ITO 1(1)-1, MUMBAI v. AIRLINES HOTELS P. LTD, MUMBAI

ITA 387/MUM/2009 | 2004-2005
Pronouncement Date: 29-07-2011 | Result: Dismissed

Appeal Details

RSA Number 38719914 RSA 2009
Assessee PAN AAACT0178M
Bench Mumbai
Appeal Number ITA 387/MUM/2009
Duration Of Justice 2 year(s) 6 month(s) 12 day(s)
Appellant ITO 1(1)-1, MUMBAI
Respondent AIRLINES HOTELS P. LTD, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 29-07-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 29-07-2011
Date Of Final Hearing 20-07-2011
Next Hearing Date 20-07-2011
Assessment Year 2004-2005
Appeal Filed On 16-01-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A MUMBAI BEFORE SHRI N.V.VASUDEVAN(J.M) & SHRI R.K.PANDA (A .M) ITA NO.387/MUM/2009(A.Y.2004-05) THE ITO 1(1)-1 ROOM NO.534 AAYKAR BHAVAN MK ROAD MUMBAI 20 (APPELLANT) VS. M/S. AIRLINES HOTELS PVT. LTD. 5 JAMSHEDJI TATA ROAD CHURCHGATE RECLAMATION MUMBAI 20 PAN:AAACT 0178M (RESPONDENT) APPELLANT BY : SHRI P.K.B.MENON RESPONDENT BY : SHRI MADHUR AGARWAL ORDER PER N.V.VASUDEVAN J.M THIS IS AN APPEAL BY THE REVENUE AGAINST THE ORDE R DATED 30/10/2008 OF CIT(A)-1 MUMBAI RELATING TO THE ASSESSMENT YEAR 2004-05. GROUND NO.1 RAISED BY THE REVENUE READS AS FOLLOWS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LEARNED CIT(A) ERRED IN DIRECTING THE ASSESSING OFF ICER TO TREAT HIRE CHARGES AMOUNTING TO RS.4 70 127/- AS INCOME FROM B USINESS. 2. THE ASSESSEE IS A COMPANY. THE ASSESSEE RECEIVE D A SUM OF RS.4 70 127/- AS HIRE CHARGES WHICH WAS TREATED BY THE ASSESSEE AS INCOME FROM BUSINESS. THE ASSESSING OFFICER HOWEVER HELD THAT IT WAS INCOME FROM HOUSE PROPERTY. THE CIT(A) FOLLOWING THE ORDER OF THE CIT(A) IN A.Y 2002-03 HELD THAT HIRE CHARGES IS TO BE ASSESSED UNDER THE HEAD INCOME FROM BUSINESS AND NOT UNDER THE HEAD INCOME FROM HOUSE P ROPERTY. IT IS NOT IN DISPUTE BEFORE US THAT IN A.Y 2002-03 THIS ISSUE W AS CONSIDERED BY THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.7489/M/05 FOR A.Y 2002-03 AND THIS TRIBUNAL HELD THAT THE HIRE CHARGES IS TO BE A SSESSED UNDER THE HEAD ITA NO.387/MUM/2009(A.Y.2004-05) 2 INCOME FROM BUSINESS. IN VIEW OF THE ABOVE GROUND NO.1 RAISED BY THE REVENUE IS DISMISSED. 3. GROUND NO.2 RAISED BY THE REVENUE READS AS FOLLO WS: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN DIRECTING THE ASSESSING OFF ICER TO TREAT RECOVERY OF EXPENSES AMOUNTING TO RS. 5 40 000/- AS INCOME F ROM BUSINESS. 