Income Tax Appellate Tribunal - Kolkata
Al-Haz Amir Hasan Properties (P) Ltd. vs Asst. Commissioner Of Income Tax on 2 December, 2005
Equivalent citations: [2006]100ITD441(CAL), (2006)104TTJ(CAL)108
ORDER
Dinesh K. Agarwal, Judicial Member
1. This appeal preferred by the assessee is directed against the order passed by the Ld. CIT Under Section 263 dated 02.12.2004 for the assessment year 2001-02.
2. Briefly stated facts of the case are that the assessee is a company derives rental income from house Property, service charges and interest income. The return was filed showing an income of Rs. 35,79,440/-. During the course of assessment proceeding the assessee produced books of accounts alongwith relevant vouchers and the same were test checked by the Assessing Officer. As requisitioned, the assessee also filed details of service charges, sundry expenses and details of advances. On examination of the details of expenses the Assessing Officer found that the expenses under the head phenyl, acid, washing and cleaning of premises and drainage cleaning, tubewell, pump maintenance etc. have been incurred through self-made vouchers which are not properly verifiable, therefore, he disallowed Rs. 10,000/- out of such expenses claimed and. added the same in the income of the assessee and therefore, completed the assessment at an income of Rs. 35,89,430/- vide order dated 25.11.2003 passed Under Section 143(3) of the Income Tax Act.
2.1 On examination of the assessment record, it was noticed by the Ld. CIT that the assessee company has claimed various expenses to the tune of Rs. 17,54,266/- for extending service facilities to its tenants. It was further found by the Ld. CIT that statutory deduction on account of repairs and collection has already been claimed and allowed while computing the rental income, therefore, the excess expenses of Rs. 17,54,264/- on account of repairs and maintenance in addition to statutory deduction resulting loss to the revenue, and accordingly, the Ld. CIT was of the view that the assessment order passed Under Section 143(3) dated 25.11.2003 is bad in law and is erroneous in so far as it is prejudicial to the interest of the revenue and accordingly issued a show cause notice Under Section 263 as to why necessary direction setting aside the assessment be not passed to the Assessing Officer. The Ld. CIT after considering the assessee's submission held that once deduction Under Section 24 of the Income Tax Act is fully allowed to the assessee company from the rental income, the extra expenses for repairs and maintenance etc. are not allowable and accordingly, he set aside the assessment order and restored back this limited issue to the file of the Assessing Officer with a direction to consider the same afresh after giving reasonable opportunity of being heard to the assessee.
3. Aggrieved by the order of the Ld. CIT the assessee is in appeal before us taking following grounds of appeal:
(i) For that on the facts and circumstances of the case, the Ld. CIT, Kolkata II erred in law in holding that the assessment was erroneous and thus caused prejudicial to the Revenue.
(ii) For that on the facts and circumstances of the case, the Ld. CIT erred in law in disregarding the legal interpretation made by the Supreme Court and other High Courts including that of Calcutta High Court in holding that the appellant was not entitled to the deduction of the various expenses incurred by it in providing services to the tenants in respect of the property in question when the tenancies were composite and therefore it was incumbent for the Assessing Officer to bifurcate the income from the property and allow the statutory deductions Under Section 23 and Under Section 24 on one hand and on the other, allow deductions for other services as business expenses as the appellant carried on the business of providing the concerned services.
(iii) The Ld. CIT erred in law in setting aside the assessment with a direction to the Income Tax Officer to make it de novo as there is no error of law or facts in the original assessment and thus there has been no prejudice caused to the revenue Under Section 263 and therefore the impugned order needs to be set aside or cancelled.
