declaring loss of `5,89,10,449/-. Subsequently another revised return of income was filed on 30.03.2013 declaring loss of `7,71,31,825/-. The case was selected for scrutiny and the assessment was completed under section 143(3) of the Act vide order dated 18.02.2014, wherein the assessee’s loss was determined at `2,30,03,570/- . On appeal, the learned CIT(A) disposed off the appeal vide the impugned order dated 23.03.2015 allowing the assessee partial relief.
Aggrieved by the order of the CIT(A)-10, Mumbai dated 23.03.2015 for both assessment years 2010-11 and 2011-12, the assessee has preferred these appeals. These two appeals will be disposed off in seriatum as under: - 4. Assessee’s appeal in ITA No. 310-4/Mum/2015 for A.Y. 2010-11 4.1 In this appeal assessee has raised the following grounds: - “1.(a) On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) erred in treating Property Lease Income of Rs.7,37,68,263/- as income under the head 'income from House Property' instead of income under the head 'Profits and Gains of Business or Profession" as declared by the appellant. 1.(b) On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) failed to appreciate that: (a) the appellant does not simply let out part of its premises but also provides a host of other complex services; (b) the revenue received by the appellant is derived from commercial exploitation of the premises and not merely from exercise of property rights; and (c) the entire revenue received by the appellant is a single line of activity and forms a composite whole.
3 West Pioneer Properties (India) Pvt. Ltd. 2.(a) Without prejudice to ground of appeal no. 1 above and on the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) ought not to have upheld the action of the learned Assessing Officer of bringing to tax the notional lease rental income of Rs.8,17,089/- being lease rental computed on straight line basis (pursuant to Accounting Standard 19 - Leases) and included in the total lease rental of Rs.7,37,68,263/- credited to the Profit and Loss Account. 2.(b) Without prejudice to ground of appeal no. 1 above and on the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) failed to appreciate that the lease rental computed (pursuant to Accounting Standard 19) was neither actually received nor receivable but is only computed on notional basis to comply with mandatory Accounting Standards and is therefore outside the scope of taxability under the Income Tax Act, 1961 (the "Act'). 2.(c) Without prejudice to ground of appeal no. 1 above and on the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) failed to appreciate that the entries passed in the books of accounts are not always relevant for the purposes of the Income Tax Act, 1961.
3. On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) ought to have allowed the entire depreciation of Rs.7,88,20,827/- claimed on the Mail building u/s. 32 of the Act as the same forms part of commercial asset of the appellant and therefore depreciation on the said Mali building is allowable u/s. 32 of the Act. 4.(a) On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) erred in upholding the disallowance made by the Assessing Officer of brokerage expenses amounting to Rs.18,69,387/- incurred by the appellant for grant of licenses to various users. 4.(b) On the facts and in the circumstances of the case and in law, the authorities below failed to appreciate that the brokerage expenses were incurred for the purpose of grant of license of the Mall premises to various users which activity is in the nature of commercial exploitation of the said Mall premises and therefore the brokerage expenses are allowable as deduction u/s. 37(1) of the Act having been incurred for the purpose of business of the appellant. 5.(a) On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) erred in 4 West Pioneer Properties (India) Pvt. Ltd. upholding the disallowance made by the Assessing Officer u/s. 14A of the Income Tax Act, 1961 r.w.r. 8D of the Income Tax Rules, 1962 to the extent of Rs.6,15,771/- as against the disallowance of Rs.1,22,932/- made by the appellant suo motto in its return of income. 5.(b) On the facts and in the circumstances of the case and in law. the authorities below ought to have appreciated that the term loan was obtained by the appellant for the purpose of construction of Mall and therefore interest expenditure amounting to Rs.4,92.839/- being proportionate interest on term loans ought not to have been disallowed under Rule 8D by the Assessing Officer.” 4.2 Assessee’s appeal in A.Y. 2011-12 In this appeal assessee has raised the following grounds: - “1.