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2015 (4) TMI 400 - AT - Income TaxIncome from letting of a property - Income from house property or profits and gains of business and profession - Held that - Undisputedly in the earlier assessment years, coordinate benches have held that the income from letting out is in the nature of income from house property. Once there are categorical findings to this effect, and there is no dispute on that fact, it is not open to the lower authorities to still hold that the income can be taxed as business income because that aspect of the matter was not examined. The reason of consistency in approach and bound by the judicial precedent by the coordinate bench also, we hold that the income from letting out the property ought to have been taxed under the head income from house property . Thus we uphold the plea of the assesse and direct the Assessing Officer to tax the rental income of ₹ 6,59,36,930 under the head income from house property and allow the deduction under the scheme of taxability of income under this head. - Decided in favour of assessee. Disallowance of brand building expenses - CIT(A)deleted the addition - Held that - what the Assessing Officer has overlooked is that even under the mercantile method of accounting, the expenses are booked at the point of time when the liability to pay crystallizes and irrespective of whether the benefit are wholly in the current year, or partly in future year as well, a revenue expenditure is allowed as a deduction in the year in which it is incurred. The contribution pertains to the current year and is based on the revenues of the current year. It is undisputed that that it covers the period related to the relevant previous year. There is no dispute that expenditure is a revenue expenditure, there is no dispute that the expenditure is incurred in the present year, there is no dispute that all along even the increased contributions have been allowed as revenue expenses in the year in which the contributions have been made and to which contributions pertain. In such circumstances, a purely adhock disallowance on the basis that the benefits of this contribution will also be available in a subsequent period, is wholly uncalled for. We are unable to see any merits in this same.We have also noted that the expenses are partly allowed as deduction. Therefore, genuineness, revenue nature and business expediency of these expenses is accepted by the Assessing Officer himself. - Decided in favour of assessee.
Issues Involved:
1. Taxability of income from house property versus business income. 2. Disallowance of brand building expenses. Detailed Analysis: 1. Taxability of Income from House Property versus Business Income The primary issue in the assessee's appeal is whether the income of Rs. 6,59,36,930 should be taxed under the head 'income from house property' or 'profits and gains of business and profession'. The assessee contends that the income from letting out space in a commercial plaza should be considered as 'income from house property', a position previously accepted by the ITAT in earlier years. However, the Assessing Officer (AO) argues that this income should be taxed as 'business income' because renting commercial space aligns with one of the company's main business objects. The AO draws a parallel between renting commercial spaces and hotel rooms, asserting that both should be treated similarly for tax purposes. The CIT(A) upheld the AO's view, noting that the assessee's project, including the commercial premises, is constructed on leased land from the Airport Authority of India and described in the tax audit report as a 'hotel with commercial complex'. The CIT(A) observed that the assessee's accounts are unified and that all fixed assets, including the commercial complex, are reported together without segregation. Consequently, the CIT(A) concluded that the income from the commercial space should be taxed as 'business income'. Upon review, the ITAT emphasized the need to assess the primary objective of the assessee. Citing the case of CIT Vs Shambhu Investments Pvt Ltd, the ITAT noted that if the main intention is to let out the property without complex commercial activities, the income should be considered as 'income from house property'. The ITAT found that the commercial complex was let out without significant incidental services, making it a case of simple letting out of property. The ITAT also highlighted that in previous assessment years, similar income was taxed as 'income from house property', establishing a binding precedent. Therefore, the ITAT directed the AO to tax the rental income under the head 'income from house property' and allow the corresponding deductions. 2. Disallowance of Brand Building Expenses The second issue pertains to the AO's disallowance of Rs. 25,95,251 out of the total Rs. 51,90,502 debited for brand building expenses paid to Carlson Hospital Marketing Pvt Ltd. The AO reasoned that since the benefits of these expenses extend to future years, only 50% of the expenses should be allowed in the current year, following the mercantile method of accounting. The CIT(A) overturned this disallowance, noting that the enhanced brand building payments had been consistently allowed in previous years. The CIT(A) found the AO's 50% disallowance arbitrary and unsupported by clear findings. The ITAT upheld the CIT(A)'s decision, emphasizing that under the mercantile method of accounting, expenses are booked when the liability to pay crystallizes, regardless of whether the benefits extend to future years. The ITAT noted that the brand building expenses pertain to the current year and are based on current year revenues. The ITAT found no merit in the AO's adhoc disallowance and confirmed the relief granted by the CIT(A). Conclusion - The appeal filed by the assessee is allowed, directing the AO to tax the rental income under 'income from house property'. - The appeal filed by the Assessing Officer is dismissed, upholding the CIT(A)'s deletion of the disallowance of brand building expenses.
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