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Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
Before: SHRI C.N. PRASAD, JM & SHRI RAJESH KUMAR, AM Shri Ashwin Kashinath
सुनवधई की तधयीख /Date of Hearing : 5.1.2017 घोषणध की तधयीख /Date of Pronouncement : 18.1.2017 आदेश / O R D E R PER RAJESH KUMAR, A. M: This is an appeal filed by the revenue challenging the order dated 16.2.2016 passed by the ld. CIT(A)-2, Mumbai for the assessment year 2009- 10. 2. Grounds of appeal taken by the revenue are as under: “1 Whether on the facts and in the circumstances of the case and in law, the CIT(A) was right in holding that the rental Income from the business centre had to be assessee's business Income against the Income from other sources held by the A.O, ignoring the facts on 2 record in the form of confirmation filed by the Tenant which did not state any services were provided by assessee which showed that the assessee was receiving mere rental Income from letting out premises not owned by it ? " 2. " Whether on the facts and in the circumstances of the case and in law, the CIT(A) was right in allowing expenditure debited to Profit & Loss Account as substantial part of the expenditure pertains to the payments made to internal auditors, income tax consultant, service tax consultant and legal consultants even when this expenditure pertains to earlier court cases and also directing the A.O. to allow the expenses under the head 'Business'? " 3. "Whether on the facts and in the circumstances of the case and in law, the CIT(A) was right in allowing depreciation of Rs.56,048/- on plant and machinery installed in the leased property whose income is to be assessed as 'Income from Other Sources, even when the assessee's business was actually discontinued?
3. At the outset, the ld.AR pointed out that the case of the assessee is fully covered in favour of the assessee and against the revenue by the decision of co-ordinate bench of the Tribunal in assessee’s own case and therefore the appeal filed by the revenue should be dismissed in view of the said decision.
4. The issue raised in ground no.1 is against upholding the treatment Of rental Income from property from business centre as business income instead of other sources by the AO. The issue of rental income from business center is covered in favour of the assessee by the order of co-ordinate bench of the Tribunal in assessee’s own case in (AY-2003- 04) order dated 15.12.2010 vide para 2.2.5 to 2.2.7 of the order which is produced as below:
3 “2.2.5 We have perused the records and considered the rival contentions carefully. The dispute is regarding the nature of income received by the assessee from the business centre. The assessee was earlier in some other business which had closed. After closure of the said business, the assessee had passed a resolution for making productive use of its premises for running the same as a business centre under the provisions of clause 34 of the object clause of the memorandum of association which authorized the assessee company to carry one any other business calculated directly or indirectly to enhance the value of or render profitable any of the company's properties. The said resolution was approved in the 38th Annual General Meeting of the company a copy of which has been placed on record. In pursuance of such resolution the company developed the business centre in two phases as is clear from the 39th Annual Report of the company placed on record. The assessee company spent substantial amount on development of the premises as business centre. A copy of the balance sheet as on 31.3.2001 placed on record shows that out of gross block of assets of Rs.101.92 lacs the assessee had spent a sum of Rs.45.63 lacs on improvement of the premises and on furniture and fittings and equipment. The business centre had the facilities such as furniture, fixtures, telephone direct lines, EPABX, telephone board line, water, electricity, security, cleaning facilities, board room maintenance facilities and facilities for receiving and dispatch of posts etc. 2.2.6 The assessee had taken the premises on lease on month to month basis and after developing the same as business centre had sublet the same to different corporate entities along with facilities. The issue is whether income from subletting of the premises with various facilities could be considered as income from business or income from other sources. CIT(A) has held that the assessee was deemed owner of the property under section 27(iiib). But since the assessee had sublet the properties with various facilities he has held that income had to be assessed as income from other sources and not as income from house property. The department has not challenged the decision of CIT(A) not to assess the income as income from house property. The premises have been taken by the assessee on month to month lease which is specifically excluded under the provisions of section 27(iiib) and the assessee therefore cannot be deemed to be the owner of the property. In any case in our view ownership issue is not very relevant because the premises had been sublet inseparably with 4 furniture, fixtures, equipments and other facilities as intention of the assessee was to sublet the property as a business centre and in such cases where the letting is inseparable with equipments and facilities the income has to be assessed as income from other sources under section 56(2)(iii) if the same is not found assessable as income from business in view of the judgment of Hon'ble Supreme Court in case of Sultan Brothers (51 ITR 353). The issue is therefore whether the income has to be assessed as business income or income from other sources. 