4. The Ld. Counsel for the assessee while strongly objecting the order passed by the Ld. CIT Under Section 263 submits that the assessee is showing rental income from house property under the head "income from house property" and 'service charges' realized from the tenants and 'interest income' after deducting the expenses have been shown as business loss under the head "profits and gains of business or profession". He further submits that from the last 5 decades it is being shown and accepted as such by the revenue except in the in the assessment year 1970-71 in which the claim of the assessee has been accepted by the then AAC of Income-tax vide order dated 15.11.1972 for assessment year 1970-71. He further submits that the assessee's accounts are audited and in the annual report of the audited accounts the assessee has shown 'rental income' and 'service charges' separately and has claimed expenses as per Profit and Loss Account allowable under the Act. He further submits that the Assessing Officer after examining the books of accounts and the details has accepted the 'rental income' under the head "income from house property" and 'service charges' under the head "profits and gains of business" which is as per law laid down by the Hon'ble Supreme Court in the case of Karnani Properties Ltd. v CIT (1971) 82 ITR 547 (SC) and also by the CBDT Circular No. 33 of 1941 dated 23.05.1941 appearing at page 1 of the assessee's Paper book. The reliance was also placed on the decision of Tribunal 'E' Bench, Kolkata in the case of JCIT v. Shree Govind Property & Investment Pvt. Ltd. in ITA No. 177/Cal/1999 dated 25.01.2002 for the assessment year 1995-96, Indian City Properties Ltd. v. CIT CIT v. Associated Building Co. Ltd. CIT v. Kanak Investments (P) Ltd. Paul John Delicious Cashew Co. v. ITO (2005) 94 ITD 131 (Cochin), CIT v. Paul Brothers CIT v. G.K. Kabra Russell Properties Pvt. Ltd. v. Addl. CIT and Malabar Industrial Co. Ltd. v. CIT (2000) 243 ITR 83 (SC). He, therefore, submits that there is no error in the order passed by the Assessing Officer and, therefore, the order passed by the Ld. CIT needs to be set aside and vacated.
5. On the other hand, Ld. Departmental Representative at the outset submits that the assessment order passed by the Assessing Officer is very brief and cryptic order. The Assessing Officer has not examined the issue properly and has completed the assessment by just disallowing Rs. 10,000/- at an income of Rs. 35,89,430/- as against returned income of Rs. 35,79,440/-. He further submits that the Ld. CIT in exercise of his power Under Section 263 found that the Assessing Officer has allowed excess expenses of Rs. 17,54,266/- on account of repairs and maintenance in addition to statutory deduction allowed Under Section 24 of the I.T. Act, 1961 resulting loss to the revenue, therefore, he invoked provision of Section 263 and directed the Assessing Officer to consider the issue afresh after providing reasonable opportunity of being heard to the assessee. He further submits that as the assessment order is restored back on this limited issue to the Assessing Officer to be framed afresh as per law, therefore, there should not be any grievance to the assessee. He further submits that recently Hon'ble Supreme Court in the case of Shambhu Investment (P) Ltd. v. CIT while dismissing the assessee's appeal held that there was no reason to interfere with the conclusion arrived by the Hon'ble High Court wherein the Hon'ble Calcutta High Court held that it was evident from the evidence that the assessee had let out the furnished office to the occupants on a monthly rental which was inclusive of all charges, therefore, it could not be said that the assessee was exploiting property for its commercial activities. He, therefore, submits that the said decision is squarely applicable to the facts of the present case. As the assessee is receiving composite monthly rent including service charges as per tenancy agreements filed by the assessee in his paper book, therefore, there is no error in the order of the Ld. CIT in setting aside the issue to the file of the Assessing Officer. He further submits that since the Assessing Officer has failed to make proper enquiry, therefore, under the provisions of Section 263, Commissioner has the power to set aside the assessment. The reliance was also placed on the decision in the case of Gee Vee Enterprises v. Addl. CIT CIT v. South India Shipping Corporation Ltd. CIT v. M.M. Khambhatwala (1992) 198 ITR 144 (Guj.) and CIT v. ShriBhagwan Das . He, therefore, submits that the order passed by the Ld. CIT Under Section 263 be upheld.
6. In the rejoinder, the Ld. Counsel for the assessee submits that as per tenancy agreements monthly rent and service charges are separately described and mentioned, therefore, there is no composite rent. He further submits that in the bills also the assessee has shown monthly rent and service charges separately. He also referred the copy of few bills in support of his claim as appearing in the assessee's paper book. He, therefore, submits that since the monthly rent and service charges are separate, therefore, the decision of Hon'ble Supreme Court in Karnani Properties Ltd. (supra) is fully applicable and, therefore, the order passed by the Ld. CIT Under Section 263 is liable to be cancelled.
7. We have carefully considered the rival submissions of the parties and perused the materials available on record. We find that as per tenancy agreement dated 11.10.1991 between Al Haz Amir Hasan Properties (P) Ltd., the assessee company and M/s. Tarajyot Polymers Pvt. Ltd., the terms of the monthly rent and service charges are as under:
'DEMISED PREMISES' consisting of two Rooms, Two Bathrooms and one Bathroom on Mezzanine floor and also one Verandah to hold the same upto the Tenant on Monthly Rent and Service Charges from the 11th day of October, 1991 and paying hereinafter a Monthly Rent of Rs. 1,000/- (Rupees One Thousand) only and Monthly Service Charges of Rs. 500/- (Rupees Five Hundred) only per month inclusive of all Rates, Taxes, Charges and other Outgoings whatsoever payable at present in respect of the said demised premises, payable on or before the 7th day of each and every current month according to the English Calendar Month....
