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2016 (8) TMI 46 - AT - Income TaxAllocation of common expenditure between the rental income and service income - Held that - There is no dispute that the income earned from rendering services to tenants has been assessed as business income and the primary source of assessee s activities was to earn rental income. It was assessed under the head Income from house property , against which assessee got statutory deduction and, therefore no expenditure relating to earning of rental income could be allowed any further. Therefore, in principle, we agree with the AO s action that common expenditure had to be allocated between the rental income and service income. As far as auditors remuneration is concerned, the said expenditure have to be incurred by assessee company to meet the statutory requirements. But since assessee was deriving income, both rental as well as service income, therefore, the entire auditors remuneration could not be allocated only towards service income, because auditors have audited the rental income also, which was reflected in the P&L A/c. Therefore, AO as well as ld. CIT(A) were justified in proportioning this expenditure. As far as legal charges are concerned, before ld. CIT(A) the assessee had pointed out that the amount was paid to Associates Law Advisors, but it is not pointed out for which purpose the amount was paid. Therefore, both the lower revenue authorities rightly allocated this expenditure between rental income and service income. As far as travel & conveyance expenses are concerned, we find that before ld. CIT(A) the assessee had pointed out that this amount was expense on day to day travelling of the officials of Knight Frank for maintenance and operation of common area. Therefore, this amount was directly attributable to the service income derived by assessee and hence could not be allocated between rental income and service income and had to be allowed in full against the service income. As far as rates and taxes are concerned, merely because the amount has been paid to Registrar of Companies for statutory compliance, will not entitle the assessee to claim the entire expenditure against the service receipts, because against rental income statutory deduction has been allowed, which includes expenses incurred for all such statutory compliances. As regards bank charges, since the assessee has not specifically pointed out that the same was paid to bank where only service income was deposited, therefore the same has to be allocated between rental income and service income. Capitalization of lease rent paid to DDA towards plant and machinery or to the cost of the land - Held that - We are not inclined to accept the proposition advanced by the ld. counsel for the assessee for the simple reason that no depreciation is allowable in respect of cost of land in respect of which the lease rent was paid to DDA and, therefore, was to be capitalized. The lease rent paid could not be capitalized to the cost of land to plant & machinery but to the cost of the land. We, accordingly, uphold the order of ld. CIT(A) on this count. Additional depreciation on purchase of DG set - Held that - The basic ingredient of the section is that the assessee should be engaged in the business of manufacture or production of any article or thing or in the business of generation or generation and distribution of power. Admittedly, the assessee was not at all engaged in the generation or generation and distribution of power but had only installed DG set for providing electricity to the tenants at the time of power failure. The term or in the business of generation or generation and distribution of power was inserted by the Finance Act, 2012 w..e.f. 1.4.2013. Prior to that the requirement was that the assessee should have been engaged in the business of manufacture or production of any article or thing. We fail to appreciate what article or thing the assessee produced so as to be entitled for additional depreciation as per section 32(iia). This section is meant for those assessees, who installed plant and machinery after 31.03.3005 for manufacture or production of any article or thing. The assessee was not producing any such article or thing. It was only supplying electricity through D.G. Set installed by it.
Issues Involved:
1. Allocation of common expenses between rental income and service income. 2. Disallowance of depreciation on plant and machinery. 3. Disallowance of additional depreciation on DG set. 4. Charging of interest under Section 234B. Detailed Analysis: 1. Allocation of Common Expenses: A.Y. 2004-05: - The assessee claimed expenses for auditors' remuneration, legal and professional expenses, travel and conveyance, rates and taxes, and bank charges. - The AO allocated these expenses between rental income and service income, as the primary source of the assessee's activities was rental income. - The CIT(A) upheld the AO's allocation except for professional fees paid to M/s Knight Frank (India) Pvt. Ltd. - The Tribunal agreed with the AO and CIT(A) that common expenses should be allocated between rental income and service income. Specifically: - Auditors' remuneration and accounting charges were to be proportioned. - Legal charges were allocated as the purpose was not specified. - Travel and conveyance expenses were fully allowed against service income as they were directly attributable. - Rates and taxes and bank charges were proportioned. A.Y. 2005-06: - Similar issues arose with auditors' remuneration, legal and professional expenses, travel and conveyance, and rates and taxes. - The Tribunal upheld the CIT(A)’s order to proportion auditors' remuneration and legal charges. - Travel and conveyance expenses were fully allowed against service income. - Rates and taxes were proportioned. A.Y. 2006-07: - The Tribunal followed the same approach as in A.Y. 2004-05 and 2005-06 for auditors' remuneration, legal and professional expenses, and travel and conveyance. 2. Disallowance of Depreciation on Plant and Machinery: A.Y. 2004-05: - The AO disallowed depreciation claimed on plant and machinery, particularly on capitalized lease rent. - The CIT(A) upheld this disallowance. - The Tribunal agreed, stating that lease rent paid to DDA could not be capitalized to plant and machinery but to the cost of land. A.Y. 2005-06: - The facts were identical to A.Y. 2004-05, and the Tribunal upheld the CIT(A)’s order. A.Y. 2006-07: - The Tribunal followed the same view as in A.Y. 2004-05. 3. Disallowance of Additional Depreciation on DG Set: A.Y. 2006-07: - The AO disallowed additional depreciation on the DG set, stating that the assessee was not engaged in the business of manufacture or production of any article or thing. - The CIT(A) confirmed the disallowance. - The Tribunal upheld the disallowance, noting that the assessee was not engaged in the generation or distribution of power but merely installed a DG set for providing electricity to tenants during power failures. 4. Charging of Interest under Section 234B: A.Y. 2006-07: - The charging of interest under Section 234B was deemed consequential. Conclusion: The Tribunal partly allowed the assessee's appeals for all assessment years, upholding the allocation of common expenses between rental and service income, disallowance of depreciation on capitalized lease rent, and disallowance of additional depreciation on the DG set. The charging of interest under Section 234B was consequential.
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