2018 (9) TMI 785 - AT - Income Tax

Treatment to the income received by the assessee from service charges - head of income - house property OR business income - allowance of substantial expenses claimed by the assessee against the said income - Held that - We are unable to understand what exactly are the services that are required to be rendered to collect the common electricity charges from the tenants that can be termed as an independent business activity of the assessee. Even the exact nature of the balance amount received by the assessee on account of service and maintenance charges is not very clear from the details furnished by the assessee and if quantum of such amount is compared, vis-a-vis the substantial rental income received by the assessee, it does not appear that the service and maintenance charges were generated by the assessee from any business activity carried on independently. Find merit in the contention of the D.R. that the service and maintenance charges received by the assessee were only incidental to rental income and since the said activity was ancillary to the main activity of letting out the properties, the service and maintenance charges were chargeable to tax as income from house property as rightly held by the Assessing Officer. As regards the alternative claim of the ld. Counsel for the assessee that the assessee-company was engaged in other business activities during the earlier years and there was only temporarily suspension of the said activities during the year under consideration due to lull in the business, we find that this aspect has not been specifically considered either by the Assessing Officer or even by the ld. CIT(Appeals). Since the issue relating to the claim of the assessee for various business expenses is consequential to this issue, we restore the issue also to the file of the Assessing Officer for deciding the same afresh. Addition in respect of deemed rental income from the property at Qutub Institutional area, New Delhi - Held that - We set aside the impugned order of the ld. CIT(Appeals) on this issue and restore the matter to the file of the Assessing Officer for deciding the same afresh after verifying the exact date of sealing of the property by Delhi Municipal Corporation from the relevant documentary evidence. Ground No. 3 of the Revenue s appeal is accordingly treated as allowed for statistical purposes. Deemed rental income from the property at Silver Arch Apartments - Held that - CIT(Appeals), in our opinion, therefore, was not justified in deleting the addition the property at Silver Arch Apartments - Held that - CIT(Appeals), in our opinion, therefore, was not justified in deleting the addition made by the Assessing Officer on this issue on the wrong presumption n made by the Assessing Officer on this issue on the wrong presumption that the possession of the property was already handed over. As rightly contended by the ld. D.R., the possession of the property remained with the assessee during the year under consideration and the assessee being the owner in possession of the property, the notional rental income from the same was chargeable to tax in the hands of the assessee under section 23(1)(a) as rightly held by the Assessing Officer. We, therefore, set aside the impugned order of the ld. CIT(Appeals) giving relief to the assessee on this issue and restore that of the Assessing Officer. Ground No. 4 of the revenue s appeal is accordingly allowed. Deemed dividend u/s 2(22)(e) for the loans received from Devbhoomi Awas Limited and M/s. Arcus Limited - Held that - Addition made by the Assessing Officer under section 2(22)(e) in respect of loans received from Devbhoomi Awas Limited and M/s. Arcus Limited by treating the same as deemed dividend under section 2(22)(e) are deleted by the CIT(Appeals) after having found that the said loans had been taken by Turner Morrison Land Limited (TMLL) in the earlier years and the same were transferred to the assessee-company as a result of merger of TMLL with the assessee-company. He also found that the assessee-company was not the shareholder of both these companies when the loans in question were actually received. At the time of hearing before us, the ld. D.R. has not been able to bring anything on record to dispute these findings of fact recorded by the ld. CIT(Appeals) while deleting the addition made by the AO under section 2(22)(e). Addition made on the basis of ITS data - Held that - It is observed that the difference in relevant ITS data as noted by the Assessing Officer was reconciled by the assessee during the course of appellate proceedings before the ld. CIT(Appeals) and after considering the same, the ld. CIT(Appeals) directed the assessee to produce all the relevant details in support of the reconciliation for verification before the AO. This opportunity given by the ld. CIT(Appeals) to the AO to verify the reconciliation prepared and furnished by the assessee from the relevant details and documents, we are of the view that the revenue cannot be said to have any grievance from the order of the CIT(Appeals) on this issue. Addition u/s 14A read with Rule 8D - Held that - No disallowance under section 14A can be made if there is no exempt income actually received by the assessee in the relevant year. We accordingly delete the disallowance made by the Assessing Officer and enhanced by the ld. CIT(Appeals) under section 14A read with Rule 8D. See case of Cheminvest Limited 2015 (9) TMI 238 - DELHI HIGH COUR .

