Income Tax Appellate Tribunal - Mumbai
Suman Kukreja, Mumbai vs Jcit Cir 13(3), Mumbai on 28 December, 2018
आयकर अपीऱीय अधिकरण "G" न्यायपीठ मुंबई में ।
IN THE INCOME TAX APPELLATE TRIBUNAL "G" BENCH, MUMBAI
BEFORE SHRI JOGINDER SINGH, VICE PRESIDENT
AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER
आयकर अपीऱ सं./I.T.A. No.1339 & 1340/ Mum/2017
(नििाारण वर्ा / Assessment Year : 2011 -12 & 2012-13)
Suman Omprakash बिाम/ JCIT, Circle 17(3)
Kukreja, Mumbai
4 & 5 t h Sai Commercial v.
Building,
B.K.S. Devshi Marg,
Govandi (E),
Mumbai-400013
स्थायी ऱेखा सं ./ PAN: AAHPK3756A
(अपीऱाथी /Appellant) .. (प्रत्यथी / Respondent)
Assessee by: Shri. Yogesh Joijode
Revenue by : Shri. Chaudhary Arun Kumar
Singh (DR)
सुनवाई की तारीख /Date of Hearing : 18.10.2018
घोषणा की तारीख /Date of Pronouncement : 28.12.2018
आदे श / O R D E R
PER RAMIT KOCHAR, Accountant Member:
These two appeals, filed by assessee, being I.T.A. No. 1339 & 1340/Mum/2017 for assessment year(s) 2011 -12 and 2012 - 13, are directed against separate appellate order(s) dated 11.11.2016 & 09.12.2016 respectively passed by learned Commissioner of Income Tax (Appeals)-28, Mumbai (hereinafter called ―the CIT(A)‖), for assessment year(s) 2011-12 and 2012-13 respectively. The appellate proceedings had arisen before learned CIT(A) from assessment order dated 14.03.2014 and 20.03.2015 respectively passed by learned I.T.A. No.1339 & 1340/Mum/2017 Assessing Officer (hereinafter called ―the AO‖) u/s 143(3) of the Income-tax Act, 1961 (hereinafter called ―the Act‖) for AY 2011-12 and 2012-13 respectively. Since, common issues are involved and hence both these appeals are heard together and disposed of by this common order for the sake of convenience.
2. We will first take up appeal in ITA no. 1339/Mum/2017 for AY 2011-12 and our decision in appeal for AY 2011-12 shall apply mutatis mutandis to the appeal for AY 2012-13. The grounds of appeal raised by the assessee in the memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called ―the tribunal‖) for AY 2011-12, read as under:-
"1. The Hon'ble Commissioner of Income Tax (Appeal) has erred in confirming the Order of Assessing Officer in making disallowance of depreciation on BMW Car to the extent of Rs.21,68,329/- being 35% (50% depreciation claimed by appellant (-) 15% depreciation allowed). It is submitted that the appellant claimed depreciation @ 50% on the BMW Car as per the circular by the Government of India stating that commercial vehicle purchased during the specified period and eligible for depreciation @ 50% as per Income Tax Act, 1961. It is submitted that the learned assessing officer has erred in stating that the said BMW car cannot be classified as commercial vehicle. The Hon'ble Commissioner of Income Tax (Appeal) has not considered the facts and submissions made by the appellant. It is therefore submitted that depreciation on Motor car should be allowed in full.
2. The Hon'ble Commissioner of Income Tax (Appeal) has erred in confirming taxing of Rental Income to the extent of Rs.28,69,075/- as Income from other Sources instead of Income from House Property on the pretext that Rental Income is arising from the renting of the Terrace space for the purpose of installation of mobile towers on terrace and thereby denying amount of Rs.8,60,723/- as being 30% claimed u/s. 24 of the Income Tax Act, 1961 under the head Income from House Property. It is submitted that the appellant has earned rental income for providing space in terrace being part of building and not from Antina and Machine equipments installed by the third Parties. It is therefore submitted that such Income from 2 I.T.A. No.1339 & 1340/Mum/2017 terrace cannot be considered as Income from renting of plant and machinery and has to be taxed under the head Income from House Property. It is therefore submitted that the such rental income of Rs.28,69,075/- should be taxed as Income From House Property and thereby allow 30% deduction of Rs.8,60,723/- u/s. 24 of the Income Tax Act, 1961. Accordingly, the necessary direction should be given in this regard.
3. The Hon'ble Commissioner of Income Tax (Appeal) has erred in confirming the ad-hoc disallowance towards Maintenance Charges of Rs.5,80,089/- being 10% of total various expenses of Rs.58,08,089/- on the pretext that part of such expenses are incurred for earning Rental Income for A.Y. 2011-12.
Head of expenses considered for disallowance Amount (Rs.)
Repairs & Maintenance Rs7,24,945/-
Sai Commercial Rs9,98,832/-
Sai Commercial Office Expenses Rs.12,65,775/-
Salary Rs.9,99,424/-
Professional Fees Rs. 8,23,113/-
Rs. 58,08,089/-
It is submitted that the learned assessing officer has made such disallowance on assumptions and presumptions. It is submitted that such expenses are not related to earning rental income from terrace. Accordingly, such expenses claimed by the appellant company should be allowed in full and necessary direction should be given in this regard.
