Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
Before: SHRI C. N. PRASAD & SHRI RAMIT KOCHAR
सुनवाई क" तार"ख /Date of Hearing : 02-08-2016 घोषणा क" तार"ख /Date of Pronouncement : 07-10-2016 आदेश / O R D E R
PER RAMIT KOCHAR, Accountant Member
This appeal, filed by the assessee company, being 27th December, 2011 passed by learned Commissioner of Income Tax (Appeals)- 13, Mumbai (hereinafter called “the CIT(A)”), for the assessment year 2008- 09, the appellate proceedings before the learned CIT(A) arising from the assessment order dated 30th November , 2010 passed by the learned Assessing Officer (hereinafter called “the AO”) u/s 143(3) of the Income Tax Act,1961 (Hereinafter called “the Act”).
ITA 4579/Mum/2012 2
The grounds of appeal raised by the assessee company in the memo of appeal filed with the Income Tax Appellate Tribunal, Mumbai (hereinafter called “the Tribunal”) read as under:-
1. Under the facts and circumstances of the case and in law, the learned Commissioner(Appeals) [ for short ‘Ld. CIT(A)’] has erred in confirming the action of Learned Assessing Officer [ for short ‘Ld. AO’ ] in treating the legitimate business income in the form of “Leave & License fees and Maintenance & Amenities charges received as “Income from other sources”.
2. Under the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in treating the business loss on sale of securities under “Portfolio Management Service” as short term capital loss and enhanced assessment without affording real opportunity real opportunity of being heard in the matter.
3. Under the facts and circumstances of the case and in law, the Learned CIT(A) has erred in enhancing assessment by disallowing Depreciation allowed by Learned Assessing Officer ( for short Ld. AO) of Rs.1,71,006/- without affording real opportunity of being heard in the matter.”
The brief facts of the case are that the assessee is engaged in the business of premises service provider on leave and license basis. It also provides amenities. The filing of this appeal is delayed by 11 days and condonation of delay in filing the appeal is sought by the assessee vide affidavit dated 16-07-2013 of Mr. Nimesh L. Joshi, Managing Director of the assessee company which is placed in file , wherein it is submitted by the said Mr. Nimesh L. Joshi that the appeal was delayed by 11 days due to his illness during the relevant period . The ld DR did not raised any objection to the delay. The delay of 11 days in filing appeal late is condoned and the appeal is being heard on merits.
It was observed by the AO that the assessee has taken on lease premises owned by M/s Mahalaxmi Engineering Company Private Limited and sub- ITA 4579/Mum/2012 3 leased the same property to M/s G E Countrywide Consumers and Financial Services Limited and received income in the form of maintenance charges of Rs.46,51,200/- and leave and license fees of Rs.72,38,430/-from the sub- lease and shown under the head ‘profit and gains from business and profession’. The AO show caused the assessee as to why the same should not be brought to tax under the head ‘income from other sources’.
The assessee submitted before the AO that there are two separate agreements for providing the ‘license’ and ‘amenities / services’ to the occupants of the premises and this a complex process of providing the space solutions having ingredient of business activities. The assessee submitted before the AO that this nature of the business of the assesssee is “premises service provider” which includes the services of providing electricity, use of lifts, uninterrupted supply of water, maintenance of staircases and common areas, watch and ward facilities which constitute complex business activities. The accounts are audited under the provisions of Section 44AB of the Act whereby the auditors have treated the entire activity as business operations. The assessee submitted that it incurred salary , telephone, electricity and other expenses such as audit fees, legal fees , bank charges, ROC fees etc. which reflects that the assessee is primarily carrying on business activities. It was submitted that if the expenses fall under specific head of income , then the same cannot be brought to tax under residuary head u/s. 56 of the Act . The assessee relied upon decision of Hon’ble Supreme Court in the case of (1960) Bihar State Bank v. CIT 39 ITR 114(SC). It was submitted before the AO that the character and nature of the income, according to the common notions of practical men has to be determined and accordingly charged to tax under the specific head of income relying on the decision in the case of Nalinikant Mody v. Narayan Row 61 ITR 428(SC) , CIT v. New India 201 ITR 208, Gopi v. CIT 225 ITR 320. ITA 4579/Mum/2012 4 The AO rejected the contentions of the assessee as it was held by the AO that the income from sub-leased assets does not come within the purview of business income as an act of taking a single property on lease from a related concern and giving the same on sub-lease cannot be termed as a business activity. It was observed by the AO that the assessee is not the owner of the premises and hence the income cannot be included under the head income from house property. Since the income does not fall under any of the heads of income, it will fall under the residuary head of ‘income from other sources’, as was held by the AO vide assessment order dated 30-11-2010 passed by the AO u/s. 143(3) of the Act.
4. Aggrieved by the assessment order dated 30-11-2010 passed by the AO u/s. 143(3) of the Act, the assessee filed first appeal with the learned CIT(A), which appeal was dismissed by the learned CIT(A) as the assessee did not had any evidence to show that it is in the business of letting out premises on commercial basis, vide appellate order dated 27-12-2011 passed by learned CIT(A). The learned CIT(A) also disallowed depreciation on assets to the tune of Rs.1,71,006/- since the rental income and maintenance income has been assessed to tax as ‘income from other sources’ , no depreciation is allowable u/s 57(2) of the Act as the depreciation does not relate to income from ‘plant and machinery’ or ‘furniture’.
Aggrieved by the appellate order dated 27-12-2011 passed by learned CIT(A), the assessee filed second appeal with the Tribunal.
