Income Tax Appellate Tribunal - Mumbai
Tolani Pvt. Ltd , Mumbai vs Assessee on 16 August, 2007
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCHES "E"
BEFORE SHRI P.M. JAGTAP, A.M. AND SHRI N.V. VASUDEVAN, J.M
ITA No. 6569/Mum/07
Assessment Year 2003-04
M/s Tolani Pvt. Ltd.,
10-A, Bakhtawar,
Nariman Point,
MUMBAI - 400 021.
PAN AAECS5168A
Vs.
A.C.I.T., Cent. Cir. 17,
Mumbai.
Appellant
Respondent
Appellant by
Shri S.M. Agarwal
Respondent by
Shri Naveen Gupta
ORDER
PER P.M. JAGTAP, A.M.
This appeal by the assessee is directed against the order of ld. CIT (A)- IV, Mumbai dated 16.8.2007.
2. Ground No. 1 of this appeal relates to the addition of Rs. 15,14,307/- made by the A.O. and confirmed by the ld. CIT(A) to the total income of the assessee on account of deemed property income.
3. The assessee in the present case is a company which is engaged in the business of investment in shares, mutual funds etc. The return of income for the year under consideration was filed by it on 27.11.2003 declaring a total income of Rs. 1,38,875/-. From the perusal of the balance sheet filed by the assessee company along with the said return, the A.O. noticed that the assessee company was holding office premises worth Rs. 61,37,000/- and twelve residential flats worth Rs. 1,34,12,500/- at Pune. He also noted that out of the said assets, office premises and three residential flats were sold by the assessee company in the year under consideration. Since no income from the said house property held by the assessee company was offered to tax in the return of income, assessee was called upon by the A.O. to offer its explanation in the matter. In reply, it was submitted on behalf of the assessee company that the office premises at Pune was purchased in order to use the same for the purpose of its business and even the twelve residential flats were purchased in order to provide accommodation to its staff to be employed in the Pune Office. A copy of Board Resolution to support and substantiate the said explanation was also filed by the assessee company before the A.O. It was contended that the said house property thus was purchased by the assessee company for the purpose of business carried on by it for profits and as per the provisions of section 22, no income from the said property on notional basis was chargeable to tax. It was also contended that the office premises as well as the residential flats at Pune were not fit for occupation or use as the construction work thereof was not complete and therefore there was no question of bringing to tax any income from the said property.
4. The submissions made on behalf of the assessee were not found acceptable by the A.O. According to him, section 22 was applicable only to the property already occupied and used by the assessee for the purpose of its own business and the assessee company having not used the property i.e. office premises as well as residential flats at Pune for the purpose of its business in the year under consideration, it was not entitled to any benefit u/s. 22. As regards the other contention raised on behalf of the assessee company that the said property was not ready for occupation or use, he found that Nandlal Tolani Charitable Trust, the constituent of Tolani Group had already acquired substantial space on the same floor of the same building and it was being used for imparting computer education. He held that this fact alone was sufficient to show that the premises was ready for occupation and use and the stand of the assessee that the same was still under construction during the year under consideration was not correct. Accordingly, the annual rental value of the said properties was determined by him at Rs. 21,63,296/- being 10% of the value thereof as on 1.4.2004 and after allowing deduction u/s. 24(1), a sum of Rs. 15,14,307/- was brought to tax by him in the hands of the assessee company under the head "income from house property".
5. The addition made by the A.O. on account of house property income was challenged by the assessee in an appeal filed before the ld. CIT(A) and the submissions made before the A.O. were mainly reiterated on its behalf before the ld. CIT(A). The ld. CIT(A), however, did not find merit in the said submissions and proceeded to confirm the addition made by the A.O. on this issue for the following reasons given in para 8 to 10 of his impugned order:-
"I have carefully considered the facts of the case and the submissions of the appellant. The appellant had acquired the premises at Pune many years back to be specific in the financial years 1997-98 and 1998-99 as submitted during the assessment proceedings. The resolution of the Board of directors quoted by the appellant discusses the proposal of acquiring the said premises for expansion of business and accommodation for staff. However, the fact is that even after a lapse of many years, the said premises have not been put to the intended use by the appellant. The said premises were held as investments in the balance sheet. Further, the appellant has claimed indexation benefit on sale of the 3 flats made during the year under consideration. The provisions of section 22 provide that annual value of property consisting of any Building or land appurtenant thereto of which the assessee is owner other than such portions of such property as he may occupy for the purposes of any business of profession carried on by him, the profits of which are chargeable to income tax shall be chargeable to tax under the head income from house property. For computing the income from house property, the section provides to exclude not only the property the assessee may occupy for the purpose of business or profession carried on by him, but even the portions of such property which are so used. This clearly explains that only those properties or portions of properties are excludible which are used for the purpose of business by the assessee. In the instant case, the appellant has never occupied or used the said premises for the purpose of its business.
