ACIT-10(2), MUMBAI v. INTERLINK INSURANCE & REINSURANCE BROKERS PVT. LTD., MUMBAI

ITA 3482/MUM/2010 | 2006-2007
Pronouncement Date: 18-11-2011 | Result: Partly Allowed

Appeal Details

RSA Number 348219914 RSA 2010
Assessee PAN AAACI2807G
Bench Mumbai
Appeal Number ITA 3482/MUM/2010
Duration Of Justice 1 year(s) 6 month(s) 15 day(s)
Appellant ACIT-10(2), MUMBAI
Respondent INTERLINK INSURANCE & REINSURANCE BROKERS PVT. LTD., MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 18-11-2011
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted I
Tribunal Order Date 18-11-2011
Date Of Final Hearing 01-11-2011
Next Hearing Date 01-11-2011
Assessment Year 2006-2007
Appeal Filed On 03-05-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH I MUMBAI BEFORE SHRI B.R. MITTAL (JUDICIAL MEMBER) AND SHRI P.M. JAGTAP (ACCOUNTANT MEMBER) ITA NO. 3482/MUM/2010 ASSESSMENT YEAR-2006-07 THE ACIT-10(2) AAYAKAR BHAVAN MUMBAI-400 020 VS. M/S. INTERLINK INSURANCE & REINSURANCE BROKERS PVT. LTD. 601 SPHIRE ARCADE 6 TH FLOOR M.G. ROAD GHATKOPAR (E) MUMBAI-400 077 PAN-AAACI 2807G (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI C.G.K. NAIR RESPONDENT BY: SHRI B.V. JHAVERI DATE OF HEARING :1.11.2011 DATE OF PRONOUNCEMENT: 18.11.2011 O R D E R PER B.R. MITTAL JM : THE DEPARTMENT HAS FILED THIS APPEAL FOR ASSESSMENT YEAR 2006-07 AGAINST ORDER OF LD. CIT(A) DT. 17.2.2010 ON FOLLOW ING GROUND: ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW THE LD. CIT(A) ERRED IN HOLDING THAT THE PROPERTY WAS USED FOR BUSINESS PURPOSE EVEN WHEN THE FLATS WERE VACANT DURING THE RELEVANT PREVIOUS YEAR AND NO BUSINESS ACTIVITY WAS BEING CARRIED OUT FROM THEM. 2. THE RELEVANT FACTS GIVING RISE TO THIS APPEAL AR E THAT ASSESSEE IS A COMPANY REGISTERED UNDER COMPANIES ACT 1956 AND IS ENGAGED IN THE BUSINESS OF INSURANCE RE-INSURANCE BROKERS AND CON SULTANTS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS ASSESSEE FILED ST ATEMENT SHOWING DETAILS OF FLATS OWNED BY IT. THE ASSESSING OFFICER OBSERV ED THAT ASSESSEE WAS OWNING 20 FLATS OUT OF WHICH 10 FLATS WERE LYING VA CANT. THE ASSESSEE STATED ITA NO. 3482/M/10 2 THAT THOSE FLATS WERE ACQUIRED FOR PROVIDING ACCOMM ODATION TO ITS STAFF. HOWEVER AO NOTED THAT OUT OF 10 FLATS ASSESSEE LE T OUT TWO FLATS AND THE INCOME HAD BEEN SHOWN AS INCOME FROM HOUSE PROPERTY . FURTHER 7 FLATS WERE GIVEN TO VARIOUS STAFF MEMBERS AND ASSESSEE FURNISH ED PROOF IN RESPECT OF THE SAME. ONE FLAT WAS USED FOR OFFICE PURPOSES AND FO R KEEPING THE RECORD OF THE BUSINESS. SINCE 10 FLATS WERE LYING VACANT AO ASKED THE ASSESSEE TO EXPLAIN WHY ANNUAL VALUE OF VACANT FLATS SHOULD NOT BE CHARGED TO TAX U/S. 22 OF THE ACT. THE ASSESSEE VIDE ITS LETTER DT. 16.12 .2008 STATED THAT SINCE INTENTION OF THE COMPANY IS