The learned counsel for the assessee contended before the Tribunal that the assessee case is covered by the decision of the Mumbai Tribunal in the case of the sister concern of the assessee namely Shreenath Balaji Computech Private Limited v. ACIT in & 6253/Mum/2012 for the assessment years 2006-07 and 2008-09 vide orders dated 17-06-2015. ITA 4579/Mum/2012 5 The assessee also relied upon the decision of Hon’ble Supreme Court in the case of Chennai Properties and Investment Limited v. CIT in (2015) 373 ITR 0631(SC) and decision of Mumbai Tribunal in the case of ITO v. Rasiklal & Co. reported in (2009) 119 ITD 61(Mum. Trib).
The learned DR relied upon the orders of the learned CIT(A).
We have considered the rival contentions and perused the material on records including case laws relied upon. We have observed that the assessee’s is engaged in business as ‘premises service provider’ on leave and license basis and also providing amenities. The assessee’s main income is on account of ‘leave and license fees’ and ‘maintenance and amenities fees’ . The assessee is not the owner of the property and has taken the property on lease from M/s Mahalaxmi Engineering Company Private Limited and sub-leased the same property to M/s G E Countrywide consumer and Financial Services Limited and received income in the form of maintenance charges of Rs. 46,51,200/- and leave and license fees of Rs.72,38,430/- from the sub-lease. The assessee has also claimed to be ‘premises service provider’ which inter- alia included the services of providing electricity, use of lifts, uninterrupted water supply, maintenance of staircases and common areas, watch and ward facilities . The assessee having received maintenance and amenity charges for providing additional services to the sub-lessee , which was in addition to the sub-lease charges being leave and license fee received for the occupation of the said premises. The said income was offered for tax by the assessee as business income under the head ‘Profit and Gains from Business or Profession’ while the Revenue assessed the same as ‘Income from Other sources’ on the grounds that the activity of taking a single property on lease from related concern and giving the same on sub-lease cannot be termed as a business activity and since the assessee is not the owner of premises and hence the same cannot be assessed to tax under the head ‘Income from ITA 4579/Mum/2012 6 House Property’. Since it did not fell under any of the other specified head of income, the Revenue brought to tax the said income as ‘Income from other sources’ which is a residuary head of income . The said assessment order of the AO was upheld by the learned CIT(A) on the grounds that there is no evidence to show that the assessee is in business of letting out of the premises on commercial basis and hence the income from the same cannot be brought to tax under the head ‘profits and gains from business or profession’. We have observed that the assessee’s main objects in the object clause of the Memorandum and Articles of Association of the assessee company (pb-I/page 1-30) did not specify that the assessee would take any premises on lease and would in turn sub-lease the same of leave and license basis , but the intention of the assessee to exploit the asset leased by it is clear from activities carried on by the assessee from the perusal of its audited financial statements (pb-I/page 31-65) . The assessee in our considered view is involved in a systematic activity of exploiting its asset, which in turn it had taken on lease , is thus involved in carrying on business activity. Thus, the income arising there from such business activity is to be assessed to tax in the hands of the assessee under the head ‘Profits and Gains from Business or Profession’ as income from business. The assessee is entitled for claim of expenditure including depreciation of assets but not on the building , as the building was leased by the assessee wherein the assessee is not the owner , as deduction against such business income . The case of the assessee is covered by the decision of Mumbai Tribunal in the case of Shreenath Balaji Computech Private Limited v. ACIT in and 6253/Mum/2012 vide orders dated 17-06-2015 wherein the Tribunal held the said income from leave and license fee as well maintenance charges as income from business to be brought to tax as ‘Profit and Gains of Business or Profession’ and also allowed the claim of depreciation on assets except on building which was leased by the tax-payer in that case , as the facts in the ITA 4579/Mum/2012 7 instant case are similar. Thus the ground no. 1 and 3 are allowed. We order accordingly.
The next ground being ground no 2 raised by the assessee in the memo of appeal filed with the Tribunal is with respect to treatment by learned CIT(A) of business loss on sale of securities under ‘Portfolio Management Services’ as short term capital loss by the learned CIT(A) without affording opportunity of being heard to the assessee on the grounds that the assessee has not brought on record any material to show how the sale of securities is a business loss and as such the said loss was treated as short term capital loss by the learned CIT(A). The learned CIT(A) further held that the AO has allowed short term capital loss against ‘income from other sources’ while computing Gross Total Income . The learned CIT(A) held that the assessee is not entitled for set off of short term capital loss against any other head of income as per provisions of Section 71(3) of the Act and hence the set off of loss being short term capital loss of Rs.8,08,101/- was withdrawn and the income was enhanced to that extent by the learned CIT(A). The assessee is aggrieved that the learned CIT(A) enhanced assessment without affording opportunity of being heard to the assessee. The learned DR relied on the orders of the authorities below. The power of learned CIT(A) is co-terminus with powers of the AO which include power of enhancement of the assessment by the learned CIT(A) but principles of natural justice are to be adhered to and the learned CIT(A) ought to have given proper opportunity of being heard to the assessee in accordance with principles of natural justice before enhancing of the assessment. Thus in order to do complete justice in the matter, this issue is to be set aside and restored to the file of the learned CIT(A) to de-novo adjudicate the issue on merits after affording opportunity of being heard to the assessee. Needless to say that proper and sufficient opportunity of being heard shall be provided by learned CIT(A) to the assessee in accordance with principles of natural justice in accordance with law. The assessee will be ITA 4579/Mum/2012 8 allowed to submit relevant evidences and explanations to substantiate and support its contentions in its defense. This disposes of ground no 2 raised by the assessee in memo of appeal filed with the Tribunal. We order accordingly.
In the result, appeal filed by the assessee in 2008-09 is allowed as indicated above.