4. Your appellant craves to add, alter, or amend any of the grounds of appeal on or before the date of hearing of appeal."
3. The assessee is an individual and has a proprietary concern namely Omprakash & Co. . The assessee is engaged in the business of real estate development and construction. The assessee purchased BMW car and it was claimed to have been used for the purposes of her business . The assessee had claimed depreciation @ 50% on BMW claiming the same to be ‗Commercial Vehicle' which was purchased during the specified period. The assessee submitted that even if the said BMW car was not used for the purposes of hire business but the 3 I.T.A. No.1339 & 1340/Mum/2017 same qualified to be classified as ‗Commercial Vehicle'. The assessee filed evidences for purchase of aforesaid BMW car along with ledger account of Motor Car-BMW before the AO. The AO issued questionnaire dated 24.12.2013 to the assessee that how the said vehicle can be classified under the definition of ‗Commercial Vehicle'. The assessee vide letter dated 07.03.2014 submitted before the AO as under:-
" With regards to the 50% claim of Depreciation on the Motor Car (BMW), it is submitted that the details with regards to the same along with the copy of the case law for the allowance of such claim are already submitted to your honors office and it is submitted that the same is covered in definition of commercial vehicle. Further with regards to your honors query about the Sub-clause 3 of Part III of Appendix -I„ it is submitted that said defines Commercial vehicle. The definition is as follow:-
"6. "Commercial Vehicle" means "heavy goods vehicle", "heavy passenger motor vehicle", "light motor vehicle", medium goods vehicle" and "medium passenger motor vehicle" but does not include "maxi-cab", "motor cab", "tractor" and "road-roller".
The expressions "heavy goods vehicle", "heavy passenger motor vehicle", "light motor vehicle", medium goods vehicle", "medium passenger motor vehicle" , 'maxi-cab", "motor cab", "tractor" and "road-roller" shall have the meanings respectively as assigned to them in Section 2 of the Motor Vehicles Act, 1988 (59 of 1988)."
Further, it is submitted that there is no where written that it should be used for the purpose of hire business and therefore, those which is used for the purpose of Business and which comes under the definition of commercial vehicle are eligible for depreciation of 50% if acquired between 01.01.2009 to 01.04.2009 and used before 01.04.2009.
Further, the light motor vehicle is defined u/s. 2(21) of "The Motor Vehicles Act, 1988" as follows:-
"light motor vehicle" means a transport vehicle or omnibus the gross vehicle weight of either of which 4 I.T.A. No.1339 & 1340/Mum/2017 or a motor car or tractor or road-roller the unladen weight of any of which, does not exceed 7,500 kilograms;"
From the above, it is submitted that light motor vehicle are those which has an unladen weight below 7500 kgs. In this regards copy of the RC book for the purchase of motor car by the assessee showing the unladen weight of 2055 kgs. Hence, it is submitted that the motor car purchased is as per the definition of light motor vehicle and which is used for the purpose of Business of the assessee, therefore, it is requested to your honor to allow the depreciation @ 50% for the motor car of the assessee. Further circular as well as case law on the issue is already submitted in our earlier submissions.
Accordingly, no adverse inference should be drawn in this regard."
The aforesaid submissions as were submitted by the assessee before the AO during assessment proceedings conducted by the AO u/s 143(3) read with Section 143(2) were rejected by the AO, by holding as under:-
― The submission of the assessee is carefully examined but is not acceptable for following reasons:-
a. In order to give a boost to transport sector, there was an incentive rate or depreciation on commercial vehicle if purchased during the period from January, 2009 to March, 2009. The said period was subsequently extended to September, 2009, The assessee purchased a BMW car and claimed depreciation @ 50% on opening WDV of Rs. 61,95,256/- i.e. Rs. 30,97,628/-. The BMV Car by no imagination falls within the definition of commercial vehicle in assesses case. Commercial vehicle is defined in Section 32 of the I.T Act, 1961 as under:-
""heavy goods vehicle", "heavy passenger motor vehicle, "light motor vehicle", "medium goods vehicle", "medium passenger motor vehicle", "maxi-cab", "motor cab", "tractor" and "road roller" shall have the meanings 5 I.T.A. No.1339 & 1340/Mum/2017 respectively as assigned to them in Section 2 of the Motor Vehicle Act, 1988 (59 of 1988)".
The assessee purchased a BMW Car not for doing business or travel or tourism. It is used for personal use and for the purpose of business other than hiring and plying of car business. Further, HPMV, LMV, MGV, MPMV are defined as follows:-
"(17) "heavy passenger motor vehicle" means any public service vehicle or private service vehicle or educational institution bus or omnibus the gross vehicle weight of any of which, or a motor car the unladen weight of which, exceeds 12,000 kilograms;
21) "light motor vehicle" means a transport vehicle or omnibus the gross vehicle weight of either of which or a motor car or tractor or road roller the unladen weight of any of which, does not exceed 7,500 kilograms;
(23) "medium goods vehicle" means any goods carriage other than a light motor vehicle or a heavy goods vehicle;
(24) "medium passenger motor vehicle"
means any public service vehicle or private service vehicle, or educational institution bus other than a motor cycles, invalid carriage, light motor vehicle or heavy passenger motor vehicle".
