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Income Tax Appellate Tribunal, MUMBAI BENCH “A”, MUMBAI
Before: SHRI RAJENDRA & SHRI SANJAY GARG
Per Sanjay Garg, Judicial Member:
The above titled cross appeals are by the Revenue and the other by the assessee have been preferred against the order of the Commissioner of Income
आयकर अपील सं./ITA No.4424/M/2011 2 CO No. 111/M/2012 M/s. Kilachand Devchand & Co. Pvt. Ltd. Tax Appeals [hereinafter referred to as the CIT (A)]. Since the facts and issues involved therein are identical in nature, hence the same are taken together for disposal by this common order. First we take up the appeal of the Revenue. The Revenue in this appeal has taken three effective grounds of appeal.
Grounds Nos. 1& 2 2. Ground Number 1 is in relation to the addition made by the Assessing Officer (hereinafter referred to as the AO) on account of accrual of rent of Rs.32,19,515/- whereas Ground No. 2 is in relation to the disallowance made by the AO for non deduction of tax at source in respect of rent payable. The brief facts relating to the issue are that the assessee had acquired office space on lease from New Great Insurance Company which subsequently merged with Oriental insurance company. The assessee subletted a part of the building to other associate companies. As per the terms of the lease deed, the assessee was allowed to sublet the office premises in its possession without charging any higher rent, which means that the assessee could sublet the premises at the same rate of rent, which the assessee paid to the lessor insurance company. The lease deed entered into by the assessee with the lessor insurance company expired in the year 1987. However the lessor refused to renew the lease deed. Since there arose a dispute between the lessor and the assessee, the assessee stopped paying rent to the insurance company from the year 2000 onwards. The assessee also did not charge or receive any rent from the sublettee companies. The AO observed that the assessee had not credited the rent receivable in the profit and loss account and had not offered any income in this respect. He was of the view that the rental income had accrued to the assessee. The assessee explained that no element of income was involved in renting out of the premises. The assessee had to pay the same rent as was received or receivable from the sublettees. Since there was a dispute going on and the आयकर अपील सं./ITA No.4424/M/2011 3 CO No. 111/M/2012 M/s. Kilachand Devchand & Co. Pvt. Ltd. lessor company had also filed a petition for eviction against the assessee and the sublettees under the Public Premises (Eviction Of Authorized Occupants) Act, 1971, hence neither the sublettees had paid any rent to the assessee nor the assessee paid the same to the lessor insurance company. The assessee neither credited nor debited into profit and loss account any such rent either as receivable or payable. However to compute the assessee’s own liability for rent payable to the lessor company in relation to the premises occupied by the assessee itself, the assessee had calculated the same and claimed the same as a deduction. The AO, however, observed that the rental income had accrued to the assessee payable by the sublettees and that the assessee was liable to deduct tax at source in relation to the amount of rent payable by the assessee to the lessor insurance company. He therefore not only disallowed the deduction claimed by the assessee in relation to the rent payable by the assessee of the premises occupied by itself but he also made additions of the rent payable by the sublettees to the assessee which was to be remitted by the assessee to the insurance company. Being aggrieved by the order of the AO, the assessee went in appeal before the Ld. CIT(A).
The Ld. CIT (A) observed that the original lease agreement had not been extended and there was a dispute going on since long. The assessee had not been paying any rent to the lessor and he was not supposed to receive any rent from the sublettees companies. The lessor company had already filed the petition for a eviction of the assessee and the sublettees. Even there was no element of income involved as the assessee was supposed to remit the same rent to the lessor company, which he was supposed to receive from the sublettees. Since the dispute was going on and there was no certainty of rent being receivable or payable, hence there was no question of any accrual of rental income to the assessee. He therefore held that under the circumstances,
आयकर अपील सं./ITA No.4424/M/2011 4 CO No. 111/M/2012 M/s. Kilachand Devchand & Co. Pvt. Ltd. neither any rental income had accrued to the assessee nor any rent was payable by the assessee for the year under consideration. He accordingly deleted the addition in respect of the rent which according to the AO had been deemed to accrue to the assessee from the sublettees. So far as the deduction claimed by the assessee on account of rent of Rs.3,88,003/- in relation to the premises occupied by the assessee itself, the Ld. CIT(A) on the same footing held that since there was no element of certainty involved, hence, the said deduction was not allowable. He also observed that even otherwise to claim the deduction, the assessee was supposed to deduct tax at source on the said amount under section 40(a)(ia) of the act.
