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TMI Blog2020 (10) TMI 85X X X X Extracts X X X X X X X X Extracts X X X X ..... y and considering the fact that in the past also such income was accepted by the revenue as income from house property. we do not find infirmity in the order of the Ld. CIT(A) on this issue - Decided against revenue. Addition u/s 14A u/s 8D(2)(ii) - CIT-A allowed part claim - HELD THAT:- We find the Ld. CIT(A) while directing the AO to reduce the interest income from the gross interest and thereafter compute the disallowance u/s 8D(2)(ii) has followed the decision of Morgan Stanley India Securities [ 2017 (6) TMI 864 - ITAT MUMBAI] - Decided against revenue. Disallowance of expenses incurred for payment to Shri K.Shrinivas Shri Dinesh N. Jain - assessee failed to substantiate genuineness of services rendered by these persons in sale of shares - CIT- A deleted the addition - HELD THAT:- We find Ld. CIT(A) deleted the addition on the ground that such expenditure was approved by the Board Resolution which includes for payment of the remuneration in connection with the sale of the shares. He has further given a finding that Shri K Shri Niwas and Shri Dinesh N Jain had declared such income and paid taxes @ 30% whereas the assessee company was liable to tax @ 20% on the cap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the manufacture of Receiver Driers manufacturing precision components of Car Air-conditioning Systems. It filed its return of income on 28th September 2012declaring total income of ₹ 1,02,47,70,060/-. During the course of assessment proceedings the AO noticed that the assessee had claimed renting of surplus area of factory premises as income from house property. The reply given by the assessee was not convincing to the AO as renting of surplus area of factory building, which was a business asset, amounted to income from other source instead of property income. The assessee had claimed depreciation on factory building along with standard deduction @ 30% out of rent received. The standard deduction of ₹ 98,49,707/- was disallowed by treating the income as income from other sources. 4. Before Ld. CIT(A) it was submitted that the assessee carries out business of manufacture of automobile parts from its factory premises located at Faridabad. The surplus area in the said factory premises, which is not used for manufacturing purposes, has been let out to Group concerns and as in the past, been offered to tax as rental income. It was explained that the rental agreement sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... specified u/s 14 would arise from a particular source, which determines the nature of the receipt and if it falls under one particular head, it has to be charged under that head and no other. The landmark decisions of UCO Bank Ltd.(32 ITR 688) and East India Housing Land Development Trust Ltd. (42 ITR 49), which were both Three Judge Bench decisions of the Supreme Court were perused wherein it had been held that various sections were available in the IT Act, 1922 (sections 7 to 12) corresponding to sections available in the IT Act, 1961 (sections 15 to 58) to direct the modes in which the income is to be assessed. As per the classification mentioned in section 14 of the IT Act, 1961, if the income is from a source falling within a specific head, it has to be assessed under that head and no other. These sections were held to be mutually exclusive. In the case of Cocanada Radhaswami Bank Ltd. (57 ITR 306), the Supreme Court held that the heads of income must be decided from the nature of the income by applying practical notions and not by reference to an assessee's treatment of income. Again the Apex Court in the case of Nalinikant Ambalal Mody vs. S.A.L. Narayan Rao (61 ITR 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he might do, either by using it personally, or by letting it out to someone else. Keeping in mind that there was only a temporary suspension of business and no act has been performed to show that the assessee never intended to discontinue business, the Supreme Court held that it has rightly been assessed as business income. However, taking a slightly different view in the case of Universal Plast Ltd., the Supreme Court (237 ITR 454) after examining all the earlier decisions on the issue arrived at the broad proposition that where all the assets of the business are let out, the period of letting out and the intention of the assessee i.e. whether to go out of business altogether or to come back and restart the same would be a relevant factor. It was held then that when only or a few business assets are let out temporarily while the assessee is carrying out his other business activity, then it is a case of exploiting business assets; but if the business never started or has started but ceased with no intention to be resumed, then the assets will also cease to be business assets and the transaction will only be exploitation of property by an owner, but not exploitation of business ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ecocat (India) Pvt. Ltd. Industrial Shed 48,681 19,594,561 Ecocat (India) Pvt. Ltd. Office Area 5,890 2,934,276 Total 32,834,358 A.Y. 2013-14 Name of the Company Nature of Premises Area Sq. ft. Total Rent Borgwarner Vikas Emissions Sys India Pvt. Ltd. Industrial Shed 22,824 64,06,864 Ecocat (India) Pvt. Ltd. Industrial Shed 48,681 20,639,432 Ecocat (India) Pvt. Ltd. Office Area 5,890 4,153,319 31,199,615 The facts and figures as per above table are taken from the respective lease agreements and there is no letting out of any other asset, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstruction thereon of approximately 60,000 sq. ft. alongwith power having connected load of 886.370 KW with contract demand of 500KVA including one transformer, cables, panel bands, electronic meter, electrical fitting security deposit etc. The purchase deed specifically refers to 'buildings' 'sanctioned building plan'. Hence it is an admitted fact that the appellant possessed part of the structure since the year 2004. Thereafter, construction has been carried out by the appellant by way of additional structures such as R D section, stores, industrial sheds, security and time office space etc. Since the AO has taken the definition of 'building' from the business dictionary (the same not being defined under the I.T. Act, 1961) it is imperative to discuss other statutes to understand the issue. For eg. Section 2(5)of the Real Estate (Regulation Development) Act, 2016 defines building to include any structure or erection or part of a structure or erection intended to be used for residential, commercial or for purpose of any business, occupation, profession, trade or any other related purposes . A temporary structure such as one with mud, bamboo, leaves, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be considered as rental income or income from property. In case, it is found that the main intention is to exploit the immovable property by way of complex commercial activities, in that event, it must be held as business income. Applying the ratio of this decision to