4. THE ASSESSEE HAD RECEIVED A SUM OF RS.5 40 000/ - AS REIMBURSEMENT/ RECOVERY OF EXPENSES. THIS INCOME WAS DISCLOSED UN DER HEAD BUSINESS AND WERE ACCEPTED BY THE AO IN THE PRECEDING YEAR 2002- 03. HOWEVER DURING THIS YEAR THE AO TREATED THIS RECEIPT UNDER THE HEA D HOUSE PROPERTY ON THE GROUND THAT IN A.Y. 2002-03 THE ASSESSMENT WAS COMP LETED IN A DIFFERENT LINE. THE ASSESSEE EXPLAINED THAT IT WAS CONDUCTIN G ITS BUSINESS AT 199 CHURCHGATE RECLAMATION MUMBAI 20. THERE WERE SO ME COMPANIES WITHIN THE GROUP WHO WERE CARRYING ON BUSINESS AT DIFFEREN T STATES IN INDIA. THE ADMINISTRATION OF THOSE COMPANIES WAS SITUATED AT THE ASSESSEES PREMISES AT MUMBAI. THE DIRECTORS OF THOSE COMPANIES WERE P ERMANENTLY RESIDING AT MUMBAI. THE ASSESSEE COMPANY RENDERED SOME MISCELL ANEOUS ADMINISTRATIVE SERVICES TO THESE GROUP COMPANIES AN D RECEIVES CHARGES FROM THEM AS RECOVERY OF EXPENSES. AS AGAINST THIS THE RECOVERY EXPENSES ARE DEBITED TO THE P&L ACCOUNT. THIS PRACTICE HAS BEEN CARRIED ON BY THE ASSESSEE IN THE PAST MANY EARLIER YEARS. FOR THE F IRST TIME THE AO HAS TREATED THESE RECEIPTS AS INCOME FROM HOUSE PROPERT Y. THE ASSSESSEE SUBMITTED THAT NO PORTION OF ASSESSEES PREMISES WA S LET OUT TO THOSE COMPANIES AND AS SUCH THERE IS NO QUESTION OF TREAT ING THIS INCOME AS INCOME FROM HOUSE PROPERTY. IN A.Y. 2003-04 THE RE COVERY EXPENSES HAS BEEN SET OFF AGAINST BUSINESS EXPENDITURE. HENCE THE CHANGE IN THE STAND OF THE AO IS UNWARRANTED. ITA NO.387/MUM/2009(A.Y.2004-05) 3 5. THE CIT(A) HELD THAT ONGOING THROUGH THE ASSESSM ENT ORDER THE AO HAS NOT DISCUSSED THE FACTS AND REASONS FOR CHANGING TH E HEAD OF INCOME AND HAS NOT GIVEN ANY CLEAR REASON FOR ASSESSING THIS A MOUNT UNDER THE HEAD HOUSE PROPERTY. HE HELD THAT THE ACTION OF THE A O WAS NOT SUPPORTED BY ANY JUDICIAL DECISIONS. ON THE OTHER HAND FROM THE FACTS GIVEN BY THE AR SHOWED THAT THERE WAS NO REASON TO CHANGE THE DEPAR TMENTAL STAND AND ASSESSING THIS INCOME AS INCOME FROM HOUSE PROPERTY . THE RECEIPTS ARE NOT COLLECTED FROM PERSONS TO WHOM THE PREMISES ARE LET OUT BUT TO WHOM THE VARIOUS SERVICES ARE RENDERED. UNDER THE CIRCUMSTA NCES THE CIT(A) DIRECTED THE AO TO ACCEPT THE SAME AS INCOME FROM BUSINESS A S IN EARLIER YEARS. 6. AGGRIEVED BY THE ORDER OF CIT(A) THE REVENUE HA S RAISED GROUND NO.2 BEFORE THE TRIBUNAL. WE ARE OF THE VIEW THAT THE O RDER OF THE CIT(A) ON THIS ISSUE HAS TO BE UPHELD. THE AMOUNT IN QUESTION IS RECOVERY OF EXPENSES BY THE ASSESSEE FROM ITS GROUP COMPANIES WHICH THE AS SESSEE HAD INCURRED ON BEHALF OF THE GROUP COMPANIES. IN THE PAST SUCH RE CEIPTS WERE NOT TREATED AS INCOME FROM HOUSE PROPERTY. THERE WAS NO REASON TO TAKE A DIFFERENT VIEW IN THIS ASSESSMENT YEAR. THEREFORE THE CIT(A) RIGHTL Y TREATED THE SAME AS INCOME FROM BUSINESS. THE ORDER OF THE CIT(A) IS T HEREFORE UPHELD AND GROUND NO.2 RAISED BY THE REVENUE IS DISMISSED. 7. GROUND NO.3A & 3B READ AS FOLLOWS: 3A. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO ALLOW DEPRECIATION OF RS. 20 00 499/- IN TOTO. 3B. