ACIT Rg - 12(1), MUMBAI v. M/s. J.P.S. ASSOCIATES, MUMBAI

ITA 1542/MUM/2007 | 2003-2004
Pronouncement Date: 25-02-2011 | Result: Partly Allowed

Appeal Details

RSA Number 154219914 RSA 2007
Assessee PAN AADFA1272M
Bench Mumbai
Appeal Number ITA 1542/MUM/2007
Duration Of Justice 4 year(s) 9 day(s)
Appellant ACIT Rg - 12(1), MUMBAI
Respondent M/s. J.P.S. ASSOCIATES, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 25-02-2011
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted J
Tribunal Order Date 25-02-2011
Date Of Final Hearing 20-01-2011
Next Hearing Date 20-01-2011
Assessment Year 2003-2004
Appeal Filed On 15-02-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL J BENCH: MUMBAI BEFORE SHRI R.S. PADVEKAR JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH ACCOUNTANT MEMBER ITA NO.1542/MUM/2007 (ASSESSMENT YEAR: 2003-04) ACIT-RANGE -12(1) ROOM NO.117 AAYAKAR BHAVAN M.K. MARG MUMBAI -400 020 ....REVENUE VS M/S. JPS ASSOCIATES 6A/2 NEW EXCELSIOR BLDG. WALLACE ST. FORT MUMBAI ASSESSEE PAN: AAADFA 1272 M ASSESSEE BY: SHRI B.N. RAO REVENUE BY: SHRI SUMEET KUMAR O R D E R PER R.S. PADVEKAR JM THIS APPEAL IS FILED BY THE REVENUE CHALLENGING THE IMPUGNED ORDER OF THE LD. CIT (A) XII MUMBAI DATED 14.11.2006 FO R THE A.Y. 2003-04. THE REVENUE HAS TAKEN THE FOLLOWING EFFECTIVE GROUN DS:- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT (A) ERRED IN DIRECTING THE ASSESSING OFFICER TO ACCEPT THE RECEIPTS OF HIRE CHARGES OF ` 43 LAKHS INCLUDING AR REARS ON A/C OF HIRING OF MOTOR CARS OFFICE EQUIPMENTS COMPUTE RS FURNITURE ITA 1542/M/2007 M/S. JPS ASSOCIATES 2 / FIXTURE AS BUSINESS INCOME WITHOUT APPRECIATING T HE FACT THAT NATURE OF ARRANGEMENT BETWEEN THE SISTER CONCERN AN D ASSESSEE AS PER HIRE AGREEMENT DATED 1.4.2000 DOES NOT INDICATE ANY COMPLEX COMMERCIAL ACTIVITY IN THE NAT URE OF BUSINESS. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW THE LD. CIT (A) ERRED IN DIRECTING THE ASSESSING OFFICER TO CONSIDER RECEIPT OF ` 1 LAKH AS INCOME FROM PROFESSION WITHOUT APPRECIATING THE FACT THAT NO ACTIVITY OF MANAGEMEN T CONSULTANCY WAS CARRIED ON DURING THE YEAR UNDER CONSIDERATION. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW THE LD. CIT (A) ERRED IN DIRECTING THE ASSESSING OFFICER TO ALLOW INTEREST EXPENDITURE OF ` 25 LAKHS TO PARTNERS HOLDING THAT IT IS AN ALLOWABLE EXPENDITURE U/S.40(B)(IV) OF THE I.T. ACT IGNORING THE FACT THAT NO BUSINESS ACTIVITY WAS CARRIED ON D URING THE YEAR UNDER CONSIDERATION. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW THE LD. CIT (A) ERRED IN DIRECTING THE AO TO ALLOW THE EXPE NDITURE OF ` 3 16 233/- AS BUSINESS EXPENDITURE AND A REMUNERATI ON OF ` 1 59 328/- TO THE PARTNER AGAINST THE TOTAL INCOME IGNORING THE FACT THAT NO BUSINESS OR PROFESSIONAL ACTIVITY WAS CARRIED ON DURING THE YEAR UNDER CONSIDERATION. 