NOT TO EARN RENTAL INCO ME BY LETTING OUT ABOVE PROPERTIES BUT FLATS ARE MEANT FOR PROVIDING HOUSE ACCOMMODATION TO THE EMPLOYEES AND TO USE THE PROPERTIES FOR STORAGE OF RECORDS AND DOCUMENTS OF THE BUSINESS THE SAME CONSTITUTES BUSINESS PROPERT IES AND THEREFORE CANNOT BE ASSESSED UNDER THE HEAD INCOME FROM HOUSE PROPER TY. THE AO DID NOT ACCEPT THE SAID EXPLANATION OF ASSESSEE AND AFTER C ONSIDERING THE PROVISIONS OF SEC. 22 AND SEC. 23 OF I.T. ACT CONSIDERED THE AN NUAL RATABLE VALUE @ 8.5% OF COST TO ASSESSEE AND ACCORDINGLY ASSESSED T HE INCOME FROM HOUSE PROPERTY U/S. 22 OF THE ACT AT RS. 1 51 90 969/-. BEING AGGRIEVED ASSESSEE FILED APPEAL BEFORE FIRST APPELLATE AUTHORITY. 3. BEFORE WE CONSIDER THE ORDER OF LD. CIT(A) IT I S RELEVANT TO STATE THAT AO RECTIFIED THE ASSESSMENT ORDER U/S. 154 OF THE A CT 1961 ON 7.1.2009 AND WORKING OF INCOME FROM HOUSE PROPERTY IN RESPECT OF 10 FLATS WAS ASSESSED U/S. 22 OF THE ACT AT RS. 12 55 125/- AS AGAINST RS . 1 51 90 969/- ASSESSED IN THE ASSESSMENT ORDER DT. 18.12.2008. 4. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSION OF ASSESSEE HAS HELD THAT KEEPING IN VIEW THE EXPLANATION GIVEN BY ASSES SEE THAT CERTAIN RESIDENTIAL FLATS THOUGH THEY WERE VACANT AS ON THE DATE OF ASS ESSMENT WERE EARMARKED FOR ALLOTTING TO EMPLOYEES OF THE ASSESSEE COMPANY AND ALL THE FLATS WERE CLOSE TO OFFICE LOCATION AND THUS HELD THAT AO WAS NOT JUSTIFIED IN ASSESSING THE DEEMED INCOME FROM THOSE FLATS UNDER THE HEAD INCOME FROM HOUSE PROPERTY. THAT THE INTENTION OF ASSESSEE COMPANY WAS NOT TO LET OUT THOSE ITA NO. 3482/M/10 3 FLATS. HAD THERE BEEN ANY INTENTION OF EARNING REN TAL INCOME THE COMPANY COULD HAVE EASILY LET OUT THOSE FLATS AND COULD HAV E EARNED RENTAL INCOME INSTEAD OF KEEPING THEM VACANT. THE LD. CIT(A) HEL D THAT PROVISIONS OF SEC. 22 WERE NOT APPLICABLE. THEREFORE AO WAS NOT JUSTIF IED IN WORKING OUT THE DEEMED HOUSE PROPERTY INCOME IN RESPECT OF THOSE FL ATS. HENCE DEPARTMENT IS IN APPEAL BEFORE TRIBUNAL. 5. THE LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED TH AT LD. CIT(A) REVERSED THE FINDING OF AO MERELY BY ACCEPTING SUBM ISSION OF ASSESSEE AND WITHOUT VERIFYING FACTS AS BROUGHT OUT BY AO. HE S UBMITTED THAT WHILE CONSIDERING ANNUAL VALUE OF PROPERTY FOR THE PURPOS E OF CONSIDERING INCOME FROM HOUSE PROPERTY INTENTION IS NOT NECESSARY. T HE LD. DR SUBMITTED THAT ASSESSEE SOLD OUT TWO FLATS AND TWO FLATS WERE LET OUT IN NEXT ASSESSMENT YEAR. IF THE INTENTION OF ASSESSEE HAD BEEN TO PROV IDE ACCOMMODATION ONLY TO STAFF MEMBERS OR TO USE THE FLAT FOR ITS BUSINESS P URPOSES ASSESSEE COULD USE THEM BUT THE SAID FLAT REMAINED VACANT NOT ONLY IN ASSESSMENT YEAR UNDER CONSIDERATION BUT ALSO IN SUBSEQUENT ASSESSMENT YEA RS EXCEPT THOSE FLATS WHICH WERE EITHER SOLD OUT AND/OR LET OUT. HE SUBM ITTED THAT ORDER OF LD. CIT(A) IS NOT BASED ON FACTS AND THEREFORE THE ACTI ON OF AO SHOULD BE CONFIRMED. 