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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
PER MAHAVIR SINGH, JM:
This appeal by revenue is directed against the order of CIT(A)-17, Mumbai in Appeal No. CIT(A)-17/IT-96/2010-11 vide order dated 14.01.2013. Assessment was framed by DCIT-8(2), Mumbai u/s. 143(3) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) for AY 2008-09 vide his order dated 15.09.2010.
The first issue in this appeal of revenue is against the order of the CIT(A) in holding that the rental receipts of the assessee are business receipt and not income from house property.
Nishta Mall Management Co. Pvt. Ltd. Asst. Year 2008-09 3. Briefly stated facts are that the assessee in its P&L Account has credited an amount of Rs.1,05,78,000/- under the head business centre service charges. As against this, the assessee has debited various expenses including interest and finance charges amounting to Rs.2,08,64,803/- and also claimed depreciation amounting to Rs.8,45,860/-. The AO assessed the business centre service charges credited by the assessee in its P&L Account as income from house property and treated the same as rental income. He stated that the assessee has simply relied on some terms and conditions and also objects mentioned in the Memorandum of Association and on that basis it has given nomenclature to rental receipts as business centre service charges for claiming the rental income as business income. Aggrieved, assessee preferred appeal before CIT(A), who allowed the claim of the assessee by following assessee’s own case for Asst. Year 2006-07 by observing as under: “5.16. In the appellant’s own case for the AY 2006-07 it was held that the “thus the appellant was a property manager rather than a passive owner. The property was treated as a business asset which was exploited by rendering commercial services in a systematic and organized manner. Following decision in PFH Mall & Retail Management Ltd., Gesco Corporation Ltd., Harvindarpal Mehta (HUF), it is held that the business receipts of rs.1,47,71,318/- has to be treated as business income”. 5.17. Therefore, in view of the above and since the facts are unchanged, the rental income of the appellant is held as ‘Business Income’ instead of ‘Income from House Property’ as held by the appellant. Hence the ground of appeal of the appellant is allowed.” Aggrieved, revenue is in appeal before Tribunal.
4. We have heard rival submissions and gone through facts and circumstances of the case. Before us, ld. counsel for the assessee filed copies of Tribunal’s order for Asst. Year 2006-07 in assessee’s own case in dated 30.10.2015, wherein tribunal has confirmed the order of CIT(A) and considered the business centre service charges as business receipts by observing in para 5 as under:
Nishta Mall Management Co. Pvt. Ltd. Asst. Year 2008-09 “5. We have considered rival contentions and found from the record that the business asset was used by the assessee in, its business of letting out as per its primary object to exploit the property by complex commercial activity. After considering the Business' Conducting that the assessee has granted permissive use of the services and facilities provided in the premises by the assessee. The Conductor has no right of occupancy, but only limited access for the purposes of business activities during hours of day fixed in the agreement. We also found that the premises are in the control of the assessee and the assessee is required to provide services as per the agreement for which personnel on permanent basis were to be employed. Thus, the management and administration of the mall vested with the assessee. The detailed finding recorded by the CIT(A) has not been controverted by the department by bringing any positive material on record. Accordingly, we do not find any merit to interfere in the order of CIT(A). We further found that the issue is squarely covered by the decision of Hon'ble Supreme Court in the case of Chennai Properties and Investment Ltd. 373 ITR 673 in favour of the assessee for holding that such commercial exploitation renders income from business rather than income from house property.”
When this was pointed out to Ld. Sr. DR, he fairly agreed that the issue is covered by Tribunal’s order in assessee’s own case for Asst. Year 2006-07. No contrary decision was pointed out by Ld. Sr. DR and nothing was argued. Hence, respectfully following the Coordinate Bench decision in assessee’s own case, we dismiss this issue of revenue’s appeal.
The next issue in this appeal of revenue is against the order of CIT(A) deleting the disallowance of interest u/s. 36(1)(iii) of the Act. For this, revenue has raised following ground no.5: “5. On the facts and in the circumstances of the case and in law the Ld. CIT(A) erred in deleting the disallowances of interest u/s. 36(1)(iii) of the Act, without appreciating that the assessee has failed to substantiate the commercial expediency of giving interest free advances to the sister concerns out of its interest bearing borrowings.”
7. Briefly stated facts are that the AO treated the business service centre charges as rental income and assessed the same under the head income from house property. Once it is assessed as income from house property, the AO noted that the interest paid to Central Bank of India Nishta Mall Management Co. Pvt. Ltd. Asst. Year 2008-09 amounting to Rs.1,43,64,614/- on term loan of Rs. 15 cr. for a period of 12 months interest @ 12.50% was a corporate loan for the corporate needs. According to him, the utilization of this Rs.15 cr. was for advancement of interest free loan to sister concerns viz., ESES Commercial Pvt. Ltd. and Erudite Trading Pvt. Ltd. According to AO, these two companies did not own any property at the time of taking loan and also not engaged in the business of real estate. Therefore, he disallowed the claim of assessee. Accordingly, deduction u/s. 24(b) of the Act was denied. He also gave a Caveat in the order that even if the income from business centre service charges is treated as business income then also the interest expenditure will not be allowed as the same was not utilized for the purpose of the business. Aggrieved, assessee preferred appeal before CIT(A), who after going through the facts and circumstances of the case allowed the claim of the assessee by observing in para 6.2 as under: “6.2. The allowability of interest for the purpose of business comes u/s. 36(1)(iii) and interest relating to House Property u/s.
In the instant case, I have already held that the income is to be accrued as business income and hence the allowability of the interest has to be seen u/s. 36(l)(iii. The prerequisite for allowance of interest u/s. 36(1)(iii) is that the money should have been borrowed by the appellant for the purpose of business and interest should have been paid on said amount. In the present case, the appellant has borrowed the money and advanced it to the sister concern, who are in the business of Mall Management. This money was advanced as part of the short and long term strategy to expand mall business and also set up such a premises for the appellant. This is for the purpose of business and hence the amount is held to be advanced for the purpose of business and the interest on the same is allowable. Hence, the ground of appeal
of the appellant is allowed.” Aggrieved, revenue is in second appeal before Tribunal.
8. We have heard rival submissions and gone through facts and circumstances of the case. Admittedly and finally, the business centre service charges are assessed as business receipts and we have also confirmed this aspect in the above issue. We find that the AO himself Nishta Mall Management Co. Pvt. Ltd. Asst. Year 2008-09 noted the fact that the loan of Rs.15 cr. obtained from Central Bank of India was utilized for advancing further loan to assessee’s sister concerns viz. ESES Commercial Pvt. Ltd. and Erudite Trading Pvt. Ltd. and factually this is a corporate loan. Ld. counsel for the assessee before us clearly stated that the assessee and its sister concerns are engaged in the business of real estate and this fact was argued before CIT(A) by assessee. He explained that the assessee has embarked upon setting up malls/business centre in a very big way in India . Developing and managing malls/shopping complexes is a very complex specialized business activity. It requires huge capital investment, manpower and, above all, expertise and knowledge in retail market and consumer behavior. The sister concerns of the assessee were in mall management and development business since many years due to which they had acquired relevant expertise and knowledge in the field of Mall Management Co. Ltd. As these concerns were already in mall business and the assessee had advanced amounts to these concerns as a part of its short term and long term strategy to expand its mall business, including construction of premises for the assessee in popular commercial centre for enabling the assessee to establish itself mall business. In view of the above facts and circumstances, we are of the view that the CIT(A) has rightly deleted the disallowance of interest and we confirm the same. This ground of revenue’s appeal is dismissed.
In the result, appeal filed by revenue is dismissed. Order pronounced in the open court on 7th April, 2016.
Sd/- Sd/- (R.C. SHARMA) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Dated 7th April, 2016 JD. Sr. P.S.
Nishta Mall Management Co. Pvt. Ltd. Asst. Year 2008-09 Copy of the Order forwarded to :