2. THE FACTS PERTAINING TO THE CASE ARE AS UNDER. THE ASSESSEE FIRM IS IN THE BUSINESS OF MANAGEMENT CONSULTANCY. THE ASS ESSEE FILED THE RETURN OF INCOME FOR THE A.Y. 2003-04 DECLARING THE TOTAL INCOME OF ` ITA 1542/M/2007 M/S. JPS ASSOCIATES 3 29 83 620/-. THE RETURN FILED BY THE ASSESSEE WAS SELECTED FOR SCRUTINY AND ASSESSMENT WAS COMPLETED U/S.143(3) OF THE ACT. THE ASSESSEE HAS DECLARED THE RECEIPT FROM THE PROFESSIONAL CONSULTA NCY AT RS 1 LAKH WHICH WAS IN RESPECT OF THE CONSULTANCY SERVICES GI VEN TO MPSRTC IN THE YEAR 1997. THE ASSESSEE IS FOLLOWING THE CASH SYST EM OF ACCOUNTING AND HENCE THE SAID RECEIPT WAS DECLARED IN THE A.Y. 200 3-04. THE ASSESSEE HAS LEASED OUT HIS OFFICE PREMISES AS WELL AS OTHER ASSETS TO JPC ASSOCIATES PVT. LTD. IN WHICH ONE OF THE PARTNER O F THE ASSESSEE-FIRM NAMELY SHRI J.P. SRIVASTAVA IS ALSO A DIRECTOR. TH E ASSESSEE-FIRM HAS ENTERED INTO TWO SEPARATE AGREEMENTS DATED 1.4.2000 ONE AGREEMENT FOR LEASING OF OFFICE PREMISES AS WELL AS RESIDENTIAL PREMISES AND OTHER AGREEMENT FOR HIRING OUT ALL OTHER ASSETS LIKE FURN ITURE COMPUTERS OFFICE EQUIPMENTS MOTOR-CARS ETC. THE LEASE RENT FOR THE OFFICE PREMISES IS FIXED AT ` 10 75 000/- PER QUARTER AND IN RESPECT OF THE HIRE OF THE ASSETS THE HIRE CHARGES ARE SOLD AT RS 12 LAKHS PER ANNUM. THE ASSESSEE HAS DECLARED THE TOTAL RECEIPT OF THE LEASE AND HIRE CH ARGES OF ` 86 00 000/- WHICH INCLUDES RS 31 LAKHS RECEIPTS OF THE EARLIER YEARS. THE ASSESSEE SHOWN THE LEASE RENT AS WELL AS HIRE CHARGES AS ITS BUSINESS INCOME AND CLAIMED VARIOUS EXPENDITURE. THE A.O. DID NOT ACCEP T THE HEAD UNDER WHICH THE ASSESSEE HAS SHOWN LEASE RENT AND HIRE CH ARGES INCOME. THE A.O. WAS OF THE OPINION THAT THE LEASE RENTAL AS WE LL AS THE HIRE CHARGES CANNOT BE TREATED AS INCOME DERIVED FROM THE BUSINE SS ACTIVITY AND SAME IS TO BE TAXED UNDER THE HEAD INCOME FROM HOUSE PR OPERTY. THE ASSESSEE CONTENDED THAT AS THE ASSESSEE WAS NOT DOI NG WELL IN THE MANAGEMENT CONSULTANCY HENCE IT IS DECIDED TO LEASE OUT THE PREMISES FOR FIVE YEARS. THE A.O. RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF SHAMBU INVESTMENTS P. LTD. 263 ITR 143 AND HE BROUGHT TO TAX LEASE RENT AND HIRE CHARGES RECEIVED BY THE ASSESSEE AT RS 86 LAKHS U/S.22 OF THE ACT AS INCOME FROM HOUSE PRO PERTY AND ALSO ALLOWED DEDUCTION U/S.24 OF THE ACT AT 30% OF THE A NNUAL VALUE AND ITA 1542/M/2007 M/S. JPS ASSOCIATES 4 DISALLOWED ALL OTHER EXPENDITURE CLAIMED BY THE ASS ESSEE. SO FAR AS THE PROFESSIONAL RECEIPT OF RS 1 LAKH IS CONCERNED THE SAME HAS TREATED AS A MISCELLANEOUS INCOME OF THE ASSETS UNDER THE HEAD INCOME FROM OTHER SOURCES ON THE REASON THAT THE ASSESSEE HAS NOT CA RRIED OUT ANY BUSINESS ACTIVITY DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2003-04. THE A.O. ALSO DISALLOWED THE INTERES T PAID ON THE PARTNERS CAPITAL OF ` 25 LAKHS ON THE REASON THAT THE FUNDS CANNOT BE SA ID TO HAVE BEEN USED FOR THE BUSINESS PURPOSES. THE A.O. FINA LLY DETERMINED THE TOTAL INCOME OF THE ASSESSEE AT ` 64 69 010/-. 