2013 (11) TMI 935 - AT - Income Tax

Disallowance of expenditure u/s 37(1) - Expenditure for erection of scaffolding - Nature of expenditure - business expediency or otherwise - Assessee was given rights to display advertisement by means of mounting a banner on the scaffolding erected for carrying out the repairs of the building - Held that - As seen from the documents placed on record the Municipal Corporation of Greater Mumbai has permitted to display the temporary advertisement on the outer direct wall of Heera Panna Coop.Housing Society vide approval dated 27.04.2005 for which the advertising fee was to be paid of more than Rs.3,75,360. So, it cannot be accepted that assessee has permitted the said Deesha only for an amount of Rs.1.00 lakh when the fee paid/ payble to BMC was much more. As seen from the documents if such amount was towards contributing for maintenance of the building/scaffolding advertisement as contended, the actual payment of the amount spent goes beyond the period of permitted advertisement period. The said services so charged are general in nature, which does not require such receipt/ reimbursement - it cannot be stated that maintenance or cleaning of walls by application of primer coat was the responsibility of M/s Deesha for advertisement so displayed. The affairs are so arranged that the cost to be incurred by the society for their regular maintenance was borne by the said company and receipts were bifurcated into two agreements - scaffolding and the painting expenditure is part of the maintenance of the building and no way connected with the advertisement provided to M/s Deesha. The security watch and ward etc, as claimed by assessee is part of its regular activity of the society and just because an agreement was entered into by arranging the affairs in such a manner, the claim of expenditure which has no relevance for earning the advertisement amounts. This cannot be allowed under section 37(1) or section 57. Moreover as seen from the above, painting expenditure itself was spent over a period of two years, whereas the advertisement was only for a period of two months - Decided against assessee.

Summary

Issues Involved:
1. Addition of Rs.15,00,000 as income from other sources.
2. Alternative plea for allowing part of the common expenses from the alleged receipts of Rs.15,00,000.

Issue-wise Detailed Analysis:

I. Addition of Rs.15,00,000 as Income from Other Sources:

The assessee, a cooperative housing society, entered into two agreements with M/s Deesha Leasecon Pvt. Ltd. The first agreement involved displaying advertisements on scaffolding for which the society received Rs.1,00,000, which was accepted as taxable income. The second agreement involved providing various services for which M/s Deesha paid Rs.14,00,000. The assessee claimed this amount as reimbursement for expenses incurred in rendering these services.

The Assessing Officer (AO) noted that the expenses claimed by the society, such as scaffolding and painting, were not exclusively for the advertisement agreement but were part of regular maintenance. The AO concluded that the society had to incur these expenses regardless of the agreement with M/s Deesha, thus treating the entire Rs.15,00,000 as income from other sources.

The CIT (A) upheld the AO's decision, stating that the services provided were part of the society's regular operations and no additional costs were incurred specifically for M/s Deesha. The CIT (A) also noted that the Rs.14,00,000 was not solely for services but also for granting advertising rights, making it taxable income.

The Tribunal agreed with the CIT (A), emphasizing that the expenses for scaffolding and painting were regular maintenance activities and not directly related to the advertisement agreement. The Tribunal found that the agreement was structured to camouflage the income from advertisement charges to avoid tax, thus affirming the addition of Rs.15,00,000 as income from other sources.

II. Alternative Plea for Allowing Part of the Common Expenses:

The assessee alternatively argued that part of the common expenses should be allowed from the alleged receipts of Rs.15,00,000. However, the Tribunal rejected this plea, stating that the scaffolding and painting expenses were part of regular maintenance and not connected to the advertisement agreement. The Tribunal noted that the expenses were incurred over two years, while the advertisement agreement was only for two months. Therefore, the claim for allowing these expenses under sections 37(1) or 57 was not justified.

Conclusion:

The appeal filed by the assessee was dismissed, and the addition of Rs.15,00,000 as income from other sources was upheld. The alternative plea for allowing part of the common expenses was also rejected. The judgment emphasized that the agreements were structured to avoid tax on advertisement income, and the expenses claimed were part of regular maintenance activities.