the appellant's case, it is noted that there are no complex commercial activities whatsoever being carried out to justify the exploitation of the asset in question. No such complex commercial activities were being carried out by the appellant, as evident from the lease agreements nor is it obvious from the financials for the year. The conclusion that can be drawn is that, in effect, there is only rental income for leasing of the asset in question. (v) Whether object clause would be the determinative factor to arrive at the conclusion that income arose from business or from letting out: 3.2.9 The Constitution Bench in the case of Sultan Brothers Pvt. Ltd. (Supra) has clarified that an entry in the objects clause showing a particular object would not be a determinative factor in concluding whether income is to be treated as income from business. According to the Supreme Court, a thing by its very nature ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7.2 Ld. Counsel for the assessee on the other hand heavily relied on the order of the Ld. CIT(A). He submitted that in the immediately preceding assessment year such income was accepted by the revenue as income from house property. Further the Ld. CIT(A) after considering the decision of Hon ble Supreme Court in the case of Universal Plast Ltd. (supra) has decided the issue in favour of the assesee. Referring to the decision of Hon ble Supreme Court in the case of Universal Plast Ltd. vs. CIT (supra) Ld. Counsel for the assessee submitted that in the said decision it has been held that no precise test can be laid down to ascertain whether income received by an assessee from licensing or letting out of asset would fall under the head profits and gains of business or profession since it was a mixed question of law and fact and has to be determined from the point of view of a businessman in that business on the facts and in the circumstances of each case. He submitted that since the Ld. CIT(A) has considered various decisions of Hon ble Supreme Court and has come to a finding that the income has to be treated as income from house property, therefore, there is no infirmity in the orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... treated as income from house property. The finding of the Ld. CIT(A) has already been reproduced in the preceding paragraphs. In view of the detailed reasoning given by the Ld. CIT(A) while treating the income as income from house property and considering the fact that in the past also such income was accepted by the revenue as income from house property. we do not find infirmity in the order of the Ld. CIT(A) on this issue. Accordingly the order of the Ld. CIT(A) on this issue is upheld and the ground raised by the revenue is dismissed. 10. Ground No. 3 raised by the revenue reads as under :- 3. Ld.CIT (A)has erred in law and on facts in deleting addition of ₹ 35,56,757/- made by the AO u/s,14A of Income Tax Act, 1961 by ignoring the provisions of Rule 8D(2)(ii) of IT Rules, 1962 11. Facts of the case, in brief, are that the AO during the course of assessment proceedings observed that the assessee has earned exempt income by way of dividend amounting to ₹ 2,13,58,588/- and the assessee has offered disallowance u/s 14A read with Rule 8D at ₹ 45,11,099/- The AO noted that the assessee in the details of disallowance u/s 14A as per Rule 8D has deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;business'. Moreover, the appellant has taken the interest expenditure for apportionment at ₹ 1,66,14,072/- whereas the total expenditure incurred under this head during this year stands at ₹ 2,13,14,321/-. The claim is that this was the interest figure mandated under Rule 8D(2)(ii) i.e. relating to mixed pool of funds and common interest expenditure. However, this is not substantiated by way of filing the bank statements or cash flow statement for the year. The Karnataka High Court in the case of Bharath Beedi Works (P)Ltd. (242 Taxman 492) has held that the burden is upon the assessee to show and prove that interest free funds far exceed the value of investment and thereafter, to justify the quantification of interest towards disallowance for the exempted income. In the present case, the said burden has not been discharged satisfactorily and thereafter, the assessing officer has proceeded to apply the formula provided under Section 8D(2)(ii) read with Section 14A of the Act. The Delhi High Court in the case of Indiabulls Financial Services Pvt. Ltd. (ITA 470/2016) has held that while the language of section 14A presupposes that the AO has to adduce some reasons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... towards disallowance of expenses incurred for payment to Shri K.Shrinivas Shri Dinesh N. Jain even though the assessee failed to substantiate genuineness of services rendered by these persons in sale of shares. 5. Ld. CIT (A) has erred in law and facts in deleting the addition of ₹ 1,00,00,000/- towards disallowance of expenses paid to Shri K.Shrinivas Shri Dinesh N. Jain even though there was no material before the Ld. CIT (A) to substantiate genuineness of Service rendered by them in sale of shares. 17. Facts of the case , in brief, are that the AO during the course of assessment proceedings noted that assessee has incurred an expenditure of ₹ 1 crore on sale of shares. On being questioned by the AO to explain the nature of such expenditure it was submitted that a sum of ₹ 1,00,00,000/- in terms of payments made to Mr. K. Srinivas Mr. Dinesh N. Jain had been incurred against sale of shares of Borgwarner. It was brought to the AO's notice that both the persons were instrumental and mainly responsible for the transactions and therefore the services paid to them were directly attributable to the capital gains earned by the company and the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the persons were involved in the negotiation, drafting and final execution of the transaction thereby earning huge capital gains by the appellant company. The AO has commented only on the aspect of services rendered, thereby neglecting to take notice of the fact that these were professionals who were associated with the company whose shares were sold to Borgwarner, USA. He has also failed to note that the claim of the appellant was not based u/s 37(1) but u/s 57(iii) as expenses wholly and exclusively incurred for earning the said income, which in this case, was capital gains. Moreover, the Board Resolution filed at Pages 89 to 90 of the paper book records the consent of the board of directors, including independent directors, for payment of the remuneration in connection with the sale of the impugned shares. It is also found that both the persons have accounted for this receipt in their returns of income, copies of which have been filed before the undersigned and paid taxes @30% thereon. The capital gains in the hands of the appellant has been taxed at 20% and if the intention of the appellant was malafide, this payment need not have been made. In the consequence and keeping all t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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