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TMI Blog2018 (9) TMI 785X X X X Extracts X X X X X X X X Extracts X X X X ..... any, which was the owner of two buildings at 6, Lions Range, Kolkata and at 16, Bank Street, Mumbai. The space available in the said buildings had been given on rent by the assessee-company to different tenants and the rental income received during the year under consideration amounting to Rs. 5,49,40,017/- after claiming deductions on account of Corporation Tax and standard deduction was offered to tax under the head "income from house property". The assessee-company had rendered certain services to the tenants and the gross receipts from service and maintenance charges amounting to Rs. 90,38,482/- were declared by the assessee under the head "profits and gains of business or profession". Against the said receipts, substantial expenses were claimed by the assessee resulting into business loss of Rs. 3,21,29,852/- and after adjusting the same against the income from house property, the total income of Rs. 1,28,10,165/- was declared by the assessee in the revised return of income filed for the year under consideration on 30.03.2010. During the course of assessment proceedings, the assessee was required by the Assessing Officer to explain as to why the service and maintenance charges ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 23 facility, car parking, lobby facility, security service and other routine maintenance including cleaning, drainage, sewerage etc. The service charges are taken on case to case basis as per agreements entered with the tenants. The appellant has not produced any copy of agreement during the Appellate proceedings to show whether the rates are separate or only one contract is made for hire/rent charges inclusive of service charges, The service charges includes provision of security, maintenance of lifts and common area, providing lighting in common area and the same is recovered even from those to whom part of the premises have been disposed off and even in respect of premises which are not tenanted, All the expenses related to carrying the various businesses as well as for maintaining the corporate activity, viz remuneration of Company Secretary, maintenance of registered office, conduct of Board meetings including travel and stay, travelling for new business prospects are debited to the P&L account by the appellant. The Hon'ble jurisdictional High Court in the case of Commissioner of Income-tax vs Model Manufacturing Co. Pvt. Ltd. (1986) 159 ITR 270 (Cal) held that the service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat even where a composite rent is received, the amount attributable to the amenities provided by the assessee to the tenants should be assessed under the head 'Income from other sources'. In our view, on the facts found by the Tribunal, the first two questions in this reference must be answered in the affirmative and in favour of the assessee". 9. The Hon'ble High Court of Karnataka in the case of Commissioner of Income- tax v. Shankaranarayana Hotels (P.) Ltd. in IT Reference Case Nos. 4 to 6 and 12 of 1990 dated October 15, 1992 reported in [1993] 67 TAXMAN 520 (KAR.), 201 ITR 138 (Kar) has held that it was impermissible to split up the consideration payable by the tenant to the landlord, one representing the 'income from house property' and the other to represent the income attributable to the amenities or services as alleged services were integrated with the property leased and without the services, it was not possible for the tenant to enjoy the premises and, therefore, the entire rent including the service charges should be considered as the 'Income from house property' under section 22. It further observed as follows:- "9. There are three d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n income from House Property. It is held that service charges are not part of House Property Income and has to be treated separately. However, the charges of Rs. 83,57,523/- should be deducted from the gross rent and then deduction under section 24 (a) of rebate/ deduction of 30% is to be allowed from House Property Income". 5. The issue relating to claim of the assessee for deduction on account of business expenses under various heads was decided by the ld. CIT(Appeal) vide paragraphs no. 13 to 18 of his impugned order, which read as under:- "13. The appellant has not been able to find any trading accounting for any business being carried out by it. But, on the other hand, there is a huge personal expenses amounting to Rs. 1,46,30,000/-; travelling & conveyance of Rs. 5,54,000/-; vehicles maintenance of Rs. 8,56,000/-; communication expenses of Rs. 4,72,000/-; printing & stationary of Rs. 2,21,000/-; miscellaneous expenses of Rs. 6,04,000/-. Out of the various expenses, the following expenses are considered essential for the running of the company:- Sl. No. Particulars Amount (in Rs.) 1. Power & fuel 66,92,000 2. Rates & taxes 58,64,000 3. Insurance 2, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been claimed in the Profit & Loss account relating to business. 16. During the appellate proceedings when it was pointed out that there is required to be disallowance of 23 expenditure relating to the earning of House Property Income out of the expenses mentioned in Schedule-14, 15 & 17, it was submitted that the expenses relating to financial expenses, Power & Fuel, Rate & Taxes, Insurance, Auditor's remuneration, Legal & Profession Fee; Rent & Service charges are not pertaining to House Property Income at all. These are expenses for the running of business since the appellant is a corporate entity. However, the appellant has given an alternative plea accepting that certain expenses as discussed and identified out of the total expenses @40% may be considered as pertaining to earning of House Property Income and may not be allowed to be set off against the House Property Income. The said expenses are considered to be part of the earning of House Property Income for which the appellant has claimed Standard Deduction amounting to Rs. 2,35,45,722/- and held to be disallowable on the basis of the admission of the appellant without further discussion, since it is considered to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss expenses. Therefore, the business loss of the appellant will be reduced by an amount of Rs. 68,46,400/- to be set off against house property income. This ground of appeal is partly allowed". 