It has been further agreed between the parties vide Sub-clause (e) of Clause 2 of the deed that:
(e) The Monthly Rent and Service Charges shall be liable to be increased by 20% (Twenty Percent) after each and every five years on the then prevailing Rent and Service Charges from the commencement of this Tenancy, and the Tenant shall be liable to pay the same.
We further find that the assessee has raised the bill of monthly rent and service charges vide Demand Note dated 01.10.2005 as under:
No. 57953 Date : 1st October, 2005
DEMAND NOTE
M/s. Tarajyot Polymers Ltd.
To
Al Haj Amir Hasan Properties Private Limited
9/12, Lall Bazar Street, Kolkata-700001
Phone : 2220-6010
_____________________________________________________________________________ Rent of Rs. P. Particulars undermentioned Property ______________________________________________________________________________ Block : C 1,440.00 Monthly Rental ______________________________________________________________________________ 16 A, Chowringhee Mansions 182.50 Municipal Tax ______________________________________________________________________________ 30 Jawaharlal Nehru Road 720.00 Service Charges ______________________________________________________________________________ Kolkata-700 016 Neon Sign Board ______________________________________________________________________________ Space ______________________________________________________________________________ Other Charges, if any ______________________________________________________________________________ For the Month of: September, 2,342.50 Total E. & O.E. 2005 ______________________________________________________________________________ Please pay by crossed cheque only.
For A.H.A.H Properties (P) Ltd.
Sd/-Authorised Signatory Sd/- Accountant However, it is observed that the above bill dated 01.10.2005 is relevant to the financial year 2005-06 corresponding to the assessment year 2006-07 and not relevant to the year under consideration. We further find that in the annual return of accounts for the previous year 2000-01 relevant to assessment year 2001-02, the assessee has shown rent and service charges separately in his gross income as under:
_______________________________________________________________ Rent (Gross) Rs. 50,78,612.43 _______________________________________________________________ Corporation Tax Realised Rs. 6,30,211.32 _______________________________________________________________ Service Charges Rs. 7,67,932.26 _______________________________________________________________ Dividend on Long Term Inventories Rs. 90.00 _______________________________________________________________ Miscellaneous Receipts Rs. 1,132.24 _______________________________________________________________ Interest on Fixed Deposit Loan (Gross) Rs. 8,13,833.00 _______________________________________________________________ Rs. 72,91,811.25 _______________________________________________________________ We further find that in the return of income for the assessment year under consideration 2001-02, the assessee has shown rental income under the head "Income from house property" and service charges under the head "Profit and Gains of business or profession" as under:
Income from house property as per separate statement appearing at Rs. 37,08,146.9 page 19 of the paper book Business Loss:
Service charges Rs. 7,67,932.26
Add interest income Rs. 813,833.00
_______________
Rs. 15,81,765.26
(-) Interest on Bank Overdraft (-)Rs. 12,171.04
_______________
Rs. 15,69,594.22
Less Expenses :
Cost of Soda, soap, phenyl,
uniform, washing charges,
supply of water, maintenance &
replacement etc. Rs. 4,70,403.80
Electric charges Rs. 2,96,179.00
Gratuity liability Rs. 41,674.00
Lift maintenance charges Rs. 23,010.00
Rent and taxes etc. Rs. 1,12,914.00
Salary & Bonus etc. Rs. 6,30,360.90
Staff welfare Rs. 6,524.50
L.T.A Rs. 5,850.00
Telephone charges Rs. 8,762.00
Law charges Rs. 1,58,588.00 Rs. 17,54,266.20(-)Rs. 1.84.671.98
_________________
Rs. 35,23,475.01
Add dividend income Rs. 90.00
_________________
Taxable incomeRs. 35,23,565.01
Add Back : Gratuity liability 47,954.00
Charity (100%)Rs. 7,912.00
_________________
Taxable income Rs. 35,79,436.00
Or
Rs. 35,79,440.00
We further find that it was claimed by the Ld. Counsel for the assessee that the assessee is showing consistently 'rental income' under the head "income from house property" and 'service charges' under the head "Profit and gains of business or profession" and this fact has not been controverted by the Ld. Departmental Representative, therefore there is a consistency in the head of income shown by the assessee and accepted by the revenue. In the light of the above uncontroverted facts and the tenancy agreements, we are of the view that monthly rent is separate and the service charges realised from the tenants are separate and it cannot be said that monthly rent is inclusive of all service charges and thus the assessee is receiving composite monthly rent.
