9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2016 (2) TMI 837 - AT - Income TaxDisallowance of expenses - AO has disallowed the expenses in proportion to various streams of income earned by the assessee company considering the expenses as common expenses - Held that - We have observed that the assessee company is a listed company and the assessee company had to perform certain corporate , regulatory , management and compliance functions under various statutes/regulations like Companies Act, listing regulations under the SEBI Act , stock exchange compliances and the mandatory Corporate Governance provisions etc. for which the services of the staff is retained and for doing other business which is carried on by the assessee company. The assessee company has stated to have invested in the subsidiary company WTFL keeping in view the commercial expediency. Thus, it cannot be said that the assessee company is not engaged in carrying on the business. It has voluntarily disallowed expenses directly relatable to the property income and exempt income u/s 14A of the Act. The AO has disallowed the expenses in proportion to various streams of income earned by the assessee company considering the expenses as common expenses. In our considered view , the expenses cannot be disallowed in the manner as was done by the AO unless the AO bring on record cogent material and evidence to substantiate that the expenses claimed by the assessee company are not attributable to the business carried on by the assessee company and the disallowance carried on by the assessee company are not correct . The appeal of the assessee company to this extent is accepted and allowed and we order deletion of addition of ₹ 77,71,800/- as made by the AO and confirmed by the CIT(A). - Decided in favour of assessee Non charging of rent - Addition being notional rent on account of allowing subsidiary company to use its office space - Held that - Section 22 and 23 of the Act warrants that the income from house property under the head income from house property which shall be the annual letting value from year to year for any part of the property which is let , then sum for which the property might reasonably be expected to be let from year to year in the hands of the owner u/s 22 and 23 of the Act shall be brought to tax but in the instant case the assessee company has merely allowed the usage of the area/space to WTFL without earmarking any specific area , hence, the same cannot be charged to tax under the head income from house property as it could not be said that the said premises are let or is available for letting as infact the said premises is occupied by the assessee company for its business usage while at the same time the premises is allowed to be used by the subsidiary company only without granting any benefits of tenancy such as right of possession and enjoyment of the property as tenant . No tenancy rights has been created in favour of the subsidiary company, the addition of ₹ 50,10,563/- being notional rent on account of allowing subsidiary company to use its office space added in the manner by the ld. AO cannot be sustained in the hands of the assessee company which is ordered to be deleted and the order of CIT(A) is confirmed/sustained in which we have found no infirmity. - Decided in favour of assessee Income from house property - addition made by the AO of the notional rent in the hand of the assessee company - Held that - Section 269UA(f) stipulates that transfer of property by way of sale or exchange or lease for a term of not less than twelve years and includes allowing the possession of such property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 and shall be deemed to be the owner of the property u/s 27(iii)(b) of the Act for the purposes of computing under the head Income from House Property . We have observed that the assessee company has been granted lease w.e.f. 12th October, 1994 for a period of 11 years 11 months, however, it is stipulated in the agreement that the lessee is occupying the same since last several years. Further the right of sub-letting has also been provided to the lessee. The assessee company has expressed its desire to renew the same for further period of 11 years and 11 months n response to the request of the lessee. M/s Walchand & Co. Pvt. Ltd. subletted the said premises which has been offered to tax the actual rent of ₹ 1,54,41,265/- under the head income from house property which has been accepted by the Revenue. The rental received of ₹ 1,54,41,265/- by Walchand and Company Private Limited, the lessee is assessed to tax and revenue has got the due taxes and now to again tax the same rental on notional basis in the hands of the assessee company will lead to double taxation of the same income, which is not permitted under the Act. We do not find any infirmity in the order of the CIT(A) and we uphold the same and confirm the deletion of the addition made by the AO of the notional rent in the hand of the assessee company which is subject to verification by the AO that the same rent has suffered taxation in the hands of the Walchand and Company Private Limited which was also stipulated by the CIT(A) in his orders dated 05.02.2013 which we confirm.- Decided in favour of assessee
Issues Involved:
1. Disallowance of Business Expenditure 2. Addition of Notional Rental Income 3. Addition of Rental Income from Sub-letting Detailed Analysis: 1. Disallowance of Business Expenditure: The assessee company appealed against the partial confirmation by the CIT(A) of the disallowance made by the AO of 74.82% of all expenses debited to the profit & loss account. The AO had disallowed these expenses on the basis that the business activity was negligible, despite the company carrying on business during the year. The CIT(A) upheld the AO's decision, noting that the business activity was limited to earning interest income on inter-corporate deposits. The Tribunal, however, found that the AO's method of proportionately disallowing expenses based on the ratio of business income to total income was not justified. The Tribunal emphasized that the expenses incurred were necessary to maintain the corporate entity and perform regulatory and compliance functions, even if the business activity was minimal. Thus, the Tribunal allowed the appeal, ordering the deletion of the disallowance of Rs. 77,71,800. 2. Addition of Notional Rental Income: The Revenue appealed against the CIT(A)'s deletion of the addition of notional rental income of Rs. 50,10,563. The AO had added this amount, arguing that the assessee company allowed its subsidiary to use the premises without charging rent. The CIT(A) observed that the property was not actually let out, and there was no provision in the Act to tax notional income from allowing the use of premises without creating tenancy rights. The Tribunal upheld the CIT(A)'s decision, noting that the premises were used by the subsidiary without any specific area being earmarked and without creating tenancy rights. Therefore, the notional rental income could not be taxed under the head 'income from house property.' 3. Addition of Rental Income from Sub-letting: The AO added an amount of Rs. 1,54,41,265 as rental income, arguing that the assessee company charged nominal rent from M/s Walchand & Co. Pvt. Ltd., which further let out the premises at a much higher rent. The CIT(A) deleted this addition, noting that the rental income from sub-letting was already taxed in the hands of M/s Walchand & Co. Pvt. Ltd. The Tribunal confirmed the CIT(A)'s decision, emphasizing that taxing the same income twice is not permissible. The Tribunal noted that M/s Walchand & Co. Pvt. Ltd. had been assessed to tax on the rental income under the head 'income from house property,' and the same income could not be taxed again in the hands of the assessee company. Conclusion: The Tribunal allowed the appeal of the assessee company regarding the disallowance of business expenditure and dismissed the Revenue's appeal regarding the addition of notional rental income and rental income from sub-letting. The cross-objection filed by the assessee company was dismissed as it became academic due to the dismissal of the Revenue's appeal.
|