6. The claim of the assessee for various business expenses thus was allowed by the ld. CIT(Appeals) to the extent of Rs. 2,71,35,600/-. Aggrieved by the same, the Revenue and assessee both have raised the following grounds in their respective appeals:- Revenue's appeal (1) Whether on the facts and circumstances of the case, ld. CIT(A) erred in law in holding that income received in respect of service charges related to house property is to be treated as business income as against house property income. (2) Whether on the facts and circumstances of the case, ld. CIT(A) erred in law in deleting the addition made by AO of 23 in respect of unjustified and disproportionate expenses against income from services rendered. Assessee's appeal (1) Because that the ld. CIT(A) was erred in law as well as in facts in disallowing a sum of Rs. 68,46,400/- being 40% of the business expenditure of Rs. 1,71,16,000/- apportioned by him allegedly for earning of house property income and dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the other hand, submitted that the ld. D.R. has not raised any material contention to dispute or challenge the conclusion drawn by the ld. CIT(Appeals) while treating the service and maintenance charges as assessable to tax under the head "profit and gains of business or profession". He submitted that the main grievance of the Revenue as projected by the ld. D.R. in his argument is regarding the claim of the assessee for the expenses claimed under various heads, which have been allowed by the ld. CIT(Appeals) substantially. He contended that the assessee was engaged in carrying out various business activities in earlier years and even though there was a temporary lull in the business during the year under consideration, the assessee-company continued to carry on the said activities in the subsequent years and also started some new activities. He contended that the assessee-company thus had not gone out of business and it was a suspension of such business activities temporarily due to lull in the business. He submitted that the assessee-company, therefore, continued to employ its work source and maintain its corporate status as going concern. He contended that the entire facts and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmed 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. We, therefore, find merit in the contention of the ld. 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. 12. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ptable by the Assessing Officer. According to him, the said building was sealed by the Municipal Corporation only on 14.10.2011 and, therefore, annual value of the same was liable to be taxed as house property income in the hands of the assessee under section 23(1)(c) of the Act. Accordingly, notional rent from the said property calculated at the rate of 6% of Rs. 19,14,09,000/- was worked out by the Assessing Officer at Rs. 1,14,84,540/- and after allowing deduction of 30%, addition of Rs. 80,39,178/- was made by him to the total income of the assessee. 15. The addition of Rs. 80,39,178/- on account of deemed rental income from the building at Qutub Institutional area as made by the Assessing Officer was challenged by the assessee in the appeal filed before the ld. CIT(Appeals) and after considering the submissions made by the assessee as well as the material available on record, the ld. CIT(Appeals) deleted the same for the following reasons given in paragraph no. 21 of his impugned order:- "21. I have carefully considered the observations of the Assessing Officer in the assessment order, and submissions of the appellant. The appellant has produced a copy of the Writ Petition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - was shown by the assessee as advance received against sale of apartment in Delhi. In this regard, it was explained by the assessee before the Assessing Officer that the said advance was received from one Mrs. Bindia Jain against sale of apartment at 506, 5th Silver Arch, New Delhi and although there was an agreement to sell the said flat for a consideration of Rs. 2,51,72,384/-, no conveyance could be executed due to some dispute. According to the Assessing Officer, the assessee thus remained the owner in possession of the said property and annual value of the same was chargeable to tax in the hands of the assessee. He accordingly worked out the notional rental income of the said property at Rs. 15,10,343/- at the rate of 6% of Rs. 2,51,72,384/- and after allowing deduction of 30%, addition of Rs. 10,57,240/- was made by him to the total income of the assessee under the head "income from house property". 19. The addition of Rs. 10,57,240/- made by the Assessing Officer was challenged by the assessee in the appeal filed before the ld. CIT(Appeals) and after considering the submissions made by the assessee as well as the material available on record, the ld. CIT(Appeals) deleted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... material available on record, we find it difficult to uphold the impugned order of the ld. CIT(Appeals) on this issue. It is observed that although substantial payment against the consideration for sale of the property in question was received by the assessee from Mrs. Bindia Jain, the possession of the property was not handed over by the assessee to the purchaser during the year under consideration and the same was handed over only on 01.12.2010. The ld. 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 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. Even the decision of the Hon'ble Supreme Court in the case of S.N. Wadiyar (Decd. through L.R.) (supra), cited by the ld. Counsel for the assessee is of no help to the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Assessing Officer under section 2(22)(e). We, therefore, find no justifiable reason to interfere with the impugned order of the ld.CIT(Appeals) on this issue and upholding the same, we dismiss Grounds No. 5 & 6 of the Revenue's appeal. 25. As regards the issue involved in Ground No. 7 of the Revenue's appeal relating to the deletion by the ld. CIT(Appeals) of the addition made by the Assessing Officer on the basis of ITS data, 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 Assessing Officer. Keeping in view this opportunity given by the ld. CIT(Appeals) to the Assessing Officer to verify the reconciliation prepared and furnished by the assessee from the relevant details and documents, we are of the view that the revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X
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