Thus, aforesaid findings and conclusion reached by the AO led the learned AO to conclude that BMW car falls under definition of ‗Motor Car' and is not a ‗Commercial Vehicle' used for the purpose of business and Travelling and Transport. Thus, the AO held that BMW car is not a ‗Commercial Vehicle' qualifying for a higher depreciation @50%. Thus, the AO allowed to the assessee normal depreciation @15% while excess depreciation was disallowed by the AO , vide assessment order dated 14.03.2014 passed by the AO u/s 143(3) of the 1961 Act.
6I.T.A. No.1339 & 1340/Mum/2017
4. Aggrieved by the assessment framed by the AO vide assessment order dated 14.03.2014 passed u/s 143(3) of the 1961 Act, the assessee filed first appeal with Ld. CIT(A) which did not found favour with Ld. CIT(A) and appeal of the assessee on this issue stood dismissed by learned CIT(A). The Ld. CIT(A) held that the said BMW car was not used for the business of hiring and plying and hence higher depreciation as is being eligible for ‗Commercial Vehicle' cannot be allowed to the assessee . The learned CIT(A) held that the said BMW vehicle was not commercial in nature. Thus, in nut-shell the appeal of the assessee stood dismissed by learned CIT(A) , vide appellate order dated 11.11.2016 passed by learned CIT(A).
5. Being aggrieved by appellate order dated 11.11.2016 passed by learned CIT(A) , the assessee filed second appeal with the tribunal. The learned counsel for the assessee submitted before the Bench that the assessee purchased new BMW car in June 2009 . The learned counsel for the assessee submitted that the said BMW car was used for her business of real estate and construction. It was submitted that since it is a commercial use of the BMW car, the assessee is entitled for higher depreciation @ 50%. It was submitted that there is a CBDT notification bearing number 10/2009 dated 19-01-2009 which extended incentives for new commercial vehicle purchased after 1st January 2009, but before 1st April 2009 for the purposes of business or by way of higher depreciation @50% . It was submitted that the said benefit of higher depreciation was extended for Commercial Vehicle purchased till 30th September 2009 by CBDT. The Ld. DR on the other hand relied upon the orders of the authorities below.
6. We have considered rival contentions and perused the material on record. We have observed that the assessee is an individual and has a proprietary concern namely Omprakash & Co. . The assessee is engaged in the business of real estate development and construction. The assessee purchased BMW car wherein it is claimed to have been used for the purposes of her business of real estate and construction.
7I.T.A. No.1339 & 1340/Mum/2017 The assessee had claimed depreciation @ 50% on BMW car claiming the said BMW car to be ‗Commercial Vehicle' which was purchased during the specified period. It is claimed by the assessee that the user of BMW car by proprietor or by other employees of the assessee concern for its business of real estate and construction per-se would make the said BMW car as ‗Commercial Vehicle' entitled for higher depreciation. The assessee has relied upon the CBDT Notification No. 10/2009/F.No.142/01/09-TPL dated 19.01.2009 , vide S.O. 197(E), which amended Income-tax Rules,1962 vide Income-tax (Third Amendment) Rules, 2009 which came into force with effect from 1st day of April 2009 , which stipulates as under:
"INCOME-TAX (THIRD AMENDMENT) RULES, 2009 - AMENDMENT IN NEW APPENDIX 1 NOTIFICATION NO. 10/2009, DATED 19-1-2009 In exercise of the powers conferred by section 295 of the Income-tax Act, 1961 (43 of 1961), the Central Board of Direct Taxes hereby makes the following rules further to amend the Income-tax Rules, 1962, namely:--
(1) These rules may be called the Income-tax (Third Amendment) Rules, 2009 (2) They shall come into force on the 1st day of April, 2009.
In the Income-tax Rules, 1962, in the Table to New Appendix 1, in Part-A relating to TANGIBLE ASSETS, under the heading III. MACHINERY AND PLANT, in item (3), after sub-item (vi) and entries relating thereto, the following shall be inserted, namely:--
"(via) New commercial vehicle which is acquired on or after the 1st day of January, 2009 but before the 1st day of April, 2009 and is put to use before the 1st day of April, 2009 for the purposes of business or profession [See paragraph 6 of the Notes below this Table] 50".