2.2.7 On careful consideration of the various aspects of the matter as well as the various judgments placed on record we are of the view that rental income on the facts of the case has to be assessed as business income. It is not a case of simple letting out of the property to enjoy the rental income. The assessee has developed the property and also made provisions for various services as mentioned earlier with a view to commercially exploit the property. The property has been let out with various facilities and amenities for corporate clients such as board room facilities, letters receipt/dispatch facilities, computer with internet facilities, security arrangements in addition to telephone and electricity and water facilities etc. The income has therefore to be assessed as business income. This view is supported by the judgment of Hon'ble Supreme Court in case of S.G.Mercantile Corporation Pvt. Ltd. Vs CIT (83 ITR 700). In the said case one of the object of the assessee in its memorandum of association was to take on lease or otherwise acquire and to hold, improve, lease or otherwise dispose of land, houses and other real estate and personal properties and to deal with the same commercially. The assessee had taken one property which was remodeled and repaired so as to make it fit for subletting as shop, stalls and ground space to shopkeepers etc. The issue was whether rental income should be assessed as business income or income from other sources. Hon'ble Supreme Court observed that taking the property on lease and subletting portion thereof was part of business of the assessee and therefore the income had to be assessed as business income since the assessee was not owner of the property. The case of the assessee is similar. The decision of the tribunal in case of Harvinderpal Mehta (HUF) Vs DCIT (122 TTJ 163) also supports the case of the assessee. In that case also the assessee was running a business centre in the premises with various facilities such as receptionist, telephone operator, common waiting/ guest room, centralized air conditioning with other services like sweeper, telephone, furniture, fax machines etc. The tribunal observed that the object of the assessee was to run the business centre by exploiting the property 5 and not mere letting out the same on rent. It was accordingly held that the income had to be assessed as income from business. The Learned DR has placed reliance on the judgment of Hon'ble High Court of Gujarat in case of Harikrishna Family Trust Vs CIT (306 ITR 303) in support of the case of the department. The said case in our view is distinguishable. The assessee in that case had taken the property on lease which was incomplete and after completing the construction the assessee let out the premises to Posts & Telegraph department. The property had not been developed to provide for any other services. It was a case of simple letting out of the property to enjoy the rental income from a single tenant. It was under these circumstances that the High Court held that the income had to be assessed as income from other sources. The case of the assessee is different as pointed out earlier as in this case the premises had been developed as a business centre and sublet to corporate entities along with various services and facilities. We therefore hold that the rental income in this case has to be assessed as business income. The order of CIT(A) is set aside and the claim of the assessee is allowed.”
Respectfully following the decisions of the Tribunal, in assessee’s own case, the issue raised by the revenue is dismissed.
Ground no.2 is against deletion of disallowances in respect of payment made to internal auditor, income tax consultant, service tax consultant and legal consultants by the ld.CIT.
The raised in the above ground is also covered by the decision of the Tribunal in assessee’s own case vide para 2.7.3 of (supra), wherein it has been held vide para as under : “2.7.3 We have perused the records and considered the rival contentions carefully. The dispute is regarding allowability of expenditure of Rs.32,56,724/-. The details of expenditure have been given in para 2.7 earlier. The AO has held that the expenditure either pertained to the discontinued business or to the capital asset of the company and therefore he disallowed the claim. CIT(A) has directed the AO to examine the nature of expenses and capitalize such 6 expenses which related to the capital asset of the company and to allow the professional expenses of revenue in nature under income from 'other sources'. We find no infirmity in the order of CIT(A) directing the AO to examine the nature of expenses and capitalize all expenditure related to capital asset of the company. As regards the direction of CIT(A) to allow professional expenses of revenue in nature against income from other sources, we modify the direction and hold that these expenses will be allowed against the business income since we have already held that income from business centre has to be assessed as business income. We dispose off the ground accordingly”
Respectfully following the decision of the co-ordinate Bench of the Tribunal, we are inclined to dismiss the ground taken by the revenue.
The issue raised in the ground no.3 is against the finding of the ld.CIT(A) allowing depreciation of Rs.56,048/- on plant and machinery installed in the leased property by ignoring the facts that the business was discontinued and the income to be assessed as “income from other sources”. We find that this issue also stands covered in favour of the assessee by the decision of the Tribunal in assessee’s own case vide para 2.8 and 2.8.1 of (supra), wherein it has been held vide para as under :