Income Tax Appellate Tribunal - Mumbai
Janak Vithaldas Vyas, Mumbai vs Department Of Income Tax on 30 January, 2013
IN THE INCOME TAX APPELLATE TRIBUNAL,
MUMBAI BENCH "J", MUMBAI
BEFORE SHRI RAJENDRA SINGH, ACCOUNTANT MEMBER AND
SHRI VIVEK VARMA, JUDICIAL MEMBER
ITA No.8809/Mum/2011
Assessment Year : 2007-08
Income tax Officer Shri Janak Vithaldas Vyas
Ward 17(3)(2) 71, Ganga Vihar
Room No.611, 6th Floor R.A. Kidwai Road
Vs.
Piramal Chambers, Parel Kings Circle
Mumbai-400 012. Mumbai-400 019.
PAN No.ABEPV 2851 P
(Appellant) (Respondent)
ITA No.8810/Mum/2011
Assessment Year : 2007-08
Income tax Officer Shri Jagat Vithaldas Vyas
Ward 17(3)(2) 71, Ganga Vihar
Room No.611, 6th Floor R.A. Kidwai Road
Vs.
Piramal Chambers, Parel Kings Circle
Mumbai-400 012. Mumbai-400 019.
PAN No.ABEPV 2851 P
(Appellant) (Respondent)
Assessee by : Shri Manish Kanojia
Department by : Shri Subodh L. Ratna
Date of hearing : 30.01.2013
Date of Pronouncement : 06.02.2013
ORDER
PER RAJENDRA SINGH, AM:
These appeals by the assessees belonging to the same group are directed against different orders both dated 20.10.2011 of CIT(A) for the AY 2007-08. As dispute raised in both the appeals is identical, these are being 2 ITA No.8809 & 8810/M/11 AY .07-08 disposed off by a single consolidated order for the sake of convenience. The common disputes raised in the two appeals is regarding allowability of claim of expenditure relating to earlier years under the head "business income."
2. Facts in brief are that both the assessees along with two other co- sub-lessees i.e. V.G. Vyas and Vikram Vyas had taken on sub-lease the land admeasuring about 5,5270 sq.mtrs. together with structures on it from Shree Ram Cotton Pressing Factory P. Ltd. (SRCP). The latter had taken the said property on lease from Mumbai Port trust (MbPT) who was the owner of the property. The lease in case of SRCP had expired in 1990 and was pending for renewal due to disputes between the two parties regarding lease rent which was pending before the Hon'ble Supreme Court. These assessees along with other co-sub-lessees had sub-leased the properties to MTNL and income from the same had been assessed as income from house property. The matter regarding nature of income i.e. whether house property or business income was pending in dispute and ultimately the Tribunal vide order dated 16.3.2007 in ITA No.7721/Mun/03 for assessment year 2000-01 in case of one of the sub lessees i.e. Shri Vithal G. Vyas decided that the licence fee has to be assessed as income from business as lessee were not the owners. In the meantime, the legal dispute between MbPT and SRCP was decided by Hon'ble Supreme Court in 2004 in which MbPT was permitted to increase the ground rent on certain basis. Accordingly MbPT had billed arrears of ground rent from 1990 to 2004 amounting to Rs.2.50 crores on SRCP. SRCP subsequently recovered the amount from the sub-lessees including the appellants in this case amounting to Rs.59,34,640/- in each case in assessment year 2007-08. These assessees along with other co-sub lessees, therefore, claimed this amount as deduction while computing business income. The AO accepted the claim of the assessee that income from licence fee has to be assessed as business income. The AO, however, did not accept the claim that entire compensation which was paid to SRCP in respect of 3 ITA No.8809 & 8810/M/11 AY .07-08 ground rent can be allowed as deduction in one year i.e. in assessment year 2007-08. He referred to the judgment of Hon'ble High Court of Bombay in case of M/s. Konkan Barge Builders Pvt. Ltd. (297 ITR 39) in which it was held that the payments have to be allowed only in the respective assessment years and not one year. The AO, therefore, disallowed the claim.
