Income Tax Appellate Tribunal - Mumbai
Sonali Bendre , Mumbai vs Assessee on 19 March, 2009
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH 'J' : MUMBAI
BEFORE SHRI D.K. AGARWAL, (JM) AND SHRI PRAMOD KUMAR ,(AM)
ITA No.3845/Mum/2009
Assessment Year : 2004-05
Ms. Sonali Bendre
Flat No.62, Plot No.17
Royal Accord IV, Opp. Apna Ghar
Lokhandwala Complex, Andheri (W)
Mumbai-400 053. .....(Appellant)
P.A. No.(ABBPB 5785 B)
Vs.
The Asstt. Commissioner of Income tax-11(1)
Room No.439, 4th floor
Aayakar Bhavan, M.K. Road
Mumbai-400 020. .....(Respondent)
Appellant by : Shri Rinkesh Devnani
Respondent by : Shri Hari Govind Singh
ORDER
Per D.K. AGARWAL (JM).
This appeal preferred by the assessee is directed against the order dated 19.3.2009 passed by the ld. CIT(A) for the Assessment Year 2004-05.
2. Briefly stated facts of the case are that the assessee, an individual, is a film actress, model and also trades in shares. The return was filed declaring total income at Rs.1,04,40,920/-. However, the assessment was completed at an income of Rs.1,14,68,950/- 2 ITA No.3845/M/09
A.Y:04-05 including the addition in the property income Rs.1,66,475/-, disallowance on account of personal expenditure Rs.2,11,071/-, insurance on motor car treated as capital expenditure Rs.85,575/-, legal expenses Rs.4,25,000/- and disallowance of deduction u/s.80RR Rs.1,56,712/-, vide order dated 17.11.2006 passed u/s.143(3) of the Income tax Act, 1961 (the Act). On appeal, the ld. CIT(A) partly allowed the appeal.
3. Being aggrieved by the order of the ld. CIT(A) the assessee is in appeal before us .
4. Ground No.1 and 2 are against the sustenance of addition of income from house property.
5. The brief facts of the above issue are that it was observed by the Assessing Officer that it is seen from the balance sheet that the assessee is owning three properties being flat at Royal Accord IV, Flat at Shiv Smruti, Khar and Gala at Hammer Smith Indl. The assessee has offered only Rs.16,800/- as income from house property and as such the assessee was asked to explain the basis on which the computation of house property income has arrived. In response, the assessee's representatives vide letter dated 25.09.06 has submitted that the flat at Royal accord-IV is used for self occupation and the flat at Shiv Smruti, Khar was purchased in the month of Nov. 2003 for 3 ITA No.3845/M/09 A.Y:04-05 professional use and its interior work is being carried out. However, without prejudice to this contention, the assessee has submitted that the ALV of such flat may be around Rs.6,000/- per month and the BMC charges about 55% of the same as Municipal Taxes. However, the Assessing Officer observed that the assessee's submission are without any supporting evidence and he further observed that looking at the area in which the flat is situated, the annual value adopted/offered by the assessee appears to be at a much lower side. As per section 24, annual value is the inherent capacity of the property to earn income and has been defined as the sum for which the property might reasonably be expected to let from year to year. Since no other criteria is available to determine the reasonable rent and the flat being a newly acquired one, annual value of it is adopted @ 8% of Rs.57,12,920/- and accordingly computed the net income from house property for four months at Rs.1,06,080/- after deducting municipal taxes and standard deduction. The Assessing Officer on the similar basis worked out the ALV of Gala at Hammer Smith Indl Rs.86,280/- being 8% of the cost of Rs.10,78,510/- and after allowing standard deduction worked out the net income from the said house property at Rs.60,395/-. On appeal, the ld. CIT(A) observed that the appellant is the owner of three properties, one of which is the SOP, out of other two, the appellant had not offered any income for taxation on the gala 4 ITA No.3845/M/09 A.Y:04-05 property at all and further the Khar property was recently acquired. The ld. CIT(A) while agreeing with the action of the Assessing Officer which is supported by the decision of the Hon'ble Allahabad High Court in the case of Smt. Radha Devi Dalmia vs. CIT(1980) 125 ITR 134, upheld the addition made by the Assessing Officer.