(a) On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) erred in treating Property Lease Income of Rs.9,36,99,661/- as income under the head 'income from House Property' instead of income under the head 'Profits and Gains of Business or Profession" as declared by the appellant. 1.(b) On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) failed to appreciate that: (a) the appellant does not simply let out part of its premises but also provides a host of other complex services; (b) the revenue received by the appellant is derived from commercial exploitation of the premises and not merely from exercise of property rights; and (c) the entire revenue received by the appellant is a single line of activity and forms a composite whole. 2.(a) On the facts and in the circumstances of the case and in law, the learned authorities below failed to appreciate that total “Recovery of Common Area Maintenance and Utility Expenses” credited to the Profit and Loss Account and taxed as “Business Income” inter alia included a sum of Rs.46,16,454/-, being Municipal Taxes recovered from the lessees and accordingly the whole of the Municipal Taxes of Rs.63,44,478/- is allowable as deduction from “Business Income” being directly connected to the said receipt. 2.(b) Without prejudice to the aforesaid grounds, and on the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) ought to have held that the Assessing Officer ought to have first added the revenue earned from recovery of Municipal Taxes of Rs.46,16,454/- 5 West Pioneer Properties (India) Pvt. Ltd. from the licensees (as part of Common Area Maintenance Charges) to the Property Lease Income of Rs.9,36,99,661/- as the same does not form part of the said Property Lease Income of Rs.9,36,99,661/- but form part of “Recovery of Common Area Maintenance and Utility Expenses” credited to the Profit and Loss Account which has been taxed as Business Income. 2.(c) Correspondingly, the residual Business Income would get reduced by aforesaid amount of Rs.46,16,454/- (representing recovery of municipal taxes).
3. On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) ought to have allowed the entire depreciation of Rs.7.96,67,391/- claimed on the Mall building u/s. 32 of the Act as the same forms part of commercial asset of the appellant and therefore depreciation on the said Mali building is allowable u/s. 32 of the Act. 4.(a) On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) erred in upholding the disallowance made by the Assessing Officer of brokerage expenses amounting to Rs.5,88,860/- incurred by the appellant for grant of licenses to various users. 4.(b) On the facts and in the circumstances of the case and in law, the authorities below failed to appreciate that the brokerage expenses were incurred for the purpose of grant of license of the Mall premises to various users which activity is in the nature of commercial exploitation of the said Mall premises and therefore the brokerage expenses are allowable as deduction u/s. 37(1) of the Act having been incurred for the purpose of business of the appellant.”
5. Grounds No. 1(a) & 1(b) for both assessment years 2010-11 & 2011-12 5.1 In these identical grounds, the assessee assails the order of the learned CIT(A) as being erroneous in treating property lease income of `7,37,68,263/- for A.Y. 2010-11 and `9,36,99,661/- for A.Y. 2011-12 as income under the head ‘income from house property’ instead of income under the head ‘profits and gains from business’. It is further contended that the assessee has not merely let out part of its premises, but also provides a host of other complex services and the revenue received by the assessee therefrom is derived from commercial exploitation of its premises and therefore constitutes business income as declared by the assessee. The learned A.R. of the assessee contends that this issue has been 6 West Pioneer Properties (India) Pvt. Ltd. considered and held in favour of the assessee by the decision of the Coordinate Bench of the Tribunal in the assessee’s own case for A.Y. 2009- 10 in ITA No. 3789/Mum/2014 dated 05.01.2016. 5.2 Per contra, the learned D.R. placed reliance on the orders of the authorities below. 