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW THE CIT(A) ERRED IN ALLOWING ENTIRE DEPRECIATION INSTEA D OF @20% DEPRECIATION ON THE PORTION OF BUILDING USED FOR IT S BUSINESS AS DECIDED IN THE APPELLATE ORDERS OF A.Y. 2001-02 AND A.Y. 2002-03 AND ACCEPTED BY THE ASSESSEE. ITA NO.387/MUM/2009(A.Y.2004-05) 4 8. WHILE COMPUTING INCOME FROM BUSINESS THE ASSESSI NG OFFICER DISALLOWED THE CLAIM OF THE ASSESSEE FOR DEPRECIATI ON ON BUILDING. IT APPEARS THAT THE DISALLOWANCE WAS MADE ON THE GROUND THAT T HE BUILDING ON WHICH DEPRECIATION WAS CLAIMED HAD NOT BEEN USED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. THE CIT(A) HOWEVER DIRECTED THE ASSE SSING OFFICER TO ALLOW DEPRECIATION AS CLAIMED BY THE ASSESSEE AS WAS ALLO WED IN 2002-03. AT THE TIME OF HEARING IT WAS BROUGHT TO OUR NOTICE THAT I N A.Y 2002-03 IN ITA NO.7489/M/05 THIS TRIBUNAL IN ASSESSEES OWN CASE D IRECTED THAT THE DEPRECIATION SHOULD BE ALLOWED ON THE PORTION USED BY THE ASSESSEE OF THE BUILDING FOR ITS OWN BUSINESS PURPOSES. WE ARE OF THE VIEW THAT THE CIT(A)S DIRECTION GIVEN IN THE IMPUGNED ORDER SHOULD BE CO NSTRUED AS A DIRECTION TO ALLOW DEPRECIATION PROPORTIONATE TO THE PORTION OF BUILDING USED BY THE ASSESSEE FOR ITS OWN PURPOSE. SUBJECT TO THE CLARI FICATION MADE ABOVE THE GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 9. GROUND NO.4 RAISED BY THE REVENUE READS AS FOLLO WS: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN RESTRICTING THE DISALLOWANC E UNDER SECTION 14A OF THE INCOME TAX ACT IGNORING THE SPECIAL BENCH D ECISION OF THE MUMBAI TRIBUNAL IN M/S. DAGA CAPITAL MANAGEMENT PVT . LTD. & ORS ITA NO.8057/M/03. 10. THE AO HAS FOUND THAT THE DIVIDEND INCOME OF R S.12 05 926/- WHICH IS CLAIMED AS EXEMPTED. THE ASSESSEE CLAIMED THAT NO SPECIFIC EXPENSES HAVE BEEN INCURRED FOR EARNING THIS INCOME AND THERE WAS ONLY SIX DIVIDEND WARRANTS RECEIVED DURING THE YEAR WHICH HAVE BEEN DEPOSITED IN THE BANK. THIS DOES NOT REQUIRE ANY EFFORTS. THE AO WAS NOT SATISFIED WITH THE EXPLANATION. HE HELD THAT THE ASSESSEES MAIN BUSI NESS I.E. HOTEL BUSINESS HAS ALMOST CLOSED DOWN. THE MAIN INCOME RECEIVED B Y THE ASSESSEE IS DIVIDEND FROM INVESTMENTS. SINCE THE DIVIDEND INCO ME IS 41.50% OF THE TOTAL INCOME HE DISALLOWED THE PROPORTIONATE AMOUNT OUT OF THE ADMINISTRATIVE ITA NO.387/MUM/2009(A.Y.2004-05) 5 EXPENSES OF RS.9 71 259/- WHICH RESULTED IN THE DIS ALLOWANCE OF RS. 3 98 701/-. 