2.1 The assessees disputed the decision of AO and submitted before CIT(A) that deduction on account of entire expenditure pertaining to earlier years was allowable as liability had crystallized only after MbPT had informed SRCP of the same vide letter dated 10.4.2006. Thus the liability crystallized in the year under appeal. The matter had been pending in dispute for a long time and compromise proposals were approved subject to certain modifications in the judgment dated 13.1.2004 of the Hon'ble Supreme Court in which a detailed procedure was laid down which included appointment of a retired judge to determine the amount to be collected from the various tenants/lessees. Pursuant to the order of the Hon'ble Supreme Court and as per procedure laid down, the amount due from SRCP was determined as communicated to SRCP by MbPT vide letter dated 10.4.2006. Thereafter the share in such liability of the assessees in appeal were also worked out and thus liability crystalised in assessment year 2007-08 and was allowable as deduction. CIT(A) agreed with the said submission made and observed that prior to may 2006 when the MbPT had communicated the amounts payable to SRCP, the assessees could not have imagined the increase in rentals to be paid by them. Therefore, CIT(A) agreed that liabilities had crystallized only during assessment year 2007-08 and was allowable as deduction. Aggrieved by the said decision, revenue is in appeal before the Tribunal in both the appeals.
3. Before us the ld. AR for the assessee reiterated the submissions made before the CIT(A). It was pointed out that subsequent to judgment dated 4 ITA No.8809 & 8810/M/11 AY .07-08 13.1.2004 of the Hon'ble Supreme Court in which elaborate procedure was laid down to grounds by the arrear of lease rent, MbPT vide letter dated 10.4.2006 a copy of which is placed at page 13 of the paper book communicated the total liability till 31.3.2004 at Rs.2,19,92,624/- to SRCP. SRCP subsequently recovered the amount from all the four sub-lessees and copy of their confirmation regarding payment by the assessees is placed at page 16 of the paper book. The ld. AR further submitted that the case of the assessee was supported by the judgment of Hon'ble Supreme Court in the case of Nonsuch Tea Estate Ltd. vs. CIT (98 ITR 189) and judgment of Hon'ble High Court of Bombay in case of CIT vs. Kirloskar Tractors Ltd. (231 ITR 849) in which it has been held that the claim has to be allowed in the year in which the liability has crystallized. He distinguished the judgment of Hon'ble High Court of Bombay in the case of M/s. Konkan Barge Builders Pvt. Ltd. (supra) relied upon by the AO on the ground that the same related to accrual of interest income and was not relevant to allowability of expenditure. The ld. DR on the other hand supported the order of AO and placed reliance on the assessment order.
4. We have perused the records and considered the matter carefully. The dispute is regarding allowability of expenditure claimed by the assessee on account of increase in ground rent for the earlier period. The assessee along with two other co-sub-lessees had taken the premises on sub-lease from SRCP which in turn had been taken on lease from MbPT. The matter regarding lease rent was pending in dispute between MbPT and SRCP which was decided by Hon'ble Supreme Court vide judgment dated 13.1.2004. In the said judgment elaborate procedure was laid down including appointment of a retired judge for determination of increased rent. Thereafter the lease rent was actually determined and communicated vide letter dated 10.4.2006 to SRCP who in turn claimed the amount from sub-lessees including the two assessees under reference. The AO has not allowed the claim on the ground 5 ITA No.8809 & 8810/M/11 AY .07-08 that the same related to earlier years though he has not disputed the allowability of claim as business expenditure. Since lease rent has been assessed as business income as per order of the Tribunal, the issue is whether the entire expenditure which related to years 1990 to 2004 can be allowed as deduction in assessment year 2007-08. It is settled legal position that claim of any expenditure in relation to any liability can be allowed as deduction in the year in which the liability is incurred. The issue of increased rent in this case has been pending and was decided by the Hon'ble Supreme Court vide judgment dated 13.1.2004 in which certain elaborate procedures were laid down including appointment of a retired judge for determination of quantum of increase in lease rent. Thus quantification was done and communicated by MbPT to SRCP vide letter sated 10.4.2006 and thereafter, SRCP had claimed the amount from sub-lessees. Therefore, in our view on the facts of the case, the liability can be said to have crystalised only in financial year 2006-07. The claim of deduction is therefore found to be in order. We, therefore see no infirmity in the order of CIT(A) and same is therefore upheld.
5. In the result both the appeals are allowed.
Order pronounced in the open court on 06.02..2013.
Sd/- Sd/-
(VIVEK VARMA ) (RAJENDRA SINGH)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai, Dated: 06.02.2013.
Jv.
Copy to: The Appellant
The Respondent
The CIT, Concerned, Mumbai
The CIT(A) Concerned, Mumbai
6 ITA No.8809 & 8810/M/11
AY .07-08
The DR " " Bench
True Copy
By Order
Dy/Asstt. Registrar, ITAT, Mumbai.