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TMI Blog2016 (12) TMI 347X X X X Extracts X X X X X X X X Extracts X X X X ..... ne and postage, sales promotion, etc. would appear to us to be expended for the assessee’s business purposes, since admittedly nothing adverse has been reported in respect of any such claim by the AO in remand proceedings. As submitted by the assessee, the element of personal expenditure is admittedly embedded in the telephone expenses for residence (viz. ₹ 32,817/-) and charity/donation (Rs. 14,000/-). In these factual circumstances of the case, as discussed above, we hold that expenditure on donations of ₹ 14,000/- and about 20% of the telephone expenses of residence (approx. ₹ 6,500/-) could be justifiably be considered as having been expended for personal or /and non business purposes. We, therefore, sustain the disallowance of administrative expenses to ₹ 20,500/- (i.e. ₹ 14,000/- on account of donation plus ₹ 6,500/- out of residential telephone/postage expenses) as against ₹ 50,000/- disallowed by the AO. The AO is accordingly directed. - Decided in favour of assessee partly Income from Letting out of Bakery shop - Held that:- Respectfully following the decision of the Hon'ble Bombay High Court in the case of Dudhsagar [2014 (8) T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riefly, are as under: - 2.1 The assessee, proprietor of M/s. Venus Confectioners and M/s. Venus Cakes Cookies, engaged in the business as a manufacturer of confectionary goods, filed his return of income for A.Y. 2006-07 on 31.10.2006 declaring total income of ₹ 4,32,665/-. The return was processed under section 143(1) of the Income Tax Act, 1961 (in short 'the Act') and the case was subsequently taken up for scrutiny. The assessment was completed under section 143(3) of the Act vide order dated 19.12.2008; wherein the income of the assessee was determined at ₹ 95,76,400/-. The assessee s appeal before the CIT(A)-30, Mumbai was partially allowed vide the impugned order dated 20.12.2010. 3. Aggrieved by the order of the CIT(A)-30, Mumbai dated 20.12.2010 for A.Y. 2006-07, the assessee has preferred this appeal raising the following concise grounds: - 1. The Commissioner of Income Tax (Appeals) [hereinafter called the CIT (A)] erred in not admitting additional evidences as submitted by the Appellant. 2. The CIT (A) erred in confirming the disallowing ₹ 50000 out of administrative expenses of ₹ 684372. 3. The CIT (A) erred in co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed CIT(A) erred in not admitting or considering the additional evidence put forth. We have heard the rival contentions put forth and perused and carefully considered the material on record. In our view, the averments made by the assessee appear to be unfounded and factually incorrect. It is a matter of record that at para 3.1 of the impugned order, the learned CIT(A) has noted that in the course of appellate proceedings the assessee submitted additional evidence in the form of copies of ledger accounts and vouchers, which were forwarded to the Assessing Officer (AO) under rule 46A of the I.T. Rules, 1962 for making necessary enquiries/verification and report thereon. It is also recorded that the AO submitted the remand report dated 24.06.2010 in the matter. In these circumstances, we find no merit in the assessee s contentions that the additional evidence put forth was not admitted or considered by the learned CIT(A) and accordingly dismiss ground No. 1. 5. Ground No. 2 Disallowance out of Administrative Expenditure ₹ 50,000/- 5.1 In this ground, the assessee assails the learned CIT(A) in confirming the disallowance of ₹ 50,000/- out of administrative expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and about 20% of the telephone expenses of residence (approx. ₹ 6,500/-) could be justifiably be considered as having been expended for personal or /and non business purposes. We, therefore, sustain the disallowance of administrative expenses to ₹ 20,500/- (i.e. ₹ 14,000/- on account of donation plus ₹ 6,500/- out of residential telephone/postage expenses) as against ₹ 50,000/- disallowed by the AO. The AO is accordingly directed. Consequently, ground No. 2 of assessee s appeal is partly allowed. 6. Ground No. 4 Income from Letting out of Bakery shop 6.1.1 In this ground, the assessee assails the impugned order of the learned CIT(A) in sustaining the AO s order in holding that: - (i) the compensation of ₹ 4,80,000/- (@ ₹ 40,000/-) received by the assessee from leave and licence of his bakery (along with machinery and all amenities required for manufacture of bakery products), and (ii) the compensation of ₹ 2,40,000/- (@ ₹ 20,000/- p.m.) received from leave and licence of his shop (along with furniture, fixtures and kitchen equipments required for running the shop for sale of bakery products) is to be assessed unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urces as claimed by the assessee or as income from house property as assessed by Revenue. The Hon'ble High Court, after considering various judicial pronouncements; including Shambhu Investments Pvt. Ltd., had held that income received by the assessee by letting out fully furnished office premises alongwith furniture is required to be assessed as income from other sources . It was prayed that in view of the above factual and legal position of the case, the assessee s claim be allowed that the same be assessed as income from other sources/business income. 6.2 Per contra, the learned D.R. placed strong reliance on the decision of the authorities below. 