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TMI Blog2016 (2) TMI 837X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... axes 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 - ITA No. 2543/Mum/2013, ITA No.3527/Mum/2013, CO No.156/Mum/2014 - - - Dated:- 4-2-2016 - Amit Shukla, JM And Ramit Kochar, AM For the Appellant : Shri V G Ginde For the Respondent : Shri Rajesh Ojha ORDER Per Amit Shukla, Accountant Member These two appeals filed by the assessee company and the Revenue and also Cross objection filed by the assessee company arising out of the Revenue appeal are directed against the orders of the learned Commissioner of Income Tax(Appeals)-6, Mumbai (Hereinafter called the CIT(A) ) dated 05-02-2013 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. The order of the CIT (A) is opposed to law and facts of the case. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting addition of notional rental income of ₹ 50, 10,563/- holding that the property has not been actually let out without appreciating the fact that the assessee had allowed its subsidiary company to use the premises. 3. (a) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting addition rental income of ₹ 1,08,08,885/- received from Ms. Walchand Co. Pvt Ltd., holding that the said company has further let out the property to various parties and the rental income has been assessed in the hands of Ms. Walchand Co Pvt. Ltd., thereby ignoring the provision of sec 23(1)(a) of the I.T. Act. 4. For these and other grounds that may be urged at the time of hearing, the decision of the CIT (A) may be set aside and that of the AO restored. 4. The Brief facts of the case are that the assessee company s activities during the year are to invest, acquire, hold and exchange shares, debentures, mutual funds and bonds. The assessee company also earns inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct expenses attributable to property income are identified and disallowed in the computation of income filed by the assessee company with return of income filed with the Revenue. Similarly, disallowance of the expenditure was offered u/s 14A of the Act which takes care of indirect expenses attributable to exempt income as per the statutory Rule. The assessee company submitted that the assessee company was the holding company of the then unified Walchand Group of companies, with thrust on investment and financing activity. With the split of Walchand group over the years, the assessee company focused mainly on financing business, including leasing , hire purchase, inter-corporate financing and investment activity. The assessee company in October, 2003 diversified into Dale Carnegie training business(in short DC-Business )as a major segment and the financing business took back seat , due to the then prevailing difficult market conditions and the assessee company gave up its NBFC status in October 2006. The assessee company also submitted that up to the assessment year 2008-09, the assessee s company business consisted of training business and financing business. The training busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that in the previous year 2008-09 relevant to the assessment year 2009-10, the DC-Business was carried on by the WTFL and consequent to this business restructuring, the Directors remuneration was substantially reduced in April, 2008 and aforesaid two Directors were also appointed as the working Directors in WTFL, from where also they drew remuneration, apart from some remuneration from the assessee company. The remuneration paid to these Directors during the financial year 2008-09 from both these companies was as under:- Name of the Director Designation Amount(Rs. In lacs) assessee company Amount(Rs. In lacs) WTFL Total (Rs in lacs) Ms. Pallavi Jha Managing Director 14.59 21.58 36.12 Mr. Sanjay Jha Executive Director 14.46 21.53 35.99 29.05 43.06 72.11 The assessee company submitted that the aggregate remuneration drawn by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of income as under:- Sr No. Particulars of income Amount of income Percentage Business income 1 Interest on loan and inter-corporate deposits 19,47,437/- 2 Misc. income 3,30,741 3 Prior period income 9,49,219/- 4 Provision for expenses written back 1,26,199/- TOTAL 33,53,596/- 25.18% 1 Income from property 68,41,067/- INCOME FROM HOUSE PROPERTY 68,41,067/- 51.40% 1 Profit from sale of investment 34,356/- 2 Profit from sale of assets ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m of expenses under the head business is exorbitant, excessive and unjustifiable and the expenses were allowed amounting to ₹ 26,15,530/- (25.18%) against the business income of ₹ 33,53,596/- (25.18%) and the remaining expenses amounting to ₹ 77,71,800/- were disallowed and added back to the total income of the assessee company vide assessment order dated 29.12.2011 passed by the AO u/s 143(3) of the Act. 5. Aggrieved by the assessment orders u/s 143(3) of the Act dated 29.12.2011 passed by the A.O., the assessee company preferred an appeal before the CIT(A). 