Further, the appellant has urged that the said premises were not completed. This contention is without any force or substantiating evidence. It is not explained as to why even after the lapse of so many years, the property was not completed. The appellant has not submitted anything against the finding of the AO that since one of the constituents of the Tolani Group, viz. M/s Nandlal Tolani Charitable Trust was imparting computer education at the 3rd floor of the same building, the appellant's contention regarding incompleteness of the premises was not acceptable. The argument of the appellant that it had never rented out the premises nor was earning rent its business also does not help its cause as the provisions of section 22 and 23 are very clear. What is to be taxed u/s. 22 and 23 of the Act is annual value of the property and not the rent received. The tax under the head "income from house property" is not a tax on rents but upon the inherent capacity of a building to yield income. The act provides to tax the sum for which the property might reasonably be expected to let out from year to year. Thus it is clear that the actual letting out of the property or earning of rent is not a pre-c0ndition for taxing income from house property.
The appellant had held the premises which are buildings covered by the provisions of section 22. He had not occupied or used the said premises for the purpose of its business and hence the same are not excludible under the provisions of section 22. The fact that the said premises have been shown as investments in the balance sheet and on sale of the flats, indexation benefit u/s. 48 have been claimed further substantiates the fact the premises are not business assets. The alternative stand taken by the appellant to treat the premises as investment in estate business is just an after thought without any support or substantiation and is therefore not sustainable. Considering all the facts and submissions, I am of the view that the action of the Assessing Officer does not need any interference and hence, the same is upheld. The ground numbers 1 to 6, therefore, stand dismissed."
6. We have heard the arguments of both sides and also perused the relevant material on record. As regards the stand of the assessee on this issue based on Section 22, it is observed that the said section provides that the annual value of property of which the assessee is the owner shall be chargeable to income tax under the head "income from house property" other than such portion of such property as the assessee may occupy for the purposes of any business or profession carried on by him, the profits of which are chargeable to income tax. The said provision thus contemplates actual occupation and use of property by the assessee for the purpose of its business in the relevant period. In the present case, the property in question was admittedly neither occupied nor used for the purpose of its business by the assessee company and the mere intention to acquire the said property in order to occupy and use the same for the purpose of its business, in our opinion, was not sufficient for the assessee to claim the benefit u/s 22 as rightly held by the authorities below. As regards the other contention of the assessee as raised before the authorities below as well as before us that the properties in question were not ready for occupation and use, the learned counsel for the assessee has sought to file additional evidence to support and substantiate the case of the assessee company on this issue. He has also moved an application seeking permission of the Tribunal to admit the additional evidence, the contents of which are re-produced below:
"Annexed hereto three copies of summarized grounds of appeal, three copies of letter dated 3rd may, 2004 issued by Chairman of Springfield Co-Op housing Society Ltd. In connection with occupation certificate for flats on the 7th and 8th floor of building "d", "Springfields" and three copies of letter dated 3rd December, 2002 issued by the Builder, M/s Sharada Erectors Pvt. Ltd. Wherein full details have been given that the construction of office premises was not complete.
This is an additional evidence. Appellant has contended before Learned A.O. that flats on the 7th and 8th floor of Building "D" "Springfields" purchased by the appellant were under construction and occupation certificate has not been received for the same from Pune Municipal Corporation.
The above letter dated 3rd may, 2004 issued by Chairman of Springfield Co-Op housing society Ltd. could not be filed before the lower authorities but the said letter has been filed with assessing Officer during the course of reassessment proceedings for A.Y. 2002-03 and A.Y. 2003-04. The copy of this letter has also been filed with CIT(A), central IV in connection with appeal for A.Y. 2004-05. Therefore, the above letter is in the knowledge of the income Tax Department.
We have also informed the learned A.O. during the course of assessment proceedings that the office premises in Sharada Centre, Pune is under construction as lot of work remained to be completed by the builders, M/s Sharada Erectors Pvt. Ltd. Ultimately, this flat has been sold vide a tri-partite agreement dated 2nd November, 2002 to M/s Tolani shipping co. Ltd. The Builders, M/s Sharada Erectors Pvt. Ltd. Issued a letter dated 3rd December, 2002 referring to the tri-partite agreement dated 2nd November, 2002 wherein full details have been given that the construction of office premises was not complete. Under the circumstances, this agreement is also an extra evidence but the same is in the record of income Tax department and the same should be considered. We are also enclosing herewith copy of agreement to sale dated 3rd November, 2002 for sale of premises in Sharada centre to M/s Tolani shipping Co. Ltd. For a consideration of Rs. 61,37,000/-. The copy of this Agreement is already furnished before the Learned A.O. filed along with letter filed on 14th March, 2006.