11. BEFORE CIT(A) THE LD. A.R ARGUED THAT NO EXPENS ES HAVE BEEN INCURRED FOR EARNING THE DIVIDEND INCOME OF RS. 12 05 926/- . THERE ARE ONLY SIX DIVIDEND WARRANTS RECEIVED DURING THIS YEAR WHICH H AS BEEN DEPOSITED IN THE BANK. THE TOTAL INCOME DISCLOSED WAS RS. 29 32 220 /- AND THE DIVIDEND INCOME IS RS. 12 05 926/- AND THE AO HAS DISALLOWE D 41.05% OF THE TOTAL EXPENDITURE WHICH IS ERRONEOUS. REFERRING TO THE N ATURE OF SUCH EXPENSES THE LD. A.R POINTED OUT THAT THERE ARE SPECIFIC EXP ENSES RELATED TO HOUSE PROPERTY. THE AO HAS TAKEN RS.7 91 250/- IN RESPEC T OF BUSINESS OF THE COMPANY OUT OF WHICH RS. 3 98 701/- HAS BEEN DISALL OWED. IT WAS CONTENDED THAT THERE IS NO BORROWING AND NO PAYMENT OF INTERE ST. THERE WAS NO INVESTMENT DIVISION AND THERE ARE NO COMPLEX INVEST MENT DECISIONS. THE DIRECTORS HAVE NOT RECEIVED SALARY OR PERKS AND THE RE WAS NO MARKET RESEARCH. 12. THE CIT(A) AFTER CONSIDERING THE SUBMISSIONS O F THE LD. A.R. HELD THAT THE CONTENTION THAT THERE WAS NO DECISION MAKING IN VOLVED IN THE INVESTMENT ITS MAINTENANCE AND PROBABLE DISPOSAL IS NOT ACCEP TABLE. INVESTMENT DECISIONS HAS TO BE TAKEN AND SOME AMOUNT OF ADMINI STRATIVE AND MANAGERIAL EXPERTISE IS DEFINITELY ATTRIBUTABLE TO SUCH INVESTMENT DECISION. SO SOME AMOUNT OF ADMINISTRATIVE EXPENSES HAS TO BE APPOINTED TO THE DIVIDEND INCOME WHICH COMES OUT OF SUCH INVESTMENTS . HE HOWEVER DID NOT AGREE WITH THE METHODOLOGY ADOPTED BY THE AO TO WOR K OUT THE EXPENDITURE TO BE DISALLOWED. IN HIS VIEW THE DISALLOWANCE OF RS. 3 98 701/- WILL BE ADEQUATE WHICH IS ROUGHLY ABOUT 3% OF THE DIVIDEND INCOME AND DISALLOWANCE OF RS. 3 98 701/- WAS CONFIRMED. ITA NO.387/MUM/2009(A.Y.2004-05) 6 13. IT HAS TO BE MENTIONED THAT 3% OF THE DIVIDEND INCOME WILL ONLY BE A SUM OF RS. 36 177/- AND NOT RS.3 98 701/- AS MENTIO NED IN THE ORDER OF THE CIT(A). IN FACT THE CIT(A) IN AN ORDER UNDER SECTI ON 154 DATED 15/12/2008 HAS ALREADY RECTIFIED THIS MISTAKE. WE ARE OF THE VIEW THAT THE DISALLOWANCE UNDER SECTION 14A SUSTAINED BY THE CIT(A) IS VERY R EASONABLE. ADMITTEDLY THERE WAS NO DIRECT EXPENSES LIKE INTEREST ON BORRO WINGS ETC. THE DISALLOWANCE OF EXPENSES IS ONLY WITH REGARD TO GEN ERAL ADMINISTRATIVE EXPENSES. WE THEREFORE CONFIRM THE ORDER OF THE CIT(A) AND DISMISS GROUND NO.4 RAISED BY THE REVENUE. 11. IN THE RESULT THE APPEAL BY THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON TH E 29 TH DAY OF JULY 2011. SD/- SD/- (R.K.PANDA ) (N.V.VASUDEVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI DATED. 29 TH JULY.2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3 . THE CIT CITY CONCERNED 4. THE CIT(A)- CONCERNED 5. THE D.RA BENCH. (TRUE COPY) BY ORDER ASST. REGISTRAR I TAT MUMBAI BENCHES MUMBAI. VM. ITA NO.387/MUM/2009(A.Y.2004-05) 7 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 20/7/11 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 21/7/11 SR.PS/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 THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER