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Income Tax Appellate Tribunal, “B” Bench, Mumbai
O R D E R Per B.R. Baskaran, AM :-
The appeal filed by the assessee is directed against the order dated 10.6.2008 passed by learned CIT(A)-1, Mumbai and it relates to A.Y. 2004-05.
The assessee is aggrieved by the decision rendered by learned CIT(A) on the following issues : (a) Assessment of rental income and service charges as income from house property.
(b) Disallowance of interest payment.
(c) Denial of set off of business loss against income from other heads.
We have heard the parties and perused the record. The assessee is a dealer of M/s. Brihan Maharashtra Sugar Syndicate Ltd.,(BMSSL) which 2 M/s. Baumgarten Wallia Pvt. Ltd.
produces Indian made foreign liquor. Since the assessee stopped its business, it has rented out its premises to its group concerns. Besides the assessee received service charges from the tenants and BMSSL also. The assessee declared rental income as well as service charges received by it as its business income. The Assessing Officer treated the same as income from house property accordingly computed income under that head by allowing deduction @ 30% of the rental income u/s. 24 of the Act. Learned CIT(A) also confirmed the same.
Learned AR contended that the assessee has temporarily suspended its business activities and it was having intention to revive its business. In this regard, it has also deposited a sum of ` 2 crores with M/s. Brihan Maharashtra Sugar Syndicate Ltd. as trade deposit in order to retain the dealership. Accordingly, learned AR submitted that the assessee was having the intention to revive its business activities and accordingly it has rented out the premises to its sister concern as temporary measure. Accordingly, learned AR submitted that the rental income as well as service charges received by the assessee should be treated as business income.
On the contrary, learned Departmental Representative submitted that the assessee has simply let out the premises and hence rental income is assessable under the head ‘income from house property’.
We have heard the parties and perused the record. We notice that the assessee has received service charges and rent from two of its sister concerns and it has also received service charges from M/s. Brihan Maharashtra Sugar Syndicate Ltd. The assessee has claimed that it has suspended its business activities only temporarily. We have noticed that it has deposited a sum of ` 2 crores with M/s. Brihan Maharashtra Sugar Syndicate Ltd. as trade deposit and the same shows that the assessee was intending to revive its business. It is a well settled proposition of law that renting out of premises for a temporary period due to temporary lull in the business activity of the assessee should be considered as a business activity of the assessee and accordingly, rental
3 M/s. Baumgarten Wallia Pvt. Ltd. income is assessable as business income of the assessee. We notice that the assessee has received rental income of ` 1,80,000/- and service charges of ` 708,000/-. We have earlier noticed that the assessee has received only service charges from M/s BMSSL. According to the assessee the service charges were received in respect of certain types of services provided by it. In view of the above, we are of the view that there is merit in the contention of the assessee that it has let out its premises for a temporary period and accordingly we are of the view that the rental income as well as service charges received by the assessee should be assessed as its business income. Accordingly, we set aside the order passed by learned CIT(A) on this issue and direct the Assessing Officer to assess the rental income as well as service charges as business income of the assessee.
Next issue relates to disallowance of interest expenditure claimed by the assessee. The assessee had paid interest of ` 57.42 lakhs to the banks and interest of ` 57.46 lakhs to others. The assessee had received interest income of ` 32.48 lakhs. The assessee had declared interest income as its business receipt and claimed interest expenditure as business expenditure. The Assessing Officer, however, assessed interest income under the head income from other sources. However, he allowed set off of interest expenditure to the extent of interest income and disallowed the remaining interest expenditure. Learned CIT(A) noticed that the assessee has borrowed money from the banks for making deposit with M/s. BMSSL and further borrowed funds from others in order to repay bank loan. Accordingly, learned CIT(A) took the view that the assessee has claimed interest expenditure on two different loans as against receipt of interest income from one party.
We have heard the parties on this issue and perused the record. We notice from the order of learned CIT(A) that the assessee had borrowed funds from others for the purpose of repaying the loan taken from the bank. It is also stated that the assessee had used bank loan for making trade deposit with M/s. Brihan Maharashtra Sugar Syndicate Ltd. We notice that the 4 M/s. Baumgarten Wallia Pvt. Ltd.
assessee has made trade deposit with M/s. Brihan Maharashtra Sugar Syndicate Ltd. with intention to revive its business activities. Under these set of facts, we are of the view that interest income earned on trade deposit should be assessed as business income of the assessee and entire interest expenditure should be considered as business expenditure of the assessee, since loan taken from others have been stated as used to repay the loan taken from the banks. Accordingly, we set aside the order passed by learned CIT(A) on this issue and direct the Assessing Officer to assess the interest income as business income of the assessee and to allow the entire interest expenditure claimed by the assessee.
The next issue relates to the denial of set off of business loss against income assessed under other heads. Since we have held that the rent, service charges and interest income are assessable as business income of the assessee, this action of the AO shall become infructuous.
In the result, appeal filed by the assessee is allowed.
Order has been pronounced in the Open Court on 13.6.2016.