In view of above and in interest of substantial justice we request that the aforesaid additional evidence may be admitted and appellant may be allowed to reply upon the same."
7. Although the learned D.R. has strongly objected to the admission of the additional evidence sought to be filed by the assessee on the ground that no reason has been given by the assessee for its failure to file the same before the authorities below, it is observed that the documents sought to be filed by the assessee as additional evidence have already been filed by it before the A.O. during the course of re-assessment proceedings for A.Y. 2002-03 and 2003-04 and the same have also been filed by the assessee during the course of appellate proceedings before the ld. CIT(A) for A.Y. 2004-05 wherein a similar issue is involved. Moreover, the said additional evidence filed by the assessee appears to be relevant for adjudicating upon the issue under consideration and the same, in our opinion, can appropriately be admitted in the interest of substantial justice. We, therefore, admit the said additional evidence and restore this issue to the file of the A.O. for deciding the same afresh in the light of the said additional evidence. Ground No. 1 & 2 of the assesse's appeal are accordingly treated as allowed for statistical purposes.
8. As regards ground No. 3, it is observed that the issue involved therein relating to determination of annual rental value of office premises and residential flats held by the assessee company at Pune is consequential to the main issue involved in ground No. 1 & 2 of the assessee's appeal. As the said main issue is restored by us to the file of the A.O. for deciding the same afresh, we deem it fair and proper to restore this consequential issue relating to the determination of annual rental value also to the file of the A.O. for deciding the same in accordance with law depending on the outcome of the main issue. Ground No. 3 of assessee's appeal is accordingly treated as allowed for statistical purposes.
9. Ground No. 4 relates to the disallowance made by the A.O. and confirmed by the ld. CIT(A) on account of assessee's claim for long term capital loss of Rs.21,50,731/-
10. During the year under consideration, assessee sold the office premises situated at Pune at cost price. In the schedule of investments, the assessee company reduced the sale price of the premises from its cost and both being the same, no profit or loss from sale of office premises was reflected in the P&L account. In the return of income filed for the year under consideration, no capital gain or loss was declared by the assessee from the sale of the said office premises. During the course of assessment proceedings, a letter dated 14.3.2006 was filed by the assessee claiming the long term capital loss arising from the said sale after deducting indexed cost of acquisition. Since the said claim was not made by the assessee company in its return of income, the A.O. disallowed the same. The ld. CIT(A) confirmed the said disallowance relying on the decision of Hon'ble Supreme Court in the case of CIT vs. Goetz (I) Ltd. 204 CTR 182 holding that not even a revised return was filed by the assessee making its claim for long term capital loss. Aggrieved by the order of the ld. CIT(A), the assessee has raised this issue in the present appeal filed before the tribunal.
11. We have heard the arguments of both sides and also perused the relevant material on record. As made it clear by the Hon'ble Supreme Court in the decision rendered in the case of Goetz India Ltd. (supra), the ratio laid down therein is limited to the power of authorities below and it does not impinge on the power of Tribunal u/s. 254. We, therefore, entertain the claim made by the assessee for long term capital loss arising from sale of its office premises at Pune and direct the A.O. to consider and allow the same in accordance with law. Ground No. 4 of assessee's appeal is accordingly treated as allowed for statistical purpose.
12. The grievance of the assessee as projected in ground No. 5 is that the A.O. has not considered its claim for long term capital loss on sale of shares/mutual funds. However, as is clearly evident from the impugned order, the ld. CIT(A) has already directed the A.O. to verify the claim of the assessee for such loss from the relevant records and allow the same in accordance with law. As a result of this direction given by the ld. CIT(A), the assessee cannot be said to have any grievance left on this issue and treating this ground raised by the assessee as infructuous, we dismiss the same.
13. In the result, appeal of the assessee is treated as partly allowed for statistical purposes.
Order pronounced on 20th April, 2010.
Sd/- sd/-
(N.V. VASUDEVAN) (P.M. JAGTAP)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai, dated 20th April, 2010.
RK
Copy to...
The appellant
The Respondent
The CIT(A) XXXII - Mumbai
The CIT- 8, Mumbai
The DR Bench, E
Master File
// Tue copy//
BY ORDER
DY/ASSTT. REGISTRAR
ITAT, MUMBAI
Date
Initials
1. Draft dictated
8.4.2010, 15.4.10
Sr.P.S./P.S.
2. Draft placed before
author
12.4.2010, 15.4.10
Sr.P.S./P.S.
3. Draft proposed &
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-
J.M./A.M.
4.Draft discussed/
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Sr.P.S./P.S.
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9. Date of dispatch
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