[F. No. 142/01/09-TPL]‖ 8 I.T.A. No.1339 & 1340/Mum/2017 The sun-set date as aforesaid was further extended by CBDT to a date for commercial vehicles purchased prior to 1st October 2009 and put to use prior to 1st October 2009, and the entry now reads in Appendix I (effective from assessment year 2006-07 onwards) Part A , entry III , sub- entry 3(via) as under:
[(via) "New commercial vehicle which is acquired on or after [40] the 1st day of January, 2009 but before the 1st day of [October], 2009 and is put to use before the 1st day of [October], 2009 for the purposes of business or profession [See paragraph 6 of the Notes below this Table] "
Th The definition of commercial vehicle as is specified at Note 6 below the table in Appendix I to Income-tax Rules, 1962, reads as under:
"6. "Commercial vehicle" means "heavy goods vehicle", "heavy passenger motor vehicle", "light motor vehicle", "medium goods vehicle" and "medium passenger motor vehicle" but does not include "maxi-cab", "motor-cab", "tractor" and "road-roller". The expressions "heavy goods vehicle", "heavy passenger motor vehicle", "light motor vehicle", "medium goods vehicle", "medium passenger motor vehicle", "maxi-cab", "motor-cab", "tractor" and "road-roller" shall have the meanings respectively assigned to them in section 2 of the Motor Vehicles Act, 1988 (59 of 1988).‖ The entry prior to this entry in Appendix I (effective from assessment year 2006-07 onwards) Part A , entry III , sub-entry 3(via) to 1962 Rules relating to higher depreciation for Commercial Vehicles purchased during specified period, is an entry at relates to depreciation on Motor buses , motor lorries and motor taxies used in the business of running them on hire which also provide for higher depreciation @40%. Still above these two entries , there is an entry in Appendix I (effective from assessment year 2006-07 onwards) Part A , entry III , sub- entry 3(ii) to 1962 Rules for providing depreciation on Motor cars, other than those used in a business of running them on hire, acquired or put on or after the 1st day of April 1990 which provided for depreciation @15%. These entries in Appendix 1 to the 1962 Rules are under the head Machinery and Plant (III) with sub- entry (2), (3)(ii) and 3(via). The general rate of depreciation on 9 I.T.A. No.1339 & 1340/Mum/2017 Machinery and Plant other than those covered by sub-entry (2),(3) and (8) below provide for depreciation @15% in the same Appendix I to 1962 Rules . This Appendix refers to Rule 5 of the 1962 Rules , which Rule deals with depreciation having chapter heading ‗Determination of Income' under Part-II with sub-heading at ‗C-Profit and Gains of business of Profession' of the 1962 Rules. Thus, Rule 5 of the 1962 Rules concerns itself with manner of providing depreciation while computing income under the head ‗Profits and Gains of Business or Profession' which refers and relates to Section 32 of the 1961 Act.
Depreciation as is provided u/s 32 of the 1961 Act falls under sub- chapter heading ‗Profits and Gains of Business or Profession' under sub-chapter D of the main chapter IV to the 1961 Act which deals with ‗Heads of income' and ‗Computation of Income'. This Section 32 of the 1961 Act refers to depreciation to be provided on the Block of Assets , such percentage on the written down value thereof as may be prescribed and also concerns itself with providing depreciation while computing income under the head ‗Profit and Gains of Business or Profession'. Thus, it is clear that all the entries pertaining to vehicles as discussed above as are placed in Appendix I which pertains to the vehicles which are used for the purposes of business or profession on which depreciation is to be allowed as provided under the 1961 Act read with 1962 Rules and concerns itself for providing depreciation while computing income under the head ‗Profits and Gains of Business or Profession'. Thus, all these three entries concerns itself with vehicles used for business purposes. We have to harmoniously interpret these three entries which are appearing successively under the Appendix-I to 1962 Rules. The first entry in Appendix I under item III concerning Machinery and Plant under sub-item (1) of item III of Part A deals with Machinery and Plant other than those covered by entries (2),(3) and (8) below which is a general entry with which we are not presently concerned. While interpreting the provisions, the cardinal rule is that law makers inserted a provision in the statute knowingly with complete knowledge and understanding of the matter 10 I.T.A. No.1339 & 1340/Mum/2017 and none of the words used are surplusage .Thus, all the entries are to be harmoniously read so that none of the words used become surplus or otiose , unless there are strong and compelling reasons for taking contrary view and only in that situation conclusions are reached by Judicial Bodies that these words cannot be harmoniously read and reconciled, the said words shall be then read down or be taken as if they never existed in the statute by Judicial bodies while interpreting the provisions in the statute. Coming back, the second entry concerns itself with Motor Cars , other than used in a business of running them on hire which in-fact is a case before us as we will see later and it provides for depreciation @15%. The next entry concerns itself with Motor Buses, Motor lorries and motor taxis used in a business of running them on hire , which again is not the case before us as this BMW car was admittedly never been given on hire by the assessee and/or was never used as motor taxi. The next entry in Appendix I to the 1962 Rules concerns itself with ‗Commercial Vehicle' and higher depreciation is provided for the vehicles which falls under this category of ‗Commercial Vehicle'. This word ‗Commercial' which precede the word ‗Vehicle' is not used in any other entry in Appendix I except in Part A , entry III , sub-entry 3(iii) to (via) which relates to same class. This word ‗Commercial' is also not defined per-se in the 1961 Act and the only definition is under the table to Appendix I to the 1962 Rules in clause 6 . The said definition in clause 6 to table in Appendix A only defines that ‗Commercial Vehicles' means as under :