Being aggrieved by the above order of the Ld. CIT(A), the Revenue has come in appeal agitating the action of the Ld. CITA in deleting the addition made by the AO in relation to the rent receivable from the sublettees and also in relation to the rent payable by the assessee to the lessor insurance company because of non-deduction of tax at source under section 40(a)(ia).
We have considered the rival submissions. The undisputed fact is that the litigation is going on between the lessor company and the assessee since long. The assessee has not been paying any rent to the lessor company and the lessor company has also filed a petition for eviction of the assessee and the other sublettees. The assessee, since long, has neither been receiving any rent from the sublettees nor has been paying any rent to the lessor company. Therefore the learned CIT(A), in our view, has rightly held that additions in this respect, for the year under consideration, were not warranted on accrual basis. Even, since the assessee had not claimed any deduction in respect of any rent remitted to the lessor company, therefore there was no question of any disallowance of the same. So far as the claim of deduction by the assessee in respect to the rent payable by it for the premises occupied by assessee itself is आयकर अपील सं./ITA No.4424/M/2011 5 CO No. 111/M/2012 M/s. Kilachand Devchand & Co. Pvt. Ltd. concerned, we find that on the same footing as in the case of subtenants, there was no ascertained liability of the assessee to pay such rent. Even otherwise, the assessee had not deducted tax at source in respect to the said claim of expenditure payable as rent. We therefore do not find any infirmity in the order of the Ld. CIT(A) on the above issues. Ground number 1 and 2 of the Revenue’s appeal are therefore dismissed.
Ground No.3 The Revenue in this ground has contested the action of the Ld. CITA in deleting the disallowance of Rs.74000/- out of legal and professional charges. The Ld. CIT(A) while deleting the said disallowance has observed that the said expenditure was incurred by the assessee for protecting assessee-company’s reputation and good name and that of the assessee was required to defend itself as such matters go to the root of the existence of corporate entities and even may result in severe consequences which may affect the business prospects of the company. We do not find any infirmity in the order of the Ld. CIT(A) in this respect. This ground of the Revenue’s appeal is also dismissed.
Now coming to the appeal of the assessee; the assessee has taken two effective ground of appeal.
Ground No.1 : 8. The assessee in this ground has agitated the action of the Ld. CIT(A) in confirming the disallowance of rent claimed by the assessee payable to the lessor company in relation to the premises occupied by it. This issue has already been discussed above. In view of our observations made above, the Ld. CIT has rightly upheld the disallowance made by the AO in this respect. This ground of the assessee’s appeal is hereby dismissed.
आयकर अपील सं./ITA No.4424/M/2011 6 CO No. 111/M/2012 M/s. Kilachand Devchand & Co. Pvt. Ltd. Ground No.2: 9. The assessee in this ground has agitated the addition made by the AO of accrued interest on fixed deposits. The assessee has explained that some years back, the assessee had sold its shareholding in its subsidiary. In accordance with the agreement with the purchaser, Rs.50 lakhs out of the total sale proceeds was placed in escrow fund with the assessee’s solicitors. Since the fund was lying deposited in the name of solicitors hence, the interest accrued thereupon could not be accounted in the books of the assessee. The same was accounted in the books only when the accrual of interest was informed by its solicitors to the assessee. The Ld. AR has explained that the such interest income has already been included in the taxable income for the subsequent assessment year 2008-09. In view of the above explanation offered by the Ld. AR and since the interest income has already been offered in the subsequent year, we do not find any justification for sustaining the additions for the year under consideration as the same would result in to double taxation of the same income. This ground of the assessee’s appeal is therefore allowed.
In the result the appeal of the Revenue is dismissed whereas the appeal of the assessee is treated as partly allowed.
Order pronounced in the open court on 07.04.2016. आदेश की घोषणा खुले �ायालय म� िदनांकः 07.04.2016 को की गई ।