3. THE ASSESSEE CHALLENGED THE ASSESSMENT MADE BY THE A.O. BEFORE THE LD. CIT (A). IN RESPECT OF THE LEASE RENT AND HIRE CHARGES THE LD. CIT (A) HELD THAT TO THE EXTENT OF THE LEASE RENT THE SAME IS TO BE ASSESSED AS INCOME FROM HOUSE PROPERTY AS PER THE PRINCIPLES LAID DOWN BY THE HONBLE S.C. IN THE CASE OF SHAMBU INVESTMENTS P. L TD. (SUPRA) HENCE THE LD. CIT (A) HELD TO THE EXTENT OF ` 43 00 000/- WHICH IS A LEASE RENT OF THE BUSINESS PREMISES AS WELL AS RESIDENTIAL PREMISES T REATED AS INCOME FROM THE HOUSE PROPERTY. THE ASSESSEE HAS NOT CHALLENGE D THE SAID FINDING AND IT HAS REACHED THE FINALITY. SO FAR AS THE INC OME FROM THE HIRE CHARGES IS CONCERNED THE LD. CIT (A) HELD THAT IN THE PRECEDING TWO ASSESSMENT YEARS THE A.O. HIMSELF HAS ACCEPTED THA T THE SAID INCOME CONSTITUTE THE BUSINESS INCOME AND THE ASSESSMENTS FOR THE A.YS. 2001- 02 AND 2002-03 ARE COMPLETED U/S.143(3). THE LD. C IT (A) HAS ALSO NOTED THAT THE TOTAL HIRE CHARGES DECLARED BY THE A SSESSEE AT RS 45 LAKHS INCLUDE THE ARREARS ALSO OF THE PREVIOUS YEAR. THE LD. CIT (A) ACCEPTED THE PLEA OF THE ASSESSEE THAT TO THE EXTENT OF THE HIRE CHARGES OF THE BUSINESS ASSETS THE SAME ARE TO BE TREATED AS BUSI NESS INCOME. AGAINST THE SAID FINDING OF THE LD. CIT (A) THE REVENUE IS IN APPEAL BEFORE US. SO FAR AS PROFESSIONAL INCOME FROM THE MANAGEMENT C ONSULTANCY DECLARED BY THE ASSESSEE AT ` 1 LAKH IS CONCERNED THE LD. CIT (A) DIRECTED ITA 1542/M/2007 M/S. JPS ASSOCIATES 5 THE A.O. TO TEAT THE SAME AS A BUSINESS INCOME. SA ME WAY THE LD. CIT (A) ALSO DIRECTED THE A.O. TO ALLOW THE INTEREST EX PENDITURE ON THE PARTNERS CAPITAL WHICH WAS UTILIZED FOR THE PURPO SE OF THE ASSESSEES BUSINESS AS AN ALLOWABLE EXPENDITURE. THE LD. CIT (A) ALSO DIRECTED THE A.O. TO ALLOW THE REMUNERATION TO THE PARTNERS AND OTHER RELATED EXPENDITURE. NOW THE REVENUE IS IN APPEAL BEFORE US. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTI ES AND ALSO PERUSED THE RECORDS. GROUND NO.1 IS RAISING A GRIE VANCE AGAINST THE FINDING OF THE LD. CIT (A) THAT HIRE CHARGES RECEIV ED ON ACCOUNT OF HIRING OF THE MOTOR-CARS OFFICE EQUIPMENT COMPUTER FURN ITURE AND FIXTURE IS TO BE TREATED AS A BUSINESS INCOME. THE LD. D.R. VEHE MENTLY ARGUED THAT THE ASSESSEE HAS NOT CARRIED OUT ANY ACTIVITY AND H ENCE THE SAME IS TO BE TREATED AS INCOME FROM OTHER SOURCES. PER CONTR A LD. COUNSEL SUBMITTED THAT THE SAID INCOME HAS BEEN ACCEPTED BY THE A.O. AS BUSINESS INCOME IN THE PRECEDING ASSESSMENT YEARS. THE LD. CIT (A) HAS ALSO OBSERVED THAT IN THE PRECEDING ASSESSMENT YEAR ASSESSMENTS ARE COMPLETED U/S.143(3) AND THE A.O. HAS ACCEPTED THE HIRE CHARGES AS A BUSINESS INCOME. IN OUR OPINION AS THE FACTS ARE IDENTICAL THERE SHOULD BE CONSISTENCY IN THE APPROACH OF THE A.O. IN THE PRECEDING YEAR THE AO. HIMSELF HAS TREATED INCOME OF HIRE CHARGES AS T HE BUSINESS INCOME IN THE ASSESSMENT COMPLETED U/S.143(3). HENCE NO DIF FERENT VIEW CAN BE TAKEN. WE THEREFORE CONFIRM THE ORDER OF THE LD. CIT (A) TREATING THE HIRE CHARGES RECEIVED FROM HIRING OF THE BUSINESS A SSETS AS INCOME FROM BUSINESS AND ACCORDINGLY GROUND NO.1 IS DISMISSED. 