"6. "Commercial vehicle" means "heavy goods vehicle", "heavy passenger motor vehicle", "light motor vehicle", "medium goods vehicle" and "medium passenger motor vehicle" but does not include "maxi-cab", "motor-cab", "tractor" and "road-roller". The expressions "heavy goods vehicle", "heavy passenger motor vehicle", "light motor vehicle", "medium goods vehicle", "medium passenger motor vehicle", "maxi-cab", "motor-cab", "tractor" and "road-roller" shall have the meanings respectively assigned to them in section 2 of the Motor Vehicles Act, 1988 (59 of 1988).‖ In the 1961 Act and also in Motor Vehicle Act,1988 , the said word ‗Commercial Vehicle' is not defined except as stated above in 11 I.T.A. No.1339 & 1340/Mum/2017 Appendix I to the 1962 Rules. The above definition in Appendix I to the 1962 Rules only indicates that some category of vehicle as enumerated in clause 6 shall be classified as Commercial Vehicle. No other definition of ‗Commercial Vehicle' as stipulated in any other statute in India is brought to our notice by authorities below in their orders or by the learned counsels for the rival parties. Under these circumstances, we have to refer to the meaning of Commercial Vehicle as is used in common parlance by business community. The said word ‗Commercial Vehicle' is also used by Insurance Industry while granting insurance cover /policy in favour of the vehicle. In Wikipedia, A Commercial Vehicle is any type of motor vehicle used for transporting goods or paying passengers. The European Union defines a "commercial motor vehicle" as any motorized road vehicle, that by its type of construction and equipment is designed for, and capable of transporting, whether for payment or not: (1) more than nine persons, including the driver; (2) goods and "standard fuel tanks". These entries as they found mentioned in Appendix I to the 1962 Rules and provision of depreciation u/s 32 of the 1961 Act , all concerns itself with computation of income under the head ‗Profits and Gains of Business or Profession'. Thus, it is a precondition that the said ‗Commercial Vehicle' is to be put to use for business or profession of the assessee . This particular entry also say that the commercial vehicle is to be put to use for the business or profession of the assessee prior to 01st October 2009. This clearly reveals that now we have to interpret the word ‗Commercial' in juxtaposition with the word ‗Vehicle' and none of the words can be taken to be surplus as used by lawmakers as presumption is that law makers have knowingly used these words with complete understanding of the matter. On careful perusal of this entry, it also reveals that there is no requirement that this commercial vehicle is to be let on hire. As we have seen above in Wikipedia, A commercial vehicle is any type of motor vehicle used for transporting goods or paying passengers. The European Union defines a "commercial motor vehicle" as any motorized road vehicle, that by its 12 I.T.A. No.1339 & 1340/Mum/2017 type of construction and equipment is designed for, and capable of transporting, whether for payment or not: (1) more than nine persons, including the driver; (2) goods and "standard fuel tanks". In our considered view based on our aforesaid discussions, the said vehicle has to be an commercial vehicle which albeit may not be given on hire by the tax-payer but can be used in the business or profession of the tax-payer itself and merely because any car or other vehicle is used for transporting a particular employee/ director of the tax-payer from his home to office and back or for other official purposes shall not make the vehicle a Commercial Vehicle and shall remain to be a private vehicle . Say for example, the ambulance owned by tax-payer hospital for transporting its patients will fall under the category of commercial vehicle. Similarly passenger bus or even SUV's owned by the taxpayer which are used for commuting its pool of employees from home to work and back will fall under the category of Commercial Vehicle. Similarly, certain vehicles which are used for industrial application within factory premises of the tax-payer for undertaking core industrial operations and/or transporting raw material and finished goods will fall under the category of commercial vehicles. Similarly, the goods vehicle owned by the tax-payer which is transporting raw material to factory site or transporting finished goods from factory/depots to customers / company warehouses/depots will fall under the category of Commercial vehicles which are used for the purposes of business or profession of the tax-payer , but to say as in the instant appeal that all motor cars such as BMW cars which are used by proprietor or a specific employee for business purposes or commuting between work and home will make it a commercial vehicle shall be too farfetched and expanding the meaning of the word ‗Commercial vehicle' beyond what is contemplated by law makers as it will make the entry of Motor Cars , other than used in a business of running them on hire as otiose . Thus, in our considered view , the assessee is not entitled for claiming depreciation on BMW Car used by it for its business under the category of Commercial Vehicle which 13 I.T.A. No.1339 & 1340/Mum/2017 provided higher rate of depreciation rather the assessee will be entitled for deprecation on BMW car under the entry ‗Motor Cars , other than used in a business of running them on hire' which provided lower depreciation. The commercial vehicles will entail heavy usage for passengers/goods for business or profession purposes while car bought for commuting Directors/officers of the tax-payers from bringing them to work from home and back as well for other business requirements although registered in the name of the business concern will be a private vehicle meant for business purposes of a specific officer or director and shall not fall under the definition of commercial vehicle. The assessee fails on this ground. We order accordingly.
7(i). The next issue relates to rental income received by the assessee which included income from letting out of terrace for installation of mobile towers , to the tune of Rs. 28,69,075/- The assessee submitted that rental income was received from letting out terrace space for the purposes of installation of mobile towers on terrace and not from the earning of rent from Mobile Towers. The assessee had claimed that the said income should be brought to tax under the head ‗Income from House Property' as was declared in the return of income filed with the revenue. The AO observed that the assessee is builder of the apartments and not the owner of the terrace which space is available to the society . It was observed by the AO that since the society is not formed, it is just idle space and builder cannot claim ownership for the said terrace as the said terrace in not proprietary asset of the assessee. The assessee had filed rent agreements with the AO . The learned AO was not clear whether the said income was from letting out of hoardings/towers . Hence , it was observed by the AO that the said income cannot be brought to tax under the head ‗Income from house property' while the same should be brought to tax under the head ‗Income from the other sources' . The AO observed that following income was declared from displaying hoardings/tower of Rs. 28,69,075/- as under:14
I.T.A. No.1339 & 1340/Mum/2017 Sr. No. Name Amount (Rs.) 1 21st Century Infra Tele Ltd. 3,00,000 2 Hutchison Essar Ltd. 3,57,500 3 M.T.N.L 1,80,000 4 Bharti Airtel Ltd. 2,76,351 5 B P L Mobile Communication 5,63,333 Ltd.
