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TMI Blog2018 (4) TMI 389X X X X Extracts X X X X X X X X Extracts X X X X ..... A.Y. 2003-04 correctly. 4. The learned CIT (Appeal) has erred in superseding the Hon. ITAT (Mumbai) by freshly adjudicating an issue which had been already decided by the Hon. ITAT (Mumbai). 5. The learned Assessing Officer has erred in initiating penalty proceedings in a case which has been highly litigated up to the Hon. Supreme Court. 3. Brief facts of the case are as under: The assessee company had taken a property named "Wilson House" on lease from Mr.Dwarkadas Jankidas Sanghvi and Vimla Dwarkadas Sanghvi. The lease agreement in this case was signed on 25.2.2002 for 50 years. The Building located at Andheri, CST No.631, consisted of ground floor and 4 upper floors, measuring 16000 Sq.ft. Subsequently, the assessee company, sub let part of the premises to M/s.Indica Research Ltd and M/s.HPL Global Pvt.Ltd. The assessee company also let out some part of the premises to M/s.Mahendra & Mahendra, HDFC Bank Ltd. and M/s.Rincel Technologies. In case of M/s,Indica Research Ltd. and M/s.HPL Global Ltd. The assessee, in addition to receiving lease rent from lease premises, also received service charges for rendering certain services. The assessee in some years, had also received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pecific head i.e income from house property which has been provided in the Act to assess the rental income from any building or land apartment there to owned by a person. Since the assessee is deemed owner of the property and had received rental income, the same has been rightly held assessable as income from house property. It is not a case of commercial exploitation of the property in which case it could be assessed as income from business. The assessee has simply sub leased the property to enjoy the rental income. It is also not a case of organized activities of taking properties on lease and letting out. The assessee had taken on lease one building which had been subleased to tenants and, therefore, the rental income has to be assessed as income from house property. We accordingly uphold the decision of authorities below to assess the rental income as income from house property. 6.1 As regards the services relevant to the two tenants i.e M/s indica Research Ltd. and M/s HBL Global Pvt Ltd. The details of services provided as mentioned by AO in detailed order passed in assessment tear 2004-05 are given below:- i. Repair and maintenance of common places of the premises. ii. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on'ble High court of Kolkata in case of Kanak Investment Pvt Ltd. (95 ITR 419). The same view has been taken by the Hon'ble High court of Madras in case of A.R. complex Vs. I TO (supra). The judgment of Hon'ble Supreme Court in case of Karnani properties Ltd. (supra) also supports this view. In the present case, the assessee had only rendered certain services and there is no organized activity with a view to earn such income. Income from services, therefore, in our view, on the facts of the case has to be assessed as income from other sources and all expenses incurred by the assessee for earning of such income has to be allowed as deduction u/s. 57 of the Income tax act. However, if any expenditure in relation to services also includes expenses on repair and maintenance of the portion of the building let out, such expenses have to be excluded as these are already covered in the statutory allowance u/s 24(c) of the income tax act while computing the house property income. This issue is, therefore, restored to the file of AO for passing a fresh order for assessing income from services as income from other sources after necessary examination and after allowing opportunity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee. However, the facts of the case of 'Chennai Properties & Investment Ltd.' (supra) were entirely different as that of the case of the assessee. In case of Chennai Properties & Investments Ltd, (supra) in the' memorandum of association of the appellant company, it was mentioned that the main object of the appellant company was to acquire and hold the property and to let out those properties as well as make advance upon the securities and lands and buildings or other properties or any interest therein. The Supreme Court emphasized that holding the aforesaid properties and earning income by letting out those properties was the main objective of the company. Thus, Supreme Court treated the income of the assessee in that case as 'business income' of the assessee. In the instant case, the Tribunal noted that the income from sub lease of the premises was to be assessed as rental income of the assessee. This Tribunal also took note of the services provided by the assessee along with renting of the building-. The Tribunal also held that the said services rendered by the assessee was not part of any organized activity with a view to earn such income and hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tribunal is contrary to the facts of the cases before the Supreme Court as relied upon by the assessee. The Tribunal, vide impugned order, has not only considered the submissions of the assessee but has given a categorical finding on all of the issues which were raised before the Tribunal by the assessee. It is well settled that the power of rectification under section 254(2) can be exercised only when the mistake which is sought to be rectified is an obvious and patent; mistake which is apparent from the record, and not a mistake which requires to be established by arguments and a long drawn process of reasoning on points on which there may conceivably be two opinions. The Tribunal, under such circumstances, has no jurisdiction under section 254(2) to pass the second order. In view of aforesaid, there was no merit in instant application and the same is hereby accordingly dismissed." 11. From the above decision, the ld. Commissioner of Income Tax (Appeals) noted that the assessee has accepted the decision of the Tribunal and from the decision it was clear that the facts of the assessee company and the facts of the Chennai Properties & Investments Ltd. (supra) are totally d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome". The Hon'ble Supreme Court concurred with the finding of Tribunal in that case that service charges are inseparable from the basic charges of rent and the same cannot be taxed under any other head. The relevant portion is quoted below: "17. In the instant case, therefore, it is to be seen as to whether the activity in question was in the nature of business by which it could be said that income received by the appellant was to be treated as income from the business. Before us, apart from relying upon the aforesaid clause in the partnership deed to show objective, the learned counsel for the appellant has not produced or referred to any material. On the other hand, we find that ITAT had specifically adverted to this issue and recorded the findings on this aspect in the following manner: "26. ............ on this issue facts available on record are that the assessee let out sops/stalls to various occupants on a monthly rent. The assessee collected charges for minor repairs, maintenance, water and electricity. As per the terms of allotment by the BMC, the assessee was bound to incur all these expenses. The assessee, in turn, collected extra money from the allottees. The as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be allowed under the provisions of section 57 of the Act only. The Hon'ble Tribunal has further gone to the extent that if any expenditure in relation to service charges also includes expenses on repair and maintenance of the portion of building let out, such expenses have to be excluded as these are already covered in the statutory allowances u/s.24 of the Act, while computing the House property income. Thus, the AO was duty bound to examine the claim of expenses under the provisions of section 57 of tie Act Precisely, section 57(iii) is very categorical when it stipulates: "any other expenditure (not being in the nature of capital expenditure) laid out or expended wholly and exclusively for the purpose of making or earning such income." The A.O. has discussed the applicability of this sub section associated with section 57 of the Act. The AO has given the finding that the expenses claimed have no direct nexus with the earning of the service charges. In other words, such expenses have laid out or expended wholly and exclusively for the purpose of making or earning service charges. The AO has rightly concluded the allowable expenses on proportionate basis. The appellant com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt has to be allowed under the provisions of section 57 of the Act only. The Hon'ble Tribunal has further gone to the extent that if any expenditure in relation to service charges also includes expenses on repair and maintenance of the portion of building let out, such expenses have to be excluded as these are already covered in the statutory allowances u/s.24 of the Act, while computing the House property income. Thus, the AO was duty bound to examine the claim of expenses under the provisions of section 57 of the Act. Precisely, section 57(iii) is very categorical when it stipulates : "any other expenditure (not being in the nature of capital expenditure) laid out or expended wholly and exclusively for the purpose of making or earning such income." The AO has discussed the applicability of this sub section associated with section 57 of the Act. The AO has given the finding that the expenses claimed have no direct nexus with the earning of the service charges. In other words, such expenses have not been laid out or expended wholly and exclusively for the purpose of making or earning service charges. The AO has rightly concluded the allowable expenses on proportionate basis. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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