5.3.1 We have heard the rival contentions and perused and carefully considered the material on record; including the judicial pronouncements cited. We find that the issue of whether or not the income earned by the assessee from leasing out of its property and for offering a host of other complex services is to be construed as commercial exploitation of its properties as stated in its objects and therefore to be held to be exigible to tax as ‘business income’ as declared by the assessee or as ‘income from house property’ as held by Revenue, has been considered and adjudicated by a Coordinate Bench of the Tribunal in the assessee’s own case for A.Y. 2009-10. In its order in ITA No. 3879/Mum/2014 dated 05.01.2016, the Coordinate Bench has decided this issue in favour of the assessee holding as under at paras 8 and 8.1 thereof: - “8. We have given a thoughtful consideration to the orders of the authorities below. We have also gone through the judicial decisions relied upon by the Ld. Counsel. The entire dispute has to be considered in the light of the decision of the Hon’ble Supreme Court in the case of Chennai Properties & Investments Ltd Vs CIT 373 ITR 673 wherein the Hon’ble Apex Court has held that letting out of the properties being the business of the assessee, the income from which has to be treated as income from business. The Hon’ble Supreme Court has further observed that the Memorandum of association of the assessee company clearly mentions that main objects is to acquire and hold the properties and holding the aforesaid properties and earning income by letting out those properties is the main objective of the company. Therefore, any income earned has to be taxed under the head ‘Income from ‘business’. 8.1. In the present case also we find that in A.Y. 2008-09, the AO himself has accepted the nature of business of the assessee as “Operation of Mall’ therefore any income earned by the assessee by the operation of mall has to be taxed under the head Profits & Gains of Business or Profession. The main object of the company as per the Memorandum of Association also refers to such activities as the main object for which the company is incorporated. As the main object itself shows that the assessee-company has been incorporated for 7 West Pioneer Properties (India) Pvt. Ltd. running shopping malls /departmental stores, super markets, shopping arcades, shopping outlets, entertainment, recreation and amusement centre therefore any income earned from such activities has to be taxed under the head profits and gains of business. This will be in line with the ratio laid down by the Hon’ble Supreme Court in the case of Chennai Properties & Investment Ltd (supra). We, accordingly set aside the findings of the Ld. CIT(A) and direct the AO to treat the income under the head Profits & Gains of Business.” 5.3.2 Respectfully following the ratio of the decision of the Hon'ble Apex Court in Chennai Properties & Investments Ltd. vs. CIT 373 ITR 673 (SC) and the finding rendered by the Coordinate Bench in the assessee’s own case for A.Y. 2009-10 (supra), we set aside the findings of the learned CIT(A) and direct the Assessing Officer to treat the income earned by the assessee from running and operation of a Mall and service charges as income from profits and gains of business. Consequently grounds 1(a) and (b) of the assessee’s appeals for A.Y. 2010-11 and 2011-12 are allowed.
6. Grounds No. 2(a), 2(b) and 2(c) for A.Y. 2010-11 6.1 These grounds (supra) are raised as alternate grounds without prejudice to ground No. 1, in respect of the addition on account of notional lease rental income amounting to `7,37,68,263/- for A.Y. 2010-11. In view of the finding rendered by us in respect of grounds No. 1(a) and 1(b) at paras 5.3.1 and 5.3.2 of the order (supra) that the income earned by the assessee from running and operation of a Mall and service charges recovered is to be treated and assessed as ‘income from profits and gains of business’ and thereby addressing the assessee’s grievance, we do not deem it necessary to adjudicate these alternate grounds.
7. Grounds No. 2(a) to 2(c) for A.Y. 2011-12 7.1 In these grounds, the assessee contends that since the total ‘recovery of common area maintenance and utility expenses’ constitutes business income; from which Municipal taxes paid amounting to `46,16,454/-, the same is allowable as a deduction from business income. It is submitted that this claim of the assessee has been wrongly decided by the authorities below. In view of our holding that the income earned by the assessee from running and operation of Mall and a provision of host of other services and utilities is to be construed as commercial explanation of 8 West Pioneer Properties (India) Pvt. Ltd. its properties and is exigible to tax as ‘business income’ as declared by the assessee, we hold that the assessee is entitled to be allowed deduction of Municipal taxes of `46,16,454/- from its business income. We hold and direct accordingly. Consequently, assessee’s grounds No. 2(a) to 2(c) are allowed.