6.3.1 We have heard the rival contentions and perused and carefully considered the material on record; including the judicial pronouncements cited. The facts of the matter as emanate from the record are that the assessee entered into leave and licence agreements dated 04.07.2003 for letting out his bakery premises, alongwith all amenities for manufacture of bakery products @ ₹ 40,000/- p.m. and shop premises, alongwith furniture fixtures and kitchen equipments for running and sale of bakery products @ ₹ 20,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and was the owner of a building fitted with furniture and fixtures for being run as a Hotel. By the lease dated 30/08/1949, the appellant let out the building fully equipped and furnished to Voyantzis for a term of six years from 1946 for running a Hotel and for certain other ancillary purposes. The agreed monthly rent was ₹ 5,950/- for the building and ₹ 5,000/-for hire of furniture and fixtures. The question which fell for consideration before the Supreme Court was how the income received as a rent on hire is to be assessed i.e. under which section of Income Tax Act, 1922 is it assessable. The appellant in that case also contended that the entire income should be assessed under Section 10 as an income from business or in the alternative income should be assessed under Section 12 as income from residuary sources i.e. income from other sources. The Constitution Bench of Apex Court held that income under the lease cannot be assessed under Section 10 of the Income Tax Act, 1922 as the income from the business. Regarding the question whether income can be assessed under Section 12 as an income from residuary sources or income from other sources, the observations of the Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... building in which it lies and the two indeed are always separable. We are unable, therefore, to accept the contention that inseparable in the sub-section means that the plant, machinery or furniture are affixed to a building. 16. It seems to us that the inseparability referred to in subsection (4) is an inseparability arising from the intention of the parties. That intention may be ascertained by framing the following questions: Was it the intention in making the lease and it matters not whether there is one lease or two, that is, separate leases in respect of the furniture and the building that the two should be enjoyed together? Was it the intention to make the letting of the two practically one letting? Would one have been let alone and a lease of it accepted without the other? If the answers to the first two questions are in the affirmative, and the last in the negative then, in our view, it has to be held that it was intended that the lettings would be inseparable. This view also provides a justification for taking the case of the income from the lease of a building out of section 9 and putting it under section 12 as a residuary head of income. It then becomes a new kin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tta High Court on the question framed under Section 56(2) of the Act and, therefore, Civil Appeals came to be dismissed. The question fell for consideration before the Division Bench of Calcutta High Court was whether the income derived from the premises in question is rental income or business income ? The Division Bench, in Calcutta High Court, in the facts of that case, held that the income derived from the property in question is income from the property and should be assessed as such. The decision of this case does not apply to the facts and circumstances of the present case. 16. In the above facts and circumstances of the case and especially, in the light of the decision of the Constitution Bench in Sultan Brothers (P) Ltd. (supra), we hold that the income received by the assessee by letting out fully furnished office premises and furniture is required to be assessed under the head income from other sources. The appeals are, accordingly, allowed. Consequently, the impugned order is set aside to that extent. The Assessing Officer is directed to assess the assessee's income accordingly in the light of the above observations. 6.3.3 Respectfully following the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the record are that the assessee is a tenant in the said Bandra Property . The owner of the property Mrs. Agnes Fernandes entered into an agreement with M/s. Streamline Builders dated 27.05.2004, whereby, inter alia, as per clause 4(a) (b), the tenant, i.e. the assessee was to be paid ₹ 65 lakhs for relinquishing the rights to the said Bandra Property as under: - (i) ₹ 20 lakhs on 03.11.2003; in period relevant to A.Y. 2005-06 (as per clause 5(a). (ii) ₹ 45 lakhs during F.Y. 2005-06; in period relevant to A.Y. 2006-07 (as per clause 5(b). (iii) The possession of the Bandra Property was to be made over to the builder by the assessee tenant on 30.12.2006 (relevant to A.Y. 2007-08 simultaneously to the transfer of ownership of shop NO. 5 by Developer/ Builder to assessee at Chapel Avenue. That the transfer (supra) took place on 30.12.2006 as set out in the development agreement, has been confirmed by M/s. Streamline Builders vide confirmation dated 31.12.2006 (copy placed at page 183 of paper book). Admittedly, the assessee has declared the capital gains on the transaction in A.Y. 2007-08 which has been accepted by Revenue vide order under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot exigible to tax in the year under consideration, i.e. A.Y. 2006-07 as held by the authorities below and direct the AO to delete the addition made to the assessee s income on this account. We hold and direct accordingly. Consequently, ground No. 5 of the assessee s appeal is allowed. 9. Ground No. 6 Charging of Interest under sections 234B and 234C 9.1 In this ground, the assessee denies itself liable to be charged interest under sections 234B and 234C of the Act. The charging of interest is consequent and mandatory and the AO has no discretion in the matter. This principle has been upheld by the Hon'ble Apex Court in the case of Anjum H. Ghaswala 252 ITR 1), and we therefore uphold the action of the AO in levying interest under the aforesaid sections. The AO is, however, directed to recompute the interest chargeable under sections 234B and 234C of the Act, if any, while giving effect to this order. 10. Ground No. 7 10.1 In this ground, the assessee challenges the initiation of penalty proceedings under section 271(1)(c) of the Act. This ground being premature as no cause of action arising to the assessee by mere initiation of penalty proceedings under section 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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