6. At the time of hearing the ld. Counsel for the assessee while reiterating the same submissions as submitted before the Assessing Officer and the ld. CIT(A) further submits that with regard to the Industrial Gala no addition was made in the earlier and subsequent Assessment Years by the department. It is a case of property actually rented out and in such a case rent actually received should be treated as annual value. With regard to flat at Khar he submits that it was acquired in November 2003 and thereafter it was being furnished till March 2004 and in support the ld. Counsel for the assessee referred to page No.12, 13 and 14 of the assessee's paper book to show that the property was under furnishing during the year. He therefore, submits that the income from house property as shown by the assessee be accepted.
7. On the other hand the ld. DR supports the order of the Assessing Officer and the ld. CIT(A).
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8. We have carefully considered the submissions of the rival parties and perused the material available on record. We find that there is no dispute that the assessee owns three premises being flat at Royal Accord IV, Flat at Shiv Smruti, Khar and Gala at Hammer Smith Indl. One of which is S.O.P. The assessee has offered only Rs.16,800/- as income from house property . However, there is no material on record to show as to how the assessee has computed the said income from house property i.e. from flat at Shiv Smruti, Khar and Gala at Hammer Smith Indl. Further there is no material on record to show as to whether the assessee has filed copy of ledger account of furniture and fixture of flat at Shiv Smruti, Khar, appearing at page-11 to 14 of the assessee's paper book before the Assessing Officer inasmuch as it has been observed by the Assessing Officer that with regard to the Gala at Hammer Smith Indl. the assessee has not made any submission. We further find that it has been observed by the ld. CIT(A) that the appellant had not offered any income for taxation on the Gala property at all . This being so and keeping in view that there is a contradiction in the recording of facts of the rental income from house property, we are of the view that in the interest of justice the matter should go back to the file of the Assessing Officer and accordingly we set aside the order passed by the revenue authorities on this account and send back the matter to the file of Assessing Officer who shall 6 ITA No.3845/M/09 A.Y:04-05 decide the same afresh in the light of our observations hereinabove and according to law after providing reasonable opportunity of being heard to the assessee. The grounds taken by the assessee are, therefore, partly allowed fro statistical purposes.
9. Ground No.3 is against the sustenance of disallowance on account of personal expenses.
10. The brief facts of the impugned issue are that it has been observed by the Assessing Officer that the assessee has claimed expenditure on costumes Rs.1,33,375/- and cosmetics Rs.40,646/-. Considering that the involvement of personal element in these expenditures cannot be ruled out and bifurcation of the same for professional requirement is not possible, the Assessing Officer disallowed Rs.87,010/- being 50% of the above expenses. On appeal, the ld. CIT(A) following the appellate order for the Assessment Year 2001-02 restricted the disallowance on account of costumes to 1/6th of the claim. With regard to disallowance on cosmetic expenses the ld. CIT(A) while observing that in this expense very high degree of personal element is involved and, hence, disallowance of 50% by the Assessing Officer is in order and no interference is called for.
11. At the time of hearing the ld. Counsel for the assessee submits that the disallowance in relation to costume expenses has been 7 ITA No.3845/M/09 A.Y:04-05 restricted to 1/6th of the total expenditure, therefore, disallowance on cosmetics should have been equivalent to 1/6th of total expenditure i.e. Rs.6,774/-. He therefore, submits that due relief be allowed.
12. On the other hand the ld. DR submits that on cosmetic expenses high degree of personal element is involved and in the absence of any bifurcation, the disallowance made by the Assessing Officer and sustained by the ld. CIT(A) be upheld.
13. Having carefully heard the submissions of the rival parties and perusing the material available on record we find that there is no dispute that in respect of disallowance on account of costumes and motor car expenses the ld. CIT(A) following the appellate order for the Assessment Year 2001-02 has restricted the disallowance to 1/6th of the claim as against disallowance of 50% of Rs.1,33,375/-. However, on cosmetic expenses he observed that there is no decision as precedent and keeping in view that this expense has very high degree of personal element involved and hence, he upheld the disallowance made by the Assessing Officer. Considering the totality of the facts and circumstances of the case, the total amount of cosmetic expenses Rs.40,646/- and keeping in view that in respect of other expenses, the disallowance of personal in nature was restricted to 1/6th, we are of the view that the disallowance of 1/6th for personal use would meet 8 ITA No.3845/M/09 A.Y:04-05 the ends of justice and accordingly the disallowance on cosmetics is restricted to 1/6th of Rs.40,646/-. We hold and order accordingly. Ground taken by the assessee is, therefore, partly allowed.