6. ON THE OTHER HAND LD. AR VEHEMENTLY SUPPORTED O RDER OF LD. CIT(A). HE REFERRED TO PAGE 5 OF THE PAPER BOOK WHICH CONTA IN DETAILS OF ALL 20 FLATS OWNED BY ASSESSEE. HE SUBMITTED THAT TWO OF THE VA CANT FLATS I.E. IN THE PREMISES OF PRINCE CASTLE CO. OP. HSG. SOC. LTD. WE RE TAKEN POSSESSION IN JULY 1996 AND ASSESSEE WAS SHOWING SAME AS ITS BUS INESS ASSETS. HE SUBMITTED THAT SAID FLAT WERE VACANT BUT WERE NEVER CONSIDERED FOR ASSESSMENT AS INCOME FROM HOUSE PROPERTY. HE SUBMI TTED THAT EVEN DEPARTMENT ALLOWED DEPRECIATION IN RESPECT OF THOSE FLATS CONSIDERING IT AS BUSINESS ASSETS OF ASSESSEE-COMPANY. THE LD. AR AG AIN REFERRED TO PAGE-5 OF PAPER BOOK AND SUBMITTED THAT TWO FLATS WERE ACQUIR ED IN DECEMBER 2003 IN THE BUILDING HIMGIRI CO. OP. HSG. SOC. LTD WHICH AR E ALSO VACANT SINCE THE ITA NO. 3482/M/10 4 DATE POSSESSION HAD BEEN TAKEN BY ASSESSEE. HE SUB MITTED THAT EVEN IN RESPECT OF THOSE FLATS DEPARTMENT ALLOWED DEPRECIA TION CONSIDERING THEM AS BUSINESS ASSETS. THE LD. AR SUBMITTED THAT IN THE ASSESSMENT YEAR UNDER CONSIDERATION ASSESSEE TOOK POSSESSION OF SIX FLAT S IN THE BUILDING HAVELI CO. OP. HSG. SOC. LTD AND ALL THOSE FLATS WERE VACANT. HE SUBMITTED THAT OUT OF THOSE 6 FLATS 2 OF FLATS WERE SOLD IN ASSESSMENT Y EAR 2007-08 AND TWO OF FLATS WERE LET OUT. THE LD. AR SUBMITTED THAT ALL THESE FLATS WERE SMALL FLATS AND 2 FLATS COMPRISES OF ONE FLAT AND THEREFORE INSTEAD O F 10 FLATS PRACTICALLY THEY ARE 5 FLATS WHICH WERE VACANT IN ASSESSMENT YEAR UNDER CONSIDERATION. HE SUBMITTED THAT VERY BASIS ON WHICH AO ARRIVED AT A CONCLUSION FOR ASSESSING THEM UNDER THE INCOME FROM HOUSE PROPERTY IS BASICA LLY WRONG. HE SUBMITTED THAT IN PRECEDING ASSESSMENT YEAR I.E. ASSESSMENT Y EAR 2005-06 SIMILAR ADDITIONS WERE MADE BUT THE FIRST APPELLATE AUTHORI TY LD. CIT(A) DELETED THE SAME AND REFERRED TO PAGES 22 TO 29 OF PAPER BOOK W HICH A COPY OF SAID ORDER OF LD. CIT(A) DT. 14.5.2009. HE SUBMITTED TH AT DEPARTMENT HAD NOT FILED ANY APPEAL AGAINST SAID ORDER OF LD. CIT(A). THE AR FURTHER SUBMITTED THAT INTENTION OF ASSESSEE IS TO USE ALL THESE FLAT S FOR ITS BUSINESS PURPOSES AND THE ONLY FACT THAT THEY WERE VACANT IN ASSESSME NT YEAR UNDER CONSIDERATION COULD NOT BE CONSIDERED FOR THE PURPO SE OF DETERMINING INCOME FROM HOUSE PROPERTY. HE REFERRED TO SEC. 22 OF I.T. ACT AND SUBMITTED THAT THE WORD USED IS MAY OCCUPY FOR THE PURPOSE OF AN Y BUSINESS CARRIED ON BY ASSESSEE. HE SUBMITTED THAT IF THE PROPERTY OWNED B Y ASSESSEE WHICH MAY BE OCCUPIED FOR THE PURPOSE OF BUSINESS SHALL NOT BE CHARGEABLE TO INCOME TAX UNDER THE HEAD INCOME FROM HOUSE PROPERTY. H