6 Idea Cellular Ltd. 6,91,891 7 Wireless - T T Info Services 5,00,000 Ltd.
Total 28,69,075 Thus, the AO brought to tax aforesaid income as income from other sources and deduction @ 30% u/s. 24 as claimed by the assessee which was disallowed and added back to the total income of the assessee vide assessment order dated 14.03.2014 passed by the AO u/s 143(3) of the 1961 Act.
7(ii) The AO also added an amount of Rs. 5,80,089/- to the income of the assessee being 10% of the total maintenance charges of Rs. 58,08,089/- claimed by the assessee as under:-
Repairs & Maintenance 7,24,945
Sai Commercial 9,98,832
15
I.T.A. No.1339 & 1340/Mum/2017
Sai Commercial Office Expenses 12,65,775
Salary 9,99,424
Professional Fees 8,23,113
Total 58,08,089
The said addition was made on the grounds that assessee has not allocated expenditure towards Rental income which was claimed as an income under the head ‗Income from House Property', such as maintenance , office expenses , salary etc. The AO observed that it cannot be ruled out that the said expenses may also be pertaining to income from house property and hence 10% disallowance was made by the AO vide assessment order dated 14.03.2014 passed u/s 143(3) of the 1961 Act.
8. Aggrieved by the assessment framed by the AO u/s 143(3) of the 1961 Act vide assessment order dated 14.03.2014, the assessee filed first appeal with Ld. CIT(A). The Ld. CIT(A) vide appellate order dated 11.11.2016 also rejected the claim of the assessee by holding as under:-
"There are receipts from seven hoardings/towers. Essential condition for claiming rental income have not been met. Form of agreements even if entered cannot be greater than the substance thereof. The essential feature of ownership is missing. Secondly, the terrace as such, is used only as a platform to erect hoardings etc. There is no exploitation of space as a house property. Terrace is a physical facilitator for commercial purposes of several business entities. The case authorities relied in paper book are factually like chalk and cheese with present set of facts.
More significantly form 3CD Col.8(a) mentions nature of business as "real estate development and civil construction". Let out of property is not even an admitted activity. Further, the rental income is not even shown separately but made part of Profit and loss account. The trading account lists "rental income" on credit side. Thirdly 16 I.T.A. No.1339 & 1340/Mum/2017 and most significantly is the nature of agreements entered into. Paper book P.59ff of AR lists a "maintenance agreement" ( not a rent agreement) between assessee and 21st Century Infra Tele Ltd. Clause A-E are significant and reproduced as under:
A. The SECOND PARTY has been provided
Registration Certificate No.223/2008 for
infrastructure provider category I (IP-1) from Government of India, Department of Telecommunication for providing infrastructure (in the service area covered therein including Maharashtra and Goa) B. For the purpose of setting up facilities to provide basic telecom network and other value added services in 'Maharashtra Telecom Circel', the SECOND PARTY requires inter alia to install sets of Microwave /Repeater / Cell sites/ shelters and other equipment including telecom and power cables (hereinafter collectively referred to as the said 'Equipment') at various locations in the 'Maharashtra Telecom Circle'.
C. Both the parties hereto have entered into a Leave and Licence Agreement dated 04/08/2009 (hereinafgter referred to as said Licence agreement) for installing its said Equipment on the rooftop/terrace and Lift Machine Room (LMR) of the building known as 'Krishna Govinda Building' situated at Plot No.22 to 26, Sector -24, Vashi, Opp.Sanpada Station, APMC Road, Vashi, Navi Mumbai, as one of the sites (referred to therein as the "Licensed premises') and for carrying out requisite cabling etc. in and around the said building for the purpose of connectivity.
D. Pursuant to the permission/licence granted by the FIRST PARTY under the said Licence Agreement and for the better and more effective utilization of said Licenses Premises, the SECOND PARTY is desirous of having the use, benefit and enjoyment of the following common areas, amenities, facilities and services in and pertaining to the said Licensed premises or the said building and to which the FIRST PARTY has agreed.17
I.T.A. No.1339 & 1340/Mum/2017 E. The parties hereto are desirous of reducing the terms and conditions of the agreement into writing, NOW THEREFORE THIS 'AGREEMENT' WITNESSES AND THE PARTIES HERETO AGREE AS FOLLOWS:
1. Tenure & Effective date It is expressly agreed between the parties hereto that the tenure of this Maintenance Agreement ('Agreement') is for (5) Five years and shall be effective from 20th July, 2009 upto 19th July 2014 and shall run concurrently and shall be co-terminus with the said Leave and License Agreement entered into between the parties herein.
2. Services The FIRST PARTY agrees to provide the services, which are identified and agreed upon as follows:
Nominal Maintenance/upkeep of the portion of the terrace and space in &around the said Building Use and benefit of the lifts and/or service elevators Benefit of use of Security Guard/System.
