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Income Tax Appellate Tribunal, ‘C’ BENCH, KOLKATA
Before: Shri Rajpal Yadav, Vice-(KZ) & Dr. Manish Borad
Per Rajpal Yadav, Vice-President (KZ):- The present appeal is directed at the instance of assessee against the order of ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi dated 30th January, 2024 passed for assessment year 2013-14.
ITA No. 467/KOL/2024 (A.Y. 2013-2014) Pioneer Property Management Limited 2. Though the assessee has taken eleven grounds of appeal, but its grievances revolve around two issues, namely- (a) whether assessee is entitled for deduction of Rs.58,43,180/- incurred by it on a premises used for Guest House by the Company;
(b) whether ld. CIT(Appeals) has rightly confirmed the disallowance of Rs.1,11,450/-, which represents employees’ contributions not paid to the respective EPF and ESI Accounts.
In rest of the grounds, the assessee has taken peripheral arguments. As far as second-fold of grievance is concerned, this aspect is covered against the asseessee by the decision of the Hon’ble Supreme Court in the case of Checkmate Services (P) Limited –vs.- CIT reported in 143 taxmann.com 178. The Hon’ble Supreme Court has held that if employees’ contribution was not paid to the PF/ESI accounts within due date provided under PF & ESI Acts, then, the assessee is not entitled to claim any deduction as an expenditure. In view of the above, this issue pleaded in Ground No. 5 is decided against the assessee.
The only substantial ground remained for our adjudication is whether the assessee is entitled for the expenses incurred on maintenance of alleged Guest House.
ITA No. 467/KOL/2024 (A.Y. 2013-2014) Pioneer Property Management Limited 5. Brief facts of the case are that the assessee has filed its return of income on 30.09.2013 declaring total income of Rs.43,47,936/-. The case of the assessee was selected for scrutiny assessment and notices were issued and served upon the assessee. The assessee-company was engaged in the business of brokerage and commission on sale of residential and commercial properties at the relevant time. The assessee had purchased Flat Nos. 5C and 6C of a Complex “Silver Spring” in Block No. 4. The mutation in the name of the assessee-company was sanctioned on 13.09.2012, copy of the Mutation Certificate has been placed on the record along with the copy of the sale deed dated 02.07.2011. These papers are available at pages no. 58 to 80 of the paper book. According to the assessee, the family members of the Directors are residing in Flats No. 5A, 5B, 6A & 6B of Block-4 of the said Silver Spring Complex situated at 5JBS, Halden Avenue, Kolkata-700105. Flat Nos. 5C and 6C are stated to be used as a Guest House by the Company. The ld. Assessing Officer deputed an Inspector to conduct field inquiry on this premises. He deputed the Inspector on the second time also. The Inspector has interacted with the family members of the assessee and in his report submitted that in the first instance, the person found at the premises expressed his inability to inform that this space is being used as a Guest House. However, after receiving phone call, it was stated to be used as a Guest House. The ld. Assessing Officer drew adverse
ITA No. 467/KOL/2024 (A.Y. 2013-2014) Pioneer Property Management Limited inference against the assessee and rejected its contention to claim the following expenses:- (a) Electricity charges Rs. 49,590/- (b) Maintenance charges Rs. 1,26,268/- (c) Depreciation Rs.31,84,178/- (d) Interest on loan in acquiring Rs.24,88,144/- the property
Appeal to the ld. CIT(Appeals) did not bring any relief to the assessee. 7. Before us, ld. Counsel for the assessee has reiterated his contention, as were raised before the ld. Assessing Officer. He submitted that the Inspector’s report was not supplied to him. The materials collected behind the assessee by the Inspector were not confronted and, therefore, such material deserves to be excluded in view of the judgment of the Hon’ble Supreme Court in the case of Andaman Timber Industries –vs.- Commissioner of Central Excise in Civil Appeal No. 4228 of 2006. In an alternative contention, it was submitted that assuming stand of the Revenue is being accepted, then, expenses incurred on the residential premises of Director deserve to be allowed in the hands of the assessee. It will be a perquisite in the hands of the Director, which could be assessed in his individual hand but the expenses cannot be disallowed to the assessee. In support of his contention, he relied upon the Board’s Instruction bearing No. F.No.9/26/IT/60 dated 21st March, 1960. He further relied upon the judgment of the Hon’ble Madras High 4
ITA No. 467/KOL/2024 (A.Y. 2013-2014) Pioneer Property Management Limited Court in the case of CIT -vs.- Ashok Leyland Limited in Tax Case Appeal No. 298 of 2008 reported in 266 Taxman 406.
The ld. D.R., on the other hand, contended that if the premises was used as a Guest House, then, there should be some Register, where details of guests were entered. The assessee failed to produce any such Register before the ld. Assessing Officer. Similarly, the assessee failed to submit any corroborative evidence exhibiting the fact that the premises were used for the Guest House. It is only a claim made in the papers.