Summary

Issues Involved:
1. Classification of income from service charges related to house property.
2. Deduction of business expenses claimed by the assessee.
3. Deemed rental income from the property at Qutub Institutional area, New Delhi.
4. Deemed rental income from the property at Silver Arch Apartments.
5. Addition of deemed dividend under section 2(22)(e) for loans received.
6. Addition based on ITS data.
7. Disallowance under section 14A read with Rule 8D.

Detailed Analysis:

1. Classification of Income from Service Charges Related to House Property:
The primary issue was whether the service and maintenance charges received by the assessee should be classified as "income from house property" or "business income." The Assessing Officer (AO) had treated these charges as part of rental income, thus categorizing them under "income from house property." However, the Commissioner of Income Tax (Appeals) [CIT(A)] held that the service charges were distinct from rental income and should be treated as business income. The CIT(A) cited various judgments, including the case of Commissioner of Income-tax vs Model Manufacturing Co. Pvt. Ltd., where the services rendered by the assessee were considered separate from the letting out of the property. The Tribunal, however, found merit in the AO's contention that the service and maintenance charges were incidental to rental income and thus should be classified as "income from house property."

2. Deduction of Business Expenses Claimed by the Assessee:
The AO had disallowed the entire business expenses claimed by the assessee, arguing that the only activity carried out was letting out properties and providing services, which were assessed under "income from house property." The CIT(A) allowed the claim for business expenses to a substantial extent but disallowed ?68,46,400/- as it was considered related to earning house property income. The Tribunal restored this issue to the AO for fresh consideration, emphasizing that expenses incurred for maintaining corporate status should be allowed as business expenses.

3. Deemed Rental Income from the Property at Qutub Institutional Area, New Delhi:
The AO added notional rent for the property at Qutub Institutional Area, which was sealed by the Municipal Corporation of Delhi, to the assessee’s income. The CIT(A) deleted this addition, accepting the assessee's claim that the property was sealed since 14.11.2006. The Tribunal restored this issue to the AO for verification of the sealing date, as there was a discrepancy in the dates considered by the AO and CIT(A).

4. Deemed Rental Income from the Property at Silver Arch Apartments:
The AO added notional rent for the property at Silver Arch Apartments, arguing that the assessee remained the owner in possession. The CIT(A) deleted the addition, noting that substantial payment was received, and possession was handed over to the purchaser. The Tribunal set aside the CIT(A)'s order, reinstating the AO's addition, as the possession was handed over only on 01.12.2010, within the year under consideration.

5. Addition of Deemed Dividend Under Section 2(22)(e) for Loans Received:
The AO treated loans received from Devbhoomi Awas Limited and M/s. Arcus Limited as deemed dividends under section 2(22)(e). The CIT(A) deleted the addition, finding that the loans were transferred to the assessee due to a merger and were originally taken by Turner Morrison Land Limited (TMLL). The Tribunal upheld the CIT(A)'s decision, as the assessee was not the shareholder when the loans were received.

6. Addition Based on ITS Data:
The AO made an addition based on discrepancies in ITS data. The CIT(A) directed the assessee to provide relevant details for verification. The Tribunal found no merit in the Revenue's appeal on this issue, as the CIT(A) had already given the AO an opportunity for verification.

7. Disallowance Under Section 14A Read with Rule 8D:
The AO disallowed ?30,90,656/- under section 14A read with Rule 8D, attributing it to investments in shares. The CIT(A) confirmed the disallowance and further enhanced it by ?16,84,057/-. The Tribunal deleted the disallowance, citing judicial pronouncements that no disallowance under section 14A can be made if there is no exempt income received during the relevant year.

Conclusion:
The Tribunal allowed the Revenue's appeal regarding the classification of service charges and deemed rental income from Silver Arch Apartments. The Tribunal restored the issues of business expenses and deemed rental income from Qutub Institutional Area to the AO for fresh consideration. The Tribunal upheld the CIT(A)'s deletion of additions for deemed dividend and discrepancies in ITS data. The Tribunal deleted the disallowance under section 14A read with Rule 8D, favoring the assessee.