KEKI M. IRANI,MUMBAI vs. DCIT CEN CIR 20, MUMBAI

The only issue in this appeal of the assessee is against the order of the CIT (A) confirming the disallowance of claim of electricity expenses and water charges against the receipt compensation received on use of factory premises including machinery and other facilities.

We have heard the rival contentions and gone through the facts and circumstances of the case. During the course of assessment proceedings the AO noticed that the assessee has received compensation charges of Rs.6,60,000/- from M/s. Merwan Confectioners & Bakers and claimed electricity charges and water charges at Rs.4,61,501/-. The facts are that M/s. New Persian Bakery whose proprietor Shri Keki M. Irani, the assessee is the owner of the proprietary concern at First Lane, at S. V. Road, Andheri (west), Mumbai. As per the 01-04-2009 entered between M/s. Merwan Confectioners & Bakers and M/s. New Persian Bakery, M/s. New Persian Bakery agreed on the terms & conditions that M/s. Merwan Confectioners & Bakers will use the entire facilities including machinery, infrastructure and factory building for its own use for annual compensation of Rs.6,60,000/-. The assessee paid electricity charges of Rs.4,19,960/- and water charges of the same premise at Rs.41,541/- and claimed the same as deduction from the compensation received. The AO assessed the same as business income but, disallowed the claim of electricity and water charges. Aggrieved, the assessee preferred appeal before the CIT (A) who confirmed the action of the AO by observing in Para of his order as under:- “5. The appellant has been heard in the matter. The appellant has placed on record copy of Agreement between M/s. New Persian Bakery and M/s. Merwan Confectioners & Bakers. As per clause 1 of the said Agreement the owner had in its possession items of machinery for manufacturing bakery products with requisite power connection and water connection, which facilities had been permitted to be used by M/s. Persian Bakery in return for compensation charges. There is nothing to suggest in the Agreement that M/s. Persian Bakery would be liable for expenditure towards water and electricity. Hence I decline to interfere with the action of the A.O.” Aggrieved, the assessee preferred second appeal before the Tribunal.

We have heard the rival contentions and gone through the facts and circumstances of the case. We find that M/s. New Persian Bakery, proprietorship of the assessee, had given the factory premises including all facilities, equipment and machinery to M/s. Merwan Confectioners & Bakers on monthly compensation basis and also on terms of providing water and electricity. As per the compensation agreement, M/s. New Persian Bakery is to provide both the above facilities and accordingly M/s. New Persian Bakery paid water and electricity charges. We find from the terms of agreement that the compensation agreement is very clear regarding inclusion of electricity and water charges into compensation received and hence, M/s. New Persian Bakery has rightly claimed the said expenses against the compensation receipt. The relevant clause of the agreement reads as under:- The owner has in its possession premises at 1st Lane, Off S. V.” “1: Road, Andheeri (West), Mumbai – 400 058 equipped with certain items of machineries for manufacturing bakery products with the requisite power connection, water connection telephone facility, staff for day-to-day maintenance and up-keep.” Further, the proprietor i.e. the assessee has provided all managerial and supervisory services in the field of manufacturing of all kinds and varieties of confectionery and bakery products to M/s. Merwan Confectioners & Bakers. Even otherwise, the AO has assessed these receipts as business income and hence this is treated as business income and consequential/incidental expenses i.e. electricity charges and water charges paid in lieu of compensation receipts is to be allowed. Accordingly, we allow the claim of the assessee and this issue of the assessee’s appeal is allowed.

In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 17-10-2016.