14. Ground No.4 is against the sustenance of disallowance of legal expenses.
15. The brief facts of the above issue are that it was observed by the Assessing Officer that the assessee has claimed legal expenditure of Rs.4,25,000/-. On being asked it was submitted by the representative of the assessee that the sum of Rs.4,25,000/- was paid to the advocate Shrikant Bhatt for defending suit filed by Social Service Branch of the Mumbai Police as they have found some of her photograph published in a film magazine objectionable. It was further submitted that the Court acquitted the assessee of all charges and the legal expenses were incurred for defending legitimate professional actions and hence are allowable u/s.37 of the Act. However, the Assessing Officer was of the view that the contention of the assessee is not acceptable since the expenditure incurred was to defend herself in court of law in a case of infringement of law for an action which is prohibited by law. The publication of photographs which are termed as obscene by an authority of law has no relevance with the assessee's career as a professional actor. As such he treated the said 9 ITA No.3845/M/09 A.Y:04-05 expenditure as incurred in a case of infringement of law and not allowable under the Act. On appeal the ld. CIT(A) observed that the case was instituted, in the first place, because of an infringement of law is certainly a consideration but even otherwise, it was purely a personal matter and could not have been allowed and accordingly he upheld the disallowance.
16. At the time of hearing the ld. Counsel for the assessee submits that providing interviews are part and parcel of the profession of the assessee and the said fact is undisputed. Personal expenses are those which have no business connection. In assessee's case there is a clear nexus, therefore, the same are allowable. The reliance was also placed on the decision in McKnight (Inspector of Taxes) vs. Sheppard (House of Lords) (1999) 239 ITR 887 wherein it was held that Legal expenses incurred by stock broker to defend himself in proceedings before disciplinary committee of stock exchange were incurred for preserving his trade and were allowable as deduction. He therefore, submits that the disallowance made by the Assessing Officer and sustained by the ld. CIT(A) be deleted.
17. On the other hand the ld. DR supports the order of the Assessing Officer and the ld. CIT(A).
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18. We have carefully considered the submissions of the rival parties and perused the material available on record. We find that the facts are not in dispute inasmuch as the criminal case filed by the State (S.S. Branch ), Mumbai against Ms. Sonali Bendre alleging that in the issue of March 1998 magazine 'Show time' published from Mumbai, two photographs of an actress i.e. Ms. Sonali Bendre on the cover page and page no.61 in the said magazine in which Ms. Sonali Bendre was wearing very scanty apparels with the Holy signs of Hindus, amount to outrage of the feelings of the Hindus, was discharged by Additional Chief Metropolitan Magistrate, 19th Court, Esplanade, Mumbai vide Order dated 11.8.2004 holding that this is a fit case in which all accused nos. 1 to 4 deserve to be discharged u/s.239 of Cr.P.C. According to Sampath Iyenger's Law of Income tax 10th Edition, Vol. 2, page 3388, The deductibility of expenses incurred in defending prosecution would depend upon : (a) The nature and object of prosecution, and (b) the purpose of the defence. The test is whether the assessee is incurring the expenditure bonafide and with no ulterior motive. As regards the purpose of defence, the defence may have been undertaken (i) for the establishment of fair name and reputation of the business; or (ii) partly for the one or the other of the aforesaid purposes. In the case before us there is no material on record to show that the interview in the magazine namely 'Show Time' 11 ITA No.3845/M/09 A.Y:04-05 was personal in nature and had nothing to do with assessee as an actress. Since providing interview in the magazine is part of professional activities of an actor, therefore, we are of the view that the legal expense incurred by the assessee to defend herself in the proceeding before Additional Chief Metropolitan Magistrate for preserving her profession are allowable as a business expenditure as the same had been incurred wholly and exclusively for the purposes of business or profession. Accordingly the disallowance of Rs.4,25,000/- made by the Assessing Officer and sustained by the ld. CIT(A) is deleted. The ground taken by the assessee is, therefore, allowed.