8. In CIT v. Shambhu Investment Pvt. Ltd. relied on by the Ld. Departmental Representative, the Hon'ble Calcutta High Court has laid down the following test appearing at page 52 for determining that rental income from house property is assessable under the head income from house property or under the head business income:
Taking a sum total of the aforesaid decisions it clearly appears that merely because income is attached to any immovable property that cannot be the sole factor for assessment of such income as income from property. What has to be seen is what was the primary object of the assessee while exploiting the property. If it is found applying such test that the main intention is for letting out the property or any portion thereof the same must be considered as rental income or income from property. In case it is found that the main intention is to exploit the immovable property by way of complex commercial activities in that event it must be held as business income.
8.1. In the light of the above test, it has been observed by the Hon'ble Calcutta High Court that services rendered to the various occupants according to the said agreement are not separately charged and the monthly rent payable is inclusive of all charges to the assessee, therefore, it has been held that by the said agreement the parties have intended that such letting out would be an inseparable one. It has been further held that the prime object of the assessee under the said agreement was to let out the portion of the said property to various occupants by giving them additional right of using the furniture and fixtures and other common facilities for which rent was being paid month by month in addition to the security free advance covering the entire cost of the said immovable property and finally it has been held that the income derived from the said property is an income from property and should be assessed as such.
8.2. The above decision of the Hon'ble Calcutta High court has been affirmed by the Hon'ble Supreme Court in Shambhu Investment (P) Ltd. v. IT .
9. In Gee Vee Enterprises v. Addl. CIT relied on by the Ld. Departmental Representative, it has been held at page 376 (short notes) as under:
It is not necessary for the Commissioner to make further inquiries before canceling the assessment order of the Income-tax Officer. The Commissioner can regard the order as erroneous on the ground that in the circumstances of the case the Income-tax Officer should have made further inquiries before accepting the statements made by the assessee in his return. The reason is obvious. The position and function of the Income-tax Officer is very different from that of a civil court. The statements made in a pleading proved by the minimum amount of evidence may be adopted by a civil court in the absence of any rebuttal. The civil court is neutral. It simply gives decision on the basis of the pleading and evidence which comes before it. The Income-tax Officer is not only an adjudicator but also an investigator. He cannot remain passive in the face of a return which is apparently in order but calls for further inquiry. It is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry. It is because it is incumbent on the Income-tax Officer to further investigate the facts stated in the return when circumstances would make such an inquiry prudent that the word "erroneous" in Section 263 includes the failure to make such an enquiry. The order becomes erroneous because such an inquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct.
10. In CIT v. South India Shipping Corporation Ltd. , relied on by the Ld. Departmental Representative, it has been held that if the Commissioner on the basis of materials formed an opinion that the grant of allowance made by the officer was erroneous and not warranted by law, the jurisdiction of the Commissioner Under Section 263 of the Act was not ousted. It has been further held that the Commissioner in exercise of his power of revision can pass such order as the circumstances of the case would justify including an order directing a fresh assessment and lastly it has also been held that the order of the ITO which was the subject matter of revision before the Commissioner of Income Tax Under Section 263 of the Act did not merge with the order of the First Appellate Authority as the subject matter of appeal before the First Appellate Authority was different.
11. In CIT v. M.M. Khambhatwala (1992) 198 ITR 144 (Guj.), relied on by the Ld. Departmental Representative, it has been held that the Commissioner would be entitled to revise the order of the I.T.O., if he is of the view that the order of the ITO is erroneous and prejudicial to the interests of the revenue. The CIT can exercise his power Under Section 263 of the I.T. Act, even in a case where the issue is debatable. Revisional powers Under Section 263 are not comparable with powers of rectification of mistake Under Section 154 of the I.T. Act.
12. In CIT v. Shri Bhagwan Das relied on by the Ld. Departmental Representative, it has been held that an order which has been passed without application of mind, will also fall under the expression erroneous and prejudicial to the interest of the revenue. In the assessment order, there was no discussion regarding the question as to whether the amount of income shown by the assessee which was being claimed to be exempt had actually been earned by him or not and further, whether the entire amount of income from agriculture and poultry farming was exempt from tax. The CIT had rightly initiated proceeding Under Section 263 of the I.T. Act, 1961 as exemption had been granted without application of mind.