We have duly considered the rival contentions and gone through the record carefully. We concur with the submissions of the ld. D.R. that the premises was not used as a Guest House because the assessee failed to produce any evidence demonstrating the fact that premises was used as a Guest House. The assessee could give information after collecting from the Society where this flat was situated, because for maintaining the Guest House, there must be different treatment in the Society itself about its maintenance and charges, etc. The basic document for maintaining any Guest House is a Register, where such details were to be noted down. However, we accept the alternative contention of the ld. Counsel for the assessee because ld. Assessing Officer himself has recorded a finding that premises is being used by the Director as his residence. Hon’ble Madras High Court has considered this aspect in the case of CIT -vs.- Ashok
ITA No. 467/KOL/2024 (A.Y. 2013-2014) Pioneer Property Management Limited Leyland Limited in Tax Case Appeal No. 298 of 2008, 266 Taxman 406. The relevant finding is being reproduced as under:- “9. On a reading of the said Circular, it is seen that there is a reference to the earlier Circular/Instructions dated 21.3.1960, in which, it was clarified that the quarters built by the employers for the accommodation of their employees must be regarded as buildings used for the purpose of the business and depreciation allowed thereon where the occupation by the employee of the property owned by the employer is subservient to and necessary for the purpose of their duties. After referring to the Circular dated 21.3.1960, the Board reconsidered the matter and in super session of the Instructions in their letter dated 29.2.1964, it ordered that the fans, air- conditioners and refrigerators provided by the employer at the residence of in the employees should be considered to have been used wholly for the purpose of the employer's business and that full depreciation as may be admissible in accordance with the rules, should be allowed in the assessment of the employer. In our considered view, the said Circular dated 12.12.1996 will apply fully to the facts of the case.
The interpretation given by Mrs. R.Hemalatha, learned Senior Standing Counsel for the Revenue does not merit acceptance for the reason that the said Circular dated 12.12.1996 does not restrict the benefit to the number of residential accommodation provided to the employees nor does it place any restriction that the residential accommodation provided by the employer should be situated within the factory premises or business premises of the assessee. Thus, we are required to interpret the said Circular dated 12.12.1996 issued by the Board in its letter and spirit and we are not expected to add any words' or phrases' in the Circular.
An identical issue came up for consideration before a Division Bench of the High Court of Punjab in the case of CIT Vs. Delhi Cloth and General Mills Co. Ltd. [reported in (1966) 59 ITR 152] wherein one of the questions, which was framed for consideration, was as to whether the assessee company therein was rightly assessed under section 9 in respect of its income from buildings or lands appurtenant thereto, of which, it was the owner and which had been let to its own employees or wage earners. The Court, after referring to the Circular issued by the Board as published in Page 447 of the Income
ITA No. 467/KOL/2024 (A.Y. 2013-2014) Pioneer Property Management Limited Tax Manual Part III, 1 Oth Edition, held that the premises where the employees were housed, for which, they paid rental the company were in the near vicinity of the mills, that the rental of those premises were fixed and did not change with the change of the occupant, that the rental deducted from the wages of the employee or employees occupying the premises, that those employees were engaged in the main business of the company and their residence in the buildings in dispute was incidental to the main occupation i.e. the carrying on of the business of the company and that in true perspective, those buildings were part of the business equipment of the owner or in other words, it was the business asset of the owner. The above legal position will squarely apply to the facts of the present case. 12. We have gone through the reasons assigned by the Tribunal and we find that the Tribunal rightly held that there was no such restriction in the Circular issued by the Board stating that the benefit would accrue to the assessee only if the residential accommodation is situated within the factory premises. Furthermore, the said Circular does not restrict the benefit only if the accommodation is provided to all the employees, which, obviously, is a business expediency and it is not for the Assessing Officer to sit in the arm chair of the assessee to decide as what would be best for their employees. Thus, the first substantial question of law is required to be answered against the Revenue and it is accordingly answered against the Revenue.”
After relying upon the above judgment, we are of the view that the assessee is entitled for deduction of the expenses incurred on the premises provided as a residence to the Director.
In the result, the appeal of the assessee is partly allowed. Order pronounced in the open Court on 07/06/2024.
Sd/- Sd/- (Manish Borad) (Rajpal Yadav) Accountant Member Vice-President (KZ) Kolkata, the 7th day of June, 2024
ITA No. 467/KOL/2024 (A.Y. 2013-2014) Pioneer Property Management Limited
Copies to :(1) Pioneer Property Management Limited, 1st Floor, 10A, Rowdon Street, Kolkata-700017 (2) Assistant Commissioner of Income Tax, Circle-7(2), Kolkata, Aayakar Bhawan, P-7, Chowringhee Square, Kolkata-700069 (3) Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi; (4) CIT- , Kolkata (5) The Departmental Representative; (6) Guard File TRUE COPY By order
Assistant Registrar, Income Tax Appellate Tribunal, Kolkata Benches, Kolkata Laha/Sr. P.S.