2010 (12) TMI 658 - AT - Income Tax

Service charges received from tenants - Income from business or income from other sources - Held that - ervice charges received by the assessee from its tenants in Express Towers for various services rendered by it were of the nature of business income and not income from other sources. Letting of house property to sister concern - value of advantage like notional interest on deposit does not form part of actual rent as contemplated by s. 23(1)(b). Long term and short term capital loss - Sale of shares to joint venture partner - genuineness of transaction - Held that - the reasons given by the A.O. for doubting the genuineness of the transaction of shares which was duly supported by an agreement as well as approval of FIPB to the said agreement were not tenable - there is nothing to show that the market value of shares sold by the assessee at Rs.5.64 per share was actually more than the said price so as to draw any inference that the transaction of sale of the said shares was not genuine. - Decided in favor of assessee.

Summary

Issues Involved:
1. Classification of service charges as business income or income from other sources.
2. Deletion of addition made under the head "income from house property."
3. Allowance of long-term and short-term capital loss arising from the sale of shares.

Issue-wise Detailed Analysis:

1. Classification of Service Charges:
The Revenue challenged the CIT(A)'s decision to treat service charges of Rs. 18,86,77,689/- as business income instead of income from other sources. Both parties agreed that this issue was previously decided in favor of the assessee by the Tribunal in the assessee's own case for A.Y. 1996-97 to 1999-2000. The Tribunal had held that service charges received by the assessee from tenants for services like air conditioning and lift were business income, relying on a decision by the jurisdictional High Court. The Supreme Court had also dismissed the department's SLP against this High Court judgment. Given the similarity of facts, the Tribunal upheld the CIT(A)'s order for the current year, dismissing the Revenue's appeal on this ground.

2. Deletion of Addition under "Income from House Property":
The Revenue contested the CIT(A)'s deletion of an addition of Rs. 2,29,60,000/- made under "income from house property." Both sides acknowledged that this issue was also previously decided in favor of the assessee by the Tribunal for earlier years. The Tribunal noted that the property in question was occupied by old tenants under the Bombay Rent Control Act, and the assessee had entered into an agreement with its sister concern to evict some tenants. The sister concern spent Rs. 11 crores and took the premises on lease at Rs. 25 per sq. ft., while subletting at a higher rate. The CIT(A) found the lease agreement justified given the encumbrances and expenses involved. The Tribunal upheld this view, noting that notional interest on deposits does not form part of actual rent per the jurisdictional High Court's ruling. Thus, the Tribunal upheld the CIT(A)'s order, dismissing the Revenue's appeal on this ground.

3. Allowance of Long-term and Short-term Capital Loss:
The Revenue challenged the CIT(A)'s decision to allow the assessee's claim for long-term and short-term capital loss of Rs. 96,15,639/- and Rs. 56,42,700/- respectively from the sale of shares to M/s Egmont International Holding Ltd. The assessee had entered a joint venture with Egmont International, forming a new company that incurred losses. Unable to infuse further funds, the assessee sold its shares at Rs. 5.74 per share, resulting in capital losses. The A.O. disallowed the claim, suspecting the transaction was a device to create losses, noting the lack of basis for the sale price and the recent investment at face value.

The CIT(A) found merit in the assessee's explanation that the sale price was negotiated and exceeded the book value of Rs. 2 per share. The transaction was approved by FIPB, and the sale consideration was held in escrow until approval. The CIT(A) concluded that the transaction was genuine and directed the A.O. to allow the capital losses.

The Tribunal upheld the CIT(A)'s decision, noting the assessee's inability to infuse more funds and the negotiated sale price being favorable compared to the book value. The Tribunal found the A.O.'s reasons for doubting the transaction untenable and distinguished the cited case laws as not applicable. The Tribunal concluded that the transaction was genuine and in the assessee's business interest, affirming the CIT(A)'s order and dismissing the Revenue's appeal on this ground.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s orders on all grounds. The service charges were rightly classified as business income, the addition under "income from house property" was correctly deleted, and the capital losses from the share sale were justifiably allowed. The judgment was pronounced on 15.12.2010.