8. Grounds No. 3, 4(a) & 4(b) for both assessment years 2010-11 & 2011-12 8.1 In these identical grounds, the assessee contends that the learned CIT(A) ought to have allowed; (i) the depreciation claimed on the Mall building in these assessment years under section 32 of the Act as the same forms part of commercial assets of the assessee, and (ii) brokerage expenses incurred for grant of licence to various users. 8.2 We have heard the rival contentions and perused and carefully considered the material on record. We find that the Coordinate Bench of the Tribunal in its order in the assessee’s own case for A.Y. 2009-10 dated 05.01.2016 (supra) at para 8.2 thereof has held that the assessee is entitled for claim of depreciation on the Mall building and brokerage expenses. Following the order of the Coordinate Bench for A.Y. 2009-10 (supra), and having held that the assessee’s income earned from running and operation of Mall and service charges etc. is to be taxed under the head profits and gains of business, we hold that in this regard the assessee is entitled for claim of depreciation on Mall building and also brokerage expenses incurred for grant of licence to various users. Consequently, grounds 3 and 4(a) and 4(b) raised by the assessee for assessment years 2010-11 and 2011-12 are allowed.
9. Grounds No. 5(a) & 5(b) for A.Y. 2010-11 9.1 In these grounds, the assessee contends that the learned CIT(A) erred in upholding the disallowance made by the AO under section 14A of the Act r.w. Rule 8D of the I.T. Rules to the extent of `6,15,771/- as against the suo moto disallowance of `1,22,932/- made by the assessee in the return of income; without appreciating that since the term loan was obtained by the assessee for the purpose of construction of the Mall, such 9 West Pioneer Properties (India) Pvt. Ltd. a disallowance ought not to have been made. It was contended by the learned A.R. of the assessee that this issue was considered by the Coordinate Bench of the Tribunal in the assessee’s own case for A.Y. 2009- 10 and in its order in ITA No. 3879/Mum/2014 dated 05.01.2016, the Coordinate Bench held in favour of the assessee and deleted the disallowance, following the decisions of the Hon'ble Bombay High Court in the case of CIT vs. Reliance Utilities and Power Ltd. (313 ITR 340) and CIT vs. HDFC Bank Ltd. (366 ITR 505). 9.2.1 We have heard the rival contentions and perused and carefully considered the material on record; including the judicial pronouncements cited. We find from the material on record that the assessee earned exempt income of `8,06,800/- (i.e. dividends from Mutual Funds) and had made a suo moto disallowance of `1,22,932/-. The learned CIT(A) at para 5.3 of the impugned order after examining the details on record has rendered the finding that the facts during the year under consideration are identical to the A.Y. 2009-10 as submitted by the learned A.R. of the assessee. In this factual matrix of the case, we find that on the issue of disallowance under section 14A r.w. Rule 8D the Coordinate Bench of the Tribunal in the assessee’s own case for A.Y. 2009-10 in its order in ITA No. 3879/Mum/ 2014 dated 05.01.2016 deleted the disallowance under section 14A r.w. Rule 8D, following the decisions of the Hon'ble Bombay High Court in the case of Reliance Utilities and Power Ltd. (313 ITR 40) and HDFC Bank Ltd. (366 ITR 505), holding as under at para 11.2 thereof: - “11.2. We find force in the contention of the Ld. Counsel. A perusal of the factual matrix elsewhere shows that the assessee was having sufficient own funds for making the investments and for giving interest free advances. The facts of the case are squarely covered by the decision of the Hon’ble High Court of Bombay in the case of Reliance Utilities and Power Ltd(supra) followed by the Hon’ble High Court of Bombay in the case of CIT Vs HDFC Bank Ltd. 366 ITR 505. Respectfully following the same, we direct the AO to delete the impugned disallowances made on account of interest expenditure. Ground No. 5 & 6 are accordingly allowed.” 9.2.2 Following the decision of the Coordinate Bench of the Tribunal in the assessee’s own case for A.Y. 2009-10 (supra), which followed the decisions