Benefit of the correspondence and dealings with all Government, semi-Government, Local and Public bodies and authorities directly or through the FIRST PARTY Use and benefit of the common lighting within the said building outside it but within the compound thereof.
3. Maintenance Fees
(a) The SECOND PARTY agrees to pay to the FIRST PARTY an amount of Maintenance fees shall be payable as following manner:"
This is a dead giveaway. The object of agreement, agreement of services, payment of "maintenance fees" are so clear that none need elucidation. Other agreements run on similar lines.18
I.T.A. No.1339 & 1340/Mum/2017 The conclusion is even if the appellant were the owner of the area, still the income would classify as income from other sources."
8(ii) Similarly maintenance expenses which were disallowed by the AO also stood disallowed by Ld. CIT(A) vide appellate order dated 11.11.2016, by holding as under:-
" GOA 3 : "The Id.AO has erred in making adhoc
disallowance towards maintenance charges of
Rs.5,80,089/-being 10% of total various expenses of Rs.58,08,089/- on the pretext that part of such expenses are incurred for earning rental income for A.Y. 2011-12.
Head of expenses considered for disallowance Amount (Rs.)
Repairs & Maintenance Rs7,24,945/-
Sai Commercial Rs9,98,832/-
Sai Commercial Office Expenses Rs.12,65,775/-
Salary Rs.9,99,424/-
Professional Fees Rs. 8,23,113/-
Rs. 58,08,089/-
It is submitted that the learned AO has made such disallowance on assumptions and presumptions without giving show cause notice and according any opportunity in this regard. Accordingly, such expenses claimed by the appellant company should be allowed in full and necessary direction should be given in this regard.
This ground is in respect of adhoc addition @10% out of claimed maintenance charges. The case of the appellant is that addition is on basis of presumptions. The AO held that the expenses corresponding to (accepted) rental income are not co-relatable. That the expenses for business and rent are intertwined. Accordingly he added 10% of such expenses. I am unable to see the basis of appellant's objection in view of the fact that she herself invited this adverse finding by showing rental income as part of profit and loss A/c. The disallowance is in order and is confirmed."
9. Aggrieved by the appellate order dated 11.11.2016 passed by learned CIT(A), the assessee has come in appeal before the tribunal 19 I.T.A. No.1339 & 1340/Mum/2017 and contentions are raised on these grounds that these are rental incomes from terrace and the AO erred in bringing to tax the said income under the head ‗Income from other Sources' while same should be brought to tax as income under head ‗Income from house Property'. It was submitted that ground no. 3 is consequential in nature . The Ld. DR on the other hand relied on the orders of the authorities below.
10. We have considered rival contentions and perused the material on record.The assessee has also placed in paper book , the agreement entered into by it with the parties for letting out its terrace space. We have carefully gone through these agreements(page59-128/paper book) which are leave and license agreements with various vendors for rental income received by it. We have also observed that simultaneously the assessee has also entered into maintenance /service agreements with these vendors, which are also placed in the paper book along with the main leave and license agreements. The paper book containing in all 188 pages filed by the assessee are placed in file. The said paper book also carried required certification. We have gone through both agreements viz. leave and license agreements as well service/maintenance agreements entered into with the vendors by the assessee, which are filed by the assessee. We are of the considered view that the leave and license agreements entered into by the assessee is for providing open space of the terrace of the Building for installation of mobile by the telecom companies, while the service /maintenance agreement is for providing access to common area, lift facility, security services etc which services are interwoven with the main agreements . In our considered view, the rental income is to be brought to tax under the head ‗Income from House Property' as pith and substance of the transaction is to let on hire, the open space on terrace of the building for installation of mobile towers . Once the space is let out, it is for telecom companies who have taken the said open space on terrace on hire to manage and operate the 20 I.T.A. No.1339 & 1340/Mum/2017 mobile towers. The mobile towers are also owned by the telecom companies and are also operated and managed by telecom companies. Even , income arising from maintenance/service agreements shall be brought to tax as income from house property as these are services which are commonly interwoven with the letting of the premises and it is only for convenience , bifurcations are done . Our view is fortified by the recent decision of the SMC bench of the ITAT, Mumbai in the case of Kohinoor induistrial premises Co-operative Society Limited v. ITO in ITA No. 670/Mum/2018 dated 05.10.2018 reported in (2018) 98 taxmann.com 365(Mum-trib.) "7. I have considered rival submissions and perused materials on record. Undisputedly, the assessee has derived rental income from letting out space in the terrace of the building to mobile companies for installing their mobile tower/antenna. It is also a fact that the assessee has offered such rental income as income from house property and has claimed deduction under section 24(a) of the Act. The Assessing Officer has rejected assessee's claim and treated the rental income as income from other sources basically for three reasons. Firstly, the assessee is not owner of the building; secondly, the terrace cannot be considered as house property and thirdly, annual letting value of the terrace is not ascertainable. Whereas, the learned Commissioner (Appeals) has upheld the decision of the Assessing Officer on the reasoning that the income received by the assessee is in the nature of compensation received for providing facilities and services to cellular operators on the terrace of the building. Thus, form the aforesaid facts, it is clear that the assessee has let-out some space on the terrace of the building to the cellular operators for installing and operating the mobile towers/antenna for