E SUBMITTED THAT ASSESSEE-COMPANY HAD ACQUIRED ALL FLATS FOR THE PUR POSE OF ITS BUSINESS AS THEY WERE TO BE GIVEN RENT FREE ACCOMMODATION TO IT S EMPLOYEES. THEREFORE THE AO WAS NOT JUSTIFIED TO COMPUTE ANNUAL VALUE OF PROPERTY AND TO ASSESS THE SAME U/S. 22 OF THE I.T. ACT UNDER THE HEAD IN COME FROM HOUSE PROPERTY. HE SUBMITTED THAT THOSE FLATS EVEN IF NOT USED BY A SSESSEE FOR ITS BUSINESS PURPOSES BUT THE INTENTION OF ASSESSEE IS TO USE F OR BUSINESS PURPOSES AND THEREFORE IT AMOUNTS TO PASSIVE USER OF SAID FLAT. ITA NO. 3482/M/10 5 6.1. THE LD. AR FURTHER SUBMITTED THAT WITHOUT PRE JUDICE TO HIS SUBMISSION EVEN IF IT IS DECIDED TO CHARGE INCOME FROM HOUSE P ROPERTY OF VACANT FLATS IT SHOULD BE DETERMINED ON THE BASIS OF MUNICIPAL RATA BLE VALUE AND NOT ON THE BASIS OF 8.5% OF THE COST OF FLAT. TO SUBSTANTIATE HIS SUBMISSION HE REFERRED THE DECISION OF BOMBAY HIGH COURT IN THE CASE OF SM ITABEN N. AMBANI VS CWT 323 ITR 104 AND ALSO THE DECISION OF ITAT MUMBA I BENCH IN THE CASE OF DCIT VS RECLAMATION REALTY INDIA PVT. LTD. IN ITA NO S. 1411 TO 1413/MUM/2007 DT. 26 TH NOVEMBER 2010. 7. WE HAVE CAREFULLY CONSIDERED THE ORDER OF AUTHOR ITIES BELOW AND THE SUBMISSION OF LD. REPRESENTATIVES OF THE PARTIES. WE HAVE ALSO GONE THROUGH THE CASES CITED BY LD. AR AND ALSO THE DECISION OF LD.CIT(A) DT. 14 TH MAY 2009 FOR ASSESSMENT YEAR 2005-06 AND RELEVANT PAGES OF PAPER BOOK PARTICULARLY PAGE NO. 5 WHICH CONTAINS THE DETAILS OF ALL 20 FLATS IN POSSESSION OF ASSESSEE IN ASSESSMENT YEAR UNDER CONSIDERATION. WE OBSERVE THAT OUT OF TOTAL 20 FLATS ASSESSEE HAS USED 10 FLATS FOR GIVI NG RESIDENTIAL ACCOMMODATION TO ITS STAFF MEMBERS 2 FLATS HAVE BEEN LET OUT TO ABN AMRO BANK AND ONE FLAT IS USED FOR OFFICE STORAGE. HOWEVER AS PER SAID C HART 10 FLATS ARE VACANT. HOWEVER LD. AR DURING THE COURSE OF HIS SUBMISSION SUBMITTED THAT TWO FLATS COMPRISES OF ONE FLAT AND THEREFORE PRACTICALLY ONL Y 5 FLATS ARE VACANT AND OUT OF WHICH TWO FLATS WERE ACQUIRED IN FINANCIAL YEAR 1996-97 AND TWO FLATS IN FINANCIAL YEAR 2003-04 AND WHEREAS REMAINING 6 FLAT S I.E. IN THE BUILDING HAVELI CO. OP. HSG. SOC. LTD. WERE TAKEN POSSESSION IN FINANCIAL YEAR RELEVANT TO ASSESSMENT YEAR UNDER CONSIDERATION. THE LD. AR STATED THAT INTENTION OF THE ASSESSEE IS TO USE ALL THESE FLATS FOR ITS BUSI NESS PURPOSES BY PROVIDING ACCOMMODATION TO ITS STAFF MEMBERS. HOWEVER WE OB SERVE THAT ALL THE SIX FLATS FOR WHICH ASSESSEE HAS TAKEN POSSESSION IN TH IS ASSESSMENT YEAR UNDER CONSIDERATION ARE LYING VACANT. IT IS A FACT THAT I N THE PRECEDING ASSESSMENT YEAR 4 OTHER FLATS WHICH WERE VACANT WERE ACQUIRED BY ASSESSEE IN THE EARLIER ASSESSMENT YEARS AND HAVE BEEN CONSIDERED AS BUSINE SS ASSETS. SINCE IN THE ASSESSMENT YEAR UNDER CONSIDERATION ASSESSEE