13. In Karnani Properties Ltd. v. CIT relied on by the Ld. Counsel for the assessee, the assessee company owned the Karnani Mansion consisting of numerous residential flats and over a dozen shops. All these were let out to tenants who made monthly payments which included charges for electric current, for the use of lifts, for the supply of hot and cold water, for the arrangement for scavenging, for providing watch and ward facilities as well as other amenities. The company also provided electric lifts for the benefit of the tenants. For all these purposes, the assessee maintained a large number of permanent staff. The company claimed that the entire receipts from the tenants should be treated as income from business as it had been formed for carrying on the business of letting out flats and shops. The ITO rejected its claim but split the receipts into two parts, one part being treated as rent and the other as "income from other sources" taxable Under Section 12 of the I.T. Act, 1922. On first appeal, the Appellate Assistant Commissioner rejected the appeal filed by the assessee and affirmed the decision of the I.T.O. On second appeal, the Tribunal held that the second part was assessable as income from business Under Section 10. Neither the department nor the assessee contended that that part was assessable as income from property Under Section 9. On a reference, the Hon'ble High Court held that latter part of the receipts was also assessable as income from property Under Section 9. On further appeal to the Hon'ble Supreme Court it has been held (i) that the department having all along proceeded on the basis that income of the assessee was from two different sources, it should not have been allowed by the High Court to change its case, (ii) that, on the facts, the services rendered by the assessee to its tenant were the result of its activities carried on continuously in an organized manner, with a set purpose and with a view to earn profits; those activities were business activities and the income arising there from was assessable under Section 10 of the I.T. Act, 1922.
14. Requirements for exercise of power of revision under Section 263 have been considered by the Hon'ble Apex Court in the case of Malabar Industrial Co. Ltd. v. CIT (2000) 243 ITR 83. The relevant portion of the said judgment is as follows (page 88):
The phrase 'prejudicial to the interests of the Revenue' has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. For example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of Revenue, or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the Income-tax Officer is unsustainable in law.
15. Further the Hon'ble Apex Court in Radhasoami Satsang v. CIT that:
We are aware of the fact that, strictly speaking, res judicata does not apply to income-tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year.
15.1. And the Hon'ble jurisdictional High Court in CIT v. Hindusthan Motors Ltd. has also observed at page 628 that:
It is true that there is no res judicata but there must be some substantial ground for one Income-tax Officer to differ from the view taken by another Income-tax Officer in an earlier assessment year
16. In the light of the aforesaid settled position of law, we find that the Ld. CIT in his order passed Under Section 263 dated 2.12.2004 observed that in my opinion, once the deduction Under Section 24 of the Income Tax Act is fully allowed to the assessee company from the rental income, the extra expenses for repairs and maintenance etc. are not allowable. From the fair reading of the above, we find that in the case before us there is no dispute that the rental income from the house property is assessable under the head "income from house property" and service charges realized from the tenants are assessable under the head "profits and gains of business or profession". The only dispute in the case before us as observed by the Ld. CIT is with regard to the allowability of expenses of Rs. 17,54,266/- which has been claimed by the assessee and allowed by the Assessing Officer out of 'service charges' under the head "profit and gains of business or profession". Once it has been accepted that the 'service charges' are assessable as "profits and gains of business or profession", the Assessing Officer is bound to allow all expenses/deduction under Chapter IV D of the I.T. Act. Since the company has provided various services for the benefits of the tenants in an organized manner, kept a large number of staff to perform all such duties, maintained regular books of accounts in a systematic & organised manner consistently from last so many years and keeping in view the consistency and also in the absence of any contrary material brought on record by the revenue to show that all such expenses claimed by the assessee are not allowable under the head "profits and gains of business or profession" or the assessee has not incurred such expenses or the expenses claimed by the assessee are fictitious or the similar expenses have been allowed under the head "income from house property" or the Assessing Officer has made no enquiry or the view taken by the Assessing Officer in allowing such expenses is not a possible view permissible under the law, we are of the view that the Ld. CIT has erred in holding that once the deduction Under Section 24 of the I.T. Act is fully allowed to the assessee company from rental income, the extra expenses for repairs and maintenance etc. are not allowable and in setting aside the issue for limited purpose to the file of the Assessing Officer for fresh consideration and accordingly, the order passed by the Ld. CIT is directed to be cancelled. The grounds taken by the assessee are, therefore, allowed.
17. In the result, the appeal stands allowed.