Income Tax Appellate Tribunal - Mumbai
Neela Exports P.Ltd, Mumbai vs Assessee on 11 February, 2013
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCHES "B", MUMBAI
BEFORE SHRI DINESH KUMAR AGARWAL, J. M. AND
SHRI SANJAY ARORA, A. M.
ITA No.2829/Mum/2011
Assessment Year: 2007-08
Neela Exports Pvt. Ltd. Income Tax Officer 5(2)(1),
Gr. Floor, Dev Chhaya, Aayakar Bhavan, M.K. Marg,
Tardeo Rd., Haji Ali Corner, Mumbai-400 020
Mumbai-400 034 Vs.
[ PAN: AAACN 5070 E ]
(Appellant) (Respondent)
Appellant by : Shri Feroze B. Andhyarujina
Respondent by : Shri Mohit Jain
Date of hearing : 11.02.2013
Date of Pronouncement : 27.02.2013
ORDER
Per Sanjay Arora, A.M. :
This is an Appeal by the Assessee agitating the order by the Commissioner of Income Tax (Appeals)-9, Mumbai ('CIT(A)' for short) dated 20.01.2011, dismissing its appeal, contesting its assessment for the assessment year (A.Y.) 2007-08 vide order u/s.143(3) of the Income Tax Act, 1961 ('the Act' hereinafter) dated 24.12.2009.
2. The appeal raises a single issue, i.e., the maintainability in law of the deduction claimed in respect of the sum of Rs.16 lakhs paid by the assesse-company to the co- operative society, of which it is a member, in respect of a showroom at Mumbai, against the income by way of rent received for the said property.
3.1 The facts in brief, as explained, are that the assessee disputed the increase (effected @ 120%) by the concerned Society (i.e., Devchhaya Co-operative Housing 2 ITA No.2829/Mum/2011 (A.Y. 2007-08) Neela Exports Pvt. Ltd. vs. ITO Society) in the charges raised by it toward the assessee's house property located at ground floor of the building. The charges, though euphemistically or loosely called 'society charges' or 'maintenance charges', are in respect of and are comprised of the following, as apparent from the bills (copy of some of which are placed on record) (PB pgs.18-25):
1. Municipality Property tax Rs.795/-
2. Maintenance Charges Rs.1,013/-
3. Electricity charges Rs.85/-
4. Sinking Fund Rs.34/-
5. Contribution to Repair Fund Rs.320/-
6. 120% increased bill Rs.2,272/-
Total (*) Rs.4519/-
(*) [The figures pertains to Bill No.1648 dated 01.11.1999, raised by the society for the month of November, 1999/PB pg.18] 3.2 The increase, as would be apparent, is in respect of the first three items, i.e., excluding the contribution to the different funds being maintained by the Society. The assessee disputing the increase, the society filed a suit for the recovery of its dues before Co-operative Court at Mumbai (case no.CC/II/27 of 1991), praying for recovery of the arrears (at Rs.8,32,765/- as on 31.05.2001) along-with interest @ 21% p.a. w.e.f 01.06.2001, besides for interim relief, as by way of injunction directing for non-disposal of the property, including by way of letting or parting possession of property (PB pgs. 43-
48). The matter was finally settled through comprise; the assessee paying the compromise amount of Rs.16 lacs, settling its due up to 31.12.2006 vide cheque dated 30.01.2007, and which stood duly acknowledged by the Society (PB pgs.18 to 21). The assessee claims this amount against the gross rent of Rs.28.39 lakhs for the current year. This is in addition to Rs.3,71,613/- claimed by way of repairs and collection charges, returning a sum of Rs.8,67,097/- as income from house property (PB pg.2). The Revenue disputes the claim for Rs.16 lakhs, allowing though the charges pertaining to the current year, i.e., Rs.6,892/-, so that the dispute is in respect of the balance Rs.15,93,108/-. The basis of the Revenue's denial is that there is no provision for allowing deduction in respect of the 3 ITA No.2829/Mum/2011 (A.Y. 2007-08) Neela Exports Pvt. Ltd. vs. ITO same, which stands pressed by the assessee with reference to the decisions by the Tribunal, as in the case of Sharmila Tagore vs. JCIT [2005] 93 TTJ 483 (Mum); Realty Finance & Leasing (P.) Ltd. [2006] 5 SOT 348 (Mum); and J. B. Patel & Co. vs. Dy. CIT [2009] 312 ITR (AT) 171. Without prejudice, it claims the said expenditure as 'business expenses', on the basis that the liability crystallized only during the relevant year, again placing reliance on the decisions in the following cases:
1. CIT vs. Associated Stone Ind (Kotah) Ltd. (2003) 129 Taxman 668 (Raj)
2. CIT vs. Apollo Textiles Agencies (2005) 142 Taxman 396 (All)
3. CIT vs. Sohanlal Khariatram (2005) 198 CTR (P & H) 403
4. State Bank of Saurashtra vs. Dy. CIT (2005) 93 ITD 662 (Ahd.)
4. We have heard the parties, and perused the material on record.
4.1 Our first observation in the matter is that the impugned claim is not with reference to 'society charges', as made out but qua arrears of society charges, if we may call them so, pertain as they do to the preceding years, being, as it appears, from the financial year (f.y.) 1990-91 onwards (PB pgs.48-50, 22-24, being the statement of the assessee's account in the books of the society, also forming parts of its plaint). Surely, the two, i.e., the 'maintenance charges' and 'arrears of maintenance charges' cannot be equated or considered at par for the purpose from their exigibility to deduction in the computation of the annual value (AV) of the house property u/s.23 of the Act. This is as except for property tax (levied by the Municipal or any other local authority), for which the law itself makes an exception by way of proviso to section 23(1), so that the same would stand to be deducted in determining the AV of the property only for the year in which the same is actually paid, maintenance charges payable to the housing society, even where deductible, would only be in respect of the year - irrespective of the actual payment - for the year for which the annual value of the property is to be computed and brought to tax. In fact, we do not even observe any dispute qua the deductibility of the maintenance charges levied by the Society per se. Even as stated by the Assessing Officer (A.O.), the 4 ITA No.2829/Mum/2011 (A.Y. 2007-08) Neela Exports Pvt. Ltd. vs. ITO decision in the case of Realty Finance & Leasing (P) Ltd. (supra) is only in respect of the society charges for the current year, allowing that pertaining to the current year.
Further, in the present case, the house property was admittedly being used by the assessee for the purpose of its business for years prior to the current year. Where then, one may ask, and even as observed by the Bench during the hearing, is the question of the same being allowed in computing the income from house property for those years, not to speak for the current year? Merely because the dispute with the housing society came to be resolved or settled during the current year, as well as the assessee let the said property thereat, deriving rental income there-from, would not make it deductible in computing the AV for the current year. As such, if and to the extent there is payment of municipal (property) tax by the assessee during the current year in respect of the property under reference, irrespective of the year to which it pertains, i.e., the current year or the preceding years, and which has not been already claimed by the assessee as a business expense (as forming part of the society charges) for those years, the same would stand to be deducted in computing the AV for the current year. The qualification by way of 'if', and to the effect that 'where not already allowed', is for the reason that, contrary to what stood stated before us by the AR, the reason for the dispute between the assessee and the housing-society is not the non-acceptance by the assessee of the increase (at 120%) in the monthly bills raised by the Society on its constituent members. The assessee was paying the enhanced bill amount of Rs.4,519/- on a monthly basis w.e.f. 01.10.1998, prior to which it was making payment @ Rs.2247/- p.m. (PB pg.24). As such, the property tax as levied at Rs.795/-, or at Rs.1,749/-, i.e., upon increase by 120% in the monthly bill comprising the said tax as well, was being paid by the assessee. The only difference perhaps could be that the assessee may not have paid the increased amount for some period, as the same, though charged for the first time in September, 1998 (through a debit of Rs.13,632/-), appears to be w.e.f April, 1998 (PB pg. 24). As regards the tax for the current year, there is no question of the same having been paid earlier, so that subject to the condition of payment during the year itself, which the assessee would be required to show, the same would stand to be deducted in full.
5 ITA No.2829/Mum/2011 (A.Y. 2007-08)Neela Exports Pvt. Ltd. vs. ITO 4.2 We next take up the assessee's alternate claim, i.e., of the impugned amount being allowed as a business expenditure. The same, also raised before the ld. CIT(A), has been rejected by him as the assessee had himself claimed it by way of deduction against the rental income, and which is only assessable as income from house property. It was also not a case of commercial exploitation of a commercial asset and, consequently, of having earned business income by way of or in the form of rental income. We could not disagree more with the ld. CIT(A), i.e., in principle. This is as once the assessee has lodged a claim per its return of income, the same has to be considered in terms of law. The Revenue may not find it valid under a particular head of income, i.e., under which it stands claimed, but that does not imply its invalidity or bar it of being examined for its deductibility under a different head of income. This is so where the assessee in fact presses the same, even if by way of an alternate contention. Further, the law does not draw any distinction between a house property used for a commercial or residential purpose, so that in either case the same is assessable as income from house property, and for which reference may be made to the decision by the apex court in the case of Sultan Brothers (P.) Ltd. v. CIT (1964) 51 ITR 353 (SC). The ld. CIT(A) was, thus, in our view, not correct in not considering the assessee's said claim. The matter would, thus, necessarily have to go back to his file for a consideration on merits.
4.3 We may at this stage also emphasize that we observe that the examination of the facts and circumstances of the case has been inchoate. We have already noted a incorrect statement by ld. AR (refer para 4.1). Further thereto, on the Bench observing, in respect of the assessee's claim toward business expenditure on the basis of its crystallisation on resolution of the dispute, that the same would stand to be limited only to the amount in dispute, i.e., the increase effected by the housing society @120% w.e.f. (as it appears) April, 1998, it was explained by the ld. AR that the entire amount would qualify for being considered as in dispute in-as-much as the society had refused to accept the payment of even admitted amount. The fact of the regular payment and, in fact, at the enhanced amount w.e.f. October, 1998, disprove completely the said statement (as to fact) by the 6 ITA No.2829/Mum/2011 (A.Y. 2007-08) Neela Exports Pvt. Ltd. vs. ITO ld. AR. We discountenance the same, being made at bar by a senior counsel. The same would, however, have no effect as the refusal by the housing society (assuming so) to receive part payment would not alter the fact that the assessee disputes a part of it, so that only the liability in its respect is subject to being claimed on crystallisation, claiming the admitted liability on regular basis. In fact, the assesse-company being obliged to follow accrual method of accounting, it could even claim the entire amount on provision basis, i.e., where claimed on some definite, valid basis. We, however, by stating so, are not discounting the assessee's claim on the ground of crystallization of liability/s but only that there has been no proper examination of facts.