HAS A CQUIRED SIX MORE FLATS AND THEY ARE LYING VACANT THE AO CONSIDERED TO EXA MINE THE ISSUE IN DEPTH ITA NO. 3482/M/10 6 AND THEREAFTER HE FOUND THAT SAID VACANT FLATS WERE NOT USED FOR THE BUSINESS PURPOSES OF ASSESSEE. IN ORDER TO ASCERTAIN AS TO WHETHER ASSESSEE HAS ACTUALLY ACQUIRED 6 FLATS IN THE ASSESSMENT YEAR UN DER CONSIDERATION FOR ITS BUSINESS PURPOSES OR JUST TO HOLD THEM AS BUSINESS ASSETS WE ASCERTAINED THE POSITION FROM LD. AR THE USE OF THOSE FLATS IN SUC CEEDING ASSESSMENT YEARS. THE LD. AR SUBMITTED THAT OUT OF THESE SIX FLATS A CQUIRED BY ASSESSEE IN ASSESSMENT YEAR UNDER CONSIDERATION TWO WERE SOLD IN NEXT ASSESSMENT YEAR I.E. FLAT NO. 703 & 704 AND WHEREAS TWO FLATS I.E. FLAT NO. 803 AND 804 WERE LET OUT. WE OBSERVE THAT EVEN IN NEXT ASSESSMENT Y EAR ASSESSEE HAD NOT USED THOSE FLATS EITHER FOR ITS BUSINESS PURPOSES A ND /OR BY PROVIDING ACCOMMODATION TO ITS STAFF MEMBERS. THE SAID FLAT R EMAINED VACANT. THE LD. AR COULD NOT GIVEN THE DETAILS AS TO IN WHICH ASSES SMENT YEAR THE REMAINING FLATS HAVE BEEN USED BY ASSESSEE FOR ITS BUSINESS P URPOSES. THEREFORE WE ARE OF THE CONSIDERED VIEW THAT IN THE ABSENCE OF A NY EVIDENCE WE CANNOT FIND MERIT IN THE CONTENTION OF LD. AR THAT ALL THE SE FLATS WHICH ARE LYING VACANT HAVE BEEN PURCHASED BY ASSESSEE FOR ITS BUS INESS PURPOSES ONLY. ADMITTEDLY THE SAID FLAT WERE VACANT IN THE ASSESS MENT YEAR UNDER CONSIDERATION WE ARE OF THE CONSIDERED VIEW THAT A CTION OF AO TO CONSIDER ANNUAL VALUE AS PER SEC. 22 OF I.T. ACT IS JUSTIFIAB LE TO DETERMINE UNDER THE HEAD INCOME FROM HOUSE PROPERTY. 8. NOW QUESTION ARISES AS TO WHETHER THE METHOD AS ADOPTED THE AO BY TAKING 8.25% OF THE COST OF FLAT IS JUSTIFIABLE OR NOT WE FIND MERIT IN THE CONTENTION OF LD. AR THAT IN THE ABSENCE OF ANY MAT ERIAL BROUGHT OUT BY AO THE BASIS FOR DETERMINING ANNUAL VALUE SHOULD BE TH E MUNICIPAL RATABLE VALUE AND NOT THE COST OF FLAT IN VIEW OF DECISION OF HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF SMITABEN N. AMBANI (SUPRA). WITH TH IS OBSERVATION WE SET ASIDE THE ORDER OF LD. CIT(A) AND DIRECT THE AO TO DETERMINE THE ANNUAL VALUE OF VACANT FLAT IN ASSESSMENT YEAR UNDER CONSIDERATI ON ON THE BASIS OF MUNICIPAL RATEABLE VALUE AND NOT BY TAKING 8.25% OF THE COST OF FLAT. HENCE ORDER OF AO IS CONFIRMED SUBJECT TO ABOVE OBSERVATI ON BY ALLOWING THE GROUND TAKEN BY DEPARTMENT IN PART. ITA NO. 3482/M/10 7 9. IN THE RESULT APPEAL OF DEPARTMENT IS ALLOWED IN PART. ORDER PRONOUNCED ON THIS 18 TH DAY OF NOVEMBER 2011 SD/- SD/- ( P.M. JAGTAP) (B.R. MITTAL ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI DATED 18 TH NOVEMBER 2011 RJ COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR I BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR I.T.A.T MUMBAI