2019 (9) TMI 1258 - AT - Income Tax

Tribunal allows business expenses, sets aside capital loss claim for recomputation under section 46(2)

Deputy Commissioner of Income Tax, Circle-4 (2), Kolkata Versus M/s. Turner Morrison Limited And (Vice-Versa)

The Tribunal condoned the delay in filing the Cross Objection by the assessee and classified service charges as business income, allowing the claimed ... Deduction on account of various expenses - HELD THAT:- As the issue involved in the year under consideration as well as all the material facts relevant thereto are similar to that A.Y. 2009-10, we respectfully follow the order of the Tribunal for A.Y. 2009-10 [2018 (9) TMI 785 - ITAT KOLKATA] and restore the order of the Assessing Officer treating the income received by the assessee by way of service charges as income from house property. We also restore the issue relating the allowability of various expenses claimed by the assessee to the file of the Assessing Officer for deciding the same afresh as per the same direction as given by the Tribunal for A.Y. 2009-10. Long-term capital loss - disallowance of capital loss arising from the extinguishment of its interest in the shares of SSPL on liquidation - HELD THAT:- The assessee-company having received money as shareholder on the liquidation of a Company, sub-section (2) of section 46 is clearly applicable and the capital gain or loss is required to be computed by applying the said provision. Contention that the money was actually received by the assessee on 14.05.2008 and the capital gain or loss, if any, arising to the assessee was required to be computed as per the provisions of sub-section (2) of section 46 in A.Y. 2009-10 and not in the year under consideration, i.e. A.Y. 2010-11 - In the present case, SSPL was liquidated vide order dated 06.11.2009 and the order for strike off (liquidation) of SSPL having been passed on 09.11.2009, we are of the view that the capital gain or loss arising from receipt of money by the assesese-company as a shareholder on the liquidation of a Company was chargeable to tax as per section 46(2) in the year under consideration, i.e. A.Y. 2010-11. We, therefore, set aside the impugned order of the ld. CIT(Appeals) on this issue and restore the matter to the file of the Assessing Officer to re compute the capital gain/loss chargeable to tax in the hands of the assessee-company as per the provisions of section 46(2). Ground No. 2 of the Revenue’s appeal thus is treated as allowed for statistical purposes. Issues Involved:1. Delay in filing Cross Objection by the assessee.2. Classification of income from service charges.3. Allowability of various business expenses.4. Claim of long-term capital loss on liquidation of a subsidiary.Detailed Analysis:1. Delay in Filing Cross Objection by the Assessee:At the outset, the Tribunal noted a delay of 960 days in filing the Cross Objection by the assessee. The assessee filed a petition seeking condonation of the delay, supported by an affidavit affirming the relevant facts on oath. The Tribunal was satisfied that there was sufficient cause for the delay and condoned it as there was no objection from the Department.2. Classification of Income from Service Charges:The primary issue was whether the service charges received by the assessee should be classified as 'income from house property' or 'business income.' The assessee, engaged in letting out property, financing, investment, and trading in shares, declared service charges of Rs. 86,76,000/- as business income and claimed expenses aggregating to Rs. 2,79,28,000/- as business expenses. The Assessing Officer (AO) treated the service charges as income from house property due to the lack of supporting agreements or documents and disallowed 40% of the expenses claimed. The CIT(A) reversed this decision, treating service charges as business income and deleting the disallowance of 40% of legal and professional expenses and office maintenance expenses, following the decision for the preceding year.3. Allowability of Various Business Expenses:The Tribunal found that the issue was covered by its earlier order for A.Y. 2009-10, which required the AO to reconsider the classification of service charges and the allowability of business expenses. The Tribunal restored the AO's order treating service charges as income from house property and directed the AO to re-examine the allowability of business expenses, considering the temporary suspension of business activities and the necessity of expenses for maintaining corporate status.4. Claim of Long-Term Capital Loss on Liquidation of a Subsidiary:The assessee claimed a long-term capital loss of Rs. 7,25,08,426/- on the liquidation of its subsidiary, Shalimar Singapore PTE Limited (SSPL). The AO disallowed this claim due to the lack of clarity on the receipt of Rs. 1,23,22,005/- and the transfer process. The CIT(A) allowed the claim, noting that the investment in SSPL was liquidated, and the amount received was full and final settlement for the shares, constituting a transfer under section 2(47) of the Act. The Tribunal, however, found that the provisions of section 46(2) were applicable, requiring the capital gain/loss to be computed based on the money received on liquidation. The Tribunal set aside the CIT(A)'s order and restored the matter to the AO for recomputation under section 46(2).Conclusion:The Tribunal allowed both the Revenue's appeal and the assessee's Cross Objection for statistical purposes, directing the AO to reconsider the classification of service charges, the allowability of business expenses, and the computation of capital gain/loss on liquidation of the subsidiary. The order was pronounced in the open Court on July 26, 2019.