5. SO FAR AS GROUND NO.2 IS CONCERNED IT IS IN RES PECT OF TREATING ` 1 LAKH WHICH ARE ARREARS OF THE CONSULTANCY FEES REC EIVED BY THE ASSESSEE FROM MPSRTC. THE LD. COUNSEL SUBMITTED THAT IT IS A PROFESSIONAL INCOME AND IN THE A.Y. 1998-99 THE PART OF THE SAM E WAS TREATED AS ITA 1542/M/2007 M/S. JPS ASSOCIATES 6 BUSINESS INCOME. HE FURTHER SUBMITS THAT AS THE A SSESSEE IS FOLLOWING CASH SYSTEM OF ACCOUNTING AND HENCE ON THE RECEIPT BASIS THE FEES ARE SHOWN IN THIS YEAR. IN OUR OPINION AS IT IS NOT D ISPUTED BY THE A.O. THAT ` 1 LAKH PART OF THE MANAGEMENT CONSULTANCY FEES REC EIVED BY THE ASSESSEE IS PART OF CONSULTANCY BUSINESS HENCE SA ME CANNOT BE TREATED AS INCOME FROM OTHER SOURCES BUT HAS TO BE ASSESSED UNDER THE HEAD INCOME FROM BUSINESS OR PROFESSION AS VERY NATURE OF THE RECEIPT WILL NOT BE CHANGED EVEN IF THE ACTUAL PAYMENT IS DEFER RED. WE ACCORDINGLY CONFIRM THE ORDER OF THE LD. CIT (A) ON THIS ISSUE AND DISMISS GROUND NO.2. 6. SO FAR AS GROUND NO.3 & 4 ARE CONCERNED THESE G ROUNDS DEPEND ON WHETHER THE HIRE CHARGES AND MANAGEMENT CONSULTANCY FEES ARE TO BE TREATED AS BUSINESS INCOME OR NOT. THE ASSESSEE HA S CLAIMED THE EXPENDITURE IN RESPECT OF THE INTEREST PAID ON THE PARTNERS CAPITAL ACCOUNT U/S.40(B)(IV) OF THE I.T. ACT AS WELL AS OT HER BUSINESS EXPENDITURE OF ` 3 16 233/- AND REMUNERATION TO THE PARTNERS OF ` 1 59 328/-. AS WE HAVE HELD THAT THE INCOME FROM THE HIRE CHARGES OF THE ASSETS AND THE MANAGEMENT CONSULTANCY FEES RECEIVED BY THE ASSESSE E ARE TO BE ASSESSED AS THE BUSINESS INCOME HENCE THE INTERES T ON THE PARTNERS CAPITAL ACCOUNT AND OTHER BUSINESS EXPENDITURE IS T O BE ALLOWED. AT THE SAME TIME IT IS SEEN THAT THE A.O. HAS NOT EXAMINE D WHETHER THE ASSESSEE HAS CLAIMED INTEREST EXPENDITURE AS PER TH E TERMS OF THE PARTNERSHIP DEED ON THE CAPITAL ACCOUNTS OF THE PAR TNERS HENCE FOR THE LIMITED PURPOSE OF VERIFICATION AND QUANTIFICATION WHETHER THE ASSESSEE HAS PROVIDED THE INTEREST ON THE PARTNERS CAPITAL ACCOUNT AS PER TERMS OF DEED OF PARTNERSHIP THEREFORE GROUND NO.3 IS RESTO RED TO THE FILE OF THE A.O. NEEDLESS TO SAY THAT THE A.O. SHOULD GIVE OPPO RTUNITY OF BEING HEARD TO THE ASSESSEE AS PER THE PRINCIPLES NATURAL JUSTI CE. GROUND NO.4 BEING ITA 1542/M/2007 M/S. JPS ASSOCIATES 7 CONSEQUENTIAL TO GROUND NO.3 HENCE SAME BECOMES INF RUCTUOUS AND DISMISSED AS SUCH. 7. IN THE RESULT REVENUES APPEAL IS PARTLY ALLOWE D FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 2 5TH FEBRUARY 2011. SD/- SD/- ( B. RAMAKOTAIAH ) ACCOUNTANT MEMBER ( R.S. PADVEKAR ) JUDICIAL MEMBER MUMBAI DATE: 25TH FEBRUARY 2011 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) XIX MUMBAI. 4) THE CIT 19 MUMBAI. 5) THE D.R. J BENCH MUMBAI. BY ORDER / / TRUE COPY / / ASSTT. REGISTRAR I.T.A.T. MUMBAI *CHAVAN ITA 1542/M/2007 M/S. JPS ASSOCIATES 8 SR.N. EPISODE OF AN ORDER DATE INITIALS CONCERNED 1 DRAFT DICTATED ON 21.01.2011 SR.PS 2 DRAFT PLACED BEFORE AUTHOR 22.01.2011 SR.PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6 KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7 FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER