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Income Tax Appellate Tribunal, KOLKATA ‘SMC’ BENCH, KOLKATA
Before: Shri P.M. Jagtap
This appeal is preferred by the assessee against the order of ld. Commissioner of Income Tax (Appeals)-4, Kolkata dated 10.06.2015 for the assessment year 2008-09.
The assessee in the present case is a Company, which filed its return of income for the year under consideration on 20.01.2009 declaring a loss of Rs.3,62,442/-. During the year, the assessee had let out the property owned by it and had earned rental income of Rs.29,04,350/-, which was comprising of license fees of Rs.7,70,950/- and utility fees of Rs.21,33,400/-. The said income was declared by the assessee in its return of income under the head “profits and gains from business or ./2015 Assessment year: 2008-2009 Page 2 of 6 profession” and after claiming expenses under the various heads, net loss was declared. In the assessment completed under section 143(3) vide an order dated 31.12.2010, the entire rental income was brought to tax by the Assessing Officer under the head “income from house property” and after allowing standard deduction under section 24 at 30% of the rental income and interest paid on borrowed funds amounting to Rs.11,77,036/- the total income of the assessee was determined by him at Rs.8,56,009/-.
3. Against the order passed by the Assessing Officer under section 143(3), an appeal was preferred by the assessee before the ld. CIT(Appeals) and after considering the submissions made by the assessee and perusing the relevant material on record, the ld. CIT(Appeals) upheld the action of the Assessing Officer in bringing to tax the rental income received by the assessee in its hands under the head “income from house property”. He, however, held that the establishment and administrative expenses to the extent of Rs.1,00,000/- were allowable under the head “business income” along with interest paid by the assessee on unsecured loan to the extent of Rs.1,60,000/-. He also held that the business loss arising as a result of deduction on account of these expenses was liable to be set off against income from house property. The appeal filed by the assessee thus was partly allowed by the ld. CIT(Appeals) and still aggrieved by the order of the ld. CIT(Appeals), the assessee has preferred this appeal before the Tribunal on the following grounds:- 1. (a) For that on the facts and in the circumstances of the case, the Ld. CIT(A) was not justified in confirming the action of the A.O. in treating the License fee and Utility Fee earned by the assessee company as Income from House Property instead of Business Income.
(b) For that the Ld. CIT(A) ought to have considered that the properties out of which such Licence Fees and Utility Fees were earned were the Stock in trade of the assessee- company.
2. For that on the facts and in the circumstances of the case, the Ld. CIT(A) was not justified in giving a part relief of Rs.1,00,000/- out of the total expenses of Rs.11,28,449/- ./2015 Assessment year: 2008-2009 Page 3 of 6
claimed by the assessee under the head Establishment and administrative expenses.
Without prejudice to the above grounds, the Ld. CIT(A) ought to have considered that the assessee-company has to incur establishment and administrative expenditure in order to comply with the statutory obligations and such expenditure are to be allowed as business deductions even if the company has predominantly income from house property.
4. (a) For that on the facts and in the circumstances of the case, the Ld. CIT(A) erred in giving a direction to the A.O. u/s. 150 for verification of share capital and share premium amount raised by the assessee in the relevant year though the same was not the subject matter of the instant appeal.
(b) For that the Ld. CIT(A) ought to have considered the fact that the verification in respect of the share capital and the share premium raised by the assessee-company was already made by the A.O. in course of scrutiny proceedings.
I have heard the arguments of both the sides and also perused the relevant material available on record. As regards the issue involved in Ground No. 1, I agree with the ld. Counsel for the assessee that the issue involved therein is squarely covered in favour of the assessee in principle by the decision of the Hon’ble Supreme Court in the case of Chennai Properties and Investment Limited –vs.- CIT reported in 56 Taxman.com 456, wherein it was held that the letting of the properties being the business of the assessee as per the main objective contained in the Memorandum of Association, the income from letting off the property is chargeable to tax as business income. However, keeping in view that this issue has not been examined or considered by the Assessing Officer in the light of proposition propounded by the Hon’ble Supreme Court in the case of Chennai Properties and Investment Limited (supra) as the same was not available when the issue was decided by the Assessing Officer as well as the ld. CIT(Appeals), I consider it fair and proper and in the interest of justice to restore this issue to the file of the Assessing Officer for ./2015 Assessment year: 2008-2009 Page 4 of 6 deciding the same afresh in the light of the said decision of the Hon’ble Apex Court after verifying all the relevant aspects of the matter. Ground No. 1 is accordingly treated as allowed.
As regards Grounds No. 2 & 3, it is observed that the common issue involved therein relating to the assessee’s claim for deduction on account of establishment and administrative expenses is consequential to the main issue involved in Ground No. 1. I accordingly restore this issue also to the file of the Assessing Officer for deciding the same fresh depending on the outcome of first issue, which is also restored to him. Grounds No. 2 & 3 are accordingly treated as allowed for statistical purposes.
As regards the issue involved in Ground No. 4, it is observed that the ld. CIT(Appeals) during the course of appellate proceedings found that the issue relating to increase in share capital by Rs.13,20,000/- and share premium by Rs.52,81,600/- was not examined by the Assessing Officer during the course of assessment proceedings. In his opinion, this issue in the facts and circumstances of the case ought to have been examined by the Assessing Officer thoroughly and since the same was not done by the Assessing Officer, he directed the Assessing Officer to reopen the assessment for the year under consideration and examine this matter thoroughly. Aggrieved by this direction given by the ld. CIT(Appeals), the assessee has raised this issue in Ground No. 4 of its appeal.
I have heard the arguments of both the sides and also perused the relevant material available on record. It is well settled that the first appellate authority is invested with very wide powers under section 251(1)(a) of the Act and once an assessment order is brought before the authority, his competence is not restricted to examine only those aspect of the assessment about which the assessee makes grievance but ranges over the whole assessment to correct the Assessing Officer not only with regard to the matter raised by the assessee in appeal but also with regard to any other matter, which has been considered by the Assessing Officer ./2015 Assessment year: 2008-2009 Page 5 of 6 and determined in the course of assessment. However, as rightly contended by the ld. Counsel for the assessee by placing reliance on the decision of the Hon’ble Delhi High Court in the case of CIT –s.- Sundarilal & Co. reported in 120 Taxman 595 and in the case of CIT –vs.- Union Tyres reported in 107 Taxman 447, there is a solitary but specific significant limitation to the power of the first appellate authority that it is not open to the said authority to introduce in the assessment a new source of income and the assessment has to be confined to those items of income, which were the subject matter of original assessment. In the present case, the item of share capital and share premium received by the assessee was not the subject matter of original assessment made by the Assessing Officer under section 143(3) and this being so, I am of the view that it was beyond the power of the ld. CIT(Appeals) as given under section 251(1)(a) to direct the Assessing Officer to examine the said issue and that too by reopening the assessment under section 147/ 148. In that view of the matter, I set aside the direction given by the ld. CIT(Appeals) on this issue and allow Ground No. 4 of the assessee’s appeal.