the purpose of providing mobile telecom services. The issue before me is, what is the nature of income received by the assessee for letting out such space to the cellular operator/mobile company for installing and operating mobile towers/antenna? In my view, the terrace of the building cannot be considered as distinct and separate but certainly is a part of the house property. Therefore, letting-out space on the terrace of the house property for installation and operation of mobile tower/antenna certainly amounts to letting-out a part of the house property itself. That being the case, the observation of the Assessing Officer that the terrace cannot be considered as house property is unacceptable. As regards the observation of the learned Commissioner (Appeals) that the rental income received by the assessee is in the nature of compensation for providing services and facility to 21 I.T.A. No.1339 & 1340/Mum/2017 cellular operators, it is relevant to observe, the Departmental Authorities have failed to bring on record any material to demonstrate that in addition to letting-out space on the terrace for installation and operation of antenna the assessee has provided any other service or facilities to the cellular operators. Thus, from the material on record, it is evident that the income received by the assessee from the cellular operators/mobile companies is on account of letting out space on the terrace for installation and operation of antennas and nothing else. That being the case, the rental income received by the assessee from such letting-out has to be treated as income from house property. The decisions relied upon by the learned Authorised Representative also support this view. Further, the contention of the learned Authorised Representative that in no other assessment year, assessee's claim of such income as house property has been disturbed by the Assessing Officer has not been controverted by the Departmental. Therefore, there being no material difference in fact, applying rule of consistency also, assessee's claim deserves to be allowed. Accordingly, I direct the Assessing Officer to treat the rental income received by the assessee from cellular operator as income from house property and allow deduction under section 24(a) of the Act. Ground raised is allowed."
In the appeal before us also , the assessee has derived income from letting out open space on the terrace of building and such space being in-seperable from building, the income derived has to be brought to tax as income under the head ‗Income from House Property'. There is nothing on record to establish that the said mobile towers installed by licensee were under the control of the assessee . The said mobile towers and related equipments and were owned by the telecom companies , and the ownership continued through out the currency of agreement with the telecom companies. The operational and management aspects of operating telecom towers were executed by the telecom companies who were responsible for running, operating and managing said mobile towers. There are service/maintenance agreements simultaneously entered into by the assessee with the licensee of the open terrace but the said maintenance /service agreements related to the maintainence and upkeep of the building and providing basic services such as access to common passage, lifts, security and guard etc which will not take said income out of the head ‗Income from other sources'. So, far as contention of the Revenue, that 22 I.T.A. No.1339 & 1340/Mum/2017 the open terrace is not owned by the assessee and belonged to the society of the owners of the apartments located in the building and the Revenue allegation that the assessee is occupying the said open terrace because society is not formed is a bald statement made by the authorities below without any evidence on record, while the assessee has filed agreements executed with vendor wherein the said agreements , the assessee has described itself to be well within its rights to possess this property being open space on terrace and legally competent to execute the leave and license agreement with vendors. The learned DR has also not brought on record any adverse material before us to draw a different view . Thus, we have no hesitation in holding that the said income shall be brought to tax under the head ‗Income from House Property'. The view is further fortified by decision of Hon'ble Supreme Court in the case of Raj Dadarkar & Associates v. ACIT reported in (2017) 394 ITR 592(SC). The assessee succeeds on this ground.
10(ii) So far as disallowance of maintenance charges on the grounds that the assessee has not allocated expenditure between the income from business or profession and income from house property, we observe that this issue needs to be re-adjudicated by the AO in the light of our aforestated decision vis-a-vis nature of these expenses and hence we are restoring this issue to the file of the AO for fresh adjudication in accordance with law on merits , after considering our decision as detailed aforesaid . The assessee will be allowed by the AO to adduce necessary evidences in support of his contentions . The assessee will also be granted proper and adequate opportunity of being heard in denovo proceedings by the AO in accordance with principles of natural justice in accordance with law. We order accordingly.
11. In the result appeal of the assessee in ITA no. 1339/Mum/2017 for AY 2011-12 is partly allowed as indicated above.
23I.T.A. No.1339 & 1340/Mum/2017
12. Since, appeal in ITA no.1340/Mum/2017 for AY 2012-13 raises similar questions, our decision in ITA no. 1339/Mum/2017 shall apply mutatis mutandis to the appeal for AY 2012-13.
13. In the result appeal of the assessee in ITA no. 1339/Mum/2017 for AY 2011-12 is partly allowed as indicated above.
14. In the result appeal's of the assessee in ITA no. 1339- 1340/Mum/2017 for AY 2011-12 and AY 2012-13 respectively are partly allowed as indicated above.
Order pronounced in the open court on 28 .12.2018.
आदे श की घोषणा खऱ
ु े न्यायाऱय में ददनांकः 28 .12.2018 को की गई
Sd/- Sd/-
(JOGINDER SINGH) (RAMIT KOCHAR)
VICE PRESIDENT ACCOUNTANT MEMBER
Mumbai, dated: 28 .12.2018
Nishant Verma
Sr. Private Secretary
copy to...
1. The appellant
2. The Respondent
3. The CIT(A) - Concerned, Mumbai
4. The CIT- Concerned, Mumbai
5. The DR Bench,
6. Master File
// Tue copy//
BY ORDER
DY/ASSTT. REGISTRAR
ITAT, MUMBAI
24