19. Ground No.5 is against the disallowance of deduction u/s.80RR.
20. The brief facts of the above issue are that it was observed by the Assessing Officer that the assessee has claimed deduction of Rs.1,56,712/- u/s.80RR of the Act being 15% of professional income from foreign sources. He further observed that the payments received in convertible foreign exchange were in relation to the services rendered by the assessee as a Brand Ambassador to M/s. Omega Limited, Switzerland. On being asked to justify the claim of deduction of Section 80RR, the assessee has not offered any specific explanation. In the absence thereof, the Assessing Officer in view of the provisions 12 ITA No.3845/M/09 A.Y:04-05 of section 80RR was of the view that the assessee though an actor has earned the income in exercise of carrying out the activity of the advertisement of the company and not in carrying out her profession as an actor and, hence, the assessee is not eligible for deduction u/s.80RR. On appeal, the ld. CIT(A) while distinguishing the decision in the case of Amitabh Bachhan (12 SOT 95) has held that the earning of foreign income was clearly not in exercise of activity as an actor and hence not allowable as a deduction and accordingly upheld the disallowance made by the Assessing Officer.
21. At the time of hearing the ld. Counsel for the assessee, at the outset, submits that the issue is covered in favour of the assessee by the decision of the Tribunal in the case of DCIT vs. Aishwarya K. Rai and vice versa (2009-TIOL-636-ITAT-Mum.) wherein the Tribunal following the decision of the co-ordinate Bench of the Tribunal in the case of Sharuk Khan in ITA No.3894/M/02 and Others dated 19.6.208 has decided the issue in favour of the assessee. He also placed on record the copy of the said order of the Tribunal appearing at page 45 to 63 of the assessee's paper book.
22. On the other hand the ld. DR submits that for the reasons as mentioned in the assessment order the ld. CIT(A) was fully justified in 13 ITA No.3845/M/09 A.Y:04-05 upholding the disallowance made by the Assessing Officer and hence, the order passed by the ld. CIT(A) be upheld.
23. We have carefully considered the submissions of the rival parties and perused the material available on record. We find merit in the plea of the ld. Counsel for the assessee that the issue is squarely covered in favour of the assessee by the decision of the Tribunal in the case of DCIT vs. Ms. Aishwarya K. Rai and vice versa wherein that assessee has claimed deduction u/s.80RR on foreign receipts of Rs.1,85,32,585/- in respect of stage shows and advertisements. One of the grounds for making the disallowance was that the receipts on performing stage shows and modeling for advertisements are not amount to receipts as an actor. It has been held by the Tribunal vide para-9 of its order dated 7.9.2009 as under :-
"9. As regards reason No.(1), the learned AR submitted that on identical set of facts the ITAT in case of Sharuk Khan in ITA No.3894/Mum/02 & others order dated 19.06.2008 has decided in favour of the assessee by allowing deductions u/s.80RR in respect of stage shows, modeling & advertisement. The relevant finding of ITAT is reproduced below:-
"13. We heard the rival submissions, gone through the orders of the revenue authorities and the decisions cited. We are of the view that the appeal by the assessee on this ground is to be allowed. In the case of Amitab Bacchan vs. DCIT (supra), the Tribunal held, if an actor used his skills as an actor or as an artist in anchoring the television show, receipt from such show is income derived by him as an 'artist' and deduction under section 80RR is allowable on such payment. In the instant case of the assessee, the reasoning of Assessing 14 ITA No.3845/M/09 A.Y:04-05 Officer to disallow the claim of the assessee is that assessee is not acting and assessee being an actor, only income derived from acting could be treated for the purpose of deduction u/s.80RR. However, we are unable to agree with this proposition. Any artist is entitled for deduction u/s.80RR, which is enumerated in the section, which includes an author, playwright, artist, musician, actor or sportsman, including an athlete. An actor does not mean only acting in the films. It can be even on stage. True, every appearance of a film star on stage may not be his acting. But if an actor is professional, engage by a party, wherein the assessee has to give photo sessions participate in video shoots etc. it amounts to acting. Here in the instant case of the assessee it is not disputed that the assessee at least exploiting either in real life or in celluloid. Here it is in real life. Assessee has to give photo sessions etc.etc. The party is using the assessee's name. In view of the above, we are of the view that the claim of the assessee that the impugned income is derived from assessee's professor being an actor, is to be accepted. Hence, the appeal by the assessee on this ground is allowed and the appeal by the revenue on this ground is dismissed."
