2014 (11) TMI 17 - HC - Income Tax

Taxability of administrative expenses - Whether the Tribunal was right in holding that in terms of minutes of meeting held on 7th September, 1995 administrative expenses of 1.5% had accrued in respect of residential quarters at Andrews Ganj and were taxable as income Held that - There was merit in the submission made as the recorded minutes specifically refer to the position with reference to development of community centre complex at Andrews Ganj, New Delhi and not to the residential quarters under construction at Andrews Ganj - overhead charges were leviable by the assessee only in respect of Andrews Ganj community centre and not on the development of residential flats at the Andrews Ganj project - The letter has been kept on record - assessee had never received 1.5% administrative expenses in respect of the residential quarters in Andrews Ganj project - the stand of the assessee that the notes of the meeting held on 7th September, 1995 related to the development of community centre complex at Andrews Ganj, New Delhi and not to residential quarters is correct - There was no accrual of income in case the Government of India had not agreed to pay any overhead expenses or administrative charges @ 1.5% in respect of residential quarters at Andrews Ganj Complex, New Delhi thus, the addition is to be set aside Decided in favour of assessee.

Summary

Issues involved:
1. Interpretation of minutes of a meeting regarding administrative expenses for a construction project.
2. Taxability of administrative expenses as income.

Issue 1: Interpretation of minutes of a meeting regarding administrative expenses for a construction project

The case involved a Public Sector Undertaking (PSU) company where the Assessing Officer added an amount of Rs. 35,57,615 as overhead and administrative charges related to a construction project based on the minutes of a meeting held on 7th September, 1995. The company had undertaken the construction of a project awarded by the Government of India. The minutes were interpreted to suggest that the company was entitled to overhead charges of 1.5% not only for the community center but also for residential flats, resulting in the addition to the income. The Commissioner of Income Tax (Appeals) upheld this finding, stating that administrative expenses were payable for both the community center and residential quarters. The company argued that the minutes were misread, emphasizing that the administrative expenses were only for the community center and not the residential quarters. The High Court analyzed the minutes and found merit in the company's submission. The Revenue accepted that overhead charges were applicable only to the community center, not the residential flats, leading to the deletion of the added amount.

Issue 2: Taxability of administrative expenses as income

The Income Tax Appellate Tribunal (ITAT) had dismissed the company's appeal, stating that the overhead charges were applicable to the entire project, including general pool accommodation. However, the High Court disagreed, noting that the minutes specifically referred to the community center complex and not the residential quarters. The Court highlighted that the company had never received administrative expenses for the residential quarters, making it clear that no income accrued if the Government did not agree to pay overhead expenses for the residential quarters. Consequently, the Court ruled in favor of the company, deleting the addition of Rs. 35,57,615. The judgment clarified that the minutes were misinterpreted, and there was no justification for considering the administrative expenses for residential quarters.