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2012 (10) TMI 444 - AT - Income TaxIncome from other sources v/s profit and gains from business and profession - gift from UK based company - Held that - The transaction is of a gift which is a capital receipt in the hands of the assessee and therefore it cannot be said to be a case of any benefit or perquisite arising from business. The contention of the DR that by the said transaction the assessee has derived benefit and such benefit has arisen from the business connection of the donor and the donee, cannot be accepted as no direct nexus has been established by any tangible material brought on record by the Ld.CIT A . Simply because both the donor and the donee happened to belong to the same group cannot ipso facto establish that they have any business dealings. Thus in the absence of any specific provision taxing a Gift as a deemed business income, provisions of sec. 28 iv cannot be applied on the facts of the case. The CIT A erred in taxing the value of the stamp duty as income under sec. 28 iv - the provisions of sec. 28 iv and sec 56 1 & 2 will not apply - in favour of assessee. Taxing notional income from the flats as Income from House property - Held that - The said flats are shown under the head fixed assets in the balance sheet of the assessee company & have been kept for use for the employees of the company cannot be brushed aside lightly. However, for the year under consideration, the assessee could not establish the usage of the flats by the company for its business purposes, therefore, annual letting value of the flats is liable to be taxed as per the Municipal rateable value, therefore this issue is restored back to the files of the AO - in favour of assessee for statistical purposes. Disallowance of maintenance charges and depreciation - Held that - ALV has to be taxed for the year under consideration, the assessee will get the statutory deduction of 30% from the ALV, therefore no separate deduction of maintenance charges is to be allowed & that the assessee has failed to establish the flats have been used for the purposes of business for the year under consideration, the depreciation claimed cannot be allowed - against assessee. Addition of consultancy fees - Held that - Direction of the CIT(A) to verify the correct figure of the consultancy fee receivable during the year whether it is USD 10,50,000 or USD 11,50,000. Accordingly, while deleting the addition made by the AO issue remitted back to AO with a direction to verify the actual figure of consultancy fee for the year under consideration.
Issues Involved:
1. Taxability of the gift of shares and flats received by the assessee. 2. Taxation of notional rent under the head "Income from House Property". 3. Disallowance of maintenance charges and depreciation. 4. Addition made by the AO on account of undisclosed consultancy fees. Issue-wise Detailed Analysis: 1. Taxability of the Gift of Shares and Flats Received by the Assessee: The primary issue revolves around the taxability of three residential flats received by the assessee from its sister concern, M/s. British India Steam Navigation Co. (BISNCL). The AO treated this as "income from other sources" under Section 56(1) of the Act, valuing it at Rs. 22,74,82,450/-. The CIT(A) disagreed, instead taxing it under Section 28(iv) as "profit and gains from business and profession" at Rs. 6,98,54,000/-. The Tribunal analyzed whether the transaction could be considered a gift. It referred to the Gift Tax Act, 1958, and the Transfer of Property Act, 1882, to define "gift" and concluded that corporate entities could make gifts if permitted by their Articles of Association. The Tribunal held that the transaction was a valid gift, a capital receipt not taxable under Section 28(iv) or Section 56(1). Therefore, the assessee succeeded on this issue, and the Revenue's contention was rejected. 2. Taxation of Notional Rent Under the Head "Income from House Property": The second issue pertains to the taxability of notional income from the flats under "Income from House Property". The assessee claimed the flats were used for business purposes, but the AO and CIT(A) disagreed, noting the assessee's failure to establish such usage. The Tribunal restored the issue to the AO to compute the annual letting value based on the Municipal rateable value, directing the AO to give the assessee a reasonable opportunity to be heard. 3. Disallowance of Maintenance Charges and Depreciation: The Tribunal upheld the AO's disallowance of maintenance charges and depreciation, as the assessee failed to prove the flats were used for business purposes during the year. Since the annual letting value was to be taxed, the statutory deduction of 30% from the ALV was allowed, but no separate deduction for maintenance charges was permitted. The depreciation claim was also disallowed. 4. Addition Made by the AO on Account of Undisclosed Consultancy Fees: The final issue involved the addition of Rs. 5,34,65,000/- as undisclosed consultancy fees. The AO observed a discrepancy between the consultancy fees agreed upon and the amount received. The CIT(A) accepted the assessee's explanation that the fees were renegotiable but directed the AO to verify the correct amount receivable. The Tribunal agreed with this approach, directing the AO to verify whether the correct consultancy fee for the year was USD 10,50,000 or USD 11,50,000, and to give the assessee a reasonable opportunity to be heard. Conclusion: The appeals were partly allowed for statistical purposes. The Tribunal ruled in favor of the assessee on the gift issue, restored the notional rent issue to the AO, upheld the disallowance of maintenance charges and depreciation, and directed verification of the correct consultancy fees.
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