6. Before the CIT(A), the assessee company submitted that the A.O. has accepted that during the relevant year the assessee company has carried on business though the activity was not substantial and similar issue had come up in the case of the associate company of the assessee company M/s Walchand Co. Pvt. Ltd. for the assessment year 2004-05 whereby the A.O. has made similar disallowance of expenses proportionately and the CIT(A) vide his order dated 22-12-2008 rejected the A.O. s stand and allowed the expenses except disallowances u/s 14A of the Act and the Revenue did not file the second appeal and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity. The ld. Counsel for the assessee company submitted that the A.O. has allowed business expenses to the extent of 25.18% based upon the proportion of the business income earned by the assessee company in comparison to the total income. The ld. Counsel for the assessee company drew our attention to the orders of the A.O. into the manner in which the AO has apportioned the expenses and the income as under:- Sr No. Particulars of income Amount of income Percentage Business income 1 Interest on loan and inter-corporate deposits 19,47,437/- 2 Misc. income 3,30,741 3 Prior period income 9,49,219/- 4 Provision for expenses written back 1,26,199/- TOTAL 33,53,596/- 25.18% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctors is same as in the preceding year but due to transfer of DC-Business, the salary has been transferred to subsidiary company WTFL. Thus, the assessee company contended that these expenses should be allowed as the assessee company is still continuing the business and being a listed company, it has to do several regulatory and corporate compliances and the mandatory corporate governance provisions etc. The ld. Counsel submitted that controlling the subsidiary company s functions is the most important role for the Directors of the company and though the DCbusiness was transferred, it has no impact on the assessee s corporate entity, as a holding company and its existence did continue notwithstanding the transfer of the DC business. There is no dispute by the A.O. that the business is continuing. The assessee company relied upon the decision of Hon ble Supreme Court in the case of S A Builders Limited(supra) and submitted that the ratio of the said decision is directly applicable to the case of the assessee company as the assessee company has deep interest in the subsidiary company and investments are made based on commercial expediency. Accordingly, the ld. Counsel for the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvested 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). We order accordingly. 12. In the result, appeal of the assessee company is allowed. ITA No. 3527/Mum/2013 (Revenue s appeal) 13 The brief facts relating to the issue involved in this appeal are tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee company and the subsidiary company as per their financial is as under:- Sr. No. Name of the company Gross income (in lacs) Salary expenses (In lacs) Total expenses (in lacs) 1 M/s Walchand PeopleFirst Ltd. 133.08 31.86 103.87 2 M/s Walchand TalentFirst Ltd. 1213.51 602.06 1540.84 3 Total 1346.59 633.92 1644.71 Since the assessee company has not provided the information about the area provided and available to WTFL, the A.O. has taken the area occupied based on the average of percentage of gross income, salary expenses and total expenses as below: Sr.No. Name of the company Gross income in % Salary expenses in % Total expenses % Average% 1 M/s Walchand PeopleFirst Ltd. 9. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed parties enjoying exclusive possession. It was submitted that assessment of notional rent of ₹ 50,10,563/- u/s 22 of the Act is wholly illegal and requires to be deleted. The assessee company further submitted that no consideration was charged to WTFL for use of the office premises, because it was at the nascent stage of its business. It is the cardinal principle of income-tax that tax is to be levied on income that has been actually earned by the taxpayer and not on what the taxpayer could have earned. There is no provision in law nor is it permissible for the department to tax notional/alleged income, which admittedly has not been earned by a taxpayer, on the ground that the taxpayer could have, although in fact it has not, earned such income. The assessee company relied on the decision of Hon ble Supreme Court in the cases of CIT v. A Raman Co. [1968) 67 ITR 11 and CIT v. Calcutta Discount Co. Ltd. [1973) 91 ITR 8. The assessee company particularly referred to the decision of Hon ble Supreme Court in the case of A. Raman Co. (supra) wherein it has been held that but the law does not oblige a trader to make the maximum profit that he can out of his trading transactio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chieved by WTFL. The assessee company has transferred its training business to the said subsidiary company WTFL and major portion of the office is being used by the said subsidiary company and the employees were also shifted (as per details of which are placed in paper book page No. 112 113). The Ld. DR also submitted that the A.O. has rightly brought to tax the annual letting value of the said property. The Ld. DR submitted that the AO has calculated rent based on the prevailing rental in the same building given on rent by the associates of the assessee company. 18. The ld. Counsel for the assessee company submitted that there is no let out of the area to the subsidiary company. The assessee company has only allowed the subsidiary company to use the office space for which no service charges have been charged from the subsidiary company, thence, the same cannot be brought to tax as there is no provision under the Act to bring the same to chargeability to tax under the Act. The Ld. Counsel of the assessee company reiterated its submissions as made before the authorities below which are not repeated for the sake of brevity. 19. We have heard the rival contentions and also per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no infirmity. We order accordingly. 20. In the result, the appeal of the Revenue is dismissed. 21. Now coming to the next issue, it was observed by the A.O. that the assessee company has let out the property to M/s Walchand Co. Pvt. Ltd. (related party) and received nominal rent, the details of which are as under:- Sr.No. Name of the party Area in sq. ft. Period Rent (Amt. in Rs.) 1 M/s Walchand Company Pvt. Ltd. 4,343.40 01/04/2008 to 31/03/2009 17,725/- 2 M/s Walchand Company Pvt. Ltd. 4,343.40 01/04/2008 to 31/03/2009 17,725/- 3 M/s Walchand Company Pvt. Ltd. 3,690.00 01/04/2008 to 31/03/2009 15,055/- TOTAL 50,505/- It was also seen by the A.O. that the related party of the assessee company i.e. Walchand Company Pvt. Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount to assessment of the same income twice, which is not permissible in law. The assessee company submitted that the rental income earned by M/s Walchand Co. Pvt. Ltd. from the portions leased to them has been assessed as income from house property u/s 22 of the Act in their assessment consistently from the assessment year 2004-05 and onwards and the same has attained finality. The assessee company relied on the judgment of Hon ble Supreme Court in the case of R.B. Jodha Mal Kuthiala v. CIT (1971) 82 ITR 570 (SC) and CIT v. Podar Cement (P) Ltd. (1997) 226 ITR 625 (SC) whereby the Hon ble Apex Court has held that the owner for the purpose of Section 22 of the Act is the persons who is the beneficial owner of the property, who earns the income from the house property in his own right. The assessee company refers to clause 2(d) of the Agreement to Lease executed with M/s Walchand Co. Pvt. Ltd. which reads as under:- (d) The Lessee shall have the right and shall be entitled to further sublet, or give on leave and licence basis or on such other basis as the Lessee may in its absolute discretion think fit and proper to any person or party of its choice at such compensation a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income of ₹ 50,505/- earned from Walchand Co. Pvt. Ltd. under the head income from house property . As the assessee company is the owner of the Construction House and entitled to receive rent on its own right, income from letting out the same is taxable under the head income from house property as provided u/s.22 of Act. It may be noted that the assessee company has placed reliance on Podar Cement Ltd.(supra) that rental income may be taxed under the head income from other sources . The assessee company's contention is not acceptable as the Hon'ble Supreme Court in the case of Podar Cement Ltd.(supra) was dealing with the question that whether there is any requirement of a registered deed of conveyance for a person to be treated as an owner for the purpose of section 22 of the Act. The A.O. held that in this case, there is no such question of registered deed of conveyance. And there is no dispute that the assessee company is the owner of the premises and is entitled to receive income from property in its own right. The A.O. relied upon the decision of The Hon'ble Bombay High Court in the case of Pallonji M. Mistry v. CIT (2009) 178taxmann 341(Bom.) whereby ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... genuineness of the lease agreements between the assessee company and M/s Walchand Company Pvt. Ltd. that the agreement was either sham or bogus. The assessee company contended that the lease agreement with M/s Walchand Company Pvt. Ltd. has been there for the past several years and the rent received by M/s Walchand Co. Pvt. Ltd. has been assessed to tax in its hands in the past without any doubt or question by the Revenue. The CIT(A) after considering the submission of the assessee company and the A.O. held that assessee company s contention that it is a case of taxing the same income in the hand of the assessee company and also in the hands of M/s Walchand Co. Pvt. Ltd. and the same income cannot be taxed twice is found to be valid. Accordingly the CIT(A) directed the A.O. to delete the income taxed for the second time in the hands of the assessee company after verification, vide orders dated 05.02.2013. 24. Aggrieved by the orders dated 05.02.2013 of the CIT(A), the Revenue is in appeal before the Tribunal. 25. The ld. D.R. relied upon the order of A.O. and submitted that the assessee company has charged nominal rent from M/s Walchand and Company Private Limited of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perty and the assessed the rental income in the hands of the lessee as income from house property and again charged to tax the income as income from house property in the hands of the assessee company as owner of the property which is not permissible in law. The ld. Counsel contended that the taxing the amount once again in the hands of the assessee company would amount to taxing the same income twice which is not permissible under the Act. The ld. Counsel submitted that the assessment order for the assessment year 2008-09 in respect of M/s Walchand Co. Pvt. Ltd., copy of which is enclosed vide paper book page 74-77, whereby the Revenue has brought to tax in the hands of M/s Walchand Co. P. Ltd , the rental income as income from house property . The ld. Counsel submitted that the CIT(A) has rightly deleted the addition by relying upon the decision of Hon ble jurisdictional High Court in the cases of M/s Sahney Kirkwood Private Limited Akshay Textiles Agencies P. Ltd. (supra) 26. We have considered the rival contention and also perused the material on record. We have observed that the assessee company has given on rent the property Construction House 4th floor to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion Act, 1908 (16 of 1908), or not, for the transfer of any immovable property; ...... ...... (f) transfer , -- (i) in relation to any immovable property referred to in sub-clause (i) of clause (d), means transfer of such 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 (4 of 1882). Explanation: For the purposes of this sub-clause, a lease which provides for the extension of the term thereof by a further term or terms shall be deemed to be a lease for a term of not less than twelve years, if the aggregate of the term for which such lease is to be granted and the further term or terms for which it can be so extended is not less than twelve years; 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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