Since facts of the case under consideration & facts of above case are decided by ITAT are identical, we therefore respectfully follow the above order of ITAT and in the light of that the Assessing Officer is directed to allow the claim of assessee u/s.80RR including the portion of claim which has been disallowed by the CIT(A)."
24. Recently the Hon'ble Jurisdictional High Court in CIT vs. M/s. Tarun R. Tahiliani in Income tax Appeal No.2440 of 2009 and Income tax Appeal (L) Nos. 922 and 1275 of 2009 dated 14.6.2010 has observed vide para-9 as under :
"9. Simply stated, an artist is a person who engages in an activity which is an art. Artists, as we understand them, use skill and imagination in the creation of aesthetic objects and experiences. Drawing, painting, sculpture, acting, dancing, writing, film making, photography and music all involve imagination, talent and skill in the creation of works which have an aesthetic value. A 15 ITA No.3845/M/09 A.Y:04-05 designer uses the process of design and her work requires a distinct and significant element of creativity. The canvass of design is diverse and includes graphic design and fashion design. An artist, as part of his or her creative work, seeks to arrange elements in a manner that would affect human senses and emotions. Design, in a certain sense, can be construed to be a rigorous form of art or art which has a clearly defined purpose. Though the field of designing may be regarded as a rigorous facet of art, creativity, imagination and visualization are the core of design. Dress designing has assumed significance in the age in which we live, influenced as it is by the media and entertainment. As a dress designer, the assessee must bring to his work a high degree of imagination, creativity and skill. The fact that designing involves skill and even technical expertise does not detract from the fact that the designer must visualize and imagine. A designer is an artist.
It has been held as under :-
12. The Tribunal in the present case, was not in error in holding that the assessee is an artist for the purposes of Section 80RR. The question of law is answered in the affirmative, in favour of the assessee and against the Revenue. It is an admitted position before the Court that the deduction was sought by the assessee only in respect of design fees that were received by him in convertible foreign exchange...."
25. In the absence of any contrary decision brought on record by the revenue we respectfully following the ratio laid down by the Hon'ble Jurisdictional High Court supra, and the consistent view of the Tribunal hold that the ld. CIT(A) was not justified in sustaining the disallowance of deduction of section 80RR of the Act and accordingly the Assessing Officer is directed to allow deduction of Rs.1,56,712/- claimed by the 16 ITA No.3845/M/09 A.Y:04-05 assessee u/s.80RR of the Act. The ground taken by the assessee is, therefore, allowed.
26. Ground No.6 and 7 are general in nature and in the absence of any specific plea the same are, therefore, rejected.
27. In the result, assessee's appeal stands partly allowed for statistical purposes.
Order pronounced in the open court on 16.7.2010.
Sd/- Sd/-
(PRAMOD KUMAR) ( D.K. AGARWAL )
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Dated: 16.7.2010.
Jv.
Copy to: The Appellant
The Respondent
The CIT, Concerned, Mumbai
The CIT(A) Concerned, Mumbai
The DR " " Bench
True Copy
By Order
Dy/Asstt. Registrar, ITAT, Mumbai.
17 ITA No.3845/M/09
A.Y:04-05
Details Date Initials Designation
1 Draft dictated on 6.7.10 Sr.PS/PS
2 Draft Placed before author 7.7.10 Sr.PS/PS
3 Draft proposed & placed before the JM/AM
Second Member
4 Draft discussed/approved by JM/AM
Second Member
5. Approved Draft comes to the Sr.PS/PS
Sr.PS/PS
6. Kept for pronouncement on 16.7.10 Sr.PS/PS
7. File sent to the Bench Clerk 20.7.10 Sr.PS/PS
8 Date on which the file goes to the
Head clerk
9 Date of Dispatch of order