The moot question, however, that would arise is: the assessee having accepted the increase (which, in fact, stands paid), what is the dispute about? Rather, as it appears to us, the assessee is paying the amount as raised since June, 2001, so that it is paying all its dues post May, 2001. Now, if the assessee were to be paying its dues post May, 2001, what is the basis for disputing that prior to it? We say so as the break-up and the nature of the amount in dispute, as well as the nature of the dispute itself, is not clear. Surely, not paying the amount cannot by itself constitute a dispute. Further, as we see it, and again as observed by the Bench during hearing, a good part of the amount is in respect of interest, which stands claimed by the housing society @ 21% p.a., and which is also the rate as specified in its monthly bills. The amount thereof would again need to be determined, and which would perhaps be the difference between the principal amount being settled (Rs. 8.67 lacs) and the amount finally settled. The deductibility of this interest, whether on a year to year basis, or on its settlement, would, thus, also arise for consideration.
4.4 The ld. CIT(A) shall decide the matter by issuing definite findings of fact, and after allowing both the parties a reasonable opportunity of being heard. We decide accordingly.
Conclusion
5. The assessee's contention that its claim stood denied for being qua 'society/maintenance charges' was found incorrect on facts by us in-as-much as the A.O. 7 ITA No.2829/Mum/2011 (A.Y. 2007-08) Neela Exports Pvt. Ltd. vs. ITO had himself allowed the same to the extent it was found to relate to the current year, following the decision by the tribunal in the case of Realty Finance & Leasing (P.) Ltd. (supra) relied upon by the assessee. In fact, the only other case; we having reviewed all those cited by the parties before us, including by the tribunal in the case of Township Real Estate Developers (India) (P.) Ltd. [2012] 21 taxmann.com 63 (Mum) by the ld. DR, which is applicable on facts is the decision by the tribunal in the case of J. B. Patel & Co. vs. Dy. CIT (supra). Its stands explained therein that rent being only a surrogate measure of the annual value of the house property, which is brought to tax u/s.22 of the Act, the expenditure on maintenance staff for the various facilities being provided by the housing society viz., maintenance, electricity, etc. as well as for the maintenance charges in respect of the common areas, viz. electricity, being directly attributable to the enjoyment of the house property by the tenant/users, would stand to be reduced in determining the AV. In the facts of the case, the annual value would stand to be reduced by the amount of property tax levied by a local authority as comprised in the impugned sum of Rs.15,93,108/- or even otherwise, i.e., whether paid through the housing society or directly, subject of course to it having not been claimed or allowed earlier. The basis of the claim is payment during the year, irrespective of the year to which it may pertains, i.e., the current year or a preceding year. Further, the standard deduction u/s. 24(a) would stand to be allowed on the annual value so arrived at.
Coming to the other amounts comprising the settlement amount of Rs.16 lakhs, the same would have to be determined with reference to the composition of the same in terms of its constituents. The same is not on record, even though, as is appears, it comprises substantially of charges for major repairs during for instance f.y. 1999-00 (Rs. 3.52 lacs); contribution to repair fund for f.y. 1998-99 (Rs. 0.13 lacs), etc, besides the interest component (see PB pg. 24). It is only on the details being brought on record by the assesse that the issue of allowability thereof as business expenditure on the basis of crystallization could be examined. The nature of these amounts as well as of that of the dispute/s would also be required to be considered for the purpose, and for which the plaint and the replies filed in the recovery suit could be relevant. Surely, the matter of 8 ITA No.2829/Mum/2011 (A.Y. 2007-08) Neela Exports Pvt. Ltd. vs. ITO dispute cannot be raised as an alibi and, furthermore, non-payment by itself would not constitute a dispute, being only the result of a subsisting dispute. The matter is accordingly restored back to the file of the first appellate authority for the necessary determination. We decide accordingly.
6. In the result, the assessee's appeal is partly allowed for statistical purposes.
Order pronounced on this 27th day of February, 2013
Sd/- Sd/-
( DINESH KUMAR AGARWAL ) ( SANJAY ARORA )
JUDICIAL MEMBER ACCOUNTANT MEMBER
MUMBAI, Dated: 27.02.2013
Copy forwarded to:
1. The Appellant
2. The Respondent
3. The C.I.T.
4. CIT (A)
5. The DR, B- Bench, ITAT, Mumbai
BY ORDER
ASSISTANT REGISTRAR
ITAT, Mumbai Benches, Mumbai
Roshani